The curious case of delayed infrastructure projects and their cost overruns

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Last update: September 13, 2022, 2:16 p.m. HST

The government has made infrastructure development a top priority to reduce the cost of doing business. (Image: Twitter/Nitin Gadkari)

At a time when infrastructure development is projected as the key pillar for the growth and socio-economic progress of the country, cost overrun has become one of the greatest challenges facing the government.

The government is committed to boosting growth by investing in infrastructure projects. Budget 2022-23 illustrates the government’s firm commitment to stimulating economic growth by investing in infrastructure development. This is persisted by a sharp increase in capital expenditure of Rs 1.96 lakh crore or 35.4% to Rs 7.5 lakh crore in the current financial year from Rs 5.54 lakh crore in exercise 22.
The government has made infrastructure development a top priority to reduce the cost of doing business. At a time when infrastructure development is projected as the key pillar for the growth and socio-economic progress of the country, cost overrun has become one of the greatest challenges facing the government.
A project’s cost overrun is the amount by which actual expenses exceed the budget amount. It is an outrageous waste of money and resources and it is not good for the financial health of any country, especially a developing country like India. The risks and uncertainties inherent in the infrastructure sector are greater than any other sector and this sector shows poor management of these risks. Consequently, a number of projects are not meeting budget targets and schedules.
The total initial cost of implementing the 1,505 projects was Rs 21.22 lakh crore and their expected top-up cost is to be Rs 25.93 lakh crore. The expenditure incurred for these projects amounts to Rs 13.50 lakh crore which is 52.08% of the planned cost and 63.62% of the original cost. The total cost overrun is Rs 4.71 lakh crore. It represents 22.19% of the initial cost of the project. In other words, we can say that the cost overrun is the waste of taxpayers’ money, because about 62.8% of the amount planned for capital expenditure in the 2022-23 budget is a cost overrun.
Ongoing infrastructure projects costing Rs 150 crore and above on time and cost overruns are monitored by the Ministry of Statistics and Program Implementation (MoSPI) through the Infrastructure Monitoring Division and projects (IPMD). Monitoring of the execution of central sector projects is done through the mechanism of the online computerized monitoring system (OCMS) on the basis of information provided by the executing agencies.
According to the ministry’s 440th flash report for the month of July 2022, there are 1,505 central sector projects involving investment of Rs 150 crore and above on the monitor of the Ministry of Statistics and Program Implementation (MoSPI) as of August 1, 2022. Of these, 386 projects slipped into cost overruns, 222 projects reported time and cost overruns against their original schedule for completion. Apart from this, 661 projects were delayed from their original schedule. The average overrun of these delayed projects is 41.83 months.
What are the reasons for project time and cost overruns? Why are we failing to remove these obstacles that are delaying these projects? According to the response written in the Rajya Sabha in July 2021 and in the Lok Sabha in February 2021 from the Minister of MoSPI, the reasons for the cost and time overruns are project specific and depend on various financial, technical and administrative factors. The reasons vary from project to project.
In addition, according to the MoSPI quarterly report, the main reasons for cost overruns are: delay in land acquisition, changes in exchange rates and statutory rights, deforestation, funding constraints, delay in the supply of equipment, rehabilitation and resettlement of project affected people, slow progress, contractual issues, geological surprises, change of ownership of the implementing agency, state lockdown due to Covid- 19, etc
Although the cost overruns could not be avoided, the increase in costs due to the delay of the project could be minimized. The monitoring mechanism put in place by the government to avoid project cost and time overruns must be made more effective and realistic by setting responsibilities. The waste of money and resources due to cost overruns can be managed through meticulous monitoring and the development of an appropriate action plan as a priority to ensure the timely completion of projects whose implementation in service is planned.
Vinay K Srivastava is the author of ‘Privatization of Public Enterprises in India’ and teaches at ITS Ghaziabad. Twitter: @meetdrvinay. The opinions expressed are personal.

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