Document of The World Bank FOR omcIAL USE ONLY Cc 9, /v.?/-.z7A Repwi No. P-4116-IN REPORT AND RECOMKENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 164.2 MILLION TO INDIA FOR THE MAHARASHTRA COMPOSITE IRRIGATION III PROJECT June 20, 1985 |is domma ba a rea1_ed dltuilom ad m be used by repiuts Wly il the perfmue d| thir .Ud. duie Ilb ce.ts may n ewis he dba_losed without W.dd Bank aothouizaioo. CURRENCY EQUIVALENTS US$1.00 = Rs 12.00 Rs 1.00 = US$0.08 Es 1 million = US$80,000. The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were made at US$1.00 = Rs 12.00. FISCAL YEAR April 1 - March 31 Abbreviations and Acronyms AA - Agricultural Assistant (or Village Level Worker) AD - Agriculture Depa-tment AE - Assistant Engineer ARDC - Agricultural Refinance and Development Corporation CAC - Canal Advisory Committee CAD _ Com-and Area Development CADA - Command Area Development Authority CCA - Cultivable Command Area CE - Chief Engineer CEO - Chief Executive Officer DADO - District Agricultural Development Officer DIRD - - Directorate of Irrigation Research and Development EC - Executive Committee (CADA) CON - Government of Maharashtra ID _ Irrigation Department MCIP I - Maharashtra Composite Irrigation I Project MCIP II - Maharashtra Composite Irrigation II Project MCIP III - Maharashtra Composite Irrigation III Project MLDC - Maharashtra Land Development Corporation MWUP - Maharashtra Water Utilization Project NABARD - National Bank for Agriculture and Rural Development NARP - National Agricultural Research Project OC - Outlet Committee OFD - On-Farm Development O&M - Operation and Maintenance PAO - Principal Agricultural Officer PWD=PW&HD - Public Works Department RWS - Rotational Water Supply SDD - Specially Developed Distributary SMS - Subject Matter Specialist T&V - Training and Visit (System of AgriculturaL Extension) WALMI - Water and Land Management Institute wUC - Water Utilization Committee ZP - Zilla Parishad (District Level Authority) FOR OFFICIAL USE ONLY INDIA NABARASETRA COMPOSITE IRRIGATION III PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President (GOI). Beneficiary: Government of Maharashtra (CON). Amount: IDA Credit SDR 164.2 million (US$160 million equivalent). Terms: Standard. Project Description: The project would encompass two command areas: Jayakwadi (200,000 ha) and Majalgaon (100,000 ha). The main components for Jayakwadi would be: (i) completion of irrigation systems on about 45,500 ha; (ii) completion of main drains, link drains, and rural roads on about 153,000 ha; (iii) construction of field channels, drains, and structures on about 68,000 ha and field-channel protection on about 102,000 ha; (iv) landshaping of about 128,000 ha; (v) development of three Specially Developed Distributories (SDDs) on about 7,300 ha; and (vi) technical support to farmers. For Majalgaon, the project would include: (i) constructing 116 canal regula- tion structures; (ii) construction of Majalgaon main canal from km 67 to km 100; (iii) construction of the distribution system up to the 1-cusec outlet in an area of about 57,000 ha; (iv) construction of main and secondary drainage and road networks on about 24,000 ha; (v) on-farm developments and landshaping of about 24,000 ha; (vi) development of a Hajalgaon SDD on 4,000 ha; and (vii) technical support to farmers. Other investments would include: (i) equipment for landshaping and telecommunication; (ii) monitoring and evaluation, (iii) extension service; (iii) technical and agricultural extension and research support; and (iv) training, studies, study tours and consulting services. The project would increase agricultural production and farmers' income in the two Thi document has a rticdedbmdbuton and may be used by rpients only in the pefonumc of thi officid dues ts contents my am othemri be dsclosed wbhout Wodd Bank authoMnonm commands. To minimize the risks that farmer response might not be adequate, or that yield levels might be lower than anticipated, the project provides for landshaping and for system operation methods which will ensure that all farmers, including tail-enders, will obtain a reliable water supply. In addition, the project focuses on increasing agricul- tural productivity, especially through the SDDs', technical support to farmers, research and development, and monitoring and evaluation. The combined effects of these activities should result in a high return per unit of water and high level of farmers' participation. (US$ Millions) Estimated Cost 1/ Local Foreign Total Project Component (a) Jayakwadi - First Segment 13.5 1.9 15.4 (b) Jayakwadi - Second Segment 23.1 2.1 25.3 (c) Jayakwadi - Third Segment 72.2 7.1 79.3 (d) Majalgaon - First Segment 40.0 4.7 44.7 (e) Majalgaon - Second Segment 45.6 6.9 52.4 (f) Equipment/SDD/Technical Services 13.0 0.5 13.5 Total Base Costs 207.7 23.3 231.0 Physical Contingencies 25.7 3.4 29.1 Price Contingencies 56.1 6.5 62.6 Total Project Costs 289.5 33.2 322.7 1/ Includes taxes and duties that are insignificant. -iii- Financing Plan (US$ Millions) Local Foreign Total GOI/COM 162.7 - 162.7 IDA 126.8 33.2 160.0 TOTAL 289.5 33.2 322.7 Estimated Disbursements: (US$ Millions) IDA FY FY86 FY87 FY88 FY89 FY90 FY91 Annual 25.5 33.8 40.2 33.8 23.1 3.6 Cumulative 25.5 59.3 99.5 133.3 156.4 160.0 Rate of Return: About 20Z. Appraisal Report: No. 5376-IN, dated June 18, 1985. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE MAHARASHTRA COMPOSITE IRRIGATIOU III PROJECT 1. I submit the following report and recommendation on a proposed IDA credit of SDR 164.2 million (US$160 million equivalent) on standard IDA terms, to finance an irrigation project to increase agricultural production and farmers' incomes by increasing the irrigated area and maximizing utilization of the available water supplies. The proceeds of the Credit and the Loan would be channeled to the Government of Maharashtra in accordance with the Government of India's standard terms and arrangements for financing State development projects. The exchange risk would be borne by the Government of India. PART I - THE ECONOMY 11 2. An economic report, "India: Structural Change and Development Perspectives" (5593-IN, dated April 24, 1985), was distributed to the Executive Directors on May 1, 1985. 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 annual 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 who own little or no land. Growth of value-added in agriculture - 2.2% since 1950/51 - has been slower than growth of industrial value-added (5.3% per annum). As a result, there has been a gradual decline in the share of agriculture in GDP (at factor cost) from 52% in 1950/51 to about 33X in 1981/82, while the share of industry rose from 20% to around 26%. 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 3.6Z per annum since 1950/51. 4. Nevertheless, there haa 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 eliminate persistent dependence on foodgrain imports through significant improvements in agricultural preduction. Savings and investment have increased markedly since 1950/51: the gross natioral savings rate more than doubled from 10.8% of GDP (at factor cost) to 22.7Z in 1983/84, while the gross domestic investment rate rose from 12.5% of GDP to 24.8% in 1983/84. 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. Currently, foreign savings account for about 8% of investment. 1/ Parts I and II of the report are similar to Parts I and II of the President's Report for the National Social Forestry Project (No.P-4094-IN), dated May 22, 1985. -2- External assistance has been low both as a percentage of GDP and in per capita terms, never rising above 3X of GDP and averaging beLow 1X for the past five years. Net use of foreign savings has never risen above 32 of GDP, and presently stands at 2.1%. 5. Before the 1970s, India placed relatively less emphasis on export promotion and more on import substitution. The volume growth of exports between 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, rndia'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. As a result, the volume of India's exports grew on average about 7.3Z 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, contributed to this growth, liberalized access to imported inputs and more effective 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 5.3%, 3.31 and 8.1%, respectively, during the 1975/76 to 1978/79 period. 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 shortages, led to a sharp fall in foodgrain production, a decline in GDP, and the opening up sf a relatively large trade deficit. Severe inflationary pres- sures also emerged after several years of virtual price stability. These setbacks coincided with the preparation of the Sixth Five-Year Plan which laid down a program of adjustment that aimed at improving the trade deficit, remov- ing infrastructural bottlenecks and ensuring price stability with an overall growth of the economy of 5.2% per annum. Recent Trends 7. Despite the effects of two severe droughts in 1979/80 and 1982/83, India's economy in the early 1980s continued to grow at the faster pace of the second half of the 1970s. Between the two droughts (from 1979/80 to 1982/83), GDP growth averaged almost 5% per annum, while between the two recovery years (from 1980/81 to 1983/84), it was 4.5% per annum - substantially higher than India's long-term growth rate of 3.6%. Continued rapid economic growth has resulted from a development strategy which includes higher investment levels and liberalized policies on imports, industrial licensing, prices, and commer- cial borrowing. These policies, by easing constraints on the supply of infrastructure and basic commodities, were a determining factor in the improved performance of the economy and the industrial sector. This overall improvement in performance, combined with a more restrictive monetary policy in 1981/82 and 1982/83, resulted in a sharp decline in the rate of inflation. The growth rate of whoLesale prices declined from over 18% in 1980/81 to only 2.6% in 1982/83, but rose to over 9% in 1983/84, mainly due to the effect of the 1982/83 drought on food prices. Further improvements in the policy environment will be required to maintain these higher levels of economic growth and investment without putting undue pressure on the balance of payments or reviving infla- tionary expectacions. -3- 8. Economic growth in the early 1980s has not been steady, mainly because of the effect of uneven rainfall on agricultural production during the period. In 1980/81 and 1981/82, the economy substantially recovered from the 1979 drought, with real GDP growing by 7.6% and 5.3X, respectively. While industrial output expanded by 4% in 1980/81 and 8.6% in 1981/82, recovery was particularly -.bust in agriculture where normal weather helped output to rise by more than JA and 5.5%, respectively. The supply of power, coal, and rail transport, already improved in 1980/81, was further expanded in 1981182, recording growth rates of about 10%, 9.6% and 12.5%, respectively. This over- all improvement in the Indian economy was halted in 1982/83 by a severe drought in mid-1982 which reduced agricultural production by 4%, brought down the GDP growth rate to 1.8%, and put further strains on the already difficult balance of payments and domestic resource situation. The timely implementation of various economic policies relating to foodgrain imports, procurement and distribution, and the allocation of power to irrigation pumps mitigated the otherwise very distressing effects of the poor monsoon. The economy recovered in 1983/84, led by a robust agricultural sector - GDP grew by about 6.5% to 7% with agricultural production growth in the 9X-1OX range and industrial growth of 4.5%. The major factors contributing to the good economic performance during 1983/84 were the excellent monsoon, combined with adequate agricultural policies and programs, and satisfactory performance of the coal and transport sectors. The power sector, however, emerged again as a constraint on higher growth, especially in industry. 9. Agricultural production rebounded strongly in 1983/84 in response to the monsoon, improved use of inputs and continued expansion of irrigation. Overall foodgrain production rose by iO%-12% over the previous year, reaching a new record of 142-144 million tons, a substantial increase over the previous peak of 133 million tons in 1981/82. Corrected for weather variations, foodgrain production continues to grow at a trend of 2.6% per annumr-sufficient to maintain a broad balance between supply and steadily increasing domestic demand. Nonetheless, the balance remains delicate, and the need for foodgrain imports to maintain consumer supplies or adequate buffer stocks could arise from time to time. Thus, adequate management of foodgrain stocks and programs to expand irrigation, strengthen extension and encourage the efficient use of other agricultural inputs continue to receive high priority. 10. Basic infrastructure services had a mixed performance in 1983/84, partially because of sluggish demand from industry during the first half of the year but also due to a failure to maintain the productivity gains of 1980-82. Electricity generation grew only by about 3.7% due to low reservoir water levels during the first half of the year, delays in the commissioning of new capacity, and a deterioration of capacity utilization in thermal plants. As a result, power generation was about 11.5% below requirements and con- stituted a major bottleneck in the economy. Key industries which were adver- sely affected by power constraints included steel, fertilizers, cement, and coal. To improve performance in the power sector, the Government recently increased incentives for higher labor and management productivity in thermal plants. Railway freight traffic, measured in ton-kms, grew by only 0.5% in 1983/84, reflecting sluggish demand. Coal production increased by about 6.5% in 1983/84 reaching 139 million tons. When combined with stocks already avail- able this level of production was sufficient to meet the relatively slow demand growth. Infrastructural constraints would have emerged much more sharply had the pace of industrial growth and demand been more rapid. It is therefore critically important that India maintain the pace of investment in these key -4- sectors, mobilize sufficient resources to do so, and implement programs to enhance productivity. 11. The Indian economy has reverted from a situation of resource surplus in the late 1970s to an aggregate resource deficit. The gap between gross invest- ment and national savings increased from negligible levels during the late 1970s to an average equivalent to 2.1% of CDP in 1980-84. India's gross national savings rate, which averaged 22.6% of GDP in the last four years, is high by any standard, particularly considering India's low income and the large proportion of its population below the poverty line. The scope for a substan- tial increase in the savings rate is therefore quite limited. If India is to maintain investment at about 25% of GDP, a major effort will be required to raise additional domestic resources particularLy in the public sector. 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. This would also allow a marginal decline in the use of foreign savings from the recent 2.1Z-2.3X of GDP to 1.5Z-1.8%, to ensure a sustainable external debt service burden. 12. India's external resource position has changed notably since the late 1970s. The current account balance, which recorded surpluses from 1976177 to 1978179, reverted to deficits averaging US$3.5 billion and 2.1% of GDP during 1980/81 to 1983/84. Several developments contributed to these relatively larger current account deficits. First, the terms of trade deteriorated sharply in 1979/80 due to the second round of oil price increases and continued to move against India during the first three years of the 1980s. Second, a more liberal import policy towards industrial inputs was pursued. Third, net invisibles declined as travel receipts fell off, workers' remittances stagnated (reflecting slower development activity in the Middle East), and payment of interest on higher Levels of foreign debt increased. Faced with severe infrastructural constraints and a deterioration in its balance of payments, India initiated an adjustment program in 1980/81 designed to raise the growth rate from its historical level of 3.6Z to 5.2% while adjusting the country's external balance to the adverse price developments in the world markets. The main elements of this strategy, which is being successfully implemented, are export promotion, import substitution where economically justifiable, implemen- tation of a coherent energy policy designed to meet the energy needs of the economy while curbing the growth of oil imports, and continued movement toward a more liberal import policy aimed at providing producers with access to inputs for higher capacity utilization, greater efficiency, improved technology and capacity expansion. 13. A positive development in India's balance of payments is the reduction in the trade deficit from US$7.7 billion in 1980/81 to US$5.9 billion in 1983/84 despite unfavorable world market conditions and import liberalization. Export volume growth and import substitution of oil and petroleum products, metals and fertilizers more than offset the substantial increase in "other" imports. These "other" imports consist mainly of industrial imports and capi- tal goods which historically have been in chronic short supply and which are of critical importance to capacity utilization, product quality, and plant modern- ization and expansion. A major factor in the decline of the trade deficit was the lower net import bill for petroleum, which dropped from US$6.7 billion in 1980/81 to US$3.4 billion in 1983/84 in response to a successful oil develop- -5- ment program that reduced import needs and allowed crude oil exports, which totalled about US$1.5 billion in 1983/84. These structural changes in the balance of payments are to a significant degree the result of India's develop- ment and adjustment efforts over the past three years. It is expected that the balance of payments will continue to be under strain for the next several years, since the adjustment strategy will continue to require high levels of imports. 14. Even assuming a favorabLe export performance, India will need external capital flows to augment its own resources for the foreseeable future, given the low per capita income level in the country, the already high savings rate, and the structural adjustment process. Faced with a growing need for external capital inflows and stagnation in the availability of concessional assistance, India decided at the start of the Sixth Plan to increase borrowings from the International Monetary Fund (IMF) and commercial banks to substantial levels. In the period covering the fiscal years 1981/82 to 1983V34, India drew SDR 3.9 billion from the Extended Fund Facility of the IMF. In addition, India bor- rowed significant amounts on commercial terms from the Euro-dollar market and increased the use of suppliers' and export credits. In the period 1980-84, India contracted commercial loans totalling over US$6,000 million and suppliers' credits of over US$1,000 million. The bulk of this borrowing has been used for specific development projects in the public and private sector (mostly for petroleum exploration and development, steel, power, aluminum and shipping). India's favorable debt service position and the nature of its borrowings, for project-related purposes instead of direct balance of payments support, enabled it to tap commercial capital markets at favorable spreads. This larger commercial borrowing and transfer of funds under the arrangement with the IMF has stemmed the use of foreign exchange reserves which had fallen to less than four months of import coverage in 1981/82. Development Prospects 15. 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 - irri- _Ion, 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 also has a wide range of institutions capable of fostering development and is well- endowed with human resources. 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. 16. The Government is currently preparing the Seventh Plan which will lay down the development strategy for 1985/86-1989/90. This strategy is expected to continue the emphasis of the Sixth Plan on agriculture, energy development, export promotion, domestic import substitution where economically justifiable and the removal of infrastructural bottlenecks. Overall Sixth Plan performance has been encouraging, with aggregate real investment projected to be about 30Z higher than in the period 1975-80-a creditable performance indeed. The Sixth Plan expenditure targets, however, will not be fulfilled as resource mobi- -6- lization by the public sector will fall short of the financing requirements of planned public investment. Actval aggregate real investment is projected to be about 7% below the original target for the period 1980-85, private investment being 5% to 10% higher and public investment about 20Z 1gwer in real terms than acrually projected. In cerms of meeting Plan experditure targets, the perfor- mance of the Central Government is ionsiderably betEer than that of the State Governments. The Central Government's Plan outlays are likely to reach about 80% to 90% of the original Plan allocation in real terms, while the States' will probably achieve only about 50Z of their targets, due principally to shortfalls in resource generation. Bottlenecks in key sectors such as power, transport and irrigation are likely to persist as a consequence of real invest- ment shortfalls relative to original Plan allocations. 17. Although Sixth Plan expenditure targets will not be met, India's capi- tal formation rates have increased from 22.6Z in 1975-80 to 24.7Z of CDP in 1980-84. Recent higher capital formation rates are encouraging for future income growth, but 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 services which have inherently high capital-output ratios. However, there is scope to reduce capital-output ratios through improvements in efficiency. As discussed in greater detail in our recent economic reports, performance in the basic service sectors can be improved through better plan- ning and management, thus leading to higher productivity and capacity utiliza- tion throughout the economy. At the same time, programs to expand domestic capacity are vital. In the case 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 requirements of the rest of the economy will be vital for sustained growth. 18. Under the Sixth Plan, India has an ambitious oil development program backed by substantial financial commitment. Performance under the program has been excellent with real investment and oil production levels running well ahea-i of Plan Targets. In 1981, and again in early 1983, resources for exploration and development were raised by successive price increases for domestic crude and products. While the gap between domestic consumption of petroleum and production remains large, India's dependence on oil imports dropped from 63X of consumption in 1979/80 to about 41Z in 1983/84 and is expected to decrease 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. At the same time, the increases in domestic petroleum prices have helped encourage conservation and slow demand growth. 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 growt'h than in the past. This will require the continuation of the current development strategy which assigns high priority to export promotion, public finance discipline, improve- ment of economic efficiency, and investment in infrastructure, supported by adequate flows of external borrowing and aid. In the short term, a relatively large level of external borrowing, including an increased emphasis on commer- -7- cial borrowing, will be necessary to cope with the balance of payments conse- quences of such a growth strategy. However, an important element in providing India with the capacity to adjust flexibly will be adequate flows of conces- sional assistance since India is still a very poor country with a large rural sector and enormous investment requirements for human development and basic infrastructur9 Although India is currently in a position to increase borrow- ing on commers.al terms from the very low levels of the past, there are, of course, limits beyond which India will choose to sacrifice growth objectives rather than accept debt on unfavorable or unmanageable terms. Nevertheless, with a more open trade policy and expanded efforts to remove constraints on the growth of productive capacity, supported by adequate mobilization of both foreign and domestic savings, India is demonstrating that it can sustain a rate of growth closer to 5.0% per annum than to the long-run trend of 3.6Z per annum. If the rate of population growth can be brought to below 2.0% per annum, a 5.0% growth rate would mean a doubling of the trend rate of growth of per capita income of 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 indicated there was no decline in the rate of population growth, which remained about 2.2% per annum in the 1970s despite a measurable decline in fertility rates. The population growth rate failed to decline in the past decade due to a reduction in the infant mortality rate and an increase in life expectancy, reflecting larger availability of food and health services. While this is a welcome development, it implies a greater strain on the economy and re-emphasizes the need for continuing efforts to strengthen the health and family planning programs 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. The Government is reviewing its population policy for the Seventh Plan, with indications of a determination to retain the emphasis on the implementation of family planning, health, education and literacy programs aimed at reducing fertility rates. 21. Reduction of poverty remains the central goal of Indian economic and social policy. 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 40Z of the urban population subsist below the poverty line. Significant reductions in poverty will depend primarily on an acceleration of economic growth, particularly in agriculture, combined with effective implementation of poverty alleviation programs. India's poverty alleviation strategy appropriately recognizes that production-oriented programs, which aim at accelerating the overall pace of economic growth, and poverty alleviation programs, targetted at those least able to participate in the general growth of the economy, can be mutually reinforcing rather zhan substituting for each other. Major poverty programs operating on a nationwide basis at present include: the Minimum Needs Program (MNP), the Integrated Rural Development Program (IRDP), and the National Rural Employment Program (NREP). The IRDP and NREP are targeted programs aimed at increasing the incomes of the poor rapidly, either through the transfer of productive assets or direct employment. The MNP, aims at broadening the provi- sion of social infrastructure and basic services which enhance the human capi- tal of the poor and improve living standards. These programs represent a vitally important commitment of the Government to address the needs of the -8- poorest. The scale of the poverty problem in India, combined with the inherent difficulties in implementing poverty programs in any country, imply the need for continued efforts to enhance the effectiveness of these programs. PART II - BANK GROUP OPERATIONS IN INDIA 22. Since 1949, the Bank Group has made 84 loans and 174 development credits to India totalling US$6,818 miliion and US$12,934 million (both net of cancellation), respectively. Of these amounts, US$1,465 million has been repaid, and US$5,909 million was still undisbursed as of March 31, 1985. Bank Group disbursements to India in the current fiscal year through March 31, 1985 totalled US$787 million, representing a decrease of about 27 percent over the same period last year. Annex II contains a summary statement of disbursements as of March 31, 1985. 23. Since 1959, IFC has made 32 commitments in India totalling US$265 million, of which a total of US$145 million has been repaid, sold, terminated or cancelled. Of the balance of US$120 million, US$113 million represents loans and US$7 million equity. A summary statement of IFC disbursements as of March 31, 1985, 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 telecommunications 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 savisfy 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 and in the approach being taken by GO! in the preparation of the Seventh Plan. First, high priority will continue to be given to GOI's agricultural program. While India has made significant progress in agriculture, productivity growth will have to be sus- tained to improve the balance between food demand and supply and to contribute to poverty alleviation and employment. Thus, the Bank Group will continue to support irrigation, fertilizer production and distribution, and agricultural extension and credit. Second, alongside GOI's efforts in promoting greater efficiency and faster development of the industrial sector, increased assis- tance will be provided for industrial development. Third, the review of per- formance under the Sixth Plan confirms the high priority that should continue to be given to the expansion and more efficient use of basic infrastructure capacity and to the development of India's indigenous hydrocarbon resources. Accordingly the Bank Group will continue to support the development of the energy, transport and telecommunications sectors to alleviate critical -9- shortages which constrain output in both agricultural and industrial sectors. Fourth, support of urban development and other COI basic social services programs for the poor will also continue in light of the growth in population which, despite successes in lowering birth and death rates, still increases by about 16 million each year. 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-1?7Cd. However, India continues to require a substantial level of foreign assistance both to offset the overall deterioration in the world trade environment, and to sustain the relatively higher investment and growth rates achieved during the 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 expernitures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors as agriculture and irrigation. 27. India's poverty and needs are such that whenever possible, external capital requirements should be provided on concessional terms. Accordingly, the bulk of the Bank Group assistance to India in the past was provided from IDA. However, IDA lending to India is declining from a peak of US$1.6 billion in FY82, mostly due to funding constraints related to IDA. The amount of IDA funds available to India is likely to remain small in relation to India's needs for externaL support. Thus, this requirement for additional assistance will have to be met, in part, through larger Bank lending. Given its development prospects and policies, India is judged creditworthy for Bank lending to sup- plement IDA assistance. A continuation 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. India's debt service ratio is estimated at about 15.2% in 1984/85. This ratio is projected to rise to around 20% by 1989/90, mainly due to the hardening structure of India's debt; and to increase slightly over this level through the mid-1990's. Although the projected debt service ratios are con- siderably above historical levels, they are still manageable and will not adversely affect India's creditworthiness. 28. 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, 132 of gross disbursements, and 12% of net disbursements as compared with 62%, 33% and 37%, respectively, in 1983/84. In 1983/84, about 19.0% of India's total debt service payments were to the Bank Group. On March 31, 1984, India's outstanding and disbursed external public debt was estimated to be about US$26.9 billion, of which the Bank Group's share was US$9.6 billion or 36Z (IDA's US$7.8 billion and IBRD's US$1.8 billion). As of March 31, 1985 outstanding loans and credits to India held by the Bank totalled US$18,288 million, of which US$5,909 million remain to be disbursed, leaving a net amount outstanding of US$12,379 million. -10- PART III - AGRICULTURE AND IRRIGATION IN MAHARASHTRA Background 29. The State of Maharashtra in Western India is the third largest State in the Union. It covers an area of about 30.8 million ha and has a population of 63 million, of which about 35% live in urban centers. Industrial population is higher than in any other State in the Union, and per capita income is about Rs 3,300 (about US$275), which is 4O0 above the national average of Rs 2,300. 30. The Western Chats divide the state north to south. Short steep rivers are common on the western side of the Ghats and the climate there is very humid. On the eastern side, the land slopes gradually towards the Bay of Bengal. Because the Ghats cut off the southwest monsoon central Maharashtra is dry, and rainfall ranges from 600 to 1000 mm. The arnual coefficient of rainfall variation is 25%, which indicates a high risk of crop failure without irrigation. The predominant soils are black cotton soils--water-retentive, very heavy and sticky with a high clay content, therefore difficult to work when wet. 31. Farming. Because of the climatic and soil conditions, farming in Maharashtra is difficult and must concentrate on drought-tolerant crops such as sorghum, pearl millet, cotton, and groundnuts, as well as various pulses. Rice and some tropical crops are grown only in the well-watered Konkan and Vidarbha districts. The dominant mode of production is rabi cultivation: crops are planted at the end of the rains and mature on residual moisture. Relatively few inputs are risked and yields are low. Nevertheless, agriculture accounts for 26% of Maharashtra's gross State product and provides 62% of total employment. About 92% of Maharashtra's farms are owner operated, 5% are partly owned and partly rented, and 3% are under tenancy arrangements. 32. Irrigation in Maharashtra. The f4uctuations in the annual rain- fall and the long dry season (October-June) make irrigation crucial for increasing agricultural productivity in Maharashtra (which accounts for only 4% of India's irrigable land). At present, only 12% of the cropland has irrigation facilities. Of the 3.3 million ha irrigation potential created, 1.5 million ha comprises major and medium surface schemes; 1.8 million ha is served by well and minor irrigation systems. Surface irrigation is difficult and costly, because of the seasonal nature of the river flows and lack of suitable reservoir sites. Where it is established, however, and as a result of extensive research and experiments, Maharashtra farmers are now making the shift from extensive rabi cultivation on residual moisture to irrigated multiple cropping. Farmers need expert advice to facilitate this transition. -ll- The Project Area 33. The project encompasses Jayakwadi and Majalgaon command areas-- about 330,000 ha, spanning six administrative districts. The area forms a narrow strip stretching for about 210 km along the Godavari river. The climate is subtropical with one monsoon season. The mean minimum tempera- ture is about 13 C, and the rainfall ranges from 600 mm to 900 mm. The area slopes from west to east and is open, rolling country with isolated angular hills; the overall elevation is about 550 m. Because of the topography, irrigated land will have to be levelled-about 80% will require substantial shaping. The soils (which are essentially black cotton soils, about 75% of which are classed as clay loams) shrink when dry and are self-mulching. Soil fertility is generally good. 34. Farm Size, Land Tenure, and Use. The average farm size is about 4.5 ha. Most of the farms are owner operated, and about 70% of the total area is cropped. About 6% of the land is reserved for forests or is not available for cultivation, and about 24% is fallow or cultivable waste. 35. Cropping Patterns and Yields. In unirrigated areas, crops grown include short-staple cotton, sorghum-the most important staple food crop, pearl millet, green and black gram and chickpeas. Safflower is the tradi- tional drought-resistant oilseed crop. Under irrigated conditions, sugar- cane is the most remunerative crop. It is well adapted to the soil and climatic conditions of the project area, and has a ready market with the cooperative sugar mills. Other crops grown under irrigation include long-staple cotton, groundnuts, sugarcane, bananas and wheat. Sunflower production is increasing and, with some further research, it could become an important crop. Maize and soybeans could be grown but face market constraints. Agricultural Support Services 36. Agricultural Extension and Research. Following the reorganization of extension services, some of the village extension workers (VEWs) and Subject Matter Specialists (SMS) became responsible for large groups of farmers on irrigated as well as dry land. The number of VEWs is insuffi- cient (the VEW-farmer ratio is a low 1:1200), and they lack the training and skills needed to cope with all the problems encountered by the farmers in irrigated and dryland farming. However, the Government plans to increase the cadre of VEWs to a VEW-farmer ratio of 1:800, and, to the extent possible, a VEW would deal exclusively with either rainfed or irrigated agriculture. It also intends to strengthen the extension staff dealing with irrigated agriculture by increasing the number of SMSs trained in irrigation agronomy, and water management. 37. The principal institution conducting agricultural research in the project area is the Marathwada Agricultural University, Parbhani. The University's research has focussed on varietal improvements; intercropping and multiple cropping, yield studies in response to different levels of irrigation; and cotton and oilseed research in the 1300 mm annual rainfall -12- zone. Under the Mbharashtra Water Utilization Project (Cr. 1383/Ln. 2308-IN), the University has launched an adaptive research program in the irrigated parts of the project area. 38. Agricultural Inputs. There are sufficient and well-organized public and private suppliers of fertilizers within easy reach of farmers, and consumption is showing a healthy upward trend. Seeds are supplied by the National and Maharashtra State Seeds Corporations through the coopera- tive outlets. In addition, there are many private producers who are controlled by the seed certification agency. Most seeds are available in adequate quantities, except for the hybrid cotton and the popular sorghum hybrids, which occasionally are in short supply. The supply of pesticides is also adequate. However, dealers are unable to provide advice on the use of pesticides and sprayers, and thus the responsibility falls largely on the agricultural extension staff. 39. Marketing and Processing. A satisfactory network of Government-regulated markets covers the project area. The largest marketed commodity is sugarcane (about 0.5 million tons per annum), which is sold to the cooperative sugar mills close to the project area. 40. Agricultural Credit. The State-owned Commercial Banks and the cooperative banks provide agricultural credit. Short-term credit--which is used for fertilizers, pesticides, and seeds-is well organized and is registering modest annual increases in volume despite growing arrears' problems. With regard to medium- and long-term loans, about 80-90 of the farmers who had loans in the past are in default and therefore ineligible for new loans from the institutional credit system. The high rate of default is due, inter alia, to (i) institutional weaknesses; and (ii) drought conditions which affect farmers' ability to repay. A separate project (NABARD) is under preparation to deal with credit problems. With that project a comprehensive assessment will be given with regard to the nature of the problems and what will be done to improve the situation. Bank Group Strategy and Previous Bank Group Assistance 41. The Bank Group's agricultural strategy in States such as Maharashtra is to support the Governments efforts to increase the efficiency of the investments in irrigation, in order to increase agricul- tural productivity and accelerate the overall pace of economic growth. Consequently, the Bank Group's assistance is being focussed on: (i) continued introduction of improved technology through improved design and construction standards and training; (ii) improved operation and maintenance; (iii) effective water management; and (iv) modernization of existing irrigation system. The proposed project objectives are in line with this strategy as the project covers three ((i), (ii) and (iii) above) of the four basic elements of the Banks strategy. 42. To date, total IDA/Bank commitments to Maharashtra for irrigation amount to US$347.7 million, of which IDA has contributed US$325 million, -13- and the Bank US$22.7 million. Bank Group assistance has focused on the zones with rainfall less than 750 mm/annum. The first IDA credit for irrigation in Maharashtra was for the Purna Irrigation Project (Cr. 23-IN for US$13 million, July 1962) which financed water storage dams, a reregulating reservoir, about 56 km of main canal, and 400 ln of dis- tributaries to command 61,000 ha. Agricultural production in the Purna project area increased slowly, in part because of an inadequate field channels, the lack of effective crop and water planning, and drainage deficiencies. The first Maharashtra Composite Irrigation I Project (MCIP I; Cr. 736-IN for US$70 million, October 1977) addressed the problems of on-farm development in Purna and Jayakaadi projects. After a delay of about one year in implementation, the project was completed and closed in March 1984. The project completion report distributed in November 1984 showed an economic rate of return (ERR) of 17Z on that investment. A US$210 million credit (Cr. 954-IN) was approved in October 1979 for the Maharashtra Composite Irrigation II Project (MCIP II) to finance a five-year timeslice of a composite project consisting of five new irrigation schemes, and the upgrading of two (Mula and Cirna) schemes. Project implementation is still under way. About 80Z of the proceeds of the credit (US$165 million out of US$210 million) was disbursed by September 1984. The Credit is expected to be exhausted by the closing date of December 31, 1985. Of the eight subprojects included in the package, two are ahead of schedule, four are on schedule, and two are behind schedule; the latter two were not expected to be completed within the project period. In 1983, IDA and the Bank approved a credit of US$32.0 million and a loan of US$22.7 million for the Maharashtra Water Utilization Project (MWUP), which was designed to increase effective utilization of the available irrigation water supplies. The project financed: (i) upgrading of irrigation and drainage systems of selected areas covering 95,000 ha in five irrigation schemes; (ii) training; (iii) adaptive research; and (iv) improved water management. Project implementation is proceeding satisfactorily. PART IV - THE PROJECT Background 43. The project was appraised in September-October 1984. Negotiations were held in Washington in February/March 1985 with the Indian delegation coordinated by Mr. A. Thapan, Deputy Secretary of the Government of India's Department of Economic Affairs, Ministry of Finance. The Staff Appraisal Report (No. 5376-IN) dated June 18, 1985 is being circulated separately. A supplementary data sheet is attached as Annex III. Project Rationale 44. The Bank already has assisted the GOM in developing the Jayakwadi/Majalgaon scheme through MCIP I (Cr. 736-IN), MCIP II (Cr. 954-IN) and MWUP (Cr. 1383-IN/Ln. 2308-IN). MCIP I financed the completion of the construction of the main and distributary canal network -14- of Jayakwadi command. MCIP II focussed on state-wide institution building - staff training, and development activities in the pilot command area. Valuable lessons have been learned from the previous projects on the black cotton soils, especially with regard to engineering, field preparation and tillage practices. These lessons have been built into the proposed project, particularly with regard to canal lining technology, appropriate landshaping, cropping patterns and agricultural practices. Further Bank assistance is needed specifically to: (i) complete the remaining infrastructural works and works for the new parts of the command on time and to appropriate standards; and (ii) introduce improved managerial techniques and technologies needed to cope with the black cotton soil of the Deccan, to improve agricultural production. Bank involvement through this project--especially with regard to modern irriga- tion practices, adaptive research, planning and design for land shaping and drainage--would enhance and accelerate the benefits from the expanded infrastructure and improved institutional capability financed under MCIP I and MWUP, and would enhance the effectiveness of GOM's new investments in irrigation. Project Objectives and Description 45. The main objective of the project is to raise agricultural produc- tivity and farm incomes through the expansion of irrigated areas, expanded use of improved agro-techniques and efficient utilization of available water supplies. The project would encompass two commands: Jayakwadi (200,000 ha), and Majalgaon (100,000 ha). The main project components for Jayakwadi would be: (i) completion of irrigation systems on about 45,500 ha; (ii) completion of main drains and link drains on about 153,000 ha; (iii) construction and/or rehabilitation of 537 km rural roads; (iv) construction of field channels, drains and structures on about 68,000 ha and field-channel protection on about 102,000 ha; (v) landshaping of about 128,000 ha; (vi) development of three Specially Developed Distributaries (SDDs) on about 7,300 ha; and (vii) technical support to farmers. For Majalgaon, the project would include: (i) construction of 116 structures along Km 0-67 of the main canal; Cii) construction of the main canal between Km 67-100, including lining and structures; (iii) construction of the distribution system up to the 1-cusec outlet in an area of about 57,000 ha; (iv) construction of main and link drainage on about 24,000 ha; (v) construction of 120 km rural road network; (vi) on-farm developments and landshaping of about 24,000 ha; (vii) the development of Majalgaon SDD (4,000 ha); and (viii) technical support to farmers. Other investments would include: (i) equipment for landshaping, telecommunication and monitoring; (ii) strengthening of monitoring and evaluation capabilities within the project; (iii) technical and agricultural extension and research support; and (iv) training, studies, study tours and consulting services. Detailed Features 46. Canal Construction. The project would provide funds for the construction and lining of about 60 km of main and branch canals, 615 km -15- of distributaries, and 1550 km of minors. All canals down to the one cusec level would be lined. A backing of cohesive non-swelling material will be used whenever the alignment passes through black cotton soils. 47. Field Channels. About 6,800 km of field channels would be con- structed to Link the chak outlets with each farm (or group of farms if less than one ha). The field channels would be sodded and provided with selective protection over about 20Z of their lengths-the field channel would be about 70m/ha, of which about 14m/ha would require protection. 48. Main, Link, and Field Drainage. About 2,120 km of main drains and 3,500 km of link drains would be constructed to connect the chak drainage systems to the natural drainage channels. In addition, about 4,500 km field drains would be constructed and completed before landshap- ing starts. Protective structures would be constructed where necessary. Field drains are needed on black cotton soils to drain the heavy monsoon rains, dispose of excessive irrigation water, and keep a low water table in the soil profile. The field drainage plans prepared by the Command Area Development Authority (CADA) of the State Command Area Development Department (CADD) will be part of the overall land development planning. 49. Roads. About 657 km of rural roads and 250 km of service roads would be upgraded or constructed. The service roads would be part of the construction of the main and distributary irrigation canals and drains of the project. Network density would be designed to ensure all-weather access to within 3 kms of any part of the irrigated area, and to all villages with a population of more than 1,500 within the command. The Public Works Department (PWD) would construct and maintain the roads of the project. 50. LandshapinS. Landshaping is necessary to achieve productivity levels assumed under the project. The farmers would be provided with technical support to undertake landshaping that would conform to an over- all chak plan. CADA would prepare the overall plan and supervise its implementation. Landshaping would be carried out in one of three ways: (i) farmers using their own resources; (ii) farmers receiving technical advice, but not financial support; and (iii) the Maharashtra Land Development Corporation (MLDC) would finance the work carried out by rADA for farmers who need both financial and implementation assistance. The GON would establish a special fund to ensure timely provision of financing to farmers for carrying out landshaping of their fields. In addition, the GOM would make adequate arrangements for the recovery of the costs of landshaping (draft Project Agreement, Section 3.06(a) and (b)). Initially, the loans would be on existing standard terms for institutional Credit (10 years repayment period including two years of grace, with interest at 10.25% per annum, for creditworthy farmers; and 13.4% per annum for farmers who have defaulted in the past and/or have no security). However, GOM is carrying out a socio-economic study which will constitute a basis for determining appropriate terms and conditions for landshaping loans. The Study is expected to be completed by December 1986 (draft Project Agreement, Section 3.07). -16- 51. Specially Developed Distributaries (SDDs). CADA would establish and manage four SDDs to demonstrate the potential of accelerated agricul- tural development. The SDDs would facilitate the testing of technical and organizational solutions, and help to accelerate agricultural development. Substantial managerial support would be provided, and improved irrigation practices would be introduced. The main activities would be to: (a) develop irrigation and cultural practices that would maximize agricul- tural production; and (b) identify the constraints to increasing the production of potentially viable crops now grown only on a very small scale. The COM would by December 31, 1985, submit to IDA a comprehensive plan for establishing and maintaining the four SDDs (draft Project Agreement, Paragraph (f)(ii) of Schedule 2). 52. Agricultural Extension Support. The extension service is being reorganized under the Maharashtra Agricultural Extension Project (Cr. 1135-IN). To enable the expanded staff to work effectively, provi- sions have been made for construction of houses for all VEWs and AOs assigned to the area, office space for any new subdivisions and for the Principal Agricultural Officer (PAO), who would head the agricultural extension district that would cover the project area. 53. Equipment. Funds would be provided to purchase equipment for landshaping, SDDs, operation and maintenance (O&M), and monitoring and evaluation (M&E). The equipment would include elevating scrapers, graders, crawler tractors with dozers, laser beam equipment, drip and sprinkler equipment, vehicles, telecommunication equipment, and spare parts. GOI would issue all the necessary authorization and permits regarding the telecommunication equipment (draft Credit Agreement, Section 3.02). 54. Technical Services. Specialized farming support services closely linked to adaptive research would be provided. These would cover cultural practices, design or modification of animal-drawn implements, field irrigation practices, water distribution in the field, and cultivation methods in the project area, especially in the SDDs. The special techni- cal services would be provided by a team of experts who would demonstrate the results of their work to CADA and extension staff as well as farmers. The GON would: (i) prepare special technical services working plans by December 31, 1985; (ii) prepare research plans acceptable to IDA for implementation in the SDDs; (iii) employ the team by January 31, 1986 (draft Project Agreement, Paragraphs (b) and (d) of Schedule 2). 55. Investigation, Training, and Studies. The project would support training and studies which would include: (a) strengthening training facilities in WALMI and CADA for technical and operational staff and for farmers; (b) study tours of key personnel of CADA and AD to suitable areas with problems similar to those encountered on the vertisols of Maharashtra; (c) water management research and overall system operation studies, to improve water use efficiency in the project area; (d) establishing a soils laboratory which would investigate fertility, -17- irrigation and soil mechanics problems; and (e) investigating and refining appropriate farming technologies. The COM would submit to the Bank detailed timetables and plans for each of these programs by December 31, 1985 (draft Project Agreement, Paragraph (a) of Schedule 2). 56. The Irrigation Department would provide training for irrigation staff in water management and overall system operation. CADA would provide further training for the technical and operational staff and would intensify farmer training. The necessary additional training facilities for WALMI and CADA would be made available from the first year of project implementation. Project staff and farmers would be trained according to an agreed work plan and schedule. Plans would be prepared by December 31, 1985 (draft Project Agreement, Section 2.02(c)). 57. Water Hanagement. Maharashtra uses the Shejpali system of water management under which farmers apply for "sanctions" (permission to use irrigation water) seasonally for annual crops, and up to six years for perennials. Under this system, it is difficult to manage the use of irrigation water efficiently. With the project, the COM would introduce a modified system or rotational water supply (RWS) called rigid shejpali, which would make the managing of water distribution easier and thereby improve irrigation efficiency. Furthermore, (i) the ID would supply the sanctioned amount of water at the prescribed time; (ii) crops would be sanctioned in such a way that the volume of water would be proportional to the farmers' CCA; (iii) irrigation schedules would be prepared before the season began and would be based on the crops sanctioned; (iv) in kharif, supplementary irrigation would be made available in any distributary conmmnd whenever more than half the farmers request water. Organization and Management 58. The State Irrigation Ministry, through its Command Area Development Department (CADD) would have the primary responsibility for project execution. The Agriculture (AD) and Cooperative (CD) Departments would be responsible for providing Agricultural services. The CADD is headed by a Commissioner who is equal in seniority to the Secretary of the Irrigation Ministry. A State Cabinet subcommittee directs the CADA policy. The CADD Commissioner prepares annual development and financial plans in conjunction with the Secretaries of Finance, Agriculture, Irrigation, and Public Works, and all the other departments concerned. There are 13 CADAs in the State, each headed by an Administrator who coordinates all activities within a CADA. The CADA undertakes construc- tion up to the chaka outlet (24 ha), drainage, and service roads; the AD renders technical advice; the Public Works Department constructs and maintains the command area roads; and the Cooperative Department coor- dinates the supply of credit for the purchase of seeds, fertilizers, and pesticides. 59. Construction if all works (except land development) and their subsequent maintenance in the Jayakwadi/Majalgaon complex, are the respon- sibility of the CADA Administrator in Aurangabad. The GOM would upgrade -18- the position of the CADA Administrator in Aurangabad to Chief Engineer level, and would organize four sub-commands, in order to make the Jayakwadi/Majalgaon CADA more effective, but at the same time retain a unified overall command. The reorganization of Jayakwadi/Majalgaon CADA would be completed by December 31, 1985 (draft Project Agreement, Paragraph (e) of Schedule 2). 60. Quality Control. All on-farm-development (OFD) activities-- including survey, design, planning, and construction--are carried out by the appropriate divisions under the supervision of the CADA Deputy Administrator. Additional divisions would be established under the project. Quality control would be a responsibility of a Technical Unit of CADA established for that purpose. The Unit would prepare annual schedules and carry out systematic spot checks in parts of the project. It would control physical works, including earthworks, concrete gate fabrication, and design. The COM would ensure adequate quality control by CADA (draft Project Agreement, Section 2.02(d)). The GOM would carryout planning, design, construction, operation and maintenance of the dis- tributory canals, minor canals, drainage channels, link drains, service and rural road networks in accordance with criteria and standards satis- factory to IDA (draft Project Agreement, Section 2.02(a). 61. Operation and Maintenance (OEM). The operation of the canal system up to chak outlets in Jayakwadi and Majalgaon is the responsibility of CADA. The GOM would operate and adequately maintain the distributaries, minors drainage channels, link drains, service roads, and buildings under the Project, in keeping with sound engineering principles and standards. For that purpose, the CADA would carry out annual surveys of the required repairs in each irrigated system. Outlet Committees (OC) would be responsible for O&M within the chaks. However, the farmers would bear the O&M costs. The GOM would repair and maintain the field irriga- tion and drainage channels where the maintenance works performed by the OC are inadequate, and would recover the cost from the farmers concerned in conjunction with land revenue. 62. Project Steering Committee. The GOM would establish a Project Steering Committee to review progress and guide the CADA Administrator responsible for project execution. The Committee would consist of the Secretary, Irrigation Department (Chairman); Commissioner, CADA; Director of Agriculture; Chief Engineer (Special Projects); Joint Director of Agriculture (T&V); Director of Research, Parbhani University; and Administrator, CADA (Member Secretary). The Committee would meet once every six months to review the program, and emphasis in the first two years would be on the SDDs. On the basis of expert advice, it would suggest modifications in the plan of operation. The committee would be established by August 31, 1985 (draft Project Agreement, Paragraph (f)(i) of Schedule 2). 63. Farmer Organizations. Farmer Organizations would be established in the project area at three levels. At the chak levels, outlet commit- tees comprising at least three farmers, the Canal Inspector (CI) respon- -19- sible for operating water supplies to the chak and Agricultural Assistant (AA) would be organized. These groups would be responsible for distribut- ing water according to rotational water supply schedules, preventing unauthorized irrigation, and maintaining field channels. The outlet committees would be formed as soon as the chak boundaries were established. They would be consulted on layout of field channels, loca- tion of farm outlets and crossings, and constraints on the present system. Secondly, in the minor and distributary branches, water utilization com- mittees (WUCs, also known as Pani Panchayats) comprising four farmers' leaders, the CI, and Junior Engineer (JE) would be organized for each minor. The third level would be the main channel, where canal advisory committees (CACs) would be established and would comprise five to ten members of the WUC, the EE, ADO, AE, Planning Officer of the Zilla Parishad, and a representative of the local sugar factories. The CAC would develop the irrigation program, monitor performance of the main system, correct deficiencies, and suggest improvements. All three types of organizations would improve communication between the farmers and the implementing agencies and would promote farmer participation. In order to promote more active participation of farmers, the GOM would establish the farmers' organizations in the project command area in accordance with a plan satisfactory to COM and IDA (draft Project Agreement, paragraph (i) of Schedule 2). The CADA executive committee, which includes farmers representatives, would oversee the function of the local committees. 64. Monitoring and Evaluation (M&E). The monitoring and evaluation unit -.mder CADA would be strengthened and would (i) monitor planning and scheduling of design and construction activities, expenditure and reimbursements, irrigation performance, and groundwater recharge and extraction; (ii) compile and evaluate crop input and yield data; (iii) collect data about water charges, climate, and staff posting and training. A special M&E cell would be established within the M&E Unit of CADA to monitor the four SDDs and adjacent control distributaries. The GOM would (a) submit to the Bank a plan for monitoring and evaluating activities by December 31, 1985; (draft Project Agreement, Paragraph (h) of Schedule 2); and (b) submit semiannual progress reports within three months after the end of each reporting period starting June 30, 1986 (draft Project Agreement, Section 2.05). 65. Cost Recovery. The COM recovers irrigation costs in different forms including taxes on marketed agricultural output, cesses, direct collections from farmers in respect of landshaping costs and water charges. With regard to water charges, Maharashtra has the second highest level of water charges among the States of India. The water charges are fixed roughly in proportion to the amount of water the crop uses and the value of water in the season of use (perennial crops, Rs 750/ha; hot season crops, Rs 200/ha; rabi crops, Rs 75/ha; and kharif crops, Rs 50/ha). The charges are reviewed every five years against GOM's policy of recovering O&M costs plus a part of the capital costs. With Bank assistance, the GOM has carried out studies on alternative watercharge systems, including the feasibility of a volumetric charge system (which would be too difficult and expensive to operate). It is proposed to -20- continue with crop-specific watercharges for perennial crops, in the rabi's hot seasons. In the kharif a flat fee per hectare of cultivable command area would be levied. This would entitle the farmers to receive irrigation water to supplement scarcity of monsoon rains in any dis- tributary command wherever more than half of the farmers request water. It is planned to intensify the efforts of improving farmers' understanding of the benefits of supplementary irrigation in kharif. 66. The GOM's collection of water charges has improved and is now about 802 of total assessments State-wide. Collection is much lower immediately after commissioning of major surface projects but improves as they mature. Under this project, the GOM would: (i) review the level of water charges every two instead of five years; (ii) make supplementary kharif irrigation water available on any distributary whenever half the farmers request water, against a flat fee charged per ha of CCA; and (iii) conclude its study on O&M costs for irrigation projects by December 31, 1986, submit the study to IDA for comments, and on the basis of the recommendations of the study and IDA's comments, determine the appropriate annual budgetary allocations for O&H (draft Project Agreement, Section 3.04(a), (b) and (c)). Starting April 1, 1987, GOM shall make annual budgetary allocations to cover the average costs of operation and maintenance of irrigation projects during the next fiscal year (draft Project Agreement, Section 3.05). Project Costs and Financing 67. The total project costs are estimated at US$322.7 million equivalent. Foreign exchange costs are estimated at US$33.2 million equivalent (about 10% of the total costs). Physical contingencies amount to approximately US$29.1 million; price contingencies amount to US$63 million and are based on expected inflation rates of 8.5Z per year for local expenditure; and 8% for 1985, 9% for 1986, 1987, and 1988, and 7.5% thereafter for foreign expenditures. 68. The proposed IDA credit of US$160 million equivalent would finance about 50% of the total costs, including 100% of foreign expenditure and about 44% of the local costs. The balance would be borne by GOI and COM. Procurement and Disbursement 69. Annex IV, attached, details the manner in which items would be procured under the project. Civil works (including physical and price contingencies), for the main and branch canal systems would cost about US$194.6 million. About US$25.0 mil'lion of the works would exceed US$6.0 million per package and would be procured under ICB. Works would be packaged whenever practical in order to attract competition from large contractors, but bids would be allowed in parts of the packages to encourage small contractors to participate as well. The balance, which would be small works scattered over large areas, would not be suitable for ICB. They would be let through local competitive bidding (Us$111.3 million), work order (US$19.3), and by Departmental forces -21- (US$39.0 million). CADA works (US$83.3 million) would be scattered over the entire project area and would be awarded at different times. None of the CADA c.ntracts would be suitable for ICB. Procurement would be under LCB (US$45.4 million), work order (US$13.3 million), and Departmental forces (US$24.6 million). Equipment and vehicles would cost about US$5.8 million, of which about US$5.1 million would be grouped in approximate bidding packages costing each US$100,000 or more, and procured through ICB, and the balance through LCB procedures. A preference (limited to 15% or the customs duty, if lower), would be extended to local manufacturers in the evaluation of bids. Light equipment and vehicles (about US$0.6 million) are readily available domestically. Because accessibility to spare parts and prompt service facilities are essential, considerable advantage would be derived from procuring locally manufactured light equipment and vehicles. These would be procured under LCB procedures satisfactory to the Bank Group. All bidding packages for works estimated to cost US$0.5 million or more and ICB packages for goods would be subject to the Bank Group's preaction review. The remaining contracts would be subject to the Bank Group's post-action reviews. In order to facilitate early start of project execution, retroactive financing not exceeding US$5 million would be provided for eligible expenditures incurred after September 1, 1984. 70. Disbursements would be made for (i) 55Z of expenditures for civil works; (ii) 100% of foreign expenditures for vehicles and equipment; (iii) 100% of ex-factory costs of locally manufactured vehicles and equipment; (iv) 70% of other locally manufactured vehicles and equipment; (v) 70% of the costs for monitoring, the SDDs, houses for technical staff; and (vi) 100X for soiL lab, special surveys, training programs, study tours and technical services. Disbursement for civil works would be made against certificates of expenditure itemized by project component. Disbursements for work within a chak would only be made upon full comple- tion of the field work. Disbursement requests for such work would be submitted together with a completion certificate duly signed by the AE in charge, and stating that all works in the chak have been completed in accordance with the agreed upon planning and design criteria. Disbursements for payments of less than Rs 300,000 for works (including departmental works) or Rs 150,000 for goods; incremental staff cost for training, adaptive, and engineering research; monitoring and evaluation; and the costs for the special surveys and study tour would be against certificates of expenditures. Documentation for these works would be retained by GOM and made available for inspection by the Bank Group during review missions. Full documentation would be required for all other disbursements. The expected rate of disbursement follows the typical disbursement profile in the indian irrigation sector. Benefits, Justification, and Risks 71. The project would inc-ease agricultural production and farmers' incomes by increasing yields of existing crops and permitting more inten- sive cultivation of farmland through irrigation. The annual incremental agricultural production at full project development would be for -22- sugarcane, 692,000 tons, straw, 481,000 tons, bananas, 469,000 tons, sorghum, 440,000 tons, groundnutst 100,000, sunflower, 78,000 tons, wheat, 49,000 tons, vegetables, 37,000 tons, paddy, 30,000 tons, pearl millet, 28,000 tons, chickpea, 23,000 tons, and green and black grain, 20,000 tons. The total value of agricultural production would increase by about US$220 million per year. About 66,000 farm families would benefit directly from the project: the project would generate 95,000 full-time additional jobs, and more than 50% of the additional employment would go to the landless families in the project area and to migrant Laborers from poorer neighboring districts. 72. The economic rates of return for the different sLbareas of the project range from 13X to more than 40%, and for the overall project about 20%. The sensitivity analysis, carried out to determine how deviation from the maia assumptions (including investment costs, farmer response, yield levels and implementation delays) affects the ERR, indicates that the project could tolerate much larger deviations in variables than are judged likely to be at risk. 73. Since in the past the irrigation service was not reliable, there is a risk that farmers initially may not have adequate incentive to fully utilize the irrigation facilities under the project. In order to minimize the risk, the project provides for system operation methods which will facilitate provision of a reliable water supply to all farmers including the tailenders. In addition the project calls for the establishment of comprehensive farmers' organizations which will explain the benefits of utilizing the irrigation facilities provided. Another risk is that the yield levels may be lower than expected because of the technical problems of managing the black cotton soils. In order to minimize this risk, the project includes a large scale landshaping componenc which will improve irrigation efficiency, the proposed SDDs, research and development activities, and the technical services which would facilitate achievement of increased yield levels. In addition, it provides for comprehensive monitoring and evaluation to closely follow-up project performance and to undertake timely corrective actions. Environmental Effects 74. The project is not expected to create adverse environmental conditions. With MCIP I, IDA assisted GOM's Health Department to effec- tiveLy control malaria and reduce its incidence in the project area. The Department now provides adequate services and is expected to continue to take all necessary measures to minimize the risk of malaria and other water-related diseases within the project area (Section 2.06 of the Project Agreement). PART V - LEGAL INSTRUMENTS AND AUTHORITY 75. The draft Development Credit Agreement between India and the Association, the draft Project Agreement between the Association and the -23- state of Maharashtra and the Recommendation of the Committee provided for in Article V, Section Itd) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 76. Special conditions of this project are listed in Section III of Annex II. 77. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 78. 1 recommend that the Executive Directors approve the proposed credit. A.W. Clausen President June 20, 1985 T A A L L3 Page 1 of 5 mIIDI -WsoCinScoAL I NAV S NDIDA EDERhIC ChbINS {IZICNED AYELRSJS ta m (MOST mICmr ST=TIMAE .r 12CM! LW INcME MIDD ASinG 1196o&L itm EST=MasLh SIA L PCwFC Sn a AcIFC A (THSAnD m) TOTAL 3287.6 3287.6 3287.6 AGRICULTUtUL 1763.5 1780.5 I182.3 y a CAIrn C(13") 60.0 100.0 260.0 278.b 1091.2 1m inuuna PM CAPITA (KnAMS OF OIL EQUIVALNaT) 79.0 113.0 1580 272.0 567.3 PODULATIONMIl-!EXIA CT5OOSAf) 434849.0 541569.0 716985.0 IIR8AI POPULATION (Z OF TOTAL) 18.0 19.3 24.1 21.7 34.7 POPULATION PROJECTIN POPULATION IN EA 2000 ML) 994.4 STATIOnARY POPULATION (MILL) 1707.2 POPULATIO MOIEWh 1.7 POPULATION Dm r PZE SQ. NM. 132.3 166.6 213.4 166.6 261.9 Pm SQ. KM. AGSR. LAND 246.6 307.5 387.1 345.5 1733.1 POPULATION AGI! STRUCTUrE CZ) 0-14 RS 40.9 42.7 39.3 35.8 39.0 25-"4 YRS 54.5 54.2 57.6 59. 57.6 65 AND AOVE 4.6 3.1 3.1 4.3 3.3 POPUIATION CROST RATE (l) TOTAL 1. 2.3 2.2 1.9 2.3 URBAN 2.5 3.3 3.9 4.1 4.3 CRUDE BIRTH RfTl (PM THOUS) 47.7 4134 36.2 27.7 30.1 CRUDE LANK RlTE (PER THOUS) 23.8 17.8 12.7 lOfl 9.5 GROSS RmiPioCaiON RATE 2.9 z. 2.2 1.8 2.0 FIJTLY PLAIUI ACCEPDORS, ANNUAL (TH0S) 64.0 3782.0 6826.0 USERS (Z OF MAIED C ) .. 11.7 28.0 . 52.7 POOD A 0 IN=EX OF FOOD PROD. PER CAPITA (1969-71-100) 98.0 102.0 101.0 11L8 123.0 PU CAPTTA SUPPLY OF CALGRIES (I OF REQrRSTIIrS) 96.0 91.0 8b.0 97.7 114.4 PROTEIS (CRAMl PnU 6T) 54.0 50.0 46.0 56.8 57.0 OF DUICII A!IAL AND rulsE 27.0 15.0 13.0 lc 14.9 14.1 CHILD (AGZS 1-4) DEATH RATE 26.2 20.7 12.0 9.8 7.2 LIM EXPECT. AT 3TRTH (YEARS) 42.5 47.5 54.6 60.0 60.4 INFAaT ICKY. RATE (PER TIIW5) :65.0 139.0 94.0 83.8 66.3 ACCESS TO SAFE WATER (DPOP) TOTAL .. 17.0 33.0 /d 32.9 37.0 URBAS .- 60.0 83.0 /d 70.9 54.8 RURAL . 6.0 20.0 7d 22.1 26.4 ACCZESS TO EUCRA DISPOSAL (I OF POPULATION) TOrAL .. 18.0 20.0 Ie 28.1 41.3 DtRIAN .. 8S.0 87.0 77 72.8 47.4 RURAL .. 1.0 2. 0 77 4.6 33.3 POpULATTON PER PYSICIA 4850.0 4890.0 3690.0 If 3484.Z 7749.4 POP. PR NUMSINC PERSON 10980.0 Jg 7420.0 460.0 7W 4793.1 2460.4 POP. PER HOSPITAL rED TOIAL 2180.0 1650.0 1290.0 if 1066.5 104k42 URBN .. .. 370.07o 298.0 651.2 RURaL .. .. 10410.07 d 93.4 2594.6 ADIISSIONS PER NOSPITLL BED .. .. .. ., 27.0 AVERAG* SIZE OF HOUSEHOLD TOTAL 5.2 5.6 5.2 l- URBA-N 5.2 5.6 4.8 77 Te RURAL 5.2 5.6 5.3 77 AVERAGE NO. OF PERSONS/ROd TOTAL 2.6 2.8 UUAN 2.6 2.8 RURAL. 2.6 2.a ACCESS TO ELECT. (1 OF DICILINCS) -' T0til ._ .. . .. .. - BRMN ,134. .. .. TOTAL -' ' ANNEX I -LLXL. M Page 2 of 5 IINDO - 6001:1. INOUL CTl DIATA INRUT Z>~~~~~~~~umc noun CVKWI AVUAZU p 110tT (M UCDS *Us) lb RECaT LOW 1NC PUDLE 19tO8L 197g!! Eiiii1aT AU:A 6 PACIFX ABI A ACZ ADJUTED hNULINN RATIOS nPrt TOA 6l.O 73.0 79.0 97.4 102.0 KIAL 80.0 90.0 93.0 110.5 105.9 73HALC 40.0 56.0 64.0 13.7 91.2 SRCORTYs TOTAL 20.0 25.0 30.0 35.9 46.0 NALE 30.0 36.0 39.0 44.6 48.7 FZIAl 10.0 15.0 20.0 26.L 43.1 VOCATIONL (2X o SECONDRY) 2.8 L. 0.7 /a 2.2 17.5 PUPIL-TEICHER RATIO PRLMARY 46.0 41.0 54.0 38.5 31.6 SECONDARY 16.0 21.0 .. 18.7 23.5 ADULT LrTERACY RATe (Z) 27.8 34.1 36.2 53.4 72.9 PASSENl CARS/THOUSAND POP 0.6 1.1 1.4 fh 0.9 10.1 toI RICZKvhRSlTHOUSBaND POP 4.9 21.5 43.6 112.1 113.6 TV RZCIENJ/7=OUSAf POP 0.0 0.0 1.7 15.7 50.1 NESSPAPES ("DAD.Y CUERAL INTEREST") CIRULATO PER THOUSAND POPULATION 10.6 16.2 19.4 A 16.2 53.9 CINEIA AMNNAL ATTEUDANCEJCAPTIA 3.2 6.2 3.7 j 3.6 3.4 TOTAL LABOR FORCE (THOUS) 185951.0 219196.0 282169.0 FEKLs (CPICENT) 30.7 32.5 31.8 33.3 33.5 ACCULTURz (PERCENT) 74.0 74.0 71.0 69.6 52.2 INUWERY (PERCENT) 11.0 11.0 13.2 15.8 17.9 PARTICIPATOIN RATE (PERCENT) TOTAL 42.8 40.0 39.4 42.6 3L7 1AIE 57.0 52.4 52.0 54.7 50.9 FEMALE 27.3 26.9 25.9 29.8 26.6 ECONOMIC DEPENDENC RATIO 1.1 1.1 1.1 1.O 1.1 PERCENT OF PRIVATE INCOE RECEIVED NB HICHEST 55 OF EDUSEIDLDS 26.7 26.3 1 22.2 1 22.2 22.2 HI 202 OF OUSEOLO 51.7 48.9 A 49.4 48.0 48.0 LOwEST 202 OF HOUSCHOLDS 4.1 6.7 [ 7.0 2 6.4 6.4 LOwEST 402 OF BOUSKUOLDS 13.6 17.2 f 16.2 A 13.5 15.5 ESTIMATED ABSOLUTE PDVERTY 1ICCIE LEVEL (USS PER CAPITA) URBiN .. .. 132.0 bh 133.9 188.6 RURAL .. .. 114.07j 111.6 152.0 ESTlMATED RELATIVE POVERTY INICa LEVEL CUSS PCR CAPTITA) URBAN .. .. .. .. 177.9 RMtAL .. .. .. .. 144.6 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCCOE LEVEL (Z) URBAN .. .. 40.3 / 43.8 23.4 RURAL .. .. 50.7 51.7 37.7 NOT AVAIABE NOT APPLICABLE N O T I s / The group aYarqps for achb Inditor are populetin-uigLhbd arith_tc manse. CoGrag. of coutrim anaM the Indicators depenod oa avatlabtity of data ad e not unform. /b Unle.. otberwlee noted. "Data for 1960" refer to any yar between 1959 and 1961; "Date for 1970" betwee 1969 and 1971; and data for "Ibut Recent Eotteate" betwen 1980 and 1982. Ic 1977; Id 1976; l. L975; If 1978; .a 1962; /h 1979; 1i 1964-65. JUNE, 1984 ANNE I Page 3 of 5 611.1titsul1. itt.l sc . dam 1- -..N-s 4-..-all Nmalljad mI N- ..haIsa. 4 .1 .. It aMal1 .1.5 a. -4.4tl. "a . -,w 1- aM. W-.aait-lap b-.a . .eg.lI. e .4 _....i.ai.. i.sa..a- .4 _.Wa. a- b8. am41.. -p. a. ..a-..aa.sftm dht.- l. isa *1. 16lhatss a-W . -ftP4.9.16.1 ~90MI.4. 14iLeW.- lnms. ag -hmsp. .t.. ..J. dt1st1 .. b.-. 4-al"-5 Ta.... i- ** -a
Groupe de la Banque mondiale · Memorandum & Recommendation of the President
India - Third Maharashtra Composite Irrigation Project
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Groupe de la Banque mondiale
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Memorandum & Recommendation of the President
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Inde
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Banque mondiale