'Delay soars manufacturing project cost by Rs 4.5 lakh cr'

Fund constraints, delay in land acquisition and absence of timely clearances hit roll-out of key manufacturing projects with cost overrun estimated at a whopping Rs 4.5 lakh crore as of FY 2013-14, says an Assocham study.

Of the total live investments worth over Rs 30 lakh crore attracted by the manufacturing sector across India as of financial year 2013-14, about 44.5 per cent investment projects worth over Rs 13 lakh crore have remained non-starter, stated the study.

"The Government needs to ensure time-bound execution of projects and limit the time-frame for clearance by concerned authorities and penalise them if they are not able to meet deadlines," Assocham Secretary General D S Rawat said. "New investments in the manufacturing sector have declined at an annual negative average rate of 21.5 per cent since 2009-10," he added.

The study observed that investors also cause delay in implementation of projects due to reasons like inappropriate planning, change of ownership, lack of co-ordination with contractors and other stakeholders involved.

"Poor execution of investment projects in manufacturing sector across India has resulted in serious cost-push worth over Rs 4.5 lakh crore as of financial year 2013-14, about 44 per cent of their actual cost of over Rs 10 lakh crore. The overruns vary from one month to as high as 50 months, placing the project viability at risk," the study said.

Private sector-based manufacturing investment projects have majority share of about 65 per cent in projects that have registered cost overruns while public sector-owned projects accounted for the remaining 35 per cent, the survey noted. Sector-wise, the steel sector recorded maximum surge of 52 per cent in cost overruns followed by refinery (22 per cent), aluminum and aluminum products (six per cent).

Among states, Odisha has acquired maximum share of 27 per cent in cost overruns in manufacturing sector-specific investment projects across India followed by Jharkhand (13 per cent), Andhra Pradesh (10 per cent), Karnataka (9.6 per cent) and Rajasthan (eight per cent).

Hiring uptrend

India's manufacturing industry is expected to witness a significant uptick in hiring activities in coming years amid improving business sentiments and the government's focus on this sector, HR experts believe.

The recent surveys suggest that export orders are growing considerably, while rising domestic demand is expected to further boost the growth rates for the manufacturing sector.

As part of India's national manufacturing policy (NMP), the country is seeking to boost the sector's growth and ramp up its share in the country's GDP to 25 per cent from the current 15-16 per cent over the next decade. The target is to create 100 million jobs by 2022. Talking about the steps required to meet this target can be achieved, leading industrial manufacturing major Aequs' Chairman and CEO Aravind Melligeri said: "As for most of the policies, successful implementation will depend on enabling legislation."

While the Union Budget 2014-15 had many encouraging signals for manufacturing and business sentiment has improved, there was less than expected progress on tax and labour law reforms, particularly with regard to SEZs, he said.

"Hiring will happen across grades right from the shop- floor machine operator to administrative department to front- office as it’ll be a holistic capacitative expansion of plants and not just increasing capability," Melligeri said.