The wages of inefficiency

| Updated on November 18, 2014

More than the cost overruns, the economy cannot afford the opportunity cost of growth lost due to stalled projects

Statistics can often be misleading, but there is no mistaking the meaning of these numbers. According to the Centre’s own estimates, an additional investment of a staggering ₹5.7 lakh crore is required to complete as many as 613 Central Government infrastructure projects stalled at various stages of implementation. This is on top of the ₹5.5 lakh crore that has already been spent on these projects. The delays — some running to over two decades — have, as this paper has reported (‘Stalled infrastructure projects will need ₹5.7 lakh crore more’, November 18), already cost the economy ₹1.89 lakh crore by way of cost overruns, according to Planning Commission estimates. Staggering as these numbers are — the cost overruns alone are sufficient to build 1.5 crore houses for the rural poor, going by the Rural Development Ministry’s projections — they pale in comparison to the overall economic loss on account of stalled projects. According to data compiled by the Centre for Monitoring Indian Economy, stalling of infrastructure and industrial projects in the quarter ended June 2014 rose by 14 per cent over its year ago level, for the economy as a whole, including private sector projects. As many as 100 projects with investments worth ₹1.08 lakh crore were scrapped. Of these, 35 projects worth ₹68,400 crore were shelved, 34 projects with investments worth ₹21,500 crore were announced and then stalled and 31 projects with investments worth ₹18,600 crore were simply abandoned.

The reasons for this mess are well known. Indeed, the Planning Commission itself, which compiled the data on the central projects which it monitors, has cited land acquisition issues, environmental clearances, law and order issues, as well as inadequate diligence in project preparation as the major causes for delay. The Government will add external shocks — particularly the slowdown in global growth and the falling value of the rupee. The private sector will add policy paralysis, pervasive corruption and severe constraints on fund availability as well as rising cost of money as additional factors. But the reality is that the time for apportioning of blame is long past. Given the pressing need for growth and job creation, what is needed now is decisive action.

For starters, the Government needs to urgently review pending projects and prioritise for completion those that are critical for growth. Others, regardless of the sums spent, need to be either scrapped or mothballed for a while. Also, there must be accountability — both at the bureaucratic and political level — for delays caused by poor planning or implementation failures due to reasons within its control. Failed PPP models should be scrapped. The issues of land acquisition and environmental clearances need to be tackled head on. The funding ecosystem for infrastructure investment needs to be revamped and the market for corporate debt deepened. A carrot and stick policy for States — rewarding speedy implementers and punishing laggards — is also required. The nation can simply not afford inefficiency on this scale.

Published on November 18, 2014

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