Delay in project implementation causes huge cost overruns in Jharkhand:ASSOCHAM

By Abha Manakatala - Fri Oct 30, 11:41 am

IMG_0740Mineral-rich Jharkhand is grappling with a depressing state of industrial growth evidently as the state ranked has on the last rung amid top 20 states across India with a meagre 1.2 per cent compounded annual growth rate (CAGR) registered by the state in this sector during 2004-05 and 2013-14, noted a just-concluded study by apex industry body ASSOCHAM.

“Resultantly the share of industrial sector to Jharkhand’s gross state domestic product (GSDP) also declined significantly from 42 per cent in 2010-11 to 37.5 per cent in 2013-14,” highlighted the study titled ‘Delay in investment implementation in Jharkhand: An analysis,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

IMG_0732“Besides, Jharkhand’s contribution to India’s gross domestic product (GDP) during the decadal period 2004-05 to 2013-14 has also only dropped from two per cent in 2004-05 to 1.9 per cent in 2013-14 thereby showcasing the sluggish economic growth in the state,” revealed the study prepared by the ASSOCHAM Economic Research Bureau (AERB).

“Jharkhand, a state endowed with rich natural resources is underperforming and losing its attractiveness as an investment destination, as such the state government needs to adopt a better strategy for growth and also fiscal management thereby leveraging its strengths to realise its potential,” said Mr D.S. Rawat, national secretary general of ASSOCHAM while releasing the chamber’s study at a press conference held in Ranchi today.

“Considering that state has registered a sluggish economic growth as compared to the national average, it needs to prepare itself to meet the needs and aspirations of its growing population thereby addressing the constraints and bottlenecks to achieve inclusive and sustainable growth,” said Mr Rawat.

Sectoral analysis:

Agriculture – Agriculture sector accounted for about 14 per cent of Jharkhand’s GSDP in 2013-14 which had increased from about 11 per cent in 2010-11. Besides annual growth in agriculture sector had increased from about five per cent in 2010-11 to over nine per cent in 2013-14. Agriculture is also the major employment generating sector as the sector employed 63 per cent of state’s total workforce.

However, the state has only seven per cent area under irrigation as such the state needs to attract more investments in this sector.

Industry – Poor growth in registered manufacturing and construction sector have resulted in decline in industrial sector’s share in Jharkhand’s GSDP as mentioned above.

“Jharkhand should provide required infrastructure, simplify mechanisms, facilitate for an even more sensitive and proactive government machinery and a friendly atmosphere for industrial growth in the state by drawing up a focussed action plan to enhance its industrial attractiveness.”

Services – Though share of services sector in Jharkhand’s GSDP had increased slightly from 44 per cent in 2010-11 to about 46 per cent in 2013-14, it is worrying to note that annual growth in services had declined from about 15 per cent in 2010-11 to about 12 per cent in 2013-14 due to decline in banking and insurance, trade, hotels and real estate related activities.

Besides, Jharkhand being a mineral rich state, it is disturbing to note that annual growth in mining and quarrying related activities had plummeted from 29.5 per cent in 2010-11 to just about eight per cent in 2013-14.

Notably, annual growth rate of Jharkhand’s GSDP had dropped drastically from about 16 per cent in 2010-11 to just about nine per cent in 2013-14 owing to slowdown in industrial and services sector.

Though Jharkhand has about 46 per cent of its population under 20 years of age, it is concerning to note that the state has highest gap of about 21 per cent between rural (62 per cent) and urban literacy rate (83 per cent) owing to prevailing socio-economic factors like poverty, hierarchical social divisions, rigid adherence to conservative cultural values and lack of infrastructure facilities.

Jharkhand has also recorded second highest poverty rate of about 37 per cent after Chhattisgarh (40 per cent), which is much higher than national average of about 22 per cent. As such the state needs to undertake reforms and improve its performance to attain a balanced and inclusive growth in the long run.

Investment:

As of FY 2014-15, had attracted total outstanding investments worth Rs 6.4 lakh crore with manufacturing sector garnering lion’s share of about 52 per cent followed by electricity (37 per cent), mining (six per cent), non-financial services (4.5 per cent) and irrigation (one per cent).

New investments attracted by Jharkhand each year have declined sharply from over Rs one lakh crore in 2005-06 to Rs 33,000 crore in 2014-15. Besides, the state’s share in new investments attracted by various sectors across India has declined from about 15 per cent in 2005-06 to just three per cent in 2014-15.

IMG_0737Poor execution of investment projects worth about Rs two lakh crore in Jharkhand has pushed up their cost by nearly Rs 94,400 crore i.e. over 47 per cent of their actual cost.

180 projects with investments worth over Rs two lakh crore have remained non-starter i.e. over 38 per cent of the total outstanding investments worth Rs 6.4 lakh crore attracted by Jharkhand from various domestic and foreign sources both in public and private sectors as of financial year 2014-15.

Out of these 180 projects that remained stuck under different stages of implementation across Jharkhand as of FY 2014-15, 105 projects reported either time or cost overruns or both.

Amid stuck projects in Jharkhand, manufacturing sector had maximum share of about 48 per cent followed by electricity (29 per cent), mining (10 per cent), non-financial services (nine per cent) and irrigation (four per cent).

Sector-wise, cost of projects in irrigation have surged maximum by 85 per cent followed by manufacturing (55.5 per cent), non-financial services (52 per cent), mining (50 per cent) and electricity generation (35 per cent).

Ownership-wise, private sector owned investment projects constituted 59 per cent of projects that have registered cost escalation followed by Central government owned investment projects (37 per cent) and state government owned projects (four per cent).

Besides, state government-owned projects reported highest cost overrun to the tune of about 77 per cent followed by Central Government owned projects (58 per cent) and private sector owned projects (42 per cent).

“Delay in land acquisition, lack of clearances (both environment and non-environment), fund constraints, poor promoter interest, unfavourable market conditions, dearth of skilled labour, poor supply of fuel/feedstock/raw material, law and order problems are certain key factors that have resulted in serious cost overruns,” said Mr Rawat.

“Considering that investment is the key driver of productivity and sustainability that leads to development and growth, Chhattisgarh government must try to identify the key impediments that are blocking investments and address them with vigour and urgency,” he added.

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