Poor execution of investment projects in the manufacturing sector across the country had resulted in cost overruns totaling more than Rs. 4.5 lakh crore or about 44 percent of the actual cost of over Rs. 10 lakh crore as of FY 2013-14, a recent study by the Associated Chambers of Commerce and Industry of India said.

According to the sector specific study titled ‘Impact of delay in manufacturing projects’, the overruns varied from one month to as high as 50 months affecting the viability of the projects.

The study said that implementation of investment projects was getting adversely affected due to fund constraints, delays in land acquisition and grant of statutory clearances as well as a host of other factors such as delay in site handover due to contractual problems, dearth of skilled workforce, use of primitive technologies and law and order issues. It observed that investors were also responsible for the overruns since inappropriate planning, change of ownership and lack of co-ordination with contractors and other stakeholders led to delay in implementation of projects.

Out of the projects that registered cost overruns, 65 percent were private sector based manufacturing investment projects. The public sector owned projects accounted for the remaining 35 percent.

Sector-wise, the steel sector recorded the maximum surge of 52 percent in cost overruns followed by refinery (22 percent) and aluminum and aluminum products (6 percent).

State-wise, Odisha had the highest share of 27 percent in cost overruns in manufacturing sector investment projects followed by Jharkhand (13 percent), Andhra Pradesh (10 percent), Karnataka (9.6 percent) and Rajasthan (8 percent).

In terms of cost escalation as percentage of actual cost of the delayed projects, Rajasthan recorded the highest surge of about 71 percent followed by Odisha (70 percent) and Jharkhand (51 percent).

With investments worth about Rs. 30 lakh crore, the manufacturing sector accounts for about 21 percent share in total live investments attracted by various public and private sector sources across the country as of FY 2013-14. New investments in the manufacturing sector have declined at an annual negative average rate of 21.5 percent since 2009-10.

State-wise, Odisha had the highest share of over 15 percent in total live investments attracted by the manufacturing sector followed by Jharkhand (13 percent), Karnataka (12.6 percent), Andhra Pradesh (10 percent) and West Bengal (8.5 percent).

Out of the Rs. 30 lakh crore live investments attracted by the manufacturing sector as of financial year 2013-14, about 44.5 percent of the investment projects worth over Rs. 13 lakh crore remained non-starter, the study noted.

State-wise, Uttar Pradesh ranked on top with over 84 percent of its manufacturing investment projects remaining non-starter followed by Rajasthan (73 percent), Gujarat (56 percent), Bihar (53.5 percent) and Chhattisgarh (52 percent).

Metals and metal products followed by chemicals industries dominated the domestic manufacturing sector in terms of investments, the study said, adding that metals and metal products alone accounted for 51 percent of the total live investments in the manufacturing sector in FY 2013-14. Other sectors with significant share in total live investments attracted by the manufacturing sector included construction materials, machinery, transport equipment, food and agro-based products, textiles and consumer goods.

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  1. One major reason very often overlooked for cost overruns is inefficient monitoring of the projects. In the Indian construction industry the importance of a good project management company is underplayed. A good project management company is many times instrumental in increasing speed and quality of the project. Also, cost controls are better due to detailed accountability.

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