India - National Water Management Project

D_cmt of The World Bank FOR OMCL&L USE ONLY C68. /?aD1 Report No. P-4468-IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 93.2 MILLION TO INDIA FOR THE NATIONAL WATER MANAGEMENT PROJECT February 26, 1987 r This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization-  CURRENCY EQUIVALENTS US$1.00 = Rs 13.0 The US Dollar/Rupee Pxchange rate is subject to change. Conversions in the Staff Appraisal Report were made at the US$1.00 = Rs 13 which represents the average exchange rate at the time of the appraisal. Principal Abbreviations and Acronyms CO - Government of India ISTF - Institutional Strengthening and Training Fund O&M - Operation and Maintenance  FOR OMCLIL USE ONLY INDIA NATIONAL WATER MANAGEMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President (GOI) Beneficiaries: Government of India (GOI) Government of Andhra Pradesh (GOAP) Government of Karnataka (COK) Government of Maharashtra (CON) Government of Tamil Nadu (COTN) Amount: IDA Credit: SDR 93.2 N (US$114.0 M equivalent) Terms: Standard Re-Lending Terms: From the GOI to the GOAP, GOK, GOM, and GOTN as part of central assistance for State development projects on terms and conditions applicabLe at that time. GOI would bear the foreign exchange risk. Financing Plan Local Foreign Total ----(US ffillion)-- - GOI/Participating States 43.0 - 43.0 IDA 104.9 9.1 114.0 Total 147.9 9.1 157.0 Economic Rate of Return: 371 Staff Appraisal Report No.: 6468-IN This document has a restricted distribution and may be used by ecipients only in the perfomnce of their official duties. Its contents may not otherwise be disclosed without World Dank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OP THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE NATIONAL WATER MANAGEMENT PROJECT 1. The following report on a proposed Development Credit co India for SDR 93.2 N (US$114 M equivaLent) is submitted for approval. The proposed credit would be on standard IDA terms and help finance improved water management in irrigation projects mainly in Andhra Pradesh, Karnataka and Tamil Nadu. The proceeds of the credit voul4 be channelled to the participating states in accord- ance with the Government of India's (COI) standard terms and arrangements for the financing of State development projects. The exchange risks would be borne by the GOI. 2. Background. Agriculture continues to be the dominant sector of the Indian economy, contributing about 3b% of GNP and directly employing over 70Z of the total labor force. Foodgrain production accelerated substantially during the 19609 with the advent of the green revolution and the introduction of high-yielding varieties of wheat and rice. During recent years, output has continued to increase by about 2.1% per year. The development of irrigation has been a major factor in improving agricultural performance. Irrigation has con- tributed directly by increasing the area cropped, reducing crop losses due to deficient rainfall, and by encouraging diversified cropping and the use of high yielding varieties of seeds and other improved inputs. 3. Despite the undoubted achievement of irrigation development, yields in many irrigated areas are well below potential because irrigation supplies are unreliable; in addition, the distribution of water is often inequitable, leading bo overuse in some areas and shortages elsewhere. These problems result from inadequacies in both the management of irrigation systems and the physical infrastructure. 4. Project Objective. The project aims to increase productivity and farm incomes in existing irrigation schemes. To achieve this, the project would provide low-cost infrastructural improvements in selected schemes to support newly developed, more efficient operating plans. The selection of the three States reflects past Bank involvement in water management programs in these States, the promising results that have been obtained, and their demonstrated interest in participating in the project. The project would also reinforce institutional capacity at the State and Central levels to improve water manage- ment more broadly. 5. Project Description. The main element of the project is a seven-year program to plan, implement and monitor improved operation and maintenance in selected irrigation schemes (see attached Maps). Though focussed on three states, this program also provides for smaller pilot efforts in other states. The principal components would be: (i) scheme investments including repairs,  -2- renovation, additional control structures, measuring devices and upgraded opera- tion and maintenance (O&M) facilities required to execute improved operational plans in up to 20 schemes with a total of almost 600,000 ha of irrigated area; (ii) institutional strengthening; (iii) scheme specific training programs; and (iv) special studies. 6. The project would also include two other components related to the general objectives of improved water management in India: (i) the Maharashtra Induction Training Program, which will provide training for engineers recruited into the Maharashtra Irrigation Department; and (ii) an Institutional Strengthen- ing and Training Fund (ISTF) to be managed and implemented by GO! and state agencies to finance studies, data collection, and other preparation activities for possible future irrigation projects. 7. The total cost of the project is estimated at US$157 N equivalent includ- ing taxes and duties. Foreign exchange costs are estimated at US$9.1 M (6%). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in India are given in Schedule C & D respectively. The Staff AppraisaL Report No. 6468-IN, dated February 20, 1987, has been circulated separately. 8. Rationale for IDA Involvement. Improving the productivity of existing investments is a primary objective of GOI in the irrigation sector. While irrigation has contributed greatly to India's success in increasing foodgrain production over the past 20 years, the returns to investment have been lower and less well distributed than they would have been if water management had been given adequate attention. Improved management of irrigation projects depends fundamentally on initiatives by field staff who plan, direct, and execute canal system operations. But agencies such as IDA or the central government can also have an important and sometimes essential catalytic role in the process. First, the process of defining a plan of operation promotes constructive questioning of traditional norms and practices, and provides a forum where new ideas--often provided by the existing staff--can legitimately be discussed with senior officers. Second, an outside agency can often bring proven ideas from other states, or help avoid approaches which have already failed elsewhere. Finally, by formalizing a plan of operation into a project, with institutional linkages to the state and central governments, the importance and benefits of improved canal operation will be highlighted. 9. Agreed Actions. During negotiations, agreements were reached with GOI and/or the participating states, as appropriate, on: (a) the detailed approval procedures for those schemes not already appraised and approved by IDA; (b) the presentation by November 30 each year of detailed project implementation plans; (c) the timely establishment of permanent Dam Safety Panels of satisfactory composition and with agreed responsibilities; (d) establishment of a properly staffed state level O&H Cell in each participating state and the timely funding and implementation of O&M as agreed in individual NWMP scheme plans; (e) the preparation, from experience gained in the pilot schemes and other schemes else- where in the states, and in consultation with IDA, of an appropriate Action Plan for improving state-wide O&M which will be formulated and initiated by December 3i, 1992; (f) the provision of adequate extension and research support relating to the project; (g) provision by end-1987 of detailed schedules for the several GOI and state project training activities not specific to or included in individual scheme plans; (h) satisfactory mechanisms for approval of activities  -3- supported by the Institutional Strengthening and Training Fund; and (i) the maintenance of proper accounts and provision of timely audits. Each of the states has (relating, in part, to agreements on other Bank Group operations) cost recovery policies under which recoveries--usually through both user charges and indirect taxes (e.g., sales tax on incremental marketed production)--cover full O&K costs and a share of investment costs. The project-supported improvement in the reliability of irrigation services is expected to enhance collection rates and farmer willingness to pay. Existing state policies, reinforced by agreements with the Bank Group, provide a basis for appropriate cost recovery under the proposed project. Detailed designs for the first year's construction program have been completed. 10. Justification and Benefits. The primary achievement of the project would be to establish a systematic and replicable approach to improving the utilization of previously created assets. In this sense, the physical works to be financed under the project represent in part a catalytic mechanism for introducing opera- tional improvements. Relatively minor increases in agriculturaL value added would more than justify the direct costs involved. Production increases are expected to stem from a combination of changing crop patterns, increasing irriga- tion intensity and improving yields--all made possible by increased reliability and improved distribution and efficiency in water deliveries. The economic analysis of the three schemes to be taken up in the first year of project implementation indicates an average economic rate of return of 37Z. 11. Risks. The major risks associated with the project relate to the plan- ning, implementation and sustainability of the operational programs to be sup- ported under the project. It gill take time for the O&M cells being set up in the states to establish fully the capacity to prepare good operational plans to the extent needed in the states. Similarly, while the project aims to provide field staff with the necessary guidance and support, there is no certain guaran- tee that they will be able to implement agreed programs--especially those involv- ing changes in water allocation to farmers--in the face of vested interests and the many other pressures which affect scheme operations. The project's success will depend on strong and steady support and funding from the state Governments concerned. 12. These risks are inherent in many projects in the irrigation sector. The project, however, provides significant opportunities for institutional strengthening and training which, together with firm funding commitments, should help moderate and resolve such problems in the longer term. While in certain cases the changes to be introduced may prove difficult to sustain, the potential agricultural benefits are such that these risks are acceptable, in particular since there is evidence from on-going schemes to suggest that significant benefits are achievable at relatively low costs. 13. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association; and recommend that the Execu- tive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. February 26, 1987  -4.- Schedule A INDIA NATIONAL WATER MANACEMENT PROJECT Local Foreign Total