Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No.2 684
PROJECT PERFORMANCE AUDIT REPORT
Public Disclosure Authorized INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN) Public Disclosure Authorized October 5, 1979 Public Disclosure Authorized
Operations Evaluation Department
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 CONVERSIONS
At Appraisal: US$1 = Rs 7.50 At Completion: US$1 = Rs 9.00
ABBREVIATIONS
ACP - Agricultural Credit Project AIC - Agro-Industries Corporation ARDC - Agricultural Refinance and Development Corporation GATT - General Agreement on Tariffs and Trade GOH - Government of Haryana GOI - Government of India GOP - Government of Punjab HACP - Haryana Agricultural Credit Project HAFED - Haryana State Cooperative Agricultural Marketing Federation HAIC - Haryana Agro-Industries Corporation HSCB - Haryana State Cooperative Bank HSCLDB - Haryana State Cooperative Land Development Bank (includes PLDB) HSMB - Haryana State Marketing Board HSMITC - Haryana State Minor Irrigation Tubewell Corporation PACP - Punjab Agricultural Credit Project PAIC - Punjab Agro-Industries Corporation PAU - Punjab Agricultural University PCB - Participating Commercial Bank PCR - Project Completion Report PLDB - Primary Land Development Bank PPAR - Project Performance Audit Report PSCLMB - Punjab State Cooperative Land Mortgage Bank (includes PLDB) REC - Rural Electrification Corporation SOC - Soil Conservation Organization of the Haryana Department of Agriculture SLDB - State Land Development Bank
FISCAL YEAR
ARDC and Cooperative Year - July 1 to June 30 GOI - April 1 to March 31 FOR OFFICIAL USE ONLY
Project Performance Audit Report
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
TABLE OF CONTENTS
Page
Preface i Basic Data Sheet ii Disbursements iii Highlights iv
PROJECT PERFORMANCE AUDIT MEMORANDUM
I. Project Summary 1 II. Main Issues 3
A. Mechanization: Procurement, Role of Agro-Industries Corporations, Benefits from Tractorization, Employment Effects, GOI Mechanization Policy, Small Farmers, Downpayment and Repayment, Tractor Power Required, Inconsistencies in Number of Units Procured, and Replacement of Tractors. B. Minor Irrigation 10 C. Credit Aspects 11 D. Conclusions 12
Appendix 1 Government of India's Comments 13 Appendix 2 ARDC's Comments 18
JOINT PROJECT COMPLETION REPORT
I. Introduction 19 II. Project Implementation 24 III. Financing Institutions 31 IV. Supporting Services 33 V. Economic Impact 35 VI. Conclusions and Recommendations 39
Supplement by IDA's Regional Office
ANNEXES
1. Key Implementation Data 2. The Lending Institutions 3. Supporting Services 4. Financial Costs and Benefits 5. The Economics of Tractors in the Indian Subcontinent - An Analytical Review
Map
This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.
Project Performance Audit Report
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
PREFACE
This is a performance audit of two projects in India: the Punjab Agricultural Credit Project (PACP) for which Credit 203-IN was approved in June 1970 in the sum of US$27.5 million and the final disburse- ment made in July 1977; and the Haryana Agricultural Credit Project (HACP) for which Credit 249-IN was approved in June 1971 in the sum of US$25.0 million and the final disbursement made in January 1977. Both credits were closed in June 1977.
The audit report consists of an audit memorandum prepared by the Operations Evaluation Department, and a project completion report (PCR), dated January 15, 1979. The PCR was prepared by the Agricultural Re- finance and Development Corporation (ARDC), the financial intermediary for the projects, and reviewed and supplemented by the Bank's South Asia Regional Office on the basis of a country visit in August, 1978.
An OED mission visited India in February and March 1979. The mission held discusions with officials of the Government of India, the governments of the states concerned, ARDC, the state land development banks (SLDBs), the main participating commercial banks (PCBs) and other relevant state government agencies, particularly the Haryana Groundwater Cell and the agro-industries corporations in charge of tractor procure- ment in both states. The mission also visited some primary land develop- ment banks (PLDBs), machinery workshops and several participating farmers. Comments of the officials interviewed are fully reflected in the report and are gratefully acknowledged. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussion of aspects not covered by the PCR.
The audit memorandum is based on these discussions, on inter- views with Bank staff associated with the projects, and on a review of the PCR, the President's reports No. P-826 (May 26, 1970) and P-941 (May 17, 1971), the appraisal reports No. PA-48a (May 27, 1970) and PA-80a (May 13, 1971), the credit agreements dated June 24, 1970 and June 11, 1971, and correspondence with the Borrower and internal Bank memoranda on project issues as contained in the Bank's files.
A copy of the draft report was sent to the Borrower. The comments received have been taken into account and are also reproduced in appendixes 1 and 2.
The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings. The points discussed by the audit mission have been selected because of their rele- vance to this and other projects in India.
The valuable assistance provided by the Government of India, the state governments, the different institutions concerned with the projects, particularly ARDC, and the farmers visited, is gratefully acknowledged.
- ii -
Project Performance Audit Report
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
BASIC DATA SHEET
KEY PROJECT DATA
Punjab ACP Haryana ACP
Appraisal Actual or Appraisal Actual or Item Item Expectation Current Estimate Expectation Current Estimate
Total Project Cost (US$ million) 40.0 42.7 44.5 53.0 Credit Amount (US$ million) Disbursed (US$ million) 27.5 27.5 25.0 25.51/ Cancelled (US$ million) 0.0 0.0 Outstanding (US$ million) 27.5 25.5 Date Physical Components Completed 12/72 12/76 12/74 7/76 Proportion of Time Overrun(%) 200 66 Economic Rate of Return C%) Tractors 14 Over 50 15 Over 50 Minor Irrigation 22-27 Over 50
OTHER PROJECT DATA
Punjab ACP Haryana ACP
Original Actual or Original Actual or Item Plan Revisions Current Estimate Plan Revisions Current Estimate
First Mention in Files or Timetable 1968 1968 Government's Application 1969 1970 Negotiations 5/70 5/71 Board Approval 06/11/70 06/01/71 Credit Agreement Date 06/24/70 06/11/71 Credit Effectiveness Date 08/31/70 09/15/70 09/04/70 09/30/71 11/02/71 Credit Closing Date 12/31/72 12/31/73 06/30/77 03/31/75 03/31/76 06/30/77 12/31/74 01/31/77 12/31/75 Final Disbursement Date 07/77 01/77 Borrower India Executing Agency Government of India Fiscal Year of Borrower April 1 - March 31 Follow-on Projects None
MISSION DATA
Date Man/Weeks in Field Date Man/weeks in Field
Identification (field) 11, 12/68 11, 12/68 (FAO/IBRD) Preparation (GOI) 1969 69/70 Appraisal (field) 11, 12/69 11/70 Supervision 1 10/70 3 09/71 1 Supervision 2 09/71 1 03/72 3 Supervision 3 03/72 2 10/72 5 Supervision 4 08/73 2 08/73 1 Supervision 5 10/74 1 10/74 1 Supervision 6 10/75 1 10/75 2 10 13
(PCR review: August 1978 (2m/weeks)
1/ Exchange adjustment of US$0.5 m.
- iii -
Project Performance Audit Report
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
DISBURSEMENTS
(Cumulative, US$ M)
IDA Semester Ending Punjab ACP Haryana ACP
Appraisal Actual % Appraisal Actual % Estimatel/ Estimate
June 30, 1971 4.0
December 31, 1971 9.0 0.8
June 30, 1972 16.5 2.4 0.5 21
December 31, 1972 25.0 4.4 1.6 36
June 30, 1973 27.5 7.7 5.0 65
December 31, 1973 0.2 - 12.2 5.8 48
June 30, 1974 0.5 - 17.0 9.2 54
December 31, 1974 1.8 - 21.8 10.1 46
June 30, 1975 2.4 - 25.0./ 12.6 50
December 31, 1975 2.9 - 15.9 -
June 30, 1976 14.1 - 20.8 -
December 31, 1976 16.8 - 25.3 -
June 30, 1977 25.0 - 25.51/ -
December 31, 1977 27.5 -
Final Disbursement Date July 77 January 1977
1/ Derived from Appraisal Report: Project Cost Estimates. 2/ At March 31 it stood at 24.3 (last figure given in Appraisal Report). 3/ Exchange adjustment of US$ 0.5 million.
Project Performance Audit Report
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
HIGHLIGHTS
The projects were intended to increase agricultural production through higher cropping intensity and higher yields, through farm loans for mechanization and minor irrigation.
Procurement problems in the farm mechanization components created substantial delays in the implementation of both projects; the irrigation component of the Haryana project was implemented smoothly. The number of tractors provided was 12,600, against 14,000 expected at apprai- sal; harvesters 63 against 360 expected; shallow tubewells 36,000 against 11,000 expected; and sprinkler irrigation sets 0 against 75 expected. The Agricultural Refinance and Development Corporation played a prominent role in project implementation. The loan recovery position of onlending banks, unlike in several other states in India, was very good. The economic rates of return of the projects are expected to exceed 50% against 14% to 27% expected at appraisal. The number of direct beneficiaries is estimat- ed at 45,000 against 25,000 expected.
The following points may be of special interest:
- cumbersome procedures and requirements hampered tractor procure- ment (PPAM paras. 11,13 and 43; PCR Supplement paras. 2.1 - 2.18, 4.1 and 4.2; PCR paras. 1.14 - 1.16);
- high returns on tractors resulted from joint application of power, water and modern inputs; high labor wages also contributed to the high returns (PPAM paras. 21, 22 and 44; PCR Supplement paras. 3.1 - 3.4; PCR paras. 5.01 - 5.19);
- tractorization created more employment than it eliminated (PPAM paras. 28 and 46; PCR Supplement paras. 3.5 - 3.7; PCR paras. 5.10 - 5.13);
- projects did not serve many small farmers but did much better in this regard than expected (PPAM paras. 32 and 47; PCR para. 2.24);
- minor irrigation proved very popular (PPAM paras. 37, 38 and 49; PCR paras. 2.17 - 2.21);
- PCR was prepared by Borrower and supplemented by IDA (PCR Supple- ment para. 1.1); and
- more detail on the economic rate of return calculation should be given in future PCRs (PPAM paras. 23 and 45).
Project Performance Audit Memorandum
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
I. PROJECT SUMMARY
1. In 1968, an IDA mission with assistance of the FAO/IBRD Coopera- tive Program, reviewed agricultural credit institutions and on-farm investment requirements in selected parts of India and identified high priority agricultural credit projects. Punjab, together with Gujarat, was given priority for an agricultural credit project (ACP) because of its potential for agricultural development. Preparation assistance was given to the state governments by the FAO/IBRD program and by the Agricultural Refinance and Development Corporation (ARDC - then ARC1/). The Punjab Agricultural Credit Project (PACP) was appraised in November and December 1969; the Haryana Agricultural Credit Project (HACP) followed in the next group of agricultural credit projects (together with Andhra Pradesh and Tamil Nadu) and was appraised in November 1970. PACP was the second and HACP the fourth in a series of 13 agricultural credit projects in India supported so far by IDA.
2. PACP was to be a two-year lending project, and HACP a three-year one. The main objective of these projects was to increase agricultural production through higher cropping intensity and higher yields. The appraisal estimate of project cost of PACP was US$40.0 million, and of HACP US$44.5 million. The total amount under PACP was for farm mechani- zation: 8,000 tractors; tractor implements (mould-board plows, disc plows, disc harrows, trailers, seed and fertilizer drills, sprayers and other implements); 40 self-propelled harvesters; and 200 tractor-drawn har- vesters and spare parts. Under HACP, provision was made for minor irrigation (11,000 shallow tubewells and 75 sprinkler irrigation sets); the balance was for financing 6,000 tractors; tractor implements (see above); 20 self-propelled and 100 tractor-drawn harvesters; and spare parts. The IDA credit for PACP was US$27.5 million and for HACP US$25.0 million. The rates of return were estimated for PACP at 14% (economic) and 26 - 29% (financial) and for HACP at 15% (economic for tractors), 22 - 27% (economic for irrigation), 40% (financial for tractors) and 39 - 66% (financial for irrigation).
3. Responsibility for implementing the projects would rest pri- marily with ARDC which would control the lending operations of the two state land development bank (SLDBs) and the participating commercial banks (PCBs) through subsidiary loan agreements. Commercial banks were included because a number of them had recently made significant loans to agriculture. Agro-industries corporations (AICs) would be responsible for prequalifying suppliers of agricultural machinery to be procured under the projects, establishing farmers' requirements, and arranging for the actual procurement and distribution of the machinery. Local contractors would construct the tubewells, using hired labor and local materials.
1/ Agricultural Refinance Corporation - 2 -
4. PACP became effective in September 1970 and HACP in November 1971. Procurement problems created substantial delays in the implementa- tion of both projects, particularly for the farm mechanization components. The irrigation component of HACP was implemented smoothly. Agreement between GOI and IDA to change procurement procedures was reached in late 1973: GOI agreed to drop the interchangeability requirement for tractors and IDA agreed to also partly finance domestically manufactured tractors. Since then, implementation went fairly smoothly. Farm machinery arrived mainly in 1975 and 1976, and both credits were closed in June 1977.
5. The Punjab AIC released to the farmers 8,002 tractors and 63 tractor-drawn harvesters, while the Haryana AIC distributed 4,613 tractors. The total number of shallow tubewell units financed under HACP was 34,719 by the SLDB and 1,265 by the PCBs, or 35,984 in total. Financing of shallow tubewells by the SLDB has continued under ARDC I and II. Only around 90% of the tubewells were yielding full benefits at the end of the project period, because of delay in obtaining electric connection and shortage of electric power in some areas. Investments foreseen in sprin- kler irrigation did not materialize: this technology was relatively unknown and expensive.
6. The Government of Haryana (GOH) took a number of steps to make the Haryana Groundwater Cell effective. Action was also taken to regulate groundwater development so as to avoid over-exploitation.
7. PCBs financed two-thirds of the total disbursements under PACP; the balance was financed by the SLDB. Under HACP, PCBs financed only one quarter of the total disbursements, while the SLDB financed almost all tubewells and 40% of the tractors. SLDBs and PLDBs performed satisfactor- ily in project implementation. Overdues of SLDBs were almost negligible. The recovery position of PCBs was also satisfactory. Both SLDBs are rated among the best in the country.
8. ARDC played a prominent role in all aspects of project implemen- tation. Its performance was good. It held periodic meetings with en- tities of both projects, guided the banks in adopting project discipline and helped them overcome bottlenecks and constraints. It participated actively in the deliberations of the central committees set up for guiding the AICs in procurement of tractors. It also reviewed periodically the progress in project implementation and took corrective steps as and when necessary.
9. The main goal of these projects, increased agricultural pro- duction, was achieved. As a result of investment in tractors, cropping intensity rose from 140% to 160% and the cropping pattern changed to high value crops; cropped area rose by 12,800 hectares (against 62,000 ha estimated at appraisal) and gross value of production by US$19 million per year under PACP and by 7,400 hectares and by US$11 million per year under HACP. The minor irrigation component of HACP increased cropping intensity from 120% to 160%, cropped area by 48,600 ha (against aggregate appraisal estimate of 68,400 ha for both mechanization and minor irrigation under HACP) and gross value of production by US$49 million. - 3 -
10. The financial rate of return for the tractor components was 25%, while their economic rate of return exceeded 50%. For minor irrigation, the financial and economic rates of return both exceeded 50%. The number of direct beneficiaries from tractorization is 12,600; additional farmers benefited from tractor custom services. The number of minor irrigation beneficiaries is 32,400; about 60% of them small farmers. Besides, about 18,000 families are estimated to have benefited from the sale of surplus tubewell water.
II. MAIN ISSUES
A. MECHANIZATIONI/
1. Procurement
11. The project encountered major problems in procuring the required tractors. The audit mission is in general agreement with the conclusions drawn in the IDA supplement to the PCR, but would like to highlight that cumbersome procedures and requirements were the main procurement problems. The most important single aspect was the GOI requirement of interchange- ability, that is, models eligible for prequalification should have 75% of individual parts interchangeable with models licensed for production in India. GOI dropped this requirement in December 1973 when it was agreed that, as GOI had requested, IDA would also finance domestically manu- factured tractors. The reasons for this request were a much larger than anticipated domestic tractor production and a change in relative prices that favored domestically produced tractors over imported tractors: this changed GOI's position on importing tractors. After that procurement went relatively smoothly.
2. Role of Agro-Industries Corporations
12. A cause for concern to farmers was the 2.5% surcharge imposed by the AICs for their role in procuring and distributing tractors. Farmers felt this excessive for the services AICs provided. They, as well as pri- vate tracor dealers and several bankers, were not even convinced that those services were needed. But officials from AICs, state governments and some banks, defended the arrangement. (Services rendered by AIC include: a! inviting and evaluating bids; b/ ascertaining farmers preferences; c/ placing bulk orders; and d/ overseeing implementation of the machinery component.) The question of AIC involvement had come up earlier, too, when in 1972 GOI asked IDA to omit PAIC as procurement agent in favor of supplier's agents, to reduce overhead costs. IDA had no objection to this, but since the transfer of procurement handling to suppliers' agents at that stage would lead to further complications, it was decided to continue with the existing procurement procedure, involving PAIC.
1/ Excluding irrigation mechanization. 13. AICs' role in tractor procurement was originally thought neces- sary because all tractors were to be imported, but, considering the increased domestic tractor production and the recent liberalization of imports (enabling large scale tractor imports and providing necessary competition), the need for AICs' involvement has diminished. AICs' actual role in tractor procurement, however, has continued under the project for all brands. Since the AICs in the project areas now have the dealership of one tractor brand (Zetor), they should, insofar as tractors are con- cerned, probably limit themselves to that one brand, providing desirable competition with the private sector. In fact, one of the latest ARDC tractor schemes in the area currently does not involve AIC. Any future tractor financing should leave procurement to suppliers' dealers, subject to minimum technical standards. Apart from tractor distribution, AICs play a role in tractor custom and repair services, in production and distribution of other farm equipment and seasonal inputs, and to a minor extent in processing and marketing of agricultural output, indicating sufficient alternatives. This experience shows the difficulty in elimi- nating duplicate functions when the institutions are intent on retaining them.
3. Benefits from Tractorizationl/
14. To complement existing data, ARDC surveyed a small sample of Punjab farms, also representing farms in Haryana, for data on cropping patterns, yields, prices and input costs. Tractor farms were found to have a higher cropping intensity (up from 140% to 160%) and higher yields (11 - 25%) than non-tractor farms. The farms were assumed to be of constant size (8 ha) before and after tractorization (annex 4, tables 1 & 2). In the appraisal reports too, higher cropping intensity, higher yields and to a lesser extent a shift to higher value crops were expected to be the only (direct) benefits for the projects.
15. But during field visits many farmers made it clear to the audit mission that expansion of cultivated area was the main reason for higher farm production, although increased cropping intensity and higher yields, resulting from more timely and better land preparation, were also given as reasons for increased production. Farm area was expanded through renting additional land, through taking back into the holding land that had been rented out, or through cultivating wasteland and fodder land. The states' total cultivated area however, only expanded with cultivating waste and fodder land.
16. For a more comprehensive discussion of benefits, the various studies on this subject are reviewed below, necessarily repeating parts of the PCR.
1/ GOI suggested to move this discussion to an annexure, but because of the importance of tractors in both these projects the discussion is being retained here in the main text. - 5 -
17. A tractorization study on Punjab1/ found that: (i) cropping intensity was about 10 percentage points higher (but not statistically significant) on tractor farms (at 175%) than on bullock farms, (ii) cropping patterns were considered to be about the same on both farm types, and (iii) no significant difference in yield could be attributed solely to the use of tractors. A combination of minor changes in all these factors probably caused tractor farms to achieve significantly higher value of output and profit per ha than bullock farms.
18. A review-2/ of several tractorization studies (the PAU study included) found that in the Punjab-Haryana area: (i) cropping intensity was 0 - 10% higher on tractor farms as compared with bullock farms, or prior to tractorization; (ii) cropping pattern effects were clearly not a general phenomenon, except a reduced area under fodder; (iii) yield increases ranged from 0 - 61%, but these went together with the use of fertilizers and HYVs and could not normally be regarded as tractor effects, and (iv) tractor farms were slightly superior in timely opera- tions, resulting in higher yields. Tractor farms had a substantially higher total value of crop production per ha than non-tractor farms, which could be achieved in various ways, as mentioned above, but which is difficult to attribute solely to tractors. The review also mentioned a possible advantage in marketing as a result of easier transport for tractor farms. All studies in the review showed medium to high private benefits and somewhat lower but still satisfactory social benefits. The review suggested that those benefits were overestimated, and that private returns to tractors from agricultural operations must be close to zero, except in situations where area effects are possible.
19. The Bank, from 1971 to 1975, supported research on the effects of mechanization in India through the "Agricultural Mechanization Study: India" which comprised the PAU study mentioned above and a similar study in Gujarat State. Simultaneously the Bank carried out a tractor study for the Pakistan Punjabi. Findings from the latter and the Gujarat study were that production was higher on tractor farms than on bullock farms but that this could not be attributed solely to tractors, but rather to the combination of tractors, irrigation and modern inputs.
1/ Punjab Agricultural University (PAU), Impact of Mechanization on Punjab Agriculture with Special Reference to Tractorization, Ludhiana, 1975. The only results used from this study are those presented in its review of October 5, 1976, prepared by Bank staff.
2/ Binswanger, Hans P. The Economics of Tractors in South Asia, An Analytical Review, Hyderabad, India, 1978.
3/ McInerney, John P. and Graham F. Donaldson, The Consequences of Farm Tractors in Pakistan. World Bank Staff Working Paper No. 210, February 1975. - 6 -
20. In earlier credit projects with tractor components!V OED audits reported that the tractor impact was due largely to opening up of new land and to growing popularity of custom services. The expected strong impact on cropping intensities and yields, failed to materialize, possibly because of a water constraint. Tractor borrowers with relatively high levels of irrigatioa achieved the most rapid increase in cropping intensities. Incremental production should therefore be attributed to joint application of water and power.
21. Economic benefits of the tractor components of the Punjab and Haryana projects thus stem from several factors: (i) area effects from cultivating waste and fodder land; (ii) increased cropping intensity; (iii) increased yields including the yield effect from timeliness in soil preparation; (iv) transportation benefits (for marketing and social purposes); (v) labor savings through lowering labor use per unit of agricultural output; and (vi) "commercialization" benefits, a rather unorthodox benefit, but it was repeatedly pointed out to the mission, also by several farmers, that purchase of a tractor alerts the farmer to further investment possibilities, thereby accelerating commercializaton of his farm. Private financial benefits would differ from the above economic benefits, in that area effects would count much heavier in the former (renting or buying in land) and that the prices used to value the benefits would be different.
22. In the PCR's economic analysis no other benefits than higher cropping intensity and higher yields were included, because those other benefits are difficult to quantify; neither were overhead cost of lending institutions included because such overhead costs are normally not taken into account. Including these items would, on balance, probably increase the already high economic returns. Considering the arbitrary values that would have to be given to many of these items and to maintain comparability with apraisal estimates, the PCR presentation of rates of return can be taken as it is. It would however be useful if in future more detail would be given in PCRs on how the economic rate of return is calculated.
23. Attributing part of the benefits to tractors alone has not been attempted in the PCR, mainly because of the arbitrary nature of such an effort. The audit mission is in agreement with this, because data for proper attribution are so far lacking. An alternative to splitting joint benefits and allocating them partly to tractors could be to use custom rates paid by farmers for tractor services as proxies.
1/ OED, Agricultural Credit Programs, Report No. 1357 November 18, 1976; OED, PPAR, Afghanistan First Agricultural Credit Project, Report No. 2111, June 27, 1978; OED, PPAR, Pakistan Third Credit for the Agricultural Development Bank, Report No. 2126, June 30, 1978. In the case of Afghanistan measures were adopted to obtain more reliable farm survey data on the effects of tractorization, during the preparation of the PCR for the Second Agricultural Credit project which will be fully disbursed in June 1979. - 7-
4. Employment Effects
24. Displacement of labor is often mentioned as the main disadvant- age of tractorization. This argument should however be viewed in the context of the particular wage and employment situation of the area and does not appear to hold for Punjab and Haryana. These two states form part of the Gangetic region, which also includes Uttar Pradesh and Bihar, and weather and soil conditions are nearly identical for all four states. But out of these four only Punjab and Haryana have done well. Punjab now has the highest per capita income in India and Haryana the second highest. Agricultural production is also highest in Punjab, followed again by Haryana. Industrial production in Punjab has shown an increase of 350% since Independence, as compared to an increase of 220% for all-India, while industrial production in Haryana, with a smaller population, is even larger than that in Punjab. Labor has become increasingly scarce in the two states and industrialists maintain that, if an embargo were placed on migrant labor from Uttar Pradesh, Bihar and south Indian states, their industry would be seriously affected.
25. The PAU study, as it is also quoted in the PCR (para. 5.12) shows that on tractor farms as compared to bullock farms, the decrease in use of family labor (family members reportedly spent more time on entre- peneurial and management activities) is more than offset by increases in use of permanent and casual labor, particularly casual, resulting in a net increase of farm labor due to intensification of farming (resulting from tractorization along with irrigation and use of fertilizers, improved seeds, etc.). On the basis of a cultivated ha, tractor farms appeared to have slightly more total on-farm employment; on the basis of a cropped ha, slightly less. In most other studies included in Binswanger's review, tractorization had a neutral overall labor effect on a per ha basis (probably a cultivated ha). Contrary to the findings of the PAU study, those studies indicate that family labor generally increased, while permanent labor reduced substantially; daily (casual) labor was found to increase in most cases, which is again in line with PAU findings. Another study by the Government of Punjab showed that use of casual labor per ha (probably a cultivated ha) was significantly higher on tractor holdings than on bullock holdings and that it replaced family labor.
26. In earlier credit projects with tractor componentsl/, total employment per hectare (probably a cultivated ha) on tractor farms appeared unchanged, though permanent labor (family and contract) was partly replaced by casual labor. Most of the displaced tenants converted to wage laborers or retreated to other land under their control. In the Pakistan Punjab it could not be determined whether the gradual tractoriza- tion was a serious threat to existing labor or a necessary supplement to relieve labor shortages. Both arguments found empirical support.
I/ See footnote 1, page 6. - 8 -
27. Labor effects were not investigated in ARDC's small sample survey but it was assumed that there was incremental labor demand. During the mission's field visits displaced tenants or farmers were said to have found alternative employment in businesses in towns. All persons the mission asked, were of the opinion that on balance the introduction of tractors in the projects areas had created employment, i.e. off farm employment creation in tractor related businesses was larger than net on farm labor displacement, if the latter was the case at all.
28. The pattern that emerges is that in Punjab and Haryana per cultivated ha, tractorization caused a reduction in use of family labor, a slight increase in use of permanent and total labor and a strong increase in use of casual labor. Combined with the additional off-farm employment created by tractorization (production, marketing and maintenance of tractors and implements plus indirect effects) the projects created more employment than they displaced. Again it must be recognized that tractor- ization is only one element in a package of improvements. If tractor- ization has had a lesser positive effect on employment in other Indian states, this may illustrate lower wages and a worse employment situation and a lower stage of development in those states.
5. GOI Mechanization Policy
29. GOI's policy regarding farm mechanization changed during the projects and particularly thereafter with the change of government in 1977; increasing emphasis has been placed on employment generation in rural areas. GOI is concerned that tractors and combine harvesters will displace labor, particularly the combines of which imports are stopped (they are not domestically produced). Regarding tractors, it was made clear to the audit mission that GOI's all-India policy is not against tractorization as such; the new policy is one of selected mechanization with two basic components: (i) tractor use for land reclamation and development and for custom services with more emphasis on ownership by small farmers and by groups of farmers; and (ii) promotion of implements and tools for animal and manual labor. This should be seen in the light of the present general power shortage in India's agriculture on the one hand (the 1971 estimate of power availability for India is about 0.4 hp/ha; Punjab about 0.7, and Japan about 2.5) and GOI's concern for employment creation on the other. But the experience of these two pro- jects shows that, given the state of economic development in the area concerned, tractorization can very well create additional employment, particularly in the non-farm sectors and can as such accelerate economic development. The Planning Commission has now set up a committee on farm mechanization (including harvester combines) with the objective of settl- ing the tractor dispute at this point in time. -9-
6. Small Farmersi/
31. Most officials the mission spoke with, agreed they would not have prepared the tractor components in the two projects any differently from what they actually were, because demand for tractors was then much higher than supply. The majority of opinions was that the projects as prepared and implemented conformed to GOI policy at that time. The only concern, and with only a few officials, was that small farmers were neglected under the tractor/combine components of the projects.
32. The tractor components of the projects benefitted on average medium and large, rather than small farmers. But the projects were not designed to reach small farmers, and GOI and IDA policies only changed during project implementation in favor of generating more employment and reaching smaller farmers. The average holding of a tractor owner was at appraisal expected to be 15 or 20 ha (depending on area and tractor power), while according to the small ARDC survey (para. 14) the average holding was much smaller: 8 ha. This compares with average farm sizes, as estimated at appraisal, of 5.7 ha for Punjab, 5.2 ha for Haryana, and the majority below 4.0 ha, while since then, the average has come down to about 3 ha, due to subdivision of the traditional family farm. Though the projects did not serve many small farmers directly, they did much better in that regard than expected. Moreover, they had other beneficial effects on small ex-farmers and farmers because (i) on balance the pro- jects are believed to have created employment for them; and (ii) custom services were rendered to small farmers by project participants (see also para. 39).
7. Downpayment and Repayment
33. Different voices were heard on the issues of downpayment and repayment period regarding tractors. On balance farmers and bankers would have preferred further lowering the downpayment from 15% to 10% and extending the repayment period by one or two years. In view of the very good loan recoveries in Punjab and Haryana and the long economic lifetime of tractors in the projects area, and indeed in all India, the audit thinks that this sould have been possible. However, 001 and ARDC note that IDA project terms regarding downpayment and loan maturity were an improvement over the earlier norms followed by the banks. GOI also points out that the question of lowering downpayments should not be considered merely from the point of view of satisfactory loan repayment; the need for mobilizing local resources and ensuring minimum stake of borrowers in investments should also be considered (Appendix I, page 2).
8. Tractor Power Required
34. The question of tractor power range suitable for farms in the projects area came up during procurement. Because of the demanding soil
1/ See also the discussion on this issue in the PPAR on ARDC I and on Andhra Pradesh, Tamil Nadu and Maharashtra. - 10 -
conditions, IDA was convinced that the lower limit of the range, which was already reduced from 30 hp, should remain at 25 hp and IDA informed GOI accordingly (February 5, 1975). A few days earlier however, an IDA staff memorandum to files indicated that a study-1/ found a power range of 20 - 25 hp adequate for average Punjab farms. Moreover, a 19 hp tractor is at present being manufactured and sold in Punjab. In hindsight, IDA could have taken a more flexible attitude.
9. Inconsistencies in Number of Units Procured
35. The mission found an inconsistency in the number of tractors financed under HACP (4,613) as stated in the PCR and based on expenditure statements of participating banks, and the number of tractors delivered (4,024) as stated in HAIC's books.2/. Another inconsistency was found in number of tractordrawn harvesters supplied under PACP, where the PCR stated 45 while the project files state 63. The data could not be recon- ciled during the field visit but officials concerned undertook to check its accuracy.
10. Replacement of Tractors
36. The legal documents did not require that a farmer applying for a tractor should not have one already, one of the reasons being the diffi- culty to prove that a farmer did indeed not own a tractor. The only requirement AICs made in their invitation of farmer applications was that farmers should not have purchased a new tractor during the previous six months. Several farmers told the audit mission that they had a tractor before the one purchased with a project loan. If only incrementally required tractors had been financed under the projects i.e., if no re- placement of tractors had been financed, more farmers could probably have benefitted.
B. MINOR IRRIGATION./
37. GOI has circulated a draft bill for goundwater legislation, but it will probably not be enacted soon because of the large amount of work required to prepare the necessary data (like hydrological maps), and because of fear of too much litigation among small farmers. Spacing rules for tubewells (not closer to each other than 600 ft) could only be
1/ See PAU, Impact...op.cit. p.5.
2/ ARDC points out that it has justifiably gone by disbursement figures and not by statistics maintained by HAIC. GOI adds that ARDC is concerned with streamlining compilation of data on physical achieve- ments under various projects and also ensuring better coordination among all agencies directly or indirectly involved in the preparation of the PCR.
3/ See also the discussion on this issue in the PPARs on ARDC I and on Andhra Pradesh, Tamil Nadu and Maharashtra. - 11 - enforced by ARDC on farmers taking loans refinanced by ARDC. These rules were not always followed when tubewells were financed otherwise. The spacing rule is questioned by the Groundwater Cell in Haryana's director- ate of agriculture. They think that spacing can be as close as 200 ft., depending on the tubewell discharge capacity and the area. In areas with a risk of overexploitation, however, the ARDC spacing rule may well be justified.
38. Information on the groundwater situation is updated continuously through an extensive network of control tubewells. From the information so collected hydrographs are prepared at different points in time during the wet and dry seasons showing seasonal fluctuation of groundwater. The total number of tubewells in Haryana has reached 250,000 in March 1979, half of which was financed through institutional credit and about 36,000 through the project. This total number of tubewells is still within the assessed groundwater potential, which the Groundwater Cell expects to acommodate about 300,000 tubewells, or 50,000 more than at present.
39. The tubewell component of HACP reached not only more, but also smaller farmers (2.5 ha - ARDC Survey) than expected at appraisal (3 to 8 ha, depending on tubewell capacity). See also paras. 31 and 32.
C. CREDIT ASPECTS/
40. The role played by ARDC in implementing the projects was posi- tive, as perceived by GOI officials in the Ministries of Finance and Agriculture, by the Planning Commission and by participating bankers. Two aspects stressed in ARDC's role were the finance and the expertise it provided to banks participating in its schemes. ARDC's training of bank employees was also felt adequate and very useful. ARDC itself felt that its growth was accelerated by IDA support but it would be difficult to say by how much.
41. The problem of high overdues in medium and long-term lending to agriculture in several states in India hardly exists in Punjab and Haryana. The main reason given by bankers in Chandigarh (capital of Punjab and Haryana) for the good record was absence of political interference?2 (which in other states of the country causes cooperative's members to default). Another important reason is the historically good repaying habits of the local population. Nevertheless, these bankers indicated to the audit mission that there was still room for improvement in recoveries.
1/ For a more comprehensive discussion on credit aspects, see OED, PPAR, India ARDC I.
2/ GOI believes this observation is contradictory to the one in para 4.06 of the PCR. Paragraph 4.06, however, refers to short term lending by cooperatives. - 12 -
42. Bankers felt that lending to agriculture was a must at present, not only because of GOI's increasing lending target for the sector, but also because they saw profitable investment opportunities in agriculture. They said that potential demand from small farmers for loans exists, but that it is not effective because "small farmers are shy"; apparently the bankers referred to their perception of one of the constraints on small farmer development.
D. CONCLUSIONS
43. Concerning the bulk procurement of tractors, based on pooled farmer choices, difficulties involved (cumbersome procedures and require- ments) were much greater than expected, largely because GOI changed its original position on importing tractors and wished to include domestically produced tractors in the projects. Future tractor financing should leave procurement to suppliers' dealers subject to minimum technical standards (re. paras. 11 and 13).
44. High returns on tractor components of the projects resulted from joint application of power, water and modern inputs; high labor wages also contributed to the high returns. Attributing benefits to each of the inputs has not been attempted because of lack of proper data. Custom rates might be used as an alternative to compute returns to tractor investments only. (re. paras. 21 and 22).
45. More detail on the economic rate of return calculation should be given in future PCRs. (re. para. 23).
46. The tractorization components of the projects created more employment than they replaced. This conclusion is based on the opinions obtained in the field and the survey results available for the projects area (re. para. 28).
47. Though the projects did not serve many small farmers directly, they did much better in this regard than expected (re. para. 32).
48. More farms could probably have been tractorized if IDA had not financed replacement of tractors (re para. 36).
49. Minor irrigation proved very popular. Monitoring of groundwater under HACP has produced data indicating that density of tubewells in certain areas could in hindsight have been higher than stipulated (paras. 37 and 38). Spacing criteria are currently being reviewed by IDA and AZDC. Appendix 1 Page 1 - 13 -
Government of India's Comments
Z-130 NEWDELHI 800 141530
ETAT
INDEMBASSY WASHINGTON DC
REDDY FROM SIBAL ECOFAIRS NEWDELHI REFERENCE DRAFT AUDIT REPORT IN RESPECT OF THE CLOSED
AGRICULTURAL CREDIT PROJECTS FOR PUNJAB AND HARYANA FOR
WHICH OED HAD INVITED COMMENTS FROM GOI. THE FOLLOWING
COMMENTS MAY KINDLY BE PASSED ON TO OED: QUOTE AAA UNDER PARAGRAPH 41 ON PAGE 18 ABSENCE OF HIGH OVERDUES IN LENDING TO AGRICULTURE IN PUNJAB AND
HARYANA HAS BEEN ASCRIBED TO LACK OF POLITICAL INTERFERENCE.
AT THE SAME TIME IN PARA 4.06 OF PCR CONTRADICTORY OBSERVATION
HAS BEEN MADE THAT THE REPAYMENT PERFORMANCE OF THE PRIMARY SOCIETIES COULD NOT BE CONSIDERED SATISFACTOPY. IT
IS SUGGESTED THAT THE REFEE+ REFEPENCE TO POLITICAL INTERFEPENCE MAY BE DELETED AS IT APPEARS TO BE UNECESSARY.
BBB PARA 6.06(C) OF THE PCR WHILE POINTING OUT THAT THERE IS NO EVIDENCE THAT BENEFICIARY FARMERS HAD BEEN Appendix 1 - 14 - Page 2
DENIED SHORT OR MEDIUM TERM CREDIT CONTINUES TO CONCLUDE
THAT FOR MORE EFFICIENT IMPLEMENTATION OF SUCH PROJECTS
IT WOULD BE PREFEREABLE IF FARMERS OBTAIN ALL CREDIT REQUIREMENTS MROM MRAL SOURCE. IN VIEW OF THE FACT THAT THERE
WAS NO CONSTRAINT ON OBTAINING SHORT OR MEDIUM TERM CREDIT
THE DESIRABILITY OF RECOMMENDING A SINGLE SOURCE FOR
OBTAINING CREDIT APPEARS TO BE REDUNDANT.
CCC PARA 33 OF THE AUDIT MEMORANDUM SUGGESTS THAT FOR TRACTOR FINANCING DOWN PAYMENT COULD HAVE BEEN REDUCED FROM 15 PERCENT TO 10 PERCENT AND THE REPAYMENT PERIOD
EXTENDED BY ONE OR TWO YEARS HOWEVER, THE QUESTION OF LOWERING OF DOWN PAYMENTS SHOULD NOT BE CONSIDERED MERELY FROM THE POINT OF VIEW OF SATISFACTORY LOAN RECOVERY OR THE ECONOMIC
LIFE OF THACTORS BUT ALSO FROM THE POINT OUET OF THE NEED
FOR MOBILISING LOCAL RESOURCES AND ENSURING CERTAIN MINIMUM
STAKE OF THE BORROWERS IN INVESTMENT. REDUCTION OF DOWN
PAYMENT TO 15 PERCENT FOR TRACTORS WAS AN IMPROVEMENT SINCE EARLIER THE BANKS WERE PRESCRIBING DOWN PAYMENTS OF 25 TO 30 PERCENT FOR Appendix 1 Page 3
- 15 -
TRACTOR LOANS. FURTHER THE REPAYMENT PERIOD STIPULATED UNDER THE PROJECT OF 7 YEARS WAS ALSO LIBERAL AS COMPARED TO THE LOAN PERIOD OF 4-5 YEARS EARLIER STIPULATED BY THMM DDD RGRDING INCONSISTENCIES IN NUMBER OF UNITS PROCURED
AS MENTIONED IN PARA 35 OF THE AUDIT MEMORANDUM IT NEEDS TO
BE CLARIFIED IN THE AUDIT REPORT THAT ARDC IS CONCERNED WITH
STREAMLINING COMPILATION OF DATA ON PHYSICAL ACHIEVEMENTS UNDER VARIOUS PROJECTS AND ALSO ENSURE BETTER COORDINATION
AMONG ALL AGENCIES DIRECTLY OR INDIRECTLY INVOLVED IN THE
PREPARATION OF PCR. EEE PARAGRAPH 6.06( ++ EEE PARAGRAPH 6.06(A) OF PCR REFERS TO THE NEED FOR
A FRESH ASSESSMENT OF THE GROUND WATER POTENTIAL IN HARYANA. THE STATE GOVERNMENT HAVE INDICATED THAT SUCH AN ASSESSMENT
WAS CARRIED OUT AFTER THE IMPLEMENTATION OF THIS PROJECT AND
ON THE BASIS OF THE REVISED ASSESSMENT, ARDC HAS ALREADY
APPROVED 32,000 UNITS FOR MINOR IRRIGATION FOR THIS STATE.
DURING IMPLEMENTATION OF THIS PROGRAMME NO ADVERSE
EFFECT ON THE WATER TABLE OR IN THE QUALITY OF GROUND WATER HAS BEEN OBSERVED. THE ENTIRE STATE IS UNDER STRICT VIGIL Appendix 1 Page 4
- 16 -
AS FAR AS DEPTY OF WATER TABLE, DISCHARGE OF EXISTING MINOR
IRRIGATION UNITS AND THEIR UTI+ UTILISATION FFF IN THE AUDIT MEMORANDUM IN PARA 12 IN THE FOOTNOTE
THERE IS A REFERENCE THAT THE 2.5 PERCENT SURCHARGE IMPOSED BY-AIC
WAS NOT JUSTIFIED. FOR A BALANCED ASSESSMENT ON THIS ISSUE
IT WOULD BE APPROPRIATE IF THE AUDIT REPORT MENTIONS THE
SERVICES RENDERED BY AIC WHICH INCLUDE:
(A) INVITING BIDS AND EVALUATING THEM (B) ASCERTAIN FARMERS PREFERENCES
(C) PLACEMENT OF BULK ORDERS AND (D) OVERSEEING THE IMPLEMENTATION OF THE MACHINERY COMPONENT
IT IS ALSO SUGGESTED THAT FOOTNOTE 2 UNDER PARAGRAPH 12
IS NOT REQUIRED FOR DISCUSSION ON THIS SUBJECT.
GGG PARA 13 OF THE AUDIT MEMORANDUM DISCUSSES THE POOR PERFORMANCE OF AICSPM THE OVERALL FINANCIAL PERFORMANCE OF AIC
SHOULD NOT BE RELATED TO PERFORMANCEUNDER THIS PROJECT AS AIC CARRY OUT A NUMBER OF OTHER FUNCTIONS WHICH ARE NOT CONNECTED
WITH PROJECT IMPLEMENTATION. IF ANY DISCUSSION ON AICS
GENERAL WORKING IS CALLED FOR IT SHOULD NOT FORM A PART OF THE Appendix1 Page 5
- 17 -
P A4& TH E-E 0TE
MAIN FINDINGS OF THE AUDIT MEMORANDUM. HHH ANOTHER REFERENCE IN PARAGRAPH 13 OF THE AUDIT
MEMORANDUM IS TO ELIMINATE AIC FROM FUTURE TRACTOR FINANCING.
PROCUREMENT CAN BE LEFT TO LOCAL DEALERS ONLY IF BULK
PROCUREMENT AND COMPETITIGE+ COMPETITIVE BIDDING ARE GIVEN UP WHICH WOULD MEAN FOREGOING THE POTENTIAL PRICE AND OTHER ADVANTAGES. III IN THE AUDIT REPORT THERE IS REFERENE+ REFERENCE TO NUMBER OF
STUDIES ON BENEFITS OF FARM MECHANISATION IN DIFFERENT AREAS. IT IS SUGGESTED THAT THE REPORT SHOULD LIMIT ITSELF TO AN
ANLYSIS OF DATA RELATED TO THE PROJECT IMPLEMENTATION AND
ANY REFERENCE TO SPECIAL STUDIES OUTSIDE THE PROJECT SHOULD, PERHAPS, BE MORE APPROPRIATELY DISCUSSED IN ONE OF THE ANNEXURES.
JJJ IN PARA 29 OF THE AUDIT MEMORANDUM THE REFERENCE TO THE COMMITTEE ON FARM MECHANISATION NEEDS TO BE AMENDED SINCE THE SAID COMMITTEE IS ALSO STUDYING THE EFFECTS OF HARVESTER COMBINES ON PRODUCTIVITY AND EMPLOYMENT. UNQUOTE.
FOREIGN
COLL Z-130 GOI OED 41 18 4.06 6.06(C) 333+ 33 15 10 15
25 30 7 4-5 35 ARDC PCR 6.06(AL EWNPPP QW WMT AIC
2 12 13 AICS AIC AIC AICS 13 29 MEA/RKW/142000 - 18 - AEndix 2 ARDC Comments
2-i S423 'WO RL DEANX'
:1?.10 APDC ff:Th, Ls
FLX MSG NO.4070 2816/79
FRO. RA CHIDAM3ARAM MD APCC 9053AT ' TO SHRI SHIV S KAPUR DIRECTOR OPERATIONS AND EVALUATION DEPART:IENT INTTEAFRAD VASHIt.GTON DC
PE: PROJECT PERFORMIANCE AUDIT PEPORTS ON ANDHrA PPQADES IH, TAiIL H ADU,
"AHARASHTRA, PUNiJA- AND !1ARYANA A'PICULTURAL CREDIT PPOJECTS.
OjR COMMIENTS ON THE AUDIT REPORTS HAVE BEEN FUPNISHED TO GOI
WHICH PROPOSES TO SEhD TO WCRLD 6ANK A COS++ CONSOLIDATED REPLY.
t.) AS REGARDS
PU!:JA AA+ PUNJAB AND HARTANA PROJECTS, OUR COFMEtITS RELATE TO- PARAGRAPHS 33 AND 35 (PAGES 15/16) C.) THE IDA PROJECT TERMS
REGARDING DOWtHPAYMENT AND LOAM !IATURITY WERE AM InPROVE,-ENT
OVEP THE EARLIER NOPS FOLLOWED BY THE DA-KS (.) AS FOR DISCREPANCY I4 PEGARD TO NulBEF OF TRACTORS, ARDC HAS JUSTIFIATILY GONE BY DISBURSE1ENT FIGURES AND NOT RY THE STATISTICS MAINTAI.ED OY HAIC(.) .JE APPPECIATE THE COMMENTS nADE BY AUDIT REPORT ON OST ASPECTS AND AS YOU APE A14ARE FOLLOW UP ACTION HAS ALREADY SEEN IMITIATEb AS A PAPT OF ARDC 11 PROJECT (.) REGARDS
24 23 1,0 FLDeA:JK 11 2310 APDC IN - 19 -
Joint Project Completion Report
INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
(Credits 203 and 249-IN)
I. INTRODUCTION
Background
1.01 The Punjab Agricultural Credit Project and the Haryana Agricultural Credit Project were the second and the fourth, respectively, in a series of ten State-oriented Agricultural Credit Projects in India supported by IDA. The aim of these projects was to increase agricultural production by means of (i) supporting on-farm investments, mainly in minor irrigation and farm mechanization, (ii) strengthening the institutional structure for provision of credit with the Agricultural Refinance and Development Corporation (ARDC) as the refinancing agency, and (iii) strengthening the supporting services such as Groundwater Development Authorities.
1.02 This Completion Report evaluates the PACP which was confined to farm mechanization as well as the HACP which provided for investments in minor irrigation and farm mechanization.
Identification and Preparation
1.03 An FAO/IBRD mission reviewed the performance of the agricultural credit institutions and on-farm investment requirements in India in November/ December 1968 and identified high priority agricultural credit projects in a number of states including Punjab and Haryana. It was observed that in both these states not only the potential for development was considerable but the response of the farmers to technological changes was also good. Therefore, in the selection of areas for State-oriented agricultural credit projects in India to be supported by IDA, these two States received priority.
1.04 In Punjab, the scope for extensive cultivation was limited since 80% of the total geographical area was under cultivation. Also, around 75% of the net cropped area in the state enjoyed irrigation facilities. Conse- quently, agriculture in this state had reached a stage of development where the average yields of foodgrains were not only highest in India but also favorable by world standards. Any additional increase in the production of agricultural commodities could, therefore, be achieved only through higher cropping intensity. For this purpose, it was necessary to suitably reduce the time-lag between the harvesting of kharif crops and the preparation of land for sowing rabi crops. This objective could have been achieved to some extent by augmenting bullock power in the state but then more bullocks would have necessitated larger areas of land being sown to fodder crops and to that extent the availability of land for food crops would have been reduced. A further increase in the cropping intensity was regarded as beyond the capa- city of bullock or human power and the choice, therefore, fell on farm mech- anization to reduce the time-lag between crops, increase cropping intensity and ensure higher production. There was already a heavy demand for tractors - 20 -
in the state, as evidenced by a waiting period of 2 to 3 years for the popular makes. Second-hand tractors also fetched high prices and the premium for new tractors was around Rs 2,000 to Rs 3,000 per unit. Under these circumstances, an agricultural credit project with tractor financing as the min investment was formulated.
1.05 In Haryana, 50% of the net cropped area was already irrigated by the state had adequate groundwater to increase the area under irrigation. It was also found that, as in Punjab, increase in the cropping intensity by reducing the time-lag between the harvesting of one crop and preparation of land for sowing the second crop would only be achieved by farm mechaniza- tion. Therefore, investments in both minor irrigation and farm mechanization were found to be appropriate for Haryana. An Agricultural Credit Project was, therefore, prepared by the Haryana Government.
Appraisal, Negotiations and Approval
1.06 The PACP was appraised by the World Bank in November/December 1969, and an appraisal report based on their findings was prepared in May 1970. Agreements relating to this project were signed in June 1970. The project became effective from September 1970. Originally, it was a two-year project, the closing date being end-December 1972. But the period had to be extgended thrice due to difficulties experienced while implementing the project, first, by one year up to end-December 1973, then by two years up to end-December 1975, and finally by another one and a half years up to end-June 1977 when the project was finally treated as closed.
1.07 On the basis of the appraisal in November 1970, IDA approved the HCP which envisaged a program for minor irrigation and farm mechanization. Agreements relating to this project were signed in June 1971 and the project became effective from November 1971. Originally, it was a 3-year project, the closing date being end-March 1975. The minor irrigation program under the project was completed much before the due date but the project was closed only in June 1977 as the closing date for farm mechanization program under the project had to be extended.
Projects at Appraisal PACP
1.08 As indicated earlier, the PACP provided for farm mechanization only while the RACP for both minor irrigation (shallow tubewells), and farm mechanization. The investment components under the two projects are detailed in Annex 1, Tables 1 and 2.
1.09 The PACP provided for the purchase of 8,000 imported tractors, tractor implements and harvesting machinery over a period of two years. It also included financing of tractor and harvesting machinery spare parts. The estimated total cost was Rs 300.6 million (US$40 million), 89% of which was for investment in tractors and tractor implements and 11% for harvesting machinery and spares. Investment in tractor implements included mould board plows, disc plows, disc harrows, trailors, seed and fertilizer drills, sprayers and other implements. Under the project, all the farmers were - 21 -
required to have suitable implements for use with their tractors. Where a farmer already owned one or more implements, it was expected that he would purchase implements such as seed drills and sprayers so that mechanized operations would be extended beyond those of routine tillage and haulage. Investment in harvesting machinery comprised about 40 self-propelled combines and about 200 tractor-drawn harvesters. The project cost also included pro- vision for tractor spare parts and imported harvesting machinery spares as an initial step to the value of 15% and 10%, respectively, of,the c.i.f. price of such items.
1.10 IDA contribution of Rs 206.2 million (US$27.5 million) was the project's estimated foreign exchange component equivalent to 69% of the total project cost. Its contribution to ARDC under the investment program (Rs 182.0 million) and for spare parts at Rs 24.2 million was expected to exceed ARDC's requirements to refinance the loaning program (Rs 158.5 mil- lion). Since the borrowers were to make a down payment for tractors and other investments, ARDC's own contribution was estimated at 57% leaving 18% to be financed by LDB and other participating banks (Rs 52.9 million). The addi- tional 12% reimbursement was, therefore, to be credited to a special ARDC account which was to be made available to refinance other ARDC approved schemes. The subsequent inclusion of indigenous tractors at 64% IDA dis- bursement, and the lower farmer downpayment called for by interviewing price increases, removed the need for this fund: the IDA contribution of Rs 218.0 M was against ARDC disbursements of Rs 242.9 M.
HACP
1.11 The HACP was a 3-year program to assist in financing on-farm investments in minor irrigation and farm mechanization. The total project cost was estimated at Rs 333.9 million (US$44.5 million) of which 29% was for minor irrigation and 71% for farm mechanization. The cost estimate and foreign exchange requirements are detailed in Annex 1, Table 2.
1.12 The expected investments in minor irrigation in Karyana involved sinking of 11,000 shallow tubewells and installation of 75 sprinkler irriga- tion sets in specified area in the state. Under farm mechanization, loans were to be made for the purchase of 6,000 imported tractors, tractor imple- ments and trailers, 20 self-propelled combines and 100 tractor-drawn har- vesters. Investment in tractor implements included disc harrows and plows, seed and fertilizer drills, levelling blades, tractor-mounted sprayers, trailers, etc. As in the Punjab Agreement, all the farmers were required to have at least 3 implements to be used with their tractors. The project also included provision for spare parts to the extent of 15% of the c.i.f. value of tractors, self-propelled combines and tractor-drawn harvesters.
1.13 The contribution of IDA was placed at US$250 million or Rs 187.7 million (56% of the project cost) which included US$21.2 million of foreign exchange cost and about 1/3 of local cost in the case of minor irrigation. The subsequent reallocation of US$2.7 H from the spare parts category increased the IDA contribution to local cost of minor irrigation to about 56%. Procurement
1.14 Adequate well drilling contract services were available for sinking of shallow tubewells within both states. On the other hand, tractors includ- ing initial set of spare parts had to be imported. In both the Punjab and Haryana projects, provision was, therefore, made by GOI for setting up of special committees for directing procurement consisting of representatives of GOI, the respective state governments and ARDC. While the committees finalized the procedural formalities for procuring tractors in consultation with IDA, the organizational responsibility was to be with the Agro-Industries Corporations of the two states, under the direction and guidance of the respective committees.
1.15 The PAIC and HAIC were to call for quotations by public invitation from suppliers for specified lots on the basis of tender papers approved by IDA. They were also to ascertain through the LDB and the PCBs the preferences of farmers as to different makes of tractors. On the basis of the pooled preferences, bulk orders were to be placed by the PAIC and HAIC with the concerned suppliers. A further stipulation was that the applications received from the farmers were to be scrutinized in terms of the norms laid down by IDA. If the number of applications from farmers exceeded the targets, suc- cessful applicants would be drawn by lottery. Case by case appraisal of individual applications was to be carried out in the manner prescribed by ARDC before a loan was sanctioned to eligible farmers.
1.16 The project lending was to be channelled through LDB system as well as the commercial banks under both the projects. Refinance for primary banks was from the State Land Development Banks and for both the SLDBs and PCBs from ARDC.
Implementing Agencies
1.17 The primary responsibility for proper implementation of the projects rested with ARDC. This required selection of commercial banks participating in the lending program on the basis of their ability and willingness to carry out loan appraisals and lending operations in accordance with the criteria laid down for the purpose. The Corporation was also required to take measures to ensure that the loan appraisals were carried out by the financing institu- tions in conformity with the lending criteria as stipulated under the project agreement. Accordingly, in both the states a tractor beneficiary was to demonstrate to the financing bank that the tractor could be used for culti- vating not less than 40 hectares of cropped area per year or for 1,000 hours of productive work per year. For self-propelled combines and harvesters there was to be an assured workload of at least 200 hectares and 100 hectares, respectively. In the case of minor irrigation in Haryana, individual loans required the technical approval of the Soil Conservation Organization in that state. The coordination of the lending policies of the LDBs and PCBs and standardization of the appraisal norms were entrusted to ARDC.
Lending Terms
1.18 IDA credit to the GOI was provided at standard terms. The credit by GOI was to be made available to ARDC at 5% per annum less 1/4 of 1% rebate for - 23 -
prompt repayment. The exchange risk was to be borne by GOI. ARDC was to refinance 75% of the loan by SLDB and PCBs at 6-1/2% per annum. The SLDB was to finance 100% of the loan by PLMB at 7-3/4% per annum. The interest rate to the ultimate borrower was to be 9% per annum. Subject to the maximum useful life of the assets, the loan maturity was based on the repayment capacity of borrowers. However, in no case, loan for a tractor, tractor implements and tractor-drawn harvesters was to exceed 7 years and that for self-propelled combines 5 years. For minor irrigation under the HACP, the repayment period was not to exceed 7 years including one year's grace, but this could be extended up to 9 years for a small farmer defined as one cul- tivating an area of land which would provide him a post-developmental net income of Rs 2,400 per annum or less. 1/
1.19 The beneficiary was required to make a downpayment towards the equip- ment purchased and investment in minor irrigation. If a tractor loan was given by the LDB, the principal amount was to be determined in such a manner that the down payment plus contribution to share capital was not less than 25% of the cost of the equipment. However, if the loan was given by commercial banks, the down payment was not to be less than 25% and 20% of the cost of tractor and equipment, respectively. For minor irrigation, the farmers were to contribute at least 20% of the total investment cost. Small farmers were, however, required to contribute only 10 percent for investments in tubewells costing less than Rs 1,000.
Benefits
1.20 The financial rates of return under HACP were expected to be between 39 and 66% at 1970 prices while the economic rate of return was estimated at 22 to 27% for minor irrigation and 15% for farm mechanization. The project was to benefit at least 20,000 farmers in Haryana including small farmers who were expected to take advantage of tractor custom service and tubewell facilities.
1.21 Under the PACP, the financial rates of return on investment in tractor with implements was estimated at around 23% and the economic rate of return at 14%. The cropping intensity was expected to increase by 30% and the anticipated increase in yield as a result of timeliness and better cultivation was expected to be of the order of 10 to 20%, the two together increasing the food production in Punjab by about two lakh 2/ tonnes annually.
1/ This was subsequently changed under ARDC I to a preinvestment income of Rs 2,000 at 1972 prices.
2/ Lakh = 100,000 units. - 24 -
II. PROJECT IMPLEMENTATION
PACP
2.01 Under the PACP, PAIC invited tenders for the first lot of 4,000 imported tractors in March 1971. It took time to flash details regarding the makes and models of tractors to the farmers. The last date for receiv- ing applications from beneficiaries was extended from January 12, 1972 to February 13, 1972. In all, 6,226 applications were received. Meanwhile, in the 3rd week of December 1971, there were realignments of various inter- national currencies with the result that the IMF parity rates of various currencies were changed. The central committee in its meeting on June 3, 1972, therefore, decided that fresh tenders should be invited. This was done in June 1972 and the last date for receiving tenders was fixed as July 24, 1972. At this stage, as desired by GOI and agreed to by IDA, indigenous tractors were also allowed to be financed under the project. After approval of the quotations from suppliers, preferences of beneficiaries were invited for the models approved by GOI and IDA.
2.02 This time, (1972) only 1,025 beneficiaries applied for tractors and of these 652 preferred imported tractors. Owing to inordinate delay and uncertainty arising from re-tender, the response to the first lot was not encouraging.
2.03 In July 1974, the Central Committee gave approval for a second lot of 4,000 tractors, on the basis of the clearance from IDA for 10 imported and 8 indigenous models. Meanwhile, the Ministry of Heavy Industry on a reference from the Ministry of Agriculture suggested inclusion on 5 more indigenous models. The PAIC invited quotations from suppliers of imported/ indigenous tractors on December 14, 1974. The last date for receipt of quo- tations was January 15, 1975 which was subsequently extended to end-January 1975. In all, 6 firms - one foreign and 5 indigenous - had submitted their tenders.
2.04 Applications from beneficiaries for different models of approved tractors were invited from April 7, 1975 to May 15, 1975. In all, 7,549 eligible applications for different models were received during the period. In order to meet the requirement of applicants, a credit of US$26.8 million was needed while there was provision for only US$24 million of which US$2.76 million had already been utilized for the supply of 1,025 tractors under the first lot. The Central Committee at its meeting of June 24, 1975 agreed to divert the unallocated amount of US$1.2 million, US$1.2 million against discs and US$0.05 million being the balance from tractor-drawn harvesters towards supply of tractors. The total credit thus available was US$23.69 million. The Central Committee assessed the requirement of funds to meet the entire demand of 7,549 tractors at US$27 million. It, therefore, directed a pro- rata cut on bookings for each model to bring it down to US$23 million. The pro-rata cut was imposed on each model by draw of lots and the bookings were brought down from 7,549 tractors to 6,975 tractors which included 4,050 imported tractors. Of the 4,050 imported tractors, 800 tractors (IMT 533) - 25 -
ultimately were not accepted by beneficiaries and wee delivered outside the state and sold for cash. With GOI's/IDA's approval, the credit applicable to these tractors was subsequently utilized in the Punjab for financing indigenous tractors.
2.05 There was delay in the supply of imported tractors under the Project due to non-availability of shipping space. The transportation of the tractors from Indian ports to the project area also took considerable time. The assembly of tractors and sanctioning of loans by banks took some more time. Further, due to a hike in prices of tractors (para 2.16), many original beneficiaries hesitated to take up the tractors they had requested many months before and the PAIC had to find alternate beneficiaries, which also took time.
2.06 In the meeting of the Central Committee held on November 4, 1976, it was agreed that funds available for purchase of combines along with credit available from the sale of 800 imported tractors outside the state would be diverted for purchase of indigenous tractors. The ratio of number of tractors of different makes to be purchased was determined on the basis of the choice indicated by the beneficiaries for different makes/models of tractors.
2.07 In addition to the tractors, funds were allotted for the purchase of tractor-drawn harvesters, self-propelled combines and discs while part of the funds was kept unallocated. Against the provision of US$0.5 million for tractor-drawn harvesters, 24 indigenous and 21 imported tractor-drawn harvesters, were supplied by utilizing US$22 million. The balance of US$0.28 million was diverted towards tractors.
2.08 There was a provision of US$0.6 million for 40 self-propelled combines, tenders for which were floated twice. Since none of the models satisfied the tender conditions, it was decided by the Central Committee to go in for retender in the case that funds were available after supply of tractors. In the event, no self-propelled combines were financed.
2.09 Under the Credit Agreement, there was a provision of US$1.2 million for imported discs. Quotations were invited for fabrication of discs. It was observed that none of the offers was up to ISI standard. The Central Committee, therefore, decided that the proposal for procurement of discs may be dropped and the credit allocation be utilized for purchase of tractors.
2.10 Thus, in respect of PACP, a total number of 8,002 tractors were financed of which 3,830 were imported (Annex 3, Table 1).
RACP
2.11 This project envisaged the import of 6,000 tractors, 20 self- propelled combines and 100 tractor-drawn/mounted combine harvesters. The procedure prescribed for procurment and distribution of tractors under the project was similar to that laid down under the PACP. - 26 -
2.12 The investments in self-propelled combines and tractor-drawn/ mounted harvesters did not take place partly as a result of lack of demand and partly due to the delay in completion of procurement formalities. IDA was, therefore, requested to permit utilization of credit allocated under this category for financing tractor program which was acceded to.
Tractors
2.13 The Project originally provided for financing only imported tractors. However, due to representations from local tractor manufacturers, IDA was requested to consider favorably the inclusion of indigenous tractors simul- taneously with imported ones under the Project. This was agreed to by IDA. By this time (Jan. 1974), part of the allocation of credit had been transferred from the tractor category to minor irrigation category. Due to this and time-consuming procurement formalities, financing of tractors under the Project was delayed.
2.14 HAIC finalized the procurement of tractors in two lots. The first lot of 3,000 tractors was supplied to the beneficiaries in May 1974 and the second lot in October 1975. Under the first lot, the participating banks collected 2,825 applications of which 234 were for imported models. For the second lot of 1,000 tractors offered, the response from farmers far exceeded the indicated number. A total of 2,928 applications were received under the lot and HAIC had to reduce the allocations pro-rata. However, taking into account the backlog from the first phase and the reallocation of the harvester category, more farmers could be accommodated. The number of tractors of different makes/models financed under the Project was as under:
Haryana Number of Tractors Make/Model RP Financed
Imported David Brown 990 35 101 IMT 533 35 241
Indigenous Ford 3000/3600 46.6 1,290 Escorts 335 35 1,179 Zetor 2511 25 884 Eicher 26.5 760 International 275 35 108 Kirloskar 43 50
Total: 4,613
2.15 The number of tractors financed and bankwise financing of tractors is shown in Annex 2, Tables 2 and 3. The actual number of units financed was less than that estimated under the Credit Agreement (6,000 imported tractors) as shown below: - 27 -
Appraisal Estimate Actual No. Amount No. Amount (Rs M) (RsM)
LDB ) 1,869 66.03 ) 6,000 163.3 PCB ) 2,744 106.44 Total 6,000 163.3 4,613 172.47
2.16 This was mainly due to escalation in tractor cost. A comparison of the unit cost 1/ for some of the makes for which prices were readily avail- able between 1971 and 1976 is given below:
1971 1974 1976 ------(Rs '000)
Indigenous Escorts 25.2 39.0 43.5 Eicher 24.4 34.4 34.4 Zetor 23.7 31.6 37.4 Ford 3000 34.8 54.0 61.0 International 26.3 NA 54.1
Imported MT 533 - 51.7 58.2
Minor Irrigation
2.17 The HACP provided for sinking of 11,000 shallow tubewells and installation of 75 sprinkler irrigation sets. The former was to cost Rs 88.7 million while the latter was estimated to cost Rs 1.9 million. Of the total shallow tubewell program, the HSLDB was allocated 9,250 units and the PCBs, 1,750. The investments in 75 sprinkler irrigation sets envisaged under the project did not materialize. To make this investment acceptable to farmers, it was necessary that a portion of the investment cost be subsidized. As investments involving capital subsidy were not eligible for financing under the HACP, these were financed outside the Project by ARDC.
2.18 As regards shallow tubewells, about 36,000 units were financed (Annex 2, Table 2) under the program as shown below:
Appraisal Actual No. Amount (Rs M) No. Amount (Rs M)
LDB 36,247 /a 364.57 34,719 238.30 PCB 1,750 14.45 1,265 8.47 Total 37,997 379.02 35,984 246.77
/a Additional targets were sanctioned in 1974.
1/ Consumer prices quoted by dealers. Taxes per Annexure 4, Table 12. - 28 -
2.19 The appraisal envisaged a minor irrigation lending program of Rs 88.7 million for 11,000 wells was in Haryana. However, due to transfer of credit allocation from other categories, variation in dollar-rupee exchange rate and sanctioning of additional wells, more rupee funds became available for financing minor irrigation units. The LDBs and PCBs were sanctioned schemes involving an aggregate financial assistance of Rs 379.02 million. Their disbursements amounted to Rs 246.77 million covering 35,984 shallow tubewells. The bankwise details are furnished in Annex 2, Table 4. Financing shallow tubewells in the state was continued after the completion of the pro- gram under ARDC I and later under ARDC II.
2.20 All shallow tubewells financed were composite units including electric motors/diesel pumpsets. The number of units financed exceeded the appraisal estimate also as a result of lower investment costs. Further, the project area which was originally confined to 6 districts was later extended to cover the entire state of Haryana. A comparison between the appraisal estimates and actual results for composite investments is given below.
Appraisal Estimate Actual
1. Average unit cost (excluding electric connections) Rs 5,500 - 8,800 Rs 7,600
2. Average loan as % of investment cost 90 90
3. Benefiting area (ha) 3 - 8 ha 2 - 3.5 ha
4. Average cost of invest- ment per ha
(1) - (3) Rs 1,100 - 1,830 Rs 3,040
As may be seen, the actual benefiting area was lower than the appraisal esti- mates while the average cost of investment per hectare was higher.
2.21 Of the wells financed, about 88% had electric motors and the rest diesel engines (inference based on data collected through field visits). Farmers preferred electric to diesel pumpsets due to the lower capital and operating cost of the former. However, some of them had to go in for diesel pumpsets due to delay in electric connections. In certain cases, as reported by the respondents during field visits, the delay extended to a period of one year. No failures of wells were reported.
Groundwater Control and Allocation
2.22 In the absence of groundwater legislation, a pragmatic effort was made to prevent over-development through the stipulation of minimum well spacing and maximum density. These restrictions applied even to wells fi- nanced outside the project through institutional credit. The project area - 29 -
was distributed among the participating commercial banks and LDBs. LDBs were precluded from financing tubewells except through this project. As a result of this discipline, progress in the initial stages was rather slow. With the modification of the spacing and density criteria during the project in the light of additional groundwater information provided by the State Groundwater Cell and the Minor Irrigation Tubewell Corporation (MITC) and introduction of legislation to bring Commercial Banks on par with cooperatives in the matter of recoveries, etc., the program picked up and the physical targets were exceeded much before the due date. The result has been that out of a net increase of about 82,000 irrigation wells in the State between 1967/68 and 1974/75, HACP alone accounted for nearly 50% and earlier ARDC schemes for another 10%.
Weather Conditions
2.23 During the project period, weather conditions were very favorable except that in 1974/75, some parts of the state experienced drought. This did not, however, have a marked impact on loan recovery.
Lending to Small Farmers
2.24 The definition of small farmers under the HACP viz., a post- developmental net income of not more than Rs 2,400 per annum was more restrictive than the definition used subsequently under the General Line of Credit, viz., ARDC I and II. 1/ Out of the total number of wells financed by LDBs, an estimated 60% were on small farms. The proportion was almost the same in respect of the PCBs.
Amendments to Credit Agreements
2.25 While implementing the PACP as well as the HACP, a number of changes had to be introduced in the Project Agreements to suit the changing require- ments in both the states. Sufficient justifications were provided and IDA approval was obtained in each case.
2.26 Under the farm mechanization program in both States, an amend- ment was made to enable financing of indigenous tractors along with that of the imported tractors. This was mainly because of the easy availability of indigenous tractors on competitive terms vis-a-vis imported tractors and the difficulties experienced in the procurement of imported tractors during the initial period of the Projects. Secondly, funds had to be reallocated from other categories to purchase of tractors under PACP while under HACP part of the funds intended for farm mechanization was reallocated to minor irrigation. In Punjab, there was no effective demand for self-propelled harvesters provided under the Project, whereas a part of the amount under tractor-drawn
1/ The current definition is based on predevelopment net income equivalent, Rs 2,000 in 1972 prices. The relative merits of these formulae are discussed at length in the Completion Report on the ARDC I project (October 1978). - 30 -
harvesters was in balance. As the prices of both indigenous and imported tractors had considerably increased during the project period, it was necessary to provide larger amounts for purchase of 8,000 tractors than was initially allocated under the Project. The amounts mentioned above together with the entire unallocated amount were reallocated to the purchase of tractors with the approval of the IDA. In the case of Haryana, purchase of tractors was delayed and there was an immediate demand for funds for minor irrigation. Therefore, a part of the amount allocated to tractors was reallocated for minor irrigation with the approval of the IDA. The other change related to lowering the amount of down payment stipulated at 25 percent of the cost of tractors and implements and 20 percent of the cost of harvesters to 15% under both the projects to give some relief to the beneficiaries. Also, the down payment for minor irrigation was reduced to 10% from 20%. In respect of both the Credit Agreements, the closing dates stipulated had to be extended. The details have already been referred to in paras 1.05 and 1.06. - 31 -
III. FINANCING INSTITUTIONS
Agricultural Refinance and Development Corporation
3.01 The development and operations of the ARDC which has been the refi- nancing agency for agricultural credit and other IDA projects, have been well documented in several IDA reports, the latest one being Report No. 1520A-IN (May 1977). The Corporation was actively associated with both the PACP and HACP. The refinancing procedures in both the projects were basic- ally the same as in the case of other projects. As planned, ARDC selected LDBs and PCBs which agreed to participate in the projects. To familiarize these banks with the requirements under the projects, they were supplied with guidelines on the project together with necessary background material. A workshop was also arranged for them where details of project implementation were discussed. It was ensured that the banks had, prior to the formulation of individual schemes, a good grounding on the collection and collation of necessary details so that the schemes submitted by them satisfied the basic requisites. Since the commencement of the projects, periodical meetings were held by the Corporation with the participating banks individually and collec- tively to assess the progress of implementation. It was also represented in the special committees appointed by the Government for effective implementa- tion of the projects.
3.02 As regards the minor irrigation component under the HACP, ARDC had created its own technical wing which, apart from examining the technical feasibility of minor irrigation program submitted to it, also participated in joint studies undertaken in the state to assess the overall groundwater resources for development.
Land Development Banks
(a) Punjab State Cooperative Land Mortgage Bank (PSCLMB)
3.03 Details regarding organization, management, financial position and operational results of the PSCLMB and HSLDB are given in Annex 3. The involvement of both these banks in the implementation of the respective credit project was significant. Under the Punjab Project, a sum of Rs 100.27 million was disbursed by the Punjab Land Mortgage Bank. The total loans outstanding at the end of June for 4 years, 1973 to 1976, were Rs 599 million, Rs 611 million, Rs 612 million and Rs 626 million, respectively. This was the period when almost the entire disbursements were made under the project. PSCLMB has also been implementing other development schemes through ARDC refinance. During 1975/76, five schemes were implemented/under implementation with a disbursement of Rs 63 million as compared to 16 schemes with a disburse- ment of Rs 28 million in 1974/75. PSCLMB floated debentures for a total of Ra 121 million in 1975/76 consisting of Rs 64 million of ordinary debentures and special development debentures to the extent of Rs 57 million. In 1973/74 and 1974/75, the total debentures floated were Rs 90 million and Rs 112 million, respectively. Side-by-side with the lending and debenture program, PSCLMB also made some effort to mobilize rural savings through fixed deposits. . 32 -
(b) Haryana State Cooperative Land Development Bank (HSLDB)
3.04 The HSLDB disbursed Rs 66 million for tractors and Rs 238 million for minor irrigation under the HACP. The SLDB has also been implementing other development schemes with refinance assistance from ARDC. The refinance availed of from the Corporation was Rs 446 million for 52 schemes which included 39 minor irrigation and 5 farm mechanization schemes under the project. The outstanding loans at the end of June 1975 and June 1976 in respect of Haryana State Land Development Bank were Rs 421 million and Rs 476 million, respectively. -Purpose-wise, minor irrigation and farm mechanization were important though efforts are being made to diversify the lending port- folio by extending assistance to purposes such as land levelling, horticul- ture, dairy development, etc.
Recovery Performance
3.05 A good feature of the LDB system both in Punjab and Haryana is the consistently good debt recovery performance. Overdues as a percentage of demand of PLMB to SLMB in Punjab were less than 2% on an average between 1970/71 and 1975/76 and overdues in respect of members to PLMBs were around a maximum of 15%. In Raryana, there-has been no default from PLDB to HSLDB and the overall default from members to PLDB was only 3% in 1974/75 and 1975/76. Details are given in Annex 2.
Training and Staff
3.06 Depending upon individual requirements, staff at different levels in the state and primary land development banks in both the states are being trained for various periods at different training institutions. Up to June 1977, the total number of staff so trained was 484 in Punjab and 475 in Haryana (Annex 2). The training helped the Bank staff in assuming greater responsibilities in the field of project lending.
Commercial Banks
3.07 The number of PCBs that participated in the PACP was 11. In HACP, 11 banks were associated in financing minor irrigation and 12 banks in tractor financing. These banks played an important role in both the projects. The disbursements of PCBs under PACP were Rs 224 million for tractors and about 2 million for harvesters (45 in number) and under the HACP, Rs 106 million for tractors and about Rn 9 million for shallow tubevells. Under minor irri- gation component in HACP, the PCBs financed only 1,265 wells against the substantial program carried out by LDB. The commercial banks accounted for 68% of the ARDC refinance in 1976/77 in Punjab (nil in 1971/72), while in Haryana their share rose from 9% to 53% during the same period. These banks have, in recent times, strengthened their agricultural staff and increased their branches in rural and semi-urban areas. Their recovery performance in both the states has been satisfactory. However, with an increasingly important role they will be called upon to play in the future in agricultural lending, an improvement in their credit discipline may become necessary. - 33 -
IV. SUPPORTING SERVICES
PAIC and HAIC
4.01 PAIC and HAIC were assigned important roles in farm mechanization programs under the respective IDA credit projects. They were entrusted with the task of identifying the tractor requirements of farmers and arranging for their procurement and distribution. The work was carried out by both the Corporations under the overall guidance and direction of special commit- tees set up for each state and consisting of representatives of the GOI, respective state governments and ARDC. The committee for each state approved the analysis of bids and recommendations of the respective Corporation for placing contracts with suppliers before forwarding them for approval (for details see Annex 3).
4.02 Apart from being the main channel for procurement and distribution of tractors, these Corporations have been serving the farmers in several other ways. They owned tractors and combines for providing custom service to needy farmers at economical rates. They provided repair and servicing facility and established sales-cum-service stations. They also established agro-service centers for providing employment to unemployed engineers.
4.03 Despite these activities, the operating results of these Corpora- tions are not very encouraging. For instance, in respect of PAIC, the loss before tax provision was Rs 5.94 million in 1975/76 and Rs 2.16 million in 1976/77. For HAIC, the loss after taxes and development rebate and provision for major overhaul of combines was Rs 0.18 million in 1973/74 and Rs 1.85 million in 1974-75 (Annex 3, Tables 6 and 7). This highlights the need for improving the financial position of these Corporations. It is also necessary to improve the efficiency of the organization by establishing project cells to study feasibility of schemes before making heavy investment in them.
Groundwater Cell, Haryana
4.04 Considering the importance of implementing ARDC schemes for minor irrigation, the State Groundwater Board as well as the IBRD Mission recom- mended the creation of a Groundwater Cell in Haryana to provide technical support to the ongoing minor irrigation schemes in the state. Accordingly, a state groundwater cell was created. The cell was entrusted with the responsibility of evaluating groundwater balance in the state and to prepare hydrological maps. The work of monitoring observation wells in the scheme area has also been transferred to the cell. It also carried out detailed hydrological tests for determining the optimum spacing as well as hydrological parameters for evaluation studies. For these, the cell has been strengthened with adequate staff. The state is now in a position to undertake detailed microlevel groundwater survey for objectively assessing the groundwater balance in different basins. The IDA Supervision Mission which visited the state towards the end of 1975, observed that groundwater development in Haryana was progressing rapidly, but felt that groundwater legislation was required - 34 -
urgently. According to the Mission, the groundwater cell was doing good work and with the staff expansion authorized by the Government of Haryana, it would be possible for them to regulate future groundwater development.
4.05 Large-scale development and relatively close spacing of wells have made significant impact on the groundwater regimen as reflected in the pro- gressive decline of water level in many areas of the state. With the normal- ization of power supply, cumulative withdrawal from the wells would increase which might have further undesirable impact on the groundwater regimen. As the assessed potential includes mostly marginal quality water, further devel- opment requires to be planned in such a manner that saline water intrusion into fresh water zones is avoided. In view of this, a fresh assessment of basinwise field studies would be necessary. The state government was reported to have initiated action in this direction and the ARDC should be involved in assisting the Government.
Short-term Credit
4.06 Short-term production credit in both Punjab and Haryana is disbursed by the primary credit societies. Since nationalization of 14 major Indian com- mercial banks in 1969, commercial banks have also entered this field. Provi- sion of credit by the societies to their cultivator-members was reported to be quite adequate and no difficulty has been reported in the disbursement of loans. The repayment performance of the primary societies in both the states could not, however, be considered satisfactory. The percentage of overdues to demand at the end of June 1976 at the central cooperative bank and the society levels was 21% and 28%, respectively, in Haryana, and 36% and 37% respectively, in Punjab. The reorganization of primary societies into viable units has been carried out in Haryana and the number has been reduced substantially. In Punjab, a similar reorganization is expected to be undertaken shortly. When completed, this streamlining should help in reducing overdues and increasing efficiency.
Marketing
4.07 The arrangements for marketing of farm produce were satisfactory in both States during the project period. In 1977, there were 314 wholesale markets and 325 regulated markets in Punjab, and 133 wholesale markets and about 200 regulated markets in Haryana. The regulated markets being governed by statutes, the chances of exploitation of producers by traders and commis- sion agents were reduced. Plans were also under way for mechanization of operations like cleaning, grading, bagging, etc., so that farmers face no delay in disposing of their produce in the markets.
4.08 Regarding storage, the Haryana State Cooperative Bank was sanctioned in 1972/73, a sum of Rs 24.2 million for financing the construction of godowns by the Haryana State Agricultural Marketing Board and the State Cooperative Agricultural Marketing Federation. This has been fully availed of by the SCB. Recently, the ARDC has sanctioned to the HSCB a supplementary scheme for con- struction of godowns with a total capacity of 16,000 tonnes by RAFED involving - 35 -
financial assistance of Rs 2.41 million. Under the ARDC program of assist- ing construction of godowns by private parties for letting out to the Food Corporation of India for storage of foodgrains, 8 commercial banks have been sanctioned 22 schemes for creating an aggregate storage capacity of 0.22 million tonnes in the state with ARDC refinance assistance of Rs 20.7 million during 1976/77 against which a sum of Rs 0.55 million has been drawn.
V. ECONOMIC IMPACT
Minor Irrigation and Tractor Surveys
5.01 To complement existing surveys in estimating the benefits under PCP and HACP, two small case studies were undertaken; one for farm mechanization in Punjab and the other for minor irrigation in Haryana. These studies were undertaken during February 1978. No separate tractor study was undertaken in Haryana. However, in view of proximity of these areas and similarity of agro- climatic conditions, the results of Punjab study were treated as applicable to Haryana as well. Twenty-five individual tractor-owning farmers residing in six villages in three talukas of Faridkot district of Punjab were interviewed. Twenty five farmers without tractors residing in the same villages were also interviewed to obtain a control for the sample of tractor owners. Similarly, for minor irrigation, 30 project beneficiaries and 20 control farmers were interviewed in Gurgaon district of Haryana. A larger number of control farmers satisfying the same conditions could not be attained. Data relating to the cropping pattern, yield, prices and inputs costs were collected during the field studies. Detailed calculations are given in Annex 4.
5.02 It has been assumed that incremental labor requirements were met by hired labor and the going wages were taken as a satisfactory approximation of its economic costs. The economic life of shallow tubewells and tractors were assumed to be ten years. Other adjustments for taxes, etc., in inputs have been noted in the tables. They agree in general with those in the appraisal.
5.03 Investment in shallow tubewells increased the cropping intensity from 120% to 160%. The farmers switched over to IfYV and perennial crops as a result of the investment (Annex 4, Table 3).
5.04 In the case of tractorization, the cropping intensity increased from 140% to 160%, due mainly to an increase in the area under paddy, wheat and sugarcane (Annex 4, Table 1).
5.05 The financial rates of return on shallow tubewells exceeded 50% and for tractors it was 25% (Annex 4, Table 2). Debt service did not impose a heavy burden. At full production, surplus after debt service agreed with the appraisal estimates.
5.06 The economic rate of return worked out to above 50% for both the types of investments. The reference prices used (Annex 4, Table 4) were based on historically favorable world market conditions. No significant change in - 36 -
the overall results would ensue even if subsequent fluctuations in the dollar price indices for various comodities were introduced. Tractor hire earnings were taken at the survey average of Rs 26/hour, as against the average PAIC going rate of Rs 40/hour.
5.07 As a result of the investment in tractors under the PACP, the cropped area increased by about 12,800 hectares. Under the HACP, the in- crease was 7,400 hectares as a result of tractorization and 48,600 hectares as a result of the investment in minor irrigation. Under both projects, net income increased by about Ra 1,650 per hectare as a result of introduction of tractor and by about Rs 1,750 per hectare as a result of investment in tubewell in Haryana.
5.08 About 36,000 farmers obtained loans for shallow tubevells and 4,613 for tractors under HACP. Under PACP, 8,002 farmers obtained loans for tractors. The several monitoring studies conducted in the project area in Haryana indicate that in about 10% of the cases, full benefits have not accrued as a result of investment in shallow tubewells. This was due to delay in getting electrical connections and shortage of power in certain areas. Even so, the total number of direct beneficiaries was about 3 times the appraisal estimates. Besides,-on the assumption that there would be at least one buyer of irrigation water for every two shallow tubewells, the number of indirect beneficiaries can be estimated at 18,000. About 60% of the direct beneficiaries under minor irrigation in Haryana were small farmers.
5.09 As regards tractors, the number of hours of tractor use per annum was less than the appraisal estimates in Haryana. On average, a tractor was used annually for 480 hours on owner's fields and custom work accounted for another 150 hours. Of the total number of hours worked, 65 percent of the time was utilized in preparing the land for cultivation and the remaining hours were utilized for transport, interculture, sowing, etc.
5.10 Review of Recent Surveys and Conclusions. Aspects such as labor displacement, socio-economic impact, etc., were not covered specifically in ARDC's limited field study. They have, however, been analyzed in several other studies on the subject.
5.11 In the Evaluation Study of shallow tubewells in Karnal District of Haryana conducted in 1974/75 by ARDC, it was found that investment in shallow tubewells gave rise to sizeable on-farm employment during the course of construction of tubewells as well as on a recurring basis thereafter. The additional employment of labor during the construction of tubewells under RACP works out to about 2.7 million mandays at the rate of 75 mandays per tubewell. The additional employment opportunities for agricultural labor arising from intensive cultivation following the investment in shallow tubewells can be estimated at around 95 mandays per hectare of benefited area (238 mandays per tubewell). This would work out to about 7.5 million mandays for the project as a whole. - 37 -
5.12 According to the study on "Impact of Mechanization on Punjab Agriculture with special reference to tractorization" (Punjab Agricultural University, Ludhiana-1972/73) by Dr. Kahlon, the direct effect of tractori- zation on various components of human labor, viz., family labor, casual labor and permanent labor was that on an average tractorization reduced family labor by 23 percent and increased permanent, casual and total labor per holding by 24.3 percent, 37.6 percent and 9.5 percent, respectively. Per cropped hectare, family labor and total labor decreased by 37.7 percent and 11.5 percent, respectively, while permanent labor and casual labor increased by 0.5 percent and 11.3 percent, respectively. The decrease in family labor input was attributed to prestige considerations on the part of tractor owners. In Punjab and Haryana, the tractor has become a major status symbol.
5.13 Another study by the Government of Punjab 1/ showed that casual labor replaced family labor in the case of tractor cultivation. There was practically no difference in the utilization of permanent and hired labor in both the systems (tractorized and bullock-operated farms) of cultivation. Per hectare utilization of casual labor was significantly higher in tractor holdings than in bullock holdings. Use of tractor had led to an increase in the employment of part-time casual labor in busy agricultural seasons of the year.
5.14 More than a saving in labor, and labor productivity, a significant aspect emphasized in the studies was that tractorization permitted timeliness of farm operations. It has been reported that increase in production through proper and timely soil preparation has been of the order of 10 to 15 percent. 2/
5.15 On the basis of a recent analytical review of various studies on the subject, Dr. Hans P. Binswanger in his study, "Economic of Tractors in the Indian Sub-Continent" has, however, concluded that these studies provide no convincing evidence that tractors are responsible for a substantial increase in cropping intensity, yields, timeliness and gross returns. At best, he concludes, such benefits that existed might be so small that they cannot be detected and statistically supported even with massive survey research efforts. 3/
5.16 Since his review is not supported by any independent field inves- tigations, the assumptions made and conclusions drawn by Dr. Binswanger has been questioned in different Indian quarters. A subsequent field study, carried out by the Institute of Techno-Economic Study, Madras on behalf of Indian Council of Agricultural Research, covering seven districts of Tamil
1/ Economics of tractor cultivation and economics of production and cultivation practices of HYV Wheat, Maize and Paddy and Punjab- Government of Punjab, 1969/70 to 1971/72.
2/ Demand for tractors, Study Report by National Council of Applied Economic Research, Delhi.
3/ The major points brought out by the Study have been summarized in Annex 5. - 38 -
Nadu shows that tractorization has caused a net average increase in agricul- tural production, tractor farms showing increases of 11.6 percent for paddy, 29 percent for groundnut, 17 percent for sugarcane and 34 percent for cotton. The study concludes that no labor displacement resulted due to tractorization. On the other hand, labor demand increased due to increased multiple cropping, greater intensity of cultivation and higher yields.
5.17 The current approach of the Indian Planning Commission towards tractors appears to be cautious. It suggests the need to undertake a detailed study of the employment and productivity effects of tractorization. The Sixth Plan draft has indicated a preference for the utilization of manual and bullock power on small farms. At the same time, it suggests custom service from tractors to ensure timely agricultural operations and also, use of tractors in different terrains for reclamation of large tracts of lands and land shaping.
5.18 It is obvious that the demand for tractors is determined by the inter-play of several factors such as need, price, marginal value productivity, wage rates, availability of credit, etc. The need also arises as a result of adoption of improved agricultural technology which requires undertaking of accurate, timely and faster farm-operations. The adoption of improved agricultural technology depends upon the availability of assured water supply. Thus, the combined effect of physical, economic and also conven- ience factors create a substantial demand for tractors which is intensified by such consideration as the prestige attached to the ownership of tractors. These were true of both Punjab and Haryana, where in seeking to intensify double-cropping, farmers were faced with a problem of speeding up land preparation and planting. Also, apart from loss of land for fodder, there was the problem that additional bullocks and labor required were not locally available and could only be obtained outside the state, and at much higher costs. Despite this, offtake of tractors in the initial years under the projects in both the states was poor and picked up substantially only in 1974 when as a result of the change in the Bank rate, non-project tractor loans were charged at 11% p.a. but tractor loans under the project were charged only 9-1/2 percent. 1/
5.19 The various factors mentioned above continue to operate even now in both States. Replacement need has also been higher since the many of tractors operating in these states are over 10 years old and many owners of tractors of older models are unable to get suitable spares and, therefore, would like to go in for new tractors. Though no official projections of demand are available, according to trade sources the total yearly sales of tractors in the country are expected to go up from 31,375 in 1975 to about 57,500 in 1980. Of these, 23 percent is expected to be absorbed by Punjab and about 9.5 percent by Haryana. This would mean that sales in Punjab are expected to increase from 7,200 tractors in 1975 to 13,225 in 1980 and in
1/ The Project Agreement stipulated a lending rate of 9 percent per annum to the ultimate borrower. The lending institutions were, however, permitted to charge 9-1/2 per cent to the ultimate borrowers in July 1974. - 39 -
Haryana from 2,960 in 1975 to 5,435 in 1980. These projections apart, schemes for financing of tractors continue to be received from these states under ARDC's non-IDA program. For instance, ARDC has approved recently a scheme for financing the purchase of 4,000 tractors in Punjab through the PAIC and has sanctioned a refinance assistance of Rs 119.2 million. While approving the scheme, it has been recognized that since the power availability in Punjab (excluding that for irrigation purposes) is 0.61 HP per hectare, there appears some scope for further farm mechanization in Punjab (and perhaps Haryana) even though the general impression is that Punjab already has an adequate number of tractors.
VI. CONCLUSIONS AND RECOMMENDATIONS
Conclusions
6.01 The major benefits expected from the PACP and RACP were higher cropping intensity and increase in agricultural production. In Punjab, these were expected to be achieved from farm mechanization under the Project and past investments in irrigation. In Haryana, they were to be achieved through investments in minor irrigation (shallow tubewells) and tractorization. These goals have been achieved. The number of beneficiary farmers, the total bene- fited area, the gross cropped area and the value of gross produce under the projects were higher than those estimated at appraisal. In terms of procure- ment under the tractor component, however, both the projects faced difficulties. The import and distribution of tractors under the projects were delayed as a result of procedural difficulties and the closing date had to be extended more than once under both. Even after such extensions, there was a shortfall in the distribution of tractors under the HACP, while in Punjab, the last lot of 1,200 tractors imported towards the close of the project could not be wholly sold within the state due to intervening price escalation. It was, therefore, necessary to permit the supplier to sell 800 out of 1,200 tractors outside the state.
6.02 The investment program in shallow tubewells in Haryana was clearly successful. Although only 11,000 units were contemplated at appraisal, the actual number of wells financed was more than threefold the estimate due to lower unit cost, reallocation of funds from some of the items which were subsequently excluded from the project and the good work of the State Groundwater Cell. On the debit side, account has to be taken of delay in the availability of power connections in some areas and shortage of power supply which resulted in some wells not working to full capacity. The rapid progress in groundwater development has increased the urgency of groundwater legislation. Also, a fresh assessment of the groundwater potential on the basis of basinwise field studies is necessary.
6.03 As regards institutional agencies, the ARDC played a major role in the implementation of the two projects. It solved a number of technical problems, coordinated the work of different institutions and acted as a catalyst. - 40 -
6.04 The performance of the LDBs in both the states was satisfactory and the participating commercial banks gained valuable experience in agri- cultural lending. Strengthening of the technical cells in LDBs has, however, yet to progress as envisaged. As regards the AICs, which were the agencies entrusted with import and distribution of tractors, the efforts devoted to procurement and distribution of tractors were not matched subsequently in accounting work, especially in reconciling the figures of physical and financial achievements. Even information relating to their operations since the commencement of the Project has yet to be compiled on a regular basis. The administrative machinery of the AICs, therefore, requires urgent stream- lining.
6.05 IDA support to agricultural lending in Punjab and Haryana has con- tinued through two general lines of credit viz., ARDC I and ARDC II. It is necessary at this stage when ARDC III is in sight to focus attention on steps towards effective monitoring, supervision and evaluation of the various schemes by the financial institutions themselves: ARDC is already setting up a pilot program of studies with a series of banks.
Recommendations
6.06 (a) Large-scale development and relatively close spacing of wells have made significant impact on the groundwater regimen as reflected in the progressive decline of water level in many areas of Haryana. On account of acute shortage of power, wells were not working to their full capacity. Normalization of power supply would, therefore, considerably increase the cumulative withdrawals from the wells which might have a further adverse impact on groundwater management. As the potential assessed initially includes mostly marginal quality water, further development requires to be planned in such a manner that saline water intrusion into fresh water zone is avoided. In view of this, a fresh assessment of the groundwater potential on the basis of a series of basinwise field studies is considered necessary.I/ It is also essential that the COH should bring forth groundwater legislation urgently.
(b) As regards tractors, recent studies indicate considerable conflict of opinion as to the benefits flowing as a result of tractorization. It is necessary that the priority for tractor financing should be re-examined on the basis of a detailed and systematic All-India study. Such a study is now being contemplated under the aegis of the planning Commission.
1/ GOI notes that the state government have indicated that such an assessment was carried out after the implementation of this project and on the basis of the revised assessment, ARDC has already approved 32,000 units for minor irrigation for this state. During implementation of this programme no adverse effect on the water table or in the quality of ground water has been observed. The entire state is under strict vigil regarding depth of water table, discharge of existing minor irrigation units and their utilization. - 41 -
(c) As regards institutional credit, no evidence has come to notice that the beneficiary farmers have been denied their short-term and medium-term requirements from such agencies. However, for a more efficient implementation of projects, it would be preferable if farmers obtained all their credit requirements from a single source. --
(d) A study of the role of the Agro-Industries Corporations in the two states indicated that for better and more effective functioning their organization and methods need streamlining.
1/ GOI feels recommendation to obtain credit for single source is redundant. The recommendation in paragraph 6.06 (c), however, was made for other reasons than denial of short-term audit, namely ease of obtaining credit (affecting travel distances for farmers, and repeated requirements on information of farmers repayment performance. - 42 -
SUPPLEMENT BY IDA'S REGIONAL OFFICE The Farm Mechanization Component
I. Introduction
General
1.1 The Punjab and Haryana Joint Project Completion Report was prepared by the Agricultural Refinance and Development Corporation (ARDC) and is reproduced in extenso. This section is intended to supplement the farm mechanization aspects of that report with the South Asia Regional Office's viewpoint and experience.
1.2 ' The two projects provided for the financing of about 8,000 imported farm tractors in the Punjab and 6,000 farm tractors in Haryana plus self- propelled combine harvesters, tractor drawn harvesters, discs, plough bottoms and spare parts. An IDA credit to GOI was first used to finance imported farm tractors in the Gujarat Agricultural Credit Project (Cr. 191-IN) which had been appraised in June 1969, 6 months prior to the Punjab project appraisal and 18 months prior to the Haryana project appraisal.
1.3 Farm tractors were also included in IDA Credits for Andhra Pradesh (226-IN), Tamil Nadu (250-IN) and Karnataka (278-IN) with appraisals and negotiations in 1970 and 1971. Whilst this report concentrates on the Punjab- Haryana experience most of the conclusions on project implementation and design are valid for the tractor components of all six projects.
Project Preparation
1.4 GOI and the respective State Governments prepared the proposed projects for appraisal. Unexpected problems developed during this stage. Initially, some of the domestic tractor manufacturers proposed use of the IDA credit to expand their tractor manufacturing resources and to improve com- ponent parts for the expanded operation. Other private and public sector corporations, including the Punjab Industrial Corporation and 3 or 4 newly incorporated State Agro-Industrial Corporations, proposed use of the Credit to construct new factories to manufacture tractors. 1.5 A second problem was uncertainty of continued strong demand. Domestic tractor production had increased from about 1,000 units in 1960/61 to 15,000 in 1968/69. However, dealers had built up large inventories and reported slow sales on the grounds that farmers considered most domestic tractors inferior to certain imported types. Regulated prices, a liberal import policy and an overvalued exchange rate were artificially distorting demand for imported tractors in particular and farm machinery in general, relative to other production factors (para 2.9). Imports had increased from 2,500 per year between 1961 and 1968 to 15,000 per year between 1969 and 1971. Much of the increase in imports was financed by bilateral grants and loans from countries outside the Bank Group as a part of arrangements with some of the State Agro-Industries Corporations for assembly, after-sales services, and establishment of manufacturing facilities.
1.6 A third important uncertainty originated with a group of eminent economists and sociologists who contended that farming with tractors would tend to displace agricultural laborers and enable landlords to drive out tenants. Their contention resulted in the Bank financing evaluation studies of the Gujarat and Punjab Agricultural Credit Projects and GOI financing similar studies in other States; the controversy is examined in detail below (para 3.5 and ff.). Meanwhile, the tractor component, originally planned for all 10 State-based agricultural credit projects, was limited to the first six of which Punjab was the only one to be devoted exclusively to tractors.
Justification at Appraisal
1.7 Farm mechanization was included in the Punjab and Haryana projects to assist farmers in achieving state and national objectives of increased agricultural production. Prior to appraisal Punjab and Haryana farmers appeared to be experiencing a shortage of farm labor and bullock power, par- ticularly during the overlap seasons of kharif harvest and rabi planting and rabi harvest and kharif planting. Labor and bullock shortages further in- creased with the rapid introduction of higher yielding varieties of wheat, paddy, cotton and oilseed crops, the expansion in minor irrigation resources and the use of fertilizers. The appraisal reports stated that tractors would enable users to convert waste land into arable land, increase crop intensity, increase yields per ha and enable the transfer of land used for producing and maintaining bullocks into production of milk, foodgrains and other agricul- tural produce.
1.8 The harvesters were to enable a more rapid harvesting and threshing of the grain crops (mostly wheat and paddy), thus minimizing field losses from storms, birds, rodents and shattering caused by over-ripe harvesting. Earlier removal of the grain by the harvester would enable earlier and more extensive land preparation and planting of cotton after wheat and wheat after paddy, thus, enhancing yields and crop intensity. Imported discs and plough bottoms were needed because India did not manufacture the hard steel needed to make superior quality attachments. -44-
1.9 In 1969 and 1970, demand for tractors imported from Bank member countries was extremely high, and a new tractor purchased at the officially regulated price could be resold at 35% to 70% over cost. 001 had set restricted quotas on the number of imports of the more popular kinds. Farmers were having to wait 3 or 4 years after an initial downpayment before delivery of their preferred tractor brand. The investment cost of bullocks had also increased: assuming 10 bullock pairs as the equivalent in land preparation capability of one 35 hp tractor during hot weather conditions, the alternative investment costs appeared about the same. Also, bullock workstock had increased only 2.2% from 1961 to 1972 (75.4 million to 77.1 million head) and supply was still short. The private benefit-cost relationship of the tractor, irrigation and HYV package taken as a whole was highly favorable for farmers, particularly in Punjab and Haryana where the application of new production technologies was most responsive. The additional - and subsequently questioned - implicit assumption made by many supporters of tractorization was that only the power and speed of tractors would make adoption of most of the rest of the package possible.
1.10 The appraisal reports estimated returns to the tractor investment of 26 to 29% (financial) and 23% (economic) in Punjab and 40% (financial) and 15 to 17% (economic) in Haryana. Crop intensities were estimated to increase from 127% and 140% without a tractor to 160% and 180%, respectively, with a tractor. Yields were estimated to increase from 0 to 5% for some crops up to 25% for other crops, depending on the crop, soil type and whether or not seeds from the new high yielding varieties, fertilizers and irrigation were also added. Differences in rates of return between the Punjab and Haryana were due mostly to price and cost assumptions used. Neither appraisal assumed values for the conversion of waste land to crop land or the value of milk that could be produced from resources formerly used for producing and maintaining bullocks. Neither appraisal compared potential benefits from the alternative investment in more bullocks to achieve the same projected increases in crop intensity and yield. No attempt was made to test rates of return with e.g. a shadow rate of exchange although the investment cost used was lower than the ex-factory cost of some indigenous tractors.
II. Procurement Issues
2.1 Originally scheduled to be fully disbursed in 28 months, the Punjab project required 82 months; the Haryana project scheduled for disbursement in 41 months required 68 months. Problems of procurement caused most of the delay from the early stages of project formulation right through implementa- tion: requests for changes of the original design continued up to completion. IDA's objectives at appraisal and subsequent issues and compromise solutions are examined in detail below.
2.2 Original Design. IDA's declared concern was to ensure that farmers were efficiently supplied with high quality imported equipment of their own choice at competitive terms and with appropriate.guarantees on after-sales - 45 -
service and parts from reputable local dealers. The two most usual procure- ment mechanisms - centrally organized international competitive bidding (ICB) and individual "prudent shopping" from dealers, would not have achieved these objectives because, in the appraisal report's words,
"farmers' purchases through existing dealerships would not be feasible as the necessary competition between dealerships could only be obtained by liberalizing import licensing to enable large scale tractor imports. In view of India's shortage of foreign exchange this would be inappropriate. Normal international competitive bidding could only be organized through State entities. This would tend towards a Government tractor distribution monopoly and further weaken existing dealerships channels and it would not take farmers' choice into account."
2.3 IDA, therefore, proposed a compromise solution combining both bulk procurement and farmer choice. ARDC was to be made responsible for (a) obtain- ing quotations from pre-qualified suppliers based on unit prices for varying quantities. The quotations would include terms for warrantees, parts, and service; (b) advertising, through participating banks, the different quota- tions and canvassing potential borrowers for a first and second choice; (c) aggregating these choices by brand of tractor and placing appropriate orders. If the total order for a first choice fall below the minimum quantity required to obtain acceptable loans, ARDC would substitute the second choice brand. Tractors would be delivered through dealers designated by the supplier in a contract with ARDC based on the original bid terms.
2.4 Local manufacturing issue. The first complication to arise was that 001 proposed that brands of tractors to be financed by the project be limited to those already being manufactured or to be manufactured in India. IDA pro- posed to finance only those brands imported from Bank member countries by Indian tractor dealers who maintained acceptable pre-and post-sale services irrespective of whether they were manufacturing or planning to manufacture tractors in India. In the end, prequalification was agreed to include a major emphasis on commonality (interchangeable parts and processes) and only manu- facturers of models already locally assembled qualified.
2.5 Procurement agency issue. A more important issue arose with regard to the agency within Punjab and Haryana to be responsible for pooling farmers applications, obtaining bids from suppliers and managing delivery of the tractors. In the Gujarat project the Land Development Bank had been designated as this agency and the first procurement tranche was being implemented satis- factorily. In Punjab and Haryana, several other banks were involved and to preserve impartiality, IDA proposed ARDC. At negotiations, GOI instead argued in favor of designating the Punjab and Haryana Agro-Industries Corporation as the respective procurement agencies. This was agreed to even though both AICs held exclusive contracts to import, assemble, market and provide after-sale services for tractors from non-member countries. In view of GOI's commitment to strengthen local enterprises, this request was not surprising: but IDA's agreement contrasts sharply with the objectives stated in 2.2 above. - 46 -
2.6 It was also agreed that GOI would establish a central committee to deal with procurement of farm mechanization items in all the agricultural credit projects. Representatives of each State Government were to serve on the committee when items for that State were being considered. ARDC had a representative on the committee.
2.7 Implementation. The Punjab project became effective in September 1970. Preparation of procurement documentation was well under way by mid- October when PAIC reported having applications from 27,000 farmers for the 8,000 imported project tractors. PAIC proposed to select the 8,000 project beneficiaries by lottery as they had failed to have each applicant indicate first and second choice of tractor brand. Choice of tractor was to be limited to the five brands imported by Indian tractor manufacturers. Price and after- sale services were to be negotiated without normal tender procedures. PAIC stated that they planned to offer east European tractors to the 19,000 appli- cants who failed to get an IDA-financed tractor.
2.8 IDA objected to this approach which was inconsistent with the stated objectives of giving the farmer his choice of brand and the international tractor manufacturer an opportunity to participate. Formal procedures were drafted by PAIC in November 1970 and moved through GOI to IDA for review. IDA again objected to the terms (December 3, 1970) as the proposed procedures had included the entire 8,000 tractors in one tranche, and also specified a power range of 30 to 80 hp when the Credit Agreement stated 30 to 60 hp. It also authorized PAIC to set the price paid by the farmer and commission rates for dealer after-sale services, in contradiction of the Agreement.
2.9 Proposed revisions of the PAIC November 1970 procurement documents were exchanged between GOI and IDA from January to early March 1971 when agreement was reached. However, before publishing the tender, PAIC changed terms and conditions which had the effect of increasing its handling charges at the expense of tractor supplier-dealers. These differences were overcome and tenders offered for 4,000 imported tractors with the bids to be closed June 21, 1971.
2.10 Reimposition of tariff duties. Meanwhile, other issues had devel- oped. During appraisal of the first four credits which included financing of farm tractors, IDA staff had urged GOI to consider increasing tariff duties and taxes on imported tractors and tractor components. Under the GATT 1/, GOI had agreed to a duty free arrangement for these items. Only shipping and handling charges and a modest sales tax were added to the c.i.f. cost to arrive at the farmer's price. On the other hand, domestic tractor prices were regulated. In 1969 and 1970, the open market price of the Indian rupee was considerably below the official exchange rate; i.e. Rs 10 to 12 = US$1 com- pared with the official rate of Rs 7.5 = US$1. It was believed that a sub- stantial tariff duty would help equalize the difference in exchange rates, provide protection to domestic tractor manufacturers, and reduce or eliminate the "black market" for used tractors.
1/ General Agreement on Tariffs and Trade. - 47 -
2.11 GOI amended its agreement with GATT countries and imposed a 30% tariff duty against the c.i.f. value plus a 10% excise duty plus a sales tax on imported tractors. It also imposed a 20% tax on the ex-factory value of domestic tractors and increased regulated prices accordingly. GOI also liberalized licensing procedures to enable more Indian industrialists to become manufacturers with or without international collaboration. These changes were announced in May 1971 just after the first Punjab tender was offered and before opening imported bids. Before the change, a popular imported brand of 45 hp tractor was priced at Rs 24,400 to the farmer; after the change the price was Rs 44,400.
2.12 Tenders for the first Punjab tranche were opened and PAIC and the Central Committee proceeded to evalute each bid. This they did first, by requesting all bidders to reduce their commission charges to 10% from an agreed 15%; second, by eliminating 3 of the 11 bidders on grounds of not being responsive to tender specifications; and third, by eliminating 11 of the 22 brand models offered on grounds of lack of 75% commonality (identical compo- nents and parts) with tractor models manufactured or licensed for manufacture in India. One of the bids accepted by GOI and PAIC was for a tractor model manufactured in India. The DCA 1/ and tender specifications accepted only imported tractors. Also, neither the DCA nor tender documents specified the 75% commonality rule applied by PAIC and 001. Other issues were the quantum and method of providing spare parts proposed by each bidder and how to appor- tion responsibility for foreign exchange deviations of the Indian rupee between the date of the offer and date of importation. All bids were valid until October by which time PAIC was to have all farmer applications processed and assigned to each dealer. From early July to October 1971, tractor manufac- turers whose bids had been rejected filed complaints with IDA alleging major deviations by PAIC and GOI from the published tender specifications and the Bank's guidelines for procurement.
2.13 Another difficulty came in the way of settlement of the above issues and completing farmer applications. On September 1, 1971, GOI issued a Tractor Distribution and Sale Order that limited tractor imports to models substantially similar to models approved for manufacture in India, i.e. similar hp ranges, commonality of assembly and sub-assembly of component parts, inter-changability of other parts and a license to manufacture in India. GOI requested IDA to agree to a retender for Punjab tractors under terms and conditions laid down by the above order. IDA consented provided agreement could be.reached on terms and conditions of the tender.
2.14 PAIC made an attempt to retender but did not receive GOI or IDA approval. During this time, India and Pakistan were engaged in a war which resulted in the establishment of Bangladesh. War activities within India were concentrated in the Punjab. Farmers were reluctant to complete their tractor loans until the war was over.
2.15 Another major factor holding up PAIC sales was that the Indian State Trading Corporation (STC) was able to import and sell identical brands and models of tractors at a lower cost. For example:
1/ Development Credit Agreement. IDA-PAIC Price STC Price
Imported Model IMT 533 - 35 hp Rs 37,760 Rs 35,000 Ford 3,000 - 46 hp Rs 50,404 Rs 37,880 Zetor 2511 - 25 hp Rs 30,700 Rs 23,800
2.16 PAIC and the GOI central committee made a third attempt to retender under the Tractor Distribution and Sales Order. Their evaluation of bids eliminated 2 of the 5 manufacturers and 6 or the 10 models offered. Only 4 models by 3 manufacturers were accepted. One manufacturer with 3 of the most popular models demanded by farmers was rejected because in the com- mittee's opinion less than 75% of the parts were interchangeable while expert views sought by IDA indicated a higher degree of interchangability. IDA refused to accept the evaluation on grounds that reasons for rejection were not consistent with tender specifications and with only 4 models farmers' choice would be unduly restricted.
2.17 Negotiated solution. Eventually, 001 and IDA staff initiated dis- cussions on how to solve the impasse as the tractor procurement problem was now seriously affecting all five projects. Initial efforts were made to adjust tariff and local taxes on both imported and domestic tractors so as to obtain a competitive relationship after providing the normal 15% price concession to domestic suppliers. GOI raised the tariff duties on imported tractors to 40% of c.i.f. value (up from 30%) and adjusted taxes and price controls on domestic tractors to make the two sources competitive. Other negotiated provisions specified criteria for prequalification of imported and indigenous tractors, tendering procedures that assured the farmer his choice among the prequalified list and acceptable after sale service arrangements. These changes were agreed by IDA in December 1973. All Indian agricultural credit projects with a tractor component were amended by September 1974. IDA agreed to disburse at the rate of 100% of c.i.f. cost of imported tractors and 64% of the ex-factory price of indigenous tractors.
2.18 Meanwhile, the PAIC had proceeded to process tractor procurement under an acceptable tender arrangement. In 1974, 652 imported tractors and 373 indigenous tractors were financed. Tenders processed from 1975 to 1977 succeeded in disbursing against 8,002 tractors, over half of which were locally manufactured. A number of the tractors imported under the last tranche were finally sold outside Punjab with IDA permission since borrowers had abandoned their first choice in favor of more readily available indigenous models.
Other Farm Mechanization Components
2.19 The Punjab project included financing of about 40 imported self- propelled combine harvesters, 100 tractor drawn harvesters, and imported disc and plough bottoms. Soon after the project became effective GOI and IDA tried to develop acceptable procurement procedures for each of these items. Agreement was never reached on the disc and plough component. Only 64 of the tractor drawn harvesters were financed. Credit funds not used in these - 49 -
categories were reallocated to the tractor category. Similar action was taken in the Haryana project, where all the funds earmarked for harvesting machinery tractor implements and spare parts were reallocated to minor irrigation.
Conclusions
2.20 IDA's experience with tractor procurement in India reveals weak- nesses in the original project designs and casts doubts on the validity of the compromises subsequently reached. A policy disagreement over basic pro- ject objectives appears to have been too hastily reconciled by a procedural arrangement which was subject to different interpretations; this blocked progress on all six projects for several years until a more realistic solution was negotiated.
2.21 As to the proposed system of bulk procurement based on pooled farmer choices, all the evidence is that even in the absence of other complicating factors the organizational difficulties involved were still grossly under- estimated. To attempt to procure within 2 to 3 years tens of thousands of machines in six States through several dozen financial institutions and hundreds of dealers would be difficult enough. Rowever, to require all poten- tial borrowers to be canvassed during the period of bid validity, and then their choices to hold good through the whole process of bid adjudication, contracts, and delivery was impractical. The additional administrative costs, foregone production, and intervening price increases largely cancel out the potential price advantages of ICB. Future credit project should aim as far as possible to leave procurement to individuals local dealers, subject to minimum technical standards to be enforced by such agencies as ARDC.
III. Benefits of Farm Mechanization
Private Returns
3.1 Over 100 micro-level studies have been made of the impact of tractor investments in India. 1/ Most studies agree that the investment is financially viable provided the owner has the capability to operate the tractor 800 to 1,200 hours per year and wage and bullock costs are high and rising. The financial rate of return is about the same for a small farmer who owns and hires out his tractor to other small farmers, and for a larger farmer with sufficient land and transport requirements to absorb the minimum operating time himself. Estimates of financial rates of return, ranging from 15% to over 50%, have varied with the combination of quality and area of land cul- tivated, high yielding varieties, high-value crops, fertilizers, plant pro- tection materials, land levelling, irrigation and other factors used with tractor power. However, none of the studies reviewed convincingly weight the
1/ For a comprehensive review, see Binswanger,-"Economics of Tractors in the Indian Subcontinent" (ICRISAT, 1978). A brief summary appears in Annex 5. - 50 -
value of each factor and the inter-related effect of all factors on profit- ability. It has been argued that most cost benefit analyses of tractor in- troduction (including these project appraisals) tend to overstate incremental income by comparing tractor farms equipped with e.g. superior management and irrigation technology with control farms which face greater handicaps than lack of power: put another way, much of the assumed incremental production would probably not disappear if the tractor was suddenly to vanish from the with-project farm.
3.2 However, conventional analysis cannot fully take into account some of the other principal advantages of the tractor to the owner or regular hirer. These are, particularly in the Punjab, such factors as (i) tractor use for transport and social purposes, (ii) the convenience to and saving of family labour, whatever its opportunity cost and particularly (iii) the management flexibility and independence afforded by the tractor as against reliance on mobilising sufficient numbers of bullocks and laborers at the right time and place.
3.3 Another way of estimating returns to tractor use without individual yield and cropping pattern assumptions is to take the farmer's willingness to pay, i.e. actual hourly custom hire rates, as a proxy for the private benefits of tractor use, even though this assumes a fully competitive rental market, which is clearly far from the case. In a survey conducted for the Andhra Pradesh Agricultural Credit Project PCR 1/, the average rental of Rs 30/hour in 1976 (public corporations charge about Rs 40) at a utilization rate of some 930 hours a year still yielded an FRR of 21% over ten years at an investment cost of more than twice that calculated in the Punjab appraisal.
3.4 Economic Rates of Return. The Punjab appraisal estimated a project ERR of between 14 and 23% based inter alia on lower commodity price assump- tions, current financial prices for investment costs, and official exchange rates to those currently prevailing. Intervening (post-oil-crisis) changes in relative prices and the exchange rate have added to the basic methodological problems mentioned above. Adjusting financial rates of return based on similar assumptions as to yield or cropping pattern effects with appropriate border prices yields rates of return of as much as 50% and, in almost every study reviewed, higher than 15%.
3.5 Distributional Aspects. The case against tractors, inside and out- side the Bank Group, turns not on their productivity but on the risk of dis- placement of permanent farm labor and tenants in favor of self-cultivation with tractors. It is true that studies of tractor farms the Indian Punjab do not reveal a significantly lower use of farm labor per hectare than comparable non-tractor farms: the absolute increase in casual labor required for activ- ities that are not yet mechanized (weeding, transplating, harvesting) may have largely compensated for the loss of permanent labor in the form of e.g. bullock operators. However, labor use per unit output shows a strong downward trend after tractorization, which merely confirms that tractors are a relatively labor-saving capital investment, as against other possible uses of funds, such as employment-creating irrigation.
1/ Issued in June 1978. - 51 -
3.6 The case of the Punjab (and Haryana) is a special one to the extent that agricultural laborers' wages have risen faster than the general price index since th- late 60s, i.e. throughout the period associated with the introduction of tractors. Growing seasonal immigration from other regions is used to meet the substantial unskilled labor constraint in these States. Given certain rigidities in the labor market, a case can be made for further labor-saving investments on a more limited scale until this regional imbalance can be removed. The clear danger of this approach, in view of the poor medium term prospects of fully absorbing rural unskilled labor nationwide, is that it creates the potential for further labor-saving investments (e.g., in tractor- drawn harvesting machinery) ahead of any real labor scarcity or permanent increase in real wages.
3.7 While the displacement of smallholders and tenants through the ex- pansion of tractor owner-operated farms has been reasonably well established in the case of at least one area in the subcontinent 1/, where farm size in- creased considerably after tractors were introduced, there is no similar evidence of large-scale land consolidation and tenant displacement in the Indian Punjab. Average farm size in 1971 was 2.9 ha, with 17% of farms above 5 ha in 1971 as against 41% in 1961. Partly this is also a result of land ceiling and tenancy legislation in the Indian Punjab implemented since 1953: even if redistribution objectives have not been fully attained, pressure on the land and legislation have certainly put a barrier to rapid area expansion by large farmers. Another reason to view the Punjab/Haryana situation with optimism is that subsidies given to labor-saving investment up to about 1971/72, such as regulated retail prices and exchange rate overvaluation, have been abolished and even reversed through a series of GOI policy measures taken before the IDA project tractors were delivered. Current interest rates for tractor lending -- at a minimum 11% or about 6% in real terms -- are strongly positive by international standards and in line with all other rural sector lending: and cumulative tariffs and excise duties exceed 50%
Conclusions
3.8 During the long gestation period of these projects, considerable controversy surrounded the introduction of tractors in the low-wage countries of Asia. The best empirical evidence available suggests that private returns of tractor ownership are strongly positive in high-wage pockets (such as Punjab/Haryana) or where reclamation possibilities still exist (Gujarat). On the other hand social returns elsewhere are likely to be adversely affected by the labor-saving potential created and the dis- placement of tenants, particularly to the extent that legislation does not afford adequate protection. However, this depends on area-specific con- siderations and there is reason to believe that in several sub-regions farm
1/ McInerney and Donaldson, Consequences of Farm Tractors in Pakistan, World Bank Staff working paper No. 210, February 1975. - 52 -
mechanization investments continue to be socially justifiable. ARDC's balanced assessment of farm mechanization and selective approach to tractor introduction (see attachments) is realistic.
3.09 Another implication is that as demand for tractor loans through ARDC-supported banks remains strong without subsidies, ARDC should intensify its examination of scheme proposals on a case-by-case basis. In particular, specific tests could be applied to determine threshold levels of farm labor shortages, land tenure patterns, power availability, and power requirements which may justify or rule out a tractor scheme. This would involve detailed consideration of the existing rental market for tractors and bullocks and the actual degree of utilization of present capacity. Lastly, wherever possible, ARDC should continue to give priority to schemes which aim to develop or ex- pand the farm machinery rental market, such as creation of agroservice centers and lending through functional cooperatives. However, this may require a great deal more preparation work than loans to individual borrowers if the wider clientele potentially reached by such indirect tractor lending is not to suffer from inefficient use of the equipment.
IV. IDA and ARDC Performance
4.1 The design of both projects was based on a standard model devised for the Gujarat Agricultural Credit project, save for the modification regard- ing the agencies responsible for procurement. The main design weakness lies precisely in the procurement arrangements (2.20 and 2.21). With hindsight, implementation may also have been marred by the failure to take decisive action to either resolve the procurement dispute with GOI sooner or re- of these Credits. allocate the proceeds of the farm mechanization component the escalation of tractor 4.2 The key role of the central committees and formal State- procurement procedures to major policy decisions overshadowed adequate under the based supervisiOns, which were few and brief but appear 11 concurrent credit circumstances. Manpower constraints (in the face of in limiting IDA projects in different States) also clearly played a role institutions was followup. However, the overall performance of the credit action appears to good throughout the project period and no major corrective have been called for.
limited role in project implement- 4.3 ARDC has not only carried out its institution ation satisfactorily but also proven its maturity as a development The attached Joint by producing project evaluation work of a high standard. is a valid example Completion Report, prepared with minimal guidance from IDA, of ARDC's progress. - 53 -
ANNEX 1 Table 1
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Key Implementation Data
A. Physical Achievements - - - - (Units Financed) - - - - Appraisal LDB CB Total Estimate
1. Tractors
(a) Indigenous 1,116 3,056 4,172 - (b) Imported 1,439 2,391 3,830 8,000
8,002 8,000
2. Harvesters - 64 64 240 (Tractor Drawn)
B. Disbursements - - - - (Rupees million) - - - -
1. Tractors
(a) Indigenous 40.23 119.56 159.79 )146.3 (b) Imported 60.04 104.69 164.73 )
2. Harvesters & Implements - 1.89 1.89 65.1
100.27 226.14 326.41 211.4
3. Spare Parts - - - 24.2
235.6
C. Estimated Project Costs (Rupees Million)
At Appraisal: 211.4 x 100 + 24.2 = 300.6 76.4
Actual: 326.4 x 100 = 384.0 1/ (US$42.7 M) 85
1/ If corrected for difference in exchange rate, equivalent to some Rs 320 M. - 54 -
ANNEX 1 Table 2
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Key Implementation Data
A. Physical Achievements - - - - (Units Financed) - - - - Appraisal LDB CB Total Estimate
1. Shallow Tubewells 29,832 1,265 35,984 11,000
2. Sprinkler Sets - - - 75
3. Tractors
(a) Imported 16 326 342 6,000 (b) Indigenous 1,853 2,418 4,271 -
4. Implements - - - N/A
5. Harvesters - 120
B. Disbursements - - - - (Rupees million) - - - -
1. Tractors 238.30 8.47 246.77 72.5
2. Tractors 66.03 106.44 172.47 121.5
3. Implements - - 41.8
4. Harvesters 4.0
5. Spare Parts - - - 20.2
304.33 114.91 419.24 260.0
C. Estimated Project Costs (Rupees Million)
At Appraisal: 239.8 x 100 + 20.2 - 333.9 76.4
Actual: 246.77 x 100 + 172.47 x 100 - 477.11/ (US$53.0 H) 90 85
1/ If corrected for difference in exchange rate, equivalent to some Rs 397 M. - 55 -
ANNEX 2 Page 1
INDIA
PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
The Lending Institutions
I. Agricultural Refinance and Development Corporation (ARDC)
1. The Agricultural Refinance and Development Corporation has been the refinancing agency for agricultural credit under PACP, HACP and other projects. Its development and methods of operations have been well docu- mented in various IDA Reports, the latest one being the Appraisal of the ARDC Credit Project II (Report No. 1520A-IN - May 12, 1977).
2. Both under the PACP and HACP, ARDC was actively associated from the appraisal stage to project completion. Details of its disbursements under the PACP and the HACP are given in Annex 2, Table 1 and 2. As per the respective project programs, the Corporation was to invite scheduled commercial banks operating in the two states to participate in the projects. Accordingly, it circulated the salient features of the projects among the commercial banks and selected those that expressed their willingness to participate in the projects. The Corporation also ensured that the loan appraisals were carried out by the LDBs and the participating commercial banks in conformity with the agreed lending criteria. For this, the banks were supplied with guidelines together with the necessary background material. A workshop was arranged for them and for representatives of the two state governments. This workshop discussed the details of the project implementation. The Corporation ensured that the par- ticipating banks had, prior to the formulation of individual schemes, a good grounding in the collection and collation of essential details so that the schemes satisfied the basic requisites. In addition, right from commencement to the closure of the project, the progress of implementation received special attention and in that connection,- periodical meetings were held with various project entities. ARDC also conducted detailed follow-up (supervision studies on 13 schemes (+ 250 beneficiaries) in Punjab and some 34 studies on both minor irrigation and tractor loans in Haryana. The Corporation was also represented on the special committees appointed by GOI for effective imple- mentation of the projects. ,
3. In regard to minor irrigation program in Haryana, one of the stipulations in the Project Agreement was that minor irrigation works should be sanctioned only with the technical approval of the Agriculture Department of the state government. While the project was under implementation, the Corporation created its own technical wing at the head office which partici- pated in examining the technical feasibility of minor irrigation programs. A joint study was also conducted in July 1974 by the State Groundwater Board, - 56 -
ANNEX 2 Page 2
Minor Irrigation Tubewell Corporation and ARDC's own technical wing to assess the availability of groundwater resources for development in the state. On the basis of this study and further discussions, programs of shallow tube- well investments feasible in different blocks in the state was worked out. On this basis, supplementary schemes for minor irrigation investment were sanctioned which were financed under the HACP and switched over, if neces- sary, to ARDC Credit Projects.
II. Land Development Banks
4. Both in the case of PACP and RACP, the respective LDBs played significant roles in project implementation. The Punjab State Cooperative Land Mortgage Bank had 42 primaries as members at the close of June 1976 and was under the management of a Board of Directors consisting of 17 members. The Managing Director who is the Chief Executive of the Bank is on deputation from the state government. He is assisted by two Secretaries, 2 Assistant Secretaries, a Chief Inspecting Officer, a Development Officer and other staff. The Bank had no specialists in the important technical disciplines. The growing volume of operations of the Bank would justify the need for strengthening its management.
5. The Haryana State Cooperative Land Development Bank had a network of 29 PLDBs and its affairs were managed by a Board of Directors consisting of 15 members. The Managing Director of the Bank, seconded to it from the State Cooperative Department, is the chief executive. He is assisted by two Deputy Secretaries, one in charge of Accounts and Debentures and the other in charge of Legal Division, an Assistant Secretary, a Chief Inspecting Officer and an Agro-Economist. Apart from a dairy specialist who has joined the Bank recently (on deputation from the Animal Husbandry Department of the GOB), the Bank had no specialists in other technical disciplines such as groundwater and water management. The HLDB was understood to be thinking in terms of strengthening its technical staff and taking steps to train its own staff with the help of ARDC.
Sources of Funds
6. Sources of funds of the two SLDBs are primarily share capital, reserves and borrowings from higher financing agencies and the market through issue of debentures guaranteed by the respective state government.
7. In respect of the Punjab SLDB, the paid-up share capital as at the end of June 1976 was Ra 37.80 million as against an authorized capital of Rs 100 million. Of this, the state government contribution was Rs 10.51 million. The Bank availed of interim accommodation for a short period from the Punjab State Cooperative Bank to the extent of Ra 30 million in 1975/76. The debentures issued by the Bank in 1974/75 and 1975/76 were as under:
Ordinary Debentures Special Dev. Debentures Total (in Rs millions)
1974/75 78.79 33.15 111.94 1975/76 64.00 56.95 120.95 - 57 -
ANNEX 2 Page 3
Ordinary debentures to the extent of Rs 64 million and special development debentures to the extent of Rs 56.95 million (the two together Rs 120.95 million) were floated by the Bank during 1975/76 as against Rs 111.94 million in 1974/75 and the total of only Rs 90.45 million in 1973/74. Debentures outstanding at the end of June 1976 were Rs 1,031.44 million as compared to only Rs 769.45 million in 1972/73. Side-by-side with lending and deben- ture floatation programs, the Bank also mobilized rural savings through fixed deposits. The amount, however, was only Rs 0.49 million. A summary of the financial position of the Bank is given in Annex 2, Table 7.
8. In respect of Haryana SLDB, the share capital stood at Rs 27.83 million as of June 30, 1976 against an authorized capital of Rs 100 million. Ordinary and Special Development Debentures outstanding as at the end of June 1976 were Rs 246.95 million and Rs 368.25 million, respectively. The debentures issued and fixed deposits accepted in 1974/75 and 1975/76 were as under:
Ordinary Special Development Fixed Debentures Debentures Deposits Total ------(in Rs millions)------
1974/75 25.50 72.68 0.61 98.79 1975/76 24.46 84.63 0.55 109.64
The financial position of the Bank was quite satisfactory.
Overall Operational Results
9. Punjab LDB disbursed a sum of Rs 100.27 million for procurement and distribution of tractors under the PACP. The Bank has also been implementing several other development schemes with ARDC refinance. During 1975/76, five schemes were implemented/under implementation with a disbursement of Rs 63.04 million as compared to 16 schemes with disbursements of Rs 27.78 million in 1974/75. The total refinance availed of by the Bank from ARDC as at the end of June 1977 amounted to Ra 365 million. The total loans outstanding at the end of June for the 4 years 1973 to 1976 were Rs 599 million, Rs 611 million, Rs 612 million and Rs 626 million, respectively.
10. The primary banks in Punjab advanced in 1975/76 loans to the extent of Rs 145 million, as against Rs 126 million in 1974/75 and the amounts out- standing in the two years were Rs 652 million and Rs 637 million, respectively.
11. Although the operating margin between lending and borrowing rates of the PSLDB was small, its net income in 1976/77 amounted to Rs 12.9 million as compared to only Rs 4.6 million in 1972/73.
12. The HSLDB disbursed Rs 66 million for procurement of tractors and Rs 238 million for minor irrigation under the HACP. The HSLDB has also been implementing other developmental schemes through refinance assistance from ARDC. The total refinance disbursed by ARDC to -the Bank at the end of June 1977, amounted to Rs 446 million for 52 schemes which included 39 minor irrigation and 5 farm mechanization schemes. The total amount of loans - 58 -
ANNEX 2 Page 4
outstanding at the end of June 1975 and 1976, in respect of the HSLDB were Rs 421 million and Rs 476 million, respectively. As against this the PLDBs' loans outstanding totalled Rs 435 million at the end of June 1975 and Rs 476 million at the end of June 1976. Similarly, loans issued by them also rose to Rs 120 million in 1975/76 as against Rs 113 million in 1974/75. Purpose- wise, minor irrigation followed by farm mechanization were the important categories of lending although the HLDB has been making efforts to diversify its lending portfolio by extending its lending to other purposes such as land levelling and improvement, dairy development and horticulture.
13. HLDB's profit in 1976/77 was Rs 8.7 million and in 1975/76 Rs 7.2 million, despite the small margin between the Bank's lending and borrowing rates (Table 10).
Recovery Performance
14. A good feature of the LDB system both in Punjab and Haryana is the consistently good debt recovery performance. Overdues as a percentage of demand of PLMBs to the SLMB in Punjab between 1970/71 and 1975/76 were less than 2 percent on an average and overdues of members to PLMBs reached a maxi- mum of around 15 percent. In Haryana, there have been no defaults from the PLDBs to HLDB and the overall default from members to PLDBs was only 3 percent in 1974/75 and 1975/76 (Tables 5 and 6).
Training and Staff
15. To improve their professional skills and performance, the senior, middle and junior level professional staff in the LDBs in Punjab and Haryana were trained in different training institutions. Up to June 1977, 484 staff members of LDBs in Punjab were so trained. In Haryana, the corresponding number was 475 (Tables 11 and 12).
III. Commercial Banks
16. The number of participating commercial banks was 11 under PACP and 12 for tractor financing and 11 for financing minor irrigation investments under HACP.
17. It may be seen that in both Punjab and Haryana, these banks played a significant role in financing procurement of tractors under the respective ACPs. Under minor irrigation in Haryana, however, they could finance only 1,265 tubewells as against an initial allocation of 1,750. Further program of financing shallow tubewells was done exclusively by the LDBS.
18. Under the PACP, the participating commercial banks disbursed an amount of Rs 226 million while the amount disbursed by them under the HACP was Rs 115 million which comprised Rs 106 million for tractors and Rs 9 million for shallow tubewells. - 59 -
ANNEX 2 Page 5
19. In 1976/77, commercial banks accounted for 68 percent of ARDC refinance in Punjab and nil in 1971/72. The corresponding figures for Haryana were 53 percent for 1976/77 and 9 percent for 1971/72. They have, in recent years, strengthened their agricultural staff and increased the number of branches, especially in the project areas. It may be mentioned that the number of scheduled bank offices in Punjab increased from 345 in 1969 to 1,106 in 1976 and in Haryana from 171 to 510 (Table 15). The recov- ery performance of these banks in both the states was reported to be satis- factory. However, an improvement in credit discipline may be called for with the increasingly important role these banks would be called upon to play in regard to agricultural financing in future. - 60 -
ANNEX 2 Table 1
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
ARDC Schemes Sanctioned in Punjab upto June 30, 1977
(Rs million) Total Financial ARDC ARDC Agency/Investment No. of Schemes Assistance Commitment Disbursements
SLMB
(a) Tractors 2 130.09 97.57 75.09 (b) Harvesters 1 0.89 - -
Commercial Banks
(a) Tractors 22 262.42 196.74 166.63 (b) Harvesters 6 2.13 1.57 1.32
Total 31 395.53 295.87 243.04
Source: Agricultural Refinance and Development Corporation. - 61 -
ANNEX 2 Table 2
INDIA
RARYANA AGRICULTURAL CREDIT PROJECT
ARDC Schemes Sanctioned in Raryana upto June 30, 1977
(Rs million) Total Financial ARDC ARDC Agency Purpose No. of Schemes Assistance Commitment Disbursements
SLDB M.I. 18 364.57 328.12 189.45 F.M. 2 72.88 54.68 46.73
Total 20 437.45 382.80 236.18
Commercial Banks M.I. 14 14.45 13.01 6.43 F.M. 23 113.91 85.28 78.14
Total 37 128.36 95.29 84.56
Source: Agricultural Refinance & Development Corporation, Bombay. - 62 -
ANNEX 2 Table 3
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Purposewise Distribution of Loans Advanced by Punjab SLMB during the years 1971-72 to 1976-77
(Rs million)
Purpose 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77
1. Tubewells 72.84 90.97 55.96 50.82 45.88 99.73 2. Tractors 27.06 36.27 29.67 35.53 62.78 73.02 3. Implements 1.01 2.50 0.89 1.05 2.16 3.43 4. Channels 6.62 7.72 2.98 6.64 10.16 14.55 5. Land levelling 1.73 3.67 1.94 2.30 1.87 1.45 6. Reclamation of land 5.74 7.01 8.71 8.23 9.87 89.85 7. Purchase of land 1.70 2.45 3.16 3.89 3.41 3.95 8. Cattle shed 1.04 1.50 3.49 12.59 9.45 9.84 9. Sinking of wells 0.23 0.20 0.11 0.09 0.06 0.02 10. Gardening 0.06 0.07 - 0.08 0.06 0.18 11. Fencing - - - - 0.02 0.02
Total 118.03 152.36 106.91 121.22 145.72 296.04
Source: PSLMB ANNEX 2 Table 4
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Purposewise Distribution of Loans Advanced by LDB 1971-72 to 1976-77
(Rs million)
Purpose 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77
1. Minor Irrigation 6.25 56.73 53.21 45.94 47.74 55.16 2. Land Reclamation - - 0.65 4.40 7.50 9.28 3. Gardening 0.44 0.05 0.06 - - 0.05 4. Sprinkler - - 0.05 1.08 1.88 2.52 5. Underground pipe - - - 0.14 0.79 2.11 6. Dairy Development - - - - - 1.07 7. Tractor - - - 23.00 32.18 38.90
Total 6.69 56.78 53.96 74.56 90.09 109.09
Source: RSLDB - 64 -
ANNEX 2 Table 5
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Demand and Recovery Position of PSCLDB 1971-72 to 1976-77
(Rs million)
1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77
1. Overdues brought forward 2.88 5.65 2.18 4.17
2. Demand falling due for the 1st time during that year 59.79 92.68 114.27 141.42 154.16 179.01 190.25
Total (1+2) 59.79 92.68 114.27 144.30 159.81 181.19 195.02
3. Demand rescheduled during the year ------
4. Total effec- tive demand (1+2+3) 59.79 92.68 114.27 144.30 159.81 181.19 195.05
5. Recoveries during the year 59.79 92.68 111.39 138.65 157.63 176.43 178.53
6. Percentage of overdues to demand - - 2.51 3.91 1.36 2.62 8.45
7. Govt. share capital contribution to LMB 0.50 0.50 1.10 0.90 - - 0.20
Source: PSLMB. -65 -
ANNEX 2 Table 6
INDIA
RARYANA AGRICULTURAL CREDIT PROJECT
Demand and Recovery Position of HSCLDB 1971-72 to 1976-77
(Rs million)
1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77
1. Overdues brought forward ------
2. Demand falling due for the 1st time during that year 22.94 35.68 47.17 60.53 77.09 97.04 116.94
Total (1+2) 22.94 35.68 47.17 60.53 77.09 97.04 116.94
3. Demand rescheduled during the year ------
4. Total effec- tive demand (1+2+3) 22.94 35.68 47.17 60.53 77.09 97.04 116.94
5. Recoveries during the year 22.94 35.68 47.17 60.53 77.09 97.04 116.94
6. Percentage of overdues to demand ------
7. (i) Govt. share capital contribution to LDB 6.98 6.98 6.98 6.98 6.98 6.98 6.98
(ii) Demand during the year 1.50 1.00 Nil Nil Nil Nil Nil
Source: HSLDB. - oo -
ANNEX 2 Table 7
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
PSCLMB - Condensed Balance Sheet (1972-73 to 1976-77) as on June 30
(Rs million)
ASSETS 1973 1974 1975 1976 1977
Cash on hand with banks 34.4 41.2 50.4 76.0 32.4 Investments & Loans 795.9 887.6 968.6 1015.9 1152.1 Other assets 27.7 42.0 50.8 80.6 58.4 Total assets 858.0 970.8 1069.8 1172.5 1242.5
LIABILITIES AND EQUITY CAPITAL
Debentures 769.5 856.2 962.6 1031.4 1109.5 Other Liabilities 47.0 68.9 57.6 90.8 55.7 Total Liabilities 816.5 925.1 1020.2 1122.2 1165.2
EQUITY I
Paid up share capital 34.2 36.2 37.2 37.8 42.2
Reserves, including overdues, interest and bad debts 2.7 2.9 2.9 3.0 22.2
Profits/Loss 4.6 6.6 9.5 9.5 12.9
NET EQUITY 41.5 45.7 49.6 50.3 77.3
TOTAL LIABILITIES & EQUITIES 858.0 970.8 1069.8 1172.5 1242.5
Source: PSLMB - 67 -
ANNEX 2 Table 8
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
PSCLMB Income Statement - 1972-73 to 1976-77 as on June 30
(Rs million)
INCOME 1973 1974 1975 1976 1977
Interest received on project loans, other loans and investments 48.3 57.8 67.0 72.0 80.9
Total interest received 48.3 57.8 67.0 72.0 80.9
Miscellaneous income - - - - 0.1
Total income 48.3 57.8 67.0 72.0 81.0
EXPENSES
Total interest paid 41.8 48.9 54.8 59.0 64.0
Establishment costs 0.8 1.1 1.2 1.6 1.7
Other expenditures 1.1 1.2 1.5 1.9 2.4
Total expenses 43.7 51.2 57.5 62.5 68.1
Net income 4.6 6.6 9.5 9.5 12.9
Source: PSLMB - 68 -
ANNEX 2 Table 9
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
HSCLDB - Condensed Balance Sheet (1972-73 to 1976-77) as on June 30
(Rs million)
ASSETS 1973 1974 1975 1976 1977
Cash on hand with banks 3.84 31.13 8.41 5.38 31.93 Investments 398.32 455.63 567.21 651.03 734.28 Other assets 13.75 16.56 19.80 22.46 27.09
Total assets 415.91 503.32 595.41 678.87 793.29
LIABILITIES AND EQUITY CAPITAL
Debentures 376.40 458.16 544.09 617.72 723.30 Other Liabilities 7.54 6.87 9.08 12.46 10.72
Total Liabilities 383.94 465.03 553.17 630.17 734.02
EQUITY
Paid up share capital 23.69 25.35 26.11 27.83 29.66
Reserves, including overdues, interest and bad debts 8.27 8.39 6.31 13.66 13.67
Profits (Loss) 0.02 4.55 9.82 7.22 15.94
NET EQUITY 31.98 38.29 42.24 48.71 59.27
TOTAL LIABILITIES & EQUITIES 415.91 503.32 595.41 678.87 793.29
Source: HSLDB - 69 -
ANNEX 2 Table 10
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
HSCLDB Income Statement - 1972-73 to 1976-77 as on June 30
(Rs million)
INCOME 1973 1974 1975 1976 1977
Interest received on - project loans, other loans and investments - 23.94 31.24 36.59 44.29 53.55
Total interest received 23.94 31.24 36.59 44.29 53.55
Miscellaneous income 0.03 0.02 0.05 0.07 0.01
Total income 23.97 31.26 36.64 44.36 53.56
EXPENSES
Total interest paid 19.31 25.25 29.18 34.71 41.57
Establishment costs 0.51 0.61 0.95 1.01 1.10
Other expenditures 1.19 0.80 1.24 1.42 2.18
Total expenses 21.01 26.74 31.37 37.14 44.85
Net income 2.96 4.52 5.27 7.22 8.71
Source: HSLDB - 70 -
ANNEX 2 Table 11
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Training Course Data for Punjab SLMB/PLDB Staff
No. of Persons Trained Name and Location Sr. Nature of Period of till of Institute where No. Training Training 30.6.77 Training Received
1. Special course on Cooperative Train- Cooperative Land ing Center, Mortgage Banking 4 weeks 5 Bhabhji Nagar
2. Special course on Cooperative Train- Cooperative Land ing College, Mortgage Banking 18 weeks 13 + 9 = 22 Faizabad
3. Special course on Cooperative Train- Cooperative Land in- College, Mortgage Banking - Patiala and General basic Faizabad course 1-1/2 years 12
4. Checking of loan Cooperative Train- cases in L.D. ing College, Banking - Lucknow Diploma course 15 weeks 6
5. Short term course Cooperative Train- in L.D. Project ing College, planning 2 weeks 1 Poona
6. L.M.B. Basic Cooperative Train- Course 4 months 257 ing Institute, Chandigarh
7. J.L.T. under ARDC scheme 28 days 170 -do-
8. APC under ARDC College of Agri- scheme -do- 11 cultural Banking (RBI), Poona
Source: PSLMB - 71 - ANNEX 2
INDIA
RARYANA AGRICULTURAL CREDIT PROJECT
Training Course Data for HaryanA SLDB/PLDB Staff
Sr. Nature of Training Period of No. of Persons Trained Name 6 Location of Institution go. Training Till 30.6.77 Where Training Received _ . I 2 3 4 5
1. Project Planning and 6 weeks Additional. Secretary I College of Agricultural Banking, Appraisal Course - Agriculture Economist 1 Poona Deputy Secretary 1 Inspecting Officer 2 Accountant/Manager 25
2. Personal Admiistration 15 days Additional Secretary 1 College of Agricultural Banking, Course Deputy Secretary I Poona Assistant Secretary 1 Inspecting Officer 2
3. Course on Business 3 months Deputy Secretary Law 1 Oxford Centre for Management Problems Studies, Plinkit Foundation,
4. Agricultural Project I mouth Additional Secretary I College of Agricultural Banking, Course Assistant Secretary 1 Poona Chief Inspecting Officer I Inspecting Officer 5 Development Officer I Law Officer 2 Managers/Accountant 19
5. Managerial Course 6 weeks Assistant Secretary I College c! Agricultural Banking, Managers/Accountant 17 Poona Junior Accountant 6
6. Land Mortgage 3h months Junior Accountant 25 Cooperative Training College, Banking Course Field Supervisor 30 Chandigarh Clerks 30
7. -do- 3 months Accountant/Managers 10 Cooperative Training College, Junior Accountant 15 Chandigarh
8. Junior Basic/ 3 months Field Supervisor 80 Cooperative Training Institute, Refresher Course Clerks 64 Rohtak
9. Personal Management 15 days Accountant/Managers Vaikunth Mehta Institute of and Labour Relations Course Coop. Training, Poona
10. Financial Management 15 days Deputy Secretary I Cooperative Training College, Course Inspecting Officer 6 Lucknow and Poona Accountant 4
11. ARDC Credit Project I month Junior Accountant 10 Junior Level Staff Training Junior level L.D.B. Field Supervisor 60 College of R.S.L.D.B. Staff Training Course Clerks 50 Chandigarh
Source: HSLDB - 72 -
ANNEX 2 Table 13
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Network of Rural Branches of PLDB in Punjab
Number of District PLDB
Amritsar 4 Gurdaspur 3 Kapurthala 3 Jullundur 4 Hoshiarpur 4 Ropar 2 Ludhiana- 4 Patiala 5 Sangrur 4 Bhatinda 3 Faridkot 3 Ferozepur 4 Total 43
Source: PSCLMB - 73 -
ANNEX 2 Table 14
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Network of Rural Branches of PLDB
Number of PLDB District Branches
Ambala 3 Bhiwaniur 2 Gurgaon 4 Hissar 4 Jind 3 Karnal 2 Kurukshetra 3 Mohindergarh 3 Rohtak 2 Sirsa 1 Sonepat 2
Total 29
Source: HSCLDB ANNEX 2 Table 15
INDIA
PUNJAB & HARYANA AGRICULTURAL CREDIT PROJECTS
Basic Data Relating to Scheduled Commercial Banks in Punjab and Haryana
Year HARYANA PUNJAB ending No. of Deposits Bank Of which Percen- No. of Deposits Bank Of which Percentai offices credit for agri- tage of offices credit for -ri- of col. ( (Rs in cultural col. (5) (Rs in cultural to col. millions) & allied to millions) & allied industries col. (4) industries 1 2 3 4 5 6 7 8 9 10 11
June 171 533.6 262.2 NA - 345 2030.8 581.8 NA - 1969
December 321 1180.8 1247.2 118.0 9.5 721 3899.4 1760.8 342.2 19.4 4 1972
December 381 1473.2 1672.3 148.7 8.9 851 4802.0 2198.7 319.3 14.5 1973
December 420 1723.0 2084.4 210.2 10.1 930 5371.9 3124.8 416.9 13.3 1974
December 482 1961.9 2219.7 290.3 13.1 1046 6694.4 3950.8 514.2 13.0 1975
December 510 ------NA ------1106 ------1976
Source: Basic statistical returns 1972 to 1975. - 75 -
ANNEX 3 Page 1
INDIA
PUNJAB AND RARYANA AGRICULTURAL CREDIT PROJECTS
Supporting Services
I. Punjab Agro-Industries Corporation and Haryana Agro-Industries Corporation
1. In accordance with the policy of GOI, agro-industries corpora- tions have been set up in various States in order to encourage activities such as land development, tubewell drilling, plant protection, servicing, repair and overhauling of farm equipment, etc. Prior to the establishment of these Corporations, these developmental functions and machinery hiring services were provided by the State Department of Agriculture. With the establishment of these Corporations such activities were transferred to them along with staff and equipment.
2. In Punjab, the AIC was set up in February 1966 and in Haryana in March 1967, as state undertakings with share capital contributions from GOI and the respective state government. As on March 31, 1976, the equity capital acquired by the central government in the PAIC was Rs 12 million and in HAIC Rs 9.48 million.
3. Both these Corporations were assigned important roles in farm mechanization program under the two Agricultural Credit Projects which pri- marily provided for identifying the tractor requirements of farmers and arranging for their procurement and distribution. Both the Corporations discharged these functions under the overall direction of central committees set up for each state consisting of representatives of GOI, respective state government and ARDC. The committee for each state approved the analysis of bids and recommendations of the respective Corporation for placing contracts with suppliers before forwarding them for approval.
4. As already stated, 8,002 tractors including 3,830 imported tractors and 45 harvesters were supplied through PAIC, involving an amount of Rs 326 million.
Apart from being the main channel for procurement and distribution of tractors under the PACP, PAIC has been engaged in other activities in the service of Punjab agriculture. As on June 30, 1975, the Corporation owned 63 pneumatic tractors and 20 combines. It maintains over 50 sales centers for supply of imported fertilizers and has to date supplied over Rs 300 million worth of fertilizers. It maintains a fleet of tractors for custom service to needy farmers at economical rates. It has also been rendering signal service through its fleet of harvesting combines. It has established 12 sales-cum- - 76 -
ANNEX 3 Page 2
service stations in different districts of the state. In addition, workshop facilities for repairs and sale of spare parts at district level have been established and efforts have been made to make them service-oriented. A model workshop has been constructed at Gurdaspur and a workshop complex has been set up at Ludhiana. In the latter, common type tractor-drawn implements, grain storage bins, gobar gas plants, etc., are being manufactured at present. Manufacture of manure spreaders, threshers, etc., are under various stages of planning and production. The Corporation has also established over 220 agro- service centers to provide employment to unemployed engineers and accelerate farm mechanization. It expects to play in due course a more meaningful and significant role with the setting up of plants for formulation of pesticides, refining of used oil and cotton seed processing. It has also plans to set up a tractor-tyre re-threading plant. Apart from these facilities provided by PAIC, sub-dealers of some other tractor manufacturers have service facilities for after-sale servicing of tractors in the state.
5. Under the HACP, the HAIC coordinated different interests connected with the project, viz., manufacturers, financing agencies, etc., and arranged delivery of 4,613 tractors including 342 imported tractors to the farmers. Tractor being its main field of activity, this Corporation maintains a well-organized assembly plant. In addition, it has been producing quality implements and undertaking activities such as providing repair and service facilities. It has established over 218 machinery hiring centers equipped with 127 pneumatic tractors, 9 crawler tractors and 34 combines.
6. Despite this, the operating results of the PAIC and HAIC for recent years are not encouraging (Annex 3, Tables 6 and 7). In respect of PAIC, the losses before tax provision in 1975/76 and 1976/77 were Rs 5.94 million and Rs 2.16 million, respectively. The loss incurred by HAIC after taxes and development rebate and provision for major overhaul of combines was Rs 0.18 million in 1973/74 and Rs 1.85 million in 1974/75. This highlights the need for improving the financial position and operational efficiency of these Corporations and establishment of project cells to study the feasibility of schemes before making heavy investments on them.
II. Haryana Department of Agriculture/Soil Conservation Organization
7. Government of Haryana laid special emphasis on development of minor irrigation and water management. The schemes were based on the availability of groundwater potential worked out by the Agriculture Department. The responsibility for implementation of groundwater development (construction of shallow tubewells under the HACP) was initially entrusted to the Soil Conservation Wing headed by the Joint Director of Agriculture (SCO) in the Directorate of Agriculture. The staff of the Soil Conservation Wing was also strengthened by posting an adequate number of divisional soil conserva- tion officers, assistant soil conservation officers, soil testing officers and other technical staff. - 77 -
ANNEX 3 Page 3
III. Groundwater Cell
8. Considering the importance of implementing ARDC schemes for minor irrigation,, the State Groundwater Board as well as the appraisal mission recommended the creation of a Groundwater Cell to provide technical support to the ongoing minor irrigation schemes in the state. The necessity for such a Cell had also been emphasized by the GO team which visited the state. Accordingly, the State Groundwater Cell was created in the Directorate of Agriculture, with the responsibility of evaluating the groundwater balance in the State as well as preparing hydrological maps (depth of water, water table contour, seasonal fluctuations, chemical quality, etc.). The work of monitor- ing observation wells in the project area was also transferred from the Soil Conservation Wing to the Cell. The Cell carried out detailed hydrological tests for determining the optimum spacing and hydrological parameters for evaluation studies. For these activities, the Cell has been strengthened with adequate technical staff trained in the discipline of hydrology. Recognizing the importance of groundwater investigation being carried out by the Cell, GOI has sanctioned a centrally sponsored scheme with 50 percent matching grant for investigations in the discipline of soil hydraulics, design, photo-geographical studies, geological surveys, remote sensing, model studies, etc. As a result of these activities, the state is now in a position to undertake detailed micro-level groundwater surveys for objectively assessing the groundwater balance situation in different basins. Apart from these studies, the Cell has formulated a scheme for groundwater development through minor irrigation works.
9. The Groundwater Cell pools data from different agencies such as Central Groundwater Board, Irrigation Department, HSMITC, Public Health, etc., and also issues groundwater availability certificates to the State Electricity Board for energization of minor irrigation units either with the assistance of REC or ARDC.
10. The IDA Supervision Mission which visited Haryana towards the close of 1975 observed that groundwater development in Haryana was progressing rapidly and felt that groundwater legislation was required urgently. The Mission observed that the State Groundwater authorized by the GOH, it would be able to provide adequate data for future groundwater development.
11. Large-scale development and relatively close spacing of wells have made significant impact on the groundwater regimem as reflected in the progressive decline of water level in many areas of the state. On account of acute shortage of power supply wells were not working to their full capacity. Normalization of power supply was, therefore, expected considerably to increase the cumulative withdrawals from the wells which might have further undesirable impact on groundwater regimem. As the assessed potential includes mostly marginal quality water, further develop- ment has to be planned in such a manner that saline water intrusion into fresh water zones is avoided. In view of this, a fresh assessment of the groundwater potential on the basis of a series of basinwide field studies is necessary. The state government is reported to have already initiated - 78 -
ANNEX 3 Page 4
action in this direction and the ARDC will be actively involved in assisting them. The banks have been advised to formulate schemes for specific areas on the basis of groundwater data and obtain clearance from the state Groundwater Board.
12. The State Groundwater Board coordinates the various activities of the Groundwater Cell and also clears the schemes formulated by the state agencies from technical consideration. The Board functions under the chair- manship of Agriculture Minister and its members represent the Irrigation Department, Public Health Department, Agriculture Department, HSNITC and other agencies like the Haryana Agricultural University and Land Development Bank. The Additional Director of Agriculture is Member-Secretary of the Board who is assisted by a whole-time Deputy Secretary.
IV. Other Services
Extension
13. The Punjab Agricultural University at Ludhiana as well as the newly started Haryana Agricultural University at Rissar shouldered the responsibility of research and education in agriculture and placed special erphasis on all aspects of farm mechanization. The extension staff of the Department of Agri- culture, in both the states have been adequately strengthened and they are capable of carrying the results of researches made to the doors of the cul- tivators. This helped in achieving an overall increase in the production of agricultural commodities. Practically all the requirements of improved seeds of wheat which happens to be the main food crop in both the states are met and the supplies of improved seeds for other crops such as rice, maize, bajra, etc., are steadily increasing. The consumption of fertilizers in Punjab was more or less maintained at the high level reached in 1971-72 at 1.2 million tons throughout the Project period whereas in Haryana after in- creasing from 0.8 million tons in 1971-72 to 1.15 million tons in 1973-74 con- sumption fell to 0.8 million tons in 1974-75. This is attributed to adverse weather conditions that prevailed in certain areas in the state. In addition to the cooperatives which played an important role in the distribution of fertilizers, the share of private distribution agencies is reported to be showing an uptrend in both the states.
Short-term Credit
14. In Punjab and Haryana as elsewhere in the country, short-term pro- duction credit is disbursed by the primary cooperative credit societies. The comercial banks which have entered this field in a big way since the national- ization of the 14 major banks in 1969 are also meeting the requirements of production loans of their customers. The short-term credit requirements of cultivator members of the cooperative societies are met adequately in both States and no difficulty was reported in the disbursement. The disbursement of ST loans by Primary Agricultural Credit Societies in Punjab amounted to - 79 -
ANNEX 3 Page 5
Rs 729 million and in Haryana Rs 417 million in 1975-76. The recovery perfor- mance of the primary credit societies in both States, however, could not be regarded as satisfactory particularly in the context of assured irrigation facilities. The percentage of overdues to demand at the central cooperative bank and society levels were 21% and 28% respectively, at the end of June 1976 in Haryana and 36% and 37% respectively, in Punjab. The scheme of reorganiz- ation of primary credit societies into viable units has been carried out in Haryana and their number has been reduced considerably. In Punjab such a scheme is expected to be taken up so that the present number of primary credit societies could be reduced to three-fourths. The reorganization of societies, when completed, would help both in reducing their overdues and also in toning up the efficiency of these societies considerably.
Marketing
15. The arrangements for the marketing of surplus production were satis- factory in both the states during the project period. In Punjab, there were 314 wholesale markets and 325 regulated markets (of which 95 were principal markets and 230 submarket yards) as against 133 wholesale markets and 200 regulated markets (with 80 principal markets) in Haryana. The regulated markets being governed by statutes, the chances of exploitation of producers by traders and commission agents have been reduced. Plans are also under way for mechanization of operations like cleaning, grading, bagging, etc., so that farmers would not face delay in disposing of their produce in the mandis.
16. As regards storage, the Haryana State Cooperative Bank was sanctioned in 1972-73 an assistance of Rs 24.2 million for financing the construction of godowns by the Haryana State Agricultural Marketing Board and the State Coop- erative Agricultural Marketing Federation. This has been fully availed of by the bank. Recently, ARDC has sanctioned to the HSCB a supplementary scheme for construction of godowns (for total capacity of 16000 tons) by HAFED involving financial assistance of Rs 2.41 million. Under the ARDC programme of assist- ing construction of godowns by private parties for letting it out to Food Corporation of India for storage of foodgrains, eight banks have been sanc- tioned 22 schemes for creating an aggregate storage capacity of 0.22 million tonnes in the states with ARDC refinance assistance of Rs 20.7 million during 1976-77. Against this, refinance of Rs 0.55 million has been disbursed. - 80 -
ANNEX 3 Table 1
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Districtwise Population of Tractors in Punjab (in 1976)
Serial No. District No. of Tractors
1 Amritsar 4783
2 Bhatinda 3975
3 Ferozepur 5436
4 Faridkot 9293
5 Gurdaspur 2107
6 Hoshiarpur 2332
7 Jullundur 6187
8 Kapurthala 1785
9 Ludhiana 7818
10 Patiala 6156
11 Rupnagar 833
12 Sangrur 4467
55172
Source: PAIC ANNEX 3 Table 2
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Districtwise Population of Tractors in Haryana (December 1976)
Serial No. District No. of Tractors
1 Ambala 2320
2 Bhiwani 1116
3 Gurgaon 2378
4 Hissar 2185
5 Sirsa 2928
6 Jind 2643
7 Karnal 2693
8 Kurukshetra 4076
9 Mohindergarh 1306
10 Rohtak 3571
11 Sonepat 2765
27981
Source: RAIC - 82 - ANNEX 3 Table 3
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Domestic Tractor Production in India in Selected Years
Production Production Production Name of the during during during Firm Model H.P. 1974-75 1975-76 1976-77
Eicher STD 26.5 1231 2018 2779
Escorts 335 & 3036 . 35 5826 4579 5014
Ford 3000 46 4800 5008 4575
Harsha T-25 25 41 926 787
HMT 2511 25 6800 7000 4500
Hindustan Super 50 764 941 490
International B-2755 & 444 35/45 8263 6661 5139
Kirloskar Deutz 4000 K 43 731 785 291
Pittie Pittie 35 43 31 50
Punjab Swaraj 24/35 555 1787 3340 724,735
TAFE (MF) 1035 & 504 35/50 2809 3443 5066
30921 33179 32031
Source: Agricultural Engineering Today, Journal of Indian Society of Agricultural Engineering. - 83 -
ANNEX 3 Table 4
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Unit Cost /a Comparisons of Main Tractor Types in Selected Years
Prices in Rs Indigeneous Tractors 1971 1974-75 1976-77
1 Escort 25200 39000 43500
2 Eicher 24425 34400 34400
3 Zeter 23650 31600 37400
4 Ford 3800 34800 54000 61000
5 Kirloskar - 56000 66000
6 Int B 275 26277 - 47139
Imported
1 IMT 533 - 51651 58175
/a These are prices to final borrowers, including all taxes.
Source: ARDC, Regional Office, Chandigarh. - 84 -
Annex 3 Table 5
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Modelwise Classification of Tractors - Disbursed Under the RACP in Haryana Inter- Bank Brown IMT 533 Ford Escorts Eicher Zetor Kirloskar national Total
Allahabad Bank - - 4 9 - 2 - 1 15 Bank of Baroda 1 2 43 44 35 25 - 7 157 Bank of India - 26 9 4 9 15 5 10 78 Central Bank of India 3 2 33 22 27 34 2 6 129 New Bank India 65 6 12 .2 - 2 - - 87 Punjab National Bank 1 27 37 46 15 15 5 12 158 Punjab and Sind Bank Ltd. 27 43 86 90 43 32 13 5 313 State Bank of India - 42 249 196 25 181 9 5 734 State Bank of Patiala - 21 121 127 27 59 6 12 373 Syndicate Bank - 41 10 38 6 71 2 21 189 Union Bank of India - 15 178 120 15 62 5 6 401 United Com- merical Bank - 3 42 29 26 9 - 1 110 SLDB 3 13 467 452 532 377 3 22 1,869
Total: 101 241 1,290 1,179 760 884 50 108 4,613
Source: HSIDB and PCBs. - 85 -
Annex 3 Table 6
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Operating Results of PAIC* (Rs Milion)
1972/73 1973/74 1974/75 1975/76 1976/77 (tentative) (i) Profit (+) Loss (-) (+) 1.78 (+) 5.00 (+) 0.24 (-) 5.94 (-) 2.16 (ii) Tax provision 0.73 2.89 0.14 0.54 - (iii) Profit (+) Loss (-) after tax (+) 1.05 (+) 2.11 (+) 0.10 (-) 6.48 (-) 2.16
Percentage of profit before tax
(a) To turnover 3.00 4.00 0.2 (-) 5.4 (-) 2.8 (b) To gross fixed Assets 20.3 51.3 2.2 (-) 113.6 (-) 44.4 (c) To capital employed 10.3 17.0 0.6 (-) 11.6 (-) 4.1
Percentage of profit after tax
(a) Net worth 6.4 9.2 0.4 26.8 8.6 (b) To equity capital 6.6 10.6 0.5 26.9 8.6 (c) To capital employed 6.1 7.2 0.2 12.7 4.1
Source: Annual Report and Balance Sheets for PAIC. - 86 - Annex 3 Table 7
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Operating Results of HAIc-/a
The operating results of the last three years are given below:
(Rs million)
1972-73 1973-74 1974-75
1. Profit (+)/Loss (-) before tax (+) 1.23 (+) 0.32 (-) 1.09
2. Tax provision including Development Rebate Reserve and provision for major overhauling of Combines 0.63 0.51 0.75
3. Profit (+)/Loss (-) after tax and development rebate and pro- vision for major overhaul of combines (+) 0.61 () 0.18 () 1.85
A. Percentage of Profit Before Tax
1. To sales (including hiring and servicing receipts) 0.37 0.15 -
2. To gross fixed assets 0.99 0.22
3. To capital employed 0.50 0.13
B. Percentage of Profit After Tax
1. To net worth 0.27 -
2. To Equity Capital 0.34 -
3. To Capital Employed 0.25 -
/a Source: Annual Report for RAIC. - 87 - ANNEX 3 Table 8
INDIA
PUNJAB AGRICULTURAL CREDIT PROJECT
Excise, Surcharges and Other Taxes Applicable to Tractors
The various taxes on tractors.on FOR prices for indigenous tractors and CIF prices on imported tractors are as follows:
(a) Indigenous
(i) Central sales tax 4%
(ii) Octroi (fixed) Rs 40.00
(iii) Agro-Industries Commission 2-1/2%
(iv) Punjab sales tax 1%
(v) Excise surcharge 2% of item (iv)
(b) Imported
(i) Custom duty 40%
(ii) Countervailing duty 10%
(iii) Central sales tax 7%
(iv) Octroi (fixed) Rs 40.00
(v) Agro-Industries Commission 2-1/2%
(vi) Punjab sales tax 1%
(vii) Excise surcharge 2% of item (vi)
Source: PAIC - 88 -
Annex 3 Table 9
INDIA
HARYANA AGRICULTURAL CREDIT PROJECT
Rainfall, observed recharge and draft and irrigated area in Haryana
Rainfall Total Total Net irri- (annual) recharge draft gated area S. No. District (Acre/ft) (Acre/ft) (Acre/ft) ('000 ha)
1. Ambala 587,778 958,610 831,088 118 2. Bhiwani 224,588 361,219 921,750 146 3. Gurgaon 379,471 774,997 801,046 175 4. Hissar 347,157 1,306,656 391,541 529 5. Jind 231,959 531,012 253,229 317 6. Karnal 397,356 1,647,289 1,455,682 364 7. Kurukshetra 347,675 802,533 1,438,037 409 8. Mohindergarh 269,250 307,939 449,752 64 9. Pohtak 244,529 420,217 345,148 204 10. Sirsa - 546,521 187,326 270 11. Sonepat 191,796 574,666 252,175 156 3,221,659 4,231,669 6,497,197 2,742
Source: Department of Agriculture, Government of Haryana. - 89 -
Annex 3 Table 10
INDIA
PUNJAB/HARYANA AGRICULTURAL CREDIT PROJECTS
Crop Water Requirements
Crop water requirements depend on wind velocity, humidity, the season and other agro-climatic conditions. However, for the State of Haryana/Punjab, the following guidelines apply.
Name of Crop Area (acres) Water Reauirement (inch)
Paddy 1/2 15 Sugar Cane 1/2 30 Maize 4 48 Fodder 1 6 Wheat 5 75 Potato 1/2 10 Gram 3 9 Bajra 4 40 Jowar 1 6 Barley 2 10 Sarson (Mustard) 1 3
Source: Department of Agriculture, Government of Haryana. - 90 -
Annex 3 Table 11
INDIA
RARYANA AGRICULTURAL CREDIT PROJECT
Tubewells and Pumpsets
Comparison of average costs of various components
Appraisal Actual Rate Amount Rate Amount Rs Rs
Boring 100 ft 2 Rs/ft 200 1.50 Rs/ft 150 Blind pipe 4' diameter 60' 20 Rs/ft 1,200 15 Rs/ft 900 Filter 40' coir 5 Rs/ft 200 5 Rs/ft 200 Electric motor 2,500 3,200 Electric connection 500 500 Pump house and stilling basin 1,200 Kuttcha and 1,000 Pump pit 1,200 pucca channel 900 Pucca channel 500 ft 1,000 1.50 Rs/ft 750
Total 8,000 7,600
Source: Appraisal Report HACP and Field Study. - 91 -
Annex 4 Table 1
INDIA
PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
Financial Costs and Benefits Farm Model (in Rs)
Investment: tractors Benefit area: 8 ha
Yield per ha Value of Gross Total cost of Area in (ha) (in qtls) Produce cultivation without with without with without with without with Crop
Kharif Used as Jowar 0.40 0.40 - fodder 800 800 140 130 Maize HYV 2.40 1.20 20.00 25.00 4,320 2,700 2,100 960 Paddy HYV 2.40 3.60 45.00 50.00 8,640 14,400 4,830 6,570
Rabi
Wheat HYV 3.60 5.20 30.00 35.00 11,340 19,110 6,030 7,930 Barley local 1.20 - 15.00 - 1,350 - 1,140 -
Perennial
Sugarcane 1.20 2.40 550.00 625.00 8,250 18,750 4,260 7,920
Total 11.20 12.80 - 34,700 55,760 18,500 23,510
Cropping Intensity 140% 160% Annex 4 Table 2
INDIA
PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
Financial Rate of Return (Tractors) (in Rs)
Benefiting area: 8 ha
Without Project With Project
1. Gross income 34,700 55,760 2. Cost of Cultivation 18,500 23,510 3. Gross Surplus 16,200 32,250 Less: 4. Bullock Maintenance cost 4,200 2,100 5. Overhead costs on account of
(a) Int. on S.T. Loans 1,480 1,880 (b) O&M of pumpsets 2,300 4,100 (c) O&M of tractor - 4,950
6. Net Surplus 8,220 19,220 7. Net incremental income - 11,000 8. Net income from custom work (150 hrs. @ Rs 15/- per hour) - 2,250 9. Total net incremental income - 13,250 10. Financial rate of return 25% - 93 -
Annex 4 Table 3
INDIA
PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
Financial Costs and Benefits Farm Model
Investment: Shallow tubewell Benefiting area: 2.5 ha
Yield (quintals) Gross Total cost of Area (in ha) per ha Produce (Rs) cultivation (Rs) without with without with without with without with
Kharif Crops
Bajra Unirri- gated local 0.75 - 7.50 - 383 - 175 - Maize -do- 0.50 - 10.00 - 365 - 163 - Fodder -do- 0.25 - 10.00 - 180 - 63 - Paddy irri- gated HYV - 0.50 - 25.00 - 988 - 400 Bajra -do- - 0.50 - 12.50 - 525 - 225 Maize -do- - 0.75 - 17.50 - 1,050 - 400
Rabi Crops
Wheat Unirri- gated local 1.00 - 7.50 - 788 - 263 - Gram -do 0.50 - 5.00 - 348 - 100 - Wheat irri- gated HYV - 1.00 - 20.00 - 2,100 - 950 Gram -do- local - 0.25 - 10.00 - 375 - 163 Potato -do- - 0.25 - 150.00 - 1,875 - 825
Two Seasonal
Cotton, irri- gated HYV - 0.50 - 7.00 - 1,063 - 500
Perennial
Sugarcane irri- gated local - 0.25 - 500.00 - 3,125 - 688 TOTAL 3.00 4.00 - - 2,064 11,101 764 4,151
Cropping Intensity 120% 160% - 94 -
Annex 4 Table 4
INDIA
PUNJAB AND RARYANA AGRICULTURAL CREDIT PROJECTS
(1976) Prices of Imvortant Crops (Rs per metric tonne),
Name of the Crops Financial Economic
Bajra 680 1,215 Maize 730 1,215 Fodder 720 1,215 Paddy 790 1,740 Wheat 1,050 1,740 Sugarcane 125 210 Cotton 3,000 3,080 Potato 500 250 - 95 -
Annex 5 Page 1
INDIA
PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS
The Economics of Tractors in the Indian Subcontinent - An Analytical Review
Dr. Binswanger's study on the 'Economics of tractors in the Indian Sub-Continent' is a survey of some of the research work undertaken on mechan- ization of agriculture in general and tractorization in particular. The main points brought out in the review, which covers about 25 out of over 100 studies on the various aspects of tractorization are as follows:
1. Tractorization in India.is still largely confined to the high-wage areas such as Punjab, Haryana and prosperous coastal areas of Tamil Nadu and Andhra Pradesh and is not likely to be of great economic benefit in the rest of India as long as the wages are low.
2. The yield gains as a result of tractor farming have not been con- clusively proven to be significant by any of the studies. Wherever higher yields have been observed, a common major contributing factor has been the increased use of fertilizers and HYV.
3. There is no convincing evidence that tractors are responsible for substantial increase in cropping intensity, yields, timeliness of operations and gross returns.
4. The impact of tractors on labor displacement is not significant.
5. Indirect off-farm employment as a result if tractorization could not be denied but on the cost/benefit scale, similar investments, in other employment-oriented activities could have, probably, opened up many more opportunities.
6. Bullock farming in a scientific fashion with intensive labor employment can produce similar results to tractorized farms.
7. In conclusion, Dr. Binswanger raises the point as to why farmers in areas like Punjab invested massively in tractorization and why do they continue to do so? One reason for this, according to him, is the non- agricultural benefits of tractors, notably its convenience, its use in transport and other benefits. These are privately beneficial though possibly a doubtful candidate for public support. - 96 - Annex 5 Page 2
II. Dr. Binswanger himself admits that the conclusions arrived at by him are subject to the correctness or limitations of the source material. The various studies on the basis of which he has arrived at the conclusions relate to a period prior to 1972/73 and they differ in methodology, coverage and agro- climatic conditions. In fact, between 1972 and 1977 the tractor population in India is estimated to have increased by 0.15 million, the impact of which has not been assessed on the basis of any recent All-India study. According to the latest study carried out by the Institute of Techno-Economic Studies, Madras, on behalf of Indian Council of Agricultural Research, covering 7 districts of Tamil Nadu, tractorization has caused a net average increase in agricultural production, tractor farms showing increases of 12% for paddy, 29% for ground- nut, 17% for sugarcane and 34Z for cotton. They study also concludes that tractorization has not resulted in any labor displacement in the agricultural operations. On the other hand, there has been increased demand for labor due to multiple cropping, greater intensity of cultivation and higher yields.
III. It may be mentioned that while the Draft Fifth Plan document proposes selective mechanization to increase cropping intensity and farm productivity, the present view of the Planning Commission appears to be towards a more cautious tractor use. They suggest the need to undertake a detailed study of the employment and productivity effects of tractoriza- tion. The draft Sixth Plan has indicated a preference for the utilization of manual and bullock power on small farms where labor and draught animals are available. At the same time, it suggests custom service of tractors to ensure timely agricultural operations, and also use of tractors in dif- ficult terrains and for reclamation of large tracts of land for cultivation or for land shaping in difficult situations. IBRD10483R4
DEMOCRATIC REPUBLIC OF AFGHANISTAN IN I JAMMU ad KASH,1/A'
1 DSinagar ® Stole and Union Te,,tory Copitols * National Cop.tol Cit,es HIMACHAI Other PRADESH Stote and Union Territory Boundories Boundones Chendiga, s-in International PAKISTAN P
CHINA HA RYAVA
EW DELHI onPgar D UTTAR NEPAL w,-,ýl, I-, PPADESH a e BHUTAN - RAJASTHAN i -- dolpur 0 Konpur 'pu rna EGHALoYA
~ o1H' ? ýBANGLADESH V"
G3andhinagar aBlopal GU AR?AT Ahe0odNA MA D HY A p l s H Cautto
BURMA
MA HA RA SH TR AB
Bomboy { Bay
o/
n *Hyderab.d ANADHRýA Araba PR'ADES H S1 e an G ' GOA
KA~RA AKA
lo• T AMI/I NA DU
Cochin 00 2 3 4ý 500 MILlES IA 0 100 20 500 400 50 600 700 800KILOXETERS
TrivndruSRI LANKA
7r 1,. i., n r.r.rh,n n bn e..i'P,da,.hr