Saturday, March 23, 2013

Delayed Indian Infrastructure


Indian Infrastructure segment has been struggling over the last 5 years. I would be wrong to say that it is struggling over the last 5 years; in fact it was struggling once the private sector was appointed to come for investments. I a country like India any infrastructure project takes up around decade to complete as compared to the half of the project period. PPP mode was established to expedite the projects as public sector was lagging the culture of private project execution style.

But all hopes remained only within the grave yard of expectations. Private sector came and now they are running away from infrastructure related investments. Whenever there is a project related to roads, bridges, dams etc we find that project over runs its estimated project cost.

Political parties are very much active player within every infrastructure based projects to fill up their pockets. Below is the list of couple of projects where cost has overrun along with period.

The prime difference between Indian projects and overseas projects the escalation cost where it is being found the overseas projects often get completed before the estimated project period and cost overrun is an new concept for the promoters of the project. Overseas projects implement various strategies and techniques to cut down on cost from the estimated cost of production so that they add premium value to their projects. In India we just abide the opposite of the overseas style of execution of projects. Involvement of too many authorities, 100 dozens of paper works and donation to political parties for clean chit of working creates Indian corporate to find foul practices for meeting the targets of their profits. Most of the largest sources of corruption in India are entitlement programs and social spending schemes enacted by the Indian government. Examples include Mahatma Gandhi National Rural Employment Guarantee Act and National Rural Health Mission. Other daily sources of corruption include India's trucking industry which is forced to pay billions in bribes annually to numerous regulatory and police stops on its interstate highways.

Too much political intervention has lead to an extreme level of variation between over run of cost as well as time. In my research I have drilled high to find out the relative variation in mathematical module where it is being found that:

From 1992 to 2009 delays in various projects across the Industries and also the Time Over run.

Source: Calculations based on MOSPI data.

It is being found from the mathematical model that there has been huge range of SD followed with respect to the magnitude of time and cost overruns.

We find that rising cost of delayed project execution has turned private investments to negate from the infrastructure segment. Rising cost due to delayed project execution and extensive political intervention has increased the ROI of the private sector which further affects the cash flow of the projects in the long term. In many cases it is being found the ROI is being projected at 30-35% due to overrun of time and cost.

Well my dear cost accountants might think that they might find some strategy to reduce the gap but unfortunately in a country like India where political parties intricately coiled within the system no strategy would work.

Sixteen major highway projects worth Rs.15,000 crore in four states have been stalled. These include the Chennai Port-Maduravoyal road in Tamil Nadu, Bahrampore-Farakka and Krishnanagar-Bahrampore projects in West Bengal, Cherthalai -Ochira and Thiruvanthapuram (Kerala)/Tamil Nadu border projects in Kerala and Goa/Karnataka border-Panaji in Goa. The road projects are awaiting environmental clearances from the Ministry of Environment and Forests (MoEF).

After coming to power the UPA government had said that it would build 35,000 km of roads in five years, which means building 20 km of roads in a day. The reality is something else though. In 2011-12, on an average only 10.39 km of road was constructed in a single day.

Currently, out of the 226 projects which are under implementation by the National Highways Authority of India (NHAI), 58 projects have been delayed due to multiple reasons including land acquisition. In Mumbai, many infrastructure projects, including monorail and metro rail projects are facing delays

It seems that we have now become habitual to the system of delayed and overrun project cost regime. The government and the system both are blind to an great extent. The consortium is yet to sign a concession agreement with Jawaharlal Nehru authority as it is refusing to pay the required stamp duty of Rs.50 crore. The project cost has increased to Rs.8,000 crore due to the delay. What a delay sirji?

I think Indian economy needs to have an award as well should write books on how to delay projects and increase the cost so that the international economy comes to know. This might help countries like Europe and US to make more sovereign reserves and strive out the recessionary phase of their economy.  The only difference that is required to be adopted that in case of India the delayed cost is being pocketed by the political parties where as in case of Euro-zone and US the delayed cost needs to link with the bank account of the central banks treasuries.

Today Indian economy is struggling to find its GDP growth due to high frequency level of corruption which has forced the private investments to drive down Its the corruption which has placed brakes on the Indian economic growth.

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