Challenges in Infrastructure Projects in India
Source: PIB
GS II: Infrastructure
Overview
- News in Brief
- What are the Challenges in Infrastructure Projects in India?
- How can we improve the PPP model for infrastructure development?
Why in the News?
About 417 infrastructure projects, each with investments of ₹150 crore or more, have been hit by cost overruns of more than ₹4.77 lakh crore in September, mentions the latest report by the Ministry of Statistics and Programme Implementation.
News in Brief
- The Ministry, which monitors infrastructure projects worth ₹150 crore or more
- Out of 1,763 projects, about one-fourth (417) reported cost overruns and half (842) have been delayed.
- Total original cost of implementation of the 1,763 projects was ₹24,86,402.70 crore.
- Their anticipated completion cost is likely to be ₹29,64,345.13 crore.
- This reflected cost overruns of almost 20% of the original cost causing challenges in Infrastructure Projects.
What is the reason for cost Overrun?
- Reasons for time overruns as per implementing agencies include
- Delays in land acquisition
- Obtaining environment clearances
- Lack of infrastructure support and linkages
- Delays in project financing, finalisation of detailed engineering and change in scope.
- Project executing agencies are not reporting revised cost estimates and commissioning schedules for many projects, suggesting time/cost overrun figures are underreported.
What are the Challenges in Infrastructure Projects in India?
- India has been facing several challenges in infrastructure projects.
- According to a report by the World Bank, India will need to invest $840 billion over the next 15 years into urban infrastructure.
- The reasons behind the shortfall in investment include issues with Public Private Partnership (PPP) projects especially in
- Power and telecom sectors
- Stressed balance sheets of private companies and banks
- Delays in land acquisition
- Environmental and forest clearances
- Utility shifting
- Poor performance of contractors and delays in resolution of disputes and claims
- All these lead to time and cost overruns, and the absence of commensurate long-term financing avenues.
- As pointed out by a report by ORF (Observer Research Foundation), the reasons for institutional investor avoidance of infrastructure projects in India are manifold.
- Sovereign wealth and pension funds have limited appetite for what they view as regulatory uncertainty when it comes to India.
- Regulatory risks can manifest themselves in various forms, whether it is tariff entries based on differing interpretations of government provisions or a lack of enforcement when it comes to upholding purchase agreements.
- Additionally, concerns about the legal system also tend to dissuade investors.
- While robust frameworks have been created and implemented regarding infrastructure development, India is currently ranked 172 out of 190 countries when it comes to the enforcement of contracts.
India’s infrastructure gap
- India’s infrastructure gap, economists all over the world agree that bridging India’s infrastructure gap can be the catalyst for its economic and development leap.
- To bridge this gap, however, an investment of $1.5 trillion over the next ten years is needed.
- As pointed out by a participant during the Raisina infrastructure roundtable, it is not feasible to expect the Indian government to try and finance all of this.
- Harkening back to the days of the East India Company, the private sector has been the fail-safe for services that governments could not provide.
- With $100 trillion in international long-term capital available for investment, there is no dearth of funding that can be tapped into, to bring India’s infrastructure insecurity to an end.
How can we improve the PPP model for infrastructure development?
The Public-Private Partnership (PPP) model has been a popular mode of infrastructure development in India. However, several challenges need to be addressed to make it more effective. According to a report by NITI Aayog, the PPP model needs to be strengthened by improving the policy framework (Report).
Here are some suggestions for how the PPP model can be improved
Risk-sharing
- The risks associated with the project should be shared between the public and private sectors fairly and transparently.
- This will help to reduce the burden on the private sector and make the projects more attractive to investors.
Clearance procedures
- The clearance procedures for PPP projects should be streamlined and made more efficient.
- This will help to reduce the time taken for project implementation and improve the overall efficiency of the process.
Dispute resolution
- The dispute resolution mechanism for PPP projects should be strengthened to ensure that disputes are resolved in a timely and efficient manner.
- This will help to reduce the time and cost overruns associated with disputes.
Incentives
- The government should provide incentives to private investors to encourage them to invest in PPP projects.
- This could include tax breaks, subsidies, or other financial incentives.
Capacity building
- The capacity of the public sector to manage PPP projects should be improved.
- This will help to ensure that the projects are implemented efficiently and effectively.
Transparency
- The PPP process should be made more transparent to ensure that there is no scope for corruption or malpractice.
- This will help to build trust between the public and private sectors and encourage more private investment in infrastructure development.
By addressing these challenges, the PPP model can be made more effective and attractive to investors, which will help to bridge India’s infrastructure gap and promote economic growth. Also, Challenges in Infrastructure Projects in India can be minimised.
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