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The Railways Ministry has made yet another new attempt to standardize norms of project costing and viability. Notwithstanding periodic instructions, the Zonal Railways and other field units follow different norms, thereby messing up projects planning. 
This results in sub-optimal or flawed decisions at the final approval stage. The problem ultimately snowballs into cost & time overruns, impacting adversely the Railways’ operating ratio. 
The latest initiative dated 20th March 2023 is the ‘Approach Paper (AP) on Financial Appraisal Framework for Railway Projects’. It has been issued to standardize the norms for calculating the Financial Rate of Return (FIRR). It is incorporated in the detailed project reports (DPRs). 
The instructions, listed in AP, have come into effect from 1st April 2023. These are applicable to four specified types of projects. These are: new line, doubling of track, gauge conversion and traffic facilities.  
As put by AP, the Railway Board (RB) has “observed that different zones have calculated FIRR based on different assumptions and methodology. This inhibited a meaningful and uniform appraisal of the DPRs submitted by the Zonal Railways. Also, constant clarification had to be given to NITI AYOG regarding the different methodologies and assumptions made by the Zonal Railways.”
AP adds: “FIRR calculated based on arbitrary assumptions/ incorrect reference points, etc cannot be the basis on which investment decisions can be made. And hence, the necessity to streamline underlying assumptions which will lead to a standard methodology for calculating FIRR across railway projects.”
AP was preceded by a slew of major guidelines in 2022. In a letter dated 2nd September 2022, RB, for instance, circulated the guidelines for preparation of DPR for new line lines/doubling/multi-tracking/gauge conversion projects. 
As put by the letter, there is no uniformity in submission of DPRs and sometimes important aspects are also not covered in DPR, resulting in difficulty in the appraisal of DPRs.”
It stated: “In order to bring uniformity in DPR preparation and to effectively appraise the DPR, standard format for preparation of DPR has been prepared.” 
A fortnight earlier, RB had issued ‘Railway Project Economic Appraisal Framework Note’ (AFN). Dated 19th August 2022, AFN is applicable only for new line or multi-tracking projects. 
As put by AFN, “different methods are being used for the economic valuation of railway investments.”
RB felt that Economic Internal Rate of Return (EIRR) “do not fully capture the socio-economic impact of railway project as envisaged in Finance Code.” It concluded that the existing economic appraisal framework did not reckon the network effect of railway projects.
Network Effect’ refers to the impact of a new project on existing rail network and the benefits accruing to economy and society outside the project’s local area. 
In letter dated 6th June 2022, RB thus stated: the Railways will shift from existing EIRR “based project assessment method to a more comprehensive method i.e. Modified Economic Internal Rate of Return (MEIRR). This would help “capture the economic & social and network impact of any project interventions comprehensively.”
The letter added: “MEIRR can be worked at the project, zonal and national level depending on the impact it creates at different levels. MEIRR at different levels will be compared and examined before reaching at any investment decision.”
After issue of latest AP, would Modi Government give more weightage to MEIRR or equal weightage to FIRR in approving or rejecting railway projects? Or, would political consideration be the final factor in taking a call on new projects? 
RB has been periodically issuing instructions to Zonal Railways and other divisions on different aspects of project planning and execution over the years. 
RB communication dated 7th October 2020, for instance, observed: “Detailed instructions regarding preparation of DPRs/Detailed Estimates have been issued vide Railway Board's letters under reference. However, during examination of various DPRs submitted by zonal railways in past, many deficiencies have been noticed.”
The letter continued: “Many or some of the activities of FLS (Final Location Survey) are omitted before preparation of DPRs. Moreover, projects sanctioned on the basis of these DPRs are resulting in cost-overrun (cost increase due to other than escalation) at a later stage.”
Annexed to the communication was a guideline captioned ‘Points to be taken care off for preparation of DPRs and cost estimation of the projects.’
The last item in this advisory stated: “ROR calculation along with cash flow etc based on Gross Project Cost should be done carefully for correct financial appraisal of the Project.”
RB has not disclosed what is the minimum FIRR and minimum MEIRR for consideration of railway projects especially new lines or multitracking projects. 
Way Back in February 2013, Public Accounts Committee (PAC) quoted an RB official as stating: “the total number of new line projects with Indian Railways is 129. Out of this, there are only 13 projects where the rate of return is more than 14 per cent, which is considered to be an economical and viable rate of return. Other 116 projects have rate of return lower than 14 per cent and they are not financially fully viable.”
As many as 111 of the 173 railway projects costing Rs 150 crore and above had suffered time overruns. As many as 113 projects have suffered total cost overrun of 74.18% from the presently approved cost of Rs 1,95,191.05 crore to anticipated cost of Rs 3,39,975.98 crore, according to latest available flash report on central sector projects, each costing Rs 150 crore or more. The report is prepared periodically by Ministry of Statistics and Programme  Implementation (MOSPI).
The cost escalation would be substantially much more if original cost of each project is reckoned. Some projects have suffered colossal cost overruns. A case in point is Lalitpur-Satna-Rewa-Singruli new line project. Its anticipated cost shot up to Rs 8248.5 crore as on 1st December 2022 from originally approved cost of Rs 247.66 crore in September 1998. 
Similarly, the anticipated cost of Eastern Dedicated Freight Corridor Project increased to Rs 51219 crore as on 1st December 2022 from Rs 11589 crore in October 2006.
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