The lack of central and state regulatory clearances, land acquisition, fund constraints, rehabilitation and resettlement problems of project affected persons all add to delays, and increase the time and costs involved on these projects.Unless these issues are tackled expeditiously, it will be hard for the government to translate its big infra plans into reality.
As South Africa is also gearing up to prioritize infrastructure spending what issues do you think our government needs to deal with expeditiously to translate these infrastructure plans into reality?
How India's big infra plans have hit a snag
Infrastructure spending has been a key priority of the Union government, which has been keen to use it as a lever to prop up economic growth. The first half of 2019 saw a marked acceleration in public spending on infrastructure projects. Budget 2020 followed it up by earmarking ₹1,70,000 crore in 2020-21 to build new infrastructure assets, which is about 15% of the government’s budget for capital allocations.
However, if history is anything to go by, finishing these projects will be a big challenge. Data for the last six years on implementation of central sector infrastructure projects shows that project completion has always been tard. Time and cost overruns have become routine features and these problems are most acute in four sectors that account for a bulk of infrastructure projects in the country: road transport and highways, power, railways, and petroleum.
These findings draw from an analysis of six years of data, covering two political dispensations, from a quarterly report released by the ministry of statistics and programme implementation (MoSPI) titled ‘Project Implementation Status Report of Central Sector Projects Costing ₹150 crore and Above’.
The latest release of this report was for the quarter ended September 2019. This shows 1,676 Central infrastructure projects under implementation. The headline number of this report is the amount of spending on these projects till date. The latest report shows that ₹10,07,176 crore had been spent on these 1,676 projects so far.
From quarter to quarter, completed projects go out of this set and new projects enter it. Hence, the difference in this headline number from quarter to quarter can be seen as a proxy for new and ongoing investments in infrastructure projects connected with the Central government.
Of the 24 quarters between December 2013 and September 2019, the quarterly difference was negative in seven quarters. In other words, even as this amount fell on account of completed projects going out of this set, investments in new and ongoing projects did not keep pace. This indicates issues in both planning and implementation.
There were also three quarters when new spending was brisk. Two of these quarters came in the first half of 2019, a period intersecting with the national elections in April-May 2019.
This was a big spending effort by the ruling dispensation to claw back the gains it made in execution of infrastructure projects post 2014, and which it subsequently squandered.
The period before demonetisation (quarter ending December 2016) saw the share of central infrastructure projects facing time and cost overruns decline sizeably over 2013-14 levels. Time overruns fell from 46% of projects in the March 2015 quarter to 29% in the December 2016 quarter. Likewise, the percentage of projects facing cost overruns declined from 20% to 11.5%. But, in the latest quarter for which data is available (September 2019), cost overruns was back at 20% and time overruns at 35%.
The magnitude of these issues is greater in pockets of the infrastructure sector that matter more. The MoSPI report has a two-fold categorisation of projects by size: ‘mega’ projects (costing above ₹1,000 crore) and ‘major’ projects (costing ₹150-1,000 crore). Of the 1,676 Central infrastructure projects on the monitor, 28% are mega projects, but they account for 78% of the total spend.
The strain on account of cost overruns is greater in mega projects. While the cumulative cost overrun in major projects is 4.5%, it is 26.5% in mega projects. As a result, a greater share of mega projects require a cost review and other special approvals compared to major projects.
The problem of finishing projects—in time and within budget—is also more endemic to sectors that drive infrastructure spending. Of the 18 sectors categorised as infrastructure, just four—road transport and highways, power, railways, and petroleum—account for about three-fourths of the total spending.
And these are precisely the sectors which struggle to finish projects.
Take road transport and highways. In the five-year period from 2013-14 to 2018-19, only 55% of the total awarded length of roads was constructed. It’s only in 2018-19 that the focus shifted from awarding road projects to completing them.
The railways—which has the largest anticipated cost in the 1,676 open central infrastructure projects in the database maintained by Mospi—is also struggling with finishing projects in time and within budget.
And it becomes a vicious cycle: such incomplete projects need more money to finish; unable to find it, they stay pending.
Behind the increase in time and costs are issues like
The lack of central and state regulatory clearances, land acquisition, fund constraints, rehabilitation and resettlement problems of project affected persons all add to delays, and increase the time and costs involved in projects. Unless these issues are tackled expeditiously, it will be hard for the government to translate its big infra plans into reality.
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