Delays hike manufacturing projects cost by Rs 4.5 lakh crore: ASSOCHAM

By Niranjan Mudholkar,

Added 11 August 2014

Poor execution of investment projects in the manufacturing sector across India has resulted in serious cost-push worth over Rs 4.5 lakh crore as of financial year 2013-14

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Poor execution of investment projects in the manufacturing sector across India has resulted in serious cost-push worth over Rs 4.5 lakh crore as of financial year 2013-14 i.e. about 44 per cent of their actual costs of over Rs 10 lakh crore, noted a just-concluded study by apex industry body ASSOCHAM.

These overruns vary from one month to as high as 50 months, placing the project viability at risk.

"Fund constraints, delay in land acquisition, environmental and other clearances together with a host of factors like delay in site handover due to contractual incompleteness, dearth of skilled workforce, use of primitive technologies, law and order problems are affecting the implementation of investment projects in India," according to a sector-specific study titled, ‘Impact of delay in manufacturing projects,' conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Investors also play a significant role in delay in implementation of projects due to a host of reasons like - inappropriate planning, change of ownership, lack of co-ordination with contractors and other stakeholders involved, observed the study prepared by The ASSOCHAM Economic Research Bureau (AERB).

Private sector based manufacturing investment projects have majority share of about 65 per cent in projects that have registered cost overruns while public sector owned projects accounted for remaining share of 35 per cent.

Sector-wise, the steel sector has recorded maximum surge of 52 per cent in cost overruns followed by refinery (22 per cent), aluminium and aluminium products (six per cent), added the ASSOCHAM study.

While state-wise, Odisha has acquired maximum share of 27 per cent in cost overruns in manufacturing sector-specific investment projects across India followed by Jharkhand (13 per cent), Andhra Pradesh (10 per cent), Karnataka (9.6 per cent) and Rajasthan (eight per cent).

However, Rajasthan has recorded highest surge of about 71 per cent in terms of cost escalation as per cent of actual cost of delayed projects followed by Odisha (70 per cent) and Jharkhand (51 per cent).

"With investments worth about Rs 30 lakh crore, manufacturing sector accounts for about 21 per cent share in total live investments attracted by various public and private sector sources across India as of financial year 2013-14," said DS Rawat, secretary general of ASSOCHAM while releasing the chamber's study.

"However, new investments in the manufacturing sector have declined at an annual negative average rate of 21.5 per cent since 2009-10," said Mr Rawat.

While state-wise, Odisha has topped with highest share of over 15 per cent in total live investments attracted by manufacturing sector across India followed by Jharkhand (13 per cent), Karnataka (12.6 per cent), Andhra Pradesh (10 per cent) and West Bengal (8.5 per cent).

"Of the total live investments worth over Rs 30 lakh crore attracted by the manufacturing sector across India as of financial year 2013-14, about 44.5 per cent investment projects worth over Rs 13 lakh crore remained non-starter," noted the ASSOCHAM study.

While state-wise, Uttar Pradesh ranks on top as over 84 per cent of investment projects in manufacturing sector attracted by the state remained non-starter followed by Rajasthan (73 per cent), Gujarat (56 per cent), Bihar (53.5 per cent) and Chhattisgarh (52 per cent).

Metals and metal products followed by chemicals industries have been dominating the domestic manufacturing sector in terms of investments, pointed out the ASSOCHAM study. "These three sectors accounted for almost 74 per cent of total live investments in manufacturing with metals and metal products alone accounting for 51 per cent in FY 2013-14."

Construction materials, machinery, transport equipment, food & agro-based products, textiles and consumer goods are other sectors with significant share in total live investments attracted by manufacturing sector across India.

"The Centre needs to come out with a target-oriented road map both at authority and investor level to prioritise cleaning up delayed projects with focus on effective implementation," suggested the ASSOCHAM study. "The Government needs to ensure time-bound execution of projects and limit the time-frame for clearance by concerned authorities and penalise them if they are not able to meet deadlines."