Appraisal of railway expansion projects

Abstract

The railway network varies in density and coverage across the length and breadth of our country. Railways work as a catalyst for increased trade and industrialisation of a region. There are regions, which need railways for economic growth, and there are also railway lines which have been built but are un-remunerative. Perhaps there is a need to look at the criterion used by railways for taking up an expansion project in a region. The appraisal of railway expansion projects are presently done as per the guidelines laid down in the financial code of the railways. The guidelines talk about financial appraisal in some detail but just mentions in passing about the economic or social appraisal of a project. The appraisal case studies of Indian Railways also show that project feasibility is decided mostly on financial grounds. The Planning Commission had published guidelines for financial and economic appraisal way back in 1975 but this approach is yet to be adopted by Indian Railways. In the developed countries it is seen that appraisal of government projects entails economic and social cost benefit analysis as well. Appraisal policy in the US is guided by the circular A-94 of the Office of Management and Budget. Costs have to be calculated on principles of opportunity cost and benefits that are difficult to monetise, are estimated using the principle of willingness to pay . The policy encourages use of risk assessment analysis and sensitivity analysis to see the effects of various assumptions on the outcome. For a project to be viable it should have a positive Net Present Value at constant prices. The H M Treasury in UK has laid down the rules for appraisal of government projects in the Green Book. This is also similar to the US policy but pays more stress on quantification of costs and benefits. The present appraisal guidelines of Indian Railways, though based on pure monetary considerations are good inasmuch as they provide a sound financial basis of choosing projects. However, in view of the socio-economic role of the railways, it is recommended that Indian Railways evolve exhaustive guidelines for appraisal of expansion projects, which should include economic and social appraisal as well. This would ensure that only those projects are chosen which can result in positive benefits to the society and also perhaps result in bridging the disparity gaps. Projects, which are chosen after sound appraisal, also result in efficient allocation of public funds towards creating national wealth and social benefits, which is one of the fundamental facets of good governance.