India - Orissa Agricultural Development Project

Document of The World Bank FOR OFFICHAL USE ONLY Report No. P-1991-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR THE ORISSA AGRICULTURAL DEVELOPMENT PROJECT Februarv 9, 1977 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mgy not otherwise be disclosed without World Bank authorization.  CURRENCY EUUIVALENTS (as of January 12, 1977) .'s 1.00 Paise 100 US$1.00 = Rs 8.91 As 1.00 = US$0.1122 Rs 1 million - US$112,2(I0 (Siitce September 24, 1975, the Rupee has been off icially valued relative to a "basket" of currencies. As these currencies are now floating, tthe U.S. Dollar/Rupee exchange rate is subject to change. Conversions in the Appraisal Report were made at LUS$1 to Rs 9.00.) FISCAL YEAR April I - M1arch 31 List of Abbreviations and Acronymis Used in this Report AEO - Agricultural Extension Officer BSE - Orissa Blureau of Economics and Statistics COL - Governiment oE India GOo - Covernment of Or issa HYV - Higlh Yielding Varieties OLuAT - Orissa Uniiversity of Agricultur-e and Technology T S - Timely Reporting Svstelm VLW - ViLlage Level Worker  FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR THE ORISSA AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed de- velopment credit to India for the equivalent of US$20 million on standard IDA terms to help finance a project for increasing agricultural production, par- ticularly foodgrains, in Orissa. PART I - THE ECONOMY- 2. An economic report, "Economic Situation and Prospects of India" (1073-IN dated March 29, 1976), was distributed to the Executive Directors on April 2, 1976. Country data sheets are attached as Annex I. Background 3. India is exceptional among the Bank Group's member countries for its size and diversity; the country is divided into more than 20 States with a population of some 600 million and over 60 languages. The country's poverty and inadequate domestic savings, together with a net transfer of external resources averaging over the past five years only about US$1.20 per person per annum, have imposed sharp limitations on the rate of growth. Account must be taken, also, of the uncertainties imposed by the erratic availability of water. A bad monsoon, which is likely to occur about two years out of every five, has a pervasive influence over the entire economy and can wipe out the results of years of efforts. Thus, the annual growth of national income over the last five years (1971/72 - 1975/76), which ii,cluded two consecutive mon- soon failures, has averaged only 2% per annum, less than the rate of popula- tion increase. 4. Since Independence, progress has been impressive on many fronts, but disappointing on others, and generally has fallen short of India's mas- sive needs. The growth of the socio-economic infrastructure (transport, education, health services, etc.) has been impressive, but has often been achieved at high cost and has yielded results of variable quality. Many industrial and agricultural investment schemes have been highly successful, but others have taken excessively long to b'e completed and have operated well below full capacity. In some regions of the country, growth and struc- tural change have been rapid and compare favorably with developments in many other parts of the world, but in other regions there has been stagnation and possibly even decline. Although national income has increased in most years, there has been in general little impact upon the living standards of the vast masses of the urban and rural population. In recent years, the Government has initiated a-variety of programs specifically directed toward helping the lower income strata, which - conservatively measured - consist of some 200 million people with incomes of less than US$60 per head per year. 1/ Parts I and II of this report are identical to Parts I and II of the President's Report for the Kerala Agricultural Development (Report No. P-1953-IN), dated February 3, 1977. 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 disclsed without World Bank authorization.  - 2 - 5. The structure of the economy has been slow to change. Agriculture remains the dominant sector, with its share of national product declining only gradually from about 50% to 42% over the last twenty years. The share of industry has increased only slowly and, since the late 1960s, has remained approximately constant at about 23%. There has, however, been a shift in the composition of industrial production, with consumer, intermediate, and capital goods now contributing about one third each, compared with an overwhelming preponderance of consumer goods 25 years ago. Recent Trends 6. India entered 1975/76 having been through one of the most difficult periods since Independence. Progress in dealing with long-term development problems had been limited by poor crops, the dramatic shifts against India in the terms of trade, and inflation. Adjustments to these immediate difficul- ties thus became the principal preoccupation in economic management. However, with the support of favorable weather and additional foreign assistance, it now appears that India has successfully weathered the problems of the recent past; once again there is the basis for an upturn in the growth rate of the economy. 7. Most important among the favorable factors have been a bumper har- vest which followed years of poor or modest agricultural output. Foodgrain production in 1975/76, estimated at around 117 million tons, exceeded the previous record of 1970/71 by 8%. Oilseeds, sugarcane and cotton also reached new production peaks and provided ample supplies for the agro-industries. In 1976/77 a good harvest is again expected of at least 110 million tons of foodgrains. Secondly, deficiencies in the supply of basic commodities and of infrastructural inputs such as energy and transport, which had been prevalent in the past, have been eased. Electricity generation and domestic production of coal, oil, cement and steel all increased by over 10% during 1975/76 and by a further 15% in the first eight months of 1976/77. Finally, the increased supply of agricultural and industrial products and of services, together with the demand restraint imposed by the Government since mid-1974, put a virtual stop to inflation. From April 1975 to March 1976 the Wholesale Price Index fell by 8.1%. Although from April to September 1976 the Index rose by 11.0%, it was still 5% lower in September 1976 than in September 1974. 8. On the balance of payments front there have been a number of en- couraging developments. Firstly, the rapid build-up of foodgrain stocks to a level of 17 million tons by December 1976 provides a buffer against the impact of a future crop failure on the balance of payments and has reduced current import requirements. Secondly, despite generally unfavorable world trading conditions, export earnings rose by 9% in 1975/76, and seem likely to rise by more than this in 1976/77. Thirdly, the value of petroleum imports was stabilized in 1975/76 (although there is likely to be a rise in 1976/77), and steel imports have been progressively reduced in 1975/76 and 1976/77 as a result of increased domestic production. Finally, increased production and lowered world prices have reduced fertilizer import values quite sharply. As a result of these factors, imports rose only 5% in value in 1975/76 and the trade deficit fell by almost $100 million. Development so far in 1976/77  - 3 - suggest a more dramatic improvement in the trade balance this year. More- over, since net aid rose 49% in 1975/76 and India received substantial in- flows of private remittances during the past one and a half years, reserves rose by almost $800 million in 1975/76, and are continuing to rise at a com- parable rate in 1976/77. These reserves give India added flexibility in adjusting to a higher rate of growth in the future. Development Prospects 9. While many of the most acute problems were eased during 1975/76, longer-term constraints to growth remain. Many of these have existed for some time, but their importance had been temporarily overshadowed by the more overwhelming limitations imposed by supply shortages and balance of payments problems. One such constraint is the deficiency of demand for a large seg- ment of the manufacturing industry. Consequently, in the midst of adequate supplies during 1975/76, the use of manufacturing capacity - especially for consumer durables - remained low. In the short and medium term, the two most promising ways of stimulating demand are to boost public investment and ex- pand exports. Both avenues are currently being pursued by the Government. During 1975/76, real Plan outlay rose by 18-20%, after having fallen during each of the previous two years. The 1976/77 Budget proposed a further in- crease of 16% in real terms and introduced new measures to stimulate invest- ment in the private sector. Investment priorities remain the same as last year, namely agricultural development and increased production of critical industrial inputs, such as power, coal, oil, and iron and steel. The Budget also stresses the importance of exports as an essential condition for sus- tained stability in the balance of payments. 10. In agriculture, the basic problem remains that, despite the record foodgrain crop in 1975/76, the long-term growth rate of foodgrain production in India has been unacceptably low, at about 2.3% per annum over the last 15 years. This is about the same as the rate of population increase. Starting from a situation of deficit, this has meant that only in good years has there been a significant margin of production to cater to any per capita growth in consumption, and even in normal years it has been necessary to rely on stocks or imports to meet any growth in demand. With a major effort to expand the irrigated area and provide complementary inputs, the average growth rate of foodgrain production could be substantially increased. This is essential, not only because of the necessity to meet food requirements without unmanage- able consequences for the balance of payments but also because of the strong influence of agriculture on the levels of activity in other sectors of the economy. Even with a higher growth rate of foodgrain production, imports will still be required. However, in relation to India's total consumption of foodgrains, the dependence on imports has been and will remain small. In the past, domestic production has accounted for almost 100% of supplies in good weather years and about 90% when harvests were poor. 11. The energv sector in India was characterized by shortages even before the international oil crisis developed. The dramatic hike in oil prices, coinciding as it did with the accentuation of electric power shortages - caused in part by low hydroelectric generation due to poor  monsoons - led to an acceleration of measures to improve performance of existing facilities and to a much higher priority for investments in the energy sector. The effects of these measures, aided by the good monsoon, are now starting to be felt. Coal production has increased by 10% or more in each of the last two years, and, partly as a result of this, power shortages and restrictions have been greatly reduced. The medium-term prospects for oil and natural gas have improved with the delineation of the offshore Bombay High field. Crude production from this field is expected to be 1 million tons in 1976/77 and to reach 6 million tons by the end of the Plan period. On this basis, petroleum imports are projected to start declining in 1978/79, as increased crude production and expanded refinery output more than offset increases in demand. 12. In the past, export growth was affected in varying degrees by in- adequate profitability, lack of access to imported inputs, poor quality, instability of the policy environment and vulnerability to ad hoc decisions. In addition, for agricultural commodities export taxes were significant. For some homogeneous commodities, such as iron ore and tea, inadequate sup- plies or limited world demand have been important constraints. In recent years, mainly because of the large trade deficit, the Government's emphasis on export promotion has intensified. As a result, although the fundamental orientation of India's industrial and trade policy and the specific instru- ments of the export regime have, by and large, remained the same, a signi- ficant shift in emphasis and in the way these policies are operated has oc- curred. These are likely to lead to a better utilization of current export potential and reflect a willingness to make policy adjustments, when neces- sary, to expand exports. 13. While it is difficult to assess the impact of the new measures in an area where policy is already very complex, some improvement has already taken place and further improvement in medium-term performance seems likely. An annual real export growth rate of over 7% should be feasible, compared to an average of 5% over the last five years. However, to achieve a higher export growth over the long run, more far-reaching policy measures will be required, including the introduction of a more uniform and more stable sys- tem of export incentives. Even so, the export drive might be impeded by controls in some developed markets. 14. India's balance of payments problems should be manageable over the next few years, even with the repayment obligations resulting from re- cent short-term OPEC and DMF borrowings. The worldwide inflation has bene- fitted India by reducing the proportion of export earnings that have to be devoted to debt service. India's debt service ratio has come down from 31% in 1970/71 to 17% in 1975/76. Provided the real growth of exports remains at about 7% per annum, the debt service ratio is unlikely to rise much above 20% in the foreseeable future. On the import side, given the adequate level of stocks on hand at the end of 1975/76 and assuming normal weather condi- tions, annual foodgrain imports could be kept to 5-6 million tons during the next three years. Within the general category of non-food imports, India has substantial medium-term import substitution opportunities for three  -5- major items -- petroleum, fertilizer and steel -- which constituted more than 60% of imports in 1975/76. If the medium-term targets for production in these areas are achieved, the total expenditure on these three import items in 1978/79 need not be any higher than in 1975/76 and could quite conceiva- bly be less. Provided the Government is willing to liberalize imports and donors continue to respond to India's needs, the easing in the external payments situation presents an opportunity to raise the level of investment (complemented by larger imports of capital goods, components, and raw materials) and, consequently, reach a more satisfactory level of long-term growth. PART II - BANK GROUP OPERATIONS IN INDIA 15. Since 1949, the Bank Group has made 49 loans and 80 development credits to India totalling US$1,751 million and US$4,112 million (both net of cancellation), respectively. Of these amounts, US$785 million has been repaid, and US$1,651 million was still undisbursed as of December 31, 1976. Annex II contains a summary statement of disbursements as of December 31, 1976, and notes on the execution of ongoing projects. 16. Since 1957, IFC has made 14 commitments in India totalling US$58.4 million, of which US$11.9 million has been repaid, US$7.6 million sold and US$6.9 million cancelled. Of the balance of US$32.0 million, US$25.5 mil- lion represents loans and US$6.5 million equity. A summary statement of IFC operations as of December 31, 1976, is also included in Annex II (page 2). 17. In recent years, the emphasis of Bank Group lending has been on agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit opera- tions. Major irrigation, marketing, seed development, and dairying are other agricultural activities supported by the Bank Group. Also, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale industrial enterprises. IDA financing of industrial raw materials and components for selected priority sectors has been instrumental in facilitating better capac- ity utilization in industry. The Bank Group has also been active in support- ing infrastructure development for power, telecommunications, and railways. Family planning, education, water supply development, and urban investments have also received Bank Group support in recent years. 18. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, industry, power, urban development and water supply remains highly relevant. Projects designed to foster agricultural production through the provision of essential inputs such as credit for on-farm investments, command area development of existing irrigation schemes, intensification and streamlining of extension systems, and seed production  - 6 - form an important aspect of the Bank Group's program for the next several years. Special emphasis will be given to projects benefitting small farmers. Projects supporting water supply, sewerage, and urban development also form an integral part of the Bank's lending strategy to India for the next several years. Lending in support of infrastructure and industrial investments will focus on agriculture-, export- and energy-related projects. 19. The need for a substantial net transfer of external resources in support of India's economy has been a recurrent theme of Bank economic re- ports and of the discussions within the India Consortium. Thanks in large part to the response of the aid community, India has successfully adjusted to the changed world price situation. However, the basic need for readily usable foreign exchange assistance, to augment domestic resources, stimulate investment and accelerate economic growth, remains. Bank Group lending for critical industrial raw materials and components continues to be an important element within the overall program of assistance. As in the past, Bank Group assistance for projects in India should include, as appropriate, the financing of local expenditures. India imports relatively few capital goods because of the capacity of the domestic capital goods industry. The import component of projects tends to be especially low in such high-priority areas as agriculture, education, and family planning. For the Bank Group to be able to make an appropriate contribution to the financing of projects in these sectors, it is important to cover a proportion of local expenditures. 20. It is clear from the review of the Indian economy that as much as possible of India's external capital requirements should be provided on con- cessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reasonably be allocated to India remains small in relation to India's needs for external support, and some Bank lending to India, for which the country is creditworthy, is appropriate. As of June 30, 1976, the loans to India held by the Bank totaled US$701 million, of which US$266 million remained to be disbursed, leaving a net amount outstand- ing of US$435 million. 21. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with an estimated 58%, 24% and 29%, respectively, in 1975/76. On March 31, 1976, India's outstanding and disbursed external public debt was US$13.1 billion, of which the Bank Group's share was 25%. The Bank Group's share is expected to remain around this level in the future. Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1975/76, about 15% of India's total debt service payments were to the Bank Group.  - 7 - PART III - AGRICULTURE IN INDIA AND ORISSA 22. Agriculture is India's most important sector. It employs approxi- mately 70 percent of the population, contributes about 45% to GNP, and pro- vides a major share of exports. GOI's emphasis in the agricultural sector has been on increasing foodgrain output through improved yields resulting from more intensive use of seed of high yielding varieties (HYV), fertil- izer, pesticides and irrigation. With self-sufficiency in food as a national objective, investments in foodgrain production have been given top priority by Government and will continue to be the focus of national attention for the foreseeable future. 23. Since independence, the overall growth of agricultural production has averaged 3 percent per annum. This low overall rate, which has been very much affected by serioVs droughts in 1965 and 1966 and again in 1972 and 1973, obscures considerable variations over shorter periods, between crops and between regions. The success of high yielding varieties produced in- creases in wheat production of about 20 percent per annum between 1967 and 1971. The effects of this "green revolution", which primarily affected wheat, have been concentrated in north western India, very largely on account of the advanced state of agriculture in that area and the availability of irri- gation. The strategy of the Government is to spread this technology to other regions, especially to the Eastern States which have a large untapped agri- cultural potential and harbor a large proportion of India's poorest farmers and agricultural laborers. Agriculture in the Eastern Region 24. In support of the Government's strategy, since September 1975, Bank staff have been engaged in state-by-state reviews of a number of Eastern States to analyze the problems and, more importantly, assist in devising short-term action programs to start developing the potential within these States. These reviews have reconfirmed in some detail much that was already known about the Region. There is a vast groundwater resource yet to be developed; and the farm service and supply institutions are in very poor con- dition and operate at low levels of effectiveness. But the under-utilization of modern inputs is first a demand problem rather than one of sheer avail- ability. Farmers in the Eastern Region are caught in a cycle of low pro- ductivity, low income and low investment. Their holdings are small and the fragments they cultivate even smaller. They are poorly placed to take on the risks associated with the new but more costly technology. There are some adopters of the modern technical package of tubewells, HYV seeds and fer- tilizer, but the package is mainly applied on irrigated wheat and rice in the dry season. Up to three-quarters of the region's foodgrain, however, is produced during the monsoon period from traditional varieties and using traditional cultural practices that minimize the risk of crop failure but result in low productivity.  25. These State reviews have also succeeded in identifying short-term action programs which typically concentrate on reorganizing extension services, improving adaptive research, accelerating the development of low-cost shallow tubewells and simple dug wells, and improving the efficiency of existing pub- lic irrigation schemes. With some exceptions, it has not proven possible to identify parallel measures to strengthen short-term credit and input supply services in the same time frame because of the weaknesses of available insti- tutions. However, in the Eastern Region, where few farmers have any expe- rience of modern inputs, credit or irrigation, a rapid shift to a high-input technology is at best difficult. Rather, as an immediate first phase, the State reviews have stressed the potential for achieving a significant and broadly distributed increase in production by improving basic cultural prac- tices, using the resources already available to small farmers, in particular Eastern India's high rainfall and abundant labor. 26. The key to this development is a strengthening of research and its reorientation toward the needs of the small farmer, and a reorganization of extension services along lines that have recently proved highly successful elsewhere in India. First tried in canal commands of three Bank Group assisted projects in Rajasthan and Madhya Pradesh (Ln 1011-IN, Cr 502-IN and Cr 562-IN), where dramatic production increases are being achieved, the new extension service puts great emphasis on concentration of efforts, on system- atic and regular training, close supervision of staff at all levels, and a fixed schedule of visits to farmers' groups. Coupled with an expanded pro- gram of adaptive research, the system has the capacity to transmit appropriate recommendations from the policy maker to the village level quickly and effec- tively and at little extra cost to Government. Once farmers have increased their production and hence confidence in the extension service, they can be expected to adopt more productive, but more costly technology based on pur- chased inputs and on-farm investments. Hence, this short-term strategy may prove an important first step towards breaking the vicious circle of poverty. If it succeeds, it will create the very demand now lacking for the inputs of the modern technology. 27. This project in Orissa is the first of a series of projects re- sulting from the Eastern State reviews. All these projects will have as their centerpiece a research and extension component. In addition, where possible and depending on the readiness of State level institutions, there will be a provision for other components essential for boosting agricultural production in the short term or laying the groundwork for longer term ad- vances. Orissa 28. Agriculture is dominant in Orissa's economy contributing about 60 percent of total domestic product. About 80 percent of the population of nearly 25 million depends directly or indirectly on agriculture and about 75 percent of the work force is engaged in it. The land area covers some 15.6 million ha representing 5 percent of India's total. The cultivated area is 6.5 million ha or about 42%. The bulk of the balance is forest, covering 32%.  29. Paddy is the most important crop occupying 70 percent of all crop- ped area. Over 95 percent is grown in the kharif season, June to December, when moisture is available from the monsoon. In the coastal areas, paddy is virtually the only crop grown in kharif; in upland areas the cropping pattern is slightly more diverse; small grains, pulses and oilseeds are being grown in addition to paddy. About 20% of the area is double cropped, most of the second crop coming after kharif paddy on residual moisture. Statewide, in both the kharif and rabi seasons, other cereals (wheat, maize, millets and barley) take up another 7 percent and pulses 14 percent of the cropped area. This leaves about 9 percent of the cropped area for oilseeds (6 percent), fibers (1 percent), vegetables and spices. Rice yields in Orissa, as in other states of Eastern India, are low in relation to the rest of India and similar areas in Asia. Peak achievement has never exceeded about 1.5 tons of paddy per hectare. Yields are about twice as high in Punjab, Haryana and Tamil Nadu. In neighboring West Bengal, with similar climatic patterns, yields are 30 percent higher, though a higher proportion of the crop is irrigated, about 40 percent as compared to close to 15 percent in Orissa. 30. There have been increases in Orissa's agricultural production in the past decade, due to increased area under cultivation, (about 350,000 ha) increased irrigated area (close to 500,000 ha), and introduction of HYV rice and wheat. However, with a quickly growing population, per capita production has actually declined. Agriculture and allied activities account for about 60% of State income at current prices, while the corresponding figure for all India is less than 50%. Agriculture accounts for about 57% of income in Orissa compared with 30% in West Bengal, 46% in Bihar and 47% in Assam. 31. The pressures of population and poverty in rural Orissa are consi- derable. Among Indian States, Orissa not only has the highest percentage living in rural areas (over 90%) but is also probably the poorest state in terms of per capita income. The population is stratified along caste, class and tribal lines, and is caught in a web of social-economic relation- ships and land tenure systems which further hamper agricultural development and modernization. Small farmers, with holdings of less than 2 ha, represent roughly 2.6 million out of a total of 3.4 million cultivators' households. Although these farmers operate over 76% of all operational holdings, they control less than 40% of total cultivable land, while farms of 5 ha or more (representing less than 7% of holdings) account for about 30% of the land. Adding to the skewed distribution of income in the rural areas are the landless and agricultural laborers, who constitute an additional 1.8 million households. Complicating the problem of size of holding is fragmentation, each holding being comprised, on average, of 3 plots. The prospects for progress against the deeprooted and longer term problems would be improved if some production gains could be achieved in the short and medium term. 32. The key to shorter term production gains lies in improving the qua- lity of what may be called the "delivery system". Orissa carries out import- ant rice research which has produced a large number of improved varieties and technology; yet few farmers use them. Orissa is a major producer of nit- rogeneous fertilizers, yet uses only about 50,000 tons on its own land. The Government stresses the importance of credit as a catalyst for development,  - 10 - yet the present state of land survey and ownership records, which provide the collateral basis for investment credit, is antiquated and incomplete. Effective agricultural policy making and planning require up to date in- formation on land use, yields and improved farm management techniques, yet the existing data base is sparse and inaccurate and the capacity to gather and process information is sorely deficient. The extension service is not short of competent and motivated workers, yet it lacks the ability to deliver. The proposed project is an attempt to deal with these problems. PART IV - THE PROJECT 33. The Orissa review in September 1975 was the first of the Eastern State reviews (see paragraph 24 above). It was a joint exercise between GOI, the Government of Orissa (GOO), and Bank and FAO/IBRD Cooperative Program (CP) staff. An action program was identified, based on projects for agricultural intensification, irrigation and drainage, and agricultural credit. A first project was prepared by GOO, with CP assistance, in December 1975 and Feb- ruary 1976 and appraised in April/May 1976. Negotiations of this project were held in Washington in January 1977. The Borrower was represented by Mr. A. Pande. A credit summary is given in Annex III. A report entitled "Appraisal of the Orissa Agricultural Development Project," Report No. 1301a-IN, dated February 9, 1977 is being circulated separately to the Executive Directors. Project Description 34. The project is a package of complementary components aimed at achieving early and sustained improvement in agricultural production, parti- cularly of foodgrains. The core of the project would involve strengthening the extension service to bring proven agricultural practices to farmers state- wide; and strengthening and reorienting related research. At the same time, the base would be laid for longer term improvements in ground water develop- ment and credit supply through surveys, monitoring, and introduction of shallow tubewell technology. New and improved land transfer and survey systems would provide a basis for future land consolidation and improved farm efficiency. Agricultural statistics and data processing would be strengthened to assist agricultural planning and policy making by Government. Project components include: - strengthening of agricultural extension and related training facilities; - strengthening and reorientation of agricultural research, including adaptive research and field trials;  - 11 - support for the design, testing, demonstration and distribu- tion of improved animal-drawn farm implements; improved and accelerated land surveys and land record systems to establish land ownership and tenancy as a basis for farm credit; - ground water survey and monitoring; research, design, installation and field testing of alternative types of shallow tubewell and pumping techniques; and - support for farm management data collection and evalua- tion by the Orissa University of Agriculture and Techno- logy (OUAT), and strengthening of agricultural statis- tics and data processing by the Orissa Bureau of Econo- mics and Statistics (BSE). Project Implementation 35. There is no need to establish any new organizations for project implementation which would be the responsibility of existing agencies. Over- all coordination would be through a Policy Planning and Coordination unit, headed by the Agricultural Production Commissioner of Orissa. The unit would meet as often as necessary and would include senior representatives of all relevant State Government organizations as well as of GOI and the Indian Council for Agricultural Research. The unit would coordinate and monitor project activity, including procurement, and would report progress to the Government and IDA. For the research and extension component, the Agricul- tural Production Commissioner would also bring together, before each cropping season, relevant Government officials at the Secretary and Director level as well as key university and agricultural staff and evaluate seasonal research results, and develop needed research trials and extension programs. This panel of officials would also assess requirements for further coordination of research, extension and related needs such as credit and input supply and apprise the Policy Planning and Coordination unit accordingly for appro- priate action to be taken. Agricultural Extension 36. Under the project, the agricultural extension service would be revitalized and a new system introduced State-wide. A well-trained, highly motivated, and technically competent single organization would be created. The organization would be given the means to reach the majority of Orissa's farmers with relevant and practical technical guidance aimed at increasing production and income. The available manpower, except for supervisory staff and trained subject matter specialists, is sufficient and of excellent poten- tial to achieve results.  - 12 - 37. The new system would replace the previous system of extension in Orissa which has proved to be ineffective. Under the previous system, the village level worker (VLW) was responsible for extension at the farm level. However, most VLW were employed as multi-purpose workers, responsible for many duties unrelated to agriculture. They worked under the Department of Community Development and Social Welfare, were administratively responsible to the Block Development Officer and supervised by him, while technically backed by the Department of Agriculture. The Block Development Officer, in turn, is responsible to the Collector and is also Secretary of the Panchayat Samiti, a local political grouping. Some VLW were on special crop develop- ment schemes, directly under the Department of Agriculture. There was little contact between the agricultural officers of the Department of Agriculture and the staff of the Orissa Agricultural University. Lines of command, super- vision and technology flow were complex and diffuse. Problems were compounded by poor training, severe transport shortage, lack of promotion opportunities, and difficult living and working conditions. 38. Under the project, the entire extension staff of the State has been reorganized into a single line of command under the Department of Agri- culture. Almost all VLW would remain in their present locations, but 70% (about 2,500 out of 3,500) would be transferred to the Department of Agri- culture from the Department of Community Development and Social Welfare. Together with about 3,100 VLW already under the Department of Agriculture and associated with special crop schemes, about 5,600 VLW would be available for redeployment to full time agricultural extension work. This would re- sult in an average of one VLW for every 600 farm families in Orissa. 39. The chain of command up the line of the reorganized extension service would include one Agricultural Extension Officer (AEO) supervising eight VLW, with AEO reporting in turn to District Agricultural Officers who are responsible to a range (i.e. one or more districts) Deputy Director of Agriculture. 40. Because of the added supervisory load and work responsibilities in the Department of Agriculture, additional managerial and supervisory staff would be needed. A senior staff member has been appointed as Additional Joint Director of Agriculture, Extension, to head the new extension service and implement the reorganization. The number of agricultural ranges would be increased from 6 to 13, to coincide approximately with the 13 existing revenue districts. This would improve coordination with other aspects of rural development. The additional 7 ranges would need to be staffed, each to be headed by a Deputy Director of Agriculture who would be transferred from existing duties. The thirty District Agricultural Officers, in turn, would need further support if enough supervision and guidance are to be given to AEO. Sixty Additional District Agricultural Officers would there- fore be posted, averaging two to a district, and each would closely supervise and guide 8-10 AEO in the field, the District Agricultural Officer directly supervising 4-6 AEO.  - 13 - 41. A viable field extension program needs strong technical support by subject matter specialists. At present, there are only three at each of the six ranges and many more would be needed under the proposed system. Since they are not readily.available in all fields and in sufficient numbers, their posting would be phased as they became available. Each range would have, by the end of the third year of the project, one subject matter spe- cialist in each of these fields: agronomy; plant protection, farm machinery; water management; and farm management. The New Extension Methodology 42. Under the new agricultural extension system, an intensive farm visit program would be introduced. The farming areas and the estimated 3.4 million farm families of Orissa would be divided into 5,600 units of 400- 800 families each, to which VLW would be allocated. Each unit, in turn, would be divided into 8 more or less equal groups of 50-100 farm families. Extension messages would be conveyed by the VLW to about 10 contact farmers in each group, which the VLW would visit on a fixed day of the week, once every two weeks. 43. Each AEO would supervise 6-10 VLW and, at least once every two weeks, would participate in part of each VLW program of visits to farmers, following such a pattern as would enable him to reach every farmers' group at least twice each season. He would check that the VLW visits and meetings were being carried out on schedule and would assist both VLW and farmers in technical matters. He would also assist the VLW in carrying out demonstra- tions and simple trials. 44. Regular one-day training sessions for VLW would be held once every two weeks and would be an integral part of the system. In these sessions, the extension staff would be instructed in the three or four most important recom- mendations for their next round of field visits. The messages to be taught would be consistent with the recommendations of the adaptive research and extension advising panel (see paragraph 35 above) and would be taught to VLWs by subject matter specialists and a training officer who would be assigned at the district level. The subject matter specialists would maintain close, on- going relationships with researchers at the regional stations and at the range adaptive research farms, where they would also participate actively in con- ducting field trials. Extension and Cooperatives Staff Training 45. Despite the considerable amount of in-field, in-service training for the field extension staff, the basic knowledge of many of the existing staff is poor and needs to be upgraded. There is also a need to strengthen existing facilities for pre-service extension training and training of staff of agricultural cooperatives. Several existing basic extension training centers would be expanded and upgraded and a new center added in the north of Orissa. For cooperative training, a hostel and lecture rooms would be built at two locations and facilities at a number of other locations expanded.  - 14 - Training for rural women would also be assisted by the project. Women play an important and increasing role in family decision making and are becoming progressively more involved with such things as seed selection, handling of fertilizers, rodent control, kitchen gardens, compost making and the keeping of animals. Each development block in Orissa has a women's social education officer, who concentrates on improved nutrition, health, family planning, child care, home management, agriculture and animal husbandry. There is a strong response from rural women to the efforts of the women's social educa- tion officers, but their limited numbers and lack of mobility severely re- stricts the impact they can make. Under the project, mobile training units for women's social education officers would be provided in the ten ranges currently without these facilities. 46. To facilitate the implementation of the extension system and train- ing, the project would finance vehicles, housing, office accommodation, demonstration and training equipment, fellowships for the extension service, and incremental establishment costs such as incremental staff salaries and vehicle operating and maintenance costs. Loans would also be financed under the project for field staff to buy motorcycles and bicycles which is also the best means of ensuring proper care and maintenance. Assurances were obtained that such credit would be made available by Orissa on terms that provide sufficient incentive for purchase (see Section 2.06 of Orissa Project Agree- ment). Housing would be provided for the newly appointed Deputy Direc- tors, Assistant District Agricultural Officers and Subject Matter Special- ists and for about 35% of the VLW and AEO whose housing is now inadequate. Assurances were obtained that adequate low cost housing would be provided to enable VLW to live in the area assigned for their operations (see Section 2.09 (a) of Orissa Project Agreement). Agricultural Research 47. A production oriented applied and adaptive research program would be set up by the Orissa University of Agriculture and Technology and the Department of Agriculture in crops of importance to Orissa. It would con- centrate on evaluation of improved cultural practices, farming systems and cropping patterns, and testing of improved and high-yielding varieties resistant to the major pests and diseases in the State. 48. The four main agro-ecological zones would be covered by applied research stations, under the University, at Bhubaneswar (Coastal), Chiplima (Central Plateau Tableland), Simliguda (Eastern Ghat-Highland), and Keonjhar (Northern Plateau). In addition, adaptive research would be conducted at a government farm in each of the 13 agricultural ranges, with the University providing researchers on secondment to the Department of Agriculture which would provide the support staff. Assurances were obtained that GOO will make suitable arrangements with the University so that these stations and farms would be included in the project and that a research coordination unit would be established (see Schedule 2 to the Orissa Project Agreement).  - 15 - 49. At full project development, the four applied research stations would have 41 professionals and 165 support staff. The adaptive research farms would have 13 Research Officers and 26 Research Assistants seconded from the University to Department of Agriculture ranges. Assurances were obtained that professional and support staff for these practical stations would be permanent University staff members devoting full time to research (see Schedule 2 to the Orissa Project Agreement). 50. Equipment and facilities at the research stations are fair to poor and they would be strengthened. On-farm development, including irrigation, drainage, land levelling, roads and fencing, would be provided at all four ap- plied research stations and some of the adaptive research farms. Buildings, staff quarters and a 24-bed dormitory would also be provided at each of the three stations outside of Bhubaneshwar. Farm Implements 51. Closely related to the extension and research components of the project, this component is designed to focus particularly on improvement of simple farm implements and their introduction into the Orissa farming scene. Most Orissa farmers are wholly dependent for energy on human labor and animal power. A major constraint to production is failure to prepare and sow land in time. The use of improved farm implements, particularly replacement of the wooden country plow with an iron or steel mould-board plow, would greatly facilitate successful adoption of improved cultural practices, particularly techniques to achieve more timely planting, increased plant population, better moisture conservation and effective weed control. 52. Other implements which have been produced and distributed on a limited basis in Orissa include the disc harrow, two-row seed-drill, three- tyne cultivator with seeding attachment, hand weeders, and low lift hand pump. However, though these improved farm implements have been under devel- opment and limited production for some years, many farmers away from the main centers have not even seen an improved plow. 53. Efforts to change this situation and promote the use of simple, improved farm implements, particularly the mould board plow, would be made under the project. Facilities, staff and equipment would be provided to es- tablish an implements research and design unit at the Orissa University of Agriculture and Technology and to expand implements production capacity by the Department of Agriculture. Production of improved plows would also be taken up the Industrial Development Corporation of Orissa and by private entrepreneurs under contract with the Orissa Agro-Industries Corporation. Design to distribution of implements under the project would be supervised by a farm implement committee comprising Department of Agriculture, Univer- sity and Agro Industries Corporation representatives. Land Survey and Land Records 54. Many of Orissa's land-holders do not have up-to-date records and accurate village maps are rare. The lack of such records and maps is a major  - 16 - obstacle to development. For example, cultivators without the security of tenure provided by a firm title, are reluctant to invest in their holdings and credit agencies, requiring land as collateral, are prevented from lend- ing. Work on land consolidation is delayed. Conversion of share-croppers to full ownership and enforcement of the land ceiling legislation are almost impossible. In addition, even where land records do exist, the system for retrieving information and updating it is cumbersome and time consuming. Under the project, steps would be taken to improve the situation in Orissa by speeding up completion of an ongoing statewide land survey and modernizing the system for indexing and retrieval of land records. This project component would be implemented by the Orissa Department of Revenue and Excise. Additional staff and survey teams would be provided, as well as vehicles, survey and other equipment and tents. Groundwater Development 55. The development of groundwater resources is important to Orissa both in the short and long term. To assure orderly development and avoid local over-exploitation, the project would include a three-year program of extensive geo-hydrologic investigation and formulation of systematic moni- toring and data collection. 56. The Orissa Lift Irrigation Corporation is qualified to conduct this work but would need additional staff, which would be provided. Instrumenta- tion for measuring rainfall and runoff data would be installed at 92 locations. Seasonal and annual fluctuation of the water table would be determined from 65 specially designed monitoring wells. An inventory of existing wells would be made, and some of these would be incorporated in the monitoring program. A comprehensive surface water and ground water quality monitoring program would also be included. 57. The major equipment required would be two drilling rigs with sup- porting transport, casing, welding equipment, electrical logging equipment, metering and recording devices, laboratory testing apparatus, surveying instruments, field camp facilities, and office furniture and equipment. 58. The project would also support exploration of promising low cost innovations in shallow tubewell technology. The Orissa Lift Irrigation Cor- poration would implement a three-year program of research, design, installa- tion and field testing of alternative types of shallow wells and locally made coir filters and bamboo fabricated pipe. To conduct this program, the Lift Irrigation Corporation would need a small number of additional staff. Tubewell and pump components, transport, hand-boring sets, miscellaneous tools and testing instruments, would be required together with materials for prototype manual pumps. Farm Management Data and Agricultural Statistics 59. Statistical information for establishing benchmarks, monitoring and planning agricultural performance, and analyzing costs of production and re- turns from different farm systems would be required under the project. Much  - 17 - of the statistical information on agriculture such as crop areas and yields were gathered in the past by VLW, and tables and forecasts were prepared by the Department of Agriculture. However, this system was not based on scienti- fic sampling, was highly subjective, inaccurate and incomplete. Under the reorganized extension service, VLW would no longer carry out data collection responsibilities. 60. Specific information on costs of production and returns from dif- ferent farming systems would be collected and analyzed by the Farm Management Data Unit which already exists at the Orissa University of Agriculture and Technology. The unit would be strengthened with additional staff and equip- ment to enable it to maintain a continuing sample of about 1,500 farms spread across the State's main agro climatic zones. 61. The Bureau of Statistics and Economics, which now produces the only reliable statistics on agriculture in the State, based on scientific techniques, would be strengthened to undertake the Timely Reporting System (TRS) being adopted India-wide. The TRS is based on scientific sampling and enumeration and would provide reliable information on area and yield of major crops, irrigation, prices, and supplementary data on soils, labor use, land tenure, input use, etc. A large increment of staff for the Bureau of Statistics and Economics would be required, mainly primary and supervisory data collection workers, since VLW would no longer be available. Sufficient qualified persons are available, and recruitment is expected to be no prob- lem. The project would provide incremental staff, vehicles, loans for motor- cycles and bicycles, measuring and weighing equipment, crop cutting devices, calculating machines and office equipment and furniture. Project Cost and Financing 62. The total project cost is about US$40 million equivalent (including duties and taxes estimated at US$1.8 million) of which the foreign exchange component is US$1.6 million or 4%. The proposed credit of US$20 million would finance about 52% of project costs net of duties and taxes, and cover the whole of foreign exchange costs plus about US$18.4 million of local costs. The remaining local costs would be financed by Government of Orissa. The proceeds of the credit would be channelled through GOI to GOO on standard terms as part of Central assistance provided to State Governments for devel- opment purposes. Details of cost estimates and financing are given in Annex III. Procurement and Disbursement 63. Contracts for civil works (US$13.1 million) would be awarded on the basis of local competitive bidding in accordance with procedures satisfactory to the Association. Civil works contracts would be small, scattered through- out the State and among agencies, spread over time, and would not be suit- able for international competitive bidding. There are numerous qualified local contractors to ensure satisfactory execution of project civil works.  - 18 - About 130 motor vehicles of various types (US$0.8 million) would be re- quired under the project. The motor vehicles would be purchased in small quantities as required over five years. It would be difficult to ensure adequate maintenance and spares for a variety of imported vehicles. These would, therefore, be procured by local competitive bidding under procedures which are satisfactory to the Association. Scientific equipment (US$0.3 mil- lion) for research stations would involve many small contracts from various suppliers of specialized items. It would not, therefore, be practical to procure these items under international competitive bidding procedures. They would be obtained under the State Government's normal procurement procedures which are satisfactory, utilizing local competitive bidding wherever possible. Orders for purchase of minor equipment and furniture (US$3.6 million) would be bulked wherever possible and would be purchased following satisfactory local competitive bidding procedures, except where valued at less than US$50,000, when they would be purchased by prudent shopping. Motorcycles and bicycles (US$0.9 million) would be directly purchased locally by individ- ual staff, according to their preferences. 64. The credit would finance 50% of project costs. The proceeds of the credit would be disbursed against 100% of foreign expenditures for laboratory equipment; 100% of the cost of training; 80% of locally procured equipment, vehicles and civil works; and 25% of salaries of incremental staff. To help expedite disbursements, disbursements against expenditures for locally procured equipment costing Rs 20,000 or less, against civil works contracts for one or more progress payments not exceeding Rs 50,000, and against salaries of incremental staff would be on the basis of certificates of expenditure. The supporting documentation would not be submitted for review but would be retained by Government of Orissa. It would be available for inspection by IDA during project review missions. Periodic local auditing of these certificates of expenditure has been provided for. Disbursements against all other items would be fully documented. Economic Benefits and Risks 65. The main project benefit would be an increase in yields as a consequence of the impact of the new extension and research system. Small farmers with limited financial resources but excess labor would be the pri- mary beneficiaries of the project's emphasis on efficient use of existing resources rather than promoting the use of purchased inputs. 66. Because any attempt at precise calculation of the benefits of this type of project would be misleading, none has been attempted. Instead a cal- culation has been made of the increase in yields that would be required to achieve an economic rate of return equal to the opportunity cost of capital (estimated to be about 12%). This proves to be a very small increase and rainfed rice yields, presently at 800 kg/ha, would have to increase only by 8.0 kg/ha from year seven to generate a 12% economic rate of return for the project. On the basis of the experience to date with the proposed extension methodology in Rajasthan and in Madhya Pradesh, yield increases can be con- fidently expected to substantially exceed the above figures. In Rajasthan  - 19 - and Madhya Pradesh, yields have increased by about 50%, discounting the effect of weather, within two years of the introduction of new methodology for 50% of all farm families in the command areas of these projects. 67. The delivery of the new methodology is particularly dependent on an efficient organizational effort. In view of Orissa's agricultural back- wardness and socio-economic constraints (see paragraph 31), there is the risk that the organizational and extension effort would not succeed. There are no ready alternatives, however, and the success in implementing the pro- posed extension system in other States, including West Bengal which has prob- lems similar to Orissa, indicates that this is not a serious risk. A second generation risk would be faced when the success of the new methodology gener- ates demand for additional inputs. If these were not met the resultant frus- tration could affect the continuing success of the extension effort. It is minimized by the fact that, to some extent, deficiencies in the existing network for supplying farmers' inputs are related to lack of demand and there is slack in the network which can be taken up to meet additional demand. There is also the fact that the Policy Planning and Coordination unit, which is charged with overseeing the planning of the extension effort, is also re- sponsible for assessing seasonal input requirements. Finally, we are cur- rently planning, together with the Central and State Governments, to support a second generation project which would focus on the inputs supply network. 68. Other project benefits would include a significant increase in employment. Annual incremental on-farm employment due to the project would rise to about 55 million man-days by year 4 and 100 million man-days by year 8, reflecting additional employment generated by improved practices. By year 8, total additional on-farm employment would be equivalent to about 400,000 man-years. New jobs would also be created in implement manufacture and distribution, supply of inputs, handling of increased marketable sur- pluses, and in farm management and agricultural statistics. Increased agricultural activity would also have a multiplier effect, generating fur- ther employment. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 69. The draft Development Credit Agreement between India and the Association, the draft Orissa Project Agreement between the State of Orissa and the Association, the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement of the Association and the text of a draft Resolution approving the proposed Development Credit are being distributed to Executive Directors separately. 70. Special conditions of the project are listed in Section III of Annex IV. The establishment of a Policy Planning and Coordination Unit has been made an additional condition of effectiveness of the Credit (Section 5.01 (b) of the draft Development Credit Agreement).  - 20 - 71. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART IV - RECOMMENDATIONS 72. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President February 9, 1977  ANNtEx i LANC AIt'A (THOU KM2) I ----- ---------CAOM~ ag --------------- ~~~~~~INDIA REFERENCF COIJN1kIFS (1910) ?T TA L 3 2 80U.5 MOST kECENT aGkIC. 1781.' Lqt,o 1910 FST1MATE IN00ON~51A PHILIPPINES fPkA I IL* C,NP I't-P CWPTA IIISS) 1).0a 110.o 190.0 110.0 230.0 5bo.o 'OPuLAT1i1. 410 VITAL ST4TISTII( P~IPULATI'IN 4410-YR, '41LLIOIJI ~ .29.0 562.7 609.6 11 6. 3 3b.9 92.8 VI PULATfr'r UENSITY P',a SQUARE- NA,. 131.0 '65.0 186.0 61.0 123.0 11.0 0':' SC. KV. A(;~lCULTUi.AL LAI.C 2)j5.0 290.0 319.0 /a h05.O 279.0 66.o VITAL STATISTICS CKUC:E 81,IIO1, RATE PER THJOUSAt,n 43.2 42.7 39.9 45.9 44.2 3d.4 CAUiIr- DtATH i4ATt P'k THUUSAND0 23.9 18.8 15.T 20.6 13.2 9.9 INFI%JT lPI,PTALITY RATE I/THOI7JI 139.J Ia .. 120-140o.0 /b ..0.3 1,10. 1t(0 EXFLCTANCY AT AIPTkH (YgS) 41 .7 21. 19.5 4,5.0 55.6 5 9. 7 0RLSS -1IPR0nfUCT (CN DATE 3. 2 2.9 2.8 3. 2 3. 3 . Pi'4.IJLA1ICf L,k.7iHI kATA II) t'IT I.~L 1 .a 2.1, 2.h1 2.0 3.0 2.9 1 W , A N ~~~~~2 .5 /b 3.? 3.1 3. 7/a 4.3 5 .0 U~kAA3 POPLUIT IO '3 ( W TOTAL) 17.9 1 9.8 20.6 17.rG /b 27.6 5. v, TI' 14 Yl,.QS hi.uo,.1I Z... u 43.6 42.0 I1l tI 6.4 YI-A4S '9.9 55.3 56.7 53.5 51.6 5. C5 9! tp5 A':f Gv~;. 3.1 3.1 3.2 2.5 2.! 3 .0 0,.. 114 r