INDIA ProposedRestructuringof Five Projectsto Meet UrgentFinancingNeedsfor Polio Eradication Table of Contents Proposed Restructuring ....................................................................................... 2 Background on Polio Eradication....................................................................... 3 TheProposed Additional Supportfor India 's Polio Eradication Program and Rationalefor Association's Intervention ............................................................... 4 Program Objectives and Description ................................................................... 5 Program Implementation Arrangements .............................................................. 6 Risks and Sustainability..................................................................................... 8 Attachments ScheduleA: Estimated Program Costs and Sources of Financing .............................. 9 ScheduleB: Implementation Status of Five Projects Proposed to be Restructured.........10 Schedule C: Schedulefor Funding Oral Polio Vaccine and Operational costs............ 12 ScheduleD: Financial Management and Disbursement Arrangements ..................... 13 ScheduleE: The WorldBank in India - Country Brief. ............................................ 15 ScheduleF. India at a Glance........................................................................... 19 2 INDIA ProposedRestructuringof Five Projectsto Meet Urgent FinancingNeeds for PolioEradication A. ProposedRestructuring 1. This proposal is submittedto seek approval to restructure andreallocate the credit proceeds from five projects to support the urgent financing needs for polio eradication activities in India. The details of these five projects and the amounts o f the proposed 1 reallocationfrom each o f them are presented inthe table below: Sector Projects Current Original Credit Balance Proposed closing Credit Disbursed Credit reallocation for date Amount as of 16 available as Polio Eradication August of 16, 2004 August,2004 SDR million 3DR million SDR million SDR million Iealth Malaria Control March 31, 86.11 6.81 (Cr. 29640-IN) 2005 Iealth Orissa Health March 31, 56.80 21.86 34.94 17.02 Systems 2005 Development (Cr. N0410-IN) Iealth Tuberculosis June 30, 89.22 54.81 34.41 10.21 Control 2005 (Cr.29360-IN) Iealth Women and September 222.50 96.30 126.20 17.70 Child 30,2005 Development (Cr. N0420-IN) ifrastructure Gujarat October 356.00 13.61 Emergency 3 1,2005 128.82 I 227.18 Earthquake Reconstruction (Cr. 36370-IN) TOTAL 810.63 359.44 1 451.19 65.35 3 B. Backgroundon Polio Eradication 2. Global situation. Tremendous progress hasbeen made inthe global fight against polio since 1988, when the World Health Assembly resolved to eradicate the disease. The Bank has beensupporting the Global Polio EradicationInitiative, the largest internationalpublic health effort to date, from its beginning. After 15 years that galvanized the support o f more than 200 countries and an international investment o f US$ 3 billion, the number o fpolio cases world-wide has decreased from an estimated 350,000 in 1988 to under 700 cases in2003. By July 2004, only 13 countries reported a total o f 440 wild polio cases and more than 90% o fthese cases are from Nigeria, Pakistan and India. The WHO estimatesthat nearly 5 million children, who could otherwise have been paralyzedby polio, are walking today. Once polio has been eradicated, the world will reap substantial financial, as well as social, dividendsdueto forgone polio treatment and rehabilitation costs. Dependingon national decisions on future use o fpolio vaccines, these savings could exceedUS$1 billionper year'. 3. Government of India's Polio EradicationProgram. The Government o f India (GOI) has been implementingpolio eradication activities since 1995 with technical support from WHO and UNICEF. Inaddition to UNagencies, several bilateral partners including DFID, DANIDA, EU, USAID, KFW, Japan and international NGOs such as Rotary have been supporting India's polio eradication program. The India Expert Advisory Group (IEAG), a body o f renowned national and international technical experts, guides the program and an Inter Agency Coordination Committee (ICC) facilitates integrated partnerresponse. The core program strategy includes implementationof supplementarypolio immunization activities by organizingnational and sub-national immunization days. An elaborate surveillance system for detecting all cases o f acute flaccid paralysis supported by an efficient laboratory network to test the stool samples for presence o f wild polio was established in 1997 and has been consistently providinghigh quality surveillance. India's polio eradication program progressedwell until 2001. The program suffered a major setback in2002 with an outbreak inthe state o f Uttar Pradesh(UP). Highlevel political commitment and prompt management responseto this challenge resulted inmarkedreductiono fpolio cases during 2003. The enhancedherd immunity following the 2002 epidemic also partly contributed to this decline. 4. Association's Support to PolioEradicationin India. The Association has been supportingpolio eradication activities inIndia since 1999 along with other development partners. This was done initially through the Reproductive and Child Health Project (CR. NI080-IN), and subsequently through the India Immunization Strengthening Project (Cr. 33400-IN) with an IDA credit o f SDR 106.5 million (US$ 142.6 millionequivalent). The latter project was approved on April 25,2000 and became effective inAugust, 2000. The 2002 epidemic placed a huge financing burdenon India's polio eradicationprogram which was met through a supplemental credit o f SDR 59.5 million (US$ 83.41 million equivalent) from the Association inDecember 2003 (Cr. 33401-IN). IWorld Health Organization: Global Polio Eradication Initiative Strategic Plan 2004-2008 ISBN 92 4 159117 X - 2003 4 C. The ProposedAdditionalSupportfor India's Polio Eradication Program and Rationalefor Association's Intervention 5. The India Expert Advisory Group (IEAG) meetingheld inJune 2004 concluded that the year 2004 provides a unique opportunity for India to achieve polio free status. This year, India has reported the lowest ever number of wild polio cases and the smallest immunitygap (proportion of nonpolio acuteflaccidparalysis cases with 0-3 doses of polio vaccine). The GO1has approved a comprehensive 3 year polio eradication program (2004-2006) recommendedby IEAGinFebruary2004. This program, inaddition to continuingthe ongoing polio eradication activities, involves substantive scaling-up o f activities in 2004. There is a marked increase infundingrequirements for the program due to greaternumbero fnationalimmunizationdays in2004 (5 national and 1sub national), and 29% increase invaccine costs (due to price increase and exchange rate fluctuations). These were not envisaged at the time of seekingthe supplemental credit. 6. The three year polio eradication program is estimated to cost US$ 482 million. Out ofthis US$300 million would berequiredfor the supplyo f oral polio vaccine while the balance (US$ 182million) would be neededfor operational costs (Table 1, Schedule A). Current partners financing thepolio program (Centers for Disease Control, USA; Department for International Development, UK; Government o f Japan, and KFW, Germany) have committed to finance 35% o fthe program costs and GO1is projecting another 5.5% further support from them (Table 2. Schedule A). The GO1i s contributing about 9% o fthe program costs while the existing IDA credit would cover 22%. The GO1 i s seekingto meet the remaining financing gap o fUS$ 136 million from IDA. Out o f this, at least US$ 93.6 million would be requiredduringthe next 12 months. This financing i s critical for sustaining the ongoing polio eradication program and to scale-up the activities during2004 as recommendedby the IEAG. 7. This proposal requests the restructuring o f five projects inorder to enable the reallocation of SDR 65.35 million (approximately US$ 96 million equivalent2) o f Credit proceeds under these projects to meet urgent financing needs for the polio eradication program inIndia. This will address the immediate financing gap for polio eradication and we will be seekingBoard approval at a later date for financing the remaining gap (about US$40 million) either through the second Reproductive and Child Health Project (RCH 11) currently underpreparation or through a stand alone operation. 8. The proposed reallocationfrom the 5 projects would be from the savings which are mainly due to favorable exchange rate variations between Special DrawingRights (SDRs)and Rupees, revisedcost estimates or changes inthe project scope. Inall these projects, the reallocations would neither compromise their original objectives nor affect their overall economic viability. Details of implementationprogress ofthe 5 projects proposed to be restructured are presentedin Schedule B. 9. A Letter of Amendment would be used to restructure and to reallocate the credit proceeds from eachof the five projects. As detailed inpart C o f this proposal, arrangements similar to that o f the ongoing ImmunizationStrengthening Project will be 2 SDR to US$exchange rate as of August 16,2004 5 usedto implement Polio EradicationActivities financed through reallocations from each o f the five projects proposed to be restructured. 10. Rationalefor Association's Intervention. The proposed restructuring is fully consistent with the over-riding CAS objective of assisting Indiato reduce poverty. Poliomyelitis affects the poor disproportionately and can cause premature death or lifelong disability that reduce the capacity o f an individual to benefit from education and employment opportunities as well as place a heavy burden on the health care system. As already stated, along with UNICEF and WHO, the Association has been supporting global polio eradication initiative and has evolved an innovative way o f financing for polio, the IDAbuy down. Working with Gates Foundation andRotary Intemational, the Association has prepared IDA buy down operations for Nigeria and Pakistan, which along with Indianow report the largest number o fpolio cases inthe world. WHO feels that 2004 provides a unique opportunity to eliminate polio from the globe and it is most critical to ensure sustainable financing for this end stage. As has beenthe practice, the Association would be the lender o f last resort. D. ProgramObjectivesandDescription Program0bjectives 11. The main purpose o f the proposed restructuring i s to assist GO1ineradicating poliomyelitis from the country which will contribute to global polio eradication. This will supplementthe ongoing ImmunizationStrengthening Project (Cr. 33400-IN) and the Supplemental Credit (Cr. 33401-IN)by financing additional "polio eradication activities" which include supply o f Oral Polio Vaccine (OPV), training, orientation, honorarium, consultant services, IEC material and services and mobility support needed for supplementaryimmunization activities during2004-2005. Description 12. A new component on Polio EradicationActivities'' will be added to the legal " documents o f the five projects proposed to be restructured to include financing for the polio eradication program in India. IDA will finance a part o f the procurement of OPV and operational costs for implementing the supplemental immunization activities during 2004-05 which include: (a) Five National ImmunizationDays (NID) and one Sub National ImmunizationDay (SNID)duringApril 2004 to February2005; and (b) Two large scale SNIDs during March 2005 to June 2005. ProgramCosts and Financing 13. As stated inparagraph 6, the GO1has requestedthe Association to meet the immediate financing gap o fUS$ 136 million. This immediate financing gap is proposed to be met as follows: . 6 Through Reallocation: 0 Orissa Heath Systems Project USD25 million 0 Tuberculosis (TB) Control Project U S D 15 million 0 Women and Child Development Project U S D 26 million 0 Malaria Control Project U S D 10 million 0 Gujarat Em. Earthquake Reconstruction USD 20 million Sub-total U S D 96 million (SDR 65.35 million) ThroughtheRCH11underpreparation or U S D 40 million a stand-alone operation Total U S D 136 million E. ProgramImplementationArrangements 14. The proposed activities will be implementedby the existing public health structures inthe states o f India, and the Ministryo f Health and FamilyWelfare (MOHFW)will overseethe implementationwithin the framework ofthe five projects proposed to be restructured. GO1has updated the Project ImplementationPlan o f the ImmunizationStrengthening Project to reflect the additional activities. Monitoring and Reporting for these activities will be camed out on the basis o f same arrangements that were formulated underthe Immunization Strengthening Project. 15. Procurement. Procurement procedures applied underthe Immunization StrengtheningProject will be continued for the polio eradicationactivities under the five projects proposedto be restructured. OPV procurement will beunder direct contracting from UNICEF, as is beingdone under the Immunization Strengthening Project. 16. Disbursement. Polio eradication activities include supply o f Oral Polio Vaccine (OPV) and operational costs. The Association has been reimbursing90% o f the total expenditure under the ongoing Immunization Strengthening Project and the same arrangement i s proposed under the five projects proposed to be restructured. Services of UNICEF will be usedby GO1for the supply o f OPV and the Association will advance 90% o f the total OPV cost to UNICEF allowing 3 months leadtime required to place orders. UNICEF will provide quarterly reports on the utilization o f the funds to the Association. For the operational costs, the GO1will initially incur the expenditure and seek reimbursement from the Association subsequently. A summary o f the disbursement schedule based on GOI's financing requirementis presented below and details are given inSchedule C. 7 17. We propose to disburse the reallocated proceeds of the credits under the five projects proposed to be restructured in such a manner as to utilize these proceeds within the current closing dates of the respective projects. 18. Financial Management. An acceptable financial management, accounting and reporting system has beenestablished for the Immunization Strengthening Project, includingarrangements for audits. The same systemwill continue to be usedfor the new polio component o f the five projects proposed to be restructured. A more detailed financial management assessment i s given in Schedule D. Lessons learnedfrom past operationsinthe countryhector 19. The proposed program for 2004-05 is built on the key lessons from the polio eradication activities inIndia since 1995. Firstly, strategic use of surveillance will be made for planningthe Supplemental Immunization Activities (SIA) including identifying and reaching the un-reached populations. The program i s very strongly built on a polio surveillance network which consistently monitors its quality indicators and i s rated to be one o f the best inthe world. Secondly, India's polio eradication program i s guided by the India Expert Advisory Group (IEAG) which consists o f eminent international and national experts. Thirdly, timely supply of vaccine i s very critical for SIA activities. UNICEF has done a commendable job inensuringthe timely supply o f OPV for the SIAs since the inception o f this program. It i s therefore proposed to continue procurement through UNICEF for the proposed reallocations also. Finally, the entire polio eradication program inIndia is built on partnerships with an active role played by the Interagency Coordination Committee (ICC). Environmentand socialaspects 20. The environmental category for the polio eradication activities is C as the program does not pose significant environmental risks. Oral vaccination, with the attenuated virus, has no significant negative environmental impact that would need to be addressed. The program will contribute significantly to the eradication o f wild polio virus from the environment. 21. As polio affects the poor disproportionately and immunizationcoverage is lowest inthepoor and socially disadvantaged groups, the polio eradication programhas a strong pro-poor focus. The program addresses the social inequities by developing specific strategies to immunize the "hard-to-reach" populations, using surveillance data. It places high priority on mobilizing communities and other key stakeholders to partner with government staff in the preparation of micro plans for polio eradication activities and their implementation. Traditional and religious leadershave beensensitized over the last few years and are now committed to the cause. Rejectiono fpolio vaccination i s now very low. 8 F. RisksandSustainability 22. Risks. While the global strategy has demonstratedresults inseveral countries, there i s a high risk that Indiamay not achieve polio free status by 2005. The reduced number o fpolio cases in2003 couldbepartly due to herd immunitycausedby the 2002 outbreak. There are also the usual risks associatedwith poor program management such as delayed funds flow for operational expenditure and weak implementationby the endemic states due to shortage o f field staff and frequent transfers o f key program managers. Some o f these factors seem to have contributed to an outbreak inNorthern Karnataka in2003 which subsequently spread to the neighboringdistricts o f Andhra Pradesh. Technically, there i s a remote risk o f the live weakened form o fpolio virus used for the vaccine mutating into a more aggressive, disease-causingform and this requires a comprehensive strategy to handle the post vaccine period. 23. Risk mitigation. Out ofthe 125 polio endemic countries thatjoined thepolio eradication initiative 15 years back, only 6 countries still remainendemic for polio. This suggests that current global strategy is appropriate. Surveillance data from India suggests that strategies inthe endemic states o fUP and Biharsuch as increased surveillance by medical officers, block monitors and special social mobilization activities helpedin reducing the immunity gap (proportion of non polio acuteflaccidparalysis cases with 0-3 doses ofpolio vaccine). GOI, with the support o f WHO and UNICEF, is extending similar approach to vulnerable pockets inother states. This along with the proposed intensive nation-wide coverage during 2004 i s expected to reduce immunity gap innon endemic states. 24. Sustainability. The GO1and the states are strongly committed to polio eradication and medium- term fiscal implications o f the program are relatively small. The supplemental immunization activities will end with eradication and there will be no needto sustain these. The program also enjoys support from key development partners including the DFID, EU, CDC, USAID, UNICEF and WHO, and other stakeholders. 9 Schedule A EstimatedProgramCosts and Sources of Financing Table 1. EstimatedPolioEradicationProgramCosts (US$ million) Oral Polio Vaccine 300.21 O~erationalcosts 181.95 Table 2. Sources of Financing IdentifiedbyGO1 I US$ million1 % Centers for Disease Control, USA 34.91 7.2 Department for International Development, UK 59.50 12.3 EuropeanUnion 18.00 3.7 1 Japan 19.50 4.0 ~~ ~ KFW, Germany 38.77 8.0 World Bank (existing + supplement) 106.80 22.3 Government of India 28.47 5.9 Requestedfrom WB 136.00 28.3 GO1proposed 13.60 2.8 Projected support form other partners 26.61 5.5 Sub Total 482.16 100.0 10 Schedule B ImplementationStatus of Five ProjectsProposedto be Restructured Malaria Control Proiect (Cr. 29640-IN). The SDR 86.11million Credit was approved on June 12, 1997 and became effective on September 30, 1997. As o f August 16,2004, about SDR 57.65 million have beendisbursed. The original credit closing date was extended twice and the current closing date i s March 31,2005. InMay 2003, at GOI's request, US$46.5 million were cancelled from the project. Slow start-up, implementation delays and procurement problems are main reasons for the sluggishprogress. A comprehensive action plan prepared by GO1during2004 has projected a savings o f about US$l0 million available from the credit for cancellation or reprogramming, Orissa Health Systems Development Project (Cr. No. NO410-IN). The SDR 56.8 million Credit was approved on June 29, 1998, and became effective on September 8, 1998. As o f August 16,2004, SDR 21.86 millionhave been disbursed. InMarch 2004 the project was restructured and credit closing date was extended up to March 2005 after a comprehensive review o f the action planprepared by the Government Orissa. At the time ofrestructuring, a saving of about US$25 millionequivalent was estimated. This was mainly due to delayed start up o f the project, slow implementation and the super cyclone that causedmassive devastation incoastal Orissa. These factors resulted in savings from salaries o f additional staff and operational and maintenance expenses. In addition, cancellation of major civil works like the Health Department Buildingand exchange rate fluctuations further contributed to the savings. India Tuberculosis ControlProiect (0.No. 2936-IN). The SDR 89.22 million Credit was approved by the Board on January 30, 1997 and became effective May 08, 1997. As o f August 16,2004, SDR 54.81 million have been disbursed. The project suffered from start up problems and saw delayed expansion o f tuberculosis services inthe early years. This ledto considerable savings which were amplifiedby exchange rate fluctuations and unexpected fall inthe prices o f goods and equipment to be procured under the project. Followingthe mid-termreview, the project was restructured inMay 2002. The project has subsequentlymade impressive progress both interms o f infectious patients successfully treated as well as ininstitutionalization o fprogram reforms. Nevertheless, the achievements on the ground have not been matched by disbursements under the project, mainly due to under-utilization o fthe budgeted allocations to States. An interim cancellation o f SDR 9.176 millionwas carried out inJanuary 2004. Based on a recent financial review, the GO1has requested the Bank to extend the project by one more year and reallocate estimated savings o f SDR 10.975 million. Womanand Child Development Project (Credit N-042-IN). The SDR 222.50 million Credit was approved on June 29, 1998, and became effective on October 04, 1999. As of August 16,2004, SDR 96.30 millionhave been disbursed, o fwhich SDR 28.8 million(of the originally allocated SDR 46.4 million) have been usedto finance activities under the Gujarat Earthquake Reconstruction Program, leaving an undisbursed balance o f 11 approximately SDR 126 million. The main reasons for slow disbursement include 18 month delay inobtaining administrative and financial approvals and preparing implementation plans for the training component (US$100million). Limitedproject management capacity at the national and sub-national levels has also led to poor follow- up of implementationprogress. Currently aproposal is being submittedto extend this project for a period o f 9 months. Out o fthe allocations made from the project for the Phase-I o f Gujarat emergency earthquake rehabilitation, SDR 17.58 million (about US$26 million equivalent at current exchange rate) remained unutilized and this amount i s no longer required for earthquake rehabilitation. The Department o f Economic Affairs, MinistryofFinance, GO1has requestedthe Bank to reallocate these savings for urgent financing of polio eradication activities. Training component inthree project states i s under SOE suspension. These reports havebeen recentlyreceivedandthe Bank is inthe process of lifting the suspension. Inaddition, an action plan i s beingfinalized to improve financial management arrangements inthe project. Guiarat EmernencvEarthquake Reconstruction Project (Cr. 3637). The SDR 356 million Credit was approved by the Board on May 02,2002 andbecame effectiveby July 15,2002. As o f August 16,2004, SDR 128.82 million have been disbursed. During 2004, the Government o f Gujarat (GOG) has made an assessmento f likely project savings inview o f reduced demand for housingreconstructioninurban areas, lower physical and price contingencies, and strengthening o f SDR vis-a-vis US$. According to their determination ofproject savings, the GOG recommended to the Government of India Department o f Economic Affairs for cancellation o f US$20.0 million out o fthe credit amount. A further assessment will be undertaken by the GOG when contracts for the majorpublic infrastructure, such as roads anddams are finalized. While the project is not under SOE suspension, the audit reports o fprevious years had many observations. The project has submitted an action planto settle the observations as soon as possible. I 12 Schedule C ScheduleFor FundingOral Polio Vaccine and OperationalCosts Oral PolioVaccine (OPV) Datefunds are Purpose US$ million required October, 2004 Advance to UNICEF to place orders for Balance 5.28 OPV for February 2005 NID December, 2004 Advance to UNICEFto place orders for two 36.85 SNIDs and two mop-ups scheduled duringApril- Julv 2005 Total 42.13 IDA (90%) 37.92 OperationalCosts Datefunds are Purpose US$ million required November, 2004 Operational costs for NID implemented in April 14.11 2004 * December, 2004 Operational costs for SNID implemented in 10.39 Mav 2004 * March. 2005 Operational costs for NIDimplemented in 14.44 October 2004 * Operational costs for NID implemented in Through existing tied November 2004 * up agreements Operational costs for NID implemented in Through existing tied January, 2004 * up agreements Operational costs for NIDimplemented in Through existing tied February, 2004 * up agreements August, 2005 Operational costs for SNID implemented in 11.45 April, 2005* September, 2005 Operational costs for SNID implemented in 11.45 Mav2005 * Total 61.84 IDA (90%) 55.66 13 Schedule D FinancialManagementand DisbursementArrangements FundsFlow and Reporting Financing qf vaccines. Inthe ongoing Immunization StrengtheningProject the OPV has been procured by UNICEF basedon an direct advance from IDA (on a request from the GO190 % o f the contract value i s advanced by the bank to UNICEF). UNICEFsubmits quarterly utilization statements to IDA indicating the funds utilized, the status of procurement and dispatch. Reports up to the quarter endedJune 30,2004 have been received by IDA.As per existing arrangements no audit report i s required for this activity carried out by UNICEF and we propose to use the same arrangement under the five projects proposed to be restructured. Omrating Costs. Inthe Immunization Strengthening Project, the Operating Costs for polio eradication activities are transferred to the states and implementingagencies under standard arrangements. Based on Statement o f Expenditure (SOE) reports from the districts and the states, the GO1claims reimbursement from the Association. Again the same arrangement is proposed to be usedunder the five projects proposed to be restructured. Risk Factors& Mitigation. The financial management arrangementshave been weak under the existing Immunization Strengthening Project, with delayed reporting and submission o f SOE and delays in submission of audit reports. These arrangements at State and District levels are beingstrengthened (with emphasison staffing, development o f a Financialmanual etc.) underthe Reproductiveand Child HealthI1 Project currentlyunderpreparation. Audit Arrangements Under the existing Immunization StrengtheningProject, audits at the state level are carried out by independent Chartered Accountant Firms.The audit reports are sent to the Ministryo fHealth& Family Welfare who inturn forwards the same to the Association. No separate audit report i s received for the procurement of the OPV byUNICEF and *onlythe quarterly statement i s relied upon. This i s however covered by the Auditor General o f India as part o f the audit o f the MOHFW. The same arrangement will be maintained with respect to the polio eradication component proposed to be included in the five projects proposedto berestructured. There are no overdue audit reports or states under SOE suspension under the Immunization Strengthening Project. The following audit reports will be monitored inAudit Reports Compliance System (ARCS): 14 ImplementingAgency Audit Auditors Audit Date Project State SOE / Project Chartered Accountants March 31, each year; Audit firm report to be submitted latest bv Sent. 30. Among the five projects beingconsidered for restructuring, there are no pending audit reports or SOE suspensions for three o f these projects. The status o f other two projects is summarized below: Women & Child DeveloDment Proiect (N-042). Three project states are under SOE suspension under the Training Component o fthe Women & Child Development Project (N-042). The reports have beenreceived and we are inthe process o f liftingthe suspension. Inaddition we will be receiving an action planto improve the financial management arrangements inthis project which has an unsatisfactory FMrating inthe PSR. Guiarat Emergency Earthquake Recon. Proiect (3637). While the project i s not under SOE suspension, the audit reports ofthe previous years have hadmany observations, which also ledto a refundo fRs. 990 million. The project has submitted an action planto settle the observations as soon as possible. DisbursementArrangements For procurement of vaccines the Association will advance funds (90 % o f the contract va1ue)to UNICEF based on prior review o f the contract. With respect to operating costs these will be reimbursedto the GO1based on SOE reports. As per the arrangements underthe Immunization Strengthening Project, all expenditures for polio eradication activities are proposedto be reimbursedat 90%. 15 Schedule E The World Bank in India CountryBrief-September2004 Sustaining the growth of the recent past and India's progress inpoverty reductionwill also requiredramatic improvements inbasic infrastructure and the investment Climate. Major changes will needto be made to ensure effective delivery of basic Services, such as improved health and education, to all o f India's citizens. DEVELOPMENTPROGRESS Inrecent decades, Indiahas significantly improvedthe well beingofits people. Since the 1970s, India's economic growth rate has risen, poverty has declined, and social indicators have improved. The average life expectancy at birth has increased from 49 years to the current 63 years. The total birthrate for India's one billionpeople has beenlowered from six childrenper woman to three since the 1960s. In 1950, 146 out of 1,000 infantsdied at birth.Now, that numberis down to an average o f 90 out of 1,000 live births. Inthe early 1950s, nearly halfo f India's populationwas living inpoverty. Real declines inthe incidence o fpoverty began inthe mid-1970s. The 1990switnessed high levels o fpoverty reduction and important advances in literacy with enrollment o fprimary school-aged childrenrising from 68 percent in 1992/93to 82 percent at the end o f the decade. India today has 108 million children aged 6 to 10 attending primary school, makingit the world's second largest education system, after China. While these improvements illustrate achievements ina challenging environment, India's social indicators remain weak by most measures o fhuman development. Supported by wide ranging reforms, India's economic growth averaged 6 percent inthe last decade. Despite this growth, persistent and large fiscal deficits remain a major concem. Services, the least regulated sector inthe economy, continue to be the strongest performer, while manufacturing, the most regulated sector, i s the weakest. The extemal position of India's economy has also improved dramatically. The rapid growth o f informationtechnology (IT) service exports and highremittances have resulted incurrent account surpluses. Together with modest capital inflows, this has generated a substantial increase inexternal reserves, which now exceed US$lOObillion. Low levels o f short-term external debt give the country a further cushion to counter any speculative attack. Inparallelwith this faster growth, Indiahas made impressive progress towards reducing income poverty, an important element o f the MillenniumDevelopment Goals (MDGs). Continued progress has also been made on many social indicators, particularly literacy, which rose from 52 percent in 1991to 65 percent in2001. These improvements are both real achievements for India-and unquestionably o f global significance. Acknowledging the relative achievements of the stabilization andreformprograms duringthe 1990s, India's future progress inreducing poverty and improving social indicators critically dependson the country's ability to accelerate economic growth and maintain a stable macroeconomic framework. 16 With the growing global focus on the MDGs, including halving the proportion of people livingon less than one dollar a day and achieving universal primary educationby 2015, success in India is critical to the achievement of these goals. These goals won't be met without renewedefforts to expand economic opportunity and reducethe obstacles to reducingpoverty andthus improving peoples' lives. For India, this is especially true at the state level. CURRENT CHALLENGES Reducingpoverty remains India's greatest challenge. With a per capita gross national income (GNI) of $470 in2002, there is abroad consensusthat poverty inIndiahas fallen inthe pastdecade. Yet, more thanoneout ofevery four Indiansispoor. Official estimates show a decline inthe poverty rate from 36 percent inthe early 1990sto 26.1 percent in 1999/2000, but attempts to adjust the householdsurvey underlying the 1999/2000figures to make it comparable with earlier surveys result ina smaller degree ofpoverty reduction; how muchsmaller is a matter of considerable debate, and estimates vary widely. Recent work suggests that poverty has fallen at a somewhat lower rate-from 36 to 29 percent ofthe population by 1999/2000.Either way, over one quarter of India's population is poor. Ifneedslikehealthandeducationaretakeninto account, thenIndia's poverty is even more challenging. Despite the emergenceo f tens of millions from poverty during the 1990s, average incomes across Indiaremain low, and there hasbeenlittle movement on some critical social indicators. There's been little improvement inthe mortality rates for children underthe age o f five, as well as mortality ofmothers during childbirth since. Years o fprogresscould be lost to HIV/AIDS. The disease is spreading quickly, with risk factors that put the country indanger of a growing epidemic.Some estimates say less thanone percent of the adult population is currently infectedwith HIV. Yet because o f India's large population, India will soon havemore people infected with HIV than any other country inthe world. InIndiatoday, there also remains a substantialandpersistent disparity ofopportunity, particularly inthe education, health, and economic prospects o fwomen and other vulnerable groups such as the Scheduled Caste/ScheduledTribe populations. One example of this disparity is the strikingly low ratio of girls to boys, which, rather than improving with India's development progress, appears to beworsening. A growing gulf has emerged as well in growth betweenthe richer and poorer states within the country-with the result that poverty is increasingly geographically concentrated. Today, almost half of India's poor, approximately 133 millionpeople, live inUttar Pradesh, Bihar, or Madhya Pradesh. Over three quarters ofthe poor live inrural areas. Given these disparities, and the increasing concentration ofpoverty by region and by state, it can be said that India occupies two worlds simultaneously. Inone, economic reform and social changes, such as improved education for girls, havebegunto take hold and where growth has had an impact on people's lives and opportunities. Inthe other, citizens appear almost completely left behind bypublic services, employment opportunities, and brighter prospects. Bridgingthe gap betweenthese two worlds is perhaps India's greatest challenge today. 17 What i s required? Continued high economic growth to drive incomes higher, in a sustainable way. It will also require greater focus on ensuringthat the benefits o f growth are shared more evenly. Sustaining the growth o f the recent past and India's progress in poverty reductionwill also require dramatic improvements inbasic infrastructure and the investment climate. Major changes will needto be made to ensure effective delivery o f basic services, such as improved health and education, to all o f India's citizens. And these improvements will needto be achieved within the context ofthe longer-term strategic challenges that India faces: ensuringenvironmental sustainability inthe context of diminishingwater sources, increasing pollution, andglobal climate change; the demographics of continued, albeit slower, population growth; and the possible course o f HIV/AIDS. THE WORLD BANKGROUPININDIA The 2005-2008 India Country Strategy-the World Bank Group's roadmap for assistance-was discussed inAugust 2004 by the Bank's Board o f Executive Directors. This document outlines the World Bank Group's development priorities and indicates the type and level o f assistance to be provided. This strategy i s closely aligned with the Government o f India's poverty reductionstrategy which emphasizes growth with social justice and equity. The World Bank's strategy provides the framework for analytical work, lendingoperations, and dialogue with other groups focused on India's development goals. The overarching challenge of the Bank's strategy inIndia is this: how to maximize and leverage the diverse resources of the World Bank to help improve the quality o f life for some o f the world's poorest citizens, helping India move closer to achieving the MDGs. The main pillarso fthe strategy are: (i) Focusingon outcomes, to ensure that all o f the work o f the Bank Group i s explicitly geared towards supporting India's achievement o f its development goals; (ii) Applying selectivity, to target limitedresources to activities where assistance i s welcomed and where contributions can also be the most effective; and (iii) Expanding the Bank Group's role as a politically realistic knowledgeprovider and generator. The new strategy also focuses on three main areas for support: (i) Infrastructure: roads, transport, power, water supply and sanitation, irrigation, and urban development-to underpinboth accelerated growth and improved service delivery; (i) Human development: education, health, social protection-priorities to support specific MDGs; and (ii) Rural livelihoods: with an emphasis on community-driven approaches. The World Bank i s partnering with India to reduce poverty and improve living standards to all citizens. nimportant shift envisioned for FY05-08 strategy i s the use o f new approaches, including co-financing with other development partners under common arrangements, for nationalprograms inthe areas most critical to meetingthe MDGs. The 18 recently approved US$500 million credit to fund India's Elementary Education Program i s an example o f efforts inthis direction. The Bank's approach to India's states i s also going through some important shifts. Since 1997, the strategy has included a focus on states undertaking comprehensive reforms in order to support the leaders o f change and serve as a catalyst to the state-level reform process. With the widening gulfbetween the reforming and non-reformingstates inIndia, leading to a concentration o f poverty and poor social indicators injust a few states, some changes inthis approach are warranted. Though the strategy will retain an essentially reform- and performance-based approach to the states, it will also change inways that are intendedto go as far as possible inopening up new opportunities for engagement with these largest and poorest states. Despite these shifts inthe way that the Bank partnerswith both the Indian Federal Government and the states, the Bank Group's Program Priorities will retain considerable continuity with the previous strategy. The emphasis on improving government effectiveness, investing inpeople and empowering communities, and promotingprivate sector-led growth remains relevant to India's own priorities and development goals. The stepped-upprogram will provide increased opportunity for collaboration across the Bank Group to promote innovative public-privatepartnerships for infrastructure development. For the Bank, global knowledge support-policy dialogue, analysis, technical assistance, and advisory services-will be refocused to better support the program priorities. The strategy calls for enhanced focus on major analytical work on emerging issues o f national interest, as well as strengthening the demand-driven nature o fthe Bank's advisory work. CURRENTLENDING Indiajoined the World Bank in 1944and i s one of its oldest members.As o f June 2004, India i s the largest single cumulative recipient o f World Bank assistance, with lending totaling about US$61.5 billion. Since 1950, the Bank has extended assistance to India for 448 projects, inroughly equal amounts from IBRDand IDA. Loans from IBRD total just almost US$31 billion, and credits from IDA totaljust over US$30.5 billion equivalent. Inaddition, Indiahas received about US$166 million ingrant funding, mostly through the Global Environment Facility. 19 Schedule F Indiaat a dance 9/20/04 POVERlY and SOCIAL South Low. India Asia income Developmentdiamond` 2003 Population, mid-year (millions) 1,064.4 1,425 2,310 GNI per capita (Atlasmethod, US$) Lifeexpectancy 540 510 450 GNI (Atlas method, US$ billlonsJ 569.8 726 1,038 Average annual growth, 199743 T Population (%J 1.6 1.8 1.9 Laborforce (%J 2.1 2.3 2.3 Most recentestimate (latest year available, 199743) capita enrollment Poverty I%ofpopulationbelownationalpovertylinej 29 Urban population (% of totalpopulation) 28 28 30 Lifeexpectancyat birth(years) 63 63 58 1 Infantmortality(per 7,000live bllthsJ 65 68 82 Child malnutrition(% of childrenunder51 47 48 44 Accessto improvedwater source Access to an improvedwater source(% OfpOpUlatiOflJ 64 84 75 Illiteracy (% ofpopulationage 75+J 39 41 39 Gross primaryenrollment (% ofschool-agep0pUlatiOnJ 99 95 92 Male -Low-incomegroup 107 103 99 -India Female 90 88 85 KEY ECONOMIC RATIOSand LONG-TERMTRENDS 1983 1993 2002 2003 1 Economic ratios. GDP (US$billionsj 212.3 273.9 510.2 603.3 Gross domestic investmenffGDP 19.7 21.3 22.8 23.8 Exportsof goods and serviceslGDP 6.0 10.0 15.2 14.5 Trade Gross domestic savings/GDP 17.6 22.5 24.2 22.2 Gross nationalsavingslGDP 18.4 23.I 26.3 24.4 T Currentaccount balancelGDP -1.7 -0.6 0.7 1.4 Interest paymenWGDP 0.4 I.3 0.7 18.3 Total debffGDP 15.1 34.4 20.6 19.6 Total debt service/exports 16.5 25.2 13.9 18.3 Present value of debffGDP - Presentvalue of debtlexports Indebtedness 1983-93 199343 2002 2003 200347 (averageannualgrowth) GDP 5.4 5.9 4.6 8.3 6.0 GDP per capita 3.3 4.2 3.0 6.7 4.6 1 -India -Low-incomegroup Exportsof goods and services 8.0 13.4 21.8 7.0 9.2 STRUCTUREof the ECONOMY 1983 1993 2002 2003 (% of GDPJ Growth of investmentand GDP (%) 1''- Agriculture 36.6 31.0 - 22.7 22.2 15 I Industry 25.8 26.3 26.6 26.6 Manufacturing 16.3 16.1 15.6 15.8 Services 37.6 42.8 50.7 51.2 Private consumption 1 0 71.8 67.4 65.0 64.9 98 69 w 01 02 03 General governmentconsumption 10.6 11.4 12.5 12.8 I Importsof goods and services 8.1 10.0 15.6 16.0 I 1983-93 199343 2002 2003 (averageannualgrowthj 1 Growth of exportsand imports (%) Agriculture 3.1 2.4 -5.2 9.1 Industry 6.4 5.9 6.4 6.7 Manufacturing 6.1 6.0 6.2 7.3 Services 6.7 8.1 7.1 8.7 Private consumption 5.2 4.5 -0.8 7.6 General government consumption 5.6 7.1 3.1 9.9 Gross domestic investment 5.3 7.5 9.5 12.0 -Exports -O-imports Importsof goodsand services 6.3 10.6 8.1 11.1 Note: 2003 refersto 2003-04: dataare preliminary. Gross domestic savings figures are taken directly from India's centralstatistical organization. * The diamondsshowfour key indicators in the country [in bold)comparedwith its income-groupaverage. If data are missing, the diamondwill be incomplete. 20 India PRICESand GOVERNMENT FINANCE 1983 1993 2002 Domestic prices (% change) Consumer prices 14.4 5.0 4.1 Implicit GDP deflator 8.9 9.5 3.5 Governmentfinance (% of GDP, includes current grants) Current revenue .. 17.5 17.5 18.7 Current budget balance -4.3 6 . 0 -4.9 Overall sumlus/deficit .... -8.3 -10.2 -9.3 TRADE I983 j993 2002 2003 (US$mi//ions) Total exports (fob) 9,861 22,683 52,512 62,952 Tea 348 814 1,432 1,321 Iron 434 888 1,996 2,341 Manufactures 5,234 16,657 40,245 47,616 Total imports (cif) 16,575 26,739 65,422 79,658 Food 1,694 327 2,411 3,059 Fueland energy 4,703 5,754 17,640 20,570 Capitalgoods 3,069 6,243 13,498 17,132 Export price index (1995=100) 101 104 88 93 Import price index (1995=100) 106 96 96 100 Terms of trade (1995=~00j 96 109 92 94 BALANCE of PAYMENTS 1983 1993 2002 2003 (US$ miliions) Currentaccwdntbahnceto GDP {%) Exports of goods and services 13,141 27.947 77,475 90,568 7 - Importsof goods and services 18,767 31,468 83,620 96,590 Resource balance -5.626 -3,521 6,145 6.022 Net income -527 -3,270 -4,935 -4,703 Net currenttransfers 2,558 5,265 14,807 18,885 Current account balance -3,595 -1,526 3,727 8,160 Financing ltems (net) 2.777 10,160 13,253 8,820 Changes in net reserves 818 -8,634 -16,980 -16,980 .z" Memo: Reserves includinggold (US$ mi//ions) 5,649 19,254 75,428 111,648 Conversion rate (DEC /ocaVUS$) 10.3 31.4 48.4 46.0 EXTERNALDEBTand RESOURCE FLOWS 1983 1993 2002 2003 (US$millions) Composmonof2003debt(US mill.) Total debt outstanding and disbursed 32,139 94,342 105,210 118,075 IBRD 1,779 10,123 5,141 4,128 IDA 7,820 16,192 21,642 22,632 Total debt service 2,618 8,345 13,042 20,545 IBRD 246 1,509 3,029 2.048 IDA 91 294 637 693 Composition of net resourceflows Official grants 380 368 410 559 Official creditors 1,360 1,754 -3,657 -2,765 Private creditors 1,318 2,634 -1,861 -1,983 Foreigndirect investment 0 668 3,611 3,137 Portfolioequity 0 3,567 944 11,355 World Bank program Commitments 1,072 929 1,523 1,169 Disbursements 1,345 1,716 1,465 1,557 Principal repayments 120 964 3,196 2,403 Net flows 1,225 753 -1,730 -846 Interestpayments 216 838 470 338 Nettransfers 1,009 -86 -2,200 -1,184 Development Economics 9/20/04