India - Wheat Storage Project

RESTRICTED Report No. P-968 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE GRAIN STORAGE PROJECT June 30, 1971  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECO1MENDATION OF THE PRESIDENT TO TIE EXECIJTIVE DIRECTORS ON A PROPOSED CREDIT TO fIDIA FOR TIE GRAIN STORAGE PROJECT 1. I submit the following report and recommendation on a proposed IDA credit to India for the equivalent of U.S.$ 5 million. Concurrently, the Government of Sweden proposes to make a credit of approximately u.S.$ 5.0 million on similar terms. to India to finance lonponents of this project. PART I - HISTORICAL 2. The Bank has made 39 loans amounting to U.S.$ 1,051.2 million to India (including those guaranteed by India), and the Association has ad- vanced 3h credits totalling US$ 1,507.0 million (both loans and credits net of cancellations). A major thrust of recent Bank group activity in India has been in agriculture; the proposed credit would be the first for a grain storage project. Currently the Association is also consider- ing projects in various fields, including irrigation, agricultural credit, water supply, transportation, population, education and power. 3. Of the 39 loans and 30 credits already declared effective, 6 loans and 7 credits have not yet been fully disbursed. A summary state- ment of these loans and credits as of May 31, 1971, is attached in Annex I. The reasons for the delays in disbursements were outlined in the re- port to the Executive Directors of May 17, 1971 on the Tamil Nadu and Haryana Agricultural Credit projects. There have been no significant changes since that report. 4. Since 1957, IFC has made 13 commitments in India totalling US$ 42.3 million, of which US$ 2.8 million has been repaid, US$ 5.8 million sold and US$ 6.3 cancelled. Of the balance of US$ 27.h million,US$ 19.1 million represents loans, and US$ 8.3 million equity. As of May 31, 1971, US$ 10.4 million is undisbursed. The largest commitment to date has been a total of US$ 18.9 million to Zuari Agro-chemicals for a fertilizer plant in Goa. 5. The .3heat Storage project was appraised in March and April 1970. Negotiations took place in November 1970. The Borrower was represented by Mr. C. S. Swaminathan, Joint Secretary, Department of Economic Affairs, Ministry of Finance, Mr. P. K. Dave, Managing Director, Food Corporation of India, (FCI) and Mr. R. Balasubramian, Joint Secretary, Ministry of Food. The Government of Sweden was represented by Messrs. G6sta Westring and Klas Markensten of Swedish International Development Authority (SIDA). During negotiations all major issues were resolved except the bidding pro- cedure for civil works for the construction of silos, which the Association was unwilling to finance unless they were put up for international compe- titive bidding. Following discussions this Spring between SIDA, the Associ- ation and the Government of India agreement was reached on the procedure outlined in paragraph 12.  INTERNATIONAL DEVELOPMENT ASSOCL4TION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTCRS ON A PROPOSED CREDIT TO INDIA FOR THE GRAIN STORAGE PROJECT 1. I submit the following report and recommendation on a proposed IDA credit to India for the equivalent of U.S.$ 5 million. Concurrently, the Government of Sweden proposes to make a credit of approximately U.S.$ 5.0 million on similar terms, to India to finance Components of this project. PART I - HISTORICAL 2. The Bank has made 39 loans amounting to U.S.$ 1,051.2 million to India (including those guaranteed by India), and the Association has ad- vanced 34 credits totalling US$ 1,507.0 million (both loans and credits net of cancellations). .n major thrust of recent Bank group activity in India has been in agriculture; the proposed credit would be the first for a grain storage project. Currently the Association is also consider- ing projects in various fields, including irrigation, agricultural credit, water supply, transportation, population, education and power. 3. Of the 39 loans and 30 credits already declared effective, 6 loans and 7 credits have not yet been fully disbursed. A summary state- ment of these loans and credits as of May 31, 1971, is attached in Annex- I. The reasons for the delays in disbursements were outlined in the re- port to the Executive Directors of May 17, 1971 on the Tamil Nadu and Haryana Agricultural Credit projects. There have been no significant changes since that report. 4. Since 1957, IFC has made 13 commitments in India totalling US$ 42.3 million, of which us$ 2.8 million has been repaid, US$ 5.9 million sold and US$ 6.3 cancelled. Of the balance of US$ 27.4 million,US$ 19.1 million represents loans, and US$ 8.3 million equity. As of May 31, 1971, US$ 10.4 million is undisbursed. The largest commitment to date has been a total of US$ 18.9 million to Zuari Agro-chemicals for a fertilizer plant in Goa. 5. The IJheat Storage project was appraised in March and April 1970. Negotiations took place in November 1970. The Borrower was represented by Mr. C. S. Swaminathan, Joint Secretary, Department of Economic Affairs, Ministry of Finance, Mr. P. K. Dave, Managing Director, Food Corporation of India, (FCI) and Mr. R. Balasubramian, Joint Secretary, Ministry of Food. The Government of Sweden was represented by Messrs. G^osta Westring and Klas Markensten of Swedish International Development Authority (SIDA). During negotiations all major issues were resolved except the bidding pro- cedure for civil works for the construction of silos, which the Association was unwilling to finance unless they were put up for international compe- titive bidding. Following discussions this Spring between SIDA, the Associ- ation and the Government of India agreement was reached on the procedure outlined in paragraph 12.  -2- PART II - THE ECONOMY 6. An economic report entitled riEconomic Situation and Prospects of India" (SA 25a) was distributed to the Executive Directors on May 24, 1971. This report emphasized India's continuing progress, particularly in the growth of exports and in agriculture. It notes, however, that net aid receipts have fallen to the lowest level in the past decade. As a result of a shortage of resources investmnent has fallen short of the planned level, which already represented the miin-:n.um r34uired, if India is to achieve a tolerable rate of growth. Consequently, India continues to need substantial net aid on concessionary termis. 7. The Report points out that agricultural production has continued to grow, spurred on by the technology of the green revolution. Foodgrain production reached a new- record of 105 million tons in 1969/70 and appears to be increasing at an annual rate of 5 percent. This increase has occurred primarily in wheat, but progress in the production of rice has occurred and is expected to accelerate. The Fourth Plan target is a 5-6 percent rate of growth in foodgrain production per year, aiming at a total crop of 129 million tons in 1973/74; actual performance may fall somewhat short of these goals. The delay in increasing assured irrigation supplies and the closely related slowdown in the growth of fertilizer consumption have contributed to the slower-than-expected expansion of foodgrain production, but the further- development of irrigation projects with effective agricultural support pro- grams should ensure continued growth in the use of new inputs, including fertilizer. 8. A Country Data sheet is attached as Annex II. PART III - TEE PROJECT 9. An appraisal report entitled "IWheat Storage Project - India" (PA - 6ha, June 15, 1971) is attached. A Credit and Project Summary is attached as Annex III. 10. Progress in foodgrain production has been most dramatic in the wheat belt comprising the states of Punjab, Haryana, and parts of Rajasthan and Uttar Pradesh. Bumper crops have strained both storage- and transporta- tion facilities. The Government is also involved in large-scale storage through its price support program and4arrangements for the public distribu- tion of foodgrain administered by State governments and FCI. For these reasons India requires about 5.9 million tons capacity of publicly owned storage facilities. The balance of its requirements is met by hiring priv- ately owned stores which are in short supply and some of which are unsatis- factory. India is aiming to achieve self-sufficiency in foodgrains. Storage requirements particularly in the producing and consuming areas will increase as domestic supplies procured during peak harvest periods continue to replace imports distributed more evenly over the year. To meet the increasing deficit in storage capacity, the GOI has embarked on a program of construction. 11. The proposed project (see Annex III) is designed to support this program. It will consist of (a) the planning, design, construction and  equipping of 10 silos of 20,000 tons capacity each, and of 10 godowns of 10,000 tons capacity each located in northwest India, (b) the training of silo personnel and, (c) an all-India study of foodgrain storage and distribution. The project will provide 300,000 tons of additional storage capacity to help reduce the current public storage deficit of 900,000 tons and will also add about 6 percent to gross public storage facilities. 12. Total project cost is estimated at U.S.$ 15.9 million, to which the Government of India will contribute Rs. 11.3 million, (about U.S.$. 5.9 million) or 37.2 percent. The Government of Sweden and the Association would each provide credits of U.S.t 5.0 million equivalent, or 31.h percent. The GOI will relend the proceeds of the SIDA and IDA credits to FCI, for a term of 19 years, including four years of grace, with interest of 7 percent per annum. The Swedish credit will be applied to the cost of civil works for the construction of the silos; Sweden has agreed to accept resort to local rather than international competitive bidding for this work. Of the items to be financed by the Association the largest is electrical and mechanical equipment (about U.S.-t 3 million including contingencies, or 60 percent of the proposed credit), which will be procured under interna- tional competitive bidding. Civil works for the construction of godowns, of which , 1.5 million to be financed by IDA, do not lend themselves to international competitive bidding since individual contracts will be too small, and the sites are scattered over several states. These contracts will accordingly be let on the basis of local competitive bidding. The balance of the proposed credit (1 0.5 million) will finance 100 percent of expenditures for engineering and other consulting services and training provided outside India, and 50 percent of local expenditures for consulting services and training in India. Given the justification for local financing in India the Association credit will finance 100 percent of the cost of contracts won by Indian bidders. Local costs to be financed from the IDA credit are expected to total about 6, 2.7 m-illion or 54 percent of the Credit. The Association will supervise the execution of all aspects of the project, including those financed by the Swedish Government credit. 13. The Food Corporation of India (FCI) will carry out the bulk of the project, in particular the construction and operation of storage facili- ties, and will be responsible for training silo personnel. The management of FCI is good. It has an engineering department which will be responsible for the construction phase of the project. An interesting technical feature of the project is the use of the slip-form method for the construction of grain storage silos. This technique is the most modern and least expensive method of construction for silos and has not yet been widely used in India. For this reason fully qualified and experienced consultants will assist FCI in the design and supervision of construction of the silos included in the project. lh. The FCI operates storage facilities in connection with the Governs- ment's price-support program, and in the event of serious shortfalls in food production it is responsible, with State Governments, for distribution of relief supplies. In normal years it provides food grains to the poor at concessionary prices through "fair price" shops. In 1969, the last year for which statistics were available, FCI distributed about 6.6 million tons of foodgrains (L.o million tons procured locally and 2.6 million tons imported); this represented about 70 percent of all public distribution, the remairinler having been made up by distribution carried nut by the States. The program, which is subsidized by the Govern7rent, as it now operates thrcA2gh  -4. FCI and the "fair priceT' shops is relatively efficient and entails less admin- istrative *ork than a system of direct rationing or money grants. Of the pub- licly owned storage facilities which have a capacity of about 5 million tcns, at the present time FCI owns about 2.8 million tons of storage capacity and man- ages substantial additional facilities with an estirmated capacity 2.7 million tons, much of which is rented from the private sector. Some hired storage facilities are inadequate. 15. Assura.ices were obtained during negotiations that within six months of the date of the proposed credit agreements India, Sweden and the Association iwould enter into discussions on an all India grain storage study. This study, which would complement other investigations which the GOI has already undertaken, would be carried out by a body to be agreed upon by GOI, FCI, SIDA and the Association with the assistance of consul- tants as necessary. Its purpose will be to examine the costs and benefits of the public distribution system, to survey existing public and private storage facilities and to determine grain losses during storage and handling. The object of the study is to make recommendations for the improvement of existing storage and handling facilities and methods and to devise an investment program for new facilities, including provision for rice milling. 16. The economic rate of return is estimated at about 25 percent (20 percent for godoTrns, 28 percent for silos). This return will be achieved largely through reduction of losses of grain which would other- wise be stored in inadequat-e facilities. A sensitivity analysis has also been made. If without-the-project storage losses were 15 percent per annum instead of 25 percent per annum (which is unrealistically low under the present circumstances), the rate of return on the project facilities would be 15 percent. At a loss rate of 35 percent per annum, the rate of return on the facilities would be about 40 percent. The provision of these facilities primarily in wheat producing areas will have the addi- tional benefit of reducing pressure on the transportation system following the harvest, at a time when large quantities of grain must be moved and stored before the monsoon begins. PART IV - LEGAL IN2STRUENTS AND AUTHORITY 17. The Draft Development Credit Agreement between India and the International Development Association, the Draft Joint Financing Agreement between India, the Kingdom of Sweden, the International Development Associa- tion and the Food Corporation of India, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement and the text of a Draft Resolution approving the proposed credit are being dis- tributed to the Executive Directors separately. 18. The Draft Development Credit Agreement, Sections 7.01 (d) i and ii, in addition to the customary provisions, set down as conditions of effectiveness the appointment of engineering consultants (para. 15 above) and the acquisition of sites for the proposed storage facilities.  19. I am satisfied that the proposed Credit will comply with the Articles of Agreement of the Association. PART V - RECOMMDENDATION 20. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments J u n e 30, 1971  Annex I SU1GMARY STATIENT OF LQAtIS AND CREDITS as of May 31, 1971 Undis- Loan or Bank IDA bursed Credit No. Year Borrower Purpose (U3, million) 33 Loans and 21 Credits fully disbursed 876.4 985.6 - 307-IN 1961 IISCO Coal Mining 19.5 3.1 414-IN 1965 ICICI Industry DFC VI 49.8 7.1 89-IN 1966 India Beas Equipment 23.0 9.2 515-IN 1967 ICICI Industry DFC VII 25.0 10.1 614-IN 1969 India Tarai Seeds 13.0 10.9 615-IN 1969 India Telecommunications III 27.5 26.9 153-IN 1969 India Telecommunications III 27.5 10.0 162-IN 1969 India Tenth Railways 55.0 19.5 176-IN 1970 India Kadana Irrigation 35.0 33.4 182-IN 1970 India Sixth Industrial Imports 75.0 46.7 683-IN 1970 ICICI Industry DFC VIII 40.0 32.4 191-IN 1970 India Gujarat Agriculture 35.0 35.0 203-IN 1970 India Punjab Agriculture 27.5 27.5 226-IN 1971 India Andhra Pradesh Agriculture 2h.4 24.4 230-IN 1971 India Agro-Aviation 6.o 6.0 2h1-IN 1971 India Telecommunications IV 78.0 78.C-* 242-IN 1971 India Power Transmission II 75.0 75,0* 249-IN 1971 India Haryana Agriculture 35.0 35-o-,0* 250-IN 1971 India Tamil Nadu Agriculture 25.0 25.o0,* Total (less cancellations) 1051.2 1507.0 515.2 of which has been repaid h69.1 Total now outstanding 582.1 Amount sold 110.2 of which has been repaid 108,h 1.8 1507.0 Total now held by Bank and IDA 580.3 1hh7.0 Total undisbursed 90.5 424.7 515.2 *Signed MaY 3, 1971 and not yet effective. *Signed May 3, 1971 and not yet effective. **Signed June 11, 1971 and not yet effective.  Anner II INDIA COUNTRY DATA Total Percent Area: in km2 Cultivated 3,268,58o 43.0 ~~opulation: ii~~~~~~~~~ensit, Population: Total per km_ (Preliminary 1971 Census estimate) 547 million 167 Annual Rate of Growth, current estimate: 2.25 percent Political Status: ivlember of U.N., Commonwealth Gross National Product at Market Prices, 1970/71-/: Rs. 383 billion Rate of growth 1955/56-1968/69: 3.4h p.a. at constant 1965/66: -5.2% prices 1966/67: 1.3% 1967/68: 8.9% 1968/691/: 2.2d 1969/7w: 5 - 5.5 1970/71_/: 4.5 - 5% Per capita, 1970/71: US$9o Gross Domestic Product at Current Prices, 1970/711/: Rs. 386 billion Percentage breakdown: Agriculture 49 (for 1968/69) lMining 1 Manufacturing 19 Commerce and Transport 16 Government and Other Services 15 Percent of National Income at Market Prices: 1961/62- 2/ 2 2 1965/66 1966/67- 1967/68-/ 1968/69- 1969/70/ Net domestic investment 13.3 12.1 11.3 11.3 12.0 Net domestic saving 10.6 8.2 7.8 8.8 9.9 Current account balance -2.7 -3.9 -3.5 -2.5 -2.5  Annex II (page 2) 1966/67-1969/70 March 1970 Average Rate of Money and Credit (Rs. billion): (Last Friday) Increase (%) Total money supply 63.85 9.0 Net bank credit to gov't sector h7026 5.5 Net bank credit to commercial sector 18.36 15.0 Rate of increase in prices 1969/703/ Consumer prices-/ 6.8 6.2 Wholesale prices 6.5 6.9 Third Plan Period 1961/62 - 1965/66 Public Sector Operations (Rs. billion): 1969/70 Annual Average Public sector plan outlay 21.76 17.15 Balance from current revenues plus surpluses of public enterprises 6.68 5.82 Domestic borrowings 9.11 4.23 Total external assistance to public sector 5.39 4.84 Deficit financing 0.58 2.26 External Public Debt, excluding 1965/66 - 1970/71 Supplier's Credits (US$ million): 1970/71 Annual Average Total debt outstanding (as of March 31, 1970) 8.263 Total annual debt service 584/ 4602/ Debt service ratio5/ 30 26 1964/65 - 1970/71 Average Rate of Balance of Payments (US$ million): 1970/71V Increase (%) Total exports 1960 2.3 Total imports 2275 -3.2 Trade balance -315 1966/67 - 1969/70 1969/70 Annual Average Commodity concentration of exports/ 28 35  Annex II (p age 3) Official reserves of Use Net gold, foreign DIF gold of inter- exchange tranche Overall IMF national Foreign Exchange Reserves: and SDRs position reserves credit liquidity (US$ million) As of December 31, 1967 662 Nil 662 456 206 As of March 31, 1970 1095 Nil 1095 183 912 As of M4arch 31, 1971 9762/ 76 / 1052 Nil 1052.7. Exchange Rate: Rs 7.5 = US$l.oo ! Preliminary estimates. 2/Preliminary estimates and not strictly comparable with data for 1961/62 - 1965/66. 3/December 1969 to December 1970. k/Working class consumer price index. November 1969 to November 1970. 5/Before debt relief. 6/Jute, tea and cotton fabrics as a percentage of total exports. 7/Includes allocation of $100.58 million in SDRs in January 1971. -/Includes use of $17.5 million previously non-monetary gold.  Annex III CREDIT AND PROJECT SUr11ARY INDIA The IDA Credit Borrower: India, acting by its President Beneficiary: The Food Corporation of India (FCI) Amount and US$5 million equivalent, service charge of 3/4 of one Terms: per cent per atnnum, amortization over 49.U years including 10 years grace, through semi-annual installments of is of one per cent from June 15, 1981 through December 15, 1990 and 1