Infra project delays causing cost spikes

1 min read . Updated: 09 Jan 2023, 11:29 PM IST Dilasha Seth

The average time overrun in the delayed projects rose to 42 months in November 2022 (Mint)

Nearly 51% of monitored projects costing ₹150 crore and above were running with a time lag as of November 2022

Bengaluru: Time delays in central projects have spiked over the last year and cost overruns have risen, official data showed, frustrating government attempts to improve efficiencies in infra projects through the flagship Gati Shakti programme.

Nearly 51% of monitored projects costing ₹150 crore and above were running with a time lag as of November 2022, compared with 32% at the same time in 2021 and around 41% in April, data compiled by the ministry of statistics and programme implementation showed.

Economists attributed the delay to economic volatility and supply chain disruptions emanating from the Russia-Ukraine war, rising interest rates, the covid-19 pandemic and labour shortage.

They said cost overruns were due to high inflation and cautioned that rising interest rates may cause further delays in infra projects resulting in a higher cost of completion of these projects.

More than half the projects in railways, petroleum, power, water resources, and civil aviation are running with a delay from their original implementation schedules.

The average time overrun in the delayed projects rose to 42 months in November 2022, up from 32.2 months in the same month in 2021.

As of November last year, 756 of the total 1,476 projects costing over ₹150 crore and above were facing delays, which means that only 720 projects are on time. In November 2021, of the total 1,679 projects, 541 were facing delays, and 1,138 were on time as per the original anticipated schedule. The overall cost overruns for the projects increased to 21.6% in 2022 compared to 19.6% in the same time in 2021.

“Time delays may be attributed to a volatile economic environment starting with covid-19 and followed by the Russia-Ukraine war and now recession. Sectors involved have witnessed turbulence. Further, the government may be slow on payments keeping in mind the fiscal situation. That’s why there has been an increase in cost overrun. Now with the interest rates going up there will be a rise in interest cost too," said Madan Sabnavis, chief economist, Bank of Baroda.

About 111 or 64% of the total 173 Railways projects were facing time overruns as of November 2022, compared to 49% projects delayed in the corresponding month in 2021, the data showed.

About 24 of the 25 civil aviation projects reported time overruns, while 19 of the 20 projects in 2021 were facing a delay. As for petroleum, 56% of the 154 projects are facing time delays,

The government is aiming to increase efficiencies and reduce compliance requirements in infrastructure projects through the Gati Shakti programme launched in October 2021 to cut time and cost overruns.

A Mospi report attributed it 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 tie-up of project financing, delay in finalization of detailed engineering, and changes in scope.

Other reasons include delay in tendering, delay in ordering & equipment supply, law & order problems, and contractual issues.

Compared to the latest schedule of completion, 686 projects or 42% of the total are facing delays compared to 385 projects last year, which was 23% of the total.

Total original cost of implementation of the 1,476 projects was ₹20.84 trillion, while their anticipated completion cost is likely to be ₹25.36 trillion.

Aditi Nayar, chief economist, ICRA Ltd said that the combination of supply chain and geopolitical issues have led to a considerable hardening in prices of many commodities over the last two-three years, which has pushed up the cost of projects planned prior to the pandemic.

“Delays in project execution affects economic cost of the projects. Time overrun leads to cost overrun due to increase in input cost and interest (especially during rising interest rate cycle. With every budget, we announce more projects, a faster resolution of delayed projects will benefit the economy immensely," said Devendra Kumar Pant, chief economist, India Ratings and Research.

As of November 2022, nine projects were running ahead of schedule, compared to 11 projects in 2021.

While 132 projects of 17% of the total projects are delayed by over five years as on November 2022, the number was much larger in 2021 at 136 projects, accounting for 23.2% of the total projects. However, nearly half or 48% of the total projects are facing a delay between 2-5 years, compared to 40% in the same month in 2021. About 19% of the total projects are facing a delay of up to one year as of November 2022, compared to 16.6% in 2021.

ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."