India - Fifth, Sixth, Seventh, and Eighth Industrial Imports Projects

CONFIDENTIAL Report No. 878 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELPMENT ASSOCIATION PROJECT PERFORMANCE AUDIT REPORT INDIA: FOUR INIJSTRIAL IMPORTS PROJECTS (Credits 138, 182, 327, and 402-IN) September 30, 1975 Operations Evaluation Department  PREFACE The present audit report reviews performance of four industrial import credits for the total value of $375 million granted by IDA to India. The fifth credit (138-IN), in the amount of $125 million, was signed in January 1969 and fully disbursed by March 1969, six months before the targeted closing date. The sixth credit (182-IN), of $75 million, was signed in April 1970 and fully disbursed by January 1972, six months after the targeted closing date. The seventh credit (327-IN), of $75 million, was signed in September 1972, and was fully disbursed in September 1973, two months before the targeted closing date. The eighth credit (402-IN), of $100 million, was signed in June 1973, and was fully disbursed by June 1974, five months ahead of official closing date. Industrial import credits to India occupy an important place in the Bank Group's operations. They began in mid-1964 and, during the sub- sequent 11 years, 10 credits for the total amount of $1,130 million were approved. Of these, nine credits for $930 million have been fully dis- bursed. The four projects presently reviewed are the first of this type to be studied by the OED. The task was difficult for several reasons. First, the full impact of a program loan cannot be studied without look- ing at the national economy as a whole. It is the lacunae in the function- ing of the national economy which created the need for and the justification of industrial import credits. It is also the supply and demand functions of the national economy which are decisive for the operation of industries which these credits were supporting. Second, program loans were supposed to inject some flexibility into Government decisions, especially those related to its export and import policies. But these not only are of a complexity which lends itself badly to a lucid and concise analysis, but also their sense and even their content is seen differently by Government officials, who had designed them with a certain immediate rationale in mind, by entrepreneurs who are subjected to their operation which is often contrary to their intentions or expectations, and by the onlookers, scholars or Bank officials, who compare them with their own notion of long-term economic efficiency or rationality. For all these reasons, the present audit had to steer -- sometimes less successfully than we would have wished -- a middle course between an abyss of overgeneralization and a swamp of detailed information, and a middle course between the views from the ivory tower and the views from the market place. The main sections of the report are divided into four distinctly separate parts. The first reviews those elements of the economy which justified the transfer of foreign exchange through the import credit mechanism. Here, the role of Bank import credits is seen not only as that which could contribute to closing the foreign exchange gap, but also, and perhaps foremostly, as a role contributing to a fuller and more effective use of existing resources. The second part analyzes the rationale for selecTion of the so-called IDA-eligible industries, direct beneficiaries of inaustrial import credits, and reviews the global performance of these industries. Each of these industries is also analyzed somewhat more in detail in the separate Annex to the report. The third part concentrates on those elements of development policy and national economic management where changes were desirable and might have occurred thanks to a certain room for maneuver which these credits were supposed to create. Here, the foreign exchange gap is viewed from a different angle: not as a recurrent phenomenon, but as a removable bottleneck, the sources of which are im- bedded in the structure of the Indian economy. Some of these main sources are critically reviewed, along with Bank attempts to uncover them and to suggest the way toward their gradual elimination. And, finally, the fourth part of the report deals with the Bank's handling of these credits, and also reviews, on the basis of the analysis contained in the preceding three parts, some possible options for the future. Brief completion reports were prepared by the Industrial Projects Department on the seventh and eighth Industrial Imports Credits. While these reports were factually correct, it was considered that the performance of these projects deserves more attention and a deeper analysis; and a short mission to India was undertaken in February 1975 for the purpose of this audit. We gratefully acknowledge the cooperation and assistance of the Ministry of Industry and Civil Supplies, of the Department of Economic Affairs, of the Ministry of Commerce, of the Reserve Bank of India and of the Planning Commission. We also benefitted from insights of scholars .ror the National Council of Applied Economic Research, from the Indian institute of Management, from the Commerce Research Bureau and from the Delhi School of Economics. The Association of Indian Engineering Industry and a great number of industrialists were of great assistance in showing us how the wheels of industry really turn. Finally, Bank staff from the South Asia Regional office and from the Resident Mission in India never spared their efforts in unraveling to us the intricate history of the last six years of IDA involvement in India. Exchange Rates (Indian Rupee): Prior to June, 1966 : US$1.00 = Rs 4,7619 Rs 1.00 = US0.21 From June 6, 1966 to : US$1.00 Rs 7.50 mid-December 1971 Rs 1.00 = US$0.133 id-December 1271 to : US$1,00 = Ts 7.27927 end-June 1972 Hs 1.00 = US$0 .137& After end-June 19'2 : Floating rate Spot rate (1arch 31, 1975) : US$1.00 = Ps 7.72 Ps 1.00 = US$0.129 TABLE .O? COTENT'S SUMMARY i I. OBJECTIVES AND EXPECTATIONS 1 A. Program Loans and Industrial Import Credits 1 B. Specific Objectives of the Fifth, Sixth, Seventh and Eighth Credits 2 II. CLOSING THE RESOURCE GAP - THE SHORT-TERM PROBLEM 6 A. Decline in Capital Inflows 6 B. Import Substitution 7 C, Import Rigidities 7 D. Fungibility of Foreign Exchange 8 E. Savings 8 F. Capital Productivity 9 III. ASSISTING SPECIFIC INDUSTRIES - THE TARGETING APPROACH 11 A. Choice of Beneficiaries 11 B. Performance of IDA-Assisted Industries 14 IV. ELIINATING THE BOTTLENECKS - THE LONG-TERM PERSPECTIVE 17 A. Flexibility 17 B. The Dialogue 18 C. Development Policy 19 D. Partial Disequilibria 21 E. Capacity Utilization 22 F. Capacity Licensing 24 G. Import Licensing 25 H. The Canalizing Agencies 27 I. Export Incentives 28 J. Export Capacity 31 V. THE BANKS APPRAISALS AND FUTURE OPTIONS 33 A. Appraisals 33 B. Information 3h C. Program vs Project Assistance 35 D. Options for the Future 37 VI. CONCLUSIONS 41 ANNEX I - Review of Specific Industries  ANNEX TABS I-1 Disbursements of Industrial Import Program Credits by Sector 2 Speed of Disbursement of Industrial Import Credits 11-1 Aid and Debt Statistics, 1958/59-1973/74 2 Balance of Payments 3 Imports of Certain Selected Items 4 Index Numbers of Imported Input Prices and Output Prices of IDA-Assisted Industries: 1970/71-1973/74 5 Minerals and Metals Domestically Available, 1973 6 Minerals and Metals Imported, 1973 7 Productivity of Capital, Compared to Brazil, Indonesia, Pakistan, Turkey, Egypt and Mexico 8 National Product at Factor Cost, Saving and Capital Formation 9 Estimates of Gross Domestic Saving and Gross Domestic Capital Formation, 1950/51-1973/74 10 Utilization of Potential Capital Resources III-1 Importance of the Manufacturing Sector 2 Quantity and Value of Output of IDA-Assisted Industries: 1970/71-1973/74 3 Financial and Performance Coefficients of IDA-Assisted Industries 4 Foreign Exchange Content of Products of IDA Sectors 5 Selected Ratios of IDA-Assisted and All Manufacturing Industries: 1970/71-1973/74 6 Employment in .IDA-Assisted Industries: 1970/71-1973/74 7 Survey of Selected IDA-Assisted Companies: 1971-1974 8 Foreign Exchange Allocations to Surveyed IDA-Assisted Companies by Source: 1970/71-1973/74 9 Export Performance of IDA-Assisted and All Manufacturing Industries: 1970/71-1973/74 10 Exports by IDA-Assisted Industries by Category :V-1 ?rncipal Targets and Achievemen-s of zhe Third and Fourth Plans 2 Shortages of Industrial Products - 1974/75 3 Capacity Utilization of IDA-Assisted industries h Import Licenses Issued by CCI&E During 1970/71, 1971/72, 1972/73 and 1973/74 5 Import Replenishment Licenses Issued to Registered Exporters, 1971/72-1973/74 6 Import Replenishment Licenses and Release Orders Issued to Registered Exporters 7 Distribution of Capital Goods Import (CG) Approvals According to Industries 8 IDA-Assisted Industries - Exports by Destination: 1970/71- 1973/74 9 Utilization of Seventh, Eighth and Ninth IDA Credits for Non-Canalized and Canalized Items 10 Foreign Exchange Allocations to IDA-Assisted Industries: 1970/71-1974/75 (April 1-Dec. 31) V-1 Projected and Actual IDA/IBRD Disbursements and Actual Total Aid Disbursements: 1970/71-1973/74 2 Summary of IBRD/IDA Operations: 1970/71-1973/74 SMARY 1. From the long and rather continuous series of IDA Credits to India for industrial imports the present report reviews the performance of four aggregating $375 million,approved in 1969-73 and disbursed over the five years 1969-74. Four previous credits in the same series were made in 1964-66, and further similar credits have been made since 1973. 2. These Credits belong to the general class of program loans, but they are a rather particular variety of this general species. The four studied here were approved at a time when the Bank was first defining its policy more generally on the subject of program lending and the condi- tions under which such lending was appropriate, and the President's memo- randa on program lending of November 5, 1968 and December 15, 1970 were an important part of the background to Bank thinking on these credits. But in some ways the four Credits owe more to the precedents established and experience gained with the forerunners in their own series although, as regards linkage with major economic policy change, they in fact had even less, explicit 'program loan' characteristics than those. The unifying central purpose of all the credits, however, was to support the operation of the capital goods manufacturing sector in India, thereby providing India with far more additional investment goods, mainly for the industrial and agricultural sectors, than could have been obtained by spending the same amount of foreign exchange on imported capital goods. While India displayed all the economic characteris- tics defined in the Bank's policy memoranda as qualifying a country for possible program lending, these Credits were both somewhat less flexible than a true program loan might be expected to be, in the sense that their proceeds were earmarked to these particular manufacturing sub-sectors only, and at the same time somewhat less demanding on the Indian authorities than a typical program loan might be expected to be, in the sense that discussions of significant policy change never led to any formal commitments and no performance targets were agreed. But there was a continual dialogue between the Bank and the Government of India - particularly about import licensing, industrial capacity licensing, and export incentives - which was pursued in the Bank's economic reports and at Consultative Group meetings as well as in the negotiations for these Credits, and hopes for policy change were sometimes expressed in the relevant appraisal reports. The Credits had also always to be designed to meet the crucial program loan characteristic of giving rapid help, in sizeable volume, and other objectives had to be reconciled with this key purpose. 3. While the general policies toward the industrial sector mentioned above, and particularly the question of 'indigenous angle' clearance of import licenses, were persistent themes of discussion, the more concrete dimensions of the Credits related to a few specific commitments made in connectioh with the use of the IDA funds themselves (e.g., international bidding for raw material procurement) and the recording of such use, and also to the specific industries to be included under any particular credit. While there were changes from one Credit to another in the industries covered, these were not very significant, and the bulk of the funds under all four went to six groups: automotive ancillaries, machine and cutting tools, fertilizers and pesticides, commercial vehicles, electrical equipment and tractors, approxi- mately in that order of importance. The most important change in this regard was a sharp reduction with the sixth credit, in 1970, from much wider coverage under the preceding ones, to this core group, to which however a few other industries have been added, again or for the first tine, with the subse- quent Credits. Besides being essentially capital goods producers (except, most strictly speaking, for fertilizers and for aluminum smelting, added with the seventh credit), all the industries covered belonged to the officially designated "priority industries" which were defined many years ago (and reclassified very recently in a more meaningful way to produce a category of "select industries") and which have accounted in recent years for some 84% of total output of the manufacturing sector. The 'IA-eligible' industries, as defined for the eighth credit, of 1973, account for some 10-13% of manufacturing sector output and 8% of manufacturing sector employment. Government permission and support were obtained in connection with the seventh and eighth credits for detailed Bank reviews of some of the sub-sectors covered by the lending (first, tractors and commercial vehicles and, later, steel forging and foundries), to give the Bank more real knowledge than was possible with the general studies previously undertaken and to generate useful advice to the Government authorities and the industries themselves. 4. The four credits have been disbursed very quickly. The $125 million fifth credit, which had been held up by delay in IDA replenishment, was disbursed within one trimester, partly due to inclusion of retroactive financing provisions. Over 9C% of the seventh and eighth credits ($75 and 100 million respectively) were disbursed within three trimesters. Compara- tively slow, but still fast compared with most other types of loans, was the sixth credit, of $75 million, whose disbursement period spread over almost two years, not so much due to the sharp reduction in industries covered as to delays in the issue of requisite import licenses. 5. These substantial, rapid transfers of concessionary assistance were vitally important from a macroeconomic point of view, firstly because of the very tightness of India's foreign exchange situation in this period and secondly because of the reasonable flexibility with which these IDA funds could be used (in terms of allocation among eligible sectors and source of procurement) in a context of numerous constraints to the fungibility of the country's foreign exchange budget. Net aid transfers to India declined from about $1.1 billion in 1966/67 to about $200 million in 1972/73, while Indian exports have grown rather slowly. As a result, India's import capacity declined even in current price terms, much more so in real terms. The com- position of Indian imports, of which 80% is maintenance imports and cereals, and another 10% is machinery and equipment purchased within bilateral aid agreements, does not allow for further compressions or substantial shifts, and any shortfall in import capacity would reflect on current operation of the economy and on the level of basic consumption of the poorer population strata. A great part of the other aid supplied is tied as to source of procurement, type of goods covered, or use for particular projects, and the industrial imports credits, one of the types of foreign exchange closest to India's own foreign exchange earnins exibility of use, helped the foreign exchange budgeteers to get tne most benefit from the overall combination of resources available. The h- ee of imort substitution attained - for instance some 74% of curren. Ls.inery and equipment requirements, compared wih only 68 for Japan in 1 -ee.er wt the availability of project aid from the Consortium and fcom o>er countries to cover much of the rest mean hat the availability of laxfily usarle resources to help cover the remaining gap is of great impo:;ance. - il _ - 6. No waste in the use of proceeds from industrial inport credits and no spillover into unproductive expenditures were found. Firstly, the importance of these credits, compared with total public savings, was too small to suppose that they could lead to slackening in domestic resource mobilization efforts; moreover, to the extent that they enabled a higher level of operation of the corporate manufacturing sector, an important saver, they rather may have added to national savings. Secondly, no part of the stream of foreign exchange transferred by IDA to pay for inputs into these industries was wasted or sterilized. India's 1970/71 level of inter- national reserves could not be considered as excessive; and, calculated in terms of months of imports, it declined when the import bill went up. The level of inventories was adequate but not high in 1970/71 and also declined in subsequent years. 7. As regards the IDA-assisted industries themselves, there is no doubt about their geneal priority, as suppliers of the agricultural and industrial sectors, nor about the fact that they did benefit significantly from being included under the Credits; there has been considerable pressure from industries for participation in the scheme, mainly because of certain advantages that IDA-eligible industries enjoy with respect to import licenses and bulk order- ing of raw materials, and the Government has been committed under the Credits to provide the complementary foreign exchange required by them. Output of the IDA-assisted industries (as defined for the eighth credit) grew at about 5.5% p.a. during 1970/71-1973/74, compared to 3.7% for the entire manufacturing sector, their profit margin on sales was 13% in 1973/74, compared with 9% for the entire sector, and their rate of capacity utilization, as officially measured, was 78% in that year compared with 73% for the entire sector. Given the extreme scarcity of foreign exchange prevailing, as described earlier, it is not unreasonable to give a rough indication of the direct con- tribution of the IDA funds in terms of the effect their removal would have had on the production of these industries. Average utilization of productive capacity in the IDA-assisted industries has hovered around 80%; without the IDA credits, which paid for 32% of all inputs imported by these industries, their capacity utilization would have declined to 53%, entailing an output loss of some $600 million equivalent annually. The direct effects of such a shortfall in output on such vital sectors as agriculture or transport, and further negative multiplier effects on other sectors, could have been even more serious than the mere idleness of productive capacity. 8. In reality, of course, the effect of the credits on the IDA- eligible industries (compared with the likely 'without the credit' situation) is somewhat less dramatic than this simple calculation would imply, and the availability of the additional foreign exchange provided by IDA correspon- dingly enables the authorities to be a little more generous than they would otherwise be with some of the other sectors and industries and has facilitated a few minor policy changes. The import licensing system, liberalized in the mid-1960s when the first few industrial import credits were granted, and rigidified again toward the end of the 1960s when scarcities became acute, have acquired anew, and increasingly so, small margins of flexibility within the past two or three years. Import licenses are now issued more expeditiously and, for established users, quasi-automatically although still mainly on the basis of their past consumption. As regards "indigenous angle" clearance, facilities have been introduced whereby a small proportion of some import licenses can be spent on such banned imports, and these have recently been slightly extended and increased. ort licenses are being made more readily available to exporters. The process of importing raw materials through the Government trading corporations (the so-called canalizing agencies), another matter discussed at negotiations of the Credits, has been streamlined and made more efficient - the materials financed from the Credits are purchased through international biddings and transported in bulk shipments by chartered vessels, and the corporations' profit margins are modest - although they have some difficulty in coping with very urgent or technically complex orders. 9. The significance of these relatively minor policy adjustments should not be exaggerated; the vast majority of the impact of these Credits comes in their 'hardware' part, the sheer provision of foreign exchange. But the value of the hardware part should not be underestimated. Its critical importance in the very tight foreign exchange budget faced by India in recent years has already been stressed. But there is also the disbursement angle. The rapid disbursement characteristic of these credits, by comparison with those for normal projects, means that they have a substantially higher real financial value to India than an equivalent amount of project lending, especially in a situation of strong world inflation; a simple calculation, assuming 10% discount and 10% inflation rates, shows that the present value to India of a loan made today for projects that are expected to have approxi- mately four-year disbursement periods (e.g., agriculture and education) is only about 75% that of a loan of similar size made for industrial imports. And the evidence collected suggests that materials so imported are turned expeditiously into finished investment goods and sold. The comparison quite leaves out of account the high rate of return that may accrue to project investments and also the probably more widely significant and substantial impact of technical assistance and institution-building efforts borne by nroiect loans, but it does show that these effects have got to be quite substantial to compensate for the advantage to India from rapid disbursement of the program loans. Moreover project disbursements have sometimes been substantially delayed. Thus disbursements under the industrial import credits in 1971-73 were only barely compensating the annual shortfalls, against Bank projections, of disbursements under its project loans and credits. 1J. But the Bank has not been satisfied with the combination of a clear i=nediate impact on the balance of payments and on industrial capacity utili- zation together with a somewhat more conjectural impact on the build-un of the country's capital:stock in agriculture and industry. It has insisted, in the theory of program loans - with the emphasis on a viable long-term plan as a framework - and it has hoped, in the practice of industrial import credits - with the talk about policy reform and expectations about manufacturing export growth - that such financial assistance should facilitate and sucnort the attainment of a new and surerior ecuilibriun. A long-term loan to cover immediate needs should not only meet those needs but do so in such a way as to reach a more nermanent soluoion. if the problems are of transitory cnaracter, attributable to decline in commodity -rices, to loods or to short-lived hostilities or civ_ disturbances, the solution -ay be relatively straigh-forward and a short-tern cure can jelp ouy time so hat the main agents of thne economy can sfUn zi-c o oceration. If, however, the short-term rroblems are the result of dec-roozed strctura nroblems tnen financial assistance may he create certain room for 0aceuver so tat economic policies, capital and inter-sectoral relationships are adjusted in such a way that a long-term growth could be achieved and that the source of short-term disequilibria is gradually removed. India has clearly fallen in the second category, and yet the intensity of the short-term problem has been such as to make it particularly difficult to combine a solution to it with a solution for the long term - although without the latter, the former can be only a palliative. Never fully accepting the Indian Development Plans as a firm basis for its lending, the Bank has struggled to meet this problem, first by its support for the devaluation and import liberalization measures of 1966, then by maintaining a dialogue on industrial policy and undertaking several broad reviews of the industrial sector, and more recently by going into greater depth of study on particular sub-sectors. 11. The scope of the long-term problems in India remains formidable. The overall productivity of fixed capital is low, and its marginal capital: output ratio, not the most reliable yardstick but the only one available, was still at the level of about 5.0 or so during the past decade, one of the highest levels - or lowest productivities - among developing countries. The comprehensive development planning system did not succeed in preventing important bottlenecks from occurring, and this not only in the form of material shortages, but also in the form of inadequate power supply and interruptions in transport services. Each of these partial disequilibria became an important constraint to the use of industrial capacity in recent years. The economic policies remain greatly overloaded with innumerable controls, which derive their justification from the situation of general scarcity of foreign exchange, of saving and of domestic supply. The system allows little room for entrepreneurial or civil servants' initiative and creativity, provokes delays in installing new equipment and making it fructify, and limits severely the possibility of achieving the rapid increases of output which the existing productive capacity is capable of providing. Exports of manufactures, and particularly of engineering goods, have not progressed rapidly enough. The possibility of increasing them exists, but the incentives to do so are still too weak. 12. Viewed from this longer-term perspective, accomplishments in connection with the industrial import credits must be deemed very modest. From the broad point of view, capacity utilization, if higher than in the entire manufacturing industry, has nonetheless declined in the IDA-assisted industries and is anyway somewhat exaggerated by the official figures which have been generally based on single-shift potential only. If higher than in manufacturing industry generally, growth of output has nonetheless been substantially below Fourth Plan (1969/70,1973/74) targets - 8-10% p.a. for the manufacturing sector as a whole and about 17% for capital goods industries. Overall exports of the IDA-assisted industries grew only from $52 million in 1970/71 to $55.3 million in 1973/7h, and the share of exports in total production of these industries, even when fertilizers and pesticides where no exportable surpluses exist are omitted, remains at the level of only 3.4%, compared with the 9.2% share of export in total manufacturing production. Labor productivity remains unchanged. There is no evidence of significant structural change on any broad scale in the chosen industries - which would anyway be hard to induce with financing for raw materials, as opposed to capital goods. More narrowly, the minor policy changes menti,oned earlier with regard to imort licenses and onerations of the canalizing agencies annear small and belated when examined against the background of the wide- ranging discussions over the years, whether in Bank economic reports or in the reports of Indian Committees and Commissions, of possible improve- ments in industrial policies. 13. The lack of significant visible progress toward any long-term solution, or of important contribution by the industrial import credits in this direction, is undoubtedly partly to be explained by the extremely difficult circumstances faced by India in the last years - food, water, power and transport crises, labor problems, inflation and the worldwide energy crisis - all in a context of diminishing net aid flows. Strong stances that might have been taken by the Bank on particular policy issues could not prudently be maintained in face of the urgency of the need for quick-disbursing credit. Room for maneuver in the foreign exchange budget that the credits might have been expected to create tended to melt in the face of shortfalls in other aid flows, disappointing export performance and rising prices of imports. Yet, although they successfully met the crucial objectives of rapid disbursement and higher-than-otherwise utilization of industrial capacity, the Credits themselves, with their lack of focus and targets and failure to develop any particular policy change to the level at which its possible repercussions on the foreign exchange budget could be specified and insured (by provision of the Credit), do seem to have become somewhat moribund, a built-in fixture for a number of privileged industries which changed relatively little, and to have represented a rather unsatis- factory half-way house between full program lending and regular project lend- ing - neither providing the totally free foreign exchange in connection with wich firm commitments for particular policy change might have been agreed, nor enabling the full inquiry into the fixed capital formation process -nd establishment of defined targets that a more project lending would have required. il. -ull-scale program lending would have been hard to envisage in India. Despite their importance at the margin relative to imports not financed by tied and project aid, the comparative insignificance at the ,,lobal level of annual disbursements under the industrial impa ct credits equal to about 4% of the import bill did not leave much leeway for initiatives toward any courageous, far-reaching experiments with economic policies because such experiments could have, at least temporarily, put a higher claim on foreign resources than the present policies of strict and detailed licensing do. The difficulties cf indian planning, the distance between plans and reality, the reluctance of the Government of India to undertake commitments of major scope to institutions such as the Bank, the obvious priority of the country's needs and, above all, the sheer difficulty of aefining appropriate comprehensive solutions, make it almost inconceivable that the Bank could make its whole lendin. program contingent on accepCance of certain policy conditions. But a more limited and focussed program lending, underwriting specific experiments in policy change, as well as a more tightly targeted quasi-project lending, may both be considered as alternative ways, best used in succession and chosen according to the particular problem selected for concentration, for better combining rapid disbursements with a contribution to solution of long-term problems than the industrial imports approach re- viewed. The crucial importance of the disbursements to the Indian economy, and their high apparent return, are such that no change should be lightly undertaken. But the Bank appears concerned about the seeming failure of these credits to help much with the long-term structural problems, and the studies undertaken in the last years combined with our own analysis do suggest that there are several possible alternatives which warrant study in good time, for possible application in the future. 16. Two of these alternatives would call for more truly program loans, in the sense that particular policy changes, and their costs, benefits and risks, would be thoroughly examined and agreed upon, and a credit, related in size to the burden that the change might impose on the balance of pay- ments, would be granted without other strings attached. One matter on which this kind of approach would seem appropriate is export incentives: a thorough analysis of the export incentives system, including an analysis of unit costs of main industries selected as capable of contributing most to exports, could be undertaken and agreement reached on particular ways of improving export incentives, as suggested by the Bank in the past, but with the loan funds being made available simply for this purpose - for instance, enabling any exporter to purchase immediately, and with free foreign exchange, any input he needs for purposes of production for export, including, in a larger and more flexible proportion than so far permitted, inputs which are also produced domestically. Program assistance might also be made available in support of an experimental effort at freeing import controls, by financing imports of some strategic raw materials to be available for all users (not just selected industries); a further related condition of the program loan in this particular case might deal with India's effort to develop its own sources of the materials in question. 17. But this would already bring the loan closer to the second type envisaged, of a more quasi-project type, with precise physical targets and technical conditions. A prime orientation for application of this type of approach would be improvements in linkages between agriculture and industry, for instance, in connecion with tractors, covering not, as now, just ma- terial inputs for the factories (and, quite separately, final purchases of such tractors under the agriculture credit loans) but the full cycle of input-output-final consumption relationships, ranging from the supply of tractor materials and parts, to the production of tractors suitable for the Indian farmer, and ending with an organization of tractor pools and of marketing of tractors in rural areas; this could help to remedy the pre- sent situation where some types of tractors are not accepted by the farmer, and a certain amount of tractors is unused. Another alternative would be a packaged lending, consisting of a mix of current imports and investment for one strategic industry such as cotton textile machinery. Program assistance could, for example, be combined with project assistance and focussed on inte- gral development of such an industry, whose role in solving a specific bottleneck - by generating more exports or by satisfying a need for moderniz- ation of an important traditional sector - could be planned jointly, in advance and in detail, by the Government's industrial development wing, by term- lending financing institutions of the ICICI type, and by engineering and ma- nufacturers' associations. Finally, program assistance could be used to selectively import technology, such as technology that could help to increase exports. The Government may benefit by developing a policy for import sub- stitution in technology. 18. Alternating, interleaving efforts of the above types would require more continuous and comprehensive Bank familiarity with the Indian industrial scene, to select the changing foci appropriately, and more intensive advance work by both Government and Bank staff on the selected foci. Hitherto the appraisal reports of the industrial import credits covered mainly the pro- gress of IDA-assisted industries as well as topics relevant to the effective use of the Credits, such as export growth, import licensing or the electric power situation. The coverage of the overall industrial situation has been rather sporadic. Adoption of an approach of the nature proposed, changing to meet changing situations and opportunities, might warrant permanent assign- ment of a small staff combining the necessary technical and economic skills. PROJECT PERFORMANCE AUIT RE:O?T INDIA: FOUR TINDUSMRIAL IMPORTS PROJECTS C-Credits 138, 182, 327, and 402-IN) I. OMJECTIVES AND EXPECTATIONS A. Program Loans and Industrial IMorts Credits 1.1 The objective of program loans was set forth in the President's memorandum to the Executive Directors of November 5, 1968, as the provision of imported commodities that are important to development rather than the provision of capital to particular beneficiaries. Thus, it was concluded that for program loans the cost-benefit evaluation is made on the macro level, and should determine the net addition to output expected from the economy as a whole and the cost of the increased imports required to achieve it. The same memorandum stressed that the evaluation of program loans appears to be more difficult than that of projects and may require more sophisticated techniques. In contrast to project or sector loans, the main objective of program loans was to bring into play unused resources of capital and labor and secure a rise in efficiency and productivity throughout a large part of the economy by providing imported raw materials and allowing the stimulus of outside competition. The selection of commodities to be financed by the loan was not considered to be so important to the effective- ness and justification of the loan, however, as were the policies that Government undertakes. In most cases specific policies designed to make more effective use of imported commodities, such as import liberalization or the rationalization of tariffs and licenses, could be agreed to as a basis for a program loan. A regular procedure for a program lending was supposed to assist the strengthening of the planning organization, the Budget Bureau, the Ministry of Finance, or other agencies responsible for development policy, which in this procedure became more directly responsible for the disburse= ment of external funds. 1.2 Further to the President's memorandum and following the Pearson Commissionts recommendations, an analytical memorandum on the Bank's posture with respect to program lending was submitted to the Board on December 15, 1970 (R70-234). In this memorandum a situation was evoked in which one or more specific economic conditions would justify the decision to grant a program loan to a country. These conditions were: (a) underutilization of existing capacity, particularly in the industrial sector which would create a greater need for a flow of imports to support existing production than for imports to finance investment; (b) receipts from traditional lines of exports being stagnant or falling for reasons that lie beyond the country's control; (c) development has reached a stage where the country is able to produce internally a higher proportion of the capital goods, materials and services necessary for new investment; and (d) the country is faced with substantial and inescapable claims on freely available foreign exchange, such as those arising from debt service payments. 1. The memorandum stated that while program aid may not necessarily orcvide a leverage with respect to a borrowing country's general economic policies, it may enable countries to introduce desired changes which could not be made without it. Because of this possibility, it was inferred that the "non-project lending" need not and should not be a "soft option", and that, furthermore, the Bank's influence should continue to be exercised through the medium of a continuous dialogue rather than through formal machinery. The Bank, under the program option, was bound to analyze and appraise the general economic policies of the Government similarly to its analyses and appraisals carried under the project option. The special circumstances in which the program lending would be justifiable were found to exist when: (a) a borrowing country presents a development program, with supporting policies, which is judged to provide a satisfactory basis for external assistance; (b) the needed transfer of resources from external lenders in support of the development program cannot be achieved by project loans; and (c) other external lenders are not prepared to fill this gap by non-project lending. The essence of these points was incorporated into the Operational Policy Memorandum No. 1.21 on program lending, of January 26, 1972. 1.L Even though the conditions specified in paragraph 1.2 above were certainly present in India in the six-year period (1968-74) relevant here and these discussions were an important background to the Bank's thinking at the time, the four industrial imports credits under study can be con- sidered only partially, or only in a rather special sense, program loans. They really owe more to the precedents established and experience gained with the predecessor credits in their own series, starting in 1964, when they were begun as a means for the Bank to help India meet her requirements of capital goods by domestic production from largely existing capacity in- stead of further adding to that capacity, or its underutilization, by ad- ditional imports of completed capital goods. In a sense, moreover, they moved over time away from the program loan concept, some of the early ones bein, quite intimately connected with major economic policy changes in- troduced in India in the middle 1960s and with related discussions with the Bank, while those under study here tended to focus, in some senses increas- ingly, on the particular manufacturing sub-sectors which were to turn the imported materials and parts into finished products. There was a continual dialogue between the Government of India and the Bank, which was carried on at the negotiations for these Credits as well as through the Bank's Econoni c Reports and at the Consultative Group meetings, on industrial licensing and import licensing policies, but this was more in the nature of exchange of views, and the credits were never made conditional on the introduction of major policy changes in India. 3. Suecific Objectives of the Four Industrial ImportsCredits 1.5 Without defined comritments for policy change and without arl specific targets, the four Credits nonetheless had very significant object- ives. Their common rationale, in economic terms, was the inadequate level of savings in the country to sustain a satisfactory growth in the economy and the need for additional foreign exchange resources to finance industrial imports required for better utilization of existing productive capacity - particularly of the capital goods industries to which they were directed. Inadequacy of foreign exchange resources was explained by limitations in export earnings and declining net aid transfers. Besides the continuous discussions that were taking place on industrial policies -typically re- flected in the appraisal reports, on the basis of which the loans were ap. proved, in the form of hopes that it may prove possible to, for example, liberalize imports or stimulate exports -specific commitments were occa- sionally agreed on limited matters such as improvements in collection of data about licenses and their use, or changes in the procedures of the importing agencies, or the preparation of particular studies. 1.6 The signing of the fifth credit was considerably delayed pending completion of arrangements for the second IDA replenishment. The credit was appraised by a mission which visited India in March/April 1968, but was signed only in January 1969. Partly because retroactive financing was provided for, its proceeds were disbursed within three months from the date it was signed. The purpose of the credit was stated to be the same as that of the preceding four credits, namely to "help maintain and expand production by manufacturers of various types of capital equipment and agricultural chemicals", in the same sectors and for the same goods as those covered by the preceding loan. The policy discussions were scant, although the appraisal flagged a serious problem of disputes over the im- plementation of the ban on import of goods which are available indigenously, and over delays which occur in issuance of these licenses because of cumber- some screening requirements. 1.7 The sixth credit, signed in April 1970, applied to a considerably reduced number of industries -6 as against 15 in the previous Credit-to make possible a more intensive investigation of each sector, but the number of industries began increasing again, starting from the seventh loan. The sixth was the only credit whose disbursements were considerably delayed and were spread over a period of 22 months.1/ It was also the only one of the four Credits reviewed here which incorporated, in its appraisal, the need for the IDA to "keep under continuous review with GOI the problems faced by Indian industry, in particular those related to IDA-financed in- dustries, and relatdd solutions to overcome them, including a possibility of (a) the gradual introduction of meaningful international competition by I/ There is some discrepancy as to the reasons for this delay. The 001 claimed that IDA funds have been preserved for top priority imports, while P11 other needs were met from bilateral sources. The Bank staff held a view that disbursement delays should be attributed to the failure of Indian uthorities to issue in timely manner a sufficient number of licenses. permitzing the import of 'banned items' against increases in exports, and recognizing exports as an alternative for W0 requirements of import sub- stitution; and (b) encouragement of broader licensing and know-how agree- ments". 1.3 Policy discussions on the seventh loan, signed in September 1972, focussed on the need to improve processing of license applications, informa- tion retrieval, and monitoring of license usage. They also related to pro- curement procedures through Government trading corporations, where there was room for improvement. Furthermore, it has been stressed that the ef- fective use of IDA credits depended in a large measure on the operational efficiency of the Government institutions directly involved in managing the fore*gn exchange funds. Finally, specific improvements in export in- centives were discussed, such as reservation of IDA funds for financing a nortion of incentives in the form of import licenses. Here, the outcome of these discussions was that the Government of India considered that there was little scope for IDA assistance channelled into supporting import re- plenishment licenses for exporters, mainly because they already enjoy first priority under the distribution of the available free foreign exchange. 1.-I Policy discussions in connection with the eighth loan, signed in June 1973, focussed on different aspects of economic policies. They evoked oroblems, created by the clearance of license applications from the "in- d genous angle", to satisfy the licensing authorities that required imports cannot be manufactured locally. It was found that this process did not make adequate allowance for quality, availability, or delivery times; and, -s a result, production could be severely affected for the want of a minor component. Furthermore, the licensing system did not permit temporary im- portation in a situation where labor or technical problems arise. i.10 Also in connection with the eighth credit, it was recognized that the appraisals of IDA-financed sectors were not sufficiently detailed to allow meaningful recommendations on snecific measures regarding sectoral policies and improvement of industrial performance. To achieve this goal, it was recognized that more intensive sectoral surveys were required. The first two of such reports, on commercial vehicles and tractors, were pro- duced in May 1973. Another two special reports, on steel forging and on the foundry industry, were produced in April 1974. 1.11 The policy adjustments and other imorovements directly or in- directl, related to discussions which had taken place when these four Credits were appraised are discussed in detail further. in particular in Chapter TV of this renort. where they are reviewed wiThin a broader con- text, wZthout which they could not be properly understood, and where fur- ther ipr-iovements are suggested. Suffice i to mention here that of this relatively modest anticipation, only a nart was effectively realized. The process of issuance of import licenses has notably i1mroved, mainly in re- spe:t of delays. Their amount is, however, still geared to past consum.- -ion. a-thcugh less tightly so har n one 7aE, and -their content has to beee from the indigenous angle. If there is a local orcauction, imports of equivalent goods are, as a rule, still banned, except for "select industries", which, since April 1975, are permitted to import such items up to 5% of their total license value. The process of im- porting raw materials through Government trading corporations, the so- called canalizing agencies, has improved, not so much because of changes in the rules, although there were some, but mainly because these agencies gained more experience. 1.12 Some marginal changes were introduced into inports replenish- ment licenses issued to exporters. These licenses were, until 1975, is- sued for the value of imported raw materials actually used in production of exported goods. Five percent of this value was free from any need for clearance from the indigenous angle. From 1975, the permitted value of import replenishmnt is higher, by a small percentage, than the actu- ally used imports, and 10% of this value could- subject to certain con- ditions- consist of officially "banned" items. 1.13 There is still little progress in computerization of statistics related to issuance and to use of import licenses. Finally, the special sectoral studies appear to have been useful, at least in a minor way, to the Bank staff and the Government officials (for instance, enabling better- informed discussion of particular policies) and sometimes to the industries themselves, although it is hard to attribute any effects of major signifi- cance to them. In a few of the industries surveyed, such as in that of commercial vehicles, production was distributed among a few large enter- prises, managed by (to quote the report) "key personnel judged to be com- parpble in competence and performance to their counterparts in North America and Europe". In these circumstances, the Bank's advice, formu- lated by consultants largely unaware of the specificity of Indian condi- tions, after a two-day visit to an enterprise, and without having discussed their conclusions with enterprises, did not induce much response. In other sectors, where enterprises were much smaller and technical shortcomings were less intricate and also more obvious, advice provided by the Bank's special sectoral studies proved to be useful. 1.Lh On the whole, the effectiveness of these credits was much more in their "hardware" part, consisting of an annual rapid transfer of re- sources paying for,import of inputs, than in their "software" part, in- tended to increase international competitiveness of Indian industrial goods Pnd to stimulate exports. - 6 - I. CLOING THE RESOURCE GAP - THE SHORT-TEM, PROBLEM A. Decline in Canital Inflows 2.1 In their simplest form, the industrial import credits to India could be considered as a balancing item which closes a disbursement gap left after the India Consortium disbursements have been taken into account. The aid transfers to India show a ra- idly declining tendency, from the annual average of $1.5 billion in 1966/67 to $900 million in 1972/73 (Annex Table II-1). Furthermore, with the debt service increasing from $360 million annually in the former period to $680 million in the latter period, the net aid transfer has been reduced by about 80%, from about $1.1 billion to about $200 million. As Indian exports over 1966/67-1972/73 have increased by only $800 million, the overall import capacity of India has declined in current terms.-V About 93% of the total aid disburse- ment was financed by the Consortium. It is in recognition of India's urgent requirements that the composition of Consortium aid has shifted increasingly toward fast disbursing forms of commodities and other non-project aid. This shift did not manage to offset entirely the disappearance of the PLL80 food and non-food aid from aid transfers. Thus, while non- project aid and PLh80 represented, together, 66% of gross aid disbursement in 1966-68, the non-project aid represented 55% of a much smaller gross disbursement in 1972/73. Table 1: Aid to India (US$ mln.) 1965/66 1972/73 1973/7h Gross Disbursements: 1,659 955 1,249 without industrial imports credits 1,581 889 l,L0 Debt Service 15 682 692 Net Trnsf'ers: +1,34L +273 +557 without industrial imports credits +1,266 +207 +U-8 Imports 3,054 2,682 3,924 V' Exports 1 6 2 2,558 3,187 Current Account Deficit -1,362 -12L -737 Balance: -18 +19 -180 without industrial imports credits -96 +83 -289 a/ 77% of increase from previous year accounted for by petroleum, oil and lubricants (37%) and cereals (40P"). 1/ In relative terms, the decline was much more drastic. Thus, during 1971-74 prices of commodities imoorted by India within the IDA industrial import credits increased by 130%, and this excluding oil (Annex Table 1-4). Reduced to real terms, disbursements to India under import maintenance loans were on an almost unchanCed level during the past three years. 197172 1972/73 1973/74 197/75 credits- ------------in$ mln.---------------- cmt mfintenance credits in: Current terns 3).1 66.5 109.1 150.0 Crrodity price index (weighced) 100.0 112.0 158.0 228.0 Constant 1971 S 3L.1 59.4 69.0 65.8 -7- B. Import Substitution 2.2 The urgency of India's foreign exchange requirements is not the sole reason for the need to increase non-project aid to this country. It is also that with India having attained a very high degree of import sub- stitution, there is limited room left for project-lending type of aid.-/ Thus, during the years 1970/71-1972/73, India was producing annually engineering goods and metals for $2.9 billion and importing engineering goods and metals for only $1 billion annually, implying the degree of import substitution of 7h%. To compare, the degree of import substitution in production of capital goods in Japan was only 68% in 1964. A measure of the narrow margin for project lending is, for instance, .that out of the overall investment in machines and equipment in Indian industry in 1974/75 of $2.0 billion, domestic supplies cover $1.6 billion, and of the remaining $400 million which has to be imported, roughly 65% represents project aid pledged by the Consortium or obtained from the so-called rupee area (USSR, Eastern Europe, Yugoslavia, Egypt). This leaves only $140 million, which could be financed from free foreign exchange. C. Import Rigidities 2.3 Indian imports are compressed to the minimum and shifts between import components are not possible. Thus, during the past three years, 1972/73-1974/75 about 62% of the foreign exchange expenditures were in advance reserved for goods and services of primary importance - 16% for import of foodgrains, 19% for imports of oil and derivatives, 10% for imports of fertilizers and fertilizer materials, and 17% for debt service payment. The remainder was used mainly for imports of industrial inputs (Annex Table 11-3). 2.4 Some imports rigidities have roots in economic policies prevailing in India in the past 15 years. Steel could serve as a classical example, its production falling 35% below the tar et of the Third Five-Year Plan, 48% below the target of the Fourth Plan (Annex Table 17-1). At the same time, imports of steel for IDA-assisted industries alone amount to some $100 million, or about 40% of total allocations.?/ While it is true that most of it is alloy steel or high carbon steel, not produced in India, these allocations also contain some categories of steel which India should by now be capable of producing. Also in phosphate rock, which is imported for about $40 million, India has reserves of about 63 million tons, but its production of 150,000 tons annually equals 15% of its current requirements (Annex Table 11-6). 1/ One of the measures of India's high degree of import substitution is that its exports represent only L.8% of GNP, far below what has been established through a regression analysis, yielding for a country of India's per capita income a share of 13.2% (Hollis B. Chenery, "Growth and Structural Change", Finance and Development No. 3, 1971). Also, India's primary imports represent as much as 36% of its total imports (32% prior to major increases in commodity prices), compared with the share of only 18% in developing countries at India's GNP level. 2/ The import bill for steel might decline in 1976, because a hot rolling mill is comaing on stream in the Bokharo steel mill. If this venture proves successful, imnport of steel will be reduced mainly to steel plates. D. Fungibility of Foreign Exchange 2.5 While any non-project addition to the flow of foreign exchange permits, at least in theory, an increase in fungibility of foreign resources India faces tigHtly constrained choices. As shown above, the allocations of tne foreign exchange budget to imports needed for basic consumption, such as cereals, and to requirements of a modest growth, such as oil, industrial inputs and machinery, are quite straightforward and accounted, during 1970/71- 1973/74, for 92-96% of the import bill. Given the small proportion of luxury goods in Indian industrial production, the fraction of imported inputs channelled into manufacture of these goods is very small. 1 Neither were India's foreign reserves excessive. They have slightly grown from a net level of about $1.1 billion in 1970 to $1.4 billion in 1974 (Annex Table 11-2). Expressed in months of imports, they represented between five and six months of imports until 1974, falling to three months in the most recent period. While one could argue that reserves adequate for five months imports are high, the subsequent jump of the import bill shows that the past level of reserves was warranted. 2.6 Inventory increases offer another possibility to sterilize the foreign exchange. These increases were minimal in India, ranging from 7% of gross direct fixed capital formation in 1970/71 to about 2% in both 1972/73 and 1973/7L. The changes in inventories reflect, in 1970/71, an accumulation of foodgrains and fertilizers, and of work stores, depleted in subsequent years. Moreover, inventories in the manufacturing industry were not excessive, and remained, during 1971-74, at the level equivalent to almost 2.5 months of sales (four months in enterprises in IDA-assisted industries). According to calculations of specialists, this is roughly the level required to keep the production flow relatively unperturbed in Indian conditions. E. Savings 2.7 The question is whether the Bank Group import maintenance credits -d an effect on saving performance. The volume of import maintenance credits, compared to overall savings of India, is too small to contribute to any slackening of the saving effort. Such impact might have probably been exerted _n the Past by the PLh8O assistance, which amounted to $410 million in 1960/61, compared with the public sector savings of $650 million in the same year. These relations are much smaller now, and amounted, in 1972/73, to $100 million of indu rial import credits as compared to a little over $1 billion of public saving.v As far as the influence of industrial import credits on strengthening / Thus, even if such goods as radios, non-alcoholic ieverages, automobiles, scooters and ancillaries, are considered as luxuries, only 7-8% of total imports including mainly inputs into domestic production of these goods, and only less than one percentage point of finished goods imports are channelled to support te level of consumption of these goods (see B.R. Hazari "The Import-Intensity of Consuntion in India", Indian Econonic Review, October 1967). / It is worth mentioning here that, while the transfer of inport credits yields counterpart funds, the Bank does not incuire into the productive uses of these comestic currency amounts. 1. nas acce-ted from the beginning of this lending tnat its prtme purpose, and therefore the Bank's own focus, is at the first round, Le supply ofmot iixtad 7:,uts to caoital goods industries. This is another con- tr;st with many of the Bank's irogram loans, in the stricter definition of that =_rase. of the saving performance is concerned, such influence might be exerted indirectly, considering that the corporate sector is viewed in India as one of the most effective savers, and to the extent to which these credits are instrumental in helping an important part of the corporate sector to utilize its productive capacity, they also helped considerably in boosting up this sector's savings. Moreover, assuming that an improved capital produc- tivity could have increased the rate of growth and ultimately also domestic savings, it is by no means sure that India's demand for net foreign exchange transfer would have then declined. The nature of India's import demand and the structure of its export supply being still relatively rigid, the possi- bility of converting domestic saving into foreign saving and vice versa is still limited, at least in the short term. 2.8 Investment in the private sector and, in particular, in the engi- neering industries to which most IDA-assisted industries belong, depends, however, not so much on the availability of private savings, as on the demand created by public investment. The latter was declining, among other reasons, because of the Government's inability to raise resources. Low domestic saving could be explained partly by low productivity of capital and the result- ing sluggish economic growth, partly by increasing public consumption,!/ and partly by the fact that a sizeable part of income is created in India outside the operation of the tax system and outside the reach of financial instruments capable of transforming it into saving. As a result of low public investment, a number of private investment projects had to be delayed or abandoned.?/ F. Capital Productivity 2.9 The overall productivity of capital installed in India is low. The incremental capital:output ratio (ICOR) for India has been variously estimated, but appears to revolve around 5.0, ranking highest in the sample of countries chosen for their similarities with India (Annex Table II-7).}/ / Non-developmental expenditures of the Central and State Governments increased by 56% during 1970/71-1973/74, while the Central and State Govern- ments' capital expenditures grew by 30% during the same period - all in current prices (IBRD Economic Report on India, Statistical Appendix Table 5.1). 2/ Net domestic capital formation during 1969/70-1972/73 increased in real terms by only 3%, while Government outlays in the core industrial sector have been stagnant since the end of the Third Plan. In constant 1961/62 prices, development plan outlays of the Central Government and the States amounted to about Rs. 9.4 billion in 1969/70 and to Rs. 9.9 billion in 1973/74. 1/ We were fully aware of all weaknesses of the ICOR measure, even before an excellent article of Paul Streeten was published as a part of a publica- tion devoted to economic and social processes in Asia (see "An Immanent Critique of the Capital/Output Ratio and Its Application to Development Planning" in Gunnar Myrdal's Asian Drama, Random House, New York, New York, 1968, Vol. III, app. 3, p. 1968). However, like the Churchillian definition of democracy, while being bad, the ICOR remains still the best synthetic measure of capital productivity available. - 1 0 - This high ratio can hardly be explained by slow growth of agriculture, especially considering that the share of investment in agriculture is low and the growth of agricultural production was. 9ny fractionally trailing behind the overall rate of growth of the GNP.M More important reasons lie in planning errors, lack of incentives to use capital better, often weak management and in partial economic disequilibria, disrupting supplies of inputs, power and transportation services. It is, therefore, a matter o conjecture whether it was the net national savings, which were inadequate to finance the capital formation, creating a need for foreign savings or whether, to invert the equation, it was the low productivity of existing capital which was at the roots of low savings. Its better utilization would have resulted in increases in savings. Industrial import credits might have provided one stepping stone toward the realization of this process, as they contributed to a better capital utilization in some industries. Table 2: Performance Indicators of the Indian Economy 1965/66 1972/73 Percentace Share in the NNPa/ Net Domestic Savings 12.4 13.0 Net Domestic Capital Formation 15.3 13.7 Gross Domestic Capital Formation 21.3 20.2 Tnventories n.a. 6.0 Net Inflow of Foreign Capital 3.0 0.8 xnorts 6.1 5.1 Growth Rates in Real Terms for 1965/66-1972/73 in % p.a. VINP - 2.9 Mnufacturing Industry Output 2.9 A.ricultural Production - 3.3 ICOR for the Entire Economy 6.73 5.ho (1961-65) (1966-73) a/ Net National Product. Thus, national income in India grew, in real terms, at an annual rate of during the First Five-Year Plan (1950-56); by i% during the Second Plan (1956-61); and by 2.9% during the Third Plan (1961-66). If the last year of the Third Plan, characterized by unprecedented droughts, is left out, the annual compound rate of agricultural growth turns out to have been in excess of 3% during the period for all three plans. - 11 - III. ASSISTING SPECIFIC INDUSTRIES - THE TARGETING APPROACH A. Choice of Beneficiaries 3.1 A certain number of industries has been selected as beneficiaries, entitled to apply for imports of raw materials, financed from industrial import credits. The list of eligible industries changed rather marginally during the first 11 years. The number of industries declined from 13 in the f*fth credit to 6 in the sixth to increase again to 7 and to 9,respectively,M in the seventh and eighth credits (see Annex Table I-1). Their output accounted for about 13% of total output of the manufacturing sector.?/ The criteria to select these industries were never clear, before the seventh credit, when some specific criteria were proposed, such as linkage to high priority sectors, defined as: products for agriculture, electrical, transport and metal working industries; potential for rapid increase in production through utilization of idle capacity, improved efficiency and lower production cost; potential for export growth, and need for untied foreign exchange. These criteria were, however, chosen mainly for convenience, and were arrived at through a process of gradual elimination of less suitable sectors. Excluded were such foreign exchange using sectors as the power equipment industries, because they were heavily supported by bilateral assistance, heavy engineering, which was based on Soviet technology and whose input requirements were unclear, telecommunication equipment industries, which relied already on Bank project loans. Excluded were also industries where the current use of foreign exchange is relatively small. 3.2 But even the selected high priority industries had to rely also on inputs other than those provided by IDA-financed industries and, in recent years, the binding constraints on the priority sectors might have been else- where.!,/ The potential for export growth was hardly verifiable under the existing system of export incentives. In any case, neither the growth of exports nor the growth of production of IDA-financed industries has been markedly superior to that of the rest of industry. This does not imply that output from IDA-assisted industries was not required by the economy. In fact, this output was very much in demand, to the extent that some items carried a black market premium, in excess of their officially fixed sales price. But in this respect they were not "better" or "different" from many other Indian industries. The usefulness of a selected industry could be measured best by, firstly, relating its role to a specific bottleneck, anti- cipated or existing in the process of development, or secondly, by judging whether such industry could become a "leader" of a development process. As the list of IDA-assisted industries was rotating only marginally over the 1/ Or 17, if sub-industries are included. 2/ Using the Reserve Bank of India data on industrial output. Industrial output, reported in the Annual Survey of Industries, is higher by 35% and, if this latter is taken into consideration, IDA-assisted industries account for 10 of the total industrial output. This output includes also production of small-scale industries. The total output of the manufacturing sector accounts for about 13% of the Net Domestic Product (Annex Table III-1). / This issue is discussed in Chapter IV(D) Partial Disequilibria, in the next part of the report. period of 1I years, during which real priorities and bottlenecks of the Indian economy were changing rather frequently, IDA-assisted industries could not fill their first role fully. For instance, in recent conditions of India, there was no reason why industries supplying goods for exports, or even those producing wage goods should not have been given a priority. Neither could they play fully the second role, because their share in the manu- facturing sector was probably too high and their activities too dispersed to assume a "leading'importance. 3.3 It is also true, however, that a notion of priority should not be necessarily always identified with IDA import assistance. Thus, Indiats free foreign exchange could be sometimes used - and indeed was used in recent years - to support industries which acquired a new priority, and was, for instance, financing replenishment imports for export industries. The case becomes therefore complicated, to the extent to which IDA credit, by financing industries which could be labeled as belonging to the "permanent priority" group, provides some flexibility to the Indian foreign exchange budget, from which funds could be released by the Indian Government to support the "new nriority" group of industries. This solution would have been fully acceptable if the role of industrial import credits was limited exclusively to their "hardware" content, or more precisely, to a simple transfer of resources. f, however, also a "software" content exists, and even a modest discussion in credit appraisals of policies and performance points to the implicit exis- tence of such "software" element, more frequent shifts of these credits from "old or permanent" priorities to "new priorities" might have been advisable, because the "software" content, even if it is only the elucidation of existing problems, could prove helpful to these new industries. 3.Li Industries which remained on the list throughout all 10 import credits were commercial vehicles, automotive ancillaries, machine, cutting and sm.all tools, and electrical equipment. These four main groups accounted, toagether, for 57% of all disbursed import maintenance credits (Annex Table 7-1 and IV-9). . Bank's selection of industries eligible for IDA financing has in- evitpbly cut across input-output relptionship between suppliers and users, sometimes drawing a line across various types of production within one enter- prjse. For instance, the users of diesel engines such as commercial vehicles, or power generating equipment industry, are on the IDA-eligible list, but the foreign exchange needs'of producers of stationary diesel engines are met from india's own resources reserved for small-scale industry. The three-wheeler commercial vehicle is considered IDA-eligible transport equipment, but the two-wheeler scooter a luxury which is excluded therefrom - and this despite the fact that both are produced by the same enterorises. A shortcoming of having selected a semi-permanent list of bene- -c a-es is that Bank's missions were limiting their review of Indian in- dastr to industries on the list, or, more specifically, to some enterprises i these industries. The risk here was in losing the general perspective of 'hthe oroblems outside --A-assisted industries are. As the network of inter-industry relationships is ncw quite tight in n-dia, problems of indus- :es _'ving outside the pale Jr IDA-assistedandustries did, uaately, af- t.iese industries as well, hrough del-ys in supply of domestically pro- a-dcSd raw naer =~ nd cInnns - 1 - 3.7 Finally, the IDA-assisted industries became a special privileged caste among industries, and entrepreneurs were scrambling and continue to do so, to get onto the privileged list. The privileges are various, ranging from price benefits in purchasing goods with untied foreign exchange, lower service charges to be paid to the canalizing agencies which imported raw materials, freer availability of import licenses and a relatively larger volume of these licenses. The problem of what is and what is not a priority in Indian industry exceeds by far the framework of IDA-assisted industries. Industries which should be given priority were defined during the First Five-Year Plan, when the general order of priorities in the industrial field was suggested.-/ The concept of priority, however, has never been defined, as the Bank pointed out some time ago, underlining the fact that defining priority required a clear idea of what the industrial planning process is trying to achieve.?/ A list of 59 priority industries which evolved over 20 years ago ranges from motorcycles and scooters to cotton textiles and leather goods, and has, with some exceptions, remained unchanged until 1975, when a notion of "select industries" was introduced. Both groups largely overlap. Priority industries accounted for as much as 84% of the output of the manufacturing sector of India, which casts a shadow of doubt on the notion of priority itself. 3.8 The question remains as to whether the Bank could have insisted on shifting decisively the composition of IDA-eligible industries each time a credit was decided, so that at least the effort of these industries could be grouped under whatever "priority" denominator was considered applicable at that time. Instead, the Bank reduced the list in 1970, and then started again to add industries, whose developmental importance was found to be high, such as heavy construction equipment or aluminum smelting. Two major obstacles might have impeded the Bank from a complete overhaul of the list of IDA-eligible industries. Firstly, the industrial work of the Bank and its analysis of the Indian development strategy was not comprehensive enough to be able to lead it to an idea as to where the immediate priority lies. The problem was truly Orwellian: if all industries have priority, what is an argument for some industries to enjoy more priority than others? Secondly, the shift of IDA financing from one credit to another might have led to some insecurity among the entrepreneurs with regard to their future raw material allocations, and would have had a negative effect on their medium- term planning. The foreign exchange made available through industrial import maintenance credits, ahd expectations of Indian entrepreneurs that this type of lending would continue, made their own planning easier, and investment and supply decisions in IDA-assisted industries are now based on a more reliable basis. ]/ First Five-Year Plan, Planning Commission, New Delhi, December 1952, page 425. 2/ Bank Review of Trends in Manufacturing Industry, SA-9a, April 1, 1970. 3.9 As to the relatively higher efficiency of IDA-assisted industries, the matter is far from clear, partly because a proper yardstick of efficiency has not been established, partly because statistics to measure it are shaky, partly because Bank's knowledge of other industries is not adequate for comnarisons. Labor productivity, measured as output per worker, is 60% higher in IDA-assisted industries than the average for the manufacturing sector as a whole, and their capacity utilization - 78% - compares favorably with 73% for the entire manufacturing sector (data for 1973/7h - Annex Tables II-10, IV-3, 111-2 and 111-6). This is as far as figures go. To what extent differences in labor Droductivity are attributable to differences in capital installed,1/ or whether differences in capacity use are due to an easier availability of 'mported raw material to IDA-assisted industries, can hardly be established.J2 B. Performance of IDA-Assisted Industries 3.10 Indian overall statistics are not very reliable. Some data were nonetheless compiled and appear to be consistent enough to reach some conclu- sions as to the performance of IDA-assisted industries, compared with that of the entire industrial sector. 3 .11 Growth: During the period under review, both the industrial sector and the IDA-financed industries registered rather unimpressive growth. The growth - in real terms - of IDA industries over the period 1970/71-1973/7h was . per annum, compared with the overall growth of the industrial sector Of 3.7% per annum (Annex Tables II-3 and III-7)./ It is recalled here that the target growth forte Fourth Plan (1969/70-1973/7h) was 8 to 10% per annum for the entire manufacturing sector and as much as 17.1% per annum for capital goods industries. Another plausible explanation could be that newer industries - to which EDA-assisted industries mainly belong - were allowed to hire relatively less labor than older industries. A sizeable percentage of labor in Indian industry is idle but cannot be laid-off - therefore, comparative studies of labor nroductivity are not very meaningful. They reflect the labor law rather than managerial efforts. / Capital-intensity of production in IDA-assisted industries cannot be calculated. However, if the capital:value added ratios of the entire engineering industry reflect the capital-intensity, these were higher by only 1WX for the entire manufacturing sector than in the engineering industries in 1972/73. This implies that the engineering sector was utilizing its capital only slightly better than the manufacturing sector. / Growth of IDA industries, calculated from index numbers, weighted by respective weights of these industries, established for 1970, is 6.7 p.a., somewhat higher than the 5.5 p.a. growth calculated in fixed prices. As is well c-own, each of these methods has its own statistical weaknesses. 3.12 Sources of slow growth of Indian industry are multiple. At the commencement of the Fourth Plan in 1969/70, the economy was maintaining the recovery but the supply did not become yet an operating constraint. In the early 1970s, however, the domestic supply became an operating constraint, leading to the shortfall in the production of various industries. The con- straints affected bulk industries, such as coal, cement, steel, limestone, iron ore, manganese ore, which in turn created a basic raw material constraint for other industries. Also, with the rising cost of living, labor troubles became more frequent. Piling of coal stocks at the pit heads affected many industries directly and indirectly, in the form of shortages in electric power from thermal stations. The supply of hydroelectric power had been affected, in its turn, by erratic monsoons, inadequate maintenance and in- sufficient attention to operational efficiency in generating and transmission. In 1973/74 alone the production loss of fertilizers and steel industries, on account of power shortages, is estimated to have been 130,000 tons of nitrogenous fertilizer and 414,000 tons of saleable steel. All these shortages affected IDA-financed industries practically to the same extent they affected other industries, and some of the IDA industries, such as aluminum because of its heavy electricity requirements, more. 3.13 Investment: The overall estimated investment in the industrial sector during the Fourth- Five-Year Plan was targeted at $4.4 billion in the public sector and $2.7 billion in the private sector. Actually, the invest- ment in constant prices (1968/69) has been $3.2 billion in the public sector and $2.2 billion in the private sector implying a combined shortfall of 24%. In IDA-assisted industries productive capacity was growing by 7.7% p.a., compared with 3.8% for the entire manufacturing sector. 3.1 Exports: Export performance of IDA-financed industries was unim- pressive. Overall exports of these industries grew from $52.2 million in 1970/71 to $55.3 million in 1973/74.1/ Considering that international prices increased by 4l% during this period, exports in real terms of these industries probably declined. (Annex Table 111-9). 3.15 Overall exports of engineering goods increased from $155 million in 1970/71 to $230 million in 1973/74, at a much slower pace than other Indian exports, such as jute, leather, cotton or handicrafts, whose export doubled during the same period of time. In IDA-assisted industries, even after the production of fertilizers and pesticides, not destined for exports, is excluded from total production of IDA industries, the share of exports in sales has declined 'from 4.3% in 1970/71 to 3.4% in 1973/74. While in 1970/71 exports of these industries were paying for about 30% of their import allocations, this rate has declined to only 17% in 1973/74 because exports were practically stagnant (Annex Table 111-5), while foreign exchange allo- cations have almost doubled (Annex Table IV-10) because prices of imported inputs 1/ This calculation includes only IDA industries which benefitted from the seventh and eighth industrial import credits. If industries included in the ninth and tenth industrial credits are added to it, performance becomes better because these credits were extended to industries such as cables and wires and cast iron spun pipes, whose exports add another $17 million to the result. were increasing by 32% p.a., while export prices have been growing by o0niy 12- p.a. By regions of destination, between 20-25% of exports of IDA industries went to Asia, mainly Malaysia and Singapore; about 25% to the Middle East, mainly to Iran and Iraq and UAR; only 8% to Africa, mainly to Kenya and Tanzania and Nigeria. About one-fourth ,of exports was directed to Eastern Europe, where Yugoslavia and USSR were the largest clients and finally about 15 to 20% was directed to highly industrialized countries of Western Europe and the U.S.A. 3.16 Employment: Employment in IDA-assisted industries was increasing at the rate of about 5% per year (Annex Table 111-7). It reached 420,000 employees in 1972/73. This increase of employment, compared with the increase of output, implies that no increase of productivity has taken place. Table 3: Comparative Performance of IDA-Assisted Industries 1970/71 1973/74 IDA- IDA- Assisted Total Mfg* Assisted Total Mfg. Industries Industry Industries Industry Net profits before taxes but after interest/net sales (W) 11.5 9.2 13.5 8.9 Exports/Output (%) 3.4 8.6 2.6 9.2 Growth of output (1970/71- 1973/74 in constant 1970/71 terms, ') - - 5.5 3.7 Capital:Value added ratio 2.33a/ 2.77 2.078V 2.36b/ Output/Employee (Rs. '000) 30.1 17.8 30.0 1 18.1 Foreign exchange allocation (US$ million) 1,317 2,160 2,609 2,990 Capacity utilization ratio (%) 83.1 n.a. 78.0 e/ 73.3 8/ For all engineering industries. b/ 1972/73 figures. Snecific industries: For review of specific industries, please refer to Annex i. - 17 - IV. ELIMINATING THE BOTTLENECKS - THE LONG-TERM PERSPECTIVE 4.1 Program loans are generally expected to make a more permanent imprint on the borrower country's economy. They were to operate in some relation, however loose, to the country's development program and were to constitute a basis for a dialogue toward, or to create conditions for, rationalization of economic policies. It is not clear to what extent industrial import credits could have been considered as program loans of precisely this type, as these objectives were never spelled out in the appraisal af these credits. Broader development issues were, on and off, reviewed while discussing the implementation of these credits, but ex- pectations were more narrowly related to IDA-assisted industries alone. In this sense, therefore, industrial import credits might have been seen as being of a quasi-project type. But even if this form is implied, two basic questions cannot be avoided. 4.2 Firstly, did the industrial import credits provide enough flex- ibility to India to enable the Government to undertake important steps toward a change of economic policies, bearing in mind that any such change, to be rational, must be in a direction away from the present excessive import substitution and therefore toward an increase of imports, not nec- essarily accompanied by a commensurate increase in exports? Secondly, what were, and are, the conditions - and probably flexibility is one of the principal conditions - to make a dialogue between the Bank and India more effective? A. Flexibility 4.3 Since 196h, the disbursement to India through industrial import credits amounted to.roughly $85 million annually, not even 10% of the average gross annual current account deficit of about $800 million during that period, 1/ or 15% of the net deficit of $550 million. 2/ India's average annual imports during the last decade were invariably around $2.5 billion, except for the last two years, 1973/74 and 1974/75, when they climbed to $4 billion and $6 billion, respectively. 4.4 The transfer of foreign exchange to India through industrial import credits permitted therefore a margin of flexibility equal to 4% of imports, hardly enough to decide any major economic reform. However, this flexibility may be somewhat larger if viewed in marginal terms. The use o5 a marginal perspective appears justifiable because a sizeable share of imports - foodgrains, petroleum, fertilizers, might not be affected at all by policy adjustments. Neither probably would such changes affect the aid-tied imports of equipment which account for another 10% of import re- quirements. If items with low elasticity of response to economic policy 1/ Including interest and service charges on foreign debt. 2/ Excluding interest and service charges on foreign debt. changes are subtracted from India's import bill, the result would show that the Bank's industrial imports lending to India might allow for a limited experiment with present economic policies, allowing probably the more elastic part of the import bill to grow by some 8-10%. Until now, however, no estimates have been made to show whether and how a desirable change in economic policies could have influenced the balance of payments; such estimate would have, in tur supplied an answer to the question whether the size of present program lending could supply a large enough cushion to cushion the results of such experiment. In the absence of such reasoning, the size - and, for that matter, the direction - of industrial import lending was related to the requirements resulting from the status quo, modified at times by natural (droughts) or world economic (oil prices) fluctuations. B. The Dialogue 6.5 There is hardly a country whose economic policies have been subject to as many spirited discussions by scholars, by members of the country's own administration, by private business and by international organizations as those of India. There is also hardly a country where the nature of policies has changed as little as India's, despite these observations, analyses and suggestions. One more review of India's econ- omic policies in the present report would have seemed superfluous, were it not for the fact that these policies were supposed to be influenced by a dialogue, carried out concurrently with the disbursement of industrial import credits, and also were it not for the fact that these policies are apt to influence the performance of the IDA-assisted industries. 4.6 The Bank's dialogue with Indian administration over its economic policies was carried mainly through the Bank's excellent annual reports. The dialogue focussed on all three main tools of the Govern- ment economic policy applied to industry - import licensing, capacity licensing and export incentives. Some of the principal recommendations of the Bank are quoted in the subsequent paragraphs, reviewing the nature cf economic policies, recent changes in their application and further imrrovements which seem desirable. 4.7 Numerous commissions set up by the Indian Government also re- viewed Indian economic policies during the last decade. It is hard to imagine that these reports could have been written by free traders, by authors favorable to domination by foreign private investors, or domestic monopolies, or finally by those who do not understand specific Indian conditions. In fact, the oCosite is true. Reports of these commissions were submitted to the Government, are widely available, and their recom- mendations point to the same direction as those of the Bank. ..- The consensus of all Ltese aocuments is relatively simple - con-rols over the economy are overlIr detailed, they are applied in a cumbersome way by an army of often 11l-LreDared officials usin: unreliable infcrmation. The policies ac zom induce - nor permit, for that matter, the attainment of - increased output from a given capacity. Neither do they stimulate a cheaper production by permitting competition. Very little could be added to the voluminous material on shortcomings of Indian economic policies. 4.9 If, therefore, the economic policies remain unaffected, it is not for lack of advice. The stumbling block is elsewhere. It might be a lack of courage to relax controls in a situation where the pressure on scarce resources is high. While this pressure has been relaxed somewhat during the past few years of a slack in economic activity, the scarcity of resources became even more acute because the international commodity prices increased. 4.10 Finally, the vested interets create another group of obstacles against policy changes. It is not so important to know whether these vested interests are those of businessmen, who deplore rationing but who enjoy protection, or those of middle-level civil servants, for whom the licensing system is not only the raison d'etre but also the source of power. The fact remains that these vested interests exist and can be overcome only from within. Also, given the intricate relationship between the Indian administration, the Parliament, and public opinion, it might be just as well that the Bank refrained from giving any straight advice or formulating any conditions of its program lending. It did, however, and continues to, focus in its economic reports on all necessary changes which it believes need to be implemented. Any more categoric formulation might have been counterproductive.1/ This does not imply that nothing more could have been done. It simply implies that a frequent change of approaches, of forms and of targets of program loans could become a more effective instru- ment of change than one more unheeded advice or one more unfulfilled-- and for justifiable reasons - condition. A program loan, if it is appro- priately targeted, has the advantage of being able to attract the attention of country officials to an issue. The effectiveness of this attention could be, for a short while, monitored and then the focus of the program loan could be shifted to another important issue. C. Development Policy 4.11 India has been renowned for the last 15 years for the existence of its complex planning machinery. The question remains, however, to what degree Indian plans, especially those designed during the last decade or so, proved to be truly workable. A brief analysis of targets set by 1/ One recalls a statement, formulated in the 1918 Montagu-Chelmsford report on Indian constitutional reforms: "An educated Indian opinion... believes that as long as we continue to decide for him we shall decide in the interests of England and not according to his wishes;.. .Indian opinion cannot bring itself to believe that the refusal (of protection) is disinterested or dictated by care for the best interests of India", (quoted in D. H. Buchanan, The Development of Canitalistic Enter-rises in India, Frank Cass & Co., L., 0,p. 469). the Third and Fourth Indian Plans (1961-1966 and 1969-1974, respectively) shows that targets of these plans were met to various degrees, and that by implication some of the disequilibria that the economy has suffered during these years could be attributed to the fact that shortages and surpluses have occurred whenever the inter-related sectors of the economy met their targets to widely divergent degrees (Annex Tables IV-1 and IV-2). 1/ 4.12 A question needs to be asked on how closely are the industrial import credits related to a development plan. In fact, they seem to be more related to lacunae, created because of the under-fulfillment of plans or because of faults in the construction of these plans, rather than viewed as a support of the plan itself. It is recalled that the basic shortcoming of Indian development planning may be the assumption that a plan which is physically feasible can be financed. 2/ Another shortcoming is that the plans abstracted from institutional, political and technical constraints, which might have prevented their implementation. To this extent the industrial import credits helped to soften somewhat the difficulties which occurred. They provided some additional financing and made constraints more flexible, at least to some industries. Of course, if future planning efforts were to be based on a more workable model, less physical and perhaps concentrating more on a few well-chosen strategic industries, the Bank Group program lending could become more closely relat- ed to them. Fortunately, the Indian planners appear to realize some of the shortcomings of the model on which the past plans were based.3/ 2/ The Fourth Plan targets for production of items for which inputs were imported under industrial import credits were fulfilled on the average to 50%. 2/ Thus, a supply-based model holds true by definition only for the closed economic system. Moreover, it assumed output to be equal to capacity, which is not the case. Finally, if, from the demand side, savings or the demand for capital goods do not rise adequately as a proportion of income, the mere creation of capacity to produce capital goods would not produce investment. All this unfortunately happened. Furthermore, the physical feasibility of these plans was overstated. Thus, for instance, the capital: output ratio for the Third Plan (1961-1966) was set as 2.1, while in practice it attained the double of that. 3/ The Planning Commission mentioned recently for the first time in the Fifth Plan that: "If the development process is not to generate disDronortionalities of various sorts, the needed changes in the structure nf demand and of produc- tion must harmonise. If, for instance, the pattern of output capacity is changed in favor of investment goods but there is no corresponding change in the structure of gross national expenditure in favour of investment out- lays, the economy would experience under-1tilization of capacity in the industries producing investment goods and strong inflationary nressures in respect of the consumer goocs sectors." Planning Commission, Government of India, Draft Fifth Five-Year -lan, 197L-79, New Dehli, Vol. , p. D. Partial Disequilibria 4.13 Industrial production in India has been constrained by short- falls in supply of inputs. Some of these shortfalls.are liable to make the use of foreign-supplied inputs less effective than originally con- ceived. There are several reasons for these shortfalls. Firstly, many industries in India suffer fram inadequate maintenance. To what extent this is a matter of actual shortage of spare parts and balancing equip- ment, and to what extent it is a problem of managerial inadequacy, is a matter of conjecture. It is true, however, that import regulations were allowing, until 1975,for a rather limited flexibility both with respect to the selection of spare parts an enterprise requires and with respect to the timing of such imports. The foreign exchange requirements for import of spares were assessed on the basis of 2.5% of the cif value of imported machinery installed in plants, now increased to 3%-5%, depending on the case, and 0.5% of the purchase price of the indigenous machinery, for the maintenance of which spare parts have to be imported. Further- more, import of certain spare parts is restricted and they could have been imported only within an import license, provided that their joint value did not exceed 12.5% - now changed to 10%, of the value of the license. The value of a single spare part could not exceed $2,700, now increased to $6,700. 4.14 The second reason for shortfalls lies in failing performance of domestic suppliers. Thus, the production of commercial vehicles, supported by the industrial import credits, suffered from work stoppages because of shortages in supplies of pistons, thin-walled bearings, engine valves, wheel rims, oil filter assemblies and tires. The producers of these items could not meet their commitments either because of their own shortages of raw materials or because of cuts in power supply. In cases where the producer of commercial vehicles was also exporting, his supplier was entitled to benefit from the producer's import entitlement, which is transferable, and could use it to bring in imported raw materials. Such cases were, however, limited. 4.15 Cases of a failing throughput, provoked by shortcomings of backward linkage industries, are more drastic in industries which do not benefit from industrial import credits (Annex Table IV-2). Although in IDA-assisted industries at least one or two principal suppliers are included in the pref- erential import list, this does not eliminate a possibility that other minor suppliers of inputs for these industries would suffer from inadequate supplies of raw materials. 4.16 The third reason for partial disequilibria in operation of indus- trial plants is insufficiency of balancing equipment. While the earlier industrial import credits offered a possibility to import balancing equip- ment, this possibility disappeared in later years because the amount of foreign exchange needed for raw material imports has increased. Some balancing equipment is financed now by the ICICI, and, also by IDBI, which are using for this purpose IBRD loans. 4.17 Fourthly, shortages of electric power became an important con- straint on production of the industrial sector, sometimes impeding the timely and full use of imported raw materials. These shortages have now persisted for more than three years.L/ Only part of these shortages should L/ See India: The EnerU Sector, IBRD, Washington, 1975. be attributed to the inadequate investment in generating capacity during the Fourth Plan period. Another reason is the inadequacy of additions to transmission and distribution facilities, and the shortage of spares, especially for imported equipment. E. CaDacity Utilization 4.18 Improvement of capacity utilization was one of the principal objectives of industrial import credits. The full attainment of this objective was partly impeded by other bottlenecks - grouped as "partial disequilibria" above. However, it is also true that productive capacity cannot be properly measured in India. Therefore, any calculation of the contributions of IDA maintenance import credits to capacity utilization is somewhat arbitrary. The reasons for this difficulty lie in the defini- tion of productive capacity, which is (in India) related to capacity licensing. This system is designed to prevent enterprises from conquering a large share of the market and, as a result, larger and more efficient enterprises frequently have a larger capacity than declared and are often capable of producing more. Their capacity utilization is therefore lower than reported. Furthermore, the definition of productive capacity in India is mainly for less than two-shift operations. Thus, in the Indian Monthly Statistics of Production, only 18 product groups report installed capacity on a three-shift basis, 7 others report capacity on a two-shift basis, and the remaining 275 industries or product groups report their installed capacity on a single-shift basis. This may change soon, consid- ering that a new regulation, issued in 1975, permits enterprises capable of operating on three-shift basis to do so. This was just a consecration of what has been actually practiced, because many manufacturing units in the third category were operating on a two- or three-shift basis. If operation of these industries is recomputed so that installed capacity of the industries on the two-shift basis is converted onto two-and-a-half shifts and those on the one-shift basis onto two shifts, the coefficient of the real capacity utilization in Indian industry for the late 1960s would be reduced from the average of 80% to 53%. 4.19 There are at least three groups of factors beyond the control of the firms, which contribute to the high degree of idle capacity. The first group includes factors such as raw material shortages caused by foreign exchange difficulties and bydomesic suppliersI difficulties in meeting technological requirements and terms of delivery; labor problems and power cuts. The second category includes factors which could be attributed to faulty national planning. The third group of factors includes those industrial and licensing policies which militate against the full utilization of capacity. 4.20 As repards the firs- group o1 factors, there is little that tne industry can do. The Bank's pcrogram loans, by eliminating a tart of the forein exchange ccr.straia, il lay and continue to play an important role. ut otner constra ns r: senoines more bi:ing. Th1s, in te IDA- ssisted industries capaoity utilization, as officially estiated, declined C,Ion3 i171t 2 in I9~I Eve.- t"1ou.7h ca'oac-zy utilzatao,n did cec ~ a :- oa na ve .3-l zo:,' ae1nanr.hd e ~atotoe. n ot en ava:aa.Le foGr aa- -:aa trcnases. In -cheic tezms) the marginal - 23 - productivity of foreign currency transferred for industrial imports is very high. Thus, in the situation which existed in India in 1973/7h, IDA provided $109 million of foreign exchange, or 32% of imported inputs used by the IDA-eligible industries. On the not unreasonable assumption, verified in Part I of this study, that in the absence of IDA program lending the necessary foreign exchange would not have been obtained else- where, and that no other item of imports could have been compressed, cutting off the inflow of industrial import credits would have provoked a decline of capacity utilization in IDA-assisted industries from 78% to 53%, with productive capital worth about $250 million turning additionally idle - over and above this fraction of capital which remains idle because of other constraints. As the IDA-eligible industries were employing about 420,000 workers and were producing $2.2 billion gross worth of output in 1973/74, 1/ the loss of gross industrial output alone would be of the order of $600 million, not counting whatever disruptions in the user industries - agriculture, power, and industry-wide investment - this shortfall would have induced. 4.21 The second set of factors, related to planning, has been discussed above. While the problem is probably solvable at the planning model level, a system has yet to be found and imposed in India which would ensure that the national goals which are declared and accepted are trans- lated into action and results by the operating agencies and enterprises. The interface and links between these two are weak and poorly structured. As a result, Indian planners have consistent input-output models on paper, but their counterpart in the real world fails to emerge, thereby causing major shortages and constraints in the process of development. It is not the expertise which is lacking, but the talents or motivations of many competent men which are not sufficiently exploited to achieve the national tasks. 4.22 The third set of factors is self-evident, especially in a situation where, until recently, the Government did not permit the output of industry to exceed the one-shift production limit. 2/ This policy itself 1/ This includes double-counting of inter-enterprise transactions. 2/ There has beez; a shift in this policy quite recently which permitted 34, and subsequently 12 additional, industries to increase output to the limit of three shifts with certain restrictions on larger houses and foreign ajority opanies. Also, in the case of industries using domestic raw materials, there has never been any limitation although availability has been a constraint in respect of certain domestic raw materials, most notably steel. So far as import of raw materials was concerned, import licenses were issued on the basis of prior consumption. For a new industry the licenses did use one shift production as a basis until such time as a pattern of consumption had evolved. In both of these cases the entre- preneur was entitled to go back for further allocations which would be granted according to the availability of foreign exchange. must have resulted in the creation of costly and unwanted industrial capacity in the country. Also, most fiscal incentives and policies in India are designed to encourage investment and not output. Many companies continue, therefore, to do quite well financially because there is no inducement to eliminate the low-volume, high-price enter- prises. Perhaps among the measures to consider in order to improve productivity of capital in India, the question of introducing incentives for increased production and multi-shift operation in high-priority industries, through devices such as excise rebates for increased output beyond the production of first-shift, may be examined. Obviously, such incentives could pull industry toward a better capital utilization and away from inertia and the low-volume, high-margin psychology only if constraints on supply of inputs are removed simultaneously. This has been partially achieved in the IDA-assisted industries. F. Capacity Licensing 4.23 The system of capacity licensing was created to prevent al- location of resources to production of goods for which there is no demand, to prevent increases in output of industries which are not socially desirable, to prevent price competition between enterprises whose capacities might be partly idle, and finally, to prevent larger enterprises or foreign investors from acquiring monopolistic control of the economy. While these objectives are probably based on justifiable social premises and some of them could be defended on economic grounds, it is both their design and their application which often militate against these objectives. It is sometimes easier to obtain the capacity license ,or a new unit than for revamping an old one, mainly because many expansions initiated by large concerns, with assets exceeding $25 million undergo a detailed scrutiny by the Monopolies and Restrictive Trade Practices Commission, which to some extent tends to discourage the application of the principle of the economy of scale. 4.24 In its critique of the capacity licensing policy, the Bank considered that monopoly power of the large enterprises could be dealt with by price regulations or other controls, but not through licensing. 1/ It would, therefore, have been more reasonable if the monopolies commission, which regulates expansion of large enterprises, would focus more on existing malpractices rather than concentrating entirely on new investment proposals. 2/ This view was not very different from prior findings by Dr. R. K. Hazari (presently Deputy Governor of the Reserve Bank of India) who was asked by the Government of India to enquire into the role and the purpose of licensing policy as an instrument of industrial planning. Dr. Hazari's report, submitted in December, 1966, implied that industrial licensing policy did not '.revent concentration of economic power. An Industrial Licensing Policy Enquiry Committee (Dutt Committee), created in 1967, also declared that the licensing system was not properly organized for the :urooses which it was expected to achieve; the authorities concerned were not clear about these objectives and no clear iaidelines for their tainent were ever laid down. :B~o :Li ReCr : ni,kiI-_ 971 o3. 57 2/ 13= EconoriLc Report on Idia, M -ay 97, U2, . 33 - 25- 4.25 The basic nature of the licensing system has hardly changed, despite these critiques. Some minor improvements were nonetheless intro- duced. Thus, the limit, below which no capacity license is needed, is now set at $1.3 million. The small and medium entrepreneurs are author- ized to apply for capital goods import license directly without having to obtain a capacity expansion license in advance,as other enterprises do. A specific list of industries was published in which large indust- rial houses could participate. An automatic growth of capacity by 5% does not require a separate capacity license anymore. And finally, industrial undertakings which still hold industrial licenses specifying single- or double-shift basis were authorized to apply for the endorse- ment of their licenses allowing for the actual utilization of plant and machinery. 4.26 Considerable improvements have taken place recently in the day- to-day handling of the licensing policy applications. A single secre- tariat handling applications has been established, while in the past these applications were handled successively by nine different ministries. In 1974 about 60% of all applications were processed within the statutory period of three months. 4.27 During 1974, among the rejected applications only 8% were rejected by virtue of raw materials not being available to operate new capacity. The majority of rejections (57%) were because either domestic capacity existed, or the goods to be produced were not considered as essential for the economy. The former of these considera- tions relied on available rates of capacity utilization, the principle of which was reviewed above. The latter is based on the rejected applica- tions not being on the list of industries the outputs of which are deemed desirable. There is no list of socially undesirable products, which may be easier to compose. For instance, the status-symbol luxuries such as cars, domestic air oonditioners, refrigerators, etc., may be included in this category. Barring this undesirable list, why should the authorities not permit increases in output for all others within the existing foreign exchange constraints? This would permit the manufacturers to show initiative in finding domestic raw materials, relieve the Govern- ment from overloading its administrative capacity, remove the protection and release competition among these industries. Secondly, a banned list of end-products will not cause the problems due to inter-industrial dependence inherent in a list of permitted products. For instance, if textiles are included among the desirable products, but not dyes, fuller utilization of textiles capacity may not in fact take place as desired if the utilization of dyes capacity is restricted. Thirdly, a banned list will force the planners to be more specific about the products and industries which are regarded as socially undesirable. Thus, passenger: cars are often referred to as luxury and yet the list of desirable industries includes plans for erecting new additional capacity. G. Import Licensing 4.2S Licensing of raw material imports is a control closely related to industrial import credits (Annex Table IV-4). Since 1967 industries eligible for IDA credits to import raw materials can apply for foreign exchange according to their requirements, and several times during the year, which puts the IDA-assiszed industries on a separate footing, com- pared to other industries which do not enjoy these facilities. Also, while import licenses stipulate that whatever is imported should be used only within the confines of the enterprises, an exception is made for IDA-assisted enterprises to the effect that what these enterprises were importing had to be used in their production, but not necessarily within the confines of their enterprises. This implies that imported items could be passed on to the subcontractor, and then incorporated in the final product as inputs supplied by the subcontractor. The nature of the import licensing system, from which no major departures are made even for the IDA-assisted industries, suffered from a number of serious shortcomings. Firstly, the volume of requirements which the licensing authority is prepared to approve is expected to be a linear function of the immediate past, notwithstanding the fact that in the past the actual consumption of raw materials might have been erratic and influenced by circumstances beyond the producer's control. Stock positions, delivery times, production cycles, price variations and future production program of the applicant are generally not taken into account, which does not leave any room for firms' initiative or changes in product mix, funda- mental for any enterprise striving to increase its efficiency, and favors the status quo and the established users./ Secondly, the indigenous angle clearance, which consists of checking whether domestic production of the required import exists, is exceedingly cumbersome, provokes delays and leads to errors unavoidable in a situation where the authorities have to prepare balance sheets for each separate material for about 2,000 enter- prises. The system of indigenous angle clearance proved to have been particularly unyielding when applied to urgently needed spare parts. 2/ Thirdly, as the import licenses are issued in value, the continuing price inflation for internationally traded commodities shrinks the real value of import licenses. 4.29 The Bank's view on the import licensing system as reflected in its Economic Reports, was threefold. It believed that in India's situa- tion of full protection from imports the price system provides no indication as to what is advantageous for India to produce. The Bank L/ This system has changed in April, 1975 and the so-called select industries are authorized now to apply also for supplementary licenses, if they can provide sufficient justification, such as (a) their export performance (b) production program (c) stocks (d) outstanding licensea (e) the importance of the industry for the national economy (f) the avaLlability of foreign exchange, etc. 2/ No spare part which is produced in India was, in principle, allowed to be imnorted until recently. The import licensing for spare parts has been somewhat liberalized in 1975. therefore suggested a replacement of administrative controls on imports by an import tariff system. 1/ As far as indigenous clearance is con- cerned, the Bank felt that it encourages production in fields in which India did not have comparative advantage and thought that it should be replaced by customs duties even at a quasi-prohibitive level, which could gradually be reduced. 2/ Finally, when the Bank realized that major changes in import controls could not be expected, it thought that even small changes would-be welcome, to permit manufacturers to import a small proportion of their import requirements without prior licensing and with- out regard to the list of banned items. / This again was very much in line with the observation of the official Indian Committee (Mathur Com- mittee) which felt that there is hardly a reason for meticulous examination or restriction of quantities of each item on the list of raw materials required by applicants, subject to an overall ceiling on a license, and that the optimum utilization of foreign exchange within the specified items should be left to the discretion of the manufacturer. A small margin of greater freedom in this regard has been introduced in 1975, as noted in para. 1.10. - H. The Canalizing Agencies 4.30 Three principal. canalizing agencies deal with imports of IDA- financed raw materials. The MMTC (Minerals and Metals Trading Corpora- tion of India) imports non-ferrous metals, light and medium-high carbon steel, and such industrial raw materials as sulphur and rock phosphate; the HSL (Hindustan Steel Limited)imports steel, steel sheets,, and plates; and the STC (State Trading Corporation) imports chemical inputs, mainly for the pesticide industry. The initial idea behind the operation of the canalizing agencies was that at least two-thirds of their purchases would be on a long-term basis, geared to demand expectations formulated by the Indian Planning Commission. However, these expectations did not fully materialize and only some raw materials (copper) are purchasLed tl&ough long-term contracts. Canalizing agencies maintain a physical stock equal to only six weeks requirements of actual use, with another six weeks in the pipe- line on the high seas. 4.31 Prices charged by the canalizing agencies are fixed according to a three-tier system, whereby the lowest price is charged to exporters, the medium price is charged to priority industries, and the highest is charged to the non-priority industries. Price differentials between- - these levels are not substantial. The prices charged by canalizing agencies are determined on the basis of the average of prices paid dur- ing the preceding three months and are tightly controlled by a special committee. The IDA-assisted industries lift some of their materials directly from vessels, which saves them from paying a local purchasing tax and the shore transportation, loading and stocking charge . This alone permits IDA-assisted industries to economize about 6% on purchase price. Furthermore, the IDA-assisted industries are getting another advantage by being able to purchase raw materials with a free foreign exchange, at prices often between 5 to 20% cheaper than those charged to importers from the rupee area and 5 to 10% cheaper than those charged to importers from / IBRD Economic Report on India, 1969, p. 57-58. 2/ IBRD Economic Report on India, 1970, p. 115. 1/ IBRD Economic Report on India, 1973, p. 70. bilateral areas. 1/ The overall cost gain thanks to both these advantages for IDA-assisted industries is calculated to be equal to about 14%. How- ever, in a transfer economy, gain to some industries does not necessarily imply a gain for the economy. 4.32 The dialogue carried out in recent times by the industrial imports appraisal missions was beneficial to the operations of canalizing agencies. Canalizing agencies issue certificates to the Bank that materials they imported were sold to the IDA beneficiaries, which meets all necessary re- quirements of control of use made of IDA credits. 4.33 Also, the procurement of all non-ferrous metals, steel and other industrial raw materials against free foreign exchange is now arranged by inviting global tenders. On the whole, the operations of canalizing agencies have improved considerably and their prices and commissions are now reasonable. The bureaucratic entanglements appear still excessive, however. Also, benefits of canalization are less evident for the very large producers who sometimes order their supplies directly from the exporters but receive them through a canalizing agency, to which they pay their commission. This arrangement deprives the large producers of a certain flexibility whenever they require an immediate supply of certain inputs. The canalizing agencies have no authority to act on such urgent cases. It appears that here again a certain flexibility, permitting to order a fraction of the value of the import license outside the canalizing agency channels, may be advisable, especially because canalizing agencies are not - and cannot be - staffed with enough specialists with technical knowledge of specialized items, the precise technical aspects of which could be known only to the final user. The only danger of such flexibility would be that it opens the way to tampering with import prices, but these could be audited and such tampering could entail a severe punishment. L-3L In a broader sense, the question could arise whether a detailed licensing of items channelled through canalizing agencies is still justifiable, considering that these agencies are Government institutions and could therefore be entrusted with the task of distributing imported raw materials without having to solicit specific allocations for each final user from other Government agencies. I. Export Incentives L.35 There exist basically three export incentives to Indian entre- preneurs: cash assistance, an import replenishment license, and a duty drawback. The cash assistance compensates the exporter for non-refundable taxes, such as sales tax or octroi duties. 2/ It varies from 0 to 25% / There are occurrences, however, when some materials imported from the rupee area prove to be cheaper than those purchased elsewhere. 2/ One of the puzzlements o7 this incentive is that the exact amount of cash assistance remains confidential. Also, its official justification is the comnensation for non-refundable taxes. However, the Report of the Committee on Engineering Exports, published by the 001 in 1974, states clearly... (footnote continued at bottom of nex page) - 29 - of the fob value of exports, depending cn the corrmodity. The two main faults of the cash assistance scheme are: its lack of permanence and its neglect of comparative advantage. The Government changes the cash assistance rates frequently, creating problems for exporters who have already secured export orders, and discouraging them from future initiatives. The neglect of the comparative advantage is clear almost by definition because the cash assistance evens out handicaps of all industries, instead of offering a stronger incentive only to those industries which could be truly competitive internationally. 1/ 4.36 Under the import replenishment incentive (REP), exporters are allowed to import raw materials and machinery from abroad up to a percent- age of the fob value of export specified for each export item. For exported industrial machinery and equipment this percentage varies from 10% to 50%. The main difference between this entitlement and the normal import licenses is that it can be passed over to other producers. Because 5% - now 10% - of the replenishment license could be used to import restricted items, it usually carries a certain premium. (Annex Table IV-5) 4.37 A new scheme of automatic "imprest licenses" is to be introduced soon. It will benefit a registered exporter who has not yet a firm export order but has an organized and phased export program. Under the scheme, such an exporter may be granted an "imprest" license or an "imprest" release order for import/supply of materials, components and parts prior to actual exports, unlike the normal practice of issuing the REP licenses after exports. 4.38 The duty drawback consists of a refund of an element of import duty paid on inputs and of an excise on indigenous inputs that go directly into the manufacture of production which is exported. This is an accepted international procedure. The duties payable on raw materials are, in India, mostly on an ad valorem basis, whereas drawback rates are generally on a unit-rate basis. When the price of raw materials increases, drawback rates should increase accordingly but, as they are normally revised only once a year, this adversely affects the exporters. Furthermore, exporters complain of delays in drawbacks payment. 2/ (continued from page 28) ...that the cash assistance is designed to com- pensate the exporters to the extent of their disadvantage in competing with the other international firms, for reasons such as higher cost of raw material, services like power, transport, etc. as also due to certain non-refundable local taxes. 1/ In fact, the use of the term export incentives is rather misleading in the fndian situation. The package is only designed to offset tax and price disad- vantages which face the domestic manufacturer. A system of incentives which is related to value added has not been adopted for two basic reasons: first, the Government has been concerned about any system of incentives whic'.i would bring about a differential exchange rate; secondly, the Government has been concerned over the possibility of private industry gaining windfall or exces- sive orofits from a real incentive package. The reconsideration of export policy which is currently being undertaken may lead to a more aggressive policy to promote exports. L. 39 ExDort obligaticns are a separate aspect of the export activity. These obligations are twofold. The first is a general obligation imposed on all units operating in selected industries to export 5% of output. Such units have to pay a penalty for non-fulfillment of this obligation. Their raw material allowances are cut in penalty by up to 10%, with the overall production of the country suffering as a result. On the other hand, fulfilling the export obligation may lead these units to export below cost and recouping such loss by charging higher domestic prices. 4.40 Another type of export obligation appliez to large houses and foreign companies, which are not allowed to expand or set up new capacities unless they undertake to export 60% or more of their production. While the export obligation of 60% is only a guideline and in practice these obliga- tions are negotiated, the amplitude of this obligation is still large and sometimes the intended investment may not take place at all. 4.Ll The reluctance of large enterprises to be involved in exporting because of these unrealistically high obligations is harmful when one remembers that exports require a substantial organization, market studies, building-up of contacts, financial liquidity, quality and market acceptance abroad, and often in many cases, a good standing within the country, characteristics possessed mainly by large enterprises. L.42 The Bank commented on export obligations and considered that they were arbitrary and that it was doubtful that the compulsory export of a fraction of small-scale, high-cost production was a good basis for dynamic export growth. Furthermore, the Bank thought that export obligations in a situation where each firm in industry is expected to export does not induce specialization along the lines of comparative advantage and encourages dumping of sub-standard products, which earns the country a bad reputation. Finally, foreign buyers are apt to pay for such exports lower prices than otherwise. h.h3 There did not seem to be enough recognition in India that exporting is a long-term, difficult task involving a considerable period of expensive market penetration, followed by years of necessary consolidation of India's position in the market through efficient delivery, regular sales visits, and competent after-sales and repair services in the case of engineering goods. Exporters were required to overcome raw material short- ages, licensing delays, capacity expansion problems, shipping difficulties, and a host of other restrictions. The levels of cash assistance in a situation when the world economy moved from boom to recession may not have been adequate and already undermined the competitiveness of Indian bicy- cles, hand tools and industrial fasteners at a time when competitors were cutting prices. Finally, the system of importing dutiable goods, on the basis of an import license and then having these duties refunded, leaves room for improvement. The procedure can be simplified by authorizing expor- ers - users of import replenishment licenses - to import, duty-free. raw materials from the start. - 31 - J. Export Capacity 4.Lh Even the best system of incentives could remain ineffec;ive in a country which does not have an appropriate supply of exportable products. Despite external appearances, this is not the case of India, although many main items of India's exports are relatively inflexible and their increase is limited either by low elasticity of domestic supply and often (more importantly) by the low demand elasticity for Indian commodities in the foreign markets. 1/ If Indian exports are divided into several main groups, the most important are food and agricultural products (25%) and crude materials and textiles (34%). Chances for further exports of items in the first group might be limited, but the second group has more room to grow, especially because India's cotton or leather goods and handicrafts can look forward to extensive foreign markets. The next group is that of iron ore, representing 6% of India's exports. While the remaining export group, that of engineering goods, is still small (8%), it is the one where both India's potential and international demand might be the highest. Thus, the analysis of engineering exports enterprise-wise, country-wise and product-wise shows a wide distribution, proving that most of the larger enterprises are capable of exporting most of their products to many foreign markets. Also, analyais of enterprises financed by ICICI (one of the principal borrowers of IBRD loans in India) shows that in 1973, out of 430 enterprises for which information was available and which were assisted with ICICI loans, as much as 245 enterprises (or 56% of the total number of enterprises assisted) were actively exporting. Their exports, however, did not exceed 4% of their overall sales. In terms of countries of destination, only one country, the USSR, receives 12% of exports from IDA-assisted industries, while the share of other countries in IDA-assisted industries' exports does not exceed 5% per country.. In terms of products, the only item which exceeds 15% of the total is small and cutting tools, with aluminum, cables and tires attaining each between 10 to 15% of the total; the share of other items does not exceed 5%. Finally, the relation between finished and semi- finished goods shows a remarkable stability, with complete capital goods accounting for about 50-55% of total exports from IDA-assisted industries and with semi-finished goods accounting for the remainder. (Annex Tables III-10 and IV-8) h.45 Therefore, the ability to increase exports exists. Had Indian exports been concentrated in a few products to a few countries or in a few firms, one could reasonably assume that the ceiling might have been reached. However, this is not the case, and more flexible or more forceful incen- tives might help to improve India's performance in exports of industrial goods. World market prices are, on average, about 35% below the domestic 1/ On the whole, India's share in world exports has been declining over time. It represented 1.2% of overall world export in 1960, declined to 0.6% in 1972 and to 0.5% in 1973. While a low share of Indian exports was practically unavoidable in the first years of its independent development, continuation of this pattern of trade is judged to be untenable even by high Indian officials. - 32 - price for products exported by most surveyed enterprises in IDA-assisted industries (Annex Table 111-7). 1/ This would imply that, in order to bring the revenue from exports to the level of domestic price, exporters would have to obtain slightly higher incentives than they are receiving now. Table 4 Balance of Payments (US$ mln.) 1965/66 1970/71 1973/74 ExT)orts: Traditional goods 693.8 750.6 1171.6 Engineering goods bl.6 155.3 212.1 of which: IDA-assisted n.a. 52.2 55.3 Cotton textiles, leather, jute goods 675.5 591.4 1147.3 Others 280.9 549.6 656.3 Total 179*1 20)L.9 31773 Imnorts: Cereals 676.5 284.0 607.3 Machines and equipment 1033.7 526.1 807.3 Maintenance equipment 715.7 817.3 1536.2/a of which: IDA-financed 78.0 40.5 109.1 Others 608.h 551.5 973.3 Total 3034.3 2178.9 3924.1 /a of which 47% for petroleum oil and lubricants. I/ This relation, which might appear octimistic, is usually supported by official publications, such as Charles P. Staelin, The Cost and Comnosition of Indian Eorts, Journal of Development Economics, 197), pp. 129-1-43, North HolLaudPublishing Company. Of about 60 separate export products reviewed by C. P. Staelin, export prices of at least 30 are lower than domestic prices by not more than 35' and as many as 55 products, which nclude products 'rom ID_-eligible industries, cuote export prices 40G0 below domestic prices. V. THE BANK'S APPRAISALS AND FUTURE OPTIONS A. Anpraisals 5.1 The presentation of each consecutive industrial import credit is preceded by a field visit of an appraisal mission for a period of at least one month. India's general economic problems are highlighted annually in economic reports prepared in New Delhi by a group of some of the best economic analysts of the Bank. Besides those regular analyses, the Bank dispatched also special missio s - in 1969 to analyze the performance of the entire industrial sector,M and in 1970 to review the export prospects of industrial products.2/ Finally the Bank organized three special missions, which reviewed in depth the commercial vehicle industry, the tractor manu- facturing industry, and the forging and foundry industry in 1973 and 1974. 5.2 The appraisal reports focus rather cursorily on the general economic scene, using economic reports material. They mainly assess progress in the IDA-assisted industries, aided by field visits to the industrial enterprises. There is also a brief discussion of topics considered to be of importance to the effective use of IDA imports credits, such as export growth (appraisal of the seventh credit), import licensing (appraisal of the eighth credit) or the power situation in India (tenth credit). The coverage of the overall industrial scene in India is sporadic. 5.3 Three questions need to be asked - is this adequate; has there been continuity; and has the Bank been focussing on the right issue? Given the enormous complexity of India's economic problems, intertwined with political and sociological difficulties, one can easily point out important issues which have not been adequately dealt with, if at all. This would be unfair. The Bank's economic work related to industrial import credits and reflected in the appraisal reports, economic reports, or special reports, focussed on immediate problems India confronted and on short-term bottlenecks, or on issues which could, as it was hoped at least, be solved within a brief period of time. However, as shown in the preceding chapter, most of India's short-term difficulties have deeper roots. Consequently, many, if not most, of India's present difficulties could not be solved without a major rethinking of its development patterns and without trenchant changes in economic policies. It is a matter of conjecture to what extent the Bank could have assisted India in this matter. It could probably make a marginal contribution to such effort, by reorienting its piogram assistance somewhat and by focussing on issues of a more long-term incidence than the supply of raw material to six, nine, fifteen or seventeen industries. Such shift of focus, if it is found desirable, should not entail any decline in annual net foreign exchange transfers, vital for the current operation of the Indian economy, and of very high marginal productivity. 1/ India - Review of Trends in the Manufacturing Industry (SA-9a), April 1, 1970. 2/ India's Export Prospects (SA-26a), May 27, 1971. 5.L A related problem is that of the -reparation of appraisal missions, continuity of the effort, moni&oring, and organizational set-un. Firstly, the nrenaration of appraisals has perhaps not included enough efforts to collect economic information pertaining to other issues than those related directly to operations of industries supported by Bank Group credits. Such issues, as shown above, could have incidence on functioning of these industries and could undermine efficient use of imported raw materials. Secondly, the analysis of Indian industry, given its importance, should probably move from a sporadic to a continuous basis. Ideas as to which problems are removable through a quick transfer of resources and how they could be removed, could be more easily generated if the analysis is continvous. In such case, a visit in a country of a detailed appraisal mission before the presentation of each consecutive credit may be found unnecessary. Thirdly, program credits have their own complexity, which may not exactly fit in with operations of country or project divisions, because they require a continuous effort, which these divisions could hardly provide, and necessitate a small staff capable of combining technical and economic skills. Fourthly, the basic material should be prepared by the Government of India well ahead of time, which is not the case now. Fifthly, the field visits could be programmed to focus on hitherto unexplored issues to enrich not only Bank's but also Indian Government's knowledge. B. Information The first industrial import credit in June 1964 had, as condition, "undertaking of arrangements to improve procedures of establishing and keeping records within the foreign exchange allocation and licensing system and to make of records an effective tool in determining optimum levels of foreign exchange allocations". Indian Government itself had shown an interest in emnloying a consultant to review existing information gathering procedures to identify major sh?rtcomings and to make recommendations. Such report was ready in early 1966.1/ As a next step, a systems study, and subsequently designing and implementing a basic information system, was entrusted to the Indian Institute of Management in Calcutta (II) in February 1969.2./ The study was, again, to cover a review of existing information on the proce- dures, identification of gaps and problem areas, and detailed assessment of the overall information reOuirenent of the DTGD. Although the Bank continued to be concerned about the inadecuacy of the information in India regarding Lmort requirements, including those of the economy in general and those of specific firms, and has been urging the responsible authorities both crally and in writing, this study has never been completed because the frame- work of the study was ill-designed. Snecifically, the breakdown of proposed information was such that handling it would have proved unmanageable. A new effort is being undertaken at nresent to fill the acute information gap. The existing information was, and is, inadequate for operation of a complex rationing system, upon which the smooih o-eration of the large Indian indus- trial sector largely depends. ' norm,-ation Ystem ::2 -iccr: -3- and Forein --c--an.ge Allc!- os yoo-Z -len _2 Samilton, '/-he 1: was chosen -.3 S c::a -2rice to the 17T in d ian Statistical_ Insttase an a c aca:%ie of tOC Bane - 35 - C. Program vs. Project Assistance 5.6 One of the major advantages of program lending is that it is disbursed quickly. This statement is true and, with one or two exceptions, industrial import credits were disbursed within one year's time (see Annex Table 1-2). Such speed is self-explanatory, because these credits are used to import industrial inputs needed for current operations of Indian industry. 5.7 It is equally obvious that loan/credit disbursement for some types of projects takes a number of years, even when such disbursement is not delayed. Thus, the weighted average disbursement time for World Bank Group lending to projects such as railroads and shipping is in India 2.2 times that for program loans; for projects in agricultural credits, irrigation, fertilizer plants and other industrial projects, it is four times; and finally, projects in agriculture, education, population, and power and urban projects are on the average 6.3 times the length of program lending - all calculated for an equal loan amount. If the same discount rate is applied to program lending and to projects, the present value of $100 million disbursed in project lending is obviously lower than that for money disbursed through program lending. In addition, because of inflation, disbursements in future years will be worth less in real terms than are disbursements today. Thus, if to the C.count rate, reflectiAg the cpital yields which are foregone to India until disbursements occur, is added a 10% inflation rate, the present value of those loans which are disbursed most slowly - as for projects in agri- culture, education and others - is worth only about 75% of that received by India through program credits, as shown in the following table: Table 5: Projects vs. Programs Weighted Discounted Discounted Period of Present Grant Disbursed Disbursement Valuea/ Element 1970/71 1971/72 1972/73 1973/74 (years) (of 1.00) ( --------------US$ mLn.------------- A* 0.60 .94 78 0.5 34.1 66.5 109.1 B* 1.35 .88 72 28.4 32.5 67.5 90.8 C* 2.45 .80 65 10.1 33.4 59.0 71.6 D' 3.81 .70 53 13.2 2.7 23.0 7.6 a/ Assuming 10% discount and 10% inflation. b/ From loans signed within the last three years (these loans account for about 75% of all disbursements). * A-Program loans. B-Railroads and shipping projects. C-DFC, agricultural credit, irrigation, fertilizer plants and other industrial projects. D-Agriculture, education, urban, population, telecommunications and power (including transmission) projects. 5.Q The grant element of slowly disbursing projects will be correspondin-ly lower. Of course the slower disbursing projects would often be expected to carry technical assistance and institution-building efforts which either enaole a very high return to the project or, as is more often the case, cannot be assigned a quantitative impact but are nonetheless extremely valuable. The only value of this calculation is to remind that such impact must be quite significant in order to offset the value of quicker disbursement, from the point of view of the borrow- ing country. It should also be noted that the advantages of slow disbursement of IDA funds have of course been largely appropriated by the donors now, so that any major change in typical disbursement pace could affect the size of funds they would be prepared to commit for any period. 5.9 The real issue, however, is what should be a proper mix of program lending and project lending, justifiable for a country like India. While the high effectiveness of the program lending is obvious in a situation of idle capacities, it is equally, if not more, important to ascertain whether such lending contributes, even if very gradually, even if marginally, to improve- ment of the overall economic performance of the country. In India, lending for industrial imports has been made necessary because of the past resource misallocation, which prevented the country from generating enough foreign income streams to cover foreign exchange expenditures. The economic policies were designed to prevent worsening of the situation, by rationing imports. However, they were not designed to improve the situation, and here the industrial imports lending, as a means to fulfill the typically 'program loan' objective, which was nonetheless implicit in the dialogue accompanying this lending and the 4oies expressed in the appraisal reports, of providing enough room for maneuver to enable improvement of resource allocations and of policies, must also be considered to have had only limited success. However, whatever the general impression may be, industrial import credits to India did not become a substitute for project lending. The experience of the )ronram lending/project lending mix to India within the last t:.ree years, 1972-7h, shows that industrial imports credits remain at an almost constant level of 32% of total Bank Group disbursements (Annex lable V-1 and V-2). This ratio will increase to 45% in 1975, mainly on account of relatively slow disbursements for a,ricultural projects. Commitments for prcram lending in 1975 remained, however, at the 32% level of total IDA commitments to India in this year. And even this, not excessively high, cercentage of disbursement under these credits is largely compensatory for the delays in project disbursements. Thus, the annual shortfalls from Bank prcjections in disbursement of project loans were equal to some $80 million a:nually, during 1971-73, which roughly corresponds to annual amounts of actual industrial import credit disbursements (Annex Table V-1. -age 1). - 37 - Table 6: Projects vs. Programs (US$ million) 1970/71 1971/72 1972/73 13/7-L World Bank Group Disbursements For projects 82.0 101.4 209.8 259.1 For industrial imports 10.5 34.1 66.5 109.1 Total 122.5 138.5 276.3 368.2 Loan/Credit amortization & interest 77.7 90.5 100.1 101.2 Net transfers 44.8 18.0 176.2 267.0 Average price increases (1970/71= 100) For equipment 100 109 121 141 For industrial input 100 112 158 228 Net transfers in 1970/71 prices 18.8 16.2 154.6 190.7 D. Options for the Future 5.11 One of the aims for program lending was that the quick transfer of resources will help to remove a specific bottleneck which impedes countryls development. In India such bottleneck was in the foreign exchange gap. However, this gap not only remained unchanged, but worsened. Industrial import credits, in their present form, could hardly address themselves to sources underlying the foreign exchange shortage. Had they, for example, been related to export increases, foreign exchange bottleneck might probably be reduced. Furthermore, industrial import credits were aiming at a better capacity utili- zation. This issue, still very much alive after 11 years of existence of the program lending to India, cannot continue to remain in the focus of Bank's attention, at least in the present form. Dealing in an unchanged way with the reappearing gap does not bring a permanent solution. The minor modifications -nade between one and another of the industrial import credits studied here would not seem tn be adeauate. but there.are various slightly more radical alternatives, rome of which have emerged in part from the extensive studies the Bank has done in the last years, which could be more promising. 5.12 There exist at least five areas which might become a subject for a different type of program lending in the future: a. Linkage Agriculture-Industry In India, as in many other countries, linkages between agriculture and industry do not operate smoothly. Cotton plantations do not supply enough inputs to the textile industry. Tractors are produced but not fully used in agricul- tural areas. Well drilling equipment for minor irrigation works is not of a required quality. The underlying reasons are varied, ranging from inappropriate price relationships to faulty organization and marketing. The main reason is that each of these sectors is practically self-contained and there is hardly --zOn a-,- en'tng on ie order, ',ne between the LwO7. Even he import maintenance credits concentrated only on the orcduction of tractors, but not on the use of those tractors in agriculture and this despite the farmers' choice oreferring strongly some makes to others, and Bank Group agricultural credits financing purchases of these tractors. If, therefore, credits appraised jointly by agricultural and industrial experts of the Bank were spread over the entire production-utilization cycle, from imports of raw materials used in tractor production, through supple- mentary fixed investment, choice and payment for new, appropriate engineering designs, up to financing cf marketing of tractors and of setting up of pools of tractors for smaller farmers and of the repair shops, a much required and smooth throughput might be ultimately reached. b. Exports At present, the Indian Government is issuing replenishment licenses for registered exporters for the value of $200 million p.a. Of this amount, only one-fifth is channelled into engineering industries, about one-tenth goes to chemical and allied products, almost one-half to gem and jewelry industry (Annex TPble IV-6). If gems and jewelry are excluded, and only organized industry is taken into consideration, the World Bank Group could still direct a substantial Dart of its orogram lending to finance renlenish- ment import licenses for exporters. This type of lending could be preceded by a thorough analysis of the export incentives system, including an analysis of unit costs of main industries selected as capable of contributing most to exports. By enabling the exporter to use free foreign exchange to purchase materials on cometitive terms, such type of program lending could provide additional incentive to export. Furthermore, successful efforts could lead to creation of new export capacity, which could be financed from IRD loans to ICICI. In general, an attempt to bring current program lending together with creation of modernization of industrial capacity should become a most welcome feature of each such package program. It could help to focus Bank's attention on root causes of many of the present-day economic bottlenecks in India - the country's capital structure and related inter-industry relations. c. Limited Investment Strategy Such strategy was advocated for the development finance companies in the OED Evaluation of DECs. The strategy was expected to define, within the framework of national develonment strategy, the particular areas which intermediary financial institutions should try to identify. These insti- tutions were sunosed to fill oDDortunities, to find vays to deal with these opportunities, and determine what assistance is needed._./ Such strategy was expected to aim at mobilizing a vital effort to eliminate some of the country's development bottlenecks. V Operations Evaluation Re-or-: Develo.3ment Finance Companies, SecM71-259, July 26, 197L, p. 105. The Industrial Credit and Investment Corporation of India, Ltd. (ICICI), one of the principal borrowers of the Bank, has already outlined some rudiments of such strategy.!/ Such strategy could now be narrowed down to lines of economic activity considered of great importance for solv- ing a specific problem. This may become the increase and modernization of domestic production of textile machinery to revamp the important cotton textile sector of India, and to enhance exports of such machinery to other developing countries, setting up their own textile industries. A part of the Bank Group program lending could finance, during the coming years, not only the supplies of material needed for producing such machines, but also the technical assistance (foreign patterns and designs) found to be most appropriate for conditions of industry - a semi-industrialized country with a labor surplus. This type of targeting has an advantage of being able to focus on narrow and manageable area. The effort might be monitored not only by the Bank but, perhaps foremostly, by the intermediary lender - the ICICI, IDBI or IFCI - which could develop its own expertise in the relevant field. d. Imports of Basic Raw Materials and Making Them Available to All Industries Which May Need Them While superficially there appears to be little difference between this and the present procedure, this type of lending has some advantages. Firstly, it may induce an inquiry into India's own capacity to produce imported materials, because financing may be made dependent on the corollary effort of India to develop its own resources. The case in point is India's production of steel, rock phosphate, or various chemicals, inadequate now to meet the demand, and with unexplored possibility to develop. Secondly this type of lending would entail an across-the-board distribution of raw materials, different from present practices of tagging. Such across-the-board treatment - and a positive experience which might result therefrom - may induce the autho- rities to make further steps toward a desirable system of discretionary controls. e. Technical Assistance Special sub-sectoral reviews organized by the Bank during the last two years stressed forcefully the need for technical assistance to the industries studied. This view does not seem to have been accepted by the Indian experts, who.claimed that firstlyp missions' visits to enterprises were too rapid; secondly sometimes the recommendations of the Bank officials were based on misunderstanding or on wrong information; and thirdly the spe- cific Indian conditions were not fully taken into consideration. Also, the special missions ranked Indian enterprises according to the assessed level of efficiency. This ranking became public knowledge. Those ranked high used it as publicity, those ranked low became resentful to such assessments, which they found to be misplaced. -/ India: Appraisal of the Industrial Credit and Investment Corporation of India Ltd., Report No, 637a-f1, March 14, 1975, Annex 32. 3 On tne casis of whatever little time the missian could devote to the su.ey of needs of Indian industry in foreign technology, it does not ar-ear tnat Indian industry is in neec of a general transfer of foreign technology. India's present general reliance on foreign technology is relatively heavy. The request for more foreign technology for India should be restricted to a few manufacturing areas of strategic importance. Here again the problem consists in determining where real oricrities lie, ana to avoid spreading itself too widely. A concentration on technology which could lead to exports appears an advisaole recommendation. What India might need most at present are engineering designs fron abroad, often diffi- cult. to obtain. Thus, for example, India is handicaped in textiles machinery because it does not manufacture indigenously any variety of automatic looms and it does not have any modern base in texturizing and knitting machinery to prcduce texturized acrylic and polyester yarns. The cement machinery sector encounters a problem because it is unable to manufacture and trans- por by Indian railway network machines of sizes required for plants with output of 1,50C) to 2,000 tons per day, the size presently required in the world market.1/ The Indian engineering industry does not produce much flow nroduction equipment, except for a few industries such as mining and bottling. It is not advanced in instrumentation. Also, advanced types of machinery, such as niumerical control machine tools, are not produced in India. These acunae can be traced partly to the difficulty of importing alloys, spares and comoonents which, while they are imported now within industrial import. credits. are used by industries already in existence, preemuting these inputs :rom industries which might or should develop. 1- Dn.in olants are gearred to a production of 1 ,00 tons per day. VI. CONCLUSIONS 6.1 The immediate effectiveness of industrial import credits was very high. These credits were used for purchase of raw materials, most of which were not produced in India, the remainder produced in insufficieni quantities. These raw materials were purchased at competitive prices by canalizing agencies and sold to industrial enterprises in a dozen or so industries. 6.2 In the absence of.industrial import credits, and on the reasonable, oft-verified assumption that - for India - they represent resources of last resort and that, therefore, no other foreign exchange possibility is forth- coming, about 25. of the $1 billion fiyed capital installed in the IDA- assisted industries would have turned idle. The resulting shortfall of gross output from these industries would have been of the order of $600 million per annum, and would have, in turn, provoked a decline in production in principal users' sectors - agriculture, which is purchasing from these industries tractors, fertilizers, and pesticides; power, purchasing electric motors, switchgears and transformers; transportation, where commercial vehicles supplied by these industries are used. Likewise, there would have been a decline of investment in other sectors because of shortages in supply of machine tools or aluminum, also supplied by IDA-assisted industries,. 6,3 The highly positive contribution of industrial credits is there- fore in its role in closing the foreign exchange gap. However, this gap should be viewed from a different angle, not only as a recurring phenomenon, but also as a bottleneck, which has to be gradually removed. This bottle- neck is not an outcome of a rapid growth process, absent in India, but of deep-seated, long-term weaknesses in the structure and in organization of the economy. The analysis which precedes shows that the effectiveness of industrial import credits in solving the bottleneck problem does not quite measure up to its very important role in recurrently closing the gap. However, these credits were not designed to deal with the long-term issues, and for this reason, as well as because they continued to be narrowly related to a specific group of industries, they were unable to fulfill a role normally attributed to classical program loans. Moreover, given the imensity and the intricacy of Indian economic problems, it could hardly be expected that these credits, in their present form, could have had more than a marginal influence on removal of the root causes of existing bottle- necks. Moreover, the size of these credits - amounting, during the past decade to $100 million annually on the average - does not permit much expe- rimentation with economic policies, at the size of the past import bill of $2.5 billion - approaching currently $6 billion - and bearing in mind that the international demand for most Indian exports, excepting engineering goods, is largely inelastic. 6.h Finally, the Bank's dialogue with the Indian Government aiming at a better organization of the economy through changes of economic policies has been carried out continuously and candidly. The Indian administration aprears to be a,:are as 7uci as, if not more than, the -rank of r,ost of the shor~ o:.in of nctual policies. (1. The present fr of i:-port naintenance Credits has existed more or less _nchanginrly for 1- years. It is ony recently that these credits could 1.i tnesS, although probably not clai- any important role in inducing some improvements in the application - but not in the nature - of econonic policies. Also, sone marcinal relaxation of various rules and regulations has Laken place. There also appears to exisI a revived interest in expor;s. Finally, industrial import credits n2- have induced, alongside with the nornal effect which accunulation of experience could bring, an impro.rement in functining of canalizinp acencies. This performance nudit indicates thiat it might now be opportu.ne, :ithou l rducing the a.ount of quic,:-disburcing lnding i:ade availabl t : t-rou,h these loans, to shift the funds to different groups of users. 2here are many options which could be explored - lending to improve linkages be tven industry and aGriculture, lendin, to exporters, lending in combination with investment lopns to one selected s-,rate-ic industry, lending for pur- chasos of raw materials available to all users, lendling to improve engineer- ing :esi:rns - or a conibination of so-e of these forns. The shift is needed not onl. to bolster new activities bu l~ because, in a way, industrial irtc credits help now to preserve the inlustrial status quo in India. ThanI:s to their assistance, traditional users continue to perpetuate their prouctin to which a few percentage points were added every year. 1eed- less tn say, in an economically precarious situation,. uhich has been the cas e o.Iia's last decade, preservation of the status quo is no small blessin. This notwithstanding, a possibility exists for future program loans 'o be used not only to prevent a deterioration of the status quo - by keeping the annual anount of transfer unchanged, if possible also in real ter,s - but also to io more to help create conditions foi a long-tern inrovenent of the general economic situation. The key :ould be to have sharper, and nuch more rapidly changinc, 1ocus. SometL,es credits of a progran type (e.g. oriented to exporters or general imvor' of particular a: -aterials, with particular policy changes designed an:- agreed, and tested with the aid of the foreign exchange cushion made available by the Credit) and soeties of a project type (agro-industrial linkages, support o- strategic industries), but always sharper and better specified, in terms of targets over periods of years, than has been the case with the industrial imports cre.its reviCewed1. _EV__W 0? SPC INDJTRIES The Bank's appraisal reports and special reports reviewed periodically the performance of industries benefiting from IDA import maintenance credits. It would, therefore, be superfluous to get involved in details, especially so because the OED did not find any inconsistencies in the 7anA's analysis of these industries. It has been decided, therefore, to include in the present Annex only the features which were hitherto inadequately highlighted so as to give the reader a synthetic knowledge of sectors supported by the World Bank credits (Annex Tables 111-7 and 111-8). i. Fertilizers and Pesticides: The most up-to-date knowledge on these sectors could be found in recent appraisal reports for three fertilizer projects.l/ The 16% per year aver;Lge growth in fertilizer production in the past 20 years in India is impressive, but failed to keep pace with demand. The latter reached 2.8 million tons of the three major plant nutrients in 197 3/74 and imports have increased almost twentyfold, and this despite the farmers' demand not being fally satisfied because of balance-of-payments problems, recent fertilizer scarcity and the high prices of imported ferti- lizers. Domestic production of fertilizer has been disappointing in recent years. Production of nitrogen fertilizer in 1973/74 was only 67% of the commercial capacity of the plants, from which plants mechanically complete but not yet; commercially operating have been excluded. The use of plant nutrients per hectare of arable land is still low in India, about 16 kilograms compt2ed to 4) kilograms in USSR, 60 kilograms in the U. S., 82 kilograms in Yugoslavia, 140 kilo ams in Egypt, 259 kilograms in Korea, and 709 og-viams in the Netherlands.2./ Differences in yields between these countries and India, where agricultural yields remain low, could to a considerable extent be attributed to insufficient use of fertilizer in India. In particular, per hectare yields of wheat in India are one-half of those in Japan and in Egypt, per hectare yields in paddy rice are one-third of those Ln Japan and the U.S. and one-half those in Taiwan, and per hectare yields of sugar cane are one- half of those in the U.S. and in Egypt. The value of fixed capital installed in the fertilizer industry of India increased from $730 million in 1970 to $930 million in 1973. The annual value of output of fertilizers in the same year amounted to $430 million. This yields a capital:output ratio of 2.0, while this ratio for complex 1/ Repo.,t No. 488-I, appraisal of Trombay Fourth Fertilizer Expansion and Planned Operations Improvement Project - India, M3ay 20, 197h; Report No. 569-IN, appraisal of Sindri Fertilizer Project - India, November 11, 197; and Report No. 579-IN, appraisal of IFFCO Fertlizer Project - India., December 9, 1974. 2/ 1972 figures, FAO Annual Fertilizer Review. fertilizers pl.nts (nitrogenous and phosph.tic fertilizers) should not .: le, exceedl 1.0. On the average, 50N' of the raw materials used in production of nitrogeno,s fertilizers and 30. for the phosphatic fertilizers are imported. Imports consist of indirect inputs, such as naphtha, recovered from imported crde cil, and direct inputs such as rock phosphate, sulphur, phosphoric icid, anj certain cat,vlysts. The foreign exch-.nge allocation amounts now to sL6 m,illion and has sextupled since 1970. This flgure excludes relase c;, e-s for rock phosphate and sulphur. Naphtha, rock phosphate and sulphuric acid and oatalysts are also provide .(;.2sLtically. Prices of imported inputs have increased considerably since 797' -ind have to be subsidized to the mnu'cturer thro:gh p: pcoling. Thus, the domestic prices of fertilizers used to be somewhat higher than those impcreC ,until 1971; the situation has sine changed fast and presently -he inport prices are more than double the local price. Prices of such eru~. J_ndi.genous !ertilizers as urea, calcium-amonium nitrate, and a-monirum -ulphate are statutorily coitrollei. The pesticide industry has been expanding rather quictkly, adding annuiliY 10 to 20% to its capacity in the last few years. The approximate VIlue of iixed capital installed in indistry is only about $2 million. The value of production cbtained from this capital amounted to about $ nillion in 1973. The overall foreign exchange allocation of this industry is quite substantial, about $30 million. It has been quadrupled since 1970. :::due pesticides, India imports a large number o' specific chemicals, w,hich are not produced domestically. As demand fnr the product.s of the abeve sectors has been high because of the Government's emphasis on increased agricltul production, mno,3t uns have had little difficulty in obtaining the foreign exchange necessary for production. Exceptions to this are the foreign-controlled units. Thev clm that '.ey dc not obtain the full amoun oC foreign exchange requested, while Indian-controlled units are not able tc use all their foreign exchange :Žl1sticns. Becausc of this situation, the for -gi-controlled units are fcrced to file foreign exchange requests greater than their actual needs, The major.constraints (besides foreign exchange for foreign- contrell.ed. units) to fuller capacity utilization have been power shortages and un-v-ilability of imported raw Tateria,s. Power shortages have affected this sector, althcugh the Gcverr,nment has been accordi:. =riority treatment, because of the worsening overall power picture in In'iia.Rock phosphate and cther raw material inputs have been unavailable in r'cnt times in the world market regardJess of foreign exchange availability becu<iof high inter- national demands. In these cases, foreign-conrolled fIirr_ seem to have ared better than Indian-cor.roleu i eenuse they .ere able to rely on their multinational parent comrany to son-e degrc. ii. Commercial Vehicles: During the past fc.r or five years there has been scarcely any increase in the capacity to produce comme:cia2 vehicles in India. The approximate value of fixed capital installed iin this industry amounted, in 1973, to about $350 million. Two large ex:pansiorn programs for about $170 million are envisaged by two large firms which, when completed, should increase production capacity by about 25%. The order book for industry is quite good, both domestically where it equals about 6 months of production, and for exports which - at present - account for about 3/1 of production. Export prospects are bright because Indian trucks and buses are suitable for the rugged road conditions prevalent in most developing countries. The industry produces about [3,000 units which, compared to its prcductive capacity of 52,000 units, yields the capacity utilization of about 82%. Production in recent years has been increasing slowly, by only 3.8% per annum. The Bax k prepared a detailed study on the commercial vehicles sector in 1973.:V This report underlined, in particular, considerable differ- ences between the performance of major plants producing comunercial vehicles. It also stressed that designs of Indian trucks are generally outmoded and this inhibited export growth. About 6% of value of production in this sector is imported. Imports consist of steel sheet, plates, alloy steel, steel tubes and components. The foreign exchange allocation to this sector is quite substantial, about $55 million in 1973/74, of which more than one-half is supplied from MDA-financed imports. The major constraints to higher productivity in this sector are the foreign exchange shortage for spares import and the undependability of domestic ancillary suppliers. Very often, machines are out of operation for extended periods of time because the replacement for a spare part cannot be imported promptly either because of the long bureaucratic procedure involved or because of the lack of foreign exchange for spares. This disrupts the smooth flow of production. The present spares import regulations, as explained, are too rigid because they ban whole categories of goods from imports, although some goods within the category may not be manufactured domestically. The burden of proving so rests with the company. Some companies feel that as it is difficult to anticipate the breakdown of spares, the Government should work out a system where sufficient foreign exchange would be available for the immediate import of spares critical for the functioning of crucial machines in the plants. Production is also hindered by the undependability of ancillary companies, both in terms of quality and quantity of supplies. As a result, many companies have installed or want to install substantial facilities for the in-plant production of some components, which could lead to excessive vertical integration. Much effort goes into helping the ancil3ary units in the form of technical assistance given to improve the quality of the supplies as well as even providing financial. assistance to suppliers for new fixed investments to improve quality as well as increase quantity of output. 1/ Report No. 165-N of May 16, 1973. .ii. Automobile i The automobile ancillaries sector is too aiversified to become a subject of a thorough analysis. The sector has been included in the IDA list of industries so that the commercial vehcles sector does not suffer from constraints of inadequate supply of anciLaries. Capacity utilization in this industry appears to be quite high, except in steering gears, valves, and electrical equipment, such as com-Ttators or distributors, The value of output of the automobile ancil- lar,y idustry grew by 14o per annum during 1970-197, but a good part of it is attributable to price increases. Production of automobile ancillaries has been, in recent years, aifected by frequent power cuts, and their supplies to industries, such as commercial vehicles, were often interrupted. The licensing authorities nave snown flexibility in this respect and the purchasing industries were entitled to import such items as pistons, castings and forgings despite the existence of domestic production of these items. About 10% of total produc- tior. of automobile ancillaries is turned out by small-scale units. Export potential of the firms in this sector is high, as many of their products as a result of foreign technical collaboration are made to the specifications of high international standards. Also, in cases of fcrC.gn-ccntrolled companies the parent company has been instrumental in the marketing of exports through its international network. It must be noted that the only two companies among the surveyed 26 companies which exrport more than 20% of their output are foreign-controlled automobile ancillary units. iv. Machine, Hand and Small Tools and Ball & Roller Bearings: Production value of this industry was increasing by 15 per annum during 1970/71 to 1973/74, but a good part of this increase was due to price increases, which are reported to have been about 6,1 per annum. This important industry supplies about 80, of the domestic market demand for machine tools and hand tools. The Hindustan Machine Tools Ltd. (HMT), a successful public sector undertaking, dominates the machine tools industry and accounts for 65% of the total domestic machine tool production as well as 46" of the total national demand. These figures would probably be higher had HYT not been plagued by labor problems resulting in work stoppages lasting up to 2 months (in 1972/73) and substantial power cuts. Indiats export of machine tools is still very low, less than $5 million in 1973/7L, but these exports are spontanecus as there is no export obligation imposed or. this industry. H1 exports to protect the compan. from domestic business cycles, to keep abreast of international technology and to train personnel for future export drives. Exports of hand tools are quite promising, and reached $13 million in 1973/7L. The Indian hand and small tools industry is highly labor-intensive. There is a growing demand for various types of hand tools in several markets o.. e wcrld and the international trade in these items has exceeded $1 bili on in the early 1970s. In most of the cases, the major sources of spplr ave been the developed countries, such as West Germany, the U.S., U.". a-d Sweden; but, due to increased shortages of labor and rising wage levels in these countries, their potential for competitive exports might have een exhausted, leaving room for countries like India. IDA assistance to this industry is ma-inv Lro-viding credit to import carbon and alloy steel. The production of ball and roller bearings seems to be proceeding smoothly with no major constraints.- As in the hand and small tools industry, the export zctential of this industry is high due to the highly labor-intensive nature of the work. Special mention must be made here of W'Is extensive cooperation with the customer companies in their effort to develop machine tools for specific company needs, thus contributing to import substitution as well as developing new technology. v. Electric Motors, Switchgears and Transformers: Production capacity of the electric motors and transformers industry has been increasing very quickly in the last few years. The industry is capable now of producing goods for $450 million annually, compared to only $250 million in 1970. The installed capacity of the electric motors industry was utilized at 52% in 1973, but it is noteworthy that the capacity of this industry has doubled within the past four years, and a part of the newly installed capacity was not in operation. The same observation applies to the capacity of the trans- former industry which is utilized at 64/', but which has grown to 80% since 1970. Of the three sub-industries, the dependence on imported inputs is highest in the transformer industry, which imports 20% of its output, namely copper, insulating materials, and special components. Imports account for 40% of all inputs used. The share of imports is much smaller for switch- gears (10% of output and 20% of input) and even smaller for electric motors which rely on imported material to the extent of only 8%, barely one-seventh of all raw materials purchased by this industry. Despite this, the foreign exchange allocations to these industries are quite substantial, about $40 million annually. All three industries export rather a small fraction of their output, not more than 5%. About 70% of the total joint output of these industries goes to the power sector, 20% to manufacturing, and the remaining 10% to agriculture. The major constraint to increased production in this sector has been the unavailability of raw materials and parts, and more recently, power shortages. Good export performance may be expected from this sector, especially from the foreign-controlled firms which have taken quite an aggressive attitude towards exports, facing export obligations. vi. Tractors and Power Tillers: India's production of tractors was growing by almost 9% per annum, in real terms, from 20,000 in 1970/71 to 29,000 in 1974/75, the highest growth among the IDA-financed industries. Production of power tillers during the same period of time has increased sevenfold. The productive capacity for tractors has increased commensurately with production, by about 91 annually, during 1970-1974. The power tiller capacity has increased ninefold during the same period,, Labor employed by these industries has grown quickly, by about L1% per annum in the tractor industr: and by about 9% per annum in a mucn smaller power tiller industry. This imp.Lies, at least for the tractor indutry, that both the capacity utilization and labor productivity remained unchanged. Total investment in plant and equipment of the tractor industry, in 1974, amounted to about $25 million only; and, given the value of produc- ticn of about $100 million, the capital productivity of the industry appears to be high. The amount of imported raw materials needed for tractor production in India is negligible, equal to 3% 'of the value of output. Imported raw materials are mainly alloy steel bars, seamless steel tubes and sheets. Ninety-nine percent of the output of tractors is channelled to agro- ndustrial corporations, agro-engineering service centers, cooperative institutions, comiunity development centers, and state farm corporations. The industry exports a modest amount of its output, for about $2 million in 197L. The Bank has reviewed kn detail the performance of the tractor manufacturing industry in 1973.1/ The main thrust of the Bank's studies, similarly to that on commercial vehicles, was the great unevenness in operating efficiency among various manufacturers, implying ample room for improvement. The report also underlines the fact that the production of tractors for the domestic market is economic because the domestic resource cost of US$1 saved through domestic production is practically equal to the nominal exchange rate for the Indian rupee. Finally, the Bank report found that there is practically no gap left between the supply and demand for tractors, and that, therefore, an expansion in production capacity cannot be expected in the near future. None of the Bank reports appears to have tackled the important problem of the utilization of tractors in Indian agriculture. The mission found that this is an area where rapid and radical improvements have to be introduced, considering that tractors sometimes remain idle because of organizational deficiencies at the users' level or because of farmers' strong preferences for some makes and rejection of others. This appears to be one of a number of cases where, while the removal of supply constraints through industrial import credits is valuable, the final result falls short of expected because of other constraints on inputs, or because of the constraints on the users' end. The main production problem in this sector are power shortages and the unreliability of indigenous components, the rejection rate of which has been running as high as 4c%. Companies feel that they could export more if they were given more cash assistance and more foreign exchange. This additional foreign exchange is necessary because, to cite the case of one company, the import content of tractors at the production level of 1/ Survey of Tractor Manufacturing Industry in India, Report No. 166-IN, of May 16, 1973. A.IEEX 1 Page 7 7,000 per year is about 10%, but increases to about 23% when the full production capacity of 10,000 tractors per year is reached. The level of foreign technical assistance in this sector is high, and in many cases expatriate technicians are stationed at the local plant site. vii. Aluminum: Production capacity in the aluminum industry has increased from 16,0=tons in 1970 to 210,000 in 1974, or by 28%. However, while the capacity in the past has been fully utilized at 100%, capacity utilization declined to 77% in 1973 and 60% in 1974. By 1974 India was producing only 129,000 tons of virgin aluminum, 20% less than in 1970, and this despite the increase in productive capacity in the meantime../ The reasons for this drastic decline in production are severe power cuts and labor problems. The aluminum industry feels that they were not given adequate attention in the power supply decisions and also that the Govern- ment could have helped them in solving the labor problem. Because of' the low production of aluminum, the companies are required to ensure that the available production is distributed in compliance with priorities estab- lished by the Government. Eighteen percent of the value of aluminum, or almost one-third of the value of raw materials consumed in this industry, is imported and financed from industrial import credits. Imports consist of pitch, aluminum fluoride, cathodes, caustic soda, and others. Some of these materials, such as aluminum fluoride, criolite, or caustic soda are also produced domestically but in insufficient quantities. The free foreign exchange allocations to the aluminum industry amounts to only $13 million annually, of which little more than one-third is from IDA credits. viii. Heavy Construction Equipment: This sector has grown well, especially when it is taken into consideration that it is relatively new and that the technology required is very sophisticated. Great diversity of products has been achieved in a relatively short time, mainly due to aggres- sive public sector undertakings taking new initiatives and importing techno- logy. The industry now manufactures bulldozers, tractors, heavy dumpers (50 tons), scrapers, graders, road rollers and front-end loaders. The foreign exchange requirement of this sector is high, as the import content of output is in many cases over 20%. However, this sector has not had foreign exchange shortages. The fact that the sector comes under the Defense Ministry gives it some additional priority. The companies in the sector are working on indigenization of raw materials and components and plan to bring the import content of output to less than 10% within the next few years. However, indigenization sometimes 1/ The power cuts interrupting operation of aluminum smelters correspond more or less to the degree of idle capacity. The time lost through power cuts is calculated to have been 35-40% of available time of operation of smelters. The value of investment installed in the aluminum industry in 1974 amounted to about $250 million, of which 39% was unutilized. AN-INX I Page 6 proves difficult, as component suppliers cannot be easily induced to attempt to manufacture presently imported components because of the small scale 6f output4 Also, large hydraulic gears and other components carot yet be manufactured indigenously for technical reasons. Domestic demand is expected to continue to expand with the Government projects, which are practically the sole customers of the sector. There are strong export prospects, especially in the developing countries. However, a strong after-sales service capacity must be developed if exports are to continue and to grow. i NDi1A DIsbursements of IndusIral import Program Crdits by Sctor (US$5 mil lIon.) Ionusrial Credit Number of IDA-ligible industries* dealgnated by Import Credit Agre~ent Credit IlA-eligible m dlsbursed or LT Tul nber date aomount industries A n n' E F G R i i L m 0 T dbrsnta 1 (Cr. 52-IN) 6/9/6h 90.0 5 43.6 10.6 9.1 11.2 2.9 2.5 7.7 2.h 0) 0>COcuIr racto B) Ag.rIootoral tr-.t.. and power till.r. C) Automoti'v ancillarbe 2 (Cr. 78-IN) d/11/65 100.0 6 31.6 16.3 9.1 12.1 19.8 3.5 1.8 5.B 100.0 D) Nachl., e ittng and ... 11 tn,. E) Ball and rollr bearIng. F) Elec.tricl equipment 3 (Cr. 92-IN) 6/19/66 150.0 11 22.8 1.8 23.9 6.9 2.5 16.3 24.0 14.5 b.3 2.6 negl. 0.4 150.0 G Fertiho11 -d p..ticideo B> C.ble. -nd mr- 1) Industrial and ming machion er 4 (Cr. 97-IN) 12/23/66 65.0 Il 5.9 0.4 10.9 3.3 1.1 3.6 22.1 12.3 3.3 2.0 negl. negl. 0.2 65.0 J) B n e meta. L) 11avy constructio eqlipen.t M) Alunlo -Itlig (Cr. 138-IN) 1/22/69 125.0 i1 13.3 2.3 23.9 6.0 2.4 8.0 25.7 22.5 16.0 3.2 0.2 0.7 0.7 125.0 B) Ca3t apan pipes and boiler P) mi.cellan.ous 6 (Cr. 182-IN) 4/21/70 75.0 6 10.4 2.6 26.9 16.9 3.4 15.0 75.0 R) Spare part. for heavy *,jnc.consotructin equipmet (cr. )7- IN) //5.0 ..7 16.2 0.5 75.0 deler. 7 (r.377.) /26/72 750 8 9.8 3.4 17.0 21.6- na 67 1. 's pr at o oe S) Spor. p-rt. f.r p-me gefnratlr. equipment T) H.a' c.,ntir on0 nqlpoelt b (Cr. 402-IN) 6/25/73 100.0 9 7.5 5.0 12.2 39.7n'l j 7.2 25.3 2.8 0.3 0.0 100Tr ./Incl. Incl. 9 (Cr. 474-IN) 5/29/74 150.0 11 8,5 1.6 0.1 6.4- 1n 0 42.4v 69.1 n F 6.6 1.7 3.7 1.9 150.0 10 (C. 528-IN) 2/14/75 200.0 12 1 x I x I x x x x x x i TOTAL 1130.0 I5 153.4 17.1 149.5 1[9.0 6.0 l01.9 199.' 99.1 23.6- 7.8 0.2 15.u -.5 3.7 X 0.7 5.6 15.4 x 2.4 930.0 OnDesignate IDA-ligible industrl,e f.o h,ch disbursements flgures are fot avail- a/ Includes dioburement b.for ball and roller bearing. (E). ¯b/ Includer di.b.r.Iem for c.bles and nlre (). Souc: PreSIdent's rorts -u Industrial I.p.trt. Program- (9th & 10th) and figuresrom Cntrollr's Departeta. ANN:X TABLE I-2 INDIA: SPEED OF DISSURSEMENT OF INDUSIRIAL IMPORT CREDITS Sig- Targeted Final nature Closing Disburse- Successive Disbursements by quarters Total Date Date ent Date 2 7 Disbursements 5th (Cr. 138-IN) Jan. 1969 April 1969 May 1969 In $ min.: Quarterly 125.0 Cumulative 125.0 125.0 In % of total credit amount: Quarterly 100.0 Cumulative 100. 0 100. ) 6th (Cr. 182-N) April 1970 March 1971 Jan. 1972 In $ mln.: Quarterly 2.5 6.1 8.3 11.L 27.8 6.1 12.5 Cumulative 2.5 8.6 16.9 28.3 56.1 62.5 75.0 75.) In % of' total credit amount: Quarterly 3.3 8.1 11.1 15.2 37.1 8.5 16.7 Cumulative 3.3 11.5 22.5 37.7 75.6 83.3 100.0 1oo. 7th (Cr. 327-11) Sept. 1972 Nov. 1973 Sept. 1973 In $ mln.: Quarterly 35.9 2L.4 1L.5 0.2 Cumulative 35.9 60.3 7L.8 75.0 75.0 In % of total credit amount: Quarterly 47.9 32.5 19.3 71.0 Cumulative 47.9 80.4 99.7 100.0 100. 8th (Cr. 402-Ti) June 1973 Nov. 1974 June 197L In $ m1n.: Quarterly 9.3 21.1 69.8 9.8 Cumulative 9.3 30.1. 90.2 100.0 i00.) In % of total credit amount: Quarterly 9.3 21.1 59.8 9.8 Cumulative 9.3 39.L 9D.2 10.0 130.3 * First quarter following credit effectiveness I/ INDIA: AID AND DEBT STATISTICS, 1958/59 - 1973/74 1 (US$ Million) 1958/59 1959/60 1960/61 1961/62 1962/63 11963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 (est) Consortium Gross Disbursements 630 605 838 660 870 1,138 1,344 1,481 1,413 1,503 1,146 1,068 1.019 1,060 855 950 of which: Project AId 435 4ol 449 468 611 748 873 968 422 301 303 204 247 325 358 Non-Project Aid 428 689 549 584 573 579 497 Food aid and non-food PL 480 195 204. 389 192 259 390 471 513 563 513 294 280 199 156 - Debt Service 26 45 108 175 160 188 232 292 302 333 406 434 465 512 561 625 Net Transfer 604 560 730 485 710 950 1,112 1,189 1,111 1,170 740 634 554 548 294 325 Debt Service Ratio 2 (%) 2.2 3.8 8.5 13.5 12.9 13.2. 16.4 21.4 24.4 25.7 27.8 29.0 30.1 30.5 31.3 31.3 Non-Consortium Gross Disbursements 90 12 25 54 72 115 172 136 98 95 114 120 77 29 41 305 of which: Project Aid 90 12 25 54 72 115 172 126 85 84 107 lIo 74 27 41 Non-Project Aid 3 1 1 1 - - - Food aid and non-food PL 480 - - - - - - - 10 10 10 5 9 3 2 - Debt Service 11 15 14 16 23 25 26 23 53 ill 94 116 135 102 121 90 Net Transfer 79 -3 11 38 49 90 146 113 35 -16 19 4 -58 -73 -80 215 Debt Service Ratio (%) 11.0 14.0 12.5 12.1 11.3 10.3 8.6 7.0 20.7 36.9 26.5 28.3 28.0 22.3 19.3 13.7 Consortium & Non-Consortium Gross Disbursements 720 617 863 714 941 1,253 1,516 1,617 1,511 1,598 1,259 1,188 1,096 1,089 896 1,255 of Which: Project Aid 525 413 674 522 682 863 1,045 1,094 507 385 410 314 321 352 399 Non-Project Aid 431 690 550 585 573 579 497 Food aid and non-food PL 480 195 204 389 192 259 390 471 523 575 523 299 289 202 158 - Debt Service 37 60 122 191 182 213 258 315 365 444 500 550 600 615 682 715 Net Transfer 683 557 741 523 759 1,040 1,258 1,302 1,146 1,154 759 638 496 474 214 540 Debt Service Ratio (%) 2.9 4.6 8.8 13.4 12.7 12.8 15.1 18.6 23.7 27.8 27.6 28.9 29.6 28.8 28.2 26.8 If Ail 'igu- c,de pircjctad op jctloans (.. ith debt relief sho- a anon-proJect disburs-ent). food aid, and non-food PL 480 (except PL 480 Title II). Figures for 1966/67 through 1972/73 also Include project and non-project grants. Coverage of food aid statistics may be incomplete. 2/ Debt service divided by merchandise euport earnings. For the rcusortium, the debt service ratio has been calculated with respect to tota.l convertible currency H export earninjs, for the non-Consortium, with respect to eaports to the rupee payments area. Source: Government of India, Depattment of rconomic Affairs. INDIA: BALANCE OF PAYMENTS (US$ Million) 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74 1. Merchandise Exports (f.o.b.) 1810 1884 1950 2160 2558 3187 2. Merchandise imports (c.i.f.) -2523 -2148 -2311 -2572 -2682 -3952 of which: a) foodgrains (449) (348) (284) (176) (105) (635) b) POL (178) (183) (181) (261) (265) (719) c) fertilizer & material (264) (157) (133) (150) (189) (290) 3. Debt Service -500 -550 -600 -615 -682 -692 4. IMF Transactions (net) -62 -157 -183 - - 75 5. Gross Aid Disbursements 1310 1233 1147 1203 955 1249 6. Miscellaneous Capital and Invisibles (net) 16 64 -46 49 -56 239 7. Use of Reserves (- = increase) -51 -326 43 -225 -34 -106 Reserves at end of period 769 1095 1052 1277 1311 1417 Source: IBRD Annual Reports. x X 0 Cr M INDIA: IMPORTS OF CERTAIN SELECTED ITEMS (Value: Rs. Lakhs) Units 1970/71 1971/72 1972/73 1973/74 S.No. Items of Qty. ty_. Value 9ty. Value gty. Value Qty_ Value 1. Cereals: a) Wheat 000 Tonnes 2923 173,37 1740 102,60 498 48,16 3070 346,10 b) Rice " 361 29,82 242 18,07 134 10,71 36 6,45 c) Barley, unmilled " Negl. Negl. Negl. Negl. - - 1 5 d) Maize, unmilled " 3 13 6 42 Negl. 1 5 89 e) Cereals, unmilled " 45 7,83 15 1,82 171 15,07 1292 113,05 f) Other cereal Val - 1,86 - 8,30 - 6,83 - 6,61 Total " - 213,01 - 131,21 - 80,78 - 473,15 2. Steel " 692 147,09 1344 237,57 1223 217,14 1013 242,56 3. Non-ferrous Metals: Val. - 119,64 - 101,77 - 101,62 - 139,65 a) Copper 000 Tonnes 52 60,20 56 51,18 55 48,65 53 70,45 b) Nickel " 4 12,62 2 6,36 3 7,47 3 8,60 c) Aluminum 6 3,35 5 9,32 2 2,77 2 2,79 d) Lead 40 9,78 35 7,63 42 10,35 36 10,89 e) Zinc 91 21,97 70 17,73 77 20,96 63 27,72 f) Tin " 3 8,80 2 4,86 2 6,85 3 12,55 4. Fertilizers Raw: " 1217 24,26 1353 22,42 1320 22,82 1433 37,63 (includes Sulphur) a) Rock Phosphate 752 12,28 798 10,57 786 11,12 907 21,30 b) Fertilizers Mafs. 1391 75,69 1870 88,91 2255 116,40 2394 188,49 5. Cotton Raw " 139 98,84 159 113,39 113 90,88 57 52,05 x H Annex Table 11-4 DiDIA INDEX NUMBERS OF IMPORTED INPUT PRICES AND OUTPUT PRICES OF IDA-ASSISTED INDUSTRIES: 1970/71-1973/74 % = % of share in total IDA imports or IDA output. Index = index number of price increases (1971 = 100) IMPORTED INPUT PRICES Imported Inputs 1971 1972 1973 197L % Index % Index % Index Index Copper 19 100 14 98 14 165 16 190 Lead 5 100 3 119 3 170 4 231 Tin 4 100 3 106 3 136 3 223 Zinc 11 100 8 122 8 276 9 401 Steel 48 100 64 115 58 152 5b 182 Phosphate rock 6 100 4 107 6 124 7 189 Sulphur 7 100 4 100 8 107 7 190 Total 100 100 100 100 Weighted average price index number 100 112 158 228 Average annual price increase 31.r- OUTPUT PRICES Output 1971 1972 1973 197L % Index _ Index Index _ ndex Fertilizers 19 100 20 103 19 108 20 176 Pesticides 2 100 2 108 3 122 3 176 Electrical machinery 1 100 12 109 12 114 12 145 Aluminum 5 loo 6 101 5 102 4 112 Commercial vehiclesl/ 52 100 50 104 52 107 52 136 Tools and parts 8 100 10 110 9 118 9 163 Total 100 100 100 100 Weighted average price index number 100 10 11 Average annual price increase 13. 1/ Includes automotive ancillaries, heavy construction equipment, tractors and Dower tillers. Source: Economic Analysis and Projections Department, Monthly Statistics of the Foreign Trade of India, and the Ministry of Industry and Civil Supplies. Annex Table II.s INDIA: MINERALS AND METALS DOMESTICALLY AVAILABLE, 1973 Expected Life of 1973 ('000 tons) Reserves . Share at Current Reserves Average of Exports Rate of (million Content in Total Production Mineral tons) (percent) Production Exports Production (years) Asbestos ... ... 12 - - - Barytes 2.0 ... 117 34 29 17 Bauxite 235 Alumina 1,270 29 2 185 (45S-55) China Clay 297 ... 351 - - 846 Chromite 14 Chromium Oxide 277 221 80 50 (50) Coal 87,326 ... 77,088 493 1 1,133 Corundum 0.598 ... 0.268 - - 2,231 Diamonds 14,18,400/1 ... 21,017/1 ... ... 67 Dolomite 1,116 ... 1,393 9 1 801 Felspar 1.3/2 ... 40 9 22 Fire-clay 38 ... 699 - -5 Garnet (abrasive) 0.1 ... 3 - - 36 Gypsum 1,190 Calcium Sulphate 880 - - 1,352 (85) Iron Ore 10,174 Iron 35,210 21,285 60 289 (55-62) Kyanite 4 ... 53 25 47 72 Limestone Cement Grade 40,000 ... ) Flux & Chemical 6,200 ... ) 23,830 - - 1,938 Magnesite 524 ... 185 l 8 2,832 Manganese Ore 108 ... 1,451 692 48 74 Mica (crude & scrap) ... ... 18 28 156 Pyrites ... ... 42 - - Quartzite ... ... 103 - - Salt (rock) 8 ... 3.6 - - 2,222 Sillimanite 0.34 ... 3 1 33 113 Steatite 6.2 ... 191 10 5 32 /1 In terms of carats. /2 Actual reserves are expected to be larger. Sources: Indian Bureau of Mines, Minerals Yearbook 1969, printed in 1973 and released in October 1974, Nagpur, and Bulletin of Mineral Statistics and Information, Vol. 14, No. 1, January-February 1974. Annex Table 11-6 INDIA: MINERALS AND METALS IMPORTED, 1973 Euected LifE of 1973 ('000 tons) Reserves i Share at Current Reserves Average of Imports Rate of (million Content Produc- Avail- in Avail- Production Mineral tons) (percent) tion Imports ability ability (years) Antimony Metal ... ... 0.52 1.20 1.72 70 Arsenic Sulohides ... ... - .004 .oo 100 Asbestos ... ... 12 4 55 79 ... Bismuth ... ... - .016 .016 100 ... Borax ... ... - 14 l 100 ... Cadmium Metal ... ... .013 .o6 .079 58 Cobalt Metal ... ... - .179 .179 100 ... Copper Ore 245 1.5 1,093 - Copper Metal 3.77 - 11 55 68 81 299 Graphite ... ... 15 1 16 7 ... Lead Ore 1071 2.5 ... - Lead Metal 2.57 - 8 ?9 7 83 3L Mercury ... ... - .294 .294 100 ... Molybdenum ... ... - .016 .016 100 ... Nickel 14.3 ... - 2.9 2.9 100 Crude Oi 2 131 ... 7,196 13,300 20,496 65 18 Platinu_- ... ... - 500 500 100 Rock ?hosohate 63 ... 16 875 1,020 86 433 Silver/? ... ... 4,255 2,000 6,225 32 ... Sulphur ... ... 150 552 702 79 ... Tin ... ... - 5 5 1.0 Tungsten/? ... ... 21,55 10,46 11,801 il ... Zinc Ore 107/1 L.5 ... ... Zinc Metal 47T3 ... 24 35 59 9 190 /1 Ores are of mixed lead-zinc type. /2 Quantity in kilograms. Sources: Indian Bureau of Mines, Minerals Yearbook 1969, printed in 1973 and released in October 1974, Nagpur, and Bulletin of Mineral Statistics and Information, Vol. 1L, No. 1, January-February 1974. INDIA: Productivity of Capital, Compared to Brazil, Indonesia, Pakistan, Turkey, Egypt, and Mexico --Basic Statistics-4 h-----------Statistical Inputs------------4 I------Results-----j --------------------Some Explanatory Variables-------------------------4 GNP Capital Share of Share of Investment Population per Cumulative GDP Productivity/3 Agriculture Agricultural in Agriculture Currency heaA Investments-12 IncreasesL' Gross Investment in GDP GDP Growth in GDP Growth in Total Investment (unless other- ('000) ($) (national currencies) (national currencies) (W/one-yr. lag) (% p.a.) (M) (% p.a.) (%) Country wise indicated) 1972 1972 1960-1964 1965-1972 1961-1965 1966-1973 1961-1965 1966-1973 1960-1973 1965-1973 1965-1973 1961-1965 1966-1973 1965/66 1970/71 India (billions of rupees) 538,129 110 140.7 289.1 20.9 53.4 6.73 5.40 3.4 3.5 40.8 -.8 2.6 11.6 13.5 Brazil (millions of cruseiros) 92,764 420 63,182 157,514 9,552 75,981 6.62 2.07 6.6 9.0 17.8 5.0 4.5 2 - 3/9 /6 Indonesia (billions of rupiahs) 115,567 80 180.3 450.3 17.3 282.1 10.40 1.6 4.6 6.9 46.0 1.8 3.9 4.4 Pakistan (millions of rupees) 130,166 100 17,689 39,589 6,375 11,131 2.78 3.56 6.4 5.4 37.2 5.0 5.5 8.21s 7.1 Turkey (billions of liras) 35,230 310 57.8 174.6 17.4 51.5 3.32 3.39 6.3 6.6 30.1 1.9 2.1 15.0- 10.3 Egypt (millions of Egyptian pounds) 33.329 210 1,383.4 3,164.8 566.7 571.5 2.44 5.54 4.1 3.3 29.6 6.9 3.2 8.1- 8.2 Mexico (millions of pesos) 50,670 670 140,894 430,642 54,389 126,363 2.59 3.41 7.0 6.5 11.5 6.8 2.4 5.6- * Includes Pakistan and Bangladesh in population. 1 Source: World Bank Atlas. 2 Measured at constant market prices. 3 Capital productivity for the period 1966-1973 was created by dividing column 4 (cumulative investment, 1965-1972) by column 6 (change in GDP, 1966-1973). " " " " 1961-1965 " " " " " 3 ( " " , 1960-1964) " " 5 ( " " " , 1961-1965). JA Source: Current Economic Position and Prospects of the Arab Republic of Egypt, December 1972; Statistical Appendix, Table 2.5. /5 Source: Current Economic Situation and Issues in Pakistan, March 28, 1975; Statistical Appendix, Table 2.13. 6 Estimated from investment approvals over the period 1967-1974, Indonesia Development Prospects and Needs, Basic Economic Report, April 5, 1975, Tables 10.15 and 10.17. 7 Source: The Economic Development of Turkey, April 22, 1974, Vol. V, Table 2.3. m 7 Assumes that investment in agriculture is entirely public investment. 79 Public sector investment in agriculture as a percent of total public sector investment, w o' m Annex Table 11-8 INDIA: NATIONAL PRODUCT AT FACTOR COST, SAVING AND CAPITAL FORMATION Item 1960-61 1965-66 1969-70 1970-71* 1971-72* 1972-73* (1) (2) (3) () (5) (6) (7) Net National Product (nnp) (Rs crores) at current prices 13,267 20,636 31,968 34,627 36,599 39,592 at 1960-61 prices 13,267 15,081 18,152 19,035 19,299 19,130 Estimated Population (million) 434 485 529 5L0- 55L 567 Per Capita Net National Product (Rs) at current prices 305.7 425.5 604.3 64o.1 660.6 698.3 at 1960-61 prices 305.7 110.9 343.1 351.8 348.L 337.L Net Domestic Saving (nds) (Rs crores) at current prices 1,324 2,564 h,08 , 784 h,2L6 5,lL0 Net Domestic Capital Formation (ndcf)(Rs crores) at current prices 1,805 3,164 4,290 5,175 4,729 5,441 at 1960-61 prices 1,805 2,509 2,646 2,979 2,582 2,788 Gross Domestic Capital Formation (Rs crores) at current prices 2,541 L,393 6,205 7,273 7,029 7,985 at 1960-61 prices 2,541 3,540 3,938 L,309 3,955 4,232 Rate of Saving (Percent) 9.3 11.2 11.5 12.4 10.2 11.6 Rate of Caoital Formation (Percent) 12.6 13.8 12.2 13.5 11.5 12.2 Private Final Consumption Expenditure (pfce) (Rs crores) at current prices 12,210 18,390 28,650 30,629 NA NA at 1960-61 prices 12,210 13,084 15,631 16,039 NA NA Per Capita Final Consumption Expenditures (Rs) at current prices 281 379 540 565 NA NA at 1960-61 prices - 281 270 295 296 NA NA Index Number (1960-61 = 100). nnp at current prices 100.0 155.5 2l1.0 261.0 275.9 298.b nnp at 1960-61 prices 100.0 113.7 136.8 143.5 145.5 1L.2 nds at current prices 100.0 193.7 305.7 361.3 320.7 388.2 ndcf at current prices 100.0 175.3 237.7 286.7 262.0 301.8 ndcf at 1960-61 prices 100.0 139.0 146.6 165.0 113.0 15L.5 pfce at current prices 100.0 150.6 234.6 250.9 NA NA pfce at 1960-61 prices 100.0 107.2 128.0 131.L NA NA per capita nnp at current prices 100.0 139.2 197.7 209.b 216.1 228.4 per capita nnp at 1960-61 prices 100.0 101.7 112.2 115.1 114.0 110. per capita pfce at current prices 100.0 13h.9 192.2 201.1 NA NA per capita ofce at 1960-61 prices 100.0 96.1 105.0 105. MA NA * = provisional NA = not available Source: Central Statistical Organization. Annex Table 11-9 INDIA: Estimates of Gross Domestic Saving and Gross Domestic Capital Formation, 1950/51-1973/74 Rs crores As percent of GP Net Gross Gross Inflow Domestic Inflow Domestic Gross of Capital Gross of Capital Domestic Foreign Formation Domestic Foreign Formation Year Saving Capital (1 + 2) Saving Capital (h + 5) (1) (2) (3) (b) (5) (6) 1950-51 973 -21 952 9.h -0.2 9.2 1951-52 8M0 182 1,022 7.7 1.7 9.4 1952-53 838 -3 804 7.8 -0.3 7.5 1953-5h 895 -13 882 7.8 -0.1 7.7 1954-55 979 23 1,002 9.2 0.2 9.4 1955-56 1,353 52 1,105 12.2 0.5 12.7 1956-57 1,392 359 1,751 11.1 2.9 1L.0 1957-58 1,185 475 1,660 9.2 3.7 12.9 1958-59 1,34h 37 1,718 9.5 2.6 12.1 1959-60 1,659 231 1,890 11.; 1.6 12.9 1960-61 2,024 492 2,516 1I.L 3.3 16.7 1961-62 2,106 357 2,163 13.2 2.2 15.4 1962-63 2,38 447 2,885 11.2 2.6 16.8 1963-6 2,909 452 3,361 16.7 2.3 17.0 1964-65 3,199 621 1,820 13.8 2.7 16.5 1965-66 3,943 619 4,562 16.L- 2.5 18.9 1966-67 4,063 9Lh 5,007 14.7 ?.L 18.1 1967-68 h,L85 863 5,318 1i.8 2.6 16.L± 1968-69 4,920 131 5,35L 14.8 1.? 16.1 1969-70 5,496 265 5,761 15.1 0.8 15.9 1970-71 6,84 41± 6,898 16.' 1.0 17.? 1971-72/1 6,393 536 6,929 15.1 1.) 16.L 1972-7371 6,831 112 7,141 14.7 0.7 15.5 1973-7471 7,782 102 8,08L 11.1 0.5 13.9 /1 Estimated by Commerce Research Bureau on the basis of data given by the REserve Bank in Annual Report and Trend and Progress of Banking in India: 1973-7%, September 197. Sources: 1. R.N.Lal, "Capital Formation in India: 1950-51 to 1965-66," 1970. 2. Central Statistical Organization, Estimates of National Product, Saving and Canital Formation 1960-61 to 1971-72, November 1973. HighliRhts 1. During the pre-plan period, the grcss saving rate and the gross capital formation rate were of the order of 6 to 7 percent of GDP. By early 196ds (1960-61 to 1965..66), the gross saving rate was raised to 14-1/2%. Supplemented by the inflow of fcreign capital of the order of 2-1/2%, the gross capital formation rate was raised during these years to 17' of GDP. The peak figure of 18.9% for GDCF reached in 1965-66 seems to be an over-estimate. 2. After the oeak level of GDCF reached in 1965-66 there seems to be a more or less steady decline in the GDCF rate. 3. At its peak in 1957-58, the foreign assistance amounted to about 14 of GDP and provided as much as 29% of the total finance for capital formation. During rEcent years, the role of external assistance has steadily declined. Currently, the external assistance finances only about 5$ of India's gross cacital formation. 1. Expressed as percent of gross domestic product, the gross capital formation during recent years has been of the order of about 15-16%. Annex Table II-10 INDIA: Utilization of Potential Capital Resources 1970/71 1971/72 1972/73 1973/7L 1/ Capacity utilization- Engineering industries (%) 76.0 77.0 All manufacturing (%) 74.2 73.3 Stocks .//Production: Engineering industries (%) 22.2 23.6 23.8 All manufacturing (%) 20.0 19.6 20.1 FX reserves: Reserve level at end of period (US$ mln.) 1,052 1,227 1,311 1,L17 Change from previous period (US$ min.) -L3 +225 +34 +106 Productivity of capital ratios: Capital: output Engineering industries .86 .81 .76 All manufacturing .98 .92 .88 Capital: value added Engineering industries 2.33 2.24 2.07 All manufacturing 2.77 2.61 2.36 1/ 1971/72 value of output was used to calculate weighted averages; 1973/7L figures are based on actual first quarter data. 2/ Raw materials and components. Source: Bank's Economic Report on India 1975; Studies on Company Finances, Supplement to the Reserve Bank of India Bulletin, October 197L; and figures from Central Statistics Organization, Calcutta. INDIA: IMPORTANCE OF THE MANUFACTURING SECTOR In Current Prices - Rs CroreslJ- In Constant 1960-61 Prices - Rs Crores/1 % Share Mfg. % Share Manufacturing of Mfg. Sector of Mfg. Total Sector % Share (Regd. Total of % Share Regd. Net Of Which of Mfg. Sector) Net Which of Mfg. Sector Domestic Registered Sector to to Total Domestic Total Mfg. Regd. to Total to Total Year Product Total Sector Total NDP NDP Product Sector Sector NDP NDP (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 1966-67 24,136 3,295 . 1,970 13.65 8.16 15,392 2,584 1,579 16.79 10.26 1967-68 28,633 3,501 2,041 12.23 7.13 16,842 2,644 1,593 15.70 9.46 1968-69 28,936 3,748 2,192 12.95 7.58 17,233 2,756 1,664 15.99 9.66 1969-70 32,240 4,358 2,708 13.52 8.40 18,338 2,975 1,858 16.22 10.13 1970-71/2 34,909 4,770 2,9h6 13.66 8.44 19,219 2,989 1,839 15.55 9.57 1971-72/2 36,879 5,179 3,235 14.04 8.77 19,479 3,041 1,88h i5.61 9.67 1972-73/2 39,899 5,721 3,604 14.34 9.03 19,322 3,167 1,981 16.39 10.25 1973/74/2 49,628 6,508 4,105 13.11 8.27 19,910 3,191 1,990 16.03 9.99 Note: The data from 1969-70 onwards are taken from the latest Press Note on the "Estimates of National Product, Saving and Capital Formation" released by the Central Statistical Organization on 15th January 1975. Data for the earlier years which are not available in this Press Note are taken from the White Paper released by Central Statistical Organization in November 1973. The estimates of National Product from 1969-70 onwards are not strictly comparable with the estimates of earlier years given in the statement because of methodological changes. /1 1 crore - 10 million. '2 Provisional estimates. I Annex Table 111-2 INDIA 1/ Quantity and Value-of Output of IDA-Assisted Industries: 1970/71 - 1973/74 (Value in constant 1970/71 Rs million) 1970/71 1971/72 1972/73 1973/74 Industry Unit Qty Value Qty. Value ty. Value Qty. Value Tractors Nos. 000 20 358 18 322 21 376 24 430 Power Tillers Nos. 000 .3 2 .1 1 .4 2. 1.0 6 Fertilizers: Nitrogen 1000 tons 832 1968 952 2244 1060 2499 1060 2499 P205 1000 tons 228 191 278 233 326 273 330 277 Pesticides: Technical 1000 tons 24 65 24 65 27 73 31 84 Solid Foundations 1000 tons 34 66 44 85 60 116 61 118 Liquid Foundations 1000 KL 7 67 10 96 12 115 12 115 Electrical Equipment: Motors Mill. HP 3.2 425 2.9 387 3.2 425 3.1 412 Transformers Mill. KVA 10.9 554 11.0 560 11.2 571 15.2 770 Switchgear 364 366 411 497 Steel Stampings 1000 tons 34 290 35 299 25 215 31 264 Aluminum Smelting 1000 tons 169 578 181 618 175 601 148 509 (primary metal) Commercial Vehicles: Trucks and Buses Nos. 000 41.0 1844* 41.0 1844 41.7 1881 42.7 1918 Jeeps Nos. 000 9.8 159* 11.0 178 13.0 211 12.0 194 Three Wheelers Nos. 000 4.7 26 7.0 39 11.0 61 11.0 61 Automotive Ancillaries: Tires Nos. Mill. 4.3 1746 4.8 1956 5.0 2025 5.2 2113 Synthetic Rubber 1000 tons 27.0 125 33.0 153 32.0 149 21.0 98 Storage Batteries Nos. Mill. 1.0 163 1.2 196 1.1 179 1.3 212 Auto Components and Parts 1332 1123 1148 1213 Tools and Parts: Machine Tools 355 497 467 511 Cutting, Small Tools and 395 456 431 421 Abrasives Ball and Roller Bearings Nos. Mill. 17.7 225 20.0 254 22.0 279 24.0 306 Heavy Construction Equipment Nos. 774 206 1008 2f8 1669 445 1861 494 Total Output of IDA Priority Industries (A) 11,504 12,240 12,953 13,522 Total Output of All Manufacturing Inds. (B) 84,450 87,466 93,269 94,181 A/B (%) 13.6 14.0 13.9 14.4 * Mission estimates. 1/ Value is based on ouantity of output, assuming that real unit value has remained unchanged from 1970/71. 2/ Includes 1650 medium and large public limited (private) companies with paid-up capital of Rs 500,000 and above; 750 small-size public limited (private) companies with paid-up capital below Ps 500,000; and 116 Government companies with paid-up capital of Rs 500,000 and above. Source: Ministry of Industry and Civil Supplies; President's Report on the Tenth Industrial Imports Program Credit, January 16, 1975; and Studies on Company Finance, Supplement Eo the Reserve Bank of India Bulletin, October 1974; Commerce Research Bureau. INOA: FINANCIAL AND PERFORMANCE COEFFICIENTS OF IoA-ASSISTED INDUSTRIES No. of Profit before Tax plus Co- - Net Sales (Rs. Crores) Inventories as % of Net Sales Value Added as % of Net Sales Profit before Tax as % of Sales interest % Total Capital I N D U s T R Y pans 1971/72 1972/73 1973/74 1971/72 1972/73 1973/74 1971/72 1972/73 1973/74 197l2 1972/73 1973/74 1971/72 197 1973/74 Autom,obiles 9 332.51 344.29 393.91 35.1 36.6 37.9 26.8 28.0 28.7 4.1 4.4 5.4 11.8 12.9 14.1 Autonobile Ancillarles it 32.54 37.56 44.99 27.5 23.7 26.5 52.2 50.6 50.7 19.1 15.9 17.1 25.1 23.1 23.5 Pesticides 3 14.37 17.23 19.91 23.9 19.5 20.1 35.5 35.6 36.5 15.0 15.6 17.9 22.5 26.3 33.1 Fertlilzers - Single Superphosphate 4 12.64 12.06 15.62 19.0 26.4 15.0 28.8 31.5 27.6 14.0 12.7 11.1 33.8 25.3 26.3 Fertilizers - Nitrogenous and Composite 3 60.71 70.26 58,56 9.0 6.0 10.9 49.2 50.2 44.0 18.4 23.4 10.5 16.4 18.7 9.4 Cables 10 58.28 67.07 65.68 31.9 28.2 29.5 23.1 21.0 18.7 7.5 5.4 1.4 16.8 14.8 8.5 Winding Wires 4 12.80 13.25 15.65 19.5 21.8 29.2 19.7 17.5 18.4 5.5 4.0 4.4 16.5 10.9 13.1 Electric Motors 2 12.76 14.98 17.56 34.2 36.4 35.5 28.3 27.9 25.5 10.2 10.4 9.0 18.1 19.2 19.0 storage Batteries 3 16.65 18.85 22.11 26.8 26.6 24.7 35.3 35.; 36.5 13.2 -.3 1,.7 28.5 33.6 35.8 Machine Fools 3 6.87 7.02 8.50 52.6 33.4 27.8 48.1 48.9 48.4 11.0 9.5 11.8 14.5 14.0 18.0 Small Tools 14 19.19 22.51 25.91 48.1 44.1 42.0 47.7 50.8 51.0 13.0 15.0 15.5 16.0 18.9 17.6 Bearings 4 15.00 17.27 21.17 43.8 45.2 38.0 46.7 47.0 44.9 24.4 25.8 22.4 26.2 25.7 24.4 Tractors 3 65.04 71.69 85.58 40.9 33.6 27.6 17.0 18.1 17.2 2.5 3.1 4.2 11.2 12.2 15.7 Pcner Tillers I 0.54 0.55 0.74 61.2 102.5 69.0 6.3 0.3 7.6 27.1 40.3 25.8 8.1 11.8 8.1 Alumlnum 3 83.63 89.11 80.22 29.o 30.4 30.2 41.7 39.6 35.1 16.9 14.3 4.1 13.1 11.5 5.0 Steel Forgings 4 15.10 11.99 21.43 47.1 67.6 52.1 35.6 37.9 35.3 6.8 0.5 6.3 12.1 6.8 15.0 Tyres & Tubes 5 117.25 127.59 132.42 21.7 21'.9 22.1 25.7 25.2 25.4 8.2 6.4 6.4 20.7 18.9 19.8 86 875.88 943.28 1029.96 30.70 31.07 30.01 Source: Data are based on balance sheets of companies financed by Financing Institutions. They do not cover all companies eligible for IDA financing. Annex Table 111-4 INDIA: FOREIGN EXCHANGE CONTENT OF PRODUCTS OF IDA SECTORS - (Percentage) 2/ 1968/69 1969/70 1970/71 1971/72- L972/73 1973/74 Tractors 22 17 28 21 20 19.35 Power Tillers 17 7 n.a. 19 n.a. n.a. Fertilizers 31 30 28 30 35 35 Motors, Transformers, Switch- gear and Magnetic Steel Stampings 8 9 15 13 9.39 7.54 Aluminum Smelting 12 10 8 8 7.45 6.10 Commercial Vehicles 18 12 17 18 7.96 11.01 Automotive Ancillaries: Tires and Tubes 4 4 2 3 2.47 1.71 Synthetic Rubber 7 4 6 6 13.96 15.07 Storage Batteries 17 25 28 26 22.41 13.49 Auto Components and Parts 18 12 17 18 14.01 10.93 Machine Tools 10 28 17 21 17.12 13.61 Cutting, Small Tools and Adhesives 14 13 20 23 17.95 19.23 Ball and Roller Bearings 36 21 28 28 22.30 13.46 Value of foreign exchange requirements as a percentage of value of output. 2/ Years refer to financial years. Source: IDA estimates based on Government and trade statistics. INDIA Selected Ratios of IDA-Assisted and All Manufacturing Industries: 1970/71 - 1973/74 1970/71 1971/72 1972/73 1973/74 IDA All Mfg. IDA All Mfg. IDA All Mfg, IDA All Mfg. Exports as share of output: exports/output (%) 3.4 8.6 2.7 8.2 2.5 9.4 2.6 9.2 Output p employee: output- /employment-2/ (Rs) 30,075 17,752 28,727 18,071 29,981 18,334 - 18,178 Share of FX inputs in total output: FX allocation/output (%) 11.4 - 12.0 - 9.8 - 16.0 - Foreign exchange balance of industries: exports/FX allocations (%) 30.0 - 22.2 - 25.8 - 16.6 - 1 Output at constant 1970/71 prices. 2/ Employment for all manufacturing industries (organized sector) includesall establishments of 25 workers and over, and some establishments of 10-24 workers (reporting in this category is on a voluntary basis). - Not available. I fD Annex Table 111-6 INDIA Employment in IDA-Assisted Industries: 1970/71 - 1973/74 ('000) 1970/71 1971/72 1972/73 1973/74 7.1a/ a! Tractors 7.1 8.6- 10.1- Fertilizers 41.5 44.4 45.0 a! a! a1 Pesticides 2.0- 2.0- 2.1- Heavy Electrical Machinery, Motors, Generators and Transformers 77.4 77.9 82.4 Aluminum Products 27.5 28.7 26.9 Motor Vehicles 60.5 65.1 70.0 Motor Vehicle Engines, Parts and Accessories 57.8 62.4 65.8 Tyres and Tubes 23.0 22.9 26.0 Batteries 14.4 15.8 17.1 Machine Tools 58.4 62.0 63.0 Ball and Roller Bearings 6.7 7.0- 7.5- Earthmoving Equipment 6.2 8.0 9.0.1 Total IDA (A) 382.5 404.8 424.8 All Organized-sector Man- b/ b/ ufacturing (B) 4757.0 4840.0 5086.0- 5197.0- A/B (%) 8.0 8.4 8.4 a/ Mission estimates. Provisional. Source: Ministry of Industry and Civil Supplies and Bank's Economic Reports of 1973, 1974 and 1975. INDIA SURVEY 0F SE] ECTED IDA-ASSISTED CPOANIES: 1971 - 1974 (Values in Constant 1971 Rs.) PRODUCTION COSTRAINTS ______ Proce-r.1 Delay. # . o .. t of Mo.. Needed 1 Needed to Average Average Averas EXPaRT PRICEI ObItal FX ObInL FX EPLOYMENT Annual CAPACITY UTILIZATION VALUE 0F OUTPUT Annual PROFITS Annual EXPORTS DGHESTIC PRICE Technical* Licen.s fot Licen.. for Crowth Growth (Net After Depr.) Groth (I of Total Production) Curr. Materials C_gital Good. I,,J-try C~eeny # 1971 1974 R-t 1971 1972 1973 1974 1971 1972 1973 1974 R-t 1971 1972 1973 1974. aR- 1971 1972 1973 1974 1971 1974 1971 1972 1973 1974 1971 1974 1971 1974 Inoousr C nR ZW M_ vw T - a. 1.R9o74) - R-T . MiMoon) - -rn- w rw m- m- ( - (Mnth.) n.th.) FertLilier. & P Z.ticiden 1 .14 .15 71 68 76 86 24.5 22.5 23.1 19.8 (7.0) 2.6 2.0 2.2 2.3 (4.0) -------- .egi. --------0 B B B 4 9.5 2 .27 .22 34 36 21 23.9 34.1 36.1 a1 23.0 0.4 1.8 3.8 a/ - ---- - g. -------- 65 65 D CD D CD 6-7 4-5 12 9 3 .42 .47 75 93 96 100 50.0 58.3 65.7 64.8 9.0 4.8 10.5 14.2 14.7 45.2 -------- n1l -------- D CD CD CD 4-5 4,5 16 16 4 1.0 1.0 69 75 1.1 69.2 287.3 282.6 - (84.0) (10.3) negi. 17.3 - il -------- K 4-6 1-3 5 .6 .9 85 91 64 64 207.7 299.4 234.2 232.9 16.0 44.0 5.5 51.1 a/ 7.7 C C 4-6 2-4 9-12 4-6 Tractor & Power 6 1.8 3.3 92 92 92 92 129.2 181.2 217.0 217.5 19.0 4.4 6.0 6.6 L.4 (32.0) l 80 80 B B B BE 6 6 6 6 Tiler 7 .5 .9 68 49.9 63.3 83.3 104.4 28.0 3.7 5.4 3.4 5.3 12.7 ----- .il ------ 7.6 88 88 E E CE CE 2-3 2-3 6 6 Iloior., Trafoeta. 8 1.3 1.7 60 60 60 60 47.5 42.4 55.0 77.3 17.6 3.2 3.8 5.1 7.9 (35.1) .5 .7 2,8 2.8 72 66 BEG DEG DEC CDEG 6 6 6 6 Switchgear and Iagnetic Steel 9 1.5 2.0 78 83 87 87 94.4 85.5 91.7 78.6 (3.0) 18.8 20.5 21.8 33.0 (20.5) 2.5 0.7 2.5 4.0 70 C C 4 3 4 4 St~pIng. 10 13.0 13.0 57 529.8 514.1 542.1 519.0 (0.7) 97.9 77.6 82.5 71.8 (9.9) 2.0 2.2 2.4 4.3 80 D D D D 3-4 3-4 4-8 4-8 Aluminum Seolting 11 7.0 7.0 98 87 82 66 399.4 436.2 430.3 438.1 3.1 55.1 41.0 5.2 3.6 (60.0) ---- --- ngl. --------- 58-80 CH c c 5-6 4-5 11 Commercial 12 24.3 26.5 . 100 100 91 94 1362.4 1522.5 1462.9 1202.2 (1.0) 67.3 72.6 59.2 67.1 (0.4) 9.2 5.5 5.3 5.1 75 75 C CE CE 2-3 3-4 12 12-24 Vehicles 13 4.2 4.4 800 369.3 307.0 456.9 524.7 12.4 2L.1 16.6 39.5 60.6 42.1 7.5 2.6 0.9 0.8 75 Bil BH BC BC 5-6 5-6 12-247 14 14 4.0 3.5 83 68 59 71 180.8 168.5 165.2 186.2 1.0 (1.6) 0.4 0.6 0.7 - .7 2.7 .3 1.0 75 r BF BF F 4-6 > 12 18 10 15 1.5 2.1 87 81 100 100 62.2 73.4 98.6 95.4 15.3 5.4 7.6 12.7 10.5 25.0 1.6 .4 1.6 2.6 68 58 BE BE BE BI 5-6 5-6 18-24 18-24 Aolotive 16 1.9 2.3 63 68 67 117.0 L37.9 158.3 L63.4 11.8 19.8 23.2 28.9 26.3 9.9 21.2 20.3 18.7 21.8 49 CH CHIL 3 4 Ancillres 17 9.7 10.2 71 69 575.7 672.0 704.6 . 760.1 9.7 78.8 99.0 97.0 100.7 8.5 -------- 5-6 ---------- 35-45 CHI 5-7 5-7 18-24 18-24 18 .9 .8 70 58.4 52.3 60.2 66.4 4.4 5.3 5.3 6.6 7.7 13.2 -------- .gl. -------- 40 Dli DIJ Dij Di 3-4 5-6 6-8 10-12 19 7.5 9.1 100 100 106 100 190.2 2213.1 250.7 283.1 14.2 36.4 38.2 52.5 59.3 17.7 20.0 13.9 21.2 29,0 44 51 A A A A 6 6 10 10 20 1.4 2.0 56 41 84 92 72.5 50.4 94.8 l04.3 12.9 9.2 0.7 B.6 6.3 (12.0< 1 - I . I -: 1 70 0 Bl BC BCEJ 8-10 6-8 8-9 6-7 21 8.3 9.0 - 95 > 95 616.5 553.6 576.0 a/ (3.5) 48.3 29.3 37.6 a1 (12.0) 9.7 10.1 9.7 55 C CI CH CD 3 6-8 8 10.-12 machlne. Cutting 6 22 12.1 12.2 ---------- 72 --------- 163.4 192.7 174.8 154.1 (2.0) (20.4) (15.6) (16.1) (0.1) - 6 5 7 10 H H CH CH 7 4 12 7 Small Tool). Abraaives, Ball 23 3.0 3.0 100 124.7 134.0 131.7 119.6 (1.6) 13.8 6.0 5.1 3.7 (35.0) oil 2.0 2.5 2.5 50 6 Roller Bearings 24 1.1 1.1 96 99 99 100 67.9 67. 75.5 83.2 7.0 24.4 28.6 29.8 27.3 3.8 .7 2.1 1.6 3.0 63 A A A A 4-6 2-3 18-24 9 1e1vy Contruction 25 .7 1.1 60 100 100 12.4 a/ 50.1 80.7 (82.0) (8.5) a/ (11.7) (12.6) - --------- nil ---------- 86 m C" CH H 6-9 6-7 8 9 Equlpment 26 _3.1 5.3 70 84 79 90 221.1 233,0 288.7 295.6 10.2 44.5 34.8 44.8 27.3 (15.0) 1.0 .7 .8 .6 77 CH CH CH CH 3 2 12 6 Srvey Total of Wetghted(A)YI.1 , 123.7 3,5 86.8 85.9 81.9 82.4 351 61%.gt8 bAl4-d t6iL. 5A 494.7** 491.0 5L8 6. -4 - 4.. + 49+ 70.3 65.3 .0 5.2 11. 10.0 Aveage AL 1 lDAndustrica (B) 382.5 424.82/ 5.4 83.1 80.8 79.0 1t504 12240 12553 13502 N.5 1320 1814 1963 1659 7.9 -.7 # 5 2.6 t Reported Con-traintu B C D 0 F G 8 I i K L Tt2. All Manfturing Ind. (C) 4757.0 5197.0 1.0 84450 87466 93249 94181 2.7 700 793 8290 2.1 8 8.2 9.4 9.2 1971 5 2 5 4 1 I 3 1 1 23 All Maua n HInus 1972 6 8 5 4 1 : 6 2 1 34 Jute 6 Telle Goods (D) 50199 56520 60874 62096 3.4 3.31 2.0§1 2.25L 2.4rr 1973 623 5 5 1 1 5 1 1 38 1974 54 6 7 1 1 5 4 2 1 1 47 A/8 (7) 29.1 Zl. 525. 5l 5 u1 <1 1 279 2 l._ ) 1.11 86.5 95.5 17,j! B/C d$ 0.0 i8.3 i32~ ,. i',.D !I) .1. 4. 3.7 3.1 B/D (X) 20 20b 20.9 1d 11) 14 .2 .7.1 1.4 11.8 * KEY: - - Aor quelltv of -nd^- gennu coponent" M) Sh.re of exporbs 'f cmpnie -rveyed In total TDAndustr epr B Foreign, exhag whr-e nvil.bill,y .n/ 1-so deive,,y . impor~d m-hn,r 11) Share of exp-r, -f .l1 TDA Industrie in total mnftu Iindusr-1- xors C owe hh oal 1DA lndstries 8n total manufa'ttrg Induste ex- inports, C -needbeadisfiin vil,biliry of -nieosad/,r 1-1 -eadsbrcig t,txie d lethr oos h.ndta-tl. and gem. .11. .do..leot.l 1.Ii111.- oroa2ndlr-l.'- lmported ra materials due tononFXreaons 2 Shorrt.e o tuel fon-house genetort E ibndependabtle and insuffticent avilal.It1y of Indigernous and/or K Mahinty repairs i ~ported spare part- de .to on-FXeasons L ProClioprolems L . 5.6 L . .1 2.3 2.5 ' ex>.~cluin,Ig 101rtilies tand p,.,tlcides INDIA SURVEY_ OF SEIlICTED IA-ASSISTE LMPANIES. 1971 - 1974 (C1o d. (V.lies ln Constanr 1971 R.) DlRECT STOCKS OF RAW M A R K E T D E M A N D FOREIGN EXCHANGE DEXAND IIIPORT CONTENT MATERIAL AND COMPOOENTS Order Book at End nf Yer com- OF PReOUCtio FIXED INVESThENTS INVESHENT 'INANCING (As . of Annual l Monhs of Annual Prodiction Nerdn pany FX Re5ue e-d/FX Obained A n e n n t. Dottcally Supplied . SeIf-Financed 1snduction nee) 7 9 71 1 9 7 2 1 9 7 3 1 9 7 4 7971 1972 1971 1974 1971 1972 1973 1974 _977 1972 1973 1974 1971 1972 7973 1 1971 117 1971 1972 1973 1974 Do. F.p. Do. Enp. o Ep. Do. Enp. ( ) ) <7) (1 (%) <7) (7) (7) (Rs. .llIon) (7) (3) (1) () (7) /7"7 <) -T - ---------------- M n n --- --- FlrIlrs 6 Pernnlcldes I 30 68 55 58 51 34 0 0 0 0 ---- Entire prduto Old in-ditly. ---- 2 96 88 66 49 38 35 6.1 6.1 6.5 5.0 9. 93 94 95 45 45 33 28 20 I negl. I negl, I egl, I negl. 3 29 64 b2 70 15-20 11.6 11.1 14.3 10.7 60 61 72 72 80 80 42 40 34 32 C. doe not accept order for oer I .onth. 4 100 104.1 0.2 1.8 (1 40 23 16 34 ---- Entire production sold I iedir el. ---- 5 1.4 2.2 3.7 46-> ---- Entire prnductlon sold I-edi-atrly. ---- Tractor & Poner TIllete 6 27 27 27 27 10.9 12.6 18.6 7.5 70b 87 85 35 34 32 42 4 8 2 5 7 ---- elose to 100 ---- - 23.8 7.7 2.0 2.7 6/ 34 27 68 34 19 23 4 6 12 12 .2 Mto r., trane fornmre, ew!itchigear b/ b/ b/ b/ c/ n/ 4 mgneicsteel etampings 8 -Fx reant motly net.- 6.7 7.2 6.4 7.4 1.3 0.9 0 4.8 95- 96- 96- 98- 45- 55 32 33 40 32 .5 negl. 4.0 negl. 4.7 .2 4.3 .2 9 --------- 100 -- --- 7 6.5 5.5 4 2.7 3.0 7.2 6.3 1001 0001 l 1004< 971 34 60 42 41 38 68 --- 6 --- --- 7 --- -- 8.5 -- --- 6 ---- J0 55 4.1 1.2 5.2 100 100 33 32 22 33 --- 3 --- --- 4 --- --- 5 ---- --- 5 --- Alumino- selting 11 68 46 75 80 5.5 5,4 14.0 6.4 7.2 58 63 22 20 Is 23 3.0 2.5 2.0 2.5 Commnrcial vehicles 12 04 9.7 8.6 9.3 10.0 74.t 83.8 94.2 71.3 74 73 85 77 89 95 41-l 41d/ 4041 49>d -- 4.5 -- -- 5.1 -- -- 18.4 -- -- 25.4-- d/ d/ d/ d/ 13 62 7.9 8.0 23.9 8.3 50 53 62 65 39 78 36- 62- 46- 43- 17 .2 22 .1 20 .2 19 .5 b/ b/ b/ b/ b/7 14 74 75 53 7l 0.6 3.6 5.0 52- 50- 54- S7- 79- 46 50 41 ---- Entre prod,ct en sold ImmedIatrly. ---- 75 75 50 35 49 4.4 2.9 3.7 5.9 70 100 71 72 59 68 41 38 31 32 --- I --- --- 3 --- --- 7 --- --- 9 Au.L.otvel en nenr 16 99 82 91 19.0 17.5 16.7 20.7 7.6 3.h 3.8 5,7 97 74 90 67 100 70 43 28 22 20 -- 6.5 -- 17 5h 58 99 58 32.1 42.3 30.7 23.1 92 90 100 97 100 100 19 19 18 0.7 4.9 1.2 2.9 70ø00 1 I00 79 10 100 39 42 38 3-4 negl. 3-4 negl. 3-4 nrgI. 3-4 negl. 19 96 96 75 95 0-2.2 2.7 18.4 46.7 44.7 55- 611- 68- 63- 80 82 28 22 30 30 7.1 .4 4.8 .7 7,5 . 5.7 .9 a/b/ b/ b/ b/ 20 45 - 0.7 3.0 6.0 32- 34- 30- 44- 68 N7 41 67 41 35 12 14 17 18 21 5 5 5 5 70 ---- Entire production sold Ineditetly. ---- cine, cut s els, 22 ------- > 95 -------- 15-20 -- - 442.7 7.7 18.9 11.8 76 83 74 83 37 28 26 28 9.5 1.0 6-18 .5 2-13 1 10-I5 1 abraatvns,ball 6 roller bearings 7>' 23 7- 37 45 47 31 24 100 100 88 88 6.5 4.4 5.0 2.5 501-1 si 53 54- 67- 7) 67 63 62 --- 12 --- --- 12 --- -- 12 --- --- 12 --- Hcaycontclion equipernt 25 90 88 91 91 no Import 20 20 2.8 .< 11.1 20.7 61 100 28 30 30 10 3 12 teeded 26 -- Nede f,lly net. -- 34 18 37 23 23.3 25.4 34.0 18.2 7 77/ ?VL 7911 39 24 29 37 43 34 14.8 negl. 13.7 negl. 8.7 negl. 8.4 negl. h/ 1y 1 rwegtd / 78.5 78.3 19.3 75.S 11.3 11.6 71.9 11. 77_51 259.1 341 6 279 2 75.8 74.09 7.4 74ý.79 7.6 82.3 36.3 14.7 31.4 37.8 -- 6.6 -- --1 -- -- 7.9 -- -- 9.0 - Alt manf acturing dn ntre 8 -.1 n. 5644.0 644.>> 63 20.0 19.6 20.1 preirng 00 tollowi nyer's ligore was used to cellelesurvey tomal. 6> Nte 11 -i- figure Inclde fined 1n es nts for COnpanes #4 and #22 nhich tngether cRni,e R . 546.8 m Ioe 70. the total fled invetents for 1971. Coipany #4 beilt Its nan plant and Cmpany 422 lingue fre who0les copnynpl ement ed no jor expann placesl itn ha nyar, d/ inlrce <nr in es n I latIe and cnlr good, handirois and g.nsrarealoexcl.ded frnn en xortfigure, e 1973 flg,ne i Exclodrn1troieu ell and lebricant Erfrn ipos. -p for Eporl Price/iimestic Price and Frefgn Fechangr emnn. ( 7 NegatIve > Misstion estimar en *> Nlte 1hat thin ntie Includes tonmpany d4' losN oi o. 04 illtio [hich ten incurred an [t cunrdney' plaot, weeno> rcady for opea lon. Sorce: Plan> otsit- SV 0E: nisIon (Ferary 1975 and S-udie- on Conpany Financ. Sipplmnto 1o She Reserve Benk of Indla Oilleiin. Otbr 1974. INDIA Foreign Exchange Allocations to Surveyed IDA-Assisted Comaniea by Source: 1970171 - 1973/74 (Ra. million) 1970/71 1971/72 1972/73 1973/74 Industry Company # IDA Bilateral Free Total IDA Bilateral Free Total IDA Bilateral Free Total IDA Bilateral Free Total Fertilizers & Pesticides 1 3.23 0.03 3.26 3.23 0.02 3.25 7.24 0.02 7.26 7.64 0.02 7.66 2 11.60 11.60 19.20 19.20 36.50 36.50 8.00 8.00 3 ---------- All IDA---------- ----------All IDA ----- ---------- a'---------- ---------- All IDAa/ 4 6.50 6.50 9.25 9.25 45.02 45.02 52.73 52.73 5 0.3 0.3 0.4 0.4 0.2 0.2 negl. negl. Tractors & Power Tillers 6 30.23 4.65 34.88 30.23 4.65 34.88 30.23 4.65 34.88 30.23 4.65 34.88 7 ---------- All IDAa ---------- ---------- All IDA! ---------- ---------- All IDAa/---------- ----------- All IDAa/- Motors, Transformers, Switchgear & Magnetic Steel Stampings 8 2.06 2.06 2.52 2.52 1.25 0.86 2.11 3.82 3.82 9 0.26 0.11 0.37 0.30 0.33 0.63 0.15 0.03 0.18 0.23 0.23 10 13.11 13.11 2.71 2.71 7.05 7.05 9.84 9.84 Aluminum Smelting 11 1.87 1.58 3.45 0.16 0.19 0.34 0.69 0.95 0.24 0.14 1.33 0.75 0.12 0.01 0.88 Commercial Vehicles 12 55.80 98.86 154.66 62.07 35.47 97.54 97.10 5.40 10.46 112.96 185.99 9.35 4.20 199.54 13 15.25 1.35 16.60 18.03 2.48 20.51 33.99 0.67 34.66 52.43 1.62 54.05 14 2.08 2.08 2.30 2.30 1.33 1.33 15 8.05 0.30 8.35 3.03 5.91 8.94 2.40 3.18 5.58 5.37 9.51 14.88 Automotive Ancillaries 16 17.59 3.13 0.16 20.88 16.92 8.53 0.48 25.93 25.13 5.65 0.12 30.90 35.47 7.70 43.17 17 0.71 0.71 0.28 0.28 0.56 0.56 0.43 0.43 18 12,80 12.80 15.24 15.24 16.55 16.55 56.10 56.10 19 8.50 3.52 negl. 12.02 10.40 1.98 0.04 12.42 8.90 1.81 0.01 10.72 19.30 0.03 19.33 20 5.43 5.43 9.66 9.66 17.48 17.48 21 5.50 5.90 14.30 25.70 9.20 7.40 12.30 28.90 7.70 7.30 11.90 26.90 31.90 5.00 15.00 51.90 Machine, Cutting & Small Tools, Abrasives & Roller Bearings 22 22.70 8.40 31.10 21.90 4.40 26.30 13.80 11.50 25.30 41.70 5.60 47.30 23 ---------- All IDAa/---------- ---------- All IDAa- ---------- All IDA' ---------- ---------- All IDA/---------- 24 6.29 6.29 18.56 18.56 17.13 17.13 20.81 20.81 Heavy Construction Equipment 25 43.91 8.60 52.51 0.30 96.21 24.20 120.71 88.73 90.66 53.50 232.89 26 72.20 25.50 97.70 18.50 30.60 108.50 157.60 8.60 47.40 46.70 102.70 Survey Total (A) 217.41 17274 26.73 416.88 2 143.6 41.46 433.00 381.85 167.45 156.58 705.88 678.45 180.01 121.49 979.95 Release Release Release Release Orders Orders Orders Orders FX Allocation to All IDA Industries (B) 494.40 799.70 22.70 131680 639.50 678,70 229.10 1497.30 799.00 237.50 385.80 1422-30 1589.50 214.80 804.6Q 2608.90 A/B (7) 43.9 21.6 31.7 38.7 22.8 28.9 47.7 70.5 49.6 42.6 83.8 37.5 Companies # 3, 7 and 23, for which no figures are given, represent respectively, 3.9%,4.1%, 4.1 and 4.3% of the total value of output of the surveyed companies for the years 1970/71 to 1973/74. Source: Plant visits by OED mission (February 1975). Annex Table 111-9 INDIA Export Performance of IDA-Assisted and All Manufacturing Industries: 1970/71 - 1973/74 (US$ million) 1970/71 1971/72 1972/73 1973/74 Fertilizers & Pesticides Fertilizers neg1. negl. 0.9 negl. Pesticides - negl. negl. negL. Tractors & Power Tillers Tractors negl. negl. negl. 0.1 Power Tillers - - 0.3 0.4 Motors, Transformers, Switchgear & Magnetic Steel Stampings Motors 1.5 1.3 0.9 1.6 Transformers 1.4 2.4 1.6 1.3 Switchgears 2.4 2.3 1.8 2.7 Aluminum Smelting Aluminum (ingots) 1.2 - negl. negl. Commercial Vehicles Trucks & Buses 11.0 6.3 8.2 5.5 Jeeps 2.6 0.2 0.8 0.2 Three Wheelers - - 0.8 0.1 Automobile Diesel Engines - - 0.1 0.2 Automotive Ancillaries Tyres & Tubes 7.4 8.5 6.3 8.2 Synthetic Rubber neg1. 0.1 - 0.2 Storage Batteries 1.0 1.5 2.4 2.5 Auto Components & Parts 13.8 9.6 10.0 15.2 Machine, Cutting & Small Tools, Abrasives, Ball & Roller Bearings Machine Tools 3.8 4.1 2.7 4.7 Small & Cutting Tools & Abrasives 5.8 8.2 9.7 11.6 Ball & Roller Bearings 0.3 0.4 0.3 0.3 Total Exports of IDA Priority Industries (A) 52.2 44.9 46.8 55.3 Exports of All Manufacturing Industries (B) i) Jute, leather & coir manu- factures; cotton textile, clothing; cotton yarn & thread; handicrafts & gems 591.4 796.8 972.5 1147.3 ii) Engineering goods 155.3 163.1 184.9 212.1 iii)Others 214.01 90.3 118.1 116.1 Total 960.7 1050.2 1275.5 1475.5 (B) (ii) & (iii) 369.3 253.4 303.0 382.2 International Price Index for Investment Goods 100 109 124 141 A/B (%) 5.4 4.3 3.7 3.7 A/B (ii) & (iii) (%) 14.1 17.7 15.4 16.8 Of which iron and steel exports comprise US$105.6 million. Source: Ministry of Industry and Civil Supplies; Bank's Economic Reports of 1973 and 1975; Economic Survey 1974-75, Government of India; and figures from the Economic Analysis and Projections Department. Annex Table III-10 INDIA: EXPORTS BY IDA-ASSISTED INDUSTRIES BY CATEGORY (US$ million) 1970/71 1971/72 1972/73 1973/74 Value A Value Value Value Complete Capital Goods Agricultural Tractors - - neg. neg. 0.03 <1 0.08 <1 Motors 1.45 3 1.31 3 1.02 2 1.03 2 Transformers 1.46 3 2.31 5 2.35 5 1.94 4 Switchgears 1.46 3 1.34 3 1.83 4 2.73 5 Trucks 7.09 l 3.98 9 5.24 11 3.05 6 Buses 4.27 9 2.56 6 2.92 6 2,45 5 Jeeps 2.60 5 0.23 1 0.79 2 0.20 <1 Machine Tools 2.95 6 2.87 6 2.10 4 4.37 8 Small and Cutting Tools 6.37 13 7.98 18 9.60 21 13.10 24 Heavy Construction Equipment 0.47 1 0.0 <1 0.14 'c1 0.36 <1 Sub-Total 28.12 57 22.62 50 26.02 56 29.31 54 Semi-Finished Goods Aluminum 6.52 13 4.58 lo h.0 9 5.10 9 Tyres 7.49 15 7.68 17 6.06 13 7.51 1b Tubes 0.56 1 1.13 3 0."8 1 0.85 2 Storage Batteries 1.05 2 1.52 3 1.40 3 2.48 5 Synthetic Batteries - - - - - - 0.23 <1 Steel Forgings 0.69 1 0.17 <1 0.06 <1 0.15 <1 Auto Components & Parts 0.19 <1 0.06 <1 0.07 <1 0.18 <1 Abrasives 0.13 <1 0.18 <1 0.13 <1 0.13 <1 Ball & Roller Bearings 0.22 rl 0.21 (1 0.09 (1 0.L5 <1 Cables 3.46 7 5.9 13 7.29 16 6.26 12 Wires 1.07 2 1.06 2 0.86 2 1.15 2 Sub-Total 21.38 43 22.53 50 20.74 44 24.79 46 Total IDA Exports 49.50 100 45.15 100 46.76 100 Sh.10 100 - = nil Source: Monthly Statistics of the Foreign Trade of India (Vol. I of March 1971-1974). Annex Table IV-1 Page 1 INDIA: Principal Targets and Achievements of the Third and Fourth Plans Third Plan Fourth Plan 1961-66 1969-7 Actual Likely Achieve- Achieve- Item Unit Target ment Target ment I. Agricultural Production Foodgrains million tons 100.0 72.4 129.0 106-108* Oilseeds It 10.0 6.4 10.5 9.3* Cotton " bales 7.0 4.6 8.0 6.5* Jute " 6.2 4.5 7.4 5.6+ Sugar cane (in terms of gur) " tons 10.2 12.8 15.0 13.0* Tea " kg 4o8 376 450 6o + II. Animal Husbandry Fish " tons 1.8 1.3 1.97 2.32+ Milk " 25.3 2h.6 25.86 23.10+ III. Minerals Iron Ore i IV 30.0 18.1 51.1 36.0+ Coal " " 97.0 70.3 93.5 79.0* IV. Large Scale Industries Finished Steel " " 6.9 4.5 8.1 4.2* Aluminium '000 " 81.0 62.1 220 150 + Coooer " 20.0 9.4 31.0 13.0+ Machine Tools Rs Crores 30.0 29.4 65.0 63.0+ Power Driven Pumos (organized sector) '000 nos. 150 2Lh 450 n.a. Ball & Roller Bearings million nos. 15.0 8.8 20.0 22.5+ Diesel Engines (stationary) '000 nos. 66.0 91.1 200.0 n.a. Automobiles (commercial vehicles) " " 60.0 35.1 85.0 4l.81 Petroleum Products million tons 9.9 9.L 26.0 19.0* Annex Table IV-1 Page 2 Third Plan Fourth Plan 1961-66 1969-74 Actual Likely Achieve- Achieve- Item Unit Target ment Target ment Cement million tons 13.2 10.8 18.0 15.3+ Electric Transformers (33 KV and below) " KVA 3.5 3.0 5.5 n.a. Electric Motors (200 HP and below) " HP 2.5 1.8 2.72 n.a. Fertilizers: (N) " tons 0.81 0.23 2.50 1.06* (P205) 1" 0.41 0.11 0.90 0.32* Cotton Textiles: Yarn " kg 1,021 907 1,150 1,000+ Mill Cloth " meters 5,300 4,401 5,100 4,200* Paper & Paper Board '000 tons 711 558 850 762* Bicycles (organized sector) " nos. 2,000 1,574 3,200 2,630+ Sewing Machines i f 700 430 600 41+ Electric Fans i t 2,500 1,358 3,000 .2,625+ Sugar " tons 3.5 3.5 4.7 4.0 * V. Electricity Generated GWH 45.0 36.8 86.0 72.0 + Sources: 1. Third Plan Targets from the Third Plan Document, Statistical Pocket Book 1970 and India Pocket Book 1972. 2. Fourth Plan Targets from the Fourth and Fifth Plan Documents. 3. 1965-66 Achievements - Economic Survey 1973-74 and Statistical Pocket Book 1972. 4. 1973-74 Achievements - Figures marked (*) are from RBI Directors' Report 1973-74 and Press Reports; while figures marked (+) are from Draft Fifth Plan and Annual Plan 1?74-75. Annex Table IV-2 Page 1 INDIA: Shortages of Industrial Products - 1974/75 Product Industry Affected Pig Iron : Foundry Coal : Steel, cotton and woolen textiles, rayon, chemical, cement, paper, thermal-power and railways. Furnace Oil : Steel, electricity generation, pharmaceuticals, fertilizer, defense units and railways, cement, sugar, glass and paper. Truck Tyres : Commercial transport industry. Newsprint (imported) : Newspaper. Writing and Printing Paper : Exercise books, printing and publishing. Groundnut Oil (partly imported) : Vanaspati. Caprolactam (partly imported) : Nylon. DMT (Dimethyl Terephthalate) : Polyester fibre. Maize Starch : Textile processing units and laundries. Mutton - tallow, fatty acid : Soap. Phthalic Anhydride (PAN) (partly : Plasticiser, dye-stuff, paints, plastic imported) and PVC compounds. Calcined Petroleum Coke (CPC) : Electrodes. (partly imported) Electrodes : Metallurgical industries particularly steel and ferromanganese. Plastic Raw Materials : Plastic industry. Aluminium (partly imported) : AAC/ACSR cables and wires and transformers. Caustic Soda : Cotton textiles, synthetic fitres and pap.er. TV Picture Tubes (partly imported) : TV set manufacturing units. Annex Table IV-2 Page 2 Product Industry Affected Cotton Yarn : Handloom and powerloom industry. Wood Pulp (entirely imported) : Tyre cord. PVC Raw Material : Number of small scale plastic units. Denatured Spirit : Leather manufacturing units. Milk Powder : Baby milk food. Wheel Sets (partly imported) : Wagon building industry. Cement : Tile making and construction. Methanol : Synthetic resins. Synthetic Resins : Plywood and plastic industries. Steel Scrap : Electric arc furnaces. Wool and Woolen Rugs : Woolen blankets and woolen powerloom (almost entirely imported) industry. Zinc Oxide : Paints. Pistons and Wheels : Commercial vehicles. Soda Ash : Glass and bangles, silicate, paper, textile and bichromate. Naphtha : Petrochemicals and fertilizers. Sodium Tripolyphosphate : Synthetic detergents. (entirely imported) Titanium Dioxide : Rubber goods, paints and varnishes. Color Rolls (partly irorted) : Film industry. Anne: Table IV-3 INDIA: CAPACITY UTILIZATION* OF IDA-ASSISTED INDUSTRIES 1971-1973 1971 1972 1973 Nitrogenous Fertilizers 58 68 64a/ Phosphatic Fertilizers 53 62 66a/ Agricultural Tractors 51 43 51 Power Tillers 15 8 - Electric Motors 84 59 52 Transformers 100 79 65 Aluminum 100 93 79 b/ b/ b Commercial Vehicles 93h 87- 88b Storage Batteries 92 84 65 a! Automobile Tyres 100 100 100- Automobile Tubes 100 100 1008 Synthetic Rubber 100 100 69 Machine Tools 69 62 88A/ Ball & Roller Bearings 100 100 99 Heavy Construction Equipment - 54 45a-/ Weighted Average (by Value of Output) 83.1 80.8 78.0 * Production as percentage of installed capacity. a/ Provisional. Mission estimates. Source: Ministry of Industry and Civil Supplies and Report on Currency and Finance 1973/74, Reserve Bank of India. INDIA: IMPORT LICENSES ISSUED BY CCI & E DURING 1970/71, 1971/72, 1972/73 AND 1973/74 (Value in Million Rupees) 1970/71 1971/72 1972/73 1973/74 No. Value No. Value No. Value No. Value 1. D.G.T.D. Units 8,323 3850 7,724 2527 6,178 1712 5,257 1982 2. Small Scale Industry 52,649 833 71,869 1180 39,230 864 33,765 829 3. State Trading Agencies 3,651 4445 3,758 5876 3,272 6209 8,566 9483 4. Actual Users (Non-DGTD and Non-S.S.I.) 14,633 3119 13,474 3683 10,762 3760 9,402 4834 5. Established Importers 19,561 418 17,486 408 19,038 553 17,751 385 6. Registered Exporters/ Export Promotion Services -27,347 947 25,748 934 26,367 1360 25,702 1513 7. Ad-hoc 586 193 844 136 716 165 751 365 8. Customs Clearance Permits 6,058 329 4,604 320 4,966 581 4,161 654 9. Railway Contracts 546 260 603 274 482 201 493 171 10. D.G.S. and D. 5,531 54 666 69 482 47 315 64 11. C.G./H.E.P. 1,640 1271 2,283 2522 2,618 2680 3,439 2616 12. Others 1,767 620 1,781 608 1,428 425 1,476 442 Total 142,392 16339 150,840 18537 115,539 18557 111)078 23338 M L~-. Annex Table IV-5 INDIA: IMPORT REPLENISHMENT LICENSES ISSUED TO REGISTERED EXPORTERS, 1971/72 - 1973/74 (Value: Rs. Millions) 1971/72 1972/73 1973/74 S.No. Product Value No. Value No. Value 1. Engineering Goods 277.2 5,106 382.6 4,546 321.8 2. Chemical & Allied Products 93.5 3,121 133.5 3,262 170.0 3. Plastics 24.9 982 27.5 797 28.0 4. Leather & Leather Goods other than animal products 39.3 1,651 55.8 1,759 68.6 5. Sports Goods 3.4 438 5.5 476 6.9 6. Fish & Fish Products 25.7 897 56.3 874 68.4 7. Processed Foods 10.9 403 9.9 349 11.2 8. Handicrafts 36.9 1,718 34.2 1,140 17.2 9. Cashew Kernels 29.3 162 7.9 216 13.2 10. Tobacco & Tobacco Products 10.7 200 14.6 231 21.9 11. Woolen Carpets, Rugs & Druggets 0.8 122 1.0 382 13.6 12. Woolen Textiles, Hosiery & Mixed Fabrics 0.2 40 0.4 201 5.5 13. Coir Products 2.7 207 3.0 18C 3.1 14. Cotton Textiles 39.6 3,178 51.3 2,395 55.9 15. Ready-made Garments, other than natural silk 9.5 804 14.4 1,359 35.0 16. Natural Silk Fabrics, Garments 19.6 1,230 17.1 783 19.1 17. Stainless Steel Products 4.8 9 2.2 27 3.9 18. Ship Repairing 2.5 9 3.3 6 1.3 19. Gem and Jewellery 292.3 5,228 523.7 5,75, 623.6 20. Gem & Jewellery sale to Foreign Tourists 0.4 48 0.4 78 1.1 21. Cinematograph Films (Exposed) 3.0 313 4.1 327 3.9 22. Natural Fibre Products 4.5 5 0.1 3 0.1 23. Cellulosic Products 1.0 222 1.5 226 2.5 24. Non-cellulosic Products 0.4 140 1.4 133 3.8 25. Mixed blended products from mixtures of cotton/cellulosic fibre of yarn/nylon/polyester fibre or yarn/natural silk 0.7 100 0.6 102 0.8 26. Miscellaneous export products 0.3 31 7.6 89 12.1 Total 934.1 26.364 1359.9 25,7CO 1512.5 Annex Table IV-6 INDIA: IMPORT REPLENISHMENT LICENSES AND RELEASE ORDERS ISSUED TO REGISTERED EXPORTERS (Value: Rs. Millions) Year Direct Licenses Release Orders T 0 T A L (April-March) No. Value No. Value No. Value 1971-72 25,738 934.1 N.A. 171.5 N.A. 1105.6 1972-73 26,364 1359.9 N.A. 476.4 N.A. 1836.3 1973-74 25,700 1512.5 11,450 680.3 37,150 2192.8 1974-75 (Up to Nov.'74) 14,005 912.5 6,134 441.7 20,139 1354.2 Annex Table IV-7 INDIA: DISTRIBUTION OF CAPITAL GOODS IMPORT (CG) APPROVALS ACCORDING TO INDUSTRIES* (Rs. in lakhs) 1971 1972 1973 1974 A. CG (Main) Committee 1. Automobiles 1717.36 1060.88 2046.08 4212.17 2. Engineering 736.44 1217.31 1736.16 3154.34 3. Paper 1288.58 590.16 280.40 3053.99 4. Chemicals 2035.12 1546.46 974.62 2813.94 5. Iron & Steel 1759.24 364.20 854.43 2352.94 6. Rubber 591.48 1751.57 2363.69 1760.11 7. Electricals 1085.46 1039.50 1269.22 1712.91 8. Metals (other than Iron & Steel) 404.16 34.34 302.81 762.83 9. Textiles (Non-cotton) 792.92 222.86 179.28 641.03 10. Cement, Ceramics & Refractories 167.61 172.35 42.94 76.98 11. Miscellaneous 1318.83 1812.04 1794.93 2322.47 Total CG (Main) Committee 11897.20 9811.67 11844.57 22868.71 B. Export-Oriented Cases 1028.57 861.75 1174.97 1301.04 C. CG Component of: i) Composite cases cleared by the project Approval Board - 23.07 ii) Cases cleared by Santa- cruz E.P. Zone Bombay - - 18.08 189.51 GRAND TOTAL 12925.77 10673.42 13037.62 24382.33 * Excluding approvals given by the CG ad hoc Coinittee. Source: Ministry of Industry IPDI4, IDA"4.os-ed Indstres- ~fet, by D90tinetto-o 1970/71-1973/74 1970/71 .9.n... af 4hh (1) --.Vl-- of bl.h <)1 --talu-- of ic (1) --Vale--- of (1): - m>b --~.bu---- of hch (1), f --veIN----- - 4tch (1): (10 IMUy- 80880- 8r e <Un$ (Ust Tal- (U5 1u80- <U~9 S0the. U.Gar- (UBg (Ug9 (1=of 0otal 5r" yo- ) L«_d - Lank- Total _-da} DI_} Ågg jIu£ jM Total alp) jg uan aNgerig -lna I'ptal _,Ii JU) Cumb. UMIL Olavi& T9]d-x la JM land« jpt_& M1n1 Mgd ul) CanMd U T-4d g_g =pr apk, j12-1 laia T notere 0.40 27 21 31 15 67 0.22 15 - n~g1. 78 78 0.06 4 38 44 2 84 ne81. - - ne10. ~81. 0.77 33 - 8 91 89 ..pl. • 0egl. n.[1 0.45 3 transformere 0.60 41 32 8 34 78 0.39 27 14 - 20 34 0.36 04 9 32 19 60 0.10 7 - 100 - 100 0.01 1 1 - 52 53 - 1.46 3 B6.th.bar- 0.41 28 13 la 2 33 0.59 40 g1. 35 3 73 0.07 3 6 6 63 75 .a,1. 000 - - 100 0.39 27 1 40 16 37 - 1.46 3 åt . 0.92 14 -8eg. 10 42 32 1.90 29 35 å 24 60 0.31 3 1 nag. 91 92 2.83 44 - 28 70 9m 0.46 7 2 9 - 00 0.06 l - 2 2 6.52 13 Crcial vehice.: Tr-cks 1.2810 - - 56 56 3.48 49 - - 96 9 2.28 32 ~eg. 97 - 97 0.05 0 - - 100 100 - - - - 7.09 04 8uses 2.58 60 91 91 1.67 3930 - 31 87 0.02 1 - 55 - 33 - - - - - - - 4.27 9 0.100 - - 84 84 neal . 0.020 - 100 - 100 2.4895 - - 100 100 - - - - 2.60 5 Te0o - Lo1 -6. 3 263.3 9 Tyras 0.04 04 ==g0. 0 3 4 2.43 33 2 8 83 93 0.14 2 69 7 - 76 3.43 46 - 19 80 99 0.07 l - 2 7 9 0.16 2 - 9 9 7.49 15 TUb.. 0.04 7 7 - 4 11 0.22 39 a 10 76 94 0.01 2 60 - 17 77 0.2545 - 17 75 92 0.01 2 - - - - 0.03 5 - 000 100 0.56 1 8torage bettert.s 0.06 b 13 6 - 19 0.25 24 ~e. 36 - 56 0.033 - 2 - 12 0.6965 - 92 3 95 0.02 2 8 - 2 100 .10.81. - 000 100 1.05 2 Steel orgina - - 0.06 9 31 - 29 60 091. - -.-. - 0.4038 - - 100 i00 0.20 29 - 35 - 33 0.03 4 5 95 100 0.69 0 Autocoeonete& p-rt. 0.04 21 - 14 6 20 0.14 74 6 - 91 97 0eg0 00 - 100 ne61. - - 100 100 0.01 3 86 4 77 neg0. - 30 50 0.19 <1 9achine o.ls 1.32 43 10 3 30 43 0.14 3 12 3 36 53 0.14 3 15 16 9 40 0.13 4- - 93 93 0.97 33 54 11 25 90 0.25 8 33 64 97 2.95 6 S~lt 4 ~-&in -. 1.07 17 08 10 4 42 0.71 11 30 a 19 57 0.28 5 23 39 5 67 0.04 16 4 30 neg1. 78 1.79 28 10 27 27 64 1.48 23 14 80 95 6.37 13 Abr ...vt-0.02 13 36 - - 36 - - 00 - - - - - 0.11 85 - 100 - 100 - - 0.13 <1 Ull & o1ll- b-rIn 0.02 9 9 38 47 0.02 9 11 13 6 80 0.01 3 78 - a 79 • 0.1i30 1 60n8g. 9 0.4027001. - .egl. 0,22 0.. - o.,. iw1b0 .47 equipmen 0.04 9 • 92 93 0.31 6 - - 98 98 0.1225 - 100 - 100 - - - negl. • 000000 0.47 0 C.bl.. 0.67 19 .eg. 72 2 74 1.51 44 20 1 21 42 0.04 1 1 22 64 87 0.73 21 - 82 - 82 0.51 15 3 3 s2 60 - - 3.46 7 tre 0 l 9 6 7 3 00 g _7 - 1 0 _3 _9 _- _jl _9 _ - -.i .; f - f 51 _. - - IO-1 __2 T,tal 0DA P7o.0 Indusres00 Expor 0(A) .10.99 22 7 10 40 57 14.89 30 13 3 56 74 3.95 8 7 67 12 86 12.13 25 4 26 63 93 5.47 11 04 06 32 72 2,07 4 04 77 9 48.30 100 9 07 4 05 47 ~ Mchi0, 1rsport good. <B) 7.80 28 10 5 50 65 7.51 27 12 å 67 80 3.35 12 3 79 4 88 3.80 03 03 00 70 94 3.93 04 08 20 38 76 0.73 6 16 79 95 20.02 100 04 18 1 9 42 8/A 01) 78 .0 85 30 72 84 37 Pr_e6COp.quipment(C) 3.19 15 2 20 15 37 7.38 34 15 9 45 69 0.60 3 21 1 9 00 8.33 38 - 32 60 92 0.34 7 3 40 08 62 0.30 2 0 63 66 00.30 000 2 1 03 23 3 C/A 71) 29 50 15 69 28 6 43 ［나― l믹 1972171 mit 01LIGA mm ^la f bi.b M. f ~ b (x), --- ------------ (us* m- , w.o- 053 (m f wtu sn sIn., r317 gg) ja 1ý Tý- L- 1~ 1- u" 1~ c.) K- ol..- t~ ~bl el. cý- L5 ?~ gm giavta T-i o..1 im 14 14 o.O 3, 31 46 n 1 62 0.27 27 1 35 kl 77 o..5 5 76 7 - 83 049 9 66 - 66 0*29 26 5 91 96 2 T- t.- 1. 61 69 66 6 5 39 0.50 2, 1 - 1 58 - - - Jä 5 0.9b 51 52 11 11 74 4' 1 1, 2 21 0.13 , 28 15 , 48 ..,1 . iw IM 0.03 2 44 12 56 ~ . - im iw 1.83 4 Å1-I- ..69 16 6 13 31 50 1.45 33 5a b - 62 0..4 1 60 8 5 73 2.09 47 96 . 96 0.12 3 9 90 1 100 0.01 <1 )6 64 iw 4. 0 9 C-~C ~1- T- 3.79 72 - - 6 6 o IW 0.31 6 - IM IM nnl. - - 100 iw 5.24 11 ... 63 i.o5 )6 7 o oh m im .81 - - :' " : , ý ,,, 2 , : = : : 2 6 ..73 92 28 06 a - : 56 56 - 09 2 -1,- -111.~ t, . :11 2 32 125 54 35 1 63 199 0.27 1. .ý1 17 9 ~1. 9 1.28 21 2 42 16 6. 1 32 3. 79 79 0i09 1 4 74 78 06-D6 1, 17 0 4 36 2 42 01 6 a 7 5 38 0.04 11 1 16 2 13 34 - 19 19 0:35 47 61 66 31 M 0_02 5 52 , :0 01 1 25 6 .:.4 3 6 6 l 96 - 1 67 - 3 ICO 100 Inl O.G4 66 - 100 iw 0 17 IM IM m6 <1 P-. 0.0 w 64 0. m -9 4- "%,1' l.- - - - - '1': IM , m I i 4 40 ý9 Ii 1 2 iw 0:0', 14 ..59 62 21 2 12 35 0.14 7 3 5 4 12 o.m 10 63 7 3 73 0..9 4 u 32 73 0.3% 16 36 32 9 79 0,60 19 13 87 L. 2.10 b ,ý11 & ~u. t-i. 1.31 14 8 w 6 24 0.64 7 .%1. 2 16 18 o. 16 2 2 35 7 44 2.68 26 51 10 5 66 2-92 3- 7 31 30 6a 1.6c 19 15 82 Y7 9.6ý 21 ..03 73 u 2e - 42 - - - 50 60 - - 0.-9 69 - " 1 1£0 0.01 b - IM iw -.13 < i Ull & -11- b-~ 0.03 3b 37 37 0.03 33 - - - - ..,1. - 94 94 0.01 u - - 59 59 -.01 n 4. 9 49 0.01 11 93 1 1. ..09 %:n, --,- 0.14 im nl. 16 3 19 < i c.bl. 1. 26 17 2 57 13 72 3.19 44 9 1 10 0.16 2 14 75 - 89 2.58 35 89 89 0.09 1 5 62 33 IM 0.01 1 iw iw 7.19 16 0.15 -L7 11 18 -6 1 t7 0.01 - 0-01 - - - 186 T-1 11)& ~ 1t7 1ý r-~ (k) 14.M 3? IL 9 b 31 ID.52 23 15 10 12 37 1.64 b ?9 25 9 66 12.70 27 21 44 21 66 4.23 9 9 37 29 75 2.51 5 14 79 93 46,76 IM 3 3 U 6 24 11.61 45 18 3 7 28 3.99 15 1 7 26 36 1. 28 5 29 26 u 66 3417 12 43 U 15 70 3.62 14 9 29 33 71 2 )6 9 14 6. 94 26-W 1. 3 4 1 2 10 .CM 78 ia ý5 66 ;4 56 1.- & wt~.t (0 3 15 3 ?8 13 44 6.83 33 13 u 3 37 ..36 2 26 34 1 u 9i53 46 13 55 2) 91 0.61 3 2 79 5 B6 15 1 n 5a 78 20.74 im 2 1 2s 11 39 CIA 2ý26 63 n 14 6 44 l1 IA: DA A-te-ed InEustries -Eorts by D-ti-ad -n 1970/71-1973174 1973/174 AS IA M0t0h.E EAST en.C 31.E EUR07' 0THER t003 AMER3(2 T14. ---Vlu"-. af whc (0: .Val.-- of which : --Value-- f .hich (h7 ---Vel.-- f wc): -33..alu-- of which (0): --IaUue-- of which (0): --Value-- of hich (1): (US$ Malay,- Slng.- Srl (US$ (7701 Tan- (US$ Yugo- (<lâ$ Nethero- 0Cer- (US$ (US (3 of1total Yugo- In) SU _o. L.-k. Tota1 _1.n) JU 1-, [r.q E" T-l .1.) Kenya Nix-ri. man Total 17 JU caeci. USS a.laaotal PI-) l-nde * .any Totl .0) Canada 9 Total . p ) . UUSOR .3ava Tot Agricultural 7actr. 0 06 75 - 4 - 4 0.02 25 - - - otor. 0.57 55 40 7 2 49 0.03 1 3 33 45 81 0.06 6 95 4 - 99 0.01 1 0.36 35 - 61 18 79 n. -2 Transfo, e 7.09 56 78 6 6 90 0.72 6 - - - - 0.70 36 40 - fl 56 r. - - - - 0.03 2 84 0 10 100 neg. - 100 700 3.04 4 Swle ar 0.98 3. 46 17 4 67 1.18 41 2 42 2 40 0.00 7 66 0 A 05 2 !8 -0 8 700 0 0 11 77 4 81 0.0 1 99 - 09 2.7 5 Al1.17 27 2 9 11 22 2.31 45 42 nee1.- 42 0.49 10 8 9 60 77 1 12 22 - 02 2 84 0.02 <3 - 10 43 53 4.09 2 53 07 I0U 5.30 0 Tru~ 1.7 17 ,.2n . - 30 38 0.27 9 - - - 1.05 34 - - 16 16 0.16 5 82 14 98 n.61. - - ---..--7.05 6 0u... 0.93 37 - - 23 03 0.90 37 - 1 20 23 0.39 8 . .- 33 37 negI 0.40 15 - - - 0.45 3 3.1p. 0.30 90 - - 70 70 0.02 0 - - - . 0.0 1 Tyre 3.08 35 - 3 2 5 2.70 20 34 35 ogI. 69 0.35 2 38 8 - 26 3.62 48 02 30 54 86 0.47 6 6 43 24 73 043 9 1 3 7 77 7.1 34 Tube. 0.30 32 4 34 3 19 0.20 2 26 29 negl.55 0.02 2 1 - - 37 0.45 5 51 6 34 93 0.04 5 - 46 - 46 0.04 5 1 95 06 0.85 1 Storage b.7ter70. 0.03 1 5 5 W0 20 0.210 1 2 2 1 5 0.02 1 37 1 4 42 2 16 07 - 74 - 74 0.03 1 1 09 - 300 - - 2.46 5 Syn1thetic runr 0.34 o3 000-. - 23. - - .. . - ..77 30 02 _ j0u 0. .30 Stee7 forginge 0.02 13 - - ---g, - - - -- . - - 300 100 0,0a 53 10 - 89 99 0.05 - -- - - - -7. 700 - 100 0.75 47 Auto~component . 40.0. 0.10 56 37 21 4 6 0.3 7 35 54 - 9 0.01 5 57 26 - 83 - - 0.03 ,1 - 59 0 66 0 01 5 - 53 53 0.<1< -Mhi.n oo7. 1.37 31 15 3 5 23 0.,26 6 17 4 28 49 0.20 5 57 12 15 84 00 l8 17 - - 17 3.15 20 14 47 2a 89 0 14 14 06 10) 4,37 e -a11 , u n to.. s. 2.04 15 12 7 2 21 0.99 8 43 14 3 60 0.33 3 1 47 1 05 2.11 30 50 12 - 62 4.55 35 15 28 24 67 2.7 21 15 79 44 1-17 0 24 Ab1r--- 0.17 40 4 2 neg7. 12 0.01 2300 - - 0 neg3. e0 - 80 - - 7.25 5 - 4 1 85 n-81. - 100 I00 0.43 1 ..I& oller be-ar-ngs 0.20 41 3 3 6 12 0.01 2 73 - 73 ..g. 00 0 - 94 0.P0 22 0 0 100 300 ..14 31 - 94 - 94 -.37 33 - 31 0.45 <1 l6eavy 00onstructon equip.ent 0.16 44 5 2 3, 42 gl. - - - - 0.11 31 negl - - ..el. 0.06 17 - 100 - 100 0.03 8 - - - - 100 - 10] 0.046 C.b3e. 1.23 20 - 55 3 56 1.66 26 17 2 - 19 0.04 l 97 - . 97 3.27 52 - 97 - 97 0.04 1 - 97 3 98 0.02 <3 - 60 60 0.26 12 070.0.1e6 -_ 4 3 9 00 13 . 3 ,o,23 3 -. - 0 1 - . - 7.35 2 To00.330A Prorioty Induattl2o.E.ports (A) 3 26 36 10 11 37 11.30 21 24 30 3 41 3.57 7 25 . 18 S3 14.29 26 17 46 17 8. 7,49 14 32 19 22 73 4.19 b 16 69 b5 5.30 700 0 7 3 4 to gao7(B 8.93 30 22 5 30 41 3.79 13 1 30 8 39 2.14 10 27 8 12 47 1.49 2 39 14 2 55 642 22 14 36 24 74 3.04 13 13 71 e4 2931 10 4 l 2 ne3. 7 0/A (07 67 34 00 24 36 92 54 Ft. & CDqupent (0C 4.33 15 2 20 5 27 7.33 30 24 11 n,1. .40 0.13 3 70 8 41 67 10.80 44 10 56 21 87 3.07 4 3 67 12 76 0.35 1 4. 4e 07 24.7 00 1 ~1. 24 9 34 0/A (07 33 66 2 76 14 8 46 sourc: Montly Stat3.t30. of h. yo-..g .rd t ndi (Vol. I 0t H-rbh 1971-1974). Annex Table IV-9 INDIA: UTILIZATION OF SEVENTH, EIGHT-H AND NINTH IDA CREDITS FOR NON-CANALIZED AND CANALIZED ITEMS (Unit: $ Million) 7th IDA 8th IDA 9:h IDA (Credit No. (Credit No. (Credit No. 327) 402) 474) I. Non-canalized utilization against Direct Import Licenses: 1. Fertilizer and Pesticides 9.19 11.00 25.83 2. Other Sectors: A. Tractors and Power Tillers 3.73 5.95 1.64 B. Motors, Transformers, Switch- gears, Magnetic Steel Stamp- ings 1.66 3.01 1.05 C. Aluminum Smelting 0.10 0.25 0.96 D. Commercial Vehicles 8.00 6.40 7.42 E. Automotive Ancillaries 10.38 7.02 7.63 F. Machine, Cutting and Small Tools & Abrasives, Ball and Roller Bearings 8.68 9.40 4.46 G. Cast Iron Spun Pipes - - Nil H. Heavy Construction Equipment - 3.36 6.53 I. Spare Parts for Heavy Con- truction Equipment Dealers - 0.23 1.85 Total I 41.74 46.62 57.37 II. Canalized Items Utilization: K,S.L. 13.29 26.97 22.34 M.M.T.C. 18.84 27.74 77.43 S.T.C. 2.06 0.29 - Total II 34.19 55.00 99.77 GRAND TOTAL I + II 75.93 101.62* 157.14* Value of IDA Loans 75.00 100.00 150.00 Dates qf Closing 7/25/73 5/15/74 1/31/75 * Excess applications sent as a cushion of exchange fluctuation. INDIA Freign!t Exchange Allocatlons to, IDA-+A-sted Tndustrieg: 1970/71 - 1974/75 (April 1 • Dec. 31) (k.. nillfon) 1970/71 1971/72 1972/73 1973/74 1974/75 (Apr. 1 -Dec. 31) 1/ Other Releas 1 Other Releaa 1/ Other Rtle 1/ Other Rel0ee1, 1/ Other Releaa 0 cedlts Orders- Total A Crrdita Orders.- Total IlDA Credits Ordets- Total 1DA Crodis Ordere- Total IDA Crdita Orra- Total Fertli.ers & Pesc id-.s Fert3l,ers 36.1 11.4 47.5 88.5* 39.3 0.5* 128.3' 152.1 8.5 4.4 15.0 316.8 5.5 2.9 325.2 106.4 0.1 1.5 108.0 Pesticlda 29.7 26.6 56.3 68.0 16.3 9.7 94.10 88.7 2.5 23.7 114.9 220.3 10.8 15.8 246.9 82.0 9.9 91.9 Sub-lotal 65.8 38.0 103.8 156.5 55.6 10.2 222.3 240.8 11.0 28.1 279.9 537.1 16.3 18.7 572.1 188.4 0.1 11.4 199.9 Tractora & Poer illIers Agricultural Iractor 25.9 63.2 89.1 85.7 133.6 0.8 220.1 49.1 39.0 3.5 91.0 119.5 123.0 2.4 234.9 93.1 40.6 5.3 139.0 Power T,'leta 2.1 2.1 _. _ 2 12.7 1.0 __ 8 1.8 7.2 negI. 0.2 3.9 3.9 Sub-total 28.0 65,3 93.3 85.7 146.1 0.8 232.8 50.1 39.0 4.3 93.4 109.7 123.0 2.4 235.1 97.0 40.6 5.3 142.9 _ot_era,_Trat former halw th91r 4 Magnetic Steel Stamplngs EIettrl Motor 0.3 14.1 0.1 14.5 4.0 14.1 1.7 21.2 4.4 17.4 5.3 27.1 21.2 .2 11.8 37.2 4.6 6.6 11.2 Tranaformera 4.4 50.2 8.2 63.3 22.6 1i.5 76.5 60.6 5.7 2.9 10.2 18.8 23.5 0.4 34.4 48.3 9.7 10.7 19.7 Swlcehgear 4 Contrelgear 2.4 10.3 0.2 12.9 5.5 28.4 7.1 41.0 28.3 11.2 6.8 46.3 38.8 2.9 18.0 59.7 21.8 11.0 32.8 St.pingr 6 .asnatlons 7 19.9 2.6 _ _. 40.5 50.6 3 53.8 54.1 1. 156.3 157.4 0.5 58.8 59.3 Sub-total 8.8 194.5 9.7 212.3 32.9 56.7 83.8 173.4 38.7 31.5 76.1 146.3 74.6 3.5 222.5 300.6 35.9 87.1 123.0 AlmtInums Smel ting Alm,Imn 30_, 8.4 4s.9 11.9 PI 17-1 50.4 9.3 4.1 22.b 36.0 38.7 7.8 48.9 95-4 13.4 0.7 45 18.6 sub- total 7.9 30.6 0.4 46.9 13.9 19.4 17.1 50.4 9.3 4.1 22.6 36.0 38.7 7.8 48.9 95.4 13.4 0.7 4.5 18.6 l,mer.IaI Veh,Ic les Jeep¯ 3.0 12.2 16.o 8.3 10.8 3.0 22.1 4.6 0.7 23.3 11.3 1.5 20.3 33.1 2.8 6.5 9.3 Three Wtheolert 0.3 5.9 14.2 2.4 1.4 5.8 8.1 3.7 6.8 18.s 5.0 4.7 9.7 2.1 0.3 3.0 6.2 Other c lri velels 76.3 149.9 226.2 49.3 70.4 24.7 144.4 128.4 50.6 64.9 243.9 223.7 13.3 135.3 371.8 134.6 17.2 12.9 754.7 Sub-total 88.4 168.0 256.4 60.0 84.6 27.7 172.3 141.1 63.0 71.7 275.8 239.5 14.8 160.3 414.6 139.5 17.5 113.2 270.2 Au rtotv An.Ilariles yret 6¯T--e ~~~¯¯¯ 27.1 23.8 50.9 33.0 15.7 18.0 66.1 21.6 3.1 21.7 46.4 55.4 0.8 27.1 83.3 97.0 0.2 37.8 135.0 Storage Hatt s 38.2 3.9 0.1 42.2 13.5 3.5 28.6 45.6 5.3 <.3 31.2 36.8 11.2 79.2 90.3 4.9 0.3 26.6 31.8 Asto lomponents 4 oarts 121.2 140.7 3.9 7651 128.8 _96 26.9 240.3 97.0 14.9 95.3 207.2 182. 9.6 172.4 364 .4 20 14 94.8 2 Sub -to>l 186.5 167.7 4.0 358.2 175.3 108.1 73.5 356.9 123.9 18.3 148.2 290.4 249.0 10.4 278.6 538.0 222.3 1.9 159.2 383.4 Machine, Cutng 4 Small Teols, Abrasives, tall 6 Roller earlngs Mal,Ie Tot.l 44,0 31.1 1.3 76.4 38.0 l9.1 4.5 91.6 47.8 32.9 5.7 86.4 85.3 15.0 9.3 109.6 63.8 3.0 5.5 72.3 Small 6 Cotting Toul 5. Abraslves 59.6 38.6 98.2 61.3 23.3 7.0 91.6 79.3 3.4 17.4 100.1 79.0 3.6 20.6 103.2 68.0 0.1 12.0 60.1 hall 6 Roler Betrigs 4.9 33.0 cgl. 3L 11.2 45.4 4.5 41,1 40.0 3.0 4.5 47.5 54.2 0.5 6.1 60.8 44.1 0.3 0.6 45.0 TO-total 10. 102.7 1.3 212.5 110.5 117.8 16.0 244~î 1~7~1 31 27.6 234.0 218.5 19.1 36.0 273.6 T1¯ ¯T~ T-¯¯T 4 eavyCoons 1 -tlEuIpnt e mvlg Equipment 5.5 27.2 ?7.7 1.6 38.5 4041 24.>, 15.0 7.0 46.6 81.4 19.9 4.9 106.2 26.5 15.9 3.9 46.3 Road Roller _57 5.7 .1 1 7 48 __ 4 1.1 .7 1.9 41.0 32.3 73.3 2.5 .2.0 Sub-totel 0.5 32.9 33.4 4.7 40.2 44.9 28.0 31.3 7.2 66.5 122.4 19.9 37.2 179.5 29.0 15.9 3.9 48.8 TMTAJ 494.4 799.7 23.7 1316.8 639.5 s28. 729.1 1497.3 799.0 :'7.5 385.8 1422.3 1589,5 214.8 804.6 2608.9 901.4 80.1 402.7 1384.2 1;A~c 7 . 42 . z! . Kr E l . > i. . t 1 l 09 1011 '4 er,- -i It!i:- 30-, 7S7. 5?1 o,,J R47.,scn.o. 2> Rlease Orderonsist of 12A Is, Other red tt an,d Fr. -eIgn FaangeblIh are allocated th> -taliring .0nie for t ipot f ttana led its * Exluding allocatilontatsr rock ploaph.te and aulphr. Source: MIni.ry of lndutlry and bvlI Supplies Annex Table V-1 Page 1 INDIA PROJECTE AND ACTUAL IDA/IBRD DISBURSMENTS AND ACTUAL TOTAL AID DISRSEMENTS: 1970/71-197374 (US$ million) FY: July 1 - June 30 1270/71 197117 1972/73 1973/74 IDA/IBRD project lending disbursements: Projected - 210.0 280.0 320.0 Actual 82.0 104.4 209.8 259.1 (of which disbursements from projects signed during present & preceding 2 years) (61.7 68.6 60.5 172.7) Actual-Projected - -105.6 -70.2 -60.9 Actual/Projected (4) - 19.7 74.9 81.0 IDA program lending disbursements: Projected 75.0 3,.5a/ 75.0 100.0 Actual 40.5 34.1 66.5 109.1 Actual/Projected (W) 54.0 98.8 88.7 109.1 IDA/IBRD gross disbursements: Projected - 24h.5 355.0 420.0 Actual 122.5 138.5 276.3 368.2 Actual/Projected (%) - 56.6 77.8 87.7 Amortization: Projected - 50.0 50.0 50.0 Actual 41.9 53.7 53.6 53.8 IDA/IBRD net disbursements (Gross disbursements amortization): Projected - 194.5 305.0 370.0 Actual 80.6 84.8 222.7 3111.4 Actual/Projected (%) - 43.6 73.0 85.0 Interest & services charges: Projected - 30.0 40.0 40.0 Actual 35.8 36.8 46.5 47.4 IDA/IBRD net transfer (net disbursement - interest & service charges): Projected - 1614.5 265.0 330.0 Actual 44.8 48.0 176.2 267.0 Actual/Projected (%) - 29.2 66.5 80.9 Actual total aid disbursements (consortium, & non-consortium): Project aid 321.0 352.0 399.0 - Non-project aid 573.0 579.0 497.0 - Othersb 202.0 158.0 0.0 - Gross disbursements 1,096.0 1, 89.0 896.0 1,249.0 Non-project aid disbursements/ gross disbursements (%) 52.3 53.2 55.5 - Debt service 600.0 615.0 682.0 692.0 Net transfer 196.0 474.0 214.0 557.0 (continued on page 2)....... Annex Table V-1 Page 2 INDIA PROJECTED AND ACTUAL IDA/IBRD DISBURMENTS AND ACTUAL TOTAL AID DISBURSEENTS: 1970/71-1973/74 (US$ million) FY: July 1 - June 30 1970/71 1971/72 192173 1973/74 Selected Ratios: A. Program lending within total Bank lending program IDA program lending disbursements/IDA- IBRD gross disbursements: Projected (.) - 1.1 21.1 23.8 Actual (%) 33.1 24.6 24.1 29.6 IDA program lending disbursements/IDA- IBRD net transfer: Projected (%) - 21.0 28.3 30.3 Actual (%) 90.4 71.0 37.7 4o.9 Actual IDA program lending disbursements/ Shortfall (actual-projected) in IDA- IBRD project lending disbursements (%) - 32.3 94.7 179.1 B. Bank lending within total aid picture Actual IDA-IBRD project lending disbursements/actual total project aid disbursements (W) 25.5 29.7 52.6 - Actual IDA program lending disbursements/ actual total non-project aid dis- bursements (W) 7.1 5.9 13.h - Actual IDA-IBRD gross disbursements/actual total aid gross disbursements (%) 11.2 12.7 30.8 29.5 Actual IDA program loan disbursements/ actual total aid net transfer (W) 8.2 7.2 31.1 19.6 Actual IDA-IERD net transfer/actual total aid net transfer (%) 9.0 10.1 82.3 47.9 a Difference between previous year's projected and actual disbursements. bJ Food aid and non-food PL L80. - Not available. Source: Figures from Controller's Department, Bank's Appraisal Reports, figures from Consortium files and Bank's India Economic Report of 1975. INDIA: Summary of IBRD/IDA Operations: 1970/71-1973/7h (in US$ millions, unless stated otherwise) FY: July 3-June 30 Program Disbursements Net Net Transfer Loan Dis- I. From loans/credits signed Debt Servicing Transfer Dis- without bursements dbring present and preceding II. From I (ttl) Interest bursements- Program (A)/Total Loans/Credits Signed* 2 yearsa other loans/ III. Total III or Service ttl. debt Loan Dis- Disbursements Year A B C D Total A 8 C 0 Total credits disbursements (4) Princioal Charees Total servicing) bursements (A) (8) 1970/71 IDA - - 90.1h 153.0 20. 10.5 28.h 1.6 10.4. 80.9 1h.2 85.1 95.1 - 7.7 7.7 77.h 36.9 IBRD - - - - - - - 8.5 2.8 11.3 26.1 37.h 30.2 41.9 28.] 70.0 (32.6) (32.6) TTL - - 90T1 5T-O Ef1 T T03 MT IT T1.2 92.2 30.3 12.5 7E~'T q1. W 7T IW TT 1971/72 IDA - 75.0 99.0 80.2 25h.2 34.1 32.5 14.3 2.7 83.6 8.3 91.9 91.0 0.8 8.1. 9.2 82.7 48.6 IBRD - - 60.0 - 60.0 - - 19.1 - 19.1 27.5 46.6 41.0 52.9 28.3 81.2 (1h.6) (314.6) TTL - 7-0 =9 150 U _2 7i7 WiIT 32-. 71.1T 2.7 102.7 77W 13117 777 1i7 T77 9-0.T 7T T=0 26 1972/73 IDA 175.0 83.0 15h.0 185.0 597.0 66.5 67.5 37.7 23.0 196.7 35.3 210.0 86.7 2.0 15.6 17.6 212.4 115.9 IBRD - - 70.0 - 70.0 - - 21.3 - 21.3 25.0 66.3 66.0 51.6 30.9 82.5 (36.2) (36.2) TTL 175.0 U75 MrZ T9- 5 T.T 59.0 26.0 E E" 596 !T3 )2T 07F3 10. 2"6T. 1973/76 IDA 150.0 80.0 82.0 133.0 1145.0 109.1 90.8 1.2.] 7.6 29.6 81.3 130.9 75.6 1.5 131.1 16.9 316.0 204.9 IBRD - - 52.0 - 52.0 - - 29.5 - 29.5 7.8 37.3 79.1 50.1 36.0 84.3 (7.0) (07.0) TTL 1500 80.0 6 13r 0 113 1 97-0 109.1 WN 7T7 '.3 279.1 89.1 7 TI 1TT 101.2 7T7 T2F9T ): negative A: Program loans B: Railroads and shipping projects C: DFC, agricultural credit, irrigation, fertilizer plants and other industrial projects D: Agriculture, education, urban, population, telecommunications and power (including transmission) projects Source: Figures from Controller's Department.