India - Upper Ganga Irrigation Modernization Project

Document of The World Bank FOR OFFICIAL USE ONLY Repoit No. P-3804-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT IN AN AMOUNT OF SDR 117.5 MILLION TO INDIA FOR THE UPPER GANGA IRRIGATION MODERNIZATION PROJECT May 3, 1984 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 authorzation.  CURRENCY EQUIVALENTS (As of May 1, 1984) US$1.00 = Rs 10.956746 Rs 1.00 = US$0.0912679 Rs 1 million = US$91,268 The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were, except as otherwise noted, made at the rate of US$1 to Rs 10.8. FISCAL YEAR April 1 - March 31 ABBREVIATIONS ERR - Economic Rate of Return GOI - Government of India GOUP - Government of Uttar Pradesh I&P - Investigation ancd Planning ICB - International Competitive Bidding ID - Irrigation Department LCB - Local Competitive Bidding M&E - Monitoring and Evaluation MGC - Madhya Ganga Canal O&M - Operation and Mai.ntenance PCU - Project Coordinating Unit SLDB - State Land Develcpment Bank UGC - Upper Ganga Canal UP - Uttar Pradesh UPSEB - Uttar Pradesh State Electricity Board VLW - Village Level Worker  --iii- FOR OFFICIAL USE ONLY INDIA UPPER GANGA IRRIGATION MODERNIZATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President (GOI). Beneficiary: Government of Uttar Pradesh (GOUP). Amount: IDA Credit: SDR117.5 million (US$125.0 million equivalent) Terms: IDA Credit: Standard On-lending Terms: From the Government of India to the Government of Uttar Pradesh as part of Central assistance for State development projects on terms and conditions applicable at the time. GOI would bear the foreign exchange risk. Project Description: The proposed project comprises a six-year time-slice of a program for rehabilitation and modernizationr of the Upper Ganga Canal (UGC) System. It would (a) replace the existing (dilapidated) main cana:L with a parallel lined canal together with modern regulating and access structures; (b) modernize 43,000 ha of the distribution system with lined channels down to and including watercourses; (c) construct augmentation tubewells on the lined distributaries; (d) undertake a reconnaissance drainage survey of the UGC command area and a detailed drainage study and pilot works program within the distributary blocks to be modernized; (e) initiate construction of a modern canal com- munication system; (f) construct one small hydro- electric station and initiate the civil works of another station; (g) set up a water and land manage- ment instiLtute; (h) strengthen the project organization, train staff and provide study tours and visits and technical assistance; and (i) provide vehicles, plant and equipment. The project wouLd alleviate risks to the existing irrigation area and increase agricultural production and the standa:rd of living of farmers in Uttar Pradesh. Risks under the proposed project include the possibility of a reduc- tion in water supplies to the UGC System. However, UGC has established user rights and GOUP would be required to maintain the present water allocation to the UGC system. There is also a risk of tampering with the system. It is expected, however, that the 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.  -iv- lining of the minor canal system would make it dif- ficult for offenders t.o tamper with the system. It may also be difficult to recruit adequate staff. This risk would be minimized by provision of techni- cal assistance and GOUE' would employ an Advisory Planning Group. Estimated Cost: j/ Irrigation Components (Us$ millions) Local Foreign Total Main Canal 75.6 12.1 87.7 Modernization of Distribution System 15.0 2.2 17.2 Watercourse Modernization 5.5 0.2 5.7 Augmentation Tubewells 0.7 0.1 0.8 Drainage Improvements _ 5.5 0.3 5.8 Subtotal 102.3 14.9 117.2 Other Components Communication System 0.9 0.3 1.2 Water Management Institute 4.1 0.2 4.3 Residential Buildings for Irrigation Dept. Staff 8.2 0.4 8.6 Hydel Stations 3.3 0.7 4.0 Technical Services =3.1 1.6 4.7 Subtotal. 19.6 3.2 22.8 Engineering and Administration 20.6 - 20.6 Base Costs 142.5 18.1 160.6 Physical Contingencies 12.7 1.7 14.4 Price Contingencies 49.8 6.5 56.3 Total Project Cost 205.0 26.3 231.3 Financing Plan: (US$ millions) Local Foreign Total GOI/GOUP 106.3 - 106.3 IDA 98.7 26.3 125.0 Total 205.0 26.3 231.3 1/ Includes taxes and duties which are insignificant.  -v Estimated Disbursements (US$ millions) FY85 FY86 FY87 FY88 FY89 FY90 FY9 L Annual 5.0 13.8 20.3 22.4 23.0 23.0 17.5 Cumulative 5.0 18.8 39.1 61.5 84.5 107.5 125.0 Rate of Return: About 20%. Appraisal Report: No. 4992-IN, dated April 27, 1984.  I  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT TO INDIA FOR THE UPPER GANGA IRRIGATION MODERNIZATION PROJECT 1. I submit the following report and recommendation on a proposed IDA Credit to India for SDR 117.5 million (US$125.0 million equivalent), on stand- ard IDA terms, to finance an irrigation project in order to maximize crop production and farmers' incomes through modernization and rehabilitation, of the Upper Ganga Canal System. The proceeds of the Credit would be channeled to the Government of Uttar Pradesh in accordance with the Government of India's stand- ard terms and arrangements for financing State development projects. The exchange risk would be borne by the Government of India. PART I - THE ECONOMY i/ 2. An economic report, "Situation and Prospects of the Indian Economy - A Medium Term Perspective" (4962-IN, dated April 16, 1984), was distributed to the Executive Directors on April 23, 1984. Country data sheets are attached as Annex I. Background 3. India is a large and diverse country with a population of about 750 mil- lion (in mid-1984) and an arnual per capita income of US$260. The economy is dominated by agriculture which employs more than two-thirds of the labor force. However, the land base is not sufficient to provide an adequate livelihood to everyone engaged in agricultural activities, especially those with little or no land. Growth of value-added in agriculture -- 2.2% since 1950/51 -- has been slower than growth of industrial value-added (5.0% per annum). As a result, there has been a gradual decline in the share of agriculture in GDP (at: factor cost) from 60% to just under 40%, while the share of industry rose froml 15% to around 25%. But industrialization has not been rapid enough to absorb the growing labor force, or to bring about a rapid economic transformation, with significantly higher productivity and income levels. As a result economic growth has been slow over the past three decades, averaging about 3.6% per annum since 1950/51. 4. Nevertheless, there has been steady progress with per capita income rising by about 1.4% per year in the period 1950 to 1980. Despite the large population base and its relatively rapid growth, India has been able to /j Parts I and II of the report are similar to Parts I and II of the President's Report for the Railway Electrification and Workshop Modernization Project (No. P-3793-IN), dated April 30, 1984.  -2- eliminate persistent dependence on foodgrain imports through significant improvements in agricultural production. Savings and investment: have increased markedly since 1950/51: gross national savings more than doubled from 10.8% of GDP (at factor cost) to 22.8% in 1982/83, while gross domestic investment rose from 12.5% of GDP to 24.9% in 1982/83. Foreign savings (balance of payments deficit on current account) have never financed a major portion of domestic investment: a peak of about 20% was reached during the early 1960s. Surpluses arose for a few years in the late 1970s, and at the present time, foreign savings are about 8% of investment. External assistance has been low both as a percentage of GDP and in per capita terms, never rising above 3% of GDP and averaging below 1% for the past five years. Net foreign savings have never risen above 3% of GDP, and presently stands at 2.1%. 5. Before the 1970s, India placed relativelv less emphasis on export ^-omotion and more on import substitution. The volume growth of exports ~tween 1950/51 and 1969/70 averaged only 2.2% per annum, while the volume growth of imports over the same period was 4.3%. In the early to mid-1970s, however, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated sharply. In response, the Gcvernment introduced various policy measures designed to stimulate exports. As a result, the volume of India's exports grew on average about 7.3% per annum for the 1970s as a whole, a performance which demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, con- tributed to this growth, liberalized access to imported inputs and more effec- tive export incentives played a major role. 6. Moving into the second half of the 1970s, the Indian economy was buoyed by higher levels of investment and an expanding level of foodgrain output. As a result, growth in real GDP and in agricultural and industrial value-added, substantially exceeded the historical 30-year trends (paragraph 3) averaging 4.9%, 3.9% and 5.6%, respectively. In 1979/80, however, this momentum was broken when the worst drought in recent years, combined with a doubling of international oil prices and domestic supply short:ages, led to a sharp fall in foodgrain production, a decline in GDP, and the opening up of a large trade deficit. Severe inflationary pressures also emerg;ed after several years of virtual price stability. These setbacks in 1979/80 coincided with the prepara- tion of the Sixth Five-Year Plan which laid down a program of adjustment that aimed at improving the trade deficit, removing infrastructural bottlenecks and ensuring price stability with an overall growth of the economy of 5.2%, 1.6 per- centage points above the trend growth of 3.6%. Recent Trends 7. In 1980/81 and 1981/82, the economy substantially recovered with real GDP growing by 7.9% and 5.2%, respectively. While industrial output expanded by 4% in 1980/81 and 8.6% in 1981/82, recovery was particularly robust in agriculture where normal weather helped output to rise by more than 15% and 5.5%, respectively. The availability of power, coal, and rail transport, already improved in 1980/81, was even better in 19,B1/82, recording growth rates of about 10%, 9.6% and 12.9%, respectively. The easing of constraints on the supply of infrastructure and basic commodities was a determining factor in the improved performance of the industrial sector. This overall improvement in the Indian economy, combined with a more restrictive monetary policy contributed to a sharp decline in the rate of inflation. Wholesa'Le prices rose by about 9% on  -3- an average annual basis in 1981/82 and by only 2.5% in 1982/83, reflecting a strong deceleration from a peak increase of 18% in 1980/81. 8. After two years of fairly solid performance, the Indian economy faced a difficult year in 1982/83 due to the drought in mid-1982 which brought down the GDP growth rate to around 2% and put further strains on the already dif- ficult balance of payments and domestic resource situation. Besides a sig- nificant decline in the range of 4.5%-6.5% in agricultural production, GDP growth was also constrained by a slowdown in industrial growth from 8.6% in 1981/82 to about 4% in 1982/83. This resulted from a combination of several factors, notably the decline in agriculture income, persistent (though lessened) power shortages, a textile strike in Bombay, as well as depressed export markets and increased competition from imports. The Government was able, however, to protect the level of savings to a large extent and keep the momentum of the investment program through largely successful public sector resource mobilization efforts. Foreign savings played a crucial role in sup- port of this effort. Similarly, the timely implementation of various economic policies mitigated the otherwise very distressing effects of a poor monsoon. Continued improvements of the infrastructure sectors, although at a slower pace than in the previous two years, also reduced the negative effects of the drought. 9. Agricultural production in 1982/83 received a serious setback from the drought. Foodgrain production, which had reached a record 133 million tons in 1981/82, declined to 124-127 million tons. Production of most other major crops also declined in 1982/83. Corrected for weather variations, this still represents a creditable performance. In 1979/80, with a broadly comparable monsoon, foodgrain production reached only 109 million tons. The Government was able to mitigate the effects of the 1982 drought through efficient maanage- ment of foodgrain procurement and distribution, careful timing of foodgrain imports, and appropriate allocation of power to irrigation pumps. These policies helped to avoid disruptions in basic food supplies and contributed to price stability during the year. While the management of the foodgrain economy after the drought was a significant achievement, the effect of the drought on production re-emphasized the continued importance of the monsoon in India's agriculture. The performance of the recent past and probable future trends suggest that on average foodgrain supplies will meet demand. The balance remains delicate, and the need for foodgrain imports to maintain con- sumer supplies or adequate buffer stocks could arise from time to time. Thus, programs to expand irrigation, strengthen extension and encourage the efficient use of other agricultural inputs continue to receive high priority. 10. Basic infrastructure services performed generally well in 1982/83, although growth of coal, power and rail transport failed to maintain the momen- tum of the marked recovery of 1981/82. Despite lower hydro generation due to the failure of the monsoon, overall power generation recorded an increase of about 7%. This was due largely to an increase in capacity utilization in thermal plants resulting from improved overall management, stabilization of most of the new large units and better availability of coal due to the combina- tion of increased coal production and improved railway performance. Nevertheless, power shortages remain the major bottleneck in the economy. Railway traffic grew by only 3.7% in 1982/83 reflecting a slowdown from 1981/82. The lower growth was due not to a decline in the operational efficiency of the railways but rather to slack demand from core sectors like steel, iron ore, coal washeries and fertilizers. Coal production growth (4% in  -4- 1982/83), after 10% growth in the two preceding years was creditable. There were no major shortages and there were improvements in the quality of coal. Recent easing of shortages and bottlenecks in infrastructure has come primarily from better utilization of existing capacity, but in the future most improve- ment must result from added capacity. It is therefore critically important that India maintain the pace of investment in tihese key sectors and mobilize sufficient resources to do so. 11. The Indian economy has reverted from a ssituation of resource surplus, which had been a temporary phenomenon of the lale 1970s, to one of resource scarcity. Investment has again grown quicker than national savings, and the scope for further increases in the latter appears limited. India's gross national savings rate, which averaged 22.4% of GDP in the last three years, is high by any standard, particularly considering India's low income and the large proportion of its population living below the poverty line. Future increases in savings will depend heavily upon the enhanced profitability of public sector enterprises which would require better utilization of capacity, more efficient operations and adequate pricing policies. In 1981/82 there was a significant increase in public savings due to improved profitability of various public sector enterprises. This trend which was maintained in 1982/83 needs to be accelerated. The gap between gross investment and national savings which rose from 0.4% of GDP in 1979/80 to 1.8%, 2.3% ELnd 2.1%, respectively in the first three years of the 1980s, has been financed by foreign savings. 12. India's ability to generate resources to meet its development objec- tives has become increasingly linked to the balance of payments. The current account balance which recorded surpluses between 1976/77 and 1978/79, sharply deteriorated to deficits of nearly US$2.9 billion in 1980/81 and US$3.8 billion in 1981/82 (1.8% and 2.3% of GDP, respectively). This was partly due to a sharp rise in the oil import bill as a result of both the disruption of oil production in northeast India in 1980 and significant oil price increases, and to a more liberal import policy aimed at providing producers with access to inputs for higher capacity utilization, greater ebfficiency, improved technology and capacity expansion. The current account deficit in 1982/83 declined to US$3.3 billion or 2.1% of GDP. The improvement would have been greater had not the drought resulted in the need to rebuild food stocks through imports and at the same time led to a lower level of GDP growth. This improvement in the balance of payments is to a significant degree the result of India's develop- ment and adjustment efforts over the past three years. It also reflects a reduction in the trade deficit as compared to the levels reached in 1980/81 and 1981/82. The trade deficit declined from US$7.6 billion in 1980/81 to US$6.0 billion in 1982/83 due to continued export volume growth (following the sub- stantial resumption in 1981/82) despite poor world market conditions, coupled with the containment in import growth due to import substitution of petroleum products, metals and fertilizers while allowing substantial growth in "other" imports through more liberal import policies. Nevertheless, it is expected that the balance of payments will be under strain for the next several years, for India's adjustment program will continue to require high levels of imports. 13. The high investment rate, about 25% of GDP', envisaged in the Sixth Plan coupled with the limited possibilities of raising domestic savings beyond the present high levels, necessarily implies a need for external resources. Faced with a reduction in the availability of bilateral and multilateral concessional assistance, India has begun to borrow significant amounts on commercial terms from the Euro-dollar market in addition to much greater utilization of  -5- suppliers' and export credits. India's favorable debt service profile has enabled India to tap commercial capital markets at favorable spreads (over relatively high underlying rates). In the period 1980-84 India contracted commercial loans totalling over US$6,000 million and suppliers' credits of over US$1,020 million. This borrowing has been used for specific development projects in the public and private sectors (mainly for petroleum exploration and development, steel, aluminum and shipping). India also reached an agree- ment with the International Monetary Fund for the use of the Extended FurLd Facility for SDR 5 billion, of which SDR 3.9 billion have already been drawn. The transfer of funds under this arrangement has stemmed the use of foreign exchange reserves which had fallen to less than four months of import coverage in 1981/82. In January 1984, India announced that it would not utilize the remaining SDR 1.1 billion because her external accounts have adjusted more rapidly than was envisaged at the time the arrangement was formulated. Development Prospects 14. The experience of recent years illustrates that India has 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 manufacturing a. wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, power, 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 institutional 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 reasonable access to foreign savings, India has the capability for managing these considerable resources to accelerate its long-term growth. 15. The medium-term framework for advancing India's development objectives is the Sixth Five-Year Plan (1980/81-1984/85), which is now in its fifth year. The Plan assigns priority to agriculture, energy development, the growth of exports and domestic import substitutes where appropriate, and the removal of infrastructural bottlenecks. Overall performance has so far been encouraging, although bottlenecks in key sectors such as power and transport are likely to persist. Moreover, fulfillment of the Plan targets will require additional resource mobilization. The efforts of the Central Government to raise resour- ces have so far been impressive and are likely to be broadly sufficient to meet the financing requirements of the Central Government's share in plan investment, even if some increase in inflation is experienced above current low levels. However, a shortfall in public savings is likely to occur in some States unless further measures are introduced. There will be a need also for continuous efforts to maintain the current level of private savings. Recent increases in interest rates and tax concessions on time deposits and the con- tinued dampening of inflationary expectations should stimulate such savings. 16. The higher capital formation rates of the past few years augur well for future income growth. However, returns to investment have so far been relatively low. Much of this phenomenon relates to India's stage of development, in which a large and growing proportion of investment has been needed to build up basic infrastructure. These services, such as power, tran- sport and irrigation, have inherently high capital-output ratios. However,  -6 DE there is scope to improve the secitoral capital-output ratios through greater efficiency and better managemenL. Bottlenecks in basic infrastructural sectors clearly can prejudice growth in other sectors where large investments have been made, As demonstrated in the last- three years, performance in the basic serv- ice sectors can be improved through better planning and management, thus lead- ing to higher productivity and capacity utilization throughout the economy. At the same time, programs to expand domestic capacity are vital. In the casle of tradeable commodities like coal., steel and cement, this is justified on the grounds of comparative advantage. For sectors such as irrigation, power and transportation, expansion of planned capacity in accordance with the require- ments of the rest of the economy will be vital to overall medium- and long-term development prospects. In the short term, however, achieving an adequate balance between supply and demand in these sectors will remain a difficult -jective. 7. JUnder the Sixth Plan, India has atn ambitious oil production program backed by substantial financial commitment;. While the gap between domestic consumption of petroleum and production remains large, the prospects for progressive substitution of domest:ic petroleum for imports are quite bright. In 1981, and again in early 1983, resources for exploration and development were raised by successive price increases for domestic crude and products. India's dependence on oil imports dropped from 163% in 1979/80 to about 45% now and a scheduled expansion in production is expected to decrease oil imports (in crude equivalent terms) to about 33% of consumption by 1984/85. The rapidly expanding level of exploration activity, combined with the possibilities for accelerated offtake from known fields, offers muCh encouragement for India's longer-term energy prospects. 18. Despite an expected continued decline it. its current account deficits from the current 2.1% to about 1.7% of GDP by the late 1980s, India will require growing access to world financial markets to complement concessional assistance. These commercial sources of funds will be important in the future since India's current account deficits, though not large relative to the size of the economy, will nevertheless be large in absolute terms and will neces- sitate external borrowing beyond levels expected to be available from normal concessional sources. Given the favorable structure of India's external debt, which reflects the past reliance on concessional sources, India should remain creditworthy for a substantial growth in external borrowing. 19. India's development prospects over the next few years will hinge on the extent to which the economy can be brought into both internal and external balance, while at the same time achieving more rapid growth than in the past. In the longer term, income growth represents the best strategy for achieving these needed adjustments, both by generating higher savings for further investment, and by fostering the development of export and import-substituting industry to improve the balance of payments. In the short term, a relatively large external borrowing, including an increased emphasis on commercial borrowing, will be necessary to cope with the balance of payments consequences of such a growth strategy. Rowever, an important element in providing India with the capacity to adjust flexibly will be adequate flows of concessional assistance. Although India is currently in a position to increase borrowing on commercial terms from the very low levels of the past, there are, of course, limits beyond which India will choose to sacrifice growth objectives rather than accept debt on unfavorable or unmianageable terms. The Government's effort to maintain an adequate rate of growth while adjusting the structure of the  -7- Indian economy to a more open and efficient environment requires foreign resources in addition to the level of commercial borrowing available to India. India is still a very poor country with a large rural sector and enormous investment requirements for human development and basic infrastructure. The fact that India has been able over the past seven years to maintain a rate of growth above the long term trend, despite the poor monsoons of 1979/80 and 1982/83, lends substance to the hope that a more open trade policy and con- certed efforts to remove constraints on the growth of productive capacity, supported by adequate mobilization of savings both foreign and domestic, can sustain a rate of growth closer to 5.0% per annum than the long-run trend of 3.6% per annum. Combined with a reduction in the rate of population increase to below 2.0% per annum, a 5.0% growth rate would mean a doubling of the trend rate of growth of per capita income of less than 1.4% per annum. Success in these efforts would make a significant difference to the prospects of easing poverty in India. 20. A large and growing population and severe poverty underline the need to accelerate India's development efforts. The 1981 Census placed India's popula- tion at 685.2 million, or about 14 million higher than official projections. The fact that there was no decline in inter-census rates of population growth, equivalent to about 2.2% per annum, is a cause for concern. The expectation of a measurable decline in the population growth rate has not materialized. The results re-emphasize the need for continuing efforts to strengthen the health and family planning program in a broad range of activities and services. These efforts are given high priority in the Sixth Plan, which aims at a rise in the proportion of protected couples in the reproductive age group from its estimated 1979/80 level of about 23% to over 35% by 1984/85. 21. 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 40% of the urban popula- tion subsist below the poverty line. Improvements in the living standards of the poor will depend to a large extent on the overall growth of the economy, particularly on increases in agricultural production and employment, and in non-farm rural employment. These developments will have to stem in large part from market forces which can 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 1981, resulting from India's sustained effort to raise agricultural production, reflects such developments. There is also a role for direct Government action in faster implementation 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. Operations such as the community health volunteer program and the national adult literacy campaign provide encouraging evidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India's poor.  --8- PART II - BANK GROUP OPERATIONS IN INDIA 22. Since 1949, the Bank Group has made 76 loans and 160 development credits to India totalling US$5,183 million and US$11,851 million (both net of cancellation), respectively. Of these amounts, US$1,387 million has been repaid, and US$6,224 million was still undisbursed as of September 30, 1983. Bank Group disbursements to India in the current fiscal year through September 30, 1983 totalled US$286 million, representing a decrease of about 2 percent over the same period last year. Annex II contains a summary state- ment of disbursements as of September 30, 1983.. 23. Since 1959, IFC has made 29 commitments in India totalling US$224 million, of which US$30 million has been repaid, US$56 million sold and US$18 million cancelled. Of the balance of US$120 million, US$113 million represents loans and US$8 million equity. A summary statement of IFC disbursements as of September 30, 1983, is also included in Annex II (page 4). 24. The thrust of Bank Group assistance to India has been consistent with the country's development objectives in its support of agriculture, energy and infrastructure. Of particular importance have been investments in irrigation, extension and on-farm development designed to increase agricultural productivity, and efforts to improve the availability of basic agricultural inputs to farmers through credit, fertilizer, marketing, storage, and seed projects. Major elements of the lending program have also been directed at helping to meet the energy needs of the economy while curbing the growth of oil imports, and to ease the infrastructure bottlenecks which have hampered economic growth in India, particularly through power generation and distribution, and railways and teleconmunications projects. The Bank Group has also provided financing for a broad range of medium- and small-scale industrial enterprises, primarily in the private sector, through its support of develop- ment finance institutions. Recognizing the importance of improving the ability to satisfy the essential needs of urban and rural populations, the Bank Group has supported nutrition and family planning programs, a rural roads project, as well as water supply and sewerage and other urban infrastructure projects. 25. This pattern of assistance remains highly relevant, and consonant with Government priorities, as reflected in the Sixth Plan. The continued active involvement of the Bank Group in agriculture, energy and infrastructure development will appropriately contribute to Intdia's adjustment and growth prospects. Irrigation will need continuing support, with emphasis on improved efficiency in water conveyance systems to ensure reliable delivery to farmers' fields. In addition, major investments to develop the large Narmada River basin will be vital to India's efforts to increase agricultural production. Important complements to these efforts, such as fertilizer production and distribution, agricultural credit and extension, will continue to receive support. A continued program of investments aimed at rapidly increasing the domestic supply of energy will clearly be necessary if India is to curb the cost of oil imports and alleviate the critical power shortages which constrain output in both the agricultural and industrial sectors. Exploitation of oil and gas resources is a central element of this program, which should be supple- mented by investments in hydro and thermal power generation, and in the expan- sion of the transmission and distribution networks. Industrial projects to i.ncrease the domestic production of basic commodities, which have been in short  -9- supply and which India has a coimparative advantage in producing, should also receive high priority. Finally, raising the efficiency and levels of tran,spor- tation infrastructure would mitigate a key constraint to achieving higher levels of economic growth so that further support of the railways and for ports development will be particularly appropriate. 26. 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, India continues to require a substanatial level of foreign assistance to India, both to offset the overall deterioration in the world trade environment, and to sustain the relatively higher investment and growth rates achieved during the first four years of the Sixth Plan. As in the past, Bank Group assistance for projects in India should aim to include the financing of local expenditures. India imports relatively few capital goods because of the capacity and coimpeti- tiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors as agriculture and irrigation. 27. India's poverty and needs are such that whenever possible, external capital requirements should be provided on concessionary terms. Accordirngly, 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. This requirement for additional assistance can be met, in part, through Bank lending. Given its development prospects and policies, India is judged credit-worthy for Bank lending to supplement IDA assistance. A con- tinuation of efforts already underway to achieve growth in productive capacity, trade expansion, higher levels of savings, foodgrains self-sufficiency and a reduction in the rate of population growth should result in continued economic growth and improvement in the balance of payments. Despite recent setbacks, India's external payments position is still manageable. The ratio of India's debt service to the level of exports of goods and services and receipts of current transfers was about 12.9% in 1983/84. Over the next several years this ratio is projected to rise to about 20% and remain around that level through 1995/96. As of September 30, 1983, outstanding loans to India held by t:he Bank totalled US$3,932 million, of which US$2,100 million remain to be disbursed, leaving a net amount outstanding of US$1,832 million. 28. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Banak Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with 50%, 43% and 53%, respectively, in 1981/82. On March 31, 1982, India's cutstanding and disbursed external public debt was about US$17.9 billion, of which the Bank Group's share was US$7.1 billion or 38% (IDA's US$5.9 billion and IBRD's US$1.2 billion). In 1981/82, about 16.0% of India's total debt service payments were to the Bank Group.  -10-- PART III - AGRICULTURE AND IRRIGATION IN UTTAR PRADESH Backg round~ 29, The State of Uttar Pradesh (UP) in northeastern India with a population of about 110 million (1981) is the most populous State in the country and accounts for 16% of the total India population. However, its geographical area (298,000 sq km) covers only 9% of the country. The popula- tion density--377 persons per square kilometer, is extremely high. UP is primarily an agrarian economy with agriculture contributing about 56% of the States income and employing about 78% of the labor force. In 1979/80, UP had a per capita income of Rs 981 (about US$90,8), compared with the national average of Rs 1,267. UP is among the poorest and, by most conventional indicators, one of the least advanced of Indisas States. Agriculture 30. About 17 million ha of land are under cultivation in UP. Slightly over 70% of all farm holdings are below 1.0 ha, compared with about 50% in the nation. The crops grown include paddy, maize, bajra, sorghum wheat and barley, and about 67% of the croppesd area is planted with cereal crops. The rest is shared between pulses and non-foodgrain crops, mostly oilseeds and sugarcane. 31. Since Independence (1948), UP's agricultural performance has been mixed. Between 1950/51 and 1977/78, foodgrain production grew by an average of 2% per annum, barely keeping pace with population growth. However, per- formance of individual crops like oilseeds, sugarcane and potatoes has been more encouraging. The 1950s were characterized by both expansion of cropped areas, as well as yield increases, leading to respectable growth rates for rice and wheat of 5.2% and 4.8%, respectively. In the 1960s, while rice stagnated, wheat and maize production grew by 9.9% and 9.7% per annum, respectively. The increases were mostly due to the introduction of improved high-yielding varieties and accelerated development of private tubewells. Although growth of wheat production slowed to 4.1% per annum in the 1970s, rice production picked up again and grew at: 4.7% per annum between 1971/72 and 1977/78. The increases in production of rice and wheat, however, were offset by a decline in production of other cereal crops such as maize and barley. Irrigation 32. UP is well endowed with water resources. The State lies within the catchment areas of four major tributaries of the Ganges River system. Nevertheless, only about 8.9 million ha (52%) of the total net cultivated area of 17.0 million ha was irrigated in 1980. Between 1950/51 and mid- 1960s, surface and groundwater development contributed equally to the expan- sion of the irrigated area in UP. Since 1965/66, however, groundwater development has accounted for almost all the increase in the State's net irrigated area. In 1979/80, about 5.7 million ha (64%) of the total net  -11- irrigated area was supplied with groundwater, 2.8 million ha by surface irrigation schemes, and the remainer by storage tanks or lift pump schemes from rivers. Project Area 33. Background. The Upper Ganga Canal (UGC) system with a gross com- mand area of about 1.95 million ha, lies between the Ganga and Yamuna Rivers in western UP. The area has a sub-tropical monsoon climate characterized by wet hot summers and relatively warm dry winters. Average rainfall varies from about 1,050 mm in the north to about 650 mm in the southwest. The south western monsoon contributes nearly 80% of the annual rainfall. The monsoon shows considerable variations in amounts, distribution and times of onset. Long dry spells may occur during the rainy season. These uncertainties make irrigation imperative for successful crop production even during the monsoon season. Natural drainage is provided by numerous streams flowing north to south into the boundary rivers. Within the area are low-lands underlain by fresh groundwater. The soils are alluvial and fertility levels are meditm to high. 34. Landholding and Land Tenure. Rural population density is about: 470 persons per square kilometer. The average farm size is about 0.8 ha, slightly smaller than the State average of 1.2 ha. Holdings of less than 2 ha account for about 77% of the number of farms and 36% of the total area. There is a number of ineffective legislations concerning land tenure. The land reform issue to date has remained unresolved. 35. Water Resources and Utilization. The project area is within the drainage basin of the river Ganga which is both international (Nepal, Tibet, Bangladesh and India) and interstate (seven Indian States). The average annual river flow at the project diversion point is about 17,500 Mm3. All of the low flow of the river (October to May) is diverted into the UGC system (about 2,150 Mm3 per year). In the high flow period, the diversion into the UGC is governed by the canal capacity and averages about 2,750 Mm3 per year. The diversion in the zaid (hot) season totals about 1,770 Mm3 per year. The canal system consists of about 6,540 km of canals with a nominal design capacity of about 1 cfs/100 ha. Under the present conditions, the canal system can provide barely two irrigations during the rabi (dry) season wrhen river water supplies are low. In kharif (monsoon) season, canal water sup- plies generally exceed demand at the start and end of the season. In addi- tion to the UGC system, there are (existing, under construction and planned) five other canals with a combined diversion capacity of about 1,204 cumecs. The Government of Uttar Pradesh (GOUP) has also a number of storage schemes under construction in the project area. 36. Over the years, farmers in the upper third of the UGC system have taken more than their fair share of water supplies and are growing substan- tial areas of sugarcane. Farmers at the head of the system and near the outlets draw considerably larger amounts of water than those less favorably located. This inequitable water distribution has become an established, water right and is supported by heavy investments in sugar processing facilities. It is essential to generate additional water supplies for tail-end users who receive both in terms of quantity and quality, a poor irrigation service. Additional water sources within the UGC system would be through reduction of seepage losses in the unlined conveyance system, and development of  -12- groundwater for conjunctive use with the surface water supplies. Implict in the planning and design of the proposed project are the assumptions that GOUP wouLd (i) allocate to the UGC system the same water supplies from the Ganga as the UGC project has historically received given the variations in the River Ganga base flows; (ii) allocate water supplies equitably within the pro:,ect command; and (iii) allocate to modernized blocks the water supplies per unit command area as shall be required to irrigate such modernized blocks. 37. Groundwater. The project area is underlain by alluvial deposits which form a single heterogenous acquifer system which exceeds 1,000 m in thickness in some parts. The acquifer system is recharged mainly by rain percolating from canals, field losses and infiltration of floodwaters. A groundwater study of the UGC command area ind,"cates an estimated mean annual recharge of 6,200 Mm3. Net extraction by various types of tubewells and dugwells amounted to about 3,800 Mm3 in 1980/81 or about 61% of the groundwater resources. The prospects of further groundwater development in the p-roject area are therefore good. 33. Crops and Cropping Patterns. The area has a three crop season zone