report-indicates-time-and-cost-overruns-in-infrastructure-projects-may-affect-gdp-growth-and-capital-efficiency

As the Indian government intensifies its focus on capital expenditure and infrastructure development to sustain economic progress, a recent report by India Ratings and Research has revealed alarming trends of time and cost overruns plaguing central sector projects. 

 

Government data reveals a disconcerting reality: as of January 2024, 780 out of 1,821 central sector projects face delays, resulting in a staggering cost overrun of Rs 4.8 lakh crore, equivalent to 1.6% of GDP. In percentage terms, nearly 43% of central projects suffer from delays, albeit a slight improvement from the 49.84% recorded in April 2023.

 

Sunil Kumar Sinha, Senior Director, and Principal Economist at India Ratings and Research, emphasized the pronounced cost overruns in investment-heavy sectors such as railways, power, and petroleum, which collectively accounted for 42.9% of total investments and 20% of cost overruns by January 2024. Conversely, sectors like road, coal, and urban development demonstrated better efficiency, with only 5.7% cost overruns despite accounting for 46.9% of total investments.

 

The report identified sector-specific reasons for project delays. In railways, challenges like land acquisition delays, protests by affected landowners, and approval bottlenecks hinder progress. Similarly, road projects encounter obstacles like utility shifting delays, forest clearances, and design flaws.

 

Highlighting the government's adaptability, the report underscored a shift in infrastructure development strategies. Facing challenges with the build-operate-transfer model in road projects due to dwindling private investments in 2014, the government transitioned to the engineering, procurement, and construction route, leading to a surge in both the number of road projects and investments.

 

From a mere 130 projects in April 2014, the number of road projects surged to 1,027 by January 2024, with investments skyrocketing from Rs 1.01 lakh crore to Rs 7.52 lakh crore.

 

Conversely, railways and petroleum sectors predominantly rely on government investments, with central power projects maintaining a steady number and investment level owing to substantial private sector participation in renewable energy ventures.