Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 16048 IMPLEMENTATION COMPLETION REPORT Public Disclosure Authorized INDIA EXPORT DEVELOPMENT PROJECT (LOANS 3058-IN and 3059-IN) September 25, 1996 Public Disclosure Authorized Country Operations, Industry & Finance Division Country Department II South Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (annual average) Currency unit = Indian rupees (Rs.) 1989-90 $1.00 = Rs. 16.66 Official Rate 1990-91 $1.00 = Rs. 17.95 Official Rate 1991-92 $1.00 = Rs. 24.52 Official Rate 1992-93 $1.00 = Rs. 26.41 Official Rate 1993-94 $1.00 = Rs. 31.36 Unified Rate 1994-95 $1.00 = Rs. 31.40 Unified Rate 1995-96 $1.00 = Rs. 33.46 Unified Rate 1996 (as of March 31, 1996) $1.00 = Rs. 34.45 Unified Rate Note: A dual exchangerate systemwas created in March 1992,with a freemarket for about 60 percentof foreign exchangetransactions at a rate of $1.00 = Rs. 30.65. The exchangerate was reunifiedat the beginningof March 1993 at the free market rate. FISCAL YEAR April 1 to March 31 ABBREVIATIONS AND ACRONYMS BOB: Bank of Baroda DFI: Development Financial Institutions EDF: Export Development Fund EDP: Export Development Project EMF: Export Marketing Fund ERAS: Exchange Risk Administration Scheme ERR: Economic Rate of Return EXIM: The Export Import Bank of India FRR: Financial Rate of Return GOI: Government of India ICICI: Industrial Credit and Investment Corporation of India Ltd. ICR: Implementation Completion Report IDBI: Industrial Development Bank of India IEP: Industrial Export Project - Engineering Products PCB: Participating Commercial Bank PF: Productivity Fund TAF: Technical Assistance Fund FOR OFFICIALUSE ONLY IMPLEMENTATION COMPLETION REPORT INDIA EXPORT DEVELOPMENT PROJECT (LOANS 3058-IN and 3059-IN) TABLE OF CONTENTS Preface ............................ i Evaluation Summary .......................... ii Project Implementation Assessment ............................ 1 A. Background . B. Project Objectives .2 C. Achievement of Project Objectives .5 D. Implementation Record and Major Factors Affecting the Project . 7 E. Project Sustainability .9 F. Bank Performance . 1 G. Borrower Performance. 1 H. Assessment of Outcome .1 1 I. Future Operations.12 J. Key Lessons .12 Annex 1: Statistical Tables Annex 2: Mission's Aide-Memoire Annex 3: List of Sub-Loans Annex 4: Borrower Contribution to the ICR Tis documenthas a restricteddistribution and maybe usedby recipientsonly in the performanceof their |oficial duties. Its contents may not otherwise be disclosedwiLhout World Bank authorization. IMPLEMENTATION COMPLETION REPORT INDIA EXPORT DEVELOPMENT PROJECT (LOANS 3058-IN and 3059-IN) PREFACE 1. This is the Implementation Completion Report (ICR) for the Export Development Project in India, for which Loans 3058-IN and 3059-IN in the amount of US$295 million equivalent were approved on May 12, 1989, and made effective on September 21, 1989. 2. The loan was closed on March 31, 1996, the original closing date. Final disbursement took place on July 31, 1996, and a balance of US$9,048,946.84 was canceled. Cofinancing for the project was provided by the Japanese Grant Facility. 3. The ICR was prepared by Paulo de Sa (IENIM) under the supervision of Mona Haddad (Task Manager, SA2CI) and reviewed by Luis Emesto Derbez (Division Chief, SA2CI) and Kazuko Uchimura (Project Advisor, SA2DR). The borrower provided comments that are included as an annex. 4. The preparation of this ICR began during the Bank's completion mission, comprising Paulo de Sa (IENIM), Herman Nissenbaum (Consultant), and Lin Chin (SA2CI), who visited India from March 31-April 12, 1996. Paul Beckerman (SA2CI) joined the mission in Bombay. The ICR is based on material obtained during the mission and contained in the project file. The borrower contributed to the preparation of the ICR by contributing views that are reflected in the mission's aide-memoire and by preparing an evaluation of the project's execution and initial preparation. - 11 - IMPLEMENTATION COMPLETION REPORT INDIA EXPORT DEVELOPMENT PROJECT (LOANS 3058-IN and 3059-IN) EVALUATION SUMMARY 1. Prior to the Export Development Project, initiated in 1989, the World Bank had made 19 development finance loans totaling US$1.4 billion. These funds were channeled to private Indian firms engaged in all sectors of industrial activity through domestic financial intermediaries, mainly the Industrial Credit and Investment Corporation of India (ICICI) and the Industrial Development Bank of India (IDBI). The Export Development Project is the direct follow-up to an earlier Bank loan of US$250 million for the Industrial Export (Engineering Products) Project (Loan 2629/30-IN). That project had shown the need to strengthen the capabilities of firms and financial institutions in designing, implementing, and appraising export development programs and export-oriented investments. These lessons were incorporated in the Export Development Project. 2. Project operations spanned two important changes, one in the domestic policy environment and the other in the World Bank norms covering lending operations. First, in July 1991 India faced serious fiscal and external imbalances that placed it on the verge of defaulting on its external debt obligations. The authorities responded by implementing a substantial stabilization and adjustment program aimed at liberalizing the economy through unprecedented reforms in the investment regime and in trade, financial, and fiscal policies. As a result the environment for private sector development and export growth improved substantially. Second, since 1991 the Bank has moved away from strengthening specific sectors, increasing domestic resource mobilization, and improving selected groups' access to credit, toward a broader policy effort aimed at improving a country's economic and financial environment as a whole. It is against this background that the Export Development Project is reviewed. Project Objectives 3. The project was designed to help the Government of India carry out its strategy of increasing the competitiveness and exports of manufactured products, thus providing the basis for continued active dialogue between the Government and the Bank on trade policy and related reforms. In addition, the project was intended to build institutional capacity within the Indian financial system by helping financial institutions improve their abilities to assess export projects, mobilize the resources needed to finance such projects, and provide direction and advice to their clients on export issues and markets. - iii - 4. To achieve its objectives, the project assisted four financial institutions through an export development fund of US$20 million, to finance part of the marketing and technical services and foreign travel expenses associated with the preparation and implementation of client firms' export development programs; a technical assistance fund of US$2.7 million equivalent, to help the financial institutions strengthen their capacity to appraise export projects and advise firms on export strategy issues; and a term lending component to finance export investment projects. This component came under two different loans: a US$175 million loan for the ICICI and a US$100 million loan for three other financial intermediaries (the Export-Import Bank of India, Bank of Baroda, and Canara Bank, referred to collectively as "participating commercial banks"). Project Implementation 5. The loan was approved May 12, 1989, and became effective September 21, 1989. The original closing date was March 31, 1996, and no extensions were required. Total project cost is estimated at US$858 million, of which US$189 million were drawn from IBRD funds. The ICICI term lending component provided US$76 million for subloans to 102 companies; the participating commercial banks' component provided US$96 million for subloans to 240 companies. More than 28,000 jobs were created as a result of this credit line. In addition, the export development fund supported marketing programs for about 450 companies, with an average grant of US$36,725. By the end of fiscal 1996 the ratio of actual incremental export earnings to grants had already largely exceeded the target of 10:1 (102 times in the case of Export-Import Bank). About US$2.6 million was spent on the technical assistance fund. 6. Project implementation proceeded without major problems because the experience acquired by the financial institutions during the Industrial Export Project enabled them to implement the project without making major adjustments to their operations. Additionally, since the project did not target specific industrial sectors, each bank was able to fully direct the available funds to its existing client base or to market aggressively the credit line in order to expand it. Issues affecting implementation related to the design of the technical assistance fund and the exchange risk administration scheme. The technical assistance fund was less successful than the export development fund because its design was inadequate and there was little follow- up to the initial training sessions. After three years with no disbursements, the scope of the technical assistance fund was widened, and most of it was eventually disbursed. 7. The implementation of the two credit lines followed different patterns