India - Electronics Industry Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 17054 IMPLEMENTATION COMPLETION REPORT INDIA ELECTRONICS INDUSTRY DEVELOPMENT PROJECT (LOANS 3093-4-5-IN) September 24, 1997 India Country Unit South Asia Region 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 Fiscal Year Exchange Rate Comment (Indian rupee-Rs/US$) 1989-90 16.66 Official Rate 1990-91 17.95 ditto 1991-92 24.52 ditto 1992-93 26.41 ditto 1993-94 31.36 Unified Rate 1994-95 31.40 ditto 1995-96 33.46 ditto 1996-97 34.45 ditto Note: A dual exchange rate system was created in March, 1992, with a free market rate for about 60% of foreign exchange transactions at a rate of US$ 1.00= Rs. 30.65. The exchange rate was reunified at the beginning of March, 1993 at the free market rate. FISCAL YEAR April I to March 31 ABBREVIATIONS AND ACRONYMS AICTE - All-India Council for Technical Education CEDT - Centre for Electronics Design and Technology CEEP - Continuing Engineering Education Program DEA - Department of Economic Affairs DFI - Development Finance Institution DOE - Department of Electronics EIDP - Electronics Industry Development Project ERAS - Exchange Risk Administration Scheme GOI - Government of India ICICI - Industrial Credit and Investment Corporation of India ICR - Implementation Completion Report IDBI - Industrial Development Bank of India IAP - Industry Attachment Program IEP - Instructional Enhancement Program IlSe - Indian Institute of Science IIT - Indian Institute of Technology IMPACT - Industry-oriented ManPower with Appropriate Competence and Training JGF - Japan Grant Facility LM - learning materials MHRD - Ministry of Human Resources and Development NASSCOM - National Association of Software and Service Companies PI - Participating Institution PIU - Project Implementation Unit RC - Resource Centre SAR - Staff Appraisal Report SDC - Swiss Agency for Development and Cooperation SSS - Sustainability Support Scheme ZOPP - German acronym for Goal Oriented Project Planning Vise President : Mieko Nishimizu Country Director, India : Edwin R. Lim Task Manager : Naimeh Hadjitarkhani  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT INDIA ELECTRONICS INDUSTRY DEVELOPMENT PROJECT (LOANS 3093-4-5-IN) PREFACE TABLE OF CONTENTS EVALUATION SUMMARY ........................................... i PART I: PROJECT IMPLEMENTATION ASSESSMENT .................................... 1 Economic Situation and Prospects 1........................................... A. Project Objectives ........................................... I B. Achievement of Project Objectives .................... ....................... 2 C. Major Factors Affecting the Project ........................................... 4 D. Project Sustainability ........................................... 6 E. Bank Performance ........................................... 7 F. Borrower Performance ........................................... 9 G. Assessment of Outcome ........................................... 10 H. Future Operation. ........................................... 10 I. Key Lessons Learned ............................................ 12 PART 2: STATISTICAL TABLES ........................................... 13 LIST OF TABLES Table 1 Summary of Assessments .13 Table 2 Related Bank Loans/Credits .14 Table 3 Project Timetable .15 Table 4 Loan Disbursements: Cumulative Estimated and Actual .15 Table 5 Key Indicators for Project Implementation .16 Table 6 Key Indicators for Project Operation .17 Table 7 Studies Included in Project .17 Table 8A Project Costs. 18 Table 8B Project Financing .18 Table 9 Economic Costs and Benefits .18 Table 10 Status of Legal Covenants .19 Table 11 Compliance with Operational Manual Statements .20 Table 12 Bank Resources: Staff Inputs .20 Table 13 Bank Resources: Missions .21 ANNEXES Annex A Mission's Aide Memoire .23 Annex B Borrower's Contribution -- DOE .41 Annex C Borrower's Contribution -- ICICI. .55 Annex D Borrower's Contribution -- IDBI .67 Annex E Cofinancier's Letter -- SDC.97 A me E . oia ce' etr- D .......................................................................................... 97 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.  IMPLEMENTATION COMPLETION REPORT INDIA ELECTRONICS INDUSTRY DEVELOPMENT PROJECT (LOANS 3093-4-5-IN) PREFACE This is the Implementation Completion Report (ICR) for the Electronics Industry Development Project in India, for which Loans 3093-IN, 3094-IN, and 3095-IN, totaling US$210 million equivalent, were approved on June 15, 1989, and made effective on September 14, 1989. Loans 3094-IN and 3095-IN, supporting the credit line component, closed on December 31, 1993, compared with the original Closing Date of December 31, 1995. Final disbursements took place respectively on September 14, 1993, and October 8, 1993, at which time balances respectively of US$50.7 million, and US$79.7 million, were canceled. Loan 3093-IN was closed on March 31, 1997, compared with an original Closing Date of December 31, 1995. Final disbursements took place on September 16, 1997 and the balance of US$527,437.86 is being canceled. Cofmancing for the project was provided by the Swiss Agency for Development and Cooperation (SDC), and by the Japan Grant Facility (JGF). This ICR was prepared by Sidney Thomas, consultant. Contributions, and comments on an earlier draft, by the respective agencies, ICICI, IDBI, the Department of Electronics (DOE), and by SDC, the cofinancier of the manpower component, are gratefully acknowledged. The ICR was reviewed by the present Task Manager, Ms. Naimeh Hadjitarkhani, Messrs. Salman Salman and Cecil Perera, respectively of Legal and Loan Departments, and by Messrs. Nagy Hanna, Joseph Bredie, Robert Schware, and Melvin Goldman who were involved in the project at various times. The ICR has also been reviewed by the supervising Division Chief (Acting), Mr. Peter Nicholas, and by Ms. Kazuko Uchimura, Project Advisor, Country Department II, South Asia Region (in June 1997). The ICR was also reviewed by Mr. John Joyce, Operations Advisor, SACIN in September 1997. Planning for the production of this ICR started during the course of the January, 1997 supervision mission. An ICR mission was conducted in May, 1997. The ICR draws on the work conducted during the course of that last mission, and draws on the findings of that mission, the written contributions already acknowledged, that were made available by the various parties, and on a review of the project files. The participation in, and contributions to the work of that mission by Prof. Jaya Indiresan, consultant to SDC, and Prof. S. K. Shrivastava of the Bank's Delhi Office, are gratefully acknowledged.  IMPLEMENTATION COMPLETION REPORT INDIA ELECTRONICS INDUSTRY DEVELOPMENT PROJECT (LOANS 3093-4-5-IN) EVALUATION SUMMARY 1. Introduction. The Electronics Industry Development Project approved by the Board in 1989, went forward at a time when the Bank's project portfolio in the industrial sector comprised activity in a variety of selected subsectors, specifically fertilizer, petrochemicals, cement, and steel, and in a variety of cross-cutting areas, specifically project finance, export development, and technology development. Subsequently, environmental pollution control was added as a special topic pursued by the Bank in its assistance strategy for the industrial sector. But notably, by about 1991, the Bank's assistance strategy had undergone a sea change. Subsector lending ceased with the present electronics project, and interventions contemplated in the areas of capital goods and public enterprise reform were limited to sector work and studies financed under grants for technical assistance. In its place, assistance to India impacting on the industrial sector emphasized policy-based adjustment loans, the first of which was approved by the Board in December, 1991. The switch to adjustment lending itself was made possible only because a government and industry consensus coalesced in favor of reform, which in turn was facilitated by the Bank's protracted subsector interventions and the mass of sector work and subsector intelligence which underlay them. Between 1987 and 1991, the industrial sector work undertaken by the Bank included subsector studies of the automotive, capital goods, electronics, and fertilizer subsectors, along with cross-cutting work on export development, technology development, sick industry policy, industrial regulatory reform, public enterprise rationalization, trade policy reform, and financial sector reform. Within this context, the electronics project should be seen not simply as the last of an era, but more correctly as the last of an era which helped to make the new era possible, one in which Indian banks and Indian industry are increasingly able, without need of Bank support, to mobilize resources for themselves on international markets. The present project helped make that possible (para. 2) . 2. Project Objectives. The Electronics Industry Development Project (EIDP) had the broad objective of supporting the Government of India (GOI) in its goal of fostering an internationally competitive electronics and software industry. The narrower objectives of the project as designed were: (a) to provide technical and financial support to the two largest Development Finance Institutions (DFIs) in improving their capability to identify, appraise, and finance sound projects as well as to improve the performance of existing firms in this sector; (b) to assist in upgrading the training of medium and high level technical and professional manpower needed for the rapid and efficient growth of the industry; (c) to help to lay the basis for long-term continued improvement in the policy environment for electronics; and (d) to help to shape India's strategy, and prepare projects to support, software development. 1 Paragraph references within the Evaluation Summary are to the main text.  3. As stated, these objectives were both clear, and, against the background of the sector work2 which preceded the project, desirable (paras. 1-3). Moreover, these objectives appeared a priori to be both realistic and achievable. While the broader objective of the project was unchanged throughout, the narrow objective related to the role of the DFIs had to be curtailed, the victim of positive policy change in the financial sector. The objectives related to manpower, although cast only on a pilot scale, were institutionally ambitious but the objectives set were both desirable, and ultimately achievable. 4. Implementation Experience and Results. The project comprised three components in four parts, namely: (a) a credit line component to support investment subprojects in the electronics and software industries, and comprising two loans of US$101 million each to the Industrial Credit and Investment Corporation of India (ICICI)--Part A of the Project--and to the Industrial Development Bank of India (IDBI)--Part B of the Project; (b) a manpower component (Part C) financed by a Bank loan of US$8.0 million to the Government of India (GOI), Department of Electronics (DOE), and the Swiss Agency for Development and Cooperation (SDC) grant of CHF25 million (US$16.2 million at appraisal); and (c) a technical assistance component (Part D) financed by Japan Grant of Yen364.5 million (US$2.7 million). The Bank loans and the Japan Grant became effective on September 14, 1989, and the SDC Grant Agreement was signed March 7, 1991. Loans 3094-IN and 3095-IN, supporting the credit line component, closed ahead of schedule, respectively October 28, 1993 and March 29, 1993, after cancellations of the then remaining balances, leaving amounts utilized respectively at US$50.3 million for ICICI, and US$21.3 million for IDBI. Loan 3093-IN to GOI, together with the SDC grant, closed, after two extensions, on March 31, 1997. The Japan Grant was closed ahead of schedule, on April 20, 1996, after cancellation of the then balance of Yenl4O.9 million (US$1.2 million). 5. Overall, the project outcome is rated as a success, although the implementation experience was mixed. The main factor affecting the project was macroeconomic change affecting the financial sector. Rupee devaluation--47 percent between 1989 and 1991-- followed by the introduction of partial convertibility in March, 1992--a move that was welcomed by the Bank and in keeping with its macroeconomic policy advice to the government--completely destroyed demand for the credit line before it was fully committed. As designed, subloans ca[rried a rupee-tied interest rate fixed under the Government-administered Exchange Risk Administration Scheme (ERAS) (para. 5). The interest rate so fixed contained a premium designed to compensate the GoverDment for bearing the exchange risk. This premium was set so high following devaluation, that subloan interest rates rose to 26 percent, while rupee rates on the market ranged on 18-22 percent, and subborrowers could make use of the newly established convertibility of the rupee to have access to foreign currency. A market-based solution was proposed that would have obviated the problem, namely converting the line into single-currency dollars, but the Bank at that time could not change from its currency pool lending instrument, which was unattractive to subborrowers. The intermediaries for their part were not permitted, by charter, from assuming any exchange rate risk. As a result, the credit line component utilized only about US$72 million of a total allocation of US$202 million. This outcome did not, however, affect the pace of investment, as the DFIs were able to meet their commitments to subborrowers using alternative funding (paras. 5, 9). Over the period 1992-97, output growth in the electronics and computer segments averaged 22 percent per annum, comprising 17 percent 2 Report No. 6781 -IN, India: Development of the Electronics Industry: A Sector Report, May 14, 1987.  iii for hardware segments, and 53 percent for software segments, a result which suggests that the key objective sought under the project of facilitating viable investment projects in these areas was met (para. 4), though Bank resources for this purpose were in the end not required. 6. The manpower component was also affected by rupee depreciation, the main result being that SDC grant funds were under-utilized by CHF6.7 million (para. 9), since these funds were used in large part to reimburse local expenditures related to the Industry Attachment Program, the Learning Materials Development, Instruction Enhancement Program, furniture for training laboratories, and the hiring of local consultants. The Bank loan of US$8.0 million was however almost fully utilized, as this was disbursed against equipment imports. The manpower component was affected adversely more by delay in implementation. An initial start-up delay in establishing and staffing the Project Implementation Unit (PIU) was never made up, and in the end the project was completed some 15 months behind the original Closing Date (para. 15). 7. The technical assistance component comprised three subcomponents--a software study, a seminar series program addressing "state-of-the art" issues, and support to the DFIs for overseas training of appraisal staff. Apart from the seminar series, which was discontinued after midterm review, this component was well implemented. The software study was hailed as "the single event that transformed the industry" (para. 7). The training program for DFI staff was useful in providing the opportunity for the 32 participants, to see first-hand, plants overseas which exemplify the latest in terms of scale and technology. As a result of the discontinuing of the seminar series (para. 8), cost savings of US$1.2 million under the Japan Grant were secured. An attempt to utilize the savings to fund other relevant studies did not succeed, as continual delays and obstacles caused the Bank to disallow the request for extension. 8. The performance of the Bank was satisfactory in all areas, highly satisfactory in the area of project identification. The project was well chosen as contributing to, and supporting the much larger reform effort that the Bank was urging at the time, while being responsive to the new reform consensus that was emerging within Indian industry. Reform, when it came, impacted this project, and others which helped to foster a positive climate for reform. Project preparation and appraisal, in their technical aspects, were satisfactory. The packaging decision which lumped together the three project components may however have been flawed, since, while they all shared the same starting premise of helping India to achieve an internationally competitive electronics and software industry, they all could have been and were, independently implemented (para. 21). Moreover, the credit line and technical assistance components undoubtedly were delayed to accommodate preparation of the manpower component, which, when it was presented to the Board, was not as far advanced, in terms of establishing the PIU and other implementation arrangements, as it ideally should have been. In project supervision, the Bank's performance was satisfactory, notwithstanding some misunderstanding between the Bank and SDC as to respective roles under the manpower component (para. 26). With respect to the credit line and technical assistance components, the Bank's performance in supervising the! activities was creative and catalytic, though some intractable problems remained (paras. 25, 27). 9. The Borrower's performance also was satisfactory (paras. 28-29). With respect to the credit line component, the DFIs performed well up until commitments and disbursements stalled, for reasons that have been addressed. Even thereafter, but with alternative sources of funding, they have continued to perform well. With respect to the technical assistance component, performance was mixed, but with the exemplary benefits, in respect of the software study and DFI technical assistance, already alluded to. With respect to the manpower component, while  iv there was some initial start-up delay that could perhaps better have been anticipated at appraisal, the implementation thereafter has been exemplary, especially when taking in view the institutionally complex nature of this component, which involved the coordinated action of 37 institutions and the lenders. 10. Summary of Findings, and Future Operations. Overall, the project has helped India in moving toward the objective of achieving an internationally competitive electronics and software industry (para. 30). In terms of project finance, no future Bank operations appear warranted, as the DFIs are able to raise resources on domestic and foreign financial markets without difficulty, and they are now mature institutions that are operationally self-sustaining. With respect to the manpower component, more work needs to be done, both to consolidate on thle gains achieved under the present project, and in addition, to expand the range of institutions participating. SDC is committed to a follow-on project to assist in this endeavor. The Bank for its part, may also want to consider further support, as there are issues, most notably of student financing (para. 33), in which the Bank as a change agent may be well placed to assist. 11. Key Lessons. The main lessons learnt from the present project may be summarized as follows (para. 34). First, desirable macro-economic policy change can sometimes adversely impact on the stated objectives of ongoing Bank operations designed under a sub-optimal policy framework, as was seen with the collapse of the ERAS scheme (para. 5). As part of project risk analysis, it is sometimes a good idea to prepare for the best, not only the worst. Second, the Bank's involvement at the level of the subsector, through its influence in shaping consensus at the level on industry and of industry associations, and also through the subsector intelligence it affords, can be a desirable complement to macro-economic policy dialog. Third, the project demonstrates that not only the borrowers, but the Bank also needs to be responsive to market forces. Two years before the terms of Bank lending were altered from currency pool to single currency loans, at the borrower's option, this project exhibited such a requirement (paras. 23, 25). Fourth, the collaboration with SDC was not as smooth as it could have been. If an explicit project launch workshop was conducted early on, at which respective roles were clearly defined and a framework for project supervision and monitoring put in place, collaboration with cofinancier could have been more amicable and effective (para. 26). Fifth, early involvement of the implementing institutions with the project preparation activity would reduce time required to bring the implementation unit up to speed with project design and avoid gestation lags that the present project encountered (para. 28). Sixth, the scope of pilot scale projects should include a design for evaluation of the pilot-scale activity, as this would be a necessary precedent to any contemplated scale-up (para. 29).  IMPLEMENTATION COMPLETION REPORT INDIA ELECTRONICS INDUSTRY DEVELOPMENT PROJECT (Loans 3093-4-5-IN PART I: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. The Electronics Industry Development Project (EIDP) had the broad objective of supporting the Government of India (GOI) in its goal of fostering an internationally competitive electronics and software industry. The narrower objectives of the project as designed were: (a) to provide technical and financial support to assist the two largest Development Finance Institutions (DFIs) improve their capability to identify, appraise, and finance sound projects as well as to improve the performance of existing firms in this sector; (b) to assist in upgrading the training of medium and high level technical and professional manpower needed for the rapid and efficient growth of the industry; (c) to help to lay the basis for long-term continued improvement in the policy environment for electronics; and (d) to help to shape India's strategy, and prepare projects to support, software development. 2. As stated, these objectives were both clear, and, against the background of the sector work' which preceded the project, desirable. Moreover, these objectives appeared a priori to be both realistic and achievable. This project was put forward, in 1989, at a time when GOI was still feeling its way tentatively toward economic and policy reform aimed at fostering an internationally competitive manufacturing sector. The Bank helped in this endeavor by carrying out a series of subsector studies, a common theme of which was to sketch the outlines of a reform program that sought, in a practical and realistic way, to move from the then status quo which was characterized by heavy import protection, production licensing, and high cost, inefficient modes of production, toward less protection, greater freedom of entry and exit, and more internationally cost-competitive modes of production. In addition to a study of the electronics subsector, the Bank at around that time carried out studies of the automotive, steel, capital goods, and fertilizer subsectors, while maintaining involvement, through on-going projects, in the steel, cement, petrochemicals, and fertilizer subsectors, and more broadly in the financial sector through credit-line operations. Sector work had also been carried out or was underway addressing the cross-cutting areas of public enterprises, sick industry policy, industrial regulatory reform, trade policy reform, and financial sector reform. Within that context of a vibrant policy dialogue, the electronics and software subsector offered itself as an area where concrete help could be provided, while at the same time there appeared reasonable assurance that conditions were being made increasingly favorable for the achievement by India of international competitiveness. The context was therefore in place that would justify the objectives sought under the project, both from the Bank's point of view, and Gol's. Moreover, the objectives appeared realistic, although clear risk factors were identified and assessed right from the beginning. Report No. 6781-1N, India: Development of the Electronics Industry, A Sector Report, May 14, 1987.  2 3. In the event, while the broader objective of the project was unchanged throughout, the narrow objective related to the role of the DFIs had to be curtailed, the victim of positive policy change (paras. 11-12) in the financial sector. The objectives related to manpower, although cast only on a pilot scale, were institutionally ambitious--the implementation delays experienced might perhaps have been foreseen--but the objectives set were both desirable, and ultimately achievable. B. ACHIEVEMENT OF PROJECT OBJECTIVES 4. Sector Policies. Narrowly construed, the project had no sector policy objectives, since there were no policy changes that were to be implemented as conditions of the supporting loans or in the course of project implementation. At the same time, the broader objective of fostering an internationally competitive industry carried with it the clear expectation that GOI would follow through on reforms already tentatively started by 1989. This the GOI did. The reforms have been broaclbased, and have by and large proceeded in the desired direction. Restrictions on entry and exit were eased, and tariffs and quantitative restrictions on competing imports have been reduced (Table 1) ensuring continuing competitive pressures whose impact could only be to imnprove the Table 1: RECENT IMPORT DUTY CHANGES (percent) Item FY95 FY96 FY97 FY98 (proposed) Computers and peripherals 65 40 22 22 Integrated circuits 40 25 22 12 Color monitor tubes 40 25 22 12 Hard disk drives and storage devices 65 25 12 12 Electronic computer parts 50 35 22 12 Specified raw materials 20 15 12 12 Specific components 40 25 22 22 Populated PCBs of electronic goods 65 35 32 22 Color picture tubes 65 40 37 32 Glass parts for picture tubes 30 30 27 27 Color TVs in accompanied baggage 80 80 62 52 Source: ICICI. international competitiveness of the industry. While the present project cannot be directly credited with these achievements, it is not unfair to suggest that work such as was carried out in the context of this project and its preceding sector work helped to crystallize in practical terms the issues involved in contemplating a program of sector reform, and in so doing it helped to build the consensus within industry and government to press forward. Electronics was key in this regard as it epitomized an area where India had potential competitive advantage that could only be dulled within a protectionist regime, reducing prospects for export growth that would otherwise be attainable. Software, in particular, was directly targeted within the project as an area where India could be helped in shaping an essentially outward-oriented strategy, and that intervention worked spectacularly well, with the segment enjoying a sustained growth rate of 50 percent per annum over the VIII-th Plan period (1992-97), moreover with industry insiders directly crediting the work which the project helped to support (para. 7). Not only in software, but more broadly, India of course has opted to push for export growth, the achievement of international competitiveness, and the globalization of the economy, turning away from the inward-oriented, import-substitution strategy that had been pursued for four decades following Independence. It did so with a suddenness and a pace that was not anticipated at the time the project was designed, though it was  3 a result that was hoped for. The Bank's work with India in the electronics and software sector could only have helped in hastening the process. When change came, the Bank changed its lending strategy along with it, and the present project effectively became the last subsector-specific credit- line operation. 5. Financial Objectives. While welcome as desirable change, the reform process negatively affected some financial objectives of the project. Commitments and disbursements under the credit line component first stalled, then dried up completely. It stalled in the wake of rupee devaluation (47 percent between 1989 and 1991), which rendered insolvent the Exchange Risk Administration Scheme (ERAS) under which subloans were made. This led the ERAS administrators to raise the (rupee-tied) on lending rate to a prohibitive 26 percent p.a. Demand for the credit line then dried up completely when the rupee was made partially convertible, allowing subborrowers to have access to foreign currency without paying more than 18 percent-22 percent for rupee borrowings, less than the rupee-tied rate which the ERAS administrators left unchanged at 26 percent. As a result, only about US$72 million equivalent, out of a total credit line availability of US$202 million for the two DFIs together, were utilized, and the rest was canceled. 6. This cancellation had little effect on the implementation of appraised subprojects, however, as these went through with alternative financing (see Part II, Statistical Tables 8A and 8B). Subborrowers and others raised 64 percent of project funding, as compared with 37 percent estimated at Appraisal. The DFIs for their part had improved access to the international financial markets, which allowed them to raise foreign currency resources, independent of the Bank, to the tune of US$95.6 million equivalent, when Appraisal estimates had provided for none. This improved access to international capital markets was made possible in part by GoI's financial sector reform measures. 7. Institutional Development. The institutional development objectives sought under the project were well and substantially achieved, in all of the components. In the manpower component (see Section IV of ICR mission Aide-Memoire, reproduced herein as Annex A), which was the most institutionally complex of the three main project components, project objectives were substantially achieved, and an institutional foundation well laid for the accelerated diffusion of best practice as it relates to manpower training for the electronics and software industry. Institutional development objectives with respect to the credit line component were achieved, with a combined total of 32 DFI staff having been sent overseas, to see first-hand, plants, in both the West and Far East, that represent state-of-the-art in terms of scale and technology in a variety of industry segments. The DFIs continued to play a major role2 in financing the sustained rapid growth of the electronics and software sector, which registered a combined 22 percent p.a. growth over the period 1992-97, comprising 17 percent for hardware segments, and 53 percent for software. With respect to the software study which was financed under the technical assistance component, this has been referred to as "the single event that transformed the industry," (Annex A, Section V). The software industry, partly as a result of this intervention, is now well organized, with the National Association of Software and Service Companies (NASSCOM) playing a key and vibrant 2 IDBI's sanctions and disbursements for projects in the electronics subsector increased four-fold between fiscal years 89/90 and 95/96. ICICI's outstanding portfolio in the subsector increased 41 percent between fiscal years 92/93 and 96/97, from Rs 5.6 billion to Rs 7.9 billion.  4 role in articulating an export strategy for the country as a whole, and advising GOI on policy changes and actions needed to alleviate constraints as they emerge. 8. The one initiative in the institutional development area which fell flat was the state-of-the- art seminar series. There were two variants of this intervention that were provided for, one under the manpower component, the other under the technical assistance component, both to be implemented by DOE with the help of consultants. Notwithstanding the use of consultants hired to organize these seminars, it was decided after the first of these had been mounted a number of times acrosis the country, that the effort entailed a major supervisory burden for the DOE that was not justified by the benefits secured, nor by the response received from industry. The remaining seminars contemplated were consequently dropped. 9. Physical Objectives. The main physical objectives sought under the project were respectively the investment activity under the credit line component, and the variety of interventions under the manpower component intended to improve educational and training activity relevant to the sector. With respect to investment activity, subprojects identified and appraised under the project were carried out notwithstanding the cancellation of the balances after only about US$72 million were disbursed. Total investment was, if anything, higher than that anticipated at Appraisal, totaling US$662 million, as compared with US$420 million anticipated. With respect to the manpower component, the Bank's allocation of US$8.0 million was almost fully disbursed, while CHF18.3 million (out of CHF25 million) of the SDC grant have been disbursed. This expenditure is reflected in buildings, laboratories, equipment, books, journals, learning materials and curriculum development, etc., representing the physical objectives sought and achieved. C. MAJOR FACTORS AFFECTING THE PROJECT 10. Factors not generally subject to government control. There were no natural disasters, war or civil disturbance affecting the project. Neither was there any major deficiency in performance of the Bank, cofinancier, or of any contractors or consultants. World market conditions if anything were favorable, as export performance (41 percent p.a. growth over the period 1992-97) was al major factor driving growth in electronics and software. 11. With respect to the credit line component, the major factor affecting the project was macroeconomic change affecting the financial sector. During 1989-1991, India was responding to a number of external shocks by undertaking measures to strengthen the financial system and deregulation of the exchange rate regime. As a result, the ERAS scheme was rendered unworkable (see para. 5). This accounts for the most salient feature of the project which is that the major (credit line) component, for which US$202 million was allocated, was utilized only to the extent of about US$72 million, the rest having been canceled. As already indicated (para. 9), however, the response of the DFIs and subborrowers was sufficient to make up for the IBRD financing shortfall, and subprojects appraised and approved under the credit line by and large went forward as planned, albeit with delays in some instances. 12. This broader macro-economic change affected the manpower component as well, though not as greatly. Rupee devaluation caused the inflation of project cost in rupee terms. It also caused significant cost savings, in respect of the SDC outlays for local expenditures such as  5 furniture, consultants and the like, in terms of foreign currency requirements. Consequently, the allocation of the cofinancier, SDC, was under-utilized to the tune of CHF6.7 million, out of CHF25 million, the original total allocation. The World Bank loan for this component, US$8.0 million, was however almost fully utilized, as it was disbursed against equipment imports. 13. With respect to the abandonment of the state-of-the-art seminar series under the manpower and technical assistance components, the major factor here was the marketing and other outreach that would have been needed to make this activity a success. Insufficient industry response to this marketing outreach was certainly beyond the control of government and its PIU, but the calculated decision thereafter to abandon the activity was. This added to the cost savings under the technical assistance component, which totaled US$1.2 million. 14. Factors generally subject to government control. While the manpower component was in the end well and successfully implemented, it was subject to start-up delay in actions that fell to GOI to implement, specifically the setting up and staffing of the Project Implementation Unit (PIU), the final selection of participating institutions and resource centers under the project, and the concluding of an agreement with SDC for cofinancing the project. The last was anticipated to be concluded by December 31, 1989. For a variety of reasons, principally the conclusion and internal approval within GOI of a Detailed Project Report (DPR), the SDC agreement was not concluded until March 7, 1991. This start-up delay was never made up (para. 15) and the Closing Date had to be extended to accommodate completion of this project component. 15. Factors subject to control of implementing agencies. With respect to the manpower component, the PIU took up its task with great dedication and commitment, coordinating the efforts of some 37 institutions. However, the gestation lags involved in an effort of this magnitude were likely underestimated at appraisal. On the other hand, the PIU may have been slow in correcting an initial understaffing problem. Moreover, the PIU may have been slow also in putting in place adequate project management structures for implementation, monitoring and evaluation. It was not until 1994, that the PIU, with assistance from SDC, mounted a project planning workshop (ZOPP). The workshop helped in bringing about a clear understanding of this project component among the PIs, which responded enthusiastically, setting the stage for excellent cooperation and later successful implementation. Compared to the time agreed at Negotiations, the component has been brought in 15 months behind the scheduled Completion Date of December 31, 1995, which itself was 18 months beyond what was thought actually to be required, per the Staff Appraisal Report (SAR). Delay in establishing and properly staffing the PIU accounts for most of the delay. A PIU Director was appointed in June, 1990, about a year behind appraisal estimate. The cofinancing agreement between GOI and Switzerland was entered into in March, 1991, later than had been anticipated because the approval by GOI of the Detailed Project Report (DPR) was a condition of concluding this document. The staffing of the Unit remained a problem--as at June 1992, three years later than was anticipated at appraisal, a procurement officer still had not been hired--some of the delay being attributed to the difficulty of finding an individual with prior experience of Bank procurement and disbursement guidelines--and the PIU remained understaffed in relation to the staffing strength envisaged at appraisal. It seems clear that the implementation schedule drawn up at appraisal was over-optimistic, and miscalculated first the internal GOI processes--the preparation and approval of the DPR--needed to get the project underway, and second the time it would take a newly appointed PIU director to staff the Unit and have it fully  6 functioning. At the same time, it is hard not to think that the PIU could have moved more quickly in getting up to speed. With respect to the technical assistance component, the seminar series was curtailed, for reasons earlier addressed (para. 8). An attempt was made to utilize the savings so generated by conducting three additional studies following up on the very successful (para. 30) software study, specifically: (i) a study on workforce development in information technology; (ii) a study of financing for software firms, and (iii) a study of export potential of the Indian software industry. The implementation responsibility for these studies was transferred to ICICI in 1992. However, as of December, 1995, these studies had not yet got off the ground, pending a decision on tax exemption for the consultants. The Bank declined a request to extend the Closing Date for the Japan Grant to March 31, 1997 to permit these studies to be undertaken, citing "lack of action to carry out the studies in a timely manner." D. PROJECT SUSTAINABILITY 16. The achievement of the objectives sought under the project is likely to be sustainable. 17. DFI Finance. With respect to the DFIs' ability to identify, appraise and finance viable projects in the electronics and software industry, this does not appear supply-constrained or institutionally-constrained at the present. Notwithstanding the cancellation of most of the credit line component, both participating DFIs went on to add significantly to their electronics and software portfolios (para. 9). Financial sector reform, while altering the terms under which it becarne feasible for the Bank to lend to these institutions, strengthened considerably their ability to mobilize foreign currency resources without resort to the World Bank. Both have since been successful in independently raising resources on world markets, eliminating supply-side constraints as a possible bar to sustainability of the kind of activities sought under the project. 18. Any constraints must rest instead with demand, which for the moment shows no sign of abating. Output growth performance of the industry (22 percent p.a. over 1992-97) has far outpaced overall economic growth (6.0 percent p.a.), and industrial sector growth (7.4 percent p.a.). And export performance of the industry (41 percent p.a. over 1992-97) is even more impressive. The policy environment is on the whole favorable to continued efficient, outward- oriented growth of this industry, and the sources of competitive advantage--large domestic market that can support scale economies, and provide a base from which to aggressively pursue export markets, and huge supply of low-cost skilled, technical and scientific manpower--will not soon be vitiated by the economic trends and forces at play, which in the longer run would of course act to eliminate this advantage. 19. Demand side forces are the surest guarantor of sustainability with respect to the objectives sough-t under the manpower component. While there remains some uncertainty as to the modalities of attempting to scale up the pilot-scale exercise that constituted the manpower component of the present project, there is a clamor for inclusion by engineering colleges and polytechnics that were not included in the present project that should almost certainly guarantee a continuing supply response. The cofinancier of the present project, SDC, has already indicated its determination to support a follow-up project, and the DOE, likewise, is committed--and already staffed--to follow through. As they do so, continuing budgetary stringency would likely limit the extent to which the programs supported would continue to be grant based. Already, participating institutions under the  7 present project are being forced to pursue programs that would ensure a greater degree of self- sustainability of the initiatives. Enhanced revenue generation is key in this effort, and expected to flow from expanded fee-based (i) continuing engineering education program (CEEP) course offerings, (ii) equipment maintenance activities, and (iii) consultancy services to business and industry. There is a fourth avenue of revenue generation which needs to be actively explored, which is to raise student fees. There is little doubt, based on the income stream that flow to graduates and diplomates in the electronics and computer fields, that higher student fees in these disciplines would do little to dampen the strong demand; there would likely be a concurrent need, however, to institute some sort of student loan scheme to bridge the financial gap for students between current cash outflows to pay tuition, expenses, and living costs, and the future income stream that is almost certain to flow upon graduation. There is a fifth source of revenue generation, which is grant support from industry to endow professorial chairs, university and polytechnic laboratories, etc. This has already happened to a remarkable degree in India, and likely to continue. All in all, indications are that powerful demand forces at work domestically and internationally, and India's strong positioning, make it highly likely that the gains secured under the present project are sustainable. E. BANK PERFORMANCE 20. Project Identification. Electronics and software industries were correctly identified as thrust areas in which India should aim for international competitiveness. More perhaps than in most industrial subsectors, with the possible exception of the closely related and overlapping subsector of capital goods, electronics and software represent an area where the prize of export earnings and growth is endangered by inward-looking protectionist industrial policy. This project, and the sector work which preceded it, represented a practical "case study" of sorts illuminating the choices faced by India. The consensus emerged within industry that the comforts of protectionism, if it meant high costs and lack of international competitiveness, should be rejected in favor of the greater opportunities offered by an outward orientation, albeit with the dangers and threats that come with tighter integration into the global marketplace. Without that consensus emerging within industry itself, it is unlikely that GOI would ultimately have been as bold as it was in the reforms that were ushered in starting about 1991 with the massive rupee devaluations whose effects on the credit-line component were negative, as has been seen, but which was the necessary first step of the reform program. This project was well chosen as contributing to, and supporting, this much broader reform effort that the Bank was urging at the time, while also being responsive to the new consensus that was emerging within Indian industry. The reforms, when they came, were however sooner than the project designers anticipated. 21. Project Preparation. Overall, although the project components individually were well conceived and designed, and although they were all linked by the shared premise of a common overall objective--helping India in its supply response to perceived competitive advantages in the electronics and software areas--they could nevertheless have been separately implemented, and arguably should have. As it happened, the credit line component came to an end by March, 1993, ahead of schedule for reasons which have been discussed (para. 5). This eventuality did not in any way affect the justification for and usefulness of the manpower component, which was just then getting off the ground, and which did not come to a close until four years later. Likewise, the activities undertaken with Japan Grant under the technical assistance component could as well, and  8 with equal justification, have proceeded in the absence of the other two components. The independence of these components does not straight-away warrant the conclusion that they should have been implemented separately, as a priori there are advantages and disadvantages to both options. The disadvantages were that by forcing the three components to march in lock-step, the credit line and technical assistance components were delayed because of the manpower component, since these could have followed on from the 1987 sector report much more quickly than in the end they did, while the manpower component, although well designed, was institutionally not ready when the project went to the Board, as evidenced by the institutionally-oriented delays (paras. 14- 15) that then ensued. As against these disadvantages, and associated costs, the advantages appear to be limited to the illusionary one of justification--the manpower component could not stand alone in terms of bureaucratic justification, notwithstanding all its institutional complexity, because the amount of the loan (US$8.0 million equiv.) would have been too small, while without the institution-building features of the manpower and technical assistance components, the credit line component would have been deemed insufficiently innovative. Whatever might have been the compulsions a priori that drove the decision to put three independent, though related, components together, the outcome ex post seems clear that project preparation was the worse for it. Nor were there scale economies in project supervision, if any, that could not also largely have been secured by having three separate projects, each implemented on its own natural timetable. 22. Taking the components individually, however, and with respect in particular to the quantity and quality of staff that were deployed to assist the Borrower in project preparation, and the quality of the work that was produced, the Bank performed very well. 23. Project Appraisal. The appraisal document was well written, and the judgments expressed in the document were well founded and in places prescient in describing the risks that threatened successful implementation. The riskiness of the ERAS arrangement under the credit line component was well identified and discussed. The risk of implementation delay in respect of the manpower component also was well identified in the appraisal report. In the event, it is hard to fault the appraisers for pressing ahead with the ERAS design, since even after its demise, the Bank had not the flexibility in its lending instruments to fashion a market based solution to the problem. (Subborrowers would have been willing, after the collapse of ERAS, to borrow in dollars on a single currency basis--and assume the exchange risk in so doing--but not the Bank's currency pool. Two years on, the Bank amended its offerings to allow single currency loans, but too late to save the line which had been long canceled by that time.) With respect, however, to the manpower component, it is difficult in hindsight to see how the appraisers could have been as optimistic as they were with respect to the implementation schedule. The appraisers anticipated that additional supervision at start-up would have reduced the risk, but again in hindsight, the gestation delays involved in producing a Detailed Project Report, and in staffing the PIU could not have been amenable to solution through additional supervision. These drawbacks however are clear only in hindsight, for which reason the appraisal cannot be rated less than satisfactory. 24. Project Supervision. All implementing entities have expressed satisfaction with the quality of the Bank's supervision. 25. With respect to the credit line component, the average response lag for subloan applications was 14.1 (calendar) days, which is acceptable, though not exemplary. Emerging problems under  9 this component were quickly identified by supervision missions, and the response by Bank staff in attempting to resolve the issue was creative and thorough. In the end, it was the uniqueness of the Bank's currency pool which prevented a market-based solution from emerging, following the collapse of the GOI-sponsored ERAS scheme for onlending. That the Bank later extended its single currency loan offerings may be attributed in part to the work that was done in the context of project similar to this one. 26. With respect to the manpower component, the Bank in its supervision reporting accurately conveyed the facts at issue, although the ratings, in hindsight, considering the considerable start-up delays that were experienced, may have been too high. One may speculate that more severe ratings would have engendered a more proactive stance, and helped the PIU to achieve a faster start-up. The collaboration with the cofinancier worked well, though not without some misunderstandings. The Bank envisaged from the outset that SDC would play an active role in supervision, given its "long experience in India",3 while the SDC seemed at first uncertain as to how proactive they should be given that it was a "Bank" project. Later, however, SDC played a critical role in helping, together with the PIU, to organize the ZOPP4 workshop which was acclaimed by all participants as helping to lend clarity to the framework for project implementation, monitoring, and evaluation. Thereafter, SDC took the lead role in conducting the mid-term review (May, 1995) for this component, with the Bank making only an ex post contribution. After the mid-term, the Bank altered its supervision arrangements, making use on a day-to-day basis of selected staff at the Resident Mission. This arrangement worked well, and helped to expedite remaining procurement and other supervision issues that emerged from time to time. 27. With respect to the technical assistance component: The software study was well implemented, and the results met with acclaim in India in software circles. The training program for the DFIs was also well implemented, also with positive results for the DFIs. And the seminar series program was in the end discontinued for reasons previously mentioned (para. 8). The Bank's performance in supervising these activities was creative, and catalytic, as staff sought to leverage initiatives under this project, in particular the software study, into a broader involvement in support of informatics development. GOI in fact requested follow-up assistance in this area from the Bank, which however declined, as by that time the Bank's approach to industry lending had changed (para. 4). When the seminar series program was discontinued, staff attempted to make use of the savings by helping to identify, and draft terms of reference for, a number of additional studies in the informatics area that were worth pursuing, but which in the end became bogged down by a variety of delays and obstacles that caused the Bank to decline the Closing Date extension that would have been needed for these to go forward (para. 15). F. BORROWER PERFORMANCE 28. The commitment of all the parties to this project was very high. The DFIs, until the ERAS problem arose, were performing in line with expectations in terms of commitments and disbursements, and the quality of the subproject appraisals was generally adequate. Of 108 subloans approved (before cancellations), only two occasioned queries, for which satisfactory 3 Per the aide-memoire of the January/February, 1990 mission. 4 German acronym for Goal Oriented Project Planning.  10 answers were provided. One project was rejected, but only because it ventured into the area of telecommunications, which the Bank did not want included under the present project. The level of project ownership and conmmitment within DOE was very high, and was instrumental in bringing the manpower component to a successful conclusion, despite start-up and institutional difficulties. DOEi's performance in this regard may be rated as exemplary. There was arguably a deficiency in preparation, however, in that the PIU Director was not appointed already at the preparation stage, to forestall start-up delays in implementation. To the extent this was due to procedural constraints related to the timing of project approval and funding commitments, these may need to be re- examined if future projects are to be implemented without start-up delays. The technical assistance component, except for the seminar series program, was well implemented by the Borrowers--the DFIs and DOE. And in the case of the seminar series, the action taken to discontinue was well considered and timely. The savings thereby generated offered up an opportunity to carry out some additional studies in the informatics area but this opportunity went unseized for reasons previously addressed (paras. 15, 27). Compliance with covenants was satisfactory, albeit with occasional delays in the provision of audit reports. 29. With respect to the follow-up action which is needed, in the case of the manpower component, some more work than has so far been done is required to draw the lessons of the pilot scale operation which constituted the present project, precedent to the scale-up exercise that must now be attempted. These issues are addressed in the mission's aide-memoire (Annex A, paras. 4.10-4.17). Ideally, a design should have been included for evaluation of the pilot-scale activity, as this would be a necessary precedent to any contemplated scale-up. G. ASSESSMENT OF OUTCOME 30. Notwithstanding the cancellation of most of the credit line component, and the delay (para. 15) in completing the manpower component, the outcome of this project must be rated as satisfactory. Growth in the electronics and software subsector has been impressive, and the DFIs have played a major role in this result, even if resources in the end had to be mobilized from sources other than the Bank--a result which in itself represents a broader success of the Bank in its long association with the two DFIs concerned. Likewise, DOE is now well staffed and positioned, having completed the manpower component, to mount the scale-up exercise which is required to assure that the future supply of graduates and diplomates in this field would be of even higher quality than they have been in the past. This is key to continuing success, as India faces a moving target in terms of the global competition in this subsector. Finally, the software study undertaken as the major part of the technical assistance component has been hailed within industry circles as the "single event that transformed the industry," and so may be credited, at least to some degree, with the enormous success that the Indian software industry has enjoyed since that report was completed. H. FuTuRE OPERATION 31. With respect to the identification, preparation, appraisal, and financing of investment projects in the subject subsector, it seems clear that the DFIs that participated in the project have matured to the stage where further assistance from the Bank is not per se required, although the perspective and observations of the Bank are valued and welcomed by these institutions. These  11 DFIs are now able to mobilize resources on international and domestic markets, and so the Bank's erstwhile role as lender of last resort appears no longer to be required. Considering the structure of Bank charges, which includes commitment and guarantee fees, it may even be the case now that the Bank is no longer competitive as a source of long-term funds for these DFIs, except in so far as the longer-term maturities that the Bank can offer makes an important difference to the volatility of onlending rates, and in terms of liability mix and management. Therefore, the role of the Bank as an agent of institutional development, and as a source of long term foreign currency resources, has now by and large been rendered redundant by success. This leaves a role for these DFIs, vis-a-vis the Bank, as administrators of funds sought to be allocated by the Bank for such purposes as environmental pollution control and protection of the ozone layer. But not for electronics and software. Therefore no future intervention by GOI or the Bank is envisaged in the area of providing project finance. What GOI must continue is its broader reform program intended to reduce levels of protection and costs even further, and thereby to strengthen the international competitiveness of local industry even further. 32. With respect to manpower, much remains to be done however. The cofinancier, SDC is committed to supporting a follow-on operation intended to help secure the self-sustainability of the initiatives launched under the present project. This is a worthy and needed endeavor, but it needs to be supplemented by action aimed specifically at additionality, in terms of the number of engineering colleges and polytechnics allowed to participate in the improvement schemes designed under the present pilot scale operation. 33. There is a potential institutional development role here for the Bank, as there are a number of anomalies related to educational finance, where the Bank may conceivably be able to play a role as change agent. Sustainability is crucially dependent on revenue generation by participating educational institutions, and a key overlooked source of revenue generation is student fees, which are grossly subsidized at the moment, even though students upon graduation attract relatively high salaries, and so ought to bear a much higher fee burden. It is of course acknowledged that any increase in student fees would imply a need for students to be financed in the interim by an appropriate student loan program. These issues transcend electronics and computer education, but the huge student demand in these areas makes it potentially a test area for broader educational finance reform. It should be pointed out that GOI has instituted some change in this regard already, although much remains to be done. Technical institutes have been permitted to be established on a self-financing basis. Student fees charged at Government and aided engineering colleges/polytechnics have been raised significantly, while at the Indian Institutes of Technology (IlTs), student fees have increased from Rs 200 per year in 1989 to Rs 15,000 at present. To the extent such changes will require supporting institutional change in the area of student finance, the Bank may have an opportunity to fulfill a function as a change agent in this regard, should the GOI so desire.  12 I. KEY LESSONS LEARNED 34. The key lessons learnt from the project may be summarized as follows: a) desirable macro-economic policy change can sometimes adversely impact on the stated objectives of ongoing Bank operations designed under a sub-optimal policy framework, as was seen with the collapse of the ERAS scheme (para. 5). As part of project risk analysis, it is sometimes a good idea to prepare for the best, not only the worst; b) the Bank's involvement at the level of the subsector, through its influence in shaping consensus at the level of industry and of industry associations, and also through the subsector intelligence it affords, can be a desirable complement to macro-economic policy dialog; c) the project demonstrates that not only the borrowers, but the Bank also needs to be responsive to market forces. Two years before the terms of Bank lending were altered from currency pool to single currency loans, at the borrower's option, this project exhibited such a requirement (paras. 23, 25); d) the collaboration with SDC was not as smooth as it could have been. If an explicit project launch workshop was conducted early on, at which respective roles were clearly defmed and a framework for project supervision and monitoring put in place, collaboration with cofinancier could have been more amicable and effective (para. 26); e) early involvement of the implementing institutions with the project preparation activity would reduce time required to bring the implementation unit up to speed with project design and avoid gestation lags that the present project encountered (para. 28); and f) the scope of pilot scale projects should include a design for evaluation of the pilot-scale activity, as this would be a necessary precedent to any contemplated scale-up (para. 29).  13 PART II: STATISTICAL TABLES Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender concerns x Other social objectives X Environmental objectives X Public sector management x Private sector development X __Other (specify) X | B. |Project sustainability Likely | Unlikely | Uncertain Highly C. Bank performance satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X __ ___ _Supervision x Highly D. Borrower performance satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X _ Operation (if applicable) .- | Highly UnsaHighly E. Assessment of outcome satisfactory Satisfactory Unsatisfactory Unsatisfactory _ ________________ x  14 Table 2: Related Bank Loans/Credits Loan/credit title Purpose Year of Status approval Peceding Operations_ 1. Industrial Export Project- Support trade policy reform and increase 1986 Closed, 1992; Engineering Products the supply of investment funding for ICR, 1993; (Loans 2629-IN and 2630-lN) export oriented projects and export OED audit, 1996. promotional activities 2. Export Development Project Ditto. Also, to build institutional capacity 1989 Closed, 1996; ICR, (Loans 3058-IN and 3059-IN) in export project appraisal by 1996; intermediary lending institutions, and in OED audit, 1997 advising clients on export issues and markets Following Operations 1. Technology Development Project To reduce policy impediments (e.g. 1989 Closing 12/31/97; US$ (Loan 3119-IN) restrictions on foreign private investment, 52.4m. undisb. of controls on technology imports) to faster US$200m orig; absorption and development of technology US$10.Om canceled and to strengthen the institutional infrastructure supporting technology development 2. Technical Education I To support policy reforms , institutional 1990 Closing 6/30198; (Credit 2130-IN) development, and the introduction of new US$150m. undisb. of technology and training approaches US$210ro orig. 3. Technical Education II To improve Polytechnic Education 1991 Closing 6/30/99; (Credit 2223-IN) through capacity expansion, and quality US$215m undisb of and efficiency improvement, based on US$255m. orig. support of GOI 10-year Program (90-99) 4. Industrial Pollution Control To improve implementation capacity for 1991 Closing 6/30/98; (Loan 3334-IN) (Cr. 2252-IN) environmental pollution control measures US$44.9m undisb. of already in place and to improve tactical US$155.6m approaches to industrial pollution controls 5. Petrochemicals II Investment. And to rationalize feedstock 1991 Closing 9/30/97; (Loan 3258-9-IN) (gas) price US$33. Im undisb. of US$245m orig; US$70.3m canceled 6. Cement Industry Restucturing Investment. And to eliminate price and 1991 Closing 6/30/97; (Ln 3196-lN) distribution controls US$23.3m undisb of US$300m 7. Structural Adjustment IN) Macroeconomic stabilization, plus 1991 Closed 1992 (Loan 3421-IN) industrial liberalization 8. Indiustrial Pollution Prevention To promote cost-effective pollution 1995 Closing 3/31/2002 (Loans. 3779/3780-lN) abatement from industrial sources while US$156.3m undisb. of (Credit 2645-lN) building up on enhancement of US$168m implementation capacity in selected SPCBs that started under the first Pollution Control Project.  15 Table 3: Project Tinetable Steps in Project Cycle Date Planned Date Actual! Latest Estimate Identification 3/12/86 10/6/87 Preparation Preappraisal 11/87* 11/25/88 Appraisal 4/88* 1/23/89 Negotiations 5/1189** 5/2/89 Board 6/27189** 6/15/89 Signing 7/7/89 Effectiveness 9/14/89 Completion 6/30/95 3/31/97 Loan Closing 12/31/95 3/31/97 * As at Project Brief dated 11/17/87. ** As at Yellow Cover Review dated 4/6/89. Table 4: Loan Disbursements: Cumulative Estimated and Actual IBRD Loans 3093-IN, 3094-IN, and 3095-IN (US$ million) FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 Appraisal Estimate 19.6 80.2 151.4 192.8 207.5 209.7 210.0 210.0 Formal Revision* 20.5 55.0 76.9 81.7 72.1 83.0 94.3 94.3 Actual 20.5 55.0 76.9 81.7 72.1 74.4 75.9 79.1 Actual as % of estimate 104.6 68.5 50.8 42.4 34.8 35.5 36.2 38.0 Date of final disbursement 9/93 10/93 9/97 * Formal revision as of FY94; FY95 figure is interpolated, not given in formal revision. ** Loans 3094-IN and 3095-IN were closed as of December 31, 1993, with final disbursements 9/93 and 10/93 respectively.  16 Table 5: Key Indicators for Project Implementation Project Component Estimate at Appraisal Actual Part A (ICICI Credit Line) Total Commitments (US$m) US$lOm US$109.3 m (bef. cancellations) Total Disbursements (US$m) US$101m US$50.3m No. of Subloans 76 (51 after cancellations) % of No. above free limit 15 % 3 % % of Value above free lmit 50% 24% _Avg. Size of Subproject ($m.) US$4.5m Avg. Size of Subloan ($m.) US$1.3m Total Investments Generated US$210m US$230m Subproject ERR Minimum 12% 20%-67% ex ante Subproject FRR Minimum 15% 14%-25% ex ante Part B (IDBI Credit Line) Total Commitments (US$m) US$1Olm US$71. lm (before cancellations) Total Disbursements (US$m) US$101m US$21.3m No. of Subloans 37 (17 after cancellations) % of No. above free limit 15% 6% % of Value above free limit 50% 38% Avg. Size of Subproject ($m.) US$28.4m _Avg. Size of Subloan ($m.) ___ US$1.6m Total Investments Generated US$210m i US$483m ,Subproject ERR Minimum 12% 18%-80% ex ante Subproject FRR Minimum 15 % 13 % -25 % ex ante Part C (Manpower Component) No. of participating institutions 37 37 No. of state-of-art seminars 7 3 No. of IEP's conducted 57 57 No. of SSTP's conducted 42 51 No. of teachers trained 700 No. of support staff trg. prog 51 No. of support staff trained 700 No. of LM's developed 56 58 No. of IAP participants 4575 CEEP training (man-days/yr) 25000 (FY97) N0o. of Model curricula 3 3  17 Table 6: Key Indicators for Project Operation (per year basis) Project Component Estimate at Appraisal Actual I. Key operating indicators in SAR none II. Modified indicators (if applicable) none III. Modified indicators for future none operation (if applicable) Table 7: Studies Included in Project Study Purpose Status Impact of study 1. Software To assess India's export potential and Completed, Adopted, has had develop strategies 1992 major impact in terms of India's strategic positioning in industry 2. Seminar Program Background Studies: a. Design To assess scope for increased design Completed Used for state-of- standardization standardization and review effectiveness the-art seminar of supporting measures program b. Tariff Policy To evaluate the likely revenue and Canceled foreign exchange impact in the short and long term of lowering customs tariffs and eliminating quantitative restrictions in the electronics subsector c. Indigenization To evaluate the feasibility of altemative Canceled indigenization goals for key electronics products likely to be produced locally in the next five years d. Dissemination To assess the potential for productivity Canceled improvement in industry through dissemination of informatics technology and the indication of priorities for further attention e. Informatics in To identify the scope for further Canceled Financial Sector application of informatics technology in the financial sector, and to evaluate the socio-economic impact of such application f. Government/Industry To review and assess mechanisms of Canceled Cooperation Government/Industry cooperation in other countries, and their applicability to India, including role and responsibility of industry associations g. Major technologies To assess the implications of major Canceled technical developments such as surface mount technology for existing industry and the supporting policy framework  18 Table 8A: Project Costs Appraisal Estimate (US$M) Actual/Latest Estimate (US$M) Local Foreign Local Foreign Item Costs Costs Total Costs Costs Total Credit Line Fixed Assets 144.1 150.0 294.1 536.1 132.7 668.8 Working Capital 74.1 52.0 126.1 3.8 40.0 43.8 Sub-total 218.2 202.0 420.2 539.9 172.7 712.5 Manpower Comp. 19.3 7.5 26.8 16.4 6.7 23.1 Technical Assistance 0.6 2.4 3.0 0.3 0.4 1.7 Total 238.1 211.9 450.0 556.6 180.7 737.3 Table 8B: Project Financing Appraisal Estimate (US$M) Actual/Latest Estimate (US$M) Local Foreign Local Foreign Source Costs Costs Total Costs Costs Total IBRD 0.5 209.5 210.0 2.0 77.2 79.2 GOI 2.8 2.8 1.2 1.2 DFIs 50.7 50.7 96.8 94.4 191.2 Subborrowers/others 167.6 167.6 442.0 6.7 449.8 SDC 16.2 16.2 13.2 1.1 14.3 JGF 0.3 2.4 2.7 0.3 1.4 1.7 Total Project Cost 238.1 211.9 450.0 556.6 180.7 737.3 Table 9: Economic Costs and Benefits Subprojects financed by the financial intermediaries were required to have projected minimum economic rate of return (ERR) of 12 percent. IDBI subprojects had ex ante calculated ERR's ranging from 18%-80%. ICICI subprojects ranged from 20%-67%. No calculations attempted either ex ante or ex post for the manpower and technical assistance components.  19 Table 10: Status of Legal Covenants Original Revised Covenant Present fulfillment fulfillment Description of Agreement Section type Status date date covenant Comments Ln. 3093 3.03 5 C 06/01/89 DOE establish Project Implementation Unit 3.03 5 C 12/31/89 Staff Steering Committee 3.05 1 C 09/30/89 DFIs prepare work plan for TA 1.02 5 C 12/31/89 DOE to select satisfactory institutions for manpower component 4.01 1 C Yearly audit of manpower and TA components and related Special Accounts and SOEs 5.01 1 C 12/31/90 GOI to enter into cofmancing agreement with SDC Ln. 3094 4.01 1 C Yearly audits of ICICI, project records, Special Account, and SOEs Ln. 3095 4.01 1 C Yearly audits of IDBI, project records, I ____ I_ I_______ I________ I_______ I_______ Special Account, and SOEs I Status: C - Complied with  20 Table 11: Compliance with Operational Manual Statements (No known non-compliance.) Table 12: Bank Resources: Staff Inputs State of Planned Revised Actual project cycle Weeks US$ Weeks US$ Weeks US$ ___________________ ___________ OOOs N/A N/A N/A N/A 271 $648.5 Through appraisal N/A N/A N/A N/A 3 7.6 Appraisal--Board N/A N/A N/A N/A - - Board--effectiveness N/A N/A N/A N/A 192 577.7 Supervision 8 31.5 43.0 10 40.0 Completion - - - 476 $1,273.8 TOTAL  21 Table 13: Bank Resources: Missions Performance rating Stage of Number Days Specialized Implemen- Develop- project Month/ of in staff skills tation ment Types of cycle year persons field represented status impact problems Through 2/86 3 28 Ec,Fin,Eng appraisal 4/86 1 11 TE _ _ . 9/87 3 13 Ec,Ec,Eng 12/87 2 19 Ec,Fin 3/89 8 31 Ec,Fin,Ec, . Eng,TE,TE,Sf ,Sf Appraisal - - - tirough Board approval Supervision 10/89 3 27 Ec,Ec,Sf 2 2 Delays 3/90 3 21 Ec,TE,Sf 1 1 Minor 10/90 4 18 Ec,TE,CS,Sf 1 1 Minor 11/91 1 7 TE - - Procurement 6/92 3 12 Ec,Sf,TE 3 3 Macro;Proc. 10/92 _ =_ _ _ _ =_ 2/93 2 5 Ec,Sf 1 1 Macro; Audit 4/93 1 Ec - - Course Materials; _ _______ _____________ _____________ M onitoring 7/93 2 7 Ec,Sf 2 2 Monitoring 8/93 __ _ _ = _ _ _ 12/93 2 19 Ec,Sf 1 1 Minor 4/94 1 5 Ec 1 1 Minor 4/95 1 10 TE S HS extension; course matl; seminar qlty 6/96 2 7 Op,TE HS HS Extension; course matl; studies 1/97 2 10 Op,TE S S curriculum; course matl; OSE audit Completion 5/97 1 17 Ec,Fin,Eng Abbreviations: Ec = economist; Eng = engineer; Fin = financial analyst; Op = operations officer; Sf = software specialist; TE = technical education specialist   Annex A INDIA Electronics Industry Development Project (Lns. 3093-5-IN) AIDE-MEMOIRE Implementation Completion Report Mission (May, 1997) I. PREAMBLE AND ACKNOWLEDGMENTS 1.1 A mission consisting of Dr. Sidney Thomas, consultant to the World Bank, and joined in the field by Prof. S. K. Shrivastava of the Bank's New Delhi Office, and Prof. Jaya Indiresan, con- sultant to the Swiss Agency for Development Cooperaton (SDC), visited India May 13-28, 1997. The purpose of the mission was to carry out the field work necessary to support the preparation of an Implementation Completion Report (ICR) for the Electronics Industry Development Project. This pro- ject was financed by the Bank under Loans 3093-, 3094-, and 3095-IN, and cofinanced by a grant from SDC in its manpower component, and by a grant from the Japan Grant Facility (JGF) in its technical assistance component. 1.2 The purpose of this aide-memoire is to record briefly the main findings of the mission. which includes summarizing the views expressed to it by the various parties. to outline the mission's views as to the key questions that must be addressed to assure sustained future benefits of the project, and to summarize the projected time-table and next steps agreed by all concerned parties for the more limited objective of producing the ICR. 1.3 The aide-memoire is written by Dr. Thomas, but has drawn on written materials con- tributed by Profs. Shrivastava and Indiresan for the purpose. It has drawn also on written contributions provided by the Department of Electronics (DOE), by Prof. N. J. Rao of I.I.Sc, Bangalore, and by the Participating Institutions (Pis) of the manpower component in their various presentations. The views expressed herein reflect however the understanding of the mission, as to the facts and judgments at issue, not of those who kindly made written contributions for the mission's benefit. The views expressed are also subject to review and confirmation by the Bank's management. 1.4 The mission is deeply appreciative of the warm hospitality with which it was received everywhere it went, and especially grateful to Messrs. Mehta, Gupta, and Taneja of DOE for arranging most of the meetings involving the manpower component. They were also gracious and engaging travel companions. The mission is grateful too to the staff of the Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India (ICICI) who coordinated the work of the mission in its review of the credit line component. Special thanks are due to old friends Messrs. A. P. Singh, P. V. Narasimhan, J. John, Mrs. Rao, and to the new ones met in the course of the mis- sion's work, especially Ms. Mythili Ravi, and Messrs. Vishwanath, Suresh and Gwalani. While the mis- sion was warmly received everywhere it went, it is especially grateful for the extra indulgences to which it was treated by Capt. Bates, Chief Executive of Narmada Electronics, Mr. John of Namtech, Mr. Mitra of NELCO, Profs. Jamadagni and Rao of I.l.Sc Bangalore, and Vice-Chancellor Ramakistayya and Prof. Chary of Osmania University, Hyderabad. And as usual, ICICI and IDBI staff went beyond the call of duty. Dr. Thomas is especially grateful to Mr. A. P. Singh in this regard, as well as Mr. Subramanian. who escorted the mission in its Bombay plant visits, Mr Suresh, who did the same in Baroda, and Mr. Gwalani in Bangalore. Last, but not least, Wing Commander Prabhakar organised a memorable visit to the beautiful facility of which he is principal at NTTF Electronics Center, Banga- lore. 1.5 A list of persons met is given as Attachment 1.  Annex A 24 II. PROJECT BACKGROUND AND PREMISES 2.1 The Electronics Industry Development Project (EIDP) was approved for lending by the Bank's Board on June 15, 1989, and three loans totalling US$210 million equivalent became effective on September 14, 1989. The EIDP was cofinanced by grants to the Government of India (GOI) respec- tively of SFr25 million (US$16.2 million equivalent at appraisal) from the Swiss Agency for Develop- ment Cooperation (SDC), and of Yen364.5 million (US$3.0 million equivalent at appraisal) under the Japan Grant Facility (JGF). The project comprised three main components in four parts, namely: ('a) a credit line component comprising two loans of US$101 million each to ICICI (Part A of the Project), and IDBI (Part B) to support investment sub-projects in the electronics and software industries; Ib) a manpower component (Part C) financed by a loan of US$8 million to GOI by the Bank and the Swiss grant of SFr25 million; and (c) a technical assistance component (Part D) financed by the Japan Grant of Yen364.5 million. The Project had an expected Completion Date of June 30, 1995, and all the loans had expected Clos- ing Dates of December 31, 1995. In the event, Parts A and B of the Project were terminated early in April, 1993 after collapse of the Exchange Risk Administration Scheme (ERAS) under which subloans were made (see later), while the Loan Closing Date associated with Parts C and D of the project was extended to March 31, 1997. 2.2 The rationale for the project lay in the fundamental assessment of the Bank that India had the potential to develop a competitive electronics industry. This assessment in turn was based on sector work that had been carried out by the Bank and reported on in 1987.1 Essentially, this judgment was based on India's large pool of scientific and technical manpower, its growing and potentially vast do,mestic markets, and its significant existing industrial base. Equally important, India had embarked on a program of policy reform which initially went further in electronics than for most other industries, and which offered a promising basis on which to support investment in the subsector, and to support a program of intervention designed to strengthen the supply response. Key objectives were: (a) to improve the ability of the main Development Finance Institutions (DFIs) in their ability to appraise and finance projects in the subsector; (b) to improve yet further the quality of medium and high level technical and professional man- power needed for the industry's rapid and efficient growth; (c) to provide market intelligence and growth strategies in the key software segment; and (d) to provide an important basis for the dialogue between the Bank and GOI on industry policy as a whole. 2.3 By and large, the foregoing rationale has been validated by events since 1987 when the sector report was completed. Data made available to the mission by DOE (see Attachment 2) sug- gests that the software segment has grown at an annual rate of over 50% over the 8-th Plan period 1992-97, up from 41% over the 7-th Plan period, 1985-90. The hardware segments, combined, have nct performed as well, averaging annual growth over the 8-th Plan period of 17%, down from 34% over the 7-th Plan period. The apparent slow-down notwithstanding, the rate of growth achieved in the electronics sector is still far in excess of the growth rate for the economy as a whole, and for manufac- turing as a whole. Export performance is even better, with export growth averaging 41% per annum over the 8-th Plan period, unchanged from the 7-th Plan period. This is consistent with the judgement made at the outset of the project that India had some core competitive advantage in the sector. Pol- icy change, meanwhile, has fairly uniformly been in the direction of reducing levels of protection against import competition, thus applying pressure in the desired direction of achieving greater levels of international competitiveness. 1. See Report No. 6781-IN, India: Development of the Electronics Industry: A Sector Report, May 14, 1987.  25 Annex A Ill. CREDIT LINE COMPONENT Component Description 3.1 The credit line component, totalling US$202 million equivalent shared equally between IDBI and ICICI. sought to provide term finance and permanent working capital support to viabie pro- jects in electronics and related areas. It was linked to the technical assistance component (see later) which provided support for these two institutions (the DFIs) in exposing appraisal staff to plants repre- senting close to international best practice, in terms of technology and scale, in the U.S and elsewhere. The line was pitched to medium and large scale projects, and it was anticipated that investments totalling US$420 million would be mobilised. Subloans were to be made under the Exchange Risk Administration Scheme (ERAS), which was a scheme set up for borrowers of foreign exchange, under which such borrowers would have their loans rupee-tied. against an exchange risk premium charged under the scheme by the Government of India (GOI), which in turn was to bear the exchange risk. IDBI and ICICI were to charge a spread of 2% to cover costs and profit. Sub-borrowers had the option of bearing the exchange risk themselves, in which case the cost of funds to them would be the Bank's rate plus intermediary spread of 2%. Main Findings 3.2 ERAS Scheme. The single most salient feature of this component was the collapse of ERAS. Between 1989, when the loan was made effective, and 1991, the rupee depreciated 47%, caus- ing the ERAS administrators to raise the ERAS premium to such a level that the ERAS rates quoted to sub-borrowers rose to 26%. At that rate, though there were some takers, demand for the credit line stalled. Subsequently, the rupee was made partially convertible, at which time sub-borrowers had no incentive to avail of the line, as rupee resources could be raised at rates lower than the ERAS rate, and converted to foreign currency. The alternative of assuming the exchange risk under the Bank's currency pool system was not attractive to sub-borrowers, both because of lack of familiarity with this pool and its risk characteristics, and because of the softness of the rupee at that time. Commitments and dis- bursements under the line came to a halt. In 1992, after some attempt by the Bank, GOI and the DFI's to restructure the line, no feasible market-based solution emerged,2 and the decision was made to cancel the undisbursed balances. 3.3 Industrial Credit and Investment Corporation of India (ICICI). Before cancellation occurred, ICICI performed quite well, having made commitments for some 51 sub-projects, in a variety of industry segments. As at the time of cancellation. total disbursements made to ICICI for subloans amounted to US$50.3 million, the last of which was made in January 1993. 3.4 Industrial Development Bank of India (IDBI). IDBI's performance was somewhat slower. By the time of cancellation, IDBI had made commitments and disbursements in respect of 36 subprojects, and disbursements had totalled US$21.3 million, the last of which was made in June, 1992. Mission's Assessment 3.5 It is clear that credit demand in the sector remained high, and that but for the ERAS problem, the line likely would have been fully committed within the time that had been foreseen. The subprojects that had been identified for funding under the line were in any case carried out, as was seen in some of the subprojects that the mission visited. For example, the Gujarat Narmada Electron- ics Project, which had obtained subloan commitments under the line totalling US$30 million from IDBI and ICICI combined, went forward as planned, albeit with a reduced utilization under the line of about US$8.0 million. Alternative sources of funding were secured when the ERAS scheme collapsed. Another plant visited by the mission, Namtech Electronic Devices, obtained and utilized ERAS funding at the 26% rate, but ultimately was able to prepay the subloan and refinance at a lower rate. The overall 2. Subborrowers would likely have been willing to assume the exchange risk on single currency (dollar) subloans. at market rates of interest, but the Bank at that time did not have the flexibility to convert its currency pool loan.  Annex A 26 assessment therefore seems compelling that the main objective was achieved of helping IDBI and ICICI in identifying and appraising, then supporting viable electronics projects. At the same time, to the extent there was in addition a resource mobilization objective, this was clearly not achieved. In the event, IDBI and ICICI were apparently able to raise resources elsewhere in sufficient amounts to sustain thie lending program that was projected. Next Steps 3.6 The mission requested, but has not yet obtained from either institution, data pertaining to the institutions' overall electronics sector portfolios, using 1989 as a base year, and covering the intervening years up to the present. The data would cover the size and performance characteristics of the portfolio, both in absolute terms, and in relation to the total loan portfolios of the institutions. These data would permit a more precise assessment of the institutions' role in furthering the growth and performance of the electronics sector as a whole. These data were promised to be delivered to the Bank in Washington by end-May, 1997. They should also be copied to the Department of Economic Affairs (DEA).3 3.7 Additionally, there were some gaps in the data given to the mission in respect solely of the subprojects supported under the Bank's credit line. These data also were promised to be sent to Washington by end-May, 1997, with a copy, as before, to the DEA. 3.8 Finally, the mission invited the two institutions to prepare their own Completion Reports in respect of this line, for inclusion in the Bank's ICR. Guidelines to support this activity were given to the institutions. The mission promised to have a draft ICR ready for review and comment by the institutions by about June 20, 1997. The institutions agreed to send their comments alongwith their contributions to the report by end-June, 1997. The DEA would again appreciate receiving a copy. IV. MANPOWER COMPONENT Component Description 4.1 The manpower component - Part C of the Project - was known in India as Project IMPACT.4 This was conceived as a project to be implemented on a pilot scale with the objective of improving the quality of the workforce of the electronics and computer software industry by improving the skills of engineers and technicians already employed, and of students being trained in engineering colleges and polytechnics, and by strengthening the linkages between training institutes and industry. Accordingly, Project IMPACT comprised the following activities: (a) conducting state-of-the-art seminars for upgrading the background knowledge of in-service engi- neers and technicians; (b) conducting continuing engineering education program (CEEP) courses for in-service engineers and technicians; (c) conducting instructional enhancement programs (IEP) for in-service teachers in 14 selected regional engineering colleges and 12 selected Polytechnic Institutes. all 26 of which together were called participating institutions (PIs); (d) preparation of learning materials (LMs) by leading experts in the various subject areas to sup- port IEPs, and to serve as skeleton, up-to-date course materials that could be used as best- practice models that could be adopted nation-wide; 3. Per the request later made by Mr. Rohit Modi, Deputy Secretary, DEA. 4. An acronym which stands for Industry-oriented ManPower with Appropriate Competence and Training.  Annex A 27 (e) the preparation of model curricula: (f) the upgrading and modernization of teaching facilities, including equipment, furniture, buildings, and books and journals for libraries; and (g) conducting industry attachment programs (lAPs) for engineering and technician students. 4.2 In addition to the 26 Pls, the institutional framework which supported Project IMPACT included Resource Centers (RCs), which provided the staff that prepared the LMs and conducted the IEPs. The RCs which supported the project comprised Indian Institutes of Technology (IlTs) located at Bombay and Delhi, along with Jadavpur University, Calcutta, the Indian Institute of Science (llSc) Centre for Electronics Design and Technology (CEDT) at Bangalore, and the NTTF Electronics Center (NEC) also at Bangalore. The project included as well six relatively new CEDTs which provide CEEP courses to practicing engineers and technicians, and which obtained support for improving their labora- tory and related facilities. Main Findings 4.3 Though with some delay, Project IMPACT has in the end been well and successfully implemented. There was, however, one sub-component which was abandoned, namely the state-of-the- art seminar program, when at the mid-term review it was decided that the effort necessary to mount these seminars was not worth the benefit. 4.4 Views of Pis and Students. At the level of the Pis, there is considerable satisfaction with what has been achieved by them under the project. Likewise, students who have benefited from improved facilities provided under the project, have been uniformly laudatory and grateful for the changes which the project has made possible, specifically in terms of access to and the quality of books and equipment made available to them, and in terms of the usefulness of the industry exposure gained under the industry attachment programs (lAPs). The IEPs may be judged a success also. Teachers have found the courses mounted by the RCs to be useful and relevant, and many have returned to take additional courses. There was no dissent from this positive view that was expressed to the mission. The LMs prepared by the RCs have only yet in few cases reached the target groups of teachers and stu- dents. Those that have were said to vary in quality, and, regardless of quality, students who are moti- vated more by a desire for certification than a desire for knowledge at this stage, find that some of the LMs not (yet, at least) included in current syllabi are less than useful to the extent that they diverge from current syllabi, which many do, by design. Many teachers have similar reservations, especially in non-autonomous Pis which do not have the freedom to set their own curricula and syllabi. Suggested modified course curricula have been prepared, and are currently being reviewed by the All-India Council for Technical Education (AICTE), with a view to possible adoption and promulgation. 4.5 Views of Industry. Industry has also voted by their actions overwhelmingly in favor of the initiatives adopted under Project IMPACT. Campus interviews conducted by hiring firms have clearly favored participatng schools, and the hiring rate for fresh graduates have increased markedly for Pis. Industry has however had a less enthusiastic response to the IAP. While most firms when approached have been forthcoming in agreeing to participate in the IAP, they have also expressed the view that an eight-week IAP is not of long enough duration for a trainee/student to solve real prob- lems. A suggestion that has repeatedly been made by industry is that the IAP be extended to a mini- mum of six months to enable meaningful projects to be worked on by the students, with the possibility of meaningful, discrete outputs being produced at the end. In such a case, the firms visited have uni- formly indicated a willingness to pay the students for the period of the IAP. This option would neces- sitate of course a longer overall course duration before the student graduates. While some students object to that, the mission found in talking to a group of students at Osmania University, Hyderabad, that a slight majority would in fact prefer a longer, paid IAP, even if it meant extending the course duration from four to five years. Some college officials expressed skepticism whether industry would or could respond in sufficient numbers to absorb all the students that would be seeking IAP placements if such a scheme were to be adopted. Others suggested that a middle ground may be possible, wherein  Annex A 28 student projects could be carried out largely on campus, while however addressing problems identified within industry, with teachers and professors taking a more active role in identifying such projects. 4.6 Views of PIU and RCs. Understandably, the PIU and RCs are generally quite proud of what they have been able to accomplish. Project IMPACT has garnered much publicity in electronics and software circles within the country, and there is a clamor among non-Pis, also understandably, to be included in the project. At the same time, there is an awareness within the PIU and among the RCs of the implementation delays and difficulties that bedevilled what is an institutionally complex project, and likewise a concern that the gains that have been achieved not be frittered away by lack of follow- up. Thus, the enthusiasm evinced elsewhere is tempered among the staff of the PIU and of the RCs by concerns similar to that of the Bank. Retrospectively, the question is what could have been done bet- ter, with the benefit of hindsight, and prospectively the question is, what next? 4.7 As to the retrospective question, there appears to be a consensus view that the imple- mentation delays were due, among other reasons, to delays in producing the Detailed Project Report (DPR) needed to secure the needed allocation within the Government Budget, and related delays in staffing the PIU, followed thereafter by the latter's lack of familiarity with World Bank procurement procedures, and by the even greater lack of familiarity of the Pls with such procedures. A consensus appears also to have emerged that it was only after the ZOPPS workshop held in 1994, which helped in bringing about a clear understanding of the project among the Pls, that the involvement of the Pls became active and committed. There is also a clear sense that the ZOPP workshop was instrumental in building enthusiasm for the project among all the participants. an enthusiasm that was present throughout all the meetings held for the mission. 4.8 As to the question of what next, the staff of the PIU and the RCs are seized of the issue, and there is a determination that the gains of the pilot project should not be frittered away. Hcowever, there is not yet a clear consensus on what should best be attempted within an environment characterized best by constraints, both budgetary and otherwise. For the moment, there is reliance on a follow-up project promised by SDC (see later). DOE and the PIU also feel that the Bank's role was important to the formulation and ultimate success of the effort and wished to place on record its desire for further help from the Bank in the follow-up activities that are necessary. 4.9 Views of the Cofinancier. The views of the cofinancier, SDC, are very much in accord with the views expressed by the PIU and the RCs. With SDC too there is determination that the gains of the present, pilot project not be wasted due to lack of follow-up, and there is an apprehension that, failing such follow-up, there is a good chance that that is what would happen. Accordingly, the SDC have indicated its commitment to continued financial support of Project IMPACT. This commitment is made easier by the fact that, owing in large part to rupee depreciation, the SDC grant has been under- spent to the tune of approximately SFr7.5 million.6 The SDC follow-up effort is currently focused on three initiatives, namely: (a) a Sustainability Support Scheme (SSS) under which present Pls would be assisted in strength- ening revenue-generating activities, principally CEEP, consultancy, and maintenance services; (b) a project for networking Pls, intended to facilitate the sharing of resources and experiences; and (c) follow-through activity intended to ensure that LMs prepared under Project IMPACT are pub- lished and thereafter widely disseminated. 5. A German acronym for Goal Oriented Project Planning. 6. The balance on the account as of date is actually SFr14.8 million. However, some further draw-down of SFr 7.3 million in respect of expenditures incurred before the Closing Date is expected, and the account is being kept open informally beyond the formal Closing Date to accommodate such draw-down.  Annex A 29 The Mission's Assessment 4.10 The Restrospective Question. As to the retrospective question, the mission accepts the consensus view that Project IMPACT, in the end, has been well and successfully implemented. Bank supervision could have included, early on, a Project Launch workshop with objectives similar to that of the ZOPP workshop which was later mounted, and which was well received by all participants for the clarity that it lent to project definition, and to a framework for project monitoring. Such Pro- ject Launch workshops are now standard practice by the Bank for institutionally complex projects and project components such as the present one. 4.11 The mission considered the question whether Project IMPACT could better have been implemented by the Ministry of Human Resource Development (MHRD), under whose administrative authority the Pis nominally fall. Despite the potential for conflict in the institutional arrangements adopted, between the DOE and the MHRD, it would appear that the more focused attention that the DOE was able to give to the effort than would have been possible with the MHRD, was important to the success of the effort. Nor does it appear that the MHRD is resentful of the DOE's intervention; rather it is welcoming of it, given its own resource limitations. Ultimately, the DOE, in this sort of intervention into the educational sphere, may be viewed merely as a benefactor with resources, exper- tise, and a vested interest, in exactly the same way that private companies occasionally endow a pro- fessorial chair or finance the construction of a university laboratory, etc., in areas where they have an interest, altruistic or otherwise. 4.12 What next?. The prospective, "what next?", question is more problematic. The mission is of the view that, while there is a clear determination that the gains made to date not be lost, the core issues that need to be addressed in any follow-up activity is that a scale-up project may be implemented to meet the increasing need of high-quality, industry-relevant education. While DOE has made plans to sustain the gains of the present project, it has, as yet, not considered formulating a scale-up project. 4.13 That the present project was "pilot-scale" in fact as well as in name cannot seriously be doubted, having regard to the overall size and demands of the electronics industry, and having regard also to the numbers of engineering colleges and polytechnics which are producing graduates and diploma-holders in the electronics and computer fields. As compared with 14 engineering colleges and 12 polytechnics which participated in the pilot, there are about 450 engineering colleges and 1,000 polytechnics in India, about 40% of which now offer courses in electronics. The 50% per annum growth rate which India has been enjoying in the software segment, together with 17% growth in the electronics manufacturing segments, argue for an impending manpower crunch, one where issues of quality will likely emerge before issues of quantity availability. Indeed, notwithstanding productivity gains in these segments, there are already indications that India may already be starting to scrape the bottom of the barrel in terms at least of the quality of software manpower - a concern expressed (para. 5.3) by the National Association of Software and Service Companies (NASSCOM). Therefore, issues of scale-up, from pilot scale, to larger scale, must explicitly be addressed, in addition to the issue of merely sustaining the gains made in the present group of Pls. 4.14 This observaton, in turn, suggests that the lessons to be drawn from the present pilot- scale operation should at least in part focus on issues of replicability. The completion of the pilot should carry with it an exercise to evaluate the design choices made during the pilot, to see to what extent they should be replicated on scale-up. To what extent, given the lessons learnt from the pilot, would resource allocations have been different? Where could more money have been spent, and where less? For example, a wave soldering machine acquired under the project had not yet been used, for lack of raw materials, and because exhaust fixtures would first need to be installed as a safety precaution before it could be used. Without prejudging the issue, it may be possible that in a scale-up exercise in a resource-constrained environment, the ratio of computers and other equipment to students might optimally be somewhat less generous than made available under the pilot project. This issue must in any case be explicitly addressed as part of the evaluation of the pilot exercise, as would be done in any  Annex A 30 engineering design project where the purpose of the pilot-scale design precisely is to optimise on design parameters and conversion input-output ratios prior to scale-up. The same should be done here. 4.15 Having said that, it is necessary to add th3t there is no expectation that in the scale- up exercise that there should necessarily or optimally be an attempt to include all candidate engineer- ing colleges or polytechics. Reducing all institutions to a lowest common denominator in terms of resource availability is unlikely to be an optimal solution. Rather, perhaps even more so than money, the resource likely to be limiting is RC manpower for upgrading teacher quality through IEPs. There- fore, an optimal follow-up strategy bearing this constraint in mind might involve adding as many new Pls as could comfortably be serviced by the existing RCs, supplemented by the partial use of pre- sent Pis, to serve now as RCs for additional Pls in a follow-up activity. This has to some extent been happening already, as some Pis have been responding to requests from other engineering colleges and polytechnics in their locality to share some of the fruit of Project IMPACT. As a first follow-up, it does not seem infeasible to aim for an approximate doubling of the number of Pls. Thereafter, a "diffusion" process that is better than arithmetic progression but not quite geometric - perhaps roughly following a Fibonacci series7 - in terms of the successive addition of new Pis may well be achievable, with roughly a three-year gestation lag from stage to stage. 4.16 All of the foregoing is not to take away from the need, in addition, to consolidate the gains made by the existing Pls. In this effort, the focus of the Self-Sustaining Scheme (SSS) (para. 4.9) currently proposed for support by SDC is well placed on the effort to enhance the revenue-raising capability of the Pls, while not sacrificing the character of the Pls as educational institutions. In this re-gard, CEEP course offerings can serve the dual purpose of raising revenue for the institutions which offer them, as well as contributing to the broader objective of raising the skill levels of in-service engi- neers and technicians. Additionally, Pis should be encouraged to provide consultancy and other ser- vices to industry, again to a degree that does not vitiate the core teaching mission of the Pis, as here too there is a synergistic benefit to better cooperation between industry and educational institutions. Also, the Pls are being encouraged to set up Self-Maintenance Cells, which would undertake the activi- ties of maintaining the equipment with which they have been provided, teaching students useful skills in the process, and raising revenue by providing this service to business and industry. Finally, since stu- dents are the immediate beneficiary of improved schooling, with a fairly rich stream of lifetime benefits that flow upon graduation, GOI may wish to consider establishing and supporting schemes for student loan financing coupled with a significant increase in student fees charged. 4.17 Summary of Mission's Recommendations. The mission's recommendations with respect to follow-up activity may be summarized as follows: (a) treat the present project as the pilot-scale exercise as it was in fact, and as it was characterized in the Bank's Staff Appraisal Report (SAR), and use the experience to plan for scale-up, not alone consolidation; (b) evaluate the present pilot not only from the viewpoint of effectiveness, on which basis it is clearly a success, but also from the viewpoint of conversion efficiencies (optimality of input- output ratios); (c) work out a scale-up exercise that respects the limiting constraint of RC staff and present PI staff that may now also function as RC staff for new Pis, and that also respects likely financial constraints; and 7. 0, 1, 1, 2, 3, 5, 8, 13, etc., where (except at the beginning) each term is the sum of the preceding two. The Fibonacci series occurs quite often in nature, as growth processes seem often to follow its pattern. If the RCs have in some sense managed to "duplicate" themselves among some of the present PIs (O and 1 yielding 1, making possible 1 and 1 next, to yield 2 at the next stage, etc.) then to that extent the size of the constraining resource should now be double what it was in the pilot. And so on.  Annex A 31 (d) additional to encouraging fund-raising by Pis through CEEP courses, and services to industry, consider increasing student fees, and funding the same through a student loan program. The design and implementation of such a scheme could well provide the basis for a future Bank- assisted project which the Bank's management may want to consider, should GOI be agreeable. V. TECHNICAL ASSISTANCE COMPONENT Component Description 5.1 The technical assistance component provided for: (a) a software development study (US$0.9 million); (b) a seminar program for Government and industry (US$0.7 million); and (c) training and technical assistance for IDBI and ICICI (US$1.4 million). The total of US$3.0 million equivalent, of which US$1.8 million had been disbursed as at close, was provided in the form of Japan Grant, and administered by the World Bank. Main Findings 5.2 Software Study. The software development study was completed in 1992. The study and its impact was described in wholly positive terms, as an "eye-opener", and as "the single event that transformed the industry", in that it indicated how the Indian software industry could best posi- tion itself in the global market. It reportedly helped focus the attention of politicians and bureaucrats on the potential of the industry to contribute to India's export earnings, so much so that it is still referred to by them as a "recent study," even though it is now five years old. While GOI did not implement all of the recommendations of the study, for example the recommendation to establish a Software Development Board, it turns out that this has not constituted a lack. The National Associa- tion of Software and Services Companies (NASSCOM) has emerged as a focal point for addressing issues related to the software industry, and GOI has relied on NASSCOM's recommendations to a large degree in addressing the problems, constraints, and prospects of the industry. 5.3 In the event, the performance of the Indian software industry has exceeded the projec- tions made in the study report, for example, the study had predicted that in the absence of any partic- ular interventions or positioning, India could expect to earn about US$660 million in exports in the fis-. cal year 1996/97, as against which India's software exports have exceeded US$1.0 billion. From a mar- ket share of 11.2% in the base year of 1992 in the area of custom software, India's market share in this area has grown to 16.7% at present. In the area of package software, India's market share was a minis- cule 0.01% in 1992, and remains a miniscule 0.04% at present, albeit with a four-fold increase. Cur- rent plans are to achieve a 22% market share in custom software by 2002, and to achieve a 3% market share in package software by the same year. Among the key issues which concern software manufactur- ers in this regard are infrastructure constraints, particularly in the area of telecommunications services, internet access and the bandwidth thereof, and significantly, an emerging manpower (quality) con- straint. 5.4 Seminar Program. The seminar program for Government and industry was less suc- cessful, and was discontinued after only one or two seminars had been mounted. As with the state-of- the-art seminars under the manpower component, the effort involved in mounting these seminars was judged not to be worth the benefit. 5.5 Technical Assistance for IDBI and ICICI. IDBI and ICICI received funds intended to improve the awareness of international best-practice in various electronics segments by appraisal staff in the institutions. Study tours to the U.S and elsewhere were organized by Dataquest Inc., a company awarded a contract for the purpose. IDBI sent a group of 15 executives, ICICI a group of 17. The  Annex A 32 general assessment of the institutions was that this was a useful program that achieved the goal that was sought, although not necessarily with a tight coupling between what was learnt on the study tour, and what was immediately applicable to projects in the appraisal pipeline that were subsequently attended to. One participant indicated that it was not until about three or four years after the exercise that his experience overseas became directly useful to a (telecommunications) project that he then helped to appraise. Additionally, although staff turnover has affected the extent to which the organiza- tions have retained the benefit of this overseas exposure, the assessment of both organizations remains thiat this was a useful exercise. IDBI in particular indicated that it sends 15-20 staff on similar training programs each year, and the perceived usefulness of the present exercise may have contributed to the willingness to devote resources to such activity. MVission's Assessment 5.6 The performance under this component was clearly mixed. The software study was both timely and useful. The technical assistance provided to IDBI and ICICI for overseas tours was use- ful, but no tight coupling between the usefulness of this activity and subsequent appraisal activity by the staff so exposed could be discerned. This however could hardly have been expected. And finally, the state-of-the-art seminars, while in principle attractive as a means of exposing relevant Government and industry personnel to what is happening internationally in respect of technology trends that might imipact on India's competitiveness and positioning, the sheer laboriousness of organizing these seminars wais not adequately anticipated. 5.7 DEA expressed some dismay that so much of the grant (US$1.2 million) under this component went unutilized. The mission could only agree that some restructuring should have been possible that would have obviated that result. VI. NEXT STEPS FOR THE ICR 6.1 The next steps for producing the ICR are as follows: (a) IDBI and ICICI to complete their data submission in respect of the credit line component by end-May, 1997 (paras. 3.6, 3.7); (b) the mission to complete the first draft of the ICR by about June 20, 1997 (para. 3.8); (c) DOE, SDC, IDBI, and ICICI to send their comment on the first draft by about July 15, 1997. IDBI and ICICI at the same time to send their contributions for inclusion into the ICR. SDC to confirm that their views have been adequately addressed; and (d) the mission would kindly request that the DOE also revise its contribution to the ICR to take into account the comments and recommendations made in this aide-memoire in paragraphs 4.10-4.15 and summarized in paragraph 4.16 above. Sidney Thomas June 4, 1997 Delhi and Washington, DC (revised August 26. 1997 to reflect Borrower comment)  Annex A 33 Attachment i/p. 1 of 3 LIST OF PERSONS MET Government of India, Department of Electronics Mr. Shyamal Ghosh, Secretary Dr. S. C. Mehta, Senior Director Dr. P. N. Gupta, Director Mr. V. B. Taneja, Director Mr. A. N. Sharma Mr. Altaf Khan Government of India, Department of Economic Affairs Mr. V. Govindarajan, Additional Secretary Mr. Rohit Modi, Deputy Secretary Swiss Agency for Development Cooperation (SDC) Mr. Kurt Vogele, Head -Asia Section (Berne) Mr. Hansjurg Ambuhl, Coordinator India Programme (Berne) Mr. H. R. Pfeiffer, First Secretary (Development) (Delhi) Ms. Rena Tagore Prof. Jaya Indiresan, Consultant (Delhi) Industrial Development Bank of India (IDBI) Mr. P. V. Narasimhan, Executive Director Mr. J. John, Deputy General Manager Mr. Anupam Srivastava, Deputy General Manager Mr. S. G. Gulati, Chief General Manager Mr. V. Venkateswariu, Chief General Manager Mrs. S. Rao, General Manager Ms Mythili Ravi, Asst. General Manager Mr. S. Sridhar, Asst. General Manager Mr. G. V. Nageswara Rao, Deputy General Manager Mr. Naresh J. Gwalani, Asst. Manager Industrial Credit and Investment Corporation of India (ICICI) Mr. S. H. Bhojani, Executive Director Mr. Suresh Vishwanath, Vice President Mr. A. P. Singh, Vice President Ms. Shalini Shah. General Manager Dr. P. H. Vaidya, General Manager Mr. N. P. Subramanian, Deputy Manager Mr. P. Suresh, Asst. Manager, Baroda Mr. Mangesh Kelkar Resource Centers Indian Institute of Technology, Bombay Prof. S. S. S. P. Rao Prof. G. Sivakumar Indian Institute of Technology, Delhi Prof. D. Nagchoudhuri, Head, Dept. of Electrical Engineering Dr. G. S. Visweswaran, Assoc. Professor Mr. N. K. Jain, Chief Design Engineer NTTF Electronics Training Center, Bangalore Wing Commander B. C. Prabhakar, Principal  Annex A 34 Attachment 1/p. 2 of 3 Mr. V. N. Vaidyanathan. Deputy Manager - Training Indian Institute of Science. Bangalore Centre for Electronics Design and Technology, Prof. H. S. Jamadagni, Prof. N. J. Rao Engineering Colleges Mr. D. B. Goswami, A.E.I, Assam Prof. S. Biswas, Bengal Engg. College. Calcutta Dr. Sakuntala S. Pillai, College of Engineering, Trivandrum Dr. (Mrs.) K. S. Jog, Govt. College of Engineering, Pune Prof. K. K. Tripathi, HBTI, Kanpur Prof. J. S. Shah, LD Engg. College, Ahmedabad MREC, Jaipur Prof. S. C. Agarwal Mr. R. P. Yadav MS Univ. of Baroda Vice Chancellor, Prof. Dipak Kumar De, Pro Vice Chancellor, Prof. B. S. Parekh, Prof. G. S. Shah, Osmania College of Engineering, Hyderabad Prof. V. Ramakistayya, Vice-Chancellor Prof. R. V. B. Chary, Head, Dept. of ECE Prof. V. M. Pandharipande, Dept. of Electronics Prof. K. V. Chalapati Rao, Dept. of Computer Science Mr. L. C. Siva Reddy, Reader, Dept. of Computer Science PSG College of Technology, Coimbatore Mr. S. Palanichamy Mr. A. Kandaswamy Regional Engg. College, Kurukshetra Dr. Shakti Kumar Prof. Anurag Mr. S. R. Philar, Regional Engineering College, Surathkal, Karnataka Rourkela Engineering College Mr. H. Parhi Mr. G. S. Rath SGSITS, Indore Dr. P. C. Sharma, Director Dr. P. K. Chande Dr. Prakash D. Vyavahare, Reader, Dept. of Electronics Engg. Polytechnic Institutes Gov't Polytechnic Kalamassery, Kerala Mr. C. V. George, Principal Mr. V. A. Shamsudeen Mr. J. P. Choudhury, Gov't Polytechnic, Nilokheri Mr. Jagjit Singh, Mehr Chand Polytechnic, Jalandhar MEI Polytechnic, Bangalore Mr. N. K. Ramdas, Consulting Engineer and Hon. Sec'y Mr. T. Narayana Swamy, Principal Mr. P. R. Sridharan, Murugappa Polytechnic, Madras Shri B. A. Chidre, S.B.M Polytechnic, Mumbai  Annex A 35 Attachment I/p. 3 of 3 Mr. Y. i. Shah, Dean, Shri Bhagubai Mafatlal Polytechnic, Mumbai Thapar Institute, Patiala Prof. G. K. Sharma, Head, Dept. of Computer Science Dr. Surekha Bhanot Dr. M. Jayakumar Mr. Kailash Chander Dr. P. K. Bansal Mr. Jagpal Singh Shri Vaishnav Polytechnic, Indore Mr. M. K. Dube, Principal and Secretary Mr. L. K. Jain, Head Electronics Dept. Shri P. K. Chakrabarti, Women's Polytechnic Institute, Calcutta Centres for Electronics Design and Technology Mr. B. A. Damahe, Senior Design Engineer. CEDT Aurangabad Dr. Madhu Mangal, Director, CEDT Calicut Prof. A. K. Ogra, Director, CEDT Gorakhpur Plant Visits BPL Limited Mr. K. R. Vinod Krishnan, Director Mr. K. Srinath, Asst. General Manager - Corporate Finance Mr. P. Haridasan, Manager Finance Mr. T. N. Shashidhar, Accounts Executive Namtech Electronic Devices, Ltd. Mr. K. P. P. Nambiar, Chairman and CEO Mr. B. S. Venugopalan, Executive Director Mr. Jacob John, General Manager - Finance Mr. T. V. D. Nair, Sr. Production Executive Narmada Electronics, Ltd. Capt.B. Bates, VSM, IN (Rtd.), Chief Executive Dr. G. K. Pathak, General Manager Mr. A. K. Modani, Asst. General Manager Mr. Sunil Bhatia, Officer (Administration) NELCO Mr. D. J. Fernandes, Executve Director Mr. K. A. Mahashur, Executve Director Mr. G. H. Chawla, Chief Operations Executive Mr. R. L. Panjwani, Senior Manager Mr. Ashok Mitra, General Manager Finance Mr. J. Shankar, Corporate Treasurer, Wipro Limited Industry Associations and Other Mr. K. M. Kini, Behram Wadia & Associates Mr. Shrikant Sarpotdar, General Manager, Kalyani Sharp India Ltd Mr. S. Srinivas, Kamal Elektronix, Bangalore Mr. Dewang Mehta, Executive Director, National Association of Software and Service Companies (NASSCOM) Mr. Sanjay Goel, Tata Consultancy Services Mr. V. N. Dhoot, Managing Director, Videocon International  m I- m Table 1.1 q -I Production Performance of Electronics Industry During VI, VII and Vil Plans 0 z Production Growth (%0) (Rs. Crores) Annual i Cumulative z 2 Sixth Plan 1980-81 767 12.0 O 0 1981-82 930 20.9 4 1982-83 1287 38.3 25