Centre’s infra projects see spike in time, cost overruns
Premium- Comes as the government attempts to improve efficiencies and reduce compliance burden
Delays and cost overruns in central infrastructure projects costing ₹150 crore and above have risen sharply over the last one year, government data showed. Economists attributed the delays to covid-19 disruption and labour shortage, and cost overruns to inflation.
This comes amid attempts by the government to improve efficiencies and reduce the compliance burden in infrastructure projects through its flagship Gati Shakti programme.
Nearly 41% of all monitored projects are running with a time lag as of April, as against just 30% in the same month last year, data compiled by the ministry of statistics and programme implementation (Mospi) showed.
Overall cost overruns for projects increased to 23% from 19.6% last year. More than half of the projects in railways, petroleum, power and civil aviation are running with a time delay.
The share of railway projects facing delays has increased from 47.4% in April 2021 to 60% in April 2022. The proportion of road, transport and highways facing time overruns from its original schedule increased to 29.1% in April 2022 from 13% in April 2021. In case of civil aviation, 21 of the 24 projects are facing time delays.
Nearly 27.4% of the total central infrastructure projects as of April 2022 were facing cost overruns. Nearly half of the delayed projects are running late by 2-5 years, while 22% are delayed by more than five years, the data showed.
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“The increase in time delays and cost overruns may be because of the Covid-19 disruption and the labour unavailability over the last two years. Now, with normalcy returning, it is possible that labour is back and we will be seeing faster implementation of infrastructure projects," said Aditi Nayar, chief economist, Icra Ltd.
Madan Sabnavis, chief economist, Bank of Baroda said the time overruns could be due to delays in release of funds by the government as these are central government projects. “This was due to the continuous rebalancing of cash flows during the year with priorities changing," said Sabnavis.
Secondly, contractors executing projects faced problems with labour which had moved back to their homes in 2020. “This could have added to time delays. Lastly, with uneven performance of various industries with problems being seen in coal, power, metals (due to prices), there would have been a tendency to go slow on these projects," said Sabnavis.
As of April, 647 of the total 1,559 central government projects costing ₹150 crore and above were delayed viz a viz their original schedules and 107 reported additional delays compared to their completion date in the previous month. Of these 107 projects, 29 are mega projects costing ₹1,000 crore and above.
The total original cost of implementation of these 1,559 projects was ₹21.73 trillion, while their anticipated completion cost is likely to be ₹26.72 trillion, reflecting an overall cost overrun of ₹4.98 trillion, which is 23% of the original cost.
“In terms of cost overruns, the second successive year of high inflation has pushed up costs. Time overruns always expose companies to cost distortions because as projects get prolonged, they become more vulnerable to cost hikes of inputs," said Sabnavis at Bank of Baroda.
The Mospi report attributed cost and time overruns to a slew of reasons including delay in land acquisition, state-wise lockdown due to covid-19, inadequate manpower, lack of infrastructure support and linkages, delay in arranging project financing and in finalizing detailed engineering, and changes in scope. Other reasons include delay in tendering, ordering and equipment supply, law and order problems, and contractual issues.