Documentof FILECOPY The World Bank

FOR OFFICIAI, UISEONLY Public Disclosure Authorized

Report No. p-2 51 3-IN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF TIIE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE Public Disclosure Authorized

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDlT

TO INDIA

FOR THE

MAIIARASHTRAWATER SUPPLY AND SEWERAGE PROJECT Public Disclosure Authorized

April 1]8, 1979 Public Disclosure Authorized

This documenthas a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS

Rs 1 = Paise 100 US$1 = Rs 8.60 Rs 1 = US$0.1163 Rs I million = US$116,279.07

(Since September 25, 1975, the Rupee has been offi- cially valued relative to a "basket" of currencies. As these currencies are now floating, the U.S. Dollar/ Rupee exchange rate is subject to change. As of April 12, 1979 the exchange rate was Rs 8.21 to US$1.O).

FISCAL YEAR

April 1 - March 31

ABBREVIATIONS AND ACRONYMS

GOI - Government of India GOM - Government of Maharashtra MWSSB - Maharashtra Water Supply and Sewerage Board MIDC - Maharashtra Industrial Development Corporation BMC - Bombay Municipal Corporation BMR - Bombay Metropolitan Region BMRDA - Bombay Metropolitan Region Development Authority ENE - Environmental Engineering Organization FOR OFFICIALUSE ONLY INDIA

MAHARASHTRA WATER SUPPLY AND SEWERAGE PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: India, acting by its President.

Beneficiaries: The Maharashtra Water Supply and Sewerage Board (MWSSB) and participating local authorities.

Amount: US$48 million.

Terms: Standard.

On-Lending Terms: India to Maharashtra: As part of Central assistance for State development projects on terms and condi- tions applicable at the time. Maharashtra to MWSSB: 25 years, including four years of grace, at 6-3/4% interest per annum. The foreign exchange risk will be borne by the Government of India.

Project Description: Construction of water treatment, transmission and distribution facilities to augment the supply of water to 6 towns and 22 villages, and to provide new piped water supplies to 82 villages; these facilities will enable an additional 200 million liters of water per day to be supplied to 2.4 million people in the 6 towns and 104 villages; provision of sewage collection, treatment and disposal in three of the six project towns and the expansion and completion of the sewerage system in the remaining three towns; provision of public standpipes; improved detection of water distribution system losses, repairs of mains and metering; training and technical assistance. The project would also help to develop MWSSB as an institution capable of planning and imple- menting sectoral development programs in Maharashtra. Because the project involves a substantial amount of civil engineering works, there is a risk that temporary shortages of materials, lateness on the part of manu- facturers in meeting contractual delivery dates, or lack of management skills on the part of contractors, could lead to delays in implementation. However, the Governments of India and Maharashtra, and MWSSB have been alerted and are expected to take all precautions to minimize the impact of these delaying factors.

This documenthas a restricteddistribution and may be usedby recipientsonly in the performance of their official duties. Its contentsmay not otherwisebe disclosedwithout World Bankauthorization. - ii -

Estimated Cost: (US$ millions) Components Local Foreign Total

Water Supply 30.2 6.3 36.5 Sewerage 21.6 - 21.6 Common Services 2.0 - 2.0 Engineering 3.9 - 3.9 Consultant Services 1.5 0.6 2.1 Training 0.1 0.1 0.2 Land Acquisition 2.1 - 2.1 Sub-total 61.4 7.0 68.4

Physical Contingencies 8.3 1.0 9.3 Price Contingencies 16.4 1.7 18.1 Duties and Taxes 4.2 - 4.2

Total Project Cost 90.3 9.7 100.0

Project Cost Net of Duties and Taxes 86.1 9.7 95.8

Financing Plan: IDA Credit 38.3 9.7 48.0 GOM Grant/Loans 37.8 - 37.8 Local Authorities 10.0 - 10.0

Total 86.1 9.7 95.8

Estimated Disbursements: IDA FY FY80 FY81 FY82 FY83 FY84

Annual 0.5 7.2 13.1 15.8 11.4 Cumulative 0.5 7.7 20.8 36.6 48.0

Rate of Return: About 9%.

Appraisal Report: Report No. 2377a-IN, dated April 17, 1979. INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR THE MAHARASHTRAWATER SUPPLY AND SEWERAGE PROJECT

1. I submit the following report and recommendation on a proposed development credit to India in an amount equivalent to US$48 million on standard IDA terms to help finance a water supply and sewerage project in six towns and 104 villages in Maharashtra. The proceeds of the credit would be channeled to the Government of Maharashtra (GOM) in accordance with the Government of India's standard terms and arrangements for the financing of State development projects. GOM will lend the funds to the Maharashtra Water Supply and Sewerage Board for 25 years, including four years of grace, at 6-3/4% interest per annum. The exchange risk will be borne by the Government of India.

PART I - THE ECONOMY

2. An economic report, "Economic Situation and Prospects of India" (2431-IN dated April 9, 1979), was distributed to the Executive Directors on April 13, 1979. Country data sheets are attached as Annex I.

Background

3. India is a large, low-income country with 640 million people whose average income is US$150 per annum. The agricultural sector dominates the economy, employing over two-thirds of the labor force and contributing over 40% of value added. Although smallholder agriculture provides a fullsome subsistence to many, the land base is inadequate to provide all families in rural areas with an adequate livelihood under current conditions, and many who are landless or nearly landless have only an insecure grasp on the means of existence. Industrialization in India has not been rapid enough to bring about the economic transformation that has led to higher productivity and rapid urbanization in some other countries. The urban population was 18% of the total in 1960, 20% in 1970 and is 21% now. The share of manufacturing has grown slowly and since the late 1960s has remained roughly constant at 16% of GDP.

4. Economic growth has been slow in the past, with GDP growing at a trend rate of 3.6% per annum from 1950 to 1975. Agricultural output grew at 2.4% per annum over the same period. Slow growth in agriculture acted as a drag on overall growth, not only because of its sheer weight in the total, but also because of the need to use of scarce foreign exchange to import food. Growth in industrial output has been higher at 5.2% per annum between 1950 and 1975, but not as high as in many other developing countries nor as high as can be expected. - 2 -

5. This slow growth has persisted despite a quite creditable domestic saving and investment performance. Domestic saving has grown from 9% of GDP in 1951 to the current high level of 22%. Gross domestic investment has risen from 10% to 21% of GDP over the same period. Foreign savings have never financed a large portion of domestic investment and have financed no more than 5% of investment since 1970. Foreign savings have been important in financing imports and foreign exchange has acted as a constraint on the economy for most of the period. External assistance has been low both as a percentage of GDP and in per capita terms. Net external assistance is less than 2% of GDP now, has never risen above 3% and fell to less than 1% in the early 1970s. Exports have grown relatively slowly, 5.4% per annum in US dollar terms and 2.8% per annum in volume terms between 1950/51 and 1975/76. So far during the 1970s, exports have grown much more rapidly, by 18% per annum in US dollar terms and 8% in volume terms over the period 1970/71 to 1976/77. During the same period imports grew by 17% per annum in US dollar terms but only by 2% per annum in volume terms, reflecting a 28% fall in India's terms of trade over the period.

6. India has the capacity to grow and develop at a more rapid pace than has been achieved so far. Although the industrial sector is small compared to the size of the total economy, it nevertheless has a highly diversified struc- ture and is capable of manufacturing a wide variety of consumer and capital goods. Basic infrastructure--irrigation, railways, telecommunications, roads and ports--is extensive compared to many countries, although considerable gaps remain. India is rich in human resources and institutional infrastruc- ture, although there is much scope for improvement. India is reasonably well-supplied with natural resources, not only land and water but minerals, including oil, gas and coal. With good economic policies and sufficient access to foreign savings, India should be able to manage these considerable resources to accelerate the longer-term growth trend.

Receit Trends

7. India has managed faster growth during the recent past. Growth of GDP in 1978/79 is estimated to be between 3% and 4%; this is a strong perform- ance coming on top of the previous year's 7.2% growth in GDP and considering agricultural output grew less than 2%. Even this agricultural growth is highly creditable given the previous years' record harvests in most crops. Industrial output grew by 8-10% in 1978/79. Over the four years, 1975/76 to 1978/79, growth in real GDP, agricultural output and industrial output has averaged 5.3%, 4.4% and 6.9% per annum, respectively. Although these rates represent growth over the depressed base of the early 1970s, they are signi- ficantly higher than the longer-term past trend and comparable to the target growth rates for the medium-term future.

8. The 1978/79 foodgrain crop exceeded the 1977/78 record crop of 126 million tons, and many non-food crops did well. The 1978 monsoon rains were timely and adequate, although severe flooding in some areas destroyed both lives and property and ruined some crops. The basic inputs into agricultural production continued their rapid growth of the recent past. Additions to area under irrigation have doubled from 1.3 million hectares a year during - 3 -

the five-year period ending 1973/74 to 2.6 million hectares a year during 1977/78 and 1978/79. Fertilizer consumption in 1978/79 reached 5 million nutrient tons, an increase of 18% over 1977/78. This growth is impressive, particularly since it follows two successive years of very high growth--18% in 1976/77 and 26% in 1977/78--so that fertilizer consumption is now 75% higher than it was in 1975/76. These rates of growth in agricultural inputs and output are heartening evidence that the good harvests of 1975/76 and 1977/78 were not isolated peaks resulting from good weather alone but represent an increased agricultural production capacity.

9. The growth of industrial output in 1978/79 came from a sharp rise in the output of food industries, particularly sugar, a modest increase in textiles, important increases in the hitherto depressed engineering sector and the revival of demand for consumer durables. Production would have been still higher but for recurring shortages of steel, coal, railway wagons and electric power and capacity constraints in fertilizer, cement, vegetable oils and petroleum products. Labor unrest also constrained output in some indus- tries, particularly in textiles, steel and mining; man-days lost in 1978 ex- ceeded the high level of 1977 and only in 1974 were the number of days lost higher. Power production increased by 12% or more but continuing shortages in many States necessitated power cuts and curbs on new demand.

10. The trade deficit grew and both the current account surplus and the balance of payments surplus of recent years shrank in 1978/79. The import bill is expected to reach US$8.4 billion, which brings the average rate of increase in US dollar terms to 19% per annum since 1976/77. Non-foodgrain imports rose even more dramatically by 28% per annum over the past two years. The growth of imports and the liberalization of import control policies represents a desirable adjustment to enhanced foreign resources. Although exports grew much faster during the 1970s through 1976/77 than earlier, export growth in 1977/78 and 1978/79 has slowed somewhat. After rising by 12% in 1975/76 and 23% in 1976/77 in US dollar terms (virtually all growth in export volume), export earnings rose by only 9% in 1977/78 (with little or no volume growth) and an estimated 8% in 1978/79 (with 5-8% volume growth). Although part of the decline is attributable to unfavorable conditions in foreign markets, export profitability has been allowed to deteriorate somewhat. With net invisible receipts in 1978/79 estimated the same as in 1977/78--US$2 billion-- the widened trade deficit resulted in a significantly reduced current account surplus, from US$1 billion in 1977/78 to US$400 million in 1978/79. Despite some increase in net aid disbursements from their low level in 1977/78, the increase in reserves declined from about US$2 billion in 1977/78 to about US$1.5 billion in 1978/79 to reach US$7.4 billion.

Development Prospects

11. The circumstances that have brought about the currently favorable economic situation hold the promise of continuing into the future given conti- nued policy improvements. The faster growth of the recent past has been made possible by the much-increased inward flow of foreign exchange from increased exports, workers' remittances and external assistance; greatly improved agri- cultural performance; the impressive saving effort; the liberalization of import controls; and expanded public expenditure on development programs. - 4 -

Although sustaining the high growth rates of the recent past into the future is by no means automatically assured, India has a level of resources with which to manage the economy that had never existed before. The comfortable foreign exchange position, the large foodgrain stocks and the absence of strong inflationary pressures have eased the pressures to deal with short- term crises and freed India's economic managers to plot a more ambitious course for the economy. The policy improvements needed to achieve the better performance now possible have begun in some important areas but in others have yet to be initiated.

12. The Draft Plan, which was released in March 1978 and is expected to be finalized and approved by the National Development Council later this year, sets out India's development strategy for the five years 1978/79 to 1982/83. The principal objectives of the Draft Plan are to achieve within a period of ten years: (i) the removal of unemployment and significant under- employment, (ii) an appreciable rise in the standard of living of the poorest sections of the population, and (iii) provision by the Government of some of the basic needs of the people in these low-income groups. While the Plan recognizes the importance of achieving more rapid expansion of the economy than in the past to meet the employment and welfare objectives, the targeted rate of growth at 4.7% per annum is lower than projected in most ealier Plans. According to the planners, this reflects in part the increased emphasis given to the distribution rather than the level of income generation, and in part the need for greater realism in the macro-economic assumptions underlying the Plan. While the trade-off between growth and distribution is not immediately obvious from the Plan model,. the adoption of a more realistic growth target is in itself well justified -- even at 4.7% per annum, the targeted growth rate is higher than actually achieved during any of the previous plan periods, and is substantially above the longer-term trend growth rate.

13. In agriculture, the economic policies, development programs and secular trends all seem favorable for a period of sustained high growth. Fertilizer prices have been reduced progressively from their very high level in early 1975 and despite some fall in market foodgrain prices, the fertilizer: foodgrain price ratio has fallen to a clearly profitable range. Good harvests and higher farm incomes provide the money to finance higher fertilizer pur- chases, creating something of a virtuous circle. Pricing policies for many crops--rice, wheat, sugarcane, pulses and others--have concentrated recently on supporting prices to maintain incentives to farmers rather than trying to administratively control prices to contain inflation. The ambitous irrigation and rural electrification investment program in the new Five-Year Plan, if fully funded, will help provide the water control needed to increase yields directly and to induce further productivity-increasing investments. The highly effective reorganization of the agricultural extension service will raise yields as it takes hold progressively across India in the near future. Finally, there are several heartening trends in foodgrain production: one is the steady growth of area planted to high-yielding varieties of rice; another is the growing adoption of summer rice cultivation in the traditional wheat-producing areas (Punjab and Haryana). These two trends along with the other favorable developments have caused rice production to rise impressively in the last two years. Another good omen for foodgrain production is the - 5 - rapid growth of winter wheat cropping in traditionally rice areas (West Bengal, Assam and Orissa).

14. In industry, despite some uncertainty in industrial policy and the lack of strong policy stimulus to improve efficiency in the industrial structure, recently strengthened demand forces along with adroit input supply management should allow the industrial sector to continue to grow at the improved rate of the recent past, at least for the near- and medium-term future. Over the longer term, growth of industrial production at or above the rate experienced in the recent past--e.g., 7% per annum during the last four years--will require some changes in policy to induce a more efficient industrial structure. Recent industrial policies have sent mixed signals to private manufactures and investors. Some, such as reserving certain lines of production for small-scale enterprises or prohibiting the location of new firms in municipal areas, have been restrictive. Others have been stimula- tive, such as the raising of the exemption limit of industrial licensing for capital investment or favorable adjustments in the pricing and production controls in several major industries, including cement, steel, and textiles. In addition the liberalization of import controls is of considerable benefit to increasing industrial production. However, there are some worrisome supply shortages that are currently threatening continued rapid industrial growth. Many can be handled through imports, if needed, as long as India maintains a healthy foreign exchange position. However, two supply constraints likely to persist in the future -- namely, rail transport and power -- cannot be eased through imports. The new Plan contains a major power investment program to increase capacity rapidly. The railway investment program is more modest. Another crucial input into both of these sectors, and into most other major sectors, is coal, whose supply needs careful management.

15. The main reason for expecting sustained growth in industrial pro- duction is improvement in demand prospects for each of the four major sources of industrial demand. The first is market demand for manufactured consumption goods, which is expected to pick up in response to the increase in disposable income due in particular to the good agricultural harvests. Although its effect has been delayed somewhat, this broad-based demand is finally making itself felt and is expected to continue into the future as long as the growth in agricultural output continues. Another source of demand is public expendi- ture on development projects, which has grown in a major way in the last few years and is scheduled to continue to grow under the new Five-Year Plan. A third source of growth is export demand for industrial goods. There has been a sustained growth in the export of manufactures such as engineering goods, garments, gems, finished leather and some chemical products. This export growth should continue in the future with proper policy support. A final source of growing demand is private investment by both the household and corporate sectors. There are as yet only a few signs of this growth, such as increased disbursement by term lending institutions and increased use of inputs; investments should become stronger as growth in the other sources of demand continues and as capacity limitations begin to constrain production in more industries. The net result of increasing demand should be continued high growth in industrial production in the near and medium term within existing policies. -6-

16. Import policy is an area where there has been significant improve- ment in the recent past; but some improvement in export policy is required to raise incentives to export. India has liberalized import control policy significantly in the past two years and imports have responded. Future growth in imports, and in the benefits of price stability, enhanced production and increased efficiency which imports bring, will depend to a great extent on how the now liberalized policy is administered. A delicate touch is required to yield the benefits without bringing about undesirable damage to vulnerable industries. India has the foreign resources to allow imports to grow at the rapid rates of the past two years for a few more years and continue to relax the very severe restraints imposed on the economy during the early 1970s by suppression of imports. But, given the import liberalization undertaken so far and the expected growth of imports, by the end of the Plan period 1982/83, foreign exchange reserves will have fallen to six months of imports, or less, and some adjustment in the balance of payments will be required. Part of the adjustment will very likely be a reduction in the growth rate of imports; the import bill need not grow 15% in volume terms indefinitely to sustain the target growth in GDP. Part of the adjustment must come from the achievement of a growth rate of exports in the vicinity of 7-8% or higher in volume terms. Faster export grcwth is needed not only to provide the foreign exchange to sustain the rapid growth in imports but also to allow foreign demand and competition to improve the efficiency of Indian industry. Finally, part of the adjustment should come from an increased net transfer of external assistance.

17. India's population policy continues to aim at reducing the birth rate to 33 births per thousand people by 1983 through completely voluntary acceptance of fertility control methods supplied by a family welfare system integrated with the supply of basic health, maternal and child health and nutrition services. Since 1977, the family planning achievements in terms of number of acceptors have been below that needed to achieve the 1983 goal or even to keep the birth rate from rising above its current low level. The low performance is primarily the result of the reaction to the harsh birth control policies introduced during 1976. Since then family planning perform- ance has been gradually returning to the rising trend which was discernible before it was disrupted by the intensive drive of 1976/77. Given continued support for the program of family welfare, India's rate of population in- crease should remain below 2% per annum and fall to 1.5% by 1990.

18. In addition to stimulating overall economic growth and constraining population growth, reduction of poverty in India requires special attention to ways of raising the income and productivity of low-income groups. More than one-third of the world's poor live in India and more than 80% of the Indian poor belong to the rural households of landless laborers and small farmers. The prospects for alleviating their poverty by providing these families with more land are not good because of the virtual absence of un- cultivated arable land, the slow progress in implementing land reform and the limited amount of land that would be available if land reform were carried out. Estimates of the amount of land that would be available if land reform were carried out vary greatly. One estimate is that these would be about 9 million hectares available for distribution. This compares to roughly 45 million families in the two poorest groups in rural India: landless - 7 -

families and families owing less than one hectare of land, whose average holding is 0.31 hectares. An approach to the amelioration of poverty more promising than land reform is the creation of more employment opportunities for the landless and small farmers in rural areas. Although the basic thrust must come from the market by a more rapidly increasing agricultural output, there will be a role for employment-intensive rural works programs. The new Plan provides for increased rural employment both through direct employment schemes and through ambitious programs of investment in rural infrastructure in addition to the more general rural development programs.

PART II - BANK GROUP OPERATIONS IN INDIA 1/

19. Since 1949, the Bank Group has made 56 loans and 112 development credits to India totalling US$2,286 million and US$6,359 million (both net of cancellation), respectively. Of these amounts, US$969 million had been repaid, and US$2,890 million was still undisbursed as of February 28, 1979. Annex II contains a summary statement of disbursements as of February 28, 1979, and notes on the execution of ongoing projects.

20. Since 1957, IFC has made 15 commitments in India totalling US$64.0 million, of which US$15.3 million has been repaid, US$7.6 million sold and US$6.9 million cancelled. Of the balance of US$34.2 million, US$26.1 mil- lion represents loans and US$8.1 million equity. A summary statement of IFC operations as of February 28, 1979, is also included in Annex II (page 2).

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

22. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, industry, power, urban development and water supply remains highly relevant. Projects designed to foster agricultural

1/ Part II of the report is substantially the same as Part II of the President's Report for the Punjab Irrigation Project (Report No. P-2466-IN), dated March 19, 1979. - 8 - production through the provision of essential inputs such as credit for on-farm investments, improved water management and intensification and stream- lining of extension systems, form an important aspect of the Bank Group's program for the next several years. Special emphasis will be given to pro- jects benefitting small farmers. Projects supporting water supply, sewerage, and urban development also form an integral part of the Bank's lending strategy to India for the next several years. Lending in support of infra- structure and industrial investments will focus on agriculture-, export- and energy-related projects.

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

24. Although the growth prospects of the economy have improved, India's poverty and needs are such that as much as possible of India's external capi- tal requirements should be provided on concessionary terms. Accordingly, the bulk of the Bank Group assistance to India has been, and should continue to be, provided from IDA. However, the amount of IDA funds that can reasonably be allocated to India remains small in relation to India's needs for external support, and India may be regarded as creditworthy for some supplemental Bank lending. The ratio of India's debt service to the level of exports was 12% in 1978/79 and is projected to remain below 20% through 1995/96. As of February 28, 1979, outstanding loans to India totaled US$1,362 million, of which US$682 million remained to be disbursed, leaving a net amount outstand- ing of US$680 million.

25. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with an estimated 62%, 27% and 38%, respectively, in 1978/79. On lMarch31, 1977, India's outstanding and dis- bursed external public debt was US$13.3 billion, of which the Bank Group's share was 28%. Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1977/78, about 16% of India's total debt service payments were to the Bank Group. -9-

PART III - THE WATER SUPPLY AND SEWERAGE SECTOR

26. Although State Governments in India have primary responsibility for the development of water supply and sewerage facilities, the Central Govern- ment, through its five-year plans and/or special programs has considerable influence on sector development planning. Funds are normally allocated by the Government of India in the form of grants and loans which State Govern- ments supplement by local borrowing. The States execute their responsibili- ties through various departments of government and agencies which, in turn, may delegate part or all of their duties to local authorities. In certain cases, legislation has been enacted to permit municipal authorities, or other agencies, to assume the entire responsibility for planning, design, construc- tion, operation and maintenance of water supply and sewerage services within their jurisdictions.

27. Since the early 1950s, State Governments have endeavored to meet the increasing sector demands caused by rapidly expanding population and un- precedented rates of urban growth. However, competing demands for resources, lack of management and planning skills, shortages of key materials and equip- ment, as well as foreign exchange constraints, have resulted in only 1 to 2% of public expenditures being invested in the sector.

28. Based on 1975 statistics 1/ about 30% of India's total population of 620 million had access to water supply of reasonable quality and 20% had acceptable means of disposing of sewage. World Health Organization statistics for developing countries indicate that progress in the sector kept pace with population growth in the period 1971 through 1976. However rapid urban growth in India and the lack of financial resources required to meet large capital investments, which urban water and sewerage systems require, have contributed to a decline in the levels of these urban services.

29. Very large investments (probably more than four times the 1971-75 levels, in 1977 US dollars) would be necessary to meet the target 2/ of supply- ing potable water to 100% of the population by 1990. The investment for urban water supply and sewerage in India in the period 1975 through 1979 was some Rs 1,100 million (US$128 million) per year which was only 1.5% of total Plan investments; investment in the rural water supply sector in the same period was Rs 750 million (US$87 million) which was 1% of the total Plan investment. Although existing organizational and technical resources would permit much higher levels of investment to hasten the provision of services to a larger population, the provision of operation and maintenance facilities for urban water and sewerage systems would present a serious challenge to Central, State and local government institutions.

1/ World Health Organization, Community Water Supply and Wastewater Disposal, Mid-Decade Progress Report, Mlay 1976.

2/ Report on Community Water Supplies, United Nations Water Conference, lar del Plata, Argentina, 14-25 M4arch 1977. - 10 -

Water Resources in the Bombay Metropolitan Region and the Project Area

30. Maharashtra is the third largest state in India, having an area of about 308,000 square kilometers and an estimated (1977) population of some 59.3 million, which is almost 10% of India's total population. Bombay is the State capital and the largest industrial center. The State's urban pop- ulation, excluding Bombay's 7.6 million, is 11.3 million located in some 226 urban communities; the rural population is 40.4 million. The Bombay Metro- politan Region (BMR), a part of the State of Maharashtra and a beneficiary under the proposed Credit, comprises 4,350 square kilometers. Excluding Bombay, it has an estimated population (1978) of 2.6 million of which 1.6 million has been designated as urban.

31. The Vaitarna River in the north, the Ulhas River and their tribu- taries, as well as the Patalganga and Amba Rivers in the south, are the prin- cipal sources of water for BMR. The tailraces of the Bhivpuri and Khopoli hydroelectric power stations supplement the Ulhas and Patalganga River flows and the Barvi Dam impoundment helps to sustain flows in the Barvi and Ulhas Rivers. In addition to these principal sources there are many minor streams, some of which are suitable for impounding to provide year-round water supplies.

32. The Municipal Corporation of Greater Bombay (BMC), a part of BMR, draws its water from the Vaitarna, Tansa, Powai, Vihar and Tulsi Reservoirs and will soon begin to use part of the water from the Bhatsai Reservoir under the IDA-assisted Bombay Water Supply and Sewerage Projects. BMC also has facilities to draw 90 million liters per day of water directly from the Ulhas River.

33. The Ulhas River and its tributary, the Barvi River, provide most of the water used in the project area. The water is treated and pumped at three plants: Shahad and Jambul, operated by the Maharashtra Industrial Development Corporation (MIDC), and Badlapur, operated by the Maharashtra Water Supply and Sewerage Board (MWSSB). An additional water intake on the Ulhas River and a water treatment plant at Temghar will be provided under the proposed project to supply water to the northeast portion of the project area, part of which is now supplied by BMC.

Water Supply and Sewerage in the Project Area

34. All six towns and 22 of the 104 villages included in the proposed project have piped water, although the supply is inadequate and the distri- bution of water is inequitable. Some areas receive water for periods of only 2 to 4 hours a day and many areas have insufficient standpipes to meet the needs of people who cannot afford to have individual water connections. It is estimated that within the project area the quantity of water available to the 1978 population of 1.3 million is about 105 million liters per day (mld) of which a net quantity of 65 mld is available for domestic consumption. Based on the normally accepted standards in India of 120 and 50 liters per capita per day (lcd) for urban consumers supplied through connections and standpipes, respectively, and of 70 and 40 lcd for similar categories in rural communities, - 11 - the domestic water demand in the project area is 160 mld or about 1.6 times the present supply level. By 1984, if the project is not implemented, esti- mated demand will be more than twice the supply level.

35. At present, the urban population outside of the BMC area have no access to water-borne sewerage systems, although partially constructed systems for the towns of Thane, Kalyan and Bhiwandi will be completed under the project. The Government of Maharasthra (GOM) recently allocated Rs 20 million (US$2.3 million) for rural sanitation in the project area which MWSSB will prepare and implement in parallel with the IDA-assisted project. This will be the first rural sanitation project in BMR. Parts of the six towns in the project area have septic tanks, soakage pits and bucket latrines which provide an inadequate and often unhygienic means of waste disposal. It is reported that the most frequently used means of disposing of human waste is to dump it in open sur- face water drainage channels, water courses and sullage ponds.

Sector Organization

36. In 1975 GOM established an Environmental Engineering Organization (ENE) under its Department of Urban Development, with the declared objective of providing safe drinking water and waste disposal services to achieve and maintain a cleaner environment. ENE undertook the planning and implementation of most rural water supply, as well as municipal water supply and sewerage projects, which were partly financed by municipalities and partly by Government. Such projects are normally operated and maintained by the local authorities concerned, although the State Government sometimes performs these tasks at the request of local authorities.

37. The Maharashtra Water Supply and Sewerage Board was established in January 1977. GOM considered that such an entity could more effectively "'provide rapid development and proper regulation of water supply and sewerage services in the State of Maharasthra." Initially, MWSSB's role was primarily that of a financing channel, raising funds by borrowing from local financing institutions and on the open market. Recently, GOM has placed considerable emphasis on the development of MWSSB to the level of a fully effective agency, expanding its functions to include project preparation, execution, operation and maintenance. During 1979, almost the entire staff of ENE (about 9,000 technical and non-technical staff) will be transferred to MWSSB, retaining much of ENE's former organizational pattern. Although the headquarters of MWSSB is located in Government offices in Bombay, it will soon occupy new offices, in addition to subsidiary offices in several regions of the State (termed circles) and in districts within the circles. The proposed project is located in the Thane district of the Bombay circle.

Sector Investment

38. Increased investment in the sector at the national level (paragraph 29), and at the State level is desirable. Investment in the State water supply and sewerage program amounted to about Rs 75 million (US$8.8 million) in FY1976/77 and FY1977/78, which was less than 2% of GOM's total budget. - 12 -

Some Rs 39 million and Rs 1.7 million (US$4.5 million and US$0.2 million) were allocated to urban and rural areas, respectively, and about Rs 35 mil- lion (US$4.1 million) to continuing construction of the Bhatsai dam to be used for supplying water to Bombay and for irrigation.

39. The Bombay Metropolitan Region Development Authority (BMRDA), was established in 1975 to coordinate the activities of local authorities within BMR and to promote regional investment planning. BMRDA has completed a com- prehensive water resources study for BMR and has played a major role in preparing the proposed project. The proposed project, which forms part of a sector development plan for BMR, was prepared by the Water Resources Manage- ment Board of BMRDA. For planning purposes, BMR is divided into six zones (see Map). There are 13 towns and 1,300 villages in these six zones. Of these, water supply to communities in Zones I, III and most of IV are included in the project. In other zones, projects are under implementation as well, in- cluding BMC's two IDA-assisted water supply and sewerage projects in Zone VI. The BMRDA plan also includes water-borne sewerage systems for eight of the thirteen towns in Zones I through V; six of these systems, which are part of the project, and sewerage systems for the towns of Panvel (Zone IV) and Khopoli (Zone V), are to be included in India's Sixth Plan at an estimated cost of Rs 22 million (US$2.6 million). As yet, there are no firm proposals to provide sewerage systems for the remaining five towns.

40. Although the Government of India (GOI) is now placing considerable emphasis on the need for improved water supplies in rural areas, specific projects have yet to be developed for most of the rural areas in BMR. BMRDA, in conjunction with MWSSB, has determined that almost 700 of the 1,300 vil- lages in BMR urgently require new piped water systems to replace existing inadequate wells. New piped water supplies for 82 of these villages will be provided under the project, and a further 115 villages will receive piped water under a Rs 60 million (US$7 million) program proposed by the Water Resources Management Board later in the Sixth Plan period. There are no specific plans at present to provide piped water to the remaining 500 or so villages in need of water supply.

Bank Group Involvement in the Bombay Metropolitan Region and in Maharashtra

41. The Bank Group has been involved in the development of the water supply and sewerage sector in the BMR since January 1974. The (first) Bombay Water Supply and Sewerage Project (Cr. 390-IN of January 22, 1974) provided US$55 million to finance the development of Bombay's long-neglected water supply and sewerage systems. The project covered the first stage (1973-77) of GOM's program for improving systems in Greater Bombay within the BMR over the period 1971 to 1981. The project, which is being implemented by the Bombay Municipal Corporation (BMC), was subsequently reduced in scope because of rising costs, and its completion was extended to 1979. Despite these set- backs, the project is expected to achieve much of its original objectives of increasing water supply by about 450 mld to a total of about 1,900 mld, pro- viding full treatment and moderately improving the sewage collection system. A second stage, covering works scheduled for implementation during the period - 13 -

1977 to 1981, as well as items deferred from the first project, was financed under the Second Bombay Water Supply and Sewerage project for which a US$196 million credit was approved (Cr. 842-IN of November 13, 1978). The project, which is being implemented,covers the treatment,transmission and distribu- tion of an additional 450 mld of water to the Greater Bombay area to meet the needs of its 1991 population,estimated at about 11 million. The project also provides for improvementand extension of the sewerage system from 44 to about 90% of the Greater Bombay area.

42. In addition to the projects described above, the BMR has benefitted through a US$25 million Bank Loan (No. 1335-IN of December 20, 1976) extended for the Bombay Urban Transport Project. This project, which is designed to improve bus services in Greater Bombay and to improve BMRDA's traffic manage- ment and developmentplanning activities,is progressing satisfactorilyafter initial delays. The Third Trombay Thermal Power Project for which a US$105 million loan was approved (Loan No. 1549-IN of June 19, 1978) assists the constructionof a 500 MW power station which is expected to contribute to the reduction of power shortages in the Bombay area. Bombay's large industrial sector has also benefitted from Bank Group lending to ICICI and IDBI as well as for industrial imports.

43. The Bank Group has also assisted Maharashtra'sagricultural develop- ment programs through four previous credits. Firstly, the Purna Irrigation Project (Cr. 23-IN for US$13 million), approved in July 1962 and successfully completed in 1968, financed the main infrastructurefor irrigating the 60,000 hectare left bank area of the Purna River Valley. The MaharashtraAgricul- tural Credit Project (Cr. 293-IN for US$30 million), approved on March 29, 1972, and disbursed in June 1976, assisted the refinancingof loans to farmers in Maharashtra for minor irrigation,land developmentand land reclamation. The Drought Prone Areas Project (Cr. 526-IN for US$35 million) approved on January 24, 1975, assisted the improvementof agriculturein two districts in Maharashtraunder rainfed conditions. This project is proceedingsatis- factorily,although in the Maharashtra districts it suffered some initial delay mainly because of inadequate technical staff. Finally, the Maharashtra Irrigation Project (Cr. 736-IN for US$70 million) approved on October 11, 1977, assists the infrastructuredevelopment of the Jayakwadi Irrigation scheme which is the first step (183,000 ha) in a 10-15 year command area development program designed ultimately to cover over one million hectares in the State. Implementationof this project is satisfactory. Further Bank Group assistance to Maharashtra's major irrigation sector is presently under consideration.

PART IV: THE PROJECT

44. The proposed project was prepared by BMRDA with the assistance of ENE, consultantsand Bank staff, and was appraised in November/December1978. The Staff AppraisalReport, No. 2377a dated April 17, 1979, is being distri- buted separately to the Executive Directors. Negotiationswere held in Washington in March/April 1979. The Governmentof India was representedby - 14 -

Mr. B. S. Lamba, of the Department of Economic Affairs, Ministry of Finance, and the Government of Maharashtra was represented by Mr. V. Venkatesan, Secretary (Planning). A supplementary Project Data Sheet is attached as Annex III.

Project Description

45. The water supply component of the proposed project would include the augmentation of the existing piped water systems in six towns (Thane, Bhiwandi, Kalyan, Dombivli, Ulhasnagar and Ambernath) and 22 villages, as well as the provision of new piped water supplies in 82 additional villages. The towns are long-established urban and industrial centers to the northeast of the Greater Bombay Municipal area. The villages are, with a few excep- tions, closely grouped around the six towns. These rapidly developing areas will benefit under the proposed project through the provision for treatment, transmission and distribution of an additional 200 mld of water which will help to satisfy existing deficiencies and ensure an equitable distribution of water to serve the needs of a 1991 urban and rural population of approxi- mately 2.4 million.

46. The sewerage component would expand and complete the systems under construction in three towns (Thane, Kalyan and Bhiwandi). New collection and treatment systems, and a safe means of disposing of sewage, will also be included for the remaining three project towns, so that by 1984 the whole of the urban population will have access to acceptable forms of sanitation, sewage treatment and disposal. MWSSB expects to implement a rural sanitation program at the same time as the proposed project with funds provided by GO01.

47. MWSSB would supply water in bulk to the towns and villages in the project area. The water would be drawn from the Ulhas River and would be fully treated in four plants: the Badlapur plant, which is owned and operated by MWSSB and is to be expanded under the project; the Temghar plant, an MWSSB facility which is to be constructed under the project; and the Jambul and Shahad plants, which are owned and operated by the Maharashtra Industrial Development Corporation (MIDC). MIDC would make available to MWSSB sufficient quantities of bulk water to meet project requirements (Section 2.07 of the Maharashtra Agreement). While towns in the project area would operate their own water distribution and sewerage systems, villages would be responsible for the former only. Operation and maintenance of these systems would be monitored by MWSSB. MWSSB would also implement a program satisfactory to IDA to reduce transmission and distribution system losses to acceptable levels, and to carry out water meter testing and repairs for local authorities (Section 2.07 of the Project Agreement).

Project Implementation

48. The proposed project, which forms a large part of MWSSB's program, will be implemented over four years by a separate unit already established within MWSSB, headed by a Chief Engineer. Following a GOM decision to make MWSSB fully responsible for sector development, the transfer of the staff of - 15 - the Environmental Engineering Organization (ENE) to TWSSB was scheduled for January 1979. Following representations from ENE staff seeking clarification regarding the terms and conditions of deputation to MWSSB, the transfer has been deferred to permit resolution of these issues. In the meantime, the staff continues to carry out its duties as part of the MWSSB's organization while remaining employees of the State Government. Although MWSSB staff is both capable and experienced in carrying out the proposed works, the addi- tional workload envisaged under the project will require a considerable man- power input during the initial years of its implementation. To meet this need, MWSSB will require the assistance of consultants to complete final engineering design of a major part of the water supply and sewerage systems; the appointment of suitably qualified consulting engineers for the engineering design of the project is a condition of effectiveness of the proposed credit (Section 5.01 (c) of the Development Credit Agreement).

49. MWSSB is adequately staffed to carry out its engineering and techni- cal functions; however, its financial and accounts staff is weak, primarily because a separate government department provided these services to its pred- ecessor. GOM and MWSSB agreed during appraisal that adequate staff for the efficient performance of MWSSB's functions including its financial management and accounting functions would be provided during 1979. Any vacant key posi- tions will be filled by September 30, 1979, and thereafter any significant changes in MWSSB's organizational structure will be made only after consulta- tion with IDA (Section 2.01(c) of the Maharashtra Agreement).

Project Costs and Financing

50. The estimated cost of the proposed project is about US$100.0 mil- lion equivalent, including about US$4.2 million in taxes and duties. The principal components are: water supply, US$36.5 million; sewerage works US$21.6 million; MWSSB's engineering costs, US$3.9 million; land acquisition US$2.1 million; consulting services and training, US$2.3 million; and mis- cellaneous works, US$2.0 million. Physical contingencies amount to approxi- mately US$9.3 million, while price contingencies of US$18.1 million are based on annual price increases of 6.5% and 7.5% for equipment and civil works respectively, in 1979/80, and 6% and 7% respectively, thereafter.

51. The proposed credit of US$48.0 million equivalent would finance about 50% of project costs, net of taxes and duties. The credit would finance all foreign exchange costs (approximately US$9.7 million) and US$38.3 million of local costs. GOM would contribute US$37.8 million, while participating local authorities will contribute the balance of US$10.0 million. The pro- ceeds of the credit will be channelled through GOI to G014,on standard terms as part of Central assistance provided to State Governments for development purposes. GOM will onlend these funds to MWSSB at 6-3/4% interest per annum, for a period of 25 years, including four years of grace. - 16 -

Procurement and Disbursement

52. All contracts for equipment, materials and meters would be awarded under international competitive bidding procedures in accordance with the Association's guidelines, with the exception of contracts for sewer pipes, fabrication of steel pipes (from steel plate purchased under international competitive bidding procedures) and items costing less than US$50,000 with an aggregate value of not more than US$1.0 million. Sewer pipes and the fabrication of steel pipes, having a total cost of about US$2.2 million, are either unsuitable for overseas purchases or are too low in value to attract foreign bidders or to justify international bidding. Contracts for sewer pipes and fabrication of steel pipes would be awarded under local competitive bidding procedures, and items costing less than US$50,000 would be procured under GOM's local procurement procedures, both of which are acceptable.

53. All civil works for this project, with the exception of the Temghar water plant, comprise a large number of relatively small contracts, which are fairly widely dispersed throughout the project area, do not require special plant equipment or techniques and are traditionally carried out by registered contractors established in Bombay and other major Indian cities. These works, which include labor-intensive pipe laying, construction of sewers and sewage pumping stations, would not attract foreign bidders since it is clear that overseas firms could not successfully compete with local bidders for works of this type and size. The Temghar water treatment plant is the only large civil works component in the project, and although some local contractors are well qualified to bid for its construction, it may also attract foreign bidders. It would therefore be subject to international competitive bidding procedures in accordance with IDA guidelines.

54. The proceeds of the credit would be disbursed against 100% of the cost of directly imported goods, 100% of the ex-factory cost of locally manu- factured goods, 50% of expenditures for goods procured under GOM's local procedures, 75% of the cost of civil works contracts, 100% of foreign expend- itures for training, and 100% of the cost of consultants' services. A pre- ference margin of 15% of the c.i.f. cost or the current rate of import duty, whichever is less, would be granted to local equipment manufacturers competing under international competitive bidding. A preference margin of 7-1/2% would be allowed for local civil works contractors competing under international competitive bidding. Most of the contracts for equipment and materials and all contracts for civil works, with the possible exception of the Temghar water treatment plant, are likely to be won by local contractors. Since the early appointment of consultants to undertake the engineering design of both the water supply and sewerage components is critical to project progress, it is proposed that expenditures after April 1, 1979, for consultant services be retroactively financed up to a total value of US$0.5 million (see paragraph 4 of Schedule 1 to the Development Credit Agreement).

Financial Position of Project Entities

55. Present accounting and financing arrangements at all levels of the sector are based on government rather than commercial practice. Water supply - 17 - accounts are kept on a simple cash basis. Water supply transactions are consolidated with those of other services and any shortfall or surplus in water supply revenues is funded from or contributes to the respective consolidated State or local authorities' revenues. Separate income statements and balance sheets for water supply are not prepared. ENE revenues were insufficient to cover its operating costs, depreciation and interest, and deficits were incurred in both FY1977/78 and FY1978/79 on Statewide activities which were met from GOM's consolidated revenues.

56. As part of a feasibility study for this project, BMRDA engaged consultants to prepare financial statements for the project entities, in accordance with commercial practice, and to revalue existing assets in the project area. Income statements for the years 1974/75 through 1978/79 for four of the six municipal towns in the proposed project area (Thane, Bhiwandi, Kalyan and Dombivli) which presently operate their own distribution systems, indicate a varied performance from a surplus in Thane to deficits in the others, while the estimated financial position of the remaining two municipal towns, which will shortly begin to operate their own distribution systems, is generally satisfactory. Little information is available on the financial position of the water distribution activities of villages under the proposed project. However, indications are that revenues are sufficient to cover operating costs.

57. As part of GOM's program to establish MWSSB, ENE's fixed assets will be transferred to the latter as GOM's equity contribution. MWSSB would not be made liable for any operating deficits incurred prior to this transfer. Thereafter, in order to monitor its financial viability, MWSSB will establish and maintain a commercial accounting system for all its operations, including those in the project area, for which it will also be required to maintain separate accounts (Sections 4.01 and 4.02 of the Project Agreement). MWSSB has yet to formulate a financing plan for its operations throughout the State, which will include projects to be executed for local authorities in the Sixth Five-Year Plan period ending in FY1982/83. This plan will be reflected in MWSSB's annual investment programs which will be submitted to the Association as part of the project reporting procedures. To protect its future viability, MWSSBwould obtain IDA's prior agreement to the incurrence of any long-term debt, unless its overall operating surplus before depreciation, for its most recent financial year, is at least 1.3 times the maximum debt service in any future year (Section 4.05 of the Project Agreement). Furthermore, by September 30, 1979, MWSSB will submit to IDA a program for the introduction and operation of satisfactory financial management and information systems (Section 4.03 of the Project Agreement).

58. For the purpose of ensuring the viability of the water and sewerage operations for the six project towns, GOM will require each town to prepare and maintain separate accounts on a commercial basis for its operations (Section 2.08(a) of the llaharashtra Agreement). Similarly, GOb! will also require each village council in the project area to establish separate accounts for its water supply operations (Section 2.08(b) of the Maharashtra Agreement). Local authorities with a high proportion of accounts receivable - 18 - will be required by GOM to reduce these by March 31, 1981, to an acceptable level, to be agreed with the Association (Section 2.10(a) of the Maharashtra Agreement). Finally, GOM will also be responsible for ensuring that local authorities in the project area pay their bills for bulk water supplies promptly to MWSSB. Bills remaining unpaid for more than 90 days will be paid by GOM through deductions from grants due to the local authority concerned or by any other means available to GOM (Section 2.10(b) of the Maharashtra Agreement).

Tariffs - MWSSB

59. About 90% of the properties in the project area which have water connections are metered and consumers pay for water according to the amount used. Charges for water supplied to the few consumers with unmetered connec- tions are either in the form of a percentage of the property tax or a fixed charge on each property. On completion of the project, all connected proper- ties will be metered. At present, there are few (less than 100) properties connected to sewerage systems, and waste removal forms part of the conservancy service which is charged to general revenues.

60. A socio-economic study has been commissioned by BMRDA for the project area which will provide a basis for the consideration of alternative tariff structures. By April 1, 1980, GOM will review the bulk and retail tariffs structures in the project area in consultation with MWSSB, the local authorities and IDA, taking into account, among other things, consumers' ability to pay and the economic cost of future expansion of these services (Section 2.12 of the Maharashtra Agreement). MWSSB has adequate powers under the MWSSB Act 1976, to charge for and recover the cost of water supply. MWSSB will review annually and set its bulk tariffs in the project area to cover operating costs and depreciation of fixed assets in operation beginning April 1, 1980, and to provide additionally a rate of return on average net fixed assets in operation of not less than 4% in FY83/84 and FY 84/85, 5% in FY85/86 and 6% thereafter (Section 4.04(a) of the Project Agreement). MWSSB will also be required to fix tariffs outside the project area at the commence- ment of each financial year beginning April 1, 1980, to ensure that revenues are sufficient to cover operating costs and the greater of depreciation or debt service (Section 4.04(b) of the Project Agreement).

Tariffs - Local Authorities

61. Adequate powers to levy charges have been granted to local author- ities under the Maharashtra Municipalities Act 1965 and the Bombay Village Panchayat Act 1958. However, by-laws framed under the 1965 Act need to be extended to provide for the recovery of sewerage costs in proportion to the volume of water consumed. This is being done by GOM. For the years 1980/81 through 1982/83 each of the six municipal towns in the project area will set water and sewerage tariffs before the commencement of each financial year to ensure that revenues are sufficient to cover operating costs, debt service and its annual contribution towards project costs. In the event that the revenues of any municipal town in the project area proves to be insufficient - 19 - to provide the proposed contribution towards project costs, GOII will ensure that this contribution is met from other revenues of the town concerned (Section 2.09(a)(i) of the Maharashtra Agreement). From 1983/84 onwards, a rate of return covenant is proposed for the six towns, based on net fixed assets in operation. The rate of return will be increased gradually as the impact on domestic consumers will vary considerably from town to town, depend- ing on the level of water demand by industry and commerce. Consequently, from April 1, 1983, the level of municipal tariffs in the project area will be set to ensure sufficient revenues to cover the greater of either (a) operating costs, depreciation, and a rate of return on average net fixed assets in operation of not less than 3% in FY83/84, 4% in FY84/85, 5% in FY85/86 and 6% thereafter or (b) operating costs and debt service (Section 2.09(a)(ii) of the Maharashtra Agreement).

62. The present levels of tariffs in the villages under the proposed project are generally adequate to provide sufficient revenues to meet project requirements until 1983. From April 1, 1983, village tariffs in the project area will if necessary, be set at levels adequate to ensure that revenues are sufficient to cover operating costs and any debt service requirements (Section 2.09(b) of the Maharashtra Agreement). The combined water and sewerages charges would result in rates of between Rs 11 (US$1.28) and Rs 28 (US$3.26) per month (at 1979 prices) in FY83/84 to an average family in the project towns (excluding standpipe users). The monthly water charge for urban stand- pipe users for the same period, if fully recovered, would range from Rs 3 (US$0.35) to Rs 7 (US$0.81) and for rural families between Rs 4 (US$0.47) and Rs 7 (US$0.81) at 1979 prices. Any operating subsidy for the water supply and sewerage services will be limited to the cost of supplying water by public standpipe calculated at the domestic tariff (Section 2.09(c) of the Maharashtra Agreement).

63. The passage of satisfactory Resolutions by the M4unicipal Councils of the participating towns is a condition of effectiveness of the proposed Credit (Section 5.01 (d) of the Development Credit Agreement). Five of the six participating towns have adopted Resolutions expressing their support and willingness to take the necessary steps to implement the proposed project. The sixth town (Thane) has approved its participation in principle but has requested clarification of certain issues. GOM is confident that this town will also adopt the required Resolution shortly. In the unlikely event that this is not done by the terminal date for credit effectiveness, IDA would reduce the proposed Credit by some US$10-12 million (the currently estimated cost of the works to be carried out in Thane) and would not disburse against such works.

Benefits and Risks

64. Without the project, the six towns and about 20% of the villages covered would have unreliable and intermittent water supply services, while the balance, 80% of the project villages, would have no piped water at all. Although sewerage systems are being constructed for parts of the project - 20 -

area, few, if any, of the urban and rural population have access to acceptable waste disposal systems. The project will enable all sections of the urban and rural community, including the urban and rural poor, to have access to piped supplies of potable water. Together with the provision of systems for collec- tion, conveyance and disposal of human and industrial wastes in the urban areas, and MWSSB's rural sanitation project for the villages, this will help to alleviate the hardship, drudgery and disease which result from the present inadequate water, sewerage and sanitation arrangements. The project would also develop MWSSB's capability in planning and executing programs and the capability of local authorities in operating and maintaining their own systems through the provision of additional training for technical and administrative personnel. The project would also foster the practices and concepts of sound engineering, cost recovery and efficiency pricing in the public sector.

65. Of the total incremental population of 1.4 million to be served by the project, approximately 0.9 million represent the urban poor and predom- inantly low income rural population. In urban areas, additional standpipes will be provided to improve water supply services to an estimated 36% of the urban population who live in slum areas. As a consequence, the long daily waiting times at standpipes for water will be reduced and walking distances shortened. As estimated 33% of the urban population will be provided with water through standpipes. The remaining urban population will be served by metered connections. Also, concessional credit would be extended by GOM to the lower income groups of the community to facilitate connections to the water supply and sewerage systems (Section 2.06 of the Maharashtra Agreement). In rural areas, it is expected that 60% of the population will be served by standpipes and the balance of 40% by metered connections.

66. Preliminary health statistics indicate the prevalence of water- and sanitation-related diseases throughout the project area. Statistics of deaths maintained in municipal records for the period 1975-77 show that an average of 8% of all deaths are attributed to such water-related diseases as diarrhea, gastroenteritis, dysentery and typhoid. These mortality figures however underestimate the incidence of these diseases. Although incidence- related data are difficult to obtain and interpret, the municipal records for one project town (Kalyan) indicate 65 reported cases of diarrhea, gastro- enteritis and dysentery for each recorded death. Data on the incidence of water-borne and sanitation-related diseases in the rural areas reveal the same pattern of water-related diseases as in the towns. The incidence of jaundice increased suddenly in 1978, particularly in the urban area, follow- ing an epidemic of the disease in the region. Additionally, seven villages reported cases of guinea worm in 1976 and 1977 with as much as 15% of the population of any one village suffering from the disease. The introduction of piped water is expected to reduce the number of guinea worm infestations in the affected villages considerably. During the monsoon months, the inci- dence of (and deaths from) water- and sanitation-related diseases increases dramatically. During these months, heavy rains result in the overflow of open drains spreading storm water contaminated by sewage over wide areas. There is also deterioration in water quality and stagnant rainwater pools become highly contaminated water sources. - 2 1 -

67. The internal economic rate of return of the project was calculated using the incremental revenues based on present water charges in the project area. The rate of return is 3.5% if labor is valued at its full market price and 4.5% if labor is valued at 70% of its market price. With revenue streams based on increased tariffs proposed upon completion of the project, the rate of return rises to 8.3% if labor is valued at 100% of its market price, and 9.4% if labor is valued at 70% its market price. The incremental revenue represents a minimum proxy for benefits derived from the project. It does not include benefits which cannot be meaningfully quantified. For example, the amount by which consumers value additional consumption above the price paid for additional water is not included. This consumer's surplus will be sig- nificant in areas where the project is providing the first increments in wholesome, reliable water consumption. Secondly, although sewerage costs have been taken into account, no proxy for sewerage benefits has been included in the revenue stream based on present charges, as there are no indicators of consumers' willingness to pay for water-borne systems in the project area. Finally, the method of calculation disregards the following benefits: improve- ments in public health and environmental conditions; increases in labor pro- ductivity and employment opportunities; improved institutional capabilities, increased property values and the promotion of economic development which are not quantifiable but which exceed the sum of individual benefits.

68. The risks involved in the project are no greater than can normally be expected with operations of this type. Because the project involves a sub- stantial amount of civil engineering works, there is a risk that temporary shortages of material, lateness on the part of manufacturers in meeting contractual delivery deadlines or lack of management skills on the part of contractors will lead to delays. However, these issues have been fully discussed with both GOM and MWSSB, as well as GOI, and all precautions are expected to be taken to minimize the impact of these delaying factors. A further risk lies in the fact that the project concentrates on investment in sewerage works against a background of low connection rates. The project has however built-in provisions to encourage and facilitate connections to sewerage systems. These are being successfully employed in BMR under the on-going Bombay Water Supply and Sewerage projects.

PART V - LEGAL INSTRUMENT AND AUTHORITY

69. The draft Development Credit Agreement between India and the Asso- ciation, the draft Maharashtra Agreement between the Association and the Government of Maharashtra, the draft Project Agreement between the Association and the Maharashtra Water Supply and Sewerage Board and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to Executive Directors separately.

70. Special conditions of the project are listed in Section III of Annex III. The execution of a contract between MWSSB and engineering consultants for the engineering design of the project and the passage of Resolutions by - 22 - the six participatingmunicipal towns are special conditions of credit effectiveness(see paragraphs 48 and 63 above).

71. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.

PART VI - RECOMMENDATION

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

Robert S. McNamara President

by I.P.M. Cargill

April 18, 1979 ANNEX I Page 1 of 5 INDIA - SOCIAL INDICATORS DATA NSHET

REFERENCEGROUPS (ADJUSTEDAVERAGES INDIA / LAND AREA (THOUSANDSQ. KM.) I MOST RECENTESTIMATE) /a TOTAL 3287.6 SAME SANE NEXT HIGHER AGRICULTURAL 1818.3 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e

GNP PER CAPITA(US$) 60.0 90.0 150.0 167.4 182.9 432.3

ENERGYCONSUMPTION PER CAPITA (KILOGRAMSOF COAL EQUIVALENT) 142.0 181.0 218.0(76) 65.7 88.9 251.7

POPULATIONAND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 434.9 547.6 631.7 /f URBANPOPULATION (PERCENT OF TOTAL) 17.6 19.5 20.6 12.8 15.0 24.2

POPULATIONPROJECTIONS POPULATIONIN YEAR 2000 (MILLIONS) 973.0 STATIONARYPOPULATION (MILLIONS) 1643.0 YEAR STATIONARY POPULATIONIS REACHED 2150

POPULATIONDENSITY PER SQ. EN. 132.0 167.0 192.0 85.2 46.8 42.7 PER SQ. EM. AGRICULTURALLAND 247.0 308.0 347.0 322.6 254.1 95.0

POPULATIONAGE STRUCTURE(PERCENT) 0-14 YRS. 41.0 41.6 42.0(77) 44.0 43.6 44.9 15-64 YRS. 55.9 55.3 55.0(77) 52.9 53.3 52.8 65 YRS. AND ABOVE 3.1 3.1 3.0(77) 2.9 2.9 3.0

POPULATIONGROWTH RATE (PERCENT) TOTAL 1.9 2.3 2.0 2.2 2.4 2.7 URBAN 2.5/2 3.4 3.5 4.2 4.0 8.8

CRUDEBIRTH RATE (PER THOUSAND) 44.0 40.0 35.0(77) 45.1 44.3 42.2 CRUDEDEATH RATE (PER THOUSAND) 21.0 17.0 14.0(77) 17.3 19.7 12.4 GROSS REPRODUCTIONRATE 3.2 2.9 2.4(77) 3.2 2.9 3.2

FAMILY PLANNING 5 8 ACCEPTORS, ANNUAL(THOUSANDS) .. 3768.0 4 1 .0 USERS(PERCENTOF MARRIEDWOMEN) .. 12.0 11.2 13.7 14.6 14.2

FOOD AND NUTRITION INDEX OF FOOD PRODUCTION 100.0 102.0 101.0 95.6 96.4 104.3 PER CAPITA (1969-71 = 100)

PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 95.0 92.0 89.0 91.1 92.3 99.5 PROTEINS (GRAMSPER DAY) 51.0 53.0 48.0 49.6 50.0 56.8 OF WHICHANIMAL AND PULSE 19.0 16.0 12.6 12.6 13.9 17.5

CHILD (AGES 1-4) MORTALITYRATE 28.0 22.0 10.0 .. .. 7.5

HEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 41.7 48.0 51.0(77) 43.1 45.8 53.3 INFANT MORTALITYRATE (PER THOUSAND) .. 134.0 134.0 99.5 102.7 82.5

ACCESS TO SAFE WATER (PERCENT OF POPULATION TOTAL .. 17.0 33.0 30.0 26.4 31.1 URBAN .. 60.0 83.0 66.3 63.5 68.5 RURAL ,, 6.0 20.0 17.2 14.1 18.2

ACCESS TO EXCRETADISPOSAL (PERCENT OF POPULATION) IOTAL .. 18.0 20.0 15.7 16.1 37.5 URBAN .. 85.0 87.0 66.9 65.9 69.5 RURAL .. 1.0 2.0 2.5 3.4 25.4

POPULATIONPER PHYSICIAN 5840.0/h 4890.0 3135.0(77) 8830.8 13432.7 9359.2 POPULATIONPER NURSING PERSON 11590.0/h 5220.0 6320.0(76) 8479.3 6983.3 2762.5 POPULATIONPER HOSPITAL BED TOTAL 2590.0/i 2020.0 1231.0(77) 1624.5 1157.6 786.5 URBAN .. ,. ., .. 183.3 278.4 RURAL .. ,. .. .. 1348.8 1358.4

ADMISSIONS PER HOSPITAL BED .. .. ., .. 19.5 19.2

HOUSING AVERAGESIZE OF HOUSENOLD TOTAL 5.2 . . 5.2 .. 5.2 URBAN 5.2 .. 4.8 .. 4.8 RURAL 5.2 .. 5.3 .. 5.3

AVERAGENUMBER OF PERSONS PER ROOM TOTAL 2.6 2.8 .. URBAN ...... 1.8 2.3 RURAL

ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS TOTAL .. ., .. .. 25.9 28.3 URBAN ...... RURAL ...... 8.7 10.3 ANNEX I INDIA - SOCIAL INDICATORS DATA SHEET Page 2 of 5

REFERENCE GROUPS (ADJUSTED AVERAGES INDIA /a - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTI1MATE /b REGION /c GROUP Id GROUP /e

EDUCATION ADJUSTED ENROLLMENTRATIOS PRIMARY: TOTAL 61.0 72.0 79.0(76) 59.1 62.9 75.8 FEMALE 40.0 55.0 63.0(76) 38.4 45.9 67.9 MALE 80.0 87.0 94.0(76)

SECONDARY: TOTAL 20.0 29.0 28.0(76) 19.9 14.4 17.7 FEMALE 10.0 17.0 18.0(76) 9.9 8.8 12.9 MALE 30.0 39.0 38.0(76)

VOCATIONAL (PERCENT OF SECONDARY) 8.0 6.0 .. 1.5 6.6 7.4

PbPIL-TEACHER RATIO PRIMARY 29.0 38.0 40.0 38.2 38.5 34.3 SECONDARY 16.0 17.0 .. 23.5 19.8 23.5

ADULT LITERACY RATE (PERCENT) 28.0 33.0 36.0 35.6 36.7 63.7

CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.7 1.0 1.2(76) 2.2 3.1 7.2 RADIO RECEIVERS PER THOUSAND POPULATION 5.0 21.0 24.0(76) 14.9 31.1 71.1 TV RECEIVERS PER THOUSAND POPULATION .. 0.1 0.5 .. 2.8 14.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 11.0 16.0 16.0(75) 6.4 6.0 16.3 CINEMA ANNUAL ATTENDANCEPER CAPITA 4.0 6.3 3.8 .. 1.4 1.6

EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 175000.0 218000.0 261000.0/k FEMALE (PERCENT) 31.3 32.6 32.2 21.3 24.2 28.0 AGRICULTURE (PERCENT) 73.0 73.8 72.5 62.8 60.7 54.1 INDUSTRY (PERCENT) 10.4 9.8

PARTICIPATION RATE (PERCENT) TOTAL 43.0 40.2 39.2 35.8 39.8 37.8 MALE 57.1 52.3 51.3 52.4 53.3 50.3 FEMALE 27.9 27.1 26.2 15.6 19.6 20.9

ECONOMIC DEPENDENCY RATIO 1.1 1.1 1.1 1.3 1.3 1.3

INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.7 25.0/1 .. 18.6 20.3 19.5 HIGHEST 20 PERCENT OF HOUSENOLDS 51.7 53.1/1 .. 42.8 45.1 48.9 LOWEST 20 PERCENT OF HOUSEHOLDS 4.1 4.7/1 .. 7.3 5.7 5.9 LOWEST 40 PERCENT OF HOUSEHOLDS 13.6 13.1/1 .. 19.3 16.8 15.7

POVERTY TARGET GROL'PS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 83.0(77) 80.2 88.5 155.9 RURAL .. .. 73.0(77) 67.2 71.9 97.9

ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 80.0(75) .. 100.8 143.7 RURAL .. .. 50.0(77) 39.8 42.0 87.3

ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 47.0(77) 50.3 46.0 22.9 RURAL .. .. 52.0(77) 44.6 48.0 36.7

Not available .Not applicable

NOTES la The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977.

Ic South Asia; /d Low Income ($280 or less per capita 1976); /e Tower Middle Income ($281-550 per capita, 1976); /f 1978 mid-year population is estimated at 640.4 million; /g 1951-60; /h 1962; Li 1958; /i 1967; /k 1978 mid-year labor force is estimated at 261 million; /1 1964-65.

March, 1979 ANNEXI pEj,jr-M9ICAORSPage o SQIAL 3 of 5

Noise: ~Aith.oghtthe data are drawnt fre orc generally judged the nMoat .thoritntim ted reliable, it should alc be noted chat they n.y not he Lnterns- cioncilp -eparoelo becamse of the lack of tnadardined definitlon Sod concepts Oasd by different onutri.. in collectino the dat. The data at. anthles _af,l to descri, ordr_ of eantd indicate trnods, aed hb-a-criati-e certain eaje diff-eenc.- heb. e- oenit

The aveeondjuted rooforouc indcatr ar poularoe-aeihtedigamtinG mean., excluding tbe etamrn valu. of the indicator an he metPoPuIatd cou"try in each grot. DuSto lat of data, Sretp a-rage. o .11 iniaoefrCpu eps i eatr ndo niaaeo eeat a n ert disPosL, Ifoocing, Ioces distribotims cod Poverty far other country gro rs fore Copuaictal igb il ga rteric nean (t.odi aSl nofted extast vle n an nt populated c.-try, Slt tecveaetfcunresan trooindiatom dpeLetndo a gvi _bilt,o d__ co hintclo.cuio nth nct tod uauseofoe oletr-oteter hnocorst remetycafuts oradstoeSfodsttd f Iat cce f nSlecrencetrsete iedictora a tie enea th ncunth.an r--geec f rc_una LAOS(thousand ARiA sq. he) poewleto e bsce -Pplte ia bymetne fth ractIcIng pha-. ToalS otl ufceaa neeprdieltg lan araadIanoter dT- Laters cie_ aseelifled free of ediclsho tuovrylvl

lie fallow.M o .. -J.gln Sdiln 0selatis ser oh-oitlha -PPItotliubn anid. rrl-Pplto ttl ora. d divdedhyaorl t.heir rSpetien rohsptlbd CUPPi CAITA 011)- raPPert captiam osf te ar.~t~ curent narid prcS vlal npalc e rvt eea n pelsdhsia n e OhO,P1970,tl and crop7data r,at toAn.M lkteastitone physici Setebie .ti- proidinyg 64pricply o catedlal cparetare ne inctlude ad. oe heeitla .h..e. inclde.. heit_t -adead

aNd lios,pioetoRaua c endPbTdro-, nuclarpad gSetherbe ltni. nursl, idwife,4b etc.heich offe InpaIeta dto an electicityin ilogren of od eqivalen t per-cpt. proid altitdPreicfesdca fciices POPULATION61-r111VIwTa WrldSek AtL 195T7ATIiSTICiSbL fre hepit ladiidd by the cobe of"` bode.t

(clNculSMlo PEIco ofITcaocI - OsPtioofura to totai. populationl Ovese sloem nof pocee tld tos ffds by Se pcchysicist (coel obf S sedi mote .difrndfllcs of- trhsi SreanSa fetcsaailyc data 0 hnaotd conlatde Iofa groupofitdvd h hrslvneqatr anong couniries. end theirhdr-einoneale.. IShoehde.or looger ma ornay-d not be Inlde-d Inh

Peoutlaclon itYkarog00m -Cret popu-tlatio paro Spitoaae. basdtn ve tgnser of e fen set coo -hic Ofca.ora. tPtet n aoral -doeai Sodb 1975totibyageandseeandther ppclclo mrtaityendferiliy o peso2 pe ma1.-l-in all urban, sad corf otoied.. t.onosei-h- dwllgs

Tosin lif eon oct Ill-)tbirt inrasn t.ity coun60,try 7pe caiad 155toeetrct h.ctof.- ofllme d.s toa adrua Incs lvel Pand..f tel lifett1 e Raeteecstbllll f eo 77.l years.ia CunvtioSite dfeliogw 1eletiiyinrvcit tr upecnaeo dihe prendafte o fertility areatsals haveff eelt gasebiicg dtcIn thotal sheldo ad.0 cofel aweling "eepetivel.; l rbc drrl conasce.in thenEach countrysesighnedv nato.a.d. none I . boaref othese y9- m not E. th

Sttos, PYeuarti00 - CeraStatIonarytPonpulation,thn, in0 nb#. ssrt frirsPoo -to"al rl end emal Erosu. tonal rele an felS. -enrol lcar Sh.hitc rateob Iseqalnt the Sdeeth. ruts, tt ondal ftertage t not of all ease rat the prImar level as peocn.Pand ofnspctivea prhesry s:trouc8ore texn p.nucter. Thi.i achlitve only. oftrp fertility rates sopch -age .opuliatin. ser ly includes childr-trenaed b-Il years dpabtt goSeioof ose r Steebirths oncotly. the tttontry' por lation universal edaaca.tio sacoreent Ofy deaeed) 10 percentsince, eons pupil er tt- I.cusI,ated onethe helsof th projec.yted hetecterStl7. ee fth-elso shlone the offS.itiho.ctrn ag.it .j"Sqr;. .c eo h o-uastiotrithfyar 2000, ndi thr aceI.Mof dcine ofsferIngdlityrt teotdaly shool - rurel. m-lt.San fe.els-ti ta s bve etsar7ua Youfrt itelotay .... r ciontc Rache1- The ypar fwham ptatInaryg npera- gnrloctoa,o ece riigiartin o uie yo cto ie "aabenreachedh.. o Rj~ 12gad-to 17a?uyearswn rfae oraednacuse eeal xldd

Pterso. on. Mid.-yearpopuationapryeur1 bSterA. (15 he rarsth tecd-a,A,indue.,tSil, or othr roe which toteate itd.ndeeily otrall of total area. departc of eacondary.t~ inarytocfna per u.the. birich trate L. q-e Ctnpthd as shov Sorgitlfl .1ustilg.-tashc llad aio-Ormr, n aend1 S Totlr tuentsgsoresro-i- lem oplti_on ace is crots tactanTh) is Chilre(-14 lyears- fortiitygrage. sphodifeg pepele. as U mdshlre,Sd61 er (o15-41ya-t7 o rericad 1- yearohf and oer spercetin,rtaes o hnid ch A jadutlt c ratdifnr et)1-gh oitriate adutaiabl toaree adwrIte) ath yea p. pulationo , tpercaty r.Sttinrytpagte ap..- - doftotal adl mopyto aged SIGyecnt r atd neover.a Pooclacltn cad,rate (cthon bai toftal, produrban .. cnroun annual . b1--tte,t. fiia caa grou1thr-e ofhyer200 totlhtoea o idyar popudlai on. fortility- 40,l m l -CSoda bea rae7d. _96_-1, un1t7-77. taeeeroaS Sfntthouan yeoarsiofn)p ..pedragecare conptr~.ia motrwodrs Crud ht.irtzrt Pioar thoc,d Reacuad-. livoeabrths pe Sthousand ofal aratLngl -thana,r egteapersons; exc i- ude.ra tincee heae andl m-Ilitaoy old-year ouaIon. r1..4ho. 190ad297daa ehce. 1 a fae raadr.cre r eeal xldd Peroddet a.(a hust7-Ana ets e.huadoMi- aleevr a Ihoaen th-aauonP, all tpes of cuaivrtIyfor rads Vest poplaionltbr,197 la od 1977d data.Ithroadoad. ~ a ti togeneral publictd pr thouand- -'ofpep aciont.. Stroldee unLc. Gros ostodttlchvecgeousar rts f dnghsre wen olI ear opelosray in counrisanday = dinyear she .. gbcailnf h r... o satehw. Inr 1 1toie orea toprodctv period ifChilr anprle14 p.renus a-kge-. efec;di ta folsrbesic eet er ayerh ut o rn spciI nfrdlt rate-; usc earsy iv -ycor avrgs p-odtig in 1940 AdbItlishedt rateenaing Ltlted1 (be -rd n it)S

Folly lnio-ucoos eol(hossdl nuloae fpbi pP-arstothousand population;exclude Sonlc earsd TVd revrsncon accPto.4 re o br.th-control dSvierbnde a auspices o nel nal fll ~ tisa i et hnrgnrto fT ao .i fat Va thil-lanin f users andrceot ofearne pop mtttg of NWIonof"algerlinrstespe",diedncprilclpl- 19rodvseo cid-atngae 1-4 eesPhoue lthcete ation devted pfrimarly t ranrd:ig -asseelsnger.cIt Isconsidre torcs irth dl-t (- - Ith li..... birth par thmoEdeofa1a7Sual cthndno eecest dorea -balaneed onteaonse of tinitar 10icc f fon oroo 6boeeca Sod(19h97107 -d oenntbr f e onusa. capita ca-tua (prodution of Allfo deaodthus prt. - ofi Rr dltp:f -nar d Vet cuoftanu 960, 1of 0c-lori7s dcrotof Confutedf freione reeouireente7 lde.=LLom ocory pqL aln of'tat forod cpp ri ofavailable in S.tantr per ceapit TotallabrsL forte rioSond in Y- nn -h-l reisrtiveprona Including ind per da. Availabldupl1 perodpe if oh.prt.c prdu tmnmporsls fforce ad t nemloedsbt ayearsdl og hasive - ambdnts stoc. tefini- etforife, and lchge In coc. at13supplIe -Sood a..oa. fend seed, tIolinhevarious cosrs agotcoprb qu0,Sotidous nfo rcsto n ousI iriuin e feels (Ptiasrcenth -fel laorulafore soVprcetagen- of-total labor fore.ea quirneeI-ng wet .ntima.a by-..I (haaadon phuiologi.. bard ofo nr rioTtr P.,Iborntel forltemSId. farming,foreTVry, uning and flel mad. activit bthealthIen coederiog ndlro.-pi... o eprtar, heady arisped intageo oal labo feirct. f VSm oafet calohe.Saeodetdarhtoso ouain n ioig1 e- Idsr (usrrent) - Labo foce In e ting, ooaccth,-Ih enf ctiring a cootc iws_a .rath Percdepel ofcriiy watr a gc spretaeo oa brfre capita Lolca upyo odprdy e ffo sdfnda el labotfoeof pecenage of their rIelatctivda poultion: 1960l197 abve eqienneo alcosriseeebihm y lb rviefo nd175dta Tee r (.'salucd scliaco ratesrafecdtinoa elnrr elowtd of 6f gras-eainof tota proei per day birdth0rastse nto,dwctr tf othepplytration,ad log c ted d-f..at.na end porised p =otein,o tahih 10* frnj hol-pn lpoen. tonni 'dieeodaif ratiop - Stlasto ofpopulation une Ian 5 ndoert (basstndrdtenthesof75grmsoftoalprten a lne ndth lbo fid i age grou of1 r4 700r0.B.. h me ft.. I fALO In theemThsird Pondmeslodrvby1 dold Pe c Mla doei tos'l fre 9on" and9-71100 -Protei sapb- of food Peniaeon. vt ae (ohi abadhnd eevdb ihs

andOfCgrcnpl-ries t toPoo, childre inthseage grop.rdfm OM

pIarLTI-Ib...pi.-re 4sttpdton . .I. fetorcdaboue ooetr -incas havol(10ee oetdoatuhuean rurali.- .l.s.rmoe Sodc at.bIr. Lveerk. -NVeagt ou r- oft. msde of- lfe.4 reeda- Ahonue poveratyoon avlIcht leon evlbaorwic sIaa ing. athitch: 1960. 1970,oad 1977im :dte R-FaL dint.t- uitealdqo p1bforcencia 0 poon-fond teotalolaortsfuto qofai mot.lt -- t (,etar by FOun bsd d-Ana dpehslofgicfants. udf-.r-m)foArdalnfa da frsty hnig dfihn 00tooI - sea perh housand livo births. t cati,bodne.ted elaI nof ett. lxoro 1ar.1 SSntcos(-htadrul- Ace t es ad dicrtrib.tiof tofoat toLtial,.d ur1a ingtedrural- Selectee (Poerety Lacboa level in r-hr of.Savtragtot percapta petSod Stashr of: poops (tta,h uran u dcra) ,,ithreasoable ccoesto Inas cutcon tfthe softccor auply a(toiio trastn Pufrt,ctersoin canostdotnuaof cota o olS! ahtlt_ ora_r Inuoleb(atot.ura n unooOnOaedofcrsc D-arr sta repoete oeoa.arns o Peren af (Z.ece (ca tC cocvanlt Tr pour. a-dosicacl aIlly aeoo p.arcceo ofyV.,f respective populations.qleia a prcntge o 96, 97

ucctuf ha hooc.fI coc I' esoftetas notein paroe coul.d inpit -- f .pp.to,ad - i thatte hocowifopr mLnbec ci hcodholddo rcrofVePtospetd do .ces cccccr -d Pi' oa eorn ofhi oh10 S or) h-I bc. orban pccanIcou coalyntsi9an, 5od 65land o.-rtvoc ruralhottr of eoplecots . th of, 75 Ucst. aoftoda hr cccto and- iatch, 19"79ars ecnaoSoaIa af.Mthei roopcccv foruthctorld tocpoa bypoa 'o rarcid cr c'- Po"lcicoddacs.0tho ihu ruoat honr ecct. roetin0wet-ae iv Sodtocbros Prooteant rtpepuy of Vtt . S' Vt-iCOuu collar= tullSattoro. d ecn d7a'' " .r. 0p-Sc . or-4 ecn ANNEXI ICoaIc D1lymIT an Page 4 of 5

GNP PER CAPITA IN 1977: V) 150

b/ C GROSSNATIONL PRODUCTIN 1977/78 eYWAL 2OF CUMl M2. content prices)

Sin.Ila .t 1960/61-1964/65 1965/66-1969/70 1970/71-1976t77

GNP at MArket Prices 101.47 100.0 3.9 3.8 3.2 Gross Domestic Inveastment 21.65 21.3 Gross National Saving 22.77 22.4 Current Account Balance d/ 1.04 1.0 Resource Balance _/ - 0.31 - 0.3

OUTPUT.LABOR FP1CE ANDPROouCTITY IN 1971

Value AAdad (at factor coet) Labor Force V.A. fer Yorfer V#2$51n. 7 Mil..... S.n, O S of National Average

Agriculture 24.5 46.6 130.0 72.1 18 64 Industry 11.8 22.3 20.2 11.2 582 199 Services 16.3 31.1 30.2 16.7 542 186 Total/average 52.6 100.0 180.4 100.0 292 100

GOVERNKT FINANCE General Govyrent Central Govermnt Rs. SBlo eBDfc 1977/78 18_ 1974/75-1977/78

Current Receipts 164.42 18.9 18.2 95.62 11.0 10.5 Current Expenditures 157.29 18.1 16.5 95.27 10.9 9.9 Current Surplus/Deficit 7.13 0.8 1.6 0.35 n.e. 0.6 Capital Expenditures f/ 62.58 7.2 7.0 43.31 5.0 5.0 External Assistance (net) S' 9.82 1.1 1.6 9.82 1.1 1.6

MONFY CRZDITAND PRICKS 1970/71 1973/74 1974/75 1975/76 1976/77 1977/78 Septmber 1977 S&tember 1978 (Rs billion outstanding at and of period)

Money and Quasi Honey 121.4 198.4 220.3 254.7 30.9 365.1 334.8 395.8 Bank Credit to Govermnt (net) 52.6 87.3 95.3 101.1 110.2 129.7 119.3 139.5 Bank Credit to Comercial Sector 64.6 107.0 126.7 153.9 185.1 210.0 195.3 223.5

(Percentage or Index Numbers) Januar 1978 January 1979

Money and Quasi moneyas 7 of GDM 30.1 33.5 31.5 34.5 38.8 41.9 Wholesale Price Index (1970/71 - 100) 100.0 139.7 174.9 173.0 176.6 185.8 184.5 184.6

Annal percentage changes in:

Wholesale Price Indea 7.7 20.2 25.2 - 1.1 2.1 5.2 3.2 0.1 Bank Credit to Goverment (net) 10.8 12.3 9.2 6.1 9.0 17.7 13.4 16.9 Bank Credit to Comrcial Sector 19.4 22.6 18.4 21.5 20.3 13.5 16.6 14.4

a/ The per capita GP estimate is at _rket prices, calculated by the conersion technique ued in the World Atlas. All other couversions to dollars in this table are at the average exchange rate prevailing during tbe period covered. b/ Quick latiatas. c/ Caoputed from trend line of GMI at factor cost series, incluiing one observation before first year and one observation after last year of listed period. d/ World Bank estimates; not necesearily consistent with officisl National Account Statistics. e/ Transfers between Centre end States have been netted out. f/ All loans and advances to third parties have been netted out. B/ ExternAl grants and loans, less principal repayments, as recorded in the Central Budget. ANNEX I Page 5 of 5

h/ h/ BALANCE OF PAYHENTS 1975/76 1976/77 1977/78 1978/79 MERCHANDISEEXPOBTS (AVERAGE 1975/76 - 1977/78) (USs million) US$ Mn. 7.

Exports of Goods 4,672 5,753 6,276 6,80o Engineering Goods 610 11 Imports of Goods -6,449 -5,928 -7,237 -8,400 Tea 417 7 Trade Balance -1,777 - 175 - 961 -1,600 Gi_s 377 7 NFS (net) 310 360 650 700 Clothing 331 6 Leather and Leather Resource Balance -1.467 185 - 311 - 900 Products 278 5 i/ Jute Manufactures 267 5 Interest Payments (net) - 216 - 180 - 50 - Iron Ore 265 5 Other Factor Payments (net) - - - - Cotton Textiles 248 4 Net Transfers |/ 470 730 1,400 1,300 Sugar 244 4 Others 2,530 45 Balance on Current Account -1,213 735 1,039 400 Total 5.567 100 Official Aid Disbursements 2,341 1,953 1,628 1,805 EXTEBNAL DEBT, MARCH31, 1978- Amortization - 531 - 560 - 645 - 725 US$ billion

Transactions with IMF 242 - 337 - 330 - 158 Outstanding and Disbursed 14.8 All Other Items - 45 - 216 384 205 Undisbursed 4.3 Outstanding, including Increase in Reserves (-) - 794 -1,575 -2,076 -1,527 Undisbursed 19.1 Gross Reserves (end year) 2,172 3,747 5,823 7,350 h/l/ Net Reserves (end year) k/ 1,365 3,276 5,668 7,350 DEBT SERVICE RATIO FOB 1977/78 15.0 percent

Fuel and Related Materials IBRD/IDA LENDIG, DECEMBER31, 1978

Imports 1,417 1,581 1,817 1,980 US$ million of which: Petroleum 1,417 1,581 1,817 1,980 IBRD IDA

Exports 43 37 33 n.a. Outstanding and Disbursed 613 3,864 of which: Petroleum 22 21 18 n.a. Undisbursed 615 1,992 Outstanding, including Undisbursed 1,228 5,856 RATE OF EXCHANGE

June 1966 to aid-December 1971 US$1.00 - Rs 7.5 Rs 1.00 - US$0.133333 mid-December 1971 to end-June 1972 US$1.00 - Re 7.27927 Re 1.00 - US$0.137376

After end-June 1972 Floating Rate Spot Rate end-December 1978 US$1.00 - Re 8.188 US$1.00 - Rs 0.122

h/ Estimated. i/ Figures given cover all investment income (net). Major payments are interest on foreign loans and charges paid to IHF, and major receipt is interest earned on foreign assets. j/ Figures given include workers' re ittances but exclude official grant assistance, which is included within official aid disbursements. k/ Excludes net use of IMF credit. 1/ Amortization and interest payments on foreign loans as a percentage of merchandise exports. m/ Excludes exchange adjustment, but includes US$ 22 million due to third parties. ANNEX II Page 1 of 15

THE STATUS OF BANK GROUP OPERATIONS IN INDIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of February 28, 1979)

USS Million-/ Loan or (Net of Cancellations) Credit No. Year Borrower urpose Bank IDA Undisbursed

40 Loans/ 1,100.6 55 Credits fully disbursed 3,338.6

267-lN 1971 India Wheat Storage -- 5 2.73 294-IN 1972 India Bihar Agricultural Markets -- 14.0 3.82 312-IN 1972 India Population -- 21.2 3.21 342-IN 1972 India Education -- 12.0 7.39 356-IN 1972 Isd-a IDBI -- 25.0 9.44 378-IN 1973 India Mysore Agricultral Markets -- 8.0 6.67 902-IN 1973 ICICI Industry DFC X 64.8 -- 0.26 390-IN 1973 India lombay Water Supply -- 55.0 14.80 427-IN 1973 India Calcutta Urban Development -- 35.0 4.39 440-M1 1973 India Bihar Agricultural Credit -- 32.0 8.70 456-IN 1974 India HP Apple Processing & Marketing -- 13.0 8.80 481-IN 1974 India Tronbay IV -- 50.0 6.38 1011-IN 1974 India Chambal (Rajasthan) CAD 52.0 -- 28.67 482-It 1974 India Ka-eataka Dairy -- 30.00 22.74 502-IN 1974 India Rajasthan Canal CAD -- 83.0 44.43 520-IN 1974 India Sindri Fertilizer -- 91.0 7.58 521-IN 197' India Ra.j-thba Dairy -- 27.7 22.89 522-IN 1974 India Madhya Pradesh Dairy -- 16.4 12.68 526-IN 1975 India Draught Prone Areas -- 35.0 18.55 1079-1: 1975 IFFCO IFFC0 Fertilizer 109.0 -- 33.52 1097-IN 1975 ICICl Industry DFC il 100.0 -- 11.52 532-IN 1975 India Codavari Barrage Irrigation -- 45.0 18.21 541-IN 1975 India Went Bengal Agricultural Development -- 34.0 22.02 562-IN 1975 India Chanbal (Madhya Pradesh) CAD -- 24.0 12.14 572-IN 1975 India Rural Eleotrifi-ation -- 57.0 37.65 585-IN 1975 India Uttar Pradesh Water Su?plv -- 40.0 31.96 598-IN 1975 India Fertilizer Industry -- 105.0 77.93 604-IN 1976 India Power Transmission IV -- 150.0 109.73 609-IN 1976 India Madhva Pradesh Forestry T.A. -- 4.0 3.05 610-IN 1976 Ind:a Integrated Cotton Development -- 18.0 16.45 1251-IN(TW) 1976 Tndia Andhra Pradesh Irrigation 145,0 -- 130.21 1260-IN 1976 India IDBI II 40.0 -- 31.66 1273-IN 1976 India National Seeds 25.0 -- 24.65 1313-IN I976 Iod_o Teleoonmunicarinss VI 80.0 - 25.35 1335-IN 1976 BMRDA inobay Urban Transport 25.0 -- 16.04 680-IN 1977 India Kerala Agri-ultural Development -- 30.0 29.85 682-IN 1977 India Orissa Agricultural Development -- 20.0 18.79 685-IN 1977 Indi4 Singrauli Thermal Power -- 150.0 133.90 687-IN 1977 India Madras Urban Development -- 24.C 19.36 695-IN 1977 India Gujarat Fisheries -- 4.0 4.00 1394-IN(TW) 1977 India Gujarat Fisheries 14.0 -- 14.00 690-IN 1977 India West Bengal Agricultural Develonment -- 12.0 12.00 712-IN 1977 India Madhva Pradesh Agricultural Development -- 1. 10.00 715-IN 1977 India Second ARDC Credit -- 200.0 121.18 720-IN 1977 India Periyar Vaigai Irrigation -- 23.0 20.76 728-IN 1977 India Assam Agricultural Develop.ent -- 8.0 7.79 1473-TN 1977 India Bombsy High Offshore Development 150.0 -- 81.99 736-IN 1977 India Maharashtra Irrigation -- 70.0 66.95 737-It 1977 India Rajasthan Agricultural Entension -- 13.0 12.40 740-1N 1977 India Orissa Irrigation -- 58.0 55.96 1475-IN 1977 ICICI Industry DFC XII 80.0 -- 61.14 747-ITN 1978 India Second Foodgrain Storage -- 107;0 104.18 756-IN 1978 Ind'a Second Calcutta Urban Development -- 87.0 75.33 761-IN 1978 India Bihar Agrioultural Exte-nion & Resear-h -- 8.0 8.0 1511-IN 1978 India IDBI Joint/Public Sector 25.0 -- 25.0 1549-IN 1978 TEC Third Tronbay Thermal Yower 105.0 -- 97.55 788-IN 1978 India Karnataka Irrigation -- 126.0 126.0 793-IN 1978 India Korba Thermal Power -- 200.0 200.0 806-IN 1978 India Jammu-Kashmir Horticulture -- 14.0 14.0 808-IN 1978 India Gujarat Irrigation -- 85.0 85.0 815-IN 1978 India Andhra Pradesh Fisheries -- 17.5 17.5 816-IN 1978 India Second National Seeds -- 16.0 16.0 1592-IN 1978 India Telecommunications VII 120.0 -- 100.12 824-IN 1978 India National Dairv -- 150.0 150.0 842-IN* 1978 India Second Bombay Water Supply & Sewerage -- 196.0 196.0 843-IN 1978 India Haryana Irrigation -- 111.0 111.0 844-IN 1978 India Railway Moderrization 6 Mafntesance -- 190.0 188.61 848-IN 1978 India Punjab Water Supply and Sewerage -- 38.0 38.0 855-IN 1979 India National Agricultural Research -- 27.0 27.0 862-IN* 1979 India Compasite Agricultural Eotensios -- 25.0 25.0 871-IN* 1979 India NCDC -- 30.0 30 1648-IN* 1979 india Ramaeundue Ther-1, P- er 50O0 -- 50.0 874-IN* 1979 India Ramagundam Thermal Tower -_ 200.0 7 n

Total 2,285.4 6359.40 of which han been repaid Q2..6 /.1, Total now outstanding 1,I61.RB 6373,67 Amount Sold 133.3 of which has been repaid 111.5 21.8 _ Total now held by Bank and IDA 1,339.96 6313.67 Total undisbuhsed (oexluding 01 601l,g 7a n7.qf

* Not yet effective 1/ Prior to eochange adjustment April. 1979 ANNEX II Page 2 of 15

B. STATEMENT OF IFC INVESTMENTS (As of February 28, 1979)

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

1959 Republic Forge Company Ltd. 1.5 - 1.5

1959 Kirloskar Oil Engines Ltd. 0.9 - 0.9

1960 Assam Sillimanite Ltd. 1.4 - 1.4

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

1963-66 Precision Bearings India Ltd. 0.7 0.3 1.0

1964 Fort Gloser Industries Ltd. 0.8 0.4 1.2

1964-75 Mahindra Ugine Steel Co. Ltd. 11.8 1.4 13.2

1964 Lakshmi Machine Works Ltd. 1.0 0.3 1.3

1967 Jayshree Chemicals Ltd. 1.0 0.1 1.1

1967 Indian Explosives Ltd. 8.6 2.9 11.5

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

1976 Escorts Limited 6.6 - 6.6

1978 Housing Development Finance Corporation 4.0 1.4 5.2

TOTAL 53.6 10.4 64.0

Less: Sold 6.0 1.6 7.6

Repaid 15.3 - 15.3

Cancelled 6.2 0.7 6.9

Now Held 26.1 8.1 34.2

Undisbursed 5.1 0.8 5.9 ANNEX II Page 3 of 15

C. PROJECTS IN EXECUTION 1/

Generally, the implementation of projects has been proceeding rea- sonably well. Details on the execution of individual projects are below. The level of disbursements was US$496.4 million in FY78 or 39% of Bank Group com- mitments to India in that year. The undisbursed pipeline of US$2,890 million as of February 28, 1979, corresponds roughly to commitments over the preceding two-year period and reflects the lead time which would be expected given the mix of fast- and slow-disbursing projects in the India program.

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

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

These loans are supporting industrial development in India through a well-established development finance company and are designed to finance the foreign exchange cost of industrial projects. ICICI continues to be a well-managed and efficient development bank financing medium- and large-scale industries, which often employ high technology and are export-oriented. Loan 1097 is fully committed and disbursements are slightly ahead of schedule. Disbursements under Loan 1475 (US$22.2 million) are also ahead of schedule.

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

The project provides US$32.0 million in support of a lending program for 50,000 tubewells and pumpsets investment in the Tirhut Division of Bihar. Because of slow disbursements caused by a lower than estimated Dollar/Rupee exchange rate and by low unit investment costs compared with appraisal esti- mates, IDA agreed to extend the closing date to M4arch 1980 and expand the project area to cover the whole State. Physical targets have now been achieved and the credit should be fully disbursed by the revised closing date.

1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 4 of 15

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

Credit 715 is designed to provide long- and medium-term credit to farmers through credit institutions, for on-farm investments, primarily in minor irrigation. The proportion of disbursements to small farmers is currently estimated at about 60% compared with the appraisal target of 50%. Training programs for staff of the financing institutions are progressing satisfactorily.

Cr. No. 267 Wheat Storage Project; US$5.0 million credit of August 23, 1971; Effective Date: November 14, 1972; Closing Date: September 30, 1979

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

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

Cr. No. 456 Himachal Pradesh Apple Processing and Marketing Project; US$13.0 million credit of January 22, 1974; Effective Date: September 26, 1974; Closing Date: December 31, 1980

Cr. No. 806 Jammu-Kashmir Horticulture Project; US$US$14.0 million credit of July 17, 1978; Effective Date: January 16, 1979; Closing Date: June 30, 1984

Credit 456 includes grading and packing centers, cold storage facilities, a juice processing plant, road improvements and cableways. It also includes cold storage facilities and a pilot project to promote mush- room production. The project encountered initial delays due to managerial and technical problems; however remedial measures have been taken to overcome these difficulties. Land has been acquired for 8 to 10 packing and grading sites, and procurement and construction activities are well underway. The Project Preparation Report for the juice processing plant has been completed, ANNEX II Page 5 of 15

and the equipment has been ordered. The road improvement program is progres- sing satisfactorily, and the feasibility reports on aerial cableways at the packing/grading sites have been completed. The Jammu Kashmir Horticulture Project was declared effective on January 16, 1979.

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

Ln. No. 1592 Telecommunications VII Project; US$120.0 million loan of June 19, 1978; Effective Date: October 30, 1978; Closing Date: March 31, 1982

Loan 1313 supports the expansion of the Indian telecommunications system through the provision of funds for the installation of 220,000 direct exchange lines and expansion of the trunk network. A second loan (Loan 1592) continues support of the development of India's telecommunication system through FY 1981 and as well contributes to the improvement of the Indian telecommunication industry. Both projects are progressing satisfactorily.

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

Under Credit 604, contracts aggregating about US$65 million had been awarded by December 1978. This Credit included a supplementary Credit of US$30 million to meet increased costs of equipment scheduled under the Third Power Transmission Project; all but US$4 million of this amount has also been committed.

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

Cr. No. 520 Sindri Fertilizer Project; US$91.0 million credit of December 18, 1974; Effective Date: February 27, 1975; Closing Date: September 30, 1979

Ln. No. 1079 IFFCO Fertilizer Project; US$109.0 million loan of January 24, 1975; Effective Date: April 28, 1975; Closing Date: March 31, 1980

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

The Trombay IV project is now being commissioned, about 18 months behind schedule due to longer-than-expected delivery times for critical equip- ment. The Sindri project is also being commissioned. The IFFCO project was ANNEX II Page 6 of 15

delayed by about a year as a result of a change in feedstock from fuel oil to naphtha and delays in completion of engineering contracts. However, project construction is now proceeding satisfactorily. Credit 598 is designed to increase the utilization of existing fertilizer production capacity. The project has encountered delays in sub-project preparation and investment approvals by the Government. Further, some of the sub-projects identified earlier may not materialize because of reconsideration by the Central and State governments. IDA has agreed to a list of sub-projects to replace the ones that are likely to be dropped. Because of the above, the project is likely to be delayed by 6-12 months.

Cr. No. 294 Bihar Agricultural Markets Project; US$14.0 million credit of March 29, 1972; Effective Date: July 31, 1972; Closing Date: December 31, 1979

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

These projects were designed to help with establishment of whole- sale markets in a number of towns in Bihar and Karnataka. Progress under the Bihar project has generally been satisfactory. The project includes training of the Agricultural Produce Marketing Committee (APMC) staff and evaluation of the project's economic impact. Development plans have been completed for 53 market yards to ensure the project target of 50 markets is met. As of November 1978, the date of the last review, appraisals had been completed for 50, and loans approved for 49 markets. Construction had been completed for 19 and was in progress for 31 markets. Farmers and traders served by the 11 market yards now in operation report more efficient marketing activities and improved farmers' terms of trade. Progress under the Karnataka project is improving. As of October 1978, when the project was last reviewed, construc- tion was underway for 36 of the 39 project markets. Plans and land acquisi- tion are nearing completion at the remaining sites. Both projects are expected to be completed by their respective closing dates.

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

This credit is designed to finance an experimental and research oriented population project in Karnataka and Uttar Pradesh. The project's infrastructure, which would provide the optimum facilities (buildings, equip- ment, staff and transport) according to GOI standards in selected districts in each state, is almost complete. The two Population Centers, which will design and monitor research aimed at improving the family planning program, are now functioning. To allow adequate time for the Population Centers to complete their evaluation of family planning strategies and the introduction of management information and evaluation systems, the closing date has been extended by one year. ANNEX II Page 7 of 15

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

The project involves the development of the agricultural univer- sities in Assam and Bihar. The primary aim of the AUs project is to improve the quality and practical training of undergraduates and so the spectrum of their employment opportunities; and to strengthen university structure to enable it to give an impetus to agricultural and rural development. Consider- able progress has been made in achieving the latter objective; but achieving educational objectives is more slowly attainable, constrained by traditional attitudes and structures where consistent effective leadership falters. Changes to a more functional orientation are now planned. The Project Director and others responsible are aware of the constraints and are support- ing efforts to remove them.

Cr. No. 356 Industrial Development Bank of India Project; US$25.0 million credit of February 9, 1973; Effective Date: June 22, 1973; Closing Date: September 30, 1979

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

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

The first IDBI Project had a slow start mainly due to institutional problems in the participating State Financial Corporations. However, the credit is now fully committed. In order to continue the Bank Group's involve- ment in assisting small- and medium-scale industries and in strengthening the State Financial Corporations involved, a second operation (Loan 1260) was approved in 1976, and disbursements have reached US$9.3 million by the end of March. Loan 1511 is designed to encourage the pooling of private and public capital in medium-scale joint ventures. The project will also assist IDBI in carrying out industrial sector investment studies and in strengthening the financial institutions dealing with the state joint/public sector.

Cr. No. 390 Bombay Water Supply and Sewerage Project; US$55.0 million credit of January 22, 1974; Effective Date: March 13, 1974; Closing Date: June 30, 1981 ANNEX II Page 8 of 15

Cr. No. 842 Second Bombay Water Supply and Sewerage Project; US$196.0 million credit of November 13, 1978; (expected) Effective Date: June 12, 1979; Closing Date: March 31, 1985

Cr. No. 848 Punjab Water Supply and Sewerage Project; US$38.0 million credit of October 27, 1978; Effective Date: January 25, 1979, Closing Date: March 31, 1983

Having overcome earlier difficulties, including cost overruns caused by inflation (requiring project redefinition in February 1975), re- design of major project components and the addition of a supplementary study on sewage disposal, Credit 390 is now progressing relatively well. All of the major contracts will be sufficiently advanced to permit the supply of additional water (455 mld) in the second quarter of 1979; completion of water treatment works for the whole supply by the end of 1979 is realistically fore- cast. Completion of additional sewage disposal studies (August 1977) has allowed engineering design of the project sewerage components to proceed, so that completion of construction of these works is now scheduled for mid-1980, two years later than originally forecast. Financial performance of the project entity is satisfactorily. Credit 848 was declared effective on schedule and preliminary work in connection with its implementation is pro- gressing satisfactorily.

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

The Project has had a slow start due to delays in the preparation of technical reports for regional and local water authorities and in the engagement of consultants. While improvements have been made in the physical execution, other aspects of project implementation continue to lag so that disbursements under the Credit have fallen short of estimates at the time of appraisal. In order to improve the situation, arrangements are being made to appoint a full-time management adviser to closely supervise and coordinate implementation.

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

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

For the first of these projects, following considerable increases in project costs, GOI and IDA finalized a project redefinition in April 1976. It is now expected to be substantially completed by December 1979. Credit 756 is designed to expand and upgrade the capabilities of Calcutta's admin- istrative authorities, to strengthen the city's fiscal base, and to reha- bilitate and extend its urban service system. ANNEX II Page 9 of 15

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

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

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

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

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

Cr. No. 824 National Dairy Project; US$150.0 million credit of June 19, 1978; Effective Date: December 20, 1978; Closing Date: December 31, 1985

These four credits, totalling US$224.1 million, support dairy devel- opment projects organized along the lines of the successful AMUI dairy coop- erative scheme in Gujarat State. The Karnataka Project, which got off to a slow start, has begun to show considerable improvement under new management appointed recently. Farmer response has been good and over 700 dairy coop- eratives with small farmer participation are functioning effectively. All four dairy unions envisaged under the project have been established and are functioning satisfactorily. Karnataka's decision to procure plant equipment jointly with Rajasthan and Madhya Pradesh on the same tender should lead to a recovery of considerable time lost earlier in the Karnataka project. In Madhya Pradesh good progress has been made. About 252 new dairy cooperatives societies have been established. Detailed design studies for plant construc- tion are complete. The response of small farmers to the project is excellent. GOMP has plans to cover all districts in the State. Technical services in- vestments are being made. Contracts have been placed for livestock imports. The Rajasthan project is also doing well. Four milk unions have been formed and excellent progress has been made in organizing the servicing of nearly ANNEX II Page 10 of 15

800 dairy cooperatives at the village level. Plant designs are ready, and procurement is making adequate progress. Based upon the good results expe- rienced, GOR is planning to expand the form of dairy development to all other districts of the State.

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

Both the civil works and equipment tenders have been awarded after international competitive bidding. Work is in progress and is proceeding satisfactorily. Disbursements reached 59% of total credit amount as of December 31, 1978.

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

Cr. No. 502 Rajasthan Canal Command Area Development Project; US$83.0 million credit of July 31, 1974; Effective Date: December 30, 1974; Closing Date: June 30, 1981

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

Ln. No. 1251 Andhra Pradesh Irrigation and Command Area Development (TW) Composite Project; US$145.0 million loan (Third Window) of June 10, 1976; Effective Date: September 7, 1976; Closing Date: December 31, 1982

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

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

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

Cr. No. 788 Karnataka Irrigation Project; US$126.0 million credit of May 12, 1978; Effective Date: August 10, 1978; Closing Date: March 31, 1984 ANNEX II Page 11 of 15

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

Cr. No. 843 Haryana Irrigation Project; US$111.0 million credit of August 16, 1978; Effective Date: December 14, 1978; Closing Date: August 31, 1983

These projects, based on existing large irrigation systems, are designed to improve the efficiency of water utilization and, where possible, to use water savings for bringing additional areas under irrigation. Canal lining and other irrigation infrastructure, drainage, and land shaping are prominent components of these projects. In addition, provisions have been made to increase agricultural production and marketing by reforming and upgrading agricultural extension services and by providing processing and storage facilities and village access roads. Progress of these projects is generally satisfactory.

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

The project provides financing over four years mainly for minor irrigation investments but also for development of markets, agro service centers, and support of related government extension services. Although dis- bursements have been slower than anticipated, there has been a considerable improvement in project organization and administration and disbursements are expected to improve considerably. The physical progress of shallow tubewells, and of deep tubewells for the Minor Irrigation Corporation, is satisfactory. IDA, GOWB and ARDC are combining efforts in order to solve difficulties such as organizational problems at the farm level; lack of demand for agro service centers; and completion of designs for water distribution systems and irriga- tion schemes. Positive results, particularly for the redesigned water distri- bution systems have been achieved.

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

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

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

Cr. No. 712 Madhya Pradesh Agricultural Extension and Research Project; US$10.0 million credit of June 1, 1977; Effective Date: September 2, 1977; Closing Date: September 30, 1983 ANNEX II Page 12 of 15

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

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

Cr. No. 855 National AgricultureResearch Project; US$27.0 million credit of December 7, 1978; Effective Date: January 7, 1979; Closing Date: September30, 1983

Cr. No. 862 CompositeAgricultural Extension Project, US$25.0 million credit of February 16, 1979; Effective Date (expected): May 16, 1979; Closing Date: December 31, 1984

These projects, totallingUS$123 million, finance the re-organi- zation and strengtheningof agriculturalextension and the developmentof adaptive agriculturalresearch serviceswith the objective of achieving early and sustained improvementsin agriculturalproduction, particularly foodgrains. Arrangement for monitoring and evaluationof project progress and impact is an essential feature of these projects. The Orissa and Assam projects also provide funds for laying the basis for longer term improvementsin ground- water developmentin the States. The projects' components include provision of additional staff, training facilities,housing, offices, laboratory facilities,equipment and transportation.

Cr. No. 526 Drought Prone Areas Project; US$35.0 million credit of January 24, 1975; EffectiveDate: June 9, 1975; Closing Date: June 30, 1980

Overall physical progress of the Drought Prone Areas project (DPAP) continues to be satisfactory. The rate of disbursementis improvingand implementationof most components is proceeding,by and large, according to schedule.

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

This project would improve tree crop production in Kerala and has particular emphasis on increasingbenefits to small farmers. It comprises rehabilitationof 30,000 ha coconut and 10,000 ha pepper and 2,240 ha cashew, and new plantings of 5,000 ha coconut and 1,500 ha cashew. About 25% of the coconut area would be irrigatedfor intensive intercropping. Funds have been provided for developmentof a seed garden for tree crops and for strengthening tree crops research. Ten crumb rubber factorieswould also be establishedto process smallholderrubber. Project implementationstarted slowly due to initial staffing and funding delays but has recently gained momentum. Proj- ect actions for 1978/79 have been rephased and advance action planned so as to make up for lost time. ANNEX II Page 13 of 15

Cr. No. 871 National Cooperative Development Corporation (NCDC) Project; US$30.0 million credit of February 2, 1979; Effective Date (expected): May 2, 1979; Closing Date: December 31, 1984

This project is intended to strengthen the institutional framework responsible for promoting and financing development of cooperatives, partic- ularly village level multipurpose cooperative societies.

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

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

Cr. No. 844 Railway Modernization and Maintenance Project; US$190.0 mil- lion credit of November 13, 1978; Effective Date: January 10, 1979; Closing Date: December 31, 1984

Credit 844 was designed to help the Indian Railways reduce manu- facturing and maintenance costs of locomotives and rolling stock and to improve their performance and availability.

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

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

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

The project finances equipment, civil works and crop production credit to support programs for cotton research and cotton production increase in three states. The project also provides credit for improving cotton gin- neries, new ginneries, cotton seed oil extraction plants and vegetable oil processing factories. Effectiveness was delayed by slow appointment of consultants, but the cotton extension services program was started without delay and has now been in operation for two years. Disbursements have been ANNEX II Page 14 of 15 small mainly due to poor demand to date for project credit. A recent super- vision mission, working with technicalconsultants, has made detailed recom- mendations for more appropriatepest control practices and more adaptive research to identify and introducebetter varieties. These measures are under discussion with GOI, and when agreed to and implemented,should speed up project disbursements.

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

Cr. No. 816 Second National Seed Project; US$16.0 million credit of July 17, 1978; Effective Date: December 20, 1978; Closing Date: December 31, 1984

Loan 1273 supports the first phase of India's national seed program, consisting of: seed industry expansion in the public and private sectors, improvementsin seed quality control, strengtheningof breeding and seed technology research,and developmentof a reserve stock scheme. Insti- tutional developmentand managerial arrangements,particularly at the state level, have proceeded fairly satisfactorily. Project implementation,however, slowed down after loan effectivenessmainly due to organizationalproblems. Project progress is now gaining momentum after GOI filled the two top posts of the National Seeds Corporationwhich were vacant for severalmonths. A project supportingthe second phase of India's national seed program (Credit 816) is now effective.

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

Contracts for all 700 bus chassis and nearly all 700 bus bodies to be procured under the project have been awarded and some 500 buses have been delivered. Civil works contracts have been awarded for 8 bus facilities, and 24 traffic engineeringschemes. Delays are expected in implementingsome BMC traffic engineeringschemes and the BEST workshop schemes although steps are being taken to minimize such delays. Consultantsin organization,admin- istration,financial management systems, accountingand developmentplanning are at work assisting the Borrower,the Bombay MetropolitanRegional Develop- ment Authority. Other beneficiariesof the loan, the Bombay Municipal Corporationand the Bombay Electric Supply and TransportUndertaking, have selected consultantsin traffic engineeringand operationsand management assistance,respectively.

Ln. No. 1394 Gujarat FisheriesProject; US$14.0 million loan and US$4.0 (TW) and million credit of April 22, 1977; Effective Date: Cr. No. 695 July 19, 1977; Closing Date: June 30, 1983 ANNEX II Page 15 of 15

Cr. No. 815 Andhra Pradesh Fisheries Project; US$17.5 million credit ofJune 19, 1978; Effective Date: September 19, 1978; ClosingDate: September30, 1984

These projects finance the constructionof fishingharbors, seafood processing plants and other facilitiesrequired to assist the developmentof fisheriesin the States of Gujarat and Andhra Pradesh. The projects also provide funds through ARDC to assist fisherman to purchase 9-15 meter vessels and 9 meter canoes. Preliminarywork in connectionwith implementationof these projects is progressingsatisfactorily.

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

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

Ln. No. 1549 Third Trombay Thermal Power Project; US$105.0 million loan of June 19, 1978; EffectiveDate: February 8, 1979; Closing Date: March 31, 1984

Credit 685 assists in financingthe first stage of the 2,000 MW Singrauli development which is, in turn, the first of four power stations in the Government's program for the development of large Central thermal power stations feeding power into an interconnected grid. The second such station, at Korba, is being financed through Credit 793. It is proposed that the Bank Group will have a continuing involvementin this development program. The National Thermal Power Corporation(NTPC) has been formed to construct and operate these power stations,and the developmentprogram has gotten off to a good start. Organizationand staffing of NTPC is proceedingsatisfac- torily, and the Singrauli project is proceedingon schedule. Civil works are in progress and contractshave been awarded for major plant (turbo-generators, boilers, transformers). Loan 1549 is supportingthe constructionof a 500 MW extensionof the Tata Electric Companies'station, in order to help meet the forecastload growth in the Bombay area.

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

The project is progressingsatisfactorily. Gas and oil pipelines from Bombay High to shore have been laid and were commissionedin June 1978. Disbursementsreached 45% of the loan amount on February 28, 1979. ANNEXIII Page 1

INDIA

MAHARASHTRAWATER SUPPLY AND SEWERAGEPROJECT

SUPPLEMENTARYPROJECT DATASHEET

Section I: Timetable of Key Events

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

About two years

(b) The agency that has prepared the project

Bombay Metropolitan Region Development Authority in association with the Enviromnental Engineering Organization of the State Department of Urban Development.

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

May 1977; August 1977

(d) Date of departure of appraisal mission

October 29, 1978

(e) Date of completion of negotiations

April 6, 1979

(f) Planned date of effectiveness

August 29, 1979

Section II: Special Bank Implementation Action

None

Section III: Special Conditions

(a) MWSSBto appoint engineering consultants as a condition of credit effectiveness (para 48); ANNEX III Page 2

(b) MWSSB to fill any key vacant positions in its establishment by September 30, 1979, and to consult IDA when any significant changes in its organizational structure are contemplated (para 49);

(c) MWSSB not to incur any long term debt without IDA's approval, unless its overall operating surplus, be- fore depreciation, for its most recent financial year is at least 1.3 times the maximum debt service in any future year (para 57);

(d) MWSSB to annually review and set its bulk tariffs in the project area to cover operating costs and depre- ciation beginning April 1, 1980 and from April 1, 1983, provide additionally a rate of return of not less than 4% in FY83/84 and FY84/85, 5% in FY85/86, and 6% thereafter (para 60);

(e) Participating towns to set water and sewerage tariffs before the commencement of each financial year to ensure that revenues are sufficient to cover operating costs, debt service and its annual contribution to- wards project costs for FY80/81 through FY82/83 and from April 1, 1983 set tariffs to cover the greater of either (a) operating costs, depreciation and a rate of return of not less than 3% in FY83/84, 4% in FY84/85, 5% in FY85/86 and 6% thereafter, or (b) operating costs and debt service (para 61);

(f) Participating Villages to set tariffs from April 1, 1983 at levels to ensure that revenues are sufficient to cover operating costs and any debt service require- ments (para 62); and

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