Tuesday, February 22, 2011

Private infrastructure in India doomed by politics

The fast road that connects south Delhi with the sprawling new urb of NOIDA is an excellent example of what the infrastructure of brave new India should be - designed with plenty of headroom for growth, well-maintained, and above all, funded by capital that is serviced by user fees. Sort of.

Last week, NOIDA Toll Bridge Company, a listed company that operates the road, set out a new tariff, that raised the one-way fee for cars from Rs. 20 to Rs. 25. There was a storm of protests, the toll road was blocked by agitators, who threatened to close it down for an indefinite period, and management relented.

Returns on the toll road were below projections in its early years, and the UP state government responded by awarding some real estate concessions to the operator. Now that traffic on the facility is healthy, the capital should be serviced by user fees that keep pace with inflation. Compared to average driving speeds in Delhi, the seamless 7 km. transit to NOIDA saves at least 15 minutes of driving time. In my reckoning, any one who owns a car should be more than happy to pay Rs. 25 for this time-saving alone - that's Rs. 100 per hour.

In India, however, politics, especially the politics of appeasement, always trumps economics, and the tariff for cars is back down to Rs. 20. There goes the Internal Rate of Return (IRR) of the project. This is a horrible signal for those seeking to invest in infrastructure in India, especially at a time when our government is clearly signalling that it has neither the capital, nor the management ability to create modern facilities for a rapidly growing nation.


  1. hi mohit,
    ur comment is bang on! i have exactly the same opinion..am invested very heavily in this scrip for the last five years.trust me when i read about the hike i was almost sure it would be rolled back or reduced..we indians want world class infra....but free!!..am from mumbai..here though people value time more than anything ...so happily pay toll for e.g. the mumbai sealink has a toll charge of rs 50 (one way)and will be soon raised to rs 65...but am sure those who want to save time will pay up...when will sense dawn that when u want something good in a capitalist system you have to pay for it!! iqbu1966@gmail.com

  2. Right on, Mohit. However, the toll road operators can find other revenues as toll rates are always heavily politicized. One possible revenue is to allow billboards and ads along the rollroad. Or lease some space along the rollroad for gas stations, restaurants, etc.