India - Uttar Pradesh Public Tubewells Project

Document of b The World Bank FOR OFFICIAL USE ONLY Report No.P-2746-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE UTTAR PRADESH PUBLIC TUBEWELLS PROJECT March 20, 1980 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 EQUIVALENT (As of March 14, 1980) Rs 1.00 = Paise 100 US$1.00 = Rs 8.19 Rs 1.00 = US$0.1221 Rs 1,000,D00 - US$122,100 (Since September 24, 1975, the Rupee has been fixed against a "basket" of currencies. As these currencies are floating, the US Dollar/Rupee exchange rate is subject to change. Conver- sions in the Staff Appraisal Report were made at US$1.00 to Rs 8.40, which represents the projected exchange rate over the disbursement period). 1FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS USED IN THIS REPORT ha2 - hectare km - square kilometer m - meter m h - cubic meter/hour Mm - million cubic meters Rs - Rupees  FOR OFFICIAL USE ONLY INDIA UTTAR PRADESH PUBLIC TUBEWELLS PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President. Beneficiary: The State of Uttar Pradesh. Amount: US$18 million equivalent. Terms: Standard. Relending Terms: From GOI to Uttar Pradesh as part of Central assistance to State development projects on terms and conditions applicable at the time. Project The project would support the construction of 500 Description: public tubewells in 12 Districts of the State of Uttar Pradesh over a two-year period, with the objective of demonstrating and evaluating the relative merits of a number of technical and operational improvements to the design of existing tubewell systems in the State. Estimated Cost: (US$ Millions) Local Foreign Total Land Acquisition 0.38 - 0.38 Tubewell Construction 22.64 1.56 24.20 Buildings 0.71 0.02 0.73 Vehicles and Equipment 0.76 0.09 0.85 Monitoring and Evaluation 0.12 - 0.12 Training 0.01 - 0.01 Administration and Engineering 2.19 - 2.19 Preparation for Stage II 0.01 - 0.01 Base Cost 26.82 1.67 28.49 Contingencies: Physical 1.95 0.12 2.07 Price 6.74 0.39 7.13 Total Project Cost 35.51 2.18 37.69 Taxes and Duties 1.69 - 1.69 Project Cost Net of Taxes and Duties 33.82 2.18 36.00 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  - ii - Financing Plan: /1 (US$ Millions) Local Foreign Total IDA 15.82 2.18 18.00 Government oE UP/GOI 18.00 - 18.00 33.82 2.18 36.00 Estimated (US$ Millions) Disbursements: FY81 FY82 FY83 Annual 1.0 5.5 11.5 Cumulative 1.0 6.5 18.0 Rate of Return: 36%. Appraisal Report: No. 2758-IN, dated March 20, 1980. 1/ Excluding taxes and duties.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE UTTAR PRADESH PUBLIC TUBEWELLS PROJECT 1. I submit the following report and recommendation on a proposed development credit to India in an amount equivalent to US$18 million on stan- dard IDA terms to help finance a project for the construction of 500 public tubewells for irrigation in the State of Uttar Pradesh. The proceeds of the credit would be channelled to the Government of Uttar Pradesh in accordance with the Government of India's standard terms and arrangements for financing State development projects. The exchange risk would be borne by the Govern- ment of India. PART I - THE ECONOMY I/ 2. An economic report, "Economic Situation and Prospects of India" (2431-IN dated April 9, 1979), was distributed to the Executive Directors on April 13, 1979. Country data sheets are attached as Annex I. Background 3. India is a large, low-income country with 652 million people (in mid-1979) whose average income is US$150 per annum. The agricultural sector dominates the economy, employing over two-thirds of the labor force and con- tributing over 40% of value added. Although smallholder agriculture provides a fullsome subsistence to many, the land base is inadequate to provide all families in rural areas with an adequate livelihood under current conditions, and many who are landless or nearly landless have only an insecure grasp on the means of existence. Industrialization in India has not been rapid enough to bring about the economic transformation that has led to higher productivity and rapid urbanization in some other countries. The urban population was 18% of the total in 1960, 20% in 1970 and is 21% now. The share of manufacturing has grown slowly and since the late 1960s has remained roughly constant at 16% of GDP. 4. Economic growth has been slow in the past, with GDP growing at a trend rate of 3.6% per annum from 1950 to 1975. Agricultural output grew at 2.4% per annum over the same period. Slow growth in agriculture acted as a drag on overall growth, not only because of its sheer weight in the total, but also because of the need to use scarce foreign exchange to import food. Growth in industrial output has been higher at 5.2% per annum between 1950 and 1975, but not as high as in many other developing countries nor as high as can be expected. 1/ Parts I and II of this report are substantially the same as Parts I and II of the President's Report for the Second Population Project (Report No. P-2692-IN), dated January 24, 1980.  - 2 - 5. This slow growth has persisted despite a quite creditable domestic saving and investment performance. Domestic saving has grown from 9% of GDP in 1951 to the current high level of 22%. Gross domestic investment has risen from 10% to 21% of GDP over the same period. Foreign savings have never financed a large portion of domestic investment and have financed no more than 5% of investment since 1970. Foreign savings have been important in financing imports, and a shortage of foreign exchange has acted as a constraint on the economy for most of the period. External assistance has been low both as a percentage of GDP and in per capita terms. Net external assistance is less than 2% of GDP now, has never risen above 3% and fell to less than 1% in the early 1970s. Exports have grown relatively slowly--5.4% per annum in US dollar terms and 2.8% per annum in volume terms between 1950/51 and 1975/76. So far during the 1970s, exports have grown much more rapidly, by 18% per annum in US dollar terms and 8% in volume terms over the period 1970/71 to 1976/77. During the same period imports grew by 17% per annum in US dollar terms but only by 2% per annum :in volume terms, reflecting a 28% fall in India's terms of trade over the period. 6. India has the capacity to grow and develop at a more rapid pace than has been achieved so far. Although the industrial sector is small compared to the size of the total economy, it nevertheless has a highly diversified struc- ture and is capable of manufacturing a wide variety of consumer and capital goods, Basic infrastructure--irrigation, railways, telecommunications, roads and ports--is extensive compared to many countries, although considerable gaps remain. India is rich in human resources and institutional infrastruc- ture, although there is much scope for improvement. India is reasonably well-supplied with natural resources, not only land and water but minerals, including oil, gas and coal. With good economic policies and sufficient access to foreign savings, India should be able to manage these considerable resources to accelerate the longer-term growth trend. Recent Trends 7. India has managed faster growth during the recent past. Growth of GDP in 1978/79 is estimated to be between 3% and 4%; this is a strong perform- ance coming on top of the previous year's 7.2% growth in GDP and considering agricultural output grew less than 2%. Even this agricultural growth is highly creditable given the previous years' record harvests in most crops. Industrial output grew by 8-10% in 1978/79. Over the four years, 1975/76 to 1978/79, growth in real GDP, agricultural output and industrial output has averaged 5.3%, 4.4% and 6.9% per annum, respectively. Although these rates represent growth over the depressed base of the early 1970s, they are signi- ficantly higher than the longer-term past trend and comparable to the target growth rates for the medium-term future. Buoyant domestic demand, upward adjustment of depressed agriculture prices and world inflation have lead to significant increases in prices during the first half of 1979. The wholesale price index increased by 16% between mid February and September. Together, food, food products, crude petroleum and mineral oils contributed over two- thirds of this increase. However, prices of almost all commodities have moved up significantly during the first months of 1979/80. Although in part reflecting a seasonal rise in food and food products, the trends observed do indicate a distinct departure from the relative price stability of the past  - 3 - four years. The inflationary trend is likely to continue during the second half of 1979/80, although at a slower rate, given the July 1979 price in- creases in oil, steel and coal and continuing world inflation. Although the current inflationary pressures need not seriously impair medium-term growth prospects, given available aggregate resources and production capacity, sig- nificant improvements are likely to be required in the organization of key sectors if an economic slowdown is to be avoided. 8. The 1978/79 foodgrain crop exceeded the 1977/78 record crop of 126 million tons, and many non-food crops did well. The 1978 monsoon rains were timely and adequate, although severe flooding in some areas destroyed both lives and property and ruined some crops. The basic inputs into agricul- tural production continued their rapid growth of the recent past. Additions to area under irrigation have doubled from 1.3 million hectares a year during the five-year period ending 1973/74 to 2.6 million hectares a year during 1977/78 and 1978/79. Fertilizer consumption in 1978/79 reached 5 million nutrient tons, an increase of 18% over 1977/78. This growth has been impres- sive, particularly since it followed two successive years of very high growth-- 18% in 1976/77 and 26% in 1977/78--so that fertilizer consumption in 1978/79 was 75% higher than in 1975/76. However, prospects for agricultural produc- tion in 1979/80 are not good. India experienced a severe drought in 1979. The monsoon was delayed and subsequent rainfall was deficient throughout the country. Consequent damage to the kharif crop has been substantial. Tenta- tive estimates indicate a shortfall of 13-15 million tons in kharif crop from last year's level of 78.7 million tons. Delayed sowing, lack of soil moisture, low levels of water in tanks and wells as well as power cutbacks and recent shortages in diesel fuel for irrigation pumps are adversely affecting the rabi crop. Depending on the performance of the rabi crop, total shortfall in grain crop is expected to be 17-20 million tons below the 1978/79 level. 9. The growth of industrial output in 1978/79 came from a sharp rise in the output of food industries, particularly sugar, a modest increase in textiles, important increases in the hitherto depressed engineering sector and the revival of demand for consumer durables. Production would have been still higher but for recurring shortages of steel, coal, railway wagons and electric power and capacity constraints in fertilizer, cement, vegetable oils and petroleum products. Labor unrest also constrained output in some indus- tries, particularly in textiles, steel and mining; man-days lost in 1978 ex- ceeded the high level of 1977 and only in 1974 were the number of days lost higher. Power production increased by 12% but continuing shortages in many States necessitated power cuts and curbs on new demand. During the first half of 1979/80 supply bottlenecks in basic industrial inputs began to retard overall industrial production. In addition to coal and steel, cement, sugar, cotton textile and cotton yarn output fell below last year's levels. Strong demand has continued to sustain other important industries such as fertilizers and chemicals, but it appears increasingly unlikely that these can counter- balance the constrained sectors. 10. The trade deficit grew and both the current account surplus and the balance of payments surplus of recent years shrank in 1978/79. The import bill is expected to reach US$8.4 billion, which brings the average rate of increase in US dollar terms to 19% per annum since 1976/77. Non-foodgrain imports rose  - 4 - even more dramatically by 28% per annum over the past two years. The growth of imports and the liberalization of import control policies represents a desirable adjustment to enhancecd foreign resources. Although exports grew much faster during the 1970s through 1976/77 than earlier, export growth in 1977/78 and 1978/79 has slowed somewhat. After rising by 12% in 1975/76 and 23% in 1976/77 in US dollar terms (virtually all growth in export volume), export earnings rose by only 9% in 1977/78 (with little or no volume growth) and an estimated 8% in 1978/79 (with 5-8% volume growth). Although part of the decline is attributable to unfavorable conditions in foreign markets, export profitability has been allowed to deteriorate somewhat. With net invisible receipts in 1978/79 estimated the same as in 1977/78--US$2 billion-- the widened trade deficit resulted in a significantly reduced current account surplus, from US$1 billion in 1977/78 to US$400 million in 1978/79. Despite some increase in net aid disbursements from their low level in 1977/78, the increase in reserves declined from about US$2 billion in 1977/78 to about US$1.5 billion in 1978/79 to reach US$7.4 billion. Exports during the first three months of this fiscal year are 32% higher than the same quarter of last year. Although part of the increase is due to the dollar depreciation and recovery in coffee prices, the prospects of sustaining a volume growth of at least 7% during 1979/80 appear good. Imports in the first quarter of 1979/80 are around 7% higher than the same period of the previous year. How- ever, the impact of recent increases in petroleum prices are only partially reflected in this figure. India's total POL import bill for 1979/80 is likely to reach $3.2 billion, $800 million higher than earlier estimates. As a result, there should be a sharp deceleration in the rate of growth of reserves sufficient to significantly reduce the number of months of imports covered by reserves during 1980. Development Prospects 11. The faster growth of th-e recent past has been made possible by the much-increased inward flow of foreign exchange from increased exports, workers' remittances and external assistance; greatly improved agricultural performance; the impressive saving effort; the liberalization of import controls; and ex- panded public expenditure on development programs. Although sustaining the high growth rates of the recent past in the medium-term is by no means assured, especially if there is a repeated drought in 1980, India has a level of re- sources with which to manage the economy that had not existed before. The comfortable foreign exchange position, and the large foodgrain stocks have greatly eased the pressures to deal with short-term crises and freed India's economic managers to continue planning a more ambitious course for the economy. The policy improvements needed to achieve the better performance now possible have begun in some important areas but in others have yet to be initiated. 12. The Draft Plan, which was released in March 1978 and is expected to be finalized and approved by the National Development Council later this year, sets out India's development strategy for the five years 1978/79 to 1982/83. The principal objectives of the Draft Plan are to achieve within a period of ten years: (i) the removal of unemployment and significant underemployment, (ii) an appreciable rise in the standard of living of the poorest sections of the population, and (iii) provision by the Government of some of the basic needs of the pe!ople in these low-income groups. While the  - 5 - Plan recognizes the importance of achieving more rapid expansion of the economy than in the past to meet the employment and welfare objectives, the targeted rate of growth at 4.7% per annum is lower than projected in most earlier Plans. According to the planners, this reflects in part the increased emphasis given to the distribution rather than the level of income generation, and in part the need for greater realism in the macro-economic assumptions underlying the Plan. While the trade-off between growth and distribution is not immediately obvious from the Plan model, the adoption of a more realistic growth target is in itself well justified -- even at 4.7% per annum, the targeted growth rate is higher than actually achieved during any of the previous Plan periods, and is substantially above the longer-term trend growth rate. 13. In agriculture, despite the 1979 drought, economic policies, dev- elopment programs and secular trends all seem favorable for resuming a period of sustained high growth after 1979/80. Fertilizer prices have been reduced progressively from their very high level in early 1975 and despite some fall in market foodgrain prices, the fertilizer: foodgrain price ratio has fallen to a clearly profitable range. Good harvests and higher farm incomes provide the money to finance higher fertilizer purchases, creating something of a virtuous circle. Pricing policies for many crops--rice, wheat, sugarcane, pulses and others--have concentrated recently on supporting prices to maintain incentives to farmers rather than trying to administratively control prices to contain inflation. The ambitious irrigation and rural electrification investment program in the new Five-Year Plan, if fully funded, will help pro- vide the water control needed to increase yields directly and to induce further productivity-increasing investments. The effective reorganization of the agricultural extension service will raise yields as it takes hold gradually across India. Finally, there are several heartening trends in foodgrain pro- duction: one is the steady growth of area planted to high-yielding varieties of rice; another is the growing adoption of summer rice cultivation in the traditional wheat-producing areas (Punjab and Haryana). These two trends along with the other favorable developments have caused rice production to rise impressively in the last two years. Another good omen for foodgrain production is the rapid growth of winter wheat cropping in traditional rice areas (West Bengal, Assam and Orissa). 14. In industry, despite some uncertainty in industrial policy and the lack of strong policy stimulus to improve efficiency in the industrial structure, recently strengthened demand forces, increase in planned invest- ment along with adroit input supply management should allow the industrial sector to continue to grow at the improved rate of the recent past, at least for the near- and medium-term future. Over the longer term, growth of indus- trial production at or above the rate experienced in the recent past--e.g., 7% per annum during the last four years--will require some changes in policy to induce a more efficient industrial structure. Recent industrial policies have sent mixed signals to private manufactures and investors. Some, such as reserving certain lines of production for small-scale enterprises or prohibit- ing the location of new firms in municipal areas, have been restrictive. Others have been stimulative, such as the raising of the exemption limit of industrial licensing for capital investment or favorable adjustments in the pricing and production controls in several major industries, including cement, steel, and textiles. In addition the liberalization of import controls is of  - 6 - considerable benefit to increasing industrial production. However, there are some worrisome supply shortages that are currently threatening continued rapid industrial growth. Many can be handled through imports, if needed, as long as India maintains a healthy foreign exchange position. However, two supply constraints likely to persist in the future -- namely, rail transport and power -- cannot be eased through imports. The new Plan contains a major power investment program to increase capacity rapidly. The railway investment pro- gram is more modest. Another crucial input into both of these sectors, and into most other major sectors, is coal, whose supply needs careful management. 15. The main reason for expecting sustained growth in industrial pro- duction is improvement in demand prospects for each of the four major sources of industrial demand. The first: is market demand for manufactured consumption goods, which is expected to pick up in response to the increase in disposable income due in particular to improvement in agricultural output. Although its effect has been delayed somewhat, this broad-based demand is finally making itself felt and is expected to continue into the future unless the growth in agricultural output is constrained by repeated droughts. Another source of demand is public expenditure on development projects, which has grown in a major way in the last few years and is scheduled to continue to grow under the new Five-Year Plan. A third source of growth is export demand for indus- trial goods. There has been a sustained growth in the export of manufactures such as engineering goods, garments, gems, finished leather and some chemical products. This export growth should continue in the future with proper policy support. A final source of growing demand is private investment by both the household and corporate sectors. There are as yet only a few signs of this growth, such as increased disbursement by term lending institutions and in- creased use of inputs; investments should become stronger as growth in the other sources of demand continues and as capacity limitations begin to con- strain production in more industries. The net result of increasing demand should be continued high growth in industrial production in the near and medium term within existing policies. 16. Import policy is an area where there has been significant improve- ment in the recent past; but some improvement in export policy is required to raise incentives to export. India has liberalized import control policy significantly in the past two years and imports have responded. Future growth in imports, and in the benefits of price stability, enhanced production and increased efficiency which imports bring, will depend to a great extent on how the now liberalized policy is administered. A delicate touch is required to yield the benefits without bringing about undesirable damage to vulnerable industries. India has the foreign resources to allow imports to grow at the rapid rates of the past two years for a few more years and continue to relax the very severe restraints imposed on the economy during the early 1970s by suppression of imports. But, given the import liberalization undertaken so far and the expected growth of irnports, by the end of the Plan period (1982/ 83), foreign exchange reserves w.ill have fallen to six months of imports, or less, and some adjustment in the balance of payments will be required. Part of the adjustment will very likely be a reduction in the growth rate of imports; the import bill need not: grow 15% in volume terms indefinitely to sustain the target growth in GDP, Part of the adjustment must come from the achievement of a growth rate of exports in the vicinity of 7-8% or higher in  volume terms. Faster export growth is needed not only to provide the foreign exchange to sustain the rapid growth in imports but also to allow foreign demand and competition to improve the efficiency of Indian industry. Finally, part of the adjustment should come from an increased net transfer of external assistance. 17. India's population policy continues to aim at reducing the birth R rate to 30 births per thousand people by 1983 through completely voluntary acceptance of fertility control methods supplied by a family welfare system integrated with the supply of basic health, maternal and child health and nutrition services. Since 1977, the family planning achievements in terms of number of acceptors have been below that needed to achieve the 1983 goal or even to keep the birth rate from rising above its current level. The low performance is primarily the result of the reaction to the harsh birth control policies introduced during 1976. Since then family planning performance has been gradually returning to the rising trend which was discernible before it was disrupted by the intensive drive of 1976/77. Given continued support for the program of family welfare, Bank estimates indicate that India's rate of population increase should remain below 2% per annum and fall to 1.5% by about the year 2000. Despite the declining trend in the rate of population increase, a net production rate (NRR) equal to one (replacement level) would only be achieved around the year 2020. At this time, the total population is estimated to reach 1.2 billion persons, an increase of about 84% over the mid-1979 level of 652 million. 18. In addition to stimulating overall economic growth and constraining population growth, reduction of poverty in India requires special attention to ways of raising the income and productivity of low-income groups. More than one-third of the world's poor live in India and more than 80% of the Indian poor belong to the rural households of landless laborers and small farmers. The prospects for alleviating their poverty by providing these families with more land are not good because of the virtual absence of uncultivated arable land, the slow progress in implementing land reform and the limited amount of land that would be available if land reform were carried out. Estimates of the amount of land that would be available if land reform were carried out vary greatly. One estimate is that there would be about 9 million hectares avail- able for distribution. This compares to roughly 45 million families in the two poorest groups in rural India: landless families and families owning less than one hectare of land, whose average holding is 0.31 hectares. An approach to the amelioration of poverty more promising than land reform is the creation of more employment opportunities for the landless and small farmers in rural areas. Although the basic thrust must come from the market by a more rapidly increasing agricultural output, there will be a role for employment-intensive rural works programs. The new Plan provides for increased rural employment both through direct employment schemes and through ambitious programs of investment in rural infrastructure in addition to the more general rural development programs.  - 8 - PART II - BANK GROUP OPERATIONS IN INDIA 19. Since 1949, the Bank Group has made 57 loans and 118 development credits to India totalling US$2,529 million and US$7,263 million (both net of cancellation), respectively. Of these amounts, US$1,044 million had been repaid, and US$3,186 million was still undisbursedi as of January 31, 1980. Annex II contains a summary statement of disbursements as of January 31, 1980, and notes on the execution of ongoing projects. 20. Since 1959, IFC has made 18 commitments in India totalling US$72.6 million, of which US$17.4 million has been repaid, US$7.6 million sold and US$6.9 million cancelled. Of the balance of US$40.7 million, US$31.6 mil- lion represents loans and US$9.1 million equity. A summary statement of IFC operations as of January 31, 1980, is also included in Annex II (page 5). 21. In recent years, the emphasis of Bank Group lending has been on agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit opera- tions. Major irrigation, marketing, seed development, and dairying are other agricultural activities supported by the Bank Group. Also, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale industrial enterprises. IDA financing of industrial raw materials and components for selected priority sectors has been instrumental in facilitating better capacity utilization in industry. The Bank Group has also been active in supporting infrastructure development for power, telecomimunications, and railways. Family planning, water supply development, and urban investments have also received Bank Group support in recent years. 22. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, industry, power, urban development and water supply remains highly relevant. Projects designed to foster agricultural production through the provision of essential inputs such as credit for on-farm investments, improved water management and intensification and stream- lining of extension systems, form an important aspect of the Bank Group's program for the next several years. Special emphasis will be given to proj- ects benefitting small farmers. Projects supporting water supply, sewerage, and urban development also form an integral part of the Bank's lending strategy to India for the next several years. Lending in support of infra- structure and industrial investments will focus on agriculture-, export- and energy-related projects. 23. The need for a substantial net transfer of external resources in support of the development of India's economy has been a recurrent theme of Bank economic reports and of the discussions within the India Consortium. Thanks in large part to the response of the aid community, India has success- fully adjusted to the changed world price situation. However, the basic need for foreign assistance, to augment domestic resources, stimulate investment  - 9 - and accelerate economic growth, remains. As in the past, Bank Group assist- ance for projects in India should include, as appropriate, the financing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Con- sequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors as agriculture, irrigation, rural water supply and medium- and small-scale industry. 24. Although the growth prospects of the economy have improved, India's poverty and needs are such that as much as possible of India's external capital requirements should be provided on concessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reasonably be allocated to India remains small in relation to India's needs for external support, and India may be regarded as creditworthy for some supplemental Bank lending. The ratio of India's debt service to the level of exports was 12% in 1978/79 and is projected to remain below 20% through 1995/96. As of January 31, 1980, outstanding loans to India held by the Bank totaled US$1,525 million, of which US$600 million remained to be disbursed, leaving a net amount outstanding of US$925 million. 25. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with an estimated 62%, 27% and 38%, respectively, in 1978/79. On March 31, 1978, India's outstanding and dis- bursed external public debt was US$14.8 billion, of which the Bank Group's share was US$4.3 billion or 29% (IDA's US$3.7 billion and IBRD's US$0.6 bil- lion). Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1977/78, about 16% of India's total debt service payments were to the Bank Group. PART III - AGRICULTURE AND IRRIGATION IN UTTAR PRADESH 26. The State of Uttar Pradesh covers an area of 298,000 km in north- eastern India and has a population of approximately 100 million, 15% of the total population in India. Supported by a primarily agrarian economy, with agriculture contributing 55% of the State's income and employing 78% of the workforce, Uttar Pradesh has one of the lowest per capita incomes of all of India's States -- at Rs 870 (approximately US$99) in 1976/77, higher only than that of the State of Bihar. Between 1960/61 and 1976/77, the State's income grew at a rate of only 2.2% per annum, well below the national average of 3.1%. Per capita income during this period increased by only 0.5% per annum. 27. By most traditional indicators, Uttar Pradesh is one of the least advanced States in India. The literacy rate, at 21.8%, is significantly below the national average of 30%. The infant mortality rate, at 128/1,000 live births, is the highest among the sixteen major States and the average life expectancy (43 years) one of the lowest in the country. Similarly, per capita  10 - government expenditure on health in Uttar Pradesh is the lowest in India, as is the number of doctors and health centers per 1,000 population. A large State with a population which exceeds that of most developing countries, Uttar Pradesh clearly faces serious development problems. The Agricultural Sector in Uttar Pradesh 28. The State divides naturally into three physical zones: the Himalayas, the Gangetic Plain and the Central Indian Plateau. The Himalayan region, in the north, is of rugged topography, relatively sparsely populated and largely unsuitable for agriculture. The Gangetic Plain crosses the State from north to southeast and is the most heavily populated and cultivated area of Uttar Pradesh. The southern edge of the State rises onto the Central Indian Plateau, only a portion of which is suitable for cultivation. 29. About 18.2 million ha of land are under cultivation in Uttar Pradesh, most of this in the Gangetic Plain. The average farm size is 1.2 ha, although two-thirds of all farm holdings are under one hectare in area. Farm holdings are particularly small in the eastern region, where rainfall is relatively high and population dense, with larger holdings prevalent in the Himalayan area and the Central Indian Plateau, where the terrain is rough and the soil infertile. The climate and soils in the State are suitable for growing paddy, maize, bajra, and sorghum in the kharif (summer, rainy) season and wheat and barley in the rabi (winter, dry) season. Approximately 66% of the State's cropped area is planted to cereal crops, 12% to pulses, and 22% to non-food crops, principally oilseeds and sugarcane. 30. Performance in the agricultural sector in Uttar Pradesh in the years since Independence (1948) has bee!n mixed at best. Production of foodgrains grew at an average annual rate of approximately 2% between 1950/51 and 1977/78, barely keeping pace with population growth. Despite this discouraging perform- ance in overall foodgrain production, production trends for certain individual crops have been somewhat more encouraging. Increases in cropped area and yields in the 1950's led to rates of growth for rice and wheat production of 5.2% and 4.8% per annum, respectively. While rice production stagnated in the 1960's, wheat production grew at a rate of 9.9% per annum and maize production at a rate of 9.7% per annum, due largely to the introduction of improved varieties and the accelerated development of private tubewells during this period. Although the growth in wheat production has slowed to 4.1% per annum in the 1970's, rice production has picked up, growing at an annual rate of 4.7% between 1971/72 and 1977/78. Unfortunately, however, the rising trends in rice and wheat production have been to a large extent offset by declining production in other major cereal crops, which together with pulses account for about 60% of total foodgrain produaction. Irrigation in Uttar Pradesh 31. Surface Water Resources and Utilization. Uttar Pradesh lies within the catchment areas of four major tributaries of the Ganges River system. The rivers within the Gangetic Plain are fed by a combination of run-off from snow-melt in the Himalayas, monsoon run-off, and groundwater drainage, ensur- ing perennial flow in the main river courses, although not in all tributaries.  - 11 - Although no thorough survey has been undertaken, it is estimated that the total amount of Iurface water available in the Ganges basin is approximately 510,000 Mm per annum. Approximately 70% of the flow passes through Uttar Pradesh. 32. Surface water irrigation in Uttar Pradesh is provided largely through seven major canal systems fed by water diverted from tributaries of the Ganges. Together these systems serve more than four-fifths of the total area irrigated by surface water. They are supplemented by numerous minor canal systems, tanks, and pump lift irrigation from rivers and lakes. In 1977/78, the gross surface irrigation capacity in the State stood at 6.2 million ha, 50% of the total surface irrigation potential of 12.4 million ha. 33. Groundwater Resources and Utilization. The Gangetic Plain is under- lain by a highly prolific aquifer system formed of alluvial deposits. The State Groundwater Directorate in Uttar Pradesh has conservatively estimated the net recoverable groundwater resources available to the State at 58,000 Mm in the average year. Total grouidwater extraction through public and private wells was estimated at 29,000 Mm in 1976/77, or 50% of net recoverable groundwater resources. 34. In 1976/77, groundwater irrigation served 4.8 million ha in the State. Three-quarters of this area was served by tubewells (public and private) and the remaining one-quarter by private dugwells. Much of the ground- water in the State has been privately developed. At present, there are about one million private tubewells in the State, serving three-quarters of the area irrigated by tubewells, and about 15,000 public tubewells, serving the remain- ing one-quarter of tubewell-irrigated cropland. Private dugwell and tubewell development, then, accounts for over 80% of the area currently irrigated by groundwater in Uttar Pradesh. 35. Trends in Irrigation Development. Between 1950/51 and the mid- 1960's, surface and groundwater development contributed equally to the expan- sion of irrigated area in Uttar Pradesh. However, since 1965/66 groundwater development, the most quickly exploitable and assured source of irrigation and that which is within the capacity of private as well as public investors, has accounted for virtually all of the increase in net irrigated area in the State. Thus, in 1976/77 about 58% of the total net irrigated area was supplied by groundwater, as against 34% provided with surface irrigation. The remain- ing 8% was irrigated with water supplied from storage tanks or pump lift schemes of varying scales. 36. Despite the abundant overall water resources available in Uttar Pradesh and the considerable proportion of those resources as yet unexploited, only about 40% of the gross cropped area in the State is under irrigation. In view of the generally poor performance of agriculture in the State over the past thirty years, the importance of agricultural growth to the economy of this largely agricultural State and the potential for substantially increased productivity through irrigation, the State Government has focussed considerable  - 12 - attention in recent Five-Year Plans on the importance of accelerating the devel- opment of irrigation. The Government has placed particular emphasis on public and private development of grounclwater resources. Expanded rural credit pro- grams and technical assistance are aimed at encouraging the development of approximately 100,000 private tubewells per annum, while the Government's own investment program provides for the construction of 1,000-1,500 new public tubewells each year. At the same time, plans are underway for the expansion and modernization of existing surface irrigation schemes in the State. 37. Bank Group Lending in Uttar Pradesh. Uttar Pradesh has benefitted from a number of Bank Group-assisted projects in the population, water supply, power and agricultural sectors. Chief among these are the First Population Project (Credit 312-IN of June 14, 1972); the Uttar Pradesh Water Supply and Sewerage Project (Credit 585-IN cf September 25, 1975); the First and Second Rural Electrification Projects (Credits 572-IN of July 23, 1975 and 911-IN of June 21, 1979); the Singrauli Thermal Power Project (Credit 685-IN of April 1, 1977); the Uttar Pradesh Tubewell Irrigation Project (Credit 8-IN of Septem- ber 6, 1961); the Second Grain Storage Project (Credit 747-IN of January 6, 1978); the Second National Seeds Project (Credit 816-IN of July 17, 1978); the Uttar Pradesh Social Forestry Project (Credit 925-IN of June 21, 1979) and the First, Second, and Third Agricultural Refinance and Development Corporation Projects (Credits 540-IN of April 28, 1975, 715-IN of June 1, 1977 and 947-IN of August 20, 1979). Of these, the most relevant to the proposed credit are the rural electrification and thermal power projects, which are designed to augment the electric power supply and distribution network in Uttar Pradesh (among other States) and will therefore increase the State's capacity to pro- vide power for irrigation pumps, the Agricultural Refinance and Development Corporation Projects, which provide credit for private tubewell development, and the Uttar Pradesh Tubewell Irrigation Project, discussed below. 38. The first Uttar Pradesh Tubewell Irrigation Project, supported by an IDA credit of US$6 million, financed the construction of 800 public tubewells between September 1961 and March 1964. While implementation of the well con- struction program was satisfactory, a project review mission fielded in early 1966, which examined wells constracted under the project as well as wells con- structed by the Government outside of the project, found a number of problems in tubewell operation in Uttar Pradesh, which caused the agricultural and economic benefits realized to fall short of potential. Chief among the operational problems were the following. (a) Brick-lined and earthen channels for conveyance of water from the tubewells to the farmers' fields were poorly constructed, permitting excessive water losses. In particular, farmers were expected to construct channels of considerable length from the main distribution system to their fields them- selves, without adequate design assistance. (b) The average command area of public tubewells (approximately 150- 200 ha) was too large, with respect to the capacity of the wells, to permit intensive agriculture.  - 13 - (c) Procedures for water allocation were weak, which led to inequity and unreliability in the supply of water to farmers. (d) Systems for operation and maintenance of the wells were inadequate, leading to frequent breakdowns, delayed repairs, delays in start-up of wells after power inzerruptions and interruptions of service due to absence of the well operators. (e) Inadequate power supply in certain zones combined with unscheduled short power outages and voltage drops (which damaged pumps and/or necessitated frequent manual restart) reduced running hours for many tubewells far below potential. 39. The combined effect of these deficiencies was to reduce the water supplied from each well substantially and to render that water supply highly unreliable, thus inhibiting farmers from adopting the more productive, in- tensive cultivation practices which have been utilized profitably in areas where water supply is adequate and reliable. It is these deficiencies the proposed project is designed to address. PART IV - THE PROJECT 40. The proposed project was appraised by a mission which visited India in August 1979. A report entitled "Appraisal of the Uttar Pradesh Public Tubewells Project" (No. 2758-IN, dated March 20, 1980) is being distributed separately to the Executive Directors. Negotiations were held in Washington in March 1980. The Government of India and the Government of Uttar Pradesh were represented by a delegation coordinated by Mr. B.S. Lamba, Deputy Secre- tary, Department of Economic Affairs, Government of India. Project Description 41. The project is designed to demonstrate and evaluate the relative merits of a number of technical and operational improvements to the design of existing public tubewell systems in Uttar Pradesh. It would support the construction of 500 public tubewells of three basic alternative designs over a two-year period (1980-82). Detailed monitoring and evaluation would be carried out in order to allow a fully substantiated demonstration of the impact of the proposed design improvements and to reveal the relative effec- tiveness of the design alternatives introduced. A small fund (US$10,000 equivalent) for preparation of a second-stage project to introduce new tube- well designs throughout the State would also be provided under the project. The project would be implemented in 12 of the 56 Districts of Uttar Pradesh, representing the full range of agro-climatic conditions in the State. 42. Tubewell and Distribution System Design. The principal design improvements to be introduced in project-financed tubewells are summarized below.  - 14 - (a) Command areas for wells with a discharge of 150 m 3/h (the discharge of most existing public tubewells in Uttar Pradesh) would be reduced to 75- 100 ha, as against a current average of 150-200 ha, to permit a change from the use of irrigation as a simple protection against drought to the use of irrigation for more intensive agriculture. In addition, 40% of projert wells would be designed for increased discharge levels (i.e., 225 and 300 m /h) with proportionately larger command areas. The expected effect of this innovation would be a significant reduction in the cost of tubewell system investment per hectare irrigated (from Rs 3,900/ha for smaller wells to Rs 3,300/ha for the proposed larger wells). (b) Pumps would be automat(ed to obviate the necessity for a pump operator to be present to start the pump or re-start it after power inter- ruptions. Pumps would also be f:itted with protective devices to prevent damage to the motors due to voltage fluctuations or power cuts and with electronic meters to permit contiLnual monitoring of pump operation. (c) Elevated regulating tanks would be installed at 90% of project wells to permit automatic starting and stopping of the pumps in response to the level of water in the tank and, in turn, the rate of off-take in the dis- tribution system. This would prevent spillage at times when the distribution system was operating at less than the full discharge of the well. (d) Finally, water would be conveyed from the well to outlets serving no more than 3-5 ha each through underground pipes, in order to prevent the excessive water loss occurring ir.n existing tubewell systems and the delay in tubewell construction which typically occurs due to disputes over right-of- way for distribution channels. Individual farmers' plots would be no more than 150 m from outlets of the piped system and would be connected to these outlets by properly designed earthen channels constructed under the project. 43. Criteria for Well Location. Sites for project-financed tubewells would be selected according to criteria agreed between the Association and the Government of Uttar Pradesh (Section 2.07(a), Project Agreement). These criteria would ensure, inter alia, that project-financed public tubewells are constructed in areas where no alternative State Government irrigation system exists and where private tubewell development is inhibited either by the lack of financial resources of local cultivators or the depth of the groundwater level. 44. Water Allocation. A rotational system of water allocation, designed by the engineer in charge of each tubewell, would govern delivery of water to individual outlets (serving 3-5 ha and approximately 5 farmers each). Only one outlet per distribution system loop would be open at any one time, thus fixing the rate of water delivery and allowing the quantity delivered to be defined on a time basis. Water deliveries would be allocated to each outlet according to the size of the command area of the outlet. Assisted by the tube- well engineer and an agricultural officer, farmers within each outlet would form a committee and elect a leader to supervise water distribution within the outlet command on the basis of an agreed schedule. Leaders of all outlet comr mittees would select, from among their ranks, five representatives to sit on the Tubewell Committee, which would be responsible for coordination and cooperation  - 15 - among outlet committees, adjudication of disputes, and oversight and adjust- ment, in concert with the tubewell engineer, of the rotational schedule. 45. Operation and Maintenance. The operation and maintenance function would be separated from the task of well construction for the project- supported tubewell program (see para 48 below). Tubewell operation and main- tenance would be carried out on the basis of procedures and criteria agreed between the Association and the Government of Uttar Pradesh (Section 2.07(a), Project Agreement) which would, inter alia, assure the provision of one skilled mechanic plus assistants for each cluster of approximately 20 wells, the establishment of a properly equipped workshop (including adequate means of transport and spare parts stock) for each Operations and Maintenance Division, and the regular (semi-annual) check of pump discharge and well drawdown at all tubewells to ensure adequate preventive maintenance. The State Electricity Board would provide power to each tubewell pump unit no more than two months after the completion of the piped distribution system (Section 2.07(b), Project Agreement). 46. Training. In order to ensure proper construction and operation of the new-design tubewell systems, the project would support in-service training of the engineering staff in charge of well construction as well as short train- ing courses conducted at the State's G.P. Pantnagar University of Agriculture and Technology for staff of the Operation and Maintenance Divisions. In- service training for construction engineers would place particular emphasis on the design and layout of the proposed piped distribution system. A satis- factory training program to be set up for operation and maintenance staff would cover operation and maintenance of the pump and pipe system, design of field channels, land preparation for irrigation, water management at the field level, cultivator organization, and basic cultivation practices for the prin- cipal crops grown in the tubewell command area (Section 2.08, Project Agreement). 47. Monitoring and Evaluation. Monitoring and evaluation would be a critical element of the proposed project, due to the importance of evaluating the relative merits of the design alternatives incorporated in the tubewell systems to be constructed under the project. Therefore, a special Monitoring and Evaluation Division has been established in the Department of Irrigation. This division includes an Executive Engineer, two Assistant Engineers, two Agricultural Officers and a Statistician, assisted by a staff of Junior Engi- neers, Agricultural Assistants, and Assistant Economists. The Monitoring and Evaluation Division would gather and analyze information on (i) the actual investment, supervision, and operation and maintenance costs of each construc- tion alternative, as compared with the costs of existing tubewell systems; (ii) water use and water losses for each new construction alternative and for existing tubewell systems; (iii) well yield and water table fluctuations; (iv) power availability at well sites and running hours of each pumping unit; (v) irrigation practices in each tubewell system and pre-project and post- project yields in tubewell commands; and (vi) farmers' reaction to water allocation procedures introduced under the project. In addition to the activities of the Monitoring and Evaluation Division, a baseline and post- project agro-economic survey of the project area and selected control areas would be conducted by the Uttar Pradesh Development Systems Corporation as the  - 16 - basis for a full evaluation of the impact of the project on agricultural practices in command areas of project-financed tubewells. Project Implementation 48. The project would be implemented by the Tubewell Wing of the Irriga- tion Department of the Government of Uttar Pradesh. Two newly created Circles within this organization, with eight Divisions, would be responsible for construction and operation of the 500 project-financed tubewells. In light of the strengthened operation and maintenance procedures required under the project, one Division in each of the engineering Circles would specialize in tubewell operation and maintenance. This Division would be responsible for assisting farmers in construction of field channels, for designing and super- vising rotational water distribut:ion systems in each tubewell command area, and for repair and maintenance of tubewell systems, and would include an agricultural staff (on deputation from the Department of Agriculture) in addition to a staff of engineers. Construction and drilling Divisions would thus be relieved of responsibility for well operation and maintenance. 49. Monitoring and evaluation would be coordinated by a special Division (see para 47 above) at the Tubewell Wing's headquarters, under the supervision of the Additional Chief Engineer. Project-supported training programs would be carried out by senior officers of the Tubewell Wing (in the case of train- ing for engineers responsible for design and layout of distribution systems) and by the State's G.P. Pantnagar University of Agriculture and Technology (in the case of training for operations and maintenance staff). Finally, preparation of a second-stage program of construction of tubewells of improved designs would be carried out by the headquarters staff of the Tubewell Wing. Project Costs and Financing 50. Total project cost is estimated at US$37.7 million equivalent, including US$1.7 million in taxes and duties. The foreign exchange component of project cost is estimated at US$2.2 million equivalent, approximately 6% of total project cost. Physical contingencies averaging 8% have been applied to civil works costs. Price contingtencies have been applied variably and amount to 19% of total project cost. The principal components of project cost, net of contingencies, are tubewell construction (US$24.20 million), buildings (US$0.73 million), vehicles and equipment (US$0.85 million), land acquisi- tion (US$0.38 million) and monitoring and evaluation (US$0.12 million). The balance of project cost consists of training (US$0.01 million), administration and engineering (US$2.19 million), preparation for a second phase of the program (US$0.01 million) and contingencies (US$9.2 mill:ion). 51. The proposed Credit of US$18 million would finance 50% of project cost net of taxes and duties, including all foreign exchange costs and 47% of local costs. The balance of the funds required for the project would come from State and Central Government sources. The project has been included in the State's draft Sixth Plan with sufficient allocation of funds to cover the cost of the project. In order to allow the State to take advantage of the  - 1 7 - current dry season to construct an initial set of tubewells, and thus to allow an early start on collection of monitoring information, retroactive financing of up to US$1 million would be provided for approved expenditures made after September 15, 1979 for well construction and for acquisition of vehicles required for field operations. Procurement and Disbursement 52. Civil works would consist of drilling of bore holes and construction of well distribution systems, access roads, and buildings (i.e., pump houses, workshops and storage facilities, and quarters for operation and maintenance staff). Drilling (US$3.7 million 1/) would be carried out by the Tubewell Wing, which has an established, technically competent staff capable of drilling the 1,500 wells in its annual program, of which IDA-financed wells would form only a part. The remaining civil works (US$4.3 million 2/) would be small and scattered and thus unsuitable for international bidding. These works would be carried out by local contractors selected after competitive bidding, according to procedures satisfactory to the Association, with materials provided by the State Government. 53. PVC and steel casing pipes valued at US$11.8 million would be required for project wells and the associated distribution systems. These materials would be procured by the State Government through international competitive bidding, with the exception of an initial supply of up to US$2 million worth of PVC pipes, which would be procured through the State's usual local procurement procedures in order to permit an early start on the first year's well construction program. Remaining building materials (e.g., steel bars, bricks, concrete, cement, timber, totalling US$3.8 million) would be required in small amounts throughout the project area and would be unsuitable for international procurement. These materials would be procured through standard procurement procedures of the State Government, which are satisfactory to the Association. In view of the need to maintain an adequate supply of spare parts throughout the project area, pumpsets and accessories (US$1.8 million) would also be procured locally on the basis of competitive bidding. Field vehicles (US$0.8 million) would be purchased in small quantities over a period of two years and would be widely dispersed over the project area. As adequate maintenance of these vehicles would require a good network of ser- vicing and spare parts facilities, these vehicles would be procured locally through existing Government procedures. Finally, monitoring equipment (US$40,000) would be purchased in small orders of US$3,000 or less by prudent shopping through normal commercial channels. 54. The proceeds of the Credit would be disbursed against: (i) 100% of foreign expenditures or 70% of local expenditures for monitoring equipment; (ii) 100% of expenditures for training; (iii) 100% of the ex-factory price of locally procured vehicles or, where the ex-factory price is not readily available, 70% of total expenditures on vehicles; and (iv) 50% of expenditures 1/ All figures in paras 52 and 53 are net of contingencies. 2/ Net of materials costs.  - 18 - incurred on completed tubewells. Disbursements against completed tubewells would be made on the basis of certificates of expenditure, itemized by major components. Disbursements for training and for payments of less than Rs 150,000 for equipment and vehicles would also be made against certificate of expenditures. These would be audited semi-annually and the audit reports submitted to the Association. Additional supporting documentation for these expenditures would be retained biy the State Government for inspection in the course of project review missions. Disbursements against all other expendi- tures would be fully documented. Cost Recovery 55. The capital costs of project-financed tubewel:Ls would range from Rs 3,300/ha to Rs 3,900/ha. Full recovery of the capital cost (at 6% annual interest over 20 years) would require annual collection of an average of Rs 320/ha. The annual cost of tubewell operation and maintenance would average Rs 160/ha. Thus, full recovery of capital and operation and main- tenance costs would require collection of an average of Rs 480 per year per hectare of irrigated area. 56. Under the prevailing system of water rates in Uttar Pradesh, which are calculated on a volumetric basis, assuming a total of 3,500 running hours per well per year (the expected running time for project-financed wells), direct cost recovery through water charges would cover nearly the full cost of well operation and maintenance (i.e., approximately Rs 155/ha collected against an average O&M cost of Rs 160/ha). The ratio of direct cost recovery via water charges to total capital and operational costs would be slightly over 32%. In addition, the State Government would collect incre- mental land revenues averaging approximately Rs 25 per ha for newly irrigated land and would realize increased revenues arising from irrigation-related changes in production (e.g., increased collections from purchase taxes on sugarcane). When these charges are taken into account, the level of cost recovery per tubewell rises to approximately 39%. Even this figure, however, somewhat underestimates actual cost recovery, as increased farm incomes would lead to further increases in States and Central Government revenues through other indirect taxes. 57. The average incremental farm income expected to result from the project ranges from Rs 1,300/ha in the Eastern and Central Regions to Rs 2,300/ha in the Western Region. The associated rents are estimated at Rs 680 - 850 per ha. On the basis of these estimates, water and water-related charges, at existing rates, would account for 22-27% of project rents. While these figures indicate that there is scope for increasing water charges, a decision on the magnitude and timing of any proposed increase must take into account the importance of encouraging farmers to make full use of available water resources. Water charges in the kharif (summer, rainy season), for example, should be kept low enough to encourage farmers to utilize irrigation water to allow early planting of paddy (rather than wait for the rains), which would in turn allow early planting of the subsequent wheat crop and increase wheat yields. In addition, current, relatively low water charges reflect the unreliability of water supply, particularly to farmers farthest from the  - 19 - public tubewells, who feel the full effect of water loss through leakage, in addition to supply interruptions due to power cuts or absence of the pump operator. The benefits of the improved tubewell design, in terms of amount and reliability of water supply, would have to be demonstrated and accurately measured before charges are raised, particularly if farmers are to be encour- aged to continue and expand irrigated farming. 58. In view of these factors, with the objective of ensuring the recovery of annual operation and maintenance costs and, to the extent possible, the capital costs of such wells the Government of Uttar Pradesh would review the water charges on tubewells in the State by March 31, 1981 and implement an appropriate system of water charges based on the recommendations arising from the preceding review, after paying due regard to the Association's comments, if any. In determining the appropriate level of charges, due consideration would be given to incentives for and payment capacity of farmers (Section 2.10, Project Agreement). Uttar Pradesh would make every effort to introduce the new system of water rates by about March 31, 1982. Benefits and Risks 59. The proposed project would expand the irrigated area in Uttar Pradesh by 60,000 ha, bringing irrigation to 62,000 farm families currently not served by irrigation systems. The project is expected to result in in- creased production on the order of 64,000 tons per year in foodgrains, 80,200 tons per year in sugarcane, and 2,100 tons per year in oilseeds. The value added to the local economy due to these production increases is estimated at Rs 80 million (US$10 million equivalent) per year and the resulting net annual foreign exchange savings at US$10 million. Incremental farm employment gene- rated by the project is expected to amount to the equivalent of 30,000 jobs. In addition to generating these direct benefits, the project would demonstrate and test the efficacy of technical and organizational innovations which could be extended to the State's entire tubewell program, through rehabili- tation of 15,000 existing wells as well as adoption of the new technology for future well construction. The economic rate of return of the project is estimated at 36%. 60. Economic analysis indicates that only large deviations from the cost and output assumptions made in evaluating the project would render it economically inviable. In particular, underutilization of wells would endanger project returns. Field observations indicate that in the past underutilization of wells was caused by inadequate power supply, frequent mechanical breakdown, incomplete distribution systems and absence of tubewell operators. Technical and administrative innovations introduced under the project are designed specifically to protect against underutilization due to the last three of these factors. As for power supply, power availability would have to fall to six hours per day, significantly below the current average power availability of 12 hours per day, to render the project eco- nomically inviable. The Government of Uttar Pradesh and the Government of India, with Bank Group assistance, are actively engaged in an investment program designed to increase power availability in Uttar Pradesh by approxi- mately 80% by 1983, with particular emphasis on expansion of the supply  - 20 - network in rural areas. While power rationing may still be necessary during peak demand periods, severe power cuts in rural areas are not expected. Thus the risk associated with this project is considered acceptable. PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Development Credit Agreement between India and the Association, the draft Project Agreement between the Association and the State of Uttar Pradesh, and the Recommendations of the Committee provided for in Article V, Section l(d) of the Articles of Association are being distributed to the Executive Directors separately. 62. Special conditions of the Project are listed in Section III of Annex III. 63. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART V:[ - RECOMNENDATION 64. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President March 20, 1980  ANNEX I _ IvX.& - SOCIA mCACTo og_ SE Page 1 of 5 8ZFCE CGRUPS (ADJUSTER AAGEn LAND (THOUSAND So. K".) DEA - NDS T CST T) _LL 8- -- 3287.6 s! SIE *ZXT IGER AGRcULTUlRAL 1818.3 am RCENT GEOGRAPHIC ICOME tiCJoC 1960 Lk 1970 k ESTIMATE itt1io0 Li Du0 CI G/00c C - GNP PER CAPITA (US$ 60.0 90.0 180.0 191.1 209.6 467.5 EERGY CONS ION PER CAPITA (EXLOGRAN' OF COAL EQUIVAUYT) 142.0 181.0 218.0 69.1 83.9 262.1 POPm.&YION VITAL STSATISTCS POPULATION. HID-YEAR (MILLIONS) U34.9 547.6 631. 7Lf GIAM POPULTION (PWFECT Or TOT) 17.9 19.7 20.7 13.2 16.2 24.6 POPULATION P50TJIOONS PODPULATION g YE* 2000 (MILLIONS) 973.0 STATIONARY POPMLATION (LLIOUS) 1643.0 YEAR STATIONAY POPLATIONI IS 31*81 2150 POPULATION DENSITY PER SQ. YM. 132.0 167.0 192.0 86.6 49.4 45.3 PER SQ. M. AGRICULTURAl LAND 247.0 308.0 347.0 330.2 252.0 149.0 POPLATION AGE STDCTYUE (PF3CENT) 0-14 YRS. 40.8 42.5 42.0 44.3 43.1 45.2 15-64 YS. 55.7 54.6 55.0 52.4 53.2 51.9 65 YRS. AND A1OVE 3.5 2.2 3.0 3.1 3.0 2.8 POPLATION GCOVM RATE (PERCENT) TOTAL 1.9 2.3 2.1 2.4 2.4 2.7 URBAN 2.5LL 3.3 3.1 4.1 4.6 4.3 CRtDE 8BITH RATE (PM TOUS4ND) 43.0 40.0 35.0 44.4 42.4 39.4 CRUDE DEATH RATE (PQ THDUSAD) 21.0 17.0 14.0 16.4 15.9 11.7 GROSS BPPRODUCTION RATE 3.2 2.9 2.4 3.2 2.9 2.7 FAMILY PLANNING ACCEPTIRS, ANNUAL (THOUSADS) 64.0 3782.0 4518.0 USERS (PERCENT OF MARRIED WO) * 12.0 16.9 7.9 12.2 13.2 FOOD AND NDTRITION INDEX OP FOOD PRODUCTION PUM CAPITA (1969-71-100) 100.0 102.0 101.0 ".4 98.2 99.6 PER CAPITA SUPPLY OF CALORIES (PERCENT 0F REQUIRRMES) 95.0 92.0 89.0 93.0 93.3 94.7 PROTEINS (GRAMS PQ DAY) 51.0 53.0 48.0 56.1 52.1 54.3 OF WHICH ANIML AND PULSE 19.0 16.0 12.6 10.4 13.6 17.4 CHILD (AGES 1-4) MORTALITY RAST 28.0 22.0 18.0 19.2 18.5 11.4 REALTH LIFE EXPECTANCY AT BT (tYARS) 43.0 48.0 51.0 49.1 49.3 54.7 INFAnT MORTALITY RATE (PM THOUSAND) *- 134.0 .. *- 105.4 68.1 ACCESS TO SAFE WATER (PEJCENT OF POPULATION) TOTAL * 17.0 33.0 31.5 26.3 34.4 UREBAN .. 60.0 83.0 63.9 58.5 57.9 RURAL .. 6.0 20.0 20.1 15.8 21.2 ACCESS TO EXRET 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 RURAL * 1.0 2.0 2.5 3.5 27.7 POPNJLATION PER PHYSICIAN 5800.0Ch 4890.0 3135.0 7107.9 11396.4 6799.4 POPULATION FEE KURSING PERSON 9630.0/h 5220.0 6320.3 12064.0 5552.4 1522.1 POPULATION PER ROSPITAL BED TOTAL 2590.0L 2020.0 1231.0 2738.4 1417.1 726.5 'jAN .. .. .. .. 197.3 272.7 RURAL .. .. .. .. 2445.9 1404.4 ADMISS.ONS PER LOSPITAL BE .. .. .. .. 24.8 27.5 HOUSING AVERAGE S5ZE OP HOUSEHOLD TOTAL 5.2 .. 5.2 .. 5.3 5.4 LRSAN 5.2 .. 4.8 .. 4.9 5.1 LILAL 5.2 .. 5.3 . . .4 5.5 AVERAGE NLn3ER OF PERSONS PER ROTh TOTAL 2.6 2.8 .. LESAS' .. .. .. . .. SISAL .. .. .. . .. ACCESS .Q -LECTRI:ITY PERCENT OP QWELL:N'G S GTIAL .. .. .. 22.5S 28. 1 LUWAN .. .. .. .. 17.S 45.1 RLRAL .. .. . .. .. 9.9  ANNEX I Page 2 of 5 INDIA - SOCIAL INDICATOR DT S INDAR C GROUPS ( D AVpACES - WIT RECE ESTIMATE) HWT RICUT Ct0GAmiC ThO WEE IICW 1960 lb 1970 /b S?DIAT Xb UGIOU Ic Gump /4 ROP /a EDUCATION SfD 8wEMOLLHU RATOS PIMAarY TOTAL 61.0 72.0 79.0 5.5 63.3 62.7 ALE 50.0 87.O 94.0 74.9 79.1 87.3 ?ZILt 40.0 55.0 63.0 43.7 48.4 75.8 SlCW1AATY: STAL 20.0 a9.0 26.0 19.5 16.7 21.4 MALE 30.0 :19.0 38.0 27.8 22.1 33.0 FDKAL 10.0 17.0 18.0 10.0 10.2 15.5 VOCATIONAL ENIEOL. (I OIF SZCODfT) 8.0 6.0 .. 1.3 5.6 9.8 PUPIL-TEACmR RATIO mADLY 29.0 40.0 42.0 42.2 41.0 34.1 SEWm&DAY 16.0 17.0 .. .. 21.7 23.4 AULT LITRACY RATE (PERCENT) 28.0 33.0 36.0 25.5 31.2 54.0 C0NSUST1ON PASSEU CAMS PER THOUSlS- POPPILATI0M 0.7 1.0 1.2 2.3 2.8 9.3 RADIO RECEIVERS Pm T800SAW POPLATION 5.0 21.0 24.0 15.5 27.2 76.9 TV RECtXVlS P lIOUSND POIILATION .. 0.1 0.5 .. 2.4 13.5 NEWSPAPER ("DAILY GEItAL ITEREST") CIRCULATION PEn IROUSAND POPULATION 11.0 1I.0 16.0 6.2 5.3 18.3 CINEMlA AIUAL AmrrNDAN1C FM CAPITA 4.0 1.3 3.8 .. 1.1 2.5 LABOR FORCE iTOAL LABO FRCE (TEOUSANIDS) 188670.0 226870.0 261000.0/k FEALE (PERCENT) 31.3 32.6 32.2 21.4 24.8 29.2 AGlICULTUIE (PERCENT) 73.0 73.0 73.0 66.3 69.4 62.7 INUSTRY (PERCENT) 11.0 11.0 11.0 9.6 10.0 11.9 PARTICIPATION RATE (PERCTnT) TOTAL 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 FEALE 27.9 27 1 26.2 15.7 18.0 20.4 ECONOMIC DEPENDENCY RAtIO 1.0 L.l 1.1 1.3 1.2 1.4 INCOME DISTRIBUITION PMCENT OF PRIVATE INCOIM RECEIVED BY HIGHEST 5 PERCEN.T OF UOUSEOLDS 26.7 26.3/1 .. .. .. l5.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 51.7 48.97i .. .. .. 48.2 LOWEST 20 PERCENT OF NOUSEROLDS 4.1 6.771 .. .. .. 6.3 LOWVST 40 PERCENT or HOUSE80LDS 13.6 17.271 .. .. .. 16.3 POVERTY TARGET GROUPS ESTIEMATED ABSOLUTE POVERTY INCOKE LEVEL (US3 PER CAPITA) UTtAN .. . 8 83.0 86.5 99.2 241.3 RVhAL .. . 73.0 74.2 78.9 136.6 ESTIMATE D RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. .. .. 91.9 179.7 IIuRAL .. .. 50.0 50.4 54.8 103.7 EST1wATED POPULATION BELOIW ABSOLUTE P(OERTY *:COME LEVEL (PERCENT) !RBAN .. .. 67.0 44.3 44.1 24.8 3LRAL .. .. 52.0 52.4 53.9 37.5 Noc aoailable Not apDlcatle. NOTES i The adjus.ed group averages for each indicator are population-weighted geometric means, excluding the exrreue -ai-es of the ondicator and the most populated crumtry in each group. Coverage of countrias among the indtcators depends o availa.bility of data and is not -nifor. ' ?rlcss ocher,ise noced, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 a,,ri 1971; and for Mosr Recent lscimate, between .974 and 1977. - Sotcr tota; d~ow Inco=e (S280 or 'ess per capita 1976); ie LDwer Middle Income (f281-550 per capita, !976) 'q7S sod-year pop.tacion is estiate.d it 640.. n7ilion; .. 1951-60; 4h 1962; 0SS ; !967; 5 1973 mid-rear labor force Is es-L.ated at 6 oillion; il 1964-o5. "<rot torerrr Estimate of i.N per capita is for .978. August. 1979  ANiNEX I _______________ P~~~age 3of~ lot. =Alto th t dot. soc drawo fo.. sou.e geserally judge the et mthsodtative un reli.hls, it .b.lA ale. be oted that th w sot be intorcs- t!iy 0 .0 heess of the lok of .tsodardld deftiitim. sd MA omWit. SOed bW ditffert euutri.. in oo0l.etiag the dots. TAe dots ar., unatha1e-, -sful to d-cibe order. of ugoltode, todloste trnu., sod ohssreetrise 0.r.14 in4.00r difPeeree5 betu... oBstria.. Th iotdgrop ac;..a reroldoSo o posloto~igbted genntri. smm, eanludjo: the eetraw aIses of the dodloator s.d the unnt pp9lotd in.ryt ec r,op De- ;to lsk of dot-. eroP -orsg.0 of .11 iflotats fer Coital kevplo Oil Mkqte0 md of likAotot. of MAe.n to Vater ed ftcret. OisPo.-, Sco.,lco dtribotioo so. Pevorty for oter cuntry Vou0e ar. powlatic-0eIgtdt gannatrio unums .. thcut ancliosi of the eetr- os1* sod the soot pou.td cootry- i. 3 wthe coer. of Oo.Otrles theu lolso. ~ os-5ii f dots st.d tost soie costS. setbefeeri,ed todicato St S tt. easE the oouctry sodz -rofrso 9:10.. tllM ARIA (thoossd sq.be.) 500555 to mmreto essl(e'ea f,uot. oe,Wo,sdcso T ?.1-Tt.. -ufaoe noes -oerietog 1ed eros sod Inland ester.. - e r O peOpLe too, ob. . ee)see yscesdeoo Agric,ilt,iral_- hot -eort eotinate of agiculturl anoe ose tuoror-Ii parcsotage. of their respeetls papaaisota. lbert. dispoesi . ioclode 00 peossocotly for crps, poet-oc, -ekot sod kitohe goodan. or to the eoileoti- s.d dieomol, With er withest trsatnant, of bwmu rciet lie foi..sd uest.-tear br utar-bocs et- o- the s of plt ped.se NWd -.aoil iostaiistins.e WP_ZRC&ITA(U4)- GNP per capits cetisotes at CUrret nakAt yrit.., POLAi e lvim- Pop"Aitiop dirided bW unnbr of practicinig pbySlI.Oe cua-Lte oeersoosc bys World leak Atlos (1976-78 bosh.); . qlfe ~a.a. bIa m-ir1 1 1960, 1970, OOd 1978 dot.. !W =nr aue - PoPe1stito dlrtddd by .eber of proetictog .Le mEMOY CS0IC'PI0I.PEPCAPI A - Idol -oou.tto of Ooert,isl asergrse romi g'einse mares., practical xarose, 004 eeistot -oas (001 so lISot peroeo -tro gK- sod bydr- , uncles sod 9-0- PswRlstim VW bats ~d - totel I --.. d4 rol - Popslotioo (totl, urOso, thersl eleotriotty) to tilogrs of ... I equteleut pr opit.; 1960, &arm)dn t their reepetics je o bepi beds &slbl.b1 to 1970, sod 1976 dat.. public sod poio-te gesrs1 and apeeisltoed b..tpit.1 sod -sbhbilittio cester.. mospiteln ore .etbli.hunat. persstly etoffd by at I.st cae rd.p.ieiso. 0 ~~~~~~~~~FOUItfATIOSg AND VITAL STATISTICS meal.Bt. proo-di5g principally tsetodais. cor ore st Includ.d Rural5 T.a = ti dy stiilloo .. As of July 1; 1960, 1970, sod h-epitals, hoeser, imlood heelth sa sedloe coter. tot peuss.eetly stafc 1977 dts by a pdai.iso (iot by a sedicol secieteot, -e sideifo, etc.) Which offer Urbso P.pultiot (peroct Of total) R.tist of orbo to tot.l popuIStio; is-Sotimat accodotto sod proid. a liadted reagu of s.dis .1 r-litie... differet defi.ittotO of orb. -reo p off-t -oporbility of doto Aesiwr 0eetalt d otl .er of sdmiinn.s to or d.i-oherge fro tseo coutroc-t l9,0. 1970, sod 1975 d.t.. ~~61dhdritios f bed.. Pepo1t'iooi.9h- ef - Cocr.ot ypo atooi. p-ojeotiioo ore b-.ed o S T ~tsloo1 tioa by age sod .eo sod their ncrtality sod fertility AroiSieo ushl(srpse es id -til.ro.sdrra - oste. Procctio pa teorru F., sortolity rotes coprise of three A his 1od ooo rot of-pupo otLe.ooss.lvo oreosd levoo 000500 lf- opet-yC at bir-th I - - - lrg sith .-tory- their .I. ol.. A bordar or basso my r un sot b. incluoded do the per toia otomoIcoc, sd f-eer life -opctsocy etbil.ioig ci hoossld for sttinti.slpsoe. 775po..TOpro,tr for fertility -nto ooo hoc, thre. le-l org ~ro ees os-tii. uh,sdrri-A.reeose -.oueil, dolioc io fertility -cordoog to oo-e l..eIsod pest ofpro.pr50 0 ob. o oeiOcpe oOoildeeliogo, fsedly 0100010 perf-rso. toot -utry 10 thes a.sigoed 00. ofthe.e r-pstio-ey. DoW,1iiogs coclode --p-es.o,t tractOre sod unoropied Parts oioocoshsotios f -ot.lity ond fertility trend. for projeotioo Acces to ElsAtilitr (percnt of deelit'" R,tsl6 cbo Iodru - Co-- iSitosor population - 1. a etstio...ry PoPIvfltios there Is oo goouth totis1, orbo, ssd rEe.l deeLling. roepeetiecly. otooc th, birti rotc Io eqool to thr d-eth robe, sod .1.0 the age otrootuc r-it- -OOtOt. This to ehi-'od osy ofter fertility rtbes EIAJATION d-cli- to the rysertleel of -o