India - Tamil Nadu Agricultural Extension Project

Document of The World Bank FILE FOR OFFICIAL USE ONLY Report No. P-3011-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE TAMIL NADU AGRICULTURAL EXTENSION PROJECT April 6, 1981 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 diisclosed without World Bank authorization.  CURRENCY EQUIVALENT (As of March 27,1981) Rs 1.00 = Paise 100 Rs 1.00 = US$0.120783 US$1.00 = Rs 8.279257 Rs 1 million = US$120,783 The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were made at US$1 to Rs 8.0, which represents the projected exchange rate over the disbursement period. FISCAL YEAR April 1 - March 31 ABBREVIATIONS ADA - Additional Director of Agriculture DOA - Directorate of Agriculture DOH - Directorate of Horticulture DRD - Directorate of Rural Development DVAO - Divisional Agricultural Officer DYAO - Deputy Agricultural Officer GOI - Government of India GOTN - Government of Tamil Nadu ha - hectare JD - Joint Director SMS - Subject Matter Specialist T&V - Training and Visit System of Agricultural Extension TNAU - Tamil Nadu Agricultural University VEW - Village Extension Worker VLW - Village Level Worker  INDIA FOR OFFICIAL USE ONLY TAMIL NADU AGRICULTURAL EXTENSION PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President (GOI). Beneficiary: The State of Tamil Nadu (GOTN). Amount: SDR 22.9 million (US$28 million equivalent). Terms: Standard. Relending Terms- From GOI to GOTN: As part of Central assistance for State development projects on terms and conditions applicable at the time. Project Description: The project would serve 3.8 million farm families in Tamil Nadu by reorganizing and strengthening the State's agricultural extension service along the lines of the Training and Visit System of extension, which is based on frequent in-service training of extenision workers and regular, scheduled visits by extension workers to farmers' fields. The project faces no special risks, although realization of the expected benefits will depend heavily on the State Government's ability to effectively manage the reorganized extension system, maintaining a clear single line of command from extension headquarters to the field-level workers. Estimated Project (US$ Millions) Cost: a/ Local Foreign Total Incremental Staff 14.5 - 14.5 Incremental Operating Costs 3.1 1.6 4.7 Civil Works 9.6 - 9.6 Vehicles and Equipment 2.7 1.2 3.9 Training 2.8 0.2 3.0 Subtotal 32.7 3.0 35.7 Physical Contingencies 1.3 0.2 1.5 Price Contingencies 7.6 0.8 8.4 Total Project Cost 41.6 4.0 45.6 a/ Including an estimated US$5.9 million in taxes and duties. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -ii- Financing Plan: (US$ Millions) Local Foreign Total IDA 24.0 4.0 28.0 GOI/GOTN 17.6 - 17.6 Total 41.6 4.0 45.6 Estimated (US$ Millions) Disbursement: a/ FY82 FY83 FY84 FY85 FY86 FY87 Annual 0.4 3.5 7.2 8.1 5.4 3.4 Cumulative 0.4 3.9 11.1 19.2 24.6 28.0 Rate of Return: At least 50%. Appraisal Report: No. 3297-IN, dated March 25, 1981. a/ According to IDA's fiscal year.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE TAMIL NADU AGRICULTURAL EXTENSION PROJECT 1. I submit the following report and recommendation on a proposed development credit to India for SDR 22.9 million (US$28.0 million equivalent) on standard IDA terms to help finance a project to reorganize and strengthen the agricultural extension service of the StELte of Tamil Nadu. The Govern- ment of India (GOI) would channel the proceeds of the credit to the Govern- ment of Tamil Nadu (GOTN) in accordance with GOI's standard terms and arrangements for financing State development projects. PART I - THE ECONOMY 1/ 2. An economic report, "Economic Situation and Prospects of India" (2933-IN, dated May 1, 1980), was distributed to the Executive Directors on May 14, 1980. Country data sheets are attached as Annex I. Background 3. India is a large and diverse country with a population of 672 million (in mid-1980) and an annual per capita income of US$190. Agriculture contin- ues to dominate India's economy, employing over two-thirds of the labor force. However, the land base is not sufficient to provide an adequate livelihood to all those engaged in agricultural activities, especially the landless or nearly landless who have only an insecure grasp on the means of existence. The share of agriculture in GDP at factor cost (measured in 1970/71 prices) has declined from 60% in 1950/51 to about 40% in 1978/79. The share of industry has increased over the same period from 15% to 23%. But industrialization has not been rapid enough to absorb the growing labor force, nor to bring about the substantial economic transformation that has led to higher productivity and rapid urbanization in some other developing countries. The urban population was 18% of the total in 1960, and is about 21% now. 1/ Parts I and II of the report are substantially the same as Parts I and II of the President's Report for the Maharashtra Agricultural Ex- tension Project (No. P-3002-IN), dated March 30, 1981.  -2- 4. Economic growth has been slow in the past, averaging about 3.5% per annum over the past 30 years. Slow growth in agriculture -- 2.5% per annum over the same period -- has constrained overall growth, not only because of the high share of agriculture in GDP but also because scarce foreign exchange has often been required to import food. Industrial value-added has grown more rapidly, at 5.4% per annum between 1950/51 and 1978/79, but this growth has not been as high as in many other countries, nor as high as required. Gross domestic savings more than doubled from 10% of GDP in 1950/51 to 24% in 1978/79. Similarly, gross domestic investment as a fraction of GDP rose from 10% in 1950/51 to just over 24% in 1978/79. Foreign savings have never financed a large portion of domestic investment: a peak of about 20% was reached during the early 1960s; by the end of the 1970s, the proportion had returned to much lower levels. External assistance has been low both as a percentage of GDP and in per capita terms. Net external assistance has never risen above 3% of GDP. 5. Except during periods of balance of payments crisis, exports have received relatively little emphasis in India, which has primarily pursued a strategy of import substitution. The volume growth of exports between 1950/51 and 1978/79 averaged only 3.0 per annum. The volume growth of imports over the same period has slightly exceeded that of exports. During the early 1970s, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated drastically. In response, the Government introduced many policy measures designed to stimulate exports. The volume of India's exports grew on average over 10% per annum between 1972 and 1977, demonstrating that sustained rapid growth was possible. While expanding world markets, particularly in the nearby Middle East, contributed to this process, liberalized access to imported inputs, and improvements in incen- tives designed to increase the profitability of exports played a major role. Recent Trends 6. Over the period 1975/76 to 1978/79, growth in real GDP (at factor cost), agricultural value-added and industrial value-added averaged 4.7%, 2.8% and 7.3% per annum, respectively. These trends represent a marginally better growth performance than the long-term trends from 1950/51 to 1975/76. However, GDP declined by about 4.5% in 1979/80 as a result of the drought- induced decrease in agricultural production and input constraints in other sectors, bringing recent trends back in line with the long-term picture. Industrial production stagnated in 1979/80, largely due to shortfalls in the production of major inputs such as coal, steel and cement, as well as infras- tructural constraints, notably in power and transportation. As a consequence of these developments, the remarkable price stability that characterized the Indian economy after 1975 came to an abrupt end at the close of fiscal year 1978/79. During the spring and summer of 1980 the price index continued to rise sharply, so that by September it stood at 19.1% above that of the previ- ous September. Foodgrain prices rose over the summer and fall of 1980 but more slowly than the drop in 1979/80 production would have suggested so that in most markets grain prices remained close to the Goverment's ration prices. Low income groups in urban areas were assured adequate supplies of grain at stable prices through the public distribution system. The substantial stocks of foodgrains also provided resources for a large-scale drought relief  -3- employment program for low income groups in rural areas. In 1980/81, the economy recovered, aided by a normal monsoon, so that real GDP growth for the year should be about 7 to 8%. During the summer of 1980, GOI raised prices of petroleum products and fertilizers, reflecting the growing cost of imports of these items and the GOI efforts to encourage efficiency in their use. Recently the growth in prices has slowed so that by January 1981 the whole- sale price index was 15% above its level a year earlier. 7. In agriculture the positive results of large investments and appropriate policies in the past years are becoming increasingly apparent. The rate of expansion of irrigation has increased significantly from 1.3 mil- lion ha per year in the early 1970s to about 2.3 million ha in 1978/79. Fer- tilizer use reached 5.2 million tons of nutrients in 1979/80, more than dou- ble 1974/75 levels. Over the decade before 1979/80, foodgrain production grew at about 2.75% per annum -- sufficient to meet consumer demand, to elim- inate imports (which had averaged nearly 5 million tons per year for the 15 years preceding 1976), and to lower real foodgrain prices for consumers. At the same time, India was able to build up substantial foodgrain buffer stocks which made it possible to weather the effects of 1979/80 drought with com- parative ease, and to export about half a million tons of grain in 1980. While the management of the foodgrain economy after the drought was a signi- ficant achievement, the effect of the drought on production re-emphasized the continued importance of the monsoon in India's agriculture. The need to expand irrigation, strengthen extension and encourage the efficient use of other inputs continues. 8. As the new decade begins, the Indian economy is shifting from a situation of resource surplus, which had been a temporary phenomenon of the late 1970s, to one of resource scarcity. Investment has again overtaken domestic savings, and the scope for further increases in the latter appears limited. Marginal savings rates have recently been well above 30% in the household sector. Future increases in savings will depend largely on enhanced profitability of public sector enterprises. Impending resource scarcity is even more apparent in the foreign sector. Between 1975/76 and 1978/79 India's current account deficit had remained comfortably small in relation both to GDP and to a growing pipeline of aid commitments. This was primarily due to favorable terms of trade movements and rapidly growing net invisibles which masked adverse underlying trends in the volume of exports, the growth of which has slowed since 1977. One area of concern is the apparent decline in the growth rate of manufactured exports which had contri- buted much to the export growth of the first half of the decade. A combina- tion of strong domestic and slack international demand, exacerbated by severe inlfrastructural and supply constraints and apparent lessened interest in export promotion during the resource surplus period were the major causal factors. Recently, signs of improvement in the availability of power, the main constraint facing exporters, and the adoption of several new export pol- icy measures have improved the prospects for accelerating export growth, though continued attention to both these areas will be required. 9. In contrast, imports have grown rapidly in volume terms and there have been important changes in composition. As a result of the accumulation and maintenance of foodgrain stocks, foodgrain imports -- which had tradi- tionally been a large item in the balance of payments -- have been eliminated since 1978 and, for the past few years, India has been a marginal net  -4- exporter of grain. The rise in other imports, however, has more than offset this development. Reflecting the impact oL the liberalized import poicy adopted by the Government, non-foodgrain imports increased sharply, so that their level in 1978/79 was over 80% higher than in 1975/76. In large part- the liberalization in import policy and increase in imports were li.-.ed to raw materials, basic commodities and intermediate goods; most consumer gcods. remained banned and capital goods imports were permitted only on a s2lect--e basis. Strong new pressures on the balance of payrnents have devel^ped' 1980/81. The terms of trade again deteriorated markedly as a consequence of unexpectedly large increases in petroleum prices, which caused the oil imo- bill to increase by over 75% in 1980/81 after doubling the year oefore. India's foreign resource deficit as a proportion of GDP reached t'he uno2= cedentedly high level of 3.0% in 1980/81. India was able to finance this gCp through a substantial draft drawing on IMF resources (the Trust Fund an- pensatory Financing Facility), and through an increase in aid and a _ in reserves, both of modest proportions. Petroleum imports as a proport-o of merchandise exports now exceed 75%. Development Prospects 10. The experience of recent years illustrates that India does have the capacity to grow and develop at a more rapid pace. Although the indus-ri-l sector is small compared to the size of the economy, it nevertheless is 3arge in absolute terms and has a highly diversified structure, capable of man turing a wide variety of consumer and capital goods. Basic infrastructure irrigation, railways, telecommunications, the power grid, roads and ports is extensive compared to many countries, although there is considerable scope for expansion as well as improvement in the utilization of existing capacityW India is also well-endowed with human resources and with institutional infrastructure for development. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and fer- rous ores, but also gas and oil). With good economic policies and sufficien access to foreign savings, India has the capability for managing .'aese on siderable resources to accelerate its long-term growth. 11. The new Indian Government elected in January 1980 formulated a new Sixth Five-Year Plan for the period 1980-85. The Plan was approved in yobrrs ary 1981. The new Plan continues to assign priority to agriculture and power. Furthermore, the Plan reflects recent developments in India and in the world economy which have brought to the surface the need for ursenC action in several areas. These include: (i) expansion of exports and a.' investment program directed toward containing the growth of imports inl t^e face of a deteriorating balance of payments situation; (ii) an ii--vsst-e-n-t program and policy framework for more efficient use and development of energv sources; (iii) removal of bottlenecks in infrastructure and related con- straints on production of basic industrial inputs, and (iv) continuing emphasis on the development of agriculture. 12. The higher capital formation rates of the past few years augur w-e- for future income growth. However, there are signs that, relati'v e ing demands, the past programs and policies have led to dispropor-ional-lv growth in certain crucial sectors, namely power, coal, transport servi ces steel and cement. Potential output growth in sectors which have benefitEe from large investments in the recent past may not materialize unless these  -5- input bottlenecks are alleviated. In the case of coal, steel and cement, domestic production appears to be clearly justified on grounds of comparative advantage, indicating an. a priori case for policies to promote further investment. All these are tradeable commodities. Although in 1980/81 they were not imported in sufficient amounts to eliminate the shortages, increased short-term reliance on imports may be necessary to alleviate slowdowns and dislocation in using industries. In the case of sectors in which there is no option to import the final product --power and transportation-- the planning of capacity expansion becomes even more crucial. Although there is scope for improvement in the shortrun performance of these sectors, major investments in balancing and modernization programs as well as in new capacity are essen- tial for adequate and growth in the medium term. The presence of infrastruc- tural constraints and shortages of basic industrial inputs demonstrates that the expansion of industrial output leads to competing claims on scarce resources with significant implications for public versus private and short versus long-term investments. 13. Despite the relatively large investment programs for the development of domestic energy resources such as coal and hydroelectricity, and the recent development of offshore petroleum resources, India has not been able to narrow the gap between its total energy demand and domestic production. During the past year, India continued to face power and coal shortages. Growing demand for petroleum products, disrupted production from the Assam oilfields, and recent oil price increases, have boosted India's oil import bill to US$7 billion, equivalent to about 78% of total exports of goods. India is entering the Sixth Plan period with an ambitious energy production program backed by substantial financial commitment. In the oil sector, GOI is now accelerating its oil exploration capabilities and is opening up pros- pective areas for exploration by foreign firms. India is now committed to an expanded power program that emphasizes exploitation of its large hydro poten- tial and development of the transmission and distribution system. In the coal sector, a policy decision in favor of mechanization has been made in order to achieve more rapid growth of coal production. 14. Despite the 1979 drought, agricultural policies, development programs and secular trends all seem favorable for sustaining the past growth rate during the 1980s. India ended 1980 with grain stocks of about 12 million tois, without having imported foodgrains during the year. This is partly due to the bumper crop of 1978/79 and good management of the foodgrain stocks foLlowing the 1979 drought, but also reflects the trends of the last decade which point to an improvement in foodgrain availability in the economy. In view of the acceleration in the use of agricultural inputs and the projected fall in the population growth rate, the long-run prospects for foodgrain sup- ply and demand balances look favorable. If the efforts to develop agricul- ture over the past decade are sustained and intensified, as suggested in the new Plan, persistent shortage seems unlikely, and it is probable that a wide range of policy options will become much more practical. These options include a slowly falling real price of foodgrains to increase the affordabil- ity of foodgrains to low-income families, further rationalization of domestic markets and prices, foodgrain exports and diversification to the production of other, higher value crops. 15. Foreign exchange reserves still provide some cushion that can help the Government of India in short-term supply management, but this situation  -6- is likely to be short-lived. Rising import prices and uncertainties in the prospects for exports and invisible receipts have led to a serious and rapid deterioration in India's balance of payments prospects. Reserves were only marginally higher in March 1980 than the level of a year earlier and, in terms of import coverage, fell below the 8-month level for the first time since 1977. A very sharp decline in the reserve level would have occurred in 1980/81 had IMF Trust Fund and Compensatory Financing Facilities amounting to over US$1 billion not been available to India. At best, India's reserves may provide a cushion for two more years, and even that depends on improved export performance, on the maintenance of aid flows and workers' remittances and on moderation in oil price rises. 16. India's medium-term development prospects are mixed. Considerable progress continues to be made, particularly in agriculture, but the economy faces a period of difficult adjustments in the coming years. Investments required to relieve short-term supply constraints must compete with longer- term programs to accelerate growth and to develop India's considerable physi- cal and human resources. The balancing of these objectives will place a dif- ficult burden on those implementing India's Sixth Five-Year Plan. The pri- mary focus must be on the implementation of appropriate domestic adjustment policies, although the aid community can and should play an important role in ensuring that India's efforts do not fail due to inadequate foreign resources. 17. The annual population growth rate declined from 2.3% in the late 1960s to about 2% at present and is expected to continue falling to around 1.8% by the first half of the 1990s. Despite the declining trend in the rate of population increase, a net reproduction rate of one (replacement level) will be achieved only around the year 2020. At that time, the population of India is estimated to reach 1.2 billion persons, an increase of about 79% over the mid-1980 level of 672 million. Family planning has played an impor- tant role in achieving the fertility decline in the past decade, and the extent of a further decline will be greatly influenced by the continuation of a successful official family planning program. The family planning perfor- mance data for 1978/79 and 1979/80 clearly indicate a comeback from the sharp decline observed in virtually all major contraceptive methods during 1977/78. Except for male sterilizations, the number of acceptors for all contraceptive methods surpassed the 1974/75 levels in 1978/79. While the increase in the total acceptors of IUD and conventional contraceptives was modest, female sterilizations increased by about 40% between 1977/78 and 1978/79. Recent data confirm a secular upward trend in overall performance. For the past several years the family planning program has emphasized measures that would yield relatively modest but sustainable results with increased emphasis on reversible methods. 18. Beyond the effects of overall economic growth and constrained popula- tion growth, the reduction of poverty in India requires special attention to ways of raising the income and productivity of low-income groups. More than one-third of the world's poor live in India, and more than 80% of the Indian poor belong to the rural households of landless laborers and small farmers. In addition to having inadequate physical assets, the poor are ill-endowed with human resources, being disproportionately represented among the illi- terate, the hungry and the sick. Improvements in the living standards of the poor will depend to a large extent on the overall growth of the economy,  -7- mainly on increases in agricultural production and employment, in non-farm rural employment, and also in employment opportunities in urban areas. These developments will have to stem largely from market forces which, however, can be reinforced by appropriate government policies and investment priorities. The declining trend in real foodgrain prices between 1970 and 1979 reflects such developments. There is also a role for direct government action in fas- ter implementation of land reform (though the scope for significant reduction in poverty through redistribution is quite limited in India), in increasing the supply of credit available to small farmers and rural artisans and finally in broadening the provision of those services which enhance the human capital of the poor and improve living standards. Many of the latter are elements of the Minimum Needs Program which has been an integral part of Indian planning for the past decade. Progress has been slow but steady in the expansion of primary education, the extension of rural health facilities and the provision of secure village water supplies. Innovations such as the community health volunteer program and the national adult literacy campaign, provide encouraging evidence that well-targetted, relatively low-cost pro- grams can lead to enhanced prospects for India's poor. PART II - BANK GROUP OPERATIONS IN INDIA 19. Since 1949, the Bank Group has made 61 loans and 134 development credits to India totalling US$2,833 million and US$8,672 million (both net of cancellation), respectively. Of these amounts, US$1,133 million had been repaid, and US$4,107 million was still undisbursed as of January 31, 1981. Bank Group disbursements to India in the current fiscal year through January 31, 1981, totalled US$373 million, representing an increase of about 20% over the same period last year. Annex II contains a summary statement of dis- bursements as of January 31, 1981, and notes on the execution of ongoing pro- jects. 20. Since 1959, IFC has made 19 commitments in India totalling US$110.6 million, of which US$20.8 million has been repaid, US$27.6 million sold and US$7.5 million cancelled. Of the balance of US$54.7 million, US$46.2 million represents loans and US$8.5 million equity. A summary statement of IFC operations as of January 31, 1981, is also included in Annex II (page 5). 21. In recent years, Bank Group lending has emphasized agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit operations and in pro- viding direct support to major and medium irrigation. Marketing, seed development, agricultural extension, and dairying are other agricultural activities supported by the Bank Group. AlSo, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale industrial enterprises. IDA financing of industrial raw materials and components for selected prior- ity sectors has been instrumental in facililtating better capacity utilization in industry. The Bank Group has also been active in supporting infrastruc- ture development for power, telecommunications, and railways. Family plan- ning, water supply development, urban investments and the development of oil and natural gas have also received Bank Group support in recent years.  -8- 22. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Goverment's priorities. The emphasis of the program on agriculture, power, water supply and other infrastructure sectors remains highly relevant. Projects designed to foster agricultural production through the provision of essential inputs, particularly water and credit for on-farm investments, will continue tc receive emphasis. Improved water management and intensification and streamlining of extension systems form an important institution-building aspect of the Bank Group's progra-m for the next several years. Special emphasis will be given to projects benefi.- ting small farmers. The Bank Group's continuing role in the fertililzer sec- tor also assists India in the more efficient provision of another key inpur in the agricultural growth process. Projects supporting water supply. sewer- age, urban development and investments in the petroleum sector also form an integral part of the Bank's lending strategy to India for the next several years. Lending in support of infrastructure and industrial investments will' focus on those subsectors which have recently emerged as key constraInts on India's overall growth, primarily power arLd transportation. 23. The need for a substantial net transfer of external resources in support of the development of India's economy has been a recurrent theme of Bank economic reports and of the discussions within the India Consortium. Thanks in part to the response of the aid community, India successrully adjusted to the changed world price situation of the mid-1970s. However, there is now a need for increased foreign assistance to adjust to an even greater deterioration in balance of payments anticipated during the 1980s by augmenting domestic resources and stimulating investment. As in the past, Bank Group assistance for projects in India should aim to include the financ- ing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be smal1' in most projects. This is particularly the case in such high-priorilty sectors as agriculture, irrigation, and water supply. 24. India's poverty and needs are such that whenever possible, external capital requirements should be provided on concessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reason- ably be allocated to India remains small in relation to India's needs for external support. Therefore, India should be eligible and regarded as creditworthy for some supplemental Bank lending. The ratio of India's debt service to the level of exports was 12% in 1978/79 and is projected to re.a below 20% through 1995/96. As of January 31, 1931, outstanding loans to India held by the Bank totalled US$1,766 million, of which US$561 million remain to be disbursed, leaving a net amount outstanding of US$1,206 m7illion 25. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements3 and 12% of net disbursements as compared with 46%, 37% and 48%, respeatively - 1979/80. On March 31, 1980, India's outstanding and disbursed external pub- lic debt was US$15.6 billion, of which the Bank Group's share was US$5.2 bil- lion or 34% (IDA's US$4.5 billion and IBRD's US$0.7 billion). Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1979/80, about 18.0% of India's total debt service payments were to the Bank Group.  -9- PART III - AGRICULTURE AND AGRICULTURAL EXTENSION IN TAMIL NADU 26. The State of Tamil Nadu is located in southeastern India, facing the Bay of Bengal. Covering an area of nearly 130,000 km2, Tamil Nadu had a population estimated at 46.8 million in 1979, approximately 7.4% of the estimated total population of India, making it the third most densely popu- lated State in the country. Estimated per capita income in Tamil Nadu in 1977/78 was Rs 1,036, relative to an all-India average of Rs 1,189. About 43% of the State's income is attributable to agriculture, which employs about 60% of the labor force. 27. Tamil Nadu has two main geographical regions -- the coastal plain, which is about 50-100 km wide and consists of mainly sedimentary soils, and the central plateau, which lies between the Eastern and Western Ghats (hills) and consists largely of red soils on crystalline rock formations. The State has three main seasons -- the southwest monsoon (June to September), the northeast monsoon (October to December), and the dry season (January to May). 28. The net sown area in Tamil Nadu is about 6.3 million hectares (48% of the total area), of which 46% (2.9 million hectares) is irrigated. Although paddy is the State's most important crop (covering 36% of cropped area), rice production is barely adequate to meet local consumption demand and in drought years rice must be imported from other States. The remainder of the cropped area is largely accounted for by cereals, oilseeds, pulses, cotton, and sugarcane. Farm holdings are typically small and often fragmented. Eighty percent of holdings are reported to be under two hectares in size, 16% between two and six hectares and only 4% above six hectares. 1/ In addition, there is a high proportion of tenant farmers and landless laborers in the State, which contributes to the fact that an average of 58% of the rural population was estimated to be below the poverty level over the period 1957/58-1973/74, compared to an all-India average of 50%. Agricultural Extension in Tamil Nadu 29. Until the early 1970s, agricultural extension in Tamil Nadu was car- ried out by multi-purpose Village Level Workers (VLWs) under the control of the Directorate of Rural Development. Although they had multiple duties and were not directly supervised by the Directorate of Agriculture (DOA), VLWs were intended to spend the bulk of their time on agricultural extension. In fact, however, the VLW network was not able to provide adequate service to farmers. VLWs typically spent less than 20% of their time on agricultural 1/ While an official ceiling on individual land owmership may have led to an underestimate of average farm size (as the title to single operational units may have been split among members of a family), the small size of agricultural holdings in Tamil Nadu is an important ele- ment of the State's agricultural character.  -10- extension, spreading that time thinly over an excessive number of farm fami- lies. What agricultural extension work VLWs did carry out was inadequately planned and supervised, as they were only indirectly linked to DOA. More- over, VLWs' agricultural training was generally confined to pre-service training, which was quickly forgotten and, in any case, soon out of date. 30. In recognition of the weaknesses of the VLW system, the Government of Tamil Nadu introduced a series of special crop schemes under the Directorate of Agriculture. These schemes focussed on paddy, cotton, coconut, tobacco, sugarcane and pulses, and emphasized the introduction of high-yielding varieties, the development and dissemination of "packages" of agricultural practices, increased use of fertilizer and other inputs, and mechanized land preparation. In addition, the Directorate of Horticulture (DOH) began pro- viding extension services to farmers in the Nilgiris District, where horti- cultural crops are of primary importance. More recently, as a supplement to these schemes, DOA has introduced a series of area development programs focussing on specific agro-climatic zones (e.g., the Drought Prone Areas Pro- gram and the Integrated Dryland Area Development Program), and GOTN has created a separate Directorate of Oil Seeds (which is not yet fully in place) to provide advice on the cultivation and marketing of oil seeds. 31. While these special schemes have made an impact in their limited areas of operation, the current network of extension services suffers from a number of deficiencies. First, special scheme extension units cover only limited areas, with the result that only about 10% of the State's farmers are served by these units. Second, the existence of separate field staff for different crops has led to a significant degree of duplication of services and resulting high operating costs and has forced farmers, who normally grow a variety of crops, to consult several different sources for advice. Third, the number of separate units operating in a given district has grown too large to permit adequate supervision and coordination by district staff. Fourth, these schemes have not included regular training for field staff, which has compromised the quality of field work. And finally, extension staff have become office-bound due to lack of transport and growing paperwork and have tended to act more as input supply agents than agents of technologi- cal change. It is these deficiencies that the proposed project is designed to address. Bank Group Activities in Agricultural Extension I/ 32. The weaknesses evident in Tamil Nadu's extension system have been identified in many States of India. Since 1977, the Bank Group has assisted efforts to reorganize and strengthen agricultural extension in ten Indian 1/ This section is substantially the same as the corresponding section of the President's Report for the Maharashtra Agricultural Extension Project (Report No. P-3002-IN), dated March 30, 1981.  -1 1- States. 1/ Bank Group-supported projects have introduced the Training and Visit (T&V) System of agricultural extension, a system based on frequent (bi-weekly) in-service training of field extension workers and regular, scheduled visits by field workers to farmers. 33. Introduction of the T&V System has not been easy. The shift from a system based on multi-purpose functionaries to a system of professional extension carried out by single-purpose extension workers involves a major administrative and conceptual reform which inevitably encounters bureau- cratic, political and logistical hurdles. Informed and motivated leadership being of paramount importance during the introduction of the system, senior staff turnover is particularly troublesome. Moreover, even in the best of circumstances, several years are required for the system, once initiated, to fully mature and become institutionalized. Despite these unavoidable chal- lenges, the system has been very successfully initiated in Orissa, Rajasthan, Karnataka, Haryana, Madhya Pradesh and Assam. Field visits have shown that farmers have responded favorably to extension efforts, adopting recommended practices such as line transplanting of paddy, seed treatment, inter-cropping with pulses, and basal dressing of fertilizer. In project districts in Madhya Pradesh, for example, there has been a 300% increase in the use of clean and graded seed, a 35% increase in the planting of seed of improved varieties, and a 28% increase in the use of seed dressings. Fertilizer use has increased by 66% over 1976/77 levels (as opposed to a 48% increase in non-project areas) and the use of soil testing facilities has increased by 69%. Continued care will be required in all States to see that vacated posts are quickly filled, extension workers are adequately supervised, and exten- sion messages continue to be appropriate. Buit the basis has been laid for a strong, professional extension system and results are visible in the fields. 34. In Gujarat, while the system is in place and operating fairly well, the quality of field work is somewhat uneven. The State Government has been alerted to IDA's concerns by recent supervision missions, and efforts are underway to ensure that extension workers understand the messages they are to deliver, that they keep to their schedule of visits, and that farmers are made aware of the visit schedule in their area. 1/ On-going Bank Group-supported extension projects include: the Orissa Agricultural Development Project (Cr. 682-IN; April 1, 1977); the Madhya Pradesh Agricultural Extension and Research Pro- ject (Cr. 712-IN; June 1, 1977); the West Bengal Agricultural Ex- tension and Research Project (Cr. 690-IN; June 1, 1977); the Assam Agricultural Development Project (Cr. 728-IN; June 30, 1977); the Rajasthan Agricultural Extension and Research Project (Cr. 737-IN; November 14, 1977); the Bihar Agricultural Extension and Research Project (Cr. 761-IN; January 6, 1978); the Composite Agricultural Extension Project (Cr. 862-IN; February 16, 1979); and the Kerala Agricultural Extension Project (Cr. 1028-IN; June 25, 1980). Three additional extension projects have been appraised and negotiated -- the Maharashtra Agri.cultural Extension Project, the Madhya Pradesh Agricultural Extension -- Phase II, and the project for Tamil Nadu described in this report.  -12- 35. In Bihar and West Bengal, the effort to introduce the T&V System has encountered more serious delays. A change in the State Government in West Bengal, following the initially very promising introduction of the T&V Sys- tem, led to a re-evaluation of the system and its merits by the incoming administration. While this resulted in a lengthy period of backsliding in terms of project implementation, the Government of West Bengal has now reaf- firmed its commitment to the T&V System and begun taking the critical steps required to expedite project implementation (e.g., recruitment and training of field staff, identification of farmer groups and selection of contact farmers). A court-imposed injunction in response to a suit brought by field staff transferred from the Community Development Department to the Department of Agriculture for extension work has prevented the project from regaining full momentum. However, that injunction has now been partially lifted, with the result that field work (with new recruits) has resumed. Moreover, this is a problem that has been met and overcome in several States, 1/ and it is expected that the tempo of project implementation will soon pick up. In the case of Bihar, project implementation has been seriously hampered by vacan- cies in the posts of Director of Agriculture and Additional Director of Agri- culture (Extension). IDA and GOI have been very concerned about the lack of progress in Bihar and are discussing with the State Government the con- straints facing the project and the administrative and budgetary steps which must be taken if Bihar is to implement the project as expeditiously as possible. 36. Finally, in Kerala, the most recently approved of our extension pro- jects, project initiation has been slowed by staff changeovers at all levels (ministerial and administrative). However, field work has now begun in three districts, with the remaining eight districts to come on stream in May 1981. PART IV - THE PROJECT 37. The project was prepared by the Government of Tamil Nadu with the assistance of Bank Group staff. It was appraised in October 1980. A report entitled "Staff Appraisal Report, Tamil Nadu Agricultural Extension Project" (No. 3297-IN) is being distributed separately to the Executive Directors. Negotiations were held in Washington, D.C. in March 1981. The Governments of India and Tamil Nadu were represented by a delegation coordinated by Mr. G. Ranga Rao, Director, Department of Economic Affairs, GOI. A Supple- mentary Project Data Sheet is attached as Annex III. 1/ VLW associations in several States have initially filed suit to ensure that their compensation, benefits, and promotional prospects will not be endangered as a result of their transfer to the Department of Agriculture for extension work. In each case, the suit has been sa- tisfactorily settled and VLWs' conditions of employment safeguarded (see para 45(a)).  -13- Project Description 38. The project is designed to achieve early and sustained increases in agricultural production throughout Tamil Nadu's 15 agricultural districts 1/ through the introduction of the Training and Visit System of agricultural extension. Existing extension activities would be reorganized and strengthened to achieve: (a) consolidation of staff from existing rural development, special crop and area development schemes into a single, unified extension service; (b) establishment of a single line of command between full-time field-level extension workers and the extension headquarters; (c) initiation of regular, in-service training as an integral part of extension activities; (d) introduction of a systematic, fixed schedule for regular and frequent visits by extension workers to farmers' fields; (e) improved linkages between extension operations and agricultural research activities; and (f) regular monitoring and evaluation of extension activities. The project would provide additional staff, vehicles, housing, operating funds, and training to achieve these reforms. 39. The proposed project would be based on the deployment, at field level, of Village Extension Workers (VEWs) responsible only for agricultural extension. Each VEW would be assigned to work with an identified group of farm families, varying in number depending on local conditions, population density, accessibility and cropping pattern. One VEW would cover, on aver- age, 800 farm families, 2/ with the actual number varying from 600 in sparsely populated areas to 1,500 in a few densely-settled coastal areas, where coconut is virtually the only crop grown and transport and communica- tions are good. A contingency provision has been made for additional VEWs, if that proves necessary. The Government of Tamil Nadu would, by March 31, 1983, in consultation with IDA, carry out a review of VEW staffing strength and make any adjustments in the VEW:farm family ratio required for effective operation (Section 2.12, Project Agreement). 40. To reach his farmers systematically, the VEW would divide the fami- lies in his jurisdiction into eight smaller groups, generally of about 100- 1/ Tamil Nadu has 16,administrative districts, one of which is coterminous with the Madras Metropolitan Area. 2/ Thus, a total of approximately 4,800 VEWs would serve the State's 3.8 million farm families.  -14- 150 each. 1/ He would visit each group regularly on a fixed day of the week in a two-week cycle. During his visit the VEW would go to contact farmers selected from each group, involving as many other farmers as possible in the discussions and demonstrations. During each visit the VEW would concentrate his efforts on a few strategically selected recommendations relevant for that particular phase of the crop cycle. The extension messages to be communi- cated to farmers at the initial stage would be simple, concentrating on the few important crops in the locality and the most important aspects of crop production at that time. Initially, the emphasis would be on low-cost improvements which the majority of farmers can afford. 41. The VEW would be assisted, guided and supervised in his work by an Agricultural Officer/Deputy Agricultural Officer (DYAO). 2/ One DYAO would be responsible for six to eight VEWs and would spend at least four days a week visiting them in the field. Once in every two-week period, VEWs would receive a full day of intensive training in the recommendations for that period (relevant for the coming two weeks). The DYAO would also participate in this training session. Thus, every two weeks the VEW would spend eight days in visiting each of his eight groups and one day in training. One day the DYAO may meet all his VEWs in the field or at the headquarters to review progress, reinforce practical skills, and identify topics to be raised at the next training session. The remaining two working days would be devoted to farm trials, making up missed visits, and occasional office work. 42. The DYAO would, in turn, be guided and supervised by a Divisional Agricultural Officer (DVAO), 3/ who would have full-time responsibility for supervising the 6-10 DYAOs in his subdivision. The DVAO would have on his staff three Subjec-t-Matter Specialists (SMSs) -- one each specializing in Agronomy, Plant Protection and Training/Communications -- who would spend one-third of their time on fortnightly training sessions for VEWs, one-third of their time providing technical support to VEWs and DYAOs through field visits, and the remainder of their time in training, execution of field tri- als, and collaboration with researchers at the State's agricultural univer% sity and research stations. 43. At the district level, the extension service would be overseen by a Joint Director (JD). The JD would be assisted by three SMSs, who would pro- vide support to subdivisional SMS teams and in some cases cover specializa- tions not represented at the subdivisional level. In order to free the JD to devote his full attention to extension, a separate Deputy Director of Agri- culture would be appointed in each district to handle input supply, report- ing, regulatory functions and the like. 1/ In some areas, groups would be as small as 75 or as large as 190. 2/ Most of the officers in this first-line supervisory position would be Deputy Agricultural Officers, the structure thus leaving room for promotion in place. 3/ Each district would be divided into subdivisions, the number of subdivisions ranging from six to eleven.  -15- 44. Finally, district-level staff would be responsible to the Additional Director of Agriculture for Extension (ADA (Extension)) in the Directorate of Agriculture (DOA) or, in the case of the Nilgiris District (see para 46 below), to the Director of Horticulture. Each of these officers would be directly responsible for extension activities within his area of jurisdiction and would visit the field frequently to supervise extension operations. The ADA (Extension) would have a technical support staff of seven SMSs, 1/ who would be responsible for improving the technical quality of the extension service in the area of their specialization, developing and interpreting farm trials, promoting linkages with research carried out in the State and else- where in the country, organizing training programs, and serving as a clearing house for technical information. The Director of Horticulture would also have a technical staff consisting of two SMSs. 45. The specific expenditures to be financed under the project are sum- marized below. (a) Incremental Staff. Staff required to implement the reorganized extension system would be made available partially through new recruitment and partially through reassignment of existing staff, i.e., VLWs currently with the Directorate of Rural Development (DRD) and staff already with DOA and DOH working on special crop and area schemes. VLW positions required for the first year of project implementation have already been transferred from DRD to DOA and DOH. Transfer of the remaining VLW positions required for the project, together with the sanctioning of all required new positions, would be accomplished by June 1, 1981 (Section 2.09, Project Agreement). Project costs have been calculated to include the cost of salaries and allowances for the incremental positions required to establish the T&V System. GOTN would ensure that incremental and reassigned staff positions to be used for exten- sion would be filled in accordance with a time schedule satisfactory to IDA, that all such positions would be used exclusively for agricultural extension and retained under the control of DOA and DO]H throughout the project period, and that staff reassigned to work on extension under the project would not be adversely affected in terms of salaries or benefits as a result of their reassignment (Section 2.10, Project Agreement). (b) Staff Training. The project would support a wide variety of in-service training programs for extension staff. These would include induc- tion training for all VEWs (orientation to the system); special short courses and pre-season training for VEWs, DYAOs and SMSs; monthly training sessions for DYAOs; fortnightly training of VEWs by subdivisional SMSs; monthly workshops for SMSs; and special workshops and advanced training for research personnel. These programs would be carried out at a number of sites, among them DOA's State Agricultural Institute at Kudumiamalai, whose facilities would be expanded under the project. (c) Housing. As the new extension methodology is based on regular and frequent farm visits by field staff, it is essential that field staff and their supervisors live in or near their areas of work. GOTN would ensure 1/ One each for paddy, coconut, pulses, sugarcane, plant protec- tion, water management, and adaptive research and training.  -16- that all VEWs and DYAOs live in or near the areas assigned to rhe-- - tion 2.11, Project Agreement). While GOTN will continue to encouae e the u'- of rental housing where possible, it will be necessary to constr,"Ct Jow- c- housing in areas where rental accommodation is not available. pated that new housing would be required for about 30% of the VE'N's ^nd S GOTN would provide IDA with regular information on progress in lccatjirns- for houses financed under the project (Section 2.06(b), Project kgrneraenr (d) Vehicles. To enable field extension staff to main---ai'x schedules of visits and supervisory staff to reach the field eas -v anc ^r quently, adequate transport is essential. The project would pro-- r;.'. tional motor vehicles at headquarters, district, and subdivisional e--v!-I well as loans for field staff for the purchase of motorcycles (SMSs - and bicycles (VEWs). Loan terms and travel allowances would be se encourage the purchase and optimal use of vehicles by field staff--SaL_'ior 2.13, Project Agreement). (e) Equipment and Incremental Operating Costs. The project provide GOTN with funds for travel allowances and incremental vek c ing costs, for the printing of materials for VEWs (e.g., field rote oo; charts, etc.), and for purchase of small samples of seeds and other s for farmer training and field trials, simple audio-visual aids to s-ipp-rt field operations and training, and required office equipment and D-1-ni'Aire< (f) Monitoring and Evaluation. The project would provide staf vehicles, and operating funds for the establishment and operat-lion o': O toring and evaluation system specifically designed to provide projec - ment with current information on the effectiveness of the exte-Insion u ycta_i The methodology used would be similar to that utilized in on-goinL e-Iters-oc projects and would supplement direct personal supervision by eac- Ii project management. GOTN would ensure that monitoring and evaluanton T7C-_ be undertaken in a manner acceptable to IDA and that annual summa--ies or- results of monitoring and evaluation surveys would be forwarded Lo tche ciation (Section 2.08, Project Agreement). Project Implementation and Coordination with Related Agencies 46. In 14 of the project districts, the extension system wou}ddJ bel- mented by DOA in accordance with the organizational structure outli=e -n paras 39-44 above. In the Nilgiris District, where horticultural cro-c predominate and where the Directorate of Horticulture has tradit c responsible for extension, DOH would implement the system. aga_r i-' formity with the staffing and supervision norms described above,, ADA (Extension) and the Director of Horticulture would be fully reS,,on on both administrative and technical levels, for the day-to-day coeratE c: the extension service. Project-supported training would we carried ct by DOA/DOH staff assisted by the Tamil Nadu Agricultural Universitv while monitoring and evaluation would be the responsibility o-f a Ur.i'.- set under a Joint Director of Agriculture at DOA headquarters. 47. Overall coordination at the State level between extensison ar research staff and allied agencies would be ensured through the s-a_lsh-- of a Project Coordination Committee. This committee would be chaied by e Agricultural Production Commissioner and would include the Vice Chance- io-L- olf  -17- the Tamil Nadu Agricultural University and representatives of relevant government departments and agencies (i.e., the Departments of Agriculture, Horticulture, Finance, Irrigation, and CooperaLion and various input supply agencies). It would hold its first meeting by September 30, 1981 and would meet at least twice yearly thereafter to review project implementation and promote proper coordination of the activities of the agencies involved in or related to the project (Section 2.03, Project Agreement). 48. Coordination between extension and research staff at the State level and below would be promoted further through district, zone, 1/ and State technical committees. A District Technical Committee would be established in each district and would meet at least twice a year to review past extension recommendations, formulate prospective recommendations, and identify related research priorities. These committees would hold their first meeting by Sep- tember 30, 1981 for districts to be covered during the first year of project implementation and by September 30, 1982 for districts to be covered during the second year of project implementation (Section 2.04, Project Agreement). The recommendations of the District Technical Committees would be assembled, reviewed and evaluated by zonal workshops, which would be chaired by the senior research scientist of TNAU and include representatives of both exten- sion and research staff. Pre-season zonal workshops would be held twice a year, and would make recommendations (based on a review of district-level recommendations) to the State-level Scientific Workers Conference (composed of senior officers of TNAU, DOH and DOA), which would approve or modify the programs proposed by the district and zonal committees. In addition, monthly workshops would be held at the zonal level to make any adaptations to the agreed seasonal program which may be required to suit prevailing field condi- tions and to review field trials, training experience, and actual lesson plans. 2/ In order to ensure a common understanding of their respective roles in the extension/research network, DOA and TNAU have signed a memoran- dum of understanding clearly delineating, inter alia, TNAU's project-related research and training responsibilities. In addition, the Project Coordina- tion Committee would, from time to time, review and, where appropriate, strengthen arrangements for cooperation between DOA, DOH and TNAU. Project Costs and Financing 49. The estimated cost of the proposed project is about US$45.6 million, including about US$5.9 million in taxes and duties and US$4.0 million in foreign exchange costs. Physical contingencies of 5% have been applied to civil works, equipment, training, and operating costs, and to meet the possi- ble need for readjustment of the VEW:farm family ratio (see para 39). Price contingencies of 10% for 1980, 7% for 1981-83, and 5% for 1984-86 have been 1/ The State is divided into 2 agro-climatic zones. 2/ This organizational structure would be subject to review over the course of the project, as the recommendations of the recently completed study of agricultural research services in Tamil Nadu are implemented. Any changes in the committee structure would be subject to approval by IDA.  -18- applied and total 18% of total project cost (US$8.4 million). The components of project cost, net of contingencies, are: incremental staff (US$14.5 mil- lion); civil works (US$9.6 million); incremental operating costs (US$4.7 mil- lion); vehicles and equipment (US$3.9 million); and staff training (US$3.0 million). 50. The proposed IDA credit of US$28 million would finance about 70% of project cost net of taxes and duties and would cover all foreign exchange costs. The balance of the funds required for the project would be made available from State Government sources and GOI. Procurement and Disbursement 51. Civil works contracts (US$9.6 million) 1/ would be small and dispersed, both geographically and over time, and would therefore not be suitable for international competitive bidding. Contracts would be awarded on the basis of competitive bidding following local advertisement. About 153 motor vehicles (US$1.3 million) of various types would be required under the project. They would be purchased in small quantities over two years and would be widely dispersed in rural areas. In the interest of ensuring ade- quate maintenance and spare parts supply, they would be procured under exist- ing government procedures, which involve local competitive bidding and are satisfactory to IDA. Motorcycles and bicycles (US$0.8 million) would be pur- chased by individual staff according to their preference from loan funds pro- vided by GOTN. Orders for purchase of minor equipment and furniture (US$1.8 million) would be bulked wherever possible and purchased according to esta- blished local bidding procedures, except where valued at less than US$50,000, when they would be purchased by prudent shopping through normal trade chan- nels. The balance of project costs (US$22.2 million) would consist of train- ing (US$3.0 million), incremental salaries and allowances (US$14.5 million), and incremental operating expenditures for offices and vehicles (US$4.7 mil- lion), which would not involve procurement. 52. The proceeds of the credit would be disbursed over six years against 100% of the cost of training; 80% of the cost of civil works, vehicles, and equipment; and 25% of eligible staff costs. 2/ Disbursements against staff costs, training, payments of less than Rs 300,000 each under civil works con- tracts, and payments of less than Rs 150,000 each for locally procured vehi- cles and equipment would be made against certificates of expenditure. These certificates of expenditure would be audited annually by the Government audi- tors and the audit report submitted to IDA as soon as available. Supporting documentation for these expenditures would be retained by the State Govern- ment for inspection in the course of project review missions. Disbursements against expenditures for all other items would be fully documented. 1/ All figures in this paragraph are net of contingencies. 2/ Staff costs eligible for reimbursement are basically professional extension positions (i.e., VEW and above) at village, block, subdivi- sion, district and State levels.  -19- Benefits and Risks 53. The principal benefit of the proposed project would be to increase crop production and thus farm incomes as a result of providing improved extension services to farm families. Approximately 3.8 million farm families living in the project area, 80% of whom are reported to farm less than two hectares, would be served by the reformed extension system. Total project costs over the five-year development period, excluding price contingencies, amount to US$37.2 million, approximately US$9.8 per farm family served and US$5.9 per hectare of cropped land. Recurring incremental costs after the project development period, which would be met from GOI/State budget sources, would be approximately US$4.5 million per annum, or approximately US$1.2 per farm family per annum. These recurring costs would be partially recovered through market levies on agricultural goods entering commercial markets and through sales taxes levied on agricultural inputs, the consumption of which is expected to rise as a result of improved farm practices. 54. Attributing a precise level of economic benefits to this type of pro- ject is difficult, since it is impossible to determine precisely what propor- tion of the benefits expected from improved agricultural practices is due to extension alone and what is due to past research efforts, additional pur- chased inputs, or more work by the farmer. In practice, it is often the com- bination of all these, with extension acting as the catalyst, that brings the desired benefits. However, since the incremental cost of the project is low per hectare and per farm family, even small and slow production increases generate a high rate of return. The proposed project, for example, would generate a 50% rate of return if, by 1988, yields of foodgrains (which cover 75% of the State's cultivated area) increase by only 1.3% over current yield levels. In areas where the new extension system has already been applied, yield increases have far exceeded these levels. Moreover, the practices ini- tially stressed by the extension service usually focus on improved agricul- tural practices (timely operations, good land preparation, proper seed rates, weeding, line sowing) which involve additional labor but require little incremental cash outlay. They are thus particularly well suited to the needs of the small cultivator. 55. The establishment of a single, unified, professional agricultural extension service, through the transfer and training of staff from a number of formerly separate programs, marks a major departure from past practice in India. The fact that such a significant ref-orm is underway in large parts of the country reflects a strong commitment to developing an extension system capable of serving all farmers well. Nevertheless, it is difficult for governments to make and carry out such decisions. The main risk, therefore, is that the State Government will find it difficult to integrate staff from various sources under an effective single line of command from extension headquarters to full-time VEWs who work exclusively on agriculture. In an effort to reduce this risk, substantial efforts were made during project preparation and appraisal to ensure full understanding on the part of the State Government of the importance of an integrated and unified service. In addition, during negotiations assurances were obtained from GOTN that the extension posts transferred to and created in DOA and DOH under the project would be retained by these Directorates throughout the project execution  -20- period and utilized solely for agricultural extension (para 45(a)). While this obligation extends only as far as the project execution period, it is clearly the Government's intention that the extension reform will be a last- ing one. Moreover, the merits of the system should be sufficiently apparent both to farmers and DOA/DOH staff to ensure its continuation. Staff changes in the upper ranks of government are frequent, and thus there is the addi- tional risk of a lack of sustained, informed and motivated leadership, so crucial during the initial stages of the extension reform. Once again, the importance of continuity at the management level has been impressed upon State officials. Moreover, GOTN has designated a suitably qualified Addi- tional Director of Agriculture (Extension), specifically and solely assigned to supervise the proposed project. 56. Experience with the T&V extension system in other States has shown other potential risks to be minimal. Farmer responsiveness to recommenda- tions has been excellent wherever visits are made systematically. The abil- ity of the service to develop and disseminate recommendations leading to yield increases well above that needed to generate a 50% rate of return has also been demonstrated. Initially, at least in most situations, technology has not been a major constraint as there is a backlog of research findings as yet not widely adopted at the farm level. Just bringing the production of the average farmer up to that of the best farmer brings major yield increases. In order to further reduce the possibility of declining benefits due to stagnation in crop research or inadequate dissemination of research findings, the project supports programs of field trials (executed by VEWs in cooperation with researchers) and promotes a close relationship between the extension service and the State agricultural university. Moreover, Tamil Nadu has qualified for assistance under a separate IDA-supported project, the National Agricultural Research Project (Credit 855-IN), which is directed at strengthening research capabilities to ensure a continuous flow of research results adapted to specific regional requirements. PART V - LEGAL INSTRUMENTS AND AUTHORITY 57. The draft Development Credit Agreement between India and the Associa- tion, the draft Project Agreement between the Association and the State of Tamil Nadu, and the Recommendations of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 58. Special conditions of the Project are listed in Section III of Annex III. 59. I am satisfied that the proposed credit would comply with the Arti- cles of Agreement of the Association.  -21- PART VI - RECOMMENDATION 60. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President April 6, 1981  t I I  ANNEX I Page 1 of 5 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AV%AGES LAND AREA (IHOUSAND SQ. RCM.) 11MST RECENT ZSTIMATEB TOTAL 3287.6 AGRICULTURAL 1824.0 MOST RECENT LOW INCOME MIDDLE INCCQE 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (USS) 60.0 100. 0 190.0 212.4 1114. 7 EEGY CONSUIIPTION PRN CAPITA (VILOGRANS OF COAL EQUIVALENT) 108.oLU. 141.OA 176.0Le 166.0 847.4 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 434.9 547.6 643.9 8 URBAN POPULATION (PERCENT OF TOTAL) 17.9 19.7 21.7 20.8 39.1 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 974.0 STATIONARY POPULATION (MILLIONS) 1645.0 YEAR STATIONARY POPULATION IS REACHED 2150 POPULATION DENSITY PER SQ. 10. 132.0 167.0 196.0 193.2 376.1 PER SQ. 1l4. AGRICULTURAL LAND 247.0 308.0 353.0 409.6 2350.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.0 42.5 41.4 42.0 40.4 15-64 YRS. 56.5 54.6 55.6 55.0 56.2 65 YRS. AND ABOVE 3.5 2.9 3.0 3.0 3.4 POPULATION GROWTH RATE (PERCENT) TOTAL 1.9 2.5 2.0 2.2 2.4 DERBAN 2.5/d 3.3 3.3 3.9 4. 1 CRUDE BIRTH RATE (PER THOUSAND) 43.0 40.0 35.0 31.4 28.7 CRUDE DEATH RATE (PER THOUSAND) 21.0 17.0 14.0 14.6 7.9 GROSS REPRODUCTION RATE 3.2 2.9 2.4 2.6 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) 64.0 3782.0 4714.0 USERS (PERCENT OF MARRIED WOMEN) .. 12.0 16.9 15.6 39.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 98.0 102.0 103.0 101.4 116.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRP24ENES) 93.0 92.0 91.0 92.4 108.9 PROTEINS (GRAMS PER DAY) 52.0 51.0 50.0 49.8 60.3 OF WHICH ANIMAL AND PULSE 17.0 15.0 13.0 12.0 18.8 CHILD (AGES 1-4) MORTALITY RATE 28.0 22.0 18.0 17.9 5.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 43.0 48.0 51.0 50.8 63.0 INFANT MORTALITY RATE (PER THOUSAND) .. 134.0 .. .. 52.8 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 17. 0 33.0 30.2 42.4 URBAN .. 60.0 83.0 66.0 62.1 RURAL .. 6.0 20.0 20.0 29.7 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 18. 20. 0 17. 7 52.8 URBAN .. 85.0 87.0 71.3 71.1 RURAL .. 1. 0 2.0 .. 42.4 POPULATION PER PHYSICIAN 5800. 0j 4890.0 3617.0 6322.7 4120.1 POPULATION PER NURSING PERSON 9630.0/e 5220.0 5675.0 9459.0 2213.6 POPULATION PER HOSPITAL BED TOTAL 2149.0/f 1629.0 1289.0 1758.4 819.4 URBAN .. RURAL .. ADMISSIONS PER HOSPITAL BED .. .. .. .. 28.8 HOUSING AVERAGE SLZE OF HOUSEHOLD TOTAL 5.2 .. 5.2 URBAN 5.2 .. 4.8 RURAL 5.2 .. 5.3 AVERAGE NIMBER OP PERSONS PER ROOM TOTAL 2.6 2.8 URBAN .. RURAL .. ACCESS TO ELECTRICITY (PERCENT OF DIELLINGS) TOTAL . URBAN RURAL ..  AiN N.X I Page 2 of 5 INDIA - 'OCIAL INDICATORS DATA SIEET INDIA REFERFNCE GROUPS (WEICIlTED AVERACES - MOST RFCFNT ESTTN)Lf MOST RECENT LOW INCOME MIDDLE INCOME 1960 Lb 1970 /h ESTIMATE Lb ASIA 4 PACIFIC ASIA & PACIFIC EDUCAT ION ADJUSTED ENROLLMENT RATIOS PR tMARY: TOTAL 61.0 72. 0 80. 0 80. 9 98.6 MALE 80.0 87.0 95.0 94.3 99.2 FEMALE 40. 0 SS.0 64.0 66.7 97.7 SECONDARY: TOTAL 20. 0 29.0 28.0 26.6 55.5 MLALE 30.0 39.0 38.0 34.8 60. 7 FEMALE 10.0 17.0 18.0 18.2 49.9 VOCATIONAI ENROL. (Z OP SECONDARY) 8.0 6. 0/g .9. .9 13. 7 PUPIL-TEACPER RATIO PRIMARY 29.0 40. 0 42.0 41.1 34. 6 SECONDARY 16.0 17.0 .. 20.5 28. 5 ADULT LITERACY RATE (PERCE!T) 28.0 33.0 36.0 40. 9 85.8 CONSUMPTION PASSENGgR CARS PER THOUSAND POPULATION 0. 7 1. 0 1.3 1.8 9.0 RADIO RECEIVERS PER THOUSAND POPULATION 5.0 21.0 24.0 25.8 118.9 TV RECEIVERS PER THOUSAND POPULATION .. 0. 1 0. 5 2. 4 39.4 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULIATION PER THOUSAND POPULATION 11.0 16.0 16.0 13.4 CINEMA ANNUAL ATTENDANCE PER CAPITA 4.0 6. 3 3. 8 .. 4.9 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 119761.4 220670.5 252235.8 FEMALE (PERCENT) 31.3 32. 6 32.0 29.4 36.8 AGRICULTURE (PERCENT) 74.0 74. 0 74. 0 70.5 51. 9 INDUSTRY (PERCENT) 11.0 11.0 11.0 11.6 21.9 PARTICIPATION RATE (PERCENT) TOTAL 43.0 40.2 39.2 37.9 39. 1 MALE 57.1 52. 3 51.3 51.3 48.5 FEMALE 27.9 27. 1 26.2 23.7 29.6 ECONOMIC DEPENDENCY RATIO 1.0 1. 1 1. 1 1.2 1. 1 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF hOWSFtOLDS 26.7 26.3/h HIGHEST 20 PERCENT OF HOUSEHOLDS 51. 7 48. 9/h LOWEST 20 PERCENT OF H0USEHOLDS 4.1 6. 7/h LOWEST 40 PERCENT OP HOUSEEOLDS 13.6 17.2/1h POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. ' 88.0 107.8 RURAL .. .. 76.0 86.5 192.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. RURAL .. .. .. .. 182.5 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 40.7 46.2 RURAL .. .. 47.9 51. 7 33.2 Not available Not applicable. NOTES la The group averages 'or ench indicator are p,polotior-seighted arith-etic means. Covorace of countries among the Indicators depcods on availability cf data and is not uniforn. Ab Unless otherwsie noted, data for 1960 refer to soy year between 1959 and 1961; for 1970, betwe,e 1969 and 1971; and for Most RIc.cot Estimate, betwIen 1974 and 1978. /c Solid fuel conversion factors revised, /d 1951-60; Le 1962; /E 195S; LE 1967; /h 1964-65. Most recent estimate of CNP per capita is for 1979, all other data are as of April, 1980. October, 1980  ANNEX I Page 3 of 5 Naio-:alsh-oa the data are drata ft-rs r.ag--ool- ]dgad the -oos a-th-ecoofl- -d reato,o --ld also to scrd rho: stay aot -s ho itrr- aatia-ahtr _sp-bal. ho--s of the lath of na-csedi-od doitOaead --aaape -od by cltferon or:isis -ll-tis rho sAra. Thr daa -r, sane- titeesa.anofl todosrtaoordes ofwagitod. inIcat t-nds, -co.d .. I t--otroeorIc .o)o dlf Etre _- es,e -otrrt- The eerer group coo ((C the -cr outs ro-1 ofoh suj -t-osty -nd I --outto troop -.ht ---at higher I-oa - -.oe thae rise swtry foap of he shjtt ounr artp: ar Capital S-spLo-Ic faEporr-r gt hr hdl Ir-oa Or-th IC-. -awd tde-fat" is ah...o ho--o of arrange eota-airra atiesse .In the. eTer-a-o oru .. aco- the ooaaaeppiea egtdaIhei -eats-fr-eah adi-ator -nd th-w 05 who a lease na-f at sh. oenr -aonaar h.. data forthat ldcao.SIate 'h. a_-rta af -tost- oas:ht i.dt--or dapoada -s the -oilabillxy at dA.t and ir see un ..ta Iaats erat ha e--re -s relaing a--ap- of c- lalictort- an-her. Thet -vora- err anty owatul is op o the .I.u. af .ae ~ladi-tr at a rtOe a-oo the tratry red ref-ren-e -apo. LAND AREA thoad qita I tnlro e yata .orlt rtoef. ap no-ote 05 Pratitieg pay- lai - owlsuraceata oettiiagloa wer ed Island waters. e -ca e uneitIe ifr aamdIca sPh-l at anroeretip isel. AsIrrierol E- fa`leto of Ti-tltalte tl 105 uOe_ smpar.rLly ar pe-oasatly Pelto petokrfewe- platla- dilsded iT auth-orf preacichoa GI?P PER CImfiA(it .11) P., -Ptapeoriatoa ao at tiwor PrIc-t, 0t~ oh.wdrrrt iedhcorreense shrof 0001551l teds cu-Lated hrby m cotrinathad ar World haoh onire (