Construction project delays keep adding to costs

Commenting on the performance of the UPA governments ambitious infrastructure and social sector projects, the Economic Survey pointed out that delay in their implementation resulted in cost overruns. Speeding up of the process at the stages of project approvals, awarding of contracts and implementation could address the problem.

Incomplete contracts are a major cause of cost overruns, it said, adding that the delays are ubiquitous and the percentage of projects with time overruns goes from 60.7% in power and petroleum sector, 95% in shipping and ports and 98% in railways,to a well-rounded 100% in health and family welfare.

Most time overruns are accompanied by cost overruns. Since the 1980s,the propensity towards cost overruns has come down steadily and time overruns have come down marginally but they are still at a worrisome level, it said.

The Survey blamed this on delays due to bureaucratic hurdles. On bureaucratic transactions costs,in terms of the ease of doing business, India ranks 133rd in the world. Singapore ranks 1st,Malaysia 23rd,and China 89th, it noted. The number of days it takes in India to enforce a contract is 1,420. It can no longer be argued that this is inevitable given the complexity of contracts because it takes 150 days for the same in Singapore, 300 days in the US and 406 days in China, the Survey pointed out. Even for closing a business, the time taken is nine months in Singapore, 18 months in the US, 20 months in China and seven years in India.

If one were to look at this from a brighter angle, India’s unpardonably large bureaucratic costs are like a valuable resource buried under the ground, waiting to be excavated and used. Cutting down these costs is like unearthing a free, valuable resource that was lying idle, the Survey said.

Last year, the finance ministry had informed Parliament in response to a written question that India’s undrawn external loan from multilateral agencies for many of the infrastructure and other projects amounted to Rs 95,487 crore till March 2009. Source: MagicBrick