What Gati Shakti needs to be back on track

11 Aug 2022 CW Team

In the first article in this series, we examined the origin of the Gati Shakti masterplan and its current challenges,especially cost overruns of Rs 4.95 lakh crore ($ 66 billion) in just three years.(Readers, please note that Rs 1 lakh crore = Rs 1 trillion.)

Gati Shakti’s other major shortcoming is its failure to create even a fraction of the promised 36 million new jobs, which was the central objective of the original‘Construct India Mission’, as Gati Shakti was known before it became the Government’s flagship infrastructure programme.

It is important to state here that given India’s polity, the huge cost overruns within Gati Shakti would have happened under any political dispensation. Massive losses have occurred mainly owing to a way of working and communicating within government wherein critical project components and specifications get ignored or overlooked, leading to serious problems. The second major reason for project failure is government policy that discourages on boarding of original idea generators and making them part of the project execution team.

As a result of these outdated and regressive policies, innovative ideas generated by small Indian consulting companies often get highjacked and handed over for execution to consultants whose teams have absolutely no background or deep domain knowledge about the project in question.

Lakhs of crores of rupees of taxpayer money is being destroyed in this way owing to a failure to understand the importance of project components specified by project designers. This leads to faulty execution. In Gati Shakti’s case, the value destruction because of these reasons has been unbelievable.

The Defence Industrial Corridor of the Ministry of Defence is another strategic project where this has occurred. The corridor and its innovative financing scheme were designed by an Indian project planner. However, the contract was awarded to a foreign consulting company whose teams had no knowledge about the businessand financing models.As a result, a Rs 40,000 crore strategic defence project is not moving forward as fast as it should because the Government of India is short of funds and the foreignconsultant is still unable to work out the details of theself-financing model, which would make government budget support unnecessary.

Omission of two key specified components

Problems within Gati Shakti have arisen over the past three years mainly because two key specified componentsin the original Construct India Mission weresomehow missed during execution.

These are:
1. Creation of a large project authority (LPA) staffed by projectexperts,to ensure project quality and eliminate cost and time overruns
2. Creation of a special financing mechanism that can raise Rs 1 lakh crore in a sustained manner every four months, to finance 1,500 + projects.
Omitting these two critical project componentswithin Gati Shakti has resulted in anamputatedversion of the originalplan getting executed by the Government of India.

The plan being executed today is clearly not the original plan discussed with NITI Aayog in August-September 2017 and later resubmitted to the Ministry of Finance by the author in November 2019. How this loss in translation happened with regard to two critical project components is unknown.

The truth is that even after 16 ministries were connectedin October 2021 via the Gati Shakti masterplan digital platform to improve coordination and project velocity, cost overruns haveincreased by an additionalRs 49,000 crore ($ 6.5 billion) according to the May 2022 report by the Ministry of Statistics and Programme implementation (MOSPI).Therefore, Gati Shakti is still haemorrhaging Rs 233 crore ($ 31 million) every single day. If this continues without arevamp in the execution methodology and information systems, we can be sure that within the next 18 months, the entire amount of Rs 6 lakh crore (planned capital raise for Gati Shakti, through asset monetisation by 2025) is likely to be wiped out.This will happen mainly owing to the overlooking of the above stipulated component No 1.

Understanding Gati Shakti’s complexity

To understand why the two components – LPA and a sustainable financing engine – are so important, we need to first appreciate how complex Gati Shakti really is.

Its complexity canperhaps be best understood by benchmarking it against the execution of a best-in-class, greenfield (Rs 82,500 crore/$ 11 billion) crude oil refinery project. To build a large oil refinery from scratch in three years (fast execution mode), an energy company will need to spend roughly Rs 75 crore every dayto complete the project on schedule.

To spend an average of Rs 75 crore every day in an efficient manner, an elaborate central project organisation, with a staff ofover 3,000 personnel (engineers, finance people, contracts/commercialand purchase people and expeditors) will need to be hired,to coordinate the work of variouscontractors and vendors workingin over 20 offices/locations around the world. In addition to this central project team,the company will need to hire an additional 87,000 construction labour and specialised supervisory staff, executing on the ground,at the project site. The point is, to spend Rs 75 crore each day for three years, you require to set up a massive project organisation of around 90,000 people.

Gati Shakti is,however,a totally different ball game. When the author conceptualisedthe Construct India Mission, the precursor of Gati Shakti (portfolio of over 1,500 projects), it was designed to “raise and spend”Rs 87 lakh crore over 10 years. The Government later rounded it off to Rs 100 lakh crore.

Therefore,if Gati Shakti is to “raise and spend” Rs 100 lakh crore in 10 years, it will haveanaverage capex intensity of Rs 2,740 crore per day, everyday for 10 years. This is roughly 36 times the size of our benchmarkRs 82,500 croreoil refinery in terms of capital intensity. But that again, is simplifying things too much.

What the Government of India has on its plate today is an assortment of1,500+ different projects: highways, irrigation canals, hospitals, schools, power plants, defence corridors, wind and solar farms, pipelines, refineries, massive rural housing schemes, clean drinking water projects, airports, ports, city development schemes and municipal projects. This sheer variety of projects, each with their very specific skill requirements, means that Gati Shakti is perhaps 75-100 times more complex to manage from a project perspective than a complex oil refinery.

The table below quantifies benchmarking against a large oil refinery:

Sl. No.	Parameter	Large oil refinery	Gati Shakti
1	Number of projects	1	Ø 1,500
2	Capex	Rs 82,500 crore	Rs 10,000,000 crore
3	Project duration	3 years	Not clearly defined
4	Capex intensity	Rs75 crore each day for 3 years	Rs 2,740 crore each day for 10 years
5	Size multiple on capex	1	36 times the size of the refinery
6	Project organisation	Large accountable organisation with clear hierarchy. Central project officewith 3,000 staff:Expert project managers,engineers, finance people,contracts/commercialand purchase people and expeditors. Central project teamcontrols work of hundreds of vendors and contractors through 20 different offices around the world + 87,000 contract labour and supervisory staff executing project at site.	Empowered group of 20GoIsecretaries oversees execution. 16 different ministries connected on a digital platform to speed up projects. Chief secretaries of state governments brought on board to improve outcomes. Issues:Difficulty in achieving end-to-end accountability with multiple entities involved. Inability to predict cost overruns before they occur. Proactive project management is missing.
7	Project complexity and type of projects	Only one oil refinery	Hundreds of different types of projects: Highways, irrigation canals, hospitals, schools, power plants, defence corridors, wind and solar farms, pipelines, refineries, massive rural housing schemes, clean drinking water schemes, airports, ports, city development schemes and municipal projects. Sheer diversity of projects means Gati Shakti is 75-100 times more complex than a large refinery.
8	Project ownership	Clear project ownership with project head and team of project managers with KRAs and expected outcomes clearly defined.	No clear project ownership as tenures of government officials are short. Need for asolution in the form of extended tenure forkey project personnel.
9	Project controls	Sophisticated project information systems identify problems and bottlenecks instantly with automatic alerts.	Projectcoordination system connecting 16 ministries.
10	Visibility	ERP and supply chain software ensure end-to-end visibility of all resources, materials and services moving through the system.	End-to-end visibility is difficult as different entities with different information systems within the Centre and state governments.
11	Savings and losses	Refinery project team actually saves10-15 % of project capex through better analytics, value engineering and lean contracting.	Possibly needs changes in execution organisation and information systems to reduce losses and achieve savings.

Given Gati Shakti’s complexity as described above,readers would agree that deep intervention is needed to improve project outcomes.

PM Gati Shakti Portal –linking 16 central ministries

For the past three years, Prime Minister Narendra Modi has been trying very hard to get all stakeholders (multiple central and state government agencies with different information systems)aligned to the goal of delivering world-class infrastructure to the masses.

In October 2021, after seeing cost overruns reachan alarming Rs 4.46 lakh crore, out of a planned capital raise target of Rs 6 lakh crore,he launched the Gati Shakti masterplan on a digital platformto connect 16 central ministries and improve coordination in a bid to stem the losses.

However, even after setting up a team of 20 empowered secretaries and connecting 16 ministries on a high-speed digital platform, the results are not encouraging. Gati Shakti lost an additional Rs 49,000 crore in cost overruns according to a May 2022 report by MOSPI. Therefore, even after connecting 16 central ministries, the Indian taxpayeris losing Rs 233 crore ($ 31 million) each day.

Most recently, in July 2022, the digital platform has now onboarded allstate governments to fast track DPR creation and project approvals. This is certainly a step in the right direction and may reduce the losses by 25 per cent (maximum assumed). But the Indian taxpayermay still lose Rs 63,784 crore each year(Rs 174 crore each day) because the problems created by the omission oftwo critical project components remain unresolved.

Losses likely to continue

This expected new level of cost overruns of Rs 63,784 crore ($ 8.5billion) each year is likely to continue becausethere is a huge shortage of project experts and domain specialists in Gati Shakti’s project organisation. Also, there is little accountability with so many different central and state government agencies involved.

Better coordination on a digital platform, while certainly a step in the right direction, is still no substitute for specific and deep domain knowledge (a city development project, for instance, is very different from a defence corridor) and you cannot have the same team managing bothif the objective is to control costs and assure quality.Therefore,no amount of digital coordination expertise and no computer-based communications and control system can make up for what is, in fact, a massive shortage of project-specific skills and deep domain knowledge within the Government’s project organisation.

In addition to an absence of a specialised project organisation, the omission of the originally specified financing engine (which can raise Rs 1 lakh crore every four months) remains. In fact,if the current financing mechanism based on asset monetisation (a slow system) remains in place,cost overruns will likely outrun the Government’s ability to raise financing by selling assets. Gati Shakti could, therefore,run out of money by December 2023.

A real danger – Rising unemployment

Gati Shakti has a huge appetite for capital and as projects ramp up, they will demand even more capital, which at peak execution might exceed Rs 2,740 crore per day, in aggressive execution mode.Under such a project scenario,thereliance on a digitalplatform organisationfor improving coordination between 16 ministries butwithout project experts with domain knowledgeand an inappropriately designed(asset monetisation-based) financing engine is dangerous for the Indian economy.

Thus, there is a high risk that a significant percentage of Gati Shakti’s 1,500+ projects may come to a halt by December 2023, unless printing of money by RBI is resorted to.This is what is likely to happen unless a world-class project control organisationis put in place on an urgent basis.

Extreme financial stress building up

Today, noone is looking at how Gati Shakti’s cost overruns are adding tothe financial stress building up within a systemthat is already under stress on account of schemes such as the Garib Kalyan Anna Yojana (PM-GKAY), which provides5 kg of free food to 800 million people. This free ration scheme alone is expected to cost Rs 3.40 lakh crore by September 2022. In addition, there is the massive cost of deploying 50,000 soldiers on the Chinese border after the May 2020 clashes in eastern Ladakh. Actually, there are several such demands on the Government’s purse that the average person in the construction industry is not even aware of.

The crucial point is that as Gati Shakti projects get ramped up, they will need ever increasing amounts of capital.And if this is not provided, the Government may have no option but to pull the plug on some construction projects. The Government cannot shut down the free food programme as it directly affects votes and we cannot withdraw troops from border deployments because that affects national security. So, it is more likely that funding for some of Gati Shakti’s projects may be stopped.This,in turn, might create financial difficulties for thousands of contractors and put millions of people out of work, adding to the tens of millions of people already unemployed because of the COVID-19 pandemic. Consequentially, this may cause rising social unrest.

Therefore,Gati Shakti, which was originally conceived to create 36 million new jobs, might end up doing the exact opposite, because of badly designed project managementand control systemsand weakfinancial design.

Solving Gati Shakti’s problems– A five-point programme

To ensure that Gati Shakti does not incur time and cost overruns and, in fact, goes well beyond that to achieve a 15 per cent reduction of costs below budgeted numbers, there is a basic need to execute this huge set of over 1,500 projects by reinstatingthe originally specified project componentsthat were shared with NITI Aayog in August-September 2017 and with the Ministry of Finance in November 2019.

Executing Gati Shakti properly with a properly designed project organisation will have severaladditional large-scale benefits. These benefits are so large that they are likely to augment India’s position in the world besides creating world-class infrastructure.Theyinclude:

Creation of the world’s largest banks and financial institutions in India

Encouraging the creation of six to eight very large construction companies

Creating opportunities for setting up dozens of world-classtown planning and architecture firms in India

Creation of 36 million new jobs inconstruction and allied sectors

Increasing the percentage of graduates in India from 6.17 per cent of the population currently to 18 per cent of the population

Tripling the Indian GDP by 2032and achieving a quantum jump in the quality of life of the average Indian citizen.

To achieve these worthy objectives,we first requirean honest acknowledgement that we currently have very serious structural problems within Gati Shakti. Now, let’s come to the five-point programme to resolve these issues. I mention them briefly here, owing to paucity of space in this printed edition. (Interested readers may scan the QR code (below) to continue on to the August Internet edition of CONSTRUCTION WORLD for a detailed discussion on the programme.)

1. Creating anLPA in the ISRO format
2. Unlocking $ 1.25 trillion trapped in India’s cities
3. Focus on project design and value engineering
4. Start with self-financing projects
5. Encourage creation of large infrastructurecompanies.

See you on the CONSTRUCTION WORLD website!

*Views expressed are the author’s own, and not those of any organisation

About the author: Ashish Puntambekar is currently an advisor to a few private equity funds and FIIs on green hydrogen, electric mobility and digital transformation within their portfolio companies. He has formerly served as vice president of strategic planning at Reliance Industries for over six years. He is an expert in sustainable project design and green finance and advises companies and banks on their green bond issues in international markets.