1. In big infrastructure push, Narendra Modi government cuts cost, time overruns sharply

In big infrastructure push, Narendra Modi government cuts cost, time overruns sharply

Cost overruns in central-sector infrastructure projects had worsened in the policy-paralysis phase of the UPA-II government after several years of sustained improvement.

By: | Published: October 24, 2017 7:12 AM
infrastructure push, infrastructure, indian infrastructure, Narendra Modi government, NDA, clearances of projects, infra projects, ONGC From 36% in FY00, cost escalations down to 11%; only a quarter of projects are now delayed against half four years ago. (Image: Reuters)

Cost overruns in central-sector infrastructure projects had worsened in the policy-paralysis phase of the UPA-II government after several years of sustained improvement, but the National Democratic Alliance has managed to not only arrest the decline but reduce the rate of overruns to a best-ever 11% in FY17, official data reveal. Cost overruns were as high as 36% in fiscal 2000 and over 20% in FY15. Faster clearances of projects and increased efficiency in implementation has also led to similar cuts in these projects’ time overruns — less than 27% of the 1,260-odd projects under various stages of planning and implementation were running behind schedule in FY17-18 compared with over half of such projects in FY13. However, even the current scenario is far from satisfactory; some of the large projects are facing cost escalations that are several times over the originally estimated levels (see chart). There are multiple reasons for this like unforeseen demand crunch (as in the power sector), inadequate release of funds (in the railways sector, for instance) or problems with the terms of the public-private partnership models (as in seaport projects). Lenders’ apathy (as witnessed in the highways sector despite risk mitigation for equity investors) has slowed projects. Issues of land acquisition and regulatory hurdles, though resolved to some extent, continue to affect many projects.

Analysts pointed out that launching of several new projects in recent years may also have been a reason why things look rosier now as this would have reduced the average rate of cost escalations. According to data reviewed by FE, 336 of 1,260 projects valued at Rs 17.5 lakh crore were delayed as of September 2017. The original cost of these projects, each valued at Rs 150 crore or more, was Rs 15.7 lakh crore. Some projects are delayed by more than 20 years. Just 50 projects caused two-thirds of the total cost overrun. Only 10 projects were ahead of schedule including Paradip-Hyderabad Pipeline, which is likely to be commissioned by August 2020, four months ahead of the initial projection.

There are about 107 on-schedule projects including ONGC’s Rs 34,012-crore Cluster 2 of Krishna-Godavari block (06/2020) and NLC’s Rs 17,237-crore Uttar Pradesh Power Project (11/2021). The recent improvement in project implementation could largely be attributed to the government’s focus on increasing public spending on projects via central public sector enterprises, which together would invest Rs 4 lakh crore this year.

Half of the 12th Five-year Plan (2012-13 to 2016-17) investments of Rs 38 lakh crore in 12 specified infrastructure sectors materialised in 2015-16 and 2016-17, the last two years of the Plan period. It may take several more years to bridge the country’s yawning infrastructure deficit, but there has been tangible progress on the ground in the last couple of years. Laying of new railway lines and electrification of rural below poverty line households exceeded the targets by wide margins in FY17 while passenger-handling capacity at airports also surpassed the goal. Besides, last year’s achievements were at a par with the targets in case of cargo handling at ports and addition of new-and-renewable-energy capacities.

 

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