India - Ninth Industrial Imports Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 1921 PROGRAM PERFORMANCE AUDIT REPORT INDIA - NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT (CREDIT 474-IN) February 21, 1978 Operations Evaluation Department 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.  FOR OFFICIAL USE . NLY PROGRAM PERFORMANCE AUDIT REPORT INDIA - NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT (CREDIT 474-IN) TABLE OF CONTENTS Page No. Preface Basic Data Sheet Highlights PROGRAM PERFORMANCE AUDIT REPORT 1 - 2 Short-term Effectiveness 2 - 3 Industrial Policy and Performance 3 Impact on IDA-assisted Industries 3 - 5 Conclusion 5 - 6 Attachment: Program Completion Report Summary A.1 - A.2 I. Introduction A.3 II. The Justification for the IX Industrial Imports Credit A.3 Background. to the IX Credit A.3 - A.4 India's Adjustment Efforts A.4 Evaluation of India's Adjustment Efforts A.5 - A.6 Balance of Payments Situation A.6 - A.7 Evaluation of Balance of Payments A.7 III.Design of the Credit A.8 - A.9 Evaluation of the Credit A.9 - A.14 IV. Postcript A.15 This doCunftt has a sNcted distribution and may be ued by recipients only in the performance of their oik duties. he contents may not othrwise be dsclosed without World Bank authorization. -2- Page No. Annexes: 1. Balance of Payments A.16 2. Indicative Allocations by Sector A.17 3. Table 1 - Note on Disbursement and Procurement Comparison of Indicative Allocation and Actual Disbursements A.18 - A.19 Table 2 - Disbursement for Canalized Agencies A.19 Table 3 - Disbursements by Category of Industrial Imports Credits A.20 Table 4 - Industrial Imports Credits: Sources of Procurement A.21 4. Performance of IDA-Assisted Industries A.22 - A.32 PROGRAM PERFORMANCE AUDIT REPORT INDIA - NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT (CREDIT 474-IN) PREFACE This report presents a performance audit of the Ninth Industrial Imports Program Credit to India (Credit 474-IN). This credit, in an amount of US$150 million, was approved in May 1974, committed in June 1974 and closed, fully disbursed, in November 1975. The memorandum is based on the attached Project Completion Report prepared by the Bank's South Asia Regional Office, discussions with Bank staff and review of project files. The memorandum also draws on the findings of the Program Performance Report (SecM 75-704) on the four previous (Fourth to Eighth) Industrial Imports Credits (Credits 138, 182, 327 and 402-IN), which contains a detailed assess- ment of the Bank's program lending policy to India.  PROGRAM PERFORMANCE AUDIT REPORT INDIA - NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT (CREDIT 474-IN) BASIC DATA SHEET Amounts (in US$ m1n) As of 12/31/77 Original Disbursed Cancelled Repaid Outstanding Credit 474-IN 150.0 150.0 - 150.0 Program Data Original Plan Actual or Est. Actual Board Approval April 1974 5/28/74 Credit Agreement April 1974 5/29/74 Effectiveness 6/24/74 Credit Closing 11/30/75 Mission Data No.of No. of Month,Year Weeks Persons Manweeks Date of Report Appraisal 2/28-3/09/74 2 3 6 3/20/74 Supervision I 9/18/74* 3 1/2 3 10 1/2 Follow-on Program Credit 528-IN of US$200.0 million, signed February 14, 1975 for Tenth Import Credit Program. * Appraisal mission for Tenth Imports Credit Program.  PROGRAM PERFORMANCE AUDIT REPORT INDIA - NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT (CREDIT 474-IN) HIGHLIGHTS The justification for the Ninth Industrial Imports Program Credit to India, reviewed in this audit report, rested on a combina- tion of long-term problems covering industrial growth and efficiency which had been the focus of previous IIP credits, as well as shorter- term financial needs which emerged as a result of the increase in import prices and effect of the 1972/73 drought on agricultural pro- duction. The direct impact of the credit on IDA-assisted industries seems to have led to some improvement in their performance. The credit also provided the Government some leeway to carry out its reform program which had a definite impact on the country's balance of payments. Other points of interest are: - the difficulty to establish a follow-through mechanism to implement the recommendations made by the studies conducted on a number of industrial sub-sectors (para. 32 of the PCR and para. 7 of the PPAM); - the outcome of discussions between the Bank and Govern- ment of India on long-term industrial policies (para. 11 of the PPAM).  PROGRAM PERFORMANCE AUDIT MEMORANDUM INDIA - NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT (CREDIT 474-IN) 1. Credit 474-IN was the ninth of the series of eleven Industrial Imports Program (IIP) Credits which the Bank extended to India between 1964 and 1976 to help the country cover its industrial maintenance import requirements. Although these credits belong to the general category of program lending, they were designed to support the operation of the capital goods manufacturing sector and the fertilizer industry by contributing to the financing of the maintenance import needs of these industries. More- over, only about 800 high-priority, medium- and large-scale enterprises belonging to certain manufacturing sub-sectors specified in the Credit Agreement were eligible to receive funds from the credit proceeds. The list of these sub-sectors--known as IDA-assisted industries--was extended on the occasion of the ninth IIP credit to include three new industries-- wires and cables, spare parts for construction equipment, and cast-iron spun pipes--because of their particular need for foreign exchange, resulting to some extent from the termination of USAID programs. The fertilizer and pesticide industry was expected to receive half of the credit amount, well above the share it received under previous credits (17% on average). 2. When the ninth IIP credit was extended in May 1974, it was justi- fied on the same basis as previous IIP credits. This was that India was able to produce a large proportion (over 75%) of its capital equipment requirements, but that it was also dependent on imported raw materials and maintenance supplies to sustain economic development. Industrial sector growth based on import substitution had been impressive during the late fifties and early sixties, averaging about 9% per annum, but has since been constrained by a chronic foreign exchange shortage. Because of the country's low savings, as well as its relatively well developed capital goods industry, external financing requirements have often exceeded expenditure on capital goods imports. For this reason, project lending, even when it included substantial local cost financing, was often insufficient to cover India's needs in foreign exchange, and the main objective of the ninth IIP, like that of previous credits, was to enhance industrial capacity utilization and at the same time alleviate the country's balance of payments situation. At the time the credit was under consideration, the increase in oil and raw material import prices, coupled with the severe effect of the 1972/73 drought on agricultural production and resulting large food imports, had placed India's balance of payments situation in particular difficulty. - 2 - In view of the sharp deterioration in the terms of trade, the Bank decided, shortly before negotiations, to double the size of the credit from the amount originally envisaged of US$75 million to US$150 million. Thus, the ninth IIP credit was based on the existence of both short-term and long- term economic difficulties. As the amount of the credit (as that of most other IIPs) was based on an estimate of the country's one-year (1974/75) foreign exchange requirements, emphasis was placed on the necessity for quick disbursement, and the credit did, in fact, lead to a rapid increase in Bank Group disbursements to India (see Table 1). Two further program credits were extended to India in February 1975 and February 1976, respectively. Since then, the balance of payments situation has considerably improved as a result of successive good monsoons and subsequent lower food import bill, and no further IIP credits have been made. Table 1 (US$ million) (FY: July 1 - June 30) FY73 FY74 FY75 FY76 FY77 Total Bank disbursements 276.3 368.2 480.2 551.5 598.7 of which industrial imports 66.5 109.1 198.4 205.8 139.3 (%) (24.1) (29.6) (41,3) (37.3) (23.2) 3. Disbursement was completed in 9 1/2 months, i.e., 2 1/2 months ahead of schedule, thus achieving the quick resource transfer objective of the credit. Rapid disbursement was not, however, achieved at the expense of regular procurement procedures. About two-thirds of procure- ment was done through three "canalizing agencies" which are government trading agencies importing large quantities of raw materials. Importing was done by inviting global tenders for all orders in excess of US$100,000 equivalent. 4. The justification for the credit rested on a combination of short-term need and the longer-term problems covering industrial growth and efficiency which had been the focus of previous IIP credits. These are discussed in the following sections. Short-term Effectiveness 5. In addition to severe balance of payments problems--overall deficit exceeded US$2 billion in 1974/75--the Indian economy was marked during the years 1973 to 1975 by strong inflationary pressures fueled by sharply rising import prices--particularly of foodgrain, oil and fertilizer-- as well as domestic crop failures. By mid-1974, inflation had reached 30% - 3 - per annum. The measures taken by the Government to deal with these diffi- culties and their impact on the balance of payments are reviewed in the PCR (see paras 5 to 10 and 14 to 15). They included the implementation of an income policy, strengthening of monetary controls, and enforcement of tight fiscal and budgetary measures. Moreover, the Government under- took, as high priority goals, to stimulate local energy production, to promote exports and devise measures to increase food production. These measures were remarkably successful in checking the price rise which dropped to 3% within two years; they are also partly responsible for the present brighter balance of payments outlook, although their effectiveness in this regard has clearly been enhanced by favorable weather. Table 2 1972/73 1973/74 1974/75 1975/76 1976/77 _ (Preliminary) Trade deficit (US$ million) 124 732 1,620 1,530 450 Gross financing requirements (US$ million) 921 1,219 2,319 1,737 190 Annual growth in wholesale price index (%) 5.6 15.3 28.8 3.0 3.0 Source: Economic Report (No. 1529-IN) Industrial Policy and Performance 6. There have been three major ways in which Industrial Imports Credits were intended to contribute to an improvement of industrial perfor- mance. The first: is by the direct effect of the additional imports financed by the credits on the specific industries eligible to use them. The second is by means of special studies of specific industries which benefitted from the credits. Finally, the third is by means of a dialogue on industrial policy which takes place in connection with the appraisal and negotiation of the credits. The impact of the present credit has to be considered under these three headings and against the background of the series of industrial import credits which preceded it. Impact on IDA-assisted Industries 7. The effect of the credit on eligible industries is reviewed in the PCR (see paras 22 and 23). During the year 1974/75, capacity utiliza- tion was somewhat higher in IDA-assisted industries (75-80%) than in the manufacturing sector as a whole (70-75%). Moreover, output of eligible industries increased by 5.8% on average, although performance across sub- sectors was very uneven (see Annex 4 of the PCR). This represented a decline from the 9.9% rate of growth reached in 1971/72, but was, however, substantially higher than the growth of the manufacturing sector as a whole (1.4%). Table 3 Percentage change in the index of Industrial Production 1971/72 1972/73 1973/74 1974/75 Manufacturing sector 7.0 0.9 1.0 1.4 IDA-assisted industries 9.9 6.0 5.2 5.8 8. The export performance of IDA-assisted industries improved notably in 1974/75, chiefly as a result of a drop in domestic demand. Record exports, however, characterized the manufacturing sector as a whole and the share of IDA-assisted industries within total engineering goods exports remained fairly stable, around 30%. Table 4 Engineering Goods Exports (US$ million) 1972/73 1973/74 1974/75 Total engineering goods exports 184.9 248.5 440.9 Exports from IDA-assisted industries 59.4 67.9 127.6 (As % of total engineering goods exports) (32.1) (27.3) (28.9) 9. Special Studies. As the need for the IIP credits originated to a large extent in the heavy dependence of the industrial sector on imported inputs, much attention was devoted to the particular problems of the industrial sub-sectors supported by the credits. Special studies were conducted on a number of them with a view to making policy recommendations to the industries; thus, as part of the appraisal for the ninth IIP, a survey of the casting and forging industries was conducted. 10. The main conclusion of these sub-sector studies was that, in addition to the non-availability of adequate inputs which resulted in under-utilization of productive capacity, there was considerable scope for removing inefficiencies and improving product quality at the plant level. However, most of the technical and organizational recommendations made in - 5 - the studies were found to be difficult to implement, mostly owing to the fragmented structure of the industries concerned and, in general, a follow-through mechanism failed to be established. In several instances-- the casting and forging industries among others--these sub-sector studies stressed the need for appropriate technical assistance and, to some extent, were at the origin of the Technical Development Fund established in 1976 under the Eleventh IIP (see para. 13). 11. The dialogue on industrial policy carried out with the Govern- ment focused on the general issues of import licensing, industrial capacity licensing and the export incentive system. Discussions dealing with these long-term industrial policies were pursued as part of the dialogue between the Bank and the Government of India on the occasion of regular country visits and economic reports. Since it was clear that no major liberaliza- tion of the import control system was in prospect, the discussions in con- nection with the Ninth IIP credit centered around the possibility of encouraging exports by some limited import liberalization intended to enable firms with export potential to maintain their competitiveness. This emphasis has been continued in subsequent credits, and part of the Eleventh credit was used to finance import replenishment entitlements (REPs)-. Moreover, the Bank's stronger focus on export promotion contributed to the establishment of a Technical Development Fund designed to provide technical assistance and foreign exchange to firms with definite moderni- zation and export programs. The Fund's main purpose is to enable enter- prises to obtain key pieces of imported equipment more rapidly than can be done through the normal import licensing procedures. The operation of the Fund will give initial priority to those IDA-assisted industries which have been the subject of special studies, i.e., commercial vehicles and tractors, forgings and foundries and textile machinery. However, these innovations were introduced only recently and their impact can be evaluated only in the future. Since 1974, the Government of India has also introduced several policy changes: industrial licensing restrictions have been somewhat eased; cash assistance to export-oriented industries has been extended and REP allocation made more generous; also, extensions of productive capacity now receive automatic approval when earmarked for export. Conclusion 12. The Ninth IIP credit did serve its two major purposes of pro- viding an increase in Bank Group disbursements to India at a time of unusual economic difficulty following a serious deterioration in the terms of trade and maintaining industrial production in the IDA-assisted indus- tries. The direct impact of the additional foreign exchange provided by this credit, together with that of its predecessors, on the IDA-assisted industries seems to have led to some definite improvement in their performance. - 6 - The data reveal that these industries have had a more rapid growth and a higher capacity utilization than that of industry as a whole. 13. On the other hand, the indirect effect of the credits on indus- trial performance arising from the special studies and the dialogue on industrial policy is much more difficult to judge. There has been some evolution in policy regarding the encouragement of exports but, as the PCR implies (para. 27), most of the momentum for these changes came from within the Government itself. While the special studies on patticular industries were not taken as blueprints for industrial development, and indeed it would have been unrealistic to have expected that much, some of theirrecommendations were accepted and it seems likely that they have had some impact on the reevaluation of policy towards these industries. Operations Evaluation Department February 21, 1978 - A.1 - INDIA Ninth Industrial Imports Program Credit Completion Reporti., SUMMARY 1. Program lending to India in the form of Industrial Imports Credits first started in 1964. Eleven such credits have since been approved. A Project Performance Audit Report on the V, VI, VII, and VIIICredits was distributed to the Executive Directors in October, 1975 and covered the Bank Group's policies dnd practices in respect of program lending to India. Consequently, this report is essentially concerned with the IX Credit. 2. The IX CredLt was approved in May, 1974 at a time when the Indian economy was being seriously affected by the oil price crisis of late 1973 and by the after-effects of the 1972 drought. The justifi- cation for this credit was the adjustment measures taken and the strategy proposed by GOI to deal with the situation created by the rise in oil and commodity prices. GOI had introduced measures and made further proposals to curb inflation, develop local energy resources and restrict consumption of imported fuel, expand exports, and tackle the food situation. The short- term results of the efforts were outstandingly successful in curbing inflation and in the energy sector and were commendable in agriculture; however, improvement on the export front was not to take place until a year or so later than expected. GOI was able to manage the balance of payments during 1974/75 with increased assistance from consortium countries, including the proceeds of this credit, and other sources in such a way that India was able to meet her import requirements for food and to keep the economy running, albeit at a low level of activity. 3. The credit was designed to ensure disbirsement during 1974/75 and this was fully achieved. The credit financed the imported requirements of selected high priority industries which, in general, performed satisfactorily. Under this credit, and also as a product of the Bank's economic reporting, the dialogue on industrial policy administration was continued. Particular emphasis was placed upon the need for export incentive arrangements to make exporting mare profi.table. Some changes were introduced in 1974, and although they were modest, they heralded the further improvements which were made in later years. 1 Prepared by South Asia Region and Industrial Projects Department August, 1976 - A.2 - 4. As part of the appraisal of this credit, a special study was carried out on the forging and foundry industries. It made a number of recommendations for the industry as a whole and for certain individual firms. GOI has found it difficult to implement some of the recommendations because of the fragmented nature of these industries, their small size and the variety of items produced. GOI is now concentrating on those sections of these industries which are more easily manageable and on the framework for providing technical assistance. - A.3 - INDIA NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT Completion Report I - INTRODUCTION 1. Program lendLng to India in the form of Industrial Imports Credits first started in 1964 and four credits were approved between 1964 and 1966. The next two credits were approved in 1969 and 1970 after which there waa another gap until 1972. Between 1972 and 1976, a further six credita. were made on an annual basis with the Ninth Credit being approved in 1974 and therefore falling in the middle of this series. A Project Performance Audit Report has been prepared on four of these credits - V, VI, VII and VIII-approved between 1970 and 1973. The report was distributed to the Executive Directors on October 3, 1975 (See 1975-70,) - T+t provides an extensive review of the Bank Group's policies and practices towards program lending to India. For this reason, the broader aspects of program lending are not dealt with in this completion report, which is essentially concerned with the circumstanoesand justification surrounding the Ith Credit. II - THE JUSTIFICATION FOR THE IX INDUSTRIAL IMPORTS CREDIT Background to the II Credit 2. Prior to the oil price crisis of 1973, the Bank Staff had decid3d that the amount of program lending to India should be reduced. There were four reasons for this approach. First, India's economic performance had not been very satisfactory, especially in the industrial sector where tle Bank Group held the view that industrial policy administration was unnecessarily restrictive and cumbersome and was adversely affecting production. Secondly, the Bank Staff had been involved in extended negotiations over international competitive bidding for civil works. The Bank Staff was concerned about slow progress over this issue and considered that this obstacle to project lending, primarily for irrigated agriculture, should not result in program lending being continued as an alternative. Thirdl., the Bank Staff was certain that more high priority projects could be prepared by GOI for the lending program and thus that available Bank Group funds should be earmarked for such projects rather than be pre-empted by V Summary Project Description: Credit No. 474-IN; Amount US$ 150 million; Date of Credit Agreement 5/29/74; Date of Effectiveness 6/2V74; Closing Date 11/30/75; Dite of Disbursement Completed 3/6/75. - A.4 - by program lending. Finally, while India's balance of payments had never been easy, the situation from 1972 until the full impact of the oil price rise was felt was somewhat better than it had been for a number of years. Consequently, the traditional justification for a rapid transfer of resources carried less weight. These con- siderations led to the proposal that the amount of program lending in FY74 should be reduced from $100 million in FY73 to US$ 75 million. 3. However, towards the end of 1973, the Bank Staff became increasingly concerned, as of course did the Government of India, (001) about the impact of the oil price increase on the balance of payments at a time when large scale foodgrain imports were having to be arranged in order to :ffset the effect of the serious drought in the kharif of 1972, and it was clear by' the end of 1973 that India would not only require substantial amounts of foreign assistance but fast disbursing assistance in non-project form. 4. In early 1974, discussions took place between GOI and Bank Staff on the amount of the program credit which 00I urged should be raised above the U$ 75 million proposed. In fact, GOI asked that the entire balance of the IDA allocation for FY74 (US$ 230 million at that time) should be put into the program credit. Bank Staff agreed in principle to a substantial increase because India's needs were so pressing and because India had already introduced measures to deal with the oil nrice situation. A further reason was that Bank Staff realized ney would have to provide leadership in the Consortium to mobilize the resources in the form most urgently needed by India. Bank Staff could best demonstrate their conviction by raising the Bank Group's level of program assistance. Consequently, the Bank Staff agreed to a program credit of US$ 150 million, subject to a review by Bank Staff of a paper being prepared by GOI on the Government's adjustment masures. This review was carried out just prior to a working party meeting of the Consortium scheduled for April and Bank Staff wwo satisfied tith the actions taken and proposed by 00I in this paper. Accordingly, at the working party Seeting, Bank ftaff highlighted India's needs and the Bank Grouprs willingness to make speial efforts to assist by recommending an increase in the amount of the program credit. The Consortium members, for their part, responded by inUc ating their willingness to make similar efforts. Subsequently, a credit for US$ 150 million was approved by the fteoutive Directors. India's Adjustment Efforts 5. India's strategy for adjustment had four components concerned with measures (i) to curb inflation; (ii) to develop local energy resources and discourage use of imported oil; (iii) to intensify export efforta and (iv) to accelerate food production. Inflation was to be restrained through credit and money supply controls, which were to be introduced progressively during 1974. Local energy resources were to be developed by accelerating the completion of generating capacity, improving the operation of thermal power units, by increasing coal production and by pressing ahead with off-shore oil exploration; increased budget allocations for these purposes were included in the 1974/75 budget presented in March, 1974. Imported fuel consumption was to be discouraged by measures taken in November, 1973 to increase substantially gas and fuel oil prices combined with incentives to industry to convert from fuel oil to coal wherever practicable. Export performance was to be aided through a more liberal import policy for exporters introduced in April, 1974. The food situation was to be tackled in the first place by stepping up food imports to avert serious hardship. Improvements in food production were obviously going to require a long term effort but 001 placed emphasis upon increasing domestic fertilizer production and improved utilization of existing infrastructure in agriculture, especially irrigation; again,.provision for these purposes was included in the 1974/75 budget. 00I also decided in early 1974 to denationalize the wholesale wheat trade and raise foodgrain procurement prices by about 30%. - A.5 - Evaluation of India's Adjustment Efforts 6. GOI set about introducing measures with speed and determination. It is especially notoworthy that many of the key actions required had been taken by early 1974, while the basis for implementing the longer-term strategy for adjusment had been established in the 1974/75 budget presented in March, 1974. The shift in budget allocations towards agriculture and energy required the courageous policy decision to curb expenditures on social services. The outcome of these various efforts is summarized below. 7. Inflation, whichrhad been accelerating in the latter part of 1973 to reach its peak at an annual rate of 30% by mid-1974, was brought under con- trol by the end of 1975 at which point the wholesale price index stood lower than 12 months previously. A major factor in this change was the decline in food prices resulting from the improved supplies during 1975. But the inflation in prices of non-food items was also brought down to a moderate rate of around 7% per annum. This curbing of inflation, which meant that India ended 1975 with one of the lowest inflation rates in the world, was a remarkable achievement. 8. The development of local energy resources was also successful. Measures were taken to accelerate the completion of new power generating units with the result that new capacity of 1650 MW was commissioned in 1974/75 compared with an average of 730 MW in the preceeding three years. Some marginal improvement in the efficiency ofthermal units also took place. However, for improved power generation, the availability of adequate and assured supplies of coal was an important factor. Coal production increased from 77 million tons in 1973/74 to,83 million tons in 1974/75, and to 98 million tons in 1975/76. With regard to oil, the rapid development of the Bombay High oil strike has been a notable achievement of engineering and management skill and the first deliveries are expected in 1976/77. The consumption of oil products, in particular gasoline, was discouraged through additional taxes which 00I imposed in November, 1973. These taxes doubled the price of petrolevm products and this had a significant impact. Whereas consumption had been rising at twice the growth rate of the economy, it fell in 1974 and rose by only a modest amount in 1975, so that present consumption is still at the 1973 level. Export performance, in real terms, showed little or no improvement in 1974/75, but this was followed by an encouraging increase of 8% in 1975/76. - A. 6 - 9. The final part of the adjustment effort is harder to evaluate because raising agricultural production levels has been one of the most intractable difficulties facing India. The evaluation is complicated by the fact that the 1974 monsoon failed, thus leading to serious drought conditions over much of Western India. Coming so soon after the 1972 monsoon failure, the effect was to cause serious hardship in many areas. However, the good monsoon in 1975, followed by adequate irrigation supplies during the winter of 1975/76, is estimated (August 1976) to have resulted in a r"tord level 6f foodgrain production for 1975/76 of 118 million tons. Since theenation- alisation of the wholesale wheat trade, the marketing of wheat has proceeded more efficiently and one effeet of this has been that 001's procurement system has been working reasonably well large buffer stocks of some 17 million tons of foodgrain have been acquired (August 1976) which should give India more flexibility in the management in the economy than she has had before. The efforts to improve fertiliser output also produced results with output rising by 7% in 1974/75 and a further 27% in 1975/76. Nevertheless, performance in this sector still varies considerably and some units continue to suffer from less than optimum plant operation as well as from managerial and financial difficulties. 10. To conclude, while many inefficiencies continue in the Indian economy, the short-term results of India's adjustment efforts were outstandingly successful in curbing inflation, and in the energy sector, and were commendable in agriculture while in eaporta improvements did not start to take place until later. leaMe of Payments Situation 11. From 1968/69 to 1971/72, India's import capability had been progress- ively constrained in large part because of the decline the net aid transfers which fell from an annual average of US $ 1 billion in the three years ending 1968/69 to an historic low point of US$ 273 million in 1972/73 - On account of a restrictive import policy and an unexpected rise in ekjor. earniigs, India's reserves by the beginning of 1975/74 stood at US $ 1.3 billion, (groa3 as well as net, as there were no outstanding IMF liabilities), the same level as a year earlier when they represented about 5 months imparts plus debt service. 12. Thus, India started 1973/74 with reasonable reserves and the prospect of some flexibility in the management of the balance of payments. But the decline in net aid transfers was disturbing, especially because, if the level were not raised in the near future, India's development would be adversely affected. Furthermore, by early 1974, the impact of the oil price crisis was beginning to be appreciated and by then balance of payments estimates for 1973/7h showed a sharp deterioration. The trade deficit was expected to rise from an actual of US$ 124 million in 1972/73 to an estimated US$ 0.6 billion in 1973/74. The estimates prepared for the Consortium Working Party in April and May, 1974 showed that this deficit would be manageable with a modest acceleration of aid disburse- ments. However, the prospect before India for 1974/75 was extremely difficult. The trade deficit was forecast to jump to a staggering US$ 1.8 billion after - A.7 - meeting only the most urgent import requirements for food and materials to keep the economy running at a low level of activity. The gross financing gap was expected to double and, at that time, it was difficult to see how this gap could be filled. The Consortium was to be asked to increase aid disbursements by 30% and GOI was explering the possibility of additional financing from OPEC. A substantial drawing on IMF facilities and reserves was considered inevitable (Annex 1 sets out the balance of payments estimates made in May 1974). 13. To give India adequate flexibility in managing the exceptional balance of payments situation which had arisen, Bank Staff agreed with COI that every effort sihould be made to increase non-project assistance. The Bank Otadp assumed a leading role in pursuading the Consortium to meet the projected increase in aid requirements in non-project form ani to enter into a further extension of earlier agreements on debt relief3 and the Chai rman announced the Bank Staff's intention to double, to US$150 million, the amount of the industrial imports credit it was about to propose to the Bank Group's Board. Evaluation of Balance of Payments 114. The actual out-turn for 1974/75 was fairly close to the May, 1974 estiates, although the components were substantially different (Annex 1 shows this comparison). For instance, the trade deficit ended up at US$ 1.6 billion, but both the import and export figures were notably higher. The imports were higher because the monsoon failed in the middle of 1974,, leading to a maosive import of foodgrains, up from the estimated 3 million tons to 6 million tons. Exports earnings-were very much higher (28% above 1973/74) largely on account of price increases. 15. Aid donors responded to India's predicament and the Consortitm increased disbursements of non-project assistance (including food aid) by US$ 243 million (37% above the 1973/74 level and 61% above the 1972/73 level) to reach a total of US 1.2 billion, of which US$ 150 million o:: 12% was contributed directly by the IX Industrial Imports Credit. The oil facility which was introduced during 1974/75 enabled India to draw US$ 2140 million in addition to the drawing of the first credit tranche (US$ 283 million', making total drawings from the IF of US$ 523 million. OPEC assistance contributed an additional US$ 230 million. With these contributions and the improvement in export earnings, India reached the end of 1974/75 having had to make only marginal use of her overall reserves. However, her drawings on the IMF laeant that her not reserve position had deteriorated sharply from US$ 1.3 billion on March 31, 1974 to US$ 0.8 billion on March 31, 1975. - A.8 - III - DESIGN OF THE CREIIT 16. The objective was to make available the funds provided by the credit as rapidly as possible during 1974/75 and to achieve full disbursement within 12 months. This objective dictated the design of the credit. As with previous credits, it was decided to channel the funds to ludia through the financing of imports for certain high priority industries. This approach followed from three considerations First, the import requirement of these industries would ensure rapid disbursement of the credit amount. Secondly, under the existing and restrictive import licencing arrangements, the knowledge on the part of the selected industries that they had an assured source of foreign exchange from IDA would facilitate their production planning. And thirdly, the selection of industries would provide a basis for a dialogue between the Bank Group and GOI on the needs of these industries. In this connection, the Bank Group had started under the VIII Industrial Imports Credit to carry out special studies on some of these industries to provide more analytical background, and hence better insight, on specific industry problems. 17. The composition of industries selected provided, either directly or indirectly, inputs needed by vital sectors of the econoumr (Annex 2). In particular, the fertilizer, pesticides and tractor manufacturing inda tries supported agricultural development; commercial vehicles and automotive ancillaries supported the transport sectorJ electrical machinery, wires and cables and aluminium supported the power sector; manufactuing of earth- moving equipment and spares for existing earth-moving equipment supported construction projects, including irrigation works, as well as land levelling; while production of machine tools supported the capital equipment requirements of these and other industries. 18. Three new industries were added to the list of IDA-asciate-' industries: wires and cables, spare parts for construction equipme r and cast iron spun pipes. Wires and cables were added because the power tnortage resulting from the 1972/73 droughts limited production of domestic aluminium, and imported copper was used as a substitute. Spare parts for construction equipment were added to improve capacity utilization of machinez7 valued at about US$ 500 million which was operating at only about 40% of capacity compared to a world norm of 75%, and cast iron spun pipes were added because of their expart potential. 19. To render IDA assistance as flexible as possible, sector allocations were made on an indicative basis as had been done in earlier credits. An exneption was made in respect of fertilizer and pesticide to which, in view of their importance for agricultural production and the severe impact of the oil crisis on the cost of imported raw materials, US$75 million was allocated. - A.9 - In this case, the al.location was made a ceiling to avoid an excessively large portion of the credit being pre-empted by these two industries whose total import requirements were very much larger than the amount allocated. 20. A special utucbr was carried out as part of the appraisal of this credit on the forging and foundry industries. This study was the second in the series of moze detailed work on eligible industries under these credits; the first study was on the commercial vehicle and tractor ind tries and was carried out under the proceeding credit. The reports on the forging and foundry industries included proposal for a development progran for each of these industries aid an institutional framework to provide technical assistance. Evaluation of the Credit 21. Disbursement was completed in 9 months, i.e. 2 months ahead of schedule. Thus, the credit enabled resources to be transferred rapidly and within the time 'period needed to provide optimal assistance to India. Details concezning disbursement to the eligible industries are set out in Annex 3. 22 . Impact on KLixible Industries. The II Program Credit played an important role in iMproving utilization of existing production facilities and resources. Capacity utilization in IDA-assisted industries was about 7580% in 1974/75 compared to 70-75% for the manufacturing sector as a whole. The II Credit financed about 30% of the import requirements of IDA-assisted industries which had a total output of Rs 16 billion And employed 450,000 persons; failure to obtain US$ 150 million in foreign exchange that year would have resulted in a decline of US$ 410 million in output, and, te idling of about 140,000 employees and US$ 350 million worth of capital.M The direct marginal productivity of the credit is therefore in the order of about 2.5 (t10/150) which is quite high. This ratio would be higher if indirect effects (support of user industries; avoidance of the loss of production elsewhere through the income multiplier effect) were taken into account. 23. The bulk of the output of IDA-assisted industries was dire eted to the priority sectors of the economy - agriculture. power. transport, and construction. Nearly all of the IDA-assisted industries have been examined in some detail during the course of the appraisal of industrial imports credits over the past three years, and it is evident that these are industries in which India has or could develop a comparative advantage. In particular, engineering goods are being produced by efficient firms for the domestic market at a domestic resource cost of Ra 7-8/OS$ saved, which is quite competitive whea compared to. the official exchange rate. However, production for export is less competitive, on account of older designs and inferior quality, and there is a higher domestic resource cost of Rs 11-13/ US$ earned. The performance of these industries is set out in Annex 4, Table 1, and export performance is shown in Annex 4, Table 2. V Inventories have remained relatively unchanged over this year at 1-2 months for domestic supply and 3-4 for imported goods, which is a reasonable level in Indian conditions. - A.10 - 24. Procurement by canalizing agencies was arranged by inviting global tenders. s obtained have been competitive with those obtainable from the Rupee Trade Area and through bilateral aid. Prices charged to users by canalizing agencies were determined on the basis of the average purchase price of the preceeding three months, including import duties, plus fees and commission, which have been reasonable, and have been tightly controlled by a special committee. However, this system of pricing has made it difficult to reflect accurately fluctuations in the world market and so,when prices were falling, there was a time lag in the decline of MMTC's prices. On the whole, the operations of the canalizing agencies have improved over the last two years, although procedures still seem unnecessarily cumbersome. 25. Most of the imported raw materials consisted of items which could not be produced economically in India or for which domestic capacity was not sufficient. The most notable exception was rock phosphate. Significant rock phosphate deposits were found in the state of Rajastan in the 1960s. A feasibility study was completed in 1973 which indicated that a mining project, capable of producing about 25% of India's requirements, was financially and economically viable. At the time of the negotiation of this credit, the feasibility study was under review and various tests were being planned. Subsequently, serious delays in proceeding with this project arose. Under the XI Industrial Imports and the VII Fertilizer Industry Credits, the Bank Group asked for and obtained suitable undertakings for the development of this resource. 26. Dialogue on Industrial Policy Administration. The dialogue between 001 and the Bank Group in the course of the appraisal and subsequent negotiation of this credit was primarily concerned with export incentives and their administration. The Bank Group emphasised in particular the need for exporting to be made profitable and for exporters to have easy access to imported components and materials when these were required to maintain international competitiveness. During negotiations GOI indicated that certain steps had taken place, namely: (i) the percentage of replenishment licences (REPs) which could be used freely for imports without indigenous angle clearance had been raised from 5 to 10 per cent; (ii) a system of automatic REPs issued in advance; (iii) automatic payment of 75% of duty drawback on exports against shipping documents. 27. The impact of these changes was probably moderate, although they marked significant departures from previous policy positions. In subsequent years, the precedent set by these changes led to further improvements in the import licencing system as well as export incentive arrangements. Even so, progress has been slow. These changes cannot be attributed directly to the dialogue but the reasoning provided by the Bank Group, together with the analysis in the Special Studies, gave 001 me assibtance in reassessing the impact of policies on industrial efficiency. - A.11 - 28. Notwithstanding this Alow progress, the availability of free foreign exchange through the industrial imports credits had enabled GOI to allocate foreign exchange to ID-.assisted industries, as well as some other priority industries, on the basta of their capacity to produce and sell rather than their past production or installed capacity, as had previously been the case. This liberalization in the import licensing system introduced an element of competition between firms and allowed the efficient firms to expand their capacity and market shiare at the expense of the less efficient firms. As a result, IDA-assisted industries have expanded capacity at a rate of 7-E1 per year, comared to only 3-V$ for the entire manufacturing sector and most of this capacity expansion was in efficient firms. In this way, the availability of free foreign exchange through the industrial imports credits has enabled efficient firms to mazlmise the use of their technological and managerial capabilities. 29 . On the b-oader aspects of industrial policy, the Bank's annual Economic Reports and these Industrial Imports Credits la ve provided an opportunity for discussions which have been frank on both sides. However, only slow progress has been made in raising the efficiency of industry which, in the Bank Staff's view, would entail the restructuring of marq industries to permit more efficient firms to expand and to encourage the development of greater international competitiveness. 30,, Impact of the Special Studies. These studies were initially intended as case studies to illustrate the effect of Government policies on industry structure and performance, but they-were extended to include recommendations for action programs to be undertaken by GOI as well as the IndivIl firms in the industries studied. For GOI, the programs involved such matters as investment incentives, export incentives, improving the allocation of scares domestic raw materials and introducing more flexibility into import licensing arrangements. For individual firms the recommendations covered primarily technical aspects concerning product design, technology, quality and costs, and training; they also contained proposals for improving export capability. 31. In the case of studies carried out in 1972 on Commercial Vehicles and Tractors the response to the recommendations both at the Government and firm levels was slow. In part,, this was because this was a first attempt on the part of GOI and the Bank Group to carry out a detailed evaluation in India. Also, the study dealt with a sophisticated group of firms which had close technical collaboration or association with major foreign manufacturers. Finally, private firms questioned the validity of some recommendations, especially those concerned with management and finamial practices. In cubsequent follow up of the studies, these difficulties were largely overcome and the lessons learnt were applied in the succeeding studies. 32. With regard to tIe recomendations made in the reports, those cOnmGn with polic Mere lazely impleented over the following two 7ers. The extent to whLh iAividual t ememed the development PMm prepared far tAm has varied. As mght be expected, the more efficient fLrm have fanated and the pmgma (in ertain asses the eggeted pr ms cam md very closely to what these firms had intended to de). less oftleOnOt firms have been slow to respond; thes arftered severely during the autamabiW rcessim of IMand 19M and ar no mhark of investmt resoumras. - A.12 - 33. In the case of the studies in 1973, on forgings and foundries, a quite different set of problems arose. These industries are very fragmented and in need of technical assistance. At the same time, the small size, wide dispersion, and the variety of products makes it exceed- ing*y difficult to implement development programs for these industries. The reports made a series of recommendations and, in particular, made proposals for improving the availability of raw materials and for the development of an institutional framework to provide technical assistance. These recommendations proved difficult to implement. 34. GOI is now concentrating on general factors affecting the whole industry, such as raw material availability and the institutional framework, and the development of the "core" segment of the industry where major bottlenecks had been identified and where there was also considerable export potential (i.e. thin-walled, grey, iron castings used in cylinder heads and cylinder blocks and crankshaft forgings). 35. A Technical Development Fund was approved under the II Credit and this fund will finance balancing and modernization equipment, and purchase of technical know-how and designs for firms with modernization and export programs from an allocation of US$ 5 million. The principal considerations behind the design of this Fund were, first, that the procedures for obtaining assistance should be quicker and less complicated than those required for obtning an import licence for equipment through the Capital Goods Committee; and, second, that the new cell should mark a step in the direction of the Ministry of Industry looking more actively at the problems of modernization and the requirements for developing export competitiveness. Initially, priority would be given to those industries which have been subjects of speeial studies, i.e. commercial vehicles and tractors (1972), forgings and foundries (1973), and textile machinery (1975). Other IDA and export industries will also be eligible. As this approach develops, and as industry gains confidence in the quality of the service being offered, the Ministry is expected to play an important role in bringing about the changes needed to ensure that the engineering industries establish a strong competitive -base for exports. A cell has been established in the Ministry of Industry and Civil Supplies to administer this fund. The cell will also be responsible for monitoring the progress on special studies and the implementation of industry development programs. 36. Long-Term Effectiveness As it is not meaningful to isolate the IX Credit from previous and subsequent credits in evaluating the longer term impact of this credit, the following comments necessarily take account of developments prior to the IX Credit, as well as those relating to the X and XI Credits. Also, program credits are only one part of a number of complementary lending Bank Group operations which have financed the majority of firms comprising India's priority industries (other operations have been loans/ credits for the fertilizer industry, DFCs and IFC investments). - A.13 - 37. In the industrial sector, the long-term record is mixed. On the plus aide, the performance of IDA-assisted industries was somewhat better than that of the rest of the sector. Their average annual growth rate from 1970-75 was 5.6% per annum compared to 3.7% for the manufacturing sector; their rate of capacity utilization was 78% compared to 72%; and production for the domestic market was efficient in terms of domestic resource cost. But Axport performance, despite some growth in 1973-75, is still marginal, and constitutes only 3.5% of production; and the export base is still narrow in terns of the number of both products and exparting frms. 38. At the industry or subsector level, little progress has been made in solving structural weaknesses. In most cases, the output of an entire IDA- assisted industrial aubsector is smaller than that of a typical competing international firm, and production is fragmented among manW firms producing similar products. With few exceptions, products were developed through foreign collaboration agreements in the fifties and sixties; they are still suitable for a protected and relative3y static domestic market, but have limited long-term export prospects. Again, with few exceptions, plants have not been updated to keep pace with the rapid technological change that has taken place in the sixties and seventies and which has elsewhere converted the bulk of engineering industries into precision industries. Very few firms have developed research and design capabilities to substitute for expiring collaboration agreements and most firms are too small to sustain any meaningful R&D programs- The industries have generally not developed a strong supplier base or effective after sales service either at home or abroad. Moreover, generally poor quality, non-adherence to delivery 8chedules, and inefficient after sales service have tarnished the reputation of Indian firms in export markets. 39. The intensive surveys carried out over the last three years have made a detailed evaluation of about 200 engineering firms. They concluded that only 25- 30% of the output of IDA-assisted industries was prauced by firms that are internationally competitive in terms of quality and cost; their order backlog extends from 2-5 years. These operations are based on relatively modern designs and manufacturing methods; rigorous training; strict quality control; and active participation of the foreign collaborators, who also have a significant financial stake in the firms, in labor and management training, in production planning and in quality control. Firm accounting for another 35% of the output could become internationally competitive in 3-4 years if effective action programs to upgrade machinery design, manufacturing methods, training and marketing are carried out. The remaining firms could not have survived in a.competitive environment. 40. A criticism of these program credits to India has been that they provide maintenance imports for both new and old capacity while old capacity remains unutilized; and that the list of industries assisted by IDA has remained fairly stable over the last ten years. The intensive surveys suggest, however, that these two features contributed positively to structural improvements, even if at a rather slow pace as mentioned in paragraph 27 above. Moreover, it is doubtful that this unutilised capacity, which was often overstated to start with, and has not been upgraded since it was established 15 - 20 years ago, could be used to produce quality goods without a substantial further investment in capital, technology and training. - A.14 - .1- Since approval of the II Credit, GOI has made a number of positive policy and procedural changes in the industrial and import licensing system, export incentives, and pricing policies. These ahanges have been discussed at same length in subsequent program credit negotiations and in the annual economic reports. However, the changes have fallen short of what is needed to induce the major modernisation and expansion efforts necessary to improve international competit- iveness of Indian induwtrial output, although they have alleviated the day-to-day opezational problems of the industry. 42.. On the export front, the special studies have shown that exports of Indian engineering and textile industries are concentrated in a relativdly small number of effioient firms . These firms have a large domestic order book position as well, and despite some expansion are barely keeping up with the growing domes tic demand, thus leaving little capacity for exports. A more rapid export drive will require a much faster capacity expansion as well as upgrading technological and marketing capabilities which will undoubtedly strain the firms' financial positions. As such, there seems to be a need to complement the existing export incentive system by positive measures that aim at (i) faster injection of capital and technology in firms that have potential for exporting a substantial part of their prospective capacity, and (ii) assuring firms of continuous supply of export quality raw materials at international prices. - A.15 - IV - POSTSCRIPT 43. Since the approval of the IX Credit, India has had to contend with the after effecto of the 1974 drought and the world wide price inflation which extended well beyond oil and affected all of India's most urgently needed import requirements. Two further industrial imports credits have been approved over this period (the I Credit in 1976, also for US$ 200 millionland the II Credit in 1976, also for US$ 200 million) and have provided significant assistance to India at a time of serious balance of payments constraints. It is the source of some satisfaction that India has now emerged (August, 1976) with a relatively strong balance of payments position and with the economy holding out the prospect for improvemnts in output. This change has resulted from a combination of excellent harvests in the Kharif (summer), of 1975 and rabi (winter) of 1976, an improvement in export performance, and reduced imports costs. Until early 1976, industrial production as a whole showed only modest signs of recovery, although the output from the IDA-assisted industries did improve more sharply. Hbwever, more recently (August, 1976) there is evidence that a substantial pick up in industrial production is underway. While the focus of these two credits has remained much the same as before, experience under the II and earlier credits enabled some changes to be effected. In particular, as already mentioned, a Technical Development Fund was established under the XI Credit to permit IDA- assisted industries, and most particularly those that had been the subject of special studies, to import urgently needed capital equipment of relatively small cast (up to a maimum of $250,000) for modernization and balancing of production. The XI Credit also paid special attention to India's export performance and GOI's measures to encourage the expansion of exports. In support of this, the Credit also included for the first time the financing of REPs (import replemishment licences issued to exporters). ASADB August, 1976 - A.16 - Annex 1 INDIA Ninth Industrial Imports Program Credit Completion Report Balance of Payments 1973/74 1974/75 Estimate Actual Estimate Actual May 1974 May 1974 Merchandise Exports 2,890 3,239 3,200 4,143 Merchandise Imports 3,545 3,971 4,970 5,739 Of which: Foodgraina (620) (635) (650) (1,028) POL (625) (719) (1,300) (1,451) Fertilizer (250) (291) (750) (725) Others (2,050) (2,326) (2,270) (2,535) Trade Balance -655 -732 -1,770 -1,596 Debt Service: 700 692 730 779 Of which, to: Consortium (610) (601) (635) (669) Others (90) (91) (95) (110) Misc. Capital and Invisibles 90 205 100 Gross Financing Requirements 1,265 1,219 2,400 2,334 Aid Disbursements 1,305 1,249 1,650 1,766 Of which, from: Consortium (1,100) (1,074) (1,350) (1,289) OPEC( - ) ( - ) ( 2/ ) (230) Others (205) (175) T300) (247) Transactions with IMF 75 75 375 530 Use of Reserves -115 -105 3759/ 38 - increase) y/ ERcluding debt service due to IMF. g{ Oil-related credits included with 'Use of Reserves'. - A.17 - Annex 2 INDIA Ninth Industrial Imports Proram Credit Completion Report Indicative Allocations by Sector Proposed Ninth Credit As percentage 1974/75 of Import IportReqirement Amount Requirement ---- ---(US$ million)--- A. Raw materials, Components and Spare Parts for Manufacturers 1. Tractors and Power Tillers 22 4 18 2. Fertilizers 215 73 3. Pesticides 29 5J1/ 17 4. Electrical Equipment (below 33 kv)- Motors, Transformers, Switch- gears, Magnetic Steel Stamp- ings, Cables and Wires 86 21 24 5. Aluminum Smelting 7 1 14 6. Commercial Vehicles 44 9 21 7. Automotive Ancillaries 53 12 23 8. Cast Iron Spun Pipes 2 1 50 9. Machine, Cutting and Small Tools, and Abrasives; Ball and Roller Bearings 35 9 26 10. Heavy Construction Equipment 36 9 25 K. Spare Parts for Heavy Construction Equipment Dealers 21 9 43 Total 550 150 27 1/ CeiLing for fertilizer and pesticide together. - A.18 - Annex 3 Page 1 INDIA Ninth Industrial Imports Credit Completion Report -Table 1 - Note on Disbursement and Procurement Comparison of Indicative Allocation and Actual Disbursements Difference Indicative Actual Absolute Relative U$milUion US-nlY-in _T_ To Support Agriculture Fertilizer & Pesticides 75 69.1 (5.9) (8) Tractors & Power Tillers 4 1.6 (2.4) (60) To Spport Transport CommercIaL ehicles 9 8.5 (05) (6) Automotive Ancillaries 13 11.8 (1.2) (9) (including foundries & forgings) Tosuppo rt Power Electrical Machinery, ire & Cables 21 42.4 21.4 102 Aluminum Smelting 2 1.7 (0.3) (15) Construction EquiUmlent E7rth-moving Equipment 9 6.5 (2.5) (28) Spare Parts for Construc- tion Equipment 9 2.0 (7.0) (70) LZ Caital Goos Manhieools, Small Tools, Cutting Tools, Blall1 & Roller Bearings 6.1 1 (2.6) (29) 1 * The table above shows two major diversions between indicative allocation and actual disbursement. These are the electrical machinery, industry and spare parts for heavy construction equipment. There are two basic reasons for the large increase in imports for electrical machinery despite a 10% decline in output. First, power shortage limited production of aluminum arid imported copper was used as a substitute. Second, copper prices increased unexpectedly from about US$1,150 per ton to US$2,250 per tont. The shortfall in the imports of spare parts for heavy construction equipment w9, however, due to bureaucratic red tape. To improve manage- mhit of spare parts inventories and upgrade repair and maintenance service, imports of spare parts was restricted to authorized dealers who have capa- bilities to service equipment. The dealers and 0In, however, could not reach an agreement on a price at which the dealer could supply spare parts and services to public sector enterprises who own a large part of the Indian construction fleet. These diacultiss were twoolvad omd imnnrt - A.19 - Annex$ Page 2 licenses issued only seven months after loan effectiveness; hence, licenses could not be fully utilized during the period of the IX credit and were credited against the X credit. Despite this delay, the reduced uncertainty regarding availability of supply induced dealers to part more readily with their stock and start a more active repair service. As a result, capacity utilization rates on corstruction equipment increased from about 40% in 1973 to about 65% in 1975. Overall the indicative allocation provided a reasonable guidepath for credit allocation, and still provided enough flexibility to cope with unpredictabl ev ts Table 3 shows cumulative disbursements by 1hdustry categories ?dr t &ll eight credits compared with this credit. 2. A large share oA IDA-financed raw materials is imported by three public sector trading companies (so-called canalizing agencies) which generally make advance bulk imports of raw materials. Table 2 Disbursement for Canalized Agencies (US$ million) Ith Credit 8th Credit 9th Credit 1C 18.84 27.74 77.43 HSL 13.29 26.97 22.34 STC 2.06 - Subtotal 31.17 99.77 Total Credit 75.00 100.0 150.0 $ of Credit 46% 55% 66% The NITC (Minerals and W4tals Trading Corporation of India) imports non- ferrous metals, light and medium-high carbon steel, and such industrial raw materials as sulphur and rock phosphate; the HSL (Hindustan Steel Limited) imports steel, steel sheets and plates; and the STC (State Trad- ing Corporation) imports chemical inputs, mainly for the pesticide industry. The share of canalizing agencies of funds disbursed increased from 45% in the VII credit to 55% in the VIII, and 66% in the II. This increase is mainly concentrated in the NMTC and reflects the larger imports of copper as a result of adding wire and cables to IDA-selected industries, as well as the staggering price increases of imported phosphate rock (490%) and copper (200%) over the la-3t two years. 3. The geographicil distribution of imports under this credit shows a marked shift towards primary producers as might be expected (Table 4) and as a result LDCs as a group obtained a higher proportion of orders than previously experienced under these credits. - A. 20- Page 3 INDIA Ninth Industrial Imports A gram Credit Completion Report Table 3 - Disbursements by Cateott of Industrial Imports Credits (US $ Million) First to Ninth First Second Third Fourth Fifth Sixth Seventh Eighth .ghth Credit Category Credit Credit Credit Credit Credit Credit Credit Credit Credits 474-IN (52-IN) (78-IN) (92-IN) (97-IN)(138-IN) (182-IN) (327-IN) (402-IN) Total A. Components and Material and Spare Parts fcr the Manufacture of: - Conercial Vehicles 43.6 31.6 22.8 5.9 13.3 10.4 9.8 7.5 144.9 8. - Agricultural Tractors - - 1.8 0.4 2.3 2.6 3.4 5.0 15.5 1.6 - Automotive Ancilliaries 10.6 16.3 23.9 10.9 23.9 26.6 17.0 12.2 141.4 8.1 - Machine Tools 4.3 4.1 2.2 1.1 2.5) 16.9) 21.6) 39.7 112.6 6* - Cutting and Small Tools 4.8 5.0 4.7 2.2 3.5) ) ) - Ball & Roller Bearings - - 2.5 1.1 2.4 - - - 6.0 - Electrical Equipment 11.2 12.1 16.3 3.6 8.0 3.4 4.7 7.2 66.5 2* - Fertilizers & Pesticides - - 24.0 22.1 25.7 15.0 18.0 25.3 130.1 7 - Cables and Wires - 19.8 44.5 12.3 22.5 - - - 99.1 a) - Industrial and Mining Machinery - - 4.3 3.3 16.0 - - - 23.6 - Basic Nonferrous Metals - - 2.6 2.0 3.2 - - - 7.8 3.7 - Castings & Forgings - - small small 0.2 - - - 0.2 - Heavy Construction Equipment 2.9 3.5 - - - - - 2.8 9.2 - Aluminum Smelting - - - - - - 0.5 0.3 0.8 1.7 - Miscellaneous - - - small 0.7 - - - 0.7 B. Balancing Equipment 2.5 1.8 0.4 0.2 0. 7 - - 5.6 - C. Spare Parts for Heavy Construction Equipment Dealers 7.7 5.8 - - - 13.5 1.9 D. Heavy Construction Equipment 2.4 - - - - - - - 2.4 6.6 TOTAL 90.0 100.0 150.0 65.0 125.0 75.0 75.0 100.0 780.0 150.0 Source: IDA May, 1976 South Asia Programs - A. 21 - Annex 3 Page I imm Ninth Indutrial Import. Program Credit Completion Report ThA .IL-INDUSTRIAL IMPORTS CREDITS: SOURCES OF PROCUREMENT (in US $'000) F'rst to Eighth Ninth Credit Credit Credit Credit Credit Credit Credit Credit Credits 7. of Credit % of Counta 52-IN 78-IN 92-IN 97-IN 138-IN 182-IN 327-IN 402-IN Total Total 474ill Total tustralia 627 1,691 4,679 3,060 3,742 2,935 4,686 1,116 22,536 2.9 4,261 2.8 lustria 612 817 638 310 5,255 1,329 554 670 10,185 1.3 274 0.2 ielgium 786 3,190 11,078 644 1,038 313 - 230 17,279 2.2 - - Irazil - 59 - 3,180 315 - - - 3,554 0.5 - 3lurma n.a. n.a. n.a. n.a. n.a. n.a. 132 - 132 neg - 'anada 960 4,016 8,641 9,026 9,962 1,365 1,237 3,373 38,580 4.9 943 0.6 Irance 1,111 1,459 2,770 3,096 2,223 999 1,700 2,063 15,421 2.0 230 0 ermany 20,795 25,004 27,824 7,748 23,615 23,425 13,632 19,314 161,357 20.7 17,658 11.8 hAna n.a. n.a. n.a. n.a. n.a. n.a. 513 481 994 0.1 1.0.9 ;reece n.a. n.a. n.a. n.a. n.a. 689 - - 689 0.1 2 [ran n.a. n.a. n,a. n.a. n.a. 522 1,005 2,248 3,775 0.5 10j581 7.1 -raq n.a. n.a. n.a. n.a. n.a. n.a. n.a. 836 836 0.1 2,085 1.5 orael n.a. n.a. n.a. n.a. n.a. n.a. 689 683 1,372 0.2 0- taly . 859 703 2,638 1,140 2,765 1,491 728 1;882 12,206 1.6 871 0.6 apan 5,546 3,933 5,971 3,100 9,592 11,473 14,886 21,383 75,884 9.7 26,762 17.9 ordan - - 2,964 3,375 4,016 332 2,174 1,777 14,638 1.9 16,485 11.0 .uvait n.a. n.a. n.,a. n.a. n.a. n.a. n.a. 431 431 neg - - iberia - - 1:,395 1,080 1,795 426 - - 4,696 0.6 - Ilaysia 54 1,479 5.651 563 3,141 91 209 1,087 12,275 1.6 1,491 1.0 texico 76 - 1,909 1,945 191 98 2,662 4,271 11,152 1.4 13,634 9.1 lorocco - - 2,798 - 1,087 2,382 118 4,001 10,386 1.3 6,757 4. etherlands 189 133 3,170 287 498 445 985 1,099 6,806 0.9 2,110 1 orway 7 103 492 140 1,087 415 378 79 2,701 0.3 357 0.2 eru n.a. n.a. n.a. n.a. n.a. n.a. 193 - 193 neg - - veden 1,430 1,835 2,006 1,770 1,898 995 2,205 2,000 14,139 1.8 627 0.4 vitzerland 916 789 564 1,011 2,199 721 2,067 1,917 10,184 1,3 1,g91 1.1 nited Kingdom 44,448 35,758 30,489 9,829 25,149 9,729 13,355 13,133 181,890 23.3 10,658 7.1 nited States 10,381 18,758 27,364 8,222 17,489 9,911 8,374 8,342 108,841 14.0 18,594 12. ugoslavia n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,588 1,588 0.2 729 0. aire n.a. n.a. n.a. n.a. n.a. 1,784 23 2,580 4,387 0.6 i86 0. ambia 65 5 373 1,164 7,176 1,147 2,338 3,376 15,644 2.0 9,998 6.7 ther Countries 1,138 268 6,586 4,310 767 1,983 157 40 15,249 2.0 ,21 0. TOTAL 90.000 100.000 150.000 65.000 15.0 75.000 75000 100.000 780 00 100.0 150,400 100.0 Sources Ik May, 1916 South Asia Pragrams - A.22 - Annex IL Page 1 INDIA Ninth Industrial Imports Program Credit Completion Report Performance of IDA-Assisted Industries I - SUMM'ARY Performance in 1974/75 1. Output increased by about 5.8% which was somewhat higher than the achievement of the industrial sector as a whole. Substantial rises in the production were achieved by a few industries such as power generating equipment (+6h%), power tillers (+108%) and, to a lesser degree, tractors (+29%); moderate growth of about 10% in nitrogeneous fertilizers, three- wheelers, and some automative ancillaries. Otherwise, the scene was, in fact, one of stagnation or decline, reflecting in large part the effects on demand of the succession of poor harvests and the Worldwide inflation in commodity prices. For the IDA industries as a group, the growth rate in production has been declining from the nearly 10% reached in 1971/72 (Table 2). Exports 2. Many IDA industries demonstrated an ability to respond to the falling off in domestic demand by exporting. IDA-assisted industries virtually doubled their level of exports from Rs 530 million in 1973/74 to Rs 1020 million in 1974/75, thereby maintaining the share of IDA-assisted industries in total engineering goods exports of around 30% (Table 3). The auto ancillaries contributed about 39% of the-total export earnings from IDA-assisted industries, followed by-electrical equipment (25%) and tools and parts (21%). II - PERFORMANCE OF IDA-ASSISTED INDUSTRIES Tractors and Belated Equipment 3. Production of tractors is a relatively new industry in India, and in the last five years production increased by 70% since 1971/72 to over 31,000 in 197h/75. Compared with a production of 24,200 in 1973/74, production in 1974/75 was 28% higher. Performance of Hindustan Machine Tools, a public sector unit, has been particularly striking. Within two years of coming into production, this unit has been able to achieve a production of about 7,000 tractors in 1974/75 (capacity utilization being 87.5%). - A,23 - Annexhy Page 2 4. The indigenous range now covers tractors from 25 HP to 60 HP. Among the 1 existing firms, nine firms have collaboration with well- known international manufacturers of tractors, e.g. Massey-Ferguson, Ford, and International Harvester. Most of the components for production of tractors are available indigenously and the import content of tractors is about 10%. 5. Power Tillers Despite problems in respect of power avail- ability, production of power tillers increased from 1 million in 1973/74 to just over 2 million in 1974/75. 6. Aarcultural Discs There was a substantial fall in production in 1974/7 (23,000) as compared with 92,000 in 1973/74, which was attribut- able to protracted delays in the delivery of high carbon steel sheets/plates from overseas suppliers. Fertilizers 7. Although the use of fertilizer in the country has increased rapidly over the last 10-15 years, consumption stagnated in 1973/74 and 1974/75, reflecting the effects of poor monsoons and the substantial increase in fertilizer prices that has taken place in the last two years. 8. Domestic production of nitrogenous fertilizer in 1974/75 was about 11% higher than in the previous year ( 1,191,000 tons of N as against 1,077,000 tons in 1973/74). The growth of this industry was interrupted in 1973/74 due to -ower shortages and the fact that plants of both FCI (Namrup) and Southern Petro-Chemical Industries Corporation could not go into production as envisaged in 1974/75. 9. For more effective utilization of existing capacity, measures were undertaken by various units to overcome technical constraints and to improve plant maintenance. Some units facing raw material problems undertook suitable schemes for changeover of feedstocks/raw materials. Thus, FCI (Sindri) use gypsum recovered from its phosphoric acid unit, instead of inferior grade Bikaner gypsum. Similarly, at FCI (Nangal), a new scheme was undertaken to do away with power as the basic raw material for production of ammonia. FCI (Gorakhpur) began to install its own captive power station and a modification program was begun in the existing plants of Neyveli Lignite and FCI (Durgapur). 10. Production of phosphatic fertilizer showed a marginal fall in 1974/75, largely attributable to the effect of a substantial rise in the price of rock phosphate and sulphur on demand for superphosphate, which is a low nutrient fertilizer. - A.24 - Annex 4 Page 3 Pesticides 1. In 1974/75, there was a small increase in production of technical pesticides as well as solid and liquid formulations. In relation to targets, however, there was a slight shortfall. However, the rate of offtake was slower than expected due to sharp increases in prices of pecticides as well as shortfall in availability of peaticide raw materials in the international market. Electrical Equipment 12. This sub-sector embraces a wide variety of products. Since gener- ation and distribution of electricity is largely in the public sector, Government expenditure at Central and State levels in the power sector has a large influence in determining the level of demand for the products of the electrical equipment industry. The Government gave high priority to the generation and distribution of power and increased budget allocations for this purpose. However, the effect of these allocations on real growth was offset to a considerable extent because of the increases in prices that took place. 13. Electrical Motors Small-scale industry is an important producer of electric motors, and it has been the Government's policy to encourage production in the small-scale sector for mot&rs of lower ratings. As a result, in aggregate terms, production of electric motors in the medium and large-scale sectors, has grown only slowly with production in 1974/75 of 3.3 million HP compared with 3.1 million HP in 1973/74. 14. Transformers These items axe primarily required by the SEBs for their power generation and distribution programs. In 1974/75, the resource position of the Electricity Boards, because of Government's anti-inflationary policies and strict control over aggregate expenditure, was extremely tight. As a result, the offtake of transformrs was below the levels expected at the beginning of the year, and production of transformers in 1974/75 was at about the same level as in 1973/7), (12.4 million KVA). Because of sharp increases in prices of copper and special steel sheets, combined with a shortage of aluminum, there was a substantial increase in the price of transformers, which also had a dampening effect on demand. 15. Switchgears and Control Gears These items are also essential equip- ment for transmission and distribution of electric power. Production of switchgears has been increasing rapidly and the total value of production in 1974/75 was of the order of Rs 806 million as compared with Rs 650 million in 1973/74. In this industry, copper and a number of extruded components have been very largely replaced by domestically produced aluminum. 16. Stampings and Laminations These products are basic inputs for the manufacture-of electic transformers and motors. In 1974/75, production of these items increased to 37,000 tons froM 33,000 tons in 1973/74. - A.25 - Page 4 17. Cables and Wires This category comprises a number of products, e.g. ACSR/AAC conductors, winding wires, power cables and VIR/PVC cables. Production performance in respect of this category of items was unsatis- factory in 1974/75, and in quantitative terms, production actually declined. Output was affected by the reduction in the offtake by SEBs which account for a large part of the market for these products. In addition, aluminum was in critically short supply on account of the shortage of power. Commercial Vehicles 18. Important factors affecting the growth of this sector in 1974/75 were the rise in petrol prices combined with a sharp increase in the price of vehicles. The influence of the rise in petrol prices can be seen from the following figures: PRODUCTION OF DIESEL/PETROL ENGINE VEHICLES (Unit/Numbers) Production of Production of Year Diesel Engine Petrol Engine TOTAL Vehicles Vehicles 1972/73 32,267 6,107 38,374 1973/74 36,012 6,728 42,740 1974/75 38,139 2,506 40,6645 Automotive Ancilliaries 19. Tires and Tubes In India, 90% of the production of tires is rayon tires. The percentage of passenger car tires in the total production is approximately 20%. In 1074/75, production of tires has increased to 5.5 million from 5.2 million in 1973/74. There was some slippage in the production of tubes as compared with a target of 5.5 million due to relatively lower demand for tubes. Automobile tires and tubes were also exported, and these increased from Rs 65 million in 1973/74 to Ra 95 million in 1974/75. 20. Automotive Components This category includes miscellaneous automobile ancillaries, storage batteries, auto-leaf springs, coil springs, and high tensile fasteners. This particular sector has made rapid strides in the last decade, and almost all the items required for automobiles are now manufactured indigenously. There are about 160 units in the large-scale sector manufacturing auto ancillaries. There are also a large number of small-scale units in the sector producing a iLde variety of small value automotive products. Although there was growth in production in L974P5,, the development of this sector has naturally been affected by fuel prices as well as high prices of many of its raw materials. The following table ahows production of various automotive components in 1973/74 and 197h/75: - A.26 - Annex & Page 5 PRODUCTION OF AUTOMOTIVE COMPONENTS Unit 1973/74 1974/75 Storage Batteries Lakh Nos 12.9 13.2 Synthetic Rubber '000 tons 23 19 Bus bodies '000 Nos 15 16 Automobile ancillaries Million rupees 1,502 1,973 Auto leaf springs '000 tons 31 29 Coil springs Tons 896 1,031 High Tensile Fasteners H.T. bolts and Nuts '000 tons 6.7 7.3 H.T. Machine Screws - Do - 1.5 2.0 Machine Tools and Cutting Tools 21. Machine tool industry In India has been one of the more dynamic in the industrial sector. Hinductan Machine Tools (HMT), the major pro- ducer of.machine tools in.the country, has not only established a high reputation for quality at home but also has been able to capture substan- tial markets abroad. Total production of machine tools (Rs 880 million) has substantially exceeded the target for 1974/75 (Rs 730 million). Machine tools are currently being manufactured by 118 firms, including four in the public sector. Out of the total production of Rs 880 million, HMT's con- tribution is of the order of Rs 320 million or about 36%. Although quanti- tative figures are not available, the increase in the value of production in 1974/75 of 35% also represents a substantial increase in production in physical terms as, for example, the price of 1MT machine tools are estimated to have increased by no more than about 15% for some of their more popular models during 1974/75. - A.27 - Annexg Page 6 22. Apart from increases in the volume of production, there has also been a tremendous diversification in the product range. The country has become cowpletely self-sufficient in general purpose machlinc tools (which also represent its major export item), and has progressively taken on the production of more complex and larger types of equipment. In the field of sophisticated technology, a beginning has also been made in developing numerical control machine tools at Hif and the Central Machine Tool Insti- tute, Bangalore. The average import content of machine tools in India has also come down from about 21% in 1969 to about 15% during 1974/75, despite a substantial increase in international prices during the period. During 1974/75, a number of items were manufactured for the first time in the country, e.g. nut-lapping machines, center-less grinders, bed-type milling machines, numerical control lathe, friction screw press and die-casting machines of 600 ton capacity. 23. Production of small and cutting tools, and abrasives was of the order or Rs 670 million in 1974/75 as against production of about Rs 500 million in 1973/74 and a target of Ra 600 million for 1974/75. Small tools and hand tools industries have made a major thrust in the export market and the current level of exports of these items is of the order of Ra 100 million, of which more than 50% is accounted for by the forged hand tools industry. 24. Production of ball and roller bearings was affected by power shortages experienced by units producing this item as well as by shortages of seamless isteel tubes, which are entirely imported. Total production was 23.6 million in 1974/75. Certain types of ball and roller bearings were exported, and these are estimated to have increased to Re 12.4 million in 1974/75 from Ra 0.7 million in 1972/73. Castings and Forgings 25. Production of steel forgings increased substantially in 1973/74, but came don marginally in 197h/75. This was mainly due to shortages of forging quality steel, including die block steel, power cuts and lack of demand in the automobile industry. Production of cast iron spun pipes and cast iron castings, on the other hand, was higher than the last year, and has also exceeded the targets. Production of other types of castLngs, e.g. steel castings, malleable castings and S.G. iron castings, has also been close to targets indicated at the time of the negotiations of the Tenth Credit. - A.28 - Annex 14 Page 7 III. FINANCIAL PERFORMANCE OF IDA-ASSISTF.WINDUSTRIES 26. Profitability figures for all IDA-assisted units are not available. However, an qattempt was made to work out profitability figures for 1972/73 and 1973/74 fnr a number of IDA-assisted units for which balance sheets for these years were available. These data, which Include 83 companies assisted by IDA, show that during 1973/74, profit before taxes plus interest as a percentage of capital employed for IDA-assisted industries, varied from 5% in respect of aluminum to 35.8% in respect of storage batteries. Profit before taxes as a percentage of sales in 1973/74 varied from 1.4% in respect of cables to 25.8% in respect of power titlers. All the units covered by the sample have shown a positive rate of profit, and for most industries, return on capital employed has increased in 1973/74. Table 4 shows sales, profit before taxes as a percentage of sales, and return on capital employed for 83 IDA-assisted units, grouped into various industries. 27* Among the IDA-assisted industries which showed a return of over 15% on capital employed were, storage batteries, pesticides, bearings, automobile ancillaries, electric motors, machine tools, tires and tubes, Small tools, tractors, and steel forgings. On the other hand, the return of capital employed for fertilizers, cables, and power tillers was below 10%. In general, the financial performance of IDA-assisted industries has been satisfactory. IV. EXPORT PERFORMANCE OF IDA-ASSISTED INDUSTRIES 28. Foreign exchange earnings by IDA-assisted industries increased by 14% in 1973/74 to US$68 million, and by 88% in 1974/75 to US$127 million or 29% of all engineering goods exports earnings. All the 1DA-assisted industries with a significant contribution to export earnings are in the engineering sector, where export earnings also grew rapidly in these two years, by 34% in 1973/74 and 77% in 1974/75. In general, the demand in 1974/75 for engineering goods worldwide was sufficient to cause a rise in the prices and an increase in the volume of trade especially of exports from a country such as India, whose goods in many product lines normally make a small contribution to world supply. 29. 60% of the increase in IDA-assisted industry export earnings (and 14% of engineering goods export earnings growth) between 1972/73 and 1974/75 was concentrated in 3 industrien: (i) cables and wires; (ii) automobile componeuts and parts; and (iii) cutting, small tools and abrasives. Cables - A.29 - Annex IL Page 8 and wire exports earnings fell in 1973/74, but with an increase in world demand, volume rose substantially in 1974/75. However, rises in copper prices and consequent unit price rises accounted for a large part of this earnings increase of 100%. Automobile component manufacturers in India have become established in the replacement part market, particularly in Europe. This is true of other autorotive ancillaries, among which tyres and tubes make a significant contribution to export earnings in absolute terms. The earnings increase of 228% for automobile components and parts between 1972/73 and 1974/75 probably represents a substantial and relatively secure increase in volume. Similarly, the increase of 78% in earnings from cutting, small tools and abrasives reflects the successful development of these three markets in the past two years, based to a great extent on the efforts a number of exporters have made efforts to maintain quality and, in the case of small hand tools, the comparative advantage derived from labor abundance in India. V - PERFORMANCE v. APPRAISAL ESTIMATES 3. Table 4 compares actual performance in 1974/75 with the estimates made at the time of appraisal. While performance in general showed reasonable increases in output for many IDA-assisted industries iti 1974/75 compared with 1973/7, actual performance was substantially below expect- ations in many instances. 3 L The most striking areas of this shortfall below expectations were in nitrogenous fertilizer, cables, aluminum and tractors. The first resulted from a combination of power shortages and start-up problems with two large new plants. The second resulted from a sudden shortage of domestic aluminum and the enormous price increase in imported copper, which affected demand. The cable and wire industry in India also exports a significatn portion of its output and export demand was affected by the impact of worldide inflation upon the development plans of LDCs in the South Asia region, where most of these exports had been going. The shortfall in aluminum production was a direct result of power shortages. Finally, the reduced level of tractor output was partly a reflection of a decline in demand arising from the adverse conditions in the agricultural sector following the droughts of 1972 and 1974 and partly as a result of production constraints. - A.30 - Annex I IIDIA Page 9 Table 1 C(FiPL3TIOGN äGFhT WINTH IMUTåIAL iPOUTS PaG~ ft CR(EDIT PRODUCTION PERFCEMNE OF IDA-ASSISTVD MUSTRP.S 1965/66 1970/71 1971_/72 1972/73 3973/?4 1911/475 Tr .. ,a 11: .000 6 20 18 20 24 31 71.r "jiterej Ko:.000 .4 .3 .1 .4 1.0 7.0 F, ttrlern, Nitro enÖ 1000 Lons 2'8 832 952 1060 1077 11.91 1000 tors 119 228 278 326 324 315 Techn f<nl 1000 tons 12 24 24 27 31 34 Solid Foundations 300n tons n.a. 34 44 60 64 67 1.quid Foundait.ons 1000 a3 n.a. 7 10 12 13 14 Electrical Equlpmenl Motors Hill. IIp 2.0 3.2 2.9 3.0 3.1 3-3 Trr.nHformers Mill. KVA 5.6 10.9 11.0 12.0 12.4 12.6 Swtt.lctpoar 1.11. Ra. 170 364 391 469 650 806 Cblens and Wires: WIndtng Cables 1000 t29 9.0 17.0 19.6 18.6 21.4 16.3 P1VC/VIR cab1c3 mc.y 367 563 557 721 578 464 llower Cable. . . 9.0 17.0 17.0 19.3 20.4 14.4 St.c1 Stampinga/ 1000 tons n.&. 34 35 25 33 37 A1Imine1m Smeltinr . 1000 tons 69 169 181 175 148 126 (pillnmj metal) C:afi lron Spun Pipes 1000 tons n.a. 174 199 209 274 286 <C:a,n-rrini Vehicles: Trtårks and Buqcs Nos. 000 35.0 41.0 41.0 38.4 42.9 40.2 Jevps Nos. 000 - -10.4 9.8 -- 11.0 - 13, - 12.4 -9.6 Tihrec Wheelern Nos. 000 1.5 4.7 7.0 10.7 11.2 12.2 At,.ilt tive Anrcillarien: Tir-n Nos. Mill. 2.3 4.3 4.8 5.0 5.2 5.5 Sitthetie Rbber 1000 tons n.a. 27 33 32 23 19 St,irnne Batterl-s Kos. Mill. .7 1.0 1.2 1.1 1.3 1.3 Auto Componentn end Parts Hill. Ra. 614 1332 1202 1228 1500 1973 To.Ip and Pnrts: ,achine Tools ) Mil. Ra. 255 355 527 502 654 881 Ct Linp, Small Tools and Abranives Mill. Ra. 300 395 488 502 505 673 Bill apJ Roller Scaringr Nos. Mill. 8.3 17.7 20.0 21.7 24.5 23.6 Enrines for Eartha-moving Vanon 7/ Nos. n.a. 888 889 1447 1864 270q Clas tinS ý:tcee1 astings 1000 tons n.a. 0.a. 56 71 69 66 röt-faon Cast-ingn r"" tems n.a. %.e. 1nA 117 179 ]1R H:alleabl" Tron rsInga 1000 tons n.a. n.a. 17 19 18 19 s.c. 1g7n Castin>ts 1000 tons n.a. n.a. 2.1 2.7 2.8 3.4 1ns 1000 tons n.a. n.a. 72.5 79.0 98.0 94.0 Mill. Rs. n.a. n.a. 409 606 812 1036 1/ t'rurer- from F.xtilizer AssociatIon of India. /1 covotnrtnt finnres have been adjuc:ed by IDA n the basis of additional information obtained frm uther nffici:al NUurrcf lind trå:cÌ onociationG. 1/ Million crore Luterq. a lion m.ern. ./ iLf.ur.3 exeluede. roductinn in capl ive units. l.å .asce tor caletn-ar year 1173/72 7/ Nor incluJed inåd:r Yteventh Credit. Source: DGTD and IDA estmates. Industrial Projects JDpartent Aril, 1976 - A.31 - Annex46 Page 10 IDLA Table 2 COMPLETIONi dEPOlT NINTH INDUSTRIAL IMPORTS PROGRAM C&EDIT IN11)EY hME1r OY "PUBUCT2 ON OF IDA INDUSTHRIES 19970-71 100) NDme of Industry Waight 1971/72 1972/73 1973/74 197/75 1. Agricultural Tractors 0.1000 83.6 98.5 120.9 15h.7 2. Nitrolenous Ferti3incers (N) 0.8662 11h.4 127.3 129.3 1h3.0 3. Phosphatic Fortiliv!rs (P205) 0.5192 121.9 143.0 1h2.1 14o.h h. Pest.icides (Techir-cal) 0.171 100.0 112.5 129.2 1l1.7 5. r)eotric Motors 0.3521 110.3 103.5 106.9 113.7 6. Tritnuformys 1.0300 100.9 110.1 113.7 115.5 7. Aluminum - 0.5496 107.1 103.5 87.6 7.5 8. Commorcial Vehicles: (a) Trucks & B-ises 1.99h0 96.A 93.2 1011.1 97.1 (b) Jeeps 0.2309 11h.2 132.5 126.1 97.7 (c) Throe-Wheelorn 0.0296 155.3 227.5 238.0 259.2 9. Autonobileas Dievel Engines 0.0L52 65.6 69.8 92.0 92.0 10. Tiren and Tubea: -(a) Tirma 1.0038 111.6 116.3 121.0 128.0 (b) Tubes -0.0921 162.4 1142.4 1b5.b 1W2.3 11. Storaa Batteries 0.2160 120.0 111.0 125.0 129.0 12. SynthotiL ftubber 0.0965 122.2 118.5 85.1 66.1 13. Spings for Automobiles 0.0585 106.6 96.7 103.4 96.7 16. H.T. DolLa ard Nuts 0.0937 136.3 131.8 152.2 165.8 15. Machine Toola 0.5367 19.3 141.9 193.3 257.2 16. SDall. and Cutting Tools and Abrasives 0.6105 139.0 143.0 13.8 202.2 17. Ball and Roller Bearings 0.5900 113.0 122.6 138.4 134.9 Overall Index of above 106.0 116.5 122.6 129.7 Growth over the previous year (percent) (+9.9) (+6.0) (+5.2) (+5.8) 1/ Not included under Eleventh Credit. Notess (i) Weights are ns per Index Number of Industrial production base 1970 - 100. (ii) The IDA Industries listed above exclude a few items for which weights in the Index Number ore not sqparatoly av.ilable. However, such industries account for an insirnLficant weight in the total index. Source: DGTD Industrial Projects Department Apil, 1976 - A.32 - Annex h 101DA Page 11 COMPLETION REPORT Table 3 NINTH INDUSTRIAL IMPORTS PROGRAM CREDIT Export Performance of IDA-Assisted Industries (Fiscal Years, In million-US ) Percentage Growth Industry 1972/73 1973/76 1974/75 1972/73-1973/74 197T1Y4-1974T75 Trociora .03 .09 1.04 - 1055.6 Pover 'ILi1ers .26 .43 1.01 65.4 146.3 IPr. r If zers .84 .01 - - -100.0 Itle I 1 Ides .01 .04 .03 - -25.0 bi r*t.el l.~.Equi.pment: Motors .94 1.57 1.85 67.0 17.8 Tran-formers 1.90 1.61 3.24 -15.3 101.2 Switcligcar 1.86 2.72 5.08 46.2 86.8 Cablet; and Wires 8.30 7.39 16.61 -11.0 124.8 Roilors 0.86 3.86 2.99 348.8 -22.5 Power ren. Equipment 0.40 0.36 1.20 -10.0 233.3 Cowiurcial Vehicles: Truc!s and Buses 7.70 5.02 9.61 -34.8 91.4 *80 19 .33 -76.3 73.7 Tirve-Wheelers .76 .05 .21 -93.4 320.0 Auitomnloile Diesel Engines .12 .19 .18 58.3 -5.3 Aitomotive AncLlaries: Tyres and *rubes 6.58 8.36 11.82 27.1 41.4 Sytithetic Rubber - .22 .51 - 131.8 Storage Batteries 1.92 2.48 4.78 29.2 92.7 Auto Components & Parts 10.03 12.62 32.94 25.8 161.0 Car;inp:i and Forgings 3.42 4.27 8.14 24.9 90.6 Tools and Parts: Machine Tools 2.70 4.41 6.95 63.3 57.6 OCtLng, Small Tools & Abrasives 9.87 11.56 17.56 17.1 51.9 13ll and Roll 10r Bearings .09 .45 1.55 400.0 244.4 TOTAL 59.40 67.90 127.63 14.3 88.0 AIL Engineering Coods Exports 184.9 20 8.5 440.9 344.4 77. S)ites: Cove'rnm.nt of India; Engineering Export Promotion Council; Manufacturers' Associac tons; and IDA eqtLnaties. Industrial Project Department April, 1.976 - A.33 - Annex 4 Page 12 Table4 INIA Ninth Industrial Imports Program Credit Completion Report Performance of IDA-assisted Industries Unit Actual2.' Projected in IX Credit, Actual2/ Appraisal 1/ for 1973/74 for 1974/75 for 1974/75 Trictors 000s 24 41 31 Power Tillers 000s 1.0 3 2 Fertiliser - phosphatic 000 tons 324 1500 1191 - nitrogenous 000 tons 1077 500 315 Peatticides - Technical .000 tons 31 32 34 - Solid 000 tons 64 85 67 - liquid 000 KL 13 29 14 Electrioal Equipment Notors Mil.HP 31 3.1 3.3 Transformers Mil.Kva 12.4 10.9 12.6 Switchgear Mil.Ra 650 700 806 Cables and Wires - Winding Wires 000 tons 21.4 22 16.3 - PVC Cables m.C.m. 578 665 464 - Power Cables m.m. 20.4 16 14.4 Steel Stampings 000 tons 33 40 37 Almiinum Smelting 000 tons 148 200 126 Cast Iron Spun Pipes 000 tons 274 300 286 Commercial Vehicles - Trucks and Buses . 6008 42.9 50 40.2 - Jeps OOs 12.4 15 9.6 - Three Wheelera IOS 11.2 18 12.2 Automotive Ancilliaries - Tires mil. 5.2 5.5 5.5 - Synthetic Rubber 000 tons 23 30.0 19 - Storage Batteries ril 1.3 1.4 1.3 - Atto Components' iil.Ri. 1500. 1500 1973 Tools and Parts - Machine Tools Mil.R3 654 750 881 - Cutting and mall Tools ad1.Ra 505 600 673 - Ball and Roller Bearings ail. 24.5 25.0 23.6 Ragines for Earth Moving Equipment nos 1864 1800. 2709 {Ninth Industrial. Imports Credit - President's Report (P-1436-IN of May 7, 1974) Annex VIII. r DGTD.