Page 209 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Fundamentals of Project Management

Notes with state guarantees, acted as a disincentive for employing rigorous financial analysis on
project proposals. In addition, service providers adjusted annual revenue shortfalls against next
year’s budget transfer, further undermining good financial management and tariff structures.
Engineers in state-level agencies or local governments developed technical proposals and
submitted them to state government for funding. With erratic budget transfers, funding requests
often fell short of the estimated cost, and projects would have to be curtailed or spread out over
many years. As a result, work tended to be implemented piecemeal, through many small contracts.
Over time, numerous, overlapping contracts led to coordination problems, delays, and cost
overruns. It also made performance monitoring very difficult, as was the case in Navi Mumbai’s
water and sewerage operations before the FIRE (D) Program helped them develop a performance-
based contracting system in 2003.
Consequently, the system was inefficient and risk-prone. This became particularly apparent
when, on the one hand, there were not enough funds for projects, while, on the other hand,
agencies could not absorb the funding already available. Fund utilization was approximately
80% in 1997.
Projects were limited in scope and focused primarily on crucial needs or high-profile areas of
the city. The system unraveled as urban populations grew disproportionately to dedicated
budget allocations for infrastructure. For many years, central and state governments focused on
rural development and missed the urbanizing trends unfolding across the country. Now,
government resources, including staff capacity, have difficulty confronting the infrastructure
needs.
The alternative that the FIRE (D) Program promotes is to develop projects that can attract
commercial investment and private sector participation.

Self Assessment
Fill in the blanks:

6. Unfortunately, India’s traditional method of developing projects does not adequately
address ....................... .
7. Under its ....................... development model, from independence to the mid-1990s, the
central government earmarked money for specific sectors.
8. State governments also provided ....................... for urban infrastructure, and both politicians
and civil servants decided how the funding would be spent.

9. Budget allocations accounted for more than ....................... of the money spent on urban
services.
10. Centrally directed credit, along with state guarantees, acted as a ....................... for employing
rigorous financial analysis on project proposals.

13.5 Determine True Costs of Services

If local infrastructure projects are to access commercial investment from financial institutions,
capital markets, and private firms, it is important that services be delivered on a sustainable
basis. Central to this is the need for determining the true cost of service provision after factoring
in O&M costs, asset depreciation, environmental degradation, and social objectives. Ironically,
tariff subsidies are justified in the name of poor, although the poor are not usually connected to
the city networks as legal users (despite often having the ability and willingness to pay). Further,
since revenue shortfalls from low tariff rates are met through general taxes and grants, resources
get diverted away from necessary pro-poor programs, such as primary health and education.

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