India - Jammu and Kashmir and Haryana Social Forestry Project

Document of The World Bank FOR OFFICIAL USE ONLY - Report No. P-3365-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN AN AMOUNT OF SDR 29.4 MILLION (US$33 MILLION EQUIVAL] TO INDIA FOR THE JAMMU AND KASHMIR AND HARYANA SOCIAL FORESTRY PROJECT July 15, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of July 12, 1982) V US$1.00 = Rs 9.530116 Rs 1.00 = US$ 0.10493 Rs 1 million = US$ 104,930 The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 8.5, which represents the projected average exchange rate over the disbursement period. FISCAL YEAR April 1 - March 31 ABBREVIATIONS CCF Chief Conservator of Forests CF Conservator of Forests DCF Deputy Conservator of Forests FWE Fuel Wood Equivalent GOH Government of Haryana GOI Government of India GOJ&K Government of Jammu and Kashmir ICB International Competitive Bidding J&K Jammu and Kashmir LCB Local Competitive Bidding SFW Social Forestry Wing ton metric ton  FOR OFFICIAL USE ONLY INDIA JAMMU AND KASHMIR AND HARYANA SOCIAL FORESTRY PROJECT CREDIT AND PROJECT SUMMARY Borrower: India, acting by its President Beneficiary: The States of Haryana (GOH) and Jammu and Kashmir (GOJ&K) Amount: SDR 29.4 million (US$33 million equivalent) Terms: Standard Relending Terms: From the Government of India (GOI) to the States as part of Central assistance for State development projects on terms and conditions applicable at the time. Project Description: The project would increase supplies of fuelwood for domestic use in rural areas through the establishment of 44,000 ha of plantations in Jammu and Kashmir and 67,000 ha in Haryana on private and public wastelands throughout the States. It would also provide poles, bamboo, small timber, fodder, fruit, oilseeds and other forest products from the same plantations, generate paid employment for the rural poor, improve environmental conditions, and establish and strengthen the Social Forestry Wings of the Forest Departments of both States. The main project risk is that the free distribution of seedlings might lead to some waste. Experience in other projects indicates strong demand for seedlings but statistics of their survival rate are inadequate. Another risk is that village panchayats might lack sufficient leadership and incentive to assume responsibility for village woodlots. These risks would be minimized by the careful monitoring and supervision of planting programs, and public information and education efforts. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Project Cost: a/ (US$ Million) Local Foreign Total Plantations 31.9 31.9 Project Organization 16.3 1.1 17.4 Research and Training 1.4 0.4 1.8 Communication & Extension 0.7 0.7 Monitoring and Evaluation 0.3 0.3 Sub-total 50.6 1.5 52.1 Physical Contingency 1.8 1.8 Price Contingency 13.1 0.1 13.2 Total 65.5 1.6 67.1 a/ Including an estimated US$1.1 million in taxes and duties. Financing Plan: (US$ Million) Local Foreign Total GOI/GOH/GOJ&K 34.1 - 34.1 IDA 31.4 1.6 33.0 Total 65.5 1.6 67.1 Estimated Disbursements: (US$ Million) FY83 FY84 FY85 FY86 FY87 FY88 Annual 3.2 4.8 6.5 8.5 8.0 2.0 Cumulative 3.2 8.0 14.5 23.0 31.0 33.0 Rate of Return: About 27%. Appraisal Report: No. 3840-IN, dated July 15, 1982.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN AN AMOUNT OF SDR 29.4 MILLION (US$33 MILLION EQUIVALENT) TO INDIA FOR THE JAMMU AND KASHMIR AND HARYANA SOCIAL FORESTRY PROJECT 1. I submit the following report and recommendation on a proposed credit to India for SDR 29.4 million (US$33 million equivalent) on standard IDA terms, to help finance a social forestry project in the States of Jammu and Kashmir and Haryana. The project would increase supplies of fuelwood and other forest produce in rural areas, offer paid employment to the poorest segment of the population and help to improve environmental conditions. The Government of India (GOI) would channel the proceeds of the credit to the Governments of Jammu and Kashmir and Haryana in accordance with GOI's stand- ard terms and arrangements for financing development projects in the States. The exchange risk would be borne by GOI. PART I - THE ECONOMY 1/ 2. An economic report, "Economic Situation and Prospects of India" (3872-IN, dated April 7, 1982), was distributed to the Executive Directors on April 19, 1982. Country data sheets are attached as Annex I. Background 3. India is a large and diverse country with a population of about 701 million (in mid-1982) and an annual per capita income of US$240. Economic growth has been slow in the past, averaging about 3.6% per annum over the past 30 years. The economy is dominated by agriculture which employs more than two-thirds of the labor force. However, the land base is not sufficient to provide an adequate livelihood to everyone engaged in agricultural activities, especially those with little or no land. Conse- quently the latter have only an insecure grasp on the means of existence. Growth of value-added in agriculture -- 2.3% per annum over the past 30 years -- has been slower than growth of industrial value-added (5.0% per annum). As a result, there has been a gradual decline in the share of agriculture in GDP (at factor cost measured in 1970/71 prices) from 60% to about 40%, while the share of industry rose from 15% to around 24%. But industrialization has not been rapid enough to absorb the growing labor force, or to bring about a rapid economic transformation, with significantly higher productivity and income levels. 1/ Parts I and II of the report are substantially the same as Parts I and II of the President's Report for the Kallada Irrigation and Treecrop Development Project (No. P-3347-IN), dated June 7, 1982.  -2- 4. Nevertheless, there has been steady progress on several fronts. In the face of a large and rapidly growing population, India has been able to increase agricultural output faster than total population while eliminating persistent dependence on foodgrain imports. Savings and investment have increased markedly since 1950/51: gross domestic savings more than doubled from 10.8% of GDP (at factor cost) to 24.8%, while gross domestic investment rose from 12.5% of GDP to 26.2%. Foreign savings (balance of payments deficit on current account) have never financed a major portion of domestic investment: a peak of about 20% was reached during the early 1960s; for a few years in the late 1970s, surpluses arose, and at the present time, for- eign savings are about 10% of investment. External assistance has been low both as a percentage of GDP and in per capita terms. Net external assistance has never risen above 3% of GDP, and was less than 1% at the end of the 1970s. 5. Before the 1970s, India placed relatively less emphasis on export promotion and more on import substitution. The volume growth of exports between 1950/51 and 1979/80 averaged only 3.5% per annum, only marginally higher than the volume growth of imports over the same period. In the early to mid-1970s, however, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated sharply. In response, the Government introduced various policy measures designed to stimulate exports. As a result, the volume of India's exports grew on average about 7.6% per annum for the 1970s as a whole, a performance which demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, contributed to this growth, liberalized access to imported inputs and more effective export incentives played a major role. 6. Moving into the second half of the 1970s, the Indian economy was buoyed by relatively rapid export growth and an expanding level of foodgrain output, which culminated in a record 132 million tons of foodgrain production in 1978/79. As a result, growth in real GDP, agricultural and industrial value-added, substantially exceeded the historical 30-year trends (paragraph 3). In 1979/80, however, this momentum was broken when the worst drought in recent years, combined with a doubling of international oil prices and domes- tic supply shortages, led to a sharp fall in foodgrain production, a decline in GDP, and the opening up of a large trade deficit. Severe inflationary pressures also emerged after several years of virtual price stability. The impact of these setbacks is still being felt in the Indian economy, par- ticularly in the balance of payments, and adjustments will be needed for some years to come. However, the short-term recovery process is almost completed and the economy has regained its growth momentum. Recent Trends 7. In 1980/81, the economy substantially recovered with real GDP growing by 7.5%. While industrial output expanded by 4%, recovery was particularly robust in agriculture where normal weather helped output to rise by more than 15%. Increased foodgrain production, along with judicious use of Government buffer stocks built up in earlier years, also helped moderate price rises. Inflation remained a serious problem with the annual average wholesale price index rising 18%, although the second half of the year provided clear evidence of a deceleration in inflation.  -3- 8. 1981/82 was a year of solid growth after the rebound in 1980/81 and GDP grew by 5.5%. While foodgrain production rose only modestly over its 1980/81 level, other crops including oilseeds and sugarcane performed well and total agricultural output grew by 4%. The availability of power, coal and rail transport, already improved in 1980/81, was even better in 1981/82, recording growth rates of about 10%, 9.4% and 15% respectively. As con- straints on the supply of infrastructure and basic commodities continued to ease, industrial output responded with an 8% increase. The downward trend in inflation continued. Wholesale prices rose by about 9% on an average annual basis, while the increase on a March 1981 to March 1982 basis was less than 2%, showing a continued deceleration. Easier supply conditions, combined with a more restrictive monetary policy, contributed to the sharp decline in the rate of inflation. 9. The performance of the agriculture sector in 1981/82 ensured that supply conditions in the country remained quite favorable. It also provided continuing evidence of the positive effects of large investments and appropriate policies in past years. Foodgrain production reached between 132 and 134 million tons, thus matching or perhaps surpassing the previous record. Irrigated area expanded by 2.5 million hectares, while fertilizer consumption improved over its 1980/81 level by more than 7%, despite substan- tial price increases. Recent performance and probable future trends suggest that on average foodgrain supplies will exceed demand. However, the balance remains delicate with some imports likely to be required from time to time. Indeed, the effects of the severe 1979/80 drought were still being felt in 1981/82 when 2.25 million tons of wheat were imported to rebuild depleted stocks. Nevertheless, the relatively low import requirement, the ability of the Government to delay imports for as long as two years after the production shortfall, and the decline in foodgrain prices in real terms demonstrate the flexibility and resilience provided by the public foodgrain system. 10. Shortages of basic commodities and infrastructural services were major contributors to industrial stagnation and the onset of high inflation in 1979/80. This was the culmination of several years of declining capacity utilization in important, interrelated sectors such as power, coal, and rail transport. A major cause of the improved economic climate over the last two years has been a much improved level of output in these sectors, due mainly to greater efficiency and utilization of installed capacity. Expansion of coal output by about 10 million tons for the second successive year and of rail freight traffic to a record level were particularly noteworthy features of the 1981/82 economic performance. The shortfalls in domestic energy production which contributed so heavily to the poor 1979/80 performance have also been reduced. However, even though there remains large scope for improving efficiency, further improvements in capacity utilization will become increasingly difficult, and increases in capacity are needed to meet increasing demand. 11. Despite a brief phase in the late 1970s, when savings rates exceeded investment rates and foreign exchange reserves actually increased, recent experience shows that the needs of the Indian economy continue to outstrip the availability of resources, both internal and external. Investment exceeds domestic savings. The latter, at nearly 25% of GDP, are already high and further increases, particularly from the household sector, will be increasingly difficult to obtain. However, over the last two years, the  -4- Government has taken a number of measures to generate higher savings in the public sector. Principal among these were price and tax increases, and subsidy reductions, on a range of commodities produced mainly in the public sector. 12. The shortage of resources is even more apparent in the foreign sec- tor. Problems became serious after 1979/80 when the cost of India's POL imports rose sharply and the terms of trade deteriorated. Coupled with domestic supply shortages and a slowing down in export growth, these factors caused India's current account deficit to rise from only 0.6% of GDP in 1979/80 to 2% of GDP in 1980/81. In 1981/82, the current account deficit rose to US$4.3 billion, representing 2.7% of GDP. Unfavorable movements in export prices and the terms of trade threatened a worse outcome. However, the much improved performance of basic import-substituting industries and a resumption of healthy export volume growth (8.3%) prevented this. To finance this gap in the face of inadequate concessional aid flows, the Government - drew down a record US$2.36 billion in foreign exchange reserves, withdrew almost US$700 million under the recently negotiated IMF Extended Fund Facility, and turned increasingly to other non-concessional sources of finance. In 1980/81 and 1981/82 for example, new government guaranteed commitments for commercial borrowing totalling over US$1.3 billion were contracted for major projects. 13. The trends in the volume and terms of India's trade indicate that significant adjustments will need to be made in the economy to bring India's external accounts into reasonable balance at an acceptable level of growth. In particular, there is a need to increase the growth of exports, to increase production of commodities such as fertilizer, cement and steel which India can produce efficiently, in order to reduce imports of these items, to moderate the rise in oil imports through greater domestic production and slower demand growth, and to further reduce the constraints in transportation and other infrastructural facilities which are retarding growth in a wide range of activities, including exports. It is encouraging that, in response to the present balance of payments difficulties, the Government has not reacted by placing more stringent controls on imports, but rather has main- tained and extended the more liberal policies evolved in the past several years. Recent improvements in the availability of power, a major constraint facing exporters, and the adoption of several new export and industrial policy measures have improved the prospects for accelerating export growth. Development Prospects 14. The experience of recent years illustrates that India does have the capacity to grow and develop at a more rapid pace. Although the industrial sector is small compared to the size of the economy, it nevertheless is large in absolute terms and has a highly diversified structure, capable of manufac- turing a wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, power, roads and ports -- is exten- sive compared to many countries, although there is considerable need for additional capacity as well as improvement in the utilization of existing capacity. India is also well-endowed with human resources and with institu- tional infrastructure for development. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and ferrous ores, but also gas and oil). With good economic policies and  -5- reasonable access to foreign savings, India has the capability for managing these considerable resources to accelerate its long-term growth. 15. The medium-term framework for advancing India's development objec- tives is the Sixth Five Year Plan (1980/81-1984/85), which is now about halfway completed. The Plan assigns priority to agriculture, energy develop- ment, the growth of exports and domestic import substitutes where appropriate, and the removal of infrastructural bottlenecks. Overall perfor- mance has so far been encouraging, although the likelihood of continued bottlenecks in key sectors such as power and transport is growing. Moreover, fulfillment of the Plan targets will require an acceleration of domestic savings rates. The efforts of the Central Government to raise resources have so far been impressive and are likely to be broadly sufficient to meet the financing requirements of the Central Government's share in plan investment, if inflation can be kept in check. However, a significant shortfall in savings is likely to occur in some states unless further measures are intro- duced. There will be a need also for continuous efforts to maintain and raise further the already high level of private savings. Recent increases in interest rates and tax concessions on time deposits should stimulate such savings. The further dampening of inflationary expectations, the prospects for which look bright, will be an important part of this effort. 16. The higher capital formation rates of the past few years augur well for future income growth. Thus far, however, output growth has not matched the size of India's investment programs. Much of this phenomenon relates to India's stage of development, in which a large and growing proportion of investment has been needed to build up basic infrastructure. These services, such as power, transport and irrigation, have inherently high capital output ratios. However, at least some of the rise in the sectoral capital output ratios has been due to a deterioration in efficiency and is avoidable through better management. Bottlenecks in these basic sectors clearly can prejudice growth in other sectors where large investments have been made. As demon- strated in the last two years, performance in the basic service sectors can be improved through better planning and management, thus leading to higher productivity and capacity utilization, throughout the economy. At the same time, programs to expand domestic capacity are vital. In the case of trade- able commodities like coal, steel and cement, this is justified on the grounds of comparative advantage. For sectors such as power and transporta- tion, expansion of planned capacity in accordance with the requirements of the rest of the economy will be vital to overall medium- and long-term prospects. At present rates of development, however, an adequate balance between supply and demand in these sectors will be difficult to sustain. Performance in the power sector to date suggests that India's power deficit will continue into the early 1990s, although more rapid project implementa- tion and efficiency could narrow the size of the gap. For railways, real investment levels may be inadequate to meet demand projections and will need to be monitored closely and adjusted upward as necessary if serious bot- tlenecks are to be avoided in the next few years. 17. Under the Sixth Plan, India has an ambitious energy production program backed by substantial financial commitment. While the gap between domestic consumption of petroleum and production remains large, the prospects for progressive substitution of domestic petroleum for imports are quite bright. In 1981, resources for exploration were raised by successive price  -6- i r-fses for petroleum products. On the production side, scheduled expan- sion is expected to raise domestic production of crude from the current 46% to about 64% of demand by 1984/85. The rapidly expanding level of exploratory activity, combined with the possibilities for accelerated offtake from known fields offer much encouragement for India's longer term energy prospects. 18. The continuation of India's balance of payments difficulties has been marked by the progressive use of foreign exchange reserves and non-concessional borrowing to finance the deficit. Use of reserves reached a record level in 1981/82, leaving less than four months of import coverage by the end of the year. At the same time, India also made use of the IMF Extended Fund Facility. Entering this period with a favorable debt service profile, India has so far also been able to tap commercial capital markets at favorable spreads (over, of course, relatively high underlying rates) and in the last two years commercial borrowing has been stepped up. These sources will be important in the future since India's current account deficits, though not large relative to the size of the economy, will nevertheless be large in absolute terms and will necessitate external borrowing beyond levels expected to be available from normal concessional sources. 19. India's development prospects over the next few years will hinge on the extent to which the economy can be brought into both internal and exter- nal balance, while at the same time maintaining reasonably high growth. In the longer term, income growth represents the best strategy for achieving these needed adjustments, both by generating higher savings for further investment, and by fostering the development of export and import-substituting industry to realign the balanice of paymerts. In the short-term, significant external borrowing, including an increased emphasis on commercial borrowing, will be necessary to cope with the balance of pay- ments consequences of such a growth strategy. However, an important element in providing India with the capacity to adjust flexibly will be adequate flows of concessional assistance. Although India is currently in a position to increase borrowing on commercial terms from the very low levels of the past, there are limits to India's creditworthiness in world markets. Main- taining an adequate rate of growth while adjusting the structure of the Indian economy to a more open and efficient environment as intended by the Government requires foreign resources in addition to the level of commercial borrowing available to India. Indeed, along with increasing exports, higher levels of investment to support an adequate rate of growth is a key element in maintaining India's recently improved creditworthiness. India is still a very poor country with a large rural sector and enormous investment require- ments for human development and basic infrastructure. The fact that India has been able to maintain over the past seven years a rate of growth above the long term trend, despite the severe setbacks of 1979/80, lends substance to the hope that a more open trade policy and concerted efforts to remove constraints on the growth of productive capacity, supported by adequate mobilization of savings both foreign and domestic, can sustain a rate of growth closer to 5.0% per annum than the long run trend of 3.6% per annum. Combined with a reduction in the rate of population increase to below 2.0% per annum, a 5.0% growth rate would mean a doubling of the trend rate of growth of per capita income of less than 1.4% per annum. Success in these efforts would make a significant difference to the prospects of easing poverty in India.  -7- 200 A large and growing population and severe poverty underline the need for India's development efforts to be protected and accelerated if possible. The 1981 Census placed India's population at 683.4 million, or about 12 mil- lion higher than official projections. The fact that there was no decline in inter-census rates of population growth, equivalent to about 2.2% per annum, is a cause for concern. While further analysis may suggest this rate of growth to be slightly overestimated, the expectation of a measurable decline in the population growth rate has not materialized. Until full details of the Census are released, firm judgements about the reasons for this outcome are not possible. However, the results re-emphasize the need for continuing efforts to strengthen the family planning program in a broad range of activities and services. These efforts are given high priority in the Sixth Plan which aims at a rise in the proportion of protected couples in the reproductive age group from its estimated 1979/80 level of about 23% to over 35% by 1984/85. 21. Reduction of poverty remains the central goal of Indian economic growth. 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. About 51% of the rural population and 38% of the urban population subsist below the poverty line. Improvements in the living stand- ards of the poor will depend to a large extent on the overall growth of the economy, particularly on increases in agricultural production and employment, in non-farm rural employment, and also in employment opportunities in urban areas. These developments will have to stem in large part from market forces which, however, must be encouraged and reinforced by appropriate Government policies and the strengthening of basic services and infrastructure. The declining trend in real foodgrain prices between 1970 and 1981 resulting from India's sustained effort to raise agricultural production, reflects such developments. There is also a role for direct Government action in faster implementation of land reform (though the scope for significant reduction in poverty through land redistribution is quite limited in India), in increasing the supply of credit available to small farmers and rural artisans, and finally in broadening the provision of those services which enhance the human capital of the poor and improve living standards. Many of the latter are elements of the Minimum Needs Program, which has been an integral part of Indian planning for the past decade. Progress has been slow but steady in the expansion of primary education, the extension of rural health facilities and the provision of secure village water supplies. Operations such as the community health volunteer program and the national adult literacy campaign provide encouraging evidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India's poor. PART II - BANK GROUP OPERATIONS IN INDIA 22. Since 1949, the Bank Group has made 65 loans and 148 development credits to India totalling US$3,571 million and US$10,633 million (both net of cancellation), respectively. Of these amounts, US$1,232 million has been repaid, and US$5,254 million was still undisbursed as of March 31, 1982. Bank Group disbursements to India in the current fiscal year through March 31, 1982 totalled US$858 million, representing an increase of about 28 percent over the same period last year. Annex II contains a summary  -8- statement of disbursements as of March 31, 1982, and notes on the execution of ongoing projects. 23. Since 1959, IFC has made 25 commitments in India totalling US$176.5 million, of which US$24.5 million has been repaid, US$42.6 million sold and US$7.5 million cancelled. Of the balance of US$101.9 million, US$94.0 million represents loans and US$7.9 million equity. A summary state- ment of IFC operations as of March 31, 1982, is also included in Annex II (page 5). 24. The thrust of Bank Group assistance to India has been consistent with the country's development objectives in its support of agriculture, energy and infrastructure. Of particular importance have been investments in irrigation, extension and on-farm development designed to increase agricul- tural productivity, and efforts to improve the availability of basic agricul- tural inputs to farmers through credit, fertilizer, marketing, storage, and seed projects. Major elements of the lending program have also been directed at helping to meet the energy needs of the economy while curbing the growth of oil imports, and to ease the infrastructure bottlenecks which have hampered economic growth in India, particularly through power generation and distribution, and railways and telecommunications projects. The Bank Group has also provided financing for a broad range of medium- and small-scale industrial enterprises, primarily in the private sector, through its support of development finance institutions. Recognizing the importance of improving the ability to satisfy the essential needs of urban and rural populations, the Bank Group has supported nutrition and family planning programs, a rural roads project, as well as water supply and sewerage and other urban infrastructure projects. 25. This pattern of assistance remains highly relevant, and consonant with Government priorities, as reflected in the Sixth Plan. The continued active involvement of the Bank Group in agriculture, energy and infrastruc- ture development will appropriately contribute to India's adjustment and growth prospects. Irrigation will need continuing support, with emphasis on improved efficiency in water conveyance systems to ensure reliable delivery to farmers' fields. In addition, major investments to develop the large Narmada River basin will be vital to India's efforts to increase agricultural production. Important complements to these efforts, such as fertilizer production and distribution, agricultural credit and extension, will continue to receive support. A continued program of investments aimed at rapidly increasing the domestic supply of energy will clearly be necessary if India is to curb the cost of oil imports and alleviate the critical power shortages which constrain output in both the agricultural and industrial sectors. Exploitation of oil and gas resources is a central element of this program, which should be supplemented by investments in hydro and thermal power gener- ation, and in the expansion of the transmission and distribution networks. Industrial projects to increase the domestic production of basic commodities, which have been in short supply and which India has a comparative advantage in producing, should also receive high priority. Finally, raising the efficiency and levels of transportation infrastructure would mitigate a key constraint to achieving higher levels of economic growth so that further support of the railways and for ports development will be particularly appropriate.  -9- 26. 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 part to the response of the aid community, India successfully adjusted to the changed world price situation of the mid-1970s. However, there is now a need for increased foreign assistance to adjust to an even greater deterioration in balance of payments anticipated during the 1980s by augmenting domestic resources and stimulating investment. As in the past, Bank Group assistance for projects in India should aim to include the financ- ing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sec- tors as agriculture, irrigation, and water supply. 27. India's poverty and needs are such that whenever possible, 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. Therefore, India should be eligible and regarded as creditworthy for supplemental Bank lending. The ratio of India's debt serv- ice to the level of exports was about 11% in 1981/82 and is projected to remain below 20% through 1995/96. As of March 31, 1982, outstanding loans to India held by the Bank totalled US$2,433 million, of which US$1,062 million remain to be disbursed, leaving a net amount outstanding of US$1,371 million. 28. 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 54%, 42% and 52%, respectively, in 1981/82. On December 31, 1981, India's outstanding and disbursed external public debt was about US$17.4 billion, of which the Bank Group's share was US$6.6 billion or 38% (IDA's US$5.6 billion and IBRD's US$1.0 billion). In 1981/82, about 16.0% of India's total debt service payments were to the Bank Group. PART III - FORESTRY IN JAMMU AND KASHMIR AND HARYANA Sectoral Background 29. India's forest lands are substantial but the demands placed on them are enormous. About 23% of the country's total land area, about 75 million hectares, is classified as forest. Annual domestic roundlood requirements by the year 2900 are projected to be nearly 290 million m -- fuelwood 225 million m and industrial roundwood 65 million m . Continuation of existing plantation programs, of about 100,000 ha annually, should ensure the supply of industrial hardwood and about half of the coniferous roundwood demand. But a wide gap is expected to continue between the demand for and supply of fuelwood. To meet the demand for fuelwood, an annual planting of some 650,000 ha is estimated to be required. An annual plantation target of some 300,000 ha seems to be more realistic, however, considering the  -10- financial constraints and the limited availability of land, continuing a wide gap between the demand and possible supply. 30. Non-commercial sources of energy account for nearly 85% of India's household energy use for cooking and heating; fuelwood (including charcoal) accounts for about 65% of total non-commercial energy and about 55% of total energy consumed by households. Fuelwood meets nearly 70% of the energy needs of the rural population, compared with about 45% for the urban population. Because of the very fast depletion of India's forest resources over the last few decades and because of increases in the prices of commercial energy alternatives, greater attention is being given to expanding the production of fuelwood. Therefore, India's strategy for forestry development reflects two priorities: firstly, to develop social forestry programs to supply fuelwood, fodder, small timber and minor forest produce to the rural population; and secondly, to develop a production forestry program to supply the growing demand of the domestic wood products industry. Encompassing both objectives is a recognition of the vital role forestry plays in soil and water conservation. 31. To carry out the strategy, the National Commission on Agriculture recommended in 1976 that each State reorganize its Forest Department into two separate wings, one to remain in charge of traditional production forestry and wildlife management, and a new wing to be established to develop social forestry. Eight States 1/ have created social forestry wings and four others are expected to follow shortly. Social forestry activities are receiving high priority in most States. Uttar Pradesh, Gujarat and West Bengal are implementing such activities with World Bank Group assistance (see paragraphs 42 and 43), and a number of other States have received assistance from other external sources. The State of Jammu & Kashmir 32. The State of Jammu & Kashmir (J&K), with an area of 138,000 sq. km, has a population of about 6 million (1981), of which 80% live in rural areas spread over nearly 6,000 villages. Agriculture accounts for 51% of the State income and provides over 70% of its employment. Tourism is significant and provides for 6% of the State income. Per capita income is low at US$116 (1977), compared with all-India average of US$160 (1977). 33. The natural forests of Jammu and Kashmir fall into three broad categories -- the dry temperate (mainly conifer) forests of Kashmir, the wet temperate (conifer and broad-leaved) forests of Chenab and the subtropical (deciduous) forests of Jammu. The total forest area is 21,000 sq. km (15.2% of the total geographical area). In 1979, the forestry sector's contribution to State income was estimated at 7%, and it generated some 7.6 million man-days of employment. 1/ Gujarat, Uttar Pradesh, West Bengal, Bihar, Orissa, Karnataka, Jammu and Kashmir and Haryana.  -1 1- 34. The forests are wholly owned by the State and are under the management of the Jammu and Kashmir Forest Department which is headed by the Chief Conservator of Forests (CCF). A Social Forestry section of the Forest Department was established under a Conservator of Forests in 1971-72 with four Divisions (now six), but its activities were largely been concerned with planting of institutionally-owned land. Free seedlings have been available from a number of nurseries, but they reach only a very small part of the rural population. In addition, the Jammu and Kashmir State Forest Corporation was established in 1979 to exploit and market forest resources. Training for Indian Forest Service Officers, State Forest Officers and Range Officers is provided by the Central Government at Dehra Dun and at other locations, while Foresters and Forest Guards are trained in the State. In the 6th Plan, Rs 125 million, representing 3% of total development expenditure, have been allocated to forest development. 35. Population pressures and increasing numbers of livestock (estimated at 4.7 million) necessitate the continued search for fuel, fodder and essential building materials. This has resulted in indiscrimate tree-cutting and increasing erosion, creating large tracts of barren waste lands in the southern and western parts of the State and increasing degradation of forests in the north. To address the problem of shortages, the State Government has recognized the need both for large-scale afforestation and improved management of existing forests. About 35% of State forests is practically devoid of tree cover and needs reforestation. Within the State, there are some 341,000 ha of waste and marginal land and long strips of land along roads, irrigation canals and railways which are suitable for afforestation. 36. Commercial sources of energy (coal, electricity and oil) meet only a very small portion of total demand. These sources probably meet at most 3% of cooking and heating needs, while the remaining 97% is met by fuelwood and dung cake. Total annual energy consumption in the State is estimated at 6.2 million tons of fuelwood equivalent (FWE) of which 4.2 million tons FWE is met from fuelwood, 1.8 million tons FWE from dung-cake and 0.2 million tons FWE from coramercial sources. Considering the low purchasing power of the rural population, a significant increase in the use of commercial energy would be unrealistic in the near future. Thus fuelwood and dung will continue to be the dominant sources of energy. The State of Haryana 37. The State of Haryana, with an area of 44,000 sq. km, has a population of about 13 million (1981), of which 82% lives in rural areas spread over nearly 7,000 villages. Since its formation in 1966, the State has made excellent progress in increasing agricultural production, which now accounts for 54% of its income and 65% of its employment. With a per capita income of US$173 (1976), Haryana ranks third among the Indian States. 38. The total forest area in Haryana is 1,600 sq. km and covers about 3.7% of the total area. Over 50% of the forests is man-made plantation and almost half of the forest area is narrow strips along roads, canals, railways and embankments. Most forests are of the northern tropical deciduous type. In 1979, forestry's contribution to State income was estimated at 1%. In 1980/81, primary forest production generated some 7.6 million man-days of employment.  -12- 39. The forests are owned by the State and managed by the Haryana Forest Department which is headed by the Chief Conservator of Forests (CCF). Indian Forest Service Officers, State Forest Officers and Range Officers are trained by the Central Government. Foresters and Forest Guards are trained locally at the Forester Training School at Pinjore. 40. The State primarily depends on man-made forests and the achievements so far have been quite impressive. At the end of 1980, the total area of forest plantations in the State was over 83,000 ha, representing over 50% of the State's total forest area compared to the all India average of 4.8%. In the Sixth Plan, Rs 145 million, or 0.8% of the State's total budget, have been allocated to forest development. Social forestry activities have been undertaken in the State since the late 1960's. So far, nearly two-thirds of the land available along roads, rails and canals has been planted to trees. Most wastelands belonging to panchayats (elected governing bodies) have also been planted to trees, but a substantial amount of village common lands and wastelands is still available in the southern part of the State. 41. Haryana's domestic energy requirement is also met primarily by use of fuelwood and dung. Although all villages are electrified, commercial sources of energy are too costly for widespread use as domestic fuel, and these sources supply only about 5% of the total needs. Total annual energy consumption in Haryana is estimated at 12 million tons of fuelwood equivalent (FWE), of which only 0.5 million tons FWE is met from non-renewable sources, and the balance is met by fuelwood (8 million tons FWE) and dung-cake (3.5 million tons FWE). A significant increase in the household use of commercial energy cannot be expected in the near future. Thus the use of fuelwood and dung-cake would continue to predominate. Bank Group Role in the Sector 42. In early 1978, in recognition of the need to expand social forestry (also referred to as community forestry) activities, GOI and the Bank Group agreed to examine the possibilities of developing projects in a number of States. The main objectives were as follows: (a) to increase the supply of fuelwood and of building materials, fodder, fruit and other minor forest products through the establishment of plantations on suitable public, village and private lands; (b) to secure the cooperation of the local population by involving them in the planning, execution and protection of plantations; and (c) to establish an organization required to support long-term social forestry programs. So far, three social forestry projects have been approved. The Uttar Pradesh Social Forestry Project (Cr. 925-IN) was approved in June 1979; the Gujarat Community Forestry Project (Cr. 961-IN) was approved in December 1979; and the West Bengal Social Forestry Project (Cr. 1178-IN) was approved in October 1981.  -13- 43. The three projects are performing well and have significantly exceeded all planting targets set at appraisal, except for establishment of plantations through community self-help efforts. Strip plantations (along roads, canals, railways), improvement of degraded forests and establishment of village woodlots are being implemented by the States' Social Forestry Wings with high survival rates and lower than estimated costs. Farm Forestry undertaken through free distribution of seedlings, and with the advice from the Forest Departments, is progressing significantly better than expected at appraisal. However, progress in the implementation of community self-help plantation has been very disappointing mainly because of very limited capacity of the local panchayats to raise necessary funds for financing plantation costs. The Uttar Pradesh project has also experienced difficulties in obtaining State Government's sanctions for staff and funds to establish its monitoring and evaluation unit. Efforts are being made to resolve these problems. 44. Other assistance to the forestry sector includes the Madhya Pradesh Forestry Technical Assistance Project (Credit 609-IN, approved in December 1975) which financed a feasibility study of forest-based industries in Bastar District. The study recommended the establishment of an integrated industrial complex with one mill producing sawnwood and a pulp mill producing kraft pulp to supply a printing and paper mill. The Kandi Watershed and Area Development Project (Loan 1897-IN, approved in July 1980) involves reforestation and pasture development over some 18,000 ha of Punjab's Siwalik Hills. PART IV - THE PROJECT 45. The Project was prepared by the Governments of Jammu and Kashmir (J&K) and Haryana. It was appraised in October/November 1981. Negotiations were held in Washington D.C. in June 1982. The Indian delegation was coordinated by Mr. Ranga Rao, of the Department of Economic Affairs, GOI. The Staff Appraisal Report (No. 3840-IN), dated July 15, 1982, is being circulated to the Executive Directors separately. A Supplementary Project Data Sheet is attached as Annex III. Project Description 46. The project's primary objective would be to increase supplies of fuelwood in the rural areas in the States of Jammu and Kashmir (J&K) and Haryana. It would also provide poles, small timber, fodder grass, fruit, oilseeds and other minor forest products. The project would also generate considerable rural employment opportunities and help improve environmental conditions. To achieve these objectives, the project would include the following activities: (a) strengthening of social forestry wings of the Departments of Forests by provision of incremental staff, operating costs, vehicles, housing and equipment. In addition, facilities and staff for extension, publicity, training and research would be provided;  -14- (b) establishment or rehabilitation of 44,000 ha of tree plantations in 12 districts of J&K, and 67,000 ha in 12 districts of Haryana during a five-year period; (c) development of nurseries to provide planting stock; (d) expansion of existing forestry training schools and training of other project staff including provision of fellowships; (e) strengthening of research activities and construction of seed storage godowns; and (f) provision of project monitoring and evaluation, including carrying out of wood balance studies in each State to determine availability and consumption of fuelwood and other forest products. 47. In J&K, the project would establish: 5,000 ha of village woodlots; 1,000 ha of strip plantings; 19,000 ha of farm forestry; and 2,000 ha of plantings on wetlands. It would also rehabilitate and reforest 17,000 ha of degraded forests. In Haryana, the project would establish: 12,000 ha of village woodlots; 500 ha of plantations on alkali/saline lands; 9,500 ha of strip plantings; 30,000 ha of farm forestry; and 15,000 ha of plantations on sand dunes. Implementation 48. Plantations. Under the village woodlot schemes, in each State, the Social Forestry Wing (SFW) would, after discussions and agreement with the villagers concerned, establish a minimum of 5 ha per village panchayat 1/ and maintain it for the first 3 to 5 years, after which the responsibility for management and protection would be transferred to the panchayats. SFW would recover its costs from the sale of products at the first major harvest. In J&K, the village woodlots would be established in the Kashmir and the Chenab valleys where large tracts of village common lands are available. In Haryana, village common lands and wastelands available in the southern districts would be utilized for this purpose. 49. Strip plantations would be established by SFW. In many areas where population density is high, the only wastelands available for tree planting are along roads, canals and railways, which makes the strip plantations the prime source of minor forest products for the local population. The plantations would belong to the Forest Departments, but villagers living adjacent to these strips would collect grass, fodder, fallen wood and tree loppings free of cost and would help SFW staff in protecting these plantations. 1/ A 'panchayat' is a locally elected body representing the villagers from a number of villages.  -15- 50. Under the farm forestry scheme, SFW would distribute seedlings free of cost to farmers for planting on private lands and along field boundaries. To cover some 19,000 ha in J&K and some 30,000 ha in Haryana, approximately 122.5 million seedlings would be required over the project period. SFW would monitor the survival rate of the private plantings. 51. In J&K, the project would also provide for establishment of plantations on wetlands (2,000 ha) and rehabilitation of degraded forests (17,000 ha). Wetland plantations would be established and maintained by the SFW on permanently inundated State-owned areas located around the urban areas of Srinagar. SFW would recover its costs through the sale of fuelwood to urban dwellers. SFW would also rehabilitate and reforestate State-owned degraded forest reserves by inter-planting fuelwood and other species. Villagers would continue to collect fallen wood, fodder and tree loppings under the supervision of forestry staff and, at felling, neighboring village panchayats would receive 25% of the fuelwood yield for distribution to local people. In return the villagers would be expected to help control indiscrimate felling and destruction of the State-owned forests. 52. In Haryana, SFW would establish and maintain plantations on 15,000 ha of Panchayat-owned land under a program for sand dune stabilization and a pilot operation on 500 ha of State-owned land which is either alkaline or saline. There are approximately 600,000 ha of sand dunes in the State which cause serious damage to arable land and canals as a result of wind erosion. Thus the benefit of sand dune stabilization would go beyond the production of fuelwood and small timber. Under this scheme, SFW would bear the costs for the first five years and, thereafter, the management and protection of the plantation would be the responsibility of Panchayats. SFW would, however, recover its direct costs from the sale of harvestable products. SFW would bear all establishment costs of woodlots on saline/alkaline lands given the pilot nature of the operation, and progress would be closely monitored by the Central Soil Salinity Research Institute located at Karnal. 53. Nurseries. At present, there are 15 permanent nurseries in J&K and 70 permanent and 349 temporary nurseries in Haryana, which are available for social forestry activities. The project would provide at least one permanent nursery in each of the 69 administrative Blocks of J&K and in the 92 Blocks of Haryana. In addition, temporary nurseries would also be established as and when required. Seed collection would be regularized and restricted to seed production areas approved by the research staff. 54. Research. The project would provide for increased research and seed testing designed to meet the needs of an expanded social forestry program. The research program would include: nursery studies aimed at reducing costs of seedling production through introduction of techniques to produce better plants in a shorter time; silviculture studies on the effects of alternate methods of pitting, fertilizing, planting time etc.; studies on collection, handling, storage, pretreatment and germination of tree seed; growth performance of trees; intercropping; and studies to determine opportunity costs of farming and forestry basic wood and fodder needs, and development of different species mixes. 55. Training. Project-related training would be provided to an additional 150 Foresters, 245 Social Forestry Workers and 1,400 Motivators in  -16- J&K, and 150 Foresters and 766 Village Forest Workers in Haryana. Training would also be arranged for farmers and village leaders. All staff transferred from the Forest Departments to SFW would also receive orientation training in social forestry. These programs cannot be accommodated within the existing facilities which would, therefore, be enlarged by providing additional buildings, equipment and staff. In J&K, the Kashmir Forest Training School, located in the Kashmir Valley, and the Soil Conservation School, located near Jammu, would be expanded by constructing additional classrooms and staff housing. In Haryana, the Forester Training School at Pinjore would be expanded by renovating existing buildings and by constructing additional student dormitories and staff housing. In addition, two locally engaged consultants in communication and extension would assist staff at each of the three schools in carrying out extension training. J&K would recruit four local consultants and Haryana would recruit two such consultants by June 30, 1983 (Section 2.02 of the Project Agreement). 56. Wood-Balance Study. No reliable information exists on the present and future consumption and availability of fuelwood and other forest-based products in the rural and urban areas of India. This information is vital for more efficient forest development planning. Wood-balance studies would, therefore, be carried out in each of the two States by a University or other appropriate institution, with terms of reference satisfactory to the Association (Section 2.07 of the Project Agreement). 57. Consultants and Fellowships. In J&K, the project provides for 120 man-months of local consultancy to strengthen project monitoring and evaluation and for training at a total cost of about US$62,000. In Haryana, 96 man-months of consultancy would be provided for similar purposes at a total cost of about US$56,000. The man-month cost of the consultants would range between US$500 and US$600. The project would also provide for 14 8-week overseas fellowships for senior SFW staff of J&K and Haryana in order to study management and forestry extension. In addition, ten local fellowships for training and research are provided for Haryana forestry staff. 58. Housing. Much of the success of social forestry activities would depend on regular and frequent visits by field staff to plantations, village panchayats and individual farmers, all of which would be scattered over wide areas. It is, therefore, vital that field staff and their supervisors live as near their work as possible, and that they are sufficiently mobile to enable them to function effectively. At present, housing for rent in some rural areas is limited and staff often live far from their work and rely on public transport. To help overcome this, the project would provide funds for construction of 42 units in J&K and 40 units in Haryana. For other field staff the States would take suitable measures to ensure that they live near the area of their work, and provide necessary housing, rental or other allowances wherever necessary (Section 3.03 of the Project Agreement). The project would also provide vehicles at Headquarters, Divisional- and Circle-levels in both States. Project Organization and Coordination 59. A Social Forestry Wing (SFW) has been established in the Forest Department of each State, each headed by an officer of the rank of Additional  -17- Chief Conservator of Forests. The SFWs would be responsible for all social forestry activities in both States. Each SFW would consist of two circles, each headed by a Conservator of Forests. In J&K, the two social forestry circles would supervise ten field Divisions, each Division headed by a Deputy Conservator of Forests and assisted by an Assistant Conservator of Forests, three Rangers, 15 Foresters and a number of Social Forestry Workers operating at the village level. In Haryana, the two Circles would supervise eight Divisions, each headed by a Deputy Conservator. Each Division would also be staffed by an Assistant Conservator, four Rangers, four Deputy Rangers, 19 Forestors and a number of Village Forestry Workers. A Publicity Unit would be established in each Circle for general publicity and dissemination of social forestry information. Both circles in J&K and one circle in Haryana have been established. The second circle in Haryana would be established when the workload warrants but not later than December 31, 1983. 60. Coordination of project activities in each State would be achieved through the establishment of a Policy Review Committee headed by a member of the State cabinet and including heads of a number of departments as its members. At the district level, a District Committee would be established with representatives of major departments as its members. The State and District Committees would be established not later than December 31, 1982 (Sections 2.08(i) and (ii) of the Project Agreement). Monitoring and Evaluation 61. In each State, the Project would provide funds to establish a Monitoring and Evaluation Unit headed by a Deputy Conservator of Forests (DCF) and supported by statistical staff and field enumerators. The Units would, in the light of experience and data collected, suggest improvements for project implementation, assess villagers' acceptance of social forestry activities, determine tree survival rates of the farm forestry component and carry out a mid-term evaluation of the project. The Units would prepare six-monthly progress reports, each June and December in a format agreed at negotiations; the report would include a summary of activities undertaken during the preceding six months; and targets achieved and problems encountered during project implementation. Consultants would advise on the design of survey studies and assist in setting up systems for project monitoring. Each State would establish a monitoring and evaluation unit with adequate staff, including a DCF to head the unit, not later than December 31, 1982 (Section 2.08(iii) of the Project Agreement). Each State would prepare and submit to the Association, not later than March 31, 1985, a mid-term evaluation report on the progress of the project (Section 2.05(e) of the Project Agreement). Marketing of Forest Produce 62. Project output would be consumed locally in both States, particularly those from privately owned farm forestry and community-owned woodlots. Marketable produce, primarily fuelwood, small timber, bamboo, and poles, would come from strip plantations, wetlands, and degraded forests which would all be owned by SFW. These would be sold on a stumpage basis at auction or marketed from sales depots in accordance with standard Forest Department procedures. In view of the acute shortage of forest products in both J&K and Haryana, no marketing difficulties are foreseen for incremental project  -18- output. Growing population and increasingly depleted forests have led to a situation where observed market prices have displayed a long-term real growth trend of 3% per annum for timber grade products and 2% per annum for fuelwood, poles, and bamboo. Cost Recovery 63. The full nominal costs of village woodlots and sand dune plantings established by SFWs would be recovered from beneficiaries at the first major harvests. Costs of seedlings, however, would not be recovered from the recipients. The sale of seedlings would require additional staff to be posted at each of the several hundred nurseries to manage the sale, and this may well favor the wealthy and influential farmers who would monopolize supplies. Therefore, the additional costs and problems associated with sale would far exceed the benefits to be derived from cost recovery. Under farm forestry, free seedlings would represent 18-28% of plantation costs; the remainder would be borne by the farmers through the provision of family labor for planting, protection and maintenance. Project Cost and Financing 64. The total project cost is estimated at about US$67.1 million, including taxes and duties of US$1.1 million and a foreign exchange cost of US$1.6 million. The proposed credit of US$33 million equivalent would finance 50% of the total cost excluding taxes and duties; the balance would be borne by the Government of Jammu and Kashmir and the Government of Haryana. The major cost components are: project organization (US$17.4 million), plantations (US$31.9 million), research and training (US$1.8 million), communication and extension (US$0.7 million), and monitoring and evaluation (US$0.3 million). Physical contingencies (US$1.8 million) have been added to meet unforeseen expenditures at rates of 10% for building and housing and 5% for nurseries, plantings etc. Price contingencies (US$13.2 million) have been calculated based on inflation forecast for India of 8.5% in 1982/83, 7.5% in 1983-86 and 6.0% in 1986/87. Procurement and Disbursement 65. Direct plantation works (US$31.9 million), including nursery expenditures, and farm forestry would be scattered over a wide area and would be carried out over different periods of time. Therefore, contracts following competitive bidding would not be practical. Nursery works, including the production of seedlings, would be carried out by force account of the Social Forestry Wings of the two State Forest Departments. Land preparation, planting and maintenance of village woodlots would be carried out by SFWs with participation from village panchayats. Materials such as cow manure and tools would be procured under local competitive bidding (LCB) in accordance with established local procedures, which are satisfactory to IDA. Contracts for civil works (costing US$2.0 million) would be small and widely dispersed in time and place and, therefore, would not be suitable for international bidding. These would be let following LCB, advertised locally, or by force account and in accordance with established Government of Jammu & Kashmir and Government of Haryana procedures, which are satisfactory to IDA. Design and supervision of housing and building construction would be carried out by the Forest Departments or the Public Works Departments of the two  -19- States. Vehicles (US$1.0 million) would be purchased over three years and, as adequate maintenance and availability of spare parts would be of paramount importance, this would necessitate purchase of locally made vehicles of types already used by government departments. Thus, procurement would be by LCB under existing government procedures, which are acceptable to IDA. Seeds and research equipment would be required in small lots and would not, therefore, be suitable for procurement under ICB procedures. These items and other miscellaneous equipment (US$0.9 million) would be bulked whenever possible and procured through LCB except where valued at less than US$20,000 when they would be purchased by prudent shopping through usual trade channels. The balance of project costs (US$31.3 million) would be staff salaries and related expenditures, training and fellowships (US$16.3 million), and contingencies (US$15.0 million). 66. The proceeds of the credit would be disbursed as follows: 100% against foreign expenditure for imported equipment; 70% against training, research and consultancy; 60% against monitoring and evaluation and communication and extension services; 50% against civil works, local expenditure for equipment and vehicles, direct planting costs and SFW operating costs; and 43% against incremental staff salaries. Disbursements for all force account work, salaries, local training, civil works expenditures less than Rs 300,000 and other procurement involving expenditures of less than Rs 150,000 each for locally-procured vehicles and equipment would be made against statements of expenditure. These certificates of expenditure would be audited annually and the audit report submitted to IDA. Supporting documentation for these expenditures would be retained by the State Governments for inspection in the course of project review missions. Disbursements against expenditures for all other items would be fully documented. Project Benefits and Risks 67. The project would help lay a sound basis for development of social forestry in the two States and increase the availability of fuelwood and other forest products. Incremental annual production of fuelwood would average about 159,000 tons in J&K and 294,000 tons in Haryana, sufficient to satisfy the total fuel needs of about 450,000 persons in the two States. In addition, annual production of small timber and bamboo/poles would average 465,000 cubic meters and 2 million pieces, respectively. Over the project period, about 111,000 ha of idle or under-utilized land would be brought into productive use. The project would generate about 29 million man-days of employment. The major environmental benefits from project plantations would be soil conservation, hill and sand dune stabilization, micro-climatic improvements and soil fertility restoration. The overall economic rate of return for the project is estimated at 27%. 68. The project faces no major risk in terms of an unsatisfactory rate of return since it could withstand improbable adverse affects such as cost increases of over 100% and price or production declines of over 50% and still show a favorable rate of return. There is a potential risk that free distribution of seedlings might lead to some waste. Experience in other projects indicate strong demand for seedlings but currently available statistics regarding their survival rate are inadequate. For this reason, the Monitoring and Evaluation Unit would monitor the actual survival rate and  -20- would study the overall impact of free distribution of seedlings. There is a risk that village panchayats may not be sufficiently motivated or organized to manage village woodlots. These risks would be minimized through the project's programs of education, training, extension work and information dissemination. Overall project risks are low. PART V - LEGAL INSTRUMENTS AND AUTHORITY 69. The draft Development Credit Agreement between India and the Association, the draft Project Agreement between the Association and the States of Jammu and Kashmir and Haryana, and the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 70. Special conditions of the Project are listed in Section III of Annex III. 71. I am satisfied that the proposed credit would comply with the Articles of the Association. PART VI - RECOMMENDATION 72. I recommend that the Executive Directors approve the proposed credit. A.W. Clausen President July 15, 1982  ANNEX I Page 1 of 5 INDIA - SOCIAL INDICATORS DATA SHEET INDIA REFERENCE GROUPS (WEIGHTED AVPRAGES AREA (THOUSAND SQ. KM.) MOST RECENT ESTIMATE- TOTAL 3287.6 MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL 1818.2 1960 lb 1970 lb ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) 70.0 110.0 240.0 261.4 890.1 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 111.2 152.5 194.4 448.7 701.7 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUS.) 434850.0 547569.0 673207.0 URBAN POPULATION (PERCENT OF TOTAL) 17.9 19.7 22.3 17.3 32.4 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 994.1 STATIONARY POPULATION (MILLIONS) 1694.4 YEAR STATIONARY POPULATION IS REACHED 2115 POPULATION DENSITY PER SQ. KM. 132.3 166.6 200.6 158.1 255.9 PER SQ. KM. AGRICULTURAL LAND 247.0 307.8 362.8 355.9 1748.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.9 42.7 40.2 36.8 39.9 15-64 YRS. 54.5 54.2 56.8 59.7 56.8 65 YRS. AND ABOVE 4.6 3.1 3.0 3.5 3.3 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 2.3 2.1 2.0 2.3 URBAN 2.5 3.3 3.3 3.3 3.9 CRUDE BIRTH RATE (PER THOUSAND) 43.7 40.0 35.6 29.3 31.8 CRUDE DEATH RATE (PER THOUSAND) 21.8 16.7 13.6 11.0 9.8 GROSS REPRODUCTION RATE 2.9 2.7 2.4 2.0 2.0 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) 64.0 3782.0 5619.0 USERS (PERCENT OF MARRIED WOMEN) .. 12.0 22.6 19.3 36.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 98.0 102.0 99.0 108.1 115.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 95.6 90.4 88.8/c 97.3 106.4 PROTEINS (GRAMS PER DAY) 53.6 49.7 48.4/c 56.9 54.4 OF WHICH ANIMAL AND PULSE 17.2 14.8 13.1/i 20.0 13.9 CHILD (AGES 1-4) MORTALITY RATE 26.2 20.7 17.4 10.9 6.7 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 43.2 48.1 51.8 57.8 59.8 INFANT MORTALITY RATE (PER THOUSAND) 165.0 139.0 123.4 89.1 63.7 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 17.0 33.0 32.9 32.0 URBAN .. 60.0 83.0 70.7 51.9 RURAL .. 6.0 20.0 22.2 20.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 18.0 20.0 18.1 37.7 URBAN .. 85.0 87.0 72.7 65.7 RURAL .. 1.0 2.0 4.7 24.0 POPULATION PER PHYSICIAN 4850.4 4889.0 3630.6 3297.8 8540.4 POPULATION PER NURSING PERSON 10975.3/d 8296.5 5696.1 4929.3 4829.4 POPULATION PER HOSPITAL BED TOTAL 2178.7 1612.9 1311.0/e 1100.4 1047.5 URBAN .. .. 362.3/;i 301.3 651.6 RURAL .. .. 10432.8/e 5815.7 2597.6 ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.2 5.6 5.2 URBAN 5.2 5.6 4.8 RURAL 5.2 5.6 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.6 2.8 URBAN 2.6 2.8 .. RURAL 2.6 2.8 .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. URBAN .. .. .. RURAL .. .. ..  ANNEX I Page 2 of 5 INDI-A 1JDCAL INDICATORS DATA SH