Project delays result in cost overruns, with multi-state projects being hit the hardest.
Persistent delays plague 384 out of 1,423 construction projects in India, according to data from the Ministry of Statistics and Programme Implementation (MSPI) cited by Fitch Solutions. This will weigh in on the growth prospects of the construction sector whose growth is tipped to slow to 6.7% in 2019 and expand at an average of 6.6% annually through 2028.
Costly project delays stem from factors such as poor planning, delay in progress payments, contractor/sub-contractor incompetency and land acquisition difficulties which result in cost overruns as well as increased financial pressures for contractors.
Out of 366 rail and 603 road projects being tracked by the authorities, 206 rail and 45 road projects currently exceed its original budget by 131% and 49% respectively. The resulting cost overruns reach approximately US$33.4b, more than twice the cost of the Mumbai–Ahmedabad High-Speed Rail Project.
Additionally, multi-state projects such as the Western Dedicated Freight Corridor Project, North-East North-West Interconnector Project, and Barauni–Guwahati gas pipeline are likelier to encounter cost and time overruns due to scale and complexity.
Although foreign companies’ share of the market is currently less than 25%, the recently enacted reforms by Prime Minister Narendra Modi regarding India’s foreign direct investment (FDI) policy may increase those numbers.
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