The cost overrun has become a major hurdle for infrastructure development in addition to increasing the burden on the public money. The reasons for cost overrun are many as delay in project implementation, delay in land acquisition, delay in obtaining forest and environment clearances, and lack of infrastructure support and linkages, etc. The new factor that’s been added to this list was Covid-19.
According to a latest report for December 2020 from Union Ministry of Statistics and Programme Implementation, as many as 450 infrastructure projects, each worth Rs 150 crore or more, were hit by cost overruns. This has resulted in a cost escalation over Rs 4.28 lakh crore, observed the Union Ministry of Statistics and Programme Implementation, which monitors infrastructure projects worth Rs 150 crore and above. Of the 1,687 such projects, 450 reported cost overruns and 558 were delayed.
The ministry further stated that “total original cost of implementation of the 1,687 projects was Rs 21,44,627.66 crore and their anticipated completion cost is likely to be Rs 25,72,670.28 crore, which reflects overall cost overruns of Rs 4,28,042.62 crore (19.96 per cent of original cost). The expenditure incurred on these projects till December 2020 was Rs 12,17,692.37 crore, which was 47.33 per cent of the anticipated cost of the projects. However, the number of delayed projects decreases to 408 if delay is calculated on the basis of latest schedule of completion.”
Further, for 923 projects, neither the year of commissioning nor the tentative gestation period has been reported. Out of 558 delayed projects, 111 projects have overall delay in the range of 1-12 months and 135 projects have delay of 13-24 months. As many as 187 projects reflect delay in the range of 25-60 months and 125 projects show delay of 61 months and above. The average time overrun in these 558 delayed projects is 45 months, as per the report.
Delay in tie-up for project financing, delay in finalisation of detailed engineering, change in scope, delay in tendering, ordering and equipment supply, and law and order problems, among others, are the other reasons, the report said.
The report also remarked that “state-wise lockdown due to Covid-19 as a reason for delay in implementation of these projects. Project agencies are not reporting revised cost estimates and commissioning schedules for many projects, which suggests that time and cost overrun figures are under-reported, it added.
FII Inflows Slow Down
In an interesting development that took place in the wake of Covid-19 in the Indian stock market is the surge in retail investors’ participation thanks to the Covid-19 induced lockdown in the country. Middleclass and upper middleclass sections with their surplus money switched over to the stock markets to park their funds as they don’t find any other venue to make their investments. Further, many became jobless or working underemployment during the lockdown period. Things not improved after the Unlock 6.0 came into force. This situation left salaried people with no other option, but the capital market. On the other hand, foreign institutional investors (FIIs) turned a bit slower on Indian capital market. FIIs had been the major driving force that took the key indices doubled in a short span of 10 months. The day is not far off, when retail investors will take over driver’s seat, forecasts foreign brokerage firm UBS. The retail participation will be a such huge level that can dwarf FII inflows into the domestic markets in next two years, remarked UBS, while stating that domestic investors are channelizing their savings to capital markets in search for a better return.
On the other hand, role of foreign liquidity has been witnessing a lesser impact with retail investors becoming more active, said UBS in its latest report, which is based on a survey done in November 2020. The survey interacted with urban consumers with an average income of Rs 95,000 per month.
“Overall, when we combine household equity savings through mutual funds and direct share purchase, we see that households are a material force to be reckoned with: overall 25 per cent higher than FPI net inflows over the last two years,” said Sunil Tirumalai, executive director and India Strategist at UBS in a January 20 co-authored note with Dipojjal Saha and Akshay Gattani.
The major factor for the increased retail participation in the capital market was the lockdown triggered by Covid-19 that saw investors channelizing their savings to capital markets. The need to increase their disposable income was top priority for retail investors. The share of individual retail client participation in capital markets at the NSE rose to 46 per cent in 2020-21 fiscal on year-to-date (YTD) basis, when compared to 39 per cent in FY20, UBS said.
The first nine months of 2020 also witnessed rise in wealth of Indian households. According to UBS, the Indian household wealth stood at Rs 22 trillion ($300 billion), up nine per cent compared to the five-year trend.
SBI Ecowrap, State Bank of India’s (SBI) economic wing, also stated that consumer spending habits also changed significantly during 2020 within essential / non-discretionary and non-essential /discretionary items. The Ecowrap report observed that the share of discretionary spends that had reached as much as 35 per cent of total cards spending in February crashed to 15 per cent in April. Since April, the share of discretionary spends has, however, were volatile ranging from 15 per cent to 35 per cent. “This reflects that consumers are uncertain when to splurge on items of discretionary consumption as uncertainty has prevailed in the minds of consumers with different phases of economy opening,” added Dr Soumya Kanti Ghosh, group chief economic adviser at State Bank of India in a report dated January 22.
The Finapolis Network