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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public Use

Report No. 10 7a-IN

INDIA

UTTAR PRADESH AGRICULTURAL CREDIT PROJECT

APPRAISAL REPORT

April 12, 1973

[IA PROJECTS DEPARTMENT

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 It may not be published, quotedor cited without Bank Group authorization.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

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CURRENCY EQUIVALENTS

US$1 - Rs 7,50RS 1 = US$0.133Rs 1,000 S US$133.33Rs 1,000,000 - US$133,333

WEIGHT AND MEASURES

Metric System

ABBREVIATIONS

UP = Uttar PradeshARC - Agricultural Refinance CorporationGOI = Government of IndiaLDB - Uttar Pradesh State Cooperative Land Development Bank, Ltd.SGD = Uttar Pradesh State Groundwater DirectorateMID = Uttar Pradesh State Minor Irrigation Department

CROPPING SEASONS

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

FISCAL AND FINANCIAL YEARS

GOI and UP - April 1 through March 31ARC and LDB - July 1 through June 30

INDIA


Table of Contents

Page No.

S.hMARY AND CONCLUSIONS ....... ........................ i-iii

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

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

A. India ......... ................................... 1B. The State of Uttar Pradesh . ...................... 2C. The Project Area ................................. 3

III. THE PROJECT ................................ 6

A. Definition ....................................... 6B. Detailed Features ................................ 7C. Cost Estimates and Financing ..... ................ 8D. Procurement and Disbursement ..... ................ 11

IV. ORGANIZATION AND MANAGEbENT ........................... 12

V. PRODUCTION, MARKETING, PRICES AND FARMERS' BENEFITS ... 18

VI. BENEFITS AND JUSTIFICATICI4 ........ .................... 22

VII. A.GREEMENTS REACHED AND RECOMMENDATIONS ..... ........... 23

SCHEDULE A - Project Lending Terms and Conditions

SCHEDULE B - Spacing of Wells

This report is based on the findings of an appraisal mission which visitedIndia in October/November 1972. The mission was composed of Messrs. S.J. Khoo,H. McDonald, W. Panton and G. von Wallenberg.

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ANNEXES

1. Agricultural BackgroundAppendix 1-1 Number of Cultivating Households (Rural and

Urban) by Land Ownership Size in the ProjectArea and in Uttar Pradesh

Appendix 1-2 Project Area - land Utilization, 1968-69

2. Minor IrrigationAppendix 2-1 Project CostsAppendix 2-2 Estimated Crop Irrigation Water Requirements

3. Estimated Schedule of Disbursements (Cumulative)

4. The Agricultural Refinance Corporation (ARC)Appendix 4-1 Condensed Statements of Net Income for Fiscal

Years 1965/66 - 1971/72Appendix 4-2 Projected Statement of Net Income for Fiscal

Years 1971/72 - 1975/76A-ppendix 4-3 Condensed Balance Sheets at End of Fiscal Years

1965/66 - 1971/72Appendix 4-4 Projected Balance Sheets at End of Fiscal Years

1971/72 - 1975/76

5. Uttar Pradesh State Cooperative Land Development Bank Ltd.AppPndix 5-1 Condensed Statement of Income for Fiscal Years

1966/67 - 1971/72Appendix 5-2 Condensed Projected Statement of Net Income

for Fiscal Years 1971/72 - 1976/77Appendix 5-3 Condensed Balance Sheets at End of Fiscal Years

1966/67 - 1971/72Appendix 5-4 Condensed Projected Balance Sheets at End of

Fiscal Years 1971/72 - 1976/77

6. Principal Commercial Banks Operating in Uttar Pradesh

7. Agricultural Marketing in Uttar Pradesh

8. Estimated Increase in Cropped Area and Production

9. Detailed Investment Cost and Yield Assumptions - FinancialAppendix 9-1 Current Crop Prices

10. Financial-Rates of Return to the Enterprises

11. Economic Rate of ReturnAppendix 11-1 Economic Rates of Return to the Enterprises

MAP

INDIA


SUMMARY AND CONCLUSIONS

i. This report appraises an Agricultural Credit Project in the Stateof Uttar Pradesh for which an IDA credit of US$38 million equivalent isproposed. It would support a three-year lending program of the Uttar PradeshState Cooperative Land Development Bank (LDB) and qualified commercial banksfor investments in minor irrigation comprising about 10,000 masonry or dugwells equipped with persian wheels, 20,000 shallow tubewells, and 20,000medium depth tubewells. In view of the shortage and the unreliability ofelectricity supplies, most tubewells would be equipped with diesel operatedpumpsets. Funds for the lending program would be channelled through theAgricultural Refinance Corporation (ARC) which is already acting as thefinancing channel for seven IDA-supported agricultural credit projects inIndia.

ii. Like all other Indian states, Uttar Pradesh is giving priority toagricultural development aimed principally at expanding foodgrain productionand providing employment for a growing labor force. Of the State's totalarea of about 29.4 million ha, approximately 67% is cultivated, with about85% of the cultivated area being devoted to the production of foodgrains.Despite good soils and favorable topography, yields of most crops are low.This is largely because extensive areas continue to depend solely on uncer-tain rainfall and are also subject to periodic drought. Substantial surfaceand groundwater resources exist but have yet to be fully developed for irri-gation. It is estimated that only about 36% of the annual groundwaterrecharge is presently being tapped for use and the proportion of utilizationis even lower in the Project area.

iii. The Project which would assist on-farm investments for the develop-ment of wells, would be located in 14 districts in the eastern part of theState. The Project area is economically more backward and farmer incomeslower than in the rest of the State. The primary causes are higher popula-tion density, smaller farms, and lesser utilization of groundwater resources.The State Government therefore plans to accelerate the development of minorirrigation in the Project area.

iv. The foreign exchange component is estimated at US$3.5 millionequivalent or about 5% of total Project costs of US$72.5 million. IDA wouldfinance US$38 million equivalent, being the foreign exchange component and50% of the local currency costs. Of the total Project costs, IDA wouldfinance about 52%, farmers 15%, and the LDB, participating commercial banks,and the ARC 33%. Farmers' contribution to investment costs would be 20% forwells and 10% for pumpsets and persian wheels, except in the case of smallfarmers whose contribution for masonry or dug well investments would bereduced to 10%, and for tubewells to 15%.

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V. LDB would be the main channel of Project funds to beneficiaries inthe Project area. While the commercial banks in Uttar Pradesh are becomingincreasingly active in the field of agricultural credit, this is still a newfield of activity for them, and it is unlikely that they would be able toundertake a significant proportion of Project lending. Staff strengtheningof the LDB, and reduction of loan overdues of the LDB branches in the Projectarea are essential. A program of staff recruitment and staffing which wouldaccord priority to the Project area, has been drawn up by the Mission. Agree-ment on this recruitment program was obtained during negotiations. LDB wouldalso be required tc prepare a staff training plan for IDA approval withinsix months of credit effectiveness and to produce a program for loan recoveriesacceptable to IDA, which would ensure that LDB as a whole and at least 30of its branches in the Project area would have achieved a loan recoveryperformance of not less than 75% as a condition of credit effectiveness.Loan recovery performance of not less than 75% means that at least 75% of theloans (principal and interest) would have been repaid by due date. Finally,a further 10 branches should qualify by the end of the first year of Projectexecution. To the extent that these recovery targets are not met, the StateGovernment would provide the LDB with new equity capital to the extent of theLDB and its individual branch overdues in excess of 25% of demand (principaland interest due). Alternatively, or in combination with the equity capitalcontribution by the State Government, LDB would use its profits (afterallocations have been made to statutory reserves and other mandatory funds,including normal contributions to bad debt reserves) to reduce overdues tonot more than 25% of demand. With these conditions, the banking system inthe Project area would be adequate to achieve full Project implementationwithin the three-year period envisaged.

vi. The IDA Credit to the Government of India (GOI) would be relent toARC which would repay about 50% after nine years at an interest rate of5-1/2% per annum and the balance after 15 years at 6% per annum. ARC wouldsupervise and refinance at 6-1/2% per annum the loan operations of agreedparticipating bankz. Loans to individual borrowers would bear interest ata minimum of 9% per annum and would be repayable over periods of up to nineyears, but extending to 15 years in the case of loans to small farmers.

vii. Drilling of the wells would be carried out by the Minor IrrigationDepartment as well as by local contractors. Adequate well drilling equipmentand pumpsets, including repair and maintenance facilities, are availablewithin the State and sufficient for Project needs. The execution of theProject would involve small investment items and operation on about 50,000individual farms spread over a period of three years, making internationalcompetitive bidding procedures impracticable. Procurement would be throughnormal commercial channels according to farmers' choice, as for other similarIDA credit project...

viii. The Project would have substantial economic and social benefits.It would raise agricultural yields and cropping intensity, as well as in-crease on-farm employment opportunities in one of the most populous andeconomically depressed areas of Uttar Pradesh. The livelihood of about70,000 farmers (including many small farmers) and their families would be

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improved significantly by the Project. Financial returns to farmers, basedon prevailing prices, are estimated to range from 17% to 41%. The ratesof return to the economy, based on projected world market prices, areestimated to be from 16% to 35%. In addition, the LDB staff strengtheningthat would be implemented during the Project period, would enable the insti-tution to improve as well as increase the pace of its lending operations.The appropriate assurances having been obtained, the Project is suitablefor an IDA credit of US$38 million.

INDIA


I. INTRODUCTION

1.01 Following the greater priority accorded to agriculture since 1965,major efforts continue to be made by the Government of India (GOI) to channelincreasing credit into the agricultural sector to enable more farmers toadopt improved agricultural practices and to utilize modern production in-puts. In support of these efforts, seven agricultural credit projects, oneeach in the states of Gujarat, Punjab, Andhra Pradesh, Tamil Nadu, Haryana,Mysore and Maharashtra have already been approved by IDA, totalling IDA fundsof US$217 million. In addition, a credit project for Madhya Pradesh is underconsideration. Though the implementation and disbursements of the existingcredit projects was initially slow, because it took longer than expected tobring about the necessary institutional changes and for the lending agenciesto adopt appropriate lending criteria, an IDA Agricultural Credit Review andSupervision Mission which recently visited India, confirmed that theseproblems are being resolved.

1.02 This Project is based on a proposal submitted to IDA by the UPGovernment and follows the pattern of previous agricultural credit projectsin India. It was appraised by Messrs. S. J. Khoo, H. McDonald, W. Panton,and G. von Wallenberg who visited India in October/November 1972. Thisreport is based on the Government's project submission and the mission'sfindings.

II. BACKGROUND

A. India -/

2.01 Since 1965, India has shifted the emphasis of its developmentefforts from industry to agriculture. As a result, priority has been givenin recent years to accelerating the spread of modern agricultural technologythrough increasing the availability of improved inputs such as high-yieldingseed varieties, fertilizers, and irrigation. Although 70% of India's laborforce is ergaged in agriculture (providing half of India's GNP) a large pro-portion of farmers have scarcely been affected by the recent agriculturaladvances. A large number of farmers could take advantage of the new tech-niques if credit were made available to them. An increased supply of creditfor farm investment is thus important to the continued growth of agricul-tural production.

1/ A detailed discussion of the present situation and prospects of agri-culture in India is given in Economic Situation and Prospects of India,Report No. SA-32a, May 10, 1972.

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2.02 The Reserve Bank of India has estimated that credit institutionswill require Rs 15,000 million (US$2,000 million) for long-term agriculturelending during the Fourth Plan (1969/70 - 1973/74), or an annual average ofRs 3,000 million compared with about Rs 600 million invested in 1966/67.Short- and medium-term credit requirements would increase by an estimated11% annually rising to about Rs 25,000 million (US$3,333 million) by1973/74. Provisional figures show the long-term credit supply for 1970/71at about Rs 1,800 million and the short-term at Rs 6,000 million. Therethus remains a substantial agricultural credit gap.

B. The State of Uttar Pradesh

2.03 UP is situated in the northeastern part of India to the east ofNew Delhi (see Map). The State has an area of about 294,400 km2 and apopulation estimated at 90 million for mid-1972. It is the most populousand fourth largest State in India. For administrative purposes, UP isdivided into 54 dietricts comprising 234 tehsils. Only about 14% of UP'spopulation is urban (20% for India), so that agricultural production holdsspecial significance for the economy of the State. About 60% of the State'sincome is derived from the agricultural sector which provides employmentfor over three-fourths of the working population.

2.04 UP has a subtropical monsoon climate. Annual rainfall ranges from600-1,000 mm in the western part to 1,000-1,200 mm in the eastern part, inwhich the Project area would be located. The major portion of the State'sagricultural area occupies the upper central portion of the Ganges Plainwhich slopes slightly from north to south in the western portion and fromnorth-west to south-east in the eastern portion. Soils are essentially deepalluvium, deposited by the Ganges River and its tributaries. Abont 85% ofthe cultivated area is devoted to the production of food grains - cerealsand pulses. Wheat, rice, maize, barley, sorghum and millets are the majorcereals. Sugarcane, oilseeds, potato and cotton are the major non-foodgrainsgrown on the remaining 15% of the cultivated area.

2.05 UP has the highest population pressure of any state in India, andthere is little cultivable land left to expand crop production. An indica-tion of this pressure is the preponderance of small farms. Of an estimated9.4 million farms, approximately 38% are less than 1 ha (13% of farm land),28% are between 1 and 2 ha (20% of farm land), and the remaining 34% arelarger than 2 ha (67% of farm land). Holdings of 10 ha and above accountfor less than 2% of all farms.

2.06 In common with many of the other states, the most important objec-tives of UP's current Development Program (1969/70 - 1973/74) are to expandagriculture, particularly foodgrain production, and to provide increasedemployment for a rapidly growing labor force in the agricultural sector. Inview of the scarcity of land, this can be achieved mainly by increasing theproductivity of existing farmland through irrigation facilities, and improvedinputs and methods of cultivation. The priority accorded irrigation isreflected in the significant increases in the net irrigated area.

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2.07 There are no known reservoir sites in the Project area for surface

water storage. The water supplies of the Ghaghra and Gomti rivers during

the rabi season are now fully utilized. There are a number of streams draining

the Himalayan foothills along the northern part of the Project area, although

these streams flow only during the monsoon season so that storage tanks or

reservoirs would be necessary to provide water during the rabi season. The

topography in this area is extremely flat which would make reservoir storage

very expensive per unit of water developed. Seepage and evaporation losses

during the storage period would also be substantial. With respect to ground-

water, the State has an annual recharge estimated at 6,780 million m3,

whereas the present annual discharge from existing wells is about 2,470 mil-

lion m3, or about 36%. The proportion of utilization is lower in the Project

area (para 2.11). There is, therefore, considerable potential for an increase

in groundwater use.

2.08 There are three types of well construction commonly in use in

the State. These are the masonry well (masonry-lined dug well), shallowtubewell (dug-cum-bore well), and the medium depth tubewell. In addition,

there is the State owned deeper tubewell which serves a very much larger

command area. The performance of these tubewells has not been as satisfactory

as was anticipated, because the command areas of 200-250 ha were much larger

than the 103-120 ha that could be adequately served by the available water

supplies, and in the case of electrified tubewells which were subject to

unreliable power supplies, irrigation water could not be supplied to farmers

when it was most needed. The importance of smaller private wells as a source

of irrigation has been growing significantly, and they currently provide

irrigation for about 60% of the present total irrigated area (47% in 1960/61).

In practically all cases, well irrigation can be practised without land shaping

of any kind.

2.09 UP is short of electric power and only about 20% of the villages

have been electrified. Since about 70% of generating capacity is hydro-

power, the supply is sensitive to drought conditions and power shortages

occur at tines when the demand for irrigation pumping is at a maximum.Furthermore, no power for irrigation is available during peak demand

periods. In view of the shortage, restrictions, and unreliability of

electricity supplies, most irrigators will likely select diesel engines as

a source of power. The electricity shortage can be expected to continue for

the next few years.

C. The Project Area (Annex 1)

2.10 The Project area comprises 14 districts totalling approximately

74,000 km2 , and occupies a contiguous block of land in the eastern part of

the State, bounded in the north by Nepal, and in the east by the state of

Bihar. The area is roughly demarcated by the Gomti River, a tributary of

the Ganges River, on the west and south. The 14 districts are Jaunpur,Ghazipur, Ballia, Gorakhpur, Basti, Azamgarh, Lucknow, Sitapur, Kheri,Faizabad, Gonda, Bahraich, Sultanpur, and Barabanki (see Map).

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2.11 Compared with the rest of the State, the Project area is econo-mically backward and farmer incomes low. The primary causes can be attributedto higher population density, smaller farms, and the lesser availability ofirrigation, resulting in lower land productivity. In relation to the Stateas a whole, in the Project area population density is about 383 persons perkm2 compared to 300; approximately 48% of the 3.55 million farms are lessthan 1 ha compared to 38%; and about 27% of the estimated groundwater re-sources is being utilized compared to 36%. The State therefore plans toreduce the dispartty in regional economic growth by carrying out an accelerateddevelopment of the Project area.

2.12 Groundwater conditions in the area are favorable for well develop-ment (para 2.18). Provision of adequate irrigation would enable farmers tomake the most productive use of high yielding seed and fertilizers, as wellas increase their cropping intensities (para 2.17). Development of on-farmwells would probably be the most attractive economic proposition in that,besides being profitable, even the small farmer can afford to participate.In view of this, the State is giving high priority to the development ofwells in the Project area, and the proposed Project would be an importantcontribution to this development.

Climate and Soils

2.13 The area has a subtropical monsoon climate. Temperatures varyfrom a minimum of around 4°C in January to a maximum of 43-45°C in June, andthe annual rainfall from about 960 mm to 1,360 mm. The main rains averagingmore than 800 mm in all parts of the area and over 1,000 mm in some northerndistricts, occur during the kharif season, June to September, when a rangeof tropical crops suited to the hot, humid conditions then prevailing aregrown. This is succeeded by a cooler, drier period, between October andFebruary (rabi crop season), when crops of a temperate type are grown, andwhen irrigation is a special boon. Finally, during March, April and earlyMay a period of wam, dry weather is experienced, especially on the southernside of the area, referred to as the Zaid, or summer season.

2.14 The Project area ranks as one of the most fertile regions in thecountry. Lying entirely within the Ganges Plain, the area soils are devel-oped over the deep alluvium deposited by the northern tributaries of theGanges River, principally the Gomti, Ghaghra and Rapti rivers and theirnumerous subsidiary streams, which are continually depositing fresh materialeroded from the soft, often highly dolomitic rocks of the Himalayan Ranges.The soils are essentially basic in character, and are highly productive.They have been subject to cultivation for many centuries and are capable ofmuch higher sustained yield cultivation in the future, provided heavierfertilizer dressirngs and improved irrigation facilities are made available.

Agricultural Structure

2.15 The pattern of land use is uniform throughout the area. Theprincipal crops grown in the kharif season are rice, maize, sugarcane, anda variety of millets. Rice alone accounts for over two-thirds of the totalarea, with the other three crops the remaining one-third. During the rabi

season, the main crops grown are wheat (about 45% of the total area), barley(20%), with other crops, mainly gram, peas, oilseeds, especially groundnuts,lentils, sugarcane and potatoes, accounting for the remaining 35%. Actuallysugarcane is a year round crop taking up about 10% of the total cultivatedarea. Some vegetable crops are also grown during the short Zaid period(between the kharif and rabi seasons), particularly by those farmers who havea reliable irrigation source and who are situated in close proximity to a readymarket.

2.16 Land tenure reforms undertaken in the last 20 years have beenmore successful in UP than in most other states. Ownership is almost com-plete within the Project area, where all land is title surveyed and entirevillage cadasters exist. Fragmentation is not a serious problem, but thesmall size of the average holding and the considerable rural populationdensity (para 2.11) are responsible for a high degree of farm household andlandless labor under-employment. Multiple cropping, which can be practisedon a much wider scale with irrigation, spreads the work load and helps torelieve the under-employment situation.

Irrigation

2.17 Improved and more extensive year-round irrigation will lead toan increase in the cropping intensity (para 5.01), particularly during therabi, and permit the introduction on a wider scale of higher yielding cropvarieties, such as wheat, sugarcane, paddy and maize, whtich are more sensi-tive to moisture stress than their local equivalents. Thus, medium- andshort-term high yielding paddy varieties and hybrid maize, both capable ofgiving yields of 2.5-3.0 ton/ha, can be introduced during the kharif, andthese crops can be harvested in time for the planting of high-yielding wheatvarieties, capable of 3 ton/ha or more. Sugarcane yields can be expected todouble from about 20 to 40 ton/ha under assured irrigation conditions, whilethe area planted should increase appreciably as the smaller farmers commenceproduction of khandsari sugar for home consumption and local sale. Potato,an entirely irrigated crop, is likely to be introduced in the rotation ofthe larger farmers. Such improvements would substantially increase the in-come of the farmers concerned, and thereby contribute to the economic devel-opment of the area.

2.18 The Project area is characterized by a generally high water tableand the presence of aquifers at relatively shallow depth, with abundantrecharge capacity provided both by lateral seepage from the Himalayas andby direct penetration of rainfall. It is consequently endowed with ground-water conditions which are favorable for the development of a minor irriga-tion system based mainly on shallow and medium depth wells. Because thetopography of the area is relatively flat, land levelling would not be re-quired for well irrigation. In view of the above, wells have thereforebecome the main source of irrigation (63% of the irrigated area), followedby canals (17%), and lakes, ponds, tanks and other sources (20%). However,only about one-third of the area's 4.8 million ha of net sown land ispresently irrigated, and the discharge from existing wells is approximately27% of the estimated annual recharge. There is accordingly considerable

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potential for a marked increase in groundwater use. The unutilized ground-water recharge would be more than sufficient to meet the discharge by thewells to be constructed under the Project (para 3.04).

Agricultural Inputs and Services

2.19 The supply and use of fertilizers and improved seed varieties haveincreased considerably in recent years, and the sales tax on fertilizers wasrecently abolished to encourage their use. The requirement of improvedseeds is met from the State Agriculture Department's 196 Seed MultiplicationFarms, registered private growers, and the Tarai Development Corporation,which is implementing an IDA financed project (Tarai Seeds Project - LoanNo. 614-IN) for production of high quality seed in the Tarai region of UP.The Agriculture Department and farmer cooperatives which operate an extensivenetwork of distribution facilities for improved seed varieties and fertilizerswould be able to supply the need for these inputs by farmers participatingin the Project. Agricultural extension services, as well as farmer, exten-sion and in-service training are adequate for the Project area, and providedby the Agriculture Department, the Institute of Agricultural Sciences atKanpur, 20 Extension Training Centers, 9 Farmers' Training Centers and theregional research centers of several agricultural institutions. Furthermore,a useful demonstration effect, which supplements the efforts of the extensionworkers at the village level, is provided by the many farmers scatteredthrough the Project area who already have their own irrigation facilities.

2.20 Additional labor needs arising from the more intensive croppingpatterns adopted under the Project can be adequately met from the existingsupply of rural labor, which includes a high degree of under-employed laborwithin existing farm households, as well as a considerable number of unem-ployed farm laborers. Animal power, which is abundant throughout the area,should be sufficient to meet most of the increased cultivation demandsarising from the higher cropping intensity. Farmers with irrigation facili-ties report no difficulty in hiring supplementary bullock power.

III. THE PROJECT

A. Definition

3.01 The Project would be part of the lending program of the UttarPradesh State Cooperative Land Development Bank Ltd. (LDB) and commercialbanks. It would help finance over a three-year period farmers' investmentsin minor irrigation in 14 districts in the eastern part of the State. TheProject would be implemented through the LDB and commercial banks in theProject area, under refinance arrangements with ARC. It would involve lendingto individual farmers for investments in about 50,000 wells, 10,000 persianwheels and 40,000 diesel and electric pumpsets. Determination of Projectsize was based on estimates of farmer demand and institutional capacity ofthe lending institutions over a three-year period.

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B. Detailed Features

3.02 Investments in minor irrigation would involve the construction ofabout 10,000 masonry wells or dug wells, 20,000 shallow tubewells and 20,000medium depth tubewells. A masonry well usually will yield 7 to 8 m3/hr,which is about the average capacity of a persian wheel. However, there areabout 390,000 masonry wells in the Project area of which only about 65,000are equipped with persian wheels. The remainder are equipped with leatheror metal buckets and water is lifted by bullocks. The second type of wellis the shallow tubewell which is a dug well with a tubewell drilled or boredin the bottom penetrating the shallow aquifer that is usually less than 30 min depth. Frequently such wells are referred to as "cavity" wells becausethey have no strainer. The casing is sealed into a thick clay layer whichforms the "roof" of the cavity formed by pumping out the sand around the endof the casing. The cavity well is usually equipped with a small centrifugalpump and motor which, if electric, will be directly connected to the pump orif diesel powered will be connected to the pump by a belt drive. These wellsusually have a capacity of 22 to 27 m3/hr. The third type of well is a smalldiameter tubewell equipped with strainer. These wells are usually about 45 min depth although they may be deeper depending on the depth of the aquiferand the capacity desired. These are referred to as medium tubewells and mayhave capacities of 32 to 41 m3/hr or more. These tubewells are also equippedwith centrifugal pumps which may have to be placed in a pit in order to main-tain a suction lift of 5 m or less which is the maximum practical if thepump is to be operated efficiently. Detailed total investment costs of eachof these wells, including pumpsets and water channels, are presented inAnnex 2, Appendix 2-1. Though description of Project investments imply thatindividual loans would be for a well plus a persian wheel or pumpset (aswould be the case for the majority of the loans), they would not precludelending for just a single item. The Project is expected to finance pumpsetsfor both the shallow and medium depth tubewells in the proportion of 80%diesel and 20% electric operated. Since it is not possible to estimate theadditional electric supplies that would be available to the Project area,the proportion of diesel and electric pumpsets to be financed is a roughestimate based on loans for these items sanctioned by the LDB during the pastyear, and the number of villages in the Project area which would have elec-tricity supplies. Project financing of electric and diesel pumpsets wouldbe determined by farmers' choice and the availability of electricity.

3.03 A masonry well usually yields sufficient water to irrigate about1 ha, a shallow tubewell about 3 ha, and a medium tubewell about 4 ha. Tomake the best use of the available well yields and to avoid over-capitaliza-tion, assurances were obtained during negotiations that the LDB and participa-ting commercial banks would encourage their borrowers to serve the size ofarea which would fully utilize the yield of the well, either by sellingsurplus water or by joint operation with one or more farmers, in the eventtheir own area is significantly smaller than the area that can be irrigated.Such water sharing arrangements are in fact quite common and should not posea problem in the Project area.

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3.04 Although estimates of the annual groundwater recharge in theProject area as a whole is more than adequate to supply Project requirementsin addition to existing wells in use (Annex 2), there is a danger of localizedoverdevelopment if wells are sited too close together. Under such a situationand especially where the cones of depression in the water table overlap, someof the wells may go dry. As in all other states, there is presently no legis-lation to control groundwater development in UP. However, model legislationon this subject has been prepared by GOI's Central Groundwater Board andmade available to the states with a view to its enactment by all states in thenear future. Pending the enactment of such legislation it would be a condi-tion that the State agree to apply well spacing criteria as set out in Sched-ule B, not only for the Project, but also for all minor irrigation develop-ment within its direct or indirect control (para 4.03). The State GroundwaterDirectorate (SGD) would determine in advance the siting and minimum distancebetween wells. This criterion is in accordance with guidelines issued byGOI's Central Groundwater Board. In addition, SGD should continue to monitormonthly water level fluctuations in the Project area using the 350 observationwells it has established in the area. Assurances on these measures wereobtained during negotiations. SGD has adequate and competent staff todetermine spacing r-riteria for the Project area (para 4.19).

3.05 The Minor Irrigation Department has about 1,600 hand operatedrigs in the Project area, and these alone are sufficient to complete theProject. Project financing of rigs would therefore not be required. Inaddition, there are also numerous private contractors who operate drillingequipment and provide drilling services to farmers (para 3.10).

C. Cost Estimates and Financing

3.06 EstimateL Project cost, together with foreign exchange require-rents, 1/ are:

I/ The value of the rupee is now pegged to the pound sterling which isfloating in relation to the US dollar. The conversion rate used inthe cost estimates is Rs 7.5 to US$1.

Rs Million US$ Million %Foreign

Local Foreign Total Local Foreign Total Exchange

1. Masonry Wells withPersian wheels 31.0 - 31.0 4.1 - 4.1 -

2. Shallow Tubewellswith Diesel Pumpsets 164.2 8.6 172.8 21.9 1.2 23.1 5

3. Shallow Tubewellswith ElectricPumpsets 37.2 2.4 39.6 5.0 0.3 5.3 6

4. Medium Depth T.ibewellswith Diesel Pumpsets 231.0 12.2 243.2 30.8 1.6 32.4 5

5. Medium Depth Tubewellswith ElectricPumpsets 53.8 3.4 57.2 7.2 0.4 7.6 6

Total Project Costs 517.2 26.6 543.8 69.0 3.5 72.5 5

Detailed cost estimates are shown in Annex 2. Estimates are based on presentprices including a 10% allowance for cost increases which would be adequate.The allowance is based on an annual price increase of 5% on the estimatedamounts that would be disbursed over the Project period. As in otheragricultural credit projects, no physical contingency is included.

3.07 The total Project cost of Rs 543.8 million (US$72.5 million)would be financed from the following sources:

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TotalProject

Farmers Lending Banks ARC Cost IDA% ofTotal

Rs % of Rs % of Rs % of Rs Rs ProjectMillion Total Million Total Million Total Million Million Cost

1. MasonryWells

Wells 4.4 20 1.8 8 16.0 72 22.2 11.1 50Persian

Wheels 0.9 10 0.8 9 7.1 81 8.8 4.4 50

2. ShallowTubewells

Wells 20.3 20 8.1 8 73.1 72 101.5 50.8 50Electric

Pump-sets /1 1.9 10 1.8 9 15.7 81 19.4 10.9 56

Diesel Pump-sets /2 9.1 10 8.2 9 74.2 81 91.5 50.0 55

3. Medium DepthTubewells

Wells 32.8 20 13.1 8 118.3 72 164.2 82.1 50ElectricPump-sets /3 2.4 10 2.2 9 19.8 81 24.4 13.7 56

Diesel Pump-sets /4 11.2 10 10.1 9 90.5 81 111.8 62.0 55

Total ProjectCosts 83.0 15 46.1 9 414.7 76 543.8 285.0 52

1l 4,000 electric pumpsets each including 5 hp electric motor.

/2 16,000 diesel pumpsets each including 5 hp diesel motor.

13 4,000 electric pumpsets each including 7-1/2 hp electric motor.

/4 16,000 diesel pumpsets each including 7 hp diesel motor.

3.08 The proposed IDA credit of US$38 million (Rs 285 million) wouldfinance about 52% of total Project cost, and would supply about 70% ofARC support of the Project (Rs 414.7 million). IDA financing of the totalProject cost is based on (a) the estimated foreign exchange costs and 50% ofthe estimated local costs of the Project. IDA financing of foreign exchange

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costs would amount to Rs 26.6 million, or about 9% of its total contributionwhile local currency financing would total Rs 258.4 million. 1/

3.09 The IDA credit would be on standard terms to GOI which would makeavailable the proceeds to ARC under a subsidiary loan agreement acceptableto IDA and partly re-payable at the end of nine years at an interest rateof 5-1/2% per annum for ultimate loans not exceeding this period (estimatedat about 50% of the total) and partly at the end of 15 years at 6% per annum forlonger maturities; in each case there would be a rebate of 1/4% per annumfor prompt repayment and GOI would bear the exchange risk. ARC would on-lend to the LDB and participating commercial banks under agreementsacceptable to IDA at an interest rate of 6-1/2% per annum computed onoutstanding indebtedness. LDB and the commercial banks would lend to ultimateborrowers at a minimum of 9% per annum (para 4.13). Assurances on thesearrangements were obtained during negotiations. This interest rate structureis in line with the prevailing institutional interest rates for agricultureand the other sectors of the economy.

D. Procurement and Disbursement

Procurement

3.10 The execution of the Project would involve small investment itemsand operations on individual farms with purchases spread over a period ofthree years, which would be difficult to bulk for centralized procurement toattract international competitive bidding. Adequate well drilling equipmentand pumpsets, including facilities to service them, are available within theState and sufficient for Project needs. Prices are competitive. Welldrilling is done by the Minor Irrigation Department and private contractors.In either case, the usual practice is for the farmer to provide much of thelabor required for drilling. Drilling charges are reasonable and are aboutthe same for the Department and private contractors. Procurement wouldconsequently be through normal commercial channels by the individual farmeraccording to his choice, as in the case of all IDA credit projects in Indiainvolving minor irrigation works.

Disbursement

3.11 IDA disbursements are expected to extend over 3-1/2 years(Annex 3). Against appropriate statements, disbursements would on averagebe 62% of total expenditures on all loans disbursed by LDB and the partici-pating commercial banks. 2/ The documentation will not be submitted for review

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

2/ The 62% figure constitutes a weighted average of the following: 62% ofloans for masonry wells, 56% for persian wheels, 63% for shallow tube-wells, 62% for 5 hp electric pumpsets, 61% for 5 hp diesel pumpsets,62% for medium tubewells, 63% for 7-1/2 hp electric pumpsets, and 62%for 7 hp diesel pumpsets.

I

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but would be retained by the lending institutions and be available forinspection by IDA during the course of Project supervision missions.

IV. ORGANIZATION AND MANAGEMENT

General

4.01 Financing and organization arrangements would follow the patternestablished under the existing IDA-supported agricultural credit projectswhich have proven to be satisfactory. The IDA credit to the Government ofIndia (GOI) would be channelled to the Agricultural Refinance Corporation(ARC), which would refinance 90% of the lending to ultimate borrowers of theUttar Pradesh State Cooperative Land Development Bank Ltd. (LDB), and ofparticipating commercial banks. It is expected that most of the funds wouldbe lent by LDB, as the commercial banks have yet to establish enough institu-tional capacity in the rural areas to effectively handle a large number ofminor irrigation loans. The State Groundwater Directorate (SGD) would deter-mine the spacing for wells, and the Minor Irrigation Department (MID) wouldassist in the cor.struction of wells and the proper installation of pumpsets.

Agricultural Refinance Corporation (ARC)

4.02 ARC, a subsidiary of the Reserve Bank of India (RBI), and describedin detail in Annex 4, is the channel for seven IDA agricultural credit projectsand is therefore well known to IDA. It is a competently managed organizationwith a sound financial structure, and its role is important not only as achannel for development funds, but also for its influence on the lendingpolicies and operational procedures of the agencies it assists. It refinancesstate cooperative land development/mortgage banks (LDBs), state cooperativebanks and scheduled (commercial) banks on the basis of agricultural schemeswhich are tecknically feasible, financially justified, and are within areasonably compact area. Technical and economic evaluation is performed byARC staff or ARC employed consultants. ARC sets standards for project pre-paration, appraisal and implementation, and thus improves the lending per-formance and procedures of the institutions assisted. With ARC's guidance,LDBs have been developing from mere mortgage banks to agricultural develop-ment banks. In view of the above, and especially its role in institutionbuilding, ARC is a suitable agency for the overall supervision of the Project'simplementation. As in previous credits, an assurance was obtained thatARC's accounts would be audited by auditors acceptable to IDA.

4.03 ARC would ensure that all lending banks follow the policies,terms and conditions agreed with IDA (Schedule A). A loan agreementacceptable to IDA, would be entered into between GOI and ARC (thisagreement incorporating the terms and conditions specified in para 3.09),and the execution of such an agreement would be a condition of crediteffectiveness. ARC would also enter into subsidiary loan agreements,acceptable to IDA, with all lending banks. APC would further ensure thatlending banks adhere to the spacing criteria for wells as set forth inSchedule B. Assurances on these matters were obtained at negotiations.

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Uttar Pradesh State Cooperative Land Development Bank Ltd. (LDB)

4.04 Incorporation. The LDB (detailed description in Annex 5) was firstregistered in March 1959 as the UP State Cooperative Land Mortgage Bank.Since 1964 it operates under the UP State Cooperative Land Development BanksAct No. XVI and its name was then amended accordingly to emphasize that itsprimary function had been changed from the redemption of debts to lendingfor agricultural development. The LDB has a unitary structure with its headoffice in Lucknow and 203 branch offices covering 51 of the State's 54 dis-tricts. It maintains 55 branch offices in the Project area.

4.05 Management and Staff. LDB's operations are directed by a 15-memberBoard of Directors, which consists of 5 members elected at its Annual Meetingand 10 directors iiominated by the State Government, representing the variousGovernment departments concerned with the development of irrigation resourcesand agricultural production (Annex 5, para 3). The chief executive officer isthe Secretary, the present incumbent being the Deputy Registrar of CooperativeSocieties on deputation since April 1972, who is well qualified for the post.The total staff as of June 30, 1972 was 1,339 of which 219 were at head officeand 1,120 at the branches; 574 are college graduates many of whom have con-siderable experience.

4.06 Each branch office is administered by a Branch Manager, who issupported by a Branch Management Committee of 9 members, 4 of whom areelected by the shareholders and 5 are government officials. The Committeeis authorized to consider and sanction loan applications up to Rs 8,000;larger applications have to be forwarded to head office.

4.07 Resources. LDB's own funds consist of the share capital andreserves. The paid-up share capital as at June 30, 1972 was Rs 80.60million (US$10.7 million), of which Rs 19.09 million (24%) was subscribedby the State Government and Rs 61.51 million (76%) contributed by borrowers,who are required to buy shares to the extent of 5% of the loan amount(3% in the case of government subsidized schemes). The reserves, provisionsand undistributed profits totalled Rs 39.7 million (US$5.3 million); its owncapital amounted to 9.5% of total resources. Additional long-term fundswere raised through the issue of three types of debentures: Ordinarydebentures (subscribed mainly by GOI, the UP State Government and otherinstitutions), outstanding at this date were Rs 916.9 million; ruraldebentures (subscribed by farmers and the Reserve Bank of India in theratio of 7 to 1) were Rs 15.6 million; and special development debentures(subscribed by ARC) were Rs 103.3 million. The special developmentdebentures are expected to have a rising share in future. Short-termfunds are raised by accepting rural deposits and through overdraft facilitieswith the UP Cooperative Bank Ltd., and the State Bank of India.

4.08 Operational Results. LDB's lending operations show a rapidexpansion over recent years; its loan portfolio more than doubled overthe last 3 years irom Rs 425 million (US$56.7 million) in 1969 to Rs 957million (US$127.6 million) in 1972. Net profits have increased steadilyfrom Rs 5.9 million (US$0.79 million) in 1969 to Rs 13.0 million (US$1.73million) in 1972.

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4.09 LDB's overdues position, however, has deteriorated over the lastthree vears: arrears have increased from 15% to 25% of demand (principaland interest due) for LDB as a whole. Some of the overdues can be attributedto the poor harvest during last year's kharif season caused by extensive floodsand the recent drought afflicted kharif season. Inadequate staff for properloan appraisal, emphasis on rapid expansion, weak management of branchoffices in some cases, as well as the lack of field staff and poor collectioneffort, are other reasons for the overall decline in the loan recovery per-formance. The position in the Project area is worse than the overall position,mainly because it is a generally less developed area and more affected bynatural hazards: there the overdues rose from 29% to 38% over the last threeyears. The performance of individual branches varies considerably. As ofJune 30, 1972, out of the 55 branches in the Project area, 20 had overduesof 25% or less, 21 between 26% and 40%, and 14 more than 40%. No reschedulingof loans has been undertaken, and so far no legal action has been takenagainst defaulters who are unwilling to pay. However, the arrears positionis considered still manageable as about 55% has been overdue for less than1 year, and only 10% for more than 3 years.

4.10 Strengt,.ening of LDB. In the interest of financial discipline andto bring the downward trend in recovery performance to a halt in order tomaintain LDB's future viability, LDB should have a loan recovery of not lessthan 75% of demand (principal and interest due). The same criterion wouldbe applied to each of its branches in the Project area during the period ofthe Project. LDB would be required to submit a program, acceptable to IDA,for the improvement of the overdues position so that at least 30 branches inthe Project area would qualify to participate as a condition of crediteffectiveness, and 40 by the end of the first year of Project execution.LDB as a whole would also be required to maintain an overdues position of25% or less of demand as a condition of credit effectiveness. In the eventthis position is not maintained, and the recovery measures of the 40 branchesin the Project area did not prove as effective as anticipated, the StateGovernment would provide the LDB with new equity capital to the extent of theLDB and its individual branch overdues in excess of 25% of demand. Alter-natively, or in combination with the equity contribution by the StateGovernment, LDB would use its profits (after allocations have been made tostatutory reserves and other mandatory funds, including normal contributionsto bad debt reserves) to reduce overdues to not more than 25% of demand.Assurances on these measures were obtained. The capacity and degree ofpenetration of this number of branches would be adequate to achieve fullProject implementation within the three-year period envisaged.

4.11 To improve the loan appraisal and follow-up and to implement aplanned, intensive loan recovery program to halt the decline in repayments,LDB would be required to build up its own field staff at branch level. Atpresent, LDB relies for appraisal work on government officers (essentiallythe Village Level Workers) outside its control (Annex 5, para 16-19), whoare not trained in appraisal techniques and have many other functions toperform (agricultural extension, organize local government, support cropcampaigns, small saving schemes, family planning, etc.). Moreover, they arenot responsible for the collection of loans appraised by them. In order to

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overcome this weakness, LDB has prepared a three-year staff development planagreed to by IDA, and providing for:

(a) Recruitment of Field Officers (university graduates inagriculture) who would work under the direction of thebranch managers on loan appraisal, follow-up and collection.Field Officers would be recruited on the basis of one forabout 200 loans approved per year, as this is the maximumnumber of loans that a Field Officer can be expected tohandle effectively. There would, however, be at least oneField Officer for every branch except for those branchesin the State's hill Districts and the Bundelkhand area;

(b) Employment of junior agricultural officers (called KisanSewak), who would be equivalent to the Village Level Workersand would supplement their work in helping farmers with loanapplications, procurement of legal documents, as well asassist branch managers with loan supervision and collections.Sufficient Kisan Sewaks will be recruited to ensure that therewould be at least three Kisan Sewaks to assist each FieldOfficer;

(c) Appointment of eight Regional Managers, one for each RevenueDivision in the State except the Divisions comprising thehill Districts and the Bundelkhand area, to supervise theoperations of all branches in the Division and to liaisewith appropriate Government personnel;

(d) Employment of assistant accountants, legal assistants andother supporting staff in accordance with norms establishedby LDB in consultation with ARC; and

(e) Establishment of a Technical Cell at head office, initiallycomprising a senior and a junior agricultural economist,a civil engineer and a geologist, who will be primarilyengaged in the preparation and technical evaluation ofminor irrigation schemes proposed for refinancing by ARC.

4.12 To ensure the successful implementation of the Project, it isessential that:

(a) One Field Officer and one Kisan Sewak be in position inevery branch in the Project area before effectiveness ofthe credit;

(b) Within one year after credit effectiveness, the number ofField Officers in each branch in the Project area will beincreased in accordance with a staffing scale that willensure that no Field Officer has responsibility for morethar about 200 loans approved per year; and

(c) The Technical Cell be established at head office beforecredit effectiveness (para 4.11 e).

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Existing training facilities are adequate (Annex 5, para 5) and the requiredstaff set out above can be recruited without any difficulty. In consultationwith ARC, a staff training plan should, however, be prepared by the LDB forIDA approval within 6 months of credit effectiveness. Assurances on theabove were obtained. The net income of LDB is sufficient to satisfactorilymeet the estimated additional expenditure of not more than Rs 4 millionannually for the proposed staff increase, and to provide for some reserves.

4.13 Lending Policies and Terms. 1/ The lending rate to ultimateborrowers would be 9% per annum (it was raised from 8-1/4% to 9% in December,1971). Farmers' minimum contribution to investment cost would be 10% in thecase of pumpsets and persian wheels and 20% in respect of wells and wellimprovements. Investment cost includes the value of the farmer's own laborpriced at prevailing wage rates for farm workers. For lending to small farmers(definition in Schedule A) who may not be able to raise sufficient funds fromtheir own resources, the minimum contribution in respect of masonry wells wouldbe 10%, and for tubewells 15% of investment costs. The borrovers' contributionalways includes the obligatory purchase of LDB share capital xwhich amounts toSw of the loan (3% for small farmers), own labor and other contributions incash or kind. Repayment periods would be based on the borrowers' repaymentcapacity, but would not exceed 7 years for loans for pumpsets and persianwheels and 9 years for masonry wells or tubewells. Investments of smallfarmers, except for pumpsets and persian wheels, could be financed over amaximum period of 15 years. These and other lending terms are set out inSchedule A. Assurances were obtained at negotiations that LDB would complywith the terms in Schedule A, and the well spacing criteria in Schedule Bfor Project loans as well as for all similar types of lending outside theProject.

4.14 Accounts and Auditing. LDB's accounting system is adequate andthe accounts are complete and properly maintained. The audit is doneby independent auditors of the Cooperative Audit Organization, which reportsto the Finance Department of the State Government. An assurance wasobtained at negotiations that the accounts would continue to be auditedby independent auditors acceptable to IDA and would be submitted to IDAwithin 4 months of the close of the financial year.

Commercial Banks

4.15 There are 19 major commercial banks operating in Uttar Pradeshof which 2 belong to the State Bank of India group, 12 are nationalizedbanks and 5 are banks with private ownership. 16 commercial banks, 6 ofwhich are lead banks, 2/ have a total of 286 branches in the Project area,the most important being the State Bank of India (106 branches), the UnionBank of India (33 branches), the Central Bank of India (32 branches) and theAllahabad Bank (30 branches).

1/ For present lending terms, see Annex 5, para 14-15.

2/ See explanat1on in Annex 6.

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4.16 Since the late 1960's, the major commercial banks have taken anincreasing interest in agricultural lending, although direct lending tofarmers does not usually exceed 7-8% of loan portfolio. They have openedand continue to open new branches in rural areas. Interest rates vary from8.5% to 11% per annum, but are usually around 10% for medium-term agriculturalloans. Repayment periods for this loan category range from 3 to 7 yearsand farmers contribute from 10% to 25% of investment costs. All lendinginstitutions take a mortgage over the land, but collection records aregenerally very poor; they range from 40% to 60% of demand with only one ofthe lead banks achieving 72%. Postponement of maturity dates and reschedulingof loans have frequently been conceded. The banks could not, in the nearfuture, provide an effective alternative to LDB, but it is anticipated thatabout six of them will be in a position to participate in the Project, thussupplementing the operations of the LDB and providing alternative bankingfacilities to farmers.

4.17 As with all previous IDA supported agricultural credit projects,ARC would invite commercial banks to participate in the Project on the sameterms, policies and conditions as LDB. Assurances were obtained from ARCthat only tYose commercial banks capable of effective implementation ofagricultural loan operations would be allowed to participate. The suitabilityof the banks would be determined on the basis of past performance in agricul-tural lending, including number of branches in rural areas, adequacy ofqualified staff and loan collection records. ARC would require participatingcommercial banks to maintain separate accounts for Project lending andwould ensure that such accounts were audited by auditors acceptable to IDA.

The State CGoundwater Directorate and Minor Irrigation Department

4.18 The State Groundwater Directorate (SGD) and the Minor IrrigationDepartment (MID) are the two organizations concerned with the developmentof minor irrigation works in the State. Both organizations are under theadministration of the Commissioner of Agricultural Production and RuralDevelopment.

4.19 The SGD is concerned with investigation of groundwater resources.This work involves test drilling to determine the location and extent ofaquifers, their hydrologic characteristics and quality of water. Observationwells are used to monitor monthly water level fluctuations, and there are350 such wells in the Project area. SGD, with a head office in Lucknow andthree divisional offices, is run by qualified and experienced officers,and has adequate and competent staff to oversee the well spacing criteriarequired for the Project area (para 3.04). So as not to hamper its presentwork in areas outside the Project and to permit more intensive studies ofdeep aquifers, the relationship of ground and surface water, and evaluationof the recharge of aquifers outcropping near the Himalayan foothills, a planto expand the staff and reorganize the SGD is under consideration by theState Government. The plan envisages an addition of 35-40 scientists orabout doubling the numbers presently employed, and the creation of additionaldivisions. However, in view of the planned expansion of staff, many of whom

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will be inexperienced officers, SGD will require that two experienced geohy-drologists be assigned to it from GOI's Central Groundwater Board 1/ to assistin the training of these officers. The two geohydrologists should be in postby the date of ciedit effectiveness, and would remain with the SGD for theduration of the Project. The State Government would request the servicesof these geohydrologists from the Central Groundwater Board. Assurances onthese arrangements were obtained during negotiations.

4.20 MID's primary function is the construction of tubewells. Witha head office in Lucknow and 12 divisional offices, the Department hasa total staff of about 70 professionals, mainly engineers, and some 2,000non-professionals. The Devartment is adequately staffed and run byqualified and experienced senior officers. It has more than 4,000 drillingrigs, most of which are hand operated, and there are enough of them inthe Project area alone to complete the Project (para 3.05). MID'sAssistant Development Officers, Minor Irrigation (ADOMI), assisted bymechanics and laborers, are responsible for the operation of the rigs.Under the Project, the MID would be required to certify that the equipmentassociated with the development of a well, e.g. pumpset, is suitable andhas beeTn properly installed. An assurance on this was obtained.

V. PRODUCTION, MARKETING, PRICES AND FARMERS' BENEFITS

Production

5.01 Under the Project, about 150,000 ha would be irrigated which wouldallow at least 70,000 farmers to (a) obtain more reliable and higher yieldsduring the kharif season and from areas which are subject periodically todrought conditions and uncertain rainfall; and (b) increase the croppingintensity fror ibout 110% before development to 180% at full development. Atcurrent prices, illustrative farm models have been developed to demonstratethat Project farmers are expected to expand output mainly of foodgrains (wheat,rice, maize, jowar or sorghum, and field pea), sugarcane, and potatoes. ;nnualincreases in production at full development have been estimated at about233,000 tons of wheat, 146,000 tons of paddy, 52,000 tons of maize, 22,000tons of field pea, 11,000 tons of jowar, 350,000 tons of sugarcane, and125,000 tons of potatoes. The production increases would, however, partlybe at the expense of a reduction of about 42,000 tons of the less remunerativecrops, such as barley, ahar and gram. Details of the changes in acreage andoutput of the individual crops are given in Annex 8.

5.02 Taking into account the output of the less remunerative crops thatwould be foregone, the estimated net incremental output during the first

1! The Central Groundwater Board is an amalgamation of the groundwater wingof the Geological Survey of India and the former Exploratory TubewellOrganization.

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year of Project implementation and for the following 5 year period when all

Project farms would attain full development production, would be:

1st 2nd 3rd 4th 5th 6th (full de-Year Year Year Year Year velopment) Year

(tons)

Foodgrain 71,000 177,000 304,000 374,000 409,000 423,000

Sugarcane 58,000 146,000 251,000 310,000 339,000 350,000

Potato 21,000 52,000 90,000 111,000 122,000 125,000

These estimates are based on the following assumptions: (a) total Projectinvestments would be implemented equally over a 3-year period; and (b) a

Project farm would achieve 50% of full development production in the firstyear, 75% in the second year, 90% in the third year, and 100% only in the

fourth and subsequent years. The annual increase in UP's foodgrain productionaveraged about 6% during the years 1967/68 - 1971/72. An annual rate of

some 5'% is projected for the next decade. Project incremental output at fulldevelopment representing about 2% of the State's average annual productionfor the most recent 3-year period 1969/70 - 1971/72 (18.1 million tons),would therefore be a significant contribution to the efforts by the State to

achieve a faster rate of increase in the output of foodgrains.

Marketing

5.03 UP is still in a net deficit position for all foodgrains as a group.Based on present consumption needs and for seed, the State would have toproduce about 22 million tons of foodgrains in order to be self sufficient.

Even during its best crop year in 1970/71 when an estimated 19.5 million tonswere produced, aided to a significant extent by favorable weather conditions,the amount still fell short of domestic needs. Project incremental outputwould therefore most likely be consumed within the State.

5.04 Most farmers sell their produce at any one of the 63 regulatedmain and submarkets which are well spread throughout the Project area.(The State has at present about 250 main markets and 400 submarkets). Projectfarmers would have no difficulty in marketing their output as there are suf-ficient markets and all the main markets operate 5 days a week throughout the

year with distances from most villages to a market in the Project area seldomexceeding 20 km, which can be covered by bullock carts in a day. These regu-

lated markets ensure that fair marketing practices prevail and farmers areable to sell at competitive prices (Annex 7). However, many markets have

poor physical facilities, especially for storage and grading. Withincreasing market arrivals and limited physical facilities, congestion isbecoming a serious problem for some of the markets as this tends to hamperthe marketing function leading to higher marketing costs. Substantial in-vestments to improve these facilities would therefore be required, and plansto carry out significant improvements in existing facilities, as well as

provision of additional marketing services, such as market research,

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intelligence and extension, and staff expansion have already been drawn up.IDA recently appraised a proposal submitted by the State Government to expandand improve marketing facilities throughout the State, including the Projectarea.

5.05 The Project area is well served by both rail and arterial road sys-tems. Rural roads. which reach to almost all villages, are usually roughand unsurfaced, btit are adequate for the purpose of delivering inputs andexporting farm products surplus to local requirements. All main markets andthe large consumption centers in UP are linked by a network of roads, andmany of these markets are also located near railway lines.

Prices

5.06 The GOI continues to encourage agricultural production, particu-larly of foodgrains, through price incentives, and by making availableincreased quantities of new and improved agricultural inputs. As in allother states, UP establishes minimum support prices for the main foodgrains,especially wheat and rice, as recommended by GOI's Agricultural Prices Com-mission. The State Government sets minimum prices which it considers wouldgive a fair return to the farmer. Current prices received by farmers forthe various crops grown under the Project are shown in Annex 9, Appendix 9-1.Projected world market prices where available for several of the Projectcrops have been used to estimate the economic rate of return (para 6.02).

Farmers' Benefits

5.07 Incremental production and incomes of farms under the Projectwould be substantial. Financial returns and income to farmers have beenestimated on the basis of illustrative sample farm models (Annex 9). On thebasis of investment costs, estimated yields, and current prices shown inthe models, farn incomes (including returns to family labor) after debt service,would increase as follows at full development:

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I II III IV VMasonry Shallow Shallow Medium MediumWell Tubewell Tubewell Tubewell Tubewell

Model with with with with withType of Persian Diesel Electric Diesel ElectricInvestment Wheel Pumpset Pumpset Pumpset Pumpset

Irrigated Area 1 ha 2 ha 2 ha 4 ha 4 ha

Investment Cost Rs 2,810 Rs 9,800 Rs 9,000 Rs 13,800 Rs 13,000

Net Income (Rs)

At Present 380 860 860 1,460 1,460At FullDevelopment /1 950 3,070 3,580 5,710 6,500Increment 570 2,210 2,720 4,250 5,040Increment TLi-cluding Returnsto Family Labor 990 2,630 3,140 5,230 6,020Debt Service(Principal andInterest) 410 1,540 1,400 2,130 1,990Increment afterDebt Service 580 1,090 1,740 3,100 4,030

Financial Rateof Return /2 17% 20% 32% 30% 41%

/1 Full development commences in the fourth year.

/2 The financial rates of return should not be looked at in relation tothe investment cost and net incremental income figures in this tableas the figures are incomplete for the purpose of estimating the financialrates of return. For details on which the rates of return have beenestimated, see Annex 9.

The five farm models show that significant increases in the net incomes offarmers would result from the Project investments, even on the 1 ha farm(Model I), when combined with the use of improved seeds, fertilizers, andother inputs which can reasonably be expected. To the farmer, use ofelectricity is cheaper than diesel. This is because the excise tax on dieselis high and the electricity tariff rate for agricultural purposes being heavilysubsidized, is low. Farmers who are able to use electric pumpsets becauseelectricity supplies are available, can therefore expect a significantly higherreturn than those who use diesel pumpsets as shown by the models. In estimatingthe financial rates of return to Project investments, it is necessary thatfamily labor be valued and included in the cost estimates. For this purpose,family labor has been given an imputed value at prevailing market wage ratesfor farm labor. On moderately well managed farms, which are common in theProject area, the financial rates of return have been estimated to range from

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17% to 41% at current producer prices (Annex 10). With rising productiontrends and as the country as a whole progresses towards self-sufficiency in

foodgrain production, some decline in price levels of foodgrains can beexpected, though it is unlikely that GOI and particularly the State Governmentwould permit any significant reduction in prices. Nevertheless, to accountfor this, the sensitivity of the returns has been tested assuming a high 25%decline in net incremental incomes. This resulted in rates of return rangingfrom 10% to 28%.

5.08 As in all other states, farmers in UP do not pay any agriculturalincome tax, so that the Project would not therefore generate any directtax to be collected from the estimated incremental incomes. However, sometax benefits would accrue to GOI and the State Government through salesand excise taxes imposed on some of the equipment financed by the Projectas well as on certain production inputs used by Project farmers (para 6.01).Under the Project, the level of investments and the estimated expansion incrop production through increases in yields and cropping intensity, can be

expected to generate additional employment, both family and paid labor,amounting to an estimated 21.4 million man days a year.

VI. BENEFITS AND JUSTIFICATION

6.01 Investments under the Project would benefit at least 70,000 farmers,including those who can manage to purchase the surplus water which Projectborrowers would have available and who do agree to sell. Benefits to theIndian economy would include: (a) reduced instability in agriculturalproduction; (b) an annual increment in crop production at full developmentof about Rs 348 million as a result of greater intensity in land use andshifts to more labor intensive and higher value crops; and (c) more year-roundand increased employment of labor (para 5.08). Revenue accruing to GOI andthe State Governmnint from the excise and sales taxes levied on Project equip-ment would amount to about Rs 21 million, and on production inputs at fulldevelopment an estimated Rs 26 million a year. The Project would also helpGOI move closer towards its goal of self sufficiency in foodgrains.

6.02 Projected (1980) world market prices and assumptions about labor costsused in estimating the economic rates of return, are given in Annex 11. These

prices are available for wheat, paddy, maize, sorghum, sugarcane, and barley.With the exc-ption of sugarcane, they are lower than current producer prices.Making the appropriate adjustments in respect of taxes and subsidies, andusing an imputed value for labor based on its opportunity costs which aresubject to seasonal variations, as well as taking projected world marketprices for 1980, the economic rates of return for the Project componentswould range from 16% to 35% (Annex 11, Appendix 11-1).

6.03 Small farms of 2 ha or less comprise about three-fourths of allfarms in the Project area. Since approximately 50,000 or 70% of Projectbeneficiaries are expected to belong to this group, a significant proportionof the financial and economic benefits from the Project would accrue tosmall farmers. Furthermore, substantial numbers of even smaller farms (1 ha)

- 23 -

would be able to participate profitably in the Project. Significant increasesin farm incomes as well as increased employment opportunities for familylabor (model I, para 5.07), indicate that investments in groundwater developmentin the Project area would be attractive. Given the relative abundance and easeof groundwater development, the exploitation of this resource would be aneffective contribution to the development of the Project area.

6.04 The Project would also generate benefits, which have not beenincluded in the return calculations, in the form of value added from increasedproduction on farms which purchase surplus water from Project farms and fromexpanded marketing activities, the strengthening of the lending institutions,demonstration effect on other farms, and more year-round employment for farmlabor.

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

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 During negotiations agreement was reached on the following principalpoints:

(a) the State Government would apply well spacing criteria asset out in Schedule B, not only for the Project, but alsofor all minor irrigation development within its director indirect control (para 3.04);

(b) lending banks would adhere to the spacing criteria forwells set forth in Schedule B, and follow agreed lendingpolicies, terms and conditions detailed in Schedule A(para 4.03); and

(c) LDB, with the assistance of the State Government and ARC,would complete the financial and managerial rehabilitationprogram of the LDB (paras 4.10-4.12).

7.02 Conditions of credit effectiveness would be:

(a) The execution of a subsidiary loan agreement between GOI andARC acceptable to IDA (para 4.03);

(b) The LDB as a whole and at least 30 branches in the Projectarea would have overdues positions of 25% or less (para 4.10);

- 24 -

(c) The LDB have one Field Officer and one Kisan Sewak in everybranch in the Ptoj4ct area, and that a Technical Cell beestablished at its head office before credit effectiveness(para 4. 12); and

(d) Two geohydrologfsts from the Central Groundwater Boardwould be ags6iged to the SG0i, and they should be in postby the date of credit effectiveness and would remainwith the SGD for the dutation of the Ptoject (para 4.19).

7.03 the oposed iro6ect iA Iutlitbi for an IDA ctedit of US$38 millionunder standard IDA terms.

April 12, 1973

SCHEDULE APage 1

INDIA


Project Lending Terms and Conditions

The following lending terms and conditions would be used in implementingthe Project and would not be altered without the prior agreement of IDA:

1. GOI to ARC

(a) In respect of ARC refinancing not exceeding 9 years:

(M) interest rate of not less than 5-1/2% per annum less1/4% per annum for prompt payment;

(ii) repayment at the end of 9 years;

(b) In respect of ARC refinancing in excess of 9 but notexceeding 15 years:

Mi) interest rate of not less than 6% per annum less1/4% per annum for prompt payment;

(ii) repayment at the end of 15 years;

(c) GOI to carry exchange risk.

2. ARC to Lending Banks (LDB and Commercial Banks)

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

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

(c) Refinancing would be by way of purchase of debenturesor by loans at the rate of 90% of individual loans.

3. LDB and Commercial Banks to Ultimate Borrowers

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

(b) Farmers' contributions (including obligatory purchase ofLDB shares, own labor, and other contributions in cashor kind):

SCHEDULE APage 2

(i) for normal lending a minimum of 107 of the investmentcosts in the case of pumpsets and persian wheels and20% for wells and well improvements;

(ii) fo; lending to small farmers, 1/ a minimum of 10% ofthe investnent costs in the case of pumpsets,persian wheels and masonry wells and 15% in tihecase of tubewells;

(c) Repayment periods to be based on the ultimate borrower'srepayment capacity, but not to exceed:

(i) for normal lending, a maximum of:

(a) 7 years on loans for pumpsets or persianwheels, whether financed as individual loansor included in masonry well loans: and

(b) 9 years on loans for masonry wells, masonirywell improvements and tubewells;

(ii) for lending to small farmers as defined, a maximum of:

(a) 7 years on loans for pumpsets or persianwheels, whether financed as individual loansor included in masonry well loans; and

(b) 15 years for all other minor irrigation loans;

(d) Technical standards, in particular spacing criteria, aslaid down by the State Groundwater Directorate and the'inor Irrigation Department are to be observed on allloans:

(e) investments would be evaluated in terms of incrementalreturns resulting from the additional investments inaccordance with evaluation methods developed by ARC;

1/ Small farmers have been defined, in accordance with criteria agreedwith IDA, as those farmers cultivating an amount of land which providesthem with an annual net income (after cultivation costs but before debtservice) of Rs 2400 or less but with sufficient land to permit anincremental income from the proposed investment at least high enoughto meet the principal and interest payments on a loan from that invest-ment. This formula is applied on an individual scheme basis by ARC.Lending to one individual small farmer would be limited to Rs 10,000,but small farmers could participate in joint investments where theirshare of the total investment cost did not exceed Rs 10,000 each.

SCHEDULE APage 3

(f) Security for loans would be taken in accordance witharrangements between participating banks and ARC;

(g) The borrower would be encouraged to sell water surplus tohis needs, or to participate with one or more farmers ina joint investment and operation of an energized tubewellin the event his own cultivated area is significantlysmaller than the area that can be adequately irrigatedby the tubewell concerned; and

(h) The same terms and conditions would apply to similar typesof lending outside the Project.

April 12, 1973

SCHEDULF B

INDIA


Spacing of Wlells

In order to avoid the danger of over-development of groundwatersupply, the minimum spacing of wells shall be determined for any area bythe following formula:

CRx Ax 1 0o

S = 1000 rx 100

where: S = Distance between wells in meters.

R = Irrigation requirement for the average croppingpattern in the area in mm.

A = Size of the area to be irrigated in ha.

C = Cropping intensity.

r = Estimated annual recharge in mm.

Example of application of the above formula: Assuming that the irrigationrequirement of an average cropping pattern with a cropping intensity of 175%would be 685 mm, and the estimated recharge from precipitation would be 190 mnm,the minimum spacing would therefore be 475 m.

April 12, 1973

ANNEX 1Page 1

INDIA


Agricultural Background

Uttar Pradesh

1. Situated within the northeastern part of the Indian landmass tothe east of Delhi, Uttar Pradesh occupies the upper-central portion of theGanges Plain. Tibet and Nepal lie to the northeast; and the states ofHimachal Pradesh, Haryana, Rajasthan, Madhya Pradesh and Bihar lie to thenorthwest, west, southwest, south and east respectively. It is theheaviest populated and fourth largest Indian State, with an area of294,370 sq km. The population in 1971 was 88.37 million, equivalent to16% of the whole population of India, and the density amounts to 300 personsper sq km -- the highest of any state in the Indian Union.

2. Only 14% of the population, equivalent to 12.4 million personsis urban -- a figure which has increased by 31% in the past 10 years. 75%of the working population is engaged in agriculture, either as agriculturallabor or farners, and about 58% of the total State income in recent yearshas been generated within the agricultural sector. About 20% of the totalworking population are landless farm laborers, almost double the percentageten years earlier.

3. The per capita income for the State has fluctuated between 10and 20% below the national level during the last decade, and was Rs 515compared with a national per capita income of Rs 589 in 1969-70. Regionalincome disparities within the State are considerable. The Eastern Region,the boundary of which is closely coincident with the Project area, is oneof three economically backward regions, and its backward condition isattributed primarily to its especially dense population, smaller farmsand the lessor availability of irrigation facilities resulting in lowerland productivity.

4. The rate of growth in terms of both total State income and percapita income lagged behind the corresponding rate for the country as awhole during the first three Plan periods and the subsequent three annualplans but the percentage rise in total income has equalled the nationalaverage during the first two years of the (current) Fourth Plan. Furthermore,percentage increase in per capita income has actually exceeded the all Indiafigure during these two years because of the relatively lower growth ratein population of the State during these years.

5. Agricultural sector income, which rose by only 0.4% per annum,mainly due to unfavourable weather conditions during the third plan, andincreased by 3.6% during the three Annual Plans, has recently shown afurther encouraging increase of 5.2% during the first two years of theFourth Plan.

ANNEX 1Page 2

6. Foodgrain production, which fluctuates considerably from year toyear in response to weather conditions, has shown a satisfactory upwardtrend in recent years, and reached a record 19.5 million tons in 1970-71.In contrast, 1971-72 has been disappointing, due to serious floods inSeptember and October 1971 which destroyed or damaged much of the kharifseason crop and reduced the total output for the crop year to 17.5 milliontons. Nevertheless this is the second highest production figure to berecorded, and in spite of a severe drought in August 1972 which affectedthe 'kharirf season crops in large parts of the State, the 1972-73 crop yearshows good promise.

7. In 1969-70, the latest year for which complete figures areavailable, the net area sown amounted to 16.9 million ha, of which 5.3million ha were sown more than once, thus giving a gross cropped area of22.2 million ha equivalent to a 131.5% cropping intensity. In the last10 years, the net sown area has risen by only 0.3 million ha, while thearea sown more than once has risen by more than 1.0 million ha. Thesefigures reflect the increased extent of double cropping which is takingplace against a background of limited availability of land suitable forextending the net cultivated area, and the steady expansion to the netirrigated area.

8. The improved irrigation facilities both public and private havestimulated the more extensive use of higher yielding, fertilizer responsive,varieties of crops, particularly wheat and to a lesser extent paddy andmaize. These improvements are in the main restricted to those farmersfortunate enough to be able to take advantage of the improved irrigationfacilities, either because they are sited close to a public tubewell orcanal, or because they can afford to equip themselves with the necessaryirrigation devices, either by direct purchase or with the aid of a loan.The lack of ready cash and the problems experienced in raising mortgagesagainst loan-s !.Rve in the past effectively excluded a large proportion ofthe smaller farmers from these improvements, and the pattern of improvementis in consequence extremely patchy, with large numbers of farmers and ex-tensive areas of farmland as yet little affected by the advent of the greenrevolution.

9. The most spectacular increase in crop area has been in therabi season, with wheat increasing from 3.3 to 5.5 million ha, partly atthe expense of other rabi crops, in the two decades up to 1970. Kharifcereals have also shown a satisfactory increase, with paddy rising from3.9 to 4.4 million ha in the same period. Sugarcane, a major cash cropwhich responds well to improved irrigation, has also shown a gradual risealthough the yields are still much below those obtained in most otherstates. Likewise oilseeds, particularly groundnut, and potato, haveincreased. Production of pulses, an essential group of protein foods in aState where a very high proportion of the population are vegetarian, hasbeen much less sat4sfactory, with a decline from 4.3 to 4.0 million ha,in the last twenty years, and a consequent lower per capita consumptionof this important traditional food.

ANN4EX 1Page 3

10. While gross area and production of several important crops haveincreased in recent years, the yields are in most cases below or only on apar with the all-India averages, with the exception of pulses for whichUttar Pradesh yields are highest. The small size of the average farm, andthe limited extent to which extension services and adequate inputs havebeen available, particularly to the small farmer; as well as the vagariesand inadequacy of the rainfall over a large part of the State, are con-tributory factors to this state of affairs.

11. The State Government is well aware of these constraints, and itsplans for accelerated economic development, as expressed in a recentlypublished approach paper to the Fifth Plan, give considerable emphasisto extending and improving the irrigation system, which is recognized asthe key to a more prosperous agricultural sector in the State. Betterirrigation of the generally fertile soils will permit more intensivecropping, encourage use of superior seeds, and produce higher yields, anda 6% annual increase in production is proposed as the minimum target forthe Fifth Plrn.

12. Special attention will be given to the needs of the small grower,and to price policies designed to encourage production of certain crops.The recently established U.P. Institute of Agricultural Sciences atKanpur, modelled on the U.S. Land Grant Colleges, which has brought abouta closer relationship between research, education and agricultural exten-sion, is already making a useful contribution towards upgrading the qualityof extension. The emphasis being given by this Institute to farmers' train-ing programs and seminars for Village Level Workers at the district level,and to the production of vernacular extension publications and regular radioextension programs, is already having a favorable impact on the agricul-tural community and its level of awareness of new agricultural techniques.

Project Area

13. The Project area comprises 14 districts, totalling 73,846 sq kmand occupies a contiguous block of land in the eastern part of the State,bounded by the border with Nepal on the north, Bihar State on the east, androughly demarcated by the Gomti River, a tributary of the Ganga (Ganges)River on the west and south.

14. The area is essentially agricultural with a very dense population(383 persons per sq km compared with the State average of 300), and ahigher percentage of rural to total population than is the case for theState as a whole. In consequence, the average land ownership size ofcultivating households is particularly small, with almost half (48%) ofthe land holdings being less than 1 ha in size as compared with 38% forthe entire State (Appendix 1-1).

15. The pattern of land use is surprisingly uniform throughout thearea, considering its size and the wide variety of crops which are grownon even the smallest farms, and this uniformity reflects the relativelyhomogeneous physical conditions which prevail throughout the area, detailsof which are summarized below.

AlNEX 1Page 4

16. Climate. The area experiences a subtropical monsoon climate withthe main rains averaging more than 800 mm in all parts of the area andover 1,000 mm in some northern districts, occurring during the periodJune to September. This rainfall peak corresponds to the kharif cropseason, when a range of tropical crops suited to the hot, humid conditionsthen prevailing are grown. This is succeeded by a cooler, drier period,between October and February, when the winds blow from the Himalayanregion on the north. This period corresponds to the rabi crop season,when crop's of a temperate type are grown, and when irrigation is a specialboon. Finally, during March, April and early May a period of warm, dryweather is experienced, especially on the southern side of the area,referred to as the Zaid, or summer season, when a small amount of short-term vegetable farming is undertaken, particularly by those farmers whohave a reliable irrigation source and who are situated in close proximityto a ready market.

17. Temperatures vary through the year from a minimum of about 4°C inJanuary to a maximum of 43-45°C in midyear. Normal annual rainfall variesfrom as high as 1,360 mm in the northeast of the area (Gorakhpur District) toas little as 960 mm in the southwest (Lucknow District). The precipitationisohyets run through the area in a northwest-southeast direction, parallelwith the edge of the Himalayan Mountain ranges along the Nepal Border.

18. Soils. The Project area lies entirely within the Ganges Plain,and the soils are developed over the deep alluvium deposited by thenorthern tributaries of the Ganges River, principally the Gomti, Ghaghraand Rapti Rivers and their numerous subsidiary streams, which arecontinually depositing fresh material eroded from the soft, often highlydolomitic rocks of the Himalayan Ranges.

19. The soils are essentially basic in character, and are highlyproductive, to --he extent that the area ranks as one of the most fertileregions in the country. They have been subject to cultivation for manycenturies and are capable of much higher sustained yield cultivation inthe future, provided heavier fertilizer dressings and improved irrigationfacilities are made available.

20. The soils are not readily correlated with alluvial soils fromother parts of the world, on account of their often strongly developedzonal features, including distinct illuviation leading to developmentof lime or sesquioxide rich horizons and strong natural clay pans in thecase of the more mature profiles. These soils, which may be close toneutral or even acid at the surface, have been pedogenetically describedas tropical brown earths, and are most frequently found on the flat,sometimes slightly elevated surfaces between the main drainage channelsas distinct from the more recent soils, of more alkaline reaction,occurring closer to the present rivers and streams.

21. Towards the northern part of the area, near the foothills ofthe Himalayan Ranges, the soils are a little coarser in texture and have

ANNEX 1Page 5

higher organic matter contents in their natural state. Owing to theirmore open structure they more readily lose their reserves of accumulatednutrients, and are accordingly more responsive to fertilizers, particularlynitrogen and phosphate, after continuous periods of intense cultivation.The climate is more moist in this part of the area, which is known as theEastern Tarai, and in consequence the watertable is closer to the surfacefor muclh of the year. Sugarcane is an important crop in this zone.

'22. Near the southern boundary of the area, where the annual rainfallis below 1,000 mm, as in parts of Lucknow, Sultanpur and Azamgarh Districts,patches of saline alkali soil occur in slight depressions in the almostlevel plain. These patches, which cover only a small proportion of each ofthe above Districts, but are much more widespread in the southwestern partof the Ganges Plain outside the Project area, are often sterile and remainuncultivated. Irrigation of these areas would be of little value unlessmeasures are also taken to ameliorate the land by provision of drainage,ripping of the subsoil pan and the use of an acidifying amendment. Suchmeasures, the economics of which would require a separate study, are notproposed under the Project.

23. Additional irrigation facilities within the developed farmlandportions of the Project area, as proposed under the Project, are unlikelyto have any serious adverse effect on the general ecology of the area orthe surrounding regions. The groundwater reserves and recharge capacitiesare adequate to meet the increased demands arising from the Project, andthe restricted locale within which the water from each well would be utilized,with little prospect of surplus runoff for reasons of operating economy,would not add materially to the incidence of flooding or to the degree ofwaterlogging In the less elevated areas.

24. The ready access to new sources of potable water afforded bythe Project will have a beneficial effect on human and animal health andwell being which will be over and above the economic benefits arisingthrouglh the increase in agricultural productivity.

25. Agriculture. Within a total Project area of 7.4 million ha,the net area sown in 1968-69 amounted to approximately 4.8 million ha, ofwhich 1.6 million ha, almost exactly one third, were sown more than once,equivalent to a cropping intensity of about 134%. In addition, about 0.25million ha were under miscellaneous crops, mainly orchard, not includedin the sown area, and about 0.37 million ha were under fallow. Most ofthe remaining area was variously utilized as forest (0.4 million ha),barren lands and cultural waste (0.5 million ha), or devoted to non-agricultural use (0.7 million ha; Appendix 1-2).

26. Figures for the 1961 agricultural census reveal that almosthalf the 3.55 million cultivating households owned less than one hectareof land, and most of the remainder owned between one and five hectares,giving a total of 95% of all cultivating households in these two categories.

ANNEX 1Page 6

27. Farm size and owmership patterns are unlikely to have changedvery materially during the past decade, except in so far as ;a vigorouslyimplemented land reform program may have reduced the number of farmsabove 5 ha. The relatively small area of sucih redistributed farmlands isunlikely to have made a substantial contribution towards increasing theaverage fari size, and much of the beneficial effects of such reform islikelv to have been offset by a further subdivision of the smdller landhioldings under the prevailing conditions of populaticn pressure and landnUunger. The snall size of the average farm within the Project area ascompared witht the remainder of Uttar Pradesh is recognized bw the StateGovernment as being a prime cause of the economically backwa,rd conditionof the area, and an increase in the area irrigated, supplemented by animprovement in the efficiency of many of the existing irriaation facilities,is acknowledOed to be a most effective way of increasing the productivityof the land and thus of improving the income of the average farmer in thishiihly congested and as yet under-irrigated region.

28. Area statistics for the principal crops show that approximatelyone million ha more land is cultivated in the kharif, or mair rains season(June to September). than in the rabi, or cool dry season (01trober toFebruary). A third, hotter season, knowm as the Zaid, or hot dry season(Mlarch, April and 'May), is occasionally used to grow short-term vegetablecrops, particularly near the towns, but the aggregate area is very small,being estimated at less than 25,000 ha in 1969.

29. The principal crops grown in the kharif are rice (aore than2.0 million ha in an average year) wilich is largely rainfed; and maize(over 0.5 million ha); together with jowar and a variety of itndigelnousmillets (bajra, s-wan and kodon) having an aggregate area of a little under0.5 m ha.

30. Irrigation is not so important in the klarif, when rainfall isabundant, as i- is in the rabi, but some supplemental irrigation is used,particularly dur1ing the drier years or if the rains are late, whien irrigationof the paddy nurseries can be crucial, or to extend the growing seasonbeyond the end of the rairs. It is likely that supplement.l irrigation

in the kharif will become more important, as the advantages of maintainingoptimal moisture conditions for the higher yielding, more management -responsive varieties of paddy and maize become more widelv appreciated.

31. The main rabi crops are whieat (1.3 million ha in 1970), of whichabout 60f. is currently irrigated; barley (0.6 million ha), of which about66J receives irrigation; and bengal gram (0.5 million ha), about 20% ofwhich is irrigated. Field peas are also grown extensively (0.3 millionha), almost 85% of which is irrigated. Arhar (pigeon pea) and masur(lentil), traditional crops formerly much more important, but now beinggradually replaced by the other crops indicated above whichi respond morereadily to irrigation, are still grown to the extent of 0.2 million ha.

32. The total area of irrigated rabi foodgrains in 1970 amountedto 1.6 million ha, equivalent to 90% of the net estimated irrigated areafrom all sources within the Project area, and a good 4ndication of the

ANNEX 1Page 7

extent to which irrigation is being utilized during the rabi season. Afurther 1.3 million ha of rabi foodgrains are grown without benefit ofirrigation, and in consequence yield very much lower; while an additionalarea of at least another 1.3 million ha, representing the difference betweenthe kharif foodgrain cropped area and the area sown more than once (1.6million ha), represents an additional theoretical potential for futureirrigation in the rabi.

33. In addition, there are about 0.37 million ha of sugarcane, ayear round crop which is normally ratooned to give a second crop in thefollowing year, and which is only 60% irrigated. Oil seeds account for afurther 0.14 million ha, while a still small (0.05 million ha in 1970), butrapidly increasing and entirely irrigated area is devoted to potato - ahigh value, labor-intensive crop which is becoming popular with many ofthe larger and more heavily capitalized farmers.

34. The backward condition of a majority of the farmers andespecially the smaller farmers in the Project area arises in large partfrom the difficulty they experience in taking advantage of the new agri-cultural technology embodied in the green revolution. In the recent past,the area has lagged behind in terms of irrigation partly because of theinability of the farmers to equip themselves with the necessary facilities,and in part because the area, being in a higher rainfall zone than mostother parts of the State, was formerly in less obvious need of such facili-ties. The recently introduced higher yielding varieties, especially wheat,maize, and paddy, which require more carefully controlled growing conditions,including moisture, have emphasized the need for improved irrigation,and the Project is designed to meet part of this need.

35. The irrigation improvements arising from the Project will needto be accompanied by an increased availability of higher yielding seedvarieties, and by fertilizers without which the productivity of the landwill inevitably fall as the nutrient reserves are reduced under theheavier cropping regime. The responsibilities for ensuring that theseinputs are available on time, and in sufficient quantity, lies with theDirectorate of Agriculture and the cooperatives, both of which have anextensive network of distribution depots in the Project area.

36. Agricultural extension, which is particularly necessary whenirrigation systems are being introduced, and new seed varieties callingfor radical changes in field management by small farmers of stronglytraditional outlook, will be provided by the Directorate of Agriculture,augmented by the highly competent extension specialists on the staff of thenew Institute of Agricultural Sciences, Kanpur.

37. Additional labor needs arising from the more intensive croppingpatterns adopted under the Project can be adequately met fron the existingsupply of rural labor, which includes a high degree of under-employedlabor within existing farm households, as well as a considerable, but

ANNEX 1Page 8

difficult to determine, number of unemployed farm laborers throughout therural areas. Animal power, which is abundant throughout the area, shouldbe sufficient to meet most of the increased cultivation demands arising fromthe higher cropping intensity. Farmers with irrigation facilities reportno difficulty in hiring supplementary bullock power from neighbors who lacksuch facilities. Land levelling is seldom necessary as the terrain isnaturally extremely level throughout the area.

38. Irrigated and non-Irrigated Agricultural Systems. The agricul-tural statistics published by the Directorate of Agriculture do notindicate the full extent of the differences in cropping patterns and yieldsobtained from irrigated and non-irrigated lands within the Project area,although several detailed studies of groups of farms in small areas under-taken by staff of the ARC Regional Office in Lucknow, and the U.P. Instituteof Agricultural Sciences, as well as data available in the files of theDirectorate of Agriculture give a useful insight into the considerablechanges which take place in cropping patterns, yields, and farm incomeswitlh the advent of irrigation.

39. The picture is, however, complicated by the fact that a veryhihli proportion of the farms possess at least a small area which benefitsin some degree from a local irrigation source, or is situated in an areaof low elevation and receives sufficient seepage to make the equivalentof irrigation farming possible. Even skin bucket wells are a common sighttlhroughout the Project area, and a large number of farmers fortunate inhaving neighbors equipped with tubewells are able to buy water sufficientto irrigate, or partially irrigate, a portion of their land. Unfortunately,such sources of water are not reliable, and are likely to dry up or berestricted at the time of greatest need due to the priority given to hisown crops by the owner of the water resource, especially during droughtswhich are a commonly occurring feature of the kharif season.

40. As . result, the intensity of farming on individual farms withinthe Project area varies from as little as 80% in some of the rJriest localities,wlhere the main crop is an inferior millet planted as a mixed crop with arhar(pigeon pea) during the kharif, supplemented by a small plot of unimprovedlocal variety paddy, or maize if the soil or landform conditions are notsufficiently retentive for rainfed paddy, and followed by local wheat orbarley in tile rabi, planted on a part of the land which lay fallow duringthe kharif. Such a farming system can only provide a subsistence income,and an oftenl precarious one at that.

41. The less unfortunate farmers, who either have favorably situatedlands with more moist soil conditions, or who have access to a water source%hiiich permits irrigation on some of their land for at least part of thetinie, will grow a larger area of paddy while reducing their area of mixedrmillet and arhar and will follow with wheat in the rabi, and either chena(bengal gram) or masur (lentil). A small plot of unirrigated sugarcanemay also be introduced on one of the moister fields. Such farmers, who areprobably most representative of the kind likely to avail themiselves of a

AiNEX 1Page 9

loan under the Project, average around 120% cropping intensity, and in

general are inclined to keep to local varieties rather than risk the

higher yielding introductions, which are more sensitive to moisturedeficiencies.

42. Finally, there are the irrigated farmers, in the main those who

have their own water source rather than being dependent on supplies

outside their control, such as canals and State tubewells which arefrequently insufficient or unreliable. These fortunate farmers, equipped

with facilities for irrigated rabi season cropping and able to supplement

the natural rainfall of the kharif, are able to grow high yielding, short-

term paddy with a good assurance of a reasonable yield, and hybrid maize

or improved jowar or local millet as a sole crop in the kharif and to followthese with a large area of high yielding dwarf wheat in the rabi, wihichfeatures as the nain cash income producing crop, together with a smaller

area of barley. Fieldpea becomes the favored legume, and a larger area of

irrigated sugarcane is often a feature of the crop pattern. Cropping intensitv

increases to around 180% under these circumstances, and can rise to over 200"in the case of farms where vegetable growing is profitable.

43. Typical farm budgets, based on one, two and four hectare

holdings, representative of before and after irrigation situations havebeen drawn up to support the detailed investment cost and yield assumptions

given in Annex 9.

February 9, 1973

INDIA


Number of Cultivating Households (Rural and Urban) by Land Ownership Sizein the Project Area and in Uttar Pradesh

Less than 1.0-2.4 acres 2.5-4.9 acres 5.0-12.4 acres 12.5 acresDistrict 1 acre (1 acre-1 ha) (1 ha-2 ha) (2 ha-5 ha) & larger Total

Jaunpur 50,465 81,605 54,905 44,425 10,875 242,275

Ghazipur 24,365 37,495 39,940 32,055 13,485 147,340

BaUia 11,955 41,230 35,655 37,575 13,425 139,840

Gorakhpur 72,785 144,090 87,640 54,980 16,705 376,200

Basti 87,310 127,845 114,965 72,980 20,905 424,005

Azangarh 51,625 125,130 79,190 58,375 14,435 328,755

Lucknow 15,105 32,820 39,015 24,050 6,145 117,135

Sitapur 15,040 78,465 79,815 76,630 13,095 263,045

Kheri 7,875 53,545 67,075 60,825 14,505 203,825

Faizabad 41,40o 92,925 62,185 41,420 9,325 247,255

Gonda 44,015 109,675 87,015 74,945 18,580 334,230

Bahraich 29,515 86,985 71,705 64,035 15,255 267,495

Sultanpur 44,020 67,705 59,900 38,595 10,015 220,235

Barabanki 39,070 76,540 69,930 44,o60 8,255 237,855

Project Area 534,545 1,156,055 948,935 724,950 185,005 -3 -SL |

Uttar Pradesh 1,108,020 2,536,840 2,508,730 2,446,205 763,940 9,363,735 X

March 27, 1973

ANNEX 1Appendix 1-2

INDIA


Project Area - Land Utilization 1968-69('000 ha)

Reporting Area for Land Utilization Purposes 7,385

Forests 432

Barren and Uncultivable Land 168

Land put to Non-Agricultural Use 679

Cultivable Waste 296

Permanent Pasture and Other Grazing Lands 17

Land Under Miscellaneous Crops Nidt Included inSown Area 245

Current Fallows 223

Other Fallow Lands 147

Net Area Sown 4,778

Area Sown .ore than Once 1,626

Kharif Cropped Area 3,881

Rabi Cropped Area 2,909

Zaid Cropped Area 23

Total Cropped Area 6,804

Total Food Crops 6,494

Total Non-Food Crops 310

1/ Bulletin of Agricultural StAtitstics for Uttar Pradesh,1969-70. Directorate of Agriculture, Lucknow, U.P. 1972.

March 27, 1973

ANNEX 2Page 1

INDIA


Minor Irrigation

Hydrogeological Conditions

1. The Project area consists of 14 Districts located in thenortheastern part of Uttar Pradesh. It forms a part of the vast Indo-gangetic alluvial plain formed during the pleistocene epoch. The depositsconsist principally of beds of fine to coarse sand, clay and silt withsome admixture of Kankar (limey nodules). The aquifers penetrated by mosttubewells are strata of medium to coarse sand of varying thicknesses.Existing wells have been drilled to depths of only a few hundred feet butreports indicate that the sediments extend to a depth of several thousandfeet.

2. The principal streams draining the area are part of the Ganga(Ganges) River system, consisting of the Sarda, Ghaghra, Kuwana, Rapti,Little Gandak, Tons and Gomti Rivers. Most streams have their origin in theHimalaya MIountains or in the foothills north of the international boundaryin Nepal. Stream gradients are low and slopes are toward the southeast.

-3. The climate of the area is sub-tropical with hot summers andmild winters. Annual precipitation varies from about 96 cms at Lucknowto 115 cms in Bahraich District with about 87% occurring during the monsoonperiod from June through September. About 7% occurs during the winterperiod. In general the magnitude of rainfall is influenced by theHimalaya Mountains with orographic cooling providing slightly higherrainfall to tnese areas in close proximity to the mountains. Temperaturesrange from a low of 3° to.4 0 C in January to a high of 45°C in May andJune.

4. Groundwater occurs throughout the Project area, under water tableconditions in the shallow aquifers and occasionally under confined leaky-aquifer conditions at depth. The confining beds appear to be of onlylocal areal extent and for all practical purposes water table conditionsmay be assumed throughout the area. Recharge occurs (1) by directpenetration of rainfall; (2) by deep percolation from canals and waterapplied for irrigation; and (3) by horizontal inflow through aquifers(Bhabar) outcropping near the mountains where recharge occurs from thenumerous perennial and intermittent streams draining the Himalayas.Estimates of recharge have been made from sources (1) and (2) above basedon the following criteria: (a) utilizing the Chaturvedi formulaRp = 2 (R-15)2/9 where R = annual average rainfall, and Rp = rainfallpenetration to the groundwater reservoir, to estimate recharge directly

ANNEX 2Page 2

from precipitation; (b) assuming 20% of applied irrigation water is addedto the groundwater reservoir by deep percolation; and (c) recharge fromcanal seepage is equal to 6 cfs per million sq ft of wetted area. Basedon these criteria the total estimated annual recharge is of the orderof 1,860 million m3. In addition there is substantial but unmeasuredrecharge as described in (3) above. In order to estimate the rechargeby horizontal inflow from the Himalayan Region it will be necessary todetermine the transmissivity of the aquifers as well as the hydraulicgradient in this zone. Hydrologic characteristics of the aquifers couldbe determined by making pumping tests on the State tubewells utilizingthe criteria established by the Theis non-equilibrium formula. Thesetests are being performed as time permits by the State GroundwaterDirectorate.

Present Water Use

5. The water resources of Uttar Pradesh are relatively abundant,but lack of reservoir storage and adequate canal distribution systems hasprovided irrigatinn for multiple cropping to only about 5% of thecultivated area. In the 14 districts comprising the Project area thereare about 508,000 wells of various types of which only about 118,000 or23% are energized. The total pumpage is estimated to be 510 million m3annually, or about 27% of the estimated groundwater recharge directlyfrom rainfall and from irrigation operations. There are 3,349 Statetubewells in the Project area operated by the State Tubewell Organization.The average annual pumpage from these is about 15 million m3, but thesupply is generally inadequate to serve the commanded area which is asmuch as 250 ha per well. Service areas have been gradually reduced uponrecognition of the fact that the entire command area could not be servedadequately.

6. There ire three types of wells commonly in use and which would befinanced under the Project. These are: (a) masonry-lined dug wells;(b) shallow tubewells; and (c) medium tubewells. The masonry-lined dugwell usually will yield 7 to 8 m3 per hour, which is about the averagecapacity of a persian wheel. However, there are about 390,000 masonrywells in the Project area of which only about 65,000 are equipped withpersian wheels. The remainder are equipped with leather or metal bucketsand water is lifted by bullocks. The second type is the shallow tubewellwhich is a dug well with a tubewell drilled or bored in the bottom penetrat-ing the shallow aquifer that is usually less than 30 m in depth. Frequentlysuch wells are referred to as "cavity" wells because they usually have nostrainer. The casing is sealed into a thick clay layer which forms the"roof" of the cavity formed by pumping out the sand around the end of thecasing. The cavity well is usually equipped with a small centrifugal pumpand motor which, if electric, will be directly connected to the pump or ifdiesel powered will be connected to the pump by a belt drive. These wellsusually have a capacity of 22 to 27 m3/hr. The third type of well is asmall diameter tubewell equipped with strainer. These wells are usuallyabout 45 m in depth although they may be deeper depending on the depth of

ANNEX 2Page 3

the aquifer and the capacity desired. These are referred to as mediumtubewells and may have capacities of 32 to 41 m3/hr or more. These tubewellsare also equipped with centrifugal pumps which may have to be placed in apit in order to maintain a suction lift of 5 m or less which is the maximumpractical if the pump is to be operated efficiently.

7. In practically all cases irrigation can be practiced without landshaping of any kind. However, to facilitate good water distribution andreduce conveyance losses cost estimates have included channel lining asfollows: masonry wells 30 meters; shallow tubewells 200 meters and mediumtubewells 400 meters.

Conjunctive Use of Surface and Groundwater

8. Only about 5% of the cultivated area is under the command ofcanals, which distribute water diverted primarily from the Sarda andGhaghra rivers. These canals were constructed primarily to providesupplementary irrigation in the kharif before the introduction of highyielding varieties and the expansion of rabi cropping both of which haveincreased the need for irrigation. The major portion of the runoff occursduring the monsoon season when only supplemental irrigation is needed.On the other hand, runoff is at a minimum during the rabi season when theneed for irrigation is greatest. Consequently there is always a shortageof water for irrigation in the area served by canals and many farmershave constructed various types of wells to supplement the canal supplies.Groundwater is abundant at low pumping lifts throughout the area and canbe developed very economically.

9. There are no known reservoir sites in the Project area forsurface water storage. The water supplies of the Ghaghra and Gomti riversduring the rabi are now fully utilized. There are a number of streamsdraining the Hlimalayan foothills along the northern part of the Projectarea although these streams flow only during the monsoon season so thatstorage tanks or reservoirs would be necessary to provide water during therabi season. The topography in this area is extremely flat which wouldmake reservoir storage very expensive per unit of water developed. Seepageand evaporation losses during the storage period would also be substantial.

10. Because of: (a) the extremely small area served at present bythe canal system; (b) the expense of providing additional storage reservoirs;and (c) the relative abundance and low cost of groundwater in the Projectarea it is believed that a study of the conjunctive use of surface andgroundwater in the Project area would not be warranted.

Drainage Conditions

11. Limited flooding occurs in the natural drainage channels asa result of heavy rains during the monsoon season because of the very lowgradients. Irrigation is not practiced extensively during this period andponding during floods is temporary and damage to crops is very small

ANNEX 2Page 4

except during catastrophic floods when low lying areas may be inundatedfor periods of a few days. Irrigation is needed mostly during the rabiwhen rainfall is light and infrequent, and prior to the onset of monsoonrains. During this period farmers pump only the water needed for cropsand there is little or no wastage. There is no evidence of waterloggingin the Project area, and none is anticipated as a result of the Project.

Legislation

12. AlthougP the estimated annual recharge in the Project area ismore than adequate to supply the needs of the proposed wells in additionto those presently in use, the wells must be spaced so as not to causeexcessive interference. This is a situation where the cones of depressionin the water table overlap and may cause some wells to go dry. Modellegislation has been prepared by the Central Government with a view toeventual enactment by the States but until such time as the legislationhas been passed, the Agricultural Refinance Corporation has agreed toimplement well spacing criteria for the Project. It would be a conditionof credit effectiveness that the Government of Uttar Pradesh would likewiseagree to well spacing criteria, not only to Project investments in minorirrigation but also to all minor irrigation development within the director indirect control of the State Government.

Proposed Development

13. The Project would include about 40,000 shallow and medium tubewellsand 10,000 masonry wells equipped with Persian wheels. The tubewells wouldbe equipped with centrifugal pumps and powered by electric motors and/orlow-speed diesel engines.

14. The shallow tubewells would be of the "cavity" type having nostrainer. The construction of this type of well is dependent on theexistence of a .ompact clay layer to support the weight of the overlyingformations and suca conditions cannot be forecast in advance ofconstruction. This type of tubewell is more economical to constructand is therefore preferred by farmers when formations are suitable andrelatively small yields are desired. This type of well is usually lesstnan 30 m in depth.

15. The medium tubewells require a wire strainer, usually brass,placed around the outside of a perforated pipe about 10 cms in diameter.These wells average about 45 m in depth but may exceed 60 m if largeyields are desired. In areas where the water table is deep the pump mustbe placed in a pit so as not to exceed a dynamic suction lift of about5 m. If the suction lift exceeds this value the efficiency of the pumpdecreases rapidly and the impellers may be damaged by hydraulic cavitation.

16. It is estimated that there are more than 500,000 wells ofvarious types used in the 14 Districts comprising the Project area.'fore than 300,000 of these are not energized and water is obtained by

ANNEX 2Page 5

the use of metal or leather buckets. The total annual withdrawals fromexisting wells is estimated to be about 510 million m3 annually. Theaverage annual rechar e is estimated to be about 1,860 million m3 of whichabout 1,350 million ml would be available for use by the Project. It isanticipated that the Project would develop about 1,070 million m3 or about79% of the available local recharge. Significant but unmeasured additionalgroundwater recharge occurs by horizontal flow to the Project area in deepaquifers from the Tarai-Bhabar Belt near the Himalayan foothills.

Quality of Water

17. Although no chemical analyses of groundwater are available fromthe 14 Districts comprising the Project area, the State Groundwater Direc-torate reports that groundwater is of suitable quality for irrigation use.This is supported by analyses 1/ of groundwater from Western Uttar Pradeshwhich is in the same drainage basin and adjacent to the Project area.These analyses indicate that groundwater is classified C1S2 and C1S2 withsalinity below 750 micromhos/cm and sodium absorption ratio less than 10.

Appraisal Criteria

18. Although estimates of groundwater recharge over the area as awhole indicate that there is adequate scope for development of the-quantitiesrequired for the Project, there remains the danger of over-development ofthe supply available to any small area by siting tubewells too closetogether. To avoid this, the State Groundwater Directorate would conductstudies of recharge and determine in advance of well siting the minimumdistance between wells. This distance can be computed for any area bythe following formula:

Cs = 1000 Rx Ax 100

r x 100

Where s = distance between wells in meters;

R = irrigation requirement for the averagecropping pattern in the area in mm;

A = size of the area to be irrigated in hectares;

c = cropping intensity; and

r = estimated annual recharge in mm.

1/ Bulletin No. 1 of the Exploratory Tubewell Organization. GroundwaterResources of Tarai-Bhabar Belts and Intermontane Doon Valley of WesternUttar Pradesh - Appendix No. 11 1963, p. 225.

ANNEX 2Page 6

19. The spacing criteria has been specified for other agriculturalcredit projects in India and is in accordance with guidelines issued bythe Central Groundwater Board. In this Project it is not necessary toapply the density formula because the deep aquifers in the Indo-Gangeticplain extend across water table divides and it is thus impossible todelineate discrete elementary watersheds.

20. Under the Agricultural Refinance Corporation minor irrigationschemes tuie Village Level Worker (VLW) canvasses for prospective loanees,fills in the loan application documents and obtains the necessary landtitles to establish legality of land ownership. His loan appraisal consistsof an unsubstantiated statement of what he estimates to be the annualamount the loanee can repay over a given loan period. The VLW then submitsthe loan application to the LDB branch through his superior to the blockdevelopment officer. Loan approval is almost automatic if the applicationis in order. Under the Project the LDB would have at least one fieldofficer, an agricultural graduate, stationed at each LDB branch. It isanticipated that a field officer would be able to properly handle no morethan about 200 loans approved per year. The field officer would make theloan appraisal and siting of the wells to ensure that this complied withthe spacing criteria established in advance by the State GroundwaterDirectorate.

Pumping Equipment

21. Practically all energized wells in the Project area with theexception of the State tubewells are equipped with centrifugal pumps. Inmost instances the pumps are placed in a pit to reduce the suction liftto acceptable limits. Most farmers prefer electrically driven pumps ifdependable power is available. In Uttar Pradesh only about 20% of thevillages have been electrified and this is even less in the Project area.The policy of State Electricity Board under the normal scheme is toprovide at no cost to the farmer electric lines of 60 meters per connectedhorsepower up to a maximum of 10 hp. Additional line charges are Rs 600 perhundred meters or part thereof in addition to a security deposit (normallyRs 500) and earnest money. No priority is given under this scheme. Electri-fication can also be obtained through a "commercial scheme" which requires anon-refundable deposit of up to Rs 6,000, by which priority is given to theconnection. A third scheme is the "Consumers deposit scheme" which involvesadvancement of funds by the irrigator sufficient to cover the cost ofconstruction of the line, such amount to be recovered by the consumer overa period of three years. Consumers are also required to pay fixed charges ofRs 3 per month for each connected horsepower load or part thereof.

22. Uttar Pradesh is short of electric power. Because about 70% ofgenerating capacity is hydropower the supply is sensitive to drought condi-tions and power shortages occur at times when the demand for irrigationpumping is at a ma:-imum. Further no power for irrigation is availableduring peak demand periods. During the last several months rationing ofpower has reduced availability by about 25% and power outages have causeda further reduction of availability by about 10%.

ANNEX 2Page 7

23. In view of the shortage of power, the restrictions on use ofelectricity and the high connection charges it appears that most irrigatorswill select low-speed diesel engines as a source of power. Indigenousdiesel engines are in adequate supply.

24. Appendix 2-1 includes cost estimates for the three types of wellsincluding electric and diesel power units and accessory equipment. Approx-imately 50,000 wells of all types will be financed under the Project.This will include about 10,000 masonry wells and 40,000 tubewells. About80% (32,000) tubewells will be equipped with diesel power units and theremaining 20% (8,000) will be equipped with electric motors.

Organizatior and Management

25. The State Government presently has two organizations concernedwith the development of minor irrigation works; the State GroundwaterDirectorate and the Minor Irrigation Department, both under the administra-tion of the Commissioner of Agricultural Production and Rural Development.

26. The State Groundwater Directorate is concerned principally withinvestigation of the groundwater resources of the State. This work involvestest drilling to determine the location and extent of aquifers, their hydro-logic characteristics and quality of water and the monitoring of water levelfluctuations. More than 350 observation wells are monitored monthly in theProject area. Under the Project these measurements would be continued andadditional observation wells monitored as needed. The headquarters officeis located in Lucknow and divisional offices are maintained in three areas:(a) Middle and Eastern UP north of River Gomti; (b) Middle and Eastern UPsouth of River Gomti; and (c) Western UP with headquarters at Roorkee. Lachdivisional office is under the direction of an Executive Engineer. Inaddition there are several field offices each under the direction of anAssistant Geologist who supervises the ongoing work. The State Governmenthas plans to reorganize the Groundwater Directorate to establish ninedivisions instead of three and to add an exploration division, a geophysicalwing and a chemical wing each to be under the direction of a senior scientist.This would add an equal number of scientists (35 to 40) to those presentlyemployed. The additional staff would permit more intensive studies of deepaquifers, determine the interrelationship of groundwater and surface waterand evaluate the recharge of aquifers in the Tarai - Bhabar Belt near theHimalayan foothills.

27. The Minor Irrigation Department is under the direction of aSuperintending Engineer located in Lucknow. The Department has twelveDivisional offices each under the direction of an Executive Engineer. Thestaff includes a total of about 70 professionals and approximately 2,000non-professionals. The primary function of the Minor Irrigation Departmentis the construction of tubewells. At present there are 657 AssistantBlock Development Officers (Minor Irrigation) who are assisted by MechanicalInspectors, boring mechanics and laborers as needed to operate more than4,000 hand drilling rigs. About 1,600 such rigs are located in the Projectarea.

ANNEX 2Page 8

28. The farmer is charged Rs 2/ft for the use of the hand rig andis responsible for providing the labor required for drilling. In additionthere are qualified private drilling contractors available whose servicescan be obtained at reasonable prices.

29. The State Groundwater Directorate is under the direction ofqualified and experienced senior officers. However, considering the recentand proposed expansion of the staff and the number of inexperienced juniorofficers, an assurance was obtained during negotiations that two experiencedgeohydrologists would be requested from the Central Groundwater Board toassist in the training of junior officers. The recently formed CentralGroundwater Board has taken over the personnel of the groundwater wing ofthe Geological Survey of India and the former Exploratory Tubewell Organiza-tion.

Irrigation Water Requirements

30. Irrigaticn water requirements for the 5 farm models were estimatedby the procedure described in Technical Series No. 2 of the Water Manage-ment Division of the Ministry of Agriculture entitled "A Guide for EstimatingIrrigation Water Requirements" dated June, 1971. The procedure utilizescrop consumptive use coefficients determined experimentally. The coeffi-cients represent the ratio of crop use to "Class A" pan evaporationdetermined on a monthly basis from the time of planting the crop until itreaches maturity. Evaporation data were obtained from Scientific ReportNo. 146 published by the India Meteorological Department. A portion of therainfall that occurs during the growing season is utilized by crops.Rainfall data was obtained from "Memoirs of the India Meterological Depart-ment Vol. XXXI, Part III." The estimates of monsoon rainfall utilized bycrops were based partly on procedures described in Technical Series No. 2referred to above and partly on studies made by Nippon Koi Ltd. at HardinathExperiment St-tion in the Tarai area of Nepal. These procedures conformclosely to tbc'se described by the US Department of Agriculture in TechnicalBulletin No. 1275. Estimates of well yields were based on field observationsand discussions in India during appraisal. Soil moisture storage in theroot zone of crops was not evaluated primarily because data were not avail-able but also because a more conservative evaluation is obtained by notconsidering soil moisture storage. For this reason and because of inaccu-racies in the data, crop water shortages of up to 15% are not consideredsignificant. However, as is shown in Appendix 2-2 the crops were provideda full water supply.

31. It was assumed in the analysis that a Persian wheel would beutilized 8 hours per day and that tubewells would be utilized 12 hours perday. A farm irrigation efficiency of 75% was used in all models becausethe areas to be irrigated would be located close to the wells and convey-ance losses would be negligible. Also little or no land shaping would benecessary and water management on the farm presents no difficulties.

March 26, 1973

ANNEX 2Appendix 2-1Page 1

INDIA


Project Costs

A. Dug Wells (Masonry)

Item Cost - Rs

InvestmentExcavation 10 m depth 200Steel shoe 200Brick and mortar lining 1,400Persian wheel 800Brick-lined water course 30 m 210

Total 2,810

Contingency for price increase 290

Total investment per well 3,100

B. Shallow Tubewell-Electric (cavity type)

InvestmentDrilling 30 m 500Casing 30 m 1,200Pump 3" x 4" 400Electric motor 5 hp 2,100Pipe and valves 700Wiring and deposit 1,200Pumphouse and stilling basin 1,500Brick lined water-course 200 m 1,400

Total 9,000

Contingency for price increase 900


Operation and Maintenance986 Kwh at Rs 0.18/Kwh 177Fixed charges 180

Total annual cost per well 357


C. Shallow Tubewell - Diesel (Cavity Type)

Item Cost - Rs

InvestmentDrilling 30 m 500Casing 30 m 1,200Pump 3" x 4" 400Diesel motor 5 hp 3,800Valves and fittings 700Belt and pulleys 300Pumphouse and stilling basin 1,500Brick lined water-course 200 m 1,400

Total 9,800

Contingency for price increase 1,000


Operation and MaintenanceFuel - 577 liters at Rs 0.98/liter 565Labor and supplies 111


D. Medium Tubewell - Electric (Strainer Type)

InvestmentDrilling 50 m 700Casing 28 m 4" diam. 1,120Strainer 22 m w/brass mesh 1,330Pump 4" x 4" 450Valves and pipe 1,000Electric motor 7.5 hp 2,900Wiring and electric deposit 1,200Pumphouse and stilling basin 1,500Brick lined water-course 400 m 2,800

Total 13,000




Item Cost - Rs

Operation and Maintenance1908 Kwh at Rs 0.18/Kwh 343Fixed charges 270


E. Medium Tubewell - Diesel (Strainer Type)

InvestmentDrilling 50 m 700Casing 28 m 4" diam. 1,120

Strainer 22 m w/brass mesh 1,330Pump 4" x 4" 450Valves and pipe 1,400Diesel motor 7 hp 4,000Belt and pulleys 500Pumphouse and stilling basin 1,500Brick lined water-course 400 m 2,800

Total 13,800



Operation and MaintenanceFuel - 1195 liters at Rs 0.98/liter 1,171Labor and supplies 234

Total annual cost per well 1,405

INDIA ;4PP6O0o 2-2

UTTAR PRADESN AGRICULTURAL CREDT PROJECTEsibuatmi Cro Irripation Watow Requiramnets

J.n F.6 M. Apr M.r J-o 220, A'., a rPIal

W- HYV~A -

_ _ _ ~~~~~AAAMP.ddy

Crop -offici- k 0351 1.14 1221 0.96P_r 1oprto a 40 170 .13 12001 or 122 194 170 113

EOtoori ",'fI'llo 9 178 173 .13Crop - 1 -rlolo , r . 120 27 1600

Pradel. -990. 75 eff. 133 36 21 0

Crop -oeffoai- k 0.54 1.07 .1.4 10.83

01o 130 102 145 0Cro 11100.o5 128 125 1

rogo ` 97M , 45 54 20Fo.- del. at 5 O. 72 19 0

Crop roeifiolool 4 0~~~ ~ ~~.41 0.50 0.38 0.46 0.71 0.93 1.03 1.10 1.17 1.20 1.19 0.35Paovpoao Ir aa 2 9 1505 240 34 240 110 1319 1201 124 120 62

or ~~~ ~~~ ~~~ ~~~~25 49 59 110 242 223 175 153 140 140 143 22Epftep -v raIfafll -0 0 0 0 0 86 154' 148 115 3'. 0

Crop OrrlgaCOoo 0991. or ~~25 49 59 110 242 137 21 5 25 015 143 22F.or Ic 0-91. 70%cO. 33 157 46 322 182 20 1 3 153 10 79

Wh-o 000Crop.. rofflle-t 6 0. 85 0.30 0. 05 0.55 0.81

... -opoOrl- _r 62 96 155 120 82EOlo 53 289 6 66 50

Eff-i- 0 0 B~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0Cro i`rlg.... 00. o 11 128 I/ 104 8 66 50Pao del. -,1 M5 ....aa 17 139 11 BB06

C-op roafflcleet 1 1.00 0.77 0.49 .104-90 vP-rCle e 62 90 015 0.4

00 ~~~ ~~~ ~~~~ ~ ~~62 75 78 62lEff-i- rainfall 0 0 0 16 2

Cr0 lrrtgaoLo r-q. 62 73 76 020Foor d.l. -991, 75% ffP. 82 100 101 216 15

Cr0 .. ocffrei 4~ 1.00 0.77 0.25 0 3"

Po .aorlo.o 62 98 155 10.1 0.4120 6

llaa ~~~ ~~~~~~~~~62 7539 -OlOarOIvereIoOoll or ~~ ~ ~~0 0 0 16 5

Cropf 00rl80010 -eql. 62 75 39 6 0900 dcl. 9991, 75% flf. o 83 100 52 16 15

Crp ","ip.ill,nI 0 47 0.083 1.04 1.18r.n -va-oalo- or 240 170 139 120

01 - 113 141 140 134OlErlf- e-plolaf1o 85 128 125 115

Crop trro1orionreqO. ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~28 13 2219

Porn del. Paqt. 75% ff0.o 37 17 29 25

Crop -otf--eo 0.45 0.10 0.10.89. 0.96

P.. _P-i.. 62 9 ~~~ ~ ~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~124 120 0201t 28 10 9 107 60

000e010onralnOOll - 0 ~~~ ~ ~ ~ ~~~~0 0 Crop Orlgl ooaq. r 2 8 lo 9 10,7 600

Papa del. 0991 75% ff, o 37 13 12 142 so

00100 00 Wate R.g.i.ed for Far 82919 1n Cu610 ltlrsa

9o90

1,1halOcor Wall 0014 P.0009 Wh. l 0i04 Crp-il, of 58 a /d.,Pa 1ddy 660 180 110 0 0

0 3 i.5 I177 216 87

0.1 Sog-ror 33 65 78 146 322 I82 28 33 153 190 290.6 Oc- 00 1020 834 60~ 529 4020.IP=00 83 100 52 00 13

0,1 T3 .cr 7 07 129 25T0001 d-rod 0t 2,p 1136 999 196 146 982 56 371 123 38153 739 ~ 44A-oO1abl. a_yly 17 98 1624 1798 1740 1788 1740 1788 1798 1740 0798 1740 179~8PorreOOollllM-ll- 63 62 11 8 53 33 21 7 3 9 42 26

1.0Padyll1_3 11,1,Tb11ih5l Mt,____-d C-t,il ... 1 ? ~141 C0091i00 2073 93/d.r1338 360 2100

0.25 0M99- 148 190 730.05 BoaoOo0 163 005 365 05455 70 18 83 383 475 731.0oWh.e 1700 1190 110 880 70.25 Soly205 250 253 53 6030.25 PB099 208 250 130 53 9'3

0.25 ' So 343 73 63I MalOroaP_Tp 2196 2053 6889 365 2135 1056 533 164 146 383 1461 909

va-t.l. le9pp1yra 8463 7644 8463 8190 6463 8190 8463 8463 8198 9463 8190 8463P90-00 UlliOOoeOlo 26 27 8 4 25 13 6 2 2 5 1 11

8W19- 001d a3 1098 1026 344 188 1149 477 259 46 73 192 738 455

912201 4 6 5.1 f1OolrObra1 14754 22 0200-OgIPoo00 0015o 82 ./

2T.0 PddyI 2644 720 420 000.5 00190 295 360 14050.23 Ougorore- 83 163 195 365 805 455 70 18 83 583 475 7122. 5Whea 4250 3475 27 210 165,0.5 P-0 415 530 260 105 6

0.5j POOaOoe I11856126 10 4000.5 P20 j - a - 6 8 .5 2dvIal3 01 a114 109-14 16 34 16 14 14 1140 117 91140 11420

5010 de.a 00 po _ 14933 4203 730 365 3465 1655 935 30I 208 443 3490 2313

090ra09 oOllOOaOton ~~~ ~~42 39 6 3 29 14 a 32 4 3020

75 - .. dft ..- -t.I-..- y-d .b- f-M_..

ANNEX 3

INDIA

UTTAR iRADESH AGRICULTURAL CREDIT PROJECT

Estimated Schedule of Disbursements (Cumulative)

Cumulative Disbursements

Quarter Ending Rs Million US$ Million

1973/74

September 30, 1973December 31, 1973 5.7 0.8

March 31, 1974 14.3 1.9

Juaie 30, 1974 28.5 3.8

1974/75

September 30, 1974 42.8 5.7December 31, 1974 71.3 9.5

March 31, 1975 99.8 13.3June 30, 1975 128.3 17.1

1975/76

September 30, 1975 142.5 19.0De.ember 31, 1975 171.0 22.8

March 31, 1976 199.5 26.6

June 30, 1976 228.0 30.4

1976/77

September 30, 1976 242.3 32.3

December 31, 1976 285.0 38.0

April 9, 1973

ANNEX 4Page 1

INDIA


The Agricultural Refinance Corporation (ARC)

Organization and Management

1. The Agricultural Refinance Corporation (ARC) was established onJuly 1, 1963, with the objectives of providing medium- and long-term financeto agricultural credit institutions and, at the same time, directing andguiding such institutions toward a development-oriented approach in theiroperations.

2. ARC's shareholders include the Reserve Bank of India (RBI), state-level cooperative land development/mortgage banks, state cooperative banksand other institutions (scheduled banks, the Life Insurance Corporation ofIndia, insurance and investment companies, and others approved by the Govern-ment of India). The Act of Parliament under which ARC operates 1/ providesthat of its share capital RBI shall subscribe to at least 50%, the coopera-tive land development banks and state cooperative banks to not more than30%, and othcr institutions to not more than 20%.

3. ARC's management is vested in a Board of Directors of nine members,three of whom are elected and the rest nominated. Three directors representRBI (a Deputy Governor is Chairman of the Board); three the Government ofIndia (at present the Secretary, Department of Agriculture, and the SpecialSecretary, Department of Cooperation of the Ministry of Agriculture and aJoint Secretary, Department of Banking of the Ministry of Finance); andthree directors are elected, one each by the state cooperative land develop-ment banks, by the state cooperative banks, and by the Life InsuranceCorporation of India, scheduled banks, and other insurance and financinginstitutions.

4. The Managing Director is the chief executive officer and isassisted by a professional staff of 145 (as of June 1972) of whom about 100are based at ARC's head office. Until early 1970, ARC did not employ anyspecialists, instead relying on a panel of consultants for technical advicein appraisal and supervision work. To supplement consultants' advice, ARChas established a technical division which, as of June 1972, comprised sixspecialists, including an expert in groundwater development, and an agri-cultural economist and to which ARC proposes to make further appointments.With the increasing volume of lending, ARC recognizes the need to build upits staff at all levels and has prepared a staff development plan to coverthe period to the end of March 1974.

1/ Agricultural Refinance Corporation Act, 1963 (No. 10 of 1963).

ANNEX 4Page 2

5. ARC's head office is in Bombay. It has 14 regional offices(Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Bombay, Calcutta, Chandigarh,Hyderabad, Jaipur, Lucknow, Madras, New Delhi, Patna, and Trivandrum)which assist banks and state governments in formulating agriculturaldevelopment projects for financing, clarify ARC's policies and procedureswhen required, undertake preappraisal of projects submitted and supervisegeneral execution of projects under ARC financing.

Lending Policies

6. The ARC Act provides that it shall be guided by suchI directionsin matters of policy involving public interest as GOI may, after consultingRBI, give in writing. ARC can extend financial assistance only to centralor state-level land development/mortgage banks (LDBs), state cooperativebanks, and other scheduled (commercial) banks; in exceptional cases, andwith RBI approval, it can also lend directly to a primary cooperative atthe farm level.

7. Until June 1966, it was not normally ARC's policy to refinanceconstruction and energization of wells by individuals unless the outlayinvolved was large and development was envisaged through a cooperativesociety organized for the purpose. In July 1966, however, ARC not onlyremoved this restriction, but also circulated a model scheme for minorirrigation development by farmers in compact areas. Thus began ARC'spolicy of financing individual farmers on the basis of project models.

8. ARC will refinance agricultural development schemes wiich aretechnically feasible, financially justified, and are within a reasonablycompact area for facility of loan evaluation and supervision. The schemecan involve just one farmer, a group of farmers, or an association offarmers. Preference, however, is given to schemes involving a large numberof farmers.

Y1 Technical evaluation of schemes is carried out by consultantsd-awn from a panel approved by the Government of India. Services of theC.entral Croundwater Board, the Geological Survey of India and the variouscommodity boards are also used and ARC prescribes the terms of reference inevery case. Some important points examined in the case of schemes forr.inor irrigation include: an estimate of the quantum of water proposed tobe tapped, annual water recharge, annual water draft, taking into account-he existing and proposed wells, and the type of pumpsets needed. With theestablishment of its own technical division, increasing back-up support isaow available from ARC's own specialist staff which will provide a founda-tion of technical expertise for scheme appraisal and supervision throughoutIndia.

lO0. Economic evaluation of schemes is performed by ARC staff. Some ofthe important aspects appraised include cost estimates, the suitability of:ie cropping pattern recommended, inputs available for development, farmers'repayment capacity, efficiency of the project executing agency, arrangements

ANNEX 4Page 3

for the provision of short-term credit and marketing arrangements. Preap-praisal is done generally by regional offices, but final evaluation andsanction is made at head off'ice in Bombay.

Lending Terms

11. ARC refinance is provided through purchases of special debenturesfloated by L1JBs and through loans to commercial banks. Special debenturesare backed by a charge on all mortgages resulting from loans refinancedunder the issue and in addition are guaranteed by the State Governmentconcerned. Loans to commercial banks are secured by mortgages or hypotheca-tion on assets financed and generally also carry a state government guarantee.

12. Prior to the participation of IDA in ARC operations, the specialdebentures were repayable in one sum at the end of the loan period and ARCrequired that collections from farmers in the interim be placed in a sinkingfund. Such sinking funds (similar arrangements exist for ordinary debenturesissued by LDBs) are invested in GOI securities and are also used to purchasethe debentures of LDBs (including the repurchase of their own debentures).In the case of the IDA-supported projects it was considered preferable togive ARC the benefit of the re-use of funds realized from farmers' collec-tions: the repayment of special debentures under such projects are there-fore scheduled approximately to match farmers' collections and the sinkingfund arrangements do not therefore apply. The same arrangements exist inrespect of loans issued to commercial banks. Periods of refinance aredetermined after a study of the repayment capacity of farmers based on farmmiodels. Although ARC may lend for medium-term (3-5 years), most of itsrefinancing has been for long-term: the latter is in effect divided intoperiods not exceeding 9 or 15 years, reflecting the different terms on whichARC borrows from GOI (para 23).

13. Until 1967/68 ARC refinance was limited to 75% of loans made tofarmers for any purpose. In that year, however, ARC agreed to increase itsrefinancing of minor irrigation investments up to 90%, other purposes (e.g.,land leveling, farm mechanization) remaining at 75%. The balance is providedin the case of LDBs by the state government concerned and in the case ofcommercial banks, by the banks themselves. In 1971, ARC agreed that, for alimited period, it would refinance 100% of loans made to small farmers'schemes under the aegis of the Small and Marginal Farmers' DevelopmentAgencies.

14. Since November 1970, ARC's lending rate has been 6-1/2% per annum(it was previously 6%). Scheduled banks (commercial and state cooperative

banks) are required to charge their borrowers no more than an additional2-1/2% and while LDBs are not bound by the same restriction they neverthe-less follow the same interest mark-up and none exceeds it. ARC reservesthe right to collect a commitment fee of 1/3% per annum on any shortfallagainst an agreed schedule of drawings.

ANNEX 4Page 4

Lending Commitments

15. The following table shows the growth of ARC's commitments (lesssubsequent cancellations) during the nine years to June 30, 1972, the dateof the last ARC audited accounts:

Number ofSchemes Total Schemes ARC

Year Approved Costs CommitmentRs Million Rs Million

1963/64 3 27.20 24.501964/65 10 206.00 168.801965/66 24 179.60 141.801966/67 15 105.30 85.301967/68 89 681.60 586.401968/69 108 792.10 693.201969/70 142 927.80 709.201970/71 100 621.50 539.201971/72 269 1,542.40 1,351.30

760 5,083.50 4,299.70

Less reductionsor withdrawals 49 1,036.00 791.80

711 4,047.50 3,507.90

16. During the initial years, ARC transacted very little business dueto the need to establish the groundwork and bases for its operations and forbuilding up its staff. The above table shows in particular the growth whichhas taken place since 1967/68 when ARC increased to 90% its refinancing ofminor irrigation schemes. With increased staff and substantial financialassistance from IDA, ARC was in a position to more than double its opera-tions in 1971/72 .gainst 1970/71.

17. Most of the schemes sanctioned have been for projects financed byLDBs:

Number ofSchemes ARC Commitments

Rs Million % of Total

(a) Land Development Banks 485 3,040.80 86.7

(b) State Cooperative Banks 33 230.10 6.6

(c) Scheduled Commercial Banks 193 237.00 6.7

Total 711 3,507.90 100.0=~~~~

ANNEX 4Page 5

18. About 85% of the cost of schemes approved for refinance have beenfor minor irrigation and land development:

Total ARCSchemes Approved Commitment

% of % ofNumber Total Rs Million Total

(a) Minor Irrigation 434 61.0 2,498.10 71.2(b) Land Development 53 7.5 475.60 13.6(c) Tractor and Power Tillers 5 0.7 46.10 1.3(d) Soil Conservation 3 0.4 21.40 0.6(e) Plantations 176 24.8 252.90 7.2(f) Poultry 8 1.1 5.20 0.2(g) Fisheries 13 1.8 45.30 1.3(h) Dairying 7 1.0 18.70 0.5(i) Storage 11 1.6 140.80 4.0(j) Sheep Breeding 1 0.1 3.80 0.1

Total 711 100.0 3,507.90 100.0

Withdrawal of committed funds is normally phased over more than one year.

Disbursements

19. During the early years, ARC disbursements lagged behind theschedules of drawings which had been agreed with the lending banks in thestates but, as the following table shows, this has improved in recent yearspartly as a result of better administrative arrangements and partly throughARC's more frequent recourse to imposing commitment fees:

Cumulative Cumulative DisbursementsYear Scheduled Commitments Disbursements to Commitments

Rs Million Rs Million %

1963/64 -1964/65 44.7 4.5 10.11965/66 87.3 49.0 56.11966/67 143.0 69.8 48.81967/68 254.8 126.5 49.61968/69 585.9 304.9 52.01969/70 921.5 590.9 64.11970/71 1256.7 897.1 71.41971/72 1760.4 1246.9 70.8

As of June 30, 1972, ARC had made disbursements amounting to Rs 53.7 millionin respect of IDA credit projects.

ANNEX 4Page 6

Source of Funds

20. ARC initially made a share issue to the value of Rs 50 million forwlich GOI guaranteed an annual dividend of 4-1/4%. During 1971, ARC in-creased its share capital to Rs 100 million and on the further shares issueda dividend of 4-1/2% was guaranteed.

21. Apart from share capital, ARC can raise funds from the followingsources: (a) borrowings from GOI and from any entity approved by GOI;(b) issue and sale of debentures and bonds guaranteed by GOI; (c) borrowingsfrom RBI for periods not exceeding 18 months; and (d) deposits from GOI,the state government, and local authorities for periods not less than 12months. Total borrowings and deposits received may not exceed 20 times thesum of ARC's paid-up share capital and reserve fund. The ARC Act wasamended by Parliaui.ent in August 1971 to enable the Corporation to borrowfrom the National Agricultural Credit Long-Term Operations Fund maintainedby the Reserve Bank of India.

22. ARC's borrowings and receipts of deposits during the nine yearsto June 30, 1972, are summarized as follows (in Rs million):

Borrowings DepositsYear GOI Marke't REI Total Received

1963/64 50.00 -- -- 50.001964/65 -_ __ __ __ 1.131965/66 - -- 1.251966/67 -- -- -- -- 1.261967/63 30.00 -- -- 30.00 1.251968/69 177.50 -- -- 177.50 1.261969/70 190.00 109.38 -- 299.38 1.251970/71 220.00 85.25 75.20 380.45 1.251971/72 103.30 82.50 8.70 195.00 1.25

fotal 771.30 277.13 83.90 1,132.33 9.90

'.n 1971/72, ARC borrowed from G0I Rs 103.80 million of whicli Rs 33.29raillion (US4.44 million) represented the first drawings from IDA undertLe agricuiltural credit projects. During this period ARC also increasedits market borrowings by a third bond issue to the value of PRs 82.5 million,and lts temporary accommiodation with RBI has been in part replaced by along-term loan of Rs 50 million from the National Agricultural CreditLong-Term Operations Fund.

23. Borrowings from GOI have been on various terms: interest ratesrailging from 4.75% per annum to 6% per annum and repayment periods from 9to 15 years. With effect from June 1, 1971, GOI interest rates to ARC havebeen increased by 1/2% per annum and are now therefore 5-1/2% on loans upto 10 years and 6% on loans for 15 years. Since August 1968, ARC has beenallowed a rebate o;' 1/4% on timely payments of interest on GOI borrowings.

ANNEX 4Page 7

24. Interest rates payable by ARC on other borrowings are variable.The first two market issues of ARC bonds are both dated 1982 and are at aninterest rate of 5-3/4% per annum. The third issue is due 1984 and carriesan interest rate of 5-3/4% per annum. The previous short-term borrowingsfrom RBI at bank rate (6%) have been replaced by the National AgriculturalCredit Long-Term Operations funds at 4-1/4% (para 22). The special depositsrepresent dividends payable on ARC's shares held by RBI and on which ARCpays no interest.

Operating Results

25. A comparative statement of ARC's operating results to June 30,1972 is given in Appendix 4-1 and is summarized below (in Rs million):

NetIncome Statutory Surplus

Gross Total Net Income before Dividend orYear Income Expenses Income Tax Dividends Liability Deficit

1963/64 3.75 0.30 3.45 1.80 1.65 1.91 -0.261964/65 4.00 0.39 3.61 1.76 1.85 2.13 -0.281965/66 4.35 0.48 3.87 2.27 1.60 2.13 -0.531966/67 4.98 0.61 4.37 2.40 1.97 2.13 -0.161967/68 6.00 1.67 4.33 2.38 1.95 2.13 -0.181968/69 11.04 6.29 4.75 2.61 2.14 2.13 0.011969/70 27.28 20.55 6.73 3.70 3.03 2.13 0.901970/71 42.66 35.72 6.94 3.44 3.50 2.13 1.371971/72 60.59 49.70 10.89 5.75 5.14 3.05 2.09

26. In the first three years of ARC's operations, income was derivedmostly from interest on investments. Beginning 1966/67, this patternchanged when ARC began to expand its refinancing operations. In 1971/72interest received from loans and debentures represented 97% of total incomereceived.

27. Benefitting from cost-free funds available to it during the firstfour years of its existence, ARC's main items of expense at the time weresalaries and employee benefits. Needing more funds for its expanded opera-tion, interest paid on borrowed money has since 1967/68 been an importantitem of expenses. In 1971/72 interest paid on borrowings and salariesand employee benefits were 89% and 7%, respectively, of total expenses.

28. Until 1968/69, net income after tax was insufficient to meetARC's fixed dividend of 4-1/4% annually and this deficiency had to be madegood by GOI in accordance with its guarantee under the Act: ARC retainsthe liability to reimburse GOI this sum (Rs 1.4 million) out of futureprofits. Since 1968/69, however, profits have been sufficient to coverdividend payments and leave ARC with a small surplus and this positionsignificantly improved in the subsequent three years.

ANNEX 4Page 8

29. Since June 1971, ARC's interest spread has been reduced dueto the 1/2% per annum increase of its interest rates on borrowings from GOI(para 23) and its need to borrow more 15-year money from GOI at the higherrate of 6% per annum to match preferential lending to small farmers. Againstthis ARC's lending rate is fixed at 6-1/2% per annum. The scale of profitswill in the future largely depend on ARC's borrowing rates and the extentto which it will have recourse to the National Agricultural Credit Long-TermOperations Fund of RBI at concessional rate (4-1/4% per annum) or has todepend on borrowings from the market at higher rates (effectively 6% perannum presently). The projections of net income for the period 1971/72 to1975/76 (see Appendix 4-2) are based on an average interest margin of about1.3% which, with increasing volume of lending, should be sufficient to coverthe operating expenses and provide for a small net profit.

30. ARC is in sound financial condition (Appendix 4-3). Its equityposition as of June 30, 1972 is unimpaired by losses and its assets werein GOI securities and debentures of Land development banks, which areguaranteed by state governments. A five-year projection of ARC's financialcondition is given in Appendix 4-4.

31. In accordance with its charter, ARC's accounts are auditedannually by accountants duly qualified under the All India Companies Actof 1956 (the present auditors are Messrs. K.S. Aiyar and Co.). Under thesame Charter, GOI can appoint the Comptroller and Auditor General of Indiato examine and report on the accounts of ARC. To date, GOI has not foundthe need to exercise this power.

January 16, 1973

I N D I A

UTTAR PRADEH A3RICULTURAL CREDIT PROJECT

Agrl.oultural Refinance Corporation

Condensed Statements of Net Income

For Fiscal Years 1296166 - 1971/72

195/66 _1 966/67 1967/68 1968/69 1969/70 1970/71 1971/72RS NM O Rs M f RKs M Of of r Rs M of i fRs M

Total Total Total Total Total Total TotalIncome Income Income Income Income Income Income

Interest Earned ons IDA Projects - - - - - - - - - - - 0.99 1.6Other Loans and Debentures 1.09 25.1 3.06 61.3 4.83 80.5 10.20 92.4 24.09 88.3 40.12 94.1 57.79 95.4

Interest on Investments and other Income 3.25 74.9 1.92 38.7 1.17 19.5 00.84 7.6 3.18 11.7 _.5 5.9 1.81 3.0

Total Income 4.34 loo.o 4.98 100.0 6.oo 100.0 1 . 100.0 27.27 100.0 42.66 100.0 60.59 100.0

EXPENSES

Interest Paid on: Borrowings for IDA Projects - - o - - - - - - - - - 0.06 0.1Other Borrowings - - - 0.146 7.8 4.42 40.0 17.07 62.6 30.80 72.2 44.o6 72.7

Salaries, Allowance, Consultants' Fees, andE!Dployee Benefits o.36 8.4 0.47 9.5 0.91 15.2 1.43 13.0 2.04 7.5 3.40 8.0 3.92 6.5

General and Administrative Expenses 0.11 2.6 0.13 2.6 0.29 4.8 0.43 3.9 1.42 5.2 1.48 3.4 1.59 2.6

Depreciation of Assets 0.01 0.1 0.01 0.1 0.01 0.1 0.01 0.1 0.02 0.1 0.04 0.1 0.07 0.1

Total Expenses 0.48 11.1 0.61 12.2 1.67 27.9 6.29 57.0 20.55 75.4 35.72 83.7 49.70 82.0

NET INCOME BEFORE TAXES 3.86 88.9 4.37 87.8 4.33 72.1 4.75 43.0 6.72 24.6 6.94 16.3 10.89 18.0

Taxes Paid or Payable 2.27 52.2 2.40 48.3 2.38 39.6 2.61 23.7 3.70 13.6 3.44 8.1 5 75 9-5

NET INCOME AFTE1R TAXES 1.59 36.7 1.97 39.5 1.95 32.5 2114 19.3 3.02 11.1 3.50 8.2 51 4 8.

December 4, 1972

I ND IA


Agricultural Refinance Corporation

Projected Statement of Net Income

For Fiscal Years 1971/72 - 1975/76

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

% Of % Of % of %of % ofRs M Total Income Rs M Total Income Rs M Total Inco. Rs M Total Income Rs M Total IncQw

Intret aredonVID Po3ct 0.99 1.6 25.69 24.5 67.I46 39,0 92.23 36.9 107.08 32.9Other Loans and Debentures 57.79 95.1I 79.01 75.44 105.21 60.9 157.38 63.o 217.85 67.0

Other Income 1.81 30° .10 0.1 0.10 0.1 0.10 0.1 0.10 0.1

Total Income 60.59 100.0 10 100.0 172.77 100.0 2 49.71 100.0 325.03 100.0

Interest Paid on: Borrowings for IDA Projects2' 0.06 0.1 14.20 13.6 10.19 23.3 60.17 24.1 74.82 23.0

Other Borrowings 2/ 44.06 72.7 61.83 59.o0 8703 50.4 126.06 50.5 168.67 51.9

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

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

Depreciation of Assets 0.07 01 o.o5 - 0.05 - 0.05 -05

Total Expenses 82.0 82.3 78.7 136.12 78.8 197.4 6 79.152.890

INCOME BDC!E TAME 10.89 18.0 22.37 21.3 36.65 21.2 52.25 20.9 66.94 20.6

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

NET INCOME AFTER TAMS 5.1Li 10.80 10.3 17.69 10.2 25.21 10.1

i4 =

I/ At 6& per annum on all loans made after July 1. 1970; i% per annum on all earlier loansT/ 5¼ per annum for loans up to nine years and 5-3/4 per annum for loans up to 15 years3/ On the basis of the following interest rates: 435 per annum on share capital;

41 per arnum on RBI (LTO) Funds; 54 per annmm on borrowings from G0I on normal schemes; and5.8% per annum on open market borrowings.

December 4, 1972

INDIA

UTPTAR PRADESH AGBICULTURAL CREDIT PROJECT

Agricultural Refinance Corgoration

Condemed Balane Sheet

At the End of Fiscal YTea I &9L/6 - 1M

1965/66 1966f67 1967/68 MO/69 1969/70 1970/71 1971/72

Change from Change from Change frm Change from Change from Change fram

ls IC Ks M Previous Date RS M Previous Date Rs N Previous Date Ra i( Previous Date Rs N Pre,ious Date Rs N Previous Date

ASSETS

Cash on Hand and in Banks 0.02 o.o6 0.04 0.09 0.03 0.06 (0.03) o.-4 (0.02) 100.01 99.97 0.21 (99.80)

Investments 55.21 35.79 (19.42) 8.40 (27.39) 5.14 (3.26) 24.99 19.85 0.20 (24.79) - (0.20)

Loans 1.47 3.03 1.56 7.35 4.32 25.49 18.14 42.93 17.44 76.95 34.02 137.72 60.77

Debentures Purchased 47.53 66.73 19.20 119.o4 52.31 278.55 159.51 546.0k 267.49 812.39 266.35 1,096.38 283.99

Other Assets 24 .34 338 1.04 6.46 3.08 13.58 7.12 17.31 3.73 27.30 9. 37.39 10.09

Total Assets 106.57 108.99 2.42 L41.34 32.35 322.82 181.48 631.31 308.49 1,016.85 385.54 1.271.70 254.85

LIABILITIES AND CAPITAL

Loans frcm Government ofIndia and Others 500 5C. 0 - 80.02 30.00 257.50 177.50 556.88 299.38 862.13 305.25 1,132.31 270.18

Special Deposits 2.39 3.64 1.26 4.90 1.26 6.15 1.25 7.40 1.25 8.65 1.25 9.90 1.25

Other Liabilities 4.18 5.35 1.16 6.44 1.09 9.16 2.72 16.94 7.78 93-77 7.64 25.12 (68.65)

Total Liabilities 56-57 58.99 2.42 91.34 32.35 272.81 181.47 581.22 30.41 964.55 384.14 1,167.33 202.78

Capital - Paid-uy 50.00 50.00 - 50.00 - 50.00 _ 50.00 - 50.00 _ 100.00 50.00

Reserves and Surplus N N N N 0.01 0.01 0.09 0.08 2.30 1.40 4.37 2.07

Total Capital 50.00 50.00 H 50.00 N 50.01 0.01 50.09 0.08 52.30 1.40 104.37 52.07

Total Liabilities and

Capital 106.57 108.99 2.42 141.34 32.35 322.82 181.48 631.31 308.49 1,016.85 385.5 1,271.70 254.85

nTncludes: Rs 277 M1illion public bond issues;Rs 771 million fram Central Government;

Rs 84 million from Reserve Bank of India.

N: Negligible x x

December 4, 1972

I N D I A

UTTAR PRAMSH AGRICULTUIAL CREDIT PROJECT

Agricultural Refinance Corporation

Abated Balance SheetAt the Ind of Fiscal Years 1971/72 - 1975/76

jMl9e 30. 1972 ue 701 June 3 1974 0975 June 30. 1976Ers- N hn fOm 1./ Ha C-a7g- Ifr-Them s 1 W ingjifro Rs N Chang-e f-icu

Previous Date Previcos Date Previous Date Previowu Date Previos DateASSETS

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

Others 1,180.39 291.05 1, h21.141 241.02 2,031.41 610.00 3,091.41 1,060.00 3,931.41 840.ooOther Assets 37.39 10.09 .00 (7 2) 40.00 10.00 70.00 3000 80.00 10.00

Total Assets 1.271.70 2514.85 = 927.02 3-1i30.82 1 2 1 2 0 5,828.02 1,147.10

LIABILITIES AID CAPITAL

Loans from 001 (IDA Funds) 33.29 33.29 544,82 511.53 1,081.82 537.00 1,339.82 258.oo 1,652.82 313.00Other Loans frrm OI and Other Sources 1,099.02 236.89 i,144o.714 3141.72 2,067.99 627.25 2,983.87 915.88 3,762.87 779.00Other Liahilities 35.02 (67.40) 53.149 8.47 61.40 7.91 72. 11.01 57.46 .95)

Total Liabilities 7.1 3 202.78 2.039.05 871.72 3.211.21 1.172,16 4&396.10 IA&.8Z 5.473.15 1,077.05

Capital Paid-up 100.00 50.00 150.00 50.00 200.00 50.00 250.00 50.00 300.00 50.00Reservest At Beginning of Year 2.28 - 4-37 . 9.67 - 19.61 - 34.82 -

Projected Net Inca. 5.14 - 10.80 - 17.69 - 25.21 - 32.30 -Total Available 7.142 - 15.17 - 27.36 - 44.82 - 67.12 -Madatory Dividend Due- 3.05 - 5.5o - 7.75 - 10.00 - 12.25 -At the Ind of Tear 4 2.07 9.67 .30 19.61 .9-4 34.82 15.21 54.87 20.05

Total Capital 104.37 52.07 159.67 530 219.61 5994 8.8 2

65.21 354.87 70.05

TOTAL LIABILITIE AND CAPITAL 12_71.70 ?2.19872 0 3 10

I See Appendix 4-3Iandatory dividend of 4? applies to the initial Rs 50 million equity capitaland 41A on share capital issued later

December 4, 1972

ANNEX 5Page 1

INDIA


Uttar Pradesh State Cooperative Land Development Bank Ltd.

A. Organization and Management

1. In March 1959 the Uttar Pradesh State Cooperative Land MortgageBank was first registered under the Cooperative Societies Act and startedfunctioning in May 1960. At present it operates under the Uttar PradeshState Cooperative Land Development Banks Act No. XVI of 1964, and the bylawsregistered under the Cooperative Societies Act. Under its Act, the name ofthe bank was changed to Uttar Pradesh State Cooperative Land DevelopmentBank Ltd. (LDB), and it is presently using the vernacular name UP RajyaSahakari Bhumi Vikas Bank Ltd.

2. The LDB has a unitary structure with its head office in Lucknow,the State's capital, and 203 branch offices at Tehsil 1/ level in 51 of theState's 54 districts. Fifteen more branch offices are proposed to beopened within the next three years. Unlike in other states of India, theLDB has no federated primary cooperative societies. All branch offices andtheir operations are administered and controlled from head office. TheProject area covers 14 districts in which LDB maintains 55 branch offices;2 more are planned to be opened in the near future.

3. Under the General Body, composed of delegates from members of eachbranch area and government nominated directors and with powers equivalentto an Annual General Meeting of shareholders in a joint stock company,LDB's operations are directed by a 15-member Board of Directors. The Boardconsists of five members elected by the General Body at its Annual Meetingand ten directors nominated by the State Government. They represent theCooperative, Agriculture, Minor Irrigation, Planning and Finance Departmentsand the State Electricity Board; one nominated director is nonofficial. Thechairman is the Deputy Secretary, Cooperative Department. In order tofacilitate the administration of the bank, the Board has constituted threecommittees consisting of 5 directors each: Executive Committee, dealingwith loan sanctioning and administration, Finance Committee, responsiblefor budgeting and a Loan Evaluation Committee, controlling branch officesand loan utilization. The trustee is the Registrar of Cooperative Societies.

1/ Tehsil (also Tahsil or Taluk) is an administrative unit, a part ofa district. Uttar Pradesh is divided into 54 districts and 234tehsils; each tehsil has on average about 4 Community DevelopmentBlocks.

ANNEX 5Page 2

4. The chief executive officer is the Secretary, the present incum-bent being the Deputy Registrar of Cooperative Societies, on deputationfrom the Cooperative Department since April 1, 1972 for an undeterminedperiod, but for at least five years. The Deputy Secretary had been promotedfrom LDB's senior officers. The total staff as of June 30, 1972 was 1,339,of which 219 were at head office and 1,120 at the branch offices, many ofwhom are graduates with considerable experience; 253 were in managerialpositions. At present, LDB relles on goveroment officers wlo are not underits control, fo- Oioan appraisal and fol.ow-up. wichn is considered notadequate (para 16-19). Supervision of branches from head office is alsoinadequate. The weakness in the system has been realized by LDB and athree-year staff development plan has been proposed which would result inalmost doub linq of staff at all l e_Is; in particular, LDB proposes tobuild u,3 iz6 omn field staff and to decentralize administrative and super-visory authority. Tn detail, the plan provides for:

(a) Recruitment of Field Officers (urniversity graduates inagriculLure) who would wor' 2tT de" the direction of thebranch managers on loan appe isal , follow-up and collection.Field Officers would be recruited on the basis of one forabout 200 loans a odper year, as this Is the maximumnumber of loans reat a Field OffiCer can be expected tohandle effectiv&ly, There would, however. be at leastone Fi-eld Officer for every branch exceot for thosebranches in the State's hill T.istrlcts and the Buiidelkhandoi.rea:.

(b) Employme:nL of lunior agrioul tura3 ':.f I ers (ca)led KisanSewak). who would be E qivalenc to tha Village LevelWorkers (VLV) and would supplement their work in helpingfarmers with loan applications., %rozurement of legaldocu -; s and would assist branc.i nwnagers wL loansupUiviJ<ion and collections. Sufficient Kisai Sewakswill be recruited to ensure that there would be at leastthree Kisan Sewaks to assist eac.:h Fiell Off-iceT;

(c) Appointmeat of eight Regional Managers, one for eachRevenue Division in the State except the Divisionscoaiprising the hill Districts and the Bundelkhand area,to supervise the operations of all branches in theDivision and to liaise with appropriate Governmentpersonnel;

(d) With increasing loan volume, employment of assistantaccountants, legal assistants and other supporting staffin accordance with norms established by LDB in consultationwith ARC; and

(e) Establishment of a Technical Cell at head office, initiallycomprising a senior and a junior agricultural economist,a civil engineer and a geologist, who will be primarily

ANNEX 5Page 3

en-aged in the preparation and technical evaluation ofminor irrigation schemes proposed for refinancing byARC, and besides that would advise management and fieldstaff on technical and economic matters.

5. To ensure the successful implementation of the Project, priority inrecruitment should be accorded to the Project area, and in particular to thosebranches with unacceptably high overdues. It is considered essential that:

(a) One Field Officer and one Kisan Sewak be in positionin every branch in the Project area before effectivenessof the credit;

(b) Within one year after credit effectiveness, the number ofField Officers in each branch in the Project area will beincreased in accordance with a staffing scale that will ensurethat no Field Officer has responsibility for more than about200 loans approved per year; and

(c) The Technical Cell be established at head office beforecredit effectiveness.

Training facilities for junior and intermediate level staff are availablein Uttar Pradesh at Training Centers and the Cooperative Training Collegemaintained by the UP Cooperative Union and the National Cooperative Unionof India respectively. Senior officers would be deputed for trainingcourses at the Vaikunth Mehta National Institute of Cooperative Managementin Poona, which is run in cooperation with the Reserve Bank of India.However, in consultation with ARC, a training program for staff to be recruitedunder the Project should be drawn up by the LDB for IDA approval within 6months of credit effectiveness.

6. Head office operations are organized in 5 sections and 16 subsec-tions as shown below:

(a) Establishment and General Administration with 2subLsections: Establishment and General Administration;

(b) Accounts Section with 5 subsections: Remittances,Budget Control, Final Accounts, Recovery and Share andDividend;

(c) Loan Section with 4 subsections: Loan, Legal, Deedand Special Schemes;

(d) Debenture Section with 3 subsections: OrdinaryDebentures, Rural Debentures and Special DevelopmentDebentures; and

(e) Audit and Inspection Section with 2 subsections:Audit and Inspection.

ANNEX 5Page 4

Each section is supervised by an Assistant Secretary. A splitting of sectionsand upgrading of subsections to sections is planned with further expansionof operations.

7. Each branch office is administered by a Branch Manager, whois supported by a Branch Management Committee, which consists of 4 membersresiding in the branch area and 5 official members, representing theCooperative, Agrizulture, Planning and Minor Irrigation Departments and theCane Commissioner in the district. The committee is always chaired by anonofficial. Loan applications up to an amount of Rupees 8,000 are placedbefore the Branch Management Committee for consideration and sanction.Larger loan applications have to be forwarded to head office (on averageless than 2% of all applications).

B. Source of Funds

8. LDB's owr. funds consist of the share capital and reserves. Thepaid-up share capital as at June 30, 1972 was Rs 80.60 million (US$10.7million), of which Rs 19.09 million (24%) was subscribed by the State Govern-ment and Rs 61.51 million (76%) contributed by approximately 430,000 borrowers,who are required to buy shares to the extent of 3% or 5% of the loan amount:3% in the case of farmers assisted under the Small Farmers Development Agency(SFDA) schemes and 5% by all other farmers. The following table shows thegrowth of LDB's issued share capital divided as to the private members andState Government subscriptions as of the dates shown (in Rs million):

June 30, 1969 June 30, 1970 June 30, 1971 June 30, 1972

Private Members 26.64 (79%) 35.90 (84%) 48.91 (80%) 61.51 (76%)

State Government 7.09 (21%) 7.09 (16%) 12.09 (20%) 19.09 (24%)

Total Issued 33.73 (100x) 42.99 (100%) 61.00 (100%) 80.60 (100%)

The di-vidend on the share capital has been limited to 3.25%. As at June 30,1972, reserves. provisions and undistributed profits totalled Rs 39.7million (US$5.3 million), representing 4.1% of total loan portfolio.

,1. In addition to the short-term finance provided by the UttarPradesh Cooperative Bank Ltd., the apex organization of the essentiallyshort-term cooper2tive credit system, and the State Bank of India 1/, one ofthe leading commercial banks, LDB's borrowings derive from the issue ofdebentures. These are guaranteed by the State Government as to the paymentof interest and repayment of principal and are secured by effective mort-gages executed over the assets. As in the case of similar banks in otherstates of India, LDB floats three types of debentures:

1/ At 8-9% per annum interest rate.

ANNEX 5Page 5

(a) Ordinary Debentures which are subscribed to primarilyby the GOI, the UP State Government, the Life InsuranceCorporation of India, the State Bank of India and landdevelopment banks in other states of India, the balancebeing sold in the open market. Forty-two series ofdebentures have been issued so far. The rates ofinterest vary from 4.5% per annum to 6% per annum, andthe redemption periods from 10 to 15 years. At present,10 years debentures are floated at 5-3/4% per annum.

(b) Rural Debentures which are sold with the purpose toencourage the mobilization of savings in the rural areas.They are guaranteed by the State Government and aremarketable. The first type, to be subscribed by in-dividuals only, is repayable after 5 years at an annualinterest rate of 6%. To stimulate their sales, RBIsubscribes one debenture for every seven rural debenturessold to individuals. This second type is repayable after10 years and carries an interest rate of 5% per annum.The scheme has not been very successful, partly becausethe interest rate is unattractive when compared withrates offered by commercial banks and noninstitutionalborrowers. In a further effort to mobilize rural savings,LDB has recently introduced a scheme of fixed deposits forone and two years carrying interest rates of 7% per annumand 7-1/2% per annum respectively. Such deposits can beaccepted from individuals only and are not guaranteed bythe State Government. This scheme is regarded as morepromising although up to June 30, 1972 only Rs 0.7 millionwere collected.

(c) Special Development Debentures which are issued for financingspecific agricultural schemes in defined areas, approved bythe Agricultural Refinance Corporation (ARC). They aresubscribed by ARC and the State Government currently inthe ratio 9:1 for minor irrigation projects and 3:1 forother schemes. The periods of these debentures vary from7 to 11 years, the interest rate has been raised frompreviously 6% to 6.5% per annum with effect from November1970.

10. The following table shows the growth of LDB's outstandingdebenture borrowings as of the dates shown (Rs million):

ANNEX 5Page 6

June 30, 1970 June 30, 1971 June 30, 1972Amount % of Total Amount % of Total Amount x of Total

OrdinaryDebentures 536.5 91.3 704.9 90.9 916.9 88.5

RuralDebentures 9.0 1.5 8.6 1.1 15.6 1.5

SpecialDevelopmentDebentures 42.0 7.2 62.2 8.0 103.3 10.0

587.5 100.0 775.7 100.0 1,035.8 100.0

The table shows that the bulk of the financial requirements was raisedthrough ordinary debentures and that rural debentures have not shown anyimprovement in relation to total amount of debentures issued. The volumeof special development debentures has slightly increased over the lastthree years and they are expected to have a considerably larger share inthe future.

11. LDB's borrowing may not exceed 10 times the paid up share capitaland reserves without special sanction of the registrar of cooperativesocieties. Such sanction has been accorded and the current limit has beenset at Rs 1,750 million, providing for sufficient room for expansion.

C. Lending Oprations

Loan Purposes -ird Volume

12. LDB lends for a wide range of agricultural purposes on a medium-and long-term basis. These purposes include:

(a) The construction and improvement of minor irrigationfacilities (sinking of masonry wells or tubewells,installation of pump sets, construction of canals, etc.);

(b) Land reclamation and improvement;

(c) Purchase of farm machinery, in particular tractors andimplements;

(d) Purchase of land and land occupancy rights;

(e) Redemption of previous debts secured by mortgage overthe farm; and

(f) Such other purposes as the Board may determine to be forland improvement or agricultural production.

ANNEX 5Page 7

13. In response to farmers' demand and Government policy, the bulkof the funds has been provided for minor irrigation works. Lending forother purposes is of little importance as can be seen from the followingtable showing total loan disbursements up to March 31, 1972:

No. of Amount % of % of TotalLoan Purpose Loans in Rs Million Total No. Amount

Minor Irrigation Works 373,145 957.0 91.68 92.75Land Improvement 17,998 23.6 4.42 2.29Farm Mechanization 7,809 33.3 1.92 3.23Land Purchase 745 0.5 0.18 0.05Debt Redemption 3,095 5.2 0.76 0.50Other 4?242 12.2 1.04 1.18

Total 407,034 1,031.8 100.00 100.00

The concentration on financing minor irrigation facilities has even increasedin recent years. In 1971/72, 98.7% of all disbursements were for minorirrigation purposes and no loans were granted for land improvement and debtredemption. Land purchase loans (only 6 during the last three years) arerestricted to consolidation of holdings.

Interest Rate2s and Lending Terms

14. The lending rate on all loans, irrespective of loan period andpurpose, has been raised from 8-1/4% per annum to 9% per annum with effectfrom December 1, 1971. Repayment periods vary from six years for loans forpumpsets up to 5 horsepower, to nine years for tubewells and masonry wellsequipped with persian wheels, and for construction of irrigation canals.Tractors and power threshers are financed over a period of 7 years. Repaymentnormally commences 18 months after completion of the investment. Installmentsfall due in June or December thus following the harvest periods by aboutone month, which is reasonable. A minimum cultivated holding ranging fromone acre to 20 acres (for tractors) and the maximum loan amount is laid downfor different investments. A minimum distance to existing wells ranging from100 meters to 300 meters depending on the area is to be observed before loansanction. These lending terms are considered basically sound.

15. Loan applicants have to buy shares in LDB's capital to the valueof 5% of the loan (3% in the case of "Small" farmers, see para 8). Inaddition, borrowers are at present required to contribute 5% of the totalcost of the investment which may take the form of labor or other contribu-tions in kind. Downpayments for tractors amount to 25% of the purchaseprice on top of the 5% share capital. Details of lending terms and condi-tions for the proposed Project are outlined in Schedule A.

ANNEX 5Page 8

Lending Procedures

16. Loan applications are processed in the initial stages not by LDB'sown staff, but the Government administration at block level. The VillageLevel Worker (VIW) canvasses for prospective borrowers, assists in thecompletion of the application form which is sold at a small fee, and helps toobtain the required legal documents to establish legality of land ownershipand possession. The information is then verified by another government officer,usually an Assistant Development Officer (ADO), who calculates the land value,gives a rough estimate of the repayment capacity of the applicant and,together with his recommendations, the necessary fees and the value of oneshare (Rs 20), forwards the application through his superior, the BlockDevelopment Officer to the local LDB branch office.

17. The valuation of the land, which is to be offered as security forall loans, is based on the land revenue tax payable and not on market prices.In the case of bhumidhari land 1/, the value of one acre is arrived at bymultiplying the land revenue tax payable per acre (average Rs 4) by 533.The loan eligibility is 50% of this value. For sirdari land 2/ the factoris 250 times an average tax of Rs 7/acre, and the eligibility is 40% of thevalue. For loans granted under ARC schemes the loan limit can be raised to75% of the land value, and the State Government has guaranteed LDB any lossdue to shortage of collateral, provided this limit had not been exceeded.In addition to the land, the proposed investment cost up to an amount ofRs 6,000 can be added to the security value and 50% thereof financed asloan. Under these arrangements security is normally no constraint in pro-viding farmers wiah the required finance. Where securities are insufficient,farm holdings would be too small to meet economic and spacing criteria, anda group loan should be considered.

18. Loan applications up to Rs 8,000 are considered by the ManagementCommittee of the LDB branch and are usually sanctioned within five weeksfrom filing of applications so long as the documents relating to legalityof land ownership are found in order. Larger applications are forwarded tohead office. After approval the borrower is advised to pay the balanceof his share capital and to get the mortgage executed in favor of the bank.In the case of minor irrigation works, the ADO, Minor Irrigation (ADOMI),is responsible for the siting of the well and the suitability of the equip-ment to be purchabed. He also inspects the utilization of funds and issuescertificates after completion of each stage of construction upon whichsuppliers are paid by check direct by the bank. A partial cash payment ismade to borrowers at the beginning of construction to cover labor and othermainor expenses.

1/ Bhumidhari land is freehold land with no restrictions on ownership.

2/ Sirdari land is leasehold land, owned by government, which can bemortgaged by the lessee and acquired from government by paying20 times the land revenue tax.

ANNEX 5Page 9

19. The present appraisal work cannot be considered satisfactory asLDB relies entirely on government staff outside its control. Loan processingis only one of many functions of VLWs and other staff at the block who,therefore, can only devote limited time to it. Apart from that they arenot trained in loan appraisal and are not responsible for the collection ofloans appraised by them. The assessment is primarily security-oriented andnot sufficient consideration is given to the economic benefits derivedfrom the loan. This altogether may, in part, account for the high defaultrate. It is, therefore, regarded as essential that LDB employs its own FieldOfficers (see para 4 and 5) for loan appraisal and collection to strengthen andsup?lement the loan work presently done by government officers. One FieldOfficer, an agricultural graduate, should be recruited for each 200 or sonew loans approved per year. The Field Officers should be trained in modernappraisal techniques. In addition, each branch office should have at leastone junior agricultural officer (called Kisan Sewak), who would assist farmerswith loan applications and procurement of the required legal documents andhelp branch managers with loan follow-up and recovery. The loan work of theVLWs would continue as at present with the exception of l1an appraisal. TheField Officer would ascertain that the siting of wells is in accordance withthe spacing criteria established by the State Groundwater Directorate forthe specific area. He would also appraise the loan application, i.e.primarily verify the data concerning the applicant and the farm, calculatethe applicant's repayment capacity, assess his capability and character andcarry out a valuation of the securities offered.

20. The following table shows the rapid expansion of LDB's lendingoperations from its inception to June 30, 1972:

Loan Amount Advanced Increase (Decrease) IncreaseYear During Year Against Previous Year (Decrease)

(in Rs Million) (in Rs Million)

1960/61 0.29 0.291961/62 1.54 1.25 4311962/63 4.38 2.84 1841963/64 7.33 2.95 671964/65 12.59 5.26 721965/66 59.67 47.08 3741966/67 69.82 10.15 171967/68 103.05 33.23 481968/69 189.79 86.74 841969/70 170.73 (19.06) (10)1970/71 216.23 45.50 271971/72 239.95 23.72 11

Total 1,075.37

ANNEX 5Page 10

Of the total of Rs 1,075 million advanced during the past 12 years, Rs 957million were outstanding as of June 30, 1972. The number of loans grantedwas about 72,000 in 1971/72 against 80,000 in 1970/71 and 70,000 in 1969/70.

The average loan amount shows a rising trend to Rs 3,324 in 1971/72.

D. Operational Results

Repayment Position

21. LDB's overdues (principal and interest due and not repaid) positionhas deteriorated over the last three years as shown in the following table:

Year Total Demand Total Recoveries Percentage Recoveries----------Rs Million----------

1969/70 58.91 50.14 85.1%1970/71 93.61 74.59 79.7%1971/72 131.49 98.78 75.1%

Some of the overdues can be attributed to the poor harvest during lastyear's kharif season caused by extensive floods and the recent droughtafflicted kharif ceason. Inadequate staff for proper loan appraisal,emphasis on rapid expansion, poor performance of some of the branchmanagers and the lack of an organized and strong collection effort with nolegal action being taken against defaulters who are unwilling to pay, are

other reasons for the overall decline in the recovery rate. A breakdownof the overdues as to principal and interest is not available.

22. The overdues position in the Project area is worse than the overallposition, mainly because it is a generally less developed area and more

affected by natural hazards.

Year Total Demand Total Recoveries Percentage Recovered… --- Rs Nillion----

1969/70 9.67 6.94 71.8%1970/71 17.73 11.57 65.3%1971/72 30.20 18.83 62.4%

The performance of individual branches varies considerably. As of June 30,1972, out of the 55 branches in the Project area, 20 had overdues of 25% or

less, 21 between 26% and 40%, and 14 more than 40%. No rescheduling of loanshad been undertaken. The arrears position is considered still manageableas about 55% were overdue for less than 1 year, and only 10% for more thanthree years. A penalty rate of 2% per annum is charged on all arrears.

23. Although LDB's overall overdues are slightly less than 25% ofdemand, and it therefore would qualify under IDA's policy that allows

ANNEX 5Page 11

institutions with less than 25% overdues to participate in an agriculturalcredit project, the downward trend in overdues has to be stopped and changedif the institution is to maintain its future viability and proper functioning.It was, therefore, accepted by GOI, ARC, the UP State Government and theLDB, that the condition on overdues applied to LDB as a whole should also beapplicable to each branch. An intensive and planned loan collection effortis to be made and, if necessary, foreclosure action would be taken. LDBwould be required to submit a program, acceptable to IDA, for the improvementof the overdues position so that in the Project area, at least 30 brancheswould qualify to participate by the date of credit effectiveness and 40 bythe end of the first year of Project execution. The capacity and degree ofpenetration of this number of branches would be adequate to achieve fullProject implementation within the three-year period envisaged. In order toimplement the loan recovery program, LDB would have to build up its ownfield staff at branch level (para 4, 5 and 19).

Profits

24. Net profits of LDB have not been large, but increased steadilyand were sufficient to meet all obligations and to accumulate some reserves.As a result, the own capital (share capital, provisions and reserves) hasslightly increased to a satisfactory 9.5 percent of total funds available.

Net Profit be- Provisions & Paid-up Total Own Own Capital in

Year fore Distribution ReservesLi Share Capital Capital % of Total Funds----------------------- in Rs Million-

1968/69 5.94 5.84 33.73 45.51 8.661969/70 7.86 11.37 42.99 62.22 8.671970/71 10.05 18.53 60.99 89.57 9.241971/72 13.02 26.69 80.60 120.31 9.53

/1 Including undistributed profits of previous years.

The provisions and reserves consist mainly of the Statutory Reserve Fund (25%of net profits), the Agricultural Credit Stabilization Fund (15% of net profits)to meet bad debts on account of natural hazards, the Risk Fund, which wasestablished for possible losses from SFDA schemes and the Fund for Bad andDoubtful Debts (Rs 1.4 million) for which there is no legal requirement,but which covers the bad and doubtful debts as identified by the auditors.At present, LDB borrows from ARC at 6.5% per annum and lends to farmersat 9%; the cost of borrowings from other sources vary from 4.5% per annumto 9% per annum (see para 9). The interest margin of 2.5% per annum onlendings under the proposed Project should be sufficient to cover opera-tional expenses and provide for some reserves (see income and expenditureprojections in Appendix 5-3). For 1971/72, the dividend on share capital hasbeen fixed at 3.25 percent.

ANNEX 5Page 12

Financial Condition

25. Condensed balance sheets for the years 1967 to 1972 are shmom in

Appendix 5-3. The equity position as of June 30, 1972 w.as unimpaired bylosses and the reserves and provisions still covered the overdue.s. The

liquidity position is satisfactory; cash on hand and in banks is kept at a

low level, as overdraft facilities are available. Investments are mainly

in debentures of other land development banks, which a.re guaranteed bystate governments, and in GOI securities. A five year projection of UBVsfinancial position is given in Appendix 5-4.

Audit

26. The accounts of LDB are audited by independent auditors of theCooperative Audit Organization which, unlike in other parts of India,reports to the Finance Department of the UP State Government. The practiceis a post audit and not a concurrent audit, for which sufficient staff is

made available to branches and head office as soon as the final accountsare submitted. LDB's accounts are complete and properly maintained andthe audit is considered satisfactory.

April 12, 1973

I 11 D I A

UTTAR PRAnx:SI AGRICUTURAL CREDIT PROJECT

The Lttar Pradesh State Co-operative Land Development Bank Ltd.

Condensed Statement of Income


1966/67 1967/68 1968/69 1969/70 197r/71 1971/72

% of Total % of Total o of Total $ of Total % of Total 5 of TotalParticulars Rs'OOO Income Rs'OOO Income Rs'OOO Income Rs'OOO Income Rs '000 Income Rs'000 Income

I N C O M E

Interest eerned on loans 8,795 85.0 15,809 88.6 27,314 86.4 41,793 89.5 55,504 87.3 72,671 86.7

Interest earned on investments 370 3.6 730 4.1 1,760 5.6 3,090 6.6 5,377 8.4 8,405 10.0

Other Income 1,177 u.4 1,312 __3 2,516 8.0 1.815 J- 2,712 4.3 2,798 3.3

Total Income: 10,342 100.0 17,851 100.0 31,590 100.0 46,698 100.0 63,593 100.0 83,874 100.0

E X PE N S B S

Interest on debentures andloans 6,734 65.1 11,933 66.9 21,148 66.9 32,254 69.1 43,365 68.2 58,169 69.4

Salaries and allowances 1,218 11.8 1,663 9.3 2,329 7.4 3,692 7.9 4,487 7.1 4,930 5.9

Misce]llaneous cferheadsand depreciation 783 7.6 1,401 7.8 2,170 6.9 2,889 6.2 5,691 8.9 7,756 9.2

Total Expenditure 8,735 84.5 14,997 84.o 25,647 81.2 38.835 83.2 53.543 84.2 70.855 84.5

Net Income: 1,607 15.5 2,854 16.0 5,943 18.8 7,863 16.8 10.050 15.8 13,019 15.5

November 30, 1972

H

I N D I A

UTTAR PRADESH{ AGRICULTU11AL CREDIT PROJECT

Uttar Pradesh State Coonerative and DeveloRnet Bank, Ltd.

Cqndensed Projected Stataent of Net Income


1971/72 197273 1973/74 _ 1974/7± 5 197576 1976/777. of Total 7 of Total % of Total 7 of Total % of Total 7 of Total

Particulars Rs.M Income Rs. M. Income Rs .M. Income Rs .M Income Rs .m. Income R .M. Income

INCEIM:

Interest on loans 1/ 72.67 86.7 92.30 85.6 115.00 84.9 136.90 84.0 157.00 82.1 174.50 79.9Interest on Investments 2/ 8.40 10.0 12.00 11.1 16.80 12.4 22 50 13.8 30.50 16.0 40.20 18.4Miscellaneous Income 3/ 2.80 3.3 3.50 3.3 3.60 2.7 3.60 2.2 3.70 1.9 3.70 1.7

Total Income: 83.87 100.0 107.80 100.0 135.40 100.0 163.00 100.0 191.20 100.0 218.40 100.0

EXPENSES:

Interest and other cost on 62.84 74.9 78.80 73.1 91.60 67.7 107.30 65.8 121.70 63.7 133.50 61.1

borrovings 4/Administrative Expenses 6.55 7.8 14.20 13.2 19.10 14.1 21.40 13.1 23.80 12.5 26.40 12.1Miscellaneous Expenses 1.46 1.8 1.10 1.0 1.10 0.8 1.10 0.7 1.10 0.6 1.10 0.5

Total Expenses: 70.85 84.5 94.10 87.3 111.80 82.6 129.80 79.6 146.60 76.7 161.00 73.7

Net Income: 13.02 15.5 13.70 12.7 23.60 17.4 33.20 20.4 44.60 23.3 57.40 26.3

1/ Based on 8.257 p.a. on loans sanctioned to November 30, 1971 and 97 p.s. thereafter.2/ Assumes average return of 5.757 p.a.3/ Mainly Admission Fee (Rs.1, payable when filing loan application) and Administrative Fee (97_.of loan amount up to Rs.80 maximum.)4/ Assume. 657. p.a. interest rate on Special Development Debentures and average 6X p.a. on all other borrowings plus under-writing

comsission and discount on debentures

December 15, 1972

I N D I A

UTTAR PRADUH AGRICULTURAL CRaDIT PROJECT

Uttar Pradesh State Cooperative Development Bank Ltd.

Gondensed BJ.akno Sheet at End of Fiseal Years 1966/67 - 19-71/72.(in Rs,_&llion) .

Particulars June 30 ......... 1967 1968 1969 1970 1971 1972

A S S E T S

Cash on hand and in banks 6.63 17.96 21.78 14.43 15.86 30.75

Investments 12.09 23.86 46.41 84.24 139.56 196.66

Loans 148.22 246.45 424.98 575.57 761.60 956.71

Other Assets I1.33 17.28 32.60 52.32 77.78

Total Assets .. La78.27 305-55 525.77 717.69 969.34 1,261.90

LIABILITIES AND CAPITAL

Debentures 128.28 235.77 396.35 587.45 775.66 1,035.74

Overdrafts 24.99 25.09 63.36 48.50 83.84 79.77

Other Liabilities 20 .55 19.52 20.27 26.08

Total Liabilities ........ 158.83 27671 0.26 6 7 879.77 1,141.59

C A P I T A L

Paid-up share capital 16.66 22.70 33.73 42.99 60.99 80.60

Reserves and net income 3.28 6.14 11.78 19.23 28.58 39.71

Total Capital: ........... 19.44 28.84 45051 62.22 89.57 120.31

Total Liabilities andCapital ........... 2.. 7 7.69 1

November 30, 1972.

I N D I A

UTIAR PRADESH AGRICULTURAL CREDIT PROJECT

Uttar Pra,&sh State Cooperative Land Developaent Bank, Ltd.

Condensed Projeoted Balance Sheet

(in Re. Million)Particulars June 30 1972 1973 1974 1975 1976 1977

Assets

Cash on hand and with banks 30.75 10.00 1/ 10.00 10.00 10.00 10.00Investments 2/ 196.66 266.70 365.20 496.30 651.00 812.10Loans Outstanding: Under the Project - - 108.80 3/ 163.10 4/ 271.90 5/ 543.80

Other 956.71 1,228.10 1,382.20 1,570.90 1,669.10 1,562.70Other Assets 77.78 75.00 75.00 75.00 85.00 85.00

Total Assets: 1,261.90 1,579.80 1,941.20 2,315.30 2,687.00 3,013.60

Liabilities and Capital

Debentures 1,035.74 1,341.20 1,643.30 1,943.40 2,227.60 2,487.20Other Liabilities 105.85 84.20 6/ 107.80 135.10 165.60 161.60Paid-up Share Capital 80.60 103.00 120.00 138.00 156.00 174.00Reserves and Net Income 7/ 39.71 51.40 70.10 98.80 137.80 190.80

Total Liabilities and Capital: 1,261.90 1,579.80 1,941.20 2,315.30 2,687.00 3,013.60

1/ Reduction because better management of funds assumed in future after over-draft facilities opened in districts.2/ Mainly appropriations of Sinking Fund.3/ Assumes 20% disbursement of total project (Rs5413.8 million).4/ Assumes 307. disbursement of total project.5 Assumes 50%. disbursement of total project.6/ Assumes better 'ollections in 1973 and consejpuently less overdraft requir-ents.7/ Excluding 3.257. dividend in 1972, 47 in 1973 to 1974 and 5% in 1975 to 1977.

December 15, 1972 F

ANNEX 6

INDIA


Principal Commercial Banks Operating in Uttar Pradesh

State Bank of India Group

State Bank of India 1/ 2/State Bank of Bikaner and Jaipur

Nationalized Banks

Allahabad Bank 1/ 2/Bank of Baroda T/ 7/Bank of India 1/ 2/Canara Bank 1/Central Bank of India 1/ 2/Dena Bank 1/Indian Overseas Bank 1/Punjab National Bank T/Syndicate BankUnion Bank of India 1/ 2/United Bank of India 1/United Commercial Bank 1/

Banks with Private Ownerships

Bareilly Corporation (Bank) Ltd.The Benares State Bank Ltd. 1/Hindustan Commercial Bank Ltd. 1/Narang Bank of India Ltd. 1/The Oriental Bank of Commerce Ltd. 1/

All these banks are scheduled, i.e., they are included in the Second Scheduleto the Reserve Bank of India Act, 1934. They have paid-up capital andreserves of at least Rs 500,000 and are entitled to certain borrowing facil-ities from the Reserve Bank of India.

1/ Operating in the Project area.2/ Lead Bank in one or more districts in the Project area. Under the Lead

Bank Scheme of the Reserve Bank of India, all the 336 districts in thecountry (with the exception of the metropolitan areas of Bombay, Calcuttaand Madras and Union Territories of Chandigarh, Delhi and Goa) areallocated among the major scheduled banks. The Lead Bank is responsiblefor coordinating the efforts of the financial institutions in thedistrict and liaising with the district authorities in the interest oftheir Lead district development. Lead banks are required to surveytheir respective Lead district to identify areas for bank expansion.They chair the District Consultative Committees.

ANNEX 7Page 1

IND)IA

UTTAR PRADESII AGRICULTURAL CREDIT PROJECT

Agricultural Marketing in Uttar Pradesh

1. There are currently 250 main agricultural markets and about 400submarkets in UP. All main markets operate 5 days a week throughout the yearand distances from most villages to the nearest market seldom exceed 20 kip,which can be covered by bullock carts in a day. In the Project area, thereare 63 of these markets. Many of the markets thiroughout the State have in-adequate physical facilities, such as space for the conduct of open auctionsas well as storage, and grading of produce; and these inadequate facilitieshave become more pronounced in recent years, due to increased agriculturalproduction and market arrivals.

2. Regulations and promotion of agricultural marketing are undertakenby the State Government tlhrough its Directorate of Marketing in the Depart-ment of AgricLlture with the objective of: (a) ensuring fair marketingpractices so that farmers receive equitable prices for their produce, and(b) establishing adequate facilities and conditions which will contributetowards an efficient marketing system. Legislative authority for thesefunctions is the Uttar Pradesh Agricultural Produce Markets Act, 1964. En-forcement of the marketing regulations rests with the Directorate of Market-ing which is also responsible for appointing staff to manage the markets,as well as developing and implementing schemes for the improvement of market-ing. Of the total of 250 main agricultural markets, 223 have to date-beenbrought under the Act and are called regulated markets.

Uttar Pradesh Agricultural Produce Markets Act - 1964

3. Tht Act provides for the establishment of Market Committees whichwould operate regulated markets as well as administer the provisions of theAct. A Market Committee would consist of officials of the State Government,and representatives of producers (sellers), buyers, commission agents, andmarketing cooperatives. The executive officer (Secretary) of the MarketCommittee, an official appointed by the Director of Marketing (head of theDirectorate of Marketing), would be responsible for day-to-day marketoperations and would be assisted by employed staff.

4. The functions of the Market Committee would be to implement theprovisions of the Act, such as (a) setting of approved grading standards;(b) conducting orderly and fair trading practices through open auctions,so that the seller is assured of a competitive price; (c) regulating theopening, closing or suspension of trading; (d) requiring the licensing ofmarket intermediaries in order to regulate their activities; (e) providingadequate marketing facilities and their proper maintenance; and (f) collect-ing and disseminating information on prices and volume of sales.

ANNEX 7Page 2

5. All marketing activities in the regulated market take place underthe supervision of the Secretary and staff of the Market Committee. Pendingthe state-wide election of members of the Market Committees which would takeplace for the first time in the very near future, all regulated marketu arepresently managed by the Market Secretaries and their staff. The varioustrade charges set by the Market Committee and to be borne by the buyers are(a) fees to commission agents at Rs 1.50 per Rs 100 value of sales for .41jagricultural produce except fruits and vegetables (Rs 3.00 for the lattej:);and (b) Rs 0.15 per 100 kg for use of weighing facilities. The seller ischarged a fee of Rs 0.50 per Rs 100 value of sales by the Market Committee.However, this fee, together with a small sum from the licensing of inter-mediaries which accrues to the Market Committee, are insufficient to co.verits operating and development costs. Market development programs would haveto be financed mainly from grants and loans from the State Government.

January 16, 1973

ANNEX 8

INDIA


Estimated Increase in Cropped Area and Production

CROPPED AREA (ha) PRODUCTION (tons)Full Full

ProJected Crops Before Development Increase Before Development Increase.

Paddy U 49,000 75,000 260,ooo 49,ooo 195,000 14.6,ooo

Jowir 22,250 18,500 (3,750) 22,250 33,300 11,050

MaizeJ 1,000 20,500 19,500 1,200 53,300 52,100

Wheat' 20,500 86,000 65,500 241,600 258,000 233,,400

Barley 17,500 7,500 (10,000) 17,5Q0 15,000 (2,500)

Arhar 22,250 - (22,250) 22,250 - (22,25o)

Gram 21,000 - (21,000) 16,800 - (16,800)

Field Pea - 18,500 18,500 - 22,200 22,200

Subtotal Foodgrains 153,500 226,000 72,500 153,600 576.800 423,200

Sugarcane 9,500 13,500 4,000 190,000 540,000 350,000

Potato - 10,000 10,000 - 125,000 125,000

Subtotal 9.500 23.500 14,000 190.000 665.000 475.000

Total 163a 000 24,g500 86§500 3U3.600 1,241.800 898.200

March 27, 1973

ANNEX 9INDIA

UTTAR PRADESH AGRICULTUPLL CREDIT P7iOJECT

Detailed Investaent Cost and Yield A-souertiows

Financial

GO 83S NETAEA (ha YIELD (t PRoDUCTION VALUE (Rs) PRODUCTION COST (P.) PRODUCTION VALUE (Re)

Before Develo.pent Before Development Before Developrent Before Deve1opment Before Developsent Increoental

ISedal so. I. Cnvostse,nt±Maoon rry Well ith Persian Wheel (R. 2,810); Irrigated Area 1 ha

KNARIF Paddy C.4 0.5 1.0 2.6 200 65o 132 455 68 195 1-7Joa,r ard 0.2 - 1.0 - 6o - 31 - 29 - (29)

Arhar (mixed) 1.0 - 90 - 22 - 68 - (S8)Maise 0.1 0.3 1.2 2.6 66 429 44 298 22 131 1G9Jowar - O.1 - 1.8 - 108 - 40 - 60 6

PABI Gram 0.2 - 0.8 - 128 - 50 _ 78 - (67)Wheat 0.3 0.6 1.2 3.0 270 1,350 156 94G 11, 410 2.6Field Pea - 0.1 - 1.2 - 96 - 75 - 21 21Sugaroa-e - 0.1 - 40.0 4 450 - 322 - 128 128

Cropoieg Inteneity: 120c7o 161 61o _7i

Model No. II. Inveetnit 2 Shallow Tobewell. Diesel P-wered (Rs 9.800); Irrigated Area 2 ha Plus 1 ha Off-Farm

KHABIF Paddy 0.5 1.0 1.0 2.6 250 1,300 165 709 85 511 42 Jo-r and -.75 - 1.0 - 225 - 115 - 110 - 1110)Arhar (mixed) l.0 - 337 - 82, - 253 - (2, )

Maize _ 0.25 - 2.6 - 357 - 222 - 135 135Jower - 0.25 - 1.8 - 270 - 82 - 1P8 °18

PAbI Gran 0.3 - 0.8 - 192 - 76 - 116 - (116)- lwks4t 0.25 1.0 1.2 3.0 225 2,250 130 1,257 95 993 998Barlor 0.25 0.25 1.0 2.0 1°2 250 99 166 26 84 58Field Pe - 0.25 - 1.2 - 2A0 - lld - 99 99Segar--re 0.15 0.25 20.0 0.0 337 1,125 166 598 171 527 356

Cn,pping Intensity: 117.5 67o 175 010 Plus profit from water sales: 1

Mlodl No. III. IToeatn 10.11w Tahewell :lectrto Powered (Rh 9,000o ; Irrigated Area 2 ha P1US 1 ha Off-Fore

KARIF Paddy 0.5 1.0 1.9 2.6 250 1,300 165 738 85 562 477J-wr and 0.75 - lo - 225 - 115 ^ 1.0 - (112)Arihar (mixed) 2.0 - 337 - B4 - 253 - (253)RIobe - 0.25 _ 2.6 - 357 - 212 - 145 145

Jozer - 0.25 - 1.5 - 270 - 74 - 196 196

PAbE Grem 0,3 - 0.8 - 192 - /6 - 116 - (116)Wheat 0.25 1.0 1.2 3.0 225 2,250 130 1,127 95 1,123 1,028Berley 0.25 0.25 1.0 2.0 125 250 99 1114 26 106 80Field Pee - 0.25 - 1.2 - 240 - 122 - 118 113Sugarcane 1.15 0.25 20.0 1,0.0 337 1,125 166 513 171 612 441

Croppitr Totensety! 117.5 c7o 175 67e Ples profit fr-n voter B.1cc I

Model No. IV. Invoetie t: Median Depth Tebewell. DLesel Powered (do 13,0Co); Irrigated Area 4 ha

ELiA=fi Paddy 1.S 2.0 1.0 2.6 750 2,600 494 1,592 256 1,008 752Jowar and 1.0 - 0 - 300 - 153 - 147 - (147)Arnh (e,lxed) 1.0 - ISo - 113 - 337 - (331)Maiee - 0.5 - 2.6 - 715 - 448 - 267 267Te-e - 0.5 - 1.3 - 540 - 166 - 374 374

¶d.8I Oran 0.5 - 0.8 - 329 - 126 - 194 - (190)wheat 0.5 2.5 1.2 3.S 450 5,625 2o6 3,190 290 2,435 2,205Rorir 2 .5 - 1.2 - 2502 - 199 52 - (52)Fie l Pea - 0.5 - 1.2 - 250 - 288 - 192 192Sugarcane C.25 0.25 22.1 40.0 562 1,125 278 612 285 513 228Potato - 0.5 - 12.5 - 2,200 - 1,277 - 923 923

Cr ppiog Inteneity: L12.5 07o 175 O/e 04281

Model No. V. Investnent: Medium Depth Tabewell, Electric Powered (Mo 13,000); Irrigate' Area 2 ha

fIABEF Paddr 1.5 2.0 1.0 2.6 7SC 2,600 494 1.,60 256 1,136 880J.war and l.O - 1.0 - 300 - 153 - 147 - (147)AliraI (d. ed) 1.0 - 450 - 113 - 337 - (337)Maise - o.5 - 2.6 - 715 - 421 - 294 290

Jower - o.5 - 1.8 - 540 - 148 - 392 392

RIiI Gras 0.5 - 0.6 - 320 - 126 - 194 - (194)Wheat 0.5 2.5 1.2 3.0 450 5,625 260 2,778 190 2,847 2,657Barley 0.5 - 1.0 - 250 - 198 - 52 - (52)Field Pea - 0.5 - 1.2 - L80 - 239 - 24L 241Sog a-mne 0.25 0.25 20.0 40.0 562 1,125 278 503 285 622 337Potato - 0.3 - 12.5 - 2,200 - 1,228 - 972 772

Cropping IntensitY 112.5 .o7 175 o/o 5,043

Mar 27, 193

ANNEX 9Appendix 9-1

INDIA


Current Crop Prices

Current crop prices at harvest being received by farmers withinthe Project Area are as follows:

Price in Rs per Ton

Barley 500

Bengal Gram (Chena) 800

Field Pea 800

\Maize 550

Paddy 500

Potato 350

Red Gram (Arhar, or Pigeon Pea) 900

Sorghum (Jowar)/Millet 600

Sugarcane 112.50

\ Wheat 750

February 12, 1973

ANNEX 10

INDIA

UTTAR PRADESH AGRICULTRAL CREDIT PROJECT

Finamnial Rates of Return to the Enterprises

Year: 2 5 6 7 -

Mode L I: Investment:Masonry well witF Persian

Area: c ha 1Net Value of Tncrement'a Production 287 430 517 57L 574 574 574 574 574Capital Investment 2 61' - - - - - - 800Net Increoental Flow (7) 430 517 7 57 4 574 574 (2) 574Financial Rate ce Return: 7% - -

Model I_: Investment: ShallowTubewl,fis~Pwrd~s090Irrigated Area 2 ha plua1 ha Off FarmNet Value of Incremertal Production_ 1,375 1,795 2,048 2,216 2,216 2,216 2,216 2,216 2,216Capital Investmcent 0 89C - - - - _ 5 200 -Net Incremental Flow (2) I2 279 2,216 2,216 2,217 2(,) 2,216Financial Rate of Rieturn: 20% -

Model III: Investment: ShallowTubewell, Electric Po:eredils 0°00)Irrigated rea; 2. a Plus 1 haOff-Farm

et Value of 1,723 2,224 2,525 2,'26 2,726 2,726 2,726 2,726 2,726Qapital Investment °,00 - - - - - - 4 40o -Net Incremental Flow (777) 2,221 2,72S 7 2,727Financial Rate of' Ret.urn: 32% e

Mo.del IV: Investment: MediurDepth Tubewell, Di e'el P dwe(Rs I3,000)Irr2aated Area: 4 ha 1 /Net Value oTncemental Froduction- 2,125 3,187 3,826 4,251 4.251 4,251 4,251 4,251 4,251Capital Investment 13 800 - -- - - - 6 350 -NeL Incremental Flow (2,671) T72 71 4,251 ,51 7; Y 4,

25

1

Financial Rate of Return: 3-

Node] V. InvestmenLt MediumDephTuo, Electric 7wered(Rs l7200 Irrigated Area: 4 ha

Net Value of Incre -heaal Production' 2,521 3,761 4,539 5,(043 5,043 5,043 5,043 5,043 5,043Cap!tal Investment 13 ,00 - - - - - - 5550Net I.-cremental Flow (Tn?) 3,761 Z73° 5,743 ,043- 5,03 5,0J3 (507) 5,043Financial Rate o. Re'urn: 41%

1/ Year 1 - 0%; year 2 - 75%; year 3 - 90%; and all s;boseq ient -ears - IrC0.

Na-c: 27 1,>

ANNEX 1 1

INDIA


Economic Rate of Return

1. The economic rates of return from the Project investments havebeen calculated as shown in the following table (Appendix 11-1). The follow-ing assumptions have been made:

(a) World market prices as projected by the Commodity and ExportProjections Division of IBRD's Economic Analysis and Projec-tions Department have been used to estimate benefits. Theseprojected prices for 1980 (estimated c.i.f. India in rupeeequivalent) are as follows:

Price Per Ton (Rs)

Wheat 600 XtPaddy 490Maize 550 -Sorghum 520Sugarcane 140Barley 480

(b) Current price levels net of import, excise, and sales taxes,as well as subsidies, have been used for investments and incalculating operating costs, with allowance for costincreases excluded.

(c) Labor has been given the following imputed values accordingto seasonal demand:

(i) The prevailing wage rate of Rs 2.30 per man day duringthe peak labor demand periods of land preparation,planting and harvesting; and

(ii) A subsistence wage rate estimated at Rs 1.50 per manday during the slack labor demand periods of maintenancework, viz. weeding, fertilizing, etc.

2. Based on these assumptions, the economic rates of return over thelife of the Project would range from 16% to 35%.

February 12, 1973

ANNEX 11Appendix 11-1

INDIA


Economic Rates of Return to the Enterprises(Rs)

Year: 1 2 3 4 6 7 o 9-15

NDRel I: Investment:Masonr Well with PersianW,he1 0Area 1 ha

Net Value of Incremental Production 1 270 400 480 530 530 530 530 530 530Capital Investment 2 760 - -

Net Incremental Flow (23 49) -3Y 7M) 530Economic Rate of Return: 16%

Model II: Investment: ShallowTuhtbewell Diesel Powererd R 900)Irrigated Area 2 ha plus 1 haOf ,r Farm

Net Value of Incremental Productioni' 1,230 1,850 2,210 2,460 2,460 2,460 2,460 2,460 2,460capital Investment 9o300 - - - 4 700Net Incremental Flow ) i 2 aC i (2o)E-ronmic Rate of Return: 24%

N'-Inl III: Investment: ShallowTubewell Electric PoweredTRis 9,0001Irrigated Area 2 ha plus 1 ha

Net Value of Incremental Production / 1,260 1,890 2,270 2,520 2,520 2,520 2,520 2,520 2,520Capital Investment 8 650 - - - - 4 0Net Incremental Flow t3k) =1.90 2,770 2- 2 , W 2.52FIonomic Rate of Return: 28%

Model IV: Investment: Medium'PcI,ewell Diesel Powered (Rs 13800rrrigated Area 4 ha

Net Value of Incremental Production2 !

2,220 3,320 3,990 4,430 4,430 4,430 4,430 4,430 4,430'spital Investment 13 200 - -

Net Incremental Flow (9) 20 1 0 ( V.Iiconcesmc Rate of Return: 34%

Model V: Investment: Mediumlubewell Electric Powered (Rs 13,000)Irrigated Area 4 ha

Net Value of Incremental Production 2! 2,150 3,220 3,860 4,290 4,290 4,290 4,290 4,290 4,290Capital Investment 1_2.560 __ _INe t Incremente'f Flow (10410) 3; 220 - - 77t) ;;290Eontmic Rate of Return: 35%

j Y-er I - 50,%; year 2 - 75,; year 3 - 90%; all subsequent years 100%.

Mo,,-'n 2', 1973

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