Time and cost overrun in infra projects can impact GDP growth, efficacy of capital deployed, says report

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Even as the government focuses on capital expenditure and infrastructure creation to maintain the economic momentum, a new report by India Ratings and Research has highlighted that time and cost overrun in central sector projects can have a serious implication for not only GDP growth but also the efficacy and efficiency of the investment and capital deployed.

According to government data, as many as 780 out of the 1,821 central sector projects were delayed as on January 2024, leading to a cost overrun of Rs 4.8 lakh crore  or 1.6% of GDP. 

In percentage terms, 42.83% of central projects were delayed from their original schedule as of January 2024, which was marginally lower than 49.84% of projects delayed in April 2023.

Sunil Kumar Sinha, Senior Director and Principal Economist noted that cost overruns in investment-heavy sectors were pronounced in railways, followed by power and petroleum. “Together, they accounted for 42.9% of the total investment and 20% of the total cost overruns in January 2024,” he said.  In comparison, government projects in road, coal and urban development are more efficient as together they accounted for 46.9% of the total investments, but had only 5.7% cost overruns.

Although there are specific reasons for delays in case of each project, there are also sector specific reasons, the report found. For instance, in the case of railways, some of the reasons for delays were delay in land acquisition, agitation by land losers, approval of revised design and estimate, geo-mining conditions, law and order situation. Meanwhile, in road projects, delays were due to delay in utility shifting, forest permission and wildlife clearance, approval of revised estimate, receiving construction material and steel, design flaw, right of use release.

The report also highlighted that the evolving nature of central projects not only shows the government’s continued commitment to infrastructure development but also the centre’s agility to respond to evolving sector-specific circumstances.

“As the build operate-transfer road model under public-private partnership was facing numerous challenges in 2014 and private investments had dried up, the government adopted the engineering, procurement and construction route to build and expand the road network,” it said, noting that subsequently, not only the number but also the investments in road projects rose multifold.

While the number of road projects jumped to 1027 in January 2024 from 130 in April 2014, the investment rose to Rs 7.52 lakh crore from Rs 1.01 lakh crore.

Railways and petroleum, however, remained a government play in the absence of private investments. However, the number and investment in central power projects are broadly at the same level in April 2014 and January 2024 due to significant private sector investments in renewable energy.

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