Whalesbook
Rising costs are creating a challenge for India's large infrastructure projects. Despite significant government spending and reported physical progress, budget overruns are raising questions about financial management and project success.
As of February 2026, central infrastructure projects costing ₹150 crore or more have seen a combined cost overrun of ₹5.66 lakh crore. This brings the total revised cost for 1,948 projects to ₹41.98 lakh crore, well above the original estimate of ₹36.32 lakh crore. While ₹19.71 lakh crore has been spent so far (about 46.95% of the revised cost), indicating projects are moving forward, this comes at a higher expense than planned. Notably, 38% of these projects have completed over 80% of their physical work, showing that construction is advancing even as budgets expand.
A Pattern of Overruns
These cost overruns are not new. Previous reports show similar issues: by May 2024, 458 major projects had overruns totaling ₹5.71 lakh crore (a 20.70% increase). In January 2024, 431 projects reported over ₹4.80 lakh crore in overruns. This suggests ongoing problems across the system.
The Transport and Logistics sector has the most projects (1,421) with a revised cost of ₹22.96 lakh crore. Within this, Indian Railways projects have seen particularly sharp cost increases, jumping about 54% from ₹4.44 lakh crore to ₹6.85 lakh crore. Road and highway projects have shown smaller increases, around 3.5%.
While inflation (construction costs rose 2-4% in 2024, down from 6-8% in 2021-22) and supply chain issues play a role, other factors are significant. These include delays in approvals, changes to project plans mid-way, problems with buying materials, and initial cost estimates that are too low, often used to get projects approved.
Financial Impact of Cost Overruns
These large and recurring cost overruns significantly impact public finances. The government has increased capital spending, allocating over ₹11 lakh crore for FY2024-25 and planning more for FY2026-27. However, the effectiveness of this spending is now in doubt.
The constant cycle of budget revisions suggests that initial project planning and cost estimates may be seriously flawed. This practice of underestimating costs can weaken the entire infrastructure development plan, possibly diverting money from other important social or economic projects. Relying heavily on public money for projects that consistently go over budget can strain government finances and potentially affect the country's credit rating in the long run.
The February report's lack of detailed figures on specific project overruns also raises concerns about transparency. Earlier reports have shown that many projects face delays of months or even years, which further increases costs due to the passage of time.
Outlook: Continued Investment, Efficiency Concerns
The government is still focused on infrastructure development, seeing it as vital for economic growth. Plans include initiatives like the PM Gati Shakti National Master Plan and efforts to encourage private sector involvement through public-private partnerships.
However, the main challenge remains turning these plans into projects that are completed on time and within budget. If cost control, project review processes, and reporting transparency do not improve significantly, cost overruns will likely continue. This could reduce the economic benefits from infrastructure spending and place a heavy burden on the nation's finances.