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Report No.2 684

PROJECT PERFORMANCE AUDIT REPORT

INDIA: PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS

(Credits 203 and 249-IN)

October 5, 1979

Operations Evaluation Department

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

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CURRENCY CONVERSIONS

At Appraisal: US$1 = Rs 7.50At Completion: US$1 = Rs 9.00

ABBREVIATIONS

ACP - Agricultural Credit Project

AIC - Agro-Industries Corporation

ARDC - Agricultural Refinance and Development CorporationGATT - General Agreement on Tariffs and Trade

GOH - Government of Haryana

GOI - Government of IndiaGOP - Government of Punjab

HACP - Haryana Agricultural Credit ProjectHAFED - Haryana State Cooperative Agricultural Marketing FederationHAIC - Haryana Agro-Industries Corporation

HSCB - Haryana State Cooperative BankHSCLDB - Haryana State Cooperative Land Development Bank (includes PLDB)HSMB - Haryana State Marketing Board

HSMITC - Haryana State Minor Irrigation Tubewell Corporation

PACP - Punjab Agricultural Credit Project

PAIC - Punjab Agro-Industries Corporation

PAU - Punjab Agricultural University

PCB - Participating Commercial BankPCR - Project Completion Report

PLDB - Primary Land Development Bank

PPAR - Project Performance Audit ReportPSCLMB - Punjab State Cooperative Land Mortgage Bank (includes PLDB)

REC - Rural Electrification Corporation

SOC - Soil Conservation Organization of the Haryana Department ofAgriculture

SLDB - State Land Development Bank

FISCAL YEAR

ARDC and Cooperative Year - July 1 to June 30GOI - April 1 to March 31

FOR OFFICIAL USE ONLY

Project Performance Audit Report



TABLE OF CONTENTS

Page

Preface i

Basic Data Sheet ii

Disbursements iiiHighlights iv

PROJECT PERFORMANCE AUDIT MEMORANDUM

I. Project Summary 1

II. Main Issues 3

A. Mechanization: Procurement, Role of Agro-Industries

Corporations, Benefits from Tractorization,

Employment Effects, GOI Mechanization Policy,

Small Farmers, Downpayment and Repayment,

Tractor Power Required, Inconsistencies

in Number of Units Procured, andReplacement of Tractors.

B. Minor Irrigation 10C. Credit Aspects 11D. Conclusions 12

Appendix 1 Government of India's Comments 13

Appendix 2 ARDC's Comments 18

JOINT PROJECT COMPLETION REPORT

I. Introduction 19

II. Project Implementation 24

III. Financing Institutions 31IV. Supporting Services 33

V. Economic Impact 35

VI. Conclusions and Recommendations 39

Supplement by IDA's Regional Office

ANNEXES

1. Key Implementation Data

2. The Lending Institutions

3. Supporting Services4. Financial Costs and Benefits

5. The Economics of Tractors in the IndianSubcontinent - An Analytical Review

Map

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




PREFACE

This is a performance audit of two projects in India: the

Punjab Agricultural Credit Project (PACP) for which Credit 203-IN was

approved in June 1970 in the sum of US$27.5 million and the final disburse-

ment made in July 1977; and the Haryana Agricultural Credit Project (HACP)

for which Credit 249-IN was approved in June 1971 in the sum of US$25.0

million and the final disbursement made in January 1977. Both credits

were closed in June 1977.

The audit report consists of an audit memorandum prepared by the

Operations Evaluation Department, and a project completion report (PCR),

dated January 15, 1979. The PCR was prepared by the Agricultural Re-

finance and Development Corporation (ARDC), the financial intermediary for

the projects, and reviewed and supplemented by the Bank's South Asia

Regional Office on the basis of a country visit in August, 1978.

An OED mission visited India in February and March 1979. Themission held discusions with officials of the Government of India, the

governments of the states concerned, ARDC, the state land development

banks (SLDBs), the main participating commercial banks (PCBs) and otherrelevant state government agencies, particularly the Haryana Groundwater

Cell and the agro-industries corporations in charge of tractor procure-

ment in both states. The mission also visited some primary land develop-

ment banks (PLDBs), machinery workshops and several participating farmers.

Comments of the officials interviewed are fully reflected in the report

and are gratefully acknowledged. The information obtained during that

mission was used to test the validity of the conclusions of the PCR

and permitted discussion of aspects not covered by the PCR.

The audit memorandum is based on these discussions, on inter-

views with Bank staff associated with the projects, and on a review of the

PCR, the President's reports No. P-826 (May 26, 1970) and P-941 (May 17,1971), the appraisal reports No. PA-48a (May 27, 1970) and PA-80a (May 13,

1971), the credit agreements dated June 24, 1970 and June 11, 1971, and

correspondence with the Borrower and internal Bank memoranda on projectissues as contained in the Bank's files.

A copy of the draft report was sent to the Borrower. The

comments received have been taken into account and are also reproduced in

appendixes 1 and 2.

The audit finds the PCR comprehensive and accurate with respect

to the project's principal achievements and shortcomings. The points

discussed by the audit mission have been selected because of their rele-vance to this and other projects in India.

The valuable assistance provided by the Government of India, the

state governments, the different institutions concerned with the projects,

particularly ARDC, and the farmers visited, is gratefully acknowledged.

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BASIC DATA SHEET

KEY PROJECT DATA

Punjab ACP Haryana ACP

Appraisal Actual or Appraisal Actual or

Item Item Expectation Current Estimate Expectation Current Estimate

Total Project Cost (US$ million) 40.0 42.7 44.5 53.0Credit Amount (US$ million)

Disbursed (US$ million) 27.5 27.5 25.0 25.51/Cancelled (US$ million) 0.0 0.0Outstanding (US$ million) 27.5 25.5

Date Physical Components Completed 12/72 12/76 12/74 7/76Proportion of Time Overrun(%) 200 66Economic Rate of Return C%)

Tractors 14 Over 50 15 Over 50Minor Irrigation 22-27 Over 50

OTHER PROJECT DATA

Punjab ACP Haryana ACP

Original Actual or Original Actual orItem Plan Revisions Current Estimate Plan Revisions Current Estimate

First Mention in Files or Timetable 1968 1968Government's Application 1969 1970Negotiations 5/70 5/71Board Approval 06/11/70 06/01/71Credit Agreement Date 06/24/70 06/11/71Credit Effectiveness Date 08/31/70 09/15/70 09/04/70 09/30/71 11/02/71Credit Closing Date 12/31/72 12/31/73 06/30/77 03/31/75 03/31/76 06/30/77

12/31/74 01/31/7712/31/75

Final Disbursement Date 07/77 01/77Borrower IndiaExecuting Agency Government of IndiaFiscal Year of Borrower April 1 - March 31Follow-on Projects None

MISSION DATA

Date Man/Weeks in Field Date Man/weeks in Field

Identification (field) 11, 12/68 11, 12/68(FAO/IBRD)

Preparation (GOI) 1969 69/70Appraisal (field) 11, 12/69 11/70

Supervision 1 10/70 3 09/71 1Supervision 2 09/71 1 03/72 3Supervision 3 03/72 2 10/72 5Supervision 4 08/73 2 08/73 1Supervision 5 10/74 1 10/74 1Supervision 6 10/75 1 10/75 2

10 13

(PCR review: August 1978

(2m/weeks)

1/ Exchange adjustment of US$0.5 m.

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DISBURSEMENTS

(Cumulative, US$ M)

IDA Semester Ending Punjab ACP Haryana ACP

Appraisal Actual % Appraisal Actual %Estimatel/ Estimate

June 30, 1971 4.0

December 31, 1971 9.0 0.8

June 30, 1972 16.5 2.4 0.5 21

December 31, 1972 25.0 4.4 1.6 36

June 30, 1973 27.5 7.7 5.0 65

December 31, 1973 0.2 - 12.2 5.8 48

June 30, 1974 0.5 - 17.0 9.2 54

December 31, 1974 1.8 - 21.8 10.1 46

June 30, 1975 2.4 - 25.0./ 12.6 50

December 31, 1975 2.9 - 15.9 -

June 30, 1976 14.1 - 20.8 -

December 31, 1976 16.8 - 25.3 -

June 30, 1977 25.0 - 25.51/ -

December 31, 1977 27.5 -

Final Disbursement Date July 77 January 1977

1/ Derived from Appraisal Report: Project Cost Estimates.2/ At March 31 it stood at 24.3 (last figure given in Appraisal Report).3/ Exchange adjustment of US$ 0.5 million.




HIGHLIGHTS

The projects were intended to increase agricultural productionthrough higher cropping intensity and higher yields, through farm loansfor mechanization and minor irrigation.

Procurement problems in the farm mechanization componentscreated substantial delays in the implementation of both projects; theirrigation component of the Haryana project was implemented smoothly. Thenumber of tractors provided was 12,600, against 14,000 expected at apprai-

sal; harvesters 63 against 360 expected; shallow tubewells 36,000 against11,000 expected; and sprinkler irrigation sets 0 against 75 expected. TheAgricultural Refinance and Development Corporation played a prominent rolein project implementation. The loan recovery position of onlending banks,

unlike in several other states in India, was very good. The economicrates of return of the projects are expected to exceed 50% against 14% to27% expected at appraisal. The number of direct beneficiaries is estimat-

ed at 45,000 against 25,000 expected.

The following points may be of special interest:

- cumbersome procedures and requirements hampered tractor procure-ment (PPAM paras. 11,13 and 43; PCR Supplement paras. 2.1 - 2.18,4.1 and 4.2; PCR paras. 1.14 - 1.16);

- high returns on tractors resulted from joint application of power,water and modern inputs; high labor wages also contributed to thehigh returns (PPAM paras. 21, 22 and 44; PCR Supplement paras. 3.1- 3.4; PCR paras. 5.01 - 5.19);

- tractorization created more employment than it eliminated (PPAMparas. 28 and 46; PCR Supplement paras. 3.5 - 3.7; PCR paras.5.10 - 5.13);

- projects did not serve many small farmers but did much better inthis regard than expected (PPAM paras. 32 and 47; PCR para.2.24);

- minor irrigation proved very popular (PPAM paras. 37, 38 and 49;PCR paras. 2.17 - 2.21);

- PCR was prepared by Borrower and supplemented by IDA (PCR Supple-ment para. 1.1); and

- more detail on the economic rate of return calculation should begiven in future PCRs (PPAM paras. 23 and 45).

Project Performance Audit Memorandum



I. PROJECT SUMMARY

1. In 1968, an IDA mission with assistance of the FAO/IBRD Coopera-

tive Program, reviewed agricultural credit institutions and on-farminvestment requirements in selected parts of India and identified highpriority agricultural credit projects. Punjab, together with Gujarat, was

given priority for an agricultural credit project (ACP) because of itspotential for agricultural development. Preparation assistance was given

to the state governments by the FAO/IBRD program and by the AgriculturalRefinance and Development Corporation (ARDC - then ARC1/). The PunjabAgricultural Credit Project (PACP) was appraised in November and December

1969; the Haryana Agricultural Credit Project (HACP) followed in the nextgroup of agricultural credit projects (together with Andhra Pradesh andTamil Nadu) and was appraised in November 1970. PACP was the second andHACP the fourth in a series of 13 agricultural credit projects in Indiasupported so far by IDA.

2. PACP was to be a two-year lending project, and HACP a three-year

one. The main objective of these projects was to increase agriculturalproduction through higher cropping intensity and higher yields. The

appraisal estimate of project cost of PACP was US$40.0 million, and ofHACP US$44.5 million. The total amount under PACP was for farm mechani-

zation: 8,000 tractors; tractor implements (mould-board plows, disc plows,

disc harrows, trailers, seed and fertilizer drills, sprayers and otherimplements); 40 self-propelled harvesters; and 200 tractor-drawn har-vesters and spare parts. Under HACP, provision was made for minor

irrigation (11,000 shallow tubewells and 75 sprinkler irrigation sets);the balance was for financing 6,000 tractors; tractor implements (seeabove); 20 self-propelled and 100 tractor-drawn harvesters; and spareparts. The IDA credit for PACP was US$27.5 million and for HACP US$25.0million. The rates of return were estimated for PACP at 14% (economic)and 26 - 29% (financial) and for HACP at 15% (economic for tractors), 22 -27% (economic for irrigation), 40% (financial for tractors) and 39 - 66%(financial for irrigation).

3. Responsibility for implementing the projects would rest pri-marily with ARDC which would control the lending operations of the twostate land development bank (SLDBs) and the participating commercialbanks (PCBs) through subsidiary loan agreements. Commercial banks were

included because a number of them had recently made significant loans toagriculture. Agro-industries corporations (AICs) would be responsible forprequalifying suppliers of agricultural machinery to be procured under the

projects, establishing farmers' requirements, and arranging for the actualprocurement and distribution of the machinery. Local contractors wouldconstruct the tubewells, using hired labor and local materials.

1/ Agricultural Refinance Corporation

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4. PACP became effective in September 1970 and HACP in November1971. Procurement problems created substantial delays in the implementa-

tion of both projects, particularly for the farm mechanization components.The irrigation component of HACP was implemented smoothly. Agreementbetween GOI and IDA to change procurement procedures was reached in late1973: GOI agreed to drop the interchangeability requirement for tractorsand IDA agreed to also partly finance domestically manufactured tractors.Since then, implementation went fairly smoothly. Farm machinery arrivedmainly in 1975 and 1976, and both credits were closed in June 1977.

5. The Punjab AIC released to the farmers 8,002 tractors and 63tractor-drawn harvesters, while the Haryana AIC distributed 4,613 tractors.The total number of shallow tubewell units financed under HACP was 34,719by the SLDB and 1,265 by the PCBs, or 35,984 in total. Financing ofshallow tubewells by the SLDB has continued under ARDC I and II. Onlyaround 90% of the tubewells were yielding full benefits at the end of theproject period, because of delay in obtaining electric connection andshortage of electric power in some areas. Investments foreseen in sprin-kler irrigation did not materialize: this technology was relativelyunknown and expensive.

6. The Government of Haryana (GOH) took a number of steps to makethe Haryana Groundwater Cell effective. Action was also taken to regulategroundwater development so as to avoid over-exploitation.

7. PCBs financed two-thirds of the total disbursements under PACP;the balance was financed by the SLDB. Under HACP, PCBs financed onlyone quarter of the total disbursements, while the SLDB financed almost alltubewells and 40% of the tractors. SLDBs and PLDBs performed satisfactor-ily in project implementation. Overdues of SLDBs were almost negligible.The recovery position of PCBs was also satisfactory. Both SLDBs are ratedamong the best in the country.

8. ARDC played a prominent role in all aspects of project implemen-tation. Its performance was good. It held periodic meetings with en-tities of both projects, guided the banks in adopting project disciplineand helped them overcome bottlenecks and constraints. It participatedactively in the deliberations of the central committees set up for guidingthe AICs in procurement of tractors. It also reviewed periodically theprogress in project implementation and took corrective steps as and whennecessary.

9. The main goal of these projects, increased agricultural pro-duction, was achieved. As a result of investment in tractors, croppingintensity rose from 140% to 160% and the cropping pattern changed to highvalue crops; cropped area rose by 12,800 hectares (against 62,000 haestimated at appraisal) and gross value of production by US$19 million peryear under PACP and by 7,400 hectares and by US$11 million per year underHACP. The minor irrigation component of HACP increased cropping intensityfrom 120% to 160%, cropped area by 48,600 ha (against aggregate appraisalestimate of 68,400 ha for both mechanization and minor irrigation underHACP) and gross value of production by US$49 million.

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10. The financial rate of return for the tractor components was 25%,while their economic rate of return exceeded 50%. For minor irrigation,the financial and economic rates of return both exceeded 50%. The numberof direct beneficiaries from tractorization is 12,600; additional farmersbenefited from tractor custom services. The number of minor irrigationbeneficiaries is 32,400; about 60% of them small farmers. Besides, about18,000 families are estimated to have benefited from the sale of surplustubewell water.

II. MAIN ISSUES

A. MECHANIZATIONI/

1. Procurement

11. The project encountered major problems in procuring the requiredtractors. The audit mission is in general agreement with the conclusionsdrawn in the IDA supplement to the PCR, but would like to highlight thatcumbersome procedures and requirements were the main procurement problems.The most important single aspect was the GOI requirement of interchange-ability, that is, models eligible for prequalification should have 75% ofindividual parts interchangeable with models licensed for production inIndia. GOI dropped this requirement in December 1973 when it was agreedthat, as GOI had requested, IDA would also finance domestically manu-factured tractors. The reasons for this request were a much larger thananticipated domestic tractor production and a change in relative pricesthat favored domestically produced tractors over imported tractors: thischanged GOI's position on importing tractors. After that procurement wentrelatively smoothly.

2. Role of Agro-Industries Corporations

12. A cause for concern to farmers was the 2.5% surcharge imposed bythe AICs for their role in procuring and distributing tractors. Farmersfelt this excessive for the services AICs provided. They, as well as pri-vate tracor dealers and several bankers, were not even convinced that thoseservices were needed. But officials from AICs, state governments and somebanks, defended the arrangement. (Services rendered by AIC include: a!inviting and evaluating bids; b/ ascertaining farmers preferences; c/placing bulk orders; and d/ overseeing implementation of the machinerycomponent.) The question of AIC involvement had come up earlier, too, whenin 1972 GOI asked IDA to omit PAIC as procurement agent in favor ofsupplier's agents, to reduce overhead costs. IDA had no objection tothis, but since the transfer of procurement handling to suppliers' agentsat that stage would lead to further complications, it was decided tocontinue with the existing procurement procedure, involving PAIC.

1/ Excluding irrigation mechanization.

13. AICs' role in tractor procurement was originally thought neces-sary because all tractors were to be imported, but, considering the

increased domestic tractor production and the recent liberalization of

imports (enabling large scale tractor imports and providing necessarycompetition), the need for AICs' involvement has diminished. AICs' actual

role in tractor procurement, however, has continued under the project for

all brands. Since the AICs in the project areas now have the dealership

of one tractor brand (Zetor), they should, insofar as tractors are con-

cerned, probably limit themselves to that one brand, providing desirable

competition with the private sector. In fact, one of the latest ARDCtractor schemes in the area currently does not involve AIC. Any future

tractor financing should leave procurement to suppliers' dealers, subject

to minimum technical standards. Apart from tractor distribution, AICsplay a role in tractor custom and repair services, in production and

distribution of other farm equipment and seasonal inputs, and to a minor

extent in processing and marketing of agricultural output, indicatingsufficient alternatives. This experience shows the difficulty in elimi-

nating duplicate functions when the institutions are intent on retaining

them.

3. Benefits from Tractorizationl/

14. To complement existing data, ARDC surveyed a small sample ofPunjab farms, also representing farms in Haryana, for data on cropping

patterns, yields, prices and input costs. Tractor farms were found tohave a higher cropping intensity (up from 140% to 160%) and higher yields(11 - 25%) than non-tractor farms. The farms were assumed to be of

constant size (8 ha) before and after tractorization (annex 4, tables 1 &2). In the appraisal reports too, higher cropping intensity, higheryields and to a lesser extent a shift to higher value crops were expected

to be the only (direct) benefits for the projects.

15. But during field visits many farmers made it clear to the audit

mission that expansion of cultivated area was the main reason for higher

farm production, although increased cropping intensity and higher yields,

resulting from more timely and better land preparation, were also given as

reasons for increased production. Farm area was expanded through renting

additional land, through taking back into the holding land that had been

rented out, or through cultivating wasteland and fodder land. The states'

total cultivated area however, only expanded with cultivating waste andfodder land.

16. For a more comprehensive discussion of benefits, the variousstudies on this subject are reviewed below, necessarily repeating parts of

the PCR.

1/ GOI suggested to move this discussion to an annexure, but because of

the importance of tractors in both these projects the discussion is

being retained here in the main text.

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17. A tractorization study on Punjab1/ found that: (i) cropping

intensity was about 10 percentage points higher (but not statisticallysignificant) on tractor farms (at 175%) than on bullock farms, (ii)cropping patterns were considered to be about the same on both farm types,

and (iii) no significant difference in yield could be attributed solely to

the use of tractors. A combination of minor changes in all these factors

probably caused tractor farms to achieve significantly higher value ofoutput and profit per ha than bullock farms.

18. A review-2/ of several tractorization studies (the PAU studyincluded) found that in the Punjab-Haryana area: (i) cropping intensitywas 0 - 10% higher on tractor farms as compared with bullock farms, orprior to tractorization; (ii) cropping pattern effects were clearly not a

general phenomenon, except a reduced area under fodder; (iii) yield

increases ranged from 0 - 61%, but these went together with the use offertilizers and HYVs and could not normally be regarded as tractoreffects, and (iv) tractor farms were slightly superior in timely opera-tions, resulting in higher yields. Tractor farms had a substantiallyhigher total value of crop production per ha than non-tractor farms, which

could be achieved in various ways, as mentioned above, but which isdifficult to attribute solely to tractors. The review also mentioned apossible advantage in marketing as a result of easier transport for

tractor farms. All studies in the review showed medium to high privatebenefits and somewhat lower but still satisfactory social benefits. The

review suggested that those benefits were overestimated, and that private

returns to tractors from agricultural operations must be close to zero,except in situations where area effects are possible.

19. The Bank, from 1971 to 1975, supported research on the effects

of mechanization in India through the "Agricultural Mechanization Study:India" which comprised the PAU study mentioned above and a similar studyin Gujarat State. Simultaneously the Bank carried out a tractor study for

the Pakistan Punjabi. Findings from the latter and the Gujarat studywere that production was higher on tractor farms than on bullock farms but

that this could not be attributed solely to tractors, but rather to thecombination of tractors, irrigation and modern inputs.

1/ Punjab Agricultural University (PAU), Impact of Mechanization on

Punjab Agriculture with Special Reference to Tractorization, Ludhiana,1975. The only results used from this study are those presented inits review of October 5, 1976, prepared by Bank staff.

2/ Binswanger, Hans P. The Economics of Tractors in South Asia, An

Analytical Review, Hyderabad, India, 1978.

3/ McInerney, John P. and Graham F. Donaldson, The Consequences ofFarm Tractors in Pakistan. World Bank Staff Working Paper No. 210,February 1975.

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20. In earlier credit projects with tractor components!V OED

audits reported that the tractor impact was due largely to opening up of

new land and to growing popularity of custom services. The expected

strong impact on cropping intensities and yields, failed to materialize,

possibly because of a water constraint. Tractor borrowers with relatively

high levels of irrigatioa achieved the most rapid increase in cropping

intensities. Incremental production should therefore be attributed to

joint application of water and power.

21. Economic benefits of the tractor components of the Punjab and

Haryana projects thus stem from several factors: (i) area effects from

cultivating waste and fodder land; (ii) increased cropping intensity;(iii) increased yields including the yield effect from timeliness in soil

preparation; (iv) transportation benefits (for marketing and social

purposes); (v) labor savings through lowering labor use per unit of

agricultural output; and (vi) "commercialization" benefits, a rather

unorthodox benefit, but it was repeatedly pointed out to the mission, also

by several farmers, that purchase of a tractor alerts the farmer to

further investment possibilities, thereby accelerating commercializaton of

his farm. Private financial benefits would differ from the above economic

benefits, in that area effects would count much heavier in the former

(renting or buying in land) and that the prices used to value the benefits

would be different.

22. In the PCR's economic analysis no other benefits than highercropping intensity and higher yields were included, because those other

benefits are difficult to quantify; neither were overhead cost of lending

institutions included because such overhead costs are normally not taken

into account. Including these items would, on balance, probably increase

the already high economic returns. Considering the arbitrary values thatwould have to be given to many of these items and to maintain comparability

with apraisal estimates, the PCR presentation of rates of return can be

taken as it is. It would however be useful if in future more detail would

be given in PCRs on how the economic rate of return is calculated.

23. Attributing part of the benefits to tractors alone has not been

attempted in the PCR, mainly because of the arbitrary nature of such an

effort. The audit mission is in agreement with this, because data for

proper attribution are so far lacking. An alternative to splitting jointbenefits and allocating them partly to tractors could be to use custom

rates paid by farmers for tractor services as proxies.

1/ OED, Agricultural Credit Programs, Report No. 1357 November 18,1976; OED, PPAR, Afghanistan First Agricultural Credit Project, Report

No. 2111, June 27, 1978; OED, PPAR, Pakistan Third Credit for theAgricultural Development Bank, Report No. 2126, June 30, 1978. In the

case of Afghanistan measures were adopted to obtain more reliable farm

survey data on the effects of tractorization, during the preparation

of the PCR for the Second Agricultural Credit project which will be

fully disbursed in June 1979.

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4. Employment Effects

24. Displacement of labor is often mentioned as the main disadvant-

age of tractorization. This argument should however be viewed in thecontext of the particular wage and employment situation of the area anddoes not appear to hold for Punjab and Haryana. These two states form

part of the Gangetic region, which also includes Uttar Pradesh and Bihar,and weather and soil conditions are nearly identical for all four states.

But out of these four only Punjab and Haryana have done well. Punjab now

has the highest per capita income in India and Haryana the second highest.

Agricultural production is also highest in Punjab, followed again byHaryana. Industrial production in Punjab has shown an increase of 350%since Independence, as compared to an increase of 220% for all-India,while industrial production in Haryana, with a smaller population, is evenlarger than that in Punjab. Labor has become increasingly scarce in thetwo states and industrialists maintain that, if an embargo were placed on

migrant labor from Uttar Pradesh, Bihar and south Indian states, theirindustry would be seriously affected.

25. The PAU study, as it is also quoted in the PCR (para. 5.12)shows that on tractor farms as compared to bullock farms, the decrease in

use of family labor (family members reportedly spent more time on entre-peneurial and management activities) is more than offset by increases inuse of permanent and casual labor, particularly casual, resulting in a netincrease of farm labor due to intensification of farming (resulting fromtractorization along with irrigation and use of fertilizers, improvedseeds, etc.). On the basis of a cultivated ha, tractor farms appeared tohave slightly more total on-farm employment; on the basis of a cropped ha,

slightly less. In most other studies included in Binswanger's review,tractorization had a neutral overall labor effect on a per ha basis

(probably a cultivated ha). Contrary to the findings of the PAU study,those studies indicate that family labor generally increased, whilepermanent labor reduced substantially; daily (casual) labor was found toincrease in most cases, which is again in line with PAU findings. Another

study by the Government of Punjab showed that use of casual labor per ha(probably a cultivated ha) was significantly higher on tractor holdingsthan on bullock holdings and that it replaced family labor.

26. In earlier credit projects with tractor componentsl/, totalemployment per hectare (probably a cultivated ha) on tractor farmsappeared unchanged, though permanent labor (family and contract) waspartly replaced by casual labor. Most of the displaced tenants converted

to wage laborers or retreated to other land under their control. In the

Pakistan Punjab it could not be determined whether the gradual tractoriza-

tion was a serious threat to existing labor or a necessary supplement torelieve labor shortages. Both arguments found empirical support.

I/ See footnote 1, page 6.

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27. Labor effects were not investigated in ARDC's small samplesurvey but it was assumed that there was incremental labor demand. Duringthe mission's field visits displaced tenants or farmers were said to havefound alternative employment in businesses in towns. All persons themission asked, were of the opinion that on balance the introduction oftractors in the projects areas had created employment, i.e. off farmemployment creation in tractor related businesses was larger than net onfarm labor displacement, if the latter was the case at all.

28. The pattern that emerges is that in Punjab and Haryana percultivated ha, tractorization caused a reduction in use of family labor, aslight increase in use of permanent and total labor and a strong increasein use of casual labor. Combined with the additional off-farm employmentcreated by tractorization (production, marketing and maintenance oftractors and implements plus indirect effects) the projects created moreemployment than they displaced. Again it must be recognized that tractor-ization is only one element in a package of improvements. If tractor-ization has had a lesser positive effect on employment in other Indianstates, this may illustrate lower wages and a worse employment situationand a lower stage of development in those states.

5. GOI Mechanization Policy

29. GOI's policy regarding farm mechanization changed during theprojects and particularly thereafter with the change of government in1977; increasing emphasis has been placed on employment generation inrural areas. GOI is concerned that tractors and combine harvesters willdisplace labor, particularly the combines of which imports are stopped(they are not domestically produced). Regarding tractors, it was madeclear to the audit mission that GOI's all-India policy is not againsttractorization as such; the new policy is one of selected mechanizationwith two basic components: (i) tractor use for land reclamation anddevelopment and for custom services with more emphasis on ownership bysmall farmers and by groups of farmers; and (ii) promotion of implementsand tools for animal and manual labor. This should be seen in the lightof the present general power shortage in India's agriculture on the onehand (the 1971 estimate of power availability for India is about 0.4hp/ha; Punjab about 0.7, and Japan about 2.5) and GOI's concern foremployment creation on the other. But the experience of these two pro-jects shows that, given the state of economic development in the areaconcerned, tractorization can very well create additional employment,particularly in the non-farm sectors and can as such accelerate economicdevelopment. The Planning Commission has now set up a committee on farmmechanization (including harvester combines) with the objective of settl-ing the tractor dispute at this point in time.

-9-

6. Small Farmersi/

31. Most officials the mission spoke with, agreed they would nothave prepared the tractor components in the two projects any differentlyfrom what they actually were, because demand for tractors was then muchhigher than supply. The majority of opinions was that the projects asprepared and implemented conformed to GOI policy at that time. The onlyconcern, and with only a few officials, was that small farmers wereneglected under the tractor/combine components of the projects.

32. The tractor components of the projects benefitted on averagemedium and large, rather than small farmers. But the projects were notdesigned to reach small farmers, and GOI and IDA policies only changedduring project implementation in favor of generating more employment andreaching smaller farmers. The average holding of a tractor owner wasat appraisal expected to be 15 or 20 ha (depending on area and tractorpower), while according to the small ARDC survey (para. 14) the averageholding was much smaller: 8 ha. This compares with average farm sizes,as estimated at appraisal, of 5.7 ha for Punjab, 5.2 ha for Haryana, andthe majority below 4.0 ha, while since then, the average has come down toabout 3 ha, due to subdivision of the traditional family farm. Though theprojects did not serve many small farmers directly, they did much betterin that regard than expected. Moreover, they had other beneficialeffects on small ex-farmers and farmers because (i) on balance the pro-jects are believed to have created employment for them; and (ii) customservices were rendered to small farmers by project participants (see alsopara. 39).

7. Downpayment and Repayment

33. Different voices were heard on the issues of downpayment andrepayment period regarding tractors. On balance farmers and bankerswould have preferred further lowering the downpayment from 15% to 10% andextending the repayment period by one or two years. In view of the verygood loan recoveries in Punjab and Haryana and the long economic lifetimeof tractors in the projects area, and indeed in all India, the auditthinks that this sould have been possible. However, 001 and ARDC notethat IDA project terms regarding downpayment and loan maturity were animprovement over the earlier norms followed by the banks. GOI also pointsout that the question of lowering downpayments should not be consideredmerely from the point of view of satisfactory loan repayment; the need formobilizing local resources and ensuring minimum stake of borrowers ininvestments should also be considered (Appendix I, page 2).

8. Tractor Power Required

34. The question of tractor power range suitable for farms in theprojects area came up during procurement. Because of the demanding soil

1/ See also the discussion on this issue in the PPAR on ARDC I and onAndhra Pradesh, Tamil Nadu and Maharashtra.

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conditions, IDA was convinced that the lower limit of the range, which wasalready reduced from 30 hp, should remain at 25 hp and IDA informed GOIaccordingly (February 5, 1975). A few days earlier however, an IDA staffmemorandum to files indicated that a study-1/ found a power range of 20 -25 hp adequate for average Punjab farms. Moreover, a 19 hp tractor is atpresent being manufactured and sold in Punjab. In hindsight, IDA couldhave taken a more flexible attitude.

9. Inconsistencies in Number of Units Procured

35. The mission found an inconsistency in the number of tractorsfinanced under HACP (4,613) as stated in the PCR and based on expenditurestatements of participating banks, and the number of tractors delivered(4,024) as stated in HAIC's books.2/. Another inconsistency was foundin number of tractordrawn harvesters supplied under PACP, where the PCRstated 45 while the project files state 63. The data could not be recon-

ciled during the field visit but officials concerned undertook to checkits accuracy.

10. Replacement of Tractors

36. The legal documents did not require that a farmer applying for atractor should not have one already, one of the reasons being the diffi-culty to prove that a farmer did indeed not own a tractor. The onlyrequirement AICs made in their invitation of farmer applications was thatfarmers should not have purchased a new tractor during the previous six

months. Several farmers told the audit mission that they had a tractorbefore the one purchased with a project loan. If only incrementallyrequired tractors had been financed under the projects i.e., if no re-

placement of tractors had been financed, more farmers could probably havebenefitted.

B. MINOR IRRIGATION./

37. GOI has circulated a draft bill for goundwater legislation, but

it will probably not be enacted soon because of the large amount of workrequired to prepare the necessary data (like hydrological maps), andbecause of fear of too much litigation among small farmers. Spacing

rules for tubewells (not closer to each other than 600 ft) could only be

1/ See PAU, Impact...op.cit. p.5.

2/ ARDC points out that it has justifiably gone by disbursement figuresand not by statistics maintained by HAIC. GOI adds that ARDC isconcerned with streamlining compilation of data on physical achieve-ments under various projects and also ensuring better coordination

among all agencies directly or indirectly involved in the preparation

of the PCR.

3/ See also the discussion on this issue in the PPARs on ARDC I and onAndhra Pradesh, Tamil Nadu and Maharashtra.

- 11 -

enforced by ARDC on farmers taking loans refinanced by ARDC. These ruleswere not always followed when tubewells were financed otherwise. The

spacing rule is questioned by the Groundwater Cell in Haryana's director-ate of agriculture. They think that spacing can be as close as 200 ft.,depending on the tubewell discharge capacity and the area. In areas with a

risk of overexploitation, however, the ARDC spacing rule may well bejustified.

38. Information on the groundwater situation is updated continuouslythrough an extensive network of control tubewells. From the informationso collected hydrographs are prepared at different points in time duringthe wet and dry seasons showing seasonal fluctuation of groundwater.The total number of tubewells in Haryana has reached 250,000 in March1979, half of which was financed through institutional credit and about36,000 through the project. This total number of tubewells is stillwithin the assessed groundwater potential, which the Groundwater Cellexpects to acommodate about 300,000 tubewells, or 50,000 more than atpresent.

39. The tubewell component of HACP reached not only more, but also

smaller farmers (2.5 ha - ARDC Survey) than expected at appraisal (3 to 8ha, depending on tubewell capacity). See also paras. 31 and 32.

C. CREDIT ASPECTS/

40. The role played by ARDC in implementing the projects was posi-

tive, as perceived by GOI officials in the Ministries of Finance andAgriculture, by the Planning Commission and by participating bankers. Two

aspects stressed in ARDC's role were the finance and the expertise itprovided to banks participating in its schemes. ARDC's training of bankemployees was also felt adequate and very useful. ARDC itself felt thatits growth was accelerated by IDA support but it would be difficult to say

by how much.

41. The problem of high overdues in medium and long-term lending toagriculture in several states in India hardly exists in Punjab and Haryana.The main reason given by bankers in Chandigarh (capital of Punjab andHaryana) for the good record was absence of political interference?2(which in other states of the country causes cooperative's members todefault). Another important reason is the historically good repayinghabits of the local population. Nevertheless, these bankers indicated tothe audit mission that there was still room for improvement in recoveries.

1/ For a more comprehensive discussion on credit aspects, see OED, PPAR,India ARDC I.

2/ GOI believes this observation is contradictory to the one in para 4.06of the PCR. Paragraph 4.06, however, refers to short term lending by

cooperatives.

- 12 -

42. Bankers felt that lending to agriculture was a must at present,not only because of GOI's increasing lending target for the sector, butalso because they saw profitable investment opportunities in agriculture.They said that potential demand from small farmers for loans exists, butthat it is not effective because "small farmers are shy"; apparentlythe bankers referred to their perception of one of the constraints onsmall farmer development.

D. CONCLUSIONS

43. Concerning the bulk procurement of tractors, based on pooledfarmer choices, difficulties involved (cumbersome procedures and require-ments) were much greater than expected, largely because GOI changed itsoriginal position on importing tractors and wished to include domesticallyproduced tractors in the projects. Future tractor financing shouldleave procurement to suppliers' dealers subject to minimum technicalstandards (re. paras. 11 and 13).

44. High returns on tractor components of the projects resulted fromjoint application of power, water and modern inputs; high labor wages alsocontributed to the high returns. Attributing benefits to each of theinputs has not been attempted because of lack of proper data. Customrates might be used as an alternative to compute returns to tractorinvestments only. (re. paras. 21 and 22).

45. More detail on the economic rate of return calculation should begiven in future PCRs. (re. para. 23).

46. The tractorization components of the projects created moreemployment than they replaced. This conclusion is based on the opinionsobtained in the field and the survey results available for the projectsarea (re. para. 28).

47. Though the projects did not serve many small farmers directly,they did much better in this regard than expected (re. para. 32).

48. More farms could probably have been tractorized if IDA had notfinanced replacement of tractors (re para. 36).

49. Minor irrigation proved very popular. Monitoring of groundwaterunder HACP has produced data indicating that density of tubewells incertain areas could in hindsight have been higher than stipulated (paras.37 and 38). Spacing criteria are currently being reviewed by IDA andAZDC.

Appendix 1Page 1

- 13 -

Government of India's Comments

Z-130 NEWDELHI 800 141530

ETAT

INDEMBASSY WASHINGTON DC

REDDY FROM SIBAL ECOFAIRS NEWDELHI

REFERENCE DRAFT AUDIT REPORT IN RESPECT OF THE CLOSED

AGRICULTURAL CREDIT PROJECTS FOR PUNJAB AND HARYANA FOR

WHICH OED HAD INVITED COMMENTS FROM GOI. THE FOLLOWING

COMMENTS MAY KINDLY BE PASSED ON TO OED:

QUOTE AAA UNDER PARAGRAPH 41 ON PAGE 18 ABSENCE OF

HIGH OVERDUES IN LENDING TO AGRICULTURE IN PUNJAB AND

HARYANA HAS BEEN ASCRIBED TO LACK OF POLITICAL INTERFERENCE.

AT THE SAME TIME IN PARA 4.06 OF PCR CONTRADICTORY OBSERVATION

HAS BEEN MADE THAT THE REPAYMENT PERFORMANCE OF THE

PRIMARY SOCIETIES COULD NOT BE CONSIDERED SATISFACTOPY. IT

IS SUGGESTED THAT THE REFEE+ REFEPENCE TO POLITICAL INTERFEPENCE

MAY BE DELETED AS IT APPEARS TO BE UNECESSARY.

BBB PARA 6.06(C) OF THE PCR WHILE POINTING OUT THAT

THERE IS NO EVIDENCE THAT BENEFICIARY FARMERS HAD BEEN

Appendix 1- 14 - Page 2

DENIED SHORT OR MEDIUM TERM CREDIT CONTINUES TO CONCLUDE

THAT FOR MORE EFFICIENT IMPLEMENTATION OF SUCH PROJECTS

IT WOULD BE PREFEREABLE IF FARMERS OBTAIN ALL CREDIT REQUIREMENTSMROM MRAL SOURCE. IN VIEW OF THE FACT THAT THERE

WAS NO CONSTRAINT ON OBTAINING SHORT OR MEDIUM TERM CREDIT

THE DESIRABILITY OF RECOMMENDING A SINGLE SOURCE FOR

OBTAINING CREDIT APPEARS TO BE REDUNDANT.

CCC PARA 33 OF THE AUDIT MEMORANDUM SUGGESTS THAT

FOR TRACTOR FINANCING DOWN PAYMENT COULD HAVE BEEN

REDUCED FROM 15 PERCENT TO 10 PERCENT AND THE REPAYMENT PERIOD

EXTENDED BY ONE OR TWO YEARS HOWEVER, THE QUESTION OF LOWERING OF

DOWN PAYMENTS SHOULD NOT BE CONSIDERED MERELY FROM THE

POINT OF VIEW OF SATISFACTORY LOAN RECOVERY OR THE ECONOMIC

LIFE OF THACTORS BUT ALSO FROM THE POINT OUET OF THE NEED

FOR MOBILISING LOCAL RESOURCES AND ENSURING CERTAIN MINIMUM

STAKE OF THE BORROWERS IN INVESTMENT. REDUCTION OF DOWN

PAYMENT TO 15 PERCENT FOR TRACTORS WAS AN IMPROVEMENT SINCE EARLIER

THE BANKS WERE PRESCRIBING DOWN PAYMENTS OF 25 TO 30 PERCENT FOR

Appendix 1Page 3

- 15 -

TRACTOR LOANS. FURTHER THE REPAYMENT PERIOD STIPULATED UNDER

THE PROJECT OF 7 YEARS WAS ALSO LIBERAL AS COMPARED TO THE

LOAN PERIOD OF 4-5 YEARS EARLIER STIPULATED BY THMM

DDD RGRDING INCONSISTENCIES IN NUMBER OF UNITS PROCURED

AS MENTIONED IN PARA 35 OF THE AUDIT MEMORANDUM IT NEEDS TO

BE CLARIFIED IN THE AUDIT REPORT THAT ARDC IS CONCERNED WITH

STREAMLINING COMPILATION OF DATA ON PHYSICAL ACHIEVEMENTS

UNDER VARIOUS PROJECTS AND ALSO ENSURE BETTER COORDINATION

AMONG ALL AGENCIES DIRECTLY OR INDIRECTLY INVOLVED IN THE

PREPARATION OF PCR.

EEE PARAGRAPH 6.06(++

EEE PARAGRAPH 6.06(A) OF PCR REFERS TO THE NEED FOR

A FRESH ASSESSMENT OF THE GROUND WATER POTENTIAL IN HARYANA.

THE STATE GOVERNMENT HAVE INDICATED THAT SUCH AN ASSESSMENT

WAS CARRIED OUT AFTER THE IMPLEMENTATION OF THIS PROJECT AND

ON THE BASIS OF THE REVISED ASSESSMENT, ARDC HAS ALREADY

APPROVED 32,000 UNITS FOR MINOR IRRIGATION FOR THIS STATE.

DURING IMPLEMENTATION OF THIS PROGRAMME NO ADVERSE

EFFECT ON THE WATER TABLE OR IN THE QUALITY OF GROUND WATER

HAS BEEN OBSERVED. THE ENTIRE STATE IS UNDER STRICT VIGIL

Appendix 1Page 4

- 16 -

AS FAR AS DEPTY OF WATER TABLE, DISCHARGE OF EXISTING MINOR

IRRIGATION UNITS AND THEIR UTI+ UTILISATION

FFF IN THE AUDIT MEMORANDUM IN PARA 12 IN THE FOOTNOTE

THERE IS A REFERENCE THAT THE 2.5 PERCENT SURCHARGE IMPOSED BY-AIC

WAS NOT JUSTIFIED. FOR A BALANCED ASSESSMENT ON THIS ISSUE

IT WOULD BE APPROPRIATE IF THE AUDIT REPORT MENTIONS THE

SERVICES RENDERED BY AIC WHICH INCLUDE:

(A) INVITING BIDS AND EVALUATING THEM

(B) ASCERTAIN FARMERS PREFERENCES

(C) PLACEMENT OF BULK ORDERS AND

(D) OVERSEEING THE IMPLEMENTATION OF THE MACHINERY

COMPONENT

IT IS ALSO SUGGESTED THAT FOOTNOTE 2 UNDER PARAGRAPH 12

IS NOT REQUIRED FOR DISCUSSION ON THIS SUBJECT.

GGG PARA 13 OF THE AUDIT MEMORANDUM DISCUSSES THE POOR

PERFORMANCE OF AICSPM THE OVERALL FINANCIAL PERFORMANCE OF AIC

SHOULD NOT BE RELATED TO PERFORMANCEUNDER THIS PROJECT AS AIC

CARRY OUT A NUMBER OF OTHER FUNCTIONS WHICH ARE NOT CONNECTED

WITH PROJECT IMPLEMENTATION. IF ANY DISCUSSION ON AICS

GENERAL WORKING IS CALLED FOR IT SHOULD NOT FORM A PART OF THE

Appendix1

Page 5

- 17 -

P A4& TH E-E 0TE

MAIN FINDINGS OF THE AUDIT MEMORANDUM.

HHH ANOTHER REFERENCE IN PARAGRAPH 13 OF THE AUDIT

MEMORANDUM IS TO ELIMINATE AIC FROM FUTURE TRACTOR FINANCING.

PROCUREMENT CAN BE LEFT TO LOCAL DEALERS ONLY IF BULK

PROCUREMENT AND COMPETITIGE+ COMPETITIVE BIDDING ARE GIVEN UP WHICH

WOULD MEAN FOREGOING THE POTENTIAL PRICE AND OTHER ADVANTAGES.

III IN THE AUDIT REPORT THERE IS REFERENE+ REFERENCE TO NUMBER OF

STUDIES ON BENEFITS OF FARM MECHANISATION IN DIFFERENT AREAS.

IT IS SUGGESTED THAT THE REPORT SHOULD LIMIT ITSELF TO AN

ANLYSIS OF DATA RELATED TO THE PROJECT IMPLEMENTATION AND

ANY REFERENCE TO SPECIAL STUDIES OUTSIDE THE PROJECT SHOULD,

PERHAPS, BE MORE APPROPRIATELY DISCUSSED IN ONE OF THE

ANNEXURES.

JJJ IN PARA 29 OF THE AUDIT MEMORANDUM THE REFERENCE

TO THE COMMITTEE ON FARM MECHANISATION NEEDS TO BE AMENDED

SINCE THE SAID COMMITTEE IS ALSO STUDYING THE EFFECTS OF

HARVESTER COMBINES ON PRODUCTIVITY AND EMPLOYMENT. UNQUOTE.

FOREIGN

COLL Z-130 GOI OED 41 18 4.06 6.06(C) 333+ 33 15 10 15

25 30 7 4-5 35 ARDC PCR 6.06(AL EWNPPP QW WMT AIC

2 12 13 AICS AIC AIC AICS 13 29

MEA/RKW/142000

- 18 - AEndix 2

ARDC Comments

2-i S423 'WO RL DEANX'

:1?.10 APDC ff:Th, Ls

FLX MSG NO.4070 2816/79

FRO. RA CHIDAM3ARAM MD APCC 9053AT '

TO SHRI SHIV S KAPUR DIRECTOR OPERATIONS AND EVALUATION DEPART:IENT

INTTEAFRAD VASHIt.GTON DC

PE: PROJECT PERFORMIANCE AUDIT PEPORTS ON ANDHrA PPQADES IH, TAiIL H ADU,

"AHARASHTRA, PUNiJA- AND !1ARYANA A'PICULTURAL CREDIT PPOJECTS.

OjR COMMIENTS ON THE AUDIT REPORTS HAVE BEEN FUPNISHED TO GOI

WHICH PROPOSES TO SEhD TO WCRLD 6ANK A COS++ CONSOLIDATED REPLY.

t.) AS REGARDS

PU!:JA AA+ PUNJAB AND HARTANA PROJECTS, OUR COFMEtITS RELATE TO-

PARAGRAPHS 33 AND 35 (PAGES 15/16) C.) THE IDA PROJECT TERMS

REGARDING DOWtHPAYMENT AND LOAM !IATURITY WERE AM InPROVE,-ENT

OVEP THE EARLIER NOPS FOLLOWED BY THE DA-KS (.) AS FOR DISCREPANCY

I4 PEGARD TO NulBEF OF TRACTORS, ARDC HAS JUSTIFIATILY GONE BY

DISBURSE1ENT FIGURES AND NOT RY THE STATISTICS MAINTAI.ED OY HAIC(.)

.JE APPPECIATE THE COMMENTS nADE BY AUDIT REPORT ON OST ASPECTS

AND AS YOU APE A14ARE FOLLOW UP ACTION HAS ALREADY SEEN IMITIATEb

AS A PAPT OF ARDC 11 PROJECT (.) REGARDS

24 23 1,0 FLDeA:JK

11 2310 APDC IN

- 19 -

Joint Project Completion Report



I. INTRODUCTION

Background

1.01 The Punjab Agricultural Credit Project and the Haryana AgriculturalCredit Project were the second and the fourth, respectively, in a series often State-oriented Agricultural Credit Projects in India supported by IDA.The aim of these projects was to increase agricultural production by means

of (i) supporting on-farm investments, mainly in minor irrigation and farm

mechanization, (ii) strengthening the institutional structure for provision ofcredit with the Agricultural Refinance and Development Corporation (ARDC) asthe refinancing agency, and (iii) strengthening the supporting services suchas Groundwater Development Authorities.

1.02 This Completion Report evaluates the PACP which was confined tofarm mechanization as well as the HACP which provided for investments in

minor irrigation and farm mechanization.

Identification and Preparation

1.03 An FAO/IBRD mission reviewed the performance of the agriculturalcredit institutions and on-farm investment requirements in India in November/December 1968 and identified high priority agricultural credit projects ina number of states including Punjab and Haryana. It was observed that inboth these states not only the potential for development was considerablebut the response of the farmers to technological changes was also good.Therefore, in the selection of areas for State-oriented agricultural creditprojects in India to be supported by IDA, these two States received priority.

1.04 In Punjab, the scope for extensive cultivation was limited since80% of the total geographical area was under cultivation. Also, around 75%of the net cropped area in the state enjoyed irrigation facilities. Conse-quently, agriculture in this state had reached a stage of development where

the average yields of foodgrains were not only highest in India but alsofavorable by world standards. Any additional increase in the production ofagricultural commodities could, therefore, be achieved only through highercropping intensity. For this purpose, it was necessary to suitably reducethe time-lag between the harvesting of kharif crops and the preparation ofland for sowing rabi crops. This objective could have been achieved to someextent by augmenting bullock power in the state but then more bullocks wouldhave necessitated larger areas of land being sown to fodder crops and to thatextent the availability of land for food crops would have been reduced. Afurther increase in the cropping intensity was regarded as beyond the capa-city of bullock or human power and the choice, therefore, fell on farm mech-anization to reduce the time-lag between crops, increase cropping intensityand ensure higher production. There was already a heavy demand for tractors

- 20 -

in the state, as evidenced by a waiting period of 2 to 3 years for the popularmakes. Second-hand tractors also fetched high prices and the premium for newtractors was around Rs 2,000 to Rs 3,000 per unit. Under these circumstances,an agricultural credit project with tractor financing as the min investmentwas formulated.

1.05 In Haryana, 50% of the net cropped area was already irrigated bythe state had adequate groundwater to increase the area under irrigation.It was also found that, as in Punjab, increase in the cropping intensityby reducing the time-lag between the harvesting of one crop and preparationof land for sowing the second crop would only be achieved by farm mechaniza-tion. Therefore, investments in both minor irrigation and farm mechanizationwere found to be appropriate for Haryana. An Agricultural Credit Projectwas, therefore, prepared by the Haryana Government.

Appraisal, Negotiations and Approval

1.06 The PACP was appraised by the World Bank in November/December 1969,and an appraisal report based on their findings was prepared in May 1970.Agreements relating to this project were signed in June 1970. The projectbecame effective from September 1970. Originally, it was a two-year project,the closing date being end-December 1972. But the period had to be extgendedthrice due to difficulties experienced while implementing the project, first,by one year up to end-December 1973, then by two years up to end-December1975, and finally by another one and a half years up to end-June 1977 whenthe project was finally treated as closed.

1.07 On the basis of the appraisal in November 1970, IDA approved theHCP which envisaged a program for minor irrigation and farm mechanization.Agreements relating to this project were signed in June 1971 and the projectbecame effective from November 1971. Originally, it was a 3-year project,the closing date being end-March 1975. The minor irrigation program underthe project was completed much before the due date but the project wasclosed only in June 1977 as the closing date for farm mechanization programunder the project had to be extended.

Projects at AppraisalPACP

1.08 As indicated earlier, the PACP provided for farm mechanizationonly while the RACP for both minor irrigation (shallow tubewells), andfarm mechanization. The investment components under the two projects aredetailed in Annex 1, Tables 1 and 2.

1.09 The PACP provided for the purchase of 8,000 imported tractors,tractor implements and harvesting machinery over a period of two years.It also included financing of tractor and harvesting machinery spare parts.The estimated total cost was Rs 300.6 million (US$40 million), 89% of whichwas for investment in tractors and tractor implements and 11% for harvestingmachinery and spares. Investment in tractor implements included mould boardplows, disc plows, disc harrows, trailors, seed and fertilizer drills,sprayers and other implements. Under the project, all the farmers were

- 21 -

required to have suitable implements for use with their tractors. Where afarmer already owned one or more implements, it was expected that he wouldpurchase implements such as seed drills and sprayers so that mechanizedoperations would be extended beyond those of routine tillage and haulage.Investment in harvesting machinery comprised about 40 self-propelled combinesand about 200 tractor-drawn harvesters. The project cost also included pro-vision for tractor spare parts and imported harvesting machinery spares asan initial step to the value of 15% and 10%, respectively, of,the c.i.f.price of such items.

1.10 IDA contribution of Rs 206.2 million (US$27.5 million) was theproject's estimated foreign exchange component equivalent to 69% of thetotal project cost. Its contribution to ARDC under the investment program(Rs 182.0 million) and for spare parts at Rs 24.2 million was expected toexceed ARDC's requirements to refinance the loaning program (Rs 158.5 mil-lion). Since the borrowers were to make a down payment for tractors and otherinvestments, ARDC's own contribution was estimated at 57% leaving 18% to befinanced by LDB and other participating banks (Rs 52.9 million). The addi-tional 12% reimbursement was, therefore, to be credited to a special ARDCaccount which was to be made available to refinance other ARDC approvedschemes. The subsequent inclusion of indigenous tractors at 64% IDA dis-bursement, and the lower farmer downpayment called for by interviewing priceincreases, removed the need for this fund: the IDA contribution of Rs 218.0 Mwas against ARDC disbursements of Rs 242.9 M.

HACP

1.11 The HACP was a 3-year program to assist in financing on-farminvestments in minor irrigation and farm mechanization. The total projectcost was estimated at Rs 333.9 million (US$44.5 million) of which 29% wasfor minor irrigation and 71% for farm mechanization. The cost estimate andforeign exchange requirements are detailed in Annex 1, Table 2.

1.12 The expected investments in minor irrigation in Karyana involvedsinking of 11,000 shallow tubewells and installation of 75 sprinkler irriga-tion sets in specified area in the state. Under farm mechanization, loanswere to be made for the purchase of 6,000 imported tractors, tractor imple-ments and trailers, 20 self-propelled combines and 100 tractor-drawn har-vesters. Investment in tractor implements included disc harrows and plows,seed and fertilizer drills, levelling blades, tractor-mounted sprayers,trailers, etc. As in the Punjab Agreement, all the farmers were requiredto have at least 3 implements to be used with their tractors. The projectalso included provision for spare parts to the extent of 15% of the c.i.f.value of tractors, self-propelled combines and tractor-drawn harvesters.

1.13 The contribution of IDA was placed at US$250 million or Rs 187.7million (56% of the project cost) which included US$21.2 million of foreignexchange cost and about 1/3 of local cost in the case of minor irrigation.The subsequent reallocation of US$2.7 H from the spare parts categoryincreased the IDA contribution to local cost of minor irrigation to about56%.

Procurement

1.14 Adequate well drilling contract services were available for sinkingof shallow tubewells within both states. On the other hand, tractors includ-ing initial set of spare parts had to be imported. In both the Punjab andHaryana projects, provision was, therefore, made by GOI for setting up ofspecial committees for directing procurement consisting of representativesof GOI, the respective state governments and ARDC. While the committeesfinalized the procedural formalities for procuring tractors in consultationwith IDA, the organizational responsibility was to be with the Agro-IndustriesCorporations of the two states, under the direction and guidance of therespective committees.

1.15 The PAIC and HAIC were to call for quotations by public invitationfrom suppliers for specified lots on the basis of tender papers approved byIDA. They were also to ascertain through the LDB and the PCBs the preferencesof farmers as to different makes of tractors. On the basis of the pooledpreferences, bulk orders were to be placed by the PAIC and HAIC with theconcerned suppliers. A further stipulation was that the applications receivedfrom the farmers were to be scrutinized in terms of the norms laid down byIDA. If the number of applications from farmers exceeded the targets, suc-cessful applicants would be drawn by lottery. Case by case appraisal ofindividual applications was to be carried out in the manner prescribed byARDC before a loan was sanctioned to eligible farmers.

1.16 The project lending was to be channelled through LDB system as wellas the commercial banks under both the projects. Refinance for primary bankswas from the State Land Development Banks and for both the SLDBs and PCBsfrom ARDC.

Implementing Agencies

1.17 The primary responsibility for proper implementation of the projectsrested with ARDC. This required selection of commercial banks participatingin the lending program on the basis of their ability and willingness to carryout loan appraisals and lending operations in accordance with the criterialaid down for the purpose. The Corporation was also required to take measuresto ensure that the loan appraisals were carried out by the financing institu-tions in conformity with the lending criteria as stipulated under the projectagreement. Accordingly, in both the states a tractor beneficiary was todemonstrate to the financing bank that the tractor could be used for culti-vating not less than 40 hectares of cropped area per year or for 1,000 hoursof productive work per year. For self-propelled combines and harvestersthere was to be an assured workload of at least 200 hectares and 100 hectares,respectively. In the case of minor irrigation in Haryana, individual loansrequired the technical approval of the Soil Conservation Organization in thatstate. The coordination of the lending policies of the LDBs and PCBs andstandardization of the appraisal norms were entrusted to ARDC.

Lending Terms

1.18 IDA credit to the GOI was provided at standard terms. The credit byGOI was to be made available to ARDC at 5% per annum less 1/4 of 1% rebate for

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prompt repayment. The exchange risk was to be borne by GOI. ARDC was torefinance 75% of the loan by SLDB and PCBs at 6-1/2% per annum. The SLDB wasto finance 100% of the loan by PLMB at 7-3/4% per annum. The interest rateto the ultimate borrower was to be 9% per annum. Subject to the maximumuseful life of the assets, the loan maturity was based on the repaymentcapacity of borrowers. However, in no case, loan for a tractor, tractorimplements and tractor-drawn harvesters was to exceed 7 years and that forself-propelled combines 5 years. For minor irrigation under the HACP, therepayment period was not to exceed 7 years including one year's grace, butthis could be extended up to 9 years for a small farmer defined as one cul-tivating an area of land which would provide him a post-developmental netincome of Rs 2,400 per annum or less. 1/

1.19 The beneficiary was required to make a downpayment towards the equip-ment purchased and investment in minor irrigation. If a tractor loan wasgiven by the LDB, the principal amount was to be determined in such a mannerthat the down payment plus contribution to share capital was not less than 25%of the cost of the equipment. However, if the loan was given by commercialbanks, the down payment was not to be less than 25% and 20% of the cost oftractor and equipment, respectively. For minor irrigation, the farmers wereto contribute at least 20% of the total investment cost. Small farmers were,however, required to contribute only 10 percent for investments in tubewellscosting less than Rs 1,000.

Benefits

1.20 The financial rates of return under HACP were expected to be between39 and 66% at 1970 prices while the economic rate of return was estimated at22 to 27% for minor irrigation and 15% for farm mechanization. The projectwas to benefit at least 20,000 farmers in Haryana including small farmerswho were expected to take advantage of tractor custom service and tubewellfacilities.

1.21 Under the PACP, the financial rates of return on investment intractor with implements was estimated at around 23% and the economic rateof return at 14%. The cropping intensity was expected to increase by 30%and the anticipated increase in yield as a result of timeliness and bettercultivation was expected to be of the order of 10 to 20%, the two togetherincreasing the food production in Punjab by about two lakh 2/ tonnes annually.

1/ This was subsequently changed under ARDC I to a preinvestment incomeof Rs 2,000 at 1972 prices.

2/ Lakh = 100,000 units.

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II. PROJECT IMPLEMENTATION

PACP

2.01 Under the PACP, PAIC invited tenders for the first lot of 4,000imported tractors in March 1971. It took time to flash details regardingthe makes and models of tractors to the farmers. The last date for receiv-ing applications from beneficiaries was extended from January 12, 1972 toFebruary 13, 1972. In all, 6,226 applications were received. Meanwhile,in the 3rd week of December 1971, there were realignments of various inter-national currencies with the result that the IMF parity rates of variouscurrencies were changed. The central committee in its meeting on June 3,1972, therefore, decided that fresh tenders should be invited. This was donein June 1972 and the last date for receiving tenders was fixed as July 24,1972. At this stage, as desired by GOI and agreed to by IDA, indigenoustractors were also allowed to be financed under the project. After approvalof the quotations from suppliers, preferences of beneficiaries were invitedfor the models approved by GOI and IDA.

2.02 This time, (1972) only 1,025 beneficiaries applied for tractors andof these 652 preferred imported tractors. Owing to inordinate delay anduncertainty arising from re-tender, the response to the first lot was notencouraging.

2.03 In July 1974, the Central Committee gave approval for a secondlot of 4,000 tractors, on the basis of the clearance from IDA for 10 importedand 8 indigenous models. Meanwhile, the Ministry of Heavy Industry on areference from the Ministry of Agriculture suggested inclusion on 5 moreindigenous models. The PAIC invited quotations from suppliers of imported/indigenous tractors on December 14, 1974. The last date for receipt of quo-tations was January 15, 1975 which was subsequently extended to end-January1975. In all, 6 firms - one foreign and 5 indigenous - had submitted theirtenders.

2.04 Applications from beneficiaries for different models of approvedtractors were invited from April 7, 1975 to May 15, 1975. In all, 7,549eligible applications for different models were received during the period.In order to meet the requirement of applicants, a credit of US$26.8 millionwas needed while there was provision for only US$24 million of which US$2.76million had already been utilized for the supply of 1,025 tractors under thefirst lot. The Central Committee at its meeting of June 24, 1975 agreed todivert the unallocated amount of US$1.2 million, US$1.2 million against discsand US$0.05 million being the balance from tractor-drawn harvesters towardssupply of tractors. The total credit thus available was US$23.69 million.The Central Committee assessed the requirement of funds to meet the entiredemand of 7,549 tractors at US$27 million. It, therefore, directed a pro-rata cut on bookings for each model to bring it down to US$23 million. Thepro-rata cut was imposed on each model by draw of lots and the bookings werebrought down from 7,549 tractors to 6,975 tractors which included 4,050imported tractors. Of the 4,050 imported tractors, 800 tractors (IMT 533)

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ultimately were not accepted by beneficiaries and wee delivered outside thestate and sold for cash. With GOI's/IDA's approval, the credit applicableto these tractors was subsequently utilized in the Punjab for financingindigenous tractors.

2.05 There was delay in the supply of imported tractors under theProject due to non-availability of shipping space. The transportation ofthe tractors from Indian ports to the project area also took considerabletime. The assembly of tractors and sanctioning of loans by banks took somemore time. Further, due to a hike in prices of tractors (para 2.16), manyoriginal beneficiaries hesitated to take up the tractors they had requestedmany months before and the PAIC had to find alternate beneficiaries, whichalso took time.

2.06 In the meeting of the Central Committee held on November 4, 1976,it was agreed that funds available for purchase of combines along withcredit available from the sale of 800 imported tractors outside the statewould be diverted for purchase of indigenous tractors. The ratio of numberof tractors of different makes to be purchased was determined on the basisof the choice indicated by the beneficiaries for different makes/models oftractors.

2.07 In addition to the tractors, funds were allotted for the purchaseof tractor-drawn harvesters, self-propelled combines and discs while part ofthe funds was kept unallocated. Against the provision of US$0.5 million fortractor-drawn harvesters, 24 indigenous and 21 imported tractor-drawnharvesters, were supplied by utilizing US$22 million. The balance of US$0.28million was diverted towards tractors.

2.08 There was a provision of US$0.6 million for 40 self-propelledcombines, tenders for which were floated twice. Since none of the modelssatisfied the tender conditions, it was decided by the Central Committeeto go in for retender in the case that funds were available after supplyof tractors. In the event, no self-propelled combines were financed.

2.09 Under the Credit Agreement, there was a provision of US$1.2 millionfor imported discs. Quotations were invited for fabrication of discs. Itwas observed that none of the offers was up to ISI standard. The CentralCommittee, therefore, decided that the proposal for procurement of discs maybe dropped and the credit allocation be utilized for purchase of tractors.

2.10 Thus, in respect of PACP, a total number of 8,002 tractors werefinanced of which 3,830 were imported (Annex 3, Table 1).

RACP

2.11 This project envisaged the import of 6,000 tractors, 20 self-propelled combines and 100 tractor-drawn/mounted combine harvesters. Theprocedure prescribed for procurment and distribution of tractors under theproject was similar to that laid down under the PACP.

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2.12 The investments in self-propelled combines and tractor-drawn/mounted harvesters did not take place partly as a result of lack of demandand partly due to the delay in completion of procurement formalities. IDAwas, therefore, requested to permit utilization of credit allocated underthis category for financing tractor program which was acceded to.

Tractors

2.13 The Project originally provided for financing only imported tractors.However, due to representations from local tractor manufacturers, IDA wasrequested to consider favorably the inclusion of indigenous tractors simul-taneously with imported ones under the Project. This was agreed to by IDA.By this time (Jan. 1974), part of the allocation of credit had beentransferred from the tractor category to minor irrigation category. Dueto this and time-consuming procurement formalities, financing of tractorsunder the Project was delayed.

2.14 HAIC finalized the procurement of tractors in two lots. The firstlot of 3,000 tractors was supplied to the beneficiaries in May 1974 and thesecond lot in October 1975. Under the first lot, the participating bankscollected 2,825 applications of which 234 were for imported models. For thesecond lot of 1,000 tractors offered, the response from farmers far exceededthe indicated number. A total of 2,928 applications were received under thelot and HAIC had to reduce the allocations pro-rata. However, taking intoaccount the backlog from the first phase and the reallocation of the harvestercategory, more farmers could be accommodated. The number of tractors ofdifferent makes/models financed under the Project was as under:

HaryanaNumber of Tractors

Make/Model RP Financed

ImportedDavid Brown 990 35 101IMT 533 35 241

IndigenousFord 3000/3600 46.6 1,290Escorts 335 35 1,179Zetor 2511 25 884Eicher 26.5 760International 275 35 108Kirloskar 43 50

Total: 4,613

2.15 The number of tractors financed and bankwise financing of tractorsis shown in Annex 2, Tables 2 and 3. The actual number of units financed wasless than that estimated under the Credit Agreement (6,000 imported tractors)as shown below:

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Appraisal Estimate ActualNo. Amount No. Amount

(Rs M) (RsM)

LDB ) 1,869 66.03) 6,000 163.3

PCB ) 2,744 106.44Total 6,000 163.3 4,613 172.47

2.16 This was mainly due to escalation in tractor cost. A comparisonof the unit cost 1/ for some of the makes for which prices were readily avail-able between 1971 and 1976 is given below:

1971 1974 1976--------- (Rs '000)

IndigenousEscorts 25.2 39.0 43.5Eicher 24.4 34.4 34.4Zetor 23.7 31.6 37.4Ford 3000 34.8 54.0 61.0International 26.3 NA 54.1

ImportedMT 533 - 51.7 58.2

Minor Irrigation

2.17 The HACP provided for sinking of 11,000 shallow tubewells andinstallation of 75 sprinkler irrigation sets. The former was to cost Rs 88.7million while the latter was estimated to cost Rs 1.9 million. Of the totalshallow tubewell program, the HSLDB was allocated 9,250 units and the PCBs,1,750. The investments in 75 sprinkler irrigation sets envisaged under theproject did not materialize. To make this investment acceptable to farmers,it was necessary that a portion of the investment cost be subsidized. Asinvestments involving capital subsidy were not eligible for financing underthe HACP, these were financed outside the Project by ARDC.

2.18 As regards shallow tubewells, about 36,000 units were financed(Annex 2, Table 2) under the program as shown below:

Appraisal ActualNo. Amount (Rs M) No. Amount (Rs M)

LDB 36,247 /a 364.57 34,719 238.30PCB 1,750 14.45 1,265 8.47

Total 37,997 379.02 35,984 246.77

/a Additional targets were sanctioned in 1974.

1/ Consumer prices quoted by dealers. Taxes per Annexure 4, Table 12.

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2.19 The appraisal envisaged a minor irrigation lending program ofRs 88.7 million for 11,000 wells was in Haryana. However, due to transfer ofcredit allocation from other categories, variation in dollar-rupee exchangerate and sanctioning of additional wells, more rupee funds became availablefor financing minor irrigation units. The LDBs and PCBs were sanctionedschemes involving an aggregate financial assistance of Rs 379.02 million.Their disbursements amounted to Rs 246.77 million covering 35,984 shallowtubewells. The bankwise details are furnished in Annex 2, Table 4. Financingshallow tubewells in the state was continued after the completion of the pro-gram under ARDC I and later under ARDC II.

2.20 All shallow tubewells financed were composite units includingelectric motors/diesel pumpsets. The number of units financed exceeded theappraisal estimate also as a result of lower investment costs. Further, theproject area which was originally confined to 6 districts was later extendedto cover the entire state of Haryana. A comparison between the appraisalestimates and actual results for composite investments is given below.

AppraisalEstimate Actual

1. Average unit cost (excludingelectric connections) Rs 5,500 - 8,800 Rs 7,600

2. Average loan as % ofinvestment cost 90 90

3. Benefiting area (ha) 3 - 8 ha 2 - 3.5 ha

4. Average cost of invest-ment per ha

(1) - (3) Rs 1,100 - 1,830 Rs 3,040

As may be seen, the actual benefiting area was lower than the appraisal esti-mates while the average cost of investment per hectare was higher.

2.21 Of the wells financed, about 88% had electric motors and the restdiesel engines (inference based on data collected through field visits).Farmers preferred electric to diesel pumpsets due to the lower capital andoperating cost of the former. However, some of them had to go in for dieselpumpsets due to delay in electric connections. In certain cases, as reportedby the respondents during field visits, the delay extended to a period of oneyear. No failures of wells were reported.

Groundwater Control and Allocation

2.22 In the absence of groundwater legislation, a pragmatic effort wasmade to prevent over-development through the stipulation of minimum wellspacing and maximum density. These restrictions applied even to wells fi-nanced outside the project through institutional credit. The project area

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was distributed among the participating commercial banks and LDBs. LDBswere precluded from financing tubewells except through this project. As aresult of this discipline, progress in the initial stages was rather slow.With the modification of the spacing and density criteria during theproject in the light of additional groundwater information provided by theState Groundwater Cell and the Minor Irrigation Tubewell Corporation(MITC) and introduction of legislation to bring Commercial Banks on parwith cooperatives in the matter of recoveries, etc., the program picked upand the physical targets were exceeded much before the due date. Theresult has been that out of a net increase of about 82,000 irrigationwells in the State between 1967/68 and 1974/75, HACP alone accounted fornearly 50% and earlier ARDC schemes for another 10%.

Weather Conditions

2.23 During the project period, weather conditions were very favorableexcept that in 1974/75, some parts of the state experienced drought. Thisdid not, however, have a marked impact on loan recovery.

Lending to Small Farmers

2.24 The definition of small farmers under the HACP viz., a post-developmental net income of not more than Rs 2,400 per annum was morerestrictive than the definition used subsequently under the General Line ofCredit, viz., ARDC I and II. 1/ Out of the total number of wells financed byLDBs, an estimated 60% were on small farms. The proportion was almost thesame in respect of the PCBs.

Amendments to Credit Agreements

2.25 While implementing the PACP as well as the HACP, a number of changeshad to be introduced in the Project Agreements to suit the changing require-ments in both the states. Sufficient justifications were provided and IDAapproval was obtained in each case.

2.26 Under the farm mechanization program in both States, an amend-ment was made to enable financing of indigenous tractors along with that ofthe imported tractors. This was mainly because of the easy availability ofindigenous tractors on competitive terms vis-a-vis imported tractors and thedifficulties experienced in the procurement of imported tractors during theinitial period of the Projects. Secondly, funds had to be reallocated fromother categories to purchase of tractors under PACP while under HACP part ofthe funds intended for farm mechanization was reallocated to minor irrigation.In Punjab, there was no effective demand for self-propelled harvestersprovided under the Project, whereas a part of the amount under tractor-drawn

1/ The current definition is based on predevelopment net income equivalent,Rs 2,000 in 1972 prices. The relative merits of these formulae arediscussed at length in the Completion Report on the ARDC I project(October 1978).

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harvesters was in balance. As the prices of both indigenous and importedtractors had considerably increased during the project period, it wasnecessary to provide larger amounts for purchase of 8,000 tractors thanwas initially allocated under the Project. The amounts mentioned abovetogether with the entire unallocated amount were reallocated to thepurchase of tractors with the approval of the IDA. In the case of Haryana,purchase of tractors was delayed and there was an immediate demand forfunds for minor irrigation. Therefore, a part of the amount allocated totractors was reallocated for minor irrigation with the approval of theIDA. The other change related to lowering the amount of down paymentstipulated at 25 percent of the cost of tractors and implements and 20percent of the cost of harvesters to 15% under both the projects to givesome relief to the beneficiaries. Also, the down payment for minorirrigation was reduced to 10% from 20%. In respect of both the CreditAgreements, the closing dates stipulated had to be extended. The detailshave already been referred to in paras 1.05 and 1.06.

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III. FINANCING INSTITUTIONS

Agricultural Refinance and Development Corporation

3.01 The development and operations of the ARDC which has been the refi-nancing agency for agricultural credit and other IDA projects, have beenwell documented in several IDA reports, the latest one being Report No.1520A-IN (May 1977). The Corporation was actively associated with both thePACP and HACP. The refinancing procedures in both the projects were basic-ally the same as in the case of other projects. As planned, ARDC selectedLDBs and PCBs which agreed to participate in the projects. To familiarizethese banks with the requirements under the projects, they were supplied withguidelines on the project together with necessary background material. Aworkshop was also arranged for them where details of project implementationwere discussed. It was ensured that the banks had, prior to the formulationof individual schemes, a good grounding on the collection and collation ofnecessary details so that the schemes submitted by them satisfied the basicrequisites. Since the commencement of the projects, periodical meetings wereheld by the Corporation with the participating banks individually and collec-tively to assess the progress of implementation. It was also represented inthe special committees appointed by the Government for effective implementa-tion of the projects.

3.02 As regards the minor irrigation component under the HACP, ARDC hadcreated its own technical wing which, apart from examining the technicalfeasibility of minor irrigation program submitted to it, also participatedin joint studies undertaken in the state to assess the overall groundwaterresources for development.

Land Development Banks

(a) Punjab State Cooperative Land Mortgage Bank (PSCLMB)

3.03 Details regarding organization, management, financial positionand operational results of the PSCLMB and HSLDB are given in Annex 3. The

involvement of both these banks in the implementation of the respective creditproject was significant. Under the Punjab Project, a sum of Rs 100.27 millionwas disbursed by the Punjab Land Mortgage Bank. The total loans outstandingat the end of June for 4 years, 1973 to 1976, were Rs 599 million, Rs 611million, Rs 612 million and Rs 626 million, respectively. This was theperiod when almost the entire disbursements were made under the project.PSCLMB has also been implementing other development schemes through ARDCrefinance. During 1975/76, five schemes were implemented/under implementationwith a disbursement of Rs 63 million as compared to 16 schemes with a disburse-ment of Rs 28 million in 1974/75. PSCLMB floated debentures for a total ofRa 121 million in 1975/76 consisting of Rs 64 million of ordinary debenturesand special development debentures to the extent of Rs 57 million. In 1973/74and 1974/75, the total debentures floated were Rs 90 million and Rs 112million, respectively. Side-by-side with the lending and debenture program,PSCLMB also made some effort to mobilize rural savings through fixed deposits.

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(b) Haryana State Cooperative Land Development Bank (HSLDB)

3.04 The HSLDB disbursed Rs 66 million for tractors and Rs 238 millionfor minor irrigation under the HACP. The SLDB has also been implementingother development schemes with refinance assistance from ARDC. The refinanceavailed of from the Corporation was Rs 446 million for 52 schemes whichincluded 39 minor irrigation and 5 farm mechanization schemes under theproject. The outstanding loans at the end of June 1975 and June 1976 inrespect of Haryana State Land Development Bank were Rs 421 million and Rs 476million, respectively. -Purpose-wise, minor irrigation and farm mechanizationwere important though efforts are being made to diversify the lending port-folio by extending assistance to purposes such as land levelling, horticul-ture, dairy development, etc.

Recovery Performance

3.05 A good feature of the LDB system both in Punjab and Haryana is theconsistently good debt recovery performance. Overdues as a percentage ofdemand of PLMB to SLMB in Punjab were less than 2% on an average between1970/71 and 1975/76 and overdues in respect of members to PLMBs were around amaximum of 15%. In Raryana, there-has been no default from PLDB to HSLDB andthe overall default from members to PLDB was only 3% in 1974/75 and 1975/76.Details are given in Annex 2.

Training and Staff

3.06 Depending upon individual requirements, staff at different levelsin the state and primary land development banks in both the states are beingtrained for various periods at different training institutions. Up to June1977, the total number of staff so trained was 484 in Punjab and 475 inHaryana (Annex 2). The training helped the Bank staff in assuming greaterresponsibilities in the field of project lending.

Commercial Banks

3.07 The number of PCBs that participated in the PACP was 11. In HACP,11 banks were associated in financing minor irrigation and 12 banks in tractorfinancing. These banks played an important role in both the projects. Thedisbursements of PCBs under PACP were Rs 224 million for tractors and about2 million for harvesters (45 in number) and under the HACP, Rs 106 millionfor tractors and about Rn 9 million for shallow tubevells. Under minor irri-gation component in HACP, the PCBs financed only 1,265 wells against thesubstantial program carried out by LDB. The commercial banks accountedfor 68% of the ARDC refinance in 1976/77 in Punjab (nil in 1971/72), whilein Haryana their share rose from 9% to 53% during the same period. Thesebanks have, in recent times, strengthened their agricultural staff andincreased their branches in rural and semi-urban areas. Their recoveryperformance in both the states has been satisfactory. However, with anincreasingly important role they will be called upon to play in the futurein agricultural lending, an improvement in their credit discipline may becomenecessary.

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IV. SUPPORTING SERVICES

PAIC and HAIC

4.01 PAIC and HAIC were assigned important roles in farm mechanizationprograms under the respective IDA credit projects. They were entrusted withthe task of identifying the tractor requirements of farmers and arrangingfor their procurement and distribution. The work was carried out by boththe Corporations under the overall guidance and direction of special commit-tees set up for each state and consisting of representatives of the GOI,respective state governments and ARDC. The committee for each state approvedthe analysis of bids and recommendations of the respective Corporation forplacing contracts with suppliers before forwarding them for approval (fordetails see Annex 3).

4.02 Apart from being the main channel for procurement and distributionof tractors, these Corporations have been serving the farmers in severalother ways. They owned tractors and combines for providing custom serviceto needy farmers at economical rates. They provided repair and servicingfacility and established sales-cum-service stations. They also establishedagro-service centers for providing employment to unemployed engineers.

4.03 Despite these activities, the operating results of these Corpora-tions are not very encouraging. For instance, in respect of PAIC, the lossbefore tax provision was Rs 5.94 million in 1975/76 and Rs 2.16 million in1976/77. For HAIC, the loss after taxes and development rebate and provisionfor major overhaul of combines was Rs 0.18 million in 1973/74 and Rs 1.85million in 1974-75 (Annex 3, Tables 6 and 7). This highlights the need forimproving the financial position of these Corporations. It is also necessaryto improve the efficiency of the organization by establishing project cellsto study feasibility of schemes before making heavy investment in them.

Groundwater Cell, Haryana

4.04 Considering the importance of implementing ARDC schemes for minorirrigation, the State Groundwater Board as well as the IBRD Mission recom-mended the creation of a Groundwater Cell in Haryana to provide technicalsupport to the ongoing minor irrigation schemes in the state. Accordingly,a state groundwater cell was created. The cell was entrusted with theresponsibility of evaluating groundwater balance in the state and to preparehydrological maps. The work of monitoring observation wells in the schemearea has also been transferred to the cell. It also carried out detailedhydrological tests for determining the optimum spacing as well as hydrologicalparameters for evaluation studies. For these, the cell has been strengthenedwith adequate staff. The state is now in a position to undertake detailedmicrolevel groundwater survey for objectively assessing the groundwater balancein different basins. The IDA Supervision Mission which visited the statetowards the end of 1975, observed that groundwater development in Haryanawas progressing rapidly, but felt that groundwater legislation was required

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urgently. According to the Mission, the groundwater cell was doing goodwork and with the staff expansion authorized by the Government of Haryana,it would be possible for them to regulate future groundwater development.

4.05 Large-scale development and relatively close spacing of wells havemade significant impact on the groundwater regimen as reflected in the pro-gressive decline of water level in many areas of the state. With the normal-ization of power supply, cumulative withdrawal from the wells would increasewhich might have further undesirable impact on the groundwater regimen. Asthe assessed potential includes mostly marginal quality water, further devel-opment requires to be planned in such a manner that saline water intrusioninto fresh water zones is avoided. In view of this, a fresh assessment ofbasinwise field studies would be necessary. The state government was reportedto have initiated action in this direction and the ARDC should be involved inassisting the Government.

Short-term Credit

4.06 Short-term production credit in both Punjab and Haryana is disbursedby the primary credit societies. Since nationalization of 14 major Indian com-mercial banks in 1969, commercial banks have also entered this field. Provi-sion of credit by the societies to their cultivator-members was reported tobe quite adequate and no difficulty has been reported in the disbursement ofloans. The repayment performance of the primary societies in both the statescould not, however, be considered satisfactory. The percentage of overdues todemand at the end of June 1976 at the central cooperative bank and the societylevels was 21% and 28%, respectively, in Haryana, and 36% and 37% respectively,in Punjab. The reorganization of primary societies into viable units has beencarried out in Haryana and the number has been reduced substantially. InPunjab, a similar reorganization is expected to be undertaken shortly. Whencompleted, this streamlining should help in reducing overdues and increasingefficiency.

Marketing

4.07 The arrangements for marketing of farm produce were satisfactoryin both States during the project period. In 1977, there were 314 wholesalemarkets and 325 regulated markets in Punjab, and 133 wholesale markets andabout 200 regulated markets in Haryana. The regulated markets being governedby statutes, the chances of exploitation of producers by traders and commis-sion agents were reduced. Plans were also under way for mechanization ofoperations like cleaning, grading, bagging, etc., so that farmers face nodelay in disposing of their produce in the markets.

4.08 Regarding storage, the Haryana State Cooperative Bank was sanctionedin 1972/73, a sum of Rs 24.2 million for financing the construction of godownsby the Haryana State Agricultural Marketing Board and the State CooperativeAgricultural Marketing Federation. This has been fully availed of by the SCB.Recently, the ARDC has sanctioned to the HSCB a supplementary scheme for con-struction of godowns with a total capacity of 16,000 tonnes by RAFED involving

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financial assistance of Rs 2.41 million. Under the ARDC program of assist-ing construction of godowns by private parties for letting out to the FoodCorporation of India for storage of foodgrains, 8 commercial banks have beensanctioned 22 schemes for creating an aggregate storage capacity of 0.22million tonnes in the state with ARDC refinance assistance of Rs 20.7 millionduring 1976/77 against which a sum of Rs 0.55 million has been drawn.

V. ECONOMIC IMPACT

Minor Irrigation and Tractor Surveys

5.01 To complement existing surveys in estimating the benefits under PCPand HACP, two small case studies were undertaken; one for farm mechanizationin Punjab and the other for minor irrigation in Haryana. These studies wereundertaken during February 1978. No separate tractor study was undertaken inHaryana. However, in view of proximity of these areas and similarity of agro-climatic conditions, the results of Punjab study were treated as applicable toHaryana as well. Twenty-five individual tractor-owning farmers residing insix villages in three talukas of Faridkot district of Punjab were interviewed.Twenty five farmers without tractors residing in the same villages were alsointerviewed to obtain a control for the sample of tractor owners. Similarly,for minor irrigation, 30 project beneficiaries and 20 control farmers wereinterviewed in Gurgaon district of Haryana. A larger number of control farmerssatisfying the same conditions could not be attained. Data relating to thecropping pattern, yield, prices and inputs costs were collected during thefield studies. Detailed calculations are given in Annex 4.

5.02 It has been assumed that incremental labor requirements were metby hired labor and the going wages were taken as a satisfactory approximationof its economic costs. The economic life of shallow tubewells and tractorswere assumed to be ten years. Other adjustments for taxes, etc., in inputshave been noted in the tables. They agree in general with those in theappraisal.

5.03 Investment in shallow tubewells increased the cropping intensity

from 120% to 160%. The farmers switched over to IfYV and perennial crops asa result of the investment (Annex 4, Table 3).

5.04 In the case of tractorization, the cropping intensity increasedfrom 140% to 160%, due mainly to an increase in the area under paddy, wheatand sugarcane (Annex 4, Table 1).

5.05 The financial rates of return on shallow tubewells exceeded 50% andfor tractors it was 25% (Annex 4, Table 2). Debt service did not impose aheavy burden. At full production, surplus after debt service agreed with theappraisal estimates.

5.06 The economic rate of return worked out to above 50% for both thetypes of investments. The reference prices used (Annex 4, Table 4) were basedon historically favorable world market conditions. No significant change in

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the overall results would ensue even if subsequent fluctuations in the dollarprice indices for various comodities were introduced. Tractor hire earningswere taken at the survey average of Rs 26/hour, as against the average PAICgoing rate of Rs 40/hour.

5.07 As a result of the investment in tractors under the PACP, thecropped area increased by about 12,800 hectares. Under the HACP, the in-crease was 7,400 hectares as a result of tractorization and 48,600 hectaresas a result of the investment in minor irrigation. Under both projects, netincome increased by about Ra 1,650 per hectare as a result of introductionof tractor and by about Rs 1,750 per hectare as a result of investment intubewell in Haryana.

5.08 About 36,000 farmers obtained loans for shallow tubevells and4,613 for tractors under HACP. Under PACP, 8,002 farmers obtained loansfor tractors. The several monitoring studies conducted in the project areain Haryana indicate that in about 10% of the cases, full benefits have notaccrued as a result of investment in shallow tubewells. This was due todelay in getting electrical connections and shortage of power in certainareas. Even so, the total number of direct beneficiaries was about 3 timesthe appraisal estimates. Besides,-on the assumption that there would be atleast one buyer of irrigation water for every two shallow tubewells, thenumber of indirect beneficiaries can be estimated at 18,000. About 60% ofthe direct beneficiaries under minor irrigation in Haryana were small farmers.

5.09 As regards tractors, the number of hours of tractor use per annumwas less than the appraisal estimates in Haryana. On average, a tractorwas used annually for 480 hours on owner's fields and custom work accountedfor another 150 hours. Of the total number of hours worked, 65 percent ofthe time was utilized in preparing the land for cultivation and the remaininghours were utilized for transport, interculture, sowing, etc.

5.10 Review of Recent Surveys and Conclusions. Aspects such as labordisplacement, socio-economic impact, etc., were not covered specifically inARDC's limited field study. They have, however, been analyzed in severalother studies on the subject.

5.11 In the Evaluation Study of shallow tubewells in Karnal Districtof Haryana conducted in 1974/75 by ARDC, it was found that investment inshallow tubewells gave rise to sizeable on-farm employment during the courseof construction of tubewells as well as on a recurring basis thereafter.The additional employment of labor during the construction of tubewellsunder RACP works out to about 2.7 million mandays at the rate of 75 mandaysper tubewell. The additional employment opportunities for agriculturallabor arising from intensive cultivation following the investment in shallowtubewells can be estimated at around 95 mandays per hectare of benefitedarea (238 mandays per tubewell). This would work out to about 7.5 millionmandays for the project as a whole.

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5.12 According to the study on "Impact of Mechanization on PunjabAgriculture with special reference to tractorization" (Punjab AgriculturalUniversity, Ludhiana-1972/73) by Dr. Kahlon, the direct effect of tractori-zation on various components of human labor, viz., family labor, casuallabor and permanent labor was that on an average tractorization reducedfamily labor by 23 percent and increased permanent, casual and total laborper holding by 24.3 percent, 37.6 percent and 9.5 percent, respectively. Percropped hectare, family labor and total labor decreased by 37.7 percent and11.5 percent, respectively, while permanent labor and casual labor increasedby 0.5 percent and 11.3 percent, respectively. The decrease in family laborinput was attributed to prestige considerations on the part of tractor owners.In Punjab and Haryana, the tractor has become a major status symbol.

5.13 Another study by the Government of Punjab 1/ showed that casuallabor replaced family labor in the case of tractor cultivation. There waspractically no difference in the utilization of permanent and hired laborin both the systems (tractorized and bullock-operated farms) of cultivation.Per hectare utilization of casual labor was significantly higher in tractorholdings than in bullock holdings. Use of tractor had led to an increasein the employment of part-time casual labor in busy agricultural seasonsof the year.

5.14 More than a saving in labor, and labor productivity, a significantaspect emphasized in the studies was that tractorization permitted timelinessof farm operations. It has been reported that increase in production throughproper and timely soil preparation has been of the order of 10 to 15 percent. 2/

5.15 On the basis of a recent analytical review of various studies onthe subject, Dr. Hans P. Binswanger in his study, "Economic of Tractors inthe Indian Sub-Continent" has, however, concluded that these studies provideno convincing evidence that tractors are responsible for a substantialincrease in cropping intensity, yields, timeliness and gross returns. Atbest, he concludes, such benefits that existed might be so small that theycannot be detected and statistically supported even with massive surveyresearch efforts. 3/

5.16 Since his review is not supported by any independent field inves-tigations, the assumptions made and conclusions drawn by Dr. Binswanger hasbeen questioned in different Indian quarters. A subsequent field study,carried out by the Institute of Techno-Economic Study, Madras on behalf ofIndian Council of Agricultural Research, covering seven districts of Tamil

1/ Economics of tractor cultivation and economics of production andcultivation practices of HYV Wheat, Maize and Paddy and Punjab-Government of Punjab, 1969/70 to 1971/72.

2/ Demand for tractors, Study Report by National Council of Applied EconomicResearch, Delhi.

3/ The major points brought out by the Study have been summarized inAnnex 5.

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Nadu shows that tractorization has caused a net average increase in agricul-tural production, tractor farms showing increases of 11.6 percent for paddy,29 percent for groundnut, 17 percent for sugarcane and 34 percent for cotton.The study concludes that no labor displacement resulted due to tractorization.On the other hand, labor demand increased due to increased multiple cropping,greater intensity of cultivation and higher yields.

5.17 The current approach of the Indian Planning Commission towardstractors appears to be cautious. It suggests the need to undertake adetailed study of the employment and productivity effects of tractorization.The Sixth Plan draft has indicated a preference for the utilization of manualand bullock power on small farms. At the same time, it suggests customservice from tractors to ensure timely agricultural operations and also,use of tractors in different terrains for reclamation of large tracts oflands and land shaping.

5.18 It is obvious that the demand for tractors is determined by theinter-play of several factors such as need, price, marginal value productivity,wage rates, availability of credit, etc. The need also arises as a result ofadoption of improved agricultural technology which requires undertaking ofaccurate, timely and faster farm-operations. The adoption of improvedagricultural technology depends upon the availability of assured watersupply. Thus, the combined effect of physical, economic and also conven-ience factors create a substantial demand for tractors which is intensifiedby such consideration as the prestige attached to the ownership of tractors.These were true of both Punjab and Haryana, where in seeking to intensifydouble-cropping, farmers were faced with a problem of speeding up landpreparation and planting. Also, apart from loss of land for fodder, therewas the problem that additional bullocks and labor required were not locallyavailable and could only be obtained outside the state, and at much highercosts. Despite this, offtake of tractors in the initial years under theprojects in both the states was poor and picked up substantially only in 1974when as a result of the change in the Bank rate, non-project tractor loanswere charged at 11% p.a. but tractor loans under the project were charged only9-1/2 percent. 1/

5.19 The various factors mentioned above continue to operate even nowin both States. Replacement need has also been higher since the many oftractors operating in these states are over 10 years old and many owners oftractors of older models are unable to get suitable spares and, therefore,would like to go in for new tractors. Though no official projections ofdemand are available, according to trade sources the total yearly sales oftractors in the country are expected to go up from 31,375 in 1975 to about57,500 in 1980. Of these, 23 percent is expected to be absorbed by Punjab andabout 9.5 percent by Haryana. This would mean that sales in Punjab areexpected to increase from 7,200 tractors in 1975 to 13,225 in 1980 and in

1/ The Project Agreement stipulated a lending rate of 9 percent per annumto the ultimate borrower. The lending institutions were, however,permitted to charge 9-1/2 per cent to the ultimate borrowers in July1974.

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Haryana from 2,960 in 1975 to 5,435 in 1980. These projectionsapart, schemes for financing of tractors continue to be received from thesestates under ARDC's non-IDA program. For instance, ARDC has approved recentlya scheme for financing the purchase of 4,000 tractors in Punjab through thePAIC and has sanctioned a refinance assistance of Rs 119.2 million. Whileapproving the scheme, it has been recognized that since the power availabilityin Punjab (excluding that for irrigation purposes) is 0.61 HP per hectare,there appears some scope for further farm mechanization in Punjab (and perhapsHaryana) even though the general impression is that Punjab already has anadequate number of tractors.

VI. CONCLUSIONS AND RECOMMENDATIONS

Conclusions

6.01 The major benefits expected from the PACP and RACP were highercropping intensity and increase in agricultural production. In Punjab, thesewere expected to be achieved from farm mechanization under the Project andpast investments in irrigation. In Haryana, they were to be achieved throughinvestments in minor irrigation (shallow tubewells) and tractorization. Thesegoals have been achieved. The number of beneficiary farmers, the total bene-fited area, the gross cropped area and the value of gross produce under theprojects were higher than those estimated at appraisal. In terms of procure-ment under the tractor component, however, both the projects faced difficulties.The import and distribution of tractors under the projects were delayed as aresult of procedural difficulties and the closing date had to be extended morethan once under both. Even after such extensions, there was a shortfall inthe distribution of tractors under the HACP, while in Punjab, the last lot of1,200 tractors imported towards the close of the project could not be whollysold within the state due to intervening price escalation. It was, therefore,necessary to permit the supplier to sell 800 out of 1,200 tractors outside thestate.

6.02 The investment program in shallow tubewells in Haryana was clearlysuccessful. Although only 11,000 units were contemplated at appraisal,the actual number of wells financed was more than threefold the estimatedue to lower unit cost, reallocation of funds from some of the items whichwere subsequently excluded from the project and the good work of the StateGroundwater Cell. On the debit side, account has to be taken of delay inthe availability of power connections in some areas and shortage of powersupply which resulted in some wells not working to full capacity. The rapidprogress in groundwater development has increased the urgency of groundwaterlegislation. Also, a fresh assessment of the groundwater potential on thebasis of basinwise field studies is necessary.

6.03 As regards institutional agencies, the ARDC played a major rolein the implementation of the two projects. It solved a number of technicalproblems, coordinated the work of different institutions and acted as acatalyst.

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6.04 The performance of the LDBs in both the states was satisfactoryand the participating commercial banks gained valuable experience in agri-cultural lending. Strengthening of the technical cells in LDBs has, however,yet to progress as envisaged. As regards the AICs, which were the agenciesentrusted with import and distribution of tractors, the efforts devoted toprocurement and distribution of tractors were not matched subsequently inaccounting work, especially in reconciling the figures of physical andfinancial achievements. Even information relating to their operations sincethe commencement of the Project has yet to be compiled on a regular basis.The administrative machinery of the AICs, therefore, requires urgent stream-lining.

6.05 IDA support to agricultural lending in Punjab and Haryana has con-tinued through two general lines of credit viz., ARDC I and ARDC II. It isnecessary at this stage when ARDC III is in sight to focus attention on stepstowards effective monitoring, supervision and evaluation of the variousschemes by the financial institutions themselves: ARDC is already settingup a pilot program of studies with a series of banks.

Recommendations

6.06 (a) Large-scale development and relatively close spacing of wellshave made significant impact on the groundwater regimen as reflected in theprogressive decline of water level in many areas of Haryana. On account ofacute shortage of power, wells were not working to their full capacity.Normalization of power supply would, therefore, considerably increase thecumulative withdrawals from the wells which might have a further adverseimpact on groundwater management. As the potential assessed initiallyincludes mostly marginal quality water, further development requires to beplanned in such a manner that saline water intrusion into fresh water zoneis avoided. In view of this, a fresh assessment of the groundwater potentialon the basis of a series of basinwise field studies is considered necessary.I/It is also essential that the COH should bring forth groundwater legislationurgently.

(b) As regards tractors, recent studies indicate considerableconflict of opinion as to the benefits flowing as a result of tractorization.It is necessary that the priority for tractor financing should be re-examinedon the basis of a detailed and systematic All-India study. Such a study isnow being contemplated under the aegis of the planning Commission.

1/ GOI notes that the state government have indicated that such anassessment was carried out after the implementation of this projectand on the basis of the revised assessment, ARDC has already approved32,000 units for minor irrigation for this state. During implementationof this programme no adverse effect on the water table or in thequality of ground water has been observed. The entire state isunder strict vigil regarding depth of water table, discharge ofexisting minor irrigation units and their utilization.

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(c) As regards institutional credit, no evidence has come to

notice that the beneficiary farmers have been denied their short-term andmedium-term requirements from such agencies. However, for a more efficientimplementation of projects, it would be preferable if farmers obtained alltheir credit requirements from a single source. --

(d) A study of the role of the Agro-Industries Corporations inthe two states indicated that for better and more effective functioningtheir organization and methods need streamlining.

1/ GOI feels recommendation to obtain credit for single source isredundant. The recommendation in paragraph 6.06 (c), however, wasmade for other reasons than denial of short-term audit, namely easeof obtaining credit (affecting travel distances for farmers, and

repeated requirements on information of farmers repayment performance.

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SUPPLEMENT BY IDA'S REGIONAL OFFICE

The Farm Mechanization Component

I. Introduction

General

1.1 The Punjab and Haryana Joint Project Completion Report was prepared

by the Agricultural Refinance and Development Corporation (ARDC) and is reproduced

in extenso. This section is intended to supplement the farm mechanization aspectsof that report with the South Asia Regional Office's viewpoint and experience.

1.2 ' The two projects provided for the financing of about 8,000 imported

farm tractors in the Punjab and 6,000 farm tractors in Haryana plus self-propelled combine harvesters, tractor drawn harvesters, discs, plough bottoms

and spare parts. An IDA credit to GOI was first used to finance imported

farm tractors in the Gujarat Agricultural Credit Project (Cr. 191-IN) which

had been appraised in June 1969, 6 months prior to the Punjab project appraisaland 18 months prior to the Haryana project appraisal.

1.3 Farm tractors were also included in IDA Credits for Andhra Pradesh

(226-IN), Tamil Nadu (250-IN) and Karnataka (278-IN) with appraisals andnegotiations in 1970 and 1971. Whilst this report concentrates on the Punjab-

Haryana experience most of the conclusions on project implementation and

design are valid for the tractor components of all six projects.

Project Preparation

1.4 GOI and the respective State Governments prepared the proposed

projects for appraisal. Unexpected problems developed during this stage.

Initially, some of the domestic tractor manufacturers proposed use of the IDA

credit to expand their tractor manufacturing resources and to improve com-

ponent parts for the expanded operation. Other private and public sector

corporations, including the Punjab Industrial Corporation and 3 or 4 newly

incorporated State Agro-Industrial Corporations, proposed use of the Credit

to construct new factories to manufacture tractors.

1.5 A second problem was uncertainty of continued strong demand.Domestic tractor production had increased from about 1,000 units in 1960/61to 15,000 in 1968/69. However, dealers had built up large inventories andreported slow sales on the grounds that farmers considered most domestictractors inferior to certain imported types. Regulated prices, a liberalimport policy and an overvalued exchange rate were artificially distortingdemand for imported tractors in particular and farm machinery in general,relative to other production factors (para 2.9). Imports had increased from2,500 per year between 1961 and 1968 to 15,000 per year between 1969 and 1971.Much of the increase in imports was financed by bilateral grants and loansfrom countries outside the Bank Group as a part of arrangements with some ofthe State Agro-Industries Corporations for assembly, after-sales services,and establishment of manufacturing facilities.

1.6 A third important uncertainty originated with a group of eminenteconomists and sociologists who contended that farming with tractors wouldtend to displace agricultural laborers and enable landlords to drive outtenants. Their contention resulted in the Bank financing evaluation studiesof the Gujarat and Punjab Agricultural Credit Projects and GOI financingsimilar studies in other States; the controversy is examined in detail below(para 3.5 and ff.). Meanwhile, the tractor component, originally planned forall 10 State-based agricultural credit projects, was limited to the first sixof which Punjab was the only one to be devoted exclusively to tractors.

Justification at Appraisal

1.7 Farm mechanization was included in the Punjab and Haryana projectsto assist farmers in achieving state and national objectives of increasedagricultural production. Prior to appraisal Punjab and Haryana farmersappeared to be experiencing a shortage of farm labor and bullock power, par-ticularly during the overlap seasons of kharif harvest and rabi planting andrabi harvest and kharif planting. Labor and bullock shortages further in-creased with the rapid introduction of higher yielding varieties of wheat,paddy, cotton and oilseed crops, the expansion in minor irrigation resourcesand the use of fertilizers. The appraisal reports stated that tractors would

enable users to convert waste land into arable land, increase crop intensity,increase yields per ha and enable the transfer of land used for producing andmaintaining bullocks into production of milk, foodgrains and other agricul-tural produce.

1.8 The harvesters were to enable a more rapid harvesting and threshingof the grain crops (mostly wheat and paddy), thus minimizing field lossesfrom storms, birds, rodents and shattering caused by over-ripe harvesting.Earlier removal of the grain by the harvester would enable earlier and moreextensive land preparation and planting of cotton after wheat and wheat afterpaddy, thus, enhancing yields and crop intensity. Imported discs and ploughbottoms were needed because India did not manufacture the hard steel neededto make superior quality attachments.

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1.9 In 1969 and 1970, demand for tractors imported from Bank membercountries was extremely high, and a new tractor purchased at the officiallyregulated price could be resold at 35% to 70% over cost. 001 had set restrictedquotas on the number of imports of the more popular kinds. Farmers were havingto wait 3 or 4 years after an initial downpayment before delivery of theirpreferred tractor brand. The investment cost of bullocks had also increased:assuming 10 bullock pairs as the equivalent in land preparation capability ofone 35 hp tractor during hot weather conditions, the alternative investmentcosts appeared about the same. Also, bullock workstock had increased only2.2% from 1961 to 1972 (75.4 million to 77.1 million head) and supply wasstill short. The private benefit-cost relationship of the tractor, irrigationand HYV package taken as a whole was highly favorable for farmers, particularlyin Punjab and Haryana where the application of new production technologieswas most responsive. The additional - and subsequently questioned - implicitassumption made by many supporters of tractorization was that only the powerand speed of tractors would make adoption of most of the rest of the packagepossible.

1.10 The appraisal reports estimated returns to the tractor investment of26 to 29% (financial) and 23% (economic) in Punjab and 40% (financial) and 15to 17% (economic) in Haryana. Crop intensities were estimated to increasefrom 127% and 140% without a tractor to 160% and 180%, respectively, with atractor. Yields were estimated to increase from 0 to 5% for some crops up to25% for other crops, depending on the crop, soil type and whether or not seedsfrom the new high yielding varieties, fertilizers and irrigation were alsoadded. Differences in rates of return between the Punjab and Haryana were duemostly to price and cost assumptions used. Neither appraisal assumed valuesfor the conversion of waste land to crop land or the value of milk that couldbe produced from resources formerly used for producing and maintaining bullocks.Neither appraisal compared potential benefits from the alternative investmentin more bullocks to achieve the same projected increases in crop intensity andyield. No attempt was made to test rates of return with e.g. a shadow rateof exchange although the investment cost used was lower than the ex-factorycost of some indigenous tractors.

II. Procurement Issues

2.1 Originally scheduled to be fully disbursed in 28 months, the Punjabproject required 82 months; the Haryana project scheduled for disbursementin 41 months required 68 months. Problems of procurement caused most of thedelay from the early stages of project formulation right through implementa-tion: requests for changes of the original design continued up to completion.IDA's objectives at appraisal and subsequent issues and compromise solutionsare examined in detail below.

2.2 Original Design. IDA's declared concern was to ensure that farmerswere efficiently supplied with high quality imported equipment of their ownchoice at competitive terms and with appropriate.guarantees on after-sales

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service and parts from reputable local dealers. The two most usual procure-

ment mechanisms - centrally organized international competitive bidding (ICB)and individual "prudent shopping" from dealers, would not have achieved theseobjectives because, in the appraisal report's words,

"farmers' purchases through existing dealerships would not be

feasible as the necessary competition between dealerships couldonly be obtained by liberalizing import licensing to enable large

scale tractor imports. In view of India's shortage of foreign

exchange this would be inappropriate. Normal internationalcompetitive bidding could only be organized through State entities.This would tend towards a Government tractor distribution monopolyand further weaken existing dealerships channels and it would not

take farmers' choice into account."

2.3 IDA, therefore, proposed a compromise solution combining both bulk

procurement and farmer choice. ARDC was to be made responsible for (a) obtain-ing quotations from pre-qualified suppliers based on unit prices for varyingquantities. The quotations would include terms for warrantees, parts, and

service; (b) advertising, through participating banks, the different quota-

tions and canvassing potential borrowers for a first and second choice; (c)

aggregating these choices by brand of tractor and placing appropriate orders.

If the total order for a first choice fall below the minimum quantity requiredto obtain acceptable loans, ARDC would substitute the second choice brand.

Tractors would be delivered through dealers designated by the supplier in acontract with ARDC based on the original bid terms.

2.4 Local manufacturing issue. The first complication to arise was that001 proposed that brands of tractors to be financed by the project be limitedto those already being manufactured or to be manufactured in India. IDA pro-

posed to finance only those brands imported from Bank member countries by

Indian tractor dealers who maintained acceptable pre-and post-sale servicesirrespective of whether they were manufacturing or planning to manufacturetractors in India. In the end, prequalification was agreed to include a major

emphasis on commonality (interchangeable parts and processes) and only manu-facturers of models already locally assembled qualified.

2.5 Procurement agency issue. A more important issue arose with regard

to the agency within Punjab and Haryana to be responsible for pooling farmersapplications, obtaining bids from suppliers and managing delivery of thetractors. In the Gujarat project the Land Development Bank had been designatedas this agency and the first procurement tranche was being implemented satis-factorily. In Punjab and Haryana, several other banks were involved and topreserve impartiality, IDA proposed ARDC. At negotiations, GOI instead arguedin favor of designating the Punjab and Haryana Agro-Industries Corporation asthe respective procurement agencies. This was agreed to even though both AICs

held exclusive contracts to import, assemble, market and provide after-sale

services for tractors from non-member countries. In view of GOI's commitmentto strengthen local enterprises, this request was not surprising: but IDA's

agreement contrasts sharply with the objectives stated in 2.2 above.

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2.6 It was also agreed that GOI would establish a central committee todeal with procurement of farm mechanization items in all the agriculturalcredit projects. Representatives of each State Government were to serve on

the committee when items for that State were being considered. ARDC had a

representative on the committee.

2.7 Implementation. The Punjab project became effective in September1970. Preparation of procurement documentation was well under way by mid-

October when PAIC reported having applications from 27,000 farmers for the

8,000 imported project tractors. PAIC proposed to select the 8,000 projectbeneficiaries by lottery as they had failed to have each applicant indicatefirst and second choice of tractor brand. Choice of tractor was to be limitedto the five brands imported by Indian tractor manufacturers. Price and after-sale services were to be negotiated without normal tender procedures. PAICstated that they planned to offer east European tractors to the 19,000 appli-cants who failed to get an IDA-financed tractor.

2.8 IDA objected to this approach which was inconsistent with the statedobjectives of giving the farmer his choice of brand and the internationaltractor manufacturer an opportunity to participate. Formal procedures were

drafted by PAIC in November 1970 and moved through GOI to IDA for review. IDAagain objected to the terms (December 3, 1970) as the proposed procedures had

included the entire 8,000 tractors in one tranche, and also specified a powerrange of 30 to 80 hp when the Credit Agreement stated 30 to 60 hp. It alsoauthorized PAIC to set the price paid by the farmer and commission rates for

dealer after-sale services, in contradiction of the Agreement.

2.9 Proposed revisions of the PAIC November 1970 procurement documentswere exchanged between GOI and IDA from January to early March 1971 when

agreement was reached. However, before publishing the tender, PAIC changed

terms and conditions which had the effect of increasing its handling chargesat the expense of tractor supplier-dealers. These differences were overcome

and tenders offered for 4,000 imported tractors with the bids to be closed

June 21, 1971.

2.10 Reimposition of tariff duties. Meanwhile, other issues had devel-oped. During appraisal of the first four credits which included financing offarm tractors, IDA staff had urged GOI to consider increasing tariff dutiesand taxes on imported tractors and tractor components. Under the GATT 1/,

GOI had agreed to a duty free arrangement for these items. Only shipping andhandling charges and a modest sales tax were added to the c.i.f. cost to

arrive at the farmer's price. On the other hand, domestic tractor prices wereregulated. In 1969 and 1970, the open market price of the Indian rupee was

considerably below the official exchange rate; i.e. Rs 10 to 12 = US$1 com-pared with the official rate of Rs 7.5 = US$1. It was believed that a sub-

stantial tariff duty would help equalize the difference in exchange rates,provide protection to domestic tractor manufacturers, and reduce or eliminate

the "black market" for used tractors.

1/ General Agreement on Tariffs and Trade.

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2.11 GOI amended its agreement with GATT countries and imposed a 30%tariff duty against the c.i.f. value plus a 10% excise duty plus a salestax on imported tractors. It also imposed a 20% tax on the ex-factoryvalue of domestic tractors and increased regulated prices accordingly. GOIalso liberalized licensing procedures to enable more Indian industrialiststo become manufacturers with or without international collaboration. Thesechanges were announced in May 1971 just after the first Punjab tender wasoffered and before opening imported bids. Before the change, a popularimported brand of 45 hp tractor was priced at Rs 24,400 to the farmer; afterthe change the price was Rs 44,400.

2.12 Tenders for the first Punjab tranche were opened and PAIC and theCentral Committee proceeded to evalute each bid. This they did first, byrequesting all bidders to reduce their commission charges to 10% from anagreed 15%; second, by eliminating 3 of the 11 bidders on grounds of not beingresponsive to tender specifications; and third, by eliminating 11 of the 22brand models offered on grounds of lack of 75% commonality (identical compo-nents and parts) with tractor models manufactured or licensed for manufacturein India. One of the bids accepted by GOI and PAIC was for a tractor modelmanufactured in India. The DCA 1/ and tender specifications accepted onlyimported tractors. Also, neither the DCA nor tender documents specified the75% commonality rule applied by PAIC and 001. Other issues were the quantumand method of providing spare parts proposed by each bidder and how to appor-tion responsibility for foreign exchange deviations of the Indian rupeebetween the date of the offer and date of importation. All bids were validuntil October by which time PAIC was to have all farmer applications processedand assigned to each dealer. From early July to October 1971, tractor manufac-turers whose bids had been rejected filed complaints with IDA alleging majordeviations by PAIC and GOI from the published tender specifications and theBank's guidelines for procurement.

2.13 Another difficulty came in the way of settlement of the above issuesand completing farmer applications. On September 1, 1971, GOI issued aTractor Distribution and Sale Order that limited tractor imports to modelssubstantially similar to models approved for manufacture in India, i.e.similar hp ranges, commonality of assembly and sub-assembly of componentparts, inter-changability of other parts and a license to manufacture inIndia. GOI requested IDA to agree to a retender for Punjab tractors underterms and conditions laid down by the above order. IDA consented providedagreement could be.reached on terms and conditions of the tender.

2.14 PAIC made an attempt to retender but did not receive GOI orIDA approval. During this time, India and Pakistan were engaged in a warwhich resulted in the establishment of Bangladesh. War activities withinIndia were concentrated in the Punjab. Farmers were reluctant to completetheir tractor loans until the war was over.

2.15 Another major factor holding up PAIC sales was that the IndianState Trading Corporation (STC) was able to import and sell identical brandsand models of tractors at a lower cost. For example:

1/ Development Credit Agreement.

IDA-PAIC Price STC Price

Imported ModelIMT 533 - 35 hp Rs 37,760 Rs 35,000Ford 3,000 - 46 hp Rs 50,404 Rs 37,880Zetor 2511 - 25 hp Rs 30,700 Rs 23,800

2.16 PAIC and the GOI central committee made a third attempt to retender

under the Tractor Distribution and Sales Order. Their evaluation of bids

eliminated 2 of the 5 manufacturers and 6 or the 10 models offered. Only

4 models by 3 manufacturers were accepted. One manufacturer with 3 of the

most popular models demanded by farmers was rejected because in the com-

mittee's opinion less than 75% of the parts were interchangeable while expert

views sought by IDA indicated a higher degree of interchangability. IDA

refused to accept the evaluation on grounds that reasons for rejection were

not consistent with tender specifications and with only 4 models farmers'

choice would be unduly restricted.

2.17 Negotiated solution. Eventually, 001 and IDA staff initiated dis-cussions on how to solve the impasse as the tractor procurement problem was

now seriously affecting all five projects. Initial efforts were made to

adjust tariff and local taxes on both imported and domestic tractors so as

to obtain a competitive relationship after providing the normal 15% price

concession to domestic suppliers. GOI raised the tariff duties on importedtractors to 40% of c.i.f. value (up from 30%) and adjusted taxes and price

controls on domestic tractors to make the two sources competitive. Other

negotiated provisions specified criteria for prequalification of imported andindigenous tractors, tendering procedures that assured the farmer his choice

among the prequalified list and acceptable after sale service arrangements.

These changes were agreed by IDA in December 1973. All Indian agriculturalcredit projects with a tractor component were amended by September 1974. IDA

agreed to disburse at the rate of 100% of c.i.f. cost of imported tractors

and 64% of the ex-factory price of indigenous tractors.

2.18 Meanwhile, the PAIC had proceeded to process tractor procurement

under an acceptable tender arrangement. In 1974, 652 imported tractors and

373 indigenous tractors were financed. Tenders processed from 1975 to 1977

succeeded in disbursing against 8,002 tractors, over half of which were

locally manufactured. A number of the tractors imported under the last

tranche were finally sold outside Punjab with IDA permission since borrowers

had abandoned their first choice in favor of more readily available indigenous

models.

Other Farm Mechanization Components

2.19 The Punjab project included financing of about 40 imported self-propelled combine harvesters, 100 tractor drawn harvesters, and imported

disc and plough bottoms. Soon after the project became effective GOI and IDA

tried to develop acceptable procurement procedures for each of these items.

Agreement was never reached on the disc and plough component. Only 64 of

the tractor drawn harvesters were financed. Credit funds not used in these

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categories were reallocated to the tractor category. Similar action wastaken in the Haryana project, where all the funds earmarked for harvestingmachinery tractor implements and spare parts were reallocated to minorirrigation.

Conclusions

2.20 IDA's experience with tractor procurement in India reveals weak-nesses in the original project designs and casts doubts on the validity ofthe compromises subsequently reached. A policy disagreement over basic pro-ject objectives appears to have been too hastily reconciled by aprocedural arrangement which was subject to different interpretations; thisblocked progress on all six projects for several years until a more realisticsolution was negotiated.

2.21 As to the proposed system of bulk procurement based on pooled farmerchoices, all the evidence is that even in the absence of other complicatingfactors the organizational difficulties involved were still grossly under-estimated. To attempt to procure within 2 to 3 years tens of thousands ofmachines in six States through several dozen financial institutions andhundreds of dealers would be difficult enough. Rowever, to require all poten-tial borrowers to be canvassed during the period of bid validity, and thentheir choices to hold good through the whole process of bid adjudication,contracts, and delivery was impractical. The additional administrative costs,foregone production, and intervening price increases largely cancel out thepotential price advantages of ICB. Future credit project should aim as faras possible to leave procurement to individuals local dealers, subject tominimum technical standards to be enforced by such agencies as ARDC.

III. Benefits of Farm Mechanization

Private Returns

3.1 Over 100 micro-level studies have been made of the impact of tractorinvestments in India. 1/ Most studies agree that the investment is financiallyviable provided the owner has the capability to operate the tractor 800 to1,200 hours per year and wage and bullock costs are high and rising. Thefinancial rate of return is about the same for a small farmer who owns andhires out his tractor to other small farmers, and for a larger farmer withsufficient land and transport requirements to absorb the minimum operatingtime himself. Estimates of financial rates of return, ranging from 15% toover 50%, have varied with the combination of quality and area of land cul-tivated, high yielding varieties, high-value crops, fertilizers, plant pro-tection materials, land levelling, irrigation and other factors used withtractor power. However, none of the studies reviewed convincingly weight the

1/ For a comprehensive review, see Binswanger,-"Economics of Tractors inthe Indian Subcontinent" (ICRISAT, 1978). A brief summary appears inAnnex 5.

- 50 -

value of each factor and the inter-related effect of all factors on profit-ability. It has been argued that most cost benefit analyses of tractor in-troduction (including these project appraisals) tend to overstate incrementalincome by comparing tractor farms equipped with e.g. superior management andirrigation technology with control farms which face greater handicaps thanlack of power: put another way, much of the assumed incremental productionwould probably not disappear if the tractor was suddenly to vanish from thewith-project farm.

3.2 However, conventional analysis cannot fully take into account someof the other principal advantages of the tractor to the owner or regularhirer. These are, particularly in the Punjab, such factors as (i) tractoruse for transport and social purposes, (ii) the convenience to and savingof family labour, whatever its opportunity cost and particularly (iii) themanagement flexibility and independence afforded by the tractor as againstreliance on mobilising sufficient numbers of bullocks and laborers at theright time and place.

3.3 Another way of estimating returns to tractor use without individualyield and cropping pattern assumptions is to take the farmer's willingnessto pay, i.e. actual hourly custom hire rates, as a proxy for the privatebenefits of tractor use, even though this assumes a fully competitive rentalmarket, which is clearly far from the case. In a survey conducted for theAndhra Pradesh Agricultural Credit Project PCR 1/, the average rental of Rs30/hour in 1976 (public corporations charge about Rs 40) at a utilization rateof some 930 hours a year still yielded an FRR of 21% over ten years at aninvestment cost of more than twice that calculated in the Punjab appraisal.

3.4 Economic Rates of Return. The Punjab appraisal estimated a projectERR of between 14 and 23% based inter alia on lower commodity price assump-tions, current financial prices for investment costs, and official exchangerates to those currently prevailing. Intervening (post-oil-crisis) changes inrelative prices and the exchange rate have added to the basic methodologicalproblems mentioned above. Adjusting financial rates of return based on similarassumptions as to yield or cropping pattern effects with appropriate borderprices yields rates of return of as much as 50% and, in almost every studyreviewed, higher than 15%.

3.5 Distributional Aspects. The case against tractors, inside and out-side the Bank Group, turns not on their productivity but on the risk of dis-placement of permanent farm labor and tenants in favor of self-cultivationwith tractors. It is true that studies of tractor farms the Indian Punjab donot reveal a significantly lower use of farm labor per hectare than comparablenon-tractor farms: the absolute increase in casual labor required for activ-ities that are not yet mechanized (weeding, transplating, harvesting) may havelargely compensated for the loss of permanent labor in the form of e.g. bullockoperators. However, labor use per unit output shows a strong downward trendafter tractorization, which merely confirms that tractors are a relativelylabor-saving capital investment, as against other possible uses of funds, suchas employment-creating irrigation.

1/ Issued in June 1978.

- 51 -

3.6 The case of the Punjab (and Haryana) is a special one to the extentthat agricultural laborers' wages have risen faster than the general priceindex since th- late 60s, i.e. throughout the period associated with theintroduction of tractors. Growing seasonal immigration from other regionsis used to meet the substantial unskilled labor constraint in these States.Given certain rigidities in the labor market, a case can be made for furtherlabor-saving investments on a more limited scale until this regional imbalancecan be removed. The clear danger of this approach, in view of the poor mediumterm prospects of fully absorbing rural unskilled labor nationwide, is that itcreates the potential for further labor-saving investments (e.g., in tractor-drawn harvesting machinery) ahead of any real labor scarcity or permanentincrease in real wages.

3.7 While the displacement of smallholders and tenants through the ex-pansion of tractor owner-operated farms has been reasonably well establishedin the case of at least one area in the subcontinent 1/, where farm size in-creased considerably after tractors were introduced, there is no similarevidence of large-scale land consolidation and tenant displacement in theIndian Punjab. Average farm size in 1971 was 2.9 ha, with 17% of farms above5 ha in 1971 as against 41% in 1961. Partly this is also a result of landceiling and tenancy legislation in the Indian Punjab implemented since 1953:even if redistribution objectives have not been fully attained, pressure onthe land and legislation have certainly put a barrier to rapid area expansionby large farmers. Another reason to view the Punjab/Haryana situation withoptimism is that subsidies given to labor-saving investment up to about1971/72, such as regulated retail prices and exchange rate overvaluation, havebeen abolished and even reversed through a series of GOI policy measures takenbefore the IDA project tractors were delivered. Current interest rates fortractor lending -- at a minimum 11% or about 6% in real terms -- are stronglypositive by international standards and in line with all other rural sectorlending: and cumulative tariffs and excise duties exceed 50%

Conclusions

3.8 During the long gestation period of these projects, considerablecontroversy surrounded the introduction of tractors in the low-wage countriesof Asia. The best empirical evidence available

suggests that private returns of tractor ownership are strongly positive inhigh-wage pockets (such as Punjab/Haryana) or where reclamation possibilitiesstill exist (Gujarat). On the other hand social returns elsewhere are likelyto be adversely affected by the labor-saving potential created and the dis-placement of tenants, particularly to the extent that legislation does notafford adequate protection. However, this depends on area-specific con-siderations and there is reason to believe that in several sub-regions farm

1/ McInerney and Donaldson, Consequences of Farm Tractors in Pakistan,World Bank Staff working paper No. 210, February 1975.

- 52 -

mechanization investments continue to be socially justifiable. ARDC'sbalanced assessment of farm mechanization and selective approach to tractorintroduction (see attachments) is realistic.

3.09 Another implication is that as demand for tractor loans throughARDC-supported banks remains strong without subsidies, ARDC should intensifyits examination of scheme proposals on a case-by-case basis. In particular,specific tests could be applied to determine threshold levels of farm laborshortages, land tenure patterns, power availability, and power requirementswhich may justify or rule out a tractor scheme. This would involve detailedconsideration of the existing rental market for tractors and bullocks and theactual degree of utilization of present capacity. Lastly, wherever possible,ARDC should continue to give priority to schemes which aim to develop or ex-pand the farm machinery rental market, such as creation of agroservice centersand lending through functional cooperatives. However, this may require agreat deal more preparation work than loans to individual borrowers if thewider clientele potentially reached by such indirect tractor lending is notto suffer from inefficient use of the equipment.

IV. IDA and ARDC Performance

4.1 The design of both projects was based on a standard model devised

for the Gujarat Agricultural Credit project, save for the modification regard-

ing the agencies responsible for procurement. The main design weakness lies

precisely in the procurement arrangements (2.20 and 2.21). With hindsight,

implementation may also have been marred by the failure to take decisive

action to either resolve the procurement dispute with GOI sooner or re-

allocate the proceeds of the farm mechanization component of these Credits.

4.2 The key role of the central committees and the escalation of tractor

procurement procedures to major policy decisions overshadowed formal State-

based supervisiOns, which were few and brief but appear adequate under the

circumstances. Manpower constraints (in the face of 11 concurrent credit

projects in different States) also clearly played a role in limiting IDA

followup. However, the overall performance of the credit institutions was

good throughout the project period and no major corrective action appears to

have been called for.

4.3 ARDC has not only carried out its limited role in project implement-

ation satisfactorily but also proven its maturity as a development institution

by producing project evaluation work of a high standard. The attached Joint

Completion Report, prepared with minimal guidance from IDA, is a valid example

of ARDC's progress.

- 53 -

ANNEX 1Table 1

INDIA

PUNJAB AGRICULTURAL CREDIT PROJECT

Key Implementation Data

A. Physical Achievements - - - - (Units Financed) - - - -

AppraisalLDB CB Total Estimate

1. Tractors

(a) Indigenous 1,116 3,056 4,172 -(b) Imported 1,439 2,391 3,830 8,000

8,002 8,000

2. Harvesters - 64 64 240(Tractor Drawn)

B. Disbursements - - - - (Rupees million) - - - -

1. Tractors

(a) Indigenous 40.23 119.56 159.79 )146.3(b) Imported 60.04 104.69 164.73 )

2. Harvesters &Implements - 1.89 1.89 65.1

100.27 226.14 326.41 211.4

3. Spare Parts - - - 24.2

235.6

C. Estimated Project Costs (Rupees Million)

At Appraisal: 211.4 x 100 + 24.2 = 300.676.4

Actual: 326.4 x 100 = 384.0 1/ (US$42.7 M)85

1/ If corrected for difference in exchange rate, equivalent tosome Rs 320 M.

- 54 -

ANNEX 1Table 2

INDIA

HARYANA AGRICULTURAL CREDIT PROJECT

Key Implementation Data

A. Physical Achievements - - - - (Units Financed) - - - -Appraisal

LDB CB Total Estimate

1. Shallow Tubewells 29,832 1,265 35,984 11,000

2. Sprinkler Sets - - - 75

3. Tractors

(a) Imported 16 326 342 6,000(b) Indigenous 1,853 2,418 4,271 -

4. Implements - - - N/A

5. Harvesters - 120

B. Disbursements - - - - (Rupees million) - - - -

1. Tractors 238.30 8.47 246.77 72.5

2. Tractors 66.03 106.44 172.47 121.5

3. Implements - - 41.8

4. Harvesters 4.0

5. Spare Parts - - - 20.2

304.33 114.91 419.24 260.0

C. Estimated Project Costs (Rupees Million)

At Appraisal: 239.8 x 100 + 20.2 - 333.976.4

Actual: 246.77 x 100 + 172.47 x 100 - 477.11/ (US$53.0 H)90 85

1/ If corrected for difference in exchange rate, equivalent tosome Rs 397 M.

- 55 -

ANNEX 2Page 1

INDIA

PUNJAB AND HARYANA AGRICULTURAL CREDIT PROJECTS

The Lending Institutions

I. Agricultural Refinance and Development Corporation (ARDC)

1. The Agricultural Refinance and Development Corporation has beenthe refinancing agency for agricultural credit under PACP, HACP and otherprojects. Its development and methods of operations have been well docu-mented in various IDA Reports, the latest one being the Appraisal of theARDC Credit Project II (Report No. 1520A-IN - May 12, 1977).

2. Both under the PACP and HACP, ARDC was actively associated from theappraisal stage to project completion. Details of its disbursements under thePACP and the HACP are given in Annex 2, Table 1 and 2. As per the respectiveproject programs, the Corporation was to invite scheduled commercial banksoperating in the two states to participate in the projects. Accordingly, itcirculated the salient features of the projects among the commercial banks andselected those that expressed their willingness to participate in the projects.The Corporation also ensured that the loan appraisals were carried out by theLDBs and the participating commercial banks in conformity with the agreedlending criteria. For this, the banks were supplied with guidelines togetherwith the necessary background material. A workshop was arranged for them andfor representatives of the two state governments. This workshop discussed thedetails of the project implementation. The Corporation ensured that the par-ticipating banks had, prior to the formulation of individual schemes, a goodgrounding in the collection and collation of essential details so that theschemes satisfied the basic requisites. In addition, right from commencementto the closure of the project, the progress of implementation received specialattention and in that connection,- periodical meetings were held with variousproject entities. ARDC also conducted detailed follow-up (supervision studieson 13 schemes (+ 250 beneficiaries) in Punjab and some 34 studies on bothminor irrigation and tractor loans in Haryana. The Corporation was alsorepresented on the special committees appointed by GOI for effective imple-mentation of the projects. ,

3. In regard to minor irrigation program in Haryana, one of thestipulations in the Project Agreement was that minor irrigation works shouldbe sanctioned only with the technical approval of the Agriculture Departmentof the state government. While the project was under implementation, theCorporation created its own technical wing at the head office which partici-pated in examining the technical feasibility of minor irrigation programs.A joint study was also conducted in July 1974 by the State Groundwater Board,

- 56 -

ANNEX 2

Page 2

Minor Irrigation Tubewell Corporation and ARDC's own technical wing to assessthe availability of groundwater resources for development in the state. Onthe basis of this study and further discussions, programs of shallow tube-well investments feasible in different blocks in the state was worked out.On this basis, supplementary schemes for minor irrigation investment weresanctioned which were financed under the HACP and switched over, if neces-sary, to ARDC Credit Projects.

II. Land Development Banks

4. Both in the case of PACP and RACP, the respective LDBs playedsignificant roles in project implementation. The Punjab State CooperativeLand Mortgage Bank had 42 primaries as members at the close of June 1976 andwas under the management of a Board of Directors consisting of 17 members.The Managing Director who is the Chief Executive of the Bank is on deputationfrom the state government. He is assisted by two Secretaries, 2 AssistantSecretaries, a Chief Inspecting Officer, a Development Officer and otherstaff. The Bank had no specialists in the important technical disciplines.The growing volume of operations of the Bank would justify the need forstrengthening its management.

5. The Haryana State Cooperative Land Development Bank had a networkof 29 PLDBs and its affairs were managed by a Board of Directors consistingof 15 members. The Managing Director of the Bank, seconded to it from theState Cooperative Department, is the chief executive. He is assisted bytwo Deputy Secretaries, one in charge of Accounts and Debentures and theother in charge of Legal Division, an Assistant Secretary, a Chief InspectingOfficer and an Agro-Economist. Apart from a dairy specialist who has joinedthe Bank recently (on deputation from the Animal Husbandry Department of theGOB), the Bank had no specialists in other technical disciplines such asgroundwater and water management. The HLDB was understood to be thinkingin terms of strengthening its technical staff and taking steps to train itsown staff with the help of ARDC.

Sources of Funds

6. Sources of funds of the two SLDBs are primarily share capital,reserves and borrowings from higher financing agencies and the marketthrough issue of debentures guaranteed by the respective state government.

7. In respect of the Punjab SLDB, the paid-up share capital as at theend of June 1976 was Ra 37.80 million as against an authorized capital ofRs 100 million. Of this, the state government contribution was Rs 10.51million. The Bank availed of interim accommodation for a short period fromthe Punjab State Cooperative Bank to the extent of Ra 30 million in 1975/76.The debentures issued by the Bank in 1974/75 and 1975/76 were as under:

Ordinary Debentures Special Dev. Debentures Total(in Rs millions)

1974/75 78.79 33.15 111.941975/76 64.00 56.95 120.95

- 57 -

ANNEX 2Page 3

Ordinary debentures to the extent of Rs 64 million and special developmentdebentures to the extent of Rs 56.95 million (the two together Rs 120.95million) were floated by the Bank during 1975/76 as against Rs 111.94 millionin 1974/75 and the total of only Rs 90.45 million in 1973/74. Debenturesoutstanding at the end of June 1976 were Rs 1,031.44 million as comparedto only Rs 769.45 million in 1972/73. Side-by-side with lending and deben-ture floatation programs, the Bank also mobilized rural savings through

fixed deposits. The amount, however, was only Rs 0.49 million. A summaryof the financial position of the Bank is given in Annex 2, Table 7.

8. In respect of Haryana SLDB, the share capital stood at Rs 27.83million as of June 30, 1976 against an authorized capital of Rs 100 million.Ordinary and Special Development Debentures outstanding as at the end ofJune 1976 were Rs 246.95 million and Rs 368.25 million, respectively. Thedebentures issued and fixed deposits accepted in 1974/75 and 1975/76 were

as under:

Ordinary Special Development FixedDebentures Debentures Deposits Total

-------------- (in Rs millions)------------------

1974/75 25.50 72.68 0.61 98.791975/76 24.46 84.63 0.55 109.64

The financial position of the Bank was quite satisfactory.

Overall Operational Results

9. Punjab LDB disbursed a sum of Rs 100.27 million for procurement anddistribution of tractors under the PACP. The Bank has also been implementingseveral other development schemes with ARDC refinance. During 1975/76, five

schemes were implemented/under implementation with a disbursement of Rs 63.04million as compared to 16 schemes with disbursements of Rs 27.78 million in1974/75. The total refinance availed of by the Bank from ARDC as at the end

of June 1977 amounted to Ra 365 million. The total loans outstanding at theend of June for the 4 years 1973 to 1976 were Rs 599 million, Rs 611 million,Rs 612 million and Rs 626 million, respectively.

10. The primary banks in Punjab advanced in 1975/76 loans to the extentof Rs 145 million, as against Rs 126 million in 1974/75 and the amounts out-

standing in the two years were Rs 652 million and Rs 637 million, respectively.

11. Although the operating margin between lending and borrowing ratesof the PSLDB was small, its net income in 1976/77 amounted to Rs 12.9 millionas compared to only Rs 4.6 million in 1972/73.

12. The HSLDB disbursed Rs 66 million for procurement of tractors and

Rs 238 million for minor irrigation under the HACP. The HSLDB has also beenimplementing other developmental schemes through refinance assistance fromARDC. The total refinance disbursed by ARDC to -the Bank at the end of June1977, amounted to Rs 446 million for 52 schemes which included 39 minor

irrigation and 5 farm mechanization schemes. The total amount of loans

- 58 -

ANNEX 2

Page 4

outstanding at the end of June 1975 and 1976, in respect of the HSLDB wereRs 421 million and Rs 476 million, respectively. As against this the PLDBs'loans outstanding totalled Rs 435 million at the end of June 1975 and Rs 476million at the end of June 1976. Similarly, loans issued by them also roseto Rs 120 million in 1975/76 as against Rs 113 million in 1974/75. Purpose-wise, minor irrigation followed by farm mechanization were the important

categories of lending although the HLDB has been making efforts to diversify

its lending portfolio by extending its lending to other purposes such asland levelling and improvement, dairy development and horticulture.

13. HLDB's profit in 1976/77 was Rs 8.7 million and in 1975/76 Rs 7.2million, despite the small margin between the Bank's lending and borrowing

rates (Table 10).

Recovery Performance

14. A good feature of the LDB system both in Punjab and Haryana is the

consistently good debt recovery performance. Overdues as a percentage ofdemand of PLMBs to the SLMB in Punjab between 1970/71 and 1975/76 were less

than 2 percent on an average and overdues of members to PLMBs reached a maxi-mum of around 15 percent. In Haryana, there have been no defaults from thePLDBs to HLDB and the overall default from members to PLDBs was only 3 percentin 1974/75 and 1975/76 (Tables 5 and 6).

Training and Staff

15. To improve their professional skills and performance, the senior,middle and junior level professional staff in the LDBs in Punjab and Haryanawere trained in different training institutions. Up to June 1977, 484 staffmembers of LDBs in Punjab were so trained. In Haryana, the correspondingnumber was 475 (Tables 11 and 12).

III. Commercial Banks

16. The number of participating commercial banks was 11 under PACP and12 for tractor financing and 11 for financing minor irrigation investmentsunder HACP.

17. It may be seen that in both Punjab and Haryana, these banks playeda significant role in financing procurement of tractors under the respectiveACPs. Under minor irrigation in Haryana, however, they could finance only1,265 tubewells as against an initial allocation of 1,750. Further programof financing shallow tubewells was done exclusively by the LDBS.

18. Under the PACP, the participating commercial banks disbursed anamount of Rs 226 million while the amount disbursed by them under the HACPwas Rs 115 million which comprised Rs 106 million for tractors and Rs 9million for shallow tubewells.

- 59 -

ANNEX 2Page 5

19. In 1976/77, commercial banks accounted for 68 percent of ARDCrefinance in Punjab and nil in 1971/72. The corresponding figures forHaryana were 53 percent for 1976/77 and 9 percent for 1971/72. They have,in recent years, strengthened their agricultural staff and increased thenumber of branches, especially in the project areas. It may be mentionedthat the number of scheduled bank offices in Punjab increased from 345 in1969 to 1,106 in 1976 and in Haryana from 171 to 510 (Table 15). The recov-ery performance of these banks in both the states was reported to be satis-factory. However, an improvement in credit discipline may be called for withthe increasingly important role these banks would be called upon to play inregard to agricultural financing in future.

- 60 -

ANNEX 2Table 1

INDIA


ARDC Schemes Sanctioned in Punjab upto June 30, 1977

(Rs million)Total Financial ARDC ARDC

Agency/Investment No. of Schemes Assistance Commitment Disbursements

SLMB

(a) Tractors 2 130.09 97.57 75.09(b) Harvesters 1 0.89 - -

Commercial Banks

(a) Tractors 22 262.42 196.74 166.63(b) Harvesters 6 2.13 1.57 1.32

Total 31 395.53 295.87 243.04

Source: Agricultural Refinance and Development Corporation.

- 61 -

ANNEX 2

Table 2

INDIA

RARYANA AGRICULTURAL CREDIT PROJECT

ARDC Schemes Sanctioned in Raryana upto June 30, 1977

(Rs million)Total Financial ARDC ARDC

Agency Purpose No. of Schemes Assistance Commitment Disbursements

SLDB M.I. 18 364.57 328.12 189.45F.M. 2 72.88 54.68 46.73

Total 20 437.45 382.80 236.18

CommercialBanks M.I. 14 14.45 13.01 6.43

F.M. 23 113.91 85.28 78.14

Total 37 128.36 95.29 84.56

Source: Agricultural Refinance & Development Corporation, Bombay.

- 62 -

ANNEX 2Table 3

INDIA


Purposewise Distribution of Loans Advanced by Punjab

SLMB during the years 1971-72 to 1976-77

(Rs million)

Purpose 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77

1. Tubewells 72.84 90.97 55.96 50.82 45.88 99.732. Tractors 27.06 36.27 29.67 35.53 62.78 73.023. Implements 1.01 2.50 0.89 1.05 2.16 3.434. Channels 6.62 7.72 2.98 6.64 10.16 14.555. Land levelling 1.73 3.67 1.94 2.30 1.87 1.456. Reclamation

of land 5.74 7.01 8.71 8.23 9.87 89.857. Purchase of

land 1.70 2.45 3.16 3.89 3.41 3.958. Cattle shed 1.04 1.50 3.49 12.59 9.45 9.849. Sinking of

wells 0.23 0.20 0.11 0.09 0.06 0.0210. Gardening 0.06 0.07 - 0.08 0.06 0.1811. Fencing - - - - 0.02 0.02

Total 118.03 152.36 106.91 121.22 145.72 296.04

Source: PSLMB

ANNEX 2Table 4

INDIA


Purposewise Distribution of Loans Advanced by LDB

1971-72 to 1976-77

(Rs million)

Purpose 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77

1. Minor Irrigation 6.25 56.73 53.21 45.94 47.74 55.162. Land

Reclamation - - 0.65 4.40 7.50 9.283. Gardening 0.44 0.05 0.06 - - 0.054. Sprinkler - - 0.05 1.08 1.88 2.525. Underground pipe - - - 0.14 0.79 2.116. Dairy

Development - - - - - 1.077. Tractor - - - 23.00 32.18 38.90

Total 6.69 56.78 53.96 74.56 90.09 109.09

Source: RSLDB

- 64 -

ANNEX 2Table 5

INDIA


Demand and Recovery Position of PSCLDB

1971-72 to 1976-77

(Rs million)

1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77

1. Overdues

broughtforward 2.88 5.65 2.18 4.17

2. Demand

falling duefor the 1sttime during

that year 59.79 92.68 114.27 141.42 154.16 179.01 190.25

Total (1+2) 59.79 92.68 114.27 144.30 159.81 181.19 195.02

3. Demand

rescheduledduring the

year - - - - - - -

4. Total effec-tive demand

(1+2+3) 59.79 92.68 114.27 144.30 159.81 181.19 195.05

5. Recoveries

during theyear 59.79 92.68 111.39 138.65 157.63 176.43 178.53

6. Percentageof overdues

to demand - - 2.51 3.91 1.36 2.62 8.45

7. Govt. share

capitalcontributionto LMB 0.50 0.50 1.10 0.90 - - 0.20

Source: PSLMB.

-65 -

ANNEX 2Table 6

INDIA


Demand and Recovery Position of HSCLDB1971-72 to 1976-77

(Rs million)

1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77

1. Overduesbroughtforward - - - - - - -

2. Demandfalling duefor the 1sttime duringthat year 22.94 35.68 47.17 60.53 77.09 97.04 116.94

Total (1+2) 22.94 35.68 47.17 60.53 77.09 97.04 116.94

3. Demandrescheduledduring the

year - - - - - - -

4. Total effec-tive demand(1+2+3) 22.94 35.68 47.17 60.53 77.09 97.04 116.94

5. Recoveriesduring theyear 22.94 35.68 47.17 60.53 77.09 97.04 116.94

6. Percentageof overdues

to demand - - - - - - -

7. (i) Govt. share

capital

contributionto LDB 6.98 6.98 6.98 6.98 6.98 6.98 6.98

(ii) Demand duringthe year 1.50 1.00 Nil Nil Nil Nil Nil

Source: HSLDB.

- oo -

ANNEX 2

Table 7

INDIA


PSCLMB - Condensed Balance Sheet (1972-73 to 1976-77)

as on June 30

(Rs million)

ASSETS 1973 1974 1975 1976 1977

Cash on hand with banks 34.4 41.2 50.4 76.0 32.4

Investments & Loans 795.9 887.6 968.6 1015.9 1152.1Other assets 27.7 42.0 50.8 80.6 58.4Total assets 858.0 970.8 1069.8 1172.5 1242.5

LIABILITIES AND EQUITY CAPITAL

Debentures 769.5 856.2 962.6 1031.4 1109.5Other Liabilities 47.0 68.9 57.6 90.8 55.7Total Liabilities 816.5 925.1 1020.2 1122.2 1165.2

EQUITY I

Paid up share capital 34.2 36.2 37.2 37.8 42.2

Reserves, including

overdues, interest

and bad debts 2.7 2.9 2.9 3.0 22.2

Profits/Loss 4.6 6.6 9.5 9.5 12.9

NET EQUITY 41.5 45.7 49.6 50.3 77.3

TOTAL LIABILITIES & EQUITIES 858.0 970.8 1069.8 1172.5 1242.5

Source: PSLMB

- 67 -

ANNEX 2Table 8

INDIA


PSCLMB Income Statement - 1972-73 to 1976-77as on June 30

(Rs million)

INCOME 1973 1974 1975 1976 1977

Interest received onproject loans, otherloans and investments 48.3 57.8 67.0 72.0 80.9

Total interest received 48.3 57.8 67.0 72.0 80.9

Miscellaneous income - - - - 0.1

Total income 48.3 57.8 67.0 72.0 81.0

EXPENSES

Total interest paid 41.8 48.9 54.8 59.0 64.0

Establishment costs 0.8 1.1 1.2 1.6 1.7

Other expenditures 1.1 1.2 1.5 1.9 2.4

Total expenses 43.7 51.2 57.5 62.5 68.1

Net income 4.6 6.6 9.5 9.5 12.9

Source: PSLMB

- 68 -

ANNEX 2Table 9

INDIA


HSCLDB - Condensed Balance Sheet (1972-73 to 1976-77)as on June 30

(Rs million)

ASSETS 1973 1974 1975 1976 1977

Cash on hand with banks 3.84 31.13 8.41 5.38 31.93Investments 398.32 455.63 567.21 651.03 734.28Other assets 13.75 16.56 19.80 22.46 27.09

Total assets 415.91 503.32 595.41 678.87 793.29

LIABILITIES AND EQUITY CAPITAL

Debentures 376.40 458.16 544.09 617.72 723.30Other Liabilities 7.54 6.87 9.08 12.46 10.72

Total Liabilities 383.94 465.03 553.17 630.17 734.02

EQUITY

Paid up share capital 23.69 25.35 26.11 27.83 29.66

Reserves, includingoverdues, interest

and bad debts 8.27 8.39 6.31 13.66 13.67

Profits (Loss) 0.02 4.55 9.82 7.22 15.94

NET EQUITY 31.98 38.29 42.24 48.71 59.27

TOTAL LIABILITIES & EQUITIES 415.91 503.32 595.41 678.87 793.29

Source: HSLDB

- 69 -

ANNEX 2Table 10

INDIA


HSCLDB Income Statement - 1972-73 to 1976-77as on June 30

(Rs million)

INCOME 1973 1974 1975 1976 1977

Interest received on -project loans, otherloans and investments - 23.94 31.24 36.59 44.29 53.55

Total interest received 23.94 31.24 36.59 44.29 53.55

Miscellaneous income 0.03 0.02 0.05 0.07 0.01

Total income 23.97 31.26 36.64 44.36 53.56

EXPENSES

Total interest paid 19.31 25.25 29.18 34.71 41.57

Establishment costs 0.51 0.61 0.95 1.01 1.10

Other expenditures 1.19 0.80 1.24 1.42 2.18

Total expenses 21.01 26.74 31.37 37.14 44.85

Net income 2.96 4.52 5.27 7.22 8.71

Source: HSLDB

- 70 -

ANNEX 2Table 11

INDIA


Training Course Data for Punjab SLMB/PLDB Staff

No. ofPersons

Trained Name and LocationSr. Nature of Period of till of Institute whereNo. Training Training 30.6.77 Training Received

1. Special course on Cooperative Train-Cooperative Land ing Center,Mortgage Banking 4 weeks 5 Bhabhji Nagar

2. Special course on Cooperative Train-Cooperative Land ing College,Mortgage Banking 18 weeks 13 + 9 = 22 Faizabad

3. Special course on Cooperative Train-Cooperative Land in- College,Mortgage Banking - Patiala andGeneral basic Faizabadcourse 1-1/2 years 12

4. Checking of loan Cooperative Train-cases in L.D. ing College,Banking - LucknowDiploma course 15 weeks 6

5. Short term course Cooperative Train-in L.D. Project ing College,planning 2 weeks 1 Poona

6. L.M.B. Basic Cooperative Train-Course 4 months 257 ing Institute,

Chandigarh

7. J.L.T. under

ARDC scheme 28 days 170 -do-

8. APC under ARDC College of Agri-scheme -do- 11 cultural Banking

(RBI), Poona

Source: PSLMB

- 71 -ANNEX 2

INDIA


Training Course Data for HaryanASLDB/PLDB Staff

Sr. Nature of Training Period of No. of Persons Trained Name 6 Location of Institutiongo. Training Till 30.6.77 Where Training Received _ .I 2 3 4 5

1. Project Planning and 6 weeks Additional. Secretary I College of Agricultural Banking,Appraisal Course - Agriculture Economist 1 Poona

Deputy Secretary 1Inspecting Officer 2Accountant/Manager 25

2. Personal Admiistration 15 days Additional Secretary 1 College of Agricultural Banking,Course Deputy Secretary I Poona

Assistant Secretary 1Inspecting Officer 2

3. Course on Business 3 months Deputy Secretary Law 1 Oxford Centre for ManagementProblems Studies, Plinkit Foundation,

4. Agricultural Project I mouth Additional Secretary I College of Agricultural Banking,Course Assistant Secretary 1 Poona

Chief Inspecting Officer IInspecting Officer 5Development Officer ILaw Officer 2Managers/Accountant 19

5. Managerial Course 6 weeks Assistant Secretary I College c! Agricultural Banking,Managers/Accountant 17 PoonaJunior Accountant 6

6. Land Mortgage 3h months Junior Accountant 25 Cooperative Training College,Banking Course Field Supervisor 30 Chandigarh

Clerks 30

7. -do- 3 months Accountant/Managers 10 Cooperative Training College,Junior Accountant 15 Chandigarh

8. Junior Basic/ 3 months Field Supervisor 80 Cooperative Training Institute,Refresher Course Clerks 64 Rohtak

9. Personal Management 15 days Accountant/Managers Vaikunth Mehta Institute ofand Labour Relations Course Coop. Training, Poona

10. Financial Management 15 days Deputy Secretary I Cooperative Training College,Course Inspecting Officer 6 Lucknow and Poona

Accountant 4

11. ARDC Credit Project I month Junior Accountant 10 Junior Level Staff TrainingJunior level L.D.B. Field Supervisor 60 College of R.S.L.D.B.Staff Training Course Clerks 50 Chandigarh

Source: HSLDB

- 72 -

ANNEX 2

Table 13

INDIA


Network of Rural Branches of PLDB

in Punjab

Number of

District PLDB

Amritsar 4

Gurdaspur 3

Kapurthala 3

Jullundur 4

Hoshiarpur 4

Ropar 2Ludhiana- 4Patiala 5

Sangrur 4

Bhatinda 3Faridkot 3

Ferozepur 4Total 43

Source: PSCLMB

- 73 -

ANNEX 2Table 14

INDIA


Network of Rural Branches of PLDB

Number ofPLDB

District Branches

Ambala 3Bhiwaniur 2Gurgaon 4Hissar 4Jind 3Karnal 2Kurukshetra 3Mohindergarh 3Rohtak 2Sirsa 1Sonepat 2

Total 29

Source: HSCLDB

ANNEX 2Table 15

INDIA

PUNJAB & HARYANA AGRICULTURAL CREDIT PROJECTS

Basic Data Relating to Scheduled CommercialBanks in Punjab and Haryana

Year HARYANA PUNJAB

ending No. of Deposits Bank Of which Percen- No. of Deposits Bank Of which Percentaioffices credit for agri- tage of offices credit for -ri- of col. (

(Rs in cultural col. (5) (Rs in cultural to col.millions) & allied to millions) & allied

industries col. (4) industries1 2 3 4 5 6 7 8 9 10 11

June 171 533.6 262.2 NA - 345 2030.8 581.8 NA -1969

December 321 1180.8 1247.2 118.0 9.5 721 3899.4 1760.8 342.2 19.4 41972

December 381 1473.2 1672.3 148.7 8.9 851 4802.0 2198.7 319.3 14.51973

December 420 1723.0 2084.4 210.2 10.1 930 5371.9 3124.8 416.9 13.31974

December 482 1961.9 2219.7 290.3 13.1 1046 6694.4 3950.8 514.2 13.01975

December 510 ------------------ NA ------------------- 1106 ------------------- -------------1976

Source: Basic statistical returns 1972 to 1975.

- 75 -

ANNEX 3Page 1

INDIA

PUNJAB AND RARYANA AGRICULTURAL CREDIT PROJECTS

Supporting Services

I. Punjab Agro-Industries Corporation andHaryana Agro-Industries Corporation

1. In accordance with the policy of GOI, agro-industries corpora-tions have been set up in various States in order to encourage activitiessuch as land development, tubewell drilling, plant protection, servicing,repair and overhauling of farm equipment, etc. Prior to the establishmentof these Corporations, these developmental functions and machinery hiringservices were provided by the State Department of Agriculture. With theestablishment of these Corporations such activities were transferred to themalong with staff and equipment.

2. In Punjab, the AIC was set up in February 1966 and in Haryana inMarch 1967, as state undertakings with share capital contributions from GOIand the respective state government. As on March 31, 1976, the equity capitalacquired by the central government in the PAIC was Rs 12 million and in HAICRs 9.48 million.

3. Both these Corporations were assigned important roles in farmmechanization program under the two Agricultural Credit Projects which pri-marily provided for identifying the tractor requirements of farmers andarranging for their procurement and distribution. Both the Corporationsdischarged these functions under the overall direction of central committeesset up for each state consisting of representatives of GOI, respective stategovernment and ARDC. The committee for each state approved the analysis ofbids and recommendations of the respective Corporation for placing contractswith suppliers before forwarding them for approval.

4. As already stated, 8,002 tractors including 3,830 imported tractorsand 45 harvesters were supplied through PAIC, involving an amount of Rs 326million.

Apart from being the main channel for procurement and distributionof tractors under the PACP, PAIC has been engaged in other activities in theservice of Punjab agriculture. As on June 30, 1975, the Corporation owned63 pneumatic tractors and 20 combines. It maintains over 50 sales centers forsupply of imported fertilizers and has to date supplied over Rs 300 millionworth of fertilizers. It maintains a fleet of tractors for custom service toneedy farmers at economical rates. It has also been rendering signal servicethrough its fleet of harvesting combines. It has established 12 sales-cum-

- 76 -

ANNEX 3Page 2

service stations in different districts of the state. In addition, workshopfacilities for repairs and sale of spare parts at district level have beenestablished and efforts have been made to make them service-oriented. A modelworkshop has been constructed at Gurdaspur and a workshop complex has been setup at Ludhiana. In the latter, common type tractor-drawn implements, grainstorage bins, gobar gas plants, etc., are being manufactured at present.Manufacture of manure spreaders, threshers, etc., are under various stages ofplanning and production. The Corporation has also established over 220 agro-service centers to provide employment to unemployed engineers and acceleratefarm mechanization. It expects to play in due course a more meaningful andsignificant role with the setting up of plants for formulation of pesticides,refining of used oil and cotton seed processing. It has also plans to set upa tractor-tyre re-threading plant. Apart from these facilities provided byPAIC, sub-dealers of some other tractor manufacturers have service facilitiesfor after-sale servicing of tractors in the state.

5. Under the HACP, the HAIC coordinated different interests connectedwith the project, viz., manufacturers, financing agencies, etc., and arrangeddelivery of 4,613 tractors including 342 imported tractors to the farmers.Tractor being its main field of activity, this Corporation maintains awell-organized assembly plant. In addition, it has been producing qualityimplements and undertaking activities such as providing repair and servicefacilities. It has established over 218 machinery hiring centers equippedwith 127 pneumatic tractors, 9 crawler tractors and 34 combines.

6. Despite this, the operating results of the PAIC and HAIC for recentyears are not encouraging (Annex 3, Tables 6 and 7). In respect of PAIC, thelosses before tax provision in 1975/76 and 1976/77 were Rs 5.94 million andRs 2.16 million, respectively. The loss incurred by HAIC after taxes anddevelopment rebate and provision for major overhaul of combines was Rs 0.18million in 1973/74 and Rs 1.85 million in 1974/75. This highlights the needfor improving the financial position and operational efficiency of theseCorporations and establishment of project cells to study the feasibilityof schemes before making heavy investments on them.

II. Haryana Department of Agriculture/Soil Conservation Organization

7. Government of Haryana laid special emphasis on development of minorirrigation and water management. The schemes were based on the availabilityof groundwater potential worked out by the Agriculture Department. Theresponsibility for implementation of groundwater development (constructionof shallow tubewells under the HACP) was initially entrusted to the SoilConservation Wing headed by the Joint Director of Agriculture (SCO) in theDirectorate of Agriculture. The staff of the Soil Conservation Wing wasalso strengthened by posting an adequate number of divisional soil conserva-tion officers, assistant soil conservation officers, soil testing officersand other technical staff.

- 77 -

ANNEX 3

Page 3

III. Groundwater Cell

8. Considering the importance of implementing ARDC schemes for minorirrigation,, the State Groundwater Board as well as the appraisal missionrecommended the creation of a Groundwater Cell to provide technical supportto the ongoing minor irrigation schemes in the state. The necessity for sucha Cell had also been emphasized by the GO team which visited the state.Accordingly, the State Groundwater Cell was created in the Directorate ofAgriculture, with the responsibility of evaluating the groundwater balance inthe State as well as preparing hydrological maps (depth of water, water tablecontour, seasonal fluctuations, chemical quality, etc.). The work of monitor-ing observation wells in the project area was also transferred from the SoilConservation Wing to the Cell. The Cell carried out detailed hydrologicaltests for determining the optimum spacing and hydrological parameters forevaluation studies. For these activities, the Cell has been strengthened withadequate technical staff trained in the discipline of hydrology. Recognizingthe importance of groundwater investigation being carried out by the Cell, GOIhas sanctioned a centrally sponsored scheme with 50 percent matching grant forinvestigations in the discipline of soil hydraulics, design, photo-geographicalstudies, geological surveys, remote sensing, model studies, etc. As a resultof these activities, the state is now in a position to undertake detailedmicro-level groundwater surveys for objectively assessing the groundwaterbalance situation in different basins. Apart from these studies, the Cell hasformulated a scheme for groundwater development through minor irrigation works.

9. The Groundwater Cell pools data from different agencies such asCentral Groundwater Board, Irrigation Department, HSMITC, Public Health, etc.,and also issues groundwater availability certificates to the State ElectricityBoard for energization of minor irrigation units either with the assistanceof REC or ARDC.

10. The IDA Supervision Mission which visited Haryana towards the closeof 1975 observed that groundwater development in Haryana was progressingrapidly and felt that groundwater legislation was required urgently. TheMission observed that the State Groundwater authorized by the GOH, it wouldbe able to provide adequate data for future groundwater development.

11. Large-scale development and relatively close spacing of wellshave made significant impact on the groundwater regimem as reflected inthe progressive decline of water level in many areas of the state. Onaccount of acute shortage of power supply wells were not working to theirfull capacity. Normalization of power supply was, therefore, expectedconsiderably to increase the cumulative withdrawals from the wells whichmight have further undesirable impact on groundwater regimem. As theassessed potential includes mostly marginal quality water, further develop-ment has to be planned in such a manner that saline water intrusion intofresh water zones is avoided. In view of this, a fresh assessment of thegroundwater potential on the basis of a series of basinwide field studiesis necessary. The state government is reported to have already initiated

- 78 -

ANNEX 3Page 4

action in this direction and the ARDC will be actively involved in assisting

them. The banks have been advised to formulate schemes for specific areas onthe basis of groundwater data and obtain clearance from the state Groundwater

Board.

12. The State Groundwater Board coordinates the various activities of

the Groundwater Cell and also clears the schemes formulated by the stateagencies from technical consideration. The Board functions under the chair-manship of Agriculture Minister and its members represent the Irrigation

Department, Public Health Department, Agriculture Department, HSNITC and otheragencies like the Haryana Agricultural University and Land Development Bank.

The Additional Director of Agriculture is Member-Secretary of the Board who

is assisted by a whole-time Deputy Secretary.

IV. Other Services

Extension

13. The Punjab Agricultural University at Ludhiana as well as the newlystarted Haryana Agricultural University at Rissar shouldered the responsibilityof research and education in agriculture and placed special erphasis on all

aspects of farm mechanization. The extension staff of the Department of Agri-culture, in both the states have been adequately strengthened and they arecapable of carrying the results of researches made to the doors of the cul-

tivators. This helped in achieving an overall increase in the production ofagricultural commodities. Practically all the requirements of improved

seeds of wheat which happens to be the main food crop in both the states are

met and the supplies of improved seeds for other crops such as rice, maize,

bajra, etc., are steadily increasing. The consumption of fertilizers in

Punjab was more or less maintained at the high level reached in 1971-72 at

1.2 million tons throughout the Project period whereas in Haryana after in-creasing from 0.8 million tons in 1971-72 to 1.15 million tons in 1973-74 con-sumption fell to 0.8 million tons in 1974-75. This is attributed to adverseweather conditions that prevailed in certain areas in the state. In addition

to the cooperatives which played an important role in the distribution of

fertilizers, the share of private distribution agencies is reported to be

showing an uptrend in both the states.

Short-term Credit

14. In Punjab and Haryana as elsewhere in the country, short-term pro-

duction credit is disbursed by the primary cooperative credit societies. The

comercial banks which have entered this field in a big way since the national-ization of the 14 major banks in 1969 are also meeting the requirements of

production loans of their customers. The short-term credit requirements of

cultivator members of the cooperative societies are met adequately in both

States and no difficulty was reported in the disbursement. The disbursement

of ST loans by Primary Agricultural Credit Societies in Punjab amounted to

- 79 -

ANNEX 3Page 5

Rs 729 million and in Haryana Rs 417 million in 1975-76. The recovery perfor-mance of the primary credit societies in both States, however, could not beregarded as satisfactory particularly in the context of assured irrigationfacilities. The percentage of overdues to demand at the central cooperativebank and society levels were 21% and 28% respectively, at the end of June 1976in Haryana and 36% and 37% respectively, in Punjab. The scheme of reorganiz-ation of primary credit societies into viable units has been carried out inHaryana and their number has been reduced considerably. In Punjab such ascheme is expected to be taken up so that the present number of primary creditsocieties could be reduced to three-fourths. The reorganization of societies,when completed, would help both in reducing their overdues and also in toningup the efficiency of these societies considerably.

Marketing

15. The arrangements for the marketing of surplus production were satis-factory in both the states during the project period. In Punjab, there were314 wholesale markets and 325 regulated markets (of which 95 were principalmarkets and 230 submarket yards) as against 133 wholesale markets and 200regulated markets (with 80 principal markets) in Haryana. The regulatedmarkets being governed by statutes, the chances of exploitation of producersby traders and commission agents have been reduced. Plans are also under wayfor mechanization of operations like cleaning, grading, bagging, etc., so thatfarmers would not face delay in disposing of their produce in the mandis.

16. As regards storage, the Haryana State Cooperative Bank was sanctionedin 1972-73 an assistance of Rs 24.2 million for financing the construction ofgodowns by the Haryana State Agricultural Marketing Board and the State Coop-erative Agricultural Marketing Federation. This has been fully availed of bythe bank. Recently, ARDC has sanctioned to the HSCB a supplementary scheme forconstruction of godowns (for total capacity of 16000 tons) by HAFED involvingfinancial assistance of Rs 2.41 million. Under the ARDC programme of assist-ing construction of godowns by private parties for letting it out to FoodCorporation of India for storage of foodgrains, eight banks have been sanc-tioned 22 schemes for creating an aggregate storage capacity of 0.22 milliontonnes in the states with ARDC refinance assistance of Rs 20.7 million during1976-77. Against this, refinance of Rs 0.55 million has been disbursed.

- 80 -

ANNEX 3

Table 1

INDIA


Districtwise Population of Tractors in Punjab

(in 1976)

Serial No. District No. of Tractors

1 Amritsar 4783

2 Bhatinda 3975

3 Ferozepur 5436

4 Faridkot 9293

5 Gurdaspur 2107

6 Hoshiarpur 2332

7 Jullundur 6187

8 Kapurthala 1785

9 Ludhiana 7818

10 Patiala 6156

11 Rupnagar 833

12 Sangrur 4467

55172

Source: PAIC

ANNEX 3Table 2

INDIA


Districtwise Population of Tractors in Haryana

(December 1976)

Serial No. District No. of Tractors

1 Ambala 2320

2 Bhiwani 1116

3 Gurgaon 2378

4 Hissar 2185

5 Sirsa 2928

6 Jind 2643

7 Karnal 2693

8 Kurukshetra 4076

9 Mohindergarh 1306

10 Rohtak 3571

11 Sonepat 2765

27981

Source: RAIC

- 82 -

ANNEX 3Table 3

INDIA


Domestic Tractor Production in India in Selected Years

Production Production ProductionName of the during during during

Firm Model H.P. 1974-75 1975-76 1976-77

Eicher STD 26.5 1231 2018 2779

Escorts 335 & 3036 . 35 5826 4579 5014

Ford 3000 46 4800 5008 4575

Harsha T-25 25 41 926 787

HMT 2511 25 6800 7000 4500

Hindustan Super 50 764 941 490

International B-2755 & 444 35/45 8263 6661 5139

Kirloskar Deutz 4000 K 43 731 785 291

Pittie Pittie 35 43 31 50

Punjab Swaraj 24/35 555 1787 3340724,735

TAFE (MF) 1035 & 504 35/50 2809 3443 5066

30921 33179 32031

Source: Agricultural Engineering Today, Journal of Indian Society ofAgricultural Engineering.

- 83 -

ANNEX 3Table 4

INDIA


Unit Cost /a Comparisons of Main Tractor Typesin Selected Years

Prices in RsIndigeneous Tractors 1971 1974-75 1976-77

1 Escort 25200 39000 43500

2 Eicher 24425 34400 34400

3 Zeter 23650 31600 37400

4 Ford 3800 34800 54000 61000

5 Kirloskar - 56000 66000

6 Int B 275 26277 - 47139

Imported

1 IMT 533 - 51651 58175

/a These are prices to final borrowers, including all taxes.

Source: ARDC, Regional Office, Chandigarh.

- 84 -

Annex 3

Table 5

INDIA


Modelwise Classification of Tractors - DisbursedUnder the RACP in Haryana

Inter-Bank Brown IMT 533 Ford Escorts Eicher Zetor Kirloskar national Total

Allahabad Bank - - 4 9 - 2 - 1 15

Bank of Baroda 1 2 43 44 35 25 - 7 157Bank of India - 26 9 4 9 15 5 10 78Central Bank

of India 3 2 33 22 27 34 2 6 129New Bank

India 65 6 12 .2 - 2 - - 87Punjab National

Bank 1 27 37 46 15 15 5 12 158Punjab and Sind

Bank Ltd. 27 43 86 90 43 32 13 5 313State Bank

of India - 42 249 196 25 181 9 5 734State Bank

of Patiala - 21 121 127 27 59 6 12 373Syndicate Bank - 41 10 38 6 71 2 21 189Union Bank

of India - 15 178 120 15 62 5 6 401United Com-

merical Bank - 3 42 29 26 9 - 1 110

SLDB 3 13 467 452 532 377 3 22 1,869

Total: 101 241 1,290 1,179 760 884 50 108 4,613

Source: HSIDB and PCBs.

- 85 -

Annex 3Table 6

INDIA


Operating Results of PAIC*(Rs Milion)

1972/73 1973/74 1974/75 1975/76 1976/77(tentative)

(i) Profit (+) Loss (-) (+) 1.78 (+) 5.00 (+) 0.24 (-) 5.94 (-) 2.16(ii) Tax provision 0.73 2.89 0.14 0.54 -

(iii) Profit (+) Loss (-)after tax (+) 1.05 (+) 2.11 (+) 0.10 (-) 6.48 (-) 2.16

Percentage of profitbefore tax

(a) To turnover 3.00 4.00 0.2 (-) 5.4 (-) 2.8

(b) To gross fixed Assets 20.3 51.3 2.2 (-) 113.6 (-) 44.4(c) To capital employed 10.3 17.0 0.6 (-) 11.6 (-) 4.1

Percentage of profitafter tax

(a) Net worth 6.4 9.2 0.4 26.8 8.6

(b) To equity capital 6.6 10.6 0.5 26.9 8.6(c) To capital employed 6.1 7.2 0.2 12.7 4.1

Source: Annual Report and Balance Sheets for PAIC.

- 86 - Annex 3Table 7

INDIA


Operating Results of HAIc-/a

The operating results of the last three years are given below:

(Rs million)

1972-73 1973-74 1974-75

1. Profit (+)/Loss (-) before tax (+) 1.23 (+) 0.32 (-) 1.09

2. Tax provision includingDevelopment Rebate Reserveand provision for majoroverhauling of Combines 0.63 0.51 0.75

3. Profit (+)/Loss (-) after taxand development rebate and pro-vision for major overhaul ofcombines (+) 0.61 () 0.18 () 1.85

A. Percentage of Profit Before Tax

1. To sales (including hiring andservicing receipts) 0.37 0.15 -

2. To gross fixed assets 0.99 0.22

3. To capital employed 0.50 0.13

B. Percentage of Profit After Tax

1. To net worth 0.27 -

2. To Equity Capital 0.34 -

3. To Capital Employed 0.25 -

/a Source: Annual Report for RAIC.

- 87 - ANNEX 3Table 8

INDIA


Excise, Surcharges and Other Taxes Applicable to Tractors

The various taxes on tractors.on FOR prices for indigenous tractors

and CIF prices on imported tractors are as follows:

(a) Indigenous

(i) Central sales tax 4%

(ii) Octroi (fixed) Rs 40.00

(iii) Agro-Industries Commission 2-1/2%

(iv) Punjab sales tax 1%

(v) Excise surcharge 2% of item (iv)

(b) Imported

(i) Custom duty 40%

(ii) Countervailing duty 10%

(iii) Central sales tax 7%

(iv) Octroi (fixed) Rs 40.00

(v) Agro-Industries Commission 2-1/2%

(vi) Punjab sales tax 1%

(vii) Excise surcharge 2% of item (vi)

Source: PAIC

- 88 -

Annex 3Table 9

INDIA


Rainfall, observed recharge and draft andirrigated area in Haryana

Rainfall Total Total Net irri-(annual) recharge draft gated area

S. No. District (Acre/ft) (Acre/ft) (Acre/ft) ('000 ha)

1. Ambala 587,778 958,610 831,088 1182. Bhiwani 224,588 361,219 921,750 1463. Gurgaon 379,471 774,997 801,046 1754. Hissar 347,157 1,306,656 391,541 5295. Jind 231,959 531,012 253,229 3176. Karnal 397,356 1,647,289 1,455,682 3647. Kurukshetra 347,675 802,533 1,438,037 4098. Mohindergarh 269,250 307,939 449,752 649. Pohtak 244,529 420,217 345,148 204

10. Sirsa - 546,521 187,326 27011. Sonepat 191,796 574,666 252,175 156

3,221,659 4,231,669 6,497,197 2,742

Source: Department of Agriculture, Government of Haryana.

- 89 -

Annex 3Table 10

INDIA

PUNJAB/HARYANA AGRICULTURAL CREDIT PROJECTS

Crop Water Requirements

Crop water requirements depend on wind velocity, humidity, theseason and other agro-climatic conditions. However, for the State ofHaryana/Punjab, the following guidelines apply.

Name of Crop Area (acres) Water Reauirement(inch)

Paddy 1/2 15Sugar Cane 1/2 30Maize 4 48Fodder 1 6Wheat 5 75Potato 1/2 10Gram 3 9Bajra 4 40Jowar 1 6Barley 2 10Sarson (Mustard) 1 3

Source: Department of Agriculture, Government of Haryana.

- 90 -

Annex 3Table 11

INDIA


Tubewells and Pumpsets

Comparison of average costs ofvarious components

Appraisal ActualRate Amount Rate Amount

Rs Rs

Boring 100 ft 2 Rs/ft 200 1.50 Rs/ft 150Blind pipe 4' diameter 60' 20 Rs/ft 1,200 15 Rs/ft 900Filter 40' coir 5 Rs/ft 200 5 Rs/ft 200Electric motor 2,500 3,200Electric connection 500 500Pump house and

stilling basin 1,200 Kuttcha and 1,000Pump pit 1,200 pucca channel 900Pucca channel 500 ft 1,000 1.50 Rs/ft 750

Total 8,000 7,600

Source: Appraisal Report HACP and Field Study.

- 91 -

Annex 4Table 1

INDIA


Financial Costs and BenefitsFarm Model(in Rs)

Investment: tractorsBenefit area: 8 ha

Yield per ha Value of Gross Total cost ofArea in (ha) (in qtls) Produce cultivation

without with without with without with without withCrop

KharifUsed as

Jowar 0.40 0.40 - fodder 800 800 140 130Maize HYV 2.40 1.20 20.00 25.00 4,320 2,700 2,100 960Paddy HYV 2.40 3.60 45.00 50.00 8,640 14,400 4,830 6,570

Rabi

Wheat HYV 3.60 5.20 30.00 35.00 11,340 19,110 6,030 7,930Barley local 1.20 - 15.00 - 1,350 - 1,140 -

Perennial

Sugarcane 1.20 2.40 550.00 625.00 8,250 18,750 4,260 7,920

Total 11.20 12.80 - 34,700 55,760 18,500 23,510

CroppingIntensity 140% 160%

Annex 4

Table 2

INDIA


Financial Rate of Return (Tractors)(in Rs)

Benefiting area: 8 ha

Without Project With Project

1. Gross income 34,700 55,7602. Cost of Cultivation 18,500 23,5103. Gross Surplus 16,200 32,250Less:4. Bullock Maintenance cost 4,200 2,1005. Overhead costs on account of

(a) Int. on S.T. Loans 1,480 1,880(b) O&M of pumpsets 2,300 4,100(c) O&M of tractor - 4,950

6. Net Surplus 8,220 19,2207. Net incremental income - 11,0008. Net income from custom work

(150 hrs. @ Rs 15/- per hour) - 2,2509. Total net incremental income - 13,250

10. Financial rate of return 25%

- 93 -

Annex 4Table 3

INDIA


Financial Costs and BenefitsFarm Model

Investment: Shallow tubewellBenefiting area: 2.5 ha

Yield (quintals) Gross Total cost ofArea (in ha) per ha Produce (Rs) cultivation (Rs)

without with without with without with without with

Kharif Crops

Bajra Unirri-gated local 0.75 - 7.50 - 383 - 175 -

Maize -do- 0.50 - 10.00 - 365 - 163 -

Fodder -do- 0.25 - 10.00 - 180 - 63 -Paddy irri-gated HYV - 0.50 - 25.00 - 988 - 400

Bajra -do- - 0.50 - 12.50 - 525 - 225Maize -do- - 0.75 - 17.50 - 1,050 - 400

Rabi Crops

Wheat Unirri-gated local 1.00 - 7.50 - 788 - 263 -

Gram -do 0.50 - 5.00 - 348 - 100 -Wheat irri-gated HYV - 1.00 - 20.00 - 2,100 - 950Gram -do-local - 0.25 - 10.00 - 375 - 163

Potato -do- - 0.25 - 150.00 - 1,875 - 825

Two Seasonal

Cotton, irri-gated HYV - 0.50 - 7.00 - 1,063 - 500

Perennial

Sugarcane irri-gated local - 0.25 - 500.00 - 3,125 - 688

TOTAL 3.00 4.00 - - 2,064 11,101 764 4,151

Cropping Intensity 120% 160%

- 94 -

Annex 4Table 4

INDIA

PUNJAB AND RARYANA AGRICULTURAL CREDIT PROJECTS

(1976) Prices of Imvortant Crops(Rs per metric tonne),

Name of the Crops Financial Economic

Bajra 680 1,215Maize 730 1,215Fodder 720 1,215Paddy 790 1,740Wheat 1,050 1,740Sugarcane 125 210Cotton 3,000 3,080Potato 500 250

- 95 -

Annex 5

Page 1

INDIA


The Economics of Tractors in the Indian

Subcontinent - An Analytical Review

Dr. Binswanger's study on the 'Economics of tractors in the IndianSub-Continent' is a survey of some of the research work undertaken on mechan-ization of agriculture in general and tractorization in particular. The mainpoints brought out in the review, which covers about 25 out of over 100studies on the various aspects of tractorization are as follows:

1. Tractorization in India.is still largely confined to the high-wageareas such as Punjab, Haryana and prosperous coastal areas of Tamil Nadu andAndhra Pradesh and is not likely to be of great economic benefit in the restof India as long as the wages are low.

2. The yield gains as a result of tractor farming have not been con-clusively proven to be significant by any of the studies. Wherever higheryields have been observed, a common major contributing factor has been theincreased use of fertilizers and HYV.

3. There is no convincing evidence that tractors are responsible forsubstantial increase in cropping intensity, yields, timeliness of operationsand gross returns.

4. The impact of tractors on labor displacement is not significant.

5. Indirect off-farm employment as a result if tractorization could

not be denied but on the cost/benefit scale, similar investments, in otheremployment-oriented activities could have, probably, opened up many more

opportunities.

6. Bullock farming in a scientific fashion with intensive labor

employment can produce similar results to tractorized farms.

7. In conclusion, Dr. Binswanger raises the point as to why farmers

in areas like Punjab invested massively in tractorization and why do they

continue to do so? One reason for this, according to him, is the non-

agricultural benefits of tractors, notably its convenience, its use in

transport and other benefits. These are privately beneficial though possiblya doubtful candidate for public support.

- 96 - Annex 5Page 2

II. Dr. Binswanger himself admits that the conclusions arrived at byhim are subject to the correctness or limitations of the source material. Thevarious studies on the basis of which he has arrived at the conclusions relate

to a period prior to 1972/73 and they differ in methodology, coverage and agro-

climatic conditions. In fact, between 1972 and 1977 the tractor population in

India is estimated to have increased by 0.15 million, the impact of which hasnot been assessed on the basis of any recent All-India study. According to the

latest study carried out by the Institute of Techno-Economic Studies, Madras,on behalf of Indian Council of Agricultural Research, covering 7 districts ofTamil Nadu, tractorization has caused a net average increase in agriculturalproduction, tractor farms showing increases of 12% for paddy, 29% for ground-nut, 17% for sugarcane and 34Z for cotton. They study also concludes that

tractorization has not resulted in any labor displacement in the agricultural

operations. On the other hand, there has been increased demand for labor dueto multiple cropping, greater intensity of cultivation and higher yields.

III. It may be mentioned that while the Draft Fifth Plan document

proposes selective mechanization to increase cropping intensity and farmproductivity, the present view of the Planning Commission appears to betowards a more cautious tractor use. They suggest the need to undertakea detailed study of the employment and productivity effects of tractoriza-tion. The draft Sixth Plan has indicated a preference for the utilizationof manual and bullock power on small farms where labor and draught animalsare available. At the same time, it suggests custom service of tractors

to ensure timely agricultural operations, and also use of tractors in dif-ficult terrains and for reclamation of large tracts of land for cultivationor for land shaping in difficult situations.

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