Over one-third of projects in the manufacturing sector have reported time or cost overruns worth about Rs 900,000 crore due to delay in their implementation. Most of the projects are delayed by over 20 months.
Though the Narendra Modi-led government is giving a massive push to the manufacturing sector through its “Make In India” campaign, it is yet to revive from the “policy-paralysis” during the UPA regime.
As many as 422 out of 1,160 projects in the manufacturing sector have reported time or cost overruns worth Rs 900,000 crore, as on September 2015. Of these 422 delayed projects, 80 have the potential to generate 4.5 lakh employment opportunities. This has been revealed in a comprehensive study of the manufacturing sector done by industry body Assocham’s Economic Research Bureau with the Centre for Monitoring Indian Economy (CMIE).
Most of the projects, according to the study, have been delayed by over 24 months and only 102 projects have a time overrun between 1-24 months. As per the report, 52.3% of manufacturing projects are delayed by 20 or more than 20 months.
Regarding cost escalation, the report says that out of the 422 delayed projects, only 205 projects are affected by cost escalation. Due to a delay in implementation, the cost of manufacturing projects has increased by Rs 4.24 lakh crore, while the actual cost of the delayed projects is Rs 8.76 lakh crore, which is 48.3%, according to the report.
Manufacturing projects in the steel sector are facing the maximum cost escalation with a share of over 50%, followed by the refinery sector with a share of 28%. Ownership-wise, projects in the manufacturing sector, which are owned by private players, account for over 62%, followed by those in the public sector (38%).
The steel sector remained the worst sufferer of the UPA’s “policy paralysis”. Steel giant ArcelorMittal announced scrapping its Odisha project during UPA II, while Korean company Posco decided to withdraw from the Karnataka project.
Besides, Russian company Severstal, too, decided to pull out from India. Tata Steel’s Kalinganagar project in Odisha was also delayed, but now it has been commissioned. The sector has not been able to stand up even now.
The maximum number of projects yet to take off (31%) facing cost escalation have been reported from Odisha, followed by Karnataka, Rajasthan and Jharkhand (9% share each).
Manufacturing projects which are under implementation in Telangana are facing the maximum cost escalation of over 73% of the actual cost, followed by Odisha (71%), Jharkhand and Rajasthan (66%). Nirmala Sitharaman, Minister of State (independent charge) in the Ministry of Commerce and Industry, said that the government has initiated measures like “Make in India”, opening up the FDI regime and enhancing ease of doing business to drive the manufacturing sector.
Assocham secretary general D.S. Rawat said the “government should have a strong plan to prioritise the speeding up of stuck projects by creating a target-oriented roadmap”, adding “even investors should be penalised if projects get delayed due to improper planning, change of ownership, lack of finance or other related issues”.