India - Fourteenth Industrial Credit and Investment Corporation Project

Document of com The World Bank U FOR OFFICIAL USE ONLY Report No. P-3116-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED FOURTEENTH LOAN TO THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA WITH THE GAURANTEE OF INDIA September 8, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT (as of August 28, 1981) US$1.00 = Rs 9.036473 Rs 1.00 US$0.110663 Rs 1 million = US$110,663 (The US$/Rupee exchange rate is subject to change. Conversions in this Report were made at US$1.00 to Rs 8.00, which represents the projected average exchange rate over the disbursement period.) FISCAL YEAR GOI - April 1 - March 31 ICICI - January 1 - December 31 ABBREVIATIONS DFC - Development Finance Company DIC - District Industries Center FRN - Floating Rate Note GOI - Government of India ICICI - Industrial Credit and Investment Corporation of India Limited IDBI - Industrial Development Bank of India IFCI - Industrial Finance Corporation of India IIM - Inter-Institutional Meeting KfW - Kreditanstalt fur Wiederaufbau LIBOR - London Inter-Bank Offered Rate LIC - Life Insurance Corporation of India RBI - Reserve Bank of India SFC - State Financing Corporation SIDC - State Industrial Development Corporation UTI - Unit Trust of India  FOR OFFICIAL USE ONLY INDIA FOURTEENTH LOAN TO THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA Loan and Project Summary A Borrower: Industrial Credit and Investment Corporation of India, Limited (ICICI). Guarantor: India, acting by its President. Amount: US$150 million. Terms: Repayable in accordance with the amortization schedule for sub-loans for which withdrawals from the loan account are approved or requested. The interest rate would be 10.6% per annum. Relending Terms to Interest of 14% per annum for ordinary loans and ICICI's Borrowers: 12.5% per annum for loans in backward areas. Surcharge of 1% per annum for companies not listed on a stock exchange. Commitment charge of 1% per annum. ICICI's standard lending terms provide for loan maturities of up to 15 years, including up to three years of grace. Exchange risk to be borne by ICICI sub-borrowers. Project Description: The project would finance the foreign exchange cost of industrial projects carried out by productive enterprises in India. It would assist ICICI in diversifying its sources of foreign exchange by facilitating blending of Bank and commercial funds, and in promoting developmental activities. The project would also contribute to investment in the modernization and expansion of productive industrial capacity in India. The risks associated wit~h the project are minimal due to the strong management and experience of ICICI. Estimated Commitments and Disbursement: US$ Millions FY82 FY83 FY84 FY85 FY86 FY87 Commitments: 45 60 45 - - - Disbursements: (a) Annual: 2.1 9.9 41.3 71.2 17.6 7.9 (b) Cumulative: 2.1 12.0 53.3 124.5 142.1 150.0 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -ii- Appraisal Report: No separate Appraisal Report has been prepared this time. The financial data on ICICI presented in Report No. 2890-IN of April 18, 1980 for Loan 1843-IN of May 16, 1980 have been updated in Annex IV. Other results of the appraisal have been incorporated in expanded Parts III and IV. Total Expected 1981: Financing during the Commitment (a) US$150 million IBRD loan; Period by source: (b) US$30 million floating rate note, with guarantee by GOI; (c) US$35 million equivalent syndicated mixed currency loan, without Government guarantee; (d) US$10 million equivalent in UK export credits; (e) US$20 million equivalent in KfW capital aid; 1982/83: (f) Total of US$95 million, for commitment parallel to commitments under the proposed Bank loan. Funds are expected to be raised from KfW capital aid (US$20 million equivalent), further Euro- market borrowings, further UK and other export credits and, possibly, direct borrowings from Japanese commercial sources and/or Middle East oil exporting countries.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED FOURTEENTH LOAN TO THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA WITH THE GUARANTEE OF INDIA 4 1. I submit the following report and recommendation on a proposed four- teenth loan to the Industrial Credit and Investment Corporation of India (ICICI) with the guarantee of India for the equivalent of US$150 million to help finance ICICI's foreign exchange requirements through December 1983. The interest on the loan will be 10.6% per annum. Amortization of the loan will conform substantially to the aggregate of the amortization applicable to sub-loans financed out of the loan, subject to a maximum of 15 years, includ- ing up to three years of grace. The foreign exchange risk would be borne by ICICI's borrowers. PART I - THE ECONOMY 1/ 2. An economic report, "Economic Situation and Prospects of India" (3401-IN, dated April 15, 1981), was distributed to the Executive Directors on April 16, 1981. Country data sheets are attached as Annex I. Background 3. India is a large and diverse country with a population of about 688 million (in mid-1981) and an annual per capita income of US$190. Agriculture continues to dominate India's economy, employing over two-thirds of the labor force. However, the land base is not sufficient to provide an adequate livelihood to all those engaged in agricultural activities, especially the landless or nearly landless who have only an insecure grasp on the means of existence. Over the past 30 years, the share of agriculture in GDP at factor cost (measured in 1970/71 prices) has declined from 60% to about 40%, while the share of industry has increased from 15% to about 24%. But industrialization has not been rapid enough to absorb the growing labor force, nor to bring about the economic transformation that has led to sig- nificantly higher productivity in some other developing countries. 4. Economic growth has been slow in the past, averaging about 3.5% per annum over the past 30 years. Slow growth of value-added in agriculture -- 2.1% per annum over the three decades -- has constrained overall growth, not 1/ Parts I and II of the report are substantially the same as Parts I and II of the President's Reports for the Tamil Nadu Newsprint Project (No. P-3114-IN), dated August 25, 1981 and the Madhya Pradesh Major Irrigation Project (No. P-3115-IN), dated August 26, 1981.  -2- only because of the high share of agriculture in GDP but also because scarce foreign exchange has often been required to import food. Industrial value-added has grown more rapidly, at 5.4% per annum between 1950/51 and 1979/80. Over the same period, gross domestic savings more than doubled from 10% of GDP to 21.2%, while gross domestic investment rose from 10% of GDP to just over 21.8%. Foreign savings have never financed a large portion of domestic investment: a peak of about 20% was reached during the early 1960s; by the end of the 1970s, the proportion had returned to below 3%. External assistance has been low both as a percentage of GDP and in per capita terms. Net external assistance has never risen above 3% of GDP, and was less than 1% at the end of the 1970s. 5. Over the past 30 years as a whole, India has placed relatively little emphasis on exports and has tended to pursue a strategy of import substitu- tion. The volume growth of exports between 1950/51 and 1979/80 averaged only 3.6% per annum, about the same as the volume growth of imports over the same period. Between 1970 and 1977, however, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated sharply. In response, the Government introduced various policy measures designed to stimulate exports. The volume of India's exports grew on average about 9% per annum between 1971/72 and 1976/77. Although export growth has slowed in recent years, due in large part to domestic supply constraints, this experience demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, contributed to this growth, liberalized access to imported inputs and more effective export incentives played a major role. Recent Trends 6. Over the period 1975/76 to 1978/79, growth in real GDP (at factor cost), agricultural value-added and industrial value-added averaged 5.4%, 3.1% and 7.9% per annum, respectively. These trends represent a substan- tially better growth performance than the historical 30-year trends (paragraph 4). However, GDP declined by about 4.5% in 1979/80 due both to the severe drought which reduced agricultural production and to input con- straints in other sectors. Agricultural output fell by about 16% in 1979/80. Industrial production stagnated, largely due to shortfalls in the production of major inputs such as coal, steel and cement, as well as infrastructural constraints, notably in power and transportation. As a consequence of these developments, the remarkable price stability that India had enjoyed after 1975 came to an abrupt end at the close of fiscal year 1978/79, with prices increasing 21% during 1979/80. 7. In 1980/81, the economy recovered substantially, so that real GDP growth for the year was about 6%-7%. During the summer and fall of 1980 foodgrain prices rose, but more slowly than other prices and more slowly than the drop in production in 1979/80 would have suggested. This was made pos- sible through the drawdown of substantial buffer stocks built up by the Government in years of good harvests. These stocks ensured adequate supplies of grain to low-income groups in urban areas through the public distribution system and also provided resources for a large-scale drought relief employ- ment program for low-income groups in rural areas. Aided by a normal monsoon in the summer of 1980, agricultural production rose by about 17%-19%. The industrial sector recovered more slowly, with production in 1980/81 rising  -3- only about 4% above the average for 1979/80, but output increased substan- tially during the year so that production in April 1981 was about 9% higher than in April 1980. The rise in prices slowed during the second half of 1980/81 so that by March 1981 the wholesale price index was 15.7% above its level a year earlier. 8. In agriculture the positive results of large investments and appropriate policies in the past years are becoming increasingly apparent. The rate of expansion of irrigation has increased significantly from 1.3 mil- lion ha per year in the early 1970s to about 2.3 million ha in 1980/81. Fertilizer use reached about 5.6 million tons of nutrients in 1980/81, more than double 1974/75 levels. Over the decade before 1979/80, foodgrain production grew at about 2.75% per annum -- sufficient to meet consumer demand, to eliminate imports (which had averaged nearly 5 million tons per year for the 15 years preceding 1976), and to reduce real foodgrain prices for consumers. At the same time, India was able to build up substantial foodgrain buffer stocks which made it possible to limit the effects of the 1979/80 drought, and to export a modest amount of grain in 1980. While the management of the foodgrain economy after the drought was a significant achievement, the effect of the drought on production re-emphasized the con- tinued importance of the monsoon in India's agriculture. The normal monsoon of 1980/81 brought foodgrain production back to around the previous record level of 132 million tons. While the performance of the recent past and the probable future trends suggest that on average foodgrain supplies will exceed demand, the balance remains delicate and the need for foodgrain imports to maintain consumer supplies or adequate buffer stocks could arise from time to time. For example, some wheat imports are likely in 1981/82 to ensure ade- quate build up of stocks. Programs to expand irrigation, strengthen exten- sion and encourage the efficient use of other agricultural inputs continue to receive high priority. 9. The Indian economy has shifted back from a situation of resource surplus, which had been a temporary phenomenon of the late 1970s, to one of resource scarcity. Investment has again overtaken domestic savings, and the scope for further increases in the latter appears limited. Marginal savings rates have recently been well above 30% in the household sector. Future increases in savings will depend heavily upon the enhanced profitability of public sector enterprises. Impending resource scarcity is even more apparent in the foreign sector. Between 1975/76 and 1978/79, India's current account deficit had remained comfortably small in relation both to GDP and to a growing pipeline of aid commitments. This was due to favorable terms of trade movements after 1977 and to rapidly growing workers' remittances as well as to the growth of exports. In 1980/81, however, the balance of pay- ments deteriorated sharply, with the current account deficit rising from US$850 million in 1979/80 to nearly US$3.4 billion in 1980/81. In part this was due to unique events during the year, such as the disruption of oil production in the Northeast, which, though the flows resumed again in February 1981, alone added over US$1 billion to the oil import bill. Com- bined with unprecedented oil price increases, this caused the oil import bill to rise by over 75%, to a level equivalent to three-fourths of India's mer- chandise export earnings. The deficit on current account rose to 2% of GDP. India was able to finance this gap through a substantial drawing on IMF resources (the Trust Fund and the Compensatory Financing Facility), and  -4- through an increase in aid disbursements and a modest drawdown in foreign exchange reserves. 10. The trends in the volume and terms of India's trade indicate that significant adjustments will need to be made in the economy to bring India's external accounts into reasonable balance at a high level of growth. In particular, there is a need to increase the growth of exports, to increase production of commodities such as fertilizer, cement and steel which India can produce efficiently in order to reduce imports of these items, to moderate the rise in oil imports through greater domestic production and slower demand growth, and to reduce the constraints in transportation and other infrastructural facilities which are retarding growth in a wide range of activities, including exports. It is encouraging that, in response to the present balance of payments difficulties, the Government has not reacted by placing more stringent controls on imports, but rather has left in place the more liberal policies evolved in the past several years. Recent improvements in the availability of power, a major constraint facing exporters, and the adoption of several new export policy measures have improved the prospects for accelerating export growth. Development Prospects 11. The experience of recent years illustrates that India does have the capacity to grow and develop at a more rapid pace. Although the industrial sector is small compared to the size of the economy, it nevertheless is large in absolute terms and has a highly diversified structure, capable of manufac- turing a wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, the power grid, roads and ports - is extensive compared to many countries, although there is considerable need for additional capacity as well as improvement in the utilization of existing capacity. India is also well-endowed with human resources and with institu- tional infrastructure for development. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and ferrous ores, but also gas and oil). With good economic policies and sufficient access to foreign savings, India has the capability for managing these considerable resources to accelerate its long-term growth. 12. A new Sixth Five-Year Plan (1980-85) was approved in February 1981. The new Plan continues to assign priority to agriculture and power. Further- more, the Plan reflects the Government's efforts to bring about the necessary adjustments in the economy by emphasizing several priority areas. These include: (i) expansion of exports and an investment program to support increased production to replace imports of goods such as fertilizer, cement and steel which India produces competitively; (ii) an investment program and policy framework for more efficient development and use of energy resour- ces; (iii) removal of bottlenecks in infrastructure and related constraints on production of basic industrial inputs; and (iv) continuing emphasis on the development of agriculture. 13. The higher capital formation rates of the past few years augur well for future income growth. However, there are signs that the past programs and policies have led to relatively low growth in certain crucial sectors, namely power, coal, transport services, steel and cement. Potential output growth in sectors which have benefitted from large investments in the recent  -5- past may not materialize unless these input bottlenecks are alleviated. In the case of coal, steel and cement, domestic production appears to be clearly justified on grounds of comparative advantage, indicating an a priori case for policies to promote further investment. In 1980/81 these commodities were not imported in sufficient amounts to eliminate the shortages; increased short-term reliance on imports may be necessary to alleviate slowdowns and dislocation in user industries. In the case of sectors in which there is little scope to import the final product -- power and transportation -- the planning of capacity expansion becomes even more crucial. Although there is scope for improvement in the short-run performance of these sectors, major investments in balancing and modernization programs as well as in new capacity are essential for adequate growth in the medium term. 14. Despite the relatively large investment programs for the develop- ment of domestic energy resources such as coal and hydroelectricity, and the recent development of offshore petroleum resources, India has not been able to eliminate the gap between its total energy demand and domestic production. During the past year, India continued to face power and coal shortages, but the situation improved substantially during the year so that power generation in June 1981 was around 20% higher than a year earlier. India is entering the Sixth Plan period with an ambitious energy production program backed by substantial financial commitment. In the oil sector, GOI is now accelerating its oil exploration capabilities and is opening up prospective areas for exploration by foreign firms. Prices of petroleum products were raised substantially in 1980 and again in July 1981 to bring domestic prices into line with world market prices, to raise resources for further oil and gas development and to encourage efficient use of energy. India is now committed to an expanded power program that emphasizes exploitation of its large hydro potential and development of its transmission and distribution system. In the coal sector, a policy decision in favor of mechanization has been made in order to achieve more rapid growth of coal production. 15. Agricultural policies, development programs and secular trends all seem favorable for sustaining the past agricultural growth during the 1980s. India ended 1980 with grain stocks of about 12 million tons, without having imported foodgrains during the year. This reflects the trends of the last decade which point to an improvement in foodgrain availability in the economy. Growing output, combined with the projected fall in the population growth rate, suggest favorable long-run prospects for foodgrain supply and demand balances. An occasional need to import grains, particularly wheat, could arise, but if the efforts to develop agriculture over the past decade are sustained and intensified, as suggested in the new Plan, persistent shortage seems unlikely. This development could give rise to a range of policy options including a slowly falling real price of foodgrains to increase the affordability of foodgrains to low-income families, foodgrain exports, and diversification to the production of other, higher-value crops. 16. Foreign exchange reserves are providing a cushion that helps the Government of India in short-term supply management. In March 1981, however, gross reserves were $320 million lower than the level of a year earlier and, in terms of import coverage, fell below the six-month level for the first time since 1977. A much larger decline in the reserve level would have been necessary in 1980/81 had IMF Trust Fund and Compensatory Financing Facilities, amounting to over US$1 billion, not been available. India's  -6- reserves provide some limited scope for narrowing the financing gap over the next few years, but successful management of the balance of payments will depend mainly on improved export performance, on import replacement, on the maintenance of aid flows and workers' remittances, and on a moderation in price increases for oil imports. While India's current account balance of payments deficits are not expected to be large relative to the size of the economy (e.g., on the order of two percent of GDP), the absolute amounts are large and will necessitate external borrowing beyond levels expected to be available from normal concessional sources. Accordingly, India has recently begun to undertake substantial borrowings in the financial markets to help finance selected major investment projects. 17. India's medium-term development prospects are mixed. Considerable progress continues to be made, particularly in agriculture, but the economy faces a period of difficult adjustments in the coming years. Investments required to relieve short-term supply constraints must compete with longer-term programs to accelerate growth and to develop India's considerable physical and human resources. The balancing of these objectives will place a difficult burden on those implementing India's Sixth Five-Year Plan. The primary focus must be on the implementation of appropriate domestic adjust- ment policies, although the aid community can and should play an important role in ensuring that India's efforts do not fail due to inadequate foreign resources. 18. Preliminary results from the March 1, 1981 Census, combined with 1971 Census figures adjusted for under-enumeration, suggest that the popula- tion growth rate declined from 2.3% p.a. in the late 1960s to about 2% at present. The rate of increase of population is expected to continue falling to around 1.8% by the first half of the 1990s. While the growth rate appears to be declining slowly, the 1981 Census population estimate was substantially higher than previous Government projections. The 1981 Census data are still incomplete but preliminary reports indicate that the rise in life expectancy was more than anticipated, suggesting that, on average, Indians can expect to live five years longer than they did a decade ago. This no doubt reflects improved availability of food and health services. This implies, however, an even greater need to reduce the birth rate to bring about the needed reduc- tion in the rate of growth of population. The Census results, therefore, re-emphasize the need for continuing efforts to strengthen a broad range of family planning activities to develop a wider clientele and to provide that clientele with a professional, technically competent advisory service which can provide the full variety of available birth prevention methods. The new Plan continues the high priority given to these efforts in earlier Plans. The ambition of its targets - implying a rise in the proportion of protected couples in the reproductive age group from its present estimated level of about 23% to over 35% by 1984/85 - seems fully justified. Such targets imply a serious long term commitment to moderating the population growth rate through an improved family planning program. 19. Reduction of poverty remains the central goal of Indian economic growth. More than one-third of the world's poor live in India, and more than 80% of the Indian poor belong to the rural households of landless laborers and small farmers. About 51% of the rural population and 38% of the urban population subsist below the poverty line (estimated at about US$114 and US$132 per capita per year for rural and urban areas, respectively).  -7- Improvements in the living standards of the poor will depend to a large extent on the overall growth of the economy; the circumstances require increases in agricultural production and employment, in non-farm rural employment, and also in employment opportunities in urban areas. These developments will have to stem in large part from market forces which, however, must be encouraged and reinforced by appropriate Government policies and the strengthening of basic services and infrastructure. The declining trend in real foodgrain prices between 1970 and 1979 reflects such develop- ments. There is also a role for direct Government action in faster implemen- tation of land reform (though the scope for significant reduction in poverty through land redistribution is quite limited in India), in increasing the supply of credit available to small farmers and rural artisans, and finally in broadening the provision of those services which enhance the human capital of the poor and improve living standards. Many of the latter are elements of the Minimum Needs Program, which has been an integral part of Indian planning for the past decade. Progress has been slow but steady in the expansion of primary education, the extension of rural health facilities and the provision of secure village water supplies. Innovations such as the community health volunteer program and the national adult literacy campaign provide encourag- ing evidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India's poor. PART II - BANK GROUP OPERATIONS IN INDIA 20. Since 1949, the Bank Group has made 61 loans and 141 development credits to India totalling US$2,833 million and US$9,323 million (both net of cancellation), respectively. Of these amounts, US$1,168 million had been repaid, and US$4,494 million was still undisbursed as of June 30, 1981. Bank Group disbursements to India in fiscal year 1981 totalled US$962 million, representing an increase of about 32% over the previous year. Annex II contains a summary statement of disbursements as of June 30, 1981, and notes on the execution of ongoing projects. 21. Since 1959, IFC has made 24 commitments in India totalling US$148.7 million, of which US$22.2 million has been repaid, US$27.7 million sold and US$7.5 million cancelled. Of the balance of US$91.3 million, US$82.3 million represents loans and US$9.0 million equity. A summary statement of IFC operations as of June 30, 1981, is also included in Annex II (page 4). 22. In recent years, Bank Group lending has emphasized agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit operations and in providing direct support to major and medium irrigation. Marketing, seed development, agricultural extension, dairying, and forestry are other agricultural activities supported by the Bank Group. Also, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale industrial enterprises. The Bank Group has also been active in supporting infrastruc- ture development for power, telecommunications, and railways. Family plan- ning, water supply development, urban investments and the development of oil and natural gas have also received Bank Group support in recent years.  -8- 23. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, power, water supply and other infrastructure sectors remains highly relevant. Projects designed to foster agricultural production through the provision of essential inputs, particularly water and credit for on-farm investments, will continue to receive emphasis. Improved water management and intensification and streamlining of extension systems form an important institution-building aspect of the Bank Group's program for the next several years. Special emphasis will be given to projects benefitting small farmers. The Bank Group's continuing role in the fer- tilizer sector assists India in the more efficient provision of another key input in the agricultural growth process. Projects supporting water supply, sewerage, urban development and investments in the petroleum sector also form an integral part of the Bank's lending strategy to India for the next several years. Lending in support of infrastructure and industrial investments will focus on those subsectors which have recently emerged as key constraints on India's overall growth, primarily power and transportation. 24. The need for a substantial net transfer of external resources in support of the development of India's economy has been a recurrent theme of Bank economic reports and of the discussions within the India Consortium. Thanks in part to the response of the aid community, India successfully adjusted to the changed world price situation of the mid-1970s. However, there is now a need for increased foreign assistance to adjust to an even greater deterioration in balance of payments anticipated during the 1980s by augmenting domestic resources and stimulating investment. As in the past, Bank Group assistance for projects in India should aim to include the financ- ing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sec- tors as agriculture, irrigation, and water supply. 25. India's poverty and needs are such that whenever possible, external capital requirements should be provided on concessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reasonably be allocated to India remains small in relation to India's needs for external support. Therefore, India should be eligible and regarded as creditworthy for some supplemental Bank lending. The ratio of India's debt service to the level of exports was about 10% in 1980/81 and is projected to remain below 20% through 1995/96. As of June 30, 1981, outstanding loans to India held by the Bank totalled US$1,742 million, of which US$874 million remain to be disbursed, leaving a net amount outstanding of US$868 million. 26. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with 49%, 36% and 44%, respectively, in 1980/81. On March 31,; 1981, India's outstanding and disbursed external public debt was about US$17 billion, of which the Bank Group's share was US$6.2 billion or 36% (IDA's US$5.3 billion and IBRD's US$0.9 billion). Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1980/81, about 18.0% of India's total debt service payments were to the Bank Group.  -9- PART III - ThE INDUSTRIAL SECTOR Industrial Structure 27. India has a diversified and fairly advanced industrial sector that produces most of the country's needs for manufactured products. Imports con- sist mainly of industrial raw materials, intermediates and some sophisticated machinery and equipment. The industrial sector, broadly defined to include manufacturing, mining, construction and utilities, contributed about 26% of GDP in 1980; manufacturing accounted for about 18%. In 1950, when the first Five-Year Plan was initiated, industry was heavily oriented toward the produc- tion of consumer goods, with traditional light industries, such as textiles and food processing, responsible for about half of manufacturing output. Over the next 15 years, industrial production expanded by 6.25% annually, with emphasis on the expansion of capital goods production and of "basic" indus- trial inputs such as iron and steel, cement and fertilizers. Substantial structural transformation took place over this period, with basic and capital goods industries representing about 60% of the manufacturing sector's output by 1965. Since then, the rate of industrial expansion has slowed down to an average of about 4% per annum. Structural change has continued, with produc- tion of basic industrial inputs and heavy machinery and equipment growing at a significantly higher rate than industry as a whole. Basic and capital goods industries together increased their shares in total value-added from 60% in 1965 to 69% in 1979. Because of GOI's basic industrial strategy, exports did not receive much attention until the early 1970s. Since then, exports have expanded quite rapidly (19% per year in current US dollars between 1970 and 1978, slowing to 6% in 1979 and rising to 12% in 1980), but still contribute only some 8% to GDP, with manufactured exports accounting for only 3%. Exports of engineering goods rose particularly rapidly and amounted to US$904 million in 1979. GOI has recently taken a number of steps to stimulate manufactured exports (para. 32). .2. About two-thirds of manufacturing output comes from firms registered under the 1948 Factories Act. The other third comes from non-registered small- scale units, which together employ about 70% of the industrial labor force. Almost 80% of the registered units are relatively small, having less than 50 workers, and the rest are medium- and large-scale production units which produce about 88% of the total value-added by the registered units. Taken as a whole, factories of all sizes are labor intensive. 1/ About b8% of industrial value- added by registered units originates in the private sector. The proportion of output coming from the public sector units has increased from 20% in 1970 to 28% in 1978, as the result of the increased Government investment in certain subsectors, including steel, cement, and paper and of the nationaliza- tion of part of the textile industry. Over two-thirds of gross fixed invest- ment in industry took place in the public sector units. The joint sector, comprising mainly new large units established with public and private parti- cipation, has also expanded and by 1978 contributed about 5% of industrial 1/ The average fixed capital per employee in 1978, based on depreciated book values of fixed assets, was about US$3,400. It would rise to about US$8-11,000 on the basis of replacement values and 1980 prices.  - 10 - value added. Some 94% of registered factories are in the private sector, employing about 70% of the workers in registered firms by using only about 29% of total fixed assets. By contrast, the public sector firms are much larger, with over 440 workers on average, and with six times as much capital invested per employee as the private firms. Productivity in the use of capital, as measured by the ratio of fixed capital to value-added, appears substantially higher in the private sector units. While the differences between public and private sector productivity are partly attributable to the differences in . subsector mix, with public sector investment concentrated in the more capital- intensive subsectors, more efficient management in the private sector is also an important factor. The performance of joint sector firms, which generally have private sector management, is closer to that of the private sector. Industrial Policies and Priorities 29. The basic strategy for industrial development in India has focused on achieving a high degree of self-sufficiency in manufacturing through import substitution and curbs on foreign ownership. In addition, a program of ex- panded state ownership has been pursued, particularly in heavy industries supplying basic inputs to the other industrial and agricultural sectors. Successive governments have also sought to restrict the concentration of economic power of large private undertakings through constraints on their expansion and special support programs for small-scale industries and backward regions. The principal instruments of industrial policy have been central licensing of investment, controls on imports and exports, allocation of scarce raw materials, price controls and reservation of production of certain items for small-scale firms and the public sector. While such industrial strategy was successful in promoting rapid industrialization up to 1965 and in enabling India to develop a broad-based industrial structure, certain shortcomings have become apparent in later years. In the protective environment in which industry developed, adequate attention was not always paid to product quality, economies of scale and technological development, with the result that many industrial firms were not well placed to compete in export markets as oppor- tunities for further import substitution declined and their organization may not have been suitable for rapid growth of output, productivity, and innova- tion. Domestic demand for consumer goods was constrained by the relatively slow growth of per capita incomes and labor productivity, and demand for investment goods was highly dependent on the level of public investment which tended to fall after 1965. tioreover, inefficiencies in management and capacity constraints in public sector enterprises supplying key inputs to the rest of the industrial sector often held back industrial production, even when demand was buoyant. Therefore, the Indian industrial sector has not been the engine for growth as has industry in countries with less government intervention. 30. Over the past five years there have been a number of developments in industrial policy. Modifications have been made with the intention of boosting the industrial growth rate, encouraging greater efficiency in capacity utilization and stimulating industrial exports. The industrial policy state- ment issued in 1977 reduced somewhat the emphasis on heavy industrialization as the key to industrial growth, and gave greater weight to employment creation and decentralization of industrial activity by increasing support to small-scale  - 11 - activities in small towns and rural areas. While the 1977 policy statement did not signal any major change in the character of the regulatory system, the process of liberalization and streamlining of procedures initiated earlier has continued. Similarly, the latest industrial policy statement of July 1980 has made no major changes but seeks to remove some constraints through further streamlining of the regulatory mechanism. 31. Industrial Licensing and Imports. Most industrial investment in India continues to be subject to Government control. However, several changes have been made to liberalize licensing requirements. Diversification of production by a number of engineering industries is now permitted, within the limits of overall licensed capacity, to facilitate better utilization of installed capacity in the face of varying market conditions. In addition to the 25% expansion in installed capacity available under normal licensing, certain export-oriented engineering industries are permitted to grow over a five-year period by 25% over their licensed capacity. The upper limit for the size of investment that would be exempt from licensing was raised for certain firms. Overall, these changes have reduced the procedural delays and constraints of the licensing system for most industrial firms. The "large houses" (as defined in the Monopolies and Restrictive Trade Practices Act) and foreign companies (as defined in the Foreign Exchange Regulation Act) remain fairly tightly restricted but they are now permitted to expand in certain specified industries. Since 1977, with the build up of foreign exchange reserves, a more liberal import policy has been followed aimed at relieving domestic supply constraints and production bottlenecks, encouraging industrial investment and facilitating exports. The import licensing system has been rationalized, procedures simplified and controls eased. The present system is still highly protective, although a gradual transition has been taking place toward the development of a protection system based more on tariffs than on quantitative restrictions. 32. Export Promotion and Incentives. The principal instruments of export promotion are cash compensatory support (part compensation for indirect taxes), duty-free imports of inputs or duty drawback arrangements, and con- cessional interest rates on export credits, have continued to be in force. Important improvements initiated during the last few years include rational- ization of the export licensing system, decentralization of administrative functions and strengthening of the promotional systems. Export licensing is now required only for a limited number of essential items in short supply in the domestic economy such as sugar. The range of export items that are required to be channeled through designated agencies has been severely reduced. However, export quotas and minimum export prices remain in force for some commodities. Some steps have been taken to strengthen the role of trade houses in promoting exports, particularly those serving small and cottage industries. The State Trading Corporation and the Trade Development Authority have also increased their technical assistance and promotional support to small exporters. During 1980, further steps were taken to promote exports of manufactured goods. These steps, based on the recommendations of the Advisory Committee on Export Strategy for the 1980s 1/, include: exclusion of export 1/ "Committee on Export Strategy in the 1980s', December 19b0.  - 12 - production from the calculation of licensed capacity and the determination of dominance under the honopolies and Restrictive Trade Practices Act; more liberal treatment of royalty and technical know-how payments; relaxation on curbs on the growth of export industries in metropolitan areas; and exemption from import duties on capital goods and raw materials for firms exporting 100% of their production. however, although these steps are a positive development, GOI has not yet acted on other key recommendations of the Committee, including those for further improvements in tax and other incentives and for a more liberal policy on technological imports. E'urther action on these recommenda- tions and on other supportive measures is required to improve the industrial efficiency and competitive ability of Indian exporters, and to provide them adequate incentives to export. 1/ 33. Statutory Price and Distribution Controls have been in force for several years in respect of "essential" products such as iron and steel, cement, sugar, paper, and fertilizers. The effect of these controls has been to hold down profitability in the affected industries and to discourage investment with the result that periodic or chronic shortages have emerged. These effects have had to be mitigated at times by the introduction of special incentives to encourage investment. Over the last few years, some price con- trols have been eased and improvements in price control mechanisms have been made, particularly in respect of more frequent price reviews, setting con- trolled prices so that the industries concerned can achieve an acceptable return on investment, and increased recourse to imports in order to moderate price rises of items in short supply. The Bank is currently discussing with GOI its price control pol'icy in connection with a proposed cement project. 34. Support for Small-Scale and Cottage Industries. 2/ In view of the predominant role played by small-scale and cottage industries in industrial employment, various support measures have been introduced by the Government-- e.g. exemptions from licensing requirements, reservation of production of certain items exclusively for small units, and a host of special programs (concessionary credit through commercial banks and development banks, tech- nical assistance, raw material supplies, etc.). The Government's 1977 and 1980 industrial policy statements seek to strengthen support for the small- scale sector by additional production reservations and increases in funding for the special programs. To improve the institutional and organizational framework for small industry, GOI launched the District Industries Center (DIC) Program in 1978. The objective was to set up a DIC in each of India's 400 districts to coordinate all types of assistance to small-scale units at the local level. The DIC program has encountered difficulties in recruiting personnel and gaining acceptance from the local government departments and has yet to achieve its goal. 1/ See Chapter III, "Export Prospects and Policies" of IBRD Report No. 3401-IN, "Economic Situation and Prospects of India", April 15, 1981, for detailed discussions. 2/ Defined as units employing less than 10 workers.  - 13 - 35. These various changes mark a cumulative improvement in the adminis- tration of GOI's industrial policy. However, the overall policy framework has changed little and the industrial sector remains over-protected and over- regulated. Under these circumstances, it is unlikely that Indian industry will achieve its full potential, particularly in the area of manufactured exports where it is ill-equipped to compete in international markets. Never- theless, there are indications that overall economic growth will be sustained through 1982, following the improved production prospects of the agricultural sector. Given the favorable economic circumstances and the somewhat more liberal regulatory environment, there is potential for growth in industrial investment. However, if this growth is to be sustained, an adequate level of investment in modernization and capacity expansion needs to be maintained and power and other infrastructural constraints need to be overcome. ICICI plays an important role in providing the required funds for industrial invest- ment and, through its project appraisal and promotional activities, is helping to ensure that available resources are used for efficient high-priority invest- ments in the private sector. The Financial System and Industrial Finance 36. General. In recent years, over two-thirds of gross fixed investment in industry has taken place in the public sector units, financed largely out of Central and State budgets. In the private sector, internally generated funds, including depreciation reserves and retained profits, have tradition- ally been the most important source of investment finance. However, the combined effects of inflation and relatively low profitability have led to an increasing reliance on external financing, which contributed 567. of total sources of funds of large and medium sized industries in 1980, compared to 45% in 1962. 37. Financial Institutions. India has an extensive and well-established framework of financial institutions serving the industrial sector. The prin- cipal all-India industrial finance institutions are: the Industrial Develop- ment Bank of India (IDBI), ICICI, the Industrial Finance Corporation of India (IFCI), the Life Insurance Corporation of India (LIC), and the Unit Trust of India (UTI). These institutions mainly provide term financing for large and medium sized public limited companies in the private and joint sectors and also for some public sector firms. At the State level, the major institutions are the State Financial Corporations (SFCs), which finance small and medium scale industries and the State Industrial Development Corporations (SIDCs), which mainly promote and help finance larger industries which have direct State shareholdings. While these term lending institutions finance only about 7% of total fixed investment in industry, their importance in financing private industrial investment has been increasing. Their total disbursements were equivalent to about 45% of private fixed investment in industry in 1980, compared to only 18% in 1971. In 1980, the three all-India development finance companies accounted for about 24% of private fixed investment, as follows: IDBI, 12%; ICICI, 7%; and IFCI, 5%. Commercial banks are also an important source of finance for industry, principally as providers of working  - 14 - capital finance. However, they also provide term-finance, 1/ particularly to the small-scale sector, in which they play a dominant role. Although they also extend term-financing to medium- and large-size private borrowers, their terms are usually significantly shorter than those granted by the specialized institutions, and the Reserve Bank of India (RBI) has discouraged expansion of this lending. 38. IDBI coordinates the activities of the other all-India and State level institutions and provides financing (through refinance facilities and equity participation) to SFCs and SIDCs and refinance to commercial banks for industrial loans. The direct financing operations of IDBI, ICICI and IFCI, comprising term-lending, equity investments and underwriting of share and debenture issues, are similar in character. In the past, IDBI and IF'CI have tended to concentrate rather more on the more established subsectors involving raw material processing (e.g., textiles, sugar, food products, cement and electrical generation) and on joint/public sector projects. ICICI is more heavily represented in subsectors such as chemicals and petrochemicals, electrical equipment and electronics, and mechanical engineering. ICICI is also the most important institutional source of foreign exchange financing for private industry, accounting for about 80% of foreign exchange financing by all of the institutions. Joint financing of larger projects, which accounts for a major part of the assistance by the all-India financial institutions, is now well established 2/ and, as a result, there is now substantial overlap in their clientele. Credit Policy and Interest Rates 39. Total credit extended by the commercial banking system grew by 21% in 1980, continuing a trend of rapid credit expansion evidenced in each of the previous three years. Disbursements of the industrial term-financing institutions have also increased sharply: 32% in 1979 and 29% in 1980. With inflation 3/ averaging about 7% p.a. since 1976, credit expansion has been quite rapid in real terms. Since the inflation rate began to rise in late 1978, RBI has taken steps to curb expansion, including higher statutory liquid- ity ratios for the banks, credit ceilings for industrial borrowers and increases 1/ Total term-financing (defined as loans with maturities over three years) outstanding from commercial banks to the industrial sector, at December 31, 1980, amounted to Rs 25.2 billion, or 17.8% of total bank credit. 2/ ICICI, IDBI and IFCI, together with LIC and UTI, are members of the Inter-Institutional Meeting (IIM), which routinely decides on joint financing for projects and assigns "lead" responsibility to either ICICI, IDBI or IFCI, for appraisal and follow-up. A system of par- ticipation certificates and standardized legal agreements, initiated by ICICI, is in force. Some 60% (by amount) of ICICI's financial assistance is jointly financed through the IIM. 3/ Measured by the consumer price index.  - 15 - in lending rates. The interest rate structure in India is established adminis- tratively; RBI and GOI set rates from time to time to reflect their priorities. Consequently, there are numerous interest rates by purpose and types of bor- rowers. In the past, GOI has not used the interest rate as a major monetary policy instrument in mobilizing and allocating resources. Deposit mobilization was achieved by rapid expansion of branch network and allocations were carried out by administrative decisions and through specialized financial institutions. However, savings mobilization has recently become more difficult and interest rates on savings deposits were raised in March 1981 by 0.5-1.5% resulting in rates ranging from 7.5% to 10%. Also, rates offered corporations accepting deposits were allowed to increase to 13.5%. To allow commercial banks to maintain a margin, lending rates for short-term loans were raised to a minimum of 12.5% and the ceiling was raised to 19.5%. The basic rates charged by all-India term-lending institutions on long-term loans were also raised by 2% to 14%. 40. The Capital Markets. Direct issuance of shares and debentures for subscription by the public and by institutions has been a comparatively minor source of investment financing for private industry. Total capital issues by non-government firms have generally accounted for only about 5% of private industrial investment and are equivalent in size to only about one-fifth of the disbursements by the term-financing institutions. Because of the thin- ness of the market for equity shares, almost all issues are underwritten and frequently the underwriters have to take up part of the issue. In 1978 and 1979, the capital market was somewhat more active partly because a number of companies needed to dilute foreign shareholdings to comply with new foreign investment regulations. With worsening economic conditions and rising interest rates, capital issue activity declined substantially in 1980. Total capital issues fell by 32% in 1980 to Rs 779 million. Of this total, Rs 513 million were new ordinary and preference shares, Rs 196 million in rights issues and Rs 70 million in debentures. During the first 10 months of 1980, total capital raised was Rs 842 million, compared to Rs 703 million raised in 1980. The index of ordinary share prices (1971 = 100) rose by 12.8 points in 1980 to reach 143.2. During the ten months to December 1980, ordinary share prices rose by 9.8%. With public demand for share and debenture issues having improved, private industry is expected to raise a larger part of its financial requirements from the capital markets in the coming years. The Bank Group's Sectoral Involvement 41. Sector Work and Lending Strategy. Over the last two decades, GOI has pursued an industrial strategy which focused on achieving a high degree of self-sufficiency in manufacturing through import substitution, expansion to a great extent through public enterprises, and some curbs on both foreign ownership and large private sector firms (para. 29). During this period, the Bank Group's activities in the industrial sector were somewhat limited and consisted largely of import program credits, general DFC lines of credit for financing mainly private industry and a number of fertilizer projects. More recently, given the size and complexity of the industrial sector and with the objective of having a greater impact on the policy framework affecting industry, the Bank has diversified its sector work and lending program. Specifically, the Bank has adopted a sector work program with the focus on major industrial subsectors, both to illuminate conditions within specific  - 16 - industries as well as draw more general conclusions across the industrial sector as a whole, where appropriate and to provide a basis for lending operations in these industries. The objectives are: to understand better what constrains industrial growth; identify what policy adjustments are desirable and possible to improve performance; and to strengthen Bank Group lending strategy toward the industrial sector. In this connection, the Bank has completed two studies of the cement and coal subsectors and is now dis- cussing the recommendations of the coal study with the GOI. Similar studies are now underway on parts of the capital goods industry and on textiles; others are planned for the fertilizer and paper subsectors. Related to this is the substantial lending program underway for the power and transport sec- tors which until now have acted as serious constraints to industrial growth. ICICI has a large portfolio investment 1/ and pipeline in the subsectors which are under review by the Bank, and would continue to play an important role in providing finance for the modernization and expansion of these industries. In addition to the subsector-specific studies and lending operations, the Bank plans further detailed sector work in the export field: a review of export policies, followed by a study of the determinants of export supply; and in the field of energy usage and efficiency in the transportation sector. In con- nection with the proposed loan, ICICI would undertake a study of the relative profitability of Indian manufactured exports based largely on a survey of its own clients who are already substantial exporters (para 61). ICICI has also made substantial progress on a study of energy utilization and efficiency in industries, especially the cement and pulp and paper industries. Furthermore, ICICI's ongoing study of electrical equipment for power transmission and dis- tribution is complementary to the Bank's overall efforts in the power sector. As in the past, ICICI would be expected to play an important role in the Bank's overall dialogue with GOI on financial policy. In this area, ICICI played a major part in promoting the recent upward revision in long-term interest rates in India. 42. Operational Experience with ICICI. The Bank has been closely asso- ciated with ICICI since its foundation in 1955. This long association has resulted in substantial Bank Group resources being channelled through ICICI to high priority investments in India's private industry. Since 1955, the Bank has made thirteen loans to ICICI totalling US$590 million (net of can- cellations). The relationship with ICICI has also been valuable to the Bank and has helped shape the Bank Group's approach to other DFCs. In 1973, a major study, undertaken jointly by the Bank and ICICI, concluded that ICICI's devel- opmental impact had been substantial, particularly through helping to ensure that scarce foreign resources were allocated to priority industries mount- ing financially and economically sound projects. This finding has also been supported by Operations Evaluation Department performance audits for the sixth, seventh and eighth loans, issued in December 1975. In line with the recommen- dations made in these reports, the eleventh and twelfth loans were designed to encourage and assist ICICI to diversify its sources of local and foreign currency and broaden the scope of its activities so as to enhance further its 1/ As of December 31, 1980, the composition of ICICI's portfolio by subsector was as follows: machinery (12.6%); textiles (12%); basic metal industries (10.8%); cement (5%);paper (6.3%); and fertilizer (3.8%).  - 17 - developmental impact. Progress has been satisfactory. ICICI raised its first syndicated Euro-dollar loan in 1978, followed by a second in 1980, and there has been a significant increase in rupee resources through bond issues and joint financing operations with other institutions. The proposed fourteenth loan would encourage further progress in this area. 43. The performance audit report for the ninth and tenth loans was issued in May, 1981, and concluded that ICICI's operational and financial performance remained very satisfactory. However, the report was critical of ICICI's overall promotion effort, suggesting that more progress could have been made in diversifying ICICI's portfolio out of the more developed states and out of its traditional areas of operations. While the suggestion is a worthwhile one, ICICI is constrained by its designated role in the Indian financial system of financing medium to large private sector projects. Over the years, ICICI has made satisfactory progress in diversifying its portfolio (para 54): about 40% of ICICI's assistance is to projects in designated backward areas and ICICI continues to give institutional and training support to those institutions whose designated role is the promotion of industry at the State level. Nevertheless, in connection with the proposed loan, ICICI would review and restat.e its industrial promotion strategy (para 61). The audit report also suggested that ICICI should structure its lending operations by programming and that the Bank should consider adopting a "target approach" 1/ in its lending. While targeting may be desirable in some cases, it does not seem appropriate for ICICI, which is a mature institution with an established ability to allocate resources efficiently to economically and financially viable private sector projects. Mlore emphasis on appropriate promotion stra- tegy and continued dialogue with GOI through a well-focused sector work pro- gram, supported by ICICI, would have more impact on industrial development than targeting. Other areas, such as concerns expressed over the high level of cost overruns, are being addressed by ICICI. ICICI is carrying out a detailed study of all projects which experienced cost overruns and is analyzing the impact of cost overruns on project viability. 44. The previous thirteenth Bank loan of US$100 million was made in May 1980, and by June 30, 1981, US$70.0 million was committed and US$20.6 million disbursed. This represents a utilization of funds about one year ahead of schedule. ICICI expects to have fully committed the thirteenth loan by September 30, 1981, and has therefore requested the Bank, with the endorsement of GOI, to support its operations with a further loan. PART IV - THLE PROJECT 45. The project was appraised by a mission which visited India in April 1981. A full staff appraisal report recommending the last loan, entitled "India - Staff Appraisal Report of the Thirteenth Loan to the Industrial Credit and Investment Corporation of India" (No. 2890-IN), which showed ICICI 1/ This suggests "targetting" Bank lending to specific sub-sectors or cate- gories of sub-borrower.  - 18 - to be a financially sound, well-managed and creditworthy institution, was distributed to the Executive Directors on April 18, 1980. The financial data on ICICI in that report have been updated in Annex IV. Other results of the appraisal have been incorporated in expanded Parts III and IV of this President's Report. Therefore, a separate appraisal report is not being distributed. Negotiations for the proposed loan took place in Washington, D.C., in August 1981; GOI and ICICI were represented by a delegation coor- dinated by Mr. Sanat Kaul, Department of Economic Affairs, Government of India. A supplementary project data sheet has been attached as Annex III. The Proposed Loan 46. The proposed loan of US L50 million would be made to ICICI, at an interest rate of 10.6% p.a. with the guarantee of GOI, under standard Bank terms for loans to development finance companies (DFCs). The proceeds of the loan, together with other foreign loans, would be relent by ICICI to cover the foreign exchange costs of high-priority industrial projects mounted largely by private sector undertakings. 1/ The loan, which is expected to be committed by March 1984 and disbursed by March 1987, would provide some 44% of ICICI's total foreign exchange requirements through December 1983. Subloans would have a maximum maturity of 15 years and would normally have a grace period of up to three years. However, in subprojects where parallel foreign exchange subloans are made out of Bank and commercial or export credit funds, the Bank would assist ICICI in meeting the relatively shorter commercial and export credit drawdown and maturity periods by permitting the allocation of the earlier disbursements and repayments to these subloans. Subborrowers would bear the full foreign exchange risk on all foreign currencies disbursed. Subprojects for which the cumulative Bank financing under this and previous Bank loans does not exceed US$6 million equivalent would not require the Bank's prior approval (Section 2.02(b) of the Loan Agreement). The loan would be repaid on the basis of a flexible amortization schedule that would be adjusted to conform to the aggregate of the amortization schedules of the subloans. Procurement for projects financed would be in accordance with ICICI's standard procedures, which conform to the Bank's recommended practice for DFCs. In addition, for individual procurement contracts of US$5 million or more financed by the Bank loan, ICICI has indicated that it would make special efforts to ensure that subborrowers have obtained the widest possible range of quotations, including, where applicable, quotations from new sources of supply. Disbursement would be for 100% of foreign exchange expenditures for directly imported goods and services or 100% of the estimated c.i.f. costs for imported goods purchased through local suppliers. In accordance with standard DFC practice, project expenditures incurred up to 90 days prior to the Bank's receipt of a subloan application would be eligible for financ- ing out of the proceeds of the loan. 1/ Although public, cooperative and joint sector projects are eligible for ICICI financing, only 14% of ICICI's assistance has been to undertakings in these sectors.  - 19 - Objectives of the Loan 47. The overall objective of the proposed loan would be to build on the progress achieved in past operations. Apart from using ICICI as an effi- cient and effective channel for Bank funds to finance priority private sector industrial investments, the loan would pursue efforts to enhance ICICI's developmental impact through its program of industrial studies and other related activities, which are complementary to its mainstream financing operations and to the Bank's own industrial sector work program in India. In particular, the proposed loan would encourage ICICI to expand its existing program of studies, addressing industrial efficiency problems and energy utilization in industry, culminating in energy-saving investment operations and including a study of the constraints on exports of Indian manufactured goods. In addition, the loan would mark a further step towards the goal of reducing ICICI's reliance on Bank funds and assist ICICI further in progres- sively diversifying its sources of foreign exchange by facilitating blending of Bank and commercial funds in its operations (paras 65 and 66). Institutional Aspects of the Borrower 48. Ownership and Resources. Ownership of ICICI is dominated by public sector corporations, including LIC, UTI and a number of nationalized commercial banks. Of ICICI's issued share capital of Rs 248 million, public institutions hold 80%, foreign shareholders (mainly commercial banks) hold 13% and the remaining 7% is held by some 2,700 private Indian investors. As the public sector holds more than 50% of its shares, ICICI is classified as a government company in terms of the Companies Act. However, this classification does not affect ICICI's operational autonomy, except in respect of the procedures for appointing auditors. Relations between GOI and ICICI are good and, through its close relations with the business community, ICICI continues to be an important link between the private sector and the Government. At December 31, 1980, ICICI's resources totalled Rs 8.3 billion (US$1.04 billion). Foreign exchange equivalent to Rs 3.7 billion (US$462.5 million) accounted for 44% of the total, while domestic resources provided the balance of Rs 4.6 billion, or 56%. Most of ICICI's foreign currency resources have come from the Bank: of the total foreign exchange raised by ICICI up to December 31, 1980, the thirteen Bank loans accounted for US$590 million, net of cancellations, or 77%. Seventeen lines of credit from Kreditanstalt fur Wiederaufbau (KfW), totalling US$78 million equivalent, accounted for 10% and eight United Kingdom tied lines of credit for 5% of total foreign exchange resources. The remain- ing 8% was made up of one USAID loan and three commercial borrowings: one Swiss Franc bond issue and two Eurocurrency syndicated loans. In connection with the proposed Bank loan, ICICI has confirmed that it would diversify its resources further (paras 64 and 65). 49. Management and Staffing. ICICI is well managed and operates effec- tively under a competent and experienced Board. Mr. S.S. Mehta remains Chairman of the Board and Managing Director with overall responsibility for all operational aspects of ICICI. The fifteen members of the Board represent GOI (2 members), public financial institutions (2), foreign shareholders (2), the professions and business (7), and include two full-time executives of ICICI: the Joint and Deputy Managing Directors. The Board meets regularly;  - 20 - it sets ICICI's overall financial and operational policies and decides on individual project proposals involving an exposure above Rs 1U million. ICICI's organizational structure is sound and it continues to have a strong and capable middle management. At December 31, 1980, ICICI's total staff numbered 645, including 254 professionals. The overall quality of ICICI's staff remains high and turnover remains relatively low. Operating Policies, Procedures and Standards 50. Operating Policies. ICICI has no formal policy statement, but has relied on its Memorandum of Association, together with government guidelines and the periodic resolutions of its Board, to provide a satisfactory operat- ing policy framework. however, in 1977, ICICI's Board adopted a Statement of Financial and Operational Strategy, which set out, in general terms, its intentions in lending. Six broad areas were specified for priority attention: (a) export industries; (b) power and transport; (c) agricultural inputs and outputs; (d) industries basic to industrial expansion; (e) mass consumption goods; and (f) balancing and modernization projects. The statement also noted ICICI's commitment to backward area financing and to the encouragement of new entrepreneurs. Since 1977, more than 90% of ICICI's financing has fallen within these areas. In connection with the thirteenth loan, ICICI updated this statement to reflect certain aspects that warranted more emphasis, and to include a detailed description of its policies and strategy in mobilizing and utilizing commercial foreign exchange borrowings, and a statement giving focus to its developmental activities. 51. ICICI has updated and amended this statement still further, with the overall objective of making it more specific in its statement of priorities for lending and more explicit in the areas of its operations to which consider- able attention is already devoted. The revised statement restates ICICI's strategy and the goals of its developmental activities program, incorporating the changes and additions proposed under this loan (para 61). It also reflects ICICI's policy on blending (para 66) and clarifies its intention in future to diversify still further its sources of foreign exchange funds. The statement explains ICICI's industrial promotion strategy, both in direct project promo- tion and its role in strengthening other institutions directly involved in industrial promotion. This reflect ICICI's intention to devote more atten- tion to promotional activities, particularly in promotion of opportunities identified in its industrial studies (para 61). ICICI's already substantial involvement in the modernization of industry clearly stated, as is its role in backward area development and the encouragement of new entrepreneurs (para 54). This revised statement, which is in a form satisfactory to the Bank has been approved by ICICI's Board. 52. Onlending Terms. For both domestic and foreign currency loans, ICICI's standard rate of interest was set at 11% p.a. in 1975 and, prior to March 1981, was subject to only two minor adjustments: funds deriving from Eurocurrency borrowings were relent at a floating interest rate of 1.5% above LIBOR and, effective August 1980, a 7% tax on interest was introduced by GOI and passed on to subborrowers (except on Eurocurrency subloans), raising the effective rate to 11.84%. however, in March 1981, following appeals by finan- cial institutions initiated by ICICI, GOI granted an upward revision of 2%  - 21 - in the standard rate. As a result, ICICI's new standard rate is 14% p.a., inclusive of interest rate tax, 1/ except for subloans from Eurocurrency sources which now will bear a floating rate of 2% over LIBOR plus the 7% interest tax, subject to a minimum rate of 13.5%. Loans to new projects in designated backward areas receive a concession on the first Rs 20 million of institutional assistance of 1.5% p.a. on the standard rate. 2/ In addition, a further 1% p.a. surcharge on interest is levied on companies whose shares are not listed on a stock exchange. In the period 1976-1980, when inflation averaged 7% p.a., ICICI's interest rates were significantly positive in real terms and are expected to remain so, based on the Bank's present inflation projection for India. 3/ Furthermore, ICICI's foreign exchange subborrowers bear the exchange risk which, in the past, has resulted in higher effective rates. ICICI also participates in the equity of its clients and reserves the right to convert up to 20% of its domestic currency loan amount to ordinary shares. ICICI continues to charge a 1% p.a. commitment fee on foreign currency loans and a commitment fee, ranging between 0.25% and 1% p.a., on domestic currency loans. ICICI's standard terms provide for maximum loan maturities of up to 15 years including up to 3 years grace. These lending terms conform with those offered by the other all-India term-lending institutions which are members of the Inter-Institutional Meeting for joint financing (para 38). 53. Appraisal and Follow-up Standards. ICICI's appraisals continue to be of a high standard and incorporate a thorough treatment of technical, financial, market and economic aspects. Follow-up procedures and project supervision standards are also satisfactory: clients submit detailed quar- terly progress reports to'ICICI for review and follow-up personnel conduct about 300 visits a year to the 650 projects for which ICICI has primary super- vision responsibility. Problem projects are visited at least once a year and a satisfactory system of reporting and management review exists. ICICI also reserves the right to appoint a director on its clients' boards and has done so in 125 cases. Operating Performance and Developmental Impact 54. Characteristics and Impact of Past'Assistance. At December 31, 1980, ICICI had approved assistance totalling Rs 14.7 billion (US$1.84 billion) for some 2,900 projects. The sectoral distribution of assistance reflects ICICI's concentration on non-traditional and technologically more advanced industries: more than half the total was to the engineering sector, including metal and metal products, mechanical and electrical machinery and transport equipment (38% of the total), and to the chemical and petrochemical industries (20%). Other subsectors receiving a significant proportion of ICICI financing were textiles (12%), pulp and paper (6Z) and cement (5%). ICICI's clients 1/ Equivalent to 13.02% p.a. net to ICICI. 2/ Except on funds from Eurocurrency sources. 3/ Which is: 11% in 1981/82; 8.5% in 1982/83; 7.5% in 1983-86; and 6% thereafter.  - 22 - are predominantly medium to large sized private sector companies, 1/ and during the last two years, ICICI's average assistance per project amounted to Rs 9 million, corresponding to about 20% of total project costs. In 1979, the average gross fixed assets of ICICI-financed companies were Rs 149.7 million. However, 46% of the firms had net fixed assets of less than Rs 50 million. The average fixed assets in major subsectors were as follows: machinery manufacturing (Rs 56 million); chemicals (Rs 154 million); textiles (Rs 121 million); pulp and paper (Rs 190 million); and cement (Rs 313 million). In 1980, ICICI financed 305 projects of which 73, or 26%, were new projects. The rest of the projects were expansion/modernization/ balancing projects. This reflects ICICI's strong emphasis on encouraging the modernization and upgrading of clients' plant and equipment to improve overall industrial efficiency. These efforts extend also to advice to clients at the appraisal stage on technology choice and engineering design: of the modifications made to projects on ICICI's advice in 1980, some 45% involved technology and equipment choice. ICICI also provides technical assistance, through its merchant banking division, to industries that need financial restructuring. The geographic distribution of assisted projects is somewhat skewed towards the more industrialized states in Western India. However, ICICI has made progress in diversifying its portfolio, and its pattern of assistance now matches more closely that of other lenders and private investors in states with the level of infrastructure and other support necessary to attract medium and large private industrial projects. In addition, a substantial portion (30%) of ICICI's financing has gone to projects in the designated backward areas. 2/ 55. Performance data of ICICI-assisted projects indicate that they are reasonably successful. Of a sample of 400 projects, analyzed in 1978 and 1979, only the sugar manufacturers, who were affected by distribution and price controls, and two shipping companies, did not record pre-tax profits. For the firms in the sample, the post-tax return on net worth was 12%. The economic impact of ICICI's projects has also been satisfactory. The weighted average ex-ante economic rate of return for 114 projects approved in 1980 was 36%. These investments are expected to create about 38,000 new jobs at an average investment cost per job of about US$19,400; this is reasonable in view of the concentration on medium to large sized projects in technologically more advanced subsectors. Furthermore, a significant proportion of ICICI's clients are exporters and are estimated to contribute between 15% and 20% of India's total export of manufactures. 1/ Small industries are supported by a network of specialized institutions at the national and state levels, and by the commercial banks, whose procedures and coverage are better suited to small industry financing. In the past, the Bank has made one credit and one loan to IDBI in support of small industry lending by the State Financial Corporations. 2/ Approximately 40-45% of annual approvals over the last few years have gone to projects in these areas.  - 23 - 5b. Lending Operations. ICICI's total net approvals reached Rs 2.6 billion (US$325 million) in 1980, an increase of 28% over the figure for 1979. At the same time, total disbursements increased by 39% to Rs 1.7 billion (US$213 million), equivalent to about l6% of those of all development financial institutions and about 7% of total private industrial investment in India. Of these totals, lending operations accounted for about 95%, with domestic currency loans making up about 60% in 1980. During the period 1976 to 1978, domestic currency loan approvals more than doubled, from Rs 390 million to Rs 1.04 billion (US$49 million to US$130 million), while foreign currency loan approvals declined slightly from US$44 million to US$38 million. The trend towards increased domestic currency lending reflects improved availability of domestic resources, while the decline in foreign exchange approvals was due to the increased availability of free foreign exchange and reluctance on the part of subborrowers to assume the relatively high level of foreign exchange risk inherent in borrowing Bank funds in 1977 and 1978. However, in 1979, ICICI's foreign exchange loan approvals increased to US$85 million, partly because of the introduction of the Bank's special currency disbursement scheme for DFCs, which reduced the perceived exchange risk and enabled ICICI to place Bank funds more easily. In 1980, foreign exchange approvals increased by a further 45% to US$124 million, reflecting both the improved investment climate and the curtailment of access to free foreign exchange following the deterioration in India's overall foreign exchange position. This sharp increase in foreign exchange business resulted in a commitment of the US$100 million thirteenth Bank loan one year ahead of schedule. Domestic currency loans remained at a high level in 1979 of Rs 1,230 million (US$154 million) and increased by 25% to Rs 1,535 million (US$192 million) in 1980. 57. Investments and Other Operations. ICICI's direct subscriptions and underwriting of share and debenture issues accounted for 10% of its total approvals since inception and 4% of the total in 1980. Investment approvals doubled from Rs 83 million (US$10.4 million) in 1976 to Rs 160 million (US$20 million) in 1979, but declined to Rs 114 million (US$14.3 million) in 1980. About 72% of ICICI's total investment approvals derive from underwriting of issues and, of the total of Rs 1.1 billion (US$137.5 million) underwritten since inception, ICICI had taken up only Rs 525 million (US$65.6 million) at December 31, 1980. ICICI's guarantees, which are issued largely to foreign suppliers, constitute a very small part of its operations (about 1.3% since inception), on which only Rs 0.5 million has been disbursed. dowever, this activity is likely to increase in future with the proposal to provide guar- antees under bilateral lines of export credits (para 65). In addition, ICICI has broadened the range of financial services it offers clients by expanding its merchant banking activities. Since 1973, ICICI has successfully managed 57 share and debenture issues and private placements totalling Rs 2.7 billion (US$337.5 million), on which it earned fees of Rs 16 million (USA2 million); a further 45 proposals, involving Rs 400 million (US$50.0 million) are on hand. ICICI, through its Merchant Banking activities, has been closely involved in the issue of new instruments on the Indian capital markets; particularly convertible and rights debentures, 1/ which have proved popular. 1/ Debenture bonds issued on the basis of a rights issue to existing shareholders.  - 24 - Other Developmental Activities 58. Objectives. In addition to its mainstream lending and investment operations and its merchant banking activities, ICICI undertakes a broad range of complementary activities and services aimed at enhancing its overall deve- lopmental impact. These activities include: undertaking industrial subsector and policy studies; identification and promotion of new projects; backward area development programs; and training and advisory support for other domestic and foreign financial institutions. Most of these activities were initiated following the joint Bank/ICICI study of ICICI's developmental impact in 1973. Since then, the Bank has been actively involved in planning some activities, particularly the industrial studies, and has encouraged a selective expansion of ICICI's program in the context of recent loans. At the time of the thir- teenth loan, the Bank and ICICI reviewed the overall objectives and concluded that the developmental activities should be planned carefully to ensure that: (i) they are well integrated with ICICI's mainstream financing activities; (ii) limited staff resources are used as effectively as possible; and (iii) efforts are focused on areas likely to have a significant impact on industrial development or make an important contribution to the future development of ICICI's operations. ICICI selected the following areas as a primary focus of its activities: addressing major industrial bottlenecks; and encouraging improvements in industrial efficiency and export performance. The development of its capacity to provide training and consultancy services to DFCs in other countries was selected as a subsidiary focus. This overall focus is appro- priate as it capitalizes on ICICI's principal advantage of having extensive and close contact with major undertakings in most subsectors, and it is complementary to the bank's own program of sector work (para 41). 59. Past Activities. ICICI's program of industrial subsector and policy studies was initiated under the eleventh Bank loan, with a study on the pro- blems and prospects of manufactured exports. This was followed by a study of the automotive products subsector, carried out in conjunction with the twelfth loan. In addition to these major studies, ICICI has completed a number of shorter papers on, for example, price and distribution controls in the sugar and cement industries, the impact of industrial licensing, and the economics of small cement, steel and paper plants, and has participated in the Bank's study of the cement subsector. These papers have been used by various govern- ment committees in their review of policy. Under the thirteenth loan, ICICI agreed to carry out two major studies, both aimed at addressing the problems faced by industry as a result of chronic and severe power shortages. The first study, on which substantial progress has been made, is of energy utiliza- tion in industry and covers energy conservation, the use of alternative fuels, the economics of back-up generating capacity, and examines other measures that might be adopted to lessen the impact of power shortages. The second, on which data are now being collected, would identify constraints caused by shortages of suitable equipment and components needed for power generation, transmission and distribution. The studies, originally designed to be com- pleted by September 1982, are both on schedule.  - 25 - 60. In addition to work on industrial studies, ICICI established a small promotion unit in 1974 to identify project opportunities and to promote them. While this unit has performed reasonably well, progress has been considerably slower and more manpower intensive than originally anticipated. Financial assistance has been approvec for only five new projects promoted by this unit; a further 10 are at an advanced stage of preparation. As explained in para 61, ICICI intends to place more emphasis on aspects of promotion in future. Other development activities have focused mainly on assistance in the estab- lishment of training and other institutes and on providing support for other financial institutions. ICICI participated actively in the establishment of a Foreman Training Institute, a private company offering pilot plant facilities on a commercial basis to test new industrial processes and a Financial Manage- ment and Research Institute. In collaboration with the other financial institutions, ICICI has set up several state technical consultancy institutions to assist new entrepreneurs. In addition, apart from its regular activity in training staff from other Indian and foreign development banks, ICICI has seconded staff to DFCs in other countries and is presently involved in consul- tancy assignments in support of other Bank lending operations in Sri Lanka and Ghana. More informally, ICICI's participation in lending consortia with other financial institutions has contributed to an improvement in their standards and procedures. Overall, ICICI has achieved significant progress in this field using the relatively small manpower resources available. 61. Future Activities. While no changes will be made in the overall focus of the developmental activities, ICICI plans to focus its promotional activities, increase its involvement in modernizing industry, and carry out further industrial studies which would result in financing possibilities. A further major study on exports will be added to the two studies presently underway. This study is aimed at identifying constraints facing Indian manufactured exports and at recommending suitable ways of alleviating them. However, because extensive macro-analysis has been done on the broader problems of India's ability to export manufactured goods, ICICI's study is more speci- fically focused to take advantage of the work already done in its 1977 export study and of the extensive information base of its large number of clients who are substantial exporters. Consequently, the study consists of two parts: first, an update of the previous analysis on relative profitability and incen- tives; and, second, a survey of clients to determine constraints in either expanding or starting exports of manufactured goods. ICICI also plans to expand the focus of the ongoing electrical equipment study to include coverage of the potential for energy conservation equipment; a direct link with the nearly completed study on energy usage in industry. In addition, ICICI intends to pursue its work on subcontracting relationships between small and large firms. ICICI has also restated its overall role in industrial promotion, placing particular emphasis on developing specific investment opportunities identified by the industrial studies. This emphasis is appropriate in view of the relatively small manpower resources available to ICICI for this activity, and in view of the existence in India of specialized institutions for indus- trial promotion, which presently receive institutional assistance from ICICI. While ICICI intends to continue to promote other projects, the emphasis on promoting projects emanating from the studies is aimed at increasing further ICICI's direct impact on improving industrial efficiency and exports. ICICI  - 26 - has outlined a timetable for completion of the studies, as well as detailed terms of reference for the export study. The final reports of ICICI's indus- trial studies would be submitted to GOI and the Bank, and their conclusions and possible policy implications would be taken up with GOI as part of the Bank's on-going dialogue on industrial policy issues. Portfolio and Financial Performance 62. Quality of Portfolio. Arrears over the period 1973 to 1980 have shown a significant increase: at December 31, 1980, total principal and interest in arrears amounted to Rs 219 million, compared to Rs 41 million in 1973; principal in arrears as a percentage of the loan portfolio was 1.8%, compared to 1.6%; and the percentage of the portfolio affected by arrears was 20%, compared to 7%. However, the bulk of the increase took place before 1976 and the ratios, since then, have shown comparatively little change. The con- tinuing relatively high level of arrears is due, in part, to the effects on ICICI's clients of continuing power shortages, other infrastructural problems and poor industrial relations. At the same time, the effect of price increases on working capital requirements, combined with credit restrictions imposed by RBI and commercial banks, has had an adverse effect on clients' liquidity and has hampered ICICI's efforts to reduce arrears. ICICI expects, however, to maintain its collection ratio of about 90% of amounts falling due, which is acceptable. Six industries (spun pipes, paper and paper products, sugar, plastics, mini-steel plants and tires) account for the major portion of arrears. In the case of spun pipes and sugar, ICICI's arrears reflect industry-wide problems, but in the other subsectors they reflect specific problems faced by ICICI clients. ICICI's follow-up and supervision standards are satisfactory and clients in arrears are closely supervised and monitored by management. In addition, ICICI offers financial advice on restructuring or merging of client companies and, in some cases, has been successful in restructuring companies under new management. Following a case-by-case review of clients in arrears, ICICI's auditors have agreed to the adequacy of the reserves and provisions against bad debts. ICICI's equity portfolio at December 31, 1980, comprised ordinary share investments of Rs 265.1 million in 375 companies and preference share investments of Rs 94.4 million in 143 companies. Some 47% of the invest- ment portfolio was in companies operating profitably and paying dividends, 13% was in companies under construction and 40% in companies experiencing difficul- ties. Nevertheless, the estimated value of the ordinary shares was 128% of book value, an improvement on the 1979 figure of 120%. The average return, including capital gains, on the share portfolio was 8.5%. At December 31, 1980, ICICI also held Rs 211 million in debentures, which yielded 9.5%. In 1980, ICICI disposed of shares and debentures costing Rs 37.9 million, on which it realized a capital gain of Rs 10.9 million. ICICI's overall invest- ment portfolio continues to be reasonably sound and well managed. 63. Financial Performance. ICICI's net profits before taxation and provisions increased in line with the growth in total assets between 1976 and 1980. However, net after tax profits increased more sharply, from Rs 28 million in 1976 to Rs 89 million in 1980, reflecting both the higher interest spread and ICICI's reduced taxation liabilities. Increased allowances, notably the tax-free ploughback of a portion of pre-tax profits (now 40%), reduced ICICI's  - 27 - effective rate of taxation from 44% in 1976 to 29% in 1980. As a result, ICICI's return on equity increased from 12% in 1976 to 16% in 1980. The rate of dividend on paid in capital, raised from 11% to 12% in 1976, was again raised in 1979 to 13%. However, the improved post-tax profitability allowed a satisfactory retention of profits of 67% in 1980, compared to 53% in 1976. Administrative expenses were held at 0.6% of average total assets throughout the 1976-1980 period. Although margins were squeezed by increased costs of borrowing and a growth in lending on concessional terms, this was offset by the relatively larger volume of domestic currency lending, carrying a larger spread than foreign currency loans. As a result, the nominal spread on lending operations increased from 2.4% in 1976 to 2.8% in 1980, which is satisfactory. Total assets increased from Rs 3 billion in 1975 to Rs 7 billion in 1980. The debt:equity ratio at December 31, 1980, was 10.2:1, within the contractual limit of 11:1. ICICI's debt service coverage per- formance has been satisfactory: the debt service coverage ratio increased from 1.08:1 in 1976 to 1.15:1 in 1980, which is acceptable, but somewhat less than the 1979 ratio of 1.25:1 due to the redemption of a Rs 50 million bond issue in 1980. Operations Forecast and Resource Requirements 64. Operations Forecast. In view of the infrastructural and other dif- ficulties facing the industrial sector, ICICI's operations forecast is based on relatively conservative assumptions. Total net approvals are projected to grow by 13% to Rs 3 billion (US$375 million) in 1981, (compared to 28% in 1980), with foreign exchange loan approvals increasing by about 11%. After 1981, approvals are expected to grow by about 10% p.a., compared to a com- pound growth rate of more than 30% in the period 1976 to 1980. With the access to free foreign exchange for capital goods expected to remain limited, ICICI believes that demand for foreign exchange loans will stabilize at about 37% of total approvals. As a result, foreign exchange commitments are ex- pected to increase from the 1980 level of US$105 million to US$125 million in 1981, US$140 million in 1982 and US$153 million in 1983. For the period April 1981 to December 1983, ICICI's foreign exchange commitments are ex- pected to total US$396 million. Against this, at March 31, 1981, ICICI had uncommitted foreign exchange of US$57 million, 1/ leaving US$339 million to be funded. KfW is expected to provide some US$39 million equivalent over the period, reducing the unfunded amount to US$300 million. The proposed Bank loan would cover part of this requirement for the period up to December 1983 (i.e., about 2 years after loan effectiveness); the remainder is expected to be sought from commercial Eurocurrency sources supplemented by other borrow- ings. 2/ Bearing in mind the Bank's objective of progressively reducing ICICI's dependence on Bank funds, the proposed loan would be limited to US$150 million, resulting in a ratio of Bank to commercial and other borrowings of 1/ Including US$44.1 million in Bank funds. ICICI anticipates committing all its foreign exchange resources by September 30, 1981. 2/ In this context, "other borrowings" means borrowings from any other commercial source, bilateral export credit arrangements and guarantees issued by ICICI under these arrangements. Not included are borrowings under KfW's Capital Aid program.  - 28 - 50:50, compared to the ratio of 70:30 agreed to for the thirteenth loan. GOI has granted permission for ICICI to borrow US$150 million equivalent in parallel with the proposed loan. As explained in para 66, ICICI probably would need to blend commercial funds and export credits with other foreign exchange resources to accommodate their restricted drawdown periods and relatively shorter maturities. ICICI does not require any specific assistance from the Bank in arranging commercial borrowings. Past Bank assistance at the time of ICICI's previous Eurocurrency borrowings was effective in establishing ICICI's name in the market. Furthermore, Indian issues continue to enjoy high acceptance on the Euromarkets. 1/ As a result, ICICI has developed close relationships with foreign commercial banks and, based on the response to ICICI's initial enquiries (para 66), ICICI should have no difficulty in arranging commercial and other borrowings up to the US$150 million indicated. 65. Commercial and Other Borrowings. The appropriate mix of the funds making up the required US$150 million between commercial funds and export credits would depend on market conditions and their terms and availability. However, ICICI foresees operational difficulties in utilizing export credits effectively in the major part of its normal lending operations. 2/ Conse- quently, it is unlikely that such credits would account for a large proportion of the total, leaving the bulk of the funds to be sought from commercial sources, either on fixed rate or floating rate terms. As in the past, ICICI's access to fixed rate funds is limited and it probably would rely on the Euro- market for its commercial borrowings. Market conditions and the operational difficulties associated with utilizing commercial funds with restricted drawdown periods make it impractical to raise the full amount at one time. Instead, ICICI has approached the market for an initial borrowing of US$65 million equivalent in 1981, and probably will raise further market borrowings in late 1982. The initial market borrowing, on which discussions are at an advanced stage, will consist of ICICI's first floating rate note (FRN) issue for US$30 million, and a syndicated mixed currency loan in Deutsche Marks, Swiss Francs and Yen, totalling about US$35 million equivalent. Terms and conditions have not been finalized, but indications are that both will have ten-year maturities with 30-month draw-downs; the FRN issue will probably carry a coupon 1/4% above LIBOR and the loan a rate of 3/8-1/2% above LIBOR. While the FRN issue will require a GOI guarantee, for the first time, ICICI's syndicated loan will not. This, together with the loan's fine spread above LIBOR 3/, indicates a significant improvement in ICICI's credit standing in the market. In addition to market borrowing, ICICI has reached an advanced stage in arranging US$10 million equivalent in United Kingdom export credits, 1/ In the past, ICICI's commercial issues have carried GOI guarantees. However, there are now indications that ICICI's planned Eurocurrency syndicated borrowing will be arranged without a GOI guarantee (para 65). 2/ The credits are normally only for 3-5 years with a limited drawdown period. ICICI anticipates that such credits could only be used in relatively few expansion/modernization projects. 3/ ICICI's last Eurocurrency borrowing carried a spread of 1/2-5/8% over LIBOR.  - 29 - which will carry a net fee to ICICI of 2% and a cost to sub-borrowers of 9.5% p.a. ICICI is presently exploring the possibility of further UK export credits and similar credits from other countries. ICICI expects arrangements for the initial US$75 million equivalent in borrowings to be completed by December 31, 1981. ICICI has confirmed its intention to raise a further US$75 million equivalent thereafter in such a way as to commit the full amount of commercial and other borrowings in parallel with the proposed Bank loan. 66. Blending Arrangements. In connection with the last loan to ICICI, it was recognized that, depending on the terms negotiated, commercial funds might have limited use on their own in ICICI's normal lending operations, because of their fixed amortization schedules, relatively short maturities and restricted draw-down periods. It was anticipated that ICICI would need to make parallel commercial and Bank financed subloans to accommodate commercial funds without having to reduce significantly its clients' repayment terms. Therefore, ICICI was allowed to blend Bank and commercial funds by tailoring the amortization schedules of Bank subloans so as to allocate relatively more of the early maturities for repayments to commercial lenders. ICICI was also permitted to allocate early disbursements for individual subprojects prefer- entially to commercial subloans so as to draw-down its commercial borrowings within the required 30-month period, and avoid the foreign exchange risks involved in drawing down these borrowings in advance of when they are required for subloan disbursements. The effect of this arrangement on the Bank is that, since repayments on Bank loans are based on the composite amortization schedules of subborrowers, repayments would be slower than normal in the initial years. Also, it slows down disbursements initially. However, neither the overall repayment period, nor the disbursement period are affected. ICICI expects that these arrangements will continue to be necessary to enable it to absorb commercial and shorter term export credit funds. To ensure that acceptable proportions of Bank funds are disbursed and repayed in the initial periods of the loan, ICICI has confirmed that at least 10% of the loan would be disbursed in the first two years and 25% repaid in the first seven years. 1/ In addition, ICICI has presented the Bank with a satisfactory statement of the procedures it intends to use in blending Bank with other foreign exchange funds. 67. Financial Projections. ICICI's financial projections are provided in Annex IV. ICICI's profits before taxation are projected to increase from Rs 122 million (US $5.3 million) in 1980 to Rs 310 million (US$38.8 million) in 1985, an annual increase of 16.8% which is roughly in line with the pro- jected growth in total assets. Profits after tax are expected to grow from Rs 89 million (US$11.1 million) in 1980 to Rs 214 million (US$26.8 million) in 1985, an average return on equity of about 18%, which is satifactory. The nominal interest spread on lending operations is expected to be around 2.4% p.a., which is satisfactory; although it is expected to decline to about 2.0% as lower spread commercial funds become a larger proportion of financing and as domestic currency borrowing cost increases. Dividends are expected to be maintained at 13%, allowing an adequate ploughback of net earnings. Total assets are expected to grow from Rs 7 billion (US$875 million) in 1980 to 1/ Compared to an average under previous Bank loans (up to the 12th loan) of 27% disbursement and 40% repayment in the respective periods.  - 30 - Rs 17.8 billion (US$2.2 billion) in 1985, an annual growth rate of about 17%. The loan and investment portfolio is expected to increase at about the same rate from Rs 6.1 billion (US$762 million) in 1980 to Rs 15.6 billion (US$1.9 billion) in 1985. ICICI expects to maintain its average debt collection ratio of 90%, which is attainable in the light of past performance. On this assump- tion, the debt service coverage ratio would remain above 1.5:1 throughout the period, which is satisfactory. In late 1981, ICICI plans to issue Rs 135 million (USq$6.9 million) in subordinated debentures, which will be converted into share capital in three equal amounts in 1983, 1985 and 1987. As these debentures will be subordinated to all debt and will be non-redeemable, the Bank would treat them as "equity" for the purpose of calculating ICICI's debt:equity limit. Taking this into account, the ratio is expected to increase from 10.2 in 1980 to a high of 10.8:1 in 1983, which is within the 11:1 con- tractual limit. Project Benefits and Risks 68. By continuing to support ICICI's operations, the proposed loan would contribute to sustaining the rate of investment in the modernization and expansion of industrial capacity in India. Subloan beneficiaries would be mainly medium and large sized private sector firms mounting high priority industrial projects, many of which would be export oriented. About one third of loan proceeds are likely to be used in support of projects in designated backward areas, including projects sponsored by new entrepreneurs. Based on previous experience, it is expected that jobs created by sub-projects would have an average investment cost of some US.25,000 each, and would have eco- nomic rates of return of about 20% on average. Furthermore, the loan would encourage ICICI to diversify its sources of foreign exchange still further by raising additional commercial borrowings, and would contain features designed to enable such funds to be used effectively in normal lending operations. The principal institution building effects of the loan would be to continue to assist ICICI to focus better and selectively expand its program of development activities, including studies designed to address the industrial efficiency and energy utilization problems facing Indian industry, and to examine the constraints on expanding the export of manufactured goods; activities and studies complementary to the Bank's own program of industrial sector work in India. Since ICICI is a mature and capable institution with a sound record in industrial financing, the proposed loan does not involve significant risks. ICICI's financial projections and resource requirements have been based on reasonably conservative assumptions. Consequently, delays in loan commitment and disbursement are not anticipated. PART V - LEGAL INSTRUMENTS AND AUTHORITY 69. The draft Loan Agreement between the Bank and ICICI, the draft Guarantee Agreement between India and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately.  - 31 - 70. Special conditions of the Project are listed in Section III of Annex III. 71. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMNENDATION 72. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President September 8, 1981   ANNEX I TABLE 3A Page 1 of 5 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AV_ RAGES LAND AREA (THOUSAND SQ. KM.) MOST RECENT ESTIMATE- TOTAL 3287.6 MOST RECENT LOW INCONE MIDDLE INCOME AGRICULTURAL 1809.5 1960 lb 1970 /b ESTIMATE lb ASIA 6 PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) 60.0 100.0 190.0 232.3 1136.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 111.1 152.5 241.8 499.4 1150.6 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUS.) 434850.0 547569.0 659217.0 URBAN POPULATION (PERCENT OF TOTAL) 17.9 19.7 22.0 17.3 40.8 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 974.7 STATIONARY POPULATION (MILLIONS) 1621.0 YEAR STATIONARY POPULATION IS REACHED 2115 POPULATION DENS ITY PER SQ. KM. 132.3 166.6 200.5 153.6 373.1 PER SQ. KH. AGRICULTURAL LAND 246.7 308.0 355.8 360.3 2382.8 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.1 42.4 41.1 37.4 39.8 15-64 YRS. 56.8 54.7 56.0 59.2 56.7 65 YRS. AND ABOVE 3.1 2.9 2.9 3.5 3.5 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 2.3 2.1 2.1 2.3 URBAN 2.5 3.3 3.3 3.4 3.8 CRUDE BIRTH RATE (PER THOUSAND) 44.2 40.3 34.0 27.7 29.7 CRUDE DEATH RATE (PER THOUSAND) 22.7 17.4 13.5 10.2 7.5 GROSS REPRODUCTION RATE 3.1 2.8 2.3 2.5 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) 64.0 3782.0 5619.0 USERS (PERCENT OF MARRIED WOMEN) .. 12.0 22.6 20.4 44.1 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 98.0 102.0 93.0 107.1 123.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 93.0 92.0 91.0 98.6 112.6 PROTEINS (GRAMS PER DAY) 52.0 51.0 30.0 56.9 62.5 OF WHICH ANIMAL AND PULSE 17.0 15.0 13.0 14.2 19.7 CHILD (AGES 1-4) MORTALITY RATE 27.1 20.4 14.8 14.6 4.8 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 42.2 47.5 51.9 57.7 64.0 INFANT MORTALITY RATE (PER THOUSAND) .. 134.0 125.0 89.1 50.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 17.0 33.0 30.1 45.9 URBAN .. 60.0 83.0 65.8 68.0 RURAL .. 6.0 20.0 20.1 34.4 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 18.0 20.0 17.6 53.4 URBAN .. 85.0 87.0 71.0 71.0 RURAL .. 1.0 2.0 4.8 42.4 POPULATION PER PHYSICIAN 4850.4/c 4889.0 3617.4 3857.7 4428.7 POPULATION PER NURSING PERSON 9630.07. 8296.5 6429.4 6411.8 2229.7 POPULATION PER HOSPIrAL BED TOTAL 2149.0/d 1612.9 1311.1 1132.8 588.5 URBAN .. .. 363.5 322.3 579.6 RURAL .. .. 10429.1 5600.5 1138.5 ADMISSIONS PER HOSPITAL BED .. .. HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.2 5.6 5.2 URBAN 5.2 5.6 4.8 RURAL 5.2 5.6 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.6 2.8 URBAN 2.6 2.8 RURAL 2.6 2.8 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. URBAN RURAL  ANNEX I Page 2 of 5 TABLE 3A INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AVERAGES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 61.0 73.0 79.0 85.9 99.8 MALE 80.0 90.0 94.0 94.4 100.6 FEMALE 40.0 56.0 63.0 64.5 98.8 SECONDARY: TOTAL 20.0 26.0 28.0 38.0/ta 53.5 MALE 30.0 36.0 37.0 34.6/aii 58.4 FEMALE 10.0 15.0 18.0 18.0/aa 48.6 VOCATIONAL ENROL. (X OF SECONDARY) 8.0 1.0 1.0 3.8 21.1 PUPIL-TEAChER RATIO PRIMARY 29.0 41.0 41.0 32.8 34.2 SECONDARY 16.0 21.0 .. 19.9 31.7 ADULT LITERACY RATE (PERCENT) 28.0 33.4 36.0 52.8 86.5 CONSUMPTION PASSENGER CARS PER ThOUSAND POPULATION 0.7 1.1 1.3 1.7 12.7 RADIO RECEIVERS PER THOUSAND POPULATION 4.9 21.5 32.5 35.3 174.1 TV RECEIVERS PER THOUSAND POPULATION 0.0 0.0 1.0 3.7 50.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 11.0 16.0 16.9 14.6 106.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 4.0 6.3 3.8 3.4 4.3 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 189761.4 220670.5 256699.4 FEMALE (PERCENT) 31.2 32.4 31.9 29.3 37.4 AGRICULTURE (PERCENT) 74.0 74.0 71.0 69.8 50.2 INDUSTRY (PERCENT) 11.0 11.0 11.0 14.1 21.9 PARTICIPATION RATE (PERCENT) TOTAL 43.6 40.3 38.9 39.7 40.2 MALE 58.0 52.6 51.3 51.5 49.8 FEMALE 28.2 27.1 25.7 23.3 31.1 ECONOMIC DEPENDENCY RATIO 1.0 1.1 1.1 1.1 1.1 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HlGhEST 5 PERCENT OF HOUSEHOLDS 26.7 26.3/e 22.2 HICHEST 20 PERCENT OF HOUSEHOLDS 51.7 48.9/e 49.4 LOWEST 20 PERCENT OF HOUSEHOLDS 4.1 6.77e 7.0 LOWEST 40 PERCENT OF HOUSEHOLDS 13.6 17.27e 16.2 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 132.0 134.1 248.6 RURAL .. .. 114.0 111.6 193.7 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 249.8 RURAL .. .. .. .. 234.3 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 40.3 41.7 21.2 RURAL .. .. 50.7 51.7 32.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /aa China included in total only. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. /c 1962; /d 1958; /e 1964-65. May, 1981  ANNEX I Page 3 of 5 DEINIiTIMtt iF SOCIAL INDICATORS Noses: Although tha data are draw f ro.. rosgneal udged the etuhoiatv and reliable, it sha.d ale ha notd that they may not he Inter- natioally otyaahia acauc of,he lacko. tnededdfniin n ocp.ne bylf I L.goterseI roln gtha data. Tha data are,... Tha refornnoe gYoupaura. (1) the eu ... tocy group of the esbiect, ratr ad(2) . ronetry gr..st with eeahthighar arrg. Ane. that the coantry groep of the tub] ct coucry Concept fo 'Cpla syleOi oorne grou yhr "tIdaleIam Broth Melon end MOLddl tEat' 1a hoh..e becaoea of etr..nS.r soclo-osiunel of tottlac . In he ref. ' ao cars Idoon thlnae r popaltlo iahted artnhatio -en far ea.h ledlator and shownonly abet eJorclr Of the rooriwaIr group hasdate for that andlotor . leotthe coeaeof roenr1- amongthe tedtcerorsdefnd or th r i'eiyctda sod ha not u-fr.cuioos be norrol-d Inc.1 ratit nraa f ioeldletoo to stothar. These X! aseare er otl unful in omprin the vele of 000 indicator at a cite ....ng the rourtop and referroce groups. LANDO AREA (cho....nd tq.ka.) yopslotlor perfopio No_ otl thr .rd intel1 Pcpc.latl (total. Tcl-Tocol ourfoor -ct conyl.ctrg lard acao .td ictend outr. ha. end rurl) diIded by tbter eepe-tie number aL h.npitl. beds Agcicultu... - Eolist of , agluluaerand taoporarlpo PernetIp acailahia in pttlio and private generel an.pcoled h.ne and for cops,poacren,markt an itohen gdet or to lie alw 197 dtahhiteln etr. Inytl reetbileeepraetly't.fe by a: nat ore phyat.ien. Etetblieheonte proeidine principally os-- GNP PER CAPITA (U0)) - GNP pot cap ire retisae t..cu.rreoc - eao pic-. -1l- dialcrsae1 c lele . tota hoepiltala,h-tener. I,oud hath- c,Iocd bp .-0 corerslos wrhod ae Word uc.Alo (17-9bee; 1960, an aia eter no persene...tly etffdbyapeto(hot by 1970, end 1979 dato. wdice. eetrat,eue. midwife, err.) which ofertopti ieteo - dntioe and provIde e lisinad .-eg. of medioel Ia oe ,rrre EtECY01 COrNSUtPTION PER CAPITA - Aoosa c.....eptior of --rmrcla enegy (coal tinlpsroa ahwhepil islde BVW prinonpal(ge..r.. bohepitaIe. -od ligtita, Pe toem n .cra ga. and hydro-. -1la n eottelat- and- 11 rua opttl laa r ua beial n mdcl and materi.ty tcriciy) in Ailogras ofcoaeuialn par capita; 1960, 1970, cd 1979 owner.iponialle-d bh-pinola gre inoded only aIe tn dsra. Aueln r gorite td - Totl.n1 ero edeislerato dehre from heepitale divided by the -ster of bde. POPULATION 000 VITAL STATISITCS Totl1 Poruletion, Mid-Yeor Icho ...ndal - Ae of July 1; 1960. 1970, usd 1979 2 d-tu. ArarceeIL Site of tHoe.d..w.ertboshl)- oa.ubn,edrtl Irhan _ouoto crc,t of total) - tott of urbae to total Pu_toea_; A b-eahld oneaiat nf a grs o f indlidel h hr lii qoetera. diffwrrtt dnfinitione of urban srr y map ffect yoprhir rf detaen. thei mait -.eIa. A hoar.der or lodger may ormy one he JeO)sded J. amongvourilet; 960.1970, and 1979 dot.-eshsahl o eteiafa Iprpe oaa iot inYear 2000 - Currnvt population Ptotectinn are,, had o,1900 her of par-s par worn Lt all nha, and rurl arspied ceva-ninma) to.tal lpolpulotot by age and am, and ihair1 motaiyanfrtilprtaa deellinge. reepertively. Irr1a1irge onl. on-pdtt etrntso... ..d Poerit.porencer for mareliyre necmrs f threeI.I .....aes. s-o-pld parts log life onpetcya birpt~htin ng itcotr 'a e ..Pita icoaa Aet. no t -etririy (rammer ef dnallina) -tal,beher end totalI - lrvrl end emalelIfe n pecesoy Ia!bilialog at77.5 peere. Thr Pars- Ownomtiwea drelliega nitb .1..c.rlnty in un~Its q-et-r asP-cl6 noonri fo ferrilli rate eln bane three leel- esnigdesiwO of teel, arer ed totaI deralinge repenti-aly. Efoo... cntep te hernI..sgond ore of theaeninro-ahi-etiora of nota1lty, IDCATIOI _vd forrility Irnd for 1 c, yrj oi psrpoee. Add]-twd frro11le.nt tatina Sc.,loosr. youalnInetoayrua Ior her ia no g-onbthno ?rmaeenel tnl,mle and feMEl - Cre.. tate1, "It end femal rho hitch r-r to oqoet r,ho doath rotte, ad.,al,r rhoageut.r..-..w.or f l te af. rho prmay Ioel aT. pe..e.ttgee of ..ey. i IVa vracovnn...I This is ohierdreyoirfrrYliyYratedeltr to pimary tihoo1-age Popnlstsor..; cormell terlsda ch!Ild re ae,6 nlceer .. vr. of. unt re eprodeotisrne,oye ac enrtinrer but nd)eted for doff.r.rI lwngthe cI primay dsa rfr of nopm or eow Itewo'f enenctly.The atatory popslrion ele wee. cstiwenitch ucicea e. uctio Ierl-or nay orored ill percrvt estimrod on bEnheia of lhr promo.ted oencri eo f the poPoI:igoi a rraonpp . oehb or eho the ofCicie echool 0gw. Onthe rr0000, ard the rate of decline if fertility rIr- to relae-Inrdr sool otl mae rdfeal - opysd s albov; s....odary mar level. educatiorra.quirs atyerfotper ofpprne pr ,aY i--orctinn; Ins st-icvary rorsletion ia moo. hod - The pear h..r e.tatlnar population yrrvidea greewl voa-lre, ortearher ral g ira truci... for pepib. tire hoe .. heat rehod. u....l. of 12 to 17 _a.E ofegr ornpoldeo ooure ore ..nnclip forulatie D...aity nooleded_.l Per eq. kr. -Mid-pee ycpuletinr per equate kilse-t (100 hnrtar..e) of co...tinna ano.e.tlor tn of .e..rdtrrl - naio... Irs-tit-tiov. tota cone I1961, 191 erA 1976 data. inld ehie,iduera,orohrpogeewih operate indaperd- Pe s.cI.oniulualln - Computed as bhont fnragrios1tsra1 lnrd niyo sdprntso andr etrtn ovly;, 1960, 1970 ard 1978 dera. Pspil-tea... ra ltio p- reeao end Ieto.da.e. Tota stud eri enrolled it PpulationAge Strutur Ina-on)_-Children (I-Is Y-er-.) ecrlkrg-ege 115- pri.yep. er ....oodaoy lecel div ided by esthet of ..eoher it the 64 yearal. and esnired (65 yeara and -ner) as - . p toetgaerf sid-yase psp.- o.r..eponding lana.. Ia.o, 1961, 1970, end 1979 data. Adslt lIrereorean IrE. nene..l - Li irte at delta (ehie to reed end -it.) Poultin roth into r"rretl - total - Anosel& goth rates of total nid- eap..rr.tegs of ntel. adult prpslatine aged 15 yrere endovr y..nr. pultilona for 1950-hI, 19hi-70, and 1977179. _ocaio reh Rtot (rp c ..t -srbhan- Aesl gr1re: h ra1te onI -b-a pups- EOIISUtiTIONI letloo for 1950-cs, 1960.f7I, tsd 1970-79. Pasanst. :late lr brtoueed eeltn)-P...e.. gcare. co.yrte. ..st Crude tirih tre. (ret thous.An) - Annual hoe birth pe .toad of id-,ear raeesnngls ther eight p..r...a; anludee nebsiar , haereee ted popula.tion;t1960.190an 1979 dota.eltryetl Crude Inchtae re chond - _eno doethe Pot thrsn..nd of aid-potyd.tr.nr.ortonwdnrlrie l yeo oenr fur radio populotion; 1960, 1970, end 1979 data. braoet ogeee peh1ll Per th..s..d of populetior; eno ludee or- Crvee tRrpoduotto OR.,.-A_eree sahe Yof dasghterse onan ll hear in lieedrotvr ntostlaed it years wher rgietrtino ofrdio 011ci ote;ceslpCitprr nrsaaeding in '1960,1 1971,sod 1979. mont -utrirn obliabhd lI .r..eit.g familyPa Aio -Aocetore. Annual (thr.....del A - Anneal uber of ...rePore TV ironinre~ .re ptho...andrrston -TIreneefrbroadoent to of hirnh-o...o denfosec, order aepucoa nf nat .Ioa fomily pla..ring p.rgeo. geerlp... ertosad popslein;eoutnc1lne T aenr faeilr J. Pri.ro- r loorn.nt of on tiadeoe -Pretgof maried Incuttsadi er hcrgerno f TI es a inl efor. coe o hild-hbsr.. ao Il-Al yraral who se hiroh-c-t-rI doneto ppnrr- Cicl-tion (re thon...d narolnoo -ihn the scetagI cir- almrod ueri te o group. rlinof "dolly geoe.ral interest . spop-r" dofmed aa ier dion pobltiaton denotrd primarily tr rnoptding garero cone.. It ia connidro POOl AND NUlTRITION to be "daily" if irepp.ae.. ou. fo nieea kob Ind- of rood Pooduolon prr Corlto 11969-711-001 - Indo of per capita enn-o Cirem Aonsl sntredance rep ait ela-asdo the ehe f produoclr of nOl food votesidico. Prod-cise etoludre teed ecd feed and tickete aod derteg the year. I-idludigadnneal.ctcdrirr-loitea in or cledc de parhec. Cowndit i.ncoo primary god at uaraed mobile saint. icatrod of s hio aoch ant ndblh and co -cisotr, trn(e..rfe n e r olcldrd). Agg-egoco production of each c...ntry ie b..nd nIdtfeEr ceolcoolaroragoproduce Prccr nwlobtn;fl190-5 1971 ard 1979 deta. Total Labor Focc (rhoussanda - cnoioeilyactinr pert-n.Including Per canto avorlo of oslorir lrno,. ofrecir_mtre. Coeperod fl. roe r,e forcee and unemployedbi nt-clodig bseie,eu o,eo ...,Yp rquivslwc of ne food -upitanObl in stry peIeiorntigpplta f el Oe. Ifinitine lIne -i. c.....nre tot ia op rllabl aury Pecnrt donetlo prdcto,itot le r comparable; 1961. 1970 aed 1979 deco. roporot ard coogra v atok. Nec aupplicir tooled annul fwad, ewdn, Femal Irerent - Fmallbor force an percoesgo of total labor forrr lunltaotdl food plowc ..i., and l.n... in dcntrlbotiou. Requte.nrclur crce - Laborfre5 amng,orto bontn and maconr aimtar by Fun heard on hyinl.gi.l ... cods for normal sore- flie a eteren nf totl labor forc;0960f 90ed17 s city so hoo1th c--idnrlogrnirtrntl eperasu-, body ooightn, wge Ind-aty (rerrern)t Laborfoc Ontiig,cosrurr manfactuing ho..erhol.d local; 1961-hI5 1970, sod 71977 done'." 1 97,1 ardt 197c9 dat.-- Per c-pi, -urly of pronofo (tra rot deY - Proei tnno fprcpng Priioirnr een l,-tonl,_ mle. endf ieni - Partiolpoticr or ret eupply of fond per dsy. fin turply of food isidefteed a shonsp,.cO-srot ae are nonrored ate,ml,nd resale labor forceo qurnnc frnI cunr enra1bt1ihed.hydoSiA pronide far airinr perceotegee oftotl *mle an .d femal popsl.intiof n al agorrapcnioe,lr; nllonocor of 60 iron nf nonel protein ot dap erA 20 gras of eina n 19f60, 1970, an 979 oa These se ba..ed on ILOt.j pnlotipetloroo pule potrn, f stch10 ran thuldhe elml rotin.Thee sand reler ne ag-sa stoht.eof the popuInton. ord long tine treed. A rn00Iorthenroro 75 ge.e of intl prnein end 23 gras of fee- nnteeaefrtntinnlivrit nnlnol ""i ppolenorrge for th ord -%prpoy..od by PAO in the Third -aomleed-cry not -tan of ropoa.tior under 15 erd hi ond noor Oc-ld-Pood cs.-oy;-1961-65, 1970 aod 1977 dots,. to ho totu1 1bcr force. For cerito crri ,nol foo anImal end oulne - Prtrin auPp' of fnrd de- rIved finn a-cal ord pulnan I grn o e; 61-65, 1970 sod 1977 dora. lNCOyt DISTtRtIT00N Child borg 0-Al c loraty Sr lrthuad) - Anns1 drethe Per thou-ed it _PorTco-t-o If Priv-c bro- (both I cuh u-d kirdl - r-coi-d ho rooro orgopcCYcor, rn obildc. in thie og. group; fur mos der-lopingco.r- 3 prno richoe 20 porort P..... 70 p-rrat, end P.or_a 40 prtIcr cIllt dole d-i-vd fron lift~ inhlw; 0960, 1970 and 1970 data, of phoe d. HEALTH POVERTY TARCET CROUPS Lifo Ecrpcuoco nC rici(pero)h Acerogo runbhe of y..r. of loft remining The.rlwn siar r opoynemt neren oet roe cc itch; 090 90ad 0970 dera. an bnl o nenred lb oadorale c-tio. Orfoct co-oslcy deco .cn tho..e.d) - An..uI d-etb of iofents under one -ro InEmted Ahnndb.lorrpoeticonLrl10rrvsie)-hnadrul- ofeoporfch.codErbrb. Abeistr1 pr..elp ieconr 1o-1 in thchar ...e lnI heln ohich 0 i.i ouro toI anP1 et Irro proroc, horlceccrr .o . an .snOnrneIn at Ocrire. lyrv poqry dilcoo pi.e. e .. e-thIrd.. fofd cerqgi ... -- porn root. oohi - och-t fcl Ipy la b b- osal cl ., c erebore ofl the hanehldan ro -i - Perctyo popuLacio- (Abo an-hid rr oho- g ore " -heluc f.c pot boo no-pod- .cdlt-ryto-c parr o00 r lat i frrrbir cP-yur... - Accootoocrto uspool urueI Ei torulacPoc-tosai._urhun..end..srolL Oumbr cIyocpc (ccal,urbr, ad ruul Iesrod b ecroradiaohs an d .dlc1 PY.,f ..c-(b dc.) cle, h..e.lo ro pd dis p,poe.-nn or. opltfcu h dret yr ,c of-human enei onnihn.oil aeOno ovdoetenotr h oaarbrotsysemsnr he se f pt prvie so nii- consirArecai er Prjrrtov OAr .. nltoa -a.16 Pouein a Pyiinf-_oltc ivddhynne uf . pratiin -hpi clr(uliidPn amdia -bchole university, le-n tdil. 1 yP...i. rt.. .uanePaet-Pou.t dirda by nibr of Y prcicing tale and... femal grdune nurase,"t pro 'isa- nurses, - end Il D I  Allae. I Pass 4 f 5 ECONOMIC DEVELOPMENT DATA GNP PER CAPITA INI 1979 US5190 GROSS NATIONAL PRODUCT IN 1979180 ANNUAL RATE OF GRMH (%. constant Drpice) USS BInD 1 1955/56-1959/60 1960/61-1964/65 1965/66-1969/70 1970/71-1974/75 1975/76-1978/79 GNP at Market Prices 134.16 100.0 3.7 3.6 3.6 2.8 4.5 Gross Domestic Investmnt 29.24 21.8 Gross National Saving 28.55 21.3 Current Account Balance d/ -0.85 - 0.6 OUTPUT. LABOR FORCE AND PRODUCTIVITY IN 1978 Value Added (at factor cost) Labor Force V.A. Per Worker USS Bln. M11. 7 MLS 7. of Netional Averace Agriculture 39.8 39.6 181.3 71 220 56 Industry 25.5 25.3 28.1 l 906 230 Services 35.3 35.1 46.0 18 767 195 Totl/avera.e 100.6 100.0 255.4 100 394 100 GOVERINENT FINANICE General Government Central Government Rs. Bi.% of GDP Rs. Bin. 7. of GDP 1979/80 1979/80 1975/76-1979/80 1979/80 1979/80 1975/76-1979180 Current Receipts 208.18 19.2 18.9 108.96 10.0 10.6 Current Expenditures 206.44 19.0 17.7 117.67 10.8 10.6 Current SurpluslDeficit 1.74 0.2 1.2 - 8.71 - 0.8 - Capital Expenditures f/ 81.81 7.5 7.4 56.93 5.2 5.1 External Assistance (net) 4/ 7.97 0.7 0.9 7.97 0.7 0.9 MONEY CREDIT AND PRICES 1970171 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 December 1979 December 1980 (Rs Billion outstanding at end of period) Money end Quasi Money 109.6 175.7 194.6 222.9 272.8 329.1 398.9 48. 2 448.3 521.7 Bank Credit to Government (net) 52.6 87.3 95.3 101.1 110.2 134.7 153.9 192.2 176.4 231.4 Bank Credit to Comercial Sector 64.6 107.0 126.7 153.9 185.0 212.2 253.5 306.5 294.7 335.9 (Percentage er Index Numbers) Asril-Dec 1979 April-Dec 1980 Money end Quasi Money as 7 of GDP 27.2 29.8 27.9 30.2 34.0 36.5 40.8 43.1 Wholesale Price Index (1970/71 * 100) 100.0 139.7 174.9 173.0 176.6 185.8 185.8 217.6 212.2 253.5 Annual percentage changes in: Wholes.le Price Index 7.7 20.2 25.2 - 1.1 2.1 5.7 - 17.1 14.6 19.5 Bank Credit to Government (net) 10.8 12.3 9.2 6.1 9.0 22.2 14.3 24.9 24.9 B/ 31.2 h/ Bank Credit to Comercial Sector 19.4 22.6 18.4 21.5 20.2 14.7 19.5 20.9 17.5 Jl 14.0 h/ aJ The per capita GNB setimete is at mnrket prices, calculated by the conversion technique used In the World Bank Atlas, 1979. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. J Quick Estimates. c/ Computed frm trend line of GNP at factor cost seriese Including one observation before first year and one observation after last year of listed period. 4/ World Bank estimates1 not necessarily consistent with official figures. J Transfers between Centre and States hkv been netted ot. V All loan and edwancee to third parties have been netted out. I/ Percentage change from end-December 1978 to and-December 1979. tL/ Percentage change fro end-Decmbr 1979 to end-Dec_mber 1980.  Annex I Page 5 of 5 BALANCE OF PA_ _ NTS 1977/78 1978179 1979/80 1980/81 B MERCHANDISE EXPORTS (AVERAGE 1976/77 - 1979/80) Exports of Goods 6,315 6,978 7,958 8,998 Engineering Goods 768 / 11 Imports of Goods -7,188 -8,519 -11,249 -15,624 Tsa 462 7 Trade Balance - 873 -1,541 - 3,291 - 6,626 G,s 605 9 NFS (net) 691 773 633 463 Clothing 460 7 Leather and Leather Resource Balance - 182 - 768 - 2.658 - 6.163 Products 425 6 Jute Hansfacture. 284 4 Interest Payments (net) - 89 - 35 350 303 Iron Ore 298 5 Other Factor Payments (net) - - - - Cotton Textiles 289 4 Net Transfers 1/ 1,077 1,216 1,458 2,462 Sugar 132 2 Others 3,028 45 Balance on Current Account 806 413 - 850 -3.398 Tot-l 6.751 100 Official Aid Disbursements 1,628 1,695 1,891 2,389 ElKERNAL DEBT. MARCH 31. 1980 Amortization - 645 - 702 - 676 - 707 USS billion Transactions with IMF - 330 - 158 - 1,035 Outstanding and Disbureed 15.6 All Other Items 617 286 - 143 133 Undisbursed 5.7 Outstanding, including 21.3 lncrease in Reserves (-) -2,076 -1,534 - 222 548 Undisbursed Gross Reserves (end year) 5,823 7,357 7,579 7,031 Net Reserves (end year) Id 5,668 7,357 7,579 6,691 DEBT SERVICE RATIO FOR 1979/80 _/!/ 10.4 per cent Fuel and Related Materials IBRD/IDA LWIJING. DECEER 31. 1980 I-ports 1,811 2,043 3,977 7,012 us$ million of which: Petroleum 1,811 2,043 3,977 71012 IBRD IDA Exports 32 24 26 n.a. Outstanding and Disbursed 806 4,895 Undiabursed 572 3,547 Outstanding, including 1,378 8,442 Undisbursed RATE OF EXCHANGE June 1966 to mid-December 1971 US$1.00 - Rs 7.5 Re 1.00 - US$0.133333 Mid-December 1971 to end-June 1972 US$1.00 - Re 7.27927 Re 1.00 - US$0.137376 After end-June 1972 : Floating Rate Spot Rate and-December 1979 US$1.00 * Rs 7.907 Re 1.00 - US$0.126 Spot Rate end-December 1980 US$1.00 * Re 7.930 Re 1.00 - US$0.126 l Estimsted. i/ Figuree given cover all investment income (net). Major paymnts are inter4st on foreign loans and charges paid to WflU and major receipt is interest earned on foreign assets. J/ Figures given include workets' remittances but exclude official grant assistance, Which is included within official aid disbursements. / Excludes net use of IVW credit. j Figure for 1979/80 is eatiated. !/ Amortization and interest pacmente On foreign loans as a percentage of exports of goods and services. Aprit 1981  ANNEX II Page 1 of 18 THE STATUS OF BANK GROUP OPERATIONS IN INDIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of June 30, 1981) US$ million Loan or (Net of Cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed 44 Loans/ 1,422.2 - - 71 Credits fully disbursed - 4,023.4 - 342-IN 1972 India Education - 12.0 3.23 378-IN 1973 India Karnataka Agricultural Markets - 8.0 0.06 456-IN 1974 India HP Apple Processing & Marketing - 13.0 5.24 1011-IN 1974 India Chambal (Rajasthan) CAD 52.0 - 10.51 482-IN 1974 India Karnataka Dairy - 30.0 15.86 502-IN 1974 India Rajasthan Canal CAD - 83.0 28.53 521-IN 1974 India Rajasthan Dairy - 27.7 12.37 522-IN 1974 India Madhya Pradesh Dairy - 16.4 4.82 1097-IN 1975 ICICI Industry DFC XI 94.6 - 0.79 541-IN 1975 India West Bengal Agric. Development - 34.0 1.29 585-IN 1975 India Uttar Pradesh Water Supply - 40.0 13.73 598-IN 1975 India Fertilizer Industry - 105.0 21.37 604-IN 1976 India Power Transmission IV - 150.0 43.24 609-IN 1976 India Madhya Pradesh Forestry T.A. - 4.0 1.51 610-IN 1976 India Integrated Cotton Development - 18.0 10.23 1251-IN 1976 India Andhra Pradesh Irrigation 145.0 - 77.09 1260-IN 1976 India IDBI II 40.0 - 10.94 1273-IN 1976 India National Seeds I 25.0 - 21.86 1313-IN 1976 India Telecommunications VI 80.0 - 18.25 1335-IN 1976 India Bombay Urban Transport 25.0 - 7.72 680-IN 1977 India Kerala Agric. Development - 30.0 22.98 682-IN 1977 India Orissa Agric. Development - 20.0 7.93 685-IN 1977 India Singrauli Thermal Power - 150.0 37.72 687-IN 1977 India Madras Urban Development - 24.0 4.57 690-IN 1977 India WB Agric. Extension & Research - 12.0 12.00 1394-IN 1977 India Gujarat Fisheries 14.0 - 7.75 712-IN 1977 India Madhya Pradesh Agric. Development - 10.0 5.35 720-IN 1977 India Periyar Vaigai Irrigation - 23.0 13.68 728-IN 1977 India Assam Agricultural Development - 8.0 5.64 736-IN 1977 India Maharashtra Irrigation - 70.0 30.33 737-IN 1977 India Rajasthan Agric. Extension - 13.0 7.29 740-IN 1977 India Orissa Irrigation - 58.0 29.65 1475-IN 1977 ICICI Industry DFC XII 80.0 - 10.36  ANNEX II Page 2 of 18 US$ million Loan or (Net of Cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed 747-IN 1978 India Second Foodgrain Storage - 107.0 79.00 756-IN 1978 India Calcutta Urban Development II - 87.0 19.11 761-IN 1978 India Bihar Agric. Extension & Research - 8.0 7.11 1511-IN 1978 India IDBI Joint/Public Sector 25.0 - 17.49 1549-IN 1978 TEC Third Trombay Thermal Power 105.0 - 62.96 788-IN 1978 India Karnataka Irrigation - 117.6 77.28 793-IN 1978 India Korba Thermal Power - 200.0 128.89 806-IN 1978 India Jammu-Kashmir Horticulture - 14.0 13.75 808-IN 1978 India Gujarat Irrigation - 85.0 63.60 815-IN 1978 India Andhra Pradesh Fisheries - 17.5 14.52 816-IN 1978 India National Seeds II - 16.0 15.21 1592-IN 1978 India Telecommunications VII 120.0 - 53.14 824-IN 1978 India National Dairy - 150.0 130.60 842-IN 1979 India Bombay Water Supply II - 196.0 183.12 843-IN 1979 India Haryana Irrigation - 111.0 43.66 844-IN 1979 India Railway Modernization & Maintenance - 190.0 148.97 848-IN 1979 India Punjab Water Supply & Sewerage - 38.0 21.46 855-IN 1979 India National Agricultural Research - 27.0 25.41 862-IN 1979 India Composite Agricultural Extension - 25.0 16.54 871-IN 1979 India NCDC - 30.0 15.55 1648-IN 1979 India Ramagundam Thermal Power 50.0 - 50.00 874-IN 1979 India Ramagundam Thermal Power - 200.0 171.17 889-IN 1979 India Punjab Irrigation - 129.0 100.81 899-IN 1979 India Maharashtra Water Supply - 48.0 44.85 911-IN 1979 India Rural Electrification Corp. II - 175.0 108.09 925-IN 1979 India Uttar Pradesh Social Forestry - 23.0 18.47 947-IN 1979 India ARDC III - 250.0 64.73 963-IN 1979 India Inland Fisheries - 20.0 19.64 954-IN 1979 India Maharashtra Irrigation II - 210.0 174.13 961-IN 1979 India Gujarat Community Forestry - 37.0 30.31 981-IN 1980 India Population II - 46.0 45.44 1003-IN 1980 India Tamil Nadu Nutrition - 32.0 30.87 1004-IN 1980 India U.P. Tubewells - 18.0 16.95 1011-IN 1980 India Gujarat Irrigation II - 175.0 165.00 1027-IN 1980 India Singrauli Thermal II - 300.0 279.15 1012-IN 1980 India Cashewnut - 22.0 21.75 1028-IN 1980 India Kerala Agricultural Extension - 10.0 10.00 1033-IN 1980 India Calcutta Urban Transport - 56.0 56.00 1034-IN 1980 India Karnataka Sericulture - 54.0 52.85 1046-IN 1980 India Rajasthan Water Supply  ANNEX II Page 3 of 18 US$ million Loan or (Net of Cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed and Sewerage - 80.0 77.22 1843-IN 1980 ICICI Industry DFC XIII 100.0 - 77.97 1887-IN 1980 India Farakka Thermal Power 25.0 - 25.00 1053-IN 1980 India Farakka Thermal Power - 225.0 201.16 1897-IN 1980 India Kandi Watershed and Area Development 30.0 - 29.01 1072-IN 1980 India Bihar Rural Roads - 30.7 30.30 1078-IN 1980 India Mahanadi Barrages - 72.8 72.80 1925-IN 1980 India Bombay High Offshore Development 400.0 - 393.42 1082-IN 1981 India Madras Urban Dev. II - 37.5 37.50 1108-IN 1981 India M.P. Medium Irrigation - 129.6 129.60 1112-IN 1981 India Telecommunications VIII - 290.4 268.70 1116-IN 1981 India Karnataka Tank Irrigation - 50.1 50.10 1135-IN* 1981 India Maharashtra Agr. Extension - 21.7 21.70 1137-IN* 1981 India Tamil Nadu Agr. Extension - 26.3 26.30 1138-IN* 1981 India Madhya Pradesh Agr. Extension II - 34.9 34.90 1146-IN* 1981 India NCDC II - 117.1 117.10 Total 2,832.8 9,322.7 of which has been repaid 1,090.2 77.7 Total now outstanding T1,/74. 9,245.0 Amount Sold 133.8 of which has been repaid 133.3 0.5 - Total now held by Bank and IDA 1/ 1,742.1 9,245.0 Total undisbursed (excluding*) 874.3 3,620.0 1/ Prior to exchange adjustment. * Not yet effective.  ANNEX II t'age '4 of 18 B. STATEMENT OF IFC INVESTMENTS (As of June 30, 1981) Amount (US$ million) Year Company Loan Equity Total 1959 Republic Forge Company Ltd. 1.5 - 1.5 1959 Kirloskar Oil Engines Ltd. 0.9 - 0.9 1960 Assam Sillimanite Ltd. 1.4 - 1.4 1961 K.S.B. Pumps Ltd. 0.2 - 0.2 1963-66 Precision Bearings India Ltd. 0.6 0.4 1.0 1964 Fort Gloster Industries Ltd. 0.8 0.4 1.2 1964-75-79 Mahindra Ugine Steel Co. Ltd. 11.8 1.3 13.1 1964 Lakshmi Machine Works Ltd. 1.0 0.3 1.3 1967 Jayshree Chemicals Ltd. 1.1 0.1 1.2 1967 Indian Explosives Ltd. 8.6 2.9 11.5 1969-70 Zuari Agro-Chemicals Ltd. 15.1 3.8 18.9 1976 Escorts Limited 6.6 - 6.6 1978 Housing Development Finance Corporation 4.0 1.2 5.2 1980 Deepak Fertilizer and Petrochemicals Corporation Ltd. 7.5 1.0 8.6 1981 Coromandel Fertilizers Limited 15.9 15.9 1981 Tata Iron and Steel Company Ltd. 38.0 - 38.0 1981 Mahindra, Mahindra Limited 15.0 - 15.0 1981 Nagarjuna Coated Tubes Ltd. 2.9 0.3 3.2 1981 Nagarjuna Signode Limited 2.3 - 2.3 1981 Nagarjuna Steels Limited 1.5 0.3 1.8 TOTAL GROSS COMMITMENTS 136.7 12.0 148.7 Less: Sold 26.0 1.7 27.7 Repaid 22.2 - 22.2 Cancelled 6.2 1.3 7.5 Now Held 82.3 9.0 91.3 Undisbursed 79.3 1.5 80.8  ANNEX II Page 5 of 18 C. PROJECTS IN EXECUTION 1/ Generally, the implementation of projects has been proceeding reasonably well. Details on the execution of individual projects are below. The level of disbursements was US$962 million in FY81, compared to US$729 million in the previous year, representing an increase of about 32%. The undisbursed pipeline of US$4,494 million as of June 30, 1981, reflects the lead time which would be expected given the mix of fast- and slow-disbursing projects in the India program. Ln. No. 1097 Eleventh Industrial Credit and Investment Corporation of India Project; US$100.0 million loan of April 2, 1975; Effective Date: July 1, 1975; Closing Date: June 30, 1981 Ln. No. 1475 Twelfth Industrial Credit and Investment Corporation of India Project; US$80.0 million loan of July 22, 1977; Effective Date: October 4, 1977; Closing Date: March 31, 1983 Ln. No. 1843 Thirteenth Industrial Credit and Investment Corporation of India Project; US$100.0 million loan of May 16, 1980; Effective Date: June 27, 1980; Closing Date: December 31, 1985 These loans are supporting industrial development in India through a well-established development finance company and are designed to finance the foreign exchange cost of industrial projects. ICICI continues to be a well-managed and efficient development bank financing medium- and large-scale industries, which often employ high technology and are export-oriented. Disbursements under both loans 1475 and 1843 are ahead of schedule. Loan No. 1260 Second Industrial Development Bank of India Project; US$40.0 million loan of June 10, 1976; Effective Date: August 10, 1976; Closing Date: March 31, 1983 Loan No. 1511 IDBI Joint/Public Sector Project; US$25.0 million loan of March 1, 1978; Effective Date: May 31, 1978; Closing Date: March 31, 1983 Loan 1260 is designed to assist the Industrial Development Bank of India in promoting small- and medium-scale industries and in strengthening the State Financial Corporations involved. Loan 1511 is designed to encourage the pooling of private and public capital in medium-scale joint ventures. The project also assists IDBI in carrying out industrial sector 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 6 of 18 investment studies and in strengthening the financial institutions dealing with the state joint/public sector. Cr. No. 947 Third Agricultural Refinance and Development Corporation (ARDC) Project; US$250.0 million credit of August 20, 1979; Effective Date: January 2, 1980; Closing Date: June 30, 1982 Refinancing of lending to farmers has been progressing very well. Cr. No. 747 Second Foodgrain Storage Project; US$107.0 million credit of January 6, 1978; Effective Date: May 17, 1978; Closing Date: June 30, 1982 Satisfactory progress is being made in the construction of bag storage warehouses, despite problems of land acquisition at some sites. However, construction of flat bulk warehouses and port silos is not expected to be completed until 1984, as a result of delays in the employment of con- sultants and the longer time required for the preparation of technical specifications and tenders and the construction itself. In view of the high increases in bulk storage construction costs, the Government is proposing to reduce the bulk storage component of the project in favor of additional bag storage capacity; this proposal is currently under consideration by the Association. Cr. No. 456 Himachal Pradesh Apple Processing and Marketing Project; US$13.0 million credit of January 22, 1974; Effective Date: September 26, 1974; Closing Date: December 31, 1981 The project encountered prolonged initial delays due to managerial and technical problems. These problems have been largely resolved, but construction progress remains slow due to material shortages and severe winter conditions. Initial packing house operations were undertaken in the last two seasons with favorable response from farmers. The project is scheduled for completion by December 1981. Cr. No. 806 Jammu-Kashmir Horticulture Project; US$14.0 million credit of July 17, 1978; Effective Date: January 16, 1979; Closing Date: June 30, 1984 The principal executing agency, J&K Horticulture Produce Marketing and Processing Corporation, is under strong management and rapid progress has been made in start-up operations with only minor slippage. The project's research activities, however, are behind the original schedule due to poor organization. Ln. No. 1313 Telecommunications VI Project; US$80.0 million loan of July 22, 1976; Effective Date: September 14, 1976 Closing Date: March 31, 1982 Ln. No. 1592 Telecommunications VII Project; US$120.0 million loan of June 19, 1978; Effective Date: October 30, 1978; Closing Date: March 31, 1982  ANNEX II Page 7 of 18 Cr. No. 1112 Telecommunications VIII Project; US$314 million credit of March 26, 1981; Effective Date: June 24, 1981; Closing Date: December 31, 1984 Loans 1313 and 1592 are progressing satisfactorily, although as of June 1981, when they were last reviewed, imports of electronic switching equipment for the projects were behind schedule, resulting in a reduced growth rate for the installation of direct exchange lines. Institutional improvements envisaged under the projects have been achieved, and the finan- cial situation of the Posts and Telegraphs Department remains sound. Credit 1112, which became effective in June 1981, provides for the continued expansion, over a three-year period, of the Indian telecommunications net- work, particularly in rural areas. It also provides for the modernization and upgrading of three existing telecommunications equipment factories, and the establishment of three additional ones. Initial implementation and procurement actions are proceeding on schedule. Cr. No. 598 Fertilizer Industry Project; US$105.0 million credit of Decem- ber 31, 1975; Effective Date: March 1, 1976; Closing Date: June 30, 1982 Credit 598 is designed to increase the utilization of existing fer- tilizer production capacity. The project has encountered delays in sub-project preparation and investment approvals by the Government. Further, some of the sub-projects identified earlier have not materialized because of reconsideration by the Central and State governments. IDA has agreed to a list of sub-projects to replace the ones that have been dropped. Because of the above, the project completion date has been delayed. Cr. No. 342 Agricultural Universities Project; US$12.0 million credit of November 10, 1972; Effective Date: June 8, 1973; Closing Date: December 31, 1981 The project involves the development of the agricultural universities in Assam and Bihar. The primary aim of the AUs project is to improve the quality and practical training of undergraduates and so the spectrum of their employment opportunities; and to strengthen university structure to enable it to give an impetus to agricultural and rural development. Considerable progress has been made in achieving the latter objective; but achieving educational objectives is more slowly attainable, constrained by traditional attitudes and structures where consistent effective leadership falters. Changes to a more functional orientation are now planned. The Project Direc- tor and others responsible are aware of the constraints and are supporting efforts to remove them. Cr. No. 842 Second Bombay Water Supply and Sewerage Project; US$196.0 million credit of November 13, 1978; Effective Date: June 12, 1979; Closing Date: March 31, 1985 Cr. No. 848 Punjab Water Supply and Sewerage Project; US$38.0 million credit of October 27, 1978; Effective Date: January 25, 1979; Closing Date: March 31, 1983  ANNEX II Page 8 of 18 Cr. No. 899 Maharashtra Water Supply and Sewerage Project; US$48.0 million credit of June 21, 1979; Effective Date: November 9, 1979; Closing Date: June 30, 1984 Cr. No. 1046 Rajasthan Water Supply and Sewerage Project; US$80 million credit of June 25, 1980; Effective Date: August 5, 1980; Closing Date: September 31, 1985 Implementation of Credit 842, a second stage of the recently com- pleted first Bombay Water Supply and Sewerage Project (Credit 390), is proceeding to schedule. Preliminary work in connection with implementation of Credit 848 has been completed but subsequent procurement delays and slow release of construction funds are likely to delay the project by about 12 months and result in cost increases. Physical progress under Credit 899 is satisfactory. Initial delays in implemention of institutional arrangements and tariff measures proposed for the project are now being overcome. Project progress in this area is being closely monitored. Implementation of Credit 1046 is proceeding satisfactorily. Detailed construction programs have been prepared for rural schemes, and preparation of tender documents for urban schemes have been completed. Cr. No. 585 Uttar Pradesh Water Supply and Sewerage Project; US$40.0 million credit of September 25, 1975; Effective Date: February 6, 1976; Closing Date: December 31, 1982 The Project has had a slow start due to delays in the preparation of technical reports for regional and local water authorities and in the engage- ment of consultants. While improvements have been made in the physical execution, other aspects of project implementation continue to lag so that disbursements under the Credit have fallen short of estimates at the time of appraisal. In order to improve the situation, arrangements have been made to closely supervise and coordinate implementation. Cr. No. 756 Second Calcutta Urban Development Project; US$87.0 million credit of January 6, 1978; Effective Date: April 7, 1978; Closing Date: March 31, 1983 The project is proceeding quite well in most sectors, in spite of country-wide materials shortages and serious Statewide electric power shortages. Procurement is generally on schedule for equipment and consult- ants' services, though somewhat behind for larger civil works contracts. Staff shortages in some of the implementing agencies continue, although more extensive use of consultants has to a great degree alleviated this problem. Cr. No. 687 Madras Urban Development Project; US$24.0 million credit of April T1, 1977; Effective Date: June 30, 1977; Closing Date: September 30, 1981 With respect to the first Madras project, physical progress is generally satisfactory and costs are within appraisal estimates on most components. However, land acquisition problems and consequent delays in construction on one of the three sites and service areas will result in about 15 months delay in the completion of the final sections of these areas.  ANNEX II Page 9 of 18 Increased attention should be turned to the financial analysis and marketing strategies required to ensure that anticipated cost recovery in the sites and services and slum upgrading components and thus replicability is actually achieved. Technical assistance is being sought to strengthen financial management and analysis. Cr. No. 1082 Second Madras Urban Development Project; US$42.0 credit of January 14, 1981; Effectiveness Date: March 2, 1981; Closing Date: March 31, 1986. With respect to the second project, only recently signed and declared effective, early project implementation is proceeding satisfac- torily, with evidence that the lessons learned under the first project are being heeded. Cr. No. 482 Karnataka Dairy Development Project; US$30.0 million credit of June 19, 1974; Effective Date: December 23, 1974; Closing Date: September 30, 1982 Cr. No. 521 Rajasthan Dairy Development Project; US$27.7 million credit of December 18, 1974; Effective Date: August 8, 1975; Closing Date: December 31, 1982 Cr. No. 522 Madhya Pradesh Dairy Development Project; US$16.4 million credit of December 18, 1974; Effective Date: July 23, 1975; Closing Date: June 30, 1982 Cr. No. 824 National Dairy Project; US$150.0 million credit of June 19, 1978; Effective Date: December 20, 1978; Closing Date: December 31, 1985 These four credits, totalling US$224.1 million, support dairy development projects organized along the lines of the successful AMUL dairy cooperative scheme in Gujarat State. More than 2,100 dairy cooperative societies (DCS) have been established under the three state projects (Kar- nataka-923, Rajasthan-926, Madhya Pradesh-272). Farmer response has been excellent and project authorities are under considerable producer pressure to speed up the establishment of DCS. Profitability in almost all of the DCS is good and construction of dairy and feed plants is now proceeding at a satisfactory pace. Limited milk processing capacity has been the major constraint to DCS formation in all three projects. Under the National Dairy Project, three subprojects with an estimated total cost of approximately Rs 1,000 million have been appraised by the Indian Dairy Corporation and a further eight subprojects are in various stages of preparation and appraisal. Advance procurement of dairy equipment is well underway though disbursements have been slow, mainly as a result in the start of project operations. Ln. No. 1011 Chambal (Rajasthan) Command Area Development Project; US$52.0 million loan of June 19, 1974; Effective Date: December 12, 1974; Closing Date: June 30, 1982  ANNEX II Page 10 of 18 Cr. No. 502 Rajasthan Canal Command Area Development Project; US$83.0 million credit of July 31, 1974; Effective Date: December 12, 1974; Closing Date: June 30, 1981 Ln. No. 1251 Andhra Pradesh Irrigation and Command Area Development (TW) Composite Project; US$145.0 million loan (Third Window) of June 10, 1976; Effective Date: September 7, 1976; Closing Date: December 31, 1982 Cr. No. 720 Periyar Vaigai Irrigation Project; US$23.0 million credit of June 30, 1977; Effective Date: September 30, 1977; Closing Date: March 31, 1983 Cr. No. 736 Maharashtra Irrigation Project; US$70.0 million credit of October 11, 1977; Effective Date: January 13, 1978; Closing Date: March 31, 1983 Cr. No. 740 Orissa Irrigation Project; US$58.0 million of October 11, 1977; Effective Date: January 16, 1978; Closing date: October 31, 1983 Cr. No. 788 Karnataka Irrigation Project; US$126.0 million credit of May 12, 1978; Effective Date: August 10, 1978; Closing Date: March 31, 1984 Cr. No. 808 Gujarat Irrigation Project; US$85.0 million credit of July 17, 1978; Effective Date: October 31, 1978; Closing Date: June 30, 1984 Cr. No. 843 Haryana Irrigation Project; US$111.0 million credit of August 16, 1978; Effective Date: December 14, 1978; Closing Date: August 31, 1983 Cr. No. 889 Punjab Irrigation Project; US$120.0 million credit of March 30, 1979; Effective Date: June 20, 1979; Closing Date: June 30, 1985 Cr. No. 954 Second Maharashtra Irrigation Project; US$210 million credit of April 14, 1980; Effective Date: June 6, 1980; Closing Date: December 31, 1985 Cr. No. 1011 Second Gujarat Irrigation Project; US$175 million credit of May 12, 1980; Effective Date: June 27, 1980; Closing Date: April 30, 1986 Cr. No. 1078 Mahanadi Barrages Project; US$83 million credit of December 5, 1980; Effective Date: February 11, 1981; Closing Date: March 31, 1987 Cr. No. 1108 Madhya Pradesh Medium Irrigation Project; US$140 million credit of March 26, 1981; Effective Date: May 13, 1981; Closing Date: March 31, 1987 These projects, based on existing large irrigation systems, are designed to improve the efficiency of water utilization and, where possible,  ANNEX II Page 11 of 18 to use water savings for bringing additional areas under irrigation. Canal lining and other irrigation infrastructure, drainage, and land shaping are prominent components of these projects. In addition, provisions have been made to increase agricultural production and marketing by reforming and upgrading agricultural extension services and by providing processing and storage facilities and village access roads. Progress of these projects is generally satisfactory. Cr. No. 682 Orissa Agricultural Development Project; US$20.0 million credit of April 1, 1977; Effective Date: June 28, 1977; Closing Date: December 31, 1983 Cr. No. 690 West Bengal Agricultural Extension and Research Project; US$12.0 million credit of June 1, 1977; Effective Date: August 30, 1977; Closing Date: September 30, 1982 Cr. No. 712 Madhya Pradesh Agricultural Extension and Research Project; US$10.0 million credit of June 1, 1977; Effective Date: September 2, 1977; Closing Date: September 30, 1983 Cr. No. 728 Assam Agricultural Development Project; US$8.0 million credit of June 30, 1977; Effective Date: September 30, 1977; Closing Date: March 31, 1983 Cr. No. 737 Rajasthan Agricultural Extension and Research Project; US$13.0 million credit of November 14, 1977; Effective Date: February 6, 1978; Closing Date: June 30, 1983 Cr. No. 761 Bihar Agricultural Extension and Research Project; US$8.0 million credit of January 6, 1978; Effective Date: May 2, 1978; Closing Date: October 31, 1983 Cr. No. 862 Composite Agricultural Extension Project, US$25.0 million credit of February 16, 1979; Effective Date: December 14, 1979; Closing Date: December 31, 1984 Cr. No. 1028 Kerala Agricultural Extension Project; US$10 million credit of June 25, 1980; Effective Date: August 18, 1980; Closing Date: June 30, 1986 Cr. No. 1137 Tamil Nadu Agricultural Extension Project; US$28 million credit of May 7, 1981; Effective Date: July 22, 1981; Closing Date: June 30, 1987 Cr. No. 1135 Maharashtra Agricultural Extension Project; US$23 million credit of May 7, 1981; Effective Date: July 22, 1981; Closing Date: June 30, 1987  ANNEX II Page 12 of 18 Cr. No. 1138 Madhya Pradesh Agricultural Extension Project; US$23 million credit of May 7, 1981; Effective Date: July 22, 1981; Closing Date: June 30, 1987 These eleven credits finance the reorganization and strengthening of agricultural extension services and the development of adaptive research capabilities in twelve States in India. In areas where the reformed exten- sion system is in full operation, field results have been very good, both in terms of adoption of new agricultural techniques and of increased crop yields. In Rajasthan, Assam, Madhya Pradesh and Orissa, in particular, significant gains have been made under the projects. In West Bengal, where a change in government brought a review of the organizational principles under- lying the new extension system and an accompanying hiatus in project implementation, a Cabinet decision has reaffirmed the State Government's commitment to the project, revised implementation plans have been prepared, and project activities are resuming. In Bihar, staff shortages, particularly in supervisory and managerial posts, have hampered project implementation, although progress in areas where regular extension visits are being made attests to the efficacy of the system itself. In Gujarat, Haryana and Kar- nataka, all covered under the Composite Agricultural Extension Project, important early administrative and financial steps have been taken to pave the way for effective operation of the reorganized extension system and field work is off to a good start. In Kerala, project implementation has begun in three of eleven districts after some initial start-up delays. Early progress on civil works and initiation of the program in the remaining eight districts will be required to regain the initial implementation schedule. In Tamil Nadu and Maharashtra, project implementation has just begun, as these credits became effective only recently. Early project review missions are scheduled to assist in project initiation. Cr. No. 855 National Agriculture Research Project; US$27.0 million credit of December 7, 1978; Effective Date: January 22, 1979; Closing Date: September 30, 1983 While the initial sanctioning of research subprojects under this project was somewhat slower than expected, due to staff shortages in the Project Unit, the pace has picked up considerably in recent months. Commit- ment of funds to research subprojects is proceeding satisfactorily, although corresponding disbursements may lag somewhat behind the original estimates. Additions to the staff of the Project Unit have been made to expedite further progress under the project. Cr. No. 526 Drought Prone Areas Project; US$35.0 million credit of January 24, 1975; Effective Date: June 9, 1975; Closing Date: June 30, 1981 Overall progress of this project continues to be satisfactory. Implementation of most components is proceeding well. Dairying and dryland farming components show particular promise for the drought-prone areas.  ANNEX II Page 13 of 18 Cr. No. 680 Kerala Agricultural Development Project; US$30.0 million credit of April 1, 1977; Effective Date: June 29, 1977; Closing Date: March 31, 1985 Project implementation started slowly due to initial staffing and funding delays. The project has now gained momentum and the planting opera- tions, which were one season behind original schedule, have been rephased to make up for lost time. i Cr. No. 871 National Cooperative Development Corporation (NCDC) Project; US$30.0 million credit of February 2, 1979; Effective Date: May 3, 1979; Closing date: December 31, 1984 Cr. No. 1146 Second National Cooperative Development Corporation (NCDC) Project; US$125 million credit of July 21, 1981; Effective Date (expected): October 21, 1981; Closing Date: June 30, 1987 As of October 1980, when Credit 871 was last reviewed, and according to quarterly reports through March 1981, construction of godowns was progressing well in the States of Haryana and Uttar Pradesh, although some delays had occurred in the State of Orissa. Consultants had been recruited to assist NCDC and State Cooperative Banks in strengthening their institu- tions, although some consultants were yet to be recruited in Haryana. Dis- bursements have been progressing well and are ahead of the appraisal targets. Credit 1146, which was signed in July 1981, provides credit for the construc- tion of cooperative godowns and cold-storage and marketing facilities to support the pre- and post-harvest supply and markting requirements in nine States; promote the development of cooperative institutions in these States; and expand cooperative subproject preparation and appraisal activities within the cooperative sector. Preparatory implementation work is well advanced in most of the participating States. Cr. No. 844 Railway Modernization and Maintenance Project; US$190.0 million credit of November 13, 1978; Effective Date: January 10, 1979; Closing Date: December 31, 1984 Credit 844 was designed to help the Indian Railways reduce manufac- turing and maintenance costs of locomotives and rolling stock and to improve their performance and availability. Project implementation is satisfactory. Cr. No. 609 Madhya Pradesh Forestry Technical Assistance Project; US$4.0 million credit of February 26, 1976; Effective Date: May 17, 1976; Closing Date: December 31, 1981 A feasibility study financed under this Credit and completed in November 1979 has recommended the establishment of two mills, one for sawnwood and one for pulp, as the basis of the development of a forest-based industry in Bastar district. Cr. No. 925 Uttar Pradesh Social Forestry Project; US$23.0 million credit of June 21, 1979; Effective Date: January 3, 1980; Closing Date: December 31, 1984  ANNEX II Page 14 of 18 Cr. No. 961 Gujarat Community Forestry Project; US$37 million credit of April 14, 1980; Effective Date: June 24, 1980; Closing Date: December 31, 1985 These projects, designed to expand the social forestry program in Uttar Pradesh and Gujarat, to provide a source of energy to the villages, and to supply raw materials to cottage industries, are proceeding well. The projects provide for large-scale tree plantations on public lands, primarily along roads, rails and canals, on village common lands and on degraded forest reserves. Cr. No. 610 Integrated Cotton Development Project; US$18.0 million credit of February 26, 1976; Effective Date: November 30, 1976; Closing Date: December 31, 1981 The project's progress remained very disappointing in all areas until the 1978 season, resulting in negligible disbursements. Due to renewed interests from GOI and the States, the project has now started to progress well. Short-term credits are increasing significantly, new processing units are being established in Haryana and Maharashtra, and plant protection activities have started progressing well. Ln. No. 1273 National Seed Project; US$25.0 million loan of June 10, 1976; Effective Date: October 8, 1976; Closing Date: June 30, 1981 Cr. No. 816 Second National Seed Project; US$16.0 million credit of July 17, 1978; Effective Date: December 20, 1978; Closing_Date: Closing Date: December 31, 1984 These projects were designed to increase the availability of high quality agricultural seed, and cover nine States (four by Ln. 1273-IN and five by Cr. 816-IN). The first project started slowly due to organizational difficulties and is almost two years behind schedule. Progress in the second project States is more satisfactory. The role of various organizations (National and State) in the production and processing of seed is being reviewed. Ln. No. 1335 Bombay Urban Transport Project; US$25.0 million loan of December 20, 1976; Effective Date: March 10, 1977; Closing Date: June 30, 1983 Cr. No. 1033 Calcutta Urban Transport Project; US$56 million credit of October 27, 1980; Effective Date: December 18, 1980; Closing Date: December 31, 1984 The bus procurement program supported by the Bombay project (Ln. 1335) has proceeded on schedule, with all 700 bus chassis and bodies having been ordered and 672 already in service. Total fleet strength has increased from 1,530 buses at the inception of the project to 1,935 buses in September 1980, in accordance with appraisal estimates. Depot capacity expansion has lagged somewhat behind fleet expansion, but caught up in Novem- ber 1980. However, delays in construction of new workshop facilities have been more substantial and will not be fully recoverable. As a result, the  ANNEX II Page 5of 18 loan closing date has been extended by three years. Traffic management civil works are also somewhat behind schedule, although now proceeding satisfac- torily. Implementation of works under Cr. 1033 is proceeding satisfactorily, a good start having been made on the important early procurement steps. However, fnancial and managerial performance is lagging somewhat behing expectations and must now receive project authorities' full attention if physical and financial performance targets are to be achieved. Cr. No. 1072 Bihar Rural Roads Project; US$35.0 million credit of December 5, 1980; Effective Date: January 15, 1981; Closing Date: June 30, 1986. Bids have been invited for the first year program of rural road construction to allow work to start following the monsoon. The whole project aims to construct or rehabilitate 700 km of rural roads and to improve main- tenance of the rural road network in Bihar as part of the State's overall rural development efforts. Equipment has been ordered and is starting to arrive. Ln. No. 1394 Gujarat Fisheries Project; US$14.0 million loan and US$4.0 (TW) and million credit of April 22, 1977; Effective date: July 19, 1977; Cr. No. 695 Closing Date: June 30, 1983 Cr. No. 815 Andhra Pradesh Fisheries Project; US$17.5 million credit of June 19, 1978; Effective Date: October 31, 1978; Closing Date: September 30, 1984 As of October 1980 when the first of these projects was last reviewed, the harbor construction works at Mangrol and Veraval in Gujarat had encountered delays, although the problem with shortages of cement supplies had been overcome. In Andhra Pradesh, the harbor works at Visakhapatnam, Kakinada and Nizampatnam are progressing satisfactorily following the resolu- tion of design problems. The road component is also progressing satisfac- torily. Cr. No. 963 Inland Fisheries Project; US$20 million credit of January 18, 1980; Effective Date: May 5, 1980; Closing Date: September JO, 1985 This project, which is the first of its kind in India, is designed to increase carp production in five states--West Bengal, Bihar, Orissa, Madhya Pradesh, and Uttar Pradesh--through the construction of hatcheries, improvements to fish ponds, strengthening of extension services, and the establishment of training centers. The project became effective in May 1980. The initial implementation tasks, primarily involving the establishment of State Fish Seed Development Corporations and Central and State project monitoring units, are progressing satisfactorily. However, hatchery planning has been delayed as a result of a delay in the establishment of the engineer- ing cell within the Central Project Unit. Cr. No. 685 Singrauli Thermal Power Project; US$150.0 million credit of April 1, 1977; Effective Date: June 28, 1977; Closing Date: December 31, 1983  ANNEX II Page 16 of 18 Cr. No. 793 Korba Thermal Power Project; US$200.0 million credit of May 12, 19/8; EfFective Date: August 14, 1978; Closing Date: March 31, 1985 Ln. No. 1549 Third Trombay Thermal Power Project; US$105.0 million loan of June 19, 1978; Effective Date: February 8, 1979; Closing Date: March 31, 1984 Ln. No. 1648 Ramagundam Thermal Power Project; US$50.0 million loan and and Cr. 874 US$200 million credit of February 2, 1979; Effective Date: May 22, 1979; Closing Date: December 31, 1985 Cr. No. 604 Power Transmission IV Project; US$150 million credit of January 22, 1976; Effective Date: October 22, 1976; Closing Date: December 31, 1982 Cr. No. 1027 Second Singrauli Thermal Power Project; US$300 million credit of June 5, 1980; Effective Date: July 30, 1980; Closing Date: March 31, 1988 Ln. No. 1887 Farakka Thermal Power Project; US$25 million loan and and US$225 million credit of July 11, 1980; Effective Date: Cr. No. 1053 December 10, 1980; Closing Date: March 31, 1987 Credits 685 and 1027 assist in financing the 2,000 MW Singrauli development, which is the first of four power stations in the Government's program for the development of large central thermal power stations feeding power into an interconnected grid. Credit 793 supports the construction of the first three 200 MW generating units at the second such station, at Korba, together with related facilities and associated transmission. Loan 1648/ Credit 874 support similar investments at Ramagundam, and Loan 1887/ Credit 1053, at Farakka. The National Thermal Power Corporation (NTPC) has been carrying out construction and operation of these power stations. Loan 1549 is supporting the construction of a 500 MW extension of the Tata Electric Companies' station at Trombay, in order to help meet the forecast load growth in the Bombay area. All these large-scale thermal power projects are progressing satisfactorily. For Singrauli and Korba, construction works are on or ahead of schedule, although some slippage has occurred in the implementation schedule for the Ramagundam project. Cr. No. 911 Rural Electrification Corporation II Project; US$175.0 million credit of June 21, 1979; Effective Date: October 17, 1979; Closing Date: March 31, 1984 The project is progressing satisfactorily. Ln. No. 1925 Second Bombay High Offshore Development Project; US$400.0 million loan of December 11, 1980; Effective Date: February 24, 1981 Closing Date: March 31, 1984 The project is progressing satisfactorily.  ANNEX II Page 17 of 18 Cr. No. 981 Second Population Project; US$46 million credit of April 14, 1980; Effective Date: June 26, 1980; Closing Date: December 31, 1985 The project has as its major objectives the lowering of infant and child mortality and morbidity, the improvement in the health status of mothers and children and the lowering of fertility. Implementation works have started in both project States--Andhra Pradesh and Uttar Pradesh. Cr. No. 1012 Cashewnut Project; US$22 million credit of June 10, 1980; Effective Date: September 3, 1980; Closing Date: September 30, 1985 Implementation has started on this project which is designed to expand cashewnut production in the States of Kerala, Karnataka, Andhra Pradesh and Orissa. Cr. No. 1003 Tamil Nadu Nutrition Project; US$32 million credit of May 12, 1980; Effective Date: August 5, 1980; Closing Date: March 31, 1987 First year's implementation in one test block is proceeding according to schedule. Cr. No. 1004 Uttar Pradesh Public Tubewells Project; US$18 million credit of May 12, 1980; Effective Date: June 27, 1980; Closing Date: March 31, 1983 Initial procurement delays having now been overcome, implementation is proceeding satisfactorily on this project. However, project completion will likely be delayed by approximately six months due to the initial delays. Ln. No. 1897 Kandi Watershed and Area Development Project; US$30.0 million loan of September 12, 1980; Effective Date: November 18, 1980; Closing Date: March 31, 1986. Contract for the construction of Dholbaha dam has been awarded. Progress in other components are satisfactory. Cr. No. 1034 Karnataka Sericulture Project; US$54 million credit of October 27, 1980; Effective Date: December 18, 1980 Closing Date: December 31, 1985 Overall progress in project implementation is satisfactory. Minor start up delays in staffing are being corrected.  ANNEX II Page 18 of 18 Cr. No. 1116 Karnataka Tank Irrigation Project; US$54 million credit of March 26,191; Effective Date: May 5, 1981; Closing Date: March 31, 1986 The project is designed to finance the construction, over a four-year period, of about 160 tank irrigation schemes throughout the State of Karnataka. Start-up activities have commenced.  ANNEX III INDIA FOURTEENTH LOAN TO ThE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA Section I: Timetable of Key Events (a) Time taken by the country to prepare the project This loan is the fourteenth in a series of lending operations to ICICI and, consequently, preparation for each loan is a continuing process. (b) The agency which has prepared the project ICICI. (c) Date of first presentation to the Bank and date of the first mission to consider the project April 1981. (d) 'Date of departure of appraisal mission April 1981. (e) Date of completion of negotiations August 1981. (f) Planned date of effectiveness November 1981. Section II: Special Bank Implementation Action None Section III: Special Conditions Every subproject involving Bank subloans of more than US$6 million would require prior Bank approval (paragraph 45).  ANNEX IV INDIA Page lof 5 FOURTEENTH LOAN TO THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA Financial Projections 1981-1985 1. Approvals. Total approvals are assumed to increase at an annual rate of 10%. Foreign currency approvals would form about 37% of the total. (Rs Million) 1980 1981 1982 1983 1984 1985 (Actual) Rupee Loans 1,534 1,750 1,880 2,065 2,260 2,490 Rupee Debentures 24 35 35 40 50 50 Guarantees 10 10 10 10 10 10 Total 1,568 1,795 1,925 2,115 2,320 2,550 Foreign Currency Loans 991 1,100 1,185 1,305 1,440 1,590 Total Loans 2,559 2,895 3.110 3,420 3,760 4,140 Equity Investments 90 105 120 130 140 160 2. Commitments. For 1981, commitments are based on company-wise approvals awaiting commitments. Commitments beyond 1981 are based on patterns observed in recent years. 1980 1981 1982 1983 1984 1985 (Actual) Rupee Loans .1,323 1,500 1,700 1,850 2,068 2,269 Rupee Debentures 28 30 30 30 40 45 Guarantees - 10 10 10 10 10 Total 1,351 1,540 1,740 1,890 2,118 2,324 Foreign Currency Loans 843 1,000 1,120 1,220 1,325 1,457 Total Loans 2,194 2,540 2,860 3,110 3,443 3,781 Equity Investments 59 100 125 100 115 120 3. Disbursements. Disbursements for 1981 are based on best estimates. For the remaining period, historical patterns are used.  ANNEX IV Page 2 of 5 1980 1981 1982 1983 1984 1985 Disbursements (Actual) Rupee Loans 1,130 1,440 1,696 1,773 1,935 2,028 Rupee Debentures 20 30 25 25 29 35 Total 1,150 1,470 1,721 1,798 1,964 2,063 Foreign Currency Loans 514 830 1,026 1,110 1,221 1,294 Total 1,664 2,300 2,747 2,980 3,185 3,357 Equity Investments 28 30 75 95 93 100  ANNEX IV Table 1 Page 3 of 5 I C I C I Projected Income Statements 1981-85 (Rs Million) 1980 1981 1982 1983 1984 1985 (Actual) Revenues - Short-term Investments 24 30 39 44 50 55 - Interest Income 514 709 913 1,147 1,380 1,613 - Commitment Fees 16 35 39 38 40 44 - Dividend 16 15 18 23 27 31 - Other Income 19 7 10 12 12 12 Total Revenues 589 796 1,017 1,264 1,509 1,755 Expenses - Interest on Borrowings 414 540 718 926 1,120 1,317 - Commitment Fee 6 9 13 10 11 12 Total Financial Expenses 420 549 731 936 1,131 1,329 - Administrative Expenses 40 45 54 64 77 93 - Depreciation 1 6 6 6 6 7 - Provisions for Losses 7 12 13 14 15 16 Total Expenses 467 612 804 1,020 1,229 1,445 Gross Income 122 184 212 244 280 310 Less: Income Tax 34 57 66 76 87 96 Net Income 88 127 147 169 193 214 Dividend 30 33 35 37 41 43 PAYOUT RATIO (%) 34 26 24 22 21 20  ANNEX IV Table 2 Page 4 of 5 I C I C I Projected Balance Sheets (1981-85) (Rs Million) December 31, 1980 1981 1982 1983 1984 1985 (Actual) Assets Cash and Short-term 323 492 585 663 727 812 Investments Receivables and Accrued 518 657 814 978 1,133 1,284 Interest _ Total Current Assets 841 1,149 1,399 1,641 1,860 2,096 Loans 5,797 7,458 9,405 11,311 13,039 14,919 Less: Provisions (43) (55) (68) (82) (97) (113) Loans (Net) 5,754 7,403 9,337 11,229 12,942 14,806 Equity Investments 359 409 509 634 734 834 Fixed Assets 22 24 25 25 26 27 Total Assets 6,976 8,984 11,271 13,530 15,562 17,763 Liabilities and Networth Current Liabilities 339 405 480 560 650 750 Long-term Borrowings 6,089 7,914 10,014 12,016 13,806 15,691 Total Liabilities 6,428 8,319 10,494 12,576 14,456 16,441 Paid-up Capital 247 270 270 315 315 360 Reserves and Retained 301 395 507 639 791 962 Earnings - Networth 548 665 777 954 1,106 1,322 Total Liabilities and 6,976 8,984 11,271 13,530 15,562 17,763 Networth  ANNEX IV Table 3 Page 5 of 5 I C I C I Projected Cash Flows (1981-85) (Rs Million) 1981 1982 1983 1984 1985 Cash and Securities (Beginning) 323 492 585 663 727 Sources Cash from Operations Net Income 127 147 169 193 214 Loss Reserves 12 13 14 15 16 Depreciation 6 6 6 6 7 145 165 189 214 237 Loan Collections 639 800 1,003 1,458 1,478 Long-term Borrowings 2,205 2,475 2,427 2,435 2,730 Paid-in Capital 23 0 45 0 45 Other Liabilities 66 75 80 90 100 Total Sources 3,077 3,515 3,743 4,197 4,589 Uses Loan Disbursements 2,300 2,747 2,908 3,185 3,357 Equity Investments 50 100 125 100 100 Accounts Receivables and Accrued 139 157 164 155 151 Interest Debt Repayments 380 375 425 645 845 Fixed Assets 7 7 7 7 7 Dividend 33 .35 37 41 43 Total Uses 2,909 3,422 3,666 4,133 4,504 Cash and Securities (Ending) 492 585 663 727 812 =