Governments at both the state and the federal level generally have a good idea of what projects will provide the largest economic benefit. But most suffer from challenges related to deliverability, governance and project planning. As a result, projects tend to become delayed, experience high cost overruns or get stuck in the project pipeline. A more formal approach to planning and business case development would force projects to create more robust governance structures and address deliverability challenges prior to securing funding.
One of the biggest issues stemming from the lack of a formal business case process is that governments have been forced to focus more on the short term (spending time dealing with project planning and execution) rather than on the long term by taking a more strategic and sustainable view of infrastructure priorities.
Another ongoing limitation on India’s ability to implement large infrastructure projects comes down to land ownership and acquisition. Resistance from local communities has long resulted in disputes and litigation in rural areas, while urban population density growth has made acquiring land in cities increasingly difficult. Growing environmental sensitivities are also creating land disputes along the coastline.
The Modi government’s proposed raft of reforms may do much to unblock the infrastructure pipeline. Included in the program are new land purchase rules, important labor reforms, a reduction in government subsidies and a long pipeline of asset sales.
In the most recent federal budget tabled in March 2015, the government announced a new fiscal framework for the division of taxes between the central and state governments, increasing the allocation towards states by about 10 percent. This, in turn, should provide state governments with more control over the prioritization, planning and funding of infrastructure projects.
However, to truly achieve Modi’s objectives for the country, we believe that India’s governments need to start focusing on creating an ecosystem that prioritizes long-term and sustainable growth. To achieve this, however, India will need to improve the way it plans, prioritizes and executes infrastructure projects at all levels of government.
To learn more, read our full report (PDF 2.5 MB) on economic prioritization, including case studies from India and other markets.