Project delays, cost overruns continue to plague infra sector
In his Independence Day speech, Prime Minister Narendra Modi highlighted the dismal pace of project implementation in India when he said that while “a space vehicle to Mars can be easily executed in nine months, a railway line spanning a mere 70 km lies unfinished for 42 years”. The data from the Centre for Monitoring Indian Economy (CMIE), which tracks the project status of Central and state governments and undertakings independently, show a total of 962 projects at a cost of over ~150 crore have been delayed, of which 36 projects are delayed beyond 20 years, and 67 projects between 10 and 20 years. Most of these projects were in the water and irrigation areas. According to CMIE, the total investments in these projects were ~32.7 lakh crore and the cost overrun stood at ~14.35 lakh crore. Eleven new railway lines and four gauge conversion projects were conceived more than 20 years ago but are yet to be completed mainly due to fund constraints and a lack of necessary clearances. This is not just the case with the railway sector; project delays and cost over-runs haunt Indian infrastructure projects as a whole. According to the data from the Ministry of Statistics and Programme Implementation’s (MOSPI) Online Computerised Monitoring System for projects and infrastructure monitoring, of 351 ongoing projects costing above ~1,000 crore in the infrastructure sector, 127 projects were delayed and 115 were in cost overruns, and 51 were showing both time and cost overruns as of February 2017. The MOSPI data published in March 2017 stated that of a total 1,231 projects above ~150 crore, nine projects were ahead of schedule, 324 were on schedule while 327 were delayed. Of these, 322 projects were in cost overrun, while 105 projects were showing both time and cost overrun, with respect to original implementation schedules. The total investment outlay of these 1,231 projects was ~15.59 lakh crore, which is now expected to see a cost overrun of ~1.71 lakh crore mainly due to delay in some major projects.
If taken as a proportion of total investments at the end of 2016, 29.8 per cent of the projects in the MOSPI list were delayed, even though the percentage has declined substantially from 45.74 per cent in March 2014, before the National Democratic Alliance (NDA) government came to power. The major sectors that saw additional delay in projects include road transport and highways, power, petroleum, coal, steel and mines.
Of the 327 delayed projects, 63 were delayed by 1-12 months, 67 projects in the range of 13-24 months, 119 projects were delayed by 25-60 months and 78 projects were not completed even after 61 months.
Chandrajit Banerjee, director general, Confederation of Indian Industry, said, "The infrastructure sector has picked up steam following a renewed focus put on it by the NDA government. While there are some project delays in certain segments of the infrastructure industry, the overall situation has improved considerably.”
Of the total 122 highway projects that were in the delayed list, 90-odd projects are being executed by the National Highways Authority of India (NHAI). The authority created a taskforce to look into the matter. According to an official, the projects in totality are not incomplete but certain patches of some of the projects are delayed, which is being looked into by the taskforce.
Manish Agarwal, partner and leader - infrastructure, PwC India, said that in sectors such as railway, the issue of project delay has been addressed quite efficiently by focusing on stuck projects rather than announcing fresh projects.
A senior NHAI official said the major factors responsible for time overruns were delay in clearances and lack of supporting infrastructure. Besides, the project scope, too, changed in some cases. There were also law and order problems, delay in municipal permission, delay in shifting of utilities, pre-project activities and equipment supply, fund constraints and geological surprises. "The major reasons for delay in infrastructure projects in India are land acquisition issues, complete lack of feasibility and the tendency to follow the L1 model, while conducting bids for mega projects. The country needs a more robust criterion to award larger projects rather than following the lowest bidder model," said Dibyanshu Sinha, partner, Khaitan & Co.
According to CII, the government’s effort to prioritise reviving investments has resulted in the count of delayed projects coming down. Besides, cost overruns have come down to 18.4 per cent. "In the roads and highways sector, the government has brought down the number of stalled projects to 74 from 384. Investments in setting up further capacities are getting reflected in the businesses of manufacturing companies and equipment suppliers," Banerjee said.
The government outlay of ~3.9 lakh crore has infused adequate capital investment in the infrastructure sector and has worked as a catalyst in increasing the attractiveness of the sector for foreign investor community, he added.
"On the whole, extra focus must be given on proper management of project preparation stage, when detailed project reports and other ground work is done," said Agarwal.