Planning Commission’s Guidelines for Project Formulation
(Feasibility Reports for Industrial Projects):
In order to process investment proposals & arrive at investment decisions, the Planning Commission has issued guidelines for preparing/formulating industrial projects.
The feasibility report lies in between the project formulating stage & the appraisal & sanction stage. The project formulating stage involves the identification of investment options by the enterprise in consultation with the Administrative Ministry, the Planning Commission, & other concerned authorities.
The guidelines have been summarized below;
- General Information-
The feasibility report should include an analysis of the industry to which the project belongs. It should deal with the past performance of the industry. The description of the type of industry should also be given, i.e. the priority of the industry, increase in production, role of the public sector, allocation of investment of funds, choice of technique etc. This should also contain information about the enterprise submitting the feasibility report.
- Preliminary Analysis of Alternatives-
This should contain present data on the gap between demand & supply for the outputs which are to be produced, data on the capacity that would be available from projects that are in production or under implementation at the time the report is prepared, a complete list of the existing plans in the industry, giving their capacity & level of production actually attained, a list of all projects for which letters of intent/licences have been issued & a list of proposed projects.
- Project Description-
The feasibility report should mention the technology/process chosen for the project. Information relevant to determining the optimality of the location chosen should also be included. To assist in the environmental effects of a project, every feasibility report must present the information on specific points, i.e. population, water, land, air, flora, & fauna, effects arising out of projects pollution, other environmental disruption etc.
- Marketing Plan-
It should contain the following items; Data on the marketing plan, Demand & prospective supply in each of the areas to be served. The methods & the data used for main estimates of domestic supply & selection of the market areas should be presented. Estimates of the degree of price sensitivity should be presented. It should contain an analysis of past trends in prices.
- Capital Requirements & Costs-
The estimates should be reasonably complete & properly estimated. Information on all items of costs should be carefully collected & presented.
- Operating Requirements & Costs-
Operating costs are essentially those costs incurred after the commencement of commercial production. Information about all items of operating costs should be collected. Operating costs relate to the costs of raw materials & intermediaries, fuel, utilities, labour, repair & maintainence, selling expenses & other expenses.
- Financial Analysis-
This strategy is to present some measures to assess the financial viability of the project. Foreign Exchange Requirements should be cleared by the Department of Economic Affairs. The feasibility report should take into account income tax rebates for priority industries, incentives for backward areas, accelerated depreciation etc. The sensitivity analysis should also be presented – that is the sensitivity of the rate of return of change in the level & pattern of product prices.
- Economic Analysis-
Social profitability analysis needs some adjustment in the data relating the costs & returns to the enterprise. One important type of adjustment involves a correction in input & costs, to reflect the true value of foreign exchange, labour & capital. The enterprise should try to assess the impact of its operations on foreign trade. Indirect costs & benefits should be included in the report. If they cannot be quantified, they should be analysed & their importance emphasized.