Document ofThe World Bank

Report No: 18403-IN

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED IDA CREDIT

IN THE AMOUNT OF SDR 97.9 MILLION

TO

INDIA

FOR A

MAHARASHTRA HEALTH SYSTEMS DEVELOPMENT PROJECT

NOVEMBER 5, 1998

Health, Nutrition and Population Sector UnitSouth Asia Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(As of September 1998)

Currency Unit = Rupee

Rupees 42.5 = US$1.0

GOVERNMENT FISCAL YEAR

April 1 - March 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyCHC Community Health CenterDHS Directorate of Health ServicesDMC District Management CommitteeGOI Government of IndiaGOM Government of MaharashtraGSDP Gross State Domestic ProductHMIS Health Management Information SystemIDA International Development AssociationIEC Information, Education and CommunicationMCH Maternal and Child HealthM&E Monitoring and EvaluationMOHFW Union Ministry of Health and Family WelfareNGO Non-Govermmental OrganizationO&M Operations and MaintenancePFMS Project Financial Management SystemPGB Project Governing BoardPHC Primary Health CenterPHD Public Health DepartmentPIP Project Implementation PlanPMC Project Management CellPMR Project Management ReportPSC Project Steering CommitteeSPC Strategic Planning CellSA Special AccountSC/STs Scheduled Castes/Scheduled TribesSDH Sub-Divisional HospitalsSTD Sexually Transmitted DiseaseWDR World Development Report

Vice President: Mieko Nishimizu

Country Director: Edwin R. Lim

Sector Manager: Richard Skolnik

Team Leader: Tawhid Nawaz

IndiaMaharashtra Health Systems Development Project

CONTENTS

A. Project Development Objectives 2

1. Project Development Objectives and Key Performance Indicators 2

B. Strategic Context 2

1. Sector-Related CAS Goal Supported by the Project 22. Main Sector Issues and Government Strategy 23. Sector Issues to be Addressed by the Project and Strategic Choices 3

C. Project Description Summary 4

1. Project Components 42. Key Policies and Institutional Strengthening Supported by the Project 53. Benefits and Target Population 64. Institutional and Implementation Arrangements 6

D. Project Rationale 7

1. Project Alternatives Considered and Reasons for Rejection 72. Major Related Projects Financed by the Bank

and/or Other Development Agencies 93. Lessons Learned and Reflected in Proposed Project Design 94. Indications of Borrower Commitment and Ownership 105. Value Added of Bank Support in this Project 10

E. Summary Project Analyses 10

1. Economic 102. Technical 113. Institutional 114. Social 125. Enviromnental Assessment 136. Participatory Approach 13

F. Sustainability and Risks 14

1. Sustainability 142. Critical risks 14

G. Main Loan Conditions 14

1. Coniditions of Negotiations 142. Other Covenants 15

H. Readiness for Implementation 15

1. Compliance with IDA Policies 16

Annexes

Annex 1. Project Design Summary 18Annex 2. Detailed Project Description 20Annex 3. Letter of Health Sector Development Policy 27Annex 4. Estimated Project Costs 32Annex 5. Public Expenditure Analysis for the Health Sector 41Annex 6. User Charges 47Annex 7. Procurement and Disbursemenit Arrangemilenits 54Annex 8. Project Processing Budget and Schedule 62Annex 9. Documents in Project File 63Annex 10. Statement of Loans and Credits 64Annex 11. Country at a Glance 68

IndiaMaharashtra Health Systems Developmerit Project

Project Appraisal Documient

South Asia Region

Date: November 5, 1998 Team Leader: Tawhid NawazCountry Director: Edwin R. Lim Sector Manager: Richard SkolnikProject ID: 50651 Sector: Health. Population and NutritionLending Instrument: Specific Investment Credit Program of Targeted Intervention: Yes

Project Financing Data [] Loan [X] Credit [] Guarantee [] Other [Specifyl

For Loans/Credits/Others:

Amount (US$m/SDRm): US$134.0 millionProposed terms: [x] Multictirrenicy [] Single currenicy, specify

Grace period (years): 10 years [] Standard Variable [ Fixed [] LI BOR-basedYears to maturity: 35 years,

including graceperiod

Commitment fee: not to exceed1/2 of 1% perannum%

Service charge: 3/4 of 1% perannum%

Financing plan (US$m):

Source Local Foreign TotalGovernment of Maharashtra 24.1 24.1IDA 105.0 29.0 134.0Total 129.1 29.0 158.1

Borrower: India, Acting by its PresidentResponsible agency: Department of Health and Family Welfare, Government of Maharashtra

Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004Annual 1.0 12.0 27.0 38.6 34.0 21.4

Cumulative 1.0 13.0 40.0 78.6 112.6 134.0Project implementation period: 5 1/2 years Expected effectiveness date: March 1999Completion date: September 30, 2004

A: Project Development Objectives

1. Project development objectives and key performance indicators (see Annex 1):

The objectives of the proposed project would be to assist the Government of Maharashtra (GOM) to: (i)improve efficiency in the allocation and use of health resources through policy and institutionaldevelopment; and (ii) improve the performance of the health care system through systemic enihanicemenitsin the quality, effectiveness and coverage of health services at the first referral level and selective coverageat the community level. The project would target the neediest sections of society, especially womiieni andtribal populations (about 9%), a majority of whom reside in remote and far-flung hilly terrain. It would alsosupport other health programs under implementation which are addressing the main healtlh conditions in thestate. Annex I provides a list of indicators, from whicih a few monitorable indicators have been selected tomeasure the developmental impact of the project.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported hy thte project (see Annev 1):

General. The Country Assistance Strategy (Report No. 1 7241-IN, dated December 19, 1997, discussed bythe Board on January 15, 1998) recommends a focus for Bank Group-financed investments on states whicihare supporting policy reform, including sector specific policy initiatives. It also provides a basis forsupporting Government of India's (GOI) efforts to provide an enabling environimenit for broad-based.efficient private sector-led growth while accelerating the development of humani resources. The proposedproject supports these objectives by strengthening institutional capacity, supporting policy development,upgrading effectiveness and quality of services and enhanicinig community participation at the commnUllityand first referral levels of health care. The proposed project also fits IDA's missionl in targetingunderserved populations such as women and scheduled castes and scheduled tribes (SC/STs).Sectoral. In the human resources sectors, IDA's objective is to support restructuring of social programs toenhance their effectiveness, improve quality of life, and provide the poor with increased opportunlities toparticipate more fully in the economy. IDA's specific objective is to work with public, private andvoluntary sectors towards (a) improving primary care and nutrition policies; (b) consolidatinig diseasecontrol efforts; and (c) upgrading state health systems. In support of this strategy, a series of projects hasbeen financed by IDA. The basis of this strategy for the healtlh sector in India is rooted in an on-goingdialogue between GOI and IDA, and is reflected in two recent pieces of sector work: India: Policy andFinance Strategies for Strengthening Primary Health Care Services, May 1995; and India: New Directionsin Health Sector Development at the State Level: An Operational Perspective, February 1997. Theproposed project would support this strategy in Maharashtra.

2. Main sector issues and Government strategy:

The major challenges in delivering a package of health care services and enhancing the performance ofhealth delivery systems at the state level are summarized below:Financing Issues: In the public sector, provision and financing of health is a shared responsibility of thecentral and state governments. Close to three-fourths of the financial burden for the health sector is borneby the states. However: (i) the overall fiscal situation in the states has generally deteriorated, with a rise inthe fiscal deficit, an increase in interest payments as a share of total revenues, and an increase in debtoutstanding as a share of state domestic product; (ii) within the health sector, resource allocation in thepublic sector is skewed in favor of tertiary care services relative to the needs at the primary and secondarylevels; and (iii) much of the resources are absorbed by the salary costs, and the recurrent budgets foroperations and maintenance are chronically underfunded.Performance of Health Systems: India is facing an epidemiological transition in which the country willsimultaneously have high rates of communicable diseases and non-communicable diseases. This dualburden of disease facing India is compounded by: (i) the government's health care strategy, which is

2

anchored on population-size based norms rather than specific health needs at the community level, (ii) thetechnical efficiency of key programs which is seriously limited, as service functions are duplicated andtechnical paradigms have become out of date; and (iii) inadequate attention to workforce issues includinginsufficient incentives for staff, and limited in-service training.Capacity for Management, Planning and Coordination: There has been progress in recent years in theavailability, quality and use of information on health financing and management capacity at the central andstate levels. However, the overall capacity for management, planining and coordinationi remains limited inthe government sector. Moreover, the present financial managernent system is not well developed andfocuses more on book-keeping and expenditure control, where it is difficult to obtain costing andmanagement accounting information and capture and produce timely inforinationl for taking soundmanagerial decisions.Public-Private Partnerships in the Health Sector: The private sector, whicil accouLits for about 80% ofhealth spending largely from out-of-pocket sources, plays a domiiianit role in thie provision of individualcurative care through ambulatory healthi services, whereas the public sector provides publicly managed andfinanced preventive and promotive healthi services such as immuniZation, ante-niatal care, infectious diseasecontrol and hospital-based care. Despite the comparative advantage of each of the two sectors, public-private partnerships have not been fully exploited. The maini challenges with regard to public-private rolesinclude: (i) enhancing the scope of the private sector while improvi ng the quality of its services; (ii) findinlgthe appropriate mix between direct provision versus the finanlcinig of health care by the public sector; (iii)encouraging private sector involvement in the preventive and promotive aspects of healthi care; and (iv)improving the existing arrangements for monitoring private healthi care providers.Essential Public Health Functions. To improve the overall performance of the healthi sector, it is importantto strengthen India's essential public healthi functions. These include: immunization and other maternal andcihild health programs, programs to combat communicable diseases sucih as malaria and tuberculosis,HIIV/AIDS, disease surveillance, food and drug quality control and research and development. Moreover,the public sector has an important role to play in enhanicinig the effectiveness and access of healthi care,especially for the poor who have limited access to private services.Government Strategy: India has made substantial progress in improving the healthi status of its populationover the past two decades. Health is one of the six priority areas identified in the Ninth Plan (1997-2002).GOI has determined that public investments in healthi are critical for the sustainability of development andpoverty alleviation in India. The Nintil Plan emphasizes successiFul preventive and promotive activities,better control of communicable and noni-communicable diseases, improved surveillance and improvedsystemic efficiency. More recently, the Central Council of Health and Family Welfare has noted theimportance of linking preventive and promotive care with selective aspects of curative care whicih isprovided at first referral hospitals. Since the states are largely responsible for the financing andimplementationi of health programs, these issues need to be addressed at the state level.

3. Sector issues to be addressed by thle project and strategic choices:

Financing Issues: Public resources allocated to the health sector in Maharashtra, as in other Indian states,are inadequate to meet basic health care needs. The governmient has expressed its commitment toimplement selected financing policy to support the investment program. These include: (i) enhancingbudgetary allocations to the health sector; (ii) increasing the share of resources to the primary andsecondary levels of health care; (iii) allocating adequate resources for drugs, essential supplies, andoperations and maintenance (O&M); and (iv) raising supplementary funds through user charges.Performance of Health Systems: The health care delivery system in Maharashtra suffers from severalinstitutional problems. The project chooses to address systemic, broad-based problems faced at the firstreferral and community levels rather than providing ad hoc or piecemeal solutions. Systems to bestrengthened include: overall management, procurement of drugs and equipment, referral, healthmanagement information system (HMIS), surveillance of major communicable diseases, health care waste

3

management, and equipment management system.

Management, Planning and Coordination: The project would strengthen the existing Directorate of HealthServices (DHS)/Public Health Department (PHD) structures by providing greater autonomy in essentialfunctions such as implementation of civil works programs, drug and equipment procurement andmanagement, workforce issues and financial management. In addition, the administrative structure at thedivisional and district levels would be strengthened in the above mentioned areas, and also with regard tocollaboration with NGOs and the management of funds collected through user charges.Technical and Quality Issues: The quality of services provided presently suffers from unstreamlinied andinadequate service norms and lack of a systematic approach to quality assurance. A detailed mappingexercise has been undertaken to identify the types of services to be provided at different facilities, clinicaland service norms have been streamlined, and a plan for a coherent system of service delivery from thecommunity hospital to the district hospital, including the introduction of quality assuranice has beendeveloped.Access and Coverage of Basic Health Care Services: The clinical effectiveness and outreach funlctions ofselected Community Health Centers (CHCs) would be enihanced. In tribal areas, the focus of the projectwould be to enhance access to health care and to facilitate health seeking behavior amongst tribals. Inaddition to enhancing the availability of trained staff, equipment and materials at facilities in tribal areas,the government proposes to strengthen the linkages between the health care system and the IntegratedTribal Development program to reduce the "mental distance" between the tribals and government healthfunctionaries. The government proposes as well to strengthen the referral linkages between primary andsecondary facilities in tribal areas in order to ensure priority treatment for tribal patients.Private and NGO Sectors: The government is committed to actively engaging the private sector in healticare delivery where possible, especially with regard to contracting out support services. NGOs are activein the state, and the project would seek their participation in project activities in areas where they have acomparative advantage at the community level.

C: Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 4 for a detailed costbreakdown):

Scope: The proposed project would be an investment operation providing International DevelopmentAssociation (IDA) financing of US$134.0 million equivalent for a 5 1/2 year period. The policy issues tobe addressed under the project would help prepare the state to better address priority issues in the primaryand secondary levels of the health system in the medium- to long-term. The project would be an importantstep in the development of a coherenit, effective and sustainable health system and would strengthen theorganizational and institutional structure of preventive and curative aspects of health care. The projectwould help deliver a package of health services, based on revised service norms and consistent with needsin the community. Project investments would include:

4

Component Category Cost Incl. % of TotalContingencies

(US$M) _______

Management Development and Institutional Civil works, goods, 14.52 9Strengthening by: (a) improving the institutional consultants andframework for policy development; services, incremental(b) strengthening the management and salaries, operations andimplementation capacity at the state, divisional, maintenance costs.district and facility levels; and (c) developingsurveillance capacity for major communicablediseases and strengthening HMIS.Improving Service Quality and Effectiveness at 25 Civil works, goods, 117.77 74District Hospitals, 23 100-bedded and 53 50- consultants andbedded Sub-Divisional Hospitals by: services, incremental(a) renovating/extending district hospitals and salaries, operations andupgrading selected CHCs to sub-divisional maintenance costs.hospitals and constructing training centers at 4remaining district hospitals; and (b) upgradingeffectiveness of clinical, managerial and supportservices at all district and sub-divisional hospitals.Improving Access and Innovative Schemes by: (a) Civil works, goods, 25.86 17renovating/extending and upgrading clinical consultants andeffectiveness at 35 CHCs and enhancing their services, incrementaloutreach functions; (b) improving the referral salaries, operations andmechanisms with the primary and tertiary levels maintenance costs.and with private health care; (c) promoting healthservices in tribal areas and for disadvantagedgroups; and (d) developing a superspecialityhospital as an innovative scheme for closercooperation between the public and private sectorsthrough the adoption of modern managementpractices.

Retroactive Financing. Retroactive financing, effective after March 31, 1998, would be provided forexpenditures which follow the standard features of eligibility. Thlis would include eligible project relatedexpenditures for activities accepted as consistent with appraised standards, procured in accordance withstandard Bank guidelines and clearly accounted and subject to audit. The government identified thlefollowing items for which they would claim retroactive financing amounting to about US$1.36 millionequivalent (1% of the proposed Credit): preparation activities including facilities and equipment surveys,preparation of procurement documents and model plans, studies, information technology equipment,vehicles and related operational expenditures.

2. Key policies and institutional strengthening supported by thte project:

The Govermnent of Maharashtra has furnished a Letter of Health Sector Development Policy (Annex 3)that provides the basis for policy development in the health sector, the important points of which are linkedto the Remedies section of the Development Credit Agreement. The policy issues include: (i) increasingfinancing and improving resource allocation for the health sector; (ii) strengthening capacity formanagement, planning and coordination; (iii) enhancing the role of the private and voluntary sectors; (iv)

5

operationalizing a user charge policy; (v) providing incentives for the workforce and resolving the skill-mix imbalance; and (vi) redressing regional and other imbalances.

3. Benefits and target population:

A major benefit of the proposed project will be to help establish an effective and sustainable health systemin Maharashtra, indirectly benefiting the entire state's population. First, the broader sectoral policy issuesunder the proposed project would increase effectiveness by improving the environimienlt in whicil the publichealth sector operates. Second, there would be substantial cost savings in the healthi sector througih theimplementation of streamlined service norms and rationalization of service provision at different levels ofthe health system. Technical and quality improvements, including in operations and mainitenianicefunctions, at the facility level will enhance the effectiveness of services. Encouraging patients to seektimely care would result in higher cure rates at lower costs. Third, analvsis has showin that healthi careservices carried out at lower level facilities, such as at first referral facilities rather thani at a tertiaryhospitals could result in savings of between 25-40%. Fourthi, those currently utilizing existing serviceswould benefit from better quality of care. In addition, there would be other qualitative benefits whicihwould have a significant impact oni the health system: the strengthiening of first referral facilities and CHCswould lend vital support and credibility to the primary healtil care system In rural areas; and theexternalities associated with reducinIg public healthi hazards througIl improvemenits in healtil care wastemanagement and in the surveillance system for major communicable diseases would have substanitial noni-quantifiable benefits. These systemic quality improvements would directly benefit approximately 4.5million out-patients and 0.3 million in-patients annually who are currently using healthi care services. Inaddition, the proposed project is expected to expand services to an estimated 4 million incremilenital out-patients and an estimated 0.28 million incremental in-patients annually. As in the other states, the majorityof people using the services to be provided under the project would belong to the poorest 40% of thepopulation.

4. Institutional and implementation arrangements (Annex 2):

The project will be managed and implemenited by a Project Managemenit Cell (PMC) located in the state'sPublic Health Department (PHD). The project management structure incorporates the following keyfeatures: a Project Governing Board (PGB) would provide overall direction throughi the development ofbroad policy parameters, approve the annual budget and undertake periodic review of projectimplementationl; and a Project Steering Committee (PSC) with primary responsibility for projectmanagement and implementation. The PSC would make decisions related to project implementation andwork with an existing Empowered Committee for all externally-aided projects in healthi to ensure thatfinanlcial approvals are obtained in a timely manner; and the PMC would undertake day-to-day projectimplementation. Implementationi at the divisional and district level would be facilitated by the DistrictManagement Committee and the Hospital Visiting Committee. In addition, new arrangements andadditional resources at these levels would ensure that streamlined decision making occurs in relation tocivil works, procurement, finance and the collection of user charges. A Strategic Planning Cell, reportiigthroughi the Project Manager to the Secretary, PHD, would undertake analytical work to support decisionsabout system-wide changes in the healthi sector.

Finanlcial Management and Auditing Arrangements (Annex 7): To address the current weak financialmanagement reporting system which focuses on book-keeping and expenditure control noted earlier, theproject will develop a costing and management accounting system to assist sound managerial decisionmaking. Initially, because of the need to develop institutional capacity, the project will use existiigdisbursement mechanisms until it achieves the Loan Administration and Change Initiative (LACI)compliance capability. Understanding was reached with GOM that it would develop and implement afinancial management system not later than December 31, 1999. After the development and

6

implementation of the financial management system, GOM would take the necessary steps to enableconversion of disbursements to the new Project Management Report (PMR) based disbursements as soonas possible. The PMC will design, develop and maintain a computerized Project Financial ManagementSystem (PFMS) according to the following guidelines: (a) creation by the PHD of a separate budget headwith appropriate sub-heads in the Annual Budget documents of the Department to capture all projectrelated expenditures; and (b) development and implementation by the PMC of a computerized PFMScapable of providing timely and reliable information to project management staff to monitor the progress ofthe project towards agreed objectives. The accounting system would reflect component-wise and category-wise expenditures, produce financial reports that show actual versus budgeted expenditures for the currentperiod and to date and provide costinlg information. It would capture information regarding the method ofprocurement so that the limits of procurement laid down in the Procuremlenlt ScheduLle in the ProjectAgreement are properly monitored; and (c) the PFMS would map the financial data with physical data formeasuring the performance of the project. It will facilitate disseminlation of data oni category-wise andcomponent-wise expenditures on the project, and provide adequate informationi for the compilation andrendition of various financial reports. The PMC would prepare and furniislh to the Bank a project finanlcialreport on a quarterly basis. The PMC would ensure correct and proper maintenanice of project accouL1ts,making use of the PFMS, have the accounts audited by the appropriate auditinlg agency, and render auditcertificates containlilng the auditors' opilioni on the anniual finanicial statement of the project as well as onthe expenditures claimed on Statemenits of Expenditures on due date.

D: Project Rationale

1. Project alternatives consitleredl anl reasonsfor rejection:

Thie major alternatives to the project would be to:

(a) target interventions in selected districts in several states rather than addressing statewide healtlh careneeds up to the district level in a single state. This Wvould miss the opportunity to address key state-widepolicy issues suchi as increasing finanlcinig and improvilg resource allocation in the health sector, allocatilgadequate resources for drugs, essential supplies and operations and mainteinance, and institutionialstrengthieninlg suchi as rationalized service norms, referral mechanism, healtlh care waste managementsystem, equipmenit management system, HMIS and surveillance of major communicable diseases,procurement and financial management arrangements. By introducing less focused and more piecemealintervelitionls withinii the state, this alternative would not address the health needs in a coherent and effectivemanniier. Experience in the five states where State Health Systems Development projects are currentlybeing implemenited indicates that the broad-based approach is the appropriate mechanism to addresssystemic healthl sector issues.

(b) target interventionis at the primary level only. A number of other disease control and family welfareprojects supported by IDA are already targeting investments at the primary level and addressing some ofthe critical needs related to staffing, drugs and medicine and infrastructure. Moreover, the epidemiologicalprofile/burden of disease indicates that a sustainable health system will need to combine elements of publichealth and basic clinical services in order to provide adequate and necessary health care services.Investments at the primary level alone will not be effective in providing these basic health services withoutthe vital support at the first referral level, which confers credibility to the public health system. This isespecially true for critical programs such as safe motherhood and child survival (Investing in Health,World Development Report, 1993).

(c) build up the primary health care network to deliver services provided at the first referral level.Significant expansion of primary health center (PHC) network to provide first referral services is not

7

feasible due to: (i) low absorptive capacity at that level; (ii) difficulty in stationing qualified staff at thePHC level; (iii) inability of the PHC level to adequately deal with critical conditions suchi as obstetricemergency, which is key to reducing maternal deaths; (iv) unavailability of sizable investment resourcesthat would be needed to significantly expand infrastructure; and (v) unavailability of a larger operatingbudget at the PHC level at a time when the recurrent budget for staff salaries, medicine and drugs is beingcut back (India: Policy and Finance Strategies, May 1995). In addition, analysis undertakenl in recentsector work shows that unit cost for bed day, outpatient contact and level I tests such as blood picture andurine exams are comparable at the PHC and first referral hospital level, and in some cases even lower at thefirst referral level (India: New Directions in Health Sector Development, February 1997).

(d) extend selective interventions to the tertiary level as well. Treating communicable disease andaddressing routine medical services at the tertiary hospitals will overload the tertiary hospitals andundermine their role in providing superspecialty services. Moreover, recent sector work and other relatedstudies show that for comparable conditions, treatment and care at the first referral level on average costabout two-thirds of that at the tertiary level facilities (India: New Directions in Health Sector Development.February 1997). Tertiary hospitals cater mainly to specialized services, many of whiclh could be providedmore efficiently by the private sector. The inniovative scheme at a superspeciality facility included in thisproject to provide secondary and tertiary services through the adoption of modern managemenit practices isviewed as a pilot, based on which some important lessons can be learned forcorporatizing public tertiaryhospitals.

(e) leave the provision of first referral services and basic healtlh services to the private sector. There areseveral rationale for undertaking this operation throughi the public sector: (i) both sector work andbeneficiary assessment studies in several states in India indicate that more than 60% of the beneficiariesbelong to the poorest sections of society and much of the remaining 40% are marginally above the povertyline. As suclh, they are unable to afford fees for private services, which are two to three times higher andborne almost entirely from out-of-pocket sources; (ii) the private sector provides mainly individual,curative care, but due to market failure it does not provide the most appropriate services to those in greatestneed. In addition, public healtlh fuLictions need to be backstopped througlh the public system. The deliveryof a package of ptiblic health measures and essential interventions is an important priority for governmenitfinanicinig. Moreover, the coordinationi of project activities with national healtlh programs would notmaterialize. In the absence of experience and information, it is not politically feasible to attempt a radicalrestructuring of government and private service provision. However, the project will initiate experiments inprivate contracting of services.

(t) maintain the status quo. Retaining the current program would mean that there would be no institutionalstrengtlhening and policy development in the health sector; service norms will continue to remainunstreamlinied; patients would continue to be treated at higher level facilities at higher unit costs; andtechnical quality of the public program will remain at the existing low level. Yet the demand on theexisting system is ever increasing, especially from the poorer sections of society, and is unable to besatisfied.

8

2. Major related projectsfinanced by thie Bank and/or otiter development agencies:

Sector issue Project Latest Supervision (Form 590)Ratings

Implementation DevelopmentProgress (IP) Objective (DO)

IDA-financed National AIDS Control S SNational Leprosy Elimination S SCataract Blindness Control S SAndhra Pradesh First Referral Health S SSystemState Health Systems Development 11 S SOrissa Health Systems Development S SMalaria Control S SReproductive and Child Health I S STuberculosis Control U S

11/1)() Ratings: I IS (I lighly Satista:ctory ). S (Satisfactorv). l (U n nsatisfactorv). Ill (II lighl i Unsatisfactorv)

3. Lessons learned and reflected in tlhe project design:

The design of this project takes into accouLit key lessons from interniationial experience, other social sectorprojects in India, and specifically the three State Health Systems Developmenit Projects uniderimplementationi in five states. The key lessons from international experience are: a broad sectoralapproach within a supportive policy environiment produces significant benefits and positive healtiloutcomes; a limited package of public healthi measures and essential clinical intervenitions is a top priorityfor goverinmenit finanice (WDR, 1993). On the public healthi side, the list includes immunizationi, schoolhealthi programs, family planiniiig, healthi, uItritioni, programs to reduce tobacco, alcohol and drugconsumption, and AIDS preventioni with a strong STD componenit. On the essential clinical services, thelist includes prenatal and delivery care, family plaininilg services, managemenit of the sick child, treatmentof TB, case management of STDs, and limited care. This project. in recognizing the specific administrativeand socio-techliical issues, and epidemiological profile in Maharashtra, would provide a number of theservices listed above. Among the most important lessons from experience with other social sectorprojects in India are: (i) the need to ensure timely and adequate flow of funds to the project entity; (ii) theneed for advanced preparation of hardware and software aspects of the project, including detailedimplelimenitationi plans prior to Board approval, especially because of the five-and-a-lialf yearimplemilenitationi durationi; (iii) the need to speed up implemenitation and strengthen supervision bystrengthening the implementationl capacity of the line agency to resolve problems in procurement anddisbursement early in the project cycle; and (iv) the need to ensure maintenance of buildings andequipment throuigih provision of adequate resources for O&M, increasing capacity for maintenance, andthroughi provision of training. Lessons from the three State Health Systems Development projects are:(i) the importance of maintaining continuity in project management and the key project actors; (ii) theimportance of empowering the Project Management Cell and the F'roject Manager appropriately to ensuretimely and adequate flow of funds, especially when the project is implemented by a government linedepartment: (iii) the importance of strengthening management aspects by providing greater autonomy withregard to management and supervision, adequate staffing of key project management personnel andstrengthiening management procedures; and (iv) the importance of paying attention to the quality aspects ofthe project throtigih the development of staffing and technical norms, referral mechanism, clinical andmanagement training programs, incenitives for medical personnel and addressing the issue of skill-mix, andperformance monitoring indicators during preparation. Improvement in HMIS is an important first step topolicy and institutional strengthening and the information collected through M&E should be routinely usedfor management decision-making -- the Andhra Pradesh (AP) project provides an excellent model. A

9

number of demand side factors are worth noting. The availability of drugs and medical personnel inKarnataka and AP, along with the physical upgradation of facilities, have increased the credibility of thehealth system. Improved targeting, facilitated through beneficiary assessments, are already having apositive impact on health indicators -- examples are noted in the increased access to basic health servicesin tribal areas in AP and the yellow card scheme in Karnataka. Contracting-out of non-clinical services inKarntaka and AP are reducing salary costs while improving the quality of such services. The experiencewith cost recovery in Punjab and Karnataka shows that the retention of funds at the facility level isresulting in substantial improvement in O&M functions.

4. Indications of borrower commitment and ownership:

Maharashtra has expressed a strong commitment at the higlhest levels to undertake a program of healtlhsector development to support the investment program under the project. A letter of Health SectorDevelopment Policy has been provided. Maharashtra has participated in several workslhops organizedjointly by the Union MOHFW and the World Bank on broad-ranging health sector development issues. Adetailed Project Implementation Plan (PIP) has been prepared by Maharashtra with the widespreadparticipation of beneficiaries, government agencies, NGOs and research institutions.

Maharashtra was selected for this project on the basis of several other criteria. These included:commitment of the state government at all levels to undertaking a project of this type; suitability of healthsystems strengthening in relation to area/population size; sizable tribal population afflicted by poverty; andadvanced status of project preparation. In addition, Maharaslitra's performance in the implementationi ofdonor-assisted social sector projects has been satisfactory, althoughl those projects have been smaller inscope thani the proposed project.

5. Value adided of IDA support in this project:

IDA is best suited to provide assistance to an investment operation of this magnitude, where pragmaticinvestments would be complemented by key health sector policy initiatives. The policy and institutionalstrengtlhening areas of the project are where the value-added of IDA support lies. IDA's policy dialoguewith GOI over the past five years has made it possible to engage the government in a coherent, systemic,broad-based and effective approach to develop the healtlh sector at the state level. IDA's support wouldstrengtheni Maharaslitra's capacity to implement priority health programs and provide basic health care inrural areas on a scale that is not possible for either the state government or other donor agencies touLidertake. Also, the project would consolidate the investments made by a number of other IDA supportedprojects in the healtlh, population and nutrition sectors, and provide a critical link to these investments.Finally, the project would strengthen IDA's strategy of poverty reduction in India through its focus on1unlderprivileged people, especially women and SC/STs.

E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 9)

1. Economic (supported by Annex 5&6): A number of economic analyses have been undertaken for thisoperation. Annex 5 reviews the fiscal situation in Maharashtra, focusing on expenditures on health andfamily welfare services. Annex 6 reviews cost recovery, user charges and cost-effectiveness. Othereconomic analyses addressed include: hiow the project relates to the CAS (Section B); analysis of projectalternatives (Section D); and project benefits and beneficiaries (Section E). The background data for muchof the analysis is presented in several documents, including India: Policy and Finance Strategies, May 1995and in India: New Directions in Health Sector Development, February 1997. First, the section on benefitsand target populations describes the major benefits, including non-quantifiable benefits, that areattributable to this project. The Social Assessment indicates that a majority of project beneficiaries belongto the lowest income groups, an important argument for public sector intervention and poverty alleviation.

10

Second, some of the project alternatives considered have been quantified in previous sector workmentioned above for all India, and has been applied to Maharashtra. Third, the Maharashtra Burden ofDisease Study, which followed the extensive work undertaken for thie Andhra Pradeshi Burden of Diseaseand Cost-Effectiveness Study, provides detailed information on the prevalence of differentdiseases/conditions in Maharashtra, based on which an analysis has been undertaken of the service-mixthat should be provided at different levels of health care. Finally, the analysis on cost recovery shows thatthe level of user charges is currently low, and alternative scenarios have been developed estimatiigpossible revenue that could be collected at the facilities. Estimates show that at project completion,revenues from user charges might provide about Rs. 95 million annually towards non-salary recurrentcosts.

Fiscal Impact: An analysis of public expenditure on healthi is provided in Aniex 5. It reviews the fiscalsituation in Maharashtra, analyzing past trends in selected aspects of public finance., expenditures on healthiand family welfare, the burden of incremental recurrenit costs of the project and the conditions of finanlcialsustainability. Incremental and anilual recurrent costs incilidinig contingencies at project completion areexpected to be about Rs. 328 million. This compares to currenit allocations for healthi and family welfare ofabout Rs. 10,261 million. Assuming continuationi of past trends in overall expenditures, allocations wouldamount to Rs. 18,570 million in the year following the end of the project. lncremiental recurrent costs ofthe project would amount to 10% of total revenue expenditures of PHD. The incremenital recurrent costs ofthe project imply an increased share for health of total governmiienit expenditures of about 1.3 percentagepoints. The Maharashitra governmenit would meet the incremenital recurrent cost needs by: (i) enihanlcinlgcontribution to the health budget; (ii) reallocating incremilenital resources from the tertiary to the secondaryand primary levels of health care; and (iii) establishing cost recovery mechanisms where revenues obtainedwould supplement non-salary recurrenlt expenditures.

2. Technical: The project would link the different tiers of the healthi delivery system throughi a referralmechaniismiln i whicih the norms of service have been clearly defined. To facilitate this process, a detailedmapping exercise has been undertakeni to identify the types of services to be provided at different facilitiestaking into account the epidemiological profile, utilization rates, population-size based criteria, and districtswith higih infant and maternal mortality rates. Norms for clinical and support services at the followiigfacilities have been developed: 25 district hospitals with over 200 beds and 14 clinical specialties; 23 newsub-divisional hospitals (SDH) with 100 beds and 9 clilical specialties; 53 new SDHs with 50 beds and 7clinical specialties; and 35 CHCs receiving equipment and material inputs to improve services in 6 clinicalareas. Based on the norms of service developed: (i) the clinical effectiveness of selected CHCs would beupgraded, and their outreach functionls enhanced; (ii) selected CHCs would be upgraded to SDHs whichwould provide additional referral support to the primary care system; (iii) services to be provided atcommunity, sub-divisional and district hospitals have been defined; (iv) norms have been elaborated forstaffing patterns, diagnostic facilities, space requirements and medical equipment at each type of facility;(v) a plan for disaster preparedness in earthquake prone districts has been developed; and (vi) functions ofthe blood bank and transfusion facilities have been defined, including space and equipment norms. Thiswill help to establish a system of service delivery linking the community health centers to the districthospital, with the district hospital acting as the nodal point under which the system of secondary andprimary care will provide services.

3. Institutional: Specific measures are planned at the state, divisional and district levels to strengtheninstitutional capacity, based on lessons learned from the implementation of similar projects and institutionalrisks associated with project implementation in Maharashtra. Specific institutional strengthening measuresinclude: (i) empowering a Steering Committee to authorize the PMC in day-to-day project implementationmatters; (ii) setting-up a mechanism to ensure adequate and timely flow of fundis and empowering the

11

Project Manager to incur project-related expenditures; (iii) empowering the PHD in the implementation ofthe civil works program and equipment management system; (iv) setting-up a new drug procuremenltarrangement which adopts, with minor exceptions, an open tender system in whicih purchiase orders arecentralized at the state level; (v) setting-up a computer-based financial management system for use andoperation by the PMC which will be capable of providing timely and reliable information to the PMC tofacilitate effective monitoring of the project's progress; and (vi) setting-up a monitoring and evaluationsystem to provide timely feedback for project managemenit.

4. Social: The social analysis for the project is based on several backgrounid pieces: (i) a detailedsituationlanalysis, describing the socio-econotilic, demographic, epidemiological and healthi sector situationi in thestate. This indicates that the populationi is higilly dispersed, withi a populationi density ranginig from 16,434persons per square km. in Mumbai to 55 persons per square kill. in tribal districts. The sex ratio in the statehas declined to 934 females per 1000 males in 1991, and shows a wide variation between districts. Thereare also wide district-wise variations in the availability of services and in key indicators Suchi as the infanltmortality rate, maternial mortality rate and crude birth rate. While non-comimunicable diseases andinjuries/traulima are on the rise in the state, it continues to bear a higih burdeni of commullicable diseases.incitidinig HIV/AIDS. The state is also earthquake prone, and has recently experienced devastatiigearthquakes in Latur and Osmanabad districts. The project will address these issues by (a) targeting thepoor and uliderserved to increase their access to healthi services free of cost; (b) strengthieninig the referralsystem from the community to the community hospital level where timely access to emergency care isprovided; (c) implementinig a disaster preparedness plan; and (d) implementing a tribal strategy to addressthe specific healthi needs of tribal populations (see below); (ii) the Maharashtra Burden of Disease study,based on ICD9 categorization, indicates a highier thani average proportion of communicable diseasescompared to the all-India average. The project will address this issue by strengtheninig CHCs andcomimiuinity hospitals to provide better access to essential and emergenlcy obstetrics care at the communitylevel and by addressing those conditionls which affect childlhood mortality; (iii) an analysis of hospitalactivity indicators whicil shows that Government healtil institutions are the predominant providers of healthicare in the state, particularly in rural and tribal areas. Levels of hospital activity and utilization were foundto be directly impacted by the lack of adequate staff, absence of referral link and limited accessibility.Strenigtheninlg the capacity of the public health system at the district level will address the need to deliverenihaniced services at that level; (iv) an oln-goling benleficiary assessment stud which idenltifies the healtilcare needs of tribal and uliderserved communities and constraints in provision of these needs. The projectwill address these needs by implemenitinig a strategy aimed at increasing access to health care for tribal andunderserved populationis; and (v) no land acquisition and resettlement issues are expected to arise becauseupgradation of facilities will take place in existing premises. If, however, during project implementationunexpected land acquisition, chanige in land use or resettlement arises, they will take place after IDAapproves the manner of implementation.

Tribal Strategy: About 9% of the state's population is tribal. Studies indicate that the utilization ofsecondary and primary healthi services in tribal areas is low due to problems with physical, economic andsocial access of the tribals to healthi services. The project's tribal strategy (see Annex 2) would be aimed atincreasing the demand for primary and secondary health services in tribal areas by improving the quality ofservices and providing effective IEC to better inform tribal populations of the benefits of using governmenthealtil services. In addition, the project would: (a) strengthen linkages between primary and secondaryhealth care services; (b) strengtheni linkages between the PHD and the Integrated Tribal DevelopmentAgency; (c) increase access to health care services through the provision of mobile health clinics andannual health camps; (d) address the high infant and child mortality among tribals by providing enhancedtraining to staff in tribal PHCs and CHCs in the management of the critically ill child; and (e) reduce thecost of utilizing these services. A baseline survey is at an advanced stage and periodic surveys would be

12

conducted to facilitate the on-going monitoring and evaluation of the strategy, and an appropriate actionplan would be developed to address the issues identified by the monitoring and evaluation system.

5. Environmental assessment: Environmental Category: B

It is estimated in several hospitals in India that 85-90% of hospital wastes are non-hazardous, whicih can bedisposed in a manner similar to municipal waste; 10% of hospital wastes are infectious; and remaininig arenon-infectious but hazardous. WHO estimates that the generation of hospital wastes in low-incomecountries ranges from 0.5 - 3 kg. per bed per day. A stidy by Dr. Kelkar (1996) of 10 hospitals in Mumiibaiindicates that about 1.1 kg of waste is generated per bed per day in a hospital of whiicih about 0.5 kg isinfectious -- a rural hospital produces less than 0.1 kg of infectious waste per bed per day. Based on theseestimates and the current and projected bed occupancy rates in a typical project hospital in Maliarashitra, itis estimated that the total amount of infectious and hazardouis waste generated is small. While the projectwill not contribute to any sizable increase in hospital waste, it will address the issue of the management ofhealthi care waste at the facility level, including segregation, storage and final clisposal. Taking intoaccount recent legislative action taken by GOI and other developments in the NGO sector, the state hasdeveloped a plan for the treatnent of health care waste, distinguishing between actions to be taken withinthe hospital premises and actions to be taken with regard to ultimate disposal outside hospital premises.The environimenital rating for the project is category B.

The government's Environmental Action Plan proposes a three phase approach. Thle first phase (shortterm), to be initiated within the first six months of the project, would focus on the immediate reduction inhazards from health care waste by the introductioni of low cost/no cost measures such as simple segregationto remove sharps and infected waste from non-hazardous waste, and secure on-site storage to reducescavenginig. In addition, a waste management orientation program will be undertalken involving hospitalstaff hanidling waste. The second phase (medium term) would incltide (i) scaled up measures, such asfuller segregation and limited on-site treatment, incltiding needle crushers; (ii) formation of a multi-disciplinary working group, with a small task force, to implement agreed measures; (iii) survey of wastegenerated and cost-effectiveness of treatment technologies; and (iv) design and implementation of trainingprogram. In order to evaluate the available options for properly managing infectious and hazardous waste,a study will be initiated withiin the first year of project implementation to collect thie necessary additionalinformationi. Based on this, the third phase (long term) would be developed, which would focus onicompletioln of optionis appraisal, development of appropriate management systems, institutions, policies,implemenitationi of clinical waste maniagement plans (including a feedback on the performance of the wastemanagement system) and implementationi of the full training program to ensure sustainability of thesystem.

6. Participatory approach

Participatory approach Preparation Implementation OperationBeneficiaries/community groups Consult collaborate NAIintermediary NGOs Consult collaborate NAAcademic institutions Consult information NA

sharingLocal government Collaborate collaborate NAOther donors Collaborate collaborate/information NA

sharing _

13

F: Sustainability and Risks

1. Sustainability: In the past decade, gross fiscal deficit in Maharashtra rose from 5.4% to 10.8%, and theprimary deficit as a share of GSDP has increased steadily since 1993, reaching 5.4% of GSDP in FY96/97.If recent levels and patterns in the state's revenue and non-interest expenditures continiue, the gross fiscaldeficit is expected to rise from 10.8% of GSDP at present to 13% by the end of the decade and the primarydeficit to about 10% of GSDP.

The evolution of Maharashtra's debt differs from that of other states in India. Public debt has declinedfrom 14% of SDP in 1993 to 9% in 1997; this compares well w ith the nationlal average wvhichi stands at25% of GDP for 1997. The per capita debt burdeni increased from Rs. 1,475 to Rs. 2,164 durinig the sameperiod. Interest payments on debt remained betwveen 11.5% and 11.7% of revenue expenditure during1993-1997, considerably smaller thanl some of the major states. Efforts to halt the recent trends in thestate's fiscal and primary deficits obviously will be necessary, as the state's finanices in general haveimplications for public financing of the health sector.

2. Critical Risks (reflecting assunmptions in tliefourthl columnit of Annex 1):

Risk Risk Rating, Risk Minimization MeasureI'he overall t'inancial status Modest * 'I'he gov ernment's l.etter ol' Iealith Sector D)evelopment lPolic% providesot'tile state is a risk. 'I'his assurances that the slare ot'health sector resources in the overall hudget wvould hemight have implicationis maintained at the 1996-97 level during the project period.for the allocation of' * A specific covenant has been included reqtuiring the governmienit to increase thesuf'ticient f'unds to the share of resources for the primary and secondary levels ot'liealth care in the totalhealth sector. health care resources.

* l'he ltinancial sustainability ot'the state and the linancial status orthie health sectorwvill be assessed as part of' the mid-term reviewv.

* A Strategic Planning Cell w%ill provide technical and policy inputs to cnilancingresource utilization.

Inadequate flowV of funds. Substantial * 'I'he government has set up an administrative mechanism to ensure adequatcbudgetary allocations. financial management. including flow of funds.availability of drugs and * 'I'he government w%ould undertake to: make adequate budgetary allocations tormedicinie. and other inputs. recurrent expenditures. including drugs and essential supplies at the first ref'erral

level: and implement a user charge policv to supplement budgetary resources.Government ft:ils to Modest * A user charge policy has been under implementation since 1988 for fee collectionimplement cost recovery at district hospitals: a workshop held in July 1997 of'senior level ol'ficers yielded ameasures. revised set ot'user charges tor wvhich govcrnment approval is being sought.D)elays in implementation Substantial * T'he tirst year of'procurement packages are in place.due to slow procurement * Start-up of construction activities and procurement of equipment is being plannedand recritment of staff't wvell in advance and xvill be undertaken by specialized agencies for the first year ol'

the project.'I'he capacity ot'existing Modest * Measures are being taken to strengthen referral mechanism, HMIS, surveillance.institutions to undertake waste management. procurement, and financial management and audit.systemic improvements is * Seminars. workshops and informal collaboration are taking place between the fiveVet to be tested in states and Maharashtra to facilitate the sharing of lessons of experience.Maaharashtra.Delays in putting the Modest * Much of the core Project Management Team is in place.Project Management Teamin place.Synchronization of project Modest * A well-defined plan has been spelled out in the PIP and Bank supervision inputsinputs. will facilitate the government's efforts.

Overall Risk Rating ModestRisk Rating - H (High Risk). S (Substantial Risk). M (Modest Risk). N (Negligible or Low Risk)

14

G: Main Loan Conditions

Condlitions of Negotiations:

As Conditions of Negotiations, the following actions have been taken[1:

(a) Project Implementationi Plan (PIP) has been completed (dated October 12, 1998) and provided tothe Association. This has been found to be satisfactory in substance, and consistenlt withrecommendations made in the aide-memoire of the IDA Appraisal Mission.

(b) The project has been cleared by GOM and GOI. and a Letter of Health Sector Developmelit Policyhas been finalized and furinishied to IDA.

(c) A Governmeit Order (GO) has been issued designating the Healtlh Secretaty of GOM as thelProject Manager unltil a suitable Project Manager is appointed. The heads of Health Systems,Commllunlicable Diseases, and Finance and AccoulIts of the Project Managemenit Cell have alsobeen designated. The GO withi respect to the head of the Engineering Wing, is to be issued by thePublic Works Department by November 30, 1998.

(d) A GO establishinig the Strategic Planninig Cell and the Project Management Cell has been issued.An additional GO establishing the Project Governing Board, Steering Committee and DistrictManagemilenit Committee has also been issued.

(e) The structure of the Project Goverinig Board, the Empowered Committee and the SteeringCoomimlittee wilichi has been set up would ensuire adequate and timely flow of funds and promptdecision-makinig, and would also empower the Project Manager to incur expenditures up to anagreed liilit under the project.

(f) A Procurement Schedule/Plani for civil works, goods and senrices for the first two years of theproject has been prepared and cleared with the Association.

(g) The bidding documents for prior review packages/contracts for use in the first year of theproject have been cleared by the Association.

Otiher Covenants:

At negotiations, the Government of Maharashtra provided assurances that it would:

15

(b) ensure that: (i) the share of resources for the primary and secondary levels of health care in thetotal resources (Plan and Non-plan) allocated to the health sector would be increased each yearuntil the year 2004; and (ii) allocate adequate resources for drugs, essential supplies andmaintenance of equipment and buildings at first referral hospitals and community healtlh centers inaccordance with norms agreed with IDA;

(c) adequately staff and resource a Strategic Planning Cell and maintain the Cell durinigimplementationi;

(d) ensure that the PMC would have the authority to manage essential operational activities i1citidingcivil works constructioni and mainltelnance;

(e) ensure that an adequate meclhanlism contilues to he in place for the collection of user charges, andthat a mechaniism for retentioni of funids at the point of collection and for the targeting ofbeneficiaries below the poverty line would be introduced by June 30, 1999;

(f) adopt, within six montlhs after hospital upgradationi, staffing and technical normiis at all hospitalsunder the project, as agreed withi IDA, to ensure the quality of services;

(g) complete the recruitment of the Project Managemilenit Cell by June 30, 1999;

(11) maintain the PGB and PSC durinig project implemenitationv witih composition, powers, functionis andresources as set forth in the PIP;

(i) carry out the project in tribal areas in accordance with the strategy outlined in the PIP;

() develop referral protocols and guidelines by June 30, 1999;

(k) implement the Environimenital Action Plan in accordance with the objectives, policies, procedures,tine schedule and other provisions as set out in the PIP;

(I) review with IDA by April 30 of each year the progress of project implementation over thepreceding twelve monthls and prepare an annual workplan for the following twelve months;

(m) ensure that no civil works whiclh inay result in the involuntary resettlement of people will beunldertaken under the project:

(n) ensure that a feasibility report and implementation plan on the superspecialty hospital aresubmitted to IDA by October 31, 1999 and thereafter implement the plan; and

(o) carry out a mid-term review by June 30, 2002.

16

H. Readiness for Implementation

The Government of Maharashtra has finalized a Project Implementation Plan (October 12, 1998). ALetter of Health Sector Development Policy has been furnished by the Government (October 17, 1998).An analysis of public expenditures in the state overall, and for the health sector has been undertaken. ASocial Assessment has been completed, and the findings and recomimendations of the study have been usedto fine-tune project design. A tribal strategy has been developed by the government and found satisfactory.In addition, the state has completed the following activities: (i) a burden of disease study, which has helpedto further define service norms; (ii) streamlining of services offered at different levels of facilities, andpreparation of equipment and staffing norms on that basis; development of training modules for eachcategory of staff; development of an agreed set of performance monitoring indicators; finalization ofmanpower plan: and preparation of a plan for surveillance for major comrnunicable diseases; (iii)substantial completion of site and equipment surveys; preparation of a civil works program; finalization ofequipment lists and technical specifications; and finalization of an essential drug list; and (iv) completionof an Environmental Action Plan, addressing health care waste management issues. The government hasfinalized and cleared with IDA a procurement plan/schedule for civil works, goods and services for the firsttwo years of the project and bidding documients for prior review packages for use in the first year of theproject.

1. Compliance with IDA Policies

This project complies with all applicable IDA policies.

Team Leader: Tawlhid Nawaz

Sector Manager: Riclhard Skolnik /27z9 f

Counitry Director: Edwin R. Lim ,

17

Annex 1Page I of 2

Maharashtra Health Systems Development ProjectDesign Summary

Narrative Summary Key Indicators' Monitoring and CriticalEvaluation Assumptions/Risks

Sector-related CAS Goal:Enhance access to basic Systemic. coherent and broad targeted approach to establishing an Department of I lealth Continued politicalhealth services for the effective and sustainable health system. Progress Report commitment andpoor and most vulnerable managementin society. effectiveness.Project DevelopmentObjective: (i) Improved efficiency:(i) improve efficiency in * Increased share of resources for the primary and secondarythe allocation and use of' levels of health care in the total resources (plan and non-plan) P'ublic I Iealth P'olitical commilitimienthealth resources through allocated to the health sector, until Nyear 20)0)4 [)epartment (PIID) to carry out policy.policy and institutional * Maintain an adequate expenditure for drugs at least at the budget documentsdevelopment current estimated level of Rs. 8.800 per bed per year for drugs I1' ID Annual Report

and ensure that it is also maintained for new beds* Implementation of'proposed user charge policy including the

introduction of user charges at Cl IC. SDI I and some revision PHD Projectof DII diagnostic services and paid wards Implementation lPlan

(ii) improve the (ii) Improved quality, effectiveness and coverage of healthperformance of the health services: Delays incare system through a. Improved quality: IIMIS. Financial implementation.improvemcnts in the * Increase in percentage of institutions stafled in accordance statements of 'I'imelyv tlow of'quality. effectiveness and with agreed norms: from 25% at baseline. to 35% at mid-term. individual hospitals Iunds. Adequatecoverage of health and 90% at end of project and Pi ID Annual budgetary allocationservices. * Increase in laboratory equipment and investigations Report to the health sector.

* Increase in supply of critical drugs and equipment Availability of'drugs.* Increase in patient satisfaction (based on client survey for medicines, staff'and

total. women and S'l's) other inputs.b. Improved effectiveness:

* Increase in number of admissions to institutions under theproject due to high risk pregnancies by 5 percentage points atmid-term. and 15 percentage points at end of project

* Increase in the percentage of institutional deliveries inL institutions under the project from 16% at baseline, to 20% at

mid-term, and to 30% at end of project* Increase in number of major surgeries* Increase in treatment and referral of patients with selected

diseases and conditions (ARI. childhood diarrhea. malaria. TBand pregnancy related conditions)

c. Improved access:* Increase total outpatient attendance, and the attendance of

women and STs* Increase the proportion in total outpatient attendance of

women and STs. from 30% for women and 10% for STs atbaseline. to 35% and 12% respectively at mid-term, and to50% and 15% respectively at end of project

* Increase the proportion of facilities providing the definedservice norms (disaggregated by level of facility)

* Increase in number of referrals from PHCs to CHCs. area.subdivisional and district hospitals

'Indicators delineated with * have been agreed upon with the Govemment of Maharashtra as final project indicators.

18

Annex IPage 2 of 2

Components:

Improve the institutional * Increase number of institutions under project utilizing Project NMonitoring i'ro ject maiagemeLitframework for policy management information systems from 0 at baseline. by 25 Cell team in place fordevelopment and District Hlospitals at mid-term. and 331 project institutions at duiration of project.strengthening end of project I INM1S datamanagement andimplementation capacity * Number of studies. w-orkshops and seminars conducted Baseline survevs.

project progress Svineilron izationi ot'reports. quarterly project hipuits: flow

* iercentage of' inpaltients and outpatients in instituitions under reports. annual reports ot' finds. provision of'Improve service quality the project recei\ ing diagnostic tests from the baseline. to an traininig.and eff'ectiveness at additional 5% o\ er baseline at mid-term. and an additional Aninial plans de\ elopment of'district, sub-divisional and 20% at end of project normis andcommunit) hospitals. * Increase number ofnmedical staff'trained (clinical. Project MIS data contractualincluding drug management. lC'. MIS. maintenance. rel'erral. waste arriigemiienlts.management. training. management) and number of'training courses held under the Project 13aselineQuality Assurance. project according to plan from ()% at baseline. to 50%° at mid- Surve\monitoring and evaluation term, and to I 00%( o at end of projectand management o' * Increase number of institutions under project to introducehospital waste wvaste managemiienit practices based on agreed plan from )0 at SupplV o0'quailifiied

baseline, by 30(`) at mid-term, and by 70% at end of'project . personnelincludinIg all )II and SD)l lN ith 100 bcds particulairly in remote'I'he proportion of civil works grounded e ould be 7(1°of areas.plan. It)% comIpleted. 1 0% equLipped and 5"O futil operationalat mid-term. and 90'0% completion ot' all aspects of' civil worksat end of'project

* P'atient turnov er rate* Bed occupancy* Average lengtih of stay* Number of outpatients per inpatient bed da\ 'Iimely start-up of'* Number of outpatients per physician and nilrse training programs* Admissions during a casuality period and of'construction* Percentage of post-operative case fatalities activities.* P'ercentage ot' inpatients acquiring infection during hospital P'rocurement of'

stay drugs. equipment and* Percentage off acilities meeting equipment norms at each other inputs.

facilit\* Percentage of' i:acilities wvithout stockout of selected essential

drugs* Percentage of institutions undertaking medical audits* Percentage of secondary hospitals passing inspection by panel

of expertsImprove access to basichealthi services, iienliding * Increase in a\vareness ot' services offered at district and sub-upgradinig community divisional hospitals among total community. women and STshealth centers. promoting from 20% among \vomen and 10% among STs at baseline, tohealth services lor tribal 30% at mid-terml. and to 60% at end of projectand disadvantaged groups.

IEC and improving the * Axvareness among doctors and nurses of functioning ofreferral sy stem referral system

19

Annex 2Page I of 7

Maharashtra Health Systems Development ProjectProject Description

Project Component I - US$12.40million (9% of total base costs): Management Development and InstitutionalStrengthening

I. Improving the Institutional Framework for Policy Development: Sectoral capacity for policydevelopment would be strengthened in the state through the establishment of a Strategic Planning Cell (SPC). to beheaded by a Joint Secretary who would report directly to the Secretary, Public Health Department (PHD). Thefunction of the SPC would be to develop and review health policy for Maharashtra by commissioning studies,workshops and seminars and by directly hiring consultants to facilitate these activities. Key issues to be researchedwould include, but not be limited to, monitoring the development of the public and private health sector, reviewingthe suitability of present regulations relating to the quality of private and public care, evaluating the burden of diseaseand cost-effectiveness of public health interventions and reviewing medical manpower. In addition, the SPC wouldreview implementation of the cost recovery mechanism, the targeting of beneficiaries for exemption, and sectoralresource allocation patterns. Under this sub-component, the project would finance vehicles, equipment includingcomputers, furniture, local training, studies, fellowships, workshops, consultants, operational expenses and salaries ofincremental staff on a declining basis.

2. Strengthening Management and Implementation Capacity: Management and implementation capacitywould be strengthened through the establishment of a Project Governing Board, Project Steering Committee, ProjectManagement Cell, District Management Committees and Hospital Visiting Committees. The project will be managedand implemented by the state's PHD. and specific administrative responsibilities have been assigned to the state,zonal and district levels. Project manaement arrangements have taken into account the existing organizational set-upand implementation capacity at PHD, the health programs currently being implemented by-the PHD and the overallset-up of public administration in the state, particularly with regard to the nature of decentralized administration in thestate. For effective coordination of all project activities, the government will constitute a Project Governing Board(PGB) and a Steering Committee. The PGB will provide strategic direction. It will be chaired by the Chief Secretary,and have as members the Secretaries of Health, Finance, Planning, Public Works, Urban Development; SocialWelfare; Medical Education, Food and Drug Departments; the Project Administrator; the Director Health Services(DHS); Additional DHS (Project) and Additional DHS (Communicable Diseases). The PGB will develop the broadpolicy parameters; approve the annual budget; authorize any major expenditure revisions; and undertake an annualreview of project implementation and monitor overall project progress. The PGB will meet twice a year or asnecessary.

3. Reporting to the PGB would be the Steering Committee, whose primary responsibility would be to manageproject implementation and undertake project planning. It would be chaired by the Secretary, PHD, and have asmembers the Project Manager; the DHS; the state departments of Finance, Planning, Public Works, UrbanDevelopment, Social Welfare and MEDD; Additional DHS (Project) and Additional DHS (Communicable Diseases).The Steering Committee will meet at least once in a quarter and more often if necessary.

4. The PMC would be headed by a Joint Secretary as the Project Manager. The Project Manager will work inclose coordination with the DHS, and under the guidance of the Secretary, PHD, in implementing project activities.The functions of the PMC would include all aspects of routine project management, monitoring progress, maintainingflow-of-funds and project account, providing technical guidance and general administration, and preparing progressreports. The PMC will also be responsible for financial management of the project, including disbursements, flow offunds, maintenance of accounts of receipts and expenditures. The PMC would consist of 4 units: (i) the HealthSystems Unit; (ii) the Health Surveillance Unit; (iii) the Design and Engineering Unit; and (iv) the Finance and AuditUnit. The PMC would monitor project implementation, and maintain and regularly update relevant databases tofacilitate implementation.

5. At the divisional level, a division of the Design and Engineering Wing and the Equipment MaintenanceWing would be set up to facilitate project implementation and monitoring. At the district level, a District

20

Annex 2Page 2 of 7

Management Committee (DMC) would be involved in the monitoring and supervision of the various activities to becarried out under the project. The DHCs would facilitate the collection and distribution of user charges, maintenanceof equipment, waste management, training of technical staff, quality assurance and surveillance of majorcommunicable diseases. The RMO (outreach) would be designated as the District Project Coordinator, and would beresponsible for the management of the district hospital and the implementation of project-related activities at thedistrict level. The District Collector would be the Chairman of the DMC, and members would include the CEO, ZillaParishad; Deputy Engineer, Public Works; District Health Officer; District Project Coordinator; and Civil Surgeon.

6. At headquarters in PHD, staff would be enhanced to meet the increased workload and the structure of PHDwould be reoriented to meet the new challenges. Parallel improvements and strengthening of the management andimplementation capacity at the zonal, district and facility level would also be undertaken. These actions wouldfacilitate systems improvement, wider access and improved data collection and utilization for planning and policymaking, problem solving and monitoring at all levels of management. including the facility level. At the hospitallevel where both information collection and management are fairly rudimentary, the project would: (a) enhance thecomputerized system through the provision of hardware and software, and consultancy support; (b) establish trainedand equipped information cells at HQ and district levels; (c) train all management staff in appropriate record keeping,and (d) introduce a revised medical reporting system for in-patients and diagnostic services.

7. Financial Management and Auditing Arrangements: To address the current weak financial managementreporting system, the project will develop a costing and management accounting system to assist sound mana-ementdecision making (see Annex 7 for details).

8. Funds Flow Arrangemnents. Budget estimates for project activities prepared by the PMC will be included intotality in the budget proposals presented to the legislature for approval. The Finance Department will ensure thatfunds are released in a timely manner. In addition, it is understood that (301 will release 25% of the annualexpenditures as estimated by the PMC as advance ACA to GOM at the beginning of each fiscal year. Thereafter, GOIwill release funds to GOM, within a month from the date of withdrawal of funds from the Special Account by theController of Aids Accounts and Audit.

9. Developing Surveillance Capacity for Major Communicable Diseases: A rudimentary surveillancesystem is already in place in the state at the primary level. This system needs to be strengthened, and extended to thesecondary level, in order to effectively reduce morbidity and mortality due to communicable diseases. Thesurveillance system proposed under the project would include information collected from Gram Panchayats, healthworkers, sentinel sites, private medical practitioners, government hospitals, and voluntary agencies. The governmentproposes to establish standardized case definitions for different conditions as well as a reporting system from theGram Pancliayat to the state level. Currently, the state is monitoring cholera. GE, dysentery, hepatitis, fever, andencephalitis. The project would strengthen the existing system by: (i) improving data collection from variousfacilities; (ii) promoting coordination between agencies currently collecting data on specific diseases; (iii)strengthening the capacity to analyze and interpret data at the district and state levels; (iv) strengthening the capacityto promptly respond to disease outbreaks at the district level; and (v) monitoring the district level reporting andresponse from the zonal and state levels. The system would cover the identification of cases; indexing of cases orisolation of cases and treatment; and tracing of contacts for monitoring and evaluation. Explicit criteria formonitoring these communicable diseases would be set to avoid any ambiguity in reporting by different agencies.

10. The government proposes to establish an Epidemiological Cell headed by an Additional Director,Surveillance at Headquarters. This unit will become the coordinating body for all surveillance activities in the state.29 district surveillance units will also be set up to undertake and coordinate surveillance activities at that level. Inaddition, the government proposes to strengthen the collection, compilation and reporting of birth and death statistics.The following additional inputs are proposed: training of medical staff and disitrict level officers, a regular scheduleof meetings between medical officers, and provision of contingent grants for essential supplies. Finally, thegovernment proposes to strengthen capacity for data collection at the district level in order to facilitate decentralizedparticipatory planning through the promotion of community participation in the collection of data.

21

Annex 2Page 3 of 7

Under this sub-component, the project would finance professional services, vehicles, furniture, other equipment andsupplies, local training, operational expenses and salaries of incremental staff on a declining basis, and vehicle,furniture and equipment maintenance.

II. Health Management Information System (HMIS): A well-functioning HMIS would be established toimprove program performance and ensure effective monitoring, regular information flows and timely feedbackmechanisms by bringing together information collected under different health programs. The focus of the proposedHMIS program would be: accurate identification of community needs: empowering of hospital managemlienit inexpansion or deletion of services based on available data, strengthening the referral system; streamlining recordkeeping; enhancing capacity and quality of data analysis; establishing a system of rapid feedback; and strengtheningoperational research. The HMIS would gather data on six broad areas: civil works, equipment, drugs, majorcommunicable diseases, hospital activitv and financial management. Currently, a monthly report is collected by theDirectorate from district hospitals, women's hospitals and general hospitals. The activities of rural hospitals are notmonitored at the state level. The project would: (i) improve the HMIS by developing standard formats for hospitalrecord-keeping, improving storage facilities for medical records, and providing training for medical recordspersonnel; (ii) strengthen district level capacity for data analysis by providing training to district HMIS staff in dataanalysis and computer use, and providing appropriate equipment and supplies; and (iii) train state level personiel indata analysis.

Project Component 2 - US$99.8 million (74% of total base costs): Improving Service Quality and Effectiveness atDistrict and Sub-divisional Hospitals

12. Upgrading Sub-divisional and District Hospitals: 23 SDHs with 100 beds, 53 SDHs with 50 beds, and 25district hospitals will be renovated/extended under the project. The selection of the facilities to be upgraded under theproject was made on the basis of a comprehensive scoring system which took account of strategic location includingaccess by disadvantaged groups, current utilization, the interftace with facilities providing emergency obstetric care,and the availability of services in the private sector. There would not be any new hospitals built under the project,and the state government has confirmied that all premises slated for renovation/extension have existing land. Detailsof the construction program to be undertaken, based on a survey of all existing facilities, are provided in the PIP.2,670 new beds will be added to the existing bed strength of 16,007 beds. The proposed increase in bed strength isjustified on the basis of: (i) epidemiological data; (ii) indicators of existing and proposed hospital activity, such as bedoccupancy rate, tirnover rate, and out-patient/in-patient ratio, and (iii) Planning Commission norms for beds at thefirst referral level. The proposed increase in bed strength under the project is less than what is suggested by thesecriteria. Under this sub-component the project would finance civil works, professional services, furniture, equipment,vehicles, building, vehicle and equipment maintenance and operational expenses.

13. Upgrading the Effectiveness of Clinical, Management and Support Services at District and Sub-divisional Hospitals: Streamlined normis and standards for clinical and support services developed during projectpreparation would be applied at the first referral hospitals. Staffing norms conforming to services that will beprovided at each type of facility would be adopted, a system for monitoring improvements in the quality of clinicalcare would be established through the adoption of a quality assurance program and the capacity of support serviceswould be expanded. Staff skills in clinical and technical areas would be enhanced through the provision of training toimprove the quality and range of services. Management training for professional cadres and on-going in-servicetraining for clinical and technical cadres would also be strengthened. This would facilitate the implementation of thequality improvement strategy of the project. Within six months of upgrading each facility, staffing and technicalnorms would be adopted to ensure improved quality of services. Under this sub-component the project would financecivil works, professional services, furniture, medical and other equipment, medical laboratory and other supplies,medicines, vehicles, local training, studies, fellowships, equipment, vehicle and building maintenance, operationalexpenses and salaries of additional staff on a declining basis.

14. Drug Management: The existing system for the procurement and distribution of drugs has several problems.Delays are common in the finalization of lists and rate contracts and in releasing funds to the districts; as

22

Annex 2Page 4 of 7

a result, there are delays in payments to suppliers and substantial gaps between need and supply. It is proposedthat drug procurement procedures are streamlined and a need-based system be adopted. Storage space would beprovided at the district level to facilitate decentralized drug management, and a computerized system linking thecentral store with the district stores would be set up to facilitate rational prociurement of drugs. Quality testing of eachbatch of drugs would be undertaken at designated testing laboratories, and payments made after quality assurance.An essential drug list has been prepared, and a drug list for each type of faclity has also been developed. These willbe updated each year.

15. Training: The training program proposed under the project can be broadly categorized into: (i) hospitalmanagement training, aimed at improving the managerial competency of heilth personnel in secondary institutions inareas such as planning, organization, coordination and program implementation; (ii) clinical training, aimed atproviding specialized and quality health care at secondary hospitals through the trainingg of doctors, nurses andparamedical personnel; and (iii) clinical trainers' training, to orient clinical trainers in participatory and interactivetraining approaches, task analysis, standardization of operative steps, and the creation of positive training climates. ATraining Needs Assessment has been completed and a detailed training plan for the entire project period is presentedin the PIP. There are currently 6 Health and Family Welfare Training Centers in the state, and 29 District TrainingTeams which impart training to MPWs, health supervisors and medical officers. For clinical training, staff aredeputed to district hospitals, where the facilities are inadequate to provide training of an acceptable quality. It istherefore proposed that Hospital Training Teams will be established under the project at each district hospital, andwould be provided with a building, necessary staff, equipment and materials. Distance learning packages will also bedeveloped to increase access to training programs. The output of training activities will be monitored through theHMIS.

16. Quality Assurance (QA): The QA program will cover issues such as clinical quality, user satisfaction, genderneeds and management of resources. As a first step, the system of having retired Civil Surgeons visiting districthospitals to evaluate quality of care will be revived. In addition, the state would formulate a working group to: assessbenchmark data on the quality of clinical care at secondary hospitals; identify suitable indicators for assessment ofquality of care; set acceptable standards; test methods of data collection on a pilot basis; conduct and review pilots;and establish standard procedures, guidelines, registers and task assignments at various levels. The working groupwould include the Joint Secretary, Additional DHS, Joint Director Health Services, 2 Regional Directors HealthServices, I Nursing Officer, representatives of the Equipment Maintenance C'ell and Public Works Department, Deanof a government medical college, 2 representatives from a corporate hospital, 4 Civil Surgeons and retired CivilSurgeons and health experts. The working group would develop and implement quality assurance guidelines andprocedures in the pilot sites by establishing quality improvement groups. AppDropriate training programs for all levelsof staff in quality assurance would be developed prior to launching the program state-wide. The SPC would beresponsible overall for monitoring the quality assurance program.

17. Monitoring and Evaluation (M&E): M&E strategies have been planned keeping in mind the developmentobjectives of the project, the duration and the mode of implementation. Appropriate formats have been designed, andthe HMIS will be used to collect and update the necessary information. The PMC will be primarily responsible formonitoring and evaluation. The focus will be on civil works, equipment, maintenance, manpower, QA, training,waste management, tribal strategy, HMIS and IEC. A baseline survey will be undertaken at the start of the project toascertain the existing conditions of physical infrastructure and services, and customer use and satisfaction. A mid-term evaluation will be taken up in the third year of project implementation, focusing on irnprovements in hospitalactivity, impact of the secondary level upgradation on the primary health care system, the functioning of the referralsystem, user satisfaction, and increased use of hospital services by tribal peoples. The final evaluation will be done inthe last year, and would focus on the achievement of the development objectives of the project, areas that still needsupport, sustainability and future directions.

18. Management of Health Care Waste: The management of health care waste is an important element inproviding quality health care. Risks of improper disposal of health care waste are several, including: occupationalhealth hazard to doctors, staff, attendants and patients; breeding ground of rodents, mosquitoes and flies and

23

Annex 2Page 5 of 7

attracting stray animals; source of foul odors; blocking of sewers, drains, and general unhygienic condition inhospital premises; and increased risk of transmission of diseases from handling and disposal. The hazards posed byhospital wastes are recognized by the government. The government's plan proposes a three-phase approach. Thefirst phase (short term), to be initiated within the first six months of the project, would focus on the imnmediatereduction in hazards from health care waste by the introduction of low cost/no cost measures such as simplesegregation to remove sharps and infected waste, and secure on-site storage to reduce scavenging. In addition, awaste management orientation program will be undertaken involving hospital staff handling waste. The second phase(medium term) would include (i) scaled up measures, such as fuller segregation and limited on-site treatment,including needle crushers; (ii) formation of an inter-disciplinary working group, with a small task force, to implenmelitagreed measures; (iii) survey of waste arising and technological options, (iv) appraisal of options and cost-benefitanalysis, where possible, for each hospital; and (v) design and implementation of training program. In order toevaluate the available options for properly managing infectious and hazardous waste, a study will be initiated withinlthe first year of project implementation to collect the necessary additional information. Based on this, the third phase(long term) would be developed, which would focus on completion of options appraisal, development of appropriatemanagement systems, institutions, policies, implementation of clinical waste management plans and implementatiollof the full training program. A waste management team will be constituted for each hospital, and the members will besensitized and trained for the implementation of interim and long-term measures.

Project Component 3 - US$21.80 million (17% of total base costs): Improving Access and Innovative Schemes

19. Selective Upgrading of Community Health Centers (CHCs): In order to better address the health needs atthe community level, it is proposed that 35 CHCs would be strengthened under the project to improve services in 6clinical areas and to enhance their outreach functions. Streamlined norms and standards for clinical and supportservices developed during project preparation would be applied at the first referral hospitals. Staffing normsconforming to services that will be provided at each type of facility would be adopted, a system for monitoringimprovements in the quality of clinical care would be established through the adoption of a quality assurance programand the capacity of support services would be expanded. Staff skills in clinical and technical areas would beenhanced through the provision of training to improve the quality and range of services. Management training forprofessional cadres and on-going in-service training for clinical and technical cadres would also be strengthened.This would facilitate the implementation of the quality improvement strategy of the project. Within six months ofupgrading each facility, staffing and technical norms would be adopted to ensure improved quality of services. TheseCHCs would be provided with inputs including renovation and extension, additional manpower, and the provision ofequipment, drugs and other supplies.

20. Promoting Health Services for Tribal and Disadvantaged Groups: About 9% of the state's population istribal. A majority of them reside in remote and far-flung hilly terrain spread over 14 districts. A beneficiaryassessment study has been undertaken as part of project preparation to: (i) identify through informed participation thehealth care needs of tribal communities and constraints in provision of these needs; and (ii) recommend plans fordelivering adequate and quality health care for members of these communities. The beneficiary assessment wouldprovide baseline data on some performance indicators and would be an on-going project activity.

21. The project's tribal strategy would be aimed at increasing the demand for primary and secondary healthservices in tribal areas by improving the quality of services and providing effective IEC to better inform tribalpopulations of the benefits of using government health services. In addition, the project would: (a) strengthenlinkages between primary and secondary health care services; (b) strengthen linkages between the Health Departmentand the Integrated Tribal Development Agency; (c) increase access to health care services through the provision ofmobile health clinics and annual health camps; (d) address the high infant and child mortality among tribals byproviding enhanced training to staff in tribal PHCs and CHCs in the management of the critically ill child; and (e)reduce the cost of utilizing these services. A baseline survey and periodic surveys would be conducted to facilitatethe on-going monitoring and evaluation of the strategy, and an appropriate action plan would be developed to addressthe issues identified by the monitoring and evaluation system. A special program is also proposed to increase accessto health care services for both tribals and SCs through a system of annual health camps. They would includephysical examination, simple laboratory investigations, special examination for women, and

24

Annex 2Page 6 of 7

nutritional advice. A mobile team including a medical officer, lady medical officer, Auxiliary Nurse Midwife andworker would set up camps according to an established schedule in remote and rural areas. An amount of Rs. 5,000would be made available for medicines, and an honorarium of Rs. 300 would be paid for hiring the services of a ladymedical officer. Those patients requiring more specialized treatment would be referred to the nearest referral hospitalwith a special referral card. The health camp scheme would be first piloted in two districts. In addition, a specialprogram for orienting health staff working in tribal areas in the care of the critically ill child will be launched toaddress the high levels of infant and child mortality in these areas.

22. Information, Education and Communication (IEC): The IEC component of the project will serve as a linkbetween the various activities of the project, such as the referral mechanism, the tribal strategy, waste managementsystem and the surveillance system. The broad objectives of the [EC prograrni proposed under the project are to: (i)create community awareness regarding the availability of health services at primary and secondary level institutions,and the need for the timely use of such services; (ii) improve attitudes of health care providers towards patients andeducate them with regard to the referral mechanism; (iii) educate people's representatives so as to generate politicalsupport to improve the quality of health care; and (iv) provide feedback to the government with regard to consuLimersatisfaction. The target groups will be: government functionaries at the grassroots level; underserved populations,including women, SCs and STs; patients at the hospitals; health care workers and hospital staff; and privatepractitioners and NGOs. Development and implementation of the IEC strategy is expected to be undertaken with thehelp of an external professional communications agency. The proposed Deputy Commissioner responsible for IEC ilthe Directorate would obtain the specific district level requirements and coorclinate these with the central strategy toaddress the needs of the project. A system of continuous education of in-patients and out-patients will be established.In addition, periodic workshops and seminars will be organized to enhance the knowledge, develop the skills andchange the attitudes of service providers, service users and the community. Knowledge, attitude and practice, andsocial marketing research will be undertaken to assess IEC needs. NGOs would be involved in the implementation ofIEC activities and would be contracted to conduct health camps in tribal blocks. The TORs for the selection of NGOswould follow IDA guidelines. Selection criteria would be developed based on models used in previous IDA projects.

23. Improving the Referral System: A referral system, which is an institutional mechanism through whichpatients with complex health problems are identified in a timely manner, investigated and/or treated relativelypromptly at an appropriate health care facility, will be strengthened under the project. At present. the referral systemin Maharashtra, as in the rest of India, does not function well. Patients perceive the lower level facilities as providingpoor quality of services. As a result, the lower tiers are underutilized and patients proceed directly to higher levelhospitals for minor illnesses, thereby overloading the higher level institutions. It is estimated that a third of all caseswhich are currently treated at tertiary facilities could be treated, and at lower costs, at first referral facilities if thosefacilities received adequate inputs; and many of the cases treated at district hospitals could be treated at CHCs.

24. The project would seek to ensure that a much higher proportion of patients coming to first referral hospitalshad been seen at PHCs and CHCs and referred upwards. Likewise, for those patients going to tertiary hospitals, theproject would implement several measures to strengthen the referral system and improve the quality of care at the firstreferral level. Special attention would also be given to establishing mechanisms to improve access for remote anddisadvantaged groups and tribal communities. The project would establish linkages and communications between thefirst referral and primary health care levels. The first referral hospitals would provide clinical and technical support tothe PHCs; clinical skills at first referral facilities would be updated and upgraded; technical support for the primarylevel of care and community hospitals would be strengthened; referral mechanisms between community,subdivisional and district hospitals would be strengthened; and mechanisms to provide greater access to secondaryand higher levels of health care would be formulated by making the referral system more timely, effective and client-friendly. Under this sub-component the project would finance vehicles (purchase, hire and maintenance), othersupplies, MIS and IEC materials, local training, consultants, fellowships, workshops and operational expenses.

25. Developing a Superspeciality Hospital: An innovative scheme under the project would be the developmentof a 300-bed superspeciality hospital on the site of the GT hospital in Mumbai as an innovative scheme

25

Annex 2Page 7 of 7

under the project. This would involve the development and commissioning of an existing government- ownedbuilding along corporate lines following modem management practices as a replicable pilot scheme. 10% of the newservices would be provided to disadvantaged groups, with the remaining services being delivered to private patients.A feasibility study into the proposed development will be finalized by March 31, 1999 and an implementation plan byOctober 31, 1999. Following completion of the study and agreement on the approach by the PHD and the Bank,funding would be provided to meet part of the capital, equipment and start up costs. About Rs. 45 crores hias beenincluded in the project costs for this sub-component. The proposed funding has been allocated as follows: 20% civilworks, 40% equipment, and 40% operational costs. It is anticipated that the full costs of the development of thesuperspecialty hospital will be met from other private and/or public sources in line with the recommendations of thestudy.

26

No.: 1 095/CR 1 88/PH-30 oS?4MEIV 0E Annex 3

Pa;ge 1 of 5 PUBUC HEALTH DEPARTMENT,Mantralaya, Mumbai 400 032.Phone: Office: 2873848

Resi. 28300171AHARAS~~~~~4¶~~~ Fax :(022) 2045150

Telegram: MAHAHEALTHSECRETARY Mumbai

To To V~~~~~~~~~~~ate: 1 7-1 0-98

The Country Director, INDIA,South Asia Region,The World Bank,Resident Mission,70 Lodhi Estate, New Delhi- 1 10 003

$ub: World Bank assisted MaharashtraHealth System Development Project-Compliance of conditions--

Dear Sir.

In continuation of my fax message dated 16th instant regardingthe World Bank assistance for the Maharashtra Health SystemDevelopment Project, I send herewith the Health Sector DevelopmentPolicy of the Government of Maharashtra.

With best wishes,

Yours sincerely.

(N.B. Patil)

27

Annex 3Page 2 of 5

HEALTH SECTOR DEVELOPMENT POLICY MATRIX

ISSUE EFFECT 1 PROPOSED CHANGE OR ACTION

Adequacy of overall size I Except 1985-86. State Government Recogruzing the link between the provision ofof the health budget to spending on health and familv welfare health services and povertv alleviation, themeet public health goals is well below 1% of SDP with 0.73% State Government will ensure that in each

in 1996-97. Although Budget fiscal vcar during implementation of theallocation to State health sector and project, the share of the overall budget (planpublic health is increasing in absolute and non-plan) allocated to the health sector,figures and current prices, the excluding all projects specificallv financedproportional allocation to health sector either through external assistance or bv way ofis not showing the rising trend after loan from financial institutions, shall be1991-92 (5.39%). maintained at least at the level allocated in the

financial year 1997-98.

Allocate more for primarv The allocation for the prmarv and The State Government recognizes the need forand secondarv level health secondarv levels of health system has focusing attention on the primary andcare services in the State reached 75% of the total health budget secondary levels. The government will ensurebudget. only during 1996-97, which needs to that within the health sector the share of

be sustained in view of ensuring resources for the primarv and secondary levelsadequate supply of drugs, consumable. of health care services shall be increased inequipment and maintenance of the each fiscal y ear through out the project.building and equipment at these levels starting in the fiscal vear 1998-99.of the health svstem. Othervise.tertiarv level services may beoverburdened. as the clients seek fromtertiarv institutes, treatment whichcould easily be given at the primary ofsecondary level.

Resources for non-salarv The existing secondary level hospitals Taking into account the budgetary provision,recurrent costs. function poorly because of inadequate the State Government will maintain sufficient

allocation of funds for non-salary funds in the non-plan health budget forrecurrent costs (30-35%/o), 65% to 70% making available adequate supplies of drugsof the current budget goes to the salarv and other material supplies at secondary levelcomponent. hospitals and for maintenance of equipment

and building. The budget for drugs will beprovided at Rs. 8800 for existing andincremental beds.

28

Annex 3Page 3 of 5

Redressal of regional The 14 tribal districts of Maharashtra Interventions will be made both within andimbalances and increased show poor hcalth indicators due to outside the project to reduce the disparities

access for disadvantaged uneven development of health and other between the health status of people in tribal andgroups (women and tribal infrastructure and inadequate delivery of aremote areas as well as women and those in thegroups). services. Due to social and economic more developed areas. The upgraded subdistrict

reasons utilization of hospital services hospitals under the project have been selected soby women other than for maternitv lhat 23% of them are located in tribal areas withrelated services is loNver than by men. :550 new beds cater to tribal inhabitants.Improved utilization can significantly Thie rationalized referral system, along withreduec the morbidity and mortality organized hospital familiarization visits foramong women and tribal. community leaders, women groups and tribal,

would hclp to reduce the mental distancebetween the clients and the providers.kppropriate incentives to doctors and nurseswould be offered to ensure the retention ofskilled service providers at hospitals in difficultand tribal areas. Currently, the doctors servingt:ribal and difficult area get priority duringselection for In*service postgraduation. Rentfree quarters are made available to doctors andnurses at such locations. The doctors andnurses putting on certain years of service attribal or difficult areas are offered betterposting.To enhance the access of health services to ruraland tribal, camp approach would be adopted.Thie services of lady doctors at these campswould be mnade througlh contractualarrangements; where necessary.Mlandatory one year rural service for themtedical graduatc candidates selected for postgraduation beforc seeking admission to the postgraduate course will help to ensure the filling ofvacancies.Women utilization of hospital services both formaternity and lifc cycle health matters will beincreased by targeting IEC activities at them.As far as possible one woman doctor will beposted in a CHC 1.o encourage women to use thehospital services.Increasing access and quality of health care byupgrading CHCs to SDHs, and strengthening of35 CHCs would improve to the disadvantaged

._______________________ people.

29

Annex 3Page 4 of 5

Personnel and workforee Improvement of sen iecs at the hospitals The statc policy of scnding in-service doctorsissues. is largcly dcpendent on the workforce. for skill-mix, postgraduation. compulsory rural

its quality and quantity. At present scnricc after completing post graduation inthere arc problcms arising from (i) a government medical college, sharing ofmismatch bctwecn spccialist posts specialties and hiring of specialties wherevcrsanctioncd at a facility and the the need arises will be continued to address thespccialization of the doctor functioning issue of mismatch of specialists at healthin the post: and (ii) absenteeism of facilities. The scheme of incentives is spelleddoctors in remote and rural areas. out in the issue number 4.

Establislhment of Strategic Inadequate strategic planning in the The capacity for the strategic planning isplanning Cell. health sector has resulted in an proposed to be enhanced through the setting up

ineffective utilization of resources. of a unit called the Strategic Planning CellEarnarking of funds for various healtlh (SPC) in the department. This cell will beschemes and programs at v arious healtlh provided w ith a Management Specialist,schemes and programs at various levels Economist (with experience in health sectorof healtlh care presently does not take economics),into full consideration the size and scope Public Health Specialist, and minimumof services provided by the voluntary administrative staff. It will either directlyand private commercial sectors: the undertake or will commission specific studiesavailability of existing manpower and its and research with a view to suggest appropriatedevelopment: and the emerging healtlh sector reform and to improve healtli careepidemiological profile in the state of services. SPC will monitor the role of privateMaharaslitra. sector, formulate the regulations relating to

quality of care to be provided with privatesector, analyze the epidemiological profile inthe state, monitor the disease pattern andsuggest the cost-effective means for achievingthe desired objective within the limited

.______________________________________________________ resources.

Drug purchase and Existing system of approving suppliers The drug purchase system will be centralized sodistribution, and prices of drug at the state level and that orders can be placed and payments made

purchasing of drugs at the district level centrally either through the department orresults in delays. low cost efficiency and through corporation. This will ensure betterdifficulties in supply. quality control and efficient use of scare

resourecs.

30

Annex 3Page 5 of 5

Public private collaboration The health expenditure analysis shows The rolc of private sector would bethat the users hear 80% of total cost for continuouslv monitored, the quality of servicesthe treatment. This invites the provided by private practitioners would berecognition of the significance source of assessed through strict enforccment ofPrimary Health Care (ambulatory care) Maharashtra Nursing Home Act. In addition,in the State. accreditation of each private hospital in line

with grading of hotels through professionalorganization like Indian Medical Associationcan be a welcome innovation.The referral between private primary care andpublic diagnosis and treatment would beencouraged.

Compulsory Continued Medical Education(CM1-) for private providers at periodicintemals so as to make them eligible forcontinuation of their registration through StateMedical Council is also consideration.

Contracting out selected At present, hospital support services Cost-effectiveness and quality of existingservices. must be maintained by regular staff services in hospitals will be monitored. Afler

recruited for this purpose. These review as appropriate, proposals for contractingemployees have not provided an out selected services, especially supportefficient provision of support services, services will be considered. Thcse includeresulting in unclean hospitals, poor laundry, canteen, landscaping, dietary services,maintenance and upkeep of hospital sanitation and security.bedding, clothing, linen, furniture, etc. The Government proposes to develop the

unused G.T. Hospital (Mumbai) in line withmodern corporate management practices toprovide additional high quality local andStatewide specialist services while ensuringthat the people below poverty line would betreated free of cost.

User Charges. User charges are being levied since The proposal to levy charges at CHCs and1988 in the district hospitals of the SDHs along with revision of charges forState and about %5 of the recurring diagnostic services and paid wards at districtallocation is recovered through them. hospitals is under the consideration of stateIncentives for better collection of user government.fees or permission to use the revenue Increasing the revenue generation to above thelocally are not provided today. current level with permission to retain theClinicians, therefore, seem to be collected revenue at the site if collection isreluctant to levy the fees. under consideration of State Government.

Exemption of charges to those who can not paywill be decided based on the JRY cut off ofinconie below Rs. 1 1500 per year.Periodic review by strategic planning cell willstrearnline the implementation of user charges.

31

Maharashtra Health Systems Development Project

COST ESTIMATES*

Table 1. Project Cost Summary

(Rupee Million) (US$ Million)% % Total % % Total

Foreign Base Foreign BaseLocal Foreign Total Exchange Costs Local Foreign Total Exchange Costs

Investment CostsCivil Works/Renovation 1975.5 348.6 2324.1 15.0 43.0 48.4 8.5 57.0 15.0 43.0Professional Services 191.4 47.8 239.2 20.0 4.0 4.7 1.2 5.9 20.0 4.0Fumiture 115.0 12.8 127.8 10.0 2.0 2.8 0.3 3.1 10.0 2.0Medical Equipment, Major 198.0 297.1 495.1 60.0 9.0 4.9 7.3 12.1 60.0 9.0Medical Equipment, Minor 72.9 63.2 136.0 46.0 2.0 1.8 1.5 3.3 46.0 2.0Medical Equipment, Surg Packs 6.3 4.6 10.9 42.0 0.2 0.1 0.3 42.0Vehicles 90.5 10.1 100.6 10.0 2.0 2.2 0.2 2.5 10.0 2.0Equipment (Other) 101.8 25.1 126.9 20.0 2.0 2.5 0.6 3.1 20.0 2.0Medicines 40.8 40.8 81.7 50.0 2.0 1.0 1.0 2.0 50.0 2.0Other Supplies 83.1 83.1 2.0 2.0 2.0 2.0MIS/IEC Materials 36.9 12.3 49.2 25.0 1.0 0.9 0.3 1.2 25.0 1.0Local Training 241.3 241.3 4.0 5.9 5.9 4.0Studies 112.2 112.2 2.0 2.8 2.8 2.0

w Fellowships (Local and Foreign) 5.0 44.7 49.7 90.0 1.0 0.1 1.1 1.2 90.0 1.0Workshops 20.9 20.9 0.5 0.5Consultancies (incl. N(Os) 52.4 52.4 1.0 1.3 1.3 1.0

Total Investment Costs 3344.1 907.1 4251.1 21.0 78.0 82.0 22.2 104.2 21.0 78.0Recurrent Costs

Salaries of Additional Staff 536.9 536.9 10.0 13.2 13.2 10.0Operational Expenses 448.5 49.8 498.3 10.0 9.0 11.0 1.2 12.8 10.0 9.0Building Maintenance 58.6 6.5 65.1 10.0 1.0 1.4 0.2 1.6 10.0 1.0Equipment Maintenance 76.4 8.5 84.8 10.0 2.0 1.9 0.2 2.1 10.0 2.0Fumiture Maintenance 0.2 0.2Vehicle Maintenance 5.6 0.6 6.2 10.0 0.1 0.2 10.0

Total RecurrentCosts 1126.1 65.4 1191.5 5.0 22.0 27.6 1.6 29.8 5.0 22.0Total BASELINE COSTS 4470.2 972.5 5442.7 18.0 100.0 109.6 23.8 134.0 18.0 100.0

Physical Contingencies 404.2 95.0 499.2 19.0 9.0 9.9 2.3 12.1 19.0 9.0Price Contingencies 1233.1 300.8 1533.9 20.0 28.0 9.7 2.8 12.0 23.0 9.0

TotalPROJECTCOSTS 6107.5 1368.3 7475.8 18.0 137.0 129.1 29.0 158.1 18.0 119.0

Estimates inculde the cost for the Superspecialty Hospital. The amount, Rs. 450 million, has been allocated as follows: (D t

Civil works 20%, Equipment 40%, and Operational Expenses 40% X

0

Table 2. Components by Financiers(US$ Million)

LocalGOM IDA Total For. (Excl. Duties &

Amount % Amount % Amount % Exch. Taxes) Taxes

1. Management Development and Institutional Strengthening1.a - Improving the institutional framework for policy development 0.1 14.2 0.5 85.8 0.6 0.4 0.61.b - Strengthening management and implementation capacity 2.1 17.0 10.3 83.0 12.4 7.8 2.6 9.3 0.51.c - Strengthening surveillance capacity for major communicable diseases andHMIS 0.5 32.1 1.0 67.9 1.5 0.9 0.1 1.3 0.1

Subtotal 2.7 18.4 11.8 81.6 14.5 9.2 2.7 11.2 0.62. Improving Service Quality and Effectiveness

2.a - Upgrading 25 district hospitals and establishing 29 HTTs 3.2 11.2 29.0 88.8 32.3 20.4 7.5 22.9 1.82.b - Upgrade 23 CHCs 100 bedded sub-district hospitals 6.3 19.6 28.2 80.4 34.5 21.8 5.6 27.4 1.52.c - Upgrading 53 CHCs as 50 bedded sub-district hospitals 5.6 16.2 31.9 83.8 37.4 23.7 6.7 29.0 1.82.d - Upgrading clinical and support services 1.9 14.1 11.7 85.9 13.6 8.6 1.1 12.0 0.5

Subtotal 17.0 15.6 11.8 84.4 117.8 74.5 20.9 91.3 5.63. Improving Access and Innovative Schemes

3.a - Improving referral mechanisms from primary to secondary, and to tertiarylevels 0.4 43.1 0.6 56.9 1.0 0.6 0.1 0.8 0.13.b - Provision of extension services to tribal and disadvantaged populations 1.0 35.8 1.8 64.2 2.7 1.7 0.2 2.3 0.23.c - Extension of IEC activities to promote health care services 0.1 9.8 0.9 90.2 1.0 0.6 0.2 0.7 0.13.d - Provision of essential civil works and clinincal and support services to 35 CHC 3.0 17.4 14.1 82.6 17.1 10.8 4.8 11.3 1.03.e - Developing innovative schemes for closer cooperation between the publicand private sectors 0.5 4.0 99.5 4.0 2.5 4.0

Subtotal 4.5 17.5 21.3 82.5 25.9 16.3 5.4 19.1 1.3Total Disbursement 24.1 16.1 134.0 83.9 158.1 100.0 29.0 121.6 7.5

e :>

0o' 9

Table 3. Expenditure Accounts by Financiers(Rs Million)

LocalGOM IDA Total (Excl. Duties &

Amount % Amount % Amount % For. Exch. Taxes) Taxes

Investment CostsCivil Works/Renovation 302.6 10.0 2934.9 90.0 3236.9 43.3 497.3 2561.6 178.0Professional Services 334.2 100.0 334.2 4.5 68.4 265.8Fumiture 17.2 10.0 154.7 90.0 171.9 2.3 17.5 142.3 12.0Medical Equipment, Major 68.6 10.0 617.7 90.0 686.3 9.2 415.5 222.8 48.0Medical Equipment. Minor 18.8 10.0 169.1 90.0 187.8 2.5 88.3 86.4 13.1Medical Equipment, Surg Packs 1.5 10.0 13.5 90.0 15.0 0.2 6.5 7.5 1.1Vehicles 13.2 10.0 118.9 90.0 132.1 1.8 13.4 109.4 9.2Equipment (Other) 16.9 10.0 151.7 90.0 168.5 2.3 33.8 122.9 11.8Medicines 11.5 10.0 103.1 90.0 114.6 1.5 58.0 48.5 8.0Other Supplies 11.4 10.0 102.6 90.0 114.0 1.5 108.3 5.7MIS/IEC Materials 6.8 10.0 60.8 90.0 67.5 0.9 17.2 45.6 4.7Local Training 315.5 100.0 315.5 4.2 315.5Studies 153.7 100.0 153.7 2.1 153.7Fellowships (Local and Foreign) 66.5 100.0 66.5 0.9 60.0 6.5Workshops 27.3 100.0 27.3 0.4 27.3Consultancies (incl. NGOs) 65.6 100.0 65.6 0.9 65.6

Total Investment Costs 468.4 8.4 5389.6 91.6 5857.4 78.4 1275.9 4289.7 291.8Recurrent Costs

Salaries of Additional Staff 315.4 47.1 400.3 52.9 716.0 9.6 716.0Operational Expenses 292.7 45.5 398.1 54.5 690.9 9.2 70.8 571.7 48.4Building Maintenance 45.2 48.2 48.6 51.8 93.9 1.3 9.7 77.6 6.6Equipment Maintenance 36.1 33.3 72.4 66.7 108.4 1.5 11.0 89.9 7.6Furniture Maintenance 0.1 49.7 0.1 50.3 0.3 0.2Vehicle Maintenance 4.4 50.0 4.4 50.0 8.9 0.1 0.9 7.3 0.6

Total Recurrent Costs 693.9 45.6 923.9 54.4 1618.4 21.6 92.4 1462.8 63.2Total Disbursement 1162.3 16.4 6313.5 83.6 7475.8 100.0 1368.3 5752.5 355.0

e :>

0 '

o

Table 4. Expenditure Accounts by Years(US$ Million)

Totals Including Contingencies1999 2000 2001 2002 2003 2004 Total

Investment CostsCivil Works/Renovation 7.9 10.0 19.0 17.3 14.0 68.1Professional Services 0.7 1.0 2.0 1.8 1.4 7.0Furniture 0.1 0.7 0.7 1.1 0.8 0.3 3.7Medical Equipment, Major 4.3 5.8 4.5 14.6Medical Equipment, Minor 1.2 1.6 1.2 4.0Medical Equipment, Surg Packs 0.1 0.1 0.1 0.3Vehicles 0.1 0.6 1.2 0.6 0.5 2.9Equipment (Other) 0.1 0.7 0.9 1.3 0.7 3.7Medicines 0.2 0.6 0.5 0.6 0.5 2.4Other Supplies 0.3 0.5 0.7 0.5 0.4 2.4MIS/IEC Materials 0.1 0.4 0.4 0.4 0.1 1.4Local Training 1.0 1.3 1.7 1.7 1.0 6.7

{,2, Studies 0.5 0.6 0.8 0.8 0.5 3.3Ln Fellowships (Local and Foreign) 0.2 0.3 0.4 0.4 0.2 1.4

Workshops 0.1 0.1 0.1 0.1 0.1 0.6Consultancies (incl. NGOs) 0.1 0.3 0.4 0.4 0.2 0.1 1.4Total Investment Costs 0.4 13.3 23.6 36.5 31.6 18.8 124.0Recurrent CostsSalaries oU Additional Staff 0.3 0.7 2.9 3.4 3.8 3.8 15.0Operational Expenses 0.3 2.1 2.1 2.9 3.7 3.5 14.6Building Maintenance 0.4 1.4 0.2 1.9Equipment Maintenance 0.6 0.9 0.1 0.2 0.4 0.3 2.4Vehicle Maintenance 0.1 0.2Total Recurrent Costs 1.1 3.7 5.2 7.0 9.2 7.8 34.1

Total PROJECT COSTS 1.5 16.9 28.8 43.5 40.9 26.6 158.1

JQ :

0

Table 5. Expenditure Accounts by Years

Base Cost (Rupee Millon) Foreign Exchange Base Cost (US$ Million) Foreign Exchange1999 2000 2001 2002 2003 2004 Total % Amount 1991 2000 2001 2002 2003 2004 Total % - Amount

Investment CostsCivil Wk*sRenovation 278.9 348.6 650.7 581.0 464.8 2324.1 15.0 348.6 6.8 8.5 15.9 14.2 11.4 57.0 15.0 8.5Professional Services, 26.3 35.9 67.0 62.2 47.8 239.2 20.0 47.8 0.6 0.9 1.6 1.5 1.2 5.9 20.0 1.2FumIture 2.6 25.6 25.6 38.3 25.6 10.2 127.8 10.0 12.8 0.1 0.6 0.6 0.9 0.6 0.3 3.1 10.0 0.3Medica Equipment, Major 148.5 198.0 148.5 495.1 60.0 297.1 3.6 4.9 3.6 12.1 60.0 7.3Medical Equipment. Minor 40.8 54.4 40.8 136.0 46.4 63.2 1.0 1.3 1.0 3.3 46.4 1.5Medica Equipment, Surg Packs 3.3 4.4 3.3 10.9 42.5 4.6 0.1 0.1 0.1 0.3 42.5 0.1Vehkcles 2.0 20.1 40.2 20.1 18.1 100.6 10.0 10.1 0.5 1.0 0.5 0.4 2.5 10.0 0.2Equipment (Other) 2.5 25.4 31.7 44.4 22.8 126.9 19.8 25.1 0.1 0.6 0.8 1.1 0.6 3.1 19.8 0.6Medicines 8.2 20.4 16.3 20.4 16.3 81.7 50.0 40,8 0.2 0.5 0.4 0.5 0.4 2.0 50.0 1.0Other Supplies 11.6 15.8 24.9 16.6 14.1 83.1 0,3 0.4 0.6 0.4 0.3 2.0MIStiEC Materials 0.6 2.5 14.8 14.8 12.3 4.4 49.2 25.0 12.3 0.1 04 0.4 0.3 0.1 1.2 25.0 0.3Local Training 36.2 48.3 60.3 60.3 36.2 241.3 0.9 1.2 1.5 1.5 0.9 5.9Studies 16.8 22.4 28.1 28.1 16.8 112.2 0.4 0.6 0.7 0.7 0.4 2.8Fellowships (Local and Foreign) 7.4 9.9 12.4 12.4 7.4 49.7 90.0 44.7 0.2 0.2 0.3 0.3 0.2 1.2 90.0 1.1Worsshops 3.1 4.2 5.2 5.2 3.1 20.9 0.1 0.1 0.1 0.1 0.1 0.5Consulianies(ind. NGOs) 5.2 10.5 13.1 13.1 7.9 2.6 52.4 0.1 0.3 0.3 0.3 0.2 0.1 1.3

TotaiInvestmentCosts 12.9 472.6 823.5 1252.6 1065.6 624.0 4251.1 21.3 907.1 0.3 11.6 20.2 30.7 26.1 15.3 104.2 21.3 22.20' Recurrent Costs

SalariesofAddilional Staff 10.7 26.8 107.4 123.5 134.2 134.2 536.9 0.3 0.7 2.6 3.0 3.3 3.3 13.2OperabonalExpenses 10.0 74.7 74.7 997 124.6 114.6 498.3 10.0 49.8 0.2 1.8 1.8 2.4 3.1 2.8 12.8 10.0 1.2Building Maintenance 13-0 45.6 6,5 65.1 10.0 6.5 0.3 1.1 0.2 1.6 10.0 0.2EquipmentMaintenance 20.4 30.5 5.1 8.5 11.9 8.5 84.8 10.0 8.5 05 07 0.1 0.2 0.3 0.2 2.1 10.0 0.2Fumiture Maintenance 01 0.2

Vehide Maintenance 0.9 1.6 2.1 1.6 6.2 10.0 0.6 0.1 0.2 10.0TotalRecurrentCosts 41.1 132.1 188.2 246.3 318.4 265.5 1191.5 5.5 65.4 1.0 3.2 4.6 6.0 7.8 6.5 29.2 5.5 1.6Total BASELINE COSTS 54.0 604.8 1011.7 1498.9 1383.9 889.4 5442.7 17.9 972.5 1.3 14.8 24.8 36.7 33.9 21.8 134.0 17.9 23.8

Physical Contingencies 4.6 56.3 92.0 139.2 127.4 79.8 499.2 19.0 95.0 0.1 1.4 2.3 3.4 3.1 2.0 12.2 19.0 2.3Price Contingencies

inflationLocal 1.8 57.0 145.0 307.2 379.8 330.9 1221.7 1.4 3.6 7.5 9.3 8.1 29.3Foreign 0.1 4.0 17.7 35.5 38.5 19.7 115.4 100.0 115.4 0.1 0.4 0.9 0.9 0.5 2.8 100.0 2.8

Subtotalinflation 1.8 61.0 162.7 342.7 418.3 350.6 1337.2 8.6 115.4 1.5 4.0 8.4 10.3 8.6 32.2 8.6 2.8Devaluaton 4.9 26.9 59.3 68.5 37.1 196.7 94.2 185.3 -0.8 -2.2 51 -6.4 -5.8 -20.3

Subtotal Pnce Contingencies 1.8 65.9 189.6 402.0 485.9 387.8 1533.9 19.6 300.8 0.7 1.8 3.3 3.8 2.8 12.5 22.6 2.8Total PROJECT COSTS 60.4 726.9 1293.3 2040.0 1998.2 1357.0 7475.8 18.3 1368.3 1.5 16.9 28.8 43.5 40.9 26.6 158.1 18.3 29.0

Taxes 30 35.1 62.4 100.1 96.3 58.0 355.0 0.1 0.8 1.4 2.1 2.0 1.1 7.5 "

Foreign Exciange 4.6 94.7 276.4 428.2 389.4 175.0 1368.3 0.1 2.2 6.2 9.1 8.0 3.4 29.0 X

x

Table 6. Project Components by Year(Rs Million)

Base Cost1999 2000 2001 2002 2003 2004 Total

1. Management Development and Institutional Strengtheningl.a - Improving the institutional framework for policy development 0.3 3.0 4.4 5.4 5.2 3.5 21.8

1.b - Strengthening management and implementation capacity 3.3 48.1 82.0 111.5 107.4 77.2 429.51.c - Strengthening surveillance capacity for major communicablediseases and HMIS 10 7.5 11.4 11.4 12.0 8.4 51.6

Subtotal 4.6 58.6 97.8 128 2 124.6 89.1 502.9

2. Improving Service Quality and Effectiveness2.a - Upgrading 25 district hospitals and establishing 29 HTTs 13.3 121.3 194.2 322.1 285.8 163.7 1.100.5

2.b- Upgrade 23 CHCs 100 bedded sub-district hospitals 72 1114 217.0 3238 3067 222.4 1,188.5

2.c- Upgrading 53 CHCs as 50 bedded sub-district hospitals 5.4 130.7 226.2 3550 3336 234 1 1.285.1

2.d - Upgrading dinical and support services 12.6 85.3 92.0 122 8 106.1 58.8 477.7

Subtotal 38.6 448.7 729.4 1.123.8 1.032.2 G79.0 4.051.7

3. Improving Access and Innovative Schemes3.a - Improving referral mechanisms from primary to secondary. andto tertiary levels 0.7 5.2 5.2 7 1 8.7 8.0 34.9

3.b - Provision of extension services to tribal and disadvantagedpopulations 1.6 13.9 15.5 20.0 23.6 20.0 94.6

3.c - Extension of IEC activities to promote health care services 2 6 8.3 9 9 8.5 4.5 33 83.d - Provision of essential civil works and clinincal and supportservices o035 CHCs 7.7 547 1275 175.3 152.4 68.9 586.53.e - Developing innovative schemes for closer cooperationbetweenthepublicandprivatesectors 0.8 21.1 280 34.5 33.8 20.1 138.3

Subtotal 10.8 97.5 184.5 246.8 227.1 121.4 888.1

Total BASELINE COSTS 54.0 604.8 1.011.7 1.498.9 1.383.9 889.4 5.442.7Physical Contingencies 4.6 56.3 92.0 139.2 127.4 79.8 499.2

Price ContingenciesInflation

Local 1.8 57.0 145.0 307.2 379.8 330.9 1221.7

Foreign 0.1 4.0 17.7 35.5 38.5 19.7 115.4

Subtotal Inflation 1.8 61.0 162.7 342.7 418 3 350.6 1.337 2

Devaluation 4 9 26.9 59.3 68.5 37.1 196.7

Subtotal Price Contingencies 1.8 65.9 189.6 402.0 486.9 387.8 1.533.9

Total PROJECT COSTS 60.4 726.9 1.293.3 2.040.0 1.998.2 1.357.0 7,475.8 >

Taxes 3.0 35.1 62.4 100 1 96 3 58.0 355.0

Foreign Exchange 4.6 94 7 276.4 428.2 389.4 175.0 1.368 3 510

'.0

Table 7. Components Project Cost Summary

(Rupee Million) (USS Million)% % Total °/e % Total

Foreign Base Foreign BaseLocal Foreign Total Exchange Costs Local Foreign Total Exchange Costs

1. Management Development and InstitutionalStrengthening1.a - Improving the institutional framework for policydevelopment 21.4 0.4 21.8 2.0 0.5 0.5 2.01.b -Strengthening management and implementationcapacity 340.0 89.5 429.5 21.0 8.0 8.4 2.2 10.6 21.0 8.01.c -Strengthening surveillance capacity for majorcommunicable diseases and HMIS 47.4 4.2 51.6 8.0 1.0 1.2 0.1 1.3 8.0 1.0

Subtotal 408.8 94.1 502.9 19.0 9.0 10.1 2.3 12.4 19.0 9.02. Improving Service Quality and Effectiveness

2.a - Upgrading 25 district hospitals and establishing 29HTTs 846.3 254.2 1100.5 23.0 20.0 20.9 6.0 27.0 23.0 20.0

2.b - Upgrade 23 CHCs 100 bedded sub-district hospitals 1001.6 186.9 1188.5 16.0 22.0 24.7 4.6 29.3 16.0 22.02.c - Upgrading 53 CHCs as 50 bedded sub-districthospitals 1060.7 224.2 1285.1 17.0 24.0 26.2 5.5 31.7 17.0 24.02d - Upgrading clinical and support services 439.9 37.8 477.7 8.0 9.0 10.9 0.9 11.8 8.0 9.0

cIo Subtotal 3348.5 703.2 4051.7 17.0 74.0 82.7 17.2 100.0 17.0 74.03. Improving Access and Innovative Schemes

3.a - Improving referral mechanisms from primary tosecondary, and to tertiary levels 31.3 3.6 34.9 10.0 1.0 0.8 0.1 0.9 10.0 1.03.b - Provision of extension services to tribal anddisadvantaged populations 86.4 8.2 94.6 9.0 2.0 2.1 0.2 2.3 9.0 2.03.c - Extension of IEC activities to promote health careservices 26.6 7.3 33.8 21.0 1.0 0.7 0.2 0.8 21.0 1.03.d - Provision of essential civil works and clinincal andsupport services to 35 CHCs 423.2 163.3 586.5 28.0 11.0 10.5 4.0 14.5 28.0 11.03.e - Developing innovative schemes for closer cooperationbetween the public and private sectors 138.0 0.1 138.3 3.0 3.4 3.4 3.0

Subtotal 705.5 182.6 888.1 20.0 16.0 17.4 4.5 21.9 20.0 16.0Total BASELINE COSTS 4462.8 979.9 5442.7 18.0 100.0 110.0 24.0 134.0 18.0 100.0

Physical Contingencies 403.5 95.7 499.2 19.0 9.0 10.0 2.3 12.3 19.0 9.0Price Contingencies 1278.7 255.2 1533.9 18.0 25.0 9.1 2.5 11.8 21.0 9.0

Total PROJECT COSTS 6145.0 1330.8 7475.8 18.0 134.0 129.3 28.8 158.1 18.0 118.0 >'

os:_J x

0

'.0

Table 8. Expenditure Accounts by Components(US$ Million)

Subcomponent* la lb Ic 2a 2b 2c 2d 3a 3b 3c 3d 3e Total Phys Cont, (%) Amount

Investment CostsCivil Works/Renovation 44 16.9 13.4 18.1 0.2 3.9 57.0 10.0 5.7

Professional Services 0.5 1.7 1.4 1.9 0.3 5.9 10.0 0.6

Fumiture 0.1 0.2 1.2 0.5 0.5 0.4 0.2 3.1 10.0 0.3

Medical Equipment, Major 4.9 2.2 2.3 2.8 12.1 10.0 1.2

Medical Equipment, Minor 0.1 0.5 0.4 2.3 3.3 10.0 0.3

Medical Equipment, Surgical Packs 0.1 0.1 0.1 0.3 10.0

Vehicles 0.7 0.3 0.3 0.2 0.6 0.4 2.5 10.0 0.2

Equipment (Other) 0.1 0.1 2.9 3.1 10.0 0.3

Medicines 1.2 0.8 2.0 10.0 0.2

Other Supplies 1.1 0.7 0.3 2.0 10.0 0.2

MISIIEC Materals 0.6 0.1 0.5 1.2 10.0 0.1

Local Training 4.7 0.4 0.7 5.9 5.0 0.3

Studies 0.3 24 28 10.0 0.3

Fellowships (Local and Foreign) 1.2 1 2 5.0 0.1

Workshops 0.1 0.4 05 50

Consultancies (ind. NGOs) 1.1 0.2 1.3 5.0 0.1

TotallnvestmentCosts 0.4 7.9 0.4 25.2 20.7 25.4 8.6 0.5 0.8 10.9 34 104.2 9.6 10.0

Recurrent Costs

Salaries of Additional Staff 0.1 2.1 0.2 6.7 4.1 13.2 5.0 0.7

Operational Expenses 0.4 0.6 0.1 1.3 1.5 2.3 0.8 1.8 3.4 12.6 10.0 1.2

W Building Maintenance 0.1 0.5 0.4 0.5 0.1 1.6 10.0 0.2

Equipment Maintenance 1.2 0.8 2.1 10.0 0.2

Fumiture Maintenance 10.0

Vehicle Maintenance 0.1 0.2 10.0

TotalRecurrentCosts 0.2 2.6 0.8 1.8 8.4 6.1 3.1 0.8 1.8 3.5 29.2 7.7 2.3

Totai BASELiNE COSTS 0. 10. S t1.31 2702.1 34C 447 flf 2.3 0.S 15.0 3.4 13f4.0 1')'2.2

Physical Contingencies 0.9 0.1 2.7 2.6 2.9 0.9 0.1 0.2 0.1 1.4 0.3 12.2

Price ContingenciesInflation

Local 0.1 2.3 0.3 5.7 6.9 7.3 2.7 0.2 0.6 0.2 2.8 0.9 29.3

Foreign 0.3 0.7 0.6 0.7 0.1 0.5 2.8

SubtotalInflation 0.1 2.6 0.3 6.4 7.5 8.0 2.8 0.2 0.6 0.2 3.2 0.9 32.2

Devaluation -0.1 -1.6 -0.2 -3.8 -4.7 -5.0 -1.8 -0. 1 -0.4 -0.1 -1.8 -0.6 -20.3

Subtotal Price Contingencies 1.0 0.1 2.6 2.8 3.0 1.0 0.1 0.2 0.1 1.4 0.3 11.9 8.4 1.1

Total PROJECT COSTS 0.6 12.4 1.5 32.3 34.5 37.4 13.6 1.0 2.7 1.0 17.1 4.0 158.1 8.4 13.3

Taxes 0.5 0.1 1.8 1.5 1.8 0.5 0.1 0.2 0.1 1.0 7.5 9.1 0.7

Foreign Exchange 2.6 0.1 7.5 5.6 6.7 1.1 0.1 0.2 0.2 4.8 29.0 8.9 2.6 ' k

See Table 6 for names of subcomponents G X

0

Table 9. Expenditure Accounts by Components(Rs Million)

Subcornponent' Ia lb Ic 2a 2b 2c 2d 3a 3b 3c 3d 3e Total Phys Cont (%) Amount

Investment Costs

Civil Works/Renovation 178.8 691.1 548.3 737.0 9.9 158.9 2,324.1 10.0 232.4

Professional Services 22.3 0.3 67.8 57.1 79.0 1.0 1.3 10.4 239.2 10.0 23.9

Fumiture 3.0 9.9 1.5 47.9 22.2 20.9 14.4 1.0 7.1 127.8 10.0 12.8

Medical Equipment, Major 198.7 90.6 93.0 112.8 495.1 10.0 49.5

Medical Equipment, Minor 5.0 20.9 17.2 92.9 136.0 10.0 13.6

Medical Equipment. Surg Packs 2.7 3.3 3.3 1.6 10.9 10.0 1.1Vehicles 0.7 26.8 11.1 11.9 10.1 23.8 16.1 100.6 10.0 10.1Equipment (Other) 3.4 3.0 1.3 0.3 0.5 118.0 0.4 126.9 10.0 12.7Med'icines 49.3 32.4 81.7 10.0 8.2Other Supplies 42.9 28.3 11.9 83.1 10.0 8.3

MIS/tEC Materials 24.8 3.0 21.4 49.2 1G.0 4.9

Local Training 1.8 1.4 191.6 16.7 29.8 241.3 5.0 12.1

Studies 11.9 1.0 99.3 112.2 10.0 11.2

Fellwships (Local and Foreign) 49.7 49.7 5.0 2.5

Vorkshops 5.0 15.9 20.9 5.0 1.0

Consultancies (ind. NGOs) 44.7 7.7 52.4 5.0 2.6TotallnvestmentCosts 15.6 322.5 18.3 1,026.4 845.1 1,035.4 351.8 1.0 19.7 33.6 444.9 136.9 4,251.1 9.6 406.9Recurrent Costs

Salaries of Additional Staff 5.5 84.7 7.5 272.3 167.0 536.9 5.0 26.8

Operational Expenses 14.4 23.8 4.8 54.7 59.8 91.9 34.0 74.9 138.7 1.4 498.3 10.0 49.8g1 Building Maintenance 5.0 18.9 16.0 22.1 0.2 2.9 65.1 10.0 6.5

Equipment Maintenance 0.5 0.1 0.2 50.0 34.0 84.8 10.0 8.5

Fumiture Maintenance 0.2 0.2 10.0

Vehicle Maintenance 0.3 2.8 1.7 0.4 0.4 0.8 6.2 10.0 0.6

Total Recurrent Costs 6.2 107.0 33.3 74.0 343.4 249.7 125.9 34.0 74.9 0.2 141.6 1.4 1,191.5 7.7 92.3Total BASELINE COSTS 21.8 429.5 51.6 1,100.5 1,188.5 1,285.1 477.7 34.9 94.6 33.8 586.5 138.3 5,442.7 9.2 499.2

Physical Contingencies 1.9 35.9 4.7 110.0 105.2 120.2 37.4 3.5 8.6 3.4 56.4 12.0 499.2

Price Contingencies

Inflation

Local 5.7 94.0 12.4 231.8 281.6 298.6 109.2 8.8 23.8 7.2 112.2 36.4 1,221.7

Foreign 10.3 0.5 30.0 22.5 27.0 3.9 0.4 1.0 0.9 19.0 115.4

Subtotal Inflation 5.7 104.3 12.9 261.7 304.1 325.6 113.0 9.3 24.8 8.1 131.3 36.4 1,337.2

Devaluation 0.1 17.1 0.8 51.1 38.5 46.2 6.4 0.8 1.8 1.5 32.5 196.7

SubtotalPnceContingencies 5.8 121.4 13.7 312.9 342.6 371.8 119.5 10.0 26.6 9.5 163.7 36.4 1,533.9 8.4 128.9

Total PROJECT COSTS 29.6 586.8 70.0 1,523.4 1,636.3 1,777.0 634.6 48.5 129.8 46.7 806.6 186.6 7,475.8 8.4 628.1

Taxes 0.4 22.0 4.0 85.6 70.9 84.9 25.1 3.3 7.6 2.9 48.2 0.1 355.0 9.1 32.3

Foreign Exchange 0.6 122.3 5.8 355.5 262.8 315.2 51.2 5.1 11.7 10.2 227.7 0.2 1,368.3 8.9 121.8 d -

See Table 6 for names of subcomponents r (Dx

Annex 5Page I of 6

Maharashtra Health Systems Development Project

Public Expenditures on the Health Sector

Introduction

1. Annexes 5 and 6 review the economic analyses undertaken for this project. This annex reviews thefiscal situation in Maharashtra, analyzing past trends in selected asspects of public finance, expenditures onhealth and family welfare services, the resulting shifts in the structure of health expenditures, the burden ofineremental recurrent costs of the project, and the conditions for financial sustainability. Annex 6 deals withcost recovery, user charges and cost-effectiveness. Other economic analyses are addressed in the text of thePAD. These include: (i) how the project relates to the CAS (Section B); (ii) analysis of project alternatives(Section D); and project benefits and beneficiaries (Section E).

State Finances

2. A review of overall developments in state government finances in India reveals that, through the1980s, revenues grew at a slower rate than expenditures. This has led to the emergence of revenue deficitsand to the growth and changing composition of fiscal deficits. Calculations of individual state deficits as aproportion of their own state domestic product suggest that for the eleven most populated states the averagcgross fiscal deficit increased slightly, from 4.2 to 4.3 percent, in the early 1990s. However, differencesbetween states are quite substantial. Interest payments on state debt of almost all states have incrcased in thesame period, partly because of the reformn program undertaken by the center in its move toward a marketoriented cconomy. This has affected overall tax revenues and the size of the central govermment's transfers tostates, and has increased interest rates on the states' borrowings fromr the center.

3. In relative terms, the fiscal situation in Maharashtra has been better than in the other most populatedstates. The revenue account showvs a small surplus only in one year, and increasing after that (Table 1). Asthe revenue deficit increased, the composition of fiscal deficit changed as well, and a largcr share ofborrowings were siphoned off to covcr current rather than capital expenditures. Importantly, inMaharashtra. even though the deficit on the revenue account has been increasing, it has not been much morethan about one percent of SDP.

4. Debt. The evolution of public dcbt -- thc discounted prescnt value of furthcr debt scrvice payments --has not followed that of other states in India. declining from 14.0 percent of SDP in 1993 to 12.1 percent in1997. The nationial average stands at 25 perccnt of GDP for 1997. Total debt of the Government isestimated at Rs. 190.140i million at the cnd of FY 1996/97. The pcr capita debt burden increased from Rs.1.475 in FY 1993/94 to Rs. 2.164 in FY 1996/97. Intercst payment on dcbt is relatively low, increasingmarginally from 11. 5% of total revenue cxpcnditure in FY 1993/94 to 11.7% in FY 1996/97.

5. Maharashtra's statc domcstic product (SDP) has been growing at an avcrage annual rate of over 6percent in real terms sincc 1980. placing it first among major Indian states. The gross fiscal dcficit, whichrcflects the combined balances in the revenue and capital accounts of the statc budget, ranged between 2.4percent and 3.2 percent of SDP. This statistic calculated for elcven large states avcraged at about 4.5 percentof SDP for the period.

41

Annex 5Page 2 of 6

Table 1. Maharashtra: Overall Finances, 1990/91 - 1995196

1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97SDP (Rs. million, 296567 296289 334215 363591 387460 427657 4575931980-81 prices)

Fiscal deficit 2.80 2.41 3.24 2.34 2.60 3.16 3.08(% SDP) ____

Revenue dericit 0.09 0.40 0.91 0.13 -0.25 0.46 1.05(% SDP) I__ __ _I_ _

Public debt 14.04 1286 12.70 12.12(% SDP) 12__86__J__12

Trends in Expenditure on Health and Family Welfare

6. Share of budgetarv rcsources devoted to hcalth. Expenditure on health and family welfare has bcengrowing, but has remaincd less than one percent of SDP, cxcept in 1985-86, and has been falling in the1990s, from 0.88 percent in 1990-91 to 0.67 percent in 1996-97. This is well below the requiremcnt to meetbasic public health prioritics (World Dcvelopment Report 1993), and below the levels required to achieve theservicc norms set by the Govcrnmcnt of India (India: Policy and Finance Strategies for StrcngtheningPrimary Hcalth Carc Services, 1995). Further, the sharc of health in total state revenue expenditure has beendcclining, exccpt, again, in 1985-86, and a slight incrcase in 1995-96. In spite of this trend in overall healthexpenditure, pcr capita cxpenditure shows an incrcase in recent years, up from Rs. 28.7 in 1994-95 to Rs.33.6 in 1996-97 in rcal tcrms. Oncc morc, 1985-86 is an out-lier; bcttcr perforrnancc in terms of expenditurein this year is probably because of a substantial cxpansion in infrastructure, in keeping with newlycstablished norms.

Table 2. Maharashtra: Health Sector Expenditures, 1980181 - 1996197

1980-81 1985-86 1990-91 1994-95 1995-96 1996-97Total revenue expenditure 13.04 16.97 15.20 12.17 11.72 12.55- % SDPTotal revenue expenditure 0.88 1.81 0.86 0.70 0.69 0.67on health - % SDPTotal revenue expenditure 6.32 10.49 5.45 5.12 5.18 5.14on health - % total revenueexpenditurePer capita expenditure on 19.40 47.10 31.40 28.70 30.20 33.60|health, Rs (1980-81 prices) I I_I_I

Budgetary Allocations and Composition of Health Budget

7. Budgetary allocations devoted to both public health, and the health sector overall, have almostdoubled since 1990-91, but their respective shares in state budgetary resources have not shown animprovement. The share of the health sector declined from 5.37 percent of the budget in 1991-92, to 3.49percent in 1996-97; the share of public health shows a smaller decrease, from 3.28 percent of the state budgetin 1991-92 to 2.45 percent in 1995-96, with a slight increase in the last financial year.

42

Annex 5Page 3 of 6

Table 3. Maharashtra: Budgetary Allocations within the Health Sector, 1990/91 - 1996/97

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97State budget 108536.0 105498.1 144953.7 163040.0 192187.2 217193.6 260699.0Total health 5075.8 5663.0 5767.2 5778.4 6900.6 7666.4 9106.2budget% state budget 4.68 5.37 3.98 3.54 3.59 3.53 3.49Public health 3127.7 3457.5 4026.0 4331.1 4765.5 5320.1 6826.5% health budget 61.62 61.05 69.81 74.95 69.06 69.40 74.97ESIS 322.3 434.5 451.2 493.3 579.6 541.1 511.1% health budget 6.35 7.67 7.82 8.54 8.40 7.06 5.61

MED ED 1625.8 1771.0 1290.0 954.0 1555.5 1805.2 1768.6% health budget 32.03 31.27 22.37 16.51 22.54 23.55 19.42

8. Public health has been thc focal activity of the health sector, consistently recciving over 60 percent ofthe budget, and ranging bctween 69 and 75 percent since 1992-93. Medical education received one third ofthe budget until 1991-92, after which it has been reduced to between 16-24 percent. In fact, there was ascctoral re-allocation of funds from medical education to Employees State Insurance Scheme (ESIS) andpublic hcalth between 1992-93 and 1995-96, as indicated by an increase in their share of total healthbudgetary rcsources, and a decline in that of mcdical education. For the last year, re-allocation favored onlypublic health, with the shares of both medical education and ESIS dropping.

Table 4. Maharashtra: Health Budget by Source of Fund

1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97CenterPlan 908.85 1052.21 1222.36 1178.21 1352.66 1191.46 1847.53SVtate

Plan 538.97 594.33 596.2 606.7 553.09 928.69 1386.21Non-Plan 1679.84 1810.90 2207.41 2545.86 2859.74 3199.95 3592.83Total 3127.66 3457.44 4025.97 4330.77 4765.49 5320.1 6826.57

9. State contributions to the total public health budget stands at 70 percent or more, while its share innew spending i.e. plan expenditure is about half of this, ranging between 32 percent and 42 percent. This isbecause non-plan expenditure, which accounts for over half the total health budget, is the sole responsibilityof the state. However, if family welfare, which is a Centrally sponsored scheme, is deducted from planexpenditure, state contribution is over 65 percent of the total.

43

Annex 5Page 4 of 6

Table 5. Maharashtra: Distribution of Budget Expenditure, 1992/93 - 1996/97

1 1992/93 1993/94 1994/95 1995/96 1996/97

Level of health service (% of health budget)

a. Primary 58.2 60.2 54.1 54.3 60.7

b. Secondary 11.6 14.7 15 15.1 14.3

c. Tertiary 30.2 25.1 30.9 30.6 25

Item of expenditure (% of health budget)

a. Salary 56.5 61.2 61.4 62.7 55.7

Materials 13.8 15.7 14.8 15.8 20

c. GIA 7.3 3.2 8.2 4.1 5.6

d. Civil works 11.8 10.2 6.1 3.5 7.1

c. Contingency 10.6 9.7 9.5 14 11.6

iProgram (% of public health budget)

la. Minimum nccds 40.8 40.5 38.6 43.2 39.5

b. Hospital services 11.2 13.5 13.6 14.5 12.9

c. Family welfarc 22.3 21 22.4 17 18.8

d. Communicable discase 19.9 19.6 21.3 18.6 22.9

c. NCDs and others 5.9 5.4 4.1 6.7 5.9

10. In each year, a significant share of public resources is being absorbed by unrecovered currentexpcnditures spent on providing curative care in urban tertiary hospitals, nearly twice that allocated tosecondary health. Expenditures in the range of 11 - 15 percent for the secondary level is about the samesharc as in Andhra Pradesh. Primary health care received the bulk of budgetary resources, over 50 percent.The total health budget is distributed across six main items of expenditure: salaries, materials, Grants-in-Aid(GIA), civil works, and contingencies. Close to 60 percent of the budget has been devoted to salariesthroughout the 1990s, and with materials, is the only other item with a positive rate of growth in nominalterms for the entire period. Minimum needs has clearly been the priority program of the public health sector,receiving about 40 percent of the public health budget. There has been a switch between family welfare andcommunicable disease for second place in the last two years, but together, these three items have accountedfor over 75 percent of budget allocations throughout the period.

Cost Effectiveness

11. The challenge has been to encourage a shift in a number of services which are currently provided atthe tertiary level to the secondary level. Recent analysis has indicated that substantial cost savings can resultif health care services are provided at the lower tiers of the health care system. This is particularly truebetween the tertiary and secondary levels where the range of services provided is similar. It is estimated thatbetween 25-40 percent of costs could be saved by treating patients at secondary facilities rather than attertiary hospitals. Such cost comparisons between the secondary and primary levels are more difficult sincethe services offered at these two levels have greater divergence.

44

Annex 5Page 5 of 6

12. Table 6 is a summary of costs for specific interventions at the primary, secondary and tertiary levelsin Andhra Pradesh, a neighboring state which is comparable to Maharashtra in many ways. The results fromthe Andhra Pradesh Burden of Disease and Cost Effectiveness Study' are sunmmarized here. These estimatesare achieved by comparing the overall unit costs related to specific inputs for in-patients and out-patients atsecondary versus tertiary hospitals and by giving cost and efficiency comparisons of secondary versustertiary level hospitals in terms of costs per case equivalent. While the data, specific issues and examplespresented are specific to the situation in Andhra Pradesh, with a few modifications the results would beapplicable to Maharashtra as well.

Table 6. Costs at the PHC, Secondary and Tertiary Levels (Rs.)

PHC Secondary Tertiary

Bed Day 73.18 69.52 52.70OP Contact 9.65 2.45 14.24Level I Test2 12.88 11.95 27.21Level II Test 24.86 38.28

X-Ray 48.45 55.45 76.66Major OT 55.67 125.00

Project Financial Sustainability.

13. The financial sustainability of the project is dependent on the ability and commitment of the stategovemment to allocate resources for the continuation of project activities at the end of the project period andto support adequately those non-project activities upon which projecl: implementation depends. The level ofrecurring costs and the level, composition and trends in health expenditure will have an important bearing onfinancial sustainability; the effectiveness of the health care system clepends on the availability of recurrentinputs and adequate maintenance.

14. To measure the burden this would impose on public finances, trend growth rates have been used toextrapolate state domestic product and revenue expenditure on health to the last year of the project. Totalrecurrent expenditure incurred during the last year of the project, which is estimated to be Rs. 328 million,will not be a significant proportion of estimated SDP (less than 0.01 percent), and only 1.3 percent of theestimated revenue expenditure on health.

15. This recurrent expenditure would be equivalent to about 10 percent of the addition to revenueexpenditure on health arising out of an annual trend increase in the first year after project closure. Thus, trendanalysis clearly indicates that project related incremental costs are sustainable based on past rates of growthalone. In practice, of course, incremental costs are likely to be met only partly through trend increases;changes in sectoral allocations favoring health are expected.

' Administrative Staff College of India. "Andhra Pradesh Burden of Disease and Cost-Effectiveness of HealthInterventions". Report Volume II, 1966. Centre for Social Services, Hyderabad.2 Level I refers to blood picture, urine exam, and sputures for TB, while Level II refers to blood sugar, blood urea,electrolyte, and urine and blood culture and sensitivity.

45

Annex 5Page 6 of 6

16. Further, increased expenditure resultant from the project would not significantly alter the distributionof the health budget itself. Given that a majority of project related spending is directed at the secondary level,assigning the bulk of incremental costs to this system would not imply a shift in emphasis vis-a-vis otherlevels of health sector activities. Assuming no other changes in the composition of health expenditures, theshare of secondary health in the public health budget wvould increase by about two percent at the end of thisproject. Alternatively, the trend increase in the absolute share of the secondary system in the first year afterproject closure would cover recurrent cost arising from the project in that year.

17. Finally, the financial implications of the project for the state government would also include servicecharges for the loan. Including contingencies, estimated project cost is Rs. 7,475 million, amounting to lessthan 4 percent of current outstanding debt. For 1997-98, public debt is estimated at 9 percent of SDP, andinterest payments on debt at 13.5 percent of revenue expenditure. These figures on average are 25 and 18,respectively, across other major states, and would support a strong case for effective debt management inMaharashtra for the future as well.

Conclusion

18. The incremental recurrent costs are not substantial additions to the health budget. The increasedprivate sector participation in Maharashtra that will be gcnerated due to the project and the commitment ofthe government to the development of the health sector imply that this addition would be sustainable.However, as the rate of growth of health expenditures in rccent years has been below the growth rate ofoverall expenditure, it is necessary, at a minimum, to alter the composition of expenditure so that contributionto the hcalth sector is increased. In addition, it is necessary that increased resources be allocated to theprimary and secondary level of health care.

46

Annex 6Page I of 7

Maharashtra Health Systems Developmenit Project

User ChargesIntroduction

I . This annex addresses issues related to cost recovery and user charges. Existing user chargepolicy is reviewed, and the potential for enhancing resources by implementing fees morerigorously, strengthening collection mechanisms and through periodic enhancement of fees forselected medical services is explored. The annex also discusses issues of retention of funds at thefacility level and targeting of beneficiaries for exemption from fees. A limited number of scenariosfor possible cost recovery schemes are presented for illustrative purposes.

2. Revenue collection reports at public facilities in India indicate that the level of costrecovery in medical and public health services is generally low. This does not, however, take intoaccount services such as private nursing and diet support that families provide to patients duringtheir hospital stay. Although it is difficult to estimate how much higher actual cost recovery iscompared to reported revenue data, evidence still suggest that cost recovery is relatively low inIndia.

3. A study of cost recovery between 1975 and 1989 indicates that Maharashtra's collectionrate was similar to the average collection rate of other major states in India. Of the 15 states, theaverage level of cost recovery in the health sector was the highest in Punjab at 7.7 percent, whilecost recovery in Maharashtra was 5 percent. The average for India was about 3.8 percent (India:New Directions in Health Sector Development).

4. User fees have been set quite low in Maharashtra ancl cover only a narrow range ofservices. Mechanisms for collecting user fees have been inadequate. In addition, there are manyexemptionis, some of which are clearly justified, including exemptions for the poor for promotivehealth. Others are less clear, including exemptions or reduced rates for Government employees.Collection rates are also low because patients are reluctant to pay service charges, or in some caseseven attend public health facilities, when the quality of those facilities are poor or drugs notavailable. Moreover, there has been little incentive to collect user charges because the hospitalshave been unable to retain even a part of the revenues collected; the funds generated have revertedto the Government treasury whiere they have become part of general revenues.

Existing Practices

5. Three-quarters of total health expenditures in India are mnade directly by patients to privatedoctors and hospitals. In the case of public health facilities, given that the poor aredisproportionately represented among users of such facilities, full cost recovery is neither feasible,nor desirable. However, user charges are important to supplement public health expenditure, andgiven the equity issue, need to be administered through a systemt that effectively combines servicefees with targeted exemptions.

6. Maharashtra already has in place a system of user charges. In keepiing with the State'spolicy to promote both public health and equity, all social safety net services are provided free ofcharge -- these include the basic public health package and essential clinical services, primarilycomprising the national health program (disease control, FW/MCH and nutrition). In addition,

47

Annex 6Page 2 of 7

state representatives and employees, or those in official custody are provided free medical services,along with disaster victims, STD and AIDS patients, and mental and drug rehabilitation inmates.

Outpatient charges

7. For sections of the population not exempt from user charges, an outpatient registration feeof Rs. 2 per week is applicable. Further charges ranging between Rs. 5 and Rs. 50, are levied forlaboratory investigations, and other special investigations. The last revision to these charges wasdone in 1988. None of the outpatient revenue may be retained by the collecting facility, allrevenues accrue to the government. In 1996, outpatient user charges amounted to Rs. 2.7 million.

Inpatient charges

8. In-patient charges, too, were last revised in 1988, with indoor charges being Rs. 5 per day,and additional diet charges of Rs. 3 per meal. Operations range between Rs. 10-120, deliveries arefree of charge for up to two, and Rs. 10 charged for any further cases. Special investigations rangefrom Rs. 5 to Rs. 60. In-patient collections totaled Rs. 9.7 million in 1996.

9. Client surveys indicate a willingness to pay user charges at all levels of health care,provided satisfactory quality is achieved and maintained in both clinical services and supportfacilities/amenities throughout the system. However, performance in terms of cost recovery hasbeen limited mainly because of (i) difficulties in assessing income levels to implement the povertybased exemption criteria; and (ii) staff being both insufficient for, and indifferent to, the actualexecution of the policy.

New Proposal for Cost Recovery

10. A new proposal for increased user charges has been drawn up for Maharashtra, and this isdetailed in Table 1. Further, some specific measures to tackle the problems of targeting andinefficient administration have been developed. Measures for effectively implementing an income-pegged exemption criterion include:

* using cards to identify beneficiaries below the poverty line - these cards could be specificallydesigned to classify targeted populations, or existing need-based cards may be used, e.g. rationcards. This classification would be reviewed periodically to capture any changes in povertystatus;

* geographical targeting of an entire region where the majority of the population isdisadvantaged;

* patient selection may be allowed between free or paid facilities, with the latter merely havingmore amenities without any difference in quality of care; and

* in a limited number of cases (not to exceeded 15%) staff of an institution may make rulings oncases for exemption.

I1. It is proposed that 100 per cent of total revenue raised is to be retained at the point ofcollection, and used locally as non-salary expenditure for improving the quality of services -- e.g.infrastructure and equipment maintenance, and supply of drugs. Underutilized facilities may bemade available at subsidized rates for private practice, providing additional earnings, and at thesame time, ensuring operation at full capacity. Also, to stay abreast with general price increases,

48

Annex 6Page 3 of 7

charges levied for various services would be reviewed every two years.

12. The policy of plowing back revenue at its source would improve the work environment,and uplift staff morale. Other measures to promote staff performance have also been suggestedwithin the process of cost recovery: a system of awards and incentives to improve individualperformance, and transparency in finance and accounting to enhance confidence in the institutionalstructure. To facilitate the latter, implementation of the scheme wvould be monitored regularly at alllevels -- each institute would have a single collection point for user charges. Thlis would preventleakage and would also be convenient for patients. These accoulits would be scrutinized daily byan AO, weekly by a RMO; montlily by a Civil Surgeon, and finally, reviewed at Hospital VisitingCommittee meetings. Managerial decentralization is, in fact, to be carried out througlhout the healthsystem, along with extensive augmentation of techniical skills through a comprehensive trainingcomponent, quality assurance program (including clinical and referral protocols), IEC and effectivesocial marketing, and MIS. All these should further support enhancement of staff morale andperformance, and improve overall quality of health services.

Table 1. Proposed Revision of User C'harges

Services Existing Proposed changesCharges CHC 50 bed 100 bed SDH DHfor DH SDH Cat. A Cat. B Cat. A Cat. B

OPD registration (week) 2 2 2 2 2 2 2In-door charges (daily) 5 5 5 10 5 10 5Diet charges (per meal) 3 30 10 30 10Operations:(a)major (w/anaesthesia) 120 25C 150 250 150(b)minor (w/anaesthesia) 50 10C 75 100 75(c)minor (w/o anaesthe.) 10 25 20 25 20Deliveries:(a) up to two fully subsidizedl(b) 3+ 20 100 50 100 50Nursing home charges:(a) general wards 15 40 30 50 40(b) private room 80 100 80 100 80Ambulance charges:(a) return/km 2 2 2 2 2 2 2(b) waiting/hr 20 20 20 20 20 20 20Investigations:(a) blood 5 1C 5 10 5(b) urine/stool 10 15 10 15 10(c) X-ray 20 50 25 50 25(d) ECG 30 60 50 60 50(e) ENT check-up 10 25i 20 25 20(f dental check-up 10 2'i 20 25 20Note:CHC = Community health center Cat A = rooms with "luxury amenities"SDH = Sub-divisional hospital Cat. B = rooms have fewer amenitiesDH = District hospital

49

Annex 6Page 4 of 7

13. It is not expected that the above measures would lead to any strong adverse impact onoverall demand for health services. There is good evidence to suggest that there is still substantialscope to increase certain charges before costs will approach those found in the private sector.

Potential Revenues from Revised User Charges

14. An indicative example is developed of the potential revenue that could be generatedthrough the revision and enhancement of user charges.

Paying beds

15. Two sets of projections are made here to illustrate the potentiality. Table 2 indicatesadditional revenues that could be earned if the revised rates of user charges were to be implementedrigorously for paying beds. Comparing current cost recovery with this in the last year of the projectindicates a five-fold increase in revenue, due to both higher user charges as well as additional(paying) beds. Separating the two, if user charges where levied at old rates, with full collections,revenue would be about Rs. 4 million annually; an increase in the number of paying beds addsanother one million.

Table 2. Project Revenue from Paying Beds*

Type of Current Project endfacility No. of beds Paying beds Revenue (Rs) Additional beds Paying beds Revenue

(Rs)SDH 50 beds 1590 0 0 1060 530 821500

SDH 100 beds 690 0 0 1610 230 713000(Category A) l

SDH lO0 beds 690 0 0 1610 345 534750(Category B) l

Dti 100 beds 7035 175 271250 0 500 1550000(Category A) ____l

DH 100 beds 7035 325 504000 0 1000 1550000(Category B) IlI_I_ I

Total 500 775250 2605 5169250

* calcuilated iusing average annutal occupancy of310 days

Surgeries

16. Table 3 calculates revenue from surgeries. The total average number of outpatients inMaharashtra is 962,550 annually. If the poverty criterion were applied, approximately 30 per centwould be exempt from user charges. The remaining 673,785 are divided up using the proportion ofpaying beds at various levels--subdivisional and district (for both categories of beds). Assumingthen that one fourth of total surgeries are major, column six then calculates cost recovery fromsurgery at the revised rates of service charges. Column five uses the old rates, as well as the oldclassification, i.e. there is a single charge for each type of operation (see Table 1). Estimatesindicate about a 60 percent increase in revenue at the revised fees compared with earnings atexisting levels of user charges.

50

Annex 6Page 5 of 7

Table 3. Potential Revenue from Surgeries

Type of facility Total patients Major surgeries Minor surgeries; Current revenue Potential(Rs.) revenue (Rs)

SDH 100 (cat A) 74685 18671 56013 5041211 10269133SDH 100 (cat B) 112027 28007 84020 7561816 10502522DH OO(cat A) 162358 40589 121768 10959154 223242 02DH 100 (cat B) 324716 81179 243537 21918307 30442093Total 673785 168446 505339 45480488 73537950

The private sector

1 7. The interface between the public and the private sector provides another logical area ofimproving healthi outcomes while simultaneously generatinig some measure of cost recovery. Thisis particularly the case in India where private sector expenditure oii health is already large, about 78percent of total spending on healtlh. In Maharashtra, considerinig the strength of the private sectorin the urban areas, new ideas for collaboration are being explored. Innovative arranigements could,for example, include the contracting out of expensive capital and diagnostic equipment to privatedoctors at public facilities in the evening hours when outpatient services are closed at publicfacilities. If, for example, Rs. 50,000 per facility was raised annually by leasing out the use ofpathology testing equipment to private doctors and their outpatients in the State's approximately330 existing secondary facilities, about Rs. 17 million could be generated. Such an arrangementwould assist in improving health outcomes, maximize use of expensive capital equipment, helpdefray costs and strengthen a perception of quality in the public hospital system.

1 8. A clear, fair and simple exemptions policy is required to protect the poor, promote goodhealthi and to ensure overall community acceptance of user charges. None of the above illustrativerevisions and additions would apply to promotive or preventive interventions, such asimmuniizationis, or to any services at the primary health level. In all cases, however, the poor areexempted or heavily subsidized.

Summary

19. Wages absorb the bulk of costs, and with limited cost recovery, budgets for maintenanceand consumables are squeezed, unidermining quality and credibility of the systern. Reasonable costrecovery charges can contribute to the maintenance of essential supplies, equipment, and qualitywithin the health system, thereby improving overall health outcomes, financial sustainability andoverall credibility. For this to be effective, user charges should not be a substitute for adequatebudget support from the Government, but should supplement it. In addition, for user charges to beacceptable, there should be clear and simple exemptions for the poor, and a clear link betweencharges and quality improvements. The best way for that to occur is for the charges to becollected, and utilized, at the source. Experience in other states iniplementing State Health SystemsDevelopment Projects shows that retention of funds at the facility level is resulting in substantialimprovement in operations and maintenance functions.

20. Various options are available that will help defray costs and put the health system on asustainable and viable basis. The simple measures canvassed above are included in the tablebelow.

51

Annex 6Page 6 of 7

Table 3. Summary of Potential Revenue from Cost Recovery

Type of charge Annual cost recovery(Rs. Million)

Paying beds 5.1Surgery charges 73.5Leasing out to private sector 17.0Total 95.6

21. The revised plan drawn up for user charges in Maharaslitra has all the principle features ofan effective system of cost recovery. It essentially mixes increased user charges with a moredetailed, amenities-based categorization of services. This is depicted by the higher costs ofsurgery, with the raise linked to type of hospital room occupied by the patient. Thus the focus ofuser charge is on services witlh low cost-effectiveness, and partial in-patient cost recovery rooted inan ability-to-pay criterion that protects the poor. Charging a nominal fee across the board foroutpatient services, besides contributing to income, will help improve record keeping. Leasingfacilities to the private sector would allow additional resources to be spent on qualityimprovements. If administered to full potential, additional user charges from paying beds, surgeryand leasing to the private sector could potentially generate about Rs. 95 million per year; this wouldamount to almost 30 percent of required funds to cover recurrent costs at project closure.Importantly, in addition to supplementing public resources available for health, the plan for costrecovery also addresses service quality and staff performance by promoting transparency in thecollection system, establishing a link between revenue collection and retention/distribution, andearmarking these for non-salary expenditures.

Conclusions

22. User charges should supplement, and not substitute for, an adequate level of funding fromthe healtlh budget. Revenues are fungible, i.e. can be used for many purposes and there is nobenefit to public health outcomes if increased revenue collection is simply followed by reductionsin proper funding.

* Substantial cost recovery is not possible, nor even desirable, because of the high percentage ofpoor who use the public health system in Maharashtra; approximately 30 - 35% of thepopulation lives below the poverty line, and 9% of the state belong to SC or ST.

* Cost recovery rates should not be pitched at such a level that they induce overservicing bysuppliers and they should not result in reduction in demand for beneficial health services byclients. Implementation of user charges should concentrate on voluntary services such asupgraded rooms or wards and on medical services with relatively low cost effectiveness. Ratesshould recover a part of the costs of inpatient hospital services from those patients who canafford to pay, while protecting the poorest sections of society. Furthermore, rates should notnormally exceed rates that are applicable in the private sector.

* Cost recovery measures should be carefully targeted, including to visible items that the publicclearly recognize as promoting their own health outcomes (for example, drugs) or which areless cost effective interventions (for example, private hospital rooms).

52

Annex 6Page 7 of 7

# Exemptions policy should be clearly stated so as to protect the poor and encourage healthpromotive activities. Clarity and simplicity in an exemptions policy also eases costs ofadministration and reduces opportunities for corruption.

* Cost recovery rates must be linked to genuine differences in quality. Raising quality involvesits own costs, for example increasing the nurse to patient ratio, which should be borne in mindwhen setting rates. Consideration should also be given to the timing and phasing of costrecovery measures as clients will be more prepared to make a contribution for services if theysee that service norms, and quality in general, have improved first.

* Payment, and collection, of cost recovery fees should be designed in such a way that they aresimple and not burdensome for patients and administrators alike.

* There are innovative ways for the public health system to interact with the lprivate sector (e.g.sharing of facilities) and this has the potential for cost recovery measures. In the longer term,health insurance is an area worth examining.

* Revenues obtained, or at least a substantial portion of them, should be retained at the collectionpoint and then used to directly improve or maintain facilities. Supplementing non-salaryrecurrent expenditures (e.g. drugs, consumables, basic maintenance) improves health outcomesand restores credibility to the public health system. Reviewing collection rates and theirapplication should be institutionalized.

53

Annex 7Page 1 of 8

Maharashtra Health Systems Development ProjectProcurement and Disbursement Arrangements

Procurement Arrangements

The procurement arrangements to be undertaken by the project will be the responsibility of theimplementing agency, the Public Health Department of the Government of Maharashtra, and in particularthe Project Management Cell (PMC). The PMC will be responsible for all procurement activities eitherdirectly or through the hiring of procurement agents or consultants to assist it. The PMC is beingstrengthened through the setting up of a Design and Engineering Unit as a key functional area which willbe responsible for the procurement of civil works. For civil works, procurement will be supervised by aSuperintending Engineer with assistance from a Senior Architect, two Executive Engineers, two JuniorArchitects and other supporting staff at the PMC level as well a an engineering wing in each districtdeputed to the project from the Public Works Department. This would help to get the procurement of civilworks off to a good start. For the procurement of equipment, instrument and furniture, an AdditionalDirector Health Systems in charge of the Technical and Biomedical Wing of the PMC will superviseprocurement activities with the support of adequate technical and clerical staff. For all other procurement,such as medicines, MIS/IEC materials, other supplies, vehicles, consultants and services, the PMC willdirectly manage the procurement activities with the assistance of dedicated staff working on procurementmatters.

A. Civil Works. The construction program encompasses the renovation/extension works forexisting 25 District Hospitals, 23 Sub-Divisional Hospitals with 100 beds, 53 Subdivisional Hospitals with50 beds, 35 existing Community Health Centers which are scattered throughout the state. Also, theprogram will cover the renovation/extension works for existing staff quarters and the construction of newstaff quarters, a new building housing the staff of the Public Health Department, 6 equipment maintenanceworkshops at the Divisional level and an IEC bureau. The average base cost of civil works, excluding staffquarters, is US$ 0.64 million for a District Hospital (DH), US$ 0.58 million for each SubdivisionalHospital (SDH) with 100 beds, US$0.35 million for each Subdivisional hospital (SDH) with 50 beds, US$0.07 million for a Community Health Center (CHC); US$0.23 million for equipment workshop and IECbureau and US$ 2.8 million for the Headquarters building of the PHD.

The scattered number of institutions and the low cost of renovation/extension works will notattract foreign bidders to participate. Therefore, ICB will not be suitable and NCB will be the appropriateprocedure to be used as it may attract national firms to participate. However, the remote location of someinstitutions and the low cost of works of some call for allowing such works to be procured under ForceAccount, direct contracting and comparison of price quotations obtained from at least three qualifiedcontractors eligible under the guidelines. However, Force Account and direct contracting will be limited to5% and 2% of the civil works costs respectively. Past experience has shown the need in certain cases tosupport the NCB with such procedures as indicated above. It is anticipated that most of the DH, SDH with100 beds and some of the SDH with 50 beds will require prior review estimated to cost Rs 2,000 million orUS$ 43 million representing 27% of total project costs.

B. Equipment. Procurement of equipment would be phased on an annual basis in accordancewith the requirement of the project activities. Phasing of the procurement of equipment will be closelysequenced with the civil works program. Procurement of large and more expensive equipment that wouldbe bulked together would be purchased through ICB procedures. These include items such as x-raymachines, ultra-sound scanners, endoscopes, anesthetic equipment, blood-gas analyzer, etc. Procurementof other minor equipment expected to be below the US$ 200,000 threshold will be undertaken throughNCB procedures. These include such items as computers, lab supply, glassware, etc. About 21% by valueof all procurement of equipment is expected to be below US$ 30,000, which will be procured through othermethods of procurement.

54

Annex 7Page 2 of 8

C. Vehicles. The main types of vehicles to be procured will be jeeps and ambulances.Procurement methods for vehicles will be ICB, when bulk purchased for packages over US$ 100,000equivalent. This would comprise about 75% of all vehicles. The remaining vehicles will be procured overthe length of the project period in packages equivalent to US$ 100,000 or less for which the method ofprocurement will be national shopping (DGS&D rate contracts are accepitable under national shopping).

Procurement Methods (Table A)

IDA financed works, goods and services will be procured using Bank guidelines of January 1995,and revised September 1997. The procurement methods applicable to the various expenditure categoriesare summarized in the Table A below. For procurement under the project, the Bank's standard biddocuments shall be used.

* Contracts for civil works estimated to cost over US$ 45,000 equivalent will be carried outfollowing National Competitive Bidding (NCB) procedures.

* Contracts for civil works estimated to cost equivalent of US$ 45,000 or less will be procuredfollowing procedures acceptable to the Association:

(a) under quotations solicited from at least three qualified contractors;(b) by direct contracting; or(c) through Force Account as a last resort.

G Contracts for the purchase of goods valued at more than US$ 200,000 equivalent each would beprocured through International Competitive Bidding (ICB).

Contracts valued more than US$ 30,000 but less than US$ 200,000 may be awarded on the basisof NCB procedures acceptable to IDA. Other items or groups of items valued US$ 30,000equivalent or less per contract may be procured on the basis of national shopping procedures.Other items or small groups of items such as supply of furniture, instruments, medicines andMIS/IEC materials valued at less than US$ 5,000 equivalent per contract may be procured throughdirect contracting or national shopping procedures.

* Contracts for maintenance of buildings and equipment may be awarded througlh:

(a) Direct Contracting; or(b) Force Account.

Prior Review Thresholds (Table B)

* All contracts for goods with an estimated value of more than US$ 200,000I equivalent.* All contracts for works with an estimated value of more than US$ 300,000 equivalent.* The first two NCB contracts each for goods and works regardless of the value.* Consultants' contracts with an estimated value of US$ 100,000 or more for firms and US$

50,000 or more for individuals.

55

Annex 7Page 3 of 8

Table A. Project Costs by Procurement Arrangements(in US$ Million equivalent*)

Procurement Mlethod

International National Other ** rotalCompetitive Bidding Competitive

Bidding

CIVIL WORKS 63.3 7.0 70.4

Civil Works (57.0) (6.3) (63.3)

GOODSFurniture 3.1 0.9 4.0

(2.8) (0.8) (3.6)Equipment & Instruments 10.5 3.9 3.4 17.8

(9.4) (3.5) (3.1) (16.0)Vehicles 2.5 0.7 3.2

(2.2) (0.6) (2.8)

Medicines 2.1 (0 5 2.6

(1.8) (0.5) (2.3)Other Supplics 2.7 0.7 3.4

(2.4) (0.6) (3.0))

MIS/IEC Materials 1.2 0.3 1.50. I) (0.3) (1I4)

CONStILTANTS AND SERVICES

Project Preparation and 9.8 9.8Implementation (9.8) (9.8)(including Training, Fellowshipsand Workshops)

Institutional Development 11.3 11.3

(including Consultants. Studics. (11.3) (11.3)Professional Services and NOOs)

MIISCELLANEOtISSalaries of Additional Staff 16.8 16.8

(10.1) (10.1)Operational Expenditures 12.5 12.5

(7.5) (7.5)

Building Maintenance 2.0 2.0(1.2) (1.2)

Equipment Maintenance 2.8 2.8

(1.7) (1.7)TOTAL 13.0 76.3 68.8 158.1

(11.6) (68.6) (53.8) (134.0)

* Amounts may not add up due to rounding** "Other" includes Direct Contracting. comparison of price quotations and Force Account.

56

Annex 7Page 4 of 8

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Category Contract Value (Threshold) Procurement Method Contracts Subject to PriorReview

WORKS _Civil Works Civil works estimated to cost the

equivalent of US$45,000 or lessper contract, up to an aggregatenot exceeding US$7.03 millionmay be executed by:(i) direct contracting up to an Direct Contracting Post review onlyaggregate not exceedingUS$1.40 million; or(ii) on the basis of comparison Solicitation of Three Post review onlyof price quotations obtained Bidsfrom at least three qualifiedcontractors eligible under theguidelines; or(iii) by Force Account as a last Force Account Post review onlyresort up to an aggregate notexceeding US$3.50 million in amanner satisfactory to theAssociation.

Civil works estimated to cost the National Competitive First two works contractsequivalent of over US$45,000 Bidding and all contracts aboveper contract up to an aggregate US$300,000 by priornot exceeding US$63.32 million. review in accordance with

paragraphs 2 and 3 ofAppendix 1 to theGuidelines. All others bypost review.

2. GOODS(a) Furniture, US$30,000 or less per contract, National Shopping Post review onlyequipment, up to an aggregate not Procedures (includesinstruments, exceeding US$5.54 million DGS&D Ratemedicines, MIS & equivalent. Contracts)IEC materials andother supplies National Competitive First two contracts valued

More than US$30,000 per Bidding at more than US$ 30, 000contract, up to an aggregate not but upto US$200,000exceeding US$13.01 million eqluivalent each andequivalent. contracts valued at more

than US$ 200,000 each byprior review inaccordance withparagraphs 2 and 3 ofAppendix 1 to theGuidelines. All others by

_ ost review.

57

Annex 7Page 5 of 8

Expenditure Category Contract Value (Threshold) Procurement Method Contracts Subject to PriorReview

Over US$200,000 equivalent per International Contracts valued at morecontract. Competitive Bidding than US$200,000

equivalent each by priorreview in accordance withparagraphs 2 and 3 ofAppendix I to theGuidelines.

Less than US$5,000 per contract Direct contracting or Post review only.up to an aggregate not national shoppingexceeding US$0.28 million. procedures

(b) Vehicles US$ 100,000 equivalent or less National shopping Post review only.per contract up to an aggregate procedures (includesnot exceeding US$0.70 million. DGS&D rate contracts

also)

More than US$100,000equivalent per contract up to an International Prior review inaggregate not exceeding Competitive Bidding accordance with Paras. 2US$2.47 million. & 3 of Appendix 1 to the

Guidelines.3. SERVICES

(a) Contracts Up to an aggregate not Quality and Cost Prior review of allestimated to cost exceeding based Selection consultant contracts shallmore than US$2.12 million. (QCBS) be governed by theUS$200,000 provisions of paragraphs

(i), (ii), (iii) and (iv) below:

(b) Studies, US$200,000 or less per contract, QCBS with Short List (i) With respect to eachTraining & up to an aggregate not (could comprise of contract for theWorkshop, exceeding domestic firms only if employment of consultingFellowship, US$6.34 million. foreign consultants are firms estimated to cost theConsultants, not interested.) equivalent of US$200,000Procurement or more, the proceduresAgents, set forth in paragraphs 1,2Professional lother than the third sub-Services Contracts paragraph of paragraphor other contracts 2(a)] and 5 of Appendix Iequivalent of to the ConsultantUS$100,000 or Guidelines shall apply.more up toUS$200,000equivalent

58

Annex 7Page 6 of 8

Expenditure Category Contract Value (Threshold) Procurement Method Contracts Subject toPrior Review

(c) NGO Services US$l 00,000 or less per (i) QCBS with Short (ii) With respect to eachand other contract, up to an aggregate List (could comprise of contract for theconsultancy not exceeding US$12.68 domestic firms only if employment of consultingcontracts million. foreign constiltants are firms estimated to cost

not interested.) the equivalent ofUS$100,000 or more, but

(ii) Single Source less than the equivalent ofSelection - (acceptable US$200,000, thefor tasks repiresenting a procedures set forth innatural continuation of paragraphs 1,2 lotherassignment, when rapid than the second sub-selection essential, for paragraph of paragraphvery small assignments, 2(a)] and 5 of Appendix Ior when only one firm to the Consultantis qualified. Guidelines shall apply.

(iiii) With respect to eachcontract for theemployment of individualconsultants estimated tocost the equivalent ofUS$50,000 or more, thequalifications, experience,terms of reference andterms of employment ofthie consultants shall befurnished to theAssociation for its priorreview and approval.The contract shall beawarded only after thesaid approval shall havebeen given.

All other cases: PostReview

Disbursement Arrangemnents

Allocation of loan proceeds

The allocation of loan proceeds is shown in Table C, Annex 7. Table A, Annex 7 summarizes theproject items, their related cost estimates and proposed methods of procurement. Table B, Annex 7summarizes the threshold for procurement methods and prior review. Project-related procurement ofgoods and works would follow procedures acceptable to IDA using International Competitive Bidding(ICB), National Competitive Bidding (NCB) documents and National Shopping (NS) proceduresacceptable to the Association. Project-financed consultants would be recruiited according to Guidelines onthe Use of Consultants by World Bank Borrowers. Procurement of equipment, vehicles, and goods wouldbe bulked to the extent possible and would generally be procured as follows: (a) individual contracts

59

Annex 7Page 7 of 8

estimated to exceed US$ 200,000 would be procured using ICB (although there are no plans at present forindividual purchases greater than US$ 200,000); (b) individual contracts with an estimated value betweenUS$ 30,000 and US$ 200,000 would be procured using NCB; and (c) individual purchases of off-the-shelfitems through rate contracts or prudent shopping procedures would be acceptable in packages of less thanUS$ 30,000 up to the aggregate limits as outlined in the procurement tables.

Disbursements on the basis of statements of expenditure are: (a) incremental operating costs; (b)consultants' services under contracts not exceeding US$ 100,000 equivalent in the case of firms and US$50,000 equivalent in the case of individuals; (c) contracts for goods not exceeding US$ 200,000 equivalenteach; (d) contracts for vehicles not exceeding US$ 100,000 equivalent each. Given the large size of theCredit and the disbursement period (72 months), a special account of US$ 8 million equivalent will beused; and (e) contracts for works not exceeding US$ 300,000 equivalent each.

Retroactive Financing

Retroactive financing, effective after March 31, 1998, would be provided for expenditures whichifollow the standard features of eligibility. This would include eligible project related expenditures;procurement following standard Bank guidelines; and activities accepted as consistent with appraisedstandards. The government identified the following items for which they would claim retroactive financingamounting to about US$1.36 million equivalent (1% of the proposed Credit): preparation activitiesincluding facilities and equipment surveys, preparation of procurement documents and model plans,studies, information technology equipment, vehicles and related operational expenditures.

Financial Management System and Auditing Arrangements

The current financial management reporting system is weak and not well developed, and focusesmore on book-keeping and expenditure control. Staff are not trained in the area of a managementaccounting system that produces costing and management accounting information in a timely manner forsound managerial decision making. A Finance and Audit Wing has been set up under the project, and as aCondition of Negotiations the head of this Wing has been designated to pay early attention to these issues.Initially, because of the need to develop institutional capacity, the project will use existing disbursementmechanisms until it achieves the Loan Administration and Change Initiative (LACI) compliance capability.Understanding was reached withi GOM that it would develop and implement a financial systemnot later than December 3 1, 1999. After the development and implementation of the financialmanagement system, GOM would take the necessary steps to enable conversion of thedisbursements to the new Project Management Report (PMR) based disbursements as soon aspossible. The PMC will design, develop and maintain a computerized Project Financial ManagementSystem capable of providing timely and reliable information to PHD and project management staff tomonitor the project's progress towards it agreed objectives based on the following guidelines: (a) a separatebudget head with appropriate sub-heads would be created under the Annual Budget document of GOM tocapture all project related expenditures; (b) the accounting system would reflect component-wise andcategory-wise expenditures, produce financial reports that show actual versus budgeted expenditures forthe current period and to date, and provide costing information. It would also capture informationregarding the method of procurement so that the limits of procurement laid down in the ProcurementSchedule in the Project Agreement are properly monitored; and (c) the Project Financial ManagementSystem will map the financial data with the physical data for measuring the performance of the project.PMC will prepare and furnish to the Bank a project financial report on a quarterly basis.

Project Financial Statements so compiled would be audited annually in accordance with standardsof auditing acceptable to the Bank by an independent auditor The audit of project accounts would includean assessment of the adequacy of accounting and internal control systems, ability to maintain adequatedocumentation for transactions, and eligibility of expenditures for Bank financing. The audited ProjectFinancial Statements including a summary of Statement of Expenditure disbursements together with

60

Annex 7Page 8 of 8

auditor's opinion on it would be submitted to the Bank not later than six months after the close of eachfiscal year. The audit report on Special Account (SA) maintained by the Department of Economic Affairswould include a summary of SA transactions and the closing balance held by the Reserve Bank of India.The audit report on SA would be submitted to the Bank not later than six months after the close of eachfiscal year.

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in UIS$ IDA Financing PercentageMillion

Civil Works 63.32 90%

Furniture, Equipment, Vehicles and 29.17 100% of foreign expenditures,Supplies 100% of local expenditures

(ex-factory cost); 80% oflocal expenditures for otheritems procured locally

Includes:US$2.29 MedicinesUS$3.60 FurnitureUSS16.02 Medical and Otlher EquipmentUS$3.03 Otlier SuppliesUS$2.84 VelhiclesUS$1.39 MIS/IEC Materials

Training, Workshops (IDA funded), 21.14 100%Studies,Consultants and Professional Services

Includes:USS11.32 Professional Services, Studies,ConsultantsUS$9.82 Training, Fellowslhips, Workshops

Incremental Operating and Maintenance 20.21Costs 80% of locall expenditures

incurred until March 31, 2001;Includes: 55% of expenditures incurredUS$10.08 Salaries of Incremental Staff from April 1, 2001 until MarchUSS7.24 OperationalExpenses 31, 2003; and 25% ofUS$1.15 Building Maintenance expenditures incurredUS$1.74 Equipment Maintenance thereafter.

TOTAL 134.0

61

Annex 8

Maharashtra Health Systems Development ProjectProject Processing Budget and Schedule

A. Project Budget (US$000) Planned ActualPre-appraisal 100.8 100.8Appraisal 177.1 177.1Negotiations 10.6 10.6

B. Project Schedule Planned ActualTime taken to prepare the project 26 26First Bank mission (identification) 2/28/97 2/28/97Appraisal mission departure 6/12/98 7/15/98Negotiations 10/19/98 10/26/98Planned Date of Effectiveness March 1999

Prepared by: Public Health Department, Government of Maharashtra

Preparation assistance: Consultants funded by project preparation funds were David Porter(Health Systems and Equipment Specialist); Christine Giles (Health Care ManagementSpecialist); Alaka Singh (Economist), Subash Chakravarty (Architect); and Roger Willey andSanjeev Aggarval (Health Care Waste Management Specialists).

Bank staff who worked on the project included: Tawhid Nawaz (Senior Economist, TeamLeader); Shreelata Rao-Seshadri (Social Development Specialist); Salim Habayeb (PrincipalPublic Health Specialist); Ian Anderson (Senior Economist); Maj-Lis Voss (Economist); RajKumar, Preeti Kudesia (Public Health Specialists); Hiroko Imamura (Senior Counsel); MamChand (Procurement Specialist); Sanjay Vani, Krishnaswami Radhakrishnan, Rajat Narula(Financial Analysts); and Lydia Maningas and Nina Anand (Staff Assistants). Peer Reviewerswere Robert Hecht and Eva Jarawan. The Sector Manager for Health, Nutrition and PopulationUnit in the South Asia Region is Richard Skolnik.

62

Annex 9Maharashtra Health Systems Development Project

Documents in the Project File

A. Project Implementation Plan

Directorate of Health Services and Public Health.Department, Government of Maharaslhtra, April1998. Maharashtra Health System Development Project. Muilbai.

July 1998. Maharashtra Health System Developmenit Project. Mumbai.

, July 28, 1998. Maharaslitra Health System Development Project. Mumbai.

, October 12, 1998. Maharashtra Health System Development Project. Mumbai.

Public Health Department, Government of Maharashtra, 1996. Health Status: Maharaslhtra State.Mumbai.

B. Bank Staff Assessments

IDA: Third State Health Systems Development Project. Project Concept Document. February1997.

IDA Idenitification/Preparation Mission: Maharashtra Health Systems Development Project.Aide-Memoire, July 1997.

IDA: Maharashtra Health Systems Development Project. Project Information Document.November 1997.

IDA Preparation/Appraisal Mission: Maharashtra Health Systems Development Project. Aide-Memoire, June 1998.

IDA Appraisal Mission: Maharashtra Health Systems Development Project. Aide-Memoire,July 1998.

Nawaz T., Rao-Seshadri, S., and Hinchliffe, K, May 1995. India: Policy and Finance Strategiesfor Strengthening Primary Health Care Services. World Bank, Washington

Nawaz T., Rao-Seshadri, S., and Hinchliffe, K, February 199 J. New Directions in Health SectorDevelopment at the State Level: An Operational Perspective. World Bank, Washington.

C. Other

Deutsche Geselischaft fur Technische Zusammenarbeit (GTZ), June 1998. ]Plan of Operationsfor the Basic Health Programme, Maharashtra. Pune.

63

Annex 10Page I of 4

STATEMENT OF LOANS AND CREDITS

Status of Bank Group Operations in IndiaOperations Portfolio

(As of October 29, 1998)

DifferenceBetween expected

Original Amount in US$ Millions and actualFiscal dcisbursements a/

Project ID Year Borrower PurposeIBRD IDA Cancel- Undis- Original Form

lations bursed Revised

Number of Closed Projects: 322

Active ProjectsIN-PE-10496 1998 GOI ORISSA HEALTH SYS 0.00 76.40 0.00 77.81 0.00 0.00IN-PE-10561 1998 GOI NATL AGR TECHNOLOGY 96.80 100.00 0.00 197.90 0.00 0.00IN-PE-35160 1998 GOI HARYANA POWER APL-I 60.00 0.00 0.00 53.01 5.00 0.00IN-PE-35169 1998 GOVERNMENT OF INDIA U.P. FORESTRY 0.00 52.94 0.00 48.75 -.33 0.00IN-PE-35824 1998 GOVERNMENT OF INDIA UP DIV AGRC SUPPORT 79.90 50.00 0.00 130.86 0.00 0.00IN-PE-35827 1998 GOI WOMEN & CHILD 0.00 300.00 0.00 304.80 0.00 0.00

DEVLPMIN-PE-38021 1998 GOI OPEP III (BIHAR) S.00 152.00 0.00 147.31 7.78 0.00IN-PE-49385 1998 GOVERNMENT OF INDIA AP ECON 301.30 241.90 0.00 547.06 0.00 0.00

RESTRUCTURININ-PE-49477 1998 GOVERNHENT OF INDIA KERALA FORESTRY 0.00 39.00 0.00 39.45 0.00 0.00IN-PE-50638 1998 UP BASIC ED II 0.00 59.40 0.00 46.97 -2.13 0.00IN-PE-9979 1998 CIL COAL SECTOR REHAB 530.00 2.00 0.00 515.00 15,88 0.00IN-PE-10473 1997 TUBERCULOSIS 0.00 142.40 0.00 129.88 32.69 0.00

CONTROLIN-PE-10511 1997 GOI MALARIA CONTROL 0.00 164.80 0.00 157.29 9.93 0.00IN-PE-10531 1997 GOI REPRODUCTIVE 0,00 248.30 0.00 238.82 27.48 0.00

HEALTH1IN-PE-35158 1997 GOI AP IRRIGATION III 175.00 150.00 0.00 262.02 11.20 0.00IN-PE-36062 1997 GOI ECODEVELOPMENT 0.00 28.00 0.00 23.34 .81 0.00IN-PE-43728 1997 GOI ENV CAPACITY BLDG 0.00 50.00 0.00 44.45 5.84 0.00

TAIN-PE-44449 1997 RURAL WOMEN'S DEV 0.00 19.50 0.00 18.49 5.36 0.00IN-PE-45600 1997 GOI TA ST'S RD INFRA 51.50 0.00 0.00 40.27 13.77 0.00

DEVIN-PE-49301 1997 GOI A.P. EMERG. CYCLONE 50.00 100.00 0.00 137.55 31.20 0.00IN-PE-9995 1997 GOI STATE HIGHWAYS 350.00 0.00 0.00 335.31 13.31 0.00

I(AP)IN-PE-10480 1996 GOVT OF INDIA B SEWAGE DISPOSAL 167.00 25.00 0.00 130.02 72.26 0.00IN-PE-10484 1996 GOI UP RURAL WATER 59.60 0.00 0.00 53.79 5.38 0.00IN-PE-10485 1996 GOVT OF INDIA HYDROLOGY PROJECT 0.00 142.00 0.00 106.37 39.64 0.00IN-PE-10529 1996 GOI ORISSA WRCP 0.00 290.90 0.00 181.25 -8.26 0.00IN-PE-35170 1996 GOI ORISSA POWER SECTOR 350.00 0.00 0.00 332.67 50.17 0.00IN-PE-35821 1996 GOI DISTRICT PRIM EDUC 0.00 425.20 0.00 355.32 23.09 0.00

2

IN-PE-35825 1996 GOI STATE HEALTH SYS II 0.00 350.00 0.00 290.75 71.11 0.00IN-PE-39935 1996 IL4FS ILFS-INFRAS FINANCE 200.00 5.00 0.00 179.66 71.00 0.00IN-PE-43310 1996 GO COAL ENV&SOCIAL 0.00 63.00 0.00 52.00 10.20 0.00

MIT.IN-PE-10461 1995 GOI MADRAS WATER SUP II 275.80 0.00 189.30 64.87 127.13 5.79IN-PE-10463 1995 GOI INDUS POLLUTION 143.00 25.00 0.00 147.14 63.70 0.00

PREVIN-PE-10464 1995 GOI DISTRICT PRIMARY ED 0.00 260.30 0.00 146.25 27.44 0.00IN-PE-10476 1995 GOI TAMIL NADU WRCP 0.00 282.90 0.00 232.86 99.13 0.00IN-PE-10489 1995 GOVERNMENT OF INDIA AP 1ST REF. HEALTH 0.00 133.00 0.00 86.21 18.08 0.00

SIN-PE-10503 1995 AGRIC HUMAN RES 0.00 59.50 0.00 38.85 26.70 0.00

DEVT

IN-PE-10506 1995 GOI H FORESTRY 0.00 58.00 0.00 28.03 7.12 0.00IN-PE-10522 1995 GOI. ASSAM RURAL INFRA 0,00 126.00 0.00 105.47 37.24 0.00IN-PE-10563 1995 GOVT OF INDIA FINANCIAL SECTOR 700.00 0.00 200.00 326.80 -173.20 0.00

DEVIN-PE-10448 1994 GOT FORESTRY RESEARCH 0.00 47.00 0.00 25.98 36.52 1.66

EDIN-PE-10449 1994 GOI ANDHRA PRADESH 0.00 77.40 0.00 35.21 14.02 0.00

FORESTRYIN-PE-10455 1994 GOI BLINDNESS CONTROL 0.00 117.80 0.00 90.66 34.79 0.00IN-PE-10457 1994 GO POPULATION IX 0.00 88.60 0.00 55.92 14.74 0.00IN-PE-34162 1994 MAHARASHTRA 0.00 246.00 29.19 13.66 38.98 9.65

EARTIQUA

64

Annex 10Pagc 2 of 4

DifferenceBetween expected

Original Amount in USS Millions and actualFiscal disbursements a/

Project ID Year Borrower PurposeIBRD IDk Cancel- Undis- Original Form

lations bursed Revised

IN-PE-9870 1994 GOVT. OF INDIA CONTAINER TRANSPORT 94.00 0.00 0.00 81.02 71.03 0.00IN-PE-9964 1994 GOI WATER RES CONSOLID 0.00 258 00 0.00 160.66 70.86 0.00

HIN-PE-10407 1993 GOI ADP - RAJASTHAN 0.00 106.00 0.00 34.52 28.12 0.00IN-PE-10408 1993 GOI BIHAR PLATEAU 0.00 117.00 0.00 71.59 77.19 0.00

IN-PS-10410 1993 GOI RENEWABLE RESOURCES 75.00 115. 00 0.00 76.18 98.46 0.00IN-PE-10416 1993 PGC POWER SYSTEM 350.00 0 00 0.00 120.00 102.06 0.00IN-PE-10418 1993 GOI KARNATAKA WS 4 0.00 92.00 0.00 515.98 51.44 0.00

ENV/SIN-PE-10423 1993 NTPC NTPC POWER 400.00 0.00 0.00 75.81 72.55 0.00

GENERATIOIN-PE-10424 1993 GOI NATL LEPROSY 0.00 85.00 9.07 35.69 38.49 5.38

ELIMINAIN-PE-9955 1993 GOI UTTAR PRADESH BASIC 0.00 165.00 0.00 3!9.08 -1.71 -

125. 23

IN-PE-9959 1993 GOI RUBBER 0.00 92.00 36.58 27.39 56.02 6.82IN-PE-9961 1993 GOI UP SODIC LANDS 0.00 54.70 0.00 21.98 12.57 0.00

RECLAIN-PE-9977 1993 GOI ICDS II (BIHAR C 0.00 194.00 0.00 14:3.05 90.99 97.46

MPp)IN-PE-10390 1992 MAHARASHTRA 0.00 124.00 16.18 47.14 62.03 41.36

FORESTRY _IN-PE-10393 1992 GOVT OF INDIA AIDS PREVENTION AND 0.00 84.00 0.00 13.11 13.46 0.00IN-PE-9921 1992 GOI C STATES SHRIMP & FISH 0.00 85.00 48.51 113.39 65.12 13.81

CULTURIN-PE-9946 1992 GOI NAT. HIGHWAYS II 153.00 153.00 0.00 177.39 83.26 0.00IN-PE-9963 1992 GOI POPULATION VIII 0.00 79.00 0.00 6:1.63 51.07 0.00IN-PE-9877 1991 GOI DAM SAFETY 23.00 130.00 50.03 50.01 98.05 10.02IN-PE-9906 1991 GOI IND POLLUTION 124.00 31.60 0.00 20.03 10.72 0.00

CONTROIN-PE-9958 1991 GOVT OF TAMIL NADU AGR.DEV.I (TN) 20.00 92.80 0.00 25.68 24.90 0.00IN-PE-9988 1991 GOI TECH EDUC II 0.00 307.10 51.37 94.96 144.89 49.25IN-PE-9860 1990 GOI WTRSH PLAINS 7.00 55.00 7.00 8.59 10.34 3.34IN-PE-9882 1990 GOI WTRSH HILLS 13.00 75.00 13.00 2:1.36 29.60 16.60IN-PE-9982 1990 GOI NOR REG TRANSM 485.00 0.00 0.00 194.40 194.39 0.00IN-PE-9869 1989 GOI NATHPA JHAKRI HYDRO 485.00 0.00 0.00 140.34 140.33 0.00IN-PE-9941 1989 GOI MAHARASHTRA POWER 400.00 0.00 62.67 36.66 99.34 24.87IN-PE-9990 1989 GOVT OF INDIA VOCATIONAL TRAINING 30.00 250.00 146.15 11;.86 157.70 6.70

Total 6,248.9 7,544. 859.05 8,446. 2,838.04 167.480 44 58

Active Prolects Closed Projects TotalTotal Disbursed (IBRD and IDA): 4,320.96 31,693.54 36,014.50

of which has been repaid: 202.63 9,919.63 10,122.26Total now held by IBRD and IDA: 12,731.61 21,147.21 331,878.82Amount sold 0.00 133.77 133.77

Of which repaid : 0.00 133.77 133.77Total Undisbursed : 8,446.58 80.28 E,526.86

a. Intended disbursements to date manus actual dlisbursements to date as projected at appraisal.

Note:Disbursement data is updated at the end of the first week of the month.

65

Annex 10Page 3 of 4

IndiaSTATEMENT OF IFC's

Committed and Disbursed PortfolioAs of 30-Sep-98

(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1964/75/79/90 MUSCO 0.00 1.08 0.00 0.00 0.00 1.08 0.00 0.001978/87/91/93 HDFC 40.00 2.29 0.00 0.00 40.00 2.29 0.00 0.001981 Nagarjuna Steel 0.00 .07 0.00 0.00 0.00 .07 0.00 0.001981/86/81/91/93/96 ITW Signode 0.00 1.55 0.00 0.00 0.00 1.55 0.00 0.001981/86/89/94/92 TISCO 3.47 15.37 0.00 0.00 3.47 15.37 0.00 0.001981/90/93 M&M .50 6.49 0.00 2.00 .50 6.49 0.00 2.001984/90/94 India Lease .66 .86 0.00 0.00 .66 .86 0.00 0.001984/91 Bihar Sponge 13.39 .68 0.00 0.00 13.39 .68 0.00 0.001986 EXB-Citv Mills .48 0.00 0.00 0.00 .48 0.00 0.00 0.001986 EXB-CECL - .01 0.00 0.00 0.00 .01 0.00 0.00 0.001986 EXB-NB Footwear .19 0.00 0.00 0.00 .19 0.00 0.00 0.001986 EXB-STG .37 0.00 0.00 0.00 .37 0.00 0.00 0.001986 EXB-TAN .03 0.00 0.00 0.00 .03 0.00 0.00 0.001986/92/93/94 GESCO 0.00 11.80 0.00 0.00 0.00 11.80 0.00 0.001986/93/94/95 India Equipment .43 .77 0.00 1.07 .43 .77 0.00 1.071987 Hindustan 5.23 0.00 0.00 0.00 5.23 0.00 0.00 0.001987/88/90/93 Titan Watches .96 1.03 0.00 0.00 .96 1.03 0.00 0.001988/90/92 Tata Telecom 0.00 .10 0.00 0.00 0.00 .10 0.00 0.001988/94 GKN Invel 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.001989 AEC 11.82 0.00 0.00 0.00 11.82 0.00 0.00 0.001989 UCAL 0.00 .63 0.00 0.00 0.00 .63 0.00 0.001989/90/94 Tata Electric 29.64 0.00 0.00 0.00 29.64 0.00 0.00 0.001989/91 Gujarat State 6.94 0.00 0.00 0.00 6.94 0.00 0.00 0.001989/95 JSB India 0.00 1.21 0.00 0.00 0.00 1.21 0.00 0.001990 HOEL 0.00 .28 0.00 0.00 0.00 .28 0.00 0.001990 TDICI-VECAUS 11 0.00 1.41 0.00 0.00 0.00 1.41 0.00 0.001990/92 CESC 43.36 0.00 0.00 60.30 43.36 0.00 0.00 60.301990/93/94 IL&FS 21.00 3.11 1.81 7.00 21.00 3.11 1.81 7.001990/94 ICICI-IFGL 0.00 .30 0.00 0.00 0.00 .30 0.00 0.001990/95 ICICI-SPIC Fine 0.00 1.88 0.00 0.00 0.00 1.88 0.00 0.001991 BSES 17.50 0.00 0.00 0.00 17.50 0.00 0.00 0.001991/93 Triveni 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.001991/96 VARUN 0.00 1.35 0.00 0.00 0.00 1.35 0.00 0.001992 Indus VC Mgt Co 0.00 .01 0.00 0.00 0.00 .01 0.00 0.001992 Indus VCF 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.001992 Info Tech Fund 0.00 .64 0.00 0.00 0.00 .64 0.00 0.001992 SKF Bearings 3.82 0.00 0.00 0.00 3.82 0.00 0.00 0.001992/93 Arvind Mills 0.00 17.10 0.00 0.00 0.00 17.10 0.00 0.001992/94/97 Ispat Industries 78.31 5.77 0.00 85.00 38.45 5.77 0.00 0.001992/95 IL&FS Venture 0.00 1.05 0.00 0.00 0.00 1.05 0.00 0.001992/96/97 NICCO-UCO 6.50 .50 0.00 0.00 2.50 .50 0.00 0.001993/94/96 Indo Rarna 19.68 11.98 0.00 7.87 19.68 11.98 0.00 7.871993/97 20TH Century 14.47 .80 0.00 2.13 14.47 .80 0.00 2.131994 Centurion Growth 0.00 2.39 0.00 0.00 0.00 2.39 0.00 0.001994 Chowgule 13.42 4.58 0.00 21.09 13.42 4.58 0.00 21.091994 Crdcap Asset Mgt 0.00 .32 0.00 0.00 0.00 .32 0.00 0.001994 DLF Cement 8.80 4.94 0.00 12.75 8.80 4.94 0.00 12.75

66

Annex 10Page 4 of 4

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1994 Gujarat Ambuja 0.00 8.23 0.00 0.00 0.00 8.23 0.00 0.001994 Taurus Starshare 0.00 7.17 0.00 0.00 0.00 7.17 0.00 0.001994/97 GVK 39.17 8.30 0.00 37.26 29. 17 7.45 0.00 37.261994/98 Global Trust 5.00 3.19 5.00 0.00 0.00 3.19 0.00 0.001995 Centurion Bank 0.00 3.87 0.00 0.00 0.00 3.87 0.00 0.001995 EXIMBANK 20.46 0.00 0.00 0.00 20.46 0.00 0.00 0.001995 GE Capital 11.25 5.00 0.00 0.00 11.25 4.39 0.00 0.001995 Prism Cement 15.00 5.02 0.00 13.50 15.00 5.02 0.00 13.501995 Rain Calcining 19.25 5.47 0.00 0.00 19.25 5.46 0.00 0.001995 Sara Fund 0.00 6.12 0.00 0.00 0.00 2.60 0.00 0.001995/98 RPG Communicatns 0.00 11.25 0.00 0.00 0.00 11.25 0.00 0.001996 CVF Oil Gas-AL 8.00 8.00 0.00 0.00 0.00 0.00 0.00 0.001996 India Direct Fnd 0.00 7.50 0.00 0.00 0.00 2.39 0.00 0.001996 Indus II 0.00 5.00 0.00 0.00 0.00 3.00 0.00 0.001996 Indus Mauritius 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001996 Moser Baer - 5.70 .60 0.00 0.00 5.70 .60 0.00 0.001996 United Riceland 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001997 Asian Electronic 0.00 5.50 0.00 0.00 0.00 5.50 0.00 0.001997 CEAT 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.001997 Duncan Hospital 7.00 .84 0.00 0.00 0.00 0.00 0.00 0.001997 EEPL 0.00 .03 0.00 0.00 0.00 .03 0.00 0.001997 Owens Coming 25.00 0.00 0.00 0.00 25.00 0.00 0.00 0.001997 SAPL 0.00 .07 0.00 0.00 0.00 .07 0.00 0.001997 SR.EI 15.00 3.00 0.00 0.00 1.00 3.00 0.00 0.001997 Walden-Mgt India 0.00 .01 0.00 0.00 0.00 .01 0.00 0.001997 WIV 0.00 5.00 0.00 0.00 0.00 .88 0.00 0.001998 IDFC 0.00 15.46 0.00 0.00 0.00 15.46 0.00 0.001998 TCW/ICICI 0.00 10.00 0.00 0.00 0.00 2.00 0.00 0.00

Total Portfolio: 541.81 230.48 6.81 249.97 438.95 197.42 1.81 164.97

Approvals Pending Comrnitment

Loan Equity Quasi Partic

1996 CESC II -BLINC 0.00 0.00 0.00 37.001998 IL&FS (III)-RI 0.00 0.00 3.11 0.001998 IVCAAF 0.00 5.74 0.00 0.001995 SPIC-RGHTS ISSUE 0.00 .86 0.00 0.00

Total Pending Commitment: 0.00 6.60 3.11 37.00

67

Annex I IPage I of 2

India at a glance 9115/98

POVERTY and SOCIAL South Low- iIndia Asia income Development diamond

1997Population, mid-year (millions) 960.9 1,289 2,048 Life expectancyGNP per capita (Atlas method, US$) 390 390 350GNP (Atlas method, USS billions) 375 502 722

Average annual growth, 1991-97

Population (°%) 1.7 1.9 2.1Labor force (%) 2.0 2.2 2.3 GNP Gross

per - primaryMost recent estimate (latest year available, 1991-97) capita enrolrment

Poverty (% of population below national poverty line) 36Urban population (% of total population) 27 27 28Life expectancy at birth (years) 62 62 59Infant mortality (per 1,000 live births) 63 71 78Child malnutrition (I% of children under 5) 66 63 61 Access to safe waterAccess to safe water (I% of population) 81 77 71Illiteracy (I% of population age 15+) 48 51 47Gross primary enrollment (% of school-age population) _ 100 99 91 -India - Low-incomegroup

Male 110 109 100Female 90 89 81 .

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1976 1986 1996 1997Economic ratios'

GOP (US$ billions) 95 0 229.1 359.7 380.5Gross domestic investmentlGOP 20.9 23.2 25.2 24.0 TExports of goods and services/GOP 7.2 6.0 11.8 11.5 radeGross domestic savings/GDP 21.7 20.4 21.9 20.2Gross nabonal savings/GOP 22.2 20.8 23.9 22.3

Current account balance/GDP 1.4 -2.6 -1.4 -1.8 DomesticInterest payments/GDP 0.3 0.7 1.1 0.9 Dmsti _ - InvestmentTotal debt/GOP 15.2 21.0 26.0 24.8Total debt servicelexpons 15.3 32.0 24.3 20.6Present value of debt/GDP 19.6Present value of debttexpons - 135.6

Indebtedness1976-86 1987-97 1996 1997 1998-02

(average annual growth)GDP 4.4 5.7 7.4 4.9 -GNP per capita 2.1 3.8 5.7 3.5 Ind/a Low-icome groupExports of goods and services 3.4 11.8 10.1 3.8

STRUCTURE of the ECONOMY1976 1986 1996 1997 Growth rates of output and investment(%)

(% of GOP)Agriculture 38.5 31.7 27.0 25.3 4° -

Industry 25.0 28.4 30.0 30.1 20 -Manufacturing 17.1 17. S 19.4 19.5 10 -

Services 36.5 39.9 43 0 44 6 0-15 9 93 9w95 96 97

Pnvate consumption 68.6 67.8 67.8 69,8 -20

General government consumption 9.7 11.8 10.3 10.0Imports of goods and services 6.4 8.7 15.1 15.2 GD * GDP

197646 1987-97 1996 1997 Growth rates of exports and imports Ih)(average annual growth)Agriculture 2.6 3.1 7.9 -1 5 0 TIndustry 5.3 6.7 6.4 5 5 30 -

Manufacturing 5.5 7.0 7.4 5.8 20Services 5.4 7.2 8.1 8.9 10

Private consumption 4.7 5.1 8.2 8.5 0 ° E / 59

General govemment consumption 6.9 3.5 5.1 0.3 92 9Gross domestic investment 4.2 7.3 -0.6 -0.7 -20 -

Imports of goods and services 8.7 7.4 -5.4 9.0 Expons lmponrsGross national product 4.3 5.7 7.5 5.2

Note: 1997 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete. 68

Annex I IPage 2 of 2

India

PRICES and GOVERNMENT FINANCE

Domestic prices '1976 1986 1996 1997 Inflation (%)

(% change) 20

Consumer prices .. 8.7 9.3 6 8 l5<

Implicit GDP deflator 5 9 6.5 6 3 5.6 0 _

Govemment finance 5

('/ of GOP, includes currenf grants) DCurrent revenue .. 25.2 23 4 24.0 92 33 94 95 9s 97

Current budget balance 1 7 0.6 0.7 -GOP deflator 7CI

Overall surplus/deficit . 13.3 9.3 9.9 GDP defla_ __r CP _

TRADE

(US$ millions) 1976 1986 1996 1997 Export and import levels (IJSS millions)

Total exports (fob) 9.738 33,469 34.700 s0.0co .Tea . 451 279 405 50 C

Iron .. 428 483 474 * 0Manufactures . 6,458 25,490 26,168

Total bmports (cif) 5,390 _ 17,740 48,063 30,240 0 .0. Food , 1,068 1.477 1,567 2 * 1 * dFuel and energy . 2,187 10,036 7,595 000 S 92 93

Capital goods .. 5,074 7,735 6,743.1 92 93 94 95 95 97

Export price index (1995=100) .. 95 97 92Import price index (1995=100) . 75 112 110 aExports *ImocrsTerms of trade (1995=100) 127 87 84 _

BALANCE of PAYMENTS

(US$ mifions) 1976 1986 1996 1997 Current account balance to GDP ratio I%)

Exports of goods and services 6.800 13,637 41.732 44,102 0-

Imports of goods and services 6,080 19,962 55,696 59,236Resource balance 720 -6,325 -13,964 -15,134

Net income -98 -2.045 -3.584 -3,389Net current transfers 692 2.327 12,367 11.830

Current account balance 1.314 -6,043 -5,181 -6,693 -2

Financing items (net) .1,314 5,971 -46 3.097Changes in net reserves 0 72 5,227 3,596 -3-

Memo:Reserves including gold (USS millions) . 7,200 26,718 29,651Conversion rate (DEC, locat/USS) 8 9 12.8 35.5 37.2

EXTERNAL DEBT and RESOURCE FLOWS ________1976 1986 1996 1997

(USS millions) Composition of total debt, 1997 (US$ millions)Total debt outstanding and disbursed 14,471 48,124 93,431 94,404

IBRD 456 3,475 8,768 8,138 G.6,977 A 8t138IDA 3,333 10,529 17,616 17,912

Total debt service 1,178 5,273 12,669 11,257IBRD 88 469 1,514 1.410 6 17912IDA 30 152 365 381

Composition of net resource flows F 31.503Official grants .. 403 410 351 . _ C 684Official creditors 1,058 1,404 -200 3,395 _6Private creditors -14 2,793 -558 -2,042 D 3 .60Foreign direct investment .. 208 2,696 3,197Portfolio equity ., 0 3,312 1,828

E 25 450World Bank program

Commitments 315 1,790 1.725 2.094 A . IBRO 6- BlateralDisbursements 610 1,297 1,592 1,337 8 -IDA D- Other multilateral F- PrwatePrincipal repayments 66 235 1,074 1.071 C -IMF G - Short-termNetflows 544 1.062 518 267 _-Interest payments 52 388 804 721Net transfers 492 676 -287 -455

Development Economics 9115/9869