Even as the government is going all-out to attract FDI in the infrastructure space, foreign investors are adopting a wait and watch approach, BMI Research said in a report.
“Despite Prime Minister Narendra Modi government’s efforts to promote foreign investment in India — spearheaded by the ‘Make in India’ programme — construction FDI in past three years has actually fallen despite overall increases in FDI inflows,” the report said.
BMI Research, part of the Fitch Group, further said: “We believe that this indicates lingering challenges in the country’s infrastructure industry, including poor institutional capacity and a cumbersome land acquisition process, that are causing some investors to take a wait-and-see approach.”
Frequent project delays are keeping investors edgy. Data from the Ministry of Statistics and Programme Implementation show that nearly 70 per cent of current infrastructure projects are behind schedule, and more than 80 per cent between 2005 and 2015.
It suggested that if India is able to continue improving its regulatory environment and reducing bureaucratic inefficiencies, investors will become more comfortable taking on a greater role in building the country’s infrastructure sector.
“Given India’s favourable macroeconomic conditions, urbanising population and current infrastructure deficit, the potential gains for both investors and the country are tremendous,” the report noted.
As many as 273 infrastructure projects, including those delayed due to land acquisition, forest clearances and other reasons, have led to a cost overrun of Rs 1.77 lakh crore.
In August 2016, the Ministry of Statistics and Programme Implementation monitored 1,167 infrastructure projects, each worth Rs 150 crore or more, across sectors such as power, railway and roads.
The ministry said in its flash report that out of the 1,167 projects, 282 are on schedule, 337 are delayed, 273 projects reported cost overrun and 85 projects saw both time and cost overrun with respect to their original project implementation schedule.
As per the report, reasons for time overruns as reported by various project implementing agencies are delays in land acquisition, forest clearance and supply of equipment.
Other factors responsible for such delays are fund constraints, geological surprises, problems in equipment installation, geo-mining conditions, slow progress in civil works, shortage of labour, inadequate mobilisation by contractor, Maoist problems, court cases, contractual issues, Right of Use (RoU)/Right of Way (RoW) problems, law and order situation and the like.