Highway tolls need a smart retuning
The user-pays principle for determining highway toll rates is efficient and has significantly widened India's road network over the past three decades since the formula has been in operation. The fee is important because it provides lenders with visibility into debt-funded highways, and improvements to its design should contribute to faster infrastructure development. What users end up paying is set by a combination of factors that identify the value they derive. The size of a vehicle, the weight it carries and the owner's willingness to pay contribute to the formula of any toll, as they should. This, however, assumes the value derived remains static over the lifespan of a highway, which is not the case.
Conditions of a highway change over the course of the concession period as the operational environment alters. Congestion and maintenance also contribute to the value proposition of using a toll road, and these factors need to be incorporated into fee determination. The move to bring these variables into the pricing equation is overdue, as the original formula can be improved upon. GoI's reference to economic researchers to come up with a new, improved version is welcome. A more sophisticated model will improve resource allocation and drive economic growth. Along the way, it could also fix some of the roadblocks confronting the financing of highways in the country.
Getting the highway user fee right has a bearing on tax-funded roads, which need to increase their network parallelly. Improvements to the overall efficiency of the road network should help lower logistics costs and sharpen India's competitiveness among Asia's export-oriented economies. Since manufacturing is critical to the economic transformation policymakers are targeting over the next few decades, deriving market-clearing, administered pricing of infrastructure services is key. The financial market should become more comfortable about how India goes about funding its infrastructure for more capital to be drawn in. A revision of the highway user fee pricing formula is about making the business of creating infrastructure easier.
Conditions of a highway change over the course of the concession period as the operational environment alters. Congestion and maintenance also contribute to the value proposition of using a toll road, and these factors need to be incorporated into fee determination. The move to bring these variables into the pricing equation is overdue, as the original formula can be improved upon. GoI's reference to economic researchers to come up with a new, improved version is welcome. A more sophisticated model will improve resource allocation and drive economic growth. Along the way, it could also fix some of the roadblocks confronting the financing of highways in the country.
Getting the highway user fee right has a bearing on tax-funded roads, which need to increase their network parallelly. Improvements to the overall efficiency of the road network should help lower logistics costs and sharpen India's competitiveness among Asia's export-oriented economies. Since manufacturing is critical to the economic transformation policymakers are targeting over the next few decades, deriving market-clearing, administered pricing of infrastructure services is key. The financial market should become more comfortable about how India goes about funding its infrastructure for more capital to be drawn in. A revision of the highway user fee pricing formula is about making the business of creating infrastructure easier.
