India - Agricultural Development Project - Tamil Nadu

Document of The World Bank FOR OFFICIAI USE ONLY CA- /0Z / 6 Report No. P-5406-IN MEMORANDUM ANT) RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$20.0 MILLION AND ON A PROPOSED CREDIT IN AN AMOUNT EQUIVALENT TO SDR 64.1 MILLION TO INDIA FOR AN AGRICULTURAL DEVELOPMENT PROJECT - TAMIL NADU JANUARY 31, 1991 This document-has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may no: otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALENT UNXTS (as of June 1990) Currency Unt- uee t) US$ 1-= Rs 17.5 FTSCAL YaR April 1 to March 31 WEIGHTS AND MEASURES The metric system is used throughout the Report. ABRERIATIONS AM ACRONYMS APC - Agriculture Production Commissioner DAH - Directorate of Animal Husbandry DOA - Directorate of Agriculture GOI - Government of India GOTN - Government of Tamil Nadu NGOS - Non-Government Organizations  FOR OFFICUL USE ONLY AGRICtULTUL DEVELOPMENT PROJECT - TAMIL NA U Loan/Credit and Project Summary Borrower: India, acting by its President Reneficiaries: The State of Tamil Nadu AmoUnt: IBRD Loan US$20.0 Million equivalent IDA Credit SDR 64.1 Million (US$92.8 million equivalent) T4prmq: IBRD: 20 years, including 5 year grace period, at the Bank's standard variable interest rate. IDA: Standard with 35 years maturity. on-lending terms: Government of India (GOI) would make available the proceeds of the Loan and the Credit to Tamil Nadu (GOTN) under standard arrangements for developmental assistance to the States of India. GOI would assume the foreign exchange risk. Einancing Plan:- Local Foreign Total ----- (US$ million) ----- GOTN 18.0 0.0 18.0 Beneficiaries 2.5 0.0 2.5 IBRD/IDA 102.5 10.3 112.8 TOTAL 123.0 10.3 133.3 Economici Rate of Return: 14.6% Staff AB=raisal Report: Report No. 9080-IN IBRD No. 22663 This document has a rcstricted distribition 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL AND FOR RECONSTRUCTION AND DEVELOPMENT AND OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN/CREDIT TO INDIA FOR Au AGRICULTURAL DEVELOPMENT PROJECT - TAMIL NAQU 1. The following memorandum and recommendation on a proposed Loan of US$20 million equivalent and Credit of SDR 64.1 million (US$92.8 million equivalent) to India is submitted for approval. The Loan would be for 20 years, including a five-year grace period, at the Bank's standard variable interest rate. The Credit would be on standard IDA terms, with 35 years maturity. The Loan and Credit would help finance an agricultural development project in the State of Tamil Nadu. The proceeds of the Loan/Credit would be passed by the Government of India (GOI) to the Government of Tamil Nadu (GOTN) in accordance with its standard arrangements for developmental assistance to the states. GOI would assume the foreign exchange risk. 2. Bankground. Tamil Nadu, situated in south-east India, has an area of 130,000 km2 and a population of about 50 million. About 60% of the population are rural, and 40% live below the poverty line. Agriculture accounts for 30% of state GDP, and employs 60% of the labor force. Geographically, the State is bounded to the north by the state of Andhra Pradesh and to the West by the states of Karnataka and Kerala. Rainfall is erratic and averages about 945 mm. Soils are suitable for a large variety of crops. About 5.8 million ha are cultivated with an average cropping intensity of 115% (total cropped area is 6.7 million ha), The remaining land is in forests and tree crops (2.4 million ha), and fallow and wasteland (3.0 million ha). Irrigation covers 2.4 million ha, with the total cropped area under irrigation being 3.2 million ha. About 80% of farm holdings have less than 2 ha, and they are often fragmented. The main crops are paddy (2.4 million ha), millet and sorghum (1.6 million ha), oil crops (1.1 million ha), and pulses (0.6 million ha). Since the 1960s, yields have almost doubled for paddy and cotton, but increases have been much less impressive for rainfed crops. Production of food grains since 1970 has expanded more slowly than the population, and in drought years grains have been imported from other states. With the shrinking per capita availability of land and water, future crop production increases will have to come from higher yields in both irrigated and rainfed areas, through improved technologies including better use of land and water. Livestock are an integral part of the state's farming systems, with about 10 million cattle, 3.2 million buffalos and 11 million sheep and goats. Further increases in milk production will have to come from improved breeds, and better nutrition and health care. About 600,000 ha of forest reserves are degraded and need protection and rehabilitation. 3. Within the Secretariat of Agriculture, the Directorate of Agriculture (DOA) has overall responsibility for extension on food crops (mainly cereals), seed production and training; the Department of Horticulture has responsibility for horticulture activities including horticultural extension; and the Department of Oilseeds has responsibility for oilseed activities, also including extension. The separate extension services by each of these agencies causes unnecessary duplication. To render the service more effective, the project would consolidate and broaden the base of extension advice. The Secretary of Agriculture, who is also the Agriculture Production Commissioner (APC), coordinates the state's agricultural activities and allied services across directorates and departments. Allied services include animal  husbandry and forestry. Agricultural research and education are the responsibility of the Tamil Nadu Agricultural University. 4. Five-year and annual plans for agriculture are prepared by the State Planning Commission of the Department of Planning and Development, in consultation with DOA. The plans are consistent with national production goals and the availability of funds. Supporting economic analysis and assessment of investment priorities in the state, however, are sometimes inadequate. A perspective plan, written by GOTN as part of project preparation, lists the state's goals for agriculture as follows: (a) to increase productivity and farm incomes; (b) to conserve natural resources, particularly land and water; (c) to promote the development of human resources and protect the environment and ecology; and (d) to develop the potential of rainfed agriculture. 5. RatiE nale fo- Bank Involvament. The strategy for Bank assistance to India is to support policies and investments that promote economic growth and equity in the context of macro-economic stability. The emphasis is on efficient resource allocation, increased efficiency in the public sector and appropriate targeting and delivery of support to the poor. The proposed project fits well within that framework. Building on experience from previous projects, it would address the main constraints to increasing agricultural productivity and growth in Tamil Nadu. These constraints are variously technical, financial, economic and institutional. The project would help accelerate the introduction of improved technologies, particularly for watershed management in rainfed areas, livestock, forestry and seed production, and the provision of rural roads and village water supplies. It would facilitate the transfer of production and distribution of improved seeds and the distribution of semen and pesticides from the state to the private sector. Agricultural extension would be made more cost effective and relevant to the needs of diversified farming. Many smallholders would benefit from these improvements. In addition, the analytical capacity of planners and decision makers across the sector would be strengthened. As such, the project would encourage better assessment of investment priorities and of public policy with respect to reducing public expenditures and encouraging expansion of private sector activities. Not least, GOTN would eliminate state subsidies for the production and distribution of seeds and semer. This broad, statewide approach to supporting agricultural development would be -..he first of its kind in India, and should serve as a model for similar projects in other states. 6. Proieat ObJeetiyes. The underlying objective of the project would be to assist GOTN introduce policy and institutional reforms for greater technical, financial and economic efficiency in the sector. The project would: (a) improve GOTN's capability to analyze development constraints, establish investment priorities, make informed policy choices and rationalize public expenditures in agriculture; (b) develop cost-effective services to farmers, including women; (c) help finance selected priority public investments in the sector; and (d) encourage an expanding role for the private sector in the provision of services to agriculture. Proposed investments would help increase farm productivity and incomes, improve income distribution, and sustain the resource base and the environment, especially in rainfed areas. 7. Project Descript4nn. The project, to be implemented over seven years, would comprise eight investment components: (a) agriculture planning, through technical support for strengthening GOTN's planning capabilities and the  - 3 - coordination and monitoring capabilities of the Office of the APC; (b) agricultural extension, through consolidation, broad-basing and training; (c) seed production, through improvement of breeder and foundation seed production facilities (and transfer to the private sector of certified seed production); (d) watershed development in pilot areas; (e) livestock development, through strengthening of artificial insemination and disease diagnostic services, semen production facilities, and promoting fodder production; (f) forestry development, through upgrading of reserve forest and reserve interface areas near adjoining villages; (g) rural roads, through upgrading of about 800 km of existing zoads; and (h) rural water supply, based on handpump technology. 8. The project would finance civil works, watershed and forestry development, vehicles, equipment, goods, furniture, technical assistance, training and incremental operating costs. Total cost is estimated at US$133.3 million equivalent, with a foreign exchange component of US$10.3 million (8%). The proposed Credit and Loan of US$112.8 million equivalent would finance 86% of total project costs, net of taxes. A Special Account would be established in US dollars in the Reserve Bank of India with an initial deposit of US$5 million. To facilitate an early start to the project, retroactive financing up to US$3.0 million would be provided for eligible expenditures from June 30, 1990 to Loan/Credit signing. A breakdown of costs and the financing plan is in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule, are in Schedule B. A timetable of key project processing events and the status of Bank Group operations in India are in Schedules C and D, respectively. A map, IBRD No. 22663, and Staff Appraisal Report, No. 9080-IN, dated January 31, 1991, are attached. 9. I glementation. The project would be implemented by GOTN's line agencies responsible for the respective components. Overall coordination and monitorin,, would be entrusted to the APC, assisted by a Project Coordination Committee. Participation of beneficiaries, including women, would be extensive, particularly in the watershed and forestry components where participatory planning and common property resource management are important features, and in extension activities as contact farmers and in the maintenance of water supply installations. In addition, there would be substantial participation by Non-Government Organizations (NGOs). Supporting activities would include preparation of a base-line survey in year one, a mid- term review by the end of year three, semi-annual progress reports by each agency, and a post evaluation within three months of the Credit closing date. 10. A4=ged Actei=n. Agreements reached with GOTN at negotiations include: (a) by end September 1991, the status of the agriculture working group at the State Planning Commission would be changed to a standing committee and its membership would be expanded; (b) by end September 1991, DOA would develop a detailed training plan for extension staff and terms of reference for a personnel policy study; (c) by end September 1992, the personnel policy study would be completed and forwarded to the Bank for review; (d) by end March 1993, DOA would phase out of pesticide and seed trading (except as may be required to deal with natural calamities in the case of pesticides, and as may be required by GOI to implement national programs in the case of seeds); (e) DOA would calculate, on an annual basis, the production and distribution costs of seeds; by end June 1992 would complete a study of its seed pricing policy and its impact on private sector; and by end March 1993 would eliminate state seed subsidies; (f) the Directorate of Animal Husbandry (DAH) would calculate, on an annual basis, the production and distribution costs of semen, and by end  July 1994 would fully recover the costs; (g) upon project completion, the Department of Forestry would deploy catchment areas incremental staff to other catchment areas in the state; (h) rural roads would be maintained satisfactorily; (i) annual progress reports would be submitted to the Bank for review before end June each year; (j) by end September 1994, a mid-term review of the project would be undertaken; (k) the APC would coordinate and monitor project activities; and (1) cost recovery and cost/benefit sharing arrangements for watershed development, satisfactory to the Bank/IDA, would be established. As a condition of effectiveness, GOTN would deploy key staff for the recently established administrative units for project components. 11. benefit!. The main benefits to the project are expected to be strengthened policy formulation and planning for the sector, more effective coordination among government departments, better protection of the rural environment, and improved quality of rural life. Annual production increases attributable directly to the investment components would be about 1.0 million tons of milk; 45,000 tons of food; 140,000 tons of fuelwood; and 61,000 cubic meters of poles and timber. 12. Risks. The main project risk would be the timely strengthening of the planning process and adequate implementation of the broad-basing of the extension service. Government orders establishing the administrative framework have been issued, and deployment of key staff would be a condition of effectiveness. Nonetheless, because of the considerable changes to be incurred by the departments involved, there may be delays in completing the organizational arrangements. These developments would be monitored closely during project implementation. Other risks would concern the timely implementation of: (a) changes to GOTN's seed and semen pricing policies, including reduction of subsidies and phasing out of GOTN's seed and pesticide trading; (b) the animal nutrition and forage development program; and (c) watershed treatments. These latter risks would be minimized by: (a) the introduction of adequate costing procedures for seed and semen; (b) strengthening the relationship between the DAH and DOA; and (c) introducing consultative planning and community participation, assisted by NGOs. Further, the mid-term review would allow for early identification of problems and for adopting corrective measures. 13. RecmmaendaLion. I am satisfied that the proposed Loan/Credit would comply with the Articles and Agreements of the Bank and the Association and recommend that the Executive Directors approve the proposed Loan/Credit. Barber B. Conable President Attac,hments Washington, D.C. January 31, 1991  ScheduleA INDTA AGPICULTIJRATL DEVELOPMENT PROJECT - TAMIL NADU ESTIMATED COSTS AND FINANCING PLAN Estimat~ed Costs1 Project Component Local Foreign Total --------- US$ Million --------- Agriculture Planning 1.5 0.7 2.2 Agriculture Extension 22.2 1.0 23.2 Seed Production 3.9 0.2 4.1 Watershed Development 16.7 0.9 17.6 Livestock Development 18.2 1.2 19.4 Forestry 15.7 0.7 16.4 Rural Roads 17.3 2.4 19.7 Rural Water Supply 16.9 1.0 17.9 Total Base Costs 112.4 8.1 120.5 Contingencies 10.6 2.2 12.8 Total Costs 123.0 10.3 133.3 Including taxes and duties of US$2.9 million and technical assistance/ studies of US$2.5 million affecting all project components. Financing Plan: Local Foreign Tntal --------- US$ Million --------- GOTN 18.0 0.0 18.0 Beneficiaries 2.5 0.0 2.5 IBRD/IDA 102.5 10.3 112.8 Total 123.0 10.3 133.3  -6 - Schedule A INDIA AQRICTLT1UAL DEVELOPMENT PROJECT - TAMIL NU PROCUREMENT METHOD AND DTSBURSEMENTS Procurement Method Total ProiAt Elen