Road ministry to seek priority sector lending tag from Reserve Bank of India

NEW DELHI: The road transport & highways ministry will seek priority sector lending tag for the roads sector from the Reserve Bank of India (RBI).

A senior ministry official said National Highways Authority chairman Raghav Chandra and other senior officers will meet RBI Governor Raghuram Rajan on Thursday to push the case.
“Banks and the roads ministry are on the same page that highway projects be considered as priority sector given its multiplier effect on the economy,” the official said, requesting anonymity.

“Also, it is a safe sector as there is a higher traction in terms of toll income.” Priority tag for road projects will help highway developers get greater access to bank funding.

According to the RBI’s priority sector norms, banks have to necessarily provide 40% of their total lending to the sectors so classified.

Rate of interest for priority sector is lower than usual loans. Of the 40%, a minimum 18% has to go to agriculture. Road transport and highways minister Nitin Gadkari has said that 8% interest rate is ideal for infrastructure projects as the cost of buying land has gone up significantly, leading to in crease in the total construction of at least 50%. Gadkari has already taken up the issue of priority sector lending with Finance Minister Arun Jaitley.

“We are giving enhanced compensation in rural areas. Now, the construction cost has to be reduced for projects to be feasible.

Priority sector listing will be able to bring down the capital cost,” another roads ministry official said. On an average, the government spends Rs 10 crore to build 1km of highway.

It has already decided to double highways’ length to 2 lakh km from the existing 1 lakh km.

Over 50,000 km of contracts will be awarded on public-private partnership. To revive languishing projects worth over Rs 30,000 crore, the roads ministry will also ask RBI to allow banks to provide more funds for projects facing cost overruns due to delays.

ET VIEW

Speed, for our road-building
There's a strong case for the priority sector lending tag for rural and district roads. We need to coagulate funds better in our vast hinterland areas. However, for national highways and expressways, where there is already a mechanism for viability gap funding and tolling, priority sector lending would be of secondary importance. More important would be speedy project approvals and clearances, and fast-paced project execution to keep tab on costs. The highway policy would be very much a work-in-progress if it is not able to attract commercial funds on a sufficiently large scale.