India - Economic situation and prospects

FILE COPY Report No. 2933-IN Economic Situation and Prospects of India May 1, 1980 South Asia Region FOR OFFICIAL USE ONLY Document of the World Bank 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 AND OTHER EQUIVALENTS Currency Prior to June 6, 1966: US$1.00 = Rs 4.7619 Rs 1.00 = US$0.21 From June 6, 1966 to US$1.00 = Rs 7.50 mid-December 1971: Rs 1.00 = US$0.13333 Mid-December 1971 to US$1.00 = Rs 7.27927 end-June 1972: Rs 1.00 = US$0.1374 After end-June 1972: floating rate Spot rate (end-December US$1.00 = Rs 7.907 1979) Rs 1.00 = US$0.126 Rupee trade figures have been converted into dollars by using the prevailing exchange rate up to 1970/71. For subsequent years the following average IMF trade conversion factors/market rates have been used (rupees per US dollar): 1971/72 : 7.444 1975/76 : 8.653 1972/73 : 7.706 1976/77 8.939 1973/74 : 7.791 1977/78 8.563 1974/75 : 7.976 1978/79 : 8.206 For 1979/80, the average market rate for the first nine months was Rs 8.104. For the year as a whole the rate of Rs 8.1 has been used. Weights Unless otherwise specified all weight measures are metric. Years lThe Indian fiscal year runs from April 1 through March 31. Abbreviations Used n.a. not available n.s. = not significant (blank) = not applicable a - = nil  FOR OFFICIAL USE ONLY This report was prepared in New Delhi by members of the World Bank Resident Mission in India and of the India Division at the World Bank head- quarters under the guidance of J.-D. Roulet (Resident Mission Chief) and 0. Yenal (Principal Economist). The major contributors were G. Beir and J. Wall. The report drew on the studies prepared by M. Baird (Balance of Payments and Foreign Aid), Z. Ecevit and K. Zachariah (Population and Family Planning), R. Grawe (Exports), J. Harrison (Agriculture), N. Krogh-Poulsen (Transporta- tion), A. Pinell-Siles (Cement), S. Sengupta (Coal) and C. Wallich (Power). V. Ravishankar assisted in the statistical work. 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.   ECONOMIC SITUATION AND PROSPECTS OF INDIA Table of Contents Page No. Basic Data Map Summary and Conclusions ......................... -v Chapter 1. Current Developments ........................... 1 A. Introduction ......................1 B. The Drought ...................................... 2 C. The Shortages .................................... 4 D. Drought Relief ................................... 9 E. Inflation ............................-- 13 Annex to Chapter 1 : Inflationary Process in India ......... 16 Chapter 2. Agricultural Prices and Output ................. 26 A. Prices and Production of Foodgrains .... .......... 26 B. Foodgrain Supply and Demand Projections .... ...... 33 C. Implications ..................................... 39 Chapter 3. Infrastructure ................................. 43 A. Introduction ..................................... 43 B. Coal ............................................. 45 C. Cement ...........--------- 52 D. Electric Power ................................... 56 E. Freight Transportation ........................... 63 F. Petroleum ....................................... 73 Chapter 4. Resources and Balance of Payments .... .......... 82 A. Introduction ..................................... 82 B. Balance of Payments .............................. 84 C. Trade and Aid .................................... 89 Annex to Chapter 4 : Balance of Payments Projections ....... 100 Appendix : Population and Family Planning .................. 116  Page No. A. Demographic Experience ........................... 116 B. The Family Welfare Program ....................... 119 C. Demographic Prospects ............................ 129 Statistical Appendix (including List of Tables)  - iii- Page No. List of Text Tables Chapter 1 1.1 Agricultural Output .............................. 4 Annex to Chapter 1 A.1.1 Prices, Money, Output ............................ 18 Chapter 2 2.1 Wholesale Price Indices: All Commodities and Foodgrains, 1958-1977 ...... ...................... 27 2.2 Price Indices: Cereals and Other Agricultural Commodities ........ .............................. 31 2.3 Area, Yield, Price and Production of Major Crops, 1965/66-1977/78 Annual Growth Rates .... ........ 32 2.4 Groundnut Oil Prices, Paired Observations Bombay and European Ports .41 Chapter 3 3.1 Coal Consumption by Industry .46 3.2 Coal Production 1974/75-1978/79 .47 3.3 Loss of Production in Coal India Limited, 1977/78-1979/80 .47 3.4 Coal Production Estimates .50 3.5 Cement Producer Prices .54 3.6 Cement Demand and Production: Projections 55 3.7 Electricity Energy Shortage in 1978/79 and Growth of Generation in First Semester, 1979/80 .57 3.8 Thermal Power Plant Performance Indicators 59 3.9 Causes of Capacity Under-Utilization in Thermal Power Plants, 1977/78 .61 3.10 Traffic Density on National Highways .67 3.11 Port Cargo Traffic .69 3.12 Berthing Delays at India's Ports, August 1979 70 3.13 Bombay Port: Output per Gang Hour .71 3.14 Projection of Crude Petroleum Production 1982/83 through 1984/85 .74 3.15 Petroleum and Petroleum Products, Production and Imports, 1975/76-1979/80 .76 3.16 Petroleum Production and Imports 1980/81-1984/85 Projection A .77 3.17 Petroleum Production and Imports 1980/81-1984/85 Projection B .78 3.18 Projections of Petroleum Import Costs 1980/81- 1984/85 .79 3.19 Ratio of Import Cost to.Domestic Market Price, 1976 and 1979 .80  - iv - List of Text Tables (continued) Page No. Chapter 4 4.1 Percentage Rates of Growth of Exports, Imports and Terms of Trade ...... ......................... 86 4.2 Balance of Payments .............................. 90 4.3 Aid Commitments and Disbursements .... ............ 93 4.4 Aid Commitments and Disbursements -- Shares of Major Donor Groups .95 4.5 Aid Commitments and Disbursements -- Composition by Types of Aid .96 4.6 Gross Aid Disbursements Under Alternative Scenarios .99 Annex to Chapter 4 A.4.1 Indian Export Performance 1977/78 - 1979/80 101 A.4.2 Net Invisible Receipts .102 A.4.3 Merchandise Imports .103 A.4.4 POL Production and Imports .104 A.4.5 Net Invisible Receipts .108 A.4.6 Non-Factor Payments .109 A.4.7 Travel Receipts .110 A.4.8 Investment Income .ill A.4.9 Projections of Gross Aid Disbursements - 1980/81-1982/83 .112 A.4.10 Fertilizer Imports .113 A.4.11 POL Imports .114 A.4.12 Edible Oil Imports .115 Appendix A.1 Fertility Differentials in India, 1972 ............ 118 A.2 Interstate Variations in Birth Rates ............... 119 A.3 Plan Outlays for Family Welfare Program .... ...... 122 A.4 Selected Family Planning Performance Indicators, 1973/74-1978/79 ................................. 123 A.5 Family Planning Performance by Method ........... 124 A.6 Socio-Economic Indicators and Family Planning Performance -- Selected States .127 A.7 Maternal and Child Health Program Beneficiaries, 1975/76-1978/79 ................................. 128 A.8 Population Projections for India .... ........... 132 A.9 Projection of India's Population Assuming NRR=l in Year 2000 .133  -v- Page No. List of Graphs Chapter 1 1.1 Index of Rainfall Effectiveness for Crop Production 3 1.2 Foodgrain Production - Trends and Estimates .... ......... 5 1.3 Coal Production ......................................... 6 1.4 Mandays Lost Due to Labor Disputes ...................... 8 1.5 Indices of Per Capita Foodgrain Consumption, Per Capita Income and Real Price of Foodgrain .11 Annex to Chapter 1 A.1.1 Trend of Money Supply, Real Output and Price Level 17 A.1.2 Trend of Wholesale Prices .19 A.1.3 Analysis of Agricultural Price Movement .21 A.1.4 Trend of Agricultural Prices .22 A.1.5 Trend of Industrial Prices .23 Chapter 2 2.1 Rice Prices ............................................. 29 2.2 Wheat Prices ............ 30 2.3 Price Index : Foodgrains, Fertilizers, All Commodities Except Foodgrains ........................... 34 2.4 Foodgrain Supply and Demand, Trends and Projections ..... 36 Chapter 4 4.1 Saving and Fiscal Ratios ................................. 83 4.2 Balance of Payments ..................................... 85 4.3 Aid Commitments and Disbursements ....................... 94 Annex to Chapter 4 A.4.1 Other Imports ..................... 106 Appendix A.1 Time Pattern of Sterilization in India .125   P-at 1 INDIA - SOCIAL INDICATORS DATA SHEET RZErERNCE GROUPS (ADJUSTED AAGES LAND AREA (THOUSAND SQ. KM.) INDA - MOST RECENT ESTIATE) R TOTAL 3287.6 SAKE SAME NEXT HIGHER AGRICULTURAL 1818.3 M'ST RECENT SEOGRAPYIC INCOME INCOME 1960 tb 1970 lb ESTIMATE b REGION /c GROUP 1 GROUP e GNP PER CAPITA (USS) 60.0 90.0 180.0 191.1 209.6 467.5 ENEGY CONSUMPTION PER CAPITA (RGIYGRAMS OF COAL EQUIIVALEITT) 142.0 181.0 218.0 69.1 83.9 262.1 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAa (MILLIONS) 434.9 547.6 631.7f URBAN POPULATION (PERCENT O TOTAL) 17.9 19.7 20.7. 13.2 16.2 24.6 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (NLLIONS) 973.0 STATIONAMY POPULATION (MILLIONS) 1643.0 YEAR STATIONARY POPULATION IS REACHED 2150 POPULATION DENSITY PER SQ. KM. 132.0 167.0 192.0 86.6 49.4 45.3 PER SQ. g4. AGRICULTURAL LAND 247.0 308.0 347.0 330.2 252.0 149.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.8 42.5 42.0 44.3 43.1 45.2 15-64 YRS. 55.7 54.6 55.0 52.4 53.2 51.9 65 YRS. AND ABOVE 3.5 2.9 3.0 3.1 3.0 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 1.9 2.3 2.1 2.4 2.4 2.7 URBAN 2.5kL 3.3 3.1 4.1 4.6 4.3 CRUDE BIRTH RATE (PER THOUSAND) 43.0 40.0 35.0 44.4 42.4 39.4 CRUDE DEATH RATE (PER THOUSAND) 21.0 17.0 14.0 16.4 . 15.9 11.7 GROSS REPRODUCTION RATE 3.2 2.9 2.4 3.2 2.9 2.7 PAMILY PLANNING ACCEPTORS, ANNUAL (THOUSADS) 64.0 3782.0 4518.0 USERS (PERCENT OF MRIZD WOMEN) .. 12.0 16.9 7.9 12.2 13.2 OOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 100.0 102.0 101.0 99.4 98.2 99.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OP REQUIREMENTS) 95.0 92.0 89.0 93.0 93.3 94.7 PROTEINS (GRAMS PER DAY) 51.0 53.0 48.0 56.1 52.1 54.3 OP WHICH ANIMAL AND PULSE 19.0 16.0 12.6 10.4 13.6 17.4 CHILD (AGES 1-4) MORTALITY RATE 28.0 22.0 18.0 19.2 18.5 11.4 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 43.0 48.0 51.0 49.1 49.3 54.7 INFANT MORTALITY RATE (PER THOUSAND) .. 134.0 .. .. 105.4 68.1 ACCESS TO SAFE WATER (PERCENT OP POPULATION) TOTAL .. 17.0 33.0 31.5 26.3 34.4 URBAN .. 60.0 83.0 63.9 58.5 57.9 RURAL .. 6.0 20.0 20.1 15.8 21.2 ACCESS TO EXCEETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 18.0 20.0 15.7 16.0 40.8 URBAN .. 85.0 87.0 66.8 65.1 71.3 RL'RAL .. 1.0 2.0 2.5 3.5 27.7 POPELATION PER PHYSICIAN 5800.0~j 4890.0 3135.0 7107.9 11396.4 6799.4 POPULATION PER NURSING PERSON 9630.0]L 5220.0 6320.0 12064.0 5552.4 1522.1 POPTLATION PER HOSPITAL BED TOTAL 2590.OLi 2020.0 1231.0 2738.4 1417.1 726.5 UR8AN .. .. .. .. 197.3 272.7 RURAL .. .. .. .. 2445.9 1404.4 ADMISSIONS PER HOSPITAL BED .. .. .. .. 24.8 27.5 HOUSING AVERAGE SIZE OP HOUSEHOLD TOTAL 5.2 .. 5.2 .. 5.3 5.4 URBAN 5.2 .. 4.8 .. 4.9 5.1 RLRAL 5.2 .. 5.3 .. 5.4 5.5 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.6 2.8 .. -UBAN .. .. .. RURAL .. .. .. ACCESS ro -LECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. .. 22.5 23.1 'JB9AN .. .. .. .. i7.3 45.1 RURAL .. .. .. .. .. 9.9  Page 2 INDIA - SOCIAL INDICATORS DATA SHEET iNDirA ,REFERENCE GROUPS (ADJUSTED A EAGES - MOST RECENT ESTIMATE) - SAlfE SAME NEXT HIGHER HOST RECENT GEOCRAPHIC 'INCOME 7NCOtE 1960 lb 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e EDUCATION AaJUSTED ENROLLMENT RATIOS PRDIARY: TOTAL 61.0 72.0 79.0 59.5 63.3 82.7 MALE 30.0 87.0 96.0 74.9 79.1 87.3 FEMALZ 40.0 55.0 63.0 43.7 48.4 75.8 SECONDARY: TOTAL 20.0 29.0 28.0 ;9.5 16.7 21.4 MALE 30.0 39.0 38.0 27.8 22.1 33.0 Fl!ALZ 10.0 17.0 18.0 10.0 10.2 15.5 VOCATIONAL ENROL. (: OF SECONDARY) 8.0 6.0/1. .. 1.3 5.6 9.8 PUPIL-TEACEYR RATIO PREIARY 29.0 40.0 42.0 42.2 41.0 34.1 SECONDARY 16.0 17.0 .. 21.7 23.4 ADULT LITERACY RATE (PERCENT) 28.0 33.0 36.0 23.5 31.2 54.0 CONSUMPTION PASSENCER CARS PER TEOUSAND POPULATION 0.7 1.0 1.2 2.3 2.8 9.3 2ADIO RECEIVERS PMR TEOCSAND POPULATION 5.0 21.0 24.0 15.5 27.2 76.9 rV RECEIVERS PER THOUSAND POPULATION .. 0.1 0.3 .. 2.4 13.5 NEWSPAPER ("DAILY GENERAL YNTEREST") CRCULATION PER HOUSAsND ?OPULATION 11.0 16.0 16.0 6.2 5.3 18.3 CINEXA ANNUAL ATTENDANCE PER CAPITA 4.0 6.3 3.8 .. 1.1 2.5 LABOR FORCE ,OTAL LASOR FORCE (.'OUSANDS) 188670.0 226870.0 261000.0/k FENA1.E (PERCENT) 31.3 32.6 32.2 21.4 24.8 29.2 AGRlCJL'L:t'RE (PERCENT) 73.0 73.0 73.0 66.3 69.4 62.7 INDUSTRY (PERCENT) 11.0 11.0 11.0 9.6 iO.0 11.9 PARTICIPATION RATE (PERCENT) 0TTAL 43.0 40.2 39.2 35.8 36.9 37.1 MALE 57.1 52.3 51.3 52.3 52.4 48.8 PEMALI 27.9 27.1 26.2 15.7 18.3 20.4 _COSOMIC DEPENDENCY RATiO 1.0 1.1 1.1 1.3 1.2 1.4 'NCOME DISTRIBUTION PERCENT OF PRIVATE INCCKE RECEIVED 3Y HIGHEST 5 ?ERCENT OF HOUSEHOLDS 25.7 26.3/1 .. .. .. 15.2 5IGHEST 20 PERCENT OF HOUSEHOLDS 51.7 48.97 .. .. .. 48.2 LOWEST 20 ?ERCENT OF HOUSEHOLDS 4.1 6.7/1 .. .. .. 6.3 LOWEST .0 PERCEYT OF HiOUSEHOLDS 13.6 17.2/1 .. .. .. 16.3 POVERTY rARGET CROUPS STI!IATED ABSOLUTE POVERTY INCOME LEVEL (US5 ?PR CAPITA) '.3AN .. .. 83.0 86.5 99.' 241.3 2'JRAL .. .. 73.0 74.2 78.9 136.6 IST:MATE REULATIVE POVERTY INcoME LEVEL (USS ?ER CAPI'TA) ?RAN .. .. .. .. 91.9 179., LURAL .. .. 50.0 50. 54.3 103.7 -S .IMTED ?'3FULATTON 3LO;W ABSOLZME POVERTY :NCOME LEVEL l?'RCENT) .LMAN .. .. 47.0 -4.3 24. 1 24.8 1URAL .. .. 52.0 52.. 53.9 37.5 , 'ot avaiLable .:oc applicable. NOTE-S a Voe ad'naced group averages for each indicator are ?opuiarion-eignted geometric means, excludial che ext.ezt vales of :he :rdicator and t.ie nost ponulacec zounc!r in eacn group. Coverage of :ouncr:es imang :he indicltors lecends on xvailabil-:v of iaca ana is noc uniform. -:ess )cner-.-ise aced, aaca for 960 refer :o pyv vear oetween :959 and 196., for '1970, oec-een 1969 Lnd 971'; and for Mfost Recent I-3 taae, between 1974 and L977. c 3outh Asia; d ow 'ncome '5'20 or Less per capita 19767; e 'ower 1-Cdle Income ';281-550 ?er _ami:a, ?7S'; f.97S mid-'ear Ooquiation s3 escisaced a: .0C.- oilion; L ,951 J; h ;96'; i 95;; _ 967; ,k '978 nmi-ear Labor force s asc.oared ac 'S: ni-lon; 96 -,' Mosc lecent sc_ oe of GNP oer cazita Ls for :978. AUgUStC. '979  DEErIOnI OF SOCIAL INDICATORS Page 3 Notes: Although the data are drawn from sources generally Judged the mat authoritative and reliable, it should also be noted that they may not be interna- tionally comparable because of the lack of standardized definitions ad concepts used by different countries in collecting the data. The data are, nonetheless, useful to describe orders or nagnitude, indicste trends, and characterice certain maJor differences between countries. The adjusted group averages for each indicator are population-weighted geometric means, eocluding the extreme values of the indicator and the most populated sountry in each group. eDu to lask of data, group averages of all indicators for Capital Surplus Oil Exporters and of indicators of Access to Water and Eucreta Disposal, Housing, Inc.=e Distribution and Poverty for other country group4 are population-weighted geometric means vithout exclusion of the estreme values and the most populated country. Since the cuvere of Iouotries among the indicators depends on availabilIty of dat ad is ast uniform, caution must be enercined in relating averages of one indicator to another. These averages re ms0tly useful as pproslmatlons of exected. ealues when com.paring the value of one indicator at a time among the country and reference groups. LAND ARRA (thousand aq.k.) Access to Escreta DIsposal (percent of population) - total, urban, mad -ral - Total - Total surface area comprising land area and inland waters. Number of people (total, urban, and rural) served by exsreta dIsposal s Agricultural - Most recent estimate of agricultural area used temporarily percentages of their respective populations. Ecxreta disposal nay include or permtaneniy for crops, pastures, nrrket and kitchen gardens or to the collectios and disposal, with or without treatment, of human ecreets lie fsllow. and sante-water by wator-b-rne systems or the use of pit privies and -.ilar GNP PRR CAPITA (us$) - S3P per capita estimates at current market prices, Posatin per Pytciin - Population divided by number of practicing phyricians calculated by same conversion method as World Eank Atlas (1976-78 basis) 1960,970 ,-d 1978 data. Population Der Nursing Person - Population divided by number of practicing ealo ENRGY CONSUMPTION PER CAPITA - Asnual consumption of .sxaercial energy and female graduate nurses, practical nurses, and ansistant nurses. (coal and lignite, petroleum, natural gas and hydro-, auclear and geo- Popultion per Hospital Bed - total, urban, and rural - Populatico (total, urban, thermal electricity) is kilogramo sf coal equivalent per capita; 1960, nd rural) divided by their rexpective somber of hospitnl beds available in 1970, and 1976 dta.s public and private general and spescialied hosptital and rehtbilitstios centers. Hospitals are establisheests permanently stuffed by at least one physician. POPULATION AND VITAL STATISTICS Establis.lhents providing principally custodial care I rc sot included. Rural Totl Popao 0 d-Yer (millions) - As of July 1; 1960, 1970, and hospitals, however, include healti and medioni centers not pernently staffed 1977 data. by a physician (but by a medical assistant, nurse, ridvife, etc.) Which off-r Urban Population (percent of total) - Ratio of urban to total population; in-patient acconnuodati-s and provide a limited range of medical facilities. different definitions of urban areas may affect comparability of data AdssisLcns per Hospital Bed - Total number of admiosi... to or disabarges fro amoTng countses; 1960, 1970, and 1975 datb. hospitals divided by the number of beds. Populat io Projections Population in year 20i0 - Current populstion pro.estiosa are based os HOUSING 1975 total population by age and sex and their mortality and fertility Average Sice of Household (persona per hbusehcld) - total, urban, and rura1 - rates. Projection parameters for nortadity rates comprise of three A household consists of a group of individuals who share living quarters and levels assuming life vopecteacy et birth iscreasing with country's their main meals. A boarder or lodger may or may not be included in the per capits income olenl and femle life expectancy stabilining at household for statistical purposes. 77.5 years. The parameter for fertility rate also have three levels Average number of persons per room - total, urban, and rural - Average nunber _asuming decline in fertitity according to income level and past of persons per room is all urban, and rural coupied convestionsl dwellingo, falily planning performance. Each country is then assigned one of these respectively, D-cllings exclude non-permanent structures and unoccupied paric. nine coIhbinatios of mortality and fertility trends for prcjection Access to Electricity (percent of dwellings) - total, urban, and rural - Con- purpones. vn-tionsl dwvllings uth electricity in living quarters as per-entage of Itstiossry population - In a otatiou_ry population there is no growth total, urban, and rural d-ellingo respectively. since the birth rate is equal tc the death rate, and abls the age structure remains conctant. This is achieved cory after fertility rates EDUCATION decline to the replasenent level of unit net reproduction rate, when AdJusted Enrollnt Ratios each generation of sonen replaces itself exactly. The stationary popu- Primary school - total, male and female - Crons total, male and fenale earoli- istios aice ean ectimated on the basic of the projected characteristics mnt of all ages at the primary level as percentages of re-prctivv primary of the population in the year 1000, and the rate of decline of fertility school-ago populationa; normally includes children aged (-ii years bt rate to replacement level. adjuated for different lengthb of primary education; for countries sith Year stationary poclats is reached - The year when utatiosary population univer-ai education enrollment may exceed 100 percent since sour pupils sice h-a teen reached. are belos ue sbove the official school age. Population Density Secondary school - total, male and female - Computed as nice; secondary Per sq. km. - Mid-year popuiation per square kilometer (100 hectares) of edusation require. ast lea-t four years of approved primary in-truction; total area provides general vocationel or teacher training istrscoiuso for pupols Per sq. isa. agricultural land - Computed as above for agricultura1 1idn usually of 12 to 17 years of age; correspondence Icurses nrc generally only. excluded. Population Age Itructure (perenrt) - Children (0-14 years), working-age Vocational esroliment (percent of -rcondary) - VocationlI institution i-ciude )i_-tt years), and retired (65 years and over) as peronstages of mid-year teehaical, industrial, or other progrsms shich operate independently or ax powplation; 1960, 1970, and 1977 data. depertmnsto of oecondary in-titutions. Population Grovth Rate (percent) - total - Annual growth rates of totel mid- Pupil-teacher ratio - primary, and secondary - Total students e-rollod in year populations for 1950-h, 1960-70, and 1970-77. primary and secondary levels divided by numbers of teachers s thr corr- Population irowth Rate (percent) - urban - Asnual gro-th rates of urban sponding leorlo. populations for 1950-60, 1960-70, and 1970-75. Adult loterncy rate (percent) - Literate adults (ble tQ road and vrite) no Crude ,irth Rate per thousand) - AnnulI live births per thousand of mid- a percentage of total adult popuietion aged 15 years and over. year population; 1960, 1970, and 1977 date. Crude Death Rate (per thousand) - Anauia deaths per thousand of mid-year CONSUMPTION population; 1960, 1970, and 1977 data. Passenger Curs (per thousand population) - Passenger oars comprise motor cars Grons Reproductioc Rate - Average number of daught-rr a woxan vill b-r aenting less than eight per-son; excludes antolunncs, hearses and nilitory in her normal reproductivv period if she e-peri-nce present age- vehiclea. specific fertility rstes; usually five-year uverug-o ending in 1960, Radio Receivers (per thousand Population) - All types of receivers fur radio 1970, and 1975. broadcasts to general public per thousand of population; excludes unlicensed Faily Planning - Acceptors- Annual (thousands) - Annual number of receivero in countries and in years when regiotratios of radio sets ass in acceptors of hirth-control de-i-ea under auspices of national fnmily effect; data for recent years emy not be Ioopsrshle since saot countries plameing program. abolished li-ensing. Foaily planning - Users (percent of married scueti - Peroestagr oEf Mrrird TV Res-ivers (p-r thousand copulation) - TV receivera for broadcast t, genero -o.en of child-bearing age (15-44 years) who one birth-.ontrul devicea public per thousand population; excludes unlicensed TVreceivero in countries to all married women in same age group. and in years vhot registration of TV sets aws in effect. P000 AND ND'IPITIIR Reos~~~~~~~~~~Njpaper circulation (Per thousand po eltios) - Shows the -vergvcir-latic.. of"daily genera interes senspar, defined as periodical publication Index of Food Production per Capita (1969-71=100) - Index of per capita devoted primarily to revordig general sews. It is cosidered to he b "dily" annual production of all food commodities. Production excludes seed d if it ppears t least four times a seek. feed and is on eslendar year basis. Commodities cover primary goods Ciema Annual AttendaceiperCaita per Y - B.sd on the, xer of tiaksto (e.g. nugarcane tintead of sugar) which are edible and ccntain nutrientn soId during the year, iscluding disi. to dr-s-io cisemas snd mobile (e.g. coffee and tea are r exluded). Aggregate production of each country t a is based on national average producer price weights. Pee caPita supply of calories ()ercrnt of requirents) - CPmpsted from LABOR FORCE energy equivalent of net food supplies availablo in country per capita Tota1 Labor Forse (thiosands) - Economically active persons, micluding ared per day. Available supplies comprise domestic production, imports less forcea and unemployed but excluding housevives, students, etc. Definitoosit exports, and changes in stoik. Pet supplies uexlode animal feed, seeds, in various countries ere not comparable. quantities used in food process- g, and losses in diotribution. Pequire Femle (Percent) - Female labor forc- as peo..natge of totai isb-r force. meats were estimated by,FAO btsed on physiologlcal oredo for normal Agriculture (c eot) - Labor force in farmiag, foreatry, hunting and activity and health considering escironoental temperatu- r, body weights, fishing as percentage of total labor force. age and se- dittribhtions of populaticn, and allowing 10 percent for Industry (percent) - Lab,r force in mining, conatructios, suoufacturing and waate at household level. electricity, eater and gas as percentage of total labor force. Per capita supply of protein grams per day) - Protein content uf per Parttiipsti-n Rate (percent) - total, male, and female - Participatios or capita net supply of fiod per day. Net supply of food is defined as activity rmtes are computed as total, male and female labor force as per- above. Requirements for all countries established by USDA provide for a centages of total, male and female population of all ages respectively; misiman a losanee of 60 grabs of total protein per day and 20 grams of 1960, 197, and 1975 data. These are ILO s partjcipat-on rates reflecting animal and pulse protein, of which 10 grams should be animal protein. age-sex structure of the population, and long time trend. A few estimates Thnse standards are lower than those of 75 grams of total prstein and are from national Iources. 23 grams of animal protein as an average for the vorld, proposed by FAO EOcoam1i Dependency Ratio - Ratio of Population under 15 and 65 and over to in the Third World Food Survey. the labor force in age group of 15-64 years. Per Capita proteIn supply from animal and pulse - Protein supPly of food derived from animals and pulsen in grams per day. INCOME DISTRIBUTIOI Child (ages 1-4) Mortality Rate (per thousand) - Annual deaths per thousand Percentage of Private Income (both in cash and hind) - Received by richest in age group 1-4 years, to children in thin age group; for most devel, 5 percent, richest SO percent, poorest DO persent, and poorest 40 percent oping countries data derived from life tables, of households. hEALTH POVERTY TARGET GROUPS Life Expectancy at Birt (years) - Average number of years of life Estimated Absolute Poverty Iso2me Level (US! Per capita) - urban and rural - remaIning at birth; 1960, 1970, and 1977. data. Absolute poverty isosme level ha that Income level below which a misimal Infant llrtality Rate (per thousand) - Annual deaths of infants under ose nutritionally dequate diet plus essential son-food requirements is not year of age per thousand live births. affordable. Access to Safe Water (percent of population) - total, urban, and rural - itimated Relative Poverty Income lord (vs$ per capita) - urban mad rural - Rooter of people (total, urbaP, and rural) sith reasonable access to Rurl relative poverty income level ia one-third of average per capita safe sater supply (includes treated surface waters or untreated but personal income of the country. Urban level is derived from the rural level uncontaminated cator such as that fr-m protected borehsles, springs, sith adjustment for higher cost of living in urban areaa. and sanitary vells) as percentages of their respective populations. In Estimated Pcpulation Belos Abisolute Poverty Iacoe Level (Percent) - urban and an urban area a public fountain or standpost located not more than rural - Percent of ppuliti (a1 vh re "3b301u 200 meters from a house may be considered as being sithin reasonahle - an and rura Poor access of that house. In rural areas reasonable acswas would imply that the houaewife or members of the household do act have to spend a FEconmic and Social Data Divisios dispropsrtionste part of the day in fetching the family's water needs Economic Analysis and Projections Department August 1979  Pae 4 ECONaMIC DE7ELOPtENT DATA a/ GNP PER CAPITA IN 1978: US$ 180 bl C/ GROSS NATIONAL PRODUCT IN 1978/79 ANNUAL PATE OF GROWTN (%, constant prices) US$ Bln. % 1955/56-1959/60 1960/61-1964/65 1965/66-1969/70 1970/71-1974/75 1975/76-1977/78 GNP at Market Prices 117.08 100.0 3.7 3.6 3.7 2.8 5.6 Gross Domestic Investment 28.28 24.2 Gross National Saving 28.11 24.0 Current Account Balance _/ 0.50 0.4 OUTPUT. IABOR FORCE AND PRODUCTIVITY IN 1971 Value Added (at factor cost) Labor Force V.A. Per Worker US$ Bln. % lil. % USS % of National Average Agcicultore 24.5 46.6 130.0 72.1 188 64 Industry 11.8 22.3 20.2 11.2 582 199 Services 16.3 31.1 30.2 16.7 542 186 Total/average 52.6 100.0 180.4 100.0 292 100 GOVERNHENT FINANCE !/ General Government Central Government Re B1lnfGO Rs Bln. 7 of GDP 197'8/9' E1978/79 1974 75-1971879 1978/79 Current Rece-pte 183.65 19.1 18.3 107.71 11.2 10.6 Current Expenditures 177.26 18.4 16.7 108.99 11.3 10.1 Current Surplus/Deficit 6.41 0.7 1.6 - 1.28 -0.1 0.5 Ctpital REpendituros _/ 78.41 8.1 7.2 57.34 6.0 5.1 Esternal Assistance (net) d/ 8.15 0.8 1.4 8.15 0.8 1.4 MlONEY. CREDIT AND PRICES 1970/71 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 September 1978 September 1979 (Rs Billioe outstanding at end of period) Money and Quasi Money 121.4 198.4 220.3 254.7 308.9 370.4 445.6 398.5 473.7 dank Credit to Government (net) 52.6 87.3 95.3 101.1 110.2 134.7 153.9 139.5 161.7 Bank Credit to Conmercial Sector 64.6 107.0 126.7 153.9 185.1 212.2 253.3 225.8 273.8 (Percentage or lodex Numbers) January 1979 January 1980 Money end Quasi Money as % of GDP 30.1 33.5 31.5 34.5 38.8 41.5 46.3 Wholesale Price Index (1970/71 - 100) 100.0 139.7 174.9 173.0 176.6 185.8 185.8 185.3 224.0 Annual percentage changes in: Wh.leaale Price Index 7.7 20.2 25.2 -1.1 2.1 5.2 - 0.4 20.9 Bank Credit to Governrent (net) 10.8 12.3 9.2 6.1 9.0 22.2 14.3 16.9 15.9 Bank Credit to Comnercial Sector 19.4 22.6 18.4 21.5 20.3 14.6 19.4 15.6 21.3 a/ The per capita GNP estimate is at market prices, calculated by the conversion technique used in the World Bank Atlas, 1979. All other cenversions to dollars in this table are at the average exchange rate prevailing during the period covered. b/ Quick Estimates. c/ Conpsted froe trend lien of GNP at factor coat series, including one observation before first year and one observatior after last year of listed period. _/ World Bank estimates; not necessarily consistent with official figures. S/ Transfers between Centre end States have been netted out. f/ All lease and advance. to third parties have bees netted out.  Pane 5 BALANCE OF PAYMENTS 1976/77 1977/78 1978/79 - 1979/80 h MERCEANDISE EXPORTS (AVERAGE 1975/76 - 1978/79) US$ mEn. 7, Exports of Goods 5,753 6,315 6,976 7,800 Engineering Goods 671 11 Imports of Goods -5,928 -7,188 -8,488 -1i,l00 Tea 420 7 Trade Balance - 175 - 873 -1,512 -3,20o Gems 499 8 NFS (net) 379 692 882 1,050 Clothing 378 6 Leather and Leather Resource Balance 204 - 181 - 630 -2,150 Produc_s 319 5 Jute Manufactures 251 4 Interact Paynents (net) i/ -182 - 89 130 400 Iron Ore 270 5 Other Factor Paymenta (oet) - - - - Cotton Textiles 248 4 Net Transfers j/ 695 1,077 1,00 1,000 nSgor 224 4 B.1a. C-e.t Ac.n 17 07 750 Others 2,649 45 Balance on Correct Accoont 717 807 500 -750Toa5.2 10 Total 5.929 100 Official Aid Disbursenents 1,955 1,628 1,695 1,870 EXTERNAL DEBT. MARCd 31. 1979 Arortization -560 -645 -702 - 687 S$ billion Transactions with IMPF 337 _330 -158 - Cutsttading and Disbursed 15.5 All Other Items -200 616 199 -183 Undisbursed 5.2 Outstanding, including 20.7 Increase in Reserves (-) -1,575 -2,076 -1,534 - 250 Undisbursed Gross Reserves (end year) 3,747 5,823 7,357 7,607 h/l/ Net Reserves (end year) h/ 3,276 5,668 7,357 7,607 DEBT SERVICE RAT1O FOR 1978/79 15.0 percent Fuel and Related Materials IBRD/IDA LENDING. DECEM3EER 31, 1979 Imports 1,581 1,811 2,043 4,055 US5 million of which: Petrnleum 1,581 1,811 2,043 4,053 1BRD IDA Exports 37 32 24 - Oustantding and Dishurned 689 4,286 of which; Petroleum 21 18 n.a. - Undisbursed 614 2,621 Outstanding, including 1,303 6,907 Undishbrsed RATE OF EXCHANGE June 1966 tn mid-Decenber 1971 US$1.00 - R. 7.5 R. 1.00 = US$0.133333 Mid-December 1971 to end-June 1972 : US$1.00 - Rs 7.27927 Rs 1.00 - US$0.137376 After end-June 1972 Floating Rate Spot RBte end-Dacember 1978 : US$1.00 - Rs 8.188 Rs 1.00 = U801.122 End-Decenher 1979 : US$1.00 - RE 7.907 Rs 1.00 - US$0.126 h/ Estimated. hi Figures given cover all invecstent incone (net). Major payments are interest on foreign loans and chorges paid to IMF, and major receipt is interest earned on foreign assets. J/ Figures given include workern remittances but enclude official grant assistance, which is - included within official aid disbursenents. k/ Excludes net use of IMF credit. T/ Amortization and interest payments on foreign loans as a percentage of nerchandise exports.   IBRD i0483R4 MARCHA 1979 DEMOCRATIC REPUBLIC OF AFGHANISTAN '* * I N D I A ' JAStMIP -d KASHMIR Srnagar , Stale and Union Territory Capilals * Not onal Captaol C Other Cities y.>Sv H/MA (ANAL 1> r Stote and Union Territory Bo-ndr-es Sml - International Boundories PAKISTAN 90 ~~f PL,,JAR t o _, XAPJ'A,VAR 6 "-'- -. CHINA Wch DELHI ..' /~~~ (tEWOELHI '-. Jtanaaur eRTADESI/ T JTAR I NEPAL c 'H ,--- c ( ngnIo/ BH-UTAN / PTv9R A D L S/i Ai~r' </; / ESH IAAKASTHAnp no. P Jo q< A 5 o 5 ASS A M Konp., Disp.,u t.rng *~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 i,GH A ADR w { Aa 8/A bnBANGLADESH i y'phal 3 Agartaln R G.dh,gr. Bhopal W % MA D/Y A P nDESK -1 Bcngolo < BURMA SW c so / DESSA o~~~~~~ Hk B~bn ANOH BiAe Lr Arabian PRAAHAAS/NSR of~~~~~~~~~~~~~fr ,@ efh ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~307 -0 it A N DANI A_N   SUMMARY OF CONCLUSIONS This report had to be completed before the new Indian Government had formulated their economic policies and programs. An interim budget was presented in March pending the preparation of the full budget later in the year where the medium-term strategy of the Government will be presented. The Government has announced that the Plan framed by the previous Government will be revised and that the priorities and plan outlays for 1980/81 will be formulated by the new Planning Commission to be appointed. Under these circumstances this report could not comment in any detail on the new strategy. However, developments in India as well as in the world economy during 1979/80 has brought to the surface urgent issues which will need the attention of policy makers.irrespective of the broader context of development strategy that the new Government may adopt. Among these we have selected three important topics to focus the discussion of this year's report: broader policy options emerging in agriculture, deepening infrastructure crisis and the disconcerting balance of payments outlook. We have also updated our review of the population and family planning developments. ii. Economic performance during 1979/80 deteriorated sharply. Agricul- tural production declined and industrial production stagnated. Thus, after four years of impressive growth, GNP fell by about 3%. Agriculture suffered as a result of drought, and the shortage of power and diesel reduced the extent to which tubewell irrigation could compensate for the lack of rain. Industry was plagued by labor unrest and a vicious circle of supply bottlenecks--coal, power and transportation. Triggered by shortages, world inflation and the drought, the general price level rose at a considerably faster rate than any time since 1973/74. The import bill spurted due to domestic scarcities and world inflation--in particular due to the rise in petroleum prices. Growth in export earnings was modest and the trade deficit grew to become the largest in India's history. Foreign exchange reserves which had risen continuously since the mid-seventies started to decline in the early part of 1980. iii. 1979/80 revealed some basic weaknesses in the economy as well as some fundamental strengths. Hopes that had been raised during the last four years that India could escape from a low level growth path were somewhat dimmed by domestic and external constraints that emerged during the year. Persistent shortages recurred in infrastructure and basic industry. Ample foodgrain stocks and foreign exchange reserves could not protect domestic prices from the impact of world inflation. After the third successive year of decline in export volume, optimism about a strong export growth gave way to pessimism. And the deterioration in the terms of trade once again signalled the prospects of major balance of payments disequilibria in the medium term. iv. Ironically, it was the bad weather that revealed the strengths in the economy. Despite one of India's worst monsoon failures, agricul- tural production fell only a little compared to previous bad weather years and was maintained at a level which would have been a record only a few years ago. Production in the vicinity of 118 million tons of foodgrains in a year of acute drought is a measure of the contribution that expanded  - ii - irrigation and extension have made to Indian agriculture. India was also fortunate to have the foodgrain stocks that were built over the past four years which assured adequate supply of grain to low income groups at stable prices and enabled the Government to undertake a large-scale drought relief employment program. v. The strengths and the weaknesses that emerged in the economy were partly the result of the changing world situation but they were also the legacies of the past progress and policies. In agriculture, the positive results of large investments and appropriate policies over the past few years are becoming increasingly evident and have withstood the test of a severe drought. Foodgrain pricing policies have supported the investment efforts, achieving a number of objectives: price stability, protection of farmers' incomes and foodgrain self-sufficiency. Real prices of foodgrains and partic- ularly rice and wheat have been fairly stable, except in years of unusual scarcity. Severe market crashes have been avoided through the procurement system which, while operating primarily for rice and wheat, appears to put a floor on other cereal prices as well. In general India's cereal prices are not unreasonably high or low in comparison with international prices. vi. The past few years, including the current severe drought year, have been years of relatively abundant foodgrain supplies. In view of the acceleration in use of agricultural inputs, and the projected fall in the population growth rate, the long-run prospects for foodgrain supply and demand balances look favorable. Persistent shortage seems unlikely, and it is probable that a wide range of policy options will become much more practical as the overriding emphasis on foodgrains can be somewhat relaxed. These options include a slowly falling real price of foodgrains to absorb a greater quantity of foodgrains in household consumption, rationalization of domestic markets and prices, and diversification to production of other crops. These options will imply a gradual shift in emphasis rather than a dramatic break with the past practices. vii. The emerging balance in foodgrain supply and demand is the combined result of improvements in crop yields and of a secular decline in the rate of population growth. Population growth rate which declined from 2.2% per year in the later 1960s to below 2% at present is expected to continue falling to around 1.6% by the latter half of 1980s. Family planning has played an important role in achieving the fertility decline in the past decade and the extent of a further decline is conditional to the continuation of a successful official family planning program. In the past three years there has been a large swing in family planning performance. The number of acceptors increased to an all time high in 1976, declined to very low levels in 1977 and appears to have recovered in 1980 to approximately the levels of 1975. viii. The inadequacy of the infrastructure and the shortages of basic inputs emerged as a major weakness in the economy. Although these bottle- necks -- especially in power, diesel and transportation -- were unfortunate for agriculture in a drought year, their crippling effect was more serious  - iii - in the industrial sector. Industrial output stagnated during 1979/80 despite strong demand and under-utilized capacity. Three key intermediate inputs -- coal, steel and cement -- were in short supply. All three are industries where domestic production of the bulk of India's needs appear to be clearly justified on grounds of comparative advantage and where the aim of policy is self-sufficiency. In spite of the fact that all are tradeable commodities, this year's shortfall in production have not been fully made up by imports, and the results have been slowdowns and dislocations in using industries. Petroleum products have also been in short supply, due largely to the growth in demand for some products being much higher than anticipated. The current shortages of electricity can be viewed as the result of failure of capacity to grow quite rapidly enough, in spite of high priority awarded to the sector, combined with both extraordinary demands and shortfall in hydel supplies due to the drought. In the transport sector, both capacity and management diffi- culties, primarily difficulties in keeping a full labor force functioning effectively, have led up to the present shortages. ix. In some of these sectors there are management and labor problems which, if eliminated, could add substantially to output. Taking into account the interaction of these shortages, the improvements in management and labor relations together with adequate inputs could improve the supply in these sectors considerably. For example, in coal industry, it is estimated that half of the current shortage could be made up through improvements in explo- sives availability, power supply and the labor relations. In power gener- ation, forced and prolonged maintenance outages could be reduced through better training, inventory control and management. The capacity utilization rate of the thermal plants could also be raised by adequate coal supplies. Stable power availability would contribute to higher efficiency in many sectors. Short-run improvements in railway operation could probably restore most of the tonnage lost during the last three or four years, in spite of increased length of haul, and labor productivity in the ports could be increased. However, even in areas where potential for short-run improvement is obvious, the infrastructure for industrial growth and even for agricul- tural growth is still very thin. This seems to relate to past planning judgements which operated too close to the margin. For these reasons, the possibility of some improvements in efficiency in the short run -- although important -- should not detract attention from the basic constraint, namely that major expansion of capacity and large expenditures are needed in order to provide adequate and stable supplies in these sectors in the medium term. Therefore, it is important to protect the planned level of investment in infrastructure and to accelerate parts of it. There is a strong case for seeking more assistance in these sectors which, by and large, have massive capital needs and relatively well developed capacity to absorb assistance, rather than letting investments slip, as domestic resource constraints grow more binding in the next few years. x. Since the Indian economy is shifting from a position of resource surplus during the period 1975 through 1979 to one of resource scarcity, it will not be easy to sustain the growth of investments in real terms during the coming years. Gross domestic savings rate and the tax rate (both as percentage of GDP) have reached quite high levels for a country at India's  - iv - level of development. The fall in real income in 1979/80 and the prospects of continuing inflation will make additional resource mobilization attempts even more difficult. The fiscal effort in coming years must, therefore, aim at improving the level of public sector savings by sustaining the tax effort, getting increased returns and higher cost recoveries from public sector undertakings, and securing economies in non-developmental expenditures, especially subsidies. xi. On the external payments front, the rapid rise in oil prices and the overall deterioration in India's terms of trade has reduced drastically the margin of surplus that the Indian economy enjoyed since 1975. Balance of payments estimates show that the under-utilization of external resources was even more temporary than estimated in last year's Economic Report. We now project the current account deficit to exceed net aid disbursements and the reserves to fall in 1980/81. India's reserves may provide a cushion for at most two more years and that, too, only if the levels of aid flows and workers' remittances do not deteriorate from their projected levels and if the oil prices do not rise very steeply. The prospects for the longer-term future are discouraging and point not only to the requirement for much higher levels of aid but, even more importantly, to the need to facilitate the adjustment of the economy to the changing parameters of world trade and relative prices which are now viewed as more permanent features than were the dislocations of the 1972-74 crisis. xii. A program aiming at such a structural adjustment should focus on three imperatives. Firstly, the need to expand exports has become even more crucial than before as a result of rising import costs. Exports which covered more than 95% of the non-foodgrain import bill in 1975/76 can at present only pay for 71% of it. India was fortunate to receive a growing level of remittances from its nationals working abroad, which eased the pressure on its current account balance for a few years. These remittances are unlikely to grow at the same rate as in the past five years and are likely to fall in real terms. Thus, the importance of export expansion for averting a major balance of payments crisis after 1981 can hardly be exaggerated. xiii. Secondly, the restructuring must include a program of import substitution. The world market changes which increased the cost of major imports by India have also improved India's comparative advantage in some of these production categories. India now has an obvious cost advantage in producing steel and fertilizers which accounted for 12% of the total import bill in 1979/80 and the payments for which are expected to increase in coming years. Oilseeds and edible oils is another obvious category where import substitution can ease the pressure on the balance of payments. xiv. Finally, the energy policy of the country must be adjusted taking into consideration the production and price trends in the world economy and the country's resource endowments. Plans for more extensive oil explora- tion and faster exploitation of known crude oil and natural gas reserves are already underway. These efforts must continue to be supplemented by appropriate pricing policies not only to induce economies on the total energy consumption, but also to enable substitution of coal and hydro based energy for petroleum products.  - v - xv. There is compelling need for increased aid commitments and disburse- ments in the coming years. Responding to the improved balance of payments situation after 1975/76, aid donors taken as a whole shifted the composition of their aid program from faster to slower disbursing aid. This has slowed net disbursements considerably. At the same time, total commitments were almost maintained in real terms (a fall in the commitments of some bilateral donors was made up by the increase in the commitments by the World Bank Group) with the result that the aid pipeline has grown large. A return to a faster disbursing composition of aid, in combination with increases in aid commitments in real terms, would improve net disbursements significantly. Raising the disbursement rate of aid commitments could be achieved by increasing the non-project share of aid, shifting a larger proportion of project aid to quicker disbursing sectors, providing more local cost financing and raising the share of aid in the total costs of any given project. These efforts would not only ease the external resource constraints on the Indian economy, but would also reduce the budgetary burden of India's extensive public sector investment requirements.   Chapter 1 CURRENT DEVELOPMENTS A. Introduction 1.1 After recording an increase in national income of 4.1% in 1978/79, the state of the Indian economy deteriorated in 1979/80. The 1979 monsoon was late and scanty with the result that agricultural production plummetted and with it the income of the mass of India's population. Industrial pro- duction failed to rise, which has happened only in 1967 and 1968, since 1950. After four years of expanding output, GNP fell by about 3% and supplies of many essential goods and services became critically short. 1.2 Thanks to the development of the agricultural infrastructure over the recent years the impact of the drought was less severe than had been the case in the past. Production of 118 million tons of foodgrains in a year of acute drought is a measure of the contribution that expanded irrigation and extension have made to Indian agriculture. India was also fortunate to have the foodgrain stocks that were built over the past four years. Despite the poor agricultural harvest in the fall of 1979, India started 1980 with over 17 million tons of rice and wheat in store. Foodgrain prices rose over the summer and fall of 1979 but still prevailed close to the Government's con- trolled prices. Low income groups in urban areas were assured adequate supplies of grain at stable prices. The stock of foodgrain also provided resources for a large-scale drought relief employment program that success- fully contained the worst aspects of a drought in India -- the precipitous loss of income among the lowest income groups in rural areas. 1.3 Industry was plagued by labor unrest and a vicious circle of supply shortages -- coal, power and transportation. Triggered by supply shortages, world inflation, and the drought, prices rose at a considerably faster rate than any time since 1973/74. The import bill spurted as a result of domestic shortages and world inflation, particularly due to rises in petroleum price. Export growth was modest and the trade deficit grew to become the largest in India's history. As a result, towards the end of the FY1979/80 foreign exchange reserves started falling despite a pick up in both net aid and invisible receipts. 1.4 The medium-term outlook is far from sanguine. Two consecutive years of drought have occurred frequently in the past. Although normal weather in 1980 would make agricultural production rebound and with it, total output, not all of the problems experienced in 1979/80 were related to the drought. As analyzed in Chapter 3, the forces constraining output in coal, power, transport and industrial sectors are more entrenched and require more invest- ment, better management and better policies to overcome. Labor unrest has risen sharply over the last three years and has been an independent constraint.  - 2 - The very rapid rise in India's ability to finance imports has been now overtaken by an even faster rise in the economy's need to import. Conse- quently the basic outlook for the balance of payments has changed so that the expectation is that of a difficult period ahead. B. The Drought 1.5 For most parts of India, the southwest monsoon came late, withdrew early and was of little use while it stayed. Not only was the total accumu- lation of rainfall deficient (see Graph 1.1), its timing was erratic and generally unfortunate for sowing and growing the summer (rice) crop. The monsoon started two weeks behind schedule. Especially devastating were long breaks in the rains, of up to six weeks in Rajasthan, Madhya Pradesh and Gujarat, up to seven weeks in Bihar, Haryana and Punjab and up to nine weeks in Uttar Pradesh. Rains continued to be deficient and erratic in the post- monsoon period of October and November. Good winter rainfall in December and January brightened the winter (wheat) crop prospects, but came too late to revive lost summer crops. Diesel and power shortage during the summer and fall compounded the problem of shortage of rainfall by inhibiting pump irrigation. 1.6 Low rainfall meant many surface tanks and ponds, used for irriga- tion, never filled. However, reservoirs in Peninsular India had good inflows and were of considerable help in producing a good crop under their command. Rivers dependent on rainfall in the current season were very low or dry and the water level in many irrigated reservoirs was low. Although total irriga- tion potential increased by about 2.5 million hectares in 1979/80, the actual use of that potential no doubt declined from that of the previous year due to lack of surface water or power to pump groundwater. This points out that the Indian irrigation system is still too dependent on the current season's rainfall. This year also points to the increasing dependence of India's agricultural performance on inputs supplied from outside the sector, such as electricity and diesel, and the vulnerability of agricultural output to disruptions in their supply. 1.7 Fertilizer consumption rose by 6%, despite the drought conditions. The growth is much less than the 18% to 25% growth rates of the previous three years. The fact that fertilizer consumption grew as much as 6% after a prolonged period of very rapid and unsustainable growth and during a year of falling agricultural output is itself remarkable. This is no doubt due to the growing intensity of fertilizer use where it is most profitable -- on irrigated fields producing wheat, rice and other cash crops. The rise in fertilizer consumption partially offset the effects of the drought and stopped agricultural output from falling as much as would be indicated by the change in moisture conditions alone. 1.8 Agricultural production fell about 8% to 9% in 1979/80 from its record level in 1978/79. (See Table 1.1.) Foodgrain production is estimated  GRAPH 1.1 INDEX OF RAINFALL EFFECTIVENESS FOR CROP PRODUCTION PERCENT OF REGIONS RECEIVING NORMAL OR ABOVE NORMAL SUMMER RAINFALL,WEIGHTED BY REGIONS CONTRIBUTION TO SUMMER FOODGRAIN PRODUCTION 00 - 95 - 90 - 85 - 80o- average 77 75 - 60 - In ( a a n 0n ah O o am W W _O _D _- e l _ a% 4m m cn m m cn cn cn cn M~~0~1  - 4 - Table 1.1 AGRICULTURAL OUTPUT Average Preliminary 1975/76 to Estimates 1977/78 1978/79 1979/80 Agricultural Production Index /a 125.7 138.0 126.3 Foodgrain (million tons) 119.5 131.4 118.0 Five Major Oilseeds (million tons) 8.9 9.5 9.4 Sugarcane (million tons of gur equivalent) 16.1 16.0 13.6 Cotton (million bales of 170 kg) 6.3 7.9 7.4 /a Triennium ending 1969/70 = 100 Source: Ministry of Agriculture and World Bank estimates. to have fallen by about 10%, from 131.4 million tons in 1978/79 to around 118 million tons in 1979/80. However, foodgrain output in 1978/79 had been above the trend line (see Graph 1.2.). Total foodgrain production was only about 8% below its trend value of 128.5 million tons. Sugarcane production fell by about 15%. Output of other major crops also fell marginally, although not by the large percentage as that of foodgrains. C. The Shortages 1.9 The economy was plagued by a vicious circle of supply shortages. Output shortages of one sector became input shortages in other sectors. Some of the basic causes, such as the drought, were exogenous. Others, such as the labor disputes, had ad hoc causes unrelated, or partially related, to the pace of industrial growth. But some, such as the power famine, stagnation of coal production and congestion of ports and railways are long-standing constraints. The slow growth in their production was less constraining during the period 1975 through 1978 when demand lagged behind. The faster growth of national income in 1978/79 removed any slack that existed in supplies. A liberalized import policy helped to ease, although not eliminate some bottlenecks, such as in steel and cement. But some of the most intractable problems were in non-tradeable items -- power and transport. 1.10 The drought was felt not only in farmers' fields but in the reser- voirs behind hydro-electric dams. The power generation from hydel sources was below that of the previous year. Coal shortages caused thermal generation to fall far short of expectation and caused total power availability to rise by only 3%, which was insufficient to meet the higher power demand. Not only was power generation affected by the drought but demand was more, the increase coming mainly from increased demand for groundwater pumping for irrigation and drinking water. The marginal power shortage of the previous four years became massive, with 50% or greater cuts to industries in some heavily industrialized areas. Most States gave priority to agricultural users in an effort to save the crop. In Uttar Pradesh, a strike of the staff of the power generation and distribution systems was imposed on a pre-existing shortage to virtually black out the State  GRAPH 1.2 FOODGRAIN PRODUCTION 135 = trends and actuals / estimates 125 -1960/61 to 1979/ 80 1 2 0 I N MILLIO TO NS" 910 105 10 35 - ~~~~~~~~I I ' - I l' ' - I I' I 60.61 61.62 62.63 63.64 64.66 65,66 66.67 67.68 68.69 69.70 70.71 71.72 72.73 73.74 74.75 75.76 76.77 77.78 78.79 79.80 years  for a period in November 1979. Industry in Rajasthan was completely without power for a period in January 1980. In Bihar, unplanned power cuts, which are particularly damaging and costly to manufacturers, became frequent and long- lasting. 1.11 Coal production in 1979/80 is estimated at 104 million tons, which is practically the same level as it has been since 1975/76 (see Graph 1.3). Coal production suffered from power cuts, labor troubles and lack of transport. Availability of transport further deteriorated in 1979/80 and became a major constraint. Railway movements of freight fell for the third year in a row, as labor troubles, lack of power and coal and a disruption of normal traffic patterns reduced efficiency. Traffic capacity of India's sea ports has grown much more slowly than that required by increased foreign trade in recent years with the result that congestion has increased and berthing delays of ships has increased rapidly. The fall in rail traffic threw many loads to truck transport. But a scarcity of diesel developed in the summer of 1979 and persisted through 1979/80, limiting the extent trucks could take up the slack in rail movements. The diesel shortage was itself partly a transport problem, as even after additional imports were arranged, the diesel moved very slowly through the ports and overland to the northern areas where the shortage was most acute. Million Graph 1.3 Tons Coal Production 100- 90 - 80 - 70 - U60 - u 50- 40 - 30 - Ct: co cn 0 ae o1 _LOn w n s b Z ' CD a V. t- 0 - r- - W CI I A I I O _  1.12 The diesel shortage came about first as a result of spurt in demand. Subsequent steps to relieve the shortage through additional imports ran afoul of the transport bottlenecks. For the year as a whole, diesel availability increased roughly 16%, a much greater growth than had been experienced in recent years. But still many diesel users felt an acute shortage. The drought caused an increased desire to use existing tubewells and to install new ones for irrigation and drinking water. The power shortage threw some industrial demand for power to captive, diesel-fuelled power generating sets and from electric to diesel tubewells and pumpsets. As mentioned, constraints in other forms of transport caused increased demand for diesel powered trucks. The Govermment of India entered the international spot market for diesel and found diesel scarce and its price quite high. 1.13 Labor problems contributed an independent constraint to industrial output. In virtually every industrial subsector, strikes and lockouts curtailed production. Manufacturing accounted for 89% of the total mandays lost. The industries particularly affected by labor disputes were textiles, both cotton and jute, and machinery and metal products. In transportation ports and docks featured prominently. Estimates for 1979 as a whole indicate that mandays lost might reach 42 million mandays lost, which exceeds the level reached during 1974 (see Graph 1.4). But whereas in 1974 the loss of mandays in the public sector accounted for nearly a third of the total number of mandays lost, in 1979 about 84% of the mandays lost were in the private sector. West Bengal alone contributed roughly half of all the mandays lost in 1979, Tamil Nadu occupied the second position followed by Kerala and Maharashtra. 1.14 The shortages spread throughout the economy and constrained overall industrial production to a level no higher than in 1979/80. This reflected significant declines in the production of some basic commodities -- steel (-10%), pig iron (-13%), copper (-6%) and cement (-8%) -- and in some major consumer items -- sugar (-35%), tea (-9%), vanaspati (-6%) and textiles (-8%). Although the recession in the automobile and motor scooter industries con- tinued (-26% and -14% respectively), output of the commercially more important trucks and railway wagon industries grew (8% and 9% respectively). Output of basic energy sources grew -- power (3%), crude petroleum (20%), petroleum products (13%) and coal (2%) -- although not by enough to meet demand. The restraints on production were clearly due to shortages, as most of the manu- factured items whose output fell were in short supply, while existing capacity was under-utilized. This was particularly true of steel, cement, copper, pig iron and sugar. 1.15 The shortages also affected foreign trade in ways that increased the trade deficit. Steel imports are expected to exceed 1.4 million tons, while an estimated 75,000 tons of aluminium and about 2 million tons of cement also had to be imported. These are items for which India has the capacity to be self-sufficiant at current rates of consumption. Exports of engineering goods, iron ore and tea, all were held up at ports because of labor trouble and port congestion.  - 8 - GRAPH 1.4 mandays lost due to labour disputes : estimated 40 A 30 - / ~20- a a E 0 E 10 - _ ,f LO cn LO u cn (