Major Change in Program - Asian Development Bank · employment growth in the KVI subsector through a $150 million loan. 1 Khadi and village industries (KVI), originally promoted by

Major Change in Program

Project Number: 42151-013 Loan Number: 2452-IND November 2016

India: Khadi Reform and Development Program Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB’s Public Communications Policy 2011 after excluding information that is subject to exceptions to disclosure set forth in the policy.

CURRENCY EQUIVALENTS (as of 31 October 2016)

Currency unit – Indian rupees (₹)

Rs₹1.00 = $0.015 $1.00 = Rs₹66.78

ABBREVIATIONS ADB – Asian Development Bank CSP – central sliver plant DRA – direct reform assistance IT – information technology KVI – khadi and village industries KVIC – Khadi and Village Industries Commission MIS – management information system MMSME – Ministry of Micro, Small and Medium Enterprises PPP – public–private partnership RID – Reform Implementation Division RMU – reform management unit RNS – rural nonfarm sector TA – technical assistance

NOTES

(i) The fiscal year (FY) of the Government of India ends on 31 March. FY before a calendar year denotes the year in which the FY ends. e.g., FY 2017 ends on 31 March 2017.

(ii) In this report, “$” refers to US dollars. Vice-President W. Zhang, Operations 1 Director General H. Kim, South Asia Department (SARD) Director M. T. Kho, India Resident Mission (INRM), SARD Team leader C. Kim, Lead Finance Specialist, SARD Team members B. R. Bathula, Principal Portfolio Management Specialist, INRM, SARD A. Bravo, Senior Operations Assistant, SARD R. Pande, Project Analyst, INRM, SARD V. S. Rekha, Principal Counsel, Office of the General Counsel In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

I. PROPOSED MAJOR CHANGES 1

II. BACKGROUND 1

III. IMPLEMENTATION PROGRESS 3

IV. RATIONALE FOR THE PROPOSED CHANGES 9

V. DUE DILIGENCE 9

VI. ASSURANCE 10

VII. TRANCHE 2 RELEASE STATUS 10

VIII. THE PRESIDENT'S RECOMMENDATION 10

APPENDIXES

1. Revised Design and Monitoring Framework 11

2. List of Linked Documents 15

3. Development Policy Letter 16

4. Revised Policy Matrix 26

I. PROPOSED MAJOR CHANGES 1. A major change in the Khadi Reform and Development Program (KRDP or the Program) 1 is proposed for Board consideration. 2 The consequent revisions to the second tranche and a related progress report on its implementation are also submitted for Board consideration. The brief background leading to the need for this major changes and the change proposed in line with the Government of India’s request is summarized below and covered in detail in subsequent sections. 2. The revised design and monitoring framework is in Appendix 1. The major changes are:

(i) the loan of $150 million to India for the program to be reduced to $105 million;3 (ii) the number of tranches for the program is reduced from four to three and the

balance of $85 million to be released in two tranches of $40 million for the second tranche and $45 million for the third tranche;

(iii) the total number of policy conditions for the release of tranches to be reduced from 90 to 66 inclusive of the first tranche (first tranche: 16 conditions; second tranche: 32 conditions from earlier 31; third tranche: 18 conditions from earlier 26; and fourth tranche: nil from 17 earlier);

(iv) the policy conditions relating to the setting up of a marketing organization with majority private sector ownership and private sector participation in central sliver plants (CSPs) of the Khadi and Village Industries Commission (KVIC) have been dropped from the program as they are not feasible due to inadequate interest from the private sector;

(v) to carry out the restructured program, the closing date to be extended to 31 December 2017; and

3. The attached technical assistance (TA) for Capacity Building for Reforming the Khadi and Village Industry Subsector in India will be extended until 31 December 2017 and aligned with the restructured program implementation requirements (para. 21).4

II. BACKGROUND 4. The government, as part of its 11th Five-Year Plan (FY2007–2012), sought to increase employment in the rural nonfarm sector (RNS). The government identified khadi and village industries (KVI) as one with significant prospects for employment. Upon request from the government, the Board of Directors of the Asian Development Bank (ADB) approved on 2 October 2008 the program to support the government's efforts for enhancing income and employment growth in the KVI subsector through a $150 million loan.

1 Khadi and village industries (KVI), originally promoted by Mahatma Gandhi in the 1920s for rural self-employment,

form a significant subsector of the rural nonfarm sector (RNS). Khadi is handspun and handwoven cloth. The raw materials (cotton, silk, or wool) are spun and woven on hand-spinning wheels called charkha and woven on handlooms.

2 Asian Development Bank (ADB). 2008. Report and Recommendation of the President to the Board of Directors: Proposed Program Loan and Technical Assistance Grant to India for the Khadi Reform and Development Program. Manila (Loan 2452-IND, approved on 2 October 2008, made effective on 2 February 2010).

3 The costing for the program elements estimated based on major changes in scope and prevailing cost. In case the Board approves the proposed major change, a consequent reduction in the loan size (i.e., $45 million) would be processed in accordance with ADB. 1982. Ordinary Operations Loan Regulations. Section 9.02. Manila.

4 If the Board approves the major change in the Program and release of the revised second tranche, then extension and alignment of the TA would be processed for approval in accordance with the Project Administration Instructions. The third tranche is expected to be completed in December 2017.

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5. The Government of India and ADB signed the loan on 22 December 2009 and it became effective on 2 February 2010. The loan was to be released in four tranches within 3 years as per the following schedule: tranche 1 (16 conditions) for $20 million; tranche 2 (31 conditions) from 8 months of tranche 1 for $40 million; tranche 3 (26 conditions) from 13 months of tranche 2 for $40 million; and tranche 4 (17 conditions) from 15 months of tranche 3 for $50 million. 6. The loan of $150 million financed from the ADB ordinary capital resources was provided under the London interbank offered rate-based (LIBOR) lending facility to the government. The loan has a 15-year term, including a grace period of 3 years, and an interest rate to be determined in accordance with LIBOR, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the signed loan agreement. 7. The Ministry of Micro, Small and Medium Enterprises (MMSME) is the executing agency, and KVIC is the implementing agency for the program. A dedicated Reform Implementation Division (RID) was set up at the KVIC in October 2009 and reform management units (RMUs) were established at the state and division level to implement the program in July 2010 as per the program requirement. The RID is responsible for overall monitoring and for coordinating actions under the program. RMUs are program implementing units responsible at the state and division level. In 2008, the Reform Implementation and Monitoring Committee at MMSME was formed to serve as the program steering committee. 8. Impact and outcome. The enhancement of income and employment growth for the RNS is the impact envisaged from the program. The outcome is to revitalize the KVI subsector with an enhanced sustainability of khadi, increased employment generation and incomes, increased artisan welfare, and developed select traditional village industries. 9. Policy framework and actions. The program comprises (i) establishing a policy reform and implementation framework, (ii) promoting and marketing khadi, (iii) realizing procurement and production efficiencies, and (iv) implementing institutional reforms. The recommendations of a high-level working group of the government, ADB assessment of policy and institutional aspects of khadi, and an intensive consultation with stakeholders all contributed to the establishment and design of the program. 10. Performance indicators. The key performance targets and indicators developed for the program include a 15% increase in artisans employed by khadi institutions, 20% increase in the prevailing earnings, 10% increase in sales on an annual compounded basis, 15% reduction in raw material (sliver) production cost, and 10 new ventures to be initiated in the khadi subsector under a producer company and/or entrepreneurial model.5 It also required KVIC to disengage from direct commercial activities, specifically from marketing and sliver production; implement a comprehensive reform plan for 300 eligible khadi institutions; strengthen information technology (IT) and e-governance systems and practices of KVIC; and implement a cluster development strategy in five traditional village industries. 11. A TA grant from the Japan Special Fund, funded by the Government of Japan, in the amount of $2 million was attached to the program. The goal of the TA is to support the implementation of the khadi reform package and its objective is to expedite the commencement of the reforms. The TA consisted of supporting the executing agency and implementing agency

5 In the producer company model, the institution is owned and run by the primary producers as opposed to the trust–

society model, where the office bearers are from outside the artisan and/or weaver fraternity. In the entrepreneurial model, individuals can start the enterprise as an entrepreneurship venture with the motivation to gain profit.

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in strengthening program management, providing support in promoting and marketing khadi, facilitating procurement and production functions, and supporting institutional reforms. 12. ADB released the first tranche of $20 million on 17 February 2010 upon satisfactory compliance with policy conditions. As part of the implementation activities under the second tranche, the executing agency and the implementing agency substantially completed most of the policy conditions except the ones related to private sector participation in the marketing organization and CSPs, which could not be completed despite multiple attempts to identify private sector partners through a bidding process. Further, khadi institutions' initial reluctance and resistance to adopting the comprehensive reform program delayed program implementation.6 13. Despite the delay, the program yielded significant positive impact and outcomes through a detailed and extensive stakeholder consultation process. Some of the program's unprecedented changes include the formulation of the “Khadi Mark.” The mark created a distinct identity for khadi, which has been in existence since the 1920s, and notification for market pricing, which enabled khadi institutions to sell khadi at market prices and move away from “cost-chart” principles that did not allow khadi institutions to earn profits.7 The program has also enabled improvement in the governance framework through greater representation of artisans and weavers, including at least one woman representative, in the board of khadi institutions. It has also helped in improving production and reducing drudgery through modern implements, and increased sales through renovated modern sales outlets and monitoring through real-time management information systems (MIS). 14. The program was originally scheduled for completion on 30 September 2011 and extended several times to 30 September 2015. The government is keen to continue the program, since the reform measures implemented are making the sector sustainable without budgetary support and increasing the earnings for those employed in the sector. In this context, the government requested ADB, through a letter dated 17 December 2015, to waive the requirement of meeting the infeasible policy conditions and release the funds for the second tranche. In response, ADB informed the government that such extensive waiver of policy conditions is generally not considered. 15. On 14 January 2016, the government organized a high-level meeting with ADB where all options to revive the program were discussed.8 The meeting concluded that there was a need to field ADB consultation missions to assess and explore options for the revival of the program, including restructuring. To this end, the program is currently extended to 31 December 2016.

III. IMPLEMENTATION PROGRESS 16. ADB fielded a consultation mission on 24 February 2016. The ADB mission found that out of 31 policy conditions for the release of the second tranche, 22 were fully complied with and 9 were noncompliant as of 28 February 2016. The detailed review of policy action compliance9 and the detailed performance overview of the program components are attached. 10 The summary of implementation progress is provided in paras. 17-20. 6 Comprehensive reform package adopted as part of the first tranche policy condition. 7 In the 1920s, Mahatma Gandhi formulated the cost-chart principle for the costing of khadi products. 8 Minutes of the meeting dated 8 February 2016 set out the approach for the revival of the loan. 9 Status of Policy Conditions as of 28 February 2016 (accessible from the list of linked documents in Appendix 2). 10 Performance Overview (accessible from the list of linked documents in Appendix 2).

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17. Policy reform and implementation framework. The government formulated a comprehensive reform package for the KVI subsector and approved the implementation framework for KVIC to carry out the reforms as part of the first tranche policy conditions. Further, as part of the second tranche, the executing agency (MMSME) and the implementing agency (KVIC) established institutional arrangements such as the Reform Implementation and Monitoring Committee at the national level, RID at the KVIC head office , and RMUs at the state offices. The KVIC conducted a series of dissemination workshops in April 2010 at the national and state levels to communicate and build awareness for the reform measures being taken up as part of the program. During the initial implementation, RID and RMUs observed a certain degree of reluctance from khadi institutions. Subsequently, to understand and address the concerns of khadi institutions, several state and nationwide workshops were held during the implementation period (2011–2013). This helped in building consensus and greater acceptance of the policy reform and implementation framework. Overall assessment of this component is satisfactory and the specific performance targets and milestones have been achieved though delayed. 18. Institutional reforms. The institutional reforms component has four broad elements.

(i) Organizational restructuring. KVIC reorganized the directorates and conducted a staffing norm study in 2008 to increase its operational effectiveness. This, in turn, helped in bringing greater focus and accountability among the KVIC directorates. It also helped in the devolution of powers to state and division offices for smoother and faster implementation of all the government schemes implemented by KVIC. As the institutional reforms required capacity enhancement, KVIC, through ADB-assisted TA, carried out an assessment of existing training arrangements, including infrastructure, capacity of trainers, and curriculum. Based on this assessment, it developed a comprehensive capacity building plan in 2011 and put in place the annual preparation of a training calendar. To date, office bearers from khadi institutions covering over 783 participants have received training on quality testing, store operations and MIS, and gender mainstreaming and environmental safeguards. It also has covered training for about 3,000 artisans, including 57 as master trainers at khadi institutions level, who in turn are training other artisans at their respective khadi institutions.

(ii) Management Information System (MIS) and information technology

interventions. KVIC has initiated the development and implementation of an MIS for the khadi institutions to assist the khadi institutions in the management of their inventory, finance, sales, and timely reporting to KVIC. The MIS is under pilot implementation in eight khadi institutions and a plan to rollout of MIS to 30 khadi institutions was prepared on 28 February 2016. KVIC developed an e-governance and IT road map through an ADB-assisted TA, which will eventually integrate all the IT systems used by the KVI subsector.

(iii) Direct reform assistance. KVIC conducted in FY2012 a management audit of

73 khadi institutions to ascertain their institutional ability to absorb the direct reform assistance (DRA) provided under the program. A total of 54 khadi institutions were found to be eligible for DRA, of which only 38 khadi institutions signed a memorandum of understanding with KVIC for adopting the khadi reform package. On 28 February 2016, KVIC achieved a fund disbursement of $1

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million, which was used to provide 3,806 new model charkhas 11 and 251 handlooms, build 38 central facility centers and work sheds, and renovate 164 sales outlets of khadi institutions. Since the program impact of this component seemed to be significant, ADB requested KVIC to carry out an impact assessment.

(iv) Traditional village industries. This element of the program required KVIC to

conduct a diagnostic survey of five identified traditional village industries12 under the first tranche and formulate a cluster development strategy for them to achieve synergy with the initiatives carried out for the khadi subsector. KVIC appointed five technical agencies in 2011 to conduct the diagnostic study, prepare the detailed project report, and provide need-based technical support for the respective clusters. The identified clusters were appraised and a comprehensive sustainability index was developed based on parameters related to the potential for employment generation, scope for business expansion, ease of implementation, and sustainability. Post-shortlisting of clusters and implementing agencies were identified and now the cluster development implementation is underway in the bee-keeping cluster.13 Overall assessment of the institutional reforms component is satisfactory and the specific performance targets and milestones set have been achieved with some delay in the DRA component.

19. Promoting and marketing of khadi. The promotion and marketing of khadi reforms component has two elements.

(i) Khadi Mark. The program required KVIC to develop the Khadi Mark, including a logo, to provide a distinct identity for genuine khadi, and the registration of the Khadi Mark under the Trade Mark Act.14 During implementation, it was found that there was a legal impediment in registering the mark under the Trade Mark Act until KVIC was engaged in commercial activities of production and marketing of khadi. To achieve the intended reform objective, MMSME formulated the Khadi Mark Regulation 2013 by drawing powers from the KVIC Act 1956. The regulation, along with the logo, was published in July 2013 in the central government gazette and posted in the upper house of the Parliament. The regulation provides KVIC the right to act against persons infringing on its specific provisions, which includes the sale of spurious khadi and the sale of khadi without a Khadi Mark logo. The required guidelines, protocols, committees for managing issues related to the Khadi Mark, and testing infrastructure have also been announced by KVIC. A total of 1,468 working khadi institutions have been registered for the Khadi Mark as of 28 February 2016. While there is a deviation from the original policy condition, the executing agency and the implementing agency were able to achieve the intended reform objective through the Khadi Mark Regulation 2013. It is also being recognized as one of the far-reaching reform achievements of the program.

11 A charkha is a domestic spinning wheel. New model charkhas have eight spindles and help produce more yarn

with the same effort as the old charkhas. 12 The five industries identified were herbal products, honey, handmade paper, leather, and agro-based food

processing. 13 Details regarding shortlisting can be found on the KVIC website in activities under KRDP. http://kvic.org.in. 14 Section 70 of the Trade Mark Act required the certifying organization to be completely disengaged from the value

chain.

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(ii) Marketing organization. The program required KVIC to identify private partners and set up a marketing organization with a majority shareholding by a private partner and to disengage from the marketing function. The KVIC and MMSME conducted a bidding twice to identify private partners but received no response.15 KVIC was also required to undertake a market assessment survey to aid the marketing initiatives with support from the marketing organization. As the establishment of the marketing organization was delayed and found to be infeasible, KVIC commissioned the market survey with support from an ADB-assisted TA. The market survey was completed in 2011 and its outputs are being used to rationalize the product categories and as an input for promoting the Khadi Mark. Since it was not possible to set up a marketing organization through private sector participation, the executing agency and the implementing agency are taking the reform interventions originally planned to be carried out by the marketing organization through the marketing directorate with support from khadi institutions. Overall assessment for this component is not satisfactory. While the specific performance targets and milestones set for the Khadi Mark have been achieved with deviations, the targets and milestones related to the marketing organization has not been achieved. A detailed analysis of this component is included in the performance overview.16

20. Revitalizing procurement and production efficiencies. This reform component has four elements.

(i) Raw material procurement and cotton sliver production. The program required KVIC to train khadi institutions on quality testing of raw material and to execute public–private partnership (PPP) agreements in two CSPs. KVIC conducted training for 300 master trainers from 300 khadi institutions in April 2011. KVIC initiated the process of identifying private partners through a bidding process for two CSPs (Etah and Sehore) in 2011 but did not get any response from the market. In formal consultations, potential private sector players indicated that sliver and roving,17 which are intermediary products of the textile value chain and produced by low-capacity plants, were of little interest to the private sector. Based on this feedback, the bidding framework was revised to include potential partners from the khadi subsector and two CSPs (Raebareilly and Chitradurga) were put out for bidding in 2013. Only one response from an existing khadi institution was received for the Chitradurga CSP, which could not be considered based on KVIC procurement rules. Therefore, this policy condition is infeasible to achieve. The detailed analysis on this component is described in the performance overview (footnote 15).

(ii) Market-linked pricing. As mandated by the program, KVIC is required to allow

khadi institutions to set market-linked prices and formulate a benefits chart for sharing the surplus among stakeholders. KVIC introduced the market-linked pricing in July 2010 when it announced a market development assistance scheme under which the khadi institutions were allowed to move from the earlier

15 The first bidding process was initiated in 2011 and the second bidding process in 2013. Details are provided in the

Performance Overview (accessible from the list of linked documents in Appendix 2). 16 Performance Overview (accessible from the list of linked documents in Appendix 2). 17 Sliver and roving are intermediary products between cotton and yarn in the textile value chain and are only used by

the khadi subsector for hand spinning to convert into yarns. No interest exists from other textile manufacturers for this product.

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existing cost─chart principle to a market-based flexible pricing. This scheme is aimed at generating maximum surplus for the artisans as well as for the institutions, and implementing market-linked pricing. KVIC publicized the guidelines for the benefit chart in 2011, which aims to ensure that surpluses, generated by the shift to market-linked pricing, and expected increases in the price realization through proposed product and marketing reforms are shared with artisans and weavers. Market-linked pricing is one of the critical changes transforming the sector, providing an opportunity to redistribute profits for the benefit of the stakeholders. The overall assessment of this element of the program is satisfactory.

(iii) Rationalization of financial assistance. This element required KVIC to

formulate the production incentive plan, reassess the working capital requirement for khadi production, and appoint a focal person to engage with the bankers to enhance the access of khadi institutions to the formal banking sector. KVIC already introduced and initiated the implementation of the Production Incentive Plan in 2011. Under the plan, KVIC will help khadi institutions categorize their products and avail financial assistance on specific categories of khadi products, which require fiscal support to increase the competitiveness. KVIC reassessed the working capital requirement and initiated actions to reduce the blocked working capital by reducing the debtor days of CSPs and ensure prompt payment for the sale of finished goods. It has also appointed a focal person to help khadi institutions to access bank funds. The implementation of this element has helped bring efficiency in utilizing government funds and subsidies. The overall progress under this element is satisfactory but has been slow in pace.

(iv) New khadi ventures. This element required KVIC to develop the framework for

a producer company model and an enterprise model for new ventures in khadi. KVIC developed and issued the framework for forming khadi ventures through a producer company model. This was meant to increase artisan empowerment, as governance and management of such ventures would consist of primary producers (artisans, spinners, and weavers). At awareness workshops to promote these models, investors indicated their concern that there was inadequate support from the government to incentivize these models. To implement these models in a subsequent tranche, the executing and implementing agencies decided to mainstream this activity through the Prime Minister’s Employment Generation Program and the Scheme of Fund for Regeneration of Traditional Industries, 18 which provide incentives to such ventures. The overall assessment of this element of program is satisfactory; however, the executing agency has proposed to remove this from the ambit of the program and pursue it under other schemes.

21. The ADB-assisted TA has been supporting the program implementation since September 2010. The TA of $2 million is financed on a grant basis by the Japan Special Fund and was originally scheduled to close on 30 September 2011. However, it has been extended five times up to 31 December 2016 in line with the extension of the underlying program. Out of the total TA amount of $2 million, $1.84 million (92%) has been committed and $1.32 million (65%) has been disbursed. The delay in the implementation and extension of the program from

18 ADB is considering a loan for the Scheme of Fund for Regeneration of Traditional Industries to cover 800

traditional village industry clusters. The design activities will be included in the proposed loan.

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the earlier envisaged 3 years to the current period of more than 6 years will require a realignment of TA inputs and its extension to meet the current requirements of accelerating the implementation activities and focus on key interventions of the DRA, and MIS and IT implementation. The TA will consist of the following components until its extended period by 31 December 2017:

(i) Support program management. The TA will continue to support MMSME and KVIC in the overall management, implementation, and monitoring of the program.

(ii) Promote the Khadi Mark. The implementation of the Khadi Mark requires TA support in monitoring and supporting the development of promotional activities.

(iii) Support institutional reforms. The TA needs to continue to support KVIC and khadi institutions through the assistance provided in training and development activities.

(iv) Implement the management information system and information technology. The TA will support the implementation of MIS in 300 khadi institutions and the program management of integrated IT system implementation within KVIC.

(v) Support the direct reform assistance. The TA will support the accelerated implementation of DRA to the remaining 320 khadi institutions by 31 December 2017.

(vi) Monitor the progress of the village industry clusters. The TA will extend its support to monitoring the implementation progress in the five village industry clusters and managing the program of the implementation agency.

22. Based on this assessment by the ADB consultation mission, the Government of India formally requested ADB to restructure and revive the program. ADB fielded multiple consultation missions during March–May 2016 to arrive at optimal restructuring and feasible policy options aligned to the current context. The revision of policy conditions involved a greater focus on DRA, increasing the beneficiary khadi institutions from 300 to 400 and removing the infeasible PPP policy conditions discussed in para. 19(ii) and para. 20(i). This suggestion required the review of the program structure to rationalize its three tranches and the reduction of policy conditions from 90 to 66. Based on these, the costs associated with the suggested policy conditions were reworked and the total program cost is now estimated at $105 million. Accordingly, the loan amount is proposed to be changed to $105 million and structured to be disbursed in three tranches with revised policy conditions as described in para. 2. With this, on May 2016, the Government of India requested to initiate the restructuring process at the earliest. 23. ADB's South Asia Department management approved the program review mission19 to initiate discussions with the government on the proposed restructuring program and progress made in achieving the revised policy conditions. Based on this, the government submitted a revised development policy letter on 22 July 2016. The revised policy conditions of the program and the current compliance status as of 30 September 2016 are in the Revised Policy Matrix and Revised Policy Conditions based on the Revised Policy Matrix.20

19 The first review mission was conducted on 29 June–7 July 2016 and the second review mission on 17 August–24

August 2016. 20 Revised Policy Matrix and Revised Policy Conditions based on the Revised Policy Matrix (accessible from the list

of linked documents in Appendix 2). All 32 Tranche 2 conditions have been fully complied with.

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IV. RATIONALE FOR THE PROPOSED CHANGES 24. The program has brought far-reaching changes to the KVI sector and impacted positively on the lives of more than 1 million artisans and their families employed in the khadi subsector. Some of these changes include increased earnings21 due to market-linked pricing, financial inclusion due to mandatory direct benefit transfers through bank accounts,22 increased production and sales through the support of DRA, increased empowerment and representation in the decision-making of khadi institutions, and capacity building in new technology and trends. The program also brought efficiency to the sector and is helping the government rationalize the financial support and bring sustainability to the sector, without budgetary support. 25. However, the program's earlier design relied heavily on private sector participation to address the efficiency and productivity issues in the sector. The market was not ready for it; this was reflected in the lukewarm response to the process initiated for identifying private partners for the marketing organization and CSPs. The program design also dwelled into specific micro-level actions within components with 90 policy conditions (spread over four tranches) rather than focusing on larger policy-level actions. This led to lesser flexibility available for program implementation and in turn impacted the freedom available to the implementing agency for adopting interventions, which were more contextual and pragmatic.23 26. As such, program implementation is delayed. Nevertheless, both the executing agency and the implementing agency are committed to and remain diligent in implementing the program and continue to look for ways to take the program forward. However, external market factors made compliance to policy conditions related to the marketing organization, CSP, and the new khadi ventures infeasible. 27. The government is committed to reform and intends to carry out the reform agenda with the public sector in the absence of an active interest from the private sector. The MMSME has reiterated its desire to continue the reform agenda in the sector with the public sector without compromising the intent and objectives originally envisaged under the program, as discussed with the ADB team. 28. ADB has played a critical role as a catalyst and facilitator supporting the reform agenda in this traditional sector since its conceptualization in 2008. Given the continued commitment and interest of the government, ADB may continue to play the role of facilitating this change through a restructured program, which is more contextual and aligned to the current social and economic environment.

V. DUE DILIGENCE 29. Economic and sector. The original due diligence conducted as part of the loan approval remains intact. The employment generation in the RNS, including the KVI subsector,

21 A summary of an initial program impact assessment has been done as part of the revised policy conditions under

the second tranche. 22 The program pioneered the transfer of benefit to artisans and weavers through a bank account, which was later

subsumed within a larger financial inclusion agenda of the Government of India, including Jan Dhan Yojna (financial inclusion scheme), through a universal identification using biometrics.

23 For instance, the Khadi Mark was specifically required to be registered under the Trade Mark Act whereas the current Khadi Mark regulation notified under the KVIC Act has achieved the same reform objective. In the case of a marketing organization, PPP was to be done as a joint venture with majority private sector shareholding, which precluded other options like management contract, concession, and franchising.

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has been impacted by the macroeconomic changes and new schemes, specifically the Mahatma Gandhi National Rural Employment Guarantee Act,24 which was expanded to all rural areas by 2008.25 30. Governance. The program continues to address governance issues originally envisaged under the program. The mainstreaming of financial inclusion and direct benefit transfer scheme will help in further strengthening the governance of KVIs in the central and state-level and artisan welfare since the fund transfer mechanism is transparent and the artisans are able to realize the benefits in short duration. 31. Poverty and social. The results of the original due diligence conducted as part of the loan approval remain valid. The program will provide significant socioeconomic and gender-related impacts to women involved in the khadi subsector. Increased benefits will accrue from the enhanced scope of the DRA, which will increase coverage from 300 to 400 khadi institutions. Women, who constitute 80% of the workers in the sector, will benefit from the intervention in terms of increased production, value addition to products, and increased sale from the renovated retail sales outlets. 32. Environment. The original due diligence conducted as part of the loan approval remains valid. An environmental assessment of the policy matrix had indicated no potential adverse environmental impact. The environment is a category C.

VI. ASSURANCE 33. Based on the revised development policy letter and revised policy matrix for the program, the government has provided revised assurances that are incorporated in the amended and restated loan agreement.

VII. TRANCHE 2 RELEASE STATUS 34. As described in detail in the Status of Policy Conditions as of 28 February 2016,26 the conditions for revised tranche 2 are fully complied with.

VIII. THE PRESIDENT'S RECOMMENDATION 35. The President recommends that the Board approve

(i) the major changes in the Khadi Reform and Development Program in India as described in paras. 1–2; and

(ii) the release of the revised second tranche in the amount of $40 million for the Khadi Reform and Development Program, in accordance with the terms and conditions set forth in the amended and restated loan agreement presented to the Board.

24 The Mahatma Gandhi National Rural Employment Guarantee Act was initially introduced in 2006 to cover 200 rural

districts and subsequently expanded to all rural areas. It guarantees 100 days of livelihood per household at prevailing minimum wages in the states.

25 Economic and Sector Analysis (accessible from the list of linked documents in Appendix 2). 26 Status of Policy Conditions as of 28 February 2016 (accessible from the list of linked documents in Appendix 2)

Appendix 1 11

REVISED DESIGN AND MONITORING FRAMEWORK

Impacts the program is aligned with: Enhancement of income and employment growth for the RNS (Government of India, Planning Commission. 2013. 12th Five-Year Plan, 2012–2017) a

Results Chain

Performance Indicators with Targets and

Baseline

Data Source and Reporting

Mechanisms Risks Outcome Revitalized KVI subsector provides sustainable employment and higher earnings to artisans.

a. At least 12% increase in the number of artisans employed by khadi institutions by 2017 (2010 baseline: 0.98 million) b. At least 20% increase in the khadi subsector earnings by 2017 (2010 baseline: Rs₹ 4.25 billion)

a. KVIC annual reports b. KVIC annual reports

Competing avenues for rural employment— specifically the centrally sponsored National Rural Employment Generation Scheme

Outputs 1. Policy reform and implementation framework to carry out the proposed reforms are established. 2. Khadi is effectively promoted and marketed to ensure commercial viability as well as to generate market demand for khadi. 3. Working capital blocked in the production value chain is reduced and capacity utilization of CSPs is enhanced.

1. Khadi reform package implemented by December 2017 2. Increase in sales by 40% over the numbers in 2010 by 2017 (Baseline for sales in 2009–2010: Rs₹8.67 billion) 3a. 25% reduction in debtor days of CSPs from prevailing number of days in 2010 by September 2017 (Baseline for debtor days of CSPs in 2009–2010: 389 debtor days) 3b. 10% increase in capacity utilization of CSPs from prevailing utilization levels in 2010 by September 2017 (Baseline for capacity utilization of CSPs in 2010: 87%)b

1. Independent assessments of program implementation and impact; KVIC annual reports 2. KVIC annual reports; official gazette and government notifications 3. KVIC CSP reports

1. Weak reform implementation 1. Reluctance and resistance from khadi institutions 2a. Competing products, especially handlooms and linen 2b. Reluctance among khadi institutions to adopting marketing reforms 3a. Low demand for sliver produced by CSPs 3b. Purchase of sliver on credit by khadi institutions due to inadequate working capital

12 Appendix 1

Results Chain

Performance Indicators with Targets and

Baseline

Data Source and Reporting

Mechanisms Risks 4. Institutional reforms to restructure KVIC, revitalize khadi institutions, and develop synergies between khadi and traditional village industries are implemented.

4a. The comprehensive reform plan is implemented for 400 eligible khadi institutions by December 2017 4b. IT and e-governance systems and practices of KVIC are strengthened by December 2017 4c. Five traditional village industries implement the cluster development strategy by September 2017

4. KVIC annual reports

4a. Reluctance of khadi institutions to adopt reforms 4b. Low competencies in IT operations at institutional level

Activities with Milestones (Second and Third Tranche) 1. Khadi reforms and direct reform assistance ($66.8 million) 1.1. KVIC shall have ensured the completion of the audit for 180 eligible khadi institutions by independent auditors by August 2016 (second tranche). 1.2. KVIC shall have disseminated the Khadi Reform Package nationwide through workshops by August 2016 (second tranche). 1.3. KVIC ensures that the 180 eligible khadi institutions implement the comprehensive reform plan and that an implementation plan is developed and approved for 100 additional khadi institutions by August 2016 (second tranche). 1.4. KVIC shall have (i) undertaken the initial assessment of the Khadi Reform Package, (ii) held a stakeholder consultation on the outcome of the assessment, and (iii) prepared appropriate measures to address the feedback by August 2016 (second tranche). 1.5. KVIC shall have signed MOUs with 180 eligible khadi institutions for comprehensive khadi institution reforms by August 2016 (second tranche). 1.6. KVIC shall have modified categorization norms for khadi institutions and recategorize 400 khadi institutions using the modified norms by August 2016 (second tranche). 1.7. KVIC shall have recategorized the remaining khadi institutions using the modified norms by December 2016 (third tranche). 1.8. KVIC shall have evaluated the performance of the 400 eligible khadi institutions by September 2017 (third tranche). 1.9. KVIC shall have ensured that 320 eligible khadi institutions shall have implemented the comprehensive reforms plan by July 2017 (third tranche). 1.10. KVIC shall have (i) undertaken an independent assessment of the Khadi Reform Package, (ii) held a stakeholder consultation on the outcome of the assessment, and (iii) prepared appropriate measures to address the feedback by June 2017 (third tranche). 1.11. KVIC shall have signed with 220 eligible khadi institutions the MOUs for comprehensive khadi institution reforms by September 2016 (third tranche). 1.12. KVIC shall have ensured the completion of the audit of the remaining 220 eligible khadi institutions by independent auditors by August 2016 (third tranche). 1.13. KVIC shall have adopted the comprehensive reforms plan to empower and revitalize the 400 eligible khadi institutions by September 2016 (third tranche). 2. Establish identity of khadi through the Khadi Mark ($0.9 million) 2.1. KVIC shall have conducted random spot audits of khadi institutions and other entities authorized to use the Khadi Mark regarding their adherence to the licensing requirements for the use of the Khadi Mark by August 2016 (second tranche).

Appendix 1 13

Activities with Milestones (Second and Third Tranche) 2.2. KVIC shall have developed the Khadi Mark, including designing its logo, and notified the regulations for enforcing the Khadi Mark under the KVIC Act, 1956 by August 2016 (second tranche) 2.3. KVIC shall have (i) undertaken pan-Indian arrangements for independent testing of khadi, (ii) obtained undertaking from users to abide by regulations for use of the Khadi Mark, (iii) developed a detailed plan for the creation of a basic testing infrastructure for the Khadi Mark at KVIC, and (iv) undertaken the arrangement for managing the Khadi Mark by KVIC state and/or divisional offices by August 2016 (second tranche). 2.4. KVIC shall have adopted the procedures and assigned its khadi directorate to grant usage of the Khadi Mark to khadi institutions and other entities by August 2016 (second tranche). 2.5. KVIC through its khadi directorate, shall have ensured that the khadi institutions registered at either KVIC or KVIB adopt the Khadi Mark by August 2016 (second tranche). 2.6. KVIC through its khadi directorate shall have prepared and maintained a list of khadi institutions and other entities authorized to use Khadi Mark and publish this on its website by August 2016 (second tranche). 2.7. KVIC shall have continued to conduct random spot audits of khadi institutions regarding the adherence to licensing requirements for the use of the Khadi Mark by May 2017 (third tranche). 2.8. KVIC shall have created the basic testing infrastructure for the Khadi Mark by September 2016 (third tranche). 3. Reforms in the marketing of khadi ($0.5 million) 3.1. KVIC shall have commissioned a product-specific market survey of khadi and village industries products through a specialist firm by August 2016 (second tranche). 3.2. KVIC shall have prepared a product catalog and set up the market information system by February 2017 (third tranche). 3.3. Based on the outcome of the market survey, KVIC shall have identified products for both domestic and international markets and develop marketing strategies for all khadi-related institutions and products by January 2017 (third tranche). 4. Reforms in financial management of khadi ($0.2 million) 4.1. KVIC shall have released the benefits chart to the khadi institutions by August 2016 (second tranche). 4.2. KVIC shall have appointed a focal person to engage with bankers to enhance the access of the khadi institutions to working capital by August 2016 (second tranche). 4.3. KVIC shall have reassessed the working capital requirement for khadi production by August 2016 (second tranche). 4.4. KVIC shall have formulated the production incentive plan and provide production incentive to all khadi products by August 2016 (second tranche) 4.5. KVIC shall have formulated the benefits chart by August 2016 (second tranche). 4.6. KVIC shall have issued a notification to allow khadi institutions to set market-linked prices by August 2016 (second tranche). 4.7. KVIC shall have continued the phasing out of production incentives on other categories of products and assess the impact on sales as a result by October 2017 (third tranche). 4.8. KVIC shall have monitored and assessed the effectiveness of the implementation of the benefits chart by May 2017 (third tranche). 5. Institutional strengthening of khadi ($4.6 million) 5.1. KVIC shall have examined and reviewed the role and relevance of the central certification committee in the certification process of khadi institutions by August 2016 (second tranche). 5.2. KVIC shall have published periodically on its website the training calendar by August 2016 (second tranche). 5.3. KVIC shall have implemented a comprehensive capacity building plan by August 2016 (second tranche). 5.4. KVIC shall have completed (i) the assessment of existing training arrangements (infrastructure, capacity of trainers, curriculum, and demand for training); and (ii) based on the assessment, the

14 Appendix 1

Activities with Milestones (Second and Third Tranche) comprehensive plan for (a) demand-driven training delivery, (b) the creation of linkages with external training programs, (c) the upgrading of physical infrastructure, and (d) the enhancement of the skills of training staff by August 2016 (second tranche). 5.5. The borrower, through the program executing agency, shall have reviewed the functions of the marketing directorate of KVIC by August 2016 (second tranche). 5.6. KVIC shall have (i) reviewed the existing structures and processes for the certification of khadi institutions; and (ii) issued appropriate guidelines to empower a committee within the directorates of KVIC with the authority for the certification of khadi institutions, under the guidance and advice of the central certification committee by August 2016 (second tranche). 5.7. KVIC shall have (i) restructured its khadi directorates, village industry directorates, science and technology directorates, and economic research directorates; (ii) strengthened the human resource and administration directorates; (iii) realigned reporting relationships for efficiency; and (iv) devolved power to zonal offices by August 2016 (second tranche). 5.8. KVIC shall have conducted training for the 300 eligible khadi institutions on quality testing of raw materials by August 2016 (second tranche). 6. IT reforms in khadi ($9.7 million) 6.1. KVIC shall have developed an IT and/or e-governance road map, infrastructure requirements, and linkage of IT and/or information system strategy to the khadi reform package by August 2016 (second tranche). 6.2. KVIC shall have developed an integrated management information system and roll it out in 100 khadi institutions by August 2016 (second tranche). 6.3. KVIC shall have implemented the integrated application system by October 2017 (third tranche). 6.4. KVIC shall have implemented the management information system in 400 khadi institutions by January 2017 (third tranche). 7. Development of new ventures under khadi ($0.0 million) 7.1. KVIC shall have developed the framework for producer company model and enterprise for new ventures in khadi by August 2016 (second tranche). 8. Develop synergies through traditional village industries ($2.3 million) 8.1. KVIC shall have formulated the cluster development strategy for the identified village industries by August 2016 (second tranche). 8.2. KVIC shall have identified five traditional village industry clusters based on a market assessment study by August 2016 (second tranche). 8.3. KVIC shall have ensured the establishment of one cluster for each of the identified village industries by December 2016 (third tranche). 8.4. KVIC shall have ensured the implementation of the comprehensive capacity building plan in the identified clusters by December 2016 (third tranche). 8.5. KVIC shall have monitored the performance of the clusters by September 2017 (third tranche). Inputs ADB: $105 million (Program Loan) $2 million (TA Grant) Government: $500,000 Assumptions for Partner Financing Not applicable. ADB = Asian Development Bank; CSP = central sliver plant; IT = information technology; JSF = Japan Special Fund; KVI = Khadi and Village Industries; KVIB = Khadi and Village Industries Board; KVIC = Khadi and Village Industry Commission; MIS = management information system; MMSME = Ministry of Micro, Small and Medium Enterprises; MOU = memorandum of understanding; OCR = ordinary capital resource; RNS = rural nonfarm sector. a Extracts placed in the revised program administration manual for the Khadi Reform and Development Program). b Data for target and achievement for production provided by KVIC. Source: Asian Development Bank.

Appendix 2 15

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/MC/?id=42151-013-3

1. Performance Overview

2. Revised Program Administration Manual

Supplementary Documents 3. Report and Recommendation of the President to the Board of Directors: Proposed

Program Loan and Technical Assistance Grant to India for the Khadi Reform and Development Program

4. Amended and Restated Loan Agreement

5. Status of Policy Conditions

6. Economic and Sector Analysis

7. Development Coordination

8. Country Economic Indicators

9. Summary Poverty Reduction and Social Strategy

10. Risk Assessment and Risk Management Plan

11. Program Input and Activities

12. Revised Policy Matrix and Revised Policy Conditions based on the Revised Policy Matrix

16 Appendix 3

DEVELOPMENT POLICY LETTER

Appendix 3 17

18 Appendix 3

Appendix 3 19

20 Appendix 3

Appendix 3 21

22 Appendix 3

Appendix 3 23

24 Appendix 3

Appendix 3 25

26 Appendix 4

REVISED POLICY MATRIX

Policy Actions First Tranche $20 million

Second Tranche $40 million

(December 2016)

Third Tranche $45 million

(December 2017)

I. Establishing a Policy Reform and Implementation Framework

A comprehensive reform package for the development of khadi

Government of India (the Government) conducts a review of the performance of khadi sub-sector comprising KVIC and other subsidiary institutions and develops a khadi reform package to strengthen the khadi sub-sector. (khadi reform package) KVIC agrees on the khadi reform package comprising – policy, legal, marketing, and institutional reforms for achieving sustainability of khadi and enhancing artisan welfare. (KVIC letter indicating concurrence) KVIC, in consultation with MMSME, develops (i) criteria for selecting khadi institutions eligible for assistance under the khadi reform package, which will primarily be performance-based with due regard to regional balance and the inclusion of backward areas, and (ii) draft MOU between KVIC and khadi institutions on

KVIC shall have ensured the completion of the audit for hundred and eighty (180) eligible KIs by independent auditors. (Summary of audit findings) KVIC shall have disseminated the Khadi Reform Package nationwide through workshops. (List of state-wide workshops and training report) KVIC shall have (a) undertaken the initial assessment of the Khadi Reform Package; (b) held a stakeholder consultation on the outcome of the assessment; and (c) prepared appropriate measures to address the feedback. (Assessment Report and identify feedback and mitigation measures)

KVIC shall have ensured the completion of the audit of remaining two hundred and twenty (220) eligible KIs by independent auditors. (Summary of audit findings) KVIC shall have (i) undertaken the independent assessment of the Khadi Reform Package, (ii) held a stakeholder consultation on the outcome of the assessment, and (iii) prepared appropriate measures to address the feedback. (Assessment Report and identify feedback and mitigation measures).

Appendix 4 27



(December 2016)


(December 2017)

comprehensive reforms for khadi institutions, which will include performance benchmarks and sanctions for khadi institutions that fail to meet the performance benchmarks (eligibility criteria and MOU). KVIC selects 400 khadi institutions eligible for support under the khadi reform package (list of eligible khadi institutions).

II. Promoting and Marketing Khadi

Establishing identity of khadi through Khadi Mark

KVIC agrees to undertake steps to develop Khadi Mark and link the artisan’s base earnings to the use of Khadi Mark (khadi reform package).

KVIC shall have developed the Khadi Mark, including designing its logo, and notified the Regulations for enforcing Khadi Mark under the KVIC Act, 1956. [(a) Notified Khadi Mark Regulation (b) Khadi Mark Logo and (c) Summary findings of random spot audit reports] KVIC shall have (a) undertaken pan India arrangements for independent testing of Khadi; (b) obtained undertaking from users to abide by regulations for use of Khadi Mark (c) developed the

KVIC shall have created the basic testing infrastructure for the Khadi Mark. (Testing Infrastructure Report) KVIC shall have continued to conduct random spot audits of KIs regarding the adherence to the licensing requirements for the use of Khadi Mark. (Summary of spot audit reports)

28 Appendix 4



(December 2016)


(December 2017)

detailed plan for the creation of basic testing infrastructure for Khadi Mark at KVIC; and (d) undertaken the arrangement for managing Khadi Mark by KVIC state/divisional offices. [(a) MoU with the accredited agency b) Undertaking from users for usage of Khadi Mark c) Plan of testing infrastructure d) Khadi Mark Procedural Protocol as notified] KVIC shall have adopted the procedures and assigned its Khadi directorate to grant usage of Khadi Mark to KIs and other entities. (Gazette notification for Khadi Mark Regulations) KVIC through its Khadi directorate shall have ensured that the KIs registered at either KVIC or KVIB adopt the Khadi Mark. (List of KIs registered for Khadi Mark) KVIC through its Khadi directorate shall have prepared and maintained a list of KIs and other entities authorized to use Khadi Mark and publish this in its website. (List of Khadi Institutions)

Appendix 4 29



(December 2016)


(December 2017)

KVIC shall have conducted random spot audits of KIs and other entities authorized to use Khadi Mark regarding their adherence to the licensing requirements for the use of Khadi Mark. (Summary of the spot audit reports)

Effective marketing through private sector participation

KVIC agrees to establish a new marketing organization with majority private sector ownership (khadi reform package).

KVIC shall have commissioned a product specific market survey of Khadi and Village Industries products through a specialist firm. [(a) Work order and (b) the market survey report]

Based on the outcome of the survey, KVIC shall have identified products for both domestic and international markets and develop marketing strategies for all Khadi related institutions and products. [(a) Market Survey Report b) Strategy report based on survey)] KVIC shall have prepared a product catalogue and set up the market information system. (Product Catalogue and operational market information system)

III. Realizing Procurement and Production Efficiencies

Facilitating raw material procurement and cotton sliver production

KVIC develops quality norms for raw material procurement by khadi institutions (quality norms issued by KVIC).

KVIC shall have conducted training for the three hundred (300) eligible KIs on quality testing of raw materials. (Training Report)

30 Appendix 4



(December 2016)


(December 2017)

KVIC initiates the creation of a fund to kick-start private sector participation in sliver/roving production (KVIC letter, which will incorporate the guidelines for utilization of the fund).

Market-linked pricing to replace cost-based pricing

KVIC agrees to undertake steps to allow khadi institutions to set their khadi prices (khadi reform package).

KVIC shall have issued a notification to allow KIs to set market-linked prices. (Notification for Market Linked Pricing) KVIC shall have formulated the benefit chart. (Notification for Benefit Chart) KVIC shall have notified the benefit chart to KIs. (Circular / Order for Benefit Chart)

KVIC shall have monitored and assessed the effectiveness of the implementation of the benefit chart. (Assessment report)

Rationalization of financial assistance for khadi

KVIC agrees to undertake steps for the khadi institutions to shift to the production incentive plan (khadi reform package).

KVIC shall have formulated the production incentive plan and provided production incentive to all Khadi products. (Guidelines as issued to all Khadi Institutions for Market Promotion Development Assistance) KVIC shall have reassessed working capital requirement for Khadi production.

KVIC shall have continued the phasing out of production incentives on other categories of products and assess the impact on sales as a result of this. (Progress report)

Appendix 4 31



(December 2016)


(December 2017)

(Report of Working Capital Assessment) KVIC shall have appointed a focal person to engage with the bankers to enhance access of the KIs to working capital. (Office order for appointment of Focal Person)

Creation of new khadi ventures with greater entrepreneurial activity and enhanced artisan empowerment

KVIC agrees to pursue the producer company model and enterprise model for new ventures in khadi. (khadi reform package)

KVIC shall have developed the framework for producer company model and enterprise for new ventures in Khadi. (Notification for implementation of Producer Company)

IV. Implementing Institutional Reforms

Organizational restructuring of KVIC for better focus on facilitative and developmental role

KVIC adopts the restructuring devolution plan for (i) restructuring khadi, village industries, science and technology, and economic research directorates; (ii) strengthening of human resource and administration directorate; (iii) realignment of reporting relationships; and (iv) devolution of powers and responsibilities to zonal offices (restructuring devolution plan).

KVIC shall have (a) restructured its Khadi directorates, village industry directorates, science and technology directorates, and economic research directorates; (b) strengthened the human resource and administration directorates; (c) realigned reporting relationships for efficiency; and (d) devolved power to zonal offices. [(a) Circular on restructuring; b) Circular on strengthening the HR and administration

KVIC shall have implemented the management information system in four hundred (400) KIs. (Progress Report on fully operational MIS in 400 Khadi Institutions) KVIC shall have implemented the integrated application system. (Achieved "Go-Live" for the application system)

32 Appendix 4



(December 2016)


(December 2017)

KVIC creates the steering committee and users committee for the IT/IS planning and implementation (KVIC notification).

directorates; c) Circular on realignment of reporting relationships; d) Circular on devolution of powers to zonal offices)] KVIC shall have (a) reviewed the existing structures and processes for the certification of the KIs; and (b) issued appropriate guidelines to empower a committee within the directorates of KVIC with the authority for the certification of KIs, under the guidance and advice of the central certification committee. [(a) Review report of certification of Khadi Institutions b) Notification on empowering CCC to manage certification process)] KVIC shall have examined and reviewed the role and relevance of the central certification committee in the certification process of the KIs. (Review report) KVIC shall have developed an integrated management information system and roll out in one hundred

Appendix 4 33



(December 2016)


(December 2017)

(100) KIs. [(a) Work order issued to vendor for developing MIS and (b) Progress Report on roll out for 100 KIs] KVIC shall have developed IT/e-governance roadmap, infrastructure requirements, and linkage of IT/IS strategy to the Khadi Reform Package. (IT Roadmap and Tender Notification) The Borrower through the Program Executing Agency shall have reviewed the functions of the marketing directorate of KVIC. (Action Taken Report with minutes)

Revitalize khadi Institutions

KVIC agrees to formulate the comprehensive reforms plan for the 300 eligible khadi institutions (khadi reform package).

KVIC shall have modified categorization norms for KIs and recategorized four hundred (400) KIs using the modified norms. (List of re-categorized Kis and modified recategorization norms) KVIC shall have signed MoUs with one hundred and eighty (180) eligible KIs for comprehensive KI reforms. [(a) List of Institutions along with date of signing of

KVIC shall have adopted the comprehensive reforms plan to empower and revitalize the four hundred (400) eligible KIs. (Comprehensive Reforms Plan) KVIC shall have recategorized the remaining KIs using the modified norms. (List of re-categorized KIs and modified recategorization norms) KVIC shall have signed

34 Appendix 4



(December 2016)


(December 2017)

MoUs (b) Sample MoU)] KVIC shall have ensured that the eighty (80) eligible KIs implement the comprehensive reforms plan and implementation plan developed and approved for hundred (100) additional KIs. [(a) Progress Report on implementation of 80 Khadi Institutions and (b) Implementation plan for 100 Khadi Institutions approved by KVIC]

with two hundred twenty (220) eligible KIs the MOUs for comprehensive KI reforms. (List of MoUs with dates of signing and sample MoU) KVIC shall have ensured that three hundred and twenty (320) eligible KIs shall have implemented the comprehensive reforms plan. (Progress Report) KVIC shall have evaluated the performance of the four hundred (400) eligible KIs. (Evaluation Report)

Strengthen the capability of all institutions

KVIC agrees to develop a comprehensive capacity building plan covering KVIC, KVIBs, khadi institutions, and artisans. (khadi reform package)

KVIC shall have completed (a) the assessment of existing training arrangements (infrastructure, capacity of trainers, curriculum, and demand for training); and (b) based on the assessment, the comprehensive plan for (i) demand driven training delivery, (ii) the creation of linkages with external training program, (iii) the upgrading of physical infrastructure, and (iv) the enhancement of the skills of training staff. (Comprehensive capacity building plan)

Appendix 4 35



(December 2016)


(December 2017)

KVIC shall have implemented the comprehensive capacity building plan. (Progress Report) KVIC shall have periodically published in its website the training calendar. (Training calendar)

Develop synergies through traditional village industries

KVIC agrees to identify around 5 village industries that are in line with the ethos of khadi – handmade, use of organic inputs processes, and socially aware (khadi reform package).

KVIC shall have identified five (5) thrust traditional village industry clusters based on market assessment study. (Market Assessment Report and list of clusters identified for implementation) KVIC shall have formulated the cluster development strategy for the identified village industries. (Cluster development strategy report)

KVIC shall have ensured the establishment of one (1) cluster for each of the identified village industry. (Progress Report) KVIC shall have ensured the implementation of the comprehensive capacity building plan in the identified clusters. (Progress Report). KVIC shall have monitored the performance of the clusters. (Progress report)

CSP = central sliver plant; DSO = department sales outlets; ISEC = interest subsidy eligibility criteria; IT = information technology; IS = information system; KVIB = Khadi Village Industries Board; KVIC = Khadi and Village Industries Commission; MIS = management information system; MMSME = Ministry of Micro, Small and Medium Enterprises; MOU = memorandum of understanding; PPP = private–public partnership.