India’s Ministry of Road Transport and Highways (MoRTH) has introduced stricter AdditioShahberi Drain Road Project to Ease Trafficnal Performance Security (APS) requirements for road projects awarded under the Hybrid Annuity Model (HAM), aiming to curb reckless bidding practices and ensure better project execution.
While this move is seen as a step in the right direction, experts caution that it may not be sufficient to address the underlying issues plaguing the sector. The new policy removes the cap on APS requirements, allowing for higher security deposits from contractors who submit aggressively low bids. This change is intended to discourage unrealistic bidding and promote more responsible project planning. However, analysts from CareEdge Ratings argue that tightening APS norms alone cannot fully mitigate the persistent challenges in the road construction sector.
One of the primary concerns is the ease with which financially strong sponsors can access non-fund-based bank guarantees, which may not provide the same deterrent effect as cash-backed securities. Additionally, the practice of releasing performance security based on project progress, rather than the actual quality of construction, weakens the intended impact of APS in curbing bidding aggression. The competitive landscape in the road construction sector has intensified, leading to strategic underbidding by contractors eager to secure projects.
This has resulted in a rise in project delays and cost overruns, undermining the government’s infrastructure development goals. CareEdge Ratings forecasts a 7-10% decline in the pace of national highway construction in FY25, with the construction rate expected to slow from 12,350 km in FY24 to an estimated 11,100-11,500 km in FY25. Furthermore, systemic issues such as delays in land acquisition, inadequate coordination among stakeholders, and challenges in obtaining statutory clearances continue to impede timely project execution.
The standard construction period of two years, regardless of project complexities, has also contributed to the elongation of project timelines. While MoRTH’s initiative to align project approvals and appointed dates with land and statutory clearances is commendable, the success of these reforms hinges on effective implementation and coordination among central and state agencies, contractors, lenders, and other stakeholders. Experts suggest that a multi-pronged approach is necessary to ensure the long-term health and accountability of the road construction sector.
This includes combining financial safeguards like APS with transparent prequalification processes, stricter project monitoring, and enhanced quality control measures. Only through comprehensive reforms can India achieve its ambitious infrastructure development goals while ensuring sustainability and accountability in the sector.
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