Infra delays to cost GDP $200 bn

Delays and inefficiencies in the execution of infrastructure projects could result in a $200 billion loss to gross domestic product (GDP) by 2017, management consultancy McKinsey & Co said in a report on Wednesday.

“The shortfall in awarding projects as per plan (eleventh and twelfth Five-Year Plans) could result in a $100 billion loss to GDP; time and cost over-runs in project execution could lead to another $80 billion loss; and capital constraints would account for the remaining loss of $20 billion,” Prashant Gupta, partner, McKinsey & Co, said in the report titled ‘Building India: Accelerating Infrastructure Projects’.

The projected GDP loss of $200 billion would be one-tenth of India’s GDP in 2017.
The report added that the delays could also cost the economy 35 million jobs over the next eight years. “In addition, the economy could lose up to $160 billion by forgoing the industrial productivity impact of infrastructure,” the report said.

India is expected to fall well short of its targeted investment of $500 billion between 2007 and 2011. Various reports peg the actual investment to be between $270 billion and $320 billion.

Praveen Sood, chief financial officer, Hindustan Construction Company, said delays in execution of projects would definitely be a huge drag on the economy. “China does any project 2-3 times faster than India. There should basically be a willingness to implement the reform process,” he said, citing the example of Mumbai’s Bandra-Worli sealink, which took 8-9 years to complete compared to the scheduled period of four years.

The McKinsey report cites delays in land acquisition, non-viability of projects and poor quality of design & engineering as some of the primary reasons for the delays.

Parvez Umrigar, managing director, Gammon Infrastructure Projects, agreed with the report on the significance of timely completion of projects. “In the last two years, there has been more debate on the financing of projects than on the development side,” Umrigar said, adding that land acquisition is the most crucial issue for infrastructure development.

S Ramnath, senior vice-president, Shriram EPC, however, did not make much of the report.

He said, “This is nothing new. All these delays are factored into our GDP growth. That’s why we are growing at 6-7% and 10-11%.” He added that the comparison with China does not hold water because of the contrasting styles of government in both nations.