India - Third Population Project

The World Bank TOR OMCIAL USE ONLY CA. //2C.-Z' Iawbt N. P-3679-IN orF T PREDNT OF TME I_I LMV7lOWT ASSOCI3TIO TO THE EKECUTI DIRECICIS ONA O CRDIT IN ANl iKOW? or SDR 66.3 ttMI TO IDIA FOR A THIw POPULATON PROJET November 18, 1983 Thk d .w u dbu_idh d UV be _ by reIp.U _ I su tIn pdeu f.dsmof Erehi dhu. lb _mOmb My met 8&hw be iladmad wit W Bdi Br B SC _  cmucr mu3r (As of Septbeet 21, 1983-)- S1.00 - 0.192563 is 100 US$0.098110 is I ulIim US$98,O10 The Dus ibau cm Is subject to change. Couvazson in the Staff Affraia Report were ase at US$ 1-00 - Is 9.75-, wiCh rePresuts the average ecange rate projected over te dr p . APrfl 1- Nareh 31 Abbreviatim and Acroum CW~~~~~~~~~~~ - c C5 - Cr - Welt Cute - Gox - Gove t of hnd-a EL - EaI Asulstant; IN - IformatLoA.- Education and CanCatloU iU - IutUterma. eVice cm Vat- 11eraL. a Child; HeaLth NIBS - _ana t tmtiou and 5.-l ionyste O ME- niaty of oealt1 NOUF? - rNiistry of- eazl ad Famly Plannig ROOM - nIatry of BaLth and Family Welare _W - plirpoe Woke OTC - To_ in CMPS PUC - Primy Sealth Cter SHC Subsidiary ealth Centr  FOR OFFICIAL USE ONLY GLOSSARY Crude Birth Rate: Number of live births per year per 1,000 population. Crude Death Rate: Number of deaths per year per 1,000 population. Rate of Population Rate of natural increase adjusted for (net) migration Growth: expressed as a percentage of the total population in a given year. Infant Mortality Rate: Annual number of deaths of infants under one year per 1,000 live births during the same year. Total Fertility Rate: The average number of children that would be born per woman if she were to live to the end of her childbear- ing years, and bear children according to a given set of age-specific fertility rates. The Total Fertility Rate often serves as an estimate of the average number of children per family. Equivalent An index of overall family planning performance Sterilizations: calculated by adding the number of sterilizations performed over a period of time, one-third the number of IUDs inserted, one-eighteenth the number of equivalent conventional contraceptive users, and one-ninth the number of equivalent oral contraceptive users. These weights are derived from an assessment of numbers-of births averted by different contraceptive methods in India. Family Welfare Tae Government of India-s family planning, and Program: maternal and child health care services. rThb document has a resuicfted dismbuion and may be used by redpienlts only in the perfornmsn of| dtir ofricdudcLlu Iats conis y ot odrwisebe dbcsedwithout WorlidBank authbirfioL  INDIA THIRD POPULAIION PROJECT CREDIT AND PROJECT SUMHARY Borrower: India, acting by its President. Beneficiaries: The States of Karnataka and Kerala. Amount: SDRs 66.3 million (US$70 million equivalent). Terms: Standard. Relending Terms: As part of Central assistance by the Government of India (GOI) for State develop- ment projects on terms and conditions applicable at the time. At present, Central assistance for health and family welfare activities is provided on a grant basis. GOI will bear the exchange risk. Project Description: The project would support the implementation of GOI-s integrated family welfare program in selected districts of the States of Karnataka and Kerala, which it plans to carry out throughout India by the year 2000. The project would have the following major components: (a) service delivery; (b) demana generation activities; (c) monitoring, evaluation and operational research; and (d) project management. The project would have as its major objectives (a) the reduction of fertility and the lowering of infant, child and maternal mortality and morbidity by focussing on specific program interventions and generating demand for services and (b) the amelioration of program constraints at the State and district level by improving service coverage and quality, management, plan-ing, monitoring and evaluation. In view of the good administrative record of both States and the previous experience of Karnataka with the first population project, the risks associated with implementation of project components are expected to be minimal. To change the attitudes of program staff to bring them in line with the essen-  -ii- tial elements of GOI-s program, a strategy paper has been designed as the basis for staff inrservice training and reorientation. The need for effective, professional staff for the Information, Education and Communication component of the project will be met through assistance provided by local consultants of proven capability. With increased attention being paid to demand generation, the raising of contraceptive prevalence to projected levels should be attainable.  -iii- (US$ Millions) Estimated Costs Local Forei&n Total Service Delivery 72.3 8.3 80.6 Information, Education and Communication 4.9 0.5 5.4 Population Education 0.9 0.1 1.0 Research and Evaluation 2.6 0.1 2.7 Project Management 7.1 0.5 7.6 Total Base Cost F%] 9.5 9 2 Physical Contingencies 2.9 0.3 3.2 Price Contingencies 20.5 2.5 23.0 Total Project Cost 111.2 12.3 123.5 Less Duties and Taxes 7.5 - 7.5 Total Net of Duties and Taxes 103.7 12.3 116.0 Financing Plan: (US$ Millions) Local Foreign Total IDA Credit 57.7 12.3 70.0 GOI Grant/State Contributions 1/ 53.5 53.5 111.2 12.3 123.5 Estimated Disbursements: (US$ Millions) IDA FY FY84 FY85 FY86 FY87 FY88 FY89 FY90 Annual 0.5 4.5 8.7 13.8 18.5 18.0 6.0 Cumulative 0.5 5.0 13.7 27.5 46.0 64.0 70.0 Rate of Return: Not applicable. Appraisal Report: No. 4691-IN, dated November 9, 1983. 1/ Includes duties and taxes of about US$7.5 million.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDLA FOR A THIRD POPULATION PROJECT 1. I submit the following report and recommendation on a proposed develop- ment credit to India In an amount equivalent to SDR 66.3 million (US$70 million equivalent) on standard IDA terms to help finance a project designed to support the implementation of the Government of India-s (GOI) integrated family welfare program in selected districts in the States of Karnataka and Kerala. GOI would channel the proceeds of the credit to the States of Karnataka and Kerala in accordance with its standard terms and arrangements for financing state development projects. The exchange risk would be borne by GOI. PART I - THE ECONOMY 11 2. An economic report, -Economic Situation of India and Resource Mobilization Issues' (4395-IN, dated April 11, 1983), was distributed to the Executive Directors on April 19, 1983. Country data sheets are attached as Annex T. Background 3. India is a large and diverse country with a population of about 700 mil- lion (in mid-1982) and an annual per capita income of US$250. 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. Growth of value-added in agriculture - 2.2% since 1950/51 - 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) from 60% to just under 40X, while the share of industry rose from 15% to around 25%. 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. As a result economic growth has been slow over the past three decades, averaging about 3.6Z per annum since 1950/51. 4. Nevertheless, there has been steady progress with per capita income rising by about 1.4% per year in the period 1950 to 1980. Despite the large population base and its relatively rapid growth, India has been able to eliminate persistent dependence on foodgrain imports through significant improvemeats in agricultural production. Savings and investment have increased 1/ Parts I and II of the report are substantially the same as Parts I and !I of the President-s Report for the Pilot Project for Watershed Development in Rainfed Areas (No.P-3674-IN), dated November 16, 1983.  -2- markedly since 1950/51: gross national savings more than doubled from 10.81 of GDP (at factor cost) to 22.8% in 1982/83, while gross domestic investment rose from 12.5% of GDP to 24.9Z in 1982/83. Foreign savings (balance of payments deficit on current account) have never financed a major portion of domestic investment: a peak of about 20X was reached during the early 1960s. Surpluses arose for a few years in the late 1970s, and at the present time, foreign savings are about 82 of investment. External assistance has been low both as a percentage of GDP and in per capita terms, never rising above 3% of GDP and averaging below 1% for the past five yea-:s. Net foreign savings have never risen above 32 of GDP, and presently stands at 2.1%. 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 1969/70 averaged only 2.2X per annum, while the volume growth of imports over the same period was 4.3%. In the early to did-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 7.3% per annum for the 1970s as a whole, a performance whlch demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, con- tributed to this growth, liberalized access to imported inputs and more effec- tive export incentives played a major role. 6. Moving into the second half of the 1970s, the Indian economy was buoyed by higher levels of investment and an expanding level of foodgrain output. As a result, growth in real GDP and in agricultural and industrial value-added, substantially exceeded the historical 30-year trends (paragraph 3) averaging 4.9Z, 3.9% and 5.6%, respectively. In 1979/80, however, this momentum was broker when the worst drought in recent years, combined with a doubling of international oil prices and domestic supply shortages, led to a sharp fall tn 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. These setbacks in 1979/80 coincided with the preparar tion of the Sixth Five-Year Plan which laid down a program of adjustment that aimed at improving the trade deficit, removing infrastructural bottlenecks and ensuring price stability with an overall growth of the economy of 5.2Z, 1.6 per- centage points above the trend growth of 3.6Z. Recent Trends 7. In 1980/81 and 1981/82, the economy substantially recovered with real GDP growing by 7.9% and 5.2%, respectively. While industrial output expanded by 4% in 1980/81 and 8.6% in 1981/82, recovery was particularly robust in agriculture where normal weather helped output to rise by more than 15% and 5.5%, respectively. 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%, 9.6% and 12.9%, respectively. The easing of constraints on the supply of infrastructure and basic commodities was a determining factor in the improved performance of the industrial sector. This overall improvement in the Indian economy, combined with a more restrictive monetary policy contributed to a sharp decline in the rate of inflation. Wholesale prices rose by about 9% on an average annual basis in 1981/82 and by only 2.5% in 1982/83, reflecting a strong deceleration from a peak increase of 18% in 1980/81.  -3- 8. After two years of fairly solid performance, the Indian economy faced a difficult year in 1982/83 due to the drought in mid-1982 which brought down the GDP growth rate to around 2% and put further strains on the already dif- ficult balance of payments and domestic resource situation. Besides a sig- nificant decline in the range of 4.5X-6.5% in agricultural production, GDP growth was also constrained by a slowdown in industrial growth from 8.6% in 1981/82 to about 4% in 1982/83. This resulted from a combination of several factors, notably the decline in agriculture income, persistent (though lessened) power shortages, a textile strike in Bombay, as well as depressed export markets and increased competition from imports. The Government was able, however, to protect the level of savings to a large extent and keep the momentum of the investment program through largely successful public sector resource mobilization efforts. Foreign savings played a crucial role in supr- port of this effort. Similarly, the timely implementation of various economic policies mitigated the otherwise very distressing effects of a poor monsoon. Continued improvements of the infrastructure sectors, although at a slower pace than in the previous two years, also reduced the negative effects of the drought. 9. Agricultural production in 1982/83 received a serious setback from the drought. Foodgrain production, which had reached a record 133 million tons in 1981/82, declined to 124-127 million tons. Production of most other major crops also declined in 1982/83. Corrected for weather variations, this still represents a creditable performance. In 1979/80, with a broadly comparable monsoon, foodgrain production reached only 109 million tons. The Government was able to mitigate the effects of the 1982 drought through efficient manage- ment of foodgrain procurement and distribution, careful timing of foodgrain imports, and appropriate allocation of power to irrigation pumps. These policies helped to avoid disruptions in basic food supplies and contributed to price stability during the year. While the management of the foodgrain economy after the drought was a significant achievement, the effect of the drought on production re-emphasized the continued importance of the monsoon in India's agriculture. The performance of the recent past and probable future trends suggest that on average foodgrain supplies will meet demand. The balance remains delicate, and the need for foodgrain imports to maintain con- sumer supplies or adequate buffer stocks could arise from time to time. Thus, programs to expand irrigation, strengthen extension and encourage the efficient use of other agricultural inputs continue to receive high priority. 10. Basic infrastructure services performed generally well in 1982/83, although growth of coal, power and rail transport failed to maintain the momen- tum of the marked recovery of 1981/82. Despite lower hydro generation due to the failure of the monsoon, overall power generation recorded an increase of about 7%. This was due largely to an increase in capacity utilization in thermal plants resulting from improved overall management, stabilization of most of the new large units and better availability of coal due to the combina- tion of increased coal production and improved railway performance. Nevertheless, power shortages remain the major bottleneck in the economy. Railway traffic grew by only 3.7% in 1982/83 reflecting a slowdown from 1981/82. The lower growth was due not to a decline in the operational efficiency of the railways but rather to slack demand from core sectors like steel. iron ore, coal washeries and fertilizers. Coal production growth (4% in 1982/83), after 10% growth in the two preceding years was creditable. There were no major shortages and there were improvements in the quality of coal. Recent easing of shortages and bottlenecks in infrastructure has come primarily  -4- from better utilization of existing capacity, but in the future most lIprove- ment must result from added capacity. It is therefore critically important that India maintain the pace of investment in these key sectors and mobilize sufficient resources to do so. 11. The Indian economy has reverted from a situation of resource surplus, which had been a temporary phenomenon of the late 1970s, to one of resource scarcity. Investment has again grown quicker than national savings, and the scope for further increases in the latter appears limited. India's gross national savings rate, which averaged 22.4Z of GDP in the last three years, is high by any standard, particularly considering India-s low income and the large proportion of its population living below the poverty line. Future increases in savings will depend heavily upon the enhanced profitability of public sector enterprises which would require better utilization of capacity, more efficient operations and adequate pricing policies. In 1981/82 there was a significant increase in public savings due to improved profitability of various public sector enterprises. This trend which was maintained in 1982/83 needs to be accelerated. The gap between gross investment and national savings which rose from 0.4% of GDP in 1979/80 to 1.8Z, 2.3% and 2.1%, respectively in the first three years of the 1980s, has been financed by foreign savings. 12. India's ability to generate resources to meet its development objec- tives has become increasingly linked to the balance of payments. The current account balance which recorded surpluses between 1976/77 and 1978/79, sharply deteriorated to deficits of nearly US$2.9 billion in 1980/81 and US$3.8 billion in 1981/82 (1.8% and 2.3% of GDP, respectively). This was partly due to a sharp rise in the oil import bill as a result of both the disruption of oil production in northeast India in 1980 and significant oil price increases, and to a more liberal import policy aimed at providing producers with access to inputs for higher capacity utilization, greater efficiency, improved technology and capacity expansion. The current account deficit in 1982183 declined to US$3.3 billion or 2.1Z of GDP. The improvement would have been greater had not the drought resulted in the need to rebuild food stocks through imports and at the same time led to a lower level of GDP growth. This improvement in the balance of payments is to a significant degree the result of India's develop- ment and adjustment efforts over the past three years. It also reflects a reduction in the trade deficit as compared to the levels reached in 1980/81 and 1981/82. The trade deficit declined from US$7.6 billion in 1980/81 to US$6.0 billion in 1982/83 due to continued export volume growth (following the sub- stantial resumDtion in 1981/82) despite poor world market conditions, coupled with the containment in import growth due to import substitution of petroleum products, metals and fertilizers while allowing substantial growth in 'other' imports through more liberal import policies. Nevertheless, it is expected that the balance of payments will be under strain for the next several years, for India's adjustment program will continue to require high levels of imports. 13. The high investment rate, about 25% of GDP, envisaged in the Sixth Plan coupled with the limited possibilities of raising domestic savings beyond the present high levels, necessarily implies a need for external resources. Faced with a reduction in the availability of bilateral and multilateral concessional assistance, India has begun to borrow significant amounts on commercial terms from the Euro-dollar market in addition to much greater utilization of suppliers' and export credits. India's favorable debt service profile has enabled India to tap commercial capital markets at favorable spreads (over relatively high underlying rates). In the period 1980-82 India contracted  -5- commercial loans totalling over US$2,000 million and suppliers' credits of about US$520 million. The bulk of the loans are linked to specific development projects in the public sector while the credits are linked, by and large, to development projects in the private sector. India also reached an-agreement with the International Monetary Fund for the use of the Extended Fund Facility for 3-)R 5 billion, of which SDR 2.5 billion have already been drawn. The transfer of funds under the EFF has stemmed the use of foreign exchange reser- ves which had fallen to less than four months of import coverage in 1981/82. In 1982/83, in addition to continued use of the EFF, financing requirements were met by increased non-concessional borrowing (about US$2,000 million in new committments) and a lOX increase in net aid disbursement. Development Prospects 14. The experience of recent years illustrates that India has 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 manufacturing a wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, power, roads and ports -- is extensive compared to many countries, although there is considerable need for additional capacity as wel' as improvement In the utilization of existing capacity. India is also well-endowed with human resources and with institutional 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 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 objectives is the Sixth Five-Year Plan (1980/81-1984/85), which is now in its fourth year. The Plan assigns priority to agriculture, energy development, the growth of exports and domestic import substitutes where appropriate, and the removal of infrastructural bottlenecks. Overall performance has so far been encouraging, although bottlenecks in key sectors such as power and transport are likely to persist. Moreover, fulfillment of the Plan targets will require additional resource mobilization. The efforts of the Central Government to raise resour- ces 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, even if some increase in inflation is experienced above current low levels. However, a shortfall in public savings is likely to occur in some States unless further measures are introduced. There will be a need also for continuous efforts to maintain the current level of private savings. Recent increases in interest rates and tax concessions on time deposits and the con- tinued dampening of 1nflatlunary expectations should stimulate such savings. 16. The higher capital formation rates of the past few years augur well for future income growth. Howevez, returns to investment have so far been relatively low. 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 pover, tran- sport and irrigation, have inherently high capital-output ratios. However, there is scope to improve the sectoral capital-output ratios through greater efficiency and better management. Bottlenecks in basic infrastructural sectors clearly can prejudice growth in other sectors where large investments have been  -6- made. As demonstrated in the last three years, performance in the basic serv- ice sectors can be improved through better planning and management, thus lead- ing to higher productlvlty and capacity utillzation throughout the economy. At the same time, programs to expand domestic capacity are vital. In the case of tradeable commodities like coal, steel and cement, this is justified on the grounds of comparative advantage. For sectors such as irrigatlon, power and transportation, expansion of planned capacity in accordance with the require- ments of the rest of the economy will be vital to overall medium- and long-term development prospects. In the short term, however, achieving an adequate balance between supply and demand In these sectors will repain a difficult objective. 17. Under the Sixth Plan, India has an ambitious oil 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, and again in early 1983, resources for exploration and development were raised by successive price increases for domestic crude and products. India's dependence on oil imports dropped from 63Z in 1979/80 to about 45X now and a scheduled expansion In production is expected to decrease oil imports (in crude equivalent terms) to about 33% of consumption by 1984/85. The rapldly expanding level of exploration activity, combined with the possibilities for accelerated offtake from known fields, offers much encouragement for India's longer-term energy prospects. 18. Despite an expected continued decline in its current account deficits from the current 2.1% to about 1.7% of GDP by the late 1980s, India will require growing access to world financial markets to complement concessional assistance. These commercial sources of funds 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 neces- sitate external borrowing beyond levels expected to be available from normal concessional sources. Given the favorable structure of India's external debt, which reflects the past reliance on concesslonal sources, Indla should remain creditworthy for a substantial growth in external borrowing. 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 external balance, while at the same time achieving more rapid growth than in the past. In the longer term, income growth represents the best stra-: -y 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 impreve the balance of payments. In the short term, a relatively large external borrowing, including an increased emphasis on commercial borrowing, will be necessary to cope with the balance of payments 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, of course, limits beyond which India will choose to sacrifice growth objectives rather than accept debt on unfavorable or unmanageable terms. The Government's effort to maintain an adequate rate of growth while adjusting the structure of the Indian economy to a more open and efficient environment requires foreign resources in addition to the level of commercial borrowing available to India. India is still a very poor country with a large rural sector and enormous  -7- investmen: requirements for human development and basic infrastructure. The fact that Inaia has been able over the past seven years to maintain a rate of growth above the long term trenc, despite the poor monsoons of 1979/80 and 1982/83, lends substance to the hope that a more open trade policy and coo- certed 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 3.6Z 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. 20. A large and growing population and severe poverty underline the need to accelerate India-s development efforts. The 1981 Census placed Indfa-s popula- tion at 683.8 million, or about 12 million 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 of the Census 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 the results of the Census are fully analyzed, firm judgements about the reasons for this outcome are not possible. However, the results re-emphasize the need for continuing efforts to strengthen the health and 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 40% of the urban popula- tion subsist below the poverty line. Improvements in the living standards of the poor will depend to a large extent on the overall growth of the economy, particularly on increases in agricultural production and employment, and in non-farm rural employment. These developments will have to stem In large part from market forces which can 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 fcr India-s poor.  -8- PART II - BANK GROUP OPERATIONS IN INDIA 22. Since 1949, the Bank Group has made 76 loans and 160 development credits to India totalling US$5,183 million and US$11,851 million (both net of cancellation), respectively. Of these amounts, US$1,387 million has been repaid, and US$6,224 million was still undisbursed as of September 30, 1983. Bank Group disbursements to India in the current fiscal year through September 30, 1983 totalled US$286 illion, representing a decrease of about 2 percent over the same period last year. Annex II contaias a summary state- ment of disbursements as of September 30, 1983. 23. Since 1959, IFC has made 29 commitments in India totalling US$224 zillion, of which US$30 million has been repaid, US$56 million sold and US$18 zillion cancelled. Of the balance of US$120 million, US$113 million represents loans and US$8 million equity. A summary statement of IFC disbursements as of September 30, 1983, is also included in Annex II (page 4). 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 onrfarm development designed to increase agricltural productivity, and efforts to improve the availability of basic agricultural inputs to farmers through credit, fertilizer, marketing, storage, and seed projects. Major elements of the lending program have also been directed at helping to meec 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 develop- ment finance institutions. Recognizing the Importance of improving the ability to satisfy the essential neeas of urban and rural populations, the Bank Group has supported nutrition and f'-'ly planning prcgrams, 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 infrastructure development will appropriatel- contribute to Indias adjustment and growth prospects. Irrigation will need continuiug 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 Indias 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 iaports 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 supple- mented by investments in hydro and thermal power generation, and in the expar- sion 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  -9- receive high priority. Finally, raising the efficiency and levels of transpor- tation 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. 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 Intdia 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 India, not only to help the economy adjust to the more recent oil price increases and the overall deterioration in the world trade environment but also to maintain the rela- tively higher growth rates achieved during the first two years of the Sixth Plan. As in the past, Baik Group assistance for projects In India should aim to include the financing 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 sectors as agriculture, irrigation, and water supply. 27. Indias poverty and needs are such that whenever possible, external capital requirements shoul1 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 allocatei to India remains small in relation to India's needs for external support. This requirement for additional assistance can be met, in part, through Bank lending. Given its development prospects and policies, India is judged credit-worthy for Bank lending to supplement IDA assistance. A con- tinuation of efforts already underway to achieve growth in productive capacity, trade expansion, higher levels of saviags, foodgrains self-sufficiency and a reduction in the rate of population growth should result in continued economic growth and improvement in the balance of payments. Despite recent setbacks, ladia's external payments position is still manageable. The ratio of India-s debt service to the level of exports was about 11Z inr 1982/83 and is projected to remain below 202 through 1995/96. As of September 30, 1983, outstanding loans to India held by the Bank totalled Us$3,932 million, of which US$2,100 million renain to be disbursed, leaving a net amount outstanding of US$1,832 million. 28. Of the external assistance received by India, the proportion cor- tributed by the Bank Group has grown significantly. In 1969170, the Bank Group accounted for 34Z of total commitments, 13Z of gross disbursements, and 122 of net disbursements as compared with 50Z, 43Z and 53Z, respectively, in 1981/82. On March 31, 1982, India:s outstanding and disbursed external public debt was about US$17.9 billion, of which the Bank Group's share vas US$7.1 billion or 38X (IDA-s US$5.9 billion and IBRD-s US$1.2 billion). In 1981/82, about 16.02 of Indiaes total debt service payments were to the Bank Group.  -10- PART III - THE POPULATION SECTOR IN INDIA Population and Health Situation 29. With a population of approximately 685 million (1981 Census), India is the second most populous nation in the world. Fertility trends in India have however slowed down. The average crude birth rate has declined from 41.1 per thousand in 1971 to 33.9 per thousand in 1981; the total fertility rate has dropped from 5.3 in 1970 to 4.3 in 1978 (the latest year for which data are available). A mandated increase in the marriageable age of females, as well as a decline in marital fertility have both contributed to the overall decline. Lower fertility is largely attributed to Indias family planning program which has helped to increase contraceptive prevalence from 12% in 1971 to almost 29Z in 1983. The crude death rate in India also has been falling although more slowly in recent years from 19 per thousand in 1961 to 15 in 1971 and 13 in 1981, mainly due to the control of communicable diseases. 30. Although India's recent annual population growth rate of about 2 percent is modest compared to that of many other developing countries, the sheer numbers added each year (approxioately 14 million annually between 1971-81) are a serious constraint to the country's development effort. Future prospects are even more grim. The Bankts 'medium" term projections Which assume the achievement of replacement level fertility by the year 2020 result in a stationary population of 1.8 billion in India early in the 21st Century. The Proiect States 31. The proposed project would cover six districts in northern Karnataka and four districts in northern and central Kerala. The State of Karnataka had an estimated population of about 37 million in 1981, of which the six project districts of Belgaum, Bidar, Bijapur, Dharwar, Gulbarga and Raichur account for a little more than one third. The population density in these districts averages 165 per square kilometer which is significantly lower than the all State average of 194. They are, however, the generally backward districts in the State with a literacy level of 33% as against 38% for the State as a whole. Although, Karnataka's infant mortality rate of 82 per 1000 births is below the All-India average of 127, health and family welfare facilities in the project districts remain deficient with one hospital bed per 2,336 of population and one doctor serving the needs of approximately 12,200 people. In 1981/82 contraceptive prevalence in the six project districts (24.2Z) was about 5Z lower than for the State as a whole, while the number of equivalent sterilizations was almost 20Z lower. 32. The State of Kerala had an estimated population of 25.5 million in 1981. It is one of India-s most densely populated States with 655 inhabitants per square kilometer compared to the all-India average of 216. Although Kerala is a relatively more advanced State in the promotion of  -11- family planning measures, it also has a number of backward districts which affords an opportunity for demonstrating the possibilities of lowering fertility and infant mortality through good project implementation. While Kerala has a low total fertility rate, low infant mortality rate, and a relatively good contraceptive prevalence rate of 35X (1981/82), there is a wide variation in performance among its districts. Two of the four dis- tricts selected for this project (Wayanad and Idukki) are almost entirely in the highland, while a third (Palghat) includes both highland and mid- land country. The birth rates in these areas are substantially higher than for the rest of the State and infant mortality is almost twice as high as the all-State average. The fourth project district, Malappuram, located in Kerala's coastal belt also has a high birth rate and a low contraceptive prevalence rate. The contraceptive prevalence rate in the four districts ranges from 142 it Malappuram to 192 in Idukki and Palghat. The number of equivalent sterilizations per thousand population in 1982-83 for the four districts combined, which accounted for 24X of the State's population in 1981, was more than 302 lower than for the State as a whole. History of Family Planning in India 33. India-s national family planning program dates back ro 1952. Initial activities were limited, however, and it was only in the wake of the 1961 census, when the implications of the reported 2 percent annual population growth rate were first widely appreciated, that more serious efforts to implement a program were undertaken. With the establishment in 1966 of a Department of Family Planning in GOI-s Ministry of Health and Family Planning (MOHFP), the program was expanded to include two major campaigns aimed at promoting the use of intra-uterine devices (IUDs) in the mid-sixties and sterilization in the early-seventies. Mass vasectomy camps were also organized in 1972/73. These initiatives resulted in dramatic increases in the numbers of acceptors, but these were short-lived as organizational difficulties and inadequate provision for medical follow-up eroded public confidence and the number of acceptors declined significantly. 34. In the mid-1970s, family planning was re-emphasized as a major political priority and the MOHFP issued a formal statement of national population policy in April 1976 in which among other specific measures, the promotion of sterilization was emphasized. As a result the number of sterilizations increased dramatically to 8.3 million in 1976-77 from 1.4 million in 1974-75. The measures adopted to promote sterilization however, produced widespread apprehension and reported program excesses became an election issue. The new Government which came to power in March 1977 did not dismantle the previous Government-s family planning program but emphasized the integration of voluntary family planning with basic health, particularly maternal and child health (MCH), thus giving the program a broader -family welfare appeal. The name of the Ministry responsible for family planning was also changed to 'Ministry of Health and Family Welfare- (MOWFW). Two major family welfare programs were launched: the community health volunteer scheme under which basic assis- tance was provided to villages in first aid, MCH, family planning and  -12- sanitation; and a program to train dais (traditional birth attendants). The Governuent also formulated a 'Model Plan' drawing largely from the experience of the first Bank Group financed Population Project (Credit 312-IN). The Plan specifies expanded levels for facilities, staffing and training designed to improve program performance in the relatively backward districts of specific States. 35. With the return to power of the present administration in January 1980, the Model Plan became the basis of a program to utilize interna- tional assistance in selected districts of 12 States through a series of projects called Area Projects. Family welfare has also been included in the current list of GOI priorities in its 20-Point Program. GOI's family welfare program has now recovered the momentum lost in 1977/78 and is beginning to show results as the following performance figures indicate: (In millions) Family Planning Methods 1978/79 1979180 1980/81 1981/82 1982/83 Sterilizations 1.48 1.78 2.05 2.79 3.98 - Vasectomies (0.39) (0.47) (0.44) (0.57) n.a. - Tubectomies (1.09) (1.31) (1.61) (2.22) n.a. IUD insertions 0.55 0.64 0.63 0.75 1.07 Equivalent conventional contraceptive users /a 3.40 3.00 3.70 4.40 5.70 Equivalent oral contraceptive users 0.10 0.10 0.10 0.12 0.17 Equivalent sterilizationsl/ 1.9 2.2 2.5 3.3 4.7 Eligible couples effect- tively protected (%) 24.0 23.6 24.4 25.7 28.5 /a Mainly condoms. 1/ Equivalent sterilizations is an index designed to measure changes in family planning performance; it is calculated by adding the use of various methods adjusted by their respective weights (see Glossary). Although the 'percentage of eligible couples effectively protected" is a more widely used ;aeasure to show cumulative performance of family planning, -sterilization equivalent" is used to indicate changes in performance in the short-term.  -13- ?resent Strategies 36. The Plannlng Commissionas Working Committee on Population (May 1980) has set the following demographic targets for 1996: Crude Birth Rate 21 (per 1000 population) Crude Death Rate 9 (per 1000 population) Infant Mortality Rate 60 (per 1000 population) Life Expectancy 64 (years) Net Reproduction Rate 1/ 1 (female child per woman) Immunization Coverage 80 percent Contraceptive Prevalence Rate 60 percent To meet these goals, GOI's revised Sixth Five Year Plan (1980-85) has recommended the adoption of social strategies for fertility reduction generally, as well as more specific measures relating to family planning and MCH services. They include greater support for female education and a further increase in the age limit at which women may legally marry from the present 18 years. For family planning, the Plan promotes the use of temporary contraceptive methods by younger couples for child spacing, rommnity involvement in the promotion of family planning, and greater use of interpersonal communication and small group meetings to generate demand for services. More recently, GOI has increased the monetary compensation paid to sterilization and IUD acceptors, revised the eligibility criteria for sterilization to include couples with only two children, and promoted the use of oral contraceptives. A scheme to issue -green cards' to sterili__ couples entitling them to priority medical attention and other preferential benefits is also under consideration. Family Welfare Program Organization 37. Policy making for population matters, including family planning, is the joint responsibility of the States and the Central Government, but program Implementation is a State responsibility. Since the family wel- fare program (which comprises basically, family planning plus maternal and child health care), is considered of national Importance, all expendi- tures incurred by the States are met from Central funds. At the national level, the Central Health and Family Welfare Council, headed by the Union Minister of Health and Famlly Welfare and comprising all State Health Ministers, meets annually and advises on broad policy issues. The GOI Ministry of Health and Family Welfare (MOHFU) is responsible for overall program direction, guidance and evaluation which it exercises through its Department of Family Welfare. In each major State, there is a Regional Director of Health and Family Welfare who is responsible to the Center for 1/ An NRR of 1 by 1996 is estimated to imply a stationary population of about 1.4 billion by the year 2050.  -14- liaising with the State Government on program implementation and for providing feed-back information. 38. In Kerala, the family welfare program is under the overall charge of the State-s Ministry of Health (MOH) which is responsible for its implementation through approximately 163 Referral Facilities 1/ and 1,788 subcenters covering a rural population of about 21.3 million (see para. 41). At the district level, the District Family lWelfare Bureau headed by a District Family Welfare Hedical Officer, supervises all aspects of the program. In c nformity with GOI policy, the Government of Kerala adopted in May 1983, th, multipurpose approach to health in order to ensure the integrated delivery of health services, including family welfare under the proposed project. 39. The integration of health and family welfare activities in Karnataka was completed in the mid-seventies. The organization comprises the Department of Health and Family Welfare headed by a Director at the State level with responsibility for overlooking the activities of approximately 305 referral facilities and 3,917 subcenters covering a population of 27.4 million (see para. 41). The Director is assisted by Divisional Joint Directors of Health and Family Welfare Services at the divisional level. At district level, all health and family welfare activities are supervised by the District Medical Officer. Delivery of Family Welfare Services 40. GOI has recognized that some of the major deficiencies in the present delivery system include low levels of coverage, inadequately trained staff and an overly centralized organizational structure. To overcome these shortcomings and to increase the efficiency of the present system, GOI is promoting a Model Plan of service delivery which it intends introducing nationwide by the year 2000. 41. According to GOI-s Model Plan, Primary Health Centers (PHCs) are to remain at the apex of the delivery system. Each PRC would cover a community development block with an average population of 80-100,000. PHC staff include three doctors, one of whom is in overall administrative charge of all health and family welfare activities in the block. Eventually, all PHCs will be developed into Community Health Centers (CHCs) providing specialist obstetric and pediatric services. Below the PHCs are the Subsidiary Health Centers (SHCs) with one doctor supported by a female Health Assistant (HA), a male HA and a Community Health Officer. There would be two SHCs in each block. Each PHC and SHC will supervise the work of about four sub-centers. On an average each subcenter would serve a population of about 5000. The PHC and SHCs will also function as subcenters each serving a population of about 5000 in addition to their 1/ Community Health Centers, Primary Health Centers and Subsidiary Health Centers.  -15- other functions. The subcenters are the principal points of contact with eligible couples for family planning motivation and acceptance. Services are provided through the subcenters by one female and one male Multipurpose Worker (MPW). The responsibilit.es of female MPWs are diverse and include the provision of pre- and post-natal services to mothers and children, disseminating family planning information, dis- tributing conventional contraceptives such as condoms, and delivering babies. The male MPW also provides family planning information and dis- tributes condoms, but concentrates mainly on environmental sanitation. In the PHCs and SUCs, a female HA and a male HA each supervise four femAle and four male MPWs respectively at the subcenters. The NPWs in turn are to be supported by one dai (traditional birth attendant) and one Village Health Guide per 1000 rural population. Back Group Activities in the Sector 42. The first Population Project (Credit 312-IN, US$21.2 million, 1972) covered selected districts of Uttar Pradesh and Karnataka and sought to provide all the necessary health infrastructure and service facilities in these districts. Additional inputs were provided for an urban program, an intensive rural program, a supplementary nutrition program, and a management information and evaluation system. Health management units were also established at the Indian Institute of Management, Ahmedabad, and at the Administrative Staff College of India, Hyderabad. Overall, the project was well implemented, although there was a two year delay in the credit closing date primarily to allow experimental project components which were interrupted during the Emergency to continue. The Project Completion Report and Project Performance Audit Report (December 31, 1981) concluded that the project was implemented largely as designed. The reports noted some weaknesses in design and delays in the execution of some project components and concluded that these could have been avoided if State and district level staff had been involved in the formulation of the project. This has been done in the preparation of the second and the presently proposed third project. 43. The lessons learnt from the First Population Project were incor- porated into the GOI Model Plan (see para. 41), which provided the basis for a US$48 million credit for the Second Population Project (Credit 981-IN, 1980) covering selected districts in the States of Uttar Pradesh and Andhra Pradesh. This project also focuses on improving reporting and evaluation systems, professional and management training, and the provision of services in inadequately covered rural areas and funds the development of essential IEC activities. Implementation of this project is proceeding satisfactorily. 44. In addition, the Bank Group has supported maternal and child health care programs through two of its urban development projects--the Madras Urban Development Project (Cr. 687-IN, US$24 million, 1977) and the Second Calcutta Urban Development Project (Cr. 756-IN, US$87 million, 1978). The Madras project has been satisfactorily completed and a Project Completion Report is presently under preparation. The Calcutta project  -16- is progressing satisfactorily. The Tamil Nadu Nutrition Project (Credit 1003-IN, US$32 million, 1980) focuses on improving the nutrition oF preschool children between 6 and 36 months through nutrition delivery services and supports the development of other maternal and child health services. It is also progressing satisfactorily. PART IV - THE PROJECT Background 45. The proposed project was prepared by the Directorates of Health and Family Welfare of the State Governments of Karnataka and Kerala with assistance from the GOI Ministry of Health and Family Welfare. It was appraised in April/May 1983. Negotiations were held in Washington in October 1983, with Mr. S.P. Bajpai of the Department of Economic Affairs, Ministry of Finance, as coordinator of the Indian Delegation. The Staff Appraisal Report No. 4691-IN dated November 9, 1983, is being distributed to Executive Directors separately. A Supplementary Project Data Sheet is attached as Annex III. Project Concept and Objectives 46. The proposed project has been designed to assist GOI in the development of its integrated health and family welfare program (see para. 41) targetted for implementation throughout India by the year 2000. It represents a further development of the area-specific programs for which GOI has sought external assistance from various multilateral and bilateral agencies. The project would cover six districts of the State of Karnataka and four districts of Kerala, selected according to criteria which indicate their relative backwardness in terms of socio-economic development and health services infrastructure, as well as high fertility and mortality levels (see paras 31 and 32). The project would have as its major objectives the reduction of fertility and the lowering of infant, -hild and maternal mortality and morbidity, as well as the amelioration of program constraints at the State and district level. 47. To achieve these objectives, the project would support the implementation of a service delivery system (see para. 41) focussing on specific programs, the generation of demand for services, and improvement of management, planning, monitoring and evaluation systems. The project would also aim at improving professional and technical skills through programs of training and retraining, and at developing information, educa- tion and communication strategies which reinforce and support program interventions through inter-personal communication and available mass media channels. Project Description 48. Service Delivery. The project would bring the ten project dis- tricts in the two States under GOI s Model Plan (see para. 41). To imple-  -17- ment the scheme, the number of subcenters in Karnataka will be increased from 1,411 to 1,944 and in Kerala from 518 to 1,378. Through this expansion, the coverage of rural inhabitants by each subcenter would be reduced from the present level of some 6,800 in Karnataka and 11,300 in Kerala, to a little below 5,000 at the end of the project (1989). There is currently a shortage of accommodation in both States and a significant number of subcenters are housed in rented buildings. It is, however, not intended to construct the full complement of buildings to meet the backlog and proposed requirements for accommodation under the project, as this would not be replicable under GOI-s national program due to financial constraints. In accordance with GOI-s program of providing about 50% of all subcenters with appropriate buildings by the end of the Seventh Five Year Plan period (1989), about 650 subcenters would be built in the project districts of Karnataka and 570 in Kerala. The remaining sub- centers would function in rented buildings which would be fully furnished and equipped for the purpose. 49. To provide more adequate family welfare referral services and improve service management in Primary Health Center (PUC) blocks, existing facilities called primary health units in Karnataka and dispensaries in Kerala would be upgraded to the status of Subsidiary Health Centers (SHC). The present facilities are staffed by a doctor assisted by supporting staff and financed from state revenues. They would be provided with a ten-bed ward, an operating theatre and a laboratory. Two such facilities in each PHC block would be selected for upgrading to SHCs. Approximately 240 SHCs in Karnataka and 80 in Kerala would be created under the proposed project. There are currently 120 PHCs in Karnataka and 39 in Kerala. Under the project, 22 such PRCs and 8 subdivisional (Taluk) hospitals in Karnataka, and 9 PHCs in Kerala would be upgraded to the level of Community Health Centers (CHCs) by the addition of a ter-bed ward, an operating theatre and offices for additional posts of obstetrician and pediatrician. On account of the irregular and sparse distribution of PHCs in the project districts of Kerala and the relative shortage of hospital facilities providing family welfare referral services, 15 Subdivisional (Taluk) hospitals would also be expanded to include a tenrbed ward and operating theatre. To serve the project needs of Kerala's itinerant tribal population living in remote hilly areas, outreach work would be undertaken using four wheel drive vehicles to deliver family welfare services. 50. The level of staffing in both States would be increased under the project in line with the proposed expansion of service coverage. To ensure that the desired level of services is maintained, about 620 addi- tional female MPWs will be employed in Karnataka and 930 in Kerala by the end of the project period (1989). The present cadre of male MPWs in Karnataka is adequate to meet project requirements, while about 450 addi- tional male MPWs would be required in Kerala. To supervise the MPWs, about 40 additional trained Health Assistants (HA) would be provided for Karnataka and 150 for Kerala to meet project requirements. Karnataka would also recruit and train about 240 Community Health Officers (CHOs). A curriculum for a six-month training course for CHOs would be furnished  -18- by Karnataka to the Association for its review and comment ttO later than March 31, 1984 (See Section 2.07 of the Project Agreement). The lack of staff mobility seriously affects both service delivery as well as program supervision. To alleviate this situation in the project districts of both States, transport would be provided to replace unroadworthy vehicles and to meet new requirements. Adequate vehicle maintenance facilities would also be established. 51. The expansion of facilities and staffing would substantially increase the availability of family welfare services. In order to ensure a major impact on fertility and infant mortality, specific health and family planning measures will be emphasized under the project. A strategy paper on family planning and MCH incorporating the desired emphasis on these measures has been prepared as the basis for staff in-service train- ing and reorientation. It would also help to strengthen managerial attitudes towards program improvements and will be used as a guide to monitor program implementation. 52. Training. To improve the quality of existing staff as well as new staff recruited for the extended coverage of family welfare services, the project would provide facilities for basic pre-service training and for upgrading professional skills. In both Karnataka and Kerala, all MPWs and HAs would be trained in either existing training schools which would be expanded, or in rented accommodation. Additional training facilities would also be provided in non-district training schools to cope with the large numbers to be trained initially. Over 90% of the sanctioned male fPW staff positions in Karnataka and 85% in Kerala, as well as 90% of the sanctioned posiLions for male HAs in Kerala, would be filled with trained staff by the end of the project period. Outstanding training requirements for the sanctioned levels of these categories of staff would be met within two years of project completion. 53. In addition to supporting basic training, the project would provide for the retraining of all staff to upgrade professional skills, broaden attitudes towards family planning methods, and ensure that the program strategy is clearly understood (see para. 51). As an essential preliminary step, a six week survey would be undertaken in each State by a team of specialists to identify more precisely gaps in the skills, knowledge and practice of staff involved in the delivery of family welfare services. The results of the survey will be furnished to the Association for review and comment by May 1, 1984 (See Section 2.11 of the Project Agreement). The information collected would be used to develop curricula for retraining courses. The curricula and a timetable for the retraining of staff in project districts would be furnished to the Association annually for its review and comment, no later than two months before the start of each fiscal year. (See Section 2.08 of the Project Agreement). The retraining of staff is presently undertaken by PHC doctors on an ad hoc basis. Under the project, a permanent team of teachers drawn from the staff of teaching institutions and service facilities would organize and conduct retraining courses at CHCs and PHCs for all levels of staff every two years. The project would also focus on improving the ianagement  -19- skills of PHC doctors. To provide a more cohesive approach to service delivery both States would create a new cadre of physicians who would be in charge of PUCs and CHCs and all medical and family welfare services within a block. In Karnataka, management training of this new cadre, as well as of officials at district and State levels, would be provided at the Population Center in Bangalore which would be expanded. A committee under the State Secretary for Health would determine traLning commitments and a curriculum, drawing on the expertise of the Indian Institutes of Management at Bangalore and Ahmedabad, and the Indian Society of Health Administration, Bangalore. In Kerala, the Institute of Administration and Government at Trivandrum would be responsible for management training. The project would also provide for study tours for officials from both States to visit institutes and States in which management training is presently being conducted. Demand Generation 54. While surveys in both Karnataka and Kerala show that about 90. of the women between the ages of 15 to 49 are aware of family planning, only about 20% in the project districts are currently protected by any modern contraceptive method. Much greater emphasis on demand generation would be necessary if the 60 percent contraceptive prevalence objective set for the national program is to be achieved. The project would, therefore, focus more closely on Information, Education and Communication (IEC) strategies which support priority service interventions and address specific sections of the community throughout both States. Present IEC activities in the project States are carried out as routine government functions. Under the project, these activities would be strengthened to: (a) build on the wide base of family welfare awareness that already exists and generate a greater demand for family welfare services; (b) integrate family planning communication into the larger context of community health and mother-child care; (c) create a media setting that would help family welfare workers to gain greater credibility and acceptance in the community; (d) obtain recognition and support for the family welfare program from other govern- ment departments and voluntary agencies; and (e) win the approval of social leaders and other influential citizens for project purposes and actions. 55. The IEC strategies developed under the project would focus on specific target groups using all available media approaches - interper- sonal communication, comiunity education and mass media - in a coordinated fashion. In order to do this, the IEC organization would be strengthened by the appointment of a qualified IEC specialist with the rank of Joint Director in both Karnataka and Kerala by May 1, 1984 (See Section 2.12(a) of the Project Agreement). For both these posts, staff with wide profes- sional skills will be recruited. IEC staff at State, division and dis- trict level would be strengthened as necessary and their technical and planning skills upgraded. To support the regular IEC Staff, each State will use the services of a qualified IEC consultant to be appointed by May 1, 1984 for a total of 16 man-months during the project implementation period (See Section 2.12(b) of the Project Agreement). Detailed  -20- strategies drawn up by the IEC Directorate of each State would be made available to the Association for review and comment no later than two months before the start of each fiscal year (See Section 2.09 of the Project Agreement). Interpersonal communication is presently carried out by the female and male MPWs who have had no training in communication work. The retraining courses (see paragraph 53) would provide for simple training in IEC techniques. The retraiiing provided to doctors and other staff would enable them to provide MPWs and IEC staff with knowledgeable support. 56. As the main thrust of MPW activities would be on service delivery, it would leave them little time for personal counselling. The project would, therefore, supplement personal counselling with community education by extending the use of Orientation Training Camps (OTCs) developed under the Second Population Project. In OTCs organized by Block Extension Educators supplied with specially designed IEC kits, posters and other relevant and publicity material, small numbers of local leaders, teachers, women's representatives, private medical practitioners and government representatives would be exposed to official family welfare policies and programs, be encouraged to express their reactions and to lend support to the program. The project would also provide for the introduction oa population education in colleges and in adult education movements. In Kerala this effort would be supplemented by the use and expansion of the existing number of Mahilasamajam (women's village groupings of 50-75 which promote family welfare education). Also in Kerala, books on population and family welfare subjects would be channeled into volunteer youth libraries. To promote community participation and maintain regular con- tacts between family welfare staff and community leaders, family welfare committees established at subcenter, block and district levels would organize IEC strategies and activities. Workshops and seminars would also be organized to enlist the creative talents of writers, journalists, film producers and directors in the promotion of IEC work. 57. Mass media promotional work would reinforce the efforts of inter- personal and group communications particularly in spreading awareness of new information on such subjects as oral rehydration and alternative contraceptive methods. Mass communication would be undertaken by means of feature films, audio-visual aids, cultural programs, slides, video service and extension education in other development agencies. The project would provide vehicles, equipment and materials for all IEC activities where necessa:y. Project Organization and Management 58. The structure of the organization responsible for project implementation substantially follows that of the First and Second Population Projects (Credits 312-IN and 981-IN). GOI's Ministry of Health and Family Welfare would coordinate the activities of both States and oversee the implementation of the project. At the State level, a Governing Board of senior State officials and GOI representatives would be responsible for removing administrative bottlenecks, ensuring inter-  -21- hepartmental coordination in program implementation, reviewing project progress and suggesting ways and means of improving program performance. Overall supervision of the day to day implementation work would be entrusted to a Steering Committee in both States chaired by the Health Secretary. Special implementation committees would also be established at divisional (Karnataka only) and district level. Representatives of volun- tary organizations would be included in these special implementation cciumittees to assist in project implementation at the district level. 59. To ensure that both physical implementation of project works and program performance are equally emphasized, overall project management in each State would be entrusted to a Project Coordinator or the rank of Additional Secretary. These officers would coordinate the activities of the Departments of Public Works, Education, and Health and Family Welfare which would implement the project. To cope with the expanded program proposed for this project, the Staff of the Departments of Education, and Health and Family Welfare of each State would be strengthened on a per- mWtent 6asis. Tha P-blic UntiA nepartments would however use the services of additional staff on a temporary basis as required to undertake the extra construction work generated by the project. Project officers drawn from the revenue cadre will be appointed in each district to assist in site selection and acquisition. When these functions have been completed they will be replaced by medical officers who will asaist in program implementation. Monitoring, Evaluation and Operation Research 60. A management, information and evaluation system (MIES) was developed for the project districts under the First Population Project (Credit 312-IN) to provide accurate information quickly to program managers to enable them to monitor performance and provide their staff with appropriate feedback. Under the proposed project, this system will be Implemented State-wide in phases starting with the project districts thus providing both States with the capability of targetting performance more realistically than is presently possible. The shortage of critical demographic information required for monitoring and evaluation will be alleviated through surveys conducted by the Bangalore Population Center in Karnataka and in Kerala jointly by the Directorate of Health, the State Department of Economics and Statistics, and the Demographic Training and Research Center. The information collected would also be used to refine project performance indicators set out in the strategy paper and for the purpose of establishing a baseline for final project evaluation. The project would also provide for operational research through a nmber of studies to assist program managers in an ongoing evaluation of project implementation and program performance. In order to carry out the proposed monitoring and research activities more effectively, the statis- tical capability of each State will be strengthened. Because of the distance of the Bangalore Population Center from the project districts (350 km), a field unit would be set up at Gulbarga to serve the needs of the project. The States would each undertake a mid-term review of the progress of each component of the project and of the performance of the  -22- family welfare program in the selected districts. They would furnish the results of such review to the Association for its comwents not later than September 30, 1986 and undertake any necessary actions as agreed upon with the Association (See Section 2.10 of the Project Agreement). Project Costs and Financing 61. The total project cost is estimated at US$123.5 million equivalent, of which US$73.1 million is for Karnataka and US$50.4 million for Kerala. About US$7.5 million of taxes and duties and US$12.3 million (10Z) of foreign exchange costs are included in the total cost. Approximately US$80.6 million of project costs would be for strengthening service delivery, US$6.4 million for demand generation activities (i.e. population education and IEC work), US$2.7 milnion for research and evaluation, and US$7.6 m411ion for project management. Physical contin- gencies amount to approximately US$3.2 million, while price contingencies amount to US$23.0 million. Price contingencies for local costs are based on annual price increases of 7Z for 1983184 and 1984/85, 8Z for 1985186 and 1986187, and 6S thereafter. For the foreign exchange component, price contingencies of 4.8Z for 1983/84, 9.5Z for 1984/85, 9.12 for 1985/86, 7.51 for 1986/87 and 62 annually thereafter, have been used. Approximately 32 man-months of local consultancy services would be needed for the project. These services would-be required to support the regular IEC staff in implementing the IEC component of the project (see para. 55). The average man-month cost including salary, fees and subsistence is expected to be about US$1000. 62. Since the family welfare program is centrally sponsored the bulk of the costs during the project implementation period (FY 1984/85 through FY 1988/89) in both States would be borne by GOI. After project completion, annual incremental recurrent expenditures of approximately Rs 32 million CUS$3.3 million) at FY 1982/83 prices would be required by each State for FY 1989/90 and thereafter. Given the expected growth in the budgets of the Departments of Health and Family Welfare in Karnataka and Kerala, these incremental recurrent costs would be absorbed in the corresponding now-Plan budgets without much difficulty. The planning and finance ministries in both States have reviewed and approved the proposed project. w 63. The proposed IDA Credit of US$70 million equivalent would fi-nace about 601 of total project costs, excluding taxes and duties. The balance of US$53.5 million would be provided by GOl and the State Governments. The Credit covers 1001 of the foreign exchange ocits of the project and 561 of local costs net of taxes and duties. The project would also provide retroactive financing of up to US$0.7 million, for expenditures incurred after July 1, 1983 for essential start-up activities such as the establishment of construction units, training, preparation for baseline surveys and MIES.  -23- Procurement and Disbursement 64. Contracts for civil works (USS 53.9 million excluding contingencies) would be awarded on the basis of local competitive bidding in accordance with procedures of the States concerned, which are satisfac- tory to the Association. Civil works contract., including extensions to existing buildings, would be small and widely dispersed in time and place, and would not be suitable for international competitive bidding. Difficulties have been experienced in the previous population projects in retaining contractors to work on small buildings in isolated areas. Consequently, a small proportion of the civil works, not more than 302 of the total, would be carried out departmentally. In the interest of ensur- ing adequate maintenance and spares, vebicles required for the project would be procured through local competitive bidding procedures acceptable to IDA. Similar procedures would be used for the purchase of furniture made from indigenous timbers suited to local climatic conditions. Contracts for furniture estimated to cost less than US$25,000 each, up to an aggregate value of US$250,000 in each State would be made through prudent shopping based on at least three quotations. The bulk of the equipment required for the project is made up of a large number of items of small value with limited opportunity for packaging in lots large enough to attract foreign suppliers. However, where possible, equipment will be packaged into contracts estimated to cost the equivalent of US$100,000 or more and awarded on the basis of international competitive bidding (ICB) in accordance with IDA-s guidelines for procurement. A preference margin of 15% of the c.i.f. value would be granted to local manufacturers in bid evaluation. Contracts for equipment below US$100,000 equivalent each, up to an aggregate of US$2.0 million in each State, would be procured follow- ing local competitive bidding procedures acceptable to the Association. Purchases of equipment below US$25,000 equivalent would be through prudent shopping based on at least three quotations. The aggregate value of such contracts is limited to the equivalent of US$500,000 in each State. 65. The proceeds of the credit would be disbursed against 1002 of the cost of directly imported equipment; 100% of the ex-factory cost of locally manufactured equipment; 70Z of expenditures for locally procured equipment; 602 of the cost of civil works, furniture and vehicles and 40Z of the cost of training, consultant services, staff salaries and other operating and maintenance expenses. As in the first and second Population Projects (Credits 312-IN and 981-IN), all disbursements would be made against certified statements of expenditure to be supplied by the GOI Ministry of Health and Family Welfare (MOMFW). Supporting documentation would be retained by GOI for inspection by IDA during project supervision. The project accounts audited by the Auditor-General of India would be made available to the Association within 9 months after the close of each fiscal year. Project Benefits and Risks 66. The major benefit of the project would be to provide expanded and improved family planning and maternal and child health services to a rural  -24- population of about 18 million in both States, as part of a comprehensive program that would gradually cover the whole country. By concentrating on priority service interventions and on developing a demand generation component, the project is expected to help to increase levels of con- traceptive prevalence In the project districts in Karnataka from its present level of 24% of eligible couples to about 43Z by 1989. For Kerala, the comparable expected increase is from 17% to about 33%. The project would also have state-wide benefits through the introduction of population education in colleges and in adult education movements (see para. 56). Some 225,000 potential opinion leaders would be reached. The MIES system would provide information for improved program planning and targetting, and help to imrove monitoring and evaluation of program performance. Finally, the IEC component would establish more systematic approaches to demand generation which should be replicable in other dis- tricts and States. 67. In view of the good administrative record of both States, the risks in project implementation are expected to be minimal. Some dif- ficulty is seen in changing State program staff attitudes to bring the into line with GOI-s program strategy. It is proposed to overcome this problem through extensive project orientation and retraining. The dif- ficulty of providing effective professional inputs for the TEC program would be met by the use of local consultants of proven capability to support regular IEC Staff. With 'ircreased attention being paid Lo demand generation, the raising of contraceptive prevalence in the project dis- tricts to the levels projected although difficult should be attainable. PART V - LEGAL INSTRUMENTS AND AUTHORITY 68. The draft Development Credit Agreement between India and the Association, the draft Project Agreement, between the Association and the States of Karnataka and Kerala, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 69r Special conditions of the project are listed in Section III of Annex III. 70. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 71. 1 recommend that the Executive Directors approve the proposed credit. A.W. Clausen President November 18, 1983  BEST COPY AVAILABLE Paw5 .1 of i mu -=W soc MWsDrks USiA ApSOCK -80 RATUS 4138AV ) fg ,06? (? USCUT , lC" T A C) Al 1~~~~38? i . as x . IODIr 1964 s,1uh~k ,sm,am~