Under construction

Project delays must be avoided

The Central government is pushing infrastructure development in a big way. In the current year’s Budget, for instance, the allocation for capital expenditure has been increased by 37 per cent to Rs 10 trillion. Since India has struggled because of deficient infrastructure, which increased the cost of doing business and affected competitiveness, higher capital expenditure will be vital for growth. Besides, given that aggregate demand remains weak, which is not encouraging the private sector to invest, intuitively, it makes sense for the government to invest, which would help push up growth and create employment. Better infrastructure over time will also increase overall efficiency and enable higher sustainable growth over the medium term. However, the objectives of higher capital expenditure can be significantly undermined if the government is not able to implement projects on time, as seems to be the case.
 

An analysis of data put out by the Infrastructure and Project Monitoring Division at the Ministry of Statistics and Programme Implementation for March 2023 published by this newspaper showed that the proportion of delayed projects by number at central level was the highest since 2004 — at 56.7 per cent. It was 42.1 per cent last year. The division tracks projects worth Rs 150 crore and above. It used to track projects worth Rs 100 crore and above before 2010. Given the scale of infrastructure projects, the shift in base level is unlikely to have affected the trend. In terms of implications, it is important to note that delays in project implementation not only deny the expected gains to the economy but also result in cost overruns. The listed projects are now expected to cost 22 per cent more than the original estimate. This would mean an additional expenditure of about Rs 4.6 trillion, or roughly half this year’s capital expenditure budget.
 

Among the listed 1,449 projects, about 16 per cent are delayed by over 60 months. About 40 per cent have seen delays of between 25 and 60 months. These are significant setbacks and should have been avoided. The list also has 333 projects for which neither the time of commissioning nor the expected gestation period has been reported. This is clearly not the way projects should be handled, particularly when the dependence on them is high even for macroeconomic reasons. Notably, the reasons for the delay are not hard to predict. The list includes the time lost in land acquisition, obtaining forest or environment clearances, and tendering, and law and order problems. This suggests that legacy issues such as lack of coordination among departments and levels of administration, which the present government has been trying to overcome, have not been fully addressed.
 

While the need for completing projects in time cannot be overemphasised, from a macroeconomic management standpoint it is also worth pondering if the government or its agencies should keep committing themselves to new projects when over 50 per cent of the existing projects are facing delays and cost overruns. This can prove to be counterproductive because higher borrowing would lead to inevitable fiscal consequences, which can crowd out private-sector demand. Although there is no doubt that India needs more expenditure in the infrastructure sector, the government must not ignore the capacity and financial constraints. It would thus do well to take into account both the explicit and implicit costs of its commitments.