Explained: Why railway project costs go off track across various lines

Last month, Business Stan­dard reported that the Indian Railways was expecting another cost revision from the Cabinet. In this latest round, the eastern and western freight corridors saw a 54 per cent cost escalation.

This marks a steady acceleration of railway project costs for this signature project. In 2015, the Cabinet approved a revised cost estimate of Rs 81,459 crore for the eastern and western sections of the dedicated freight corridor. The report highlighted that the figure had risen to Rs 1.24 trillion, of which Rs 21,846 crore was for land acquisition and Rs 1.02 trillion for construction and other costs.

But such steep revisions in costs come as no surprise. A Business Stand­ard analysis found that cost escalation or overruns are common in all railway zones.

In some cases, the difference between original costs and anticipated costs of projects was higher than those for the dedicated freight corridors.

Overall, analysis of data from the Ministry of Statistics and Programme Implementation’s Infrastructure and Project Moni­t­oring Division show that for 162 projects of the Railways that were facing cost overruns, the anticipated costs were 2.2 times the original cost. For the dedica­ted freight corridor, the ratio of anticipated cost to original cost was 3.6 times. But the Northern Railway zone “outperformed” this record by a substantial margin. In this zone, the original cost of eight projects worth Rs 4,979 crore had increased to Rs 43,872 crore — a jump of nearly nine times, making it the worst performing zone.

The cost performance of the Western Central Railway zone was comparable to the dedicated freight corridor, with anticipated costs 3.2 times higher than the original. In the case of the Eastern Central zone, the difference was three times.

Projects under Rail Vikas Nigam Limited, a state-owned company that builds infrastructure required by the Railways, accounted for 14 per cent of the total projects facing cost overruns; the Eastern Central Railway zone accounted for 9.3 per cent. The North Eastern Frontier Railway, which accounts for another 9 per cent of delayed projects, had a cost overrun of 2.8 times.

Not just anticipated costs, further analysis found that for 69 projects of the 162 that were facing cost overruns, expenditure had also exceeded actual costs. Rail Vikas Nigam accounted for a quarter of such projects.
 

The expenditure in such cases was double the original cost envisaged by the Railways. While the original cost of Rail­ways projects was Rs 72,247 crore, the Railways had until February 2022 spent Rs 1.42 trillion on these projects. Western Central Rail­way zone was the worst performing, facing actual expenditure that was 6.5 times higher than the original cost. For the eastern dedicated freight corridors, actual expenditure outstripped costs by 3.1 times.

What accounts for these chr­o­nic cost overruns? “Each railway zone has its own cost analysis cell, and they are independent. Sometimes the Railways changes the formula for cost, and there are some costs that are not included at the time of commissioning,” R N Misra, a former professor and railway commentator, told Business Standard. A better option would be to implement a standard guideline for all railway zones to follow.