Document of The World Bank FOR OFFICIAL USE ONLY ReportNo. P-3793-IN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN OF US$280.7 MILLION TO INDIA FOR THE RAILWAY ELECTRIFICATION AND WORKSHOP MODERNIZATION PROJECT April 30, 1984 This document has a restricted distribution and may be used by recipients only in the perilormanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. P-3793-IN
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN OF US$280.7 MILLION
TO INDIA
FOR THE
RAILWAY ELECTRIFICATION AND WORKSHOP MODERNIZATION PROJECT
April 30, 1984
This document has a restricted distribution and may be used by recipients only in the perilormance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
The US Dollar/Rupee exchange rate is subject to change.Conversions in the Staff Appraisal Report were, exceptas otherwise noted, made at the rate of US$1.00 toRs 10.8.
FISCAL YEAR
April 1 - March 31
Abbreviations and Acronyms
AC - Alternating CurrentBG - Broad Gange (1.676m)DC - Direct CurrentDCW - Diesel Component WorksGOI - Government of IndiaICB - International Competitive BiddingICF - Integral Coach FactoryIR - Indian Railways
kv - kilovolt (1000 volts)MG - Meter Gangemw - megawattNG - Narrow Gange (0.762m and 0.610m)NTPC - National Transport Policy CommitteeORE - Overhead Equipment
OIS - Operating Information SystemREPCM - Railway Electrification Planning,
Coordinating and Monitoring GroupRkm - Route kilometerRTEC - Rail Tariff Enquiry CommitteeTon-km - Ton kilometer
- ii i-FOR OFFICIAIL USE ONLY
INDIA
RAILWAY ELECTRIFICATION AND WORKSHOP MODERNIZATION PROJECT
LOAN AND PROJECT SUMMARY
Borrower: India, acting by its President (GOI).
Beneficiary: Indian Railways (IR).
Amount: Bank Loan: US$280.7 million, including capitalizedfront-end fee.
Terms: Repayment over 20 years, including fiveyears' grace at the standard variableinterest rate.
Relending Terms: GOI will on-lend the proceeds of the loan as GOI's capital-at-charge to IR in accordance with its standard arrange-ments f'or financing IR's capital expenditure program. IRpays a dividend on the total capital-at-charge at a ratedetermined by GOI, currently 6.5% per annum. GOI willcarry the interest and exchange risks.
Purpose: The purpose of the proposed project is to increase IRscarrying capacity to meet growing traffic demand; toimprove the utilization of existing assets; and tostrenglthen the IR organization in selected operationalareas.
The project consists of: (a) electrification of some 3000route kilometers of IR's 7500 route-kilometers program forthe remainder of this decade-focusing on the major trunkroutes between India's four major cities New Delhi, Bombay,Madras and Calcutta, together with provision of ancilliarytesting and maintenance equipment; (b) modernization ofsix major workshops, the Integral Coach Factory (:ECF), andselected maintenance depots; (c) provision of advLsoryservices and training for the electrification and workshopmodernization components. Project risks are considered tobe within acceptable limits.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authori;ation.
- iv-
Estimated Project Costs: (US$ Millions)Local 1/ Foreign Total
Appraisal Report: No. 4940-IN, dated April 26, 1984
2/ Including front-end fee of US$0.7 million.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENT TO THEEXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA
FOR THE RAILWAY ELECTRIFICATION AND WORKSHOP MODERNIZATION PROJECT
1. I submit the following report and recommendation on a proposed loanto India in the amount of US$280.7 million on standard terms to help financethe electrification of the Indian Railways (IR) main trunk routes and themodernization of selected key maintenance workshops.
PART I - THE ECONOMY 1/
BackRround
2. An economic report, "Situation and Prospects of the Indian Economy -A Medium Term Perspective" (4962-IN, dated April 16, 1984), was distributedto the Executive Directors on April 23, 1984. Country data sheets are attachedas Annex I.
3. India is a large and diverse country with a population of about 700 mil-lion (in mid-1982) and an annual per capita income of US$250. The economy isdominated by agriculture which employs more than two-thirds of the 'Labor force.However, the land base is not sufficient to provide an adequate livelihood toeveryone engaged in agricultural activities, especially those with little or noland. Growth of value-added in agriculture -- 2.2% since 1950/51 -- has beenslower than growth of industrial value-added (5.0% per annum). As a result,there has been a gradual decline in the share of agriculture in GDP (at factorcost) from 60% to just under 40%, while the share of industry rose from 15% toaround 25%. But industrialization has not been rapid enough to absorb thegrowing labor force, or to bring about a rapid economic transformation, withsignificantly higher productivity and income levels. As a result economicgrowth has been slow over the past three decades, averaging about 3.6% perannum since 1950/51.
4. Nevertheless, there has been steady progress with per capita incomerising by about 1.4% per year in the period 1950 to 1980. Despite the largepopulation base and its relatively rapid growth, India has been able toeliminate persistent dependence on foodgrain imports through significantimprovements in agricultural production. Savings and investment have increased
1/ Parts I and II of the report are substantially the same as Parts I andII of the President's Report for the Madhya Pradesh Fertilizer Project(No. P-3776-IN), dated April 13, 1984.
-2-
markedly since 1950/51: gross national savings more than doubled from 10.8% ofGDP (at factor cost) to 22.8% in 1982/83, while gross domestic investment rosefrom 12.5% of GDP to 24.9% in 1982/83. Foreign savings (balance of paymentsdeficit on current account) have never financed a major portion of domesticinvestment: a peak of about 20% was reached during the early 1960s. Surplusesarose for a few years in the late 1970s, and at the present time, foreignsavings are about 8% of investment. External assistance has been low both as apercentage of GDP and in per capita terms, never rising above 3% of GDP andaveraging below 1% for the past five years. "Net foreign savings have neverrisen above 3% of GDP, and presently stands at 2.1%.
5. Before the 1970s, India placed relatively less emphasis on exportpromotion and more on import substitution. The volume growth of exportsbetween 1950/51 and 1969/70 averaged only 2.2% per annum, while the volumegrowth of imports over the same period was 4.3%. In the early to mid-1970s,however, India's terms of trade, which had remained roughly constant during the1960s, deteriorated sharply. In response, the Government introduced variouspolicy measures designed to stimulate exports. As a result, the volume ofIndia's exports grew on average about 7.3% per annum for the 1970s as a whole,a performance which demonstrates that sustained rapid growth is possible.While expanding world markets, particularly in the nearby Middle East, con-tributed to this growth, liberalized access to imported inputs and more effec-tive export incentives played a major role.
6. Moving into the second half of the 1970s, the Indian economy was buoyedby higher levels of investment and an expanding level of foodgrain output. Asa result, growth in real GDP and in agricultural and industrial value-added,substantially exceeded the historical 30-year trends (paragraph 3) averaging4.9%, 3.9% and 5.6%, respectively. In 1979180, however, this momentum wasbroken when the worst drought in recent years, combined with a doubling ofinternational oil prices and domestic supply shortages, led to a sharp fall infoodgrain production, a decline in GDP, and the opening up of a large tradedeficit. Severe inflationary pressures also emerged after several years ofvirtual price stability. These setbacks in 1979/80 coincided with the prepara-tion of the Sixth Five-Year Plan which laid down a program of adjustment thataimed at improving the trade deficit, removing infrastructural bottlenecks andensuring price stability with an overall growth of the economy of 5.2%, 1.6 per-centage points above the trend growth of 3.6%.
Recent Trends
7. In 1980/81 and 1981/82, the economy substantially recovered with realGDP growing by 7.9% and 5.2%, respectively. While industrial cutput expandedby 4% in 1980/81 and 8.6% in 1981/82, recovery was particularly robust inagriculture where normal weather helped output to rise by more than 15% and5.5%, respectively. The availability of power, coal, and rail transport,already improved in 1980/81, was even better in 1981/82, recording growth ratesof about 10%, 9.6% and 12.9%, respectively. The easing of constraints on thesupply of infrastructure and basic commodities was a determining factor in theimproved performance of the industrial sector. This overall improvement in theIndian economy, combined with a more restrictive monetary policy contributed toa sharp decline in the rate of inflation. Wholesale prices rose by about 9% onan average annual basis in 1981/82 and by only 2.5% in 1982/83, reflecting astrong deceleration from a peak increase of 18% in 1980/81.
-3-
8. After two years of fairly solid performance, the Indian economy Eaced adifficult year in 1982/83 due to the drought in mid-1982 which brought downthe GDP growth rate to around 2% and put further strains on the already dif-ficult balance of payments and domestic resource situation. Besides a sig-nificant decline in the range of 4.5%-6.5% in agricultural production, GDPgrowth was also constrained by a slowdown in industrial growth from 8.6% in1981/82 to about 4% in 1982/83. This resulted from a combination of severalfactors, notably the decline in agriculture income, persistent (thoughlessened) power shortages, a textile strike in Bombay, as well as depressedexport markets and increased competition from imports. The Government wasable, however, to protect the level of savings to a large extent and keep themomentum of the investment program through largely successful public sectorresource mobilization efforts. Foreign savings played a crucial role in sup-port of this effort. Similarly, the timely implementation of various economicpolicies mitigated the otherwise very distressing effects of a poor monsoon.Continued improver-ents of the infrastructure sectors, although at a slower pacethan in the previous two years, also reduced the negative effects of thedrought.
9. Agricultural production in 1982/83 received a serious setback from thedrought. Foodgrain production, which had reached a record 133 million t:ons in1981/82, declined to 124-127 million tons. Production of most other ma jorcrops also declined in 1982/83. Corrected for weather variations, this stillrepresents a creditable performance. In 1979/80, with a broadly comparablemonsoon, foodgrain production reached only 109 million tons. The Governimentwas able to mitigate the effects of the 1982 drought through efficient manage-ment of foodgrain procurement and distribution, careful timing of foodgrainimports, and appropriate allocation of power to irrigation pumps. Thesepolicies helped to avoid disruptions in basic food supplies and contributedto price stability during the year. While the management of the foodgraineconomy after the drought was a significant achievement, the effect of thedrought on production re-emphasized the continued importance of the monsoonin India's agriculture. The performance of the recent past and probable futuretrends suggest that on average foodgrain supplies will meet demand. Thebalance remains delicate, and the need for foodgrain imports to maintain con-sumer supplies or adequate buffer stocks could arise from time to time. Thus,programs to expand irrigation, strengthen extension and encourage the efficientuse of other agricultural inputs continue to receive high priority.
10. Basic infrastructure services performed generally well in 1982/83,although growth of coal, power and rail transport failed to maintain thie momen-tum of the marked recovery of 1981/82. Despite lower hydro generation due tothe failure of the monsoon, overall power generation recorded an increase ofabout 7%. This was due largely t:o an increase in capacity utilization inthermal plants resulting from improved overall management, stabilization ofmost of the new large units and better availability of coal due to the combina-tion of increased coal production and improved railway performance.Nevertheless, power shortages remain the major bottleneck in the economy.Railway traffic grew by only 3.7% in 1982/83 reflecting a slowdown from1981/82. The lower growth was due not to a decline in the operationalefficiency of the railways but rather to slack demand from core sectors likesteel, iron ore, coal washeries and fertilizers. Coal production growth (4% in1982/83), after 10% growth in the two preceding years was creditable. Therewere no major shortages and there were improvements in the quality of coal.Recent easing of shortages and bottlenecks in infrastructure has come primarily
-4-
from better utilization of existing capacity, but in the future most improve-ment must result from added capacity. It is therefore critically importantthat India maintain the pace of investment in these key sectors and mobilizesufficient resources to do so.
11. The Indian economy has reverted from a situation of resource surplus,which had been a temporary phenomenon of the late 1970s, to one of resourcescarcity. Investment has again grown quicker than national savings, and thescope for further increases in the latter appears limited. India's grossnational savings rate, which averaged 22.4% of GDP in the last three years, ishigh by any standard, particularly considering India's low income and the largeproportion of its population living below the poverty line. Future increasesin savings will depend heavily upon the enhanced profitability of public sectorenterprises which would require better utilization of capacity, more efficientoperations and adequate pricing policies. In 1981/82 there was a significantincrease in public savings due to improved profitability of various publicsector enterprises. This trend which was maintained in 1982/83 needs to beaccelerated. The gap between gross investment and national savings which rosefrom 0.4% of GDP in 1979/80 to 1.8%, 2.3% and 2.1%, respectively in the firstthree years of the 1980s, has been financed by foreign savings.
12. India's ability to generate resources to meet its development objec-tives has become increasingly linked to the balance of payments. The currentaccount balance which recorded surpluses between 1976/77 and 1978/79, sharplydeteriorated to deficits of nearly US$2.9 billion in 1980/81 and US$3.8 billionin 1981/82 (1.8% and 2.3% of GDP, respectively). This was partly due to asharp rise in the oil import bill as a result of both the disruption of oilproduction in northeast India in 1980 and significant oil price increases, andto a more liberal import policy aimed at providing producers with access toinputs for higher capacity utilization, greater efficiency, improved technologyand capacity expansion. The current account deficit in 1982/83 declined toUS$3.3 billion or 2.1% of GDP. The improvemenat would have been greater had notthe drought resulted in the need to rebuild food stocks through imports and atthe same time led to a lower level of GDP growth. This improvement in thebalance of payments is to a significant degree the result of India's develop-ment and adjustment efforts over the past threse years. It also reflects areduction in the trade deficit as compared to the levels reached in 1980/81 and1981/82. The trade deficit declined from US$7.6 billion in 1980/81 to US$6.0billion in 1982/83 due to continued export voLume growth (following the sub-stantial resumption in 1981/82) despite poor world market conditions, coupledwith the containment in import growth due to import substitution of petroleumproducts, metals and fertilizers while allowing substantial growth in "other"imports through more liberal import policies. lNevertheless, it is expectedthat the balance of payments will be under strain for the next several years,for India's adjustment program will continue to require high levels of imports.
13. The high investment rate, about 25% os: GDP, envisaged in the Sixth Plancoupled with the limited possibilities of raising domestic savings beyond thepresent high levels, necessarily implies a need for external resources. Facedwith a reduction in the availability of bilateral and multilateral concessionalassistance, India has begun to borrow significant amounts on commercial termsfrom the Euro-dollar market in addition to much greater utilization ofsuppliers' and export credits. India's favorable debt service profile hasenabled India to tap commercial capital markets at favorable spreads (overrelatively high underlying rates). In the period 1980-82 India contracted
-5-
commercial loans totalling over US$2,000 million and suppliers' credits ofabout US$520 million. The bulk of the loans are linked to specific developmentprojects in the public sector while the credits are linked, by and large, todevelopment projects in the private sector. India also reached an agreementwith the International Monetary Fund for the use of the Extended Fund Facilityfor SDR 5 billion, of which SDR 2.5 billion have already been drawn. Thetransfer of funds under the EFF has stemmed the use of foreign exchange reser-ves which had fallen to less than four months of import coverage in 1981/82.In 1982183, in addition to continued use of the EFF, financing requirementswere met by increased non-concessional borrowing (about US$2,000 million in newcommittments) and a 10% increase ia net aid disbursement.
Development Prospects
14. The experience of recent years illustrates that India has the capacityto grow and develop at a more rapid pace. Although the industrial sector issmall compared to the size of the economy, it nevertheless is large in absoluteterms and has a highly diversified structure, capable of manufacturing a widevariety of consumer and capital goods. Basic infrastructure -- irrigation,railways, telecommunications, power, roads and ports -- is extensive comparedto many countries, although tfhere is considerable need for additional capacityas well as improvement in the utilization of existing capacity. India is alsowell-endowed with human resources and with institutional infrastructure fordevelopment. Finally, India has an extensive natural resource base in terms ofland, water, and minerals (primarily coal and ferrous ores, but also gas andoil). With good economic policies and reasonable access to foreign savings,India has the capability for managing these considerable resources toaccelerate its long-term growth.
15. The medium-term framework for advancing India's development objectivesis the Sixth Five-Year Plan (1980/81-1984/85), which is now in its fourth year.The Plan assigns priority to agriculture, energy development, the growth ofexports and domestic import substitutes where appropriate, and the removal ofinfrastructural bottlenecks., Overall performance has so far been encouraging,although bottlenecks in key sectors such as power and transport are likely topersist. Moreover, fulfillment of the Plan targets will require additionalresource mobilization. The efforts of the Central Government to raise resour-ces have so far been impressive and are likely to be broadly sufficient: to meetthe financing requirements of the Central Government's share in planinvestment, even if some increase in inflation is experienced above current lowlevels. However, a shortfall in public savings is likely to occur in someStates unless further measures are introduced. There will be a need a:Lso forcontinuous efforts to maintain the current level of private savings. Recentincreases in interest rates and tax concessions on time deposits and the con-tinued dampening of inflationary expectations should stimulate such savings.
16. The higher capital formation rates of the past few years augur wellfor future income growth. However, returns to investment have so far beenrelatively low. Much of this phenomenon relates to India's stage ofdevelopment, in which a large and growing proportion of investment has beenneeded to build up basic inifrastructure. These services, such as power, tran-sport and irrigation, have inherently high capital-output ratios. Howrever,there is scope to improve the sectoral capital-output ratios through greaterefficiency and better management. Bottlenecks in basic infrastructural sectorsclearly can prejudice growth in other sectors where large investments have been
-6-
made. As demonstrated in the laLst three years, performance in the basic serv-ice sectors can be improved through better planning and management, thus lead-ing to higher productivity and capacity utilization throughout the economy.At the same time, programs to expand domestic capacity are vital. In the caseof tradeable commodities like coal, steel and cement, this is justified on thegrounds of comparative advantage. For sectors such as irrigation, power andtransportation, expansion of planned capacity in accordance with the require-ments of the rest of the economy will be vital to overall medium- and long-termdevelopment prospects. In the short term, however, achieving an adequatebalance between supply and demand in these sectors will remain a difficultobjective.
17. Under the Sixth Plan, India has an ambitious oil production programbacked by substantial financial commitment. W4hile the gap between domesticconsumption of petroleum and production remainis large, the prospects forprogressive substitution of domestic petroleum for imports are quite bright.In 1981, and again in early 1983, resources for exploration and developmentwere raised by successive price increases for domestic crude and products.India's dependence on oil imports dropped from 63% in 1979/80 to about 45% nowand a scheduled expansion in production is expected to decrease oil imports (incrude equivalent terms) to about 33% of consumption by 1984/85. The rapidlyexpanding level of exploration activity, combined with the possibilities foraccelerated offtake from known fields, offers much encouragement for India'slonger-term energy prospects.
18. Despite an expected continued decline in. its current account deficitsfrom the current 2.1% to about 1.7% of GDP by the late 1980s, India willrequire growing access to world financial markets to complement concessionalassistance. These commercial sources of funds will be important in the futuresince India's current account deficits, though not large relative to the sizeof the economy, will nevertheless be large in absolute terms and will neces-sitate external borrowing beyond levels expected to be available from normalconcessional sources. Given the favorable structure of India's external debt,which reflects the past reliance on concessional sources, India should remaincreditworthy for a substantial growth in external borrowing.
19. India's development prospects over the next few years will hinge on theextent to which the economy can be brought into both internal and externalbalance, while at the same time achieving more rapid growth than in the past.In the longer term, income growth represents tbe best strategy for achievingthese needed adjustments, both by generating higher savings for furtherinvestment, and by fostering the development of export and import-substitutingindustry to improve the balance of payments. In the short term, a relativelylarge external borrowing, including an increased emphasis on commercialborrowing, will be necessary to cope with the balance of payments consequencesof such a growth strategy. However, an important element in providing Indiawith the capacity to adjust flexibly will be adequate flows of concessionalassistance. Although India is currently in a pDsition to increase borrowingon commercial terms from the very low levels of the past, there are, of course,limits beyond which India will choose to sacrifice growth objectives ratherthan accept debt on unfavorable or unmanageable terms. The Government's effortto maintain an adequate rate of growth while adjusting the structure of theIndian economy to a more open and efficient environment requires foreignresources in addition to the level of commercial borrowing available to India.India is still a very poor country with a large rural sector and enormous
-7-
investment requirements for human development and basic infrastructure. Thefact that India has been able over the past seven years to maintain a rate ofgrowth above the long term trend, despite the poor monsoons of 1979/80 anid1982/83, lends substance to the hope that a more open trade policy and con-certed efforts to remove constraints on the growth of productive capacity,supported by adequate mobilization of savings both foreign and domestic, cansustain a rate of growth closer to 5.0% per annum than the long-run trend of3.6% per annum. Combined with a reduction in the rate of population increaseto below 2.0% per annum, a 5.3% growth rate would mean a doubling of the trendrate of growth of per capita income of less than 1.4% per annum. Success inthese efforts would make a significant difference to the prospects of easingpoverty in India.
20. A large and growing population and severe poverty underline the need toaccelerate India's development efforts. The 1981 Census placed India's popula-tion at 683.8 million, or about 12 million higher than official projections.The fact that there was no decline in inter-census rates of population growth,equivalent to about 2.2% per annum, is a cause for concern. While furtheranalysis of the Census may suggest this rate of growth to be slightlyoverestimated, the expectation of a measurable decline in the population growthrate has not materialized. Until the results of the Census are fully analyzed,firm judgements about the reasons for this outcome are not possible. However,the results re-emphasize the need for continuing efforts to strengthen thehealth and family planning program in a broad range of activities and services.These efforts are given high priority in the Sixth Plan, which aims at a risein the proportion of protected couples in the reproductive age group from itsestimated 1979/80 level of about 23% to over 35% by 1984/85.
21. Reduction of poverty remains the central goal of Indian economic,growth. More than one-third of the world's poor live in India, and more than80% of the Indian poor belong to the rural househoLds of landless laborers andsmall farmers. About 51% of the rural population and 40% of the urban popula-tion subsist below the poverty line. Improvements in the living standaids ofthe poor will depend to a large extent on the overall growth of the econiomy,particularly on increases in agricultural production and employment, and innon-farm rural employment. These developments will have to stem in large partfrom market forces which can be enicouraged and reinforced by appropriateGovernment policies and the strengthening of basic services and infrastructure.The declining trend in real foodgrain prices between 1970 and 1981, resultingfrom India's sustained effort to raise agricultural production, reflects suchdevelopments. There is also a role for direct Government action in fast:erimplementation of land reform (though the scope for significant reduction inpoverty through land redistribution is quite limited in India), in increasingthe supply of credit available to small farmers and rural artisans, and finallyin broadening the provision of those services which enhance the human capitalof the poor and improve living standards. Many of the latter are elements ofthe Minimum Needs Program, which has been an integral part of Indian planningfor the past decade. Progress has been slow but steady in the expansion ofprimary education, the extension of rural health facilities and the provisionof secure village water supplies. Operations such as the community healthvolunteer program and the national adult literacy campaign provide encouragingevidence that well-targetted, relatively low-cost programs can lead to enhancedprospects for India's poor.
-8-
PART II - BANK GROUP OPERZATIONS IN INDIA
22. Since 1949, the Bank Group has made 76 loans and 160 developmentcredits to India totalling US$5,183 million and US$11,851 million (both netof cancellation), respectively. Of these amounts, US$1,387 million has beenrepaid, and US$6,224 million was still undisbursed as of September 30, 1983.Bank Group disbursements to India in the current fiscal year throughSeptember 30, 1983 totalled US$286 million, representing a decrease of about2 percent over the same period last year. Annex II contains a summary state-ment of disbursements as of September 30, 1983.
23. Since 1959, IFC has made 29 commitments in India totalling US$224million, of which US$30 million has been repaid, US$56 million sold and US$18million cancelled. Of the balance of US$120 million, US$113 million representsloans and US$8 million equity. A summary statement of IFC disbursements as ofSeptember 30, 1983, is also included in Annex II (page 4).
24. The thrust of Bank Group assistance to India has been consistent withthe country's development objectives in its support of agriculture, energy andinfrastructure. Of particular importance have been investments in irrigation,extension and on-farm development designed to increase agriculturalproductivity, and efforts to improve the availability of basic agriculturalinputs to farmers through credit, fertilizer, marketing, storage, and seedprojects. Major elements of the lending program have also been directed athelping to meet the energy needs of the economy while curbing the growth of oilimports, and to ease the infrastructure bottlenecks which have hamperedeconomic growth in India, particularly through power generation anddistribution, and railways and telecommunications projects. The Bank Group hasalso provided financing for a broad range of medium- and small-scale industrialenterprises, primarily in the private sector, through its support of develop-ment finance institutions. Recognizing the importance of improving the abilityto satisfy the essential needs of urban and rural populations, the Bank Grouphas supported nutrition and family planning programs, a rural roads project, aswell as water supply and sewerage and other urban infrastructure projects.
25. This pattern of assistance remains highly relevant, and consonantwith Government priorities, as reflected in the Sixth Plan. The continuedactive involvement of the Bank Group in agriculture, energy and infrastructuredevelopment will appropriately contribute to India's adjustment and growthprospects. Irrigation will need continuing support, with emphasis on improvedefficiency in water conveyance systems to ensure reliable delivery to farmers'fields. In addition, major investments to develop the large Narmada Riverbasin will be vital to India's efforts to increase agricultural production.Important complements to these efforts, such as fertilizer production anddistribution, agricultural credit and extension, will continue to receivesupport. A continued program of investments aimed at rapidly increasing thedomestic supply of energy will clearly be necessary if India is to curb thecost of oil imports and alleviate the critical power shortages which constrainoutput in both the agricultural and industrial sectors. Exploitation of oiland gas resources is a central element of this program, which should be supple-mented by investments in hydro and thermal power generation, and in the expan-sion of the transmission and distribution networks. Industrial projects toincrease the domestic production of basic commodities, which have been in shortsupply and which India has a comparative advantage in producing, should alsoreceive high priority. Finally, raising the efficiency and levels of transpor-
-9-
tation infrastructure would mitigate a key constraint to achieving higherlevels of economic growth so that further support of the railways and for portsdevelopment will be particularly appropriate.
26. 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 part to the response of the aid community, India successfullyadjusted to the changed world price situation of the mid-1970s. However, there
a is now a need for increased foreign assistance to India, not only to help theeconomy adjust to the more recent oil price increases and the overalldeterioration in the world trade environment but also to maintain the rela-tively higher growth rates achieved during the first two years of the SixthPlan. As in the past, Bank Group assistance for projects in India should aimto include the financing of local expenditures. India imports relativelyt fewcapital goods because of the capacity and competitiveness of the domesticcapital goods industry. Consequently, the foreign exchange component tends tobe small in most projects. This is particularly the case in such high-prioritysectors as agriculture, irrigation, and water supply.
27. India's poverty and needs are such that whenever possible, externalcapital requirements should be provided on concessionary terms. Accordingly,the bulk of the Bank Group assistance to India has been, and should continue tobe, 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. This requirement for additional assistance can be met, in part,through Bank lending. Given its development prospects and policies, India isjudged credit-worthy for Bank lending to supplement IDA assistance. A con-tinuation of efforts already underway to achieve growth in productive capacity,trade expansion, higher levels of savings, foodgrains self-sufficiency and areduction in the rate of population growth should result in continued economicgrowth and improvement in the balance of payments. Despite recent setbacks,India's external payments position is still manageable. The ratio of Inidia'sdebt service to the level of exports was about 11% in 1982/83 and is projectedto remain below 20% through 1995/96. As of September 30, 1983, outstandingloans to India held by the Bank totalled US$3,932 million, of whichUS$2,100 million remain to be disbursed, leaving a net amount outstanding ofUS$1,832 million.
28. Of the external assistance received by India, the proportion con-tributed by the Bank Group has grown significantly. In 1969/70, the Bank Groupaccounted for 34% of total commitments, 13% of gross disbursements, and 12% ofnet disbursements as compared with 50%, 43% and 53%, respectively, in 1981/82.On March 31, 1982, India's outstanding and disbursed external public debt wasabout US$17.9 billion, of which the Bank Group's share was US$7.1 billion or38% (IDA's US$5.9 billion and IBRD's US$1.2 billion). In 1981/82, about 16.0%of India's total debt service payments were to the Bank Group.
-10-
PART III - THE TRANSPORT SECTOR
General
29. Road and rail transport are the dominant modes of transportthroughout India with the railways system providing mainly trunk servicesand the highway system functioning mainly as a feeder system to the rail-ways or for short-to-medium transportation needs, where there are compara-tive cost advantages over the railways. Other modes of transport are atpresent of minor importance as general goods and passenger carriers:coastal shipping and pipelines each carry about 3% of the total freighttraffic in terms of ton-kilometers, and air transport about 1% of totalpassenger-kilometers. These modes are, however, important within theirspecialized area, and there is scope for considerable expansion withineach mode.
30. The transport sector plays a vital role in India: virtually allthe other sectors are dependent on efficient and reliable transport serv-ices and the railway system is a key determinant in the efficient opera-tion of each of these sectors. It is therefore of paramount importancethat the transport sector generally, and the railways system inparticular, does not become a constraint to development, and that thevital production activities of the economy are not hindered by inefficien-cies in the sector.
31. There has been in the last two decades a decline in investmentsfor the development of the transport system relative to developmentinvestments elsewhere in the economy. Expressed as a percentage of totalpublic investment, GOI investment in the transport sector decreased from avery substantial 24% in the Second plan period 1956-61 to 13% during1980-84, the first four years of the current: Sixth plan. The Sixth plan,which covers the period 1980-85, provided an outlay of Rs 51.0 billion forrailways. Actual investment is estimated at Rs 65.9 billion since alloca-tions were increased in recognition of the inadequacy of the initialoutlay and to partially compensate for increases in railway costs duringthe period. Real allocations for railways during the Sixth plan areexpected to exceed the previous high investment level of 1961-66 reflect-ing growing awareness by the Government of the magnitude of railwayproblems. In spite of this higher allocation, the railways will not beable to achieve the targets originally set in respect of electrification,track renewals and rolling stock procurement, hence many of the projectswill spill over into the Seventh plan period.
32. There have also been significant shifts in the volume, origin anddestination of traffic flows over the past two decades. There is moremovement of foodgrain traffic in the north-south direction as imports ofthese items have virtually ceased and the restrictions on foodgrain tran-sport have been lifted. Fertilizer imports through the cities of Madrasand Bombay have increased as has cement movements in the east-westdirection. These changes have had a significant impact on the railways
-11-
operations where, inter alia, average leadsl/ for most freight movementshave increased. The average lead has increased from 669 km in the early1970s to 706 km in 1978-83, thuas tying up freight wagons and motive powerfor longer periods per movement and correspondingly decreasing effectivefreight capacity. Furthermore the road transport system, which was neverdesigned to carry bulk freight volumes over long distances, is beingforced to carry some freight that the rail system cannot carry, at ahigher cost to the economy. All of these factors have contributed tosupply shortages of vital commodities such as coal, cement and fertilizerand, coupled with freight congestion in the main ports, has resulted inserious dislocations and shortages in critical segments of the economy inthe past few years.
33. The Indian transport sector is under the jurisdiction of variousministries: major ports, shipping and roads are under the Ministry ofShipping and Transport; railways are under the Ministry of Railways; civilaviation is under the Ministry of Tourism and Civil Aviation; andpipelines are under the Ministry of Petroleum. A number of committees atcabinet and secretarial level are involved in transport coordination, butno single unit below the Prime Minister has complete responsibility forcoordination. While railways are exclusively under the centralgovernment, highways and road transport, minor ports and inland watertransport are the joint responsibility of central and state governments.Given the importance of coordinated transport policy formulation, theNational Transport Policy Coimmittee (NTPC), supported by a study groupwithin the Planning Commission has prepared a framework for overall tran-sport planning and coordination in India. The Committee's report,presented to GOI in 1980, contains sound recommendations that will providea framework for better development of the country's transport sector. GOIapproved most of the NTPC's recommendations in March 1982 and has begun toimplement them. GOl has emphasized its committment to the continuedexpansion of the transport sector, and to encouraging increased efficiencywithin the railway sector.
THE RAILWAY SUBSECTOR
34. The backbone of India's internal freight and passenger transporta-tion system is the railways, which carries about two-thirds of the totalfreight and nearly one-half of the passenger traffic. The railway has thecrucial responsibility of moving freight traffic from the localizedproduction centers of commodities such as steel, cement and coal to thefew concentrated centers of manufacture and trade and from the (essen-tially northern) foodgrain surplus centers to all domestic marketsthroughout India. Agricultural and mineral products, together, accountfor an estimated 70% of total freight movements. Transport capacity to beplanned and provided by the railway is therefore closely tied to thecountry's foodgrain requirements, to the forecast demands of the coal,
1/ "Lead" - the average distance traveled by a ton of freight.
-12-
power, steel and cement sectors and related heavy industries and toforecast passenger movements.
Indian Railways
35. GOI owns and operates the railway system through Indian Railways(IR). IR's operations are very large by world standards with assets ofsome Rs 86 billion, and 1.7 million employees. Indian Railways is con-trolled and directed by a Board consisting of five Members headed by aChairman who is, ex officio, a Principal Secretary to the Government,reporting to the Minister of Railways. The Board performs the dual func-tions of the secretariat to the Minister of Railways and of an executivebody responsible for railway operation. The quality of senior staff isexcellent and their knowledge of modern railway technology is good.
36. The IR network is divided into 9 Zonal Railways, each with its ownGeneral Manager and staff. IR"s indigenous production capacity consistsof three factories manufacturing locomotives and rolling stock. Two newfactories are under construction, one for production of wheels and axles(partly financed under Credit 844-IN) and one for the remanufacture ofcritical diesel locomotive components (partly financed under Loan 2210-IN/Credit 1299-IN). IR also owns 41 Workshops undertaking regular orunscheduled heavy repairs of locomotives and rolling stock and 200 smallerRepair and Maintenance workshops or support units scattered throughout thenetwork.
37. The last 25 years of planned development of IR has brought aboutextensive modernization, including a major shift in the mode of tractionfrom steam to diesel and electric traction. About 2,500 diesel and 1,100electric locomotives introduced since 1960 nlow carry about 85% of thetotal freight traffic. During the same period the number of freightwagons in the fleet has grown about 2 1/2 times to 390,000 wagons and thepassenger stock has doubled to about 25,000 coaches. About 7,000 steamlocomotives remain in service. IR's track network is slightly in excessof 60,000 route-km of which about 13,000 rotute-km is multiple tracked andabout 13,700 km of (mainly) broad gauge track has been electrified. About63% of total track is broad gauge (BG), 32% is meter gauge (MG) and 5% isnarrow gauge (NG). Of the 24,000 route-km of BG track, about 15,000route-km constitutes the heavy density lines over which the average traf-fic density exceeds 20 million gross ton-km per year. On importantroutes, the track is being strengthened and modernized to enable IR tomeet the increasing demands of both passenger and freight traffic. Due tofinancial constraints, however, the allocation for track renewal has beendecreasing over the years and the track renewal program on the primary BGlines averages only about 900 km per year as compared to an estimatedrequirement of some 1,400 km per year.
IR Performance
38. The railway network performance over the past decade has beenencouraging--both on a year-to-year comparative basis and compared to the
-13-
other railway systems in deaveloping countries. For freight traffic irn theperiod 1971/72 through 1983/84, originating tonnage has increased by60 million tons to 258.0 million tons, an increase of 30% Passenger traf-fic during the same period has ialso grown from 2.54 billion passengers to3.27 billion passengers, an increase of 28%. The growth in traffic duringthis period has not been linear, however. The reasons for the variabLegrowth (with its corresponding adverse affects on IR's profitability)include external factors - those that are outside IR's controls, such ascivil disturbances and labor unrest; sectoral factors - those that arepeculiar to IR--such as inefficiencies by the major users in wagon loadingand unloading; and internal factors such as lower-than-normal locomotiveand rolling stock reliability due to poor maintenance or obsolete equip-ment being kept in service; management-related factors, such as the lackof sophisticated financial and operating control systems and associatedcommunications networks that are essential to efficient railwaymanagement. GOI/IR is keenly aware of these causative factors and iscommitted to improvement as discussed elsewhere in this Report.
The Bank's Role in the Sector
39. Bank Group lending in the transport sector began in 1949 with arailway loan and since has included ports, rural roads, highway projects,urban transportation, oil tankers and a pipeline. Substantial indirectsupport to the sector has also been provided through industrial importcredits under which imports of materials and components for manufacturehave been financed. The Railway subsector, in the past 34 years, hasreceived direct assistance totalling US$1.4 billion through 15 loans andcredits.
40. Through the first six loans and seven credits approved between1949 and 1975, the Bank Group assistance to IR (which totalled aboutUS$900 million), was aimed at the rehabilitation and subsequent modern-ization of railway infrastructure, motive power and rolling stock andimprovements in operating efficiency, administration and planning. Duringthis period the main railway infrastructure has been improved, domesl:icproduction has commenced for both diesel and electric locomotives, as wellas for coaches and wagons, and has resulted in an improved motive powerand rolling stock fleet.
41. Commencing in 1978 (Credit 844-IN), the Bank Group s support hasbeen directed at improving the utilization of existing IR assets throughthe modernization of existing maintenance workshops, the import of spareparts and raw materials and components for the maintenance of existinglocomotives and the manufacture of wheels and axles to meet existingdemands. In addition to financial assistance, there have been consult-ations by Bank Group staff and consultants which reviewed heavy engineer-ing technology, electrical and diesel traction technology, maintenanceprocedures, telecommunications, management structures and computerizedoperating information systems. The findings of these review missions havebeen extensively discussed with GOI - especially the Ministries ofRailways, and Finance and with members of the Planning Commission and has
-14-
resulted in IR clearly identifying its investment priorities and indeveloping national programs for addressing them.
42. Project performance audits have been carried out for Credits280-IN and 448-IN and the audit findings are contained in Report No. 1658of June 30, 1977. The report found that the projects were implemented ontime and the re-estimated rates of return were similar to the appraisalforecast. Because of unusual economic and political circumstances thefinancial situation of IR deteriorated during the 12th project period(Credit 448-IN), but improved again from the mid 1970s. The report alsofound, as the Government itself found, that transport planning and coor-dination remained rather weak. In 1978, GOI set up the National TransportPolicy Committee (NTPC) and its report resulted in the establishment of ahigh level Committee to review and implement the recommendations containedin the NTPC's report. Many of these recommendations are now underimplementation. Overall, the audit report concluded that IR's performancehad been satisfactory and that GOI/IR has sought to meet the covenantrequirements set out in the various Credit Akgreements. Credit 844-IN(November 13, 1978) is progressing somewhat more slowly than projected atappraisal due to delays in equipment deliveries but commitments and thephysical construction is now onl schedule. The most recent combined loanand credit (Ln. 2210-IN/Cr. 1290-IN, December 23 1982) continues themodernization program begun under Cr. 844-IN and addressed the modern-ization and improvement of diesel electric locomotive maintenance andreliability and the technology being used ini the mainline AC1/ electriclocomotives. Technical assistance was also provided to assist IR inimproving the efficiency with which it manages its manufacturing units.Progress on construction of the diesel component works and on procurementof spare parts and materials for the unit exchange program is progressingsatisfactorily. On other components of the project however, progress hasbeen somewhat slower than expected, but supervision missions are activelyfollowing up to enhance implementation and the situation is now improving.
Operating Information Systems (OIS)
43. While IR's management continues to take measures to resolve keyoperational bottlenecks, it is constrained in the extent of actions it caninitiate because of a lack of modern management tools which other largerailways have employed. Adoption of a real-timeJ/ operating informationsystem (OIS) - a key management tool for any large railroad-- has beenunder consideration by IR for several years. The Bank Group's audit ofthe eleventh and twelve railway projects also recommended th,e use ofcomputers to provide on-line information on freight carrying capacity andits optimal utilization. Considerable progress has been made: a task
1/ AC - Alternating Current
2/ That is, data is maintained, accessed and updated directly into thecomputer instantaneously.
-15-
force was assembled in 1979 to study OIS' used elsewhere in the world andits report was issued in August L979. Further, in November/December 1981,a multi-disciplinary team visited and studied railway OIS in the UK,France, Germany, USA and Canada, and recommended an OIS of the type cur-rently in use in both Britain and Canada for use in IR. The OIS chosenrequires a substantial related telecommunication and data transmissionnetwork and the implementation of both the telecoms/data network and thecomputerized OIS is now beginning. Some delays have been experienced as anumber of government agencies and departments are involved and it hasproved difficult to gain agreement between the various agencies as to whatconstitutes an appropriate mix of centralized and decentralized computerfunctions and where the locus of development of the hardware and softwareshould be. Satisfactory progress by GOI/IR in the selection and implemen-tation of the OIS and related telecommunications has been a prerequisiteto the continued processing of this project. Selection of the consultantswho will be collaborating with GOI/IR in implementing the OIS is a condi-tion of effectijeness of the proposed loan (Section 5.01, Loan Agreement).
Rationale for Bank Group Involvement
44. The rationale for continued Bank involvement with Indian Railuaysis two-fold: first, it is playing a significant role in delineating IR'sinvestment priorities on a continuing basis -- a role that is provinginvaluable in assisting IR in following a sound investment strategy.Under the proposed project the primary focus would shift from the modern-ization of diesel and electric motive power commenced under 844-IN and2210-IN/1299-IN and would focus primarily on the modernization of coachesand wagons, completion of the electrification of primary trunk lines andinitiating action on utilizing better quality track material. Second, IRstill faces the basic problem that sustained expansion of capacity toadequately meet the expected growth in traffic will demand a substantialimprovement both in technology and in management and operating procedures.A stepped-up investment effort in critical areas involving a substantialshare of India's total investment in transportation, requires a strong,continuous presence by the Bank to ensure that the necessary developmentoccurs in a timely manner.
PART IV - THE PROJECT
45. The project was prepared by Indian Railways with the assistanceof Bank staff. It was appraised in March 1983. Subsequent processing ofthe project was delayed pending action related to the OIS (see paragraph43). A report entitled Staff Appraisal Report, Railway Electrificationand Workshop Modernization Project (No. 4940-IN), is being distributedseparately to the Executive Directors. Negotiations were held inWashington D.C. in March and April 1984. The Government of India andIndian Railways was represented by a delegation coordinated by Mr. Misra,Department of Economic Affairs, GOI. A supplementary project data sheetis attached as Annex III.
-16-
Proiect Obiectives
46. The overall objective of the Bank's involvement with IR is tochannel its investments into improving the utilization of IR's existingassets. In this project specifically, the objective is to focus IR'sinvestment priorities on improving the maintenance of IR's rolling stock;increasing the pace of electrification of high traffic density lines; andcontinuing the process of upgrading IR's managerial capacities.
Proiect Description
47. The proposed loan would support the electrification of about 3,000route-km of IR's accelerated plan to complete the electrification of themajor trunk routes connecting the quadrilateral formed by the four majorcities of Delhi, Bombay, Calcutta and Madras and its diagonals, togetherwith the acquisition of overhead equipment recording/testing cars and anumber of specialized maintenance vehicles for the newly electrifiedlines. To ensure that full benefits will be derived from the electrifica-tion program, this component includes a detailed review of the Ghat 1/operations near Bombay with a view to streamlining the operations of thatsection and providing appropriate communications facilities.
48. The project would also finance the modernization of six of IR'smajor workshops, the Integral Coach Factory (ICF) located at Perambur,near Madras, and a number of Maintenance Depots, together with theacquisition of parts and components that are needed for expanding the UnitExchange system in these workshops that was introduced under Credit 844-INand supported in Loan 2210-IN/1299-IN. In all the Workshops and Depots,the emphasis would be on modernizing equipment, improving materials han-dling procedures, improving quality control., work flow procedures, andintroducing appropriate management information systems and training.
49. Training for the electrification and workshop modernization com-ponents would be provided under the project, to ensure that the latestskills are made available to the IR. Some 1,500 man months of local andoverseas training is provided at a cost of US$3.0 million under the elec-trification component to re-train drivers, introduce line electrificationskills and train staff in signalling and telecommunications.
50. The report of the Rail Tariff Enquiry Committee (RTEC) includedmany recommendations for restructuring IR's tariffs. These recommenda-tions have been, or are being, implemented and GOI/IR has provided infor-mation on the expected completion dates for the remainder of the recommen-dations contained in that report. Agreement has been reached that GOI/IRwill maintain passenger fares and freight rates and take all other action
1/ GHAT operations refers to that portion of IR's network in the hillycountry near Bombay that currently is a major bottleneck to increasedfreight movements into, and out of, Bombay.
-17-
as may be necessary to enable IIR to meet, annually, all operatingexpenses, make appropriate contributions to the depreciation reserve fundand pay the appropriate dividends on the capital-at-charge (Section 4.02,Loan Agreement). Agreement has also been reached that appropriations tothe Depreciation Reserve Fund (DRF) for fiscal years 1985 through 198'9shall be at least equal to that appropriated in 1984 (Section 4.03, LoanAgreement). Efficient utilization of IR's assets will be promoted throughthe following actions: IR will ensure that an adequate supply of motivepower will be available to utilize the newly electrified lines; IR willensure an adequate motive power and an adequate supply of power to theelectrified network; IR will study optimal maintenance standards for bothrolling stock and motive power; and IR will install communication systemson the key North East Ghat sections of the Central Railways.
Project Cost and Financing
51. IR's provisional investment program for the period FY84-90 isRs 120 billion (US$11 bil'lion). The proposed project, which forms part ofthe program, is estimated to cost Rs 13,099 million (US$1,213 million)including US$211 million in taxes and duties. The foreign exchange com-ponent of the project is estimated at US$336 million. The proposed loanwould provide about 23% of total project costs, net of duties and taxes,and 83% of the foreign exchange cost. The balance would be financed byGOI/IR from internal cash generation and from capital-at-charge infusions.
Procurement and Disbursement
52. Procurement of the items under this project would be as shown inAnnex IV attached. Items financed by the Bank would be procured by IR inaccordance with the Bank Group's guidelines. All equipment and materialswould be procured through International Competitive Bidding (ICB) exceptfor contracts of US100,000 equivalent or less which, in aggregate, wouldamount to less than US$10 million equivalent. Also, minor items ofmaterial and equipment associated with contracts for installation/erectionof signalling and telecommunication may be procured in accordance withIR's usual business practices. This is estimated to amount to less thanUS$10 million equivalent. Local manufacturers are expected to win con-tracts valued at up to US$20 million on items under the project bid underICB procedures. A domestic preference of 15%, or the import duty,whichever is less, would be applied to bids of local manufacturers in bidevaluation.
53. The proceeds of the loan would be disbursed against 100% of thec.i.f. cost of imported items; 100% of the ex-factory cost of itemsprocured from domestic suppliers; and 100% of the cost of trainingservices. Retroactive financing in an amount not exceeding US$5 miLlionwould be provided for eligible expenditures on the electrification com-ponents incurred after May 1, 1983. Disbursements under the loan isexpected to be completed by March 31, 1990 and the closing date wou'Ld beSeptember 30, 1990.
-18-
Project Management and Implementation
54. IR will be the executing agency for all portions of the proposedproject and will implement the project as part of its ongoing works andmanufacturing program. IR has shown itself to be experienced in managinglarge construction projects, in the installation, testing and commission-ing of large-scale plants and other major project undertakings.
55. To execute the accelerated line electrification program, IR hasset up a central organization for railway electrification -- the RailwayElectrification Planning Coordination and Monitoring (REPCM) Groupsituated at Nagpur, in central India. Five field units have also beencreated directly under this central organization. Two additional fieldunits have been set up under the South-Central and Southern railways. Inaddition, IR utilizes outside contractors for construction work and theinstallation of overhead equipment (OHE). Appropriate training schoolsand facilities have been set up and the organizational arrangements forcarrying out the electrification program are adequate and competent staffare being appointed. GOI/IR would recruit and maintain appropriatelytrained personnel as needed to meet the needs of the electrificationprogram (Section 3.04, Loan Agreement).
56. The Central Organization for Modernization of Workshops (COFMOW),a specialized organization wholly devoted to the task of managing theworkshop modernization program, which began operation in 1973, wouldcontinue this role in the workshop modernization component of the proposedproject (Section 3.04, Loan Agreement).
57. A detailed implementation program showing the phasing of theelectrification work and the availability of locomotives and trainedmanpower to complete this work and the planning of the workshop modern-ization program has been agreed between the Bank and GOI/IR (Section 3.01,Loan Agreement). The progress reporting arrangements and details of thesereports, including GOI preparation of a final report upon completion ofthe project, have also been agreed (Section 3.03, Loan Agreement).
58. With the increasing size and complexity of IR's manufacturingoperations, the earlier projects (Loan 2210-IN/Credit 1299-IN and Credit844-IN) provided for a Management Information System designecd specificallyfor manufacturing plants. This same management information system wouldalso be introduced at the modernized workshops.
IR's Financial Performance
59. As a result of a number of far-reaching recommendations made bythe RTEC, and their implementation, freight rates and passenger fares havebeen increased substantially and, more importantly, many rates are basedon the principle of recovering the fully allocated cost of thecommodity/class of travel. There has, therefore, been a substantialreduction in the degree of cross-subsidization and loss carryingpractices. As a result, IR made net surpluses, after dividends in all
-19-
years FY77 through FY83 except FY79 and FY80 -- the years immediatelyprior to the increases. For FY84 IR has been unable to cover a portion ofthe dividend payment due GOI. For future years FY85-FY90, based on theBank's conservative assumptions, the financial forecast indicates that IRwould require small tariff increases (about 2% annually in real terms) tocover its full dividend payment. Agreement has been reached that GOI/IRwill maintain passenger fares and freight rates sufficient to cover allexpenses including depreciation and dividends to GOI (Section 4.02, LoanAgreement and paragraph 50). Operating ratios would be favorable despitelarge sums appropriated to the DRF and IR is expected to increase itsinternal generation of resources, to finance capital investment, to about50% compared with an average of about 40% in previous years.
Economic Justification and Risks
60. The economic case for the proposed project rests on the expectedreduction in IR's maintenance and operating costs of both motive power androlling stock throughout the period. With the project, IR will be able tomake better use of its assets, to accelerate improvement in performanceand allow it to meet the increasing demands of the Sixth and Sevent:h FiveYear Plans while avoiding a larger share of long-haul goods being divertedto the more costly road transport system. The economic rate of rel:urn(ERR) for the project as a whole is 25%. For the electrificationcomponent, the ERR of 9 of the 10 sections to be electrified varies from14.5% to a high 40.5%. One section, from Anuppur to Bilaspur, of only 151ki, is justified on the basis that it fills the last remaining non-electrified gap in the otherwise completed network and the resulting ERRis an acceptable 14%. Sensitivity analysis show that there is little riskthat the ERR will fall below 12%, the estimated opportunity cost of capi-tal for India. The component ERR is most sensitive to the assumedlocomotive-kilometers per day and, in the case of 3 sections of track(Itarsi-Nagpur, Nagpur-Durg, and Anuppur-Bilaspur) an assumption thatthere is only a marginal increase in locomotive km/day over the presentdiesel rates would cause the ERR to remain at about 12%. All others showacceptable ERRs under likely conditions.
61. The economic case for workshop modernization involves reduced idletime for motive power and rolling stock during periodic overhauls andincreased in-service reliability--resulting in savings of locomotives andcoaches/wagons required to carry the increasing traffic; reduced costs ofoverhaul and substantial increase in new capacity. Under the project, theERR for each workshop varies between 20% and 50%. Under the unlikely caseinvolving both a 20% increase in costs and a 20% decrease in assumedbenefits (or a 2-year lag in benefits), all project workshop componentsremain at or above 12%.
62. All project components involve technology (except for the testingand research elements) which is well established in other parts oi- theworld. Technical risks connected with the project are therefore small.Additionally, in the past, IR has successfully implemented similarprojects in a timely manner and has built up appropriate managerial and
-20-
technical expertise. Risks from inadequate project implementation aretherefore considered to be small. The staff examined the environmentalaspects and fond that all workshop plans included satisfactory treatmentfor pollutants. IR, being an integral part of the Central Government,does not carry insurance and the Bank Group guidelines on insurance do notapply.
Part V - Legal Instruments and Authority
63. The draft Loan Agreement between India and the Bank and theRecommendation of the Committee provided for in Article III,Section 4(iii) of the Articles of Agreement of the Bank are being dis-tributed to the Executive Directors separately.
64. Special conditions of the project are listed in Section III ofAnnex 3. The selection and appointment of the collaborator to assistGOI/IR in implementation of the Operating Information System is a condi-tion of effectiveness of the proposed loan (Section 5.01, Loan Agreement).
65. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.
Part VI - Recommendation
66. I recommend that the Executive Directors approve the proposedloan.
A.W. ClausenPresident
April 30, 1984 by Ernest Stern
ANNEX IPage 1 of 5
INDIA - SOCIAL INDICATORS DATA SHEETINDIA REFERENCE GROUPS (WEIGHTED AVERAGES) /a
MOST (MOST RECENT ESTIMATE) /b
lb 'b RECENT LOW INCOME MIDDLE INCOHE1960- 1970- ESTIMATE- ASIA & PACIFIC ASIA & PACIFIC
AREA (THOUSAND SQ. NM)TOTAL 3287.6 3287.6 3287.6AGRICULTURAL 1760.7 1780.5 1811.3
GNP PER CAPITA (US$) 70.0 100.0 260.0 276.7 1028.6
ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 114.0 165.0 210.0 398.4 792.8
C POPULATION AND VITAL STATISTICSPOPULATION,MID-YEAR (THOUSANDS) 434850.0 547569.0 690183.0URBAN POPULATION (% OF TOTAL) 18.0 19.8 23.7 21.5 32.9
POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILL) 1001.3
t STATIONARY POPULATION (MULL) 1838.3YEAR STATIONARY POP. REACHED 2140
POPULATION DENSITYPER SQ. KM. 132.3 166.6 205.3 161.7 260.7PER SQ. EM. AGRI. LAND 247.0 307.5 372.7 363.1 1696.5
POPULATION AGE STRUCTURE (%)0-14 YRS 40.9 42.7 39.7 36.6 39.4
/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among theindicators depends on availability of data and is not uniform.
/b Unless otherwise noted, Data for 1960 refer to any year between 1959 and 1961; Data for 1970" between 1969 and1971; and data for "Most Recent Estimate" between 1979 and 1981.
te-tobf o-d-r .f taoto,tdlla- tredo, oodrrrotftrtosojttff--tota Ot s-orotr
(lstefrotgotoae(1ostt o.tofy g-ao oF to go..b 000 t Otorts ootrattftOaoaota tfa foot-totOsoyo h
,ojooootr etylaettgtsr olIot aoretX-Pr h 'tfddto tootNrt e ooatiodt-at'i far eostoorogtot-rtoa
afot et oofofrot300 aaoaot.gaotpp fat gtOottIfNaaafroaf rtoo o ha o fo t(to faertsfoI arofOa ft,fo ora Odfaor,str Otocoergaofrottse ooo ot oirfoe orot t ot totaitoyofofoottorof otra, toto -tohaoartattorttrto ateagatrtretodoasoooaofft. Thetttrtgsaftrottoatot t toyarto rhoatttfot fotraorooffornootfteoooosao
fro ropt, yasorto o-ote sod Ottota- da-d- or o 1oofata; t1S rttooottttt005ar orl dos-ooa toorOatottd-rot,o
'Tao tIS.6attttt1ar.70ht.ttrfal oot-a Oy rrtrlatgeaet ostt,sottairrlto, 1 (orlIdor tot ,t IIyt.t tttdoa t teott(roe
trrbao fopottotto tyerrtot of oota I Oeo 10 tO orhar-to tota- rorott-tto
dlf ftreo defootttos of orar stoattoyalar rrortfllt f ot tot-
atog oooret tot tos,to Ot or, eeogtfrt-f -ierot (rtora05 hoehodt- tta, rbo,th rroyopotatfoo fto(totlooa - 0 frotahot 3 root~~~~LaI 00' P 00 fldttot ftaae1ttgostt
yorlttoo ro to 300 -sooeo tryrtotr pr (ro rotaoaheet r [00 ot oe r ttosato.0 htrdr o tote to ortarto hefooote ttots yyotolr t ad so tt at oet atoatro ttferttoy ro ootttoo ot tottootot yrorro
rate. fotef tot fyacotra(ororral ty rtesroepttarforratrtreroabe tO rotta oo rot-ota. rr~2tss0otykaosaaeoth
,taeatoottrorotr a 010Irtatgtt rrtosoro trottptro-t t ta,to 'ttoryttoottbo
rarha orto roa, ot ata -httf -odar -o y otttItat(. tttoa,tfOrpt,ttt ttOrt ooorO'oetarrot odoter- ThLaotea r attorrt (ohottretotoorrtE-O-00000, W
oatgt0
rotottotat: to eoorlo t lrot (oo ro yotItttyooooratortrt2 I otor of dettoro t-t. -fOt.toraa
Otaoto yaforatr. Oor otoro a tto tolrtOrotof ott trt Gotrt toataoot tga ft alrt rtr toldre -oertraayerpoagoootatraofsrottsao eet ly rod oryrjroo yrY=t of orot-4or,t, Io to-o t oetl toa ret_tt_oot
atrot-,ht btroto root to eqoot ortlrt dfotO rttr , tot o-tobthe ago-5p\tOottfatrartrtoetaot oetoaoo,thto t aohtoad oty afor foott toytootshejodod-tott-eto-har-y
tartferorhrsrrteoeofeorsooofo oorapodottorrar,ero OrIfoobo -ptO a-o,dtot-trtott,aog- ott
oatgrealo o ottretra tet0eeo t.toetotoot oftett0'ot gt ftOtrott tot aorotaaofttata
rortptooat
to otttlsooetrChej6 tatO_1h r(oorttlo4tao rta-t-0 ooto:rrot tototrtdt gdft
t64 tltryaottoO teya 00,attorf-o rto t er o t0
stLo rttottoos fy st aootodo
ara; tOot tft art) t -ts ttoa, yloyoforao--tttyo It tou 5" ret Iob, roroprttroasatoe to. Or. rttotr tth boy-ta-aotfrortotortotfOt (osrtd
ooytb,ttd9605 as Orttttootptttrttfoodttrtttttotttlfoytolo aa Oorprra forel t- otiro (-t (oot, .ooto-ao tO tototsohtrt, otatrar 0 otro pr
0tathtO ftatotoryod
htyatoe 1960, 1970 r -tr dttytrtrtorfo prtIreofod-rr -ottratste-r f trodryt-ototoo
fof(ateotrrt yttgrr.o-otoooogror- roos o to-oh yoaoodoorrtetdoto r-roaa(ror yeptattoo tt tOOt-O. tOtt-(, toot tft-Ot. fopoot of (root-t
yrotaloSfahttttetar( atta-orttgrofoarooarooMot toooytO(o-rto ttOtrretootaoeottttta--tapootafoo tr trtto,I PIo-o,er 00-0-, f aooaeo oatoOyroa o gdt 00 o or
Crote trotoftooo rot ltootaoy - oorat (ot ftots to ofotoattOTfVttO(tsr ooyotaotro; tygo, INfO, sod tOOt data, CtOOJfrStltt ~ ~ ~ ~ I. T
Stoos ft-tO Oto (ar troeaoS - port datO rOtoroooo ofato-oao foteoor frt ye otoado r-oattro t -foo..gr...a.....oe.oto
fot....t..ttott ft. tofe oeAe at3t th,tt,atOtaotot ord(rht prtRoao f oooto srotortIII or otor f orrg o t ro ottgoootto oo
0aot~taoto-hreoor,aroottooaod.taerotortrttr-; rY pttoeoo- otfttrdooorteo1rr oro ereaootao- aofItI-tt It trf e ttt oeyfe ofotootftt9oaoo ooor 0thtta t97 trot t
yfgor O eatoa(prr-odr ootoo...t...trt t totrat
faotrtoto(ataoptoo tartdeoot eoaeeafaotsoaeatot( aotooodo-oetoertorotlaottfrrettdoeoftt-hot- art5too-teh t -o-rrro Paor o .rrof oOrorr to r
Otoo 00oatfrot aorto ootorr rlrteght:(OI -hf tOOt tot I tOOt-,T--daft. t.ogoe roger , .I,h~--I -- , -e'1 I 4
rtao,atrtptfroo.Ottrlt atrIo-. tootot fat. t-oo aofrO u;tOO (00ot O rttototoIt otO t frt oorraoa -ar tosato so 97 t-ottott 1977thot- Ib, reoof-Er O Ottfor sprooaaofttltao a
Ototootetasp atoaht y thOoeO 0 oyoo-goa ortato arot rrraToRe z abom t-too orrtf eoa 0000 ho o oarotrryoe (tatoO rtatdttogrtlrrootrot otfotatte, ody otgftt fthtog t yertrfoeof rost otorfort; 100. (05 otttoottab a
000 aoytyrf ootyarda. Ot tyft offoo O ttf--e ah000, ot toato(tt5orer - ott oo rttataftf tattabrotreeot fe tl 0000 ft ofhfhdh 00yatefroottatsttroe r oyodt ro,tt,at(ot ar oo
otoaroff yN o ta rtt e oftOt rt foofo t .eetOerttt a 0 acl tottto t ot tpttoyfot yoooo o OOh( gor fos t rtl rrat-OototM .00-0, .11 o II bO Oat -o r ftoo tt otttatog
otop 100005 tto tOto--O-tr pl I50 tI fa -a -t-orotto pD OoooO-poa oos a bott orre-aoo.rro ooe 1oht ofedoer aertO oht
MONEY, CREDIT AND PRICES 1970/71 1975/76 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 February 1983 Pebruary 1984(Rs Billion outstanding at end of period)
Money and Quasi Money 109.8 224.8 329.1 401.1 472.3 555.5 624.9 723.8 711.7 845.7Bank Credit to Government (net) 54.6 106.3 137.3 159.3 200.1 257.2 309.1 352.4 353.5 406.6Bank Credit to Commercial Sector 64.6 156.2 212.2 255.3 310.1 363.5 430.5 504.5 487.7 576.4
(Percentage or Index Numbers) Apr-Peb 1982/83 Apr-Feb 1983/84
Money and Quasi Money as a Zof GDP 27.3 30.3 36.7 41.1 44.1 43.6 42.0 44.0
a/ The per capita GNP estimate is at market prices, using World Bank Atlas methodology, base period 1979-1981.All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered.
6/ Quick Estimates, Central Statistical Organization.
s/ Computed from trend line of GNP at factor cost series, including one observation before first year and one observation after last year oflisted period.
d} World Bank estimates of net disbursement of concessional aid and IBRD.e/ Transfers between Centre and States have been netted out.f/ All loans and advances to third parties have been netted out.j/ Percentage change from end-March 1982 to end-February 1983.h/ Percentage change from end-March 1983 to end-February 1984.i/ Total Labor Force and percentage breakdown from 1981 Census. Excludes data for Assan.
ANNEX IPage 5 of 5
BALANCE OF PAYMENTS 1980/81 1981/82 1982/832/ 1983/841/ MERCHANDISE EXPORTS (AVERAGE 1979/80-1982/83) 3i(Us$ Mln.) US$ Mln. %
j/ Estimatedk/ Figures given cover all investment income (net). Major payments are interest on foreign loans and charges paid to IMF. and major receipts is
interest earned on foreign assets.1/ Figures gives include workers' remittances but exclude official grant assistance which is included within official loans and grants. and
non-resident deposits which are included within all other items.m/ Exclude net ose of IMF credit.n/ Amortization and interest payments on foreign loans as a percentage of total current receipts.O/ Includes exchange rate adjustments to the valuation of reserves and financing of imbalances in rupee trade.e/ Excluding gold.q/ Net of crude petroleus exports.r/ Including iron and steel.
ANNEX IIPage 1 of 4
THE STATUS OF BANK GROUP OPERATIONS IN INDIA
A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of September 30, 1983)
US$ millionLoan or Fiscal (Net of Cancellations)Credit Year of
No. Approval Purpose Bank IDA 1/ Undisbursed 2/
48 Loans/ 1,688.0 - -
83 Credits fully disbursed - 4,759.0 -
482-IN 1974 Karnataka Dairy - 30.0 11.56502-IN 1975 Rajasthan Canal CAD - 83.0 6.83521-IN 1975 Rajasthan Dairy - 27.7 6.30522-IN 1975 Madhya Pradesh Dairy - 16.4 -0.11598-IN 1976 Fertilizer Industry - 105.0 3.12604-IN 1976 Power Transmission IV - 150.0 3.95610-IN 1976 Integrated Cotton Development - 18.0 3.251251-IN 1976 Andhra Pradesh Irrigation 145.0 - 44.921273-IN 1976 National Seeds I 25.0 - 15.891335-IN 1977 Bombay Urban Transport 25.0 - 4.77680-IN 1977 Kerala Agric. Development - 30.0 13.37682-IN 1977 Orissa Agric. Development - 20.0 3.30685-IN 1977 Singrauli Thermal Power - 150.0 7.45690-IN 1977 West Bengal Agricultural
Extension & Research - 12.0 10.291394-IN 1977 Gujarat Fisheries 14.0 - 4.08712-IN 1977 M.P. Agric. Development - 10.0 0.49720-IN 1977 Periyar Vaigai Irrigation - 23.0 6.99728-IN 1977 Assam Agricultural Development 8.0 3.96736-IN 1978 Maharashtra Irrigation - 70.0 4.051475-IN 1978 Industry DFC XII 78.5 - 2.49747-IN 1978 Second Foodgrain Storage - 107.0 61.57756-IN 1978 Calcutta Urban Development II 87.0 6.51761-IN 1978 Bihar Agric. Extension &
Research - 8.0 5.811511-IN 1978 IDBI Joint/Public Sector 25.0 - 2.541549-IN 1978 Third Trombay Thermal Power 105.0 - 8.38788-IN 1978 Karnataka Irrigation - 117.6 52.30793-IN 1978 Korba Thermal Power - 200.0 47.64806-IN 1978 Jammu-Kashmir Horticulture - 14.0 11.01
808-IN 1978 Gujarat Irrigation - 85.0 19.30815-IN 1978 Andhra Pradesh Fisheries - 17.5 9.98816-IN 1978 National Seeds II - 16.0 8.881592-IN 1978 Telecommunications VII 120.0 - 22.27824-IN 1978 National Dairy - 150.0 76.70842-IN 1979 Bombay Water Supply II - 196.0 156.24844-IN 1979 Railway Modernization
& Maintenance - 190.0 48.31848-IN 1979 Punjab Water Supply & Sewerage - 38.0 8.48855-IN 1979 National Agricultural Research - 27.0 18.96862-IN 1979 Composite Agricultural Extension - 25.0 7.58
Maintenance II 200.0 - 197.041299-IN 1983 Railways Modernization &
Maintenance II - 200.0 197.01
2241-IN 1983 South Bassein Gas Development 222.3 - 219.011319-IN 1983 Haryana Irrigation II - 150.0 143.601332-IN 1983 U.P. Public Tubewells II - 101.0 101.001356-IN 1983 Upper Indravati Hydro Power - 170.0 170.002278-IN 1983 Upper Indravati Hydro Power 156.4 - 156.011369-IN 1983 Calcutta Urban Development III* - 147.0 147.001383-IN 1983 Maharashtra Water Utilization - 32.0 32.002308-IN 1983 Maharashtra Water Utilization 22.7 - 22.642283-IN 1983 Central Power Transmission* 250.7 - 250.702295-IN 1983 Himalayan Watershed Management 46.2 - 46.082329-IN 1983 Madhya Pradesh Urban* 24.1 - 24.101397-IN 1984 Orissa Irrigation II* - 105.0 105.00
Total 5,183.2 11,851.2of which has been repaid 1,251.2 136.1
Total now outstanding 3,932.0 11,715.1Amount Sold 133.8of which has been repaid 133.8 -
Total now held by Bank and IDA 3/ 3,932.0 11,715.1
Total undisbursed (excluding *) 2,100.45 4,124.24
1/ IDA Credit amounts for SDR-denominated Credits are expressed in terms of theirUS dollar equivalents, as established at the time of Credit negotiations and assubsequently presented to the Board.
2/ Undisbursed amounts for SDR-denominated IDA Credits are derived from cumulativedisbursements converted to their US dollar equivalents at the SDR/US dollarexchange rate in effect on the dates of disbursement.
3/ Prior to exchange adjustment.
* Not yet effective.
ANNEX IIPage 4 of 4
B. STATEMENT OF IFC INVESTMENTS(As of September 30, 1983)
Fiscal Amount (US$ mill:ion)Year Company Loan Equity Total
1982 Ashok Leyland Limited 28.0 - 28.01982 The Bombay Dyeing and
Manufacturing Co. Ltd. 18.8 - 18.81982 Bharat Forge Company Ltd. 15.7 - 15.71982 The Indian Rayon Corp. Ltd. 8.3 - 8.31984 The Gwalior Rayon Silk Manu-
facturing (Weaving) Co. Ltd. 4.2 - 4.2
TOTAL GROSS COMMITMENTS 211.6 12.1 223.7
Less: Sold 53.0 3.4 56.4
Repaid 30.1 - 30.1
Cancelled 16.1 1.4 17.5
Now Held 112.4 7.3 119.7
Undisbursed 82.9 - 82.9
ANNEX IIIPage 1 of 1
INDIA
RAILWAY ELECTRIFICATION AND WORKSHOIP MODERNIZATION PROJECT
SUPPLEMENTARY PROJECT DATA SHEET
Section I: Timetable of Key Events
(a) Time taken by the country to prepare the proiect
Four years.
(b) The agency which has prepared the proiect
Indian Railways, assisted by Bank Group staff.
(c) Date of first presentation to the Association and dateof first mission to consider the project
April 1980, June 1980
(d) Date of departure of appraisal mission
November 1983.
(e) Date of completion of negotiations
April 1984.
(f) Planned date of effectiveness
September 30, 1984.
Section II: Special Bank Implementation Actions
None
Section III: Special Conditions
GOI would ensure passenger fares and freight rates adequateto enable IR to meet all operating expenses and other costs(para 50).
ANNEX IV
INDIA
RAILWAY ELECTRIFICATION AND WORKSHOP MODERNIZATION PROJECT
PROCUREMENT DETAILS
Proiect Element Procurement Method ProposedICB LCB Other N.A. Total
3/ Figures in parentheses indicate proposed financing by the Bank.
4/ According to Bank Guidelines.
5/ General charges (administration and supervision)/miscellaneous works viz. compensationto P&T, modification to power line crossings, replacement works, etc.
![[Pixar] Big Data, Big Depots](https://static.documents.pub/doc/80x56/5582937bd8b42ac9798b548d/pixar-big-data-big-depots.jpg)
