Wondering why rail traffic congestion does not ease, power cuts are frequent or why mining continues to be a laggard despite investments? The answer to all such questions is cost overruns.
There has been a whopping Rs 1 lakh crore cost overrun in 583 projects, costing Rs 150 crore (Rs 1.5 billion) and above individually, that are being implemented now by the central government across 15 major sectors of the economy, according to the data released by the Ministry of Statistics and Programme Implementation (MoSPI). About 40 per cent of these projects are facing delays ranging between a few months to as many as 17 years.
The huge cost escalation is enough to fund more than two mega social sector schemes of the size of NREGA, which has an annual spend of Rs 40,000 crore (Rs 400 billion).
The overall cost of implementation of the projects has gone up from Rs 7,12,811 crore (Rs 7,128.11 billion), as originally envisaged, to Rs 821,664 crore (Rs 8,216.64 billion) now, says the report. By November 2011, the government had spent Rs 3,443,690 crore (Rs 34,436.9 billion) -- 41 per cent of the revised cost -- on these projects in railways, roads, power, petroleum, coal, telecom, shipping, steel, fertilisers, aviation, atomic energy, urban development, mines, water resources and petrochemicals.
The worst performer is Indian Railways which has seen more than 100 per cent cost overrun -- of Rs 65,000 crore (Rs 650 billion) -- in projects, the ministry says. Some railway projects have not seen the light of the day despite being approved as early as 1985.
In fact, the list of railway lines facing delays is almost as long as the list of new lines announced in the Budget every year by rail ministers.
There has been cost escalation of Rs 7,500 crore (Rs 74 billion) in petroleum projects, Rs 6,100 crore (Rs 61 billion) escalation in steel projects, Rs 6,000 crore (Rs 60 billion) in power projects, Rs 5,273 crore (Rs 52.73 billion) in urban development, Rs 4,800 crore (Rs 48 billion) in atomic energy, Rs 3,400 crore (Rs 43 billion) in petrochemicals and Rs 3,300 crore (Rs 33 billion) cost escalation in coal mining projects, the MoSPI report states.
Experts say that while a bulk of the cost escalation could be explained by inflationary pressure, the trend of increasing number of projects is worrying as stranded capacity creation in itself adds to inflation.
"Even after inflation is adjusted, we are seeing that the total mass of delayed projects and the associated capacity has risen significantly. Therefore, the demand-supply gap of capital assets creation is widening more rapidly," says Gokul Chaudhuri, Partner at consultancy firm BMR Advisors.
The cost of not sorting out basic issues such as law and order and clearances could create a logjam in realising the trillion-dollar infrastructure spend in the XII Plan period, he adds.
After railways, where time overruns has been of up to 17 years, projects in the road transport and highways sector fared the worst with time overrun of up to eight years. Shipping and power sectors has more than seven years of delays in implementation of projects, the ministry report says.
The government has attributed the enormous cost escalation to inflation, fluctuation of exchange rates, higher tender value and change of scope of projects.
"Brief reasons for time overruns are inadequate mobilisation by contractors, law and order problems, delays in engineering designs, Maoist problems and forest and environment clearances and others," the MoSPI report states.
