India - Second Periyar Vaigai Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3768-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT IN AN AMOUNT OF SDR 16.6 MILLION AND A PROPOSED SPECIAL FUND CREDIT IN AN AMOUNT OF SDR 16.6 MILLION TO INDIA FOR THE PERIYAR VAIGAI IRRIGATION II PROJECT April 10, 1984 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. |  - i. CURRENCY EQUIVALENTS (As of April 4, 1984) US$1.00 = Rs 10.810243 Rs 1.00 = US$0.0925058 Rs 1 million = US$92,506 The US Dollar/Rupee exchange rate is subject to change. - Conversions in the Staff Appraisal Report were, except as otherwise noted, made at the rate of US$1 to Rs 9.75. FISCAL YEARL April 1 - March 31 ABBREVIATIONIS AED - Agricultural Engineering Department DA - Department of Agriculture ERR - Economic Rate of Return GOI - Government of India GOTN - Government of Tamil Nadu ICB - International Coimpetitive Bidding LCB - Local Competitive Bidding O&M - Operation and Maintenance OFD - On-Farm Developm,ent PMC - Periyar Main Canal PWD - Public Works Department RWS - Rotational Water Supply TMC - Thirumangalam Main Canal VEW - Village Extension Worker TNAU - Tamil Nadu Agricultural University  FOR OFFICIAL USE ONLY INDIA PERIYAR VAIGAI IRRIGATION II PROJECT CREDITS AND PROJECT SUMMARY Borrower: India, acting by its President. Beneficiary: Government of Tamil Nadu (GOTN). Amount: IDAi Credit: SDR16.6 million (US$17.5 million equivalent) IDA Special Fund: SDR16.6 million (US$17.5 million equivalent). Terms: IDA Credlit: Standard IDA Special Fund: Standard. On-lending Terms: From the Government of India (GOI) to the Government of Tamil. Nadu as part of Central assistance for State development projects on terms and conditions applicable at the time. GOI would bear the foreign exchange risk. Project Description: The project would complete the Periyar Vaigai Irrigation Project (Cr. 720-IN), extend its irrigable area (73,600 ha) by another 7,500 ha and maximize crop production and farmers' incomes in the 81,100 ha project area through better water utilization. To achieve these objectives, the project would (i) improve the operation of the Periyar Vaigai system to provide an equitable and reliable water supply in the command area; and (ii) improve water distribution among farmers below the 10 ha block out:lets and promote better water management on the farm. I'his would require a number of complementary act:ivities, including strengthening of the project organization for operation and maintenance, on-farm development, introduction of rotational water supply below the block outlet, establishment of farmer organizations, and training of project staff and farmers in new management practices. As this is an integral part of a continuing project the risks are considered less than average for irrigation projects of similar size and scope. Cost estimates are firm as they are based on the experience of the on-going project. Projections of yields are conservative and are well within the reach of the average farmer's capability. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: 1/ (US$ millions) Local Foreign Total Irrigation Canals Civil Works 25.9 1.8 27.7 Rehabilitation Peranai Regulator 1.0 0.3 1.3 On-Farm Development Works ]0.1 0.4 10.5 Improved System Operations 2.0 0.4 2.4 Introduction of RWS 2.4 0.3 2.7 Training 0.6 0.2 0.8 Monitoring and Evaluation 1.5 0.1 1.6 Total Baseline Costs 43.5 3.5 47.0 Physical Contingencies 4.6 0.5 5.1 Price Contingencies 6.2 0.5 6.7 Total Project Cost 54.3 4.5 58.8 Financing Plan: (US$ millions) Local Foreign Total GOI/GOTN 23.80 - 23.80 IDA 15.25 2.25 17.50 IDA Special Fund 15.25 2.25 17.50 Total 54.30 4.50 58.80 Estimated Disbursements (US$ millions) FY85 FY86 FY87 FY88 FY89 Annual 4.8 6.0 12.2 9.0 3.0 Cumulative 4.8 10.8 23.0 32.0 35.0 Rate of Return: The economic rate of return is about 19%. Appraisal Report: No. 4913-IN, dated April10, 1984. 1/ Includes taxes and duties which are negligible.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON PROPOSED IDA AND SPECIAL FUND CREDITS TO INDIA FOR THE PERIYAR VAIGAI IRRIGATION II PROJECT 1. I submit the following report and recommendation on proposed IDA and IDA Special Fund Credits to India for SDR 16.6 million (US$17.5 million equivalent) each, on standard IDA and IDA Special Fund terms, to finance an irrigation project in order to maximize crop production and farmers' incomes through better water utilization. The proceeds of the Credits would be chan- neled to the Government of Tamil Nadu in accordance with the Government of India's standard terms and arrangements for financing State development projects. The exchange risk would be borne by the Government of India. PART I - THE ECONOMY 1/ 2. An economic report, "Economic Situation of India and Resource Mobilization Issues" (4395-IN, dated April 11, 1983), was distributed to the Executive Directors on April 19, 1983. Country data sheets are attached as Annex 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-addled in agriculture -- 2.2% since 1950/51 -- has been slower than growth of industrial value-added (5.0% per annum). As a result, there has been a gradual decline in the share of agriculture in GDP (at factor cost) from 60% to just under 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 A 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 Cambay Basin Petroleum Project (No. P-3751-IN), dated March 9, 1984.  -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 24.9% 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 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 8% of investment. External assistance has been low both as a percentage of GDP and in per capita terms, never rising above 3% of GDP and averaging below 1% for the past five 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 volume 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 Ennum for the 1970s as a whole, a performance which demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, con- tributed to this growth, liberalized access to imported inputs and more effec- tive export incentives played a major role. 6. Moving into the second half of the 1970s, the Indian economy was buoyed by higher levels of investment and an expanding level of foodgrain output. As a result, growth in real GDP and in agricultural and industrial value-added, substantially exceeded the historical 30-year trends (paragraph 3) averaging 4.9%, 3.9% and 5.6%, respectively. In 'I79/80, 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 5.2%, respectively. Wh.ile industrial output expanded by 4% in 1980/81 and 8.6% in 1981/82, recovery was particularly robust in agriculture where normal weather helped output t:o rise by more than 15% and 5.5%, respectively. The availability of power, coal, and rail transport, already improved in 1980/81, was even better in 1981/82, recording growth rates of about 10%, 9.6% and 12.9%, respectively. The easing of constraints on the supply of infrastructure and basic commodities was a determining factor in the improved performance of the industrial sector. This overall improvement in the Indian economy, combined with a more restrictive monetary policy contributed to a sharp decline in the rate of inflation. Wholesale prices rose by about 9% on an average annual basis in 1981/82 and by only 2.5% in 1982/83, reflecting a strong deceleration from a peak increase of 18% in 1980/81.  -3- 8. After two years of fairly solid performance, the Indian economy faced a difficult year in 1982/83 due to the drought in mid-1982 which brought down the GDP growth rate to around 2% and put further strains on the already dif- ficult balance of payments anad domestic resource situation. Besides a sig- nificant decline in the range of 4,.5%-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 1982/13. This resulted from a combination of several factors, notably the decline in agriculture income, persistent (though lessened) power shortages, a textile strike in Bombay, as well as depressed export markets and increased competition from imports. The Government was able, however, to protect the level of savings to a large extent and keep the momentum of the investment program through largely successful public sector resource mobilization efforts. Foreign savings played a crucial role in sup- port of this effort. Similarly, the timely implementation of various economic policies mitigated the otherwise very distressing effects of a poor monsoon. Continued improvements of the infrastructure sectors, although at a slower pace than in the previous two years, aLso reduced the negative effects of the drought. 9. Agricultural production in 1982/83 received a serious setback from the drought. Foodgrain production, which had reached a record 133 million tons in 1981/82, declined to 124-127 million tons. Production of most other major crops also declined in 1982/33. Corrected for weather variations, this still represents a Creditable performance. In 1979/80, with a broadly comparable monsoon, foodgrain productiona reached only 109 million tons. The Government was able to mitigate the effects of the 1982 drought through efficient manage- ment of foodgrain procurement and distribution, careful timing of foodgrain imports, and appropriate allocation of power to irrigation pumps. These policies helped to avoid disruptions in basic food supplies and contributed to price stability during the year. While the management of the foodgrain economy after the drought was a significant achievement, the effect of the drought on production re-emphasized the continued importance of the monsoon in India's agriculture. The performance of the recent past and probable future trends suggest that on average foodgrain supplies will meet demand. The balance remains delicate, and the need for foodgrain imports to maintain con- sumer supplies or adequate buffer stocks could arise from time to time. Thus, programs to expand irrigationa, strengthen extension and encourage the efficient use of other agricultural inputs continue to receive high priority. 10. Basic infrastructure serv:ices 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 fromn impr^oved overall management, stabilization of most of the new large units and better availability of coal due to the combina- tion of increased coal production and improved railway performance. Nevertheless, power shortages remain the major bottleneck in the economy. Railway traffic grew by only 3.7% in 1982/83 reflecting a slowdown from 1981/82. The lower growth was due not to a decline in the operational efficiency of the railways buit rather to slack demand from core sectors like steel, iron ore, coal washeries anid fertilizers. Coal production growth (4% in 1982/83), after 10% growth in the two preceding years was creditable. There were no major shortages and there were improvements in the quality of coal. Recent easing of shortages anid bottlenecks in infrastructure has come primarily  -4- from better utilization of existing capacity, but in the future most improve- ment must result from added capacity. It is therefore critically important that India maintain the pace of investment: in these key sectors and mobilize sufficient resources to do so. 11. The Indian economy has reverted from a situation of resource surplus, which had been a temporary phenomenon of the late 1970s, to one of resource scarcity. Investment has again grown quicker than national savings, and the scope for further increases in the Latter appears limited. India's gross national savings rate, which averagied 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 policies. In 1981/82 there was a significant increase in public savingEs 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 increasinigly 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 bill:ion 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 Inadia 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 improvement would have been greater had not the drought resulted in the need to rebuild food stocks through imports and at the same time led to a lower level of GDP growth. This improvement in the balance of payments is to a significant degree the result of India's develop- ment and adjustment efforts over the past: three years. It also reflects a reduction in the trade deficit as compared to the levels reached in 1980/81 and 1981/82. The trade deficit declined from US$7.6 billion in 1980/81 to US$6.0 billion in 1982/83 due to continuedl 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 imporl: 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. J 13. The high investment rate, about 25% of' GDP, envisaged in the Sixth Plan coupled with the limited possibilities of raising domestic savings beyond the present high levels, necessarily implies a need for external resources. Faced with a reduction in the availability of bilateral and multilateral concessional assistance, India has begun to borrow significant amounts on commercial terms from the Euro-dollar market in addition to much greater utilization of suppliers' and export credits. India's favorable debt service profile has enabled India to tap commercial capital markets at favorable spreads (over relatively high underlying rates). In the period 1980-82 India contracted  -5- commercial loans totalling over US$2,000 million and suppliers' credits of about US$520 million. The bulk of the loans are linked to specific development projects in the public sector whi:Le 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 stemmed the use of foreign exchange reser- ves which had fallen to less than four months of import coverage in 1981/82. In 1982/83, in addition to continued use of the EFF, financing requirements were met by increased non-concessional borrowing (about US$2,000 million in new committments) and a 10% increase in net aid disbursement., Development Prospects 14. The experience of recent years illustrates that India has the capacity to grow and develop at a more rapid pace. Although the industrial sector is small compared to the size of the economy, it nevertheless is large in absolute terms and has a highly diversified structure, capable of manufacturing a wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, power, roads and ports -- is extensive compared to many countries, although there is considerable need for additional capacity as well as improvement in thes utilization of existing capacity. India is also well-endowed with human resources and with institutional infrastructure for development. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and ferrous ores, but also gas and oil). With good economic policies and reasonable access to foreign savings, India has the capability for managing these considerable resources to accelerate its long-term growth. 15. The medium-term framework for advancing India's development objectives is the Sixth Five-Year Plan (1980/81-1984/85), which is now in its fourth year. The Plan assigns priority to agriculture, energy development, the growth of exports and domestic import substitutes where appropriate, and the removal of infrastructural bottlenecks. Overall performance has so far been encouraging, although bottlenecks in key sectors such as power and transport are likely to persist. Moreover, fulfillment o:E the Plan targets will require additional resource mobilization. The efforts of the Central Government to raise resour- ces have so far been impressive and are likely to be broadly sufficient to meet the financing requirements of the Central Government's share in plan investment, even if some increase in inflation is experienced above current low levels. However, a shortfall in public savings is likely to occur in some States unless further measures are introduced. There will be a need also for continuous efforts to maintain the current level of private savings. Recent increases in interest rates and tax concessions on time deposits and the con- tinued dampening of 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 development, in which a large and growing proportion of investment has been needed to build up basic infrastructure. These services, such as power, tran- sport and irrigation, have inherently high capital-output ratios. However, there is scope to improve the sectoral capital-output ratios through greater efficiency and better management. Bottlenecks in basic infrastructural sectors clearly can prejudice growth in other sectors where large investments have been  -6- made. As demonstrated in the last three years, performance in the basic serv- ice sectors can be improved through better planning and management, thus lead- ing to higher productivity and capac:ity utilization throughout the economy. At the same time, programs to expancl domestic capacity are vital. In the casle 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- ments of the rest of the economy wi'Ll be vital to overall medium- and long-term development prospects. In the short term, however, achieving an adequate balance between supply and demand in these sectors will remain a difficult objective. 17, Under the Sixth Plan, India has an ambitious oil production program backed by substantial financial commitment. WI.ile the gap between domestic consumption of petroleum and production resmains large, the prospects for progressive substitution of domestic petroDleum 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 45% 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, combined with the possibilities for accelerated offtake from known fields, offers much encouragement for India's longer-term energy prospects. 18. Despite an expected continued decline in its current account deficits from the current 2.1% to about 1.7% of GDP by the late 1980s, India will require growing access to world financial markets to complement concessional assistance. These commercial sources of funds will be important in the future since India's current account deficits, though not large relative to the size of the economy, will nevertheless be large in absolute terms and will neces- sitate external borrowing beyond levels expected to be available from normal concessional sources. Given the favorable structure of India's external debt, which reflects the past reliance on 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 investment, 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 borrowing, will be necessary to cope with the balance of payments consequences of such a growth strategy. However, an important element in providing India with the capacity to adjust flexibly wilL be adequate flows of concessional assistance. Although India is currently in a position to increase borrowing on commercial terms from the very low levels of the past, there are, of course, limits beyond which India will choose to sacrifice growth objectives rather than accept debt on unfavorable or unmanageable terms. The Government's effort to maintain an adequate rate of growth while adjusting the structure of the Indian economy to a more open and efficient environment requires foreign resources in addition to the level of commercial borrowing available to India. India is still a very poor country with a large rural sector and enormous  -7- investment requirements for humanl 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 :982/83, 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 Lnd 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. w 20. A large and growing population and severe poverty underline the need to acce'lerate 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 overestimated, the expectation of a measurable decline in the population growth rate has not materialized. Until the results of the Census are fully analyzed, firm judgements about the reasons for this outcome are not possible. However, the results re-emphasize the need for continuing efforts to strengthen the health and family planning program in a broad range of activities and services. These efforts are given high priority in the Sixth Plan, which aims at a rise in the proportion of protected cDuples 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 tharn 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 -n broadening the provision, of those services which enhance the human capital of the poor and improve living standards. Many of the latter are elements of the Minimum Needs Program, which has been an integral part of Indian planning for the past decade. Progress has been slow but steady in the expansion of primary education, the extension of rural health facilities and the provision of secure village water supplies. Operations such as the community health volunteer program and the national adult literacy campaign provide encouraging evidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India's poor.  -8- PART I] - BANK GROUP OPERAT]:ONS IN INDIA 22. Since 1949, the Bank Group has made 76 loans and 160 development credits to India totalling US$5,183 million ancd US$11,851 million (both net of cancellation), respectively. Of these amournts, US$1,387 million has been repaid, and US$6,224 million was still undisbursed as of September 30, 1983. Bank Group disbursements to India in the current fiscal year through September 30, 1983 totalletd US$286 nillion, representing a decrease of about 2 percent over the same period last year. Annex II contains a summary state- ment of disbursements as of September 30, 1983. 23. Since 1959, IFC has made 29 commitments in India totalling US$224 4 million, of which US$30 million has been repaid, US$56 million sold and US$WI million cancelled. Of the balance of US$120 million, US$113 million represents loans and US$8 million equity. A summary statement of IFC disbursements as of September 30, 1983, is also included in Annex II (page 4). 24. The thrust of Bank Group assistance t:o 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 productivity, and efforts to improve the availability of basic agricultural inputs to farmers through credit, fertilizer, marketing, storage, and seed projects. Major elements of the lending program have also been directed at helping to meet the energy needs of the economy while curbing the growth of Cil. imports, and to ease the infrastructure bottlenecks which have hampered economic growth in India, particularly through power generation and distribution, and railwayEs and telecommunications projects. The Bank Group .has also provided financing for a broad range of medium- and small-scale industrial enterprises, primarily in the private sector, through its support of develop- ment finance institutions. Recognizing tine importance of improving the ability to satisfy the essential needs of urban and rural populations, the Bank Group has supported nutrition and family planning programs, a rural roads project, as well as water supply and sewerage and othier 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 agricu].ture, 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 t1he critical power shortages which constrain output in both the agricultural and industrial sectors. Exploitation of oil and gas resources is a central elem(ent of this program, which should be supple- mented by investments in hydro and thermal powe!r generation, and in the expan- sion of the transmission and distribution networks. Industrial projects to increase the domestic production of basic commcodities, which have been in short supply and which India has a comparative advantage in producing, should also receive high priority. Finally, raising the ef.ficiency and levels of transpor-  -9- 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. 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 aim to include the flnancing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors as agriculture, irrigation, and water supply. 27. 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 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 position is still manageable. The ratio of India's debt service to the level of exports was about 11% in 1982/83 and is projected to remain below 20% through 1995/96. As of September 30, 1983, outstanding loans to India held by the Bank totalled US$3,932 million, of which US$2,100 million remain to be disbursed, leaving a net amount outstanding of US$1,832 million. 28. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with 50%, 43% 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 serviice payments were to the Bank Group.  -10- PART III - AGRICULTURE AND IRRIGATION IN TAMIL NADU Background 29. The State of Tamil Nadu covers an area of about 13 million ha of' which six million ha is under cultivation. It has a population of 48.4 million. With almost 30% of its population living in towns and cities it is, next to Maharashtra, the most urbaniized of the Indian States. Agriculture, however, accounts for a predominant share of the State's economy. It contributes 31% of State income and employs 61% of the labor force. Paddy is the main crop, and Tamil Nadu is the second largest rice producer in India. It accounts for 36% of the cropped area and 70% of the State's foodgrain production. As farmers in the project area are progressive and irrigation development has been extensive, paddy yields in Tamil Nadu are among the highest in the country. other crops include groundnuts, sugarcane, cotton, sorghum, millet and grams. Irrigation 30. Although both the southwest and northeast. monsoons bring rain to Tamil Nadu, their occurrence is irregular. Three quarters of the State lies in the rainshadow of the Western Ghats. The rainfall ranges from about 600mm in the rainshadow of the western mountain range to about 1,200mm in the northeastern coastal districts. Because of unreliable rainfall, irrigation developed early in Tamil Nadu. The Grand Anicut in the Cauvery Delta was built for irrigation during the second century A.D. However, most of the Cauvery Delta system and a number of other systems, including the Periyar Vaigai system were built during the 1880s and 1890s. The Cauvery is one of the most utilized rivers in India with more than 90% of its waters harnessed for irrigation. 31. The net irrigated area in Tamil Nadu is about 2.6 million ha or a little over 40% of the net area under culitivation. Most of the State's irrigation development has been based on ground water. It is now estimated that about 80% of the State's ground water potential is already utilized. The State has attained the highest degree of actual utilization of surface flows in India (about 90% of the available surface flow is used). Since no large scale surface water resources remain, the main scope for increasing irrigation intensities and expanding the area under irrigation in the State is through increasing efficiency in the use of water from the existing irrigation schemes. The Project Area 32. The Perivar Vaigai System. The project area is located on the plain between the Western Ghats and the Bay of Bengal in South Central Tamil Nadu. The Periyar Vaigai project area covers a non-contiguous area of about 130,000 ha. The natural flows in the Vaigai river basin were already fully utilized by the end of the nineteenth cenl:ury. Consequently, the Periyar transbasin scheme was constructed to divert waters from the Periyar basin in the State of Kerala to the Vaigai basin in Tamil Nadu. A dam and reservoir were constructed on the Periyar River, with a diversion tunnel through the Western Ghats which conveys water for the Periyar Reservoir into the  -11- Suruliyar, a tributary of t]ne Vaigai. The reservoir was built with a dead storage of 1.5mm3 and a lives storage of 195mm3. No substantial decrease of live storage is foreseen for at least another fifty years. 33, Cite Topograh and Soils. The area has a tropisal monsoon climate. Although it experiences two monsoons in a year, the total amount of rainfall is insufficient for growing crops year round without irrigation. The area is characterized by gently rolling topography and has good natural drainage. The soils are predominantly red, sandy loam and sandy clay loam. With proper soil management, the area is suitable for both irrigated paddy and upland crops. 34. Land Ownership and Agricultural Practices. There are about 335,000 people contained in 65,000 :farm households in the command area. Average farm size is about 1.2 ha. In addition, about 25,000 landless families live in the project area. About 100,000 agricultural laborers, of whom more than 50% are women, are employed in the area as hired labor. An estimated 10%-20% of the area is tenant cultivated. The percentage of the area planted to paddy varies from year to year, ranging from 25% to 88%, depending on the rainfall. Farmers use high yielding varieties and yields of irrigated paddy are generally good. The overalL cropping intensity is estimated at 129% (159% in the double cropped areas, 117% in the single cropped areas, 108% in the Thirumangalam Main Canal (TMC) indirect command, and 111% in the Periyar Vaigai I and II extension areas). Support Services 35. Extension. The Periyar Vaigai I Project (Cr. No. 720-IN, June 1977) introduced the Training and Visit: (T&V) system of agricultural extension in Madurai district and part of the Ramanathapuran district. Regular demonstra- tions and advice are given to farmers through fortnightly visits from Village Extension Workers. In 1981, GOTN extended the T&V system State-wide, under the IDA assisted Tamil Nadu Agricultural Extension Project (Cr. No. 1137-IN of May 7, 1981). Progress under the extension project has been very good. 36. Agricultural Research. The State has a generally adequate agricul- tural research infrastructure. Responsibility for agricultural research rests with the Tamil Nadu Agricultural University (TNAU). It maintains 88 small research stations 'Located throughout the State. The main areas of work are varietal trials of paddyr, millets, oilseeds, cotton, sugarcane and horticultural crops. TNAU also carries out research on water management, farm machinery, food processing and livestock. 37. Credit. Short-term credit for paddy and other commercial crops is provided through the cooperative banking system to small farmers. At present, about 40% of all farmers are provided with institutional short-term credit, Medium term credit is also provided by the cooperative network, mainly for dairy activities. Long term credit, mainly for wells and tractors, is provided by land development banks, and refinanced by the National Bank for Agriculture and Rural Development (NABARD). Over the last five years, NABARD has refinanced about 500 wells in the command area, and anticipates a higher volume of lending in the future. Overall, credit facilities are adequate.  -12- 38. Agricultural Inputs, etore and 'Karketing. Over 90% of the project area has a good transport network, and a well organized input distribution system. In 1982-83, average fertilizer usage in the project area was more than twice that for the country as a whole (31 kg/ha in 1981). The Department of Agriculture (DA) is directly involved in seed production and is expected to fully meet future needs in the Stat:e. Most farming operations are carried out by hand or. bullocks. Almost aLl cooperative societies have a 100 ton capacity godown used mainly for input storage. The cooperative sector is active in the purchase and marketing o:E cotton. Fertilizer, pes- ticides and seed are distributed through a wel:L developed system of private and cooperative dealers. Farmers sell paddy and groundnut to private traders in villages or directly to mills, In addition to private channels, regulated markets have been established throughout the State. The Tamil Nadu Civil Supplies Corporation purc]hases paddy at prices established by the Government, Periyar Vaigai T Irrigatioa Proiect- 39. The Association provided a credit (Cr, No. 720-IN) of US$23 million in May 1977 for the above project which was designed to reduce the very high water losses of the unlined, and in many places, deteriorating canal network,, The project was the first of its kind in India and was designed to demon- strate the technical and economic efficiency of water saving measures, Project implementation in the initi.al phase was slower than anticipated. due to (i) poor response to tender calls; (ii) inability to carry out the works within the contract amounts; and (iii) shortage of qualified staff for investigation, survey and design work, and occasional cement shortages. These problems prompted a comprehensive review and eventual reformulationi of the project in 1981. Civil works construction, tasks were under-estimated because: (i) in 1976 when the project w.as appraised, the experience in lndia with high quality canal lining was very limited, and reliable unit costs for this type of work were not available; (ii) there was a shortage of experienced contractors; and (iii) PWD was inexperienced in the organization. and management of work of' this typ(e. Although realistic unit prices had been adopted for cement and ot:her materials in the cost estimates, and PWD's unit price for earthwork was increased by 25%, cont:ractors' bid prices were 30%-40% higher than the final estimates. In addition, annual cost increases of 15%-20% for labor and materials were experiLenced. Thus due to substantia'L cost overruns and initial delays, the project could not be implemented as planned. 40. Since its reformulation, project implementation has been satisfactory. Staffing problems have been overcome, the quality of lining work has been good, and monitoring of water losses before and after the lining, has also been good, Since 1982/83, water delivery to farm outlets has been more reliable, and consid.erable water saving has been effected through better system operations. The project is now expected to be com- pleted by the end of May 1984. 41. However, although the project has been successful in achieving its basic objective of reducing water losses;, it has become clear that the focus of the project -- the lining and rehabilitation of the canal network is not in itself sufficient to attain the full agricultural potential of the area, through higher yields in paddy cultivation. Complementary activities are needed (para 44).  -13- PART IV - THE PROJECT Background 42. The project was appraised in September/October 1983. Negotiations were held in Washington, D.C. in March 1984, with an Indian delegation coor- dinated by Mr. Chatterjee of the Government of India's Department of Economic Affairs, Ministry of Finance. The Staff Appraisal Report (No. 4913-IN) dated April 10, 1984 is being circulated to the Executive Directors separately. A Supplementary Data Sheet is attached as Annex III. Project Rationale 43. Paddy yields in India have stagnated, mainly because the traditional design and operating standards of irrigation projects have not assured reli- able deliveries and adequate water management. The Periyar Vaigai Project is the first Bank-supported rice irrigation project focussed on increasing paddy yields. Phase I introduced design improvements. The experience gained with Phase I has engendered confidience regarding the design standards recommended by the Bank. Further IDA involvement is needed to capitalize on the initial success and to facilitate and sustain State-wide replication of the new technology for improved system operations and water management. Until improved system operations and management are in place, the improved infrastructure (lined canal) financed under Phase I cannot have its full effect on agricultural production. Proiect Objectives and Description 44. The overall objectives of the project are to enhance production of paddy and other crops, and to increase farmers' incomes in the project area, through better water utilization. To achieve these objectives, a number of complementary activities are required including: (i) completion of civil works under Phase I; (ii) introduction of improved system operations to provide a reliable and timely water supply, and (iii) improved water dis- tribution among farmers below 10 ha outlets and better water management on individual farms. These in turn would require strengthening of the existing organization and maintenance (O&M) organization, updating O&M procedures, establishment of farmers' organizations to improve communications between project organizations and farmers, and training programs for project staff and farmers. Detailed Features 45. Lining. In order for improved management and system operations to have their full effect on production under this project, lining of the minor distribution system originally planned under Phase I needs to be completed. Consequently, the project would provide for lining of about 380 km of small distributaries to 10 ha outlets, improvements to about 180 of the large tanks and completion of lining the extension areas (10,305 ha), including the construction of additional 80 km of concrete-lined canals up to 10 ha outlets. Funds would also be provided for improvements on about 740 smaller tanks by reshaping of embarkments and repairing outlet structures. These  -14- tanks previously had been operated by village communities, but have recently been taken over by PWD for operation and maintenance. 46. Improvement and Rehabilitation of- Peranai Regulator. The Peranai Regulator which is about 100 years old, diverts flows released from the Vaigai Reservoir into the Periyar Main Canal (PMC) and the Thirumangalam Main Canal (TMC). The project would provide for repair and improvement of this regulator by (i) improvements to the PMC and TMC intakes; (ii) the replace- ment of the old shutters of the regulator; (iii) miscellaneous structural repairs; and (iv) removal of accumulated sediment in front of the regulator and the material excavated and piled up along the main canal. 47. Project Area Extension and On-Farm Development (OFD). The irrigation distribution network would be further extended to provide supplementary canal water to 7,520 ha in existing tank commands. On-farm development would cover 61,000 ha and it would include land shaping on about 2,000 ha of direct service area, which will be brought under irrigation for the first time. In addition, approximately 100 km of 3m wide graveL-paved cart tracks would be constructed to improve access to the farms, and 600 concrete thrashing floors would be constructed to reduce the loss of grain. 48. Reservoir Operations. Revised reservoir operational rules would be prepared by April 1, 1986, following a study 1'o be carried out under the project. The rules would define the criteria for water allocation under different conditions of storage including the extent of the project area to be served and the amount of water which shou'ld be passed through the canals for storage in the tanks, dependirLg on the amount of rainfall and the avail-- able reservoir storage capacity. The rules would be revised and updated, as additional information becomes available on the project (draft Project Agreement, Section 2.14). 49. Canal Operation. Although water rotation is practiced among branches and distributaries, shifting of the water supply from one area to the next and to tanks, generally has to wait until upstream farmers are satisfied. This favors upstream water users and results in inequitable distribution, unreliable water supply and loss of crop production. To overcome these problems, the project would introduce strict water scheduling and improved system operations over the serviced area. This would be achieved through: weekly opening and closing schedules for all canals and 10 ha block outlets; computerization of water demand calculations; better crop surveys and monitoring of water depths; better synchronization of reservoir releases with water demands; improved communication with the farmers; introduction of a system of water accounting; and preparation and implementation of a detailed implementation manual. The measures would require substantial strengthening of technical services and the O&M organization. The project would provide funds for financing the associated costs. 50. Introduction of Rotational Water Supply and Improved Water Management. Rotational water supply would be promoted within the 10 ha blocks. A b-.)clr would be divided into sub-units, and water would be supplied irL rotatiorn to these sub-units. Water management on the farm would be promoted by training the farmers to control the depth of flooding in their paddy fields. 51. Training. The project would provide for training of project staff and farmers in the new methods of system operations and maintenance, on-farm development and rotational water supply. The details concerning the training  -15- program including a draft syllabus have been fully discussed between GOTN and the Association. Assistant engineers and junior engineers (430 persons) and canal operators would be trained in new system operations procedures, execu- tion of OFD works, RWS and in setting up and dealing with farmers' organizations. About 150 agricultural officers and 500 VEWs would be trained in one wee'k courses. A lecture hall and a Farmers Training Center would also be constructed under the project. 52. Technical Services. The project would provide funds for consultants to undertake reservoir simulation studies, prepare computer programs for reservoir management, prepare irrigation schedules including a system for water accounting, and training of project staff. The technical services are expected to involve about 150 man-months of professional services, at an estimated cost of US$1,500 per man-month for salaries, overheads, subsistence allowances and travel but excluding reimbursable items. The contracts for technical services would be carried out by institutions acceptable to IDA, and consultants would be employed on terms and conditions satisfactory to IDA (draft Project Agreement, Section 2.02). Survey aad Design 53. Detailed plans and cost estimates have been completed for all major canals and final alignments have been marked in the field. The alignments and lengths of canals have been taken from village maps; typical designs are similar to those for Periyar Vaigai I. Discharge measuring devices would be provided at all canal offtakes and 10 ha block outlets. GOTN would plan, design and construct the project works in accordance with standards and criteria satisfactory to IDA (draft Project Agreement, Section 2.05(a)). Proiect Organization and Management 54. The responsibility for project implementation would be shared by four departments. The PWD would be responsible for all civil works construction up to the 10 ha block outlet including buildings, all procurement, improved reservoir operations and training of its staff. The Agriculture Engineering Department would implement the OFD works, promote RWS, train its staff and set up block committees. The Agriculture Department would be responsible for extension work in the project area, operating the Farmers Training Center, training its field workers and block and sluice leaders. The Revenue Department would be responsible for introducing and administering a new system of water charges. 55. Overall coordination would be undertaken by the existing State Level Coordination Committee comprising the Chief Secretary as Chairman, the Secretaries of PWD, Finance and Agriculture, the Chief Engineer Periyar Vaigai. and the Director Evaluation and Research Division of PWD. Coordination at the project level would be by a Project Coordination Committee to be set up in PWD by September 1, 1984, and consisting of: the S.ecial Chief Engineer Periyar Vaigai Project as Chairman, the Special Officer of the Monitoring and Evaluation Cell (Secretary), the Superintending Engineer Operations and Maintenance (PWD), the Joint Director of' Agriculture, the Superintending Engineer (AED), a representative of Tamil Nadu Agricultural University (TNAU), and the Personal Assistants to the Collectors of Madurai and Ramanathapuram. The Committee would be established by September 1, 1984.  -16- 56. The existing design and construction organization of the PWD headed by the special chief engineer and assisted by a senior deputy chief engineer and three superintending engineers, would be strengthened by December 31, 1984, with two additional divisions which would be responsible for introduc- ing RWS, and three subdivisions for constructing thrashing floors (draft Project Agreement, Section 2.09). 57. GOTN would strengtlhen the existing O&M or,ganization through the establishment of a Water Resource Management Office, and additional posts for one Executive Engineer, three Assistant Executive Engineers, four Assistant Engineers, seven Junior Engineers and complement:ary staff (draft Project Agreement, Section 2.08). GOTN would maintain PWD with necessary powers in a manner satisfactory to IDA. to enable it to adequately distribute, schedule and regulate the available water supply within the project area (draft Project Agreement, Section 2.20). 58. Presently, GOTN's 'budgetary allocation for O&M for the Periyar Vaigai system is Rs 105/ha. However, the required budgetary allocation after the project is completed would be Rs 145/ha. Consequently, starting from April 1, 1985, GOTN would increase its O&M budgetary allocation for the completed areas according to an agreed implementation schedule. The budget would be reviewed annually and adjusted for inflation commencing April 1, 1986 (draft Project Agreement, Section 3.03(b)). Monitoring and Evaluation 59. Monitoring would be undertaken by a number of different entities including: the Hydrology Division arcd the Monitoring Division of PWD, the Directorate of Agriculture, and the Directorate of Evaluation and Research. In addition, a Monitoring and Evaluation Cell, headed by a special officer (Administrative officer or agricultural economist) with qualifications and experience satisfactory to IDA, would be set up by December 31, 1984, to coordinate monitoring and evaluation activities, analyse the results and recommend action programs and the acLditiornal studies required (draft Project Agreement, Section 2.11). Starting from January 31, 1985, the collection of the field cropping pattern data for the project area would be undertaken jointly by officers from the Revenue and E'WD Departments. Their records would serve as the official record for collection of water charges and for monitoring purposes. A full-time statistician would be appointed to assist the Directorate of Agriculture in carrying out crop-cutting surveys. The Directorate for Evaluation and Research would carry out a mid-term survey and a project completion survey. Cost Recovery 60. Farmers in the command area now pay an average of Rs 96/ha as water related charges and the collection rate is almost 100%. The schedule of charges is complex and is a function of access to irrigation facilities and soil quality. There are also crop-related charges on irrigated commercial crops (except paddy) ranging from Rs 30-50/ha. Paddy production is indirectly taxed through public procurement schemes. 61. It is proposed to simplify and rationalise the outmoded water charge system. Future water charges would be related mainly to levels of service in  -17- terms of water use. For this purpose GOTN would, by December 31, 1985, review its irrigation water charges system and, after consultation with the Association on the results of the review, consolidate and start implementing the revised water charges in the Project area (draft Project Agreement, Section 3.03(a)). GOTN would fix the water and the water related charges with the objective of covering the cost of O&M, and subject to farmers' ability to pay, also to cover a reasonable portion of the capital costs. GOTN would review the water charges annually commencing December 31, 1986 (draft Project Agreement, Section 3.03(c)). Reporting 62. GOTN would submit to IDA quarterly and annual progress reports within three months after the end of each reporting period. Not later than six months after the credit closing date, GOTN would submit to IDA a project completion report (draft Project Agreement, Section 2.15 (b)(iii) and (d)). Project Cost and Financing 63. Total project costs are estimated at US$58.8 million equivalent; taxes and duties would be negligible. Foreign exchange costs are estimated at US$4.5 million (7.5% of the total costs). Major cost components are project area extension wor]ks (US$14.8 million), completion of Periyar Vaigai I (US$11.9 million), on-farm development works (US$10.5 million), introduction of RWS (US$2.7 million), improved system operations (US$2.4 million), monitoring and evaluation (US$1.5 million), and rehabilita- tion of the Peranai regulator (US$1.3 million). Cost estimates are based on recent bids for similar works adjusted to expected April 1984 price levels. Physical contingencies are estimated separately for each item. They range from 5% to 20% and average 10.8% of the base cost. Price contingencies amounting to about 14.2% of the base cost were based on expected inflation rates of 7% in 1984-85, 8% in 1985-86 and 1986-87 and 6% thereafter. 64. The proposed IDA/Special Fund credits of US$17.5 million each, together would finance about 60% of the total cost including 100% of foreign expenditure and 56% of local costs. The balance would be borne by GOI and GOTN. In order to ensure an early start of project actions, and to retain the existing project construction organization, retroactive financing of up to US$1.5 million is proposed to cover eligible costs incurred after October 1, 1983, for construction works in extension areas. Procurement and Disbursement 65. Procurement arrangements are summarized in the attached Annex IV to this report. Civil works financed under the project (US$29.4 million) would be for small irrigation canals. The work would be widely dispersed and labor intensive, and would not therefore be suitable for international competitive bidding (ICB). The works would be advertised under local competitive bidding procedures which are satisfactory to IDA. On-farm development works (US$9.8 million) involving very small labor contracts for intensive work in farmers' fields would be carried out by local village contractors on the basis of piecework type contracts, and would be awarded under local procure- ment procedures satisfactory to IDA. Equipment, materials and vehicles (US$1.7 million) would be procured over a five-year period. Adequate main- tenance and availability of spare parts would be of paramount importance.  -18- OnEly t-i2 new _gates for the Peranai (about US$0.4 million) would be procured throutgh I;Ci, All other equipment and materials (US$1.3 million) would be pLocurEi tharo;Uoh LCB procedures satisfactory to IDA. Because of existing servicing raci ties and availability of spare parts, there are considerable benefits to be derived from procuring local models. Adequate competition caLn De sol"c:ited nsmong Indian firms for this equipment and materials. Suitable items -iwould b1 grouped together to promote eff-iciency in tendering and attraSct coapeti'rti'on, Technical assistance (about US$0.6 million) would be o0ta_. trOM. suitable local institutions or individual consultants in accc-.O0,aSo-e .-wii5f !DA guidelines. The balance of the project costs consisting of i .,. :ree.l saff salaries (US$4.5 million), engineering, supervisionr and Swould no"- involve procurement. Contracts for equipment and vehiclles, Estima-eds to cost US$50,000 equivalent or less may be procured tSciOl' -r.-rma, trade channels subject to an aggregate ceiling of US$250,00-,, lont-acts for goods costing US$300,000 equivaLent or more would be subject to priog. re.odewr IDAh 616 a +i.sb'irsement of the proceeds of the credit would be as follows: S, 5% a .works; (b) 90% of on-farm development; (c) vehicles and seaui- men (i) 100% of foreign expenditure of directly imported items, (S ii3 w10% o - exfactory of locally manufactured goods; and (iii) 70% for the foc'i ly p,roc.re goods; and (d) 100% for technical services. Disbursement -e - e s foc- Ci- works would be made against certificates of exDenditure i'oy pro:ec: component. Disbursements for departmental works, equip-- v . eh.icles, incremental staff costs for system operation, introduction o ng monitoring and evaluation, and technical services would I-e --aaae a-ai-;-st -crtificates of expendit:ure itemized by type of work. -or these would be retained by i3OTN and made available for inrspect on by IDA during review missions. Full documentation would be reuire. for all other disbursements. The expected rate of disbursement is lth _iLha t'he typical disbursement profile in the irrigation sector as the pro,ect has an established organization already in operation. Proj Les- r ben3- and Risks 6' ti. Fiable benefits fronm the project would be increased agricul- tura. production from yields which are expected to increase as a result of more .4l and timely water supply. The annual incremental agricultural productior at 8full project development from both Periyar Vaigai I and the proposed proect would be for paddy about 139,000 tons, sugarcane 4') 34' tonsur groun ruts 62,000 tons; grain 2,800 tons and cotton 1,200 tons. The total vallue of production wou:Ld increase by about US$22 million per year. About 65; g0