Document of

FILE COPY The World BankFOR OMCIAL USE ONLY

Repor Ng. P-2307-IN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO INDIA

FOR A

RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

July 24, 197R

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CURRENCY EQUIVALENTS

Currency Unit = Rupee (Rs)Rs 1 Paise 100US$l Rs 8.6Rs 1 = US$0.1163Rs 1 million = US$116,279.07Rs 1 billion US$116,279,068;.77

(Since September 25, 1975, the Rupee has been officiallyvalued relative to a "basket" of currencies. As thesecurrencies are now floating, the U.S. Dollar/Rupee ex-change rate is subject to change. As of July 10, 1978,the exchange rate was Rs 8.18 to US$1.0).

FISCAL YEAR

April 1 - March 31

LIST OF ABBREVIATIONS AND ACRONYMS USED IN THIS REPORT

GOI - Government of IndiaIR - Indian RailwaysCLW - Chittaranjan Locomotive Works of Indian RailwaysTISCO - Tata Iron and Steel CompanyDLW - Diesel Locomotive Works of Indian RailwaysICF - Integral Coach Factory of Indian,RailwaysRDSO - Research, Designs and Standards Organization of

Indian RailwaysMIS - Management Information SystemDSP - Durgapur Steel PlantBHEL - Bharat Heavy Electricals LimitedUNDP - United Nations Development Programme

FOR OFFICIAL USE ONLY

INDIA

RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: India, acting by its President.

Beneficiary: Indian Railways.

Amount: US$l90 million.

Terms: Standard.

ProjectDescription: In order to help the Indian Railways (IR) reduce manufac-

turing and maintenance costs of locomotives and rollingstock and to improve their performance and availability,the project provides for: (i) acquisition of workshopmachinery and equipment, together with necessary partsand components for implementation of a unit exchangesystem; (ii) construction at Yelahanka in the State ofKarnataka of a wheel and axle plant, with an annualrated manufacturing capacity of 70,000 wheels and 23,000axles, and supply of about two years' requirements ofimported wheels, tires, axles and wheel sets; and(iii) development support for a product improvementprogram for IR's manufacturing units, including technicaladvisory services and overseas staff training. Theseproject components form part of Indian Railways' invest-ment plan covering the period 1978/79 - 1982/83, whichamounts to about US$3,750 million equivalent. Thereare no significant project risks.

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

Estimated (US$ million)Project Costs: Items Local Foreign Total

Workshop Modernizationi) Workshop Modernization 33 95 128

ii) Unit Exchange 105 56 161Sub-total 138 151 289

Wheels and Axlesi) Wheel and Axle Plant 37 38 75

ii) Wheels and Axles 49 28 77Sub-total 86 66 152

Development Support 6 12 18

Total Project Cost /a 230 229 459

/a The project cost estimates are based on January 1978prices and include a price contingency averaging 7%per annum for local and foreign costs. A physicalcontingency of 10% is included in the cost of thewheel and axle plant component.

Financing (US$ million)Plan Local Foreign Total

IDA - 190 190Proceeds of Credit 582-IN - 7 7COI 230 32 262

Total 230 229 459

EstimatedDisbursements: IDA FY FY79 FY80 FY81 FY82 FY83 FY84 FY85

Annual 6 23 52 61 36 10 2Cumulative 6 29 81 142 178 188 190

Rate of Return: Workshops, 27%; wheel and axle plant, 19%; weightedaverage, 23%.

Appraisal Report: No. 2020-IN, dated July 24, 1978.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

TO THE GOVERNMENT OF INDIA FOR A RAILWAYMODERNIZATION AND MAINTENANCE PROJECT

1. I submit the following report and recommendation on a proposeddevelopment credit to India in an amount equivalent to US$190 million onstandard IDA terms, to help finance a project designed to support workshopmodernization, wheel and axle manufacture and product development for IndianRailways' manufacturing units. These components are part of the IndianRailways' investment plan covering the period 1978/79-1982/83. Because IndianRailways is part of the Government of India, the proceeds of the proposedcredit will not be on-lent but will be channeled to the Indian Railways aspart of the railway budget.

PART I - THE ECONOMY 1/

2. An economic report, "Economic Situation and Prospects of India"(2008-IN dated April 17, 1978), was distributed to the Executive Directorson April 18, 1978. Country data sheets are attached as Annex I.

Background

3. India is a vast, continental country with over twenty States dividedon linguistic and ethnic grounds with a population of over 620 million people,almost as many as live in Africa and Latin America combined. It has a dualeconomy. While 79% of its population lives in rural areas, their productivityis low. Agriculture's share in value added declined only gradually from about50% to 43% over the last twenty years. The share of manufacturing has in-creased slowly and, since the late 1960s, has remained approximately constantat about 16%. Industry has a highly diversified structure with import substi-tution and self-sufficiency pushed to the point where India has the capacityto produce virtually every type of consumer and capital good required for amodern economy. As in the case of many other large economies, the foreignsector plays a relatively minor role; both exports and imports represent about7% of GDP; foreign saving has supplied only about 5% of gross investment inthe recent past.

4. Even though growth has been slow in the past, the economy enjoysmany of the prerequisites for sustaining faster growth and development.Although literacy is far from universal, India has large resources of welltrained administrative, scientific and technical manpower and a dynamic entre-preneurial class. Per capita consumption of commercial energy is low by

1/ Parts I and II of this report are the same as Parts I and II of thePresident's Report for the Haryana Irrigation Project (Report No.P-2349-IN), dated July 19, 1978.

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international comparison and power shortages are a way of life; but India isrelatively well-placed with regard to primary fuel sources. There are verylarge reserves of coal and nuclear ores, and considerable hydro-electricpotential. Recent petroleum and gas discoveries have begun to be exploitedand prospects are bright for further discoveries. The basic elements of theinfrastructure needed to serve the economy have been established; in absoluteterms the irrigation, railway, telecommunication, road and power systems areeach among the largest in the developing, and in some cases the developed,world. However, considerable gaps remain as the situation varies greatlyfrom state to state.

5. Given the size of India's population, its annual increase of 13 mil-lion people is such as to absorb a large portion of any provision to increasestandards of living. It is not possible to discern any significant increasein the incomes of the vast mass of the rural and urban poor, who number 200million with a per capita income of US$70 per annum or less. Although food-grain production may be persistently underestimated, there has been no perma-nent increase in per capita foodgrain consumption recorded in aggregatestatistics since 1960/61. Many years after the initial target, primary educa-tion is still not universal. The labor force has grown faster than employmentand a considerable backlog of unemployed exists. Nevertheless, there has beenprogress, with per capita income increasing on trend 1%-1.5% per annum; birthrates falling to below 37 per thousand from levels of 45-50 per thousand atthe start of the 1950s, life expectancy increasing from about 32 years inthe 1940s to 45-50 years in the 1970s, school enrollment rising from 32%to 65% of children of primary school age and from 5% to 29% of children ofsecondary school age since 1950/51.

6. The rate of growth of GDP has been 3.5% per annum over the periodsince Independence and 2.8% per annum over the period 1969/70 to 1976/77.These low rates of growth are only partly due to low availability of inves-tible resources, although there have been times that foreign exchange was asevere bottleneck. The net transfer of resources from abroad has never beenabove 3% of GDP and fell to as little as 0.8% between 1969/70 and 1973/74.India's saving effort has grown steadily since the beginning of planning in1951, when it was 9% of GDP, to its recent level of 20% of GDP, which compareswell with other countries' saving performance at the same level of per capitaincomes. Despite a doubling in the rate of investment, from about 10% of GDPin the early 1950s to about 20% at present, the trend rate of GDP growth hasnot increased. This marks a decline in the efficiency of capital use whichtranscends fluctuations due to weather, war or international terms of tradeshifts.

Recent Trends

7. In many respects economic conditions during the last three yearshave been significantly different from those prevailing in previous years.In the late 1960s and early 1970s, the economy faced several shortages--foodgrains, agricultural and industrial inputs and foreign exchange--whichretarded production and investment and often led to price increases. An ad-verse shift in terms of trade, starting with the oil price hike in 1973 and

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continuing with the foodgrain and fertilizer price rises in the following

year, greatly increased the cost of acquiring these essential commoditiesabroad. These external shocks combined with a spate of bad weather playedhavoc with the economy through 1974/75, causing slow growth in productionand investment and a record level of inflation.

8. Since the excellent monsoon in the summer of 1975, a new situationhas arisen. The period 1975 to 1978 has been characterized by much greaterprice stability, enhanced agricultural and industrial outptlt and comfortable

foodgrain and foreign exchange reserves. The new situation was a combinedresult of domestic policies and fortuitous circumstances. The increase in

foodgrain stocks was only in part due to improved policies and programs. Themore decisive factor has been the three good-to-excellent monsoons coming on

top of substantial foodgrain imports in 1975 and 1976. Industrial outputincreased on average by 7% a year in 1975-1978 compared to 3% in 1970-75,due to greater power availability, better management in the public sector,improved labor relations, better transport and some increase in demand derived

from increased incomes due to improved harvests, greater exports and higherlevels of public investment. The most dramatic turnaround ocurred in the

balance of payments, with a sharp real reduction of the import bill helped bygood harvests and increased domestic production of iron and steel, fertilizerand oil, which reduced demand for imports. The supply of foreign exchange wasalso greatly increased by a significant step-up in the volume of exports, anincrease in foreign aid and a substantial jump in remittances from Indiansworking in the Middle East, Europe and America.

9. In 1977/78, the growth of GDP was about 5%, a recovery over therate of 1.6% in 1976/77 but less than the 8.5% reached two years earlier.

Prices, which had been rising during 1976/77 after a decline in 1975/76,were stabilized; wholesale prices at the end of March 1978 stood at about thesame level as in March 1977, and the yearly average was only 5.4% above that

of the previous year. Exports in 1977/78 are estimated at US$6.4 billion andimports at US$6.6 billion. The inflow of invisibles from abroad at US$1.4billion and net aid disbursements of US$1.2 billion more than offset the smalltrade deficit of US$200 million and IMF repurchases of US$330 million to in-crease reserves by US$2.1 billion to USU5.8 billion by end of March 1978.

10. The 1977/78 foodgrain crop may exceed the 1975/76 record level of121 million tons due to very good weather and increased input use. Supportpurchases could result in peak foodgrain stocks as high or even higher thanin 1977, when they were 21 million tons. In addition to ample and evenlydistributed rainfall, more intensive and widespread use of three crucialinputs--irrigation water, fertilizer and extension advice--contributed tothe bumper harvest. Fertilizer consumption surged 30% in 1977/78, continuing

its recovery from the depressed level of 1974/75. Annual additions to irri-gated area have averaged 2 million hectares since 1975/76 compared with1.3 million hectares per annum achieved from 1969 to 1975. An improvedextension system, which has been getting heartening results, has been intro-duced in several states and is slated for further coverage.

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Development Prospects

11. India faces the future with large stocks of foodgrains, high andrising external reserves, excellent crop expectations, price stability and goodprospects for sustaining the improved supply of foreign exchange. The circum-stances present a great opportunity for further promoting the development ofthe Indian economy. The Draft Five Year Plan for 1978-83, discussed thoughnot yet approved by the National Development Council, responds to this chal-lenge by projecting a rapid growth in real terms of both overall investmentand public Plan expenditures. Investment is to rise on average by 10.7% perannum and the economy is expected to grow on average by 4.7% per annum duringthe years 1978-83.

12. The new Draft Plan reveals an intention to reorient the country'sdevelopment toward improving the living conditions of the poor. This isreflected in its principal objectives: (i) the removal of unemployment andsignificant underemployment; (ii) an appreciable rise in the standard ofliving of the poorest sections; and (iii) the provision of basic needs tolow-income groups. To achieve these objectives, the Government proposes toemphasize agricultural development, cottage and small-scale industries, areaplanning for integrated rural development and the provision of minimum needs.As a first step toward complete removal of unemployment, the Plan envisagesthe creation of a large number of new jobs through a considerable expansionof construction activity as well as a boost in the consumption levels of thepoor--which in turn would require the production of the necessary wage goods,largely in small-scale, labor-intensive units. Specific programs to achievethese objectives are still in the making.

13. In order to achieve a sizable rise in the income of the poorestclasses of society, the Draft Plan--in conformity with the Janata Party policy--places prime emphasis on the development of rural areas. A major impulse foragricultural development will be provided by the expansion of irrigation andrelated agricultural inputs, such as fertilizers and better farming techniques.The Draft Plan argues that efforts to increase productivity should be sup-plemented by measures with a redistributive impact such as supporting smallfarmers and small industry with institutional credit and material suppliesand assistance for marketing. The Draft Plan also intends to complement thecreation of employment and the increase in rural productivity by providingbasic services to those groups which have so far been unaffected. For thispurpose, the minimum needs program launched at the onset of the Fifth Planis being revitalized and accelerated.

14. The allocation of the Draft Plan outlay for the next five yearsreflects these priorities. Out of a total expected spending of US$81 billion,US$35 billion--43%--have been earmarked for rural development programs includ-ing agriculture, irrigation, fertilizer and social infrastructure expendituresdirectly benefitting the rural areas. The share of these sectors amounted to37% during the Fifth Plan period and to 40% in the Annual Plan for 1978/79.It can thus be expected to rise further during the next four years. Similarly,spending on the minimum needs program in 1978-83 will absorb 6% of the Planresources, as compared to less than 3% in the Fifth Plan. On the other hand,the shares of industry and of transport and communication have been reduced.

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15. There is considerable scope for stepping up growth in agriculture.The most promising development is the sharp increase in government outlaysand improved project implementation for irrigation. There are also indica-tions that private investment in tubewells is picking up again after a slumpin the early 1970s. Other favorable indicators include the spread of animproved system of extension to more states and the recovery of fertilizerdemand. With regard to more productive use of existing capacity, there is anincreased awareness in the Government that the benefits of irrigation projectscan be much increased, not only through command area development, but alsothrough improved design standards in major surface irrigation infrastructure.Nevertheless, comprehensive improvement in water management remains a distantgoal, particularly in existing systems and where farms are small and frag-mented. The bulk of the increase in private tubewell development in the lastfew years has come from the Eastern Region, where more and more farmers aresinking wells to enable them to grow a winter crop of wheat in addition toproviding better water control for the summer rice crop. Improved water man-agement would make such investments even more productive. Increased farmerincomes from the recent good harvests, somewhat lower fertilizer prices, and

grain prices supported at incentive levels have encouraged farmers to applyconsiderably more fertilizer. Finally, the reorganized and improved extensionand research system which has been introduced recently in several states innorthern and eastern India holds out the hope that sound advice will reachmany more farmers in both irrigated and rainfed areas and will raise theirproductivity significantly. The improved extension system is an excellentexample of how the growth effort can and must be structured so as to increasethe incomes of small and marginal farmers, who work 25% of the cultivatedland and account for somewhat more than 25% of production; more importantly,these farmers make up about 70% of the rural population and constitute themajority of those living below the poverty level in India.

16. Industrial prospects are somewhat more difficult to discern.Moderate growth in 1977/78 after an excellent year in 1976/77 suggests thepersistence of problems plaguing the sector since the mid-1960s--large un-utilized capacity, stagnant capital formation in the private sector and lowproductivity growth. Lower investment than expected, of course, is one ofthe reasons for low capacity utilization in capital goods industries, whichmake up a significant portion of the sector. Sluggish demand for industrialproducts from all sources--not only from investments but also from agricui-ture, exports and import substitution--has been a basic constraint. Furtherimport substitution cannot be a major source of growth for manufactured goodsin the future because most opportunities for efficient import substitutionhave been exploited. Increased growth of real incomes from greater produc-tivity in both agriculture and manufacturing, sustained increases in exportsand increased investment, particularly by the public sector, all can raisedemand for industrial production.

17. The new industrial policy of the Janata government and the orienta-tion of the Draft Five-Year Plan emphasize small-scale industry over heavyindustry and have accordingly promoted such measures as product reservation,credit rationing and, within the small-scale sector, plans to initiate special

efforts for the growth of the "tiny" sector. While the priority accorded tothe small-scale sector is laudable, there are doubts about the efficacy ofthe policy measures chosen. Past experience indicates that other factorsare also crucial to its development, particularly effective demand, qualitycontrol, prices and marketing techniques. Some small-scale industry is cap-ital intensive and not well suited to as rapid employment generation as ishoped; nor can all goods be efficiently produced using small-scale technology.

18. India's population growth rate of about 2% is not high in comparisonwith that of most developing countries. Moreover, the rate is on the decline,after growing steadily census to census from 1920 through 1970, both becausethe birth rate continues to fall and because mortality is not falling assteeply as in the past. Family planning acceptor rates slowed down in thewake of the abandonment of the 1976 population policy after the 1977 generalelections and the momentum of the program has yet to be recaptured, particu-larly in Northern India. However, the new Government has reaffirmed its com-mitment to a voluntary family planning program and has budgeted the resourcesto carry it out. Over the longer term, with a sustained family planningeffort, it should be possible to bring the birth rate down from its 1970-75level of about 37 per thousand to about 23 per thousand by the end of the century,implying a population growth rate somewhat under 1.1%. Our "best guess" pro-jection of India's population in the year 2000 is 885 million. Many of thebenefits of family planning policy will only be 'felt beyond the turn of thecentury; the decline in fertility will, however, bring about an earlier changein the age structure of the population. The school age group will grow moreslowly or not at all after 1981, thereby reducing the pressures on the primaryand secondary education systems. However, the labor force will continue togrow at a faster rate -- 2.5% per annum -- until well into the 1990s, result-ing in an increasing proportion of the population in the labor force from40.8% to 45% in 1991.

19. The Government's goal of eliminating unemployment in 10 years impliesan expansion of the number of jobs at the rate of 9 million per annum -- 7million new entrants to the labor force and the absorption of 2 million orso formerly unemployed. The majority of these will have to continue to beabsorbed -- judging from the prevailing composition of the labor force -- inagriculture and the unorganized small-scale sector. The absorptive capacityof the modern organized sector is unfortunately low; its employment elasticityis expected to be no more than 0.5. Given its low current share of output,even rapid growth of this sector would not make much of a dent in the backlogof the unemployed. Employment in the organized sector has been growing atabout 2.2% per annum in the past ten years, less than the labor force growthrate, and all of this in the public sector. Private sector employment has notgrown at all since 1966. While the labor absorption elasticities of the small-scale sector may be higher in some cases than that of the large-scale sector,a major effort to expand production must succeed before an appreciable employ-ment impact will materialize.

20. In the short run India's balance of payments should not be a con-straint on growth and development. With good medium-term prospects forIndia's exports, the expected continuation of growth in invisible receipts

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and the potential for an increase in net aid disbursments, the net availability

of foreign exchange to finance merchandise imports is projected to rise over

the next five years, in current prices, from US$8.7 billion in 1977/78 to

US$16.7 billion in 1982/83, an average of 14% per annum. Given the unlikelyneed to increase rapidly imports of some traditionally important items -- e.g.,petroleum, fertilizer, foodgrains, edible oil and cotton -- other imports canincrease at the rate of 20% a year over the next five years.

21. Altogether, these currently favorable circumstances present the

opportunity to double India's trend rate of growth of per capita income from

the average annual rate of 1.5% that prevailed for the last thirty years to

3% over the next five, and thereafter. This requires a continued fall in the

rate of population growth to below 2% per annum and a rise in the growth of

GDP from the historical rate of 3.5% to 5.0% per annum. Both of these targets

are within reach. The first should be achieved barring a total abandonment

of the family planning program. The second requires improved efficiency and

increased investment by both the public and private sectors; it also means

more fully harnessing the gains from trade through international specializa-

tion, implying a strong export effort and continued easier access to imports.

in addition to enabling a faster rate of per capita income growth, the pre-

sent situation allows for increasing the coverage of the population's minimum

needs. This requires formulating and administering effective, efficient

programs of public investment and, of course, requires larger public outlays.

22. With the enhanced resources at India's disposal, the economy is

poised for a higher rate of economic growth. The Government is moving to

take advantage of this opportunity with increased public expenditure envi-

sioned over the next five years, and the liberalized trade policies recently

announced. It is yet too early to know whether the moves made so far will

be sufficient to achieve the desired targets or whether additional steps will

be necessary. Assured international support for India's development effort

will be an important factor in moving the Government to take greater risksin pursuing a dynamic development program directed at meeting the huge needs

of its large and impoverished population.

PART II - BANK GROUP OPERATIONS IN INDIA

23. Since 1949, the Bank Group has made 54 loans and 103 developmentcredits to India totalling US$2,117 million and US$5,932 million (both net

of cancellation), respectively. Of these amounts, US$901 million had been

repaid, and US$2,236 million was still undisbursed as of May 31, 1978. AnnexII contains a summary statement of disbursements as of May 31, 1978, and notes

on the execution of ongoing projects.

24. Since 1957, IFC has made 15 commitments in India totalling US$63.6

million, of which US$14.5 million has been repaid, US$1.6 million sold and

US$6.9 million cancelled. Of the balance of US$34.6 million, US$26.9 mil-lion represents loans and US$7.7 million equity. A summary statement of IFCoperations as of May 31, 1978, is also included in Annex II (page 2).

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25. In recent years, the emphasis of Bank Group lending has been onagriculture. The Bank Group has been particularly active in supporting minorirrigation and other on-farm investments through agricultural credit opera-

tions. Major irrigation, marketing, seed development, and dairying are otheragricultural activities supported by the Bank Group. Also, the Bank Grouphas been active in financing the expansion of output in the fertilizer sectorand, through its sizeable assistance to development finance institutions, in

a wide range of geographically scattered medium- and small-scale industrialenterprises. IDA financing of industrial raw materials and components forselected priority sectors has been instrumental in facilitating better capac-

ity utilization in industry. The Bank Group has also been active in support-ing infrastructure development for power, telecommunications, and railways.Family planning, education, water supply development, and urban investmentshave also received Bank Group support in recent years.

26. The direction of assistance under the Bank/IDA program has beenconsistent with India's needs and the Government's priorities. The emphasisof the program on agriculture, industry, power, urban development and watersupply remains highly relevant. Projects designed to foster agriculturalproduction through the provision of essential inputs such as credit foron-farm investments, command area development of existing irrigation schemes,intensification and streamlining of extension systems, and seed productionform an important aspect of the Bank Group's program for the next severalyears. Special emphasis will be given to projects benefitting small farmers.Projects supporting water supply, sewerage, and urban development also form

an integral part of the Bank's lending strategy to India for the next severalyears. Lending in support of infrastructure and industrial investments willfocus on agriculture-, export- and energy-related projects.

27. The need for a substantial net transfer of external resources insupport of the development of India's economy has been a recurrent theme ofBank economic reports and of the discussions within the India Consortium.Thanks in large part to the response of the aid community, India has success-fully adjusted to the changed world price situation. However, the basic needfor foreign assistance, to augment domestic resources, stimulate investmentand accelerate economic growth, remains. As in the past, Bank Group assist-ance for projects in India should include, as appropriate, the financing oflocal expenditures. India imports relatively few capital goods because ofthe capacity and competitiveness of the domestic capital goods industry. Con-sequently, the foreign exchange component tends to be small in most projects.This is particularly the case in such high-priority sectors as agriculture,irrigation, rural water supply and medium- and small-scale industry.

28. Although the growth prospects of the economy have improved, India'spoverty and needs are such that as much as possible of India's external capi-tal requirements should be provided on concessionary terms. Accordingly, thebulk of the Bank Group assistance to India has been, and should continue to be,provided from IDA. However, the amount of IDA funds that can reasonably beallocated to India remains small in relation to India's needs for externalsupport, and India may be regarded as creditworthy for some supplemental Bank

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lending. As of May 31, 1978, outstanding loans to India totaled US$1,254

million, of which US$591 million remained to be disbursed, leaving a net

amount outstanding of US$663 million.

29. Of the external assistance received by India, the proportion con-

tributed by the Bank Group has grown significantly. In 1969/70, the Bank

Group accounted for 34% of total commitments, 13% of gross disbursements,

and 12% of net disbursements as compared with an estimated 62%, 27% and 38%,

respectively, in 1977/78. On March 31, 1977, India's outstanding and dis-

bursed external public debt was US$13.3 billion, of which the Bank Group's

share was 28%. Because Bank Group assistance to India is predominantly in

the form of IDA credits, debt service to the Bank Group will rise slowly.

In 1977/78, about 16% of India's total debt service payments were to the

Bank Group.

PART III - THE TRANSPORT SECTOR

Background

30. Rail transport has been the traditional mode of motorized transport

in India and still retains an important position, carrying 60% of total freight

traffic and 45% of total passenger traffic, with highways carrying most of the

remaining traffic. In 1977 the railways carried about 246 million tons and

3.1 billion passengers. Growth in traffic over the coming five years is pro-

jected to be about 4% annually for both freight and passengers. Compared to

railways and road transport, the other modes of commercial transport -- i.e.,shipping, coastal and inland waterways, airlines and pipelines -- are at pre-

sent of minor importance, carrying only 5% of freight traffic and less than

1% of passenger traffic, although these modes perform important functions

within their specialized areas.

Indian Railways

31. Indian Railways (IR) is the nation's largest undertaking with about

1.7 million employees. IR operates a system of over 60,000 route-km, of which

about 60% is broad gauge (1.676 m), 35% is meter gauge (1.000 m) and the

remaining 5% narrow gauge (0.762 m and 0.610 m). About 80% of IR's traffic

is carried on its broad gauge network. It operates a large number of various

types of locomotives, passenger coaches and freight wagons. 1/ IR is one of

few railways in the world which are operated with a surplus.

32. IR is owned by the Central Government and its operations are managed

by a Board of five members headed by a Chairman who is ex-officio a Principal

Secretary to the Government reporting to the Minister of Railways. One Board

member, the Financial Commissioner, has discretionary powers to report directly

1/ About 8,300 steam locomotives, 2,000 diesel-electric and diesel-hydrauliclocomotives, 850 electric locomotives, 2,300 electric multiple units,

34,000 coaches and 397,000 freight wagons are in service.

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to the Minister of Finance on financial matters. The Railway Board manages therailway network through nine Zonal Railways, each of which is administered bya General Manager, and each Zonal Railway has multiple Divisions as the basicunits of operation. Oversight of railway finance and policy is exercised byParliament through consideration of the IR budget and of recommendations sub-mitted by the Railway Convention Committee and other Parliamentary committees.

33. In addition to its role as a major transporter of freight and pas-sengers, IR performs an important role as India's sole manufacturer of dieseland electric locomotives, and a major manufacturer of passenger coaches. TheIR's main manufacturing units are the Chittaranjan Locomotive Works (CLW) atChittaranjan in Bihar State, the Diesel Locomotive Works (DLW) at Varanasiin Uttar Pradesh State, and the Integral Coach Factory (ICF) at Madras inTamil Nadu State. At present IR's annual manufacturing capacity for newlocomotives amounts to 120 diesel-electric locomotives, 60 electric loco-motives, and 50 diesel-hydraulic shunting locomotives. New steam locomotivesare no longer produced. The capacity for the manufacture and remanufactureof parts and components for maintenance is becoming increasingly inadequate.Accordingly, IR is making plans for its expansion. Total passenger coachmanufacturing capacity in India is currently about 1,550 units per year, ofwhich IR's capacity amounts to 750, with two private companies accounting forthe remainder. Total wagon manufacturing capacity in India is about 30,000four-wheeler units annually, shared by nine private and public sector companies.IR workshops manufacture a very limited number of special purpose wagons.

34. At the same time, IR is also the principal buyer of wheels, tiresand axles and a major buyer of electrical and mechanical goods for its manu-facturing units. The largest domestic suppliers of electrical goods forlocomotives are Bharat Heavy Electricals Limited (BHEL), a public undertaking,and CLW. Installed capacity at BHEL for manufacture of equipment relevant toIR is currently 1,300 traction motors for diesel-electric locomotives, 220

transformers, and 100 blower motors. Capacity at CLW amounts to 400-500traction motors for electric locomotives. For manufacture of wheels, axlesand tires, there are currently two indigenous sources of supply: DurgapurSteel Plant (DSP) at Durgapur, West Bengal State, and Tata Iron and SteelCompany (TISCO) at Jamshedpur, Bihar State. The DSP wheel and axle plant ispart of an integrated steel complex controlled by the Steel Authority of IndiaLimited, a holding company for public sector steel plants; the TISCO wheel,axle and tire plant is part of an integrated steel complex of a private sectorundertaking. The combined rated capacity of these two plants is about 90,000wheels, 27,500 tires and 50,000 axles. Capacity utilization at DSP during thepast 10 years has been on the average only about 30%, mainly because of verypoor management/labor relations, high rejection rates due to poor quality ofraw material and lack of proper quality control, and inadequate equipment andmachinery. While DSP is currently engaged in a productivity improvementprogram, it is unlikely that utilization of current rated capacity will besubstantially improved in the short term; in the long term, annual capacityutilization is not expected to exceed 75%. Capacity utilization of TISCO overthe past decade has been close to 100%. Even if total capacity at both plantswere utilized, domestic production could cover only about 60% of wheel demandand 85% of axle demand. The proposed project would support the constructionof a new plant to cover the shortfall in domestic production.

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35. IR's maintenance workshops were set up and equipped in the latterhalf of the nineteenth and early twentieth centuries by the State and CompanyRailways. At the time of integration of the Railways in 1952, there were 41workshops dealing with the overhaul of rolling stock and motive power, andthe size of these workshops varied from 150 to 15,000 employees. These work-shops were designed primarily to meet the operational need of each individualState/Company Railway. Since little effort has been made to integrate themaintenance network nation-wide, individual workshops had to carry out mul-tiple activities, instead of specializing in certain areas of repair andremanufacturing work; their operational efficiency has consequently been low.Meanwhile, extensive changes in the mode of traction have taken place, fromsteam to diesel and electric motive power which now together carry about 80%of the total freight traffic, although about 8,300 steam locomotives are stillin service. Since 1952, the number of freight wagons has grown two and a halftimes and the number of passenger coaches has doubled, but IR's investmentsin workshop have not kept pace with the growth of the Railways as is shown bythe fact that, in the past two decades, IR's investments in workshops have beenonly about 3.5% of the investment made in rolling stock and motive power. In-adequate capability and poor quality of maintenance work have resulted in adecrease in the availability of effective motive power and rolling stock. Inan attempt to provide improved maintenance, IR developed a workshop rational-ization plan, which is intended to maximize the efficiency of the total net-work instead of achieving self-sufficiency on a Zonal level. The proposedproject would support such workshop rationalization and modernization and helpIR establish a unit exchange maintenance system -- i.e., a system by whichmajor parts and components of locomotives are repaired or remanufacturedcentrally and made available for immediate installation in workshops in orderto reduce time and cost of maintenance and to increase availability oflocomotives.

36. The Research, Designs and Standards Organization (RDSO) is a sepa-rate functional unit under IR. Guidelines for its research and developmentactivities, which have been directed mainly towards domestic production ofrailway equipment,are laid down by the Railway Board. The most urgent long-range research and development efforts of RDSO are directed towards tech-nological improvements in power packs for diesel locomotives, and transmissionand auxiliaries for diesel and electric locomotives. The proposed projectwill assist the RDSO in acquisition of technology and testing apparatus forthe development of improved technology relating to power packs for dieselelectric locomotives.

37. Since India began to manufacture diesel and electric locomotivesin the 1960s, considerable improvements and innovations have taken place intraction technology, resulting in reduced manufacturing, operating and main-tenance costs and improved operating performance. Some major technologicalinnovations and improvements remain to be incorporated in locomotives manu-factured by IR. IR recognizes the need to upgrade the existing locomotivesand to adopt traction technology specifically suited to the operating condi-tions in India; a study of the Railways' requirements for motive power by acommittee established for this purpose is now underway.

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Transport Policy, Planning and Coordination

38. The Indian transport sector is under the concurrent jurisdictionof various ministries: railway planning, construction and operation is underthe Ministry of Railways; civil aviation under the Ministry of Tourism andCivil Aviation; pipelines under the Ministry of Petroleum; and roads, portsand shipping under the Ministry of Shipping and Transport. Planning andcoordination is undertaken within the context of overall national and regionalplans. The Government carried out a transport sector review in 1973/74 inaccordance with a program agreed during negotiations of the Eleventh Railwayproject (Credit 280-IN of December 1971). As a result of this review, aCorporate Plan for the railway sector was completed in 1976. It provides along-term perspective of IR development, on which five-year plans will bebased. It outlines a development strategy for IR for the period from 1977/78to 1988/89 and covers inter alia forecasts of passenger and freight traffic,requirements for traction and rolling stock, strategies for research anddevelopment, management and manpower and financial aspects. Planning cellshave been established in each of the nine Zonal regions of IR to enable theinitial Plan to be updated and revised as appropriate. The draft Five-YearPlan (1978/79 - 1982/83) of IR envisages a 25% increase in freight trafficover the five-year period (5% per year) and an increase of nearly 20% inpassenger traffic (4% per year). In 1982/83 IR is expected to be carryingabout 300 million tons of freight and 3.8 billion passengers, compared with254 million tons and 3.3 billion passengers in 1978/79. Compared with theprevious Fifth Plan period considerably more investments in machinery andplant are needed to replace assets installed in the IR's manufacturing unitsand workshops which are of an advanced age. Thus, in order to support pro-jected traffic growth and to replace of assets, IR's investment during thefive years would total about Rs 32.3 billion (US$3.8 billion equivalent).The proposed project finances part of this program.

Bank Group Operations in the Transport Sector

39. The Bank Group has long been associated with the Indian transportsector and IR. The first Bank operation in India in 1949 was a loan of US$34million for IR (Loan No. 17-IN of August 1949), and since then the transportsector has received direct assistance totalling about US$1,135 million. Sub-stantial indirect support has also been provided through industrial importscredits, under which imports of components and materials for the manufactureof commercial vehicles have been financed. From the late 1950s to the mid-1960s, Bank Group lending included finance for three of India's major ports(Bombay, Madras, and Calcutta) and for a highway project serving Eastern India.Oil tankers for coastal and international service have also been financed.There was also, in the 1960s, a loan for purchase of aircraft by Air India.All transport projects have been successfully completed except the BombayUrban Transport project (Loan 1335-IN of December 1976). In the case of Loan1335-IN, disbursements have been somewhat slow because of delays in procurementaction. However, contracts for major hardware components have been awarded,and steps are being taken, with the assistance of consultants, to minimizethe delay in project implementation.

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40. Over the past 29 years, IR has been the beneficiary of six loansand seven credits, totalling US$896.5 million, which has been the major shareof the Bank Group's assistance to the transport sector. Previous lending

operations to IR have been satisfactorily completed, and the ongoing Credit(582-IN of August 1975), is expected to be successfully completed by September1978. These loans and credits have assisted IR in increasing the volume offreight carried and its passenger traffic by more than 50% and 86%, respec-tively, between 1965/66 and 1975/76. Project audits have been carried outfor Credits 280-IN and 448-IN, and the audit findings are contained in ReportNo. 1658 of June 30, 1977. The report found that the original investment pro-gram was scaled down because of higher costs and lower than expected traffic.The projects were implemented on time, and the re-estimated rates of returnwere similar to the appraisal forecast. Because of unusual economic andpolitical circumstances, the financial situation of IR deteriorated during

the 12th project period, but has improved since. The report also found thatin spite of many years of dialogue between the Government and the Bank Group,transport planning and coordination remain rather weak. An ongoing transportstudy by the Planning Commission with UNDP assistance is expected to helpovercome this weakness. IR has been complying with all its covenants underthe loan and credit agreements.

41. The thirteen previous lending operations to IR, which have financeda time slice of the Railway investment program, have contributed to high

engineering standards and to the present managerial and financial strengthof IR. Because of achievements to date, the opportunities for furtherinstitution-building through this approach are limited. At the same time,

the Government wished, in view of IR's importance to India's economy, thatthe Bank Group continue its association with the development of the railwaysystem. In the light of these considerations, the Bank and the Governmentagreed on a fundamental change in the approach to lending for the sector --focusing on certain key aspects of IR operations and directing Bank Groupassistance to the specific steps that need to be taken in these areas to

improve railway efficiency. The proposed project, while prepared and appraisedagainst the background of IR's overall investment program, is the first toembody this new project-oriented approach; it is designed to improve theoperational efficiency of the railways by rationalizing and modernizing main-tenance, removing existing bottlenecks in manufacturing capabilities, andsupporting research and development activities related to improvements in

motive power.

PART IV - THE PROJECT

42. The project was appraised by a mission which visited India inJanuary/February 1978. The Staff Appraisal Report entitled "A RailwayModernization and Maintenance Project" (No. 2020-IN, dated July 24, 1978)is being distributed separately to the Executive Directors. Negotiationswere held in Washington in June 1978. The Indian delegation was headedby Mr. K. S. Rajan, Chairman, the Railway Board. A Supplementary Project

Data Sheet is attached as Annex III.

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Project Description

43. The proposed project consists of: (i) acquisition of workshop ma-chinery and equipment to be installed in the main and supporting workshops 1/;(ii) construction and installation of a wheel and axle plant, with an annualmanufacturing capacity of 70,000 wheels and 23,000 axles, and import of twoyears' requirements of wheels, tires, axles and wheel sets; (iii) developmentsupport for a product improvement program for IR's manufacturing units, includ-ing thyristor control transformer sets for IR's present AC electric locomotivesand technical advisory services and overseas staff training for manufacturing,quality control, cost control and design personnel. The workshop moderniza-tion component of the project is the first phase of the IR's workshop modern-ization and rationalization program and is scheduled to be implemented byDecember 1983. The new wheel and axle plant will be erected at Yelahanka,16 km from Bangalore, in the State of Karnataka; it is expected to begin ini-tial operation in January 1982. The development support component includesacquisition of testing facilities in support of product improvement to becarried out by IR's Research, Designs and Standards Organization (RDSO),supply of thyristor control transformer sets, and technical assistance andoverseas staff training.

Project Cost and Financing

44. IR's investment program for the period 1978/79 to 1982/83 totalsabout Rs 32.3 billion (US$ 3.8 billion). The proposed project, which formspart of the program, is estimated to cost Rs 3,949 million (US$459 million),including US$80 million in duties and taxes. The project cost estimates arebased on January 1978 prices and include a price contingency averaging 7% perannum for local and foreign costs. A physical contingency of 10% is includedin the cost of the wheel and axle plant component. The foreign exchange com-ponent of the project is estimated to cost US$229 million. It is expectedthat Indian suppliers would submit the lowest conforming bids for itemsto be procured by international competitive bidding amounting in total toabout US$45 million equivalent, therefore reducing the direct and indirectforeign exchange component of the project to US$198 million. The proposedcredit, together with the balance of about US$7 million remaining from Credit582-IN and US$1 million allocated from bilateral sources for imports of wheelsand axles and unit exchange components, would cover the estimated foreignexchange costs; it constitutes about 50% of estimated project costs excludingduties and taxes. The balance of the funds required for the project will beprovided by the Government. The exchange risk will be borne by the Government.

Procurement and Disbursement

45. All items financed under the proposed credit would be procured byIR through international competitive bidding and limited tender from estab-lished manufacturers in accordance with Bank/IDA guidelines, except for:

1/ One manufacturing unit, Chittaranjan Locomotive Works (CLW); four majorrepair workshops, Kancharapara, Kharagpur, Matunga and Parel Workshops;and about 47 sheds and repair facilities.

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(i) contracts for equipment and materials of US$100,000 equivalent or less,which would be too low in value to warrant the administrative complicationsand cost of international bidding procedures, with a total value of not morethan US$5 million equivalent; and (ii) contracts with an aggregate value ofup to US$8 million for proprietary items to be installed at the wheel andaxle plant at Yelahanka. Due to proprietary technical know-how and patentsapplied to certain critical plant components, procurement of these itemsthrough international competitive bidding is not feasible. The aggregatevalue of contracts for the workshops modernization component and the wheeland axle plant component under the project which would be awarded on the basisof limited tenders from establish manufacturers is estimated to be at US$21million. Such contracts will be placed using IR's internal procedures forprocurement which is found satisfactory to the Association. Indian supplierswould be granted a preference margin of 15% or the current rate of importduty, whichever is less. It is expected that Indian manufacturers of equip-ment and machinery would submit the lowest conforming bids for items amountingin total to about US$45 million equivalent, or about 24% of the value of itemsfinanced under the credit. The proceeds of the credit would be disbursedagainst 100% of: (a) the c.i.f. cost of imported items; (b) the ex-factorycost, net of duties and taxes, of items procured from Indian suppliers; and(c) the cost incurred for training, technical advisory services and overseasstaff training.

Project Implementation

46. IR will implement the project as part of its ongoing works andmanufacturing program. An acceptable master plan for project implementationwas submitted to the Association by IR. It was discussed in detail and wasagreed upon with the Association during negotiations (Section 3.01 (b) of theDevelopment Credit Agreement). In order to enable the Association to monitorthe progress in project implementation, a project reporting system satisfactoryto the Association will be employed and the reporting requirements were dis-cussed in detail during negotiations.

47. Under the workshop modernization component, IR will take action asnecessary for modernizaton of its workshops and will introduce a unit exchangemaintenance system. As part of project implementation, IR will complete aworkshop modernization and rationalization program based on a plan of actionwhich was discussed with the Association during negotiations and was foundacceptable, and introduce new expertise in machine tool technology and amethod for monitoring work performance.

48. The location of the wheel and axle plant was chosen with a view tominimizing costs of electricity and transport of raw materials and finishedgoods. The Karnataka State Electricity Board has provided assurances to IRthat it will supply power to meet the requirements of the wheel and axle plant(about 23 MW) from its power distribution centers at Peena and Hoody, whichwould transmit power dispatched from the Kalinadhi hydro-electric scheme.Karnataka has also assured IR that it will meet the requirement of water (2.3million liters or 0.6 million gallons per day) by the time of the initialoperation of the plant scheduled for 1982. A water pipeline and two powertransmission lines to the plant site are under construction.

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49. Installation of the wheel and axle plant would generate job oppor-tunities for about 1,200 workers and staff for plant operation, out of whichabout 800 employees will be engaged in manufacture, plant engineering, qualitycontrol and material management, the balance being general management, railwaycolony and security workers. Appointment of managerial, supervisory and tech-nical personnel would be done in sufficient time to permit prompt implementa-tion of the project and the Government has confirmed that the plant wouldmaintain adequate staff under the supervision of experienced and competentmanagement (Section 4.05 of the Development Credit Agreement). Technicaladvisory services for detailed engineering, preparation of specifications,plant construction and start-up would be provided by the technical collabora-tors, and an adequate staff training program is being prepared and would becarried out in consultation with the collaborators. The Government has agreedto implement a training program for the technical staff and work force of thewheel and axle plant, which will be submitted to the Association by December 31,1978 (Section 4.04 of the Development Credit Agreement). The targets forbuilding up production of the wheel and axle plant are: (i) for the wheelunit: 10,000 in 1982/83, 26,000 in 1983/84, 50,000 in 1984/95 and normaloperation at rated capacity thereafter, and (ii) for the axle unit: 4,000 in1982/83, 13,000 in 1984/85, 16,000 in 1985/86 and normal operation thereafter.

50. The development support component under the proposed project wouldsupport technical advisory services through experts with qualifications, ex-perience and on terms and conditions acceptable to the Association (Section3.02 of the Development Credit Agreement). The experts would provide assistanceto IR in the following areas: (i) for the wheel and axle plant to be estab-lished at Yelahanka: in detailed engineering, preparation of specifications,and plant construction, commissioning and start-up; (ii) for the product im-provement program of RDSO: the development of improved designs and productsfor incorporation in existing diesel locomotives; and (iii) for the workshopmodernization program: to supplement the multi-disciplinary expertise requiredfor program implementation in the fields of machine tool technology, mechanicalhandling, industrial engineering, costing systems, etc. IR has concluded atechnical collaboration agreement on the wheel manufacturing process withAmsted Industries of the U.S.

51. In 1977, a task force was appointed by the Railway Board to studyapplication of a management information system (MIS) at IR's production units.The task force submitted its findings and recommendations on improvement ofproduction planning and control systems at IR's manufacturing units, interalia, in the areas of product costing and departmental performance measurement.IR intends to introduce the MIS at IR's manufacturing units, including thewheel and axle plant at Yelahanka. Implementation of this system is expectedto facilitate better cost control and improve operational efficiency.

IR Finances

52. In financial matters, the Government, through Parliament, exercisescontrol over IR based on recommendations submitted by the Railway ConventionCommittee and other Parliamentary committees. IR's earnings are regulated byfinancial policy guidelines set by the Government. The Government had in the

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past applied a tariff policy which had tended to subsidize large segments offreight and passenger traffic. Rail freight for coal over longer distancesin the past has been a prime example of subsidized transport, which annuallyresulted in considerable losses to the railways. The latest rate and fareincreases in 1975/76 represent a distinct step towards cost-based tariffs.Coal freight rates are now close to actual costs and freight rates for othercommodities are also primarily based on actual costs. As a result, most sub-sidies on freight traffic have been eliminated. A similar cost-based tariffpolicy had been applied to passenger fares. In addition to the recent rateincreases, the Government set up a Rail Tariff Enquiry Committee in September1977 to examine primarily the structure of fares, rates and other charges forpublic traffic carried by passenger trains and/or goods trains and to recommendimprovements. The Committee is expected to submit its report by December 1979.

53. IR's financial objectives are to generate net revenues to meet the6% dividend payment due to the Government on capital provided to IR (capital-at-charge), after covering working expenses 1/ and certain appropriations tostatutory reserves 2/, and to generate surplus. Due to the fuel cost hike,wage increase and the reduced level of freight caused by the shortfall indomestic output of major bulk commodities such as steel and coal, IR registeredoperational deficits of Rs 1,155 million and Rs 1,139 million in 1973/74 and1974/75, respectively. The operating ratio during these two years increasedfrom 84.5% in 1972/73 to 93.7% in 1973/74 and 93.5% in 1974/75. In 1975/76,however, reflecting the recovery of Indian economic activity and improved in-dustrial relations, freight and passenger traffic increased by 10% and 18%compared with the previous year, and IR could meet all operating expenses and85% of the dividend payable out of internally generated resources. In 1976/77,IR's financial situation further improved. The operating ratio dropped to84.4% and IR registered a net surplus of Rs 872 million and fully met itsdividend liability. Given the favorable current economic situation, the out-look for the immediate futute is encouraging. The result for 1977/78 indicatesa surplus of Rs 893 million, with a further reduction of the operating ratioto 84.0%. This represents a marked improvement, since no tariff increaseswere granted for this fiscal year despite cost escalation. Operating expenseswere kept about Rs 377 million below the budget figure, although traffic ex-ceeded the budget forecast, primarily because of increased efficiency andtighter expenditure controls.

54. New capital investment has been financed primarily from capital pro-vided by the Government through the railway budget along with any internallyretained surplus available to IR, and any cash flow shortfall is met by bor-rowing from the Government ("temporary loans"). Although IR earned a net

1/ Working expenses of IR consist of following elements: personnel cost(about 60%), fuel cost (about 20%) and other costs of miscellaneous items(about 20%).

2/ Depreciation Reserve Fund for replacement of fixed assets, DevelopmentFund for general improvement of passenger and other amenities, andPension Fund.

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surplus of Rs 872 million for 1976/77, it had to draw temporary loans fromthe Government amounting to Rs 1,469 million because of the deficit carriedover from earlier years. IR's outstanding loans drawn from the Governmentamounted to Rs 4,619 million as of March 31, 1977 and the amount reduced to

Rs 3,686 million in 1977/78. It is projected that IR would need to cotninue

to borrow temporary loans from the Government in the foreseeable future. ACommittee on Capital Restructuring of the Government has been set up to in-vestigate the various alternatives to handle this. It is expected that theCommittee will submit its recommendations on financial arrangements to be made

between IR and the Government shortly. Assurances were obtained from the

Government that it will maintain freight rates and passenger fares and shalltake necessary action to provide IR with such net revenues as to enable IR tomeet, out of internally generated resources, all operating expenses, appro-

priations to statutory reserves and dividend on capital-at-charge (Section

4.02 of the Development Credit Agreement).

55. The capital costs of the wheel and axle plant, including workingcapital and taxes, is estimated at Rs 647 million (about US$75 million equiv-

alent). The foreign exchange portion of the capital investment of the plantis about US$38 million equivalent, or about 50% of the total outlay. Theamount required for construction will be included in the railway budget pre-

sented annually to the Parliament. Dividend on capital-at-charge is payableby IR to the Government on plant investment at a rate of 6% per annum. Sincethe wheel and axle plant will be installed as a captive manufacturing unit ofthe Railways, the output from the plant will be transferred to IR at pricesto be determined on the basis of internal transfer price system used in IR's

existing manufacturing units. IR has agreed that the transfer price willbe based on direct manufacturing costs, overhead costs and full depreciation(Section 4.06 of the Development Credit Agreement).

Project Justification and Risks

56. The proposed project would help improve the maintenance of motivepower and rolling stock and thereby reduce the cost of their maintenance aswell as improve their performance and availability. Cost savings derivedfrom the project which are not passed on to IR's customers or retained by IRwill be returned to the general GOI account for use in accordance with over-

all Government policies.

57. The weighted average economic return on all project components in-cluding technical assistance is 23%, with the workshop component having areturn of 27% and the wheel and axle plant component a return of 19%.

58. All project components will use proven technology that has been inextended use in other parts of the world. Thus, construction, installationand initial operation are not subject to significant risks. IR has beensuccessfully managing large-scale railway operations and manufacturing enter-prises for decades. It has competent management and suitable technical

expertise to execute the project.

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PART V - LEGAL INSTRUMENTS AND AUTHORITY

59. The draft Development Credit Agreement between India and theAssociation, and the Recommendation of the Committee provided for inArticle V, Section l(d) of the Articles of Agreement of the Association arebeing distributed to the Executive Directors separately.

60. Special conditions of the project are listed in Section III ofAnnex III.

61. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

62. I recommend that the Executive Directors approve the proposedcredit.

Robert S. McNamaraPresident

July 24, 1978

ANNEX IFage I~

INDIA - SOCIAL INDICATORS DATA SHEETLAND AREA (THOU KM2) - - -- -- --- --- - --- --

TOTAL 3280.5 l-- INDIA REFERENCE COUNTRIES (1970)TOTAL 3280.5 MOST RECENTAGRIC. 1797.5 1960 1970 ESTIMATE INDONESIA PHILIPPINES BRAZIL**

ONtP PLR CAPITA (USS) 60.0 100.0 150.0 130.0 230.0 550.0-----------

POPULATION AND VITAL STATISTICS_______________________________

POPULATION (MID-YR. MILLION) 434.9 547.6 620.4 /a 117.6 36.9 92.9

POPULATION DENSITY

PER SQUARE KM. 133.0 167.0 189.0 62.0 123.0 11.0PER SQ. KM. AGRICULTURAL LAND 247.0 308.0 345,0 411.0 375.0 49.0

VITAL STATISTICS

CRUDE BIRTH RATE (/THOU, AV) 43.2 41.0 37.0 45.9 44.2 36.4CRUDE DEATH RATE (/THOU,AV) 23.9 19.0 17.0 20.6 13.2 9.9INFANT MORTALITY RATE (/THOU) 139.0/a . 130.0 * 81.0 110.0LIFE EXPECTANCY AT BIRTH (YRS) 41.7 47.2 49.5 .. 55.6 59.4GROSS REPRODUCTION RATE 3.2 2.9 2.8 3.2 3.3 2.6

POPULATION GROWTH RATE (%)TOTAL 2.0 2.3 2.1 2.0 3.0 2.9URBAN 2.5]b 3.2 3.1 3.7/a 4.0 5.0

URBAN POPULAtION (x OF TOTAL) 17.9 19.8 20.6 17.5]b 27.6 56.0

AGE STRUCTURE (PERCENT)

0 TO 14 YEARS 41.0 41.6 40.1 44.0 45.6 42.0I5 TO 64 YEARS S5.9 55.3 56.7 53.5 51.6 55.065 YEARS AND OVER 3.1 3.1 3.2 2.5 2.8 3.0

AGE DEPENDENCY RATIO 0.8 0 0.9 0.9 0.8ECONOMIC DEPENDENCY RATIO t.1.. 1.1/a l.L.L ,, 1.5 1.5

FAMILY PLANNING

ACCEPTORS (CUMULATIVE, THOU) 71.0 14585.0 37658.0 259.3 320.0 250.0USERS (% OF MARRIED WOMEN) .. .- 18.7 *- 2.0 1.6

EMPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 175000.0 218000.0 261000.0/a 12400.0 29400.

LABOR FORCE IN AGRICULTURE (x) 71.0 69.0 69.0 * 55.0/a 40.4UNEMPLOYED (% OF LABOR FORCE) 4.8 /d 4.4 /b 4.41c,d 7.6 7.5

INCOME DISTRIBUTION

S OF PRIVATE INCOME RECOD BY-HIGHEST S% OF HOUSEHOLDS 26.7 25.0 /C 35.0/aHIGHEST 20X OF HOUSEHOLDS 51.7 53.1 7? ,. . 54.0 62.07iLOWEST 20X OF HOUSEHOLDS 4.1 4.7 t? .. 30-tLowE5T 40X Of HOUSEHOLDS 13.6 13.1 3 .. -76 .i

DISTRIBUTION OF LAND OWNERSHIP

% DWNEo EY TOP 10% OF OWNERS .. .. .. .. .. 4S.0S OWNED BY SMALLEST 1OX OWNERS .. . .. ., . 1.5

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 5840.0 Le 4890.0 4220.0 26370.0 . 1910.0POPULATION PER NURSING PERSON 5310.0 220.0/d 368o.0oL 7630.0/c . . 3220.0/bPOPULATION PER HOSPITAL BED 259o.0uhl 1610.0 , 1640.0 850.0 260.0

PER CAPITA SUPPLY OF -CALORIES (% OF REQUIREMENTS) 95.0 92.0 89.0 91.0 93.0 109.0PROTEIN (GRAMS PER DAY) 55.0 53.0 48 43.0 45.0 64.0

-OF WHICH ANIMAL AND PULSE 19.0li 16.0 12.6 14.0 22.0 39.0

DEATH RATE (/THOU) AGES 1-4 44.0 . .. .. 6.6

EDUCATION

ADuUSTED ENROLLMENT RATIO 41.0 63.0 65.0 75.0PRIMARY SCHOOL 4. 30 6. 50 130 8.

SECONDARY SCHOOL 23.0 30.0 29.0 15.0 49.0 6H.0YEARS OF SCHOOLING PROVIDED

(FIRST AND SECOND LEVEL) 12.0 12.0 11.0 12.0 10.0 11.0VOCATIONAL ENROLLMENT

(x OF SECONDARY) 6.0 . .. 29.0 6.0 /b 17.0ADULT LITERACY RATE (%) 24.0 33.0 36.0A 59.0 .. 64.0

HOUS I NG

PERSONS PER ROOM (URBAN) 2.6 2.8 .. .. 2.1 1.0OCCUPIED DWELLINGS WITHOUT

PIPED WATER (%) .7. .. .. ., 7.0 73.0 /CACCESS TO ELECTRICITY

(% OF ALL DWELLINGS) .. .. .. .. 23.0 48.0RURAL DWELLINGS CONNECTED

TO ELECTRICITY (%) .. .. .. .. 7.0 8.0

CONSUMPT ION

RADIO RECEIVERS (PER THOU POP) 5.0 21.0 25.0 114.0 39.0 60.0PASSENGER CARS (PER THOU POP) 0.7 1.0 1.0 2.0 8.0 25.0ELECTRICITY (KWH/YR PER CAP) 48.0 114.0 143.0 20.0 235.0 491.0NEWSPRINT (KG/YR PER CAP) 0.2 0.3 0.3 0.3 2.0 2.7E _ A- N D----EI--- N ---- R------------------------_-----------_---------------- -------------- --_--_-----

SEE NOTES AND DEFINITIONS ON REVERSE

ANNEX I

Page 2

NOTES

Unless otherwise noted, data for 1960 refer to sany year between 1959 and 1961, for 197f between 1969 and 1971, and for Moat Recent Eatimate between1973 end 1976.

Brail baa been ealected as an ob)ective country becau.e of ire else end cmparable probilia of regional inequality.

IDA 1960 1a 95i-61 average; to 1951-601 Ic Ratio of population under 1) and 65 ard over to labor force age 15 and -vr;Id Estimated by, National Sacpla Survey, in tretin of the average namber of pereon/wseeka of unemploymnteo aS percentageo-f total person/we..ke In ch. labor Earns; /s 1962- /f Reeietmond, noat all practicing in the country; LA Includingmidwives; /h 1958; /i 1960-62.

1970 Ratio of population under 15 and 65 and over to total labor -force age 15 and ove; lb Eatimated by National Sample

Survey, in treti, of the average number of peren/weeke of unmaploymeent an percentage o-f total pereon/wee.ke in the totallabor force; Ic 1967-689 Id Including midwives.

MOST RECENT ESTIMATE: LA 1978 nid-year population and labor forte eatimated at 640.4 end 261 millione reepectively; /b Ratio ofpopulation under 15 and 63 and over to total labor forte; Ic 1977; Id Estimated by Rational SampleSurvey, in tarma of the average number of peraono/eeks of unemployment aa percentage of total pernon/weekein tbe labor force; Ia Including midwivee; IL Population 10 yeara and over.

IND)ONESIA 1970 / 1961-71; lb 1971; Ic Includingniwva

PHILIPPINES 197i IA.N perantage of employment; lb Not including private voctional nohools.

BRAZIL 1970 Ia Economically active, population; lb Hoepital personnel; /c Inside only.

R13, May 2, 1978

nD5EXITIWC OIF SOCIAL ISCOICATORS

Lend Area (thou in2; PoPuILaion pee nureina pareon Population divided by numben of practicing

Total -TocL. suface rStacceeprielig land area and inland waters. male and femsale graduate nures., 'trained' or 'certified" nurses, and

m.rc Mot rece.nt eatimate of agricultura area uaed temporarily or patin- eumiliary prarsonne with training or enp-rince.nantly for crupe, paatures, metbat & k1tchan gardens or to lie follow. Population pae hosnita1 bed - Population divided by .. bar of bospital bode

availabla It publio and private genara-1 end sp-oilse.d hospital andor? Par caPita fUl$) - GNP? per capita eatimatse, atcurrent markat prices, rahabilitation centears; enclodsa onring home.S ead setablihalannts for

catlculted by Same converaion metbod aS World Rank Atlee (1974-76 basia) ; custodial and preventive cars.1960; 1970 and 1976 data. Par capita Supply of calories ft of -eeuirements) - Computed from energy

equivalent of net food supplies available in country per capita par day;Population sand vital atatistic available Supplies compriee domeatic production, imnports loae seports, andPopolation (,eid--ran million) - ua Of July firtat if no -vilhe,aaro chenge In stock; net euppliae -1clde animal fend, seeds, qu.stitiauae.dof tw.oend-year estimates; 1960, 1970 and 1976 data, in food proceasing and losas. In distribution ; -aqoiremente were estimasted

by FAO based on pbysiological madea for normal activity and health consid-Population decaity- pan eqoaro km - Mid-year population par equate kilomter ering enironasottel temperature, body weights, *ge end see dietributions of

(100 bectrare) of itetl carea population, and allowing 10% for waste at houaebold level.Population demaity- per equare he of agric. lend - Computed an above for Per capita supply of protein farama par day) - Protein c-ontnt of per capita

agiutrl.lad only. net Supply Of fond per day; ear Supply of food is defined as above:; eaquis-mente for all countrises establiahed by USDA Economic Reasearch Services

Vital etatistica provide for a minim,a alwneOf 60 grame of total protein per day, andCrude birtch rate per tbousand, average - Annua live birdie par thousand Of 20 grate of animal end pulse protein, of which 10 grate shoald be animal

aid-year population ; ten-yser arithmetic averagee ending in 1960 and 1970, protein; these Standards are lower than those of 75 grate of total proteinand fiv-yea average ending in 1975 for most recen.t aetimate. and 23 grateo of animal protein as Son average for the werld, proposed by FAO

iC-ode death rate oar thousand, aveage - Annual deathe pan thouaand of mid-year in the Third World Pond Survy-population; ten-year erithstric yavrages ending in 1960 and 1970 and five- Par capita protein supply from animal end pulse - Protein Supply of food

year average ending in 1971 for moat recent eatima te. derived fr-as nimala end pulsesa in grate, par day.Infant mortality rate f/thou)- Annual deaths of infante under on year Of age Death rtet f/thou) Saona 1-4 - Annual dearbe per th.onead in age grtoup 1-4

per thousand live biritba. years, to children in this age group; Suggested os en indicator ofLife anpactancy at birth fyra) -Average noaber of years of life remSaining at nelnutrition.

birth; usua lly five-year -onragn ndine in 1960, 1970 end 1971 for develop-ing counotries. Education

Gross reproduction rats - Average naber of live deoghtars a woman will beer Adiusted enrollmet ratio - rmry school - Enrollmenr of all ages as pat-In her noomal reproductive period if She amperiences pra..ent age-specific tg o rmr scoo-ag populatiom; includes childrem aged 6-11 yearsfertility rates; usually five-year average, ending in 1960, 1970 end 1971 but adjuatd foar diffareat lengths Of primary educa.tion; for countnias with

for developing coutries. universal education, enrollment may emcee.d 150% amose .- pupils aen belowPopulation xrnth rts. (it - itotl - Compound annual growth ratee Of mid-year or above the official sohoal age.

population for 1950-60, 1960-70 and 1970.75. Adlueted enro1l,asnt ratio - secoondary school - Computed as above; eacondaryPopulation growth rate Cl) - urban - Computad like growth rtet of total educa.tion raquirse at least four yeara of approved primary inetruction;

population; different dafinitiona Of urban erase may affect comparability of provides general, vocational or reacher training inatructiona for pupiladata among cototriss. of 12 to 17 years of age; correapondSnca corss r generally enclodad.

Urban population (% of toisS) - Patio of urben in total population ; diffarant Tens of Schooling provided firtte en -eod levels1) - Total years ofdefinition of -rben ers may affect comparability Of data amon oountniae. schooling; at e-modar lee, oatoa i-atruc tln may be partially Or

cmpletely secluded.age structure (percet) - Children (0-14 yactel, working-age (15-64 yers, oction1 esre1llatm ft of secondaryl - Vocational institutions, include

and retired (65 yaars sod over) as parn...ragee of eid-yeeo ppulation. technicsl, industrial or other prngrema which operate independently otra

Ann' dependency ratio - Ratio of population under 15 and 65 and Ovar to those d.partmente of Secondary i-stitutiona,of agas 11 throogh 64. Adult literacy rate (%) - Literate adu1ta (able to read and write) as per-

icnmcdepandeocy ratio - Ratio of population under 15 and 65 Sod over to acamge of total adult population aged 15 yeara end over.the labor Corns in age grop of 11-64 yeare.

Fasily pla...ine - ecceptcr focu tlative thou) - Cumlation nuber of acceptors Sous.ingof birth-cotrol devices order auspicee of national faily plannig prgpre Person par room (urban) - Average nnber of pereons par roo in occupiedSios inception convectional dwellings in urban ara;dwellings enolde non-pe-meneta

Femily planning - uaera ft of married women) - Percentegee of married women of strutures end unoccupied pane.child-heaing age (11-4 years) who use birth-control device to all ne-rrind Occu.pied de11ia withot piped water ) -Ocpied convenional dwellingswomen to som age group. in urban and trura areas without inside or outaide piped water f-ollitiaa

en parc...tage of all occupied dwellings.Poapicymat Ac--S to electricity ft Of all dwellings) - Convetional dwellings withTotal labor force fthouseed) - Economically active persons, including armed electricity in living quarters as percent of total dwellings in urban and

fortes and unemsployed but aecluding boosawi-e, Srudents, etc..; definitions rura areas.in -aicue -tmnioci era not comparable- cRalI dwnllinae connectad to electricity i)-Computed as above fur trura

Labor force in eaiutasC) - Alricultoral labor force (in faeing, forestry, dwellings only.hunting end fishing) So perontage Of total labor forc..

oremploy.d ft Of labor Eane) - Unemployed are usually deined aSo person who Consuptioare able and willing to tak aJob, out of a job on a giver day, remained out Radio rece ivers (per thou pop) - All ty-pe of receivers for radio brond-eStsof a Job, aod seeking work for a specified minimom period not e..ceading one to gene ral public per thousand of population; secludes on.cengsdreieswek; may cot hr oepar-blo heven outre due to different definitions it conties end In years when registration of redic sets wa in effect;of unemployed end S ource of dais, e.g., employmet office etatttis, Saemple data for recent years may nut be comparable Since most countries ebolished

Passen:ger.cars (par thou top) -, Paseg r.cr comPri- motor cars seatingincome dietributina - Percentage of private income (both in ceeb and kind) leste ight personsa; e..Iodes atbolencea, hearses sand ailitary

re..nived by rirhest 5%, tichea 202, poores 202, -vd poorest h0t of hove- vehicle.aholds. El-tncricty (kshlrr Per raP) - Annual -rmaption of industial,cria

public and private electricity in kilowatt houre per capita, gene.rallyDistribotion of lend -smrehip - Percentages Of lend ownd by wealIthiest 102 based on production dais, withou.t almne for lossee in grids hut allow-

and poorestr 1012 of land oennra, ing fo iparts and sepot Of electricity.Newsprint (ha/yr per cap) - Per capita annual ccmaeaption in kilogrema,

Health and NuttritIon estimated from domestic production pius net imports Of newsprint.Populaion per ebyslitar - Popuoarton divided by n-h5r Of pract.icig

physiciane qualIfied from a madical schuol at university level.

ANNEX IPage 3

ECONOMIC DEVELOPItCNT DATA

GNP PER CAPITA IN 1976 4 US$ 1SO

GRtOSS NATIONAL PRODUCT IN 1'376/77 i/ ANNUAL RATE OF GROWTH (%. constant prices) S/

C SS n. 16 t1960/61-1964/65 1965/66-1969/70 1970/71-1975/7t

GNP at Market Prices 86.04 100.0 3.9 3.8 2.9Gross Domestic Investment 16.62 19.3Gross National Saving 18.18 21.1

t Current Account Balance 1.56 1.8Resource Gap 0.95 1.1

OLTPUT, LABOR FORCE AND PRODUTCTIVITY IN 1975/76

Value Added (at factor cost) Labor Force V.A Per WorkerUsS Bin. _____ _ _il. o ANl verage

Agriculture 30.2 43 179.0 69 169 63Industry 16.7 24 33.9 13 494 193Services 23.4 33 48.0 18 488 133Total/average 70.3 100 261 100 277 100

GOVERElENT FINANCE

General Government / Central Government7!s _B11n) __ of GOP jR Bln)o GOP1976/77 1076/77 1974/75-1976/77 19;6/77 1976/77 1974/75-1976/77

Current Receipts 147.46 19.1 17.9 83-78 10.9 10.4Current Expenditures 140.18 18.2 16.2 84.25 10,9 9.6Current Surplus/Deficit 7.28 0.9 1.7 - 0.47 - 0.8Capital Expenditures e/ 59-05 7.6 7.1 40-39 5.2 5.0External Assistance (net) 11.21 1.5 1.7 11.21 1.5 1.7

MONEY, CREDIT AND PRICES 1970/71 2i2L3 1973/74 1974/75 195/756 1976/77 September 1976 September 1977(Billion Re outstanding at end of period)

Money and Quasi Money 105.7 142.2 169.0 186.9 215.0 262.6 238.2 284.8Bank Credit to Public Sector(net) 56.9 82.5 92.9 102.6 109.1 117.3 112.7 130.7Bank Credit to Private Sector 56.7 76.0 90.1 109.5 127.5 161.0 144.0 170.0

(Percentage or Index Numbers) J=v 1977 January 1978

Money and Quasi Money as % of GDP 24.3 27.3 26.4 25.5 27.6 31.5Wholesale Pri ce Index

(1970/71 = 100) 100.0 116.2 139.7 174.9 173.0 176.6 178.8 183.3

Annual percentage changes in:

Wholesale Price Index 7.7 10.0 20.2 25.2 -1.1 2.1 7.5 2.5Bank Credit to Public Sector (net) 8.6 19.6 12.6 10.4 6.3 7.5 4.7 XI 15 8 V/Bank Credit to Private Sector 17.3 18.0 18.5 21.5 16.4 26.3 24.9S./ 11.9i

a/ The per capita GNP estimate is at market prices, calculated by the conversion technique used in the World Atlas.All other conversions to dollars in this table are at the average exchange rate prevailing 4uring the period covered.

./ 4Quick Estimates.S/ Computed from trend line of GNP at factor cost series, including one observation before first year and one

observation after last year of listed period./ Transfers between Center and States have been netted out.

!/ All loans and advances to third parties have been netted out.t Net bank credit to Government Sector.5/ Bank credit to Commercial Sector.

ANNEX IPage 4

RALLNCE OF PAYMENTS 1974/75 1975176 1976117 1977/78 " XERCRAN DISI EXPORTS (AVERAGE 1974/75 - 12

USi Yillion US Yln.

Exports of Goods 4,174 4,665 5,760 6,400 Engineering Goode 515 11

Importe of Goods -5,665 -6,084 -5,950 -6,600 Sugar 379 a

Trade Relanoe -1,491 -1 .419 - 190 - 200 Tea 296 6

NP3S net) 2t1 310 405 500 Jute Manufactures 294 6

Leather and Leather

Resource Gap -1,278 -1,109 215 300 Products 268 5

Clothing 257 5

Interest Payments (net) - 198 - 216 - 135 - 130 Iron Ore 238 5

Other Factor Paymente (net) - - - - Cotton Textilee 223 5

Net Transfere &/ 257 470 73D 1,000 Otherm 2396 49Total 4866 100

Balance on Correct A..ount -1,217 - 855 810 1,170

Official Aid EXTERNAL DEBT. MARCE Ht, 1977

Disbursements 1,761 2,341 1,553 1,840 US$ Billion

dAortilation -515 -531 -560 - 630 Outstanding and Dieboreed 13.6

Transactions with IFli 522 242 -336 -330 findisbureed 3.2all Other Items .58 9 -403 -292 23 Outstanding, including Undiebursed

16.8

Increase in Reeerves (-) 38 -794 -1,575 -2,073 DEBT SERVICE RATIO FOR 1976/77 14.4 peroent

Grosa Reserves (end year) 1,378 2,172 3,747 5,820

Net Reservea (end year) k/ 758 1,365 9,276 5,670 IBRD/IDA LENDNG, December 51. 1977 (US5 En.)

Fuel and Related Materials IBRD IDA

Irporte 1,451 1,417 1,580 1,800 Outstanding and Disbureed 489.0 3,560.5

of chinh: Petroleun 1,451 1,417 1,580 1,800 Oundisbured 674.9 1,257.0

Outetanding, including

Export. 26 43 37 .. a. Undiebureed 1,163.9 4,817.5

of which, Petroleum 17 22 21 n.a.

RATE OF EXCHANGE

Prior to mid-Deeomber 1971 s uS$1.00 = Re 7.5 After end Jane 1972 : Floating Rate

Re 1.00 = UStO.133333 Spot Rats January 31, 1978

Mid-Deoe3mber 1971 to s Usi1.00 = Re 7.27927 approx. USSt.00 = Re 8.063

end June 1972 Re 1.00 = US50.137376 approx. Rs 1.00 = US10.124

h/ Eetinated.

i/ Figures given cover all investment income (net). Major paymente are interest on foreign loana and

oharges paid to IMF, and major receipt ie interest earned on foreign assete.

j/ Figuree given include workere' remittancee but exclude official grant aseistance, which is included

sithin official aid disbursemente.4/ Eboludac net ue of DIP oredit.1/ Amortization and intermet paymento on foreign lgana as a percentage of -euchandite exports.

ANNEX IIPage 1 of 15

THE STATUS OF BANK GROUP OPERATIONS IN INDIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of May 31, 1978)

US$ Million-/Loan or (Net of Cancellation)Credit No. Year Borrower Purpose Bank IDA Undisbursed

40 Loans/ 1,100.651 Credits fully disbursed 2,604.6

267-IN 1971 India Wheat Storage -- 5.0 3.3294-IN 1972 India Bihar Agricultural Markets -- 14.0 8.8312-IN 1972 India Population -- 21.2 5.7342-IN 1972 India Education -- 12.0 8.9356-IN 1972 India IDBI -_ 25.0 10.3377-IN 1973 India Power Transmission III -- 85.0 1.5378-IN 1973 India Mysore Agricultural Markets -- 8.0 6.9902-IN 1973 ICICI Industry DFC X 66.5 -- 4.8390-IN 1973 India Bombay Water Supply -- 55.0 24.4403-IN 1973 India Telecommunications V -- 80.0 3.4427-IN 1973 India Calcutta Urban Development -- 35.0 9.2440-IN 1973 India Bihar Agricultural Credit -- 32.0 13.7456-IN 1974 India HP Apple Processing & Marketing -- 13.0 9.9481-IN 1974 India Trombay IV -- 50.0 10.9

1011-IN 1974 India Chambal (Rajasthan) CAD 52.0 -- 33.9482-IN 1974 India Karnataka Dairy -- 30.0 25.9502-IN 1974 India Rajasthan Canal CAD -- 83.0 48.9520-IN 1974 India Sindri Fertilizer -- 91.0 13.6521-IN 1974 India Rajasthan Dairy -- 27.7 25.2522-IN 1974 India Madhya Pradesh Dairy -- 16.4 13.9526-IN 1975 India Drought Prone Areas -- 35.0 22.8

1079-IN 1975 IFFCO IFFCO Fertilizer 109.0 -- 61.61097-IN 1975 ICICI Industry DFC XI 100.0 -- 24.0532-IN 1975 India Godavari Barrage Irrigation -- 45.0 22.2541-IN 1975 India West Bengal Agricultural Development -- 34.0 24.8562-IN 1975 India Chambal (Madhya Pradesh) CAD -- 24.0 17.4572-IN 1975 India Rural Electrification -- 57.0 45.3582-IN 1975 India Railways XIII -- 110.0 11.5585-IN 1975 India Uttar Pradesh Water Supply -- 40.0 35.8598-IN 1975 India Fertilizer Industry -- 105.0 87.4604-IN 1976 India Power Transmission IV -- 150.0 140.3609-IN 1976 India Madhya Pradesh Forestry T.A. -- 4.0 3.6610-IN 1976 India Integrated Cotton Development -- 18.0 17.7616-IN 1976 India Industrial Imports XI -- 200.0 0.6

1251-IN(TW) 1976 India Andhra Pradesh Irrigation 145.0 -- 140.31260-IN 1976 India IDBI II 40.0 -- 36.41273-IN 1976 India National Seed 25.0 -- 25.01313-IN 1976 India Telecommunications VI 80.0 -- 32.31335-IN 1976 BMRDA Bombay Urban Transport 25.0 -- 20.5

680-IN 1977 India Kerala Agricultural Development -- 30.0 30.0682-IN 1977 India Orissa Agricultural Development -- 20.0 19.8685-IN 1977 India Singrauli Thermal Power -- 150.0 137.0687-IN 1977 India Madras Urban Development -- 24.0 23.4695-IN 1977 India Gujarat Fisheries -- 4.0 4.0

1394-IN(TW) 1977 India Gujarat Fisheries 14.0 -- 14.0690-IN 1977 India West Bengal Agricultural Development -- 12.0 12.0712-IN 1977 India Madhya Pradesh Agricultural Development -- 10.0 10.0715-IN 1977 India Second ARDC Credit -- 200.0 159.1720-IN 1977 India Periyar Vaigai Irrigation -- 23.0 22.8728-IN 1977 India Assam Agricultural Development -- 8.0 8.0

1473-IN 1977 India Bombay High Offshore Development 150.0 -- 95.6736-IN 1977 India Maharashtra Irrigation -- 70.0 70.0737-IN 1977 India Rajasthan Agricultural Extension -- 13.0 13.0740-IN 1977 India Orissa Irrigation -- 58.0 58.0

1475-IN 1977 ICICI Industry DFC XII 80.0 -- 77.9747-IN 1978 India Second Foodgrain Storage -- 107.0 107.0

* 756-IN 1978 India Second Calcutta Urban Development -- 87.0 87.0761-IN 1978 India Bihar Agricultural Extension & Research -- 8.0 8.0

1511-IN* 1978 India IDBI Joint/Public Sector 25.0 -- 25.01549-IN* 1978 TEC Third Trombay Thermal Power 105.0 -- 105.0

788-IN 1978 India Karnataka Irrigation -- 126.0 126.0793-IN* 1978 India Korba Thermal Power -- 200.0 200.0806-IN* 1978 India Jarrsmu-Kashmir Horticulture -- 14.0 14.0808-IN* 1978 India Gujarat lrrigation -- 85.0 85.0815-IN* 1978 India Andhra Pradesh Fisheries -- 17.5 17.5816-TN* 1978 India Second National Seed -- 16.0 16.0

Total 2,117.1 5,392.4of which has been repaid 863.2 37.6

Total now outstanding 1,253.9 5,354.8Amount Sold 133.3

of which has been repaid 111.5 21.8Total now held by Bank and IDA 1,232.1 5,354.8Total undisbursed (excluding *) 591.3 1,645.1

* Not yet effective. Juily 1978

1/ Prior to exchange adjustments.

ANNEX IIPage 2 of 15

B. STATEMENT OF IFC INVESTMENTS(As of May 31, 1978)

Fiscal Amount (US$ million)Year Company Loan Equity Total

1959 Republic Forge Company Ltd. 1.5 - 1.5

1959 Kirloskar Oil Engines Ltd. 0.9 - 0.9

1960 Assam Sillimanite Ltd. 1.4 - 1.4

1961 K.S.B. Pumps Ltd. 0.2 - 0.2

1963-66 Precision Bearings India Ltd. 0.7 0.3 1.0

1964 Fort Gloser Industries Ltd. 0.8 0.4 1.2

1964-75 Mahindra Ugine Steel Co. Ltd. 11.8 1.0 12.8

1964 Lakshmi Machine Works Ltd. 1.0 0.3 1.3

1967 Jayshree Chemicals Ltd. 1.0 0.1 1.1

1967 Indian Explosives Ltd. 8.6 2.9 11.5

1969-70 Zuari Agro-Chemicals Ltd. 15.1 3.8 18.9

1976 Escorts Limited 6.6 - 6.6

1978 Housing Development FinanceCorporation 4.0 1.2 5.2

TOTAL 53.6 10.0 63.6

Less: Sold 6.0 1.