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The secret to India's fiscal failures
Thu, 1 Mar Pre-Open

Infrastructure development is the key to growth of an economy. Year after year elaborate planning is made in the run up to the Union Budget keeping the motive of infrastructure investments in mind. With each successive Five Year plan allocating more and more funds to infrastructure; one might paint a very bright future of the Indian economy. However, the actual scenario could not look more disillusioning.

Pick up any sector, be it power supply, mining or rail traffic. The huge chunk of investments seem to be going to a black hole as rail traffic keeps congesting, power cuts becoming more frequent and mining projects remain in the backburner. The reasons are not hard to fathom. While the Government deserves appreciation for keeping infrastructure a high priority and originating a lot of projects for the same, discipline in execution goes out of the window.

No wonder, the lack of efficient execution has led to cost overruns to the tune of Rs 1 trillion and the casualty are a total of 583 projects across 15 major sectors of the economy. The inordinate delays ranging upto years have already led to implementation costs rising up by 15%. To top that the opportunity costs are high enough to fund more than two mega social sector schemes of the size of National Rural Employment Guarantee Scheme (NREGA).

Leading the laggards is none other than Indian Railways witnessing more than 100% cost overruns , to the tune of Rs 650 bn. And this is followed by petroleum projects, steel projects, power projects, urban development projects, atomic energy and coal mining, basically everything that constitutes the back bone of the economy.

While the Government cites inflation as a reason for delay, the others are lack of proper techno economic studies before approving projects, regulatory hurdles like land acquisition , environmental restrictions and poor law and order situation in the country. The fact is that such stranded capacity creations lead to a demand supply gap and a rise in inflation thus creating a vicious circle.

The huge cost overruns are finally leading to increasing fiscal deficits, on the top of creating demand supply gap and fanning inflation. It is time for Government to realize that without successful and timely execution, approving projects and allocating funds is a losing proposition.

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