Delay Factor Journal

Machine Translated by Google
Cost and Time Overruns in Public Sector Projects

Author(s): Sebastian Morris
Source: Economic and Political Weekly , Nov. 24, 1990, Vol. 25, no. 47 (Nov. 24, 1990),
pp. M154-M168
Published by: Economic and Political Weekly
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Cost and Time Overruns in Public

Sector Projects
Sebastian Morris
Delays and cost overruns in public sector investments can raise the capital-output ratio in the sector and el
bringing down the efficacy of investments. Yet there are no estimates of the delays and cost overruns, and of
their opportunity cost.
This study arrives at rough estimates of the delays and cost overruns, and the opportunity cost in terms of the extra 'capital X time'
that is used up. Cost overruns (at 80 per cent) and the extra 'capital X time' incurred (about 190 per cent) are very large; even after
removing the increase due to inflation. The reasons for this are also identified and rated. Factors internal to the public sector system
and government largely account for the delays and cost overruns: Poor project design and implementation, inadequate funding of
projects, bureaucratic indecision, and the lack of coordination between enterprises. Appraisal by the government very often is devoid
of meaning when the emphasis is only on the form of the project proposal rather than on its content.
Since public enterprises particularly those in the core sector have large dealings with each other, a 'vicious circle of
delays' has been built up. The politically expedient tendency to take up large numbers of projects and short fund them all,
except those with the very highest priority, is perhaps the most important factor in delays. The government's ad hoc
approach in accordance with high priority to certain sectors-oil and natural gas, and petroleum- while perhaps overcoming
the problem in these sectors have compounded the problem elsewhere, particularly in the infra-structural areas-railways,
coal and steel.
INTRODUCTION coal and steel have led to loss of output and In Section I, quantitative estimates of cost
higher costs elsewhere in the economy.3 time' overruns, delays and the wasted 'capital x to
public sector (PS) occupies an import- In contrast to these arguments, other of the important is provided, and it is argued that THE
economy. As a scholar have seen the root of the problem as lying in the fact that demand, reasons for delays and cob. tant place in the Indian
the overruns is short funding of projects. In Sec-ly(particular-
of wages andleading
basicsector,
goods)a assubstantial
envisagedpart
in of
tion II, other factors are discussed, based on
investments pull (and push) along other in- autonomous investments arising therein. This is largely on information available in various
the Committee on Public Investments in thethe plans,
private was not and
corporate forthcoming
small of due to structural
raising reasons, which has the statistical effect reports of
the capital-
the public sector's cen- tres are nevertheless output ratios when taking (CPU). and cottage industries sector. Indeed the very raison d'etre of
in Planning in India is to raise The debate sought to be pushed in essentially a market economy. 4 tral place
continues. Nevertheless, there is a level of investment economy-wide. can be little dispute
been keenly aware of this central aspect of that there is a need for Economists have
production, discussions of the 'stagnation the PS, as much of the PS to reduce the cost of
to attendant cost overruns have become adebate', that whether or not the right policy decisions Extent of Delays and Cost Overrun
remove the structural maladies restriction started in the early seventies and continues till Delays in project implementation and the
today would indicate.' home demands are set right.
regular feature of public sector projects.
Delays have been there right from the early
Delayed investments, have the evident effect of There is widespread feeling among ad- sixties, if not earlier. 7 One of the motivator-
lowering the growth rates from planned ones. If cost ministrators, policy-makers and senior tions in setting up the program implementation
overruns are pervasive and increase the cost of managers that improper project implementation the ministry was to monitor and tation, and delays
investment in real terms, in decision-making have report on project implementation related to increased the capital costs of
they raise the capital-output ratio in the PS, an effect projects, which public sector investments. Though
it is putting pressure on prices of final
which can spread to other sectors if the PS raises output,5 or suspected that since the mid-sixties delays lead to increasing deficits when the
the prices of its output, since much of the output of prices and cost-overruns have increased,8 trends in are held down by administrative measures,6
the PS constitutes input to the private sector and to delays and cost overruns in public sector pro- and hence indirectly to general inflation. Yet jects
itself. Tfhe transmission mechanism is through price are difficult to compile because the in- even a rough measure of the degree of cost formation is
increase of investment and intermediate not available. 9 And, we could escalation is not available. Are the delays and do not address
ourselves to this important cost escalation due primarily to bureaucratic question. styles of
goods at a higher rate than price increases functioning? How far are the individual enterprises
of other goods. The debate on the slow responsible? Are there genuine problems arising
growth of the economy (in the late sixties out of technical difficulties, inadequate OFFICIAI ESTIMATES
and seventies) in India saw explanations experience, of learning by doing, additional
b,ased on increases in capital-output ratios costs of medium and large projects in the As on March 31, 1987, there were 290
and the PS's role in contributing towards the public sector under implementation. These consist of technological self-reliance, additional costs
increase in this ratio. Some economists have from price preference for domestic arguing of projects with a cost (original or an- arising
suppliers which cannot be and intermediate latter information becomes contractors and that high cost production of capital initiated as the
important to have the answers to these goodsincremental
has Jed to high available) ratios,
capital-output of Rs 20 crore
which or ismore. They set right by administrative reform alone? It
has
2 A less general questions before the appropriateincluded only projects
these, sponsored
186 had by the tended
cost in bringing about to reduce the efficacy of investment tral government. Of
growth.
sector argument that had poor performance policy in- overruns. Similarly, 162 projects had time initiatives that were made to push the public
direction of greater efficiency. overruns or were anticipated to have time of the PS in certain critical areas like power, in the
M-154 Economic and Political Weekly November 24, 1990

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overruns. The percentage cost overrun (ie, the was not available on the anticipated dates of such expenditure covered by long-term
cost overrun or anticipated cost overruns/original completion, we have worked back the quotations to other expenditure not so anticipated
cost) was as much as 50 per cent and the time dates of completion using the covered and hence subject to price inflation. -average
overrun was in excess of 43 per cent. As we time. overruns in railway projects Lacking the relevant data, we have used falling in the
shall argue, these figures if used as indicators same category, for electrification- certain assumptions and computations to tion,
of cost and time overruns of projects, understate doubling, or new track laying, for arriving at broad estimates (valid only in the aggregate)
the real likely cost and time overruns both in which data was available. Time overrun in of the contribution due to inflation these
terms of the number of projects affected and the projects did not show much variation, tion alone to cost overruns, as explained below:
quantum of overruns involved. Firstly, they do so we could not have deviated much from Actual expenditures are expected to the
not need to complete the projects but the true picture in using such estimates. take place as outlined in the PERT chart for
projects are still under implementation. As such, Moreover for only four projects out of 23 each project. Without this information, we were
the time and cost overruns are only anticipated data not available. Instead of using the may assume that they take place uniformly data
values and can very well increase as the project for all projects, we have used the data with respect to time. In other words, the for only
makes progress and gets completed . Older 133 projects which were scheduled cumulative expenditures build up linearly at (as per the
projects are known to go through several original plans) for completion a rate given by 'CO/O' where 'C.' is total during or before 1987.
revisions, while newer projects show fewer We have excluded the targeted expenditure and 'O' is the time for remaining 157
revisions implying that as the implementation projects because our object- project implementation. This is the simplest assumption
progresses further revisions could take place. A tive is to arrive at a reasonable estimate of that can be made. If we assume that
comparison of the data between two quarters the cost and time overruns. The anticipated prices increase at a certain rate, 'p' per
reveals that, in very many cases, the anticipated costs and date of completion for these 157 cents per annum then the contribution to cost
value of the final cost and the date of completion projects are preliminary estimates and hence overrun due to the price increase may be
themselves change as more information likely to be revised again (and again) as worked out. Since 'Co0 the total targeted
becomes available and further expenditure is the implementation proceeds. Three expenditure includes the interest on actual
incurred. More importantly, the set of 290 projects, one in atomic energy and two in the avia- expenditure to be incurred (less than the
includes 98 projects which were approved in Co) tion ministry for the acquisition of aircraft were adjustments have to be made for this
1984 or after: For very many of these projects , outlin- also excluded. On the other hand, factor . Working through the details (as
implementation would have only just begun and the estimates for the 133 projects are most likely in the
ed appendix) the contribution of price to
the reported anticipated cost and time overruns be firm (they could also undergo further revisions increases alone or what we have called the
in these projects hardly reflect what the final no doubt, but this is much less 'price factor' (PF) to cost overruns is given
overruns would really be. In a further 33 cases likely than for the 157 projects). b^y:
(excluding the cases above), while the approvals These 133 projects had a total original cost
were made before 1984, they were originally of about Rs 19,567 crore. The anticipated cost PF C(E~ 2 ) (ePo/ 12) 0
rO+2 p/12
targeted to be completed only during 1989 or overruns in these projects was about Rs 16,101 crore,
later. giving a cost overrun of 82 per cent. Similarly, the Where CO is the total cost of including the interest
average time overrun for these projects works amortization manual rate of inflation; 0 is the
out to about 70.5 per cent. Such large time
Many of these had overruns. But the overrun values and cost overruns necessarily warrant a more detailed construction in months; and r is the rate of interest
may be said to be very preliminary and hardly analysis. Projects are approved on the basis (cost of capital used).
anywhere near what the final overruns would be. of The PF in aggregate for the 133 projects of costs that exist at the time the project is at a 10 per
For 18 projects, most of them being executed by the cent (assumed) level of inflation submitted, or at the time it is resubmitted per annum works out to
railways- railway construction, doubling of tracks Rs 4,117.02 crore, if the approval had been delayed by more which as a percentage of the total
and electrification-there is no data on the an- cost over six months. Therefore, typically the cost run is only 25.57 per cent. Thus, in the agreed
dates of completion and the extent estimates are likely to be valid only at the aggregate, we would
contend that only about anticipated cost overruns. Instead of at- time the project construction
starts; or for 25 per cent, say 30 per cent, can be
attributed tribute to these projects overruns equal to a time six months before, given the delays to
price increases. Thus, the remaining 70 the average for
railway projects (based on in approval. The question naturally arises to 75 per cent of the cost
overruns have to the cases for which data is available),
the ag- about the portion of the cost overrun that be explained in terms of real factors, such aggregate values which have been worked out, is due to
the fact of price increases. This por- as delays in implementation resulting in and which we have quoted above assume overruns of certain items of
expenditure that the overruns for these projects is nil: which are time related-such as salaries of
Railway projects, in the cases where data is available ,
show high costs and time overruns. tion of the cost overrun due to increase in
prices (assuming that there is no delay in
implementation ) certainly cannot be attributed supporting staff, wages, etc, which have an
to improper project implementation, or to its overhead element, expenditure not envisaged
Nevertheless, we give in Table 1 the figures formulation as such. It is an overrun that arises
in the !DPR/FR but during implementation
gathered from the program implementation ministry because the project formulation is done at the seem to be necessary, and to the com-
as indicative of a liberal lower costs that exist, and not at what they are likely combined effect of these factors with inflation.
limit to time and cost overruns in medium to be at the times the different expenses are Not only is the cost overrun high but the
and large public sector projects. The expend- planned to be incurred. No ac- time overrun too is very high. This means
diture on these projects in the year 1986-87 was actual data is available which can be that we have to examine the aspect of 'capital
Rs 7,980 crore. This is about 24 per cent of the directly used to arrive at the 'expected', waste': When capital is tied up for more
gross fixed capital formation in the entire public as it was, cost overruns that are inherent in periods than what is planned, there is a loss
sector including general administration , of Rs project formulation at given costs and its in terms of the alternative use for this
32,992 crore in the same implementation in a situation of inflation. capital. It is well known that the government has a resource
year. Yet, we would argue that cost overruns constraint. To that extent if
due to inflation need not be too high. Not all capital items were used more efficiently,
CAPITAL 'WASTE IN PROJECTS then they were affected. When the Detailed Project availability of capital to the
government Report (DPR)/Feasibility Report (FR)" is increasing, enabling it to take up
We have recomputed the time overruns, more pro- prepared, values from actual quotations are jects. One way of computing the
cost overruns, 'capital (waste) factor','0 etc, 'capital used,' which is sometimes valid for periods waste' is to compute the cost of the
going back to the data for individual projects . extra of around a year and quite often for around capital that is deployed (both by way of 9f
For the railway projects for which data in- six months. It all depends on the proportion created time taken for the project implementa-
Economic and Political Weekly November 24, 1990 M-155

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tion, and due to cost overruns), using a notional increase. And the fact of low cost overruns power, steel, petroleum and coal sectors [See
return to capital which is the dp- proximate cost emerges out of the nature of the task in these projects:Table 3, Column 'Anticipated cost per cent'V
of capital. But given the capital constraint we acquisition, which is a relatively simple activity in Compared to the planned investments,
are much more interested in capital as such comparison to construction or petting up productive distribution of outlay is high in petroleum, civil
than its cost alone. Here we have thought it worthwhile
units. aviation and fertilizer sectors, and very low in
Infrastructure investments and steel have to work in terms of 'capital x time'. coal, steel and railway sectors [in a sense
suffered particularly hard: railways, steel and coal; the bringing out the revealed priorities of the
Again, given the limitations of data, and traditional domain of the public government]. The ratio of throw-forward [=
assuming that the expenditure build up is sector in India. The cost overruns are far in Anticipated Cost - Expenditure already
uniform, the 'extra capital x time' or the 'capital excess of 100 per cent and the 'capital (waste) incurred up to end March 1987 to outlay for
(waste) factor' (CF) as we have chosen to call it, factor' exceeds 250 per cent in all these cases. 1986-87] in most of the sectors is excessive.
for a project can be worked out as (see appendix Thus it is in the very core set of activities of the It should normally be no more than three to
for details): public sector that large delays and overruns have four if a project is to be completed in about six
taken place. to seven years. In other words, available
CF = (1/24) (ACa + ACe- OC(-ECa) We had also worked out the time and cost megagre resources are being spread thinly
overruns in terms of the size of the project, but no over a large number of projects thereby
where A is the now anticipated period of completion
discernible relationship is noticed. stretching the period of completion of projects.
in months; 0 is the originally planned period of
Therefore, it is not so much the size of the I There is an urgent need to slow down sanctions
construction, sometimes revised upwards in
projects and hence the 'complexity' that is of new investments and to speed up the
months; E is the time elapsed since the project
associated with size, as much as other factors implementation of ongoing projects." 12
was taken up, as on 31-3-86, in months; Ca is the
tors: technology, resource constraints, social priorities,
anticipated
etc., that determine the cost and
total cost; CO is the planned total cost; and We are not particularly happy with the
time overruns.
Ce is the actual expenditure incurred till concept of 'throw-forward' ratio as used by
Yet, the pervasiveness of time and cost
31-3-86. the government. 'Throw-forward' ratio as
overruns throughout the sectors (except in the
CF in the aggregate works out to Rs defined by the government is a ratio of
petroleum and natural gas sectors and in certain
93,246.31 crore years. While the base acquisition projects) calls for a general
remaining expenditure to current year's
outlays. Nevertheless, the mere fact that in the
capital factor as originally planned works explanation not based on factors specific to a
out to Rs 47,811 crore years for the 133 sectors, railways, coal and steel, the outlays
particular sector. (One may have explained the
projects . As a ratio of this base the capital are disproportionately low in comparison to
long delays and the enormous cost overruns in
factor works out to about 195 per cent. In other the coal sector in the Dhanbad area where the investment requirements,
words, as a result of cost and time overruns, Eastern Coal Fields relative to that for other sectors reveal the
the projects use up 195 per cent more 'capital (ECL) and Bharat Coking Coal (BCCL) x time' plight of these sectors. Even in the aggregate, the act that
than what was originally planned. operate as being due to the 'coal mafia', or Or, differently the government has spread resources thinly is evident,
stated, if all projects have gone that coal projects are known to be badly on as per schedule since the throw- forward of 3.8 times, implies that nearly four years at
and without any cost prepared by the Central Mine Planning and overruns, with the same the current rate of funding and without the addition of any more projects
resources that the Development Institute (CMPDI). government deploys today, it would be required to complete them at their new
could have enhanced the quantum of anticipated cost.
projects taken up by 195 per cent. SHORT FUNDING PROJECTS
We shall argue that a more important To the above analysis one may raise the
This figure of 195 per cent is not based on a the thin spread of financial resources by objection, the that since we have worked with reason is
detailed examination of the actual time government over a large anticipated costs rather than with original and cost overruns in each
unit, but it is costs, our comment about the government number ofitsprojects
the spreading that delays
thin resources project
is valid onlyim- large part is valid as an aggregate measure of
implementation. First of all, the evidence that 'capital waste' over
government is projects. One needthin
indeed spreading notitgiven the increase in project costs, so that the
attaches much importance to the exact value at thebut oldthat
costs
it isitsvery
resources
nearly atmay
200not be too
aware of resources:
the The government itself is quite of the figure,
problem. Thus "It may be noted inadequate. But wegiven mustlimited
realizethat thatvery
not only
largeper cent is indicative
investment. ts of the enormous waste does high project cost
are planned in of capital resources that is there in public sector project implementation.
TABLE 1: SOME DATA ON PROJECTS UNDER IMPLEMENTATION WITH COST EXCEEDING Rs

(As on March 31, 1989)
SECTORAL PATTERNS
1 No of projects with original approved cost of over Rs 2( crore 290 2 Total
The sectoral pattern of cost and time over- original cost of these projects (Rs crore) 46,444.03 3 Anticipated cost (Rs crore)
runs is interesting (see Table 2.) Notice first 69,649.05 4 No of projects having cost overrun 186 5 Range of cost overrun
that the sector which has been accorded the (per cent) 0-961 6 No of projects having time overrun 162 7 Range of time
most priority in recent times, viz, petroleum and overrun (per cent) 0-204 8 Total expenditure up to 3/86 (Rs crore) 26,064.05 9
natural gas shows the least overruns; and the CF Expenditure during the year 3/86 to 3/87 7,980.20 10 Cost weighted original time
here is only at half the average. for construction (without railways)' 68.31 months 11 Cost weighted anticipated
Another important underlying reason is that time for construction (without railways)2 97.86 months 12 Cost weighted time
several of the projects in this sector, as well as overrun (11-10) 29.55 months 13 Weighted time overrun (12/10) (per cent) 43.3
in surface transport, and in communications
are involved only in the acquisition of
equipment, ie, oil rigs, drill ships, dredgers, etc.
If the DPR/FR had in such cases been prepared
on the basis of quotations valid for the long
Notes: 1 Original time for completion project-wise averaged with the original approved costs
term (as it seems to have been) then the high as weights over all projects excluding the railways, since for very many railway projects the date or
computed price factor is quite understandable . anticipated date of completion is not available.
These are projects where despite the fact of 2 Anticipated time E; completion of projects averaged with the anticipated cost as
use of 'current' cost estimates there weighted over all projects excluding railways.
Should not be the cost overrun due to price 3 See text for other comments on the limited validity of this table.

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
resources, lead to large outlays relative to needs, we work with the anticipated costs then the Rajasthan, Orissa, Tamil Nadu and Kerala show
but large outlays relative to requirements also lead comparison is between seven years and intermediate levels of costs. Yet it is
to delays in implementation and to cost overruns, eight months as per the yearly outlay, and five andnot entirely clear that the location of projects
since certain as the cost weighted average 'capital' waste does affect the cost overruns and a half year
costs have to be incurred continuously being in time for completion of the state-wise pattern factor' One may suspect that (originally planned)
the nature of overheads. Working with an evident above may be the basket of projects.
average of original costs and the anticipated The cost and time overruns of projects are merely a reflection of the sectoral pattern , since
costs, the outlays at the rate of Rs 9,084 crore/ in terms of location present interest features (seethere is much concentration of when viewed
year implies that the average of original and Table 4). We observe certain kinds of projects-coal, for example in Madhya Pradesh, Bihar,
anticipated costs can be covered in six years states, Gujarat, Andhra Pradesh.'3 More relevantWest Bengal and that the fast industrialising
and five months, while the original cost weighted lower cost overruns and "capital (waste) ) is the Maharashtra, Haryana show much
time for completion (as originally approved) is factor" values than lowly industrialized or observation that a few states-West Bengal,
five and a half years. Thus, it is still true that the stagnant states such as Assam, West Assam, Bihar, Orissa, Madhya Pradesh and
government has been short funding its projects. Bengal, Bihar and Uttar Pradesh. Madhya Andhra Pradesh have generated (or would
If Pradesh, generate) as much as 76.4 per cent of the
TABLE 2: SECTOR-WISE DISTRIBUTION OF CERTAIN MEASURES OF COST AND WASTE IN PUBLIC SECTOR PROJECT IMPLEMENTATION1
Sector (Ministry) No of Original Cost Time Overrun (Per Cent) Cost Overrun Price Factor2 Capital (Waste)
Projects (Rs crore) Aggregate Simple (Per Cent) (Per Cent) Factor3
Average Average (Per Cent)
I Railways (transport) 23 946.06 69.85 76.03 164.21 12.38 385.63 2 Steel (steel and mines) 13 4636.32 80.92 S4.00 149.56 18.51 265.30 3 Coal
(energy) 31 1288.60 8 0.26 85.50 131.39 18.01 303.07 4 Power (energy) 16 2701.14 42.79 45.53 98.67 27.85 162.88 5 Fertilizer (agriculture) 7
1201.25 63.72 56.61 90.60 20.03 201.38 6 Mines (steel and mines) 3 1558.62 38.73 42.23 88.52 23.93 127.67 7 Industry4 9 799.74 46.24 45.54
61.20 32.35 112.22
8 Petroleum and natural gas

(petroleum) 19 5257.65 53.51 58.28 4.80 26l.955 99.09 9 Surface transport (transport) 10 1107.06 87.67 109.33 3.96 495.255 86.74
10 Communications
(telecommunications) 2 70.94 10.97 11.75 2.58 518.685 -51.99
Total 133 19566.88 66.23 70.50 82.29 25.57 195.03
Notes: 1 Medium and large projects, ie, projects ha

crore or more; 133 out of a total of 290 projects under implementation end-march 1987, as reported by the ministry's program implementation have been
selected, because the estimates of anticipated time and final costs are more likely to reflect the actual time and cost overruns. See text for further details.
Time and cost overruns are anticipated values.
2 For definition see text. The figures giNe an approximate idea of the contribution of inflation, at an assumed rate of 10 per cent to the
cost overrun.
3 For definition see text. The figures give an approximate estimate of the extra capital X time, ie, the capital factor that arises (as a
of the originally planned capital X time) due to time and cost overruns.
4 Includes one cement project, two paper projects, one automobile project, one acrylic fiber plant, phenol and acetone plant, a poly
plant and a teflon plant.
5 Not particularly meaningful, since these projects had low cost overruns, less than that indicated nationally by a 10 per cent per annum inflation. Many of
these included purely acquisition projects for large sums, such as rigs, supply vessels in the petroleum and natural gas sectors, ships and telephone
exchanges for the other two sectors.
TABLE 3: SECTOR-WISE DISTRIBUTION OF OUTLAYS, EXPENDITURE AND 'THROW-FORWARD'* IN PUBLIC SECTOR PROJECTS UNDER IMPLEMENT
Sector No of Anticipated Cost Outlay for 1986-87 Expenditure Throw- Ratio of

Projects Rs Crore Per Cent Rs Crore Per Cent Incurred Forward Throw-
Till (Rs Crore) Forward to
March 1986 Outlays
(Per Cent) (Per Cent)
Atomic energy 6 2319 3.3 296 3.3 1058 966 3.3 Civil aviation 5 2110 3.0 577 6.4 135 1398 2.4
Coal 72 8483 12.2 779 8.6 2587 5117 6.6 Fertilizer 10 3275 4.7 640 7.0 1164 1471 2.3 Mines 3 2938 4.2 519 5.7 1918 501 1.0 Steel 13 12728
18. 3 1070 11.8 6383 5275 4.9 Petrochemicals and chemicals 8 1669 2.4 189 2.1 216 1264 6.7 Petroleum and natural gas 32 10331 14.8 1971
21.7 4549 3810 1.9 Power 35 16036 23.0 1997 22.0 5553 8486 4.2
Paper, cement, automobiles, etc 6 1173 1.7 183 2.0 554 437 2.4 Railways 73 6349 9.1 600 6.6 1437 4311 7.2 Surface transport 21 1835 2.6 165 1.8 352
1318 8.0 Telecommunications 6 404 0.6 98 1.1 159 147 1.5
Total 290 69649 100.0 9084 100.0 26065 34501 3.8
Notes: * Throw-forward as on March 31, 1987 is define

Figures may not be consistent to the last significant

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
total 'capital waste'. This is not just a reflection gated under ten broad groups, (see Table 5). a way that is not too dissimilar to our procedure . In
of the higher planned investments in these The scores for each of these classes of Table 5, the most meaningful scores indicating the
states (the investment in these states factors have been arrived at in several ways. relative importance of the various classes of factors
as revealed by the original the cost was only 53 For the unweighted scores, the number of listed are the
per cent), but of both the investments and their occurrences (over projects) of a class of factors is cost overrun weighted scores. the scores
wasteful use through cost and time summed up (and normalised) to give have been worked out with and without the
overruns whatever the reasons. the score of that class of factors. Size and 14 large projects of the National Thermal Power
extent of cost overruns is ignored in this tabulation- Corporation (NTPC), and also excluding them,
II column 1. For the weighted scores the occurrences separately; because the NTPC projects are very
of the various classes large being nearly double the next largest project.
Reasons for Time and Cost
weighted for both the cost (original or overruns) and of factors over projects are
Overruns
inversely The coverage of these 99 projects as a
We have already suggested that one of the for the number of reasons mentioned for percentage of all projects taken up by the public
important reasons for time and cost overruns is the each project. Thus, if for a project with a cost of Rs sector since the early seventies is not available:
fact of the inadequate funding of projects. There 10 crore, three reasons pertaining to But it would not be an insignificant portion of the
may be other equally general reasons which underlie three different classes are mentioned then the projects that had large
cost overruns, but which are not deducible from the contribution to these classes by the project under cost and time overruns. From Table 6 we
question is Rs 3.33 crore, each. If on the other notice that these projects involve a total cost of Rs
kind of data already considered. The CPU has in hand three reasons are mentioned 10,894 crore (Rs 6,976 crore by way of the original
several of its reports examined the two of which pertain to one class and the third to another class then the cost and Rs 3,918 crore by way of cost overruns).
public to the first class is 2/3 of 10 ie Rs 6.66 crore, sector contribution reasons for cost and time overruns in The sectoral coverage has certain inadequacies.
class it is Rs 3.33 crore. the content and quality of project implementation. Although, and to the second An important one is that the steel and railway
these are the only source of published information the information available in the CPU reports vary widely, sectors have not been covered at all. Second-
available on this important aspect The aggregate contribution to the classes is
summed up and divided by the total cost ly, the coverage of the manufacturing sector is
(original or overrun) to give the weighted not quite satisfactory. The coverage is particularly
the Public Sector. Scattered bits and and inter scores. Admittedly, this procedure is crude of good in terms of the coal projects , power
information on the reasons for aggregated; alia assumes that: projects can be pieces of projects (central level), mining, and metals other
interaction between the factors delay in implementation
are also available that result in cost overruns than iron ore. Coverage of the paper sub-sector
implementation - single project can be ignored; at all
the level of a with the ministry of program of manufacturing is also good since we have
ed reasons have equal weight in terms of mention- tation, for a few of projects with an- been able to include the three paper mills of the
20 crore. anticipated cost of less than Rs 100 crore but above Rs Hindustan Paper Corporation, in the northeast
their contribution to cost overruns. never- which have all had high costs and time overruns.
From among the projects covered by the CPU the less, we would plead that there is little else one
since 1974, there is some information in the CPU could have done, not only because of the lack of
OTHER FACTORS
for 99 projects to permit an analysis of the reasons systematic data, but because even with comprehensive
for cost overruns. The reasons stated in the CPU have data, we would still have to overcome the problem of Observe from Table 5 that whether we use
been aggre- aggregation in the weighted or the unweighted score, the
TABLE 4: STATE-WISE DISRRIBUTION OF CERTAIN MEASURES OF COSTS IN PUBLIC SECTOR PROJECTS UNDER IMPLEMENTATION1
No of Original Cost Overrun (Per Cent) Capital (Waste) Capital (Waste) Factor2
Projects Cost Aggregate Simple Factor3 Rs Crore Per Cent to
(Rs Crore) Average Average (Per Cent) Years Total for India
1 Jammu and Kashmir 1 55.15 961.4 961.4 1590.0 4055.67 4.3

2 Tripura 1 9.67 265.1 265.1 436.9 121.45 0.1 3 West Bengal 15 917.06 218.4 209.0 431.3 11990.00 12.9 4 Uttar Pradesh 6 718.73 84.7 161.2 91.1 19 86.54 2.1
5 Assam 6 449.14 142.9 149.4 299.6 3783.05 4.1 6 Bihar 17 1819.01 105.1 123.7 433.0 17324.65 18.6
7 Madhya Pradesh 20 2762.48 90.6 123.0 210.1 15134.27 16.2 8 Rajasthan 2 77.09 117.8 116.3 170.0 301.32 0.3
9 Orissa 9 1890.72 102.8 95.3 158.6 7592.47 8.1

10 Tamil Nadu 4 359.29 103.2 83.2 340.7 2757.61 3.0
11 Kerala 5 218.15 47.9 65.7 110.8 451.23 0.5
12 Andhra Pradesh 9 2995.07 155.0 65.7 164.9 19224.76 20.6
13 Punjab 1 69.32 58.7 58.7 39.6 35.45 Neg 14 Haryana 3 353.25 21.7 47.1 19.2 141.61 0.2 15 Maharashtra 4 723.30 -4.1 30.5 -33.84 -639.05 0.7
16 Gujarat 5 490.90 6.4 19.3 3.84 - 26.64 Neg 17 Delhi 1 21.13 8.6 8.6 -56.34 -19.32 Neg
18 Several States (ONGC) 5 980.09 - 2.2 6.2 4.2 51.89 0.1 19 Several States (Railways) 11 3643.04 14.1 95.5 131.9 7912.03 8.5 20 Offshore (ONGC) 8 1024.29
11.1 -4.1 67. 7 1067.82 1.1
Total 133 19566.88 82.3 109.8 195.0 93246.31 100.0
Notes: I Medium and large projects, ie, those having their original approved or anticipated cost (as and when this figure is known) of Rs 20
crores or more; from internal reports of the ministry of program implementation.
2 For definition see text. The figures give an approximate estimate of the 'capital X time' that arises due to cost and time overruns.
3 Above as a percentage of the 'originally planned capital cost X originally planned period of completion'.
4 Negative values arise due to the definition which also uses the information of cost build up implicit in the expenditure already incurred.
In the last column figures may not add up to 100.0 due to rounding off.

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
the first two factors are the most important. and the government) are actually the least and engineering companies, in part limiting the
Whereas the first factor-inadequate project important. problem to the public enterprise system.
preparation, planning and implementation -reflects Factor 7, viz, technical and other in- Factors 3,4,5 and 6 reflect upon the immediate
weaknesses of the enterprise, the second-delays competences of the enterprise other than those that superstructure of the enterprise: the policy
on the part of contractors and equipment suppliers- directly bear on project implementation also reflect environment, decision making by the government,
reflects on other enterprises. Labor unrest at the upon the enterprise . This factor is quite important the lack of adequate funds (responsibility of the
time of construction is hardly an important factor . as seen government), failure of co-ordination by the
Similarly, natural calamities and problems with from the scores without NTPC. Factor 2, viz, government between projects .
foreign technical collaborators are not too important. delay in construction, supply of raw materials
Thus there is little basis for the popular perception and equipment by contractors refers to Thus our general observation is that the most
that labor organizations different from the enterprise in important factors for project delays and cost overruns
question. We shall show (a little later), that much can be traced to the in-
unrest underlies much of the ills of the of the delays in construction and equipment adequacies within the public sector as such.
public sector, including its sloppy project implementationsupply
. In occur with other public sector enterprises: The next important set of factors can be attributable to
other words environmental factors (ie, factors machinery manufacturers, contractors, the immediate superstructure of the public sector
outside the enterprise construction particularly the policy environment and the relationship
TABLE 5: RELATIVE IMPORTANCE OF FACTORS* UNDERLYING COST OVERRUNS IN PROJECT of the enterprise with the government.
IMPLEMENTATION IN THE PUBLIC SECTOR
Statements amounting to inadequate project

Factors/Reasons Un- Cost Weighted Cost Overrun Weight- weighted Score (Per Cent) ed Score (Per preparation, planning and implementation as a factor
Cent) in cost and time overruns
Score With Without With Without
are mentioned in as many as 94 out of the
(Per Cent) NTPC NTPC NTPC NTPC
99 cases considered. Some of the actual
1 Inadequate project preparation,
statements include: 'project monitoring is
planning and implementation 33.9 28.2 26.2 32.5 36.0 absent', 'planning is non existent/weak'
2 Delays in construction, supply of raw materials 'wrong FR was submitted', 'projected demand
and equipment by was not forthcoming', "much divergence
contractors 21.9 16.9 27.4 20.5 26.1 between the project report and the project as
3 Changes in the scope of the project, it was actually implemented"' "project report not
in government policies 8.8 24.5 8.0 14.4 1.7 backed up by concrete
4 Resources constraints: funds, foreign ground surveys a in the case of coal and
exchange, power; associated other mining projects]", 'the project report
auxiliaries not ready 7.2 13.6 10.9 8.9 4.1 itself was not prepared', 'estimates were
5 Delays in decision-making by based on inadequate data'. Nevertheless,
government, failure of specific we must not overemphasize the importance
co-ordinating bodies 5.0 12.5 5.2 8.4 3.2 6 Wrong/inappropriate choice of site 0.5 0.6 3.0 6.5 12.4 of this factor . Any final divergence between
the project and what was planned can always
7 Technical incompetence, poor organization
ex- post be attributed to inadequate project
national structure, and failures of the
planning, and in some cases the CPU has
enterprise other than (1) above 8.8 1.7 9.4 4.8 9.1
8 Labor unrest 5.7 0.8 4.2 1.7 2.3
certainly overemphasized project planning.
9 Natural calamities, Indo-Pakistani war 3.8 0.5 2.6 1.1 2.1
PROJECT PLANNING
10 Lack of experience of technical con-
sultants, inadequacy of foreign In what follows we will discuss in
collaboration agreements, monopoly
somewhat greater detail the inadequacies in
of technology 4.3 0.6 3.3 1.1 2.1 All factors 100.0 100.0 100.0 100.0 100.0
project preparation, covering mostly mining
projects. In the case of coal and other mining
Note: * Actual reasons mentioned in the various reports of the Committee on Public Undertaker. ings have been grouped projects much of the inadequate planning
together under ten factors. particularly as regards ground surveys and
estimates of mineral potential are largely due to
TABLE 6: INDUSTRY-WISE GROUPING OF PROJECTS TAKEN UP FOR STUDY OF REASONS FOR COST the poor services provided by the consultancy and
AND TIME OVERRUNS survey companies. FR/DPRs for coal projects
are prepared by the Central Mine Planning and
Industry No of Original Cost Cost Overrun Design Institute (CMPDI). The CMPDI in turn
Projects (Rs Crore) (Per Cent (Rs Crore) (Per Cent depends on the Mineral Exploration
of Total) of Original Corporation (MECL), for the geological reports
cost and ground and other surveys. When the
CMPDI, and the National Coal Development
Manufacturing (not elsewhere Corporation (NCDC) often responsible for
grouped) 10 191.46 2.74 55.77 29.13 Petrochemicals 10 156.50 2.26 174.43 110.75 mine development (ie, project implementation ),
have been questioned about the inadequacies
Oil refining and distribution 5 51.06 0.73 81.51 36.25 Fertilizers 4 160.04 2.29 120.64 75.38 in their project reports, they have put the
blame squarely on the MECL.
Paper 3 81.72 1.17 512.90 627.63
Mining (other than coal and
The problem really is that of a vicious circle
iron ore and refining of non-
where the quality of the total work is only as good as
ferrous metals) 9 259.86 3.72 260.95 100.42
that Qf the weakest link in the chain and the time
Hotels 2 23.81 0.34 24.62 103.40
taken is dependent on delays at each of the links.
Coal 36 157.30 2.25 473.85 301.24
Power 20 5893.84 84.48 2196.03 37.26 Total 99 6976.59 100.00 3917.70 56.15 Thus: According to the Audit Report, the results of
investigations conducted for mineral exploration
and the

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
resources established, are embodied in the to illustrate this vicious circle of delays, we the public sector, is the unexamined assumption that
geological reports prepared by the discuss a few cases below. a public enterprise should patronize another. Such
company ... such reports are required to bc have stood in the way of the use attitudes of private
submitted to the GOI [government of India] CONSTRUCTION AND EQUIPMENT SUPPLY contractors and equipment suppliers even when they
in the course of promotional projects and to were available and probably had better expertise than
agency [NCDC/Coal plex, besides the In the case of the Khetri Copper Com- concerned
the public sector. Even critical bodies like the
problems related to poor Companies]/state
governments in the case ground surveys, "the delay in implementation
tion of the project was also partly due to of contractual projects. For delay or non-
CPU have been victims of this presumption.
construction/supply of material by liable to submission of the report, the company is delay in
Thus, in the award of construction contracts, in the case of
penal... During 1973-74-1982-83 other public
undertakings such as MAMC the company Hindustan Photo Films'
Machinery projects and 133 contractual completed 41 promotional pro- [Mining and Allied
(HPF's) unit in Ootacamund, the CPU criticized
Projects were delays in submission of projects... there Corporation], NPCC [National the government for not using public sector
respect of 61.5 per cent of projects.."' 4reports in Construction Corporation], and FACT construction firms. 25 The big problem of course is that
structural construction plant was delayed[Fertilisers and Chemicals Travancore]. Civil and for many of the construction, equipment and
When asked the reasons for delay "MECL
by 20 months due to lack of practical experience
technical services requirements of the public sector
informed in a note that the main reasons from the NPCC. There was a delay in the
were delays in receipt of analytical reports
execution of the turnkey contract by FACT
there are no competing private sector firms.
from the Central Fuel Research Institute
for the acid-cum-fertiliser plant, whereas
[CFRI], and other laboratories... changes/ MAMC delayed certain supplies". COSIS OF LEARNING BY DOING
revisions of specifications". 15 Other
internal problems were a shortage of A purely managerial perspective may lead one
skilled manpower, weak management, to root this vicious circle of delays eventually in the
lack of modern technology to speed up The Bailadila Iron Ore project, had high inadequate project implementation practices in
drafting and report writing work. Thus, priority since it was set up to exploit iron ore public enterprises. Yet, there may be other
"[in the projects undertaken by MECL] deposits for export to Japan to earn scarce underlying more general factors which have their
there was inadequate planning, inadequate manage-
foreign exchange, and more importantly the roots in planning,
ment and control reflected in cost and time Japanese were known to be persistent upon and sometimes reflect a cost that has to be
overruns, delays in closure of camps, low delivery targets being strictly adhered to . Yet, borne when economic development is sought to
productivity per worker,... idleness of despite the importance attached to this project, be fostered through the plans. As mentioned
equipment and manpower to say the least",'6 lapses on the part of MAMC, and HEC [Heavy elsewhere, the quintessence of planning in India
and further it is surprising to note "that until Engineering Corporation] for equipment, a,id implies that public sector investments lead the
recently [circa 1980] the company had no NPCC for construction of a tunnel, meant that development of the economy. This often means
system of project co-ordination with the the project was commissioned late. The CPU that particular enterprises which are given the
clients and association of geologists to noted "with concern that even the present task of producing equipment such as BHEL, or
assess the correctness or otherwise of the estimates
anticipated [twice revised, circa 1975] MAMC, or of developing a technical skill made
Engineering Projects (India) (EPIL) completion [date]... cannot be adhered to".21 by it and take corrective measures. such as
[Hence little scope for learning by doing,
the case of the Bohajan plant of the marketsso or inEngineers
other firmsIndia (EIL),
(often fromwould have their vital in an area like mineral exploration and In
the public
Corporation of India, due to the sector), which are users of these equipments formation development). even after 12 years of its Cement
war and strikes at the plants of or services. Provision of preferential access to lay downthe company has not been able Bangladesh
Babcock, its principal equip- against international firms would often POL/bits/productivityany norms for consumption of ACC Vickers
could be effective- mean that the costs of learning by doing operating in a given strata/ of machines... ment suppliers, the project
Earlier there which are a real cost get passed on to the ment of manpower, [etc]."7 were mineral, deploy- ly be taken up only in 1972.
firms in the form of delays in equip- That not only coal but other mining pro- had led to delays in award of the contract which user
improper or faulty project projects are plagued by inadequate surveys is the necessary increase in the cost of ment supply,
escalation in equipment. A illustrated by the case of Khetri copper min- "delaysproject.More
in the importantly, after 1972 , design, cost
particularly a large one ing and smelting project: "The basic bungl- by the HEC [as subsupply of large size castings developing country,
altered the economics of in making available mild steel to ACC by tained growth and, build -contractors], and delays ing that materially
up technological Hindustan Steel [were responsible for the project was the gross has to incur these costs if it has to have sus-
except the ore deposits at Khetri... ap- delays]". 22 In 1974, everythingoverestimation

else of self-reliance. But it would be more
view as well as for transparency of deposits
the ac- were andpropriate fromfrom
the castings the administrative
HEC were awaited.point of reassessed [after the project had started
place] and scaled down to 40m tonnes bearmuch theseofcosts,
the implementation hadare
the supplier firms already
of counted, if instead of letting the user firms take
subsidized. from a level of 106m tonnes 0.91 per cent average grade of copper directly
In the case of Hindustan Paper
of 1 per cent grade. Curiously,
formulation ... A more amateurish handling Corporation 's Nagaland paper project there were no detailed geological studies before project
planning of Khetri Copper Complex of the
not basic assessment
only were the cost of a projectprepared
estimates cannot be expected from any quarter,"' 8 and, "... the
in construction and equipment supply typifies theby way
theprojects
Nationalshould not be
Industrial planned".'9 It is through the delays
Development
where the public sector firms as Corporation (NIDC), as technical consultants, Throughout the sixties and the early
consultants and equipment suppliers "unrealistic [but they were] incomplete and seventies,
electricitystate
boards reported teething problems
contribute most to time and cost over- all aspects of the pro- by BHEL. The with equipment supplied did not take care of
runs. Thus in all, except four cases, the contractors, they were by the government's problem was compounded ject. . .?".23 As turnkey
construction and contracting firms responsibledelays
for and cost overruns. decision to move quickly responsible for the
delays were known to be in PS. in order In the case of the Damodar Valley from 100 MW sets to 210 and then to 500
Corporation 's (DVC's) early large projects, slip- MW without allowing either BHEL or the
pages in delivery schedules by Bharat electricity boards the time to master the
Electricals (BHEL) ) and Heavy ElectricalsHeavy peculiarities of operations at each of the
India, [later merged with BHEL] were capacities. It is debatable whether the enormous costs
important reasons for the delay dependence of learning by doing, and yet among the
of these projects.24 justified, given the upon foreign technology were in commissioning
this vicious circle - ing on say 210 MWalternative of standardis- A factor that strengthens
in large part from within sets for a long enough clear of delays, emanating
M-160 Economic and Political Weekly Nov. 24, 199

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
period. But the fact remains that if 500 MW units ing background, I knew they could not [the] history of Hindustan Shipyard has not delivered
had to be manufactured for use in a these rigs within the stipulated time, been very good. But in the recent past [since but it was
small market that is India, then the (large) forced down my throat [by].... The 1982], as a result of very dynamic management - ministry
costs of learning by doing had to be borne from the national angle. The ment, they have shown tremendous improvements - the government
somewhere. says that you have to develop ments. But in spite of that, they are not able to let us consider the
case of the oil and indigenous industry. There is a committee to meet the delivery and price requirements of Natural Gas Commission (ONGC's)
pro- of secretaries for this'. 27 And further, "a of ONGC. These platforms are required for curement ofequipment from indigenous number of
contracts have been signed by the oil production. A rig is delayed. I can com- suppliers mostly all in the public sector.
ONGC and Mazgaon Docks. In this case we are penalized by paying extra money. But if a plat-
Following the oil crisis of 1973, high priority was notkeen to place orders for more than form is delayed,there is no other way but was accorded to oil
exploration and ac- one jack-up rig. The government said that to lose production, . . . I cannot afford to accelerated development. Indeed, the
priority we should place orders for three".28 take achance in platform delivery. The price accorded was so high that ONGC was given is some
times three times more'.30 ONGC had placed orders enterprises)
with local firms
underthe the
mandate to go
induction ahead without
facilities and build its pro- (most of them public
waiting for in- with ONGC were of foreign flags. 'Today policy of indigenization of equipment by the In 1980-81, nearly all the vessels on chartei
digenous equipment suppliers to develop and oil industry.
same. ItNearly
was onlyall the itemsinhad
delayed thebeen oneas
eighties hundred
Table per cent are of Indian flags ... But supply the
A shows. we have suffered'. Regarding Mazgaon that pressures endured to accommodate in- Docks orders were placed and ' we have to Special
efforts were made to speed up digenous suppliers. ONGC's responses and delivery of equipment. A task force to 'sit pay for the rigs to be
delivered. It is already every fortnight to sort out the problems, 30 months.
deliver'. And I have
in the case- no idea[it]
of BHEL, whenis they will [which] should speed up the whole process
the comments of its chairman which we shall

examine below bring out clearly the contradiction '
between accelerated development of a particular giving us endless trouble, but of course it
of manufacture..' was constituted. 'Govern-
sector, and the development of all or a majority of
has ment's policy is to encourage the manufact- improved and we have placed more
the sectors. rigs'. 3' ture of oil field equipment indigenously orders ... for 20
both Purely bureaucratic delays could not have in the public and the private sectors We would, therefore, conclude that in-
subject been an important factor in the case of to their meeting the requirements of herein in the policy of import substitution- ONGC's
projects since it was accorded a specification, delivery schedules and being making everything that can be made in the priority high
enough to rough ride the delays within the price preference available. In order for a country with only a secondary reference to that a slow
moving bureaucracy might have to achieve this, a number of incentives are costs and the required amounts-there are imposed. Thus:
'a yearly analysis of the being given to indigenous manufacturers the real problems that arise, which cannot be shortfall in Plan
expenditure on ONGC dur- such as concessional customs duties, benefits handled by them administrative change or ing the 6th Plan
[1979-80 -1984-85] had of deemed export and price preference up by changes in penalty clauses in the contracts indicated the main
reasons as slippage in to 35 per cent depending upon the quantum with equipment suppliers. indeed, even when procurement of
capital equipment and there is a foreign contracting party,
proposals forpenalties
rigs, are of domestic
made value
against ICBadded when the supplies delays in finalizing
[International Com- munication is hardly the answer. Firstly no party would vehicles, etc. The ministry had made efforts (petitive
bidding). ... During the Sixth Plan agreed to a clause which covers delays due to to expedite deliveries from PS undertakings the
savings in imports were estimated to be unforeseen circumstances, natural cala- such as MDL, [Mazgaon Docks], BHEL, mities,
power failure (endemic in the Indian of the order of Rs 1,900
[1985-86], crore. During
the savings the BPCL [Bharat Pumps and Compressor], current years
are situation).
Moreover delays in implementa- HSL, [Hindustan Shipyard] etc, not estimated to be around Rs 600 crore'. 29 But, tion unrelated to
the particular equipment through letters [the usual response of a delays there were. Incentives alone cannot supplier often gives an
opportunity bureaucracy when confronted with problems cover the cost of learning by doing as there is to the supplier to invalidate
performance of co-ordination] but by holding meetings is a time element to learning which cannot guarantees. 32 with supplier organizations
and be covered other than with time. Thus, theministries,26 (emphasis added). Yet there is experience with
regard to the supplies to were delays which are traceable to the fact ONGC bear this out.
While Hindustan were
other equipment that such activities
being as supply
undertaken of rigs
for most
Shipyard
platforms,and
of the could
they were
have not
manufactured
en- the firstall
time:
or ENVIRONMENTAL PROBLEMS
Thus: 'Unfortunately, trusted with the job, but instead were given sometimes the
ordering of equipment is not a contract to manufacture less critical (from in our [ONGC's] Not all delays in equipment supply and
hands, I would give you the point of view of ONGC being able to the example of jack- construction by the public sector, and certainly by
up rigs. I opposed this meeting its production targets) equipment such order, because on the private sector units, have their origin in the costs
account of my engineer- as offshore vessels. According to ONGC of learning by doing. When equipment is being
manufactured for the first time by the company
there are extra costs, but not otherwise. Yet
delays in equipment supply are quite common
here , in fairly well known service activities such
TABILE A: ONGC'S ORDERS WITH LOCAL FIRMS as surveying, detailed engineering , consultancy
where the technology is not being bought for the first
Name of the Undertaking Total No of No of Delay
time there are no justifiable reasons for delays
EquipmentEquipment
although there may be justifia.ble reasons for
Ordered Supplied
price support or subsidization and preferences.
BHEL 21 19 1-9 months
Bharat Pumps and Compressors 14 13 1-48 months
Mazgaon Docks 24 23 In most items delay over 20
months and up to 36 months
A not insubstantial part of equipment
Hindustan Shipyard 7 5 1-7 months, 2 items yet to be manufacture in India is really equipment fabrication
delivered
with shop-floor drawings obtained from technical
HDPE* 2 2 2 months each collaborators abroad (there are exceptions such
Goa Shipyard 3 3 2-6 months
as in the case of BHEL and HMT where the
Garden Reach Ship Builders
technology is embedded deeper), and as such
and Engineers 3 3 2 months each
there are few uncertainties arising out of the
Burn Standard 2 2 8-20 months
technology.
* This unit's tull name was not revealed in the original source. This is particularly so where the equipment

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
is not being fabricated for the first time. In such perusal at high level, is supposed to be made in package resulting in delays and cost overruns.
cases there can be little reason 'for meetings (of high officials from different Evidence in this regard is hard to come by, but the CPU
delays. ministries) to monitor and speed up has mentioned at least two cases where one of
But the vicious circle of delays runs implementation . First of all, the number of the contributing factors was the improper choice of
deeper. Equipment suppliers are themselves performance reports which an over burdened the foreign
subject to delays on account of delayed technical consultants. 34
industry ministry has to handle is far beyond its
availability of materials, power failures, Changes in the scope of the project much after
ability. When a department of the government is
delays in component and other equipment the project is approved and implementation has
weighed down with all the meetings for
supply. We have not collected systematic begun, changes in government policy which
approvals, we can hardly expect it to have the
evidence on this aspect. But it is a well would warrant changes in the project, are
time for the large number of review meetings
known practice among, project contractors every year. important factors, that reflect on the poor decision-
in India including equipment suppliers, to Similarly, direct efforts at co-ordination, keep a making superstructure of the public sector. The
careful note of the time lost due to except in a few cases, have been failures. In Rihand Stage I of NTPC was affected by delays
circumstances beyond their control such as very many cases, the government is far too in decision- making owing to a genuine problem
power failure, so that in the final reckoning tied up to have any further contact with a they that cropped up: After sanction of the project,
are quite successful in avoiding the. project once it is approved except in a formal penalty, that
is usually incorporated in sense. In some other cases when demands supply and the transmission line to Delhi was not sanc-
construction contracts. Govern- were placed on the government to lend its ment's efforts at tioned quickly since the central electricity authority
breaking this 'vicious circle might to help solve the problem of co- cle of delays'. have not wanted to examine the question of the relative merits
been particularly effective between different public
enter- tives except where great priorities of a high voltage DC versus AC for long distance
have been prises involved in the project implementation- accorded to the particular project transmission in minimizing transmission losses.
or set of tion, government has either not responded to projects. Injunctions of the CPU, as 35 But in very many other cases, the changes in
well as or its response was far too slow. This has pressures from other bodies to speed up scope have arisen out of a lack of prior
im- been so for, instance in the case of Khetri implementation has led the government to appreciation of the problems, and incomplete or
set up a system of monitoring and, control were revealed- Copper Project. 33 poorly planned projects which
for the management of project implementation. Besides, attempts
failure of government resourcesat(funds) constraint
the case of and ed as such during implementation. Thus in the
project implementation - in several other coal the Khetri Copper mines, and co-ordination during
But the system has really been a dead duck. considered, there were substantial changes inprojects, there were tions which we have already
Except for projects with high priority, or those scope which had their are other factors that relate to the
immediate source actually in poor ground surveys.
from departments with few projects going on at any below: The foreign exchange superstructure of the public enterprise. These we consider
particular time, for most departments the number
of projects is far too large for the government to For BALCO's Korba Smelter, which showed a
handle, given constraints has been known to have led its style of functioning. Quarterly progress of final cost overrun that exceeded 86 per cent over
government to contract with inferior, inex- reports are envisaged, and thereafter a experienced consultants, the original cost, the associated
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152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
had to be developed. Delay in decision- making Similarly, in the case of 'the Barauni refinery taken a long time in approving the revised
on this mine resulted in the mine being project of the Indian Oil Corporation the choice estimates.
operational only in late 1985, when it should of the type of crude to be used was not But the more important malaise is that the
have gone on stream in 1981! Mean- while, to decided (it was changed twice-during, and approval of revised estimates has become a farce.
use the smelter which good been after implementation), the petty details of the In theory, the rationale for approval of revised estimates
commissioned earlier, ore had to be purchased , but project were subject to in depth scrutiny which is that the government can again critically examine the
without their own mine, operations were below did not serve any purpose. Furthermore, at changes both in scope and due to price increases
capacity. Earlier, in the first phase while one of the Barauni, a kerosene treatment plant (unit II) and come to the conclusion that they are necessary,
alumina plants was ready the smelting operations was installed and that the projects continue to be viable both
could not be commissioned. In the case of the led at a cost of Rs 1.24 crore. It was idle financially and in an economic sense. Government
BALCO because the associated atmospheric unit II has so far,
projects, what appears as delays in approvals, was not commissioned. Even when this was
are actually due to real factors such as resources commissioned, later, the unit 'could not be shied away from automatic approval of revised estimates,
crunch which had delayed the decision particularly the kerosene obtained from the middle-east that entirely arise out of inflation operated as
as regards the source of technology, problems crude did not require sulfur tion, or to the provision of such increases in costs in the formulation
with technical collaborators , delay in tying up therefore, decided- itself. 'This escalation is of the project dioxide extraction. It was
credit sources, etc. 36 The case also illustrates plant in the while sanctioning the estimates, not
as itprovided for ed to use the kerosene treatment
the fact that expected to be commissioned in 1976 [two was so Bongaigon refinery which was
when serious technical questions arise, the years later] decided, on the consideration that provision for future escalation in estimates will
government's ability to quickly assess and was Rs. 25 lakh'. 38 result in exqessive only ... the cost of dismantling and putting up
decide is limited. The only significant exceptions expenditure on the project as the natural tendency for contractors and project authorities will be
are perhaps the railway and power projects . In to spend more basel on sanctioned costs' 39
the case of power projects the government REVISED ESTIMATES AND APPROVAL
[emphasis added]. Here, we have an
has developed an expert body in the form of important message: the government itself
the central electricity authority (CEA), which As projects get delayed during the implementation does not believe in its ability to control costs,
carries out the evaluation assessment and builds up cost overruns, they competently. In the case ofdespite the FR/DPR, and its detailed
Indian Petro- have to come to the government for approval chemicals' (IPCL) aromatics plant, the of'appraisal'.
the It really does not believe that the
'revised' estimates. The process of ap- indigenous component of plant and equip- proval of revised FR/DPR can serve as a budget or a guide. It
estimates, which takes place was sought to be pushed up after the after implementation has is helpful enough to sometimes attempt cost
begun is known to project had started. This was one of the root has delayed several projects. control by the primitive method of under
BALCO's causes for delay which in turn led to higher alumina and smelter plants, the Indian provision for expenditure.
Oil costs on imported machines as the rupee Corporation's Haldia, Barauni and Gujarat
refineries, FACT's Cochin Phase I project, depreciated with respect to foreign currencies
period. 37 particularly the deutsche mark over the Revised estimates are more often than not
are some of those that were known to have a post facto regularization of what has taken place.
been delayed due to the government having Thus, the CPU noted that in the case
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152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
of Hindustan Photo Films' (HPF) black and poration's Haldia refinery project: 'The committee 'unrealistic, incomplete and did not take full care of all
white film project, the original approved cost [CPU] were informed that the aspects of the project.' The fact that the estimates were
was Rs 6.08 crore, in 1961. This was revised revised estimates as approved by the government revised several times
by the company to Rs 8.37 crore in 1962, to are not final and the project cost would go up due and yet the government could not critically or carefully
Rs 11.6 crore in 1970 and further to Rs 11.7 to delay in commissioning of the refinery, and the examine the project spoke5 much about the ineffectiveness
crore. "It has been admitted [by the government] extent of revision would be worked out only after of appraisal by the government. Similarly, the
during the evidence [before the CPU] that the effectthe
of completion of the project [!]. The committee case of the National Mineral Development
increasing in the stressed that revised estimates of the project Corporation 's (NMDC) newer projects, besides
project cost on the economies of the project was should not be treated as a mere completion report, bringing out the incompetence of the company ,
not assessed, while approving the final revised but also brings out the formality that approval of
estimates". 40 And HPF's case should be seen as an instrument of finance revised cost estimates has
was certainly not an isolated one in the early cial control'. 42 For the Cochin Phase I project
seventies. 'The committee [CPU] takes a of FACT, the original estimate approved was Rs become. A few of the other cases where ex-
serious view that in spite of their repeated 39.72 crore. They were 'revised' thrice upwards penditures were known to have been incurred
recommendations in several of theirs to reach a figure of Rs 63 crore in January, before appraisal or much before the approval
reports. . ., that the economics of the project 1973. 'The committee [CPU] regrets that none of revised estimates, are, HMT's tractor project,
on account of revision should be examined , of the estimates was approved by the the Khetri Copper Project, DVC's Chandrapur
and new schemes, etc, introduced should be government so far. It is surprising [not to us] projects, and Hindustan Teleprinters' electric
specifically brought to the notice of parliament, that FACT instead of getting the revised typewriter project.
government has neither considered the estimates, informed the government that it would
economics of the project on revision - sion of have approved approach government for FORMALITY OF IRR
estimates nor brought such additions specifically approval of the revised estimates after
to the notice of parliament. 4' commissioning of the plant. ...The ministry also Given the purely formal role of approval of
We are not so much concerned with the fact allowed FACT to proceed with incurring revised estimates, it is hardly surprising that a
that revisions, schemes etc, are not brought to the expenditure without sanction of the estimates... minimum IRR of 12 per cent as a decision
notice of parliament as much as the fact that the The committee are distressed criterion has become quite mean- less. Thus, in
impact of the revisions on the original economics sed to note that the government in spite of the case of the Bailadilla Iron Ore project, cost
was not considered. This makes a mockery of the increase on several accounts did not go escalations meant that the government, knowing
detailed appraisal process, rendering decision into the economics of the revision, but only fully well that it would make losses on every tonne
criteria such as a cut off internal rate of return (IRR) stated that they took into consideration, the of ore exported , had to continue with it. In the
of 12 per cent for instance, to which so much revised estimates for their budget proposals' . case of NMDCs phosphate mining project later
importance is given in the appraisal process, quite 43 Estimates incorporated as Pyrites, Phosphates and
meaningless. for the Hindustan Paper Cor- poration's Chemicals Ltd, the project was implemented
Nagaland Paper Project, where the DPR without any feasibility study. In case of
Consider the case of the Indian Oil Cor- was prepared by the NIDC, were
Import substitutions An
opportunities for the dividend paying company.
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Textool will soon commence the
And a profitable one for investors.
. .-l -'. -.i-
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152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
Khetri Copper the fact that investments had already planned project, where in the government cases where either the financial rate of return simply
been made meant that a project with a negative rate of did not have the expertise to critically or the economic IRR is over 12 per cent but examine
return had to be continued. the technical feasibility. the other one falls short of the norm and The problem, that in very
When IRR's are not affected due to cost many cases the administrative ministry still considers it essential that the project should be
overruns, such as for fertilizer projects where the pricing criteria of a minimum or cut off rate of taken up return does in actual practice get
is on a cost plus basis, the IRR is a priori meaningless. shunted to for implementation, the reasons there for the background, has its roots in the
For the Nangal basic (sic) should be gone into detail at the pre- contradiction of simultaneously appraising PIB
Expansion, Bhatinda and Panipat Projects of meeting and also set out in the memo- projects and deriving them from the plans. random
the National Fertilisers (NFL), 'heavy cost for the PIB. The PIB shall consider The investment targets that emerge out of such cases,
overruns ranging from 58 per cent to 75 per cent only in exceptional planning of the consistency type of circumstances mean that and that too
over the original estimates has also resulted in only if the projects are in the one has to invest, whatever the IRR. core sector'.47 In actual
the increase of cost of production of urea practice, the contradiction between plan based investment and return to capital (IRR) based
ranging from Rs 129 to 296 per tonne'.45 Yet Appraisal and also IRR has a role but only to select investment decisions is 'resolved' in a way
the IRRs (per cent at 90 per cent capacity between different alternatives. the that pretends project with the highest IRK
utilization) for the projects were as shown in selected. In- that there is no contradiction; ie, from any of the alternatives would have to be
Table B. by assumed- stead government has 'decided that only ing that the area of overlap between
the set of those projects with a financial rate of return of suitable projects derived from these
TB IE B
two and an internal economic rate of return, criterion is very large, when in actual practice -
Nangal Bhatinida Panipat both exceeding 12 per cent, should be put tice it may not be. The fact that very many to the
Expansions PIB [Public Investment Board] for projects which start out with high IRRs only to finally show
low or negative IRRs is their consideration in future. The economic reflection of this wishing
Original 0. 9 3 1 9.9 0 20. 7 estimmate 10.63 computed... ex- tradiction. This leads us to a away of the con- internal rate of return be
22.40 22.6
actual adopting a confirmed by several senior further insight including taxes and *duties,
government intimately connected with pro- officials in the premium of 25 per cent on foreign exchange
Therefore the cost plus pricing formula provides appraisal: Projects are purposefully transport and shadow pricing for energy costs, project
only a disincentive to control project costs. In the a high IRR, and once the ap- Under no charges, etc, where necessary... presented with
case of the Scooters India Project, the project cost and economic internal proval is obtainedcircumstances shall projects with both the financial
went up from Rs 10.90 cirore to Rs 21.87 crore, ie, below 12 per cent be tation has actually and the project implementation rate of return falling
it more than doubled, bringing down the return on begun, or after substan- considered by the PIB'. 46 Tial investments have already been made,
investment from a fantastic 44 per cent to a negative On paper there was little scope of projects does the 'truth' of its economic return come out when
value. Here, the problem was that the IRR was the revised estimates are presented.
looked upon as a mere formality.
with one of the IRRs falling below the cut off rate
The cost overrun which arose was not due being taken up. Thus, the same office The real picture may only emerge in stages.
to delays as such but to the fact of a badly memorandum continued: 'In those The obvious corollary is that government's
Profits up by 300% Highlights *

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? Eariiing per Sliare Rs. 27.75 for Year Ending
31-3-1990) and Rs. 27.40 for HALF YEAR ending
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152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
appraisal process is quite incapable (except guidelines. But this small merit of bureau- should have. In the short run, this practice in areas
like power) to detect this systematic cracies becomes a curse when the procedures allow the government to take up more pro - over-estimation
of return. It is not merely a need to change, and the issues for consideration than it can be given its resources, but the pressure from the
enterprises to obtain change, as-the environment and the resources are tied up for longer periods. The several projects going that leads them
to intention of decisions change. In the Indian case, 'capital (waste) factor' i.e., the 'capital flate the figures related to returns, but there is
whatever little learning of complex tasks, X time' that is lost on account of time and can be pressures from the government such as appraisal,
that could have taken cost overruns is at a colossal level of more departments themselves to push through place around individuals or small
groups than 190 per cent even on a liberal estimate. uneconomic projects. Here the usual within bureaucracies is entirely vitiated by In other
words, the government could have taken pressure of a bureaucracy to e'pand may not the frequent .,transfers of its officers. up and completed
at about twice as many to be particularly important. Political
pressure Appraisal should have been the primary projects (in cost terms) more than what it
is to take up particular projects, locations, and the responsibility of the firms allowing therefore does today in a given period if it could have
technology and equipment would be the for the possibility of learning by doing, and broken out of this vicious circle of time and more important
ones. The lack of systematic accumulation of skills. Furthermore, such evidence in this regard should not let us an arrangement would have
brought project underrate this factor in its contribution to implementation and appraisal cost overruns.
together such as natural calamities, political disturbances- making the firms directly responsible Broadly, the purely environmental factors
for bance, labor strife are of least importance implementation. But this means that the
govern- in explaining costs and time overruns. Factors
time and cost overruns. Well known cases ment is divested of much arbitrary power relatedto public enterprises as a whole- making its
of uneconomic projects taken up due to intervention more fruitful which poor project planning and management would certainly not be
political pressure are the Visakhapatnam in the interest of skills, inadequate technical skills, or poorly powerful groups: the bureaucracy,
steel plant, as also the particular choice or the politi- done ground surveys in the case of mining Like the 'revised estimates', the comple-
site for Hindustan Paper Corporation's project cians, and also. much of the top managers projects, delays in construction and equipment report
in the north-west. which has to be submitted by the of the enterprises who under the present ment supply by
other public enterprises are project authorities is largely a formal re- arrangement can easily displace and diffuse the most important set
of facts. Delays in requirements. In the case of two of DVC's pro- their responsibilities. construction and equipment supply (largely injections,
as brought out by the CPU, the company by other public enterprises) is the most implementation Report had not even been submitted among
this class of factors. Here ted.48 Little or no use is made of these too, the problem has the characteristics of a vicious circle The large linkages
between public investments implies that delays in an attendant cost overruns have become a few enterprises get transmitted to other regular
features of the public sector-projects. enterprises either as delays in supplies, III or in Official statistics suitably adjusted reveal the way of the
expected market demand that the projects under implementation being pushed into the future. which were scheduled for completion during
Conclusion
reports. Ostensibly, besides serving as a record, Some of the delays and cost overruns or
they have the potential to sub-serve export analysis Delays in project implementation and the before 1987 had an average cost overrun
and studies of project implementation which could have necessarily arise out of the learning by doing of 82 per cent and time overrun of 70.5 per
led to improvements . Government departments simply that is inherent when new activities are taken up (as import substitutes) and as such are
do not have the time nor the inclination to Escalation in costs is attributable partly perhaps unavoidable. The question of who to the
fact that the original estimates were supposed to bear these costs has not
subject these Reports to analysis. More been prepared at the then current prices, and systematically addressed by the government.
importantly, the very nature of the bureaucracy could partly to delays which enhance the effect of Closely following the first set of inflation factors-and to
make it difficult for it to learn by doing, even direct escalation in costs
granting that some sections of the government cent.
are interested in learning from its past

mistakes. Time and again, departments of
the government and enterprises have pleaded
that the delays and cost overruns are due to
their lack of experience are those related to the immediate super- -the activity being taken up for the first arising out of change in scope , errors, etc.
structure of the public sector-particularly time. Yet there is no evidence of improvement- Based on certain assumptions with regard to the policy
environment and the interface . Thus, to give just one example, in to the pace of expenditure on our projects between government and public
enterprises BALCO's case, the government was admitted to its have roughly computed that for the 133 pro- with specific reference to investment
decisions and pleaded that the National courses which were studied only about 25 to sions. Changes in the scope of the project, the lack of
Aluminum Company (NALCO) to be taken 30 per cent of the cost increase can be of coordination between projects intended later will not suffer from
the same ills. But attributed to inflation. The remaining 70 to be closely interdependent, improperly the NALCO project implementation was 75 per
cent has to be explained in terms of choice of technology, changes in government are also poor. delays, inefficiencies, scope changes, policy changes
- all reflect upon the immediate bounty - The structures within a bureaucracy are in statutory levies, variations in exchange from the enterprise with the
government. In hierarchical, and decision processes are rule rates and to the combined effect of thesetaking upon itself the task of detailed and criteria
oriented. When a bureaucracy appraisal, the government has contributed takes up tasks that are judgment and There are general factors, quite apart
from the displacement of responsibility for analysis oriented (as for example appraisal), specific factors to sectors, that underlie cost improper
project choice away from the quality of its output necessarily
factors with inflation.
suffers. overruns. Inadequate project preparation enterprise where it should largely lie.
Post- Organizations (such as enterprises) can on leading to scope changes during implementation- appraisal monitoring which seeks to rectify the
other hand be task oriented, and so can tation is perhaps the most important reason problems as soon they arise largely for cost and time overruns.
The inadequacies only on paper. cover deficiencies in
demand forecasts, In actual practice, there is little adherence to ground surveys, technology choices,
etc. to a minimum cut off rate of return, despite Inadequate funding delays project implementation
accumulate experience related to complex

activities. In other words, in contrast to
bureaucracies, organizations have or should
have structures and processes that in an the existence of a norm of a minimum in-
essential sense have the ability to learn by mentation which in turn results in cost over- internal rate of return (IRR) of 12 per cent.
doing, and of accumulating skills and runs warranting higher outlays. Short-term Frequent revisions and time and cost over-
experience . The only 'improvement' that can political expediency among other things makes runs make the initially approved (usually very
come with time in a bureaucracy is that due to the government spread its resources thin high, and perhaps unrealistic) IRR quite
the embedding of procedures and over many more projects than that meaningless. The divergence between the

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
initially high projected IRR and the low or negative FIGURE I

IRRs actually obtained may at least in part be on
account of the perverse behavior of enterprises and
c 1 Ca
administrative undertakings pushing their projects
by in- flating the profitability to present a rosy picture
of the projects, because once a project has started
it can hardly be stopped.
Ci~~~~~~~~C
There is a priori contradiction in deriving the

/
projects from the plans and simultaneously insisting
upon a minimum cut off IRR in economic/financial
terms.
IRR as a decision-making criterion can be validly
used in a planning regime of the consistency FIGURE 2
type, only to make the selection from a basket of
projects which vary in terms of their technology,
Ce C
site, capital- labor proportions, etc. One would
obviously select that project with the highest IRR.
The decision on whether or not to invest in

a particular sector is largely derivable from the DE ^ E CO
OR
plans.
Appendix
EEA
SOME NOTES FOR THE COMPUTATIONS OF
'PRICE' AND 'CAPITAL WASTE', FACTORS
Let capital time X for the delay is the shaded area in

and the rest Cp - Co - PF is that due to delays,
0: Original estimated period for commissioning Figure 2. and mixed effects. Hench we may express
(in years) This area = 1/2 (ACa - OCo)+ 1/2 [Ce- (Ca/A) *E] PF/Cost overrun as the percentage price
A: Now anticipated period for commissioning (in *A factor.
years) = 1/2 (ACa+ACeOCo0ECa) ie,
E: Time from approval to date (new) (in years) the increased capital tie-up which we have Notes
defined as the capital factor (CF)
CO: Original estimated cost of project 1/2 (ACa + ACe - OCo - ECa) [I am grateful to the World Bank which sponsored a
(Rs crore) When A, 0, E. are in months it becomes
study titled 'The Process of Investment Decision in
Ca: New anticipated cost of project 1/24 (ACa+ACe - OCO - ECa) therefore the opportunity
the Public Sector-A Study of Delays and Cost
(Rs crore)
cost of delays = r*CF and the 'capital (waste) Overruns'. This paper is based on the same study.
Ce: Expenditure to date (now) (Rs crore) r: the factor' = CF/ Base where Base = (OCO)/24. The views expressed here are entirely my own. I am
assumed opportunity cost of capital cost overrun indebted to TL Sankar who initiated this study
= Ca - Co Opportunity cost and guided me throughout its course. My thanks are
of delay = opportunity cost of the extra capital PRICE INCREASE FACTOR also
tied up in the projects.
Assume that project cost estimates do not
We have to get a measure of the extra Capital X take into account the fact of inflation. In that
time tied up account of the delay.
SUBSCRIPTION INVITED
case there would necessarily be an overrun
Assume further that expenditure through- from the original estimates, on account of price APPROACHING NAXALBARI
out the course of a project takes place uniformly. increases alone. Let us also assume that the MARIUS DAMAS
Then the cumulative expenditure increases linearly with the
original cost estimates include an element
time. which arises due to 'capitalization' of interest -a online interpretation of the militant politics in
Then Capital X time cost for this is (tC)/2 costs, ie, the opportunity cost of the borrowed India by an Australian social anthropologist
rupees-years. If the 'assumed' opportunity funds is included in the estimate. highlighting the radical conjuncture of Charu
cost of capital is r per year than the lMzumdar on the backdrop of the theories of
Also assume that all the funds are borrow-
opportunity cost of capital of this project is revolution.
ed at a rate = the opportunity cost of capital.
(rtC)/2 rupees. Price: Rs. 100 (Paperback),
Then let Cw be tne expenditure excluding
If there is delay then the increased capital X Rs. 250 <Hard-bound)
the interest costs. Then
time for the project is indicated by the shaded Subscription Price: Rs 70 (Postage free)
area in Figure 1 or indicated as the CO - C = 1/2 CoOr (for-paperback)
difference between the shaded and the dotted CW(Or/2 + 1 ) = CO Rs. 20 in advance and Rs. 50 at the
areas, which in general = 1/2 (ACa - OCO) cw= Co[2/(Or + 2)] time of receipt, Postage Rs.10
The fact that there is one more point of Let there be a uniform inflation rate p per Date of publicationn January '91 at
data, at E, of Ce leads us to the use of this data Calcutta Book Fair.
annum on the typical basket of items that make
to modify the build up of expenditure as anticipated. up the project expenditure CW Then the contribution
We now assume that up to this point in time (now) Forthcoming:
due to increase in prices
the costs were in- Communism Today. Un PIo Question -
PF = Jf(C/O)(exp(px) - I)dx Amit Roy (in Press)
curred at an uniform rate that cumulates at
= [COI0] [2/(rO + 2)]
E to Ce and after E, the costs could be incurred at Rdical lrqpression, 43
another uniform rate such that over the time A- E, [(exp(pO)-l)/p - 0]
Beniatola Lane.
the costs could be cumulated by the price factor is given In short to the cost overrun, the contribution Calcutta-9
to Ca-Ce. in other words the relevant by the above,

152.118.150.228 on Wed, 10 May 2023 06:21:40 +00:00
due to GVG Raman and VV Ramana who 32 As was the case for instance with the BALCO
Ahluwalia, IJ (1985), Industrial Growth in India
helped me with the data.] smelter, page 16, CPU, VIII LS No 71 (511), Stagnation since the Mid-Sixties, New Delhi,
August 27, 1983. Oxford.
1 For the most recent contribution to the
debate see IJ Ahluwalia (1985).
33 Page 11, CPU, VII LS No 60(495), April 18 Bagchi, AK (1970), Long-term Stagnation of India's
1983, Khetri Copper Project. Industrial Growth in EAG Robinson and M
2 C Rangarajan (1982), PR Brahmananda
34 Khetri Copper Project and BALCO's Kidron (eds) (1970).
(1982).
Alumina Smelter. CPU, VII LS No 60 (495), April 18, 1983
3 1 J Ahluwalia (1985), Ashok Desai (1981). Bagchi AK, Banerji, N (eds) (1984), Change
4 Prabhat Patnaik (1981), NK Chandra (1982), AK and page 16, CPU, VII LS No 71 (511), April and Choice in Indian Industry, Calcutta,
27, 1983 respectively. KP Bagchi.
Bagchi (1970).
35 Page 8, CPU, VII LS No 92, (543), April 22, Brahmananda (1982), Productivity in the
5 As for example in the fertilizer industry where the
1984, NTPC.
retention prices until recently were on a plant level Indian Economy: Rising Inputs for Falling Outputs,
36 Page 12 and 14, CPU, VII LS No 71 (511), Bombay, Himalayas.
cost basis!
Bharat Aluminum Company. Chandra NK (1982), Long-Term Stagnation in the
6 As for instance in the coal and electricity sectors
37 CPU, V LS No 64 (277), April 22, 1975.38 Indian Economy, Economic and Political
where the prices have been pegged down by the
Page 8, CPU, V LS No 65 (279), April 25, Weekly (EPW), Annual No Vol 17, No 14, Page
government.
1975, Indian Oil Corporation. 785.
7 Cf J Satyanarayana (1973).
39 Reply of the government, page 13 CPU, VII LS, Center for Science and Environment (1985), The State of
8 Cf IJ Ahluwalia (1985).
No 37 (458), April 5, 1982, Daniodar Valley India's Environment, 1984-85, New Delhi.
2 The Bureau of Public Enterprises (BPE)
Corporation.
Surveys report only on the projects that are as on a
40 Page 38, CPU, VLS No 70 (290), Desai, Ashok (1981), 'Factors Underlying the
particular date under implementation
Hindustan Photo Films.
tion. Without the information of the date Slow Growth of Indian Industry% EPW, Annual
41 Ibid.
approval or the date of the start of construction- No, March, pp 381-392.
tion, it is difficult to build up a valid pic- 42 Page 7, CPU, V LS No 65 (279), April 25, Guha, Ramachandra (1984), 'Forestry in British
1975, Indian Oil Corporation. and Post British India'. EPW, No 44, pp
ture of the trends in time or cost overruns.
43 Page 38 and 39, CPU, VLS No 81 (305), 1882-1896, and Nos 45 and 46, pp
Even otherwise the data is extremely shoddy and
March 10, 1976, FACT. 1940-47.
there is little consistency from year to year.
44 Page 98, CPU, V LS No 85 (310), April 6, Patnaik, Prabhat (1981), 'An Explanatory
Similarly the data generated by the program
1976, Hindustan Paper Corporation. Hypothesis of the Indian Industrial Stagnation
implementation ministry reports only on all projects
45 CPU, VII LS No 65 (502), National Fertilisers, April
(whether by units under construction or otherwise) ' in AK Bagchi and NB Banerjee (eds) (1984).
26, 1983.
that
46 Pages I and 2 of Office Memorandum from Morris, Sebastian (1987), 'The Process of In-
are being implemented at a point of time.
the ministry of finance, government of India vestment Decisions in the Public Sector: A
Since this data goes only a few years back in time it
(Plan Finance-Il Division), widely circulated Study of Delays and Cost-Overruns',
is difficult to build up any year wise picture
among concerned government departments, Consultancy report sponsored by the
dated August 23, 1984, signed KP World Bank, Institute of Public Enterprise, mimeo.
10 We shall soon define this and the other
Geethakrishnan, joint secretary to the Rangarajan, C (1982), 'Industrial Growth:
quantities.
government of India. Another Look', EPW, Annual No, Vol
11 The public sector has to necessarily submit the 47 Ibid.
project for approval and appraisal by the XVII, Nos 14, 15 and 16.
48 Page 74, CPU, No 37 (458), Damodar Vallcy Robinson EAG and Kidron M (eds) (1970),
government. See Sebastian Morris (1987) for
Corporation, April 5. 1982.
details about this process. Economic Development in South Asia
12 Quoted from aii official report of the program Proceedings , Ceylon, London, Macmillan.
implementation niinistry. References Satyanarayana, J (1973), Accumulated Deficits of
13 This interesting problem of multi-variate analysis the Pub/k Enterprises, IPE, Hyderabad.
Aharoni Yair (1986), The Evolution and *Vaitsos, CV (1978), Inter-Country Income
could not be taken up satisfactorily because in many
states there are too few projects. Management of State Owned Enterprises, Distribution and Transnational Corpora-
Ballinger, Massachusetts. tions, Oxford, Clarendon.
14 Page 17, CPU VIII [-S No 4 (566) 8th August
8, MECL.
15 Page 39, ibid.
16 Page 40, ibid. WATERS OF HOPE
17 Page 8, CPU, VII LS No 18 VII LS, No 18 (426),
April 24, 1981, Khetri Copper Himalaya-Ganga Development and Cooperation for a
Complex. Billion People
18 Page 40, ibid.
19 Page 19, ibid. BG Verghese, Center for Policy Research 1990 456
20 Page 19, ibid.
pages Rs.295.00
21 Page 19, ibid.
22 Page 185, CPU, V [-S No 69 (289), July 17,
1975, Cemenit Corporation of India. This book is based on the study conducted b
23 Page 185, CPU, V l1S No 69 (289), JLinl 17,
Center for Policy Research to examine the waters of the river basins of Ganga, Brahma analyzed
1975, Cemient Corporation of India.
24 Pages 18 attd 19, (CPU, CV II LtS No 16 (423). the causes of the problems and disc
AU1gus t 7, 1981.
25 CPU, V LS No 70 (290), Hindustan Photo
the general improvement of the whole lot in
Films.
26 Page 24, statement of chairman, ONGC to
CPU quoted in CPU, VIl LS No 8 (573) Distributed By . India Book House
April 28, 1986, ONGC.
27 lbid, (statement of the ministry of petroleum).
28 Ibid. Oxford & IBH Publishing Co. Pvt. Ltd.

29 Ibid, page 25.
30 lbid, page 26, (statement of the ministry of 66 Janpath, New Delhi 110001
petroleum, quoted in).
31 Ibid.

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Cost and Time Overruns in Public Sector Projects

Stable URL: https://www.jstor.org/stable/4397023

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Cost and Time Overruns in Public

M-154 Economic and Political Weekly November 24, 1990

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Economic and Political Weekly November 24, 1990 M-155

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projects taken up by 195 per cent. SHORT FUNDING PROJECTS

TABLE 1: SOME DATA ON PROJECTS UNDER IMPLEMENTATION WITH COST EXCEEDING Rs

M-156 Economic and Political Weekly November 24, 1990

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8 Petroleum and natural gas

Notes: 1 Medium and large projects, ie, projects ha

Sector No of Anticipated Cost Outlay for 1986-87 Expenditure Throw- Ratio of

Total 290 69649 100.0 9084 100.0 26065 34501 3.8

Notes: * Throw-forward as on March 31, 1987 is define

Economic and Political Weekly November 24, 1990 M-157

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been aggre- aggregation in the weighted or the unweighted score, the

1 Jammu and Kashmir 1 55.15 961.4 961.4 1590.0 4055.67 4.3

9 Orissa 9 1890.72 102.8 95.3 158.6 7592.47 8.1

Total 133 19566.88 82.3 109.8 195.0 93246.31 100.0

M-158 Economic and Political Weekly November 24, 1990

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Statements amounting to inadequate project

Economic and Political Weekly November 24, 1990 M-159

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except the ore deposits at Khetri... ap- delays]". 22 In 1974, everythingoverestimation

M-160 Economic and Political Weekly Nov. 24, 199

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the comments of its chairman which we shall

Economic and Political Weekly November 24, 1990 M-161

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An existing profit making,

Through LMW, Texttool has access to the

Backed by a world leader.

CORPORATE VOICE 986

M-162 Economic and Political Weekly November 24, 1990

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Of course, we have the usual assets. An existing profit making,

Facilities like its own gray iron and steel

And a state-of-the-art CAD facility.

And the only one with

In technical arrangement with LfMW

Economic and Political Weekly November 24, 1990 M-163

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Indian textile industry. .I` . I-1 :. I..eh '.

V production of Auto Winders in

On its list of products today is a host of other

for the boom

CORPORATE VOICE 988

M-164 Economic and Political Weekly November 24, 1990

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Profits up by 300% Highlights *

Of Textool's past and future. Turnover up by 75C/ / ? Expansion anid Modernization to

? Agenicv activities to contribute to Profits.

? Opportunity to participate in Equlity after

Managers to the Issue:

IX Grindlays Bank pl.c.,

In technical arrangement with LMfW

The No.2. B b N The