Since most states are overstretched on their contingent liabilities, a major factor delaying investment into the roads sector is the fear of states not being able to meet their traffic guarantees.

The only way for states to fund guarantees is by using internal resources or through budgetary support. "Unless a minimum cash flow can be assured from the projects though traffic guarantees, creditors will be unwilling to take an exposure in them," rating agency sources said.

However, Reliance Industries Ltd (RIL) which has expressed interest in constructing a part of the Ahmedabad-Baroda expressway, will not seek a traffic guarantee from either the ministry of surface transport (MoST) or the Gujarat government. This will make the project the first non-recourse financed expressway in the country.

About40 per cent of the project work has been completed and the officially estimated completion cost for the remaining stretch is about Rs 450 crore.

The ministry, in a bid to lure the private sector toward road projects, had proposed an increase in the government's equity participation from the current 30 per cent level to a maximum of 60 per cent. MoST has also proposed raising the capital subsidy for such projects from 40 per cent to 60 per cent. The capital subsidy is primarily for those projects whose commercial viability on the basis of tolls alone is doubtful.

The proposal was mooted mainly to attract private investment in the construction of the two expressways between Vadodara-Mumbai and Kanpur-Agra, which together will require an investment of over Rs 7,000 crore. Investment in infrastructure, especially roads, is expected to take off during the next two years. The Maharashtra State Road Development Corporation (MSRDC), floated by the state government to fund road projects within the state, recentlyplaced bonds worth Rs 1,300 crore privately with institutional investors.

The issue, which was the largest in the infrastructure sector, was closed in just two days after the corporation raised the required funds. The coupon rate offered was 11.5 per cent per annum for the tax-free infrastructure bond while 14 per cent was being offered for the regular return taxable bond. The issue was to part finance the capital outlay for the completion, promotion and operations of the on-going Mumbai-Pune expressway, other road projects in the state and 50 fly-over projects in Mumbai.