India - Sixth Telecommunications Project

fILE COPY Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-1881-IN REPORT AND RECOMTIENDATIONS OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR A SIXTH TELECOMMUNICATIONS PROJECT June 22, 1976 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as at May 4, 1976) Rs 1.00 = Paise 100 US$1.00 - Rs 8.97 Rs 1.00 = US$0.1115 Rs 1 million = US$111,500 (Prior to September 24, 1975, the Rupee was officially valued at a fixed Pound Sterling rate. Since then, it has been fixed rela- tive to a "basket" of currencies. As these currencies are now floating, the U.S. Dollar/Rupee exchange rate is subject to change. Conversions in the staff project report were made at US$1 to Rs 9.) FISCAL YEAR April 1 - March 31 List of Abbrevi,ations and Acronyms Used in this Report Branch - Telecommunications Branch of Posts and Telegraphs Department DEL - Direct Exchange Line GOI - Government of India HCL - Hindustan Cables Limited HF - High frequency (low capacity radio) HTL - Hindustan Teleprinters Limited ITI - Indian Telephone Industries Limited OCS - Overseas Communications Service OYT - Own Your Telephone PCO - Public Call Office P&T - Posts and Telegraphs Department STD - Subscriber trunk dialing  FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE SIXTH TELECOMMUNICATIONS PROJECT 1. I submit the following report and recommendation on a proposed loan to India in an amount equivalent to US$80 million to help finance a sixth telecommunications project. The loan would have a term of 23 years, including 3 years grace, with interest at 8.85% per annum. 1/ PART I - THE ECONOMY 2. An economic report, "Economic Situation and Prospects of India" (1073-IN dated March 29, 1976), was distributed to the Executive Directors on April 2, 1976. Country data sheets are attached as Annex I. Background 3. India is exceptional among the Bank Group's member countries for its size and diversity; the country is divided into more than 20 states with a population of some 600 million and over 60 languages. The country's poverty and inadequate domestic savings, together with a net transfer of external resources averaging over the past five years only about US$1.20 per person per annum, have imposed sharp limitations on the rate of growth. Account must be taken, also, of the uncertainties imposed by the erratic availability of water. A bad monsoon, which is likely to occur almost two years out of every five, has a pervasive influence over the entire economy and can wipe out the results of years of efforts. Thus, the annual growth of national income over the last five years (1971/72 - 1975/76), which included two consecutive mon- soon failures, has averaged only 2% per annum, less than the rate of popula- tion increase. 4. Since independence, progress has been impressive on many fronts, but disappointing on others, and generally has fallen short of India's mas- sive needs. The growth of the socio-economic infrastructure (transport, education, health services, etc.) has been impressive, but has often been achieved at high cost and has yielded results of variable quality. Many industrial and agricultural investment schemes have been highly successful, but others have taken excessively long to be completed and have operated well below full capacity. In some regions of the country, growth and structural 1/ Parts I and II in this report are identical to the corresponding parts in the President's Report (No. P-1849-IN) on the National Seed Project. | This document has a restricted distribution and may be used by recipients only in the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  change have been rapid and compare favorably with developments in many other parts of the world, but in other regions there has been stagnation and possibly even decline. Although national income has increased in most years, there has been in general little impact upon the living standards of the vast masses of the urban and rural population. In recent years, the Government has initiated a variety of programs specifically directed toward helping the lower income strata, which - conservatively measured - consist of some 200 million people with incomes of less than US$60 per head per year. 5. The structure of the economy has been slow to change. Agriculture remains the dominant sector, with its share of national product declining only gradually from about 50% to 42% over the last twenty years. The share of industry has increased only slowly and, since the late 1960s, has remained approximately constant at about 23%. There has, however, been a shift in the composition of industrial production, with consumer, intermediate, and capital goods now contributing about one third each, compared with an overwhelming preponderance of consumer goods 25 years ago. Recent Trends 6. India entered 1975/76 having been through one of the most difficult periods since Independence. Progress in dealing with long-term development problems had been limited by poor crops, the dramatic shifts against India in the terms of trade, and inflation. Adjustments to these immediate difficul- ties thus became the principal preoccupation in economic management. However, with the support of favorable weather and additional foreign assistance, it now appears that India has successfully weathered the problems of the recent past; once again there is hope for an upturn in the growth rate of the economy. 7. Most important among the favorable factors in 1975/76 was a bumper harvest which followed years of poor or modest agricultural output. Food- grain production last year, estimated at around 114 million tons, exceeded the previous record of 1970/71 by 6%. Oilseeds, sugarcane and cotton also reached new production peaks and provided ample supplies for the agro- industries. Secondly, deficiencies in the supply of basic commodities and of infrastructural inputs such as energy and transport, which had been prevalent in the past, have been eased. Electricity generation and domestic production of coal, oil, cement and steel all increased by over 10% during 1975/76. Finally, the increased supply of agricultural and industrial products and of services, together with the demand restraint imposed by the Government since mid-1974, put a stop to inflation.. In 1974/75 the Wholesale Price Index had risen by 23%; in 1975/76 it remained unchanged. 8. On the balance of payments front in 1975/76, some of the basic problems of the previous two years remained. In particular, the terms of trade, which had deteriorated significantly over the previous two years, did not improve and most probably moved even further against India. Nevertheless, there were a number of encouraging developments. Firstly, the build-up of foodgrain stocks during the year will provide a buffer against the impact of a future crop failure on the balance of payments. Secondly, although export  - 3 - earnings rose only 6%, with high volume growth being offset by falling prices, import growth was also less than expected. The value of petroleum imports was stabilized despite price increases during the year, and steel imports were substantially reduced due to increased domestic production. As a result, the value of India's imports rose only 2% during 1975/76 and the trade deficit was reduced to US$1.45 billion, US$150 million less than in 1974/75. Thirdly, the net transfer of aid was 20% higher than in 1974/75 and India also received substantial inflows of private remittances from abroad. As a result of these favorable developments, India was able to add over $800 million to foreign exchange reserves. These reserves will give India added flexibility in ad- justing to a higher rate of economic growth during 1976/77. Development Prospects 9. While many of the most acute problems were eased during 1975/76, longer-term constraints to growth remain. Many of these have existed for some time, but their importance had been temporarily overshadowed by the more overwhelming limitations imposed by supply shortages and balance of payments problems. One such constraint is the deficiency of demand for a large seg- ment of the manufacturing industry. Consequently, in the midst of adequate supplies during 1975/76, the use of manufacturing capacity - especially for consumer durables - remained low. In the short and medium term, the two most promising ways of stimulating demand are to boost public investment and ex- pand exports. Both avenues are currently being pursued by the Government. During 1975/76, real Plan outlay rose by 18-20%, after having fallen during each of the previous two years. The 1976/77 Budget proposes a further in- crease of 16% in real terms and introduces new measures to stimulate invest- ment in the private sector. Investment priorities remain the same as last year, namely agricultural development and increased production of critical industrial inputs, such as power, coal, oil, and iron and steel. The Budget also stresses the import:ance of exports as an essential condition for sus- tained stability in the balance of payments. 10. In agriculture, the basic problem remains that, despite the record foodgrain crop in 1975/76, the long-term growth rate of foodgrain production in India has been unacceptably low, at about 2.3% per annum over the last 15 years. This is about the same as the rate of population increase. Starting from a situation of deficit, this has meant that only in good years has there been a significant margin of production to cater to any per capita growth in consumption, and even in normal years it has been necessary to rely on stocks or imports to meet any growth.in demand. With a major effort to expand the irrigated area and provide complementary inputs, the average growth rate of foodgrain production could be substantially increased. This is essential, not only because of the necessity to meet food requirements without unmanage- able consequences for the balance of payments but also because of the strong influence of agriculture on the levels of activity in other sectors of the economy. Even with a-higher growth rate of foodgrain production, imports will still be required. However, in relation to India's total consumption of foodgrains, the dependence on imports has been and will remain small. In the past, domestic production has accounted for almost 100% of supplies in good weather years and about 90% when harvests were poor.  - 4 - 11. The energy sector in India was headed for its own crisis before the international oil crisis developed. The dramatic hike in oil prices, coinciding as it did with the accentuation of electric power shortages - caused in part by low hydroelectric generation due to poor monsoons - led to an acceleration of measures to improve performance of existing facilities and to a much higher priority for investments in the energy sector. The effects of these measures, aided by the good monsoon, are now starting to be felt. Coal production has increased by 10% or more in each of the last two years, and, partly as a result of this, power shortages and restrictions have been greatly reduced. The medium-term prospects for oil and natural gas have improved with the delineation of the offshore Bombay High field. Crude pro- duction from this field is expected to be 1 million tons in 1976/77 and to reach 6 million tons by the end of the Plan period. On this basis, petro- leum imports are projected to start declining in 1978/79, as increased crude production and expanded refinery output more than offset increases in demand. 12. In the past, export growth was affected in varying degrees by in- adequate profitability, lack of access to imported inputs, poor quality, instability of the policy environment and vulnerability to ad hoc decisions. In addition, for agricultural commodities export taxes were significant. For some homogeneous commodities, such as iron ore and tea, inadequate sup- plies or limited world demand have been important constraints. In recent years, mainly because of the large trade deficit, the Government's emphasis on export promotion has intensified. As a result, although the fundamental orientation of India's industrial and trade policy and the specific instru- ments of the export regime have, by and large, remained the same, a signi- ficant shift in emphasis and in the way these policies are operated has occurred. These are important both because they are likely to lead to a better utilization of current export potential and as an indication of the willingness to make policy adjustments, when necessary, to expand exports. 13. While it is difficult to assess the impact of the new measures in an area where policy is already very complex, some improvement has already taken place and further improvement in medium-term performance seems likely. An annual real export growth rate of about 7% should be feasible, compared to an average of 5% over the last five years. However, to achieve a higher export growth over the long run, more far-reaching policy measures will be required, including the introduction of a more uniform and more stable sys- tem of export incentives. Even so, the export drive might be impeded by controls in some developed markets. 14. India's balance of payments problems should be manageable over the next few years, even with the repayment obligations resulting from re- cent short-term OPEC and IMF borrowings. The worldwide inflation has bene- fitted India by reducing the proportion of export earnings that have to be devoted to debt service. India's debt service ratio has come down from 31% in 1970/71 to 19% in 1975/76. Provided the real growth of exports remains at about 7% per annum, the debt service ratio is unlikely to rise much above 20% in the foreseeable future. On the import side, given the adequate level  of stocks on hand at the end of 1975/76 and assuming normal weather condi- tions, annual foodgrain imports could be kept to 5-6 million tons during the next three years. Within the general category of non-food imports, India has substantial medium-term import substitution opportunities for three major Items -- petroleum, fertilizer and steel -- which constituted more than 60% of imports last year. If the medium-term targets for production in these areas are achieved, the total expenditure on these three import items in 1978/79 need not be any higher than in 1975/76 and could quite conceiva- bly be less. Provided the Government is willing to liberalize imports and donors continue to respond to India's needs, the easing in the external payments situation presents an opportunity to raise the level of investment (complemented by larger imports of capital goods, components, and raw materials), and consequently, reach a more satisfactory level of long-term growth. PART II - BANK GROUP OPERATIONS IN INDIA 15. Since 1949, the Bank Group has made 44 loans and 80 development credits to India totalling US$1,436 million and US$4,112 million (both net of cancellation), respectively. Of these amounts, US$752 million has been repaid, and US$1,590.5 million was still undisbursed as of May 31, 1976. Annex II contains a summary statement of disbursements as of May 31, 1976, and notes on the execution of ongoing projects. 16. Since 1957, IFC has made 14 commitments in India totaling US$51.8 million, of which US$10.8 million has been repaid, US$7.6 million sold and US$6.9 million cancelled. Of the balance of US$26.5 million, US$20.0 mil- lion represents loans and US$6.5 million equity. A summary statement of IFC operations as of May 31, 1976, is also included in Annex II (page 2). 17. In recent years, the emphasis of Bank Group lending has been on agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit opera- tions. Major irrigation, marketing, seed development, and dairying are other agricultural activities supported by the Bank Group. Also, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale industrial enterprises. IDA financing of industrial raw materials and components for selected priority sectors has been instrumental in facilitating better capac- ity utilization in industry. The Bank Group has also been active In support- ing infrastructure development for power, telecommunications, and railways. Family planning, education, water supply development, and urban investments have also received Bank Group support in recent years. 18. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, industry, power, transport and telecommunica- tions remains highly relevant. Projects designed to foster agricultural  - 6 - production through the provision of essential inputs such as credit for on-farm investments, command area development of existing irrigation schemes, and seed production form an important aspect of the Bank Group's program for the next several years. Special emphasis will be given to proj- ects benefitting small farmers. Lending in support of infrastructure and industrial investments will focus on energy-related projects. Repeater credits for power and railways have high priority in this context. 19. The need for a substantial net transfer of external resources in support of India's economy has been a recurrent theme of Bank economic re- ports and of the discussions within the India Consortium. The need for readily usable foreign exchange assistance is especially pressing at a time when output and investment have to be adjusted to a radically differ- ent price situation. Consequently, Bank Group lending for critical indus- trial raw materials and components continues to be an essential element within the overall program of assistance. As in the past, Bank Group assistance for projects in India should Include, as appropriate, the fi- nancing of local expenditures. India imports relatively few capital goods because of the capacity of the domestic capital goods industry. The import component of projects tends to be especially low in such high-priority areas as agriculture, education, and family planning. For the Bank Group to be able to make an appropriate contribution to the financing of projects in these sectors, it is important to cover a proportion of local expenditures. 20. It is clear from the review of the Indian economy that as much as possible of India's external capital requirements should be provided on con- cessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reasonably be allocated to India remains small in relation to India's needs for external support, and some Bank lending to India, for which the country is creditworthy, is appropriate. With this loan the grant element of Bank Group commitments to India during the current fiscal year, including Third Window, becomes 74%, as compared with the 83% grant element of standard IDA terms. As of March 31, 1976, the loans to India held by the Bank totaled US$711 million, of which US$275 million remained to be disbursed, thus leaving a net amount outstanding of US$436 million. 21. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with an estimated 41%, 24% and 30%, respectively, in 1974/75, and the contribution of the Bank Group is expected to continue growing. On March 31, 1975, India's outstanding and disbursed external public debt was US$11.8 billion of which the Bank Group's share was 24%. The Bank's Group's share is likely to grow, but not very rapidly. Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will also rise slowly. In 1974/75, about 14% of India's total debt service payments were to the Bank Group.  - 7 - PART III - THE SECTOR Background 22. India's sheer size places a special demand on its communications networks to facilitate the flow of information, arising from management and administration of industrial, commercial and governmental activities in widely dispersed population centers. The Bank Group has been associated with the telecommunications sector since 1962 when there were only 373,000 telephone subscribers. Their numbers have increased at an average annual rate of 10.5% and in 1975 had reached 1,367,000. Over this period GNP growth averaged 3.2% per year. 1/ The growth rate of subscribers in the 8 largest cities was lower than average at 6.5% reflecting to some extent emphasis on rural and regional development. At the same time the trunk network expanded and modern- ized with the number of trunk circuits increasing by 13.6% annually from 5,700 in 1962 to 30,000 in 1975. This, together with the establishment of a new telex network, which had 10,900 subscribers in 1975, has accommodated only partially India's pressing need for long distance communication. Despite the considerable efforts made, India still has the lowest per capita density of telephone subscribers among the 42 countries with over 500,000 telehones, at 0.29 per 100 of the population, compared with such countries as Egypt (the next lowest) at 1.37, Iran at 2.4 or Mexico at 4.37. Existing local and trunk networks are overloaded and service is poor. 23. The Telecommunications Branch of the Department of Posts and Tele- graph (P&T) would be the beneficiary of the proposed loan. P&T is a govern- ment department under the jurisdiction of the Ministry of Communications. It is controlled by a seven-member board of senior executives and has ade- quate autonomy in its policy formulation and day-to-day operations. The Branch has made important organizational changes since 1962. The responsi- bility for certain functions, such as construction of major projects, has been decentralized. Its postal and telecommunication operations each have separate specialized management structures. The Telecommunications Branch has developed a commercial accounting system for financial reporting within P&T and to Government. Regional commercial accounts are also being developed as agreed under Credit 403-IN, the Fifth Telecommunications Project. A new materials management system has been introduced and is serving to improve the overall planning and execution of works through closer coordination between project, material and production planning. Over the years, the Telecommunications Branch has improved its financial performance, and a large proportion of its investment is being financed by the Branch internally, even though the Branch also continues to subsidize the postal service. P&T staff has grown from 387,000 in 1962 to 623,000 in 1975, while the Telecommunications Branch staff increased from 69,000 to 236,000, a high proportion of which is unskilled and semi-skilled labor. 24. Efficient operation and development of any large telecommunication system requires the parallel development of a local equipment industry to allow actions to be closely coordinated from system planning, through design, production, delivery, installation to operation; to standardize equipment; to I/ Growth in constant 1960/61 prices.  - 8 - enable inventories to be kept to a minimum; to ensure continuity of supply; and to reduce lead times particularly in coping with changes in demand and emergencies. For these reasons, practically all developed countries and developing countries with large telecommunications systems develop a domestic industry to supply a large part of their requirements. As telecommunications have spread, domestic manufacture of such goods as cables, teleprinters and switching gear has kept pace. 75% of P&T's equipment requirements are manu- factured within India. The three domestic manufacturers, Indian Telephone Industries (ITI), Hindustan Cables Limited (HCL), and Hindustan Teleprinters Limited (HTL),, which dominate the telecommunications equipment industry, employ about 25,000 people and had aggregate sales of about US$100 million in 1974/75. Their products are internationally competitive in regard to price, quality and delivery times (see para 51). Indeed, such goods as telephone exchanges and teleprinters have recently been exported in small quantities. These three firms have helped the development of the small-scale sector by offering extensive assistance to their small-scale ancillary suppliers. 25. The factories are satisfactorily managed with audited commercial accounts showing that their products are realistically priced and that the factories operate at a reasonable profit. Pricing agreements are negotiated formally between P&T and the factories and P&T monitors factory efficiency through regular reviews by its cost accountants, through periodic investi- gation by its audit group and through continuing overview by the senior P&T officials who hold posts of Directors on the factory Boards of Management. The Bank Group participation in the sector has enabled it to contribute to the development of these enterprises. Production and material management consult- ants engaged after discussions with Bank staff during appraisal of Credits 241-IN and 403-IN have enabled ITI production methods to be improved and have assisted in introduction of a new materials management system which gives improved liaison between P&T and the factories and better control of material supply from the factory to the field. 26. The GOI views local manufacture of telecommunications supplies as important because of the employment potential, the importance of these industries and the significant foreign exchange savings achieved. It is estimated that by using locally manufactured equipment, the foreign exchange savings with this project would be about US$150 million. Present Access to Service 27. Too few people have access to telecommunications facilities. The geographic coverage is limited, and the quality of the service is still inadequate. 28. The local telephone networks (as of September 30, 1975) comprise 4,937 exchanges with an installed capacity of 1,599,749 lines and 1,366,540 subscriber connections (direct exchange lines-DEL). The waiting list for new connections stands at about 280,000 despite a newly imposed application deposit ranging from Rs 1,000 in the smallest networks to Rs 5,000 in the major city networks. At the same time, existing facilities are congested. Calling densi- ties in Bombay, Delhi and Calcutta are among the highest in the world and the chance of the called party being busy is consequently unduly high, leading to many repeat attempts.  29. Despite 20% per annum expansion of the trunk network capacity in the last five years, the trunk service Ls far from adequate. Improved faci- lities result in greatly increased volume of calls, and consequently service between the main cities of India remains poor. Access within regions to secondary and tertiary cities and to rural areas is also far from adequate. This, however, should improve in the next two years as major microwave radio and coaxial cable systems nearing completion under ongoing projects and in- cluded in the present project are brought into service. The main trunk trans- mission schemes are shown in Map IBRD 12105. Sixty percent of subscribers have access to limited Subscriber Trunk Dialing (STD) facilities, which allows some 55% of trunk calls to be subscriber-dialed. 30. The extensive public telegraph network with 12,615 offices and the telex network with 10,886 subscribers on 60 exchanges interconnect the main centers in India. The telex network, which is of great importance to business, is not performing as well as desired. Ineffective calls are common due primarily to over-age line plant in the trunk network and the great distances involved. 31. International telephone and telegraph connections are provided by the Overseas Communications Service (OCS), which is a separate Government authority under the Ministry of Communications, through the INTELSAT Indian Ocean satellite via an earth station at Arvi near Bombay and by HF radio system. A second earth station near New Delhi will be brought into service during 1976. Other terrestrial connections to Pakistan, Nepal, Bangladesh and Sri Lanka are operated by P&T. India's international services are good. Sector Development Objectives 32. P&T's present development program is an important step in imple- menting a sound long-term plan for modern telecommunication services in India. The program and the development plans of the equipment industry, are based in the first instance on conservative demand forecasts, that is, on extrapolation of past subscriber demand adjusted to allow for the chronic suppressed demand reflected in the existing long waiting lists for new connections. However, financial constraints have meant that targets for the Fifth Five-Year Plan Period, of which the present project is part, have had to be lowered. As a result, a waiting list of at least 340,000 is expected at the end of the plan period in FY79. Within the current resource constraints, P&T and the Bank Group consider the maintenance and improvement of the service offered to existing subscribers to be of high priority. 33. P&T maintains an active research program in order to stay abreast of modern technological developments. The research group collaborates closely with the telecommunications equipment industry in design, development and manufacture of equipment to meet India's particular needs, and also supplies P&T with expertise to support the selective importation of new technologies such as electronic switching and satellite communications as proposed in this project.  - 10 - 34. The shortage of financial resources, particularly foreign exchange, is the effective constraint preventing the sector from more fully meeting India's telecommunications requirements. The Telecommunications Branch is technically and managerially capable of a more rapid rate of expansion. The Branch is certainly financially viable and could generate much of the funds required for a higher level of physical growth as illustrated by the fact that at present in addition to financing about 55% of investment over the next three years, it will also meet a substantial postal deficit amounting to $231 million for the same three years (see paras 58 and 59). To some extent the resource constraint of the Telecommunications Branch reflects the general scarcity of resources in India. However, it also reflects the fact that the wider development impact of improved telecommunications is not adequately appreciated. The Telecommunications Branch has not been very effective in substantiating their case. To alleviate this situation, in the context of the Fifth Telecommunications Project (Cr. 403-IN) the Telecommunications Branch has undertaken certain economic studies which are at a preliminary stage. During negotiation of the proposed project, the scope of these studies was reviewed and, in addition, it was agreed that a special economic unit would be established within the Telecommunications Branch to undertake studies including analyses of demand and usage, costs and benefits, tariffs and investment priorities. P&T and the Bank will work closely in finalizing the work pro- gram of this unit and in monitoring the progress of the work (Section 4.06 of the Loan Agreement). The work of this unit should provide valuable data for determining both the level and composition of future telecommunications investments. 35. The financial requirements for investment have risen from an annual average of US$65 million during the five-year period FY65-69 to US$95 million during FY70-74. For the period FY75-79, P&T has planned for an average annual investment of about US$250 million representing an annual 20% increase (in- cluding inflation) over the previous five year average. Of this, about 25% represents foreign exchange requirements. This investment increase has been helped by higher revenues from steady improvements to the trunk service, pe- riodic tariff increases, external borrowings and a new advance deposit scheme estimated to provide some 15% of total requirements for gross asset formation during the three year period FY76-79. Internal generation of funds is ex- pected to be double that of the previous three years, and after providing substantial funds for the postal service, will finance 55% of a capital expansion program that is 2.4 times larger in current terms as that of the previous three years. Previous Bank Group Operations 36. Since 1962, the Bank Group has financed five projects providing a total of US$288 million for the telecommunications development in India. Other foreign exchange contributors were: Canada (US$35 million), and Hungary (US$12 million). The first four Bank Group projects have been satisfactorily completed. Disbursements under the fifth project (Credit 403-IN) are expected to be 85% complete by the original closing date of December 31, 1976. A  - 11 - further 12 months will pass before all payments on imported items are complete. The delay is principally a carry-over of the late completion of the fourth project (Credit 241-IN) due to a combination of equipment supply problems in that project involving both local and overseas suppliers. These problems were progressively overcome during the fourth project period. These five Bank Group operations have assisted the Indian telecommunications in their consider- able expansion of networks, as described in para 22. The Bank Group has also helped P&T in its institutional improvements (para 23), in the development of local equipment manufacturing capacity and by providing technical assistance. Over the period of assocciation with the Bank Group, P&T's financial manage- ment has improved and financial results have remained consistently satisfac- tory. PART IV - THE PROJECT 37. The project was appraised in November/December 1975 and a Staff Project Report is being circulated separately to the Executive Directors. Negotiations were held in Washington from May 7 to 12, 1976. The negotiating delegation for India was headed by Mr. S.M. Agarwal, Secretary, Department of Communications. A loan and project summary is attached as Annex III and a supplementary project data sheet is attached as Annex IV. Program and Project Objectives 38. P&T is approaching mid-term in the Implementation of its Fifth Five Year Plan of development (April 1974 - March 1979). The objectives of this plan, along with those for development of all sectors, were reviewed in the past year by GOI and were left largely unchanged except for reduction in the rate of growth of the automatic trunk network. The FY77-79 expansion program, of which the project forms part, will complete the implementation of the plan. The total cost of the FY77-79 program is estimated at Rs 9,023 million (US$1,003 million) with a foreign exchange component of Rs 2,421 million (US$269 million). The main objectives of the program period are: (i) installation of 595,000 additional lines of telephone exchange equipment; (ii) expansion of cable networks and provision of subscriber equipment to permit connection of an additional 520,000 Direct Exchange Lines, reflecting an annual growth rate *of around 10/; (iii) expansion of the trunk service by 22,300 channels and installation of 14 trunk automatic exchanges with capacity to accommodate 40,900 lines; (iv) installation of 25 new telex exchanges and addition of 6,800 new telex subscribers; and  - 12 - (v) extension of the national network into rural areas includ- ing the provision of 2,600 long distance public call offices (PCOs). The Project 39. The project proposed for IBRD financing follows on the project being financed by Credit 403-IN and is a self-contained part of the expansion program for FY77-79. It would alleviate congestion in both the major city telephone networks and trunk services; would improve telex service; and would bring new telephone service to 220,000 subscribers. The project's capital cost is estimated at Rs 3,732 million (US$415 million) with a foreign exchange component of Rs 923 million (US$103 million). It consists of the following main items: (i) installation of 274,000 line units of local telephone exchange equipment including introduction of modern electronic switching equipment; (ii) provision of cables and associated equipment which will permit the connection of about 220,000 DELs; (iii) extension of existing trunk exchanges and installation of new trunk exchanges including four using modern electronic switching equipment which will accommodate about an additional 23,000 lines; (iv) transmission equipment including radio, coaxial cable and multiplex equipment to increase capacity on routes between important cities and for expansion of the trunk lines network to more remote rural areas; (v) a small satellite earth station to provide reliable, good-quality communication between the Andaman Islands and the mainland; and (vi) telex exchange equipment, including electronic telex exchanges for Bombay, Delhi, Calcutta and Madras, and associated teleprinters. 40. Forty percent of the new direct exchange lines (DELs) will be provided in the major cities to meet priority needs and to provide essential improvement to service. The remainder of the DELs will be allocated through- out the rest of India. About 200 small communities will receive new tele- phone exchanges and 1,200 public call offices will be established to extend telephone service to more villages. 41. Traditional and new technologies are to be utilized in achieving the least-cost engineering for the project. Latest telecommunications tech- nology will be applied to improve service by overcoming problems arising from high traffic levels, the presence of over-age plant in the trunk network and the large distances and remote communities to be served.  - 13 - 42. It is proposed to install 10,000 line electronic local exchanges in the New Delhi and Bombay networks to help reduce the effects of over- loading. Overloading in these networks will only be really overcome when demand is adequately met but funding on the scale required is not feasible at this time. Electronic exchanges in the meantime will cater for the very high calling rates and traffic levels now prevailing more economically and reliably than conventional electromechanical exchanges. 43. Electronic trunk exchanges are proposed for the key centers in the national trunk network at Bombay, New Delhi, Calcutta and Madras. These are now the preferred and economic means of catering for the high traffic volumes in a national network the size of that in India. 44. Electronic switching centers are also proposed for the key centers in the India telex network at Bombay, New Delhi, Calcutta and Madras. This technology is now competitive in cost with traditional switching methods. The centers will regenerate all the telex signals passing through them, thus removing signal distortion due to the presence of over-age plant and the distances to be traversed in India. The large number of ineffective con- nections which are now experienced should be much reduced with considerable benefit to the business community for whom this service nationally and in- ternationally is important for organizational efficiency and for effective marketing of products. 45. Newly developed relatively inexpensive satellite earth station technology will be applied for the first time in India to bring reliable, good quality service to the remote Andaman Islands. This application will serve as a pilot study of the potential of this technology for opening up of large areas of remote territory which are now without reliable communi- cations and for special applications such as providing service to offshore oil rigs. Project Implementation 46. All installation and maintenance of telecommunications equipment will be by P&T technical staff with support of manufacturers' specialist staff where new technologies are involved. The large and technically compe- tent P&T staff, together with the existing comprehensive training schemes, will ensure adequate supply of technicians and line staff for installation and future maintenance of project works. Project Cost and Financing 47. The cost of the project is US$415 million with a foreign component of US$103 million. A break-up of the project costs is given in Annex III. 48. The project costs are based on most recent (1975) prices. Cost estimates for imported items have been based on P&T's experience of prices obtained for recent contracts related to ongoing works and on quotations ob- tained from a number of suppliers. Those for locally manufactured equipment  - 14 - are based on planning figures agreed between P&T and the manufacturers. The estimates are reasonable. Customs duties of 80% on imported equipment and 25% on imported raw materials have been included in the project local costs. 49. Physical contingencies amounting to 5% of the cost of traffic dependent items in the trunk network component of the project have been in- cluded to cover uncertainties in the traffic levels following extension of STD. Other estimates are either for works where detailed engineering has been completed or relate to large numbers of component works where deviations from individual estimates will tend to balance out in the aggregate. Price contingencies provided amount to 22% of both local and foreign costs. The allowances are based on the estimates by P&T and the Indian equipment fac- tories of possible cost increases. 50. The proposed loan of US$80 million will cover about 78% of the estimated foreign exchange costs of the project. The balance would be met from internal cash generation and borrowing (see para. 58). Procurement and Disbursement 51. All equipment imported directly by P&T and financed by the Bank would be procured on the basis of international competitive bidding in ac- cordance with the Bank Group's Guidelines. All other equipment for which the Bank would provide finance will be procured by P&T from local Govern- ment - owned factories. As with previous loans and credits, the Bank loan would finance the estimated foreign exchange costs of the equipment to be supplied by these local factories, which would represent the cost of imported raw materials and components used in the manufacture of such equipment. Also as previously ICB is not proposed for the equipment in the project which can be procured economically and efficiently from the domestic factories. For switching and transmission equipment there is strong justification for local procurement for reasons of economy, compatibility and standardization. In case of cables, supplies of many sizes and types are involved for each of thousands of sub-projects throughout India and consequently considerable savings are achieved through more accurate matching of purchases to indivi- dual jobs and better scheduling of deliveries. Examination during appraisal confirmed that the main equipment items produced by the factories were com- parable in quality and delivery with internationally procured equipment and prices were generally lower. 52. All materials and components, except proprietary items, imported by such factories for the production of the equipment to be supplied by the local factories would be procured through international shopping proce- dures similar to that followed by India under Bank Group financed Industrial Imports Program Credits. Proprietary items imported by the factories would be excluded from Bank financing. An appropriate provision confirming these procurement arrangements is set out in Part B of Schedule 4 to the Loan Agreement. 53. The proposed loan would provide US$30 million for equipment to be imported by P&T, and US$50 million for purchases from local factories. Items to be financed under the loan would be as follows:  - 15 - US$ Million A. Direct Imports by P&T (i) Switching Equipment Electronic telephone exchanges 8.0 Electronic trunk exchanges 6.0 Electronic telex exchanges 3.0 (ii) Transmission Equipment Coaxial-cable line equipment 4.0 Radio systems and equipment 4.0 (iii) Equipment for Research, Testing & Training 3.0 (iv) Raw Materials for P&T Workshops 2.0 Sub-total 30.0 B. Purchases from Domestic Factories (i) From Hindustan Cables Limited (HCL) Cable and accessories 24.9 (ii) From Indian Telephone Industries (ITI) Switching, transmission, radio systems, coaxial cable and multiplex equipment 24.8 (iii) From Hindustan Teleprinters Limited (HTL) Teleprinters 0.3 Sub-total 50.0 Grand Total 80.0 54. For direct imports by P&T disbursement of loan proceeds would be made against CIF cost incurred by P&T in import of equipment and of materials for manufacture in their workshops. 55. In respect of procurement from Government factories, it is pro- posed, as was the case in the past Loans and Credits, to disburse against invoices to P&T a predetermined percentage representing the average foreign exchange content of the product mix, supplied from each factory. These were estimated during the appraisal mission to be: - for ITI, 25% of the selling price; - for HCL, 30% of the selling price; and - for HTL, 6% of the selling price. These percentages will be subject to review if substantial changes occur in material prices or exchange rates or local availability of materials.  - 16 - Financial Analysis 56. As a Government department, P&T's finances form part of the national budget. The revenues of the Board are paid into the Central Government's consolidated fund and its costs are met through parliamentary appropriation. Funds for construction made available by Government to the Telecommunications Branch in excess of those generated internally are called capital-at-charge and consist of Central Government contributions of local funds and foreign exchange loans borrowed by Government on behalf of the Branch. The commer- cial accounts show the Telecommunications Branch's operations on a commercial basis, as though it were a separate entity and had full use of its funds. Foreign borrowings are recorded as debt and other central government contri- butions as equity. The Branch pays annual interest of 6% on the capital-at- charge. The total payments by Branch to Government include sizeable transfers to the Postal Branch of P&T. The total payments to Government over the 1976-79 period works out to the equivalent of a 16% interest on capital- at-charge. 57. The revenue of the Telecommunications Branch was about US$345 mil- lion, and its operating income was US$91 million in FY76; revenue is expected to increase by 30% to about US$455 million in FY77. During the past four years, when the operating results were very satisfactory, the rate of return on fixed assets ranged between 15.0% and 21.2%. The Branch has been financing about two-thirds of its capital expansion from internal sources after covering debt service and the transfer to the postal service (see paras 59 and 60). This pattern of financing is reflected in the conservative capital structure at the close of FY76 when debt equaled 35% of capitalization. 58. The following is a summary of the financing plan for the period 1977-79, which includes the period of the project.  - 17 - Requirements and Sources of Funds for the Telecommunications Branch 1977-1979 Rs US$ Million Million Requirements Construction program and working capital increase 9,368 1,041 100 Sources Internal cash generation /a 7,147 794 76 Less: Debt service 1,299 144 14 Postal transfers 2,083 231 22 Net internal cash generation 3,765 419 40 Withdrawals from P&T fund held by Government 40 4 - OYT /b payments and other deposits 1,400 155 15 Central Government contribution 1,743 194 19 Borrowings 2,420 269 26 Total Sources 9,368 1,041 100 /a Includes interest earned on postal transfers. /b Own your telephone deposits - advance deposits from applicants for new telephone connections (see para 28). 59. In the foregoing financing plan, net internal sources of funds (after debt service and postal transfers and including as a source of funds OYT payments and other deposits, and withdrawals from the P&T fund held by Government) would finance 55% of construction costs and working capital in- crease. The self-financing of 55% of this capital program is impressive, particularly when considering that the value of plant is expected to increase by 70% during this period and that the Telecommunications Branch will be covering substantial losses of the postal operation. Were the Telecommuni- cations Branch not supporting the postal operations, it would be generating 71% of total requirements for financing gross asset formation. Central Government contributions would finance 19% and foreign exchange borrowings 26%. The total borrowings of US$269 million include: undisbursed portion of IDA Credit 403-IN US$40 million; Hungarian credit US$9 million; other bilateral credits US$40 million; proposed loan of US$80 million; and further financing of US$100 million to be arranged by the Government from foreign borrowing or free foreign exchange.  - 18 - 60. A substantial amount of funds generated by the Telecommunications Branch is made available to cover the losses of the postal operation which amounted to US$74 million in FY76 and expected to total about US$231 million over the period FY77-79. There are some 120,000 post offices located through- out India, of which about 105,000 are in rural and backward areas where revenues fall short of covering operating costs. 61. Forecast operating results and financial position through FY81 are satisfactory, with rates of return ranging between 15.7% and 21.5%. During the five-year period 1977-81 when the value of plant in service is expected to increase 150%, the debt/equity ratio would remain at about 35/65, reflecting a financing pattern where the Branch would continue finan- cing expansion mainly from internal sources. 62. Tariffs are reviewed and adjusted periodically to accommodate cost increases and maintain financial performance standards. Tariffs were in- creased about 20% in the latest review which became effective in March 1976. The tariff structure is related to costs so that, for example, subscribers in the large metropolitan areas pay more than the average basic cost for local service, reflecting the higher costs of providing an extensive local network. 63. Forecasts show that over the next five years the tariff level will provide sufficient revenues to finance about 63% of requirements after provid- ing substantial funds to the Postal Service, and exceed appreciably the mini- mum rate of return of 11% on average net plant in service presently required under Credit 403-IN. This requirement to earn a 11% rate of return would be continued under the proposed loan (Section 4.04(a) of the Loan Agreement). Economic Analysis and Risks 64. Economic benefits from telecommunications investment arise from the more efficient use of resources made possible in other sectors of the economy. Productivity is improved, waste is avoided, the disadvantages of distance and of dispersal of people and of productive units are reduced and markets are greatly expanded. 65. While the benefits of development of a telecommunications system are considerable, they are hard to quantify fully. In most cases, the gross benefits to the caller will exceed the charges paid. In addition, bene- fits normally accrue also to the recipient of the call. Moreover, when the system is extended to new subscribers, the benefit to existing subscribers cannot be reflected in the new connection charges. In India, for many years there has been a substantial waiting list for new connections, which presently stands at about 280,000 despite the recent introduction of an application deposit (paragraph 28). These general observations strongly suggest that the benefit of the project is under-represented by the associated increase in revenue.  - 19 - 66. Aside from these questions related to efficiency, the benefits of a system are particularly hard to quantify when the ultimate beneficiaries cannot be identified readily, and thus equity considerations cannot be taken into account. Practically all of India's subscribers are commercial and industrial enterprises and government services, for whom telecommunications constitute an intermediate input into the final goods or services produced. Private connections are also used for productive purposes in many cases. 67. Finally, telecommunications Is a sector which may contribute dynamically to development in a way which none of the traditional benefit measures can adequately reflect. It is difficult to value the contribution of telecommunication links without which, for example regional development in backward areas, management of infrastructure projects or rapid and efficient marketing of perishable agriculLural crops are impossible. 68. Given the externalities associated with telecommunications, the discount rate which equalizes the stream of expected revenues attributable to the project with the capital and operating costs is a conservative estimate of the economic rate of return of the project. 1/ This is 20.2% for the pre- sent project. A 10% increase in the costs of construction and a 10% decline in the revenue stream would lower this estimated economic rate of return to 14.5%, showing that the economic viability is fairly insensitive to changes in the major parameters. 69. This project involves no special risks. Conclusion 70. Although telecominunlication investments in India have been highly successful, the Investments in the sector have continued to be below re- quirements. This has resulted in unusually low per capita availability of telephone services and extremely large unsatisfied demand. Nevertheless, our Involvement has been Instrumental in making possible higher investment levels than would otherwise have prevailed. Equally important have been our contributions towards steady institutional improvements which have enabled P&T to make more efficient use of the available resources. P&T today is one of the best managed and most sound, financially and techni- cally, of Government enterprises in India. However, more needs to be done on the financial, economic-cum-planning and technical side. Under the proposed project, further stress would be given towards fostering financial independence of the Telecommunications Branch by expeditLng the extension of commercial accounting practices to the District levels. The work of the special economic unit, whLch is to be established in P&T, would improve the quality of investment planning. Our continued association would also help P&T in their applications of modern sophisticated technologies for telecommtunication development in India. 1/ Taxes are excluded from costs, as are physical and price contingencies.  - 20 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 71. The draft Loan Agreement between India and the Bank, the Report of the Committee provided for In Article III, Section 4(iii) of the Articles of Agreement and the text of a draft Resolution approving the proposed loan are being distributed to the Executive Directors separately. 72. Special conditions of the project are lLsted in Section III of Annex IV. 73. I am satisfied that the proposed loan would comply witLh the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 74. T recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by: J. Burlce .inapp Attachments June 22, 1976  ANNlEX1I O0DUTh DATA - INDIA Page 1 3,280,183 hiZ 7.0 Mion (md-1973) 350 Per holof arable land SCIAL. INDICATORS India !& I.M.mi ii .n MA PM CAPIT MSR (ATLAS B55IS) -i .. o Li 90 L. 220 /a 2,600 1 DEDm8AICC r rate4t ~par tho.aa,d 3 4 58 d 48. L 1. L5 Zd. 13.94 Crude death rats Per thouande 13 1 16 19 L4de 1 7a.j. 12.0 4 Infant mortality rats (par thouee lv bits139 120-ThOcA . 80 17.5 i Lieexpectancy at birth (years) ii15 50 L8 58 72 Or*es repoductio rte 44 2.7 /b_i 2.9 32, 3.3 1.3 Population growhrt urban 3/ 230.0 301j Population g-oth rate rbw 23 k54 Age auruneo (Pernant) 0-1. 11 a 1.3 a 23. 15-61. 56 51 53, 11a 6217 4 65 nd over 3/f3 a 13 6 ige depende,ncy ratio 0 .09 c 0.9 a 06 I Ecor.rd~~ depeaden-y mtio A ~~1.0 17 5 1.C.a Urban poountle.o As peroant of total 18 4k 20 /ake 384 32 /ce 78 /. Emly planngctg No. of acoeptora cuonlative (theu. 1000 15 * 75 Log No. of visero (% of barried omen) .. Yrbrform (thousnds) 189,000Li 221,000 44, 1.0,100 c 13,2(00/ 25,7001 Percentage neoploy.4 in agriclture 73 L 71 4~~4 62 7 564 3 Preretage nampioyod 3.78 2 I4m 7j 3.6 m Per-etAii. iiia ince.. received by highest 5% 27 ~r 25ro . 25or 5 Percent of notioa loonie received by high.st 20% 52 r 53 Ir s . 51 r 39 9E51? P.ernat of national iloones receive by 1ernt 20% 45~ .._ 24~ 6r Li Formact of national ioose rece.ived by loseot h.% IL.7 .3~ ... 12 ~j 19 r515 MSTRtIT3*TDN OP LAND 0hUKRMW Si owned by top 105 of Osue .. % owned by iallee.t 10% of owners .. PoplaioMpr haicle 5,80La 1800 27,380/ 2,71 5 c/ Pono.iation Per nurin Person 5,0140 5,l1O 8,1320 77 1,970 1 3 4 Population, per hospital bed 2,600 1 1,620 1a 1,15 J 650 L&z 1n Lisa Per napit: calorie eapply so% ofrequiranete 44 95 93 - 93 85 125 Per oepta protei oapply, ttal (grise per dayj 46 55 53 53 45s 90 Of Wobic, animal and pulse 19 /p 16 /ab 14. /d 22/ Death 'aet 1-1 years /7 1.1 5 . 44 / pri.ory school enrolLwnt ratio 1.2 79Io 71 Ii /2 A 110 Adjusted seodryoho enrolla-t ratio 10 28 444 1.2 15 4 702 Ye.ar of as ln1ig provided, first arod second leve 17 12 12 10 13 vocatLeioal enrollment as % of sac. sohool eneollsent 1 6 28 10 66.e S Adult literacy rete 5 21.1-U 36 56ak S /o._g 720 1id, 97 L Averege No. of Persons per room (urban) a.6 Intelk 2.8 /c.a.3,ak . .~ ./...l Percet of occupied meit, withmtj piped water 6~6 /gd-j PAccess to electricity (.as of total poPulation) 2 3 /iia J.. Perct of tural Populatimohn c ectvd to electricity 6. -. 6d . ~feivere Per i00 population 5 23 L. 111. 46 15 672 La Peesenger oars per 1OM population 0.8 1524 3 Electric Pose ocoamptlon (kwh p.c.) 1.6 100/ 23 25 a i7 NRe. print noesinoption, p.c. kg pee year LEow7 o 17 ~ 2 5 Notoe, Fig-ce refer either to the latest periods onoannt of aoviro- tai tweaq.t-, e. nS egt, the lateet years. Latest periods refer to Prineiplr to distribution by age ad .an of national popuiatione. the yearo 1956-60 or 1966-703 the Intent years tn prin- &6 Protein standar-ds (requirseente) for all eceutriee an stab- ciplo to 1960 and 1970. isohed by USDA Soonoeloi Research ServIce prestds for a eline 44 The Per Cepito GSP setieato is ot moe-lt pri..o for allowance of 60 grene of total protein per day, aM 20 gasesn of Y-r other than 1960, oslooloted by the m oeveec animal acd pales protein, of which 10 grams should be aninal teoboique as thc 1972 W-rld Bcob itiso. protei.. Thesoe standards are swbat iser than these of 78 424 ,q ...og cb-r of daughters per -cc of reproductive ea of total protei and 23 pan of animal protein as an .oe. average for the vwold, proposed by PLO in the Third World F'ood Za Pbpultio- growth raeso orea for the dcaden ending in Sorr5y. 1960 end 197. 4 Sone etudisef hare s~ggeetad that orude death ratee of shildrn. /L Ratio of population undor 15 and 65 and over io popula- ages Ithrough 4. my be coed As a first apprbximation indexe of tion of wge 15-61 for age dependeny ratio end to labor malnairitino. force of aga 1$-6L. for ecconolc depseneocy ratio. Li. P.erentage eIrclnd of oorv -Aening population of scoleol ag la FAO referec taimdrda represent Physiological re- as defined for each seantry. quire1atsat for coreal activity and heasathc taking 15 1972, Ak REtivte annua averge for 1963-61. bused on -eeute of the na,tbonel ample Souvey; /0 3971; Id Eotleate; 1965-70; If 1973; aj EnUrt.n d annual averge for 1951-6i basad en aeai1.als af decennial ceneus; A4 i3g-6o; Ratet is setiente based on, birtho obtaoined by application of 'r~everseureivl" metthod in resolts of 1951 and 1961 cesues. 4 1960-72; A5 For the definition of urban see .= ft,INE a..eLrr ifl p. iS; 44 fthniipnlitios, regeny capitalo end other pIacen with urhe, characterirtice exldn etiin 5Fr the definition of orbo see J Deiccceohc leahoch 977 p 127; A5 Are cianoifid a. urban for local gvrmeant purpoase, i.e. county hergh,nicplbrghen urban dli.ticta; L. 1961; 15 If-l.lden all -ndividualo o,o potlcipate in any type of econei.c activity; a AID satiate cf labor force in age grou~p 15-59. 188M report given a figure of 180.4. il2iic hesed en the i971 population ceneno. The differenors to duo to chngee in the definitioc of ayorker. In the 1971 cenase, per-ems wer ciesifled ooly on the beasis of their~ cain activities. This led to the exciuibon of secerel categ.rise, ouch so hoosuvs aw Households; 4.. 1967-68; Lt 1968; 15 1962; /, Perocane in g-vernoet service only; 1 i7;,"15 096; 15 Including rural hoopitals; L. Gocernoocet hospital eotabliehoenta only; La. 19,60-62; lab 196970, Lac, Remti e which Irl detas, overage stdents; ld 16; 'n Alicoigvctoa short-tore, coursee; 1f41965; Lii l1961; /nh opulation, of 10 years end over iae.d on uric per-otonpl dote of 1971; 415j 15 Yonre end oe; 4a Date refer to households; 4h Into booed c- cople tabu.lato of n return; 4L! iota refer to hooseholdo in convetional dwellings; I5 bporto only; icc Rglcte-d applinote for sorb. line end poplation nae Indonesia a releest referanc .-otry, although ' ito ;. t.he per ca.pIta incoce group bcio India. enThe UniLed Kingdoc baa boon ColOted heoaue. of the lportant. role of oullin atrenterprieco and the highly deve.loped eyeten of eccol rifr,  ANNEX 1 ECONOMIC LEVELOPMENT DATA Page 2 GNP PER CAPITA IN 1973 -/ UpS120 GROSS NATIONAL PRODUCT IN 1974/7 1 ANNUAL RAfE OF GROWTE (t, constant prices) USS Bln. 1961/62-1964/65 1965/66-1969/170 1970/71-t1973/4 GNP at Market Prices 87,4 100.0 3.4 3.7 1.9 Gross Domestic Investment 14.8 16.9 Gross National Saving 12.8 14.6 Current Account Balance -2.0 -2.3 Resource Gap -1.8 -2.1 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 ValLe Added (at factor oosta Labor Foroe V.A. Per Worker USt Bln. % Itn 5 Of Natiomal Average Agriculture 24.5 46.6 130.0 72.1 188 64 Industry 11.8 22.3 20.2 11.2 582 199 Servioes 16.3 51.t 30.2 16.7 542 186 Total/average 52.6 100.0 180.4 100.0 292 100 GOVERNMENT FINANCE General Governmentdv Central Governm nt (Rs. Bln) O of GIP 1974/75 1974/75 1972/73-1974/T5 197475 194/75 1972/73-1974/75 Current Reoeipts 107.63 15.4 15-7 64.02 9.1 9.2 Current Expenditures 98.9 14.2 15_2 57.78 8.2 6.7 Current Surplus/Deficit 8.64 1.2 0-5 6.24 0.9 0.5 Capital Expenditures e/ 40.40 5.8 5.4 30.17 4.3 4.1 External Assistance (net) 10.17 1.4 1.0 10.17 1.4 1.0 MONEY. CREDIT AND PRICES 1965/66 970/71 197/72 1972/73 19nZ1 1974/75 Auguat 1974 August 1975 (Billion Rs outstanding at end of period) Money and Quasi Money 61.4 105.7 122.4 142.2 169.1 187.4 176.8 198.2 Bank Credit to Public Sector 40.8 56.9 69.0 82.5 92.9 102.0 98.8 115.3 Bank Credit to Private Seotor 28.1 56-7 64.4 76.o 90.1 100.5 90.0 104.7 (Percentage or Index Numbers) January 1975 January 1976 Money and Quasi Money as % of GDP 24.0 24.4 26.3 27.9 27.2 25.5 Wholesale Price Index (1961/62 = 100) 131.6 181.1 138.4 207.1 254.2 313.0 316.o 290.5 Annual percentage changes in: Wholesale Price Index 7.7 5-5 4-0 9.9 22.7 23.1 -8.1 Bank Credit to Public Sector 12.9 8.6 21.3 19.6 12.6 9.8 4.8 8 Bank Credit to Private Sector 12.8 17.4 13.6 18.0 18.5 11.5 22.9 i a/ The per capita GNP estimate is at 1973 market prices, calculated by the conversion technique used in the 1975 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. h/ Quick Estimates. a/ Computed from trend line of GNP at factor cost series, including one observation before first year and one observation after last year of listed period. IJ Transfers between Center and States have been netted out, e/ All loans and advances to third parties have been netted out. V Credit to Government. v/ Credit to Commercial Sector.  ANNEX 1 Page 3 BAIANCE OF PAYMENTS t972/73 197317 1474/ 1975/76 /alIS3E EXPORTS (A IAGE 1972/73-1974/75) (uS$ Million) IIln. Exports of Goods 2,558 3,259 4,143 4,300 Jute m aftu5ru 329 10 Imports of Gooda -2,682 -3,971 -5,739 -5,920 Tea } 220 7 Trade Balanoe - 124 - 732 -1,596 -1,620 Cotton TextilesJ 217 7 179 (net) i/ - 146 n.e. n.a. n.a. Iron Ore 171 5 Engineering Goods 295 9 Resource Can - 270 n.a. n.a. n.a. Others 2.081 65 Interest Payments (not) - 237 - 233 - 260 - 261 Total 3,313 100 Other Faotor Payments (net) - 8 n.a. n.a. n.a. Net Transfers j/ - 50 n.a. n.a. n.a. Balance on Current Account - 565 n.>. n.a. n.a. EXTERNAL DEBT. MARCH 31t 1975/ Official Aid US8 Mm. Disbursements 955 1,249 1,766 2,210 Repayable in foreign currency 11,056 Amortization -445 -459 -519 -522 Repayable throuA Mort of goods 714 Transactions with IMF 75 530 130 Total Outstanding and Disbursed 11,770 All Other Items 89 205 41 500 M DEE S-lCVICE RALTI0 FOR 1975/76 19.0 percent / Increase in Reserves (-) - 34 -105 38 -435 Gross Reserves (end year) 1,311 1,416 19378 1,813 I /ID LENAID . December 31. 1975 (3- Mlne.) Net Reserves (end year) 1,311 1,34i 773 1,073 ____ Fuel and Related Naterial. I IDA Imports 265 720 1,451 1,450 Outstanding and Disbursed 445 2,827 of which, Petroleum 265 719 1,451 1,450 Undiabarsed 264 1,157 Outstanding including 729 3,984 Exports 41 20 26 n.a. Undiesbred of whichs Petroleum 37 16 17 n.a. RATE OF EXCHANE -I/ Prior to mid-December 1971 U 031t.00 = Re 7.5 After end June 1972 I Floating Rate Re 1.00 = UStOt133333 Spot Rate December 31, 1975 Mid-December 1971 to : US81.00 = ne 7.27927 approx. uS88.0o = p.. 8.937 end June 1972 Rs 1.00 = 1StO.137376 approx. Rs 1.00 = uSS 0.112 ./ Estimated. J/ For 1973j74 to 1975/76, included with 'All other Items'. ,1/ Aid and trade figures converted to 0S dollars using exchange rates and DIP trade conversion factors as indicated in inside front oover of this report or notes to individual tables. i/ Excluding garments. j/ Amortization and interest payments (excluding IMF transactions) as a percentage of merchandise exports.   ANNEX II Page I of 12 THE STATUS OF BANK GROUP OPERATIONS IN INDIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of May 31, 1976) 1/ Loan or US $ Million Credit No. Year Borrower Purpose (Net of Cancellation) BANK IDA Undisbursed 38 Loans/ 1,032.5 36 Credits fully disbursed 2,051.9 614-IN 1969 India Tarai Seeds 13.0 - 7.0 176-IN 1970 India Kadana Irrigation - 35.0 0.1 203-IN 1970 India Punjab Agricultural Credit - 27.5 15.5 226-IN 1971 India Andhra Pradesh Agricultural Cr. - 24.4 4.2 242-IN 1971 India Power Transmission II - 75.0 32.3 249-IN 1971 India Haryana Agricultural Credit - 25.0 6.2 250-IN 1971 India Tamil Nadu Agricultural Credit - 35.0 8.4 264-IN 1971 India Cochin II Fertilizer - 20.0 2.2 267-IN 1971 India Wheat Storage - 5.0 3.8 268-IN 1971 India Pochampad Irrigation - 39.0 1.4 789-IN 1971 ICICI Industry DFC IX 60.0 - 4.0 278-IN 1972 India Mysore Agricultural Credit - 40.0 12.3 293-IN 1972 India Maharashtra Agricultural Credit - 30.0 1.5 294-IN 1972 India Bihar Agricultural Markets - 14.0 11.8 312-IN 1972 India Population - 21.2 13.0 342-IN 1972 India Education - 12.0 11.8 356-IN 1972 India IDBI - 25.0 18.9 357-IN 1973 India Nangal Fertilizer Expansion - 58.0 0.5 377-IN 1973 India Power Transmission III - 85.0 70.5 378-IN 1973 India Mysore Agricultural Markets - 8.0 7.8 902-IN 1973 ICICI Industry DFC X 70.0 - 14.6 390-IN 1973 India Bombay Water Supply - 55.0 44.6 391-IN 1973 India Madhya Pradesh Agricultural Cr. - 33.0 13.2 392-IN 1973 India Uttar Pradesh Agricultural Cr. - 38.0 20.7 403-IN 1973 India Telecommunications V - 80.0 41.2 427-IN 1973 India Calcutta Urban Development - 35.0 21.6 440-IN 1973 India Bihar Agricultural Credit - 32.0 22.1 456-IN 1974 India HP Apple Processing & Marketing - 13.0 11.8 481-IN 1974 India Trombay IV - 50.0 42.0 1011-IN 1974 India Chambal (Rajasthan) CAD 52.0 - 43.9 482-IN 1974 India Karnataka Dairy - 30.0 30.0 502-IN 1974 India Rajasthan Canal CAD - 83.0 61.8 520-IN 1974 India Sindri Fertilizer - 91.0 79.5 521-IN 1974 India Rajasthan Dairy - 27.7 27.6 522-IN 1974 India Madhya Pradesh Dairy - 16.4 16.4 526-IN 1975 India Drought Prone Areas - 35.0 33.6 1079-IN 1975 India IFFCO Fertilizer 109.0 - 106.2 1097-IN 1975 India Industry DFC XI 100.0 - 92.6 532-IN 1975 India Godavari Barrage Irrigation - 45.0 42.7 540-IN 1975 India ARC Credit - 75.0 58.5 541-IN 1975 India West Bengal Agrc. Dev. - 34.0 34.0 562-IN 1975 India Chambal (Madhya Pradesh)CAD - 24.0 24.0 572-IN 1975 India Rural Electrification - 57.0 57.0 582-IN 1975 India Railways XIII - 110.0 75.1 585-IN 1975 India Uttar Pradesh Water Supply - 40.0 40.0 598-IN 1975 India Fertilizer Industry - 105.0 104.3 604-IN 1975 India Power Transmission IV - 150.0 * 150.0 609-IN 1975 India Madhya Pradesh Foresty T.A. - 4.0 4.0 610-IN 1976 India Integrated Cotton Development - 18.0 * 18.0 616-IN 1976 India Industrial Imports XI - 200.0 194.2 Total 1,436.5 4,112.1 of which has been repaid 734.0 18.1 Total now outstanding 702.5 4,094.0 Amount sold 111.5 of which has been repaid 111.5 Total now held by Bank and IDA 702.5 4,094.0 Total undisbursed (including *) 268.1 1,322.4 1,590.5 * Not yet effective 1/ Prior to exchange adjustments.  ANNEX II Page 2 of 12 B. STATEMENT OF IFC INVESTMENTS (As of May 31, 1976) Amount (US$ million) Year Company Loan Equity Total 1959 Republic Forge Company Ltd. 1.5 - 1.5 1959 Kirloskar Oil Engines Ltd. 0.9 - 0.9 1960 Assam Sillimanite Ltd. 1.4 - 1.4 1961 K.S.B. Pumps Ltd. 0.2 - 0.2 1963-66 Precision Bearings India Ltd. 0.7 0.3 1.0 1964 Fort Gloster Industries Ltd. 0.8 0.4 1.2 1964-75 Mahindra Ugine Steel Co. Ltd. 11.8 1.0 12.8 1964 Lakshmi Machine Works Ltd. 1.0 0.3 1.3 1967 Jayshree Chemicals Ltd. 1.0 0.1 1.1 1967 Indian Explosives Ltd. 8.6 2.9 11.5 1969-70 Zuari Agro-Chemicals Ltd. 15.1 3.8 18.9 TOTAL 43.0 8.8 51.8 Less: Sold 6.0 1.6 7.6 Repaid 10.8 - 10.8 Cancelled 6.2 0.7 6.9 Now Held 20.0 6.5 26.5 Undisbursed 8.4 - 8.4  ANNEX IT Page 3 of 12 /a C. PROJECTS IN EXECUTION- Generally, the implementation of projects has been proceeding reasonably well. Details on the execution of individual projects are below. The level of disburssements was US$480.3 million in FY75 or 57% of Bank Group commitmentss to India in that year. The undisbursed pipeline of US$1,825.9 million as of March 31, 1976, corresponds roughly to commitments over the preceding two-year period and reflects the leadtime which would be expected given the mix of fast and slow-disbursing projects in the India program. Ln. No. 789 Ninth Industrial Credit and Investment Corporation of India Project; US$60.0 million loan of October 21, 1971; Effective Date: December 20, 1971; Closing Date: December 31, 1976 Ln. No. 902 Tenth Industrial Credit and Investment Corporation of India Project; US$70.0 million loan of June 8, 1973; Effective Date: August 16, 1973; Closing Date: December 31, 1978 Ln. No. 1097 Eleventh Industrial Credit and Investment Corporation of India Project; US$100 million loan of April 2, 1975; Effective Date: July 1, 1975; Closing Date: December 31, 1980 These loans have supported industrialization in India through a well-established development finance company. Loans 789-IN and 902-IN are fully committed and commitments are progressing satisfactorily for Loan 1097-IN. Disbursements under Loan 902-IN are ahead of schedule. Ln. No. 614 Tarai Seeds Project; US$13.0 million loan of June 18, 1969; Effective Date: September 12, 1969; Closing Date: Dec- ember 31, 1976 This loan to the Tarai Development Corporation is to assist in the development of seeds of high-yielding varieties. The Corporation is working efficiently and has developed a reputation for excellent seed quality. Seed production is meeting targets. Expansion of an existing processing plant has been completed. Two other plants are being consider- ably expanded. Bids have recently been cleared for orders to be placed for the equipment necessary to complete the expansion program. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense and with the understanding that they do not purport to present a balanced evalua- tion of strengths and weaknesses in project execution.  ANNEX II Page 4 of 12 Cr. No. 176 Kadana Irrigation Project; US$35.0 million credit of February 9, 1970; Effective Date: July 29, 1970; Closing Date: September 30, 1976 This project will finance in part the construction of Kadana Dam on the Mahi River and the expansion of the irrigated area below the dam. The project also includes field channel construction, land-leveling, drainage works and roads, and a program to support agricultural development. The project will be completed about two years behind schedule because of delays in dam construction. The agricultural components of the project are also behind schedule. Some of the delays in implementation occurred at the start of the project before major investments were made. These will not affect the economic justification of the project. Further delays have occurred as a result of building materials shortages. The Government intervened and made adequate quantities of building materials available. In spite of an additional delay in the procurement of a large batching plant, the dam is still expected to be completed in July 1977, which is in accordance with the revised schedule. A project review mission visited the Project in January and is preparing its report. Cr. No. 268 Pochampad Irrigation Project; US$39.0 million credit of August 23, 1971; Effective Date: November 15, 1971; Closing Date: March 31, 1977 The project will assist the agricultural development on the right bank of the Godavari River by providing perennial irrigation to some 100,000 ha. It includes the construction of Pochampad Dam, a concrete-lined main canal, distributary canals, field channels, drains and roads. Until mid- 1973, overall performance on the project was satisfactory with construction and disbursements from the IDA credit progressing ahead of schedule. For two years, acute shortages of construction materials, especially explosives for the canal excavation, and technical difficulties with the lining of the main canal hampered progress. As a result, construction of the main canal has fallen about one year behind schedule, which is likely to delay the introduction of irrigation to over 40% of the project area. Since early 1975, all material shortages have been removed and progress has been satis- factory. Construction of the dam is ahead of schedule. Land development, however, is haphazard and increasingly lagging behind water availability in the project area. The Pochampad component of the proposed Andhra Pradesh Irrigation and Command Area Development Composite Project is designed to remedy this inadequacy.  ANNEX II Page 5 of 12 Cr. No. 532 Godavari Barrage Project; US$45 million credit of March 7, 1975; Effective Date: June 9, 1973; Closing Date: June 30, 1980 Tendering for the supply of equipment is under way. The contract for civil works was recently awarded after international competitive bid- ding. Cr. No. 203 Punjab Agricultural Credit Project; US$27.5 million credit of June 24, 1970; Effective Date: September 4, 1970; Closing Date: June 30, 1977 Cr. No. 226 Andhra Pradesh Agricultural Credit Project; US$24.4 million credit of January 8, 1971; Effective Date: May 10, 1971; Closing Date: June 30, 1977 Cr. No. 249 Haryana Agricultural Credit Project; US$25.0 million credit of June 11, 1971; Effective Date: November 2, 1971; Closing Date: June 30, 1977 Cr. No. 250 Tamil Nadu Agricultural Credit Project; US$35.0 million credit of June 11, 1971; Effective Date: November 2, 1971; Closing Date: December 31, 1976 Cr. No. 278 Mysore Agricultural Credit Project; US$40.0 million credit of January 7, 1972; Effective Date: September 25, 1972; Closing Date: December 31, 1976 Cr. No. 293 Maharashtra Agricultural Credit Project; US$30.0 million credit of March 29, 1972; Effective Date: January 31, 1973; Closing Date: June 30, 1976 Cr. No. 391 Madhya Pradesh Agricultural Credit Project; US$33.0 million credit of June 8, 1973; Effective Date: October 10, 1973; Closing Date: December 31, 1976 Cr. No. 392 Uttar Pradesh Agricultural Credit Project; US$38.0 million credit of June 8, 1973; Effective Date: October 31, 1973; Closing Date: December 31, 1976 Cr. No. 440 Bihar Agricultural Credit Project; US$32.0 million credit of November 29, 1973; Effective Date: March 29, 1974; Closing Date: June 30, 1977 Cr. No. 540 Agricultural Refinance and Development Corporation (ARDC) Project; US$75.0 million credit of April 28, 1975; Effective Date: August 5, 1975; Closing Date: Dec- ember 31, 1977 Apart from the Punjab project, which consists of mechanization equipment only, all the above agricultural credit projects are similar in  ANNEX II Page 6 of 12 structure, being designed to provide long- and medium-term credit to farm- ers through credit institutions for such on-farm investments as tractors, minor irrigation and land-leveling. Disbursement of the minor irrigation components are on schedule. Tractor procurement was delayed following changes in both the supply and demand situations after the projects were originally appraised, which prompted GOI to request that indigenous as well as imported models should be eligible for IDA financing under these credits. The Executive Directors approved this request in December 1973 and those credits which have tractor components have been amended accordingly. Tractor procurement is proceeding satisfactorily. Credit 540 is a continuation nationwide of the previous program of agricultural credit projects, which were confined to individual states. ARDC will continue to act as the financial intermediary for refinancing agricultural credit. Cr. No. 267 Wheat Storage Project; US$5.0 million credit of August 23, 1971; Effective Date: November 14, 1972; Closing Date: September 30, 1978 The Food Corporation of India (FCI) has completed a contract for construction of the silo foundations at two of the five silo sites. A tender has been offered for foundations at the other three sites. Tenders have been cleared for a part of the equipment. The godown component has been fully disbursed. In addition, the All-India Grain Storage Study is pro- gressing and the staff training program has been planned in detail and is to be implemented soon. Project implementation is progressing satisfactorily. Cr. No. 456 Himachal Pradesh Apple Processng and Marketing Project; US$13 million credit of January 22, 1974; Effective Date: September 26, 1974; Closing Date: December 31, 1978 This project was designed to promote the development of apple processing and marketing in Himachal Pradesh, and comprises grading and packing centers, cold storages, a juice processing plant, road improvements and cableways. The project encountered initial delays due to managerial and technical problems. A June 1975 review mission recommended actions to bring the project in line with managerial and technical capabilities and to incorporate consultants' recommendations for modifying the cold storage component. A recent review mission found a satisfactory improvement in the prospects for successful project implementation. Disbursements should be completed by the Closing Date. Cr. No. 403 Telecommunications V Project; US$80.0 million credit of June 25, 1973; Effective Date: July 30, 1973; Closing Date: December 31, 1976 Disbursements were initially delayed mainly because of delays in material supply from both local and external sources. Delays in local supply were due to labor problems affecting one of the principal suppliers and imports were delayed due to longer than anticipate leadtime required. The revised disbursement schedule for this credit is now expected to be met.  ANNEX II Page 7 of 12 Cr. No. 242 Power Transmission II Project; US$75.0 million credit of May 3, 1971; Effective Date: July 29, 1971; Closing Date: March 31, 1977 Cr. No. 377 Power Transmission III Project; US$85.0 million credit of May 9,, 1973; Effective Date: October 10, 1973; Closing Date: September 30, 1977 Cr. No. 604 Power Transmission IV Project; US$150.0 million credit of January 22, 1976; Effective Date: July 22, 1976; Closing Date: June 30, 1981 Power Transmission II, which is a continuation of the project financed by Loan 416-IN, was designed to assist in financing the purchase of equipment and materials required to develop a power transmission program in nine states under the Fourth Five-Year Plan. Initial delays occurred because of problems associated with preparing bid documents suitable for international bidding and the analysis of the very large number of bids involved, but all contract awards have now been made. As a consequence of the delays, however, the closing date of the credit had to be postponed accordingly. For Power Transmission III, virtually all equipment has now been ordered; there are likely to be substantial cost overruns, a portion of which is being met through Power Transmission IV. Cr. No. 264 Cochin II Fertilizer Project; US$20 million credit of July 30, 1971; Effective Date: December 2, 1971; Closing Date: June 30,, 1976 Cr. No. 357 Nangal Fertilizer Expansion Project; US$58.0 million credit of February 9, 1973; Effective Date: May 11, 1973; Closing Date: March 31, 1977 Cr. No. 481 Trombay IV Fertilizer Expansion Project; US$50.0 million credit of June 19, 1974; Effective Date: August 21, 1974; Closing Date: December 31, 1977 Cr. No. 520 Sindri Fertilizer Project; US$91 million credit of December 18, 1974; Effective Date: February 27, 1975; Closing Date: September 30, 1978 Ln. No. 1079 IFFCO Fertilizer Project; US$109 million loan of January 24, 1975; Effective Date: April 28, 1975; Closing Date: March 31, 1979  ANNEX II Page 8 of 12 Cr. No. 598 Fertilizer Industry Project; US$105.0 million credit of December 31, 1975; Effective Date: March 1, 1976; Closing Date: June 30, 1980 The Cochin Fertilizer Project is intended to help finance the expansion of fertilizer manufacturing facilities at Cochin. The project is now proceeding about 24 months behind schedule, mainly because of pro- curement delays, slow progress on civil works, and shortages of steel and cement. Procurement problems have been largely overcome, and most of the equipment is either at the site or at the Cochin port. Another factor which has contributed to the delay has been technical problems in the commission- ing of the Cochin I plant, which has required a disproportionate amount of management attention. Credit No. 481 contains funds for a Plant Operations Improvement Program which will be used in part to overcome these problems; the use of these funds has been identified on a plant-by-plant basis and procurement has been initiated. Engineering work, procurement and site construction for the Nangal Fertilizer Project are proceeding satisfactorily, but the project faces substantial cost over-runs due to increases in equipment prices. Progress on the Trombay IV project has been good although project completion may be delayed by about four months because of longer than expected delivery times for critical equipment. Engineering design and procurement for the Sindri project are proceeding on schedule. The IFFCO project has been delayed by about a year as a result of a change in feedstock from fuel oil to naphtha and delays in completion of engineering contracts. Credit 598-IN is designed to increase the utilization of existing fertilizer production capacity; implementation is now underway. Cr. No. 294 Bihar Agricultural Markets Project; US$14.0 million credit of March 29, 1972; Effective Date: July 31, 1972; Closing Date: December 31, 1978 Cr. No. 378 Karnataka Wholesale Agricultural Markets Project; US$8.0 mil- lion credit of May 9, 1973; Effective Date: September 7, 1973; Closing Date: December 31, 1979 These projects were designed to help with establishment of whole- sale markets in a number of towns in Bihar and Karnataka. Progress under the projects has generally been satisfactory. Markets construction in Bihar was delayed due to legal challenges arising out of the state's acqui- sition of land for market sites; however, these difficulties have been satis- factorily resolved and construction of the first ten markets is well advanced. Six markets are expected to open for business by mid June 1976. Market construction in Karnataka is expected to be on schedule.  ANNEX II Page 9 of 12 Cr. No. 312 Population Project; US$21.2 million credit of June 14, 1972; Effective Date: May 9, 1973; Closing Date: June 30, 1978 This credit is designed to finance an experimental and research oriented population project in Karnataka and Uttar Pradesh. The project's infrastructure, which would provide the optimum facilities (buildings, equip- ment, staff and transport) according to GOI standards in selected districts in each state, is-almost complete. The two Population Centers, which will design and monitor research aimed at improving the family planning program, are now functioning. Cr. No. 342 Agricultural Universities Project; US$12.0 million credit of November 10, 1972; Effective Date: June 8, 1973; Closing Date: December 31, 1979 The project implementation has improved with satisfactory progress on civil works, preparation of equipment lists, bid documents, fellowship programs and university development plans. The rate of disbursement has been slow, partly due to previous delays in the selection of key personnel and in the preparation of equipment lists, but is expected to improve in line with progressing construction and equipment procurement. Cr. No. 356 Industrial Development Bank of India Project; US$25.0 million credit of February 9, 1973; Effective Date: June 22, 1973; Closing Date: June 30, 1977 The project had a particularly slow start which was mainly due to institutional problems in the participating State Financial Corporations (SFCs). However, there is now evidence of improvement in the utilization of this credit. Commitments are virtually completed. In order to provide continuity in the Bank Group's involvement with small and medium scale industry, a second line of credit is being prepared, which would cover the expected foreign exchange requirement of SFC sponsored small and medium scale industrial projects for the two year period beginning on July 1, 1976. Cr. No. 390 Bombay Water Supply and Sewerage Project; US$55.0 million credit of January 22, 1974; Effective Date: March 13, 1974; Closing Date: December 31, 1978 A substantial cost overrun on the project from US$158 million equivalent to about US$375 million equivalent has been caused by inflation and price increases resulting from delays in appointment of engineering con- sultants and redesign of certain components of the project. Action has been taken to redefine and rephase the project construction to fit the financing  ANNEX II Page 10 of 12 available from the Credit, local loans and bonds and internal cash genera- tion of the project entity. The revised cost estimate for the implementation period 1975/76 to 1979/80 amounts to US$266 million dollar equivalent exclud- ing interest during construction. GOI has confirmed the revised project description and is expected to confirm the project costs and financing plan shortly. Meanwhile project construction is proceeding and most major con- tracts for civil works, equipment and materials have been awarded. Disburse- ments should therefore be faster in FY1977 than in preceding years. Finan- cial performance of the project entity during 1974/75 was satisfactory, but major rate increases have been instituted in April 1976, to ensure con- tinuing financial viability of the project entity. Cr. No. 616 Eleventh Industrial Imports Project; US$200.0 million credit February 24, 1976; Effective Date: April 1, 1976; Closing Date: June 30, 1976 This credit was signed on February 24, 1976, and became effective on April 1, 1976. Cr. No. 427 Calcutta Urban Development Project; US$35.0 million credit of September 12, 1973; Effective Date: January 10, 1974; Closing Date: December 31, 1977 Progress in implementation of this project is rather slow, in view of the reduction in overall funding of the CMDA program, of which the project forms part, and of management and organizational problems. Project costs have increased considerably, especially in the water supply and sewerage/drainage sectors. In order to accommodate the project to funding available, CMDA has submitted a redefined project, which is expected to be substantially completed by December 1978, about 24 months behind the original schedule. Cr. No. 482 Karnataka Dairy Development Project; US$30 million credit of June 19, 1974; Effective Date: December 23, 1974; Closing Date: September 30, 1982 Cr. No. 521 Rajasthan Dairy Development Project;; US$27.7 million credit of December 18, 1974; Effective Date: August 8, 1975; Closing Date: December 31, 1982  ANNEX II Page 11 of 12 Cr. No. 522 Madhya Pradesh Dairy Development Project; US$16.4 million credit of December 18, 1974; Effective Date: July 23, 1975; Closing Date: June 30, 1982 These three credits totalling US$74.1 million support dairy development projects organized along the lines of the successful AMUL dairy cooperative scheme Ln Gujarat State. Progress on the Karnataka project has been slow, partly because of inadequate staffing off the Karnataka Dairy Development Corporation (KDDC) and partly due to poor project management. However, improvement in implementation is expected with the recent recruitment by KDDC of a management consultant. Training has progressed with the completion of a two-month training program by 68 field staff. Overall, the project is six months behind the original sched- ule. Progress under the Madhya Pradesh project is satisfactory, with the Madhya Pradesh Dairy Development Corporation having been established and all key staff positions filled. Field staff training has commenced and the first dairy cooperative societies should be established by December, 1975. Detailed design studies for plant construction have begun and con- struction is expected to begin soon. With respect to the Rajasthan project, the Rajasthan Dairy Development Corporation has been formed and key personnel appointed. The first milk union has been formed and good progress has been made in organizing dairy cooperatives at the village level. Ln. No. 1011 Chambal (Rajasthan) Command Area Development Project; US$52 million loan of June 19, 1974; Effective Date: December 12, 1974; Closing Date: June 30, 1981 Cr. No. 502 Rajasthan Canal Command Area Development Project; US$83 million credit of July 31, 1974; Effective Date: December 12, 1974; Closing Date: June 30, 1981 Cr. No. 562 Chambal (Madhya Pradesh) Command Area Development Project; US$24 million credit of June 20, 1975; Effective Date: September 18, 1975; Closing Date: December 31, 1979 These projects are generally proceeding satisfactorily. In par- ticular, agricultural extension has made remarkable progress. Cr. No. 541 West Bengal Agricultural Development Project; US$34 million credit of April 28, 1975; Effective Date: August 28, 1975; Closing Date: March 31, 1980 The project provides credit over 4 years for construction of about 18,000 shallow tubewells, 300 deep tubewells, 200 agro-service centers and 3 markets. The credit also helps the state to finance the completion of a number of state-owned river lift and deep tubewell schemes and to improve agricultural extension and maintenance facilities. Participating banks  ANNEX II Page 12 of 12 and the Agricultural Refinance Corporation are preparing schemes for ini- tiating the agricultural credit components. The state government has reor- ganized its agricultural extension services and is taking steps to reorganize the State Water Board and to carry out studies needed for completion of river lift schemes. Cr. No. 526 Drought Prone Areas Project; US$35.0 million credit of January 24, 1975; Effective Date: June 9, 1975; Closing Date: June 30, 1980 The project has progressed satisfactory during the past six months. Most staff are now in position and physical works are well underway. Pro- gress has been slower in new activities (dry farming, dairy and sheep development) because of delays in staffing and insufficient technical know- ledge. Technical assistance, to be provided through the FAO Fund-in-Trust, should help. To further improve the situation, at GOI request, a special supervision mission will help identify training requirements and formulate a training program. Cr. No. 572 Rural Electrification Project; US$57.0 million credit of July 23, 1975; Effective Date: October 23, 1975; Closing Date: December 31, 1979 Cr. No. 582 Railways XIII Project; US$110.0 million credit of August 26, 1976; Effective Date: October 10, 1975; Closing Date: September 30, 1977 This project consists of Indian Railway's new and on-going investment program between April 1, 1975 and March 31, 1977. The credit is expected to be fully disbursed by March 31, 1977. Cr. No. 585 Uttar Pradesh Water Supply and Sewerage Project; US$40.0 million credit of September 25, 1975; Effective Date: February 6, 1976; Closing Date: June 30, 1980 Cr. No. 609 Madhya Pradesh Forestry Technical Assistance Project; US$4.0 million credit of February 26, 1976; Effective Date: May 26, 1976; Closing Date: December 31, 1981 Cr. No. 610 Integrated Cotton Development Project; US$18.0 million credit of February 26, 1976; Effective Date: August 24, 1976; Closing Date: December 31, 1981 This project will demonstrate practical and effective means of increasing cotton yields and maximizing by product recovery from ginning and cotton seed processing. It will be executed over five years.  Annex III Page 1 of 2 pages INDIA - SIXTH TELECOMMUNICATIONS PROJECT LOAN AND PROJECT SUMMARY Borrower: India acting by its President Beneficiary: Posts and Telegraphs Department of the Ministry of Communications Amount: US$80 million Terms: 23 years including 3 years of grace at 8.85% per annum Project Description: Improvement and increase in capacity of India's domestic telecommunications system during 1976/77 through 1978/79 by installation of additional tele- phone lines and associated facilities, expansion of trunk line facilities, extension of service to rural areas and increase in telex services Estimated Cost (US$ Million) (1976/77-1978/79): Local Foreign Total Local telephone systems 130 49 179 Trunkline systems 77 27 104 Telex and telegraph 4 3 7 Research & training facilities 3 2 5 Land & buildings 29 - 29 Contingency & escalation 69 22 91 TOTAL PROJECT COST (1976/77-1978/79) 312 103 415 Ongoing works (1976/77) 67 30 97 Future works (4f-77/78-1978/79) 355 136 491 Working capital increase (1976/77-1978/79) 38 - 38 TOTAL REQUIREMENTS 772 269 1,041  Annex III Page 2 of 2 pages (US$ Million) Financing Plan: Proceeds of IDA Credits 403-IN 40 Proceeds of Hungarian credit 9 Proceeds of proposed loan 80 Bilateral funding 40 Other foreign exchange (GOI or future borrowing) 100 Internal sources of funds 578 GOI contributions 194 TOTAL 1,041 Estimated Disbursements: FY 1977 FY 1978 TOTAL 38.5 41.5 80 Procurement Arrangements: Equipment imported directly by P&T to a value of US$30 million would be procured through interna- tional competitive bidding. US$50 million would finance the estimated foreign exchange cost of the equipment to be procured from domestic factories, the portion representing the cost of imported materials and components used in the equipment. All materials and components imported by such factories for the production of the equipment to be supplied by the local factories would be procured through international shopping procedures similar to that followed by India under Bank Group financed Industrial Imports Credits. Rate of Return: 20% Staff Project Report: Report No. 1125-IN daLed June 22, 1976. May 27, 1976  Annex IV Page 1 of 2 pages INDIA - SIXTH TELECOMMUNICATIONS PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I Timetable of Key Events (a) Time taken by the country to prepare the project Program and project planning is a continuous process in tele- communications. Fifty professional man years (about .02% of project cost) over the years commencing with formulation in 1972 of the Fifth Five Year Plan for telecommunications de- velopment would be a minimum estimate. (b) The agency which has prepared the project Telecommunications Branch, Posts and Telegraphs Department. (c) Date of first presentation to the Bank and date of the first mission to consider the project October 1972. January 1973 as part of the appraisal of the fifth telecommunications project (403-IN). (d) Date of departure of appraisal mission November 8, 1975. (e) Date of completion of negotiations May 12, 1976 (f) Planned date of effectiveness October 1976 Section II Special Bank Implementation Actions None.  Annex IV Page 2 of 2 pages Section III Special Conditions (a) P&T to establish a special economic unit to undertake various economic analyses of telecommunications (para- graph 34). (b) Factories to procure all material and component imports under methods consistent with those required in India by the Bank Group under industrial import credits (paragraph 52). (c) P&T to maintain telecommunications tariffs at a level to provide revenue sufficient to earn a minimum rate of return of 11% on average net plant in service (paragraph 63).  INDIA K --~~- TELECOMMUNICATIONS AFGHANISTAN ~~~~ it' Coaxial and Microwave Schemes EXISTING 1 0E.co~R44Nd PAKISTANDSAGF~-FSTC \0 ,"c CHIN t~~~~~'~~~~~'~~~~~'o/~( ,b l 5 AnTS" /~~~~~~~~~~~~~~~~~~~~~~~~~ NEWDEL ,0~~~~~"t~/ 'L N A~~~~~~- 9 ALTo.- qflA\ ~ ANGLADESH /