Export development project
    Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Financial Adjustment; Major Sector: Finance;
                                                             ProjectID: P009991


       The Implementation Completion Report (ICR) for the India Export Development Project
(Loans 3058-IN and 3059-IN, for US$295 million, approved in FY89) was prepared by the South Asia
Regional Office, with Annex 4 contributed by the Borrower. Both loans were closed on March 31, 1996,
the original closing date. At closing US$108 million was canceled. Cofinancing was provided by the
Government of Japan through a grant of US$2.7 million for a Technical Assistance Fund.

    The objective of the Export Development Project (EDP) was to help the Government of India carry
out its strategy of increasing the competitiveness and exports of manufactured products. It also sought to
build institutional capability within the Indian financial sector to support manufacturing exporters, to
assess and advise clients on export projects, and to mobilize the resources needed to finance such projects.
To achieve these objectives, the project provided two different loans. One was a US$175 million loan
through the Industrial Credit and Investment Corp. of India (ICICI). The second was a US$100 million
loan through three banks. The project also funded a US$20 million Export Development Fund (EDF) that
supported the export development plans of the intermediaries under both loans. It provided grant support
on a matching basis to firms to finance export promotion activities.

     The major objectives were not achieved. The ICR notes that the project was implemented during a
period of significant change in both the Indian policy environment and the Bank’s approach to
development finance. Shortly after loan approval the Indian authorities undertook a major reform
program, including opening up the economy and improving the environment for private sector
development and exporters. A major portion of the loan through ICICI, US$98 million, was canceled, due
to the collapse of the old system of foreign exchange rate risk management and the unwillingness of
borrowers to take the foreign exchange risk. On the other hand, on the lending through public banks the
government assumed the foreign exchange risk for a nominal—and highly subsidized—fee which resulted
in large foreign exchange losses for the government. Two of the three banks involved also had poor
recovery records. The technical assistance component did not disburse at all for three years. Only the EDF
appears to have been clearly effective. The incremental export earnings among assisted companies
indicates much greater export penetration by these firms. The fund appears to have helped Indian
companies sharpen their awareness of export opportunities that they would seize more fully after the
economic liberalization of 1991.

     The ICR rates the outcome of this project as satisfactory, the institutional development impact as
substantial, sustainability as likely, and Bank performance as satisfactory. The Operations Evaluation
Department (OED) disagrees with these ratings, except for Bank performance which OED also rates as
satisfactory. OED rates the project outcome as unsatisfactory because it was implemented in an
unconducive policy environment, one that exposed the GOI to large foreign exchange risks. Institutional
development is rated as modest and sustainability as unlikely.

    The major lesson from this project is that the costs of attempting to channel credit in an environment
of highly restricted foreign exchange regime and a highly regulated financial system can be large both in
fiscal and resource allocation terms.

    The ICR is of satisfactory quality. No audit is planned.