India sees road building as route to boost fuels

By John Kemp

LONDON, May 18 (Reuters) -- India has embarked on a massive road construction program that both reflects and will stimulate increased ownership of cars and motorcycles and drive continued rapid growth in gasoline and diesel consumption.

India has the second-largest road network after the US, with 5.23 million km of roads, of which 3.17 million are surfaced.

The country's network has expanded at a compound annual rate of around 4%, which has added more than 4.8 km of additional roads since 1951, but even so the network remains badly underdeveloped.

National highways, the arterial roads connecting state capitals, ports and rail junctions, which the government calls the "economic backbone of the country", carry 40% of passenger and freight traffic but account for just 79,000 km, or 1.5% of the total.

State highways, which provide trunk connections within India's states and territories, account for a further 170,000 km (3%). Urban roads add another 450,000 km (9%).

But the majority of the network consists of rural roads, stretching for 3.2 million km, some 60% of the total. More than 60% of the rural road network is unsurfaced.

In theory, India's network is better than China's or Brazil's and compares favorably with many advanced economies, according to official statistics.

But the fact that so much of it consists of local unpaved roads rather than major freight and passenger arteries is a "point of concern" according to the government.

Poor roads lead to immense problems moving freight between ports and the interior, as well as between different regions and states, holding back national integration and economic growth.

Road building has lagged behind motorization of the country. Between 1951 and 2013, the number of registered vehicles went up by 11%/year, nearly three times as fast as the 4% increase in the road network and five times as fast as the growth of national highways.

Since 2012, the country has embarked on a massive road building program specifically aimed at upgrading the quality of the network.

The total length of the network rose 7.5% in 2012/13, but the number of kilometers of surfaced highway soared 17.5%.

The massive road building program continued in 2013/14 and 2014/15.

Thousands of extra kilometers of surfaced national highways are under construction as well as a host of smaller state highways and rural roads.

Road building and upgrading is essential to the government's vision for economic modernization as well as providing short-term stimulus.

According to the government: "(The) road network is vital for sustained and inclusive growth of the economy. It facilitates the movement of passengers and freight across the country. It promotes efficiency in the economy by minimizing total transportation cost in terms of economies of production, distribution and consumption."

In many ways, India is attempting to replicate the transformational impact of the US interstate highway system launched by the Eisenhower administration in 1956.

Past experience from the US and other advanced economies suggests massive highway construction will promote the creation of a more integrated national economy and increase freight and passenger traffic further.

That will in turn spur further rapid growth in the country's oil consumption, especially transport fuels such as gasoline and diesel.

India's oil consumption has grown at an average annual rate of 5% over the last decade, hitting 4 MMbpd in 2015/16.

The country is currently the world's fourth-largest oil consumer behind the US, China and Japan, and is set to overtake Japan for the third slot in the next 12-18 months.

Given how few motor vehicles the country currently has per head of population, and how underdeveloped the road network remains, there is enormous potential for growth in oil consumption over the next 10-15 years.

India's oil consumption is projected to grow by 3%/year, more than doubling from 3.6 MMbpd in 2012 to 8.3 million by 2040, according to the US Energy Information Administration.

India is set to join China as the most important source of global oil demand growth over the next two decades.