Manual on Economic Evaluation of Highway Projects in India (Second Revision)
2009 Edition

IRC SP 30 Annex C provides formulas to compute vehicle operating cost (VOC) components such as maintenance labour, depreciation, crew wages, and fixed expenses for different vehicle types. VOC calculations consider factors like road roughness, terrain elevation changes, traffic composition, and travel distance. Values are based on March 2009 price levels and assume a fleet mix of 75% petrol and 25% diesel vehicles. For parameters between tabulated values, linear interpolation is recommended. The calculation distinguishes between scenarios with and without the project to quantify cost savings.

The economic appraisal includes factors such as prioritizing projects within budget constraints, phasing road programs, comparing mutually exclusive alternatives, evaluating investment feasibility, and assessing different strategies like staged construction or maintenance approaches. Design life is typically set between 15 to 20 years, with salvage values applied if shorter. A discount rate of about 12% per annum reflects Indian economic conditions. Interest on capital costs is included for private-funded projects but excluded for government projects. Shadow pricing adjustments may be applied to wages, materials, and equipment costs to reflect true economic values.

IRC SP 30 categorizes traffic benefiting from improvements into normal (existing traffic), diverted (traffic shifted between routes or modes), and generated (induced new traffic). Benefit calculations assign full value to normal and diverted traffic savings, while generated traffic benefits are halved to account for partial valuation. The standard includes speed-flow analyses over the design period and recommends pavement widening when design service volumes are exceeded. If widening is not feasible, congestion costs are factored into vehicle operating costs. Traffic forecasts combine normal growth with induced and diverted traffic for comprehensive benefit estimation.

The recommended design life for highway economic evaluation is generally between 15 and 20 years, as longer durations have minimal impact due to discounting and forecast uncertainty. If the design life is less than 15 years, a salvage value ranging from 10% to 20% of the initial investment cost should be assigned at the end of the analysis period. The discount rate commonly used is 12% per annum, representing the social time preference and opportunity cost of capital in India. This rate should not be less than the prevailing government borrowing or market interest rates.

Shadow pricing in IRC SP 30 modifies market prices distorted by taxes, subsidies, or controls to approximate true economic costs. Unskilled labour wages are adjusted to half the actual wages reflecting labour surplus, while skilled labour wages typically remain unchanged unless evidence suggests otherwise. Imported materials are valued at border (c.i.f.) prices, excluding import duties, excise, and sales taxes, which are considered transfer payments. Foreign exchange rates are inflated by 25% over official rates to account for scarcity. Overall, financial costs are adjusted by multiplying with factors between 0.80 and 0.90 to estimate economic costs, ensuring more accurate resource valuation in project appraisals.