Infrastructure projects in India, marred by cost overruns and delays, are in a shambles, with no long-term solutions in sight.
McKinsey Global Institute has come up with steps that would result in substantial savings for the governments, while ensuring faster and efficient delivery.
A report ‘Infrastructure productivity: How to save $1 trillion a year’ by McKinsey Global Institute and McKinsey & Company’s Infrastructure Practice, which will be released today, has listed specific ways to boost global infrastructure productivity that can save 40% on costs.
“Over 18 years, this would be the equivalent of providing $48 trillion of infrastructure for $30 trillion—a saving of $1 trillion (`55 lakh crore) a year,” said the report.
Subbu Narayanswamy, a director in McKinsey’s Infrastructure Practice, told DNA Money the ideas in the report are common for any country the world over.
The report said improving project selection and optimising infrastructure portfolios could save $200 billion a year globally.
“To achieve these savings, owners must use precise selection criteria that ensure proposed projects meet specific goals; develop sophisticated evaluation methods to determine costs and benefits; and prioritise projects at a system level, using transparent, fact-based decision making,” it said.
The second step is to streamline project delivery which could save up to $400 billion annually while accelerating timelines materially; and the third is making the most of existing infrastructure assets could save another $400 billion.
Narayanswamy said while India has its own set of problems in terms of land acquisition and clearances, picking the right projects and using the existing infrastructure to the optimum is important. “Historically, India has been able to achieve 85-90% of the targeted expenditure in infrastructure when the targets were conservative. In the 12th Five Year Plan, the target has been increased, and hence, implementation of these three relevant levers is very crucial.”
He said the country needs to increase infrastructure spending to 7% of the GDP from the current 4.7%.
McKinsey’s analysis suggests that an increase in infrastructure investment equivalent to 1% of GDP would translate into additional 3.4 million direct and indirect jobs in India.