Preparation of Cost Estimate for Irrigation, Flood

Management and Multipurpose Projects

Cost estimate of River Valley Projects is a prerequisite for the investment clearance of the
project proposal. It is one vital aspect of Detailed Project Report (DPR). Further, cost
estimate for the ongoing projects become essential when the total cost of the project
exceeds 15% of the earlier approved cost, excluding the price escalation or there is some
change in scope in the project. This estimate is technically termed as Revised Cost Estimate
(RCE). After the completion of the project i.e., commissioning of the project, completion
cost of the project is also prepared. The above three stages are applicable in case of a
public sector projects. The estimated cost is tagged with a year and no escalation is
considered. However, for private sector project, cost estimate at the DPR stage is prepared
and total cost of the project is projected and finalized with reasonable interest during
construction (IDC) and financing.

For the preparation of cost estimate of a river valley project at DPR stage, many an
approximations are considered based on the past experiences and experiences from the
nearby projects. Cost estimation of a DPR involves many a technological considerations like
design, quantity estimation, equipment planning etc. At the DPR stage detailed design and
quantity estimation are not done and some tentative calculations are only made. Based on
the site conditions there may be many a variations. Still, cost estimate gives a standard
idea about the technical viability of the project and helps to plan the implementation of
the project with reasonability and means.

The preparation of cost estimate of a DPR is a lengthy work and involves many a
calculations and specifications for wide variety of items of works and machinery. Basic
inputs are quantity estimation and equipment planning besides the unit cost of material
and manpower (skilled/semiskilled/unskilled). For detailed calculation the following
references are very much important.
(1) Report of Committee of Cost Control of River Valley Projects, Vol-II, 1981
(2) CWC Guidelines for Preparation of Project Estimates for River Valley Projects,
1997
(3) CWC Guide Book on use rate, Hire charges and transfer value of Equipment and
spare parts, Dec.1988
(4) Guidelines for Formulation of Detailed Project Reports for Hydro Electric
Schemes, their Acceptance and Examination for concurrence, CEA,
2012(Revision-3)
(5) Indian Standard IS: 4877 “Guide for Preparation of Estimate for River Valley
Projects”.

UNITS
According to the BIS Standard mentioned above, the project works have to be grouped
into
the following units:

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a) Unit-I - Headworks including main dam and auxiliary dam, dykes, spillway, outlet works,
energy dissipation devices, barrages, weirs, regulators including intake structures and
diversion works.
b) Unit II-Main canals, branches, and distribution system inclusive of all pucca works.
c) Unit III-Hydro-electric installation
1) Power Plant and appurtenant works:
i) Civil works, and
ii) Power equipment.
2) Transmission lines.
3) Sub-stations.
d) Unit IV - Navigation works.
e) Unit V - Water supply works.
HEADS
Each unit should be covered under the following minor heads classified as direct and
indirect
charges.
Direct Charges
These shall include the following:
I. Works.
II. Establishment,
III.Tools and Plant.
IV. Suspense.
V. Receipts and recoveries on capital account.
Indirect Charges
These shall include the following:
a) Capitalized value of abatement of land revenue,and
b) Audit and account charges.
The provisions under the Minor head I-Works will be sub-divided under the following
detailed sub-heads:
A- Preliminary
B- Land
i) Acquisition & Compensation
ii) Rehabilitation and resettlement

C- Works
D- Regulators and measuring devices (for canals only)
E- Falls (for canals only)
F- Cross drainage works (for canals only).
G- Bridges (for canals only)
H- Escapes (for canals only)
I- Navigation works.
J- Power Plant Civil Works.
K- Buildings.
L- (for canals only)
i) Earthwork;
ii) Lining and
iii) Service Road.
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M- Plantation.
N- Tanks and reservoirs.
O- Miscellaneous.
P- Maintenance.
Q- Special T & P.
R- Communications.
S- Power Plant and electrical Mechanical System.
T- Water Supply Works.
U- Distributaries minors and subminors.
V- Water courses.
W- Drainage (to be clubbed with Environment & Ecology)
X- Environment and ecology.
Y- Losses on stock.

ABSTRACT OF COST
Detailed Abstract of cost
TO work out the total cost of the project in detail the cost of various units mentioned
above should be compiled in a tabular form according to the accounts heads.
General Abstract of cost
On the basis of the detailed abstract of cost as above, general abstract of cost for the
whole project tabulating all the units together may be compiled by minor and detailed
heads.

EXAMINATION OF PROJECT ESTIMATES IN CWC

Under the procedure laid down by the Planning Commission, all major irrigation &
multipurpose project reports including cost estimates received from the State Govts.
/Union Territories have to be examined in detail by CWC and put up to the Advisory
Committee of the Ministry of Water Resources for acceptance. After these schemes are
accepted by the Advisory Committee, the investment clearance is issued. Thereafter,
during implementation of the projects, if the cost exceeds 15% of the original approved
cost including escalation due to price rise or where there is change in scope i.e. change in
project parameters resulting in changes in nature and benefits such as CCA, installed
capacity, energy generation etc., then a revised estimate for the project has to be
submitted by the State and the estimate examined afresh for necessary clearance by
CWC/Advisory Committee etc.
Feasibility estimates generally known as project estimates provide the basis for
authorization of the project for construction and for the appropriation of construction
funds. These estimates should be in enough detail to show the quantity, unit cost and total
costs of various works and supply items.
Engineering surveys, geological explorations and similar works accomplished during the
feasibility investigations are usually carried out to the extent needed to enable at least, a
tentative layout to be prepared for the purpose of sound cost estimate and to prove the
feasibility of the project. CWC has laid down guidelines for the minimum investigations to
be done for formulation and submission of Irrigation and H.E.Projects. It is necessary that
these guidelines are followed and the prescribed investigations are done to arrive at
realistic estimates.

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In the feasibility estimates, cost of major items is best worked out in detail on the basis of
preliminary layouts and designs and unit rates which should be analyzed for the project in
question. Smaller items may be computed from cost graphs and parametric rates.

PREPARATION OF ESTIMATE
The capital cost of a project includes all cost associated with investigations, design,
construction and maintenance during construction period of the project. For preparation
of cost estimates of civil works, the unit costs of labour, materials and equipment
necessary to perform the work designated in the various pay-items for the proposed
construction shall be determined. Current unit cost shall be used in all estimates and price
level of the project estimate shall be mentioned.
The analysis of rates for various items shall be worked out taking into consideration the
cost of materials, carriage-handling-storing, labour and share of machines involved in
executing various items of the work and overhead charges.
The quantitative assessment of material requirement shall be adopted from authoritative
books/publications or through independent calculations based on the data available at site
or other projects. The unit cost of various materials may be taken as those prevalent in the
State/ region. The appropriate cost for freight, unloading, cartage, storage, inspection and
testing should also be included.
The wages of workers are periodically revised by the State under the statutory labour laws.
Daily wage rates, therefore, shall be taken as those prevalent in the State at the time of
formulation of the project.
For working out the use rates of machinery, the norms for life, depreciation, repair
provision etc. shall be adopted as recommended by the latest CWC Guide Book on use
rate, hire charges and transfer value of equipment and spare parts. Price of various
equipments should be taken on the basis of recent quotations/ price list of such
equipment. All taxes and freight charges should be taken into consideration while arriving
at the cost of equipment at site.
Provision for contingencies and work-charged establishment is generally considered up to
3% and 2% respectively of the works’ cost and provided in the detailed works estimates
prepared on the heads of items rates and quantities of works to be executed. These
percentage provisions should not be considered on lump-sum items.
Mention shall also be made regarding communication facilities available, terrain through
which the roads are passing (hilly, plain etc.), type of road (Black top, water bound
macadam, murum, kacha etc.). Suitable provisions for overhead charges and profit of the
contractor has to be kept in the estimate. Since it is difficult to identify overheads and
profits precisely, both these together may be provided @ 20% of the prime cost/or as per
State Govt. norms in the analysis of rates. In the case of departmental works it is expected
that additional departmental charges would also be about 20%. Any location specific
incentives given for developing projects by States/ Union Govts should be considered in
the estimate. Specific mention in this regard may also be made in the abstract of the
estimate. In case of works let out on contract, the provision for II-establishment including
leave and pensionary charges is generally of the order of 8 to 10 % for concentrated works
and 10 to 12 % for scattered works like canals. For works to be executed departmentally
the provisions could be higher than those given above say 12 to 15 %. For Hydro Electric

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projects, the provisions for II-Establishment may be considered as per the latest CEA
guidelines.
Project estimates are to be prepared on the basis of current costs without making any
provision for future increase in price during the period of execution of the project. No
allowance on future price escalation is to be considered as per government policy.
However, in the case of private sector power projects, total completed project cost,
including interest during construction (IDC) and financing costs, has to be arrived at before
considering the project for execution.

INFORMATION TO BE GIVEN IN THE ESTIMATE

The following information is generally covered in the report of an estimate

1. Scope
2. Method of construction
3. Construction plant
4. Establishment
5. Land and resettlement of oustees
6. Time
7. Construction materials
8. Communications
9. Other public facilities
10. Labour
11. Diversion arrangement
The following documents are to be accompanied with the estimate.
1. Index map of the project, general layout and preliminary Drawings of important
structures.
2. Single line diagram and layout drawings of Power House and Switchyard (applicable for
Power Project only).
3. Brief specifications of work.
4. Details of micro planning for distributries, minors, water courses and drainage for 10%
of the total area of the command in the case of Irrigation scheme.
5. A schedule of prevailing basic labour wages.
6. A schedule of prevailing basic cost of materials supported by analysis wherever
necessary.
7. A schedule of prevailing transport rates supported by analysis wherever necessary.
8. Basic out-puts of men and machines assumed for estimating the cost.
9. Use rates of equipment supported by their analysis.
10. Analysis of unit rates of various works.
11. Copy of the latest schedule of rates of the district in which the project is located.
12. Relevant certificates from concerned Authorities/Departments.
The list is not exhaustive. Necessary supporting documents which differ from project to
project may have to be attached with the estimate for transparency and future reference.

REVISED COST ESTIMATE (RCE)

In the case of major and multipurpose projects which have been approved by the Planning
Commission and where the revised estimates of the project have increased by more than
15% of the original estimates, excluding escalation due to price rise or where there is
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change in scope, be required to be furnished to CWC for examination in the same way as-
new major and multi-purpose schemes irrespective of the fact whether the revision is due
to change in scope or not. The procedure for scrutiny for such revised project estimates
shall be same as for the new projects
In respect of revised project estimates where there is no change in the scope and where
the cost excluding escalation due to price rise has not changed by more than 15%, the
State Government need not forward a detailed estimate for examination at Centre. For
such projects the State Government should send to CWC an excess note after obtaining
the concurrence of the State Finance Department giving the abstract of cost under major
sub head indicating the excess cost over the sanctioned cost and giving reasons thereof.
The note will include the salient features of the project as originally proposed and as being
executed at site. The CWC will examine such estimates broadly and send its views to the
Advisory Committee for consideration and recommendation of the Planning Commission.
In the case of projects which undergo modification and revision subsequent to their
pproval, the information required to be submitted to Planning Commission should be
submitted in good time so that approval for the revised scheme is received from the
Planning commission before any additional commitments over and above the sanctioned
project estimate are made in respect of them.

The revised estimate should also include variation statement showing the variation in cost
of different sub heads. Quantities and rates of important items should be furnished. Other
items should be included as miscellaneous in the total cost. The revised estimate should
also include an analysis of the reasons for the increase in cost of different sub heads as
detailed below:
1. Rise in prices including variation due to exchange rate.
2. Rise due to change in scope.
3. Rise due to inadequate provisions in earlier estimate.
4. rise due to change in design
5. Additional requirements/new items.
6. Rise due to other causes such as inadequate plan allocation, arbitration, legal cases,
poor performance of equipment, procurement problems etc.
When revised estimates are prepared during construction, the quantities of items
completed should be indicated separately and the cost thereof assessed on the basis if
actual expenditure. Any liability arising out of the contract for completed work and
affecting the cost should also be considered in the estimate. For works in progress the
estimates should be based in contract rates. If the contract document contains any clause
for escalation on the prices of materials and labour wages subsequent to the award of
contract, the amount involved should be assessed and included in the estimate. For the
balance work to be done, the cost should be estimated on the basis of rates prevalent at
the time of the preparation of the revised estimates.

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 ECONOMIC EVALUATION OF IRRIGATION, FLOOD MANAGEMENT AND
MULTIPURPOSE PROJECTS

1. Introduction:
Economic evaluation of the project is basically an investment decision guided by cost
estimate of the project on one side and the benefits expected to flow by such investments
on the other. Different policy decisions adopted by various countries / agencies govern
criteria to be used for assessing the economic viability of the projects.

Though the irrigation projects were earlier evaluated on the basis of rate of return criteria,
a need was however felt that irrigation project in an area should not only be viewed as
source of income to the Govt. but as a means for increased agricultural produce and
economic development of that area and in the process, of the country as a whole.

2. Evolution of Criteria for Economic Evaluation

2.1 Pre-Independence- Development of financial policy

Systematic irrigation development took place during British era. However, at that time
irrigation systems were considered as commercial ventures like any other infrastructure
projects. The feasibility of irrigation projects essentially evolved from the concept of
financial soundness of public investment. The beginning of financial policy can be traced to
the period of rapid expansion of irrigation towards the close of last century with the
acceptance of the proposal for construction of irrigation works through loan funds. The
Select Committee on Indian Public Works reporting to the House of Commons in 1879 said:

“ The financial results of works of irrigation are in the opinion of your committee, the best
test of their utility. A rail road may traverse between its termini certain districts which it
does not materially improve, yet the work may on the whole, be beneficial, to the country.
Unless, however, an irrigation work benefits the immediate locality in which it is placed, it
can be of no use to outside districts.”

The committee further observed that:

“the construction of new works from borrowed money for the future be limited to those
schemes alone which upon the responsibility of the Government are estimated to be
productive by yielding an annual income equal to the interest in the capital expended on
their construction including in such capital interest during construction.”

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 This recommendation of the Committee then formed the basis for selection of irrigation
projects.

First Indian Irrigation Commission (1901-1903) at the turn of the century also gave full
consideration to the financial aspects of irrigation works. The Commission in its report
made a brief mention of the selection criteria in vogue at that time which reads as

“An irrigation work is classed as productive and sanctioned against loan funds when it has
shown to the satisfaction of the Secretary of state that it is likely to fulfil the conditions of
productive public work, that is to yield a net revenue 10 years after completion, sufficient
to cover interest charges on the sum at charge at that date. By sum at charge is meant the
total direct and indirect capital cost plus the excess, if any, of interest charges to date over
the net revenue.”

2.2 Productivity rate:

The productivity of a scheme was judged with reference to the rate of return earned by it
on full development. The criterion for the sanction of irrigation projects was based on
financial results which were estimated as follows:

i) The capital cost of any work was taken as the sum actually spent on its
construction;
ii) The revenue on account of direct receipt and indirect receipt was
estimated;
iii) The revenue account was debited yearly with
(a) the simple interest on the capital cost of the works at the
commencement of the year; and
(b) The working expenses of the year.
iv) The revenue account was credited yearly with

(a) the direct receipts

(b) the indirect receipts.

The difference between (iv) and (iii) above for any year gives the profit or loss for
that year.

The acceptable value of ‘productivity rate’ was linked to prevailing Rate of interest and
thus varied from time to time. The productivity rate varied between 4 to 6 percent on
works sanctioned during the period 1919 to 1937. Government of India Act., was
introduced in 1935. After April, 1937, Government of India prescribed Rate of Return as 6
percent as acceptable limit for sanction of projects. However, recognising the importance
of irrigation to meet the food and fibre requirement of the public at large, most of the

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 Provinces reduced the productivity rate to 4 percent though the rate prescribed by the
Government of India continued to be higher at 6 percent. This inter-alia helped in taking
up more number of projects which otherwise would have failed to satisfy the prevailing
financial criterion.

Schemes were sanctioned only if they satisfied the test of financial viability defined in
terms of the rate of return. The financial viability test was rigidly applied to all irrigation
projects Earlier large irrigation schemes were mostly diversion works and were relatively
inexpensive. When new schemes were taken up, it was felt that the development of
irrigation was being held up by the rigid application of the financial criterion, namely 6
percent between 1921 and 1949. Noting that apart from direct irrigation revenues, other
benefits accrued to the Government in the shape of increased revenue from excise duties,
income tax, sales tax, transport etc., The Central Board of Irrigation thus passed a
resolution at its annual meeting held in 1936 stating that “as the expansion of irrigation is
seriously handicapped by the restricted view taken of the value of irrigation, an economic
survey should be carried out with a view to estimate the direct and indirect financial
benefits accruing to the Central and Local Governments from Irrigation Projects”. Even if
studies showed that the indirect benefits of irrigation projects were substantial, criteria
for selection of projects has to be acceptable value of rate of return. However, a view
was taken that if a project did not fulfil the financial criterion, but was still considered
necessary in the public interest, it could be sanctioned as a protective work.

Number of irrigation projects which failed to satisfy the financial criterion were accordingly
taken up as protective works.

2.3 Plan era

After independence there was a change in the approach to the irrigation projects and
these projects were viewed as investment in the development and social benefit where
profit was not the sole motive. Sanction criteria was thus relaxed so that large number of
projects could be taken up in order to meet the food and fibre requirements of ever
growing population.

Rate of return on the capital outlay for classifying a capital work as productive was
accordingly reduced to 3.75 percent. This rate continued upto the year 1954 and was
applied to all projects financed by the Central Government as also for determining
productivity of State irrigation works for which loans were obtained from the Centre.
Subsequently, the rate was raised to 4.5 per cent and this rate continued up to March,
1960.

3. B.C.Ratio:

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During First and Second Five Year Plans a large number of irrigation projects were taken
up. It was observed that these projects could not satisfy the prevailing criterion of direct
financial returns to the Government. However, it was felt that irrigation project in an area
should not only be viewed as source of income to the Govt. but as a means for increased
agricultural produce and economic development of that area and in the process, of the
country as a whole. A need was therefore, felt to have full understanding of the various
aspects of an irrigation project. Accordingly, in 1958, the Planning Commission initiated
studies of some of the major projects to assess the overall benefits of the irrigation
projects and to find a more appropriate criterion for deciding whether various irrigation
projects should be undertaken. These studies were carried out under the Committee of
Direction headed by Prof. D.R.Gadgil. These studies showed that large benefits accrued
from irrigation in terms of double cropping, diversification and better quality crops, higher
yields, larger income and greater opportunities of employment. Indirect benefits that
accrued were the establishment of processing industries, expansion of consumer
industries, retail trade, transport and communications. The Committee was of the view
that total benefits from irrigation were far larger that the direct financial returns accruing
to Government from water rates and betterment levy. The Committee, therefore,
recommended that in future the concept of benefit cost ratio should be used for assessing
the feasibility of new projects instead of the traditional criterion of the direct financial
return to the Government. During the cause of whole exercise, the Committee studied
the issue of direct i.e. primary benefits and primary cost and indirect i.e. secondary/
tertiary benefits and indirect cost separately. The committee was of the view that
whereas it may be easy to work out the direct benefit i.e. increase in agricultural produce
due to irrigation, it may not be so in case of indirect benefits. Secondary benefits are
complementary in nature and are linked to overall developments of the area and as such
it is difficult to quantify benefits exclusively attributable to irrigation. For simplicity,
therefore, it was considered that the indirect or secondary benefits and cost need not be
taken into account. The net annual benefit was to be worked out as the difference
between the monetary value of the net agricultural production (total value of produce-
cost of cultivation ) ‘before’ and ‘after’ the introduction of irrigation. The annual cost
should be taken to comprise the annual interest on capital, depreciation and expenditure
on maintenance and operation.

Gadgil Committee report was submitted in 1964 wherein it was recommended that the
economic benefit criterion should be adopted for sanctioning irrigation projects instead of
the financial criterion. The Government accepted this recommendations and benefit cost
ratio criterion has been adopted. Benefit-Cost Ratio criterion for judging the economic
soundness of irrigation projects is in practice till date.

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B.C. ratio is obtained by dividing the annual benefits by the annual cost. Net annual
benefit is estimated as the difference in the net value of agricultural produce “before” and
“after” irrigation. The annual cost in the denominator comprise (a) interest on capital cost
of the project at the rate of ten percent per annum (b) depreciation charges at the rate of
1 percent in case of projects having 100 years life say storage scheme and 2% in case life
of the project is considered as 50 years and (c) operation and maintenance expenses.
Irrigation projects with B.C. ratio greater than 1.5 are considered acceptable from
economic point of view. Benefit Cost ratio of 1.5 instead of 1.0 was suggested as a
prudent precaution against likely increase in cost of the project. Subsequently acceptable
value (B.C. ratio) was reduced to 1.0 for irrigation projects in drought prone areas. Further,
for following categories of projects, B. C. ratio for acceptability of the project will be 1.0
instead of 1.5.

(a) For major and medium irrigation projects in special category states i. e.North eastern
states, Sikkim, Uttranchal, Jammu & Kashmir and HimachalPradesh.

(b) Major and medium irrigation projects benefitting areas where 100% of the beneficiaries
belong to SC/ST category or 75% of the beneficiaries belong to ST category.

The methodology for computing B.C. ratio shown in the format enclosed at Annexure I.

ESTIMATION OF B.C. RATIO FOR IRRIGATION PROJECTS

► B.C. ratio is obtained by dividing the annual benefits by the annual cost.

► Estimation of Irrigation Benefits

The net annual benefit is worked out as the difference between the monetary value of the
net agricultural production (total value of produce- cost of cultivation) ‘after’ and
‘before’ the introduction of irrigation.

• Value of produce comprises of gross value of both farm produce and

byproducts.
• Cost of cultivation includes expenditure on seeds, manure/fertilizers,
pesticides, hired labour/equipments, depreciation, cash and share rent,
Government taxes/ levies etc.

Estimation of Benefits other than Irrigation

(i) Drinking / Industrial water supply

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If there is a specific reservation in storage of the reservoir, the proportionate cost of the
dam be allocated to drinking/industrial water supply & the cost be excluded from the cost
of the project for irrigation. Alternatively, the quantum of water supplied to the
municipalities /industries be charged at the rates fixed by the Government or agreed to
with the parties concerned & amount be considered as benefit.

iii) Pisciculture

The reservoir can be used for pisciculture. The output per ha of the reservoir area (average
of the area at FRL and MDDL can be considered) can be estimated & its value after
deducting the expenditure at the prevalent market rate is to be considered as a benefit
due to the project. In this case there is no specific water allocation for it and it is an
incidental benefit. However, if pisciculture is to be practiced in ponds fed by canals, water
requirement can be estimated and provided for. Benefit may be considered in the similar
way as from the reservoir.

iv) Animal husbandry

If any major farms are proposed in the project & water is to be supplied from the project,
the net income may be considered as benefit. Augmentation of income of the farmers as a
result of introduction of irrigation is difficult to estimate and need not be considered.

v) Hydro power

Generally, if power generation is proposed from the project, proportionate cost of the
common works is allocated to power sector & B.C. Ratio for irrigation is calculated with
remaining cost of the project.

vi) Catchment area treatment

This helps in restricting the soil erosion and augment water availability in the catchment
area. This results in improvement in productivity of land. Increased yield from direct
draining area may be estimated and included in the benefits. Its cost is already included in
the project cost. Presently, however, this benefit is not being reflected in the DPRs.

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vii) Canal bank plantation/reservoir territory afforestation

The benefits are easy to estimate and must be included in the benefits. Presently,
however, this benefit is not being reflected in the DPRs.

Note:- Yield/ha and the prices to be used for converting the benefits into monetary terms
shall be obtained from the State Department of Agriculture, Pisciculture & Forests. They
would also furnish the basis for recommending the yields/ha under pre and post project
conditions and prices to be used.

► The annual cost in the denominator comprise (a) interest on capital cost of the
project at the prevailing rate. Cost of the project include Cost of land development
(b) depreciation charges at the rate of 1 percent assuming 100 years as life of
project (c) maintenance of Head Works @ 1% of the cost (d) operation and
maintenance expenses

For lift schemes annual cost shall also include:

(i) Depreciation of the pumping system @ 8.33% of the estimated cost,

assuming life of the system as 12 years.
(ii) Depreciation of the raising mains @ 3.33 % of the estimated cost, assuming
life as 30 years.
(iii) Charges of the power.
ESTIMATION OF B.C. RATIO FOR FLOOD MANAGEMENT PROJECTS

B.C. ratio should be worked out on prescribed standard and annual loss
supported by documents from the revenue department of the State. Average
annual damage should be computed on the basis of at least last 10 years data. .
B.C., Ratio calculation for flood management component of the project is worked out
as under.

(i) Average annual damage computed on the basis of at least last 10 years
data.
(ii) Average annual damage anticipated after the execution of the project.
(iii) Saving in annual damage {Item (i) and item (ii)}. .
(iv) Annual cost of flood management component.
(a) 12% of allocate cost of dam
(b) 16% of allocated cost of embankment
(c) 17% allocated cost for anti-erosion schemes
(d) Total annual cost a+ b .+c).

B.C.Ratio = Item (iii)

Item (iv)

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4. Internal Rate of Return:
For World Bank aided project it is obligatory to work out Internal Rate of Return also beside
B.C. ratio. Calculation of IRR is undertaken to reflect the further cost involved in long gestation
that takes place during the construction. Cash flow diagram for a hypothetical irrigation
project is indicated below. Irrigation development over large area is a slow process and
projections of progress to assess flow of benefits and the stream of realisable benefits finds
place in the I.R.R. analysis. The IRR is calculated as per profroma enclosed at Annexure II.

Increasing
benefit as Annual Irrigation Benfits on full
irrigation development of command
extends to new
command

Annual operation and

maintenance cost

Large expenditure during period of

Large expenditure during period of
Initial project construction
Initial project construction

Cash Flow Diagram for Hypothetical Irrigation Project

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 Annexure I

B.C.Ratio (Rs. In Lacs)

PRE POST
PROJECT PROJECT

A GROSS RECEIPTS

1 GROSS VALUE OF FARM PRODUCE

2 DUNG RECIEPT(30% OF B6)

3 TOTAL (A) GROSS RECEIPTS

B EXPENSES

1 EXPENDITURE ON SEEDS

2 EXPENDITURE ON MANURE

3 EXPENDITURE ON FERTILISERS

4 EXPENDITURE ON PESTICIDES

5 EXPENDITURE ON HIRED LABOUR

6 FODDER EXPENSES (15% FOR PRE AND

10% FOR POST PROJECT OF A1)

7 DEPRECIATION (2.7% OF A1 )

8 SHARE AND CASH RENT(5% FOR PRE AND

3% FOR POST PROJECT OF A1)

9 LAND REVENUE (2% OF A1)

TOTAL (B) EXPENSES

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C NET VALUE OF FARM PRODUCE

1 TOTAL GROSS RECEIPTS

2 TOTAL EXPENSES

NET VALUE (1-2)

D ANNUAL BENEFITS

1 NET VALUE OF PRODUCE AFTER PROJECT

NET VALUE OF PRODUCE BEFORE

2 PROJECT

3 ANNUAL BENEFIT (1-2)

COST OF THE PROJECT

(a) CAPITAL COST (After apportionment)

(b) COST OF LAND DEVELOPMENT

@ Rs 2000/- per ha of CCA - ha

Total

E ANNUAL COST

1 INTEREST ON TOTAL COST

2 DEPRRICIATION OF THE PROJECT @ 1 %

OF THE CAPITAL COST

3 O & M CHARGES @ Rs 600/- PER HA ON ha

4 MAINTENANCE OF HEAD WORKS @ 1%

OF THE COST OF Head Works of lac Rs.

5 TOTAL ANNUAL COST

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 B. C. RATIO (D3/E5)

Estimated value of Produce and cost of inputs before Irrigation

Cost of inputs

Cost of inputs per hectare Total

Area cost in
S. No. Crops
( ha) Seed Manure Fertilisers Pesticides Labour Total lakh
Rs.

Kharif

Rabi

Total

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Estimated value of Produce before Irrigation

Total
Area Yield Rate Receipt Value
S.No. Crops
( ha) (Qtls./ha) Rs./Qtl. (lac Rs.) of
Produce
(lac Rs.)
Levy Market Levy Market

Kharif

Rabi

Total

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Estimated value of Produce and cost of inputs after Irrigation

Cost of inputs

Cost of inputs per hectare Total

Area cost in
S. No. Crops
( ha) Seed Manure Fertilisers Pesticides Labour Total lakh
Rs.

Kharif

Rabi

Total

Page 125
Estimated value of Produce after Irrigation

Rate Total
Receipt (lac Rs.)
Rs./Qtl. Value
Area Yield
S.No. Crops of
( ha) (Qtls./ha)
Levy Market Levy Market Produce
(lac Rs.)

Kharif

Rabi

Total

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Page 127
 Annexure II

Internal Rate of return

Project CCA Developed Discount Factor Net Present Benefit

Total Net Cash
Year Cost O&M
Cost Flow
Sl.No. (at the Incured Cost per Benefit
Area in (Col.3 + (Col.8-
end of) during %age ha
ha Col.6) Col.7) With A% With B% With A% With B%
the year rate rate rate rate
1 2 3 4 5 6 7 8 9 10 11 12 13
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10

Upto 50 (For Medium Projecs)

Upto 100(For Major Projecs)

I.R.R = Discount rate(A) = (Total of Col.12) X (Difference of rate of Col.11-Col.10)

Arithmetic sum of
Col.12 & Col13

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Page 129