Document of The World Bank Report No: 19274-IN PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 36.9 MILLION (US$50.0 MILLION EQUIVALENT) AND A PROPOSED LOAN IN THE AMOUNT OF US$85.0 MILLION TO INDIA FOR THE INTEGRATED WATERSHED DEVELOPMENT (HILLS-Il) PROJECT MAY 18, 1999 Rural Development Sector Unit South Asia Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 11, 1999) Currency Unit = Indian Rupees =US$ US$ 1.00 = Rs. 42.7 FISCAL YEAR April 1 March 31 ABBREVIATIONS AND ACRONYMS ABBREVIATIONS Al Artificial insemination MOWR Ministry of Water Resources CAPART Council for the Advancement of Peoples Action and Rural MTR Mid-term Review Technology NATP National Agricultural Technology Project CSWB Central Social and Welfare Board NCB National Competitive Bidding DDOs Drawing and Disbursing Offices NGOs Non-Govemmental Organizations DEA Department of Economic Affairs OM Operational Manual EMP Environmental Management Plan PCC Project Coordination Committee FRRs Financial Rates of Retum PDFs Participatory Development Facilitators GIS Geographic Information Systems PDMs Participatory Development Motivators GOI Govemment of India PDSs Participatory Development Specialists H.P. Himachal Pradesh PFS Project Financial Statements ICAR Indian Council of Agricultural Research PIPs Project Implementation Plans ICB Intemational Competitive Bidding PIU Project Implementation Unit ICC Inter-ministerial Coordination Committee PMRs Project Management Reports IMME Information Management, Monitoring and Evaluation PRA Participatory Rural Appraisal IT Information Technology PRAs Participatory Rural Assessment IVLP Institution Village Linkage Programs PRIs Panchayati Raj Institutions IWDP Hills-I Integrated Watershed Development Hills Project REA Regional Environmental Assessment J&K Jamnu and Kashmir SCF Standard Conversion Factor M&E Monitoring and Evaluation SOEs Statements of Expenditures MOA Ministry of Agriculture U.P. Uttar Pradesh MOEF Ministry of Environment and Forestry U.P-DASP Uttar Pradesh -Diversified Agriculture Support Project MORAE Ministry of Rural Areas and Employment VDCs Village Development Commnittees MOU Memorandum of Understanding VDP Village Development Plan WDC Watershed Development Council WPIOs Watershed Implementing Agencies Vice President: Mieko Nishirnizu Country Manager/Director: Edwin R. Lim Sector Manager/Director: Ridwan Ali Task Team Leader/Task Manager: Hamdy Eisa/Meena M. Munshi INDIA INTEGRATED WATERSHED DEVELOPMENT (HILLS-Il) PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 4 C. Project Description Summary 1. Project components 5 2. Key policy and institutional reforms supported by the project 6 3. Benefits and target population 7 4. Institutional and implementation arrangements 8 D. Project Rationale 1. Project alternatives considered and reasons for rejection 10 2. Major related projects financed by the Bank and other development agencies 12 3. Lessons learned and reflected in proposed project design 13 4. Indications of borrower commitment and ownership 14 5. Value added of Bank support in this project 14 E. Summary Project Analyses 1. Economic 14 2. Financial 15 3. Technical 15 4. Institutional 16 5. Social 17 6. Environmental assessment 18 7. Participatory approach 18 F. Sustainability and Risks 1. Sustainability 20 2. Critical risks 21 3. Possible controversial aspects 22 -I - G. Main Loan condition 1. Effectiveness conditions 22 2. Other 22 H. Readiness for Implementation 24 I. Compliance with Bank Policies 24 Annexes Annex 1: Project Design Summary 25 Annex 2: Detailed Project Description 30 Annex 3: Estimated Project Costs 45 Annex 4: Cost Benefit Analysis Summary 46 Annex 5: Financial Summary 62 Annex 6: Procurement and Disbursement Arrangements 63 Annex 7: Project Processing Schedule 83 Annex 8: Documents in Project File 84 Annex 9: Statement of Loans and Credits 85 Annex 10: Country at a Glance 89 Annex 1 1: Beneficiary Participation Across Five Project States 91 Annex 12: Regional Environmental Assessment: Executive Summary 96 MAP(S) None _jj_ INDIA Integrated Watershed Development (Hills-II) Project Project Appraisal Document South Asia Regional Office SASRD Date: May 18, 1999 Task Leaders: H. Eisa/M.Munshi Country Manager/Director: Edwin R. Lim Sector Manager/DireetWr: Ridwan Ali Project ID: 41264 Sector(s): AD - Rural Development Lending Instrument: Specific Investment Loan (SIL) Theme(s): Rural Development, Poverty Reduction Poverty Targeted Intervention: Yes Project Financing Data N Loan N Credit DJ Grant [I Guarantee R Other (Specify) For Loans/Credits/Others: Amount (US$m) (Credit: SDR 36.9 million (US$50.0 million equivalent); Loan US$85.0 million) Proposed Terms: IZ To be defined Ol Multicurrency H Single currency Ol Standard Variable El Fixed 1 LIBOR-based Grace period (years): 5 Credit 10 Years to maturity: 20 35 Commitment fee: 0.75% 0.50% Service charge % 0.75 FtnaIQli~gIan: OET * i,!ii~ Government 42.00 2.50 44.50 IBRD 65.80 9.20 75.00 IDA 57.00 3.00 60.00 BENEFICIARIES 13.50 0.00 13.50 Total: 178.30 14.70 193.00 Borrower: Government of India Guarantor: N/A Responsible agency: Ministiy of Agriculture (MOA) Implementing agency(ies): Governments of Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab and Uttar Pradesh; and Village Development Committees (VDCs) Estimated disbursements ( Bank FYIUS$M): 2-O-w ~ 2O01 03_z 2&Q4 Annual 13.50 27.00 40.50 40.50 13.50 Cumulative 13.50 40.50 81.00 121.50 135.00 Project implementation period: 5 Years Expected effectiveness date: 09/30/99 Expected closing date: 03/31/2005 OCS PAD Form: October 9, 1998 A: Project Development Objective 1. Project development objective: (see Annex 1) The main development objective of the project is to improve the productive potential of the project area in five states (Punjab, Haryana, Himachal Pradesh, Jammu & Kashmir and Uttar Pradesh), using evolving watershed treatment technologies and community participatory approaches. The project would contribute significantly to decreasing soil erosion, increasing water availability and alleviating poverty in the contiguous areas of the Shivalik hills in the five project states. Sustainability of project interventions would be ensured through participatory involvement of project stakeholders/beneficiaries. An associated objective is to assist the states with institutional development and consolidate progress already made in harmonizing approaches to watershed development management among various programs operating in the Shivalik Hills. The Shivaliks, which lie in the foothills of the Himalayan range, have been identified as one of the eight most degraded rainfed agro-ecosystems of the country and hence included in the priority areas for watershed development. There are acute shortages of drinking water, fodder and fuel-wood, caused by deforestation, decreased vegetative cover and severe soil erosion. Subsistence rainfed agriculture is the prevalent production system in the Shivaliks. Reversing the degradation of natural resources is the key to promoting rural development. More than 200 million of India's poor depend on subsistence rainfed agriculture. The project would focus of the most degraded watersheds in the rainfed areas and, thus, on some of the poorest populations in India. In particular, it would aim to ensure that benefits reach the more marginalized and vulnerable elements of those populations. These include those who subsist on the most marginal resources as well as women. This would contribute significantly to poverty alleviation in the project states. The project design recognizes the need for policy and institutional arrangements that will ensure long-term sustainability. For that purpose, the project calls for a Shivalik Watershed Development Strategy for the five states. The strategy would harmonize watershed development guidelines across states. In each state, the Shivalik Watershed Development Strategy would be the basis for project interventions and would link watershed activities to the several centrally sponsored schemes, state and donor interventions. A "bottom-up" approach is an integral part of the proposed project design and would involve all stakeholders during project planning and implementation. The project would place special emphasis on building the capacity of communities to take responsibility for maintaining assets created under the project. Mechanisms would be developed to link community-based organizations to the Panchayati Raj-Institutions (PRIs) so that PRIs and the communities jointly take responsibility for managing these assets. The project design would be adjusted in size and scope to take into account the results of the Watershed Development Strategy, social assessments and participatory rapid appraisals reflecting community priorities. These changes would be reflected in the annual implementation plans and in annual state budgets. The participatory approach, which is the cornerstone for project implementation and sustainability, is a proactive interactive process with an outcome that cannot be pre-determined without being undertaken. Therefore, the project design is based on learning and evaluation; and continuous dialogue with beneficiaries/stakeholders and project staff is essential to adopting meaningful project interventions. Thus, the project costs and interventions are indicative and are subject to revisions during the participatory planning stage. -2- 2. Key performance indicators: (see Annex 1) The key performance indicators would be: (a) increased availability of surface and ground water; (b) reduced run-off and soil erosion; (c) improved vegetative cover in treated areas; (d) improved forest condition in the fragile upper slopes of watersheds; (e) increased availability of fodder and fuel; (f) increased crop yields, milk production and horticultural products; (g) increased household incomes of marginal and small farmers, the landless and women; and (h) increased community/beneficiary participation through Village Development Committees (VDCs). In addition to the above performance indicators, the project includes principles and features that would need to be tested and adjusted during the participatory implementation. These include: internal organization and development that permits communities to define services that meet their needs; relevancy of technical treatments; effectiveness of participation of beneficiaries in the decision-making which builds local responsibility and accountability, and implementation of an effective monitoring and evaluation system. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 17241-IN Date of latest CAS discussion: 12/19/97 Consistent with the Government's national agenda, an important objective of the Bank's assistance strategy for India is to place emphasis on sustainable agriculture, water and rural development as a key component of poverty alleviation. The project would be fully consistent with CAS goals by promoting sustained management of natural resources and reaching directly to the rural poor in rainfed areas. Approximately 70 percent of the poor live in rural areas and most of them live in rainfed areas. In support of this strategic objective, the proposed project would aim at maximizing sustainability through stakeholder involvement and cost-effectiveness in use of investment resources. Specifically, it would be based on community participation in planning, financing and implementing the program and on the institutional re-alignment of the implementing agencies in the constitution of more effective partnerships. 2. Main sector issues and Government strategy: a. Issues in Rural Development Key sector issues affecting rural development in India, which distort the allocation of resources and hinder the private sector from participating in the modernization of the agricultural sector, are: (i) input subsidies on irrigation, rural power and urea fertilizer which benefit few while imposing serious distortions in agriculture and use of natural resources; (ii) excessive public sector involvement in agricultural services (extension, research, livestock, etc.) and inadequate delivery of these services; (iii) agricultural price and forest marketing policies; (iv) lack of timely access to credit and markets; and (v) unclear tenure responsibility for natural resource management leading to severe degradation from over-exploitation of common lands. Government strategy at the national level is not adequately focused on reducing these critical constraints. However, the willingness of GOI and the states to move towards better cost recovery, reduction of input subsidies and greater community involvement in the context of the watershed development programs (as in the proposed project), provides a positive indication that progress can be made, at least in the context of specific national programs. -3- b. Issues in Watershed Development: The development of watersheds as an integrated unit of investment and natural resource management has been recognized a tool for the rural sector for many years in India and its application has become widespread. However, there have been serious issues affecting these programs and limiting their success. These are: (i) weak institutional and technical coordination within ministries in GOI involved in watershed management activities; between donor agencies and GOI; and within donor agencies; (ii) multiple institutions and inappropriate organizational structure for the delivery of goods and services at the local level; (iii) lack of beneficiary and stakeholder involvement in planning and implementation of programs with a tendency towards top-down approaches which result in lack of sustainability of project activities; (iv) poor cost recovery in many programs and poorly defined benefit and cost-sharing arrangements; (v) lack of appropriate and technical recommendations and norms suitable for variable agro-climatic zones; (vi) poor monitoring and evaluation of physical and financial indicators; and (vii) inadequate emphasis on equity issues. 3. Sector issues to be addressed by the project and strategic choices: The project would address the issues noted above under five headings: (a) strategic coordination; (b) harmonization of norms and guidelines; (c) beneficiary and stakeholder commitment; (d) reaching marginalized and vulnerable groups; and (e) strengthening monitoring and evaluation. (a) Strategic Coordination. IWDP-Hills-I did not originally include linkages to other national or state watershed interventions, though a beginning was made in this direction during the later stages of that project. The project would rectify this by requiring each state, under GOI's Ministry of Agriculture (MOA) coordination, to develop a comprehensive Shivalik's Watershed Management Strategy. The strategy would indicate all sources of funding for watershed development from the GOI, the states and external donors. In each state, the resulting Shivalik Watershed Strategy would become the point of reference for all interventions, including the Bank's, and would form the basis for baseline studies. The project states have undertaken a study to develop Shivalik Watershed Development Strategies at the state level with an overall strategy that would be synthesized by MOA. (b) Harmonization of Norms and Guidelines. A critical issue which has to be dealt with is the proliferation of guidelines and practices (financial, social and technical) in watershed development, depending on the sources of funds (state, national, bilateral and multilateral). This proliferation creates confusion and diminishes the potential for the wider replication of sustainable models. The project would attempt to standardize these norms, concentrating particularly on the adoption of indigenous technologies and research recommendations on suitable grasses, shrubs and trees. Special topics on watershed research and conservation technology would be undertaken on a competitive grant basis, as agreed under the recently approved National Agricultural Technology Project (NATP). Technology dissemination of proven interventions would be based on successful demonstrations under IWDP-I states with particular attention to adoption in selected watersheds. (c) Beneficiary and Stakeholder Commitment. To ensure implementation of a sustainable Shivalik Watershed Strategy, an inclusive approach has been adopted in the project design. Presently, most planning and implementation of watershed activities is undertaken by staff of the watershed department or line departments with cooperation from staff seconded to the implementing agency at the state level. This approach has been revised under the project to ensure greater participation by beneficiaries which experience has shown to be key for effective project implementation and sustainability. The project design addresses the issue of promoting effective community involvement in planning project activities, managing -4- their execution, and maintaining these assets in the longer-term. Based on beneficiaries' feedback from the first project, and other projects, some concrete steps would be taken to streamline and operationalize the participatory process. These would include developing a participatory Village Development Plan (VDP) for each village/VDC (or groups of villages in micro-watersheds), an agreed and signed Memorandum of Uriderstanding (MOU) and an Operational Manual (OM) between the communities and the implementing agencies. The MOLI and OM would articulate the rights, obligations and responsibilities of the various parties during implementation. Such participation would apply to all aspects of planning and implementation from selection of appropriate technologies to fund utilization. To ensure beneficiary commitment and sustainability, the project would also increase community contributions to project interventions and operation and maintenance of assets. A gradual but meaningful program has been developed to ensure beneficiary contribution to the project. This program would be reviewed during the project's mid-term review (MTR) and adjusted as needed. (d) Reaching Marginalized and Vulnerable Groups. As the project would focus on the most degraded watersheds in the Shivalik Hills and, thus, on some of the poorest populations in India, the project would aim to ensure that benefit streams reach the more marginalized and vulnerable elements of those populations. These include those who subsist on the most marginal of resources as well as women, whose role in overall livelihood strategies is often ignored. The dialogue between the project authorities and the VDCs would take up the condition of these marginalized groups, and specific ways to incorporate their interests would feature in the agreed MOUs. To this end, a study on the movement of transhumant pastoralists through the project areas is currently being undertaken by the project states. Satisfactory mitigation plans would be established before starting project activities in the project areas. To ensure that women fully participate in project activities, special attention would be given to training and skills development programs, awareness campaigns, development of close links with other gender related poverty alleviation and social programs, and opportunities for income generation. To complement this, a study would be carried out during the first year of project implementation to review income generating options for women to develop viable long-term activities. A study would be completed by December 31, 1999, and results of the study would be incorporated in the Annual Implementation Plans/VDPs. (e) Monitoring and Evaluation. Monitoring, evaluation and operational learning are central to the project, aiming at ensuring the inclusion of participatory methods and the reorientation of the implementing agencies. To this end, the project proposes to have an integrated information and knowledge system. Baseline surveys would be carried out up-front, and the appropriate indicators would be developed for measuring project progress. Specific attention would be given to the monitoring and evaluation of social and institutional mechanisms developed (in collaboration with VDCs) to enhance sustainability and local ownership. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project would include two main components: (a) Watershed Protection and Development; and (b) Institutional Strengthening. -5- (a) Watershed Protection and AD - Rural 139.20 72.1 98.20 72.7 Development (The component Development includes: (i) watershed treatments; (ii) fodder and livestock development; and (iii) rural infrastructure development) (b) Institutional Strengthening (The 53.80 27.9 36.80 27.3 component includes: (i) policy reforms, studies and human resource development; (ii) beneficiary capacity building; (iii) income generating activities for women; (iv) information management, monitoring and evaluation; and (v) support to project coordination Total Project Costs 193.00 100.0 135.00 100.0 Total Financing Required 193.00 100.0 135.00 100.0 2. Key policy and institutional reforms supported by the project: Policy Reforms. The main policy and institutional development issues related to sustainability of project interventions have already been discussed in Section B3 above. The most important reform sought under the project would be the harmonization of approach between GOI, State and donor watershed development programs. Under the project, an Inter-Ministerial Coordination Committee has been established to facilitate and coordinate the harmonization of norms and guidelines. To this end, a comprehensive strategy (including conmmon guidelines) for the Shivaliks would be developed under the proposed Shivalik Watershed Development Strategy. The Shivalik Watershed Development Strategy would be completed, discussed with various stakeholders, and recommendations incorporated in the annual action plan for implementation by March 31, 2000. The present levels of subsidies established in many watershed programs are too high for long-term sustainability. Forest and common land and drainage line treatments are highly subsidized (up to 90-100 percent), while in arable land treatment, subsidies vary between 15 and 50 percent, depending on the type of treatment required and cost-sharing arrangements with beneficiaries. These subsidies are normally justified on the grounds of potential externalities. However, there is scope to reduce them by seeking greater beneficiary understanding of primary and secondary benefits and by seeking more cost-effective technical solutions. To this end, the project would develop a plan of action to reduce unsustainable subsidies (e.g. artificial insemination, concentrated feed) and to rationalize others (e.g. silvipasture treatments). For some interventions, more accurate assessment of costs and benefits is needed. To address these concerns, the project states have submitted a Letter of Development Policy which confirms their -6- agreement to a reform program that would constitute the framework for improving the watershed development programs in each state. Assurances were obtained that the reform program would be implemented. Assurances were also obtained that the project states would: (i) by March 31, 2000, increase the share of the beneficiaries' contribution in the cost of livestock breeding to at least 25% of the total cost of the service as determined by the study on the cost-benefit and willingness to pay; (ii) by March 31, 2000, establish a level of cost recovery of not less than 50% of the total cost ofproduction for horticulture, fodder production, and crop improvements in private arable land; and (iii) by February 29, 2000, undertake a study on the costs and benefits of the main project interventions, to be updated on an annual basis. The findings of the study would be implemented during the project period and would be reviewed in depth during the MTR. Maintenance Policy. To ensure sustainability of assets built under the project, assurances were obtained that project states would: (i) select and improve roads according to criteria and technical standards agreed with the Bank; (ii) maintain such roads in accordance with an action plan consistent with the road maintenance policy to be finalized by the project states by March 31, 2000; (iii) ensure that any land neededfor road improvement, or the roads requiring realignments involving acquisition of additional lands is provided by local communities voluntarily in accordance with a Memorandum of Understanding to be signed between the project states and all affected members of the participating community release the required landfor project activities; and (iv) not commence improvements of roads in locations where private land is needed until such MOUs have been concluded Institutional Reforms. The project puts significant emphasis on building local level capacity to manage and implement project activities. This would involve setting up VDCs and linking them to PRIs. One viable option would be to make the watershed VDCs a part of the land management sub-committees of PRIs. This would ensure proper linkage of project activities with the PRIs and sustainability of funding watershed activities after the project, using PRI resources. The project states would indicate their approach and the actions required to link the VDCs with PRIs by December 31, 1999. Assurances were obtained that the project states would carry out activities in accordance with VDPs, enter into a memorandum of understanding with VDCs andprepare in consultation with the VDCs an operational manualfor carrying out such activities. 3. Benefits and target population: The project would treat about 200,000 hectares or 75 sub-watersheds covering 1,920 villages in the five project states. About 88,000 ha. of arable land and 112,000 ha of non-arable land and forests would be rehabilitated and protected from further degradation. Overall, a total area of about 500,000 ha would benefit by project interventions. It is estimated that a population of about one million would benefit directly from the project of which 10,000 landless families and 5,000 livestock herders would benefit from activities undertaken by the five states. Greater attention to women's development would be achieved through increased availability of drinking water, fodder and fuelwood. Direct project benefits would include increased production of fodder, fuel-wood, grasses, livestock and milk, and a reduction in floods and in further degradation of lands. Employment would be created in the rural sector, including transportation and marketing. Benefits from rural infrastructure would be a reduction in the cost of transportation and improved access to the market and social amenities by the rural population. Investment in such assets' would contribute to the improvement of income and general quality of life of the rural population. In the pursuit of sustainability the project would strengthen local capacity to work with appropriate government institutions and agencies. Additionally, new irrigated areas would provide farmers with an opportunity to diversify their farming practices towards the production of -7- marketable surpluses of higher value horticultural crops. Increased potable water supplies would allow an intake of 70 liters per person per day with excess water for livestock under the stall feeding, and would reduce time spent in the collection of water from distant and unreliable sources. Drainage line treatments would reduce silt loads on water harvesting structures, improve moisture infiltration and contribute to ground-water recharge, which would lead to reductions in soil loss, protection of vulnerable land and to increases in land reclaimed for future agricultural use. 4. Institutional and implementation arrangements: Executing Agency (ies). MOA, Governments of Haryana, Himachal Pradesh (H.P.), Jammu and Kashmir (J&K), Punjab and Uttar Pradesh (U.P.); Watershed Implementation Units in Haryana, H.P., J&K, and Punjab, and Watershed Directorate in U.P. Project Implementation Plan. Draft Project Implementation Plans (PIPs) of five states have been revised, and these clarify implementation arrangements including role of VDCs, and implementation schedules giving time-bound plans for each project component, for procurement of goods, technical assistance and a training plan. In addition to PIPs, each village would prepare a Village Development Plan (VDP) reflecting the participatory rapid appraisal process and village priorities. The VDPs would form the basis for agreement between the project and VDCs in a Memorandum of Understanding (MOU) and an Operational Manual (OM) of the related MOU. Each project state has submitted three sample VDPs and corresponding MOUs and OMs during negotiations. Based on VDPs, Annual Action Plans for the project would be prepared, and would include all project activities. Assurances were obtained that project states would prepare an Annual Action Plan, agreed and satisfactory to the Bank, by March 31, 2000, and thereafter by December 31 each year, incorporating recommendations of the studies carried out under the project. Project Coordination Center Level Coordination. At the central level, MOA's Watershed Development Council (WDC) would act as the coordinator and convener of GOI's overall watershed development policies. The WDC would be responsible for facilitating and monitoring project implementation. A special Inter-ministerial Coordination Committee (ICC) has been established to act as a nodal agency for harmonizing GOI policies and guidelines for watershed development and providing guidance to states in implementing sustainable watershed development. It consists of representatives of MOA, Ministry of Rural Areas and Employment (MORAE), Ministry of Environment and Forestry (MOEF), Ministry of Water Resources (MOWR), DEA and the Planning Commission with MOA as the nodal agency. The ICC would meet periodically as needed. State-level Coordination. Overall strategic policy and guidance for the project would be provided by state level Steering Committees. These committees were established during IWDP-I. In U.P., which did not participate in IWDP-I, a similar "empowered committee" exists. Membership of each state steering committee includes Secretaries and Directors of implementing departments, the Director of Research of the State Agricultural University, MOA and the Project Director. This would remain unchanged, except for the introduction of representatives of communities, Panchayats and women. In Himachal Pradesh, a Shivalik Watershed Development Society would be established to coordinate all watershed programs and function as an umbrella organization for watershed management. The society would have powers to sanction funds required for the purchase of various inputs and delegate powers to a member Secretary or any other authority. -8- District Level Coordination. At the district level, coordination would be provided by District Coordination Committee headed by the District Magistrate. These committees would review annual work programs, project progress and help to resolve implementation problems. With emphasis towards local institutions such as PRIs and VDCs, it is important that District Committees perform their role effectively. The membership of District Committees would also include representatives of VDCs, PRIs and women from sub-watersheds within the district. Project Management and Implementation Project Coordination Committee (PCC). A new institutional design feature of IWDP-II is the establishment of a Project Coordination Committee (PCC) to ensure coordination on all project-related issues and to harmonize the institutional structures in project states. The PCC was established on February 23, 1999, and consists of Project Directors of five states and their senior technical and financial staff as required, and representatives of MOA. The Chairperson of the PCC would be selected on a rotational basis, and the Punjab Project Director has been selected Chairperson for the first year. The role of the PCC is to provide a forum for Project Directors and their senior staff as well as MOA to exchange views on technical issues, operational, financial and administrative matters and to share and disseminate information on best practices. The meetings would be held at least quarterly. The Project Directors through PCC would prepare project guidelines across five states outlining general approaches to project implementation and specific details of project management for each state. The guidelines would be finalized by October 31, 1999. Implementation Responsibilities. Details of implementation responsibilities are presented in Annex 2. In order to strengthen project management, the four key coordinators of State Training; Financial Management; Information Management and Monitoring and Evaluation; and Participatory Development have been appointed/recruited, and are on board. All implementation units would be adequately equipped with staff (including participatory staff), resources and functions to carry out the project activities. Retroactive Financing. Participatory activities as well as training of project staff and other stakeholders in the participatory planning and implementation started at least six months before implementation. Retroactive financing of up to SDR7.4 million (US$10.0 million equivalent) would be provided to ensure that these activities are carried out, starting on March 1, 1999. Procurement. Procurement would be in accordance with procedures acceptable to the Bank and in accordance with the procurement schedule presented in the PIPs are summarized in Annex 6. Standard procurement documents as already agreed with GOI would be used. Progress with procurement would be reported in the six-monthly progress reports. Monitoring and Evaluation. Monitoring and operational learning are a central aspect of this project. Improving project management and effectiveness is an on-going activity and would be developed over the course of implementation. Benchmarks to measure this would be agreed at an early stage of implementation. This process would be conducted through: (a) a baseline survey collected from a variety of sources; (b) on-going evaluation carried through the staff of the Information Management, Monitoring and Evaluation (IMME) Unit; and (c) periodic assessments conducted by external evaluators. There would be periodic monitoring by the beneficiary communities themselves of progress in implementation of agreements, and in the performance of project staff in facilitating implementation. Reporting, Mid-term and Completion Reviews. Each project state would be responsible for preparing a -9- consolidated six-monthly Progress Report to be submitted not later than June 30 and December 31 of each year for the preceding six months, in the format agreed with the Bank. The purpose of these reports would be to provide the Bank and GOI with timely information on project components, highlighting problems in achieving development objectives. The progress reports would focus on the agreed monitoring indicators. Assurances were obtained that a mid-term review (MTR) would be held no later than December 31, 2001, and the recommendations of the review would thereafter be implemented no later than March 31, 2002. The review would involve the project states, MOA, VDCs and the Bank. The project states and MOA would prepare in advance a working paper to facilitate the review. The MTR would establish progress toward the main project objectives. To this end, the review would focus on the key indicators presented in Annex 1. Project Supervision and Completion Report The project would be supervised jointly by Bank staff and GOI/states at least twice a year. Since the major focus is on ensuring effective participation of beneficiaries and other stakeholders, the project would also require continuous and thematic supervision, in addition to normal Bank supervision. The project staff, in particular those responsible for monitoring and evaluation, would play a key role in these supervision activities. To ensure adequate monitoring of Jammu and Kashmir State (J&K), an independent agency would be contracted to monitor this component until such time that security guidelines permit the Bank staff to visit the state. The agency would be hired on an annual basis. Assurances were obtained that MOA, in consultation with the Bank and DEA, would engage the independent agency by December 31, 1999. D: Project Rationale 1. Project alternatives considered and reasons for rejection: The experience of watershed development under the IWDP Hills and Plains has shown a highly cost-effective mechanism for reaching a large number of rural poor and having a large and sustainable impact on their lives. This is an approach to rural development which deserves growing support, and for which there is now widespread demand coming from virtually every state in India. To be sustainable, however, it must involve a high level of stakeholder participation, and this concept is as yet far from being adequately developed. The project would be the next logical step towards the eventual objective of a uniform national policy of demand-driven sustainable watershed development. This would be a significant advance over current practice in which separate ad hoc interventions are implemented (sometimes within the same districts) with little technical, institutional or financial coordination. The project would aim to use the Shivalik Watershed Development Strategy as a basis for linking various sources to address watershed degradation in the Shivaliks. During the early phase of project preparation, the main options considered for a follow-up project were: (a) a simple repeater project, focusing on new areas but doing little to solve the problem of fragmented interventions by multiple agencies; (b) a coordinated approach, based on: (i) coordination of all programs within specific districts; (ii) coordination state-wide; and (iii) coordination nation-wide. There was little debate over the need for coordination, and it was established early on that, unless this could be achieved, there would be little justification for continued Bank involvement. It was also agreed with the state and GOI authorities that the right approach at this stage would be to use the follow-up project to demonstrate that effective coordination can be carried out within specific districts and to use this as a model for eventual full-scale integration of programs at state and national levels. At the same time, MOA has agreed that it would strengthen the WDC to promote coordination of norms and guidelines nation-wide, concentrating particularly on the GOI's own extensive funding of watershed development. As for the scope of the -10- follow-up project, agreement was reached that there should be an expansion of the targets established under IWDP-I and that the State of UP would be included, using participatory approach in project design. On the technical front, changes have also been agreed to enhance sustainability. Some projects are currently designed to concentrate on mechanical structures for soil conservation, mainly to protect arable lands in certain villages. This approach concentrates its activities on localized arable areas, dealing with community or village short-term needs, but not addressing in-situ moisture conservation and control of soil erosion in non-arable areas in the watershed as a whole. Some of these programs cater for employment generation during the project life, but their sustainability is linked to available funds, particularly for operation and maintenance of structures (e.g., check dams, gulley plugs, gabions, etc.). Under the project, the technical interventions would lead to comprehensive watershed treatment and development, based on ridge to valley approach. -11- 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). iE i;;V00 ''Setrissue Projet ' j:0 (PR Raings~X 0;t Implementation Development Bank-financed Progress (IP) Objective (DO) Bank-financed Environmental Integrated Watershed S S Protection Development (Hills) (Cr.2 100-IN) Rainfed Areas Watershed S (ICR) Development (Cr. 1424-IN) Kandi Watershed and Area S (ICR) Development (Ln. 1 897-IN) Himalayan Watershed Marginally Management (Ln. 2295-IN) Unsatisfactory (OED Report) Drought Prone Areas S (ICR) (Cr. 526-IN) Social Forestry Projects for S (ICR) Jammu and Kashmir and Haryana (Cr. 1286-lN) National Social Forestry (Cr. S 161 1 -IN) (OED Report) Other development agencies - European Community Watershed Development Program (e.g., U.P.) - Germany (KFW/NABARD) - DANIDA National Watershed Management Program - Ministry of Agriculture - Ministry of Rural Areas and Employment IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) -12- 3. Lessons learned and reflected in the project design: The design of IWDP Hills and Plains was flexible and allowed changes to be introduced at the MTR. There were substantial changes introduced at the MTR in both projects, and as a result of these changes the success rating of the projects changed significantly. The most important change in both cases was the introduction of widespread stakeholder involvement in the selection of activities, choice of location and implementation. Implementing line departments were given flexibility and authority to carry out project activities once annual plans had been approved and budgets allocated at the beginning of each fiscal year. The principle lessons learned from these two projects and from sharing experiences with similar projects funded by MOA, MORAE, donors and NGOs are: * Sustainability: Establishing community based organizations and making them responsible for identification, planning, implementation and post project operation and maintenance is the only way to ensure sustainability. To ensure long-term sustainability, the local organizations should also be linked to local level institutions for operation and maintenance beyond the project. * Building/strengthening local organizations: More emphasis should be put on mobilizing commnunities as a part of project activities. Project funds should flow only after villagers prove that they can work collectively, otherwise social organization will not be sustained. The best projects are truly participatory. This enables adoption of "bottom-up" and demand-driven measures and taps the creativity of local people to develop project innovations. * Targeting the Poor: Social organization must address the needs of each interest group (farmers, landless, women, tribes) to give them an integral stake in the project success. Specific measures are needed to support the landless poor and other vulnerable groups. Recognition of their role in watershed development and sustainability should be linked to particular investmnents and proactively involve them in watershed development. * Flexible Project Design: Project design should be flexible and should leave room for the changing needs and priorities of the communities. * Comprehensive Development Approach: Watershed activities alone cannot lead to better development and increases in agricultural productivity. Land-based activities have important, but limited scope for improving the economies of rainfed areas. The projects should also include investments in complementary infrastructure (e.g. drinking water, and rural roads), livestock activities, marketing and sustained institutional capacity. * Joint Decision-Making: Local people should jointly decide with project management, not only on the selection of treatments, but also on the sequencing of watershed activities, revising plans to adjust to changing conditions and managing the budget to reduce the likelihood of misuse of funds. That empowers villagers in project design and decision- making. * Systematic Monitoring and Evaluation: Systematic monitoring and evaluation are needed to assess performance and remove bottlenecks. This requires clear monitorable indicators of project performance and achievement of development objectives. * Harmonization of Guidelines: There is need for a common conceptual approach and guidelines for watershed development. Watershed development programs are being implemented by various central and state schemes, NGOs, some with assistance from bilateral and multilateral donors, and these activities are often implemented using different conceptual approaches. There is thus a need to develop and follow a common conceptual approach and harmonize guidelines. * Incentives for scaling up: A strategy for scaling up needs to be based on altering incentive structures within government line departments. -13- 4. Indications of borrower commitment and ownership: During the review of completed and on-going watershed projects, the Borrower became increasingly convinced of the need to enlist stakeholders involvement. Selective reviews also pointed to the lack of coordination among agencies operating even in the same geographical areas. Sustainability and replicability of interventions and maintenance of assets created under the projects figured prominently as issues needing special attention before embarking on new projects. The need to design new approaches to watershed investment under the 9th plan (1997-2002) gave impetus to MOA and MORAE to develop alternative watershed strategies. With the Bank playing a catalytic role, several meetings and workshops were organized to this end. The workshops of November 20, 1997, April 28-30 and May 1-2, 1998 by MORAE and MOA to address land degradation and rainfed agriculture contributed to clarifying agricultural development and watershed strategies. In this context MOA expressed its desire for Bank involvement to augment on-going project achievements and incorporate new strategies to arrest environmental degradation of the Shivaliks and promote integrated watershed management based on a participatory approach. Another workshop was held on February 3, 1999, to harmonize guidelines on watershed project within GOI and between GOI and donor agencies. A parallel dialogue between MORAE and the Bank is being pursued to address communities' development needs and Panchayats' involvement. Borrower commitment is also seen in the recent budget speech of February 27, 1999, when the GOI's Minister of Finance stated that, "it is important to unify the multiplicity of watershed development programs within the framework of a single national initiative - a National Movement of Watershed Development that fosters implementation ability at the local level and creates community infrastructure for micro-watershed projects through active involvement of Gram Panchayats, Local Self-Help Groups and NGOs. For this, a Watershed Development Fund will be established with NABARD to cover 100 priority districts within 3 years. This will create income generating opportunities for the landless and the poor; especially those belonging to the Scheduled Castes, Scheduled Tribes and Other Backward Classes." 5. Value added of Bank support in this project: The Bank has extensive international experience with watershed protection and management of the degraded rainfed areas, e.g., China and Turkey. It has also accumulated extensive experience in India, working with GOI and state authorities to adapt approaches to watershed development. It is now in a leading position to act as a catalyst for other donors and to make a major impact on the program nation-wide. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (supported by Annex 4): * Cost-Benefit Analysis: NPV=US$73.5 million; ERR = 17 % O Cost Effectiveness Analysis O Other Annex 4 gives the economic analysis for the project and is backed by detailed tables in the PIP and in the Project File. The ERRs should be taken as only indicative as some of the indirect benefits have not been quantified. The overall economic rate of return for the project is estimated at 17%. This is highly acceptable for this type of project, that aims primarily at long-term productive benefits arising from planned environmental impact. The overall ERR is also quite robust. It would fall to 12% only if the benefits were reduced by 30%, or costs increased by 42%, or if accrued benefits lagged by three years. Assuming that benefits were to drop by 10% and costs were to increase by 10% simultaneously, the ERR -14- would fall to 14%. However, if benefits fell by 20% and, costs increased by 20%, the ERR would drop further to about 11%, below the 12% opportunity cost of capital. 2. Financial (see Annex 5): NPV=US$ million; FRR = % Crop models have been prepared to assess the impact on crop yields and on model farm income. Four crop models - maize, wheat, pulses and gram - have been prepared for use in the analysis. It is assumed that the cropping intensity in rainfed areas would increase from 140% to 147%. For supplementary irrigation areas (maize, wheat, pulses, gram, paddy, onion and brinjal) an increase from the existing rainfed rate of 140% to 170% has been assumed. In horticulture (mainly guava, mango, citrus, ber, pear), one ha. crop models for mango and guava have been formulated as representatives of fruit trees. The financial rates of return (FRRs) have been estimated at 40% and 39% respectively for the guava and mango models. On farm forestry, the FRRs have been estimated at 36% and 16% respectively for the poplar and eucalyptus models. The project also supports afforestation in two main areas: (a) non arable land (private and communal) and (b) forest land (public). The FRRs have been estimated at 16% and 17% for the afforestation/private and bamboo models, and 19% for afforestation in public land. Farm Models. Although average farm size varies from state to state, the majority of farms fall within the range of one or two hectares. An average size of 1.2 ha. farm household has been assumed to illustrate the financial impact of the project on farm income. Two types of farm income have been considered: (a) farms cultivating only rainfed crops; and (b) farms with rainfed crops and supplementary irrigation. The major income included in both models is from crops and livestock. In reality, farmers would receive other financial benefits such as fuelwood, fodder and fruit trees. These benefits have not been included as they are either difficult to quantify or are long-term benefits. The total net incomes per household would increase by about 49% from Rs.7,700 to Rs. 11,450 over seven years. Income from livestock is quite significant, and represents about 27% of the total. With irrigation, the farm household would increase its income by about 64% from an average of Rs.7,700 to Rs.12,500 over seven years. Fiscal Impact: The total incremental recurrent costs of the project in five states over five years have been estimated at US$30.7 million, of which US$25.8 million are for staff salaries and allowances and US$4.9 million for various O&M expenses. In the long run, the negative fiscal impact on the states would be partially offset by positive impacts generated by: (a) reducing subsidies in the project area; (b) increased tax revenues; (c) reduction in compensation of floods and landslide damages due to protection measures supported under the project; and (d) increased beneficiary contributions. 3. Technical: The most appropriate vegetative technology for watershed protection and management has been identified and practiced successfully by integrated watershed projects. However, the use of vetiver grass was perceived to be a Bank-driven technology. This perception was remedied following the MTR for both IWDP projects. Emphasis on locally available grasses and indigenous technology is the prime criterion for vegetative measures. The technology is cost effective and easy to replicate and sustain. The technology reduces soil loss from erosion, increases crop yields, expands cropped area and introduces new crops (fruits and vegetables). It also increases availability of fuel-wood, fodder and timber, and increases milk production in treated watersheds. The project would apply this technology on a wide scale in combination with mechanical measures. -15- The promotion of horticultural crops would be approached carefully given the marketing constraints and the socio-economic implications in the selection of beneficiaries. Horticultural marketing studies, particularly for fruits (e.g., apples, guava and mangoes), vegetables (potatoes) and floriculture crops would be initiated to identify suitable project production areas and marketing infrastructure needs. Private sector involvement would be maximized and rationalization of subsidies to orchards and nurseries would be examined and phased on a declining basis. Research on suitable farming systems and crops/fodder livestock interaction would be accorded high priority. Experience of on-going programs by the Indian Council of Agricultural Research (ICAR) and related Institution Village Linkage Programs (IVLP) would be adopted as appropriate. Researchers would be encouraged to address watershed research and development problems by submitting proposals under competitive grant schemes using similar criteria to those established for recently approved projects (NATP and UP-DASP). Water harvesting and drinking water supply would implement technologies developed and tested under the on-going projects. However, the experience from other Bank-supported rural water supply projects has been also evaluated in the context of the watershed areas. Involvement of stakeholders in planning, implementation and operation and maintenance would build upon approaches now being applied in the U.P. Rural Water Supply Project (Ln.4056-lN). 4. Institutional: a. Executing agencies: Responsibility for project execution would be with the established project implementation units in all participating states. These units are well staffed and monitoring and evaluation systems are in place, including equipment and trained manpower to use and maintain them. Most of the PIUs are housed in offices constructed for the on-going projects. In the case of Uttar Pradesh, office facilities were created under an earlier Bank supported project (Himalayan Watershed Management Project, LN 2295-IN). The project would build on the existing capacity in the five project states. The project would enhance integration of line departments to benefit from synergy and effectiveness. MOA would play a facilitating role and coordinate the national and state approach to watershed development through its WDC and the ICC. The PCC would play an important coordinating role in project implementation and monitoring and evaluation activities. VDCs would be strongly encouraged to play an active part in project execution and act as executing agencies. However, to receive project funds, VDCs would be required to establish a satisfactory financial management system, and the funds would be open for social audit. NGOs would be hired to facilitate the community mobilization process as well as train the project staff and beneficiaries in the community participation. Assurances were obtained that project states would select NGOs in accordance with procedures and criteria agreed with the Bank. b. Project management: Project Financial Management (see Annex 6): A financial management system for the project would be developed and documented in a Project Financial Management Manual. Key actions relating to financial management to be completed before the start of the project are: (a) appointment of financial management technical support consultants who would provide qualified financial professionals to support the operation of the financial management system and training of project staff. This arrangement is very important, given the absence of qualified financial project staff and the lack of arrangements for initial orientation and training of project staff on the improved financial management system (other than in Punjab state); (b) design of the project financial management system i.e., development and adoption of the Financial -16- Management Manual for the project including all necessary approvals; (c) computerization of the financial management system; (d) procurement and installation of the computer hardware (including operating and application software) required for the fnancial management system; and (e) appointment of project auditors - a firm of chartered accountants. Assurances were obtained that each project state and WDC would prepare and adopt a satisfactory Financial Management Manualfor the project not later than October 31, 1999. Assurances were also obtained that the states and WDC would: (i) by March 31, 2000, successfully develop, and thereafter maintain for the duration of the project, a computerized financial management system for the project; (ii) by January 31, 2000, engage financial management consultants, with TORs and qualifications satisfactory to the Bank, to provide operational supportfor the project financial management system and training services and thereafter maintain that until March 31, 2002; and (iii) by January 31, 2000, employ afirm of Chartered Accountants, with TORS and qualifications satisfactory to the Bank to review the overall operation of the financial management system of the project. WDC may use the services of the firm engaged by one of the project states or use qualified in-house personnel. Disbursements from the Loan/Credit would not be initially made on the basis of Project Management Reports (PMRs), but will be made using existing transaction-based disbursement procedures (reimbursements with full documentation or against Statements of Expenditure, and direct payments). However, from the beginning of the project, the project financial management system would be operated, and quarterly PMRs would be produced. Disbursements would be converted to the PMR-based method after the satisfactory operation of the improved financial management system has been demonstrated. The target date for this conversion would be April 1, 2001. 5. Social: While the project would focus on the most degraded watersheds in the Shivalik Hills and, thus, on some of the poorest populations in India, the project would aim to ensure that benefit streams reach the more marginalized and vulnerable elements of those populations. These include those who subsist on the most marginal of resources, as well as women, whose role in overall livelihood strategies is not adequately recognized. Specific attempts to include such populations would be one aspect of the negotiations which precede the finalization of the Village Plans and the MOUs to be signed between beneficiaries and project authorities. Specifically, attention would be given to the inclusion of women, landless and transhumant and pastoral communities in the project benefits. To this end, an initial assessment of the movement of transhumant pastrolists through the project area, and of the villages to be taken up under the first year's program is being undertaken to address their needs and interests. Assurances were obtained that a Project Tribal Development Plan, acceptable to the Bank and in accordance with a framework agreed with the Bank, would be prepared to address the needs and interests of the tribal and nomadic populations within the project areas. This would be a condition for disbursements for the areas inhabited by tribal communities and nomads in the project area. Further social assessments of the villages to be taken up in subsequent years of the project would be carried out during project implementation, as PRA exercises are undertaken and VDPs developed. These social assessments would provide the basic information requirements and an initial understanding of the scope of future work. But the project would require on-going social assessments from all villages identified for treatment and upgrading. An initial planning period of six to twelve months for each micro-watershed would provide the time for building community ownership, for the development of the local watershed committees, and for the participatory elaboration of agreed implementation plans. On-going monitoring and evaluation activities throughout the life of the project would ensure informed involvement of beneficiaries in a learning exercise which would aim to build partnerships between the implementing agencies, the -17- community watershed committees and the local elected bodies. In doing so the project would provide a platform for learning about how best these different sets of stakeholders can develop more sustainable and integrated working relationships. In subsequent years, as the project officers gain more competence with participatory methods, the detailed social assessments of those micro-watersheds to be taken up on a rolling basis would be built into the planning exercise. 6. Environmental assessment: Environment Category D A C C 1B FI The project has been classified as Category B, as there are no negative impacts that could arise from its activities. The project is expected to have a distinctly positive overall environmental impact since its objectives and proposed design are intended to help alleviate one of India's most serious ecological problem. The project would treat and thereafter protect the environment of the entire Shivaliks from further degradation. Vegetative cover treatments supported under the project and the innovative management system of common lands, which involves beneficiaries, would enhance the supply situation of fodder, fuelwood and food crops without causing damage to the environment. The rural infrastructure component (roads, market centers, water harvesting structures and potable drinking water facilities) would not affect the environment negatively because only existing infrastructure would be rehabilitated and upgraded. Improving these roads is expected to minimize soil erosion with proper design and appropriate drainage. A Regional Environmental Assessment (REA) was undertaken for the project to establish the present situation in the Shivalik belt of the five project states. The primary objective of the REA was to develop an analytical framework (including screening criteria, information requirements, further analysis requirements, etc.) that is sufficiently upstream in the project cycle that the project design can be influenced to better address environmental concerns in the design, implementation, monitoring and evaluation of the project. This is the first REA conducted for a Bank project in India. The REA provides a good spatial description of the regional environmental and social setting, institutional issues, and lessons from previous and on-going projects, analyzes project alternatives and examines project activities with respect to both potential benefits and concerns. The REA has outlined a detailed Environmental Management Plan (EMP) for the project along with a monitoring and evaluation strategy for environmental indicators and recommendations for future work. It is a framework document to ensure that as environmental consideration would be mainstreamed into all phases of the project - including component design and implementation (training, participatory process, proposed Information Management, Monitoring and Evaluation). There were extensive consultations in the region, and a workshop was held on January 29, 1999, to discuss the REA findings with representatives of MOA, project states and the Bank. The REA summary is included in Annex 12. 7. Participatory Approach (key stakeholders, how involved, and what they have influenced or may influence; if participatory approach not used, describe why not applicable): a. Primary beneficiaries and other affected groups: Impact on Women Some gender analysis was undertaken in the indicative planning stages. More detailed gender analysis would be an integral part of the planning process for each of the micro-watersheds and specific ways of incorporating the interests of women would be developed during the course of implementation. To complement this, a study would be carried out during the first year of project implementation to review -18- income generating options for women to develop viable long-term activities. A study would be completed by December 31, 1999, and results of the study would be incorporated in the Annual Implementation Plans/VDPs. Support that is being proposed under the project would benefit women through greater access to resources, technical know-how and opportunities for jobs. Child Labor The project would support a number of initiatives that would ensure that child labor does not emerge in any project activities. With potable rural water supply schemes in the neighborhood, rural roads improvement programs and the creation of training halls in the villages, children would be freed from drudgery and encouraged to attend school. Impact on Tribes Specific attention will being given to the inclusion of transhumant and pastoral communities in the project benefits. To this end, an initial assessment of the movement of transhumant pastrolists through the project area is being carried out to address their needs and interests. Assurances were obtained that a Project Tribal Development Plan, acceptable to the Bank and in accordance with a framework agreed with the Bank, would be prepared to address the needs and interests of the tribal and nomadic populations within the project areas. This would be a condition for disbursements for the areas inhabited by tribal communities and nomads in the project area b. Other key stakeholders: In addition to village communities, other stakeholders include local level institutions (such as PRIs), implementing agencies, line agencies, state governments and GOI/MOA. As watershed committees, implementation plans and MOUs are developed in each of the watersheds, the levels of participation are expected to rise appreciably. An initial explanation of the ways in which the project is to be developed would be instituted for two-way and continuous information sharing and for consultation on ways forward with each of the communities. Shared control over decision-making is seen as a key indicator of success and the eventual empowerment of communities to take responsibility for upgrading watersheds is a key goal of the projects. -19- F: Sustainability and Risks 1. Sustainability: Sustainability would be addressed as follows: (a) institutional sustainability - proactive participatory involvement of communities during project preparation would foster ownership and accountability in the local community. Similarly linking the community based organizations/VDCs to the PRIs would enhance institutional sustainability; (b) financial sustainability - early clarification of benefit/cost-sharing and gradual phasing out of subsidies would ensure appropriate maintenance of assets created by the project and generate revenues for the VDCs and the states. The establishment of Village Accounts by VDCs has shown in earlier projects to improve sustainability through better maintenance of created assets; (c) social sustainability - inclusion of stakeholders in all phases of project processing; and especially inclusion of vulnerable and marginalized groups in the benefit sharing would ensure social sustainability; and (d) technical sustainability - the use of indigenous technologies and selection of suitable grasses is a prime factor in gaining acceptance by beneficiaries to technical interventions and in project sustainability. Since sustainability of watershed interventions is not a short-term effort, periodic involvement of the public sector to provide technical backstopping and selected interventions would be envisaged and planned for under the project. Close monitoring of progress and evaluation of results would ensure sustainability of above aspects. However, at the same time, this innovative participatory approach presents potential for risks as it is a time-consuming process and it has to identify, assess and adjust needs and demands of all stakeholders concerned. Although the project provides support for institutional strengthening, there is a risk that this process might substantially delay project implementation as well as reduce its scope. -20- 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure From Outputs to Objective Sustainability risk. M Sustainability is dependent on maintenance and improvement of project assets following project completion. Clarifying public and private sector roles is an important factor in ensuring sustainability. Similarly, viability of the users' groups village fund mechanism would be carefully integrated in project activities. Concrete measures are also being taken to link VDCs formally to the PRIs so that VDCs and PRIs take jointly responsibility of maintenance and operation of assets beyond project period. Lack of coordination of funding from M Participating state governments to central and state resources. include adequate funds from all sources in the Shivalik Watershed Strategy to support annual work plans. Implementation delays of policy M Advanced discussions have taken place changes related to subsidies. with project state governments and assurances were obtained to confirm agreements to implement the policy changes. Inadequate cost-sharing arrangements M The concept of cost-sharing has been with beneficiaries. tested and succeeded under IWDP-I . Experience from other projects, and use of NGOs would be included in the proposed approach. Early involvement of stakeholders would mitigate this risk. From Components to Outputs Inadequate capacity to form effective M Local NGOs and trained staff would be users groups to implement and maintain involved in facilitating the formation of the project. users groups. Already in most parts of the project states, community groups concept has been accepted. The concept would be extended to U.P. where the European Community project has already successfully used the concept. -21- Lack of coordination and integration of S The Project Implementation Unit (PIU) line departments in the state. in each state would be required to initiate a formal collaboration between line departments and request redeployment of needed staff. A strong monitoring team would ensure collaboration as all line departments would be represented in the PIU. A strong emphasis on information and knowledge management should also assist in coordination of watershed activities. Training and re-orientation of staff to ensure a shift from implementation to facilitation role has been incorporated in the project design. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects None G: Main Loan Conditions 1. Effectiveness Condition None 2. Other [classify according to covenant types used in the Legal Agreements.] (a) Disbursement No withdrawal would be made in respect of expenditures in the areas inhabited by tribal communities and nomads until VDPs incorporating a project tribal development plan, satisfactory to the Bank, has been prepared in accordance with the provisions of Operational Directive 4.20 of the Bank. (b) Other Assurances (i) Project states to prepare not later than March 31, 2000, and thereafter not later than December 31 of each year, an Annual Action Plan for implementation of the project activities, acceptable to the Bank, and to incorporate recommendations of the studies carried out under the Project. (ii) Project states to ensure that project activities are carried out in accordance with VDPs and that VDPs are developed in a participatory manner. Project states to enter into MOUs with VDCs for carrying out such VDPs, and prepare in consultation with the VDCs an operational manual for carrying out such project activities. (iii) As part of each of the VDPs, each of the project states would prepare a Project Tribal Development -22- Plan, acceptable to the Bank, and in accordance with a policy framework agreed with the Bank, for the areas inhabited by tribal communities and nomads in the project area. (iv) For the purpose of assisting in carrying out the participatory aspects, project states to ensure that NGOs are selected in accordance with procedures and criteria agreed with the Bank. (v) Project states to increase by March 3 1, 2000, the share of the beneficiary contribution in the cost of livestock breeding to at least 25% of the total cost of the service as determined by the study on the cost-benefit and willingness to pay. (vi) Project states to establish by March 31, 2000, a level of cost recovery of not less than 50% of the total cost of production for horticulture, fodder production, and crop improvements in private arable land. (vii) Project states to carry out a study on costs and benefits of the main project interventions by February 29, 2000, and to update such a study annually and reflect its recommendations in the annual action plans. (viii) A project mid-term review would be held by project states/MOA no later than December 31, 2001; and discussed with the Bank no later than March 31, 2002. (ix) MOA to ensure that an independent agency, satisfactory to the Bank, would be engaged by December 31, 1999, on an annual basis, to undertake the monitoring of Jammu and Kashmir component, and continue to engage such agency annually until such time agreed upon with the Bank. (x) With regards to the rural roads to be financed under the project, project states would: (i) select and improve roads according to criteria and technical standards agreed with the Bank; (ii) maintain such roads in accordance with an action plan consistent with the road maintenance policy to be finalized by the project states by March 31, 2000; (iii) ensure that any land needed for road improvement, or the roads requiring realignments involving acquisition of additional lands is provided by local communities voluntarily in accordance with a Memorandum of Understanding to be signed between the project states and all affected members of the participating community release the required land for project activities; and (iv) not commence improvements of roads in locations where private land is needed until such MOUs have been concluded. (xi) All states and WDC shall prepare and adopt a satisfactory financial management system for the project comprising: (i) preparation and adoption of a project Financial Management Manual by October 31, 1999, and (ii) development and installation of a computerized financial management system, both satisfactory to the Bank; and satisfactorily operate the system during the duration of the project by March 31, 2000; (xii) All states and WDC shall engage not later than January 31, 2000, and maintain thereafter until March 31, 2002, financial management consultants, with terms of reference and qualifications satisfactory to the Bank, to provide operational support for the project financial management system and training services. (xiii) All states and WDC shall engage not later than January 31, 2000, and maintain for the duration of the project, a firm of Chartered Accountants with terms of reference and qualifications satisfactory to the Bank, for providing support for reviewing the overall operation of the financial management system of the project. -23- H. Readiness for Implementation 12 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project irnplementation. O 1. b) Not applicable. X 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. 1 4. The following items are lacking and are discussed under loan conditions (Section G): The financial management system for the project is being developed; and is expected to be completed by March 31, 2000. 1. Compliance with Bank Policies Z 1. This project complies with all applicable Bank policies. O 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. /+ ± A 6 \ b ~ * _ ___ _ _ _ _ _ _ _ Ridwan Ali Edwin R. Lim Task Leaders Sector Manager/Director 4Country Manager/Director -24- Annex 1: Project Design Summary INDIA: Integrated Watershed Development (Hills-l1) Project Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Sustainable agriculture Increased contribution of Reports provided by Policies conducive to growth growth with better agriculture to economic GOIIMOA. are in place. management of land and growth. water resources. Project Development Outcome I Impact Project reports: (from Objective to Goal) Objective: Indicators: The project development 1.1 Reduced soil erosion. Observation and measurement Undertaking a Shivalik objective is to improve the silt observation posts and soil Watershed Development productive potential of the 1.2 Increased level of ground moisture. Strategy for each state. Project area in the five water. participating states using Monitoring of groundwater Streamlining of watershed evolving cost effective 1.3 Increased surface water level through observation guidelines and norms. watershed treatment supply. wells. technologies and community Assessment of needed participation approaches. The 1.4 Increased household Remote sensing survey of marketing infrastructure to Secondary objective is to assist income. treated watersheds. propel diversification. the project states with institutional development and 1.5 Increased crop yield. Progress reports by Timely availability of consolidate progress made independent monitoring supporting services (e.g., under various programs. 1.6 Increased cropping agencies. technology dissemination line intensity. departments). Review reports of 1.7 Increased milk production. implementing agencies from each state. 1.8 Increased level of community participation. Evaluation by the MOA's Central Watershed Development Council. Participatory Monitoring Reports of VDCs. -25- Output from each Output Indicators: Project reports: (from Outputs to Objective) component: . 1. Institutions Improved l.A. 1 VDCs established and Baseline surveys, annual The communities are willing 1 .A. Local Communities VDPs agreed. surveys, mid-term review and to take responsibility on empowered to manage local completion reports; and maintenance and natural resources and joint 1 .A.2 VDCs representation of Bank review missions. improvement of projects assets forest management plans women, landless, tribes; and following project completion. incorporated into VDPs. resolution of problems VDC Minutes and Proceeding through participation. Books. There is adequate cost-sharing 1.A.3 Beneficiaries/VDCs Participatory Monitoring arrangements with trained in project activities Reports of VDCs. beneficiaries. and financial management. Community groups would be 1.A.4. Village Accounts formed expeditiously. established and open for social audit. 1.A.5. Community members contribution to the Village Account. 1.A.6. Number of VDCs formally linked to PRIs. I.B. Public agency capacity 1 .B. 1 Staff trained in social Report from independent Smooth coordination between irnproved to better support interaction with beneficiaries. monitoring agencies line departments would be community groups. preferably SAUs in the ensured. 1 .B.2 Technology adopted by participating states. farmers against technology There are no implementation disseminated. delays of policy changes related to subsidies. I .B.3 Percent of farmers using improved planting stock and Agricultural service and number of nurseries. research would be available. 1 .B.4 Beneficiary willingness Road maintenance policy to be to contribute to cost of project operational. activities and their maintenance. Smooth coordination between implementing agencies and 1.B.5 Reduced beneficiary community groups . dependence on outside support for program activities. Monitoring and evaluation capacity is adequate by project 1 .B.6 IMME Unit established Reports of IT consultants. implementing agencies. and functioning. Reports of Training Coordinators and training feedback. -26- 2. Seventy-five Watersheds Report from independent Treated and Developed. monitoring agencies preferably SAUs in the participating states. Bank review missions and reports from MOA and Implementing agencies. 2.A. Soil conservation 2.A. I An estimated 200,000 Reports/studies on Soils, measures implemented within ha of degraded land Water and other 75 sub-watersheds. rehabilitated and brought to environmental parameters. production. 2.A.2 Production of crops increased in the watershed areas. 2.A.3 Increased market value for land. 2.A.4 Increased ground cover, biomass and biodiversity. 2.A.5 Soil structure improved (more organic matter/humus). 2.B.Crop, livestock and forest 2.B. 1. Number of improved improvement program cattle and buffaloes increased, implemented. and local, unproductive cattle and buffaloes decreased. 2.B.2. Number of stall fed cattle and buffaloes increased. 2 B.3. Number of Al and basic vet. treatments of para-vets increased, and degree of cost recovery improved and conception rate of AI increased. 2.B.4 Increased milk production. 2.B.5 Wheat, maize, pulses and paddy production increased. 2.B.6 Number of fruit trees increased and share of seedlings from private nurseries improved. -27- 2.C. Rural infrastructure in 2.C.I About 1000 km of Progress reports on length of 75 watershed rehabilitated to upgraded rural roads (year road upgraded; improve/upgrade access to wise targets). villages connected to roads; potential production and increased traffic on upgraded marketing areas and storage 2.C.2 Increased flow of roads. facilities, and improve commodities to markets. drinking and irrigation Reduction in spoilage of facilities. commodity in transit. Market surveys. Bank review missions. -28- Hierarch ofObjectihes : niatr t ;-- orin -& Evaluation. CrIlal Au --I Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) Institutional Strengthening US$53.8 million Project Implementation Plans, Participating states would -Beneficiaries' capacity annual work plans and make available adequate and building Quarterly progress and timely counterpart funds to -Income Generation for disbursement reports, Project implementing agencies. Women Implementation Plans, annual -Policy Reforms, Studies work plans and Quarterly These governments agree to and human resource progress and disbursement transfer responsibility for development reports. maintenance of assets created - Information management under the project to and monitoring and beneficiaries. evaluation -Support to Project management and coordination Adequate capacity to form Watershed Protections and US$139.2 million effective user groups to Development implement and maintain the -watershed treatments project is ensured. -Fodder and livestock development --rural Infrastructure -29- Annex 2: Project Description INDIA: Integrated Watershed Development (Hills-Il) Project The main development objective of the project is to improve the productive potential of the project area in five states (Punjab, Haryana, Himachal Pradesh, Jammu & Kashmir and Uttar Pradesh), using evolving watershed treatment technologies and comrnunity participatory approaches. The project would contribute significantly to decreasing soil erosion, increasing water availability and alleviating poverty in the contiguous areas of the Shivalik hills in the five project states. Sustainability of project interventions would be ensured through participatory involvement of project stakeholders/beneficiaries. An associated objective is to assist the states with institutional development and consolidate progress already made in harmonizing approaches to watershed development management among various programs operating in the Shivalik Hills. The project is designed to address one of India's serious environmental problems, such as watershed degradation. Building on the experience gained under previous and on-going projects associated with resource conservation and watershed management, the five year project would help finance remedial programs in the ecologically fragile, agro-economic rainfed zones. The Shivaliks, which lie in the foothills of the Himalayan range, have been identified as one of the eight most degraded rainfed agro-ecosystems of the country and hence included in the priority areas for watershed development. Despite an average rainfall of 1000-1500 mm, there are acute shortages of drinking water, fodder and fuel-wood, caused by deforestation, decreased vegetative cover and severe soil erosion. Subsistence rainfed agriculture is the prevalent production system in the Shivaliks. Reversing the degradation of natural resources is the key to promoting rural development. The proposed project would consolidate progress already made in four states (Punjab, Haryana, Jammu & Kashmir and Himachal Pradesh) under the recently completed Integrated Watershed Development Hills Project (IWDP Hills-I). The project design recognizes the need for policy and institutional arrangements that will ensure long-term sustainability. For that purpose, the project calls for a Shivalik Watershed Development Strategy for the five states. The strategy would harmonize watershed development guidelines across states. In each state, the Shivalik Watershed Development Strategy would be the basis for project interventions and would link watershed activities to the several centrally sponsored schemes, state and donor interventions. A "bottom-up" approach is an integral part of the proposed project design and would involve all stakeholders during project planning and implementation. The project would place special emphasis on building the capacity of communities to take responsibility for maintaining assets created under the project. Mechanisms would be developed to link community-based organizations to the Panchayati Raj Institutions (PRIs) so that PRIs and the communities jointly take responsibility for managing these assets. The project design would be adjusted in size and scope to take into account the results of the Watershed Development strategy, social assessments and participatory rapid appraisals reflecting community priorities. These changes would be reflected in the annual implementation plans and in annual state budgets. The participatory approach, which is the cornerstone for project implementation and sustainability, is a proactive interactive process with an outcome that cannot be pre-determined without being undertaken. Therefore, the project design is based on learning and evaluation nature; and continuous dialogue with beneficiaries/stakeholders and project staff is essential to adopting meaningful project interventions. Thus, the project costs and interventions are indicative and are subject to revisions during the participatory planning stage. -30- By Component: Project Component 1 - US$139.2 million Watershed Protection and Development The objective of the component is to: (a) promote proven locally adopted vegetative technologies and mechanical structures through active participation of beneficiaries to conserve water and reduce soil erosion; (b) consolidate achievements of the first project (IWDP-I) and use its interventions to demonstrate and train beneficiaries in newly covered areas using appropriate farming systems (crops and livestock); (c) improve rural infrastructure particularly upgrading of existing rural roads to facilitate the marketing of increased agricultural production (rural roads and markets) and water harvesting structures for irrigation; and (d) promote diversification to high value commodities, such as horticulture and milk production. The area to be treated includes 75 sub-watersheds equivalent to 200,000 ha of degraded land in the five project states out of a total area of 522,000 ha. The selection of the sub-watersheds was based on the seriousness of degradation using erosion classifications provided by the All India Soil and Land Survey. To avoid duplication of effort, sub-watersheds being treated through other programs have been excluded. The project states have issued letters to this effect. Also, the demonstrated capacity for implementation of the project helped to determine the area to be covered in a particular state. The Watershed Development and Protection component would include the following subcomponents: (i) watershed treatment; (ii) fodder and livestock development; and (iii) rural infrastructure development. (i) Sub-watershed Treatment (US$94.3 including contingencies): IWDP-I has successfully demonstrated a range of activities that are appropriate and technically effective. Some of the original assumptions regarding across-slope vegetative barriers have not proven to be as successful as was anticipated, but alternatives have evolved. The experience so far provides a good basis for the second phase. However, since the project places greater emphasis on the participatory planning and implementation, VDCs would play an important role in the selection of activities and treatments in a particular area. Vegetative barriers/field boundaries. For the arable lands, vegetative barriers/field boundaries would be continued. However, the main emphasis would be on placing across-slope vegetative barriers and V ditches along field boundaries to intercept surface run-off and allow soil to accumulate behind the barriers. The soil and moisture conservation impact would be greater if the barriers were placed more accurately along the contour. Terrace repair and vegetative reinforcement. Much of the arable areas are terraced to some extent, but the terraces are often in disrepair. The project would provide assistance to repair these terraces, and reinforce them against future damage by planting a vegetative barrier along the front edge. Improved cropping systems. Demonstrations would promote the adoption of recommended agronomic practices including appropriate tillage to ensure moisture conservation, and the use of improved varieties, seed treatment, and the balanced use of fertilizer and pesticides. Because crop inputs are provided on a subsidy basis as an incentive for beneficiaries to participate in project activities, farmers should only benefit from the inputs for one demonstration covering a maximum area of 0.5 ha. Horticulture. Fruit trees have considerable potential in the project area, both as a perennial crop to replace -31- annual cropping on marginal arable areas, and also as a valuable enterprise in better arable areas. The long gestation period for fruit trees to come into production is a disadvantage, but in the initial years crop cultivation can continue between the trees. Cost sharing arrangements have been agreed with the project states. Agro-forestry. The availability of adequate quantities of fuelwood and timber for construction purposes is a problem in most project sub-watersheds. Fuelwood and timber supply can be partially improved by the promotion of small woodlots and tree planting along farm boundaries. The promotion of higher value timber crops such as Poplar has potential in some project areas. Also in this case, cost sharing arrangements have been agreed with the project states. On-farm fodder production. Demonstrations would be supported to promote the production of high value fodder crops to encourage stall-feeding. The objective of on-farm fodder production is to reduce the pressure on traditional grazing areas. Non-Arable Lands. Vegetative/shrub barriers in contour trenches would continue to be supported and would reduce soil erosion and improve water retention. This is a lower cost treatment to be applied on more seriously degraded areas on all tenure categories with the objective of reducing surface run-off, increasing moisture infiltration, and trapping soil sediments. This treatment would include a small cross-section v-ditch reinforced with indigenous shrubs and grasses which will intercept and reduce run-off. Pasture development. Currently many village common and privately owned non-arable lands are used primarily for pasture, however these areas are often overgrazed with low productivity. This treatment would focus on improving degraded private and communal grazing areas by removing noxious weeds such as Lantana and establishing improved pasture species in conjunction with the introduction of communally acceptable arrangements for protection and sustainable exploitation of these areas. Silvi-pasture. This treatment would be implemented on a similar basis as the afforestation activities and would apply in areas where the demand from local village communities is for a mixture of fodder and fuelwood products from the non-arable areas. The treatment would involve planting lower tree densities with a corresponding increase in the proportion of shrub and grass species to meet fodder requirements. Forest regeneration. This would include rehabilitation of natural forest on non arable government, common and private lands, particularly on the unstable slopes of the Shivaliks to improve the soil and moisture conditions of the entire microwatershed and to increase the production of fodder, fuelwood, and other forest produce for local consumption. The forestry investments would be based on a site specific plan for the treatment and management of the site planned together with the VDC. The planning would be guided by basic watershed and silviculture principles, but all decisions on treatments, product focus (e.g. species choice), and management practices (e.g. managing grazing) would be made by the VDC. This plan would form part of the VDP and would describe the required treatments, responsibilities for forest protection and management and benefit and cost sharing arrangements for the particular site and VDC. Treatments would promote natural regeneration of the forest, through soil and conservation works, especially along contours of steep slopes, protection of the natural regeneration from unmanaged hacking, fire and grazing and through the treatment of coppice growth from roots and stumps (see Staff Assessment # 1). In large "blank" areas where the prospects for regeneration are poor, treatment would include planting at various densities depending on the site requirements and VDC management choices. In the treatment plans emphasis would be placed on techniques to increase the productivity of Non-wood Forest Products (NWFPs) which could provide a short term source of income for the poorest in the VDC rather than relying solely on the long duration products such as timber. Cost sharing arrangements would vary depending on -32- land tenure with the greatest beneficiary contribution on private non-arable areas, and the least in government forests. In all cases local communities would take full responsibility for protection. (ii) Fodder and Livestoek Development (US$18.0 million including contingencies). The objective of the fodder and livestock development component is to reduce livestock pressure on the fragile lands by scaling down the extent of open grazing and to improve the contribution of the animal husbandry sector to better natural resource management in 75 watersheds in the project area. This would be achieved through the introduction of proven fodder and animal husbandry technologies and would be supported by policy changes. The major contribution would be to improve the quantity of milk produced and also the conversion efficiency from grass and forage to milk. Milk production of local cattle and buffalo is low, the calving interval is longer and they reach maturity later than improved breeds. Improving the nutritional level of the local breeds to increase milk production may only be marginally successful because the genetic potential for milk production is low. Therefore breed improvement is a major component of livestock and forage development. The returns from forage development are much greater when improved breeds are used. Negative aspects of using improved breeds are the tendencies for a greater susceptibility to disease and environmental stress and the need for continuous higher plains of nutrition. Thus, fodder development would be concurrent with the breed improvement program. The project would take into account experiences of IW1DP-I, and introduce a package of technologies with a proven success record. These are detailed below, with details of the amounts involved for each state included in Bank Staff Assessment #2. Genetic Improvement Genetic improvement would be based on the use of artificial insemination (Al) or, in the J & K, H.P and U.P, in part with natural breeding centers, using mostly local Holstein Friesian or Jersey bulls as in Haryana. For cattle, some imported semen could be included. For the buffalo, the Murrah breed would be used, for sheep in the temperate areas, the Rambouillet would be used. The project would fund about 150,000 inseminations of local sires, and about 14,000 inseminations from imported sires. In addition, the project would fund 230 natural breeding centers and the initial equipment and training of about 100 lay inseminators in J&K, Punjab and U.P. In H.P, the project would also fund the establishment of a semen processing facility, provided the Department of Animal Husbandry would increase, in the entire state, the fee to 15 Rs. per insemination, and gradually afterwards to Rs. 50 to ensure the sustainability of the Al inputs. Also for H.P. a small provision would be made to support the natural breeding stations started under the first phase. Assurances were obtained that the level of beneficiary contribution for these stations would be increased to at least 25% by March 31, 2000. Veterinary Health Improvement. While the project area already has a good coverage in veterinary infrastructure, additional infrastructure is necessary to cover some remote areas. The project would therefore fund the construction and equipment of 14 veterinary hospitals and 140 dispensaries. In addition, the project would fund the recurrent costs (basic supply of pharmaceuticals and simple equipment) at the rate of about Rs. 100,000 per year for the hospitals and between Rs. 23,000 to Rs. 36,000 per year for the dispensaries. For the transhumant population, the project would finance three mobile clinics, with their equipment, in Haryana. Fodder production. For arable land at the lower altitudes, the project would supply about 68,000 "mini-kits" consisting of fertilizer (urea and DAP) and seed such as sorghum, oats or berseem (Trifolium alexandrinum) or vegetative material such as Napier grass, (Pennisetum purpureum) or Guinea grass ( Panicum maximum) for pilot demonstration on 0.1 ha. plots. For non-arable plots there is also a wide variety of locally adapted fodder and fodder shrubs available, such as, bharbar (ulalilopsis binata) and acacia spp. The legume stylosanthes is successfully used in some states (H.P.) as an initial soil cover and soil fertility improvement crop, although it disappears after about three years. At the higher elevations, -33- grasses such as orchard grass (Dactylus glomerata), phleum pratense and red clover (Trifolium pratense) are being used. Silvi-pastoral treatments. Under the silvi-pasture treatment, about 24,000 ha degraded forest and communal grazing areas would be rehabilitated by a combination of oversowing (using the species discussed above) and enclosure of animals, allowing only "cut and carry" for a period of three years, if the communal area belongs to private or village groups, and permanently, if the land belongs to the Forestry Department. The project input would consist of seed and planting material, the unskilled labor for cultural practices, such as V-ditches, fencing and site protection would be provided by the beneficiaries. Before project implementation, each state would re-assess the recommendation for optimal fertilizer levels, which now demonstrate wide ranges, for the mini-kits and the silvi-pastoral treatment, both in the use of Urea (ranging between 50 and 140 kg per ha) and DAP (ranging between 30 and 150 kg per ha), which can not be explained by soil quality differences only. Other feed technologies. The project would fund about 3,500 on-farm demonstrations of fodder conservation techniques, such as hay and silage making and the treatment of crop residues (especially wheat straw) with Urea, to improve the feeding value. The subsidy on concentrate feed for cows in their late pregnancy and for young calves born from Al, would be phased out over the first three years of the project, in those states where it has been practiced under IWDP-I (Haryana, J & K and H.P). In Punjab and U.P., the project subsidy would be 50 percent during the first year, and 25 percent for the second year. A similar subsidy scheme would be maintained for mineral supplementation. Feed and mineral subsidies would not be included in the technological packages for the Punjab and U.P., whereas in H.P. where average rainfall is high the project would fund an experimental artificial fodder dryer, to preserve feed of high nutritive value. Housinz and other livestock management practices. To promote stall-feeding, which is environmentally friendly, the project would support the construction of about 10,000 livestock shelters and feeding troughs. In U.P. incentives would be provided for castration of local, unproductive bulls. Institutional Support. The project would strengthen the capacity of the local institutions by training 65 livestock technicians, and about 100 lay stockmen, and organize about 900 farmers training camps and 240 livestock shows. The project would be implemented by the project units, in close collaboration with the Departments of Animal Husbandry of each participating state. To test new approaches, funds would be provided in each state to hire the services of a local NGO, to take responsibility for the implementation of the fodder and animal husbandry component. (iii) Rural Infrastructure Development (US$26.9 million including contingencies). The main objective of the rural infrastructure development component is to improve access to potential production and marketing areas, facilitate the communication of the rural population under the project, imnprove drinking and irrigation water and improve marketing and storage facilities. To ensure sustainability of the assets built, the communities would be responsible for the maintenance of rural infrastructure (such as, culverts/bridges, bridle paths/mule tracks, etc.) as agreed in the MOUs. All motorable roads (above 2 kms.) would be responsibility of respective state governments. Support for infrastructure development includes: (a) rural roads; (b) marketing and post-harvest infrastructure; (c) potable water supply; (d) drainage line treatment; and (e) water harvesting structures. Rural roads. The emphasis of the rural roads subcomponent is on upgrading, repairs and better cross drainage structure to existing roads. All project states have prepared proposals to improve access to -34- potential production areas and facilitate the communication of the rural population under the project. Implementation would be through contractors supervised by the Public Works Department for type A link roads and ODRs and by VDCs, in co-operation with Gram Panchayats to be supervised by the Project Implementation Units, for the bridle paths/mule tracks. In general, the access conditions and proposals by participating state are as follows: (a) Jammu and Kashmir. The density of roads is very low and the need for access improvements in this state are probably the greatest. The proposed interventions are for upgrading about 135 kilometers of bridle paths/mule tracks and associated stream crossings, plus about 142 kilometers of type A link roads within the four district expansion areas envisaged in Jammu and the "karewas" of the Kashmir valley. (b) Punjab. The present level of link road access is very good. Proposed activities by the project would be to continue with the erosion control and landslide treatment undertaken by the IWDP-I and to improve some of the link roads. The overall program has excluded the construction of new roads and road widening proposals and would be limited to about 247 kilometers of existing roads made up of about 165 kilometers of pacca roads and about 82 kilometers of katcha roads. (c) Harvana. Although the present level of road access is very good, some upgrading of the link roads in the hills would be needed. The proposed program would upgrade about 232 kilometers of pacca roads and about 30 kilometers of katcha roads. (d) Himachal Pradesh. The density of the roads in the state is relatively good, but the topography of the Shivaliks creates deep valleys and circuitous access conditions. Therefore, the main thrust for access improvement would be the upgrading of tracks and the provision of stream crossings, which would allow more direct access to existing market yards/sub-yards and other facilities located on the national highways. The proposed program would include the construction of about 125 kilometers of cross-drainage works to katcha type A link roads; about 140 kilometers of cross-drainage works to katcha ODR roads and about 1 14 suspension/foot bridges to bridle paths. (e) Uttar Pradesh. The general level of access and road conditions of the roads serving the Shivalik areas of the state are good. However, link road improvement and associated structures are needed to serve remote communities. The present proposals would be confined to upgrading about 100 kilometers of katcha roads and about 100 kilometers of bridle paths/mule tracks. Screening and prioritizing and Road Maintenance Policy. The project states undertook preliminary surveys and screening of potential road proposals on the basis of information on road condition and socio-economic criteria. These generally follow the UP-DASP criteria i.e. the criteria of a minimum village population (MNP) served by a link road of 1,000 persons. Areas and villages within 2 kilometers are assumed to be served and priority would be given to areas where perishable crops are grown and need to be marketed. Assurances were obtained that project states would: (i) select and improve roads according to criteria and technical standards agreed with the Bank; (ii) maintain such roads in accordance with an action plan consistent with the road maintenance policy to be finalized by the project states by March 31, 2000; (iii) ensure that any land neededfor road improvement, or the roads requiring realignments involving acquisition of additional lands is provided by local communities voluntarily in accordance with a Memorandum of Understanding to be signed between the project states and all affected members of the participating community release the required landfor project activities; and (iv) not to commence improvements of roads in locations where private land is needed until such MOUs have been concluded. -35- Marketing and Post Harvest Infrastructure. Various marketing studies have been undertaken within the project states, generally for the Marketing Boards which identified marketing infrastructure for support under the project. No specific surveys or screening were undertaken as a basis for the proposals. These proposals, therefore, are preliminary and would need further studies and designs before implementation. Community need would determine selection criteria for small-scale facilities - improved haat painths, livestock fairs or new focal points/purchasing centers in their locality. A marketing committee of traders and market users would be established as the prerequisite for development - the committee collecting revenues to be used for the maintenance of the services and facilities. The information obtained from the marketing studies and surveys would be used to refine the marketing selection criteria and to identify the priority locations for improvement under the project. The screening would be based on the following criteria: (i) priority should be given to those rural markets (and new locations) that are handling fruits and vegetables or livestock/dairy products; (ii) existing (or proposed) market site should be on land presently owned by local government, or use community land with their express agreement (through a MOU); and (iii) there should be an agreement by the local community to set-up a market committee. Based on the UPDASP experience the recommended range of basic common infrastructure to be implemented by the project could comprise: (i) site preparation, fencing and simple surface/storm-water drainage system; (ii) internal road and open sales platforms; (iii) a sanitary block and a water supply, using India Mark II-type hand pumps; (iv) garbage collection points and collection carts; and (v) shade tree planting; and, if justified, limited investment in covered sheds, and provision for livestock trading. The overall program would include about 21 centers: five focal point infrastructure for Punjab; four purchase centers for Jammu and Kashmir; four purchase centers for Haryana; four purchase centers and about 3,500 grain storage bins for Himachal Pradesh; and four purchase centers for Uttar Pradesh. In addition to the civil works, provision has been made for providing technical assistance and for undertaking a marketing study in each of the five states. Support to the establishment of marketing groups would also be provided through the beneficiary capacity building activities under the institutional strengthening component. Potable water supply. The project would augment existing supplies to provide a standard of 70 litters per person per day. Detailed water supply proposals were only prepared by Punjab and these form the basis for cost estimates for the proposal under the project. Simple outline proposals were prepared by Jammu and Kashmir, whilst for Uttar Pradesh the proposal has been developed around the use of tube wells and India Mark II hand pumps. The overall program would include 80 potable water supply schemes: 12 water supply schemes in Punjab; 28 schemes in Jammu and Kashmir; 20 schemes in Haryana; 20 schemes in Himachal Pradesh; and 490 villages in Uttar Pradesh would be provided each with a hand pump for their existing water supply schemes. Drainage line treatments. Drainage line treatments and erosion control programs have been defined by the states for each sub-watershed on the basis of their previous implementation experience. The program for Himachal Pradesh is based on draft implementation plans prepared directly in the field for 12 sub-watersheds and expanded to cover the entire program of 41 sub-watersheds (32 new and 9 from IWDP-I) by using field-derived allocation factors. For Uttar Pradesh, more details of the stream lengths were available. This enabled site-specific drainage line treatment models to be developed for each of the 5 sub-watersheds, assuming that at least 30% of the drainage lines were severely degraded and required full treatment. Water harvesting structures. A preliminary estimate of the overall program for water harvesting and minor -36- irrigation interventions in the project has been developed with the states. Details of the water harvesting structures for each sub-watershed and their corresponding cost estimates have been prepared. These have been defned on the basis of allocation factors derived from the previous experience in each state. The program would include village ponds (1,236); makhowal tanks (2,690); water harvesting structures or shallow dams of less than 15 meters (5,293); lift irrigation structures or wells (2,296) and other water collection facilities, such as roof tanks, channels and earthen dams (1,161). Generally, the design norms and standards for construction under the project would not need significant change from those used in IWDP-I. More attention would be given to: (i) minimizing siltation (by ensuring that upstream catchment treatments are complete and effective before commencing dam construction); (ii) the economic viability of including lift irrigation schemes; and (iii) more effective protection of dam embankments on both the upstream and downstream sides. Some of the most important areas where changes would be required would be in the on-ground design and allocation of irrigation areas in collaboration with water users groups. This issue would, however, need to be addressed in the preparation of any new proposals during the participatory planning process. Project Component 2 - US$53.8 million Institutional Strengthening Component The objective of the institutional strengthening component is to: (a) support beneficiary capacity building in planning, implementing project activities and taking responsibility of assets created by sensitizing beneficiaries to the maintenance of project assets and interventions; (b) strengthen implementing agencies capacity of reaching the communities through research and extension and by strengthening human resource development through training, field exposure and better incentives; (c) support the effort to increase awareness of sustainability measures and project development objectives; and (d) support project states to implement policy and institutional reforms that are considered essential for the sustainability of project activities through studies and building partnerships with other local level institutions. The main sub-components of the institutional strengthening component include: (i) Improve community capacity building; (ii) Strengthen policy reforms, studies and human resource development; (iii) Improve women's capacity to manage development by promoting income generating activities; (iv) Improve knowledge management, monitoring and evaluation; and (v) support and strengthen project management. (i) Improve Community Capacity Building (US$6.2 million including contingencies). Main activities include community mobilization and preparation of VDPs using participatory rural assessment (PRAs), studies and technical assistance for the preparation of VDPs. To ensure community ownership in project activities, the project would provide extensive training to beneficiaries on technical, financial and social aspects of watershed management. Various workshops, seminars and on-site training would be provided to expose them to treated watersheds. The project would also include measures to strengthen local institutions (including panchayats). Special emphasis would be paid to building capacity of VDCs in the planning and implementation of watershed activities. The preparation of a VDP by the communities would be formalized through the development of a MOU, signed by project officers and VDCs, for its implementation. Registration of VDCs in the first year of implementation would be undertaken to ensure their legal status. Subsequent registration of VDCs would be done through the participatory process. In order to secure effective participation, a significant preparatory period before implementation is envisaged; the first six to twelve months would be devoted to preparing and securing the participation and commitment of villagers to project objectives. A commitment -37- to owning the development activities and ensuring their operation and maintenance by the community would be a key part of the MOU. All project states would develop effective mechanisms to link the VDCs to the Panchayati Raj Institutions (PRIs) so that PRIs and VDCs jointly take on the responsibility of managing these assets at the end of the project. (ii) Strengthen Policy Reforms, Studies and Human Resource Development (US$4.4 million including contingencies). Policy Reforms and Studies. The project would support a set of inter-related policy reforms which are expected to ensure sustainability of the project. The main policy issues related to sustainability of project interventions sought under the project would be the harmonization of approach between GOI, State and donor watershed development programs. An Inter-ministerial Coordination Committee (ICC) has been established to facilitate and coordinate harmonization of the guidelines. To this end, the Shivalik Watershed Development Strategy would develop a comprehensive strategy (including common guidelines) for the Shivaliks. Assurances were obtained that recommendations of the Shivalik Development Strategy would be incorporated in the Annual Implementation Plan by March 31, 2000. Secondly, the present levels of subsidies established in many programs are too high for long-term sustainability. Forest and common land, and drainage line treatments are highly subsidized (up to 90-100 percent), while in arable land treatment, subsidies vary between 15 and 50 percent, depending on the type of treatment required and cost-sharing arrangements with beneficiaries. There is scope for reducing these subsidy -levels by seeking greater beneficiary understanding of primary and secondary benefits and by seeking more cost-effective technical solutions. To this effect, the project would implement a plan of action on how to phase out some subsidies altogether (artificial insemination, concentrated feed) and rationalize others (silvipasture improvement). For some interventions, information on total costs and benefits is inadequate, and a more accurate assessment of these costs and benefits is needed. To address these concerns, the project states have submitted a Letter of Development Policy which confirms their agreement to the reform program as summarized in Annex 11. Assurances were obtained that the project states would carry out a reform program for improving the watershed development programs. Assurances were obtained that the project states to ensure that. (a) cost sharing in livestock breeding and health is increased by 25% by March 31, 2000; (b) cost sharing in improvements in private arable lands, such as horticulture andfodder improvement packages is increased by 50% by March 31, 2000; and (c) a study on the costs and benefits to be completed by February 29, 2000, and to be updated annually. The findings of the study would be implemented during the project period through the PIPs and would be reviewed in depth during MTR. Human Resource Development. The project places heavy emphasis on human resource development and training programs that focus on an integrated and multi-disciplinary approach to watershed development. The project states would pay particular attention to the ways in which the issues of participation and organizational change are to be dealt with. The training program would include learning by exposure through field visits to completed watersheds to other states, as well as international study tours. Regarding both research and training, the state implementation units and PCC would determine priority research and training activities which focus on resolving project implementation problems. Each state would be directly responsible for determining its own training priorities and preparing and implementing training activities. Training would be targeted to line agencies as well as staff of PIUs and VDCs. Funds for training would be provided to the individual project states. However, for co-ordination purposes, the training institute of Ballowal, Punjab, created under IWDP-I, would be strengthened and would provide overall regional training co-ordination to the project states in conjuncture with the state -38- training coordinators. Based on state-specific training needs as well as elements that will be common to the five states, a detailed training program (see Bank Staff Assessment #3) has been prepared and incorporated in the PIP. The details of the training activities would be provided in annual training programs and incorporated in the Annual Implementation Plans. This arrangement would allow the project states to draw on a wide range of external training resources to implement the program by contracting the agency with the most relevant experience to conduct specific training activities. Research funds would be allocated to the state implementation units which would determine priority research activities to focus on resolving project implementation problems. The state implementing units would contract the most appropriate institute to conduct the research activities. The research staff would also be involved in technical training and project workshops. Adequate resources have been provided for each state to cover operational research activities. To implement this activity, each state implementing group would prepare a strategy for their research activities which would identify priority research needs (based on VDC/community priorities/feedback) and institutes for conducting the research. Priorities would include identification of alternative afforestation, silvi-pasture, agro-forestry and agro-horticulture models suitable for different ecological zones. (iii) Provide Income Generating Activities for Women (US$1.6 million including contingencies). The project interventions would improve availability of fuelwood, drinking water and fodder, thus reducing drudgery and increasing time available for women to be engaged in skill development programs, technical know-how and opportunities for income generation. The social assessment and participatory planning exercise should identify needs and constraints women face in the project states. These should then be assessed and mainstreamed in the VDPs and implemented under the project. Special attention would be given to gender training, awareness campaigns and development of close links with other gender related poverty alleviation and social programs. Funds have been allocated for income generating activities for women. To complement this, a study would be carried out during the first year of project implementation to review income generating options for women to develop viable long-term activities. To ensure that women fully participate and benefit from the project activities, the project authorities and VDCs would be encouraged to find specific ways to incorporate the interests of women in the VDPs and MOUs. (iv) Improve Information Management, Monitoring and Evaluation (US$5.8 million including contingencies). The project supports an innovative integrated information and knowledge system for assisting project staff with the effective project implementation and monitoring, fostering inter-sectoral coordination and transparency and mainstreaming knowledge management in projects (see Bank Staff Assessment #4). The capacity of project management to monitor progress and performance would be considerably enhanced by the development of this information system. An integrated Information Management, Monitoring and Evaluation (IMME) Unit would be created in each project state to facilitate the interaction of staff in different units as well as provide a focal point for operational learning and the development of both participation and independent evaluation. To this end, appropriate training, field visits and seminars would be organized, and the private sector would be tapped for Information Technology (IT) development. A draft outline of the functions of the proposed IMME unit and the TOR for an IT consulting firm would be prepared by the PCC by project launch but not later than October 31, 1999. A consulting firm would be engaged to provide technical support and develop decision support system applications using GIS and MIS concepts for all the states. The IMME unit would develop indicators for measuring institutional capacity development. While the development of such qualitative indicators is in its infancy, the project would provide the foundations for experimentation with indicators that can measure progress and performance of VDCs and the implementing agencies. The project states would monitor the progress based on project design summary, using the -39- Logical Framework. Functions of IMME would include: (a) data base preparation for the Shivaliks Strategy; (b) the appointment of a Monitoring and Evaluation Advisor and unallocated technical assistance; and (c) a local contract for the coordination of monitoring and evaluation. The IMME unit would be primarily a service unit to help decision-makers in effective project implementation. This knowledge management system would provide the team with quick access to information. Tools such as Geographic Information Systems (GIS) and remote sensing, that have a lot of potential in natural resource management activities (e.g. producing maps/overlays, spatial analysis, integration with Management Information Systems for monitoring and evaluation) would be integrated into the IMME to help provide day-to-day operational support to the WPIOs rather than become a separate activity. A well-qualified person has been recruited in each project state to coordinate activities of the unit. (v) Support to Project Coordination and Management (US$35.8 million including contingencies) . In addition to capacity building of VDCs, an important objective of the project is to build the institutional capacity of project implementing units. The sub-component would strengthen watershed implementing agencies (WPIOs) as set up under IWDP-I. This would require considerable re-orientation of project staff, to deal effectively with the shift to a more participatory approach. The project therefore places emphasis on on-the-job training, workshops and study tours to learn from the experience of other states. Based on the experience of IWDP-I and similar projects, it is also important to strengthen the role of line departments in project implementation to ensure replication. Training would be combined with the development of a more effective Monitoring and Evaluation capacity as well as the development of a Social Accountability/Social Audit capacity. This sub-component also includes establishing and operating a comprehensive project financial management system. The capacity of project management to monitor progress and performance would be considerably enhanced by the development of the integrated information resource and financial management, as proposed above. Existing implementing agencies would be supported with vehicles, equipment, office space and minimum incremental staff and training and operating funds. Limited construction activities would be funded under the project to provide office accommodation for incremental staff (main office complexes and demonstration centers, sub-offices and sector offices, and the renovation of existing office buildings). Incremental stafffmg requirements have been defined by the states and would continue to be funded by the Project on a declining basis. Because of the role of MOA in being the nodal agency for ICC in addition to the overall coordination and monitoring and evaluation of project impact, the WDC in MOA would continue to be supported under the project. The support would include: provision of equipment; technical assistance to provide skill-mix and incremental staff costs. -40- m. Implementation Arrangements Overall Coordination Coordination at the Center Level. At the central level, the WDC of the MOA would provide the overall coordination. The WDC would also be responsible for facilitating and monitoring project implementation. The ICC would consist of representatives from MOA, Ministry Dr Rural Areas and Employment, Ministry of Forestry and Environment, Ministry of Water Resources, DEA and the Planning Commission, with MOA as the nodal agency and convener to coordinate GOI's overall watershed development policies. The ICC would also develop a system to harmonize implementation of different activities fnanced in a particular watershed. MOA would facilitate and coordinate overall project activities. The WDC would be responsible for harmonizing guidelines ensuring their implementation in all states. State-level Coordination. Overall strategic policy and guidance for the project would be provided by the steering committees at the state level. These committees were established during IWDP-I. In U.P. a similar committee, namely the "Empowered committee", exists. The current membership of the steering committees consists of Secretaries and Directors of implementation departments, the Director of Research of State Agricultural University, MOA and the Project Director. The membership of the steering committees would remain unchanged, except with the introduction of representatives from communities, Panchayats and women. In Himachal Pradesh, a Shivalik Watershed Development Society has been proposed to coordinate all watershed programs and function as an umbrella organization for watershed management. The society would have powers to sanction funds required for the purchase of various inputs and delegate powers to a member secretary or any other authority. District Level Coordination. At the district level, coordination would be provided by the district coordination committees headed by the District Magistrate. The district coordination committees would review annual work programs, project progress and help to resolve implementation problems. With emphasis towards local institutions such as Panchayats and VDCs, it is important that the district committees perform their role effectively. The membership to district committee would also include representatives from communities, Panchayats and women from sub-watersheds within the district. Project Management and Implementation Project Coordination Committee. A new design feature of IWDP-II is the establishment of a Project Coordination Committee (PCC) to ensure speedy decisions on all project related issues and harmonize institutional structures in project states. PCC would consist of Project Directors of five states and their senior technical and financial staff as required, and would have participation from MOA. PCC was established on February 23, 1999. The Chairperson of the PCC would be selected on a rotational basis, and the Punjab Project Director has been selected Chairperson for the first year. The role of PCC is to provide a forum for Project Directors and their senior staff and MOA to exchange views on any technical and participatory issues, operational and administrative matters and share and disseminate information on best practices. The Project Directors through PCC would prepare project guidelines across five states which would outline general approaches to project implementation and specific details of project management for each state. The guidelines would build on experiences gained under IWDP-I and similar government interventions, bilateral programs, etc. These guidelines would be finalized before the project launch workshop. The PCC would coordinate project activities, incorporate studies' recommendations across five states, monitor and evaluate project progress; coordinate technical aspects -41- and regional training programs, and hiring of consultants for comprehensive studies across the five states. Project Watershed Management Implementing Offices . The WPIOs created under IWDP-I would be retained and strengthened. The Watershed Management Directorate in U.P. would also be supported. The mission recommends integration of watershed staff from line agencies into watershed units as is the case in U.P., Himachal Pradesh and J&K. Uttar Pradesh has already established a Watershed Development Directorate whereas Himachal Pradest, (Shivalik Watershed Society) and Jammu and Kashmir are in the process of establishing these as integrated autonomous units. With the new design features, IWDP-II places additional responsibilities on the Project Directors. Sub-Watershed Teams. At the sub-watershed level, there would be teams headed by a Team Leader/Project Officer. The number of teams in each state has been discussed and agreed, and would depend on geographic areas and the nature of the work load. The teams would be multi-disciplinary. The sub-watershed teams in collaboration with communities and the participatory development staff would be responsible for actual project implementation. Since beneficiary participation is key to the sustainability of the project, the role of the staff of the implementing agencies would have to change. The teams responsible for the first year's implementation, which includes the PRA process and organizing intensive training to develop and strengthen their skills in participatory development, are on board. Institutional Arrangements for Participatory Development . To achieve effective beneficiary participation, each project implementation unit would be assisted by a social team that would be created under the project. The prime responsibility of the social team would be to integrate the participatory and social aspects with the technical aspects of the project and work together with the technical teams to develop and strengthen local institutions. The detailed terms of reference of the social team have been finalized with the project states. Each team would be led by a Participatory Development Specialist (PDS), who would work directly under the Project Directors and would be responsible for stakeholders and beneficiary participation, involvement and commitment to the project. At the sub-watershed level, Participatory Development Facilitators (PDFs) would be hired to work with the technical teams and would support beneficiaries through specific training for capacity building. PDSs and PDFs would be appointed through the local NGOs or universities, whichever is feasible. At the village level, Participatory Development Motivators (PDMs), preferably women, would be selected from the community. The VDCs would select the PDMs. The PDMs would be trained and will assist PDFs in the village during the project period. The VDCs would be expected to cover the cost of PDMs at the end of the project. The process thus would include representation of beneficiary groups at all levels of decision making (from the village to the state steering committees). Participatory Planning Process . One key feature of IWDP-II is to involve beneficiaries right from the planning stage. Socio-economic aspects using PRA and social impact assessment have been used to enlist beneficiary involvement. The social and participatory preparation would be spread over three stages as shown in the Table 1 below: (a) stage I would include social analysis and preparation of micro-plans of the new villages. This process would start at least six-months prior to implementation; (b) stage II will include the implementation of works as well as consolidation of VDCs; and (c) stage III would include a withdrawal period, which would begin a year prior to the project completion. -42- Table 1: Phasing of VDCs Participatory Preparation State Year 1 Year 2 Year 3 Year 4 Year 5 No. of Total No. VDCs of Villages Uttar Pradesh 50 250 72 372 372 Punjab 30 80 120 40 270 270 Haryana 22 75 75 47 219 219 Himachal 35 55 50 10 150 651 Pradesh Jammu & 20 70 70 34 194 194 Kashmir To ensure effective participation of beneficiaries, the micro-watershed plans and VDPs would be prepared jointly with the community members. Experience from IWDP-I showed that the project implementation units need to build their own capacity before starting the participatory process with the communities Therefore, the project states submitted a sample of at least three VDPs before negotiations. WPIOs/WMD would organize workshops in all the states to develop appropriate methodology and guidelines on planning and criteria for site selection for use by the staff in the field. The institutional arrangements for the participatory planning and implementation have been discussed with the project staff, and would be finalized after carrying out social assessment and the PRA exercise. A draft MOU has been prepared to incorporate the basic principles for community responsibility for plan preparation, implementation, maintenance and protection of assets and monitoring and evaluation. Agreements would be reached on the sharing of treatment costs before the MOU is signed. A village account would be established by each VDC to deposit project funds and beneficiary contributions. A percentage of the benefits generated under the project could be primarily used for repair and maintenance of the village assets. The VDCs would be encouraged to execute the project activities in all states. The MOUs would define the role of VDCs including the collection of maintenance fees, etc. as well as the rules governing the Village Account. IV. Project Monitoring and Evaluation Monitoring, evaluation and operational learning are a central aspect of this project, aiming at ensuring the centrality of participatory methods and the re-orientation of the implementation agencies. These functions are central to the work of IMMI, as discussed above, and to the effective development of the training program. The monitoring and evaluation would be an integral part of the project's regular operations rather than on and off events conducted at period intervals. The objective would be to develop an information management system that provides timely and appropriate information to project managers, and includes the beneficiaries in assessments of project performance. The monitoring and evaluation framework would combine both qualitative and quantitative measures and would evolve as the project progresses and as staff gain competence and experience. The key personnel for the development of the IMME functions would be the Participatory Coordinators, the Heads of the IMME units, and the Training Coordinators. At the sub-watershed level, the Facilitators and Motivators would be responsible, together with VDCs, for -43- establishing and maintaining an on-going monitoring and evaluation (M&E). The on-going M&E would be based on monitorable indicators that would include quantifiable as well as qualitative indicators selected in partnership with the VDCs. The process would be carried out through: (a) Baseline information would be collected from a variety of sources, including the three-part social assessment, together with the collection of other relevant information emerging from the development of the GIS system, the Regional Environmental Assessment, and the cumulative VDPs; (b) On-going evaluation would be carried out by the IMME staff in cooperation with the Training and Participatory Coordinators. It would focus on: assessing the project progress, identifying problems and difficulties, and positive and negative experiences which generate information. Such on-going evaluations would be carried out with the full participation of VDC members and would be based on the agreements reached during the VDP exercises and MOUs; and (c) The periodic external assessments envisaged in the project would be conducted by external evaluators. In addition to the regular mid-term evaluation, thematic evaluation and monitoring (e.g. environmental, Social Accountability Analyses, or Social/Institutional Audits of the project, etc.) would be carried out throughout the project implementation period. There would also be periodic monitoring by the beneficiary communities themselves of progress in implementation of agreements, and in the performance of project staff in facilitating implementation. An important aspect of this process would be the dissemination of finding through learning events, and it would be important to link this into the evolution of the training program. This would ensure that available and accumulated knowledge is fed back into an operational learning process that provides appropriate and timely information to relevant stakeholders, including management, to allow informed participation and on-going corrections/adjustments. The on-going evaluation would focus on four key aspects: (i) micro-watershed activities; (ii) short-term results produced; (iii) the unexpected results; and (iv) factors which are external to the project and might affect it. There would be a phased approach for operationalizing the M&E learning system. The base-line information and development of VDPs through PRA exercises, and MOUs would provide the basic information. This phased approach would be adopted for all plans developed for implementation in the second and subsequent years of the project. The PRAs and MOUs developed for the first year's interventions, combined with the prospective social assessments would provide the learning foundations on which subsequent monitoring and evaluation activities would be built. The incorporation of a significant period of preparatory work (6 - 12 months) before implementation would help in ensuring that a participatory enabling enviromnent is produced. There would be periodic monitoring by the beneficiary communities themselves of progress in implementation agreements, and in the performance of project staff in facilitating implementation. The IMME would develop robust indicators for measuring institutional capacity development. While the development of such qualitative indicators is in its infancy, the project would provide the foundations for experimentation with indicators that can measure progress and performance of VDCs and the implementing agencies (see Bank Staff Assessment # 5 ). These would be in addition to the more quantitative indicators of outputs and outcomes and would be developed in partnership with the various stakeholders, in particular the VDCs themselves. -44- Annex 3: Estimated Project Costs INDIA: Integrated Watershed Development (Hills-Il) Project Project Cost by Component Local Foreign Total US$ million US$ million US$ million Watershed Protection and 108.1 6.6 114.7 Development Rural Infrastructure 20.4 1.2 21.6 Forage & Livestock Development 14.2 1.0 15.2 Watershed Treatments 73.5 4.4 77.9 Institutional Strengthening 40.6 6.7 47.3 Policy Reforms & Human Resource 3.6 0.2 3.8 Dev. Beneficiary capacity Building 5.1 0.3 5.4 Income Generation for Women 1.4 0.1 1.5 Information Management & M&E 3.1 2.1 5.2 Support to Project Management 27.4 4.0 31.4 Total Baseline Costs 148.7 13.3 162.0 Physical Contingencies 8.5 0.5 9.0 Price contingencies 21.1 0.9 22.0 TOTAL PROJECT COSTS 178.3 14.7 193.0 -45- Annex 4: Cost Benefit Analysis Summary INDIA: Integrated Watershed Development (Hills-li) Project Summary of Benefits and Costs: A. THE PROJECT AREA The total area of the Shivaliks in the five project states covers 4.178 million ha, of which Himachal Pradesh, Jammnu & Kashmir, and Uttar Pradesh represent more than 80%. The project area includes a total of 75 sub-watersheds that cover a gross area of about 522,000 ha. The selection of sub-watersheds was based on the seriousness of degradation using erosion classifications provided by Survey India. The total area, gross area, and the net treated area to be included for treatment by participating states are summarized in the table below: Total, Gross and Treated Areas by State Project Gross Area (ha) Net Area Treated (ha) States Total Area S.Watershed Arable N.Arable Total Arable N.Arable Total (ha) (no) Haryana 192,000 5 45,289 25,154 70,443 10,110 9,364 19,474 Himachal 1,170,000 41 37,092 82,024 119,116 22,348 34,050 56,398 Jammu& 950,000 4 35,083 75,997 111,080 22,806 29,549 52,355 Kashrnir Punjab 490,000 17 46,671 47,267 93,938 16,918 15,210 32,128 Uttar 1,376,000 8 34,452 92,855 127,307 15,740 22,883 38,623 Pradesh Total 4,178,000 75 198,587 323,297 521,884 87,922 111,056 198,978 -46- A summary of activities which would benefit from treatment are shown in the following Table: Net Area Under Treatment I qnH tioc1InW ArLn Trqturi (h4) 1. Arable land Rainfed crops demonstration 35,514 Hort. demonstration 19,827 Private irrigation 12,362 Fodder production 6,950 Farm forestry 13,270 s.total 87,923 It. Non arable land Afforestation 17,162 Forest augmentation 16,298 Silvi-pasture 22,939 Pasture development 8,125 Bamboo planting 1,830 s.total 66,354 Ill. Forest land Afforestation 20,470 Forest augmentation 24,231 s.total 44,701 Total 198,978 All livestock activities falling within the proposed 75 sub-watersheds in the participating five states will be supported. The project would also support the development of rural infrastructure as part of the integrated intervention in the development and protection of the watersheds. B. PROJECT BENEFITS The project, focusing on restoration of the productive potential of the Shivalik hills, would generate economic benefits including those of environmental and natural resources . These benefits can be broadly grouped under the following four headings: (a) on-farm benefits; (b) off-farm benefits; (c) environmental and natural resources benefits; and (d) other benefits. ON-FARM BENEFITS Increased agricultural production and incomes at farm level would be realized through: (a) demonstration of improved cropping systems including the adoption of recommended agronomic practices, appropriate tillage to ensure moisture conservation, the use of improved varieties, seed treatment and the balanced use of fertilizer and pesticides; (b) provision of inputs for one season on a subsidy basis as an incentive for participation in the project; and (c) improved agro-ecosystems with better in-situ soil and moisture conservation, and good groundwater recharge. All these factors would contribute to the reduction of surface run-off and soil erosion, and consequently increase crop yields and cropping intensity. Actual crop -47- yield increases through such a soil and moisture conservation approach have already been demonstrated under IWDP-I. Rainfed Crops Maize and pulses are major crops in the Kharif season, whereas wheat and gram are major crops in the Rabi season. Paddy is predominantly cultivated in the irrigated area and is not significant to farmers in the rainfed area. Evaluation of the existing project has confirmed an increase in crop yields as well as in cropping intensity, due to the increased availability of moisture and rise in the groundwater table. In estimating incremental production, based on the evaluation statistics of IWDP-I, it is assumed that cropping intensity would increase by about 7% and crop yields would increase by about 40% to 60% at full development in year 4. Irrigated Crops The project would also support the construction of water harvesting and minor irrigation structures for irrigation, livestock and domestic use. At the end of the project, approximately 12,400 hectares of land will be converted from a rainfed production system into a supplementary irrigated production system. Cropping pattern in the "Without Project" situation is similar to that of rainfed agriculture. With the project, it is assumed that there will be a small change in the cropping pattern, basically with the introduction of fodder and vegetables in a limited area in the Rabi season. Due to the availability of supplementary irrigation, it is assumed that yields would increase by more than 80% and cropping intensity would increase from 140% to 170% for both Kharif and Rabi. Full development of both crop yields and cropping intensities would be reached in year 4. Horticulture (fruit trees) Increasing horticulture cultivation - mainly fruit trees such as mango and guava - is considered an important part of the treatment of the project area. Horticulture has considerable potential as a perennial crop to replace annual cropping in marginal arable areas as well as in better arable areas. Mango and guava have proved to be popular among farmers in IWDP-1. Other fruit crops could be introduced depending on demand and market opportunities. Support for marketing studies on perishable crops and milk is provided by the project in order to facilitate the selection of appropriate crops during implementation. Mango and guava have been taken as representative horticulture crops for the purpose of estimating benefits from horticulture. Yields at full development have been estimated at 22 tons (year 10) and 12.5 tons (year 10) respectively for guava and mango. Farm Forestry Farm forestry also constitutes part of the menu for treatment. The availability of adequate quantities of fuelwood and timber for construction purposes is a problem in most of the project area. Fuelwood and timber requirements can be partially improved by the promotion of small woodlots and tree planting along farm boundaries. Poplar and eucalyptus have proved to be attractive to farmers and have been used in the analysis as representative of farm forestry. Details of inputs and outputs are shown in relative crop models. -48- Livestock The proposed livestock component would focus on: (a) improvement of forage production; and (b) improvement of livestock and feeding management. Project interventions would lead to the creation of livestock herds that would not be detrimental to the watershed and would at the same time increase farm income. The latter would be primarily achieved through improvements in animal breeding, feeding and veterinary services. Assessment of the impact of the livestock component based upon the integration of forage and livestock resources indicates that over seven years, the milk production would increase by 20-30%, while income from animal sales would increase by a similar amount depending on states. OFF-FARM BENEFITS Afforestation Increasing the productivity of government, common and private land is an important objective in reversing the degradation of the Shivaliks. In conformity with in-situ moisture conservation objectives, tree planting will be encouraged along the contour in either continuous or discontinuous trenches depending on the terrain and soil type. Selection of tree species will depend on land tenure and the requirements of the local community. In some areas, existing plantations will be replenished by partial replanting. Cost sharing arrangements will vary depending on land tenure with the greatest beneficiary contribution on private non-arable areas, and the least in government forests. Timber, fuelwood and fodder would be produced through the promotion of afforestation. Details of physical inputs and outputs are given in relative crop models for afforestation. The benefits of these components are summarized below: Upgrading Rural Link Roads The major benefit from upgrading rural link roads is the saving of vehicle operating costs. The consumers' surplus approach has been used in assessing the impact of roads as it is a simple and more direct measure of the benefits of better access. Variables in the model included: (1) average construction cost per kilometer; (2) population density; (3) traffic modal split; (4) annual traffic growth; (5) estimated present vehicle per kilometer (VOC); (6) expected VOC change; and (7) maintenance cost. The economic benefits generated from the savings on vehicle operating costs have been estimated at about Rs. 290 million (year 20). Marketing Collection Centers Reduction in post-harvest losses is the major benefit of this component. The analysis assumes a reduction in post-harvest losses equivalent to 2% of the farm-gate value of the produce handled and an annual turnover for the collection centers of 7,500 tons and the purchasing centers of 2,000 tons. The economic benefits from this component has been estimated at Rs.5.5 million (year 5). -49- Potable Water Supplies Time saved in water collection has been considered as the main benefit of potable water supplies. Based on limited data from the evaluation results of Punjab, the daily saving from households having more reliable and adequate water sources would be in the order of two hours per day. The analysis also assumes that water would need to be collected 200 days in a year. The economic benefits have been estimated at Rs.29.2 million (year 5). In addition to time saved, the project would also improve the health of the people in the area, hence reducing the incidence of sickness. However, this benefit is not included in the calculation. Environmental and Natural Resources Benefits The project would have a positive impact on enviromnent and natural resources of the project area. This can be translated into three types of economic benefits: (a) the area of land saved and land reclaimed due to the treatment; (b) the value of nutrient brought into the soil; and (c) the availability of moisture and rise of the watertable. While benefits (a) and (b) are to be included in the overall economic analysis, the effect of (c), i.e. the increase in crop yields and in cropping intensities as well as surplus water captured for irrigation, animal and other domestic use through water harvesting structures, are accounted for and included as benefits at farm level. Agricultural Land Saved and Land Reclaimed Land saved and land reclaimed would be one of the main project benefits. With the project, run-off from the catchment would be reduced, in turn reducing soil loss. In other words, the project would save land that would otherwise be lost in the "without project" situation. Although there are relatively good data on the quantity of soil lost per hectare (ton/ha), statistics on area (in hectare) lost are scarce. Data available with the evaluation of IWDP Hills/Punjab indicate that 1,908 ha were saved over a period of eight years, out of the total treatment area of 31,351 ha. The area saved represents approximately 6% of the total land area treated, or approximately a saving of 0.7% per annum. In the absence of other information, this data has been used in the estimation of benefits to illustrate the impact on land saved. In the valuation of the economic benefits from land saved, assuming mainly rainfed agriculture would be affected, an average net economic income per hectare of rainfed crops (maize, wheat, pulses and gram) has been used. By year 30, benefits accrued from land saved are estimated to be Rs.200 million per annum. In addition to the benefits from land saved, experience in the IWDP Hills in Punjab also shows that new land can be reclaimed along a seasonal stream (choe) in a treated watershed. In this project it was estimated that an average of 3.36 ha of land was reclaimed per km of seasonal stream or, over an eight-year period, 112 ha of newly reclaimed land out of a total treated area of 31,351 ha, (0.36% of the total). This translates into an annual increase of 0.045%. However, it is not clear at this stage whether or not further land will be reclaimed in the future. Another issue related to reclaimed land is its economic valuation. As this type of land is generally created and located along a seasonal stream, it has limited scope for agricultural use, and hence cannot be valued at the normal price of agricultural land nor at the net economic benefit generated by crops. In the estimation of benefits from land reclaimed, it was assumed that: (1) land would be reclaimed at an annual rate of 0.045% p.a.; and (2) it would be more appropriate to value newly reclaimed land at the value of grass generated from this land. With an average green grass production of 4 ton per hectare and the economic price of grass at Rs.270/ ton, the economic benefit per hectare and per year is Rs. 1,080 The economic benefits from land reclaimed are estimated at Rs.2.71 million (year 30). -50- Soil Fertility Improvement Soil fertility in the project area would be improved as the result of the land treatment that would bring leaf litter and other organic matter back into the eco-system. In addition to this nutrient fixing effect, the process of nutrient recycling would be reactivated. The impact evaluation study in Punjab indicated that over the period 1990 to 1998, the organic matter has been accumulated at equivalent of 500 kg of nitrogen per hectare. Based on this estimation and the economic price of nitrogen N at Rs.4.2 per kg, one could calculate the total economic value at Rs.2, 100 per hectare. However, there are a number of difficulties in estimating the economic value of the nitrogen fixation effect due to: (a) the build-up of nitrogen; and (b) its economic utility. Build-up: assuming the 500 kg of nitrogen accumulated over eight years is correct, the question is how this accumulation has taken place over time and how it will continue to take place. Economic utility: although it is clear that the accumulation of N is good for the environment, the question is what economic value can be attached to it if it is neither used to increase agricultural production nor grass for livestock. The accumulation of nitrogen generally takes place in the forest and agro-forestry area, thus increasing timber and grass yields. In the absence of clear data to answer these questions, the following have been assumed in the estimation of the benefits: (a) that the accumulation of the 500 kg of N has taken place in afforestation areas over eight years on a linear basis; and (b) that depending on the decomposition rate, only 50% of N would be directly or indirectly useful for agricultural production such as increasing crop yields in agro-forestry areas, thus having economic value. Based on these assumptions, the economic benefit due to improved soil fertility has been estimated at about Rs.20 million per annum as shown in Table 8. OTHER BENEFITS Employment Generation The project would generate additional employment opportunities for the rural population in the project area at farm level as well as through project support-works such as drainage line treatment, rural infrastructure, water harvesting structures and construction of marketing centers. At farm level, additional employment has been estimated at 5.2 million man-days (or 21,000 full-time labor) per annum at peak year, and then reduce to 3 million man-days (or 12,000 full-time labor) per annum during an average year. In addition to employment opportunities at farm level, the project support activities would generate about 18 million man-days of work over five years in the five participating states. Most of these opportunities would benefit the landless in the area. Other Social Infrastructure Saved As in the case of land saved due to the project, there would also be social infrastructure such as village, school and roads, which would be saved. As an example, the first IWDP Hills project in Punjab indicates that there were 34 villages, 12 schools, and 9.6 km of roads saved over a period of eight years in a treated area of 31,350 ha. However, benefits saved from social infrastructure are not included in the analysis. -51- Benefits Outside the Project Area Benefits of the project are not necessarily confined to the project area. The reduction of surface run-off and soil erosion would reduce sedimentation in rivers that would eventually have a far-reaching impact such as extending the life of dams along these rivers. Flood control is another benefit that has far-reaching impact. Nevertheless, these benefits are difficult to quantify and are not included in the project rate of return calculations. C. FINANCLAL ANALYSIS Crop Models Crop models have been prepared to assess the impact on crop yields and on model farm income, and consequently to assess the economic impact of the whole project. For each model, the "without project" and "with project" have been assumed. There are also cases where crops are newly introduced, thus the model assumes only the "with project" situation. Rainfed Crops Four crop models - maize, wheat, pulses and gram - have been prepared for use in the analysis. Physical outputs and inputs on a per hectare basis are given in "Yields and Inputs", and the financial results of each crop are presented in "Financial Budget". For comparison purposes, all labor is costed and included in the cost stream. In all cases, it has been assumed that full development will be reached in four years. The assumed increase in rainfed crop yields is summarized in the table below: Rainfed Crop Yields in Treated Areas Wo. Project Wi. Project -------ton/ha Maize 1.00 1.60 Wheat 1.10 1.60 Pulses 0.35 0.50 Gram 0.40 0.65 Cropping patterns and cropping intensities in the "With Project" and "Without Project" are shown in the table below: -52- Rainfed Cropping Intensities in Treated Areas Crops Wo. Project Wi. Project Maize 43 49 Pulses 19 21 Wheat 55 62 Gram 23 15 Total 140 147 Irrigated Crops For supplementary irrigation areas, the following crop models have been prepared: maize, wheat, pulses, gram, paddy, onion and brinjal. With the availability of water, farmers would use a portion of land for vegetable production, particularly during the Rabi season. Onion and brinjal have been used as representative crops for vegetables. Yield increases assumed in the analysis are shown in the table below. It has been also assumed that full development will be reached in four years. Irrigated Crop Yields Wo. Project Wi. Project --- ton/ha ---------- Maize 1.00 2.50 Wheat 1.10 2.50 Pulses 0.35 0.63 Gram 0.40 0.72 Paddy na 3.00 Onion na 20.00 Brinjal na 30.00 Regarding the cropping intensity, it has been assumed that it will increase from the existing rainfed rate of 140% to 170%. Cropping patterns as well as cropping intensity are shown in the table below: Irrigated Cropping Intensities Crops Wo. Project Wi. Project ---------/ -------- Maize 43 60.0 Pulses 19 7.5 Wheat 55 76.0 Gram 23 15.0 Paddy 0 7.5 Vegetable 0 4.0 Total 140 170.0 -53- The information on gross margins, labor requirements and return per labor for rainfed crops as well as irrigated crops is provided in the Working Paper 4 in the Project Files. Understandably, the gross returns from vegetables are high, however they could not be planted over a larger area due to marketing constraints. Returns per labor of pulses and gram are high, practically due to lower requirement of labor. Analysis of the table reveals that irrigation would also increase gross margins (before including irrigation costs) by 58% and 50% respectively for maize and wheat. Horticulture (fruit trees) In this project, the term horticulture refers to fruit tree plantation. There are a wide range of fruit trees species that can be promoted in the project area. These species include: guava, mango, citrus, ber, amla, and pear. As discussed in the previous section, a final decision on fruit tree species and area to be planted will have to be based on demand by stakeholders. However, experience in the first IWDP Hills indicates that guava and mango are the most popular fruit trees among farmers. One hectare crop models for mango and guava have been formulated as representative of fruit trees. The financial rates of return (FRR) have been estimated at 40% and 39% respectively for the guava and mango models. Farm Forestry Poplar and eucalyptus have been selected as representative of farm forestry. Crop models have been prepared for these two crops. As farm forestry would take place on private arable land, the actual tree species will be determined by participating farmers. The FRRs have been estimated at 36% and 16% respectively for the poplar and eucalyptus models, which indicate that poplar is far more attractive due mainly to better price. Afforestation The project would support afforestation in two main areas: (a) non-arable land (private and communal land), and (b) forest land (public land). For the non-arable land, one afforestation model and one bamboo model have been prepared to capture the benefits (Tables 41-44). These models place emphasis primarily on fuelwood, fodder and other small products mainly for domestic use such as poles. In forest land which is owned by the public sector, a timber-oriented afforestation model has been prepared. Apart from support for new afforestation, the project would also support forest augmentation (or enrichment planting) to supplement the existing plantation. For this activity, the benefits have been estimated by extrapolating benefit proportionate to the cost invested. The FRRs have been estimated at 16% and 17% for the afforestation/private and bamboo models. For the afforestation model in public land, the FRR has been calculated at 19%. Farm Models Although average farm size varies from state to state, the majority of farm sizes fall within the range of one to two hectares. An average size of 1.2 ha farm household has been assumed to illustrate the financial impact of the project on farm income. Two types of farm models have been considered: (a) farms cultivating only rainfed crops; and (b) farms with rainfed crops and supplementary irrigation. In both cases, labor is assumed to be family labor. The following farm models assume crops, cropping patterns and -54- cropping intensities, as discussed in the foregoing section, for both rainfed and irrigated farmers. The major income included in both models is from crops and livestock. In reality, farmers in the project area will receive other financial benefits such as fuelwood, fodder and fruit trees which are not included in the models as they are either difficult to quantify or are long-term benefits. Case 1: Rainfed: Based on 1.2 hectare rainfed crops, and an average of 1.4 cattle per household, the financial impact of the project is summarized in the table below: Financial Impact on Rainfed Farmer Wo. Project Wi. Proiect Year 4 Year 7 Changes/% Net Benefits from: --------------- Rs. --------------- - Rainfed crops 5,280 8,400 8,400 59% - Livestock 2,438 2,755 3,073 26% Total 7,718 11,155 11,473 49% The total net benefits per household would increase by about 49% from Rs.7,700 to Rs. 11,470 over seven years. Income from livestock is quite significant, and represents about 27% of the total. Return to family labor from crop production is estimated to increase from Rs.88 to Rs.114 per labor day. Farmers in the project area would receive free inputs (equivalent to about Rs. 1 ,000/ha) in the first year as an incentive. Case 2: With Irrigation With irrigation, it is assumed that one hectare would be devoted to rainfed crops and 0.2 hectare to irrigated crops. An average of 1.4 head of cattle per household is also assumed in the model. The financial impact is summarized in the table below: Financial Impact on Rainfed Farmer with Irrigation Wo. Project Wi. Proiect Year 4 Year 7 Chanaes/% Net Benefits from: --------------- Rs. ------ - Rainfed crops 5,280 7,000 7,000 33% - Irrigated crops - 2,560 2,560 na - Livestock 2,438 2,755 3,073 26% Total 7,718 12,315 12,633 64% With irrigation, the farm household would increase its income by about 64%, from an average of Rs.7,700 to Rs.12,600 over seven years. Income from irrigation represents a substantial increase compared with rainfed crops and livestock, although income from rainfed crops continued to be the main part of the total income. Return to family labor (from crops) is expected to increase from Rs.88 to Rs.115 per labor day. This increase represents only a small improvement compared to that of the rainfed model, because there -55- would be an increase in labor requirements. Similarly, farmers would receive free inputs (equivalent to about Rs. 1,000/ha) in the first year. Irrigation A new element of the IWDP-II as compared to the first IWDP Hills, is the introduction of water harvesting structures and minor irrigation as an entry point for the participatory process as well as a logical means to harness water resources made available by the project. However, irrigation cannot be promoted at all costs. There are a number of important criteria which need to be considered in the selection of an irrigation scheme: technical, social (participation to assure proper maintenance), financial and economic. The proposed irrigation component would adopt the participatory process approach and would deal with numerous and varied types of irrigation schemes scattered all over the project area in the participating five states. In addition to this logistical constraint, participatory planning involving all stakeholders would be required before support to any particular scheme could be determined. These two factors are likely delay the implementation of this component. To facilitate the process, a cost ceiling approach could be used to ensure the viability of proposals for irrigation. Based on assumed cropping patterns and crop yield increases in the irrigated area, the gross benefit (before investment cost) could be calculated for a unit area of land irrigated, say one hectare. Based on this gross benefit, the maximum financial investment cost, assuming O&M at 5% p.a. of investment cost, could be estimated in order to achieve an acceptable FRR of 12%. This ceiling investment cost has been estimated at Rs.39,000/ha, (US$930/ha). A detailed feasibility study would be required for the proposed irrigation scheme which costs more than the ceiling of US$930/ha. Fiscal Impact The total incremental recurrent costs of the project over five years have been estimated at US$30.7 million, of which US$25.8 million are for staff benefits and US$4.9 million for various O&M. The participating states' budgets would be negatively affected by these incremental recurrent costs. In the long run, this negative fiscal impact would be partially offset by positive impacts generated by: (1) reducing financial aid to the poor in the project area, if not increasing tax on increased agricultural production; (2) reducing expenditure on repairs and maintenance of social infrastructure such as schools, roads; and (3) reduction in compensation of floods and landslide damages. D. ECONOMIC ANALYSIS The economic analysis of the project has been undertaken at the aggregate level, summing up all benefits and costs of the project area in the five participating states. As discussed earlier, this project is based on participatory planning process or demand driven, thus any effort to analyze it is only a hypothetical exercise. However, this effort will shed light on the project's viability as proposed indicative activities and scale of project were based on the past experience and lessons gained with the first IWDP Hills. -56- Benefits from Productivity Improvements The project would increase the production of food crops (maize, wheat, paddy, pulses, gram), fruit, vegetables, fodder, fuelwood, timber, and livestock products. Only half of the by-products value has been included, assuming the other half would be used for livestock production. In aggregating the total production and benefits from agricultural products, relevant crop models have been used and applied to phased areas under various activities considered likely to be taken up by stakeholders after the participation process. To further facilitate the aggregation process, two one-hectare models have been prepared for rainfed crops and irrigated crops to reflect cropping patterns and cropping intensities in the two farming systems. These aggregations have been carried out using a Farmod program. Benefits from livestock production have been estimated based on the integration of forage and livestock in each sub-watershed (Working Paper 2). Due to limited reliable data, livestock production from Jammu & Kashmir and Uttar Pradesh has been derived by extrapolation of production in the other three states. In the estimation of the overall project's benefits, it has been assumed that the benefits would be generated from two sources: (1) total areas directly treated by the project; and (2) the arable land in untreated areas. It is anticipated that crop yields in untreated areas will be increased as a result of improved moisture. Crop yields in the arable land in untreated areas have been assumed to increase by 10% over three years. The assumed crop yields and cropping intensities in untreated areas are summarized in the tables below: Rainfed Crop Yields in Untreated Areas Wo. Project Wi. Project -----:-ton/ha ----- Maize 1.00 1.10 Wheat 1.10 1.21 Pulses 0.35 0.39 Gram 0.40 0.44 Rainfed Cropping Intensities in Untreated Areas Crops Wo. Project Wi. Project - --- - - Maize 43 45 Pulses 19 19 Wheat 55 55 Gram 23 23 Total 140 142 Incremental production of food crops, vegetables, fruit and forest products in both treated and untreated areas, in years 5,10,20, and 30, is sunmmarized in the table below. In terms of production, mango and guava appear to be important contributors to the overall benefits. Nevertheless, this production will only be realized gradually over time and full development would be reached in year 13. As discussed earlier, -57- mango and guava are only taken as representative in the estimation of benefits. In reality, horticultural crops would be more diversified depending on stakeholder demand. The project-supported marketing study would also facilitate the selection of crops. Phasing of Increased Crop Production Output Unit Production Year 5 Year 10 Year 20 Year 30 Maize ton 18,058 33,013 33,013 33,013 Wheat ton 19,488 36,466 36,466 36,466 Gram ton 485 1,414 1,414 1,414 Pulses ton 730 1,746 1,746 1,746 Paddy ton 2,026 2,781 2,781 2,781 Onion ton 4,553 5,686 5,686 5,686 Brinjal ton 5,403 7,416 7,416 7,416 Mango ton 1,234 90,351 123,812 123,812 Guava ton 17,349 117,480 158,624 158,624 Timber (kikar) 000 m3 - - 206 - Timber (khair) 1/ 000 m3 - - - Bamboo ton - 2,750 7,320 7,320 Poplar 000 m3 - 239 299 239 Eucalyptus 2/ 000 m3 - - - 1/ production years 21 - 25; maximum production 333,000 m3/p.a. 2/ production years 11-15, and years 22 - 26; max. 215,000 m3/p.a. Translated into economic terms, incremental production alone would add a maximum of about Rs.3.560 million per annum (year 22) to the national income. In addition to benefits from increased agricultural production, benefits from livestock, roads, marketing collection centers and potable water supplies have been included in the analysis. Incremental milk production has been estimated at 47.3 million liters in year 7. Additional Benefits Additional benefits are derived mainly from the impact on the environment and natural resources discussed in the foregoing section. Benefits saved from other social infrastructure are not included. Total additional benefits, which have been estimated at Rs.209 million in year 30, are quite a significant amount. However, compared with the overall amount of benefits, these indirect benefits represent only about 8% of the total (year 30). -58- Economic Costs Project Costs Economic costs of the project have been derived from detailed cost tables, excluding taxes and prices contingencies. Costs at Farm Level In addition to the economic costs shown in the cost tables, there are also incremental economic costs incurred at farm level and paid by farmers themselves. These costs were derived from the aggregation of all economic crop budgets in accordance with the phasing of the proposed project, using a Farmod program. All labor costs, both family and hired, were included. ERRs ERRs by Activities The ERRs for various model activities proposed in the project are summarized in the table below. Detailed analysis and assumptions used for the analysis of upgrading rural link roads, marketing collection centers, and potable water supplies are discussed in Working Paper 3 of the FAO/CP preparation report. ERRs of Model Activities Model Activities ERRs/ % Horticulture -mango 42.0 -guava 43.0 Farm forestry - poplar 38.0 - eucalyptus 16.0 Afforestation - on private land 16.0 - bamboo 17.0 - on public land 20.0 Rural infrastructure - upgrading road 13.9 - marketing centres 12.0 - Potable water supply 12.0 -59- ERRs for the Whole Project To facilitate judgment of the economic viability of the proposed project, the ERR has been estimated for two scenarios to reflect various degrees of benefits incorporated into the project benefits: * Scenario 1: includes only benefits from increased production; * Scenario 2: includes benefits from increased production and additional benefits. The ERRs have been estimated at 16.6% and 17.3% respectively for scenarios 1 & 2 (Tables 58-59). At a discount rate of 12%, the NPV has been estimated at Rs.2,828 million and Rs.3,3, 10 million respectively for scenarios 1 & 2. These ERRs are economically acceptable for this type of project that aims primarily at long-term environmental impact. There are a number of factors that characterize the estimation of the ERRs: (1) all costs of the project are included; (2) an average of import and export parity prices have been used instead of import parity prices; (3) assuming no benefits in Year 1; and (4) conservative assumptions on crop yield increases. Main Assumptions: The economic rate of return for the project as a whole is estimated to be 17.3%. Main assumptions underlying the economic analysis are presented below: (a) The economic benefits have been estimated on the basis of net value of incremental production of food grains (maize, wheat, paddy, pulses, and gram). Fifty percent of the value of grain crop by-product was considered as input for livestock production, fruits, vegetables, fuelwood, timber, and livestock products; (b) Benefits from rural infrastructure (roads, markets and drinking water) were also included; (c) Additional benefits derived mainly from the environmental protection and improvement in the natural resource, including commercial products such as babhar grass and bamboo, have been taken into account in the analysis; (d) Economic prices for traded commodities including maize, wheat, and rice were derived from the latest World Bank Commodity Price Projections issued August, 1998 (The average of import and export parity prices of maize, wheat and rice have been used in the analysis on the grounds that India has become more or less self-sufficient in these commodities; while for fertilizer, import parity prices have been used); (e) Prices for non-tradables were adjusted to boarder values by using a Standard Conversion Factor of 0.90; and (f) Economic costs have been derived from detailed cost tables excluding taxes and price contingencies, including recurrent costs after the implementation period. -60- Economic Prices: For non-tradeable commodities, a Standard Conversion Factor (SCF) of 0.90 has been applied to adjust financial prices into economic prices (see World Bank :Office Memorandum, India - Exchange Rates and Price Contingencies for Project Analysis, December 9, 1997). For major tradeable commodities such as maize, wheat, paddy, and fertilizer, parity prices have been worked out using the World Bank's Commodity Markets, August 1998. The average of import and export parity prices of maize, wheat and paddy have been used in the analysis on the grounds that India has become more or less self-sufficient in these commodities; while for fertilizer, import parity prices have been used. Sensitivity analysis / Switching values of critical items: Sensitivity Analysis. A set of sensitivity cases was analyzed to test the economic viability of the project. The ERR of scenario 2 has been used as base case for this sensitivity analysis. Major factors which negatively affect the ERR are: cost overrun, lower-than-expected benefits due to both lower crop yields and/or lower prices, and delays in accrued incremental benefits. The switching value method, with 12% opportunity cost of capital, has been used in the analysis. The result is summarized in the Table below: Test Variations ERRs / % Base case 17.2 Benefits down 30% 12.0 Costs up 42% 12.0 Benefits lag 3 years 12.1 Benefits down 50% 7.4 Costs up 50% 11.2 The overall project economic rate of return is moderately sensitive to increases in costs and reductions in benefits. Assuming that benefits and costs do not change by more than 30% and 40% of their present estimated value, respectively, the rate of return would only drop marginally to about 12%. Even this is unlikely to happen because of the conservative estimates of yield increases used in the analysis and the high physical contingency allowance built-in the project. Also, the return is sensitive to delays in realizing benefits. If major benefits, particularly those dependent on the adoption of the rainfed technology by farmers are delayed for three years, the economic rate of return drops to about 12%. This rate of return is still acceptable for projects of this type. Because of the experience gained from the on-going project by participating states including beneficiary involvement (ownership of project activities), with implementation arrangements in place, most likely the economic rate of return would not fall below 12%, which is the estimated opportunity cost of capital. Switching value tests show that project costs would have to increase by more than 42% or benefits have to drop by more than 30 % for the net present value discounted at 12% to fall to zero. More details on the financial and economic analysis are presented in the Working Paper 4 of the preparation report. -61- Annex 5: Financial Summary INDIA: Integrated Watershed Development (Hills-l1) Project Years Ending 2004 Year1 I Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 Total Financing Required Project Costs Investment Costs 25.0 38.4 41.0 34.8 23.1 0.0 0.0 Recurrent Costs 5.3 5.8 6.3 6.6 6.7 0.0 0.0 Total Project Costs 30.3 44.2 47.3 41.4 29.8 0.0 0.0 Front-end fee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 30.3 44.2 47.3 41.4 29.8 0.0 0.0 IBRD/IDA 13.5 27.0 40.5 40.5 13.5 0.0 0.0 Government 4.5 9.0 13.5 13.5 4.5 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User Fees/Beneficiaries 1.3 2.6 3.9 3.9 1.3 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 19.3 38.6 57.9 57.9 19.3 0.0 0.0 -62- Annex 6: Procurement and Disbursement Arrangements INDIA: Integrated Watershed Development (Hills-Il) Project Procurement Procurement Methods (Table A) All project activities financed under the Loan/Credit would be procured in accordance with Bank Guidelines for Procurement (January 1995, Revised January and August 1996, September 1997 and January 1999). Attachment I to the Annex 6 summarizes procedures for undertaking procurement on the basis of National Competitive Bidding (NCB). Specific procurement arrangements sunmmarized in Table A are as follows: 1.1. Civil Works ($ US55.1 M): 1.1.1 Civil works in the project consist mainly of the construction and rehabilitation of rural roads, office and residential buildings, minor irrigation schemes, marketing infrastructures, marketing centers, green houses and sheds for research, and dispensaries for livestock, etc. Civil works will be procured through National Competitive Bidding (NCB) or Force Account procedures as per the Bank Procurement Guidelines. 1.1.2 National Competitive Bidding (NCB) ($US33.1M): Works to an aggregate value of US$33.1 million would be procured under contracts awarded on the basis of NCB procedures acceptable to IDA. The justification for the NCB for civil works is that they consist of works in widely scattered locations in five states, during the project years and therefore could not be grouped together. Foreign firms would not find the above contracts attractive in view of the very nature of the works and their large geographical distribution. Nonetheless, bids from foreign contractors would not be precluded. Strict post qualification criteria will be incorporated in the bidding document to ensure proper selection of contractors. 1.1.3 Other Methods (US$22.0 M): Small works such as minor irrigation schemes, marketing centers, green houses and sheds for research, and dispensaries for livestock, etc. valued at less than US$20,000 equivalent per contract upto an aggregate limit of US$22.0 million would be procured by project states in accordance with Force Account procedures acceptable to the Bank: These include the contracts awarded: (i) on the basis of comparison of price quotations obtained from at least three qualified contractors eligible under the Guidelines or registered Non-Governmental Organizations (NGOs) or self-help groups; or (ii) by direct contracting under community participation provisions with village communities or NGOs, self-help groups/VDCs; or (iii) by Force Account as a last resort in a manner satisfactory to the Association in accordance with paragraph 3.8 of the Guidelines. 1.1.4 Field Operations (US$87.25 M): The project would finance investment expenditures for field operations in arable and non-arable land in 75 sub-watersheds in five states. Field operations consist mainly the activities relating to soil conservation, drainage treatment, water harvesting, on-farm fodder demonstrations, -63- horticulture, agroforestry, silvi pastural/pasture operations, livestock development, etc. This would also include hiring of labor as well as supervision costs. These works come under various heads of operations and are geographically spread over every unit of administration of the five states. In the interest of project sustainability, and due to labor intensive nature of watershed works, works upto an aggregate of US$55 million would be procured under community participation provisions as defined in paragraph 3.5 (iii) of Procurement Guidelines, using rates established by project states, and acceptable to the Bank and works upto US$12.25 million would (with prior approval of Bank) be carried out following Force Account procedures as per paragraph 3.8 of the Guidelines. For the above field operations, materials of value of US$20.0 million would be procured. Most of the materials would be procured following shopping procedures. In case of contracts above US$20,000, national competitive bidding (NCB) would be followed. 1.1.5 Bidding Documents: Standard Bidding Documents as finalized by the Government of India Task Force and agreed with the Bank would be used for all NCB contracts. Contracts with the NGOs, self-help groups, Village Development Committees would be concluded on formats acceptable to the Bank. 1.2. Goods and Equipment: (US$4.15 M) 1.2.1 The project supports the procurement of computer hardware, software, furniture, office equipment, livestock, medicines for livestock, semen, seeds, seedlings, plants, fertilizer, etc. The requirement is spread over the five participating states and during the project period. None of the packages (including that of computers) is estimated to cost more than the equivalent of US$200,000 and hence is not suitable for International Competitive Bidding (ICB). The equipment and materials would be procured following NCB, Shopping and Direct Contracting procedures. 1.2.2 National Competitive Bidding (NCB): (US$1. 0 M): Contracts for the purchase of Goods and Equipment, valued more than US$20,000 per contract would be procured under contracts awarded on the basis of NCB procedures in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. DGS&D rate contracts are not acceptable as a substitute for NCB. 1.2.3 National Shopping: (US$0.5M): Office equipment, furniture, small equipment, medicines, fertilizers, and other supplies estimated to cost less than the equivalent of US$20,000 per contract upto an aggregate not to exceed US$500,000 may be procured under contracts awarded on the basis of Shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. DGS&D rate contracts are acceptable as a substitute for shopping. However State Government rate contracts or procurement through Super Bazaar or Janatha Bazaar would not be acceptable. The rate list of these could be considered as one of the quotation under the shopping procedures. 1.2.4 Direct Contracting: (US$0.45 M) Satellite imagery, aerial photography and maps, proprietary equipment, spares and medicines, books, periodicals, software, semen, seeds, seedlings, plants and fertilizer upto an aggregate amount of US$0.3 million would be procured following Direct Contracting procedures in -64- accordance with paragraph 3.7 of the Guidelines. 1.2.5 Vehicles: (US$1.7 M): Vehicles for the project would consist of mostly four wheel drive inspection vehicles, a few cars and other vehicles. The requirement of these vehicles would cover various departments of the five states and spread over the project period. Thus they would not be amenable to central and lumped procurement. Individual contracts are not likely to be more than US$ 100,000. Hence these would be procured using shopping procedures. DGS&D rate contracts are acceptable as a substitute for national shopping procedures. 1.2.6 Bidding Documents: Standard Bidding Documents as finalized by the Government of India Task Force and agreed with the Bank will be used for all NCB contracts. 1.3 TechnicalAssistance, Studies and Training: (US$15.8 M) 1.3.1 Technical Assistance and Consultancy Services estimated to cost US$5.9 million for management support, implementation assistance and special studies would be contracted following procedures in accordance with Bank Guidelines for Selection and Employment of Consultants by World Bank Borrowers,( January 1997, Revised September 1997 and January 1999). The Standard Request for Proposals and Conditions of Contract would be used for all contracts. Consulting services of contract value less than US$20,000 equivalent each for participatory planning and implementation assistance would be contracted on terms and conditions acceptable to the Bank. 1.3.2 The selection of NGOs should generally take into account, among others, the following criteria: * The NGO should be non-political and should be having a proven track record; i It should consist of an adequate number of experienced field staff conversant with the local culture and language, and the socio-economic dimensions of the beneficiary groups; v The staff of the selected NGO should have excellent communication skills; * It should be registered as a society or have other corporate status; * It should have facilities to maintain separately, records and accounting and auditing of funds allocated for the assignment; * It should possess internal stability so as to assure long-term support; and * It should not have been blacklisted by the Central Social and Welfare Board (CSWB) or Council for the Advancement of Peoples Action and Rural Technology (CAPART). 1.3.3 Training estimated to cost US$9.9 million would consist of training courses for staff in established institutions. The personnel to be trained, number, course content, etc. would be cleared with the Bank before deputing the staff. Organizing tailor made training courses would be contracted following procedures in accordance with Bank Guidelines. 1.4 Incremental Operating Costs (US$30.7 M): Incremental operating costs consist of incremental staff salaries and benefits, operation and maintenance of vehicles and equipment, travel office (including rent and maintenance of office buildings) and other operating costs. These costs would be financed on a declining basis. -65- 2. Review by the Bank of Procurement Decisions: (Table B) 2.1 Procurement Planning: Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with procurement plan as shall have been approved by the Bank and with the provisions of said paragraph 1. Annual Procurement Plans would be reviewed by IDA/Bank. 2.2 Prior review: 2.2.1 Civil Works and Goods contracts: All packages for civil works and goods exceeding the equivalent of US$100,000 and first two contracts of each state for goods and works estimated to cost less than US$100,000 but more than US$20,000 will be fully documented and subject to prior review by the Bank as per procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Bank Guidelines. 2.2.2 Consultancy contracts: Prior review for consultancy contracts would be as follows: (a) With respect to each contract estimated to cost the equivalent of US$ 100,000 or more, the procedures set forth in paragraphs 1,2 (other than the third sub-paragraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply; (b) With respect to each contract estimated to cost the equivalent of US$50,000 or more, but less than the equivalent of US$100,000, the procedures set forth in paragraphs 1,2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply; and (c) With respect to each contract for the employment of individual consultants estimated to cost the equivalent of US$50,000 or more, the qualifications, experience, terms of reference and terms of employment of the consultants shall be furnished to the Association for its prior review and approval. The contracts shall be awarded only after said approval shall have been given. This would result in a prior review of 10 percent of all contracts awarded under competitive bidding. 2.3 Post review: 2.3.1 Works and Goods: The contracts below the prior review threshold for Works and Goods shall be subject to post review as per procedure set forth in paragraph 4 of Appendix 1 of the Bank Guidelines. -66- 2.3.2 Technical Assistance, Studies and Training: Contracts for the employment of consulting firms estimated to cost less than US$100,000 and contracts for the employment of individuals estimated to cost less than US$50,000 shall be subject to post review provided that the Torso have been cleared with the Bank. 2.4 Procurement Information: Procurement information would be collected and recorded as follows: (a) Prompt reporting of contract award information by Project Directors (b) Comprehensive semi-annual reports by Project Directors indicating: (i) revised cost estimates for individual contracts and the total project; (ii) revised timings of the procurement actions including advertising, bidding, contract award and completion time for individual prior review contracts; and (iii) compliance with aggregate limits on the specified methods of procurement. (c) Completion report by the borrower within three months of the credit closing date. 3. Proposed procurement arrangements: The project elements, their estimated costs and proposed methods of procurement be summarized in Table A. Figures in parenthesis are the respective amounts to be financed by the IDA/Bank. -67- Procurement methods (Table A) Procurement Method Total Cost (including ICB NCB Other Contingencies) 1. Works: 0 33.1 22 55.1 Construction and rehabilitation of (26.48) (17.6) (44.08) rural roads, office and residential buildings, minor irrigation schemes, marketing infrastructure, marketing centers, green houses, sheds for research, veterinary dispensaries, etc. 2. Field Operations: 0 87.25 87.25 (0) (56.71) (56.71) Soil conservation, drainage treatment water harvesting, on-farm fodder demonstration, horticulture, agro- forestry, silvi-pastural/pasture operations and livestock development, etc. TOTAL - WORKS 0 33.1 109.25 142.35 (26.48) (74.31) (100.79) 3. Goods and Equipment: (a)Computers, furniture, office 0.5 1 0.5 2.0 equipment, small equipment, medicines, fertilizers (0.4) (0.8) (0.4) (1.6) and other supplies (b) Small equipment, materials and 0.15 0.15 other supplies (0.12) (0.12) (c) Satellite imaqerv,aerial photoqraphy 0.3 0.3 and maps, proprietary equipment, spares (0.24) (0.24) medicines, books and periodicals, software,semen.seeds,seedlinq s, Dlants fertilizers (d) Vehicles 0 1.7 1.7 (0) (1.36) (1.36) TOTAL - GOODS &EQUIPMENT 0.5 1 2.65 4.15 (0.4) (0.8) (2.12) (3.32) -68- 4. Technical Assistance & Training: (a) Consultancies and studies 5.9 5.9 (5.9) (5.9) (b) Training 9.9 9.9 (9.9) (9-9) TOTAL TA & TRAINING 15.8 15.8 (15.8) (15.8) 5. Incremental Operating Costs: 30.7 15.8 TOTAL PROJECT COST 193.0 (135.0) Note: 1. Figures in parentheses are the respective amounts financed by the Bank/IDA Loan/Credit. 2. Other methods include force account, national shopping, direct contracting, and community participation. -69- Prior review thresholds (Table B) Expenditure Category Procurement Contract Value (US$) Contracts subject to Method (Threshold) prior review (Value in US$) 1. Works: Civil Works NCB Above $20,000 $100,000 and above* Force Account Below $20,000 None Field Operations Force Account None 2. Goods: Goods, Equipment, Materials ICB Above $200,000 All and supplies NCB Above $20,000 and $100,000 and above* below $200,000 Shopping Below $20,000 None Direct Contracting Below $1000 None Satellite imagery, aerial Direct Contracting None photography and maps, proprietary equipment and spares, medicines, books periodicals, software, livestock, semen, seeds, seedlings, plants and fertilizer Vehicles All ICB Above $100,000 None* NCB Above $20,000 and below $100,000 for contracts other than DGS&D rate contracts None DGS&D rate Below $100,000 contracts None Shopping Below $20,000 -70- 3. Consultancies: Consultancies, studies, NGO and As per Bank For contracts of value other community participation Guidelines: QCBS, $100,000 and above contracts, Trainings, Workshops QBS,SSS, IC the procedures set and Fellowships forth in paragraph 1,2 (other than the third sub-paragraph of paragraph 2(a)) and 5 of Appendix 1 of Consultant Guidelines shall apply. For contracts of value $50,000 or more but less than $100,000 the procedures set forth in paragraphs 1,2 (other than the second sub-paragraph of paragraph 2(a)) and 5 of Appendix 1 of Consultant Guidelines shall apply. For employment of individual consultants of contract value $50,000 or more, the qualifications, experience, terms of reference and terms of employment shall be subject to prior review. -71- 4. Miscellaneous: Incremental staff salaries, benefits and travel: Operation cost of vehicles, equipment and office including rents Maintenance of vehicles and Direct contracting Below $1000 per None equipment: contract Shopping Above $1000 but less None than $10,000 per Maintenance of office and other contract buildings Direct Contracting Below $1000 per None contract Shopping Above $1000 but less None than $20,000 per contract First two contract for civil works, and first two contract for goods and equipment regardless of value subject to prior review. * Selection methods: Quality and Cost-Based selection (QCBS); Quality based Selection (QBS; Based on Individual Consultants Qualification (IC); Single Source Selection (SSS). -72- Disbursement Allocation of loan proceeds (Table C) Expenditure Category Amount Financing Percentage Loan/Credit (US$ million) 1. Civil Works 50.30 80% Construction and rehabilitation of rural roads, office and residential buildings, minor irrigation schemes, marketing infrastructure, marketing centers, green houses, sheds for research, veterinary dispensaries, etc. 2. Field Operations 51.30 70% Soil conservation, drainage treatment, water harvesting, on- farm demonstration, horticulture, agro-forestry, silvi pastural/ pasture operations and live stock development, etc. 3. Goods and Equipment including vehicles and supplies 3.95 100 % of foreign expenditures, 100% of local ex-factory costs or 80% of other local costs of vehicles, equipment and materials 4. Technical Assistance and Training 15.85 100% 5. Miscellaneous: 13.60 (a) Incremental staff salaries, benefits and travel; 60% upto September 30, 2001; 50% upto (b) Operation cost of vehicles, equipment and office including September 30, 2003 ; and rents; 40% thereafter 80% for first two years; (c) Maintenance of vehicles and equipment; and 60% for the next two years and 40% for the last (d) Maintenance of office and other buildings. year of the project TOTAL 135.0 -73- FINANCIAL MANAGEMENT T. Assessment of Financial Manaeement System and Areas of Improvement The financial management system of IWDP Hills-I was reviewed during project preparation and appraisal. In IWDP Hills-I, the government acc:Nunting system is followed in the four project states (Haryana, Himachal Pradesh, Jammu and Kashmir, and Punjab). The financial system and procedures are documented in the 'Financial Rules' of the respective state governments. The main focus of the current financial management system is on transactional control over expenditures, recording individual transactions, compiling data for reporting by government budget categories and for preparing Bank Withdrawal Applications (i.e., by disbursement categories). There is very limited focus on meeting project management information needs. Project financial statements indicating sources of funds and uses of funds (including information on project expenditure by components, types of expenditure, etc.), assets created out of the project, etc. and management reports are not prepared. Annual audited project financial statements are substantially compilations of expenditures classified according to disbursement categories (i.e., summations of withdrawals applications submitted during the year) and are prepared separately for each state. Audit of these expenditure statements is carried by the respective state Accountant General (Audit). The focus of the audit is on authentication of individual transactions, certification of reimbursement claims made to the Bank, and verification of compliance with Government procedures. Both quality and timeliness of audited financial reports is unsatisfactory. A major factor underlying many of the issues stated above is the lack of qualified staff to handle financial functions. There is need to substantially improve and modernize the financial management system, to ensure that it is commensurate with the size and scope of the project. In summary, major aspects which need to be addressed for establishment of a satisfactory financial management system are: (a) satisfactory staffing of the finance function and training of staff in better financial management practices; (b) enhanced transparency of project operations through improved presentation of financial information. An important requirement for this is improvement of the accounting system to ensure better classification and compilation/analysis of accounting data; (c) establishment of clear financial policies and procedures (including for new aspects such as funding of VDCs); and (d) satisfactory audit arrangements including adoption of satisfactory auditing standards. H. Readiness for Implementation A financial management system for the project is currently being developed. The framework of this system discussed with the project agencies is described in Section V. Key actions relating to establishment of a satisfactory financial management system to be completed are: (a) appointment of financial management technical support consultants who would provide qualified financial professionals to support the operation of the financial management system and training of project staff. Assurances were obtained that each state and WDC would engage financial management consultants to provide support for operation of the project financial management system andfor training services by January 31, 2000. WDC may use qualified in-house personnel or financial management consultants; (b) design of the project financial management system i.e., development and adoption of the Project Financial Management Manual including all necessary approvals. Assurances were obtained that the project states and WDC would prepare and adopt a satisfactory Project Financial Management Manual by October 31, 1999; (c) computerization of the project financial management system. This would include development of the -74- software, and procurement and installation of the computer hardware (including operating and application software). Assurances were obtained that the states and WDC would develop a satisfactory computerized project financial management system by March 31, 2000; and thereafter maintain the system for the duration of the project; and (d) appointment of a firm of Chartered Accountants to review the operation of the project financial management system. Assurances were obtained that each state and WDC would engage afirm of Chartered Accountants for reviewing the operation of the financial management system, by January 31, 2000. WDC may use the services of the firm engaged by one of the project states. Im. Risks Several steps are being taken to ensure that a satisfactory financial management system is established. However, there are several risks relating to the financial management aspects. The major risks are highlighted below, to ensure that these are closely monitored during project implementation, and timely and appropriate action is taken whenever required. The major factor underlying the risks relating to financial management aspects is the lack of qualified project financial staff i.e., staff with satisfactory qualifications and training on financial management, who could provide leadership on and manage financial management aspects of the project. Project agencies currently do not have the necessary organization and incentive structure to recruit the required qualified financial staff. Several measures are being taken to mitigate this risk viz., engagement of financial management technical support consultants, up-front work in designing and computerizing the financial management system, provision for training of project staff, and concurrent financial review by Chartered Accountants to ensure timely remedial action. All these measures are however unlikely to fully make-up for the absence of qualified financial staff within the project agencies, and there remains the risk that the improved financial management system (focusing on project management information needs and satisfactory controls) would not be fully operational. There is a risk that the currently designed audit arrangements for the project would be unsatisfactory, thereby weakening the overall internal control system. The project has adopted the currently accepted standard audit arrangements for Bank-funded projects in India which are executed by Government departments i.e., the project financial statements would be audited by the Comptroller and Auditor General (CAG) of India. The Bank's Country Profile of Financial Accountability for India has highlighted several weaknesses in the above audit system. The unfamiliarity of the CAG staff with audit of project financial statements, and the unsatisfactory timeliness and quality of audits carried out by the CAG is also borne out in the predecessor IWDP Hills -I Project and other Bank-funded projects. Whereas some steps are being taken to improve the CAG's capacity (e.g., through an IDF Grant, training, etc. these are unlikely to substantially improve the situation in the initial years of the project. Measures being taken to mitigate this risk include: (i) improving the internal financial management of the project per se thereby reducing the extent of reliance on audit as an internal control mechanism, and (ii) review of the overall operation of the financial management system by Chartered Accountants. The scope of this review has not been defined and agreed yet. Therefore, the risk of unsatisfactory audit arrangements still remains. To address this risk, efforts would be made to both improve the capacity of the CAG, and to appropriately define the scope of work of the Chartered Accountants. Another risk arises from possible delays in completing the actions required for establishing a satisfactory financial management system. All the major actions indicated in Section II above are complementary to each other, and should be completed to ensure that a satisfactory financial management system is in place. -75- During project preparation, there have been significant delays in carrying out the up-front actions. Also, adoption and implementation of the improved financial management system in all or some of the states/!WDC could be delayed or derailed due to delays in clearance or non-clearance of the project's financial management system by other relevant government departments (e.g., Finance Departments) or the project agencies themselves. The project's strategy is to design the financial management system using a participatory and consultative process involving all relevant parties, as to minimize this risk. Nonetheless, discussions with the project agencies indicate that this risk still exists. Further, the improved financial management system would not be established before the start of the project. There is therefore a risk arising from unsatisfactory financial management system while expenditures are being incurred in the initial period of the project (including retroactive expenditure). This risk is somewhat mitigated by the tight transactional controls over expenditures. It is expected that expenditures incurred from the beginning of the project and retroactive expenditures would be accounted for in the improved financial management system after the system is operational. Any delays in establishing the financial management system would also result in difficulties in accounting of these expenditures since the' catching-up' period would correspondingly increase with any delays. There is a real risk that the conversion to the PMR-based disbursements method would be delayed or not be achieved. As explained in Section V, there are no organizational arrangements for financial management at the overall project level. Each of the states and WDC would separately operate the financial management system for their activities under the project. Conversion to the PMR-based disbursement method can take place only after the satisfactory operation of the financial management system has been tested and demonstrated in each of the S states and WDC. Given the aspects indicated in the above paragraphs, compounded by the lack of arrangements for singular responsibility and accountability for financial management aspects of the whole project, this would be challenging. Another risk arises from diffusion of project funds among large number of Village Development Committees (VDCs, organization of local communities), many of which may not have experience or the required skills to satisfactorily account for and manage these funds. This risk would be addressed by establishing appropriate policies and procedures for provision of project funds to VDCs and other entities, and accounting of funds by these entities; providing simple and transparent financial information to the communities and all stakeholders; and by requiring demonstration of satisfactory (and simple) arrangements for managing funds as an eligibility criteria for receiving project funds. IV. Disbursements Mechanism Disbursements from the Credit/Loan will initially be made using existing transaction-based disbursement procedures (reimbursements with full documentation or against Statements of Expenditure, and direct payments). This arrangement is necessary given that the improved financial management system needs to be installed, tested and demonstrated; and staff need to be trained and become familiar with the operation of the improved system. It is expected that the project financial management system would be operated, and quarterly PMRs (separately for each state and WDC) would be produced from March 31, 2000. The disbursement mechanism will be converted to the PMR-based method, after the satisfactory working of the financial management system has been tested and demonstrated in all states and WDC. The target date for conversion to the PMR-based disbursement system is April 1, 2001. Project states, in consultation with the Bank, would review and if necessary revise the target date. -76- V. Proposed Financial Management Framework for the Proiect The project financial management system would be documented in a 'Financial Management Manual'. This Manual would be the Borrower's Project Implementation Plan on financial management aspects; and is under preparation. The Financial Management Manual would serve as a reference document for all project staff, and would also assist in computerization of the financial management system. The Manual would be used together with the current 'Financial Rules' of the Governments. The Manual would be formally adopted by project management of all project states and WDC as the document which would govern financial management aspects of the project, after review and approval by the concerned departments. The Financial Management Manual would be periodically updated and improved based on implementation experience. The Manual would inter alia include the following aspects: (i) staffing, training and technical support aspects of financial management; (ii) flow of funds; (iii) accounting system (including centers for maintenance of accounting records, Chart of Accounts, formats of books and records, accounting and financial procedures); (iv) financial and accounting policies; (v) budgeting system; (vi) financial forecasting system; (vii) procurement and contract administration monitoring system; (viii) financial reporting (including formats of reports, and linkages with Chart of Accounts); (ix) auditing arrangements including TORs of the auditors; (x) financial review, including TORs; and (xi) service standards (benchmarks) for various accounting and financial activities. Staffing, Training and Technical Support This is the most important requirement for the operation/implementation of the improved financial management system. Staff in the various implementing agencies are familiar with the government accounting system, and associated rules and procedures. These staff need to be substantially retrained in modern financial management practices and accounting methods, and in operation of computerized systems. Due to the absence of qualified staff, there is a overwhelming need for continuous input from qualified professional financial staff. Each state and WDC would engage a firm of financial management consultants to provide qualified financial professionals (Chartered Accountant or Cost Accountant, and if required a computer systems specialist) to provide support for the operation of the financial management system and training services. WDC may use qualified in-house personnel or financial consultants, since WDC's activities are very small and do not involve expenditure on field activities. The TORs for these services (including number of staff required, their location, and nature of support) would be prepared during the design of the financial management system. The TOR and qualifications of the consultants would be agreed with the Bank. The consultants would be appointed by January 31, 2000. Initially, these consultants would be appointed until the MTR. At MTR, it would be determined if these services would be required for the remaining duration of the project. This would significantly depend on recruitment of qualified financial staff in the project agencies. There are currently no organizational arrangements for consolidation and integration of the financial reports for the whole project. During project implementation, efforts would be made to establish such arrangements, and to share knowledge and experiences on financial management across states and WDC. Flow of Funds GOI would pass on World Bank funds to state governments in accordance with the prevailing policies and procedures applicable to passing on of Bank-funds from GOI to States -- GOI would bear the foreign exchange risk. GOI would also provide funds (Bank funds and counterpart funds) to the WDC through annual budgetary allocations. State Governments would provide funds (Bank funds and counterpart funds) for the project to WPIOs/Watershed Management Directorate of U.P. through annual budgetary allocations -77- (which would be based on annual work plans). WDC, WPIOs or WMD would utilize funds to make payments for works, goods and services, through their various Drawing and Disbursing Offices (DDOs) and sub/field offices. DDOs or sub/field offices would also make advances to VDCs, which would make payments for works, goods and services, and account for these funds. Cash contributions from beneficiaries would be deposited into the Project Bank accounts of the DDOs or sub/field offices, and would be accounted for as sources of funds. Accounting System The overall framework of the system is given below: (a) a common financial management system would be established, covering the entire project (for all implementing agencies). A common set of financial policies and procedures, common system of data classification for the project, etc. would be developed as to enable easy consolidation across implementing agencies whenever required. However, given the lack of organizational arrangements for consolidated financial management of the project, the system will operated separately in the project states and WDC, and will not be consolidated / integrated at the project level (although this is highly desirable). (b) the financial management system would cover all project-related transactions i.e., all sources of funds (GOI, 5 State Governments, Beneficiaries, and World Bank) would be accounted for and reflected in the project financial statements; and similarly all project expenditures would be reflected in the project financial statements. The accounting system would also cover amounts received from the World Bank, transactions in the Special Account maintained by GOI; and beneficiary contributions (cash and labor); (c) the fmancial management system would be computerized. The computerized system would be installed and operated at each DDO (which would each be an accounting center). Financial reports of the DDOs in each state would be consolidated to produce state level reports. Data transfer for the various consolidations would be handled through electronic mail or storage media (diskettes/compact disks). The computerized system would have facility to generate project financial reports by consolidating the accounts of the 5 states and WDC, and including common transactions (such as funds from the World Bank); (d) all implementing agencies would maintain separate (distinct) books and records for transactions relating to the project; (e) a Chart of Accounts would be developed. The Chart of Accounts would enable expenditure data to be captured and classified by project components and expenditure categories. The Chart of Accounts would also have linkages to: (i) government budget heads/categories; and (iii) disbursement or reimbursement categories. Similarly, the Chart of Accounts would enable data on sources of funds to be captured. The headings in the Chart of Accounts would match closely with the classification structure of expenditures and sources of funds in the project documents (Project Implementation Plan and Project Cost Tables); (f) the basic account book under the government accounting system i.e., the cash book would continue to be maintained at each DDO and the sub/field offices. The accounting books/records from the computerized system would include the cash book, general ledger, appropriate sub-ledgers and a trial -78- balance. A register of fixed assets, indicating assets created through the project or acquired under the project, would also be maintained using the computerized system; and (g) physical information on key performance indicators which can be readily linked to financial costs would be available in the project financial management system. Initially this would be done for high cost items which account for a significant portion of project cost, and for items for which data on physical activities can be easily captured. This list would be gradually expanded during implementation. Financial and Accounting Policies Financial and accounting policies for the project would be developed. These policies are crucial for ensuring transparency, providing clarity regarding financial aspects to the various stakeholders and finance staff, ensuring uniformity, and enforcing accountability. These policies would interalia cover the following aspects: (i) expenditures which would be treated as project expenditures including their classification; (ii) expenditures which would be eligible for reimbursement from the Credit/Loan; (iii) provision of advances to various implementing agencies, and accounting of funds provided to these agencies; (iv) project accounting policies; (v) policies for efficient management and deployment of funds; and (vi) internal control policies, etc. All implementing agencies would comply with the financial and accounting policies of the project. Internal service standards (benchmarks) would be developed and adopted for the key accounting procedures (such as preparation of monthly trial balances, preparation of quarterly financial statements, reconciliation of bank accounts, etc.). Financial policies and procedures regarding transfer of funds to VDCs and accounting by the VDCs would be incorporated in the Memorandum of Understanding with the VDCs. These would include establishment of satisfactory arrangements by the VDCs for managing project funds. Financial Reporting Project Financial Statements and Project Management Reports (PMRs) would be substantially generated from the computerized financial management system. These would be based on the project books of accounts i.e., these statements/reports would not be separately compiled from various returns submitted, etc. This would result in considerable reduction in workload of staff. It is highly desirable that consolidated Project Financial Statements and PMRs be prepared for the whole project. A common financial management system for all states and WDC (including data classification system) would be developed. The computer software would have facility for consolidation of financial statements across the various states and WDC into consolidated statements for the project. However, there are no project organizational arrangements to carry out this consolidation. Therefore, separate Project Financial Statements and PMRs would be generated for each state and WDC. Efforts would continue to be made to establish arrangements for preparation of consolidated Project Financial Statements and PMRs for the project. Project Financial Statements: These would be prepared at least annually; and would include: (i) a statement of sources and utilization of funds or Balance Sheet, indicating funds received from various sources, project expenditures, and assets and liabilities of the project. This would also include appropriate schedules classifying project expenditures by components, expenditure categories, and states; (ii) a Special Account Reconciliation Statement; and (iii) a Statement of Withdrawals from the Credit/Loan made on the basis of Statements of Expenditure (SOEs). Audited annual PFS would be submitted to IDA/Bank not -79- later than 6 months after the end of the Fiscal Year (i.e., not later than September 30 for the fiscal year ended on March 31 of each year). Quarterly PMRs: These would include: (a) comparison of budgeted and actual expenditure and analysis of major variances, including on aspects such as uses of funds (classified by components, sub-components, summarized expenditure categories, etc.) and sources of funds (classified by source) and; (b) comparison of budgeted and actual expenditure and analysis of major variances on key physical parameters and unit rates for selected key items; (c) forecasts for the next 2 quarters; and (d) procurement and contract administration information for major contracts. Financial Reporting to Local Communities: To make the accounts of the projects implemented by VDCs transparent to all the local stakeholders, a simple summary of the accounts of each such intervention (amounts received from the members and from the Government, amount spent, and balance) would be publicly posted in a notice-board in the VDC. Auditing Arrangements The annual project financial statements would be audited by CAG of India (including through the Accountant General - Audit of each state), as per currently accepted standard practice in Bank-funded projects in India which are executed by Government departments. The audited project financial statements would be submitted to the Bank within 6 months of the close of GOI's fiscal year. The audit would include the Special Account and Statements of Expenditure (SOEs). In accordance with the World Bank's operational policies, satisfactory terms of reference for the audit would be agreed with the Bank. As indicated earlier, there is a risk that the above audit arrangement would be unsatisfactory, thereby weakening the internal control system. Review of Operation of the Financial Management System Each state and WDC would appoint a firm of Chartered Accountants, to review the overall operation of the fnancial management system. WIDC may use the services of the firm appointed by one of the project states since WDC's activities under the project are very small and do not involve expenditure on field activities. The terms of reference for these services and qualifications of the firms would be agreed with the Bank. The fnancial review would be comprehensive and cover all aspects of the project financial management system (such as financial transactions, review of internal control mechanisms, compliance with legal covenants, etc. All implementing agencies would provide the Chartered Accountants with access to project-related documents and records, and information required for the review. This review would be carried out concurrently during the year (quarterly/monthly) in order to provide regular information to project management on the operation of the financial management system. The Chartered Accountants would be appointed by January 31, 2000. To ensure rotation, these frms would have a maximum term of three years. The fnancial review arrangements would assist project management to address issues relating to financial management in a timely manner, and also help to mitigate some of the risks arising from the weak audit arrangements. Internal Controls Internal control mechanisms for the project are expected to include the following aspects: (a) establishment of appropriate budgeting systems, and regular monitoring of actual financial performance with budgets and targets, monitoring of physical and financial progress, monitoring of -80- unit costs, etc. Physical data on key items would be captured in the accounting system to enable monitoring of physical data; (b) development and adoption of simple, clear and transparent financial and accounting policies which would govern financial management of and accounting for the project; (c) regular monitoring of advances given to VDC, field offices, etc., reconciliation and confirmation of balances, bank reconciliation, etc.; (d) at the transaction level, policies, the establishment of procedures and systems for ensuring standard internal controls such as checking of expenditures, appropriate documentation, levels of authorization, bifurcation of duties, periodic reconciliation, physical verification, etc. These are indicated in the ' Financial Rules', and would be supplemented by the financial management manual of the project; and (e) timely feedback on the operation of the financial management system, and timely action wherever required. C. DISBURSEMENTS The proposed allocation of Loan/Credit proceeds is given in Table C. Disbursements would initially be made using the Bank's existing disbursement procedures (i.e., direct payments, reimbursements of expenditure with full documentation, and reimbursement of expenditures against SOEs). Disbursements would be made using the Bank's new disbursement procedures (i.e., based on Project Management Reports - PMRs) after the fnancial management system has been tested and demonstrated to be operating satisfactorily in all states and WDC. The target date for this conversion to the PMR-based system is April 1, 2001. Project states, in consultation with the Bank, would review and if necessary revise the target date. Use of statements of expenditures (SOEs): When the existing disbursement procedures are used, IDA/Bank would disburse against SOEs for the following expenditures: (i) goods and works under contracts not exceeding US$200,000 equivalent; (ii) consultants services under contracts not exceeding US$100,000 equivalent for employment of consulting firms, and not exceeding US$50,000 for employment of individual consultants; (iii) training expenditure; and (iv) incremental operating costs. Special account: A Special Account would be maintained in the Reserve Bank of India; and would be operated by the Department of Economic Affairs (DEA) of GOI. When the existing disbursement procedures are used, the authorized allocation of the Special Account would be US$5 million. The authorized allocation would be US$2.5 million until the aggregate disbursements from the IDA Credit and Bank Loan reach the equivalent of SDR 5.2 million. Requests for replenishment of the Special Account would be submitted monthly or when 20% of the advance to the Special Account has been utilized, whichever occurs first. When disbursements are made against PMRs, the maximum amount of the Special account would be US$ 10 million; and the Special Account would be replenished quarterly. Retroactive Financing: Participatory activities start at least six-months before implementation, as does training of project staff and other stakeholders in the participatory planning and implementation. Retroactive financing of up to SDR 7.4 million would be provided to ensure that these activities are carried out starting on March 1, 1999. -81- Attachment I to Annex 6 With reference to the procedures for undertaking procurement on the basis of National Competitive Bidding (NCB) referred to in Part C-I of Section 1, Schedule 1, of the Project Agreement, all NCB contracts shall be awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines for Procurement under IBRD Loans and IDA Credits' published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines). In this regard, all NCB contracts to be financed from the proceeds of the Credit and the Loan shall follow the following procedures: (1) Only the model bidding documents for NCB agreed with the Government of India Task Force (and as amended from time to time), shall be used for bidding. (2) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of the bids. (3) No special preference will be accorded to any bidder when competing with foreign bidders, state-owned enterprises, small-scale enterprises or enterprises from any given state. (4) Except with the prior concurrence of the Bank, there shall be no negotiation of price with the bidders, even with the lowest evaluated bidder. (5) Except in cases of force majeure and/or situations beyond the control of the Project States, extension of bid validity shall not be allowed without the prior concurrence of the Bank (i) for the first request for extension if it is longer than eight weeks; and (ii) for all subsequent requests for extension irrespective of the period. (6) Re-bidding shall not be carried out without the prior concurrence of the Bank. The system of rejecting bids outside a pre-determined margin or "bracket" of prices shall not be used. (7) Rate contracts entered into by DGS&D will not be acceptable as a substitute for NCB procedures. Such contracts will be acceptable for any procurement under national shopping procedures. -82- Annex 7: Project Processing Schedule INDIA: Integrated Watershed Development (Hills-Il) Project Proje6dtSchedule Planned ALtuaL Time taken to prepare the project (months) 12 From PCD to Board 10 From PCD to Board First Bank mission (identification) 08/15/98 08/15/98 Appraisal mission departure 12/15/98 02/05/99 Negotiations 04/27/99 04/26/99 Planned Date of Effectiveness 09/30/99 Prepared by: FAO/CP Preparation assistance: FAO/Investment Center and SASRD Bank staff who worked on the project included: Name Speciality Hamdy Eisa Agriculturist Meena M. Munshi Economist T. C. Jain Agricultural Research Specialist (Co-Task Leader) John Joyce Portfolio Manager Gajan Pathmanathan Agricultural Eonomist Ian Hill Agricultural Economist Ashok Seth Agriculturist S. Salman Lawyer David Marsden Sociologist Cees de Haan Livestock Adviser Irshad Khan Forestry Specialsit T.K. Balakrishnan Financial Analyst C.S. Nawathe Road Specialist Mridula Singh Sociologist H. Harshdeep Environmental Specialist Sonia Kapoor Environmental Specialist Julia Falconer Social Forestry Specialist W. Marke Financial Specialist Ruby Miller Disbursement Analyst D.J. Baxi Procurement Gallus Mukami Economist (FAO/CP) Yoshiko Masuyama Team Assistant Margaret d'Costa Team Assistant -83- Annex 8: Documents in the Project File* INDIA: Integrated Watershed Development (Hills-Il) Project A. Project Implementation Plan Government of Haryana, Project Implementation Plan - IWDP-II, April 15, 1999. Government of Himachal Pradesh, Project Implementation Plan - IWDP-II (WPIO, Solan), March 1999. Government of Jammu and Kashmir, Project Implementation Plan (IWDP-II), Vols. I (Main Report) & II (Statistical), April 15, 1999. Government of Punjab, Project Implementation Plan, March 31, 1999. Government of Uttar Pradesh, Project Implementation Plan (Watershed Management Directorate), April 17, 1999. India: Integrated Watershed Development (Hills-II) Project Preparation Report Vols. I, II, III, IV, V, VI & VIII FAO Investment Center Division Report No: 99/020-CP-IND, March 30, 1999 Relevant Working Papers included in Vols. II-VII Watershed Development Component Forage and Livestock Rural Infrastructure and Institutions Financial and Economic Analysis Cost Tables B. Bank Staff Assessments Bank Staff Assessment # 1: Forestry Component Bank Staff Assessment # 2: Fodder and Livestock Development Bank Staff Assessment # 3: Detailed Training Program Bank Staff Assessment # 4: Information Management, Monitoring and Evaluation Bank Staff Assessment # 5: Monitoring and Evaluation C. Other Regional Environmental Assessment: Final Report, Ministry of Agriculture, Government of India, February 1999. *Including electronic files -84- Annex 9: Statement of Loans and Credits INDIA: Integrated Watershed Development Project (Hills-ll) Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd Number of Closed Projects: 331 IN-PE-49537 1999 GOI APPOWERAPLI 21000 0.00 0.00 199.83 -2.83 0.00 IN-PE-50646 1999 GOVERNMENT OF INDIA UP SODIC LANDS II 0.00 194.10 0.00 192.25 6.17 0.00 IN-PE-50651 1999 GOI MAHARASH HEALTH SYS 0.00 134.00 0.00 129.77 131.01 0.00 IN-PE-10496 1998 GOI ORISSA HEALTH SYS 0.00 76.40 0.00 73.56 0.65 0.00 IN-PE-10561 1998 GO NATLAGRTECHNOLOGY 96.80 100.00 0.00 191.07 10.84 0.00 IN-PE-35160 1998 GOVERNMENT OF INDIA HARYANA POWER APL-I 60.00 0.00 0.00 41.33 11.99 0.00 IN-PE-35169 1996 GOVERNMENT OF INDIA UP. FORESTRY 0.00 52.94 0.00 45.48 2.75 0.00 IN-PE-35824 1998 GOI UP DIVAGRC SUPPORT 79.90 50.00 0.00 125.09 12.73 0.00 IN-PE-35827 1998 GOI WOMEN & CHILD DEVLPM 0.00 300.00 0.00 301.87 0.00 0.00 IN-PE-38021 1998 GOVERNMENT OF INDIA DPEP III (BIHAR) 0.00 152.00 0.00 139.31 19.46 0.00 IN-PE-49385 1998 GOVERNMENT OF INDIA AP ECON RESTRUCTURIN 301.30 241.90 0.00 483.35 -61.49 0.00 IN-PE-49477 1998 CIL KERALA FORESTRY 0.00 39.00 0.00 35.25 -1.64 0.00 IN-PE-50638 1998 GOI UP BASIC EDII 000 59.40 0.00 31.35 -4.86 0.00 IN-PE-9979 1998 GOI COAL SECTOR REHAB 530.00 2.00 15.00 472.13 59.02 0.00 IN-PE-10473 1997 GOI TUBERCULOSIS CONTROL 0.00 142.40 0.W0 128.63 48.91 0.00 IN-PE-10511 1997 GOI MALARIA CONTROL 0.00 164.80 0.00 152.45 24.21 0.00 IN-PE-10531 1997 GOI REPRODUCTIVE HEALTH1 0.00 248.30 0.00 233.16 53.75 0.00 IN-PE-35158 1997 GO AP IRRIGATION III 175.00 150.00 0.00 254.04 25.92 0.00 IN-PE-36062 1997 GOI ECODEVELOPMENT 0.00 28.00 0.00 22.54 3.37 0.00 IN-PE-43728 1997 GOI ENVCAPACITYBLDGTA 0.00 50.00 0.00 43.30 10.18 0.00 IN-PE-44449 1997 GOVT OF INDIA RURAL WOMEN'S DEV 0.00 19.50 0.00 18.32 7.67 0,00 IN-PE-45600 1997 GOI TA STS RD INFRA DEV 51.50 0.00 0.00 33.82 16.66 0.00 IN-PE-49301 1997 GOVT OF INDIA A.P. EMERG. CYCLONE S0.00 100.00 0.00 119.95 41.54 0.00 IN-PE-9995 1997 GOI STATE HIGHWAYS I(AP) 350.00 0.00 0.00 327.32 32.32 0.00 IN-PE-10460 1996 GOI B SEWAGE DISPOSAL 167.00 25.00 0.00 119.89 89.47 0.00 IN-PE-10484 1996 GOI UP RURAL WATER 59.60 0.00 0.00 50.24 9.00 0.00 IN-PE-10485 1996 GOI HYDROLOGY PROJECT 0.00 142.00 0.00 94.62 48.61 0.00 IN-PE-10529 1996 IL&FS ORISSAWRCP 0.00 290.90 0.00 161.11 1.33 0.00 IN-PE-35170 1996 GOI ORISSAPOWERSECTOR 350.00 000 0.00 326.13 91.13 0.00 IN-PE-35821 1996 GO DISTRICT PRIM EDUC2 000 425.20 0.00 307.88 10.06 0.00 IN-PE-35825 1996 GO STATE HEALTH SYS 11 0.00 350.00 0.00 263.11 98.25 0.00 IN-PE-39935 1996 GO ILFS-INFRAS FINANCE 200.00 5.00 0.00 179.22 98.76 0.00 IN-PE-43310 1996 GOI COAL ENV&SOCIAL MIT. 000 63.00 0.00 45.55 14.72 0.00 IN-PE-10461 1995 GOVERNMENT OF INDIA MADRAS WATER SUP II 275.80 0.00 189.30 56.59 162.58 6.85 IN-PE-10463 1995 GOI INDUS POLLUTION PREV 143 00 25.00 0.00 144.82 83.73 0.00 IN-PE-10464 1995 GO DISTRICT PRIMARY ED 0.00 260.30 0.00 127.92 36.90 0.00 IN-PE-10476 1995 GOVT OF INDIA TAMIL NADUWRCP 0.00 282.90 0.00 211.95 109.93 0.00 IN-PE-10489 1995 GO AP 1ST REF HEALTHS 0.00 133.00 0.00 66.14 10.82 0.00 IN-PE-10503 1995 GOI AGRIC HUMAN RES DEVT 0.00 59.50 0.00 33.64 26.80 0.00 IN-PE-10506 1995 GOI MP FORESTRY 0.00 58.00 0.00 19.06 9.31 0.00 IN-PE-10522 1995 GOI ASSAM RURAL INFRA 0.00 126.00 0.00 97.64 40.42 0.00 IN-PE-10563 1995 GOVT. OF INDIA FINANCIAL SECTOR DEV 700.00 0.00 200.00 266.97 -233.03 0.00 IN-PE-10448 1994 GOI FORESTRY RESEARCH ED 0.00 47.00 0.00 22.43 39.01 5.26 IN-PE-10449 1994 GOI ANDHRA PRADESH FORESTRY 0.00 77.40 0.00 25.54 13.47 0.00 IN-PE-10455 1994 GOI BLINDNESS CONTROL 0.00 117.80 0.00 81.38 37.16 0.00 IN-PE-10457 1994 POPULATION IX 000 88.60 0.00 50.16 18.98 0.00 IN-PE-9870 1994 CONTAINERTRANSPORT 94.00 0.00 0.00 73.23 67.91 0.00 IN-PE-9964 1994 WATER RES CONSOLID H 0.00 258.00 0.00 147.93 81.89 0.00 IN-PE-10407 1993 ADP - RAJASTHAN 0.00 106.00 0.00 22.96 24.05 0.00 IN-PE-10408 1993 BIHAR PLATEAU 0.00 117.00 0.00 51.37 57.45 0.00 -85- Difference betweeen expected and actual Odginal Amount in US$ Millions disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd IN-PE-10410 1993 GOI RENEWABLE RESOURCES 75.00 115.00 0.00 70.78 98.39 0.00 IN-PE-10416 1993 GOa PGCPOWERSYSTEM 350.00 0.00 0.00 117.11 109.18 0.00 IN-PE-10418 1993 GOa KARNATAKAWS & ENVIS 0.00 92.00 0.00 31.64 29.77 0.00 IN-PE-10424 1993 GOI NATL LEPROSY ELIMINA 0.00 85.00 9.07 24.71 32.65 6.08 IN-PE-9955 1993 GOI UTTAR PRADESH BASIC 0.00 165.00 0.00 21.79 -7.51 -142.42 IN-PE-9959 1993 GOI RUBBER 0.00 92.00 36.58 23.19 55.94 13.29 IN-PE-9961 1993 GOI UP SODIC LANDS RECLA 0.00 54.70 0.00 12.94 7.61 0.00 IN-PE-9977 1993 GOI&STATES ICDSII(BIHAR&MP) 0.00 194.00 0.00 118.38 85.98 96.34 IN-PE-10390 1992 GOI MAHARASHTRA FORESTRY 0.00 124.00 16.18 34.18 49.91 33.23 IN-PE-9921 1992 GOI SHRIMP & FISH CULTUR 0.00 85.00 48.51 16805 63.78 15.17 IN-PE-9946 1992 GOI NAT. HIGHWAYS II 153.00 153,00 0.00 154.13 96.32 0.00 IN-PE-9963 1992 GOl POPULATION VlIl 0.00 79.00 0.00 55.86 52.09 0.00 IN-PE-9877 1991 GOI DAM SAFETY 23.00 130.00 60.03 25.81 84.17 -1.83 IN-PE-9988 1991 TECH EDUC II 0.00 307.10 51.37 75.02 133.42 60.37 IN-PE-9982 1990 NOR REG TRANSM 485.00 0.00 0.00 178.66 178.65 0.00 Total: 4,979.90 7,038.14 626.04 7,802.92 2,567.39 92.34 Active Closed Projects Projects Total Total Disbursed (IBRD and IDA): 3,734.88 33,285.32 37,020.20 of which has been repaid: 178.66 10,509.62 10,688.28 Total now held by IBRD and IDA: 11,698.29 22,105.50 33,803.79 Amount sold: 0.00 133.77 133.77 of which repaid: 0.00 133.77 133.77 Total Undisbursed: 7,802.92 59.71 7,862.63 Actual disbursements to date minus intended disbursements to date as projected at appraisal. -86- INDIA STATEMENT OF IFC's Held and Disbursed Portfolio 31-Mar-1999 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1964/75/79/90 MUSCO 0.00 0.00 1.08 0.00 0.00 0.00 1.08 0.00 1978/87/91/93 HDFC 40.00 0.00 2.29 0.00 40.00 0.00 2.29 0.00 1981 Nagarjuna Steel 0.00 0.00 0.07 0.00 0.00 0.00 0.07 0.00 1981/86/81/91/93/96 ITW Signode 0.00 0.00 1.55 0.00 0.00 0.00 1.55 0.00 1981/86/89/94/92 TISCO 1.60 0.00 15.37 0.00 1.60 0.00 15.37 0.00 1981/90/93 M&M 0.33 0.00 6.49 1.33 0.33 0.00 6.49 1.33 1984/90/94 India Lease 0.44 0.00 0.86 0.00 0.44 0.00 0.86 0.00 1984/91 Bihar Sponge 12.34 0.00 0.68 0.00 12.34 0.00 0.68 0.00 1986 EXB-City Mills 0.48 0.00 0.00 0.00 0.48 0.00 0.00 0.00 1986 EXB-CECL 0.01 0.00 0.00 0.00 0.01 0.00 0.00 0.00 1986 EXB-NB Footwear 0.19 0.00 0.00 0.00 0.19 0.00 0.00 0.00 1986 EXB-STG 0.34 0.00 0.00 0.00 0.34 0.00 0.00 0.00 1986 EXB-TAN 0.03 0.00 0.00 0.00 0.03 0.00 0.00 0.00 1986/92/93/94 GESCO 0.00 0.00 11.80 0.00 0.00 0.00 11.80 0.00 1986/93/94/95 India Equipment 0.38 0.00 0.77 0.93 0.38 0.00 0.77 0.93 1987 Hindustan 3.99 0.00 0.00 0.00 3.99 0.00 0.00 0.00 1987/88/90/93 Titan Watches 0.67 0.00 1.03 0.00 0.67 0.00 1.03 - 0.00 1988/90/92 Tata Telecom 0.00 0.00 0.10 0.00 0.00 0.00 0.10 0.00 1988/94 GKN Invel 0.00 0.00 1.40 0.00 0.00 0.00 1.40 0.00 1989 AEC 10.37 0.00 0.00 0.00 10.37 0.00 0.00 0.00 1989 UCAL 0.00 0.00 0.63 0.00 0.00 0.00 0.63 0.00 1989/90/94 Tata Electric 26.44 0.00 0.00 0.00 26.44 0.00 0.00 0.00 1989/91 Gujarat State 4.38 0.00 0.00 0.00 4.38 0.00 0.00 0.00 1989/95 JSB India 0.00 0.00 1.21 0.00 0.00 0.00 1.21 0.00 1990 HOEL 0.00 0.00 0.28 0.00 0.00 0.00 0.28 0.00 1990 TDICI-VECAUS II 0.00 0.00 1.41 0.00 0.00 0.00 1.41 0.00 1990/92 CESC 41.51 0.00 0.00 56.95 41.51 0.00 0.00 56.95 1990/93/94/98 IL & FS 18.75 1.81 6.23 6.00 18.75 1.81 6.23 6.00 1990/94 ICICI-IFGL 0.00 0.00 0.30 0.00 0.00 0.00 0.30 0.00 1990/95 ICICI-SPIC Fine 0.00 0.00 1.88 0.00 0.00 0.00 1.88 0.00 1991 BSES 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1991/93 Triveni 0.00 0.00 1.11 0.00 0.00 0.00 1.11 0.00 1991/96 VARUN 0.00 0.00 1.35 0.00 0.00 0.00 1.35 0.00 1992 Indus VC Mgt Co 0.00 0.00 0.01 0.00 0.00 0.00 0.01 0.00 1992 Indus VCF 0.00 0.00 1.00 0.00 0.00 0.00 1.00 0.00 1992 Info Tech Fund 0.00 0.00 0.64 0.00 0.00 0.00 0.64 0.00 1992 SKF Bearings 2.86 0.00 0.00 0.00 2.86 0.00 0.00 0.00 1992/93 Arvind Mills 0.00 0.00 17.10 0.00 0.00 0.00 17.10 0.00 1992/94/97 Ispat Industries 78.34 0.00 5.77 85.00 38.48 0.00 5.77 0.00 1992/95 IL&FS Venture 0.00 0.00 1.05 0.00 0.00 0.00 1.05 0.00 1992/96/97 NICCO-UCO 6.31 0.00 0.50 0.00 2.31 0.00 0.50 0.00 1993/94/96 Indo Rama 19-68 0.00 11.98 7.87 19.68 0.00 11.98 7.87 1993/97 20TH Century 13.31 0.00 0.80 0.89 13.31 0,00 0.80 0.89 1994 Centurion Growth 0.00 0.00 2.39 0.00 0.00 0.00 2.39 0.00 1994 Chowgule 13.42 0.00 4.58 21.09 13.42 0.00 4.58 21.09 1994 CrdcapAssetMgt 0.00 0.00 0.32 0.00 0.00 0.00 0.32 0.00 1994 DLF Cement 8.80 0.00 4.94 12.75 8.80 0.00 4.94 12.75 -87- Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1994 Gujarat Ambuja 0.00 0.00 8.23 0.00 0.00 0.00 8.23 0.00 1994 Taurus Starshare 0.00 0.00 7.17 0.00 0.00 0.00 7.17 0.00 1994/97 GVK 27.50 0.00 7.45 31.78 27.50 0.00 7.45 31.78 1994/98 Global Trust 5.00 5.00 3.19 0.00 5.00 5.00 3.19 0.00 1995 Centurion Bank 0.00 0.00 3.87 0.00 0.00 0.00 3.87 0.00 1995 EXIMBANK 18.18 0.00 0.00 0.00 18.18 0.00 0.00 0.00 1995 GE Capital 10.00 0.00 5.00 0.00 10.00 0.00 4.39 0.00 1995 Prism Cement 15.00 0.00 5.02 12.00 15.00 0.00 5.02 12.00 1995 Rain Calcining 19.25 0.00 5.47 0.00 19.25 0.00 5.46 0.00 1995 Sara Fund 0.00 0.00 6.14 0.00 0.00 0.00 2.60 0.00 1995/98 RPG Communicatns 0.00 0.00 11.25 0.00 0.00 0.00 11.25 0.00 1996 India Direct Fnd 0.00 0.00 7.50 0.00 0.00 0.00 4.51 0.00 1996 Indus II 0.00 0.00 5.00 0.00 0.00 0.00 3.00 0.00 1996 Indus Mauritius 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 United Riceland 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996/99 Moser Baer 4.00 0.00 2.14 0.00 4.00 0.00 2.14 0.00 1997 Asian Electronic 0.00 0.00 5.50 0.00 0.00 0.00 5.50 0.00 1997 CEAT 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1997 Duncan Hospital 7.00 0.00 0.85 0.00 7.00 0.00 0.00 0.00 1997 EEPL 0.00 0.00 0.03 0.00 0.00 0.00 0.03 0.00 1997 Owens Corning 25.00 0.00 0.00 0.00 25.00 0.00 0.00 0.00 1997 SAPL 0.00 0.00 0.07 0.00 0.00 0.00 0.07 0.00 1997 SREI 15.00 0.00 3.00 0.00 9.50 0.00 3.00 0.00 1997 Walden-Mgt India 0.00 0.00 0.01 0.00 0.00 0.00 0.01 0.00 1997 WIV 0.00 0.00 5.00 0.00 0.00 0.00 0.88 0.00 1998 IDFC 0.00 0.00 15.46 0.00 0.00 0.00 15.46 0.00 Total Portfolio: 495.90 6.81 216.32 236.59 436.54 6.81 202.20 151.59 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total Pending Commitment: 0.00 0.00 0.00 0.00 -88- Annex 10: Country at a Glance INDIA: Integrated Watershed Development (Hills-l1) Project 4/27/99 POVERTY and SOCIAL South Low. India Asia Income Development dlamond 1997 Population. mid-vear (millions) 962,4 1.281 2,036 Life expectancy GNP per capita tAtlas method, USS) 370 380 350 GNP (Atlas method. USS billions) 357.4 493 712 Average annuat growth, 199248 Population (%) 1.7 1.8 2.0 GNP Labor force (%) 2.0 2.3 24 GNP Gross per primary Most recent estimate (latest year available, 192.98) capita enrollment Poverty f% of Population below national DOverty line) 35 Urban population (% of total population) 27 27 28 Life expectancy at birth (years) 83 62 59 Infant mortalitv (per 1, 000 live births) 63 77 82 Child malnutrition (9S of children under 5) 66 53 Access to safe water Access to safe water (1 of population) 81 81 69 Illiteracv (% of population aqe 15+) 48 49 46 Gross primary enrollment (% of school-age populaLon) 101 100 93 India - Low-income group Male 110 109 100 Female 90 90 82 KEY ECONOMIC RAtiOS and LONG-TERM TRENDS 1977 1987 1997 1998 Economic ratlos' GDP (USS billions) 102.7 247.8 397.1 420.8 Gross domestic investment/GDP 20.4 22.6 23.1 234 Trade Exports of ooods and services/GDP 6.6 5.5 10.5 10.5 Gross domestic savinas/GDP 2t.1 20.1 19.6 19.8 Gross national savings/GDP 20.5 21,8 21.7 Current account balance/GOP 1.6 -24 -1.3 -1.4 Domestic Ie n Interest Pavments/GOP 0.3 07 1.0 09 9Investment Total debtGDP 14.1 19.4 23.5 22.4 Savings Total debt service/exports 15.3 32.0 231 19.4 Present value of debt/GDP 17.S Present value of debt/exports - 135,4 Indebtedness 1977.87 1988-98 1997 1998 1999-03 (averape annual growth) GDP 4.4 5.7 713 5.0 5.5 -India - Low-income group GNP Der caoita 2.1 3.8 5B& 3.3 4.0 Exports of goods and services 3.4 12.0 8.4 11.4 7.2 STRUCTURE of the ECONOMY 1977 1987 1997 1998 Growth rates of output and Investment (%) (% of GDP) 40 Agriculture 38.2 31.4 29.3 27.5 Industry 23.0 26.2 26.1 26.1 20 Manufacturing 15.5 16.1 16.8 16.8 _ Services 38.9 42.3 44.7 46.4 0 7 Private consumption 69.3 68.2 70.1 69.1 .20 General government consumption 9.6 11.7 10.2 11.1 - GOI S GOP Imports of aoods and services 5.9 8.1 14.0 14.1 1977.87 1988-98 1997 1998 Growth rates of exports and Imports (14 (average annual growth) Agriculture 2.6 3.7 9.4 -1.0 40 Industry 5.2 6.6 6.0 5.9 Manufacturino 5.5 7.1 7.7 6.8 20 Services 5.5 7.2 8.0 8.2 Private consumption 4.8 5.0 10.2 -0.1 9 / -_ 94 9s 5 97 98 General government consumPtion 6.9 6.6 11.3 19.4 Gross domestic investment 4.2 6.4 -1.3 7.7 -20 Imports of aoods and services 8.7 8.5 9.7 3.5 Exports - lS Imports Gross national Product 4.3 5.7 7.5 5.0 Note: 1998 data are preliminary estimates. *The diamonds show four key indicators in the countrv (in bold) compared with its income-aroup average, If data are missing, the diamond will be incomplete. -89- India PRICES and GOVERNMENT FINANCE Domestkc prices 1977 1987 1997 1998 [Inflation (%) (% change) 20 . Consumer prices 6.4 10.0 6,9 s Implicit GDP deflator 5.9 6.5 7.9 5.6 i Government finance s (% of GDP, includes current grants) o Current revenue - 23.3 21.8 22.0 93 94 95 96 97 98 Current budget balance 1.5 -0.6 0.0 -GDP deflator . PI Overall surplus/deficit -12.3 -9.9 -8.9 TRADE (US$ millions) 1977 1987 1997 1998 Export and import levels (US$ millions) Total exports (fob) )1,420 34,133 34,849 00000 Tea eo 451 292 410 Iron 428 481 475 Manufactures ,458 25,490 26,022 Total imports (cif) 17,740 48,948 61,126 Food 17 1,068 1,536 1,687 20,000 Fuel and energy .. 2,187 9,626 7,624 Capital goods 5,074 86,413 7,140 92 93 94 95 94 97 98 Export price index (1995=100) .. 89 90 86 Import price index (1995=100) 77 101 104 1 Exports *Imports Terms of trade (1995=/00) .. 115 89 82 BALANCE of PAYMENTS 1977 1987 1997 1998 Current account balance to GDP ratio (%) (US o millions) Exports of goods and services 13,637 41,732 44,10236 Imports of goods and services 19,962 55,696 59,236 il!1[! ll} - llil Resource baiance -6,325 -13,964 -15,134 Net income -2,045 -3,568 -2,507 Net current transfers 2,327 12,367 11,830 1-' h m ill Current account balance -6,043 -5,165 -5,811 Financing items (net) 6,114 10,392 9,407 Changes in net reserves -72 -5,227 -3,596 -2 Memo: Reserves including gold (US$ millions) 7,200 26,718 29,651 Conversion rate (DEC, local/USS) .. 12.8 35.5 37.2 EXTERNAL DEBT and RESOURCE FLOWS 1977 1987 1997 1998 (US$ millions) Composition of total debt, 1998 (USS millions Total debt outstanding and disbursed 14,471 48,124 93,435 94,404 IBRD 456 3,475 8,768 8,138 IDA 3,333 10,529 17,616 17,912 G: 5,04r A: 8,138 Total debt service 1,178 5,273 12,058 10,586 IBRD 88 469 1,514 1,482 t79,912 IDA 30 152 365 381 / Composition of net resource flows F 360.74 Official grants 377 403 410 351 5C 664 Official creditors 1,058 1,404 184 -65 i3,341 Private creditors -14 :2,793 -147 2,520 _ Foreign direct investment 0 208 2,696 3,197 6E 22.729 Portfolio equity 0 0 3,142 1,796 World Bank program A - IBRD E - Bilaterai Commitments 315 1,790 1,532 1,755 8- lOA DE-Othermultateral F-Privatel Disbursements 610 1,297 1,592 1,373 C-IMF G-Short-term Principal repayments 66 235 1,074 1,144 Netflows 544 1,062 518 229 Interest payments 52 386 804 719 Net transfers 492 676 -287 -490 Development Economics 4/27/99 -90- Annex 11 Beneficiary Participation IWDP-II Project: Across Five Project States Existing and Proposed Actions Sub-Component Punjab Himachal Pradesh Uttar Pradesh Haryana Jammu & Kashmir Descrintion _ Existing | Proposed under Existing | Proposed under Existing Proposed under Existing Proposed under Existng Proposed under |_IWDP-II_|_IWDP-11 IWDP-iI IWDP- IWDP-IIDP-11 Land Treatments Private/Group Land _______ On-farm fodder All labor All labor (about All labor All labor (about All labor is All labor (about All labor All labor (about 25% cost of 50% cost of Demonstrations (about 30%) is 30%) is provided (about 30%) is 30%) is provided provided by 30%) is provided (about 30%) is 30%) is provided inputs and inputs and 100% provided by by beneficiaries provided by by beneficiaries beneficiaries by beneficiaries provided by by beneficiaries 100% labor by labor by the beneficiaries Inputs for 0.1 ha. beneficiaries. Inputs for 0.2 ha. Inputs for 0.04 Inputs for 0.1 ha. beneficiaries Inputs for 0.1 ha. the beneficiary. beneficiary Inputs for 0.1 provided by All inputs provided by is provided by provided by Inputs for 0.1 provided by ha. provided by IWDP-11 provided by IWDP-I1- EC project. IWDP-Il-I ha. provided by IWDP-II IWDP-I IWDP-I. IWDP-I Horticulture 60% of total 70% of total cost 60% of total 60% on marginal 50% of cost 60% of total cost 60% of total 70% of total cost 20% of total 60% of total cost cost by (partial cost cost by land and 70% on provided by provided by cost provided provided by cost provided provided by beneficiary recovery of beneficiary'. good arable land beneficiaries beneficiary by beneficiary beneficiary by beneficiary beneficiary. seedling) by by beneficiary, beneficiary Agro-forestry 50% of cost of 50% of cost of NA NA NA NA NA NA NA NA seedling and all seedling and all labor provided labor by by beneficiary beneficiary for first 2 yrs to be reviewed and increased to 75% at MTR. Silvi 15% of total 30% (roughly 40- 10% of costs 40% will be NA NA 10-20% Beneficiaries NA NA pastural/pasture cost2 45% of labor by beneficiary. provided by provided by contribution in establishment cost) by beneficiary. beneficiary terms of all beneficiary. . under IWDP-1; unskilled labor no cost (about 30%); recovery in project would other projects. provide inputs Under IVJP-1, and materials (70%). H.P. had adoption problems in implementing the policy 2 OECF project has no cost recovery provision. This issue needs to be addressed. 91 Sub-Component Punjab Himachal Pradesh Uttar Pradesh Haryana Jaipmu & Kashmir DescriPtionrI Existing uIder Proposed under Existngg Proposed under Existing Proposed under Existing Proposed under | WPIWDP-IWD-I IWDP-11-I I IWDP-II IVVDP-11 Silvi- 100% Second year All maintenance project 100% protection pastural/pasture protection by onwards and protection provided by beneficiary; Maintenance beneficiaries; maintenance by beneficiary supplemental project would project will provided by protection for provide first year provide beneficiary 3 years. restocking restocking material materials for two years. Common/Group/Pan hayat Land Silvipastural/pasture 10% of total 20% provided by NA NA NA NA 5-10% 25%provided by No cost sharing JFM notification establishment cost provided beneficiary; will contribution by beneficiary; will by beneficiary to be reviewed, by beneficiary be reviewed at beneficiaries be reviewed at because and works to be MTR under IWDP-1; MTR (need to benefit sharing started after the no cost look at benefit arrangement review and recovery under sharing carefully) not attractive, appropriate coat- other projects sharing arrangements (at least 10%) are . worked out Sdvipasture None 100% protectioa NA NA NA NA None provided 100% protection None 100% protection maintenance by community; by beneficiary by community; by community project will project will provide provide restocking restocking material for two material for two years years Drainage line None cost Cost sharing None cost Cost sharing None cost Cost sharing None cost Cost sharing None cost Cost sharing treatment sharing of arrangement will sharing of arrangement will sharing of arrangement will sharing of arrangement will sharing of arrangement will construction by depend on construction by depend on construction by depend on construction by depend on construction by depend on beneficiary; investment beneficiary; investment beneficiary; investment beneficiary; investment beneficiary; investment some location. some location. some location. some location. some location. maintenance Community to maintenance Community to maintenance Community to maintenance Community to maintenance Community to provided by ensure 100% provided by ensure 100% provided by ensure 100% provided by ensure 100% provided by ensure 100% community. maintenance community. maintenance community. maintenance community, maintenance community. maintenance Protected Forest Land/Government Land Silvipasture/Pasture No cost sharing 10% beneficiary No cost sharing 10% contribution No cost sharing 100% of No cost sharing 10% contribution None JFM notification establishment by beneficiary contribution. by beneficiary. by beneficiary by beneficiary, establishment by beneficiary by beneficiary to be reviewed, (only 10-15% Government Only protection (only protection. only harvesting cost by (grass which would be and works to be ofthe total area intervention by beneficiary done by the beneficiary. auctioned and conditional on started after the in the needed to resolve community. CGovernment benefits are revision of policy review and Shivaliks) the issue of Community intervention partially on benefit sharing appropriate cost- benefit sharing does not have needed to resolve shared) (examine JFM sharing full rights to the issue of practices) arrangements (at benefits, benefit sharing least 10%) are _____ _____ __ _ _____ _____ _ __ _____ ____ ____ _____ ____ _____ _____ _ __ _____ ____ __ __ _____ _ w orkwork d oou Silvipasture None 50%ofprotection Some 50%oftotalcoat None Forfirst2years None 50%ofprotection None Partial 92 Sub-Component Punjab Himachal Pradesh Uttar Pradesh Haryana Jamimu & Kasbmir Description I Existing Proposed under Existing Proposed under Existing Proposed under Existing Proposed under Existing Proposed under L~~ ~ |______ J 1WDP-H j IWDP-II 1 IWDP-I1 1WIbDp-11 IWDP-II maintenance by beneficiaries maintenance by by beneficiary 50% and 100% by beneficiaries contribution by beneficiary thereafter by (JFM) conditional commsunity I beneficiary. Will on revision of be reviewed at benefit sharing __ __ _ _ __ _ __ __ I_ _ _ _ _ M TR _ _ _ __ - policy_ _ _ _ _ _ _ _ _ _ _ Water Structures Water harvesting No cost sharing Beneficiary No cost sharing HP will provide No cost sharing Beneficiary About 10% Beneficiary No cost sharing Beneficiary contribution in information.3 contribution contributed by contribution contribution construction minimum - 25% beneficiary (in minimum 25% of minimum 25% of minimum - 15% of total cost terms of labor) total cost (about unskilled labor of total cost (about 50% of 50% of unskilled until MTR; and Masonry plus unskilled labor labor cost). 50% of unskilled materials will be cost) Masonry Masonry plus labor thereafter. provided by the plus materials materials will be Masonry plus project. will be provided provided by the materials will be by the project. project. provided by the project. Potable water No cost sharing Beneficiary NA NA No cost sharing Beneficiary About 15% Beneficiary No cost sharing Beneficiary schemes contribution contribution contribution by contribution contribution minimum 25% of minimum - 25% beneficiary minimum 25% of minimum 25% of total cost (about of total cost total cost (about unskilled labor 50% of labor (about 50% of 50% of labor until MTR; and cost). Materials labor cost). Materials 50% of unskilled plus skilled labor cost)Materials plus skilled labor labor thereafter. provided by the plus skilled labor provided by the Masonry plus project. provided by the project. materials will be project. provided by the _________________ ______________~~~~~~I I project. Maintenance of Some cost 100% beneficiary Some cost 100% beneficiary Some cost 100% beneficiary Some cost 100% beneficiary 100% by 100% by water structures sharing sharing sharing contribution sharing contribution beneficiary beneficiary Rural Roads Maintenance - of Beneficiary not Beneficiary not GOHP Beneficiary not None Will follow U.P.- GOH Beneficiary not Roads and Beneficiary not motorable roads responsible. responsible; responsible; DASP road responsible;GOH/ bldg. Dept; responsible.Roads (2kms. and above) 100% by 100% by Market GOHP policy PWD J&K and Bldg. Dept. Market Board Board Mainly calverts J&K under IWDP-11 I_i_l_i_I Operation & None Maintenance Maintenance None Maintenance 100% Maintenance District Dev. Maintenance Maintenance- responsibility by responsibility by responsibility by maintained by responsibility by Commissioner responsibility by mule/bridle/track community community community Government community community roads (Less than 2 according to according to according to according to according to km( . MOU MOU | _| MOU I I MOU I_| MOU Livestock Development Artificial 8% of total 25 bfr % of total greed to 8%contribution I Will follow Beneficiary Beneficiary No ost Beneficiary will 3 In H.P.water harvesting structures are mainly for soil conservation. 93 Sub-Component Punjab Himachal Pradesh Uttar Pradesh Haryana Jammu & Kashmir Description Exi ng-| xsig Pooe ne Existing Proposed under Existing Proposed under Existing Proposeddunder Existing Proposed under ______________ IWDP-1 ItWOP-fi lIDP-II IfWDP-II | WDP-II Insemination cost (Rs.5 by December 31, cost (Rs.5 by increase to Rs.15 by beneficiary recently Bank- contribution contribution from recovery contribute Rs.15 beneficiary, 2000; to 50% by beneficiary; (25%) before at the clinic financed UP- increased in 30% to 50% by per conception actual cost the end of the actual cost Dec.31, 1999. (Rs.5 charged DASP. Will November, the project end (5 (about 8%; equal Rs.60) project (5 Rs.60) Further increase at present; review cost of 1998 to Rs.15 percentage points Rs. 5 per percentage points to 50% foreseen actual cost production per conception increase per insemination). per annum) by dependent on Rs.60); Rs. 15 estimates for (about 30% annum) To be reviewed at beneficiary study on (about 10%) inputs and cost) MTR and revised willingness to pay contribution at delivery during accordingly. and to be decided farm (house first year. Results at MTR. call) of the study and recommnendations will be discussed and updated annually Natural Breeding NA NA Under IWDP-1 Community Currently, Community NA NA No cost sharing Community Services beneficiary contribution 5% Rs.500/p/m contribution 5% contribution 5% contribution of cost of bull plus 3 kilos per of cost of bull of cost of bull Rs.50 (28% of plus 100% (about day of feed plus 100% (about plus Rs. 50 per actual cost) Rs. 175) given to Rs. 175) service (28%) maintenance caretaker' maintenance Will be reviewed except for except for at MTR. veterinary veterinary services services. Will be Ireviewed at MTR Veterinary services Nominal cost A study on cost- Nominal cost A study on cost- Nominal cost A study on cost- Fully A study on cost- No cost sharing A study on cost- sharing (Re. I benefits and sharing (Re. I benefits and sharing (Re. I benefits and subsidized benefits and benefits and charged; total willingness to pay charged; total willingness to pay charged; total willingness to pay except willingness to pay willingness to pay cost roughly will be carried out cost roughly will be carried out cost roughly will be carried out transport to will be carried out will be carried out calculated and reviewed calculated and reviewed calculated and reviewed house calls and reviewed at and reviewed at Rs.40) during MTR Rs.40) during MTR Rs.40 during MTR MTR MTR Concentrate feed for 100% NA 50% 50% beneficiary 100% 100% 100% 100% NA NA pregnant cows and beneficiary beneficiary contribution in contribution by contribution by contribution by contribution by bufflaoes contribution contribution the first year; beneficiary beneficiary beneficiary beneficiary since 1996 under IWDP-I 75% 2'd yr. And 100% thereafter. Concentrate feed for GOI subsidy 100% 1-2.5 kg per 50% beneficiary 100% 100% 66% Beneficiary 1-2.5 kg per Beneficiary young stock 0.5-2kg for contribution by day for young contribution in contribution by contribution by subsidized for contribution day for young contribution young stock beneficiary stock at 50% the first year, beneficiary beneficiary young stock increased to 50% stock at 50% increased to 50% from Al at subsidy rate 75% second year from 4th month first year, 75% subsidy rate first year, 75% 50% subsidy and 100% to 32"d month second year and second year and rate for few thereaRfer (only for 100% thereafter 100% thereafter scheduledgcaste landless and families _c Silage and bay f50%Om/O 50% beneficiary NA 50% beneficiary NA 50% beneficiary NAt NA No cost sharing 50% beneficiary demonstrations beneficiary contribution contribution ( contribution (all contribution ( in 4 Beneficiary pays about Rs. 150 per service, out of which Rs.90 are deposited in the revolving fund for other purposes and balance goes to caretaker. 94 Sub-Component Punjab Himachal Pradesh Uttar Pradesh Haryana Jammu & Kashmir Description i Existing Proposed under Existing Proposed under Existing Proposed under Existing Proposed under Existing )?roposed under IVVDP-II__ IWDP-II E jWWDIWDP-VVDP-III IWDP-11 IWDP-II contribution mostly unskilled unskilled labor terms of unskilled labor and fodder and fodder labor) Artificially dried NA NA 50% 50% contribution NA NA NA NA NA NA fodder contribution by by beneficiary beneficiary Livestock shelters 50% of total 60% beneficiary 50% 60% beneficiary Unskilled labor Unskilled labor NA NA No cost sharing 60% beneficiary and feeding troughs cost by contribution, beneficiary contribution, plus local plus local contribution, (only for landless) beneficiary including all contribution, including all material material provided including all unskilled labor including all unskilled labor provided by by beneficiary unskilled labor and part of the unskilled labor and part of the beneficiary and part of the building materials and part of the building materials building materials (only for poor) building (only for poor) (only for poor) materials 95 A}NNEX 12 Regional EnUjironnental Assessment: IVVDP (Hills-ll) Execubve Summary EXECUTIVE SUMMARY THE PREAMBJLE 1. The Shivalik ranges, in North India, are at the lower end of the Himalayas and at the upper end of densely populated productive Indo-Gangetic alluvial plains. The Shivalik Region is a thin belt, with an average width of about 52km and a length of about 650kmn has an area of nearly four million hectares in the states of Punjab, Haryana, Uttar Pradesh, Himachal Pradesh and Jammu & Kashmir. Tthese hills, once covered by dense forests, are now totally denuded. Much of the denudation, took place since colonial times, when the exploitation of forest wealth was encouraged for meeting timber and fuel needs for military cantonments. The setters cleared land for farming and nomadic herdsnen brought catte for grazing. In the process, rich forests gave way to bare hill slopes. Soil erosion became common and the once perennial streams became seasonal torrents, locaily known as 'choes' The degradation continued unabated. Today, these hills are aimost totally barren, a source of damage and destruction and are currently recognized as one of the eight highly degraded ezosystems in the country. 2. In the last decade, in order to preveniL and reverse the degradation process of the Shivaliks hills, the Integirated Watershed Development (Hills) Project (IWDP) was undertaken in the 4 states of Jamrnu & Kashmij-, Himachal Pradesh, Punjab and Haryana. Originally, the project was for a pEriod of 7 yeahs (19,90-97), but was extended for another year up to 1998. The project was supported by the World Bank. Seeing the physical targets being achieved by the partiapatory states, the Wodd Bank decided lo further extend the program in the form of IWDP (Hills-II) not only in other areas of these states but also including the state of Uttar Pradesh. This was aimed at providing a uniform integrated rural development platform to address the social and natural resources problems of the entire Shivaliks in India. 3. Given the undefined investments spread spatially and temporally over the large project region covering five states, the Worid Bank suggested conducting a Regional Environmental Assessment (PJA) for the projecL This is the first instance of such an REA for any World Bank funded project in India. The primary objective foreseen in the REA process was to obtain a framework to idenitif keyz environmental issues related to the project, both on environmental concerns related to proposed project components and on the assessment of the environmental benefits of the project. It was to serve as a valuable tool for addressing environmental issues that would help influence projedi: appraisal and design, executon and supervision of its components. In addition, i vWould serve -as a set of environomental guidelines to shape environmentally sustainable investment strategies in the project The main objectives, envisaged for the Regional Environmental Assessnient are: X To provide a framevark for iderntffiation of key environmental issues related to the project and to qualitify its environmental impact; * To assess positive environmental contributions of watershed development and examine environmental concerns associated with the various project components; 96 Regional Environmental Assessment: IWDP (Hills-I) Execuve Summary * To suggest mitigation measures, outline monitoring and evaluation strategies associated with the appropriate indicators to measure environmental benefits of the project and outline an Environmental Management Plan (EMP) to be mainstreamed into the project cycle including their preparation, implementation and completion; * To bring out recommendations that would keep constant involvement of the other members of the implementation unit and would also lead to the design of environmental awareness programs, the baseline, monitoring and evaluation strategies as early in the project as possible; * To help in identifying the additional detailed studies that need to be conducted as part of the project; and, * To provide a screening/analysis tool for addressing the environmental issues that shall help influence project appraisal and design, execution and supervision of its components. 4. These objectives have to be achieved through the following scope of the REA: * Formulation of spatial details including the location of sub-watersheds and major project components; * Description of the risks and scope associated with various activities under the major components of the project; * Creation of a framework defining criteria to be used for selection of actvities in each component and in prioritization of objectves; * Recommendation of procedures and institubonal arrangements to address environmental concems and ensuring safe guards, or any activity that would trigger a more detailed Environmental Impact Assessment or Environmental Monitoring; * Analysis of the lessons from on-going and previous projects and incorporation of these in the IWDP (Hills-II); and, * Recommendation of mechanisms and procedures to mainstream the REA work and environmental concerns in general in the proposed IWDP. PROJECT DESCRIPTION 5. The project area in the proposed IWDP (Hills-I) includes the sub-tropical Shivalik and temperate Karewas ranges of the five states. Although the major focus of the project is on the Shivalik zone, the project also includes sub-watersheds located in the temperate Karewas* in Kashmir. Fgure-1 shows the location of different sub-watersheds under IWDP (Hills-II). The total area to be treated in the five states is given below in Table-1. The Karewas, in Kashmir, are separated from the Shivaliks of Jammu by the Pir-Parjal mountain range. The Shivaliks consist of a narrow belt of hills that run along the sub-tropical southern foothills of the Himalayan ranges. The Karewas are located north of the Shivaliks and consist of old lakebed deposits some of which have been uplifted to form hill plateaus and steep ravines. 97 j LOCATION OF SUB-WATERSHEDS UNDER IWIDP (HILLS 1I), i * 'JAMMU & IKASHMIR I egend K - -~K i° : , t \ , HIMACHAL P'(ADETH / A i~ ~~~~ A J-~ l/:;