NITI Aayog proposes higher social discount rate for project appraisal

In a working paper, the National Institution for Transforming India (NITI Aayog) has recommended increasing the social discount rate (SDR) for appraising projects spanning up to 30 years from the current 8% to 9.23%, with the aim of enhancing the standards for projects deemed economically viable. The SDR is a metric used in cost-benefit analysis to ascertain the present value of future expenses and advantages of public or societal ventures.

The working paper, co-authored by NITI Aayog and the Indian Statistical Institute, examined India's parameters for evaluating public investment programs or projects, nearly eight years post the last review in 2018. The proposed SDR revision could impact the finance ministry, NITI Aayog, and ministries overseeing long-term projects, such as infrastructure, energy, irrigation, and environmental initiatives.

For extended project durations, the suggested SDR rates are 6.2% (30-50 years), 4.8% (50-75 years), and 3.4% (75-100 years). The previous assessment in 2018 set an SDR of 8% for projects lasting up to 50 years, 6% for long-term infrastructure and environmental projects, and below 6% for those surpassing 100 years. The working paper aims to bolster the credibility of appraisal exercises, ensuring more efficient utilization of public funds.