Construction industry needs to keep pace with India’s growth, says new World Bank study

Forty percent contracts in India experience cost overruns of 25 to 50 percent

Media Contact:
In New Delhi: Sudip Mozumder (91-11) 24617241
smozumder@worldbank.org

NEW DELHI, October 5, 2009: If India is to move in its high growth trajectory over the next 8 years, the Indian construction industry is likely to witness a huge shortage of skills. The supply of skilled human resources required by the construction industry will fall short by 55 to 64 percent. To meet this demand, the number of civil engineering graduates and diploma holders would have to go up by at least a factor of 3, says a new World Bank study.   
  

The study titled, India’s Road Construction Industry: Capacity Issues, Constraints and Recommendations says while the quantum of road works has gone up significantly in the last decade,  the industry has not kept pace with this growth, as evidenced by the under-utilization of funds allocated to road projects and perennial time and cost overruns on national and state highway projects.

The study shows that while the outer limit of time extension for contracts in the United Kingdom is 25 percent, 70 percent of construction contracts in India exceed that limit, often by large margins. Moreover, 40 percent contracts in India experience cost overruns of 25 to 50 percent. The average time for making the site fully encumbrance free is 30 months against the usually allocated 18 months and in 75 percent of the cases the delays are also attributed to wrong survey data. The effectiveness of dispute resolution mechanism is another area of concern with about Rs. 90 billion estimated to be locked in various disputes and arbitration. 

Weak project and financial management and resource management are other areas which need attention. As per estimates, India today has around 110,000 highway engineers. This is in sharp contrast with China where the road infrastructure development was supported by over 500,000 trained highway engineers, during the period 1989-97.

The Study makes key recommendations in the short (02 years), medium (2-5 years) and long (5-10 years) term time horizons covering a range of issues aimed at improving overall efficiency and performance of the industry. These issues include recommendations on institutional structures and regulation, project design, quality of human resources, access to finance and efficiency in procurement.

Amongst its several suggestions to improve the Indian construction industry and in order to eliminate the hassles associated with inter departmental coordination, the study has recommended:

(a) mainstreaming the pre-construction process and clearances;
(b) setting up a Road Appellate Tribunal for faster dispute resolution based on the US and Singapore models, rather than the  current contract by contract approach;
(c) initiating a system on rating, grading and registration of construction companies and individuals, as currently  followed in US and several European countries, to improve professionalization in the industry and facilitate improved access to finance; and
(d) framing a construction law to improve the legal and regulatory environment in the country. 

Stressing the need for immediate action, Arnab Bandyopadhyay, Senior Transport Engineer of the World Bank and one of the authors of the study said: “While the capacity challenges in the industry are huge, certain recent initiatives taken by the Government of India in improving the investment climate are very encouraging. Notable among these initiatives, fully coherent with the study recommendations, are decisions to undertake the international road shows and review the

current Model Concession Agreement for National Highway projects.” 

For more information about the Report and the World Bank’s work in India, please visit: http://www.worldbank.org.in