Highway Investments Drive Rs 3.21 Growth for Every Rupee Spent in India
Investments in highway construction in India have proven to be a major economic driver, with every rupee spent on highway development leading to a remarkable 3.21-fold increase in GDP growth, according to a recent report by the Indian Institute of Management, Bangalore (IIM-B) and the National Highways Authority of India (NHAI). This study sheds light on the far-reaching effects of improved infrastructure, showing how strategic investments in road networks have a multiplier effect on the economy.
Between 2013 and 2022, India saw significant increases in key economic indicators. Household incomes rose by 9%, household expenditure grew by 6%, and car sales saw a notable 10.4% uptick, demonstrating the direct impact of better connectivity. These findings suggest that improved highways are not only transforming logistics but also boosting the purchasing power of households across the country. The report also highlighted a reduction in transportation costs, with the cost of moving goods between factories and suppliers dropping by 2.94%, while costs between factories and customers decreased by 1.33%. These efficiencies contribute significantly to overall economic productivity, lowering the cost of doing business and fostering a more competitive environment for industries.
Jitamitra Desai, a professor of operations research at IIM-B, commented on the study’s findings, noting that highway construction has led to enhanced access to markets, more job opportunities, and a notable reduction in crime rates, accidents, pollution, noise, and traffic congestion. As transportation infrastructure improves, the economic benefits are felt across urban and rural areas alike, helping to optimise the accessibility of agricultural markets and promote the growth of small and medium-sized enterprises (MSMEs). On the policy front, Indian officials are committed to further expanding the highway network to maintain and enhance these economic benefits. Over the last decade, the total length of highways in India has surged by more than 60%, from approximately 91,000 km in 2014 to around 146,000 km in 2023. The government has ramped up efforts to improve the pace of construction, which has nearly doubled from 12 km per day in 2014 to 28.3 km per day in 2023. The PM Gati Shakti initiative, launched in 2021, aims to streamline infrastructure development, integrating the work of various ministries and states to improve connectivity and business competitiveness.
The government’s ambitious plans for highway expansion continue in 2024, with more than 26,500 km of highway projects awarded under PM Gati Shakti and nearly 18,500 km completed. The target for 2025 includes awarding an additional 12,900 km of projects, reflecting a 50% increase compared to the previous year. To secure funding for these expansion plans, the government is exploring a range of innovative financing mechanisms, including public-private partnerships (PPPs) and the use of domestic pension and insurance funds. These funds have a long-term investment horizon that aligns well with the cash flows generated by toll revenues, providing a stable source of financing for the infrastructure projects. Furthermore, capital markets could also be tapped to raise funds, with instruments like infrastructure bonds or toll revenue securitisation being considered. The future of India’s highway infrastructure looks bright, with strategic investments in both construction and maintenance helping to drive economic growth and improve the nation’s connectivity. As road networks expand and become more efficient, the economic multiplier effect of these developments will continue to create jobs, boost household income, and enhance the overall quality of life for millions of Indians.
