Over the past few weeks, social media has been flooded with messages about bridges collapsing, airport roofs crashing, newly-laid expressways washed away or developing huge cracks and rainwater gushing through the roofs of newly-built airports and train stations. Citizens are justifiably concerned about the quality of infrastructure that is being built, especially since the government has stepped up infrastructure spending massively. Over Rs10 lakh crore has been allotted in each of the past two Budgets and the level of allocation is planned to be maintained. The worry, though, isn’t merely about the quality of infrastructure being built. A bigger question is about the enormous delays that continue to plague the construction of Indian infrastructure projects. This shows up in the data put out by the ministry of statistics and programme implementation (MoSPI).
As of 1 April 2024, MoSPI was monitoring 1,873 projects, divided into 612 mega projects (Rs1,000 crore and above) and 1,261 major projects (Rs150-Rs1,000 crore). Of these 1,873 projects, 449 projects have overshot their sanctioned costs and 779 have suffered delays. These projects were supposed to cost Rs26.87 lakh crore; but the cost, as of now, has shot up to Rs31.88 lakh crore—an 18.65% jump.
Fortunately, the largest outlay is on road projects (1,093 projects being monitored), where cost overrun has been much less; it is only from Rs8.38 lakh crore to Rs8.68 lakh crore. But implementation has gone haywire in the Railways, which has the second-biggest chunk of projects sanctioned. There are 249 railway projects underway, whose original cost of Rs4.44 lakh crore has ballooned to Rs6.85 lakh crore till now, a whopping rise of 54%.
Another area of massive cost overrun has been water resources projects, where costs have increased by 200%. Against the original sanction of Rs23,466 crore, it is now estimated that these projects will cost Rs69,700 crore. Atomic energy, petroleum and power are three other sections that have seen large cost overruns.
Now, let us turn to delayed projects. Of the 1,873 projects being monitored by MoSPI, 701 projects are on time, while 779 are delayed. Of these, 202 were delayed by 1-12 months, 181 by 13-24 months, 277 by 25-60 months, and 119 suffered delays of more than 60 months. The average time overrun was a massive 36.04 months or three years.
What is worse, the ministry does not have information about the commissioning schedule of as many as 393 projects. In recent years, the government has apparently been working at bringing down this number. Yet, in FY2018, 55% (or 731 projects) of the 1,232 projects being monitored were open-ended, that is, they were without any firm date of completion.
Concerned with the delays, in February 2023, the prime minister (PM) asked all government agencies to complete pre-construction work like shifting of utilities and land acquisition well in advance.
A national daily quoted the PM as saying, “Don’t you feel the pain of delay (in completion of projects)?”
Way back in March 2015, the government had set up PRAGATI, an acronym for pro-active governance and timely implementation, which aimed to combine two completely unrelated issues: redressal of public grievances and timely implementation of projects. A government press release at that time claimed that PRAGATI was a uniquely integrating and interactive platform bundling three latest technologies—digital data management, video-conferencing and geo-spatial technology for “simultaneously monitoring and reviewing important programmes and projects of the government of India as well as projects flagged by state governments.”
Clearly, PRAGATI has had little impact; only the number of projects with completion dates has increased as against a larger number of open-ended ones earlier.
Among the causes of cost escalation identified by MoSPI are—under-estimation of the original cost, changes in rates of foreign exchange and statutory duties, cost of environmental safeguards and rehabilitation measures, land acquisition costs, changes in the scope of projects, and time overrun.
The reasons for time overrun are listed as—changes in the scope of projects, encroachment, court cases and lack of infrastructure support and linkages, delays in land acquisition, obtaining forest/environment clearances, tie-up of project financing, detailed engineering, tendering, ordering and equipment supply, and getting clearance from local authorities.
All these reasons are well-known and have existed for decades. No matter which government has been in power, there has been no change in an ecosystem destined to cause cost and time overrun. We should assume all these factors will continue to inflict cost and time overruns in the future. Against this background, what happens to the massively increased outlays on defence production, urban infrastructure, railways, renewable energy, transportation and water supply?
The Central government’s capital expenditure, as a percentage of total expenditure, hit an extraordinary 28% in FY24 from just 14% in FY14. Working within the same legal, social, political and governance system, delays and cost overruns are only going to increase manifold.
Companies involved in the infrastructure business have benefited from the enormous government spending. Many of these companies are listed and their stock prices have seen a steep jump in the last two years. Perversely, time and cost delays will perhaps help them even more. But delays and higher costs have macroeconomic consequences.
Apart from higher fiscal deficit and inflationary pressures, the implication of overruns means much less funds available for sectors where the money is really needed—primary and secondary education and public health—where India invests too little money.
(This article first appeared in Business Standard newspaper)
Monsoons play an important part in infrastructure projects. This puts a lot of pressure on infra companies to schedule their construction and such. There's no way of knowing what will happen tomorrow. All this will have a cascading effect downstream and affect labourers who do nothing but while away time that eats their soul.
A close source of the Chennai Metro Project told me this that rains usually throws everything out of gear. While south India gets only 1-2 months of rains, the rest of India gets 4-5 months of rain. Seven months window to pursue such projects but you still must pay labourers during rainy season, and there's storage and other related fixed costs that stacks up (such as heavy machinery rental, etc). This is where managers need to be ruthless on negotiation and cost. What's the point paying when nothing is happening during rains?
The best way to keep infrastructure spend in check, IMHO, is to list infrastructure projects publicly. This means accountability is to the public markets, not just taxpayers. The InVITs are interesting instruments but suffer from low participation. But a little tweaking can be a game changer. Debt market also could use a boost (sadly, no mention of this in the budget). I can never understand why debt hasn't been promoted. It needs more liquidity than equity markets.
Lastly but not the least: our laws suck. I completely agree with you on court cases and such. While justice is important, laws need a relook and tweak to enable projects to go unhinged and smoothly and that "victims" are adequately compensated. We are relying too much on case precedents and such.
Reasons for time overrun are universal and will remain so forever. Under such circumstances which is better-plan one lakh crore infra as in pre-2014 and plan 10 Lakh crores now with the same amount of delays?
I think for a balanced analysis and view, the project implementation and delays and cost over-runs should have been compared for the last 3-4 decades under different governments so as to understand, finally, at the end of the day, which government's project implementation has been better.
Accountability cannot be fixed when transparency lacks and the process of monitoring the projects is given a goby. Huge amount of public resources are involved. Every project should have a clause in the agreement that the builder/contractor is responsible for its maintenance and efficiency in structures and delivery for a minimum period of ten years after the completion of the project. Likewise Government is responsible for release of resources for the implementation of the project as per the PERT chart.
This speaks bad about the planning and implementation. Some delays are unavoidable, but most are man-made and need to be controlled. Someone did not apply mind properly to consider possible delays and cost overruns due to that for most of the projects with cost over-runs.
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
A close source of the Chennai Metro Project told me this that rains usually throws everything out of gear. While south India gets only 1-2 months of rains, the rest of India gets 4-5 months of rain. Seven months window to pursue such projects but you still must pay labourers during rainy season, and there's storage and other related fixed costs that stacks up (such as heavy machinery rental, etc). This is where managers need to be ruthless on negotiation and cost. What's the point paying when nothing is happening during rains?
The best way to keep infrastructure spend in check, IMHO, is to list infrastructure projects publicly. This means accountability is to the public markets, not just taxpayers. The InVITs are interesting instruments but suffer from low participation. But a little tweaking can be a game changer. Debt market also could use a boost (sadly, no mention of this in the budget). I can never understand why debt hasn't been promoted. It needs more liquidity than equity markets.
Lastly but not the least: our laws suck. I completely agree with you on court cases and such. While justice is important, laws need a relook and tweak to enable projects to go unhinged and smoothly and that "victims" are adequately compensated. We are relying too much on case precedents and such.