India - Second Orissa Irrigation Project

Docmaent of The World Bank -FOR OMCAL USE ONLY cqe 1 3R7- 3>% leps N -P-3612-1i OF TRE }RESRT OF mm IMNhON&L DEVEL ENT ON TO TEE EXECUTIVE DIRECTORS ON A PNEPOMMD CREDIT IN AN AiDUT OF SDR 97.1 NILLIO TO I3IDI& POR T ORISSAI I PROJECT June 9, 1983 This docmnt bas a restcted distrinuion and my be ued by recipients only in the performance of tbel ollicid dudes. Its ctaB- many not othrwsec be adicosed without Woiid Bank xfftborifon.  CIIRRENCY EQUIVAETS (As of Jue 79 1983) US$1 - Rs 10.056648 Rs 1 m US$0. 100000 Rs 1 dllion - US$100,000 The US Dol1ar/Rupee emchange rate Is subject to change. Conversions in the Staff Appraisal Report mere made at US$1.00 - Rs 9.5, uhich represents the average exchange rate projected ever the disblrsement period. FISCAL YEA April 1 - March 31 Abbreviations and ASronyms used in this Report CAD - Command Area Development CVC - Central Water Comnission DAFP - Directorate of Agriculture and Food Production ERR - Economic Rate of Return D00 - Goverument of Orissa 001 - Government of India ICB - International Competitive Bidding ID - Irrigation Department lithin the I&pD (Government of Orissa) I&PD - Irrigation and Power Department (Government of Orissa) IDA - International Development Association IBRD - International Bank for Reconstruction and Development LCB - Local Competitive Bidding HIP - Medium Irrigation Project OFD - On-faza Development 0&M - Operations and Maintenance R&D - Research and Development RWS - Rotational water Supply SCHC - State Coordinating and Monitoring Committee VAW - Village Agriculture Worker WALII - Water and Land Manageent Institute WMC - Water Nanagement Committee  FOR OFFICIAL USE ONLY INDIA ORISSA IRRIGATION II PROJECT CREDIT AID PROJECT SUMMARY Borrower: India, acting by its President. Beneficiary: Government of Orissa (GOO). Amount: SIR 97.1 million (US$105 million equivalent). Terms: Standard. On-Lendi!g Terms: As part of the Central assistance to States for development projects on terms and conditions apiplicable at the time. The Goverment of India (Go0) would bear the foreign exchange risk. Project Description: The four-year project would continue the Government of Orissa's construction prtgam of Medium Irrigation projects (MIPs) commenced in 1960, and assisted by the Bank Group since 1978. A total of 15 NIPs, already under construction in the context of the earlier Orissa I juroject would be completed and set in operation during this second "time-slice7 project which would commence opril 1, 1983 and extend through March 31, 1987. Another three HIPs just comenced under the earlier project would be brought to near-completion status and about six new MIPs would be appraised and partly constructed during the project period. In addition, some 160,000 ha of land would be consolidated into economic production areas and, within this area, a system of watercourses and drains (defined as On-famn Development or OFD) would be designed. In approximately 48,000 ha of such consolidated land, the OFD works would be constructed during the project. To test improved HIP and canal system performance, a Research, Development and Training Cell is being established to undertake pilot studies and a number of coordinating units is being established to ensure that all State Government departments and research institutions are actively involved in the success of the project. As this is a continuation of a successful, ongoing program, the risks are considered acceptable. Two problews identified in the earlier T hi document hs a restice distibution and may be used by reipents ody in the perfonrane of thei official dutes. Its contents may not otherwisc be disclosed without World Bank authorization.  -ii- project -- cost-overruns and delays in land acquisition - are both adequately addressed in this project. Estimated Costs: 1/ US$ Millions Item Lococl Foreign Total Medium Irrigation Projects Ongoing MIPs 68.4 9.1 77.5 New MIPs 9.2 1.3 10.5 Sub-total MIPs 77.6 10.' 88.0 Command Area Development Land Consolidation 7.6 - 7.6 Onrfarm Development 6.1 1.1 7.2 Sub-total CAD 13.7 1.1 14.8 Research, Development & Training 0.7 0.1 0.8 Sub-total 92.0 11.6 103.6 Physical Contingencies 15.1 2.2 17.3 Price Contingencies 17.4 2.2 19.7 Subtotal 32.5 4.4 37.0 Total Project Cost 124.5 16.1 140.6 Financing Plan: IDA 88.9 16.1 105.0 Local Financing 35.6 - 35.6 Total 124.5 16.1 140.6 I/ Including taxes and duties which are negligible.  -iii- Estimated Disbursements: USS Millions IBRD FY FY84 FY85 FY86 FY87 Annual 15.1 25.4 28.9 35.6 Cumulative 15.1 40.5 69.4 105.0 Rate of Return: For the overall project, the composite economIc rate of return (ERR) is 19%; the average ERR for MIPs is 14%, and for the command area development component, the ERR is 48Z. Appralsal Report: No. 4448-INa, dated May 31, 1983.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE ORISSA IRRIGATION II PROJECT 1. I submit the following report and recommendation on a proposed develop- ment credit to India of SDR 97.1 million (US$105 million equivalent) on stand- ard IDA terms to help finance the implementation of the Government of Orissa's ongoing investment program for medium-scale irrigation projects over the next four years, and command area development, including land consolidation and on-farm works in various areas within Orissa. Tne proceeds of the credit would be chanelled to the Government of Orissa in accordance with the Government of India's standard terms and arrangements for the financing of State development projects. The exchange risks would be borne by the C-overnment of India (GOI). PART I - THE ECONOMY 1/ An economic report, "Economic Situation of India and Rescurce 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 than growth of industrial value-added (5.0% per annum). As a resilt, 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 3.6% 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 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 Maharashtra 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 22.8Z in 1982/83, while gross domestic investment rose from 12.5% of GDP to 24.9% 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 20Z 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 8% of investment. External assistance has been low both as a percentage of GDP and in per capita terms, never rising above 3X of GDP and averaging below 1% for the past five years. Net foreign savings have never risen above 3% of GDP, and presently stands at 2.1x. 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 volume growth of imports over the same period was 4.3%. In the early to uid-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 l97Cs as a whole, a performance which 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 plrved 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 4.9%, 3.9Z 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 domestic 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 5.2Z, respectively. While industrial output expanded by 4% in 1980/81 and 8.62 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 :he 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 perforrance, 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 4.5Z-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 dec.ine 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- tum of the investment program through largely successful 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 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 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 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. Neverthe- less, power shortages remain the major bottleneck in the economy. Railway trafflc grew by only 3.7% -n 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 (4X 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 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 maintaini 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 savlngs rate, which averaged 22.4% of GDP in the last three years, is high by any staiLdard, 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 6 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 1.8%, 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 disrurtion 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 1982/83 declined to US$3.3 billion or 2.1% of GDP. The improvrement 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 198C/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 Chat the balance of paymeats 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, necessarilyr 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 comimercial  -5- loans totalling over US$2,000 million and suppliers' credits of about US$520 million. The bulk of the loans are linked to speciflc development projects in the public sector while the credlts 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 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 committrents) and a 10% increase in net aid disbursement. Development Prospects 14. The experience of recent years illustrates that India has the capacity co 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 structurc, 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 mediumrterm 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 lnfrastructural 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 invest- ment, 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 inflationary 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 growirg 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 and management, thus leading to higher productivity and capacity utilization throughout the economy. At the same time, programs to expand domestic capacity are vital. In the case of tradeable commodities like coal, steel and cement, this is justified on the grourids of comparative advantage. For Eectors such as irrigation, power and transportation, expansion of planned capacity in accordance with the require- ments of the rest of the economy will be vital to overall mediumr and long-term development prospects. In the short term, however, achieving an adequate 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 ceonsumption 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 domesLic crude and products. India's dependence on oil imports dropped from 63% 1% 1979/80 to about 45% now and a scheduled expansion in production is expected to decrease oil imports (in crude equivalent terms) to about 33Z of consumption by 1984/85. The rapidly expanding level of exploration activity, combined with the possibilities for accelerated offtake from known fields, ofEers 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 concessionel 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, both 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 lerge 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 c.xmercial 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 "aintain an adequate rate of growth while adjusting the structure of the Indian economy 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 con- 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 5.0% 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 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. 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 nonrfarm rural employment. These developments will have to stem in large part from market forces which can be en!oura-ed 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 conmunity health volunteer program and the national adult literacy campaign provide encouraging  -8- evidence that vell-targetted, relatively lou-cost programs can lead to enhanced prospects for India-s poor. PART II - BANK GROUP OPERATIONS IN INDIA 22. Since 1949, the Bank Group has made 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 million, 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 US$7.5 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, energv 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 credit, fertilizer, marketing, storage, and seed projects. Major elements of the lending program have also been directed at helping to meet the energy needs of the econowy while curbing the growth of oil imports, and to ease the infrastructure bottlenecks which have hampered economic growth in India, particularly through power generation and distribution, and railways and telecommunications projects. The Bank Group has also provided financing for a broad range of medium- and small-scale industrial enterprises, primarily in the private sector, through its support of development finance institutions. Rec-.gnizing the importance of improving the ability to satisfy the essential vteas of urban and rural populations, the Bank Group has supported nutrition and family planning programs, a rural roads project, as well as water supply and sewerage and other urban infrastructure projects. 25. This pattern of assistance remains highly relevant, and consonant with Government priorities, as reflected in the Sixth Plan. The continued active involvement of the Bank Group in agriculture, energy and 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- rields. 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 be.n 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 thermal power generation, and in the expan- sion of the transmission and distribution networks. Industrial projects to increase the domestlc production of basic comoodities, 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 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 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. Hovever, there is nc-- 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 aim to inc &de 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 sm--l in most projects. This is particularly the case in such high-priority sectorz 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 Bank 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 a- 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 position is still managerable. The ratio cf India-s debt service to the level of exports was about 112 in 1982/83 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 con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12Z of net disbursements as compared with 50%, 432 and 53%, 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 was US$7.1 billion or 38% (IDA-s US$5.9 billion and IBRD-s US$1.2 billion). In 1981/82, about 16.0% of India-s total debt service payments were to the Bank Group.  -10- PART III - AGRICULTURE AND IRRIGATION IN ORISSA 29. The State of Orissa covers an area of about 15.5 million ha of which 6.8 million ha is arable. About 18' of this arable area (1.2 iil- lion ha) is served by irrigation canals. Orissa is one of the poorest States of India with an average per capita annual income, at US$90, less than half the all-India average. In real terms, the State-s per capita income has declined over the last five years. Some 40Z of the State-s population belong to Scheduled Tribes and Castes, groups that are generally among the least benefitted by the country s economic progress to date. The State is predominantly rural and agricultural and the pressures of population and poverty in rural Orissa are considerable. Among Indian States, Orissa has the highest percentage of people living in rural areas - over 90Z. 30. Agriculture contributes about 66% of the Stateso gross domestic product and employs nearly 80Z of the total population. Farmers in Orissa have been slow in adopting improved farming practices as is indicated by the relatively low levels of fertilizer use in the State and the low percentage of area of rice sown in high-yielding varieties. Reasons for this include the unreliability of water supplies and, until recently, the lack of adequate agricultural extension effort. Yields of most crops are low. For example, production of rice, the major foodgrain accounting for over 9O0 of total sown area, has virtually stagnated since the mid-1960s. Rice production in 1980/81 totalled some 4.4 million tons -- about the same level as in 1973/74. In 1974175, 1976/77 and 1979180, severe drought conditions reduced rice production compared to the previous year by some 40% to 50%. The fragmented and uneconomic land tenure system in much of the State also contributes to poor yields. Small farmers, with holdings of less than two hectares, operate about 75% of all holdings yet own less than 40% of the total cultivable land. Complicating the small land hold- ing problem is the degree of fragmentation of these holdings - par- ticularly in the delta areas where a typical one hectare farm holding consists of 8-10 separate plots. The net result is that the State is chronically deficient in foodgrain supplies and, in 1980/81, received some 720,000 tons of supplies from the GDI foodgrain pool. 31. Irrigation development in Orissa has occurred along four clearly identifiable lines. First-, the Major Irrigation Projects involving over 12,000 ha each, are typically tied to large irrigation canals in the coastal areas, the Nahanadi and Rushikulya deltas amd in the Salandi and Hirakud areas. The second, the Medium Irrigation Projects (MIPs) involve some 2,000-12,000 ha each and are typically located inland, away from the delta areas, and provide irrigation water to the rural communities. Minor Surface Irrigation Projects that typically involve areas of less than 2,000 ha are based on local farmer initiatives and provide only supplemenr tary irrigation during the kharif season. Finally, groundwater-based irrigation has grown rapidly over the last two decades and now involves  -11- some 360,000 private dugwells, 3,200 nrivate filter point tubevells and 2,600 public tubewells. 32. Investment in irrigation has increased substautially (by nearly 300Z in current terms over the past five years) and continues to be given a high priority. Irrigationr-related investments currently account for about 28X of GOO-s total development budget allocation. Within the irrigation sector the proportion of the development budget allocated to MIPs has grown from A1Z in the Fourth Plan to about 44Z in the current Sixth Plan period which runs through March 1985. In addition, Orissa has several major dams and reservoirs which have recently been completed or are under construction including the Rengali, Upper Kolab, Upper Indravati and Subernarekha system dams, most of which are multi-purpose dams for power generation and irrigation. 33. Under the Orissa I projec- (Credit 740-IN, 1977, US$58 million) land consolidation and on-farm dejelopment works in an area of 200,000 ha and 57,000 ha, respectively, were planned and are being completed and a total of 18 MIPs were designed, appraised and approved by IDA for con- struction during the six-year -time-slice" project. All are at various stages of completion, with the first being virtually complete. Construc- tion of MIPs under the Orissa I project has been somewhat slower than anticipated at appraisal (seven years versus five years). Two substantive problems were encountered that slowed the pace of construction: firstly, there were extensive delays in land acquisition resulting from the large number of administrative steps involved, and secondly, there was a 35Z real increase in the average cost of constructing MIPs over that estimated at appraisal when very little cost data was available for these remote areas in Orissa. The land consolidation and on-farm development (OFD) components of this first project are only slightly behind schedule, and that is largely because of the massive flooding which occurred late in 1982; in spite of this delay, the targets will be achieved by the project Closing Date of October 31, 1983. 34. Agricultural supporting services throughout the State of Orissa are adequate. The IDA-assisted -training and visit- (T&V) system of agricultural extension was introduced under the Orissa Agricultural Development Project (Credit 682-IN, US$20.0 million, April 1977) and now covers virtually all districts of the State. The project, which is proceeding satisfactorily, closes December 31, 1983. Seed is provided farmers from 85 agricultural seed farms operated by ODO and the Orissa State Seed Corporation. Fertilizers and plant protection chemicals are supplied through cooperatives, agro-industry agents and private dealers. Agricultural credit is available to farmers from the primary Agricultural Credit Cooperative Societies, land development banks and commercial banks. Recoveries, which have been low for all categories of credit, averaged about 52Z during the period 1977178-1981/82. Tne agricultural credit system would not be directly utilized in the proposed project. The 76 agricultural m2rkets operating in Orissa are generally adequate to handle incremental production from the proposed project although, in some areas,  -12- developmeut of new or additional facilities may be required if found necessary during the project period. 35. The Aesociation has been involved in a number of other projects in Orissa. The Salandi Irrigation Project (Credit 14-IN, 1961, US$8 million) was one of the first irrigation projects supported by the Bank Group in India. A review of Orissa's agricultural potential and development constraints was conducted in 1975 jointly by IDA, GOI and GOO and the review outlined the priority areas for the future development in the State. The proposed project is consistent with the priorities out- lined in this review. The Mahanadi Barrages Project (Credit 1078-IN, 1981, US$83 million) assists in the construction of two new barrages on the Mahanadi River and the Subernarekha Irrigation Project (Credit 1289-IN, 1982, US$127 million) is a joint Bihar/Orissa/West Bengal project for developing surface water resources in the Subernarekha basin. These projects are progressing satisfactorily. PART IV - THE PROJnECT Project Formulation and Objectives 36. In Orissa, the two major constraints to increased development in the rural areas are the lack of adequate water for crop production in the rabi season (October through April) and the fragmented, uneconomic plot size and water usage practices in the major irrigation project areas. GOO is making considerable progress in addressing these issues and this project - the second 'time-slice' of GOO's MIP construction program would provide finance for completing MIPs begun under the Orissa I Project, commencing new HIPs, and for further land consolidation and OFD works over additional areas in the State. It would also finance the introduction of improved water management techniques in the completed project area. An R&D component would assist in developing and introducing improved technologies and management processes in the project. 37. The proposed project would support GOO-s MIP construction program over a four-year period commencing April 1, 1983 through March 31, 1987. The proposed project was prepared by GOI and GOO and was appraised in November 1982. A Supplementary Project Data Sheet is attached as Annex III. A report, entitled India, Orissa Irrigation II Project, Staff Appraisal Report, No. 4448-IN dated May 31, 1983, is being circulated separately to the Executive Directors. Negotiations were held in Washington, D.C., in May 1983. The Borrower and GOO were represented by a delegation coordinated by Mr. N. Misra of the Department of Economic Affairs.  -1 3- The Project 38. The largest component of the project (US$121.6 million) would finance the completion of 15 ongoing MIPs, and the continued construction of an additional three MIPs -- all of which were commenced under the first Orissa preject and which together serve about 108,000 ha. Work would also commence on about six new MIPs under the proposed project. Completed MIPs would be operated at higher performance standards than envisaged under the Orissa I project with concomitant benefits in agricultural production. An HIP consists typically of a storage darm, usually of earthfill construc- tion, with gated spillway and canal headworks; a canal network delivering water to chaks (typically about 30 ha); watercourses conveying water to 5 ha sub-chak-t, and appropriate drainage channels. Field channels and field drains within each 5 ha sub-chak are constructed by the farmers. Each new MIP would be appraised by the Central Water Commission (CWC) and approved by the Association prior to construction on the basis of agreed technical and economic criteria (see draft Project Agreement, Sec- tion 2.02). Map 16796 attached shows MIP site locations. 39. The project would also finance Command Area Development (CAD) works (US$17.9 million) in the commands of four major irrigation project areas involving land consolidation and the design of associated onrfarm development (OFD) works (consisting of watercourses and drains) in about 160,000 ha, and the construction of such OFD works in an area of some 48,000 ha. Land consolidation would involve the aggregation of multiple small plots owned by a farmer into fewer, larger, economically-sized plots. (Redistribution of land ownership between farmers is not involved.) OFD construction works under the project would consist of construction of watercourses, field channels and drains, including small structures and outlets. Some improvement of the existing canal aetwork serving the OFD area would be also necessary to ensure reliable water supplies to the newly constructed watercourses. 40. A major focus of the project would be the improved management and operation of the works financed under the project. In this regard, the project would also finance the development of a systematic Research and Development (R&D) program (US$1.0 million) to develop and pilot teat options for improved MIP and CAD canal system performance and a training program for Irrigation Department (ID) staff. These traininRg programs would be coordinated and integrated with the development of the Orissa Water and Land Management Institute (WALMI) financed under the Suber- narekha Irrigation Project (Cr. 1289-IN). It would also finance the purchase of improved computing and other equipment and vehicles to strengthen the Central Design Office and the Quality Control Unit within the ID. 41. Specialist technical services of individual short-term consultants estimated to total about 48 mar-months during the project period would be provided through GOI under an on-going UNDP water management grant to GOI (the Advisory Services for Mod'rnization of Land and Water Schemes) for  -14- which the Bank is the executing agency. No project funding would be required for this component. 42. To achieve the projected benefits from NIPs under the project, strengthened agricultural extension activities, together with increased agricultural supporting services and market facilities would be of primary importance. As mentioned above, a 'T&V' extension service operates in Orissa but to provide adequate advice to farmers in the newly constructed MIPs who would now have the opportunity to move from the traditional paddy crops to higher-valued cash crops, may require some strengthening of the State T&V system. GOO would, six months prior to the completion of each MIP, take all action as shall be necessary to strengthen its agricultural extension and supply support, including provision of adequate supply of production inputs, agricultural credit and market facilities (see draft Project Agreempnt, Section 2.13). Project Implementation 43. The organizational responsibilities for undertaking NIP construc- tion and for land consolidation and OFD works would generally follow the same pattern as in the ongoing Orissa I project. Construction and sub- sequent operation of each KIP would continue to be the responsibility of a designated Assistant Engineer within the Irrigation Department. To assist in the operation of the MIP after completion, the Assistant Engineer and his staff would be assisted by a Water Management Committee (WMC) which would be established for each MIP. GOO would establish, and thereafter maintain in each MIP, a Water Management Committee with appropriate powers and responsibilities and which would include as memr bers, inter alia, the Assistant Engineer and representatives of both farmers and the concerned government departments (see draft Project Agree- ment, Section 2.09). 44. Responsibilities for the activities that constitute the land consolidation and OFD works in the CAD areas would continue unchanged from the earlier project. Land consolidation is the responsibility of the Revenue Department and OFD works construction is the responsibility of the Directorate of Agriculture and Food Production (DAFP) and has operated satisfactorily under the Orissa I project with all targets being achieved. The Agriculture Engineering Organization within the DAFP has specific responsibility for constructing OFD works in the CAD areas and has ade- quate staffing and experience in planning, designing and supervising OFD works. Operation and Maintenance (O&M) of OFD works and water allocation among farmers is the responsibility of the farmers who would use the existing Village Consolidation Committees. 45. Development of appropriate water allocation procedures has not been necessary in the past because of the predominant practice of field-to-field irrigation of paddy. Such practices would be essential for a substantial shift to diversified crops and would involve establishment of rotational water supply (RWS) measures among farmers, or groups of  -15- farmers. To ensure that appropriate RWS procedures are implemented in a timely manner, (DO would ensure that regular irrigation water would be delivered to chaks 1/ within an MIP only after construction of the dis- tribution system within that chak has been completed to full operational status and a Certificate of Completion issued by the ID, and secondly, only after appropriate RWS allocation procedures have been established and applied within that chak. Similarly, it would establish and apply appropriate RWS procedures within 60 days after completion of works in CAD areas (see draft Project Agreement, Section 2.17 and draft Credit Agree- ment, Schedule 1, para 4). 46. To improve overall monitoring and policy-level coordination between the various agencies involved in the project, a high-level State Coordinating and Monitoring Committee (SCMC) chaired by the GDO Developr- ment Commissioner would be established by 0O0. The SCMC would provide policy-level guidance and coordination, oversee the monitoring of progress in physical and financial terms, and ensure adequate liaison and prompt communication between the various State governmental agencies involved in the project. GOO would, not later than August 31, 1983, establish, and thereafter maintain, a State Coordination and Monitoring Committee chaired by the Development Commissioner of Orissa, with appropriate membership to carry out the project (see draft Project Agreement, Section 2.07). 47. One of the difficulties in Orissa has been the lack of adequate management information on which to base construction and operational decisions. An adequate management information system that provides accurate and timely information on both progress of construction and on the actual operation of the HIP areas would be essential and GOO would, not later than March 31, 1984, establish and thereafter apply a management Information and monitoring system for project construction and operation of the MIP-. under the project (see draft Project Agreement, Section 2.11). 48. To ensure that completed MIPs are operated according to agreed principles, ID would develop, for each ongoing MIP prior to completion, a detailed "Management Plan." The contents and scope of the plan would be agreed with the Association and would inter alia, outline the agricultural services to be provided and establish the operating procedures, water rotation schedules, and maintenance procedures and provide for the estab- lishment of the Water Management Committee. GOO would, not later than March 31, 1984, prepare and furnish to the Association, a model Management Plar for MIPs and, not later than six months prior to the commencement of operation of each MIP, apply a detailed Management Plan based on the model plan (see draft Project Agreement, Section 2.08). 1/ Chak - a cultivable command area of about 30 ha irrigated by a water- course.  -16- 49. A major reason for delays in the land acquisition process has been the lack of adequate and timely survey data over the MIP project area below the dam site. Under current practice, surveys are completed fo- the dam and reservoir, but not for the downstream works qhich, it has been shown, take the same elapsed time for completion because of the compli- cated land acquisition regulations. By completing a detailed survey of the entire HIP command area including the downstream areas, in sufficient detail for land acquisition and the alignment of :anals and watercourses sufficiently early in the construction cycle, this major source of delay would be eliminated. GOO would carry out detailed surveys of the cultiv- able command areas within each MIP not later than six months prior to construction of HIP works (see draft Project Agreement, Section 2.12). 50. A panel of experts in dam design, construction and operation, acceptable to the Association, have been appointed in Orissa in the con- text of an earlier project. 1/ This same panel of experts would ensure that prescribed construction methods and operating criteria are net on all MIP dams constructed under the project, including those already under construction under the Orissa I project. GOO would maintain its existing panel of experts to review the plans and designs of the dams and related structures under the project and cause the dams and related structures to be constructed under the project to be periodically inspected to verify their safety (see draft Project Agreement, Section 2.16). 51. Construction of these works would involve some resettlement of farmers as dams and catchment areas are built. Orissa has satisfactory policies and programs for resettlement. Displaced landowners are paid for acquired lands, and displaced families (whether land owner or landless) receive land and household plots according to GOO guidelines which are satisfactory. In general, however, the number of people displaced by MIP reservoirs is small because much of the areas that would be flooded are already Government-owned and are not presently cultivated due to lack of water. 52. To handle the additional research aad development and training activities under the proposed project, a special Research and Development Cell would be established and appropriately staffed. This Cell would plan, design, arrange and monitor R&D pilot projects and studies under the project, and plan and arrange training programs for ID and related staff. A Research and Development Technical Advisory Committee would also be established to provide technical guidance and assistance in gaining coor- dination with other agencies. GOO fould, not later than March 31, 198A, establish and thereafter maintain, a Research and Development Cell for assisting its Irrigation and Power Department with such responsibilities, functions and staffing as required for carrying out the project and, not later than June 30, 1984, establish and thereafter mainta.in a Research and 1/ The Upper Indravati Power Project.  -17- Development Technical Advisory Committee with appropriate membership. The Cell's initial functions would involve the development of work plans and schedules for the R&D m-nd manpower development activities to be submitted to the Association 'or its review and comment not later than September 30, 1984 (see draft Project Agreement, Section 2.14). 53. Under the proposed project, the Quality Control Unlt within ID would be strengthened and its mandate broadened to include 'operational' quality control of completed MIPs in terms of 'design-versus-actual" irrigation performance measurements. It would randomly check design-vs-actual discharge at selected outlets, and similarly review watercourse alignment and capacity, canal regulation facilities, measuring devices and roads to ensure they meet the operational design specifica- tions and requirewmnts. GOO would take all action as shall be necessary to ensure quality control in respect of the design, construction and operation of MIPs under the project (see draft Project Agreement, Sec- tion 2.15). 54. In order to ensure that GOO resources are focussed on the comple- tion of existing MIPs to agreed standards, no new MIPs would be approved for construction under the project until ten existing MIPs have been completed to full operational status and, in any event, not earlier than March 31, 1985 (see draft Credit Agreement, Schedule 1, para 4d). The project would be completed by March 31, 1987. Project Costs and Financing 55. The estimated total cost of the project, expressed in 1982 base prices, is US$140.6 million including taxes and duties which are negli- gible. The foreign exchange component of the project is estimated at US$16.1 million or 11% of total project cost. The principle cost comr- ponents, net of physical and price contingencies are: MIP construction (US$88.1 million); land consolidation and OFD works (US$14.8 million); and research, development and training (US$0.8 million). Physical contingen- cies, at US$17.3 million, were estimated separately on each item and average 12Z of total project cost. Price contingencies, at US$19.7 million, account for about 14% of total project cost and were based on expected domestic inflation rates of 8Z in FY83; 8X in FY84; 7.52 in FY85; 7.0% in FY86 and 6.0% in FY87. Inflation rates on foreign expen- ditures are expected to be similar. 56. The credit of US$105.0 million equivalent would cover 75% of total project costs. As mentioned in paras 29-30 above, Orissa is one of the poorest States in India with a very low economic base and severe budgetary  -18- constraints. In view of this, the Association has recently 1/ financed approximately 70X-75X of total project 2osts in Orissa and believes that a similar approach is justified in this case. The credit would cover 100% of foreign exchange costs and 712 of local costs. The justification for local cost financing in India is given in para 26 above. The Goverunent of Orissa would finance the remaining costs (US$35.6 million). The proceeds of the credit would be used to finance HIP civil works (US$90.0 million); land consolidation and OFD civil -works (US$9.2 million); equipment and vehicles (US$1.8 million); and R&D pilot studies and technical services (US$1.0 million). US$3.0 million -sould be left unallocated. Procurement and Disbursement 57. Civil works financed under the project would cost approximately US$77.3 million excluding physical and price contingencies and engineering and administration costs. Coostruction of KIP sub-projects and other works would be in small contracts and would be geographically scattered in remote locations throughout the State. Individual CFD works are very small, averaging about US$2,900 each in scattered locations and totalling some US$2.5 million in all and it is considered highly unlikely that such works would be of interest to international bidders. Although the work would be aggregated to attract maxlmum competition from local bidders, and Local Competitive Bidding procedures would be used, some works would need to be carried out by departmental force account or IDA-approved work-order procedures. Departmental force account works would not exceed 20% of total civil works, and work-order contracts would be limited to $25,000 each and a maximum of 10 of total civil works in aggregate. 58. Equipment and vehicles totalling about US$1.8 million, including contingencies, would be grouped in appropriate bidding packages and procured by ICB in accordance with the Association's guidelines. Qualified domestic manufacturers would receive a preference in bid evalua- tion of 15% or the applicable customs duty, whichever is lower, and bid documents would specify their eligibility and the manner of application of the preference. Because of existing servicing and spare parts facilities, considerable advantages would be derived from procuring locally manufac- tured light equipment and vehicles estimated to cost about US$0.8 million, which are readily available domestically at competitive prices. Such goods would be procured under LCB procedures satisfactory to the Associa- tion and would be limited to indivldual contracts of less than US$100,000. All bidding packages for works estimated to cost US$500,000 equivalent or more, and all ICB packages for equipment and materials, would be subject to the Associationes prior review of procurement procedures -- resulting 1/ Subernarekha Irrigation Project (Cr. 1289-IN), financed 70% of total costs, and the Mahanadi Barrages Project (Cr. 1078-IN), financed 75% of total costs.  -19- in a coverage of about 702 of the total estimated value of works and 80X of goods procurement. The balance of contracts would be subject to random post-award review by IDA. The Central Water Commission of GOI has recently developed model ICB and LCE bidding documents and procedures for both works and equipment procurement that are considered satisfactory by the Association, and these would be used in all procurement. 59. The proceeds of the credit would be disbursed as follows: (a) 100% of the foreign exchange cost of directly imported goods; (b) 100% of the ex-factory price of locally manufactured items; (c) 70% of the cost of other locally procured goods; and (d) 100% of expenditures on research, development and training costs. Disbursement for civil works would be 60% of expenditures for the dams and related spillways and 95% for all other civil works. For land consolidation and OFD works in CAD areas, disburse- ments would be at the rate of Rs 350 per consolidated hectare and Rs 460 per completed hectare, respectively, on the basis of Certificates of Completion. Disbursements against departmental civil works, and other civil works with payments up to Rs 300,000 each, and payments up to Rs 150,000 each for equipment and vehicles, would be made against Certifi- cates of Expenditure. The supporting documents for these payments would not be submitted to IDA but would be retained by GOO for inspection by the Association review missions. Such Certificates of Expenditure would be audited annually by independent auditors and a report would be submitted to the Association promptly thereafter. Full documentation would be required for all other disbursements. 60. In order that the construction of thL ongoing MIPs can continue without interruption during the transition from the Orissa I project to the proposed project, retroactive financing In the amount of US$6.0 million is proposed to cover qualified project expenditures Incurred after April 1, 1983 (see draft Credit Agreement, Schedule 1,4(a)). It is expected that disbursements would be completed by December 31, 1987. Water Charges and Cost Recovery 61. Water charges in Orissa have historically been very low, reflect- ing the very limited payment capacity of farmers in the State. Under the terms and conditions of the Orissa I project, water charges were required to be reviewed by GOO and, although not required under that project, were subsequently (September 1981) raised substantially. The basic compulsory charge was doubled and the crop-specific rates increased 50%. In CAD areas, water charges are adequate, but in the MIP areas, for a typical HIP plot and cropping pattern, the water charge at Rs 66 per ha, represents approximately 7C%-75% of the estimated annual O&M cost of Rs 90-Rs 100 per ha. The increased water charges resulting from the September 1981 review represented the maximum increase that was considered politically and practically feasible at that time. Further increases will be required, however,to meet the overall objective of recovering 100% of O&M costs and a portion of the capital costs annually and GOO would: (a) not later than  -20- March 31, 1984, undertake a study on the the appropriate irrigation water charge system with the objective of recovering full O&M costs and a reasonable portion of the capital costs and measures to improve the col- lection of such charges; (b) not later than December 31, 1985, prepare and furnish such study to the Association and, thereafter, taking Into account the Association-s comments, if any, and also having regard inter alia to the incentive and repayment capacity of farmers, implement the recEcmenda- tions of such study; and (c) in the interim, review water charges in light of the Eighth Finance Commission recommendations (see draft Project Agree- ment, Section 3.03). 62. To ensure that GOO provides adequate funding for O&M works under the project until the recommendations of the water charges study are implemented, ODO would make annual budgetary allocations adequate to meet O&M expenditure requirements for MIPs under the project (see draft Project Agreement, Section 3.04). Benefits, Risks and Economic Justification 63. Completion of the ongoing and new MIPs under the proposed project would add about 138,000 ha of irrigated cultivable command area. In the CAD areas, irrigation intensities would increase to 170% and 159Z for coastal and non-coastal areas, respectively -- up from 1532 and 140%, respectively. The incremental agricultural production at full project development from both Orissa I and the proposed project would be about 224,000 tons of foodgrain and oilseed crops annually. Total value of production would increase by some US$46 million per year. In addition to a higher cropping intensity, the project would produce increased yields as a result of more regular provision of irrigation water with greater reliability and equity. About 210,000 families would benefit directly from the project and, of those, approximately 35,000 families would move out of the -poverty' class (defined as less than Rs 840 per capita annual Income). The project construction works would generate an additional 19 million man-days of employment over the four-year period. Farm employ- ment in the project area would increase by about 9 million man-days annually. 64. The project's composite economic rate of return (ERR), including sunk costs for the 18 MIPs begun under the Orissa I project, is estimated at 19%. The NIP component ERR averages 14% and the land consolidation/OFD work ERR averages 48%. The ERR for each of the 18 ongoing MIPs has been recalculated using current cost information, including sunk costs and the new, lower commodity price forecasts issued by the Bank Group recently to ensure that each MIP is an economically viable investment. The re.jlts of the sensitivity analysis indicate that for rhe MIP components only sub- stantial adverse deviations from cost estimates (over 21% increase in costs) or reduction in crop prices (about 23%) would make-the project economically non-viable. A delay of one year in the construction period would reduce the ERR to 12%. As this is a continuing project, it is considered that the project risks involved are now less than those found  -21- in the Orissa I project. The tuo issues that adversely affected MIPs in the earlier project -- delays in land acquisition and increased costs -- have been addressed In the proposed project and further problems are not anticipated. Environmental Effects 65. The project would not be expected to have any negatlve enviromienr tal impact. The improved drainage facilities in the CAD areas would have positive environmental effects. GOO would take all necessary measures to minimize the hazards of malaria and water-related diseases in the project area (see draft Project Agreement, Section 2.20). PART V - LEGAL INSTRUMENTS AND AUTHORITY 66. The draft Credit Agreement between India and the Association, the draft Project Agreement between the Association and G00, and the Recommendation of the Committee provided for In Article V, Section l(d), of the Articles of Agreement of the Association are being dlstributed to the Executive Directors separately. 67. Special conditions of the project are listed in Section III of Annex III. 68. I am satisfied that the proposed crqdit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 69. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen President by Moeen Qureshi June 9, 1983  ANEX I IMrA - SOCrIL INDICATORS DA SET Page of 5 INDoA hE1fsaE GdmW (SQIr_ ri.)CES AREA (INCRSAND SQ. KK.) _____ RECENT_____ES____________ TorAL 32b7 _6N 1R08fIT IN= MIDDLE DiE AG .mCULTD.. aIaNZ 1iW lb 1970 lb ESrDAE lb ASIL 4 PACRI ASIA & FACIFIC CDM PER CAPTL (M15) 70.0 110.0 240.0 261.4 690.1 EmrC CmNSCprTIO PER CAPITA CtOGCAMS OF COAL EQULVULEr) 111.2 15Z.5 194.4 468.7 701.7 POPULATION ASI VITAL SrATISCS POPLATION. 1-EAR (IS.) 43850.0 547569.0 673207.0 RBCS POPULATJO (PERCENr OF TOTAL) 17.9 19.7 2Z.3 17.3 32.4 POPULATION PROJECTIONS POPATI IN YEAR 2000 (LIUS) 9,. SrATIOIARA FPOP.AMIKN (KIL,IORS) 1694.4 YEAR SIATIOWE POPULATO IS RCACHED 2l5 POPULATION IERIT PER SQ. in. 132.3 166.6 200.6 L58.1 255.9 PER SQ.- K. ACRICDLTURAL TAPP 247.0 307.8 362_S 355.9 1748.0 POPtIIATION ACE ST UCTUJE (PERCENT) 0-14 TRS. 0.9 4Z.7 40.2 36.8 39.9 I5-" YRs. 54.5 54.Z 56.8 59.7 56.8 65 ITS. AND BOVE 4.6 3.1 3.0 3.5 3.3 POPUmATIt ClOWTH RNAE (PERCET) TOTAL 1.8 2.3 Z t 2.0 2.3 JRUS 2.5 3.3 3.3 3.3 3.9 CRUDE BIXIr HAE (PEIR ZHUSAJD) 43.7 40.0 35.6 29.3 31.8 CRUDE DzAEr RATE (PER THOUSAND) 21.8 11.7 13.6 11.0 9.8 GROSS BEPRODUCrION RAXE 2.9 Z. 2.4 2.0 2.0 FAIaLY PLANNING ACCERTOS. A(NUAL (THOUSANDS) 64.0 3782.0 5619.0 USERS (PENCENT OF RANED HIRER) _. 12.0 22.6 19.3 36.3 FOOD AND NUTRITlON INDER OF FOOD PRODITIOIN PER CAPILTA (1969-71-100) 98.0 102.0 99.0 106.1 115.6 PER CAPTA, SUPPLY oF CALORIS (PERCETr OF REQUIRDWS) 95.6 90.4 68.8/c 97.3 106.4 PrrEIN (GRAMS PER DAY) 53.6 49.7 48_ r 56.9 54.4 OF WlMCH ANIML ASD PULSE 17.2 14.6 t3.11 20.0 13.9 CNLD (AGS 1-4) E3TLALIU RATE 26.2 20.7 17.4 10.9 6.7 HELM I>FE v-CcAm= Ar BIRTH (YEARS) 43.2 48.1 51.8 57.B 59.S ISFANT DRTALT!n RATzE (PER TOSAND) 165.0 139.0 123.4 89.1 63.7 ACCESS TD S.FE WATER (PERC3EN OF POPMUAT}ON) TAL . 17.0 33.0 32.9 32.0 URBN . 0.0 83.0 70.7 51.9 RAL .. 6.0 20.0 22.2 20.5 ACCESS TO EECUREA DISPOSAL (PERCENT OF POPULATN) TOrAL _ 18.0 20.0 1.1 37.7 URBS . 85.0 87.0 72.7 65.7 RURAL __ 1.0 2.0 4.7 24.0 POPULATIN ME PHSICLA 4830.4 4889.0 3630.6 3297.8 8540.4 POPULATION PER NCRSING tERSON 1C975.3/d 8296.5 5696.1 4929.3 4829.4 POPLATION PEF HSPTAL BED TOTAL 2178.7 1612.9 1311.0/. 1100.4 1067.5 UNM ,, ,, 362.3fi 301.3 651.6 RAL . 10432.8re 5815.7 2597.6 AEMISSIONS MR HOSPITAL BED 27.0 HOUSING AVEMCE SIZE OF HOUSEHOLD TOrAL 5.2 5.6 5.2 WIu5NA 5.2 5.6 4.8 ILRAL 5.2 5.6 5.3 AVERACE NUMNER OF PERSONS PER NOOK *UOrAL 2.6 2.8 URBAN Z6 2.8 RURAL 2.6 2.8 ACCESS TD ELEC7ICITY (PERCENT OF iELCNGS) TOTAL .. .. RURAL .. .. RURA L .. .. . ..  ANNEX I Page ZAof 5 nmu~~~~~~ INDDS IZ1UZNCI m.zz S ixU iW1 mm ccm IW M 31 96O /b 1970 /bTMKA=C lb AA & PACZFC AM c IDDCATI -S M;EMO RVATOS PruInA: TOMAL 61.0 73.0 75.01C 37.4 96.2 MALE 60.0 90.0 W2.aa 101.0 99.3 FINAE o40.0 56.0 63.dE 57.3 32.1 sgcaumz TOZAL 20.0 26.0 27.3/c 53.0 37.6 MALZ 30.0 36.0 36.0/ 63.3 41.1 FEMALE 10.0 15.0 17.0/i 41.3 34.1 WOCATIOAL EZAL. r (oF szcinAn 6.0 1.0 0.7/ 1.7 20.e eCPL-TEhCHR RAT=I 2321*1? 46.1 41.5 31.6/C 37.7 35.3 SICOSDARA 16.0 20.9 .- 20.2 25.0 AOMT LITERAL? NAME (JPT3 Z2O. 33.4 3E.0 52.1 73.1 PA cml PI HUSAus 0.6 1.1 1.3/c 1.5 9.6 RADIO NERS HZ -DIam POICIAZOX 4.9 21.5 33.6 35.4 16.5 .v cUV HZ INOWAM POPULA2105 0.0 0.0 1.0 3.2 37.6 INgERAPRTA C-DAZIY GURAL Is=r=) crccOuzow Hi USAm RORUAXO 16 t 6.0 19.8 14.4 53.7 CZWIA 3* ATZ HR CAPITA 4.1 4.1 3.7 3.4 2.8 LAT0I FORCE ; FOgcz (Uusbo) 165951.1 21919 264 1.4. FENAZZ (PRCER) 30.7 32.5 31.3 29.5 33.i AGRIC-RK CPECEKI) 74.0 74.0 69.3 70.0 32.2 DWS EtCD[rl) 11.0 1t.0 13.2 U3.0 17.9 PANTICIPATION RNAE CnRUT) TO.AL 41.B 40.0 39.2 40.0 36.5 wAE 357.0 52.4 31.8 51.6 50.5 FEMALE 27.3 26.9 25.9 23.6 21.6 EC--6IC DIPERCT RATIO 1.1 1.1 1.1 1.0 1.1 ICM DIST31INCTTON PE3CE3? or PRVATE MIDOI RECEVED Br HIGEs 5 PER T 07 B0USUa 26.7 26.3/ 22.2ff HIHET 20 PERCM aF I SR 51.7 4S.9A 49.4a OIwEST 20 PERCENT or BOU0l3 4.1 67 7.0/. LinEST 40 PMC or nDCusu 13.6 17.: 16.2/. POVER?? TARCET CGRUS ESTIATD ASOLUT POERT DCO LEVL SS PR CAKTA) MS .. .. 2.0 133.8 L94.7 RURAL .. .. 14.0 111.1 155.1 ESI ED RJELATF POVERT I tRELL CMSS PR CAPTA) A .. .. .. .. 171.2 RURAL .. .. .. .. 164.9 ESTM POPMAN DELD ABS0LUTE POVERTY IlRCR LUEVL (ErCEN) URBAN .. .. 40.3 43.8 24.4 RURAL .. .. 50.7 51.7 41.1 Not avalable Not appliceble. NOYPS /a The group aveagme for each laikator are populou-umigbzad ari _atfo mmma. Coveagef o s mong the indecatore delpeadn avaibility of data and in not umnforz. /b Unlea othmrwi_ noted. data for 1960 refer to any Yer betwes 1959 and 1961; far 1970. betwen 1969 and 1971; and for lout RecentEstimate, bre_m 1976 md 1960. /c 1977; /d 1962; i. 1976; If 1975; jL 1964-65. RaE. 196B2  iai -u- n.ua3--3is s--n = *13.51 _T-s= =- Am _Z [ _ q-.t-_ n- - q M-a-i- TWT -t * a- d- -9-1-30 1"-K S- -I.Aw mmm.-. j. -aw- An pw~~~~vp -s-Isa - s-arnsu 55555C ..g s-a _-a- p'5'3 .-uLu. miu-ag P a-_ T-Su a-u, _u.ssI4 -T-* .1 J- e-is-si's- -- -a-I_ - i-u.1- XM W - ua m- u.sv a - S a-5.a- a- W-_ - a- - - qI ts-u- p- -I w a s P -5-1P -- Aq t - .