Every year the budget reels out depressing statistics of our abysmal failure in utilizing plan funds earmarked for the various government programs. The Union Finance Minister Mr P Chidambaram, recently claimed that as many as 301 projects, costing Rs 20 crore and above each, were delayed between one and 96 months, and the cumulative cost overrun was Rs 48,961 crore.
The Economic Times reports that, "The National Highways Authority of India (NHAI) completed only 32% of its target during 2007-08, or upgrading and strengthening just 917 km of highways in the nine months ending December 2007, as against the target of 2,885 km. It spent Rs 10,500 crore during this period, out of a total budget of Rs 17,615 crore for the fiscal. The government offered contracts for only 278 km of highways up to October 2007 against the target of awarding 3,278 km under NHDP-III in 2007-08. Even for NHDP-II projects, consultants could not be appointed. According to a report submitted by NHAI to the road transport department, 54 contracts covering 544 km were delayed as on December 31, 2007. Under NHDP-IV, the government has so far awarded only 1,048 km as against a target of 2,995 km during the current financial year."
The story of failure to meet the targets is captured in the two graphics shown below
A first glance of the list of the schemes gives some inference about the reasons for the huge performance shortfall. All of them (except National Highways) are implemented through the regular Government agencies and their executing or engineering wings. There is a serious limitation with implementing such major programs and schemes which have earmarked budgets and fixed time-lines, through the regular engineering departments. These projects demand professional expertise, experience, intense monitoring and supervision, and requires considerable flexibility in execution, all of which are difficult to infuse into Government systems. Apart from it being a great challenge to introduce project management practices into Government administrative systems, private Project Management agencies also find it difficult to work within the scope of Government bureaucracies.
It is no wonder then that the one successful example of project implementation in India in the past decade has been the Golden Quadrilateral Project, implemented as it is through an autonomous and professionally staffed agency like the National Highways Authority of India (NHAI). By successfully insulating the Project from political and other external influences and from bureaucratic red tape, the NHAI has implemented many works well in advance of schedule. It has successfully embraced land acquisition methods acceptable to land losers, new construction technologies, latest contracting procedures, innovative business models, private sector participation, and independent project monitoring and evaluation systems.
By exploring and actively encouraging various Public Private Partnership (PPP) and fully private models, the NHAI has been instrumental in bringing in modern technologies and developing a very vibrant market of private construction companies. It has shown the way for similar professionally executed PPP transport projects like the Delhi Metro, airports in Hderabad and Bangalore, and a few ports.
But unfortunately, the success in the highway roads and transport sector has been more an exception to the norm. The cupboard of professionally executed and managed PPP projects remains bare for the other sectors, especially in rural and urban infrastructure.
Here is a laundry list of a few government and market side problems associated with utilizing plan funds, especially in construction-based sectors. Government side deficiencies first.
1. Many layers of bureaucracy and multiple filters is responsible for exasperating delays and provides ample opportunities for rent seekers. Even small clarifications while executing projects tend to require clearances from the top, thereby often leaving the projects stranded mid-way directionless.
2. Most of our big projects are not conceived and executed in any integrated manner, after finalizing all backward and forward linkages. It is common place for big projects to be initiated without a proper Detailed Project Report (DPR) or financial closure.
3. Inappropriate and outdated tendering and work contracting procedures. A legacy of a bygone era of closed and over-regulated market, these rules and regulations stand out as clear anachronism in the modern age where the private sector and the market is a critical influence and integral partner in the process of development. Restrictive tender eligibility conditions often shuts out many interested and qualified contractors.
4. Inadequate monitoring and implementation mechanism. Independent Project Monitoring and Implementation Units, Third Party Quality Control (TPQC), Accrual-based double entry Accounting Systems etc have made little headway into Government bureaucracies.
5. Low penetration of sophisticated process automation technologies like Supervisory Control and Data Acquisition (SCADA), intelligent transport systems (ITS), Global Positioning System (GPS) based networks, energy savings devices etc in public service utilities and government works.
6. Failure to quickly and adequately embrace concepts like PPP and Management Contracts.
7. Failure to adopt professional project management approach in project execution.
I have dwelt on the supply side issues affecting this in a previous post. But let me reiterate them with a few more specific additions.
1. Limited number of eligible works contractors in all sectors except roads. Most often there are only three or four qualified and eligible contractors for the big projects.
2. High entry barriers to the contracting market arising from rigid and unreasonable pre-qualification and eligibility norms. This ensures that the market is trapped in a limited circle of participants.
3. Limited number of suppliers and manufacturers. For example, there is only one manufacturer in the entire country of large ductile Iron pipes used in water supply, sewerage and irrigation.
4. Extremely under-developed market for services like outsourcing and Operation & Maintenance of public service utilities,
5. Lack of process modernization, manifested by the very low penetration of Ready Mix Concrete (RMC), non-invasive road cutting technologies like lateral drilling, pre-cast materials etc
6. Limited or even no large vendors of sophisticated technologies like ITS, SACADA, GPS based networks, GIS systems.
7. Poorly developed backward or downward linkages - limited number of qualified consultants for preparing Master Plans and DPRs, undeveloped market in debt financing etc.
8. Acute scarcity of skilled personnel like structural and environmental engineers, process control analysts, designers, surveyors, architects, accountants etc
9. Nascent market in monitoring systems for Government works and activities - Project Monitoring Softwares, TPQC etc.
10. High perceived risk associated with infrastructure projects and in financing them. (except roads)
11. All the big contractors are based in the metros and the big cities, and have limited presence in even the Tier II cities. They do not even have their branches in many of the smaller cities. Given the large overhead costs and the expenditure in mobilizing personnel and other logistics, it therefore becomes less profitable for them to bid for even larger works in these cities. And whenever they do bid for these works in the larger cities, they invariably sub-contract it to the smaller contractors. But unfortunately many of the smaller cities do not even have the sub-contractors with the minimum required experience.
China scores over India in executing large projects without time and cost over-runs, thanks mainly to the infusion of professionalism in project conception, design, tendering, execution and monitoring. But execution through a separate project management unit may not be easy, given the geographically spread out and piecemeal nature of works like rural water supply, housing, civic infrastructure, medical and health care etc. However, all the other components of project conception and design, tendering and monitoring can surely be done in a more professional manner. More about this in a later post. Unless we get these things right, we will continue to have the same story and graphics to tell next year too!