Infrastructure development plays a vital role in a country’s economic growth and prosperity. Roads, highways, bridges, and urban transport systems drive productivity, connectivity, and access to markets. However, infrastructure projects require substantial investments, often beyond the fiscal capacity of governments.
Toll financing has emerged as an innovative way to fund major infrastructure initiatives. It involves private sector developers investing in building roads, expressways or transit systems and recovering costs over long periods through toll collection from users. While this model helps accelerate development, understanding toll finance pros and cons is essential to evaluate its impact on governments, investors, and commuters alike.
What Is Toll Finance?
Toll finance is a specialised loan designed to help commercial fleet owners maintain sufficient balance in their FASTags, the mandatory Radio-Frequency IDentification (RFID) based toll payment stickers issued by the National Highways Authority of India (NHAI). Since FASTags enable automatic toll collection on highways, keeping them recharged is essential for seamless transportation.
With toll finance from Shriram Finance, businesses can get upfront funds to pre-load their FASTags, ensuring smooth toll payments without cash flow disruptions. This allows transport operators to focus on operations without worrying about toll-related delays.
Fleet owners can repay the borrowed amount through structured Equated Monthly Instalments (EMIs) over a fixed tenure, making financial management easier while keeping vehicles on the road without interruptions.
Advantages of Toll Financing in Infrastructure Projects
Toll finance plays a vital role in funding infrastructure projects by leveraging private investments and ensuring efficient road development. It offers several benefits, from reducing government expenditure to improving road quality and transportation efficiency. Below are some key advantages of toll financing in infrastructure projects:
1. Reduces Burden on Government Finances
Toll finance minimises dependence on limited public funding by leveraging private capital. This frees up government resources for other socio-economic priorities.
2. Accelerates Infrastructure Development
With assured funding, toll roads can be built faster, leading to quicker completion compared to routes relying solely on governmental budget allocations spread over the years.
3. Maintains and Upgrades Road Quality
Regular toll income enables periodic maintenance interventions, e.g. resurfacing, repairs, safety features, etc, keeping toll roads in good shape over decades of operations.
4. Streamlines Traffic Management
Toll operators actively monitor traffic flows, undertake decongestion initiatives and modernise systems. This results in faster transit, lower fuel wastage and higher productivity.
5. Enhances Cash Flow for Transporters
Toll finance offers logistics companies seamless toll payments via FASTag. This does away with cash transactions and upfront outflows, easing cash flow management.
6. Promotes Private Sector Participation
Clearly defined revenue streams and contractual frameworks make toll-based infrastructure projects attractive for long-term private investments.
7. Enables Fair Cost Recovery from Users
Toll charges ensure users pay for high-quality access infrastructure as per usage instead of subsidies through general taxation.
Disadvantages of Toll Financing in Infrastructure Projects
While toll finance provides a sustainable funding model for infrastructure development, it also comes with challenges. Below are some key toll finance risks in infrastructure projects:
1. Social Equity Concerns
Citizens argue that tolls unfairly target road users, even though they already pay taxes for public works. This leads to disputes and revenue leakage when users avoid toll routes.
2. Resistance and Reduced Affordability
Commuters and small transporters often oppose toll fees, which they consider expensive and unaffordable. This causes political issues and revenue uncertainty.
3. Toll Hikes Can Trigger Inflation
Periodic toll hikes to protect profits can drive up logistics expenses and overall transportation costs, indirectly impacting the prices of essential goods.
4. Lack of Transparency in Agreements
Allegations of mismanagement, opacity and unauthorised profiteering have arisen due to the absence of independent oversight mechanisms for toll operators.
5. Long Gestation Period With Uncertain Revenues
With concession periods usually ranging from 25-30 years, toll roads take decades to recover project investments through cumulative toll income, which varies based on economic and external factors.
6. Project Abandonment Risks
Toll projects are highly susceptible to abandonment in case of major delays, disputes, litigations or regulatory non-compliance. This causes huge losses, given massive upfront capital investments.
Conclusion
Toll financing has significant potential to fund India’s massive infrastructure growth needs by drawing private capital. However, public acceptance issues, lack of transparency, social equity concerns, and revenue uncertainty need resolution through fairer policy frameworks. The toll finance model needs more balanced risk-sharing across stakeholders to maximise its benefits. Leveraging technology and improving governance are key to enabling sustainable, equitable, and efficient infrastructure development through this route.
