Government: Managing cost overruns? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Government: Managing cost overruns?

Sep 2, 2003

Government initiatives towards infrastructure development have a very important role to play in the growth of an economy. And this is all the more important when the economy is in doldrums and even private expenditure is at low levels due to poor expectations about future growth. However, it is not just about government spending on developmental projects. What is of critical importance is managing the same, both during the period when the project is under execution and after it is completed. In this article, we try to analyse how the government has fared on one of the fronts i.e. Central Sector Projects (CSPs).

Performance of Central Sector Projects
  June 2003 June 2002 June 2001
Ahead 42 77 5
On schedule 70 71 54
Delayed 93 61 56
Others* 59 69 74
Total 264 278 189
Cost overruns of delayed projects (Rs bn) 263 243 220
Cost overruns of delayed projects 59% 60% 76%
(% of original cost of projects)      
* Projects without original date of commissioning or date of commissioning
Source: RBI Annual Report 2002-03

The above table shows the government's status as regards the progress of the CSPs. On looking at the first division, which indicates the number of projects on which the government is ahead of schedule (of completion), it seems to be a very encouraging sign that the Centre's efficiency has shown a considerable improvement in 2003, over 2001. This is considering the fact that compared to a mere 5 projects in June 2001, the government was ahead on 42 projects by June 2003. Similar is the trend observed for the 'on schedule' projects. The total number of projects has also increased from 189 to 264 over the last couple of years, thereby reiterating the government's initiative on increased infrastructure spending. All credit to the government for this endeavour!

However, are the above figures the best indicator of the government's efficiency at managing the CSPs. Well, maybe not! A better picture of government performance should be judged from another parameter viz. cost overruns of delayed projects (% of original cost of projects). This is where the picture turns a little ugly. As on June 2003, the total cost overrun (of the 93 delayed projects) as a % of original cost of those projects was 59%. Though this figure has reduced over the last couple of years, it is still is a huge amount! (Just have a look at those absolute numbers of cost overruns - Rs 263 bn!).

Though the CSPs are primarily in the power, petroleum and coal sectors, in recent times, surface transport has also played a significant role in the overall CSP scenario. The Reserve Bank Of India (RBI) Annual Report points to various reasons for the delay in the completion of the projects, which it has sourced from the Ministry of Statistics and Programme Implementation. A few of these reasons include absence of proper techno-economic studies before sanctioning projects, inadequate financial resources, problems pertaining to land acquisition and awarding contracts (in UP, Orissa, Tamil Nadu and Karnataka), poor law and order situation in certain parts of the country and…inadequate infrastructure! Hopefully, the last of the reasons will be a thing of the past in the near future! Also, it must be noted, that according to the RBI Report, 52% of the total cost overrun in respect of delayed projects is contributed by the power sector alone!

All said and done, the government's efforts at infrastructure spending (and also various reforms measures), must be appreciated. At the same time, the government still has a long way to go as regards managing costs and improving efficiencies is concerned. Some part of this deficiency should be improved now as the power sector reforms gather pace post the passage of Electricity Act 2003. However, in the meanwhile, the government will need to further focus on the successful and timely completion of projects, rather than just planning and allotting projects. After all, these cost overruns ultimately contribute to a grimmer fiscal position.

Equitymaster requests your view! Post a comment on "Government: Managing cost overruns?". Click here!


More Views on News

BSE Sensex Surges 510 Points; ONGC Among Top Gainers (Market Updates)

Sep 28, 2020 | Updated on Sep 28, 2020

The BSE Sensex Surged 510 Points; ONGC Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

Aug 16, 2019

Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms