Extracts of Interview with M/O Road Transport & Highways to Biz@india on 05.01.11

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“France is a key partner”

Union Minister of Road Transport & Highways, Kamal Nath, is a consummate politician. When Nath, who held the key portfolio of Commerce and Industry in the last UPA government, was named by Prime Minister Manmohan Singh to take charge of the ministry of road transport, it was clear Nath faced a formidable challenge. However, known for his sharp, shrewd and dextrous moves, Nath took the challenge head on and has embarked upon a mission to make 20 km of national highways a day. This would be achieved through a mix of foreign investors as well as induction of technology. Just before visiting Paris to attract French investments in roads, Kamal Nath met with Ranvir Nayar and outlined the challenges and projects he has in mind.

Even though France has a long experience of constructing, operating and maintaining the world's largest autoroute network, what has kept French companies from really being active on the Indian scene? The objective of my visit and meetings is to sensitize the French companies about the potential of the highways sector in India and toinvite them to participate in the sector which promises high returns. By conservative estimates road sector investors in project equity stands to gain between 15% to 21% return. If investors have a higher risk appetite and can stomach higher leverage on equity than the standard 70:30, then the returns could be higher. If the investor can put in superior project management skills, return expectation can be pegged higher. With Indian economy showing sustained growth and rupee’s expected appreciation vis-à-vis other currencies such us Euro and US Dollar, the returns through currency appreciation can by itself be quite rewarding. Combine all these and I am convinced that no investor will be disappointed by investing in the road sector inIndia.

What needs to be done to bring them to do serious business with India and how do you plan to achieve this objective? What are the incentives/ attractions that your ministry is offering to attract investors in this field? As mentioned earlier, the returns from the highways sector are attractive. I am sure we would be able to remove the apprehensions, if any, in the minds of French investors to come and invest in India. We have carried out changes in our bidding documents such as MCA, RFQ, and RFP so as to make them more favourable to the investors. At present we have about 25-30 medium - large construction companies, we intend to raise it to 100-125.

There are several incentives which are being offered by the Indian government to attract foreign investors. We provide an efficient and hassle free investment environment in the country. Also as per the extant FDI policy, FDI up to 100%, on the automatic route, is permitted in construction and maintenance of Roads and Highways. For FDI under automatic route, the investors do not require any prior approval of the Government (FIPB) or Reserve Bank of India.
The issue of land acquisition has raised some concerns. I want to assure all the investors that we have full support of state government in this effort. 80% of land acquisitions are to be completed before projects are put up for bidding and remaining 20% notified. In order to expedite land acquisition NHAI is setting up more than 170 special land acquisition units in various States. Land acquisition time is also now reduced from present 18 months to 8 months. Land is not a contentiousissue as far as roads are concerned as the requirement of land for such projects is just 10-20 mt. Roads bring development so this is not a cause of concern.

We plan to construct 7000 km of highways a year and we are already at 12 km a day and I think by the end of next year we will be hitting our target of 20 km a day

Besides this, 100% tax holiday is available for those who are engaged in development of roads and highways. Such tax holiday can be availed for any consecutive period of 10 years within a block of 20 years starting from the year when the person starts developing the roads/highways.

What does the visit of French President Nicolas Sarkozy to India mean to the bilateral ties? France has been a very important political and strategic partner and the visit of President Sarkozy has nurtured this relationship and added momentum to convergence of India and France not only bilaterally but also towards a common vision of the world.

Basic Facts

• • Indian Road network 2nd largest in the world
• • Road network carries 70 % of the freight traffic and 85 % of passenger traffic
• • Traffic on roads growing at the rate of 7 to 10% while vehicle population growth is 12 %
• • Auto sector in the country is booming with an impressive growth of about 37%
• • National Highways account for just 2% of the roads but carry 40 % of the total traffic
• • NHDP –World’s largest PPP road development programme

What scope do you see for the overseas collaboration in Indian road development programme ? As India continues on its growth trajectory, the biggest challenge is to meet the infrastructure deficit. In India, growth has preceded infrastructure development and that’s why we have such a big infrastructure deficit and within this, the deficit in roads stares at us in our face, leading to added transactional costs, leading to impact onagriculture, trade and the industry. We have huge plans in this sector and we are not building for the future but really trying to catch up for the past because the challenge is so large. We plan to construct 7000 km of highways a year and we are already at 12 km a day and I think by the end of next year we will be hitting our target of 20 km a day. In this we look at France in its expertise in construction and maintenance of highways, the tolling, management of highways. We are looking at collaboration with France for best practices and I am sure this is yet another emerging partnership between India and France which will soon become the pillar of this relationship.

So far the participation of France in this sector in India has been below par, why? It has been below par so far as the French companies had not shown interest since the projects were not very large. But now the projects are very large and the scope is very large so now we are seeing a lot of interest from the French companies. Now that interest has to translate into some real projects on the ground which will happen. France has huge experience, especially in tolling and this will be the pattern for India. But tolls in France are most expensive in Europe or the world, how can ensure that the same things don’t happen here? Well the toll rates have to keep in touch with the market realities here and what traffic can bear. In India, we exempt agricultural traffic and district traffic from toll. It is really the long haul commercial traffic that will provide the income and with 35 pc growth in auto sector every year, we don’t see a shortage in traffic and toll income.

We provide an efficient and hassle free investment environment in the country.

What are the challenges that you face? Our biggest challenge is to build capacity to manage this huge programme. We have got to build up our internal capacities to manage this huge construction programme and institution building within thegovernment and the National Highways Authority of India or NHAI, the apex body for carrying out the entire road development programme across the country.

What about the external challenges? External challenges are shortage of consultancies and shortage of engineering expertise. We need lots of consultants to prepare feasibility studies and the Detailed Project Reports. Moreover, in India the topography and the climate are very diverse and so a road in one part of the country is very different from another part. It is very different where there is dense population somewhere to somewhere with sparse population. India has mountains, forests, deserts, lakes, rivers, oceans etc. These are issues that impact any strategy of road building as there is no one-size-fits-all. What the current tasks ahead for you? In India roads is not merely an issue of just connectivity. It is a very imp domestic economic stimulus and a very important part of my agenda towards inclusive development. A road touches all sections of society, passes through all highly developed, developed, underdeveloped, backward and very backward districts of the country itimpacts agriculture, industry and trade. So in India roads are not perceived just for users or connectivity, it generates rural employment and industrial growth and that is a very important aspect of this. The challenge today is to create connectivity between our state capitals, large cities with over 2 million population, connect them to existing national highways and connect one highway to another and the task in this is phenomenal. So we set a target of 7000 km of NH per year and once we have done about 30,000 km it will create a visible difference in the country the impact of which will be felt in rural India, in urban India, from north to south and from east to west of India and that is the imp part. In the 1990s and early 2000, it was the decade of IT the next decade is going to be the decade of infrastructure, whether it is roads, power, ports, airports, the most important will be roads because you can have airports but you need road connectivity, you can have ports but you need road connectivity. So this is the most important part of theinfrastructure development has to be roads and so in this decade of infrastructure development, we are addressing all the challenges that we confront.

Is this sector attractive for overseas investors? India still remains a very important investment destination. India continues on a growth trajectory backed by its strong fundamental economic indicators and India will be a very important parking lot forinvestments and best investment is in the roads as it already has the market. The number of people, the increasing urge to move, the development of agriculture and industry, the booming auto industry. All this represents market for roads. I am looking at a foreign investment of $70 bn in roads over the next 2-3 years. We are also looking for best practices. So we will be looking at the European countries like France for their best practices, their technology and their experience. We are also looking for consultants and expertise. There is a huge deficit of knowhow and adequate trained persons for meeting the demand that we have. So we need to have a huge capacity building in terms of all these aspects. So we will be looking closely at Europe to see how we can cooperate with them.

Attracting Strategic Investment in India-Incentives

Domestic Companies
Taxed at worldwide income

• • Taxed at 30%
• • If taxable income >INR 10,000,000;
• Surcharge applicable @ 10% of tax (surcharge @ 7.5% proposed by budget 2010 from AY 2011-2012)
• . • Education cess of 3% of tax (and surcharge if applicable)
• • Dividend Distribution Tax (DDT) is levied @ 16.995% (16.609% proposed by Budget 2010 from AY 2011- 12) on the amount of dividend declared.

Foreign Companies
Taxed at income which is earned from a business connection in India or from a source/asset located in India

• • Taxed at 40%
• • If taxable income > INR 10,000,000; Surcharge applicable @ 2.5% of tax.
• • Education cess of 3% of tax (and surcharge if applicable)
• • No Dividend Distribution Tax (DDT)

How will you go about attracting all this investment? Well I think the foreign companies need to be sensitized on the enormity of the entire road and highway construction programme that India has embarked upon. Already, the fundamentals are very strong in India. They just need to focus. So I need to ensure that the foreign investors are focusing on India and on this sector. ■