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FILE COPY The DocumentWorld ofBank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-2036-IN REPORT AND RECOMMENDATION Public Disclosure Authorized OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A Public Disclosure Authorized PROPOSED CREDIT TO INDIA FOR THE MAHARASHTRA IRRIGATION PROJECT Public Disclosure Authorized June 30, 1.977 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (as of June 21, 1977) Rs 1.00 Paise 100 US$1.00 Rs 8.80 Rs 1.00 US$0.1136 Rs 1 million US$113,600 (Since September 24, 1975 the Rupee has been officially valued relative to a "basket" of currencies. As these currencies are now floating, the US Dollar/Rupee exchange rate is subject to change. Conversions in the Appraisal Report were made at US$1 to Rs 9.00.) FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS ARDC - Agricultural Refinance and Development Corporation CB - Commercial Bank GOI - Government of India GOM - Government of Maharashtra ICB - International Competitive Bidding SLDB - State Land Development Bank IOR OMCL41 USE ONLY INDIA MAHARASHTRA IRRIGATION PROJECT Credit and Project Summary Borrower: India, acting by its President. Beneficiaries: State of Maharashtra for irrigation works and roads; Agri- cultural Refinance and Development Corporation for re- financing on-farm development loans made to farmers by the State Land Development Bank and commercial banks. Amount: US$70 million. Terms: Standard Relending Terms: (a) India to Maharashtra: As part of Central Assistance for development projects on terms and conditions applicable at the time; (b) India to the Agricultural Refinance and Development Corporation (ARDC): At interest rate of not less than 6.75% and 7.25% per annum (with 0.25% per annum rebate for prompt repayment) for refinancing loans, with terms of 9 and 15 years respectively; (c) ARDC to the State Land Development Bank (SLDB) and to commercial banks: Annual interest of not less than 7.5% with maturities according to maturities of loans to be refinanced; (d) SLDB and commercial banks to farmers: Repayable over 9 years, after 2 years of grace, at 10.5% per annum interest for secured loans. Prolect Description: The purpose of the project is to complete the on-going construction that can be completed within about four years, of irrigation infrastructure in the Jayakwadi Irrigation System on the upper Godavari river, to modernize part of the infrastructure in the adjacent Purna Irrigation System, and to provide the next stage (covering about four years) of command area development in Jayakwadi. The This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - project will alleviate food shortages, improve farmer income in the project area, and provide additional employment opportunities. The project consists of: (a) completion of the Jayakwadi Left Bank Canal (LBC) to km 208 and of the Right Bank Canal (RBC) to km 132; (b) completion of the Jayakwadi irrigation distribution and drainage canal network for about 95,000 hectares, and lining of all canals; (c) rehabilitation of irrigation distribution works and provision of drainage on about 30,000 hectares of the Purna command area; (d) command area development including land grading and shaping on about 45,000 hectares of Jayakwadi, a road program covering 40 km of district and 345 km of village link roads, and strengthening of extension services; (e) construction of eleven market centers; (f) a program to monitor the efficiency of the irrigation system and to evaluate project benefits; (g) procurement of vehicles and equipment for project management and O&M; and (h) assistance to GOM for future project preparation. Estimated Cost: (US$ million) Local Foreign Total Jayakwadi Irrigation Network 46.1 18.9 65.0 Equipment for Operation & Maintenance 0.9 1.3 2.2 Lining of Jayakwadi Distri- butaries and Minors 5.5 1.7 7.2 Jayakwadi CAD 8.7 1.9 10.6 Monitoring and Evaluation 0.8 1.0 1.8 Purna Modernization 2.9 1.0 3.9 Road Program 5.3 1.0 6.3 Extension Services 1.5 0.2 1.7 Market Center Construction 0.3 0.1 0.4 GOM Project Preparation 0.2 - 0.2 Base Cost: 72.2 27.1 99.3 Physical Contingencies 8.8 3.3 12.1 Price Escalation 21.1 7.5 28.6 Total Project Cost: 102.1 37.9 140.0 Financing Plan: (US$ million) Local Foreign Total IDA 32.1 37.9 70.0 Local Financing: GOM 65.7 - 65.7 ARDC, SLDB & CBs 4.3 - 4.3 102.1 37.9 140.0 Estimated Disbursements: (US$ million) FY78 FY79 FY80 FY81 FY82 FY83 Annual: 2 10 16 17 17 8 Cumulative: 2 12 28 45 62 70 Rate of Return: Between 13% and 19%, depending on project component (between 10% and 12% if sunk cost are included); overall economic rate of return: 16.8%. Consulting Services: 8 man-months of engineering consulting services in the framework of project monitoring for assistance in setting up measuring equipment and in processing and evaluating measuring results. Appraisal Report: No. 1486a-IN dated June 30, 1977. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE MAHARASHTRA IRRIGATION PROJECT 1. I submit the following report and recommendation on a proposed development credit to India in an amount equivalent to US$70 million on standard IDA terms to help finance construction and rehabilitation of irriga- tion works and command area development in the Jayakwadi and Purna irrigation systems of Maharashtra. The proceeds of the credit - except for part of on- farm development works (US$5.5 million) - would be channelled to the Govern- ment of Maharastra in accordance with GOI's standard terms and arrangements for the financing of State development projects. For on-farm development works, GOI would relend US$5.5 million of the credit to the Agricultural Refinance and Development Corporation (ARDC) for 9 and 15 years at not less than 6.75% and 7.25% per annum, respectively. ARDC would in turn on-lend the funds to the State Land Development Bank (SLDB) and participating commercial banks in the project area at annual interest of not less than 7.5%. SLDB and the commercial banks would relend the funds to farmers with repayment periods of 11 years, including 2 years of grace, at 10-1/2% annual interest. PART I - THE ECONOMY 1/ 2. An economic report, "Economic Situation and Prospects of India" (1529-IN dated April 25, 1977), was distributed to the Executive Directors on May 3, 1977. Country data sheets are attached as Annex I. Background 3. India is exceptional among the Bank Group's member countries for its size and diversity; the country is divided into more than 20 States with a population of some 630 million speaking over 60 languages. Since Independ- ence the trend in growth of GNP has been about 3.5% per annum, or a little over 1% per annum in per capita terms, while over the five years 1971/72 - 1975/76 it fell to as low as 2.5% per annum, in spite of the record harvest of 1975/76. This unsatisfactory performance is in part the result of the low availability of investable resources: while India's domestic savings effort compares well with other countries at the same average income levels, the rate has very rarely exceeded 17% of GNP; similarly, the net transfer of resources from abroad has never been above 3% of GNP, and fell to as little as 0.8% between 1969/70 and 1973/74. The investment rate puts India in the lower third of all developing countries. More significant perhaps is the fact that in spite of a marked rise in the investment rate from about 10% in the early 1/ Parts I and II of this report are substantially the same as Parts I and II of the President's Report for the Bombay High Offshore Development Project (Report No. P-2062-IN, dated June 20, 1977). - 2 - 1950's to about 18% over the past fifteen years, the trend in GNP growth has remained about the same. This indicates a marked decline in the efficiency of capital use, as a result of increasing capacity underutilization, long project gestation, and increased emphasis on relatively capital intensive projects and sectors. 4. Since Independence the growth of the socio-economic infrastructure (transport, education, health services, etc.) has been impressive, but has often been achieved at high cost and has yielded results of variable quality. Many industrial and agricultural investment schemes have been highly successful, but others have taken excessively long to be completed and have operated well below full capacity. In some regions of the country, growth and structural change have been rapid and compare favorably with developments in many other parts of the world; in other regions there has been stagnation, and in some, decline. Although national income has increased in most years, there has been no rise in the living standards of the vast mass of rural and urban poor, conservatively estimated at 200 million people with per capita incomes of US$70 per annum (converted at the official exchange rate) and US$250 on a purchasing power parity basis. 5. The structure of the economy has been slow to change. Agriculture remains the dominant sector, with its share of national product declining only gradually from about 50% to 42% over the last twenty years.