Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22297 IMPLEMENTATION COMPLETION REPORT (IDA-33410; SCL-45460) ONA LOAN/CREDIT IN THE AMOUNT OF US$251.3 MILLION TO INDIA FOR THE UTTAR PRADESH FISCAL REFORM & PUBLIC SECTOR RESTRUCTURING 06/21/2001 Poverty Reduction and Economic Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2001) Currency Unit = Rupees (Rs.) Rs.1 = US$ 0.02134 US$ 1 = Rs.46.86 FISCAL YEAR April 1 March 31 ABBREVIATIONS AND ACRONYMS C&AG Comptroller & Auditor General DECRG Development Research Group GSDP Gross State Domestic Profit HIPCs Heavily Indebted Poor Countries HPDE High Priority Development Expenditures ICR Implementation Completion Report MTEF Medium-Term Expenditure Framework O&M Operation and Maintenance PRIs Panchayat Raj Institutions PSMS Poverty and Social Impact Monitoring System SMEs Small and Medium-scale Enterprises TTD Trade Tax Department UP Uttar Pradesh UPFRPSR Uttar Pradesh Fiscal Reform and Public Sector Restructuring VAT Value Added Tax Vice President: Mieko Nishimizu Country Manager/Director: Edwin Lim Sector Manager/Director: Roberto Zagha Task Team Leader/Task Manager: Manuela Ferro and V.J. Ravishankar FOR OFFICLAL USE ONLY INDIA UTTAR PRADESH FISCAL REFORM & PUBLIC SECTOR RESTRUCTURING CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 11 6. Sustainability 13 7. Bank and Borrower Performance 14 8. Lessons Learned 15 9. Partner Comments 16 10. Additional Information 26 Annex 1. Key Performnance Indicators/Log Framne Matrix 28 Annex 2. Project Costs and Financing 29 Annex 3. Economic Costs and Benefits 30 Annex 4. Bank Inputs 31 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 32 Annex 6. Ratings of Bank and Borrower Performance 33 Annex 7. List of Supporting Documents 34 Annex 8. Overview of Fiscal Reform and Public Sector Restructuring Program 35 Annex 9. Reform Output/Process/Outcome Indicators - Fiscal Reforms 40 Annex 10. Reforrn Output/Process/Outcome Indicators - Governance Reforms 42 Annex 11. Poverty and Social Impact Indicators: Table 1 49 Annex 12. Poverty and Social Impact Indicators - Table 2 54 Annex 13. Background and Task Team 59 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Project ID: P065471 Project Name: UTTAR PRADESH FISCAL REFORM & PUBLIC SECTOR RESTRUCTURING Team Leader: Manuela V. Ferro TL Unit. SASPR ICR Type: Core ICR Report Date: June 21, 2001 1. Project Data Name: UTTAR PRADESH FISCAL REFORM & PUBLIC LIC/TF Number: IDA-33410; SECTOR RESTRUCTURING SCL-45460 Country/Department. INDIA Region: South Asia Regional Office Sector/subsector: BY - Other Public Sector Management KEY DATES Original Revised/Actual PCD: 10/22/1999 Effective. 05/23/2000 05/23/2000 Appraisal: 11/04/1999 MTR: Approval: 04/25/2000 Closinig: 10/30/2000 10/30/2000 Borrower/lImplementing Agency: Govemment of India/Govemment of Uttar Pradesh; Government of India/Office of the Chief Secretary and Departments of Finance; Government of India/Planning; Government of India/Personnel and Administrative Reforms Other Partners: STAFF Current At Appraisal Vice President: Mieko Nishimizu Mieko Nishimizu Country Manager: Edwin Lim Edwin Lim Sector Manager: Roberto Zagha Roberto Zagha Team Leader at ICR: M. Ferro and V.J. Ravishankar S. Fardoust and V.J. Ravishankar ICR Primary Author: 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substanfial, M=Modest, N=Negligible) Outcome: S Sustainabilitv: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry. S Project at Risk at Any Time: 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background. Around 8 % of the world's poor live in Uttar Pradesh (UP). With around 160 million inhabitants, UP is India's most populous state and one of the poorest. By the mid-1990s, while India's growth had accelerated, economic and social development in UP was falling behind. Per capita income in UP, US$230 in 1997, was the third lowest amongst the country's 28 states, ahead only of the states of Bihar and Orissa and only 65% of India's average. In other (non-income) dimensions of poverty, such as literacy and infant mortality rates, UP was also well behind most other Indian states, ranking second to fourth from last out of the 14 major states. Uttar Pradesh plays an important role in Indian national politics and the state provides over 15 % of the members of the national Parliament. UP is a politically unstable state, which over the past decade has been ruled by short-lived, coalition governments (nine between 1988 and 1998). Some of the political instability is linked to the deep social stratification of UP's population, and efforts on the part of various groups, particularly those from lower social strata, to use political power to improve economic and social well-being. World Bank Assistance Strategy to Uttar Pradesh. The Bank has assisted the State of UP with technical and financial assistance since the mid- 1990s. Early dialogue focused mostly on the power sector. Largely as a result of the state's political instability, the state govemment did not seek to deepen and broaden this dialogue until the late 1 990s. After a decade of frequent changes in government, a coalition government led by the BJP took office in late 1997. A core of reform-minded officials assumed key positions in the administration and invited the Bank to collaborate in the formulation and implementation of economic reforms to enable UP to extricate itself out of the mediocre performance of the past decade. The Bank recognized this as an opportunity to support the turnaround of the state, with benefits not only for the people of UP, but potential demonstration effects for all of India. Support to reforming states was at the heart of the 1998 Bank's Country Assistance Strategy to India. The Indian constitution gives the states considerable autonomy to define their development policies, including those influencing education, health, power, agriculture and irrigation, water, road transport, and urban services. The 1999 Country Assistance Strategy Progress Report highlighted the need to devote substantial attention and resources to Uttar Pradesh and to develop a multi-year, policy-based lending program, with the overarching goal of reducing poverty. [World Bank, India: Country Assistance Strategy - Progress Report, January 27, 1999.] An innovative aspect of the Bank's involvement in UP was the development of a State Assistance Strategy for Uttar Pradesh, which outlined the objectives and the content of the Bank's program of assistance to the state. [World Bank, India: Uttar Pradesh State Assistance Strategy - Revitalizing Government to Reduce Poverty, October 1999.] According to the strategy, Bank assistance would be based on four main principles: (i) support should be large enough to have an impact on this poor, heavily populated state; (ii) the Bank would assist the Govemment of Uttar Pradesh in developing, articulating, and implementing its own policies; (iii) Bank support would be integrated: different lending and non-lending instruments would be used to develop an integrated and cohesive package of assistance to the state; and (iv) Bank support would be sequenced, to take into account the difficult initial conditions in UP and the possibility of delays in reform implementation. The design and sequencing of lending instruments were selected to manage risks, while encouraging and supporting reforms in UP. Program and Loan/Credit Design: The UP reform program was based on collaborative, GoUP and World Bank technical work. In 1998, the GoUP initiated a public debate with the issuance of a White Paper highlighting the state's fiscal stress, potential debt trap and deteriorating economic performance. At the same time, the Government approached the Bank for assistance in formulating and implementing an economic restructuring program to lift itself out of the crisis. A World Bank economic report, India-Uttar Pradesh: From Crisis to Renewed Growth, later published in Hindi by the GoUP, identified three factors as holding down growth and poverty reduction in UP. First, inadequate infrastructure in general, but in particular shortages and unreliability in power supply, affected investment and growth in agriculture and industry adversely. Second, due to years of inadequate and ineffective spending on education and health, development of human resources lagged, - 2 - contributing to low living standards and lowering both productivity and incentives for private investment in the state. Third, a decline in the quality of governance had raised transactions costs in the economy, and negatively affected the business environment and the perception of businesses and external donors about investing in the future of Uttar Pradesh. The report portrayed UP as being caught in a vicious circle, with low growth not only holding living standards down, but also reducing GoUP's revenue yields, and the fiscal crisis preventing the state from investing enough to provide the foundation for higher growth and improved social indicators. Governance and fiscal reforms, complemented with reforms and investments in infrastructure (such as power) and the social sectors, were identified as the core of the Government's reform program. Key reforms in the power sector, including the necessary reform legislation and the unbundling of the state power monopoly into generation, transmission and distribution companies, were a key trigger for the Bank's strategy of assistance to UP. The GoUP passed the reform legislation and unbundled the State Electricity Board in January 2000 and brought to an end a 1 -day strike by 88,000 power sector employees, without any concessions on policy matters, thereby advancing in this important sector. Both the 1998 Report and the loan/credit documentation rightly recognized that World Bank assistance to UP was high-risk, but also high-return. The main risks emanate from low administrative capacity, political instability, uncertainty surrounding the pace of reform in the power sector and resumption of economic growth. The potential benefits include a potentially strong impact on poverty and on India's fiscal correction, both direct and indirectly through the demonstration effect that success of reforms in UP would have on other states. The Uttar Pradesh Fiscal Reform and Public Sector Restructuring credit/loan was the first of a potential series of 3 to 4 adjustment operations aimed at supporting the GoUP's multi-year reform program to break out of this vicious circle. This would provide some degree of assurance about the level of financial assistance the Bank could provide to support the multi-year reform program. However, due to the absence of a track record and the uncertainties of the political situation, policy actions within each phase were designed to be implemented before Board approval of each operation. This approach created the conditions for a long-term engagement, while providing the Bank with a very clear exit strategy. Loan/Credit Objectives: The agenda of reforms and the goals supported by the Uttar Pradesh Fiscal Reform and Public Sector Restructuring credit/loan are comprehensive and appropriate. The objective of the first operation was to support the launch of a program of needed fiscal and governance reforms. It also supported the establishment of a poverty and social monitoring system. The medium-term objectives of the reform program are listed below in Table 1; the specific reform measures supported by the UPFRPSR credit/loan are listed in Annex 8 (Overview of Fiscal Reform and Public Sector Restructuring Program, 1999-2004). - 3 - Table 1. Goals of the Fiscal Reform and Public Sector Restructuring Program in Uttar Pradesh, 1999-2004 Reforn Areas Stated 1999-2004 Program Goals 1 MDC& A&WS Achieve Fiscal Sustiinability Achieve substanbal reducton in fiscal deficit and create sufficient fiscal space for adequate levels of development outays and a gradual decline in the debt-to-GSDP and interest-to-revenue rabos. Improve Expenditure Management and Composibon of Improved budget compliance and fiscal discipline; Improved poverty targetng and Public Spending to enhance Development Impact developmental impact of govemment spending; Expenditure composition linked to policy priorities. Increase in the rate of recovery of recurring cost of canal irrigafion - from less than 20% currently to 50% by 2003-04. Reform Tax System to Improve Efficiency in Resource Improved voluntary tax compliance; Reduced transactions costs for private business Allocation and Enhance Tax payer Compliance operating in UP; Increase in the State's Own Tax Revenue - from 5.4% GSDP in 1998-99 to 7.6% by 2003-04. L GOLER#A"REF"S Reform the Civil Service to Enhance Efficiency, Substantial reducton in the number of departments towards international norms; Effectveness and Productivity and Reduce Overhead Significant improvement in the rato of front-line staff vis-a-vis support and Costs administrative staff; Significant increase in the number of functions that are privatized and/or commercialized; Improved staffing in key skill categores. Implement Anti-Corruption and Deregulaton Strategies Increased awareness and utilization of Lok Ayukta function by the public and to Reduce Corruption and Maladministration, as well as Vigilance Establishment by civil service; Radical reduction (more than 500%) in Administrative Burden on the State average investigabon time; Improved sancton and convicton rate; Stakeholder surveys indicate decreasing perceptions of corruption. Implement Fiscal Decentralization to Enhance Beneficiary and Stakeholder Participation and Income Enhanced beneficiary & stakeholder participation in overseeing government Accountability performance; Improved quality of social services and infrastructure maintenance in the rural areas; Increased public accountability. Reform Public Enterprises and Privatize to Reduce Reducton in fiscal drain due to public enterpnses; Release of assets to private Scope of Govemment, Reduce Fiscal Burden and owners; Reorientation of govemment role. Improve Economic Performance Modemize Financial Managenent & Control Architecture Improved quality of financial information available to the public; Improved and bmely and Enhance Accountability to Promote a more Honest, information for financial management; Computerized performance recording and Efficient and Answerable Govemment result-based management; Effectve legislabve scrutny over financial management by the Execubve. 5Z PORIEYAADSXomL EVWW Track progress at reducing poverty and improving living conditons using a range of indicators; measure the impacts of key reform measures on poor, vulnerable, and socially-excluded; based on this information, identify factors responsible for adverse outcomes and design appropriate mitigabon measures, also improve impacts of policies on the poor. Over the medium term, the objectives of the fiscal reforms are to improve fiscal balances and to create additional fiscal space for well-targeted public expenditures in priority programs, including quantitative and qualitative improvement in social sector and infrastructure spending, and relieving infrastructure bottlenecks, particularly power shortages and the road network, in order to accelerate economic growth and expand employment opportunities. The public sector restructuring reforms are intended to improve the quality of service delivery by reorienting the role of govemment, by reforming the civil service, by reducing corruption through improved transparency, deregulation and strengthening of anti-corruption institutions, by closing down, reforming or privatizing public enterprises, and by improving financial management and accountability. Information collected through the Poverty and Social Monitoring System would aid in identifying the emerging outcomes in the program that impact on the poor, and suggest areas for mid-course correction or intensified efforts. The overall reform program was explicitly linked to poverty reduction and based on indicators proposed by the Govemment of UP. The Poverty and Social Monitoring System was developed with three broad objectives: - 4 - (i) to measure progress at reducing poverty and improving living conditions over the course of the state's reform period, with a particular focus on identifying any adverse impacts linked to reform initiatives; (ii) to support better performnance in the delivery of basic services; and (iii) to keep the public informed regarding the progress and outcomes of reform measures. Poverty and social impact indicators (see Annex 11) focus on consumption and income measures, employment rates, health and education indicators, participation in government programs, awareness of health programs and social rights, access to and quality of facilities and services. While supported by the UPFRPSR Credit/Loan, the Poverty and Social Monitoring System was not designed to monitor the outcomes of specific actions implemented under the loan. It was recognized that it is impossible to establish causality between reforms and outcomes. Instead, the system would aid in the tracking of key indicators reflecting overall progress in UP's development and would be anchored in local institutions. 3.2 Revised Objective: Not applicable 3.3 Original Components: Not applicable 3.4 Revised Components: Not applicable 3.5 Quality at Entry: No applicable 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The objectives of Bank assistance under the UPFRPSR Credit/Loan were achieved. Performance in the three areas supported by the UPFRPSR Credit/Loan was satisfactory. All the agreed reform measures were implemented prior to approval and disbursement of the operation, by design; the GoUP also has continued to implement the reform measures in the second year, following disbursement of the credit/loan, as originally envisaged in the multi-year program.. No reform measures explicitly supported by the operation were reversed. As envisaged, the operation also has helped the GoUP launch a medium-term program of fiscal and governance reforms While there have been shortcomings in program implementation since disbursement took place, these have been relatively few and mostly in the nature of slower than desired pace of progress. [For a more detailed review of component implementation, please see attached Aide Memoire of the ICR mission, as well as the Matrix of Reform Output/Process/Outcome Indicators on Fiscal, Governance, and Poverty and Social Impact indicators attached as 4nnex I.] There are indications that the UPFRPSR operation has also had a broader impact in the form of helping the Government of India to strengthen rules-based mechanisms of resource transfers to encourage improved fiscal management at the state level. The fiscal and govemance reforms initiated in 1999-00 and supported by the UPFRPSR Credit/Loan have led already to an improvement in the state's fiscal performance and first steps in reversing the situation of deteriorating govemance have been taken. The trend of fiscal deterioration and widening budget deficits, witnessed especially during 1996-99, has been arrested and begun to be reversed. Reforms were further advanced in 2000-01. The fiscal deficit of GoUP has declined for two consecutive years, from a peak of 7.5% of GSDP in 1998-99 to an estimated 6.0% in 2000-01 [refers to the estimatedfiscal deficit of undivided UP in 2000-01, ie., including the newly created state of Uttaranchal, consisting of about 5% of the population and 6% of income of the erstwhile Uttar Pradesh], i.e., achieving a correction of 1.5 percentage points over two years. [In order to maintain consistency with the historical series and the ratios quoted in the Medium-Term Fiscal Framework of the reform program, all ratios to GSDP in this ICR have been calculated with respect to the 1980-81 GSDP series, and not the 1993-94-base GSDP series. ] The consolidated fiscal deficit (of the govemment and power utility combined) is estimated to have declined by 1 percentage point of GSDP in the same period. - 5 - It is difficult to assess the specific impact of this operation on economic performance and poverty reduction, as it was part of a wider reform agenda and supported only the first year of implementation of a multi-year program. Economic growth has accelerated during 1999-00 and 2000-01, compared to the average performance in the 1990s. However, causality between the measures supported by this operation and aggregate economic performance cannot be argued. A large part of the growth acceleration is likely to be explained by factors unrelated to the implementation of reforms, such as improved agricultural output thanks to good rainfall. 4.2 Outputs by components: Fiscal Reforms. Substantial progress was achieved in this first stage of the multi-year program, as evidenced by UP's improved fiscal outcomes in 1999/00 and estimates for 2000/01. According to audited accounts published by the Comptroller & Auditor General (C&AG) of India for the year 1999-00, the majority of key fiscal indicators in UP recorded significant improvement (Table 2). The targeted fiscal correction - a planned reduction in the overall fiscal deficit by 0.5% of GSDP- was more than accomplished, with the overall deficit declining from 7.5% of GSDP in 1998-99, to 6.4% of GSDP in 1999-00. Part of the correction, however, was dictated by a financing shortfall that became known only towards the end of the 1999-00 fiscal year and led to a larger-than-expected expenditure contraction. The GoUP Budget for 1999-00 was formulated assuming that the proceeds of the UPFRPSR Credit/Loan would reach UP in that fiscal year (India's fiscal year starts April 1 and ends March 31); it later became clear that this was not a realistic assumption, and indeed the proceeds of the operation reached UP only in June 2000; while GoI was expected to make up for the temporary cash crunch with some compensatory short-term financing, such compensation fell short of expectations as the fiscal year came to a close. The quality of fiscal correction has been good during 1999-2001, both compared to other Indian states and to UP's own past. Expenditure composition has started to improve, as envisaged under the operation. However, deeper improvements in the composition and quality of public expenditures will take more than one year to materialize and will require deeper public expenditure management reforms in UP, which were envisaged under the multi-year program of reforms. The ratio of Revenue Deficit to Revenue Receipts, an indicator currently being used by GoI to monitor the fiscal performance of states, has declined steadily over the first 2 years of the reform program, from a peak level of 47% in 1998-99. It declined to 29% in 1999-00 and an estimated 17% in 2000-01. The Budget for 2001-02, presented by the GoUP in March 2001, projects this ratio to decline further to 9% in the coming year. -6 - Table 2: UP Government Finances, 1995-2000101 Percentage of GSDP /a 1995-98 1998/99 1999/00 1999/00 2000/01 2000/01 Average Target Actual Target Estimated Revenue 13.9 11.6 13.5 13.1 14.8 15.8 State's Own Revenue 6.7 6.2 6.9 6.6 7.3 7.3 Tax 5.4 5.4 6.2 5.8 6.5 6.3 Non-Tax 1.2 0.8 0.7 0.7 0.9 0.9 Central Resources 7.2 5.5 6.6 6.5 7.5 8.5 Mandated Tax Share 5.3 3.9 4.4 4.6 4.7 5.9 Grants 2.0 1.5 2.2 1.9 2.8 2.6 Expenditure and Net Lending 21.0 19.1 20.5 19.5 20.8 21.8 of wtich. Interest 3.3 4.0 4.2 4.1 4.2 4.9 Salares 4.4 4.6 4.6 4.5 4.6 4.8 Pensions 0.9 1.2 1.3 1.3 1.2 1.3 Major Non-Merit Subsidies (explicit) 2.9 1.4 1.2 1.5 1.0 1.5 High Priority O&M 0.9 0.5 0.7 0.8 0.9 0.9 Capital Outlays 1.2 1.4 1.4 1.6 1.7 1.8 Revenue Deficit -4.9 -5.4 -4.5 -4.1 -2.8 -3.0 Overall Fiscal Deficit -7.2 -7.5 -7.0 -6.4 -6.0 -6.0 Non - Power Deficit -6.4 -6.7 -6.0 -5.8 -4.6 -4.6 Memo Ites: Debtstock 507.68 603.36 604.04 715.69 717.20 Debt Stock I GSDP 34.7% 37.3% 37.4% 40.3% 41.7% GSDP Annual Real Growth /b 3.3% 3.3% 5.7% 3.6% 4.7% Interest / Revenue 34.6% 30.8% 31.0% 28.2% 31.0% Revenue Deficit / Revenue Receipts 46.7% 33.3% 31.2% 19.0% 18.9% la The denominator has been adjusted downwards in 200001, to account for the creaton of Uttaranchal state in November 2000. lb GSDP is 1980-81 base, exceptfor years 1999/00 and 2000/01 (1993-94 based series) Sou're: Govemment of Uttar Pradesh. There have also been significant improvements in budgetary and accounting practices in UP. As part of the first phase of the program, the GoUP put an end to the practice of spending departments or project directors to deposit unspent funds into "personal ledger accounts" at the end of the year, a practice that led to overstatement of expenditures and deficit financing, and weakened expenditure management and control. The Government also reclassified expenditure on operation and maintenance of roads and canal irrigation systems, to exclude payments to "workcharged" employees, so that the true non-wage O&M could be monitored. Initial steps have been taken to move towards regularly monitoring the consolidated deficit of the public sector, such as agreeing on a ceiling for guarantees issued to state-owned enterprises for their borrowing from the market (with the exception of only guarantees that may be required to support the financial restructuring of the power sector). Although the Non-Power Deficit was monitored and targeted in the initial years of the program, due to the uncertainty surrounding the fiscal costs of power sector restructuring, subsequent steps in the program envisaged monitoring the Overall Deficit. In particular, the key medium-term targets were set in terms of reducing the overall fiscal deficit, including budget support to power (see Annex 8, Overview of Fiscal Reform and Public Sector Restructuring Program, 1999-2004). Revenues. Revenue performance improved, although by less than targeted. As a result of the reforms - 7 - implemented in tax policy and administration, the state's tax-to-GSDP ratio, which had stagnated at 5.4% of GSDP during 1996-99, increased to 5.8% in 1999-00. It increased further to an estimated 6.3% in 2000-0 1. Overall, the tax revenues raised by the GoUP increased by about 15% in real terms in 1999-00, compared to an average of 13.5% for all the major states. Sales tax revenue increased by 12% in real terms in 1999-00, and by about 15% in the first 9 months of 2000-01. The GoUP eliminated sales tax holidays and deferral schemes for new investment and introduced uniform floor rates, in compliance with the agreement reached among all states and Gol in January 2000. Sales tax rates have been further rationalized in UP during January 2001, reducing the total number of rates from 1 1 main and 6 special rates to 8 main and 4 special rates. The GoUP is implementing this program of rate rationalization in a phased manner, based on advice from a professional tax policy consultant. While the pace of progress towards reducing the number of rates to 5 (plus at most 2 special rates) has been slower than envisaged under the program, progress has nevertheless been steady and in the right direction. Administrative improvements in Trade Tax have been significant under this operation. A computerized system for administering this tax has been tested for acceptance and is being piloted in 3 selected zones. The annual turnover limit for self-assessment has been raised and as a result, 92% of the tax payers are now covered by the scheme of self-assessment. Deterrence against tax evasion has been strengthened as a result of criminal proceedings initiated by the Trade Tax Department (TTD) against fraudulent practices. The process and intermediate output indicators (Annex 9) suggest that constant and consistent pressure against tax evasion has led to increased compliance, especially among manufacturers within UP. The rise in the tax ratio has thus been achieved through a combination of rate rationalization and administrative improvements aimed at reducing evasion and improving compliance. However, while much of the emphasis of administrative reforms has been focused so far on curtailing tax evasion by strengthening deterrence, greater emphasis should be placed on lowering compliance costs and lowering the statutory tax burden. The fact that significant increases in tax collections were sought in the short-run limited the scope for greater tax rate rationalization and other reforms that, while likely to yield higher revenues in the medium run with a lesser distortionary impact than current policies, risked yielding lower revenues in the short run. There was one tax reform measure aimed at curbing under-valuation of goods brought into UP from outside, initiated in 1999-00, whose implementation was held up in 2000-01. Following opposition from wholesale traders in the state, on the grounds that this measure would increase the scope for taxpayer harassment, the GoUP is now considering a modified plan and a phased implementation. Expenditure. The main thrust of restructuring expenditure composition in 1999-00 and 2000-01 consisted of (i) containment of salary bill and pensions; (ii) containment and reduction of subsidies; and (iii) enhancement and protection against budget cuts of High Priority Development Expenditures (HPDE). While attempts to contain salaries and pension payments and to protect HPDE have been generally satisfactory, with relatively minor shortfalls, attempts to reduce subsidies have had only limited success. Transfers to the power sector were lower than expected, mostly as a result of a slow down in the pace of reform in the sector. Salary (of regular staff) and pension payments were contained at 5.8% of GSDP in 1999-00, at the same level as the previous year and in line with the program target. However, the ratio rose to an estimated 6.1% in 2000-01, a slippage of 0.3 percentage point compared to the program target. This was the combined result of two factors: (i) the impact of the separation of the state of Uttaranchal, including transitional costs and (ii) the impact of accepting the demand of school teachers for enhancement in their pay package. The first factor was beyond the state's control; even though a separate state was created in November 2000, the bulk of the salary bill continued to be borne by the mother entity for almost the whole fiscal year due to delays in transferring staff to the new state. The second factor was a slippage on the part of the GoUP, resulting from yielding to political pressures during a year when the state was perceived to be relatively cash rich due to unexpectedly large transfers from Gol, resulting from the award of the Eleventh Finance Commission. Although some implicit subsidies have been reduced through higher user charge hikes, the attempt to cap - 8 - explicit budgetary subsidies to higher and secondary education (i.e. grants to govemment aided private institutions) at their 1998-99 level has not been successful. One of the main reasons why the Finance Department could not succeed in imposing a hard budget constraint on govemment aided privately managed educational institutions is that such institutions are highly constrained in the fees that they can charge. However, available information is insufficient to demonstrate that such caps would have been desirable. Whether to contain this subsidy and what level to do so requires a better understanding of the education market, of potential fiscal and social impacts of deregulation of the fee structure and of institutional issues in the sector. In spite of the financing shortfall in 1999-00, the GoUP managed to protect a large part of the expenditures on high priority social services (97% of target) and physical infrastructure (89%). [High priority social sector spending refers to elementary education, health excluding medical education subsidy, anti-poverty programs, devolution to rural local bodies and separation payments to workers in public enterprises that have been closed. High priority infrastructure spending refers to capital outlays and non-wage O&M in roads and irrigation.] This is an improvement in the funding of such programs relative to the past, when the impact of a resource shortage fell disproportionately on many of these developmental components of the budget. The main shortfall, as mentioned above, was on support to the power sector. A Special Audit of High Priority Development Expenditures agreed upon as part of the UPFRPSR operation was carried out by the Comptroller and Auditor General of India (C&AG) and delivered to the Bank on June 20, 2001. The UPFRPSR Credit/Loan may have placed too strong an emphasis on the definition and requirement of a special audit of High Priority Development Expenditures within the budget. This was due partly to the fact that concems about UP's poor governance led to strong safeguards against financial and fiduciary misuse. [According to the minutes of the Operations Committee review for this operation (held shortly after fiduciary problems emerged on Bank operations in Russia), the Bank team was advised to strengthen fiduciary safeguards in the UPFRPSR Credit/Loan.] However, these financial safeguards must be balanced against the need to strengthen the state's own budgetary procedures. While the effort to protect and enhance HPDE enabled the GoUP to begin improving its expenditure composition from the first year of the program, the level of detail adopted in specifying these expenditures and auditing them contradicts efforts to develop an effective government budget system. It has tended to create a "budget within a budget". Concems about transparency and audit/certification of specific subsets of expenditure could be better addressed through improving the government's general financial reporting and audit, rather than through a special audit conducted at the Bank's request. This issue arises also in Heavily Indebted Poor Countries, which often also have poor budget processes. [International Monetary Fund and International Development Association, Tracking of Poverth'-Reducing Public Spending in Heavily Indebted Poor Countries (HIPCs), March 27, 2001.] In India, there is also the further complication that a "special audit" carries the connotation of going after some specific misappropriation or corruption scandal. Since 1999 the Department of Finance has continued to encourage fiscal responsibility and discipline in the state govemment. The Finance Minister has personally attended a series of public consultations held in major towns all over UP, to discuss ways to cut wasteful public spending and improve revenue performance. In the recent Budget for 2001-02, presented to the UP Legislature on March 23, 2001, the Finance Minister has announced the establishment of a Resource and Expenditure Commission to lead a comprehensive review and rationalization of spending programs and to strengthen resource mobilization efforts. Governance Reforms. Govemance reforms explicitly supported under the operation were satisfactorily implemented. While governance reforms, by their very nature, take considerably longer than a year or two to bear fruit, there are nevertheless a number of achievements that are creditable, especially given the initial conditions of UP. The target of abolishing 10,000 vacant positions was met in 1999-00; subsequently, the GoUP went beyond this target and a further 5,000 were abolished during the first half of 2000-01. The first phase of GoUP's public enterprise reform and privatization policy has been implemented; 20 public enterprise units have been closed since the program was initiated; about 11,000 employees have left with VRS packages. Transparency of information and accessibility to official forms have improved significantly, with 16 major departments, 31 agencies and 17 educational institutions/universities hosting interactive websites where official forms can be downloaded and complaints may be communicated online. -9- However, progress in program implementation (beyond the reforms supported under the UPFRPSR loan/credit) has been slower than expected, partly as a result of weak implementation capacity and the ambitious scope and pace of the governance agenda. No governance reform measures were reversed after approval of the operation, and the GoUP has continued to implement reforms in 2000-01, partly with support from the Bank's Technical Assistance operation to India. Certain aspects of govemance reforms, such as Civil Service Reform, have only been initiated, and will need to be furthered if they are to bear fruit. There have been visible gains in (i) public access to information and official forms through the Intemet and (ii) activation and strengthening of accountability and anti-corruption institutions. Progress in dealing with the problem of transfers has been limited. Although a consultative mechanism was established and the annual Transfer Policy was placed on the web, as part of the program, premature transfers remained high during 1999-00 and early 2000-01. The situation improved after September 2000. However, in the absence of effective systemic safeguards, the danger remains that transfers may once again become problematic with a change in political leadership. By the very nature of the problem, it is difficult to say whether corruption has declined or not. However, the GoUP has started stepping up publicly its fight against corruption. The number of corruption related cases in which prosecution was approved increased to 375 during April-December 2000, compared to around 100 in the same period of the previous year. There were 44 "trap" cases during the year 2000, involving 49 officials who were caught red handed, for the first time in many years. The budget allocations for the Vigilance Establishment and the Lok Ayukta (Ombudsman) has begun to increase. The role and functions of Lok Ayukta are being given wide publicity. The GoUP has formally tabled pending reports of the Lok Ayukta in the State Assembly. Heads of departments have been designated as Chief Vigilance Officers in an attempt to strengthen accountability for corruption free services. Attrition-based downsizing has resulted in a reported 2.5% reduction in the size of the civil service in UP. However, the database on actual civil servants remains weak, so the reliability of quantitative measurements and targets is limited; it is expected to become more reliable once payroll computerization and a civil service census (expected within the coming year) are completed. Shortcomings in achieving targeted milestones under the governance components of the multi-year program include: (i) delayed progress in conducting a reliable Civil Service Census and inter-departmental functional review to achieve major rationalization in the number, size and structure of departments; and (ii) delay in publicizing an Anti-Corruption Strategy that uses the results of the 3 surveys conducted in 1999-00 on public perceptions about corruption and service quality. UP is the first Indian state to formally adopt a strategy for strengthening financial management and accountability. It is ahead of most Indian states in treasury modernization, which lays the foundation for modernization of the state's accounting and financial reporting. The treasury payment system has been computerized; and most of the expenditure data is available in the system. The computerized payroll statements, payment of salaries into employees' bank accounts directly by the Treasuries, and handling of all payroll-related functions by the Treasury is expected to roll-out by June/July 2001. Progress on the public financial accountability and management improvement program has been highly satisfactory in certain aspects, such as (i) adoption of strategy, (ii) modemization of the treasury payments system and improved financial information for management, (iii) strengthening legislative oversight (the Public Accounts Committee, which became dysfunctional during 1990-97, has been reactivated) and (iv) intemal audit. Progress has been slower than expected in the case of (a) building implementation capacity in the Controller's Office (with a full-time Controller and qualified finance/accounts professionals), (b) improving response to external audit and (c) preparing of departmental annual reports. Poverty & Social Impact Monitoring. As envisaged under the UPFRPSR operation, an independent monitoring unit has been set up, originally under the Chief Secretary's office. Progress to date in further implementing the UP PSMS has been good in some respects and slower than expected in others. There has been progress in (i) strengthening of capacity of the Directorate of Economics and Statistics and (ii) implementing a - 10 - household survey, initiated by DES in 1999-00 and completed in 2000-01 - attached to the state-sample NSS 55th round - being used to develop a baseline of key poverty and social indicators. Analysis of these data are currently underway and a joint GoUPI World Bank report presenting and disseminating key findings is expected to be produced shortly. In other areas, however, progress has been slower than anticipated. Training, acquisition of equipment, and hiring of specialized technical assistance has progressed more slowly than expected. The independent monitoring capacity also has been transferred from the Chief Secretary's office to the Department of Planning, which, while useful in terms of better linkages with the Directorate of Economics and Statistics (which is under Planning), nonetheless makes coordination across government departments more difficult. Slower-than-envisaged implementation has been due mostly to weak implementation capacity (also affected by frequent transfers of key government officials) and difficulties in coordinating across different departments of government. In the future, given that the baseline (1999-00) has been established, emphasis will need to be put on setting up additional periodic surveys and district-level monitoring efforts to track changes in baseline indicators. The UP poverty and social monitoring system was designed with a great deal of flexibility. The presumption was that key decisions (e.g. on launching periodic monitoring surveys) would be finalized once the previous step neared completion (e.g. completing and discussing a baseline survey). Given the magnitude of the exercise involved in establishing the baseline, relatively less emphasis was placed on defining explicitly the periodicity and subsequent data collection and dissemination activities. In retrospect, the specifics of the monitoring system, in particular the periodicity, timetable, and institutional arrangements for the key data collection and dissemination activities that form the structure of the system should have been agreed upon at the outset. 4.3 Net Present Value/Economic rate of return: Not applicable 4.4 Financial rate of return: Not applicable 4.5 Institutional development impact: Not applicable 5. Major Factors Affecting Implementation and Outcome S.] Factors outside the control of government or implementing agency: Not applicable 5.2 Factors generally subject to government control: Not applicable 5.3 Factors generally subject to implementing agency control: Ownership of the program by the political executive helped implementation of the reforms supported by the operation . As evidence of political ownership of the reform program, the 5 key policy papers that underpin the program were all approved by the Cabinet and tabled in the State Legislature in March 2000. Substantive fiscal correction in the first year of the reform program, i.e., in 1999-00, as reflected in the official "revised estimates" published in March 2000, provided additional evidence of govemment commitment to the reform program. Beyond the specific reforms supported by the operation, however, the pace of implementation has been negatively affected by changes in key personnel. For instance, a change at the top of the bureaucracy (necessitated by a promotion and transfer to the Gol of the former Chief Secretary and Principal Secretary of Finance), about half way in the second year of the program, had a significant negative impact on the pace of implementation of governance reforms. In particular, the Governance Reform Task Force, that used to oversee the progress of all the different components of the governance program, became temporarily inactive during the transition period, resulting in a certain loss of - 11 - momentum. This risk was anticipated in the design of the operation. A second factor which affects overall program implementation is the nature and pace of progress with power sector reforms. While the reforms envisaged as part of UP's fiscal and governance reform program have succeeded in reducing the state govermment's budget deficit, slow progress with power sector reforms during 2000-01, which translates into higher quasi-fiscal pressures, has compromised some of the gains made in the strictly fiscal area. Power sector reforrn in UP will be a long-haul endeavor, and as experience worldwide -- in developing and developed countries alike -- demonstrates, the road ahead poses an enormous challenge, given the very poor state of the sector, its size, the very strong trade-union movement, the low level of income of a majority of electricity consumers, and the political economy of the sector in UP. Finally, the separation of the hill districts into a separate state of Uttaranchal, with effect from November 2000, has necessitated the formulation of a revised Fiscal Framework for the reform program by the new state of Uttar Pradesh minus Uttaranchal. Linkages with other operations The Uttar Pradesh Fiscal Reform and Public Sector Restructuring credit/loan was a fundamental vehicle, but not the only one, for World Bank support to UP (Table 3). A UP Power Sector Reform Project is assisting the state to restructure the power sector. Recent assistance to UP includes five projects for US$700 million, one Economic Report, and a forthcoming Poverty Assessment, which will highlight outstanding analytical issues and guide the Bank in subsequent phases of our program of support. Investment projects under implementation include the sectors of elementary education, primary and secondary health care, agriculture, forestry and rural drinking water. Substantial financing for technical assistance is also being provided through the all-India Technical Assistance for Economic Reforms Project, which is supporting governance and fiscal reforms in UP. Lending volumes in future years will depend on the pace at which GoUP implements reforms as well as the successful implementation of the projects being proposed. Some important synergies have been achieved as a result of the Bank's comprehensive strategy of assistance to UP through a diverse set of instruments. For instance, the publication of an overarching Policy Paper on Civil Service Reforms has created an enabling environment to support the reform and re-engineering of business processes in the Irrigation Department, as part of a program of reforms in the Water Sector. - 12 - Table 3: Related Bank Loans Lo tei Purposs Yeard Sta AWoval UP Rural Water Deliver sustainable health and hygiene benefits to the rural population and 1996 Ongoing promote long-term sustainability of the rural water supply and sanitation sector. UP Forrsry Development of the forestry sector. 1997 Ongoing UP DASP (Credit Increase agricultural producivity, to promote private sector development, 1998 Ongoing UP DASP (Loan) and to improve rural infrastructure. 1998 Ongoing UP Sodic Lands II Increase agricultural productivity in ten disticts of Uttar Pradesh. 1998 Ongoing UP Health Systems Development Establish an appropriately managed Health Care System. 2000 Ongoing UP Power Sector Restructung To support the initiation of the power sector reform process. 2000 Ongoing mumP" _*b Catarad Blindness Contro Project Improve the Natonal Program for the Control of Blindness' (NPCB's) quality 1994 Ongoing of service and expand its treatment capacity. Coal Environ. & Social itgationMak e coal production more environmentally and socialy sustainable. 1996 Ongoing DPEP II Extend the District Primary Educaton Program (DPEP) into about 50 to 60 1996 Ongoing new districts chosen from UP and the seven states already participatng in the First Distict Pimary Educaton Project (DPEP I). TA for States Roads Reform provision, financing and maintenance of road infrastrucure. 1996 Ongoing Tuberculosis Control Revise strategy for Tuberculosis control with the goal d reducing mortaity, 1997 Ongoing morbidity, and disability Rural Women's Development Strengthen processes that promote economic development of women and 1997 Ongding create an environment for social change. Women & Child Development Improve the nutriton and health of pre-school-aged children and women, by 1998 Ongoing increasing the quality, impact and costeffectveness of the Integrated Child Development Services (ICDS) program Watrshed Management Hils II Improve productve potential. five states, using evolving watershed 1999 Ongoing treatment technologies and community partidpatory approaches. 5.4 Costs andfinancing: Not applicable 6. Sustainability 6.1 Rationalefor sustainability rating: In spite of leadership changes (there have been two changes of Chief Ministers in UP since 1999), there are encouraging signs that several of the reforms supported by the Uttar Pradesh Fiscal Reformn and Public Sector Restructuring creditfloan will be sustained and in some areas furthered. GoUP has displayed a strong and continued commitment to strengthen fiscal discipline and reduce the budget deficit. The Budget for 2001-02, presented on March 22, 2001, suggests continued commitment to improve economic performance and fiscal health of the state -- through concerted revenue enhancement efforts, institutional reforns and targeted investments in major sectors, and improved expenditure management. - 13- However, medium-term sustainability of reforns is uncertain. Slow progress in power sector reforms, if continued, could further increase actual and contingent liabilities on UP's budget. It could reverse the gains achieved so far in fiscal consolidation. Progress in governance reforms in late 2000 and early 2001 has also been slower than expected. Sustainability of the reform process depends on greater political consensus and public support for the program. The first major challenge to the sustainability of reforms in UP lies in achieving adequate progress in structural reforms in key sectors that have a major impact on governance and fiscal performance, such as power sector reforms. A second challenge is to communicate effectively to the public and muster support from those who stand to gain from the success of reforms in UP. Such consensus and support are uncertain at the present time. It should be noted, however, that this first operation provides a higher level of readiness to take up further reforms. This is an achievement in itself, whose benefits will persist over a number of years in UP, with demonstration effects for other states. 6.2 Transition arrangement to regular operations: Not applicable 7. Bank and Borrower Performance Bank 7.1 Lending: Identification: Highly Satisfactory. The project concept is consistent with the Bank's Country Assistance Strategy in India, viz.: to focus part of the Bank's resources on states that demonstrate willingness to implement the reforms needed to improve economic performance and reduce poverty. It identified the window of opportunity provided by reform minded administrations both at the national and state levels and encouraged a high degree of leadership and participation by state officials and stakeholders in development of the reform package. The Bank also correctly identified the need for fiscal and governance reforms, along with power sector reform, as the twin backbones of its strategy of assistance to Uttar Pradesh. The choice of instrument, namely a one-tranche adjustment operation with measures implemented upfront -within the context of the broader state assistance strategy - was appropriate given the absence of a track record in UP and the uncertainties of the political situation. This approach allowed the Bank to adjust the level and nature of support to the pace of reform in UP. Recent research by the Bank's Development Research Group (DECRG) in collaboration with the Confederation of Indian Industry suggests that the costs of doing business in UP are considerably higher than in other states in India. These costs are likely to be relatively higher for small and medium-scale enterprises (SMEs), thus hampering their job creation potential and growth in the state. While the reform program needed to be selective in choosing high priority areas for action, it was relatively weaker on this front and could have included specific measures to improve the business environment and lower transactions costs for SMEs, for instance in connection with the deregulation agenda. Preparation and Appraisal: Satisfactory. The Bank's performance was satisfactory with respect to operationalizing the technical aspects of the program and identifying a Matrix of Benchmarks/Policy Actions that underpins the multi-year fiscal and governance reform program. The Bank team displayed flexibility in arriving at a package of measures that was fully owned by the state government, while providing it with relevant cross-country expertise. However, the matrix of benchmarks and policy actions included an excessive number of measures, in particular processing steps. Such a large number of measures or benchmarks, some of which of lesser importance, led to the efforts of the reformers in the state as well as of Bank staff to get spread too thinly. A more strategic design, with a greater focus on a smaller set of higher-payoff reform actions could allow for a more concentrated, deeper dialogue on strategic reform areas. This is particularly important in the case of UP, where administrative capacity is weak. Setting priorities (and sequencing) is difficult, especially when a rapid and visible turnaround is desired, as was the case in UP. Still, realism about the govemment's implementation capacity -- both technical and - 14 - political -- requires that priorities be set. The measures that have had the most impact in bringing about the desired outcomes include: (i) nominal rupee ceilings on the non-power fiscal deficit and on salary and pension payments in the first year; (ii) protection of high-priority developmental expenditures; (iii) rationalization of sales tax rates and tax holidays, (iv) amendment of the Motor Vehicles Tax Act to enable annual rate revisions, (v) adoption and publication of Policy Paper on Civil Service Reform, (vi) establishment of a Divestment Commission and an institutional framework for implementing the program of public enterprise reform and privatization and (viii) adoption and publication of a Strategy Paper on strengthening Financial Management and Accountability. 7.2 Supervision: Not applicable 7.3 Overall Bankperformance: Satisfactory based on the ratings for lending and outcomes. Borrower 7.4 Preparation: Highly Satisfactory. Identifying the key constraints to growth and poverty reduction in UP, designing the multi-year reform program, and implementing the first set of reforrns of this program required intense engagement from the Government of UP, and support from the Government of India. Preparatory work involved extensive collaboration from state government officials and academics in UP, starting with the 1998 GoUP White Paper and the 1998 Economic Report produced in November 1998. Collaboration with the central government has developed more recently, especially in the context of the UP Development Report being prepared by the Planning Commission in New Delhi. Stronger support and leadership through example from the central government would be needed to achieve significant progress in some areas, such as Civil Service Reform, where the states are served by all-India cadres of senior bureaucrats. 7.5 Government implementation performance: Not applicable 7.6 Implementing Agency: Satisfactory. All the key reform actions supported by the UPFRPSR CreditlLoan were implemented prior to Board approval. While there have been delays in follow-up actions with respect to some of the actions, there has been no reversal of policy. 7.7 Overall Borrower performance. Satisfactory based on the ratings for project preparation, implementation and outcomes. 8. Lessons Learned * Programmatic adjustment lending to selected states of India can be an effective instrument for supportingfiscal reforms at the state level. Reforms will take several years to be effective and support needs to be flexible enough to withstand the uncertainties of the political environment, but consistent enough to build broad ownership for reforms. Support to the reform program can thus be modulated to the nature and pace of reform implementation. The successful implementation of the UPFRPSR Credit/Loan underscores the importance of setting the single tranche operation within a medium-term fiscal and reforn framework. * When policy formulation and reform implementation capacity is weak, as in the case of UP, a more strategic design can lead to a more focused but deeper dialogue. The UPFRPSR Credit/Loan involved a very large number of measures and in particular processing steps. This may have been partly a result of the perception that Uttar Pradesh had serious problems of economic management and to push as many elements of reform as possible through the window of opportunity offered by the government's open - 15 - recognition of governance and fiscal crisis. However, as a result, dialogue in all reform fronts could not be deepened and pursued equally and implementation of further institutional reforms, in particular in the governance and poverty monitoring areas, slowed. Setting priorities (and sequencing) is difficult, especially when a rapid and visible turnaround is desired. Still, realism about the government's implementation capacity - both technical and political -- requires that priorities be set and that comprehensiveness in the policy dialogue be accompanied with selectivity in actions supported by the operation. * Detailed listing and auditing of a subset of line items within the expenditure budget, identified as High Priority Development Expenditures, tends to create a 'budget within a budget'. A better approach would encourage reprioritization within the budget, in the context of an improved budget process, whilst avoiding micro-management. While the effort to protect and enhance HPDE enabled GoUP to begin improving its expenditure composition, the level of detail adopted in specifying these expenditures and auditing them contradicts efforts to develop an effective government budget system. Since expenditure is fungible, reprioritizing within the budget requires that the entire expenditure profile be analyzed and accounted for. Concerns about transparency and audit/certification of specific subsets of expenditure could be better addressed through improving the government's general financial reporting and audit, rather than through a special audit conducted at the Bank's request. = In establishing an effective poverty and social monitoring system, emphasis should be placed from the outset on: (i) institutionalizing a system ofperiodic collection and analysis of data; and (ii) fostering demandfor the use of such data, both within and outside the government In UP, the poverty and social monitoring system was designed with a great deal of flexibility and much of the effort in the initial 18 months was focused on creating capacity and collecting, entering, and analyzing the first round of household data. The presumption was that decisions regarding the use of the data and the periodicity of monitoring would be taken once the baseline survey was completed. As a result, however, ownership and interest in sustaining this system remains narrow, and circumscribed to a relatively narrow circle, centered around the Planning Department (responsible for generating these data). 9. Partner Comments (a) Borrower/implementing agency: -16 - .-IN :..; xWA,c1 .ir I rwvw Qrs," I I W"n Aw~~~~~I #ri ^ rt ' Ql-lr IiA *~~~~~~~~~AO *MY 3f11witi¢tt ~~0~~~o* 1> f tiaw FMu )O1 I=2 EATW ~~p1JI sit. I 4gatod to .r s .b v.m . E~m Miuiry o ' t f 1d -$ I , lthoe via", of the Ooew fbdatm ki t emts ' hy?Qwinr. A X ,'; A** NUu- LtmO) The Uttar Pradesh Fiscal Reforms and Public Sector Restructurins! (UPFRPSR) Loan/Credit - 17 - Implementation Completion Report - Borrower's Perspective - Government of India 1.0 The Government of India's perspective on the UPFRPSR will be dealt with in two parts. The first would refer to GOI's views on the general World Bank structure of such loans/credit. The second will specifically refer to the UPFRPSR. 2.0 Assistance for Loan/Credit for Fiscal Reforms should not be a one off assistance. There should be some commitment upfront to assistance over the medium term of course subject to the state achieving key milestones set a priori. This would enable both the States and the Bank to negotiate progress of actions in a more realistic time frame. 3.0 Normally, the Bank and the States agree upon a significant number of milestones in different areas such as fiscal improvement through better tax compliance, expenditure prioritization, civil service reforms like a transfer policy, etc. Yet out of the twenty or thrift milestones, there is an urgent need to cull out one or at most two key milestones in each sector, which are key-critical. For any subsequent tranched releases from the Bank, the attainment of these milestones should be non-negotiable once the loan/credit is approved. Regardless of whether the State concerned achieves all other milestones, subsequent disbursements must be a function of these 4 or 5 critical milestones, alone. 4.0 The critical milestones mentioned above must directly impact upon the Fiscal betterment of States on a sustainable basis. Mere policy papers however necessary cannot and should not constitute a necessary and sufficient condition for loan/credit disbursement. 5.0 In the current context of States it is vitally necessary to integrate the Power Sector Reforms within the general rubric of Fiscal Reforms. Also off budget borrowing of States should be integrated in their debt profile. Power Sector loans/credit cannot be a stand-alone credit, divorced from the general fiscal correction of the States and their need for budgetary support. The cases of Andhra Pradesh Power Reforms Loan/credit, the Orissa Power Sector Reforms Loan/credit, are examples in point. 6.0 The UPFRPSR does suffer from most of the general infirmities mentioned above. Though the State has performed credibly in fiscal consolidation alone, a contrary picture emerges once the Power Sector deficit is factored in. The bottom line is that the consolidated fiscal stance of the State has worsened since the program loan. Secondly, many of the policy papers, such as those on Civil Service Reforms have been long on promises and short on performance. A holistic view needs to be taken as to what and how much the State of Uttar Pradesh has gained out of the credit/loan. [The original is on file] - 18 - pl:rK w 01 :SWU WePM Bkwl ' +. EF-U1 P. 2 , # ~~~~No5 4t /72EAPI0 . S.MNShulda IAS ~riatpai secretar Ggot uttuft'aPh" Ded; t- ¢-4°cJ Please reftr to your letter dated May 7, 2001 in which you deired a formal copy of evluation of the U.P. Fcl Refirm & Prli Sect Rstrctuing Project. In this conneion Secretary, Extally Aided Project Depatment has already sent to you the evaluation report trougb an e-mail on April 30, 2001 Hereby sined a op of the same is being sent to you for your kind iformation and necessary action. Speia audit report of igh Pioty Dentopown Exenditre E) from C&AG will be seot sortly to you Eci. As above 6l WWI, Sinmery yom M. YV.Rvisha Senior Economist. The World Bank 70, Lodi Estat, Neow Delhi Cc tw- M. Adarsh Kishore, Additional Serty, DepttmanC t of Ecowmic Affairs, Ministy of Finsnce. Govt. of India, North block, New Delhi with all above eneules. - 19- EVALUATION OF GOVERNMENT OF UTTAR PRADESH ON UP FISCAL REFORMS AND PUBLIC SECTOR RESTRUCTURING LOAN I. The Government of Uttar Pradesh has formulated a comprehensive medium term strategy to stabilize the financial position of the state and reverse the trend of declining econornic performance and persistence of poverty. The comprehensive strategy includes govemance and civil service refonns, fiscal policy reform, public enterprise reform, financial management reform, power sector restructuring, as well as reforms in other key infrastructure sectors, such as Roads and Irrigation and social sectors such as education and health. The aim of the comprehensive reform strategy is to achieve fiscal sustainability and create an enabling environment for improved economic performance and more rapid poverty reduction, so that over the medium term, Uttar Pradesh can reach the top half among Indian states in terms of physical, social, and human indicators. 2. Recognizing the needs for sustainability of recent improvements, the State Government has decided to launch a medium-term fiscal reform strategy to achieve the following objectives: (a) to ensure a decline in debt: GSDP and debt repayment : revenue ratios, so that these ratios are on a declining trend by 2004-05, (b) to improve the composition of public expenditure giving greater thrust to development expenditure and (c) to reform taxation with a view to improving the efficiency of resource allocation. In order to stabilize the level of its debt and debt service ratios over the medium-term, the Government of U.P recognized the need to eliminate the primary deficit (the gap between revenue and non-interest expenditure) and turn it into a surplus by 2003-04. The gross adjustment have so far been greater, because the state had to meet the upfront cost of reforms (including the cost of restructuring power and other PEs) and increase its spending on infrastructure and human resources, while at the same time reducing the deficit. Fiscal Reforms Fiscal correction Long-Term Objectives: offiscal correction is to achieve fiscal sustainability over the medium-term through growth oriented revenue and expenditure measures. The following achievement has been made: * Cabinet Approval obtained and Policy Paper on Fiscal Reforms tabled in the State Legislative Assembly in March,2000 + Contingency Plan to manage potential revenue and financing shortfalls finalised in January 2000 for 1999-2000. Contingency Plan for 2000-01 has also been finalesed in January 2001 * Ceiling on Debt and Guarantees. in the fiscal deficit target for 1999-00 has been overfulfilled. + Fiscal Deficit - in Rupees and as % GSDP- The gross fiscal deficit reduced from Rs. 116.31 bn (6.8% of GSDP) in 1998-99 to Rs 110.97 bn (5.9% of GSDP). The adjusted fiscal deficit reduced from Rs. 109.60 bn (6.4% GSDP) to Rs. 108.73 bn (5.8% GSDP). The - 20 - non-power deficit in 1998-99 was Rs. 98.43 bn (5.7%GSDP) and in 1999-00 Rs. 97.85 bn (5.2% GSDP). * Revenue Deficit - in Rs. and as % GSDP- Revenue deficit came down to Rs.72.52 bn (3.9% GSDP) to Rs.86 .97 bn (5.1% GSDP). * Interest and Total Debt Servicing - as % Total State Revenue - Interest /Revenue is 31.4% compared to the fiscal framework target of 30.8%. Debt servicing /Revenue ratio is 40.1% against the targeted benchmark of 39.5%) Interest as % Revenue Expenditure - The interest payments constituted 22.8% of the total revenue expenditure during 1999-00 as against the target of 22.08%. * Fiscal Deficit - in Rupees and as % GSDP- The gross fiscal deficit reduced from Rs. 116.31 bn(6.8% of GSDP) in 1998-99 to Rs 110.97 bn (5.9% of GSDP). The adjusted fiscal deficit reduced from Rs. 109.60 bn (6.4% GSDP) to Rs. 108.73 bn (5.8% GSDP). The non-power deficit in 1998-99 was Rs. 98.43 bn (5.7%GSDP) and in 1999-00 Rs. 97.85 bn (5.2% GSDP). * Revenue Deficit - in Rs. and as % GSDP- Revenue deficit came down to Rs.72.52 bn (3.9% GSDP) to Rs.86 .97 bn (5.1% GSDP). * Interest and Total Debt Servicing - as % Total State Revenue - Interest /Revenue is 31.4% compared to the fiscal framework target of 30.8%. Debt servicing /Revenue ratio is 40.1% against the targeted benchmark of 39.5%) Interest as % Revenue Expenditure - The interest payments constituted 22.8% of the total revenue expenditure during 1999-00 as against the target of 22.08%. Expenditure Measures Long-Term Objectives is to improve expenditure management, efficiency ofpublic resource allocation and the composition of public spending so as to enhance its developmental impact. The following achievement has been made:. * High Priority Developmental Expenditure was enhanced from Rs 100 bn in 99-00, wherein social sector was protected up to 97% and physical infrastructure up to 89%, to Rs 124 bn in 2000-01. * Strategy for Medium-Term Expenditure framework (MTEF) has been adopted * Computerization of treasury transactions in 2000-01 is completed * Pension & Provident Fund Reforms initiated in 2001-02. * Full computerization of budgeting, accounting and expenditure management by * 2002-03 Revenue Measures Long-Term Objectives is to enhance the state 's own revenue base, create a fair, simple and high compliance tax system and improve cost recovery from publicly provided private and semi-private goods and services. The following achievement has been made: - 21 - * Reduction in the number of Trade Tax rates from 17 to 12 implemented. * Measures to strengthen anti-evasion efforts taken. * Survey for identification of potential taxpayers who are outside the tax net conducted. * Introduction of New Entry Tax extended on tobacco and non-levy sugar. * Phasing out of Tax Holidays. * Reorganization, modernization and computerization of Trade Tax Administration . * Increase in user charges for higher education and hospital care- Total revenue from user charges increased from Rs. 717 crores in 1998-99 to Rs. 1033 crores in 1999-00. Revenue from user charges in education increased from Rs. 101 crores to Rs. 138 over the same period. + Value of "recorded" goods imported by road and recorded on form 31 compared to previous period, rose from Rs. 4545 crores in September 1999 to Rs. 4767 in September 2000, or by 4.9%. Cumulative total value up to September 2000 was Rs. 26685 crores compared to Rs. 25120 crores up to September 1999, an increase of 6.2%. * Total monthly collections from Trade Tax, with and without petroleum products (Trade tax collection, including Entry Tax was Rs. 345 crores excluding petrol/diesel, and Rs. 453 including petrol/diesel, or increases of about 28% over the previous year. Total cumulative trade tax collected up to September 2000 was Rs. Rs. 1905 crores, excluding petrol/diesel (increase of 20% over previous year) and Rs. 2703 crores including petrol/diesel (increase of 22% over previous year). * Number of taxable dealers who file declarations - Number of 'registered' dealers increased by 3% from 190,398 in 1999-00 to 196024 in 2000-01. Net Recoverable Arrears - in Rupees and as ratio of total taxes due (Net recoverable arrears (provincial) were Rs. 1000 crores in August 2000. * Annual number of cases under appeal and value under dispute - In 1999-00, there were 115,780 appeals (60,586 past and 55,194 new appeals). There were 64,133 disputed appeals amounting to Rs. 3324 crores. The number of pending appeals were 51,647 and amounted to Rs. 960 crores. * Proportion of staff in Trade Tax Department assigned to enforcement (In 1999-00, of a total of 1206 officers and 1419 employee in the Trade Tax Departments, 42% and 22% respectively were involved in enforcement work. * Number of staff in Trade Tax Department using computers in daily work (During July-September 2000-01, 17.0% of officers and 0.09% of employees were using computers compared to 0.5% and 3.03% over the previous quarter (April-June 20001-01). * Improved voluntary tax compliance * Reduced transactions costs for private business operating in UP * Increase in the State's Own Tax Revenue - from 5.4% GSDP in 1998-99 to 7.6% by 2003-04; * Increase in the rate of cost recovery from canal irrigation - from less than 20% currently to 50% by 2003-04 The ground, as per the aforementioned indicators has been covered under difficult circumstances such as bifurcation of the State and elections to rural/urban local bodies. Even though the power sector reforms will eventually reduce the burden on the budget of the state, the present requirement of power sector reforms constitutes a substantial portion of the fiscal deficit. There is an urgent need to ensure adequate assistance to the state Government by the Government of India and the World bank, to enable the GoUP to support the power sector restructuring. Too little or too late assistance will jeopardize the success of the reform program. The GoUP has decided to constitute a Resource and Expenditure Commission which will not only look into - 22 - the issues related to the whole gamut of resource raising but also expenditure reprioritization and expenditure management. The Finance minister UP has announced this while presenting the budget for the year 2001-02 The Commission will review schemes and programs and will recommend phasing out of those schemes which have outlived their utility. In this context, the Commission will also advise the government on developing and implementing a Medium term Expenditure framework. We are well on our way to a fairer and simpler tax system. Our efforts at computerization are aimed at introduction of VAT by 2004. Governance Reform In the area of civil service reform, the Government faces three critical challenges. It must enhance productivity of the civil service and ensure that every employee is performing socially relevant tasks. At the same time, affordability must be adhered to. Thirdly, it must enforce procedures for rewarding merit, disciplining malfeasance and misconduct and strengthen accountability and performance quality. The fiscal consequence of implementing the 5th pay commission's recommendation was only partially neutralized by rightsizing by 1% in 99-00 and by another 1.6% in 2000-01. The abolition of approximately 15000 vacant positions has impacted positively on the fiscal position. We will be in a better position to assess the exact number once the treasury operations are fully computerized. The introduction of a new work culture both at the managerial and the cutting edge level is proposed through a full fledged functional review with the objective to rationalize and restructure departments. The recommendations of the Deregulation conmmittee and similar such Committees have been reviewed by the Core Group constituted in the Administrative Reforms Department. A Technical working Group will supervise the Consultant appointed for collating and finalizing a set of recommendations from all the aforementioned committees. We have received a measure of success in creating apex positions in the Social sector and the Urban development sectors. Similar structures exists in the agriculture and Industrial development sectors. Training for all is the declared national policy and under this we have refurbished our training institutions. Information Technology and computer skills have been given a priority. Our transfer policy subserves the basic dictum of the best man in the right place. We will enhance meritocracy by ensuring stable tenures. Civil Service Reform Policy planning cells established in the 53 Major departments and intra-departmental reviews initiated. Approximately 38 functional reviews have been completed and submitted to relevant secretaries. The cells are meeting every three months. We have done the following: * Technical working group has been established. * Phased rationalization of departments to begin from October, 2001 and be completed by December, 2004. Number of departments rationalization will be carefully monitored to ensure implementation does not slip. + Rationalization of organizational structure, business process, staffing, and products and services for remaining departments, starting with PWD, Irrigation, Forestry, Health and Trade Tax to be completed by December, 2002. * Significant increase in the number of functions that are privatized and/or commercialized consistent - 23 - with best practice in Indian states and elsewhere. Ensure A Global Annual Reduction In Civil Service Size by at least 2% for Next Five Years. * TOR for a TA proposal for reviewing civil service terms and conditions as part of functional review and Human Resource Management have been finalized. * Approximately 15000 posts abolished to date in financial year 2000-01. * Exercise for identifying alternatives to the practice of compensatory/compassionate employment is under process. * Size of civil service downsized by 1% during financial year 1999-2000 and estimated 1.6% for financial year 2000-01. * Over 60 divisions abolished in PWD and Irrigation. Approximately 5000 staff awaiting transfer for surplus labor pool in Departnent of Admiinistrative Reforms for redeployment. * Major reduction in casual and work charged employees by financial year 2004. Improve Human Resource Management + Computerized human resource database being developed, so GoUP can immediately produce accurate and timely information on the size and composition of the civil service. * Annual Transfer Policy published in May, 2000. * Activity being taken up in Functional Review and Human Resource Management to study Annual Confidential Report (ACR) process to improve its effectiveness. * Government order to allocate 1% of annual departmental wage bill for training issued. ANTI CORRUPTION AND DEREGULATION STRATEGY The key objective of the Government is to reduce wastage of public resources and increase transparence and accountability. The series of surveys were extremely useful as it provided an insight in to perceptions of general public as well as governnent officials and businesses. This insight has been incorporated in our anti corruption strategy which has been adopted by the Government. It will be publicized soon.. Deregulation and internal reviews by Policy Planning cells are now a regular feature in the departments. Strengthening of key accountability institutions has commenced. The introduction of Information technology to make Government totally accessible to the citizen is a major thrust of the Government. Availability of vital information pertaining to departments and their function is facilitated through websites. Tender documents and forms are available on line. All government departments are accessible through a government portal and a grievance button is displayed prominently. Deregulation * Deregulation committee established in October, 1999. Committee began functioning in January, 2000. It has held 49 meetings with departmental secretaries and 68 internal meetings. * Approximately 58 departments completed its internal review and submitted the report to deregulation committee. * Deregulation committee submitted its first review and recommendations to Government in November, 2000. The initial report makes 615 recommendations concerning the work of 40 departments. * Based on recommendation of the Deregulation committee Government is formulating a time bound program to streamline and modernize the laws, rules and regulations. - 24 - Strengthening Key Accountability Institutions and Anti Corruption Bodies. + Surveys conducted to find out perception of general public, traders and civil servants towards corruption. * Vigilance establishment budget for the year 2000-01 increased by 12.9% over the expenditure 1999-00, to ensure to proper funding and staffing for key accountability institutions to compare favorably with per capita funding in other states. * The Lok Ayukta is empowered to recruit and appoint more junior staff (Class III and IV). Class I and II are appointed only with the concurrence of the Lok Ayukta to have greater independents in recruitment and transfer to staff in vigilance establishment and Lok Ayukta. * A proposal is being formulated that would allow 50% of the staff of the vigilance establishment to be recruited by the Directorate of Vigilance. PUBLIC ENTERPRISES REFORM We are governed by the dictum that the State should withdraw from manufacturing or servicing in areas where the private sector exists or is ready to move in. Towards this divestment and closure is one aspect and privatization is the other. The Divestment Commission has made its recommendation and we are now processing these in the Empowered Committee. Five enterprises have been closed. The Technical assistance available under this program was used fruitfully to write the divestment procedure manual as well as the guidelines for environment audit for closed units. PE Reformn poliy has been approved. Divestment Commission and Working Commrittee established. - The detailed procedure for sale and closure of PE's prepared. -. The transaction Manual on enviromnental matters being prepared. Three public enterprises (UPSMDC, UPIL and UP Pashudhan Udyog Nigam Ltd.) have been divested and closed. * The Technical Secretariat, PICUP has committed that the environmental audit of phase -I enterprises will be completed by 31 st March 2001. * The decision to refer remaining 14 enterprises to divestment commission will be taken shortly. * Divestment Commission has submitted recommendation of the following 10 PE's i. The Indian Turpentine & Rosin Co. Ltd. 2. UP Bhumi Sudhar Nigam. 3. UP (Purva) Ganga Beej evam Vikas Nigam 4. UP (Pashchim) Ganga Beej evam Vikas Nigam 5. UP (Ruhelkhand) Ganga Beej evam Vikas Nigam 6. UP (Madhya) Ganga Beej evam Vikas Nigam 7. UP Tarai Ganga Beej evam Vikas Nigam 8. UP State Leather Development Corporation. 9. UP Project and Tubewells Corporation 10. UP Poltry and Live Stock Corporation. FINANCIAL MANAGEMENT AND ACCOUNTABILITY The State govenmuent has modernized and computerized its financial management and control architecture. The Financial Controller is in place and is providing valuable inputs in developing strategy and policy direction to strengthen internal audit functions. The Conference on Parliamentary Control of the Public - 25 - Purse has helped build a national consensus on this important aspect of Financial accountability. The C&AG has completed special audits of the HPDE. * Strategy for Strengthening Financial Management and accountability is approved. * Controller of Accounts appointed. * Task Force has completed its work on recommendation on form content and presentation of financial statements for public disclosure. * Feasibility study for accrual according and financial statements and the accounting system required is under process. * Recruitment of consultant to study to modernization State Finance and Accounts cadre is underway. * Timely response to observation in the C&AG audit reports. * Special audit of HPDE is under way. POVERTY AND SOCIAL MONITORING We share the vision of the President of the World Bank the underlying objective of all reform is that it should reduce poverty. The benchmarking survey has been completed and we are awaiting the result of the statistical investigator. We have positioned key officers to develop skills in analyzing the infonnation to understand the impact of reforms on the poor and in making informed policy decisions. Technical Assistance for Economic Reform Proiect Given the magnitude and range of the fiscal, governance and sector reform being initiated and contemplated by the Government, there is a clear need for Technical Assistance to assist with both conceptualization and implementation of reform. Technical Assistance is an integral part of Reform Program of Govt. of UP. The departments have already submitted a number of T.A. proposals covers the following main areas: tax reform, expenditure management, audit and financial management, poverty monitoring, public enterprise reform, civil service reform, deregulation, urban reform and restructuring of the irrigation department. - 26 - D.O.No*N(27)vicw-UP1MCt I. Baner ir *u wTitf Join Secrcwy (PP. I) g t Tek 301411 w Far 3011022 WVOVNAAENT Of ND.A 4E ~~~~~~~~~~~~~~MIN.ST1Y OF F.NANC::S _FPARTIVNT Or EXPENDflfUL DW Jw. L'l This has reference to iP Fiscsl a Publi Sctor R Pstroaurin CroditLan -inal laimemeation Copi ion Repot Subswt to this Ministry's earlia e#U of 30h April, 201. ctsu but beenude to rae ft Power Sector defich in ftte Ste of UP. t wil alp_, in the li of dcussias wih World Bank Otlice tt thd Pwer Scto d*i wil. peaps be bwu thn om iniial umeMuaniWhile the eact dianeet of the PoWr Seto de&k iS yCt to eaxeW, te Consolided fP=W Deftic of the Ste appea to hao- swe $cave ;,ovmt. Howe,I a" qi*. t nwks above by eite thb the dot in respect of the Power Sctr rquis to be o1eS-, pecilsy in he mata of ThD oses and th operang losses ofdweUppowercorporstlo In view of the abow advisedy, th comobdumad flicstaucc of die Stw has bswn magiul iwovunt. To ts end ou earlie wisipoir of 30' Apail 20!. stand modiia. 'The othba gneavl rmoarks r.atg a tanwab sot oproe and o ome Indkatow stil emann "MineD. t4 Mr Edwin R. Lion, County Diretor - India. The Worki Bank. 70. Lo EBtafte (b) Cofinanciers: NA (c) Other partners (NGOs/private sector): NA 10. Additional Information - 27 - Annex 1. Key Performance Indicators/Log Frame Matrix - 28 - Annex 2. Project Costs and Financing Not applicable - 29 - Annex 3: Economic Costs and Benefits Not applicable - 30 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc.) I Implementation Development Month/Ycar Count Specialty Progress Objective Identification/Preparation April 1999 - 6 Economist S S Oct. 1999 2 Public Sector Specialist 2 Private Sector Dev. Specialist 3 Financial Mgmt. Specialist I Procurement Specialist 1 Legal 2 Reseach Analyst Appraisal/Negotiation Nov. 1999 - 5 Economist S S March 2000 1 Public Sector Specialist 2 Private Sector Dev. Specialist 3 Financial Mgmt. Specialist I Procurement Specialist I Legal I Research Analyst Supervision NA ICR January 2001 - 4 Economist February 2001 2 Public Sector Mgmt. Specialist I Research Analyst (b) Staff j Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 195.4 660.00 Appraisal/Negotiation (included (included above) above) Supervision NA NA ICR 19.8 58.00 Total 215.2 718.00 Includes labor, travel and other costs. - 31 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies O H *SUOM O N O NA ?Sector Policies O H OSUOM ON O NA ER Physical O H OSUOM O N * NA N Financial OH *SUOM ON ONA X Institutional Development 0 H O SU 0 M 0 N 0 NA Environmental O H OSUOM O N * NA Social F Poverty Reduction O H *SUOM O N O NA Z Gender O H OSUOM O N * NA M Other (Please specify) O H OSUOM O N * NA Not applicable • Private sector development 0 H O SU O M 0 N 0 NA ? Public sector managementH 0 O SU O M 0 N 0 NA M? Other (Please specify) O H OSUOM O N * NA Not applicable - 32 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating • Lending *HSOS Ou OHU • Supervision OHS OS Ou OHU Z Overall OHS OS O u O HU 6.2 Borrowerperformance Rating 1 Preparation OHS Os O U O HU Z Government implementation performance O HS 0 S 0 U 0 HU Z Implementation agency performance 0 HS 0 S 0 U 0 HU M Overall OHS OS O U O HU - 33 - Annex 7. List of Supporting Documents 1. Aide-Memoire of the ICR Mission - 34 - Additional Annex 8.Ov erview of Fiscal Reform and Public Sector Restructuring Program, 1999-2004 Overview of Fiscal Reform & Public Sector Restructuring Program In Uftar Pradesh, 1999-2004 Benchmarks/ Policy Actions Supported under the UPFRPSR creditiloan Objectives 1999-00 (April-March) Outcomes 1. FISCAL REFORMS Obtain Cabinet approval and table in the State's Legislative Achieve substantial reduction in fiscal Achia ve Fl'scsl Assembly Policy Paper on Medium-Term Fiscal Reforms; deficit and create sufficient fiscal space SAc WveF?Irc1 with objective of reducing overall deficit from 7.5% of GSDP for adequate levels of development to 4% by 2003-04; Reduce non-power fiscal deficit from outlays and a gradual decline in the debt- Rs.99 billion (6.7% of GSDP) in 1998-99 to Rs.98 billion to-GSDP and interest-to-revenue ratios. (6.0%) in 1999-00; Adhere to agreed debt and guarantee ceilings. Improve pae,di'tre Protect High Priority Development Expenditures from Improved budget compliance and fiscal hAw amgsw.iutand potential budget cuts; Contain Salary and Pension payments discipline ; Improved poverty targeting Composition of Public to within Rs.101 billion in 1999-00; Abolish leave and developmental impact of government SPendingto enhnNCe encashment facility; Ban new loans to public enterprises spending; Expenditure composition linked Development moact except in power and for VRS; Freeze higher and secondary to policy priorities. education grants at their 1998-99 level; Obtain Cabinet Increase in the rate of recovery of approval of user charge hikes in irrigation, professional recurring cost of canal irrigation - from education and hospital care so as to cut implicit subsidies; less than 20% currently to 50% by 2003- Computerize treasury transactions; Prepare a strategy for 04. developing a Medium Term Expenditure Framework (MTEF) to be implemented with technical assistance. Reform Taxr Sy.riw lo Policy Paper on Govemance Reforms to be approved by Improved voluntary tax compliance; Improve Efficiency in Cabinet and tabled in the State's Legislative Assembly; Reduced transactions costs for private Resource Allocation and business operating in UP; Increase in the Enhance Taxpayer Policy Paper on Civil Service Renewal (CSR) to be State's Own Tax Revenue - from 5.4% Compliance approved by Cabinet and tabled in the State Assembly; GSDP in 1998-99 to 7.6% by 2003-04. Reduce the size of the civil service by at least 2% through attrition and abolish about 10,000 unfilled and unnecessary positions; Initiate a review of civil service terms and conditions to identify changes that will allow for greater flexibility in downsizing and redeployment; Publicize Annual Transfer Policy and initiate monitoring of compliance; Begin to implement a consultative mechanism to oversee transfers. IL. GOVERNANCE Policy Paper on Governance Reforms to be approved by Substantial reduction in the number of REFOr=MS Cabinet and tabled in the State's Legislative Assembly; departments towards international norms; Significant improvement in the ratio of Reform the Clv#Servrs Policy Paper on Civil Service Renewal (CSR) to be front-line staff vis-A-vis support and to Enhance Efficiency, approved by Cabinet and tabled in the State Assembly; administrative staff; Significant increase Effective -ness 8end Reduce the size of the civil service by at least 2% through in the number of functions that are Product-ivity and Reduce attrition and abolish about 10,000 unfilled and unnecessary privatized and/or commercialized; Overhead Costs positions; Initiate a review of civil service terms and . . X . conditions to identify changes that will allow for greater Improved staffing n key skil categores. flexibility in downsizing and redeployment; Publicize Annual Transfer Policy and initiate monitoring of compliance; Begin to implement a consultative mechanism to oversee transfers. ImplementAtA Complete the first surveys of perceptions of public service Increased awareness and utilization of Cemnrt6bo aad quality and corruption among households, business Lok Ayukta function by the public and DfrnI/sffeW Stfrategies enterprises and civil servants; Establish a broad based Vigilance Establishment by civil service; to Re'uce Corruption and Governance Reform Task Force including civil society Radical reduction (more than 50%/6) in maladministration, as wail asAdmlnistrative Surden representatives, for rationalizing and strengthening key average investigation tme; Improved on the State accountability institutions; Publish Citizen Charters for 18 sanction and conviction rate; departments with public interface; Cabinet approval of a Stakeholder surveys indicate decreasing code of access for documents of local governments, state perceptions of corruption. financial institutions, and development agencies; Establish Deregulation Committee to review existing laws and regulations and streamline and modernize them. - 35 - Benchmarkul Policy Actions Supported under the UPFRPSR credit/loan Objectives 1999-00 (April-March) Outcomes mpA/wwtFiscal Transfer selected functional responsibilities to local bodies - Enhanced beneficiary & stakeholder Deceatralizaton to Panchayat Raj Institutions (PRIs), including primary schools, participation in overseeing government fEid7c 8-6w1* tube wells, health sub-centers, agriculture and rural performance; Improved quality of social sqdJ%#a*vA6r development; Transfer staff of corresponding government services and infrastructure maintenance locamAccoai,tibI) departments to local bodies; Transfer 11% of the state's in the rural areas; Increased public own tax revenue to local governments; Initiate short-term accountability. training programs; Prepare a Training Manual for all functions in the PREs and empowered local bodies to recruit new staff. Reform PlOc Obtain Cabinet approval of the Public Enterprise Reform Reduction in fiscal drain due to PEs; E&Avprisosand and Privatization Policy Paper and related guidelines and Release of assets to private owners; Pniaize to Reduce procedures, including sale, closure, labor and environmental Reorientation of government role ScoR,e OfGovemmeaet issues, Establish Divestment Commission, a working and lmprove Economic Committee and designate PICUP as the technical PerformaIce secretariat; Complete closure and sale of Uttar Pradesh Instruments Ltd. (UPIL) assets. Modernize Fze&/I Cabinet approval of the Strategy Paper on strengthening Improved quality of financial information hAGA wwitd Control financial management and accountability; Appoint a available to the public; Improved and Architecture andEnhaence Controller' to coordinate and provide leadership in timely information for financial Accounrabetonsto PEmote modernizing the systems of Financial Management. GoUP management; Computerized performance andAnswerable departments to respond to the audit observations of the C & recording and result-based management; Govemmenlt AG for the year 1997-98 to facilitate review by the Public Effective legislative scrutiny over financial Accounts Committee; Establish Task Force, including management by the Executive. stakeholders from outside government, to recommend ways of modernizing accountability including presentation and frequency of government financial statements for public disclosure; Request C &AG for conduct of special external audits of procurement, and high priority expenditures; Ban year end transfers to PLAs, Ill. POVERTY AND Finalize detailed implementation plan for the first 18 months Track progress at reducing poverty and SOCIAL of the project; Set up independent monitoring unit in the improving living conditions using a DEVELOPMENT Chief Secretary's Office. range of indicators; measure the impacts of key reform measures on poor, vulnerable, and socially-excluded; based on this information, identify factors responsible for adverse outcomes and design appropriate mitigation measures, also improve impacts of policies on the poor. - 36 - Benchmarks/ Polcy Actions 2000-01 2001-02to2003-04 ObJectives (April-March) (Aprl 2001-March 2004) Outcomes 1. FISCAL REFORMS Reduce the non-power fiscal deficit Reduce the overall fiscal Achieve substantial reduction A cliia ve Aftal from Rs.98 billion (6.0% of GSDP) to deficit to below 4% of GSDP in fiscal deficit and create AchieveAas Rs 82 billion in 2000-01 (4.6% of by 2003-04, reduce non- sufficient fiscal space for GSDP); Adhere to agreed debt and power fiscal deficit to below adequate levels of guarantee ceilings. 3% and achieve primary development outlays and a surplus by then; Adhere to gradual decline in the debt-to- agreed debt and guarantee GSDP and interest-to-revenue ceilings in the period 2001-04. ratios. /mprove E*_Xft# Enhance allocations for High-Priority By March 2002: Full Improved budget compliance AAh WM'and Developmental Expenditures and implementation of MTEF; and fiscal discipline; Com,oos/on ofPub//c implement plan to protect the same in Begin implementation of Improved poverty targeting Spending to enhance 2000-01; Reduce salary bill of regular Pension and Provident Fund and developmental impact of DevelopmentlImpact government employees as Reform; Conduct Public government spending; percentage of GSDP; Begin Expenditure Review. Further Expenditure composition implementation of a Medium-Term increases in user charges in linked to policy priorities. Expenditure Framework (MTEF) with irrigation, higher & Increase in the rate of Technical Assistance for the budget professional education & recovery of recurnng cost of for 2001 -02;Carry out a study of specialized hospital services. canal irrigation - from less options for Pension and Provident By March 2003: Achieve full than 20% currently to 50% by Fund Reform (with TA); Conduct computerization of budgeting, 2003-04. Public Expenditure Review. accounfing and expenditure management; Conduct Public Expenditure Review. Reform TarSysAwuto Implement the decision to reduce the By March 2002: I ntensify audit Improved voluntary tax ImpoDve EfficIencyi/ number of sales tax rates from 11 to efforts, through well designed compliance; Reduced Resource A/local/on and 5 and reduce commodity inspections; Complete the transactions costs for private Enhance Tax payer classification to 200; Begin to reorganization of Tax Dept.; business operating in UP; Comp//ance implement a strategy of functional Expand scanning and storage Increase in the State's Own reorganization of the Trade Tax of registered conveyance Tax Revenue - from 5.4% Department; Implement extemal audit deeds state wide; Implement GSDP in 1998-99 to 7.6% by of the Trade Tax Department on a external audit of the Tax Dept. 2003-04. sample basis by an external By March 2003: Complete a professional auditing firm; Make comprehensive review of officials of the trade tax department business procedures; subject to Vigilance supervision and Implement extemal audit of require all tax officers to make an the Tax Dept.; Change from annual declaration of their family assessing 100% of periodic assets; Institute formal monitoring of and annual retums to modern up to 2000 largest tax payers; Begin self- assessment; Begin to modernizing property valuation for implement core computer levying stamp duties; Begin to application system. develop a strategic plan for By March 2004: Adopt a introduction of VAT. Value Added Tax system. - 37 - Benchmarksl Policy Actions 2000401 2001-02 to 2003-04 Objectives (Apriil-March) (April 2001-March 2004) Outcomes 11. GOVERNANCE Continue to reduce the size of civil By March 2002: Continue Substantial reduction in the REFORMS service by at least 2% a year; Freeze implementation of number of departments all non-regular hiring and target rationalization of government towards international norms; Reform the CA'Swvie further reductions (by more than departments based on GoUP Significant improvement in the to Enhance Efficiency, attrition) in PWD and Irrigation report on positions;. ratio of front-line staff vis-A-vis Effective-ness and Departments; Carry out a phased support and administrative Produc-vIfy and Reduce rationalization and consolidation of 2002-04: Ongoing annual staff; Significant increase in Overhead Costs departments; Publicize Transfer reduction in the size of civil the number of functions that Policy on an annual basis, including service employment of at least are privatized and/or guidelines for transfer of senior and 2% per annum; Publish commercialized; Improved mid-level officers; Formulate and annual report on progress in staffing in key skill categories. implement an altemative policy to CSR; Conduct detailed compensatory/ compassionate monitoring of performance employment; Develop set of indicators of all departments organizational performance and publish them annually. indicators; Conduct follow up civil service census; Implement the By March 2004: Complete recommendations from the review of phased rationalization of Civil Service terms and conditions; departments. Begin implemenfing a human resource development and training plan. /rn,maerenftAe Conduct series of public workshops By March 2002: Enact UP Increased awareness and a£i7l4dUbAMY on corruption survey's results; Right to Information Act; utilization of Lok Ayukta taguhibu,S tfateg6'es Develop and publish Anti-corruption Implement the function by the public and to Reduce Conruption and Strategy; Enhance budget allocation recommendations of the Vigilance Establishment by Maladm,ist,afion, as wel significantly above the level of Governance Reform Task civil service; Radical reduction asAdminin/strafve expenditure in 1999-0 on Vigilance Force to strengthen (more than 50%) in average and the Lok Ayukta (ombudsman); accountability institutions; investigation time; Improved Strengthen the staffing of Vigilance Each Department to prepare sanction and conviction rate; and facilitate the Lok Ayukta its own anti-corruption Stakeholder surveys indicate (Ombudsman) to fill all existing strategy, including preventive decreasing perceptions of vacancies in investigative positions; and curative measures; corruption. Submit Lok Ayukta reports from 1991 Expand Citizen's Charter to all through 1998 to the Assembly; departments that interface Update the Conduct Rules for GoU P with the public; Conduct civil servants on the basis of regular follow-up surveys intemational best practice; Make among employees, Vigilance Directorate the appointing businesses and households authority for 50% of its staff; Obtain and publish the results. Cabinet approval of UP Right to By Mamh 200 Corruption Information Act for presentation to Legislabive Assembly; Deregulation Prevention Unit to assist all Committee to conduct review and departments in preparing and submit recommendation to GoUP for implementing anti-corruption implementation, strategies and streamlining implementation. ~~business processes. 2001-04: Publish annual reports for Lok Ayukta and Vigilance Commission; Conduct regular follow-up surveys of perception of corruption; Complete implementation of the deregulaton program. -38a- Benchmarksl Policy Actions 2000-01 2001-02 to 2003-04 Objedives (ApriilMarch) (April 2001-March 2004 Outcomes h4p*MtFFlsca/ Begin implementation of Initiate sample surveys of Enhanced beneficiary & 0cen&a&abon to comprehensive training and capacity public perception and stakeholder participation in 5ZU"B*vA*7 building in the PRIs; Inibiate satisfaction with the overseeing govemment AWSA*4kVbW strengthening of accounts and audit functioning and quality of performance; Improved AhAc&ft&ffd of local body finances; Conduct a services provided by the PRIs; quality of social services and detailed evaluation of the Scale up the comprehensive infrastructure maintenance in effectiveness of decentralized training program for PRI the rural areas; Increased management of state tubewells. functionares; Implement public accountability. corrective measures for tubewell management; Publish the results of the first annual audit of PRI finances. RefomP,6* Complete the divestment or closure By March 2002: Divestment Reduction in fiscal drain due Eide.rls.and of 20 units of public enterprises or closure of at least eight to PEs; Release of assets to Phah&ze to Reduce selected for the first phase including PEs by March 2002. private owners; Reorientation Scope of Govemrnent 11 Sugar Mills, and 5 Textile Mills. By March 2003: of government role. Reduce rsca/Bulden DivestmentVclosure of at least Palrobmanco 8 additional PEs by the Working Committee By March 2004: Divestment or closure of remaining PEs by the Working Committee. Modem0 'zeM4A=& Appoint an 'Internal Auditor' and Complete conversion of Improved quality of financial Akw e,& Control inibate the process of modernization treasuries into IPAOs; information available to the Arcdecfture ernd ETh'/7c8 of the internal audit function; Enhance Implement computerized public; Improved and timely Accountab/htv to Promote the State's treasury function by performance recording and information for financial endAns"werable beginning to convert the treasury reporting systems for more management; Computerized Govemment offices into Integrated Pay and result-based management; performance recording and Accounts Offices (IPAO); Require all Implement the result-based management; departments to publish an Annual recommendations of the Effective legislative scrutiny Report outlining their objectives, feasibility study for over financial management by activities, costs and actual introduction of an appropriate the Executve. achievements; Implement the form of accrual accounting; recommendations of the task force on Implement the the goveMment's financial recommendations of the study statements for public disclosure; on modernization of the Implement the rules for ensuring existing State Finance and timely response from offices to the Accounts cadre; Consolidate observa-tions in the C &AG audit the internal audit function, reports. Implement the agreed modemize the intemal audit special external audits by C & AG; practices, and address the Conduct a feasibility study for skills mix required for a introducing an appropriate form of modern internal audit function. accrual accounting. Ill. POVERTY AND Collect, enter, and tabulate data Collect information on poverty Track progress at reducing SOCIAL collected for the state sample of the indicators on an annual basis; poverty and improving living DEVELOPMENT NSS 55t round; Develop sample Use new information to conditions using a range of frame and listing for community and assess impact of reforms on indicators; measure the household monitoring system; the poor and socially impacts of key reform Develop and implement a community disadvantaged groups; measures on poor, vulnerable, monitoring system; Implement Publish periodic reports on and socially-excluded; based second round of data collection by progress at reducing poverty, on this information, identfy ESD; Publish and make available to impact of reforms. factors responsible for the public the results from NSS 55Fh adverse outcomes and design round and poverty module. approprate mitgation measures, also improve impacts of policies on the I_________________________________________________________ poor. - 39 - Additional Annex 9.Re form Output/Process/Outcome Indicators - Fiscal Reforms Item Indicators 1. Fiscal Correction Output Indicators I . Cabinet Approval and tabling in the Assembly of Policy Paper on Fiscal Reforms. [Done on March 2 7, 2000] 2. Finalization of Contingency Plan to manage potential revenue and financing shortfalls. [Done for 1999-00 by January 2000; andfor 2000-01 by January 2001] Long-Term Objectives: 3. Ceiling on Debt and Guarantees. [Debt ceiling was implicit in thefiscal deficit targetfor 1999-00, which has been overfulfilled. Guarantees - The guarantee given by the GoUP during 1999-2000 and outstanding guarantees at the year end, were within the agreedprogram targetsI Outcome Indicators (to be monitored annually) To achievefiscal 4. Fiscal Deficit - in Rupees and as % GSDP. [Overallfiscal deficit (adjusted) declinedfrom Rs. 109.6 billion sustainability over the (7.5% GSDP) in 1998-99 to Ps. 103.6 billion (6.4%) in 1999-00, 0. 6percentage point below the agreedprogram target; medium-term through growth non-power deficit was reducedfrom Rs. 98.5 billion (6. 7%) to Rs. 93.5 billion (5.8%.), Rs. 4 billion lower than the agreed oriented revenue and benchmark.] expenditure measures 5. Revenue Deficit - in Rs. and as % GSDP. (Revenue deficit declinedfrom Rs. 83 billion in 1998-99 (5.6% GSDP) to Rs.67.2 billion (4.2% of GSDP) in 1999-00] 6. End-of-year Outstanding Debt and Guarantees - in Rs. and as % Revenue Expenditure. [Outstanding debt was Rs 604 billion (3 7.4% of GSDP) on March 31, 2000, compared to the target ofRs 603.4 billion (37.3%); outstanding guarantees were 2.7% of GSDP] 7. Interest and Total Debt Servicing - in Rs. and as % Total State Revenue [Interest rosefrom Rs. 58.8 billion in 1998-99 to Rs. 65.5 billion in 1999-00; in proportion to total revenue, interest declinedfrom 34.6% to 31.4% while total debt servicing declinedfrom 41.3% to 40.1%] 8. Fiscal stress ratio: Interest as % Revenue Expenditure. [Interest as a percentage of Revenue Expenditure remained at 23.6% in 1999-00, same as in the previous year; Revenue Deficit as a ratio of Revenue Receipts declined from 45.6% to 28.9%] 2. Expenditure Output Indicators Measures 1. Finalzation of High Priority Development Expenditures to be protected each year. [The targetfor HPDE was enhancedfrom Rs. 100 billion in 1999-00 to Rs. 124 billion in 2000-01.A Government Order issued on July 5, 2000, directed the departments and treasuries to give priority to the items in the HPDE list] 2. Preparation of Strategy for Medium-Term Expenditure framework (MTEF) in 1999-00 [Strategy under Long-Term Objectives: discussion; Workshop by Bank experts held on December 6, 2000] 3. Complete computerization of treasury transactions in 2000-01. [Treasury payment systemfully computerized; Computerizedpayroll system expected to be in place by July 2001] 4. Implementation of MTEF, beginning with 2001-02 Budget preparation . To improve expenditure [Decided to establish a Resource & Expenditure Commission to oversee development of MTEF beginning with 2002-03 management, efficiency of budget preparation] public resource allocation 5. Pension & Provident Fund Reforms initiated in 2001-02. [Background Study has been initiated] and the composition of 6. Full computerization of budgeting, accounting and expenditure management by 2002-03 public spending so as to Process Indicators (to be monitored each year) enhance its developmental 7. High Priority Development Expenditures during first 6 months of fiscal year, in Rupees and as ratio of impact annual target [Data awaited] 8. Expenditure on Salary and Pensions during the first 6 months of 2000-01. [Salary expenditure during April-Sept 2000, at Rs 40.7 billion, was 50% ofthe annual target; and at Rs 12.2 billion, pension was 57% ofthe annual target] 9. Expenditure on Explicit Subsidies (Grants-in-Aid) during first 6 months of fiscal year, in Rupees and as ratio of annual target. [Data awaited] 10. Net Additional Expenditure approved in Supplementary Demands during the year. [Net additional expenditure approved in the Supplementary Demand in October 2000 was Rs. 17.4 billion or 4.7% ofthe original expenditure budget] Outcome Indicators 11. Improved budget compliance and fiscal discipline. [Deficit reduction target achieved in 1999-00; financing shortfall was managed without any signifi cant cut in developmental expenditures] 12. Priority to maintenance of existing assets over creation of new assets, and to completion of ongoing projects over new starts [Hasformedpart of the guidelines contained in the Budget Call Circular since 1999-00] 13. Satisfactory Performance in protecting and enhancing High Priority Developmental Expenditures. [About 93% ofthe targeted level of High Priority Development Expenditure wasprotected in 1999-00.] 14. Reduction in the share of salary and pension payments in total expenditure. [Salaries declinedfrom 24% of total expenditure and net lending in 1998-99 to 23% in 1999-00. Pensions rosefrom 6% to 7% in the same period] 15. Reduction in the share of explicit subsidies in total expenditure [Total grants-in-aid declined from 28.6% of total expenditure in 1998-99to 26.4% in 1999-00] 16. Increased expenditure flexibility [Share of salaries, pensions and interest payments in total expenditure declined from 51.4% in 1998-99 to 49.8% in 1999-00] 17. Increase in the share of capital outlays and non-wage O&M [Capital outlays increasedfrom 1.4% of GSDP in 1998-99 to 1.5% in 1999-00] -40 - 3. Revenue Measures Output Indicators I . Reduction in the number of Trade Tax rates. [Subsequent to the introduction of uniformfloor rates in January 2000, the number of rates werefurther reduced to 8 main and 4 special rates in Jan 2001, from 11 main and 6 special rates;further rationalization under consideration, based on consultant report of Dr. Govinda Rao] Long-Term Objectives: 2. Amendment of Trade Tax Act to strengthen anti-evasion efforts. [Amendment enacted in March 2000; implementation being initiated in a phased manner starting in March 2001] 3. Identification of potential taxpayers who are outside the tax net [Survey conducted in 1999-00 showed that 15% of those surveyed needed to be registered but were not] TO enhance the state's own 4. External Audit of Trade Tax Department [Following an objection by the Law Department of the State to the revenue base, create afair, violation ofprivacy rights of businesses, internal audit has been strengthened instead of external audit] simple and high compliance 5. Introduction of New Taxes (Entry Tax) [Entry Tax introduced in November 1999. Cabinet gave clearancefor tax system and improve cost tax on crude oil, machines and spare parts and natural gas in December 1999. Extended to include tobacco and recoveryfrom publicly non-levy sugar in 2000-01] provided private and 6. Phasing out of Tax Holidays [Accomplished effectivefrom February 2000] semi-private goods and 7. Reorganization, modernization and computerization of Trade Tax Administration [Computerization piloted; services Functional reorganization ongoing with technical assistance] 8. Increase in user charges for irrigation, higher education and hospital care [Total revenuefrom user charges increasedfrom Rs. 7.2 billion in 1998-99 to Rs. 10.3 billion in 1999-00. Revenuefrom user charges in education increasedfrom Rs. 1.01 bin to Rs. 1.38 bin over the sameperiod] Process Indicators (to be monitored monthlvl/uarterlvlannuallv) 9. Percentage rise in tax collected from manufacturers within UP, adjusted for inflation [Registered an increase of about 75% in real terms, during thefirst 3 quarters of2000-01, compared to the same period of the previous year] 10. Percentage rise in tax collected from non-manufacturing dealers, adjusted for infin [Data awaited] 11. Value of "recorded" goods imported (i.e. from outside UP) through railway /post offices compared to previous period 12. Value of "recorded" goods imported by road and recorded on form 31 compared to previous period [There was an increase ofabout 7% during thefirst 3 quarters of2000-0l. Compared to the same period of the previous year] 13. Total monthly collections from Trade Tax, with and without petroleum products [Trade tax collected during April 2000-January 2001, excludingfrom petrol/diesel, was Rs. 32.68 billion (increase of2O.6% over previous year in nominal terms); including petrol/diesel it was Rs. 45.72 billion (increase of 19.6% over previous year] 14. Number oftaxable dealers who file declarations [Number of 'registered' dealers increased by 3ofrom 190,398 in 1999-00 to 196024 in 2000-01] 15. Half-yearly collections from the 1000 dealers with the largest turnover [The total tax recovered during April-September 2000 was 76% higher than during the same period of the previous year] 16. Net Recoverable Arrears - in Rupees and as ratio of total taxes due [Net recoverable arrears (provincial) were Rs. 964 crores in August 2000] 17. Annualnumber ofcases under appeal and value under dispute [In 1999-00, there were 115,780appeals (60,586past and 55,194 new appeals). There were 64,133 disputed appeals amounting to Rs. 33.24 billion. The number ofpending appeals were 51,647 and amounted to Rs. 9.6 billion] 18. Proportion of staff in Trade Tax Department assigned to enforcement [In 1999-00, ofatotal of 1206 officers and 1419 employee in the Trade Tax Departments, 42% and 22% respectively were involved in enforcement work] 19. Number of staffin Trade Tax Department using computers in dailywork[During July-September 2000-01, 17% of officers and 0.1% of employees were usingcomputers compared to 0.5% and 3% over the previousquarter, i.e., April-June 2000-01] Outcome Indicators 21. Improved voluntary tax compliance 22. Reduced transactions costs for pfivate business operating in UP 23. Increase in the State's Own Tax Revenue - from 5.4% GSDP in 1998-99 to 7.6% by 2003-04; 24. Increase in the rate of cost recovery from canal irrigation - from less than 20% currently to 50% by 2003-04 - 41 - Additional Annex 10.Re form Output/Process/Outcome Indicators - Governance Reforms Item Indicators 1. Establish Polcy and Process/Output Indicators Institutional Frame-work for 1. Approval ofPolicy Papers on Governance and Civil Service Renewal [Done. Papers were Major Govern-ment Reform app vedbyCabinet and tabledin theAssembly in March 200.] Program 2. Cabinet Committee to provide overall guidance and direction for reform effort [Cabinet Long-Term Objective: Committee on EconomicAffairs headed by the Chief Minister has been given responsibilityfor this effort.] 3. Governance and CSR Core Group, headed by the Chief Secretary [CSR Core Group To ensure successful reforms by Headed by Chief Secretary functioning actively] creating appropriate policyand 4. Publication of Departmental annual reports [Performance budget being published and institutionalarrangementsfor presented in the Assembly]. providing guidance and oversight I. CIVIL SERVICE REFORM I. Review and Rationalize Process/Output Indicators All Departments I. Establish Policy Planning Celis and complete intra-departmental functional reviews [Policy Planning Cells established in 53 major departments and intra-departmental reviews initiated. The Long-Termn Objectives: cells are meeting every three months on average. Approximately 38functional reviews have been completed and submitted to relevant secretaries] To enhance efficiency, 2. Establsh Technical Working Group to the CSR Core Group and complete effec-tiveness andproductivity by inter-departmental functional reviews [Technical Working Group yet to be established, due to delays in rationalizing, realigning and procuring appropriate technical assistance for implementation.] reengineering departments and 3. Integrate reviews into a comprehensive report for rationalization (with TA), which is reenginering deprtmentsapproved by Cabinet [Yet to be done] To eliminate functions andi tasks 4. Phased rationalization of departments to begin on I October 2001 and be completed by December 31, 2004. Number of departments rationalzed to be carefully monitored to e;.sure that are no longer needed or bring implementation does not slip [Clustering of related departments along sectoral lines has begun] little value added so that the 5. Develop and implement appropnate organizational performnance indicators for all Departments government can con-centrate upon by December 31, 2004 high priority areas Outcome Indicators To save overhead costs by 6. Substantial reduction in the number of departments towards intemational norms, with significant reduc-ing administrative and savings in overhead and administrative costs supportfunctions and involving 7. Ratiosialization of organizational structure, business processes, staffing, and products and more staff in front-line tasks of services for remaining departments, starting with PWD, Irrigation, Forestry, Health and Tax and service delivery Trade, by December 31,2002 [Signif cant progress has been made in Forestry. Detailed plans are currently being made in Health, PWD and Irrigation. Exercise on functional reorganization is ongoing in To enhance effectiveness by the Trade Tax Department.] increasingly shifting focus from 8. Significant improvement in the ratio of front-line staff vis-a-vis support and administrative staff compliance to outputs and for all departments consistent with best practice in Indian states and elsewhere. outcomes 9. Significant increase in the number of functions that are privatized and/or commercialized consistent with best practice in Indian states and elsewhere [Selective progress to date in some departments, such as PWD.] -42 - 2. Ensure a Global Annual ProcessOutsst Indicators Reduction in av2 l Service Size I Initiate a review of civil service terms and conditions in comparison with global and by at Least 2% for Next Five Indian best practice to identify opffons for greater flexibility in downsizing and redeployment and Years implement study recommendations [Yet to be done] 2. Abolish unfilled positions identified as redundant [Approximately 15,000 posts, or 1. 7%O, Lo.g-Ter-m Objectives: have been abolished to date, since the program began in 1999-00] Long-Term ObJectives: 3. Identify alternatives to the practice of compensatory/compassionate employment [ e .afforda-bilty Alternatives under consideration] ofsrhe civil service Outcome Indicators 4. Global reduction in civil service size of at least 2% annually [Size ofcivil service Improve productivity by reportedly declined by 1% during FY 1999/2000 and an estimated 1.6% in FY2000/01. More reliable re-deploying staff to more data on personnel in place are expected once the computerizedpayroll is infunctional, i.e., by July 2001] valu-able tasks 5. Number of position establishments abolished or redeployed annually by department, with substantial savings in staffing and wage bill in key departments (Le. PWD, Health, Irrigation and Alow for greater managerial Forestry), consistent with findings of institutional reviews [Over 60 divisions abolished in PWD and flexibility by expanding optionsfor Irrigation; however, excess staffstill remain. Approximately 5,000 staff awaiting transfer to surplus labor redeployment and re-trenchment pool in Department ofAdministrative Reformsfor redeployment.] 6. Major reduction (i.e. greater than 50%) in casual and work charged employees by FY 2004 End "entitlement mentality" regardingjobs in the public sector -43 - 3. Process/Output Indicators 1. Computerized human resource database established and regularly updated, so GoUP can Improve Human Resource immediately produce accurate and timely information on the size and composition of the civil service. Management [Ongoing]. Long-Tern Objectives. 2. Annual Transfer Policy to be finalized and guidelines publicized; consultative mechanism adopted to oversee transfers for all classes and cadres; and departmental budgets for transfers To ensure access to accurate, desegregated and strictly monitored. [Annual Transfer Policypublished in May 2000. Frequency of timely information regarding the transfers continued to be a major concern until September 2000, although there has been some size and composition ofthe civil improvement in recent months. Effectiveness of consultative mechanism to oversee transfers is doubtful.] service 3. Class I and 1I positions classified for rational and judicious placement [Requirement for thepost and officers background are kept in view while makingplacements] To improve productivity by4. GoUP to study Annual Confidential Report (ACR) process to improve its effectiveness as To improve productivitye by a tool for human resource management and implement recommendations. fImplemented in the stafferansfers and postings and Forestry Department, U.P. Jal Nigam, Irrigation Department Under considerationfor secretariat / Head allowing public sector managers ofDepartment] andb disctretionagins 5. GoUP allocates 1% of annual departmental wage bill for training aggregate and by greaterfreedom and discretion In department [A Government Order to this effect has been issued. Expenditure on training rosefrom Rs 3.2 managing their staff crore in 1999-00 to an estimated Rs. 11.7 crore in 2000-01] To enhance meritocracyby6. Department of Personnel arid Appointments to publish regular annsual report on size and To enhance meritocracy by composition of the senior civil service, demographic profile, average tenure in office, annual screening strengthening the process of procedures, and number of staff reprimanded for corruption and maladminisitration; other departments to also performance monitoring and do the same for senior officials in their annual reports evaluation 7. Departments certify that screening is performed on an annual basis [Done.] Outcome Indicators To improve the quality and skills mix ofthe workforce by improving 8. Average tenure increases for Class I and 11 officers human resource development 9. Improved utilization of ACR process in transfers and promotions 10. Significant increase in the numbers of staff given early retirement through screening 11. Improved staffing in key skill categories (i.e. water resource management, traffic management rural nursing) 12. Numbers of staff rewarded for good performance and reprimanded for non-performnance 13. Expenditure on training and number of staff trained by department; number of staff with multi-task skills - 44 - II. DEREGULATION AND ANTICORRUPTION 1. Deregulation Process/Output Indicators Long-Term Objectives: 1. Establish Deregulation Committee [Committee established on October 28, 1999 and began functioning on January 13, 2000. It has held 49 meetings with Departmental Secretaries and 68 internal To reduce the administrative meetings.] burden on the state, facilitate 2. Each department complete its internal review and submit theem to the Deregulation private sector growth, and Committee for consideration by I July 2000 [Approximately 58 departmentsformed Deregulation enhance equity and access among Committees and submitted reports.] impoverished groups 3. Deregulation Committee to submit its first review and recommendations to GoUP by 1 October 2000 [Reportpublished on November 5, 2000. The initial report made 615 recommendations To radically simplify regula-tions concerning the workof4Odepartments. The quality ofthese recommendations is variable. The to ensure they are readily Committee's tenure was recently extended by six months, with theprospect offurther extensions as understood, unambiguous in their needed.] application, andstraightforward 4. Based on these recommendations, GoUP to formulate a time-bound program to to implement streamline and modernize the laws, rules and regulations applicable in UP and inifate the implementation of such a program [Underprogress; yet to be completed] To make the rule-making process more transparent Outcome Indicators 5. Substantial reduction and modemization in the number of state acts, rules and regulations/orders currently being administered by the departments, in line with best ptactice among Indian states 6. Enhance transparency and stakeholder partcipation in the regutatory process by engaging business and civil society in the work of the Deregulation Committee -45 - 2. Process/Output Indicators .Accountabity 1. Regular stakeholder surveys to monitor performance [Initial three surveys conducted of Strengthen Key ACouption generalpublic, traders and civil servants towards corruption. Further surveys are plannedfor some key Bnis a departments.] BodIes 2. Increase in funding and staffing for key accountability institutions to compare favorably Long-Term Objectives: with per capita funding in other Indian states [Increases occurring in a phased manner in line with agency absorptive capacity. Vigilance Establishment budgetforyear FY2000-01 has increased by 12.9% Ta reduce corrup-tion and over expenditure in FY 1999-00, albeitfrom a very low base.] mal-administrahion by 3. Vigilance Establishment and Lok Ayukta to have greater independence in recruitment maren-adninirainsm by and transfer of staff, and improvement in the ratio of front-line staff to administrative staff to strengthening mecha-nisms for compare favorably with other Indian states [The Lok Ayukta is empowered to recruit and appoint more detecting, investigat-ing and juniorstaff while seniorstaffare appointed only with the concurrence ofthe LokAyukta.J sanctioning improper behavior, 4. Task Force report on mandate, staffing, budget, organizational structure, business processes, while ensuring these nst tuti ons regulations and guidelines and performance indicators completed and integrated into broader GoUP operate within an appropriate anticoruption strategy, along with surveys, stakeholder workshops, and anticorruption strategies for key accountabilityframework departments with significant revenue, expenditure or regulatory responsibilities 5. Publication of survey results, along with GoUP anticorruption strategy, by 31 October To combat corruption pro-actively 2000, with implementation to begin immediately [ To bepublished] by strengtheningpreventive 6. Update and disseminate Conduct Rules for GoUP civil servants not subject to All India rules on measures in central and line the basis of international best practice departments 7. Regular submission of annual Lok Ayukta reports to the Assembly [GoUP hasformally tabledpending reportsfrom 1990 to 1994 in the State Assembly. Remaining reports to be tabled in the budget session in early 2001.] S. Corruption Prevention Unit established and actively working with core and depatrnental 3. Develop and Isplement agencies to reduce opportunities for corruption (by March 2003) Anticorruption Strategies Outcome Indicators 9. Increased awareness and utilization of Lok Ayukta function by the public and of Vigilance Long-Term Objectives: Establshment by civil service [Role andfunctions of Lok Ayukta are being given widepublicity. Additionalfunds sanctionedfor the LokAyuktafor thispurpose. A websitefor the Vigilance Department To create an integrated,flexi-ble has been set up. Role andfunctions of the Vigilance establishment and other anti-corruption bodies are and responsive ant-icorruption publicized through the website.] strategy based upon solid t0. Reduction in average investigation times and adjudication times for administrative and criminal empirical evidence and regular cases stakeholderfeedback 11. Increased number of investigations and reduction in case backlogs [Number of corruption related cases in which prosecution was approved was 3 75 during April-December 2000, compared to To effectively implement the around 100 in the same period ofthe previous year.] strategy, with particular atten-tion 12. Improved sanction and conviction rate [There were 44 "trap" cases during the year 2000, tofosteringsuccessful involving 49 ofxicials who were caught red handed] anticorruption efforts at the 13. Successful prosecution of a few "high profile' cases [A senior lASofficer was recently departmental level compulsorily retiredfrom servicefor corruption.] 14. Number of concrete examples where regulatory reform, processes reengineering and other preventive measures have significantly reduced corruption. 15. Stakeholder surveys indicate increasing public satisfaction with anticonuption effort and decreasing perceptions of corruption, particularly in departments with substantial revenue and expenditure responsibilities or regulatory functions. -46 - 4. Undertake Actions to Process/Output Indicators Make Government More Open and Responsive To Citizen Needs 1. Citizen's Charters with clear specification of service standards and remedial measures prepared and widely publicized for all departments with major public interface. [Citizen charters have been issuedfor several departments; they need to be widely publicized and steps need to be taken to Long-Term Objective: ensure effective implementation of charters (redesigning business procedures providing managerial flexibility, sensitizing employees to the new standards, and instituting userfeedback mechanisms)] To improve government 2. Cabinet approval of a code of access for government documents based upon United per-formance, accountability and Kingdom practice and draft UP Right to Information Act. [Go UP has approved a code of accessfor responsiveness by improving the government documents but it is very restrictive and applied to only three departments sofar.] public's access to informa-tion 3. Each department to publish a brochure outlining their organ-izational structure, mission and engaging civil society in and objectives, staffing profile, annual budget, services, compendium of relevant govemnment orders providing informedfeedback on and contact points for further information by I March 2000 [ This information is available in Annual the quality of government services reports websites and official directories]. 4. Each department to review and redesign public grievance redress system and publicize relevant procedures. [ Government oders already exists. Grievances are being monitored by the Directorate of Lok Shikayats (Public grievances) ] 5. Number of departmental web pages and accessibility of GoUP forms ontheInternet. [At least 16 major departments have created their respective web pages; the Transport Department has 30 forms available to be downloaded, including the applicationform for a driver's license Major initiative taken by Information Technology Department to develop a single U.P. Govt. Website.] Outcome Indicators 6. Survey data indicates increased awareness on the part of the public (and particularly the poor) regarding the quality of services they can expect and utilization of grievance procedures 7. Survey data for officials indicates increased awareness and concern about transparency and the public's right of access to information 8. Enhanced information flow regarding service standards and quality measured through by web page use and surveys ofNGOs and civil society 111. PUBLIC ENTERPRISE REFORM AND PRIVATIZATION Outut Indicators Long-Term Objectives: I. Cabinet approval of the PE Reform Policy (Done; Policy tabled in the Assembly in March Government to withdrawfrom the 2000] provision of goods and services 2. Cabinet approval of procedures for implementation [Drafts of the overall transactions that can be provided more manual and of the environmental guidelines having been produced during February 2001] efTiciently by the private sector, 3. Divestment/closure of PEs selected for the first phase, by March 2001 [Done; 20 units, through divestment or closure of including 1/ sugar mills and S textile mills, have been closed; the assets of two enterprises have been those public enterprises that either sold] compete with the private sector or 4. Number of units divested or closed on an annual basis [See point 31 are commercial in nature Process Indicators 5. Value of assets sold each year [Value of assets sold from Ist Phase enterprises is Rs 50 crores] 6. Number of employees retrenched/retired in each year [About 11 000 workers have departed with VRS packages in thefirst phase of the program] 7. Number of enterprises remaining under public ownership at the end of each year iThere will be 4 7 remaining under public ownership by the end of March 2001] 8. Fiscal savings from closure/privatization ITo be calculated] Outcome Indicators 9. Substantial fiscal savings 10. Improved economic efficiency IV. FINANCIAL MANAGEMENT AND ACCOUNTABILITY - 47 - Outnut Indicators Long-Term Objectives. 1. Cabinet approval of Strategy for Strengthening Financial Managenent and Greater availability of information Accountability [Done in March 2000; Next step is to prepare a more detailed implementation plan] concerning thefinances of the 2. Task Force to recommend the form, content and presentation of finandal statements for State amongst the general public public disclosure [Task Force has almost completed its work on theformat of the half-yearlyfinancial and media, leading to increased statements and the accounting system required tofacilitate preparation of these statements; finalization of transparency Report is pending] 3. Feasbility Study for accrual accounting financial statements and the accountng system Enhanced accountability of the required to facilitate preparation of these statements. [Recruitment of consultants is underway] Executive to the Legislature 4. Study to modernize State Finance and Accounts Cadre. [Recruitment of consultants is underway] Integrated computerizedfinancial S. Timely Respone to observations In the C&AG audit reports. [Progress is slow. management system that would Government has set a 90-day rulefor responding to CAG reports. However, responses to 550 out of 583 facilitate results-based "paras" in the CAG's Reportfor 1998-99 (tabled on May 17, 2000) are pending, and to 158 Out of 587 7 management paras " in the CAG 's reportfor 1997-98 are pending] Process Indicators Modern internal auditfunction 6. Time taken between C&AG audit queries and departmental responses [Data on time taken which provides continuous to respond is not available, eitherfor responses to 'Drafi Paras' orfor response to thefinal CAG Report] oversight over the activities of the 7. Deviations between Budget Etimates, Revised Estimatu and Audited Accounts figures of State revenue and expenditure, by major categories. Outcome Indicators I Too early to measure outcome indicators since the process is only starting noa4 Reconstituted and better trained finance and accounts cadre 8. Improved quality of financial infomnation available to the public capable ofproviding efficient 9. Improved and timely information for financial management financial management services. 10. Computerized performance recording and result-based management -48 - Additional Annex 11.Pover ty and Social Impact Indicators: Table 1 Item Indicators 1. Establish a system to Process/Output Indicators monitor and evaluate the 1. Set up monitoring units in the Chief Secretary's Office and the Department of impacts of the overall Planning reform program on the 2. Agree on initial set of quantitative poverty monitoring indicators, viz. poor and other socially disadvantaged groups. Consumption and Income 1. GSDP growth (Agriculture, Manufacturing, Industry, Services, Total) Long Term Objectives: Source and Periodicity: UP Directorate of Economics and Statistics ( DES), Annual To maximize impacts of state series. reform-led growth on the Current Baseline Estimates: Here and below see "Poverty and Social Impact Indicators poor; --Table2." To identify emerging 2. Per-capita monthly expenditures (Food items, Education, Health, Other, Total) adverse impacts of specific reform measures Source and Periodicity: Quinquennial NSS Consumer Expenditure Survey, central and and design appropriate state samples. Every five years. Most recent estimates, 1999-00 mitigation measures; 3. Poverty: Headcount, Poverty-gap, FGTP2 measure (i.e. severity of poverty) To support better informed policy making Source and Periodicitv: Quinquennial NSS Consumer Expenditure Survey central and and program design state samples. Every five years. Most recent estimates, 1993-94 (Proposed: annual To inform the pubic at poverty estimates forecast based on trends in key determinates of poverty - levels and large about the success or structure of growth, development spending, inflation) otherwise of the reform piogram. Emplovment and Wages 4. Wages (Agriculture, Non-Agriculture) and (proposed) prices Source and Periodicit : UP DES, monthly monitoring at block and district level. 5. Employment Status (Employed, Under-employed, Unemployed, Out of Labor force, ) Source and Periodicitv: UP DES, baseline set by Poverty Module, state-sample 55 round, follow-up through light/priority survey agreed in project proposal, sampling, periodicity and design to be discussed and finalized with GOUP after release of baseline report and internal discussions. To be supplemented by multiple sources such as Quinquennial NSS Consumer Expenditure Survey, Employment/Unemployment module(every 5 years) and Population Census of India (every 10 years). Most recent estimates, 1999-00 (forthcoming) - 49 - Health 6. Percentage of children that have been immunized (Boys, Girls, Overall) Source and Periodicit : UP DES, baseline set by Poverty Module, state-sample 55 round, follow-up through light/priority survey agreed in project proposal. To be supplemented by administrative data from the relevant line departments and cross-checked against National Famnily Health Survey (NFHS), NSSO special purpose surveys state and central samples, and Department of Health data. Most recent estimates, 1999-00 (forthcoming) 7. Infant Mortality Rate (Boys, Girls, Overall) Source and Periodicity: UP DES, baseline set by Poverty Module, state-sample 55 round, follow-up through light/priority survey agreed in project proposal. (Note that PSMS module uses a different method to estimate IMRs and CMRs) Alternative estimates provided by the Sample Registration System (SRS) on annual basis. Cross-checked against National Family Health Survey (NFHS-2), repeated every five years. Most recent estimates, 1999-00 (forthcoming). NFHS-2 in 1998-99. Education 8. Literacy (Men, Women, SC/ST, Overall) Source and Periodicitv: UP DES, baseline set by Poverty Module, state-sample 55 round, follow-up through light/priority survey agreed in project proposal. To be supplemented by administrative data from the Department of Education, and cross-checked against National Family Health Survey (NFHS-2), NSSO Quinquennial and special purpose surveys, state and central samples. Most recent estimates, 1999-00 (forthcoming), also Feb, 2001 - India Population Census. 9. Enrollment rates for children aged 5-14 years (Boys, Girls, SC/ST, Overall) Source and Periodicitv: UP DES, baseline set by Poverty Module, state-sample 55 round, follow-up through light/priority survey agreed in project proposal. To be supplemented by administrative data from the Department of Education, and cross-checked against National Family Health Survey (NFHS-2), NSSO special purpose surveys, state and central samples. Most recent estimates, 1999-00, forthcoming. 10. Drop-out rates for children aged 5-14years (Boys, Girls, SC/ST, Overall) Source and Periodicity: Administrative data from the UP Education Department, annual. Most recent estimates, tbd 11. Completion rates for children, primary, secondary, (Boys, Girls, SC/ST, Overall) Source and Periodicitv: UP DES, baseline set by Poverty Module, state-sample 55 round, follow-up through light/priority survey agreed in project proposal. To be supplemented by administrative data from the Department of Education, and cross-checked against National Family Health Survey (NFHS-2), NSSO special purpose surveys state and central samples. Most recent estimates, 1999-00, forthcoming. Housing Conditions 12. Percentage of households living in slum areas Source and Periodicit : SUDA administrative data, periodicity not known 13. Percentage of households having latrine facilities in their house - 50 - Source and Periodicit : UP DES, baseline set by Poverty Module, state-sample 55" round, follow-up through light/priority survey agreed in project proposal. Current estimates, 1999-00, forthcoming. 14. Distribution of households according to source of drinking water As in 13 15. Percentage of households living in electrified dwellings As in 13 Participation in Government Proerams 16. Percentage of persons benefitingfrom employment/welfare schemes (public works, TPDS, Other government anti-poverty programs, IRDP, etc.) Source and Periodicity: UP DES, baseline set by Poverty Module, state-sample 55" round, follow-up through light/priority survey agreed in project proposal. Current estimates, 1999-00, forthcoming. 17. Health (percentage ofpregnant women registeredfor prenatal care during last one year and Percentage of deliveries attended by Doctor/Trained Nurse/Dai during last one year) As in 16 18. Education (Percentage of children enrolled in non-formal or alternative schooling programs and Percentage of 0-5 year-olds attending ICDS anganwadis) As in 16 Awareness of Health Proerams and Social Rights 19. Percentage of households aware of thefollowing: Immunization of children, vaccination ofpregnant women, Iodized salts, Use of ORT, Contraceptives, Minimum wage act, Child Labor Prevention act, Dowry prohibition act, Prevention of Atrocities against SC/ST, Child marriage prevention act. As in 16 Access to Facilities/Services Distance to nearestfacility/service (within village, upto 2 km, 2-5 km, 5-10 kin, 10+ km) Metalled Road, Other roads, Railway station, Bus stop, Police station, Post office, Telegraph road, PCO, Block headquarter, Bank, Regular market, Rural weekly market, Fair price shop, Junior basic school, Senior basic school, High school /Higher secondary school, Non-formal education center, Total literacy center, Veterinary hospital / stockman center, Hospital /dispensary, Maternity center, Anganwadi center, Cinema, Library, Sales point of agricultural inputs, TRYSEM training center, Perennial source of drinking water, Cooperative society Source and Periodicity: administrative data from the relevant line departments, proposed as a part of the UP Human Development Initiative, data base development. Periodicity to be determined, likely ever 2-3 years. - 51 - Ouality of Services For health: availability of medical staff in government facilities, availability of essential medicines For education, teacher qualifications and training, teacher attendance, hours of classroom instruction, availability of textbooks and other supplies, etc. For water and sanitation, number and location of tubewells and other drinking water sources, quality of water, number of months water available for specific wells, quantity of water available during dry seasons. Source and Periodicity: data on perceptions about quality of selected services are to be collected by UP DES through light/priority survey agreed in project proposal. The baseline has been set by Poverty Module, state-sample 55" round, sampling, periodicity and design of the follow-up surveys is to be discussed and finalized with GOUP after release of baseline report and intemal discussions. These data is to be augmented by quantitative indicators from administrative data from the relevant line departments. It is proposed to collect more extensive and disaggregated indicators, including indicators of access, quality, and satisfaction through facility surveys and as a part of district monitoring system. 3. Undertake a five-year program of data collection, including (i) baseline poverty monitoring surveys Progress, Immediate Next Steps. A baseline household survey, gathering information on most of the agreed monitoring indicators, was undertaken in conjunction with the state-sample of the NSS 55" round (Schedule 99, Poverty Module). The focus of the module was on outcome measures linked to service delivery and special programs for the poor, as well as a limited amount of information on user views and satisfaction. These data are now being tabulated and discussed with counterparts in GOUP. A joint GOUP/WB baseline report is under preparation, which draws on these data, administrative data, and other sources in establishing a project baseline. (ii) annual special purpose surveys (e.g. indicators of service delivery at the local level). Progress. Immediate Next Steps. It was agreed at the outset of the project that regular, periodic monitoring surveys would be implemented once the baseline was established. Further, modalities would be agreed based on capacity of DES, agreed sources of information, and agreed periodicity. Discussions are being initiated with DES/Planning on the coverage, sample design, and periodicity of regular monitoring surveys. It is unlikely that these will be combined with the ongoing NSS state sample, both for reasons of geographic coverage and desired disaggregation as well as breadth of information needed. It is desirable that the first of these surveys be launched in January, 2002, two years after the mid-point of the baseline survey and well enough into the reform initiative that there may be evidence of real improvements (e.g. in delivery of key services). Note that no new survey work should be undertaken until the national and state sample frames are redone based on the 2001 Population Census (hopefully by Jan, 2002). (ii) community-based monitoring in high profile districts. - 52 - Progress, Immediate Next StePs. Following on earlier discussions, a draft proposal has been prepared with close links to performance monitoring and the governance component of the program. This will be discussed and agreements reached shortly (planned June, 2001) on initial actions required for implementing a pilot program. There are still outstanding questions regarding the role of DES and line departments within GOUP, and the advisability of involving local research organizations or NGOs in providing an audit function on administrative data. Note that one of the key objectives of the district level work is to improve the quality and accessibility of the vast amount of information collected by various implementing departments at the block and district level. (iv) monitoring of regionally disaggregated intermediate indicators (e.g. prices, wages) Progress. Immediate Next Steps. Price and wage data are collected on a monthly basis. Work is underway to develop a database system to make these data more readily available as well as reporting formats. ( v) participatory studies, monitoring of qualitative outcome indicators. Progress. Immediate Next Steps. These will be discussed after building stronger analytic and monitoring capacity in the Planning Department, and getting the fundamentals of the statistical system better in place. 4. Institute regular reporting process, undertake policy and program analysis to inform decision making, particularly linked to reforms Baseline data and first report under preparation. Further plans to be discussed and agreed over next 4-6 months. 5. Disseminate reports widely to public at large as well as a range of stakeholders, undertake information workshops, other dissemination exercises. GoUP held informal workshop to discuss draft UP Poverty Assessment and UP PSMS in October. 2000. which was attended by a number of non-government individuals, including staff from several well-known research institutes. Planning follow on meetings when UP Poverty Assessment is released, also to disseminate findings of baseline monitoring report. Further dissemination efforts to be discussed, including broader dissemination on information at the local level. Outcome Indicators 1. Reductions in poverty levels, including measurable improvements in backward districts. 2. Improvements in living conditions for vulnerable groups, especially socially excluded or marginalized groups. - 53 - Additional Annex 12.Pove rty and Social Impact Indicators - Table 2 (current baseline estimates) POVER7YAND SOCIAL IMPACT/ND/CATORS- Table 2(cunrentbaseline estfmates} Geographicl Reporting social group Data Sources Periodicity Current baseline estimateslsource disaggregation . Consum,ofon and lncome Annual growth rate State UP DES, Annual state series Annually Gross State Domnestic product: 1997-98 0.1%; 1998-99 -6.9%; 1999-00 5.7%; Agriculture and Allied Services: 1997-98 -4.4%; 1998-99 2.7%; 1999-00 5.7%; Industry: 1997-98 -0.2%; 1998-99 14.3%; 1999-00 5.4%; Services: 1997-98 4.8%; 1998-99 6.5%; 1999-00 5.9%. Source: UP DES, at 1993-94,pnces Per-capita monthly expenditure State, Urban/Rural, Quinquennial NSS Consumer Every 5 1999-00: Rs./person/month (30 day reference period) NSS Regions; Expenditure Survey, central years Total expenditures 466.7 (100%) Poor - non-poor, and state samples. Total food 268.0 (57.4%) SCIST - majority Cereals 98.0 (21.0%) Education 10.5 (2.2%) Medical 38.6 (8.3%) Soarce: 55 Round NSSO, central sample. Data from 55th state sample is being processed Poverty: Headcount, Poverty-ap, FGT P2 measure (seventy of poverty) State, Urban/Rural, Quinquennial NSS Consumer Every 5 Current Baseline Estimates not available, pending resolution of intemal NSS regions; Expenditure Survey, central years discussion on comparability of NSS 55t round with previous rounds of SC/ST majority and state samples. the NSS. (see UP poverty assessment for fuller details) Forecasting model in intervening years Employment and wages: Wages (agdculture, non-agricultuim) and (proposed) prices State, Urban/Rural, UP DES, monthly monitoring at . Monthly See below * District block and district level. - 54 - Geographic/ Reporting Social group Data Sources Perlodicity Current baseline estimatesfsource disaggregation j Employmerit Status (Note that different defln/mons are used byLO and NSSO) State, Baseline set by UP DES To be Indicator reflecting ILO definition is being processed based on 55t1 Urban/Rural, NSS administered Poverty Module, finalized, state sample. Regions; state-sample 55t round, follow- anticipate 12- Poor - non-poor; up through light/priority survey 18 months 1999-00: Employment status according to principal usual status SC/ST - majority agreed in project proposal, (primary and subsidiary activities), number of persons per 1000 sampling and design to be pplto SOdfnto discussed and finalized with populaton - NSSO definition GOUP after release of baseline Note that this measure is different from employmentratewhich is report and internal discussions. calculated as a ratio of working individual over those who work or Quinquennial NSS Consumer 5 years looking for work, among the working-age population- ILO definition Expenditure Survey- Rural Urban Employment/Unemployment Men Women All Men Women All module, central and state 481 201 345 490 94 304 samples. Source. 55h Round NSSO, centra/sample. 10 years Data is forthcoming Populaton Census of India hbealf. Pementage of children that have been immunized State, Baseline set by UP DES To be Data from 55th state sample is being processed Urban/Rural; administered Poverty Module, finalized, NSS Regions; state-sample 55ih round, follow- anticipate 12- Poor - non-poor; up through light/priority survey 18 months SC/STr- n agreed in project proposal, SC/ST - majority; sampling and design to be Boys - girls discussed and finalized with GOUP after release of baseline report and internal discussions. Data is forthcoming Administrative data 5 years 1998-99, 12-23 months age group: 29.5% had no vaccinations Sample survey of households 21.2% had all vaccinations such as National Family Health Source. :Wation7aFamndv Hea//h Sun'ey(H'FhS-2) Inhemat/enal Survey (NFHS-2) Institute for Population Stud/es, Measure DHS, ORC Macro - 55 - GeographicW Reporling social group Data Sources Pe{ dic i Cunent baseline estimatesesource .disaggregationI Infant Mortality State, Urban/Rural; Sample Registration System, Annual 1998:85 death per 1000 live births NSS Regions; Office of the Registrar General Source: Office of the Registtrar General Poor - non-poor; (ORG) SC/ST - majority; 5 years 1998- 1999: Number of death per 1,000 live birth, 0-4 years preceding Boys - g irls Sample survey of households tesre ovll 1 such as National Family Health the survey -overall 116 Survey (NFHS-2) Source: NationatlFamily Heal/th Survey(NFHS-2) international lnstAtule for Population Studies, Measure DHS ORC Macro Education. Literacy State, Urban/Rural; UP DES To be Data from 55t round state sample is being processed NSS Regions; finalized, Poor - non-poor; 12-18 mos SC/ST - majority; Boys --girls Sample survey of households such as National Family Health 5 years 1998-99: Men - 71.8% Women - 62.7% Survey (NFHS) Source: National Family Health Survey(NFHS-2) Intemational Institute for Population Studies Measure D/HS ORCMacro Population Census of India 10 years Feb, 2001: Men -70.9% Women -51.2% AI-61.1% Source. Census of India 2001 Enrollment rates for children aged 5-14 years State, Urban/Rural; UP DES To be Data from 55t state sample is being processed NSS Regions; finalized, Districts; 12-18 mos Poor - non-poor; SCIST - majority; Boys - girls Administrative data Annual Data is forthcoming Population Census of India 10 years t________________ I _ Data is forthcoming Drop-out ates for children aged 5-14 years State, Urban/Rural, Department of Education, Annual Data is forthcoming Region, District; Administrative Data Boys - girls Completion rates for children, primary, secondary State, Urban/Rural; UP DES To be Data from 55th state sample is being processed NSS Regions; Finalized, Poor - non-poor; 12-18 mos SC/ST - majority; Boys - girls Administrative data, Department of Education Annual .________________ __________________________ __________ Data is forthcom ing - 56 - Geographicl Reporting social group Data Sources Perodicity Current baseline estimatesisource disaggregration Housing Condiffions: Percentage of households living in slum areas State SUDA data base Annual Data is forthcoming Percentage of households having latrine facilities in their house State, Urban/Rural; UP DES, District Monitoring To be Data from 55t state sample is being processed NSS Regions; finalized, 12- Selected distr. 18 mos Poor - non-poor; SC/ST - majority Distribution of households according to the source of drinking water State, Urban/Rural; UP DES, District Monitoring To be Data from 55th state sample is being processed NSS Regions; finalized, 12- Selected distr.; 18 mos Poor - non-poor; SC/ST - majority Percentage of households living in electrified dwellings State, Urban/Rural; UP DES, District Monitoring To be Data from 55th state sample is being processed NSS Regions; finalized, 12- Selected distr. 18 mos Poor - non-poor; SCIST - majority Paticlpation in government program&:Access to Anti-poverty programs and schemes (percentage of persons Benefiting from employment/welfare schemes such as public works, TPDS, IRDP) State, Urban/Rural; UP DES, District Monitoring To be Data from 55th state sample is being processed Selected distr. finalized, 12- Poor - non-poor; 18 mos SC/ST - majority - 57 - Geographic Reporting Social group Data Sources Periodicity Current baseline estimates/source disaggregation l Health (percentage of pregnant women registered for prenatal care during last one year and Percentage of deliveries attended by Doctor/Trained Nurse/Dal during last one year) State, Urban/Rural; UP DES To be finalized, 12- Data from 55th state sample is being processed Selected distr. 18 mos Poor - non-poor; SC/ST - majodty I Education (Percentage of children enrolled in non-formal or altemative schooling programs and Percentage of 0-5 year-olds attending ICOS anganwadis State, Urban/Rural; UP DES To be finalized, 12- Data from 55th state sample is being processed Selected distr. 18 mos Poor - non-poor; SC/ST - majority; Boys - girls Awareness of heal/fh rograms andsocaa//7ghts: Percentage of households aware of the following: Immunization of children, vaccination of pregnant women, Iodized salts, Use of ORT, Contraceptives, Minimum wage act, etc. State, Urban/Rural; UP DES To be determined Data from 55th state sample is being processed Selected distr. Poor - non-poor; SC/ST - majority Access to faclllties/sen',ces.' Distance to nearest fcility/service, Metalled Road, Other roads, Railway station, Bus stop, Police Station, Post office, Telegraph road, etc. State, Urban/Rural; Administrative data Annual Data is forthcoming Selected distr. Poor - non-poor; SC/ST - majority Qualily ofservices: For health: availability of medical staff in govemment facilities, etc., For education: teacher qualifications and training, etc. For water and sanitation: number and location of tubewells. State, Urban/Rural; UP DES To be finalized, 12- Data from 55th state sample is being processed Selected distr. 18 mos Poor - non-poor; SC/ST - majority = Other Indicators, comments, etc. Wherever feasible indicators will be collected through integrated household-survey instruments so as to permit disaggregation by important Groups of interest, such as by gender, poor/non-poor, backward regions, socially disadvantaged groups, etc. Other important performance monitoring indicators such as school learning achievement and behavioral outcomes, process indicators such as whether test-books and other material reach schools in time, teacher attendance and regularity, etc., supplementing quantitative data with qualitative assessments, etc to also be eventually incorporated into the monitoring system once capacity within GOUP/DES improves. *Current Baseline Estimates: 1993-94-1998-99, 1999-00 pending Real Agr. Wage Index (1993=100) 93-94 94-95 95-96 96-97 97-98 98-99 Actual Wages (Rs. 1993-94) UnskilledAverage 100.0 96.9 99.2 96.6 108,7 109.6 31.0 Himalyan 100.0 95.6 99.8 96.9 103.9 104.7 39.1 Western 100.0 95.1 95.4 91.8 105.5 105.1 36.9 Central 100.0 97.4 103.3 100.0 109.1 110.7 25.8 Eastem 100.0 98.0 100.1 99.6 113.2 113.2 27.2 Southem 100.0 100.2 105.1 95.9 101.5 114.9 28.4 - 58 - Additional Annex 13.Ba ckground and Task Team This is the Implementation Completion Report (ICR) for the Uttar Pradesh Fiscal Reform and Public Sector Restructuring (UPFRPSR) Credit/Loan, for an amount equivalent to US$251 million. The operation was approved by the World Bank in April 2000 and disbursed to the Government of India (Gol) in May 2000. The proceeds of the loan/credit were received by the Government of Uttar Pradesh (GoUP) in June, 2000. The UP Fiscal Reform and Public Sector Restructuring Credit/Loan supported the launch of multi-year fiscal and governance reforms by the Government of Uttar Pradesh, to turn around a situation of econornic stagnation and slow progress in reducing massive poverty in the state. The operation was part of an overall program of assistance to the state of Uttar Pradesh. The one-tranche operation was approved on the basis of up-front actions taken by the GoUP during 1999-00 (April-March), the first year of a medium-term fiscal and governance refonn program. The ICR was prepared by a team led by Manuela Ferro and V. J. Ravishankar (SASPR, Senior Economists and co-Task Leaders), under the guidance of Edgardo Favaro (SASPR, Lead Economist). Team members included Sanjay Pradhan, Farah Zahir, Robert Beschel, Valerie Kozel, Vikram Chand, Rajni Khanna, Jillian Tullett, Vinod Ghosh (SASPR), Clive Harris (SASFP), Vinod Sahgal (OEDCM), and T. K. Balakrishnan (SASRD). Useful comments were received from Manuel Penalver (SARVP), Salvatore Schiavo-Campo, Edward Mountfield, Mark Sundberg, Elena Glinskaya, Lili Liu (SASPR), Mohinder Gulati, Sameer Shukla, and Kari Nyman (SASEG), and Shahrokh Fardoust (DECVP). The ICR was reviewed by Roberto Zagha (Sector Director), Edwin Lim (Country Director), Joelle Chassard (Country Coordinator) and Christopher Hoban (Operations Advisor). Preparation of the ICR began in November 2000. An ICR Mission visited New Delhi and Lucknow during January 29-February 16, 2001 and the Aide Memoire of the ICR Mission is attached as part of the supporting documentation. A matrix of Reform Output/Process/Outcome Indicators is attached as Annexes 9, 10, 11 and 12. This ICR is based on the Government of UP's audited accounts for 1999-00, which have become recently available. The ICR also looks forward beyond the specific program supported by the operation, and analyzes the "revised estimates" presented by the GoUP for 2000-01. In the area of governance, the ICR reviews the follow-up actions and initial outputs/outcomes, based on information available for the first 3 quarters of 2000-01, the second year of the reform program. The borrower (Government of India) and implementing agency (Government of Uttar Pradesh) contributed to the preparation of the ICR with their own evaluations of the operation. - 59 -