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Bad Roads: Are they really ‘bad’? - A Macroeconomic Perspective

Posted in Finance Articles, Total Reads: 6428 , Published on October 03, 2011

This entry is the first prize winner in the MBASkool Article writing Contest held in September 2011

India is the second fastest growing economy in the world and India (also) has the second largest road network. Is it a mere co-incidence? I doubt it, since roads play a big role in the development and progress of any nation. In the Indian context, this is even truer as Indian roads sprawl over 3.3 million kilometres across the length and breadth of the nation.

Bad Roads

Roads, and ‘bad’ roads to be specific, have been key drivers of Indian economy since ages and their significance is further accentuated in this post liberalized India. This may sound weird to a superficial mind. A mind that has not yet attended to the arguments in favour of ‘poor’ roads, and was misled by the onslaught of umpteen vilification campaigns against them, over a period of time, through multiple channels. The need of the hour is to take a dispassionate look at their contribution from a macroeconomic point of view.

Going into this article, I earnestly urge the reader to shun any preconceived notions (I know it will hard to detoxify one’s mind). But it is expected that an objective analysis and application of sound common (economic) sense will absolve the ‘poor’ road, dispel myths rumoured against it, confer it its long due acknowledgement in the service of the nation, and help restore its high esteem.

Manufacturing forms the backbone of Indian economy. According to the latest economic statistics, this sector employs more than 25 million people and contributes a healthy 16% to the 1.5 trillion dollar strong Indian economy. Automotive industry is an integral part of this sector and has been the greatest beneficiary of ‘bad’ roads. If roads are in a ratchet condition, vehicles plying over them are subject to frequent wear and tear. If automobile experts are to be believed, it is reckoned that the average life of a vehicle running on such a surface is effectively reduced by 15%. So, what does this imply? Do consumers drop/defer plans of buying new passenger or commercial vehicles or do they replace them frequently? Financial newspapers, in fact, report that the annual sale of vehicles has gone up by 11.4%.

In addition, this (sym)pathetic state of roads engenders a direct positive impact on the demand for automobile spare parts. In turn, the steel industry (touted as the proxy index for strength of an economy) gets a fillip and tyre manufactures and the associated rubber industry experience a much needed boost. Even a small garage owner benefits, as vehicles keep crowding his service shop for fixing suspensions and repairing punctures. I thus reiterate my thanks to our ‘poor’ roads for the ephemeral life of automobiles, opening pleasant vistas for revenue growth and huge employment generation (in a country of teeming millions) in the manufacturing and associated service sector.

As per the National Highway Authority of India (NHAI), about 65% of freight is carried by roads. This dependence is heavily encashed by our transport companies. They accrue huge benefits from the fact that a vast stretch of roads in India is in a dilapidated state. It thus takes more time to transfer goods from one destination to another resulting in a greater fee per delivery, increased occupancy of trucks throughout the year, a perennial shortage of transport vehicles, leading to a high demand for them and thus a premium demanded on their service. It’s a virtuous cycle which the transport business enjoys owing to only one critical factor in the whole scheme of things viz. ‘poor’ roads. Let’s also have a look at its impact on allied businesses. A situation like this evidently ensures employment for over 5 million truck drivers in India who keep the wheels of the economy moving. This also guarantees that ‘line hotels’ dotting the landscape of 70,548 km of national highways and 1,31,899 km of state highways keep brimming with business all year round, earning a sizable source of income for the countryside.

At this juncture, most detractors would be keen to highlight the issue of increased fuel consumption and the ensuing environmental impact. I pity for them as ‘bad’ roads are made the ‘whipping boy’ for the failure of global scientific community to come up with alternative ‘clean’ fuels. Further, a healthy demand for fuel only engenders a salubrious effect on oil & gas refining and marketing companies, and gives them impetus to undertake more (risky) exploration and discovery exercises. Regarding emissions, it is also observed globally that regions where good roads were built witnessed an exponential rise in the frequency of vehicles. Ceteris paribus, one need not be an economist to figure out which of the two situations is going to have a more debilitating impact on the environment. Here, I am spontaneously reminded of a proverb, “Give a dog a bad name and hang him”.

A disparager will now definitely count the number of accidents occurring on ‘bad’ roads. Let, it be clarified that roads are value neutral and a majority of these accidents are a product of human folly e.g. rash and drunken driving. Blaming accidents on such roads is untenable on the ground that fatal accidents do occur very frequently on roads otherwise glorified as ‘express’ highways.

In India, Lifestyle diseases have already become the number one killer accounting for over 65% of deaths. A report, jointly prepared by the World Health Organization and the World Economic Forum, says India will incur an accumulated loss of $236.6 billion by 2015 on account of unhealthy lifestyles. ‘Bad’ roads are destined to build a healthy India. A daily dose of innocuous ‘rocking’ exercise (read healthy travelling) to and fro, on way to school, college, workplace or market on such roads introduces a fitness regimen in the lives of busy bees who are otherwise hard pressed to dedicate time for a conscious workout. This enriching experience bestows them endurance, strength and stamina, and makes them hardy and agile. The vituperative claims that these bad, dusty roads lead to Asthma and other respiratory diseases is disputable and pale in comparison to the number of diseases that have their origins in automobile emissions running in lakhs per day on the so called ‘good’ roads.

Last but not least, let’s also discuss the opportunity cost of capital of investments on roads. India plans to make a whopping investment to the tune of US$ 50 billion on roads by 2012. I am not discounting the costs of poor connectivity but I am sceptical about the effectiveness of investments on roads. As usual granting of road contracts will remain a vexatious issue, doomed to strengthen contractor-politician nexus, and a loot of the public exchequer spawning new scams, pushing India’s ranking further down on global corruption and honesty indices.

Further, from the Services point of view, the prohibitive costs of travelling on bad roads have indirectly lent support to the rapid adoption and growth of Information and Communication technology (ICT) in every nook and cranny of the country, cutting across socio-economic barriers. These aspired ‘good’ roads will do little favour to this burgeoning sector, which today contributes over 6% to India’s GDP and generates more than 10.5 million jobs.

In the light of these cogent arguments, I strongly recommend that investments should be made on building social infrastructure like schools, colleges and hospitals etc. in regions ‘close’ to localities, in contrast to throwing bad money after bad in a perennial exercise of building and rebuilding fragile ‘connecting’ roads. Nevertheless, the proponents of road building will anyway say, “But, constructive work should go on!”

About the Author

Khalid Kamal Rumi is presently pursuing management education at IIM Indore. He is currently the Editorof IIM Indore Management Canvas, the quarterly business magazine of IIM Indore. He hasaround 3 years of professional experience and has worked with multinationals like SAP andAccenture. He is also the author of an SAP related website that tops Google search: https://sites.google.com/site/kkrumi/sapis-u


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