India - Country assistance strategy : progress report

20184 INDIA COUNTRY ASSISTANCE STRATEGY Progress Report January 26,1999   i Executive Summary i. From a global perspective, India's 5% growth achieved in 1998-99 is impressive. However, it is down from the 7% of the mid-nineties, 1998 export growth will likely be zero or slightly negative, and the public sector consolidated deficit has remained at just below 10%. There has been some progress on structural reforms at the central level, but in general the pace of reforrm is slow. At the states' level, overall momentum for reform is growing, though actual progress shows increasing differentiation. ii. The last CAS, discussed by the Board on January 15, 1998, was based on a vision of India for the year 2010 under which India would be able to achieve the DAC Development Objectives by, among other things, reducing poverty to 15% and halving the proportion of malnourished children. The strategy was accordingly built around the overarching objective of poverty reduction through accelerated growth and social development. Towards this objective and, at the same time, recognizing the need for selectivity, the CAS included five main components: a focus on reforming states; a parallel focus on key sectoral reforms; poverty alleviation, especially through a large human development program; increased priority to social and environmental impacts; and private sector development. Progress has been made with respect to all five major elements of the CAS strategy. In particular, the "reforming states" theme of the strategy is now delivering, and the Bank is facing the prospect of excess demand for its resources - exactly the sort of competition among states which the strategy set out to provoke. iii. CAS implementation in FY98 was complicated, however, by the request made by a number of countries in May 1998, in response to India's nuclear tests, to restrict Bank lending to "Basic Human Needs". With the concurrence of the Indian authorities, Bank management postponed Board discussion of four projects in FY98, comprising total IBRD/IDA loans and credits of about US$1 billion. Moreover, no IFC project for India has been presented to the Board since May 1998. This has resulted in reduced lending for much needed infrastructure investments and support for policy reform, and a lower level of assistance to the private sector. iv. The FY98 CAS set out two lending scenarios - a base case and a low case - and identified triggers for moving between them. On account of its failure to reduce the fiscal deficit and a slow pace of structural reform, and even though the external environment is worse than anticipated at the time of the last CAS, India must be regarded as having moved to the border between the base case and low case, still in the former but heading in the direction of the latter. The lending program has been adjusted accordingly. Fifteen projects were prepared in FY98 with a lending volume of over US$3 billion (though Board consideration of four projects worth more than US$1 billion was indefinitely postponed) and FY99 lending volume is prograrnmed to fall to about US$1.9 billion (excluding the delayed projects and if no further projects are postponed) putting India between the low and base cases. Realizing the base case scenario for FY00 and FY01 will require improved policy and fiscal performance. v. The Indian economy faces significant downside risks -- largely related to its fiscal position, but also to a slowdown in export growth -- and reform efforts will need to be intensified to increase the growth rate. There are three main and inter-related sources of risks: macroeconomic deterioration, further worsening of the international environment, and an uncertain domestic political environment. These risks were all identified in the CAS, but have all intensified since then. Our policy dialogue is stressing the need for and advising on faster and more comprehensive reform as the best response to adverse intemational circumstances. Our lending program is also adjusting, including to give greater emphasis to fiscal reform at the state level. vi. With these adjustments, the FY98-00 CAS remains valid and relevant to India. But there are also a number of emerging issues, which, while consistent with the broad parameters of the current strategy, may demand more explicit attention at the time of the next CAS. These include adopting a more strategic approach towards decentralization of govemment operations, and promoting private sector participation in "non-traditional" sectors such as education and health, in addition to infrastructure and through privatization.   INDIA COUNTRY ASSISTANCE STRATEGY - PROGRESS REPORT I. Introduction 1. The last full Country Assistance Strategy (CAS) was discussed by the Board on January 15, 1998. This progress report provides an update on political and economic developments, and on this basis reviews CAS implementation and strategies. As with the CAS itself, this progress report has been prepared by IBRDIIDA and IFC, in consultation with MIGA, and discussed with the Government of India. II. Political, Economic, and Policy Developments 2. Political developments. National elections in March 1998 resulted in another coalition, led by the nationalistic Bharatiya Janata Party (BJP), replacing the United Front. The BJP holds only 181 of the 545 parliamentary seats and to govem relies on 13 partners, mostly small, regional parties. Since assuming office, the coalition has been under threat from its partners and from within the BJP itself. November elections in three major states ousted two BJP-led governments on the issue of high food prices. Despite Congress Party wins in all three states, a change in national government is unlikely in the near future due to the difficulties of obtaining a clear majority and the economic slowdown, which reduces the attraction of governing for a challenger. 3. India's external environment worsened in 1998. In addition to the impact of the East Asian crisis, India's nuclear tests, in May 1998, contributed to a deterioration in its external environment including a freeze on certain types of new bilateral and multilateral aid commitments (para. 42). However, India avoided much of the short-term capital flight experienced in the East Asian crisis countries due to its capital controls and low short-term external debt. Brief speculative attacks have been met by a combination of small depreciations, monetary tightening and reserve sales. 4. GDP growth of about 5% in 1998-99 is similar to 1997-98, but down from the 7.1% average of 1993 to 1996. India's agriculture rebounded in 1998-99 and service growth continues strong, but industrial growth remains much lower than in the boom years. Increasing or even sustaining this growth rate in the coming years will be a challenge unless the reform process intensifies. Inflation has fallen back to about 5% (Wholesale Price Index), roughly the same as last year, after rising because of temporary shortages of a few commodities, such as onions. Money growth is slightly up at 19% compared to 18% in 1997. 5. Exports (measured in real terms) are likely to be flat or slightly declining in 1998-99, in contrast to the average 16% p.a. growth during 1993-96. The main cause is the slowdown in world trade. But India's share of world trade has also declined recently, in contrast to the mid-90s when it rose every year. India's exports are already facing increased competition from East Asia, and this will intensify. Sector work on exports, recently requested by the Ministry of Finance, shows that export growth will accelerate only if exporting is kept profitable by policy measures to liberalize and de-bureaucratize trade and reduce infrastructure costs and congestion. Import growth has been kept down by falling oil prices, but pushed up by the legalization of gold imports. Non-oil non-gold imports are growing at about 8%. 6. The current account deficit worsened to about 2.2% of GDP (US$8+ billion) in 1998-99, still below the 3% level identified as sustainable in the last CAS but higher than the 1.4% of GDP (US$6.4 billion) in 1997- 98. In spite of this rise in the current account deficit, the recent low external borrowings, the large share of  2 concessional debt (37%), and the export growth before 1997-98 mean that the debt service ratio remains below 20% of exports. International reserves of more than US$26 billion in foreign exchange (over 5 months of imports) and US$2.5 billion of gold provide a reasonable foreign exchange cushion, especially given India's capital controls, low short-term external debt (US$5 billion) and portfolio investment (with a market value estimated at US$5 billion). 7. India's large public sector deficit remains its most important macroeconomic weakness. The central government deficit is likely to be 6% of GDP in 1998-99, somewhat worse than budgeted due to shortfalls in excise and customs duties, and about the same as the last two years. The states' combined deficit for 1998-99 will likely remain at about 3.5% of GDP (para. 14). Adding also the public enterprises gives India's consolidated non-financial public sector deficit, which is also likely to remain at about 10%, where it has been since 1996-97. Such a high deficit crowds out private sector borrowing and results in high interest rates, and also raises macroeconomic risks. Lack of progress on the deficit after the cuts of 1991 and 1992 can be explained by the difficulties involved in cutting subsidies (estimated at 14% of GDP), especially when governments are politically weak and, recently, by the economic slowdown. 8. Concemning thefinancial sector, a report on the banking sector, currently under preparation, has found that India's commercial banks have low exposure to real estate, stocks, and short- and long-term external debt compared to East Asian banks. Public banks' net non-performing assets were officially estimated for March 1998 at 3.3% of assets and less than 2% of GDP, down substantially from 1992-93 when reporting standards were tightened, down somewhat from the time of the last CAS, and well below the levels seen in East Asia prior to that region's crisis. However, non-perfonning assets may now be rising as a result of over-capacity and increased competition in India's capital-intensive industries, especially in the development banks that are heavily exposed to these sectors. A rapid, market-based resolution of the non-performing assets will reallocate resources to more productive uses, mitigate economic dislocation, and preserve investor confidence. 9. The Government, through the Reserve Bank of India (RBI), continues to strengthen the banking system. The most recent monetary policy statement raised capital requirements to 9% of risk-weighted assets (25 of 27 public sector banks already meet the 9% standard) and imposed a risk weight of 2.5% on government debt, with a promise of a further rise of 2.5%, and tightening of non-performing asset definitions and provisioning. However, weaknesses remain in many aspects, as recognized in a recent expert comnmittee report to the government on the banking sector. Areas requiring attention include auditing, provisioning, supervision, the legal basis for debt recovery, the tightening of recognition for non-performing assets to 90 days from the current 180, and, ultimately, the dominance of the public banks, which is a root cause of many of the sector's problems. 10. Outside the banking sector, the main financial sector issue is the public mutual fund's large unfunded liabilities, linked to its guarantee of high retums, which are likely to further increase pressures to loosen monetary and fiscal policy. 11. Structural policy reform shows mixed results, and the general pace of reform is slow at the central level. In trade policy, India remains on track in its 6-year schedule to eliminate quantitative restrictions on consumer goods imports. However, the 1998 Budget's imposition of a 4% additional duty marks a clear reversal of trade liberalization, and has increased tariffs from a 31% average rate in June 1997, already among the highest in the world, to about 40% currently. Inforeign investment regulation, the Goverunent has submitted to Parliament a bill allowing foreign investment in insurance, passage of which, if it is not watered down by caveats, would be a major step forward. Foreign investment in pharmaceuticals will be encouraged by the new Patents Bill, which is in line with WTO requirements. In the area of privatization, the Government's budget speech announced its willingness to reduce the Government's shareholding to 26% in the "generality of cases". The Government also has sold shares in the Container Corporation of India (CONCOR), despite the weakness of  3 equity markets, in order to show its commitment to privatization, and announced intentions to sell shares in four other companies. In infrastructure, many policy, legal and regulatory issues remain to be resolved before more private investment occurs. On transport, the Government has developed and released a model concession agreement for private participation in the national highway system. Urban development will receive a boost from the deregulation of land markets through the Government's abolition of the Urban Land Ceiling Act. 12. State reform. Overall momentum for reform is growing at the state level, though actual progress shows increasing differentiation. Andhra Pradesh (AP) continues to lead the refor-m pack, with a comprehensive policy program covering power, irrigation (passage of reform legislation, establishment of thousands of water user associations, and transfer of irrigation assets to the same), public enterprise restructuring and privatization, and fiscal reform (VAT adoption, civil service downsizing, and improved public expenditure management). AP has also been the most successful of the Indian states in projecting itself intemationally, which has assisted it in attracting foreign direct investment. 13. Andhra Pradesh's northem neighbor, Orissa, has a lower profile, but also an impressive reform record covering the power sector, public sector enterprise reform and private participation in infrastructure. Orissa has recently sold off 49% of its thermal power generation company -- the first of its kind in India and the largest privatization by a state -- and is in the process of selling off majority stakes in its distribution companies. Other states showing an increasing commitment to reform include Haryana (especially in the power sector), Gujarat (public enterprise reforn, private participation in infrastructure), Madhya Pradesh and Uttar Pradesh. 14. Both reforming and non-reforming states are struggling to make the fiscal adjustments needed if the public sector deficit is to be brought under control. The states' combined fiscal deficit improved in 1996/97 to 2.8% of GDP but reverted to 3.6% in 1997/98, and will come under pressure this year as central government wage settlements filter down, and revenues from the center fall short of their original targets. Some of the poorer states have become highly indebted (e.g., Orissa and Uttar Pradesh) and many are on fiscally unsustainable paths with growing interest-to-revenue ratios crowding out capital investments and non-wage maintenance expenditure. Moving on to a sustainable fiscal path will be a challenge for most states. While some have started to put the appropriate frameworks and policy measures in place, faster and more comprehensive reforms are needed, and are likely to be seen as fiscally-stressed states run out of other options. 1II. Progress in CAS implementation 15. The FY98 CAS was based on a vision of India for the year 2010 under which India would be able to achieve the Development Assistance Commnittee (DAC) Development Objectives by, among other things, reducing poverty to 15% and halving the proportion of malnourished children. To assist in the realization of this vision, the CAS was built around the overarching objective of poverty reduction through accelerated growth and social development. Towards this objective and, at the same time, recognizing the need for selectivity, the CAS included five main components: * concentration of assistance in states and programs that choose to commit strongly to reforms; * support to key areas of policy reforms through early engagement and the building of consensus and ownership with partner clients; * focus on poverty alleviation activities, particularly a large IDA-supported prograrn in the social sectors; * increased priority to the social and environmental impacts of the Bank's operations; and * promotion of private sector development, including in the financial sector.  4 Progress in relation to these five CAS elements is summarized in the paragraph following. Progress in terms of the FY98-00 CAS Country Program Matrix is given in Annex 1. Focus on reforming states 16. The use of IBRD/IDA resources to facilitate and encourage much-needed state-level reforms is the center-piece of the CAS. While the Bank has been supporting sector-specific reforms at the state level for some tirne, the strategy now is to base lending on a shared policy agreement between the Bank Group and the reforming state. 17. The most significant progress has been in Andhra Pradesh, India's leading reform state. Over the past year, the Bank has committed to a large program of support for the State's comprehensive reform program. A key component of the Bank's program was the US$543 million financing package in support of the Andhra Pradesh Economic Restructuring Project (APERP) which was approved in June 1998. APERP's multi-sectoral expenditure program covering human development (nutrition, primary health and education) and rural infrastructure is embedded in an agreed five-year policy framework designed to ensure sustainability not just of the project investments but of the State's fiscal position. Implementation of APERP is ahead of schedule. The State Government has also made important progress on the power sector reform program. The other key component of the Bank's program in AP is the Power Sector Restructuring Project being presented to the Board together with this Progress Report. 18. Andhra Pradesh's comprehensive reform program and the Bank's strong support for it have gained considerable attention and generated a demonstration effect among many states in the country. Progress has been made in identifying other reforming states, and in working with them towards a shared position on policy and fiscal issues to underwrite expanded state-based lending programs. The key partnership criteria include a commitment to fiscal sustainability, and a willingness to undertake comprehensive sectoral reforms (e.g., in power and irrigation), without which both fiscal sustainability and accelerated growth will be very difficult to achieve. Given the difficulty which even leading reformers like AP and Orissa are having in achieving fiscal sustainability (para. 14), the Bank is giving increasing priority to this goal, and is now in dialogue with the Govemnment of India concerning lending specifically to support state-level fiscal adjustment (para. 56). 19. States in which the Bank has initiated intensive dialogue on support for state reform now include, in addition to AP, Orissa, Rajasthan, and Uttar Pradesh. These three states, with a combined population of 240 million, have high poverty levels and/or social indicators; accelerating their economic and social development is critical if the large and growing gaps in living standards across Indian states are to be narrowed. The Asian Development Bank is adopting a similar approach of focusing on reforming states, including program lending, and is developing partnerships with Gujarat and Madhya Pradesh. 20. Uttar Pradesh, India's largest state with a population of 160 million, represents a particular challenge and will require substantial resources and attention in the coming year. It is suffering acute financial difficulties, and recently requested the Bank to undertake a study, now completed, of the state's economic and fiscal position. Intensive discussions are underway on a policy-based lending program. While the rewards are high given the state's size and its high poverty, so too are the risks arising from the state's political environmnent and weak reform record. The development of a long-term relationship based on a carefully phased support program will be critical.  S Supportfor policy reforms 21. The power sector remains the flagship of the Bank Group's efforts to support policy reform through long-term partnerships. Orissa, supported by a Power Restructuring Loan approved in 1996, is the most advanced in its reform program (para. 13). Two other state-level reform programs are now underway, and others are under formulation. The Haryana Power Sector Restructuring Program is being supported by the Bank's first Adaptable Program Loan (APL), while the Andhra Pradesh Power Sector Restructuring Project is proposed also to be supported by an APL. Experience with the APLs has been very positive to date. The Andhra Pradesh APL has helped build political support for reform by enabling an early engagement in the context of a long-term program, while the milestones for future loans within the Haryana APL are helping sustain that state's reform program. 22. In the road sector, gradual reform has led to a situation in which major engineering and design studies as well as road construction and maintenance of civil works, traditionally undertaken by the states' public works departments (PWDs) and the national Ministry of Surface Transport, are now largely outsourced to the private sector, regardless of funding. This represents a major change in the functioning of the road sector and reflects the Bank's policy-based dialogue and lending over the last few years. Reform efforts continue to be backed by a strong lending program, albeit badly affected by the postponement of several projects (para. 42), with a focus on ensuring increased and sustainable maintenance funding and on rationalizing the structure and staffing of PWDs. 23. In the rural sector, policy performance has been mixed. Preparation of the Rural Development paper is expected to provide the basis for intensifying the policy dialogue. In the urban sector, the reforms introduced by the recent 74th constitutional amendment concerning decentralization to local government are taking root in the states, albeit at variable speeds. The Bank's assistance to states and their municipalities aimed at facilitating the decentralization process is expanding significantly, with projects under preparation in Tamil Nadu, Karnataka, and West Bengal, states selected for their progressive approach to decentralization and their municipalities' interest in improving the delivery of municipal services. In urban water supply and sanitation, progress has been limited in promoting the policy and institutional reforms needed to improve the technical and financial performance of existing water utilities in large cities, and facilitate private sector participation. 24. Governance is receiving increased prominence since being introduced into the FY98 CAS. Many of the policy and institutional reforms being promoted through the lending program are expected to reduce opportunities for discretion (e.g., independent regulation in the power sector). The increasing reliance on external monitoring of Bank-financed projects is promoting greater transparency. The formation of user groups through many Bank-financed rural projects (para. 29) and the associated social mobilization are a grass-roots and effective means to strengthen accountability in the delivery of public services. Governance issues are increasingly key to our non-lending services as well. The Uttar Pradesh economic report, referred to earlier, was the first of our state reports to include a chapter on governance. A proposal to undertake work on corruption is currently under discussion with the Government of India. The FY99 India Structural Policy Review, one of the Bank's pilots, has governance as a central focus. It will use international benchmarks to highlight key institutional reforms required to strengthen govemance in such areas as the civil service, budgeting, and expenditure management. The report will draw on the increasing volume of governance-related work being undertaken by non-government groups in India, such as the work done by Project LARGE on the procedural weaknesses and inadequate resources of the overburdened judicial system. Poverty alleviation 25. The priority given by the CAS to human resource development as a tool of poverty alleviation was reflected in the 1998 India Poverty Assessment. The 1997 Poverty Assessment focused on poverty trends over  6 time, and reported on new research demonstrating the close link in India between growth and poverty decline. That report also underscored the need to accelerate the development of the country's human resources both to sustain growth and to reduce poverty. Accordingly, the 1998 Poverty Assessment turned to the second key component of poverty reduction, namely expanding the poor's access to education and health. The central finding of the report was that the success of education and public health in reaching the poor depends not only on more spending but also on improving the quality of services. This finding was backed up by qualitative surveys in India's poorest districts in Uttar Pradesh and Bihar, and by new empirical work of the degree to which the poor benefit from public spending on education, health and anti-poverty programs, all of which pointed to large discrepancies in access related to income and gender. The report argued for a targeting of govermnent spending on primary education, the reduction of communicable diseases, water and sanitation, and public works programs, as well as an array of measures to improve the quality of these programs. 26. In health, Bank assistance has accelerated for states that commit strongly to the reform of their state health systems, with the approval of two health system projects in Orissa and Maharashtra as well as the primary health component of the Andhra Pradesh Economic Restructuring Project (para. 17). The other four ongoing state-based health system projects are beginning to demonstrate positive results. They are leading to the use of efficiency and quality indicators in management decision-making in the health sector for the first time. In three out of four states, the government budget on primary and secondary health is increasing resulting, among other things, in improved drug availability. And revenue from user charges is increasing in all four states. 27. While the Bank and Government have been moving increasingly to state-based collaboration in health, we have continued to work at the central level to help consolidate some of the centrally-sponsored schemes. The on-going family-welfare, HIV/AIDS, leprosy, and blindness control projects are all performing well. A new major HIV/AIDS project has just been appraised. However, personnel changes and slow clearances in the Central Ministry of Health have recently slowed down processing and implementation of some critical centrally-sponsored projects, including malaria and tuberculosis, resulting in delay, unsatisfactory implementation ratings, and, in one case, suspension. In another instance, a proposed project has been dropped after appraisal, leading to uncertainly regarding the Ministry's commitment to the shared strategic vision that has governed our work in health with India over the last decade. A review of the Bank's involvement in centrally-sponsored health schemes will therefore be initiated with the concerned central ministries and agencies. If the deterioration in performance of the affected central projects is not reversed over the next fiscal year, we will focus even more than earlier planned on working through reforming states. 28. In the education sector, IDA's support to India's District Primary Education Program (DPEP) continues to expand, with a project component under the APERP, and preparation of two more projects in Rajasthan and Uttar Pradesh. Perhaps more importantly, project monitoring is now demonstrating the positive impact of DPEP, especially on girls' education. Gender equity in enrollments has now been attained in 27 of the 42 DPEP I districts; and the DPEP goal of reducing the gap between girls' and boys' achievement to less than 5% has been achieved in 40 out of these 42 districts in language, and 31 out of the 42 in mathematics. 29. A successful track record has been established by decentralized, group-based and participatory rural development projects, targeted at poor rural communities, and implemented through public-private partnerships, often involving Non-Govenmmental Organizations (NGOs). These now range across a number of sectors from land reclamation to forestry, and from watershed activities to rural water supply. A new generation of state-level decentralized rural poverty/development projects is now under preparation: they aim to generalize this successful approach to poverty alleviation into multi-sectoral projects in which communities are able to identify their own investment priorities. Preparation of these projects has been a learning experience for both the Bank and our counterparts, resulting in slow processing, but we expect to be able to start presenting these projects.to the Board in the next fiscal year.  7 30. A majorpoverty consultation workshop, co-sponsored by the Bank and UNDP, is scheduled for February 1999 to launch preparation of the 2000 Poverty Assessment. On the back of this and earlier poverty sector work, and through preparation of our poverty projects, we are intensifying our dialogue with the Government on the inadequate performance of its anti-poverty programs, and how they could be improved. One of the problems faced has simply been the time taken to produce poverty figures from household surveys: the most recent poverty figures are still only from 1993-94. The Government is now taking steps to rectify this problem, and will be assisted in this regard by the proposed Statistical Modernization Project. Social and environmental concerns 31. The social impacts of Bank operations are being given a higher priority. Social assessments -- incorporating social analysis, participation strategies, institutional analysis from a social perspective, and the integration of social indicators into monitoring and evaluation -- are being built into the design and implementation of new operations. A dialogue is underway with other donors and the Ministry of Labor on how to address child labor issues at the national and state levels, and higher priority is being given to ensuring that children are not used as laborers in Bank-supported projects. Ongoing education projects have been refined to assist in addressing child labor concerns, as has been the design of several projects under preparation. 32. On safeguard policies, the Bank has been engaged in developing resettlement and rehabilitation (R&R) policies and capacity-building, both within projects and at the national and state levels. For example, the Andhra Pradesh resettlement action plan developed for its highway program has almost become a blueprint for other states and the national government for the road sector. A positive step taken in the context of the NTPC power generation project -- which may serve as a model for future projects -- has been the establishment of an Independent Monitoring Panel, made up of three eminent Indian nationals and tasked with reviewing grievances and making recommendations concerning the implementation of R&R in the project area. 33. Environmental concerns have also been emphasized, with Bank-funded projects with potentially negative environmental impacts, such as in transport, energy, or water supply and resource management, now adopting strengthened environmental assessment (EA) procedures and greater environmental supervision and legal enforcement procedures. Innovations include new types of sectoral and regional EAs that integrate across several projects, and address cumulative impacts within a given area. 34. A more focused strategy is also being developed for the Bank's environmental work with an emphasis on: (a) state-level strategic environmental planning; and (b) poverty impact as the clear basis for setting environmental priorities. Two initiatives arising out of this new approach are studies on Andhra Pradesh and Gujarat, with particular emphasis on the health impacts of water and air pollution, poverty and environment linkages, priority-setting, and cost-effectiveness. Private andfinancial sector development 35. Thefinancial sector has been emphasized in our non-lending services and related policy dialogue. On the banking sector, a conference volume, sponsored by the Bank, the Indira Gandhi Institute and USAID, is currently being finalized. A Bank report on the banking sector and its reformn and regulation is now underway (para. 8). Sector work has just been completed on the payments system, is underway on pensions, and is planned for capital markets. The Bank and IFC are currently planning ajointly-sponsored conference on South Asian domestic debt markets.  8 36. Private participation in infrastructure has been the other major theme of Bank activity. At the request of the Government, the Bank has undertaken, and now largely completed, the preparation of the Country Framework for Private Investment in Infrastructure. A high-level conference was organized by the Bank in Paris in November 1998. This provided an opportunity for the Indian delegation, led by the Finance Minister, to hear from and respond to leading domestic and international investors and infrastructure service providers concerning the constraints on private investment. In addition, IFC and the Bank have been collaborating closely on the provision of financing to the newly founded Infrastructure Development Finance Corporation. 37. IFC plays a key role with respect to the Bank Group's support for private sector and fmancial development. Critical elements of IFC's engagement in India include: assisting in the development of the infrastructure sector by mobilizing financing for major investments in power, telecommunications, transportation and utilities; promoting regional diversification of the financial sector and the development of a long-term debt market; and assisting export-oriented companies undergoing financial restructuring, modernization or cost-reduction programs. Additional strategic objectives for IFC also now include support for privatization of public enterprises and private involvement in the healthcare and education sectors. 38. Although IFC's work has been severely constrained by external factors (para. 45), it has over the last year made a nurnber of investrnents in financial institutions. IFC has also been holding discussions with the financial authorities regarding the possibility of IFC issuing a rupee-denominated bond. This idea, although still at a preliminary stage, has been fairly well received. The recent establishment in Delhi of a Small and Medium Enterprise Unit for South and Southeast Asia will provide a focal point for IFC's SME activities in the region, including India. IV. Bank Group Assistance 39. IBRDIIDA lending. The FY98 CAS concluded that annual IBRD/IDA lending of about US$3 billion, comprising IBRD loans of over US$2 billion and IDA credits of US$800 - 900 million, was necessary to support the assistance strategy. In terms of project preparation, this volume was achieved in FY98: we prepared and completed negotiations for 15 projects with a total IBRD/IDA lending volume of over US$3 billion. This rapid expansion of the program is attributable to a large extent to the strong interest of the clients in an expansion of IBRD borrowing, and in the diversification and strengthening of the Bank program into areas such as urban, highways and state-level restructuring. However, by the end of FY98, only 11 projects were approved for a total commitment of US$2.14 billion, split evenly between IBRD and IDA (para. 42). 40 For the subsequent years, the CAS provided two scenarios: a base case with approximately US$3 billion of new lending a year, with just over 70% from IBRD, and a low case with US$1.2 billion a year, and a 50-50 blend. The CAS also presented triggers for moving between the base and low lending cases. In addition to the sector-specific reforms which condition nearly all lending and so self-regulate lending volumes, three general triggers were defined, namely: (a) progress towards reducing central government deficit to about 4.5% of GDP by 1999/00; (b) maintenance of a sustainable current account deficit, i.e., less than 3% of GDP; and (c) structural reforms, especially trade and financial sector reforms. Recent developments have stalled progress towards the fiscal deficit target with the central government deficit stuck at 6% of GDP (para. 7). The current account deficit has increased to just over 2%, though further deterioration is not forecast (paras. 5-6 and Annex 2). There has been some progress on structural reforms at both the central level (e.g., banking, privatization, and foreign investment regulation) and the states (paras. 12-13), but in general reform is too slow and there has been a reversal on trade liberalization (para. 11). India has thus breached one trigger (fiscal balance), satisfied a second (current account deficit), and shown less than satisfactory progress in relation to a third (structural policy reform).  9 41. Our overall assessment from this analysis is that India should be regarded as having moved to the border between the base case and low case, still in the former but heading in the direction of the latter. This judgement takes into account the dramatic deterioration in India's external environment, and the relative performance of its comparators in East and South Asia. Even though the East Asia crisis was underway at the time of the last CAS, the severity and breadth of its global spread was not then anticipated. However, this external deterioration does not warrant a slowdown in reform. To the contrary, faster and more comprehensive reform is the best response to adverse international circumstances. 42. The implementation of the assistance strategy and the possible exercise of the triggers has been complicated by the postponement of Board consideration of several projects. In June 1998, following India's nuclear tests, representatives of a number of countries requested the indefinite postponement of projects not meeting a "Basic Human Needs" criterion. With the concurrence of the Indian authorities, Bank management postponed Board consideration of four projects in FY98, comprising total IBRD/IDA loans/credits of over US$1 billion. 43. The impact of this action on CAS implementation has been considerable. Lending for critical infrastructure and environmental investrnents, support for policy reform, and assistance to the private sector, key components of the CAS, have been much reduced. Over US$1 billion of IBRD lending is currently on hold; and no IFC project to India has been presented to the Board since May 1998. Use of the Basic Human Needs criterion also creates potential inconsistencies with the strategic objective of poverty reduction through accelerated growth and social development. For example, Bank sector work has repeatedly shown the need for power sector reform to reduce power subsidies and create fiscal space for more education and health spending. 44. It is expected that 10 projects will be presented to the Board in FY99 (excluding the four delayed projects and if no further projects are postponed) for a total commitment of US$1.9 billion with US$1.3 billion IBRD. This result would put India between the FY99 base case of US$3.0 billion and low case of US$1.2 billion. The base case lending scenario for FY00 and FY01 is given in Annex 3, with lending volumes of US$2.8 and US$2.7 billion respectively, and a 63/37 IBRD/IDA blend, consistent with the CAS. Realizing this scenario will require improved fiscal and policy performance and strong poverty reduction efforts, including in education and health. 45. IFGCs approvals in FY98 were US$54 million, substantially below the CAS target of upwards of US$250 million, as well as the average of US$200 million over the previous three years. This was on account of the request made by a number of countries in May 1998, since when no IFC project has been approved by the Board, and but for which FY98 approvals would have represented IFC's second best year in India. In some cases, where funding requirements are imnmediate, IFC is helping customers to raise funds from other institutions. IFC staff are continuing to work on long-gestation projects to be able to respond promptly if and when new IFC projects are allowed to proceed. 46. Over the past year, no guarantee was approved by MIGA in India. However, in the aftennath of the nuclear tests and with the economic crisis plaguing the region, MIGA has experienced a substantial increase in the number of inquiries by private investors with regard to political risk insurance in India. These inquiries cover all sectors, including health services, tourism (hotels), power generation and telecommunications. Once new guarantees are allowed, an increase in demand for MIGA guarantees is anticipated in support of private sector investments, especially in infrastructure (in particular telecommunications), as well as in oil and gas. 47. Portfolio management. The India IBRD/IDA portfolio consists of 74 projects with a commitment value of US$13.3 billion, and undisbursed balance of US$4.7 billion (63% of original commitments) for IDA and US$3.6 billion (64%) for IBRD. Gains in portfolio management made in previous years have been protected,  10 but further improvements are still required. The ratio of problem projects by number is 13.5%, similar to the last two years, while the ratio of projects at risk has declined slightly to 13.9%. The disbursement ratio remains at around 16%, an improvement on a few years ago, but still short of the targeted 20%. 48. Reducing procurement delays is key to improving not only disbursement performance but also transparency. A set of guidelines to achieve this objective, titled "Improving Procurement Processing Times", was agreed to by the Bank and the Department of Economic Affairs (DEA) in July 1998. The guidelines deal with: (a) the composition of Tender Evaluation Conmmittees; (b) the time-frame for the work of these committees; (c) delegation of responsibility for tenders and awards; (d) clarifications from bidders during evaluation; (e) rejection of bids; (f) updating schedules of unit rates; and (g) prohibition of extraneous evaluation criteria. New projects are incorporating these guidelines. In addition, the Bank has, with the support of the Government, decided to refuse to extend bid validity periods. 49. Portfolio issues and required actions are discussed at annual portfolio reviews, the most recent held in July 1998, but also at state-level portfolio reviews held two or three times a year in key states. Attempts to learn across states are being made more systematically. For example, the health sector recently held a meeting of all health-project states to promote exchange of experience and lessons learned. 50. Non-lending services are being better integrated into our assistance strategy, in support of our lending program. Key topics include: poverty, with the third in a regular series of poverty assessments now under preparation (para. 30); the financial sector, with reports underway or planned on payments, banking, pensions and capital markets (para. 35); and state-level analyses, with the completion this fiscal year of our fifth state- level economic and fiscal study, on Uttar Pradesh (para. 20). The Rural Development paper, with its focus on strategy, illustrates our efforts to improve the operational relevance of our non-lending services. 51. Partnerships. Progress is being made to both broaden and deepen partnerships with other key development actors, from the Government of India and reforming state goverunents, to the private sector, civil society and external donors and investors. Consultations outside of government on non-lending services and projects are now standard practice. These are now extending even to Bank policy: witness the recent national and regional-level consultations on revisions to the Bank's policy on indigenous peoples. There is also an increasing number of Bank projects in which civil society, including NGOs, have been engaged to assist in implementation (e.g., the various rural projects in para. 29). We have developed a strong partnership with the UK's Department for International Development, with which we are collaborating and co-financing operations both Andhra Pradesh and Orissa, in support of fiscal as well as power sector reforns. We are working closely with the Japan-India Business Cooperation Committee to identify constraints to and expand opportunities for private sector participation in the economy. 52. Decentralization of both the Bank's and IFC's India management to the field has gone smoothly, and has been a key enabling condition for deepening and widening dialogue with reforming states. Significant progress has also been made in decentralization of operational work to the field. Operational staff in the Bank's Delhi office for instance will increase from 52 at the beginning of FY98 to a planned level of about 80 by December 1999, the increase being entirely accounted for by recruitment of national staff. About one-third of the operational tasks in the Bank's program in India are now task-led by Delhi-based staff, of which more than half are managed by national staff. The one staff policy has also been implemented, with national staff subject to the same job grading and other employment policies as intemational staff, except for compensation and benefits which continue to be based on local market conditions. With this progress in decentralization, the practice of "co-location" of tasks (e.g., through co-task-management from Delhi and Washington) has become increasingly important to ensure that the Bank leverages both its international experience and its local presence to the maximum effect.  11 V. Looking Ahead: emerging themes and risks Emerging themes 53. Although its implementation is constrained by external factors, the FY98 CAS remains valid and relevant in India today. There are, however, a number of emerging themes which, while consistent with the broad parameters of the current country strategy, may demand more explicit attention at the time of the next CAS. 54. Decentralization. The Government of India is laying increasing emphasis on the decentralization of powers and responsibilities to the local level. While the benefits of a decentralized, participatory mode of development are evident -- including from the Bank's own lending program (para. 29) -- attention is now focusing on the institutionalization of decentralization, in rural areas through the panchayati raj institutions, and in urban areas through the various layers of municipal government. A rural decentralization study is planned to review the progress made in decentralizing authority, and to analyze the effectiveness, inclusiveness, transparency and sustainability of local govermments. This will be complemented by a regional study of inclusive institutions being undertaken with Strategic Compact funding. 55. Pushing the private sector envelope. Unlike even a few years ago, acceptance of the private sector in the infrastructure and financial sectors and of the privatization of public enterprises is now widespread. The main thrust of Bank Group strategy is to accelerate and deepen private sector participation in these areas. But the strategy is also being extended to facilitate the involvement of the private sector in the delivery of services traditionally thought of as public, such as health, education and even environmental protection. IFC is now supporting private health service provision, and recently commissioned a study of private health insurance opportunities in India among other countries. A major piece of sector work has been initiated by the Bank on the public-private mix in the delivery of health services, particularly to the poor. In education, IDA plans to undertake jointly with IFC a survey of the magnitude and characteristics of private primary schooling for poor children. In enviromnent, our policy dialogue includes a focus on reducing the role of the state in financing facilities for effluent treatment and hazardous waste management. 56. Subnational lending in support offiscal adjustment. The Andhra Pradesh Economic Restructuring Project was the first to explicitly support fiscal adjustment at the state level (para. 12). While the AP project finances specific investments, there is also a need in our focus states, many of whom are fiscally-stressed (para. 14), for general, untied budgetary support through a transitional reform period. The Bank is currently discussing with the Government of India the provision of such support targeted at achieving fiscal sustainability, and conditioned on a program of policy and fiscal reforms at the subnational level. Risks 57. From a global perspective, India's 5% growth is impressive. However, as outlined in this update, India faces significant downside risks -- largely related to its fiscal position, but also to a slowdown in export growth -- and will need to overcome political constraints to reintensify its reform efforts and increase its growth rate. There are three main and inter-related sources of risks. The first is of macroeconomic deterioration due to the worsening fiscal imbalance (not only the deficit but also expenditure composition) leading to slow growth and higher inflation. The second is a worsening of the international environment, leading to a further slowdown in exports and private capital flows, and a worsening of the current account. India's larger current account deficit will require an increase in external borrowing, making the country more vulnerable to any loss of foreign confidence. The third is the uncertain domestic political environment, which makes it difficult for governments to take a longer-term view and to undertake reforms with short-tern costs.  12 58. These risks were all identified in the FY98 CAS, but have all intensified since then. Our policy dialogue and economic work is stressing the need for, and providing advice on, faster and more comprehensive reform as the best response to adverse international circumstances and to prepare the way to take advantage of a renewal in trade growth. Our lending program is also adjusting, including to give greater emphasis to fiscal adjustment at the state level. 59. The other risk factor identified by the CAS -- concentration of exposure to a few states -- is also still present. The Bank is now, however, facing the prospect of excess demand for its resources -- exactly the sort of competition among states which the strategy set out to provoke. This should over time reduce this risk of over-exposure to one or two states. 60. Country risk management. The risks identified above are also risks for country creditworthiness, though in this regard there are also mitigating factors such as the country's debt service record, its policy of prudent external debt management, and the strength of its democratic system. Our assistance strategy manages the risks by close monitoring and use of program-wide lending triggers. IBRD exposure indicators all remain at acceptable levels, or decline, even with a return to the high end of the base case (see Annex B7). Broader exposure indicators, such as the various debt service ratios, are all forecast to decline. James D. Wolfensohn President By: Caio Koch-Weser Peter Woicke Annexes: Annex 1: Updated Country Program Matrix (FY98-00) Annex 2: Key Economic and Program Indicators Annex 3: India at a Glance Annex B2: Selected Indicators of Bank Portfolio Performance and Management Annex B3: Bank Group Program Summary FY99-01 Annex B6: Key Economic Indicators Annex B7: Key Exposure Indicators Annex B8: Status of Bank Group Operations  Annex I Page I of 9 INDIA CAS Progress Report: Updated Country Program Matrix (FY98-00) STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANKGROUP'SASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 I. Sustained Rapid Growth, Especially in Rural Areas A. Rednce the consolidated * Broaden tax base, disinvest from * Adjusted central government fiscal deficit * Central Govemment deficit * NLS: Policy dialogue in collaboration with the * ADB: Prograsil loan to one state fiscal def,cit. public eniterprises at the cenitral reduced from 5.8 percent of GDP in 1996- estinsated at 6% iU 1998-99, same IMF; short-tenn ecorsonisic monitoringg: macro (Gujarat) at advanced stage, and another level; rationalize expenditures; 97 to 4.5 percent by 1999-00. as in 1997-98. assessment; structural policy review; export 1-2 under discussion. reduce subsidies at the center (e.g., * 2-3 state economic restructuring programs * Fiscal restructuring program constraints study. * DFID collaboration with Batik on AP and food, fertilizer, oil), and at the state initiated over the next two years. underway in AP. Discussions * NLS: Bank economic reports for UP and Orissa Orissa. level (e.g., power, water). ongoing wvith UP, Orissa on (an update) completed; and Bank-finarrced comprelietissive fiscal and ecoinomic NIPFP studies comipleted for Haryana, Punjab, reform; ongoing discussiors with Assam arid Delhi, and underway for Tanit Nadu Rajasthan, including work on a arid Kerala. Policy Framnework Paper. * Discussions with GOI on subnational program loans underway. * EDI: Training activities on Macroeconomic & Financial Maniagement (Mar. 99), and Decentralization & Strengtheniiig of State/Local Agencies (May 99). D. Striengthen tirefintancial sector. * Improve batikitig. * Restructure public banks. * Non-performing assets reduced to below * Non-performing assets were down * NLS: Payments study completed; Banking study * DFtD assistariec for strengthening bank * Further deregulate bank lending. 7% of total assets, capital adequacy to 3% by Mar. 98, but may have underway. regulation arid supervision. * Further improve supervision, increased to at least 8%, taking into increased since. * LEN: Financial Sector Development Project is * USAID assistance for financial including off-site surveillance. account the conservative treatment of * Priority lending targets are still in ongoimig. institution refomi arid expansion. provisioning. place. * TA: To strengthen payments system and oni * USAID, Indira Gandhi Institute arid * Reserve requirements and forced lending * Interest rate ceilings still exist for NBFCs' regulatory fratmework. Bank co-sponsored conference volume to govemment and priority sectors further coninsercial banks. * LEN: Support for further reform based on being finalized. reduced. * Six public banks have sold upto Narasisiisam 11 report, baniking conferenice arid * Interest rate deregulation completed. 3tP% of capital to shareholders. report. * Share of private bank leridiiig increased. * Planis to introduce CAMEL-type * IFC: Support for regional diversification of * Some public banks disinvested. approaclh arid to strengtheni ont-site private sector banks arid for diversification of * Risk-focused supervisiorn firetliods and off-site supervision; BIS "core credit-wortlny leasing companiies; Assistance to adopted. principles" riot fully adopted. improve financial reportirng, treatment of non- * Level the playing field for banks * Off-site surveillance capacity upgraded. * Nunmber of primary dealers perfomiing assets and capital adequacy; Possible anid large nioni-bank financial increased to 13. assistatice for housing finanice arid mortgage companies (NBFCs). * Legislation introduced to securitization. Parlianeiit for liberalization of * NLS: Joiit Bank Group (including EDI): Support inhsuranice sector. development of long-term debt market. * Investmient pool for provider of * NLS: Development of new instruments through funds increased to include continued advice; corporate bonds. * TA: for recently established Itifrastructure * Coiminission established to Developnseint Finance Company. review stamp tax, * EDI: Seminar on Preventing arid Managing * 15-yr. arid 20-yr. bonds issued Banking Crises. by RBI. * ttDI: Techinical Assistance Programis for the * Steps taken towards differential National Stock Exchange. pricinsg of state bonds. I_I  Annex I Page 2 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 B. Strengthlen thefinancial sector (cont d) * Improve capital markets. * Promote developmenit of domestic * Liquidity of govenzmenit securities * IFC: Invest in private insurance companies. capital markets, especially for long- improved. * IFC: Work oli inistitutions for credit temn debt instrunments. * Insurance sector and pension funds enhancement for long-term financing of liberalized. infrastructure projects, especially those outside * Capital market infrastructure further the main nioney centers. inmproved. * IFC & Bank co-sponsoring South Asia conferenice on donmestic debt markets. * NLS: Pension study underway; Capital Market study planned. Imnprove rural finance. * Iniprove finiancial viability of the * Regional rural banks restructured. * Start made on regional banks' * NLS: Disseminatiopl of Rural Finance report * Coordinated program of assistance (in rural finiaiscial system anid increase * Role of NABARD redefined. restructuring, but not yet throughi conference on Rural Developmeiit rural finance) involving SDC, KfW, ftiiancial tlows to niew areas. * Private rural banks established. comprehensive. * LEN: Support of self-help groups through DPIP GTZ, CIDA, DFID, OECF, USAID and * Iniprove access of women and the * Access (especially for women and the * Role of private rural banks still projects. AUSAID. poor to sustaiinable fitiancial uiiderserved poor) improved. iiisigniificant. * IFC: Support for local private banks in rural services. * Attempts to restart initiative for areas. lending to poor under NABARD. * EDI: Prepared series of GMT manuals for use by management trainers and enterprise support teams. C Promote private sector * Disinvest public enterprises. * Disinvestment program accelerated. * FY 98/99 Budget announced * NLS: Continued efforts to promote private development. * Proniote foreign direct investment. * Government monopolies in finanicial willingness to divest up to 26% in foreign investnient in India, through varied * Improve the enabling environment services, utilities, etc. eliminated. the "generality of cases." Shares domestic and intemational partnershiips, e.g., for private investment in * Adniinistrative processes for foreign direct sold in Coitainier Corporation of with institutions in Japan and Singapore, iifrastructure. investmient streamlined. India. GOI struggling to nmeet * NLS: Country Framework for Private disinvestment targets. Some states Investmuenit in Infrastructure almost complete. progressing (Orissa). * NLS: High-level Infrastructure Conference held in Paris in Nov. 98. *LEN: IBRiDIlFC collaboration on IDFC. * MIGA guarantees for foreign investors involved in privatization. * EDI: Workshop oni Accountability, Transparency, and Good Govemance. * EDI: Conference on Trade, Investmient, and Globalization (Dec. 98); Workshop Fcononmic anid Business Jounialism (May 99). *IFC: Support privatizationi of SOEs, promiote investments in export-oriented companies, promote investment in social services sectors (Isealtli, education), knowledge-based iiidustries anid SMls; increased use of IFC guarantees and possible local-currency loan instruments & risk naniagenient products; develop local currency debt miarket.  Annex I Page 3 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTIIER ASSISTANCE OBJECTIVES 1998 U. Spurfaster and sustainable agrictultural growth and rural development. * Promote state-level comprehenisive In states with project iiiterveSitions: * Andhra Pradesh: state-wide * NLS: Completion and dissemination of water * EU: irrigation projects in Kerala. * Improve technical, water resources restructuring * Ag. productivity by unit of water managemeuit transfer of part of resource maniagement study anid development of * Germany: Water resources nianagement financial, environmienital progranis. increased. canal irrigation systenis to 12,000 broad-based policy fraiiiework. (Bihar, UP, Rajasthan, Himachal perfomiance of irrigation * Support service institutions (water * Cost recovery improved; irrigation subsidy WUAs established in 1998; inter- * LEN: Project at state level to support Pradesh, anid Tamil Nadu); watershed systents. users' associations, water reduced. sectoral water policy issued. consprehensive water resources plaitning and developmenit in Maharashtra atid authorities) to become financially, * O&M in state budgets fully funded. * Andhra Pradesh, Haryona, Orissa: policy under preparation (Rajasthan) and Kamnataka. managerially self-reliant, and * Water autlsorities established. water rates increased. identitication (Uttar Pradesh). * Netherlands: Rural water supply responsive to niulti-sector users. * State multi-sectoral water policy * Rajasthan, Tamil Nadiu, Orissa: * LEN: Irrigationi component in APERP, Ganga Actiosi Plan support. * Increase cost recovery, establish framework, including groundwater state iinter-sectoral water plans emphasizing cost recovery and famier * DPID: Kcrala iiiinor irrigatioii water tariff cositiiission/mechanisni legislatioti, adopted. utider preparation. participation in canal network mnanagenient. to ensure financial sustainability. * EDI: Training activity on Hamessing IT for * Rationalize public spendiiig. Agricultural Extensiois (Sep. 99), Policy Seminar on Sustainable Agriculture, aiid a Water Policy Workshop. * EDI: Activity on Capacity Building for Participatory Irrigation Maniagement. * Improve the coniposition * Promote state-level comprehensive * Agr. growth rate above 3 percent per * Agr. growth 7.9% in 96-97; -2% * NLS: Rural development atid poverty reductions * Netherlands: Rutral development - North and delivery effectiveness agriculture & rural restructuring annum by 2000. in 97-98, and forecast at 5% it strategy being finalized, focused on nsore Bengal of public spending in programs. * Decline in the growth of total factor 98-99. efficient use of public funds, and covering, inter * DANIDA: Orissa integrated livestock agriculture & rural * Create the envirotiment for private productivity halted and reversed by 2000. * Capital fomiation in agriculture alia, rural infrastructure, land market issues, development project. programs to close sector participatioil in the delivery * Private sector participation in the provision increased in 93-94 to 95-96, but cost recovery, the rural non-fanss sector (RNFS), * EU: Kerala horticulture development productivity gaps in of agricultural support services aiid of agricultural and rural services and isputs deellised in 96-97. agriculture and the poor. project; Kerala agriculture markets irrigated ajid rainfed inputs. iiicreased. * Kerala: Significant * LEN: Ili refomsing states, rural developnienit project; veterinary livestock services for agriculture. * Enhance isistitutional capacity for * Cost-sharing by benteficiaries increased. deceitralization of fiuiancial projects to pilot deniand-driven astd disease conitrol. conimunity-based, participatory * Evidetice of participatory decisioni-making resources to local govemmenits participatory approaches to agriculture asid rural * )ANIDA, EU, OECF: Integrated approach to agriculture & rural in ag. & rural development programs, and (40% of plant resources), with developmsent prograns, atid improve rural watershed nianageinent projects. development progranis. of strengthenied local responsibility, emphasis on participation asld infrastructure, new (UP DASP, UP Sodic 2) or * SDC: Study of RNFS. * Promote development of the rural accountability and financial sustainability. social inclusion. unider preparation (Orissa). non-fams sector (RNFS). * Andlsra Pradesh: * LEN: tn poor, nosi-reforming states with a good "Janmabhhoonmi" program aimed projcct imoplensentation record, pilot innovatioiis at itisprovinig perfomiance of in the delivery of rural programs (West Benigal public services and infrastructure Paticliayat Developnsetit Project under in rural areas through community- pTeparation; Second WaterTlsed Hills Project). based, participatory approach. * Develop tectinology. * Research effectiveness improved. * Patent (Ansetidment) Bill, 1998 * LEN: Natiotial Agricultural Tecniology Project * FAO: Plant quarantine project. * Increased private sector participation in passed by the Upper House (Rajya (effective 1998) technology generation. Sabha). * Iniprove food security and * Phase out non-tariff barriers aisd * Price distortions between domestic aiid * Sonie liberalizationi of the extemal * NI .S: Dissemiisate commodity studies * EtJ: Kerala agriculture niarkets project. price stability. export restrictiotis for intemational prices reduced. trade reginme. Complete studies on food graini marketing; food agriculture/forestry products as per * Regulatory constraisits to agricultural trade * Sonie doniestic trade security & nutrition. the WTO agreement. and agro-industry eliisitiated or relaxed. liberalization (AP: rice nmovensetit * IFC: Support private sector investmsents in agro- * Create a price policy and regulatory * Distortionary governnient ititerveittiotis il coistrols lifted). industry if policy fransework improves; atid in eiivironment for greater, efficient selected markets (ricc, wlicat, sugar) * Coisiiiodity futures iiiarkets re- dedicated temainal, storage and marketiiig and stabilizing private sector reduced. initroduced (e.g., coffee, cotton, iilfrastructure. participation in agricultural trade * Targeting of Public Distributioti System oilseed, oilttseals, oilcakes). and agro-industry. (PDS) insproved; altentative food tranisfer * Nationial Crop Forecasting * Provide effective safety nets to the ruectiaiisiis successfully isupleiiienited and Institute established to inmprove poor. duplicated. mnanagenient of food policy.  Annex I Page 4 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 E. Ensure Environrnental Suistainability. * Develop more effective processes, * Policy, legislative and institutional refonms * Continued progress by states (e.g., * NLS: Review of forestry policy; develop * Strengthen forestry & bio- systems and skills to manage adopted. MP, AP) in transferring forests environmental strategy. * EU: Natural resources management diversity management natural resources. * Area under participatory management of underjoint forest management * EDI: Training activity on the Financing and (Gujarat); and rehabilitation of conimon * Implement the National Forest natural resources between public sector with commnunities. Managemilent of Solid Waste and Pollution lands. Policy which aims to sustain agencies, communities and NGOs Maniagement. * Ford Foundation: Strategic support to ecologies, provide livelihood increased. * EDL: Workshop for Review of Policy Reform joint forestry. sources for local people, and * Sustainable adoption of improved forest Case Examples for Sustainable Development in * OECF: State Forestry projects provide sources of wood and other and natural resource managemiienit South Asia. * USAID; Trade in esivironmiental services forest products. technologies. and technologies; and biodiversity * Support bio-diversity, includinig * Successful integration of bio-diversity support program. coastal zonie managemilent. conservation and natural resource * UNDP: Bio-village demon. project; and management practices in rural Wildlife Institute of Inidia support. development activities. * DFID: State Forest management & biodiversity * SIDA: State social forestry. * DANIDA: Land development in Tamil Nadu. * WWF: Tiger conservation. * MacArthtir Foundation: Andamans biodiversity conservation. * Abate industrial, * Strengthen GOI pollution control * Ambient environmental conditions in hot- * Mixed record conceraing ambient * NLS: Preparation of Bank Group's municipal, and agricultural policies, compliance systems, and spot areas improved. pollution hot spots; some have environimiienttal strategy for India. * USAID: Trade in environmental services sources of water pollution enforcement. * Industrial compliance rates improved. worsened, including recurring * NLS: Exploratory analytical work under the and technologies. and energy sector sources * Create economic incentives for * Investment in pollution control and clean closure of Delhi airport, leading to South Asia Development Triangle Initiative. * DFID: Research on salinity due to poor of air pollution. pollution abatement by both private technologies increased. continued activism by the law * LEN: Delhi Water Supply & Sanitation Project water nianagement. and public sector polluting * Efficiency of coal-fired power generationi courts. under preparation. * OECF: Support to the West Bengal State agencies, and power T&D raised. * Increasinig private sector * IFC: Support for non-traditional projects -- Pollution Control Board. * Promote clean coal and altemate * Investments in clean coal, demanid-side investment in pollution abatement. eniergy efficienicy. fuels in the power sector, and energy efficiency, and renewable energy * State-level strategic environmental * NLS: Bank-sponsored national conference on cleaner fuels and technologies in sources increased. planning initiatives occurring in air pollution in the transport sector. the tranisport sector. * Access improved in both urban and rural AP. and Gujarat. A Delhi urban * Explore renewable energy and areas to sanitation. environmental strategy remains energy efficiency strategies. * More tiniely data collection, and delayed. * Expand investientis in saniitation, publication of data, on ambient * Govemnient collection, uise and both urban and rural. enivironimenital conditions. public release of enviroimental data remains weak.  Annex I Page 5 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 E. Ensture Environmental ,%stainability (cont'd) a Mitigate the environmental * Adopt a pro-active approach during * Improved stakeholder involvement in EA * Expanded use of regional and * NLS: Environmental issues in the power sector. * OECF: Conservation and town and social impact of environmenital assessments (EAs), monitoring atnd compliance. sectoral EAs in energy, transport, * In consultation with 101, develop template for developnieiit. infrastructure investiimelits, based on education anid training of * R&R template adopted. watershed, and poverty alleviation addressing R&R issues. * I)FID Coniservation managenient cetiter. including setisitive areas borrowers, anid partiterships with * Projects under intplemelitationi with projects. * SPN: Strengthen borrowers in power, coal and such as coastal zonie. stakeholders. successful mitigation prograitis increased m Little progress on tightc e transport to take coincerted actioni to niitigatc mionitoring of EA compliatic. enivironmiental and social imipact of investmienit. * R&R policy for Rajastltan to be * EDI: Workshops on Involuntary Resettlentetit approved by State Govemment; aitd Rehabilitation. * AP hiigliway project R&R policy framework adopted as teiplate. II. Human Resource Development A. I,tcrease overall literacy * Stimnulate demand for schooling * Progress towards net enrollment ratio of * Potal enrollmetit increasing 8-10% * LEN: Annual projects in support of basic * EU and DFID are supporting further r0tes and increase level of and iticrease capacity to enroll, 95%, (overall SC/ST and girls). p.a. in DPFP districts and state education at the district level (in UP, Biltar, AP, investments in primary and upper education achievemttent. with special eniphasis on NERs are now about 75-80%. Rajasthan); a multi-state DPEP follow-up. primary education. disadvantaged groups. * LEN: Upper primary education project. * Iicrease access to upper prinmary * Progress towards net enrollment ratio of * No letiding yet for this level. * NLS: Upper primary education study. education, especially for girls. 75% (overall, SC/ST). * IFC: Pronsote private education projects; * Improve classroom practice promote financially self-sustaining through teacher training and instrutnieots/programs for private fitiancial intproved instructional materials. institutions providing student loans; conduct a seniitar on educationi lending. * EDI: Nationial Level Workslsop on Escuela Nueva lIiplementation Progress; Indian participatiott in a Regional Consultatiots on Schiool Effectiveness & School Improvemeist for South Asia. * Increased leaming achievenist as * 1998 achievemettt study shows nseasurcd ots math and language tests iniprovenieitt in Grade I, btit only rnargiitally it Grade 4.  Annex I Page 6 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 A. Increase overall literacy * Increase the efficiency and * Progress towards national qualification * Women enrollment in tecinician * NLS: Tecinology and scientific manipower * DFID is supporting some Regional rates and increase level of responsiveness of tecinical and framework to facilitate mobility across education frosil 11% to 30% unider development. Engineering Colleges education achievement scientific training institutions to the sub-sectors as well as participation of noni- Tech. Educ. Projects I & 11. v Selected institutions of science and (cont'd) changing labor market. traditional studenits. * A number of self-financing technology are involved in collaborative * Progress toward open transparenit funiding institutions of engineering and research under bilateral programs with a mechanisms with incenitives for private techniology recognized/ approved niumber of countries. funding. by the All India Council for Technical Education. A draft policy reform docunment for techniical education prepared with participation of industry. B. Reduce population growth. * Reduce unwanted fertility by * Fertility reduced to replacement level of * Expanided new programmatic * LEN: Support for reproductive and child health. * DFID: Population services, women and emphasizing choice of reproductive 2.2 births per wonian within the next approaches to address reproductive * SPN: Two Population projects restructured child health. methiods and community decade. & clhild healtlh issues. based on mid-term reviews. * USAID: Iniiovations in family planning participation, as well as better * Infanit mortality reduced to 60 per 1,000 * Total fertility rate projected to * lDI: Core course on Population Econsomics and services. integration with other matemal aiid live births, and matemal mortality reduced have declined to 3.2 birtlis per Reproductive Health. * UINFPA: Fanmily planning services. child healthi services. to below 200 per 100,000 live births withiis wonman in 1998. * Reduce wanted fertility through the next decade. * Infant mortality rate declining and education for girls and employnment * Coordinated monitoring of outcosie reached 71 per 1000 live births in opportutiities for women. indicators in population, health and 1997 (latest SRS data). education established in selected districts. C. Improve access to and * Rationalize service nonns. * Efficiency improved such as in bed * 4 states w/ health systenis projects * EDI: Flagship course on Health Sector Refonm. * Several doiiors, including DFID: Mother quality of healthl services. * Update technological approaches tumover rates, bed occupancy rates and monitoring efficiency and quality * LEN: Project support for AIDS 11 and child health (Orissa); health and (TB, malaria). average length of stay, etc. indicators for tlse first time. * LEN: Projects extending state health systems welfare; * Implenicist referral mechanisans. * Effectiveness also improved in areas such * In 3 of 4 states w/health systems reform to Uttar Pradesh and otlier states * DANIDA: Community ophtliainiology * Itmprove management and planninlg. as major surgeries/deliveries, and post projects under implemenitation, * LEN: Two new State IHealth Systems in Orissa and blindness. * Achieve sustaissable financing. operative infection rates. govemnment budget on primary & and Malsarashtra and primary healtli componenit * USAID: AIDS prevention and control; * Improve the regulatory framework * Quality improved in areas such as in patient secondary increased. of APER projects were approved, each health and nutrition support. for private provision of health care. satisfaction, staffing, equipment and drug * tUser charge policies being rationalizing service nomns. * DFID, DANIDA, WHO assistance for nomis. implemented in all states w/health * LEN: Project for food and drug capacity TB. * User charge policies itnpleniiented. systems projects. building and for surveillance and disease control. * Netherlands: Andlira Pradesh health . NLS: Sector work on public-private partncralsips education. initiated. * KfW: assistance to Maharaslitra. * IFC: Support for private inivestments in tertiary * Partnerahip with CDC-Atlanta on disease health care and techinology transfers. control. D. Reduce mal,tt,trition. * Address nutrition issues through * Moderate and severe malnutrition halved * No new informatioit in 1998 about * NLS: Disseminate nutrition review. * UNICEF supported preparation of WCD ititerventions linked with education, in next decade. recently stagnating malnutrition * LEN: Women antd Child Developnient Project; project, and is interested in micronutrient health, atnd social welfare services, * Incidence of low birth weight halved in rates. ICDS Conspotteist of APERP. malnutrition. based on lessons of experience. next decade. * SIDA, CIDA and WFP; matemal anemia. * Anenia incidence among women halved in next decade.  Annex I Page 7 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 E. Provide effective, * Reform programs to improve * Budget for subsidies reduced as share of * Refonn of safety net programs * NLS: Poverty Assessment 11 completed and * DFID: rehabilitation of blind people. sustainiable safety nets. targeting while reducing budgetary GDP. under GOI consideration following Poverty Assessment III iniitiated. * WFP: Employmiient through forestry and impact; rensove subsidies which do * Targeting of safety net programs Ilashim Committee Report. * NLS: National Poverty Consultation Workshiop tribal developmiienit. not reach the poor; pilot targeted improved. * Subsidies still high in Feb '99. * Netherlanids: Training village women in food and fertilizer subsidies. * Incideisce of rural poverty further reduced. * Latest poverty data currently under * LEN: Experimentationi with bottom-up agriculture. * Iivestigate market-based insurance * Medium-temn strategy to address the analysis. approaches to desigining and imiiplementing * IFAD: Tamil Nadu wonien's products for the poor, especially econiomic dependence of women . targeted anti-poverty programils (proposed development and Andhra Pradesh women. fomnulated and adopted. District Poverty Initiatives projects in Rajasthatl, participatory tribal development. Andhra Pradesh and Madhya Pradesh) * NORAD: Womilen's economy program. * EDI: Pensions Seminar for Senior Investment Policy Makers. * EDI: Workshops on Involtintary Resettletment & Rehabilitation. III. Investment in Physical Infrastructure A. Reduce infrastructure Power: bottlenecks. * PTomote comprehensive state * Reform legislations adopted in several * GOI Electricity Regulatory * LEN: Three state power sector restructuring * ADB: Various investnients; Gujarat power sector restructuring states. Conumissions Act and Cenitral projects underway (Haryana, AP, Orissa). power sector loat. programs. * Cetntral and State Electricity Regulatory Electricity Regulatory * IFC: Support captive power plants/IPPs wltere * DFID: TA support to state power sector * Establish new commercial utilities Commissions established. Conunission established. appropriate, and non-traditional projects; pioneer restructuring programs (cofinancing with to function in a conmpetitive and * Tariff adjustrnents implemented, Legislation allowing private & replicate private, financially self-liquidating IBRD)(Orissa, Haryana, Andhra appropriately regulated power particularly in agriculture. investment in power infrastructure project preparation entity simiiilar Pradesh). markct. * Privatization strategy for NTPC and tranismission enacted by the to AP; provide assistanice to structure anid * KfW: Rehabilitation of generating plant * Institutiottally strenigtheni NTPC, POWERGRID prepared. Parliament, and a new hydro ntobilize resources for a private special purpose in Haryana.) POWERGRID anid other central * Numbers of IPPs increased. power policy announced by the vehicle for divestitire of selected state-owned * Various investments by OECF/JEXIM. public sector utilities to enable Govemment. enlterprises. (e.g., Faridabad CC Project, thimn to leverage greater * Haryania Electricity Refomi Act * LEN: Powergrid It prepared. POWERGRID) investmient, effective, established * NLS: Workshops to be held in Haryana (end- * SDC: Photovoltaic market/ reniewable * Create an enabliig environment for Regulatory Comimlissioni and Jan) and Orissa (Feb.) to trmnsfer methodologies energy project. private iaivestinienit in tile sector. the niew utilities operational. and approaches used for sector study on * SIDA: HVDC tieossial conversion. * AP Electricity Refomi Act environniental issues in the power sector. * SIDA: hydroelectric project. enacted. * EDI: Fundanmentals of Infrastructure Project * USAID: Ettergy management * Orissa invited bids to privatize Finance seminar (Jan. 99); training/private power TA. 51% of its equity in power * EDI: Seminar ott Financing India's distribution comsspanies and Infrastructure - Road Transportation (May 98). disimsvested 49% of themial * MIGA and IBRD: Guarantees for foreign power generation corporatation. investors in infrastructure. * Work underway in Haryania on power distribution privatization. * IREDA approved 40MW and consisissioned 16 MW of private small hydro projects * PFC- opened a lending winidow for private power. Energy Resources: * Liberalize coal pricing atid * Liberalization prograni imiiplenisented. * Legislation opening thc coal * Intenisive supervision of the recent Coal Sector * DFID: Coal sector training distribution. * Private sector's shabe of the market sector to private investment Rehabilitation Project. * Australia: Coal mining project. * Mitigate enviroiinosental impacts. increased. deferred to 1999 * IFC: Support private investment in coal mininig * J-Exim: Coftnancinmg. * Gradually reduce govemmnent (Saralsatali coal mine, West Bengal), control it oil, gas and mining.  Annex I Page 8 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 A. Reduce infrastructure Highways/Roads: * ADB: National Highway. Development bottlenecks (cont d) * Improve strategic platnning and * Length of roads under construction or * Construction commsenced on * LEN: Two State Highways per year involving Program (TA); series of national highway maintenance effectiveness. upgrading increased. 390 km of niajor roads and 500 1,000 km of roads each. Also National projects under preparation; Delhi- * Facilitate private investments in * Rational and credible plans developed for km periodic maintenance in Highways projects. NOIDA bridge (private sector loan). viable niches and more effective road expenditures and revenues. AP. All remaining Second * IFC: Support initially, moderate size * OECF: Possible financing of a future private sector involvemenit in * Systematic maniagenient of maintenance National Highway works in commercially sound projects with bankable National Higlsway project. engilieering, construction and evident. progress. concession mnaintensance. * Private investnent framewoTk in place; * Workshop on road financing * EDI: Training in regulatory framework for projects initiated and delivered, and management held with EDI surface transport. and Nikko Research Center. Development of Road Fund necrhaiisnis in progress. Improved m aintenance management beeing implensented in AP, anad prepared for three other stales, *Institutional action plans prepared for tbree states, and being actively iniplerented in AP under a twinning arraigement with an ALstralian state road authiority. *Financial closure reached on fPirt major road/bridge project under the Inifrastructure Leasing & Financing line of credit. * Model concession agreement for four-laning of National Highways approved by the Cabinet (to be reviewed by the Bank). * Road construction industry review study presenited at intemnational conference in Paris. Ports: * Expand major port capacity. * Public and private sector investment is * Construction of new Nhava * NLS: Discussion of trade logistics study * Netherlands: Modernization of the * Refonai regulatory environiment for major ports increased. Sheva Intemational Container * Jouit Bank Group: Provide advice on private Rajabagan dockyard. private inivestaient in siiajor ports * Private sector operations of major ports Temiinal awarded to private sector developioienit * ADB: Bonsbay and Madras port and address labor-related issues. increased. sector; other private port * IFC: Support investments in minor ports and improvement projects. * Continue reforms of state * Additional ptivate investment in minor investments underway provide advisory services on pnivatization * BOT selienies. regulations for ninor ports. ports. (Clhennai, Cochin, Piavav). (G7ujarat); focus on minor ports and major ports * Increased traffic liatidled witb samiie or * Legislative chaniges to conivert whsere labor and regulatory issues are resolved, reduced ship waitiig. Port Trusts into Port and include dedicated terminal facilities. Authorities being prepared. * Maritime Board establislsed to encourage development of 'minor' ports. Telecons: * Conmplete refornis. * TRAI fully operational. * Revision to telecons policy to * LEN : TA project for in telecons refonis is * ADB-financed tariff study for TRAI * Strengthen iiistitusional capacity of * Private investment increased, increase competitiveness is oligoing. completed. the Telecoms Regulatory Agency underway * IFC: Support projects in basic, cellular asid of India (TRAI). * Private investment has increased. paging services. ._ . * IFC: Support second/third tier projects.  Annex 1 Page 9 of 9 STRATEGIC STRATEGIC ACTIONS PROGRESS INDICATORS PROGRESS DURING BANK GROUP'S ASSISTANCE OTHER ASSISTANCE OBJECTIVES 1998 B. Support uirban Urban/Municipal Development: development. * Develop a policy framework for * National policy for urban reform * State-level policy for urban * LEN: Urban development funid; urbani * USAID: Financial institutions reform and urban reform and perfomiance- formulated. developnient being formulated in infrastructure; anid muniicipal services. expanision project. based incentive system. * Institutional armngemnents developed for Kamataka and Tamil Nadu. * IFC: Urban solid waste disposal and general * ADB urban project in Karmataka. * Establish institutional and financial devolution of power to local governients * R&R policy for urban urban water and waste treatnient facilities. capacity to plan anid iiplemenit (implementationi of the 74th Constitutionial infrastructure in process for * Nl.S: Urban sector review will be disseminated urban projects, including R&R Amendment). Munisbai. ashbest practice' components. * R&R policy for urban inifrastructure * LEN: Second Tanmil Nadu Urban Development * Involve womeni's groups in formulated. Project, Kamataka West Bengal Municipal plaisniig and inmplementation. * Concerns of women (e.g. child safety) Development Projects under preparation; incorporated in design. Gujarat program to be identified in 1999 * Enployment generated for women in Possible involvement in UP; Delhi iniplementation, and pay converges. environmenstal project under investigation ._______________________________ through PHRD grant Urban Water Supply and Sanitation: * Formulate conipreelensive state- * Fransework for policy reform and * Cliseuiai water tartifs structure * Urban water supply arid sanitation strategy inder * ADB: TA project to assist water supply level reforn progranis to enhance commercialization of water utilities isisproved. preparation. and solid waste management in Calcutta. fisiaicial and operational viability developed. * Banigalore & T irupur have * IFC: Advisory services oni private investnient in * OECF: Urban city water supply and of water utilities. * Private sector involvenient in manageniienit asked for bids for private sector selected urbars water supply and sanitation saniitation onigoing in Bangalore. * Protisote private sector of selected water utilities increased. participation in water supply. projects (e.g., Cochin). * Frenchl aid to assist Calcutta water participation. * Tariff structures improved. * Second Hyderabad Water Supply anid Sanitation supply. Project; Tlsird Chennai Water Supply arid Sanitation Projects; Calcutta drainage and sewage project; Delhi Water anid Sanitation Project (under preparation). Urban Transport: * Develop for one najor city a policy * Planning anid budgetary mechanism * MOU approved for upgradinig * LEN: Munibai Urban Transport 11 PCD to be * OECF: Proposal to assist Delhi urban and institutional framework for between the state, the city and Indian of Mumbai suburban railway reviewed in FY99. rail. iniproved planniiig, construction railways established. system. * GTZ light rail study for Munsbai a nd and operation of urban transport. * Improved procurenient and constructions * Joint India Railways (51%) BOT project for Bangalore. fransework established. /GOM (49%) Mumbai Railway * Efficient framework for R&R establislied. Vikas Corp. approved by Cabinet, Articles beinig finalized. * Designs, conistruction supervision. and nmonitoring consultants appoinited for Delhi urban rail system. * Conitract for part of one corridor of the Delhi metro system awarded. * R&R policy fransework approved; institutional framework at an advanced stage. Genieral Inifrastructure Support: * Overall private investnient in infrastructure * NLS: Preparationi of a couiitry frarisework for * General help developing a cross- increased. private investtireit ins infrastructure. sectoral fratisework to attract * LEN: Private iifrastructure fisiascinig private investiiienlL tacilities thirougls financial intcrmedianes. * EDI: Regulatory issues discussed in infrastructure training courses.   Annex 2 Page 1 of I Key Economic & Program Indicators - Change from Last CAS Forecast in Last CAS Actual Current CAS Forecast Economy (FY) 1996-97a 997-98b 1998-99b 1999-OOb 1996-97c 1997-98c 1998-99b 1999-OOb 2000-Olb 2001-02b GDP at factor cost (%) 6.8 6.0 6.3 6.5 7.5 5.1 5.0 5.0 5.0 5.5 Gross investmnent (% of GDP) 26.5 25.8 25.9 26.0 25.4 24.0 23.2 23.0 23.0 23.6 Inflation (%) 7.0 7.0 7.0 6.7 6.3 4.8 8.0 7.5 7.5 7.0 Exports (Merchandise, $ growth) 4.1 5.0 10.0 12.0 5.6 2.1 0.0 5.0 8.2 9.7 Imports (Merchandise, $ growth) 5.6 10.0 11.9 12.4 12.1 4.4 8.0 7.9 8.9 10.6 Current account deficit 1.2 1.5 1.9 2.2 1.4 1.5 2.2 2.3 2.1 2.0 International reserves (excluding gold) as months of imports (gnfs) 4.9 5.1 4.9 4.7 4.9 5.3 4.9 4.6 4.3 4.1 Adjusted Central Government Deficit (% of GDP)* 5.8 5.5 5.0 4.5 6.0 6.0 6.0 5.5 5.0 4.5 Program (Bank's FY) Lending ($ million) 1530 3006 2950 3155 1530 2142 3183 d 2798 2740 Gross disbursements 1563 1618 1905 2145 1563 1375 1496 1801 1912 ($ million) * Includes OCC deficits and excludes disinvestment proceedings. a. Estimated year b. Projected year c. Actual ottcome d. Includes four projects negotiated in FY98, but whose Board consideration has been postponed (see Annex B3).   Annex 3 Page 1 of 2 India at a glance 8/27/98 POVERTY and SOCIAL South Low- India Asia income Development diamond* 1997 Population, mid-year (millions) 960.9 1,289 2,048 Life expectancy GNP per capita (Atlas method, US$) 390 390 350 GNP (Atlas method, US$ billions) 375 502 722 Average annual growth, 1991-97 Population (%) 1.7 1.9 2.1 A Labor force (%) 2.0 2.2 2.3 GNP Gross 1per primary Most recent estimate (latest year available, 1991-97) capita enrollment Poverty (% of population below national poverty line) 35 .. .. Urban population (% of total population) 27 27 28 Life expectancy at birth (years) 63 62 59 Infant mortality (per 1,000 live births) 63 71 78 Child malnutrition (% of children under 5) . .. 63 61 Access to safe water Access to safe water (% ofpopulation) 81 77 71 Illiteracy (% of population age 15+) 48 51 47 Gross primary enrollment (%of school-age population) 100 99 91 India Low-income group Male 110 109 100 Female 90 89 81 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1996 1997 1 IEcvonomic ratios' GOP(US$billions) 95.0 229.1 359.7 380.5 Gross domestic investmentVGDP 20.9 23.2 25.2 24.0 Trade Exports of goods and services/GDP 7.2 6.0 11.8 11.5 Gross domestic savings/GDP 21.7 20.4 21.9 20.2 Gross national savings/GDP 22.2 20.8 23.9 22.3 Current account balance/GDP 1.4 -2.6 -1.4 -1.8 Domestic Interest payments/GDP 0.3 0.7 1.1 0.9 DStic g Investment Total debtVGDP 15.2 21.0 26.0 24 Savgs Total debt service/exports 15.3 32.0 24.3 20.6 Present value of debtGDP .. .. 19.6 Present value of debVexports .. .. 135.6 1976-86 1987-97 1996 1997 1998-02 (average annual growth) GOP 4.4 5.7 7.4 4.9 - ndia Low-incomegroup GNP per capita 2.1 3.8 5.7 3.5 Exports of goods and services 3.4 11.8 10.1 3.8 .. STRUCTURE of the ECONOMY 1976 1986 1996 1997 Growth rates of output and investment I%) (% of GDP) Agriculture 38.5 31.7 27.0 25.3 Industry 25.0 28.4 30.0 30.1 20 + / \ Manufacturing 17.1 17.8 19.4 19.5 Services 36.5 39.9 43.0 44.6 0 Private consumption 68.6 67.8 67.8 69.8 -20 - General govemment consumption 9.7 11.8 10.3 10.0 GDI GDP Imports ofgoodsand services 6.4 8.7 15.1 15.2 G 197646 1987-97 1996 1997 j Growth rates of exports and imports (%) (average annual growth) Agnculture 2.6 3.1 7.9 -1.5 40 Industry 5.3 6.7 6.4 5.5 30 T Manufacturing 5.5 7.0 7.4 5.8 20t Services 5.4 7.2 8.1 8.9 ls Private consumption 4.7 5.1 8.2 8.5