India - Agricultural Aviation Project

RESTRICTED Report No. P-863 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR AN AGRICULTURAL AVIATION PROJECT October 5, 1970   INTERPJATIONAL L)iVELOPMEN T ASSOCIATION REPORT AND RLCOMMYEDAIOIN OF TiE PRESIDELNT TO TllE IXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO TiE iOVERN4EN,"T OF INDIA FOR AN ASRICULTURAL AVIATION PROJECT 1. I submit the following report and recommendation on a proposed Credit in an amount in various currencies equivalent to US$ 6 million to India. PART I - AISTORICAL 2. Since 1919 the Bank and thie Association hiave provided assistance totallinrg US$ 206 million to finance agricultural projects in India, including tnree loans amounting to US$ 31 million and ten credits amounting to US$ 175 million. The last of these, signed on June 24, 1970, was the Punjab Agricultural Credit Project to assist in the financing of farm mecha- nization. Lending for agriculture llow accounts for 10% of total Bark Group lending in India and the proportion is likely to increase. 3. Tne proposed credit would finance the foreign exchange costs of an agricultural aviation project aiming at better control of crop pests and diseases through the expansion and improvement of aerial spraying services throughout India. It is the first Bank Group project the main purpose of which is to provide plant protection through aerial spraying. b. The project was appraised in November 1969 and negotiations for the proposed credit were completed on September 11, 1970. The Borrower was represented by Mr. S.M.H. Burney (Joint Secretary) and Group Captain Sen (Director of the Agricultural Aviation Unit) from the Department of Agriculture; and the Agricultural Refinance Corporation (ARC) was represented by Mr. P.N. Damry (Deputy Governor, Reserve Bank of India).  -2- 5. The following is a summary statement of Bank Loans and IDA Credits to India as at August 31, 1970:1/ Loan or Amount (Us$ million) Credit No. Year Borrower Purpose Bank IDA Undisbursed 307-IN 1961 Indian Iron & Steel Co. Coal Mining 19.5 V.O 24-IN 1962 India Koyna Power 17.5 1.1 27-IN 1962 India Bombay Port 16.2 1.2 h1h-IN 1965 ICICI Industry DFC b9.9 11.8 b16-IN 1965 India Power 58.0 17.2 817-IN 1965 India Power lb.0 o06 89-IN 1966 India Multipurpose Beas Equipment 23.0 10.7 856-IN 1966 Indian Iron & Steel Co. Steel 30.0 28.3 515-IN 1967 ICICI Industry, DEC 25.0 16.2 153-IN 1969 India Third Telecommunications 27.5 16.9 615-IN 1969 India 'Telecommunications 27.5 27.5 67h-IN 1969 India Agriculture 13.0 13.0 162-IN 1969 India Tenth Railways 55.0 b2.5 176-IN 1970 India Kadana Irrigation 35.0 35.0 162-IN 1970 India Sixth Industrial Imports 75.0 72.5 683-IN 1970 ICICI Industry DFC 40.0 10.0 191-IN 1970 India Gujarat Agriculture 35.0 35.0 203-IN 1970 India Punjab Agriculture 27.5 27.5 Loans/Credits fully disbursed 810.7 953.2 Total (less cancellations) 1087.6 126ka.9 Lloi.o of which has been repaid to Bank and others 439.0 Total now outstanding 6X.6 Amount sold 110.0 of which has been repaid 108.1 1.9 Total now held by Bank and IDA 646.7 126h.9 Total undisbursed 158.6 2142.14 4ol.o 1/ Including Credit No. 191-IN (Gujarat Agriculture) and Credit No. 203-IN (Punjab Agriculture) which were declared effective.on September 11b and September h, 1970 respectively, and $1.2 million which was cancelled from Credit 27-IN effective August 24, 1970.  - 3 - 6. There have been delays in several projects in India. IJo disbursements have yet been made on the loan for the Tarai Seeds Project (loan No. 61)1-IN), due largely to the time taken in organizing the Tarai Development Corporation. However, orders for equipment have now been placed, aiid L expect disbursements to begii fairly sooii. Do far as tiie two loais to Indian Iron and Steel Company are concerned, the Closing Date for the collieries loan (No.307-IN) has been postponed, as recommended in my memo- randum of July 9, 1970 (R70-135) while disbursements remain suspended in respect of the balancing scheme (Loan No. L56-ITl); a mission is in India discussing the second of these loans with the Government and the Company. Another mission will visit India towards the end of the year to study the progress at the Beas Project (Credit No. 87-IN) and to make recommendations with a view to expediting disbursements. 7. since 1959, IFC has made thirteen commitments in India totalling $!p12.3 million, of which $3l.2 million represent loans and $8.1 million equity. As of August 31, 1970, $19.l1 million of the total had been disbursed and $6.0 million cancelled leaving $16.9 million undisbursed. The largest commitment is a total of $18.9 million to Zuari Agro-Chemicals for a fertil- :izer plant in Goa. A number of other industrial schemes are currently under consideration. 8. Appraisal reports have been prepared for the Andhra Pradesh Agricultuiral Credit, Grain Storage, Cauvery Delta Ir-rigation and Second Power Transrrmission projects. A number of other projects are also being prepared. PART II - DESCRIPTION OF IE PROPOSED CREDIT 9. Borrower: India, acting by its President. Beneficiaries: Private agricultural aircraft operators and the Government's Directorate of Agricultural Aviatlin (DAA). Amount: US$ 6 million Purpose: To finance the foreign exchange costs of an agricultural aviation project, mnainly the purchase of aircraft by private operators and GOI in order to expand and improve aerial spraying services and training facilities. Amor-tization: In 50 years including a ten-year period of grace, through semi-annual installments of one-half of one percent from November 15, 1980 through May 15, 1990 and of one and a half percent from November 15, 1990 through May 15, 2020. Srervice ChlargFe: Trhree quarters of one percent per annuni.  Use of Proceeds: $3.3 million to be lent to the Agricultural Refinance Corporatiorn (ARC) at not less than 5'? percent per annum, with renayment over 11 years; ARC to relend to Partici- pating Commercial Banks (PCBs) at not less than 7 percent per annum with repayment over 11 years; PCBs to relend to nr-ivate aircraft operators at not less than h', percent per annum, with repayment. uP to 9 years. India will bear the exchiarige risk. $1.7 million to be sold to aircraft operators to cover the foreign cost of insurance and purchase of spares by dealers: Te courlter- part would accrue to the government. $1.0 million to be used by DAA for replacement aircraft and training. Estimated Economic Return on Projects: In excess of 100 percent (see paragraph I).\ FARi 'I1l - -ThiE PROJECT 10. An appraisal report entitled 'Agricult.ural Aviation Project: Tndia` (PA-58) is attached. 11. The higher priority given to agriculture in India's development strategy since 1965, including the major efforts made to introduce new technology by increasing the availability of inputs, encouraging the adoption of new, fertilizer-responsive varieties of food grains and providing economic incentives for increased production have resulted in an increased groti-i rate above the long term trend in thlis sector. However, with the introduction of high-yielding crop varieties, the problems of pest control have increased; there is more for the pests to eat and the new varieties are more susceptible to adverse environmental conditions and diseases. There is a growing realization that without improved pest control much of the benefit from investment made to achieve increased yields could be lost. As mentioned in Section 3.02 of the appraisal report the ecological ramifications of the use of pesticides - particularly D.D.T. - for aerial application have been much discussed in India and the use of D.D.T. under the project will be severely restricted. The Government has also given assurances that the handling of pesticides will be regulated carefully to minimize the environ- mental hazards. 12. The proposed project would support a program of aerial spraying which began in 1957 when 00I set up an Aviation Unit as part of the Directorate of Plant Protection (within the Ministry of Agriculture) and would complement other IDA assistance to India in the agricultural sector. It would form an important part of India's plant protection program for the current Five-Year Plan period (1969-1974), by providing finance for the foreign exchange costs of (a) about 82 agricultural aircraft (67 for the use of qualified private operators and 15 for the GOI Directorate of  - 5 - Agricultural Aviation); (b) spare parts and ancillary equipment; and (c) training agricultural pilots and engineers. Purchase of aircraft by private operators would be through a credit program to be run by ARC. 13. Total project cost is estimated to be US$ 8.8 million equivalent; the foreign exchange cost of US$ 6 million would be financed by the proceeds of the proposed credit. Of this amount, US$ 3.3 million would be allocated to the ARC at a rate of not less than 5