Home >opinion >online views >Why India needs an aggressive highways programme

The Indian government has painted itself into a sorry corner, with profligate spending during good times leaving it with very little fiscal space to boost the weak economy. It should now focus on funding programmes that deliver the most bang for the buck, or what economists would describe as the maximum fiscal multiplier. Too much money has already been poured down the drain on populist policies such as fuel subsidies.

One option is roads. The Atal Bihari Vajpayee government launched an ambitious highways programme when the economy was in the midst of an earlier slowdown. The new ribbons of tar and concrete connecting our major cities not only helped highway users, but also generated demand for key inputs such as steel, cement, construction machinery and labour.

There will be other advantages as well. According to a study by Transport Corporation of India, the country could save $12 billion a year in fuel through better roads. This alone has enough potential to substantially reduce the subsidy burden that is weighing down public finances. Also, most of India’s fruit and vegetables rot before they reach urban markets. With better roads, prices of fresh farm produce could drop.

According to a recent study by the World Bank, Impact of the Golden Quadrilateral (GQ) Project on Indian manufacturing, there has been a positive effect on most of the non-nodal districts that lie 0-10km from the GQ network. Such districts saw the entry of more industries and improvement in the productivity of the plants. The GQ project, which was completed in 2007, upgraded the quality and width of 5,846km of roads across India.

A 2008 study by the International Food Policy Research Institute, an international agricultural research centre, points out that government spending on roads has had a significant impact on productivity and helped in the reduction of poverty. It found that for every 10 lakh spent, 124 people escape poverty and that every rupee spent on rural roads yields more than 5 in additional agricultural output.

To be sure, the national highways programme has suffered because of two sets of factors. First, land acquisition problems have derailed some projects. Second, many private developers who have bid for highway projects are under financial stress. So getting the roads programme back on track deserves more policy attention, because new roads not only improve connectivity but will also create demand for other industries and later help raise incomes of communities that are touched by the new highways.

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