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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public Use

Report No. 104a-IN

APPRAISAL OF

MADHYA PRADESH AGRICULTURAL CREDIT PROJECT

INDIA

April 26, 1973

La Projects Department

This report was prepared for official use only by the Bank Group. It may not be published, quoted |or cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

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CURRENCY EQUIVALENTS

US$1 = Rs 7.5 /1Rs 1 = US$0.13Rs 1,000 - US$133.00Rs 1,000,000 5 US$133,000

WEIGHT AND MEASURES

Metric System

ABBREVIATIONS

AIC = Agro-Industries Corporation (Madhya Pradesh)ARC = Agricultural Refinance CorporationCGWB = Central Groundwater Board (Government of India)DTGS - Directorate of Tubewells and Groundwater Surveys (Madhya Pradesh)GOI = Government of IndiaLDB = Madhya Pradesh State Cooperative Land Development BankRBI = Reserve Bank of IndiaSCB = Madhya Pradesh State Cooperative BankSEB - State Electricity Board (Madhya Pradesh)SBI = State Bank of India

CROPPING SEASONS

Kharif season = June to SeptemberRabi season = October to FebruaryZaid season = March to May

FISCAL YEAR (ARC AND LDB)

July 1 - June 30

/1 As of the date of writing, India has not declared a new par valuefollowing the devaluation of -the dollar; the rupee is officiallyvalued at a fixed Pound Sterling rate. The Pound is now floatingrelative to the US dollar and consequently the Rupee-US dollarexchange rate is subject to change.

INDIA


TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS .............................. -i

I. INTRODUCTION ......................................... 1

II. BACKGROUND ........................................... 1

A. India .......... 1

B. The State of Madhya Pradesh ............... 2

General Description ............ 2Agriculture Structure ............... 3

Agriculture Development PrioritiesIntroduction ........................... 3Minor Irrigation ............... 4

Land Development ................ 5

Agricultural Inputs and Services ........... 5

Credit Services and Banking ................ 6

III. THE PROJECT ................................. 7

A. Definition ...................................... 7

B. Detailed Features ............................... 7

Minor Irrigation ........................... 7Land Development ........................... 8

Project Equipment .......................... 8

C. Cost Estimates and Financing .................... 8

D. Procurement ..................................... 10

E. Disbursements ................................... 10

IV. ORGANIZATION AND MANIAGEMENIT . . . 10

A. Introduction .................. .................. 10

B. Institutions ....... ............................. 11

Agricultural Refinance Corporation ......... -11

Madhya Pradesh State Cooperative LandDevelopment Bank ...... ................ 11

Madhya Pradesh State Cooperative Bank ...... 13

Conmercial Banks ........................... 13

Directorate of Groundwater Surveys ........ . 15

This appraisal report is based on the findings of a mission which

visited India in March/April 1972 and was composed of Messrs. C. H. Walton,

G. Ablasser and H. R. McDonald (IDA) and B. C. Bilbo (Consultant) and a

follow-up mission by Mr. W. H. Spall in November 1972 all of whom contri-

buted to this report.

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Page No.

C. Lending Terms and Conditions ...... ............... 15Interest Rates .......... .................... 15Collateral and Land Valuation ..... .......... 15Borrowers' Contribution to Investment

Costs and Maturities ................... 15Lending Policies ............................ 16Accounts and Audit .......................... 16

V. PRODUCTION, MARKETING, PRICES AND FARMERS BENEFITS .... 16Production ......... ......................... 16Marketing .......... ......................... 17Prices . ....................................... 17Farmers Benefits ....... ..................... 17

VI. BENEFITS AND JUSTIFICATION ....... ..................... 18

VII. AGREEMENTS REACHED AND RECOMMENDATIONS ..... ........... 19

SCHEDULE A - Minor Irrigation: Program, Appraisal Criteria and Procedures

SCHEDULE B - Project Lending Terms and Conditions

ANNEXES

1. Mtinor Irrigation

2. Land Development

3. The Madhya Pradesh Agro-Industries Corporation

4. The Agricultural Refinance CorporationTable 1 - Condensed Income StatementTable 2 - Projected Income StatementTable 3 - Condensed Balance SheetsTable 4 - Projected Balance Sheets

The Madhya Pradesh State Coonerative Land Development BankTable 5 - Condensed Income StatementTable 6 - Projected Income StatementTable 7 - Condensed Balance SheetTable 8 - Projected Balance Sheet

5. Project Costs and DisbursementsAppendix 5-1 - Details of Estimated Project CostAppendix 5-2 - Breakdown of Minor Irrigation InvestmentsAppendix 5-3 - Estimated Disbursements of IDA Credit

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6. Farm Incomes and Financial Rates of Return on InvestmentsAppendix 6-1 - Farm Models based on Present Costs and PricesAppendix 6-la - Estimated Unit Crop Water RequirementsAppendix 6-lb - Estimated Supplementary Water Requirements

by Farm ModelsAppendix 6-Ic - Mean Monthly PrecipitationAppendix 6-id - Water Utilization by Farm ModelsAppendix 6-2 - Financial Rates of Return to the EnterprisesAppendix 6-3 - Farmers' Income and Debt ServiceAppendix 6-4 - Estimated Changes in Cropped Area and Production

7. Economic Rates of Return on InvestmentsAppendix 7-1 - Economic Rates of Return by the Types of

Investment

MAP

INDIA


SLTTIARY AND CONCLUSIONS

i. This report appraises an agricultural credit project in the Stateof Madhya Pradesh for which an IDA credit of US$33 million is proposed. Itwould support a three-year lending program for investments in minor irrigationand land development.

ii. Madhya Pradesh is the largest state in India and, compared withother major states, is relatively backward. To accelerate the pace of agri-cultural development, the State Government is giving high priority to theintroduction of high-yielding varieties and fertilizers, the installationof wells and the development of land to permit the more efficient use ofirrigation water on existing surface schemes. The groundwater resources inMadhya Pradesh are generally adequate to sustain a further program of ex-ploitation but it would have to be accompanied bv new techniques of analysisand appraisal by the State's Directorate of Tubewells and GroundwaterSurveys (DTGS) as well as by the banking system to prevent overinvestment aand overexploitation.

iii. As elsewhere in India, Madhya Pradesh has an established bankingnetwork which for long-term investments comprises the State CooperativeLand Development Bank (LDB) and commercial banks. Partly because of theState's size, however, the system generally is less developed than in otherstates and lacks rural penetration. In particular, LDB is handicapped bya relatively low turnover and an unacceptably high level of arrears. Tomeet these deficiencies and optimize the use of existing facilities a work-ing party comprising representatives of the Agricultural Refinance Corpora-tion (ARC), the State Government and commercial banks has presented a bankingplan for the Project, which is acceptable to IDA, and will enable the Projectto be implemented properly.

iv. The Project would assist in financing on-farm investments estimatedto cost US$59.7 million equivalent: US$57.3 million for minor irrigation,and US$2.4 million for land development. The foreign exchange component isestimated at US$2.9 million equivalent or about 5T of total Project cost.IDA would finance US$33 million equivalent, representing the foreign exchangecomponent and about one-half of the local currency costs.

v. Farmers' contributions would range from 20% to 10% of the costof individual investments. In the case of loans made by LDB the farmers'contribution would include their obligatory share capital contribution of5% of loan amount. The IDA credit would cover 55% of the cost of the totallending program, the balance of the financing being subscribed by LDB/commercial banks and ARC. ARC would be the channel for IDA finance and

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would supervise Project operations. It is already acting in this capacityfor IDA-supported agricultural credit projects in seven other States inIndia. 1/

vi. The IDA credit would be made available to ARC by the Governmentof India (GOI) which would bear the exchange risk. About 50% would be repay-able by ARC to GOI after nine years at an interest rate of 5-1/4% and thebalance after 15 years at 5-3/4% per annum. ARC would refinance at 6-1/2%'per annumi the lending operations of LDB and coimercial banks. Loans toindividual borrowers would bear interest at 9% per annum and would be repay-able over periods of up to 10 years for ordinary borrowers and up to 15 yearsfor small farmers as defined.

vii. Project implementation would be by local contractors and DTGS inthe case of minor irrigation schemes, and by the State Government's agriculturedepartment engineering wing and contractors for land development. Mainlylocal materials would be used. About 43,000 individual small and widely-scattered farn investments would be made,spread over a period of three years,and international competition would not therefore be appropriate.

viii. ARC is competently managed and financially sound while the existingbanking system in Madhya Pradesh provides an adequate framework which can bedeveloped to provide acceptable lending facilities for the Project. Financialrates of return would be from 19% to 51%. The rates of return to theeconomy are estimated to be from 17% to over 100%. The necessary assuranceshaving been obtained during negotiations, this Project is suitable for acredit of US$33 million.

1/ Gujarat, Punjab, Andhra Pradesh, Tamil Nadu, Haryana, Mysore andMaharashtra.

INDIA


I. INTRODUCTION

1.01 In 1968, an IDA mission, with assistance of the FAO/IBRD Coopera-tive Program, reviewed agricultural credit institutions and farm investmentrequirements in selected parts of India and identified high priority agri-cultural credit projects. Projects in the seven states of Gujarat, Punjab,Andhra Pradesh, Tamil Nadu, Haryana, Mysore and Maharashtra already havebeen approved by IDA: this proposed Project for Madhya Pradesh together withthe proposed Project in Uttar Pradesh will bring the total to nine. In-stitutional credit, partly financed by IDA, would enable farmers to makeinvestments in minor irrigation and land development and thus obtainincreased production and other benefits from the new high-yielding seedvarieties, fertilizer use and surface irrigation water.

1.02 Bank Group lending for India's agricultural sector (excludingUS$23 million for the Beas equipment project under the Indus Treaty) totalsUS$436 million. While earlier lending had concentrated on large irrigationschemes, the current series of credit projects supports the Government ofIndia's (GOI) agricultural strategy of giving increased emphasis to farminvestments. With the inclusion of this Project, credit project approvalswould total nearly US$248 million.

1.03 The Project is based on a proposal by the Madhya Pradesh Govern-ment and follows the pattern of previous agricultural credit projects inIndia. It however omits land development at Tawa and Chambal which it isenvisaged would form part of separate IDA projects for those irrigationschemes. It was appraised in March/April 1972 by Messrs. C.H. Walton,C. Ablasser and H.R. McDonald (IDA) and B.C. Bilbo (consultant) with afollow-up mission by Mr. W.H. Spall in November 1972. This report is basedon the missions' findings.

II. BACKGROUND

A. India

2.01 Since 1965, India has shifted the emphasis of its developmentefforts from industry to agriculture. As a result, priority has beengiven in recent years to accelerating the introduction of modern agricul-tural technology through increasing the availability of improved inputs

1/ A detailed discussion of the present situation and prospects of agri-culture in India is given in "Economic Situation and Prospects ofIndia" report number SA-32a of May 10, 1972.

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such as high-yielding seed varieties and fertilizers, particularly incombination with irrigation, and by providing financial incentives tofarmers.

2.02 Although 70% of India's labor force is engaged in agriculture(providing half of India's GNP) a large proportion of farmers have scarcelybeen affected by the recent agricultural advances, while those that havebenefited have been mainly farmers with access to knowledge and capital toenable them to adopt the modern technologies. A large number of additionalfarmers could however take advantage of the new techniques if credit wasmade available to them. An increased supply of credit for farm investmentis thus important to the continued growth of agricultural production.

2.03 The Reserve Bank of India has estimated that credit institutionswill require Rs 15,000 million (US$2,000 million) for long-term agriculturelending during the Fourth Plan (1969/70 - 1973/74) or an annual average ofRs 3,000 million compared with about Rs 600 million invested in 1966/67.Short- and medium-term credit requirements would increase by an estimated11%Z annually rising to about Rs 25,000 million (US$3,300 million) by 1973/74.Provisional figures show the long-term credit supply for 1970/71 at aboutRs 1,800 million (of which cooperative institutions accounted for aboutRs 1,600 million) and the short-term at Rs 6,000 million. There thus remainsa substantial agricultural credit gap and, if this is to be bridged, Indiawill need to intensify her efforts to mobilize her domestic resources aswell as increase external borrowings.

B. The State of Madhya Pradesh

General Description

2.04 Madhya Pradesh, situated in the center of India, is the largeststate in the country with an area of 444,000 km2 (about 15% of India); itspopulation of about 42 million (1971) is about 8% of the all-India total.Approximately 85% of the population depend on agriculture for their livingand this sector provides 51% of the State's income. Madhya Pradesh, whichonly came into existence in 1956 by the amalgamation of three formerstates, is administratively divided into 43 districts and 190 tehsils. Itscapital is Bhopal but Gwalior, Indore and Jabalpur are commercially moreimportant.

2.05 The State mainly comprises a plateau ranging in altitude 200-1,000 mbut with small hill ranges (rising to 1,500 m) in the southern part. Itprovides the headwaters for many of India's large rivers; of its sevenmajor river basins, the Narmada which dissects the State from east to westis the most important. Soils vary considerably from black cotton whichpredominate in the west to the red and sandy soils more prevalent in theeast. Rainfall which ranges from about 700 mm in the north and west to1,300 mm in the south is concentrated in one monsoon season, mid-June to

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September in which 80-90% of precipitation normally occurs, frequentlywith great intensity. There are three crop seasons, the Kharif, therabi, and the summer. Temperatures range from 3C in January to 45°C inMay.

Agriculture Structure

2.06 The net sown area is about 18.3 million ha (41% of total) and,with an average cropping intensity of 110%, the gross sown area is about20.2 million ha. A high proportion of land is thus not under cultivation,notably on account of forests (14.4 million ha or 32% of total). About1.5 million ha (8% of cultivable area) is irrigated by canals (providing48% of total supply) wells (37%) and tanks and other (15%). Canal irriga-tion is found mainly in the eastern part of the State and under the Chambalscheme (para 2.15).

2.07 Approximately 55% of farm holdings in Madhya Pradesh are smallerthan 5 ac (2.3 ha) (12% of total farmland), 40% are between 5 and 30 ac(64% of farmland) and 5% over 30 ac (24% of farmland). Operational holdingsare often larger than these statistics would imply, since land ownership isoften divided among several members of the same family and farmed as oneunit. This practice also limits the effectiveness of statutory ceilingson individual land ownership which range between 25 ac for irrigated and75 ac for unirrigated land.

2.08 Foodgrains account for about 69% of the gross sown area with pulses23% and other subsistence and commercial crops (notably oilseeds and cotton)making up the balance. Rice, which is grown mostly in the east underprotective irrigation is the most important single crop (24% of gross sownarea), wheat, grown mostly as a dry rabi crop (18%) and jowar, an importantkharif crop (13%). Production increases from 7.4 million tons in 1968/69to 8.9 million tons in 1970/71 have enabled the State to become a net -exporter of cereals and this together with higher pulse production hasresulted in a total foodgrain increase from 8.9 million tons in 1968/69 to10.9 million tons in 1970/71; production levels are however criticallydependent on rainfall (e.g., foodgrain production in 1967/68 was 10.1 milliontons). Other significant production figures (1970/71) are oilseeds625,000 tons, and cotton 37,000 tons.

Agicultural Development Priorities

2.09 Introduction. Dependence on a single and unreliable monsoon rainsand a generally low level of infrastructure, in part the result of its sizeand recent reorganization have made Madhya Pradesh agriculturally one ofthe more backward of India's states. Development efforts necessarily rangewidely but priorities are centered on measures which will accelerate theintroduction of high-yielding seed varieties and increase fertilizer use.Thus, particular emphasis is being placed on increased irrigation throughthe exploitation of surface and groundwater resources but, because of itslimited potential, priority is also being given to improving the technologyof dry land farming. As elsewhere in India special attention is now being

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given to increasing the supply of agricultural credit and services to small

farmers.

Hi-nor Irrigation

2.10 Although no overall water resource estimate has been made, repre-sentative area studies indicate considerable irrigation potential inMadhya Pradesh. While there is scope for more surface irrigation, thislargely depends on major storage schemes, e.g., Tawa (para 2.16) now underconstruction. With a relatively low well intensity (average one well to30 cultivable ha) and generally favorable groundwater availability, minorirrigation investments offer good development opportunities which are moreeasily realizable. The Directorate of Tubewells and Groundwater Surveys(DTGS) has, since 1968, been responsible for the State's groundwaterdevelopme t and, with GOI's Geological Survey of India, has surveyed40,000 km (or about 10% of total area) in eight districts.

2.11 Madhya Pradesh has an estimated 650,000 irrigation wells of whichall but some 1,000 tubewells are dugwells. Except for limited areas of

hard rock with little fissuring, the geology generally provides favorableinfiltration conditions for dugwells while in the deccan trap areas (aboutone-third of the State) they are particularly suited to supplementary boring

(to become dug-cum-bore wells). Only 7% of wells are presently energized,in part reflecting the difficulties of rural electrification over longdistances. Currently som. 25,000 new wells and 30,000 pump sets are beinginstalled annually.

2.12 As in other states, inadequate technical direction and lack of any

legislation controlling groundwater exploitation has resulted in a low level

of well technology. Madhya Pradesh banks' deficient lending policies and

standards have further exacerbated the problem (para 2.20). In addition towidespread examples of poor well siting and inadequate attention to wellspacing and density requirements, many wells are unfinished or lack motors,in part because of outdated regulations which unduly limit farmers' borrowingability. These and other factors have led to a very small average irrigatedarea (under 0.9 ha per well compared with at least 2 ha possible inaverage conditions) while the lov level of income resulting from incompleteinvestments have made it impossible for many farmers to maintain loan repay-ments. Priority therefore has to be given to improving the water dischargefrom, and the area irrigated by presently substandard wells which, with

small additional capital injection, could become sound investments. Measuresare also necessary to ensure that new wells avoid repeating past mistakesand result in the best use of scarce capital and water resources.

2.13 To achieve this, three main improvements must be effected. First,

the staffing of DTGS needs strengthening so that it can supervise welldevelopment to acceptable standards and criteria as well as extend its

survey capability: to assist in this the Central Ground Water Board (CGWB)plans to make available to it some experienced staff (para 4.17). Second,banks need to improve their lending practices so that sound investmentopportunities can obtain adequate financial support. Third, concerned

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governmental authorities and banks need to emphasize the importance ofwater sharing arrangements so as to minimize the risk of over-investmentin wells, particularly in areas where small farmers predominate. 1/ Con-tinuing weaknesses in each of these areas will inevitably result in subecono-mic investments and, to farmers, financial returns inadequate to servicedebt liabilities.

Land Development

2.14 The main emphasis of land development in Madhya Pradesh is on twomajor irrigation schemes, Chambal on the Rajasthan border where irrigationwater first became available in 1967 and Tawa on the Namada river where thedam now under construction is due for completion in 1973. Land developmentis also important on the command areas of wells to obtain effective water use.

2.15 At Chambal, little has been done in providing small canals andfield channels and land has been levelled or shaped on only 10% of the com-mand area. Uncontrolled field flooding, intense seasonal rainfall, lack ofa drainage system and difficult soils have combined to cause serious water-logging on nearly 60,000 ha and reduce the potential irrigable area fallingwithin Madhya Pradesh from about 220,000 ha to 100,000 ha. The whole arearequires an irrigation and drainage plan which later could be the basis fora rehabilitation and development scheme.

2.16 Tawa was appraised by IDA in December 1970 and the proposed projectenvisages a command area approach with the integrated development of waterstorage, distribution and drainage, land shaping and infrastructure require-ments. To avoid the problems besetting Chambal, the IDA mission recommendedthe release of water from the Tawa reservoir only to the extent on-farmdevelopment was completed (estimated to increase from 7,000 ha in June 1972to 130,000 ha in June 1976) and for which some IDA financing of land shapingwas included. Civil works procurement differences have so far preventedproject negotiations but it is hoped that the issue may be resolved andthe project proceed. In these circumstances, the State Government's requestfor financing 4,000 ha of land shaping at Tawa is not included in this creditproject - an area which in any case is considered too small to meet thecommand area requirements of the irrigation scheme.

Yazicultural Inputs and Services

2.17 The projected agriculture growth rate under the State's FourthPlan (1969/70 - 1973/74) is 5% annually and, excluding rmajor irrigationworks, about 22% of planned public expenditures (Rs 960 million) have beenallocated to the sector over the period. Since 1968/69 the use of high-yielding and improved seed varieties has trebled but still only account fora small proportion of areas sown - viz paddy 5.2%, wheat 5.1%, maize 3.8%.

1/ If one-half of the beneficiaries under the proposed Project farmedonly one ha and did not share or sell their available surplus waterto other farmers, the cost of its minor irrigation component wouldhave to increase from Rs 430 million (US$57.3 million) (para 3.06)to Rs 760 million (US$101 million) to achieve the same total irrigatedarea of about 110,00 ha.

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Similarly, although fertilizer use has been increasing at more than 50%annually (1968/69 - 1970/71 from 3.2 to 8.2 million tons) consumption atabout 3 kg per cropped ha is low compared with other states because of thelow level of drylands farming technology and the small area under irrigation.The Project by increasing the irrigated area would have a favorable impacton fertilizer consumption.

2.18 Among institutions of higher education, the Agriculture Universityat Jabalpur with its six constituent colleges located in various parts ofthe State is responsible for agricultural research; four universities,notably at Sagar, have postgraduate courses in geology and hydrology. Avariety of crop processing and agricultural services including land shapingat Tawa are the responsibility of State's Agro-Industries Corporation (AIC)(Annex 3). Elsewhere, land development (e.g., at Chambal), soil conservationand farm custom services are provided by the engineering wing of the State'sagriculture department and to a small extent by private contractors.

Credit Services and Banking

2.19 Following the Indian pattern, most agricultural lending has beencarried out by the cooperative movement which, in banking, is divided intothe State Cooperative Bank (SGB) for medium- (2-5 years) and short-termlending and the State Cooperative Land Development Bank (LDB) responsiblefor long-term lending (above five years). In recent years, and particularlysince the nationalization of the major banks in 1969, commercial banks havebegun to make loans for agriculture but the volume of this lending isrelatively small.

2.20 The main weaknesses of institutional banking in Madhya Pradeshare the limited number of branches (LDB and commercial banks combined provideone branch to 611 km2 in Madhya Pradesh compared with one to 189 km2 inMaharashtra), the relatively low level of lending by such institutions com-pared with those in other states, and the different policies and outlook ofthe state-controlled cooperative banking system and the centrally-controlledcommercial banks which hitherto have inhibited the extension of an integratedbanking system appropriate to the needs of the rural areas. In particularthe Madhya Pradesh LDB's current volume of lending is substantially lessthan that of its counterparts in other states with IDA projects (in mostcases less than half) and the proposed Project would therefore have todepend more heavily on commercial and other alternative forms of bankingthan has been found necessary in earlier credit projects. Additionally,high overdues in the LDB system necessitate a financial reorganization whileits management also requires considerable strengthening. To meet therequirements of the proposed Project, representatives of the AgriculturalRefinance Corporation, the State Government and commercial banks have prepareda banking plan covering the above aspects. This plan is acceptable to IDAand will be implemented immediately.

2.21 Because of limited institutional facilities, money lenders arethought to provide a greater proportion (at least two-thirds) of farmers'credit needs (particularly short-term credit for farm inputs) than in

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many other parts of India. Although there is little precise knowledgeabout their operations they are reported to charge interest rates of up to80% per annum, compared with 9-11% from institutions. These figuresindicate that institutions will have to attract a larger proportion ofrural savings and must be encouraged to do so. Until they are able tomake substantial progress in this direction, cooperative institutions inparticular will continue to depend heavily on public sector and externalfinancing.

III. THE PROJECT

A. Definition

3.01 The Project is a three year program of on-farm inveetments in minorirrigation (95% of total farmers' investments) and land development (5%) whichwould form part of a lending program in Madhya Pradesh. The lending program,which under refinance arrangements with ARC would be implemented by LDB andcommercial banks, would involve about 43,000 loans to farmers and cooperatives.The total Project cost is estimated at Rs 452.2 million (US$60.3 million) andIDA's contribution would be US$33 million.

B. Detailed Features

Minor Irrigation

3.02 Investments in minor irrigation would comprise a sum of Rs 430million (US$57.3 million) for dugwells, dugwell improvements and erergizationin six major river basins encompassing 35 districts of the State (Schedule A).Although present information does not permit precise specification of thequantities of each investment to be financed, the sum is calculated on theconstruction of 25,000 new wells, the improvement of 15,000 and theinstallation of about 29,000 electric and 12,000 diesel powered pumpsetsand about 2,700 persian wheels (Appendix 5-2) (the persian wheel is atraditional lift device). In the case of electric sets, cost estimatesinclude Rs 3,000 for each power connection.

3.03 Since Madhya Pradesh does not yet have legislation governinggroundwater use (para 2.12) it is essential that the State undertake pragmaticmeasures to avoid the problems of uncontrolled development including over-exploitation. As a large portion of minor irrigation development is financedthrough institutional loans, minimum standards can be introduced throughspecific lending criteria implemented through the banking system andsupported by the State. The basis would be by DTGS analysis of integralhydrogeological units from river basins down to elementary watersheds.Included would be requirements with regard to density, spacing and irrigatedarea, which would permit investments in minor irrigation to proceed underreasonable control until such time as effective legislation is passed.

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Furthermore the effectiveness of individual investments would be increasedthrough this analysis and through improved appraisal (para 4.22). Duringnegotiations, assurances were obtained from the State Government that itwould give its specific support for conditions, criteria and guidelinesregulating groundwater development as set out in Schedule A, not only forProject investments but for all minor irrigation development under itsdirect and indirect control.

Land Development

3.04 Investments in land development would comprise the preparation(mainly levelling) of about 30,000 ha to take irrigation water from proposedminor irrigation investments.

Project Equipment

3.05 About 70 pneumatic boring drills with compressors and initial spareparts are needed to meet the incremental needs of the program. The GOI hasrequested reserve procurement in respect of such equipment and financing forit is not therefore included in the Project. Assurances were obtained thatsuch equipment will be procured, and in the event of its not being availablelocally it will be imported.

C. Cost Estimates and FinancinX

3.06 Estimated Project cost, together with the foreign exchange require-ments 1/ are:

Rs (millions) US$ (millions) ForeignLocal Foreign Total Local Foreign Total Exchange

Minor Irrigation 409.0 21.0 430.0 54.5 2.8 57.3 5

Land DevelopmentFor Well Irri-

gation 17.0 1.0 18.0 2.3 0.1 2.4 5

Equipment /1Well-drilling 4.2 - 4.2 0.6 - 0.6 - -

Total ProjectCost 430.2 22.0 452.2 57.4 2.9 60.3 5

/1 Procurement reserve (para 3.05).

1/ The value of the rupee is now pegged to the pound sterling which is floatingin relation to the US dollar. The conversion rate used in the cost estimatesis Rs 7.5 = US$1.

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Detailed cost estimates are shown in Annex 5. Estimates are based onpresent prices including a 10% allowance for cost increases, which wouldbe adequate. As in other agricultural credit projects, no physical contingen-cy is included. The allowance is based on annual price increases of 5% onthe estimated annual disbursements over the Project period.

3.07 The total cost of Rs 452.2 million (US$60.3 million) would befinanced from the following sources:

Lending Total IDA

Farmers_ Banks/_ ARC Financed Credit Funds% oof of %of % of

Rs M Total Rs M Total R M Total Rs M Rs M TotalMinor

Irrigation 53.7/2. 12 37.6 9 338.7 79 430.0 239.5 55

Land Develop-mentFor Well

Irrigation 2.2-- 12 4.0 22 11.8 66 18.0 10.0 55

Total LendingProgram 55.9 12 41.6 10 350.5 78 448.0 249.5 55

EquipmentWell _ _ - - 4.2 100 - 4.2 - -

Total ProjectCost 55.9 12 41.6 10 354.7 78 452.2 249.5 55

/1 In the case of LDB, financed by the State Government.

/2 Assumes one-half small farmer borrowers and lending divided equallybetween LDB and other banks. Thus through LDB small farmers contribute5%, others 15% and in addition 5% of investment cost as equity sharein LDB. In other banks small farmers contribute 10%, others 20%.

/3 For purchase by State Government; procurement reserved.

3.08 The proposed IDA credit of US$33 million (Rs 249.5 million) wouldfinance about 55% of total Project cost and its refinance of the lendingprogram (Rs 249.5 million) would supply about 70% of ARC support for theProject (Rs 350.5 million). IDA financing would be based on the foreignexchange cost plus about one-half the local cost of minor irrigation and landdevelopment investments. IDA financing of foreign exchange items would amou:ntto Rs 22.0 million (US$3.0 million) or about 10% of its total contributionwhile local currency financing would total Rs 227.5 million (US$30.0 million). 1/

1/ This financing plan is contingent on the foreign exchange rate used forconversion (see footnote to para 3.06).

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3.09 The IDA credit would be on standard terms to GOI. GOI would makethe proceeds available to ARC repayable at the end of nine years with an

interest rate of 5-1/2% per annum in the case of loans to ultimate borrowers

not exceeding this period (estimated at about 50% of the total) and, at theend of 15 years, with interest at the rate of 6% per annum in the case of

the longer maturities (in each case this is after deducting 114% for promptpayment). ARC would on-lend the proceeds to lending banks in Madhya Pradesh

at 6-1/2% per annum on outstanding balance and these banks would In turnon-lend to ultimate borrowers at 9%. This interest rate structure is in linewith prevailing institutional interest rates for agriculture and the other

sectors of the economy. Assurances on these matters were obtained during

negotiations.

D. Procurement

3.10 Minor irrigation and land development investments involve generally

small and labor intensive operations carried out seasonally on widely scattered

farms with purchases spread over a period of three years for which internationalcompetition would not be appropriate. They would be carried out primarily

by hired labor or local contractors and partly by AIC for well boring. Com-petition among contractors is satisfactory and supplies are adequate.

E. Disbursements

3.11 IDA disbursements are expected to extend over about 3-1/2 years(Appendix 5-4). Against appropriate documentation, disbursements would be63% of loans for minor irrigation and land development.

IV. ORGANIZATION AND MANAGEMENT

A. Introduction

4.01 Project financing and organizational arrangements would generallyfollow the pattern established under the seven existing IDA-supportedagricultural credit projects. The IDA credit to the Government of India (GOI)would be channelled to the Agricultural Refinance Corporation (ARC) whichwould refinance lending by cooperative and commercial banks in the State.

4.02 Institutional banking in Madhya Pradesh presents two main difficult-ies. First, within the cooperative sector, the Land Development Bank (LDB)

system (which for similar projects in other states is responsible for most

of the lending) has high overdues and its management needs considerablestrengthening. Second, the relatively small volume of LDB lending makesit tiecessary that a substantial part of envisaged Project financing is

- 1 1 -

channelled through commercial banks. To ensure adequate and suitable bankingarrangements for the Project, a working party comprising representatives ofARC, the State Government and commercial banks has prepared a comprehensiveplan which is acceptable to IDA. This plan includes inter alia: a programfor the opening of new branch offices, staffing arrangements; assistance tocommercial banks by the Department of Agriculture and DTGS; the likely involve-ment of each commercial bank in the Project; the establishment of coordinatingcommittees; and the rehabilitation of the LDB (para 4.09). The implementationof the agreed plan would be a condition of credit effectiveness.

B. Institutions

Aricultural Refinance Cor pration

4.03 ARC, a subsidiary of the Reserve Bank of India (RBI), is thechannel for the seven existing agricultural credit projects and is thereforewell known to IDA. 1/ It is a competently managed organization and is in asound financial condition (Annex 4, Tables 1-4). However, the spread betweenits borrowing and lending rates is narrow and whilst adequate at present tomeet expenses, and after the creation of reserves, and the payment of dividendson its capital still ailow a profit to be made, it needs to be kept underreview in relation to its volume of lending, particularly if ARC's role isbroadened as recommended in the Agricultural Credit Review Report where itsoperating expenses would increase. Its role is important not only as achannel for development funds but also for its influence on the lendingpolicies and operational procedures of the agencies it assists. It is there-fore a suitable institution for the overall supervision of the Project'simplementation. As in previous credits, assurances were obtained thatARC's accounts would continue to be audited by auditors acceptable to IDA.

4.04 ARC would ensure that all lending banks follow the policies,terms and conditions agreed with IDA (Schedule B). The execution of a loanagreement between GOI and ARC acceptable to IDA would be a condition ofcredit effectiveness and subsidiary loan agreements between ARC and lendingbanks would be subject to IDA approval. ARC would ensure that lending banksfollowed the appraisal criteria relating to minor irrigation as detailed inSchedule A and, subject to consultation with IDA, ARC would not make IDAfinance available to any Primary Bank of LDB whose collection level fellbelow 75% of demand (para 4.09). Assurances on these matters were obtainedat negotiations.

Madhya radesh State Cooperative Land Development Bank

4.05 Compared with other states, the Madhya Pradesh LDB, establishedin 1961, is of recent origin, responsibility for long-term lending havingbeen previously with SCB (para 4.12). With six divisional offices, LDB is

1/ Full details of ARC's organization and operations are contained inAnnex 4 of the Uttar Pradesh Agricultural Credit Appraisal Report No.107-IN dated April 1973.

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the apex institution for 43 federated Primary Banks (one for each district)and these work in the State's 192 tehsils (district subdivision) through112 branches. As LDB is the only source of long-term financing for thePrimaries, the relationship is similar to that of a bank head office to itsbranches.

4.3)6 LDB's operations are governed by the Madhya Pradesh State LandDevelopment Banks Act 1966. Its 21 member board includes 14 representativesof the Primaries, three of the State Governnent and four members ex-officioor coopted. The Primary Banks with a voting membership of about 75,000elect their ow-n directors who control operations and appoint staff. Inorier to borrow, a farmer must hold shares in his Primary equal to 5% ofAis loan: 1,% is retained by the Primary and 4% invested in the equity ofthe ape- bank. Loans may be granted for most medium- and long-term invest-ments in agriculture.

4.07 LDB obtains its resources fromi share capital contributed by thePrir-ary Banks and State Government and by the issue of debentures. As ofJune 30, 1971, paid-up share capital was Rs 13 million of which the StateGovernment's contribution was Rs 6 million. Total debentures outstandingat that date ariounted to Rs 216 million of whlich only Rs 18 million repre-sented special debentures which are used by ARC for refinancin- LDBs.

4.08 Although LDB has maintained a high rate of growth (its portfolioof loans and advances inc,eased more than three times from Rs 57 million toRs 199 million over the five years 1966/67 - 1970/71) the increase hasbeen fronm a small base and its current volume of lending (Rs 55 millionin 1970/71) is relatively small compared with other states. Allowing forthe need to introduce improved lending procedures and achieve a satisfac-tory level-of collections, it is unlikely that LDB's lending capacity, havingregard to its on-going and ordinary debenture programs, could }andle theentire lending program. Furthermore, as LDB has reached only a very smallpercentage of farm families in the State (aud mainly the larger farmers), theadequacy of other banking facilities is critical to both the scale andpenetration of the proposed Project.

4.09 Poor management and technical advice, weak lending policies andthe rapid expansion in its lending have all contributed to LDB's high levelof overdues. In the three years 1968/69 - 1970/71, overdues at the apexlevel have been 23%, 33% and 30%, while Primary Bank averages have been39%, 44% and 40%. For LDB to be an acceptable Project institution, over-dues should be reduced to not more than 25% of demand at the apex level andat least those Primary Banks proposed for Project lending. For this pur-pose, an LDB rehabilitation program has been prepared as part of the bankingplan. The State Government has provided the LDB system with new equity capital(Rs 8 million or US$1 million) to the extent of individual Primary Bankoverdues in excess of 25%. In 1970/71 LDB made a profit of Rs 2 millionagainst which a 4% dividend was declared (see Annex 4, Tables 5 through 8 forLDB financial statements).

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4.10 A significant-cause of the high overdues was the poor quality of LDBmanagement particularly the Primary Banks and the lack of adequate technicaladvice from both within and outside LDB. This partly stems from a lowlevel of salaries and poor training. Since appraisal, LDB has strengthenedits managerial staff and has commenced an intensive recruitment and trainingprogram. The intention is that each Primary Bank should have: a competentmanager and accountant; two field officers; a technical officer; one super-visor for every 100 new applications; one valuation officer for every 150applications; plus supporting clerical staff. Training will be given by ARC,the RBI College at Poona and GOI Cooperative Colleges. A system of in-servicetraining has started.

4.11 The terms and conditions of LDB lending under the Project aredetailed in Schedule B and discussed in paras 4.19-4.21.

Madj a Pradesh_State Cooperative Bank

4.12 The SCB system although not participating in the Project is import-ant for its network of lending outlets throughout the State, as the majorsource of seasonal farm credit and to a less extent of medium-term finance.SCB operates at the district level through 43 central banks and their 560branches and at the village level through 9,300 credit societies. The last,with a membership of about two million, are closely linked with villagemarketing societies and the system thus provides integrated services withgood rural penetration. SCB's resources derive from members' share capital,-deposits and savings accounts and debenture issues. In 1969/70 short-termlending amounted to Rs 450 million and medium-term (3-5 years) Rs 46 million,the latter including loans for about 5,000 wells. Interest rates range from9-1/2% to 11%.

4.13 Within the system, the central banks are the significant lendingmedium and the extent of RBI refinance of their short-term lending dependssubstantially on their collection performance. In 1969/70 overdues atthis level averaged 28% of demand and at the primary level, 33%. Therewere considerable differences among central banks, however, and as ofApril 1972, the boards of 14 had been dismissed because of mismanagement.Others, however, are financially sound and well run though lacking technicalexpertise (lending operations for wells have been particularly weak).

Commercial Banks

4.14 Of the 17 commercial banks operating in Madhya Pradesh, 13 areowned by GOI (12 nationalized in August 1969 and the previously ownedState Bank of India (SBI)), the other four and smaller banks remaining inprivate owmership. Combined they have 725 branches throughout the State.Apart from the State Bank of Indore, a subsidiary of S81, none have theirhead offices In the State though the larger banks have established zonaloffices in Bhopal with some delegated powers.

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4.15 Although commercial banks have been encouraged to increase thevolume of agricultural lending, there has been little organizational innova-tioi since nationalization. Two developments, however, have been signifi-cant. The first was the introduction of the lead bank system whereby eachdistrict was allocated a commercial bank to guide and coordinate itsbanking development. Eight banks have lead responsibilities in MadhyaPradesh of which the Central Bank of India with 17 districts, the SBI andits subsidiaries with 10 and the Bank of India with 9 are the most important.Second, in a few states commercial banks have taken over the financing ofsome primary societies which had been unable to meet their members' creditneeds owing to weak central cooperative banks. In Madhya Pradesh where 10banks have advanced Rs 7.0 million short-term and Rs 1.8 million medium-term to 263 societies in 16 districts, the scheme has had less impact thanin other states. To meet these and other requirements, commercial bankshave accelerated the opening of rural branches (an additional 88 have beenlicensed for opening in 1973) but as each bank operates independently thetype and scope of branch development vary widely. However the commercialbanks have now established a regional coordination committee to ensurecooperation between banks. The State Government has also established a highpowered coordinating committee, under the chairmanship of the Production Com-missioner, on which commercial banks will be represented.

4.16 Despite the emphasis on agricultural lending, it is estimatedthat commercial banks are still providing only 5% of the total institutionalcredit supply for agriculture in India and although the percentage ishigher in Madhya Pradesh, total outstanding advances to the sector are onlyabout Rs 100 million. Apart from their lack of experience in agriculture,commercial banks have been seriously handicapped: in particular they havenot had the privileged position of cooperative banks which operate undersimpler lending requirements and have substantial free assistance fromextension and other State Government services. More fundamentally, stategovernments have preferred cooperative institutions which are effectivelywithin their control to commercial banks which are outside it. Attitudeshave changed, however, and as evidence of this in December 1972, the MadhyaPradesh Government has taken measures which will remove various impedimentsto commercial bank operations. These include the use by commercial banksof the services provided by the extension service and DTGS and the enactmentin December 1972 of the "Madhya Pradesh Credit Operations and 'liscellaneousProvisions (Banks) Bill" which will further assist commercial banks to under-take agricultural lending. With their large resource base and some trainedmanpower reserves, commercial banks should thus be able to undertake asubstantial amount of Project lending. The extent of commercial bank partici-pation in the Project will form part of the banking plan (para 4.02) and ARCwill be responsible for ensuring that the plan, as agreed by IDA, is implemented.An assurance to this effect was obtained at negotiations. ARC would ensurethat commercial banks would only lend for well investments where the approvalof DTGS had been received and would adhere to the criteria set out in ScheduleA.

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Directorate of Tubewells and Groundwater Surveys (DTGS)

4.17 The DTGS was established in 1968 with a nucleus of staff andit has recently been strengthened. Even though the senior staff areexperienced, many of the junior officers are recent graduates with littlefield experience and assistance for training them is needed. The recently-established GOI Central Ground-Water Board has a cadre of experiencedhydrogeologists and has expressed willingness to assist the States in thestudies required for the successful completion of this project. Duringnegotiations assurances were obtained that assistance would be providedby the assignment of at least five Officers from CGWB.

4.18 DTGS would carry out water resource investigations on the basisof integral hydrogeological units and would specify regulations for invest-ment in minor irrigation according to the criteria set out in Schedule A.It would also participate in the appraisal of dugwells as required and inthe case of each investment it would certify that the loan application metthe specified criteria and no loan would be granted without such approval.It was also agreed that the State Government would apply the same criteriato all minor irrigation development under its direct or indirect control (inthe case of development outside Project areas, the criteria would apply oneyear after the date of credit effectiveness).

C. Lending Terms and Conditions

Interest Rates

4.19 As under the seven existing agricultural credit projects, IDAfunds would be lent by ARC at an interest rate of 6-1/2% annually foron-lending to final borrowers at 9%. It was also agreed that lending bankscould charge an evaluation fee of 1/2% of the cost of individual investments:in the case of LDB this would be retained by the Primaries.

Collateral and Land Valuation

4.20 LDB's present policy is to lend up to 50% of both the unimprovedvalue of land and cost of proposed development. Under the Project if land istaken as security the valuation will be based on the estimated value of developedland resulting from the investment, and it is recommended that the amountof loan eligibility be increased to 60% of valuation.

Borrowers' Contribution to Investment Costs and Maturities

4.21 Under the Project, borrowers' contribution to investment costswould be 20% for dugwells and land development, and 10% for pumpsets andpersian wheels of individual investment costs for normal borrowers and 10%for defined small farmers (Schedule B) with investments of less than Rs 10,000:the percentage would include (for LDB lending) the borrowers' required sharecapital contribution of 5% and generally the value of any family labor contributed.

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Repayment periods, which would not exceed the life of the asset financed,

would for normal borrowers not exceed nine years for wells, seven years forpump sets and persian wheels (whether as a separate investment or part of awell investment) and 10 years for land development. A grace period of two

years would be allowed only in the case of wells equipped with persian wheels.For small farmers, repayment periods for wells and land development would beup to 15 years, pump sets and persian wheel loan repayments, however, remainingat seven years.

Lending Policies

4.22 The lending terms summarized above and detailed in Schedule B

would apply to all lending under the Project and, because of substantialdifferences from present practices, to all future similar LDB lending. Com-mercial banks generally follow these terms and no other policy changes are

therefore required. Generally, investments would be evaluated in terms of

incremental returns in accordance with methods developed by ARC and inaddition minor irrigation investments would conform to the technicalcriteria specified in Schedule A. Assurances on these matters were obtainedat negotiations.

Accounts and Audit

4.23 While commercial banks have their accounts audited by commercialfirms, LDB in conformity with Indian practice is audited by a section ofthe State Government's cooperative department. Accordingly, it was agreed

at negotiations that the department wouldl continue to audit LDB's accounts

and such annual accounts would be submitted to IDA within four months of thefiscal year-end. It was also agreed that the audited accounts of any commercial

barxk channelling Project funds would be submitted to IDA within four monthsof their fiscal year-end, together with a statement of Project lending of

such banks certified by ARC.

V. PRODUCTION, MARKETING, PRICES AND FARMERS BENEFITS

Production

5.01 Indicative farm models have been developed which demonstratethat Project investments would enable farmers to increase their productionthrough; (a) higher cropping intensities (increasing from an average of 103%

to 136% on participating farms); and (b) from improved yields (Appendix 6-1).The increase in cropped area resulting from the Project would be about

34,000 ha (Appendix 6-4) attributable to minor irrigation. In addition,production would be intensified on about 117,000 ha through the introductionof irrigation.

5.02 The four farm models indicate that the expected cropping patterns

are determined not only by the relative profitability of various crops(which in some ceses, notably wheat, enjoy considerable price support) but

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to a large extent also by crop water requirements and growing periods.Water availability is particularly critical in Madhya Pradesh which has onlyone monsoon season a year and a detailed analysis of crop water requirementsand supply is thus included in Annex 6. Based on these models, productionincreases at full development would be about 167,000 tons of foodgrains,238,000 tons of sugar cane, 80,000 tons of vegetables anJ chillies, 19,000tons of oilseeds and 20,000 tons of cotton (lint and seed) (Appendix 6-4).Most of the foodgrain increases would be in wheat, the most significantcrop in the Project area.

Marketinp

5.03 Madhya Pradesh is in a net surplus position for all cereals as agroup, due largely to sizeable surpluses of rice. Wheat however has beenimported and the entire incremental production is expected to be consumedwithin the State. Mlost of the incremental production of vegetables, whichincludes a variety of garden and field crops, and of sugar cane is alsoexpected to be consumed locally, the latter either as gur or refined sugar.Increases in other crops would be exported to other states either for sale(pulses) and/or for processing (cotton and oilseeds).

5.04 Of the 277 agricultural markets in Madhya Pradeshi, 225 areregulated under existing legislation which is now being amended tostrengthen government's regulatory powers. Among marketing facilities,transportation and storage are the most deficient. Rail and road trafficis being improved though some inadequacies may be expected to continue.The lack of adequate storage however has been detrimental both to thephysical movement of agricultural commodities and the functioning of themarket price mechanism and at times rains and pest infestation have causedheavy losses. Accordingly it was agreed at negotiations that the StateGovernment with the assistance of ARC would conduct a study of agriculturalmarketing and storage requirements.

Prices

5.05 Prices received by farmers are in some cases lower than inneighboring states and some are subject to considerable seasonal fluctuation.While they are still generally higher than international prices, somedecline in price levels must be expected as India progresses towardsself-sufficiency in food and other crops. To take account of these uncertain-ties, the Project's financial and economic rates of return have been testedagainst percentage changes in prices (paras 5.06 and 6.02).

Farmers' Benefits

5.06 The financial rates of return on incremental investments (Appendix6-2) based on present prices and costs for the four indicative models rangefrom 35% to 51% for the normal minor irrigation investments (19% for theexceptional Model III dugwell). It must be recognized however that theserates of return are dependent in particular upon assumptions regarding prices,adequate farm management and the rate at which development would occur.In order to test the sensitivity of the returns against deficiencies in

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these factors, net benefits at full development were decreased by 20%. Therates of return then ranged from 28% to 10% indicating that these investmentswould still be financially attractive.

5.07 Fanners' responses to investment opportunities are however morelikely to depend on their expected effect on net income. Appendix 6-3thus details farmers' budgets based on the four illustrative farm models.This shows first that, with the exception of Model III, farmers can expectfrom these investments very considerable increases in net income afterdebt service with interest at 9% per annum. Typically, Model 1V shows anincrease from Rs 1,591 to Rs 4,469 annually at full development. In thecase of the exceptional Model III, the farmer's cash flow requires a two-year capital repayment grace period (para 4.21) but thereafter total netincome shows an increase of 70%. Second, the Appendix shows that, even inthe case of a smaller farmer of 1-1/2 ha selling surplus water to hisneighbor (Model MI) net income increases from Rs 674 to Rs 2,770 annuallyat full development. Although some loss of efficiency, and thus ofincome, can be expected from water sharing arrangements, the proportionateincrease in the individual incomes of two or more farmers should not varysignificantly: typically income per ha from a moderately well utilizeddugwell should increase from about Rs 450 to some Rs 1,200 annually atfull development after debt service of about Rs 600. Such margins are wideenough to cover possible performance deficiencies and still provide morethan adequate incentive for farmers to invest.

VI. BENEFITS AND JUSTIFICATION

6.01 The Project would benefit about 44,000 farmers and theirdependents, a total of some 250,000 persons, through investments in minorirrigation and land development. The value of annual production on thesefarms would increase by US$22 million at full development calculated atcurrent domestic prices. After debt service payments, the net incrementalfarm family income would amount to nearly US$18 million annually. Benefitsto the Indian economy would be an expansion in the production of agriculturalcommodities which are in short supply. The assumed availability of on-farmwater supplies would enable better use of high yielding seed varieties andfertilizers and, since yields would be less dependent on uncertain rainfall,production on participating farms would not fluctuate as widely as in thepast. At present farmers pay only a minimal fixed land revenue tax and theProject would thus not generate any incremental direct tax revenue. Indirecttaxes would accrue to GOI and the State goverrnent from sales taxes and exciseand import duties. Their incremental value is estimated to average aboutRs 12 million annually for the first three years of the Project's life andabout Rs 9 million annually thereafter.

6.02 Using predicted world market prices and after making appropriateadjustments in respect of taxes, the economic rates of return would rangefrom 17% to over 100% with family labor costed at subsistence rates during theoff-season and at peak-season market rates during harvest time. As indicated

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in para 5.06, these returns are dependent on assumptions made in respect tovarious essential factors. In order to test the sensitivity of the returnspercentage changes of 20% in net benefits at the farm gate have been assumedand returns would then range from 12% to 74% (Appendix 7-1).

6.03 The above calculations take no account of the indirect benefitsaccruing from increased knowledge of groundwater resources which, togetherwith the new minor irrigation appraisal methods and criteria to be introduced,would provide the framework for better groundwater use throughout MadhyaPradesh. Improvements in the banking system within the State would similarlybring about benefits outside the scope of the Project. Part of the overallbenefit takes the form of increased employment opportunities. It is estima-ted that at least 5,000 families would gain increased income from work onProject-financed farms while the labor input by the farm families themselveswould be increased by 47%. Though difficult to measure these and otherfactors would enhance the Project's already satisfactory economic justification.

6.04 In order to improve future project appraisal, it is necessary tomeasure the financial and economic benefits which actually result from theinvestment. Consequently it was agreed at negotiations that ARCwould utilize the machinery it has already established for monitoring andevaluating the financial and economic benefits of this Project.

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 During negotiations, agreement was reached on the following principalpoints:

(a) the Government of Madhya Pradesh will support theimplementation of appraisal criteria and proceduresapplicable to minor irrigation as set out in ScheduleA for all Project lending and for all groundwaterdevelopment under its direct or indirect control(para 3.03);

(b) ARC will, subject to consultation with IDA, not makeIDA finance available to any Primary Bank of LDB whosecollection level falls below 75% of demand (para 4.04);

(c) ARC will insure that the banking development plan,agreed by IDA, is implemented (para 4.16); and

(d) the GOI will cause CGWB to assign at least five officersto DTGS (para 4.17).

7.02 Conditions of the effectiveness of the credit would be:

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(a) the implementation of an agreed banking plan for the Projectincluding measures for the financial and managerial rehabili-tation of LDB (para 4.02); and

(b) the execution of a loan agreement between GOI and ARCacceptable to IDA (para 4.04).

7.03 The proposed Project is suitable fpr on IDA credit of US$33 millionunder standard IDA terms.

April 26, 1973

SCHEDULE APage 1

INDIA


1i4nor Irrigation: Proram, Appraisal Criteria and Procedures

I. Dugwell Program

1. The construction of new dugwells, the improvement of existing dug-wells and installation of electric and diesel pumpsets and persian wheellifting devices with ancilliary development would involve an investment ofRs 430 million in the following six river basins and 35 administrativedistricts:

River Basin Project Districts - with Non-Project DistrictsRjegions Duzell Investments included in State Minor

Irrigation Program

(a) Narmada Betul, Bhopal, Chhindwara MandlaDewas, Hosangabad, Indore,Jabalpur Jhabua, Khandwa,Khargone, Narsingpur,Sehore, Seoni

(b) Ganga Jabalpur, Raigarh, RewaSarguja, Satna, Shahdol,Sidhi

(c) Yamuna Bhind, Bhopal, Chhattarpur, Damoh, Daria,Dewas, Dhar, Guna, Gwalior, RaisenIndore, Jab aju, Mandsaur,Morena 2/, Panna, Rajgarh,Ratlam, Sagar, Sehore, Shajapur,Shivpuri, Tikamgarh, Ujjaain,Vidisha

(d) Godavari Balaghat, Betul, Chhindwara --

Seoni

(e) Tapti Betul, Khandwa, Khargone --

(f) Mahi Jhabua, Ratlam-

1/ District names underlined overlap two or more river basins.

2/ The portion of this District covered by the Chambal command areais excluded from the Project area.

SCHEDULE APage 2

II. Appraisal Criteria

2. Pump: 3-5 hp centrifugal

3. Minimum Well Discharge:

At the time of appraisal the proposed new dugwell or dugwellimprovement should indicate good prospects of realizing discharge normallysufficient to irrigate about one and one-half hectare of total farmland ofthe borrower or of the borrowers and his neighbors at a cropping intensityof 140% and in any case sufficient to achieve an incremental return adequateto support the investment.

4. Density of Dugwells

The density of dugwells within an elementary watershed would bedetermined bv the application of the following formula:

d r x 100B x Ax c

100

Where d = density (wells/km 2 )r = recharge in basin (mm)R = water requirement for the average cropping pattern (mm)c = cropping intensity (%)A = average area irrigated by a well (ha)

5. Spacing of Dugwells

The spacing of wells shall be determined for any area bythe application of the following formula:

S R1 000 Rx A x r x 100

where s = spacing (mm)(other symbols as under 4 above)

No investment for a dugwell, or dugwell improvement would be approved if theproposed investment was sited less than the specified distance from anotherwell.

6. Investment in Persian Wheels

Investments shall normally be made in Persian wheels where:

(i) in the opinion of DTGS, the well dischargedoes not justify the installation of an electricor diesel pumpset, or

SCHEDULE APage 3

(ii) electric power is likely to become availablein the near future so as not to justifypurchase of a diesel pumpset.

7. Irriation and Drainae Facilities

If adequate irrigation and drainage pipes or channels did notalready exist on farms to benefit from the investment, the provision of suchfacilities would be a condition of lending and could be included in thefinancing.

8. Apro va] l_by DTGS

No loan for minor irrigation shall be approved in any area beforeDTGS has approved the area on technical grounds.

III. Guidelines for Or anization and Appraisel

9. To the extent compatible with the responsibilities of ARC as theProject refinancing agency, DTGS would advise on minor irrigation development.For this purpose it has established divisional field offices responsiblefor groundwater surveys and development in one or more districts with adequatetechnical staff to advise on each proposed investment.

10. The field offices of DTGS would progressively establish and demarcatethe approximate limits of elementary watersheds within the river basin regions,and these elementary watersheds would be the basic unit of group appraisalfor dugwell investments.

11. DTGS would estimate groundwater recharge in each of the elementarywatersheds by one or more of the following methods; the measurement of waterlevel fluctuation in observation wells, the measurement of dry weather flow ofstreams from elementary watersheds and/or carrying out studies of the annualinflow and outflow from the watershed in accordance with the water balanceequation:

G = P - (R + E + Cu)

where G = groundwater balance

P = rainfall input

R = run-off

E = evaporation

Cu = consumptive use of water by vegetation

SCHEDULE APage 4

Until deliberate calculations are made for each watershed, DTGS would make aprovisional and conservative estimate of recharge using studies in otherrepresentative watersheds as a basis for such estimates.

12. During appraisal a sketch map would be prepared showing the loca-tion of existing wells within a radius of 300 to 500 m of the site at theproposed well, names of owners of property, the location of property linesand the area proposed to be irrigated by the proposed well. Informationregarding location of existing power lines, canals, lift irrigation works,reservoirs and type of power unit proposed should also be shown. Grid mapson a suitable scale showing project works should be maintained in the fieldloffices.

13. DTGS using the formulae set out in paras 4 and 5 above shall estab-lish density and spacing factors for each watershed in which a Project schemewas to be implemented, and the establishment of these factors shall be subjectto ARC's approval.

14. Appraisals of individual loan applications would be made by anofficer of the lending bank assisted, if needed, by a staff member of DTGS.Applications would include all pertinent data including that described inparagraph 13 and would be sent to the Divisional Office at DTGS for approvalof technical criteria before loan approval by the lending institution.DrGS would physically check all doubtful cases and, in addition, would check10% of all recommended applications for compliance with appraisal criteria.

15. As part of its appraisal, the lending bank would satisfy itself priorto loan approval that the criteria set forth in para 3 above have been met.

16. In the event of a new dugwell failing to realize the anticipatedwater discharge DTGS would be requested to recommend the type of liftingdevice to be installed (persian wheels/pumpsets, see paras 3 and 6), basedon a field inspection of the well or on prior experience and knowledge ofthe area.

lV. Lending Criteria and Procedures Applying toSimilar Investments Outside the Pr2ejct

17. Outside the Project areas, with effect from 12 months from theeffective date, LDB, and all agencies within the direct or indirect controlof the State Government would only lend for minor irrigation investmentswhere:

(a) approval had been given by DTGS. and

(b) such lending conformed to the appraisal criteriaand procedures set out in this schedule.

April 26, 1973

SCHEDULE BPage 1

INDIA


Project Lending Tenns and Conditions

1. GOI to ARC

(a) In respect of ARC refinancing not exceeding nine years:

(i) interest rate of not less than 5-1/2%,' per annumless 1/4% per annum for prompt payment;

(ii) repayment at the end of nine years,

(b) In respect of ARC refinancing for ten years and above but notexceeding 15 years:

(1) interest rate of not less than 6% per annum less 1/4% perannum for prompt payment;

(ii) repayment at the end of 15 years;

(c) GOI to carry exchange risk.

2. ARC to Lending Banks

(a) Interest rate not less than 6-1/2% per annum;

(b) Refinancing by way of purchase of debentures or by loansat the rate of 90% of individual loans for minor irrigationand 75% of individual loans for land development:

(c) Repayments to ARC to be in installments set to coincide,more or less, with the maturing period of special debenturespurchased by ARC or, as the case may be, with expectedcollections of agricultural loans refinanced.

3. LDB to Primary Banks

(a) Interest rate not less than 7-1/2% per annum;

(b) Repayments in installments set to coincide approximatelywith collections from ultimate borrowers;

(c) Loans would cover the total amount of Primary Banks'lending to ultimate borrowers.

SCHEDULE BPage 2

4. PriminAU ks and Commercial Banks Leand _to Ultimate Borrowers

(a) Interest rate not less than 9% per annum;

(b) A once-and-for-all evaluation fee of 1/2% of the cost ofproject investments;

(c) Borrowers' contributions (for lending through Primary Banks):

(i) for normal lending, a minimum of 15% for dugwells andland development, and 5% for pumpsets and persianwheels of the cost of the project investment(including own labor contribution);

(ii) for lending to small farmers -1/ 5% (including own laborcontribution) in the case of minor irrigation invest-ments costing less than Rs 10,000 each, and for landdevelopment.

In addition to the contribution towards the cost of the investment, borrowerswould contribute to LDB share capital an amount equal to 5% of their loans.

(d) Borrowers' contributions (for lending through Commercial Banks):

(M) for normal lending a minimum of 20% of the cost of theproject investment (including own labor contribution)for dugwells and land development, and 10% for pumpsetsand persian wheels;

(ii) for lending to small farmers - a minimum of 10% ofthe cost of minor irrigation investments (includingown labor contribution) costing less than Rs 10,000each and for land development.

1/ In accordance with criteria agreed with IDA, to be eligible for smallfarmers concessional lending terms, a farmer should not cultivate anaggregate area in excess of such area as will yield a total farmincome of Rs 2,400 per annum. For this purpose, '"total farm income"shall be the income net of cultivation costs but not of the principaland interest due on the loan; and shall include both the incrementalfarm income accruing from the investment on the loan in the land benefit-ting from it as well as the farm income from the land not so benefitting.This definition is presently under discussion with GOI and ARC. Apre-developmental income concept is being considered which could havethe effect of allowing a greater number of small farmers to takeadvantage of concessional lending terms.

SCI{EDULE BPage 3

(e) Repayment periods, which would not exceed the life of theasset financed would be:

(i) for normal lending a maximum of:

(1) Nine years with no grace period on loans fordugwells, dugwell improvements and land developmenton dugwell projects where such dugwells are energizedby an electric or diesel engine;

(2) Nine years, including two years of grace in which interestonly would be payable, on loans for new dugwells wheresuch dugwells are powered by persian wheels;

(3) Seven years with no grace period on loans for electricor diesel pumpsets including the electricity connectiondeposit;

(4) Seven years, including two years of grace in which interestonly would be payable on loans for persian wheels whereinstalled on new dugwells; and

(5) Ten years, with no grace period, for land developmentloans;

(ii) for lending to small farmers as defined, repayment periodsfor dugwells and dugwell improvement loans may be increasedto 15 years including two years of grace in which interestonly would be paid.

Except grace periods are specified, repayments would commence in the yearfollowing the completion of the investment.

5. Other LDB Lendig_Op ratitins

LDB and Primary Banks would apply the same borrowers' contributionand repayment requirements to all their similar lending operations and thesame interest rates, evaluation fees and collateral requirements to all theirlending operations (except in the case of schemes submitted under the aegisof the Small Farmers and Marginal Farmers Development Agencies in MadhyaPradesh).

April 26, 1973

ANNEX 1Page 1

INDIA


Minor Irrigation

Physiography and Drainage

1. Madhya Pradesh is the largest state in India with an area of about444,000 km2. It extends from 18° to 27° N latitude and from 740 to 840 Elongitude and is thus located near the geographic center of the country.Physiographically the State is divided into four regional types:

(a) Mountain Region: the Satpura, Mahadeo and Maikal mountainranges extend across the State in southwest-northeastdirection south of the Narmada River valley, and reachaltitudes in excess of 1,500 meters. These mountains andadjacent highlands form the headwaters of the seven Importantrivers in the state.

(b) Plateau Regions: the Vindhyan, Deccan and Malwa plateausoccupy a large part of the State north of the NarmadaRiver valley.

(c) Valleys: the alluvial valleys of the Narmada, Chambal, SonMahanadi and other smaller rivers provide important ground-water resources suitable for development by tubewells.

(d) Plains: the low-lying area occupying the most northerlyportion of the state.

Geology

2. About one-third of the State has igneous rocks of Upper Cretaceousto Lower Eocene age locally known as Deccan Traps which were formed bysuccessive lava flows. Das 1/ has reported that the individual flows vary inthickness from five to about 30 meters. The thinner flows are permeablebecause of cracks and crevices formed by rapid cooling and weathering of thelava but the thicker zones are impermeable except near the bottom and topof the flow where cooling was more rapid. The time interval betweensuccessive flows was sufficient for considerable weathering to occur whichformed interflow zones that are permeable to the movement of groundwater.

1/ Das, K. N. Occurrence of Groundwater into Deccan Trap Areas of

Madhya Pradesh State, unpublished. 1972.

AiNEX 1Page 2

3. Both, sedimentary and metamorphic rocks are also found over largeareas. These consist of limestones, shales, sandstones and conglomeratesof Upper Permian to Upper Jurassic age. The Vindhyan sandstone whichoutcrops in some parts of the State is classified as Precambrian, and canbe considered as a poor aquifer because of its resistance to weatheringand its limited primary fractures.

4. Outcrops of early Precambrian (Archeozoic) rocks can be found on themountainous slopes and consist of porphyritic granites, phillites, schists,gneiss, quartzite etc., but these are not significant from the standpoint ofgroundwater resources.

Climate

5. The Iladhya Pradesh climate is sub-tropical with mean annual tempera-ture of 24.40C ranging from a mean of about 1800 in January to about 32°C in>lay. Maximum and minimum temperatures in the Tawa project area of 45°C and3°C have been observed.

6. The annual precipitation ranges from-a bean of,760 mm in theextreme western part of the State to near 1,300 mmIin the south central part.Practically all the annual precipitation occurs duping the monsoon period,June-September. A summary of precipitation data is given in Appendix 6-lb.

Surface Water

7. The Project area is drained by four principal river systems--theNarmada which discharges into the Arabian Sea and the Yamuna, Ganga andGodavari Rivers which flow into the Bay of Bengal. The Narmada, the mostimportant of these rivers to Madhya Pradesh, rises in the east central partof the State and flows west southwest. The Yamuna River drains the north-western part of the State and its major tributary is the Chambal which joinsthe Yamuna River outside the State boundary. The northeastern districtsare drained by the Son and Satna Rivers which are tributaries of the GangaRiver. The Godavari Basin drains the south central portion of the Stateand forms part of the State's southern boundary. The Project area alsoincludes portions of Betul and Jhabua Districts which are situated in theTapti and Mahi River Basins and which also flow into the Arabian Sea.

d. The Chambal River development scheme provides for irrigation ofland in Morena District. The stream flow is regulated by Gandhi Sagar,Rana Pratap and Jawahar Sagar Dams and reservoirs and was designed togenerate power and irrigate 220,000 ha in both Rajasthan and Madhya Pradesh.

9. Another large gravity irrigation project is under construction onthe Tawa River, a tributary of the Narmada River. This is designed toirrigate 332,000 ha and the flow of the Tawa River will be regulated by areservoir of 2,3056m3 (1,874 million acre feet) capacity.

ANNEX 1Page 3

Groundwater

10. Essentially all groundwater available to dug and dug-cum-bore wellsin the Project area occurs within the residual weathered material overlyingthe igneous, sedimentary or metamorphic bedrock or in joints or fractureswithin the upper zone of unweathered bedrock.

11. In the alluvial areas along the river valleys and in some of theplateau regions groundwater is being developed by tubewells. Relativelygood aquifers for tubewell development are usually found in the DeccanTrap areas, either in the fractures and crevices of the lava or in theinterflow zones. Tubewells in alluvial aquifers or trap areas typicallyhave a discharge ranging from five to 25,000 gph (6.3 to 31.5 1/sec).Usually several aquifers are encountered, first under water table conditions(or perched) and at progressively greater depths semi-confined and/orconfined. In the sandstone areas groundwater is usually obtained infracture zones.

12. There are about 650,000 dugwells in Madhya Pradesh, most aboutseven meters in diameter and nine to 15 meters deep. In most instances itis impracticable for dugwells to completely penetrate the lava flows asthese are too thick and become massive with increasing depth. However,where these flows are thin (five to seven meters) they can be penetratedby dugwells and sometimes tap an interflow zone which may be quite permeable.A rubble masonry wall is constructed around the perimeter of the well toprevent collapse of the soft surficial materials and if bedrock is encounteredthis forms its foundation. Large diameter wells are usually preferred asthis permits more water storage but it also adds considerably to its cost.If the diameter of the well were reduced by say one-third, the total costcould be reduced by about one-half and with horizontal and/or verticaldrilling, the well yields would be equal to or greater than that of thelarge diameter wells.

13. Recharge to groundwater occurs primarily from direct precipitationsupplemented by seepage from streams, tanks and irrigation applications.Recharge opportunity is limited mainly to the monsoon period and varies withthe duration and intensity of the rainfall as well as the infiltrationcapacity of the soil and subsoil. Groundwater storage capacity is dependenton the specific yield of the aquifer where it occurs under water tableconditions as is the case of dugwells. The determination of recharge isthe most important element in the spacing of wells. If wells are spacedtoo closely, there will be mutual interference, i.e., the drawdown in bothwill be increased as a result of pumping and the discharge will be decreased.There are three methods of estimating recharge applicable to the Project area:

(a) Measurements of water level fluctuation in observationwells. The rise in water level resulting from rechargeduring monsoon rainfall multiplied by the specific yieldof the formation will give an approximate value of theincrement of rainfall added to the groundwater reservoirs.

ANNEX 1Page 4

The difficulties with the method are: (i) obtainingmeasurements which are not affected by pumping from thewell; and (ii) obtaining good estimates of the specific-yield of the formation.

(b) Measurement of the dry weather flow of streams fronelementary watersheds. The recession leg of thestreamflow hydrograph represents essentially effluentdischarge from the groundwater reservoir, and affordsa means of estimating the recharge not otherwise utilized.

(c) Making studies of annual inflow to and outflow from thewatershed in accordance with the water balance equation:

G = P - (R + E + Cu)

where G = groundwater balance

P - rainfall input

R = runoff

E = evaporation

Cu = consumptive use of water by vegetation

14. There are several items in the water balamce equation that aredifficult to estimate with accuracy. The input of precipitation is difficultto estimate unless there is a relatively dense network of rain gauges. Fur-thermore, the storm runoff depends to a great exteht oh the rainfall intensitythat varies considerably from one storm to another, also infiltrationcapacity of the soil affects the runoff and such data can be obtained onlyby extensive field surveys. The consumptive use of cropped areas can beestimated with a fair degree of accuracy if the crop is provided with afull water supply. If not, as is the case with most rainfed crops, theamount of water used by the crop is difficult to estimate accurately. Whenit is realized that groundwater recharge is usually in the order of 10% - 20°;of Llae annual precipitation and that this is the residual or unknown in thewater balance equation, it is evident that such determinations provide onlyapproximations. However, if estimates of groundwater recharge are derivedby l methiods described above, reasonable values can be obtained.

15. t.ltiough little data are available, the quality of groundwaterappears to be suitable for eitlher domestic or irrigation use. -io knownproblems of water quality have developed from the use of groundwater fromexisting wel ls.

ANNEX 1Page 5

Present state of groundwater development

16. The population of about 650,000 dugwells in i,adh'ya Pradesh (about400,000 in the Project area) is presently increasing at the rate of about25,000 annually. Most of the current development is fi.anced by loansfrom the State Cooperative Land Development Bank (LDB) (about 11,000 in1970/71) part by the State Cooperative Bank (SCB) (about 5,000) andcommercial banks with the remainder being financed from private and non-institution sources. In addition there are on-going LDB schemes for theinstallation of about 4,000, mainly shallow tubewells of which some 600Iad been completed as of April 1972. The tubewell schemes and somedugwell schemes are being refinanced by the Agricultural RefinanceCorporation.

17. Of the 18,351,000 ha net sown area in Madhya Pradesh in 1970/71only 1,481,000 ha or about 8.2% was irrigated and about 510,000 ha or one-third of the irrigated area was attributable to wells, mainly dugwells.The average area irrigated by wells was thus just under 0.9 ha. This lowaverage has resulted from the following factors:

(a) poor well siting due to inadequate technical guidanceand direction;

(b) the absence of either vertical or horizontal boring atthe bottom of a dugwell which if carried out could in wide-spread conditions result in substantial increase in wellyield for small capital cost. This situation has stemmedfrom a lack of technical knowledge and inadequate and poorlyorganized drilling services;

(c) inefficient water use because of inadequate lanid shapingin the cultivable command area;

(d) the small proportion of wells energized by electric ordiesel pumpsets (about 7%). This has been partly due tothe limited rural electrification in the State and farmersreluctance to invest in higher cost diesel pumps. It hasalso been due to (in particular) LDB financing arrangementswhich by placing limits on well loans and by using outdatedland valuation methods have prevented borrowers fromcompleting their investments;

(e) small farmer well owners who have been unwilling to shareor sell water in excess of that required to irrigate theirown farms.

18. Together these factors have resulted in a low well-technologyand consequent over-capitalization. The proposed dugwell developmentprogram (para 22) should make possible the irrigation of some 107,000 habut if half the borrowers under the Project were to irrigate only one ha

&NNEX 1Page 6

each (either because they were small farmers unwilling to sell theirsurplus water or for other reasons), the area benefitting would be reducedby about one-third to 72,000 ha. To minimize the dangers of over-capitalization, it is essential to raise the standards of well technologyand critical in this will be the strengthening of the State Directorateof Tubewells and Groundwater Surveys (DTGS) (para 25) both to extend thescope of its groundwater surveys and to enable it to ensure the implementationof well development programs to acceptable standards and criteria.

19. Preliminary computation of groundwater recharge has been made byDTGS in 24 districts where data are available. These have been based ongeologic mapping, well inventories, water level measurements and testdrilling and indicate that groundwater recharge is about 76 times as muchas that proposed to be utilized by the new wells. Although only tentative,these preliminary computations indicate adequate groundwater resources.Existing data also indicates, however, that there are large variations inthe amount of rainfall added to the groundwater reservoir and although welldensities are generally low, there are areas of over exploitation and ofmutual interference between wells. It is therefore crucial that welldevelopment be considered in the context of each elementary watershed.

20. At the present time no legislation controlling groundwater develop-ment exists in Madhya Pradesh and although the State Government intends topropose such legislation, it is essential that in the meantime, effectivecontrols are exercised through the Project and other lending programs on apragmatic basis. As most wells are financed through institutional loans itwould be possible in this way to introduce effective criteria for futureminor irrigation development. Schedule A thus sets out the criteria andguidelines for appraisal to be introduced under the Project and in particular,formulae relating to the determination of well densities and minimum spacingrequirements.

21. Because recharge is the most important paramater in determiningwell densities and spacing, Schedule A also details procedures and guidelinesfor its computation. In addition to well inventories and measurements ofwater levels, surface water gaging stations should be selected on the basisof factors such as geology, topography, vegetation and agro-climatic condi-tions in order to be as representative a sample as possible. An analysisof the recession leg of the hydrograph will provide a means of estimatinggroundwater recharge within the watershed regardless of the administrativedisi-Ict in which it is located. Rainfall-runoff relationships can also bedeveloped and used in the water balance equation to estimate recharge onthe basis of elementary watersheds.

Proposed Development Program

22. The Project's minor irrigation component would involve a totalexpenditure of Rs 430 million (about US$53.7 million) in various types ofdugwell investments. The precise numbers of each type of investment cannotbe determined until detailed schemes have been prepared but it is expected

ANN4EX 1Page 7

that there would be about 24,000 new dugwells and about 15,000 improvementsto existing wells. Most new well investments would include either anelectric or diesel pumpset and the same would apply to well improvementinvestments where such energization did not already exist. It is estimatedthat about 39,000 pumpsets would altogether be involved (Appendix 6-2).Emphasis has been placed on well improvement because many wells are notdeveloped to their full potential and in favorable conditions, well yieldscan be increased by up to 200% by deepening and particularly by horizontalor vertical boring. Investments in persian wheels, a traditional liftingdevice, would only be made where a well failed to realize sufficientdischarge to justify the installation of an electric or diesel pumpset.

23. Borrowers making investments in electric pumps would also berequired to make a deposit of Rs 3,000 for the electricity connection.This is later recovered by the farmer by deductions from his electricitybill. Although Rs 3,000 may not on average cover the full cost of suchconnections (this would depend on an average of distances), it is a figurewhich has been adopted elsewhere in India and is well within borrowerrepayment capacity.

Well Yields

24. The yield of dugwells is dependent, not only on the recharge but onthe effective porosity, permeability and depth of the weathered materialpenetrated. In the Deccan Trap areas the basalt layers near the surface arefractured sufficiently to function as aquifers if wells are located anddeveloped properly. About 35 - 40% of the Project area is in this category.The remainder of the area consists of alluvium, weathered sandstone, lime-stone, granites, gneiss, phillites, and other decomposition products. Yieldof wells in these areas will vary withi the local situation and it is there-fore difficult to predict with any precision the yield of individual wells.Based on the data available it is assumed however that the yield of allbut a few wells will be sufficient for installation of pumpsets. For thepurposes of water supply analysis for Project farm models detailed inAnnex 8, it is assumed that for wells located in the Deccan Traps and otherfavorable formations yields would range from 171 m3 /day (37,500 IGPD) inOctober, to 102 m3/day (22,500 IGPD) in May. These are referred to inAppendix 6-1 B as Type A Wells. For wells less favorably situated yields areestimated to range from 114 m3/day (25,000 IGPD) in October to 68 m3/day(15,000 IGPD) in May and these are referred to as Type B Wells. For inter-mediate periods yields would vary proportionately. The yield of wells varieswith the magnitude of drawdown and the maximum can be obtained immediatelyafter the monsoon rains when water levels are at their highest. Likewisethe minimum drawdown occurs in May and early June at the end of the dryseason, and well yields will be minimum at this time. There will also bea few wells wiich despite the best technical advice will not penetratefavorable water-bearing zones and their yields, estimated at not more than25 m3/day at any time of the year, will be too low to justify the installa-tion of a pumpset. These will be fitted witlh Persian wheels and are referredto as Type C Wells.

A%NNEX 1Page 8

State Directorate of Tubewells and Groundwater Surveys

25. DTGS was originally established in 1963 for the purpose of tube-vce1l exploration and development; its scope was extended in 1971 to includegroundwater surveys and thus aspects of development concerning dugwells.The groundwater survey wing of DTGS has established three field surveydivisional offices, ten sub-divisional offices, and 25 district surveyoffices, and its total geohydrological staff is comprised of 43 officers,58 junior executives and 145 surveyors as of April 1972. Apart from thedirector whose previous background has been in irrigation engineering,the Directorate has a senior advisor on temporary secondment from SagariUniversity.

26. Although many of DTGS staff are well qualified academically, thereis generally little experience in groundwater investigations and the organi-zation will need considerable strengthening both qualitatively and quantita-tively if the proposed Project is to be implemented to the required standardsand criteria. While much of the strengthening at the field level can be metby appointments of newly qualified graduates there is a dearth of officersin the middle and top ranks who have the capacity to organize surveys andappraisal programs, to teach junior staff in procedures and methods and tointroduce modern techniques not only in groundwater studies but also in datahandling and analysis. The Central Groundwater Board (CGWB) the recentlyestablislhed all-India groundwater agency has available for attachment to thestate directorates a cadre of specialists following its take-over of thegroundwater wing of the Geological Survey of India (GSI); CGWB has agreed inprinciple to make available up to 5 persons from this cadre for NadhyaPradesh.

Project Equipment

27. Well boring is carried out by the State's Agro-IndustriesCorporation (AIC) which now operates 30 drills and private contractors.It is estimated that under the Project, the number of wells to be boredannually would increase from about 2,500 to about 8,000 and for this purposean additional 70 pneumatic drills togethier with air compressors and spareparts would be included in Project financing. AIC at present chargesfarmers a commercial rate of Rs 7.0 per foot for drilling.

January 19, 1973

ANNEX 2Page 1

INDIA

MLADHYA PRADESH AGRICULTURAL CREDIT PPOJECT

Land. Development

Background

1. The application and control of irrigation water on the farm hasonly in recent years become fully appreciated in India. In some of theearlier irrigation schemes it was considered that the provision of water wasthe only important factor and it was left to farmers to arrange their on-farmsystem and irrigation practices. It is now realized that the provision ofchannels down to the farm level is essential and that in many instancespreparation of farm fields to control the water is also essential.Uncontrolled irrigation may result in excessive applications in some partsof the command area and inadequate applications in other parts, resultingin water-logging, soil deterioration and low yields. To prevent suchconditions, land shaping is needed so that application of irrigation watercan be controlled.

2. In Madhya Pradesh, land development needs are centered on theestablished Chambal irrigation scheme in Morena district in the north-westernpart of the State, on the Tawa irrigation scheme now under development inHosangabad district in the south-western part and on minor irrigation,mainly dugwell schemes which are scattered throughout the State. Pastfailures and research projects have brought a greater awareness of landdevelopment needs and some of its attendant difficulties but relativelylittle is known about the technologies involved and there is no realappreciation of the size of the task involved in carrying out landdevelopment over large areas as against small demonstration projects. Inconsequence there is a serious lack of managerial, technical and organiza-tional capacity which must be corrected soon if Droposed schemes over thenext few years are to be developed to the required standards.

Land Shaping Methods

3. Land shaping is carried out by manual labor, by animal power, by avariety of farm machiines or by a combination of these methods. Because ofsmall farm sizes, often unconsolidated (see para 5) manual labor using thebasket method is often favored, particular on small well schemes. This ishowever relatively inefficient and time consuming, one hectare of landrequiring on average 700 man days to prepare for relatively efficientirrigation. Labor for this type of work is difficult to recruit and willonly be undertaken if no other work is available. Animal power, particularlybullocks is frequently used but is only available when the animals are not

Li. '1,EX 2

Page 2

required for land preparation and harvesting and as this tends to be at thehottest time of the year when the ground is very hard, their effectivenessis very considerably reduced.

4. More recently bulldozers or wqheel tractors with rear blades havebecome increasingly used for land shaping or levelling. While bulldozershave the advantage of being able to move large volumes of earth over shortdistances, they have the disadvantages of being unable to shape large tractsof land to precise gradients, of exposing sub-soils and of being expensiveto operate (about Rs 3/m3). At best tney can only be used either in conjunc-tion with other more suitable machines or with manual labor or animal power.

5. In Madhya Pradeslh there are two particular problems which have abearing on land shaping methods. The first of these is the prevalence ofhieavy black cotton soils which are easily waterlogged particularly duringthe exceptionally heavy monsoon storms which are characteristic of the area.In these conditions it is essential that land be shaped to very precisegradients and research at the Agricultural University at Jabalpur and otherfield trials has indicated that surface drainage slopes should not exceed0.6G%. Second is the problem of fragmented farms and small fields oftendemarcated by high bunds which tend to confine land shaping within existingcontours and cause many irregularly graded fields. Effective land shapingand drainage often depends on the ability to carry out suclh development overlarge areas reflecting the natural contour but this in turn depends on thewillingness of farmers to cooperate in agreeing to have this work done.The Madhya Pradesh Land Improvement Schemes Act of 1967 permits theGovernment to regulate the construction of water courses, drains andcarry out land shaping on surface irrigation schemes but at least two-thirdsof the farmers in the area to be developed first have to agree to thearrangement. Often farmer's agreement is not forthcoming or governmentofficials are not anxious to press such schemes on them. A piecemealapproach is thus often the result providing a constraint on the methodsof land shaping and leading to incomplete or inadequate irrigation anddrainage facilities.

6. A crucial element in this work is therefore scheme design.Surveying and the preparation of contour maps is the responsibility of theSoil Conservation Service (SCS) of the Department of Agriculture and whilethi.s is done to adequate standards, areas are not staked in the field thusnecessitating continuing supervision from the SCS in directing soil movement.Lap,! ssUould in future be staked approximately at 30 m intervals and markedwithi the appropriate cut or fill information so that equipment operatorsthliemselves can judge the land shaping requirements.

Implementing Agencies

7. Most of the land development and shaping in Madhya Pradesh iscarried out by State government agencies and organizationally this is splitbetween the agricultural engineering wing of the Department of Agricultureand the State Agro-Industries Corporation (AIC, Annex 3), the former at

ANNEX 2Page 3

present being responsible for work on the Chambal irrigation scheme and thelatter for work at Tawa. Although land shaping at Chambal and Tawa is notincluded in the Project (para 9), the operations of AIC are important as itis expected that they will progressively take over work from the engineeringwing. Private contracting is not well developed in Madhya Pradesh althoughAIC is trying to encourage it through increasing its volume of subcontracting.Most land shaping or levelling on small and scattered well schemes tends tobe done by small firms or by larger farmers who hire out labor and farmmachinery. The tractor population in the State is however very low (about4,000) and such work therefore tends to be done by manual labor or animalpower--if it is done at all.

8. UNDP has had a land reclamation demonstration project of about1,000 ha on the Rajasthan side of Chambal command area in which the landof a number of farmers was shaped in one block and, after consolidation,farmers' boundaries were realigned to give them more rectangular fields.The UNDP manager has also carried out a similar demonstration on about100 ha at Tawa in Madhya Pradesh. Although the UNDP project in Rajasthanis now completed, it is proposed that it should be extended in a modifiedform by the UNDP which would carry out demonstrations on a number of landdevelopment schemes in several states. If approved, it is expected thatthe Tawa irrigation scheme would be included as a continuing demonstrationmodel.

Project Development Program

9. Although the State Government had requested the inclusion of 4,000ha of land development on the Tawa irrigation scheme and 3,600 ha in Chambal,this has been left out of the Project in view of the fact that the appraisedIDA project for Tawa proposes finance for on-farm development and landshaping equipment. Although this project has not yet been negotiated owingto policy differences on the procurement of civil works, it is hoped thatthis issue may yet be resolved and that the project may proceed. IDA pro-poses the preparation of a project in the Chambal area of Rajasthan and thetechnique developed can then be applied to Madhya Pradesh. The recentIrrigation Review Mission concluded that land shaping should form part ofa command area development program and not to be dealt with piecemeal undercredit projects.

10. The scope of land development and shaping under this agriculturalcredit Project is therefore limited to an estimated 36,000 ha on well schemesunder the dugwell program. The latter which represents about one-third ofthe land expected to benefit from this irrigation would be undertaken bysmall contractors or by the farmers themselves and a provision of Rs 500per ha is considered adequate in view of the limited nature of these schemes.

January 19, 1973

ANNEX 3Page 1

Ii-DIA

MADIIYA PRADESII AGRICULTURAL CREDIT PROJECT

Madhya Pradesh Agro-Industries Corporation

Organization and Management

1. In accordance with the general policy of the Government of Indiato encourage the development of farm mechanization and agro-industriesthrougl the establisliment of public sector corporations in each State,the Madhya Pradesh Agro-Industries Corporation (AIC) was incorporated as alimited liability company on March 21, 1969. It has an authorized capitalof Rs 25 million (US$3.47 million), subscribed equally by GOI and MadhyaPradesh Government. The paid-up capital as of April 1972 was Rs 11.5 mil-lion (US$1.6 million). AIC's Board presently comprises thirteen directorsincluding representatives of GOI, the State legislature farming interests,and its managing director (who is a member of the Indian AdministrativeService).

2. Like similar corporations in other States, AIC is intended tooperate as a commercial organization. Under its Memorandum ard Articlesof Association the Corporation has wide powers, including:

(a) the promotion and operation of enterprises for themanufacture of agricultural inputs;

(b) the establishment of industries and projects for theprocessing and distribution of agricultural products;

(c) the provision for sale or hire of farm machinery,agricultural implements, processing and other typesof equipment required for agriculture, including dairyfarming, poultry farming, fisheries and alliedindustries;

(d) the maintenance and servicing of farm machinery andother equipment; and

(e) the provision of managerial and technical guidance foragro-based industries.

3. The Corporation's head office and main work shlops are in Bhopal,with sale-service centers in Raipur, Satna and Gwalior, well revitaliza-tion units in Indore, Chhindwara, Mandsaur, Tkamgarh, and Sagar, and a

wNNEX 3Page 2

3,000 acre mcchanized farm at Babai which will produce quality seed.Presently the Tawa land shaping unit is being set up at Itarsi. As ofApril 1972, the Corporation had a total staff of about 170.

Operations

4. The main activities of AIC have been the sale and distributionof tractors imported under bilateral trade agreements with easternEuropean countries, supplemented with a few domestic tractors in 1971-72.A total of approximately 1,925 tractors had been handled by AIC from March,1969 to liarch, 1972. AIC also handles and distributes locally built tractorimplements and fabricates disc harrows at its Bhopal workshop from importedblades. Tractor custom services are also provided at most centers. Ratesrange from Rs 30 per hour for a 65 hp tractor to Rs 19 per hour for a 25 hptractor, with an additional charge of 25% for ploughing. At present, 40tractors are working under this program.

5. Revitalization of wells has been another major activity. TheCorporation now has 30 air compressors equipped with horizontal drillingequipment located at six centers. The custom rate for boring is Rs 7.00per foot and a total of 2,500 wells have so far been successfully drilled.

6. AIC has been given the responsibility of the on-farm landshaping, ditching and drainage in the Tawa command area. AIC had plannedto begin this work by April, 1972, but delays in securing indigenousequipment (dozer blades., land planes, bucket scrapers and excavators) haveresulted in a slow start. The only equipment at Itarsi in March, 1972was 50 K-7 Hanomag crawler tractors without dozer blades.

7. The Corporation's cool storage facilities are nearing completionin Indore and Chhindwara. These facilities will enable the farmers to doa better job of marketing their vegetables, fruits and flowers. Negotia-tions are currently underway to establish a fertilizer manufacturing plantin Madhya Pradesh, to be operated by AIC.

Financial Results

8. AIC made a profit in its first operating period to March 31, 1970of Ps 168,000 and of Rs 207,000 in the year to March 31, 1972.

January 19, 1973

INDIA


AGRICULTURAL REFINANICE CORPORATION

Condenz_ed Statements of Net Inccms!

For Fiscal Years 1965,/66 - 9g7i/72

1965'66 1966/67 1967/68 196842 1969170 _ 197071 1974272Rs M 7 oof RfM f RsM of Rs M W or Rs M 'A Rs M 6 of Rs M 1of

Total Total Total Total Total Total TotalIncome Income Income Incone __n_eIncooe Income o_ Incme

INCOME

Interest Earned on: IDA Projects - - 0. 99 i.6Other Loans and Debentures 1.09 25.1 3.o6 61.3 4.83 80.5 10.20 92.4 24.09 88.31 40.12 94.1 57.79 95.4

Interest on Investments and other Income 3.25 74.9 1.92 38.7 1.17 19.5 00.84 7.6 3.18 11.69 2.54 5 9 1.81 3.0

Total Incce 4.34 100.0 4.98 100.0 6.00 100.0 11.04 100.0 27.27 100.0 42.66 1oo.o 60.59 100.0

EXPENSES

Interest Paid on: Borrowings for IDA Projects o- - - - - - - - - 0.6 0.1Other Borrowings - - - - o.46 7.8 4.42 40.0 17.07 62.60 30.80 72.2 44.o6 72.7

Salaries, Allowance, Consultants' Fees,and EDployee Benefits 0.36 8.4 0.47 9.5 0.91 15.2 1.43 13.0 2.04 7.48 3.40 8.o 3.92 6.5

General and Administrative Expenses 0.11 2.6 0.13 2.6 0.29 4.8 0.43 3.9 1.42 5.21 1.48 3.4 1.59 2.6

Depreciation of Assets 0.01 0.1 0.01 0.3. 0.01 0.1 0.01 0.1 0.02 0.07 o.o4 0.1 0.07 0.1

Total Expenses o.48 11.1 0.61 12.2 1.67 27.9 62 57.o0 2.55 75.36 35.7 83.7 49.70 82.0

NET ICOCME BEFORE TAXES 3.86 88.9 4.37 87.8 4.33 72.0 4.75 43.0 6.72 24.64 6.94 16.3 10.89 18.0

Taxes Paid or Payable 2.27 52.2 2.40 48.3 2.38 39.6 2.61 23.7 3.70 13.56 L.44 8.1 5.75 9.5

NET INCOME AFTER TAXES 1.59 36.7 1.97 39.5 1.95 32.4 2.14 19.3 3.02 11.08 3.50 8.2 5.14 1.r

January 24, 1972

INDIA

MADDYA PRADESH AGRlICULTURAL CREDIT PROJECT

AGRICULTURAL REFINANCE CORPORATION

PROJECTED STATEHENT OF NET I C E

For Fiscal Years 1971/72 - 1975/76

1971/72 1972/73 1973/74 1974/75 1975/76% of % of % of % of % of

Rs M Total Income Rs M Total Income Rs M Total Income Rs M Total Inco8 Rs m Total Income

1/Interest Earned on: IDA Projects 0.99 1.6 25.69 24.5 67.46 39.0 92.23 36.9 107.08 32.9

Other Loans and Debentures 57.79 95.4 79.01 75.4 105.21 60.9 157.38 63.0 217.85 67.0

Other Income 1.81 3.0 0,10 0.1 0.10 0.1 0.10 0.1 0.10 0.1

Total Ineome 60.59 100.0 104.60 100.0 172.77 100.0 249.71 100.0 325.03 100.0

2/Interest Paid on: Borrowings for Lp4 Projects 0.06 0.1 14.20 13.6 40.19 23.3 60.17 24.1 74.82 .23.0

Other BorrowingsV 44.06 72.7 61.83 59j0 87.03 50.4 126.06 50.5 168.67 51.9

Salaries and Consultants' Fees 3.92 6.5 4.30 4.1 6.40 3.7 8.23 3.3 10.60 3.3

General Administrative Expenses 1.59 2.6 2.05 2.0 2.45 1.4 2.95 1.2 3.95 1.2

Depreciation of Assets 0.07 0.1 0.05 0.05 0.05 0.05

Total Expenses 49.70 82.0 82.43 78.7 136.12 78.8 197.46 79.1 258.09 79.4

INCOM BEFORE TAXES 10.89 18.0 22.37 21.3 36.65 21.2 52.25 20.9 66.94 20.6

Income Tax Due 5.75 9.5 11.57 11.0 18.96 11.0 27.04 10.8 34.64 10.7

NET INCOME AFTER TAXES 5.14 8.5 10.80 9.0 17.69 10.2 25.21 10.1 32.30 9.9

1/ At 6k2 per annm on all loans made after July 1, 1970; 62 per anu on all earlier loans.So 5J4 per anum for loans up to nine years and 5-3/4 per annum for loans up to 15 years.

3/ On the basis of the following interest rates, 4k% per annuo on share capital; 4k2 per *nnus on RBI (LTO) Punds; 5k2 per annum on borrowings from GOI on nor l- schemes; and 5.8% per annum on open market borrowings.

January 25, 1973

INDIA


AGRICULTUOAL REFINANCE CORPORATION

CONDENSED BALAEE SHEETS

At the End of Fiscal Years 1965/66 - 1971172

1965/66 1966/67 1V67/68 1968169 1969/70 1970/71 1971/72Change from Change from Change from Change from Clange from Change from

Rs M Rs N Previous Date Rs M Previous Date Rs M Previoua Date Rs M Previous Date Rs M Previous Date Rs M Previous Date

ASSETS

CZaah on Hand and in oanks 0.02 G.06 0.04 0.09 0.03 0.06 (0.03) 0.04 (0.02) 100.01 99.97 0.21 (99.80)

Inveatments 55.21 35.79 (19.42) 8.40 (27.39) 5.14 (3.26) 24.99 19.35 0.20 (24.79) ' (0.20)

Loans 1.47 3,03 1.56 7.35 4.32 25.49 18.14 42.93 17.44 76.95 34.02 137.72 60.77

tebeauices PuroHased 47.53 66.73 19.20 119.04 52.31 278.'5 159.51 546.04 267.49 812.39 256.35 1,096.38 283.99

Other Assets 2.34 3.38 1.04 6.46 3.08 13.58 7,12 17.31 3.73 27.30 9.99 37.39 10.09

Totl Assets 106.57 108.99 2.42 141.34 32.35 322.82 181.48 631.31 308.49 1,016.35 385.54 1,271.70 254.85

LIABILITIES 4ED CAPIEAL EQUITY

Loans from Government of India & Others 50.00 50.00 - 30.00 30.00 257.50 177.50 556.38 299.38 d62.13 305.25 1,132.31 270.18

Special Deposits 2.39 j.64 1-L5 ;.90 1.26 6.15 1.25 7.40 1.25 9.65 1.25 9.70 1.25

Other Liabilities 4.18 5.35 1.16 _ 6.44 1.09 9.16 2.72 16.94 7.78 93.77 75.33 _ 25.12 (68.65)

Total LiabiLities 56.57 58.99 2.42 91.34 32.35 272.81 181.47 581.22 308.41 964.55 383.33 1,167.33 202.78

Capi.sl - Paid-up 30.00 50.03 - 50.C0 - 50.00 - 50.00 - 50.00 - 100.00 50.00

Reserves and Surplus N N N N N 0.01 1.1 0.09 0.e18 2.30 1.40 4.37 2.07

Tatul C4rital Zquity -0.0 3.20 -l 50.00 3 0.3l 0.31 50.09 (.10 52.30 1.;0 104.37 52.07

Total L!2bilities & Vi Cital Equity X6.37 ioa.s; 2.i2 141.34 32..S 322.82 BlI.43 K,1.31 ;,.49 l,C16.d5 , S4.7 5 1,271.70 254.,'c--

1/ Includes: Rs. 277 million public bond issIXs; Rs.771 million from Central Governrent; Rs. 84 inillion from Reserve Bank of India.

N G Negligible W 4

January 25, 1973

I h D r A

MAIEYA PRADESH AGRICULrURAL CREDIT PROJECT

AGRICULTURAL REFLNANCE CORPORATION

PROJErTED BALANCE SFHETS

At the End of Fiscal Years 1971/7S - 1975/76

June 30 T97une5o1972

4 June 30, 975 JTune 30, 1976h~~efr~~ 1 Chane fro CWtenefrcmhne6~ Cag ~

-R M Previous Dater Rs 14 Previous Date Rs M Previous Date Rs Previous Date Rs Previous Date

ASSETS

Cash on Hand and in Banks 0.21 (99.80) o.60 0.39 0.70 0.10 o.80 0.10 0.90 0.10Investments - (0.20) 10.00 10.00 20.00 10.00 20.00 - 20.00Loans and Debentures: IDA Project 53.71 53.71 736.71 683.00 1,338.71 602.00 1i,498.71 160.00 1,795.71 297.00

Others 1,180.39 291.05 1,421.41 241.02 2,031.41 610.00 3,091.41 1,060.00 3,931.41 840.00Other Assets 37.39 10.09 30.00 (7.39) 40.00 10.00 70,00 30.00 30.00 10.00

Total Assets 1,271.70 254.'5 2,198.72 927.02 3,430.32 1,232.10 4,680.92 1,250.10 5,328.02 1,147.10

LIABILITIES AKD E ;IT

Loans frms GOI (IDA Funds) 33.29 33.29 544.82 511.53 1,081.82 537.00 1,339.82 258.00 1,652.32 313.00Other Loans from GOI and Other Sources 1,099.02 236.89 1,440.74 341.72 2,067.99 627.25 2,933.87 915.88 3,762.87 779.00Other Liabilities 35.0 (67.40) 53.49 18.47 61.40 7.21 72.41 11.01 57.46 (14.95

Total Lisbilities 1,167.33 202.78 2,039.05 871.72 3,211.21 1,172.16 4,396.10 1,184.89 5,473 15 1,077.05

Capital Paid-up 100.00 50.00 150.00 50.00 200.00 50.00 250.00 50.00 300.00 50.00Reserves: At Beginniog of Year 2.28 - 4.37 9.67 - 19.61 - 34.82 -

Projected Net Income 5.14 - 10.80 _ 17.69 - 25.21 - 32.30 -Total. Available 7.42 - 15.17 - 27.36 - 44.82 _ 67.12 -Mandatory Dividend D'.e&/ 3.05 - 5.50 - 7.75 - 10.00 - 12.25 -

At the End of Year 4.37 2.07 9.67 5.3 19.61 9.94 34.82 15.21 54.87 20.05

Total Capital Equity 104.37 52.07 159.67 55.30 219.61 59.94 284.82 65.21 354.87 70.05

TOTAL LIBSILITI1S AVD E4J1Y 1,271.7 ° 0 2,198.72 2702 3 1,232.102 1,250.10 ,282 02 4.1

See Appendix 4-3.

/ Mandatory dividend of 4-1/4' apRlies to the initial Rs 50 million equity capital and 4-1/2% o, senare capital issued later.

January 25, 1973

IjiDIA

MADHYA PRADESH AGRICULTUAL (CREtIT PROJECT

MADHYA PRADESH STATE OOPMRATIVE II)D D)EVELOPMENT BANK

Condensed Statement of IneceFor Fioa. Year .19%6/67-1970/71

1966/67 1967/68 1968/69 1969/70 1970/%o % of o oP of ofTotal Total Total Total Total

Rs'000 Income Rs'000 Income R3tooo Income Rs'000 Income RsO000 IncomeINGOME

Interest earned on loans 3,373 89 4,817 85 6,863 84 10,005 82 12,084 83Interest earned on investments 323 9 721 13 1,076 13 1,803 15 1,900 12Other income 87 2 135 2 262 3 357 3 - 785 5

Total Income 3,783 100 5,673 100 8,201 100 12,165 100 15,489 100W=== VW= : ==: =am W== VW= S msm

EXPENSES

Interest on debentures on loans 2,784 74 4,035 71 5,985 73 8,609 71 11,550 75Administraticn 322 8 496 9 783 10 1,264 10 1,280 8Niscellansous 100 60 377 7 40 5 340 3 6o6

Total Expenses 3,206 85 4,908 87 7,215 88 10,213 84 13,436 87==a1:: S=. =am- 1[tS ===ma =-=ccG= $s -- :

Net Income 577 15 765 13 936 12 1,952 16 2,053 13

April 26, 1973

INDIA


CGondeNed ProJected Statement of Net Ineoefor Fiscal Years 1971/72-1974/75

1971/72 1972/173 1973/74 1974/75 _ _1975/76

Total Total Total Total TotalRs'OOO Income Rs'OOO Income Rs'OOO Income Rs'OOO Income Rs'OOO Income

IN.COME

Interest on Loans /I 18,100 85 25,382 86 38,312 88 51,675 88 64,000 88Interest on Investments /2 2,150 10 3,088 10 4,125 9 5,500 9 6,000 9Other Income 975 5 1,130 4 1,363 3 -1,525 3 2,000 3

Total Income 21.225 100 2 100 5 8.700 100 7 2,100 70

EXPENSES

Interest on Debentures andLoans /3 16,800 79 23,189 78 34,650 79 47,400 81 57,600 80

Administration 1,500 7 2,200 8 3,000 7 3,45o 6 4,500 6Miscellaneous 525 2 711 2 1,000 2 1,250 2 1,500 2

Total Expenses 18, 825 8,89 2100 88 88 26 88

Net Income 2a40012 12 120 12 11 8 12

a Based on onlending to primaries at 790 p.a.

/2 Assumes average return of 50.

a Average rate of borrowing 61.

April 26, 1973

..d'iEx 4Ta?ile 7

INDIA


Condensed Balance Sheets at End of Fiscal Years 1966/67-1970/71(in Rs nillion)

June 30 1967 1968 1969 197) 1971

AS3ETS

Cash on Hand and in Banks 2.77 4.38 6.14 1.U 1.32Investments 9.56 15.26 23.60 33.83 39.06Loans 57.08 85.04 115.64 160O10 199.37Other Assets 2.23 3.21 4.15 7.31 8.11

Total. Assets 71.64 10789 2 247.86

LIABILITIES AND EQUITY

Debentures and Ioans 60.97 90.50 123.15 170.53 222.67Deposits 2.83 4.68 11.38 14.26 2.52Other Liabilities 0.60 0.78 1.11 _I.O' 2.70

Total Liabilities 64.40 95.96 186.714

EQUITY

Paid-un Share Capital 5.61 9.37 10.30 10.93 13.10Reserves and Profits 1.6 2.56 3U _ 6.87

Total Equity .24 11.9 .89 19.97

Total Liabilities and Equity 71.64 107.89 0 03 247.86

April 26, 1973

ANNEX 4Table U

INDIA


Condensed Projected Balance Sheetsat End of Fiscal Years 1971/72-1975/76

(in Rs million)

JunV 30 1972 1973 1974 1975 1976

ASSETS

Cash on Ra.nd and in Banks 2.00 2.50 3.50 5.00 5.00Investments /1 55.00 75.00 100.00 130.00 165.00Loans:

Under t4e Project /2 - - 60.00 150.00 300.00Others 250.00 315.00 374.00 426.00 476.oo

Other Asspts 9.90 10.00 14.00 15.00 15.00

Total Assets 316.90 402.50 551.250 726.00 961.00

LIABILITIES 4ND EQUITY

Debenturea and Loans 283.20 355.00 489.00 654.0o 873.00Other Lia?ilities 4.30 6.10 7.00 7.70 8.00Paid-up Stare Capital 21.00 30.00 40.00 [45.00 55.00Reserves #nd Profits _8.4 11.40 15.90 19. 25.00

Total Lialbilities and Equity 316.90 402.50 551.$0 726.00 961.00=~

L Mainly appropriations of Sinking Fund.

/2 Assumes jDB will lend about 64% of total Project remainderby commercial banks.

April 26, 1973

INDIA


Details of Entimated Project Cost

First Year Second Year Third Year Total Pro.jectUnit Total Total Total TotalCost Units Cost Units Cost Units Cost Units Cost(Rs) Tha) (Rs m) (ha) T%R Tm) (hGY TI) h (Rs N)

Minor Irrigation - - 86.0 - 150.5 - 193.5 - 430.0

Land DevelopmentFor well irrigation schemes 500 7,200 3.6 12,600 6.3 16,200 8.1 36,000 18.0

Total Lending Program - - 89.6 - 156.8 - 201.6 - 448.0

Project EquipmentWell drilling 60,000 70 4.2 - - - _ _ 4.2

TOTAL PROJECT COST - - 93.8 _ 101.6

Ll See Appendix 5-2 for- breakdown of total minor irrigation invest-mants. |

Apri2 2h, 1973

IN1DI ANNRX 5ADpendix 5-2

YLADFf:A PPADES1 S'G'.l) CUL;TUAI'L CREDIT PROJECT

Breakdown of Minor ! riration li nvestments

The following minor irrig&'Gion and rclased ir:vestraents have been assutmed in

the calculation of Project ciout., Tihey do not represent a firm investment program

but nonetheless broadly in'icate the iaiious i4tvestmerits likely to be made over the

Project period. Average unit costs (iiuclucing l10 allowance for cost increase) are

taken as follows: new dugwell Rs 7,000, itvprovement to exdsting dugwell Rs 1,500;

electric punpsets Rs 3,000 and aitzctrlci;ty eo mection Rs 3,000; diesel pumpsets

Rs 4,500, persian wheel Rs 1,0O0 and :.rr lgdfioa piping Rs 350 for 30 m.

A. Composite LoansBJectritC Pumnp Persian Total

Well & Conae6tino Diesel Pump Wdheel Cost

.T nits 25.000 16,000 7.800 1,200 --

Cost Rs 175.0 m Rs 96.0 n Rs 33.1 m Rs 1.2 m Rs 307.3 m

B. Energization Loans

I,lnits -- i,800 1,20t) -- --

Cost -- Rs 10.8 m 5s 54m -- Rs 16.2 m

C. Improvement Loans

tUnits 15,O00 2.0000 3,5(00 1,500 --

Cost, Rs 22.5 m Rs 60.0 m Rs 15.7 m Rs 1.5 m Rs 99.7 m

D. Irrigation Piping

It is estimated that about half, 39,300 l/ investments with electric ordiesel pumps would require 30 m of' p1ILng, 2J0 0 x is 3.50 Rs 7.0 m

GRA.ND TOTAL Rs 43Q.2 m

E. Pneumatic Drill Requirements

It is assumed that one-third of corrposite loans (8,00o in all well, improve-

ments would require supplemental boring-i,e., a total of 23,000 wells or say 8,000

annually. On the assumption that one d;'f`A1l can bore 80 wells annually, 100 drills

less 30 drills now in the State would be 1'rquired: i.e, a total of 70.

1/ Total Investments: £nergized by:

Composite 25,000 Electric Sets 27,800Energization 3,!0C Diesel Sets 12,500

Improvements _ Persian Wneels 2,700

4. L A00 43, 000

July 27, 1972

ANNEX 5Appendix 5-3

INDIA


Estimated Disbursements of IDA Credit (Cumulation)

Minor LandQuarter Ending Irrigation Develo mnt Total

(Rs m) (Rs m) (Rs m) (US$ m)1973/74September 30, 1973 - - -December 31, 1973 3.0 - 3.0 0 4March 31, 1974 14.0 0.5 17.0 2.3June 30, 1974 35.0 1.5 36.5 .9

1974/75September 30, 1974 69.0 2.0 71.0 9.5December 31, 1974 69.0 2.0 71.0 9.5March 31, 1975 93.0 3.0 96.0 12.8June 30, 1975 123.0 4.5 127.5 17.0

1975/76September 30, 1975 163.0 6.5 169.5 22.6December 31, 1975 163.0 6.5 169.5 22.6March 31, 1976 183.0 7.5 190.5 25.4June 30, 1976 L2 223.0 8.5 231.5 30.9

1976/77September 30, 1976 231.0 9.5 240.5 32.0December 31, 1976 La 239.5 10.0 249.5 33.0

/ Estimated date of credit effectiveness.

/2 Estimated date of Project completion.

13 Closing date.

April 24, 1973

ANNEX 6Page 1

INDIA

MADJIYA PRADESH AGRICULTURAL CREDIT PROJECT

Farm Incomes and Financial Rates of Return on Investments

Introduction

1. This Annex is an explanation of the methodology and assumptionsadopted in preparing the illustrative farm models and their consequentfinancial results and physical effects. Appendix 6-1 sets out the croppingpatterns, yields, production costs and gross production value for each ofthe four models. In support of the four dugwell investment models, (ModelsI to IV), Appendix 6-la details the estimated unit crop water requirementsin the two major crop regions in which the farm models are assumed to belocated and Appendix 6-lb gives the average monthly precipitation in each ofthe two regions. The following two Appendices show the water requirements(Appendix 6-1c) and relative sources of supply (Appendix 6-1d) for each ofthese farm models. Appendix 6-2 gives the financial rates of return foreach investment and Appendix 6-3 shows the incremental net incomes to farmersafter debt service. Finally, Appendix 6-4 details estimated changes incropped area and production. The following paragraphs review the assumptionsfor each of the Appendices.

2. Appendix 6-1

(1) Cropping Regions

Two cropping regions, I and II together representing the largerpart of the Project area have been adopted for the farm models. Region Iwhich broadly covers the western and southern parts of the State has beentaken as the cropping basis for model IV and Region II, covering the centraland northern parts, is the assumed location of models I-III. Crop Region Ihas less rainfall and therefore a greater irrigation requirement than CropRegion II.

(2) Dugwell Command Area and Farm Site

The command area is determined by the different levels of dischargeof the three types of dugwell (see Appendix 6-1c). In the case of ModelsI, III and IV, the farm size could be larger than the command area specified,any extra area being unirrigated. In Model II, the farm is not largerthan 1.5 ha, the surplus water availability being sold to another farm.

ANNEX 6Page 2

(3) Cropping Intensities

Cropping intensities do not exceed 140% because of the short periodbetween the kharif harvest and rabi sowing and because the availability ofsupplementary on-farm power from tractors, necessary for higher levels ofcropping, cannot generally be assumed in Madha Pradesh.

(4) Family and Hired Labor

Family labor, assumed to be available to the extent of 2-1/2 mandays for 24 working days a month, or a total of 60 man days a month, has notbeen costed for purposes of financial calculations. Any labor required inexcess of this is assumed to have been hired and has been costed at Rs 5per day during the harvest season and Rs 3 per day at other times.

(5) Crop Prices

The following farm-gate prices have been assumed (Rs/ton):

Bajra (millet) 500Chillies 400Cotton (mill seed) 1,800Jowar (sorghum) 600Maize 700Oil seed (linseed) 1,200Paddy (rice) 600Pulses 900Rape/mustard seed 1,500Sugar cane 80Vegetables 800Wheat (local) 970Wheat (M-iexican) 800

(6) Model I

This model assumes that a farmer already has a dugwell which ispowered by a persian wheel. The investment would comprise a bore drillingand some structural improvement to the well (Rs 1,500), the installation ofan electric pump (Rs 3,000) with the consequent electricity connectiondeposit (Rs 3,000) and some irrigation piping (Rs 350). The resulting "B"type well (Appendix 6-1c) is capable of commanding 2-1/2 ha at a croppingintensity of 138%.

(7) Model II

The investment comprises a new dugwell (Rs 7,000) and a dieselpumpset (Rs 4,500). No bore has been included because a high discharge(well type "A") was achieved without it. As the borrowers farm comprisedonly 1-1/2 ha, the loan would have been approved on his undertaking to sellsurplus water to his neighbor. The water surplus is adequate to irrigatean additional 1 ha at a cropping intensity of 140%. The price of waterused at Rs 0.275/m3 is the current rate in Madhya Pradesh.

A1SNEX 6Page 3

(8) .Iodel III

The investment comprises a new well, which was not dug to the usualdepth owing to the difficult rock formation, (Rs 5,600), a persian wheel(Rs 1,000) and a pair of bullocks (Rs 1,300). Although it is assumed thatthe farmer already has one pair of bullocks, an additional pair would berequired to operate the persian wheel for 8-10 hours daily. Their capitalcost as well as their feed requirements are therefore included in the model.The effective command area is 1-1/2 ha.

(9) Model IV

This investment comprises a new dugwell (Rs 7,000) with a bore(Rs 750), the installation of an electric pumpset (Rs 3,000) and electricityconnection deposit (Rs 3,000) together with land levelling on 2 ha atRs 500 per ha (Rs 1,000). The well command area is 3-1/2 ha with 139%cropping intensity. With a 163% intensity the command area would fall to3 ha but this higher level of cropping could not be anticipated owing tolack of additional power sources for the rush period between Kharif harvestand rabi planting.

3. Appendix 6-la

(1) This table shows the estimated unit crop water requirements in thetwo crop regions. Water requirements of crops were based on proceduresand data from "A Guide for Estimating Irrigation Water Requirements"published by the Water M4anagement Division of the Ministry of Agriculture,Government of India, July 1971. This procedure utilizes Class A pan evapora-tion data published by the India Meteorological Department (ScientificReport No. 146) and crop coefficients determined experimentally.

(2) Effective precipitation is the amount of monthly precipitationutilized by the crops. Not all the precipitation in every month can beutilized because the high intensities of rainfall during the monsoon periodcause surface runoff. The following criteria were used:

(a) Because of the small amount and irregularity of precipitationnone was considered effective except during the monsoonmonths of June-September.

(b) The average monthly precipitation for all stations in thecrop region was computed for a 50-year period and reducedby an 80 percent chance factor to obtain the monthlymodified precipitation.

(c) The adopted schedule of effective precipitation is as follows:

Modified June Precipitation 100%Modified July Precipitation 50%Modified August Precipitation 50%Modified September Precipitation 100%

ANNEX 6Page 4

For sugarcane it was assumed that 75% of the modifiedprecipitation during July and August would be effective.The high values for this crop are justified by the highdensity of foliage which prevents puddling of the surfacelayers of soil thereby reducing runoff and increasinginfiltration. For paddy where fields are bunded to aheight of 10 centimeters it is assumed that the first100 millimeters of precipitation would be retained withinthe field for crop use and that 50% of the remainingmodified monthly precipitation would be utilized by thepaddy during July and August.

(3) In most of the Project area the soils were derived from theweathering of basalts and therefore have an unusually large percentageof clay having a high water-holding capacity. Studies at Jabalpur Universityindicate that such capacities average 417 mm per meter of depth, of whichabout 60% or 250 mm is readily available for plant use. The computationof water requirements were made on a monthly basis and did not includethe utilization of carry-over soil moisture from month to month.

4. Appendix 6-lb

This table gives the mean monthly precipitation in the two cropregions. The figures are a 50 year average.

5. Appendix 6-ic

(1) Using the crop water requirements (Appendix 6-la) this tablegives the supplementary (irrigation) water requirements of each of thedugwell models (Models I-IV).

(2) Dugwell Types

The following are the assumed water discharges of the three typesof well:

Type A

171 M3 /day (37,500 IGPD) in October to 102 M3 /day(22,500 IGPD) in May

Type B

114 M3/day (25,000 IGPD) in October to 68 M3/day (15,000IGPD) in May

Type C

Not less than 25 M3/day (5,500 IGPD) at any time during year.

ANN-X 6Page 5

6. Appendix 6-ld

This table shows the relative water supplied by rainfall andby the well for each of the dugwell models.

7. Appendix 6-2

(1) Life of Assets

The following life of assets is assumed; dugwell (includingbore) 20 years, electric or diesel pumpset 7 years; land develop-ment 20 years.

(2) Increases in Incremental Flows

Model I assumes that the full benefit of the net incrementalflow would accrue in the third year as the farmer would have hadprevious experience of irrigation. In models II to IV, thebuild up to full benefits is slower and deferred to the fourthyear reflecting lack of experience with irrigation and littleaccompanying experience with improved inputs.

8. Appendix 6-3

(1) Repayment Periods and Interest Rate

The calculations of debt service are based on maximumrepayment periods (Schedule B) with an interest rate of 9%per annum. In Model III, debt service on a loan for apair of bullocks has been included even though not financedunder the Project.

(2) Small Farmer Benefits

To be eligible for preferential lending terms (Schedule B),under the agreed definition a farmer's post-investment totalnet income from his farm may not exceed Rs 2,400 per annum;net income is defined as after deducting the cost of cultivationbut before debt service on the loan. Appendix 6-3 showsthat for all except Model III this level of income is exceededand that, also with this exception total income after debtservice also exceeds Rs 2,400 annually at full development.Model III is however exceptional in that the dugwell failed torealize the income expected when the original loan was approvedand that original expected income would not have qualified theborrower for 'small farmers' status.

ANNEX 6Page 6

9. Appendix 6-4

This table detailing estimated changes in cropped area and pro-duction is based on the following aggregation of the farm models: Model I x18,000; Model II x 6,000; Model III x 3,000; and Model IV x 15,000.

January 19, 1973

AONEx 6

Tl,,.dix 6-1

INDIA

M6ADHTA PRADSH AGRICULTUJRAL CREDIT PROJECT

Ferm Models Usesd on Preset Costs and Prie..

Area Yield -Total Cost Gross Prodoctco. V.I.! Net Prod.ction ValuePoll F.11 Foll P.1l Pc11

Before Deelopment Before D3. Im.t Before Development Beforat Development Before D-velpment Increnent*l-- -- ha------ --- ton/:7ii -------------------- I---------------------

MODEL 1: Inv-tmet:WelIovme.El-ctrIc Pops (.750 .11Coesmr,d Area; 2.5 ha 1/

Kh.rif.Crop.:J ser 0.40 0.35 2.0 2/ 3.0 174 186 480 630 306 444 138Paddy (RI) 0.50 0.20 3.0 3.0 386 134 900 360 514 206 (308)Sug etcc .. !3/ -- 0.15 -- 72.0 -- 428 -- 864 -- 436 436

Rabi CropeJol..: (non-irrigot.d) 0.8 so 0.6 -- 179 -- 432 -- - 253 -- (253)

Poleu irrgaced2 - 0.30 -- 1.8 -- 114 -- 486 -- 372 372Sogaccsn_ 1/ -- 0.15 -- -- -- -- -- -- -- -- -Vegetablee (Septembe-) 0.20 0.40 3.5 5.5 163 327 800 1.760 717 1,433 716VeXet.ble. (January) -- 0.30 -- 5.5 -- 270 -- 1,320 -- 1,050 1,050Wheatt (local 2) 05 -- 1.0 -- 236 485 -- 249 -- (249)Whea IM..ian0. 30 1.60 3.0 3.0 269 i.t3 720 3.840 451 2.405 1,5

2.70 3.43 1.407 22.014 O 6,346 3,5Cropping Inteneity: 108% 138%

Hired Labor: 70 205 (70) (205) (135)P-aPing Costa: 0 623 ___ 0 (6235 (623)

I4ODEL II: Soveatment: Inomell. Diesel PoePest 1.477 3.742 3.897 9.260 2.420 5.518477 742 7 9 60 2420 AIII3AO1

(R. 11.500t: Well Coend Aree 2.5 h.;Pare Size: 1.5 he

Kherif Crops:Jnrs 0.25 0.25 0.9 3.0 43 133 133 450 92 317 225Paddy (Rina) 0.10 0.15 1.5 3.0 17 116 90 270 73 154 01Sog-rane 31 -- 0.I0 -- 72.0 -- 2865 -- 576 -- 291 291

Rabi Crop.:Ollsede 0.15 -- 0.3 -- 20 -- 90 -- 70 -- (70)Polses 0.60 0.20 0.6 1.8 134 76 324 324 190 248 58Snrre3/- 0.10 -.-- - -- -- --

Vegetbles! -- 020 O 5.5 *- 163 -- 880 *- 717 717Wheat (local) oso - 1.0 - 236- 485 - 249 - (249)Wheat (O.Lecn ... 1.10 -- 3.0 -- 987 -- 2.640 -- 1.653165

,1.60 2T.1 ___510__30 2,0C-opplog Intensity: 107% 14.6 OX,40330 ,0

Wse of Water: 2,776 2.776 2,775,482

Pomptog costs: 1.732 __ (1.732) (1.732)~~ _____ ~~~~~~ 11Z2-4 6 184 674 4.2 .505MODEL III: I- -etoet: ""I'l.On Pir Ocioh .Preien71

Wheel (R. 7.9001. Well Cao Area 1.5 ha

Eh.rif Crop.:JO-a 0.20 0.53 0.9 2.3 3,4 239 108 759 74 520 446Paddy (Rits) 0.10 0.20 1.3 3.0 17 154 90 360 73 206 133PolI.e 0.60 - 0.6 -- 134 -- 324 -- 190 -- (190)

R.hi Crop.:OlIseed. (linsed.) olo - 0.5 -- 14 -- 60 -- 46 -- (46)

Pl. (nnirrigated) -- 0.70 -- 1.2 -- 245 -- 756 -- 311 51Vopet,blee -- 0.20 -- 5.5 -- 163 -- 000 717 7 17Wet I(ool 0.30 -- 1.0 -- 236 -- 485 -- 249 -- (249)

Wheat (Weolcac) -- ~~~~~ ~~ ~ ~~~~ ~ ~ ~~~~0.40 -- 30 -. 359 -. 960 .- 601 6011.30 2.05 1,160 4/ 2.555 1.923

Cropping IntensIty: 1001 137% Po11oobe Peed: 250 ____ (2505 (250)

MODEL. IV: Inv-t-et: Rn-tmboeWel Eetric Pf.cenaer, 45 Z::: Za I:62 235_6Mino PFr D. lnmn (s141735:Well Comad Are:35h

Khanif Crop.:cotton 0.25 0.60 0.4 1.3 122 667 180 1,404 50 737 679So,er 1.10 0.40 0.9 3.0 187 212 594 720 407 50810MIai.. 0.40 -- 2.2 -- 261 -- 616 -- 355 -- (13555)Po1... 0.90 0.90 0.6 1.8 202 342 486 1,458 294 1.116 832Pnddy (Rice) -- 0.30 *- 3.0 -. 232 -- 540 -. 308 308

Rabi Crops:th,Iisce- 0.15 -- 9.2 -- 121 -- 552 -- 431 431Otlaad: (los...ed.) 0.35 -- 0.5 -- 48 -- 21 Z-12 -- (162)

Repe and 6.ot.rd -- 0.75 -- 2.0 .- 326 -- 2,250 *- 1,924 1.924Wheat (local) 0.65 -. 1.0 -- 306 -- 630 -- 325 -- (3)

Wheat (Mecican) -- 1.75 *- ~~~~ ~~ ~ ~~~~~~ ~~~ ~~~~~ ~ ~~~~~3.0 -- 1.570 .. 4,200 -- 2.630 2,33.65 4.-85 3,470 .5

Cropping Intensity: 104% ~~~~~139% Hired Labor: 310 (310) (310)Ponpiog costs: 746 76(46

_IA126_ 4j52611.24 1591 6.598 5.007

/PrcOsirrigati-n by Pe...ian Whee.J2/Geroiotion by ralofe11, ftinihed sitb irrigatie..3/P-or..ca1 crop.4/No hired labor.N/ We -1lce of Inceaental prodontion: year 1: 45% 1.218 + 2,776- 1.732 *2.262

yser 2: 70% 1.894 + 2.7776 -1,:732 2,4938year 3: 90% 2.434 .9 2,776 -1732 3,478

Joly 6, 1972

INDIAMADHYA PRADESH AGRICULTURAL CRCDIT PROJECT

ESTIMATED UNIT CROP WATER REQUIREMENTS

| CRDP I JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

-USVARD&RAPE S-

3ok, 21k,PADDY MM onks m NINE 11"

MOOEAT. MEXICAN*

VEGETABLES E _

2w.MGRAM IPULSE) EU _ 1

CHILLIES MNNENv W - _.

L..d Pop ktoc

DOTTON on] P;E_

JOWAR MM".

CROF EGIOq I:

C -rs. se roef. k 0 09 1.20 10.9 0.80Plooaooto 480.00 420.00 279.00 209.00 100.00

Eoopotronsplracion - 458.00 335.00 249.00 155.00Effe- i_ rainfall 0 79.00 215.00 200.00 105.00Crop i-rb. -eq',. -81 000.00 379.00 020.00 40.00 50.00FEr, del. eq't. 751 eEf, 133.00 505.00 160.00 53.00 66.00Cr-p Ape h. ---- 0-- -- .0 ---------------- ------

Vol. -Ae- -d 3 1.330 00 5.05000 D 1,6O.D0 530.00 660.00

Chilli..Co... .e co -f. k 0.16 0.57 0.65 0.57PlO e1.p ,t e 0S2.00 279.00 390.00 480.00Rvopolroosploalioo t= 29.00 159.00 254.00 274.00RPPectove ra.nfall tr0 0 0 0Crop irig. 0101. In 29.00 159.00 254.00 274.00FPrn del. req'R. 757. ff. 38.00 212.00 338.00 363.00Crop orlo ho. _ __ ___ ___* ---- 1.0.--- ------- ______ _-

Vol. -oleroeq'd. I3 380.00 2,120.00 3,380.00 3,650.00

CottonCons. 1, -00f. k 0.25 0.09 1.06 0.88 0.60 0.20P00 PooporaROon to 400.00 420.00 279.00 209.00 180.00 186.00Mvopotooospirooioo r 120.00 374.00 29 .00 104.0 10080 37.00RCEf CO-e- -oOol 0 0 79.00 115.00 109.00 10 5.00 0

Crop i-ig. req't. o 75.00 120.00 95.00 181.00 75.00 0 37.00F.-A del. req't. 75 eff. 100.00 160.00 126.00 241.00 000.00 0 49.00

Cr0000re ha. ----------- 1.0 ---------------------.0----------------------------VoI. oer req'. 1000.00 1600.00 1.260.00 2,4l0.00 1,000.00 0 490.00

Wh80t (ReoioO"OCool. Sec ooef. k 0.67 0.12 0.10 0.77 1.10P00 rvopoorboo tAo 140.00 182.00 279.00 157.00 140.00EvaproloEp rorbon tc 94.00 22.00 26.00 121.00 154.00Effecti-e ra-L.fll 0 0 0 0 0Crop irig. rIqt. 94.00 22.00 28.00 120.00 154.00

F0 del. r-qt. 757 off. 125.00 29.00 03.00 161.00 205.00Cwlp N e --- ______ ----- --- 1.a ---- _____ __ ....... ---------- ------------Vol. vater raq't. *l~ 1.250.00 290.00 370.00 1,610.00 2,050.0000100 OrrOgaROoO 750.00 750.00 0 0 OToal er rqd. 2 .00 1,040.00 370.00 1.610.00 2.050.00

C0. .e -leP. 0.09 0.63 0.58 0.30PEs -vapoa...tio q 08.00 186.00 157.00 140.00

Epapooaopo 3rarloe - 54.00 117.00 90.00 42.00Effe-l-e roOiOel _, 63.00 0 0 0Crop i110g. reqq'. tq- 0 117.00 91.00 42.00Poes del. 10q'1. 757. eff. 156.00 121.00 56.00

V.I. -ateR -oq'd. r3 1,560.00 1210 -00 560600

Cp00. 08.0081.0 0.52 0.79 1.09 0.70Pa. e-oporolioo am 420.00 279.00 209.00 100.00

OlapoOral.pOro100l - ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~210.00 220.00 228.00 126.00

Effe-hiV- roloOml = 79.00 3 05.00 009.00° 05.00Crop 00iig. req't. 139.00 00.00 019.0D 21.00Fardl-b5. rfq... rc 75i 0ff 105.00 040.00 150.00 20.00CroP -081 ha -- -- --- 1.0 ---------- -------- ..Yo1. col-r r-q'd. ta3 1.850.00 1.400.00 1 580000 2h0.00

P10800 (Cr0-)Cola. 0,00000. k 0.27 0.77 0.20Pa. eoOporllo nll 000.00 106.00 157.00EvOp-00010pCr00io = 40.00 043.00 30.00Ef010ti 1 r-WoColl EX 105.00 0 0Coop "r'ig. 9't6. E& 0 143.00 31.00FP.O del -'T. = 757. ff. 0 190.00 41.00

V ol req'd.I . . 0-- 410.00

Mos-t-d aod R0p0 oCoo.. .p 0010. k 0.77 0.20 0.13 0.49 0.79100 eoOporalOoo Pm 140.00 102.00 006.00 157.00 140.00Ooapooooooporarioo =0~ 100.00 36.00 32.00 77.00 110.00Eff08ti00 rCoCall 0 0 0 0 0Crop 10ig. r-q'P. = 108.00 36.00 32.00 77.00 110.00 8Fool dI.1, 145 . 00 48.00 42.0 000 146.00

.Vol. -t-0 req'd. H3 L,40.00 H480.00 400.00 0102000 1,

INDIAMADHYA PRADESH AGRICULTURAL CREDIT PROJECT

ESTIMATED UNIT CROP WATER REQUIREMENTS

JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

H~tvWH,EAT, MEXICON

SUGARCANE

N--, T,- PI- ~ ~ ~ ~ ~~urar ras Ia,

JECWPASLESARLY, . ihUflih

CRAM (PULSE1) _____ E

VEGACOOLES , LATE)7

JOWAR1 LATE) JU U

CROP RECION 0T:

Wh-ot (Wroc-nC -a. s e.k C R67 0.12 0. D 077 1.ERPas evaporaos 77.50 104.00 1 120.00 0.00 OEve 52nprei0 SR 17 RO 00 2.0R 11 RREf erE-ae-iofoll R 0 0 ICrop brIg8. req'r. a 5.00 IPOR 22.00 92.R 119.0Pec el rq. 750 eE 9.00 22.00 29R 0220.00 079.00Croppr area le.1................I.........................Vo. W..er r.qO 0 69000 2200.00 ..... 2"9R0. 00 1,270.00 1,580.O0

Totl vo. reM' 9f 1,440.00 970.00 290.00 1.720.00 0.500,00

Con. I00coE k 0.30 0.42 0.52 0.70 0.09 0.90 1.05 1.00d 1.13 1.10 1.20 1.19Pan eopro _a 77.30 140.00 21 7.00 330.00 430.00 390.00 240.00 186.00 150.00 100.00 120.00 008.00Eveporroneplrorls,, oae 28.00 50.00 113.00 731.00 306.00 302.00 200.00 201.00 269.00 177.00 144.00 020.00OOC'PolleroinOel1 0 0 0 0 0 1130 200 2 3000 172.0

Crop ir-ig. reqEt. 20.00 .59.00 003.00 231.00 306.00 209.00 22.00 I 0 177.00 144.00 120.00FOE del. -oq't. 7502 aff. 37.00 70.00 15 0.00 308.00 51's.0R 350.00 29.00 0 0 230.00 192.00 170.00

VoI. -sne req' d. M2

370.00. 7800.00 1,300.00 3,200.00 .410 3,500.00 2900.00 0 0,360.00 1,020.00 1,200.00

P.ddyCone. Ceo soaR. 4 1~~~ ~ ~~~~~ ~~~~~ ~~~~~~~~~~~.09 1.~20 1.19 0.00

Ev-potra-pil-oionea 425.00 200.00 22 1.00 229.80OOerf__iaer fo jjl a 1.0 2000 250.00 172,002009 rIlg. reqE - 00.00 311.00 40.00 0 0Peom deIl. rq 75, off. 133.00 414.00 3.00 0Cropped Ores h, .. 1.. .. ... .0.... ......................v01. e req' o,1,300 4,240.00 530.0 0

Cone. uSe 0000. 4 0.~~ ~ ~~~~~ ~~~~~ ~~~~~ ~~~~~~~~23 0.52 0.29 1.09 0.70pe Vapor-l -390.00 2000 106.00 150,00 150.00

ooepoorenaptratloo - 09.~~ ~ ~~~~~~~ ~~~~~~~ ~~~ ~~~~00 029.00 140.0 0300 101.00Rffecoire aloifall 114.00 130. 00 130 00 172,00 0CropOrig. -eq't 0 0 0 0 100.00Prrde., reqIt 7502 off. 0 0 0 0 140.00

Pa. mrtlleeeq'd. M3 0 C0 0 1, 000.00

V-t.nbl.. (LetndCone. .e. .0. fs 0.39 0.63 0.50 0.30pa -vaortiar 150.00 150.00 120.00 100.00Ovoporraoeplraoioe - ~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~57.00 95 .00 70.00 32.00Effeori-e raInfalo1 0 0 0Crop irrig. req'r. 57.00 93 .00 70.00 32.00Parr del. reqt. 735 offm 70.00 126.00 93.00 42.00

V.I. rare req d. 05 760.01 1,200.00 930.00 420.00

Vroetabl.. (E-rlylCea. Ie roof. k 0.16 0.37 0.65 0.50 0.30Pen veortEo_a 77.50 140.00 217.00 330.00 434.00Eoeponoepriinoa 2.00 00.00 106.00 105. 00 130.00Rff-anlveralofall 0 0 0 0 aCrop S-ng. req't. - 12.00 80.00 106.00 195.00 130.00 75.00perar del. req's. ~~16.00 100.00 141.00 240.00 173.00 100.01Crpprd -re hr

..............--.. .....0.... Vol. sle reqd. M' 160.00 1,00.0 1,1.0 ,000 1",7"3'0.10

vJoco (E-1ioSCan, -eeoaS k 0.52 0.79 1.09 0.70

Pen evaparaEloe - ~~~~~~~ ~~~~~~~ ~~~~~~~ ~ ~~390.00 240.00 100.00 150.00Ovopaoraaeporanoaa - ~~~~~~ ~~~~~~~ ~~~~~~75.00 003.00 191.00 203.00 105.00

Elff-eie relell - 0 114.00 050.00 150.00 172.00COOP i001g. eq'S.- 75.00 89.00 30.0 45.00 0Par,, dO. r-q'. P302 atE. 110.00 110.00 50.00 60.00Cropped area ha .........Vo. Woe e'd.W M

3lO ,0.0 50.00 600.00

Cans. -e ran . k 0.44 0,77 0.80 0.00Pan -vp-roEoo 14 0.00 207.00 330.00 434.00E-aparra-poslor ar 62.00 16 7.00 26.1.00 43.00£lo-ttli- fll-0 0 0 0Crop ir-ig. roqt. - 62.00 167.00 204.00 43.00Fern del. req't. 7502 rft 02.00 222.00 352.00 57.00Crapped .r. h,o....... ...... 1.0 a......... .........Vo..aier req '0d. 00 820.00 2.220.00 3,520.00 570.00 o

Re-y 97

ANNEX 6A>bendi i6 Ib

I 11 D I A

NADItA fUDmSn AIC0LU L C8r1T D7ROJCT

Ictl_ted Su.le terv W t ter eirbmut_ , by Ya Models

(Unit H3)

J43.9ry Febrmary Match April no JUp July hassat gapt_or October N.eoer D .e b-r

ArA (b6l FARM WIIL 1. TyDp I WIl. Cosend Arms 2.5 ha

0.30 Vegetables 48 319 423 738 519 - 1000.30 Cr - 246 666 1.056 171 - - -1.7 Whoet (6eirn) 2,448 1,649 493 - - - - - 2,074 2,6860.15 s Sgercmne 55 117 225 462 771 537 43 0 0 354 288 2550.20 Paddy - - - 266 828 106 0 0 - - -0.35 Jov r.- - - 35 413 175 210 0 - _ _0.40 VOestablc -5l04- ; 72 168

Tot.l roqir-nt 2,551 2,330 1807 2,256 1,762 1.778 324 210 504 858 2,734 3.209

1otal available 2,945 2,408 2,542 2,310 2,232 2,040 2,387 2,821 3,120 3,441 3,120 3,100

Percent tili-tion, 1/ 86 96 71 97 78 87 13 7 9 24 97 (3)

ARMA (ha) FARM tODEL I1: Type A Wall. r.- Sit 1.5 ha. Co_nd Are 2.5 ho

0.25 Jov, - - 0 0 0 0 3500.11 Paddy - - - 199 1,015 132 0 0 - - -0.10 Sugarede 37 7S 150 308 514 358 29 0 0 236 192 1701.10 Ys- .n n Wdhat 1,584 1.067 319 - - - - - - - 1.342 1,7380.20 Pulse. 164 444 704 114 - - - - -

0.20 V.Setabloo ,_ _ _- 252 186 04

Total r-qutret.n 1,785 1,589 1,173 422 713 1,393 161 0 IS 838 1,720 1,992

Water cold 930 860 1,066 1.155 432 406 0 0 1,560 1,665 1,144 980

Total ter pomped 2,735 2,449 2,239 1,577 1.145 1,801 0 0 1,575 2,503 2,864 2,792

Total avallabl. 4,433 3,808 3.937 3,690 3.503 3,120 3,503 4,216 4.770 5,053 4,770 4,650

Perro-t utllication 61 64 56 42 32 59 0 33 5° 60 60

AREA (h.) FARM MlEL III, T7V C 0.e1. CoSond Are. 1 Sn. F Rice 2.5 be

0.10 Ple.. - 82 222 352 57 - -- - -0.20 Paddy - - - - 266 828 106 0 0 - -0.55 Jov.r (at.) 0 070 -0.40 Maitn Wheat 576 388 116 - - - - - - 468 6320.20 Veget.blo 32 212 2 492 346 _ - 20

ttl r.qair .. nto 608 682 620 864 669 828 106 0 770 0 488 652

Total av-Llabl# 775 700 775 750 775 750 775 775 750 0 750 775

Par.ent otilliation .1 78 97 80 (11) 86 (9) 13 0 (5) 0 65 84

ARIA (h.) FARM l-vEL IV, Ty" A Wall. Coommnd Area 3.5 h,

1.75 Me tica. ,at 3,500 1.820 647 - - - - - - 2,817 3,5870 90 1l 3 - - 0 1.710 369O 15 Chilli.. 57 318 507 547 - 3 ° 245 _ _0.60 Catt.o , , 600 960 756 1.446 600 0 2940.40 Jo,,r - - - - - 740 560 632 0 112 -0.30 Paddy - - - - 399 1,515 480 159 198 - - _0.75 Oilaced. 1.087 360 _ _ _ _ 765 1.095

Total r.quir-.ts 4,587 2,237 965 1,107 1,906 3,011 2,486 1,391 198 966 5,292 5,051

Totel -vailable 4.433 3,808 3,937 3,690 3,503 3,120 3,503 4,216 4,770 5.053 4.770 4,650

Partent utilicetion 1/ (3) 59 24 30 54 96 71 33 14 19 (10) (8)

1/ Figor.. in p-eeath-l l1dicCte shortage in d.ga.ll at.r supply. Adnq.sn elstur Is availabl in root cone to provide ull supply.

July 27, 1972

Appendix '>-L

I N D I A

MADNYA PRADESH AGRICULTURAL CREDIT PROJECT

Mean Monthly Precipitation 1!(Unit am)

Crop Regiion 1

No.Stations District January February March April May June July August September October November December Total

8 Mondsaur 6.2 3.2 2.6 2.2 8.1 97.4 286.1 264.8 128.7 13.3 8.5 3.4 824.5

4 Shajapur 10.6 4.0 4.0 2.3 10.4 115.5 331.4 296.1 156.7 23.0 17.1 6.1 977.2

5 Rajgarh 14.4 6.2 6.5 2.9 10.0 116.9 393.7 326.0 179.1 19.0 18.7 7.3 1,100.7

5 Ujjain 8.0 3.5 2.9 1.4 9.1 121.7 280.4 255.9 165.0 19.8 18.9 5.6 892.2

5 Dhar 4.0 0.9 1.1 1.4 9.8 127.4 255.5 204.0 176.1 31.3 17.9 3.7 833.1

4 Indore 5.6 2.2 2.5 2.0 12.1 149.3 306.8 239.5 191.9 36.3 20.8 5.9 974.9

Monthly Average 8.1 3.3 3.2 2.0 9.9 121.3 308.9 264.3 166.2 23.7 16.9 5.3

807 Dependable -------------- No Effective Rainfall -------------- 78.6 231.2 218.5 105.6 --------- No Effective Rainfall ---------

Crop Relion 2

5 Sutna 23.9 23.0 11.8 7.2 10.5 109.2 348.9 339.2 169.7 35.1 13.9 7.5 1,099.9

2 Panna 19.2 15.9 8.3 5.7 10.1 94.6 389.0 381.4 194.9 38.5 11.3 7.5 1,176.4

3 Chhatarpur 16.5 14.4 7.9 4.8 6.9 95.5 373.6 336.8 170.6 25.7 15.2 7.0 1,074.9

1 Tika.garh 16.8 14.5 7.1 4.1 7.4 90.2 344.9 303.5 158.2 28.5 18.0 7.9 1,001.1

5 Juna 14.1 8.2 6.3 2.5 7.2 118.8 354.1 320.4 173.3 17.9 20.0 10.7 1,053.5

10 Sagar 23.9 14.6 10.6 5.3 8.1 130.8 421.5 371.0 189.5 29.8 21.0 8.9 1,235.0

3 Bhilsa 16.0 10.0 6 0 2.5 7.7 129.6 380.0 339.9 189.7 26.3 18.6 7.5 1,133.8

3 Damoh 20.4 13.8 11.8 5.8 8.5 124.2 40J.0 382.3 196.7 36.1 16.3 8.6 1,224.5

8 Raisen 22.4 11.1 8.5 3.3 7.9 159.2 473.3 371.1 214.1 29.9 21.6 8.0 1,330.4

5 Narsimhapur 15.9 17.3 12.1 6.5 10.9 148.3 421.2 385.0 216.5 40.8 17.6 8.7 1,300.8

5 Hoshangabad 14.1 9.4 7.2 2.5 9.9 156.2 439.5 361.7 230.3 34.0 21.3 8.4 1,294.5

8 Sehore 14.1 5.1 5.3 1.9 9.9 150.8 462.1 331.9 208.1 30.4 18.1 7.1 1,244.8

Monthly Average 18.1 13.1 8.5 4.3 8.7 125.6 351.1 352.0 192.6 31.0 17.7 8.1

80% Dependable -------------- No Effective Rainfall --------------- 113.5 317.0 317.0 172.5 --- No Effective Rainfall --

/ Based on 50 year average.

July 27, 1972

ANNEX 6I N D I A Appendix 6-ld

MADHYA PlWESb AGPICULTURAL CREDIT PROJECT

Water Utilization by Fam Models(Unit M)

January February March April May June July August September October November December

FARM MODEL I

Water supplied by rainfall 0 0 0 0 0 796 1,426 1,426 1,204 0 0 0

Water supplied by well 2.551 2.044 1.087 2.256 1.727 1.365 149 0 304 1348 2.736 3.109

Total Supply: 2,551 2,044 1,087 2,256 1,727 2,161 1,575 1,426 1,508 1,348 2,736 3,109

% supplied by well 100 100 100 100 100 63 7 0 20 100 100 100

FARM MCDEL II

Water supplied by rainfall 0 0 0 0 0 569 1,020 1,020 860 0 0 0

Water supplied by vell 1.621 1.309 913 1.012 960 1.393 161 0 152 838 1.720 1.992

Total supply: 1,621 1,309 913 1,012 960 1,962 1,181 1,020 1,012 838 1,720 1,992

% supplied by vell 100 100 100 100 100 70 13 0 15 100 100 100

FARM MODEL III

Water supplied by rainfall 0 0 0 0 0 855 1,385 1,385 1,290 0 0 0

Water supplied by well 608 682 620 844 669 828 106 0 0 770 488 632

Total supply: 608 682 620 844 669 1,683 1,491 1,385 1,290 770 488 632

% supplied by vell 100 100 100 100 100 49 7 0 0 100 100 100

FARM MODEL IV

Water supplied by rainfall 0 0 0 0 0 1,459 2,301 2,181 2,225 0 0 0Water supplied by well 4.710 2.847 2.452 3.119 4.005 2.576 2.279 2,129 414 1.876 4,916 5.527

Total supply: 4,710 2,847 2,452 3,119 4,005 4,035 4,580 4,310 2,639 1,876 4,916 5,527

I supplied by well 100 100 100 100 100 63 49 49 15 100 100 100

July 27, 1972

INDIA


Financial Rates of Return to the Enterprises(Rs)

year: 1 2 3 4 5-7 8 9-14 15 16-20

Model I: Investment: Improved Dugwell plusElectric Pumpset (Rs 7.850). Well commandarea 2.5 ha.

Net Value of Incremental Production 1/ 2,169 2,788 3,098 3,098 3,098 3,098 3,098 3,098 3,098Capital Investment 7,850 3,000 3,000Net Incremental Flow (5,681) 2,788 3,098 3,098 3,098 98 3,098 98 3,098Financial Rate of Return: 51%With 207 decline in benefits: 28%

Model II: Investment: Dugwell, Diesel PumpsetMinor Farm Development (Rs 11.500). Farm size1.5 ha plus sale of water.

Net Value of Incremental Production 2/ 2,262 2,938 3,478 3,750 3,750 3,750 3,750 3,750 3,750Capital Investment 11,500 4,500 4,500Net Incremental Flow (9,238) 2,938 3,478 3,750 3,750 (750) 3,750 (750) 3,750Financial Rate of Return: 35%With 207 decline in benefits: 23%

Model III: Investment: Dugwell. persian wheel,Bullock pair (Rs 7,900). Well command Area 1.5 ha.

Net Value of Incremental Producticn 2/ 753 1,171 1,506 1,673 1,673 1,673 1,673 1,673 1,673Capital Investment 7X900 2,300 2,300Net Incremental Flow (7,147) 1,171 1,506 1,673 1,673 (627) 1,673 (627) 1,673Financial Rate of Return 197With 20% decline in benefits: 107

Model IV: Investment: Dug cum bore well, ElectricPumpset. minor farm development (Rs 14.750). Wellcommand area 3.5 ha.

Net Value of Incremental Production 2/ 2,253 3,505 4,506 5X007 5,007 5,007 5,007 5,007 5,007Capital Investment 14,750 3.000 3.000Net Incremental Flow (12,497) 3,505 4,506 5,007 5,007 2,007 5,007 2,007 5,007Financial Rate of Return: 35%With 207 decline in benefits: 21%

year: 1 2 3 4 5-10 11 12-20

j Year 1-70%; year 2-90%; year 3 onward full value.Year 1-45%; year 2-70%; year 3-90%; year 4 onward full value.

x 2January 23, 1973 o

MAIEW PLUM AaRXCULTUSAL CROWDY 8W

e/_re I^ACC_ and Debt Service

Ire. TotalSceInveeem,t Cot Lamy hoat Repk"eble Year I Year 2 7 Year 15 Yecar tNI10 year RS Re Rsi e

Model 1: r0z S±:. 2.5 haDeniml oprovsm.t 1,5ZZ 80 1,200 9 2C0 Not Value rIn. Prod2/ 2,169 2,788 3,096 3,096 3,096Electric ?W, Csen^tirm,piping 6.3Z eo 5.080 7 1010 Debt Service 1210 1W210 1 10 1510 1210TotiB50 6.2al Inc. Inc. after Debt Service m _11 2.h20

Nodal I!; ?rm Sice 1.3 ha (plus eater &Al*)D 1geell 7,000 80 5,600 9 934 Not Valu Irc. Prod. 2,262 2,938 3,1h78 3,750 3,750Diesel . . 80 7 Debt Service 1654 1. _ 1. 1 X654Totel ll54 X0 -- 9 lA6 Inc Inec Aftr Debt Somerve l jI;IC t>5 674 2.770

Ibdel rIII Pri Sime 1.5 haDoeI la 5,600o5 80 1,,80 7417 Not Value Inc. Prod. 753A 0 15o6 1,673 1,673Peraen Hweel_1,ZZ0 80 800 7'S 160 Debt Service X.175 1 1175Pair B/llo f 12 80, so40 3 ^ 266 Inc. Ionc After 1,ebt ServiceTotal

Mode IT: Pta Sime 3.5 hahge1 end Dore 7130 80 6,200 9 1,031 Not Value Inc. Prod. 2,253 3,05 3,506 5,C07 5,007Ilectric PAP nd Connection 6,0Z0 80 4,800 7 960 Debt Service 2 122129 29L19 2U9 2 2Land Development 1 O Z 0 8000 9 . Inc. Incae After Debt ServiceTotal A-- _

/ AesM loan ade by a ce_rcial bak. An LEO losA cold not exceed 85% of inveet_nt coat,the borrower baving aleo contributed 5% to the share epitel or his Prima_v Bank.By equal ,mul installments with interest at 9% per a or.And in tubsequent years until loan repayment(s) colet.d.Pr^ Appcdix 6.2The lover cost reflct, a sballower duguell.After two yeaa grace; see Schedule D.Not finced under the Project.

YInal t on1,9

v-yr 24, 1973

INDIA


ESTIKATED CHANGES IN CROPPED AREA AND PRODUCTION

Cropped Area ProductionIncrease Increase

Before After (Decrease) Before After (Decrease)____-___- h-ectRres ---------- --------- tons ------------

Foodgrai n s

Wheat 28,650 62,850 34,200 40,300 188,500 148,200rdee (paddy) 9,900 9,600 (300) 28,400 28,800 400Maize 6,000 - (6,000) 13,200 - (13,200)Jowar 25,800 15,450 (1iO350) 31,500 45,200 13,700Pulses 33.300 22 200 (11,ID0) 21 000 28 600 17,600

Total Foodgra:Ln: 03,,50 1301,0 6-013sb00 65 W

Commercial Crcp8

C.;tton 3,750 9,000 5>250 1,500 11,700 10,200Oilseeds 6,450 11,250 4,800 3,400 22,400 19,000Sugarcane - 3,300 3,300 - 237,600 237,600Vegetables 3,6600 14,400 10,800 19,800 79,200 59,400Chillies - 2,250 2,250 - 20,700 20,700

Total Commercial Crops -80 40,200_ 346,900

Total All Crops 117 450 150,300 32,850

NOTE: The changes in cropped area and production are estimated at full development (in the sixthyear of the project).

January 10, 1973

ANNEX 7Page 1

INDIA


Economic Rates of Return on Investments

1. An explanation is given in this Annex of the methodology andassumptions used in estimating the returns to the Indian Economy from invest-ments made under the Project. Economic benefit and investment flows, andrates of return, are presented in Appendix 7-1. The principal assumptionsfor the models are discussed below.

Taxes

2. Sales taxes and excise and import duties on farm inputs and capitalitems have been excluded in the analysis to the extent such taxes areidentifiable. At 15% tax has been netted out from expenditures forpesticides and fertilizer materials as well as for electric pump sets, dieselpump sets, persian wheels, and minor irrigation facilities. For importedmachinery, an import duty of 30% plus a war tax of 2.5% has been excluded.Prices for diesel fuel are calculated c.i.f. Bombay plus transport, handling,storage and distribution charges. The adjusted diesel fuel prices are 70%below current retail prices.

Subsidies

3. Viewing rural electrification in the State as a separate enterprise,it hias been found that current electricity rates charged to rural customersdo not cover the full cost of generating electric energy and distributingit to rural areas. A cost-covering rate was calculated at Rs 0.25/kwh forrural electrification and at Rs 0.15/kwh for all users in the state combined.Since an economic rate was used in calculating operating costs for electricpumpsets in Models I and IV, the electricity connection deposit of Rs 3,000per pump set was not included as an investment cost.

4. A downward adjustment was made in the price of water sold underModel II. Being concerned strictly with the recovery of the cost to theeconomy of the projected investment, a rate of RS 0.153 per m3 currentlycharged in Madhya Pradesh.

Cost of Labor

5. Agricultural production financed under the Project presupposes avery low level of mechanization and a high labor intensity. This form ofoperation leads to peak-season labor shortages and considerable seasonal

ANNEX 7Page 2

fluctuations in farm wages. Family labor (equivalent to 60 man-days permonth) has been costed at Is 1.50 per man-day during off-harvest seasonand at Rs 5.00 during the harvest season to reflect subsistence cost andpossible alternative employment opportunities during peak periods. Hiredlabor has been included at the relatively high wage rate of Rs 5.00 perman-day during the harvest season.

Farm Product Prices

6. While current prices have been used for investments and farm pro-duction inputs, world market prices for crops, as projected in the IBRDEconomics Department for the year 1980, have been used to estimate benefits.No adjustment in current local prices has been made for bajra, pulses,vegetables and chillies. The following are the prices assumed for othercrops (Rs/ton):

-Cotton 1,886 --Jowar (Sorghum) 520

'Maize (Corn) 550Oilseed (Linseed) 1,026Paddy (Rice) 490--Rape/mustard seed 925Sugarcane 140Wheat 600 -

Economic Rates of Return

7. Based on these economic assumptions, and retaining the technicalassumptions as in the financial analysis, the economic rate of return hasbeen estimated to range from 17% to over 100% for individual farm models.A 20% reduction in benefits due to a decline in yields or prices would lowerthe economic rate of return to a range of 12% to 74% (Appendix 7-1).

April 26, 1973

INDIA


Economic Rates of Return by Type of Investment

(Rs)

year: 1 2 3 4 5-7 8 9-14 15 16-20Model I: Investment: Well Improvement,

Electric Pumpset (Rs 4,348); Well CommandArea 2.5 ha

Net Value of Incremental Production /1 1,930 2,480 2,750 2,750 2,750 2,750 2,750 2,750 2,750

Capital Investment 4,350 -- - 2.550 - 2.550 -

Net Incremental Flow (2,420) 2,480 2,750 2,750 2,750 200 2,750 200 2,750Economic Rate of Return: over 100%With 20% decline in benefits: 74%

Model II: Investment: Dugwell, DieselPumpset (Rs 10,825); Well Command Area2.5 ha, Farm Size 1.5 ha


Capital Investment 10.830 - - - - 3,830 - 3830Net Incremental Flow (9,300 2,380 3,060 3,400 3,400 (430) 3,400 (430) 3,400

Economic Rate of Return 31%With 20% decline in benefits: 23%

Model III: Investment: Dugwell, One Pairof Bullocks, Persian Wheel (Rs 7,750);Well Command Area 1.5 ha

Net Value of Incremental Production /2 680 1,060 1,370 1,520 1,520 1,520 1,520 1,520 1,520Capital Investment 7,750 - - - - 2.150 /3 - 2.150 /3 -Net Incremental Flow (7,070) 1,060 1,370 1,520 1,520 (630) 1,520 (630) 1,520Economic Rate of Return 17%With 20% decline in benefits 127.

Model IV: Investment: Dug cum bore well.Electric Pumpset, Minor Farm Development(Rs 11,300); Well Command Area 3.5 ha


Capital Investment 11.300 - - - - 2.550 - 2,550 -Net Incremiental Flow (10,010) 2,010 2,580 2,870 2,870 320 2,870 320 2,870

Economic Rate of Return 24%With 207. decline in benefits 18%

L Year 1-707; year 2-90,; year 3 onward full value.0.x

/2 Year 1-45%; year 2-70Z; year 3-90%; year 4 onward full value.

/3 Bullocks and persian wheel replaced in years 8 and 15.

April 24, 1973

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