Demanding cost-benefit analysis assuming irrigation as the project’s only contribution is myopic. Major irrigation projects like Kaleshwaram need some gestation period for completion as well as for the accrual of full benefits. The benefits vis-a-vis costs cannot be compared in a few years after the initiation of the project. A longer economic period needs to be worked out for a logical cost-benefit analysis.
On such irrigation projects, governments will not be able to recover the cost from the direct beneficiaries through utility charges alone. They can, however, get increased revenue from intangible benefits of the associated areas because of the projects.
In view of economic benefits to the entire society, government subsidises the cost. Therefore, here the cost-benefit analysis for the borrowed capital repayment and the meeting of the operation and maintenance costs is mostly linked to the revenue budget of the government.
So, the identification of costs and benefits becomes very important. Identification of the costs can be fairly easy. But the benefits can be tangible and intangible and come over a period of time. The tangible benefits are irrigation, drinking water and water for industrial use, which can be quantified. The intangible benefits are many like, groundwater storage, public health, fisheries, dairy, tourism and environmental change, which are difficult to quantify. But they form a very important part of the economic analysis of such projects.
Funding Matters
In the case of the current major irrigation projects in Telangana and Andhra Pradesh, the Central government foots the bill for Polavaram. However, for Kaleshwaram, the cost is being borne by the Telangana government. It needs to meet the cost on its own or borrow from financial institutions.
The State cannot bear such a high capital investment from its revenue Budget. So it is mostly borrowing, and the financing institutions will be making their cost-benefit analysis on the State revenue Budget, its loan outstandings and the ability to service the debt.
The Central Water Commission, which clears these projects, looks at many aspects — mandatory and non-mandatory. The availability of water, inter-State water use, cost estimates and technical feasibility can be mandatory to it. The cost-benefit analysis can be a non-mandatory general economic analysis.
Economic Period
Thus, demanding to work out the whole span of cost-benefit analysis on the Kaleshwaram project assuming irrigation only as the benefit is not rational. Even if a general economic analysis is made, it should be done on an economic period of time, taking into account the gestation period of the project and accruing of full benefits. It is not as simple as working out the value of incremental benefits in the benefiting command area and comparing it with the total cost of the project.
The cost-benefit analysis is a tool for assessing the financial and economic profitability of investments. It is carried out from various perspectives — one from the point of view of individuals/groups of individual beneficiaries and the other for the implementing/financing agencies.
The main objective of the financial analysis is to assess whether incremental project benefits are sufficient for fully recovering incremental costs, which ensure the project’s long-term financial sustainability. For the individual beneficiaries, the major objective of financial analysis is gross margins of major project-induced activities to know if they are contributing to the intended improvement. Economic analysis, on the other hand, looks at project profitability from the point of view of the economy or society as a whole.
Limited Target
If the projects’ aim at the benefit of individuals or groups of individuals, it will be different. For example, a minor irrigation project, which may include a district or a few districts, can be proposed by some primary level financing institutions under the aegis of a State government. Here a project needs to be prepared working out the economics on a representative development unit. It is like a household with say five acres of land, a well and a pumpset and some working expenses. There the cost-benefit analysis includes financial analysis, BC ratio, fixation of repayment period and the instalment amount on the economic period of time of the project.
Here the primary institutions have to borrow from bigger financial institutions like Nabard, ADB and the World Bank with the government infrastructure support and guarantee. The beneficiaries need to pay back their loans and the financing banks, in turn, have to pay to their higher financing agencies with the recovery from the individual beneficiaries There they need to work out the full span of financial analysis at the beneficiary level and the financing bank level.
However, in the case of projects such as dams and anicuts (irrigation projects), it is different. Here, the government executes the project with its revenues or centrally-assisted or externally-aided finances or a combination of them. So, here the perspective of cost-benefit analysis changes.
For government revenue or central grants, there will not be any mandatory cost-benefit analysis. There will be cost-benefit analysis in the case of externally-aided component, which will be a borrowing to the government. There will be a cost-benefit analysis based on the revenue and fiscal budgets of the government to assess their ability to service the debt. So, the cost-benefit analysis is not a straightjacket calculation, its application can vary with the type of investment, investing agency and the clientele.
The tangible and intangible economic benefits of the Kaleshwaram project are numerous. They make the project economically viable. Its benefits far outweigh that of the Polavaram project, which is mostly stabilising the already irrigated command. Its dire necessity for Telangana makes the State’s bold attempt at it clearly worthwhile. All that it needs is Central assistance like in Polavaram to render equal justice to the two new States. #KhabarLive
