Reasons for time and cost overruns in capital projects

In addition to the Challenges in front of Indian Infrastructure Sector here are some important points which I came across in an informative article from Institute of Defence Studies and Analysis.

Many studies have been conducted on capital intensive projects, bringing out a host of factors that cause delay at different stages of projects starting from pre-commissioning to implementation. The points mentioned below are typical reasons why we see delay in capital intensive infrastructure projects in India.

"Some of the important factors include changes in scope, alterations in design, delay in procurement of equipment, shortage of materials like cement, steel, explosives, etc., difficulties in transporting equipments to site, shortage of key personnel during the implementation stage, inadequacies in planning, problems in land acquisition and rehabilitation, climatic and environmental factors, lack of monitoring, contractual problems, poor performance of consultants, vendors and contractors, law and order problems, inadequate infrastructure support, etc. In addition to these factors, risk assessment at the stage of project implementation is required on a regular basis to take timely remedial action. "

Well, this post focussed on the operational side of challenges. Please do read my post on many other challenges being faced by the Indian Infrastructure Projects here.

Budget Deficit and Interest Rate

Recently I came across a problem which questioned how a country can increase budget deficit (through Gov. Spending) without increasing the interest rate. It asked its readers to solve it using IS-LM model and figure out two ways of achieving it. Surely a pertinent question in today’s scenario when central banks have pumped in lot of liquidity in the market but are afraid of hiking/rising interest rates so as to keep the recovery on a smooth track.

Well, I would try not to use any model and still explain you the ways in which it can be achieved. But let’s first understand why increase in Gov. Spending (without proportional increase in Gov. Earning) leads to the rise in interest rate.