INDIA AND THE WORLD BANK

·(An Information Paper)

Information and Publ-ic Affairs Department World Bank \Jashington, D.C.

December 1977-

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. . .

INDIA AND THE WORLD BANK

India is exceptional among the World Bank 1 s member countries for its size and diversity.

in populatipn (630 mill ion), it is 50% larger than Africa;

80% of its population is rural, but it has ten cities with a population of over one mill ion;

it is one of the world's poorest countries with a per capita income of about $150 a year. But it has the~_worJd's tenth largest GNP._ and is the world's fourth largest foodgrain producer;

the country is divided into more than40 states Its population speak over 60 languages;

mill ions of farmers still use a primitive, thousand­year-old technology, but India is a world leader in wheat research. India's medical research is at the frontier of reproductive biology. The thousands of bullock carts compete for space on the highways with entirely indigenously produced trucks;

exports range from traditional primary commodites, such as jute and tea, to textile machinery, chemicals, and complete power generating units.

In short, India is an immense,· culturally diverse and a contradic­tory country, rich in potenti~l but as yet slow in developlng that potential.

World Bank's Lending in India

Although the bulk of the resources -- human and material -- for India's economic development has come from within, assistance from the World Bank has played an important complementary role. Since 1949, the Bank and its affil late, the International Development Association (IDA} have committed a total of ~bout 6,900 million* to assist ke~ sectors the Indian economy-- industry and general development ($2!693 mill ion); agriculture ($1 ,595 mill ion}; transport \$1! 127 mill ion); energy ($825) million); telecommunications ($368 n1ill ion); water supply ($95 million); urban development ($146 million); and population pJannino ($21.2 mill ion}.

i'~

net of cancellations.

NOTE: Money figures are expressed in US dollar equivalents.

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Bank and IDA lending in India has been supplemented by investment commitments totaling $58.4 mill ion by the Bank's other affiliate, the Inter­national Finance Corporation (IFC).

India became a member of the Bank in 1945. The Bank's first loan to India was made in 1949. The cumulative total of Bank and IDA lending to India, amounting to $6,700 million, represents an important part of Bank and IDA financing in all developing countries. In part, this sizeable share is a reflection of the country's relative size and its need for external finan­cing on concessional terms. Thus, more than two-thirds of Bank and IDA commitments to India has come from IDA. The Association's credits to date have been for 50 years, free of interest, but carry a service charge of 3/4 of 1%.

The close cooperation between India and the Bank goes far beyond the normal creditor - debtor relationship. It has had a beneficial impact on both India and the Bank. In the evolution of the Bank as a world develop­ment agency, a number of initiatives were first taken in response to India's complex and compelling problems. The Bank's experience in coordinating development assistance from several sources to a single recipient country began, for instance, in India in 1958 when the Bank organized the India Consortium.

Agriculture

Agriculture is the most important· in India. It accounts for about 42% of lnd i a's GNP and absorbs about -6B%- cf th~e-toTarTa-bor~·-···--force. Consequently, investments in agriculture have been given priority by the Central and State Governments, especially since the mid-1960s.

-Since Independence, the overall growth rate of agricultural produc­

tion has averaged about Z.8% per annum, This low overall rate of growth in the agricultural sector obscrures considerable variations over shorter periods of time, between crops, and between regions. The overall rate has been very much affected by ~he serious droughts in 1965 and 1966 and again in 1972 and 1974. At the same time, the success of high yielding varieties of wheat led to increases in wheat production of about 20% p.a. between 1967 and 1971. Other foodgrain crops, notably rice, have not enjoyed anything 1 ike the same success, as the introduction of high yielding varieties has encountered dif­ficulties arising from local climatic and ecological conditions. The effects of the green revolution, which primarily affected wheat, have been concentrated in northwestern India , largely on account of the availability of irrigation in that area.

Despite the progress made in many aspects of food production, India's agriculture remains heavily dependent upon the weather. A major factor in reducing this dependence will be the rehabilitation and expansion of irrigation and the more effective use of existing investment in irrigation facilities. The Government is also placing emphasis on the improved supply of inputs such as seeds and fertilizer, agricultural credit, and extension services.

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Bank and IDA Assistance to Asriculture

In the earlier years of their operation, Bank and IDA assistance to Indian agriculture was largely confined to irrigation and flood pro­tection works. One of the Bank's earliest loans to India, $7.2 million, made in 1949, helped to pay for the import of equipment for land reclama­tion work in central India and for the experimental clearing of jungle lands. In 1961 and 1962 IDA extended credits totaling about $56 million that financed a tubewells project in Uttar Pradesh; the Salandi irriga-tion project in Orissa; the Shetrunji project in Gujarat; a flood control and surface drainage project in the Punjab; the Sene irrigation project in Bihar; and the Purna project in Maharashtra. In recent years the pat­tern of Bank/IDA lending for agriculture in India and other member countries has undergone a change. _Apart from continuing their traditional support of large flood control and irrigation schemes, stronger support is being given to projects which involve a comprehensive approach to agricultural develop­ment. The Bank also places emphasis on rural development. The objectives of the Bank's rural development pol icy, enunciated in 1973, include sus­tained increases in per capita output and incomes, expansion of productive employment and greater equity in the distribution of the benefits of growth.

Dairy Development --Support to Indian Technolosy

Some 850,000 farming households, or about 4.7 million people, in the states of Karnataka, Madhya Pradesh and Rajasthan will directly benefit from dairy development projects being financed by IDA credits totaling $74.1 million. The major objective of these projects is to increase milk production through cooperatives in the three states. They will provide breeding stock, an artificial insemination program, extension programs, milk collection and chilling equipment. Institutions to be created in­clude some 4,800 dairy cooperative societies organized into 12 milk pro­ducers unions. Each of the cooperative unions will have an extension and training program for developing large numbers of local staff needed to implement the projects.

The projects will contribute to an annual increase of 1.7 million tons of milk a year. The increased production of milk will give a signi­ficant nutritional benefit to a large number of consumers by halting the decline in daily per capita milk consumption which has fallen from 130 grams to 113 grams since 1950. The project will also help to achieve fuller utilization of labor in the rural areas. The credits are being devoted to spreading a technology most suited to Indian conditions -- the successful AMUL Cooperative Union of Gujarat.

An IDA credit of $30 million is assisting the dairy development project in Karnataka (formerly Mysore). The project is scheduled to be completed in 1981 at a total estimated cost of $64 million. The Madhya Pradesh dairy development project is being assisted by an IDA credit of $16.4 mill ion, and the Rajasthan project by a credit of $27.7 mill ion. Both credits were extended in 1974. The Madhya Pradesh and Rajasthan projects are expected to be completed in 1982 at a total estimated cost of $8 3. 2 m i 11 ion.

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High-Yielding Seeds

Like many other countries in Asia, India is tapping the enormous potential of high-yielding varieties of seeds. The World Bank has made two loans totaling $38 million for seed development in India.

A Bank loan of $13 million, made in June 1969, is financing a project to grow more seeds of high-yielding varieties of food grains. At full development, the project will produce enough certified seeds to plant some seven mill ion acres annually. The loan is the first financing for the World Bank in the field of seed production. The seeds are being grown on private farms in the Tarai area, lying between the foothills of the Himala­yas and the open plains of Uttar Pradesh.

In May .1976, the Bank made a loan of $25 million to assist India· implement the first phase of a national seeds program. The main purpose of the project Is to increase foodgrain production through increasing the availability of high-quality cereal seeds. However, cotton and vegetable seed are also included in the project. It will cover development of seed production and processing facilities in four States: Andhra Pradesh, Hary­ana, Maharashtra and Punjab. The project will help improve storage, mar­keting, breeder and foundation seed production, and seed technology and research. The project is designed to increase cereal seed output by 73,000 tons a year or 60% of present output. Estimates are that the an­nual incremental cereal production at full development of the project will be 200,000 tons of wheat, 170,000 tons of paddy, 95,000 tons of maize, 200,000 tons of sorghum and 250,000 tons of pearl millet. Total value of these crops will be about $145 milli~n a year. The Tarai experience has been a significant factor in the development of the second project.

Foodgrain Storage

In 1971, IDA joined Sweden in providing $10 mill ion to assist the construction of modern foodgrain storage and handling facilities in the States of Punjab, Haryana and Uttar Pradesh. The project should help to reduce waste and spoilage of foodgrains and rei ieve the strain on transport. In 1977, IDA extended a credit of $107 mill ion to expand the country's foodgrain storage capacity. The project will enable India to store, handle and transport foodgrains more efficiently. It will help reduce storage losses by 180,000 tons of wheat and rice per year valued at $23 mill ion. At full development, savings from the reduction in operating costs and grain storage losses will range from $54 mill ion to $60 million a year.

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Rural Credit Expansion

Expanding agricultural credit for on-farm investments is an important part of lndia 1 s efforts to increase foodgrain output, essentially through the use of new and much more productive types of seed in combination with increased inputs of complementary factors such as fertilizer, pesticides and water and better incentives to the farmers.

Ten Indian States -- Andhra Pradesh, Bihar, Gujarat, Haryana, Kar­nataka, Madhya Pradesh, Maharashtra, Punjab, Tamil Nadu and Uttar Pradesh-­are expanding institutional credit programs to enable a larger number of farmers to make good use of the new agricultural technology, with the assis­tance of IDA credits totaling $320 mill ion. These programs enable a larger number of farmers to take advantage of the new agricultural technology. In each State, these credits are financing investments in on-farm improvements -- minor irrigation and land development and farm mechanization. Here are the details:

(a) Andhra Pradesh: A credit of $24.0 mill ion in January 1971 is providing funds for an agricultural credit program for minor irrigation, land levelling and farm mechanization in the State. The $45 million project will bring major benefits to the Indian economy in the form of increased production of foodgrains and other crops, resulting in better income and job opportunities for farmers. The increase will come both from better yields and higher cropping intensity and from an expansion of the cropped area in Andhra Pradesh. About 31,000 individual on-farm investments, including installation of 1,350 tubewells and 14,00 dugwel ls, purchase of 1,500 trac­tors, tractor implements and trailers, will be made under the program being assisted by IDA. Most of the investment in land levelling will be on small farms within the two major irrigation schemes of Nagarjunasagar and Pochampad.

(b) Bihar: The 32 million credit is supporting a three-year lending program of expansion of injtitutio~al credit to farmers. ·The $60 mill ion project scheduled to be completed this year will help to increase agricultural pro­duction and incomes. Incomes of about 100,000 farmers would increase. In addition, the project should generate additional year-round employment, both family and hired labor, of almost 11 million man-days a year.

(c) Gujarat: A credit of $35.0 million extended in June 1970 assisted a $67 mill ion three-year program of long-term loans to farmers for investments in minor irrigation works, mostly dugwells and tubewells, and farm mechanization. At full development, foodgrain production should in­crease by over 60% on farms of participating farmers.

(d) Haryana: In all, about 20,000 farmers in the State partici­pated in the program assisted by a credit of $25 million made in June 1971. Under the $44.5 mill ion project, medium and long-term loans were for sink­ing about 11,000 shallow tubewells and the installation of 75 sprinkler irrigation sets. Investment in farm mechanization includes imports of tractors, self-propelled harvesting combines and tractor drawn harvesters.

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(e) Karnataka: In January 1972, IDA extended a credit of $40 mil­l ion, to finance on-farm investments in the State. The project will bring reliable irrigation and higher cropping intensity. Under the $70.4 mill ion project, about 35,000 medium and long-term loans will be given to farmers for carrying out land Ievell ing, for sinking borewells and dugwells and constructing 30 1 ift-irrigation schemes. Investment in farm mechanization includes the import of about 2,000 tractors.

(f) Madhya Pradesh: An IDA credit of $33 mill ion, extended in 1973, supported a three-year lending program of the Madhya Pradesh State Cooperative Land Development Bank and qualified commercial banks. The investments include the construction of about 25,000 dugwel ls, improvement of 15,000 existing dugwel ls, installation of 29,000 electric and 12,000 diesel powered pumpsets and about 2,700 Persian wheels (a traditional 1 ift device).

{g) Maharashtra: A three-year program to expand the volume and range of agricultural credit in the State was assisted by a credit of $30 mill ion extended in March 1972. About 45,000 farmers in the State participated in this scheme.

(h) Punjab: A credit of $27.5 mill ion, extended in June 1970, is supporting a program of medium and long-term institutional loans to farmers, groups of farmers, cooperative farming societies, and persons or enterprises carrying out farm custom work in the State for the purchase of about 8,000 tractors, and tractor implements and harvesting machinery. The project will help to extend mechanization of farms in Punjab and enable farmers to obtain optimum results from fertilizer, the high-yielding seeds and irrigation.

(i) Tamil Nadu: Under the program being assisted by a credit of $35.0 mill ion, extended in June 1971, medium and long-term loans will be provided to about 50,000 farmers for the installation of about 7,000 small borewel ls, 10,000 dugwells and 4,500 smal 1 and medium tubewel ls; about 4,000 electric engines will also be financed to pump water from existing wells. Land levelling will be undertaken on farms within the command areas under the Parambikulam-Al iyar surface irrigation shceme in Coimbatore dis­trict. Investment in farm mechanization will finance the import of about 1,500 tractors and tractor implements.

{j) Uttar Pradesh: The State is the largest in population in India. Higher pppulation pressure has resulted in the predominance of smal 1 farms and poor farmers. To accelerate the pace of agricultural development, principally by expanding foodgrain production and providing employment for a growing labor force, the State has given priority to spreading of the new agricultural technology. An IDA credit of $38 mil-l ion, made in 1973, is helping the Uttar Pradesh State Cooperative Land Development Bank to expand credit for on-farm investments. The Agricul­tural Refinance and Development Corporation (ARDC), an agency established in 1963 to provide medium and long-term finance to agricultural credit institutions, is the channel for IDA funds. Small farmers are to benefit from smaller down payments and longer maturities in regard to certain types of on-farm investments.

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Refinance and

In 1975, as a consequence of experience gained from the projects at the State level, IDA provided $75 mill ion to support ARDC's all-India opera­tion for a two-year period. This approach not only allowed IDA funds to reach large numbers of individual farmers, it also allows IDA to work with ARDC to strengthen local cooperative and commercial credit institutions direct funds to relatively less developed regions and ensure that an appropriate pro­portion of funds reaches small farmers i.e. those with less than two hectares. A typical loan to small farmers under the~e Rrojects is one that finances an open dugwell with a pumpset on a one-hectare farm.~ The investment cost is about $1,055 with a minimum downpayment of 10% by the farmer (reduced to 5% where family income is below $250 per annum). and the remainder financed bv lend-ing institutions at 10.5% interest with seven years repayment schedule. This investment is estimated to yield $185 incremental income to the farmer after deducting additional costs including debt service. This is a 26% financial rate of return to the farmer.

A million farmers are expected to benefit Prom an agricultural. pro­ject being supported by an IDA credit of $145 million extended in May 1977. The credit is supporting ARDC's on-farm investment program over a two-year period involving a total investment of $583 million. At full development in 1984, the project is expected to result in annual incremental production valued at $367 million a year. About $100 mill ion of the credit is being reserved for small farmers who will qualify for preferential borrowing terms, provided their income was adequate to repay the loan over a prescribed period. About 175 mill ion man-days of additional employment will be generated. The project also seeks to build stronger institutions in the rural credit field.

Command Area Development -- Rajasthan and Andhra Pradesh

An innovation in Bank financing for agricultural development in· In­dia is the support being given to development of command areas of existing irri­gation projects. With one of the largest water resources in the world, lnd.ia is gradually moving towards a situation of scarcity, making it urgent to use water more economically and to employ a more scientific approach to the operation of irrigation systems.

Rajasthan Canal

In July 1974, IDA extended a credit of $83 million to help finance the development of 200,000 hectares in the Command Area of the Rajasthan Canal. The $174 million project is designed to provide all the necessary physical works and agricultural supporting services to enable the full realization of the benefits of the existing irrigation project. At full development, the project is expected to help increase foodgrains production by 265,000 tons and that of other crops 1 ike and cotton and pulses by 647,000 tons a year. The project will also provide the equivalent of 70,000 additional full-time jobs and contribute to an increase in incomes of farmers. It will assist the permanent settlement of 33,000 landless agricultural laborers and their families -- a total of 200,000 persons.

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About 80% of the population of Rajasthan is rural. Over one-third of the State is desert. The Rajasthan Canal Irrigation Project will ultimately provide perennial irrigation to cover one mill ion hectares. At present it irrigates 540,000 hectares. Farm production in the area has not met expecta­tions due to a number of constraints-- inadequate supply of water, fertilizers, high-yielding seeds and lack of on-farm development. The project beino assis­ted by IDA will help remove these constraints. It ~on~ists of land development, including Ievell ing of 32,000 hectares, reclamation of 17,000 hectares of saline soils, construction and 1 ining of 5,800 kilometers of water courses; 1 ining of 915 kilometers of canals; afforestation; construction of 430 kilometers of roads; provision of fertilizers; facilities for the supply of filtered and disinfected water to 100 villages; and agricultural research and support services.

Command Area Development in the Chambal Region of Rajasthan

A Bank loan of $52 mill ion and an IDA credit of $24 million are being devoted to the development of the Command Area of the existing Chambal irri­gation project in Rajasthan State. The Chambal irrigation project was completed in 1960. It consists essentially of a reservoir and a canal system, designed to serve an area of 229,000 hectares. About 60,000 farm families live in the area. The average farm size is about four hectares. About 55% of the farmers in the project area are within the lowest 40% on India's national income scale. Agricultural production in the area has not met earlier expectations due to a lack of drainage and on-farm development, inadequate roads, maintenance and supporting services. The $91.5 mill ion project being supported by the Bank is the first step towards correcting these deficiencies.

$145 Million Loan for Command Area Development in Andhra Pradesh

In May 1976, the Bank approved a loan of $145 mill ion for financing the development of irrigation works and command areas of major irrigation in Andhra Pradesh. The $297 mill ion project will complete the construction of the irrigation and drainage works of the Nagarjunasagar project, and provide the first state, covering three years, of development on 72,000 hectares. It is the first step in a program that wil 1 ultimately cover an area of over one mill ion hectares.

The project focusses on three components:

(a) an effective extension service to teach farmers how to use water;

(b) on-farm development works below the irrigation outlet to enable proper conveyance and control of the water to the farmers' fields, and land shaping and leveling to achieve better appl ica­tion efficiencies; and

(c) improvements of the main conveyance system.

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grace. paid to between

The Bank's ''Third Window11 loan is for 25 years including 7 years of It will carry interest at 4!% per annum. An additional 4% will be the Bank by the Interest Subsidy Fund, representing the difference the Bank's interest at the time of the loan and the charge to India.

irrigation Development

·Since 1970, IDA has provided $270 mill ion for the development of irrigation in India. An IDA credit of $39 mill ion covered part of the cost of completing the first phase of the Pochampad irrigation scheme in Andhra Pradesh. A credit of $45 mill ion, extended in 1975, is financing the con­struction of a barrage across the Godavari River in Andhra. Part of the cost of completing the Kadana project on the Mahi River in Gujarat was met by a credit of $35 mill ion. In 1977, Orissa received a credit of $58 mill ion for a project designed to utilize the numerous small rivers in Orissa for pro­viding irrigation to about 66,000 hectares throughout the State. The Vaigai Irrigation System in Tamil Nadu is being rehabilitated, modernized and exten­ded with the assistance of a credit of $23 mill ion. A credit of $70 mill ion is financing two irrigation projects in Maharashtra.

Cotton Production

India plants about 25% of the world 1 s cotton crop and produces around 10% of the world's supply. Poor quality seed, including varieties with low response to fertilizers, and inadequate plant protection have contri­buted to low productivity. There is a high potential for increasing cotton production in India. An IDA credit of $18 million, approved in January 1976, is financing a project designed to pioneer key improvements in three cotton growing areas in the states of Haryana, Punjab ~nd Maha­rashtra.

Apple Processing

An IDA credit of $13 mill ion is financing a project to provide improvements in the apple-processing facilities and to develop an integra­ted apple marketing system in Himachal Pradesh.

Rural Electrification

A rural electrification project is being assisted by an IDA credit of $57 mill ion. About 55,000 farmers, mostly smallholders, wil 1 benefit from the energizing of minor irrigation wells. Power will also be suppl led for smal 1 industries and for houses and street 1 ighting in more than 6,000 villages. The credit is supporting some 140 schemes, involving a total investment of some $114 mill ion, approved by India's Rural Electrification Corporation for implementation by State Electricity Boards.

Agricultural Research and Extension

India's efforts to increase agricultural production by strengthen­ing agricultural extension and related research is being assisted by five IDA credits totaling $63 mill ion. These projects, through reorganization and

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improvements in agricultural extension, research and staff training seek to provide farmers in five states -- Assam, Madhya Pradesh, Orissa, Rajas­than and West Bengal -- the means for sustained increase in production. The new extension system is designed to reach virtually all farm families in the states. It encourages farmers to adopt simple proven agricultural practices which require 1 ittle or no cash outlay but depend mostly on labor. Consequently, small farmers with 1 imited financial resources, but excess labor are expected to benefit greatly from the project's emphasis on more efficient use of locally available resources.

Rural Development in Drought-Prone Areas

An IDA credit of $35 mill ion is assisting India to increase and stabilize agricultural production in six-drought prone districts in four states - Andhra Pradesh, Karnataka, Haharashtra and Rajasthan. The $103 million project, when completed in 1980, will help to increase the income of over one million people, most of whom belong to the poorest segments of the population. Average annual income gains resulting from the project will range $12.5 to $500. Annual crop production will increase by 58,000 tons, principally of foodgrains. About 85,000 man-years of short-term and 20,000 man-years of full time employment will be generated.

The drought-prone areas of India cover about 600,000 square kilo­meters and a population of about 66 million. The bulk of this population is engaged in perennial struggle to meet its subsistence needs in a harsh environment. It frequently fails. The credit is in support of India's Drought-Prone Areas Program, initiated in 1970-71. The objective of the program is to mitigate the effects of periodic droughts in these areas by providing permanent employment, on-farm development and by improving public sector services.

The IDA credit is the first Bank Group operation in India specific­ally to take the difficult problems of rural development in the country's arid and semi-arid regions. It will help to increase agricultural produc­tion in six districts -- Anatapur in Andhra Pradesh; Bijapur in Karnataka; Jodhpur and Nagaur in Rajasthan; and Ahmednagar in Sholapur in Maharashtra. It includes public works and on-farm development and covers minor irriga­tion, command area development, applied research and farmer training pro­grams.

Tree Crop Development in Kerala State

In Kerala, an IDA credit of $30 million is financing an agricul­tural development project to help smallholder farmers. The project will help improve the income of 75,000 farm families dependent on coconut, rub­ber, pepper, cashew and other tree crops.

Fisheries Development in Gujarat State

The Bank and IDA are providing $18 mill ion-- IDA a credit of $4 million and the Bank loan of $14 million on ooncessional 11Third Window' 1

terms -- for a project to increase fisheries production Gujarat. India

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is one of the most protein-deficient areas in the world. Consequently, the country is placing increasing emphasis onthe development of fisheries. Apart from supplementing local diets, fishery development is also important for exports. India is presently the world's largest exporter of shrimps, which in 1975 contributed $140 mill ion in foreign exchange. The project being assisted by the Bank and IDA is part of the effort to increase fish­eries production.

A2ricultural Markets in Bihar and Karnataka

One of the important elements of the Government of India's strategy of agricultural development is improvement of agricultural mar­keting network in the country. The Government has encouraged State Governments to pass legislation to facilitate a marketing system that will ensure fair competition, effcient hand! ing and cleaning of produce and a reduction in wastage. ·

In March 1972, IDA extended~ credit of $14 million to· finance improvements in the agricultural marketing system in Bihar State. The credit, first from the World Bank in direct support of development of market centers for farm products, will finance a five-year program of investment in market facilities in 50 towns in Bihar, and will also provide funds for training of personnel in marketing and project evaluation. A credit of $8 million is financing a similar program in Karnataka.

Education

Two new agricultural universities in the States of Assam and Bihar will be developed with the assistance of an IDA credit of $12 mil­lion, approved in October 1972. The agricultural universities are being developed on the basis of the American land-grant model.

Agricultural Development in West Bengal and Madhya Pradesh

In West Bengal, an IDA credit of $34 million is supporting a four-year program of investments to improve minor irrigation, agro-service centers for the distribution of inputs, regulated markets, and agricul­tural services.

A credit of $4 million is financing a technical assistance project in India's forestry sectors. The project is providing over a five-year period technical assistance to enable India and Madhya Pradesh to develop and prepare wood processing schemes based on the forest re­sources in the Bastar district of the State.

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Industrial Development

In the past 30 years India has made substantial progress in the industrial field. In the early 1950s the textile industry dominated the Indian industrial scene. Comparatively little of other large-scale modern industry existed. There were the begin­nings of a steel industry, producing about 2 million tons of crude steel. Production of coal was sizeable at 33 million tons. Iron ore production was 3 mill ion tons, and cement production 3 mill ion tons. Production and refining of petroleum was negligible. Fer­tilizer production was virtually non-existent. India now has an extensive and sophisticated manufacturing capacity that can pro­duce a wide variety of industrial goods.

The Bank and IDA have committed over $2,500 mil lion to assist development of industry in India.

Iron and Steel

India has all the raw materials required for iron and steel making. Major deposits of high-grade iron ore occur in Bihar, Orissa, Madhya, Pradesh and Karnataka. Coking coal is found in ample quantities but with a high ash content in Bihar and West Bengal. Manganese, Limestone and dolomite occur in vari­ous parts of the country. The late J.N. Tata, a well-known in­dustrialist, established as early as 1907 the first Indian steel works in Bihar. The expansion of the steel industry has been the centerpiece of India's industrial programs. The Bank has lent $175 million to assist the two private steel producers-- the Indian Iron and Steel Company (I ISCO) and the Tata Iron Iron and Steel Company (TISCO) -- in expanding their output from 1.3 mil-l ion tons in 1955 to 3.3 million tons of ingot steel.

Four loans totaling $70 million have been made to I ISCO. The first, of $29.2 mill ion, was made in 1952 and enabled the company to expand its integrated steel mill in Burnpur in the Damodar Vallegy. This was also the Bank's first loan in the manufacturing field to be made directly to a private company with the guarantee of the Indian Government. A second loan of $19.9 mill ion, made in 1956, helped to increase rolling mill capacity at Burnpur. Together, the two loans assisted the company in raising its capacity for producing ingot steel from 450,000 tons to over one mill ion tons a year. In 1961, a loan of $18.6 million was made available to I ISCO to provide the foreign exchange needed to increase the company's own coal production from 260,000 tons to 2.2 mill ion tons annually, thus relieving problems in securing reliable supplies of high-quality coking coal;

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During the fifties, TISCO carried out four major pro­grams to modernize the company's faci1iti~s at Jamshedpur and to expand its annual ingot c~pacity from 1.1 million tons to 2 million tons. These programs were completed in 1961. Part of the foreign exchange cost of the expansion programs was met by two Bank loans totaling $107.5 million made in 1956 and 1957.

Coal Mining

In addition to being an important raw material for India's steel industry, coal is a major fuel both for the electric power industry and for the railways, as well as for other manufacturers and domestic consumers. A Bank loan of $28.8 million, made in Agusut 1961, provided the foreign exchange needed by private coal mining companies for equipment to expand their production of high­quality coal. A large number of private collieries p~rticipated in this project.

Industrial Credit and Investment Corporation of India (ICICI)

Development finance companies play a vital catalytic role in the mobiliztion of capital for industrial and commercial de­velopment by providing loan or equity finance, by underwriting security issues, by serving as finance intermediaries between local and foreign businessmen and by providing locally established com­panies with managerial and technical advice. These companies also perform a useful institutional function within countrles 1 financial structure by encouraging the development of capital markets.

Twelve Bank loans, made between 1955 and 1977 and totaling $535 mill ion, have provided foreign exchange resources for the Industrial Credit and Investment Corporation of India, a privately­managed development finance company. ICICI was establi~hed in 1955 with the Bank 1 s advice and assistance in order to promote the growth of private industry in India.

ICICI makes long- and medium-term loans and equity invest­ments. It has served to channe 1 foreign exchange as we 11 as rupees into industry, and by its own underwriting activities has helped to develop the Indian capital market. ICICI 1 S operations have con­tributed significantly to employment contribution.

Small- and Medium-Scale Industry

Development of small- and medium-scale industry in India will be assisted by $65 million from the Bank and IDA; The Industrial Development Bank of India (lOBI) is chanelling the proceeds to 18 State Financial Corporations for re-lending to small- and medium-scale industries. India has placed considerable

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emphasis on the promotion of small-scale industry since the mid-1950s as a means of increasing employment, income distribu­tion and regional development. Until 1973, World Bank financing for industrial investment in India has emphasized medium- and large-scale units either through direct financing or through the Industrial Credit and Investment Corporation of India. How­ever, in view of the importance of small-scale industry, a new project was developed in 1973. IDA extended a credit of $25 million to lOBI for re-lending to small-scale industry. The credit was fully utilized by June 1976. The new loan, made in 1976, continues the objectives of that credit.

Industrial Imports

Within the last 30 years there has been considerable de­velopment in India of manufacturing firms capable of producing sizable quantities of capital goods such as industrial and elec­trical machinery, construction equipment and commercial vehicles. Because of the shortage of foreign exchange, however, manufacturers have not been able to purchase all the imports they require to make full use of thier installed plant capacity. In these circum­stances the members of the Indian Consortium recognized that the provision of foreign exchange for the import of materials and com­ponents required to utilize idle manufacturing capacity and to improve industrial efficiency could be a particularly effective form of assistance. A substantial amount of assistance for the import of industrial materials and components has been extended to India by members of the Consortium. IDA has extended twelve credits totaling $1,450 million for this purpose. These credits have assisted in attaining better utilization of existing indus­trial capacity, enhancing industrial efficiency and meeting essen­tial capital goods requirements in India.

Fertilizer Production

India has undertaken a major program to expand fertilizer production to meet the increasing needs of the agricultural sector. Estimates are that under Indian conditions, the application of one nutrient ton of fertilizer will yield an additional production of five to seven tons of foodgrains. Thus shortfalls in the supply of fertilizer seriously impair food production. The Bank and IDA have provided $443 mill ion to help India expand fertilizer production. Five IDA credits totaling $229 mill ion are for the Fertilizer and Chemicals, Travancore Limited, plant in Cochin, Kerala and for the Gorakhpur, Nangal, Trombay and Sindri Units of the Fertilizer Cor­poration of India. A credit of $105 million is assisting 10 fertili­zer plants in removing production bottlenecks, improving pollution control and increasing the production of industrial chemicals. A Bank loan of $109 mill ion is financing the construction of a plant in Phulpur, Uttar Pradesh, to produce 900 tons of ammonia and 1,500 tons of urea per day.

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Population

The continuing improvement in the resource position presents an opportunity to intensify the efforts aimed at reducing poverty in India. Slow growth of national income is the all-important reason why poverty has not been reduced over the past decades. Therefore, the first priority is to raise the growth trend of the economy, particularly in agriculture. But the extent to which a faster growth of national income will reduce poverty in the long-run will depend on success in control I ing population growth and in implementing policies which improve the quality of the 1 ife of the poor.

India's population growth rate of a 1 ittle over 2% a year is not high in comparison with most less developed countries. India has neither the very high birth rates observed in some countries, nor the very low death rates found in others. but the size of the absolute increment -- 13 mill ion a year-- is daunting. It appears, however, that India's population growth may have passed its peak in the 1960s. It is expected to continue to slow down, both because the birth rate will continue to decline and because the death rate will not fall as steeply as in the past. With a sustained family planning effort, it should be possible to lower the population growth rate to 1.1% per annum by the end of the century.

In 1972, IDA joined Sweden in providing $31.8 mill ion for a com­prehensive applied research-oriented population planning project in selected areas of Uttar Pradesh and Karnataka States. IDA extended a credit of $21.2 mill ion and Sweden provided $10.6 million as a grant. The project's content is unique, for it is an experimental effort to determine what needs to be done to improve the effectiveness of lndia 1 s national program to reduce fertility. Its central core will be the development a management-information and evaluation system to generate answers to operatfonal questions, undertake research on demand aspects. These are being done in two population centers -­one in Lucknow and the other in Bangalore --which have been set up with the support of Indian technical assistance, also financed by IDA.

Urban Development -- Bombay, Calcutta and Madras

The Bank and IDA are providing $80 mill ion for improving Bombay•s water supply and transport systems. An IDA credit of $55 million is financing a water supply project designed to enable the Bombay Municipal Corporation to increase water supply from less than five hours per day for 60% of the area 1 s population of over six mill ion to about eight hours per day for the entire population. A Bank loan of $25 million is financing improvements in the bus service system in Greater Bombay -- the island city of Bombay and its immediate and extended suburbs.

The Calcutta Metrcpol itan District is one of the most crowded areas in the world. ropulatlon density in the Calcutta corporation averages 33,000 persons per square kilometer, rising to 44,000 persons per square kilometer in the heart of the city. With a population of 9.7 million, the Calcutta Hetro-pol itan District has an urgent need for improved urban services. Sixty percent of the District's population do not have sewerage or drainage facilities. Water supply and garbage collection are also inadequate. Proper housing is beyond the reach of 3.3 mill ion people who live in make-shift structures in crowded colonies.

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The Calcutta Metropolitan Development Authority (CMDA) is implementing a program bf rehabilitation and improvement of the basic urban facilities in Calcutta with the help of two IDA credits totaling $122 mill ion. A credit of $35 mill ion extended in 1973 is financing water supply improvements, sewerage and drainage, gar­bage collection and disposal equipment, environmental hygiene improvements, transport facilities and area development. The other credit of $87 million, extended in 1977, is financing a $188 mill ion project designed to assist CMDA to deal with the problem of improving urban services by strengthening the financial basis of the District, and extending and rehabilitating the city's urban service systems, particularly those of critical importance to the urban poor. Included in the project is a program of or­ganizational, managerial fiscal reform for the District's administrative agencies as well as technical assistance and service program including area development and slum improvement schemes serving about 900,000 of the city's poor people.

Madras, the capital of Tamil Nadu State, is the fourth largest city in India. The present metropolitan area population of 4.4 mill ion is growing by more than 200,000 a year. Annual per capita income in the area is $95. There are serious deficiencies in important urban services. IDA has extended a credit of $24 million to help improve the urban services in the city. The main objective of the $52 mill ion project is to develop and promote low-cost solutions to Madras's problems in the sectors of shelters, employ­ment, water supply, sewerage and transport, and to make investments response to the needs of the urban poor.

Uttar Pradesh Water Supply

An IDA credit of $40 million, approved in 1975, is financing a project to improve water supply and sewerage facilities in Uttar Pradesh. The project involves implementation of the first phase (1971-78) of reorganization of the water supply and sewerage services in the State by establishing the Uttar Pradesh \.Jater Supply and Sewerage Corporation and eight local water authorities which will serve selected towns as well as certain rural areas. In addition, the project provides facilities to im­prove the quality of water supply sewerage to five million people in the five largest cities of the State, and to bring piped water supply to 1.2 million villagers in 2,000 villages.

Transport

In a country of India's size and population in transportation requirements are very large. Hence, the Indian investments in the transport field have been very large. The World Bank's assistance to India began in 1948 with a loan for the rehab­ilitation and development of the Indian railways. Since then, the Bank and IDA have committed some $1,116.70 million for the development of transport--railways, roads, ports, shipping and aviation.

Bank and IDA Lending for Transport Development in India (Amount in $ M i 11 ions as of June 1977

Bank IDA Total

Ra i 1 ways 379.00 517.50 896.50 Ports (Bombay, Calcutta, and Madras) 64.00 18.00 82.00 Roads 60.00 60.00 Aircraft (Air India) 5.60 5.60 Shipping 83.00 83.00

Total ... . .. 448.60 678.50 1 ,127. 1 c

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Railways

India's railway system is one of the world's largest. It has 60,000 route-kilometers, employs over 1.7 mill ion people and owns modern factories which manufacture all its diesel and electric locomotives, and most of its passenger vehicles. The Indian Railways handle the bulk of both freight and passenger traffic. The Bank and IDA have been closely associated,with the Indian Railways. In all the two institutions have lent over $895 million for the Railways. These operations have assisted the Railways to triple the volume of freight carried and to more than double its passenger traffic since 1951.

Highways

While the Railways will continue to carry most of the long­distance and bulk freight, there is·also a pressing need for an improved road network. An IDA credit of $60 million, made in June 1961, was used mainly to build about 1,000 kilometers of highways, including 17 major bridges, in order to open up some of the less developed parts of India, to improve connections between important agricultural and industrial centers, and to rei ieve traffic congestion in the vicinity of Calcutta and Bombay,

Ports

India has a long coastline, and rei ies heavily on its major ports for stimulating foreign trade. As the country's economy has grown, the traffic handled by the ports has increased rapidly. The Bank has made three loans totaling $64 million for port improvements in Calcutta and Madras and IDA has extended one credit of $15 mill ion for expanding port facilities in Bombay.

Aviation

In March 1957, the Bank made a loan of $5.6 mill ion to Air India International, as part of a joint operation with five United States banks which at the same time extended credits totaling $11.2 mill ion to Air India. The combined transaction helped to finance the foreign ex­change cost of buying long-range jet airplanes, ten spare engines and other spare parts, a flight simulator and ancill iary equipment.

Shipping

India's capacity to meet the growing demand for transport services from an increasing domestic oil refinery capacity and rising consumption of refined petroleum products was expanded with the help of an IDA credit of $83 mill ion, approved in 1972. The credit enabled India to buy four oil tankers, each about 80,000 deadweight tons, for carrying crude from the Persian Gulf ports to feed the Haldia and Barauni refiner­ies and two refined oil products tankers, each of 20,000 dwt., for the import, export and coastal distribution. of refined petroleum products.

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Energy Development

India has assigned high priority to the development of electric power in an endeavour to ensure an adequate supply of power for an expanding economy. Power generating capacity in India has increased from 2.3 mill ion kilowatts in 1951 to some 20 mill ion kilowatts in 1976; and per capita con­sumption increased from 14 kilowatt hours to about 90 kilowatt hours. In 1951, about 3,700 villages in the country had electricity. Now the number of villages with electricity has increased to more than 160,000. The Bank and IDA have supported electric power development in India with loans and credits totaling $770 mil 1 ion for electric power generation and transmission. In the petroleum sector, India has taken measures both to 1 imit consumption and .to step up oil exploration and domestic production.

The Damodar Valley has some of the richest mineral deposits in India. In recent decades it has become a focal point for Indian industry and one of the largest manufacturing centers in Asia. In the late 1940s the Indian Government drew up a unified scheme to develop and distribute electric power, control flooding and improve irrigation in the valley. Ex­ecution of the scheme was entrusted to the Damodar Valley Corporation (DVC), created in 1948 on the pattern of the Tennessee Valley Authority (TVA) in the United States. The Bank has extended three loans and IDA one develop­ment credit to help DVC increase its electrical generating capacity, a key factor in the industrialization of the Valley.

The Bank has also made three loans and IDA one credit for power development in the Bombay-Poena region on the west coast. The two loans, in 1954 and 1957, made available sums of $13.8 mill ion and $9.7 mill ion to three firms forming part of the Tata Group of power companies. The Koyna hydroelectric power project near Bombay was implemented with the assistance of funds totaling $36 ·mil 1 ion from the Bank and IDA.

The Bank and IDA have provided $34 mil 1 ion for an important thermal power project near Kothagudem in Andhra Pradesh. An IDA credit of $22.7 mill ion, extended in 1966, helped to develop hydroelectric power on the River Beas.

The construction of the first phase of a 2,000 megawatt (MW) power station on the Singraul i coal field at Kota in Uttar Pradesh is being financed by a credit of $150 mil 1 ion, approved in 1977. The pro­ject consists of the construction of the first 600 MW of capacity in the Singraul i thermal power station, together with ancill iary equipment and related works. The total Singraul i development, including associated transmission, is estimated to cost about $1.2 bill ion. The plant is. one of several that India plans to build to meet the growing demand for power. India plans to instal 1 additional generating capacity amounting to 30)000 MW by 1984.

Transmission Network

Besides financing individual power projects, the Bank and IDA have assisted the development of transmission networks with loans and

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credits totalling $180 mill ion. A Bank loan of $70 mill ion, made in 1965, helped to finance the construction of 8,000 miles of transmission 1 ines and the construction or extension of 300 substations. In 1971, IDA extended a credit of $75 mill ion for the expansion of transmission facilities in nine states -- Andhra Pradesh, Bihar, Gujarat, Haryana, Maharashtra, Punjab, Rajasthan, Uttar Pradesh and West Bengal. IDA followed this up with a credit of $85 million to help expand power transmission facilities in a number of other states. An IDA credit of $150 mill ion, approved in 1976, is financing a power transmission project designed to assist India in the eventual develop­ment of an integrated power generation and transmission system in the country.

Bombay High and Bassein Oil Fields

India is carrying out a $571 mill ion project to develop the Bombay High and Bassein oil and gas fields near Bombay with the help of a World Bank loan of $150 mill ion, approved in 1977. The project includes the con­struction of facilities required to produce up to 140,000 barrels per day of oil and 2.2 mill ion cubic meters per day of natural gas from the two fields and the facilities to process, transport, store and deliver to users of the oil and natural gas from these fields at full production. The Bombay High and Bassein fields should yield up to 13 mill ion tons of oil equivalent at maximum production. This will be substituted for crude oil imports and is expected to bring India net foreign exchange savings of about $16,000 mill ion over the next 20 years. The project represents the first operation for the Bank in India's petroleum sector.

The Rising Demand for Energy at Growing Costs

In 1975, India's demand for commercial energy was around 93 mil­l ion tons of oil equivalent, of which petroleum accounted for about 24%. Per capita consumption was about 11% of the world average. India's energy pol icy is predicated on the maximum economic use of domestic resources -coal, hydropower and more recently petroleum and natural gas. India has to import about 62% of its petroleum requirements. Following the increase in world oil prices of 1973/74 and subsequent years, the cost of petroleum imports increased from $265 mill ion in 1973 to about $1,600 mill ion in 1976. Estimates are that demand for petroleum will continue to grow in the future. Total consumption requirements are estimated at about 50 mill ion tons in 1985 and 67.5 mill ion tons in 1990 compared to 22.3 mill ion tons in 1975.

Discovery of Offshore Oil

Current production of crude oil and natural gas is about 8.9 millen tons and 2,300 mil 1 ion cubic meters, respectively, and comes mainly from onshore fields in Gujarat and Assam. Total onshore reserves are estimated at about 230 mill ion tons of oil, sufficient to meet about 10 years of current requirements. India's onshore potential has been partially explored, but no exploration of the Continental Shelf took place before 1973 since it was thought offshore oil will not be commercially

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economic at pre-1973 prices. In 1973/74 India stepped up oil exploration offshore and entrusted the responsibility to the Oil Natural Gas Commission (ONGC), a statutory corporation created in 1959, which had been exploring for and developing hydrocarbon resources onshore. In 1974, ONGC drilled its first offshore exploratory well in the Bombay Hfgh structure, located 160 km. west of Bombay in the Arabian Sea, and struck oil. Subsequent drilling led to the discovery of the Bssein ,fields located some 100 km. west of Bombay. As of March 1977, proven recoverable offshore reserves are estimated at about 280 mill ion tons of oil equivalent, of which 90% is crude oil and 10% natural gas.

Development of Offshore Oil

ONGC has already carried out the first two phases of development of Bombay High. Commercial production started in May 1976 and ·reached two mill ion tons per year in March 1977. The Bank loan will assist the third phase of development. It includes drilling of about 20 additional develop­ment wells, about five well platforms, three production platforms equipped with processing and pumping facilities, two subsea pipelines to shore, an onshore terminal including gas and oil processing and storage facilities, supply 1 ines to users of the oil and gas, a supply base for offshore operations, a telecommunications system and consulting services. The pro­ject is expected to begin in the fall of 1977 and to be completed by May 1979.

Telecommunications

India's large size and wide dispersal of industrial and agri­cultural activities in the country impose heavy demands on the telecommu­nication facilities. During the past 15 years, the telecommunicatioRs network in India has been greatly expanded, partly with the assistance of loans and credits totaling $288 mill ion from the World Bank and IDA. Despite this expansion, telephone, telex and telegraph services are·,quite inadequate to meet the rapidly growing commercial, industrial and adminis­trative demand. Telephone density in India is still very low. The Bank's most recent loan of $80 mill ion was made in July 1976. The loan is finan­cing a project which is part of the Indian Post and Telegraphs Department's expansion program covering the years 1977 to 1979. The project is designed to alleviate congestion in city and long-distance telephone network, im­prove telex services and brino new telephone service to 220,000 subscribers.

India Consortium

In 1958, the implementation of India's Second Five-Year Plan was threatened by an acute shortage of foreign exchange. India was using up her foreign exchange reserves at a rapid rate in order to maintain imports essential to the Plan. Under the auspices of the World Bank, representa­tives of five nations -- Canada, Germany, Japan, the United Kingdom and the United States -- met in Washington D.C. in August 1958 to discuss the situation. After these talks, the Bank and the governments began bilateral negotiations with the Indian Government for arrangements for assistance

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which covered the foreign exchange needed in the third year of the Plan. The Bank itself undertook to continue its series of loans for projects in India. This marked the beginning of the India Consortium and aid coordination by the Bank. Now there are some 20 such groups coordinating assistance to as many countries.

The most recent meeting of the Consortium was held in July 1977. It was attended by representatives of the governments of Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, the United Kingdom and the United States.

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