India - Second Agricultural Refinance and Development Corporation Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3518 PROJECT PERFORMANCE AUDIT REPORT INDIA AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION SECOND CREDIT PROJECT (ARDC II) (CREDIT 715-IN) June 23, 1981 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. 娜 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDIA AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION SECOND CREDIT PROJECT (ARDC II) (CREDIT 715-IN) TABLE OF CONTENTS Page No. Preface .......................................................... i Project Performance Audit Basic Data Sheet ....................... ii Highlights ....................................................... iv IDA Overview of the ARDC Project Completion Report ............... 1 PROJECT COMPLETION REPORT Summary ................................................ 12 I. Introduction ........................................... 15 Ii. Project Implementation ................................. 20 III. Project Benefits ....................................... 26 IV. Institutional Infrastructure ........................... 28 Annexes 1. Report Tables 2. Compliance with Covenants 3.' Terms of Reference for Committee on Agricultural Loans through Commercial Banks (CALCOB) 4. Training 5. Rehabilitation Programs in Five States 6. Investment Returns and Financial and Economic Results 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. 諦 - i - PROJECT PERFORMANCE AUDIT REPORT INDIA AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION SECOND CREDIT PROJECT (ARDC II) (CREDIT 715-IN) PREFACE This is a performance audit of the Second Agricultural Refinance and Development Corporation (ARDC) Credit Project in India, for which IDA Credit 715-IN was approved in June 1977 in the sum of US$200.0 million. The closing date of the project was December 31, 1979; final disbursement took place in January 1980. The audit report consists of highlights prepared by the Operations Evaluation Department, the project completion report (PCR) dated March 1981 and an Overview dated April 1981. The PCR was prepared by the ARDC, India; the Overview by the South Asia Regional Office. In preparing these documents, the Appraisal Report (1520-IN of May 1977), the President's Report (P-2038-IN of May 1977) and the Development Credit Agreement (No. 715-IN of June 1, 1977) and correspondence in the project files were reviewed and Bank staff inter- viewed. The project had no major problems, and a satisfactory rate of return. Also, OED has already reviewed several Indian agricultural credit projects.!/ and has, on the whole, found them satisfactory. Therefore, for this project, abbreviated auditing procedures were applied. Under these procedures, the audit finds no reason to question the PCR-s analyses and major conclusions. The PPAR was sent to the Borrower for comments on April 16, 1981; however, none were received. 1/ PPAM on agricultural credit projects for Gujarat (No. 1303 of October 10, 1976), Punjab and Haryana (No. 2684 of October 5, 1979), Andhra Pradesh, Tamil Nadu and Maharashtra (No. 2688 of October 5, 1979), ARDC I (No. 2702 of October 27, 1979), Madhya Pradesh (No. 2789 of December 27, 1979) and Karnataka (No. 2892 of April 7, 1980).  - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDIA AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION SECOND CREDIT PROJECT (ARDC II) (CREDIT 715-IN) KEY PROJECT DATA Item Appraisal Estimate Actual Total Project Costs (US$ M) 583.0 n.a.La of which eligible for IDA finance 467.0 488.0 Cost Overrun - 34.2/b Credit Amount 200 200 Disbursed - 200 Repaid to January 31, 1981 - NIL Outstanding on January 31, 1981 - 200 Co-financing (US$ M equivalent) EEC Special Action Credit No. 25-IN - 50.0 Additional financing: ODA (United Kingdom) - 35.0 CIDA (Canada) - 26.0 Date Physical Components Completed 12/31/79 12/31/79 Economic Rate of Return (%) 27-5o+L 23-5o+Lb Cumulative Estimated and Actual Disbursements (US$ million) FY78 FY79 FY80 Estimated 60 155 200 Actual 44 123 200 Actual/Estimated (%) 73 79 100 /a ARDC did not report to the Bank the extent of its lending for non- eligible items. /b ARDC was able to persuade the participating banks to increase their contribution to sub-loans by 4.8% and the sub-borrowers to increase their contribution by 2.3%. /c Variable according to nature of sub-loan. - iii - OTHER PROJECT DATA Original Actual or Item Plan Revisions Estimated Actual First Mention in Files - - 03/76 Government Application - - 07/76 Negotiations - - 04/77 Board Approval - - 05/12/77 Credit Agreement Date - - 06/01/77 Effectiveness Date 08/01/77 09/01/77 08/24/77 Closing Date 12/31/79 - 12/31/79 Borrower Government of India Executing Agency Agricultural Refinance and Development Corporation Fiscal Year of Borrower April 1 - March 31 Fiscal Year of Executing Agency July 1 - June 30 Follow-on Project Name ARDC III Credit Number 947-IN Amount (US$ M) 250.0 Credit Agreement Date 08/20/79 MISSION DATA Month/ No. of Manweeks Missions Year Persons in Field Preappraisal 09/76 2 4.0 Appraisal 11/76 6 12.0 Supervision I 03/78 2 6.5 Supervision IT/a 05/78 4 16.0 Supervision III 06/79 5 9.0 Supervision IV 11/79 4L.b 5.0Lb. PCR Follow-up 07/80 1 1.0 CURRENCY EXCHANGE RATES Name of Currency Rupee (Re (plural Rs) Exchange Rate: At Appraisal US$1 = Rs9 At Completion US$1 = Rs8 Average Rate for Disbursements US$1 = Rs8.20 /a Mainly a technical supervision mission. /b Two mission members were from ODA, United Kingdom. Their time not included in the "manweeks". - iv - PROJECT PERFORMANCE AUDIT REPORT INDIA AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION SECOND CREDIT PROJECT (ARDC II) (CREDIT 715-IN) HIGHLIGHTS Until 1975, the Bank had been lending for agricultural credit in India to the individual States. On the whole, the operations have been successful in promoting agricultural development, principally minor irrigation projects based on small tubewells, dugwells and river lift schemes. By 1975, however, when the former Agricultural Refinance Corporation was reorganized, renamed Agricultural Refinance and Development Corporation (ARDC) and given its present mandate, it appeared more useful to support its refinancing operation of banks operating in the States and to endeavor exercising some influence not only on the type of lending, but also to open a dialogue to determine where IDA supported lending could contribute most to assist in developing the less developed States. The first ARDC credit project (Credit 540-IN) assisted refinancing agricultural lending in 1975-77; IDA's contribu- tion was US$75 million equivalent. That project closed in June 1977 and was reviewed by the Operations Evaluation Department (Report No. 2702 of October 29, 1979). The project under review, which assisted ARDC-s operations in 1977-79 to the extent of US$200 million equivalent, was followed by ARDC III (Credit 947-IN) for US$250 million. The ARDC II project was intended to direct 25% of the funds to nine less developed States, but in fact 42% was spent there. Small and marginal farmers were to receive 50% of the available funds; actually 56% of the loans were extended to this group. The project envisaged to provide training to 11,600 officials of ARDC, the commercial banks, Land Development Banks and of the Reserve Bank of India; the achievement was about 13,000. About 73% (against a targeted 84%) of the funds financed minor irrigation projects, mainly tubewells, irrigating about 1 million ha (target: 0.9 million ha) and 0.9 million (target: 1 million) farmers benefited. An important secondary benefit of the project was that a study of groundwater resources was undertaken in several States; these resources proved to be larger than expected, permitting additional groundwater development. Other agricultural activities (livestock, principally dairy and poultry development, coconut plantations, tea plantings, fisheries develop- ment, etc.) absorbed 27% (target 16%) of the loan funds. ARDC was able to reduce its overall refinancing rate from 85% to 78%, because the participat- ing banks increased their share of sub-project financing by 4.8%, the sub- borrowers by 2.3%. The economic rate of return of the investments was estimated at appraisal to be between 27% and 50%, depending on the kind of activity fi- nanced. The two-year time span was insufficient to recalculate the appraisal - V - data. However, based on similar projects financed under ARDC I, the audit estimates are of the same order of magnitude. The overall success of the project is further corroborated by the extent of bilateral and multilateral participation it has attracted. IDA reimbursed 55% of all eligible expenditures!1; ARDC's 45% original share was partly substituted by loans from Canada (CIDA) (US$26 M equivalent), the United Kingdom (ODA) (US$36 M equivalent) and the European Economic Community (EEC) Special Action Credit No. 25-IN for US$50 M equivalent. Co-financier interest has continued into ARDC III and ARDC IV. The following points are of special interest: - the increasing involvement of the commercial banks (CBs) in agricultural lending. They are effectively filling the gap left by the growing ineligibility of the cooperative Land Development Banks (LDB) for ARDC refinancing. Their branches involved in agricultural lending have increased from 24,000 to 29,000 and their specialized agricultural staff has nearly doubled (Overview, paras. 19 and 20, PCR para. 4.28); - the beginning of lending to really small farmers and landless laborers under various group and even individual schemes (Overview para. 13, PCR para. 4.31); - the buildup of ARDC staff in line with its increased activi- ties: from 304 to 716 and within this increase, even more importantly, regional staff from 123 to 349. Also, operating staff (agricultural economists and development officers) increased by 166%; administrators by only 49% (PCR para. 4.05 and Annex 1, Table 14); - ARDC's increasing ability to monitor and evaluate schemes, and to prepare PCRs, although appraisal expectations have not been completely attained (Overview para. 16 and PCR para. 4.06); - the proportion of overdue repayments of principal and interest to the State Land Development Banks (LDB) as a percentage of collectibles is increasing: by now 37% of the LDBs have overdues above the level (50% of all debts) that precludes further lending and only 35% may continue unrestricted lending; (Overview para. 25 and PCR para. 4.17); 1/ It was agreed at negotiations with the Government of India that tractors, forestry and electric transmission lines to pumpsets would not be fi- nanced under IDA and other credits. - vi - - the commercial banks (CB) who are relatively new to agricul- tural lending are rapidly approaching a similar situation (PCR, Annex 1, Table 19); and - unless the overdues situation can be brought under control, the Bank's further involvement in agricultural lending in India may have to be reviewed (Overview para. 36). 9 9 9 INDIA SECOND AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION CREDIT PROJECT IDA Overview of the ARDC Project Completion Report 1/ General 1. The Project Completion Report (PCR) on the Second Agricultural Refinance and Development Corporation Credit Project (ARDC II Project) was prepared by the Agricultural Refinance and Development Corporation (ARDC). This overview is intended to supplement ARDC's review results with IDA's observations. 2. The PCR summarizes the implementation of ARDC II and analyzes the results and main issues. The project was the second in a series following the first ARDC Credit Project (Cr. 540-IN 1975/76-1976/77). The decision to provide a country-wide line of credit for specified purposes rather than separate credits to numerous individual states was based largely on IDA's satisfaction with ARDC's capability to appraise subprojects, improved agri- cultural banking structure in the states, and the need to greatly expand the lending coverage to support India's agricultural development efforts. Project Disbursements and Financing 3. Total project costs were estimated at Rs 5,247 M (US$583M) at appraisal. Since IDA did not disburse against investments in tractors, rural energization and forestry schemes, ARDC calculated that the total cost of the components for which the IDA credit was to be disbursed was Rs 3,835 M, and the amount of ARDC lending required for full disbursement of the IDA credit would be Rs 3,250 M. Due to the changes in exchange rate that took place during the project period, however, the entire US$200M was disbursed against Rs 3,121 M. Although the disbursements were initially sluggish, the credit was fully disbursed on schedule. The subprojects (schemes) during the project period called for resources greater than approved under the project, so that some Rs 141 M had to be carried over to ARDC III. 4. The total investment costs against which disbursements were made by ARDC were Rs 4,007 M against the appraisal estimate of Rs 3,817 M. IDA's share of investments was about 53% (55% originally estimated); the remainder was met by the participating banks, borrowers, and governments. Several bi- and multilateral agencies showed interest in financing of the same project on the basis of the IDA staff appraisal report. Before the end of the project, the European Economic Commission (EEC) provided US$50 M through IDA as a Special Action Credit. The Canadian CIDA and the British ODA granted, on a 1/ This supplement has been prepared by South Asia Regional staff who visited India in June-July 1980. The original version of PCR prepared by ARDC, with only minor editorial changes, is attached to this Overview. - 2 - bilateral basis US$26M and US$3514 respectively. They all accepted utiliza- tion of the funds on the same terms as IDA, which monitored the project and ensured that the total contributions did not exceed 100% of the ARDC refinanc- ing of the loans issued. Objectives and Achievements 5. The project aimed at supporting ARDC in its refinancing of the ongoing programs of investment in minor irrigation and other agricultural, livestock and fisheries development schemes. The project was expected to help increase agricultural lending, improve performance standards of the participat- ing banks, facilitate regulated ground-water development, and help direct more resources towards development of less advanced areas and small farmers. 6. The following quantitative targets were given in the SAR: (a) finance 350,000 minor irrigation units to create irri-gation potential of about 0.9 M ha; (b) benefit about 1.0 M farmers; (c) direct at least 25% of the project funds to less advanced states 1/; (d) direct at least 50% of the project funds to small and marginal farmers (meaning any farmer whose annual pre- project net return did not exceed Rs 2,000 at 1972 prices); and (e) provide training for 1,550 senior and middle level and 9,060 junior banking staff of participating credit institutions. 7. Virtually all of these quantified targets were fulfilled. For 350,000 irrigation units intended under the project, over 490,000 were actually financed. For 0.9 M ha envisioned, project irrigation units brought 0.96 M ha under irrigation. The actual number of beneficiaries was 0.9 M, falling some- what short of the appraisal projection of 1.0 million. 8. About 42% of the ARDC disbursements went to the nine less advanced states, much above the original target of 25%, undoubtedly as a result of the purposeful endeavours of ARDC, RBI and GOI in these states (para 14). Similarly, the share of loans to small and marginal farmers went up to 56%, compared with the 50% target (paras 11-12). Some 1,605 senior and middle level management staff and 11,500 junior officers were trained, compared with 1,550 and 9,000 respectively projected. 9. The estimated financial rates of returns (FRR) at appraisal were 26% to over 50% depending on the type of investment. It is not possible now to 1/ Uttar Pradesh, Madhya Pradesh, Orissa, Rajasthan, Bihar, West Bengal, Assam, Himachal Pradesh and Jammu and Kashmir. - 3 - measure the ex post FRR because many of the project investments would take 4-5 more years to reach their full development. Some of them, such as investments in plantations, would take much longer. ARDC, therefore, chose to estimate FRR on the basis of measurable benefits associated with loans refinanced 2-3 years earlier for similar investments. The ex post FRR estimated by this means are somewhat higher than appraisal estimates, but range from 26% to over 50% as at appraisal. An exception is the investment in coconut plantations, where the ex post FRR is estimated at 23% compared with 30% at appraisal. 10. A similar proxy method has been used in estimating the economic benefits and costs. Economic prices of the traded goods have been updated to reflect the international price developments and the changes in local farmgate prices of milk, eggs and fish. The standard conversion factor has been revised from 0.75 to 0.8, and shadow prices of 80% for skilled labor and 60% for unskilled labor were used. The ex post ERR so estimated for different project investments are generally higher than those estimated at appraisal and now range from 36% to over 50% compared to 22% to over 50% at appraisal, except in the case of coconut plantations, where ERR has decreased to 19% from the original 22%. The method used in estimating ex post FRR and ERR is a "with" or "without project" analysis. Emphasis on Lending to Small Farmers and Less Developed States 11. The project demonstrated that much can be done to deliver greatly increased financial resources to weaker sections of population and poorer areas if deliberate efforts are made. 12. Following the policy adopted under ARDC I, ARDC continued to emphasize the importance of helping small farmers, by formulating specific schemes for financing under the project to meet their needs. It provided various incentives for participating banks to formulate schemes beTefitting small farmers. The principal incentives included: (a) extension of GOI subsidy ranging between 25% and 33-1/3% to small farmers, which had been available only to those within SFDA scheme areas, to all small farmers; (b) higher level of refinance (initially 100% but later 90%) in respect of schemes benefitting small farmers, which is still concessional compared to other programs refinanced by ARDC; (c) softer terms for loans to small farmers (a down payment of 5% only as against 10% to 15% for other farmers, and longer maturity periods, e.g., 15 years as against 9 years for minor irrigation); and (d) concessional rates of interest for loans to small farmers (since March 1979) for diversified purposes. 13. Particularly noteworthy are the efforts made by many commercial banks (CBs) to direct some of their lending to marginal farmers and landless laborers who had earlier been totally ignored. CBs have developed numerous schemes for these groups under their diversified lending programs. Sometimes these are under general "village adaptation" schemes; sometimes, for example, for very specific purposes such as purchase of animals, bullock-carts, and establishment of miniature poultry units of 100 hens. 14. The success in disbursing a much higher percentage of project funds than anticipated (42% against the target 25%) in the less advanced states has apparently been a result of the purposeful policies and efforts of ARDC, RBI and GOI, including the following: (a) Creation of a climate favorable to large scale development undertakings. ARDC initiated a series of dialogues with State Governments and GOT to create an environment conducive for agricultural investment programs, provision of necessary infrastructure, and strengthening of State development departments to enable them to provide necessary assistance for developmental programs. ARDC was successful in inducing the State Governments to take steps, for example, to set up Coordination Committees, Groundwater Boards and special machinery for ensuring the success of the investment programs in less developed States. (b) Institution building. ARDC's efforts have been concentrated on institution building, strengthening the cooperative structure on the one hand, and inducting the commercial banks, where necessary, on the other. ARDC conducted extensive training programs for the personnel of the banks, particularly those of the less developed States, on the techniques of project appraisal and monitoring. Special corporations have been established to undertake financing of programs such as minor irrigation, dairy development, and forestry. (c) Technical and financial support. A very significant effort has been made by ARDC in providing technical and financial support, which included: (i) establishment of Consultancy Units at Lucknow and Calcutta to provide technical assistance to State Governments and banks in the less developed States in formulating investment schemes; (ii) active participation in formulation of special time- bound programs in almost all the less developed States; and (iii) introduction of concessional refinance facilities for schemes financed in the less developed States amounting to 90% as against 75% to 80% of the financial outlay on agricultural investments refinanced normally by ARDC. - 5 - 15. There remain, however, three persistent constraints to rapid expansion of lending to small farmers and to less developed areas: (a) inadequacy of agricultural extension apparatus of State Governments to reach small farmers and help them with their investment needs; (b) inability of small farmers to organize themselves for bankable group loans or to meet even nominal downpayment requirements; and (c) physical inaccessibility of a large number of target group farmers. Monitoring and Evaluation 16. Because of the problems experienced during ARDC I, the project required that ARDC (a) institute improved monitoring, evaluation and report- ing procedures, (b) establish a Project Evaluation Task Force, (c) conduct 10 evaluation studies during the project period; and (d) appoint at least one agricultural economist in each of its regional offices. ARDC has complied with these requirements except that only 7 instead of 10 evaluation studies were prepared. In practice, the number and types of schemes refinanced by ARDC and the number of beneficiaries grew so fast that ARDC had difficulties in adjusting the methods of monitoring to the rapidly expanding requirements. Besides "disbursement monitoring," based on ad-hoc data from refinancing claims prepared by participating banks, ARDC's regular monitoring system had been based on periodic reports from participating banks, which failed to provide data satisfactorily on financial and physical progress of each scheme, so that ARDC had to prepare quarterly reports on an ad-hoc basis rather than on the basis of regular monitoring planned. 17. When ARDC II was appraised, it was envisaged that several hundred schemes would be supervised and several thousands of beneficiaries visited every year. However, supervision visits were far too few (in 1979 about 157 monitoring studies against 6,000-7,000 operating schemes). It was also dif- ficult to enforce participating banks to produce progress reports punctually. To remedy these deficiencies in monitoring, the following were agreed for ARDC III: (a) district-by-district supervision visits by ARDC field staff based on supervision and progress reports submitted by parti- cipating banks; (b) standardization of supervision guidelines and supervision reports; (c) introduction of the concept of "problem scheme"; and (d) semi-annual analysis of supervision findings by State and by type of investment. - 6 - 18. On the evaluation side, ARDC had great difficulties in meeting the minimum targets. Scheme-oriented evaluation was largely replaced by group (investment type) evaluation, which might be methodologically more demanding and require greater manpower inputs. ARDC was unable to prepare the end-of- scheme reports as envisaged at appraisal (these may have not been important in any event). ARDC has done good work in preparing project completion reports on IDA financed schemes, although they were often overdue. Institutional Development 19. ARDC, head offices of the participating banks, and their field staff were greatly strengthened in their agricultural lending activities. ARDC board approved a new staffing and organization plan. The number of its staff from Director to Assistant Development officer levels more than doubled during the project period (from 304 to 716). The number of the staff at the Regional Offices increased from 123 in 1977 to 349 in 1979. Because of the stagnation of lending, LDBs in most states ceased to increase their staff or to establish new branch offices. In the meantime, lending by the commercial banks grew rapidly. Branches dealing with agricultural credit increased from 23,890 in 1977 to 29,160 in 1979. In 12 CBs, from which information on staffing was collected, the number of specialized agricultural credit staff expanded from 2,050 to over 4,000 during the project period. 20. In the states where new lending by LDBs was severely curbed because of their poor recovery performance, CBs provided an alternative channel. The growth of CBs in agricultural sector is helped by the practice of preparing banking plans for districts introduced by ARDC, as these plans spell out a clear obligation for each bank towards agricultural lending. Overdues Position 21. High loan overdues constituted a major problem to the cooperative (LDB) development banking system. After an improving trend up to 1975/76, the loan repayment position deteriorated steadily. At that time the average overdue of all SLDBs was 28% 1/ compared to 42% in 1978/79 and 50% for 16 of 17 SLDB at June 30, 1980. The average masks a wide divergence between the best performance--e.g. Haryana SLDB, which consistently collected 100% of demand and SLDBs at the other end of the scale, notably Tamil Nadu with 88% overdues, Gujarat 79%, Bihar 79% and Madhya Pradesh 75% for 1979/80. Of these, the first three had loan collection problems for some years while Madhya Pradesh collection results deteriorated seriously in recent years. 22. Main reasons given for poor loan collections were crop failures due to drought, floods or storms; inability or unwillingness of SLDB to reschedule loan repayments after a natural calamity impaired borrowers' repayment capa- city; inadequate or poorly organized staff in some SLDB; reluctance of the borrowers to part with liquidity; and either lack of political will by state governments to support loan repayment collection efforts or even political obstruction of such efforts. To some degree, as a consequence of staffing 1/ Expressed as percentage of demand (principal and interest falling due during the year plus overdues from previous year). - 7 - defects, there were unviable loans or misutilization of loans, which would not generate revenue needed for repayment. In Tamil Nadu, for instance, the LDB had totally inadequate staff to deal with outstanding accounts. In most instances very high overdues follow crop failures--sometimes two or even three crop failure years--Gujarat and Tamil Nadu are good examples--which were then not followed up by LDBs either by way of determined loan collection efforts or by identifying hardship cases and rescheduling of repayment period. Lending Eligibility Criteria 23. Improvement of loan repayment collection has been a major concern of the Reserve Bank of India (RBI), ARDC and the Bank Group for some years. To improve collection performance, a series of lending eligibility criteria were introduced for the LDB banking system in 1975, based on loan recovery rate and previous lending levels. The criteria divided LDBs into three main categories: (a) unrestricted lending for SLDB branches or PLDBs collecting 75% of demand or better; (b) virtually no lending, except to complete disbursements of loans that had already been approved and limited lending to small farmers, when collection rate drops below a cut-off level (which was 45% in 1975 and has been raised to 50% as from October 1, 1980); and (c) lending on reducing scale from 100% of previous lending to 70% for those collecting between 74% and the cutoff point. 24. The objective of the eligibility criteria was to encourage LDB to achieve a minimum loan collection of 75%, of which 65% would have to be actual collection and up to 10% could be by means of the state government taking over chronic overdues by injecting corresponding amounts into the LDB as redeemable equity. The criteria have been modified over the last five years, making them more stringent. Any SLDB collecting less than the specific minimum percentage of demand or with more than half its branches or affiliated PLDBs disqualified from lending, would not be eligible for ARDC refinance, unless a rehabilita- tion plan approved by the state government and satisfactory to ARDC had been agreed upon. 25. The lending eligibility criteria were not effective in improving loan collection levels which, on the contrary, continued to decline. Based on June 30, 1980 loan recovery data, out of 1,762 LDB branches/PLDB, only 614 (35%) were eligible for unrestricted lending; 500 (28%) were entitled to carry out restricted lending; and the remaining 648 (37%), mainly situated in Tamil Nadu, Bihar, Gujarat and Madhya Pradesh, had virtually no eligibility for lending. 26. As a result of large scale limitation of LDB lending, many farmers were deprived of the opportunity to borrow. There was, of course, the alter- native of obtaining credit through CBs, but that was not available everywhere. In addition, the lending limitations together with high overdues were driving - 8 - affected LDBs out of business, contrary to GOI and IDA policy to support cooperative institutions. 27. ARDC, RBI and GOI have combined to draw up rehabilitation plans for at least six large SLDBs, but the state governments were slow, and to some extent, reluctant to implement the plans, and none of these states agreed to endorse specifically its plan in the sense required by the provision in the Agreed Minutes of credit negotiations. The situation at the moment is that at least five of the states have taken action on parts of their LDB rehabili- tation plan. New measures for improving loan collection are needed. The appraisal mission for ARDC IV now scheduled to visit India in April 1981 has been instructed to discuss with GOI, ARDC and other participating institutions the means to be employed to improve loan collections. Substitution and Additionality of Funds 28. Although the PCR does not deal specifically with the question of substitution or additionality of funds, the lending statistics (Annex 1, Table 15 of PCR) point out that the ordinary debentures of LDBs (borrowing largely from RBI and government) have remained approximately at the level of 1977 (an increase of only 4% in nominal terms). The special debentures of LDBs purchased by ARDC have grown from Rs 5.9 B to Rs 7.4 B, an increase of 45%, indicating that the increased lending has been carried out by funds from ARDC. The growth in LDB lending is clearly above the inflation during the period which was about 10-12%. Commercial banks' borrowing from ARDC increased dramatically; from Rs 2.2 B in 1976/77 to 4.9 B in 1978/79 cumulatively, an increase of 120%. As the total institutional term lending to agriculture increased during the same period from Rs 21.5 B to Rs 24 B (12%, i.e., about the same as inflation), it appears that there was a significant element of additionality in CB lending to agriculture. Surveys 29. To fill important data gaps, it was agreed that a number of surveys would be carried out during the project period, viz: (a) survey on probable demand for pumpsets, new ones and replacement requirements; (b) study of possible groundwater over-exploitation areas, including use of minimum spacing criteria; and (c) study of adequacy of interest rate spreads, with particular reference to the needs of LDBs. 30. All of these surveys have been completed. They made valuable contri- butions toward filling the data gaps. Projections for demand for new pumpsets and pumpsets for replacement for the period 1978-83 have been prepared, indicat- ing that the total need would be about 3 M pumpsets (1.2 M diesel operated - 9 - and 1.8 M electrical). 1/ The estimated replacements required were about 0.3 M, much less than earlier assumed. The committee concluded that the lifetime of a pumpset is about 14-18 years, significantly longer than earlier assumed, so that amortization periods for pumpsets could be lengthened and the financial rate of return of these investments could thus be improved. In addition, ARDC prepared "Guidelines for Selection of Agricultural Pumpsets" during the project period. 2/ 31. The committee established to survey the groundwater exploitation situation found that less than a half of the areas believed to have been over- exploited had been actually overdeveloped. 3/ In view of the existence of some clearly overexploited areas, the committee recommended that ARDC and respective groundwater agencies should in the future thoroughly investigate the ground- water situation in designing new schemes. The committee recommended that a list of areas of possible over-exploitation should be prepared on the basis of new up-dated norms for all blocks approaching a critical water exploita- tion level (80%). The committee formulated the new norms to be used in this exercise, and it recommended that State Groundwater Departments (SGDs) con- tinue to monitor the water table behaviour in critical areas, and that SGDs clear schemes only in areas where no decline of water table is noticed. 32. The committee studying the interest rates recommended that -the margin for LDB should be raised from 3.0% to 3.5% to ensure LDBs financial viability. 4/ In connection with the recent readjustment of interest on CBs agricultural loans, LDBs interest margin has been raised from 3.75 to 3.85% which are considerably higher than the 3.5% recommended by the committee. Performance of IDA and ARDC 33. ARDC complied with all of the principal covenants: execution of the various surveys, adoption of rules and regulations for LDB debentures, improvement in monitoring, evaluation and reporting systems, etc., which proved to be very helpful in preparing ARDC III and IV. During the project, the nature of IDA supervision changed drastically, a process which had already started during ARDC I. Given the widening scope of IDA assistance which was implicit in the adoption of an all-India credit program to replace state-oriented credit projects, IDA had to rely increasingly on ARDC for field supervision. 1/ Report of the Committee to Estimate the Demand for Pumpsets during 1978-83 and Study the Policy and Procedure of Financing It, Agricultural Refinance and Developmment Corporation, Bombay, 1979. 2/ Guidelines for Selection of Agricultural Pumpsets, Agricultural Refinance and Development Corporation, Bombay, 1980. 3/ Report of the Groundwater Overexploitation Committee, Agricultural Refinance and Development Corporation, Bombay, 1979. 4/ Report of the Committee on Interest Rate Spreads in the Agricultural Lending Sector, Agricultural Refinancing and Development Corporation, Bombay, 1979, p. 112, para 23. - 10 - IDA supervision work was concentrated on (a) financing institutions, (b) rele- vant state government activities and supporting services, and (c) problems affecting agricultural credit in general. Only a small number of the parti- cipating states were visited, and most of them only once or twice during the project period. 34. To complement the work of supervision missions which had usually concentrated on financial and banking aspects, a special technical supervision mission was sent during the project to assess the scope for investments in a number of subsectors such as fisheries, plantation and horticulture, storage and market-yards and the adequacy of technical staff in ARDC and participating banks in these subsectors. 35. Supervision missions continued to provide advice and guidance with respect to staffing, management and organization of ARDC and SLDBs, overdues situation in SLDBs and CBs, rehabilitation programs of SLDBs, need to improve communication between ARDC and its branch offices, decentralization of decision- making powers to give greater authorities to branches and regional offices, and improvement of monitoring arrangements and scheme supervision. Special attention was paid to filling the most senior vacancies at ARDC. ARDC endeavored to follow all of the IDA recommendations. ARDC's performance was, in general, satisfactory. Besides providing general leadership in the long term lending and developing new projects for international financing, ARDC provided essential support to participating banks, particularly to LDBs by helping them set up the necessary procedures and guidelines for appraisal and supervision of investment schemes, and in developing rehabilitation plans for weaker LDBs. 36. There are a number of important issues which call for special atten- tion: (a) the problem of poor recovery which can undermine the very foundation of IDA involvement in India's agricultural credit program and which can severely impair the financial viability of LDBs, (b) the tenability, and the universality of the application, of the definition of small farmers, (c) the need to improve the monitoring and field supervision of investments financed, and (d) the need to ascertain the extent of failed investments and misutilized funds and to work out ways of dealing with these problems. - 11 - SECOND AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION PROJECT (Credit 715-IN) PROJECT COMPLETION REPORT Agricultural Refinance and Development Corporation March 198 - 12 - INDIA PROJECT COMPLETION REPORT SECOND AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION CREDIT PROJECT (715-IN) SUMMARY i. The project proposal seeking credit of US$200 M, was submitted to IDA in August 1976 and appraised in November 1976. It was negotiated in April 1977 and, after completion of all formalities, became effective in August 1977. It closed on December 31, 1979 as scheduled. ii. The project extended over the whole of India and aimed at supporting the program of lending for the development of agriculture and allied activities, and strengthening the infrastructural facilities, particularly the long-term credit institutions. iii. Total ARDC disbursements under the Project amounted to Rs 3,121 M (appraisal estimate Rs 3,257 M 1/). Total ARDC supported investment at the grass-root level relating to the project is.estimated at Rs 4,007 M (Rs 3,817 M). iv. Mainly as a result of encouragement given by ARDC and the efforts made by participating banks to diversify their loan portfolio, the pattern of realized investment was different from that originally envisaged. Thus, diversified purposes claimed nearly 22% (15%) of total investments made under the project. Among diversified investments, lending for plantation and horticulture, fisheries and dairy purposes was most prominent. v. The pattern of financing was also somewhat different from that envi- saged at the appraisal. Both the borrowers and the banks financed a somewhat larger share of the total cost of investment than anticipated especially in diversified lending. Consequently, the percentage share of ARDC, and therefore that of IDA of the total investments was less than originally visualized. vi. The project is estimated to have directly benefited some 0.90 M persons (1.0 M) of whom around 0.50 M (0.50 M) belonged to weaker sections of population. The number of units of minor irrigation investments financed under the project is estimated at 0.50 M (0.35 M); these investments are estimated to have created irrigation potential of about 0.96 M ha (0.90 M ha) and added 0.25 M ha to sown areas. Investments in other farm or allied activ- ities have resulted, inter alia, in bringing 0.09 M ha under plantation and horticulture, adding 1,40 mechanized fishing vessels, and acquiring 0.09 M milch cattle, over 1.0 M layer birds and 0.5 M sheep. vii. Investments undertaken are expected to increase agricultural pro- duction substantially. Thus, at full development, additional foodgrains production alone is estimated at over 1.0 M tons (0.7 M tons). Value of total 1/ Throughout the summary, figures within bracket represent the respective appraisal estimates. - 13 - additional crop production is estimated at Rs 2,450 M (Rs 2,500 M). Among allied activities, production of milk is estimated to have increased by over 150 M liters and that of eggs by some 240 M. Total value of incremental output resulting from investments in diversified activities is estimated at Rs 1,150 M (Rs 800 M). viii. Investments undertaken are estimated to have already provided gainful additional employment for 150 M mandays. At full development, these would create employment opportunities for almost 225 M mandays (175 M mandays) every year; nearly three-fourth of this would be directly on the farms. Additional employment has mainly benefited, and would continue to benefit, small and marginal farmers and agricultural laborers. ix. Investment activities undertaken were financially viable. In fact, in most cases, the financial rates of return (FRR) are more favorable than assumed at appraisal. x. ARDC and the participating banks continued efforts to step up the disbursements to small farmers and relatively less developed areas. Thus, of the total disbursements under ARDC II, 56% (50%) is estimated to have gone to small farmers and other weaker sections of population. Similarly, largely thanks to rigorous efforts made, ARDC was able to increase its disbursements in the nine relatively less developed states to as much as 42% (25%) of total disbursements made under the Project. xi. ARDC continued its efforts to strengthen the institutional infra- structure. It has considerably expanded its training promotion and arrangements with a view to equipping the bank staff with necessary skills in formulation, appraisal and monitoring of schemes. It has also helped the banks in building up their loan portfolio through an area development approach. Similarly, ARDC has encouraged diversification of lending to improve the financial viability of the banks. They are also being urged to establish a system to closely monitor and evaluate schemes being implemented by them. ARDC, in collaboration with RBI, has also drawn up a program for the rehabilitation of land development banks, particularly in the five states with poorest recovery performance, viz., Bihar, Gujarat, Karnataka, Maharashtra and Tamil Nadu. xii. An analysis of the working of Land Development Banks (LDB) indicate that their growth has been markedly uneven both over time and space. There has been an increase in amounts overdue. At the aggregate level, the percent- age of overdues to demand at State Land Development Bank (SLDB) level changed from 28% to 47%. As a result, the number of PLDBs and SLDB branches not eligible for refinance which had declined from 483 in 1977/78 to 218 in 1978/79 (but have increased again to reach 415 in 1979/80). Banks have been urged to modify their systems and procedures on more efficient lines and to strengthen their supervision machinery to ensure proper utilization of loans. xiii. Commercial Banks (CBs) have made big strides in providing investment finance for agricultural development. Their share in the total institutional finance provided increased from 38% in 1975/76 to 41% in 1978/79. They have now surpassed LDB in availing of annual refinance assistance from ARDC. The success of CBs in stepping up their disbursements to promote agricultural development was as much the result of deliberate policy measures adopted by - 14 - GOI/RBI/ARDC, as of the efforts made by themselves. In this connection, the opening of a large number of CB offices in rural and semi-urban areas and considerable strengthening of their technical staff cadre deserves a mention. The village adoption scheme has also helped CBs in increasing their involvement in agricultural financing. The progress achieved by CBs notwithstanding, their mounting overdues have been a cause of serious concern. At All-India level, despite slight improvement since mid-1977, overdues as a percentage of demand in respect of total direct agricultural lending have remained between 47% and 50% during the last five years. ARDC, in consultation with Committee on Agricultural Loans through Commercial Banks (CALCOB), has already asked CBs to take specific measures where overdues exceed 50% of demand. - 15 - INDIA PROJECT COMPLETION REPORT SECOND AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION CREDIT PROJECT (715-IN) I. INTRODUCTION Background 1.01 The Second Agricultural Refinance and Development Corporation Credit Project (ARDC II Project) was sanctioned by IDA in mid-1977 (Credit 715-IN) and implemented between September 1977 and December 1979. It was a sequel to the first Agricultural Refinance and Development Corporation Credit Project (ARDC I Project). Like the first ARDC Project, ARDC II also extended over the whole of India except a few states where similar investments were covered by other on-going IDA-assisted projects. Like under ARDC I Project, the main objectives of ARDC II project were to: (a) support a program of on-farm development and diversified lending; (b) strengthen the long-term institutional credit structure; and (c) strengthen the infrastructural facilities, particularly the supporting services. The project laid special emphasis on meeting the credit needs of small farmers and the relatively less developed areas. 1.02 With the sanction of Gujarat Agricultural Credit Project by IDA in 1970, an enduring and fruitful association emerged between the World Bank Group and Agricultural Refinance and Development Corporation. Thus, by December 1979, ARDC had participated in the implementation of as many as 37 World Bank Group assisted projects with financial involvement exceeding US$1 B. 1/ 1.03 Unlike other IDA-assisted projects which were confined to a single state and/or a single investment activity, the two general lines of credit (ARDC I and ARDC II Projects) envisaged financing of a number of investment activities throughout India. These general lines of credit gave considerable latitude and discretion to ARDC to sanction schemes for eligible purposes within an overall lending program appraised by IDA. The approach reflected the growing confidence of the World Bank Group in the technical and adminis- trative capabilities of ARDC. 1/ These included 12 state agricultural credit projects, 7 command area development projects, 3 dairy development projects, 3 seed projects, 3 fisheries projects, 2 horticultural producer marketing projects, 2 market yard projects, 2 irrigation projects, 2 general lines of credit and an integrated cotton development project. - 16 - 1.04 Encouraged by ARDC's past performance in achieving record disburse- ment of investment finance for agricultural development and in successfully completing the Rs 1.5 B ARDC I in June 1977, 1/ six months ahead of schedule, the Government of India (GOI) asked ARDC to prepare another project for the consideration of IDA. Project Preparation 1.05 In order to provide the necessary perspective, the Corporation, in consultation with state governments and financing institutions, drew up a likely and feasible lending program for five years ending June 1982. Taking into consideration the goals and priorities set out in the national plan docu- ments, ARDC's past performance and its capacity to step up its lending opera- tions in the immediate future, lending capacity of financing institutions, potential for development in different areas and availability of infrastruc- tural facilities, the program envisaged total disbursement of Rs 16.25 B during the five years 1977/78-1981/82, as detailed below: Year Progam Annual Disbursements (Rs M) 1977/78 2,600 1978/79 2,850 1979/80 3,200 1980/81 3,600 1981/82 4,000 16,250 The projection assumed a compound rate of growth of 13% per annum in ARDC's business during the following five years as against the realized 19% during the similar preceding period. 1.06 The indicative lending program for the two years 1977/78 and 1978/79 formed the core of the Project Report for the Second Tranche of General Line of Credit submitted by ARDC to IDA in August 1976. The project sought a credit allocation of US$200 M which, at the then prevalent rate of IDA reimbursement, would have supported an ARDC disbursement program of Rs 3,250 M. ARDC was confident of achieving this level of disbursement. In fact, it was hoping to disburse Rs 5,450 M during the relevant two year period, including disburse- ments under other ongoing projects and lending under its normal program. Issues During Appraisal and Negotiations 1.07 The Project Report was submitted to IDA in August 1976. It was appraised by an IDA Mission in November 1976. Negotiations took place in April 1977. While IDA was agreeable to provide US$200 M over a period of two years beginning July 1977, discussions during appraisal/negotiation centered around the rate of reimbursement to ARDC, elgibility criteria for 1/ While disbursements under the Project were completed by June 1977, the credit was officially closed by IDA in September 1977. - 17 - financing banks, criteria for orderly exploitation of groundwater resources and coverage of small farmers. 1.08 On the question of rate of reimbursement, IDA contended that in view of the rapid growth in ARDC's lendings it may not be possible for IDA to con- tinue to support ARDC's program on the basis of a constant proportional share. Hence it proposed a reduction in reimbursement rate from 55% as under ARDC I Project to 45% under ARDC II Project. As this had important implications in regard to resources position of ARDC, the Indian Mission pressed for the status quo ante. After long discussions, IDA agreed to reimburse at the rate of 55% of ARDC refinance for approved purposes. 1.09 As regards eligibility criteria, IDA contended that although the eligibility of LDBs had been hitherto linked to their recovery performance on a sliding scale, no LDB should be eligible for refinance from ARDC, effective October 1977, if its recovery was below 65% of demand and unless it was brought upto 75% by injection of equity from the state government. The Indian Mission had serious reservations on this issue. After protracted discussion, IDA agreed to continue the sliding scale formula, on an interim basis. It was also decided that: (a) the amount available for floatation of debentures should not be greater than the annual average lending performance of such PLDB/branch of the SLDB for the previous three years or the amount issued during the preceding year, whichever is higher; (b) a PLDB/branch of SLDB which has restricted eligibility may be allowed to issue debentures to fulfill commitments in respect of second and subsequent instalments of loans in order to complete the investments, provided that: (i) the amount drawn in accordance with its eligibility is used solely for the purpose of fulfilling commit- ments in respect of second and subsequent instalments of loans; (ii) the disbursement is made within the period of grace permitted for the loan; and (iii) the total loan period is not exceeded. (c) a PLDB/branch of SLDB which has restricted eligibility and which has, out of the permitted lendings disbursed at least 50% of the amount to small farmers, may be permitted to go one level above the level of lending indicated in the cri- teria, provided that at least 75% of the additional amount so permitted is channeled to financing of small farmers; and (d) a PLDB/branch of SLDB which achieves a minimum of at least 5% recovery improvement may be given its normal eligibility percentage plus five percentage points. - 18 - 1.10 IDA agreed to remove the restriction on refinance limit to be pro- vided to state cooperative banks (US$0.5 D under ARDC I Project) provided such banks have achieved a recovery performance of not less than 65% of demand. 1.11 As under ARDC I Project, IDA again insisted on the regulation of minor irrigation investments, particularly in over-exploited areas. IDA required that groundwater exploitation should be on the basis of a revised formula and that certain guidelines should be followed to ensure water quality standards. After considerable discussion, IDA agreed to delete provision for water quality. It was also agreed that no finance would be provided for addi- tional groundwater development in "intensively developed and/or potential problem area", so delienated by the Central Groundwater Board (CGWB), without the prior approval of ARDC. On its part, ARDC agreed to carry out a sample study to collect more accurate data and information about exploitation of the groundwater resources and potential for minor irrigation investment in possible groundwater overexploited areas. GOI and ARDC also agreed to actively pursue with the state governments the urgent need for enacting legislation controlling groundwater exploitation. 1/ 1.12 In view of the likely sharp increase in the demand for pumpsets for irrigation purposes, IDA required ARDC to undertake a study to estimate such demand for both new pumpsets and equipment for replacement purposes over the five years (1978-1983) and examine policies and procedures of financing it. 1.13 IDA was earlier not agreeable to financing loans either to small farmers with capital subsidy or to Electricity Boards for providing electric connections to pumpsets financed under the Project. However, after the credit discussion, IDA agreed to extend the coverage to include loans to such farmers provided subsidy funds were channelled through the banking system and suitable procedures were adopted for observance of farmer criteria and fair and effi- cient administration of funds. Loans for rural electrification would remain ineligible for financing under the project. 1.14 Dealing with the purposes proposed to be covered under diversified lending program, it was agreed that these would be the same as under ARDC I Project. While threshers and driers could be financed, tractor would continue to be excluded. However, all schemes for diversified purposes involving invest- ments exceeding US$0.50 M as also schemes for storage and market yards would require prior IDA approval. 1.15 IDA was concerned about the profitability of current operations of participating banks. It, therefore, suggested that a larger margin be allowed to financing banks by raising the ultimate lending rate by 1%. Though IDA did not press this point, it was agreed that ARDC, in conjunction with RBI, would carry out a study of interest rates spread with particular reference to the needs of LDBs. 1/ The Government of Gujarat has already passed the necessary legislation to prevent over exploitation of groundwater resources. However, the legislation has yet to become effective. - 19 - The Project of Appraisal 1.16 Based on the ARDC's indicative lending program for 1977/78 and 1978/79 it was estimated that total investments made at the grass root level under ARDC-assistted program during these two years would amount to Rs 6,488. 1/ Of this, nearly 40% would be under ongoing IDA projects or program financed exclusively by ARDC. 2/ Thus, the total cost of the project eligible for IDA finance under ARDC II Project would be Rs 3,835 M (US$426.10 M). 3/ 1.17 Nearly 86% of the cost of the project (Rs 3,285 M) was earmarked for minor irrigation and land development; minor irrigation would include open dugwells with or without pumpsets and shallow or deep tubewells. The balance was for diversifid investment. A small amount (Rs 18 M) was set aside for training and surveys. 1.18 Of the total project cost (excluding training), 39% was to be pro- vided by ARDC and 47% by IDA; the balance was to be met by financing banks (8%) and the borrowers (6%). The cost of training (Rs 18 M) was to be equally shared by IDA and GOI. 1.19 It was agreed that at least one-half of total lending under the project would be made available to small farmers. Similarly, though no specific statewise targets were fixed, it was expected that at least one-fourth of total disbursement under the Project would be made in states where agricul- tural development was lagging behind. 1.20 As under ARDC I Project, small farmer was defined as one cultivating land yielding a pre-development income of upto Rs 2,000 per annum at 1972 1/ The estimate was expressed in current (1976) prices and incorporated a price increases contingency at an annual rate of 7%. 2/ These would comprise financing for purposes not covered under ARDC II Project, mainly energization fo pumpsets, tractors, forestry, market yards and storage. 3/ The IDA Staff Appraisal Report (SAR) puts the cost of project at Rs 5,247 M (paragraph 5.01). However, since it included purposes not considered eligible for IDA finance under ARDC II Project and hence to be financed exclusively by ARDC, the estimate does not represent the cost of programs to be financed under ARDC II Project. However, SAR does provide the break-up of the proposed IDA credit - US$175 M for minor irrigation, US$24 M for diversified lending and US$1 M for train- ing. Assuming that IDA credit represent 55% of ARDC refinance for minor irrigation and diversified purposes and 50% of the total cost of training (SAR, paragraph 5.05) and that the share of borrowers and banks would be as shown in paragraph 5.02 of SAR, the total cost of ARDC II Project may be estimated at Rs 3,835 M (US$426.10 M). The esti- mate is in line with the details of project cost presented in Annex 12 of SAR. The revised estimate has been used throughout the PCR to repre- sent SAR estimate of the cost of project. - 20 - prices. Income would mean gross family income from land (or other activities, for the purpose of diversified lending) less costs actually incurred (includ- ing cash value of borrower's own inputs). II. PROJECT IMPLEMENTATION Disbursements and Financing 2.01 ARDC II Project closed on December 31, 1979, as scheduled. Total ARDC disbursements under the project as on that date (excluding training) amounted to Rs 3,121 M, marginally short of the anticipated amount of Rs 3,257 M. However, in view of the appreciation in the rupee - US$ dollar exchange rate, 1/ disbursement of Rs 2,970 M was sufficient to fully draw the IDA credit authorization of US$200 M. Accordingly, since the ARDC com- mitments for the period were higher, reimbursement against the balance amount (Rs 151 M) was claimed under the third credit tranche (ARDC III) which became effective from January 2, 1980. 2.02 Although the total ARDC disbursements under the project were some- what lower in rupee terms than originally estimated, total ARDC-supported investments at the grass root level, or the total cost fo the project (exclud- ing training), was estimated at Rs 4,007 M, which is about 5% higher than Rs 3,817 1 envisaged. This was mainly because ARDC refinance, on an average, covered only 78% of the cost of investments undertaken as against 85% envi- saged (for reasons see paragraph 2.04). Project Cost ARDC Disbursements IDA Credit (Rs M) (Rs M) (US$M) Appraisal Actual Appraisal Actual Appraisal Actual Minor Irrigation 3,285.0 3,174.0 2,864.0 2,525.9 175.0 167.2 Diversified Investments 532.0 833.0 393.0 595.0 24.0 32.0 Training 18.0 13.4 9.0 6.7 1.0 0.8 Total 3,835.0 4,020.5 3,266.0 3,127.6 200.0 200.0 2.03 The pattern of realized investments was in part different from that envisaged. Thus, minor irrigation and land development were together 79% of the total cost of the project, as against 85% envisaged. Consequently, diversified investments claimed a larger share. Among diversified investments, plantation and horticulture, fisheries and dairy were the most important lending purposes. Expenditure on training was about three-fourths of the amount envisaged, for reasons given under paragraph 2.22 (Annex 1, Table 1). 1/ The average US dollar/rupee exchange rate at which reimbursements were made was to US$1 to Rs 8.20 as against US$1 to Rs 9.00 at the time of appraisal. - 21 - 2.04 The pattern of financing was also somewhat different. Mainly on account of larger disbursements for diversified purposes and to corporate borrowers for minor irrigation, both the borrowers and the financing institu- tions were required to bear larger share of the cost than was estimated at the time of appraisal. As a result, the share of ARDC, and therefore also that of IDA, was lower than assumed. Percentage Share, in total cost, of Borrower Banks ARDC IDA Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Minor Irrigation 6.0 9.1 7.0 11.34 39.0 36.4 48.0 43.2 Diversified Investments 8.0 9.6 17.0 19.4 34.0 39.8 41.0 31.2 Total 6.3 8.6 8.3 13.1 38.5 37.3 46.9 41.0 2.05 Understandably, the pace of ARDC disbursements was slow during the initial project period. It picked up after December 1977 and gained momentum after December 1978. Disbursements made during the last 12 months of the project accounted for 60% of the total as against 40% during the earlier 17 months. Disbursements from IDA to ARDC were also slower than envisaged (Annex 1, Table 8). Minor Irrigation and Land Development 2.06 Minor Irrigation. Total cost of minor irrigation units constructed or renovated under the project amounted to Rs 3,104 M as against the appraisal estimate of Rs 2,872 M. ARDC refinance covered 80% of the cost. The ori- ginally anticipated refinance was 87%. 2.07 Given the actual cost of investments, the units financed for minor irrigation purposes under the project can be estimated at 0.50 M 1/ as against the appraisal estimate of 0.35 M. About 25,000 ha of land was provided with better and more efficient water distribution system. The larger than envisaged number of minor irrigation units constructed or renovated is explained by the relatively larger outlay (Rs 232 M); it may also be attributed to the fact that a major part of the disbursements was in the form of single purpose loans. Summary of different kind of completed unit equivalents 2/ are as below (no appraisal estimate is available). Statewise details are given in Annex 1, Table 4. 1/ The number of units for which finance was sanctioned (appraised, approved but not yet financed) was higher. 2/ Due to the credit being a slice of continuous lending program, the term "unit equivalents" is used to describe the number of units financed during the period if those incompleted during the previous period and the ones only started during the project period, are converted into complete units. - 22 - Investments Units New dugwells 172,835 Pumpsets 172,885 Dugwells and pumpsets 34,405 Development of wells 53,470 Shallow tubewells 57,340 Deep tubewells 795 Lift irrigation units 135 Water distribution system (ha) 25,110 2.08 Of the above investments, the problem of delay in completion concerns only the dugwells. The PCR of Karnataka ACP had shown that a large number of wells financed under the project were incomplete even four years after the close of the project. On a fresh analysis of the facts, it has been found that the earlier estimate of incomplete wells in Karnataka was much on the high side due to different types of errors, including those in computerization. It has now been established that the number of incomplete wells under the Karnataka ACP is substantially less than what was estimated earlier. The field studies done by ARDC so far do not show any problems with completion period in respect of shallow tubewells, pumpsets, or deep tube wells. 2.09 Total number of direct beneficiaries is estimated at 0.53 M (no appraisal estimate available); including indirect beneficiaries (purchasers of water), the number may reach 0.9 M. Investments made in minor irrigation units are estimated to have created additional irrigation potential of about 0.96 M ha (appraisal estimate of 0.90 M ha) and added 0.25 M ha to the sown area. About 59% of the total ARDC disbursements for minor irrigation was claimed by small farmers. 2.10 Statewise details (Annex 1, Tables 2 and 3) indicate that just two states--Andhra Pradesh and Uttar Pradesh--accounted for over 40% of total investments in minor irrigation under the Project; another 25% was accounted for by Madhya Pradesh and Maharashtra. These four states together claimed almost two-thirds of total such investment. A notable feature of statewise distribution was that nearly one-half of total such investments was in the nine less developed states 1/ (Annex 1, Tables 6 and 7). 2.11 As agreed, ARDC followed a more sophisticated methodology for ground- water resource evaluation for schemes in potential problem areas (including those areas where the risk of overexploitation is high); such areas were mainly in Punjab, Karnataka, and Tamil Nadu. For the purpose of such evaluation, ARDC insisted on fluctuation approach with adequate number of observation wells and specific field values based on pumping set data. 2.12 IDA has laid down criteria for spacing and density of wells. ARDC was, however, permitted to relax these criteria provided adequate supporting data were available. ARDC generally ensured observance of these criteria. However, in Andhra Pradesh, Maharashtra and Rajasthan, spacing stipulations 1/ These are Assam, Bihar, Himachal Pradesh, Jammu & Kashmir, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal. - 23 - had been relaxed on this basis even under earlier projects; the same norms continued to be applicable in these states under ARDC II Project also. Further, based on an analysis of norms in respect of shallow tubewells, the spacing in Haryana was reduced from 220 meters to 180 meters. 2.13 Land Development. Total value of the land development work undertaken under the Project amounted to Rs 70 M, Rs 27 M short of the appraisal estimate of Rs 97 H. ARDC refinanced 80% of total cost (appraisal estimate 87%). About 59% of the total disbursements was made to small farmers. Statewise, over 70% of the total land development work was in Punjab and Haryana; another 21% in Andhra Pradesh and Karnataka. Only about 8% of total work was in the less developed states (Annex 1, Tables 3 and 6). Diversified Investments 2.14 Mainly as a result of encouragement by ARDC, investments in diversi- fied activities got a big boost under ARDC II Project. The process was aided by CBs which diversified their portfolio. On account of brisk pace of dis- bursement under this category, ARDC/GOI requested, and IDA agreed, to keep the allocation of credit as between the two broad categories of investments--minor irrigation and diversified purpose--flexible. As a result, the Project closed with US$32 M of IDA credit being utilized for diversified purpose, as against US$24.0 M proposed earlier. 2.15 Total cost of investments in diversified activities under the Project amounted to as much as Rs 833 M, nearly 30% more than the appraisal estimate. Its share in total project cost was also 21% as against 16% envisaged. On an average, ARDC refinanced about 71% of the cost, as against 75% estimated at the time of appraisal. The share of small farmers in ARDC disbursements for diversified purposes was 42%. This lower share was mainly on account of larger disbursements for plantation and horticulture where the scope for financing small farmers is naturally limited. 2.16 All important diversified activities contributed to the increased investment in varying measures. However, a major part of the increase (over 80%) was under the headings plantation and horticulture and fisheries. The total investments under the former heading were nearly twice and that under the fisheries category over three times more than envisaged. 2.17 A major part of the investment in diversified activities was confined to a few states. Over all, more than one-half (53%) of total investment was confined to the four southern states, principally Karnataka (23%) and Andhra Pradesh (18%) (Annex 1, Table 2). Investment-wise, 34% of the total invest- ment in plantation and horticulture was concentrated in just one state, Karnataka, another 27% was in Assam and Kerala together. Under dairy, about 28% of the investment was in Andhra Pradesh. Under fisheries, nearly 44% of the investments was in Karnataka and about 12% each in Gujarat and Kerala. As regards poultry and sheep breeding, almost 60% of the investment took place in just one state, Andhra Pradesh (Annex 1, Table 3). - 24 - Lending to Small Farmers 2.18 ARDC/GOI took a number of measures during the project period to ensure increased flow of credit to small farmers. 1/ Thus, during 1977/78, GOI decided to provide capital subsidy to small and marginal farmers for minor irrigation works under ARDC schemes even in areas not covered by special schemes like SFDA, DPAP and CADP. The subsidy was to be routed through credit institutions. Later, such capital subsidy (at a lower rate of 20%) was extended to all farmers owning 2 to 4 ha of land for small irrigation investments under ARDC or ARDC types of schemes taken up on basis with ground water clearance. Further, in states where arrangements for hiring pumpsets are satisfactory, ARDC agreed to provide refinance for schemes for financing small farmers for boring alone. The decision of IDA to reimburse loans to the small farmers with capital subsidy also helped in stepping up disbursements to small farmers. 2.19 As a result of these measures, about 56% of total ARDC disbursements under the Project went to small farmers as against the target of 50%. The smaller coverage under diversified lending reduces the average. Percentage Share of Small Farmers State in ARDC Disbursements Minor Diversified Total Average Irrigation Purpose (Weighted) Andhra Pradesh 59.5 70.0 61.3 Assam 100.0 0.2 5.3 Bihar 75.0 74.6 75.0 Goa - - - Gujarat 54.4 44.0 50.7 Haryana 54.3 53.0 54.2 Himachal Pradesh 100.0 76.6 79.4 Jammu & Kashmir - 100.0 100.0 Karnataka 66.5 12.4 37.5 Kerala 71.4 39.0 48.9 Madhya Pradesh 67.5 80.0 67.7 Maharasthra 49.7 47.9 49.5 Orissa 81.8 44.5 76.2 Punjab 52.4 65.7 53.8 Rajasthan 51.8 51.4 51.7 Tamil Nadu 54.0 71.8 59.7 Uttar Pradesh 58.0 70.0 58.4 West Bengal 71.0 28.4 47.4 All India 59.7 41.6 56.2 1/ The basic definition of "small farmer" remained unchanged, viz., a pre- development income ceiling of Rs 2,000 per annum at 1972 prices. ARDC has, however, issued a circular in November 1980 updating the income ceiling to Rs 3,500 per annum at the All-India level (and also indicating the revised statewise ceilings) on the basis of the consumer price index for agricultural laborers for 1979/80. - 25 - 2.20 Though it was possible to over-reach the target at the aggregate level, the share of small farmers was less than one-half in four states--Assam, Karnataka, Kerala and West Bengal. In these states the statistics on share of small farmers was influenced by lending for diversified purposes, espe- cially plantation and horticulture, where scope for lending to small farmers is limited. 2.21 The above data suffer from two major defects. Firstly, despite clear-cut instructions, many bank offices, of both LDBs and CBs, continue to follow the SFDA definition of small farmers which, in several states, is more restrictive than the ARDC definition. This practice leads to under reporting the share of small farmers among the borrowers. Secondly, a larger number of bank offices, again both of LDBs and CBs, identify small farmers on the basis of land offered in mortgage rather than family landholding; this tends to overestimate the share of small farmers. In the aggregate, however, these two types of errors may cancel each other. 1/ Lending in Less Developed States 2.22 Although no specific statewise targets were fixed, it was agreed during negotiations that at least one-fourth of total ARDC disbursement under the project would be disbursed in the nine less developed states. However, mainly on account of the vigorous efforts made, ARDC was able to push up disbursements in these states to as much as Rs 1,311 M which was 42% of the total disbursements made under the project (Annex 1, Tables 6 and 7). Most of the disbursement made in these states were for the development of minor irrigation (88%) and were confined to four states, viz., Uttar Pradesh (41%), Madhya Pradesh (25%), Orissa (13%) and Rajasthan (11%). The relatively low disbursements in Bihar and West Bengal can be attributed to other IDA supported state agricultural credit projects in these states. Low disbursements in North-Eastern Region was largely due to lack of infrastructural facilities and absence of any machinery for scheme formulation. Training 2.23 As against the anticipated Rs 18.0 M, ARDC filed claims for Rs 13.8 M under the heading training. The shortfall in the amount claimed can be ascribed to the RBI not having finalized detailed costing of the courses conducted at the College of Agricultural Banking (CAB) at the time of appraisal. The utilization of training funds was, however, far larger than under ARDC I Project (Annex 4). 2.24 Shortfall in claimed expenditure on training notwithstanding, 1,394 senior and middle level officers of the participating LDBs and CBs, besides 211 from ARDC/RBI/State governments, or a total of 1,605, were trained during the project period (Annex 4, Table 1); the corresponding total figure under 1/ To secure a clear understanding, a new circular was issued by ARDC in November 1980. It defines the concept of small farmers and lays down the acreage ceilings for small and medium farmers under both rainfed and irrigated conditions in all districts/agroclimatic regions of each state. - 26 - ARDC I Project was 937. Thus, the achievement under ARDC II Project was 60% higher than ARDC I Project. Most of these trainees underwent a special Agricultural Project Course (APC). In addition, 11,573 junior level officers of LDBs were also trained at the various training centers of LDBs (3,034 during ARDC I Project). Taking into account the achievements under ARDC II Project, nearly 84% of the junior level officers and 27% of the senior and middle level officers of LDBs who required training have been trained. 2.25 ARDC undertook studies to evaluate the training programs conducted by it or under its guidance. They demonstrate the usefulness of APC in pro- viding basic training. Evaluation of the training program for junior level officers has established improved on-the-job performance of those trained. Compliance With Covenants 2.26 ARDC complied with all the covenants as detailed in Annex 2. III. PROJECT BENEFITS Financial and Economic Benefits 3.01 Investment activities undertaken under the project are estimated to have directly benefited some 0.90 M persons (appraisal estimate 1.0 M); most of these (0.76 M) benefited from minor irrigation program, including land development. Most of the beneficiaries belonged to the weaker section of population (small and marginal farmers, agricultural laborers, etc.); their number is estimated at 0.50 M. 3.02 Investments in minor irrigation are estimated to have created new irrigation potential for 0.96 M ha. Investments in other farm activities have resulted in, inter alia, bringing 0.09 M ha under plantation and horticulture, and acquiring 0.09 M milch animals, over 1.0 M layer birds and 0.5 M sheep. 3.03 Benefits from investment activities, except plantation and horticul- ture, start flowing soon after the investment is made. However, in the case of minor irrigation, it takes 3-4 years to reach close to optimum level of utilization. In the case of plantation and horticulture, the initial gesta- tion period itself generally ranges between three and six years; it may take another 2-5 years for full development to take place. As the project period was just over two years, most investment activities undertaken have just started generating incremental income. 3.04 Investments in minor irrigation are expected to lead to more inten- sive use of land. Thus, investments made are expected to add 0.25 M ha to sown area. Increased irrigation facility is also expected to bring about a marked shift in cropping pattern in favor of high value yielding crops, notably high yielding varieties of paddy and wheat among the foodgrains and sugarcane among cash crops. Use of modern inputs, particularly fertilizers, is also expected to go up substantially. All these changes are expected to bring about marked increase in crop production. Thus, at full development, additional foodgrain production alone, mainly paddy and wheat, is estimated at - 27 - over 1.0 M tons (appraisal estimates 0.7 M tons). Value of additional non- foodgrain crops production, mainly sugarcane and groundnut, is estimated at Rs 1,400 M. 1/ Total value of additional crop production is estimated at about Rs 2,450 M (appraisal estimate Rs 2,500 M). Among allied activities products, output of milk is estimated to have increased by over 150 M liters annually (valued at Rs 245 M), of prawns by over 8,000 tons, of other fish by nearly 50,000 tons (together valued at nearly Rs 82 M), and of eggs by some 240 M (Rs 73 M). Value of the expected additional plantation and horticulture crops is estimated at around Rs 750 M. Total value of incremental output resulting from investments in diversified activities may be estimated at Rs 1,150 M (appraisal estimate Rs 800 M). Part of this production, e.g., coffee, tea and shrimps would be exported. 3.05 Investment activities undertaken during the project period were both financially and economically viable. In fact, in most cases, both the financial rates of return (FRR) and the economic rates of return (ERR) are expected to be more favorable than assumed earlier (Annex 6). The lower return in the case of coconut is largely attributed to over estimation of incremental income at appraisal stage. 3.06 Agricultural production and income are subject to fluctuation due to adverse weather and cost-price relationship. However, minor irrigation, the most important investment under the project, does offer some protection against drought or delayed onset of monsoon. Sensitivity analysis indicate that the project investments would remain financially and economically viable even in the face of a 15% step-up in investment cost or a 15% fall in the value of benefits. Employment Effects 3.07 Activities directly associated with the completion of investment works have provided gainful employment for nearly 150 M mandays. At full development, these investments would create additional employment of a recur- ring nature for almost 225 M mandays annually (appraisal estimate 175 M mandays); nearly three-fourths of this would be directly on the farms. Addi- tional employment opportunity has mainly benefited, and would continue to benefit, small and marginal farmers and agricultural laborers. 1/ All PCR estimates of value/income are at constant 1979 farmgate prices, while SAR estimates are based on forecasted 1980 prices in constant 1976 money terms. The period 1976-79 witnessed sharp increase in prices. Thus, between December 1976 and December 1979, the wholesale price index for foodgrains increased by 26%, of milk and milk products by 10% and most other primary articles by over 30%. In view of the difficulties involved in such estimations, figures may be taken as indicative of the order of magnitude rather than representing firm estimates. - 28 - IV. INSTITUTIONAL INFRASTRUCTURE Agricultural Refinance and Development Corporation 1/ 4.01 ARDC II Project was prepared by ARDC. The Corporation also bore the primary responsibility for its implementation. The responsibility was heavy and involved strengthening the institutional infrastructure, assisting the participating banks and other agencies in formulation of sound development schemes, appraising their technical feasibility and financial viability, monitoring and supervision of their implementation, ensuring orderly exploit- ation of groundwater resources and facilitating the flow of credit to weaker sections of the population and the relatively less developed states. 4.02 Scheme Formulation. The primary responsibility for formulating schemes rests with participating banks and the concerned state government departments. However, in order to upgrade the quality of such schemes, ARDC had already during ARDC I Project embarked on a program of training bank officers in the technique of project formulation and appraisal; such efforts were intensified during the project period. Thus, ARDC arranged to provide training to as many as 1,502 senior/middle level officers mostly from LDBs and CBs during the Project period, corresponding figure for ARDC I Project being 937. 2/ 4.03 Besides providing training facility, ARDC evolved technical norms and issued detailed guidelines for preparation of schemes relating to different types of investment activities. To further facilitate the work, it published, in a book form, all the important circulars issued by it from time to time. It also provided detailed check lists to enable concerned agencies to ensure that all the requisite information is provided in the scheme submitted to the Corporation. To help banks prepare bankable schemes relating to diversified investment activities, ARDC also prepared pamphlets on dairy, poultry, fishery and two plantation crops, besides updating the publication "Technical Aspects of Agriculture" published by it earlier. It also organized a workshop-on scheme formulation for the benefit of officers of state governments and banks in the North-Eastern Region. As a result of all these efforts, there is a perceptible improvement in the quality of schemes being submitted to ARDC. 4.04 Appraisal. To ensure their technical feasibility and financial viability, all schemes are appraised by ARDC on the basis of techno-economic norms evolved by it. Wherever necessary, field visits are undertaken to supplement the available data/information. To further facilitate the work, ARDC also constituted a broad-based standing committee in each of its regional offices to consider representations for revision of unit costs of investments and make recommendations. The appraisal methodology is constantly under review 1/ Details of Corporation's organization and management have been exhaus- tively dealt within other IDA reports, the latest being the Staff Appraisal Report of Third ARDC Credit Project (Report No. 2404-IN). 2/ In addition, an increasingly large number of CB officers were and are being trained at training colleges run by CBs themselves. - 29 - and is improved from time to time. Techno-economic norms are also being tested during monitoring and evaluation studies and revised and updated, if and when warranted. 4.05 In view of the fast growth in the number of schemes being submitted to ARDC for sanction 1/ and the need to appraise them quickly, ARDC has con- siderably strengthened its general and technical staff cadre, both at the Head Office and in the regional offices (Annex 1, Table 14). The number of technical officers alone more than doubled to 43 during the project period; the number of other staff also increased by over 400 to 716. Most of the additional technical staff were posted to ARDC's regional offices. Further, to reduce the time lag in sanction, ARDC has decentralized the power of sanc- tioning schemes. Thus, effective from January 1979, schemes up to a limit of Rs 2 M for minor irrigation and land development purposes and Rs 1 M for diversified purposes can be sanctioned by Regional Directors. 2/ As a result, a large number of schemes are being sanctioned by regional offices without reference to the Head Office; the number of such schemes was 1,516 out of 3,657 sanctioned during 1979/80. With the posting of Senior Directors in some of the regional offices, the number of schemes requiring Head Office sanctioning will further go down. These and other measures have helped in speeding up the sanction of schemes. 4.06 Monitoring and Evaluation. ARDC attaches great importance to project monitoring and evaluation as two vital stages in the performance review of projects which provide feedback on experience gathered during the implementation. To facilitate this work, ARDC strengthened the Program- ming and Evaluation Division at the Head Office and posted one or more Agricultural Economists in each of its regional offices. 4.07 ARDC attempts to review the progress of on-going schemes on the basis of periodic returns received from participating banks. These are supplemented by in-depth field studies in respect of selected schemes, which are undertaken with a view to identifying operational problems and finding timely solutions. 4.08 As regards the desk review, despite efforts made by ARDC, partici- pating banks, particularly CBs, still fail to file the prescribed returns regularly and in time. As a result, ARDC finds it difficult to keep track of the physical and financial progress of ongoing schemes to the extent required. Part of the reason for the delay lies in the bookkeeping system of most banks, particularly of CBs, which is not attuned to ARDC requirements. ARDC has already requested banks to modify their bookkeeping system in a way that will facilitate submission of timely returns. ARDC simplified the returns in early 1979. It is considering further rationalizing and simplify- ing these returns to facilitate timely submission, on the one hand, and mechanical processing, on the other. 1/ The number of schemes sanctioned by ARDC grew from 100 during 1970/71 to 3,657 during 1979/80, or at the compound rate of 49% per annum. 2/ Details of the decentralization scheme are given in Annex 1, Table 13. - 30 - 4.09 As regards in-depth field studies, there was a complete switchover during the project period from inspection-oriented following up studies to development oriented monitoring studies. In view of the very large number of ongoing schemes, such studies were and are being conducted on a selective basis. During the project period, ARDC conducted 415 such studies under which 8,500 beneficiaries were contacted. The main findings of such studies were communicated to the concerned bank and state government for taking appropriate remedial measures. The number of such studies, however, formed a very small proportion (5-6%) of the total number of ongoing schemes. Further, it is also felt that, with the growing number >F - ; i - n them without a change of method. Hence, ARDC has already decided to progressively switch-over from scheme-oriented monitoring to district-oriented monitoring (DOM) under which a team of officers will supervise all the ongoing schemes in a district. 1/ With DOM, it will not only be possible to monitor a much larger number of schemes, but monitoring will become more effective and meaningful. ARDC has already conducted a pilot study each in two districts--Kanpur in Uttar Pradesh and Krishna in Andhra Pradesh--with a view to evolving a workable methodology for DOM. Based on the study report, ARDC expects to issue, before the end of the year, detailed guidelines to the regional offices for conducting DOM. It is expected that, beginning in 1981, regional offices would cover 20-25% of all the districts under DOM each year. 4.10 As regards ex-post evaluation studies, as against 10 required, ARDC was able to undertake only 7 studies; all of which except one are complete. 2/ The inability of ARDC to undertake the required number of evaluation studies may, in the main, be attributed to inadequacy of field and other supporting staff and pressure of other assignments. As regards the field staff, ARDC has already taken up the matter with RBI. It is hoped that the necessary field staff will be in position by early next year. 4.11 Beginning June 1980, ARDC has switched over from scheme-oriented evaluation to group evaluation. Some improvements in the evaluation methodology have also been made. These include determining sample sizes to provide depend- able estimates, computer analysis of primary data and quantitative analysis based on modern techniques. Despite the late start and other handicaps, a dozen such studies are planned for 1980, the results of which would be avail- able in a phased manner by March 1981. Planning has also been completed to have evaluations carried out by five research institutes as well as CBs. 4.12 Be it monitoring or evaluation, the responsibility is too heavy to be carried out by ARDC alone. The banking system will have to share part 1/ DOM will cover all schemes except some (e.g., forestry and fishery) which cut across district boundaries and/or require special attention and therefore, will continue to be monitored separately. 2/ These include two of dairy schemes (Punjab & Haryana) and one each of poultry (Andhra Pradesh), mechanized fishing boats (Karnataka) citrus gardens (Andhra Pradesh), lift irrigation (Maharashtra) and coffee cultivation (Karnataka). Basic project and survey data called out from these reports are presented in Annex 6. - 31 - of the responsibility. With this end in view, ARDC has been urging the banks, both CBs and LDBs, on the need to set up their own monitoring and evaluation cells. As a result of these efforts, most nationalized CBs have already set up such cells; these have also started undertaking monitoring and evaluation studies. To train their officers ARDC has already conducted eight short duration training courses. LDBs are, however, still lagging behind in setting up these cells. To the extent the inability of LDBs reflects financial con- straints, ARDC has already offered to subsidize the establishment of such cells in these banks. It is hoped that LDBs will take advantage of the scheme and, by the end of ARDC III period, most of them would have established their own cells. 4.13 Besides ex-post evaluation studies, ARDC has also prepared project completion reports (PCRs) relating to five state oriented credit projects 1/ and ARDC I. All, except the last, involved designing and conduct of extensive field investigation to bring out the benefits from investments. Mainly as a result of the delay in getting the required data from the banks, completion of each PCR required much more time and manpower than was envisaged. 4.14 Among other assignments, mention may be made of the continuous moni- toring of the "warabandi" system (rotational water distribution system) in Pochampad Project area of Andhra Pradesh during 1978/79 and 1979/80; the study was undertaken at the request of the World Bank. ARDC also undertook a field study in Tamil Nadu to assess the role of LDBs in financing construction of new wells in the state during the 1970s. A study was also undertaken to assess the extent to which working capital requirement of the borrowers of long term credit of LDBs are being met by the banking system. A field study was also undertaken to estimate the demand for pumpsets during the next five years. 4.15 Resource Mobilization. The rapid growth in the loan business of ARDC has been made possible by its efforts to raise additional resources. Total resources raised by ARDC (net of repayment to GOI/RBI) increased over four- fold, from Rs 978 M in 1973/74 to Rs 4,000 M in 1979/80. The pattern of resource mobilization indicates two notable features. Firstly, availability of IDA fund notwithstanding, a large proportion of the resources is raised locally. The proportion of local resources to total resources raised ranged between 60% and 74%. During these years, except during 1979/80, the propor- tion has tended to increase since 1976/77. Secondly, an increasingly larger proportion of locally raised resources comes by way of repayment of loans to ARDC. During the last three years, repayment represent one-half or more of total locally raised resources. Integration of Short and Long-term Credit Systems 4.16 The integration of long-term and short-term cooperative credit systems though desirable, is a complex issue. The GOI, RBI and ARDC are seized of this issue. In fact, at the instance of 001, the RBI appointed in March 1979, a high power Committee to Review Arrangements for Institutional 1/ These include Punjab, Haryana, Karnataka, Uttar Pradesh and Madhya Pradesh. - 32 - Credit for Agriculture and Rural Development (CRAFICARD). The Committee is required, inter alia, to examine the need for and the feasibility of integrat- ing the short and medium-term credit structure with the long-term credit structure at national, state, district, and village levels in the context of the intensification of rural development programs. The Committee is likely to submit its report very shortly. Land Development Banks (LDBs) 4.17 LDBs have traditionally been the major conduit for channeling insti- tutional finance for agricultural investments. Aggregate loans issued by them increased significantly from Rs 1,466 M in 1973/74 to Rs 2,489 M in 1976/77. After a setback in 1977/78, the amount again increased, though marginally, to Rs 2,406 M in 1978/79. The increase in lending during this period was not, however, shared by all the SLDBs. Thus, of the total increase in the loan operations of all SLDBs during this period, about 45% was recorded in Andhra Pradesh alone; Haryana, Punjab, Uttar Pradesh and West Bengal together accounted for another 50%. Loans disbursed annually declined in Bihar, Gujarat, Karnataka and Tamil Nadu; this was mainly on account of the ineli- gibility of banks due to their high overdues. 4.18 Traditionally, LDBs had provided finance only for minor irrigation. Of late, they have slowly started financing diversified purposes also. Thus, during 1979/80 nearly 30% of the total refinance availed of by them was for purposes other than minor irrigation. Diversified lending is, however, still confined to a few states, mainly Haryana, Punjab, Andhra Pradesh and Kerala. This may be attributed partly to legal requirements regarding land security for loans. Some state governments (e.g. Bihar, Haryana, Karnataka and Tamil Nadu) have already removed such constraints; a few others are considering taking the necessary steps. 4.19 The growth in LDB operations has been, to a large extent, on account of the availability of ARDC refinance. Thus, the share of ARDC special deben- tures in total borrowings of all SLDBs increased from 29% in 1974/75 to 41% in 1978/79. In Andhra Pradesh and Uttar Pradesh, which together account for over two-fifths of the increase in such borrowings, more than 80% of the total borrowings came from Special Debenture Program. There were, however, excep- tions. For example, almost the entire increase in the borrowings of the SLDB in Punjab, about 75% in Kerala and 56% in Rajasthan was by way of issuance of ordinary debentures and/or other borrowings. This may partly be attributed to the availability of refinance for diversified purposes at cheaper rate from RBI than from ARDC (as in the case of Punjab) and predominance of non-scheme lending for diversified purposes (as in Rajasthan and Kerala). RBI has already stopped to provide refinance at lower rates than ARDC. 4.20 Although the amount of refinance drawn by LDBs gradually increased, their share in total ARDC disbursements has tended to decline over the years; it has consistently declined from about three-fourths in the early 1970s to just about two-fifths during 1979/80. This is partly because of the ineligi- bility of some LDBs to provide more finance, and partly because of a legal provision prohibiting banks to lend for diversified purposes without land - 33 - mortgage. 1/ This is evidenced by the fact that SLDBs not suffering from these disabilities (e.g. Andhra Pradesh, Haryana, Punjab, and Uttar Pradesh) have been able to markedly increase their availing of refinance from ARDC. 4.21 A disquieting feature of LDB operations during the last few years has been an increase in the level of overdues (Annex 1, Tables 16-17). At the SLDB level, the percentage of aggregate overdues to demand increased from 38% in June 1976 to 49% in June 1979; at the PLDB level, the increase was more pronounced, from 28% to 47% during the same period. In absolute terms, overdues at SLDB level reached Rs 2,300 M in June 1979. The SLDBs in Bihar, Gujarat, Karnataka, Maharashtra and Tamil Nadu accounted for a major part of the total overdues. 4.22 A substantial portion of the overdues of these SLDBs in the past was attributable to severe drought and other natural calamities which affected several parts of these states. The LDB should have rephased these loans earlier as per guidelines given by RBI in this regard. They had apparently not resorted to this exercise mainly because it was laborious, time consuming, and it involved a large number of accounts. It was also felt that reschedul- ing of such loans by increasing the amount to be recovered in future install- ments from the borrowers was not of much avail; especially where there were severe droughts. It was, therefore, decided to permit the SLDBs to extend the period of such loans (subject to certain conditions), instead of resched- uling them. Such extensions as well as extensions in the case of loans to small farmers where shorter loan maturities were stipulated earlier also necessitated rephasement of SLDBs' dues to ARDC, GOI and State Government by way of deferment of debentures subscribed to by them. Considerable efforts are involved in quantifying these proposals. These have been finalized in Tamil Nadu, Maharashtra and Gujarat which are under rehabilitation. Simi- lar proposals will be finalized shortly for Karnataka and Bihar. 1/ 4.23 ARDC and RBI have been constantly monitoring the progress of imple- mentation of the rehabilitation proposals suggested during the discussions with the Chief Ministers of these five states. In Gujarat, Tamil Nadu and Maharashtra, the state governments have responded by taking over or agreeing to take over the liabilities in respect of loans earlier issued at their instance for land development, soil conservation and lift irrigation schemes. They have also contributed further to the share capital of these institutions. 4.24 There were also certain extraneous factors, particularly during year 1979/80 which adversely affected the climate for making recoveries of the dues, viz., a ban on coercive action against the borrowers, etc. The better climate of recovery has now been created, with the active participation of the states, and the Government of India. Both Union Finance Minister and Agricultural Minister have addressed letters to the concerned state govern- ments bring out the gravity of the situation and seeking their full coopera- tion in improving the recoveries and rehabilitating SLDBs. 1/ RBI/ARDC have impressed on the state governments the need to amend the law to permit LDBs to lend for diversified purposes without land mortgage. So far four states (Karnataka, Tamil Nadu, Uttar Pradesh and West Bengal) have amended the Act to permit such lending. Programs suggested and actions taken to rehabilitate these banks are enclosed in Annex 5. - 34 - 4.25 The enforcement of the overdues discipline has also resulted in some regressive features which had progressively curtailed the lending pro- grams of SLDBs. These were looked into by the Standing Committee of Deben- tures Norms recently and suitable proposals have been formulated to remove the regressive features. 4.26 Mainly as a result of action taken by RBI/ARD and the concerted efforts made by some LDBs to recover overdues, the number of PLDBs/SLDB branches having unrestricted lending eligibility increased from 758 in 1976/77 to 861 in 1978/79. There was, however, also an increase in the number of PLDBs/ SLDB branches having overdues exceeding 50% and therefore having no eligibil- ity at all. Most of such PLDBs/branches were in Bihar, Gujarat, Karnataka, Maharashtra and Tamil Nadu where the LDBs are under a program of rehabilitation. 4.27 During the Project period, ARDC took a number of decisions to strengthen LDBs and facilitate better management of their resources. Thus, in order to help SLDBs both financially and operationally, ARDC has decided to allow them to provide finance upto 25% of the fresh loan eligibility of PLDBs/SLDB branches to corporate bodies set up mainly to benefit farmers. Similarly, in areas affected by natural calamities, LDBs have been allowed to postpone the recovery of loan instalment by extending the period of loan instead of the existing practice of a granting rescheduling facility. Further, to provide a cushion for possible rescheduling and overdues, ARDC allowed SLDBs, effective July 1978, to float special development debentures carrying a maturity period of not more than two years in excess of the maturity period of the corresponding loans issued to the ultimate borrower. Effective from the same date, interest on such debentures is collected on an annual basis instead of the earlier half-yearly basis. In order to reduce the cost of borrowing, ARDC has also agreed to provide, effective from January 1980, interim finance to SLDBs to provide them funds for the period between the dates of disbursements of loans to ultimate borrowers and issue of special debentures (this need for finance was earlier met largely by short-term term borrowing and high interest rate). The interim finance will carry interest at 10% per annum for the present. Commercial Banks (CBs) 4.28 Despite their late entry and various constraints, CBs have now emerged as a very important institutional source of investment finance for agricultural development. Total agricultural finance provided by them increased from Rs 1,924 M in 1975/76 to RS 3,450 M during 1978/79; their share in total institutional finance of agriculture increased from 38% to 41% during the same period. CBs have also surpassed LDBs in availing of annual refinance from ARDC. Total ARDC disbursements to CBs which amounted to just over Rs 700 M in 1975/76 or 42% of total refinance disbursed, increased to Rs 2,390 M or 58% of the total in 1979/80. 4.29 Unlike that of LDBs, the agricultural loan portfolio of CBs is very much diversified. Thus, of the total refinance claimed by CBs during 1979/80, as much as 54% was for diversified investment activities. What is more, the proportion has tended to increase over the years. In fact, a large part of - 35 - the success of ARDC in stepping up its disbursements for diversified purposes is result of the efforts made by CBs in this regard. 4.30 The success of CBs in stepping up their medium and long term loan- ing to agricultural sector may largely be attributed to the deliberate policy of multi-agency approach of GOI/RBI/ARDC to promote agricultural development. But at least partly it need also be attributed to their own efforts. In this connection, mention may be made of the opening of a large number of branches in rural and semi-urban areas. During the project period alone the number of such branches increased by some 4,000 1/ to over 20,000 most of these branches are in rural areas (Annex 1, Table 18). Lead in this regard was taken by non- nationalized banks which increased their branches in rural and semi-urban areas during this period by 36% (Annex IV, Table 10). Flexible lending pro- cedures of CBs also helped them in stepping up their lending to agricultural sector. CBs have also considerably strengthened their field staff cadre specially appointed to process and service agricultural loan accounts. For instance, the State Bank of India (SBI) increased the number of Agricultural Field Officers/Rural Development Officers from just over 600 in June 1977 to nearly 1,750 in December 1979, Union Bank of India from about 400 to 630 and Syndicate Bank from 230 to 325. 4.31 The village adoption scheme has also helped CBs in meeting an increasingly larger proportion of the credit requirements of the farmers. The SBI Group of Banks alone have extended the village adoption scheme to nearly 26,500 villages covering over a million farmers; loans outstanding under this system at the end of December 1978 amounted Rs 2,400 M. SBI has also been opening agricultural development branches for catering to the credit requirements of the farming community. Till December 1978, SBI had opened 384 such branches covering over one million farmers. Loans outstanding of these branches as at the end of December 1978 aggregated Rs 2,700 M. 4.32 As already mentioned, CBs have considerably increased their involve- ment in ARDC's lending program. From under 10% during the Fourth Five Year Plan, their share in ARDC refinance has increased substantially; it has been exceeding 50% during the last three years. Further with an increasingly growing program, the share gradually increased from about 22% in 1974/75 to about 45% in 1979/80. 4.33 But like LDBs, the CB lending to agriculture is confronted with high overdues position. At the all India level, despite slight improvement since mid 1977, overdues as percentage of demand in respect of their total direct agricultural lending has remained at the high level of between 47 to 50% during the last five years. The levels of overdues is particularly high in Eastern, North-Eastern and Western Regions. The Standing Committee on Agricultural Loans through Commercial Banks (CALCOB) set up by ARDC in September 1979 2/ has already initiated a study to establish the causes of 1/ The increase was between the period June 1977 and December 1979 and excludes branches of Regional Rural Banks. 2/ The terms of reference of CALCOB is shown in Annex 3. - 36 - overdues in CBs and suggest steps necessary to improve the situation. In the meantime, effective from October 1979, CBs have been required to report to ARDC the position of recovery performance of participating branches and, in the case that the overdues position exceed 50%, indicate the reasons and actions being taken to improve the recovery performance. - 37 - ANNEX 1 Table 1 INDIA SECOND ARDC CREDIT PROJECT Actual Cost of Second ARDC Credit Project Rs Million US$ Million 5/ ARDC ARDC Appraisal Total Disbur- IDA Total Disbur- IDA Purpose Estimates Cost 1/ sements Credit Cost 1/ sements Credit Minor Irrigation Minor Irrigation 2872.0 3103.9 2470.0 1340.8 378.52 301.22 163.51 Land Development 97.0 70.2 55.9 30.3 8.56 6.82 3.70 Subtotal 2969.0 3174.1 2525.9 1371.1 387.08 308.04 167.21 Diversified Purposes Plantation & 146.0 293.3 209.5 92.4 35.76 25.55 11.28 Horticulture Dairy 131.0 194.3 138.8 61.3 23.70 16.93 7.47 Poultry & Sheep 2/ 78.0 131.9 94.2 41.5 16.09 11.49 5.07 Fisheries 54.0 182.7 130.5 57.6 22.28 15.91 7.02 Others 63.0 30.8 22.0 9.7 3.76 2.68 1.18 Subtotal 472.0 833.0 595.0 262.6 101.59 72.56 32.03 Training 18.0 13.4 6.7 3/ 6.7 1.52 0.76 3/ 0.76 Contingencies 376.0 Total 3835.0 4020.5 3127.6 4/ 1640.4 490.19 381.36 200.00 1/ Estimated as 110% of bank lending. 2/ Includes a small amount for piggery development. 3! GOI disbursement only, no ARDC financing. 4/ ARDC has claimed reimbursement in respect of only Rs 2976.7 M under ARDC II. The balance was transferred to ARDC III. 5/ The average of exchange rates during the Project period works out to US$1 = Rs 8.20. -38 - ANNEX 1 Table 2 INDIA SECOND ARDC CREDIT PROJECT State-wise Details of Actual Project Cost, Total Lending and ARDC Disbursements (Rs M) Minor Irrigation 1/ Diversified Purposes ARDC ARDC Disbur- Bank Total Disbur- Bank Total States sements Lending Cost 2/ sements Lending Cost 2/ Andhra Pradesh 526.20 598.45 658.30 109.65 143.85 158.23 Assam 3/ 1.58 1.80 1.98 42.18 50.90 55.99 Bihar 19.33 21.45 23.59 3.75 4.25 4.67 Goa 1.00 1.10 1.21 10.00 12.30 13.53 Gujarat 78.91 94.70 105.17 42.66 57.10 62.81 Haryana 139.10 164.00 180.40 11.53 15.20 16.72 Himachal Pradesh 0.54 0.60 0.66 4.02 4.90 5.39 Jammu & Kashmir - - - 0.72 1.00 1.10 Karnataka 119.00 133.95 147.34 137.50 174.35 191.78 Kerala 15.68 17.65 19.41 35.49 43.95 48.34 Madhya Pradesh 318.29 364.75 401.22 5.06 6.55 7.20 Maharashtra 273.00 308.55 399.40 40.00 52.90 58.19 Orissa 143.66 159.40 175.34 25.40 30.40 33.44 Punjab 135.57 161.90 178.09 15.97 20.30 22.33 Rajasthan 127.40 148.05 162.85 18.40 23.65 26.01 Tamil Nadu 79.01 91.80 100.98 36.94 47.52 52.27 Uttar Pradesh 519.31 586.15 644.76 18.11 23.10 25.41 West Bengal 28.28 31.30 34.43 35.40 42.40 46.64 Union Territories 4! - - - 2.18 265 2.91 Total 2525.86 2885.60 3174.13 594.96 757.23 832.96 1/ Includes land development. 2/ Estimated as 110% of bank lending. 3/ Includes Manipur and Tripura. 4/ Includes Chandigarh, Delhi and Pondicherry. INDIA SECOND ARDC CREDIT PROJECT Disbursements Purposewise Under Second ARDC Credit Project (Ra M) Diversified Purposes Minor Irrigation Diversified Purposes Plantation & Horticulture Minor Land Other Total for State/ Irri- Develop- Sheep Fish- Plan- diversified Grand Union territories gation ment Total Poultry Breeding eries Dairy Tea Coconut Coffee tation Others purposes Total Andhra Pradesh 518.90 7.30 526.20 22.41 33.64 2.90 38.60 - 2.59 - 9.11/c 0.40 109.65 635.85 Assam 0.83 0.72 1.55 - 0.13 /a 0.10 0.47 38.66 - - - - 39.36 40.91 Bihar 19.33 - 19.33 - - - 2.16 - - - - 1.59 3.75 23.08 Chandigarh - - - - - - - - - - 0.33 - 0.33 0.33 Delhi - - - 0.14 - - 1.71 - - - - - 1.85 1.85 Goa 1.00 - 1.00 2.00 - 8.30 - - - - - - 10.00 11.09 Cujarat 78.91 - 78.91 1.62 - 15.08 24.31 - - - - - 42.66 121.57 Haryana 128.59 10.51 139.10 2.61 0.15 - 6.74 - - - - 2.03 11.53 150.63 Himachal Pradesh 0.54 - 0.54 0.02 - - 1.24 - - 2.76 - 4.02 4.56 Jammu and Kashmir - - - - - - 0.61 - - - 0.11 - 0.72 0.72 Karnataka 114.30 4.70 119.00 1.95 0.65 57.20 0.60 - 25.85 1.50 43.15 /f 6.60 137.50 256.50 Kerala 15.51 0.17 15.68 - - 14.92 1.32 - 8.61 0.34 10.25 0.05 35.49 51.17 Haharashtra 273.00 - 273.00 6.45 0.55 7.00 19.00 - - - 6.00 1.00 40.00 313.00 Madhy'a Pradesh 318.29 - 318.29 1.21 - - 1.13 - - - 0.02 2.70 5.06 323.35 Manipur 0.03 - 0.03 - - 1.20 - - - - 1.17 - 2.37 2.40 Orissa 142.50 1.16 143.66 - 0.37 /b 10.48 3.63 - 1.46 - 9.38 0.08 25.40 169.06 Punjab 106.62 28.95 135.57 3.69 - - 9.11 - - - 3.17 15.97 151.54 Rajasthan 125.00 2.40 127.40 0.30 7.70 - 7.00 - - - 3.40 Ie - 18.40 145.80 Tamil Nadu 79.01 - 79.01 4.73 2.80 11.08 6.74 - 2.59 2.32 5.50 1.18 36.94 115.95 Pondicherry - - - - - - - - - - - - - - Uttar Pradesh 519.31 - 519.31 - 0.61 - 13.26 - - - 2.90 1.29 18.11 537.42 West Bengal 28.28 - 28.28 0.50 - 2.52 1.13 20.03 - - 10.93 If 0.29 35.40 63.68 ax Tripura - - - - - - - 0.45 - - - - 0.45 0.45 - Total 2469.95 55.91 2525.86 47.63 46.60 130.48 138.76 59.14 41.10 4.16 105.06 22.03 594.96 3120.82 Ia For piggery only. lb Includes piggery also. /c Includes barns and bulking sheds. _d Includes barns and bulking sheds and sericulture. /e Cumbined project - Minor Irrigation and Plantation and Horticulture. L. Includes sericulture. /A Cobar gas. Agro Service Centers, bullock and bullock carts etc. INDIA SECOND ARDC CREDIT PROJECT Units of Minor Irrigation Financed Under ARDC II Project Dug wells Lift Water Lining of New dug and pump- Persian Development Shallow Deep irrigation distribution water States wells Pumpsets sets wheels /a of wells tubewells tubewells units system (ha) causes (ha) Andhra Pradesh 43,775 35,970 - - 20,430 6,990 - - - Assam, Manipur and - 5 - - - 105 - - - Tripura Bihar - 1,405 260 - 95 1,490 Ic 20 - - Goa 125 65 - - 25 - - - - Gujarat 370 1,055 2,005 - 145 - 325 8 500 - Haryana - - 885 - - 12,350 245 - 70 10 Himachal Pradesh 65 - - - - - - - - Jammu and Kashmir - - - - - - Karnataka 68,500 41,205 - - 1,720 - - - - Kerala *680 5,870 - - 880 - - - - Madhya Pradesh 21,420 42,375 - 2,175 12,965 - 175 - 30 - Maharashtra 6,495 22,760 1,585 - 9,790 75 - 118 170 - Orissa 18,065 1,615 - - - 1,775 Id - - - - Punjab - - - - - 1,655 30 - - 22,925 C Rajasthan 7,580 9,650 - 30 3,040 165 - - 1,185 - Tamil Nadu 2,730 2,260 - 35 4,380 110 - 4 - Uttar Pradesh 2,995 8,505 32,670 40 - 30,545 - - -- West Bengal 235 145 - - - 3,080 /e - - - 220 Total 172,835 172,885 37,405 2,280 53,470 lb 58,340 795 130 1,955 23,155 /a Includes "Rahat". lb Includes 6,490 bore wells and dug cum bore wells. /c Includes 625 bamboo boring tubewells. Id Includes 590 filter points. /e Includes 80 stilling tanks. INDIA SECOND ARDC CREDIT PROJECT Diversified Investment Units Financed Under ARDC II Project -----------------(Hectares) -------------------- ---------------------------(No.)------------------------------- Cobar Agro- Other Dairy Sheep Poultry Fisheries gas service States Tea Coffee Coconut Grapes fruits /a (animals) (animals) (birds) (boats) plants centers Andhra Pradesh - - 3,235 3,110 8,690 24,800 352,170 528,300 20 10 - Assam, Manipur and 7,120 - - - - 245 - - - - - Tripura Bihar - - - - - 1,695 - - - - - Goa - - - - - - - 57,470 30 - - Gujarat - - - - - 19,065 - 46,560 135 590 - Haryana - - - - - 5,730 2,100 3,100 - - Himachal Pradesh - - - - 2,760 780 - 700 - - - Jammu & Kashmir - - - - - 400 - - - - - Karnataka - 1,045 13,075 1,085 310 310 16,660 47,480 480 1,320 10 Kerala - 4,650 41,055 - - 830 - - 270 20 - Madhya Pradesh - - - - - 885 - 34,770 - 145 35 Maharashtra - - - 355 - 8,515 13,040 185,345 25 355 - Orissa - - 1,175 - 240 2,845 2,975 - 30 - - Punjab - - - - - 4,640 - 82,550 - - 35 Rajasthan - - - - - 3,405 76,380 12,000 - - - Tamil Nadu - 390 75 25 130 5,285 55,660 47,400 50 390 - Uttar Pradesh - - - - 460 10,400 6,050 - - 210 - West Bengal 1,615 - - - 2,615 1,560 - 5,500 - - 5 Total 8,735 6,085 58,615 4,575 15,205 93,045 /b 525,035/c 1,058,175 /d 1,040 /e 3,040 85 /a Includes betelvine, apple, pineapple, mango, etc. 7b Includes 1,655 milch animals financed in Union Territories. c Besides sheep, purchase of 150 pigs were also financed. /d Includes purchase of 7,000 bires financed in Union Territories. e Besides boats, pisciculture on 750 acres and 175 tanks were also financed. INDIA SECOND ARDC CREDIT PROJECT ARDC Disbursement in Less Developed States (Rs M) Plantation Poultry, Other Minor 1/ and Sheep and Diversified State Irrigation Horticulture Fishery Dairy Piggery Activities Total Assam, Manipur, 1.58 40.28 1.30 0.47 0.13 - 43.76 Tripura Bihar 19.33 - - 2.16 - 1.59 23.08 Himachal Pradesh 0.54 2.76 - 1.24 0.02 - 4.56 Jammu & Kashmir - 0.11 - 0.61 - - 0.72 Madhya Pradesh 318.29 0.02 - 1.13 1.21 2.70 323.35 Orissa 143.66 10.84 10.48 3.63 0.37 0.08 169.06 Rajasthan 127.40 3.40 - 7.00 8.00 - 145.80 Uttar Pradesh 519.31 2.95 - 13.26 0.61 1.29 537.42 West Bengal 28.28 30.96 2.52 1.13 0.50 0.29 63.68 Total 1158.39 91.32 14.30 30.63 10.84 5.95 1311.43 1/ Includes land development. - 43 - ANNEX 1 Table 7 INDIA SECOND ARDC CREDIT PROJECT Disbursement in Less Developed States under ARDC II Project Total ARDC State Investment Disbursement Assam, Manipur, Tripura 57.97 43.76 Bihar 28.26 23.08 Himachal Pradesh 6.05 4.56 Jammu & Kashmir 1.10 0.72 Madhya Pradesh 408.42 323.35 Orissa 208.78 169.06 Rajasthan 188.86 145.80 Uttar Pradesh 670.17 537.42 West Bengal 81.07 63.68 Total 1,650.68 1,311.43 As percentage of all India Total 41.2 42.1 ANNEX 1 Table 8 INDIA SECOND ARDC CREDIT PROJECT Cumulative Disbursement of Funds under ARDC II Project IDA to ARDC (US$M) ARDC to Banks (Rs M) Upto Period Ending Appraisal Estimate Actual Commitment Disbursements December 1977 10.0 - 3,594.7 206.3 March 1978 30.0 24.1 4,250.6 669.0 June 1978 60.0 43.9 5,104.0 1,047.0 September 1978 75.0 63.9 5,741.7 1,112.5 December 1978 95.0 69.0 6,260.9 1,309.7 March 1979 120.0 91.1 7,468.3 1,837.2 June 1979 155.0 123.1 8,281.0 2,377.6 September 1979 180.0 151.7 8,563.1 2,469.6 December 1979 200.0 171.1 9,712.6 3,120.6 January 1980 - 200.0 - - - 45 - ANNEX 1 Table 9 INDIA SECOND ARDC CREDIT PROJECT Resources Mobilization by ARDC (Rs M) Sources 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 RBI/Bonds (Net) 541 578 864 782 648 908 908 Repayments from 42 93 24.6 480 829 1,118 1,544 Borrowers Share Capital etc. 8 62 67 127 168 /a 209 /a 131 Total Local Resources 591 733 1,177 1,389 1,645 2,235 2,583 Add IDA/Bilateral 387 331 535 900 876 798 1,422 Credits (Net) Total 978 1,064 1,712 2,289 2,521 3,033 4,005 Local Resources as 60 69 69 61 65 74 64 a Percentage of Total Resources /a Includes Rs 10 million transferred to Research and Development Fund during the respective years. INDIA SECOND ARDC CREDIT PROJECT Agricultural Refinance and Development Corporation; Cash Flows (Rs M) 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 Resources GOI/IDA 477.2 386.5 331.2 534.7 900.0 996.0 951.0 1,650.0 RBI/Bonds 414.8 586.4 733.8 990.1 940.0 856.0 1,191.0 1,246.0 Total Borrowings 892.0 972.9 1,065.0 1,524.8 1,840.0 1_852.0 2,142.0 2,896.0 Repayments by Borrowers 14.2 42.3 92.7 245.9 480.0 829.0 1,118.0 1,544.0 Share Capital 50.0 - 50.0 50.0 100.0 125.0 100.0 - Subtotal 956.2 1,015.2 1,207.7 1,820.7 2,420.0 2,806.0 3_,3600 4L440.0 Accretion to Reserves 3.7 8.3 12.2 16.7 27.2 43.0 1/ 109.0 1/ 131.0 Total Cash Inflow 959.9 1,023.5 1,219.9 1,837.4 2,447.2 2,849.0 3,469.0 4,571.0 Disbursements IDA Schemes 636.2 563.5 618.7 1,324.0 1,562.0 1,330.8 1,650.0 2,400.0 Non-IDA Schemes 305.2 414.9 445.3 387.5 646.2 1,012.2 1,200.0 1,720.0 Total Disbursements 941.4 978.4 1,064.0 1,711.5 2,208.2 2,343.0 2_,__850.0 4,120.0 Repayments to GOI - - - - 0.9 119.7 153.5 227.0 Bonds - - - - - - - - RBI 18.5 45.1 155.9 125.9 158.0 208.0 283.0 338.0 Total Cash Outflow 959.9 1,023.5 1,219.9 1,837.4 2,367.1 2,670.7 3,286.5 4,685.0 Excess (+) or Deficit (-) of Cash inflow over outflow 0.0 0.0 0.0 0.0 +80.1 +178.3 +182.5 -114.0 1/ Includes Rs 10.0 M transferred to Research and Development Fund during the year. INDIA SECOND ARDC CREDIT PROJECT Agricultural Refinance and Development Corporation; Condensed Statement of Income and Expenditure (Rs M) 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 Income Interest earned on (i) IDA Loans/Debentures 1.0 12.0 50.9 79.4 133.2 176.9 195.9 190.9 178.4 (ii) Other Loans/Debentures 57.8 76.6 99.0 132.1 154.0 322.7 327.3 450.5 609.2 Other Income 1.8 3.8 5.4 9.9 11.9 9.9 23.7 46.4 62.7 Total Income 60.6 92.4 155.3 221.4 299.1 409.5 546.9 687.8 850.3 Expenditure Interest paid on (i) GOI/IDA Loans 31.2 43.7 66.3 85.1 107.6 146.2 194.2 243.4 311.3 (ii) RBI Loans 0.5 6.1 15.7 30.1 48.5 75.4 93.9 123.2 159.3 (iii) Bonds and Debentures 12.4 17.7 31.4 47.0 64.4 84.4 112.1 138.6 155.2 (iv) SLA - - - - - 0.3 1.6 3.7 4.6 Salaries & Staff Benefits 3.9 4.9 7.1 10.1 12.6 14.7 17.1 26.4 40.9 General Expenses 1.7 3.0 3.9 5.0 7.5 10.1 8.7 12.6 15.3 Total Expenses 49.7 75.4 124.4 177.3 240.6 331.1 427.6 547.9 686.6 Profit before tax 10.9 17.0 30.9 44.1 58.5 78.4 119.3 139.9 163.7 Transfer to special reserve 1.1 1.7 3.1 4.5 5.9 19.7 30.0 - - Tax 5.8 8.9 16.0 23.0 30.9 34.0 51.7 - - Profit after tax 4.0 6.4 11.8 16.6 21.7 24.7 37.6 139.9 163.7 Dividend 3.0 4.4 6.7 8.9 10.9 17.3 24.8 30.9 33.1 Net Surplus 1.0 2.0 5.1 7.7 10.8 7.4 12.8 109.0 130.6 INDIA SECOND ARDC CREDIT PROJECT Agricultural Refinance and Development Corporation: Condensed Balance Sheets (Rs M) 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 Assets Cash on hand and at banks - 1 1 2 4 3 1 42 27 IDA loans - - 43 139 535 1,024 1,364 1,872 988 IDA debentures 54 660 1,250 1,676 2,483 3,321 3,838 4,352 1,619 Other loans 138 205 339 492 701 943 1,478 1,960 4,559 Other debentures 1,043 1,296 1,465 1,756 1,775 1,933 2,056 2,282 5,870 Interest accrued on loans 3 3 8 15 33 70 98 139 192 Interest accrued on debentures 31 50 83 114 158 206 244 250 299 Other assets 3 11 2 12 10 54 260 509 392 .0* Total Assets 9,272 122 3,191 4,206 5,699 1,55 9,339 2_406 13,946 Liabilities and Capital Liabilities Bonds and debentures 277 387 662 992 1,377 1,817 2,023 2,464 2,860 Deposits 10 12 14 18 23 29 39 52 67 Loans from GOI: (i) IDA loans 45 452 839 1,170 1,705 2,604 3,597 4,440 5,447 (ii) Other loans 727 796 796 796 796 796 679 584 799 Loans from RBI: (i) Long-term 50 345 540 882 1,384 1,726 2,168 2,635 3,147 (ii) Short-term 34 37 116 45 17 - - - - Other Liabilities 25 39 59 76 103 161 254 453 466 Total Liabilities 1,168 2,06 3,026 3,979 5,405 7,133 8,760 1 12 9 Capital Paid-up shares 100 150 150 200 250 350 475 575 575 Reserves and undistributed income 4 8 15 27 44 71 104 203 385 Total Capital 104 158 165 227 294 421 579 778 960 Total Liabilities and Capital 1,272 2,226 3,191 4,206 5,699 7,554 9,339 11,406 13,946 Debt/Equity Ratio 11:1 16:1 18:1 17:1 18:1 17:1 15:1 14:1 13:1 (Statutory ratio 20:1) - 49 - ANNEX 1 Table 13 INDIA SECOND ARDC CREDIT PROJECT Delegation of Powers of Sanction of Refinance to Officers of ARDC other than Managing Director (Rs M) Nature of Schemes Limit for Sanction of Refinance Assistance by J.M.D. /c G.Ms. S. DRs. Regional Directors /b (Non-Technical) Minor Irrigation including loans to State Electricity Boards for energization of pumpsets (other than REC linked ones) 4.5 4.0 3.0 2.0 Land development including ) land reclamation and soil ) conservation ) Farm mechanization ) Dairy development ) Poultry/sheep breeding/ ) piggery ) 3.5 3.0 2.0 1.0 Fisheries ) Sericulture development ) Plantation/horticulture ) Schemes under command ) area development ) FCI Godowns (II Phase) ) /a Gobar gas plants ) Purchase of bullocks or ) other work animals and ) bullock carts or other ) animal driven carts ) /a Storage and Market yards. /b The Regional Directors should not sanction without prior clearance of the Head Office more than one scheme for the same purpose in the same geographical area till the earlier scheme sanctioned by the Regional Director is nearing completion, unless the Banking Plan for the project or the overall physical program for the area has already been approved in advance by the Head Office. /c The abbreviations stand for: J.M.D. - Joint Managing Director; G.M. - General Manager; S. Dr. - Senior Director. - 50 - ANNEX 1 Table 14 INDIA SECOND ARDC CREDIT PROJECT Staffing Pattern of ARDC As in June 1977 Head Office Regional Office Total Tech. Others Tech. Others Tech. Others Directors 5 15 1 11 6 26 Deputy Directors 2 35 3 20 5 55 Development Officers/ 4 65 2 36 6 101 Agricultural Economists Assistant Development 2 73 1 49 3 122 Officers Total 13 188 7 116 20 304 As in December 1979 Head Office Regional Office Total Tech. Others Tech. Others Tech. Others Directors 7 20 1 13 8 33 Deputy Directors 2 38 7 50 9 88 Development Officers/ 5 140 11 118 16 258 Agricultural Economists Assistant Development 4 194 6 143 10 337 Officers Total 18 392 25 324 43 716 INDIA SECOND ARDC CREDIT PROJECT Total Borrowings of Land Development Banks (Rs M) 1974/L975 19/5/1976 1976/1977 1977/78 1978/79 Spl.Deb. Spl.Deb. Spl.Deb. Spl.Deb. Spl.Deb. State program Others 1/ Total program Others 1/ Total program Others 1/ Total program Others 1/ Total program Others 1/ Total Andhra Pradesh 428.0 930.8 1358.8 537.0 1055.5 1592.5 712.5 1110.3 1822.8 1034.0 1109.9 2143.9 1445.7 1089.2 2534.9 Assam - 5.4 6.4 - 6.9 6.9 - 10.9 10.9 - 16.5 16.5 - 20.5 20.5 Bihar 70.3 409.8 480.1 152.8 482.6 635.4 291.1 689.6 980.7 290.3 770.5 1060.8 287.4 725.1 1012.5 Gujarac 466.5 1091.5 1558.0 467.3 1113.2 1580.5 457.7 1074.4 1532.1 431.3 1050.8 1482.1 379.0 932.4 1311.4 Haryana 316.1 228.0 544.1 368.2 248.7 616.9 427.7 294.9 722.6 432.7 342.6 775.3 495.2 399.2 894.4 Himachal Pradesh 1.0 21.4 22.4 1.5 23.1 24.6 1.8 25.5 27.3 2.7 25.6 28.3 3.5 28.1 31.6 Jammu & Kashmir 9.4 27.0 36.4 11.6 26.8 38.4 12.5 27.5 40.0 13.0 27.6 40.6 13.4 29.6 43.0 Karnataka 335.2 623.9 959.1 479.5 682.6 1162.1 624.6 708.2 1332.8 662.9 680.5 1343.4 655.1 651.7 1306.8 Kerala 23.1 187.9 211.0 34.0 213.3 247.3 42.1 279.2 321.3 56.4 335.2 391.6 86.4 376.2 462.6 Madhya Pradesh 218.1 420.4 638.5 321.4 463.3 784.7 492.2 501.9 994.1 533.1 525.0 1058.1 563.6 519.9 1083.5 Maharashtra 425.8 1397.7 1823.5 561.5 1405.9 1967.4 670.9 1356.0 2026.9 737.0 1309.2 2046.2 797.3 1066.0 1863.3 Orissa 12.1 263.7 275.8 12.1 263.7 275.8 63.6 312.6 376.2 83.5 335.5 419.0 111.8 352.5 464.3 Punjab 295.1 667.6 962.7 308.5 722.9 1031.4 306.8 802.7 1109.5 235.5 875.7 1111.2 227.9 961.5 1189.4 Rajasthan 84.4 196.5 280.9 112.7 223.7 336.4 148.3 268.5 416.8 201.5 338.8 540.3 251.0 413.2 664.2 Tamil Nadu 519.9 1064.9 1584.8 623.5 1092.8 1716.3 742.1 1095.7 1837.8 694.5 1170.4 1864.9 655.2 1168.1 1823.3 Uttar Pradesh 514.4 1375.1 1889.5 514.4 1375.1 1889.5 872.6 1429.6 2302.2 1087.6 1502.0 2589.6 1272.3 1606.4 2878.7 West Bengal 2.1 75.6 77.7 19.5 114.0 133.5 50.7 157.3 208.0 88.8 193.9 282.7 137.1 225.4 362.5 Tripura - 0.7 0.7 - 1.6 1.6 - 1.9 1.9 - 3.4 3.4 - 4.8 4.8 Pondicherry - 9.4 9.4 - 9.9 9.9 - 10.6 10.6 - 11.2 11.2 - 11.6 11.6 Total 3721.5 8998.3 12719.8 4525.5 9525.6 14051.1 5917.2 10157.3 16074.5 6584.4 10624.3 17209.1 7381.9 10581.4 17963.3ba n 1/ Others: Ordinary debentures, rural debentures, borrowings from government. cooperative banks, commercial banks and others. - 52 - ANNEX 1 Table 16 INDIA SECOND ARDC CREDIT PROJECT Land Development Bank -Level of Overdues as Percentage of Demand (as at the end of June) State State LDBs 1976 1977 1978 1979 1980 Andhra Pradesh 8.7 9.1 20.0 24.0 25.5 Assam 40.2 39.0 34.6 43.9 62.0 Bihar 27.4 58.1 61.0 59.5 79.6 Gujarat 56.3 61.9 69.0 74.7 79.1 Haryana 0.0 0.0 0.0 0.0 0.0 Himachal Pradesh 50.4 36.7 57.9 72.9 62.9 Jammu & Kashmir 38.0 47.1 43.5 46.9 N.A. Karnataka 25.4 40.2 39.5 42.1 47.5 Kerala 12.3 8.0 5.7 5.0 4.1 Madhya-Pradesh 22.4 44.8 45.0 56.3 75.0 Maharashtra 60.4 63.0 57.8 19.0 /a 57.0 Orissa 28.8 60.0 40.0 43.3 N.A. Punjab 2.7 8.5 2.7 1.2 2.0 Rajasthan 20.0 27.6 30.7 25.2 32.3 Tamil Nadu 17.7 31.4 67.5 79.0 N.A. Uttar Pradesh 16.9 23.9 26.6 27.6 24.8 West Bengal 0.6 Nil 5.6 19.4 25.0 /a After rescheduling. - 53 - ANNEX 1 Table 17 INDIA SECOND ARDC CREDIT PROJECT Overdues of PLDB and SLDP Branch Level as Percentage of Demand State PLDBs/SLDB Branches 1976 1977 1978 1979 1980 Andhra Pradesh 25.2 15.7 28.8 33.4 33.0 Assam 40.0 44.6 40.6 51.1 68.0 Bihar Gujarat Haryana 3.0 5.7 9.6 8.4 10.0 Jammu & Kashmir Karnataka 45.7 52.0 52.2 48.0 53.4 Kerala 20.7 17.8 17.8 18.5 18.5 Madhya Pradesh 31.9 53.4 47.0 56.5 72.0 Maharashtra Orissa 32.0 49.7 32.6 42.8 - Punjab 15.2 22.1 15.3 12.7 12.9 Rajasthan 25.6 33.4 39.9 37.6 52.6 Tamil Nadu 36.4 51.1 67.1 80.8 88.7 Uttar Pradesh West Bengal 13.4 17.5 25.4 39.1 30.0 - 54 - ANNEX 1 Table 18 INDIA SECOND ARDC CREDIT PROJECT Branches of Major Commercial Banks 1/ (No.) As on June 30, 1977 As on December 31, 1979 Semi Semi Rural Urban Rural Urban Areas Areas Total Areas Areas Total 1. State Bank of India 1,869 1,417 4,359 2,421 1,541 5,168 2. SBI Subsidiaries 847 670 2,000 1,064 763 2,401 3. SBI Group of Banks (1+2) 2,716 2,087 6,359 3,485 2,304 7,569 4. Nationalized Banks 4,481 3,392 12,543 6,194 3,695 15,062 5. Public Sector Banks (3+4) 7,197 5,479 18,902 9,679 5,999 22,631 6. Private Banks 1,583 1,607 4,988 2,546 1,807 6,529 7. Total (5+6) 8,780 7,086 23,890 12,225 7,806 29,160 1/ Excluding Regional Rural Banks. - 55 - ANNEX 1 Table 19 INDIA SECOND ARDC CREDIT PROJECT Overdues of Indian Scheduled Commercial Banks (State-Wise) (As percent of demand) June June June June June 1975 L936 1977. 1978 1979 Northern Region 44.3 40.7 40.2 35.3 44.0 Haryana 33.8 33.6 34.0 32.1 33.3 Himachal Pradesh 42.9 48.2 59.6 53.2 65.7 Jammu & Kashmir 53.0 57.7 51.9 37.4 52.5 Punjab 35.2 30.1 28.5 23.6 20.7 Rajasthan 53.5 49.7 50.5 50.0 49.3 North-Eastern Region 67.7 64.1 67.5 66.0 68.2 Assam 74.6 69.8 65.6 70.2 73.2 Eastern Region 62.8 60.2. 59.6 60.8 61.8 Bihar 59.8 54.3 59.4 64.2 68.3 Orissa 52.2 58.2 58.8 58.2 54.5 West Bengal 68.4 66.3 59.9 59.1 60.2 Central Region 50.2 46.3 47.5 49.4 49.1 Madhya Pradesh 54.9 54.2 51.5 61.1 61.7 Uttar Pradesh 47.8 42.2 43.6 43.5 42.9 Western Region 60.2 59.6 62.4 60.8 56.5 Gujarat 58.0 58.6 57.8 59.8 50.4 Maharashtra 61.6 60.5 65.1 62.1 60.3 Southern Region 38.1 40.4 44.9 44.7 52.5 Andhra Pradesh 33.3 34.7 44.8 42.1 39.5 Karnataka 46.0 46.1 48.3 52.6 50.8 Kerala 25.9 28.7 32.0 37.0 38.9 Tamil Nadu 45.3 48.9 48.6 47.0 45.4 - 56 - ANNEX 1 Table 20 INDIA SECOND ARDC CREDIT PROJECT Number of Agricultural Field Officers/Rural Development Officers with Some of the Commercial Banks Bank No. of AFOs/RDOs as at the end of June June June December 1976 1977 1978 1979 Allahabad Bank 78 122 222 240 Bank of India 160 160 160 224 Indian Bank 26 26 31 35 Indian Overseas Bank 160 180 178 179 Punjab National Bank 198 192 239 258 Syndicate Bank 230 294 295 322 Union Bank of India 393 402 597 627 United Bank of India 171 274 286 286 Corporation Bank 7 21 33 33 New Bank of India 16 25 30 46 Oriental Bank of Commerce 9 19 33 21 State Bank of India 608 1,022 NA 1,745 - 57 - ANNEX 2 Page 1 INDIA SECOND ARDC CREDIT PROJECT Compliance with Covenants of Development Credit Agreement Section 4:01: In terms of the section, GOI was required to carry out a study to assess the adequacy of interest rate spreads with particular reference to the needs of LDBs. Accordingly, RBI appointed a committee in April 1978 to undertake such a study. The committee submitted its Report to RBI in November 1979. Its main recommendations are: i) A net interest margin of 3% should prove adequate for LDBs. ii) Interest margin required on new lending depends on the profitability of the cumulative business. Sufficient profitability would be ensured only if the interest spread on current business is 3.5%. iii) In order to ensure a net margin of 3.5% on current business, ARDC may consider reducing its lending rates to SLDBs by 0.75%, with suitable reduction in the lending rates charged by GOI/RBI to ARDC. These recommendations were examined by RBI and GOI. In the meantime following the imposition of the interest tax on interest earnings of scheduled banks, the rates to ultimate borrowers have been revised both by RBI and ARDC for term loans granted by banks as under, with effect from July 1, 1980: Rate % p.a. not exceeding a) Minor irrigation & land development 10.25% p.a. b) Diversified purposes i) Small farmers 10.25% p.a. ii) Others 11.35% p.a. For these purpose of maintaining uniformity of lending rate at the lowest level, LDBs have also been allowed to raise their rate of interest to the above levels. However, as SLDBs are not liable to pay tax on their interest earnings, the margin available to them has increased and now ranges between 3.5 percent and 4.6 percent under ordinary debentures and between 3.75 and 3.85 percent under ARDC schemes, as against between 2.75 to 3.75 percent under ordinary debenture and 3 percent under ARDC schemes available earlier. Section 4.02: The section required GOI to ensure that criteria for issuance of debentures are the same under ordinary and special development programs. In this respect, RBI and ARDC have been regulating the lending program of LDBs on the basis of common overdues criteria. A Standing Committee on Debenture Norms constituted in September 1975 has periodically reviewed these criteria. - 58 - ANNEX 2 Page 2 Project Agreement Section 3.04: ARDC was required to appoint an irrigation engineer with suitable experience and qualification. A person with requisite qualification and experience was appointed on December 16, 1978. Section 3.07: ARDC was required to appoint a committee to assess the replace- ment demand for pumpsets in India during the next five years and recommend appropriate means of financing. ARDC set up such a committee in May 1978. The committee submitted its report in August 1979. Its estimated total demand for pumpsets during 1978-83 at 3 M units - 1.8 M electric motors and 1.2 M diesel engines. Replacement demand for electric pumpsets during the same period was estimated at 0.3 M. It was decided by the Board of ARDC that the maximum maturity period of single purpose pumpset loan be enhanced to 9 years for all types of farmers as against the present term of 7 years. In respect of small farmers the period of composite loan may be a maximum of 15 years with repayment of the pumpset loan in 9 years. Moreover, the loans for pump- set should be paid direct to the dealers and not in cash to the borrowers. The relevant term in the ARDC III Agreement was accordingly modified with the concurrence of IDA. Section 3.08: ARDC was required to conduct a study of the problems of ground- water over-exploitation areas. ARDC constituted such a committee in August 1978. The terms of reference and the composition of the committee was final- ized in consultation with 001 and IDA. The committee submitted its report in January 1980. On the basis of the data collected during the study, the Committee found that out of 29 areas studied, only 17 showed over-development, and the remaining 12 were not over-exploited. The areas which were feared over exploited under ARDC II Project, but were not found to be so by the Committee, were confined to the States of Maharashtra and Karnataka. The committee recommended new norms for groundwater exploitation. These recom- mendations have generally been accepted; appropriate follow-up actions are being taken. Section 3.09: In terms of this section, ARDC was required to: i) institute monitoring, evaluation and reporting procedure; ii) establish a Project Evalua- tion Task Force; iii) conduct 10 evaluation studies during the Project period; and iv) appoint agricultural economists in each of its regional offices. ARDC has generally complied with these requirements. It has already introduced an improved monitoring and reporting system. The existing Directors in the Pro- gramming and Evaluation Division and a Senior Director to Coordinate their work will constitute the Project Evaluation Task Unit contemplated by IDA. This position was acceptable to the IDA Supervision Mission. ARDC has also appointed one or more Agricultural Economists in each of its Regional Offices except one (Gauhati). However, for reasons explained, ARDC could undertake only seven evaluation studies as against 10 agreed on. - 59 - ANNEX 3 INDIA SECOND ARDC CREDIT PROJECT Terms of Reference for Committee on Agricultural Loans Through Commercial Banks (CALCOB) With the increasing participation of Commercial Banks in term loans for agricultural purposes with substantial credit support from ARDC, it is considered necessary to review the existing arrangements and adopt suitable measures for developing them into efficient instruments for financing agricul- tural investments. ARDC has in April 1979, in consultation with GOI and RBI, constituted a Standing Committee on Agricultural Loans through Commercial Banks (CALCOB). The terms of reference of the Committee are as follows: 1. To formulate appropriate criteria for branches of Commercial Banks in regard to Management, Technical Staff, Supervision, Recovery, etc. to be ensured for participation in refinancing program of ARDC. 2. To review the existing system in Commercial Banks of maintaining, compiling and reporting data on demand, collection and balance in the case of agricultural loans and evolve, as far as possible, uniform procedures in this behalf. 3. To review the recovery performance in regard to agricultural loans of Commercial Banks, with special reference to term loans and recommend appropriate measures. 4. To evolve appropriate guidelines and procedures for meeting situations arising from natural calamities. 5. To evolve guidelines and action programs for commercial banks wherever necessary on an area basis with a view to improve recoveries. 6. To consider any other related aspects and make recommendations. The Committee will be a Standing Committee. It will devise its own procedure and shall make periodical reports to ARDC. It shall meet as often as necessary but not less than once every three months during the first year. For carrying out field studies, etc. the Committee may appoint such terms it may deem necessary from time to time. - 60 - ANNEX 4 Page 1 INDIA SECOND ARDC CREDIT PROJECT Training 1. The main objectives of the training scheme envisaged under ARDC II Project were to organize (i) training for senior/middle level staff of con- cerned institutions, particularly that of LDBs; and (ii) training programs for LDB junior staff in the light of their identified needs. Training of Senior and Middle Level IDB Staff 2. The following are the details of various courses for senior and middle level officers planned and actually conducted during the project: Targets Achievements No. of Parti- No. of Parti- Type of Course courses cipants course cipants Agricultural Project Courses (APC) (i) At College of Agricultural Banking 22 770 41 1101 (ii) At Regional Centers 10 350 7 183 Technical Courses 10 300 4 110 42 1420 52 1394 3. The shortfall in the courses conducted at the regional centres in relation to targets was due mainly to the non-availability of suitable places. Further, though only four technical courses could be organized as against 10 proposed; it was possible to cover all Hydrogeology Officers who need to be trained. 4. Number of officers actually trained was marginally short of the number planned. Number of officers trained per course was significantly lower indicating under utilization of resources. Despite efforts, participa- tion of LDB officers continued to be low. Thus in the aggregate only 40% of the officers trained were from LDBs and their participation was particularly low (19%) in Regional APCs. The lack of interest shown by LDBs was marked in Punjab, Bihar, Orissa, West Bengal and Jammu & Kashmir. An attempt was made to evaluate the usefulness of training programs conducted by ARDC and College of Agricultural Banking (CAB), Pune through a questionnaire canvassed to trainees of up to 20th APCs. Information thus collected demonstrate the usefulness and utility of APC in providing basic training to Agricultural/ Rural Development officers of both LDBs and CBs. - 61 - ANNEX 4 Page 2 Training of LDB Junior Staff 5. The training program for junior level LDB staff continued to be implemented by the concerned LDBs under the overall guidance of ARDC. As on 31 December 1979 of the 19 SLDBs in the country, 14 SLDBs were running 26 training centers in their respective states to train their junior staff. Three smaller LDBs, namely, Himachal Pradesh, Pondicherry and Tripura deputed their staff to adjoining LDB training centres while Jammu & Kashmir and Assam SLDB could not make headway in this regard despite repeated efforts of ARDC. 6. Of the total, 17,551 Junior staff identified for training 14,607 staff have been trained so far. Of 11,573 were trained during the ARDC II Project. The banks in Kerala, Haryana and Orissa have completed the basic training of their staff. Those in Gujarat, Bihar and Uttar Pradesh would be completing their programs shortly. The statement showing the total junior staff of the LDBs and those trained up to the end of ARDC II Project is given in Table 2. 7. An evaluation of the junior level training program in the four states where LDBs have more or less reached the target under the program indicate that the training had generally improved the participants' knowledge and professional skill as reflected in their on-the-job performance. Most of the training centres have made good progress in the bringing out printed manuals to serve as reference material to the trainees. The regional offices of ARDC also guide and keep a watch in the training programs. During the project period all the centers were inspected or visited by the Senior Officers of the Training Cell for more than 4 to 5 occasions. Workshop for Trainers 8. Workshop for trainers are arranged as all the trainers would not get an opportunity to attend Agricultural Project Course before taking up the assignment as Instructors. Three such workshops for trainers who conduct the Junior LDB courses were organized by the Corporation - two at Pune and one at Chandigarh. Sixty-three personnel from different banks participated in the above workshop. More such workshops could not be organized for want of minimum of trainers to make it viable. 9. With the initiation of the intensive training program for the senior, middle and lower level staff in the banks, improvement in the formulation and appraisal of schemes is definitely evident. The observed area of improvement included preparation of techno-economic norms to represent with and without project situation, a more systematic analysis of investment profitability based on benefits, and costs and repayment schedule tailored to farmers' repaying capacity. - 62 - ANNEX 4 Page 3 Cost of Training 10. The data below gives the actual cost vis-a-vis the appraisal estimates. Actuals as % Training Estimates Actuals of Estimate --------(Rs M)----- a) Senior and Middle Level 2.06 2.64 128.16 b) Junior Level 13.22 9.63 72.84 c) ARDC Headquarters expenses 2.27 1.57 69.16 17.55 13.84 78.86 11. The ARDC had incurred an expenditure of Rs 13.84 million up to December 31, 1979 as against Rs 17.55 million estimated for the program under ARDC II Project. Thus about 80% of the estimated financial allocations have been utilized. 12. The under utilization of amount in respect of junior level training was due to lack of hostel facilities at the centers, non-provision of the teaching and administrative staff in full complement from the beginning, inadequate expenditure on libraries, audio-visual and other aids, lack of preparation of course material in adequate quantities and its printing in manual forms. Moreover, RBI has not yet finalized the costing of the courses after which only the exact expenditure involved could be worked out. INDIA SECOND ARDC CREDIT PROJECT Senior and Middle Level Officers .Training Programs Completed During ARDC II Period No. of CBs/ State Courses courses SLDBs RRBs ARDC RBI SCBs Govts. Total Programs covered under ARDC II Project Agriculture Projects Courses 41 501 435 136 19 - 10 1,101 Regional APCs 7 35 111 11 - 12 14 183 Technical courses 4 34 31 9 - - 36 110 Subtotal 52 570 577 156 19 12 60 1,394 LJ) Programs not covered under ARDC II Project Workshop - Shillong 1 1 16 - 1 9 21 48 Seminar for Chief Executives 1 16 28 - - - - 44 Inservice for ADOs of ARDC - Head Office 4 - - 90 /a - - - 90 Orientation Course for Tech. Officers of 1 - - 13 /a - - - 13 ARDC Staff Training Program for Agri-Economists 1 - - 16 - - - 16 of ARDC Subtotal 8 17 44 119 1 9 21 211 Total 60 587 621 275 20 21 81 12605 /a Not included in paragraph 2.23 in the PCR. - 64 - ANNEX 4 Table 2 INDIA SECOND ARDC CREDIT PROJECT Training Programs for Junior Staff of LDBs During ARDC II Project Staff identified No. of staff trained under Staff yet to SLDB for training ARDC I ARDC II Total be trained Andhra Pradesh 2,231 /a 710 2,144 2,854 - Bihar 1,361 361 596 957 410 Gujarat 1,526 172 977 1,149 377 Haryana 538 /a 69 477 546 - Karnataka 1,326 146 954 1,100 226 Kerala 323 /a 123 224 347 - Maichya Pradesh 1,543 326 952 1,278 265 Orissa 391 /a 83 368 451 - Punjab 810 170 517 687 123 Rajasthan 827 132 397 529 298 Tamil Nadu 1,709 397 895 1,292 417 Uttar Pradesh 1,286 Ia 256 1,194 1,450 - West Bengal 494 89 . 243 332 162 Maharashtra 2,916 - 1,635 1,635 1,281 Assam 54 - - - 54 Jammu & Kashmir 60 - - - 60 Himachal Pradesh 119 - - - 119 Pondicherry 10 - - - 10 Tripura 21 - - - 21 Total 17,551 3,034 11,573 14,607 /a The SLDBs have recruited additional staff after the staff had been identified for training. As such target has been exceeded, in some cases. - INDIA SECOND ARDC CREDIT PROJECT Rehabilitation Programs of Land Development Banks State: Maharashtra Action Program Suggested 1/ Present Status 2/ 1. GOM had to (i) modify the existing instructions on 1. GOM have since removed the monetary ceiling for taking taking coercive action; (ii) provide for sufficient coercive action. This would enable action in the cases recovery staff with instruction to be earnest in which the default in respect of medium and long-term recoveries; and (iii) consider vesting the staff of loans is Rs 5,000 and below which was not possible earlier. LDB with special powers for recoveries. Regarding item (ii) COM have provided for recovery officers. In regard to item (iii), GOM have not so far vested the LDB staff of special powers for recoveries. 2. GOM should take over the overdues loans to the extent 2. The GOM had since issued order to take over these loans. of Rs 81.6 million issued at the instance of the The overdue loans issued at GOM's instance was finally state government for soil conservation, loans to identified to be Rs 93.9 M. This has been adjusted by the Adviasi, etc. bank in respect of debentures held by the GOM which matured' in the last two years. Only a sum of Rs 2 M is yet to be adjusted. 3. Rephasing of (i) the loans which were once rephased 3. After setting the modalities of rephasement, with RBI/ARDC in 1973; (ii) loans recoverable in areas which are the LDB has started preparing fresh demands. Rephasing has affected by droughts since 1973; and (iii) loans to been completed in respect of 259,000 lakh loan accounts small farmers. If on account of rephasement of these covering a sum of Rs 230 M. The LDB has approached ARDC loans, LDB finds it difficult to redeem the debentures for postponement of the repayment of Rs 66.2 M and of this, either on maturity or yearly redemption, COM should Rs 25 M was allowed by ARDC. The decision to postpone the ,postpone its right on redemption on debentures held repayment of the balance amount will be taken shortly. by it until the LDB is in a position to pay. If this postponement by GOM is inadequate, then 001 is to be approached for suitable postponement or redemption of debentures held by it and if postponement by these two agencies is not adequate, ARDC is to be requested for suitable postponement in the redemption of debentures. 4. The SLDB had to study every case of partially 4. The Bank has been doing this work in a phased manner and completed minor irrigation works and draw up a getting the approval of ARDC. The SLDB has since decided program for their completion and approach ARDC for to constitute a Working Group to estimate the requirement suitable financial support. of additional financial assistance for partially completed lift irrigation investment. ARDC had offered the services of a technical officer and a credit officer to work in this Group. The work may be completed in six months time. 1/ The programs have been prepared in collaboration between ARDC and respective SLDB and negotiations with the State Government. 2/ As at mid-1980. Action Program Suggested Present Status 5. GOM was to expeditiously release the subsidy in the 5. The SLDB had received Rs 3 M in respect of 5,434 failed case of failed wells and streamline the procedure wells. In another 2,735 cases claims are to be settled. for disbursing the subsidy. 6. (i) GOM would ensure continuity of management in the 6. A Joint Registrar of Co-operative Societies who is well LDB by appointing a Managing Director for suffi- conversant with banking has assumed office of MD since ciently long time; (ii) organizational set-up at January 1979. various levels in the bank would be reviewed by an In regard to item (ii), the COM had indicated that an Expert Group; and (iii) specific reorganizational plan Expert Group would be appointed to review the organiza- would be worked out and implemented expeditiously. tional set up of the LDB and the staff requirements. In so far as item (iii) is concerned, it has been linked with the Expert Group to be set by GOM as indicated above. State: Tamil Nadu 1. The recoveries in the amount taken by the SLDB to a 1. Proposals for sanction of financial assistance to the blocked account at the end of June 1975/76 has been extent of Rs 0.6 M to the SLDB representing shortfall in slow. The terms and conditions under which such the recovery under blocked account for the years 1976/77 blocking was done would have to be enforced including and 1977/78 are under consideration of State Government. State Government liability to make good the amount in the event of deficit in recovery. 2. Infructuous investment may be adjusted under the 2. Necessary amendment to the failed well fund (with the State Government's failed well schemes. State Government) rules have been issued giving retro- spective effect to the date of eligibility for getting assistance from the fund (April 4, 1968). This is subjecS to the condition that the applications are made before December 31, 1979. The SLOB had relesed an assistance of Rs 0.04 c in 563 cases. 3., In regard to incomplete investments necessary, additional 3. It has been identified that additional finance to the finance would have to be provided to complete them if extent of 3.9 M may be required to complete investments SLOB framed suitable proposals in this regard. in 643 cases. ARC has agreed to the proposal and has called for report in a few cases asking for reasons for incomplete investments, the amount required, the nature of remaining work, etc. 4. The borrowers who could be classified as small farmers 4. The COT had approached ARDC to give permission for since the commencement of ARaC I in 1975 but were not extension of the period of loan by two years to 6,332 given period of time will have to be allowed additional small farmers involving an amount of Rs 36 t. AROC has two years for repayment of the loans. This arrangement since agreed to this proposal subject to the crditions would have to be supported if necessary by GOT, GOI and that the total period of debentures including the two X ARDC. years extension now agree d to would not exceed 15 years. 5. Specific steps would have to be taken to improve the 5. The SLOB has reported that it has taken action to verify quality of loaning so that difficulties experienced in the misutilized loAns of the past and recover the amount the past would not be repeated in the future. involved in such cases. GOT had already accepted in principle that the organizational set up of the SLoB should be strengthened and has taken the following steps: (i) the land valuation fuctions which were hitherto done by the departmental staff were entrusted to the bank's staff in seven districts, (ii) State Government has Action Program Suggested Present Status approved the scheme of common cadre of Secretaries of PLDBs. The Registrar of Cooperative Societies is taking action to implement the scheme. 6. LDB would have to strengthen its organizational set 6. The SLDB is taking action to strengthen the Evaluation up and appoint adequate technical staff for technical and Technical Cell. appraisal, guidance, etc. 7. Overdues arising out of lift irrigation societies 7. In the case of one lift irrigation society in which case aggregating Rs 20 M would have to be taken over by the State Government had stood guarantor for the loans, the State Government. government has decided to honor their dommitments to the extent of Rs 12.5 M. ARDC has since received proposal from the SLDB to lend an additional sum of Rs 0.03 ti in the case of other 12 lift irrigation schemes to complete them. The Regional Office of ARDC has been instructed to consider the sanction of the scheme. 8. The commitment of the State Government include 8. The Government has issued orders converting debentures extension of outstanding debentures including that maturing held by it up to July 31, 1979 to the extent of outstanding against drought overdues by two years Rs 51.5 M into the share capital of LDB. The Government or so. have postponed the recoveries of ways and means advances of Rs 70 M and ordered it to be recovered in three installments on a half yearly basis beginning from June 1981. State: Karnataka 1. Steps should be taken to reduce the overdues to 1. As on December 31, 1979, number of PLDBs having unrestricted at least 30% of demand by June 30, 1979 and make eligibility were 54% of the toti number of PLDBs in the more PLDBs eligible for unrestricted lending. State, the number of such PLDB . liaving increased from 89 as on June 30, 1979, to 95 in Dec. ber 1979. The number of PLDBs having restricted and 'nii.' eligibility declined from 51 and 25 on June'30, 1979 to 4;- and 23 on December 31, 1979 respectively. The steps taken by GOK for effective recovery are: (i) GOK has ordered recovery of overdues in some of the taluks as arrears of land revenue under the relevant provisions of the Cooperative Societies Act. Similar action is expected to be taken in other areas. (ii) SLDB has appointed 19 recovery officers ii 17 districts having high overdues for expediting recovery of the past dues. The recovery officers A have also been invested with statutory powers for enforcing recoveries. (iii) Supervisors of PLDBs have been authorized to execute the orders passed by the Asst. Registrars. 2. SLDB's organizational set-up should be suitably 2. GOK has constituted a Study Team to undertake an in-depth strengthened. study of the management and staff of SLDB. Action Program Suggested Present Status 3. Steps should be initiated to improve the system 3. GOK is considering introducticn of a system of agri- of keeping land records to speed up lending cultrual credit passbooks. by the PLDB. 4. GOK should achieve improved coordination between 4. Some action has been initiated in this regard. SEB and LDB. 5. Large number of incomplete investments should be 5. A survey of incomplete investments is reported to have reduced and additional loans provided wherever been completed by SLDB. However, detailed proposals necessary to complete them. for grant of financial assistance are awaited from SLDB. About 11,000 wells were reported to be-incomplete. 6. SLDB should develop technical expertise by 6. The bank has decided to appoint 20 technical office±s appointing adequate technical staff. in various disciplines like animal husbandry, horti- culture, groundwater, etc. The appointments are held up due to legal problems. 7. GOK should consider providing financial assistance 7. Based on the overdues position as on June 30, 1979, GOK for: (i) share capital contribution to PLDBs for have already injected the necessary contribution to the improving their lending eligibility; (ii) larger share capital of PLDBs. Proposals for further contribu- subsidy for failed wells; (iii) creating Technical tion on the basis of end December 1979 position are Cell in Head Office of the SLDB/Divisional Office; under the consideration of GOK. SLDB has decided to (iv) additional staff for improving the recovery strengthen suitably its supervisory machinery by performance of the PLDBs; and (v) GOK should defer recruiting 350 additional supervisors. GOK's clearance redenption of debentures to cover rescheduling of has been sought for this. The SLDB has submitted in drought-affected loans. June 1980 a proposal to GOK for rescheduling of debentures covering loans in drought-affected areas and has also prepared a detailed program for rehabilitation of PLDBs a having 'nil' eligibility. The proposal is under the oo consideration of RBI. State: Gujarat 1. Crediting dividend in excess of 3% on equity 1. The State Government has agreed to credit a sum of contribution by the GOG to the Credit Stabiliza- Rs 0.05 M to the Credit Stabilization Fund with the GLDB tion Fund maintained by the bank. in respect of dividend for 1976/77. No dividend was declared by the bank for the subsequent years. 2. Strengthening of the capital base of the GLDB. 2. For strengthening the capital base of the GLDB, GOG have M not made any share capital contribution so far. GOG a- have, however, contributed Rs 1.7 Mto share capital in respect of 14 branches for increasing their lending eligibility. 3. Activation of subsidy scheme for failed wells. 3. For the purpose, the period of seeking relief has been extended by COG in respect of well loans issued by the SLDB from July 1, 1972 (during the currency of the loan). Details are yet to be worked out. Action Program Suggested Present Status 4. Taking over the liabilities of the loans issued for 4. GOG have agreed to take over the liability of loans land improvement under BLIS and for purpose of tenancy issued for land improvement, etc. to the extent of rights issued at the instance of GOG. Rs 78 M. The revised eligibility of the concerned branches after excluding this amount is yet to be worked out. 5. The COG should make a contribution in respect of 5. Against blocked overdues as on June 30, 1978 amounting short-fall in recoveries under blocked overdue loan to Rs 72.4 M, amount recovered was of the order of accounts. Rs 11.9 M GLDB is expected to make a provision of Rs 10 M out of its profit and the balance will,have to be made good by the State Government. The GOG had called for particulars from the bank in tiis regard. 6. The GLDB has to identify the overdues on account of 6. SLDB is yet to furnish detailed information of such loans. natural calamities and work out proposals for extension by two years. Suitable proposals for redemption of debentures will have to be made to the appropriate agencies. 4 7. SLDB was advised to identify the small farmers as 7. The SLDB has issued instructions to its branches to per ARDC norms and extend the period of loan identify the small farmers and grant extension of time (inclusive of two years extension) up to 12 years for repayment of the loans up to 15 years. ARDC regional and the loan period to 15 years should be taken office has estimated that such extension may reduce the only in deserving cases having regard to the size amount of overdues by about Rs 10 M. As the amount of investment, etc. The SLDB was asked to work involved is small, the bank is reluctant to undertake this out the details in this regard. exercise. In the case of extension of loans to small farmers 0 retrospectively from 1975, the GLDB should work .0 out proposals for deferment of redemption of I debentures to the credit of COG, GOI and ARDC. 8. The COG should initiate action for recovery of 8. The bank has issued instructions to its branches to identify overdue loans from willful defaulters. The GLDB such cases of misutilization. COG have issued instructions was also asked to identify cases of misutilization to District Collectors to arrange to buy the land of of loans and foreclose such loans and take legal defaulters, when put to auction, in case no bidders are action for recovery. The COG should extend forthcoming to purchase these lands. The bank is necessary cooperation in this regard. experiencing difficulty in identifying cases of misutiliza- tion of loans. 9. The State Government's views on the aspects of 9. The SLDB proposed to reduce the excess staff. Th2 issue is managerial and organizational improvement in the before the State Government which proposes to place the SLDB on the basis of the study entrusted by the matter before the State Cooperative Council so that the bank to an expert body is to be sent to ARDC. excess staff can be absorbed in the cooperative institutions in the State. State: Bihar 1. The SLDB's cash position is not comfortable. GOB 1. The GOB has yet to take a decision in this regard. should, therefore, provide a sum of Rs 50 M or so as interim accommodation to the SLDB. 2. GOB should initiate stern action against defaulters. 2. Action is yet to be initiated in this regard. Action Program Suggested Present Status 3. There has been deterioration in the recovery 3. GOB have recently constituted a committee to study performance of the LDB since 1976/77. LDB should aspects concerning the financial management of the make a comprehensive analysis of overdues to identify SLDB. This committee is expected to look into this the causes and take remedial action. This should be aspect. done expeditiously. 4. The overdues arising from natural calamities such as 4. SLDB has proposed to postpone recovery of installments floods, drought, etc. should be properly identified in drought affected areas representing demand to the and if necessary, the dues rephased by adopting extent of Rs 74 M out of total demand of Rs 424 M for suitable extension in the loan period according to the year 1979/80. The rescheduling of overdue loans the guidelines to be worked out in consultation with on the lines suggested by RBI/ARDC is yet to be done ARDC and RBI. by the bank. 5. SLDB's organization is weak and it is facing shortage 5. GOB have yet to take a decision on augmentation of of qualified staff. The staff strength should be SLDB's staff. A new M.D. has since taken over the augmented to sustain the investment and recovery charge in the bank. program of the bank. The absence of continuity of incumbent for the post of M.D. 4 6. The Government should assess the requirements of 6. Action is yet to be taken in this regard. IRD program and the capabilities of SLOB to implement it and initiate appropriate action. 7. A "High Powered Study Group" representing various 7. An in-depth study has since been conducted. The Study interests would look into all aspects of SLDB Group has recommended that the ARDC should be approached functions including management of funds. This for postponement of redemption of debentures due before study should be completed on a priority basis June 1980. SLDB may also approach GOI for postponement and action program prepared indicating the of redemption of debentures. ARDC has, however, not commitments needed from the GOB and other accepted these recommendations. agencies. 8.* Rehabilitation program involved certain financial 8. No action has been initiated in this regard. implications, viz., (a) with reference to rescheduling of loan installment defaulted on account of natural calamities, etc. the period of corresponding debentures held by the GOB and GOI would have to be suitably extended; (b) where the overdues above five years are transferred to a blocked account, GOB should make budgetary a, provision to reimburse any shortfall in recovery out of 1/5 of the blocked amount taken for collection under the current demand. - 71 - ANNEX 6 Table 1 Page 1 INDIA SECOND ARDC CREDIT PROJECT Investment Returns and Financial Economic Results 1. Evaluation Study on the Dairy Development Scheme in Moga Area of Faridkot District, Punjab Important Survey Data (Relate to Selected Beneficiaries Only) A. Average Size of Cultivated Holding (in acres) Before the After the Investment Investment 1. Net cropped area 9.10 9.10 2. Gross cropped area 13.73 15.03 of which area under green fodder 1.91 2.83 B. Cost of Investment and Amount Disbursed by Central Bank of India (CBI) Amount in Rs. Cost Items per Buffalo i) Cost of buffalo 1,488 ii) Transportation charges 8 iii) Cost of other materials 5 iv) Cost of construction of cattle shed 53 Total 1,554 Average loan amount disbursed 1,600 C. Period of Lactation Cycle (in months) Lactation Period Dry Period Total 10 7 17 D. Yield of Milk per Buffalo during a Lactation Cycle i) Quantity (liters) 1,674 ii) Value (Rs.) 2,005 - 72 - ANNEX 6 Table 1 Page 2 E. Cost of Maintaining a Buffalo during a Lactation Cycle (Amounts in Rs) 1. Fodder Lactation Period Dry Period Total i) Quantity (Kg/day) a) Green fodder 23 18 b) Dry fodder 7 7 ii) Total Value of Fodder Consumed 636 2. Concentrates i) Quantity (Kg/day) 2.43 ii) Total Value of Concentrates 687 3. Salts and minerals 4 4. Medicines 19 5. Insurance 80 6. Labor 34 Total 1,460 F. Net Surplus per Buffalo during a Lactation Cycle (Rs) 1. Value of milk yield 2,005 2. Value of manure 65 3. Total 2,070 4. Cost of maintenance of buffaloes 1,460 5. Net income 610 6. Net income during a year 430 G. Employment per Buffalo during one Lactation Cycle of 17 Months Activity Family Labor Hired Labor (mandays) (mandays) i) Grazing 12 3 ii) Rearing 78 8 iii) Total 90 11 H. Internal Rate of Return 49% - 73 - ANNEX 6 Table 2 Page 1 2. Evaluation Study on the Dairy Development Scheme in Jagadhri Block of Ambala District, Haryana Important Survey Data (Relate to Selected Beneficiaries only) A. Average Size of Cultivated Holding (in acres) Before Purchase After Purchase Item of Buffalo of Buffalo 1. Net cropped area 3.38 3.38 2. Gross cropped area 4.60 6.08 of which area under green fodder 0.66 1.19 B. Cost of Investment and Amount Disbursed by State Bank of Patiala (SBOP) Amount in Rs. Cost Items per Buffalo i) Cost of buffalo 1,838 ii) Transportation charges 65 iii) Cost of other materials 22 iv) Cost of construction of cattle shed 246 v) Total 2,171 vi) Average loan amount disbursed 1,932 C. Period of Lactation Cycle (in months) Lactation Period Dry Period Total 9 5 14 10 7 17 D. Yield of Milk per Buffalo during a Lactation Cycle i) Quantity (liters) 1,408 ii) Value (Rs.) 2,205 - 74 - ANNEX 6 Table 2 Page 2 E. Cost of Maintaining a Buffalo during a Lactation Cycle (Amounts in Rs) 1. Fodder Lactation Period Dry Period Total i) Quantity (Kg/day) a) Green fodder 27 22 b) Dry fodder 8 10 ii) Total Value of Fodder Consumed 725 2. Concentrates i) Quantity (Kg/day) 2.75 Less than 1 ii) Total Value of Concentrates 765 3. Salts and minerals 16 4. Medicines 18 5. Insurance 85 6. Labor 6 Total 1,615 F. Net Surplus per Buffalo during a Lactation Cycle (Rs) 1. Value of milk yield 2,205 2., Value of manure 45 3. Total 2,250 4. Cost of maintenance of buffaloes 1,615 5. Net income 635 6. Net income during a year 544 G. Employment per Buffalo (during one Lactation Cycle of 14 Months Activity Family Labor Hired Labor (mandays) (mandays) i) Grazing 38 1 ii) Rearing 195 - iii) Total 233 1 H. Internal Rate of Return: About 40% - 7- ANNEX 6 Table 3 Page 1 INDIA SECOND ARDC CREDIT PROJECT Evaluation Study of Poultry Development Scheme in Mulkanoor, Karimnagar District, Andhra Pradesh Important Survey Data Assumed Actual 1/ in the Group Group Group scheme A B C Average A. No. of borrower beneficiaries 6 12 2 B. No. of one-day old chicks 100 525 550 800 supplied per beneficiary C. Average size of poultry 1,205 1,250 1,630 1,275 shed (sq. ft.) D. Cost of investment and other initial costs per 100 layers intial costs (Rs) 2/ (a) Capital Costs (i) Poultry shed 500 2,890 2,110 3,385 2,510 (29.1) (54.4) (47.9) (56.9) (51.4) 3/ (ii) Poultry equipment 200 515 265 295 340 (11.6) (9.7) (5.9) (4.9) (6.9) (iii) Water tank - 110 85 51 85 (2.0) (1.9) (0.9) (1.7) (iv) Electrical Installations - 70 60 60 60 (1.3) (1.3) (1.0) (1.3) Subtotal 700 3,585 2,520 3,790 2,995 (40.7) (67.4) (57.0) (63.7) (61.3) (b) Other Initial Costs (Rs) (i) One day-old chicks 220 390 400 385 395 (12.8) (7.3) (9.1) (6.4) (8.1) (ii) Chick feed 650 1,030 1,125 1,420 1,145 (37.8) (19.4) (25.6) (23.9) (23.4) (iii) Medicines, labor, electri- 150 315 365 350 350 city charges & transport (8.7) (5.9) (8.3) (5.9) (7.2) Subtotal 1,020 1,735 1,890 2,155 1,890 (59.3) (32.6) (43.0) (36.3) (38.7) Total Initial Costs 1,720 5,320 4,410 5,945 4,885 1/ Twenty farmers in the sample were divided into three groups A, B, and C. 2/ The other initial costs represent the expenses on the first batch of one day old chicks for the first six months included in the investment cost. 3/ Figures in brackets represent percentage to total. - 76 - ANNEX 6 Table 3 Page 2 Assumed Actual in the Group Group Group scheme A B C Average E. Mode of financing total initial cost per unit of 100 layers (Rs) (i) Bank loan 1,500 1,450 1,510 1,020 1,420 (87.2) (27.3) (34.2) (17.2) (29.1) (ii) Beneficiaries contribution 220 3,870 2,900 4,925 3,465 (12.8) (72.7) (65.8) (82.8) (70.9) (Figures in brackets indicate percentages to total initial cost). G. Total current costs per 100 layers (Rs) (i) One day old chicks 220 390 400 385 395 (7.8) (6.2) (6.6) (6.4) (6.5) (ii) Chick feed 650 1,030 1,130 1,420 1,140 (23.0) (16.4) (18.5) (24.0) (18.5) (iii) Layer feed 1,500 4,400 4,020 3,600 4,070 (53.2) (69.9) (65.9) (60.8) (66.4) (iv) Medicines, labor, electricity 450 480 550 520 520 charges & transport (16.0) (7.5) (9.0) (8.8) (8.5) Total 2,820 6,300 6,100 5,925 6,125 (Figures in brackets indicate percentages to total current costs). H. Total gross income per 100 layers (Rs) (i) By sale of eggs 1/ 4,000 6,520 6,130 6,710 6,320 (87.0) (86.5) (86.3) (86.8) (86.7) (ii) Manure 100 230 260 225 245 (2.2) (3.1) (3.6) (2.9) (3.4) (iii) Culled birds 500 700 715 800 725 (10.8) (9.4) (10.1) (10.3) (9.9) Total 4,600 7,450 7,105 7,735 7,290 (Figures in brackets indicate percentages to total gross income) 1/ No. of eggs being 20,000 23,300 21,900 23,800 2,250 I. Net income per 100 layers (Rs) 1,780 1,150 1,005 1,810 1,165 J. Internal Rate of Return (%) over 50 23 27 44 29 K. Employment opportunity created by the scheme as a whole Non-recurring 17,100 man days Recurring 4,000 man days - 77 - ANNEX 6 Table 4 INDIA SECOND ARDC CREDIT PROJECT Evaluation Study of Mechanized Fishing Boats In South Kanara District of Karnataka Important Survey Data (Average per boat) 30' Boats 32' Boats Assumed Actual Assumed Actual No. of boats financed 18 25 27 24 Investment Cost (Rs) 71,100 72,820 93,150 97,340 (of which bank loan) (53,330) (46,845) (69,860) (64,870) Fish catches (Kgms) Prawn 8,000 5,000 9,000 6,200 Other fish 20,000 22,100 27,000 25,600 Total 28,000 27,100 36,000 31,800 Value of catch (Rs) Prawn 61,000 55,300 73,000 68,600 Other fish 30,000 13,200 40,500 15,400 Total 91,000 68,500 113,500 84,000 Cost of operations (Rs) 54,550 42,300 69,750 48,600 Net income (Rs) 36,450 26,200 43,750 35,400 Net Present Worth (NPW) 64,310 93,340 Benefit Cost Ratio (BCR) 1.83 1.96 Financial Rate of Return (FRR) 41 42 a! Including provision for depreciation. - 78 - ANNEX 6 Table 5 INDIA SECOND ARDC CREDIT PROJECT Evaluation Study of a Scheme for the Development of Citrus Gardens in Nellore District of Andhra Pradesh Important Survey Data Anticipated Actual No./Acres Unit Cost No./Acres Unit Cost Rs. Rs. 1. Investment Items i) New Wells 200 3,000 186 6,940 ii) Renovation of Old Wells 200 1,000 176 1,885 iii) Electric Motors 150 2,335 80 2,215 iv) Diesel Engines 100 3,500 171 3,200 v) Citrus Gardens 1,000 2,200 670 2,110 2. Average command of wells /a (acres) 5.00 3.06 3. Average size of gardens (acres) 3.00 2.60 4. Net income from benefiting area /a (Rs. per household) i) Citrus Gardens 11,250 15,810 ii) Field Crops 1,990 865 iii) Total 13,240 16,675 5. Incremental income per household (Rs) 10,815 6. Increase in irrigated acreage /a 425 7. Employment generation (man days) i) Recurring - 0.98 lakh ii) Non-recurring - 1.50 lakh 8. Internal Rate of Return (IRR) i) With new wells - 24% ii) With renovated wells - 40% /a At full development i.e. 9th year of citrus plantation. - 79 - ANNEX 6 Table 6 INDIA SECOND ARDC CREDIT PROJECT Financial Analysis: Investment Data (at 1979 Price Level) Annual Incremental Unit Cost Income Debt Type of Investment State Unit of Investment Per Unit 1/ Servicing (Rs) (Rs) (Rs) Dugwell and Pumpset Andhra 2.0 ha 12,500 2,730 1,880 Pradesh Shallow Tubewell Uttar 3.0 ha 10,000 4,122 1,505 Pradesh Pumpset (3 HP) Uttar 1.2 ha 5,500 1,056 735 Pradesh Pumpset (3 HP) Maharashtra 2.0 ha 5,000 2,340 Land Development Punjab 4.0 ha 3,375 4,690 765 Coconut Kerala 0.4 ha 3,640 4,030 835 2/ Dairy Gujarat 2 4,500 3,405 1,230 buffaloes Dairy Andhra 2 cows 5,600 3,660 1,535 Pradesh Poultry Andhra 1,000 51,725 18,060 11,895 Pradesh layers Mechanized Fishing Karnataka 10 m. 92,000 27,750 21,160 Vessel boat 1/ At full development. 2/ Repayment during 8-12 years.