Document of

} jL E g0P V The World Bank

FOR OFFICIAL USE ONLY

Report No. P-2334-IN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO INDIA

FOR A

SEVENTH TELECOMMUNICATIONS PROJECT

May 26, 1978

This document has a restricted distribution and may be used by reciplents only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS(as of May 15, 1978)

Rs 1 = Paise 100US$1.00 = Rs 8.51Rs 1.00 = US$0.1175Rs 1 million = US$117,500

(Since September 24, 1975, the Rupee has been officiallyvalued relative to a "basket" of currencies. As thesecurrencies are now floating, the U.S. Dollar/Rupee ex-change rate is subject to change. Conversions in theAppraisal Report were made at US$l to Rs 8.60, whichrepresents the projected exchange rate over thedisbursement period).

FISCAL YEAR

April 1 - March 31

LIST OF ABBREVIATIONS AND ACRONYMS USED IN THIS REPORT

DEL - Direct Exchange LineGOI - Government of IndiaHCL - Hindustan Cables LimitedHTL - Hindustan Teleprinters LimitedITI - Indian Telephone Industries LimitedOCS - Overseas Communications ServiceOYT - Own Your TelephonePCO - Public Call OfficeP&T - Posts and Telegraphs Department

FOR OFFICIAL USE ONLYINDIA

SEVENTH TELECOMMUNICATIONS PROJECT

LOAN AND PROJECT SUMMARY

Borrower: India, acting by its President

Beneficiaries: Posts and Telegraphs Department (P&T);Indian Telephone Industries Ltd. (ITI);Hindustan Cable Ltd. (HCL); andHindustan Teleprinters Ltd. (HTL).

Amount: US$120 million

Terms: 20 years including three years of grace withinterest at 7.5% p.a..

Relending Terms: For P&T sub-project: Government of India (GOI)would channel the proceeds as GOI's capital-at-charge to P&T, in accordance with its standardarrangements for financing telecommunicationsdevelopment. P&T pays a dividend on the totalcapital-at-charge at a rate determined by GOI,currently 6% per annum.

For Factories sub-projects: India to ITI, HCL,and HiTL: at an interest rate of not less than10.25% per annum, minimum, over fifteen yearsincluding three years grace.

GOI to carry exchange risks.

ProjectDescription: The project comprises four subprojects. The main

sub-project is a priority component of the P&T Tele-commuanication Branch's investment program for threeyears (April 1, 1978 to March 31, 1981). It willresult in a significant extension of the present tele-commanications network into rural areas of India withthe provision of an additional 7,500 rural Public CallOffices (PCOs), and 260,000 new direct exchange lines(DELs) the majority of which will be in the ruralareas. It includes the expansion of the trunk andtelex networks and imported equipment for the Telecom-munications Research Center and the Training andTechnical and Development Circles. The three other

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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subprojects are concerned with upgrading and modernizingthe production facilities of the three major government-owned telecommunications equipment manufacturers, IndianTelephone Industries Ltd. (ITI), Hindustan Cables Ltd.(HCL) and Hindustan Teleprinters Ltd. (HTL). Theycomprise provision of replacement machinery in theproduction and tool-making units and addition of moderntesting and measuring equipment to replace and supplementobsolete and inadequate existing equipment. There areno special risks.

Estimated Cost: US$ millionSubprojects Foreign Local Total

P&T 95.1 553.9 649.0ITI 8.4 11.0 19.4HCL 9.0 7.6 16.6HTL 2.0 1.5 3.5

Sub-total 114.5 574.0 688.5

Contingencies 18.4 111.6 130.0

Total 132.9 685.6 818.5

Financing Plan: US$ millionLocal Foreign Total

Bank - 120 120P&T 662 10 672ITI 13 - 13HCL 9 3 12HTL 2 - 2

Total 686 133 819

Estimated $ MillionsDisbursements: 1979 1980 1981

Bank FYAnnual 54 42 24Cumulative 54 96 120

Rate of Return: 20%

Staff AppraisalReport: Report No. 2030a-IN, dated May 26, 1978.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO INDIA FiDR A SEVENTH TELECOMMUNICATIONS PROJECT

1. I submit the following report and recommendation on a proposed loan

to India of an amount equivalent to US$120 million to help finance a seventh

telecommunications project. The loan would have a term of 20 years, including

3 years grace, with interest at 7.50% per annum. The proceeds of the loan

would be channeled in two ways. The bulk of the loan amount (US$100 million)

would be channeled to the Posts and Telegraphs (P&T) Department as part of

GOI's capital-at-charge, in accordance with the Government of India's (GOI's)

standard arrangements for financing telecommunications development. P&T pays

a dividend on total capital-at-charge at a rate fixed by GOI, currently at 6%

per annum. The balance (US$20 million) would be relent to the public sector

companies participating in the Project, at interest no less than 10.25% per

annum for 15 years including three years grace. The exchange risk would be

borne by GOI.

PART I - THE ECONOMY I/

2. An economic report, "Economic Situation and Prospects of India"

(2008-IN dated April 17, 1978), was distributed to the Executive Directors

on April 18, 1978. Country data sheets are attached as Annex I.

Background

3. India is a vast, continental country with over twenty States divided

on linguistic and ethnic grounds with a population of over 620 million people,

almost as many as live in Africa and Latin America combined. It has a dual

economy. While 79% of its population lives in rural areas their productivity

is low. Agriculture's shaLre in value added declined only gradually from about

50% to 43% over the last twenty years. The share of manufacturing has in-

creased slowly and, since the late 1960s, has remained approximately constant

at about 16%. Industry has a highly diversified structure with import substi-

tution and self-sufficiency pushed to the point where India has the capacity

to produce virtually every type of consumer and capital good required for a

modern economy. As in theb case of many other large economies, the foreign

sector plays a relatively minor role; both exports and imports represent about

7% of GDP; foreign saving has supplied only about 5% of gross investment in

the recent past.

4. Even though growth has been slow in the past, the economy enjoys many

of the prerequisites for sustaining faster growth and development. Although

literacy is far from universal, India has large resources of well trained

1/ Parts I and II of this report are identical to the corresponding parts

in the President's Report (No. P-2149-IN) on the Second National Seed

Project, dated May 17, 1978.

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administrative, scientific and technical manpower and a dynamic entrepreneuralclass. Per capita consumption of commercial energy is low by internationalcomparison and power shortages are a way of life; but India is relatively well-placed with regard to primary fuel sources. There are very large reserves ofcoal and nuclear ores, and considerable hydro-electric potential. Recentpetroleum and gas discoveries have begun to be exploited and prospects arebright for further discoveries. The basic elements of the infrastructureneeded to serve the economy have been established; in absolute terms theirrigation, railway, telecommunication, road and power systems are each amongthe largest in the developing, and in some cases the developed, world. However,considerable gaps remain as the situation varies greatly from state to state.

5. Given the size of India's population, its annual increase of 13 mil-lion people is such as to absorb a large portion of any provision to increasestandards of living. It is not possible to discern any significant increasein the incomes of the vast mass of the rural and urban poor, who number 200million with a per capita income of US$70 per annum or less. Although food-grain production may be persistently underestimated, there has been no perma-nent increase in per capita foodgrain consumption recorded in aggregatestatistics since 1960/61. Many years after the initial target, primary educa-tion is still not universal. The labor force has grown faster than employmentand a considerable backlog of unemployed exists. Nevertheless, there has beenprogress, with per capita income increasing on trend 1%-1.5% per annum; birthrates falling to below 37 per thousand from levels of 45-50 per thousand atthe start of the 1950's; life expectancy increasing from about 32 years inthe 1940's to 45-50 years in the 1970's; school enrollment rising from 32%to 65% of children in primary school ages and from 5% to 29% of children insecondary school ages since 1950/51.

6. The rate of growth of GDP has been 3.5% per annum over the periodsince Independence and 2.8% per annum over the period 1969/70 to 1976/77.These low rates of growth are only partly due to low availability of inves-tible resources, although there have been times that foreign exchange was asevere bottleneck. The net transfer of resources from abroad has never beenabove 3% of GDP and fell to as little as 0.8% between 1969/70 and 1973/74.India's saving effort has grown steadily since the beginning of planning in1951, when it was 9% of GDP, to its recent level of 20% of GDP, which compareswell with other countries' saving performance at the same level of per capitaincomes. Despite a doubling in the rate of investment, from about 10% of GDPin the early 1950's to about 20% at present, the trend rate of GDP growth hasnot increased. This marks a decline in the efficiency of capital use whichtranscends fluctuations due to weather, war or international terms of tradeshifts.

Recent Trends

7. In many respects economic conditions during the last three yearshave been significantly different from those prevailing in previous years.In the late 1960's and early 1970's, the economy faced several shortages--foodgrains, agricultural and industrial inputs and foreign exchange--whichretarded production and investment and often led to price increases. An

adverse shift in terms of trade starting with the oil price hike in 1973 andcontinuing with the foodgrain and fertilizer price rises in the followingyear greatly increased the cost of acquiring these essential commoditiesabroad. These external shocks combined with a spate of bad weather playedhavoc with the economy through 1974/75, causing slow growth in productionand investment and a record level of inflation.

8. Since the excellent monsoon in the summer of 1975, a new situationhas arisen. The period 1975 to 1978 has been characterized by much greaterprice stability, enhanced agricultural and industrial output and comfortablefoodgrain and foreign exchange reserves. The new situation was a combinedresult of domestic policies and fortuitous circumstances. The increase infoodgrain stocks was only in part due to improved policies and programs. Themore decisive factor has been the three good-to-excellent monsoons coming ontop of substantial foodgrain imports in 1975 and 1976. Industrial outputincreased on average by 7% a year in 1975-1978 compared to 3% in 1970-75,due to greater power availability, better management in the public sector,improved labor relations, better transport and some increase in demand derivedfrom increased incomes due to improved harvests, greater exports and higherlevels of public investment. The most dramatic turnaround ocurred in thebalance of payments, with a sharp real reduction in the import bill helped bygood harvests and increased domestic production in iron and steel, fertilizerand oil, which reduced demand for imports. The supply of foreign exchange wasalso greatly increased by a significant step-up in the volume of exports, anincrease in foreign aid and a substantial jump in remittances from Indiansworking in the Middle East, Europe and America.

9. In 1977/78, the growth of GDP was about 5%, a recovery over therate of 1.6% in 1976/77 but less than the 8.5% reached two years earlier.Prices, which had been rising during 1976/77 after a decline in 1975/76,were stabilized; wholesale prices at the end of March 1978 stood at about thesame level as in March 1977, and the yearly average was only 5.4% above thatof the previous year. Exports in 1977/78 are estimated at US$6.4 billion andimports at US$6.6 billion. The inflow of invisibles from abroad at US$1.4billion and net aid disbursements of US$1.2 billion more than offset the smalltrade deficit of US$200 million and IMF repurchases of US$330 million to in-crease reserves by US$2.1 billion to US$5.8 billion by end of March 1978.

10. The 1977/78 foodgrain crop may exceed the 1975/76 record level of121 million tons due to very good weather and increased input use. Supportpurchases could result in peak foodgrain stocks as high or even higher thanin 1977, when they were 21 million tons. In addition to ample and evenlydistributed rainfall, more intensive and widespread use of three crucialinputs--irrigation water, fertilizer and extension advice--contributed tothe bumper harvest. Fertilizer consumption surged 30% in 1977/78, continuingits recovery from the depressed level of 1974/75. Annual additions to irri-gated area have been on average of 2 million hectares since 1975/76 comparedwith 1.3 million hectares per annum achieved from 1969 to 1975. An improvedextension system, which has been getting heartening results, has been intro-duced in several states and is slated for further coverage.

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Development Prospects

11. India faces the future with large stocks of foodgrains, high andrising external reserves, excellent rabi crop expectations, price stabilityand good prospects for sustaining the improved supply of foreign exchange.

The circumstances present a great opportunity for further promoting the devel-opment of the Indian economy. The Draft Five Year Plan for 1978-83, discussed

though not yet approved by the National Development Council, responds to this

challenge by projecting a rapid growth in real terms of both overall investment

and public plan expenditures. Investment is to rise on average by 10.7% perannum and the economy is expected to grow on average by 4.7% per annum during

the years 1978-83.

12. The new Draft Plan reveals an intention to reorient the country's

development towards improving the living conditions of the poor. This is

reflected in its principal objectives: (i) the removal of unemployment andsignificant underemployment; (ii) an appreciable rise in the standard of

living of the poorest sections; and (iii) the provision of basic needs to

low income groups. To achieve these objectives, the Government proposes to

emphasize agricultural development, cottage and small scale industries, areaplanning for integrated rural development and the provision of minimum needs.As a first step towards complete removal of unemployment, the Plan envisagesthe creation of a large number of new jobs through a considerable expansionof construction activity as well as a boost in the consumption levels of thepoor--which in turn would require the production of the necessary wage goods,

largely in small-scale, labor-intensive units. Specific programs to achievethese objectives are still in the making.

13. In order to achieve a sizable rise in the income of the poorestclasses of society, the Draft Plan--in conformity with the Janata Party policy--places prime emphasis on the development of rural areas. A major impulse for

agricultural development will be provided by the expansion of irrigation and

related agricultural inputs, such as fertilizers and better farming techniques.The Draft Plan argues that efforts to increase productivity should be sup-

plemented by measures with a redistributive impact such as supporting smallfarmers and small industry with institutional credit and material supplies

and assistance for marketing. The Draft Plan also intends to complement the

creation of employment and the increase in rural productivity by providingbasic services to those groups which have so far been unaffected. For thispurpose, the minimum needs program launched at the onset of the Fifth Planis being revitalized and accelerated.

14. The allocation of the Draft Plan outlay for the next five years

reflects these priorities. Out of a total expected spending of US$81 billion,

US$35 billion--43%--have been earmarked for rural development programs includ-

ing agriculture, irrigation, fertilizer and social infrastructure expendituresdirectly benefitting the rural areas. The share of these sectors amounted to37% during the Fifth Plan period and to 40% in the Annual Plan for 1978-79.It can thus be expected to rise further during the next four years. Similarly,spending on the minimum needs program in 1978-83 will absorb 6% of the plan

resources, as compared to less than 3% in the Fifth plan. On the other hand,the shares of industry and of transport and communication have been reduced.

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15. There is considerable scope for stepping up growth in agriculture.The most promising development is the sharp increase in government outlaysand improved project implementation for irrigation. There are also indica-tions that private investment in tubewells is picking up again after a slumpin the early 19'9's. Other favorable indicators include the spread of animproved system of extension to more states and the recovery of fertilizerdemand. With regard to more productive use of existing capacity, there is anincreased awareness in the Government that the benefits of irrigation projectscan be much increased not only through command area development, but alsothrough improved design standards in major surface irrigation infrastructure.Nevertheless, comprehensive improvement in water management remains a distantgoal, particularly in existing systems and where farms are small and frag-mented. The bulk of the increase in private tubewell development in the lastfew years has come from the Eastern Region, where more and more farmers aresinking wells to enable them to grow a winter crop of wheat in addition toproviding better water control for the summer rice crop. Improved water man-agement would make such investments even more productive. Increased farmerincomes from the recent good harvests, somewhat lower fertilizer prices andgrain prices supported at incentive levels have encouraged farmers to applyconsiderably more fertilizer. Finally, the reorganized and improved extensionand research system which has been introduced recently in several states innorthern and eastern India holds out the hope that sound advice will reachmany more farmers in both irrigated and rainfed areas and will raise theirproductivity significantly. The improved extension system is an excellentexample of how the growth effort can and must be structured so as to increasethe incomes of small and marginal farmers, who work 25% of the cultivatedland and account for somewhat more than 25% of production; more importantly,these farmers make up about 70% of the rural population and constitute themajority of those living below the poverty level in India.

16. Industrial prospects are somewhat more difficult to discern.Moderate growth in 1977/78 after an excellent year in 1976/77 suggests thepersistence of problems plaguing the sector since the mid 1960's--largeunutilized capacity, stagnant capital formation in the private sector andlow productivity growth. Lower investment than expected, of course, is oneof the reasons for low capacity utilization in capital goods industries,which make up a significant portion of the sector. Low buoyancy of demandfor industrial products from all sources--not only from investments but alsofrom agriculture, exports and import substitution--has been a basic constraint.Further import substitution cannot be a major source of growth for manufac-tured goods in the future because most opportunities for efficient importsubstitution have been exploited. Higher effective demand from increasedgrowth of real incomes froim greater productivity in both agriculture andmanufacturing, sustained increases in exports and increased investment,particularly from the public sector, all can raise demand for industrialproduction.

17. The new industrial policy of the Janata government and the orienta-tion of the Draft Five-Year Plan emphasize small scale industry over heavyindustry and have accordingly promoted such measures as product reservation,credit rationing, and, within the small scale sector, plans to initiate specialefforts for the growth of the "tiny" sector. While the priority accorded to

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the small scale sector is laudable, there are doubts about the efficacy of

the policy measures chosen. Past experience indicates that other factors

are also crucial to its development, particularly effective demand, quality

control, prices and marketing techniques. Some small scale industry is cap-

ital intensive and not well suited to as rapid employment generation as is

hoped; nor can all goods be efficiently produced using small scale technology.

18. India's population growth rate of about 2% is not high in comparison

with that of most developing countries. Moreover, the rate is on the decline,

after growing steadily census to census from 1920 through 1970, both because

the birth rate continues to fall and because mortality will not fall as

steeply as in the past. Family planning acceptor rates slowed down in the

wake of the abandonment of the 1976 population policy after the 1977 general

elections and the momentum of the program has yet to be recaptured, particu-

larly in Northern India. However, the new Government has reaffirmed its com-

mitment to a voluntary family planning program and has budgeted the resources

to carry it out. Over the longer term, with a sustained family planning

effort, it should be possible to bring the birth rate down from its 1970-75

level of about 37 per thousand to about 23 thousand to the end of the century,

implying a population growth rate somewhat under 1.1%. Our "best guess" pro-

jection of India's population in the year 2000 is 885 million. Many of the

benefits of family planning policy will only be felt beyond the turn of the

century; the decline in fertility will, however, bring about an earlier change

in the age structure of the population. The school age group will grow more

slowly or not at all after 1981, thereby reducing the pressures on the primary

and secondary education systems. However, the labor force will continue to

grow at a faster rate -- 2.5% per annum -- until well into the 1990's, result-

ing in an increasing proportion of the population in the labor force from40.8% to 45% in 1991.

19. The government's goal to eliminate unemployment in 10 years implies

an expansion of the number of jobs at the rate of 9 million per annum -- 7

million new entrants to the labor force and the absorption of 2 million or

so formerly unemployed. The majority of these will have to continue to be

absorbed -- judging from the prevailing composition of the labor force -- in

agriculture and the unorganized small scale sector. The absorptive capacity

of the modern organized sector is unfortunately low; its employment elasticity

is expected to be no more than 0.5. Given its low current share of output,

even rapid growth of this sector would not make much of a dent in the backlog

of the unemployed. Employment in the organized sector has been growing at

about 2.2% per annum in the past ten years, less than the labor force growth

rate, and all of this in the public sector. Private sector employment has not

grown at all since 1966. While the labor absorption elasticities of the small

scale sector may be higher in some cases than that of the large scale sector,

a major effort to expand production must succeed before an appreciable employ-

ment impact will materialize.

20. In the short run India's balance of payments should not be a con-

straint on growth and development in the next few years. With good medium-

term prospects for India's exports, the expected continuation of growth in

invisible receipts and the potential for an increase in net aid disbursments,

the net availability of foreign exchange to finance merchandise imports isprojected to rise over the next five years, in current prices, from US$8.7billion in 1977/78 to US$16.7 billion in 1982/83, an average of 14% per annum.Given the unlikely need to increase rapidly imports of some traditionallyimportant items -- e.g., petroleum, fertilizer, foodgrains, edible oil andcotton -- other imports can increase at the rate of 20% a year over the nextfive years.

21. Altogether, these currently favorable circumstances present theopportunity to double India's trend rate of growth of per capita income fromthe average annual rate of 1.5% that prevailed for the last thirty years to3% over the next five, and thereafter. This requires a continued fall in therate of population growth to below 2% per annum and a rise in the growth ofGDP from the historical rate of 3.5% to 5.0% per annum. Both of these targetsare within reach. The first should be achieved barring a total abandonmentof the family planning program. The second requires improved efficiency andincreased investment by both the public and private sectors; it also meansmore fully harnessing the gains from trade through international specializa-tion implying a strong export effort and continued easier access to imports.In addition to enabling a faster rate of per capita income growth, the presentsituation allows for increasing the coverage of the population's minimumneeds. This requires formulating and administering effective, efficientprograms of public investment and, of course, requires larger public outlays.

22. With the enhanced resources at India's disposal, the economy ispoised for a higher rate of economic growth. The Government is moving totake advantage of this opportunity with increased public expenditure envi-sioned over the next five years, and the liberalized trade policies recentlyannounced. It is yet too early to know whether the moves made so far will besufficient to achieve the desired targets or whether additional steps will benecessary. Assured international support for India's development effort willbe an important factor in moving the Government to take greater risks inpursuing a dynamic development program directed at meeting the huge needs ofits large and impoverished population.

PART II - BANK GROUP OPERATIONS IN INDIA

23. Since 1949, the Bank Group has made 53 loans and 97 developmentcredits to India totalling US$2,013 million and US$4,934 million (both netof cancellation), respectively. Of these amounts, US$890 million has beenrepaid, and US$2,120 million was still undisbursed as of March 31, 1978.Annex II contains a summary statement of disbursements as of March 31, 1978,and notes on the execution of ongoing projects.

24. Since 1957, IFC hbas made 14 commitments in India totalling US$58.4million, of which US$14.5 million has been repaid, US$7.6 million sold andUS$6.9 million cancelled. Of the balance of US$29.4 million, US$22.9 mil-lion represents loans and US$6.5 million equity. A summary statement of IFCoperations as of March 31, 1978, is also included in Annex II (page 2).

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25. In recent years, the emphasis of Bank Group lending has been onagriculture. The Bank Group has been particularly active in supporting minorirrigation and other on-farm investments through agricultural credit opera-tions. Major irrig-ation, marketing, seed development, and dairying are otheragricultural activities supported by the Bank Group. Also, the Bank Grouphas been active in financing the expansion of output in the fertilizer sectorand, through its sizeable assistance to development finance institutions, ina wide range of geographically scattered medium- and small-scale industrialenterprises. IDA financing of industrial raw materials and components forselected 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, education, water supply development, and urban investmentshave also received Bank Group support in recent years.

26. The direction of assistance under the Bank/IDA program has beenconsistent with India's needs and the Government's priorities. The emphasisof the program on agriculture, industry, power, urban development and watersupply remains highly relevant. Projects designed to foster agriculturalproduction through the provision of essential inputs such as credit foron-farm investments, command area development of existing irrigation schemes,intensification and streamlining of extension systems, and seed productionform an important aspect of the Bank Group's program for the next severalyears. Special emphasis will be given to projects benefitting small farmers.Projects supporting water supply, sewerage, and urban development also forman integral part of the Bank's lending strategy to India for the next severalyears. Lending in support of infrastructure and industrial investments willfocus on agriculture-, export- and energy-related projects.

27. The need for a substantial net transfer of external resources insupport of the development of India's economy has been a recurrent theme ofBank 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 needfor foreign assistance, to augment domestic resources, stimulate investmentand accelerate economic growth, remains. As in the past, Bank Group assist-ance for projects in India should include, as appropriate, the financing oflocal expenditures. India imports relatively few capital goods because ofthe 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.

28. Although the growth prospects of the economy have improved, India'spoverty and needs are such that as much as possible of India's external capi-tal requirements should be provided on concessionary terms. Accordingly, thebulk 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 beallocated to India remains small in relation to India's needs for externalsupport, and India may be regarded as creditworthy for some supplemental Bank

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lending. As of March 31, 1978, outstanding loans to India totaled US$1,159million, of which US$594 million remained to be disbursed, leaving a netamount outstanding of US$565 million.

29. Of thc external assistance received by India, the proportion con-tributed by the Bank Group has grown significantly. In 1969/70, the BankGroup accounted for 34% of total commitments, 13% of gross disbursements,and 12% of net disbursements as compared with an estimated 58%, 24% and 29%,respectively, in 1975/76. On March 31, 1977, India's outstanding and dis-bursed external public debt: was US$13.3 billion, of which the Bank Group'sshare was 28%. Because Bank Group assistance to India is predominantly inthe form of IDA credits, debt service to the Bank Group will rise slowly.In 1976/77, about 14% of India's total debt service payments were to the BankGroup.

PART III - THE TELECOMMUNICATIONS SECTOR

Background

30. While India has a comparatively large telecommunications networkby world standards, with more than 1.7 million direct exchange lines (DELs)and more than two million telephones, the quantity and quality of telephoneand telex services is poor compared to many other countries. India's tele-phone density (number of telephones per 100 population) of 0.3 is low comparedwith Malaysia - 2.7; Papua New Guinea - 1.3; Philippines - 1.2; Thailand -0.8; and Sri Lanka - 0.5. The average for Asia, excluding Japan, is 0.6 whilethe world average is 9.6. The telephone density in the major cities of Indiais also low compared with principal cities in other countries. Densities varyfrom about 2 for cities such as Hyderabad, Calcutta and Lucknow, to close to4 for Delhi and Bombay. This compares with telephone densities of 4.6 forBangkok; 7.7 for Manila; 8.2 for Tehran; 10.8 for Nairobi; and 16.3 forSingapore.

31. The present official waiting list for telephone service in India isabout 200,000 of which about 124,000 are in the four major cities. Prospectivesubscribers normally wait for many years. Moreover, many rural areas and townsare without service, and thus have no officially recorded waiting list. Thereis consequently a large level of suppressed or hidden demand.

32. Away from the larger towns, the telephone service is provided by anetwork of long distance public call offices (PCOs) which comprise a singleopen wire line with a telephone connecting the town or village to the nationaltelephone network. As demand in a rural town grows, a small telephone exchangeis installed at the PCO and the original line used as a trunk circuit to thenetwork. In April 1978, there were about 8,000 PCOs and 4,300 small (lessthan 100 lines) telephone exchanges. Of the 8,000 PCOs, over 7,000 werelocated in places with a population exceeding 5,000. Of the 45,000 townswith a population exceeding 2,000, only one-third have telephone facilitieseither in the form of a long distance PCO or telephone exchange.

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33. Due to the significant shortage of telephone lines and network over-loading, the calling rates in most large cities in India are very high and theprobability of making a successful call is relatively low. For example, inBombay, Delhi and Calcutta, sampling studies have shown that during businesshours 40% to 50% of all call attempts fail because the called telephone isbusy. This phenomenon brings about repeated call attempts to busy numbersand, as a result, generates additional traffic throughout the network. Thisnot only creates congestion in the call handling plant, which is shared byall subscribers, but also increases the overall probability of encounteringa called subscriber who is busy. The situation is made worse by faultyequipment.

34. There is also a high level of congestion in the long distance net-work brought about by the difficulties of completing calls through the localnetworks and by the inadequate provision of trunk switching equipment. Thisparticularly affects the automatic trunk network during daytime hours. Manualtrunk calls also often encounter delays of two to four hours. In the case ofmanual trunk calls, it is possible to pay higher charges and get a priorityconnection. In the longer term, however, the most effective method of improv-ing the trunk service will be by expanding the automatic trunk network; thecurrent draft five-year plan (1978-83) provides for increased additions tothe automatic trunk switching system, which will help alleviate congestion.

Sector Organization

35. The telecommunications sector in India is state-owned and comprisesmainly the Posts and Telegraphs Department (P&T), the Overseas CommunicationsService and three major public sector telecommunications manufacturing com-panies. In addition to these, there are numerous smaller private manufacturerswho act as subcontractors to the major manufacturers.

36. The P&T is a government department under the jurisdiction of theMinistry of Communications. It is controlled by a seven member board ofsenior executives, whose chairman is the Secretary of Communications. TheBoard has adequate autonomy in policy formulation and day-to-day operations.The Telecommunications Branch of P&T operates all public telecommunicationsfacilities within India and to adjacent countries. Overseas CommunicationsServices (OCS) operates all international communications with non-adjacentcountries. OCS is in the Ministry of Communications, but is an agency sepa-rate from P&T. The telecommunications manufacturing industry consists ofthree public sector companies, the Indian Telephone Industries Limited (ITI),the Hindustan Teleprinters Limited (HTL) and the Hindustan Cables Limited(HCL). ITI manufactures mainly telephone exchange, transmission equipmentand telephone instruments. HTL manufactures teleprinters and miscellaneoustelegraph, telex and data terminal equipment. HCL manufactures virtuallyall the telephone cable now used in the P&T network. The TelecommunicationsBranch of P&T employs approximately 250,000 full-time staff and the equivalentof about 130,000 temporary employees. The three manufacturers together haveabout 30,000 employees.

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Sector Objectives

37. The main thrust of the draft five-year plan (1978-83) is to expand

the availability and quality of service outside the four major urban areas of

Delhi, Bombay, Calcutta and Madras. It complements the objective of GOI's

national development policy of encouraging development in backward and rural

areas, smaller towns and new growth centers. The plan intends to extend some

form of telephone service, by 1983, to practically all towns with a population

greater than 5,000 and to villages with a population greater than 2,500 in the

"hilly and backward" areas. It is proposed to provide 15,000 new long distance

public call offices during the five-year period.

38. Three other important sector objectives are: (a) to concentrate

investment in metropolitan area in such a manner as to reduce the number and

waiting time of the high priority OYT applicants; 1/ (b) to upgrade the qual-

ity of service in respect of traffic congestion and transmission performance

in both the local and long distance networks; and (c) to steadily increase

local equipment manufacturing capabilities to continue the move towards greater

self-reliance within the sector. While expansion of local manufacturing will

result in significant cost savings for P&T, the industry expansion objective

also brings with it the need to maintain applied research and development

activities at an adequate level so as to facilitate the orderly adaptation

to the Indian situation of new technologies and to provide the skills necesary

to sustain good management, operation and maintenance of the equipment in-

corporating the new technology.

Bank's Role in Sector

39. During the period of Bank association with the sector, the number

of telephones has increased from 373,000 in 1962 to more than two million,

the trunk network has been expanded and modernized, and an automatic telex

network established which currently has more than 20,000 subscribers. The

Bank has also assisted the P&T in modernizing its organizational and man-

agement structure, and in establishing an Economic Cell which has begun

to analyze pricing and investment issues in the sector.

40. The success of Bank Group involvement with the Indian telecommunica-

tions sector may also be judged by the declining dependence of the P&T capital

works programs on Bank Group financing. Between 1971 and 1981, the annual

Bank disbursements to India for telecommunications development would have

varied between US$30 million and US$40 million, while the capital works

programs would have increased from around US$120 million in the early 1970s

to over US$500 million by the early 1980s.

41. A project performance audit has been conducted on the third and

fourth lending operations to Telecommunications in India. These projects

1/ OYT stands for "own your telephone" and represents a scheme in which

potential subscribers (mostly business and government) who pay rela-

tively large advance deposits (up to US$581) receive priority status

for obtaining a telephone.

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were considered by the audit to be successful. The audit found that institu-tional and organizational achievements were substantial including the imple-mentation of commercial accounting and a management information system. Theprojects also contributed to the development of rural telecommunications andnational telecommunications industries. The projects did not, however, achievethe construction targets envisaged, with the result that there was trafficcongestion on the system and longer than expected waiting times for connectionto the system. Improvement in this area is planned in the proposed project.

42. Bank Group support has also been instrumental in making possiblehigher investment levels in the telecommunications sector. Equally importanthave been our contributions toward institutional improvement which have helpedP&T make efficient use of available resources and become one of the best man-aged and financially and technically soundest Government enterprises in India.

43. In line with these developments, bank emphasis within this sectorhas been changing during recent years. While technical and institutional as-pects used to be our main concerns, present emphasis is on the crucial sectorproblems of unsatisfied demand for connections and chronic congestion of theexisting services. We are directly addressing the problems of the three majormanufacturing entities in the sector, to provide necessary capital equipmentfor upgrading and modernizing the factories, and enhance their efficiency andtheir ability to, supply equipment and materials to P&T in adequate quantitiesand at comparatively low cost.

PART IV - THE PROJECT

44. The project was appraised in January/February 1978, and a StaffAppraisal Report is being circulated separately to the Executive Directors.Negotiations were held in Washington in May 1978. The Borrower's delegationwas led by Mr. J.A. Dave, Secretary to the Government of India, Ministry ofCommunications. A Supplementary Project Data Sheet is attached as Annex III.

Program Project Objectives

45. The project has been derived from GOI's five year development planfor the Telecommunications sector. The project comprises a priority componentof the first three years of the plan (April 1, 1978 to March 31, 1981) and isgeared to providing part of the foreign exchange requirements needed forfactory expansion and for expanding telecommunications services for finalconsumers. The objectives of the five-year plan are broadly as follows:

(a) expand and improve the telecommunication services outsidethe big four metropolitan areas of Delhi, Bombay, Calcuttaand Madras, by providing some form of telephone service toall towns with a population over 5,000 and to villages witha population over 2,500 in the hilly and backward areas,by accelerating the expansion of rural public call offices;

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(b) reduce the number and waiting time of high priority metro-politan applicants;

(c) upgrade the quality of service by reducing traffic con-gestion and improving transmission performance, in boththe local and long distance networks; and

(d) steadily increaise and upgrade local telecommunications manu-facturing capabilities.

46. The plan envisages installation of 1.15 million direct exchangetelephone lines, 15,000 public call offices in rural areas and a modest pro-gram to continue conversion of manual telephone exchanges into automatic ex-changes and replacement of old automatic exchanges. The long distance tele-phone system would also be improved through the use of satellites as well asmicrowave and cable media. Subscribers trunk dialing is also to be extendedon all important trunk routes.

Project Description

47. The proposed project is designed to help achieve the objectivesoutlined above over the iEirst three years of the five year plan. It consistsof four subprojects: (i) the P&T subproject; (ii) the Indian TelephoneIndustries subproject; (iii) the Hindustan Cables subproject; and (iv) theHindustan Teleprinters subproject.

The P&T Subproject

48. The P&T subproject will use the bulk of loan proceeds (US$100 mil-lion) and would support P&T's investment program over three years to improvethe quantity and quality of telecommunications services in India. The totalcost of the P&T subproject is estimated at US$772 million including taxes andduties. The foreign exchange cost is estimated at US$110 million, US$100 mil-lion of which would be covered by the Bank loan; GOI would provide the balanceof US$10 million from its own resources. The investments to be financed in-clude the installation of 340,000 lines of local telephone exchange equipment,provision of subscribers' cable and associated equipment which will permit theconnection of approximately 260,000 new direct exchange lines; provision ofapproximately 7,500 new long-distance public call offices in rural and back-ward areas of the nation, extension of the automatic trunk network by theprovision of 38,000 lines of trunk exchange equipment, and provision of otherequipment needed to extend the telecommunications network. Testing andlaboratory equipment to strengthen P&T's applied research and trainingcapabilities would also be provided.

49. Under the project, a number of steps would be taken to enhance P&T'soperational effectiveness. One such step is that P&T would establish a newtraffic engineering group under the Member Telecommunications Development,where it would be closely associated with network planning and development.P&T has also strengthened its Economic Cell, established under the Sixth

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Telecommunications project. This unit is now beginning to function effectivelyand is recognized by management as a valuable addition to the organization.The Economic Cell is adequately staffed to carry out several major studies athand.

50. In order to improve the quality of service, the P&T had establisheda number of expert committees, over the last two years, to analyze problemsand recommend corrective measures covering various aspects of network perform-ance. While several of the committees' recommendations have been implemented,there are others requiring action. One such area that requires action is theimplementation of the recommendations of a Committee on the Working of Metro-politan Telephone Districts, currently under review by the P&T Board. Progressof the studies and of the implementation of the recommendations would be fol-lowed up during Bank's progress review missions.

51. P&T finances. As a Government department, P&T's budget forms partof the national budget. All of its funds are paid into the Central Govern-ment's consolidated fund, and all funds made available to P&T are throughparliamentary appropriation. Funds which are provided by the Government inexcess of the Telecommunications Branch's internal generation, including thatobtained from long-term external financing, are called capital-at-charge. P&Tpays dividends on capital-at-charge at a rate determined by GOI, currently at6% per annum. P&T keeps separate accounts for its telecommunications andpostal operations. For its Telecommunications Branch, P&T maintains commer-cial accrual accounts in addition to the conventional Government cash accounts.

52. A substantial amount of funds generated by the TelecommunicationsBranch is transferred to cover the losses of the postal operations. TheGovernment maintains telecommunication's tariffs at a level which permitssuch transfer of funds to the Postal Branch without damaging the Telecommun-ications Branch's ability to meet it financial requirements. Such transfersduring the three-year project period (1978/79, 1979/80, and 1980/81) areestimated to be $84 million, $100 million and $120 million respectively,which would represent over 30% of the Telecommunications Branch's profitsduring those years.

53. The Branch's operating results during the fiscal years 1975 through1977 have been satisfactory and rates of return on net assets in operationhave been 19.0%, 16.3% and 29.0%, respectively. However, these rates ofreturn have been computed on the original cost of assets and therefore tendto overstate real returns. The operating ratio during this period, againapplying depreciation to original cost, varied from 55% to 72%. Other finan-cial indicators reflect an acceptable financial performance with currentratios of at least 3.1 times; debt-equity ratios of no more than 24/76 and aninternal cash generation during the period of 56% of the fund required aftercovering debt services and postal losses.

54. Projected earnings indicate that the Telecommunications Branch willachieve rates of return on revalued net plant in operation (see paragraph 55)of 15% in 1979, 14.3% in 1980 and 13.7% in 1981 based on the existing tariff.The gradual decline of the rate of return is due to the large size of the

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additions being made to existing assets and the lag in the full use of the newfacilities. The operating ratio remains constant at about 60. The financialposition would remain strong throughout the project period with debt-equityratios of no more than 23/77, current ratios of at least 2.9 times, and debtservice and postal transfer coverage of at least 3.3 times.

55. Under previous agreement with the Bank Group, the TelecommunicationsBranch was required to review the value of its net fixed assets in operationat least every five years and determine whether it was necessary to adjust thevalue to reflect current prices. As with the previous agreements, the pro-posed agreement requires the Branch to take all measures required to realizean annual rate of return of not less than 11% on the average net value of theBranch's fixed assets in operation (Section 4.03 of the Loan Agreement). How-ever, until the valuation study is completed, it will not be possible to deter-mine whether or not this rate of return has been achieved. Therefore, duringnegotiations of the proposed project, the P&T agreed to complete the reviewof its assests not later than March 31, 1980, and commencing fiscal year 1981to make necessary adjustments to the value or the purpose of rate of returncalculations (Section 4.04 of the Loan Agreement). Until then, the P&T wouldalso take all measures necessary to produce at least 60% of Branch's annualcapital expenditures from internal sources (Section 4.05 of the Loan Agreement).The forecasts for FYs79-83 indicate that such contributions to capital expendi-tures would be achieved at the present tariff levels.

The ITI Subproject

56. ITI is the largest of the three main telecommunications equipmentmanufacturers. Its production units consist of factories located at Bangalore,Naini and Rae Bareli employing 18,000, 4,000, and 1,500 people respectively.In addition, it has an electronic switching division at Palghat and a com-ponents division at Srinagar. The company manufactures switching equipment,transmission equipment, telephone instruments and other miscellaneous tele-communications equipment. Approximately 85% of its output is purchased byP&T. About 13% is sold to GOI entities such as Railways and Overseas Com-munications Service and to private industry. About 2% is exported.

57. ITI has expanded its output roughly in parallel with the growingdemands of P&T although at present it is unable to produce sufficient switch-ing equipment to meet the requirements of P&T's program. It has developedand is extending local production capability of transmission equipment and isprogressively reducing the need to import complete systems. It has an activeimport substitution program designed to reduce the import content in rawmaterials and components of its locally manufactured equipment. Its productsare comparable in quality with internationally procured equipment and pricesare competitive. Its total turnover has grown from Rs 419 million (US$48.7million) in FY73 to Rs 881 million (US$102 million) in FY77. The objectiveof the ITI subproject is to ensure that ITI can increase its outputs to meetthe requirements of P&T. ITI's capability to assure the quality of its pro-ducts also needs to be strengthened; this would be done under the project byimproving procedures and installing more modern equipment. The investments

- 16 -

to be financed include more modern testing and measuring equipment and thereplacement of obsolete machines in production and tool room units of ITI.The facilities of the microcircuit laboratory in Bangalore would be expanded,and the project would also provide increased computer capacity for purposesof production and management control.

58. The cost of the subproject is US$23.6 million including US$10.3million of foreign exchange which would be covered by the Bank loan.

The HCL Subproject

59. HCL produces a wide variety of telephone cables and line wire witha total output of approximately US$50 million in FY77. It has factories atRupnarainpur and Hyderabad where it employs 3,000 and 900 people, respectively.

60. HCL's output goes primarily to the P&T but it also produces cablesfor other customers such as Indian Railways and is meeting with some successon the export market. It has been able to meet fully P&T's requirementsapart from small size, jelly filled distribution cable and small diametercoaxial cable. The company undertakes a reasonable amount of research anddevelopment, designed mainly to improve its existing products. It plans toincrease this effort and initiate some work in the field of optical fiberswith a view to improving its firsthand knowledge of this emerging and poten-tially important technology.

61. Its products are technically good and its prices are competitivein the international market. Its output has grown from Rs 150 million(US$18 million) in FY74 to over Rs 450 million (US$50 million) in FY77.

62. As is the case with ITI, HCL's output plans are based on P&T's re-quirements for the expansion of the telecommunications network and the sub-project provides for capital equipment necessary to increase output in linewith the requirements of the P&T subprojects. As in the case of ITI, HCL'scapability to assure the quality of its products needs to be strengthened,and this would be done under the project. Over the period from FY79 to FY82,the project would enable HCL to increase the output of large size telephonecables by approximately 40% and small size, jelly filled distribution cableand small diameter coaxial cable by more than 100%.

63. The works to achieve these objectives comprise the replacement ofcable production machines which have reached the end of their economic life,and the provision of new machines, plant and testing instruments. Also in-cluded is some research and development equipment mainly related to buildingup some experience for future manufacture of optical fiber cables which arelikely to play a large part in future expansion of the P&T transmission net-work.

64. The estimated cost of the subproject is US$19 million, includingUS$10.4 millon in foreign exchange. It is proposed that the Bank loan wouldfinance US$7.5 million of the foreign cost. GOI would finance the balance.

- 17 -

The HTL Subproject

65. HTL produces teleprinters, electric typewriters, data modems andmiscellaneous items of teliegraph and data equipment. Its main product lineis the teleprinter which, together with spares and accessories, accounts formore than 95% of its outpult. The company was established in 1960 and itsfactory is located at Madras. It currently employs about 2,000 people.

66. Since 1970, it has been producing between 5,000 and 6,000 tele-printers per year, of whicln 60 to 70% are sold to P&T, about 30% to othercustomers and about 2% exported. It has maintained its capacity at a levelsufficient to meet P&T's requirements and has the potential to do so in thefuture.

67. The price of its products is competitive by world standards andthey are technically sound. Its major product, the teleprinter, is cheaperthan internationally produced machines but is not of modern design and itsoperating and maintenance costs are greater than for more expensive equipmentof more modern technology. Nevertheless, it is judged adequate for the Indiantelecommunications network and has won export orders. HTL has a small researchand development group which requires expansion as is planned.

68. HTL's output is largely governed by P&T's requirements and theobjective of the HTL subproject is to enable factory output to be increasedto match the incremental requirement of the P&T subproject and ongoing plannedrequirements. To meet this objective, the production capacity for teleprintersmust be increased from approximately 7,000 per year in FY78 to 10,000 per yearin FY83. HTL's procedures for assuring the quality of its products would alsobe strengthened under the project.

69. The subproject comprises, in the main, replacement of worn outand obsolete machines in the production and tool room areas of the factory.In addition, some provision is included for testing and measuring equipmentin order to upgrade HTL's modest research and development capability. Thisis necessary so as to enable it to improve its existing products and to giveit experience with modern technology applicable to the telegraph and datafield.

70. The estimated c,Dst of this subproject is US$4 million with a for-eign exchange content of IJS$2.2 million which is proposed for Bank financing.

Implementation

71. For the P&T subproject all installation and maintenance of telecom-munications equipment would be by P&T's technical staff with support frommanufacturers' specialists where new technologies are involved. The large andtechnically competent P&T staff, supported by the existing comprehensive train-ing programs, would ensure an adequate supply of technicians and line staff forinstallation and future maintenance of project facilities. The manufacturingunits would install the equipment to be provided under the project by factorypersonnel who are competent to complete the installation without difficulty.

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Project Costs and Financing

72. The total project cost -- of all subprojects -- is US$818.4 million,

of which US$133 million represents the foreign exchange cost. The Bank loan

of US$120 million would be applied against the foreign exchange costs, leaving

US$13 million of foreign exchange to be provided by GOI. The Telecommunica-

tions Branch of P&T would be able to generate internally 69% of its financialrequirements and will obtain the remainder from borrowing, Government contribu-

tion and subscribers' deposits.

73. The total cost of all factories sub-projects is US$46.6 million,

including US$22.9 million in foreign exchange of which the Bank would finance

US$20 million. GOI would relend the Bank's contribution to the individualfactories under subsidiary loan agreements to be entered into between GOI

and each of the three factories (ITI, HTL and HCL), which would have to be

approved by the Bank. The relending terms would include annual interest atno less than 10.25% and a repayment period of fifteen years including three

year's grace period (Section 3.01(c) of the Loan Agreement). The remainderof the investment requirements of the factories ($26.6 million) would be met

from internal cash generation and from borrowings.

Procurement and Disbursement

74. All equipment imported directly by P&T and financed by the Bank

for the P&T subproject (US$40 million) would be procured on the basis of

international competitive bidding (ICB) in accordance with the Bank Group's

Guidelines. All equipment and materials to be financed by the Bank for the

factories subprojects (US$20 million) would also be procured under ICB.

75. As with previous lending operations, ICB is not proposed for those

equipment items in the P&T subproject (US$60 million) for which considerations

of economy and efficiency give a clear advantage to domestic factories inproviding telecommunications systems of this size with closely coordinated

local supply of both equipment and cables. Close coordination is particularly

important for cable supply where many sizes and wire gauges are involved and

where supplies are destined for thousands of individual works throughout Indiawithin each program. For switching and transmission equipment, there is fur-

ther strong justification for reasons of economy, compatibility and standard-ization. Examination during appraisal confirmed that the items produced bythe factories were comparable in quality with internationally procured equip-

ment and prices were competitive. Bank financing in this case is limited to

the foreign exchange content (raw materials required for production) of thedomestically procured goods. These raw materials will be procured by the three

factories using ICB or prudent international shopping as may be appropriate.

76. For direct imports for the P&T subproject and all procurement for

the factory subprojects, disbursements would be made against the cost ofimports of equipment and materials. In the case of P&T purchases from thelocal factories, as in the past, disbursement would be made against invoices

to the P&T of a percentage of the purchase price calculated to represent the

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foreign exchange content of the goods supplied for the sub-project. Thesepercentages are currently estimated as follows for purchases from:

ITI: 25% of the selling priceHCL: 36% of the selling price; andHTL: 6% of the selling price.

These percentages would be subject to review and revised if necessary in thelight of changes in the situation.

Economic Justification and Risk

77. In India there is a large and growing unsatisfied demand for tele-communications services which is unlikely to be fully met in the foreseeablefuture. Given this situation, GOI is paying increasing attention to allocat-ing efficiently the limited resources available to the telecommunicationssector. During the 1979-83 planning period investment priorities will be inrural and smaller district centers, and in those portions of the large metro-politan areas in which there is still a large unmet demand by high priorityusers.

78. Economic benefits from telecommunications arise from the more effi-cient use of resources made possible in other sectors of the economy. Pro-ductivity is improved, waste is avoided, the disadvantages of distance and ofdispersal of people and productive units are reduced and markets are greatlyexpanded. For example, telecommunication links facilitate regional develop-ment in backward areas, and the management of infrastructure projects; withoutthem, the efficient marketing of perishable commodities is impossible. Bene-fits from the proposed project should touch all segments of the population inIndia. Indirectly, government administration and private business shouldobtain efficiency since telecommunications is the least-cost means of commu-nication for a wide variety of economic and social welfare activities. Adirect impact will be felt by applicants of high priority in business andcommerce and by the population in rural and backward areas.

79. The 15,000 additional rural public call offices, the 2,300 additionalsmall rural exchanges, and the approximately 700,000 new direct exchange linesallocated to district centers and cities other than Bombay, Calcutta, Delhiand Madras should help facilitate the achievement of the government's goalof stimulating economic development outside of the major metropolitan areas,encouraging decentralization, and reducing transport and communication-relatedcosts in a wide spectrum of economic and social sectors. In particular, theprovision of services related to agricultural extension and to health, welfare,and education in rural areas involves, in many cases, use of staff with limitedexpertise who can benefit by obtaining direction and advice over the telephonefrom more qualified personnel at main centers. As a result of this emphasison investment outside the larger metropolitan areas, a major improvement inquality of service will be made in smaller cities and district centers, whilein smaller towns and villages potentially 60 million people will receive localpublic access to telephone facilities for the first time.

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80. The Telecommunications Branch of P&T has a much wider impact oncommunications and other activities in India than is apparent from telephonestatistics. For example, the universal access postal service receives atransfer of funds from the Telecommunications Branch sufficient to coverpostal losses. In 1977 over 19% of the total capital and operating costsof the Postal Branch of P&T was covered out of telecommunications revenues.Overall during the 1979-83 period Government will receive from the Telecom-munications Branch net revenues of Rs 9,231 million.

81. As the resources allocated to the telecommunications sector in Indiaare insufficient to meet demand in full, pricing policy is another means bywhich the benefits of services are focussed on high priority users. Currently,the pricing mechanism is used to ration access and to promote priority usageof the system. Pricing policy is further used to promote cheaper local serv-ice for those residing outside the large cities and in the rural areas. Boththe required high priority user and regular advance deposits, and the monthlytelephone rental charges, are generally less in the smaller telephone serviceareas.

82. Given the externalities associated with telecommunications, thediscount rate which equalizes the projects' expected stream of revenues withcapital and operating costs is a conservative estimate of the project'seconomic return. The financial rate of return is 20% -- a 10% increase incosts, a 10% decline in revenues and a two-year delay in program completionimply a rate of not less than 14%. When labor and foreign exchange areshadow-priced, the economic rate of return is 22%.

83. The program is technically feasible and involves no special risks.The subproject objectives are well defined and the implementing institutionsare adequately staffed and experienced to carry out the project without unduedifficulty.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

84. The draft Loan Agreement between India and the Bank, the draft Pro-ject Agreement between ITI, HCL and HTL and the Bank, and the Recommendationof the Committee provided for in Article III, Section 4(iii) of the Articlesof Agreement are being distributed to the Executive Directors separately.

85. Special conditions of the project are listed in Section III ofAnnex III.

86. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

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PART VI - RECOMMENDATION

87. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

AttachmentsMay 26, 1978

ANNEX IPage 1

INDIA - SOCIAL INOICATORS DATA SHEETLAND AREA (THOU KM2) -

INDIA REFERENCE COUNTRIES (1970)

TOTAL 3280.5 MOST RECENT

AGRIC. 1797.5 1960 1970 ESTIMATE INDONESIA PHILIPPINES BRAZIL**

GNP PER CAPITA (US$) 60.0 lQ0.0 150.0 130.0 230.0 550.0

POPULATION AND VITAL STATISTICS

POPULATION (MID-YR. MILLION) 434.9 547.6 620.4 /a 117.6 36.9 92.8

POPULATION DENSITYPER SQUARE KM. 133.0 16170 189.0 62.0 123.0 11.0

PER SQ. KM. AGRICULTURAL LAND 247.0 308.0 345.0 411.0 375.0 49.0

VITAL STATIStICSCRUDE BIRTH RATE U/THOU, AV) 43.2 41.0 37.0 45.9 44.2 38.4

CRUDE DEATH RATE (/THOU,AV) 23.9 19.0 17.0 20.6 13.2 9.9

INFANT MORTALITY RATE (/THOU) 139.0/a .. 130.0 81.0 110.0

LIFE EXPECTANCY AT BIRTH (YRS) 41.7 47.2 49.5 .. 55.6 59.4

GROSS REPROOUCTION RATE 3.2 2.9 2.8 3.2 3.3 2.8

POPULATION GROWTH RATE (%)TOTAL 2,0 2.3 2.1 2.0 3.0 2.9

URBAN 2.5Lb 3.2 3.1 3.7/a 4.0 5.0

URBAN POPULAtION (% OF TOTAL) 17.9 19.8 20.6 17.5Lb 27.6 56.0

AGE STRUCTURE (PERCENT)0 TO 14 YEARS 41.0 41.6 40.1 44.0 45.6 42.0

15 TO 64 YEARS 55.9 55.3 56.7 53.5 51.6 55.0

65 YEARS AND OVER 3.1 3.1 3.2 2.5 2.8 3.0

AGE DEPENDENCY RATIO 0.8 0.8 D. 0.9 0.9 0.8

ECONOMIC DEPENDENCY RATIO l.CLe 1.1/a J..L/ . 1.5 1 5

FAMILY PLANNINGACCEPTORS (CUMULATIVE, THOU) 71.0 14585.0 37658.0 259.3 320.0 250.0

USERS (X OF MARRIED WOMEN) .. .. 18.7 .. 2.0 1.6

EMPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 175000.0 218000.0 261000.0/a 12400.0 28400.0

LABOR FORCE IN AGRICULTURE (X) 71.0 69.0 69.0 .. ss.o/a 40.4

UNEMPLOYED (% OF LABOR FORCE) 4.8 /d 4.4 /b 4.4'/c,d , 1.6 7.5

INCOME DISTRIBUTION

% OF PRIVATE INCOME REC D BY-HIGHEST 5% OF HOUSEHOLDS 26.7 25.0 / .. .. .. 35-0/a

HIGHEST 20% OF HOUSEHOLDS 51.7 53.1 {c ., ,. 54,0 62.7/a

LOWEST 20% OF HOUSEHOLDS 4.1 4.7 78 * . 3 6 3 07wr

LOWEST 40% OF HOUSEHOLDS 13.6 13.1 - *- 117 7a

DISTRIBUTION OF LAND OWNERSHIP

X OWNEO BY TOP 10% OF OWNERS .4 .. ., . .. 46.0

% OWNED bY SMALLEST iO% OWNERS 5

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 5840.0._e 4890.0 4220.0 26370.0 .. 1910.0

POPULATION PER NURSING PERSON 5310.0.A 220.0/d 3080.0 / 7630.0/ *- 3220.0.1.

POPULATION PER HOSPITAL BED 2590.0o h 1610.0 .. 1640.0 850.0 260.0

PER CAPITA SUPPLY OF -CALORIES (% OF REQUIREMENTS) 95.D 92.0 89.0 91.0 93.0 109.0

PROTEIN (GRAMS PER DAY) 55.0 53.0 48 n 43.0 45.0 64.0

-OF WHICH ANIMAL AND PULSE 19.0/i 18.0 12.6 14.0 22.0 39.0

DEATH RATE (/THOU) AGES 1-4 44.0 .. .. ,, 6.6

EDUCATION

ADJUSTED ENSCOLLMEN 41.0 63.0 65.0 75.0 113.0 87.0

SECONDARY SCHOOL 23.0 30.0 29.0 15.0 49.0 68.0

YEARS OF SCHOOLING PROVIDED(FIRST AND SECOND LEVEL) 12.0 12.0 11.0 12.0 10.0 11.0

VOCATIONAL ENROLLMENT(X OF SECONDARY) 8.0 ., 29.0 6.0 lb 17.0

ADULT LITERACY RATE (X) 24.0 33.0 36.F0A 59.0 64.0

HOUSING

PERSONS PER ROOM (URBAN) 2,6 2.8 .. .. 2.1 1.0

OCCUPIED DWELLINGS WITHOUTPIPED WATER M%) .. .. .. .. 76.0 73.0 /C

ACCESS TO ELECTRICITY(X OF ALL DWELLINGS) .. .. .. .. 23.0 48.0

RURAL DWELLINGS CONNECTEDTO ELECTRICITY (%) .. .. * *- 7.0 8.0

CONSUMPTION

RADIO RECEIVERS (PER THOU POP) 5.0 21.0 25.0 114.0 39.0 60.0

PASSENGER CARS (PER THOU POP) 0.7 1.0 1.0 2.0 8.0 25.0

ELECTRICITY (KWH/YR PER CAP) 46.0 114.0 143.0 20.0 235.0 491.0

NEWSPRINT (KG/YR PER CAP) 0.2 0.3 0.3 0.3 2.0 2.7…----------------------------------------- _---------------- ---------- __ -…----______ _____ ______ _____ ____-

SEE NOTES AND DEFINITtONS ON REVERSE

ANNEX I

Page 2

NOTES

Unlesm: otherwisa noted, data for 1960 refer to any year between 1959 end 1961, fgr 1970 between 1969 and 1971, and for Most Recent Estimate between19 73 an 176.

** -ail h.. been selatted a. an objective country because of its size aod comparable problem of regional inequality.

IDA 1960 /a 1951-61 aver.ge; . /b 1951-601 /c Ratio of population under 15 aod 65 and ove to labor force age 15 and over;/d Estimated by National Sampls Survey, in terms of the averaeg rnmber of person/weeks of unmployent as percentageof total person/weeks in the labor force; /a 1962; If Registered, not all practicing in the country; IA Including.idwives; /h 1958; L.i 1960-62.

1970 /a.E atio of population under 15 and 65 and over to total labor force age 15 and over; /b Estimated by Netiona1 SampleSurvey, in terms of the average number of pmron/weeks of unamployment as percntegs of total person/eeks in the totallabor force; Ic 1967-68; Id Including midwives.

MOST RECENT ESTThATE: /s 1978 aId-year population and labor forte estimated at 640.4 and 261 millions respectively; lb Raetio ofpopulation under 15 and 65 end over to total labor force; /c 1977; /d Estimated by National SempleSurvey, in terms of the average number of person/weeks of unemployment as percentage of total person/weeksin the labor force; /a Including midwives; If Population 10 years and over.

INDONESIA 1970 /a 1961-71; /b 1971; /c including mi7dwives.

PHILIPPINES 1970 /a As percentage of employment; /b Not Including private vocatiuonal schools.

BRAZIL 1970 /a Econmoic.lly active population; /b Hospital personnel; /c Inside only.

R13, May 2, 1978

DWIPTIOE OP SOCIAL DSSDICATOBS

Land___Am _____h _ k2population Per nursie person- Population divided by nmber of practicingTotal -Total surfce area comprising land are end inland waters, male end Eomelte graduste uss "trained' or "certified" nurses, and

Agi.-Most recent estimate of agricultural area used temporsrily or peorma- auxiliary personnel witb training or experience.nently fsr crops, pastures, merkt . bitchen gardens or to lie fallen. Population per hoepital bed - Populstion divided by .. ber of hospital beds

svsilabl. in public mod privat general and spcislised h..pit.1 .ndGAr Per .. its (UjS$) - GN? per capits estimates at current market prices rshabilitation centes ; excludes nursing horns and astoblialhenso forcalculated by sam coversion msthod as World Bash Atlas (1974-76 baste); custodial and preventive care.1960; 1970 sod 1976 data. Per ..Pit. supply Of calories (7. of requirements) - tempured from enrgy

equivalent of mat food supplias availsble in country per .. pit. Per day;Psou.l.tion aod vital statistic& available supplies cceprise d-.etic production, imports lass experts, ndP.,pul.tion Imid-Y.ar million) - us of July first: if not avilable, overge changes in stook; net suppli.s exc tud. anImal f.sd, seeds * quatities u..d

of tw sod-year estimates; 1960, 1970 and 1976 data. in food processing aod lIsses in distribution; requir-nts were estimatedby FAO base.d on physiological needs for normal activity and health consid-

P.pulation denaity -par sousr bem - Mid-year population per square kiloster or ing anvirom"an tal temprature, body weights, age and sex distributions of(100 he.tares) of total ares. popula tion, and allowing 107 for waste at household level.

Population dena icy- per seusre 1w of merit. land - teapmprd .s above for Per .. pit. supply of protein (arsm per day) - Protein content of per cepitaagricultural land only. net supply df fsod per day; mar supply of food is defined as shove; requir--

men ts for alt countries established by usDA Ec-onomi Research ServicesVItal tatistics proide for a minimum allowance of 60 gream of total protein per day, andCrude birth rat per thousand. average - Annual live birtho per thousand of 2i grams of enimal and pulse protein, of which IS grams should be animal

.id-year population ; ten-yesr arithmatic ever.ges ending in 1960 and 1970, protein; thos stadards are lowr thon those of 75 gr-m of total proteinand five-yea.r average ending in 1975 for most recent estimate. end 23 grams of anfIma protein as an average for the world, Proposed by FAO

Crude desth rate per thousand. wvraze - Annual destho per thousand of mid-yea io the Third World Pond Survey.population; tan-year arithostic averages ending in 1960 and 1970 and five- Per capita protsin supply from snimal and pulse - Prot.in supply of fondyear averS.agending in 1975 for moat recen.t estimate, derived from animals and pulses in grams par day.

Infant mortality rate i/thou)- Annual deaths of infants under one year of age Death rats (/thou) agesa 1-4 - AmnuaI deaths per thousan.d In age group 1-4per thouasod live birtho. years, to children In this age group; suggested s an indicator of

Life expectancy at birth fyrs) A-Aerge numbsr of years of life remaining at malnutrition.birth; usually five-year averages ending in 1960, 1970 sod 1975 for dwvelop-ing countries. Education

Gros reproduction rare - Average number of live daughters a women will bear Adjusted enrollment rstio - prinsrv school - Enrollment of all ages as per-in her normal rproductive period if she experiences present age-specific cntage of primary echool-ege popelation; includes childrem aged 6-11 yearsfertilit rae; Isly five-year averges ending in 1960, 1970 and 1975 but adjusted for different lengthe of primary aduc..tiom; for countries withfor devlopintg' coutrias . universal education, enrOllmsnt may emceed 1001% since e pupils are below

Population growth rate (7.) - tots1 - Cumpoud annua growth rats of mid-year or above the official school eag.population for 1950-60, 1960-70 mod 1970-75. Adjusted enrollment ratio - meo.odary school - Computed as shove; secondary

Population growth rate (7.) - urban - temperd like growth rete of total education requires at least four years of approved primary instrution;population; different definitioa of urban areas may affect comparability of provides general, vocational or teacher training instructions, for pepil.date among countries, of 12 to 17 years of age; correspondence couse are geneally excluded.

irbn population (% of total) - Ratio of urb.n to total population; different Years of schooling Provided (first and secod level s) - Total Year ofdefinitions of urban areas may affect comparability of date among countries. schooling; at secondery level, vocational instruction may be partially or

Aee structure (percent) - Children (S-li years), working-age (15-64 yeare), Vocaional onrocl=iee C of ... ondary) - Vocational Institutions includeand retired (65 years and over) .e percentages of mid-y-s population, technical, industrial or other program which oprate independently or a

Ago dependency ratio - Rstic or populo tion under 15 and 65 and ovr to those departments of secondary institutions.of ages 15 through 64. Adult literacy rate (7.) - Literate adults (able to read and write) se per-

k_.onmic dependenc.y ratio - Ratio of population under 15 and 65 and over to tentage of total adult population aged 15 years end over.the labor force to age group of 15-64 years.

Family plannin - acce..ptors ic,amul.tive. thou) - Cumultive number of acc.sptors Hous ingof birth-control devices under auspices of national family planning program Persona Per room (urban) - A-aregs nber of person per roo in occupiedsince Lin. ption. conventi-onl dwellings in urban areas; dwellings exclude non-permanet

Family planning - users ft of married women) - Percentages of married woman of structures and unoccpied parts.child-bearing age (15-44 years) who use birth-control devices to ell marriad Occupied dwellings without piped water (4) - Occupied conventional dwllinge.emen in same age group. in urban and rural areas without inside or outside piped water fecilirtee

aspretg fiall ccu.pied dwellings.EsPloywont Acesto electricit (1f all dwellings) -Convetional dwellings withTotal labor force (thousand) - Economically active persona , including armed electricity in living quartrer as percen.t of total dwellings is urban and

forces and unemployed but seoluding housewives, atud.ors, etc.; dnfinition. rurl ara..En various countries are not comparable. Rural del1ings conneted to electricity it.) - Competed as shon for rural

Labor force in agric.lture (7.5 - Agricultural labor force (in farming, forestry, dwellings only.hunting end fishing) as percm"tag. of total lebor force.

Unempi,oed (% of labor famce) U-eployed are ususlly defined as persona who conaumptionare able and willing to takea job, out of a Job on a given day, remained out Radio roeeivrs (per thou pop) - All types of receivers for radio broadcas.tso,f a Job, and aseking work for a specified minimom period not exceeding one to genere1 public per thousand of population; excldes uncese.d receiverswek; may not be romparbla between countries due to different definitions in coutries and in years when registration of radio sets wee in affect;o,f uneployed nd source of data, e.g. , employment office statistics, sample data for recet years may not be comparable since cot countries abolished

E'nya upul.ory unemployment insure-e licening.Pasener crs oarthou pop) - Passeger cars comprise motor cars seaoting

I-cmm distribution -Percentage of private moose (both in cash end kind) les thenright pesoa;exldes ambulances, hears.s end militaryr ... iv-d by ricbset 514, richeat 201, pooresr 201, end poorst 40t of house- vehicle..holds. Electricity (kwh/yr per cap) - Annual consumption of industrial, comercia1,

public and private electric ity in kilowatt hour per cepita, generallyDL.tribution of land ownar-hip - Percentages of 1amd owned by wealthiest 101% b.eed ow production data, wIthout allowance for losses in grids but allo--

mod poorest 101 of Send ownere. ing for Imports and exports ohf electricity.Newsprint (ba/Tr per cap) - Per cspita annual consumption in kilngramsHealth and Nutrition estimated from domastic production pl.s mar imports of newsprint.

Posul.tion per physlicia - Population divided by n,bar of practicingphysfician qualified from a medical school at university leve.

ANNEX IPage 3

ECONOMIC DEVELOPN1T DATA

GNP PER CAPITA iN 1976 * VSt tSO

GROSS NATIONAL PRODUCT IN 1976/77 AN/ AAL RATE OF GROMTE ('. ooneteat crioem)

USS Bln. . 1960/6t-_964/65 1965/66-1969/70 1970/71-1975/76

GNP at Market Prices 86.04 1o0.o 3.9 3.8 2.9Gross Domestio Investment 16.62 19.3Gross National Saving 18.18 21.1Current Account Balance 1.56 1.8Resource Gap 0.95 1.1

OUTPVT, LABOR FORCE AND PRODUCTIVITY IN 1975/76

Value Added (at fEwotor ooet) _Labor Fo .A, Per WMokoUSS Bln. -s 11il. < % of Nattwal Aver g

Agrioulture 30.2 43 179.0 69 169 63Industry 16.7 24 33.9 13 494 193Services 23.4 33 48.0 18 488 133Total/average 70.3 100 261 100 277 100

GOVMIMENT FINANCE

General Government / Centzal qoYplastTREI. Bin) _ % 1f GDP

1976/77 1976/77 1974/75-1976/7 1976/77 1976/77 1974/75-1976/77

Current Receipts 147.46 19.1 17.9 83.78 10.9 10.4Current Expenditures 140.18 18.2 16.2 84.2 10.9 9.6Current Surplus/Deficit 7.28 0.9 1.7 - 0.47 - 0.8Capital Expenditures a/ 59.05 7.6 7.1 40.39 5.2 5.0External Assistance (net) 11.21 1.5 1.7 11.21 1.5 1.7

MONEY. CREDIT AnD PRICES 1970/71 j /73 1973i/74 1974/75 j2 6 1976/77 Seted i976 Sentember 1977Billion Rs outstanding at end of period

Money and Quasi Money 105.7 142.2 169.0 186.9 215.0 262.6 238.2 284.8Bank Credit to Publio Seotor(net) 56.9 82.5 92.9 102.6 109.1 117.3 112.7 130.7Bank Credit to Private Sector 56.7 76.0 90.1 109.5 127.5 161.0 144.0 170.0

(Peroentage or Index Numbers) Jamar, 1977 January 1978

Money and Quasi Money aS % of GDP 24.3 27.3 26.4 25-5 27.6 31.3Wholesale Price Index

(1970/71 = 100) 100.0 1 16.2 139.7 174.9 173.0 176.6 178.8 183.3

Annual percentage changes in&

Wholesale Prioe Index 7.7 10.0 20.2 25.2 -1.1 2.1 7.5 2.5Bank Credit to Public Sector (net) 8.6 19.6 12.6 10.4 6.3 7.5 4 7 Li 15 8 /Bank Credit to Private Sector 17.3 18.0 18.5 21.5 16.4 26.3 24.9J/ 1t.9

a/ The per oapita GNP estimate is at market prioes, calculated by the conversion technique used in the World Atlas.All other oonversions to dollare in this table are at the aversge exchange rate prevailing during the period covered.

/ Quick Estimates.1/ Computed from trend line of GNP at factor cost series, including one observation before first year and Oe

observation after last year of listed period.4/ Transfers between Center and States have been netted out.

l/ Al loans and advances to third parties have been netted out.f/ Net bank credit to Government Sector.S/ Bank oredit to Commercial Sector.

ANN2X IPage 4

BALANCE oFAr PA D 18t974h5 JMSZ 6 .i61 1°7JU i 6iI Eom (f V 974/75 1976/77 )

lEports of Goods 4,174 4,665 5,760 6,400 - tsu1ng Goods 515 11Ispor

ts of Goods -5.665 -6,084 *5,950 -6,600 Sugr 379 8

Trade on'l -1,491 -1,419 - 190 _ 200 Tes 296 6826 (net) 213 510 465 500 Jut Y5nufsotures 294 6

Leather and LeatherR eouroo C*D -1,278 -1,109 215 300 Products 268 5

ClothiAg 257 5Intert Paye.nt (not) - 198 - 216 135 - 130 IronOre 258 5Other Faotor Pey.nts (net) - - Cotton Textiles 223 5let Transfers Al 257 470 730 1000 t°Oro 2396 49

Total 4866 100

lKsnoe OD Currnt oeoamt -1,217 _ 855 810 1,170

Official Aid EXTf =T. 11RCH 31, 1977

Disbursements 1,761 2,341 1,953 1,840 usJ Biion

Amortization -515 -531 -560 - 630 Outstanding and Disbursed 13.6

Trnsactions with IM 522 242 -336 - 330 V*disbursed 3.2All Other Ite -589 -403 -292 23 OutstedIng, including Undisbureed 16.8

Inorese in Reserves (_) 38 _794 -1,575 -2,073 MT SERImC RILTIo pOR 1976/77 14.4 percent

Gross Reserves (end year) 1,378 W,172 3,747 5,820Not Reserves (end year) k/ 758 1,365 3,276 5,670 I302IDA LDING. December 311 1977 (USt ln..)

Puel and Related aterials IYRD IDA

Imports 1,451 1,417 1,358 1,8D0 Outstanding and Disbursed 489.0 3,560.5

of which, Potrolee 1,451 1,417 1,580 t,800 Undi b irsdd 674.9 1,257.0outsted=n, including

Elport 26 43 37 ,,U Undiebur-ed 1,163.9 4,817.5

of whicht Petrolea 17 22 21 n.a.

RATE OF EXCHAUGE

Prior to mid-December 197t1 C t1.OO a Re 7.5 After end June 1972 t Floating RateRs 1.00 = 1880.133333 Spot Rate January 31, 1978

Yid-Deeember 1971 to I 0881.00 a Re 7.27927 approx. USt1.00 = RB 8.063end June 1972 Rs 1.00 = US10.137376 approx. Re 1.00 = USSO.124

h/ Retimated.F figures given cover all Investment income (net). Ihjor payeents Ifter1nt 0n foeign los mndcharges paid to DP1, and saJor roeipt is intereet earnd on foreign assets.

1/ Figures given include workers' remittanee. but exclude official grant "sistanoe, which is laludedwithin offioial aid disburmonts.

_/ Eoludes net use of Ifr ordit.A/ mnortisation and interest pa2-unts an foreign ilsum as a percentage of sevchandie mporte.

ANNEX IIPage 1 of 15

THE STATUS OF BANK GROUP OPERATIONS IN INDIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS

(As of March 31, 1978)

US$ Millionl'Loan or o aclainCredit No. Year Borrower Purpose (Net of Cancellation)

Bank IDA Undisbursed

40 Loans/ l19O*.6

51 Credits fully disbursed 2,604.6

267-IN 1971 India Wheat Storage -- 5.0 3.4

294-IN 1972 India Bihar Agricultural Markets -- 14.0 9.1

312-IN 1972 India Population -- 21.2 6.1

342-IN 1972 India Education -- 12.0 9.3

356-IN 1972 India IDBI -- 25.0 10.5

377-IN 1973 India Power Transmission III -- 85.0 3.1

378-IN 1973 India Mysore Agricultural Markets -- 8.0 6.9

902-IN 1973 ICICI IrLdustry DFC X 67.5 -- 5.8

390-IN 1973 India Bombay Water Supply -- 55.0 25.3

403-IN 1973 India Telecomamunications V -- 80.0 3.4

427-IN 1973 India Caklcutta Urban Development -- 35.0 10.1

440-IN 1973 India Bihar Agricultural Credit -- 32.0 14.9

456-IN 1974 India HN' Apple Processing & marketing -- 13.0 9.9

481-IN 1974 India Trombay IV -- 50.0 11.6

1011-IN 1974 India Chambal (Rajasthan) CAD 52.0 -- 34.8

482-IN 1974 India Kairnataka Dairy -- 30.0 26.0

502-IN 1974 India Rajasthan Canal CAD -- 83.0 52.5

520-IN 1974 India Sindri Fertilizer -- 91.0 18.2

521-IN 1974 India Rajasthan Dairy -- 27.7 25.8

522-IN 1974 India Madhya Pradesh Dairy -- 16.4 15.3

526-IN 1975 India Drought Prone Areas -- 35.0 24.3

1079-IN 1975 IFFCO I;PFCO Fertilizer 109.0 -- 66.2

1097-IN 1975 ICICI ILdustry DFC XI 100.0 -- 27.4

532-IN 1975 India Godavari Barrage Irrigation -- 45.0 22.2

541-IN 1975 India West Bengal Agricultural Development -- 34.0 25.4

562-IN 1975 India Char,abal (Madhya Pradesh) CAD -- 24.0 18.4

572-IN 1975 India Rural Electrification -- 5710 46.0

582-IN 1975 India Railways XIII -- 110.0 16.7

585-IN 1975 India Uttar Pradesh Water Supply -- 40.0 36.4

598-IN 1975 India Fertilizer Industry -- 105.0 90.8

604-IN 1976 India Power Transmission IV -- 150.0 149.6

609-IN 1976 India Madhya Pradesh Forestry T.A. -- 4.0 3.8

610-IN 1976 India Integrated Cotton Development -- 18.0 17.7

616-IN 1976 India Industrial Imports XI -- 200.0 1.7

1251-IN(TW) 1976 India Andhra Pradesh Irrigation 145.0 -- 142.8

1260-IN 1976 India IDBI II 40.0 -- 37.0

1273-IN 1976 India National Seed 25.0 -- 25.0

1313-IN 1976 India Telecommunications VI 80.0 - 36.1

1335-IN 1976 BMRDA Bombay Urban Transport 25.0 -- 21.2

680-IN 1977 India Kerala Agricultural Development -- 30.0 30.0

682-IN 1977 India Orissa Agricultural Development -- 20.0 20.0

685-IN 1977 India Singrauli Thermal Power -- 150.0 137.0

687-IN 1977 India Nadras Urban Development -- 24.0 23.5

695-IM 1977 India Gujarat Fisheries -- 4.0 4.0

1394-IN(TW) 1977 India Gujarat Fisheries 14.0 -- 14.0

690-IN 1977 India Urest Bengal Agricultural Development -- 12.0 12.0

712-IN 1977 India Madhya Pradesh Agricultural Development -- 10.0 10.0

715-IN 1977 India Second ARDC Credit -- 200.0 175.9

720-IN 1977 India P'eriyar Vaigai Irrigation -- 23.0 23.0

728-IN 1977 India Assam Agricultural Development -- 8.0 8.0

1473-IN 1977 India Blombay High Offshore Development 150.0 -- 104.5

736-IN 1977 India Maharashtra Irrigation -- 70.0 70.0

737-IN 1977 India Rlajasthan Agricultural Extension -- 13.0 13.0

740-IN 1977 India Orissa Irrigation -- 58.0 58.0

1475-IN 1977 ICICI Industry DFC XII 80.0 -- 79.0

* 747-IN 1978 India Second Foodgrain Storage -- 107.0 107.0

* 756-IN 1978 India Second Calcutta Urban Development -- 87.0 87.0

A 761-IN 1978 India Bihar Agricultural Extension & Research -- 8.0 8.0

*1511-IN 1978 India IDBI Joint/Public Sector 25.0 -- 25.0

Total 2,013.I 4,933.9

of which has been repaiid 854.4 35.5

Total now outstanding 1,158.7 4,898.4

Amount Sold 133.2

of which has been repisid 111.5 2r.7

Total now held by Bank and IDA 1,137.0 4,898.4

Total undisbursed (excluding *) 593.8 1,299.0

* Not yet effective.

1/ Prior to exchange adjustments. Anril 1978

ANNEX IIPage 2 of 15

B. STATEMENT OF IFC INVESTMENTS(As of March 31, 1978)

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 Gloster Industries Ltd. 0.8 0.4 1.2

1964-75 Mahindra Ugine Steel Co. Ltd. 11.8 1.0 12.8

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

TOTAL 49.6 8.8 58.4

Less: Sold 6.0 1.6 7.6

Repaid 14.5 - 14.5

Cancelled 6.2 0.7 6.9

Now Held 22.9 6.5 29.4

Undisbursed 5.3 - 5.3

ANNEX IIPage 3 of 15

C. PROJECTS IN EXECUTION-

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$598.6 million in FY77 or 80% of Bank Groupcommitments to India in tlhat year. The undisbursed pipeline of US$1,893million as of March 31, 1978, corresponds roughly to commitments over thepreceding two-year period and reflects the leadtime which would be expectedgiven the mix of fast and slow-disbursing projects in the India program.

Ln. No. 902 Tenth Industrial Credit and Investment Corporation of IndiaProject; US$70.0 million loan of June 8, 1973; EffectiveDate: August 16, 1973; Closing Date: December 31, 1978

Ln. No. 1097 Eleventh Industrial Credit and Investment Corporation ofIndia Project; US$100 million loan of April 2, 1975;'Effective Date: July 1, 1975; Closing Date: December 31,1980

Ln. No. 1475 Twelfth Irndustrial Credit and Investment Corporation ofIndia Projject; US$80 million loan of July 22, 1977Effective Date: October 4, 1977; Closing Date: March 31, 1983

These loans have supported industrialization in India through awell-established developrment finance company and are designed to financethe foreign exchange cost of industrial projects. ICICI continues to be awell-managed and efficient development bank financing medium and large scaleindustries, which are often employing high technology and are export oriented.Loans 1097-IN and 902-IN are fully committed and disbursements have reached73% and 88% of total loan amounts respectively as of March 31, 1978, whichis slightly ahead of schedule.

Cr. No. 440 Bihar Agricultural Credit Project; US$32.0 million creditof November 29, 1973; Effective Date: March 29, 1974;Closing Date: June 30, 1978

Credit No. 440 provides US$32.0 million over three years in supportof a lending program for 50,000 units of tubewells and pumpsets in the TirhutDivision of Bihar. Because of slow disbursements caused by a lower than esti-mated Dollar/Rupee exchange rate and by low unit investment costs compared

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being encountered, and the action being takento remedy them. They should be read in this sense and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

ANNEX IIPage 4 of 15

with appraisal estimates, IDA agreed to extend the closing date by one yearto June 30, 1978, and to extend the project area to cover the whole State otBihar. The physical targets should be achieved by revised closing date anddisbursements are expected to accelerate.

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

The above agricultural credit projects are similar in structure,being designed to provide long- and medium-term credit to farmers throughcredit institutions, for on-farm investments, primarily in minor irrigation.Credit 715 is a continuation nationwide of the previous program of agricul-tural credit projects, which were confined to individual states. Apart frominitial start up problems with the individual state projects, mostly due tothe introduction of new lending criteria and lending terms, progress underthese projects has been satisfactory.

Cr. No. 267 Wheat Storage Project; US$5.0 million credit of August 23,1971; Effective Date: November 14, 1972; Closing Date:September 30, 1978

Cr. No. 747 Second Foodgrain Storage Project; US$107.0 million credit ofJanuary 6, 1978; Effective Date: April 6, 1978 (expected);Closing Date: June 30, 1982

The US$15.9 million project, 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. Thegovernment-owned Food Corporation of India is responsible for the storageconstruction. All the nine 10,000 ton capacity bag warehouses envisagedunder the project (as revised) were completed and became operational in 1975.The construction of five grain silos is progressing satisfactorily afterdelays due to cement shortages and is expected to be completed by December1978. The training component is being implemented. The All-India GrainStorage Study was completed in October 1976 and proved useful in formulatingthe proposal for the Second Grain Storage Project which was appraised inFebruary/March 1977 and approved by the Board on November 15, 1977.

Cr. No. 456 Himachal Pradesh Apple Processing and Marketing Project;US$13 million credit of January 22, 1974; Effective Date:September 26, 1974; Closing Date: December 31, 1978

IrThis project provides US$13.0 million to promote the development

of apple processing and marketing in Himachal Pradesh, and comprises gradingand packing centers, cold storage facilities, a juice processing plant, roadimprovements and cableways. The project also includes on-farm cold storageand oak mushroom production. The main executing agency is the HimachalPradesh Horticultural Produce Processing and Marketing Corporation (HPMC).

ANNEX IIPage 5 of 15

The project encountered initial delays due to managerial and technical prob-

lems; however remedial measures have been taken to overcome these difficul-ties. Land is expected to be acquired for all packing and grading sitesby early 1978. The Project Preparation Report for the juice pror,ssingplant has been completed and found satisfactory, and tenders on the equip-ment are being called. The road improvement programme is progressingsatisfactorily, and the feasibility reports on aerial cableways at thepacking/grading sites are also expected to be completed shortly. As aresult of the significant improvement in project implementation during thepast year, disbursements have recently gathered momentum.

Cr. No. 403 Telecommunications V Project; US$80.0 million credit ofJune 25, 1973; Effective Date: July 30, 1973; ClosingDate: December 31, 1978

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

Both projects are progressing satisfactorily. The closing date ofCredit 403 was extended by one year to December 31, 1978, to cover thedelivery and installation of imported transmission and switching equipment.Disbursements under Loan 1313 have commenced.

Cr. No. 377 Power Transmission III Project; US$85.0 million creditof May 9, 1973; Effective Date: October 31, 1973; ClosingDate: September 30, 1978

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

The drawdown of Credit 377 was slow initially and as a consequenceit has been necessary to postpone the Closing Date to September 30, 1978(originally September 30, 1977). However an amount of US$84 million had beendisbursed by the end of March 1978 and the balance of US$1 million shouldbe disbursed well before the revised Closing Date. Disbursements underPart A of Credit 604 (US$120 million) have been slow with only US$0.4 mil-lion disbursed at March 31, 1978. However, contracts aggregating about US$50million had been awarded by March 1978 and disbursements should now accelerate.This Credit included a supplementary Credit of US$30 million under Part B tomeet increased costs of equipment scheduled under Credit 377-IN; of thisamount some US$26 million has been committed leaving an amount of US$4 millionfor load despatch equipment which should be committed by June 30, 1978.

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

ANNEX IIPage 6 of 15

Cr. No. 520 Sindri Fertilizer Project; US$91 million credit of December 18,1974; Effective Date: February 27, 1975; Closing Date:September 30, 1978

Ln. No. 1079 IFFCO Fertilizer Project; US$109 million loan of January 24,1975; Effective Date: April 28, 1975; Closing Date: March 31,1979

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

Progress on the Trombay IV project has been good although projectcompletion may be delayed by about 18 months due to longer than expecteddelivery times for critical equipment and to reflect the current situationwith respect to the use of the Credit proceeds. Under the Sindri projectplant construction and erection is proceeding generally according to scheduleexcept for a one-month delay due to anticipated delays in receipt of somematerials. Commencement of commercial production is expected by March 1978.The anticipated cost to complete the project is presently running within bud-get. The IFFCO project was delayed by about a year as a result of a changein feedstock from fuel oil to naphtha and delays in completion of engineeringcontracts. The project is now progressing satisfactorily based on naphtha asfeedstock. Site work has begun, process- and time-critical equipment is beingordered, and engineering work is well under way. Credit 598-IN is designedto increase the utilization of existing fertilizer production capacity. Theproject has encountered delays in sub-project preparation and investmentapprovals by the Government. Further, some of the sub-projects identifiedearlier may not materialize because of reconsideration by the Central andState governments. The Central Government has submitted a list of sub-projects to replace the ones that are likely to be dropped. Because of theabove, the project is likely to be delayed by 6-12 months.

Cr. No. 294 Bihar Agricultural Markets Project; US$14.0 million creditof March 29, 1972; Effective Date: July 31, 1972; ClosingDate: December 31, 1978

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 underthe Bihar project has generally been satisfactory. The project includestraining of the Agricultural Produce Marketing Committee (APMC) staff andevaluation of the project's economic impact. As of June 30, 1977, develop-ment plans had been completed for 48 of the 50 project markets. The remain-ing 2 are pending land acquisitions. Appraisals and loan sanctions had beencompleted for 13 and was in progress for 18 markets. Farmers and tradersserved by the 8 market yards now in operation report more efficient marketing

ANNEX IIPage 7 of 15

activities and improved farmers' terms of trade. Progress under the Karnatakaproject is improving. As of August 1977, when the project was last reviewedappraisals for 36 of the 39 project market yard plans had been completed byparticipating banks and 25 of these 36 approved by ARDC. Construction is inprogress at 33 markets. In an attempt to accelerate project progress, moreliberal lending terms have been provided to APMCs and Market Intermediaries(MIs) for construction of shop-cum-godowns. The project is expected to becompleted by the closing date (December 1979) and to achieve its majorobjectives of making farm produce marketing more efficient and improvingfarmers' terms of trade.

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 researchoriented population project in Karnataka and Uttar Pradesh. The project'sinfrastructure, which would provide the optimum facilities (buildings, equip-ment, staff and transport) according to GOI standards in selected districtsin each state, is almost complete. The two Population Centers, which willdesign and monitor research aimed at improving the family planning program,are now functioning. To allow adequate time for the Population Centers tocomplete their evaluation of family planning strategies and the introductionof management information and evaluation systems, the closing date has beenextended to June 30, 1979.

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

The project involves the development of the agricultural uni-versities in Assam and Bihar. Initial lag in implementation on accountof late appointment of project staff has been overcome. Campus planshave been approved, and construction has started in both Assam and Bihar.Disbursements which have been slow because of initial delays shouldaccelerate now that construction and equipment procurement are under way.

Cr. No. 356 Industrial Development Bank of India Project; US$25.0 millioncredit of February 9, 1973; Effective Date: June 22, 1973;Closing Date: September 30, 1978

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. 1551 IDBI Joint/Public Sector Project; US$25.0 million loan ofMarch 1, 978; Effective Date: May 31, 1978 (expected);Closing Date: March 31, 1983

The first IDBI Project (Cr. 356) had a slow start mainly due toinstitutional problems in the participating State Financial Corporations.

ANNEX IIPage 8 of 15

However, the credit is now fully committed. In order to continue BankGroup's involvement in assisting small and medium scale industries and instrengthening the State Financial Corporations involved, the second operation(Ln. 1260) was approved on May 18, 1976, and more than 10% of the loan amounthad been authorized by mid-March 1978.

Cr. No. 390 Bombay Water Supply and Sewerage Project; US$55.0 millioncredit of January 22, 1974; Effective Date: March 13, 1974;Closing Date: December 31, 1979

Having overcome earlier difficulties, including cost overruns causedby inflation (requiring project redefinition in February 1975), redesign ofmajor project components and an unforeseen addition of a supplementary studyon sewage disposal, the project is now progressing relatively well. All ofthe major contracts for the water supply components have been awarded andit is forecast that works will be sufficiently advanced to permit the supplyof additional water (455 mld) in the last quarter of 1978; completion ofwater treatment works for the whole supply by the end of 1979 is realistic-ally forecast. Completion of additional sewage disposal studies (August1977) has allowed engineering design of the project sewerage components toproceed, so that completion of construction of these works is now scheduledfor 1980 two years later than originally forecasted. Financial performanceof the project entity is satisfactory and all covenants are being met.

Cr. No. 585 Uttar Pradesh Water Supply and Sewerage Project; US$40.0million 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 preparationof technical reports for regional and local water authorities and in theengagement of consultants. While improvements have been made in the physicalexecution, other aspects of project implementation continue to lag so thatdisbursements under the Credit have fallen short of estimates at the timeof appraisal. In order to improve the situation, arrangements are beingmade to appoint a full-time management adviser to closely supervise andcoordinate implementation.

Cr. No. 616 Eleventh Industrial Imports Project; US$200.0 million creditof February 26, 1976; Effective Date: April 1, 1976; ClosingDate: June 30, 1978

Utilization of the Technical Development Fund has been slower thananticipated and the closing date has been postponed by one year to allowcompletion of disbursements from the Fund which has been fully committed.

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

ANNEX IIPage 9 of 15

Cr. No. 756 Second Calcutta Urban Development Project; US$87.0 millioncredit of January 6, 1978; Effective Date: April 10, 1978(expected); Closing Date: March 31, 1983

For the first of these projects, following considerable increases inproject costs, GOI and IDA fiLnalized a project redefinition in April 1976, toaccommodate the project to funding available. It is now expected to besubstantially completed by March 1979. Agreements have been reached onconsultants services and technical assistance, as provided for under theproject.

Cr. No. 687 Madras Urban ])evelopment Project; US$24.0 million creditof April 1, 1977; Effective Date: June 30, 1977; ClosingDate: September 30, 1981

The project is designed to develop and promote low-cost solutionsto the problems of providing improved services to the urban poor in theMadras 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 tobenefit directly some 250,000 persons in low-income areas of the city. Thewater supply and sewerage; road and traffic improvements; bus transport andtechnical assistance components are designed to eliminate bottlenecks inwater supply and transport.

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

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

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

These three credits totalling US$74.1 million support dairy devel-opment projects organized along the lines of the successful AMUL dairy coop-erative scheme in Gujarat State. The Karnataka Project which got off to aslow start has begun to show considerable improvement under new managementappointed recently. Farmer response has been good and over 500 dairy coop-eratives with small farmer participation are functioning effectively. Allfour dairy unions, as envisaged under the project, have been established andare functioning satisfactorily. In'Madhya Pradesh good progress has beenmade. About 310 new dairy cooperatives societies have been established.Detailed design studies for plant construction are complete. The responseof small farmers to the project is excellent. GOMP has plans to cover alldistricts in the State. Technical services investments are being made.Contracts have been placed for livestock imports. The Rajasthan project is

ANNEX IIPage 10 of 15

also doing well. Four milk unions have been formed and excellent progress

has been made in organizing the servicing of nearly 450 dairy cooperativesat the village level. Plant-designs are ready, and procurement is makingadequate progress. Based upon the good results experienced, GOR is planningto expand the form of dairy development to all other districts of the State.

Karnataka's decision to procure plant equipment jointly with Rajasthan andMadhya Pradesh on the same tender should lead to a recovery of considerabletime lost earlier in the Karnataka project.

Cr. No. 532 Godavari Barrage Project; US$45 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 afterinternational competitive bidding. Work is in progress and is proceedingsatisfactorily.

Ln. No. 1011 Chambal (Rajasthan) Command Area Development Project; US$52million 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 mil-lion 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 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 millioncredit 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 ofOctober 11, 1977; Effective Date: January 11, 1978(expected); 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

These projects, based on existing large irrigation systems, aredesigned to improve the efficiency of water utilization and, where possible,to use water savings for bringing additional areas under irrigation. Canallining and other irrigation infrastructure, drainage, and land shaping areprominent components of these projects. In addition, provisions have beenmade to increase agricultural production and marketing by reforming and

ANNEX IIPage 11 of 15

upgrading agricultural extension services and by providing processing andstorage facilities and village access roads. Progress of these projectsis generally satisfactory. An April 1978 mission which supervised Cr. 720Periyar Yaigai found that construction of the project commenced in Marchl 1978.The Public We-ks Department (PWD) has set up a strong construction organizationheaded by a Special Chief Engineer in order to complete the project on schedule.Monitoring of flows in irrigation canals will start in June 1978. A systemoperation plan is under preparation and GOTN has appointed a Committee tostudy water and water-relate!d charges in Tamil Nadu.

Cr. No. 541 West Bengal Agricultural Development Project; US$34 millioncredit of April 28, 1975; Effective Date: August 28, 1975;Closing Date: March 31, 1980

The project provides US$34.0 million over four years mainly forminor irrigation investments but also for development of markets, agro serv-ice centers, and support of related government services. Although disburse-ments have been slower than anticipated there has been a considerable(improve-ment in project organization and administration during the past six monthsand disbursements are expect:ed to improve considerably during the next twelvemonths. The physical progress of shallow tubewells, and of deep tubewellsfor the Minor Irrigation Corporation is satisfactory. IDA, GOWB and ARDCare combining efforts in order to solve difficulties such as organizationalproblems at the farm level; lack of demand for agro service centers; andfinalization of designs for water distribution systems and irrigationschemes. Positive results, lparticularly for the water distribution systemsare expected shortly.

Cr. No. 682 Orissa Agricultural Development Project; US$20 millioncredit of April 1, 1977; Effective Date: June 28, 1977;Closing Date: December 31, 1983

Cr. No. 728 Assam Agricultural Development Project; US$8.0 millioncredit 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

Cr. No. 737 Rajasthan Agricultural Extension and Research Project;US$13.0 million credit of November 14, 1977; EffectiveDate: February 16, 1978 (expected); Closing Date:June 30, 1983

ANNEX IIPage 12 of 15

Cr. No. 761 Bihar Agricultural Extension and Research Project; US$8.0million credit of January 6, 1978; Effective Date: April 6,1978 (expected); Closing Date: October 31, 1983

These projects totalling US$63 million finance the re-organizationand strengthening of agricultural extension and the development of adaptiveagricultural research services with the objective of achieving early andsustained improvements in agricultural production, particularly foodgrains.Arrangement for monitoring and evaluation of project progress and impact isan essential feature of these projects. The Orissa and Assam projects alsoprovide funds for laying the basis for longer term improvements in ground-water development in the States. The project's components include provisionof additional staff, training facilities, housing, offices, laboratoryfacilities, equipment and transportation.

Cr. No. 526 Drought Prone Areas Project; US$35.0 million credit ofJanuary 24, 1975; Effective Date: June 9, 1975; ClosingDate: June 30, 1980

Overall physical progress of the Drought Prone Areas project (DPAP)continues to be satisfactory. The rate of disbursement is improving andimplementation of most components is proceeding, by and large, according toschedule. However, progress may be affected by possible changes in thinkingat the national level. GOI is presently reviewing all national rural develop-ment programs, including the DPAP, in order to determine ways to improve over-all performance in the rural sector. The Government's review is being fol-lowed closely to determine whether any recommendations would have an impacton the ongoing project and require changes.

Cr. No. 680 Kerala Agricultural Development Project; US$30 millioncredit of April 1, 1977; Effective Date: June 29, 1977;Closing Date: March 31, 1985

This project would improve tree crop production in Kerala and hasparticular emphasis on increasing benefits to small farmers. It comprisesrehabilitation of 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 thecoconut area would be irrigated for intensive intercropping. Funds have beenprovided for development of a seed garden for tree crops and for strengtheningtree crops research. Ten crumb rubber factories would also be established toproce smallholder rubber. Project implementation started slowly due toinitial staffing and funding delays but has recently gained momentum. Pro-ject actions for 1978/79 have been rephased and advance action planned soas to ...:ke up for lost time.

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

The Project consists of a tranche of rural electrification schemes-hich, at about Rs 5 million each, would cover about 140 schemes. There are3w twelve States eligible for onlending (compared with six at the time of

ANNEX IIPage 13 of 15

appraisal). The project got off to a slow start, due principally to theneed to adapt the specifications and tendering procedures to internationalcompetitive bidding, but the position has now improved and the cumulativevalue of contracts entered into or about to be entered into at February 28,1978 was US$50.32 million leaving an outstanding uncommitted balance ofUS$6.68 million. The full amount of the Credit is expected to be committedby mid 1978 and it should be Eully disbursed by the closing date ofDecember 31, 1979.

Cr. No. 582 Railways XIII Project; US$110.0 million credit of August 26,1975; Effective Date: October 10, 1975; Closing Date:September 30, 1978

The project was designed to cover most of the foreign exchangerequirements of Indian Railway's (IR) investment program for two years, fromApril 1, 1975, through March 31, 1977. However, since the approval of theproject, increased production in steel products in India and further develop-ments in IR's indigenization program slowed down the rate at which IR requiresforeign exchange. Therefore, the Closing Date was extended for one year toSeptember 30, 1978 in order to complete implementation of the project. Dis-bursements as of March 31, 19,78 were 85% of the total credit amount.

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

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

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

The project finances equipment, civil works and crop productioncredit to support programs for cotton research and cotton production increasein three states. The project also provides credit for improving cotton gin-neries, -w ginneries, cotton seed oil extraction plants and vegetable oilprocessing factories. (Effectiveness was delayed by slow appointment ofconsultants, but the cotton extension services program was started withoutdelay and has now been in operation for two years. Disbursements have beensmall mainly due to poor demand to date for project credit.) A recent super-vision mission, working with technical consultants, has made detailed recom-mendations for more appropriate pest control practices and more adaptiveresearch to identify and introduce better varieties. These measures areunder discussion with GOI, and when agreed to and implemented, should speedup project disbursements.

ANNEX IIPage 14 of 15

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

This project supports seed industry expansion in the public andprivate sectors; improvements in seed quality control; strengthening ofbreeding and seed technology research; and development of a reserve stockscheme. Institutional development and managerial arrangements, particularlyat the state level, have proceeded fairly satisfactorily. Project imple-mentation, however, slowed down after loan effectiveness mainly due toorganizational problems. Project progress is now being made since approvalof the project by the new Government in September 1977 and is anticipatedto gain further momentum as GOI is about to appoint the two top officersof the National Seeds Corporation.

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

Disbursements have been delayed somewhat because of delays in pro-curement action. However, contracts for bodies and chassis for 325 singledeck and_175 double deck buses have been awarded and some 144 buses havebeen delivered. Bids for an additional 200 buses are being evaluated. Civilworks contracts have been awarded for 8 to 15 bus facilities, and 13 of abouttraffic engineering schemes. Delays are expected in implementing some BMCtraffic engineering schemes and the BEST workshop schemes although steps arebeing taken to minimize such delays. Consultants in organization, adminis-tration, financial management systems, accounting and development planningare at work assisting the Borrower, the Bombay Metropolitan Regional Devel-opment Authority. The beneficiaries of the loan, the Bombay Municipal Corp-oration and the Bombay Electric Supply and Transport Undertaking, have selec-ted consultants in traffic engineering and operations and management assist-ance, respectively.

Ln. No. 1394 Gujarat Fisheries Project; US$14 million loan and US$4(TW) and million credit of April 22, 1977; Effective Date:Cr. No. 695 July 19, 1977; Closing Date: June 30, 1983

Progress is good. All project implementation units appearto be competent and enthusiastic and the project is progressing as antici-pated at appraisal.

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

The Singrauli project is the first stage of the 2,000 MW Singraulidevelopment which is, in turn, the first of four power stations in the Gov-ernnment's program for the development of large Central thermal power stationsfeeding power into an interconnected grid. It is proposed that the BankGroup will have a continuing involvement in this development program.

ANNEX IIPage 15 of 15

The National Thermal Power Corporation (NTPC) has been formed toconstruct and operate these power stations, and the development program hasgotten off to a good start. Organization and staffing of NTPC is proceedingsatisfactorily and the project is proceeding on schedule with land acquisi-tion almost complete. Site levelling is in progress and contracts have beenawarded for major plant (turbogenerators, boilers, transformers).

Ln. No. 1473 Bombay High COffshore Development Project; US$150.0 millionloan of June 30, 1977; Effective Date: October 20, 1977;Closing Date: December 31, 1980

* The project is progressing satisfactorily. Gas and oil pipelinesfrom Bombay High to shore have been laid and are expected to be commissionedby May 1978. Bids for well and processing platforms at Bassein have beenreceived and are under review. Disbursements increased rapidly during Marchat US$45.5 million and is expected to keep pace with appraisal estimates.

ANNEX IIIPage 1 of 2

INDIA

SEVENTH TELECOMMUNICATIONS PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events.

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

Program and project planning is a continuous processin telecommunications. Fifty professional man yearsover the years commencing with formulation in 1977 ofthe 1978-83 Telecommunications Plan would be a minimumestimate.

(b) The agency which has prepared the project

Telecommunications Branch, Posts and TelegraphsDepartment.

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

June 1977. Pre-appraisal in August 1977.

(d) Date of departure of appraisal mission

January 11, 1978.

(e) Date of completion of negotiations

May 17, 1978.

(f) Planned date of effectiveness

September 1978

Section II: Special Bank Implementation Actions

None.

ANNEX IIIPage 2 of 2

Section III: Special Conditions

(a) -GOI would enter into subsidiary loan agreements witheach of the three factories (ITI, HCL and HTL), under

terms and conditions to be approved by the Bank, as acondition of effectiveness. The terms would includean annual interest at 10.25% and a repayment period of

fifteen years including three years' grace (paragraph73).

(b) GOI would cause the Telecommunications Branch to takeall measures required to realize an annual rate of return

of not less than 11% (paragraph 55).

(c) GOI would review the value of the net fixed assets inoperation of the Telecommunications Branch by March 31,

1980, and if necessary adjust the value for purposesof calculating the rate of return required underSection 4.03(a) of the Loan Agreement (paragraph 55).

(d) Until the rate of returns are calculated based onrevalued assets, the Telecommunications Branch would

take all measures necessary to produce at least 60% ofthe annual capital expenditures of the Branch (para-graph .55).

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