Traditionally, the road projects were financed only out of the budgetary grants and were controlled/supervised by the Government. The road sector has attracted very limited private sector participation in the past. While the traffic has been constantly increasing at a rapid pace, the traditional system of financing road projects through budgetary allocations has proved to be inadequate. It was in this context that the necessity for exploring the innovative means of financing the highly capital intensive road projects was felt.

The beginning of a significant private sector participation in road projects was made with the launching of India's largest road project - National Highways Development Project (NHDP). To encourage private sector participation, several initiatives have been taken by the government

which include:

• Declaration of the road sector as an industry.
• Provision of capital subsidy up to 40% of the project cost to make projects commercially viable.
• 100% tax exemption in any consecutive 10 years out of the first 20 years of a project.
• Provision of encumbrance free site for work, i.e. the Government shall meet all expenses relating to land and other pre-construction activities.
• Foreign Direct Investment up to 100% in road sector.
• Easier external commercial borrowing norms.
• Higher concession period, (up to 30 years).
• Right to collect and retain toll.

Projects undertaken by the Ministry under Public/Private Partnership BOT (Toll) Scheme

• In a BOT project, the concessionaire (private sector) is required to meet the upfront cost and the expenditure on annual maintenance. The concessionaire recovers the entire upfront cost along with the interest and a return on investment out of the future toll collection.
• BOT (Toll) Scheme : As on April 2007, 79 projects have been taken up valued about Rs.22,249 crores with a length of about 3,613 kms on Build Operate and Transfer (BOT) basis (Toll based projects). Out of this, 29 projects have been completed and 50 projects are under progress.

BOT (Annuity) Scheme

• In an Annuity project, the concessionaire (private sector) is required to meet the entire upfront cost (no grant is paid by the client) and the expenditure on annual maintenance. The concessionaire recovers the entire investment and a pre-determined cost of return, out of the annuities payable by the client. The tolling is done by the client.
• BOT (Annuity ) Scheme: As on April 2007, 24 projects valued about Rs. 9,205.61 crores, with a length of about 1,340 kms have been taken on Annuity basis and out of this 8 projects have been completed.

Central Road Fund

The Central Government has created a dedicated fund, called Central Road Fund from collection of cess from petrol and diesel. Presently, Rs. 2 per litre is collected as cess on petrol and High Speed Diesel (HSD) Oil. The fund is distributed for development and maintenance of National Highways, State roads, rural roads and for provision of road overbridges/underbridges and other safety features at unmanned railway crossings as provided in Central Road Fund Act, 2000.

Out of the cess of Rs. 2 per litre levied, Rs. 1.5 is being allocated in the following manner:

1. 50% of the cess on high speed diesel (HSD) oil for development of rural roads.
2. 50% of cess on HSD and the entire cess collected on petrol are allocated thereafter as follows:
   
   
1. An amount equal to 57.5% of such sum for the development and maintenance of National Highways;
2. An amount equal to 12.5% for construction of road under or over bridges and safety works at unmanned railway crossings; and
3. An amount equal to 30% on development and maintenance of State Roads. Out of this amount, 10% shall be kept as reserved by the Central Govt. for allocation to States for implementation of State road schemes of inter-state connectivity and economic importance to be approved by the Central Government.
   
   
3. Balance cess of Rs. 0.5 per litre is entirely allocated for development and maintenance of National Highways.
An allocation of Rs.12,830 crores has been made under the CRF for 2007-08 with the following break-up:



1.	National Highways	6541.06 Cr.
2.	Rural Roads	3825.0 Cr.
3.	Railways	724.69 Cr.
4.	Grant to State Governments and UTs for State roads	1565.32 Cr
5.	Grant to States & UTs for Roads of Inter-State Connectivity and Economic Importance	173.93 Cr.
	Total	Rs. 12830.00 Cr.

State Sector Roads

Since the State Highways and major district and rural roads are the responsibility of respective State governments, these are developed and maintained by various agencies in States and Union Territories. However, the funds are also being provided from the Central Road Fund (CRF) by the Union Government for the development of State roads under the following schemes:

• Improvement of State Roads from the CRF
  
  The funds from the CRF are provided for improvement of State roads other than rural roads. During the year 2006-07, 605 proposals amounting to Rs.1,541.93 crore have been sanctioned for improvement of State roads under CRF. An amount of Rs. 1,565.32 crore has been allocated for the year 2007-08 for improvement of State roads under CRF.
  
  
• Economic Importance & Inter State Connectivity Scheme
  
  To promote inter-state facilities and also to assist the State governments in their economic development through construction of road bridges between states and of economic importance, Central Government provides 100% grant for inter-state of connectivity projects and 50% grant for projects of economic importance. This fund is also provided from the CRF.
  
  During the year 2006-07, 14 proposals amounting to Rs.103.32 crores with Central share of Rs. 51.66 crore under EI scheme and 41 proposals amounting to Rs. 239.87 crore under ISC scheme have been accorded in-principle approval by the Ministry. An amount of Rs. 173.93 crore (Rs. 164.93 crore for the States and Rs 9.00 crore for UTs) is earmarked under this scheme for the year 2007-08.
  
  
• Rural Roads
  
  Roads are also being developed in rural areas under the Pradhan Mantri Gram Sadak Yojana (PMGSY). The objective of PMGSY is to link all villages with a population of more than 500 persons with all-weather roads by the year 2007. This is being implemented by Ministry of Rural Development.
  
  
• Bharat Nirman Yojana
  
  To upgrade rural infrastructure, the Government has formulated a proposal for providing the road connections to more than 38,484 villages above 1000 population and all 20,867 habitations above 500 population in hilly and tribal areas. To achieve the targets of Bharat Nirman, 1,46,185 kms. of road length is proposed to be constructed by 2009. This will benefit 66,802 unconnected eligible habitations in the country. To ensure full farm-to-market connectivity, it is also proposed to upgrade 1,94,132 kms. of the existing Associated Through Routes. A sum of approximately Rs. 48,000 crore is proposed to be invested to achieve this.
  
  
• Research and Development in Road Development
  
  The main thrust of research and development (R&D) in the roads sector is to build a sustainable road infrastructure comparable to the best roads in the world. The various components of this strategy are improvement in design, modernization of construction techniques, introduction of improved material conforming to latest trends, evolving better and appropriate specifications, encouraging development and use of new technologies etc. The dissemination of these matters is done through the publication of new guidelines, code of practices, instructions/circulars, compilation of state-of-the-art reports and seminars/presentations etc. The research schemes sponsored by the Department are generally 'applied' in nature, which, once completed, would enable them to be adopted by user agencies/departments in their work in the field. The areas covered are roads, road transport, bridges, traffic and transportation techniques etc. The Department takes the help of various research institutions, academic institutions and universities to implement the schemes. An outlay of Rs 600.00 lakh has been provided for R&D in 2007-08. Some of the ongoing major schemes are as follows:
  
  
  1. Roads:
     1. Development of GIS based National Highways information system;
     2. Guidelines for soil nailing techniques in highway engineering;
     3. Pilot study on effects of overloading on road infrastructure;
     4. Investigation on field performance of bituminous mixes with modified binders;
     5. R&D Studies on performance evaluation of rigid pavements on high density traffic corridors using instrumentation supported by laboratory tests.
        
        
     In addition to the above, the proposal of IIT, Roorkee for establishment of the Ministry's Chair in the institute in the area of development of Highway System has also been approved.
     
     
  2. Bridges: Creation of complete range of independent testing facility at Central Road Research Institute (CRRI ), New Delhi