The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) REPORT NO.: RES56976 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TAMIL NADU RURAL TRANSFORMATION PROJECT (TNRTP) APPROVED ON DECEMBER 1, 2017 TO INDIA AGRICULTURE AND FOOD SOUTH ASIA Regional Vice President: Martin Raiser Country Director: Auguste Tano Kouame Regional Director: Dina Umali-Deininger Practice Manager/Manager: Oliver Braedt Task Team Leader(s): Samik Sundar Das The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) ABBREVIATIONS AND ACRONYMS CAP COVID-19 Assistance Package CFS Community Farm School CSS Community Skills School DDS District Diagnostic Study DEA Department of Economic Affairs ECP Enterprise Community Professional EDP Enterprise Development Program EG Enterprise Group GoI Government of India GoTN Government of Tamil Nadu IBRD International Bank for Reconstruction and Development IDP Integrated Digital Platform IFC International Finance Corporation INR Indian National Rupee IP Implementation Progress IRI Intermediate Results Indicator MSC Migrant Support Center NEFF Nano Enterprise Financing Fund OSF One Stop Facility PC Producer Collective PDO Project Development Objective PG Producer Group PGP Participatory Growth Plans QR Code Quick Response Code TNRTP Tamil Nadu Rural Transformation Project TSA Technical Support Agency US$ United States Dollar VCA Value Chain Analysis VKP Vaazhndhu Kaattuvom Project The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) BASIC DATA Product Information Project ID Financing Instrument P157702 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 01-Dec-2017 30-Nov-2023 Organizations Borrower Responsible Agency Department of Economic Affairs, Govt. of India Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to promote rural enterprises, access to finance, and employment opportunities in selected blocks of Tamil Nadu. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-87950 01-Dec-2017 30-Jan-2018 28-Feb-2018 30-Nov-2023 86.62 56.05 30.57 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. The Restructuring Paper seeks to (i) extend the project closing date of the Tamil Nadu Rural Transformation Project (TNRTP) by one-year from November 30, 2023 to November 30, 2024; (ii) partially cancel US$ 3.31 million accrued on account of exchange rate gains; and (iii) reallocate the funds among components and categories. The restructuring paper also clarifies the definition of one Intermediate Result Indicator (IRI). The overall design, Project Development Objective (PDO), components / sub-components, institutional, implementation, fiduciary, and environmental and social safeguards category remain unchanged. This is the third restructuring. B. Summary of Project Status 2. Background: TNRTP, locally known as the Vaazhndhu Kaattuvom Project (VKP) aims to promote rural enterprises, access to finance, and employment opportunities in selected blocks of Tamil Nadu. The IBRD loan of US$ 100 million was approved by the World Bank in December 2017, and the project became effective in February 2018. The project is operational in 3,994 villages spread across 120 blocks in 31 districts. The project has undergone two restructurings: (a) The first restructuring was in August 2020 in response to the Government of Tamil Nadu’s (GoTN) request to design and implement the COVID-19 Assistance Package (CAP) in designated project areas to urgently address financial and business survival issues faced by enterprises due to COVID-19 lockdown and associated restrictions. (b) The second restructuring was done in January 2021, post the mid-term review of the project to (i) cancel the exchange rate savings, (ii) revise project activities in light of the evolving pandemic situation and to include a new project sub-component (Nano Enterprise Financing Fund) to integrate CAP elements into the project design, (iii) reallocate funds among project components and categories, and (iv) update target numbers and revise selected intermediate results indicators by components to reflect changes in project activities. 3. The project interventions are grouped into four main components: Component 1 - Rural Enterprise Ecosystem Development; Component 2 - Enterprise Business Plans Financing; Component 3 - Skills and Job Opportunities; and Component 4 - Project Management, Results Monitoring, and Implementation Support Systems. 4. Status: The project had encountered delays at the start of the implementation but gained momentum in January 2020 and has maintained an impressive implementation pace since. The project has disbursed US$ 56.05 million, i.e., 64.7% of the total loan amount. The project has reached 95.6% of target beneficiaries and is currently rated as Moderately Satisfactory both for Implementation Progress (IP) and achieving the PDO. Progress across the various project components is discussed below. The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) 5. Component 1 - Rural Enterprise Development Ecosystem: The project has completed all analytical activities in terms of preparing District Diagnostic Studies (DDS) to identify prioritized commodities and sub-sectors, and Value Chain Analysis (VCA) to identify opportunities, challenges, and risks in the value chain of the prioritized commodities and develop strategies for enterprise promotion. The project also engaged with the community to prepare Participatory Growth Plans (PGP) to validate the findings of the studies and strategize at the village level. The project has prepared DDS across all 31 districts. VCA was undertaken for 26 commodities which were prioritized in the DDS. These studies were validated across 3,994 villages through the PGP. 6. Further, the project has established 42 One Stop Facility (OSF) centers across project districts to facilitate technical and financial assistance for rural enterprises. The project has supported 91,263 individual enterprises; 1,000 enterprise groups (EGs); 5,000 producer groups (PGs); and 53 producer collectives (PCs). Start-up fund to the tune of US$ 8.5 million (INR 70.5 crore) has been disbursed in multiple tranches to collective enterprises and utilization of start-up fund is being closely monitored. The project has also onboarded and trained 3,994 Enterprise Community Professionals (ECPs) to facilitate project activities on the field. Four Technical Service Agencies (TSAs) for capacity building of PGs and PCs covering five regions have also been onboarded. 7. Component 2 - Rural Enterprise Development Ecosystem: The project, is implementing the Matching Grant Program (MGP) to facilitate access to commercial finance for rural enterprises, with technical assistance from International Finance Corporation (IFC). The project has signed agreements with 13 commercial banks (public and private sector) and so far, 2,306 enterprises have accessed commercial finance amounting to US$ 8.15 million (INR 66.90 crore). Apart from MGP, the project facilitated commercial financing for 1,839 enterprises (amounting to US$ 6.21 million / INR 50.95 crore) through convergence initiatives. The project also enabled 5,206 enterprises with QR code / Aadhar Enabled Payment Systems (AEPS) to accept digital payments. The project has also initiated financing through the community institutions under Nano Enterprise Financing Fund (NEFF). Loans amounting to US$ 860,975 (INR 7.06 crore) have been disbursed to 1,378 enterprises. 8. The project, under the Business Innovations sub-component, has initiated 13 innovation / green pilots in food service, textiles, renewable energy, wellness, and creative industries sub-sectors. The project is also working on a solution challenge for crowd sourcing ideas to address specific challenges faced by these 13 pilots. The project has signed an agreement with the women-only incubator promoted by the Government of Telangana (WeHub) for setting up a co- create center to provide higher-order business incubation and acceleration support to enterprises referred by the OSFs. 9. Component 3 – Skills and Jobs Opportunities: The project has set up 1,519 Community Skills Schools (CSS) and 5,392 Community Farm Schools (CFS) to provide skills training to youth, entrepreneurs, and farmers on practical aspects of their trade. So far, 198,557 beneficiaries have been trained. The project has also trained 24,325 beneficiaries through convergence with other government programs. Several of the trained beneficiaries through CSS and convergence programs have been employed as wage workers or have set up individual / group enterprises. The project has also provided Entrepreneurship Development Training (EDP) to 6,391 Enterprise Community Professionals (ECPs) and The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) entrepreneurs. Further, to build the capacity of CFS trainers (called SPARKs), the project has signed agreement with several institutions. The project has also set up a Migration Support Center (MSC) in Chengalpattu district. 10. Component 4 - Project Management, Results Monitoring and Implementation Support System: The project is well- staffed at the state, district, and blocks levels with minimal vacancies. The project is in the process of bridging the gap and is also hiring additional consultants for agri-finance, digital payments and book-keeping. The finance and procurement systems under the project have been functioning well and have been rated ‘satisfactory’. The project has also implemented a fully functional Integrated Digital Platform (IDP) to regularly update and track project performance at all levels. Further, the project has instituted a robust in-house process monitoring system and has onboarded the technical agency for final impact evaluation. All financial audits are completed as per schedule. C. Rationale for Restructuring 11. The proposed restructuring is in response to the written request dated August 17, 2023, which was received from the Department of Economic Affairs (DEA) supporting the GoTN’s request by the World Bank on August 18, 2023. 12. Despite initial delays, the project was able to make significant progress in the last two years and has been able to establish systems and processes and achieve several key milestones. Although the project is on track to achieve key results indicators, for full realization of all indicators and satisfactory achievement of PDO, an extension of closing date would be required. A one-year extension of the closing date is proposed to complete the remaining project activities, fully utilize IBRD resources, and achieve the results indicators while focusing on quality and sustainability aspects. The extension will also support the completion of the implementing cycle of few critical activities. A brief description of activities to be conducted in the extension period is provided in the subsequent section. 13. Based on assessment of project activities during the extension period, the project reassessed the activity-wise funding requirement which resulted in a reallocation of funds among project components and categories. Further, the project gained US$ 4.16 million in the form of exchange rate gains. While the GoTN plans to utilize US$ 0.85 million for undertaking pilots, it proposes to cancel the remaining US$ 3.31 million. II. DESCRIPTION OF PROPOSED CHANGES D. Activities to be Undertaken during Project Extension 14. An extension of the implementation period will allow the project to undertake dedicated efforts to achieve the remaining results indicators, as well as provide necessary handholding support to improve the quality and sustainability of interventions beyond the project period. Details of activities that will be undertaken during the extension period are discussed below: Activities aimed at achievement of results indicators The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) (a) Formal financing of nano and micro enterprises: There were considerable delays in the operationalization of the MGP due to a delay in onboarding of the technical support agency. The project, since partnering with IFC in August 2022, has achieved 45.7% of the target. A one-year extension will allow the project to complete the target and monitor repayments for a period of at least 6-months. (b) Community financing of nano enterprises and promotion of Business Correspondents (BCs): Initiatives like Nano Enterprise Financing Fund (NEFF), the promotion of BCs, were included as part of the previous restructuring to complement ongoing project efforts and expand the scope of services being offered to entrepreneurs. The project has onboarded the human resources to initiate these activities and will be able to meet the targets by the end of the extension period. (c) Completing skilling target through convergence programs: The project has trained nearly 60,500 candidates in various skills either through CSS or through convergence initiatives. So far, the project has placed 38,868 candidates in wage employment and entrepreneurship activities. The project, in the initial stages, faced several constraints such as, mobilizing the right candidates, accessibility of trainings centers, and lack of awareness. The project has taken necessary steps to course correct and expects to place 60,000 candidates in wage employment or entrepreneurship opportunities. (d) Operationalizing MSCs: The MSC was conceptualized as a walk-in resource center for the rural migrants, who have moved from their native place in search of better employment prospects. The project has, so far, established one MSC and provided support to 71 migrants. While there was a delay in launching the MSC due to conceptual issues and identification of appropriate locations for the center, the project has now initiated the procurement process to establish MSCs near industrial hubs. The partner agencies are likely to be onboarded by November 2023, but an extension period will be required to operationalize the MSCs. The project is also exploring the possibility of providing services through the OSFs to expand reach of services and ensure sustainability of the intervention. The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) Activities aimed at improving quality and sustainability of interventions (e) Facilitating a more rigorous training of project staff and community professionals: The extension period will allow the project to invest in the human resources at the state, district, block, and community level to augment their technical and management skills. As the project interventions mature, the augmented capacities will bring in rigour at the field level to support project interventions. (f) Improving quality of service delivery at OSFs: The project has established 42 OSFs across the project districts. To test the sustainability potential of the OSF beyond project support, the project mandated the collection of service charges from OSF customers since January 2023. The extension will help strengthen service delivery at the OSF and contribute to the achievement of the overall PDO. During the extended period, the project will institute mechanisms for digital tracking of OSF services, explore convergence with MSME department for situating the OSFs in the larger enterprise development ecosystem of Tamil Nadu, and broaden the array of services provided at the OSFs. (g) Strengthening sustainability of producer collectives: The project has promoted grassroot level PGs in certain prioritized commodities and providing them with intense capacity building and handholding support. Many PGs have been linked with higher order collectives (such as PCs) and have been supported to undertake market facing activities. The extension period will allow the project to monitor the performance of these collectives for an additional period of one-year and ensure their sustainability and growth. (h) Developing enterprise clusters: The project has formed 1,000 EGs in various non-farm sectors. The project, in the extension period, has proposed to pilot a cluster-based approach to provide higher-order technical and market facing support to EGs engaged in similar trades/commodities in geographically contiguous areas. This cluster formation would help in increasing productivity, enhancing resource efficiency, and leveraging volumes to develop sustainable marketing strategies. (i) Bringing-in innovative solutions: The project has implemented 13-innovative pilots to scale-up new technologies / green innovations in Tamil Nadu. As several these pilots are driven by the community members and the project staff, they are facing technical and marketing challenges. The project plans to address these challenges by bringing in private sector with relevant knowledge and skills. Technical support agency for developing problem statements and identifying private sector solutions has been onboarded and the identified solutions will be implemented and monitored in the extension phase. (j) Operationalizing the co-create center: The co-create centre is envisaged as a physical space with conducive infrastructure and professional expertise for entrepreneurs to receive customized operational advice on market linkages, financing, and business activity. The centres will operate in close coordination with the OSFs and will build on existing platforms and bridge the gaps in the ecosystem to provide high-end business incubation services to women enterprises. While the project has onboarded the technical agency to set-up the centre, it will become functional in the extension period. The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) (k) Integrating IDP with other platforms: While the project has initiated activities towards the linkage of IDP with several data portals / platforms of the GoI and GoTN, the extension will ensure the integration and use of these systems effectively. E. Reallocation of Funds among Components and Categories 15. The assessment fund requirement to finance the above-mentioned activities has necessitated a reallocation of funds among project components and categories. The following table presents the is the revised allocation among project components: (Amount in US$ million) Project Components Current Allocation Revised Allocation 1 Rural Enterprise Ecosystem Development 46.00 59.36 2 Enterprise Business Plan Financing 32.24 22.19 3 Skills and Job Opportunities 26.47 22.87 Project Management, Results Monitoring and 4 18.81 19.10 Implementation Support Systems Total 123.52 123.52 16. The revised allocation among project categories is presented in the following table: (Amount in US$ million) Project Categories Current Allocation Revised Allocation Goods, works, non-consulting services, consultant 1(a) services, operating costs, training and workshops for the 45.67 42.86 project 1(b) Start-up fund grants 32.03 32.00 2 Matching grants under Component - II 8.67 8.20 3 Front end fee 0.25 0.25 Total 86.62 83.31 F. Clarifying Definition of an Indicator in the Results Framework 17. IRI 1, ‘Approved Village Investment Plans (VIPs) leveraging finance through convergence (Percentage)’ is calculated as a percentage of villages wherein at least one activity is implemented in convergence with other government departments (inter alia department of agriculture, horticulture, animal resources, fisheries, rural development, industries) as per plan detailed out in the VIP of that panchayat / village. Finance in this case refers to expenditure incurred by the implementing department. The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) 18. The results framework remains unchanged as under: Indicator Baseline Target Project Development Indicators (PDO) PDO 1: Project direct beneficiaries 0 483,682 PDO 1a: Female beneficiaries 0% 65% PDO 2: Enterprises (individual and collective) with ongoing operations after 0% 50% two years of project support PDO 3: Project beneficiaries engaged in self or wage employment following 0 60,000 training facilitated by the project PDO3a. Female beneficiaries accessing convergence services through the 0 16,000 project PDO 4: Enterprises (individual and collective) supported by the project 0 5,753 leveraging funds from financial institutions Intermediate Results Indicators (IRIs) IRI 1: Approved VIPs leveraging finance through convergence 0% 50% IRI 2: Project promoted enterprises (individual and collective) that avail of 0 99,732 technical and business development services facilitated by project IRI 2a: Individual Enterprises 0 93,682 IRI 2b: Collective Enterprises, Producer Groups and Producer Collectives 0 6,050 IRI 3: Individual Enterprises receiving Nano Enterprises financing fund from 0 15,000 community institutions VPRC / PLF IRI 3a: Enterprises run by Differently able and vulnerable member 0% 30% IRI 4: Number of Innovation pilots approved 0 5 IRI 5: Service providers trained and deployed 0 5,000 IRI 5a: Business Correspondents 0 500 IRI 6: Beneficiaries accessing Support services through the Migration support 0 4,000 centers (MSC) IRI 7: Grievances registered related to the Project that are actually addressed 0% 90% III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Rural Enterprise Ecosystem Rural Enterprise Ecosystem 46.00 Revised 59.36 Development Development Enterprise Business Plan Enterprise Business Plan 32.24 Revised 22.19 Financing Financing Skills and Job Opportunities 26.47 Revised Skills and Job Opportunities 22.87 Project Management, Results Project Management, Results Monitoring and Implementation 18.81 Revised 19.10 Monitoring and Support Systems The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) Implementation Support Systems TOTAL 123.52 123.52 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-87950 Effective 30-Nov-2023 30-Nov-2024 30-Mar-2025 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation LOAN Disburs IBRD- RESTRUCTUR ing&Re USD 86,620,000.00 3,310,000.00 18-Aug-2023 83,310,000.00 87950-001 ING, COST paying SAVINGS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-87950-001 | Currency: USD iLap Category Sequence No: 1A Current Expenditure Category: Gds,Wks,NCS,CS,OC,Trng,Wkshp 45,667,882.00 22,441,755.61 42,860,000.00 70.00 70.00 iLap Category Sequence No: 1B Current Expenditure Category: Startup Fund Grant 32,032,118.00 31,166,447.93 32,000,000.00 70.00 70.00 iLap Category Sequence No: 2 Current Expenditure Category: Matching Grant Compo II The World Bank Tamil Nadu Rural Transformation Project (TNRTP) (P157702) 8,670,000.00 2,193,674.95 8,200,000.00 70.00 70.00 iLap Category Sequence No: FEF Current Expenditure Category: FRONT END FEE 250,000.00 250,000.00 250,000.00 Total 86,620,000.00 56,051,878.49 83,310,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 0000 0.00 0.00 2018 0.00 0.00 2019 0.00 520,967.01 2020 0.00 2,711,382.96 2021 0.00 31,124,610.00 2022 20,100,000.00 20,100,000.00 2023 0.00 12,940,121.90 2024 0.00 19,960,000.00 2025 0.00 9,390,428.41 .