BackHow the Centre exceeded highway construction aim
Government measures like providing bank guarantees to contractors helped with steady cash flow, while speeding up of payments and clearing dues, ensuring availability of land upfront also helped accelerate road construction
PremiumThe ministry of road transport and highways exceeded its highway construction target for the fiscal year 2021 despite the pandemic-led disruptions and nationwide lockdown during the first quarter when construction activity came to a standstill. Around 13,000 km of highways were built in FY21 or 37 km per day. In comparison, the target for 2019-20 was 11,000 km.
How did the ministry manage to exceed the target amid covid-led lockdown?
The ministry initiated a slew of relief measures, which helped it exceed the target, including the shift from milestone-based billing (typically 45-75 days) to monthly billing and release of retention money or performance security in proportion to the work already executed. The initiatives helped in reducing the cash conversion cycle while also getting performance guarantees and associated margin monies released for the executed portion of the projects.
“Notwithstanding the high cost of re-mobilizing labour, many road contractors made special arrangements to facilitate the return of labour due to improved cash conversion cycle from the ministry and NHAI (National Highways Authority of India) projects. Ably supported by the liquidity boosting measures by the ministry and NHAI, the execution saw a sharp increase," said Rajeshwar Burla, vice-president, ICRA Ltd.
How did the ministry construct roads during the lockdown, when economic activities were halted?
The strictest part of the lockdown, between March and July, took place just before or during the monsoon when construction work is typically very limited. Economic activity started picking up from August-September when road construction restarted. Government measures, such as bank guarantees for road contractors, which ensured steady cash flow, fast-tracking payments and clearing pending dues, besides ensuring availability of land for road construction projects, aided construction activity.
“NHAI acted as a facilitator for bank guarantees and payments while any kind of disputes (involving contractors) was resolved," said Jagannarayan Padmanabhan, practice leader and director of transport and logistics sectors, Crisil Ltd. “So, the contractors had to just mobilize people for these road projects (as everything else was handled by the government)," he added.
What were the critical aspects that helped the central government exceed its target?
The government focused on making land available to contractors. It was also successful in channelling funds, and making timely payments and clearing dues, and facilitating payments that helped contractors achieve better cash flow to finish projects on time. Also, traffic on national highways recovered to pre-pandemic levels after the lockdown was lifted, while rail and air passenger traffic remained sluggish. The ministry was also able to ramp up road projects ahead of the deadline as all fund-related challenges of contractors were addressed by the ministry, and the contractors, in turn, had to mobilize construction workers to complete the projects.
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