India - Industrial Export (Engineering Products) Project

Document of The World Bank FOR OMCIUL USE ONLY 0g At~' r7G '0 Rport No. P-4153-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON TWO PROPOSED LOANS TO THE GOVERNMENT OF INDIA (IN THE AMOUNT OF US$90 MILLION EQUIVALENT) AND TO INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA, LIMITED (ICICI) IN THE AMOUNT OF US$160 MILLION EQUIVALENT FOR THE INDUSTRIAL EXPORT (ENGINEERING PRODUCTS) PROJECT September 26, 1985 Thist documnmet ha a restrIced dIstrbtofm and may be used bY recipient only In the perfomfnuane Of teir offical dldets l mab =W us otrwis be diswewd wito Wod BDk athoriaton.  CURRENCY EQUIVALENTS (as of September 19, 1985) US$1.00 = Rs 12.32 Rs 1.00 = US$ 0.08 Rs 1 million = US$ 81,169 The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were, except as otherwise noted, made at the rate of US$1 to Rs 12.0, which represents the projected exchange rate over the disbursement period. FISCAL YEAR GOI: April 1 - March 31 ICICI: January 1 - December 31 Ex-port-Import Bank January 1 - December 31 Commercial Banks January 1 - December 31 ABBREVIATIONS AND ACRONYMS AIEI - Association of Indian Engineering Industries CCS - Cash Compensatory Support DRC - Domestic Resource Cost EMF - Export Marketing Fund Exim Bank - Export-Import Bank of India ERR - Economic Rate of Return ESW - Economic and Sector Work FERA - Foreign Equity Regulation Act COI - Government of India ICICI - Industrial Credit and Investment Corporation of India IDBI - Industrial Development Bank of India LIBOR - London Inter-Bank Offered Rate MRTP - Monopoly and Restrictive Trade Practices PCB - Participating Commercial Bank PCR - Project Completion Report PF - Productivity Fund RBI - Reserve Bank of India REP - Replenishment Licenses SSI - Small Scale Industries  FOR OMCUIL USE ONLY INDIA INDUSTRIAL EXPORT (ENCrNEERDIC PMDUCTS) PROJECT Loan and Project Summary Borrowers: COI Loan: India, Acting by its President. ICICI Loan: Industrial Credit and Investment Corporation of Itdia, Limited (ICICI). Guarantor of India, acting by its President ICICI Loan: Amount: US$250 million equivalent, consisting of: COI Loan: US$90 million, and ICICI Loan: US$160 million Terms: GOI and ICICI Loans: 20 years, including 5 years' grace, at the standard variable interest rate. OI vould bear the interest and ezchange risks on its loan and IICI's sub-borrowers would bear the interest and exchange risk on the ICICI loan. Relending COI Loan: (i) For Engineering Ancillary Credits. From GOI Terms: to participating commercial banks (PCB), funds are to be treated as equity contribution by GOI to the PCB. From PCBs to Engineering Ancillary sub-borrowers, 15X per annum with a repayment period of 3-10 years, with 1-3 years' grace. (ii) For the Productivity and Market Development Funds. From OI to the Exim Bank and ICICI, respectively, funds provided would be treated as non-reimbursible contributions. ICICI Loan: From ICICI to sub-borrowers at a margin of 2Z over the standard variable interest rate, with repayments of up to 15 years, including up to 3 years' grace. Project The project would consist of two loans as follows: Description: (a) GOI Loan: A US$90 million IBERD loan to GOI for financing (i) the foreign exchange costs of credits made to engineering ancillary firms by selected commercial banks for expansion and upgrading (US$70 million); (ii) a Productivity Fund, in the amount of $10 million, to finance up to 501 of the cost I This docment has a resticted distbution and may be used by reapients only in the performoce of teir offic duties Its contents may not otherwise be disdosed without World Bank authoriation.  -ii- of activities aimed at improving product quality and plant productivity; and (iii) an Export Marketing Fund, in the amount of US$10 million, to finance up to 50% of the costs of eligible development activities of firms engaged in exporting products identified for "export" thrust; and (b) ICICI Loan: A US$160 million IBRD loan to ICICI, with Government guarantee, to finance the for- eign exchange portion of subloans, for export-oriented subprojects, with US$100 million earmarked specifically for engineering subprojects. The reform measures announced by the Government during 1985 represent major moves to address the problems blocking efficiency and exports of manufactured products; these measures are expected to achieve significant improvements in cost competitiveness, quality and subsequently, the volume of exports. As with all projects, risks exist that the capabilities of the implementing agencies will be inadequate to commit the funds on schedule to subprojects which meet agreed eligibility criteria. Based on past experience, we anticipate no difficulties in ICICI or Exim Bank complying with their responsibilities under the project. In the case of commercial bank financing of engineering ancillaries, there is a risk of slow commitments at the outset of the project. However, the participating commercial banks have now prepared action programs for implementing the ancillary financing component which are considered satisfactory. Full implementation of this component is expected to commence only in 1986. There is also the risk that COI may not sustain the policy initiatives taken recently. However the changes already announced by GOI are unlikely to be withdrawn and there is every indication that, rather than revert to earlier policies, COI is following an agenda of reform that will lead to further relaxation of controls in the near future.  -iii-~~~~~~~~~~~ Financing PLan: Proiect Financing (US$ million) ---Foreign -Lcal IBRD Commercial ICICI PCBs Sponsors Total ICICI 160 1/ 160 180 - 260 760 Commercial Banks 70 2/ - - 60 70 200 Productivity Fund l o - - - 10 20 Export Marketing Fund 10 2- - 10 20 Total 250 160 180 60 350 1,000 Estimated Commitments FY86 FY87 FY88 FY89 and Disbursements: Commitments Annual 47.0 126.8 73.0 3,2 Cumlative 47.0 173.8 246.8 250.0 Disbursements Annual 5.0 72.6 126.3 46.1 cumulative 5.0 77.6 203.9 250.0 Appraisal Report: No. 5649-IN, dated September 19, 1985. 1/ ICICI Loan. 2/ GOI Loan.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE GOVERNMENT OF INDIA, AND A PROPOSED LOAN TO THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA, LIMITED, WITH THE GUARANTEE OF INDIA 1. I submit the following report and recommendation on a proposed loan in the amount of US$90 million equivalent to GOI to help finance the foreign exchange requirements associated with lending by selected par- ticipating commercial banks to engineering ancillary companies, and to finance, in part, the costs of export marketing and productivity improve- ment initiatives; and a proposed loan in an amount of US$160 million equivalent to the Industrial Credit and Investment Corporation of India, Limited (ICICI) with the guarantee of the Government of India (GOI) to help finance ICICI's foreign exchange requirements associated with loans made for eligible export-oriented investment projects. PART I - THE ECONOMY 2. An economic report, "India: Structural Change and Development Perspectives" (5593-IN, dated April 24, 1985), was distributed to the Executive Directors on Nay 1, 1985. Country data sheets are attached as Annex I. Background 3. India is a large and diverse country with a population of about 760 million (in mid-1985) and an average per capita income of about US$260. Agriculture continues to dominate the economy, accounting for 36Z of CDP, 231 of exports and about two-thirds of employment. The steady increase in population, which continues at a rate of 2.2Z a year, has put increasing pressure on natural resources, in particular cultivable land. By the mid-1960s, nearly all productive land had been brought under cultivation. While irrigation continues to increase total cultivable area, an increasing share of the labor force will have to be absorbed in non-agricultural activities. Industrial development has not progressed rapidly enough to provide employment opportunities for the growing labor force, or to bring about a rapid economic transformation, with sig- nificantly higher productivity and income levels. As a result the long- term growth of per capita income has only averaged about 1.4X p.a. and close to one-half of India's population continues to live below the poverty line. The pervasiveness and intensity of poverty is such that its alleviation has been and remains at the core of India's development strategy. 4. During the 1950s and 1960s, India's economic performance was generally characterized by slow economic growth, moderate inflation and a sustainable external position. CDP rose at about 3.5%, with agriculture and industry growing at 1.8Z and 4.8% respectively; imports increased by  -2- 4.61 and exports by 5.8% a year. India was able to reduce its dependence on foodgrain imports from a peak of 14Z of total foodgrain consumption in  -3- 5.1% per annum, 1/ well above India's long-term growth rate of 3.6%. However, overall growth during the first half of the 1980s has not been steady, mainly because of the effect of uneven rainfall on agricultural production. In 1980/81 and 1981/82, the economy substantially recovered from the 1979 drought, with real GDP growing by 7.6Z and 5.3%, respectively. The recovery was particularly robust in agriculture where normal weather helped output to rise by more than 15% in 1980/81 and 5.5% in 1981/82. A severe drought in mid-1982 brought the economic recovery to a halt. Agricultural output declined by 4%, which in turn reduced GDP growth to only 1.8%, and put further strains on the balance of payments and domestic resource situation. The timely implementation of various economic policies relating to foodgrain imports, procurement and distribution, and the increased allocation of power to irrigation pumps mitigated the adverse effects of the poor monsoon. An excellent monsoon combined with satisfactory performance of the infrastructure sectors, in particular coal and transport, led to a recovery of the economy in 1983/84. Agricultural output rose by 9%, industrial output by 4.5% and overall GDP by 7.4%. The power sector, however, emerged again as a con- straint on higher growth, especially in industry. In 1984/85, despite a mediocre monsoon and difficult political circumstances, the aggregate growth of the economy is likely to range between 4 and 4.5%. 8. During the Sixth Plan period, foodgrain production continued to grow at an average annual rate of 2.6% a year-sufficient to maintain a broad balance between supply and steadily increasing domestic demand. The progress achieved is an indication of the effectiveness of programs to expand irrigation, strengthen extension and encourage efficient use of other agricultural inputs which are being implemented. Bountiful harvests have led to record foodgrain stocks in recent years. Over the past year, Government held stocks have increased by more than 40%. Maintenance of ample, balanced operating stocks to ensure smooth operation and even expansion of the public distribution system remains a top priority of Indian agricultural policy. Yet, the financial cost of foodgrain storage and subsidies represent ~a rapidly growing burden on the budget. 9. Growth of the industrial sector during the Sixth Plan period was slow and uneven. Industrial growth averaged about 3.4% a year-below the growth rates achieved in the 1961s and 1970s. An inadequate policy environment, coupled with depressed domestic demand, power and raw material shortages, as well as labor unrest are the main causes for the slower than anticipated growth of the industrial sector. After the severe drought in 1979/80, manufacturing output grew at 1.7% in 1980/81 and 3.3% 11 Actual GDP growth rate during the 1979/80-1984/85 period was 5.1% per annum. However, this figure overstates the trend in recent years because of the relatively low base year (1979/80). The 4.5% GDP growth per annum and 3.3% annual agricultural growth between 1980/81-1983/84 (two "normal" years) are more representative of the growth rates during the period.  -4- 1981/82. The drought in 1982/83, which led to widespread shortfalls of agro-based raw materials and a sharp drop in the demand for consumer durables, combined with a prolonged textile strike in Bombay, reduced the growth of industrial output to 1.7Z in that year. Following the excellent monsoon in 1983/84, industrial output gained momentum and grew by 5.0Z. Preliminary estimates place the growth of the manufacturing sector at about 5.5% in 1984/85. 10. The performance of the infrastructure sectors was mixed under the Sixth Plan. While electric power generation, coal production and railway traffic grew by 8.7%, 6X and 2.5% a year respectively, oil and gas produc- tion increased by 22.6Z. The rapid expansion of domestic oil production is largely the result of India's oil development program. Backed by substantial financial commitment, performance under the program has been excellent with real investment and oil production levels running well ahead of Plan targets. In 1984/85 domestic oil production is estimated to have reached 29.4 million tons. While the gap between domestic consump- tion of petroleum and production remains large, India's dependence on oil imports dropped from 63Z of consumption in 1979/80 to 30% in 1984/85. About two-thirds of current output comes from offshore fields around Bombay High. As most of these fields have now reached their mature stage, further increases in domestic oil production will have to come mainly from new discoveries. 11. India's economy has reverted from a situation of a resource surplus in the late 1970s to an aggregate resource deficit during the Sixth Plan period. The gap between gross investment and national savings increased from negligible levels to an average of 2.1% of GDP in 1980-85. Gross domestic capital formation increased from an average of 22.6% of GDP in 1975-80 to 24.7% in 1980-85 while gross national savings remained constant at an average of 22.6% of GDP in both periods. The increase in capital formation mainly resulted from an increase in the public invest- ment rate, but it was largely a financial rather than a real phenomenon since prices of investment goods increased considerably faster than the general price level. 12. The basic thrust of fiscal policy during the Sixth Plan was to provide sufficient resources for growth and planned investment while maintaining inflation under control. However, the Sixth Plan period was characterized by significant budgetary resource constraints. Despite massive additional resource mobilization efforts, public sector deficits exceeded 7% of GDP as compared to only 4-5% of GDP during the mid-1970s. The shortfall was met by additional market borrowings, both domestically and from abroad and by deficit financing. Major reasons behind the large deficits were continued losses by most departmentally-run undertakings, unsatisfactory performance of the two major non-departmental undertakings of the States (the State Electricity Boards and the State Road Transport Corporations), and the increasing importance of subsidies which are estimated to have reached 2.8% of CDP in 1984/85. Of these, fertilizer accounted for more than 0.8% of GDP, and food subsidies nearly 0.5Z of GDP.  -5- 13. Developments in the savings-investment balances were mirrored in the balance of payments. Thus, India's current account balance, which had recorded surpluses between 1976/77 and 1978/79, reverted to deficits averaging US$3.5 billion and 2.1Z of GDP during 1980-85. Several develop- ments contributed to these reLatively large deficits. First, the terms of trade deteriorated sharply in 1979/80 due to the second round of oil price increases and continued to move against India during the first three years of the 1980s. Second, a more liberal import policy towards industrial inputs was pursued. Third, net invisibles declined as travel receipts fell off, workers' remittances stagnated (reflecting slower development activity in the Middle East), and payment of interest on higher levels of foreign debt increased. Fourth, export growth was sluggish partly due to growing domestic demand, and, perhaps most significantly, due to depressed foreign markets and prices. Faced with a growing need for external capi- tal inflows and stagnation in the availability of concessional assistance, India drew SDR 3.9 billion from the Extended Fund Facility of the IMF and borrowed significant amounts on commercial terms from the Euro-dollar market and increased the use of suppliers' and export credits. 14. Price performance during the Sixth Plan period has been mixed. The overall improvement in economic performance in the early 1980s, com- bined with more restrictive monetary policies in 1981/82 and 1982/83, resulted in a sharp decline in the rate of inflation. The growth rate of wholesale prices declined from 18% in 1980/81 to only 2.6% in 1982/83. The lagged effects of shortages of foodgrains in 1982/83 and of other agricultural products and industrial goods in 1983184 coupled with a rise in the domestic cost of imports and rapid liquidity growth, gave a boost to inflationary pressures towards the end of 1983/84. The annual average growth of wholesale prices rose to over 9Z in 1983/84, and the rate of growth of consumer prices exceeded 12Z. In September 1984, the Government took a number of measures to dampen pressure on prices including increased imports of important agricultural commodities (sugar, jute, coconut oil and others), releases of sugar stocks for distribution through fair price shops, and a reduction in wheat prices for flour mills. These measures, together with a decline in cereal prices as a result of the bumper crop in 1983/84 and a generally restrictive budgetary policy, led to a slowdown in the rate of increase of wholesale prices to about 7.1Z in 1984/85. 15. Developments in the Indian economy during the Sixth Plan under- score the progress that has been made in recent years towards accelerated GDP growth, external adjustment, and increased investment. The expe_,ence of recent years illustrates that India has the capacity to grow and develop at a more rapid pace. It is a tribute both to the fundamental soundness of key policies and programs, particularly in agriculture, and to the strength and effectiveness of public administration, that neither the serious political disturbances in Punjab, nor the assassination of Prime Minister Indira Gandhi, resulted in significant disruptions to the performance of the economy in the last year of the Sixth Plan. But the results during the Plan period also highlight the disappointing perfor- mance of industry, the continuing shortfalls in electric power generation,  -6- the rising public sector deficits, the importance of regaining and sus- taining momentum in export growth and the need for continued prudent economic management so as to avoid a resurgence of inflation while gener- ating adequate resources for development. This mixture of achievements and challenges provides the context for an assessment of development prospects and policies. Development Prospects and Policies 16. To deal effectively with its dual challenges of alleviating per- vasive poverty and expanding employment opportunities for a growing labor force, the Seventh Plan is expected to aim at sustaining an annual rate of growth of GDP of at least 5%. This will place heavy demands on policy adjustment and entail major challenges. India will need to: (a) maintain the recent higher rate of expansion of agricultural production; (b) accelerate industrial production and export growth through policy changes which enhance competition and efficiency; (c) expand supply capacities in the economy by improving basic infrastructure services and the availability of energy; (d) improve the efficiency with which resour- ces are used, including particularly the existing capital stock in infrastructure and industry; and (e) further improve the already high resource mobilization effort. 17. Agriculture. Despite an impressive performance under the Sixth Plan, Indian agriculture faces many challenges in the second half of the decade. As possibilities for extending cultivated acreage shrink, agricultural growth will depend on finding new ways of increasing the productivity of land through further development of irrigation, better water management, more intensive use of new technology, efficient delivery of inputs and services, and appropriate pricing policies. High priority must be given to the expansion of the country's irrigable area through completion of ongoing irrigation projects, as well as selective investment in new undertakings. Besides creating new irrigation potential, the efficiency of irrigated farming will have to be enhanced through the improvement of water management practices in existing irrigation systems. Greater emphasis should also be given to obtaining higher yields under rainfed and dryland farming conditions. Finally, even greater efforts must be made to build and strengthen institutions to ensure the efficient delivery of agricultural services, input supplies, credit and technology. 18. Industry and Trade. Prospects for raising India's GDP growth rate will, to a large extent, depend on more rapid industrial production and export growth to be attained through improved productivity and efficiency. A key requirement will be greater competitive pressure on industry than has been the case in the past. The size and domestic orien- tation of the Indian economy make it necessary that this competitive pressure come mainly from within the domestic economy. An important complement, however, will be greater exposure to foreign trade to stimu- late domestic competition as well as to induce technological innovation and modernization.  -7- 19. To increase domestic competition, domestic policies will need to allow freer entry and exit of firms in the industrial sector and greater reliance on market price signals. While the Government has taken various initiatives in the above directions during the past several years, the most significant were announced in the context of the 1985186 Budget. These include the broadening of licensing categories for certain industries, delicensing for others, increases in the size limits for IIRP 1/ and small-scale industries, reductions in the incentive for small- scale industries to stay small and various initiatives to stimulate effi- cient indigenization of 'sunrise' industries (energy exploration equipment, computers, telecommunication equipment, motor vehicles and parts, general electronics). These are described in greater detail in paragraphs 43-51 of this report. These are significant advances that need to be sustained in future years. 20. Changes in external trade policy will also be required to stimu- late export growth which is essential not only for current financing of imports, but to enhance borrowing capacity, to service debt, to provide an impetus to the economy from the demand side, and to expose entrepreneurs to the quality-consciousness of competitive external markets. While some changes have been recently introduced (paras 52-53), there remains a need to: (a) provide greater access to imported inputs and capital goods through continued import liberalization (b) review tariffs, eliminating anomalies and lowering their overall level; and {c) modify trade policies in such a way that the net impact of incentives is more neutral between exports and import substitution. 21. Infrastructure Sectors. Investments in these sectors currently constitute about one-third of total investment in India, and the efficiency with which these investments are managed has an important bearing on the efficiency of total investment and the growth rate of the entire economy. There is substantial evidence that better planning and management of public investments in powe,, coal, railways and irrigation could improve returns and lower the current capital-output ratios. For example, more efficient use of investment could be achieved by better water management in irrigation projects, improved load factors in thermal power generation, better capacity utilization in the fertilizer industry and improved efficiency in railway transport. 22. Resource Mobilization. India's gross national savings rate (22.6% in 1980-85) is already high for a country at India's level of income. Nevertheless, the investment required to sustain the relatively high GDP growth rates realized during the Sixth Plan period--while holding foreign savings as a share of GDP at prudent levels--will require some further increase in the aggx2gate savings rate especially in public savings. Because there will continue to be well-founded demands for expansion of current and capital expenditures in the public sector, the burden for a 1/ Monopolies and Restrictive Trade Practices Act, 1969.  -8- reduction in the savings investment gap has to be put on the revenue side. Increasing tax rates beyond their current high levels would be counter productive. Thus, economically efficient pricing policies in public enterprises, supported by improvements in their operational efficiency, are to be preferred over tax increases as vehicles for increased public resource mobilization. The sheer size of past and present public enterprise investment indicates that if proper returns were made even only a part of them, an increase in revenues of about 32 of GDP would be attainable. In a number of sectors, e.g. thermal power, railways, and fertilizer, concerted efforts are being made--with Bank assistance-to increase efficiency and reduce costs. These efforts need to be improved and expanded into new areas. 23. Balance of Payments. A policy of sustained GDP growth of 5Z per annum will need to be complemented by measures which assure a viable balance of payments position. Acceleration of industrial growth will lead to a substantial increase in import requirements, even after allowing for continued import substitution of key bulk commodity items. Bank staff estimates place the export volume growth necessary to support these grow- ing import requirements without excessive increases in external borrowing at about 8Z a year over the Seventh Plan period. Prospects for India to attain the needed higher export growth rates appear to be reasonably good because India's share in total world exports in value terms is only about 0.4%, leaving ample room for growth. Furthermore, India's exports are relatively less sensitive to fluctuations in demand in the OECD industrial countries because exports are well diversified with respect to both products and markets. Nevertheless, success in India's export drive will depend heavily on changes in domestic policy to improve the supply and profitability of exports and this project-the first in a series of projects aimed at supporting the Government by financing part of the costs resulting from reforms in industrial and trade policies, is expected to generate substantial additional export income. 24. Even assuming favorable export performance, India will continue to need substantial external capital flows to augment its own resources for the foreseeable future. Even with 8% export growth, the 5Z GDP growth implies an increase in gross capital inflows from US$17.5 billion to US$34.5 billion between the Sixth and Seventh Plan periods. In the past, the bulk of this financing was provided in the form of official develop- ment assistance. In more recent years the availability of concessional assistance to India has declined. Total bilateral grants and concessional loans declined from a level of about US$1.3 billion per annum over the years 1979180-1981182 to US$1 billion in 1983/84. Moreover, there was a large deterioration in the terms of aid from multilateral sources. For example, while total lending from the Bank Group continued to increase in nominal terms, the grant element declined from 71% to 41Z as new com- mitments of IDA declined from a peak of $1,535 million in FY80 to $673 mil- lion in FY85. 25. In the event that official development assistance does not increase significantly from recent levels, nearly the full additional  -9- financing required would have to be provided from additional non- concessional borrowing from official and commercial sources. This will increase India's debt service ratio from the present level of 15.5Z to 21.6Z by 1989/90. Provided India can in fact, expand export earnings along the lines described earlier, and provided India's past record of prudent borrowing and debt management continues, the country should be able to raise the projected amounts. While its foreign resource require- ments would be manageable, the increase in its external debt exposure would leave it with little cushion to deal with unfavorable eventualities and with the risks of policy change. 26. In the short term, a relatively large level of external borrowing, including an increased emphasis on commercial borrowing, will be necessary to cope with the balance of payments consequences of the growth strategy described earlier. Although India is currently in a position to increase borrowing on comercial terms from the very low levels of the past, there are, of course, limits beyond which India will choose to sacrifice growth objectives rather than accept debt on unfavorable or unmanageable terms. While therefore a greater volume of both official concessional and non- concessional assistance is warranted, concessional assistance, in particular, will be invaluable in moderating the build-up in India's debt service burden. Apart from the quantitative arguments for concessional aid, there remains the imperative to assist India in addressing the problems of pervasive poverty. While India is now better placed than other poor countries to tackle its development problems, the mobilization of additional resources to address poverty problems is heavily constrained. Concessional assistance can also play a very important role in relieving this constraint. 27. Summary. India has demonstrated that it can sustain a rate of growth closer to 5.0X per annum than to the long-run trend of 3.6Z per annum. If the rate of population growth can be brought to below 2.0Z per annum, a 5.0% growth rate would mean a doubling of the trend rate of growth of per capita income of 1.4Z per annum. Success in these efforts would make a significant difference to the prospects of easing poverty in India. Development prospects over the next few years will hinge on the extent to which the economy can be brought into both internal and external balance, while at the same time achieving more rapid growth than in the past. This will require the continuation of the current development strategy which assigns high priority to export promotion, public finance discipline, improvement of economic efficiency, and investment in infrastructure, supported by adequate flows of external borrowing and aid. PART II - BANK GROUP OPERATIONS IN INDIA 28. Since 1949, the Bank Group has made 84 loans and 174 development credits to India totalling US$6,818 million and US$12,934 million (both net of cancellation), respectively. Of these amounts, US$1,465 million has been repaid, and US$5,909 million was still undisbursed as of March 31, 1985. Bank Group disbursements to India in the current fiscal year through March 31, 1985 totalled US$787 million, representing a decrease of  -10- about 27 percent over the same period last year. Annex II contains a summary statement of disbursements as of March 31, 1985. 29. Since 1959, IFC has made 32 commitments in India totalling US$265 million, of which a total of US$145 million has been repaid, sold, ter- minated or cancelled. Of the balance of US$120 million, US$113 million represents loans and US$7 million equity. A sammary statement of IFC disbursements as of March 31, 1985, is also included in Annex II (page 4). 30. The thrust of Bank Group assistance to India has been consistent with the country's development objectives in its support of agriculture, energy and infrastructure. Of particular importance have been investments in irrigation, extension and on-farm development designed to increase agricultural productivity, and efforts to improve the availability of basic agricultural inputs to farmers through credit, fertilizer, marketing, storage, and seed projects. Major elements of the lending program have also been directed at helping to meet the energy needs of the economy while curbing the growth of oil imports, and to ease the infrastructure bottlenecks which have hampered economic growth in India, particularly through power generation and distribution, and railways and telecommunications projects. The Bank Group has also provided financing for a broad range of mediumr and small-scale industrial enterprises, primarily in the private sector, through its support of development finance institutions. Recognizing the importance of improving the ability to satisfy the essential needs of urban and rural populations, the Bank Group has supported nutrition and family planning programs, a rural roads project, as well as water supply and sewerage and other urban infrastruc- ture projects. 31. This pattern of assistance remains highly relevant, and consonant with Government priorities, as reflected in the Sixth Plan and in the approach being taken by GOI in the preparation of the Seventh Plan. First, high priority will continue to be given to GOI's agricultural program. While India has made significant progress in agriculture, productivity growth will have to be sustained to improve the balance between food demand and supply and to contribute to poverty aLleviation and employment. Thus, the Bank Group will continue to support irrigation, fertilizer production and distribution, and agricultural extension and credit. Second, alongside GOI's efforts in promoting greater efficiency and faster development of the industrial sector, increased assistance will be provided for industrial development. Third, the review of performance under the Sixth Plan confirms the high priority that should continue to be given to the expansion and more efficient use of basic infrastructure capacity and to the development of India's indigenous hydrocarbon resources. Accordingly, the Bank Group will continue to support the development of the energy, transport and telecommunications sectors to alleviate critical shortages which constrain output in both agricultural and industrial sectors. Fourth, support of urban development and other GOI basic social services programs for the poor will also continue in light of the growth in population which, despite successes in lowering birth and death rates, still increases by about 16 million each year. -  -11- 32. The need for a substantial net transfer of external resources in support of the development of India's economy has been E 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 successfully adjusted to the changed world price situation of the mid- 1970s. However, India continues to require a substantial level of foreign assistance both to offset the overall deterioration in the world trade environment, and to sustain the relatively higher investment and growth rates achieved during the Sixth Plan period. As in the past, Bank Group assistance for projects in India should aim to include the financing 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 small in most projects. This is particularly the case in such high-priority sectors as agriculture and irrigation. 33. India's poverty and needs are such that whenever possible, exter- nal capital requirements should be provided on concessional terms. Accordingly, the bulk of the Bank Group assistance to India in the past was provided from IDA. However, IDA lending to India is declining from a peak of US$1.5 billion in FY80, mostly due to funding constraints related to IDA. The amount of IDA funds available to India is likely to remain small in relation to India's needs for external support. Thus, this requirement for additional assistance will have to be met, in part, through larger Bank lending. Given its development prospects and policies, India is judged creditworthy for Bank lending to supplement IDA assistance. A continuation of efforts already underway to achieve growth in productive capacity, trade expansion, higher levels of savings, and a reduction in the rate of population growth should result in continued economic growth and improvement in the balance of payments. India's debt service ratio is estimated at about 15.2% in 1984/85. This ratio is projected to rise to around 20% by 1989/90, mainly due to the hardening structure of India's debt; and to increase slightly over this level through the mid-1990's. Although the projected debt service ratios are considerably above historical levels, they are still manageable and will not adversely affect India's creditworthiness. 34. Of the external assistance received by India, the proportion contributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 131 of gross disbursements, and 121 of net disbursements as compared with 62%, 33X and 37%, respectively, in 1983/84. In 1983/84, about 19.0% of India's total debt service payments were to the Bank Group. On March 31, 1984, India's outstanding and disbursed external public debt was estimated to be about US$26.9 billion, of which the Bank Group's share was US$9.6 billion or 36% (IDA's US$7.8 billion and IBRD's US$1.8 billion). As of March 31, 1985 outstanding loans and credits to India held by the Bank totalled US$18,288 million, of which US$5,909 million remain to be disbursed, leaving a net amount outstanding of US$12,379 million.  -12- PART III - THE INDUSTRIAL SECTOR Sectoral Overview 35. Industrial Output and Exports. In spite of India's substantial industrial base, resource endowment, and pool of skilled manpower, industrial growth has been sluggish and India's share of developing country exports has slipped during the past 30 years. The growth rate in manufacturing has declined in each decade since 1950, and averaged only 3.8% per annum in real terms from 1971 to 1980. During the same period, industry's contribution to GDP increased only marginally, reaching about 16% in 1981. Although manufactured exports grew at a more rapid rate than output, India's 6.8% annual export growth was outstripped by the overall growth of exports in developing countries, which has averaged nearly 12% per annum in the past 20 years. There has been a significant shift in the composition of India's manufactured exports. In 1950/51, jute goods and cotton textiles accounted for 86% of manufactured exports. By 1982/83, light industrial products (engineering products, gems and jewelry, garments, leather products, and handicrafts) accounted for over 80% of these exports, while the jute/cotton products fell to less than 12% of the total. 36. The Engineering Products Subsector. Within the engineering subsector, India's exports grew by 22% per annum during the 1970s compared with a 35% per annum growth in these exports by developing countries during the same period. Consequently, India's share of such exports fell from 9.1% in 1970/71 to 3.3% by 1982/83 and, by 1982/83, India's US$1.3 billion of engineering exports represented less than 0.2Z of world trade in these products. Historically the bulk of the production of engineering goods has been destined for local markets with its lower quality requirements, and it is these lower quality products that have been exported to less demanding markets-primarily to other developing and Middle East countries. While these markets are important, volume require- ments are low, necessitating a wide dispersion of marketing effort, and some of these markets for existing Indian products now have limited prospects for expansion, either due to import-substitution policies, foreign exchange constraints, and/or the availability of lower price, better quality competitive products. The Industrial Policy Environment 37. The disappointing performance of the industrial sector over the past three decades stems, in part at least, from the policy environment which was designed to promote a high degree of self-sufficiency through import replacements. India's dependence on imports has indeed been reduced substantially and there is now a diverse and largely self- sufficient industrial base with impressive technological capabilities in many fields. However, many branches of the industrial sector are plagued by poor quality output and unduly high costs, and hence prices that, among other things, mitigate against a strong export performance. This situa- tion has arisen mainly as a result of the effects of high import tariffs and substantial regulation of industrial activity that, together, have  -13- fostered a manufacturing industry that is burdened by inappropriate scales of production and obsolete technology. The situation has also been exacerbated by unreliable infrastructural support. 38. Tariff levels. A major problem affecting Indian industry is the high level of scheduled tariff rates. Unduly high rates have: (a) created a bias in relative incentives against exports that is too large for conventional export incentives to neutralize; (b) resulted in the need to give special tariff reductions/exemptions for imported capital goods and material inputs which, in turn, increase the effective protec- tion of the user industry; and (c) resulted in relatively low or even negative protection for those local industries that are competing with imports for which quantitative restrictions have been relaxed and tariff reductions/exemptions granted. Some tariff reductions have been announced. In 1983, substantial reductions were effected in chemicals, iron and steel, metal and metal products and machinery. In August 1984, excise duties on most electronic products were substantially reduced or eliminated. 39. Capacity Controls. In the past, GOI has imposed regulations that have severely limited growth of larger firms and foreign collaboration, 1/ protected small-scale industries (SSI), reserved incremental output of many light industrial products for the small-scale sector, provided SSIs with tax exemptions and priority access to credit, and controlled the imports of inputs, capital goods, and technology. While India's industrial base has become large and diversified, unit costs are high and quality poor. The insulated domestic market and rigid capacity expansion policies have promoted poor quality products, created a bias in the risk- reward structure favoring domestic sales over exports, and eroded poten- tial cost competitiveness by making both efficient subcontracting and economies of scale difficult to achieve. The result is that export oppor- tunities have been missed, particularly with respect to light industrial product lines in which India should be competitive. 40. Transfer of Technology. In addition to controlling capacity, GOI has, in the past, discouraged technology transfer arrangements for many products. For example, the list of products for which foreign technical or equity collaboration has been "deemed unnecessary" has included many engineering products with high export potential. In the engineering product groups studied, isolation from competition with other exporters in the international marketplace has led to designs and quality levels well behind those of other exporters. This in turn has retarded the introduc- tion of improved technologies with the concomitant adverse impact on the quality and cost of products for the local market. Even where foreign collaboration has been allowed, clearance proccJures limited the prospects for acquiring foreign consultants, technology or marketing agreements. As a result, India's labor cost advantages have often been offset by a reliance on obsolete equipment and methods, which have increased unit 1/ Monopoly and Restrictive Trade Practices Act, 1952 (MRTP) and Foreign Equity Regulation Act (FERA).  -14- costs and lowered product quality at the very time when competitive pres- sures would suggest the obverse. While in-house research and development (R&D) could update product technology in many instances, the marketing and industrial infrastructure in India is too fragmented and/or insulated for this to happen in a cost-efficient manner. 41. Export Incentives. The present system of protection and controlled capacity expansion has contributed to the lower risk and higher profits for domestic sales. In recognition of the various disincentives, includ- ing especiaLly the high levels of tariffs that have worked against exporters, the Government has, in the past, introduced a range of export incentives. However, the adoption of incentives such as duty drawback and cash compensatory support have had limited impact as they did not ade- quately redress the relative profits of export sales verses domestic sales. As a result, exports represent only a small share of the total manufacturing output and have been viewed by most manufacturers as a residual means of using temporary capacity surpluses. Furthermore, one effect of SSI reservations and other related incentives has been a frag- mentation of India's exporting efforts among many small firms and its image has become that of a low quality and unreliable producer. 42. In the short- to medium- term, export incentives will continue to be needed to reduce the anti-export bias and thereby improve the relative profitability of exports. In addition to the Cash Compensatory Support (CCS) scheme, which is considered the simplest and most important existing export incentive, other measures have been examined, including a revision of duty drawback rates to incorporate indirect taxes, provision of a more generous tax exemption on export profits, and provision of financial incentives for market development expenditures. A recent analysis of the existing import procedures, covering the import of inputs required by exporting firms, has provided strong arguments for extending the duty exemption scheme, with close monitoring, to avoid tying up exporters' funds. Also, the need to liberalize firms' access to imported capital goods at lower duty rates has been identified so that local firms can acquire adequate modern equipment, and capital goods manufacturers will be spurred to improve quality. Recent Government Reform Initiatives 43. Within GOI, there is now a growing consensus among policy-makers that, apart from improvements in infrastructural bottlenecks, especially power, the prospects for raising industrial output depend on GOI's will- ingness to change its trade and industrial policies so that controls on industrial prices and production are relaxed and greater efficiency in investment and operations are achieved through exposure to both internal and external competition. To give effect to this change in attitude, GOI established three committees charged with the responsibility of looking for ways to improve industrial performance. 44. The first is the Committee on Perspective Plan and Strategy for Export of Engineering and Capital Goods, known informally as the Kapur Committee. It was established in 1982 to develop and recommend a series of policy initiatives that should be taken to enhance the competitiveness  -15- and exports of engineering products. The major finding of the Kapur Committee, which has been ratified by the Government, is that the prin- cipal constraint to exports of engineering products is the extensive system of industrial controls, which prevents firms from achieving economies of scale, blocks efficient subcontracting, and undermines the competitiveness of Indian industry. The report recommends that these barriers to domestic competition and growth be removed, at least for engineering product groups with identified export growth potential. In addition to recommending liberalization in MRTP controls and SSI protec- tion for a set of "thrust industries", the Committee recommended a set of specific measures to increase access to imported technology and capital goods, make inputs available at international prices, and reduce the anti-export biases in trade and industrial policy. The policy changes recently announced (see below) reflect the conclusions and recommendations of the Report and, in fact, many of the announced changes have been made applicable to all industrial subsectors, rather than being limited to the engineering goods subsector covered by the Report. 45. A second Committee, established in 1984 and headed by Mr. Abid Hussain, then Secretary of Commerce, was charged with the responsibility of developing an overall export strategy, and the Committee's report has now been submitted to the Government. The report's findings confirm the thrust of the Kapur Report, recognizing that changes in industrial policy which affect the structure and performance of Indian industry need to be combined with a more coherent set of export incentives and increased access to imported inputs, capital goods and technology. The Export-Import Statement of Policy, issued in April 1985, embodies the Government's initial actions on a number of the Committee's findings, including the adoption of measures to increase access to capital goods at lower duty rates, introduction of the export-import passbook system which enables duty free import of inputs for export production, and the greater use of fiscal incentives to encourage exports. The report contains more sweeping proposals relating to the development of a more coherent system of trade, industrial and fiscal incentives to promote efficiency and exports, and an analysis of how to translate these broader recommendations into practice is underway. 46. A third committee, appointed in January 1984 and chaired by Mr. M. Narasimham, examined the principles of a possible shift in economic policy from physical controls to financial controls and other related issues. While the report is not expected to be finalized until late in 1985, its recommendations are expected to be of major significance in shaping India's trade and industrial policy framework in the medium term. 47. In the 1985/86 Budget Documents, released in late March 1985, GOI announced a series of industrial policy reform measures which can be broadly categorized in three areas: industrial licensing, import of technology, and export incentives. On industrial licensing, GOI raised the definition of companies falling under the restricted growth provision of the MRTP Act from assets of Rs 200 million (US$17 million) to Rs 1.0 billion (US$83 million), reducing the number of firms affected by MRTP size definition in the engineering sector from 100 to 20, with only 5 of these being in engineering product groups with strong identified export  -16- potential. Removal from MRTP restrictions has meant that firms can now expand or enter any product line and take advantage of expansion provi- sions to achieve economies of scale and thereby reduce production costs. Subsequent to the Budget announcement, on May 22, 1985, GOI announced further liberalization measures whereby firms manufacturing 27 major product groups will be allowed to enter and expand regardless of size or dominance, provided the product line is not reserved for exclusive incremental production by SSIs. This subsequent announcement applies even to firms with assets in excess of Rs 1 billion (US$83 million). 48. In addition, for smaller firms, the existing protection and incen- tives for SSIs to stay small have been diluted. The definition of small industry has been raised from Rs 2 million (US$167,000) to Rs 3.5 million (US$292,000) in fixed assets, excluding land and buildings, and the definition of "ancillaries" has been increased from Rs 2.5 million (US$208,000) to Rs 4.5 million (US$375,000) which is adequate to attain scale economies in some product segments of engineering. In addition, the excise tax exemptions, which were available to very small firms (with sales not exceeding Rs 750,000 (US$63,000]), have been replaced by a graduated phasing out of excise tax exemptions as firms grow. Full excise tax exemption will be available for up to Rs 2.5 million (US$208,000) in sales, and gradually declining excise tax exemptions will be available for up to Rs 7.5 million (US$625,000) in sales. Further reductions in the incentives for firms to stay small are under active consideration. A reduction in the number of product lines reserved for exclusive incremen- tal production for small industries and a further increase in size defini- tions are anticipated by the end of 1985. 49. Furthermore, among the 25 newly delicensed industries are the major product groups identified for export thrust in the iCapur report: automotive ancillaries, cycles, machine tools, hardtools, and industrial machinery. Firms in these product groups will now be allowed to enter new product areas and expand capacity without requiring a license-a freedom that is widened to many more companies, given the increases in size definitions for MRTP and SSI firms. In the case of motor vehicles and machine tools, specifically, GOI has introduced flexibility in the use of existing licensed capacity, so that these manufacturers are now allowed to make whatever the market requires with their installed equipment, rather than being constrained to make only that product mix fixed at the time the license was issued. 50. On the import of technology, GOI has announced new policies that will provide for: - the import of capital goods for several engineering product groups, notably the automotive industry, under Open General License, with the objective of enabling firms to make the modernization moves necessary for reaching international competitiveness; - rapid approval of the import of capital goods, technology, know how, and consultancy services to cover amounts up to Rs 10 million equivalent (US$800,000);  -17- - manufacturers to directly import many grades of steel so that timing of imports comes under the control of the manufacturer; and - substantial streamlining uf procedures for firms hiring foreign consultants and technicians; and - extending the International Steel Price Reimbursement Scheme to include alloys and special steels for exports. Thus, all major inputs and modern technological know-how and advice for competitively manufacturing engineering products will now be made avail- able to manufacturers at international prices. 51. On tariffs, GOI has reduced import duties on capital goods for investment projects from a minimum of 65Z to levels of between OZ and 40Z. On export incentives, GOI has introduced an Import-Export Passbook Scheme whereby manufacturer-exporters may obtain duty-free imports of inputs and components without requiring a firm order. Under the scheme, imports would be registered in the passbook and any imported inputs not used in export production would be subject to duty. This facility has the benefits of eliminating the financing costs and delays involved in the duty-drawback system. Reform Initiatives - An Evaluation 52. The measures announced to date are seen to be the first in a series of industrial and trade policy reforms that will be initiated over the next few years aimed at developing a more efficient and competitive industrial structure in India. Tie recent liberalization measures on industrial licensing, import of technology and export incentives and procedures are expected to decrease costs and prices, improve the quality of products available for sale and export, increase the competitiveness of the Indian engineering goods industry domestically and internationally, and increase the volume of exports of these products. The changes in industrial licensing can be expected to result in increased domestic competition, expansion and modernization of both smaLl and large firms and the establishment of more efficient sub-contracting relationships among firms in the manufacturing subsectors. With these firms better able to expand and respond to market forces by achieving scale economies and shifting their product mix, production costs are expected to be reduced, and product exports increase. 53. The changes in technology transfer and export incentives and procedures will improve firms' ac_ess to imported capital goods and inputs, at competitive prices, and will facilitate foreign technological and consultancy arrangements. The measures will enable firms to offer higher quality products through improved manufacturing processes, reduced raw material costs and delivery schedules, modernized product design; they will also enable firms to enter into foreign collaborative arrangements for exporting Indian goods to the major international markets. On tariff reform, as noted in para. 51 above, GOI's announcement of lower import  -18- duties on some capital goods is an important step, but much remains to be done. While the recent changes in industrial technology and trade prac- tices and procedures are expected to result in significant improvements in the competitiveness of Indian industry, GOI is aware that these are first steas. It is examining further liberalization moves aimed at: reducing protection of, and encourage growth and modernization of small industry; facilitating the exit of firms that are not able to compete; streamlining industrial and export procedures; introducing more systematic tariff reforms; and moving to fiscal rather than physical controls. Previous Bank Involvement in the Sector 54. Previous Bank involvement in industry has followed two separate but interrelated paths: on the one hand, the Bank has lent, via general lines of credit to DFC-type institutions, a total of US$855 million in 17 projects, to private firms engaged in all aspects of industry-lending that required, in more recent projects, a particular focus on institu- tional development and greater attention to project promotion, informed by export, subsector and energy-efficient studies. Concurrently, the Bank Group has also provided US$3.2 billion for projects involving the coal, fertilizer, cement and refinery and petrochemicals subsectors where oppor- tunities existed for the Bank to examine subsectoral issues, identify opportunities for improvements and develop projects that addressed the constraints to achieving those improvements. 55. In the coal subsector, the Bank examined and reported on the pricing, quality, and infrastructural constraints that adversely affected the efficiency of coal mining and transportation. A series of Bank-financed projects is being used as the vehicle for implementing the corrective measures identified in that analysis. In the cement subsector, a similar analysis and report identified the need for changes in pricing, tariffs, and process technologies. A number of changes in pricing were subsequently announced and a project, that is now under preparation, will continue to focus on these issues. In petrochemicals, the Bank is working with GOI, in parallel with a project that will construct a new, energy- efficient, world-scale polyolefins complex, to examine pricing and tariff regimes so that, by the time the new facility comes on stream, this industry will be efficient and internationally competitive. In fer- tilizers, the Bank, through a series of projects, is focusing attention on capacity utilization, energy efficiency, ex-factory pricing formulae, and farmer subsidies. 56. In industrial export development and finance, the Bank's sector work over the past three years has examined how policies and institutional support could be geared to increase the efficiency and foreign exchange earnings and how the Bank's assistance could be geared to support the agenda for reform that is now being developed. By focusing on the engineering subsector, which accounts for over 20Z of manufactured exports, it was possible to identify changes which would impact on manufactured exports overall and which would, simultaneously, improve quality and lower costs and prices of engineering products, with its concomitant affect on competitiveness. The Bank's sector report traced  -19-- disappointing export performance to policy-induced problems and examined a series of policy reform measures that would address these constraints. 57. The Bank's lending strategy for FY86-90 reflects a significant shift in the size and scope of IBRD lending for industry. In support of this new emphasis by GOI on fostering an improved policy environment favoring industrial efficiency and increased exports, and on the recogni- tion of the importance of the industrial sector to the balance of payments specifically, and to the achievement of India's overall economic objec- tives generally. During this period, industrial lending is expected to increase as a percentage of total Bank Group operations, and Bank-financed industrial development projects will be shaped to support GOI's ongoing agenda for policy and institutional reform measures. The proposed project is the first of a series of industrial lending operations designed to complement and support the policy and institutional reform measures taken by GOI. These lending operations would be preceded by substantial sector work and would be designed to generate increases in industrial output, efficiency and exports. PART IV - THE PROJECT 58. The project was appraised by missions that visited India in August 1984 and January 1985. The Staff Appraisal Report (No 5649-IN, dated September 19, 1985) is being distributed separately to the Executive Directors. Negotiations were held in Washington, D.C. in August/September 1985, with the Borrower and ICICI represented by Mr. V.K. Malhotra of the Department of Economic Affairs, Ministry of Finance, as coordinator of the Indian delegation. A supplementary Project Data Sheet is attached as Annex III. Rationale for Bank Involvement 59. In discussing the need for reforms in the industrial sector, the Bank has consistently stated that, where the difficult steps are taken by the Government to achieve reforms, the Bank would support the initiatives with lending to finance the resultant stream of costs arising oat of those initiatives. 60. Given the new climate for increased competitiveness and profitable exports of manufactured goods described earlier, there is now a pressing need for institutional and financial support for firms investing in balancing, modernization, expansion and construction of new production facilities in the engineering products subsector. Private investments, amounting to about US$1 billion over the next three years, have been identified as being subject to the influence of the newly announced industrial and trade policies. The project would finance a portion of the foreign exchange requirements of eligible enterprises undertaking such investments and would, simultaneously, create the institutional measures that would allow these enterprises to compete internationally and to avail themselves of the necessary marketing and product development skills. 61. In the context of the reforms announced by GOI, the objectives of the project are to:  -20- (a) support GOI's policy and institutional reforms aimed at increasing competitiveness and exports of India's manufactured goods in line with its dynamic comparative advantage, with particular emphasis on constraints facing engineering products; (b) help ICICI play a more active role in promoting and financing projects that would improve efficiency and export performance of firms manufacturing engineering and other promising export- oriented products; (c) reorient the commercial banks' involvement in small and medium industry financing to give greater emphasis to modernization, specialization, and expansion, by building programs to finance engineering ancillaries; and (d) strengthen institutional and financial support provided by ICICI and the Export-Import Bank (Exim Bank) to individual companies committed to improving productivity and export marketing. 62. The project would consist of two loans: (a) GOI Loan: A US$90 million IBRD loan to GOI for (i) financing the foreign exchange costs of credits made by selected commercial banks to engineering ancillary firms for expansion and upgrading (US$70 million); (ii) financing a Productivity Fund in the amount of US$10 million to finance up to 50% of the cost of consultants, technicians and small hardware inputs required by engineering firms and ancillaries for improving product quality and plant productivity; and (iii) financing an Export Marketing Fund, in the amount of US$10 million, to finance up to 50% of the costs of eligible export development activities of firms engaged in export- ing products identified for export thrust; and (b) ICICI Loan: A US$160 million IBRD loan to ICICI, with Government guarantee, to finance the foreign exchange portion of ICICI's term loans for eligible export-oriented subprojects, of which US$100 million would be earmarked for engineering subprojects. Since the two loans finance interrelated components of the same project, both loans would become effective simultaneously. GOI Loan: Financing of Engineering Ancillaries and Support for Marketing and Productivity Initiatives 63. To achieve the objectives outlined above (para 61), the GOI loan would include a US$70 million component for ancillary financing. This portion of the IBRD Loan to GOI would finance the foreign currency portion of credits provided by participating commercial banks (PCBs) to engineer- ing ancillary firms. Eligibility for financing would be restricted to those firms which already supply a substantial part of their output to larger engineering firms or that have satisfactory arrangements for such a  -21- linkage. Preference would be given to firms which are subcontractors to engineering firms financed by ICICI. 64. The main features of the ancillary component are outlined in: (i) the IBRD Loan Agreement with GOI; (ii) Subsidiary Agreements between GOI and PCBs; and (iii) Statements of Policies and Operating Procedures of the PCBs. The legal agreements and policy statements specify, inter-alia: - the actions taken and planned by the PCBs to provide adequate organization, staffing and training to perform the engineering ancillary lending operation under this project components; - eligible activities, lending rates, arrangements for channelling the funds to the PCBs, procurement and disbursement requirements, appraisal standards, and provisions for subproject review; and - PCB quarterly reporting requirements covering commitments, disbursements, staffing positions for this activity, and supervi- sion and collection performance. The action programs developed by each PCB for implementing the project were reviewed and agreed at negotiations. 65. This component would finance the cost of importing equipment and inputs, and payments for import of technical know-how. IBRD-financed amounts onlent by PCBs for eligible engineering ancillary subprojects would not be repaid by the PCBs to GOI but would remain with the PCB as an equity contribution by GOI to the PCB. This equity conversion feature has been designed to provide a high level of incentive to the PCB's to comply with the new, demanding appraisal and selection criteria required under the project. Credits made by PCBs under this project component would be further limited to those companies which have less than US$2 million in fixed assets (excluding land and buildings) prior to the loan and which meet agreed economic and financial criteria. Such credits would be repayed to the commercial banks at a rate of 15Z with a repayment period of 3-10 years with 1-3 years' grace. The interest rate of 15% (which is the standard non-concessional rate for industrial term loans) would vary only if the rate is changed by RBI for all such loans in India. GOI would bear the foreign exchange and interest rate risk on these credits, since all eligible companies would be small- to medium-size companies that would be able to carry such risks. 66. Export Marketing Fund (EMF) (US$10 million). Under the proposed project, Exim Bank would manage an IBRD-financed US$10 million Fund to support export marketing programs undertaken by engineering enterprises. The Fund would be used to finance up to 50% of the cost of technical and advisory services and travel costs for the following activities: market research, minor product adaptation, justified overseas travel by company executives, product inspection services, training related to export marketing, planning and startup of overseas operations, and travel to India by potential buyers. In addition to these company-level measures, support would be given to strengthen service supply, trade information in small product-specific libraries, and group marketing activities. GOI  -22- would make the US$10 million available to Exim Bank in the form of a nonreimbursable contribution to Exim Bank and adoption by Exim's Board of a Statement of Policies and Operating Procedures, which is satisfactory to the Bank, would be a condition of effectiveness of the proposed loan. 67. The Productivity Fund (PF). Under the proposed project, ICICI would manage a US$10 million Productivity Fund financed by IBRD to support productivity programs undertaken by engineering enterprises. Financial assistance under the PF would cover up to 50Z of consultancy costs, tech- nical support and supervisor training and small hardware expenditures (individually not to exceed US$200,000 in PF funding) for acquiring new process/design know-how; and carrying out R&D programs for adapting products to export requirements, and removing production bottlenecks. PF financing would be in the form of nonreimbursable development expenditures. Adequate initial staffing of the Productivity Fund and adoption of a Statement of Policies and Operating Procedures by ICICI and the Steering Committee, which is satisfactory to the Bank, would be condi- tions of effectiveness of the proposed loan. ICICI Loan: Financing of Eligible Subloans 68. Under the propcsed project, an IBRD loan of US$160 million on standard Bank terms and conditions would be made to ICICI, with a GOI Guarantee, to finance the foreign exchange portion of ICICI export- oriented subloans for balancing, modernization, expansion, and new private sector investment projects that meet agreed eligibility criteria. Engineering subprojects and other investment projects would need to meet the following criteria, in addition to normal standards of financial viability: (a) firms would be chosen which manufacture products with strong export potential, confirmed by ICICI's market appraisal, as well as having attractive domestic resource costs and economic rates of return, and which demonstrate comparative advantage; (b) investments would be chosen that result in consistent with a significant expansion of sales to more demanding export markets. ICICI would establish that the quality, scale and productivity improvements would have significant impact on enhancing the expor- tability of a firm's products; and (c) firms would be approved after preparation of a strategic export plan which: (i) treats expanded exports as an important element of overall strategy, (ii) incorporates measures to reach interna- tional price and quality standards in the product-market segment in which the firm intends to concentrate, and (iii) includes appropriate marketing and technological arrangements which are consistent with a significant expansion in exports. Furthermore, priority would be given to firms that meet one or more of the following criteria: (a) investments geared exclusively to expanding exports; (b) products identified as "thrust industries"; (c) investments  -23- resulting in substantial development of ancillaries; and (d) firms that have the capabilities and plans for entering major Western markets. 69. The US$60 million component of the loan to ICICI for export- oriented enterprises in sector other than engineering (e.g. textiles, leather products, selected agro-industries and computer software) would help ICICI move the focus of its overall lending operations to include a higher proportion of export-oriented enterprises in general, building upon the promotional work already undertaken by ICICI. The loan to ICICI, with the unconditional guarantee of GOI, would be for 20 years, with 5 years' grace; the foreign exchange and interest rate risks would be borne by the sub-borrowers--all of whom are large enough to bear such risks. The onlending rate, at a margin of 2% over the standard variable rate charged by the Bank, provides an adequate coverage of ICICI's own costs. This interest rate (currently about 12%) is significantly less than that charged the PCBs' clients which do not carry the exchange and interest rate risk (see para 65 above). Project Implementation Arrangements 70. GOI Loan. For the ancillary financing component, it is expected that four banks-the State Bank of India, Bank of Baroda, Canara Bank, and the Punjab National Bank--would be PCBs and would take the lead in provid- ing this financing under the project. These banks are relatively efficient, have well-established term lending capabilities for smaller firms, and are in a position to execute the project with relatively modest changes in organization, staffing, and internal procedures. Each PCB would be required, under a Financial Agreement with GOI, to comply with agreed conditions of participation, including: (a) agreed organization, staffing, and training to help ensure effective implementation; (b) ratification by the PCB Board of a satisfactory Statement of Policies and Operating Procedures governing the implementation of this component; (c) installation of adequate procedures for appraisal, supervision, and collections; and (d) adoption of standard reporting formats. Completion of a Financial Agreement, satisfactory to the Bank, with at least two PCBs which meet the above criteria would be a condition of effectiveness of the proposed loan. 71. Export Marketing Fund. The EMF would be managed by a new group within Exim Bank, staffed by the Manager-EMF and four Produ-:t Officers, one at each regional center. Exim Bank would adopt and thereafter main- tain organizational arrangements, including staffing, that are satisfac- tory to the Bank. The Gperations of the EMF would be guided by the EMF Steering Committee, chaired by the Secretary of Commerce or his nominee, and including high-level representation from the Ministries of Finance and Industry, ICICI, Exim Bank, and representatives of the Association of Indian Engineering Industries (AIEI), and the Engineering Exports Promotion Council (EEPC). The Steering Committee would, inter alia, (a) spprove the Statement of Policies and Operating Procedures and any modifications thereto; (b) review the progress of the Fund, on the basis of quarterly reports submitted by Exim; and (c) decide on proposals involving more than US$50,000 in EMF support. GOI would delegate to Exim Bank the power to approve smaller proposals. Execution of a Financial  -24- Agreement between GOI and Exim Bank and adoption by Exim Bank of organiza- tional arrangements for the EMF, satisfactory to the Bank, would be condi- tions of effectiveness of the proposed loan. 72. Productivity Fund. ICICI would manage the US$10 million PF under the supervision of a Steering Committee, chaired by the Secretary, Heavy Industry or his nominee, and consisting of representatives of the Ministries of Industry and Finance, and of ICICI, and the Directorate-General of Technical Development (DGTD), and whose respon- sibilities would be to: (a) approve the Statement of Policies and Operating Procedures and any modifications thereto; (b) review quarterly reports prepared by ICICI on activities financed, end-use and impact; and (c) approve projects which involve PF financing in excess of US$100,000. Amounts below US$100,000 would be approved by ICICI. ICICI would estab- lish organizational arrangements, satisfactory to the Bank, for managing the PF and execute a Financial Agreement with GOI as conditions of effec- tiveness of the proposed loan. 73. ICICI Loan. Within ICICI, the Deputy General Manager (Operations) would be responsible for implementing the ICICI loan and the Productivity Fund; for liaison with the PCBs involved in financing engineering ancillaries; and for monitoring the results of the subprojects financed from proceeds of the loan. The division responsible for this work would be expanded by at least four professionally qualified staff members whose functions would be to enhance the economic analysis, export marketing and technical expertise of the Division. A new Unit has been created to manage the Productivity Fund. Adoption by ICICI of organizational arran- gements satisfactory to the Bank for carrying out its responsibilities under the project would be a condition of effectiveness of the proposed loan. 74. ICICI's financial performance has been impressive, particularly since 1981. During the 1981-1984 period, net profits after tax (expressed as a percentage of average net worth) averaged 23%, compared with 16% in 1980. The quality of ICICI's loan portfolio remains sound. At the end of 1984, there were 241 subprojects in arrears and the amount of principal in arrears totaled Rs 195 million, or 1.3% of the total principal outstanding. Collection ratios have averaged over 85% during the 1980-1984 period and the majority of ICICI's loans are secured by fixed assets. Reserves are adequate to cover potential write-offs. With regard to the future, ICICI's management expects its lending operations to increase by 20% per annum, in current prices, during the period 1985-1989. In 1984, ICICI's subproject approvals totaled Rs 5.2 billion and are projected to reach Rs 13.0 billion by 1989. Foreign exchange loans are expected to average 30% of its annual lending volume and ICICI will con- tinue to rely on commercial borrowings for the majority of its foreign exchange requirements. If the loan collection ratio remains above 80%, ICICI's debt-service coverage ratio should remain above 1.2:1 through the period 1985-1989. With its past performance and strong management, the Bank judges that ICICI should not have difficulty complying with the minimum debt service requirement of 1.1:1 under the project. ICICI's debt:equity ratio is projected to remain well below the 12:1 limit required under the project.  -25- 75. Foreign Commercial Borrowing. From January 1, 1985 through June 30, 1987, ICICI will need about US$490 million equivalent to meet its total foreign exchange requirements. Under the project, ICICI would, by December 31, 1988, undertake to mobilize foreign commercial borrowings to at least match the US$160 million of IBRD funding. ICICI is expected to continue blending commercial and IBRD funds in financing subprojects. ICICI has established a sound reputation with international banks and can be expected to borrow internationally at very favorable terms. 76. Strategy Statement. Under a previous Bank project, ICICI adopted a Statement of Financial and Operating Strategy that set out a general lending strategy. Under the proposed project, ICICI would amend its Strategy Statement to reflect the expanded emphasis on export-oriented projects (particularly on engineering products); the inclusion in its operations of the proposed Productivity Fund; the need for coordination with the Exim Bank and the commercial banks; and the establishment of appropriate project monitoring and evaluation mechanisms. Receipt of this revised statement, approved by the ICICI Board, in a form satisfactory to the Bank, would be a condition of effectiveness of the proposed loan. Project Financing Plan 77. The project would involve total financing of approximately US$1.0 billion, of which approximately US$410 million would be foreign exchange costs covered by IBRD and parallel commercial borrowing. These amounts are estimated on the basis of firm-level analysis of investment demand in response to the recent policy changes and on the institutional capabilities in financing subprojects that meet the agreed eligibility criteria. Financing of the total project requirements would be as out- lined on page (iii) of the Loan and Project Summary. Subproject Review, Procurement, Disbursement 78. Subproject Review. For the credits by PCBs, the Bank would review and approve the first five credits of each PCB and, if these first credits are found acceptable, only those credits above a $250,000 free limit would require prior IBRD review and approval. For ICICI subloans, as under the previous IBRD loans, subprojects for which cumulative Bank financing does not exceed US$6.0 million equivalent (the free limit) would not require prior Bank approval. ICICI would provide the Bank with copies of the export plans, product-market assessments, and an assessment of the extent to which the subproject would improve the competitiveness of the enterprise for all export-oriented subprojects. 79. Procurement for goods financed under the proposed ICICI loan would be in accordance with ICICI's standard procurement procedures which are based on the evaluation of at least three quotations. For goods procured by PCBs under the GOI loan, procurement would follow normal commercial practices and, for items costing in excess of US$20,000, PCBs would evaluate a firm's proposal based on three quotations. The Bank would disburse against Statements of Expenditure provided by PCBs. PCBs would retain supporting documents for periodical review by Bank staff. PCBs  -26- would submit quarterly reports on activities and impact of the project and project accounts would be audited annually. Full documentation would be maintained by the PCBs and ICICI, to be available to Bank staff when required. In accordance with normal DFC practices, eligible expenditures incurred up to 90 days prior to the Bank's receipt of a subloan applica- tion would be eligible for financing. 80. Disbursements under the project would be made against 100l of the foreign exchange costs of Engineering Ancillary Projects with the restric- tion that minimum and maximum reimbursement amounts would be set at US$50,000 and US$500,000, respectively; 10OZ of the foreign exchange costs of the Engineering Industry or Investment projects; and 50% of the cost of eligible Export-Marketing and Productivity Fund expenditures. Both the ICICI and Exim Bank would make payments for eligible expenditures under the funds and seek reimbursement from the Bank. The disbursement profile is based on historical disbursement patterns experienced by ICICI and the PCBs for projects of similar size and complexity in India. 81. Reporting, Accounts, and Auditing. The accounts of the PCB, ICICI and of the EMF and PF would be audited by independent auditors acceptable to the Bank. In addition to preparing regular reports on its operations, both ICICI and the PCBs would provide quarterly progress reports on activities under the project, including: enterprises financed, broken down by product groups, firm-level export plans and actual exports, and impact of activities financed on productivity improvements and export growth. ICICI would also prepare biannual reports in agreed formats evaluating the impact of industrial and trade policies and the Industrial Export Project on: institutional development, activities financed, and competitiveness and exports of engineering projects. Project Benefits and Risks 82. Benefits. The two main benefits of the policy changes introduced recently are, firstly, that Indian manufacturers will be able to reduce costs and upgrade the quality of their output to internationally accepted stanidards and, second, the profitability of engineering goods sold in international markets will be improved relative to domestic sales. This will come about as a result of reduced duties on imported inputs, and tax exemptions on export profits as noted earlier. Increased domestic com- petition is both inevitable and welcome. While it is not possible to accurately determine the incremental volume of exports generated by the project, given reasonable assumptions of incremental capital output ratios for engineering investments, up to US$500 million of incremental output per year can be expected from the project. As the export incentives take hold, a substantial portion of the incremental output would be exported. While economies of scale will result in a reduction of employment per unit of output, the overall expansion of capacity would result in a net increase in employment in the subsector. 83. The project would also have substantial non-quantifiable institu- tional benefits. ICICI would be active in the financial support of firm level moves to increase competitiveness and exports. The Productivity Fund would support individual engineering firms in determining measures to  -27- improve quality, scale, and efficiency, and provide ICICI with a strong promotional tool and means of strengthening its own technical appraisal capacity. The project represents the first participation by Indian com- mercial banks in an IBRD-financed industrial development project. Their responsibility for financing engineering ancillaries will help shift the banks' focus away from a continued proliferation of small industries towards a program of financing firms to grow, modernize and specialize as ancillaries. The institutional upgrading that will inevitably result from the project should provide new opportunities for substantial future industrial lending through the commercial banks. GOI's decision that the proceeds of the IBRD loan remain with participating banks as equity will contribute to the capital base of the commercial banks, while providing a strong incentive for the commercial banks to meet project objectives. 84. Both the Productivity and Export Marketing funds embody the recog- nition that improvements in efficiency and export marketing are best undertaken at the initiative of individual firms. The funds will encourage the exposure of Indian companies to outside markets, competitors, and technical expertise-which is essential in achieving international competitiveness and significant market penetration. The cost sharing formula, combined with ICICI and Exim Bank screening and advice, will help ensure that the activities financed will support strategic moves to increase productivity and exports. By having two efficient financial intermediaries administer these funds, with substan- tial delegated powers, the normal procedural delays affecting such private sector activities will be avoided. 85. The sector and preparation work preceding the processing of the proposed Industrial Export Project--and the positioning of the project to complement the policy reforms recently taken by GOI-represent a means by which the Bank can contribute to policy analysis and change. ICICI's role in export and subsector development, combined with the involvement by commercial banks and Exim Bank in the project, should represent effective implementing arrangements for this and subsequent industrial lending operations involving financial intermediaries. Risks 86. The principal risks are that GOI may not sustain the policy initiatives taken and/or that procedural problems would undermine the impact of these policy changes. With respect to the former, there is every indication that the new Government has both the political will and the institutional capabilities to make further positive changes in industrial and trade policies-the blueprints for these changes will be articulated in the Seventh Plan documents. The possibility exists that GOI, if faced with heavy imports but no corresponding rise in exports, could re-impose temporary control measures to avoid adverse effects on the country's balance of payments. However, while there will clearly be an adverse impact on the balance of payments as investments precede incremen- tal output and exports, the emphasis in this project on lending only to those enterprises that have already well-developed export marketing plans should reduce the time lag between the investment and subsequent exports and so contain that risk. The risk that procedural problems could under-  -28- mine the initiatives has been minimized by the Government itself in its choice of measures taken towards reform--it has chosen those policies that do not require Parliamentary debate and/or approval for change--thereby minimizing the chance of procedural delays. As with all projects, there is a risk that the capabilities of the implementing agencies will be inadequate to commit the funds on schedule to sub-projects that meet the agreed eligibility criteria. Experience to date with ICICI suggests that this is unlikely for the ICICI loan, but there has been no prior experience with the PCBs, and close supervision in the early stage of the project is planned. PART V - RECOMMENDATION 87. I am satisiied that the proposed loans would comply with the Articles of Agreement of the Bank, and recommend that the Executive Directors approve the proposed loans. A.W. Clausen President September 26, 1985  ANNEX 1 T A a L K I Page 1 of 6 INnIA - CIIL INDS IU DTA mntr INDIA HECNFEClE ;lOPS (SEIGHTED AVkM) t "DST (cMS ReT ShTIHAT) Ib EiuT LOW INC11 HIDOLC t18O0 L9SOL. 1970mL BSTtIATk ASIA & PACIVIC ASIA 6 PACIFIC TOTAL 32S7.6 3287.6 3287.6 AGRCUiaLTURAL 1763.5 17EO.5 lot 1.4 1M CAPITA (US) .. .. 260.0 275.3 1U01.1 EaT miueTIo am CrizA (KILOUJ OF OIL F4UIVALrNT) 79.0 113.0 153.0 285.7 5o6.a POPES SA VTrAL STAIT11CI POPUIATIUN.2UD-TYEAK (TRotSAM) 434849.0 547569.0 733268.0 MRMs PomATnIO CZ or TOTA) 18.0 19.8 24.4 22.3 35.9 MUIATION mozCxTcnS POPUATION IN EAX 20.00 DLL) 994.4 STATIONACIU PULATION ('LL) 1700.0 PoPULATION Meima 1.8 POPUlATION Sm PER SQ. 86. 132.3 16b.6 223.0 173.5 3b6.9 MP SQ. IM. ASGR. LAND 266.6 307.5 395.8 353.3 1591.2 POPULATION AGE ST1CTURc (C) 0-14 UXS 60.6 42.7 39.5 3t.3 38.2 15-64 TRS 54.4 54.1 56.5 59.4 51.7 65 AND AOE 6.6 3.0 3.9 4.3 3.5 POPULATION GRl RATE (I) TOAL 1.6 2.3 2.2 2.0 2.3 URBAN 2.5 3.3 3.9 4.1 4.1 CRUDE U1RTH PATE (P_tR 1D8) 47.7 41.5 33.9 27.5 30.1 CWDe CAT RATE (PlR THO0S) 23.9 17.9 12.5 10.2 9.4 GROSS EEPRtO=TION RATE 2.9 2.8 2.3 1.7 1.9 FAMILT PLANUING ACCRTORS. ANNUAL (THOUS) 64.0 3782.0 6826.0 kc usERS (or HAReD mR) .. 11.7 32.0 49.4 56.5 O A-D mm Ina OR FDOD PROD. PER CAPITA (1969-71-100) 98.0 102.0 113.0 116.6 124.4 PER CAPITA SOPPLT OF CALORaES (t OF REOIIIIEHNTS) 95.0 91.0 92.0 106.3 11b.7 PROTEI (CRAIS PER DAY) 56.0 50.0 50.0 61.1 60.3 Ur mIeCH MIKTAL ANFD PULSE 17.0 15.0 13.0 Id 14.4 14.1 t11W CAGES 1-4) DEATH RE 26.3 19.7 11.0 7.3 7.2 NlIE LIFE SElEECr. AT KIUTE (tEWS) 4.2 47.3 54.9 60.5 60.6 lNFbNT ICORr. RATE (PR THOUS) 165.0 139.0 93.0 69.2 64.9 ACCESS TO SAE EATER (CZoP) TOTAL .. 17.0 41.0 Ic 44.2 46.0 URBAN a . 60.0 77.0 7 77.2 57.6 tMRLL .. 6.0 31.07e 34.6 37.1 ACCCSS TO CXCR1A DSPOSAL (Z OF POPULATION) TOrAL .. 18.0 6.0 IC 7.6 50.1 UR .. 85.0 27.0 7 28.8 52.9 RuRAL .. 1.0 1.0 7 5.5 44.7 POPULATION PER PHYSICIAN 4850.0 4890.0 3690.0 I 3318.0 7751.7 POP. PER NURSIN PERSON 10980.0 if 7420.0 5460.0 7- 4690.7 2464.8 POP. PER HOSITAL MD TOTAL 2180.0 1050.0 1290.0 i 1039.2 1112.1 URUAN .. .. 370.0A 299.1 651.4 RURAL .. .. 10430.0 6028.2 259b.9 ADfMSSIONS PER HDSPITAL BED .. .. .. 52.3 41.1 NDS_l AVERSrE SUE OF 11OtISE-OLD TOTAL 5.2 5.6 URBA 5.2 5.6 RURAL 5.2 5.6 AVERSE Ho. OF PERSONS/ROIIS TOTAL 2.6 2.8 URBW 2.6 2.8 RURAL 2.6 2.8 PERcENTAGE OF SIU.zIXGS WTrH ELECT. TOTAL .. .. URBk ... RURAL  ANNEX 1 TAILS 3A Page 2 of 6 INDIA - SOCIAL INDICATORS DATA Sit INDIA REFERENCE GROUPS (NEICNITD AVERCES) Ia HOST (HOST RECENT ESTIATE) /b ItCCENT LOW INCOE HIDDLE nICONC 1960t!! 1970!!t RES AT11_1b ASIA PACIFIC ASIA & PACInC ADJIUSTED UROLUWT RATIOS VIINAt TOTAL 61.0 73.0 79.0 / 92.6 100.7 UALE 80.0 90.0 93.0 a 105.5 104.4 PFEWAL 40.0 56.0 64.0 _ 79.3 97.2 SECONDARY: TOTAL 20.0 26.0 30.0 /c 31.3 47.8 MALE 30.0 36.0 39.o 7f 40.6 50.6 FUtILE 10.0 15.0 20.0 We 21.9 44.8 VOCATIONAL (Z OF SECONDARY) 2.8 1.0 .. 3.2 15.4 PUPIL-TEACHE RATIO P1(L4 46.0 41.0 54.0 Ic 38.0 30.4 SECONDAtY 16.0 21.0 .. 17.4 22.2 CANWTNION PASSEE CIRS/ITHOUSAND POP 0.6 1.1 1.4 /h 0.1 10.1 RADIO RECIVERS/ITOOSAND POP 4.9 21.5 55.8 129.8 172.9 TV RECEIVERSITHOOSAND POP 0.0 0.0 2.9 19.8 58.5 NESP!APER ("DATLY CJERAL NrTfST') CIRCUATION PER THOOSMD POPULATION 10.6 16.2 19.4 /h 25.7 65.3 CINERA ANNUAL AITMNDAICZICAPITA 3.2 6.2 6.6 6.0 3.4 LA Y TOTAL LABO 1ORCZ( CIS) 185951.0 219194.0 284251.0 FEKALE (PERCENT) 30.7 32.5 31.4 33.2 33.6 ASRIKlCOILTURE (PERCET) 74.0 74.0 71.0 Ic 69.6 52.2 INDSTY (CERN)