India - Madhya Pradesh Urban Development Project

Do airf The World Bank FOR OMCL USE ONLY LA. 23a2q- I-J Uqin No. P-3610-}i . OF TmE PRESDENT OF TH IIRNXEIOAL BAN FOR RECONSTRCTIl AiND DEVEOM TO T1 EMCMTIVE DI:RECTOS ON A PROPOSED LOAN IN AN AXOT EQIVALENT O US$24.1 MILLION TO INDIA FOR TE NADKHA PRADESH URBAN PROJECr Jume 9, 1983 Ibsdcuetbwarshiid bau_ad a b o b _iAtd a*IhXe eramee t1;eir lAi dti t- ma aft amVlnb bbd 1Wm W_ m  CURRENCY EQUIVALENTS (As of Nay 26, 1983) US$1.00 = Rs9.983674 Rs 1 = US$0.10016 Rs IllIlon US$100,160 The US Dollar/Rupee exchange rate is subject tc change. Conversions In the Staff AppraisaI Report were made at US$1.00 - RE 9.5, which represents the average ezchange rate projected over the disburse ent period. FISCAL D . April 1 - March 31 Abbreviations and Acronyms used in this Report GOI - Government of India GON -_ Government of Madhya Pradesh HUDCO - Housing and Urban Development Corporation, Ltd. MONE - Ministry of Works and Housing, GDI HP - Madhya Pradesh EMB - Madhya Pradesh Housing Board MPSCIB - Nadhya Pradesh Slum Clearanee and Improvement Board 15W - National Building Organization, GDI SADA - Special Area Development Authority TCPD - Town and Country Planning DepartInt, GOMP TCPO - Town and Country Planmnig OrganIzation, GDI  FOR OFFICIL USE ONLY INDIA MADHYA PRADESH URBAN DEVELOPMENT PROJECT LOAN AND PROJECT SUNARY Borrower: India, acting by its President. Beneficiary: The State of Madhya Pradesh (1HP); The Housing and Urban Development Corporation (HUDCO); Tne Ministry of Works and Housing, Government of India. Amount: US$24.1 million, including capitalized front-end fee of 0.25%. Terms: Repayment over 20 years, including five years- grace, and the standard variable interest rate. O{nrLending Terms: The Government of India (GOI) would pass US$20 million to HUDCO, for project activities in HP, at not less than 8.5Z interest per atnnum over 20 years including x 4-year grace period. GOI would provide US$2.6 million to HUDCO for technical assistance on a grant basis and would use the balance (US$1.5 million) for technical assistance to its Ministry of Works and Housing and for payment of the front-end fee. CDI to bear exchange and interest risks. HUDCO to Madbya Pradesh Housiug Board (MPHB): at not less than lOx interest per annum for 20 years, including a 4-year grace period. HPHB to Project Implementation Agencies: at not less than 11% interest per annum for 20 years, including a 4-year grace period. Interest to final beneficiaries of the area developmeut, slum upgrading and sanitation components would be not less than 12Z per annum for up to 20 years. I This doment has a resticed distribuion and may be used by recients only in the performance of hfier offici duties. Its contens may not otherwise be dislosed without World Bank auhnizaton  -ii- Project Description: The purpose of the project is to improve urban serviees (area development, slum upgrading and sanitation) in up to ten ci ties in the State of Madhya Pradesh and to strengthen national, State and local instibutions involved in policy, planning and impleinentar ion of urban lIevelopment projects. The project would directly benefit over 55,000 households under the area development and slim upgrading programs and some 500,000 people would benefit from improved sanitation facilities. The main project risks include delay in land acquisltion for area development and limited capacity of the implementing agnucies to handle this new kind of project. These constraints were kept in view in designing the project~s size, scope and institutional strengthening measures. These considerations and the steps already taken by the State in lau:d acquisitiL-n and in the recruitment of consultants required for institutional strengthening should minimize these risks. . c  Estimated Cost: (US$ Millions) .ccAl Foreign Total Area Development 13.4 ;.8 15.2 Area Development in Medium Towns 3.0 0.4 3.4 Slum Upgrading 7.1 0.6 7.7 City-wide Sanitation and Infrastructure 1.1 0.1 1.2 Municipal Maintenance and Solid Waste Management 2.8 0.6 3.4 Technical Assistance and Training 4.6 0.1 4.7 Design, Supervision and Management 2.3 0.3 2.6 Base Cost 34.3 3.9 38.2 Physical Contingencies 1.8 0.2 2.0 Price Contingencies 8.8 1.0 9.8 Total Project Cost 44.9 1/ 5.1 50.0 1/ Front-end Fee on Bank Loan - 0.1 0.1 Total Financing Requirements 44.9 5.2 50.1 CUS$ Millions) Financing Plan: Local Fregn Total Bank 18.9 5.2 24.1 *JMP 8.5 - 8.5 HUDCO 13.0 13.0 Local Agencies 4.5 - 4.5 Total 44.9 5.2 50.1 Estimated Disbursem nts: (US$ millions) IBRD FY: FY84 FY85 FY86 FY87 FY88 FY89 Annual 0.7 3.0 5.2 6.0 5.6 3.6 Cumulative 0.7 3.7 8.9 14.9 20.5 24.1 Rate of Return: 16% (based on evaluation of project components accounting for 63Z of project costs). Appraisal Report: No. 4359-IN, dated June 8, 1983. 1/ Includes duties and taxes of US$2.8 milllon.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE MADHYA PRADESH URBAN DEVELOPMENT PROJECT 1. I submit the following report and recommendation for a proposed loan to India in an amount equivalent to USe24.1 million to help finance a project designed to improve urban services in up to ten cities in the State of Madhya Pradesh and to strengthen national, State and local institutions involved in urban development. Amortization would be over 20 years icluding five years of grace at the applicable interest rate. The Government of India (GOI) would pass US$20 million to the Housing and Urban Development Corporation (HUDCO), at an annual interest rate of not less than 8.5Z over 20 years, for onlending to the State agencies to implement project investments. The balance would be used by GOI for technical assistance for its Ministry of Works and Housing and RUDCO and for payment of front-end fee. Details of terms and conditions are in the Loan and Project Summary. GOI would bear the foreign exchange and interest rates. PART I - THE ECONOMY 1/ 2. An economic report, -Economic Situation of India and Resource Mobi- lization Issues' (4395-IN, dated April 11, 1983), was distributed to the Execu- tive Directors on April 19, 1983. Country data sheets are attached as Annex I. 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 then 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 40%, 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 rrsirg by a'>out 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 improvements in agricultural production. Savings and investment have increased 1/ Parts I and II of the report are substantially the same as Parts I and II of the President-s Report for the M4aharashtra Water Utilization Project (No. P-3585-IN), dated May 19, 1983.  -2- markedly since 1950/51: gross national savings more than doubled from 10.8% 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 20% 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 8Z of investment. External assistance has been low both as a percentage of GDP and in per capita terms, uaver rising above 3% of GDP and averaging below 1Z for the past five years. Net foreign savings have never risen above 3% 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 2.2% per annum, while the volune growth of imports over the same period was 4.3%. 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 7.3% 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 neerby Middle East, ccn- tributed to this growth, liberalized access to imported inputs and more effec- tive export incentives played a major role. 6. Moving inco the second half of the 1970s, the Indian economy was buoyed bv 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 4.9%, 3.9% and 5.6%, respectively. In 1979/80, however, this momentum was broken when the worst drought in recent years, combined with a doubling of international oil prices and domestir 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. These setbacks in 1979/80 coincided with the prepara- 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 5.2%, 1.6 per- centage points above the trend growth of 3.6%. 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 wa-s 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 mo'etary 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 ZZ 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 4.5Z-6.5% in agricultural production, GDP growth was also constrained by a slowdown in industrial growth from 8.6X 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 les- sened) 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 momen- * tuum of the investment program through largely s ccessful public sector resource mobilization efforts. Foreign savings played a crucial role in support 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 cwo 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 ln 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 maaage- ment of foodgrain procurement and distribution, careful timing of foodgrain imports, and appropriate allocation of power to irrigation pumps. hnese 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 conr- 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 Zailure 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. Neverthe- less, 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 1OZ 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 from better utilization of existing capacity, but in the future most improvement must  -4- result from added capacity. It is therefore critically important that India maintain the pace of investment in these key sectors and mobilize sufflcient resources to do so. ;1. 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 22.4% 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 palicies. In 1981/82 there was a significant increEse 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 1.8X, 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 cbjec- 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 2.1% of GDP. The improvement would have been greater had not the drought resulted in ihe 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 resumption 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 sup- pliers' 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 ccmmercial  -5- loans Lotalling 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 SDR 5 billion, of which SDR 2.5 billion have already been drawn. The transfer of funds under the EFF has steamed 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 nonr-concessional borrowing (about US$2,000 million in new committments) and a 10% increase in net aid disbursement. . Development Prospects 14- The experience of recent years illustrates that India has the capacity to grow and deve'lop 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 well 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 i3 now in its fourth year. The Plan assigns priority to agriculture, energy development, the growth of exports and domestic import s:ubstitutes where appropriate, and the removal of infrastruztural 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 r-quirements of the Central Government's share in plan invest- ment, even if s6,ne 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 inflationairy expectations should stimulate such savings. 16. The higher capital formation rates of the past few years augur well for future income growth. However, returns to investment have so far been relatively low. Much of this phenomenon relates to India-s stage of develop- ment, 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, there is scope to improve the sectoral capital-output ratios through greater efficiency and better management. Bottlenecks in basic infrastructural sectors clearly  -6- can prejudice growth in other sectors where large investments have been made. As demonstrated in the last three years, performance In the basic service sectors can be improved through better planning antd 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 tradeable commodities like coal, steel and cement, this is justified on the grounds of comparative advantage. For sectors such as irrigation, power and transportation, expansion of planned capacity In accordance with the require- m,nts of the rest of the economy will be vital to overall mediuo- and long-term development prospects. In the short term, however, achieving an ddequate balance between supply and demand in these sectors will remain 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 63% in 1979/80 to about 452 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 rapidly expanding level of exploration activity, comblned 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 1.72 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 concessional sources, India 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 strategy for achieving these needed adjustments, botb by generating higher savings for further invest- ment, and by fostering the development of export and import-substituting industry to improve the balance of payments. In the short term, a relatively large external borrowing, including an increased emphasis on commercial borrow- ing, 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 assis- tance. 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 bevond 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 ece-iomy to a more open and efficient environment requires foreign  -7- 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 investment requirements for human development and basic infrastructure. The fact that India has been able over the past seven years to maintain a rate of growth above the long term trend, despite the poor monsoons of 1979/80 and 1982/83, lends substance to the hope that a more open trade policy and conr- 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 3.6% per annum. Combined with a reduction in the rate of population increase to below 2.0% per annum, a 5.0Z 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 India'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 overes- timated, 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. Reduct'on 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 fac4lities and the provision of secure village water supplies. Operations such as the community health volunteer program and the national adult literacy campaign provide encouraging  ewidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India-s poor. pARTf II - BANK GROUP OPERAIIONS IN INDIA 22. Since 1949, the Bank Group has made 71 loans and 156 development credits to India totalling US$4,683 million and US$11,447 million (both net of cancellation), respectively. Of these amounts, US$1,332 million has been repaid, and US$5,907 million was still undisbursed as of March 31, 1983. Bank Group disbursements to India in the current fiscal year through March 31, 1983 totalled US$1,008 millionu representing an increase of about 17 percent over the same period last year. Annex II contains a summary statement of disburse- ments as of March 31, 1983, and notes on the execution of ongoing projects. 23. Since 1959, IFC has made 28 commitments in India totalling US$220.4 million, of which US$28.3 million has been repaid, US$56.2 million sold and US$17.3 million cancelled. Of the balance of US$118.6 million, US$111.1 mil- lion represents loans and USs7.5 million equity. A summary statement of IFC operations as of March 31, 1983, 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 agricultural produc-- tivity, and efforts to improve the availability of basic agricultural inputs to farmers through credlt, 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 otl 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 populatiks, the Bank Group has supported nutrition and family planning programs, P 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 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  -9- and gas resources is a central element of this program, which should be supple- mented by investments in hydro and tbermal 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 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 railvays 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 bee- 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 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, Bank Group assistance for projects in India should ait 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. Cousequently, 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. 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. 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 Balk lending to supplement IDA assistance. A con- tinuation of efforts already underway to achieve growth in productive capacity, trade expansion, higher levels of savings, 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, India-s external payments iosition is still manageable. The ratio of India-s debt service to the level of exports was about lIZ in 1982183 and is projected to remain below 20% through 1995/96. As of March 31, 1983, outstanding loans to India held by the Bank totalled US$3,471 million, of which US$1,854 million remain to be disbursed, leaving a net amount outstanding of US$1,617 million. 28. Of the external assistance received by India, the proportion conr- 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 50%, 43% and 53Z, respectively, in 198I/82. On March 31, 1982, India-s outstanding and disbursed external public debt was about US$17.