Appraisal of Plan Schemes (Union Government)
The Union Government has constituted a mechanism of appraisal of public investment projects before they are approved by the Cabinet or the designated competent authority. Schemes involving public expenditure, which have been included in the Annual Plan of a Ministry are detailed in a project report (DPR) based on the guidelines laid down by the Department of Expenditure, Ministry of Finance. (http://finmin.nic.in/the_ministry/dept_expenditure/plan_finance2/guideline_formulation_app_approv_01042010.pdf )
When the project or scheme is complex, Ministries employ technical consultants to prepare the DPRs in consultation with the concerned Ministry. The DPR justifies the need for the project/scheme, considers all alternative approaches that can be used, and proposes the best possible way to achieve the targets, while at the same time ensuring value for money in public expenditure.
The Project Appraisal and Management Division (PAMD) of Planning Commission scrutinizes this DPR to see whether the scheme is financially viable. Inputs on the technical feasibility of the scheme are provided by the concerned technical divisions in Planning Commission. Concurrently and independently, the Plan Finance II Division in Department of Expenditure also appraises the technical feasibility and financial viability of the scheme. Care is taken to ensure that the design of the scheme is robust by studying the level of preparedness of the implementing agency to execute the scheme within the proposed timeframe, the break-up and basis of the cost estimates made, the sources of financing considered, the phasing of investment required and the rate of return expected on this investment. Both these appraisal agencies do a sensitivity analysis on the critical parameters of the scheme to ascertain the degree of risk involved.
The Union Government has delegated financial powers to Ministries to appraise and approve relatively smaller scaled projects. However larger and more complex projects or those which involve setting up of an autonomous body are appraised either in the Public Investment Board (PIB) or the Expenditure Finance Commission (EFC) where Secretary, Expenditure chairs a meeting of all stakeholder Ministries. In this meeting the appraisal reports of PAMD and Plan Finance II are discussed and a final view is taken on whether the project/scheme may be recommended (with or without conditions) to the Cabinet for consideration and approval.
The PIB and EFC have a similar function viz. appraisal of plan projects/schemes involving public expenditure. However, in PIB, cases ( mostly from Public Sector Undertakings) which have a healthy financial return (where the Financial Internal Rate of Return is above a threshold level of at least 12 per cent) are considered while the EFC considers cases, where the financial return may not be high but where the projects/schemes have considerable social welfare benefits and the Economic Internal Rate of Return (EIRR) is very high.
Public investment projects of the Railways are appraised by the Expanded Board of Railways, under the Chairman, Railway Board. Scientific Ministries have also been delegated the power to appraise their schemes under the chairmanship of the concerned Secretary of the Ministry. Planning Commission and Department of Expenditure are also represented during the appraisal process. Profitable Public sector undertakings/enterprises (Navratnas and Mini ratnas) also have greater flexibility in their investment decisions but if they require budgetary support, they will have to go through the PIB process.
PIB/EFC also examine prior approved cases where cost estimates have escalated considerably during the project implementation. In such cases, the revised cost estimates are appraised for obtaining approval from the competent authority.
For other exemptions, financial delegation, composition of PIB/EFC and for further details, a compendium serves as a ready reckoner. (http://finmin.nic.in/the_ministry/dept_expenditure/plan_finance2/CompofImpCirc.pdf)