India's National Highways Authority is paying three times more for land-- and that may slow down new projects

• The cost per hectare for land acquired by NHAI has jumped to nearly ₹2.8 crore this year from ₹9 crore just before the latest land act was passed.
• The cost of acquiring land makes up for a quarter of the total capital needed for highway construction.
• Highway construction has more than doubled to over 10,000 kilometres a year in financial year 2019.
• The higher cost of land acquisition threatens to slow down new projects as NHAI's debt has piled up.

Roads and highways have been among the fastest growing segments in the Indian economy. The rapid pace has also driven up the cost of land acquisition and now, the National Highways Authority of India (NHAI) may step on the brake.

The cost per hectare for land acquired by NHAI has jumped to nearly ₹2.8 crore this year from ₹9 crore just before the latest land act was passed four years ago, according to a Kotak Institutional Equities report last week. And as the cost of land increased, the amount of land acquired has fallen anywhere between 15-20% per kilometre (km) of road completed.

Meanwhile, toll collection from traffic has grown half as much, at the rate of 10% every year, in the last four years. The higher cost of land, along with lack of funds and risk appetite among lenders, may slow down the pace of road construction this year, according to CARE Ratings.

Annual highway construction and expansion had increased from 4,410 km in financial year ending March 2015 to 10,800 km at the end of March 2020.


The laws for land acquisition mandate higher compensation to land owner-- market value of land in urban areas and up to double the market value in rural areas. In addition, a 100% solatium (additional payment) has to given to the land owner. Now, land cost makes up for over a quarter of the cost for a highway project.

This has led to pile up of debt at NHAI -- to ₹1.78 lakh crore from ₹40,000 crore five years ago. The contingent liabilities-- dues that may arise out of uncertainties-- are twice as much, at about ₹3 lakh crore, according to media reports. This has reportedly led to some discomfort at the highest office in the country, that of Prime Minister Narendra Modi.

While Nitin Gadkari, the minister of Roads and Highways, has denied any stress on the NHAI. “There is no problem. The government is giving about ₹90,000 crore ($12.8 billion) as budgetary support to NHAI. That is with us,” he told the media last week. At the bare minimum, when the cost of land escalates, it leaves lesser money on the table for construction. And that's not something private contractors like to hear.

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