Evaluation of impacts of the Development Capital Investment Intervention of the DFID India’s Private Sector Infrastructure Portfolio Draft Final Baseline Report Aug 2019 Submitted by: Author This evaluation report is prepared by the Evaluation Team of IPE Global Limited, India. The team members are: 1. Sanjay Sinha, Team Leader 2. Promila Bishnoi, Evaluation & VfM Expert 3. Gaurav Prateek, Research Manager 4. Manab Chakraborty, Institutional Expert 5. Achin Biyani, Finance Expert 6. Sheena Kapoor, Research Associate Contact Person Dr. Soumen Bagchi, Project Coordinator, [email protected] Copy Right Department for International Development, UK will have the copy right of the field data and information collected, and the evaluation report. Compliance with Ethics Principles IPE Global Limited maintains compliance with the global standards and policies, such as the OECD Standards for Development Evaluation, DFID’s Ethics Principles for Research and Evaluation (2011), and DFID’s zero tolerance stance on corruption and fraud. The corporate values and ethics are safeguarded through a set of policies and codes of conduct including anti-fraud and anti-corruption, conflict of interest, equity, diversity and quality assurance. Disclaimer: The views expressed in this report are those of the evaluation team and do not necessarily represent the opinions of the Department for International Development, UK. Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio Acronyms bn Billion BPL Below poverty line CAGR Compound annual growth rate CEO Chief Executive Officer CGAP Consultative Group to Assist the Poorest CoI Conflicts of Interest CO2 Carbon dioxide Cr Crore CRISIL Credit Rating Information Services of India Limited CVs Curriculum vitae DAC Development Assistance Committee DCI Development Capital Investment DFID Department for International Development DFIs Development Financial Institutions DoC Duty of Care EA Enumeration Area EQ Evaluation Question ESG Environmental, social and governance (assessment) ET Evaluation Team FGD Focus Group Discussion GBP Pound Sterling GCI Global competitiveness index GIIN Global Impact Investing Network GoI Government of India HQ Headquarter IDFP Infrastructure Debt Fund Programme IEFP Infrastructure Equity Fund Programme IFC International Finance Corporation IIIC Indian Impact Investors Council IIPS International Institute for Population Sciences INR Indian Rupee IOF India Opportunities Fund IPE IPE Global Limited IRIS Impact reporting and investment standards IRR Internal rate of return ITT Invitation to Tender KII Key Informant Interview LIS Low income states M&E Monitoring and evaluation M-CRIL Micro Credit Rating International Ltd. Mn Million MIS Management information systems MP Madhya Pradesh MSMEs Micro small and medium enterprises MT Metric ton NGO Non-Government Organisation NSS National Sample Survey NSSO National Sample Survey Organisation 1 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio OBC Other backward classes Od Odisha OECD Organisation for Economic Co-operation and Development OER Operational Expense Ratio PAPI Pen and Paper Interviewing PEA Political economy analysis PPI Progress out of Poverty Index PPPs Public private partnerships PQQ Pre-Qualification Questionnaire PSD Private Sector Department PSIG Poorest States Inclusive Growth PSM Propensity Score Matching QA Quality Assurance RBI Reserve Bank of India RCT Randomised Control Trial RG Reference Group RoA Return on Assets RRB Regional Rural Bank SC Scheduled Castes SEAF Small Enterprise Assistance Funds SEQAS Specialist Evaluation and Quality Assurance Service SGF SME Growth Fund ST Scheduled Tribes SVL SBICAP Ventures Ltd. TA Technical Assistance TOC Theory of Change TOR Terms of Reference UP Uttar Pradesh VC/PE Venture Capital/Private Equity VfM Value for Money WB West Bengal WIP Work in progress 2 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio Executive Summary This report is an evaluation of DCI (Development Capital Investment: Debt and Equity Fund Programmes), DFID (Department for International Development, United Kingdom) India’s private sector infrastructure portfolio, implemented in partnership with IDFC and SBICAPS in India’s low- Income States. IPE Global Limited (India) is carrying out this evaluation as commissioned by the DFID in partnership with M-CRIL. Purpose of this evaluation is focused on learning from an innovative1 market- led infrastructure financing mechanism in LISs besides ensuring accountability in terms of optimising development outcomes. Evaluation Objective This evaluation study of the DCI investment in infrastructure funds is expected to generate specific evidence on the impact of the programme on the participating households, particularly in terms of what works for poor households, and poor women; the delivery of appropriate products and services; and the overall policy environment in the poorest states in India while not neglecting and ensuring a decent commercial return from these investments. The study explores the reasonableness of the expectation that strengthening infrastructure investments in low income states is a good route for attracting additional investments targeted at providing services as well as employment for the poor, women and marginal groups. Since both data availability on infrastructure investments in the LIS and the attribution to the infrastructure funds of capital flows to these states is challenging, this part of the evaluation is indicative rather than definitive. The DFID Development Capital Investment Program implemented through its two partnerships- Infrastructure Debt Fund Program and Infrastructure Equity Fund Program are targeted to achieve the double bottom line objectives of commercial returns and development outcomes. The expected impact of this intervention is increased investor interest in pro-poor infrastructure sectors in the eight low- income states. The key outcome of the programme is the expansion of better-quality infrastructure services that deliver social benefits direct to households, such as electricity and clean water, and deliver economic benefits to businesses such as roads that give access to markets and electricity that help run storage or manufacturing facilities. Evaluation Methodology The purpose of the evaluation is twofold. For accountability purposes, the evaluation assessed the performance of the program with respect to its outcomes and outputs, and for learning purposes to identify key lessons. Both are expected to inform DFID’s future Development Capital Investment programs. The evaluation focused on the following five areas as specified in the ToR and agreed during the inception phase: (i) impact of the intervention on wider policy and regulatory climate for private investments in infrastructure in the targeted geographies; (ii) assess the impact on the community and household level; (iii) assess the feasibility of the instruments- debt and equity used to finance infrastructure projects in LIS; (iv) assessing impact of DFID intervention in building investors’ interest; and (v) examining the program’s approach to and achievements of Value for Money (VfM). Target audiences of the evaluation include DFID, FCO, and other UK Government departments, various Ministries of the Government of India, state governments, fund managers/ implementing partners and other development partners and DFIs who are potential investors in infrastructure sector and work with the national and state governments. The baseline evaluation was completed within a period of 1 year since inception, starting March 2018 through to March 2019. The evaluation has applied the OECD-DAC criteria, which include relevance, effectiveness, efficiency, impact, and sustainability. The VfM dimension has been added to the DAC criteria for a more comprehensive evaluation. Eleven Evaluation Questions (EQs) were developed and distributed between each OECD-DAC criterion including VfM based on the understanding of the DFID DCI Infrastructure loan and equity partnerships programs and the evaluation objectives. Additionally, the annual review reports of DFID have been used to assess progress and reconcile information from the field. Both qualitative and quantitative methods were used. The key methods included: (i) desk review of relevant literature; (ii) key informant interviews (KIIs) including interviews with the representatives of the investee company to understand their operational areas and clientele base; (iii) case studies- detailed 1 Infrastructure in LIS in India is largely public funded. These 8 low income states account for a meager less than 14% percent of the total number of PPPs in India. DCI is an innovative approach for these states. 3 Evaluation of impacts of Development Capital Investment Intervention of DFID India’s Private Sector Infrastructure Portfolio case studies are provided in Annexure B; (iv) primary and secondary data analysis; and (v) VfM assessment. At this stage, we have worked out the benefit-cost ratio (B-C ratio) based on existing impact. A detailed VfM assessment based on DAC criteria will be undertaken at the mid- term stage when more information on impact is expected to be available. The Evaluation Team visited and engaged into detailed consultation and discussion with all the 6 investee companies, 3 each under the NEEV Partnership