world bank documentdocuments.worldbank.org/curated/en/634381468266450753/...(indian rupee-rs/us$)...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 17054

IMPLEMENTATION COMPLETION REPORT

INDIA

ELECTRONICS INDUSTRY DEVELOPMENT PROJECT(LOANS 3093-4-5-IN)

September 24, 1997

India Country UnitSouth Asia Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

Fiscal Year Exchange Rate Comment(Indian rupee-Rs/US$)

1989-90 16.66 Official Rate1990-91 17.95 ditto1991-92 24.52 ditto1992-93 26.41 ditto1993-94 31.36 Unified Rate1994-95 31.40 ditto1995-96 33.46 ditto1996-97 34.45 ditto

Note: A dual exchange rate system was created in March, 1992, with a free market rate for about 60% of foreignexchange transactions at a rate of US$ 1.00= Rs. 30.65. The exchange rate was reunified at the beginning of March,1993 at the free market rate.

FISCAL YEAR

April I to March 31

ABBREVIATIONS AND ACRONYMS

AICTE - All-India Council for Technical EducationCEDT - Centre for Electronics Design and TechnologyCEEP - Continuing Engineering Education ProgramDEA - Department of Economic AffairsDFI - Development Finance InstitutionDOE - Department of ElectronicsEIDP - Electronics Industry Development ProjectERAS - Exchange Risk Administration SchemeGOI - Government of IndiaICICI - Industrial Credit and Investment Corporation of IndiaICR - Implementation Completion ReportIDBI - Industrial Development Bank of IndiaIAP - Industry Attachment ProgramIEP - Instructional Enhancement ProgramIlSe - Indian Institute of ScienceIIT - Indian Institute of TechnologyIMPACT - Industry-oriented ManPower with Appropriate Competence and TrainingJGF - Japan Grant FacilityLM - learning materialsMHRD - Ministry of Human Resources and DevelopmentNASSCOM - National Association of Software and Service CompaniesPI - Participating InstitutionPIU - Project Implementation UnitRC - Resource CentreSAR - Staff Appraisal ReportSDC - Swiss Agency for Development and CooperationSSS - Sustainability Support SchemeZOPP - German acronym for Goal Oriented Project Planning

Vise President : Mieko NishimizuCountry Director, India : Edwin R. LimTask Manager : Naimeh Hadjitarkhani

FOR OFFICIAL USE ONLY


INDIA


PREFACE TABLE OF CONTENTS

EVALUATION SUMMARY ........................................... i

PART I: PROJECT IMPLEMENTATION ASSESSMENT .................................... 1

Economic Situation and Prospects 1........................................... A. Project Objectives ........................................... IB. Achievement of Project Objectives .................... ....................... 2C. Major Factors Affecting the Project ........................................... 4D. Project Sustainability ........................................... 6E. Bank Performance ........................................... 7F. Borrower Performance ........................................... 9G. Assessment of Outcome ........................................... 10H. Future Operation. ........................................... 10I. Key Lessons Learned ............................................ 12

PART 2: STATISTICAL TABLES ........................................... 13

LIST OF TABLESTable 1 Summary of Assessments .13Table 2 Related Bank Loans/Credits .14Table 3 Project Timetable .15Table 4 Loan Disbursements: Cumulative Estimated and Actual .15Table 5 Key Indicators for Project Implementation .16Table 6 Key Indicators for Project Operation .17Table 7 Studies Included in Project .17Table 8A Project Costs. 18Table 8B Project Financing .18Table 9 Economic Costs and Benefits .18Table 10 Status of Legal Covenants .19Table 11 Compliance with Operational Manual Statements .20Table 12 Bank Resources: Staff Inputs .20Table 13 Bank Resources: Missions .21

ANNEXESAnnex A Mission's Aide Memoire .23Annex B Borrower's Contribution -- DOE .41Annex C Borrower's Contribution -- ICICI. .55Annex D Borrower's Contribution -- IDBI .67Annex E Cofinancier's Letter -- SDC.97

A me E . oia ce' etr- D .......................................................................................... 97

This.document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.


INDIA


PREFACE

This is the Implementation Completion Report (ICR) for the Electronics IndustryDevelopment Project in India, for which Loans 3093-IN, 3094-IN, and 3095-IN, totaling US$210million equivalent, were approved on June 15, 1989, and made effective on September 14, 1989.Loans 3094-IN and 3095-IN, supporting the credit line component, closed on December 31, 1993,compared with the original Closing Date of December 31, 1995. Final disbursements took placerespectively on September 14, 1993, and October 8, 1993, at which time balances respectively ofUS$50.7 million, and US$79.7 million, were canceled. Loan 3093-IN was closed on March 31,1997, compared with an original Closing Date of December 31, 1995. Final disbursements tookplace on September 16, 1997 and the balance of US$527,437.86 is being canceled. Cofmancing forthe project was provided by the Swiss Agency for Development and Cooperation (SDC), and by theJapan Grant Facility (JGF).

This ICR was prepared by Sidney Thomas, consultant. Contributions, and comments on anearlier draft, by the respective agencies, ICICI, IDBI, the Department of Electronics (DOE), and bySDC, the cofinancier of the manpower component, are gratefully acknowledged. The ICR wasreviewed by the present Task Manager, Ms. Naimeh Hadjitarkhani, Messrs. Salman Salman andCecil Perera, respectively of Legal and Loan Departments, and by Messrs. Nagy Hanna, JosephBredie, Robert Schware, and Melvin Goldman who were involved in the project at various times.The ICR has also been reviewed by the supervising Division Chief (Acting), Mr. Peter Nicholas,and by Ms. Kazuko Uchimura, Project Advisor, Country Department II, South Asia Region (inJune 1997). The ICR was also reviewed by Mr. John Joyce, Operations Advisor, SACIN inSeptember 1997.

Planning for the production of this ICR started during the course of the January, 1997supervision mission. An ICR mission was conducted in May, 1997. The ICR draws on the workconducted during the course of that last mission, and draws on the findings of that mission, thewritten contributions already acknowledged, that were made available by the various parties, andon a review of the project files. The participation in, and contributions to the work of that missionby Prof. Jaya Indiresan, consultant to SDC, and Prof. S. K. Shrivastava of the Bank's Delhi Office,are gratefully acknowledged.


INDIA


EVALUATION SUMMARY

1. Introduction. The Electronics Industry Development Project approved by the Board in1989, went forward at a time when the Bank's project portfolio in the industrial sector comprisedactivity in a variety of selected subsectors, specifically fertilizer, petrochemicals, cement, andsteel, and in a variety of cross-cutting areas, specifically project finance, export development,and technology development. Subsequently, environmental pollution control was added as aspecial topic pursued by the Bank in its assistance strategy for the industrial sector. But notably,by about 1991, the Bank's assistance strategy had undergone a sea change. Subsector lendingceased with the present electronics project, and interventions contemplated in the areas of capitalgoods and public enterprise reform were limited to sector work and studies financed under grantsfor technical assistance. In its place, assistance to India impacting on the industrial sectoremphasized policy-based adjustment loans, the first of which was approved by the Board inDecember, 1991. The switch to adjustment lending itself was made possible only because agovernment and industry consensus coalesced in favor of reform, which in turn was facilitatedby the Bank's protracted subsector interventions and the mass of sector work and subsectorintelligence which underlay them. Between 1987 and 1991, the industrial sector workundertaken by the Bank included subsector studies of the automotive, capital goods, electronics,and fertilizer subsectors, along with cross-cutting work on export development, technologydevelopment, sick industry policy, industrial regulatory reform, public enterprise rationalization,trade policy reform, and financial sector reform. Within this context, the electronics projectshould be seen not simply as the last of an era, but more correctly as the last of an era whichhelped to make the new era possible, one in which Indian banks and Indian industry areincreasingly able, without need of Bank support, to mobilize resources for themselves oninternational markets. The present project helped make that possible (para. 2) .

2. Project Objectives. The Electronics Industry Development Project (EIDP) had thebroad objective of supporting the Government of India (GOI) in its goal of fostering aninternationally competitive electronics and software industry. The narrower objectives of theproject as designed were: (a) to provide technical and financial support to the two largestDevelopment Finance Institutions (DFIs) in improving their capability to identify, appraise, andfinance sound projects as well as to improve the performance of existing firms in this sector; (b)to assist in upgrading the training of medium and high level technical and professionalmanpower needed for the rapid and efficient growth of the industry; (c) to help to lay the basisfor long-term continued improvement in the policy environment for electronics; and (d) to helpto shape India's strategy, and prepare projects to support, software development.

1 Paragraph references within the Evaluation Summary are to the main text.

3. As stated, these objectives were both clear, and, against the background of the sectorwork2 which preceded the project, desirable (paras. 1-3). Moreover, these objectives appeared apriori to be both realistic and achievable. While the broader objective of the project wasunchanged throughout, the narrow objective related to the role of the DFIs had to be curtailed,the victim of positive policy change in the financial sector. The objectives related to manpower,although cast only on a pilot scale, were institutionally ambitious but the objectives set were bothdesirable, and ultimately achievable.

4. Implementation Experience and Results. The project comprised three components infour parts, namely: (a) a credit line component to support investment subprojects in theelectronics and software industries, and comprising two loans of US$101 million each to theIndustrial Credit and Investment Corporation of India (ICICI)--Part A of the Project--and to theIndustrial Development Bank of India (IDBI)--Part B of the Project; (b) a manpower component(Part C) financed by a Bank loan of US$8.0 million to the Government of India (GOI),Department of Electronics (DOE), and the Swiss Agency for Development and Cooperation(SDC) grant of CHF25 million (US$16.2 million at appraisal); and (c) a technical assistancecomponent (Part D) financed by Japan Grant of Yen364.5 million (US$2.7 million). The Bankloans and the Japan Grant became effective on September 14, 1989, and the SDC GrantAgreement was signed March 7, 1991. Loans 3094-IN and 3095-IN, supporting the credit linecomponent, closed ahead of schedule, respectively October 28, 1993 and March 29, 1993, aftercancellations of the then remaining balances, leaving amounts utilized respectively at US$50.3million for ICICI, and US$21.3 million for IDBI. Loan 3093-IN to GOI, together with the SDCgrant, closed, after two extensions, on March 31, 1997. The Japan Grant was closed ahead ofschedule, on April 20, 1996, after cancellation of the then balance of Yenl4O.9 million (US$1.2million).

5. Overall, the project outcome is rated as a success, although the implementationexperience was mixed. The main factor affecting the project was macroeconomic changeaffecting the financial sector. Rupee devaluation--47 percent between 1989 and 1991-- followedby the introduction of partial convertibility in March, 1992--a move that was welcomed by theBank and in keeping with its macroeconomic policy advice to the government--completelydestroyed demand for the credit line before it was fully committed. As designed, subloansca[rried a rupee-tied interest rate fixed under the Government-administered Exchange RiskAdministration Scheme (ERAS) (para. 5). The interest rate so fixed contained a premiumdesigned to compensate the GoverDment for bearing the exchange risk. This premium was set sohigh following devaluation, that subloan interest rates rose to 26 percent, while rupee rates on themarket ranged on 18-22 percent, and subborrowers could make use of the newly establishedconvertibility of the rupee to have access to foreign currency. A market-based solution wasproposed that would have obviated the problem, namely converting the line into single-currencydollars, but the Bank at that time could not change from its currency pool lending instrument,which was unattractive to subborrowers. The intermediaries for their part were not permitted, bycharter, from assuming any exchange rate risk. As a result, the credit line component utilizedonly about US$72 million of a total allocation of US$202 million. This outcome did not,however, affect the pace of investment, as the DFIs were able to meet their commitments tosubborrowers using alternative funding (paras. 5, 9). Over the period 1992-97, output growth inthe electronics and computer segments averaged 22 percent per annum, comprising 17 percent

2 Report No. 6781 -IN, India: Development of the Electronics Industry: A Sector Report, May 14, 1987.

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for hardware segments, and 53 percent for software segments, a result which suggests that thekey objective sought under the project of facilitating viable investment projects in these areaswas met (para. 4), though Bank resources for this purpose were in the end not required.

6. The manpower component was also affected by rupee depreciation, the main result beingthat SDC grant funds were under-utilized by CHF6.7 million (para. 9), since these funds wereused in large part to reimburse local expenditures related to the Industry Attachment Program,the Learning Materials Development, Instruction Enhancement Program, furniture for traininglaboratories, and the hiring of local consultants. The Bank loan of US$8.0 million was howeveralmost fully utilized, as this was disbursed against equipment imports. The manpowercomponent was affected adversely more by delay in implementation. An initial start-up delay inestablishing and staffing the Project Implementation Unit (PIU) was never made up, and in theend the project was completed some 15 months behind the original Closing Date (para. 15).

7. The technical assistance component comprised three subcomponents--a software study, aseminar series program addressing "state-of-the art" issues, and support to the DFIs for overseastraining of appraisal staff. Apart from the seminar series, which was discontinued after midtermreview, this component was well implemented. The software study was hailed as "the singleevent that transformed the industry" (para. 7). The training program for DFI staff was useful inproviding the opportunity for the 32 participants, to see first-hand, plants overseas whichexemplify the latest in terms of scale and technology. As a result of the discontinuing of theseminar series (para. 8), cost savings of US$1.2 million under the Japan Grant were secured. Anattempt to utilize the savings to fund other relevant studies did not succeed, as continual delaysand obstacles caused the Bank to disallow the request for extension.

8. The performance of the Bank was satisfactory in all areas, highly satisfactory in the areaof project identification. The project was well chosen as contributing to, and supporting themuch larger reform effort that the Bank was urging at the time, while being responsive to thenew reform consensus that was emerging within Indian industry. Reform, when it came,impacted this project, and others which helped to foster a positive climate for reform. Projectpreparation and appraisal, in their technical aspects, were satisfactory. The packaging decisionwhich lumped together the three project components may however have been flawed, since,while they all shared the same starting premise of helping India to achieve an internationallycompetitive electronics and software industry, they all could have been and were, independentlyimplemented (para. 21). Moreover, the credit line and technical assistance componentsundoubtedly were delayed to accommodate preparation of the manpower component, which,when it was presented to the Board, was not as far advanced, in terms of establishing the PIU andother implementation arrangements, as it ideally should have been. In project supervision, theBank's performance was satisfactory, notwithstanding some misunderstanding between the Bankand SDC as to respective roles under the manpower component (para. 26). With respect to thecredit line and technical assistance components, the Bank's performance in supervising the!activities was creative and catalytic, though some intractable problems remained (paras. 25, 27).

9. The Borrower's performance also was satisfactory (paras. 28-29). With respect to thecredit line component, the DFIs performed well up until commitments and disbursements stalled,for reasons that have been addressed. Even thereafter, but with alternative sources of funding,they have continued to perform well. With respect to the technical assistance component,performance was mixed, but with the exemplary benefits, in respect of the software study andDFI technical assistance, already alluded to. With respect to the manpower component, while

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there was some initial start-up delay that could perhaps better have been anticipated at appraisal,the implementation thereafter has been exemplary, especially when taking in view theinstitutionally complex nature of this component, which involved the coordinated action of 37institutions and the lenders.

10. Summary of Findings, and Future Operations. Overall, the project has helped Indiain moving toward the objective of achieving an internationally competitive electronics andsoftware industry (para. 30). In terms of project finance, no future Bank operations appearwarranted, as the DFIs are able to raise resources on domestic and foreign financial marketswithout difficulty, and they are now mature institutions that are operationally self-sustaining.With respect to the manpower component, more work needs to be done, both to consolidate onthle gains achieved under the present project, and in addition, to expand the range of institutionsparticipating. SDC is committed to a follow-on project to assist in this endeavor. The Bank forits part, may also want to consider further support, as there are issues, most notably of studentfinancing (para. 33), in which the Bank as a change agent may be well placed to assist.

11. Key Lessons. The main lessons learnt from the present project may be summarized asfollows (para. 34). First, desirable macro-economic policy change can sometimes adverselyimpact on the stated objectives of ongoing Bank operations designed under a sub-optimal policyframework, as was seen with the collapse of the ERAS scheme (para. 5). As part of project riskanalysis, it is sometimes a good idea to prepare for the best, not only the worst. Second, theBank's involvement at the level of the subsector, through its influence in shaping consensus atthe level on industry and of industry associations, and also through the subsector intelligence itaffords, can be a desirable complement to macro-economic policy dialog. Third, the projectdemonstrates that not only the borrowers, but the Bank also needs to be responsive to marketforces. Two years before the terms of Bank lending were altered from currency pool to singlecurrency loans, at the borrower's option, this project exhibited such a requirement (paras. 23,25). Fourth, the collaboration with SDC was not as smooth as it could have been. If an explicitproject launch workshop was conducted early on, at which respective roles were clearly definedand a framework for project supervision and monitoring put in place, collaboration withcofinancier could have been more amicable and effective (para. 26). Fifth, early involvement ofthe implementing institutions with the project preparation activity would reduce time required tobring the implementation unit up to speed with project design and avoid gestation lags that thepresent project encountered (para. 28). Sixth, the scope of pilot scale projects should include adesign for evaluation of the pilot-scale activity, as this would be a necessary precedent to anycontemplated scale-up (para. 29).


INDIA ELECTRONICS INDUSTRY DEVELOPMENT PROJECT(Loans 3093-4-5-IN

PART I: PROJECT IMPLEMENTATION ASSESSMENT

A. PROJECT OBJECTIVES

1. The Electronics Industry Development Project (EIDP) had the broad objective ofsupporting the Government of India (GOI) in its goal of fostering an internationally competitiveelectronics and software industry. The narrower objectives of the project as designed were: (a) toprovide technical and financial support to assist the two largest Development Finance Institutions(DFIs) improve their capability to identify, appraise, and finance sound projects as well as toimprove the performance of existing firms in this sector; (b) to assist in upgrading the training ofmedium and high level technical and professional manpower needed for the rapid and efficientgrowth of the industry; (c) to help to lay the basis for long-term continued improvement in thepolicy environment for electronics; and (d) to help to shape India's strategy, and prepare projectsto support, software development.

2. As stated, these objectives were both clear, and, against the background of the sector work'which preceded the project, desirable. Moreover, these objectives appeared a priori to be bothrealistic and achievable. This project was put forward, in 1989, at a time when GOI was stillfeeling its way tentatively toward economic and policy reform aimed at fostering an internationallycompetitive manufacturing sector. The Bank helped in this endeavor by carrying out a series ofsubsector studies, a common theme of which was to sketch the outlines of a reform program thatsought, in a practical and realistic way, to move from the then status quo which was characterizedby heavy import protection, production licensing, and high cost, inefficient modes of production,toward less protection, greater freedom of entry and exit, and more internationally cost-competitivemodes of production. In addition to a study of the electronics subsector, the Bank at around thattime carried out studies of the automotive, steel, capital goods, and fertilizer subsectors, whilemaintaining involvement, through on-going projects, in the steel, cement, petrochemicals, andfertilizer subsectors, and more broadly in the financial sector through credit-line operations. Sectorwork had also been carried out or was underway addressing the cross-cutting areas of publicenterprises, sick industry policy, industrial regulatory reform, trade policy reform, and financialsector reform. Within that context of a vibrant policy dialogue, the electronics and softwaresubsector offered itself as an area where concrete help could be provided, while at the same timethere appeared reasonable assurance that conditions were being made increasingly favorable for theachievement by India of international competitiveness. The context was therefore in place thatwould justify the objectives sought under the project, both from the Bank's point of view, andGol's. Moreover, the objectives appeared realistic, although clear risk factors were identified andassessed right from the beginning.

Report No. 6781-1N, India: Development of the Electronics Industry, A Sector Report, May 14, 1987.

2

3. In the event, while the broader objective of the project was unchanged throughout, thenarrow objective related to the role of the DFIs had to be curtailed, the victim of positive policychange (paras. 11-12) in the financial sector. The objectives related to manpower, although castonly on a pilot scale, were institutionally ambitious--the implementation delays experienced mightperhaps have been foreseen--but the objectives set were both desirable, and ultimately achievable.

B. ACHIEVEMENT OF PROJECT OBJECTIVES

4. Sector Policies. Narrowly construed, the project had no sector policy objectives, sincethere were no policy changes that were to be implemented as conditions of the supporting loans orin the course of project implementation. At the same time, the broader objective of fostering aninternationally competitive industry carried with it the clear expectation that GOI would followthrough on reforms already tentatively started by 1989. This the GOI did. The reforms have beenbroaclbased, and have by and large proceeded in the desired direction. Restrictions on entry andexit were eased, and tariffs and quantitative restrictions on competing imports have been reduced(Table 1) ensuring continuing competitive pressures whose impact could only be to imnprove the

Table 1: RECENT IMPORT DUTY CHANGES(percent)

Item FY95 FY96 FY97 FY98(proposed)

Computers and peripherals 65 40 22 22Integrated circuits 40 25 22 12Color monitor tubes 40 25 22 12Hard disk drives and storage devices 65 25 12 12Electronic computer parts 50 35 22 12Specified raw materials 20 15 12 12Specific components 40 25 22 22Populated PCBs of electronic goods 65 35 32 22Color picture tubes 65 40 37 32Glass parts for picture tubes 30 30 27 27Color TVs in accompanied baggage 80 80 62 52

Source: ICICI.

international competitiveness of the industry. While the present project cannot be directly creditedwith these achievements, it is not unfair to suggest that work such as was carried out in the contextof this project and its preceding sector work helped to crystallize in practical terms the issuesinvolved in contemplating a program of sector reform, and in so doing it helped to build theconsensus within industry and government to press forward. Electronics was key in this regard asit epitomized an area where India had potential competitive advantage that could only be dulledwithin a protectionist regime, reducing prospects for export growth that would otherwise beattainable. Software, in particular, was directly targeted within the project as an area where Indiacould be helped in shaping an essentially outward-oriented strategy, and that intervention workedspectacularly well, with the segment enjoying a sustained growth rate of 50 percent per annumover the VIII-th Plan period (1992-97), moreover with industry insiders directly crediting the workwhich the project helped to support (para. 7). Not only in software, but more broadly, India ofcourse has opted to push for export growth, the achievement of international competitiveness, andthe globalization of the economy, turning away from the inward-oriented, import-substitutionstrategy that had been pursued for four decades following Independence. It did so with asuddenness and a pace that was not anticipated at the time the project was designed, though it was

3

a result that was hoped for. The Bank's work with India in the electronics and software sectorcould only have helped in hastening the process. When change came, the Bank changed its lendingstrategy along with it, and the present project effectively became the last subsector-specific credit-line operation.

5. Financial Objectives. While welcome as desirable change, the reform process negativelyaffected some financial objectives of the project. Commitments and disbursements under the creditline component first stalled, then dried up completely. It stalled in the wake of rupee devaluation(47 percent between 1989 and 1991), which rendered insolvent the Exchange Risk AdministrationScheme (ERAS) under which subloans were made. This led the ERAS administrators to raise the(rupee-tied) on lending rate to a prohibitive 26 percent p.a. Demand for the credit line then driedup completely when the rupee was made partially convertible, allowing subborrowers to haveaccess to foreign currency without paying more than 18 percent-22 percent for rupee borrowings,less than the rupee-tied rate which the ERAS administrators left unchanged at 26 percent. As aresult, only about US$72 million equivalent, out of a total credit line availability of US$202million for the two DFIs together, were utilized, and the rest was canceled.

6. This cancellation had little effect on the implementation of appraised subprojects, however,as these went through with alternative financing (see Part II, Statistical Tables 8A and 8B).Subborrowers and others raised 64 percent of project funding, as compared with 37 percentestimated at Appraisal. The DFIs for their part had improved access to the international financialmarkets, which allowed them to raise foreign currency resources, independent of the Bank, to thetune of US$95.6 million equivalent, when Appraisal estimates had provided for none. Thisimproved access to international capital markets was made possible in part by GoI's financialsector reform measures.

7. Institutional Development. The institutional development objectives sought under theproject were well and substantially achieved, in all of the components. In the manpowercomponent (see Section IV of ICR mission Aide-Memoire, reproduced herein as Annex A), whichwas the most institutionally complex of the three main project components, project objectives weresubstantially achieved, and an institutional foundation well laid for the accelerated diffusion of bestpractice as it relates to manpower training for the electronics and software industry. Institutionaldevelopment objectives with respect to the credit line component were achieved, with a combinedtotal of 32 DFI staff having been sent overseas, to see first-hand, plants, in both the West and FarEast, that represent state-of-the-art in terms of scale and technology in a variety of industrysegments. The DFIs continued to play a major role2 in financing the sustained rapid growth of theelectronics and software sector, which registered a combined 22 percent p.a. growth over theperiod 1992-97, comprising 17 percent for hardware segments, and 53 percent for software. Withrespect to the software study which was financed under the technical assistance component, thishas been referred to as "the single event that transformed the industry," (Annex A, Section V).The software industry, partly as a result of this intervention, is now well organized, with theNational Association of Software and Service Companies (NASSCOM) playing a key and vibrant

2 IDBI's sanctions and disbursements for projects in the electronics subsector increased four-fold between fiscal years89/90 and 95/96. ICICI's outstanding portfolio in the subsector increased 41 percent between fiscal years 92/93 and96/97, from Rs 5.6 billion to Rs 7.9 billion.

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role in articulating an export strategy for the country as a whole, and advising GOI on policychanges and actions needed to alleviate constraints as they emerge.

8. The one initiative in the institutional development area which fell flat was the state-of-the-art seminar series. There were two variants of this intervention that were provided for, one underthe manpower component, the other under the technical assistance component, both to beimplemented by DOE with the help of consultants. Notwithstanding the use of consultants hired toorganize these seminars, it was decided after the first of these had been mounted a number of timesacrosis the country, that the effort entailed a major supervisory burden for the DOE that was notjustified by the benefits secured, nor by the response received from industry. The remainingseminars contemplated were consequently dropped.

9. Physical Objectives. The main physical objectives sought under the project wererespectively the investment activity under the credit line component, and the variety ofinterventions under the manpower component intended to improve educational and training activityrelevant to the sector. With respect to investment activity, subprojects identified and appraisedunder the project were carried out notwithstanding the cancellation of the balances after only aboutUS$72 million were disbursed. Total investment was, if anything, higher than that anticipated atAppraisal, totaling US$662 million, as compared with US$420 million anticipated. With respect tothe manpower component, the Bank's allocation of US$8.0 million was almost fully disbursed,while CHF18.3 million (out of CHF25 million) of the SDC grant have been disbursed. Thisexpenditure is reflected in buildings, laboratories, equipment, books, journals, learning materialsand curriculum development, etc., representing the physical objectives sought and achieved.

C. MAJOR FACTORS AFFECTING THE PROJECT

10. Factors not generally subject to government control. There were no natural disasters, waror civil disturbance affecting the project. Neither was there any major deficiency in performanceof the Bank, cofinancier, or of any contractors or consultants. World market conditions ifanything were favorable, as export performance (41 percent p.a. growth over the period 1992-97)was al major factor driving growth in electronics and software.

11. With respect to the credit line component, the major factor affecting the project wasmacroeconomic change affecting the financial sector. During 1989-1991, India was responding toa number of external shocks by undertaking measures to strengthen the financial system andderegulation of the exchange rate regime. As a result, the ERAS scheme was rendered unworkable(see para. 5). This accounts for the most salient feature of the project which is that the major(credit line) component, for which US$202 million was allocated, was utilized only to the extent ofabout US$72 million, the rest having been canceled. As already indicated (para. 9), however, theresponse of the DFIs and subborrowers was sufficient to make up for the IBRD financing shortfall,and subprojects appraised and approved under the credit line by and large went forward asplanned, albeit with delays in some instances.

12. This broader macro-economic change affected the manpower component as well, thoughnot as greatly. Rupee devaluation caused the inflation of project cost in rupee terms. It alsocaused significant cost savings, in respect of the SDC outlays for local expenditures such as

5

furniture, consultants and the like, in terms of foreign currency requirements. Consequently, theallocation of the cofinancier, SDC, was under-utilized to the tune of CHF6.7 million, out ofCHF25 million, the original total allocation. The World Bank loan for this component, US$8.0million, was however almost fully utilized, as it was disbursed against equipment imports.

13. With respect to the abandonment of the state-of-the-art seminar series under the manpowerand technical assistance components, the major factor here was the marketing and other outreachthat would have been needed to make this activity a success. Insufficient industry response to thismarketing outreach was certainly beyond the control of government and its PIU, but the calculateddecision thereafter to abandon the activity was. This added to the cost savings under the technicalassistance component, which totaled US$1.2 million.

14. Factors generally subject to government control. While the manpower component was inthe end well and successfully implemented, it was subject to start-up delay in actions that fell toGOI to implement, specifically the setting up and staffing of the Project Implementation Unit(PIU), the final selection of participating institutions and resource centers under the project, andthe concluding of an agreement with SDC for cofinancing the project. The last was anticipated tobe concluded by December 31, 1989. For a variety of reasons, principally the conclusion andinternal approval within GOI of a Detailed Project Report (DPR), the SDC agreement was notconcluded until March 7, 1991. This start-up delay was never made up (para. 15) and the ClosingDate had to be extended to accommodate completion of this project component.

15. Factors subject to control of implementing agencies. With respect to the manpowercomponent, the PIU took up its task with great dedication and commitment, coordinating theefforts of some 37 institutions. However, the gestation lags involved in an effort of this magnitudewere likely underestimated at appraisal. On the other hand, the PIU may have been slow incorrecting an initial understaffing problem. Moreover, the PIU may have been slow also in puttingin place adequate project management structures for implementation, monitoring and evaluation. Itwas not until 1994, that the PIU, with assistance from SDC, mounted a project planning workshop(ZOPP). The workshop helped in bringing about a clear understanding of this project componentamong the PIs, which responded enthusiastically, setting the stage for excellent cooperation andlater successful implementation. Compared to the time agreed at Negotiations, the component hasbeen brought in 15 months behind the scheduled Completion Date of December 31, 1995, whichitself was 18 months beyond what was thought actually to be required, per the Staff AppraisalReport (SAR). Delay in establishing and properly staffing the PIU accounts for most of the delay.A PIU Director was appointed in June, 1990, about a year behind appraisal estimate. Thecofinancing agreement between GOI and Switzerland was entered into in March, 1991, later thanhad been anticipated because the approval by GOI of the Detailed Project Report (DPR) was acondition of concluding this document. The staffing of the Unit remained a problem--as at June1992, three years later than was anticipated at appraisal, a procurement officer still had not beenhired--some of the delay being attributed to the difficulty of finding an individual with priorexperience of Bank procurement and disbursement guidelines--and the PIU remained understaffedin relation to the staffing strength envisaged at appraisal. It seems clear that the implementationschedule drawn up at appraisal was over-optimistic, and miscalculated first the internal GOIprocesses--the preparation and approval of the DPR--needed to get the project underway, andsecond the time it would take a newly appointed PIU director to staff the Unit and have it fully

6

functioning. At the same time, it is hard not to think that the PIU could have moved more quicklyin getting up to speed. With respect to the technical assistance component, the seminar series wascurtailed, for reasons earlier addressed (para. 8). An attempt was made to utilize the savings sogenerated by conducting three additional studies following up on the very successful (para. 30)software study, specifically: (i) a study on workforce development in information technology; (ii) astudy of financing for software firms, and (iii) a study of export potential of the Indian softwareindustry. The implementation responsibility for these studies was transferred to ICICI in 1992.However, as of December, 1995, these studies had not yet got off the ground, pending a decisionon tax exemption for the consultants. The Bank declined a request to extend the Closing Date forthe Japan Grant to March 31, 1997 to permit these studies to be undertaken, citing "lack of actionto carry out the studies in a timely manner."

D. PROJECT SUSTAINABILITY

16. The achievement of the objectives sought under the project is likely to be sustainable.

17. DFI Finance. With respect to the DFIs' ability to identify, appraise and finance viableprojects in the electronics and software industry, this does not appear supply-constrained orinstitutionally-constrained at the present. Notwithstanding the cancellation of most of the creditline component, both participating DFIs went on to add significantly to their electronics andsoftware portfolios (para. 9). Financial sector reform, while altering the terms under which itbecarne feasible for the Bank to lend to these institutions, strengthened considerably their ability tomobilize foreign currency resources without resort to the World Bank. Both have since beensuccessful in independently raising resources on world markets, eliminating supply-side constraintsas a possible bar to sustainability of the kind of activities sought under the project.

18. Any constraints must rest instead with demand, which for the moment shows no sign ofabating. Output growth performance of the industry (22 percent p.a. over 1992-97) has faroutpaced overall economic growth (6.0 percent p.a.), and industrial sector growth (7.4 percentp.a.). And export performance of the industry (41 percent p.a. over 1992-97) is even moreimpressive. The policy environment is on the whole favorable to continued efficient, outward-oriented growth of this industry, and the sources of competitive advantage--large domestic marketthat can support scale economies, and provide a base from which to aggressively pursue exportmarkets, and huge supply of low-cost skilled, technical and scientific manpower--will not soon bevitiated by the economic trends and forces at play, which in the longer run would of course act toeliminate this advantage.

19. Demand side forces are the surest guarantor of sustainability with respect to the objectivessough-t under the manpower component. While there remains some uncertainty as to the modalitiesof attempting to scale up the pilot-scale exercise that constituted the manpower component of thepresent project, there is a clamor for inclusion by engineering colleges and polytechnics that werenot included in the present project that should almost certainly guarantee a continuing supplyresponse. The cofinancier of the present project, SDC, has already indicated its determination tosupport a follow-up project, and the DOE, likewise, is committed--and already staffed--to followthrough. As they do so, continuing budgetary stringency would likely limit the extent to which theprograms supported would continue to be grant based. Already, participating institutions under the

7

present project are being forced to pursue programs that would ensure a greater degree of self-sustainability of the initiatives. Enhanced revenue generation is key in this effort, and expected toflow from expanded fee-based (i) continuing engineering education program (CEEP) courseofferings, (ii) equipment maintenance activities, and (iii) consultancy services to business andindustry. There is a fourth avenue of revenue generation which needs to be actively explored,which is to raise student fees. There is little doubt, based on the income stream that flow tograduates and diplomates in the electronics and computer fields, that higher student fees in thesedisciplines would do little to dampen the strong demand; there would likely be a concurrent need,however, to institute some sort of student loan scheme to bridge the financial gap for studentsbetween current cash outflows to pay tuition, expenses, and living costs, and the future incomestream that is almost certain to flow upon graduation. There is a fifth source of revenuegeneration, which is grant support from industry to endow professorial chairs, university andpolytechnic laboratories, etc. This has already happened to a remarkable degree in India, andlikely to continue. All in all, indications are that powerful demand forces at work domestically andinternationally, and India's strong positioning, make it highly likely that the gains secured underthe present project are sustainable.

E. BANK PERFORMANCE

20. Project Identification. Electronics and software industries were correctly identified asthrust areas in which India should aim for international competitiveness. More perhaps than inmost industrial subsectors, with the possible exception of the closely related and overlappingsubsector of capital goods, electronics and software represent an area where the prize of exportearnings and growth is endangered by inward-looking protectionist industrial policy. This project,and the sector work which preceded it, represented a practical "case study" of sorts illuminatingthe choices faced by India. The consensus emerged within industry that the comforts ofprotectionism, if it meant high costs and lack of international competitiveness, should be rejectedin favor of the greater opportunities offered by an outward orientation, albeit with the dangers andthreats that come with tighter integration into the global marketplace. Without that consensusemerging within industry itself, it is unlikely that GOI would ultimately have been as bold as it wasin the reforms that were ushered in starting about 1991 with the massive rupee devaluations whoseeffects on the credit-line component were negative, as has been seen, but which was the necessaryfirst step of the reform program. This project was well chosen as contributing to, and supporting,this much broader reform effort that the Bank was urging at the time, while also being responsiveto the new consensus that was emerging within Indian industry. The reforms, when they came,were however sooner than the project designers anticipated.

21. Project Preparation. Overall, although the project components individually were wellconceived and designed, and although they were all linked by the shared premise of a commonoverall objective--helping India in its supply response to perceived competitive advantages in theelectronics and software areas--they could nevertheless have been separately implemented, andarguably should have. As it happened, the credit line component came to an end by March, 1993,ahead of schedule for reasons which have been discussed (para. 5). This eventuality did not in anyway affect the justification for and usefulness of the manpower component, which was just thengetting off the ground, and which did not come to a close until four years later. Likewise, theactivities undertaken with Japan Grant under the technical assistance component could as well, and

8

with equal justification, have proceeded in the absence of the other two components. Theindependence of these components does not straight-away warrant the conclusion that they shouldhave been implemented separately, as a priori there are advantages and disadvantages to bothoptions. The disadvantages were that by forcing the three components to march in lock-step, thecredit line and technical assistance components were delayed because of the manpower component,since these could have followed on from the 1987 sector report much more quickly than in the endthey did, while the manpower component, although well designed, was institutionally not readywhen the project went to the Board, as evidenced by the institutionally-oriented delays (paras. 14-15) that then ensued. As against these disadvantages, and associated costs, the advantages appearto be limited to the illusionary one of justification--the manpower component could not stand alonein terms of bureaucratic justification, notwithstanding all its institutional complexity, because theamount of the loan (US$8.0 million equiv.) would have been too small, while without theinstitution-building features of the manpower and technical assistance components, the credit linecomponent would have been deemed insufficiently innovative. Whatever might have been thecompulsions a priori that drove the decision to put three independent, though related, componentstogether, the outcome ex post seems clear that project preparation was the worse for it. Nor werethere scale economies in project supervision, if any, that could not also largely have been securedby having three separate projects, each implemented on its own natural timetable.

22. Taking the components individually, however, and with respect in particular to the quantityand quality of staff that were deployed to assist the Borrower in project preparation, and the qualityof the work that was produced, the Bank performed very well.

23. Project Appraisal. The appraisal document was well written, and the judgments expressedin the document were well founded and in places prescient in describing the risks that threatenedsuccessful implementation. The riskiness of the ERAS arrangement under the credit linecomponent was well identified and discussed. The risk of implementation delay in respect of themanpower component also was well identified in the appraisal report. In the event, it is hard tofault the appraisers for pressing ahead with the ERAS design, since even after its demise, the Bankhad not the flexibility in its lending instruments to fashion a market based solution to the problem.(Subborrowers would have been willing, after the collapse of ERAS, to borrow in dollars on asingle currency basis--and assume the exchange risk in so doing--but not the Bank's currency pool.Two years on, the Bank amended its offerings to allow single currency loans, but too late to savethe line which had been long canceled by that time.) With respect, however, to the manpowercomponent, it is difficult in hindsight to see how the appraisers could have been as optimistic asthey were with respect to the implementation schedule. The appraisers anticipated that additionalsupervision at start-up would have reduced the risk, but again in hindsight, the gestation delaysinvolved in producing a Detailed Project Report, and in staffing the PIU could not have beenamenable to solution through additional supervision. These drawbacks however are clear only inhindsight, for which reason the appraisal cannot be rated less than satisfactory.

24. Project Supervision. All implementing entities have expressed satisfaction with the qualityof the Bank's supervision.

25. With respect to the credit line component, the average response lag for subloan applicationswas 14.1 (calendar) days, which is acceptable, though not exemplary. Emerging problems under

9

this component were quickly identified by supervision missions, and the response by Bank staff inattempting to resolve the issue was creative and thorough. In the end, it was the uniqueness of theBank's currency pool which prevented a market-based solution from emerging, following thecollapse of the GOI-sponsored ERAS scheme for onlending. That the Bank later extended itssingle currency loan offerings may be attributed in part to the work that was done in the context ofproject similar to this one.

26. With respect to the manpower component, the Bank in its supervision reporting accuratelyconveyed the facts at issue, although the ratings, in hindsight, considering the considerable start-updelays that were experienced, may have been too high. One may speculate that more severeratings would have engendered a more proactive stance, and helped the PIU to achieve a fasterstart-up. The collaboration with the cofinancier worked well, though not without somemisunderstandings. The Bank envisaged from the outset that SDC would play an active role insupervision, given its "long experience in India",3 while the SDC seemed at first uncertain as tohow proactive they should be given that it was a "Bank" project. Later, however, SDC played acritical role in helping, together with the PIU, to organize the ZOPP4 workshop which wasacclaimed by all participants as helping to lend clarity to the framework for projectimplementation, monitoring, and evaluation. Thereafter, SDC took the lead role in conducting themid-term review (May, 1995) for this component, with the Bank making only an ex postcontribution. After the mid-term, the Bank altered its supervision arrangements, making use on aday-to-day basis of selected staff at the Resident Mission. This arrangement worked well, andhelped to expedite remaining procurement and other supervision issues that emerged from time totime.

27. With respect to the technical assistance component: The software study was wellimplemented, and the results met with acclaim in India in software circles. The training programfor the DFIs was also well implemented, also with positive results for the DFIs. And the seminarseries program was in the end discontinued for reasons previously mentioned (para. 8). TheBank's performance in supervising these activities was creative, and catalytic, as staff sought toleverage initiatives under this project, in particular the software study, into a broader involvementin support of informatics development. GOI in fact requested follow-up assistance in this areafrom the Bank, which however declined, as by that time the Bank's approach to industry lendinghad changed (para. 4). When the seminar series program was discontinued, staff attempted tomake use of the savings by helping to identify, and draft terms of reference for, a number ofadditional studies in the informatics area that were worth pursuing, but which in the end becamebogged down by a variety of delays and obstacles that caused the Bank to decline the Closing Dateextension that would have been needed for these to go forward (para. 15).

F. BORROWER PERFORMANCE

28. The commitment of all the parties to this project was very high. The DFIs, until the ERASproblem arose, were performing in line with expectations in terms of commitments anddisbursements, and the quality of the subproject appraisals was generally adequate. Of 108subloans approved (before cancellations), only two occasioned queries, for which satisfactory

3 Per the aide-memoire of the January/February, 1990 mission.4 German acronym for Goal Oriented Project Planning.

10

answers were provided. One project was rejected, but only because it ventured into the area oftelecommunications, which the Bank did not want included under the present project. The level ofproject ownership and conmmitment within DOE was very high, and was instrumental in bringingthe manpower component to a successful conclusion, despite start-up and institutional difficulties.DOEi's performance in this regard may be rated as exemplary. There was arguably a deficiency inpreparation, however, in that the PIU Director was not appointed already at the preparation stage,to forestall start-up delays in implementation. To the extent this was due to procedural constraintsrelated to the timing of project approval and funding commitments, these may need to be re-examined if future projects are to be implemented without start-up delays. The technical assistancecomponent, except for the seminar series program, was well implemented by the Borrowers--theDFIs and DOE. And in the case of the seminar series, the action taken to discontinue was wellconsidered and timely. The savings thereby generated offered up an opportunity to carry out someadditional studies in the informatics area but this opportunity went unseized for reasons previouslyaddressed (paras. 15, 27). Compliance with covenants was satisfactory, albeit with occasionaldelays in the provision of audit reports.

29. With respect to the follow-up action which is needed, in the case of the manpowercomponent, some more work than has so far been done is required to draw the lessons of the pilotscale operation which constituted the present project, precedent to the scale-up exercise that mustnow be attempted. These issues are addressed in the mission's aide-memoire (Annex A, paras.4.10-4.17). Ideally, a design should have been included for evaluation of the pilot-scale activity,as this would be a necessary precedent to any contemplated scale-up.

G. ASSESSMENT OF OUTCOME

30. Notwithstanding the cancellation of most of the credit line component, and the delay (para.15) in completing the manpower component, the outcome of this project must be rated assatisfactory. Growth in the electronics and software subsector has been impressive, and the DFIshave played a major role in this result, even if resources in the end had to be mobilized fromsources other than the Bank--a result which in itself represents a broader success of the Bank in itslong association with the two DFIs concerned. Likewise, DOE is now well staffed and positioned,having completed the manpower component, to mount the scale-up exercise which is required toassure that the future supply of graduates and diplomates in this field would be of even higherquality than they have been in the past. This is key to continuing success, as India faces a movingtarget in terms of the global competition in this subsector. Finally, the software study undertakenas the major part of the technical assistance component has been hailed within industry circles asthe "single event that transformed the industry," and so may be credited, at least to some degree,with the enormous success that the Indian software industry has enjoyed since that report wascompleted.

H. FuTuRE OPERATION

31. With respect to the identification, preparation, appraisal, and financing of investmentprojects in the subject subsector, it seems clear that the DFIs that participated in the project havematured to the stage where further assistance from the Bank is not per se required, although theperspective and observations of the Bank are valued and welcomed by these institutions. These

11

DFIs are now able to mobilize resources on international and domestic markets, and so theBank's erstwhile role as lender of last resort appears no longer to be required. Consideringthe structure of Bank charges, which includes commitment and guarantee fees, it may even bethe case now that the Bank is no longer competitive as a source of long-term funds for theseDFIs, except in so far as the longer-term maturities that the Bank can offer makes an importantdifference to the volatility of onlending rates, and in terms of liability mix and management.Therefore, the role of the Bank as an agent of institutional development, and as a source oflong term foreign currency resources, has now by and large been rendered redundant bysuccess. This leaves a role for these DFIs, vis-a-vis the Bank, as administrators of fundssought to be allocated by the Bank for such purposes as environmental pollution control andprotection of the ozone layer. But not for electronics and software. Therefore no futureintervention by GOI or the Bank is envisaged in the area of providing project finance. WhatGOI must continue is its broader reform program intended to reduce levels of protection andcosts even further, and thereby to strengthen the international competitiveness of local industryeven further.

32. With respect to manpower, much remains to be done however. The cofinancier, SDCis committed to supporting a follow-on operation intended to help secure the self-sustainabilityof the initiatives launched under the present project. This is a worthy and needed endeavor,but it needs to be supplemented by action aimed specifically at additionality, in terms of thenumber of engineering colleges and polytechnics allowed to participate in the improvementschemes designed under the present pilot scale operation.

33. There is a potential institutional development role here for the Bank, as there are anumber of anomalies related to educational finance, where the Bank may conceivably be ableto play a role as change agent. Sustainability is crucially dependent on revenue generation byparticipating educational institutions, and a key overlooked source of revenue generation isstudent fees, which are grossly subsidized at the moment, even though students upongraduation attract relatively high salaries, and so ought to bear a much higher fee burden. It isof course acknowledged that any increase in student fees would imply a need for students to befinanced in the interim by an appropriate student loan program. These issues transcendelectronics and computer education, but the huge student demand in these areas makes itpotentially a test area for broader educational finance reform. It should be pointed out thatGOI has instituted some change in this regard already, although much remains to be done.Technical institutes have been permitted to be established on a self-financing basis. Studentfees charged at Government and aided engineering colleges/polytechnics have been raisedsignificantly, while at the Indian Institutes of Technology (IlTs), student fees have increasedfrom Rs 200 per year in 1989 to Rs 15,000 at present. To the extent such changes will requiresupporting institutional change in the area of student finance, the Bank may have anopportunity to fulfill a function as a change agent in this regard, should the GOI so desire.

12

I. KEY LESSONS LEARNED

34. The key lessons learnt from the project may be summarized as follows:

a) desirable macro-economic policy change can sometimes adversely impact on the statedobjectives of ongoing Bank operations designed under a sub-optimal policy framework,as was seen with the collapse of the ERAS scheme (para. 5). As part of project riskanalysis, it is sometimes a good idea to prepare for the best, not only the worst;

b) the Bank's involvement at the level of the subsector, through its influence in shapingconsensus at the level of industry and of industry associations, and also through thesubsector intelligence it affords, can be a desirable complement to macro-economicpolicy dialog;

c) the project demonstrates that not only the borrowers, but the Bank also needs to beresponsive to market forces. Two years before the terms of Bank lending were alteredfrom currency pool to single currency loans, at the borrower's option, this projectexhibited such a requirement (paras. 23, 25);

d) the collaboration with SDC was not as smooth as it could have been. If an explicitproject launch workshop was conducted early on, at which respective roles were clearlydefmed and a framework for project supervision and monitoring put in place,collaboration with cofinancier could have been more amicable and effective (para. 26);

e) early involvement of the implementing institutions with the project preparation activitywould reduce time required to bring the implementation unit up to speed with projectdesign and avoid gestation lags that the present project encountered (para. 28); and

f) the scope of pilot scale projects should include a design for evaluation of the pilot-scaleactivity, as this would be a necessary precedent to any contemplated scale-up (para.29).

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PART II: STATISTICAL TABLES

Table 1: Summary of Assessments

A. Achievement of Objectives Substantial Partial Negligible Not Applicable

Macroeconomic policies XSector policies XFinancial objectives XInstitutional development XPhysical objectives XPoverty reduction XGender concerns xOther social objectives XEnvironmental objectives XPublic sector management xPrivate sector development X

__Other (specify) X

| B. |Project sustainability Likely | Unlikely | Uncertain

HighlyC. Bank performance satisfactory Satisfactory Deficient

Identification XPreparation assistance XAppraisal X

__ ___ _Supervision x

HighlyD. Borrower performance satisfactory Satisfactory Deficient

Preparation XImplementation XCovenant compliance X _

Operation (if applicable) .-

| Highly UnsaHighlyE. Assessment of outcome satisfactory Satisfactory Unsatisfactory Unsatisfactory

_ ________________ x

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Table 2: Related Bank Loans/Credits

Loan/credit title Purpose Year of Statusapproval

Peceding Operations_

1. Industrial Export Project- Support trade policy reform and increase 1986 Closed, 1992;Engineering Products the supply of investment funding for ICR, 1993;(Loans 2629-IN and 2630-lN) export oriented projects and export OED audit, 1996.

promotional activities2. Export Development Project Ditto. Also, to build institutional capacity 1989 Closed, 1996; ICR,

(Loans 3058-IN and 3059-IN) in export project appraisal by 1996;intermediary lending institutions, and in OED audit, 1997advising clients on export issues andmarkets

Following Operations

1. Technology Development Project To reduce policy impediments (e.g. 1989 Closing 12/31/97; US$(Loan 3119-IN) restrictions on foreign private investment, 52.4m. undisb. of

controls on technology imports) to faster US$200m orig;absorption and development of technology US$10.Om canceledand to strengthen the institutional

infrastructure supporting technologydevelopment

2. Technical Education I To support policy reforms , institutional 1990 Closing 6/30198;(Credit 2130-IN) development, and the introduction of new US$150m. undisb. of

technology and training approaches US$210ro orig.

3. Technical Education II To improve Polytechnic Education 1991 Closing 6/30/99;(Credit 2223-IN) through capacity expansion, and quality US$215m undisb of

and efficiency improvement, based on US$255m. orig.support of GOI 10-year Program (90-99)

4. Industrial Pollution Control To improve implementation capacity for 1991 Closing 6/30/98;(Loan 3334-IN) (Cr. 2252-IN) environmental pollution control measures US$44.9m undisb. of

already in place and to improve tactical US$155.6mapproaches to industrial pollution controls

5. Petrochemicals II Investment. And to rationalize feedstock 1991 Closing 9/30/97;(Loan 3258-9-IN) (gas) price US$33. Im undisb. of

US$245m orig;US$70.3m canceled

6. Cement Industry Restucturing Investment. And to eliminate price and 1991 Closing 6/30/97;(Ln 3196-lN) distribution controls US$23.3m undisb of

US$300m

7. Structural Adjustment IN) Macroeconomic stabilization, plus 1991 Closed 1992(Loan 3421-IN) industrial liberalization

8. Indiustrial Pollution Prevention To promote cost-effective pollution 1995 Closing 3/31/2002(Loans. 3779/3780-lN) abatement from industrial sources while US$156.3m undisb. of(Credit 2645-lN) building up on enhancement of US$168m

implementation capacity in selectedSPCBs that started under the firstPollution Control Project.

15

Table 3: Project Tinetable

Steps in Project Cycle Date Planned Date Actual!Latest Estimate

Identification 3/12/8610/6/87

PreparationPreappraisal 11/87* 11/25/88Appraisal 4/88* 1/23/89Negotiations 5/1189** 5/2/89Board 6/27189** 6/15/89Signing 7/7/89Effectiveness 9/14/89Completion 6/30/95 3/31/97Loan Closing 12/31/95 3/31/97

* As at Project Brief dated 11/17/87.** As at Yellow Cover Review dated 4/6/89.

Table 4: Loan Disbursements: Cumulative Estimated and ActualIBRD Loans 3093-IN, 3094-IN, and 3095-IN

(US$ million)

FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97

Appraisal Estimate 19.6 80.2 151.4 192.8 207.5 209.7 210.0 210.0

Formal Revision* 20.5 55.0 76.9 81.7 72.1 83.0 94.3 94.3

Actual 20.5 55.0 76.9 81.7 72.1 74.4 75.9 79.1

Actual as % of estimate 104.6 68.5 50.8 42.4 34.8 35.5 36.2 38.0

Date of final disbursement 9/93 10/93 9/97

* Formal revision as of FY94; FY95 figure is interpolated, not given in formal revision.** Loans 3094-IN and 3095-IN were closed as of December 31, 1993, with final disbursements 9/93 and 10/93respectively.

16

Table 5: Key Indicators for Project Implementation

Project Component Estimate at Appraisal ActualPart A (ICICI Credit Line)

Total Commitments (US$m) US$lOm US$109.3 m (bef. cancellations)Total Disbursements (US$m) US$101m US$50.3mNo. of Subloans 76 (51 after cancellations)% of No. above free limit 15 % 3 %% of Value above free lmit 50% 24%_Avg. Size of Subproject ($m.) US$4.5mAvg. Size of Subloan ($m.) US$1.3mTotal Investments Generated US$210m US$230mSubproject ERR Minimum 12% 20%-67% ex anteSubproject FRR Minimum 15% 14%-25% ex ante

Part B (IDBI Credit Line)

Total Commitments (US$m) US$1Olm US$71. lm (before cancellations)Total Disbursements (US$m) US$101m US$21.3mNo. of Subloans 37 (17 after cancellations)% of No. above free limit 15% 6%% of Value above free limit 50% 38%Avg. Size of Subproject ($m.) US$28.4m_Avg. Size of Subloan ($m.) ___ US$1.6mTotal Investments Generated US$210m i US$483m,Subproject ERR Minimum 12% 18%-80% ex anteSubproject FRR Minimum 15 % 13 % -25 % ex ante

Part C (Manpower Component)No. of participating institutions 37 37No. of state-of-art seminars 7 3No. of IEP's conducted 57 57No. of SSTP's conducted 42 51No. of teachers trained 700No. of support staff trg. prog 51No. of support staff trained 700No. of LM's developed 56 58No. of IAP participants 4575CEEP training (man-days/yr) 25000 (FY97)N0o. of Model curricula 3 3

17

Table 6: Key Indicators for Project Operation

(per year basis)Project Component Estimate at Appraisal Actual

I. Key operating indicators in SAR noneII. Modified indicators (if applicable) noneIII. Modified indicators for future none

operation (if applicable)

Table 7: Studies Included in Project

Study Purpose Status Impact of study1. Software To assess India's export potential and Completed, Adopted, has had

develop strategies 1992 major impact interms of India'sstrategicpositioning inindustry

2. Seminar ProgramBackground Studies:a. Design To assess scope for increased design Completed Used for state-of-standardization standardization and review effectiveness the-art seminar

of supporting measures programb. Tariff Policy To evaluate the likely revenue and Canceled

foreign exchange impact in the shortand long term of lowering customstariffs and eliminating quantitativerestrictions in the electronics subsector

c. Indigenization To evaluate the feasibility of altemative Canceledindigenization goals for key electronicsproducts likely to be produced locally inthe next five years

d. Dissemination To assess the potential for productivity Canceledimprovement in industry throughdissemination of informatics technologyand the indication of priorities forfurther attention

e. Informatics in To identify the scope for further CanceledFinancial Sector application of informatics technology in

the financial sector, and to evaluate thesocio-economic impact of suchapplication

f. Government/Industry To review and assess mechanisms of CanceledCooperation Government/Industry cooperation in

other countries, and their applicabilityto India, including role andresponsibility of industry associations

g. Major technologies To assess the implications of major Canceledtechnical developments such as surfacemount technology for existing industryand the supporting policy framework

18

Table 8A: Project Costs

Appraisal Estimate (US$M) Actual/Latest Estimate (US$M)Local Foreign Local Foreign

Item Costs Costs Total Costs Costs TotalCredit LineFixed Assets 144.1 150.0 294.1 536.1 132.7 668.8Working Capital 74.1 52.0 126.1 3.8 40.0 43.8

Sub-total 218.2 202.0 420.2 539.9 172.7 712.5

Manpower Comp. 19.3 7.5 26.8 16.4 6.7 23.1Technical Assistance 0.6 2.4 3.0 0.3 0.4 1.7

Total 238.1 211.9 450.0 556.6 180.7 737.3

Table 8B: Project Financing

Appraisal Estimate (US$M) Actual/Latest Estimate (US$M)Local Foreign Local Foreign

Source Costs Costs Total Costs Costs TotalIBRD 0.5 209.5 210.0 2.0 77.2 79.2GOI 2.8 2.8 1.2 1.2DFIs 50.7 50.7 96.8 94.4 191.2Subborrowers/others 167.6 167.6 442.0 6.7 449.8SDC 16.2 16.2 13.2 1.1 14.3JGF 0.3 2.4 2.7 0.3 1.4 1.7

Total Project Cost 238.1 211.9 450.0 556.6 180.7 737.3

Table 9: Economic Costs and Benefits

Subprojects financed by the financial intermediaries were required to have projected minimum economicrate of return (ERR) of 12 percent. IDBI subprojects had ex ante calculated ERR's ranging from 18%-80%.ICICI subprojects ranged from 20%-67%. No calculations attempted either ex ante or ex post for the manpowerand technical assistance components.

19

Table 10: Status of Legal Covenants

Original RevisedCovenant Present fulfillment fulfillment Description of

Agreement Section type Status date date covenant CommentsLn. 3093 3.03 5 C 06/01/89 DOE establish Project Implementation

Unit3.03 5 C 12/31/89 Staff Steering Committee3.05 1 C 09/30/89 DFIs prepare work plan for TA1.02 5 C 12/31/89 DOE to select satisfactory institutions

for manpower component4.01 1 C Yearly audit of manpower and TA

components and related SpecialAccounts and SOEs

5.01 1 C 12/31/90 GOI to enter into cofmancing agreementwith SDC

Ln. 3094 4.01 1 C Yearly audits of ICICI, project records,Special Account, and SOEs

Ln. 3095 4.01 1 C Yearly audits of IDBI, project records,I ____ I_ I_______ I________ I_______ I_______ Special Account, and SOEs I

Status: C - Complied with

20

Table 11: Compliance with Operational Manual Statements

(No known non-compliance.)

Table 12: Bank Resources: Staff Inputs

State of Planned Revised Actual

project cycle Weeks US$ Weeks US$ Weeks US$___________________ ___________ OOOs

N/A N/A N/A N/A 271 $648.5Through appraisal

N/A N/A N/A N/A 3 7.6Appraisal--Board

N/A N/A N/A N/A - -

Board--effectiveness

N/A N/A N/A N/A 192 577.7Supervision

8 31.5 43.0 10 40.0Completion

- - - 476 $1,273.8TOTAL

21

Table 13: Bank Resources: Missions

Performance rating

Stage of Number Days Specialized Implemen- Develop-project Month/ of in staff skills tation ment Types ofcycle year persons field represented status impact problems

Through 2/86 3 28 Ec,Fin,Engappraisal

4/86 1 11 TE _ _ .9/87 3 13 Ec,Ec,Eng12/87 2 19 Ec,Fin3/89 8 31 Ec,Fin,Ec, .

Eng,TE,TE,Sf,Sf

Appraisal - - -

tiroughBoardapprovalSupervision 10/89 3 27 Ec,Ec,Sf 2 2 Delays

3/90 3 21 Ec,TE,Sf 1 1 Minor10/90 4 18 Ec,TE,CS,Sf 1 1 Minor11/91 1 7 TE - - Procurement6/92 3 12 Ec,Sf,TE 3 3 Macro;Proc.10/92 _ =_ _ _ _ =_2/93 2 5 Ec,Sf 1 1 Macro; Audit4/93 1 Ec - - Course

Materials;_ _______ _____________ _____________ M onitoring

7/93 2 7 Ec,Sf 2 2 Monitoring8/93 __ _ _ = _ _ _

12/93 2 19 Ec,Sf 1 1 Minor4/94 1 5 Ec 1 1 Minor4/95 1 10 TE S HS extension;

course matl;seminar qlty

6/96 2 7 Op,TE HS HS Extension;course matl;

studies1/97 2 10 Op,TE S S curriculum;

course matl;OSE audit

Completion 5/97 1 17 Ec,Fin,Eng

Abbreviations: Ec = economist; Eng = engineer; Fin = financial analyst; Op = operations officer;Sf = software specialist; TE = technical education specialist

Annex A

INDIAElectronics Industry Development Project (Lns. 3093-5-IN)

AIDE-MEMOIREImplementation Completion Report Mission

(May, 1997)

I. PREAMBLE AND ACKNOWLEDGMENTS

1.1 A mission consisting of Dr. Sidney Thomas, consultant to the World Bank, and joinedin the field by Prof. S. K. Shrivastava of the Bank's New Delhi Office, and Prof. Jaya Indiresan, con-sultant to the Swiss Agency for Development Cooperaton (SDC), visited India May 13-28, 1997. Thepurpose of the mission was to carry out the field work necessary to support the preparation of anImplementation Completion Report (ICR) for the Electronics Industry Development Project. This pro-ject was financed by the Bank under Loans 3093-, 3094-, and 3095-IN, and cofinanced by a grant fromSDC in its manpower component, and by a grant from the Japan Grant Facility (JGF) in its technicalassistance component.

1.2 The purpose of this aide-memoire is to record briefly the main findings of the mission.which includes summarizing the views expressed to it by the various parties. to outline the mission'sviews as to the key questions that must be addressed to assure sustained future benefits of the project,and to summarize the projected time-table and next steps agreed by all concerned parties for the morelimited objective of producing the ICR.

1.3 The aide-memoire is written by Dr. Thomas, but has drawn on written materials con-tributed by Profs. Shrivastava and Indiresan for the purpose. It has drawn also on written contributionsprovided by the Department of Electronics (DOE), by Prof. N. J. Rao of I.I.Sc, Bangalore, and by theParticipating Institutions (Pis) of the manpower component in their various presentations. The viewsexpressed herein reflect however the understanding of the mission, as to the facts and judgments atissue, not of those who kindly made written contributions for the mission's benefit. The viewsexpressed are also subject to review and confirmation by the Bank's management.

1.4 The mission is deeply appreciative of the warm hospitality with which it was receivedeverywhere it went, and especially grateful to Messrs. Mehta, Gupta, and Taneja of DOE for arrangingmost of the meetings involving the manpower component. They were also gracious and engaging travelcompanions. The mission is grateful too to the staff of the Industrial Development Bank of India(IDBI) and the Industrial Credit and Investment Corporation of India (ICICI) who coordinated the workof the mission in its review of the credit line component. Special thanks are due to old friends Messrs.A. P. Singh, P. V. Narasimhan, J. John, Mrs. Rao, and to the new ones met in the course of the mis-sion's work, especially Ms. Mythili Ravi, and Messrs. Vishwanath, Suresh and Gwalani. While the mis-sion was warmly received everywhere it went, it is especially grateful for the extra indulgences to whichit was treated by Capt. Bates, Chief Executive of Narmada Electronics, Mr. John of Namtech, Mr.Mitra of NELCO, Profs. Jamadagni and Rao of I.l.Sc Bangalore, and Vice-Chancellor Ramakistayyaand Prof. Chary of Osmania University, Hyderabad. And as usual, ICICI and IDBI staff went beyondthe call of duty. Dr. Thomas is especially grateful to Mr. A. P. Singh in this regard, as well as Mr.Subramanian. who escorted the mission in its Bombay plant visits, Mr Suresh, who did the same inBaroda, and Mr. Gwalani in Bangalore. Last, but not least, Wing Commander Prabhakar organised amemorable visit to the beautiful facility of which he is principal at NTTF Electronics Center, Banga-lore.

1.5 A list of persons met is given as Attachment 1.

Annex A24

II. PROJECT BACKGROUND AND PREMISES

2.1 The Electronics Industry Development Project (EIDP) was approved for lending by theBank's Board on June 15, 1989, and three loans totalling US$210 million equivalent became effectiveon September 14, 1989. The EIDP was cofinanced by grants to the Government of India (GOI) respec-tively of SFr25 million (US$16.2 million equivalent at appraisal) from the Swiss Agency for Develop-ment Cooperation (SDC), and of Yen364.5 million (US$3.0 million equivalent at appraisal) under theJapan Grant Facility (JGF). The project comprised three main components in four parts, namely:

('a) a credit line component comprising two loans of US$101 million each to ICICI (Part A of theProject), and IDBI (Part B) to support investment sub-projects in the electronics and softwareindustries;

Ib) a manpower component (Part C) financed by a loan of US$8 million to GOI by the Bank andthe Swiss grant of SFr25 million; and

(c) a technical assistance component (Part D) financed by the Japan Grant of Yen364.5 million.The Project had an expected Completion Date of June 30, 1995, and all the loans had expected Clos-ing Dates of December 31, 1995. In the event, Parts A and B of the Project were terminated early inApril, 1993 after collapse of the Exchange Risk Administration Scheme (ERAS) under which subloanswere made (see later), while the Loan Closing Date associated with Parts C and D of the project wasextended to March 31, 1997.

2.2 The rationale for the project lay in the fundamental assessment of the Bank that Indiahad the potential to develop a competitive electronics industry. This assessment in turn was based onsector work that had been carried out by the Bank and reported on in 1987.1 Essentially, this judgmentwas based on India's large pool of scientific and technical manpower, its growing and potentially vastdo,mestic markets, and its significant existing industrial base. Equally important, India had embarked ona program of policy reform which initially went further in electronics than for most other industries,and which offered a promising basis on which to support investment in the subsector, and to support aprogram of intervention designed to strengthen the supply response. Key objectives were:

(a) to improve the ability of the main Development Finance Institutions (DFIs) in their ability toappraise and finance projects in the subsector;

(b) to improve yet further the quality of medium and high level technical and professional man-power needed for the industry's rapid and efficient growth;

(c) to provide market intelligence and growth strategies in the key software segment; and

(d) to provide an important basis for the dialogue between the Bank and GOI on industry policy asa whole.

2.3 By and large, the foregoing rationale has been validated by events since 1987 when thesector report was completed. Data made available to the mission by DOE (see Attachment 2) sug-gests that the software segment has grown at an annual rate of over 50% over the 8-th Plan period1992-97, up from 41% over the 7-th Plan period, 1985-90. The hardware segments, combined, havenct performed as well, averaging annual growth over the 8-th Plan period of 17%, down from 34%over the 7-th Plan period. The apparent slow-down notwithstanding, the rate of growth achieved in theelectronics sector is still far in excess of the growth rate for the economy as a whole, and for manufac-turing as a whole. Export performance is even better, with export growth averaging 41% per annumover the 8-th Plan period, unchanged from the 7-th Plan period. This is consistent with the judgementmade at the outset of the project that India had some core competitive advantage in the sector. Pol-icy change, meanwhile, has fairly uniformly been in the direction of reducing levels of protectionagainst import competition, thus applying pressure in the desired direction of achieving greater levels ofinternational competitiveness.

1. See Report No. 6781-IN, India: Development of the Electronics Industry: A Sector Report, May 14, 1987.

25 Annex A

Ill. CREDIT LINE COMPONENT

Component Description

3.1 The credit line component, totalling US$202 million equivalent shared equally betweenIDBI and ICICI. sought to provide term finance and permanent working capital support to viabie pro-jects in electronics and related areas. It was linked to the technical assistance component (see later)which provided support for these two institutions (the DFIs) in exposing appraisal staff to plants repre-senting close to international best practice, in terms of technology and scale, in the U.S and elsewhere.The line was pitched to medium and large scale projects, and it was anticipated that investmentstotalling US$420 million would be mobilised. Subloans were to be made under the Exchange RiskAdministration Scheme (ERAS), which was a scheme set up for borrowers of foreign exchange, underwhich such borrowers would have their loans rupee-tied. against an exchange risk premium chargedunder the scheme by the Government of India (GOI), which in turn was to bear the exchange risk.IDBI and ICICI were to charge a spread of 2% to cover costs and profit. Sub-borrowers had the optionof bearing the exchange risk themselves, in which case the cost of funds to them would be the Bank'srate plus intermediary spread of 2%.

Main Findings

3.2 ERAS Scheme. The single most salient feature of this component was the collapse ofERAS. Between 1989, when the loan was made effective, and 1991, the rupee depreciated 47%, caus-ing the ERAS administrators to raise the ERAS premium to such a level that the ERAS rates quotedto sub-borrowers rose to 26%. At that rate, though there were some takers, demand for the credit linestalled. Subsequently, the rupee was made partially convertible, at which time sub-borrowers had noincentive to avail of the line, as rupee resources could be raised at rates lower than the ERAS rate, andconverted to foreign currency. The alternative of assuming the exchange risk under the Bank's currencypool system was not attractive to sub-borrowers, both because of lack of familiarity with this pool andits risk characteristics, and because of the softness of the rupee at that time. Commitments and dis-bursements under the line came to a halt. In 1992, after some attempt by the Bank, GOI and theDFI's to restructure the line, no feasible market-based solution emerged,2 and the decision was made tocancel the undisbursed balances.

3.3 Industrial Credit and Investment Corporation of India (ICICI). Before cancellationoccurred, ICICI performed quite well, having made commitments for some 51 sub-projects, in a varietyof industry segments. As at the time of cancellation. total disbursements made to ICICI for subloansamounted to US$50.3 million, the last of which was made in January 1993.

3.4 Industrial Development Bank of India (IDBI). IDBI's performance was somewhatslower. By the time of cancellation, IDBI had made commitments and disbursements in respect of 36subprojects, and disbursements had totalled US$21.3 million, the last of which was made in June,1992.

Mission's Assessment

3.5 It is clear that credit demand in the sector remained high, and that but for the ERASproblem, the line likely would have been fully committed within the time that had been foreseen. Thesubprojects that had been identified for funding under the line were in any case carried out, as wasseen in some of the subprojects that the mission visited. For example, the Gujarat Narmada Electron-ics Project, which had obtained subloan commitments under the line totalling US$30 million from IDBIand ICICI combined, went forward as planned, albeit with a reduced utilization under the line of aboutUS$8.0 million. Alternative sources of funding were secured when the ERAS scheme collapsed. Anotherplant visited by the mission, Namtech Electronic Devices, obtained and utilized ERAS funding at the26% rate, but ultimately was able to prepay the subloan and refinance at a lower rate. The overall

2. Subborrowers would likely have been willing to assume the exchange risk on single currency (dollar) subloans. at marketrates of interest, but the Bank at that time did not have the flexibility to convert its currency pool loan.

Annex A26

assessment therefore seems compelling that the main objective was achieved of helping IDBI and ICICIin identifying and appraising, then supporting viable electronics projects. At the same time, to theextent there was in addition a resource mobilization objective, this was clearly not achieved. In theevent, IDBI and ICICI were apparently able to raise resources elsewhere in sufficient amounts to sustainthie lending program that was projected.

Next Steps

3.6 The mission requested, but has not yet obtained from either institution, data pertainingto the institutions' overall electronics sector portfolios, using 1989 as a base year, and covering theintervening years up to the present. The data would cover the size and performance characteristics ofthe portfolio, both in absolute terms, and in relation to the total loan portfolios of the institutions.These data would permit a more precise assessment of the institutions' role in furthering the growthand performance of the electronics sector as a whole. These data were promised to be delivered to theBank in Washington by end-May, 1997. They should also be copied to the Department of EconomicAffairs (DEA).3

3.7 Additionally, there were some gaps in the data given to the mission in respect solely ofthe subprojects supported under the Bank's credit line. These data also were promised to be sent toWashington by end-May, 1997, with a copy, as before, to the DEA.

3.8 Finally, the mission invited the two institutions to prepare their own CompletionReports in respect of this line, for inclusion in the Bank's ICR. Guidelines to support this activity weregiven to the institutions. The mission promised to have a draft ICR ready for review and comment bythe institutions by about June 20, 1997. The institutions agreed to send their comments alongwiththeir contributions to the report by end-June, 1997. The DEA would again appreciate receiving a copy.

IV. MANPOWER COMPONENT


4.1 The manpower component - Part C of the Project - was known in India as ProjectIMPACT.4 This was conceived as a project to be implemented on a pilot scale with the objective ofimproving the quality of the workforce of the electronics and computer software industry by improvingthe skills of engineers and technicians already employed, and of students being trained in engineeringcolleges and polytechnics, and by strengthening the linkages between training institutes and industry.Accordingly, Project IMPACT comprised the following activities:

(a) conducting state-of-the-art seminars for upgrading the background knowledge of in-service engi-neers and technicians;

(b) conducting continuing engineering education program (CEEP) courses for in-service engineersand technicians;

(c) conducting instructional enhancement programs (IEP) for in-service teachers in 14 selectedregional engineering colleges and 12 selected Polytechnic Institutes. all 26 of which togetherwere called participating institutions (PIs);

(d) preparation of learning materials (LMs) by leading experts in the various subject areas to sup-port IEPs, and to serve as skeleton, up-to-date course materials that could be used as best-practice models that could be adopted nation-wide;

3. Per the request later made by Mr. Rohit Modi, Deputy Secretary, DEA.

4. An acronym which stands for Industry-oriented ManPower with Appropriate Competence and Training.

Annex A27

(e) the preparation of model curricula:

(f) the upgrading and modernization of teaching facilities, including equipment, furniture, buildings,and books and journals for libraries; and

(g) conducting industry attachment programs (lAPs) for engineering and technician students.

4.2 In addition to the 26 Pls, the institutional framework which supported Project IMPACTincluded Resource Centers (RCs), which provided the staff that prepared the LMs and conducted theIEPs. The RCs which supported the project comprised Indian Institutes of Technology (IlTs) located atBombay and Delhi, along with Jadavpur University, Calcutta, the Indian Institute of Science (llSc)Centre for Electronics Design and Technology (CEDT) at Bangalore, and the NTTF Electronics Center(NEC) also at Bangalore. The project included as well six relatively new CEDTs which provide CEEPcourses to practicing engineers and technicians, and which obtained support for improving their labora-tory and related facilities.

Main Findings

4.3 Though with some delay, Project IMPACT has in the end been well and successfullyimplemented. There was, however, one sub-component which was abandoned, namely the state-of-the-art seminar program, when at the mid-term review it was decided that the effort necessary to mountthese seminars was not worth the benefit.

4.4 Views of Pis and Students. At the level of the Pis, there is considerable satisfactionwith what has been achieved by them under the project. Likewise, students who have benefited fromimproved facilities provided under the project, have been uniformly laudatory and grateful for thechanges which the project has made possible, specifically in terms of access to and the quality of booksand equipment made available to them, and in terms of the usefulness of the industry exposure gainedunder the industry attachment programs (lAPs). The IEPs may be judged a success also. Teachershave found the courses mounted by the RCs to be useful and relevant, and many have returned to takeadditional courses. There was no dissent from this positive view that was expressed to the mission. TheLMs prepared by the RCs have only yet in few cases reached the target groups of teachers and stu-dents. Those that have were said to vary in quality, and, regardless of quality, students who are moti-vated more by a desire for certification than a desire for knowledge at this stage, find that some of theLMs not (yet, at least) included in current syllabi are less than useful to the extent that they divergefrom current syllabi, which many do, by design. Many teachers have similar reservations, especially innon-autonomous Pis which do not have the freedom to set their own curricula and syllabi. Suggestedmodified course curricula have been prepared, and are currently being reviewed by the All-India Councilfor Technical Education (AICTE), with a view to possible adoption and promulgation.

4.5 Views of Industry. Industry has also voted by their actions overwhelmingly in favor ofthe initiatives adopted under Project IMPACT. Campus interviews conducted by hiring firms haveclearly favored participatng schools, and the hiring rate for fresh graduates have increased markedly forPis. Industry has however had a less enthusiastic response to the IAP. While most firms whenapproached have been forthcoming in agreeing to participate in the IAP, they have also expressed theview that an eight-week IAP is not of long enough duration for a trainee/student to solve real prob-lems. A suggestion that has repeatedly been made by industry is that the IAP be extended to a mini-mum of six months to enable meaningful projects to be worked on by the students, with the possibilityof meaningful, discrete outputs being produced at the end. In such a case, the firms visited have uni-formly indicated a willingness to pay the students for the period of the IAP. This option would neces-sitate of course a longer overall course duration before the student graduates. While some studentsobject to that, the mission found in talking to a group of students at Osmania University, Hyderabad,that a slight majority would in fact prefer a longer, paid IAP, even if it meant extending the courseduration from four to five years. Some college officials expressed skepticism whether industry would orcould respond in sufficient numbers to absorb all the students that would be seeking IAP placements ifsuch a scheme were to be adopted. Others suggested that a middle ground may be possible, wherein

Annex A

28

student projects could be carried out largely on campus, while however addressing problems identifiedwithin industry, with teachers and professors taking a more active role in identifying such projects.

4.6 Views of PIU and RCs. Understandably, the PIU and RCs are generally quite proud ofwhat they have been able to accomplish. Project IMPACT has garnered much publicity in electronicsand software circles within the country, and there is a clamor among non-Pis, also understandably, tobe included in the project. At the same time, there is an awareness within the PIU and among the RCsof the implementation delays and difficulties that bedevilled what is an institutionally complex project,and likewise a concern that the gains that have been achieved not be frittered away by lack of follow-up. Thus, the enthusiasm evinced elsewhere is tempered among the staff of the PIU and of the RCs byconcerns similar to that of the Bank. Retrospectively, the question is what could have been done bet-ter, with the benefit of hindsight, and prospectively the question is, what next?

4.7 As to the retrospective question, there appears to be a consensus view that the imple-mentation delays were due, among other reasons, to delays in producing the Detailed Project Report(DPR) needed to secure the needed allocation within the Government Budget, and related delays instaffing the PIU, followed thereafter by the latter's lack of familiarity with World Bank procurementprocedures, and by the even greater lack of familiarity of the Pls with such procedures. A consensusappears also to have emerged that it was only after the ZOPPS workshop held in 1994, which helped inbringing about a clear understanding of the project among the Pls, that the involvement of the Plsbecame active and committed. There is also a clear sense that the ZOPP workshop was instrumentalin building enthusiasm for the project among all the participants. an enthusiasm that was presentthroughout all the meetings held for the mission.

4.8 As to the question of what next, the staff of the PIU and the RCs are seized of theissue, and there is a determination that the gains of the pilot project should not be frittered away.Hcowever, there is not yet a clear consensus on what should best be attempted within an environmentcharacterized best by constraints, both budgetary and otherwise. For the moment, there is reliance ona follow-up project promised by SDC (see later). DOE and the PIU also feel that the Bank's role wasimportant to the formulation and ultimate success of the effort and wished to place on record its desirefor further help from the Bank in the follow-up activities that are necessary.

4.9 Views of the Cofinancier. The views of the cofinancier, SDC, are very much in accordwith the views expressed by the PIU and the RCs. With SDC too there is determination that the gainsof the present, pilot project not be wasted due to lack of follow-up, and there is an apprehension that,failing such follow-up, there is a good chance that that is what would happen. Accordingly, the SDChave indicated its commitment to continued financial support of Project IMPACT. This commitment ismade easier by the fact that, owing in large part to rupee depreciation, the SDC grant has been under-spent to the tune of approximately SFr7.5 million.6 The SDC follow-up effort is currently focused onthree initiatives, namely:

(a) a Sustainability Support Scheme (SSS) under which present Pls would be assisted in strength-ening revenue-generating activities, principally CEEP, consultancy, and maintenance services;

(b) a project for networking Pls, intended to facilitate the sharing of resources and experiences; and

(c) follow-through activity intended to ensure that LMs prepared under Project IMPACT are pub-lished and thereafter widely disseminated.

5. A German acronym for Goal Oriented Project Planning.

6. The balance on the account as of date is actually SFr14.8 million. However, some further draw-down of SFr 7.3 million inrespect of expenditures incurred before the Closing Date is expected, and the account is being kept open informallybeyond the formal Closing Date to accommodate such draw-down.

Annex A29

The Mission's Assessment

4.10 The Restrospective Question. As to the retrospective question, the mission acceptsthe consensus view that Project IMPACT, in the end, has been well and successfully implemented.Bank supervision could have included, early on, a Project Launch workshop with objectives similar tothat of the ZOPP workshop which was later mounted, and which was well received by all participantsfor the clarity that it lent to project definition, and to a framework for project monitoring. Such Pro-ject Launch workshops are now standard practice by the Bank for institutionally complex projects andproject components such as the present one.

4.11 The mission considered the question whether Project IMPACT could better have beenimplemented by the Ministry of Human Resource Development (MHRD), under whose administrativeauthority the Pis nominally fall. Despite the potential for conflict in the institutional arrangementsadopted, between the DOE and the MHRD, it would appear that the more focused attention that theDOE was able to give to the effort than would have been possible with the MHRD, was important tothe success of the effort. Nor does it appear that the MHRD is resentful of the DOE's intervention;rather it is welcoming of it, given its own resource limitations. Ultimately, the DOE, in this sort ofintervention into the educational sphere, may be viewed merely as a benefactor with resources, exper-tise, and a vested interest, in exactly the same way that private companies occasionally endow a pro-fessorial chair or finance the construction of a university laboratory, etc., in areas where they have aninterest, altruistic or otherwise.

4.12 What next?. The prospective, "what next?", question is more problematic. Themission is of the view that, while there is a clear determination that the gains made to date not belost, the core issues that need to be addressed in any follow-up activity is that a scale-up project maybe implemented to meet the increasing need of high-quality, industry-relevant education. While DOEhas made plans to sustain the gains of the present project, it has, as yet, not considered formulating ascale-up project.

4.13 That the present project was "pilot-scale" in fact as well as in name cannot seriouslybe doubted, having regard to the overall size and demands of the electronics industry, and havingregard also to the numbers of engineering colleges and polytechnics which are producing graduates anddiploma-holders in the electronics and computer fields. As compared with 14 engineering colleges and12 polytechnics which participated in the pilot, there are about 450 engineering colleges and 1,000polytechnics in India, about 40% of which now offer courses in electronics. The 50% per annumgrowth rate which India has been enjoying in the software segment, together with 17% growth in theelectronics manufacturing segments, argue for an impending manpower crunch, one where issues ofquality will likely emerge before issues of quantity availability. Indeed, notwithstanding productivitygains in these segments, there are already indications that India may already be starting to scrape thebottom of the barrel in terms at least of the quality of software manpower - a concern expressed(para. 5.3) by the National Association of Software and Service Companies (NASSCOM). Therefore,issues of scale-up, from pilot scale, to larger scale, must explicitly be addressed, in addition to theissue of merely sustaining the gains made in the present group of Pls.

4.14 This observaton, in turn, suggests that the lessons to be drawn from the present pilot-scale operation should at least in part focus on issues of replicability. The completion of the pilotshould carry with it an exercise to evaluate the design choices made during the pilot, to see to whatextent they should be replicated on scale-up. To what extent, given the lessons learnt from the pilot,would resource allocations have been different? Where could more money have been spent, and whereless? For example, a wave soldering machine acquired under the project had not yet been used, for lackof raw materials, and because exhaust fixtures would first need to be installed as a safety precautionbefore it could be used. Without prejudging the issue, it may be possible that in a scale-up exercise ina resource-constrained environment, the ratio of computers and other equipment to students mightoptimally be somewhat less generous than made available under the pilot project. This issue must inany case be explicitly addressed as part of the evaluation of the pilot exercise, as would be done in any

Annex A

30

engineering design project where the purpose of the pilot-scale design precisely is to optimise on designparameters and conversion input-output ratios prior to scale-up. The same should be done here.

4.15 Having said that, it is necessary to add th3t there is no expectation that in the scale-up exercise that there should necessarily or optimally be an attempt to include all candidate engineer-ing colleges or polytechics. Reducing all institutions to a lowest common denominator in terms ofresource availability is unlikely to be an optimal solution. Rather, perhaps even more so than money,the resource likely to be limiting is RC manpower for upgrading teacher quality through IEPs. There-fore, an optimal follow-up strategy bearing this constraint in mind might involve adding as manynew Pls as could comfortably be serviced by the existing RCs, supplemented by the partial use of pre-sent Pis, to serve now as RCs for additional Pls in a follow-up activity. This has to some extent beenhappening already, as some Pis have been responding to requests from other engineering colleges andpolytechnics in their locality to share some of the fruit of Project IMPACT. As a first follow-up, it doesnot seem infeasible to aim for an approximate doubling of the number of Pls. Thereafter, a "diffusion"process that is better than arithmetic progression but not quite geometric - perhaps roughly followinga Fibonacci series7 - in terms of the successive addition of new Pis may well be achievable, withroughly a three-year gestation lag from stage to stage.

4.16 All of the foregoing is not to take away from the need, in addition, to consolidate thegains made by the existing Pls. In this effort, the focus of the Self-Sustaining Scheme (SSS) (para.4.9) currently proposed for support by SDC is well placed on the effort to enhance the revenue-raisingcapability of the Pls, while not sacrificing the character of the Pls as educational institutions. In thisre-gard, CEEP course offerings can serve the dual purpose of raising revenue for the institutions whichoffer them, as well as contributing to the broader objective of raising the skill levels of in-service engi-neers and technicians. Additionally, Pis should be encouraged to provide consultancy and other ser-vices to industry, again to a degree that does not vitiate the core teaching mission of the Pis, as heretoo there is a synergistic benefit to better cooperation between industry and educational institutions.Also, the Pls are being encouraged to set up Self-Maintenance Cells, which would undertake the activi-ties of maintaining the equipment with which they have been provided, teaching students useful skillsin the process, and raising revenue by providing this service to business and industry. Finally, since stu-dents are the immediate beneficiary of improved schooling, with a fairly rich stream of lifetime benefitsthat flow upon graduation, GOI may wish to consider establishing and supporting schemes for studentloan financing coupled with a significant increase in student fees charged.

4.17 Summary of Mission's Recommendations. The mission's recommendations withrespect to follow-up activity may be summarized as follows:

(a) treat the present project as the pilot-scale exercise as it was in fact, and as it was characterizedin the Bank's Staff Appraisal Report (SAR), and use the experience to plan for scale-up, notalone consolidation;

(b) evaluate the present pilot not only from the viewpoint of effectiveness, on which basis it isclearly a success, but also from the viewpoint of conversion efficiencies (optimality of input-output ratios);

(c) work out a scale-up exercise that respects the limiting constraint of RC staff and present PIstaff that may now also function as RC staff for new Pis, and that also respects likely financialconstraints; and

7. 0, 1, 1, 2, 3, 5, 8, 13, etc., where (except at the beginning) each term is the sum of the preceding two. The Fibonacciseries occurs quite often in nature, as growth processes seem often to follow its pattern. If the RCs have in some sensemanaged to "duplicate" themselves among some of the present PIs (O and 1 yielding 1, making possible 1 and 1 next, toyield 2 at the next stage, etc.) then to that extent the size of the constraining resource should now be double what it wasin the pilot. And so on.

Annex A31

(d) additional to encouraging fund-raising by Pis through CEEP courses, and services to industry,consider increasing student fees, and funding the same through a student loan program. Thedesign and implementation of such a scheme could well provide the basis for a future Bank-assisted project which the Bank's management may want to consider, should GOI be agreeable.

V. TECHNICAL ASSISTANCE COMPONENT


5.1 The technical assistance component provided for:

(a) a software development study (US$0.9 million);

(b) a seminar program for Government and industry (US$0.7 million); and

(c) training and technical assistance for IDBI and ICICI (US$1.4 million).The total of US$3.0 million equivalent, of which US$1.8 million had been disbursed as at close, wasprovided in the form of Japan Grant, and administered by the World Bank.

Main Findings

5.2 Software Study. The software development study was completed in 1992. The studyand its impact was described in wholly positive terms, as an "eye-opener", and as "the single eventthat transformed the industry", in that it indicated how the Indian software industry could best posi-tion itself in the global market. It reportedly helped focus the attention of politicians and bureaucratson the potential of the industry to contribute to India's export earnings, so much so that it is stillreferred to by them as a "recent study," even though it is now five years old. While GOI did notimplement all of the recommendations of the study, for example the recommendation to establish aSoftware Development Board, it turns out that this has not constituted a lack. The National Associa-tion of Software and Services Companies (NASSCOM) has emerged as a focal point for addressingissues related to the software industry, and GOI has relied on NASSCOM's recommendations to a largedegree in addressing the problems, constraints, and prospects of the industry.

5.3 In the event, the performance of the Indian software industry has exceeded the projec-tions made in the study report, for example, the study had predicted that in the absence of any partic-ular interventions or positioning, India could expect to earn about US$660 million in exports in the fis-.cal year 1996/97, as against which India's software exports have exceeded US$1.0 billion. From a mar-ket share of 11.2% in the base year of 1992 in the area of custom software, India's market share in thisarea has grown to 16.7% at present. In the area of package software, India's market share was a minis-cule 0.01% in 1992, and remains a miniscule 0.04% at present, albeit with a four-fold increase. Cur-rent plans are to achieve a 22% market share in custom software by 2002, and to achieve a 3% marketshare in package software by the same year. Among the key issues which concern software manufactur-ers in this regard are infrastructure constraints, particularly in the area of telecommunications services,internet access and the bandwidth thereof, and significantly, an emerging manpower (quality) con-straint.

5.4 Seminar Program. The seminar program for Government and industry was less suc-cessful, and was discontinued after only one or two seminars had been mounted. As with the state-of-the-art seminars under the manpower component, the effort involved in mounting these seminars wasjudged not to be worth the benefit.

5.5 Technical Assistance for IDBI and ICICI. IDBI and ICICI received funds intended toimprove the awareness of international best-practice in various electronics segments by appraisal staff inthe institutions. Study tours to the U.S and elsewhere were organized by Dataquest Inc., a companyawarded a contract for the purpose. IDBI sent a group of 15 executives, ICICI a group of 17. The

Annex A

32

general assessment of the institutions was that this was a useful program that achieved the goal thatwas sought, although not necessarily with a tight coupling between what was learnt on the study tour,and what was immediately applicable to projects in the appraisal pipeline that were subsequentlyattended to. One participant indicated that it was not until about three or four years after the exercisethat his experience overseas became directly useful to a (telecommunications) project that he thenhelped to appraise. Additionally, although staff turnover has affected the extent to which the organiza-tions have retained the benefit of this overseas exposure, the assessment of both organizations remainsthiat this was a useful exercise. IDBI in particular indicated that it sends 15-20 staff on similar trainingprograms each year, and the perceived usefulness of the present exercise may have contributed to thewillingness to devote resources to such activity.

MVission's Assessment

5.6 The performance under this component was clearly mixed. The software study wasboth timely and useful. The technical assistance provided to IDBI and ICICI for overseas tours was use-ful, but no tight coupling between the usefulness of this activity and subsequent appraisal activity bythe staff so exposed could be discerned. This however could hardly have been expected. And finally, thestate-of-the-art seminars, while in principle attractive as a means of exposing relevant Government andindustry personnel to what is happening internationally in respect of technology trends that mightimipact on India's competitiveness and positioning, the sheer laboriousness of organizing these seminarswais not adequately anticipated.

5.7 DEA expressed some dismay that so much of the grant (US$1.2 million) under thiscomponent went unutilized. The mission could only agree that some restructuring should have beenpossible that would have obviated that result.

VI. NEXT STEPS FOR THE ICR

6.1 The next steps for producing the ICR are as follows:

(a) IDBI and ICICI to complete their data submission in respect of the credit line component byend-May, 1997 (paras. 3.6, 3.7);

(b) the mission to complete the first draft of the ICR by about June 20, 1997 (para. 3.8);

(c) DOE, SDC, IDBI, and ICICI to send their comment on the first draft by about July 15, 1997.IDBI and ICICI at the same time to send their contributions for inclusion into the ICR. SDC toconfirm that their views have been adequately addressed; and

(d) the mission would kindly request that the DOE also revise its contribution to the ICR to takeinto account the comments and recommendations made in this aide-memoire in paragraphs4.10-4.15 and summarized in paragraph 4.16 above.

Sidney ThomasJune 4, 1997

Delhi and Washington, DC(revised August 26. 1997

to reflect Borrower comment)

Annex A

33Attachment i/p. 1 of 3

LIST OF PERSONS MET

Government of India, Department of ElectronicsMr. Shyamal Ghosh, SecretaryDr. S. C. Mehta, Senior DirectorDr. P. N. Gupta, DirectorMr. V. B. Taneja, DirectorMr. A. N. SharmaMr. Altaf Khan

Government of India, Department of Economic AffairsMr. V. Govindarajan, Additional SecretaryMr. Rohit Modi, Deputy Secretary

Swiss Agency for Development Cooperation (SDC)Mr. Kurt Vogele, Head -Asia Section (Berne)Mr. Hansjurg Ambuhl, Coordinator India Programme (Berne)Mr. H. R. Pfeiffer, First Secretary (Development) (Delhi)Ms. Rena TagoreProf. Jaya Indiresan, Consultant (Delhi)

Industrial Development Bank of India (IDBI)Mr. P. V. Narasimhan, Executive DirectorMr. J. John, Deputy General ManagerMr. Anupam Srivastava, Deputy General ManagerMr. S. G. Gulati, Chief General ManagerMr. V. Venkateswariu, Chief General ManagerMrs. S. Rao, General ManagerMs Mythili Ravi, Asst. General ManagerMr. S. Sridhar, Asst. General ManagerMr. G. V. Nageswara Rao, Deputy General ManagerMr. Naresh J. Gwalani, Asst. Manager

Industrial Credit and Investment Corporation of India (ICICI)Mr. S. H. Bhojani, Executive DirectorMr. Suresh Vishwanath, Vice PresidentMr. A. P. Singh, Vice PresidentMs. Shalini Shah. General ManagerDr. P. H. Vaidya, General ManagerMr. N. P. Subramanian, Deputy ManagerMr. P. Suresh, Asst. Manager, BarodaMr. Mangesh Kelkar

Resource CentersIndian Institute of Technology, Bombay

Prof. S. S. S. P. RaoProf. G. Sivakumar

Indian Institute of Technology, DelhiProf. D. Nagchoudhuri, Head, Dept. of Electrical EngineeringDr. G. S. Visweswaran, Assoc. ProfessorMr. N. K. Jain, Chief Design Engineer

NTTF Electronics Training Center, BangaloreWing Commander B. C. Prabhakar, Principal

Annex A

34 Attachment 1/p. 2 of 3

Mr. V. N. Vaidyanathan. Deputy Manager - TrainingIndian Institute of Science. Bangalore

Centre for Electronics Design and Technology,Prof. H. S. Jamadagni,Prof. N. J. Rao

Engineering CollegesMr. D. B. Goswami, A.E.I, AssamProf. S. Biswas, Bengal Engg. College. CalcuttaDr. Sakuntala S. Pillai, College of Engineering, TrivandrumDr. (Mrs.) K. S. Jog, Govt. College of Engineering, PuneProf. K. K. Tripathi, HBTI, KanpurProf. J. S. Shah, LD Engg. College, AhmedabadMREC, Jaipur

Prof. S. C. AgarwalMr. R. P. Yadav

MS Univ. of BarodaVice Chancellor,Prof. Dipak Kumar De, Pro Vice Chancellor,Prof. B. S. Parekh,Prof. G. S. Shah,

Osmania College of Engineering, HyderabadProf. V. Ramakistayya, Vice-ChancellorProf. R. V. B. Chary, Head, Dept. of ECEProf. V. M. Pandharipande, Dept. of ElectronicsProf. K. V. Chalapati Rao, Dept. of Computer ScienceMr. L. C. Siva Reddy, Reader, Dept. of Computer Science

PSG College of Technology, CoimbatoreMr. S. PalanichamyMr. A. Kandaswamy

Regional Engg. College, KurukshetraDr. Shakti KumarProf. Anurag

Mr. S. R. Philar, Regional Engineering College, Surathkal, KarnatakaRourkela Engineering College

Mr. H. ParhiMr. G. S. Rath

SGSITS, IndoreDr. P. C. Sharma, DirectorDr. P. K. ChandeDr. Prakash D. Vyavahare, Reader, Dept. of Electronics Engg.

Polytechnic InstitutesGov't Polytechnic Kalamassery, Kerala

Mr. C. V. George, PrincipalMr. V. A. Shamsudeen

Mr. J. P. Choudhury, Gov't Polytechnic, NilokheriMr. Jagjit Singh, Mehr Chand Polytechnic, JalandharMEI Polytechnic, Bangalore

Mr. N. K. Ramdas, Consulting Engineer and Hon. Sec'yMr. T. Narayana Swamy, Principal

Mr. P. R. Sridharan, Murugappa Polytechnic, MadrasShri B. A. Chidre, S.B.M Polytechnic, Mumbai

Annex A

35 Attachment I/p. 3 of 3

Mr. Y. i. Shah, Dean, Shri Bhagubai Mafatlal Polytechnic, MumbaiThapar Institute, Patiala

Prof. G. K. Sharma, Head, Dept. of Computer ScienceDr. Surekha BhanotDr. M. JayakumarMr. Kailash ChanderDr. P. K. BansalMr. Jagpal Singh

Shri Vaishnav Polytechnic, IndoreMr. M. K. Dube, Principal and SecretaryMr. L. K. Jain, Head Electronics Dept.

Shri P. K. Chakrabarti, Women's Polytechnic Institute, Calcutta

Centres for Electronics Design and TechnologyMr. B. A. Damahe, Senior Design Engineer. CEDT AurangabadDr. Madhu Mangal, Director, CEDT CalicutProf. A. K. Ogra, Director, CEDT Gorakhpur

Plant VisitsBPL Limited

Mr. K. R. Vinod Krishnan, DirectorMr. K. Srinath, Asst. General Manager - Corporate FinanceMr. P. Haridasan, Manager FinanceMr. T. N. Shashidhar, Accounts Executive

Namtech Electronic Devices, Ltd.Mr. K. P. P. Nambiar, Chairman and CEOMr. B. S. Venugopalan, Executive DirectorMr. Jacob John, General Manager - FinanceMr. T. V. D. Nair, Sr. Production Executive

Narmada Electronics, Ltd.Capt.B. Bates, VSM, IN (Rtd.), Chief ExecutiveDr. G. K. Pathak, General ManagerMr. A. K. Modani, Asst. General ManagerMr. Sunil Bhatia, Officer (Administration)

NELCOMr. D. J. Fernandes, Executve DirectorMr. K. A. Mahashur, Executve DirectorMr. G. H. Chawla, Chief Operations ExecutiveMr. R. L. Panjwani, Senior ManagerMr. Ashok Mitra, General Manager Finance

Mr. J. Shankar, Corporate Treasurer, Wipro Limited

Industry Associations and OtherMr. K. M. Kini, Behram Wadia & AssociatesMr. Shrikant Sarpotdar, General Manager, Kalyani Sharp India LtdMr. S. Srinivas, Kamal Elektronix, BangaloreMr. Dewang Mehta, Executive Director, National Association of Software and

Service Companies (NASSCOM)Mr. Sanjay Goel, Tata Consultancy ServicesMr. V. N. Dhoot, Managing Director, Videocon International

mI-m

Table 1.1 q-I

Production Performance of Electronics Industry During VI, VII and Vil Plans 0z

Production Growth (%0)

(Rs. Crores) Annual i Cumulative z 2

Sixth Plan 1980-81 767 12.0 O0

1981-82 930 20.9 4

1982-83 1287 38.3 25°o%1983-84 15o0 16.6 mO

1984-85 2081 38.7 (A._________ m

Seventh Plan 1985-86 2880 38.4 m

1986-87 3855 33.9 m1987-88 5285 37.1 34°%o _

1988-89 7030 31.0 z

1989-90 9010 28.2 n

Annual Plans 1990-91 9540 5.9 0

1991-92 1067 11.9 c-n

Eighth Plan 1992-93 12850 20.4 -om

1993-94 15235 18.6 m

1994-95 18060 18.5 22% 0

1995-96 21675 20.01996-97 28410- 31.1 n

m x' Anticipated 0

Annex A


Table 1.2

Cumulative Growth Rates Achieved by Different Sectors During VIl and Vill Plan

Sector VII Plan (1985-90 VIII Plan (1992-97)Cum. Growth Rate (C) Cum. Growth Rate (%,')

Achieved Targetted Anticipated

Electronics Hardware1. Consumer E!ectronics 33.6 22.4 15.1

2. Industnal Electronics 30.8 24.5 14.13. Computer System 55.0 30.6 25.84. Communications and 34.4 23.0 19.9

Broadcast Equipment5. Strategic Electronics 24.0 28.4 11.86. Components 37.4 32.0 17.2

Sub-Total, Hardware 34.0 | 26.8 | 17.4

7. Software for Exports 40.8 47.0 54.08. Domestic Software I 47.0 52.0

Electronics, Total 34.1 | 27.7 22.0

Table 1.6

Export Performance of Electronics Industry

Electronics Growth (%,) |

Plan Year Export Annual j Cumulative

Seventh Plan 1989-90 865 66.3 41%

Annual Plans 1990-91 910 5.2

1991-92 1133 24.5

Eighth Plan 1992-93 1454 28.3

1993-94 2128 46.4

1994-95 3032 42.5 41 %"a

1995-96 4585 51.2

1996-97 6287' 37.1

Am nex A

38 Attachment 2 /p. 3 of 4

.Sunmary of the Budget 1997-98 for Electronics Sector.

GENERAL:

1. Peak rate of customs duty reduced from 50% to 40%.

2. Customs duty on capital goods and project imports reducedfrom 25% to 20%.

3. Customs duty on 36 items of capital goods- for manufacture ofsemiconductor devices continues at I02.

4. Customs duty on tools, moulds and dies continues at 25%.

5. Customs duty on chemicals, in general, reduced from 40% to30%.

6. Customs duty on drawings and designs abolished.

7. Customs duty on computer software abolished.

8. Customs duty on populated PCB rationalised at 20% level.

9. Custorms duty on Integrated Circuits and Microassembliesreduced from 20% to 10%.

10. A new scheme of Excise for small scale exemption introducedwith effect from 1.4.97. The salient features of the newscheme are as follows:

i) The existing limit of duty free clearance upto Rs. 30lakhs and the overall eligibility limit of Rs. 3 croreshave been retained.

ii) Clearances in the range of Rs. 30 to 50 lakhs will beliable to a flat rate of duty @ 3% advalorem andclearances in the range of Rs. 50 to 100 lakhs" will

- attract a flat rate of duty i 5% advalorem. Clearancesbeyond Rs. 100 lakhs will have to discharge full dutyliability.

iii) A manufacturer availing the full exemption upto Rs. 30lakhs and concessional rate of duty for clearancesbetween Rs. 30 lakhs and Rs. 100 lakhs will not beeligible to avail credit of duty paid on inputs underrule 57A. However, he will be eligible for modvatcredit on crossing the limit of Rs. 100 lakhs when hestarts paying duty on the specified goods at the normalrate.

11. Excise duty in general, reduced by 2%.

12. M.AT removed for exporters under 30 IIHC of IT Act.

Annex A


13. Corporate tax reduced from 43% to 35%.

14. TDS on dividends abolished.

15. Tax holiday to enterprises providing Telecom Services (Basicor Cellular) under Section 80-IA and Amortisation of TelecomLicence fee under Section 35 ABB of the IT Act allowed.

16. A service Tax e 5% which was applicable to the following:

a) Radio paging servicesb) Courier servicesc) Advertisewent service etc.

will now apply to the following also:

a) Transporters of goods by roadb) Consulting engineersc) Customs house agentsd) Steamer agentse) Air travel agentsf) Clearing and forwarding agentsg) Outdoor caterersh) Pandal contractors and mandap keepersi) Man-power recruitment agenices/consultants, andj) Tour operators including car rentals

The tax will be leviable on the gross amount charged by the

service renderer from the clients. Details of modifications under

customs notification are given in the Annexure-IV.

Annex B

bo Pi-j. sP- PC

Tzwf~ f4mliFIt F;fN~~~~~~~~~~~"V~Tf f7T , 6, #SUt.t3ft. 4

i~~~~~~~~~~~~~~~~~~~~~9 , Z< rf-110003GOVERNMENT OF INDIA

717 'o DEPARTMENT OF ELECTRONICSTW7 II, if ELECTRONICS NIKETAN. 6, CGO COMPLEX.

SHYAMAL GHOSH NEW DELHI 110003SECRETARY TEL. :436404 . FAX : (011) 4363134

July 31, 1997

Dear Mr. Nicholas,

This refers to your letter of June 20, 1997 enclosinga copy of the draft Implementation Completion Report (ICR).We have gone through the report. We appreciate the deepinsight and clear thinking of Mr. Sidney Thomas in preparingthe ICR. Overall, the report is highly analytical and objec-tive. The recommendations and the lessons learnt will provideuseful direction for our future initiatives. The report alsohas been supportive of the Project Implementation Unit andthey are encouraged by the positive comments.

2. We agree with the broad contents of the report. Inrespect of the grading, we note that the borrower's performancehas been grated as "satisfactory". It seems that the rating'satisfactory' and not 'very satisfactory' is because of averag-ing the ratings of all the components. You may like to considerrating the three components separately just as assessment ofdifferent components has been done separately in the AideMemoire.

3. A few other modifications have also b&en suggested inthe attached note which you may like to incorporate. Theseare mainly of editorial nature or due to small gaps in informa-tion.

4. As recommended in the ICR, we would be examining thefeasibilty of implementing a scale-up project. When finalised,we may be asking for World Bank assistance.

5. We place on record our deep sense of' appreciation tothe World Bank and the SOC for the support provided to theproject. A number of World Bank officials have rendered expertadvice and administrative assistance during project implementa-tion. In particular, we acknowledge the cooperation extendedby Ms Hadjitarkhani, Mr Nagi Hanna, Mr Bredie, Mr Virdi, MrCecil Perera, Mr Schware, Mr Shirazi, Mr Sidney Thomas andyourself. We also drew on the support of Prof SK Srivastavaand Mr Subramanyam of New Delhi office.

With best regards,Yours incerely,

(Shyamal Ghosh)

Mr.Peter Nicholas,Acting Chief,Country Operations,South Asia Region,The Wor d BanR,1818 H.Street N.W.WASHINGTON DC020433USA

Annex B<1 42

Implementation Completion Report

INDIA

Electronics Industry Development ProjectManpower Development Component

(L No. EIDP/3093)

May, 1997

L I

Annex B

43


Electronics Industry Development Project (LN3093-IN)Manpower Development Component

1. Introduction

1.1 Project IMPACT (EIDP: Manpower Component) is a pilot project for the development ofmanpower with appropriate competence and skills as needed by the electronics andcomputer industry. It is aimed at improving the quality of Engineering and Polvtechniceducation using an integrated approach of laboratory modemisation, teacher competenceupgradation; up-to-date Learning Material and improved industry interaction.

1.2 The project is jointly supported by the Govemment of India, grant-in-aid from Govt. ofSwitzerland through SDC and a credit from World Bank.

1.3 The Government of India entered into an agreement with the World Bank on July 7, 1989for a loan of US$ 210 million for EIDP. Out of this, the manpower component of EIDPwas US$8 million. A grant in aid of S.Fr. 25 million from the Government of Switzerlandwas also extended to the manpower component as per an agreement with the Governmentof Switzerland in March, 1991. The Government of India contribution amounted to Rs.40 million towards civil infrastructure and about Rs. 100 million towards duties & taxes.

1.4 The EIDP proposal was appraised by the Bank in May 1989 and the Staff AppraisalReport (SAR) recommended an IDA credit of US$ 8 million, US$ 16.2 million grantsfrom SDC and US$ 2.6 million from GOI. The project commenced implementationthrough Department of Electronics (DoE) in June. 1991.

2. PROJECT OBJECTIVES

2.1 The component would assist. on a pilot scale, in improving the quality of the workforce of the electronics and computer software industry by improving the pre-servicetraining at selected Engineering Colleges and the Polytechnics. It also aimed to improvethe skills and knowledge of the in-service engineers and technicians by supportingContinuing Engineering Education Programmes (CEEP) and by conducting State-of-the-art Seminars. The linkages between the training institutes and industry were also to bestrengthened.

2.2 It would build on previous efforts of DOE to establish Centres for Electronics Designand Technology (CEDTs) and to raise the standards of employee training and the qualityof engineering education in the country.

2.3 The component will assist in:

2.3.1 Improving the quality of practicing engineers and technicians by (i) conductingstate-of-the-art seminars for middle and higher level technical employees of small andmedium scale industries and (ii) by supporting Continuing Engineering Education


Annex B44

Programs at the RCs. selected PIs and at the Centres for Electronics Design andTechnology (CEDTs).

2.3.2 Improving the quality of pre-service training at selected ECs and Polys throughthe development of up-to-date learning materials in areas such as product design,computer science etc. where such materials are lacking; modernizing teaching facilitiesand equipment; and providing training for the teachers.

2.3.3 Strengthening the links between industrv and Participating Institutes throughIndustrial Attachment for students and through part-time teachers from industry.

3. Implementation Experience & Results

3.1 Achievements of Objectives

The following project activities were identified in order to meet the above objectives. Theprogress in each of the activities is given below:-

3.1.1 SoA seminar:

Three State-of-the-art Seminars were organised at 10 Centres. About 310 peoplepaLrticipated in these seminars. Additionally, one training programme was conducted usingtrarismission via satellite. This programme was received simultaneously at 9 centres and wasattended by over 180 participants.

Further programmes were, however, dropped based on recommendations of the mid-term review mission.

3.1.2 Continuing Engineering Education Programme:

This activity was started in 1994 at five Resource Centres, three Engineering Collegesand three Polytechnics. During the mid-term-review, CEEP was identified as a key activity forrevenue generation by the PIs. This activity was strengthened and two process guidanceworkshops were organised for the PIs to help them to conduct market driven CEEPprogrammes. Three experience sharing workshops were also conducted. All the institutionswere invited to these workshops. As a result, in addition to the 11 institutions (SRCs + 6PIs)which were supported under CEEP, 4 other PIs have started CEEP at their institutes forresource generation. As against the target of conducting 23000 man-l$"of training underCE-EP, about 25000 rian-QWbf training were conducted during the year 1996-97. Most PIshave also prepared a schedule for the next year and have announced their programmes.

All the PIs have plans to use the CEEP activity as a source of revenue generation forsustenance, making them as self-supporting for fulure SSS project.

3.:1.3 Learning Material Development:

The original DPR had provided for the development of Learning Material for 49courses. During implementation, it became necessary to revise the list, deleting a few coursesand adding some new courses. In the revised list, 58 Learning Materials (16 for electronics &

Imlplemenmation Completion Report

Annex B45

15 for computer for UG programme and 27 for the polytechnics) were identified. Later, duringJanuary 1996, it was decided to print 48 Learning Materials within the project period. Thisrequired all the LMs to be reviewed, revised and DTP to be done.

As of now, development of 56 Learning Materials have been completed. The expertshave also reviewed these LMs. Out of these. 38 LMs have been revised and 35 have beenprinted for wider dissemination to the PIs and non-PIs.

Even though the distribution of LMs could not be completed as targeted, the faculty ofPIs have used the LMs given to them during Instruction Enhancement Programmes for theirteaching. Some PIs have also included additional topics in their curriculum based on the LMsthat were provided to them. The distribution of LMs is going to further increase their usage bythe institutions.

Based on the LMs developed under the project. the SDC is planning to support aproject for development, revision and wider dissemination of Learning Materials.

3.1.4 Staff Training

3.1.4.1 Instruction Enhancement Programme (IEP):

Under the project, 57 Instruction Enhancement Programs have been conducted for thefacultv of the Participating Institutions. These programs have been found very useful andthe faculty participation has been good. Over 700 faculty members have been trained inthese programs. Besides direct benefits in terms of improved subject expertise and betterteaching, the PIs have also benefited in the following ways:

(i) The PI faculty is more confident in handling the subject matter as well as the labs.The use of computers has increased significantly, especially in the Polytechnics.

(ii) The PIs have improved the organisation of their labs and have started newexperiments. The Course Files and lab handouts are prepared by many institutions. TheStudent Projects are carried out iri a more systematic way and project briefs are preparedby some institutions.

(iii) The use of teaching aids has increased significantly.

(iv) PIs also used this opportunity to solve their problems related to equipmentinstallation and usage. Use of networking and Email has also increased because of this.

3.1.4.2 Support Staff Training Programmes:

With a view to facilitate the PIs in setting up their self maintenance cell 26 programmeswere conducted on the maintenance of equipment and computers procured under theProject. Over 350 Support Staff were trained in the areas of Computer and equipmentmaintenance. Another 25 training programs were on the use of advanced Software,library, stores management, PCB design and fabrication etc. Over 350 Support Staff weretrained through these programs.


46 Annex B

3.1.5 Modernisation of facilities

State-of-the-art electronic equipment, computers and software amounting to nearly Rs.450 million have been provided to the PIs. Some of these funds were released directly to thePIs to enable them to upgrade their computers.

PIs have also been provided grants towards development of infrastructure forimproving laboratory facilities, library facilities, developing model classroom, establishmentof self-maintenance cells and procurement components and consumables.

3.1.6 Industry Attachment Programmes (IAP)

Originally, it was envisaged to conduct the Industry Attachment Programme only forthe students of the Engineering Colleges. The Colleges were advised to take up theprogramme in a systematic way so as to build up industrial linkages with local industries toensure an effective industry academic interaction.

Based on the success of Industry Attachment Programme (IAP) at the EngineeringColleges, the mnid-term-review mission recommended extending the Industry Attachment toselected Polytechnics. Three student batches of the Engineering College students haveunclergone the Industry Attachment Programme and one batch pf the Polytechnic students tookindustrial training during their vacations. During the last year. over 1400 students from theEngineering Colleges were trained at over 500 industries. The training was coordinated byabout 580 industry guides and about 250 faculty members of the PIs.

The total number of students who have undergone Industry Attachment so far is about4575 from 14 engineering colleges & 500 from Polytechnics.

All institutions intend to continue IAP beyond the Project IMPACT duration. Manyinstitutions have included in their curricula as well as in their academic calendar. Theduration of the IAPs has been usually eight weeks except for one or two institutions who hadto reduce it because of difficulties in finding an adequate slot in their timetable. Mostinstitutions mentioned improved relationship with the industries and better student projects asmajor benefits.

The inclusion of Industry Attachment in the regular curricula of the Engineering Colleaes andPolytechnics has also been recommended in the model curriculum prepared for the threestreams. This would ensure the sustainability of IA, once the revised curriculum is adopted.

3.1.7 Development of model curricula:

Three committees had been set up for development of model curricula for the (i)electronics and (ii) computers for undergraduate programme and electronics andcommunication streams for polytechnics. The development of all the 3 model curricula havebeen completed and copies have been sent to each of the PIs participating in the project,Directorate of Technical Education of each of the states and AICTE for adoption.


47 Annex B

3.1.8 Establishment of self-maintenance cells (SMCs):

The concept of having a self-maintenance cell at the institution seems to haveflourished because of IMPACT. Even though the concept of self-maintenance cell was thereright from the start of the project. very few institutions paid attention to this activity till themnid-term review. After the MTR. a lot of attention to this was paid by the PIU and all Plshave now taken concrete steps to set up their SMCs.

Out of 14 Engineering Colleges, only 2 colleges had Self- Maintenance Cells beforeImpact Project, the remaining Colleges have established SMCs under Impact Project. TenColleges have permanent staff-members as SMC incharge while the remaining 4 havetemporary Incharges. Some PIs have also taken necessary steps to request for additionalmanpower for this purpose.

3.1.9 Improvement in Learning Environment at the PIs

Most PIs have improved the learning environment at their institutions. Theimprovements are given in detail in a separate report prepared by the IMPACT MonitoringGroup. These are summarised below: -

3.1.9.1 Library:Most Colleges have been able to set up departmental library. Over 20000 books

have been procured by the Participating Institutions for use in their departmentallibrarv. Most PIs allow access to this library during the college hours and allow thestudents to get the books issued. Some PIs have computerised the operation of thislibrary and have set up video viewing facilities in their departmental library.

3.1.9.2 LaboratorvThe laboratory facilities at all PIs have improved substantidily as a result of

IMPACT. Most PIs have been able to manage additional space from their institute forsetting up these laboratories, without using funds from the Project. All PIs haveiznproved their lab furniture, wiring, lighting, storage of equipment etc. The improvedlabs have substantially reduced the batch size per experiment thus giving better handson experience to each student. This is most visible for the computer labs where thestudents use the computers individually rather than in-group. The labs are now keptopen during holidays and for longer hours by about 3-7 hours extra as compared tobefore IMPACT.

New lab experiments have been introduced based on the equipment and softwarereceived under the Project as well as based on the LMs and IEPs. The lab staff and thefaculty are more confident to handle the equipment and the software procured underthe Project which is resulted in better handling of laboratories.

The labs have significantly helped in improving the practical contents of theteaching at the institutions. The new facilities have a direct impact on the quality ofexperiments and the student projects.

3.1.9.3 Class roomMost PIs have set up a model classroom with improved furniture and facilities

like the Glass Board, Projection system, Slide projector etc. at their institution. The use


Annex B48

of OHPs for regular teaching has increased significantlv at the ParticipatingInstitutions. The Projection System is generally used for demonstrations, guest lecturesand for student seminar and project presentations. Many PIs are now inviting expertsfor Guest Lectures.

3.1.9.4 Students ProjectThe student project is an important part of Engineering education. Generally it is

done during the final year of the curriculum and about 50 % of the students take upindustry specified projects. This also exposes students to other aspects of their futurework like teamwork, planning, documentation and presentation. In this context, it is animportant indicator of the learning environment at the institutions.

IMPACT has brought about a major change in the industrial orientation of theProjects. This has happened primarily because of the improved institute-industryinteraction. The methodology followed in the project implementation has improved atmany inslitutions. Some PIs are preparing project briefs and are doing systematicmonitoring. The improvement of facilities also had direct effect on the type and scopeof student project. Some PIs also increased the project duration to two semesters.

The quality of student projects, its reporting and presentation has improvedsignificantly. The use of computers for simulation, drafting and learning has increasedsignificantly.

3.1.10 Participating Institutions performance:

Performance of the participating institutions has been monitored closely through astructured monitoring system. Performance indicators and their means of the verification werew.orked out in joint workshops with all the PIs at a time when the project inputs startedreaching the PIs. The Status Report format was modified suitably and several forms wereevolved for proper collection of data.

Initially, the PIs were expected to submit quarterly reports. which was analysed by theNMonitoring group and the RCs. The feedback on the status reports was also presented to thePIs during the Monitoring Workshops. Based on the feedback of the PIs. the frequency ofsubmission of Status reports was reduced to six months. Besides this. the RC coordinators andthe PIU coordinators visited the PIs regularly and submitted their visit reports, which wereanialysed by the monitoring group. In order to present all this information in a concise manner,the performance of the PIs was plotted in terms of the RADAR charts for all the PIs. TheRadar charts for the Engineering Colleges were plotted with 12 performance indicators andwith 8 performance indicators for the Polytechnics, who do not have Student Project as amajor activity. The innovative use RADAR charts, which provide a bird's eye-view of the PIsperformance on all activities, was appreciated by the review missions and the fundingagencies. A separate report gives the details of these charts and the performance of the PIs.

These Charts have been presented to the PIs during the Monitoring Workshops and PIshave been asked to take corrective actions, wherever necessary.

While there could be differences in the extent of utilisation of project inputs and interms of best outputs achieved as a result of the project, the acceptance of the PI students bythe Industry has increased for all PIs.


Annex B49

In order to assess the marketability of the PI students. the campus recruitment informationwas requested for all the PIs for the last five years. 24 PIs were able to provide the data.

For the purpose of assessing the benefits of IMPACT, the campus recruitment figures forthe years 1992 and 1996 were compared. As against the placement of 39 % students in 1992.71 % students got placement during the campus recruitment.

Since acceptance by industry is a clear indicator of the success of the project, it is clearthat the benefits of the project have reached the students who are the ultimate beneficiaries ofIMPACT. The assessment of benefits to the industry will require a tracer study, which islikely to be conducted later by the Swiss Development Cooperation.

There is only one visible case of IERT Allahabad who has failed to come up to level ofother successful PIs.

3.2 Costs:The Original Project outlay as per the Staff Appraisal Report was US$ 26.8 million to be

funded by W.B. Loan (US $ 8.0 million); SDC grant (SFR 25.0 million equivalent to US$16.2 million) and Govt. of India's contribution of Rs 40 million.

While some final payments for goods and services provided till 31.3.97 are still beingprocessed both at the PIU as well as at some of the Participating Institutions, it is expectedthat the total expenditure would be approximately Rs. 829 million. out of which theGovernment of India's contribution is Rs. 126 million (including Taxes and duties of Rs 86million). The Govt. of India Contribution and the World Bank loan has been utilized in full,the SDC commitment has been used to the extent of US$ 13.15 million (SFR 17.5 million).

The project costs, project financing and reimbursement details are given in Tables 8A,8B, 8C.

3.3 MAJOR FACTORS AFFECTING PROJECT IMPLEMENTATION

The overall project design was complex with several layers of institutions namely: (i) theRCs, (ii) the ECCs, (iii) the ECEs. (iv) the Polys , the CEDTs and eight major schemes.

The effort and the time required to complete the development of learning material wasgrossly under estimated. Also it was wrongly assumed that the faculty, who are experts in thesubject matter, would have all the skills to take up development of LM. The contribution byindustry experts also adid not come in adequate measure.

As a result, the development of Learning material took much longer than estimated. At the endof the project, all the LMs as envisaged in the original SAR have been completed and copiesof the same have been given to the faculty of the Pls during their participation in the IEPs.

Printing of Learning Material and its widespread dissemination to the students of the PIsand selected non-PIs were suggested during the mid-term review. It was decided to get all theLMs reviewed and revised before printing. As of now 35 LMs, out of the targeted 48, have beenprinted and are ready for dispatch to the institutions.


50 Annex B

Procurement of Equipment. Software, Components. Books and the Furniture by theProject Implementation Unit (PIU) was a stupendous task which, sometimes, constrained PIU'sattention towards other activities. The shortage of staff with requisite skills at PIU was anotherlimiting Factor. At the PI level, the main bottlenecks in varvina degrees at different PIs were:

(i) rigid rules and procedures,(ii) shortage of teaching and support staff,(iii) lack of autonomy to the Principal and(iv) no administrative control of DoE on the PIs.

Despite the above drawbacks, the overall performance of the project has been impressive. Themain factors were:

(i) comprehensive project design.(ii) planning and close monitoring,(iii) advice & support from World Bank and SDC &(iv) well-coordinated team effort by the PIU, RCs and the SDC

3.4 Performance of the Bank and the borrower:

The performance of the World Bank, the SDC and the PIU was highly satisfactory.

The World Bank was always prompt in examining the proposals submitted by the PIU. Theexpert advice given by the World Bank in procurement matters and their cooperation in thisregard was notable. The Swiss Development Cooperation and the World Bank. both playedcrucial role in close monitoring of the project as a result of which the project objectives wereachieved. In the second half of the project, SDC was involved more closely in the projectimplementation and monitoring, which was verv effective. SDC have also agreed to extendtheir support in the SSS to ensure sustainability of the project gains.

But for the initial delay in the start-up of the project. the borrower's performance was highlysatisfactory with respect to project implementation.

3.5 Assessment of Project outcome:

The project inputs have been well received at the PIs. The PIs have also ensured thatthe facilities created under the project are made available to the students for extended hours.The Industry Attachment Programme was well received by the students and most PIs willcontinue the programme even after the end of the project in March 1997. The studentsappreciated the improved Laboratories, library and welcomed the improved access to thelaboratories.

The faculty and staff have also participated well in the project and have fully utilisedthe IEPs and the maintenance training programs conducted under the project and gave usefulsuggestions to improve the same. The faculty also participated in the implementation of theproject at their institutions.


Annex B51

The students of the PIs have also been well received by the industries. both during theIndustrv Attachment and during the campus recruitment. The campus recruitment of studentshas improved from 39% in the year 1992 to 71% in the year 1996.

The overall outcome of project is highlv satisfactory. The project has achieved its majorobjective of improving the qualitv of formal training in selected ECs and PTs and to upgradethe competence of professionals and technicians in the industry.

4. Sustainability of project & Future operations:

Efforts have been made to ensure sustainability of the project activities beyond theproject period. Many PIs have set up Self-Maintenance Cells to ensure the availability ofworking equipment in their labs. PIs are also taking up revenue generation activities to ensurethat funds are available for procurement of Consumables, upgradation of equipment and repairof specialised eqtipment.

A lot of effort and resources have been put in the development of Learning Material. Thedissemination of the LMs to the PIs and the non-PIs will be done only on a limited scale underthe project. Availability of good LMs is a continuing requirement of the students and thefaculty of all educational institutions. SDC is evaluating the proposals received from differentorganisations for a sustainable project for development. updation, printing and marketing ofLearning Material. With this project, the LMs developed under the project would besustained.

Three Model Curriculums have been developed under the project. These have beensubmitted to different agencies for their approval. Once the PIs and the non-PIs implement themodel curriculum. the project benefits would be disseminated, in a sustainable way, to a largenumber of Institutions.

A Sustainability Support Scheme (SSS), jointly supported by the SDC and theGovernment of India. is also being finalised to ensure that the gains of the project do notwither away. In this scheme, all the PIs have to work out their financial requirements for thenext five years. The PIs also have to plan their revenue generation so as to be self-sufficient atthe end of five years. The yearly funds requirement will be released to the PIs on a taperingbasis.

Department of Electronics has also identified Manpower Development as one of its focusareas and will be supporting more projects in this area in the ninth plan i.e. between the years1997 - 2002. The experience gained in the project, the methodologies and the monitoringprocedures will be extensively used in other projects.


TABLE 8A (Project Costs)

Appraisal Estimates RDPR Estimates Actual I Latest Estimates

Local Foreign Local Foreign Local ForeignCosts Costs Total Costs Costs Total Costs Costs Total

Civil Works 2.61 2.61 1.24 1.24 1.24 1.24

Equipments 4.50 6.53 11.03 5.97 6.53 12.50 5.76 6.64 12.40

Furiniture 1.00 1.00 0.85 0.85 0.85 0.85

Books/Journals 0.88 0.88 1.01 1.01 1.01 1.01

,>4 Local Training 2.87 2.87 1.51 1.51 1.33 1.33

Local Spec. 4.07 4.07 3.01 3.01 2.75 2.75

Foreign Sp. 0.77 0.77 0.08 0.08 0.08 0.08

Maintenance 0.76 0.76 1.47 1.47 1.23 1.23

Consumable 2.83 2.83 1.56 1.56 1.50 1.50

TOTAL 19.52 7.30 26.82 16.62 6.61 23.23 15.67 6.72 22.39

All Figures in US$ Million

TABLE 8B - PROJECT FINANCING

Appraisal Estimates Actual EstimatesLocal Foreign Local ForeignCosts Costs Total Costs Costs Total

IBRDIIDA 1.47 6.53 8.00 1.36 6.64 8.00Co financingInstitutions 15.43 0.77 16.20 13.07 0.08 13.15(SDC) SFR 25M

Other externalSource - - - - - -

DomesticContribution 2.60 - 2.60 1.24 1.24

Total 19.50 7.30 26.80 15.67 6.72 22.39

x

TABLE 8C - REIMBURSEMENTS

FY 90 FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 Anticipated

Appraisal Estimate 4.55 14.58 18.04 21.20 24.20 24.20 24.20 24.20 24.20

Actual 0.70 3.28 8.24 10.90 16.03 17.43 2450 SActual in Rs 21.10 101.73 260.90 350.70 558.82 610.09 702.60

Actuals as % ofEstimate 0.00 0.00 3.88 15.47 34.05 45.04 66.24 72.02 88.84

All Figures in US$ Million

Annex C

INDUSTRIAL CREDITAND INVESTMENTCORPORA TION OF INDIA LIMITED

ELECTRONICS INDUSTRY DEVELOPMENT PROJECT(LOAN 3094-IN)

56 Annex C

LIST OF ABBREVIATIONS USED

1. ICICI INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LTD

2. IDE31 INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD

3. GOI GOVERNMENT OF INDIA

4. ERAS EXCHANGE RISK ADMINISTERED SCHEME

57 Annex C

PROJECT OBJECTIVES AND KEY LESSONS

PROJECT OBJECTIVES:

The objective of the project was to assist the borrower to foster a competitive electronicsindustry. The project consists of the following parts-:

Part A: ELECTRONICS INDUSTRY EXPANSION AND UPGRADING (ICICI)Financing of investment projects through subloans to Investment enterprises.

Part B: ELECTRONICS INDUSTRY EXPANSION AND UPGRADING (IDBI)Financing of investment projects through subloans to Investment enterprises.

Part C: MANPOWER DEVELOPMENT AND TRAININGUpgrading training capabilities of technical institutions/colleges

Part D: TECHNICAL ASSISTANCEStudy and seminar to assist development of Indian software industry.Seminars and related study for improving investment growth and efficiency inelectronics industry.Upgradation of skills of ICICI and IDBI to identify ,appraise and implement electronicsprojects

To achieve its objectives , the project assisted two financial institutions namely ICICI andIDBI through the electronics industry development project line to the extent of US $ 101million each (Part A & B) , a loan to the GOI to the extent of US $ 8 million (Part C) and agrant to GOI of Yen 181.5 million to be passed on to both ICICI & IDBI equally (Part D).

58 Annex C

PROJECT IMPLEMENTATION:

The! ioan was approved on June 15th, 1989 and became effective from September 14th1989.The closing date was December 31st,1995.The loan was utilised to the extent ofUS $ 50.17 million and the balance was cancelled .The loan was initially aimed at Indiancornpanies for providing finance for project imports. Subsequently with the squeeze in

foreign exchange availability the loan was offered for import of components as well.

The main elements of the loan were as under:

1. Single window financing of fixed assets and working capital for eligible sub projects inellectronics manufacturing and related areas .

2. Financing of technical assistance , seminars and training.

The then concept of industrial financing comprised two components namely financing offixecl costs and financing of working capital. The sub borrower had to deal with financialinstitutions for financing of capital costs and with banks for working capital. With therapici pace of industrialisation and the market turning competitive certain deficiencieswere present in the system putting the borrowers under difficulties.

Some of the difficulties experienced were

1. In the appraisal of projects working capital estimates were finalised on theassumptions of normal build up of inventories and margin money for the initial yearswere provided accordingly. But in actual practise ,banks were providing assistancebaseid on their own norms leaving a gap between actual need and the availability ofworking capital funds.

2. There were also variations in the build up of inventories due to certain factors notenvisaged such as "Bunching" of imported raw materials (minimum order size especiallyin the electronics industry where components were either small in size or fragile andnormally imported in bulk/container loads), new units experiencing initial teethingproblems with new technologies leading to significant inventory levels and also due tothe time taken in market development efforts being more than that anticipated at theappraisal stage.

59 Annex C

The success of the line is evident from the fact that most of the reputed Indiancompanies in the industry have availed of the loan during the years 1990 & 1991 forboth project imports and components import. There was good response from subborrowers and several capital investments were conceived during this period.Subsequently, the government of India introduced partial convertibility in the fiscalbudget in 1992 allowing payments in rupees for import of capital goods which created ademand for rupee funds which was more attractive than foreign currency.

ICICI's experience with its sub borrowers has been generally satisfactory . A few subborrowers in the small sector however could not absorb the effects of devaluation of therupee and the liberalisation in imports.

PROJECT RESULTS

The project's objectives were well conceived and have been successfully achieved,despite changes in the macroeconomic environment that were difficult to predict at thetime of preparation of appraisal. The term lending component led to substantialinvestment in Indian electronics industry. ICICI was also able to improve its appraisaltechniques and provide assistance for both project imports as well as componentimports. Eventhough, the line was originally for project imports, later on with the approvalof the World Bank, the line was also utilised for component imports due to peculiarworking capital needs of the industry, thereby introducing single window concept forfinance of capital goods and components.During the period 1992 to 1997, there has been considerable reduction in import duty aswell as domestic duty in line with the Government's liberalisation policy which has led tosevere competition in the industry. The sharp change in exchange rates during thisperiod resulted in the loan becoming expensive as the line was covered under ERAS. Itmay be observed that most of the assistance was for creation of fixed assets and around50 % of the loans were over US $ 2 million each.Most of the loan utilisation was upto1992 at U S $ 50.17 million and the remaining had to be cancelled.

KEY LESSONS

The project provided important lessons for Electronics industry.

- The Electronics industry that had been sheltered by a regulated economy, needs timeand assistance to adjust to the Government's liberalisation policy.

- Regular dialogue during project supervision between bank staff and the borrowercontributed to timely resolution of problems.

- Eventhough, the loan was originally for project imports, it was realised that assistancewas required for working capital and with the approval of the World Bank, the line wasalso utilised for component imports.

60 Annex C

lcICI

TECHNICAL ASSISTANCE FUND:

The IBRD 3094 Line included a TA component ,of US$ 0.5 million to be utilised forproviding technical assistance to ICICI personnel in the product areas which are likely tobe introduced in the country. The aide-memoire suggested products such as glass shellfor colour and black and white television picture tubes, microelectronics, surface-mountdevices, compact discs, advanced medical electronics, telecommunications and satellitecornmunication. It was envisaged that the technical assistance could be by way of:

1. Access to manufacturing technology/databases;

2. Plant visits for assessing present technology levels;

3. Training in assessing technology and understanding future trends, appraising ofprojects and devising suitable financial products;

4. Visits to international exhibitions; and

5. Conducting seminars involving the industry as well as policy initiators in theGovernment.

Based on the above broad guidelines a program was devised for participants from thevarious offices of ICICI who primarily appraise projects in the electronic sector. Part oneof the program included seminars, workshops, plant visits within the country.Discussions were held with industrialists, policy formulators and specialist groups to gainan in-depth knowledge of the local electronics industry and the policy framework.Speakers were invited from renowned companies, technical institutes and department ofelecitronics. Visits were organised to various component and equipment manufacturingunits. Part two of the program covered plant visits in Europe and the USA followed byclass room training at Dataquest Inc. at San Jose, California and plant visits in the FarEast and South-east Asian countries. The program included modules covering thefollowing areas in the electronic industry:

1. Component sector - PCBs, glass shell, microelectronics, discrete devices;2. Consumer electronics - Television and audio/video equipment;3. Telecommunication - switching equipment and cellular telephone;4. Information technology - Software;5. Industrial electronics.

61 Annex C

The team members were assigned each of the above sectors for in-depth study coveringtechnology trends, future outlook, manufacturing processes, financing patterns andtraining needs for project evaluation and monitoring. The training provided in insight intothe diverse manufacturing practices followed in various parts of the world which werelargely influenced by the social, cultural and economic conditions prevalent in each ofthe countries visited. The participants could appreciate the differences in the technologyadopted in the various units which were appropriate to the respective national situation.Based on the experiences of the team gained during the program and considering thecore competencies of the electronic industry in India, thrust areas were identified. Theprogram also presented possible joint venture opportunities in the areas of computerhardware, software and telecom sectors.

On completion of the program, a seminar was organised by ICICI wherein the teammembers submitted their findings and recommendations to an audience comprisingindustrialists, policy initiators in the Ministry of Finance and representatives of industryassociations. The seminars highlighted the various policy changes required in theindustry to make it efficient and globally competitive. Similar, presentations were alsomade to infotech associations such as the NASSCOM and CSI at their respective annualconventions. Since software was recognised by the team as one of the thrust areas, astudy was initiated by ICICI jointly with one of the software companies to ascertain thefeasibility of setting up a software training centre in the country for meeting the trainingneeds of the industry. The program also resulted in building a resource base of expertswithin the country and outside who could be called upon for advice and expert opinionon projects. It would be worthwhile to mention that most multinational companies visitedby the team have subsequently set up either a trading outfit or manufacturing base in thecountry.

62 Annex C

SUB PROJECT UTILISATION TA

ICICIIBRD ELECTRONICS LINE 3094-IN

CiEOGRAPHICAL DISTRIBUTION OF SUB LOANS

NO OF SUB AMOUNT $ .PERCENTLOANS MILLION I

NORTHERN | 13 11.511 22.94

NORTH-EASTERN | 0 0 0CENTRAL 0 _ 0 0WESTERN 22 26.78 53.38

SOUTHERN 14 11.751 23.42EASTERN 1 0.13 0.26

TOTAL 51 50.17 100

NORTHERN-STATEs OF HARYANA,HIMACHAL PRADESHJ&K,PUNJAB,RAJASTHAN AND UNION TERRITORIES OFDELHI & CHANDIGARHNORTH-EASTERN-STATES OF ASSAM,MANIPUR,MEGHA LAYA,NAGALA ND, TRIPURA,ARANCHAI,MIZORAMAND SIKKIMCEINTRAL-sTATEs OF MADHYAPRADESHAAND UTTAR PRADESH

WESTERN-sTATEs OF GUJARAT,MAHARASHTRA,AND GOA AND UNION 7ERRITORIES OF DADRA HAVELUANDDAh1AN AND DIU.SOUTHERN-sTATES OF ANDHRA PRADESH,KARNATAKA,TAMIL NADU AND KERALA & UNION TERRITORIES OFLAKSHADWEEP AND PONDICHERRYEASTERN-sTATEs OF BIHAR,ORISSA,AND WEST BENGAL AND UNION 7ERRITORIES OF ANDAMAN AND NICHO8ARISLANDS

N&ATURE OF PROJECTS

NO. OF |AMOUNT $ PERCENTSUBLOANS MILLION I

NEW 131 11.87 23.66EXPANSION 6 6.41 12.78

EQUIPMENT . 211 13.64 27.19

DIVERSIFICATION 1 0.13 0.26

WORKING CAPITAL 10 18.12 36.12

TOTAL 511 50.17 100

NU!MBER OF SUB LOANS 51 (Net of cancellations)

63 Annex C

SIZE OF SUB LOANSRANGE (S) NO OF SUB I AMOUNT $ PERCENT

LOANS%' MILLION

Above 2 million 9 25.02 49.88

Between 1 & 2 million 10 12.45 24.82

Less than 1 million 32 12.7 25.3

TOTAL | 51 50.17 100

SECTORWISE SUBLOANS

SECTOR NO. OF SUB PERCEN_____ LOANS T

Joint Sector [ 3 6

Private Sector 48 94

Public Sector T ol 0Co-operatives 0 0

SELECTED INDICATORS OF SUB LOAN ACHIEVEMENTS

MOUNT APPROVED(US$MILLION) - 101

AMOUNT DISBURSED( US $ MILLION) 50.17

NUMBER OF LOANS 565

NUMBER OF COMPANIES 51

ADDITIONAL JOBS CREATED 6,522

PRINCIPAL OUTSTANDING (US $ MILLION) 46.82 *

as on March 31,1997 based on valuation of a pool of currencies.

64 Annex C

IBRD - Electronics Loan

=IB 3094 IN (IN US $ MILLION)

= _SLNO NAME YEAR SANCTION H/A SIGN DISBURSED

I AlA.02 Gujarat Narmada Elec 1990 15.000 15.000 0.6592 Bl.01 Punsunii India 1989 1.475 1.475 2.287

1991 0.833 0.8333 Bl.02 Akasaka Electronics 1989 0.263 0.199 0.248

0.0644 B1.03 Sri Katragada Elec. 1989 0.319 0.319 0.3195 Bl.04 Oniida Savak 1989 0.626 0.357 0.387

0.030 0.206 0.2060.030

6 B1.05 Indehein Communica. 1989 0.665 0.655 0.6587 B1.06 Videoconi Internat. 1989 1.779 1.122 1.280

. _________________ (IB-IFTA) 0.6578 131.07 Gorawara Electr. 1 1990 1.132 1.132 1.359

_____________________________ _ .0.227 0.2279 831.08 Gujarat Poly AVX- 1990 0.167 0.167 0.16710 Bl.09 Rolta India 1989 0.689 0.689 0.679

1 1 Bl.10 OEN Coiuiect. IFTA 1990 0.421 0.421 0.4550.034 0.034

12 Bl.ll Tata Keltron 1990 0.147 0.147 0.12713 B1.12 Tata Hioneywell -1 1990 1.421 1.421 1.42114 Bl.13 Wipro Inlform. Tech. L 1990 1.149 1.149 1.03515 Bl.14 Peico Electronics I 1990 2.296 2.211 2.23716 B1l.15 Tata Hosneywell 11 1990 1.404 1.404 1.40417 B1.16 Videocon Intl. 11 1990 5.672 5.672 5.58818 B1.17 Kalyani Sharp II 1990 2.836 2.836 2.54219 B1.18 Ariiaan Electtic 1990 0.367 0.367 0.35520 B1.19 British PHY. Labs I 1990 0.809 0.809 0.917

.____________ 0.10S 0.10821 Bl.20 Tata Elxsi 1990 4.221 4.221 3.60222 B1.21 Kalvaisi Sharp I 1990 4.687 4.687 2.05023 B1.23 NELCO 1990 3.317 3.317 3.31624 B1.24 HCL Limited 1990 3.403 3.403 3.40325 81.25 BPL Systems 1990 0.574 0.574 0.38426 B1.26 Wipro Itifo Tech. 11 1990 0.748 0.567 0.614

0.18127 Bl.27 Fine Line Circ.-2630 1990 0,667 0.667 0.66728 B1.29 ICICON Electronics 1990 0.379 0.379 0.37929 B1.30 Tata Telecom 1990 1.702 1 .174 1.722

0.020 0.528_____________ _ _______________ ______________ _______________ _ _______ _ 0.020

30 B13.31 Micropack Lto-IBJ90S 1990 0.575 0.575 0.5753 1 B1.32 Monica Elect. 1991 L645 0.359 1.317

0.2021013

32 B1.35 Gorawara Elect. 11 1990 0.567 0.548 0.28733 BI.36 Samtel Colonr 1990 1.148 0.624 1.116

0.50734 BI.37 Stovec Indus. I 1990 0.054 0.054 0.05035 B1.44 Stovec Indus. II (ASSOTE 1991 0.122 0.122 0.11436 BW1.4 Precisioii Electronic 1990 0.185 0. 185 0. 14537 B1.49 Electroiiic Equip. 1991 0.205 0.113 0. 11238 Bl3.51 British Phy. Labs. 11 1991 0.665 0.665 0.683

0.018 0.01839 B13.52 Essen Deinki 1991 0.156 0.156 0.14640 B1.54 Cocoon Conmectors 1991 0.005 0.005 0.00541 B1.55 Guji Perstorp 1991 0.448 0.387 0.414

0.027 0.02742 B1.56 Beat Cassettes 1991 0.157 0.157 0.15443 B.57 CNC Metal 0.258 0.258 0.25744 B1.59 Tata Unisys 1991 0.328 0.328 0.28145 81.62 Allen Bradley 1990 0.136 0.136 0.13446 B1.65 Namntech Electronic 1991 0.413 0.413 0.38047 B1.69 Essen Coinnectors 1991 0.426 0.402 0.444

0.042 0.04248 81.70 Laxmi Elect. 1991 0.931 0.931 0.84349 B1.72 Desai Electronics 1991 0.297 0.297 0.315

0.018 0.01850 B1.75 Vimtex RF Prod. 1991 0.140 0.131 0.12951 13B.78 Wipro Systems 1991 1.798 1.798 1.798

_ _________ . _______________ ___________________________ _____________ 70.351 69.995 50.166

The actual aggregate amount sanctioned was higher at 83.378 Million USS

________________ INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA------ ~~IMPLEMENTATION DATA ON SUB PROJECTS _(AL.L FIGURES IN USD MILLION)

NO. NAME LOCATION NATURE ~~~~~~~~~~~~~~PROJECT COST MEANS OF FINANCING-- OTHER --- PROMOTER- CASH-,..-

LOCAL FOREIGN TOTAL lSOR ICICI __DEBT___EQUITY CONTR. ACCRUAL TOTALT_ Videocon karm-ada Guia New Project 73.350 15.000 88,350 0.659 111.2110 31 .570 26.480 17.080 1.351 88.350

2 Gujrat Poly A_V'X Lid -- Ahmedabad __ e New' _P'ro_j e-c t 0.091 0.1167 0.258 0.167 0.061 0,030 0.000 0.2583 Viceocon I nt1e-rn-a tio n al A ur a-n g-ab-a d- Wo_-r ki n gC Ca p it-al 0. 0-00 _ _5.8_7_2 _ _5'.'672_ 5-.5-8 0.45_.6_ 7 2

4V_ Tate Keh1tron _ _PaIg-he_t_, K-erala -Working Capital 0.000 0.147-0.147 0.127 -0.020 - 0.1475 OEN Connectors CochinEquipment 0.253 0.455 0.708 0.455025 0.0

.x14 6 ~~~~Tala Telecom Gujrat Working Capital 0.000 1.722 1.722 1.722 0.000 1.7227 Fi_ne Lin_e7rCiru'its Mumbai New Project 15.620 0.667 16.287 0.667 .4.310 3.170 4.070 4.070 0,000 16.267

8 MELCO Nasik ~~~~~~~~~~~~~Working Captl 000_ .37 337 3360.001 3.3`179- Pieco Efectronis. .Pune Modernlsatlon 2.143 2.296 4.439 2.237 -- - - -0 2.143 - 0.059 4.439

10 kesaka Elecrnc - hn Epnin 066 .23 1.149 0.248 0.901 1.14911 Coco-on Connector's Mum'b_al ___ E q ui-p-me n t__ _ 0.000-o- 0.005 0.007 0.005 0.002 0,0 0.00712 Rolla India Ltd Thane New Project. .3.494 0.689 4.183 0.679 1.400 1.054 1.050 0.000 4.18313 Vid_e`oCo-n_lniearnational..Aurangabad New Project 5.537 1.779 7.316 1 280 -- 0.537 1.340 2.050 2.109 ___0.000 7.31614 Sto-vec Indus-tries- Ltad Gujarat Equipment 0M03 0.054 0.085 0.050 _0.031 0.004 0.085is Assot-ex flasik Equip'ment 000 0.1122 60.1 0.114 .. 0.058 0.17216 Punsumi India Rajasthan New 3.609 2.308 5.917 2.287 0.650 i__ .500 1.480 0.000 5.917

1 OndSavek Delh _______Eupen .0 .656 0.856 0.593 __ __ __ __026085

186- Go0re;war_a E-lectr-onic-s -Gh-aziebad Working C ap ital 0.000 1.359 _1.359 1.359 0.000 1.359i§_ H4CjLtd Delhii Equipment 1.021 3.403 4.424 3.403 1.021 4.42420_ Moni_ca Elecetronics Delhi Equipment 0.498 _1.645 _2.143 1.317 0.826 2.143

21 SamlelColour Gh~~~~tz~azibad Working Capital 0.000 1.148 1.148 1.116 ___ ___0.032 1.14822 Pe_cisio _e'lectiron_ic _ Delhi Equipment __0.2 0.5185 0.6247 0.1450.102 0.24-7

23 D'sin'ki Chanidig'a_rt_h_ E x-pan-si'o- n 016 7 -0.1,5-6- "__0_32_3 -0.1 4 6 . -.----- ---- 0- 1,7,7 -0.,3-2 324 8ei dassettes 6.eti0i1570.055 0.209

25 CNC Metals ~~~~~~Utter Pradesh New 0.671 0.5 0.2 0.7 021 __046000 09926 Essen Connectors ia-ryana Nw ____ 2.-90-9 -0.4-68 _ 3'.3_77 0-.444- 1220 0._83_3 _0_.8_80 0.000 3.377

27 rmea an Elictiric~_ -~Chennal Euip-ment 0.1 037 0.470 0.355.-0.123 ,0.478

28 Mropack Chennel_i __ Equipment _0.173 0.575__0_.748 ___ 0.575 ___ 0.1173 __0.74829 Lam Electronics Coimbatore Equipment 0.280 0.931 1.211 0.843 0.368 1.2i130 Alien Bradley Delhi Equipment' 0.4 6.136 0.179 0.134 -7-9

31 Wpr Io.Tc.karinatake W orking- Caopital ___ 000 1.149 149 1.05 - .ifo.. 011. i4 iA14932 lWipro Into. Tech. Karnataka -Equipment 0.222 0.748 0.970 0.614 0.356 0.97033 British Phy Lab TBen_galo_re Expansion .5 .1 .6 .1 0.70 .5 .50__097 .6 .6

34 British Phy Lab ~~~~Bangalore Equipment 0.308 0.683 0.9 0.30300913 TaeElexsi Bangalore New 1.7 4221 1527 3.602 1905,660 __415 000 1.9

36 8PL Systems ~~~~~~Bangalore Wor'king-C-ap-it-at, 0.000 0.574 0.574 0.3840.90.737_ Namltech6 Electronic__ -Ba n- g-a o re _N e- w 3 .8-3 4- 0.413 4.247 0.380 1.710 0.854 ____1.303 0.000..4.247387 VinIex RF Prod. Bangalore Diversification _0.765 0.140 0.905 0.129 0.310 ___ 0.260 _0.206 0.90539 Wipro Syste-m-s Bangalore____Equipment ___ .5-74A 1.798& 2.37~2 1.798 ____ 0.574 0.000 2.3724-0 §rI Ketragagde Electro Hyderabad Eqimn .96 0.31i9 -0.415 0.1 0.9 0.41541_ Tatea Honeywell P-u-n _____ Woriking Ca-pital 0.000 1.421 1.421 1.421 ___ ___ 0.000 1.421

42 Toat Honeywell P-une Equipment 0O.617, 1.404 2.021 1.404 - -- ____ ________ 0.617 Z__283643 Kelyani Sharp Pune _____Expansion 10.399 4.687 15.086 2.050 2.856 _____ 3.770 ___3.773 2.6g37 5.844 K lani Shr Pune Working capital- -0. 0 00 " 2.8-36 -2. 836 -2-.54-2 ____0.294 __2.0214 5 Das Electronics ___ Punse_____ Expansion 0.49J 0.3is 0.806 0.1 __ ____ ___0.491 08046 ICICON elcetronics Baroda New _____7.201 0.379 7.580 0.379 2.560 0.51 1.520. 2.270 0.000 7.58047- Gulrat Perstorp Guirst -Now = 8.175 0.475 8.650 0,414 1.820 2.091 2.165 __ 2.166 06.000 8i.6548 Tate Unisys ___m_bal _____ quipment 0.114 0.328 0.442 0.281 __ __ 0.161 0.44249 lndchern Communicati Chennat New ______ 1.360 0.665 2.025 0.658 0.3481 0.506 ___0.5`13 0.000 2.025'g0 G-oraewar-a fFecr;nics Giazitabia Equmet0.170 0.567 0.737 08 .5 .3

SI Eectronic Equipments Delhi Equipment 0.068 0.205 0.273 0.112 0.161 0273i59.473 70.351 229.824 50.i66 29.901 41.082 -53.016 43.099 -12.560 -229.824

__ ___-The local cos_ts o.af allh.e ab_ov_e projects were donorminated in rupees . The same have been converted into US dollars for this report.____ . - -

Annex D

INDUSTRIAL DEVELOPMENT BANK OF INDIA

TREASURY & FUNDING DIVISION

FOREX SERVICES DEPARTMENT

Electronics Industry Development Project - Loan No. 3095 IN

Borrower's Final Evaluation Report -

I. INTRODUCTION

1.1 Backdrop of the Indian Economv

1.1.1 During the period of implementation of the Credit under review the Indian

economy went through a phase of macro-economic changes in a dynamic policy

environment. During the year following the commencement of this line in 1989,

the Indian economy was affected by fiscal imbalances that were accentuated by

the Gulf crisis and the resultant third oil shock. The reforms programme that

were initiated thereafter in 1991 involved macro-economic stabilisation along

with structural reforms in the industrial, trade and financial sectors. The growth

impulses unleashed by these reforms have led to a revival of a strong economy,

along with rapid expansion of productive employment, a surge in exports and a

decline in inflation.

1.1.2 The average growth of the economy at 6.5% during the Eighth Plan(1992-

97), based on advance estimates for 1996-97, is higher than the target of 5.6%.

This growth has been accompanied by a decline in current account deficits in

68 Annex D

IDBIIBRD 3095 IN

the balance of payments, increase in domestic savings and a reduction in

inflation rate. Fiscal deficit that had been 8.3% in 1990-91 has been brought

down progressively during the successive years with the figure at 5% for 1996-

97, as per the revised estimates. Imports and exports have both witnessed an

upsurge during the late eighties and the, nineties. The Indian economy has

demonstrated its resilience and buoyancy as a result of wide ranging economic

reforms and gradual integration with the world economy.

1.2 Industrial Scene

The process of delicensing and deregulation in Indian industry had begun

during the mid eighties, from a relatively protected environment earlier. Since

1991, however, the Indian industry has been witnessing changes in terms of the

basic parameters governing its structure and functioning. The major reforms

include wide-scale reduction in scope of industrial licensing, simplification of

procedures, reduction of areas hitherto reserved for public sector, enhancement

in the limits of foreign equity participation in domestic industrial undertakings,

rationalisation of taxes, liberalisation of trade and exchange rate policies, etc. All

the major segments of the industry have responded to economic reforms with

dyinamism with an acceleration in their respective growth rates. During 1991-96

the contribution of manufacturing sector to industrial growth has maintained an

upward trend, the share of mining sector has fluctuated and the power sector

exhibited a declining trend. During 1996-97, however, the rate of growth in

industry is expected to be lower than the previous year. This has been mainly

due to constraints of infrastructure besides a slowdown in investments, exports

69 Annex D

IDBIIBRD 3095 IN

and private I public consumption expenditure. However, the manufacturing

sector that contributes more than three-fourth of the industrial production has

been performing fairly well.

1.3 Electronic Industry

1.3.1 Indian electronic industry has grown significantly in the nineties, both in

terms of production as well as exports. Over the 8th plan period production

recorded an average annual growth of 22%, while exports grew by 41 % . The

share of exports in production has also been on the increase from about 13% in

1992-93 to above 28% in 1995-96. Structurally, electronics sector in India has

been dominated by consumer electronics segment with a relatively lower share

of industrial electronics. Growth in the Electronic Processing Zone (EPZ) has

however been remarkable. In the coming years computer and software industry

is expected to achieve quantum growth at an average growth rate of over 40%.

1.3.2 Government policies and duty structure during the nineties have aimed at

further liberalisation in the industry. Among the various measures, import-export

policy has been liberalised, import of technology freely permitted, foreign equity

permitted upto 100%, customs duty brought down progressively from 60-100% in

early nineties to about 10-40%, besides abolition of customs duty in specified

cases. The effect of these measures have been mixed. While the overall

production and installed capacities have grown significantly during the nineties,

a number of units have been affected by competition arising from reduction in

tariffs and other liberalisation measures.

70 Annex D

IDBIIBRD 3095 IN

1.4 Context of the World Bank Line of Credit:

The proposal for the Line was initiated in the changing environment in the

Indian economy characterised by competitive forces. In case of electronics

industry sub-sector in particular, the Government of India had initiated a number

of steps to foster its fast development. The series of policy reforms in the sub-

sector initiated in 1981, that led up to the Integrated Policy Measures in

Electronics in 1985, were intended to infuse competition. Physical and

administrative controls were sought to be replaced with fiscal measures and

competition to regulate market behaviour. These steps were initiated in

recognition of the importance of electronics industry, per se, besides its role in

improving productivity in manufacturing and other activities. The World Bank

decided to catalyse investment activity to foster a competitive electronics

inclustry by lending financial support through Development Financial Institutions

(DFis) viz., IDBI and ICICI. In particular, it was intended that the import financing

needs of the industry be met out of the line. The resource needs were assessed

by the World Bank in consultation with DFIs and the GOI and the Line became

operational in September 1989. The last date for commitment and drawal under

the line were Dec. 31, 1992 and December 31, 1995, respectively. The line was

closed in March 1993.

II. PROJECT DESIGN

2.1 The line was designed in 4 parts viz. Part A, 6, C & D as under:-

71 Annex D

IDBIIBRD 3095 IN

* Part "A", and "B" administered through ICICI and IDBI includes sub-loans to

eligible enterprises in the electronics industry sub-sector.

* Part "C" intended for manpower development and training involved

upgradation of training capabilities of participating engineering colleges, etc.,

provision of consultants, equipment and training materials and development

of closer linkages between electronics industry and participating engineering

colleges.

* Part "D", the technical assistance component, was divided into two areas:-

(i) study and seminar on computer software industry in India; (ii) seminars

and related studies to improve investment growth and efficiency in

electronics industry; and (iii) training programme for upgradation of staff of

IDBI and ICICI to identify, appraise and implement electronics industry

projects.

This report covers Part B and Part D(iii) of the project that pertains to IDBI.

Loan Allocation:

2.2 The allocation of the Line was as followsAmount in US $

Cateaorv equivalent

(i) Subloans for investment projects 101 mn.

funded by IDBI.

(ii) Technical assistance for Training 0.540 mn.

72 Annex D

IDOIIBRD 3095 IN

2.3 Structure of the loan

2.3.1 For the first time, funds under the line of credit were designed to be given

directly to IDBI as compared to the earlier practice of routing through the GOI.

The loan, guaranteed by the GOI, was a multi-currency pool loan. The rate of

interest to IDBI was pegged at 0.5% over the cost of qualified borrowings of the

World Bank.

2.3.2 Foreign currency sub-loans were designed to be funded at a rate of

intesrest equivalent to 2% above the cost to IDBI under the line. In such an

event, the foreign exchange risk was to be borne by the sub-borrower. In a

rupee designated sub-loan, the interest rate was to be the same as that under

Exchange Rate Administration Scheme (ERAS)'.

2.3.3 The foreign currency loan entailed exchange risk of the World Bank's

multi-currency pool, wherein the precise exposure was not known to the

borrower; also the interest rate, which varied, based on World Bank's cost of

multi-currency pool, could not be quantified. Hence there was no demand for the

loan in foreign currency and the entire loan was disbursed under the ERAS,

since it afforded the sub-borrower, protection from exchange fluctuations.

1 ERAS was introduced to afford a measure of protection from exchange risk, to the clients of DFIs that avaied of foreigncurrency loans. The scheme was so deviced to distribute the cost of such protecfion equiably among all the borrowers. Therupee-fied loan under ERAS was sanctioned at a rate of interest that included weighted average interest cost, DFI's spread andan exchange premium.

73 Annex D

IDBIIBRD 3095 IN

III. PROJECT IMPLEMENTATION

3.1 Assistance to Sub-Borrowers

Commitments and Disbursements

3.1.1 Out of an allocation of US $ lOlmn. made by the World Bank for on-

lending to IDBI sub-borrowers, a sum of US $ 60.11mn. was committed to 36

sub-borrowers. Thus, the average commitment per project works out to US $

1.67mn. Of these commitments, loan was disbursed under the line only to 17

projects to the extent of US $ 21.37mn. The unutilised portion of US $ 79.63mn.

was surrendered. (Annexure 1). The short utilisation was due to various factors

viz., (i) inability of the sub-borrowers to hedge the foreign exchange risk as also

interest rate risk arising from the multi-currency pool loan terms (as explained

briefly under para 2.3.3); this had resulted in no demand for FC denominated

loan and the entire loan was disbursed under ERAS as a rupee-tied loan; and

(ii) specific macro-economic developments in the country resulting in downward

movement of the Indian Rupee against the US $ and/or other convertible

currencies in which the imports were invoiced. The specific developments in the

foreign exchange markets due to the two-stage adjustment of rupee in 1991 and

the introduction of Liberalised Exchange Rate Management System in 1992

made ERAS unattractive, due to which, the demand for loans under the line

dropped. These reasons are discussed in subsequent pages in greater detail.

Other reasons for short utilisation are changes in the means of financing,

reduction in the final cost of the project and part cancellation of IDBI's

assistance, in a few cases. Average utilisation per project under the line works

out to US $ 1.26 mn.

74 Annex D

IDBIIRRD 3095 IN

-5 ub-sector- wise Commitments

3.1.2 Sub-sector-wise list of sanctions is given in the Annexure - 2. The share

of assistance to consumer electronics (59.03%) was the highest followed by

industrial electronics and components (25.33%).Thus, these two sub sectors

together shared over 84.36% of the total assistance under the line.

purpose - wise Commitments:

3.1.3 Assistance under the line have been broadly distributed over a wide range

of purposes, viz., for new projects, expansion of capacity, upgradation I

modernisation of existing plants and for diversification into new areas of activity.

Besides, the design of the credit provided for sanction of loans for working

capital as well and 4 projects were hence given working capital loan. Data on

purpose - wise assistance are given below.

US$MN.

PURPOSE NO. OF AMOUNTPROJECTS disbursed

NEW 6 5.866

EXPANSION 7 6.341

DIVERSIFICATION 3 3.756

WORKING CAPITAL 4 9.551

TOTAL' 17 21.373

aSame project is sometimes intended of for more than one purpose. IlTerefore the summation of the no. of projecs

under the different categories exceed the actual number of projects.

Annex D75

IDBI1BRD 3095 IN

State - Wise Commitments:

3.1.4 Commitments under the line have been distributed over a fairly wide

geographical spread since projects located in different parts of the country have

been assisted. It may be observed from Annexure 3 that maximum no. of

projects assisted are located in Maharashtra (4 with an assistance of US$9.303

mn.). Other states that had projects assisted under the line were Gujarat,

Karnataka, Uttar Pradesh, Rajasthan and Andhra Pradesh. Since the number of

projects are few, it is difficult to draw any meaningful conclusion regarding the

geographical reach of this assistance.

Size - Wise Commitments:

3.1.5 Size-wise classification of assistance sanctioned is furnished below

Size interval No. of Amt. sanctioned Amt. Disbursed

Projects US $ mn. US$mn

Less than US $ Imn. 10 5.530 3,823

US $ lmn - 2mn 2 3.679 3.639

US $ 2mn - 6mn 3 11.652 5.444

US $ 6mn 2 20.672 8.467

Total 17 41.533 21.373

A substantial number of projects (12) accounting for 35% of disbursed amount

were projects with an assistance of less than US $ 2mn. There were 2 large

projects that accounted for 40% of the total assistance disbursed.

76 Annex D

IDBIIBRD 3095 IN

Overall Performance

3.1.6 Of the 17 projects assisted the performance of 9 which were set up for

the manufacture of consumer electronics and computer hardware/software were

good. All these loans have been either fully repaid or the repayments are

regular. The remaining projects which are engaged in manufacture of electronics

components are affected by adverse market conditions, inadequacy of power,

competition from existing players, competition from imports following

libieralisation of the trade regime etc. In a few cases, IDBI has taken steps to

offer certain temporary reliefs and concessions to turn around the company. IDBI

has also entered into one-time-settlement in a few cases for recovery of its dues.

3.2 Technical assistance (TA)

3.2.1 The Technical assistance component included a grant of Jap. Yen 73 mn.

(equivalent. to US $ 540,000) for carrying out programme to upgrade IDBI's

capability to identify, appraise and implement electronics projects.

3.2.2 IDBI had engaged the services of Dataquest, a 'Califomia based

consultant firm for design and execution of a training-cum-plant visit programme

for IDBI Officers. A twelve week training programme outside India besides a

one-week orientation session in Mumbai was formulated. The programme was

conmprised of both classroom sessions as well as plant visits. The overseas

training programme covered seminars and field visits in USA, Europe and the

Far East. The programme enabled the trainees to take up soctoral analysis of

77 Annex DIDBI

IBRD 3095 tN

the various sub sectors of the industry. Besides the team made a review of the

global market scenario, and the prevailing government support to thle electronics

industry in various countries. On account of the training the team could enrich its

knowledge of the international scene in electronics industry. Thus the funds

channeled for training and HRD have been fully and effectively utilised.

X,3 Electronics Portfolio of 112BI

3.3.1 A brief look at IDBI's electronics portfolio is expected to throw light on the

performance of the industry and IDBI's assistance to it. It may be observed from

Annexure 4 that IDBI's assistance to thie industry has grown significantly over

1989-97, although the extent of growth is particularly high during 1993-96. This

confirms the hypothesis that electronics industry which is import intensive, has

been affected by the significant changes in the trade and exchange rate policy

regime during 1991-93. But the positive impact of liberalisation thereafter is

apparent in the increase in the sanctions that have taken place in the following

years.

Sub-sector wise assistance

3.3.2 From Annexure - 5 giving sub sector-wise classification of assistance it is

observed that assistance to electronic components (44.53%) was the highest

followed by consumer electronics (41.01%). Assistance to computers and

peripherals thereof constituted about 10-11% , whereas there was negligible

share of industrial electronics & communication and broadcasting equipment.

These data are in line with the overall production data for the industry which

78 Annex D

IDBIIBRD 3095 IN

exhibits the growth of consumer electronics, components and computers sub

sectors. One notable feature of computers (both hardware and software) is that,

although there has been significant growth in production, its relative share in

sainctions by IDBI is not correspondingly very high. This is because of the very

nature of the industry where investment in tangible assets is not very high, thus

leaving less scope for assistance by DFIs that lend money against tangible fixed

assets.

State-wise assistance

3.3.3 Geographically, maximum share of assistance during 1989-1997 went to

Maharashtra (22%), followed by Uttar Pradesh (11%) Karnataka (10%) and

Maidhya Pradesh (9%). By and large, assistance was spread over a wide

geographical area.

3.3.4 As will be apparent from Annexure - 6, most of the assistance was

granted to the private sector and a few projects assisted in the joint sector.

IV Achievement of Obiectives:

4.1 3095-IN is the first project loan from the World Bank to IDBI, without direct

exchange protection from the GOI. The loan, conceived during the period of

deregulation in the Indian economy, was expected to provide financial support

to IDBI to on-lend to projects to be undertaken by individual enterprises, and,

79 Annex D

IDBIIBRD 3095 INi

strengthen its institutional capacity to appraise electronics projects effectively in

the less regulated environment.

4.2 The assessment of achievement of these objectives need to made,

based on the set targets and the changinlg context of the Indian economy since

the loan was contracted. Commitments under the line began in early 1990 and in

the initial two years itself 60% of the loan was committed. The drawals under

the line was also progressing satisfactorily. However, on account of cancellation

of the line in April 1993 for both commitments and drawals, the utilisation under

the line was limited to US $ 21.37 mn. in respect of 17 sub-projects. This was

basically due to the various factors, summarised below -

a) As the loan was out of the multi-currency pool of World Bank, sub-

borrowers were required to bear the exchange and currency risk of the loan

since IDBI was not permitted, by charter, to assume exchange risk.

Therefore the entire loan was covered under ERAS whereby, the

exchange/currency risk to the sub-borrower was limited to a premium, loaded

into the applicable interest rate on the rupee-tied loan, with the excess over the

said premium borne by the GOI. Due to continuous depreciation of the rupee

during the first three years after the introduction of ERAS, the premium collected

by way of additional interest under the scheme was not sufficient to cover the

losses on account of exchange fluctuation. On a review made in 1993 it was

found that ERAS was no more viable and in consultation with Government of

80 Annex DIDBI

IBRD 3095 IN

India it was decided to discontinue the scheme with effect from April 29, 1993.

With the cancellation of ERAS it was no more possible to utilise the currency

pool line of credit from World Bank. Therefore at the request of the Institutions,

World Bank agreed to cancel the unutilised portion of the loan.

b) With the introduction of Liberalised Exchange Rate Management System

and partial convertibility, companies were able to procure free foreign exchange

for financing their imports. Therefore the terms of the currency pool loan were

not: attractive to sub-borrowers.

4.3 When demand for loans under the credit dried up due to the aforesaid

reasons, efforts were made to have a viable alternative. A switch-over from the

currency pool to a US Dollar denominated loan would perhaps have been

acceptable to the sub-borrowers; but the World Bank found itself unable to

change the loan terms retroactively. The alternative suggestion of swapping

currency pool to US Dollar or Rupee by the RBI also did not materialise.

Hovvever, the experience of this credit seems to have lead to the introduction of

single currency pool / loan schemes by the World Bank subsequently.

4.4 Having recognised the foregoing circumstances that limited the utilisation

of credit, it is still necessary to observe that all the envisaged projects were, by

and large, implemented. The projects that availed assistance catalysed an

average investment of Rs. 495 mn. involving an average employment generation

81 Annex D

IDBIIBRD3095 IN

of 450 persons per project. The envisaged financial and economic rates of

return for the assisted projects were 13.2 to 25% and 14.10 to 80% respectively.

The minimum project parameters were fulfilled. The analysis of IDBI's electronic

portfolio during 1989-97 indicates that the electronics industry that suffered a jolt

during 1992-93, soon picked up momentum thereafter. Thus although utilisation

under the line was not upto the expectations, the projects and growth rate in the

industry did not suffer.

Technical Support

4.5 Looking from the objective of providing technical support to the DFIs,

there has been substantial strengthening of IDBI's appraisal and monitoring

capabilities.

V Performance of IDBI:

5.1 IDBI's portfolio of direct finance comprises over 3000 companies

representing the complete range of industrial activities and a well diversified

client profile. Its portfolio of loans and investments as on March'31, 1997 was

Rs. 468 billion. Data on IDBI's sanctions are given in Annexure - 7.

5.2 The following two tables summarise the information on IDBI's financial

performance during the last four financial years.

82 Annex D

IDBIIBRD 3095 I

Balance Sheet and Profit and Loss Accounts

_ _ _ _ _ _ _ __ _(Rs. million)

As at / for year ended March 31 1994 1995 1996 1997

NNet Worth 33540 37420 63344 72134

Total Assets 345880 381610 443716 503289

Total Income 35850 40930 49630 59638

Total Expenses 27890 30620 36530 44815

Profit before Tax 7960 10310 13100 14823

Profit after Tax 6110 7960 10073 11442

Key Ratios and Indicators of Profitability

As, at / for year Ended March 31 1994 1995 1996 1997

Average cost of funds (%) 8.25 8.10 8.37 8.90

Average return on assets (%) 10.92 11.25 12.03 12.59

M_argin (%) 2.67 3.15 3.66 3.69

Net Profit Margin (after tax) (%) 1.80 2.21 2!44 2.42

Return on average Net Worth (%) 19.56 22.75 19.69 17.03

Cpital Adequacy Ratio (S) 13.4 12.4 15.87 14.66

Standard Assets to Total Assets (%) 91.8 92.2 90.6 89.73

83 Annex D

IDBIIBRD 3095 IN

VI. Operational Experience

6.1 The loan was approved at a time when the economy was going through a

phase of macro economic changes. The industry undergoing restructuring also

had import requirements to be met. However the terms of the foreign currency

loan were unattractive, since, under the multi currency pool loan, both the

currency composition as well as the interest rate kept changing and the sub-

borrowers could not hedge these risks.

6.2 ERAS, which offered protection against these fluctuations turned out to be

expensive in the changed environment following liberalisation in financial and

foreign exchange markets.

6.3 In helping the industrial units, cash-in on the available opportunity and

upgrade the product quality, IDBI has played a direct role as well as a catalytic

one.

6.4 Liberalisation has had mixed impact on the electronics sector which has

grown significantly at the aggregate level. The exim policy has opened up the

Indian market to the world compelling competitiveness on the part of Indian

manufacturers, particularly in the consumer durables sub-sector. Software

exports have registered significant growth rates in the recent years.

6.5 In supporting the electronics sector in its transformation from a relatively

protected one in an era of regulated regime to the current competitive one, IDBI

has played the role of a financier, catalyst and advisor.

Annex D84 Annexure 1

Industrial Development Bank of IndiaIBRD Line of Credit 3095-IN

Company-wise details of IBRD authorisations and claims made

Sub project Amount Claims madeName of the subborrower Date Authorised (USD)

A.1.02 Gujarat Narmada Electronics 17-Aug-90 $15,000,000 $3,439,737B 1.01 Gujarat Poly AVX Electronics 9-Mar-90 $1,867,960B 1.02 Punsumi India Ltd. 9-Mar-90 $1,475,000 $1,475,000B.1.03 Videcon International Ltd. 18-May-90 $3,558,730 $3,558,730

B.1.04 Onida Savak Ltd. 21-May-90 $630,000 $524,861

B.1.05 Calcom Vision 4-Jun-90 $160,000B.1.06 Precision Electronics Ltd. 4-Jun-90 $232,000 $131,633B.1.07 Rolta India Ltd 19-Jun-90 $690,000 $652,401

B.1.08 Onida Savak Ltd. 26-Apr-91 $460,000

3.1.09 HP Electronic Systems Corp. 13-Dec-90 $780,000B.1.10 Videcon Intemational Ltd. 3-Jan-91 $5,672,150 $5,027,262B 1.11 Kalyani Sharp (I) Ltd. 15-Jan-91 $4,690,000 $65,214B.1.13 Fine Line Circuits Ltd. 15-Jan-91 $690,000B.1.15 OIE/N Connectors 27-Feb-91 $551,000B 1.16 Gujarat Perstorp Electronics 24-Apr-91 $455,000 $443,258B.1.17 Incap Capacitors Ltd. 24-Apr-91 $790,000 $780,670B.1.18 Digital Equipment (I) 29-Apr-91 $2,011,000B.1.19 Advanced Radio Masts P. Ltd. 29-Apr-91 $380,000 $386,256B 1.20 HCL Ltd. 7-May-91 $3,403,290 $1,819,998B.1.21 Punsumi India Ltd. 7-May-91 $2,204,000 $2,164,436

B.1.22 Namtech Electronic Devices Ltd. 24-Jul-91 $680,000 $362,119B.1.23 Gozawara Electronics 24-Jul-91 $568,000B.1.24 ICICON Electronics 24-Jul-91 $379,000 $188,293B.1.25 Integrated Technologies 9-Sep-91 $877,000B.1.26 Telematics Systems 9-Sep-91 $154,000B.1 27 L. & T Ltd. 9-Oct-91 $720,000 $200,207B 1 .28 Sandur Manganese & Iron Ores 7-Nov-91 $87,000B.1129 Electronics Corporation of India 7-Nov-91 $1,640,000B.1.30 PEICO Electronics & Electricals 16-Dec-91 $1,738,000B.1.31 Wipro Systems Ltd. 27-Jan-92 $574,000 $152,837B.1.32 Applied Electronics 27-Jan-92 $171,000B 1.33 Advanced Radio Masts P. Ltd. 27-Jan-92 $1,304,000B.1.34 Mirc Electronics Ltd. 13-Apr-92 .$1,152,000B.1.35 Spencer & Co. 13-Apr-92 $1,674,0008.1.36 Artech Power Products 13-Apr-92 $263,000B.1.37 Mafatlal Industries 9-Jun-92 $2,425,000

TOTAL $60,106,130 $21,372,913

85 Annex D

Annexure 2


INDUSTRY SEGMENT-WISE ASSISTANCE SANCTIONED AND DISBURSED

Industry Segment No. of Amount % Share Amount Shrprojects Authorised Disbursed%Shr

Communication & broadcasting equipments 1 $380,000 0.91% $386,256 1.81%

Computers & Components 5 $5,619,290 13.53% $2,957,077 13.84%

Consumer Electronics & Components 5 $29,550,880 71.15% $12,615,805 59.03%

Industrial Electronics & Components 6 $5,983,000 14.41% $5,413,775 25.33%

TOTAL 17 $41,533,170 100.00% $21,372,913 100.00%

86 Annex D

Annexure


STATE-WISE ASSISTANCE SANCTIONED AND DISBURSED

Name of the subborrower No. of Amount Share unt% Shareprojects Authorised Disbursed

ANDHRA PRADESH 2 $1,170,000 2.77% $1,166,926 5.46%

GUJARAT 3 $15,834,000 37.50% $4,071,288 19.05%

KARNATAKA 3 $1,974,000 4.75% $715,163 3.35%

MAHARASHTRA 4 $14,610,880 35.18% $9,303,607 43.53%

RAJASTHAN 2 $3,679,000 8.86% $3,639,436 17.03%

UTTAR PRADESH 3 $4,265,290 10.27% $2,476,493 11.59%

TOTAL 17 $41,533,170 100.00% $21,372,913 100.00%

87 Annex D

IBRD 30951N Industrial Development Bank of India Annexure 4ELECTRONICS INDUSTRY PORTFOLIO

SANCTIONS AND DISBURSEMENTS 1989-97

Year No. Sanctions DisbursementsRs. million Rs. million

1989-90 40 1,054.28 819.05

1990-91 38 1,231.17 791.10

1991-92 44 1,167.27 720.04

1992-93 43 985.70 714.72

1993-94 31 1,221.44 695.881994-95 41 2,807.43 2,353.421995-96 43 4,001.85 3,455.421996-97 26 1,588.00 890.44

Total 306 14,057.13 10,4409

IBRD 3095IN Industrial Development Bank of India Annexure 5ELECTRONICS INDUSTRY PORTFOLIO Sub-sector wise

SANCTIONS AND DISBIURSEMENTS DURING 1989-97

Share inShare in total

total Disbursem disburseSubsector No. Sanctions sanctions ents ments

- Rs. million Rs. million

Communication & Broadcasting Equipment 2 100.00 0.71% 100.00 0.96%

Consumer Electronics 87 5,764.32 41.01% 4,301.-39 41.20%

Computers & computer peripherals 44 1,473.92 10.49% 1,219.86 11.68%

Electronic Components 156 6,260.30 44.53% 4,429.64 42.43%

Industrial Electronics 17 458.60 3.26% 389.21 3.73%

Total 306 14057.134 1 100.00% 1 10440.086 100.00%

89 Annex D

IBRD 30951N Industrial Development Bank of India AnnexureELECTRONICS INDUSTRY PORTFOLIO Sector-wis

SANCTIONS AND DISBURSEMENTS DURING 1989-97

Share inShare in total

Disbursem total disbursemSector No. Sanctions ents sanctions ents

Rs. million Rs. million

Joint 27 908.17 567.682 6.46% 5.44%

Private 275 13109.764 9847.222 93.26% 94.32%

Public 4 39.2 25.182 0.28% 0.24%

Total 306 14057.134 10440.086 100.00% 100.00%

Annexure 7

INDUSTRIAL DEVELOPMENT BANK OF INDIAData on operations - Sanctions

¢_____________________________________________________ ____________ (R s. M illion) _lion_Year ended March 31 1993 1994 1995 1996 1997

Direct Assistance

Rupee loans 47200 60726 92993 130649 101272Foreign currency loans 6760 10662 26210 17003 25819

Underwriting and direct subscription to shares, bonds anddebentures of industrial concerns 11920 14430 25367 6916 4602

Equipment leasing 2070 1448 3427 12439 3103

Subtotal (A) 67950 87266 147997 167007 134796

Guarantees for loans and deferred payments 4140 12179 19570 9040 14060

Subtotal (B) 72090 99445 167567 176047 148856

Indirect Assistance

Refinance of industrial loans 4990 5227 5229 6384 7455Bills rediscounting 14300 14019 11881 11261 13746Loans to and investments in shares and bonds of financialinstitutions 4180 2837 1393 996 442

Subtotal (C) 23470 22083 18503 18641 21643

Total (B + C) 95560 121528 186070 194688 170499

91 Annex D


Company-wise details of IBRD authorisations and claims made

Sub project Amount Claims madeName of the subborrower Date Authorised (USD)

A.1.02 Gujarat Narmada rlectronics 17-Aug-90 $15,000,000 $3,439,737

8.1.01 Gujarat Poly AVX Electronics 9-Mar-90 $1,867,960

8.1.02 Punsumi India Ltd. 9-Mar-90 $1,475,000 $1,475,000

B.1.03 Videcon International Ltd. 18-May-90 $3,558,730 $3,558,730

B.1.04 Onida Savak Ltd. 21-May-90 $630,000 $524,861

8.1.05 Calcom Vision 4-Junl-90 $160,000 1

B.1.06 Precision Electronics Ltd. 4-Jun-90 $232,000 $131.633

B.1.07 Rolta India Ltd 19-Jun-90 $690,000 $652,401

B.1.08 Onida Savak Ltd. 26-Apr-91 $460,000

B.1.09 HP Electronic Systems Corp. 13-Dec-90 $780,000

B.1.10 Videcon International Ltd. 3-Jan-91 $5,672,150 $5,027,262

8.1.11 Kalyani Sharp (I) Ltd. 15-Jan-91 $4,690,000 $65,214

B.1.13 Fine Line Circuits Ltd. 15-Jan-91 $690,000

B.1.15 O/EIN Connectors 27-Feb-91 $551,000

B.1.16 Gujarat Perstorp Electronics 24-Apr-91 $455,000 $443,2588.1.17 incap Capacitors Ltd. 24-Apr-91 $790,000 $780.670

B.1.18 Digital Equipment (I) 29-Apr-91 $2,011,000B.1.19.. Advanced Radio Masts P. Ltd. 29-Apr-91 $380,000 $386,256

B.1.20 HCL Ltd. 7-May-91 $3,403,290 $1,819,998

B.1.21 Punsumi India Ltd. 7-May-91 $2,204,000 $2,164,436

B.1.22 Namtech Electronic Devices Ltd. 24-Jul-91 $680,000 $362,119

6.1.23 Gozawara Electronics 24-Jul-91 $568,000

B.1.24 ICICON Electronics 24-Jul-91 $379,000 $188,293

B.1.25 Integrated Technologies 9-Sep-91 $877,000

B.1.26 Telematics Systems 9-Sep-91 $154,000

B.1.27 L. & T Ltd. 9-Oct-91 $720,0r0 $200,207

B.1.28 Sandur Manganese & Iron Ores 7-Nov-91 $87,000

8.1.29 Electronics Corporation of India 7-Nov-91 $1,640,000

8.1.30 PEICO Electronics & Electricals 16-Dec-91 $1,738,000

B.1.31 Wipro Systems Ltd. 27-Jan-92 $574;000 $152.837

8.1.32 Applied Electronics 27-Jan-92 $171,000

8.1.33 Advanced Radio Masts P. Ltd. 27-Jan-92 $1,304,000

B.1.34 Mirc Electronics Ltd. 13-Apr-92 $1,152,000

B.1.35 Spencer & Co. 13-Apr-92 $1,674,000

B.1.36 Artech Power Products 13-Apr-92 $263,000

B.1.37 Mafatlal Industries 9-Jun-92 $2,425,000TOTAL $60,106,130 $21,372,913

92 Annex D

Industrial Development Bank of India

IBRD Line of Credit 3095-IN

STATE-WISE ASSISTANCE SANCTIONED AND DISBURSED

Natme of thesubborrower No. of Amount sbShare Amount % ShareName of the subborrower projects Authorised Disbursed

ANDHRA PRADESH 2 $1,170,000 2.77% $1,166,926 5.46%

GUJARAT 3 $15,834,000 37.50% $4,071,288 19.05%

KARNATAKA 3 $1,974,000 4.75% $715,163 3.35%

MAHIARASHTRA 4 $14,61.0,880 35.18% $9,303,607 43.53%

RAJASTHAN 2 $3,679,000 8.86% $3,639,436 17.03%

UTTAR PRADESH 3 $4,265,290 10.27% $2,476,493 11.59%

TOTAL 17 $41,533,170 100.00% $21,372,913 100.00%

93 Annex D


INDUSTRY SEGMENT-WISE ASSISTANCE SANCTIONED AND DISBURSED

Industry Segment No. of Amount % Share Amount % ShareI.dustry Segment projects Authorised Disbursed

Communication & broadcasting equipments 1 $380,000 0.91% $386,256 1.81%

Computers & Components 5 $5,619,290 13.53% $2,957,077' 13.84%

Consumer Electronics & Components 5 $29,550,880 71.15% $12,615,805 59.03%

Industrial Electronics & Components 6 $5,983,000 14.41% $5,413,775 25.33%

TOTAL -- F-17 $41,533,170 100.00% $21,372,913 100.00%

94 Annex D

ILiidusti-ial Development Bank of Initlia

IBRD Line of Credit 3095-IN

Purpose-wise Assistance Sanctioned and Disbursed

NO. OF AMOUNTPURPOSE PROJECTS AUTHORISED CLAIMS MADE

Diversification 3 $8,480,730 $3,755,577

Expansion 7 $11,685,730 $6,341,902

New 6 $17,994,000 $5,866,478

Working Capital 4 $12,233,440 $9,550,789

TOTAL' 17 $41,533,170 $21,372,913

' NOTE:3 projects were for both expansion and diversification1 project involved expansion and working capital needsThese projects have been repeated under each of the categoriesTherefore, the summation of the number of projects under thedifferent categories exceed the actual number of projects

95 Annex D

Industrial Development Banik of Ind(liaIBRD Line of Credit 3095-IN

Size-wise Assistance Sanctioned

NO.OF AMOUNTPURPOSE PROJECTS SANCTIONED

Less than US $ 1 mn 10 $5,530,000

US $1 mn - 3 mn 2 $3,679,000

US $ 3 mn - 5 mn 3 $11,652,020

Above US $ 5 mn 2 $20,672,150

TOTAL 17 $41,533,170

96 Annex D

lnidustri-ial Developnment Bank of IndiaI8RD Line of Credit 3095-IN

Sub-bor-ower details - I

Sub Name of the Export Projct Amount Empl. Fixed assetsoriented Product cost

project # subborrower (Yes/No) (Rs Mn.) Disbursed gen. (nos.) (Rs. Mn.)

Gujarat Narmada CTV glass shells & B&WA.1 .02 Electronics No TV glass bulbs 4500.00 $3,439,737 .704 2679.70

CTVs, audio assemnbly,B.1.03 Videcon N potentiometers,

8'1.0 International Ltd. connectors, B&W picture 660.00 $3,558,730 2700 455.00tubes

R.1.04 Onida Savak Ltd. No Tuners 119.00 $524,861 N.A. 55.10

CAD, CAM, PCs, MiniB.1.07 Rolta India Ltd Yes computers, Engg. work 212.50 $652,401 128 181.50

stations, SoftwaresCTVs, audio assembly,

5 1 10 Videcon No potentiometers, 200.00 $5.027262 321.00International Ltd. connectors, B&W picture 2

tubesB.1.11 Kalyani Sharp (I) No CTVs & VCRs 515.00 $65,214 800 473.50B.1.20 HCL Ltd. PCs, EPABX 150.00 $1,819,998 22 117.50

B.1.22 Namtech Electronic No Gas discharge tubes and 127.50 $362,119 150Devices Ltd. ' modules

B.1.27 L. & T Ltd. No Dot matrix printers and 30-50 $200,207 6580.08floppy + hard disk drives 3.0 $0,0

8.1.31 Wipro Systems Ltd. Computers 79.00 $152,837 120 18.40

B.1.02 Punsumi India Ltd. Aluminium electrolytic 200.90 $1,475,000 75capacitors

13.1.06 Precision No Printed circuit boards! 201.00 $131,633 124 130.00Electronics Ltd. Pulse code modules

B.1.16 Gujarat Perstorp Electronic grade copper 242.50 $443,258 222 227.10Electronics No clad laminatesIncap Capacitors Aluminium electrolytic 12.0 $870 002.0

B.1.17 LdP PNo ciintmltryt 120.00 $780.670 200 120.008..7 Ltd. No capacitors

Advanced Radio Antennas, masts,B-1-19 Masts P. Ltd. No towers, radio systems, 900.00 $386,256 840.00

Masts P. Ltd. cables

B.1.21 Punsumi India Ltd. capacitors 76.80 $2,164,436 N.A.

Multilayered CeramicE.1.24 ICICON Electronics No Chip and leaded 82.80 $188,293 151 Nil

capacitors

TOTAL 8417.50 $21,372,913 5396 12198.80

Annex E

AffM ETA DIREKTION FOR ENTWICKLUNG UND ZUSAMMENARBEIT DEZA Eidg. Departement faCr auswartige Angelegenheiten

ENDIRECTION DU DEVELOPPEMENT ET DE LA COOPERATION DDC D6partement fed6ral des affaires 6trangeresD yrt DIREZIONE DELLO SVILUPPO E DELLA COOPERAZIONE DSC Dipartimento federale degli affari esteri

SWISS AGENCY FOR DEVELOPMENT AND COOPERATION SDC Federal Department of Foreign Affairs

AGENCiA SUIZA PARA EL DESARROLLO Y LA COOPERACION COSUDE Departamento Federal de Asuntos Exteriores

Development Cooperation - Asia I

Mr. Luis Emesto DerbezChief, Country Operations

Industry and Finance Division

t.311 India 136 - PHR-AJG Country Department II, South Asia

A? 031 325 9125 The World BankWashington, D.C. 20433

Bern, 14 July 1997

Electronics Industry Development Project (EIDP, Lns. 3093-4-5-IN) - ICR MissionComments related with the Manpower Development component ( Project IMPACT)

Dear Mr. Derbez

This is in response to your letters dated June 6 and 20, 1997, with the draftImplementation Completion Report (ICR) and Aide Memoire (AM). We havediscussed the same with our Delhi Office.

It was agreed with Dr. Sidney Thomas that SDC's views would as far as possible be

reflected in the AM and ICR, and our supplementary comments would be limited to ashort note for inclusion verbatim into the ICR. This letter is meant to serve this purpose.

Please allow us to make the following points:

1. We find Dr. Thomas' report covering all three components (credit line-, technicalassistance- and manpower development) of the EIDP an impressive piece of work.

We have also appreciated your consultant's co-operative way of conducting themission.

2. Important concerns of SDC are reflected in the ICR. We are in broad agreement with

the views expressed by Dr. Thomas.

3. Where our and our consultant's views differ most with those expressed in the ICR is

on institutional development, effectiveness and sustainability. These issues areparticularly important for scale-up and replication - challenges both the ICR and AMdeal with.

Schwarztorstrasse 59 3003 Bern Telefon Headquarters 031 322 21 11 Telefax 031 325 93 63

98 Annex E

Sustainability and institutional development are dimensions that were not consideredin a systematic manner in the Project's design (see also Mid-term Review Report).The structure for the implementation of IMPACT was a "classical" projectorganisation. SDC expects that this is going to limit effectiveness and sustainabilityfor "soft" inputs and processes that are critically important for long-term effectivenessand sustainability: teacher training, curriculum- and learning material development,industry linkages, training and retention of support staff. To this may be added thatthe cost-levels of IMPACT services and inputs will severely limit absorption andreplication within sustainable local institutions.

SDC expects to gain a better understanding of the absorption, adoption andinstitutionalisation of innovations initiated by IMPACT at the level of the ParticipatingInstitutions from a study the Bank has been informed about on an earlier occasion.

4. We are in agreement and have appreciated the key lessons Dr. Thomas has drawnon the collaboration with SDC as a co-financier. We hope that we will be able toenter into a broader dialogue - based on experiences of a few co-financing projects -with the World Bank on this, the objective being to enhance the effectiveness of co-financing partnerships for the benefit of our common partner countries.

Thank you once again for your cooperation.

With kind regards,

yours sincerely,

',WISS AGENCY FOR DEVELOPMENT AND COOPERATION! /

'urt Voegele,Head, Asia Section

CC: -Hr. Pfeiffer, COOF, New Delhi-BW-Section, SDC Berne

Schwarztorstrasse 59 3003 Bern Telefon Headquarters 031 322 21 1 1 Telefax 031 325 93 63

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