Document of

FILE COY X The World Bank

FOR OMCIAL USE ONLY

Report No. P-2293-IN

REPORT AND RECOMMENDATION

OF THE -

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

GOVERNMENT OF INDIA

FOR THE

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

August 23, 1978

This document hua msicted distribuilon mud may be used by reciplents only In the performnce oftheir ofiAcial duties. Its contes may not otherwise be diselsed witbout World BDnk autboriation.

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CURRENCY EQUIVALENTS(as of August 15, 1978)

Rs 1.00 Paise 100US$1.00 Rs 7.88Rs 1.00 US$0.1269Rs 1 million US$126,900

(Since September 24, 1975, the Rupee has been officiallyvalued relative to a "basket" of.currencies. As thesecurrencies are now floating, the US Dollar/Rupee exchangerate is subject to change. Conversions in the AppraisalReport were made at US$1 to Rs 8.6).

FISCAL YEAR

April 1 - March 31

ABBREVIATIONS AND ACRONYMS

GOI - Government of IndiaGOP - Government of PunjabIBRD/WHO CP - World Bank/World Health Organization

Cooperative ProgramLIC - Life Insurance Corporation of IndiaNCs - Municipal Corporations/CommitteesPHDRW - Public Health Department, Rural WingPWD - Public Works DepartmentWSSB - Punjab Water Supply and Sewerage Board

FOR OFFICIAL USE ONLYINDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: India, acting by its President

Beneficiaries: The Punjab Water Supply and Sewerage Board (WSSB)and participating Municipal Corporations/Committees(MCs)

Amount: US$38.0 million

Terms: Standard

On-lending Terms: (a) GOI to GOP: As part of central assistance forstate development projects on terms and condi-tions applicable at the time.

(b) GOP to WSSB: Repayable over 25 years at 8-1/2%interest per annum including three years grace.

(c) WSSB to MCs: Same terms as (b).

The foreign exchange risk will be borne by GOI.

ProjectDescription: Water supply and sewerage facilities would be improved

and expanded in eight rapidly growing towns in the Stateof Punjab to provide an additional 0.8 million peoplewith water supply (about 24% of the total urban popula-tion), and 1.2 million people with sewerage (about 36%of the total urban population). The project would alsodevelop WSSB as an institution capable of planning andimplementing sectoral development programs in Punjab.Separate water supply and sewerage departments estab-lished within MCs would be strengthened to ensure thatsystems constructed under the project would be operatedefficiently. The needs of the urban poor would be metthrough the free supply of water from standpipes.Credit would also be provided on easy terms to facili-tate service connections by the economically weakersections of society. The risk that sewer connectionsmight not materialize at the rates envisaged atappraisal is minimized by the fact that GOP willintroduce sewerage charges for all unconnected premisesthat have access to and benefit from a sewer. As afurther incentive, credit on easy terms would be pro-vided to low income families to help finance connec-tion charges. The project entails no other unusualrisks.

This document hu a restricted distribution and may be used by recipients only in the performanceof their official duties. lu contents may not otherwise be disclosed without World Bank authorization.

Estimated --- US$ million-----

Project Costs: Local Foreign Total

Equipment and Materials

Water Supply Schemes 7.3 3.4 10.7Sewerage Schemes 15.0 0.6 15.6

Sub-total 22.3 4.0 26.3

Civil Works

Water Supply Schemes 5.2 - 5.2

Sewerage Schemes 16.2 - 16.2

Sub-total 21.4 - 21.4

Engineering 10.0 10.0

Specialized Equipment,Consultant Servicesand Training 1.1 0.1 1.2

Physical Contingencies 5.2 0.5 5.7Price Contingencies 12.1 0.9 13.0

Total Project Costs 72.1 5.5 77.6

Financing -------US$ million-----

Plan: Local Foreign Total

IDA 32.5 5.5 38.0LIC 15.1 - 15.1

MCs 24.4 - 24.4

GOP 0.1 - 0.1

Total 72.1 5.5 77.6

Estimated ----------(US$ million)---------

Disbursements: FY79 FY80 FY81 FY82 FY83

Annual 3.0 9.3 10.7 10.7 4.33.0 12.3 23.0 33.7 38.0

Rate of Return: The weighted average internal rate of return in three

of the eight towns, which account for about 80% oftotal project costs, is 17.1%.

Appraisal Report: No. 1822b-IN, dated August 24, 1978.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDITTO THE GOVERNMENT OF INDIA FOR THE PUNJAB WATER

SUPPLY AND SEWERAGE PROJECT

1. I submit the following report and recommendation on a proposeddevelopment credit to India in an amount equivalent to US$38 million onstandard IDA terms. The credit would support the program of the Governmentof Punjab (GOP) to expand and upgrade water supply and sewerage systems ineight large towns of the State. The proceeds of the credit would be chan-nelled to GOP in accordance with the Government of India's standard termsand arrangements for the financing of state development projects. GOP wouldmake the Credit available to the Punjab Water Supply and Sewerage Board (WSSB)on terms requiring repayment over 25 years, including 3 years of grace, withinterest at 8-1/2% per annum. WSSB would in turn relend the proceeds of theCredit to participating Municipal Corporations/Committees under SubsidiaryLoan Agreements substantially on the same terms and conditions as the GOPloan. The exchange risk would be borne by the Government of India.

PART I - THE ECONOMY 1/

2. An economic report, "Economic Situation and Prospects of India"(2008-IN dated April 17, 1978), was distributed to the Executive Directorson April 18, 1978. Country data sheets are attached as Annex I.

Background

3. India is a vast, continental country with over twenty States dividedon linguistic and ethnic grounds with a population of over 620 million people,almost as many as live in Africa and Latin America combined. It has a dualeconomy. While 79% of its population lives in rural areas, their productivityis low. Agriculture's share in value added declined only gradually from about50% to 43% over the last twenty years. The share of manufacturing has in-creased slowly and, since the late 1960s, has remained approximately constantat about 16%. Industry has a highly diversified structure with import substi-tution and self-sufficiency pushed to the point where India has the capacityto produce virtually every type of consumer and capital good required for amodern economy. As in the case of many other large economies, the foreignsector plays a relatively minor role; both exports and imports represent about7% of GDP; foreign saving has supplied only about 5% of gross investment inthe recent past.

1/ Parts I and II of this report are substantially the same as Parts Iand II of the President's Report for the Railway Modernization andMaintenance Project (Report No. P-2349-IN), dated July 19, 1978.

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4. Even though growth has been slow in the past, the economy enjoysmany of the prerequisites for sustaining faster growth and development.Although literacy is far from universal, India has large resources of welltrained administrative, scientific and technical manpower and a dynamic entre-preneurial class. Per capita consumption of commercial energy is low byinternational comparison and power shortages are a way of life; but India isrelatively well-placed with regard to primary fuel sources. There are verylarge reserves of coal and nuclear ores, and considerable hydro-electricpotential. Recent petroleum and gas discoveries have begun to be exploitedand prospects are bright for further discoveries. The basic elements of theinfrastructure needed to serve the economy have been established; in absoluteterms the irrigation, railway, telecommunication, road and power systems areeach among the largest in the developing, and in some cases the developed,world. However, considerable gaps remain as the situation varies greatlyfrom state to state.

5. Given the size of India's population, its annual increase of 13 mil-lion people is such as to absorb a large portion of any provision to increasestandards of living. It is not possible to discern any significant increasein the incomes of the vast mass of the rural and urban poor, who number 200million with a per capita income of US$70 per annum or less. Although food-grain production may be persistently underestimated, there has been no perma-nent increase in per capita foodgrain consumption recorded in aggregatestatistics since 1960/61. Many years after the initial target, primary educa-tion is still not universal. The labor force has grown faster than employmentand a considerable backlog of unemployed exists. Nevertheless, there has beenprogress, with per capita income increasing on trend 1%-1.5% per annum; birthrates falling to below 37 per thousand from levels of 45-50 per thousand atthe start of the 1950s, life expectancy increasing from about 32 years inthe 1940s to 45-50 years in the 1970s, school enrollment rising from 32%to 65% of children of primary school age and from 5% to 29% of children ofsecondary school age since 1950/51.

6. The rate of growth of GDP has been 3.5% per annum over the periodsince Independence and 2.8% per annum over the period 1969/70 to 1976/77.These low rates of growth are only partly due to low availability of inves-tible resources, although there have been times that foreign exchange was asevere bottleneck. The net transfer of resources from abroad has never beenabove 3% of GDP and fell to as little as 0.8% between 1969/70 and 1973/74.India's saving effort has grown steadily since the beginning of planning in1951, when it was 9% of GDP, to its recent level of 20% of GDP, which compareswell with other countries' saving performance at the same level of per capitaincomes. Despite a doubling in the rate of investment, from about 10% of GDPin the early 1950s to about 20% at present, the trend rate of GDP growth hasnot increased. This marks a decline in the efficiency of capital use whichtranscends fluctuations due to weather, war or international terms of tradeshifts.

Recent Trends

7. In many respects economic conditions during the last three yearshave been significantly different from those prevailing in previous years.

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In the late 1960s and early 1970s, the economy faced several shortages--

foodgrains, agricultural and industrial inputs and foreign exchange--which

retarded production and investment and often led to price increases. An ad-

verse shift in terms of trade, starting with the oil price hike in 1973 and

continuing with the foodgrain and fertilizer price rises in the following

year, greatly increased the cost of acquiring these essential commodities

abroad. These external shocks combined with a spate of bad weather played

havoc with the economy through 1974/75, causing slow growth in production

and investment and a record level of inflation.

8. Since the excellent monsoon in the summer of 1975, a new situation

has arisen. The period 1975 to 1978 has been characterized by much greater

price stability, enhanced agricultural and industrial output and comfortable

foodgrain and foreign exchange reserves. The new situation was a combined

result of domestic policies and fortuitous circumstances. The increase in

foodgrain stocks was only in part due to improved policies and programs. The

more decisive factor has been the three good-to-excellent monsoons coming on

top of substantial foodgrain imports in 1975 and 1976. Industrial output

increased on average by 7% a year in 1975-1978 compared to 3% in 1970-75,

due to greater power availability, better management in the public sector,

improved labor relations, better transport and some increase in demand derived

from increased 'incomes due to improved harvests, greater exports and higher

levels of public investment. The most dramatic turnaround ocurred in the

balance of payments, with a sharp real reduction of the import bill helped by

good harvests and increased domestic production of iron and steel, fertilizer

and oil, which reduced demand for imports. The supply of foreign exchange was

also greatly increased by a significant step-up in the volume of exports, an

increase in foreign aid and a substantial jump in remittances from Indians

working in the Middle East, Europe and America.

9. In 1977/78, the growth of GDP was about 5%, a recovery over the

rate of 1.6% in 1976/77 but less than the 8.5% reached two years earlier.

Prices, which had been rising during 1976/77 after a decline in 1975/76,

were stabilized; wholesale prices at the end of March 1978 stood at about the

same level as in March 1977, and the yearly average was only 5.4% above that

of the previous year. Exports in 1977/78 are estimated at US$6.4 billion and

imports at US$6.6 billion. The inflow of invisibles from abroad at US$1.4

billion and net aid disbursements of US$1.2 billion more than offset the small

trade deficit of US$200 million and IMF repurchases of US$330 million to in-

crease reserves by US$2.1 billion to US$5.8 billion by end of March 1978.

10. The 1977/78 foodgrain crop may exceed the 1975/76 record level of

121 million tons due to very good weather and increased input use. Support

purchases could result in peak foodgrain stocks as high or even higher than

in 1977, when they were 21 million tons. In addition to ample and evenly

distributed rainfall, more intensive and widespread use of three crucial

inputs--irrigation water, fertilizer and extension advice--contributed to

the bumper harvest. Fertilizer consumption surged 30% in 1977/78, continuing

its recovery from the depressed level of 1974/75. Annual additions to irri-

gated area have averaged 2 million hectares since 1975/76 compared with 1.3

million hectares per annum achieved from 1969 to 1975. An improved extension

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system, which has been getting heartening results, has been introduced inseveral states and is slated for further coverage.

Development Prospects

11. India faces the future with large stocks of foodgrains, high andrising external reserves, excellent crop expectations, price stability and goodprospects for sustaining the improved supply of foreign exchange. The circum-stances present a great opportunity for further promoting the development ofthe Indian economy. The Draft Five Year Plan for 1978-83, discussed thoughnot yet approved by the National Development Council, responds to this chal-lenge by projecting a rapid growth in real terms of both overall investmentand public Plan expenditures. Investment is to rise on average by 10.7% perannum and the economy is expected to grow on average by 4.7% per annum duringthe years 1978-83.

12. The new Draft Plan reveals an intention to reorient the country'sdevelopment toward improving the living conditions of the poor. This isreflected in its principal objectives: (i) the removal of unemployment andsignificant underemployment; (ii) an appreciable rise in the standard ofliving of the poorest sections; and (iii) the provision of basic needs tolow-income groups. To achieve these objectives, the Government proposes toemphasize agricultural development, cottage and small-scale industries, areaplanning for integrated rural development and the provision of minimum needs.As a first step toward complete removal of unemployment, the Plan envisagesthe creation of a large number of new jobs through a considerable expansionof construction activity as well as a boost in the consumption levels of thepoor--which in turn would require the production of the necessary wage goods,largely in small-scale, labor-intensive units. Specific programs to achievethese objectives are still in the making.

13. In order to achieve a sizable rise in the income of the poorestclasses of society, the Draft Plan--in conformity with the Janata Party policy--places prime emphasis on the development of rural areas. A major impulse foragricultural development will be provided by the expansion of irrigation andrelated agricultural inputs, such as fertilizers and better farming techniques.The Draft Plan argues that efforts to increase productivity should be sup-plemented by measures with a redistributive impact such as supporting smallfarmers and small industry with institutional credit and material suppliesand assistance for marketing. The Draft Plan also intends to complement thecreation of employment and the increase in rural productivity by providingbasic services to those groups which have so far been unaffected. For thispurpose, the minimum needs program launched at the onset of the Fifth Planis being revitalized and accelerated.

14. The allocation of the Draft Plan outlay for the next five yearsreflects these priorities. Out of a total expected spending of US$81 billion,US$35 billion--43%--have been earmarked for rural development programs includ-ing agriculture, irrigation, fertilizer and social infrastructure expendituresdirectly benefitting the rural areas. The share of these sectors amounted to37% during the Fifth Plan period and to 40% in the Annual Plan for 1978/79.

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It can thus be expected to rise further during the next four years. Similarly,spending on the minimum needs program in 1978-83 will absorb 6% of the Planresources, as compared to less than 3% in the Fifth Plan. On the other hand,the shares of industry and of transport and communication have been reduced.

15. There is considerable scope for stepping up growth in agriculture.The most promising development is the sharp increase in government outlaysand improved project implementation for irrigation. There are also indica-tions that private investment in tubewells is picking up again after a slumpin the early 1970s. Other favorable indicators include the spread of animproved system of extension to more states and the recovery of fertilizerdemand. With regard to more productive use of existing capacity, there is anincreased awareness in the Government that the benefits of irrigation projectscan be much increased, not only through command area development, but alsothrough improved design standards in major surface irrigation infrastructure.Nevertheless, comprehensive improvement in water management remains a distantgoal, particularly in existing systems and where farms are small and frag-mented. The bulk of the increase in private tubewell development in the lastfew years has come from the Eastern Region, where more and more farmers aresinking wells to enable them to grow a winter crop of wheat in addition toproviding better water control for the summer rice crop. Improved water man-agement would make such investments even more productive. Increased farmerincomes from the recent good harvests, somewhat lower fertilizer prices, andgrain prices supported at incentive levels have encouraged farmers to applyconsiderably more fertilizer. Finally, the reorganized and improved extensionand research system which has been introduced recently in several states innorthern and eastern India holds out the hope that sound advice will reachmany more farmers in both irrigated and rainfed areas and will raise theirproductivity significantly. The improved extension system is an excellentexample of how the growth effort can and must be structured so as to increasethe incomes of small and marginal farmers, who work 25% of the cultivatedland and account for somewhat more than 25% of production; more importantly,these farmers make up about 70% of the rural population and constitute themajority of those living below the poverty level in India.

16. Industrial prospects are somewhat more difficult to discern.Moderate growth in 1977/78 after an excellent year in 1976/77 suggests thepersistence of problems plaguing the sector since the mid-1960s--large un-utilized capacity, stagnant capital formation in the private sector and lowproductivity growth. Lower investment than expected, of course, is one ofthe reasons for low capacity utilization in capital goods industries, whichmake up a significant portion of the sector. Sluggish demand for industrialproducts from all sources--not only from investments but also from agricul-ture, exports and import substitution--has been a basic constraint. Furtherimport substitution cannot be a major source of growth for manufactured goodsin the future because most opportunities for efficient import substitutionhave been exploited. Increased growth of real incomes from greater produc-tivity in both agriculture and manufacturing, sustained increases in exportsand increased investment, particularly by the public sector, all can raisedemand for industrial production.

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17. The new industrial policy of the Janata government and the orienta-tion of the Draft Five-Year Plan emphasize small-scale industry over heavyindustry and have accordingly promoted such measures as product reservation,credit rationing and, within the small-scale sector, plans to initiate specialefforts for the growth of the "tiny" sector. While the priority accorded tothe small-scale sector is laudable, there are doubts about the efficacy ofthe policy measures chosen. Past experience indicates that other factorsare also crucial to its development, particularly effective demand, qualitycontrol, prices and marketing techniques. Some small-scale industry is cap-ital intensive and not well suited to as rapid employment generation as ishoped; nor can all goods be efficiently produced using small-scale technology.

18. India's population growth rate of about 2% is not high in comparisonwith that of most developing countries. Moreover, the rate is on the decline,after growing steadily census to census from 1920 through 1970, both becausethe birth rate continues to fall and because mortality is not falling assteeply as in the past. Family planning acceptor rates slowed down in thewake of the abandonment of the 1976 population policy after the 1977 generalelections and the momentum of the program has yet to be recaptured, particu-larly in Northern India. However, the new Government has reaffirmed its com-mitment to a voluntary family planning program and has budgeted the resourcesto carry it out. Over the longer term, with a sustained family planningeffort, it should be possible to bring the birth rate down from its 1970-75level of about 37 per thousand to about 23 per thousand by the end of the century,implying a population growth rate somewhat under 1.1%. Our "best guess" pro-jection of India's population in the year 2000 is 885 million. Many of thebenefits of family planning policy will only be felt beyond the turn of thecentury; the decline in fertility will, however, bring about an earlier changein the age structure of the population. The school age group will grow moreslowly or not at all after 1981, thereby reducing the pressures on the primaryand secondary education systems. However, the labor force will continue togrow at a faster rate -- 2.5% per annum -- until well into the 1990s, result-ing in an increasing proportion of the population in the labor force from40.8% to 45% in 1991.

19. The Government's goal of eliminating unemployment in 10 years impliesan expansion of the number of jobs at the rate of 9 million per annum -- 7million new entrants to the labor force and the absorption of 2 million orso formerly unemployed. The majority of these will have to continue to beabsorbed -- judging from the prevailing composition of the labor force -- inagriculture and the unorganized small-scale sector. The absorptive capacityof the modern organized sector is unfortunately low; its employment elasticityis expected to be no more than 0.5. Given its low current share of output,even rapid growth of this sector would not make much of a dent in the backlogof the unemployed. Employment in the organized sector has been growing atabout 2.2% per annum in the past ten years, less than the labor force growthrate, and all of this in the public sector. Private sector employment has notgrown at all since 1966. While the labor absorption elasticities of the small-scale sector may be higher in some cases than that of the large-scale sector,a major effort to expand production must succeed before an appreciable employ-ment impact will materialize.

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20. In the short run India's balance of payments should not be a con-straint on growth and development. With good medium-term prospects forIndia's exports, the expected continuation of growth in invisible receiptsand the potential for an increase in net aid disbursments, the net availabilityof foreign exchange to finance merchandise imports is projected to rise overthe next five years, in current prices, from US$8.7 billion in 1977/78 toUS$16.7 billion in 1982/83, an average of 14% per annum. Given the unlikelyneed to increase rapidly imports of some traditionally important items -- e.g.,petroleum, fertilizer, foodgrains, edible oil and cotton -- other imports canincrease at the rate of 20% a year over the next five years.

21. Altogether, these currently favorable circumstances present theopportunity to double India's trend rate of growth of per capita income fromthe average annual rate of 1.5% that prevailed for the last thirty years to3% over the next five, and thereafter. This requires a continued fall in therate of population growth to below 2% per annum and a rise in the growth ofGDP from the historical rato of 3.5% to 5.0% per annum. Both of these targetsare within reach. The firsL should be achieved barring a total abandonmentof the family planning program. The second requires improved efficiency andincreased investment by both Fhe public and private sectors; it also meansmore fully harnessing the gains from trade through international specializa-tion, implying a strong export effort and continued easier access to imports.In addition to enabling a faster rate of per capita income growth, the pre-sent situation allows for increasing the coverage of the population's minimumneeds. This requires formulating and administering effective, efficientprograms of public investment and, of course, requires larger public outlays.

22. With the enhanced resources at India's disposal, the economy ispoised for a higher rate of economic growth. The Government is moving totake advantage of this opportunity with increased public expenditure envi-sioned over the next five years, and the liberalized trade policies recentlyannounced. It is yet too early to know whether the moves made so far willbe sufficient to achieve the desired targets or whether additional steps willbe necessary. Assured international support for India's development effortwill be an important factor in moving the Government to take greater risksin pursuing a dynamic development program directed at meeting the huge needsof its large and impoverished population.

PART II - BANK GROUP OPERATIONS IN INDIA

23. Since 1949, the Bank Group has made 55 loans and 105 developmentcredits to India totalling US$2,236 million and US$5,738 million (both netof cancellation), K2spectively. Of these amounts, US$924 million had beenrepaid, and US$1,928 million was still undisbursed as of July 31, 1978.Annex II contains a summary statement of disbursements as of July 31, 1978,and notes on the execution of ongoing projects.

24. Since 1957, IFC has made 15 commitments in India totalling US$63.6million, of which US$14.5 million has been repaid, US$7.6 million sold and

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US$6.9 million cancelled. Of the balance of US$34.6 million, US$26.9 mil-

lion represents loans and US$7.7 million equity. A summary statement of IFCoperations as of July 31, 1978, is also included in Annex II (page 2).

25. In recent years, the emphasis of Bank Group lending has been onagriculture. The Bank Group has been particularly active in supporting minorirrigation and other on-farm investments through agricultural credit opera-tions. Major irrigation, marketing, seed development, and dairying are otheragricultural activities supported by the Bank Group. Also, the Bank Grouphas been active in financing the expansion of output in the fertilizer sectorand, through its sizeable assistance to development finance institutions, ina wide range of geographically scattered medium- and small-scale industrialenterprises. IDA financing of industrial raw materials and components forselected priority sectors has been instrumental in facilitating better capac-ity utilization in industry. The Bank Group has also been active in support-ing infrastructure development for power, telecommunications, and railways.Family planning, education, water supply development, and urban investmentshave also received Bank Group support in recent years.

26. The direction of assistance under the Bank/IDA program has beenconsistent with India's needs and the Government's priorities. The emphasisof the program on agriculture, industry, power, urban development and watersupply remains highly relevant. Projects designed to foster agriculturalproduction through the provision of essential inputs such as credit foron-farm investments, command area development of existing irrigation schemes,intensification and streamlining of extension systems, and seed productionform an important aspect of the Bank Group's program for the next severalyears. Special emphasis will be given to projects benefitting small farmers.Projects supporting water supply, sewerage, and urban development also forman integral part of the Bank's lending strategy to India for the next severalyears. Lending in support of infrastructure and industrial investments willfocus on agriculture-, export- and energy-related projects.

27. The need for a substantial net transfer of external resources insupport of the development of India's economy has been a recurrent theme ofBank economic reports and of the discussions within the India Consortium.Thanks in large part to the response of the aid community, India has success-fully adjusted to the changed world price situation. However, the basic needfor foreign assistance, to augment domestic resources, stimulate investmentand accelerate economic growth, remains. As in the past, Bank Group assist-ance for projects in India should include, as appropriate, the financing oflocal expenditures. India imports relatively few capital goods because ofthe capacity and competitiveness of the domestic capital goods industry. Con-sequently, the foreign exchange component tends to be small in most projects.This is particularly the case in such high-priority sectors as agriculture,irrigation, rural water supply and medium- and small-scale industry.

28. Although the growth prospects of the economy have improved, India'spoverty and needs are such that as much as possible of India's external capi-tal requirements should be provided on concessionary terms. Accordingly, thebulk of the Bank Group assistance to India has been, and should continue to be,

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provided from IDA. However, the amount of IDA funds that can reasonably beallocated to India remains small in relation to India's needs for externalsupport, and India may be regarded as creditworthy for some supplemental Banklending. As of July 31, 1978, outstanding loans to India totaled US$1,247million, of which US$559 million remained to be disbursed, leaving a netamount outstanding of US$688 million.

29. Of the external assistance received by India, the proportion con-tributed by the Bank Group has grown significantly. In 1969/70, the BankGroup accounted for 34% of total commitments, 13% of gross disbursements,and 12% of net disbursements as compared with an estimated 62%, 27% and 38%,respectively, in 1977/78. On March 31, 1977, India's outstanding and dis-bursed external public debt was US$13.3 billion, of which the Bank Group'sshare was 28%. Because Bank Group assistance to India is predominantly inthe form of IDA credits, debt service to the Bank Group will rise slowly.In 1977/78, about 16% of India's total debt service payments were to theBank Group.

PART III - THE WATER SUPPLY AND SEWERAGE SECTOR IN PUNJAB

Background

30. Although State Governments in India have primary responsibilityfor development of water supply and sewerage facilities, the Central Gov-ernment, through its five-year plans and/or special programs, has considerableinfluence on sector development. Funds are normally allocated by the Govern-ment of India (GOI) in the form of grants and loans which State Governmentssupplement with local resources. The States execute their responsibilitiesthrough various departments and agencies which, in turn, may delegate partor all of their duties to local authorities. In certain cases, municipalauthorities, or other agencies, by special legislation assume the entireresponsibility for planning, design, construction, operation and maintenanceof water supply and sewerage services within their jurisdictions.

31. Since the early 1950s, State Governments have endeavored to meetthe increasing demand for services caused by rapidly expanding populationand unprecedented rates of urban growth. Competing demands for resourcesfrom other high priority sectors, lack of management and planning skills, andshortages of key materials and equipment have resulted in only 1 to 2% ofdevelopmental expenditures being invested in the water supply and seweragesector.

32. The present levels of water supply and sewerage services in Indiareflect the history of relatively small investments, against a backgroundof rising populations and urbanization. In 1975, WHO 1/ estimated that only

1/ WHO Community Water Supply and Waste Water Disposal Mid-Decade ProgressReport, May 1, 1976.

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193 million people, or 31% of India's total population of 620 million, hadaccess to reasonably safe drinking water and that only 125 million (20%) hadacceptable means of disposing of sewage. These levels are lower than averagelevels for all developing countries as a whole, in which water and sewerageservices reach 38% and 33% of the population respectively.

Punjab Water Supply and Sewerage Sector

33. The State of Punjab, located in the plains Sf northwestern India,bordering Pakistan, covers an area of about 50,400 km . The State's economyis largely dependent on agriculture which accounts for some 82% of total landarea and contributes approximately 52% of its total income. Agricultural andindustrial development have been impressive in Punjab with the result that theState's per capita domestic product is the highest in India. The State isgenerously endowed with an abundant supply of water from three major perennialrivers, the Beas, Sutlej and Ghaggar and an ample supply of groundwater whichis its main source of domestic water supply.

34. Punjab faces most of the problems typical of the water supply sectorin India. These problems are particularly acute in urban areas which havegrown rapidly to meet the expanding industrial, trade and services require-ments of Punjab's flourishing rural sector. Development of the sector hasproceeded without a properly designed long-term program. Furthermore, beingin no position to generate sufficient resources by itself, the sector has beendependent on the State budget for the financing of its development expendi-tures and is, therefore, subject to the uncertainties of annual appropriations.The result is that the sector is now facing serious problems. In most urbanareas, the water supply is intermittent and unevenly distributed. Operationof the systems is unsatisfactory with no proper assessment of the amount ofwater pumped into them and the amount that is actually used. Punjab has apopulation of 13.6 million, of which 76% live in rural areas (12,188 villages)and 24% in urban areas (108 townships). In 1976, 59 townships had partiallypiped water supply systems which served some 1.4 million or about 42% of thetotal urban population in the State. The balance of Punjab's urban populationrelies mainly on shallow wells. The development of rural water supply schemeshas concentrated mainly in water scarcity areas or in areas where the ground-water contains excessive fluoride. There are about 4.6 million people inthese areas living in about 3,700 such villages. Of these villages, about1,700 have been provided with standpost water supply covering a population ofabout 1.6 million and schemes are under preparation or implementation to servethe remaining 2,000 villages. The rest of the rural population obtain theirsupplies from groundwater. The incidence of water-related diseases such asdysentery and infectious hepatitis, though lower in Punjab than in otherIndian States, still poses serious health hazards.

35. Sewerage systems in Punjab are less developed than water supply.Only 7% of the total urban population enjoy any sewerage facilities. The bulkof the urban population depend on the conservancy system or use open drainsor fields. Sanitary conditions, particularly in industrialized and congestedurban areas, are poor and are steadily deteriorating with sewage flowing inopen drains or stagnating in ponds. The maintenance of existing seweragesystems is unsatisfactory with silting of the sewers constituting a majorproblem. In rural areas, sanitation is of a very low standard.

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Sector Organization and Objectives

36. Until 1976, the Public Health Branch of the Public Works Depart-

ment (PWD) was primarily responsible for the planning and execution of

urban and rural water supply and sewerage systems in Punjab. Responsibility

for systems operation and maintenance was vested in Panchayats (village

councils) or Municipal Corporations/Committees (MCs), with the PWD

operating the rural water supply schemes on behalf of the Panchayats.

37. In November 1976, the functions of the Public Health Branch of the

PWD were reallocated. A newly established Punjab Water Supply and Sewerage

Board (WSSB) was made responsible for the construction of urban water supply

and sewerage systems. Operation and maintenance of these systems, however,

remained the responsibility of individual municipal authorities. Responsi-

bility for planning, design, construction and operation of rural water supply

schemes remained with the Public Health Branch, Rural Water Supply Wing, of the

Ministry of Public Works.

38. GOP's objectives for the development of its water supply and sewer-

age sector include (i) developing an adequate institutional framework to

provide urban water supply and sewerage services rapidly; (ii) making the

urban water supply and sewerage systems financially self-sufficient; (iii)

better utilization of existing water supply and sewerage systems; and (iv)

extending and improving services where needs are greatest. Towards this end,

the establishment of WSSB was an important first step and it provides GOP

with a suitable base for institutional development in the sector.

39. Following a sector study by IBRD/WHO Cooperative Program staff in

February/March 1977, various organizational alternatives were discussed with

GOP with a view to furthering sectoral objectives. These included the merging

of water supply and sewerage organizations for urban and rural areas under a

single entity with full responsibility for implementation, and operation and

maintenance; establishing a separate Board for rural water supply; and estab-

lishing municipal enterprises for system operation and maintenance. GOP felt

that, as WSSB is still in its formative stage, it was too early to consider

burdening it with the added responsibility for implementation and operation of

rural water works. GOP also considered that the establishment of a second

Board could unnecessarily perpetuate a division of the sector. GOP opted for

retaining the present institutional framework for rural water supply, while

accepting as an objective for the urban sector the strengthening of WSSB and

the development of viable local undertakings capable of handling systems

operation on a self-supporting basis. In this respect, GOP's decision was in

keeping with its policy of fostering the development of self-government by

democratically elected local bodies. MCs presently lack the expertise neces-

sary to operate and maintain water supply and sewerage systems efficiently.

GOP has, therefore, agreed to strengthen WSSB to enable it to assist the MCs

in institutional development and systems operation. GOP has also agreed to

pass amending legislation to enable WSSB to take over the operation and main-

tenance of the water supply and sewerage systems of MCs in case of default or

mismanagement.

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40. The original project package presented to the Association coveredwater supply and sewerage works (100% connections) in the three major townsof Jullundur, Amritsar and Ludhiana, and water supply works for rural areasclassified as "scarcity" areas. In the context of further project preparation,GOP agreed to extend the project to cover additional urban areas and to reducethe levels of service contemplated for the three major towns. IDA was keenthat GOP retain the rural water supply component in the project. However, GOPwas unable to accept the principle that the cost of such services be recoveredin accordance with the ability of consumers to pay, and decided to withdrawthis component which it proposes to finance entirely on a grant basis.

Sector Investment

41. The GOP investment program for the urban sector involves an increasefrom an amount of US$5.3 million equivalent, in the period 1970-1974, toUS$36.4 million equivalent, in the period 1975-1979. Investments of US$104.6million equivalent are planned for 1979-1982 (the proposed project period).Past annual investments in rural water supplies have increased from aboutUS$2.6 million equivalent in the period 1970-1974 to about US$4.7 millionequivalent in 1975/76. The GOP budget for the fiscal year 1977/78 providesUS$9.3 million for rural water schemes with annual investments of US$18.6million forecast by fiscal year 1979/80. The planned increase in both urbanand rural water supply investments is appropriate in light of sectoral needsand the past neglect of the sector. The fact that the urban sector wouldcontinue to absorb a larger proportion of resources than the rural sectorreflects the urgency of improving sanitary conditions in congested industrialand urban areas where health hazards are significant. Consequently, whereaspast urban sector investments have been equally divided between water supplyand sewerage, proposed investments through 1982 would concentrate on theextension of sewerage systems (68% of average annual investments in the pro-posed project period).

Previous Bank Group Operations in Punjab

42. Previous Bank Group involvement has been in the agricultural sectorin Punjab. In June 1970, Credit 203-IN (US$27.5 million), was approved toprovide medium and long term finance for the purchase of imported tractors,tractor implements and harvesters by farmers, cooperative farming societiesand farmers groups, to increase agricultural production. After initial delaysover tractor procurement, culminating in the Credit being amended to permitthe financing of indigenously manufactured tractors as well as importedtractors, good progress was made and the Credit was fully disbursed on schedule.

PART IV - THE PROJECT

43. The proposed project was prepared by WSSB with assistance fromBank Staff and consultants and was appraised in October/November 1977. TheStaff Appraisal Report No. 1882b-IN dated August 24, 1978, is being dis-tributed separately. Negotiations were held in Washington in May 1978. The

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negotiating delegation for India was headed by Dr. Y. V. Reddy, Deputy

Secretary, Department of Economic Affairs and the Life Insurance Corporation

of India (LIC) was represented by Mr. C. R. Thakore, Chief (Investment). A

supplementary Project Data Sheet is attached as Annex III.

Project Objectives and Description

44. The proposed project would be implemented over 4 years and forms amajor part (75%) of GOP's urban water supply and sewerage program through 1982.

The project has been designed to improve and expand water supply and sewerage

facilities in 8 towns (Jullundur, Amritsar, Ludhiana, Moga, Patiala, Bhatinda,Rajpura and Pathankot). These are rapidly expanding, congested, industrial-ized areas which contain about 62% of the State's total urban population of

about 3.3 million. Water supply connections would be provided to an addi-

tional 24% (approx. 800,000 people) of the State's total urban population.

45. Through the expansion and improvement of sewerage in the eight

towns, an additional 36% (approx. 1.2 million people) of the total urban

population of Punjab would be provided with sewerage facilities. The projectwould also effect improvements in operational and management techniques whichwould benefit both WSSB and participating MCs in the development of future

water supply and sewerage systems throughout the State.

46. The proposed water supply works in the eight towns include the

construction of tubewells, service reservoirs, distribution mains, about93,000 water service connections and treatment works for two towns. Thesewerage component would provide for interceptors, outfall mains, pumping

stations, some disposal facilities and about 120,000 connections.

Project Implementation

47. The Punjab Water Supply and Sewerage Board (WSSB), established underthe Punjab Water Supply and Sewerage Board Act 1976, would be responsible for

project implementation. WSSB is headed by a full-time Chairman, a full-timeManaging Director, six ex-officio directors and up to five associate membersrepresenting special interests. Under the Managing Director's guidance, WSSB

plans, designs and constructs urban water supply and sewerage schemes.For this purpose, WSSB is organized into centralized departments responsible

for design, planning, finance and administration, and into four regionalengineering circles. WSSB's performance has been satisfactory within the

constraints imposed by its limited technical staff. Under the proposed pro-ject WSSB would exercise a supervisory role over the MCs to ensure that theyoperate and maintain efficiently the water supply and sewerage systems within

their jurisdiction. GOP has agreed to provide a legislative framework suit-able to enabling WSSB to function effectively. The Punjab Water Supply andSewerage Board Act 1976, has been amended provisionally by the passage of anOrdinance enabling WSSB to take over the operation and maintenance of waterand sewerage systems in the project area in case of default or mismanagement

by any MC. The Ordinance also empowers WSSB to relend funds to the MCs. It

is a condition of credit effectiveness for these provisional arrangements tobe finalized through appropriate action as agreed with IDA (see Section 5.01(e)

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of the Development Credit Agreement). GOP has also agreed to establish withinWSSB, five design divisions and has appointed a Chief Engineer to head WSSB'sDesign and Planning Department. In addition, WSSB has agreed to employ quali-fied staff in sufficient numbers, to carry out the proposed investment programand to assist the MCs to operate and maintain the works and facilities con-structed or improved on their behalf (see Section 2.08 of the Project Agree-ment). Furthermore, WSSB has engaged consultants to advise both the WSSB andthe MCs on organization and management, and staffing. By December 1, 1978,WSSB would also hire consultants to advise on training programs and designsewage treatment works (see Section 2.02 of the Project Agreement). In allapproximately 500 man-months of local consultant services, costed at US$1,000per man-month, would be required to provide these services under the project.To ensure timely project implementation and to enable the early hiring ofconsultants, retroactive financing up to US$100,000 has been provided fromFebruary 28, 1978 to the date of Credit signing (see paragraph 4 of Schedule Ito the Development Credit Agreement).

48. Under the project, each MC would be required to meet specific re-quirements to ensure the efficient operation and maintenance of the watersupply and sewerage systems to be constructed within their jurisdictions. Toachieve this objective, GOP would be required to cause each MC to:

(1) establish a separate advisory committee with the authorityto recommend policy relating to water supply and sewerageservices;

(2) establish a separate water supply and sewerage departmentby March 31, 1979, and require the head of the department toreport directly to the Commissioner or President of such MC;

(3) ensure that the water supply and sewerage department maintainseparate accounts for water supply and sewerage servicesand has its own budget and bank account;

(4) ensure that the water supply and sewerage department main-tains its accounts in accordance with a full public utilitycommercial accounting system beginning April 1, 1980;

(5) ensure that key personnel with appropriate qualificationsare appointed in the water supply and sewerage department; and

(6) ensure that its water supply and sewerage department shalloperate and maintain the water supply and sewerage systemswithin its jurisdiction in accordance with sound engineering,administrative, personnel, financial and public utilitypractices. For the purpose of the latter, MCs would berequired to adopt by September 30, 1979, technical andfinancial performance criteria and indicators on operationand maintenance to be established by WSSB in consultationwith the Association and MCs (see Section 2.04 of the PunjabAgreement).

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49. IDA has appraised the water supply and sewerage schemes plannedfor the three major towns of Jullundur, Amritsar and Ludhiana, comprisingnearly 80% of total project costs, leaving the schemes proposed for theremaining five towns to be appraised by WSSB. IDA's review and approval ofthe engineering reports would be made a condition of disbursement for eachof the subprojects in the eight towns (see paragraph 4 of Schedule I to theDevelopment Credit Agreement).

Project Costs and Financing

50. The estimated cost of the proposed project is about US$77.6 millionequivalent, including about US$2.5 million of taxes and duties. The principalcomponents net of contingencies are: water supply schemes (US$15.9 million);sewerage works (US$31.8 million); engineering costs (US$10.0 million); andspecialized equipment, consultancy services and training (US$1.2 million).Physical contingencies average about 12% for all items (US$5.7 million), whileprice contingencies of US$13.0 million are based on annual price increases of7% for material and equipment and 8% for civil works.

51. The proposed Credit of US$38.0 million equivalent would financeabout 50% of project costs, net of taxes and duties. The Credit wouldfinance all foreign exchange costs (approximately US$5.5 million) and US$32.5million of local costs. The balance of funds for the project would be pro-vided by the Life Insurance Corporation of India (LIC), GOP and participatingMCs. LIC is actively involved in lending for State water supply schemes andwill provide US$15.1 million equivalent, representing about 20% of the totalfinancing required. GOP together with participating MCs would provide thebalance US$24.5 million equivalent (see Section 2.02 of the Punjab Agreement).The proceeds of the Credit would be channelled through GOI to GOP, on standardterms, as part of Central assistance provided to State Governments for devel-opment purposes. GOP will on-lend these funds to WSSB at 8.5% interest, fora period of 25 years, including three years of grace. Under Subsidiary LoanAgreements between WSSB and each participating MC these funds would be held byWSSB to the account of MCs. These Agreements would also make MCs liable forrepayment of the loan to WSSB on the same terms and conditions applicable tothe GOP loan to WSSB. The signing of the Subsidiary Loan Agreements has beenmade a condition of credit disbursement (para 4(b)(ii) of Schedule 1 to theDevelopment Credit Agreement). LIC will provide its loan to WSSB at 8.5%interest, with the same repayment period as for the GOP loan to WSSB. Con-tributions from MCs would be in the form of capital grants. GOP would berequired to provide these funds in the event the MCs fail to do so (seeSchedule 2 of the Project AgreemenL and Section 2.02(b) of the PunjabAgreement).

Cost Recovery

52. The MCs keep their accounts on a simple cash basis. This does notprovide financial data adequate to judge their performance. They do not pre-pare annual reports or annual financial statements. Available information onpast financial performance in the three major towns shows a history of losseson sewerage operations, although Amritsar and Ludhiana are close to breaking

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even in FY1977 and FY1978 on their overall water and sewerage operations.Jullundur, however, will meet only about 35% of its operating costs duringthese two years.

53. Under the proposed project GOP aims to have the water supply andsewerage operations in the eight towns generate sufficient revenues to meetthe cost of services provided. Pending a tariff study, the MCs have intro-duced water charges in the eight towns based on the existing tariffs forAmritsar and Ludhiana. As a result, a flat rate water charge of Is 8.00

(US$0.94) per month, and a metered water charge of Rs 0.35 per M (US$0.16per 1,000 US gallons), has been made applicable to all these towns fromJuly 1, 1978. As of this date, a sewerage charge, equivalent to the watercharge, has also been introduced for all premises which have both a water anda sewer connection. The present domestic water consumption pattern cannotbe readily established because of the lack of production meters and reliablecustomer meters. Projected domestic water consumption, estimated on the basisthat the proposed leak detection program, installation of new meters, andrepair of existing meters would be carried out under the project, rangesbetween 90 and 160 1/cd (about 24 to 42 US gallons) in the eight towns.Standpipe consumption has been projected at 45 1/cd (about 12 US gallons)for an average of between 40 to 50 families per standpost.

54. To induce maximum utilization of sewerage facilities, GOP has under-taken to cause MCs to introduce full sewerage charges from April 1, 1979, forpremises which have access to, and benefit from, the sewerage system regardlessof whether they are connected or not (see Section 2.08 of the Punjab Agreement).To help the poorer sections of the community meet the costs of connecting tothe water supply and sewerage systems, WSSB has agreed to waive the administra-tive charge for connections, and to reduce water meter deposits. Additionally,the project would provide credit on easy terms for water supply and sewerageconnections. The preparation of a credit program and the formulation ofdetailed programs for sewerage connections satisfactory to IDA would beconditions for disbursement in the eight project towns (see para 4 of ScheduleI to the Development Credit Agreement).

55. The project also provides for a tariff study to be carried out byconsultants employed by WSSB to design tariffs which would seek to maximizeincome, minimize wastage of water and at the same time provide a reasonablelevel of service to the urban poor at a price they can afford. The latterobjective is expected to be achieved by the provision of free supplies ofwater from standposts and by the use of a stepped tariff for metered supplies.The tariff study is also expected to recommend additional sources of revenuesuch as charges for (a) properties connected to the sewers but using privatewater supplies; (b) the sale of waste water for irrigation purposes; and(c) the private extraction of water from the aquifer. Supplementary revenuesfrom these sources can be expected during the project construction period,but have not been taken into account in the financial projections.

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The Financial Position of Project Entities

56. With the introduction of the new water charges and a sewerage chargethe three major towns together would attain a positive overall financial rateof return on net fixed assets during the construction period to FY1981/82.This will also be true of the three towns individually, except for Jullundurin the first year FY1978/79. During this period, there should be no need forany further tariff increases, provided unit costs do not escalate beyond theforecast level of about 7% to 8% annually. During the construction period GOPwould cause each MC to cover annual operating expenses, working capital anddebt service or depreciation, whichever is the higher (see Section 2.10(a) ofthe Punjab Agreement).

57. With the improvements in service created by the project, a largeincrease in tariffs should be possible in FY1982-83 in order to generate cashto finance a proportion of future investment and to ensure that an adequatereturn on capital investment is obtained. The actual size of this increasewill depend upon the level of inflation during the intervening years, on theability of the MCs to generate additional sources of revenue as a result ofthe tariff study (para 55) and, to a lesser extent, on the level of recoveriesof credits to the poorer sections of the community for connections. GOP wouldcause each MC to generate internally sufficient cash to finance a proportionof the annual investment, taking the average of the investments in the current,the last preceding and the next following year, at the rate of at least 30%in FY1982-83, 35% in FY1983-84 and 40% from FY1984-85 onwards (see Section2.10(b) of the Punjab Agreement). However, for balance sheet purposes, WSSBalso plans to instruct its consultants to properly value and record allexisting assets. This would enable a rate of return calculation to be made asa further test of financial viability. GOP would also cause the MCs not toincur any further long-term debt in respect of their water supply and sewerageservices unless their net incomes before interest and depreciation are atleast 1.5 times the maximum debt service in any future year (see Section 2.11of the Punjab Agreement).

58. WSSB would carry out the design and supervision of construction inthe eight towns and an engineering charge of 15% of total cost would be in-cluded in all construction work undertaken on behalf of the MCs. This incomeshould be adequate to meet the supervisory costs of WSSB operations throughoutthe project construction period. GOP would also provide WSSB with an equitycontribution of about Rs 80 million (about US$9.3 million) as working capitalto enable it to finance the high level of expenditure that would be necessaryto sustain the project and other sector work, pending receipt of proceeds ofthe loan from GOP and LIC, and funds from MCs (see Section 2.02(a)(i) of thePunjab Agreement).

59. Consultants would be appointed by WSSB to establish public utilitycommercial accounting systems for both WSSB and the MCs in two phases. In thefirst phase, the focus would be on improved billing and collection and basicaccounting records, to be implemented by April 1, 1979, followed by a fullsystem to be implemented by April 1, 1980. GOP would cause the MCs to imple-ment a public utility commercial accounting system by April 1, 1980, for

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the eight towns; WSSB would also implement a similar system by the samedate (see Sections 2.04(d) of the Punjab Agreement and 4.03 of the ProjectAgreement).

Procurement and Disbursement

60. Contracts for equipment and materials with an estimated value ofUS$14.0 million would be awarded on the basis of international competitivebidding in accordance with IDA guidelines. A margin of preference of 15%or the current import duty, whichever is lower, would be granted to localmanufacturers in evaluating bids for these contracts. Contracts for equip-ment and materials with an estimated value of US$22.0 million would beawarded on the basis of local competitive bidding. These contracts wouldinvolve either small items (below US$100,000) unlikely to attract bids fromforeign suppliers, or items unsuitable for international bidding because ofhigh transport costs and/or high risk of damage in transit (e.g., concreteand stoneware pipes).

61. The total value of civil works under the project is estimated atUS$21.4 million, excluding contingencies. Because of the dispersed natureof the project and the limited possibilities of grouping the contracts,there would be at least 100 distinct civil works contracts involved. Oneor two of the contracts could be of the order of US$1.5 million equivalent,but the rest would be much smaller in value with the average contract sizebeing about US$250,000 equivalent. The majority of the contracts wouldcomprise labor intensive pipe laying works. Consequently, all civil workscontracts would be awarded on the basis of local competitive bidding, or inexceptional cases be executed by force account. Where force account is usedfor civil works, GOP has agreed not to exceed US$30,000 equivalent for anysingle contract, without obtaining the prior agreement of IDA (see paragraphB.3 of Schedule I to the Project Agreement).

62. The proceeds of the proposed credit would be disbursed against100% of foreign expenditures or 100% of local expenditures (ex-factory) ofequipment and materials procured through international competitive bidding,100% of staff training and consultant costs, and 45% of the costs of civilworks and locally procured equipment and materials excluding WSSB's adminis-trative costs. Disbursements against civil works and material and equipmentcontracts for one or more progress payments not exceeding Rs 100,000 (aboutUS$11,600) and Rs 50,000 (about US$5,800) respectively, would be on the basisof certificates of expenditure. The supporting documentation would not besubmitted for review but would be retained for inspection by review missions.There is provision for periodic local auditing of these certificates of ex-penditure. Disbursements against all other items would be fully documented.The LIC loan will be disbursed against 22% of the expenditures on locallyprocured equipment, materials and civil works excluding WSSB administrativecharges up to Rs 65 million (about US$7.6 million) and 28% thereafter.

Benefits and Risks

63. It is difficult to use conventional economic rate of return analysisin water supply projects because benefits are hard to quantify. The financial

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rate of return approximates a minimum measure of the likely economic returnto the extent that financial and economic costs are comparable and on theassumption that the expected revenues accurately measure consumers' valuationof the benefits derived from the services provided, as established in their"willingness-to-pay". The financial rate of return for the subprojects inthe three major towns constituting the greater portion of total project costs,could thus serve as a rough indicator of the economic benefits that are likelyto flow as a result of this project. The overall financial rates of returnfor these towns for water and sewerage combined are 15.1% (Jullundur), 19.7%(Amritsar), and 16.5% (Ludhiana). The weighted average rate of return forinvestments in these three towns which account for about 80% of total projectcosts is 17.1%. In each case, the project design represents the least costalternative from among those considered.

64. A primary economic benefit of the proposed project would be animproved water and sewerage service in areas where they are most urgentlyneeded. Since the major towns are thriving industrial centers as well,failure to improve and expand the facilities to meet demand would adverselyaffect industrial development in these areas.

65. The rate of return as calculated above tends to understate the con-siderable health benefits of improved water supply and sewerage services thataccrue to the community as a whole. As with other states in India, Punjabhas a history of water-related diseases, such as dysentery and infectioushepatitis. In some districts, the incidence of dental and skeletal fluorosisis severe because of the use of groundwater with a high fluoride content. Incongested urban areas in particular, which are the focus of the proposedproject, the dangers of large scale outbreaks of these water-borne diseasesare ever present due to the lack of safe drinking water and to unhygenicliving conditions. Apart from the direct personal benefits, the community atlarge benefits from reduced medical and hospital costs and increased workproductivity along with increases in effective nutrition due to a reductionin intestinal diseases.

66. The project would benefit approximately 2.0 million people. Itwould aim at providing the maximum coverage to all sections of society,particularly the urban poor. The latter would be provided with free suppliesof water from standposts and benefit through the introduction of a steppedtariff for metered supplies. Also concessional credit would be extended byWSSB to the economically weaker sections to facilitate connections to thewater supply and sewerage systems. During construction, the project wouldprovide employment to 10,000 people annually.

67. The project would also make an important contribution to institu-tional development. It would build up the organizational capability of therecently established WSSB. The water supply and sewerage departments to beestablished within MCs would similarly benefit through a considerable improve-ment in works operation in the eight project towns. it is expected thatultimately the whole sector in Punjab would benefit from this experience.WSSB and the participating MCs would also benefit through the training pro-grams WSSB would initiate with the assistance of consultants for the purpose

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of improving the capabilities of the staff engaged in operating and maintain-ing the works. Additionally, the project would help to impose financialdiscipline and improve the financial management of both WSSB and the MCs. Therestructuring and increase of tariffs would provide a cash generating capacitywhich would enable the eight towns in the project area to be less dependent onGOP loans for future capital expenditures, releasing State funds for invest-ments in other urban and rural areas within the sector.

68. The establishment of WSSB is an important first step towards re-solving the complex problems of this sector in Punjab. To perform its roleunder the project, WSSB will have to be very much strengthened. There is arisk that project execution may be slower than now foreseen if WSSB's capa-bilities are not developed rapidly. Similar risks relate to the water supplyand sewerage departments to be set up within the MCs in the eight projecttowns. These risks are however minimized through the provision of technicalassistance to both WSSB and the MCs. A further risk lies in the fact thatthe project concentrates on investment in sewerage works against a backgroundof low connection rates. The project has, however, built-in provisions toencourage and facilitate connections to sewerage systems. Nevertheless, thesemethods are generally untested and the possibility of delays in the achieve-ment of the expected number of connections cannot be ruled out.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

69. The draft Development Credit Agreement between India and the Asso-ciation; the draft Punjab Agreement between the Association and the State ofPunjab; the draft Project Agreement between the Association and the PunjabWater Supply and Sewerage Board, the draft LIC Agreement between the Associa-tion and the Life Insurance Corporation of India, and the Recommendation ofthe Committee provided for in Article V, Section l(d) of the Articles ofAgreement are being distributed to Executive Directors separately.

70. Special conditions of the Project are listed in Section III ofAnnex III.

71. In addition to the features of the Development Credit Agreementwhich are referred to in the text and listed in Section III of Annex III,the following features are of particular interest:

(a) The following event of suspension has been added, namely that:

(A) (1) the right of WSSB to withdraw the proceeds ofthe LIC Loan has been suspended, cancelled orterminated pursuant to the terms of the LIC-WSSBLoan Agreement, or

(2) the LIC Loan has become due and payable priorto its maturity.

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(B) However, subparagraph (A) shall not apply if WSSB estab-

lishes to the satisfaction of the Association that:

(1) such suspension, cancellation, termination or

prematuring is not caused by any default of

WSSB, and

(2) adequate funds for the Project are available

to WSSB from other sources on terms and condi-

tions consistent with those under the LIC-WSSB

Loan Agreement (Section 4.01(g) of the Develop-

ment Credit Agreement).

(b) Additional conditions of effectiveness include:

(i) the execution of the LIC Agreement and the execution

of the LIC-WSSB Loan Agreement have been duly author-

ized or ratified by all necessary corporate action

(Section 5.01(c) and (d) of the Development Credit

Agreement); and

(ii) the modifications to the institutional framework of

WSSB as agreed between the Association and Punjab

has been made effective (Section 5.01(e) of the

Development Credit Agreement).

72. The execution of the Subsidiary Loan Agreements between WSSB and

the participating MCs would be a condition of disbursement for expenditures

incurred by the sub-projects in the eight project towns (see paragraph 51).

73. I am satisfied that the proposed credit would comply with the

Articles of Agreement of the Association.

PART VI - RECOMMENDATION

74. I recommend that the Executive Directors approve the proposed credit.

Robert S. McNamaraPresident

By Ernest Stern

August 23, 1978

ANNEX IPage 1

INDIA - SOCIAL INDICATORS DATA SHEETLAND AREA (7HOU KM2) ----- ------------------------------

INDIA REFERENCE COUNTRIES (1970)TSTAi 32a0.5 MOST RECENTACRIC. 1797.5 1960 1970 ESTIMATE INDONESIA PHILIPPINES BRAZIL**

--- - -- -- - - - - -- - - --- --_- -------- _- -- -___---_ __----_--_-- _-- -__- --- _-_-_- - -- _- _- ----

GNP ;R CAPITA (USs) 60.0 100.0 150.0 130.0 230.0 550.0

POPULATION AND VITAL STATISTICS_______________________________

POPULATION (MID-YR. MILLION) 434.9 547.6 620.4 /a 117.6 36.9 92.8

POPULATION DENSITYPER SQUARE KM. 133.0 167.0 189.0 62.0 123.0 11.0PER SQ. KM. AGRICULTURAL LAND 247.0 308.0 345.0 411.0 375.0 49.0

VITAL STATISTICSCRUDE BIRTH RATE (/THOU. AV) 43.2 41.0 37.0 45.9 44.2 38.4CRUDE DEATH RATE (/THOU,AV) 23.9 19.0 17.0 20.6 13.2 9.9INFANT MORTALITY RATE (/TNOU) 139.0/a .. 130.0 *- 81.0 110.0LIFE EXPECTANCY AT BIRTH (YRS) 41.7 47.2 49.5 *. 55.6 59.4GROSS REPRODUCTION RATE 3.2 2.9 2.8 3.2 3.3 2.6

POPULATION GROWTH RATE (%)TOTAL 2.0 2.3 2.1 2.0 3.0 2.9URBAN 2.51b 3.2 3.1 3.7/a 4.0 5.0

URBAN POPULAtION (1 OF tOTAL) 17.9 19.8 20.6 17. 5] 27.6 56.0

AGE STRUCTURE (PERCENT)0 TO 14 YEARS 41.0 41.6 40.1 44.0 45.6 42.o

15 TO 64 YEARS 55.9 55.3 56.7 53.5 51.6 55.o65 YEARS AND OVER 3.1 3.1 3.2 2.5 2.8 3.0

AGE DEPENDENCY RATIO 0. 08 D. 0.9 0.9 0.8ECONOmIC DEPENDENCY RATIO 1I1 1.1.,/a 1.1: . 1.5 1.5

FAMILY PLANNINGACCEPTORS (CUMULATIVE, THOU) 71.0 14585.0 37858.0 259.3 320.0 250.0USERS (% OF MARRIED WOMEN) .. .. 16.7 .. 2.0 1.6

EMPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 175000.0 218000.0 261000. 0/a 12400.0 29400.LABOR FORCE IN AGRICULTURE (1) 7110 6. 0 690 .. ss.o[ 40.4UNEMPLOYED (x OF LABOR FORCE) 4.8 Id 4.4 lb 4 .a. 7.6 75

INCOME DISTRIBUTION

X OF PRIVATE INCOME REC D BY-HIGHEST 5% OF HOUSEHOLDS 26.7 25.0 Jc , 35.0/aHIGHEST 20% OF HOUSEHOLDS 51.7 53.1 : - 54.0 62.07iaLO"E5T 20% OF HOUSEHOLDS 4.1 4.7 J3 * . 6 3 o1TLONEST 40S OF HOUSEHOLDS 13.6 13.1 3f .. 6 11

DISTRIBUTION OF LANO OWNERSHIP

X OWNED 8Y TOP 10% OF OWNERS .. . .. .. .. 45.0X OWNED BY SMALLEST 10% OWNERS .. .. .. 1.5

HEALTH AND NUTRITION_ _ _ _ _ _ _ _ _ _ _

POPULATION PER PHYSICIAN 5840.0 L8.e 4890.0 4220.0 26370.0 . 1910.0POPULATION PER NURSING PERSON 5310.0.&m220.0/d 3660.01e 7630.0/ge . 3220.0JjfPOPULATION PER HOSPITAL BED 2590.0/h 1610.0 .. 1640.0 850.0 260.0

PER CAPITA SUPPLY OF -CALORIES (% OF REQUIREMENTS) 95.0 92.0 89.0 91.0 93.0 109.0PROTEIN (GRAMS PER DAY) 58.0 53.0 48.0 43.0 45.0 64.0

-OF WHICH ANIMAL AND PULSE 19.o01 16.0 126 14.0 22.0 39.0

DEATH RATE (/THOU) AGES 1-4 44.0 .. . . 6.6

EDUCATION

ADOUSTED ENROLLMENT RATIOPRIMARY SCHOOL 41.0 63.0 65.0 75.0 113.0 87.0SECONDARY SCHOOL 23.0 30.0 29.0 15.0 49.0 68.0

YEARS OF SCHOOLING PROVIDED(FIRST AND SECONO LEVEL) 12.0 12.0 11.0 12.0 10.0 11.0

VOCATIONAL ENROLLMENT(% OF SECONDARY) 9.0 .* .. 29.0 6.0 /b 17.0

ADULT LITERACY RATE (x) 24.0 33.0 36.0A 59.0 .. 64.0

HOUSING

PERSONS PER ROOM (URBAN) 2.6 2.8 .. .. 2.1 1.0OCCUPIED DWELLINGS WITHOUT

PIPED WATER (V) .. .. .. .. 76.0 73.0 /cACCESS TO ELECTRICITY

(x OF ALL DWELLINGS) .. .. .. .. 23.0 48.0RURAL DWELLINGS CONNECTED

TO ELECTRICITY (%) 7.0 8.0

CONSUMPT ION

RADIO RECEIVERS (PER THOU POP) 5.0 21.0 25.0 114.0 39.0 60.0PASSENGER CARS (PER THOU POP) 0.7 1.0 1.0 2.0 8.0 25.0ELECTRICITY (KWH/YR PER CAP) 46.0 t14.0 143.0 20.0 235.0 491.0NEWSPR'NT '^ YR PER CAP) 0.2 0.3 0.3 0.3 2.0 2.7

SEE_NOTES A DEFINITIONS ON-R-E--RS----SEE 4DTES AND DEFINITIONS ON REVERSE

ANNEX IPage 2

NOTES

Unleo otherwise noted, data for 1960 refer to eny year between 1959 nd 1961, for 1970 between 1969 and 1971, and for Most Recent Etieuote between19 73 ad 1976.

* brasil hoe been eslctd as a objective co..ury b canse of ite eise nd casparable problem- of regIonal inequality.

INDIA 1960 /a 1951-61 average; /b 1951-60C /c Ratio of population under 15 and 65 and over to labor force age 15 and over;/d Estimated by National Ssple Survey, in terms of tbe averge nunber of peron/wee.k of unemployment as per-en ctgeof total person/weekb in the labor force; /I 1962; /f Regietered, not a11 practicitg in the cntry; gj Includingmidwives; /b 1958; /i 1960-62.

1970 /a Ratio of population cnder 15 aod 65 nd over to total labor force age 15 and over; /b Estimted by National SapleSurvey, in term of the average nasber of peraon/week of unomployment as parcentoge of total pereon/weeka in the tota1labor foroa; /c 1967-68; /d Including midwives.

MOST RECENT ESTIMATE: /a 1978 mid-year population and labor force aetimated at 640.4 and 261 millions respectively; /b Ratio ofpopulation under 15 and 65 ed over to cotal labor force; /c 1977; /d Fstiated by National SRpleSurvy, in terms of the average number of pereon/week of unemployment as percentage of total person/weekain the labor force; /I Including midwives; /f Population 10 years and over.

TNDLONESIA 1970 /a 1961-71; /b 1971; /c Including midwiv.

PHILIPPIMES 1970 /a As percentage of employment; /b Not including private vocational choolo.

BRAZIL 1970 /a Econnoicaly active population; lb Hospital personnel; Ic Inoide only.

R13, May 2, 1978

D1WNITaNu OF SOC, INDIICATORS

Land Aras (thou bIn2) Poculation per nursing p-rson - Populstion divided by n.-bsr of practicingTotal - Total surface ares comprising land rea and inland waters m.le and fiauls graduate nurses, "trained" or "certified" nurses, and

aric. - Mot recast stia-te of gsricultural rsea us-d tampar-ily or parin- a.ilisry paronmal with trining or esperiencnatly for crops, pastures, market & kitchnn garden or to lie fallow. Population per hospital bed - Popletion divdd by i,.r f boepita1 beds

available in public and private general sod specilal d hospital andGNP se .ca.it. USS1 - GclP per capita astits t currant mrket prina, rehilitation centrer; secludss ursi.g hown sod r *tc blis.hent for

calculted by sam conv-rsion _thod as World gask Atlee (1974-76 bseia); cu todial and preveotiw_ cre.1960; 1970 sod 1976 data. Per cesita eunoly of calories ( of raauirnas.ts) - Computed from soergy

a1uiv6C;o o7f me7t food eupplis availabls in icoutry per capita per dy;Pouulation and vital tatintic available eupplisa cnoprise doosatic production, imports Ioss exports, andPopulation (mid-yasr million) - As of July firt: if not available, -rsag chasgas in tock; net supplies maclode anil feed, seeds, quantities used

of two and-year setimates; 1960, 1970 and 1976 data, in food procssing and loses in diatribotton; rquirv nte war es ctimtedby FAO base.d on phyaLologica1 needs for normal activity and health conald-

Populatlon density - per aqu-re be - Mid-year popultion par aquere kilost- aring *nviromtntal tmperature, body weights, age and es distributions of(100 hactare) of total are. population, nd allowing 101 for waste at housahold level.

Pocplatlon dauicy - ne anusrs kb of anic. land - Compud as sows for Pa caPita suply of orotmin (sa per day) - Protein nontant of per c.pitceg,icultural Ilnd only. nt upply of food per day; net upply of food is defined as bove; rtqulrt-

mote for all c..atries established by UlSDA Economic Raeearch Servicesvital statistics provide for minisas allonsme of 60 gris of total protain per day, andCrude birth rats per thowasd, avrag - Annvul live birth. per thound of 2t grs of *niml and pulas protain, of which 10 grasa hould be animl

sid-year population; ten-year arith_sti averages nding in 1960 and 1970, protein; thee standards are lower than thoa- of 75 gra of total proteinand five-ysar verage nding in 1975 for mt recnt stimte, and 23 grss of animl protein an soerage for the world, proposed by FAO

Cruds dsath rate per thouand. averate - Annual deatba per thousand of mid-year in the Third World Food Survey.population; ten-year aritlatic avrages ending in 1960 and 1970 and five- Per capita protein suppl, fro animal and plee - Protein supply of foodyaac average ending in 1975 for mat rec nt etimate, derived fras nimal end pulses in grsAq per day.

Infant mortality rats (/,hou. - Ann.ul dsath of infants under one yer of ge Deth rate (/thou sass 1-4 - Annual deaths per thousnd to age group 1-4per thousand live birth.. y.ars, to children in thi ge go p; uggeeted indinstor of

life expectancy at birth (yre) - Average number of years of life ramaining at malnutrition.birth; usually -iv-y.r av r-p ending in 1960, 1970 and 1975 for dsvslop-ing co-otrie Education

Gross reproduction rate - Averge number of live daughtars a woman vill bear Adjusted nrolLent ratio - primry school - terullent of 11 ageS a pe-in her norl reproductive period if ah separi-nces prea..t ag6-pecific e-ntags f primary school-ag population; inclod-- children a8gd 6-li yearsfertility ratas; ueually fiv--yat ayvrages *nding in 1960, 1970 sod 1975 but djusted for different lengths of primary education; for countris withfor dv.I.ping countri*. vuniversal education, enrollmnt my escead 100% since *oe pupils re below

Poculation grovth rate (71 - total - Compound annual growth rates of mid-year or sbov the official chool age.population for 1950-60, 1960-70 and 1970-75. Adjusted enrollment ratio - secondary chool - Computed as above; -econdery

Population gro-th rate (%) - urban - Computed like grovth rate of total education requires t leat four pests of pprovd primtry inatruction;populstion; different definitions of urban *reas may ffect comparability of pro,idee general, vocational or teecher training instruction for pupilsdata sung countris.. of 12 to 17 years of ege; cnrrespoodec coursas ar enerally excluded.

Urban copulation M% of total) - Ratio of urban to total population; different Yrer of schooling Prowided (first ad econd levels; - Total yers ofdefinition of urban areas my affect comparability of dsta ang countries, schooling; at secondary levl, voctio-al istruction may be partially or

completely =ccivVded.Ade tru, tur- (percest) - Children (0-14 y -ars) worbing-ege (15-64 Ters) Vocational asroll_et n of sacondary) - Vocation l institution include

and retired (65 years aAd ovr) as p .cnntag-- of id-year ppultion. technical, indutrial or otber progra- hinh operatc independently or asAe depend-ncy rstio - Ratio of population under 15 and 65 and or to those departments of secondary inatitutions.

of ags 15 through 64. Adult literacy rate (2) - Litarate adults (able co read and yrlr.) a, per-Fconomic dacandenc. ratio - Ratio of population undsr 15 sod 65 and over to centage of total adult population egod 15 y.ara nd over.

the labor forte c ag group of 15-64 ycare.F_aily clannin _ - acceptorr (cuulative, thou) - Cumulative number of acceptors Housing

of birch-control device under auspices of netional family planning progra Person Per oom (urban) - Average number of prsons per room in occupiedsince inceptIon, conventional dellinge in orbsc ares. ; dwellinge -oclodc non-permanent

Femilv plnnnin& - users (% of married women) - Percentages of larrid vomen of struture and unoccupied parts.child-besring age (15-44 years) shi ue birth-control devices to a11 mrried Occupied dvellings witbhut piped water (2) - Occupied conventional dwellngs

iumec n stce age group. in urban nd rural *rea without im id or outside piped water facilitiesse prcac..tage of all occupied dwellings

Employ-ent Acces to electricity (2 of a11 dwellings) - Conv-ntional dwellIngs withTots1 labor force (thousand) - Economically active perons, including aemd electricity in living quarters as percet of total dwellings in uban end

forco and unemployed but scluding hous-eive, st,dnts, etc. definitions rural areas.in various councrie are not comparable. Rural dwellings connected to lectricity (2) - Computed as above for rural

Lahot force in zariculture (2) - Agricultural Ilbor force (in faring, forestry, dwelling only.hunting and fiehing) as p-enentosa of total labor force.

unemployed (7 of labor fore) - n_aployed are usually defined *a perone who Consumptionare able nd willing to take job, out of a job on a givaen day, reined out Radio receivera (per thou pOP) - All type of recaivers for radio broadoe.tsof a )ob, and .s.iking work for s specified minimum period not esceeding one to general publir per thonnend of population; excludes ulicned rs.eioerewomk; my not be comparable betwen countri.e d. to different definitions in countries and in yeara whn r. gistration of radio sets w in effct;of unmpFloyed snd source of data .g., g mploymt office stotiatics, smple data for recent yars my nut be comparable since osat countries abolished

-veye, compulsory unamployment insurance, licensing.Paseneer care (Por thou Pop) - Paseenger care compriae motor cars sating

Income distribution - Percstage of private income (both in ca and kind) les than ight persons; *mclude ambulances, hearrs and military-c..- .d -- ott 5%, richest 207., poorc-t 207, and poorest 40% of house- vehicle.

holds. Electricity (kwh/yr per sp) - Annu-l conameption of industrial cnercil,public aod private electricity in kclowatt h-ur per capita, generally

DS-trihubiuc of land ownership - percent.ges of land ow-nd by weslthisat 10% ba sd on producti data, ithout allowne for losses in grids ht all-nd poor--t 10% of land ownr. ing fr imports and aperts of e tcuricity.

Naeerimt (ha/yr Der cas) - Pec capita annul conaumption in kilograMaelth and Nutrition satimted from do_mtic production plue nt impots of neprint

Pop.lation Per Phyacian - Population divided by omeber of practicingphyeiclans qualified fri a mdical school at university leel.

ANNEX IPage 3

ECONOMIC DEVELOPMENT DATA

GNP PER CAPITA IN 1976 A US$ 150

GROSS NATIONAL PRODUCT IN 1976/77 @/ ANNUAL RATE OF GROWTH (N. oonstant Prices) St

usS Bln. J 1960/61-1964/65 1965/66-1969/70 1970/71-1975/76

GNP at Nlarket Prices 86.04 100.0 3.9 3.8 2.9Gross Domestic Investment 16.62 19.3Gross National Saving 18.18 21.1Current Account Balance 1.56 1.8Resource Gap 0.95 1.1

OUTPTJT. LABOR FORCE AND PRODUCTIVITY IN 1975/76

Value Added (at factor cost) Labor Force V.A. Per Worker_Ss Rl. % Mil. _i

Agriculture 30.2 43 179.0 69 169 63Industry 16.7 24 33.9 13 494 193Services 23.4 33 48.0 18 488 133Total/average 70.3 100 261 100 277 100

GOVERNMENT FINANCE

General Government Central Government(RB._Bln) of GI R. Bln) of GDP1976/77 1976/77 1974/75-1976/77 1976/77 1976/77 1974775-1976/77

Current Receipts 147.46 19.1 17.9 83.78 10.9 10.4Current Expenditures 140.18 18.2 16.2 84.25 10.9 9.6Current Surplus/Deficit 7.28 0-9 1.7 - 0.47 - 0.8Capital Expenditures e/ 59-05 7.6 7.1 40.39 5.2 5.0External Assistance (net) 11.21 1.5 1.7 11.21 1.5 1.7

MONEY, CREDIT AND PRICES 1970/71 1972/7 1973/74 1974/75 1 6 1976/77 September 1976 September 1977(Billion Rs outstanding at end of period

Money and Quasi Money 105.7 142.2 169.0 186.9 215.0 262.6 238.2 284.8Bank Credit to Public Sector(net) 56.9 82.5 92.9 102.6 109.1 117.3 112.7 130.7Bank Credit to Private Sector 56.7 76.0 90.1 109.5 127.5 161.0 144.0 170.0

(Percentage or Index Numbers) Januaxy 1977 January 1978

Money and Quasi Money as % of GDP 24.3 27.3 26.4 25.5 27.6 31.3Wholesale Price Index

(1970/71 = 100) 100.0 116.2 139.7 174.9 173.0 176.6 178.8 183.3

Annual percentage changes in:

Wholesale Price Index 7.7 10.0 20.2 25.2 -1.1 2.1 7.5 2.5Bank Credit to Public Sector (net) 8.6 19.6 12.6 10.4 6.3 7.5 4.7 15.81/Bank Credit to Private Sector 17.3 18.0 18.5 21.5 16.4 26.3 24.9 A 11.95/

a/ The per capita GNP estimate is at market prices, calculated by the conversion technique used in the World Atlas.All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered.

1/ Quick Estimates.q/ Computed from trend line of GNP at factor cost series, including one observation before first year and one

observation after last year of listed period.#/ Transfers between Center and States have been netted out.e/ All loans and advances to third parties have been netted out.f/ Net bank credit to Government Sector.4/ Bank credit to Commercial Sector.

ANNEX IPage 4

BAIANCE OF PAnIWTS 1974/7S J9156 iL6T 1977/78 N'HIAuNISz EXPORTS (AVIIOG 1 974/75 - 1976/77)(05ST Million) oSE. _

Exports of Goods 4,174 4,665 5,760 6,400 Engineering Goods 515 11Imports of Goods -5,665 -6,084 -5,950 -6,600 Sugar 379 8Trade Balane -1 ,491 -1,419 - 19° - 200 Tea 296 6NiS (net) 215 310 405 500 Jute Manufactures 294 6

Leather and LeatherResource GBa -1,278 -1,109 215 300 Products 268 5

Clothing 257 5Intereet Psayiente (net) - 198 - 216 - 135 130 Iron Ore 238 5Other Faotor Payments (net) - - - - Cotton Textiles 223 5Net Tranefere . / 257 470 730 1,000 Othere 2396 100

Total 4866 100Balace on Current Aceount -1,217 - 855 810 1,170

Official Aid EUAL DEBT, NIICP 51. 1977 _/

Disbursnments 1,761 2,341 1,953 1,840 us$ BilloAmortization -515 -531 -560 - 630 Outetanding and Diabureed 13.6

Transactions with niF 522 242 -536 - 330 Oundiabur ied 3.2All Other Item -589 -403 -292 23 Outstanding,including Undiebureed 16.8

Increase in Reserves () 38 -794 -1,575 -2,073 DgM SERVICE RATIO FOR 1976/77 14.4 percentGross Reserves aend year) 1,378 2,172 3,747 5,820Net Reserves (end year) / 3758 1,363 3,276 5,670 IBR7/IDA LENDING. December 11. 1977 (USi lEn.)

FUel and Related Nateriale IBRD IDA

Ilporte 1,451 1,417 1,580 1,800 Outstanding and Disbureed 489.0 3,560.5of which: Petroleum 1,451 1,417 1,580 1,800 Undiebureed 674.9 1,257.0Outstandlinxg, including

Exporte 26 43 37 n.a. Undiabursed 1,163.9 4,817.5

of which, Petroleum 17 22 21 n.a.

RATE OF EXCHIANGE

Prier to nid-Deoesber 1971 I US$1.00 = Re 7.5 After end June 1972 , Floating RateRe 1.00 =USslo.t55553 Spot Rate January 31, 1978

Mid-Deoeober 1971 to I US01.00 =Re 7.27927 approx. US$1.00 = Re 8.063end June 1972 Rs 1.00 = u3t0.137376 approx. Ra 1.00 = UlS0.124

h/ Esti=sted.4/ Figures given cover all investment income (net). Major payments are interest on foreign loans and

oharges paid to IMP, and major receipt is interest esned on foreign assets.,1/ Figures given include workers' remittances but exclude official grant assistance, whioh is included

within official aid disbursements.4/ Excludes net use of IM credit.

A! imortisation and interest paymnts on foreign lcane as a percentage of mac-handise exports.

ANNEX IIPage 1 of 15

THE STATUS OF BANK GROUP OPERATIONS IN INDIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of July 31, 1978)

US$ Million-

Loan or (Net of Cancellations)

Credit No. Year Borrower Purpose Bank IDA Undisbursed

40 Loans/ 1,100.6

53 Credits fully disbursed 2,884.6

267-IN 1971 India Wheat Storage -- 5.0 3.2

294-IN 1972 India Bihar Agricultural Markets -- 14.0 7.6

312-IN 1972 India Population __ 21.2 4.9

342-IN 1972 India Education -- 12.0 8.4

356-IN 1972 India IDBI -- 25.0 10.0

377-IN 1973 India Power Transmission III -- 85.0 1.5

378-IN 1973 India Mysore Agricultural Markets -- 8.0 6.8

902-IN 1973 ICICI Industry DFC X 65.6 -- 3.9

390-IN 1973 India Brmbay Water Supply -- 55.0 19.7

427-IN 1973 India Calcutta Urban Development -- 35.0 6.9

440-IN 1973 India Bihar Agricultural Credit -- 32.0 13.3

456-IN 1974 India HP Apple Processing & Marketing -- 13.0 8.8

481-IN 1974 India Trombay IV -- 50.0 10.0

1011-IN 1974 India Chambal (Rajasthan) CAD 52.0 -- 32.5

482-IN 1974 India Karnataka Dairy -- 30.0 23.6

502-IN 1974 India Rajasthan Canal CAD -- 83.0 46.6

520-IN 1974 India Sindri Fertilizer -- 91.0 11.5

521-IN 1974 India Rajasthan Dairy -- 27.7 24.9

522-IN 1974 India Madhya Pradesh Dairy -- 16.4 13.3

526-IN 1975 India Drought Prone Areas -- 35.0 20.5

1079-IN 1975 IFPCO IFFCO Fertilizer 109.0 -- 56.7

1097-IN 1975 ICICI Industry DFC XI 100.0 -- 20.9

532-IN 1975 India Godavari Barrage Irrigation -- 45.0 19.3

541-IN 1975 India West Bengal Agricultural Development -- 34.0 23.6

562-IN 1975 India Chambal (Madhya Pradesh) CAD -- 24.0 14.9

572-IN 1975 India Rural Electrification -- 57.0 44.1

582-IN 1975 India Railways XIII -- 110.0 6.2

585-IN 1975 India Uttar Pradesh Water Supply -- 40.0 34.7598-IN 1975 India Fertilizer Industry -- 105.0 84.9

604-IN 1976 India Power Transmission IV -- 150.0 128.4

609-IN 1976 India Madhya Pradesh Forestry T.A. -- 4.0 3.5

610-IN 1976 India Integrated Cotton Development -- 18.0 17.6

1251-IN(TW) 1976 India Andhra Pradesh Irrigation 145.0 -- 136.9

1260-IN 1976 India IDBI II 40.0 -- 35.8

1273-IN 1976 India National Seed 25.0 -- 25.0

1313-IN 1976 India Telecommunications VI 80.0 -- 28.4

1335-IN 1976 BMRDA Bombay Urban Transport 25.0 -- 17.9

680-IN 1977 India Kerala Agricultural Development -- 30.0 30.0

682-IN 1977 India Orissa Agricultural Development -- 20.0 19.5

685-IN 1977 India Singrauli Thermal Power -- 150.0 137.0

687-IN 1977 India Madras Urban Development -- 24.0 21.8

695-IN 1977 India Gujarat Fisheries -- 4.0 4.0

1394-IN(TW) 1977 India Gujarat Fisheries 14.0 -- 14.0

690-IN 1977 India West Bengal Agricultural Development -- 12.0 12.0

712-IN 1977 India Madhya Pradesh Agricultural Development -- 10.0 10.0

715-IN 1977 India Second AROC Credit -- 200.0 151.8

720-IN 1977 India Periyar Vaigai Irrigation -- 23.0 22.3

728-IN 1977 India Assam Agricultural Development -- 8.0 7.8

1473-IN 1977 India Brmbay Nigh Offshore Development 150.0 -- 87.1

736-IN 1977 India Maharashtra Irrigation -- 70.0 70.0

737-IN 1977 India Rajasthan Agricultural Extension -- 13.0 13.0

740-IN 1977 India Orissa Irrigation -- 58.0 58.0

1475-IN 1977 ICICI Industry DFC XII 80.0 -- 74.9

747-IN 1978 India Second Foodgrain Storage -- 107.0 105.9

756-IN 1978 India Second Calcutta Urban Development -- 87.0 79.5

761-IN 1978 India Bihar Agricultural Extension & Research -- 8.0 8.0

1511-IN 1978 India IDBI Joint/Public Sector 25.0 -- 25.0

1549-IN* 1978 TEC Third Trombay Thermal Power 105.0 -- 105.0

788-IN* 1978 India Karnataka Irrigation -- 126.0 126.0

793-IN* 1978 India Korba Thermal Power -- 200.0 200.0

806-IN* 1978 India Jammu-Kashmir Horticulture -- 14.0 14.0

808-IN* 1978 India Gujarat Irrigation -- 85.0 85.0

815-IN* 1978 India Andhra Pradesh Fisheries -- 17.5 17.5

816-IN* 1978 India Second National Seed -- 16.0 16.0

1592-IN . 1978 India Telecommunications VII 120.0 -- 120.0

824-IN* 1978 India National Dairy -- 150.0 150.0

842-IN* 1978 India Second Bombay Water Supply & Sewerage -- 196.0 196.0

Total 2,236.2 5,738.4

of which has been repaid 883.8 39.8Total now outstanding 1,352.4 5,698.6

Amount Sold 113.3

of which has been repaid 111.5 21.8Total now held by Bank and IDA 1,330.6 5,698.6

Total undisbursed (excluding *) 559.0 1,369.3

* Not yet effective.

1/ Prior to exchange adjustments. August 1978

ANNEX IIPage 2 of 15

B. STATEMENT OF IFC INVESTMENTS(As of July 31, 1978)

Fiscal Amount (US$ million)Year Company Loan Equity Total

1959 Republic Forge Company Ltd. 1.5 - 1.5

1959 Kirloskar Oil Engines Ltd. 0.9 - 0.9

1960 Assam Sillimanite Ltd. 1.4 - 1.4

1961 K.S.B. Pumps Ltd. 0.2 - 0.2

1963-66 Precision Bearings India Ltd. 0.7 0.3 1.0

1964 Fort Gloser Industries Ltd. 0.8 0.4 1.2

1964-75 Mahindra Ugine Steel Co. Ltd. 11.8 1.0 12.8

1964 Lakshmi Machine Works Ltd. 1.0 0.3 1.3

1967 Jayshree Chemicals Ltd. 1.0 0.1 1.1

1967 Indian Explosives Ltd. 8.6 2.9 11.5

1969-70 Zuari Agro-Chemicals Ltd. 15.1 3.8 18.9

1976 Escorts Limited 6.6 - 6.6

1978 Housing Development FinanceCorporation 4.0 1.2 5.2

TOTAL 53.6 10.0 63.6

Less: Sold 6.0 1.6 7.6

Repaid 14.5 - 14.5

Cancelled 6.2 0.7 6.9

Now Held 26.9 7.7 34.6

Undisbursed 6.5 1.2 7.7

ANNEX IIPage 3 of 15

C. PROJECTS IN EXECUTION-

Generally, the implementation of projects has been proceeding rea-sonably well. Details on the execution of individual projects are below. Thelevel of disbursements was US$496.4 million in FY78 or 39% of Bank Group com-mitments to India in that year. The undisbursed pipeline of US$1,928 millionas of July 31, 1978, corresponds roughly to commitments over the precedingtwo-year period and reflects the lead time which would be expected given themix of fast- and slow-disbursing projects in the India program.

Ln. No. 902 Tenth Industrial Credit and Investment Corporation of IndiaProject; US$70.0 million loan of June 8, 1973; EffectiveDate: August 16, 1973; Closing Date: December 31, 1978

Ln. No. 1097 Eleventh Industrial Credit and Investment Corporation ofIndia Project; US$100.0 million loan of April 2, 1975;Effective Date: July 1, 1975; Closing Date: December 31,1980

Ln. No. 1475 Twelfth Industrial Credit and Investment Corporation ofIndia Project; US$80.0 million loan of July 22, 1977Effective Date: October 4, 1977; Closing Date: March 31, 1983

These loans are supporting industrial development in India througha well-established development finance company and are designed to financethe foreign exchange cost of industrial projects. ICICI continues to be awell-managed and efficient development bank financing medium- and large-scaleindustries, which often employ high technology and are export-oriented. Loans902-IN and 1097-IN are fully committed and disbursements are slightly ahead ofschedule. Disbursements under Loan 1475-IN (US$5.1 million) are also ahead ofschedule.

Cr. No. 440 Bihar Agricultural Credit Project; US$32.0 million creditof November 29, 1973; Effective Date: March 29, 1974;Closing Date: March 31, 1980

This Credit was originally intended to provide three years'support for a lending program for 50,000 tubewells and pumpsets in the TirhutDivision of Bihar. Because of slow disbursements caused by a lower-than-estimated Dollar/Rupee exchange rate and by low unit investment costs com-pared with appraisal estimates, IDA agreed to extend the closing date and

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being encountered and the action being takento remedy them. They should be read in this sense and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

ANNEX IIPage 4 of 15

and to extend the project area to cover the whole State of Bihar. Disburse-ments are expected to accelerate, and the physical targets should be achievedby the revised closing date.

Cr. No. 715 Second Agricultural Refinance and Development Corporation(ARDC) Project; US$200.0 million credit of June 1, 1977;Effective Date: August 24, 1977; Closing Date:December 31, 1979

This project is designed to provide long- and medium-term creditto farmers through credit institutions, for on-farm investments, primarilyin minor irrigation. As of July 31, 1978, disbursements amounted to aboutUS$48.2 million, of which some 87% have been for minor irrigation and 13% fordiversified lending. The proportion of disbursements to small farmers isestimated at about 60% compared with the appraisal target of 50%. Trainingprograms for staff of the financing institutions are progressing satisfactor-ily. Preparation of a third line of credit is underway and the preparationreport is expected to be submitted to the Association by September 1978.

Cr. No. 267 Wheat Storage Project; US$5.0 million credit of August 23,1971; Effective Date: November 14, 1972; Closing Date:September 30, 1978

Cr. No. 747 Second Foodgrain Storage Project; US$107.0 million credit ofJanuary 6, 1978; Effective Date: May 17, 1978; Closing Date:June 30, 1982

Credit 267-IN, which is being co-financed with Sweden, finances(i) the construction of bag and bulk grain storage and handling facilities,(ii) staff training, and (iii) an All-India Grain Storage Study. Thegovernment-owned Food Corporation of India is responsible for the storageconstruction. All the nine 10,000-ton-capacity bag warehouses envisaged underthe project as revised became operational in 1975. The construction of fivegrain silos is progressing satisfactorily after delays due to cement shortages.The training component is being implemented. The All-India Grain Storage Studywas completed in October 1976 and proved useful in formulating the proposalfor Credit 747-IN, which is progressing satisfactorily.

Cr. No. 456 Himachal Pradesh Apple Processing and Marketing Project;US$13.0 million credit of January 22, 1974; Effective Date:September 26, 1974; Closing Date: December 31, 1978

Cr. No. 806 Jammu-Kashmir Horticulture Project; US$14.0 million credit ofJuly 17, 1978; Effective Date (expected): October 17, 1978;Closing Date: June 30, 1984

Credit 456 includes grading and packing centers, cold storagefacilities, a juice processing plant, road improvements and cableways. Italso includes cold storage facilities and a pilot project to promote oakmushroom production. The project encountered initial delays due to managerial

ANNEX IIPage 5 of 15

and technical problems; however remedial measures have been taken to overcomethese difficulties. Land has been acquired for 8 of the 10 packing and grad-ing sites, and procurement and construction activities are well underway. TheProject Preparation Report for the juice processing plant has been completed,and the equipment is being ordered. The road improvement program is progres-sing satisfactorily, and the feasibility reports on aerial cableways at thepacking/grading sites have been completed.

Ln. No. 1313 Telecommunications VI Project; US$80.0 million loanof July 22, 1976; Effective Date: September 14, 1976;Closing Date: March 31, 1980

Ln. No. 1592 Telecommunications VII Project; US$120.0 million loan ofJune 19, 1978; Effective Date (expected): September 19,1978; Closing Date: March 31, 1982.

Loan 1313-IN is progressing satisfactorily; disbursements reachedUS$51.6 million as of July 31, 1978.

Cr. No. 377 Power Transmission III Project; US$85.0 million credit ofMay 9, 1973; Effective Date: September 28, 1973; ClosingDate: September 30, 1978

Cr. No. 604 Power Transmission IV Project; US$150.0 million credit ofJanuary 22, 1976; Effective Date: October 22, 1976; ClosingDate: June 30, 1981

The drawdown of Credit 377-IN was slow initially and as a conse-quence it has been necessary to postpone the Closing Date by one year. How-ever, an amount of US$83.5 million had been disbursed by the end of July 1978and the balance should be disbursed before the revised Closing Date. UnderCredit 604-IN, contracts aggregating about US$50 million had been awarded byMarch 1978 and disbursements as of July 31, 1978 were US$21.6 million. ThisCredit included a supplementary Credit of US$30 million to meet increasedcosts of equipment scheduled under Credit 377-IN; all but US$4 million ofthis amount has also been committed.

Cr. No. 481 Trombay IV Fertilizer Expansion Project; US$50.0 millioncredit of June 19, 1974; Effective Date: August 21, 1974;Closing Date: June 30, 1979

Cr. No. 520 Sindri Fertilizer Project; US$91.0 million credit of December 18,1974; Effective Date: February 27, 1975; Closing Date:September 30, 1978

Ln. No. 1079 IFFCO Fertilizer Project; US$109.0 million loan of January 24,1975; Effective Date: April 28, 1975; Closing Date: March 31,1979

ANNEX IIPage 6 of 15

Cr. No. 598 Fertilizer Industry Project; US$105.0 million creditof December 31, 1975; Effective Date: March 1, 1976;Closing Date: June 30, 1980

The Trombay IV project is now being commissioned, about 18 monthsbehind schedule due to longer-than-expected delivery times for critical equip-ment. The Sindri project is also being commissioned. The IFFCO project wasdelayed by about a year as a result of a change in feedstock from fuel oil tonaphtha and delays in completion of engineering contracts. However, projectconstruction is now proceeding satisfactorily. Mechanical completion of theentire plant should result in August 1979. Credit 598-IN is designed toincrease the utilization of existing fertilizer production capacity. Theproject has encountered delays in sub-project preparation and investmentapprovals by the Government. Further, some of the sub-projects identifiedearlier may not materialize because of reconsideration by the Central andState governments. IDA has agreed to a list of sub-projects to replace theones that are likely to be dropped. Because of the above, the project islikely to be delayed by 6-12 months.

Cr. No. 294 Bihar Agricultural Markets Project; US$14.0 million creditof March 29, 1972; Effective Date: July 31, 1972; ClosingDate: December 31, 1978

Cr. No. 378 Karnataka Wholesale Agricultural Markets Project; US$8.0 mil-lion credit of May 9, 1973; Effective Date: September 7, 1973;Closing Date: December 31, 1979

These projects were designed to help with establishment of whole-sale markets in a number of towns in Bihar and Karnataka. Progress under theBihar project has generally been satisfactory. The project includes trainingof the Agricultural Produce Marketing Committee (APMC) staff and evaluationof the project's economic impact. Development plans have been completed for53 market yards to ensure the project target of 50 markets is met. As ofMarch 1978, appraisals had been completed for 50, and loans approved for 47markets. Construction had been completed for 16 and was in progress for 23markets. Farmers and traders served by the 8 market yards now in operationreport more efficient marketing activities and improved farmers' terms oftrade. Progress under the Karnataka project is improving. As of June 1977,when the project was last reviewed, construction was underway for 36 of the39 project markets. Plans and land acquisition are nearing completion atthe remaining sites. Both projects are expected to be completed by theirrespective closing dates.

Cr. No. 312 Population Project; US$21.2 million credit of June 14, 1972;Effective Date: May 9, 1973; Closing Date: June 30, 1979

This credit is designed to finance an experimental and researchoriented population project in Karnataka and Uttar Pradesh. The project'sinfrastructure, which would provide the optimum facilities (buildings, equip-ment, staff and transport) according to GOI standards in selected districts

ANNEX IIPage 7 of 15

in each state, is almost complete. The two Population Centers, which willdesign and monitor research aimed at improving the family planning program,are now functioning. To allow adequate time for the Population Centers tocomplete their evaluation of family planning strategies and the introductionof management information and evaluation systems, the closing date has beenextended by one year.

Cr. No. 342 Agricultural Universities Project; US$12.0 million credit ofNovember 10, 1972; Effective Date: June 8, 1973; ClosingDate: December 31, 1979

The project involves the development of the agricultural uni-versities in Assam and Bihar. An initial lag in implementation on accountof late appointment of project staff has been overcome. Campus planshave been approved, and construction has started in both Assam and Bihar.Disbursements, which have been slow because of initial delays, shouldaccelerate now that construction and equipment procurement are under way.

Cr. No. 356 Industrial Development Bank of India Project; US$25.0 millioncredit of February 9, 1973; Effective Date: June 22, 1973;Closing Date: September 30, 1978

Loan No. 1260 Second Industrial Development Bank of India Project;US$40.0 million loan of June 10, 1976; Effective Date:August 10, 1976; Closing Date: June 30, 1981

Loan No. 1511 IDBI Joint/Public Sector Project; US$25.0 million loan ofMarch 1, 1978; Effective Date: May 31, 1978; Closi7ng Date:March 31, 1983

The first IDBI Project had a slow start mainly due to institutionalproblems in the participating State Financial Corporations. However, thecredit is now fully committed, and disbursements had reached US$15.0 millionby the end of July 1978. In order to continue the Bank Group's involvementin assisting small- and medium-scale industries and in strengthening theState Financial Corporations involved, a second operation (Loan 1260-IN) wasapproved in 1976, and disbursements have reached US$4.2 million by the end ofJuly. Loan 1511-IN is designed to encourage the pooling of private and publiccapital in medium-scale joint ventures. The project will also assist IDBI incarrying out industrial sector investment studies and in strengthening thefinancial institutions dealing with the state joint/public sector.

Cr. No. 390 Bombay Water Supply and Sewerage Project; US$55.0 millioncredit of January 22, 1974; Effective Date: March 13, 1974;Closing Date: December 31, 1978

Having overcome earlier difficulties, including cost overruns causedby inflation (requiring project redefinition in February 1975), redesign ofmajor project components and the addition of a supplementary study on sewagedisposal, the project is now progressing relatively well. All of the major

ANNEX IIPage 8 of 15

contracts for the water supply components have been awarded and it is forecastthat works will be sufficiently advanced to permit the supply of additionalwater (455 mld) in the last quarter of 1978; completion of water treatmentworks for the whole supply by the end of 1979 is realistically forecast.Completion of additional sewage disposal studies (August 1977) has allowedengineering design of the project sewerage components to proceed, so thatcompletion of construction of these works is now scheduled for 1980, two yearslater than originally forecast. Financial performance of the project entityis satisfactory.

Cr. No. 585 Uttar Pradesh Water Supply and Sewerage Project; US$40.0million credit of September 25, 1975; Effective Date:February 6, 1976; Closing Date: June 30, 1980

The Project has had a slow start due to delays in the preparationof technical reports for regional and local water authorities and in theengagement of consultants. While improvements have been made in the physicalexecution, other aspects of project implementation continue to lag so thatdisbursements under the Credit have fallen short of estimates at the timeof appraisal. In order to improve the situation, arrangements are beingmade to appoint a full-time management adviser to closely supervise andcoordinate implementation.

Cr. No. 427 Calcutta Urban Development Project; US$35.0 million creditof September 12, 1973; Effective Date: January 10, 1974;Closing Date: December 31, 1979

Cr. No. 756 Second Calcutta Urban Development Project; US$87.0 millioncredit of January 6, 1978; Effective Date: April 7, 1978;Closing Date: March 31, 1983

For the first of these projects, following considerable increasesin project costs, GOI and IDA finalized a project redefinition in April 1976.It is now expected to be substantially completed by March 1979. Credit 756-INis designed to expand and upgrade the capabilities of Calcutta's administra-tive authorities, to strengthen the city's fiscal base, and to rehabilitateand extend its urban service system.

Cr. No. 687 Madras Urban Development Project; US$24.0 million creditof April 1, 1977; Effective Date: June 30, 1977; ClosingDate: September 30, 1981

The project is designed to develop and promote low-cost solutionsto the problems of providing improved services to the urban poor in theMadras Metropolitan Area (MMA) and to strengthen metropolitan planning.Project components consisting of sites and services, slum improvement, small-scale and cottage industry, and maternal and child health are designed tobenefit directly some 250,000 persons in low-income areas of the city. Thewater supply and sewerage, road and traffic, bus transport and technicalassistance components are designed to eliminate bottlenecks in water supplyand transport. Project implementation is proceeding satisfactorily, anddisbursements are slightly ahead of appraisal estimates.

ANNEX IIPage 9 of 15

Cr. No. 482 Karnataka Dairy Development Project; US$30.0 million creditof June 19, 1974; Effective Date: December 23, 1974; ClosingDate: September 30, 1982

Cr. No. 521 Rajasthan Dairy Development Project; US$27.7 million creditof December 18, 1974; Effective Date: August 8, 1975;Closing Date: December 31, 1982

Cr. No. 522 Madhya Pradesh Dairy Development Project; US$16.4 millioncredit of December 18, 1974; Effective Date: July 23, 1975;Closing Date: June 30, 1982

Cr. No. 824 National Dairy Project; US$150.0 million credit of June 19, 1978;Effective Date (expected): September 19, 1978; Closing Date:December 31, 1985

These four credits, totalling US$224.1 million, support dairy devel-opment projects organized along the lines of the successful AMUL dairy coop-erative scheme in Gujarat State. The Karnataka Project, which got off to aslow start, has begun to show considerable improvement under new managementappointed recently. Farmer response has been good and over 600 dairy coop-eratives with small farmer participation are functioning effectively. Allfour dairy unions envisaged under the project have been established andare functioning satisfactorily. In Madhya Pradesh good progress has beenmade. About 310 new dairy cooperatives societies have been established.Detailed design studies for plant construction are complete. The responseof small farmers to the project is excellent. GOMP has plans to cover alldistricts in the State. Technical services investments are being made.Contracts have been placed for livestock imports. The Rajasthan project isalso doing well. Four milk unions have been formed and excellent progresshas been made in organizing the servicing of nearly 450 dairy cooperativesat the village level. Plant designs are ready, and procurement is makingadequate progress. Based upon the good results experienced, GOR is planningto expand the form of dairy development to all other districts of the State.Karnataka's decision to procure plant equipment jointly with Rajasthan andMadhya Pradesh on the same tender should lead to a recovery of considerabletime lost earlier in the Karnataka project.

Cr. No. 532 Godavari Barrage Project; US$45.0 million credit of March 7,1975; Effective Date: June 9, 1975; Closing Date:June 30, 1980

Both the civil works and equipment tenders have been awarded afterinternational competitive bidding. Work is in progress and is proceedingsatisfactorily. Disbursements stood at US$25.7 million on July 31, 1978.

Ln. No. 1011 Chambal (Rajasthan) Command Area Development Project; US$52.0mIllion loan of June 19, 1974; Effective Date: December 12,1974; Closing Date: June 30, 1981

ANNEX IIPage 10 of 15

Cr. No. 502 Rajasthan Canal Command Area Development Project; US$83.0 mil-lion credit of July 31, 1974; Effective Date: December 30,

1974; Closing Date: June 30, 1981

Cr. No. 562 Chambal (Madhya Pradesh) Command Area Development Project;US$24.0 million credit of June 20, 1975; Effective Date:September 18, 1975; Closing Date: December 31, 1979

Ln. No. 1251 Andhra Pradesh Irrigation and Command Area Development(TW) Composite Project; US$145.0 million loan (Third Window)

of June 10, 1976; Effective Date: September 7, 1976;Closing Date: December 31, 1982

Cr. No. 720 Periyar Vaigai Irrigation Project; US$23.0 millioncredit of June 30, 1977; Effective Date: September 30,1977; Closing Date: March 31, 1983

Cr. No. 736 Maharashtra Irrigation Project; US$70.0 million credit ofOctober 11, 1977; Effective Date: January 13, 1978; ClosingDate: March 31, 1983

Cr. No. 740 Orissa Irrigation Project; US$58.0 million of October 11,1977; Effective Date: January 16, 1978; Closing Date:October 31, 1983

Cr. No. 788 Karnataka Irrigation Project; US$126.0 million credit ofMay 12, 1978; Effective Date: August 11, 1978;Closing Date: March 31, 1984

Cr. No. 808 Gujarat Irrigation Project; US$85.0 million credit of July 17,1978; Effective Date (expected): October 17, 1978; ClosingDate: June 30, 1984

These projects, based on existing large irrigation systems, aredesigned to improve the efficiency of water utilization and, where possible,to use water savings for bringing additional areas under irrigation. Canallining and other irrigation infrastructure, drainage, and land shaping areprominent components of these projects. In addition, provisions have beenmade to increase agricultural production and marketing by reforming andupgrading agricultural extension services and by providing processing andstorage facilities and village access roads. Progress of these projectsis generally satisfactory.

Cr. No. 541 West Bengal Agricultural Development Project; US$34.0 millioncredit of April 28, 1975; Effective Date: August 28, 1975;Closing Date: March 31, 1980

The project provides financing over four years mainly for minorirrigation investments but also for development of markets, agro servicecenters, and support of related government extension services. Although dis-bursements have been slower than anticipated, there has been a considerable

ANNEX IIPage 11 of 15

improvement in project organization and administration and disbursements areexpected to improve considerably. The physical progress of shallow tubewells,and of deep tubewells for the Minor Irrigation Corporation, is satisfactory.IDA, GOWB and ARDC are combining efforts in order to solve difficulties suchas organizational problems at the farm level; lack of demand for agro servicecenters; and completion of designs for water distribution systems and irriga-tion schemes. Positive results, particularly for the redesigned water distri-bution systems have been achieved.

Cr. No. 682 Orissa Agricultural Development Project; US$20.0 millioncredit of April 1, 1977; Effective Date: June 28, 1977;Closing Date: December 31, 1983

Cr. No. 728 Assam Agricultural Development Project; US$8.0 million creditof June 30, 1977; Effective Date: September 30, 1977;Closing Date: March 31, 1983

Cr. No. 690 West Bengal Agricultural Extension and Research Project;US$12.0 million credit of June 1, 1977; Effective Date:AXugust 30, 1977; Closing Date: September 30, 1982

Cr. No. 712 Madhya Pradesh Agricultural Extension and Research Project;US$10.0 million credit of June 1, 1977; Effective Date:September 2, 1977; Closing Date: September 30, 1983

Cr. No. 737 Rajasthan Agricultural Extension and Research Project; US$13.0million credit of November 14, 1977; EffectiveDate: February 6, 1978; Closing Date: June 30, 1983

Cr. No. 761 Bihar Agricultural Extension and Research Project; US$8.0million credit of January 6, 1978; Effective Date: May 2,1978; Closing Date: October 31, 1983

These projects, totalling US$71 million, finance the re-organizationand strengthening of agricultural extension and the development of adaptiveagricultural research services with the objective of achieving early andsustained improvements in agricultural production, particularly foodgrains.Arrangement for monitoring and evaluation of project progress and impact isan essential feature of these projects. The Orissa and Assam projects alsoprovide funds for laying the basis for longer term improvements in ground-water development in the States. The projects' components include provisionof additional staff, training facilities, housing, offices, laboratoryfacilities, equipment and transportation.

Cr. No. 526 Drought Prone Areas Project; US$35.0 million credit ofJanuary 24, 1975; Effective Date: June 9, 1975; ClosingDate: June 30, 1980

Overall physical progress of the Drought Prone Areas project (DPAP)continues to be satisfactory. The rate of disbursement is improving and

ANNEX IIPage 12 of 15

implementation of most components is proceeding, by and large, according to

schedule. However, progress may be affected by possible changes in thinkingat the national level. GOI is presently reviewing all national rural develop-

ment programs, including the DPAP, in order to determine ways to improve over-all performance in the rural sector. The Government's review is being fol-lowed closely to determine whether any recommendations would have an impact

on the ongoing project and require changes.

Cr. No. 680 Kerala Agricultural Development Project; US$30.0 millioncredit of April 1, 1977; Effective Date: June 29, 1977;Closing Date: March 31, 1985

This project would improve tree crop production in Kerala and hasparticular emphasis on increasing benefits to small farmers. It comprisesrehabilitation of 30,000 ha coconut and 10,000 ha pepper and 2,240 ha cashew,and new plantings of 5,000 ha coconut and 1,500 ha cashew. About 25% of thecoconut area would be irrigated for intensive intercropping. Funds have beenprovided for development of a seed garden for tree crops and for strengtheningtree crops research. Ten crumb rubber factories would also be established toprocess smallholder rubber. Project implementation started slowly due toinitial staffing and funding delays but has recently gained momentum. Proj-ect actions for 1978/79 have been rephased and advance action planned soas to make up for lost time.

Cr. No. 572 Rural Electrification Project; US$57.0 million credit ofJuly 23, 1975; Effective Date: October 23, 1975; ClosingDate: December 31, 1979

Credit 572 consists of a tranche of rural electrification schemeswhich, at about Rs 5 million each, would cover about 140 schemes. There arenow thirteen States eligible for onlending (compared with six at the timeof appraisal). The project got off to a slow start, due principally to theneed to adapt the specifications and tendering procedures to internationalcompetitive bidding, but the position has now improved and the full amountof the Credit has been committed.

Cr. No. 582 Railways XIII Project; US$110.0 million credit of August 26,1975; Effective Date: October 10, 1975; Closing Date:September 30, 1978

The project was designed to cover most of the foreign exchangerequirements of Indian Railway's (IR) investment program for two years, fromApril 1, 1975, through March 31, 1977. However, since the approval of theproject, increased production of steel products in India and further develop-ments in IR's indigenization program slowed down the rate at which IR requiresforeign exchange. Therefore, the Closing Date was extended for one year inorder to complete implementation of the project. Disbursements as of July 31,1978 were 94% of the total credit amount.

ANNEX IIPage 13 of 15

Cr. No. 609 Madhya Pradesh Forestry Technical Assistance Project;US$4.0 million credit of February 26, 1976; EffectiveDate: May 26, 1976; Closing Date: December 31, 1981

This project will identify a sound resource base for pulp and papermanufacture and related industries, develop suitable logging systems, andundertake a feasibility study to determine optimal use of the existing woodresources in the Bastar District of southern Madhya Pradesh. It also includesa study of ways to integrate the area's tribal population with future develop-ment.

Cr. No. 610 Integrated Cotton Development Project; US$18.0 millioncredit of February 26, 1976; Effective Date: November 30,1976; Closing Date: December 31, 1981

The project finances equipment, civil works and crop productioncredit to support programs for cotton research and cotton production increasein three states. The project also provides credit for improving cotton gin-neries, new ginneries, cotton seed oil extraction plants and vegetable oilprocessing factories. Effectiveness was delayed by slow appointment ofconsultants, but the cotton extension services program was started withoutdelay and has now been in operation for two years. Disbursements have beensmall mainly due to poor demand to date for project credit. A recent super-vision mission, working with technical consultants, has made detailed recom-mendations for more appropriate pest control practices and more adaptiveresearch to identify and introduce better varieties. These measures areunder discussion with GOI, and when agreed to and implemented, should speedup project disbursements.

Ln. No. 1273 National Seed Project; US$25.0 million loan of June 10, 1976;Effective Date: October 8, 1976; Closing Date: June 30, 1981

Cr. No. 816 Second National Seed Project; US$16.0 million credit ofJuly 17, 1978; Effective Date (expected): October 17, 1978;Closing Date: December 31, 1984

Loan 1273-IN supports the first phase of India's national seedprogram, consisting of: seed industry expansion in the public and privatesectors, improvements in seed quality control, strengthening of breeding andseed technology research, and development of a reserve stock scheme. Insti-tutional development and managerial arrangements, particularly at the statelevel, have proceeded fairly satisfactorily. Project implementation, however,slowed down after loan effectiveness mainly due to organizational problems.Project progress is now being made since endorsement of the project by thenew Government in September 1977 and is expected to gain further momentumas GOI has filled the two top posts of the National Seeds Corporation, whichwere vacant for several months and adversely affected the project. A projectsupporting the second phase of India's national seed program (Credit 816-IN)was signed July 17, 1978.

ANNEX IIPage 14 of 15

Ln. No. 1335 Bombay Urban Transport Project; US$25.0 million loan ofDecember 20, 1976; Effective Date: March 10, 1977;Closing Date: June 30, 1980

Contracts for bodies and chassis for 325 single deck and 175 doubledeck buses have been awarded and some 144 buses have been delivered. Bids foran additional 200 buses are being evaluated. Civil works contracts have beenawarded for 8 bus facilities, and 13 traffic engineering schemes. Delays areexpected in implementing some BMC traffic engineering schemes and the BESTworkshop schemes although steps are being taken to minimize such delays.Consultants in organization, administration, financial management systems,accounting and development planning are at work assisting the Borrower, theBombay Metropolitan Regional Development Authority. Other beneficiaries ofthe loan, the Bombay Municipal Corporation and the Bombay Electric Supply andTransport Undertaking, have selected consultants in traffic engineering andoperations and management assistance, respectively.

Ln. No. 1394 Gujarat Fisheries Project; US$14.0 million loan and US$4.0(TW) and million credit of April 22, 1977; Effective Date:Cr. No. 695 July 19, 1977; Closing Date: June 30, 1983

Cr. No. 815 Andhra Pradesh Fisheries Project; US$17.5 million creditof June 19, 1978; Effective Date (expected): September 19,1978; Closing Date: September 30, 1984

Progress on Gujarat Fisheries project is good. All project imple-mentation units appear to be competent and enthusiastic and the project isprogressing as anticipated at appraisal.

Cr. No. 685 Singrauli Thermal Power Project; US$150.0 million credit ofApril 1, 1977; Effective Date: June 28, 1977;Closing Date: December 31, 1983

Cr. No. 793 Korba Thermal Power Project; US$200.0 million credit ofMay 12, 1978; Effective Date: August 14, 1978;Closing Date: March 31, 1985.

Ln. No. 1549 Trombay Thermal Power Project; US$105.0 million loan ofJune 19, 1978; Effective Date (expected): September 19,1978; Closing Date: March 31, 1984.

Credit 685-IN assists in financing the first stage of the 2,000 MWSingrauli development which is, in turn, the first of four power stations inthe Government's program for the development of large Central thermal powerstations feeding power into an interconnected grid. The second such station,at Korba, is being financed through Credit 793-IN. It is proposed that theBank Group will have a continuing involvement in this development program.The National Thermal Power Corporation (NTPC) has been formed to constructand operate these power stations, and the development program has gotten offto a good start. Organization and staffing of NTPC is proceeding satisfac-torily, and the Singrauli project is proceeding on schedule. Civil works are

ANNEX IIPage 15 of 15

in progress and contracts have been awarded for major plant (turbogenerators,boilers, transformers). Loan 1549-IN is supporting the construction of a 500MW extension of the Tata Electric Companies' station, in order to help meetthe forecast load growth in the Bombay area.

Ln. No. 1473 Bombay High Offshore Development Project; US$150.0 millionloan of June 30, 1977; Effective Date: October 20, 1977;Closing Date: December 31, 1980

The project is progressing satisfactorily. Gas and oil pipelinesfrom Bombay High to shore have been laid and were commissioned in June 1978.Disbursements stood at US$62.9 million on July 31, 1978.

.

ANNEX IIIPage I

INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I Timetable of Key Events

(a) Time taken by the country to prepare the project

About two years.

(b) The agency which has prepared the project

The Punjab Water Supply and Sewerage Board (WSSB)assisted by IDA.

(c) Date of first presentation to the Association anddate of first mission to consider the project

June 1976; October 1976.

(d) Date of departure of appraisal mission

October 10, 1977.

(e) Date of completion of negotiations

May 10, 1978

(f) Planned date of effectiveness

December 31, 1978

Section II: Special IDA Implementation Actions

None

Section III: Special Conditions

(1) The modifications to the institutional frameworkof WSSB is a condition of credit effectiveness(para 47).

ANNEX IIIPage 2

(2) WSSB would employ qualified staff in sufficientnumbers to carry out the proposed investment pro-gram and to assist the MCs to operate and maintainthe works and facilities constructed or improvedon their behalf (para 47).

(3) WSSB would engage consultants to advise both WSSBand the MCs on training programs and sewage treatmentworks (para 47).

(4) MCs would establish separate water supply andsewerage departments (para 48).

(5) MCs would be required to adopt by September 30, 1979,technical and financial performance criteria andindicators on operation and maintenance (para 48).

(6) IDA's review and approval of the technical reportsfor all eight towns would be made a condition ofdisbursement for these subprojects (para 49).

(7) The signing of Subsidiary Loan Agreements betweenWSSB and the MCs would be conditions of creditdisbursement (para 51).

(8) Contributions from MCs would be in the form ofcapital grants. GOP would be required to providethese funds in the event the MCs fail to do so(para 51).

(9) The preparation of a credit program and the formula-tion of detailed programs for sewer connectionswould be conditions of disbursement (para 54).

(10) GOP has proposed that from April 1, 1979, the MCswould introduce full sewerage charges for allpremises not connected to the system but which haveaccess to it (para 54).

(11) During the construction period, GOP would cause eachMC to cover annual operating expenses, working capitaland debt service or depreciation, whichever is higher(para 56).

(12) GOP would cause each MC to generate internal cashat the rate of at least 30% in FY1982/83, 35% inFY1983/84, and 40% from FY1984/85 onwards (para 57).

(13) The MCs shall not incur any long-term debt unless itsnet income before interest and depreciation is atleast 1.5 times debt service (para 57).

ANNEX IIIPage 3

(14) GOP would provide WSSB with Rs 80 million (US$9.3million) as working capital (para 58).

(15) MCs would implement a public utility commercial account-ing system by April 1, 1980, for the eight towns; WSSBwould also implement a similar system by the same date(para 59).

(16) Force account labor for civil works shall not exceedUS$30,000 equivalent without the prior agreement ofIDA (para 61).

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