Nepal - Second Rural Development (Mahakli Hills) Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 2401-NEP NEPAL STAFF APPRAISAL REPORT SECOND RURAL DEVELOPMENT PROJECT MAHAKALI HILLS May 31, 1979 South Asia Projects Department Agriculture E Division 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 Currency Unit = Nepalese Rupee (NR) US$1.00 = NR 12.00 NR 1.00 = US$0.085 NR 1,000,000 = US$85,000 WEIGHTS AND MEASURES 1 kilogram (kg) = 2.20 pounds 1 quintal = 100 kg = 220 pounds 1 metric ton = 1,000 kg = 0.98 long ton 1 millimeter = 0.039 inch 1 meter (m) = 3.29 feet = 1.09 yards 1 kilometer (km) 2 = 0.62 mile 1 hectare (ha) = 10,000 m = 2.47 acres I cubic meter (m ) = 35.31 cubic feet 1 liter (1) = 0.26 US gallon FINANCIAL YEAR July 16 - July 15  FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS ADBN - Agricultural Development Bank of Nepal AIC - Agricultural Inputs Corporation CCC - Central Coordinating Committee CPC - Central Project Coordinator DAP - District Administration Plan DCVI - Department of Cottage and Village Industries DDC - Dairy Development Corporation DIHM - Department of Irrigation, Hydrology and Meteorology, MFAI DOA - Department of Agriculture DTO - District Technical Office DTSU - District Technical Suipport Unit FAMSD - The Food and Agricultural Marketing Services Department, MFAI HMG - His Majesty's Government of Nepal LDD - Local Development Department MFAI - Ministry of Food, Agriculture and Irrigation MOE - Ministry of Education MOH - Ministry of Health MOHP - Ministry of Home Paricliayat MOWT - Ministry of Works and Transport NFC - Nepal Food Corporation PC - Project Coordinator PCC - Project Coordinating Committee ZCC - Zonal Coordinating Committee STAFF ABBREVIATIONS AA - Agricultural Assistant(s) Asst. DADO- Assistant District Aaricult,iral Developinont Offi.cer CDO - Chief District Officer DADO - District Agricultural Development Officer Jr. AHW - Junior Assistant Health Worker(s) JT - Junior Technician(s) JTA - Junior Technical Assistant(s) PC - Project Coordinator PDO - Panchayat Development Officer VAA - Village Agricultural Assistant(s) 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.   NEPAL APPRAISAL OF SECOND RURAL DEVELOPMENT PROJECT Table of Contents Page No. I. INTRODUCTION ........................................ 1 II. BACKGROUND .......................................... 2 A. General ... . ..................................... 2 Population ................................. 2 Agricultural Production .................... 2 Nutrition .................................. 2 Communications ............................. 3 B. Supporting Services ............................ 3 Agricultural Extension, Research and Training ................................. 3 Agricultural Credit and Input Supply ....... 3 Inputs ..................................... 4 Cooperatives and Sajha ..................... 4 Marketing .................................. 4 Forestry ................................... 4 Cottage Industries ......................... 4 Education .................................. 5 Health ....5............ ''I .................. 5 Postal Services ............................ 5 C. Administrative Organization .................... 5 District and Village Panchayats .... ........ 6 District Administration .................... 6 III. DEVELOPMENT STRATEGY AND RURAL DEVELOPMENT IN NEPAL . 7 A. The Fifth Development Plan ..................... 7 B. Rural Development .............................. 7 C. The First Rural Development Project (Credit 617-NEP) ..................................... 8 IV. THE PROJECT AREA .................................... 9 Location .................................... 9 A. Agricultural and Livestock Production ......... . 9 1. Agricultural Production .................... 9 Land Use .............................. 9 Physiography .......................... 9 Climate ............................... 10 Rainfall .............................. 10  -2- Page No. Geology ........... .................... 10 Topography and Soils ..... ............. 10 Size of Holdings ...... ................ 11 Cropping Pattern and Area Under Crops . 11 Crop Yields ........................... 11 Pests and Diseases ..... ............... 11 Manures and Fertilizers .... ........... 11 Seed ........ .......................... 12 Horticultural Crops ..... .............. 12 Agricultural Extension and Research ... 12 2. Livestock Production ....................... 12 Husbandry Systems ..................... 13 Animal Health Situation and Facilities. 13 B. Forest and Water Resources ......... .. .......... 14 Forest Resources ........................... 14 Erosion .................................... 14 Water Resources ............................ 14 Present Irrigation ......................... 15 C. Communications ....... .......... ................ 15 D. Supporting Services ............. .. ............. 16 Agricultural Inputs ........................ 16 Agricultural Credit ........................ 16 Cooperative Societies (Sajha) .... .......... 17 District Administration .................... 17 Education .................................. 17 Health Services ............................ 17 Postal Services ............................ 18 Cottage Industries ......................... 18 E. Socio-economic Background ...................... 18 Food Consumption ........................... 19 Migration and Labor Surplus .... ............ 19 V. THE PROJECT .......................................... 20 A. General Description ............................ 20 B. Detailed Features .............. .. ............. 21 1. Agricultural Development .................. 21 Crop Seed Improvement .... ............ 21 Agricultural Credit and Input Storage. 22 Agricultural Development Bank ... 23 Sajha Cooperatives ..... ......... 23 Cooperative Department .......... 23 Horticultural Development .... ........ 23 Agricultural Extension Service ....... 23 Administrative Subcenters ....... 24  -3- Page No. District Level Organization .......... 24 Extension Methodology ........... 25 Training ........................ 25 2. Livestock Development ..................... 26 Veterinary Dispensaries .... .......... 26 District Level Extension .... ......... 27 Marketing of Livestock Products ...... 27 3. Irrigation Development .................... 27 Irrigation Potential .... ............. 27 Agricultural Objectives .... .......... 28 Proposed Development .... ............. 28 Major Irrigation Schemes .... ......... 29 Minor Hill Terrace Schemes ........... 29 4. Forestry Development ...................... 30 5. Health Services ........................... 30 6. Education ................................. 31 7. Panchayat Development ..................... 31 8. District Technical Office (DTO) ........... 32 Training ............................. 32 9. Village Water Supplies .................... 32 10. Soil Erosion .............................. 33 11. Development of Trails ..................... 34 Timber Bridges ....................... 34 Suspension Bridges ................... 35 Maintenance .......................... 35 12. Postal Services ........................... 35 13. Cottage Industries ........................ 35 14. Technical Assistance ......... . ............. 37 15. Project Monitoring and Evaluation ......... 37 Project Monitoring ................... 37 Project Evaluation ................... 38 16. Project Management ........................ 38 VI. COST ESTIMATES ..................................... 38 Financing ..................................... 40 Procurement ................................... 40 Disbursement .................................. 40 Accounts and Audit ............................ 41 VII. ORGANIZATION AND MANAGEMENT ........................ 41 Central Level ................................. 41 Zonal Level ................................... 42 Project Level ............................ 42 District and Village Level .... ........... 43 Project Staffing ......................... 43 Project Management ....................... 43 Project Monitoring and Evaluation ........ 44  4 Page No. VIII. AGRICULTURAL PRODUCTION AND INCOMES .... ............ 44 Cropping Patterns and Yields .... .............. 44 Incremental Production ........................ 46 Marketing ..................................... 47 Farm Incomes .................................. 47 Distribution Effects .......................... 47 IX. BENEFITS AND JUSTIFICATION ......................... 48 Production Benefits ........................... 48 Employment Benefits ........................... 48 Other Benefits ................................ 48 Nutritional Impact ............................ 48 Economic Evaluation ........................... 48 Economic Rates of Return (ERR) .... ............ 48 Agricultural Development .... ............. 49 Irrigation Development .... ............... 49 Livestock Development .... ................ 49 Horticulture Development .... ............. 50 Sensitivity Analysis and Project Risk ......... 50 X. AGREEMENTS SOUGHT AND RECOMMENDATIONS .... .......... 50 ANNEXES t. The First Rural Development Project (Credit 617-NEP) 2. Present Cropping Patterns and Crop Details Table 1: Mahakali Hills - Population, Adult Consumption Units and Caloric Requirements Table 2: Food Balance Sheet: 1976/77 - Baitadi District Table 3: Food Balance Sheet: 1976/77 - Dandeldhura District Table 4: Food Balance Sheet: 1976/77 - Darchula District 3. Table 1: Mahakali Hills: Cropping Patterns, Yields and Production Table 2: Mahakali Hills: Crop Input Requirements Table 3: Mahakali Hills: Farm Budgets - Zone I & II (with extension) Farm Budgets - Zone I & II (w/ extension and irrigation) Farm Budgets - Zone III (with extension) Farm Budgets - Zone IV (with extension) Table 4: Mahakali Hills: Projected Food Balance Sheet for Project Area: 1990 (without project) Mahakali Hills: Projected Food Balance for Project Area: 1990 (with project)  -5- ANNEXES (Cont'd.) 4. Basis for Economic Analysis Table 1: Mahakali Hills: Economic Prices for Major Grain and Inputs Table 2: Mahakali Hills: Summary of Economic and Financial Prices Table 3: NIahakali Hills: Economic Crop Budgets (NRs) Table 4: Miahakali Hills: A. Economic Evaluation of All Components B. Extension and Supporting Services C. Irrigation Development D. Livestock Development E. Horticulture Development 5. Table 1: Proposed Irrigation Developments Table 2: Staff Requirements - Erosion Control Table 3: Technical Staff Requirements - District Technical Offices and DTSU Table 4: Implementation Schedule - Agricultural Development Table 5: Implementation Schedule - Irrigation Development Table 6: Implementation Schedule - Health Table 7: Implementation Schedule - Education Table 8: Implementation Schedule - Panchayat Development Table 9: Implementation Schedule - Trails and Bridges Table 10: Implementation Schedule - Erosion Control 6. Table 1: Disbursement Schedule 7. Table 1: Project Cost Estimates - Schedule of Expenditures Table 2: Agricultural Development Table 3: Credit and Input Supply Table 4: Horticulture Program Table 5: Livestock Development Table 6: Irrigation Development (Irrigation Department) Table 7: Improvement of Existing Water Supplies Table 8: Summary Costs: Health Services Table 9: Education Table 10: Panchayat Development Table 11: Development of Postal Services Table 12: Cottage Industry Table 13: Trails and Bridges Table 14: Erosion Control Table 15: District Technical Offices and Project Coordinator's Office Table 16: Staff Costs of District Technical Support Unit (DTSU) Table 17: Irrigation Development (District Technical Office Schemes) Table 18: Project MIonitoring and Evaluation Table 19: Technical Assistance 8. Related Documents and Data Available in the Project File CHART World Bank - 19936 - Project Organization MAPS IBRD 14189 - Administrative Centers and Sub-centers, Health Facilities IBRD 14190 - Irrigation Development, Improvements to Communications   NEPAL STAFF PROJECT REPORT APPRAISAL OF THE SECOND RURAL DEVELOPMENT PROJECT- MAHAKALI HILLS I. INTRODUCTION 1.01 Over the past two decades, development activities in Nepal have been mainly concentrated in the Terai and Kathmandu Valley. This results from the lack of viable strategy for development of the Hills and Mountains areas, difficulties of access to these areas, and inadequate resources (both financial and human). 1.02 The consequence has been a continuing deterioration in the environ- ment and quality of life in the Hills and Mountains, an area which accounts for 65% of the population of the country and 83% of its land. Increasing population pressures on land are giving rise to greater fragmentation of holdings, lower crop yields leading to a declining ability to meet subsistence needs and wasting soil and forest resources. Further, limited opportunities for employment outside agriculture in Hill and Mountain areas necessitate a search for work and food in other parts of the country. These problems of the Hills and Mountains are further compounded by the low level of administrative, social and technical services available. 1.03 In 1975, IDA agreed to assist in the development of the two Hill districts of Rasuwa and Nuwakot. This integrated rural development project (Credit 617-NEP) became effective in July, 1976. The project contained provision for preparation of a second rural development project and which has been prepared by the Agricultural Projects Services Center of Nepal, with assistance from the FAO/IBRD Cooperative Program. The report "A Feasibility Study of Integrated Rural Development Project for Mahakali Hills" of November 10, 1978, was the basis of a request from His Majesty's Government of Nepal (HMG) for IDA assistance in implementation of a project covering the devel- opment of the three Hill districts of Dandeldhura, Baitadi and Darchula and located in the far west of Nepal. 1.04 This report is based on the findings of an IDA appraisal mission in November/December 1978, comprising Mr. C.P.R. Nottidge, Ms. M. Nguyen (IDA), Messrs. M. Fitzpatrick (Irrigation Consultant), R. Noronha (Sociology Consult- ant) and R.V. Ramakrishna (Agricultural Consultant).  II. BACKGROUND A. General 2.01 Nepal, one of the least developed countries, is divided physically into three broad ecological zones: the Terai (plains), Hills and Mountains. These three zones cover respectively 17, 68 and 15% of the total area (140,800 km2). 2.02 Population. The population of Nepal is now estimated at about 13 million and is distributed as follows: 58% Hills, 34% Terai and 8% Mountains. The annual national growth rate of 2.1% has shown no perceptible signs of decrease over recent years. Nearly 96% of Nepal's population lives in rural areas and for 95% of these residents agriculture is the main source of livelihood. 2.03 Agricultural Production. Paddy, wheat, maize and millet form between 80-90% of the Nepalese diet, except in the high Hills where barley and potatoes form a significant portion. Cash crops are a minor component of agricultural production and are produced mainly in the Terai, comprising, even then, only 8% of total cropped area. Yields are generally low and offer much scope for improvement. 2.04 In general, the overall picture is one of growing dependence of the Hills on foodgrains from other parts of the country - mainly the Terai. In 1976, it was estimated that only 8 out of 55 Hill and Mountain districts showed a food surplus. Increasing population pressures in the Hills and Mountains necessitates the search for new cultivable areas, but these are not freely available and involve moving further up steep hillsides, destroying the tree cover in the process. Trees are destroyed not only in developing new areas for cultivation but also for wood and foliage required for house building, fuel and fodder. 2.05 Livestock plays an important role in the way of life of rural Nepal and forms an integral part of the subsistence diet, more particularly in the Hills. Almost every farm household maintains some animals; cattle, buffalo, sheep, goats, pigs and poultry, all providing sources of milk and meat, wool, manure, draft power and, in some instances, means of transportation. Pro- ductivity is low, however, because of indifferent genetic stock and poor feeding. The most serious constraint on livestock production is scarcity of adequate feed. 2.06 Nutrition. Zonal differences in production of major food crops are considerable and when translated into terms of caloric requirements for mini- mum subsistence, the average family in the Mountains now has enough food for about 190 days; in the Hills, for 225 days; and in the Terai, for 540 days. The declining potential of the Mountain and Hill zones to provide subsistence for its residents is reflected in high infant mortality rates (estimated at  - 3 - 200/1,000 live births), a death rate of children between the ages 1-4 esti- mated at 39/1,000 and a general lowered resistance to disease. People of Hill and Mountain areas attempt to overcome food shortages through migration - both within Nepal and out of the country (mainly to India). Furthermore, employ- ment opportunities outside agriculture in these areas are almost non-existent. 2.07 Communications. Despite the fact that Nepal's road system has been expanding rapidly in recent years, the majority of Hill and Mountain districts still remain inaccessible to motor transport. Movement of goods in these areas is by porterage and pack animals with people and animals moving on a network of long established trails. There are few foot suspension bridges over larger rivers and either temporary wooden bridges (usable only in the dry season) or primitive ropeways limit access to many areas for much of the year. These crossings are the cause of a number of deaths each year. B. Supporting Services Agriculture Extension, Research and Training 2.08 Agricultural extension in Nepal is generally weak, reflecting inade- quate staff and training, limited research and lack of facilities. Extension at farm level is by Junior Technical Assistants (JTA), supervised by Junior Technicians (JT) and District Agricultural Officers (DAOs). Hill areas have about one JTA to every 7,000 farmers. A program to train Village Agricultural Assistants (VAA) was introduced in 1975 to counteract the national shortage of JTA and to increase local participation in agricultural extension activities. VAA have proven to be effective extension agents. 2.09 Agricultural research is carried out at 7 research stations, 6 agri- cultural farms, 22 horticultural farms, 8 livestock farms and 6 fish farms located throughout the country. Responsibility for research lies with the Department of Agriculture (DOA) and major emphasis is given to cereal devel- opment programs. The major weaknesses in the research efforts are the almost total absence of adaptive crop trials, particularly in Hill areas. 2.10 Traditionally, the Livestock Section of DOA has been primarily concerned with livestock health; current staffing and training facilities reflect this orientation although there is a strong awareness of the need to strengthen livestock production extension services. 2.11 Agricultural Credit and Input Supply. Prior to 1974, private money- lenders predominated as the principal source of credit to the farming commu- nity and lending from institutional sources provided only 20% of total farmer requirements and reached about 18% of all farmers. The role of institutional credit, however, was greatly enlarged under the Fifth Plan. Main responsibil- ity for handling these needs was placed with the Agricultural Development Bank, Nepal (ADBN). In 1974, Commercial Banks were also instructed to start lending for agricultural development, but so far, the volume of lending is small.  - 4 - 2.12 As the credit needs of small farmers were still not being met, in early 1976, centrally managed cooperatives and village committees were reor- ganized into the Sajha Cooperative Program (para 2.14). ADBN was given responsibility for providing Sajha Managers and their training and assumed a greater role in provision of credit to the program. Most short-term loans are now disbursed through the Sajha movement whilst longer term loans are made directly to beneficiaries. Lending operations of ADBN have increased substan- tially from Rs 35.6 M in 1972/73 to Rs 198.0 M in 1976/77. 2.13 Inputs. Farmers are usually faced with shortages and late delivery of inputs because the Agricultural Inputs Corporation (AIC) has difficulties with procurement, transportation and distribution, due to limited resources and Nepal's landlocked position. 2.14 Cooperatives and Sajha. Despite assistance from ADBN, the coopera- tive movement did not grow rapidly. In order to reach more farmers, link economic development with political decentralization at the grassroots level, and mobilize local savings, HMG introduced the Sajha development program in May 1976. The goals of Sajha are to provide credit (both for production and consumption), inputs, marketing facilities and to sell consumer goods (salt, kerosene, coarse cloth, diesel oil, rice and sugar). 2.15 Marketing. Different systems of marketing of agricultural products exist in the Terai and the Hills. In the Terai, where commerce is more highly developed, the greatest percentage of trade is in the hands of itinerant traders and agents (of millers and exporters). In the Hills, however, which lack traditional markets and where the constraint of accessibility exists, traders are few, and the small and fortuitous agricultural surpluses are sold directly by producers who carry them to the nearest market. In both the Terai and Hills, agricultural marketing is further hampered by poor marketing information, inadequate storage, and the lack of a standardized system of measurement and grading. 2.16 Forestry. Present forest area in Nepal is estimated at about 4.5 million ha. Given its accessibility, the sub-tropical Terai has been the prin- cipal area of commercial exploitation and settlement. However, much of the Hills forest has also been lost through settlement and over-exploitation for fuel wood and animal fodder or green manure. In many areas, this denudation has led to increased erosion. The Department of Forestry has not been able to remedy the loss of forest stock, though some areas have been closed to permit natural regeneration. 2.17 Cottage Industries. Cottage industries represent an important source of employment and incremental earnings in an economy dominated by small- scale agriculture. Woolen goods (carpets, jackets, etc.), handloom products, woven garments, forestry and fiber products, metal goods and food processing are the main activities. 2.18 The Department of Cottage and Village Industries (DCVI) is respon- sible for promotion, technical assistance and training. The Cottage Indus- tries and Handicrafts Emporium Ltd., a public limited company functioning as a subsidiary of DCVI, provides marketing assistance, bulk purchases raw  - 5 - materials, offers resale services and handles the sales of spare parts and equipment. ADBN and commercial banks provide credit to small and cottage industries and a credit guarantee scheme is in operation. 2.19 Education. In 1976/77, it was estimated that 59%, 14% and 10% of the children of the relevant age groups were enrolled in primary, lower second- ary, and upper secondary schools, respectively. The rapid expansion of educa- tional facilities aggravated defects in the system: emphasis on theoretical training; low female enrollment (an economic and cultural problem); a wide- spread shortage of trained teachers; and few technical education institutions. HMG has adopted the goal of 100% enrollment of primary school age children by 1987. Further, to encourage school enrollment, free textbooks are provided for all primary school children in 25 designated "remote districts" and for poor children (an estimated 15% of enrollment); and from 1978 all girls receive free textbooks. In addition, teachers' salaries have been raised and those working in remote areas will receive "hard living" allowances (equivalent to 100% of base salary). HMG's education policy and programs are implemented and supervised by the Ministry of Education (MOE), which decentralizes responsibility to District education offices. 2.20 Health. Improved basic health services are a necessity in Nepal with its rapidly expanding population, high infant mortality rate, and prevalence of major diseases. As in other sectors, however, Nepal is faced with both manpower and budgetary constraints. The Fifth Five-Year Plan (1975-80) expressed the goal as the "provision of minimum health services to the maximum number of people." The approach adopted involves the creation of rural health posts, providing minimal services, with the assistance of local panchayats. Health posts are linked with district hospitals. The Ministry of Health (MOH) is charged with overall responsibility for health programs and institutions. At the district level this responsibility is delegated to District Health Offices. 2.21 As part of efforts to improve the health of those living in rural areas, HMG has made efforts to improve village water supplies. To accelerate their development HMG initiated a program in 1970 with the assistance of UNICEF and WHO. The Local Development Department of the Ministry of Home Panchayat (MOHP) is responsible for implementation and provides technical studies and financial support for schemes identified by district panchayats. 2.22 Postal Services. Postal facilities in most rural areas are poorly developed, with services such as provision of money and postal orders, saving schemes and letter insurance being confined to the bigger towns. For those living in rural areas, basic facilities can only be obtained at a series of widely scattered sub-offices, located in rented buildings and operating on a part-time basis. Collection and delivery of mail in these areas is by runner. C. Administrative Organization 2.23 The political system of Nepal is based on the partyless Panchayat system under the active leadership of His Majesty the King. Responsibility  - 6 - for the running of day-to-day affairs is vested in the Cabinet. There are sixteen ministries, most being represented at regional, zonal and district level. 2.24 The Panchayat system which encompasses the political and develop- mental organizations has three tiers. At the lowest level is the village panchayat or for areas with a population of 10,000 and more, a town panchayat. The next level is the district panchayat. At the highest level is the national panchayat whose 125 members are elected by members of district panchayats. 2.25 Administratively, Nepal is divided into four Development Regions, running from north to south and each comprising Mountain, Hill and Terai areas. Each Development Region is sub-divided into Development Zones, varying from 3 to 5 in number, which are further divided into Districts. 2.26 The working of the Panchayat system and assistance in local devel- opment is the responsibility of the MOHP headed by a minister and responsible to the National Panchayat. The Local Development Department (LDD) of the Ministry is its executive arm, through which technical assistance and funds are channeled to panchayats. 2.27 District and Village Panchayats. MOHP undertakes training of officials and elected members and provides staff and development funds. The major responsibility for local development lies with village and district panchayats. Village panchayat programs are initiated at village meetings and submitted to the district panchayat for technical clearance and financial assistance from grants which the LDD places at the disposal of district panchayats for this purpose. Village panchayat projects are implemented through local implementation committees composed of village panchayat chair- men, district assembly members and voluntary workers. Technical supervision is provided by district panchayat staff. 2.28 The responsibility for planning and implementation of district panchayat development programs lies with the Secretariat of district panchayats (para 2.30). After approval by the district assembly, development programs are submitted to concerned departments for technical approval and provision of funds. During implementation, projects are supervised by technical staff of the appropriate department. 2.29 MOHP provides a multipurpose development worker to each village panchayat and who also acts as secretary of the panchayat. Such workers not only serve as a liaison between the district administration and village panchayats, but also provide administrative support, especially in respect of record keeping and accounting. 2.30 District Administration. Under the District Administration Plan (DAP), the Chief District Officer (CDO) is the administrative head of all government functionaries of line ministries operating at the district level. District officers of these line ministries are merged into a District Secre- tariat, which also functions as the Secretariat to the district panchayat. DAP defines two areas of responsibility of the CDO as maintenance of law and order and district development. Execution of the latter function is entrusted to a Panchayat Development Officer (PDO) under the CDO's supervision.  2.31 Line ministries retain technical supervision of staff at district level whilst delegating administrative and financial responsibility to the CDO for the preparation and implementation of district development plans. Popular participation in development is established through coordination committees, chaired by the district panchayat Chairman and comprising the CDO and representatives of line ministries and district panchayat. The District Secretariat is responsible for implementation of approved projects. III. DEVELOPMENT STRATEGY AND RURAL DEVELOPMENT IN NEPAL A. The Fifth Development Plan 3.01 In the initial period of development, Nepal had no alternative but to commit most of its resources to the development of an economic infrastruc- ture, and programs of this nature claimed the major portion of investment up to the end of the Fourth Plan (1971-75). 3.02 The Fifth Plan (1975-1980), attempted to shift investment in favor of quick-yielding growth promoting programs of development in agriculture, industry, water resources and tourism. The development of agriculture was of decisive importance and top priority within the sector was given to the development of irrigation, including minor irrigation and groundwater proj- ects. The Government also took measures to extend the use of inputs such as fertilizer, insecticides and improved seeds. Emphasis was to be given to afforestation and soil conservation. In hill areas, goals were to eliminate the deficit in foodgrains production, followed by efforts to encourage horti- culture and livestock development. 3.03 In the industrial sector, the Government proposed a two-pronged strategy for cottage industries. The first, sought to develop cottage indus- tries in the most promising growth areas in the Hills for sale in the rest of the country or for export. The second, an approach toward self-reliance in inaccessible areas, was aimed at catering to the needs of the local people in those areas. The overall objective was to stimulate rural employment. 3.04 The strategy of developing growth-promoting sectors was to be comple- mented by the development of social services by providing for such minimum needs as basic health services, basic schooling and clean drinking water. B. Rural Development 3.05 The Fifth Plan envisages that area based integrated development programs will form the core of government policy for development of rural areas. Earlier, the general approach had not been an integrated one and efforts concentrated on one or, at best, a few facets of district development. Most agencies had established autonomous project authorities which had gene- rally operated through different ministries of government.  - 8 - 3.06 In early 1977, His Majesty's Government decided to formulate guide- lines for implementation of future rural development projects and which would be adopted by all international agencies agreeing to assist in the financing of such projects. In light of experience gained during execution of the IDA financed First Rural Development Project (Credit 617-NEP, para 3.10-3.12 and Annex 1), HMG requested IDA assistance in formulating guidelines and these were discussed with representatives of aid donors at a meeting held in Kathmandu in mid-1977. The proposals emphasize participation of the people in drawing up development plans and establish that implementation should be carried out under the aegis of DAP (para 2.27-2.31), with coordination, at central government level, by MOHP. Furthermore, it identifies priority areas for development, training and technical assistance and indicates those compo- nents which should normally be included in rural development projects. These proposals have since formed the basis for project formulation and implementa- tion. 3.07 There are now eight integrated rural development projects in various stages of preparation/implementation (in contrast to five a year ago). They involve development of some 30 Hill districts. 3.08 Under the draft Sixth Five Year Plan (1980-85) even greater technical and managerial competence would be demanded of panchayats. The Plan proposes that panchayats formulate village and district development projects covering all sectors; that they arrange the proposed projects in order of priority; assess financial, technical and managerial requirements for each project (inc- luding the extent to which local resources -- financial and labor -- can be mobilized); and continously monitor the progress of projects undertaken and evaluate their success. 3.09 To reflect this enhanced role and to take account of an increasing number of integrated rural development projects, HMG announced in early December 1978, a series of administrative and organizational changes which would enable district and village panchayats to undertake increased responsibility for development and which would improve coordination at all levels of Government (para 7.01-7.09). C. The First Rural Development Project (Credit 617-NEP) 3.10 This five year project became effective in July, 1976 and will assist in the development of the two Hill districts of Nuwakot and Rasuwa located in Central Region. Details of project content and cost are given in Annex 1. 3.11 Project Progress. General progress has been satisfactory. With some exceptions, implementation is either ahead of schedule or as forecast at appraisal. Track and trail improvement has lagged owing to shortages of labor during the construction season. Furthermore, shortages of well-trained staff and lack of seed of improved varieties have contributed to a slow rate of improvement in agricultural production. Nevertheless, considerable increases in potato production have occurred at higher elevations and the establishment  of four small cheese/butter plants increased cash returns to livestock keeping. As a result of recent staff changes at the regional level, the agricultural program is now expected to gain momentum. 3.12 Despite frequent transfers and failure to fill a number of posts (particularly in health and agriculture), district staff are now acquainted with the project and display considerable keenness and initiative. Production of the annual district development plan has insured local participation and there is a marked increase in the confidence of local people toward the ability of Government to implement programs. Interministerial coordination has been good and the Project Coordinator effective in ensuring funding and providing support for district staff. Reporting of progress has been satisfactory, disbursement is 85% of estimates (the discrepancy being due to savings in building costs and failure to meet expected development of tracks and trails) but procurement has been cumbersome due to unfamiliarity with procedures. Details of individual programs are given in Annex 1. IV. THE PROJECT AREA 4.01 Location. The project area covers the three administrative districts of Darchula, Baitadi and Dandeldhura. These Hill districts, together with Kanchanpur District (located in the Terai) comprise Mahakali Zone and situated in the extreme west of the Far-Western Development Region. (Map IBRD 14189). The project area is bordered by China to the north, India to the west and by the districts of Bajhang and Doti in the east and Kanchanpur in the south. The three Mainakali Hill districts cover some 5,300 sq. km, and comprise 94 village panchayat areas. A. Agricultural and Livestock Production 4.02 Agricultural Production. The information contained in this section is based on pilot studies, data collected during project preparation, general discussions with district staff and farmers, and direct observations made by the appraisal mission. 4.03 Land Use. The total area of project districts is some 530,500 ha, of which 54,900 ha (10%) are under cultivation. Present estimated land use is: Districts Land Use Darchula Baitadi Dandeldhura Total ---------------------ha----------------------- Cultivated 11,700 25,700 17,500 54,900 Grasslands and scrub 15,100 7,800 11,000 33,900 Forest 101,100 121,700 111,200 334,000 Other land, including that under snow 105,400 1,400 900 107,700 233,300 156,600 140,600 530,500  - 10 - 4.04 Physiography. The Mahakali area consists of a series of alternating hills and valleys, the physiography of which is divided into five natural zones. Zone Area Elevation (sq Km) Jobura Dun 380 (10%) below 800 meters Mahabharat-Lekh 960 (20%) 800-2,400 meters Midlands 2,200 (40%) 600-2,000 meters Himalaya Region 1,200 (20%) 2,000-7,000 meters Gomer Himalayan Valley 560 (10%) 3,000-7,000 meters 4.05 Climate. Project districts, which can be classified into five climatic belts, range in altitude from 250 m to 7,000 meters a.s.l. The climate, strongly influenced by the Himalayan mountain range, varies from subtropical to arctic, with crop production and livestock raising practiced below 2,400 meters a.s.l. 4.06 Rainfall. Rainfall is monsoonal with about 80% of the average rain- fall of 1,500 mm falling in the months of June, July, August and September. The remaining 20% is accounted for by the retreating monsoon and by late winter and summer rains. Average District Total June-Sept. Oct.-Nov. Dec.-Feb. March-May