Cost overruns in central-sector infrastructure projects came down sharply to 11% at the end of FY17 from 20% two years back, reflecting increased efficiency in project implementation and faster clearances. The share of projects running behind schedule also saw a steep fall over the two years to FY17-end. While such slippages were conventionally very high in India, particularly in the government sector, the situation improved sharply in early 2000s; barring a relapse in the immediate aftermath of the global financial crisis, the cost overruns have consistently come down, but during the last leg of the UPA-II government, decried by many as “policy-paralysis” period, there was again a downturn.
In 2000, cost overrun faced by central-sector infrastructure projects was as high as 36%. Also, 45% of the announced/under-implementation projects were facing time overruns in 2000, which peaked again in 2013 (51%); the share of projects facing implementation delays almost halved since then.
According to official data reviewed by FE, a little over a quarter of 1,231 projects valued at Rs 17.31 lakh crore were delayed as of March this year. The original cost of these projects, each valued at Rs 150 crore or above, was Rs 15.6 lakh crore.
According to officials, the cost overrun has come down on account of various policies implemented by the Modi government after it came to power in May 2014. “Steps taken by the government, including monitoring of projects by Prime Minister Narendra Modi himself, fixing of responsibility for time and cost overruns and setting up of coordination committees in the states for removal of bottlenecks have helped in reducing time and cost overruns,” an official said.
Analysis of projects showing substantial time and cost overrun showed that 41 projects having cost overrun of 50% contributed nearly 64% of the total cost overrun.
Of the 1,231 ongoing projects, 322 have cost overruns, with average cost overrun being 82% of original cost, which is still a matter of concern, officials said. Also, 327 projects were delayed as on March 31, 2017, ranging from 1 to 261 months.
Additionally, 571 projects have been reported with inadequate information about commissioning schedule. Only 9 projects were ahead of schedule. The expenditure incurred on all projects till March, 2017 is Rs 7.46 lakh crore, or 43% of the anticipated cost of the projects.
Projects with highest cost overrun include railways (145%), urban development (110%), petrochemcicals (82%), atomic energy (71%) and power (56%). Despite massive investments in the highways sector, the cost overruns were slightly better for it (32%). Cost overruns were nil for telecom while it was only 3.5% for coal.
Some of the main reasons of cost escalation including spiralling land acquisition costs, high cost of environmental safeguards and rehabilitation measures, changes in scope of projects, monopolistic pricing by vendors of equipment services and time overrun. Main causes of time overrun are delay in land acquisition and obtaining environment clearances,lack of infrastructure support and linkages and delay in tie-up of project financing.
The recent improvement in project implementation could largely be attributed to the government’s focus on increasing public spending on projects and completion of stalled projects. 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 BPL households exceeded the targets by wide margins in 2016-17 while passenger-handling capacity at airports also surpassed the goal. Besides, the year’s achievements were at par with the targets in case of cargo handling at ports and addition of new-and-renewable-energy capacities.