Document of

The World Bank

FOR OFFI('IAl. LUSE ONLY

Report No. 9375

PROJECT COMPLETION REPORT

INDIA

KARNATAKA SERICULTURE PROJECT(CREDIT 1034-IN)

FEBRUARY 26, 1991

Agriculture Operations DivisionCountry Department IVAsia Regional Office

T his document has a restricted distribution and ma! be used b. recipients oniv in the performance oftheir official duties. Its contents ma! not otheroise be disclosed %ithout World Bank authorization.

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CURRENCY EQUIVALENTS

Appraisal 1980/81 US$1 = Rs8.30Last Year 1988/89 US$1 = Rs15.83

FISCAL YEAR

GOI and GOK 1 April - 31 March

ARDC, IDBI andCooperative Banks 1 July - 30 June

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ARDC Agricultural Refinance and Development Corporation(now NABARD)

CSB Central Silk BoardCSRTI Central Sericultural Research and Training

InstituteDfl Disease-free layings of silkworm eggsDOS Department of SericultureGOI Government of IndiaGOK Government of KarnatakaIDBI Industrial Development Bank of IndiaISEC Institute for Social and Economic ChangeKS1C Karnataka Silk Industries CorporationKSSDI Karnataka State Sericulture Development InstituteMPDC Multi projects and Development Consultancy Ltd.NABARD National Bank for Agricultural and Rural DevelopmentPCR Project Completion ReportSAR Staff Appraisal ReportSFC Standard Conversion FactorTSC Technical Service Center

FOR OMCIAL USE ONLYTHE WORLD BANK

Washington, D.C 20433U.S A

Oece no O4feCtn.C.flealOp.atum IvIwtKmn

February 26, 1991

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on INDIAKarnataka Sericulture Project (Credit 1034-IN)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on India - Karnataka Sericulture Project (Credit 1034-IN)" prepared by the Asia Regional Office with Part II of the reportcontributed by the Borrower. No audit of this project has been made by theOperations Evaluation Department at this time.

Attachment

This document has a restricted distribution and may be used by recipients only in the performance |of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

GLOSSARY

Basin - Part of a silk reeling machine in which cocoonsfloat in warm water.

Bivoltine - Silkworm varieties from temperate climate countrieswhich breed only twice a year and whose eggs exhibitdormancy.

Charka - South Indian name for very young silkworms.

Cocoon - Silk capsule formed by silkworm larva in which itspends pupa stage.

Cottage Basin - Mechanized silk reeling machine used in villages.Each unit has six to ten basins each with six ends.

Dernier - Grams silk per 9,000 metres yarn or filament, usedas measure of silk yarn or cocoon filament thickness.

Filature - Large-scale silk reeling factory.

Grainage - Establishment for silkworm egg production.

Hatchery - Communally operated village establishment where eggs hatchinto silkworms.

Multivoltine - Tropical silkworm races which breed throughout the yearand whose eggs have no dormancy.

Renditta - Number of kilos of cocoon required to produce one kilo ofsilk yarn.

Raw Silk - Silk yarn, after reeling.

Silk Waste - By-product of silk reeling and raw material for spun silk.

Spun Silk - Silk yarn prepared from silk waste by de-gumming, combingand spinning process, similar to that used for wool.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

PROJECT COMPLETION REPORT

INDi

KARPATAXA SERICULTURE PROJECT(CREDIT 1034-IN)

Table of Contents

Page No.

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . iEVALUATION SUMMARY .i.i.i. . . . . . . . . . . . . . . . . . . .

PART I. PROJECT REVIEW FROM BANKt'S PERSPECTIVE .1.. . . . . .. .

Project Identity .... . . . . . . . . . . . . . . . . . .. 1Background .... . . . . . . . . . .. 1Project Objectives and Description .1.. . . . . . . . . . . . .Project Design and Organization ... . . . . . . . . . . . .. 3Project Implementation .... . . . . . . . . . . . . . . .. 3Project Results .... . . . . . . . . . . . . . . . . . .. 5Project Sustainability .... . . . . . . . . . . . . . . .. 8Bank Performance .... . . . . . . . . . . . . . . . . . .. 8Borrower Performance .... . . . . . . . . . . . . . . . .. 9Project Relationship .... . . . . . ..... . . . . . . . . 10Consulting Services .... . . . . . . ..... . . . . . . . . 10

Project Documentation and Data ... . . . . . . . . . . . .. 10

PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE .1.1. . . . ll

Achievement from the Borrower's Perspective .1.1. . . . . . . . . llAdequacy and Accuracy of Factual Information in Part III . . . 11Evaluation of Bank's Performance and Lessons Learned .1.1. . . . llEvaluation of Borrower's Own Performance and Lessons Learned . . 12

PART III. STATISTICAL INFORMATION ... . . . . . . . . . . . . 15

Project Related IDA Credits .... . . . . ..... . . . . . . 15Project Timetable . . . . . . . . . . . . . . . . . . . . . . . . 16Credit Disbursements ........ . ............. 16Project Implementation ........ . ........... . 17

Project Costs and Financing . . . . . . . . . . . . . . . . . . . 19

Project Results .......... . ............. 21

Status of Covenants .......... .. 2LUse of Bank Resources ........ . ............. 25

TABLE' . . . . . . . . . . . . . . . . . . . . . . . . 27

1. Economic Re-evaluation . . . . . . . . . . . . . . . . . . . 272. Financial Cost/Benefit 0.4 ha New Irrigation

Farm (Model I): Multi-Bivoltine . . . . . . . . . . . . . 283. Financial Cost/Benefit 0.4 ha Replanting

Farm (Model 2)s Multi-Bivoltine . . . . . . . . . . . . . 294. Financial Cost/Benefit 0.4 ha Rainfed

Farm (Model 3): Multi-Bivoltine . . . . . . . . . . . . . 30

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PROJECT COMPLETION REPORT

INDIA

RARNATAIA SERICULTURE PROJECT(CREDIT 1034-IN)

PREFACE

This is the Project Completion Report (PCR) of the KarnatakaSericulture Project. The project for which a credit of US$54 million wasmade available was started in late 1980. The credit was closed onSep_ember 30, 1988, three years behind schedule. The last disbursement wasmade in April 1989 and US$52,778.23 was cancelled.

Parts I and III of this report were prepared by a FAO/World BankCooperative Programme mission which visited India in February 1990.Part II is a summary based on a draft "old-style* Project Completion Reportprepared by a consultancy firm employed by the Government of Karnataka(GOK).

Preparation of this PCR was started during the Bank's finalsupervision mission of the project in 1987, and is based, inter alia, onthe Staff Appraisal Report, the IDBI Agreement, the Development CreditAgreement and the Project Agreement, supervision reports, correspondencebetween the Bank and the Borrower, and internal Bank memoranda, as well asdiscussions with staff, entrepreneurs and farmers.

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PROJECT COMPLETION REPORT

INDIA

KARNATARA SERICULTURE PROJECT(CREDIT 1034-IN)

EVALUATION SUMMARY

Project Obiectives

1. The project, which was the first IDA-funded operation in support ofIndian sericulture, had three main objectives: (i) to increase raw silkproduction in Karnataka by about 1,600 tons, including 1,000 tons high qualitybivoltine silk per year, by providing better silkworm eggs and intensiveadvisory services to sericulturists already cultivating about 24,000 hairrigated and 60,000 ha rainfed mulberry, and to those who were projected toplant about 14,000 ha irrigated mulberry in new areas during the projectperiod; (ii) to introduce modern processing facilities and methods that wouldupgrade raw and spun silk to export grade quality; and (iii) to introduce thelatest technologies from leading silk producing countries and expand localresearch for longer-term improvement of the industry (see para. 3.I).

Implementation Experience

2. Overall the project can be considered a success as it has met mostas its objective, i.e., increasing raw silk production, expansion andmodernization of facilities and services provided to sericulturists,introduction of modern methods and facilities, and enhancing research (seepara. 6.1). Project implementation was originally phased over a five-yearperiod (mid-1980 to mid-1985). However, initial progress was slower thananticipated due mainly to delays in the construction of DOS facilities andstaff recruitment. By the end 1985, (when only 672 of the credit had beendisbursed) a review of the project was undertaken and it was agreed to extendthe project period by one year and to incorporate changes including theaddition of 4,500 ha of new mulberry planting, supplementary DOS and researchfacilities as well as staff. The original IDA credit amount of US$54 millionremained unchanged. After this extension, most of the project targets wereachieved. In the case of smallholder development, the new areas planted tomulbecry amounted to 30,300 ha, far exceeding even the revised target of18,500 ha. The replanting programme, however, covered only 15,250 ha againstthe Staff Appraisal Report (SAR) target of 20,000 ha. Furthermore, it wasanticipated that as a result of the project supporced modernization programmethe Karnataka Silk Industries Corporation (KSIC) would become commerciallyviable. This, however, did not materialize due mainly to poor capacityutilization and high labor costs. Technical assistance funds were almostfully utilized.

3. Another critical variance was the considerable delay in theprocurement and installation of the highly specialized cold storage facilitiesfor grainage requiring a further extension up to September 1988. By the end

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of the extended project period actual disbursement amounted to US$53.95million (para. 5.1).

Project Results

4. By the end of the extended project period, incremental raw silkproduction amounted to over 2,400 tons as against the target of 1,600 tons;the share of bivoltine silk was however only 100 tons (see paras. 6.2 and6.3). For KSIC, the SAR projections had indicated a net profit before taxesof Rs 10.2 million in FY1984/85 increasing to Rs 17.9 million in FY88/89.Instead, net losses before taxes increased from Rs 27.8 million to Rs 49.7million during the same period (para. 6.6). At appraisal, also cottage basinoperations were considered highly profitable with a financial rate of returnof 32Z. Due mainly to a steep increase in cocoon prices which was notcompensated by a proportional increase in yarn prices, the rate of return fellto about 5Z. Financial returns for sericulturalists considerably exceededappraisal estimates due mainly to a substantial increase in cocoon prices (seepara. 6.11). Also employment generation was higher than anticipated.

5. The economic rate of return (ERR) of the project at appraisal wasestimated at 22Z. The reestimated ERR is 20Z. Factors contributing to theslight decrease are the substantially lower values added by KSIC and cottagebasin operations (see para. 6.10).

Sustainability

6. Having been based on an existing institutional structure, thesustainability of project activities even after project termination is secure(see para. 6.13). Physical facilities created by the project continue to beproperly maintained and staff recruited for project purposes were integratedin the cadres of the respective agencies. Farmers have clearly demonstratedtheir willingness and ability to adopt improved practices. The only concernis represented by the substantial losses of KSIC which requires continuousbudgetary support. An increase in bivoltine cocoon production together withthe proposed restructuring programme are however expected to improve thesituation by 1990/91 (see paras.5.4, 7.1 and 7.2). It can be assumed that theproject will maintain an acceptable level of net benefits throughout itseconomic life.

Findings and Lessons Learned

7. The project was generally well designed and implemented. Itsucceeded in expanding silk production in Karnataka, introducing modernprocessing technology and improving incomes and employment. The main lessonscan be learned through the project's two major shortfalls, which failed tointroduce bivoltine cocoon production on a large scale and transform KSIC intoa commercially viable enterprise.

8. From the former the lessons are that sufficient lead time must beallowed for the development and introduction of new production technologies,including the establishment of the required infrastructure, staff positioningand training. The latter failure indicates that considerable attention should

be paid to the social environment where a restructured enterprise is expectedto operate , The project should have anticiDated that the closure of uneconomicunits would have been critical for the purpose of transformine KSIC into acommercially viable enterprise.

PROJECT COMPLETION REPORT

INDIA

KARNATAKA SERICULTURE PROJECT(CREDIT 1034-IN)

PART T.: 1)RO.V:-CT RE.tI E 1RI)" !A'..': ( ; !' "1'i i

1. Project Identity

Project Name : Karnatak, ericulture ProjectCredit No. 1034-INRVP Unit Asia RegionCountry IndiaSector AgricultureSub-sector Agricultural Industries

2. Background

2.1 The Government of India's (GOI) development plans have persistentlyemphasized not only expansion of agricultural and in particular foodgrainproduction but also alleviation of rural unemployment and poverty, and havetherefore included investments for labor-intensive sub-sectors such assericulture. Based on past favorable experiences and because of its potentialfor employment generation and improving rural incomes, both GOI and theGovernment of Karnataka (GOK) have been planning measures to expand silkproduction in Karnataka. Among these, the Karnataka Sericulture Projectconstituted a major initiative and was the beginning of IDA involvement in thesub-sector. Preliminary discussions between GOI and the Bank took place inearly 1977. As a result, project preparation was undertaken by GOK incollaboration with the Project Preparation and Monitoring Cell of GOI'sMinistry of Agriculture and with the assistance of the Bank's New Delhi officestaff. The project was ba-ed on the resulting preparation report of January1979 and on the findings of the February 1979 Bank Pre-Appraisal Mission andthe September/October 1979 Appraisal Mission.

3. Project Objectives and Description

3.1 Objectives. The project had three main objectives: firstly, toincrease raw silk production in Karnataka by about 1,600 tons per year,including 1,000 tons of high-quality bivoltine silk, by providing bettersilkworm eggs and intensive advisory services to sericulturists alreadycultivating about 24,000 ha irrigated and 60,000 ha rainfed mulberry andintending to plant an additional 14,000 ha of irrigated mulberry in new areasduring the project period; secondly, to introduce modern processing facilitiesand methods that would upgrade raw and spun silk to export grade quality; andthirdly, to introduce, for the longer-term improvemeuit of the industry, the

latest technologies from l'ading silk producing countries and to expand localresearch. In addition the project was expected to result in a considerableincrease in rural incomes and employment.

3.2 Components. In order to achieve these objectives, the project was

to include the following components:

(a) Silk Production

(i) credit for 25Z of farmers in new areas for planting of mulberryand, purchase of silkworm rearing equipment as well as for theconstruction of 1,400 silkworm rearing houses to support the14,000 ha new mulberry planting programme;

(ii) incremental staff, vehicles, equipment and operating costsfor 150 technical services centers (TSCs) with1,700 communal hatcheries, 2/ four mobile training units,construction, equipment and operating costs of 20 modelhatcheries, and improvement of an existing SericultureTraining Institute and establishment of two new ones forexpanding and strengthening the technical services of theDepartment of Sericulture (DOS);

(iii) construction, equipment and operating costs for 10 moderngrainages (including cold stores) to expand and improvesilkworm egg supplies from DOS; and

(iv) construction, equipment, staff and operating costs of 30market units to expand cocoon markets and establish 12 newones.

(b) Silk Processing

(i) establishment of a semi-automatic departmental smallfilature in the new areas;

(li) credit for reelers for establishing 500 cottage basinunits; and

(iii) improvement of Government silk processing factories byreplacing the existing seven outdated filatures with amodern one, and renovating, modernizing and expanding theexiscAng spun silk factory.

(c) Research and Technical Assistance

(i) expanding facilities at the main station of CentralSericultural Research and Training Institute (CSRTI) andestablishing or improving two regional stations and 10

2/ Locally known as Chawkies Rearing Centers (CRCs).

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sub-stations; supporting programmes at three Karnatakauniversities; and establishing a sericulture researchstation for the Karnataka State Sericulture DevelopmentInstitute (KSSDI), which GOK was in the process ofsetting up;

(ii) technical assistance programmes including 70 man-months ofconsultants time and 380 man-months of overseas trainingto support the production, research and processingcomponents; and

(iii) support for monitoring and evaluation services.

3.3 At appraisal (1979), total project costs were estimated atUS$95.1 million equivalent (including physical and price contingencies), ofwhich US$20 million would be foreign exchange costs.

4. Project Design and Organization

4.1 Design. The project was designed to improve and expand the existingproduction base, processing facilities and the extension as well as researchinfrastructure and facilities. Although being the first of its kind, theconcept was not meant to be innovative, aiming however at introducing modernproduction and processing techniques. The project was generally well preparedand its scope and scale were appropriate. In view of the rapidly increasinglocal and export demand for silk and silk products, the project's timing wasmost appropriate. However, in retrospect, the technological package proposedfor rapid implementation was somewhat overambitious.

4.2 Organization. The project was to be implemented through a multitudeof existing agencies and institutions. Part of the credit was to be on-lent toARDC for refinancing participating banks for the provision of loans to silkfarmers and silk reelers. At appraisal, the institutional concept and thedifferent roles and functions were endorsed by GOI and GOK and thearrangements generally proved satisfactory throughout implementation. Only inthe case of research, better coordination by the Research CoordinationCommittee could have helped to eliminate some duplication in research effortsand to improve the research/extension linkage.

4.3 In retrospect, it was mainly the project's enphasis on the plantingand replanting of areas with iniproved mulberry varieti?s together withsubstantial extension and research efforts which contributed most to itssuccess. Possibly too much emphasis was given tu bivoltine silk production,since conditions were not conduci-;e to rapid development.

5. Project Implementation

5.1 Critical Variances in Project Implementation. The main variancesbetween planned and actual implementation were the project's limited successin introducing bivoltine cocoon production which reached only about 10 of thetarget and its failure to transform the processing units of the Karnataka SilkIndustries Corporation (KSIC) into commercially viable enterprises. Due to a

slow start-up, there was slippage in project implementation and the projectwas therefore reviewed towards the end of its original closing date. Based onthis review, the project period was extended by one year to incorporatechanges such as the addition of 4,500 ha of new mulberry planting, theexpansion of DOS and research facilities as well as provision of incrementalstaff. By the end of the extended period, most of the project's main physicaltargets were completed with the main exception of the cold stores forgrainages requiring further extension to September 1988.

5.2 Slippage occurred in the initial years mainly in the constructionprogrammes of grainages, cocoon markets, training centers and schools, whichwas partly due to inadequate staff strength in the Engineering Cell as well asto delays in the provision of construction material. This could have beenavoided through more adequate staffing and material flow planning. Also staffappointments lagged behind schedule partly due to cur.bersome selectionprocedures imposed by GOK, which were later rectified. Also the uptake of themulberry replanting programme was much slower than anticipated due mainly tothe reluctance of many farmers to sustain losses in productivity during thegestation period of the replanted crop.

5.3 The limited success in introducing bivoltine cocoon production canbe attributed to three factors. The development of bivoltine silk depends onthe availability of hardy varieties to withstand Indian conditions andspecialized technology for the production of quality seed. During the projectperiod, success in the development of appropriate varieties was slow.Secondly, the essential, highly-specialized humidity controlled cold stores atthe grainages were only installed a.fter credit closing (December 1989). Thedelay was due mainly to the assumption that the equipment would be availablelocally. After unsuccessful local bidding, consultants had to developdetailed specifications for ICB and the contract was awarded to a Japanesecompany. Subsequently GOI required the payment of a 902 import duty, whichonly after long negotiations between GOI and C.OK was reduced to 45X. Thirdly,the market premium for bivoltine silk was not sufficiently high for mostgrowers to accept the additional cost and risk, as prices were depressed dueto low cost imports of bivoltine silk yarn.

5.4 The Karnataka Silk Industries Corporation was created in April 1980in order to relieve DOS from operating processing complexes and to establishmodern processing units operating on a commercial basis. Under the project,the spun silk mill of KSIC has been modernized and expanded. It wasanticipated that the existing seven filatures would be transferred fromDOS to KSIC, of which one, under the project, would be totally modernized andothers closed down. Only three filatures were transferred, one was modernizedand one closed down. In order to avoid mass redundancies the third plant,however, was rot closed down and the original staff strength was maintained.The continuing operation of this plant, which has been incurring heavy losses,is contrary to the SAR proposal and has contributed to KSIC's losses. GOKagreed to reimburse KSIC for t'he losses, but most of the claims are stilloutstanding. It is now proposed by KSIC to retransfer this filature to DOS.

5.5 Besides the losses incurred by the old filatures, theunderutilization of the modern filature (mainly due to the insufficient supply

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of bivoltine cocoons) and subsequent processing facilities also contributed tothe losses of KSIC (para. 6.3). Furthermore, KSIC was obligated by GOK tocarry out developmental activities such as bivoltine cocoon procurement inremote areas, which substantially added to the costs of its operation.

5.6 The project, however, succeeded in introducing modern processingtechnology resulting in a substantial improvement of the quality of yarn andfabrics. It is expected that by 1990-91 the Corporation will make a net profitdue mainly to the increased availability of bivoltine cocoons and the proposedrestructuring program.

5.7 Project Risks. Most potential risks of the project were correctlyidentified and suitable provision was made to minimize these risks. However,more attention coul.d have been given to redress the problems related to themulberry replanting component (see para. 5.2) and to bivoltine production andmarketing (see para. 5.3). The commercial risks of the KSIC operation werealso underestimated and especially the adverse impact of the social obligationof GOK towards the labor force of the filatures which were proposed to beclosed down was not adequately assessed.

5.8 Unforeseen Factors Affecting Project Implementation. Most ofKarnataka State suffered from drought during the last four project years.Precipitation was 25Z to 40Z below long-term means, mostly affecting rainfedfarming. GOI had to divert some of its budget to drought relief, affectinglocal funding of some project components, leading to reduced hiring ofextension staff and a decrease in the civil works component. However, theseevents could not have been foreseen.

6. Project Results

6.1 General. The project as a whole can be considered a success as ithas met most of its objectives, i.e., increasing raw silk production;expanding and modernizing the facilities and services provided tosericulturists; introducing modern processing facilities and methods andenhancing research. Only tile cold storage component, which is the mostcrucial element to the success of future silk exports, was not completed byproject closing. The success of the project, particularly the impact it hadon small farmers, formed the basis for the formulation of the NationalSericulture Project (Cr. 2022 IN/Ln. 3065 IN). This project, which includesfollow-up operations in Karnataka, was approved by the World Bank Group inApril 1989.

6.2 Production. At appraisal, it was estimated that, as a result of theproject, the area under irrigated mulberry would increase by 14,000 ha, thatabout 20,000 ha of mulberry area would be replanted with improved plantingmaterial and existing (mostly rainfed) mulberry areas would benefit fromimproved farming practices. These targets were revised in 1985. Thecomparison between staff appraisal report (SAR) targets, revised targets andfinal achievements is summarized below:

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Area under RevisedMulberry Estimate Estimate Achievement

--------- ____--(ha)------------------

New planting 14,000 18,500 30,338Replanting 20,000 20,000 15,253

6.3 As a result of the increase in area and productivity, it wasestimated at appraisal that, at full development, incremental raw silkproduction would increase by 1,600 tons p.a., including 1,000 tons of high-quality bivoltine silk. The total target for raw silk production has beensubstantially exceeded with incremental silk production and re-estimated tohave reached over 2,400 tons at project closing in 1988. However, due to thedifficulties mentioned above (para. 5.3) the share of bivoltine silk (about100 tons in 1988) was still substantially below the appraisal estimate.

6.4 On-Farm Credit. Under the project's credit component, loans were tobe provided to sericulturalists through commercial banks for on-farmdevelopment (planting new mulberry, purchasing silkworm rearing equipment andbuilding rearing houses), for establishing cottage basins and for improvedcharkas. Actual credit disbursements as against the appraisal and revisedtargets have been as shown below:

Credit Components Revised Target Actual

----------------(Rs'000)-------------------

On-farm development 50,400 59,520 68,361Cottage basin 16,000 8,280 6,999Charkas - 11,160 6,658

As shown above, the revised financial targets were exceeded or almost reachedfor the on-farm development and cottage basin sub-components. The shortfallin credit disbursements for improved charkas was due mainly to thenon-acceptability of the improved charka by many entrepreneurs and partly dueto lack of skilled reelers and low unit returns in the new areas. Creditrepayment is reported to be satisfactory although no detailed data wereavailable.

6.5 Department of Sericulture. Even by the original completion date(1985), most of the ph'ysical facilities were completed with the main exception

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of the cold stores (see para. 5.9). Staff recruitment was initially slow andnever reached full strength mainly due to diversion of local funds for droughtrelief (see para. 5.9). The facilities which were added in the 1985 reviewwere all completed by the credit closing. Details are provided in Part 111/4.

6.6 Karnataka Silk Industries Corporation. Although some delay occurredin the civil works component and the procurement of equipment, the KSICfacilities were also completed well before the original project closing date.However, contrary to SAR estimates, the investments made by KSIC have so farfailed for the reasons explained earlier (paras. 5.4. and 5.5) to make theCorporation profitable as shown below:

1981/82 1985186 1988/89SAR Actual SAR Actual SAR Actual…--------(Rs million)----------------

Total revenue 74.0 34.7 112.2 148.5 112.2 247.3Total expenses 82.7 32.2 99.9 182.5 94.3 297.0Net profit (loss) (8.7) 1.5 12.3 (34.0) 17.9 (49.7)

6.7 Research. Due to delays in construction of facilities and staffpositioning, the component suffered a setback. This adversely affectedespecially the progress of the bivoltine programme. However, in the laterpart of the project (starting in 1987), KSDI developed a range of suitablebivoltine races and some progress was made in the further improvement ofmulberry varieties. Adequate research support for post-cocoon processingtechnology was not provided.

6.8 Technical Assistance and Study Tours. A total of 70 man-months ofconsultancy was earmarked for utilization by KSSDI, CSRTI, DOS, Central SilkBoard (CSB) and KSIC, which were almost fully used. They were found to beuseful and especially the consultancies provided to KSSD1 and CSRTI helpedconsiderably to advance mulberry and silkworm breeding. The entire allocationof 380 man-months of local training was utilized by DOS and CSB, but 38 of the80 man-months of overseas training provided for KSSDI staff were not utilizeddue to staff se3ection delays. Practically all staff trained, locally andoverseas, remained with the respective organizations.

6.9 Project Evaluation Study. The study was entrusted to the Institutefor Social and Economic Change (ISEC) and initiated in 1981 as foreseen in theSAR (for details, see Part III, 6 C).

6.10 Economic Rate of Return. At appraisal, the ERR for the whole projectwas estimated at 22Z. Using 1989 constant prices, the re-estimated ERRamounts to 202. Factors contributing to the slight decrease are mainly the

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low value added to raw silk and silk waste by KSIC and the poor performance ofcottage basin (for details, see Part III, 6 B and Table 1).

6.11 Financial Performance. At appraisal, it was estimated that thefinancial rate of return for new irrigated farms would be 132, for replantingexisting farms with improved mulberry varieties 152, and for improved rainfedfarms over 50Z. Due mainly to an increase in cocoon prices, the financialrates of return have been reestimated at 262, 31% and above 502, respectively.

6.12 The KSIC was projected to achieve an operating profit of Rs 12.3million in Year 5 resulting in an IRR of 161 over a 13-year period. Contraryto expectations, KSIC failed to become profitable with a resulting negativeIRR. The IRR for cottage basin reelers was estimated at 32Z. Due mainly to asubstantial increase in cocoon prices which was not sufficiently compensatedby silk yarn prices, the IRR is now estimated at 5Z, i.e., less than theopportunity cost of capital.

6.13 Project Impact. The project had a significant impact on the agro-industry sector of Karnataka with a substantial spillover effect onsericulture in neighboring areas of Andhra Pradesh and Tamil Nadu. Byutilizing and strengthening existing agencies, the project had a considerableimpact on institution building, especially in research and extension. Theplanting of over 30,000 ha to mulberry has improved the physical environment.With an estimated incremental annual employment of over 230,000 workers andabout 9,000 additional positions created in DOS (35Z staff and 652skilled/unskilled labor), the project has played a vital role in thealleviation of rural poverty and unemployment.

7. Project Sustainability

7.1 The Government continues to support the investment undertaken by theproject and further the promotion of sericulture in the State. The farmingcommunity has generally accepted the improved husbandry techniques and areasunder n lberry are continuing to expand. The low acceptance of bivoltinerearing for commercial cocoon production by the farmers, however, constitutesa continuing project risk.

7.2 It can be assumed that the project will maintain an acceptable levelof net benefits throughout its economic life, especially in view of thestart-up of the National Sericulture Project, which inter alia will providecontinuing support to the Karnataka sericulture sector.

8. Bank Performance

8.1 The Bank performed well from identification through projectappraisal, responding swiftly and generally in a technically sound manner tothe borrower's requirements. A total of 12 supervision missions were fieldedover the seven and half year's of the project period (see Part 111/8), whichwere properly timed, suitably staffed and beneficial to the project.

8.2 However, realizing the importance of specialized cold stores for theprocessing of bivoltine eggs, the Bank should have insisted on the appointment

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of consultants at an early stage which would have been helpful to avoidsubsequent delays. The other main lessons learned from project implementationthat may be relevant to other Bank-financed projects are:

(a) In the case of projects which partly depend on research findings,sufficient time should be allowed for start-up of researchprogrammes crucial to the implementation of specific components andto develop procedures to ensure field trials at an early stage (seepara. 6.7).

(b) Where the procurement of highly specialized equipment is required,its availability in the borrower's country should have beenassessed at an early stage (see para. 5.3).

(c) Care should be taken at an early stage to address risks associatedwith the implementation of individual components as these becomeapparent (mulberry replanting, bivoltine silk production andcommercial risks of KSIC operation). (See para. 5.7).

(d) For the commercial viability of KSIC, the project should havefocussed not only on the modernization of the filatures and spunsilk factory, but also on the restructuring of KSIC through closureof uneconomic units (see para. 5.4).

9. Borrower Performance

9.1 The borrower performed very well throughout the whole project cycle.All ministries and agencies collaborated fully with the World Bank missions atthe preparation and appraisal stage and were supportive to the supervisionmissions.

9.2 The borrower adopted all the agreed covenants (see Part III/7),except for audited accounts which were initially submitted with considerabledelays and the situation was only rectified in 1986. Project management wassatisfactory throughout and staff resourcs were adequately deployed andtrained. However, the slow and ultimately reduced recruitment of mainlyextension staff by the borrower may have contributed to delays in theachievement of various targets.

9.3 Experience gained by the borrower was that:

(i) Adequate trained staff in sufficient numbers have to be recruitedat an early stage of the project to provide the requiredimplementation capacity (see para. 5.2).

(ii) Tendering and import procedures (including duty exemptions) shouldhave been decided at an early stage to avoid delays in the projectimplementation (see para. 5.3).

(iii) There is need to ensure timely auditing to comply with therespective covenants (see para. 9.2).

- 10 -

10. Project Relationship

10.1 The Bank-borrower relationship was satisfactory throughout theproject period. A fruitful dialogue was maintained between GOI as principalborrower, GOR and the implementing agencies on the one side and the Bank onthe other. Only with regard to the first project extension, a minor problemoccurred due to the borrower s delayed submission of audit reports and theBank's subsequent slowness in the approval of the projrct. extension resultingin some disbursement delays.

11. Consulting Services

11.1 The SAR included a total of 70 man-months of consultants' time insupport of KSSDI, CSRTI, DOS and KSIC, which were almost fully utilized (seepara. 6.8). With an allocation of over US$25 million for civil works andequipment, contractors and suppliers played a major role in the project and,with the exception of some delays in construction work, performed wellthroughout the project.

12. Project Documentation and Data

12.1 There were four main documents containing the legal agreements forthe project, namely the Development Credit Agreement, a Project Agreement, anAgricultural Refinance and Development Corporation (ARDC) Agreement and anIndustrial Development Bank of India (IDBI) Agreement. All documents hereclear and concise and generally the parties adhered to the agreements. Twoamendments (1985 and 1987) had to be made to the Development Credit Agreementreflecting the extensions of closing dates and amendments to Schedules I andII.

12.2 The Staff Appraisal Report provided a useful framework for the Bankand the borrower to implement the project and monitor its progress. However,the successive extensions and the depreciation of rupee reduced the SAR'susefulness, especially in providing a financial guidance.

12.3 Not all financial data relevant to the PCR preparation were readilyavailable. This was mainly due to the fact that the data were not collectedand processed to serve as basis for a broad ex-post evaluation but rather forshort-term monitoring of project results.

- 11 -

PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

Achievement from the Borrower's Perspective

1. The overall achievement of the Karnataka Sericulture Project isnoteworthy, despite holdups and a few disappointments. Sericulture wasextended from 8,200 to 13,100 villages. Sericulture families have increasedfrom 470,000 families to 627,000 families. The area of mulberry increasedfrom 110,000 ha to 141,300 ha, 164Z over the target of 18,500 ha. Even thereplanting which most Indian projects fail to take up, achieved 75Z of itstarget. Cocoon production increased from 36,250 tons to 50,500 tons. Mostnoteworthy is that silk production increased from 2,700 tons to 5,317 tons, anincreased of nearly 96Z.

2. Equally noteworthy is that technical achievements have been as aresult of the encouragement from the Project. At least 6 new varieties havebeen introduced and the most popular new variety, M5, has replaced 20,000 ha -a highly encouraging accomplishment. New varieties for rainy, highland, moretropical and drought zones have also been developed during the project period.A technical package of inputs and practices have been developed for these newvarieties. Although not all have been approved by the scientific community,they will have a huge impact in coming years. In addition, and equallynoteworthy, is that yields of cocoons per 100 disease-free layings (Dfls) hasincreased to 25 kgs and 20 kgs from 17 kgs under irrigated and rainfedmulberry respectively -- a direct manifestation of the crossbreeding ofsilkworms. This crossbreeding program brought into production bivoltine wormscrossed with natives; and this cross with bivoltine worms upgraded thequantity and quality of silk. The renditta has decreased from 13 to 15 underirrigated and rainfed conditions to 9.5 and 12 respectively - anothermanifestation of the crossbreeding encouraged by the project.

3. Finally the infrastructure developed in Karnataka h.- not onlypromoted the growth of the industry in Karnataka, but also the border areas oftwo other states, Tamil Nadu and Andhra Pradesh, by providing outlets fortheir cocoons, higher yielding silkworms, and new and high yielding varietiesof mulberry.

Adequacy and Accuracy of Factual Information in Part III

4. The country data, defining the project profile at completion aspresent in Part III, was prepared by the Government of Karnataka and theDepartment of Sericulture and discussed thoroughly in the field. It wascollated into the Table 1 to 4, cross-checked with the field tables, andserved as the basis for the tables in Part III.

Evaluation of Bank's Performance and Lessons Learned

5. Bank personnel were recognized as professional in all respects.Most mission members were highly qualified in their respective fields. Therewere occasions, however, when the composition of supervision missions was notappropriate to address the kinds of implementation problems occurring.

- 12 -

6. One of the important components was to establish cold storageplants, which is crucial for processing the bivoltine silkworm eggs andproducing multivoltine silkworm eggs. The cold store equipment required hadto be able to maintain variable temperature, exact humidity, air and light forpreservation of silkworm eggs, silkworm moths and seed cocoons. If India isto make a technological breakthrough, this equipment is a basic requirement.Otherwise, there would be no quality change in its silk. The appraisal costestimates of the cold stores was not unrealistic.

7. Moreover the tendering process was not monitored close enough, asthe State adopted LCB procedures instead of ICB procedures. The Bank expertsshould have known that this equipment which needed such exacting temperatureand humidity controls could not have been produced in India. Because none ofthe local bids could provide the equipment according to specifications, allbids were rejected by the Government's own technical committee. The Bank thenrecommended consultants to draw up specifications for the 13 grainage/coldstore plants. This process and other delays caused a price escalation duemostly to exchange rate (60Z increase in value of the Japanese Yen)differences and a unexpected customs duty of about 90Z on the cost of importedequipment. GOI, at the plea of the Government of Karnataka and the Bank,reduced the duty to 45Z. Nevertheless, there was a much higher duty than whatwas anticipated at Appraisal. Moreover, the delay in completing thiscomponent sooner caused the low level of achievement in bivoltine silkproduction. The lesson learned is that more realistic estimates of theequipment must be made at appraisal and that any government commitments, suchas custom duties are fixed in a side letter with the participating Governmentagencies.

8. Another major component that the Bank should have placed moreemphasis was the reeling component. While the Bank supported the StateCorporation, it failed to design a program that would stimulate new ortraditional reelers to have proper training to handle the multivoltine andbivoltine cocoons. As a result, while the achievement in plantation,equipment and rearing house was very good, achievements for upgraded cottagebasin or semi-automatic reeling equipment was poor. Reelers were not skilled,management/entrepreneur training was not given, and an incentive program wasnot in place for the early years to encourage the private sector. The lessonlearned is that the Bank should have identified the needs of the reelingsector, not just the public sector, and it should have provided a program withnew improved equipment and incentives to stimulate participation of existingprivate reelers.

9. Another major lesson learned was that the national procedures forclearing new varieties of mulberry and silkworm races should have beeninvestigated prior to appraisal and a streamlined approach should have beensought by the appraisal to speed up the introduction and distribution of newmulberry and silkworm eggs.

- 13 -

Evaluation of Borrower's Own Performance and Lessons Learned

10. The performance of the participating institutions in overall projectplanning and implementation was good. The implementation of the project wasslowed by a shortage of improved varieties of mulberry, higher yieldingsilkworm multivoltine and bivoltine eggs.

11. The other major lessons learned were: (a) there is a need to trainand encourage skilled reelers in the new areas where bivoltine reelers andcocoon auction halls are placed; (b) if the private reelers are not availableKSMB, a state organization, should be able to provide assured market to thesilk cocoon producers in the new area; (c) the project should have supportedstrengthening of the private reeling sector; (d) research should concentrateon developing bivoltine silkworm races and mulberry suitable to the differentagro-climatic areas as well as a management package that is economicallyviable; (e) the Central Silk Board plus CSRTI and the Silk Technology sectionof KSSDI should develop and/or import technology for processing the bivoltinecocoons and provide adequate training facilities to the bivoltine cocoonreelers; (f) the State of Karrnataka should pay more attention in providingadvisory services to the reelers by organizing reeling technical servicecenters and employing qualified personnel to work in these centers; (g) theState of Karnataka should promote bivoltine cocoon and silk production byrecommending prices of Rs 10 per kg for cocoons over the highest pricemultivoltine cocoons, and Rs 100 per kg over the highest price multivoltinesilk; and (h) the State of Karnataka should seek a way for bivoltine reelersto purchase their cocoons directly from the sericulturists and pay at themarket rate.

- 15 -

PART III

STATISTICAL INFORMATION4

1. Related Bank Loans and/or Credits

Credit/Title Purpose Approval Status Gomments

Karnataka To improve efficiency 1978 Completed Progress has beenIrrigation of water utilization satisfactoryProject of existing large throughout

(Cr.788-IN) irrigation schemes, implementationto upgrade extension period.and provide villageaccess roads.

NABARD I(Cr.2653-IN) To strengthen and 1986 Ongoing NABARD re-

improve the financing coversagricultural credit credit to farmerssystem and to finance and reelers ofin part NABARD's Karnatakamedium and long-term Sericulturerefinancing programme Project.to participatingc:edit institutions.

National To improve silk 1989 Ongoing Experience gainedSericulture production in five from KarnatakaProject states, improve Sericulture(Cr. 2022-IN quality of silk goods Project takenLn. 3065-IN) and increase role of into account in

private sector in project design.silk production. Project activit-

ies, among others,include provisionof continuedsupport toKarnataka's seri-culture sub-sector

- 16 -

2. Project Timetable

Item Date Planned Date Revised Date Actual

Identification October 77 /a

Preparation 1978/79 /b

Pre-Appraisal February 79 February 79

AppraisAl Mission September 79 Sept./Oct. 79

Credit Negotiations April 80 April 80

Board Approval June 80 June 80

Credit Effectiveness September 80 Dec. 80

Project Completion March 85 May 86/Sept. 87/March 88 Sept. 88

Credit Closing December 85 Dec.86/Dec.87/June 88 Sept. 88

Credit Completion June 86 June87/June 88/Dec. 88 April 89

ia Date of first presentation to the Bank.lb Initial project preparation by the State of Karnataka under overall

coordination of GOI; no exact dates available.

3. Cumulative Estimated and Actual Disbursement(US$ '000)

1980/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89

AppraisalEstimate 3.00 11.00 27.00 41.00 53.00 54.00 - - -

Actual 1.15 3.01 9.35 22.90 31.06 36.01 43.62 48.29 53.95

Actual asof Est. 38.3 27.4 34.6 55.8 58.6 67.0 80.7 89.4 99.9

Date of Final Disbursement: April 24, 1989.

4. Proiect ImalementatiOn

Key Indicators -Un& SR Achievement Revised Actual

Target {(March 1985) Target I/

1. Bulberrv Develomeeflt- uew Planttng ha 14.000 14.585 18.500 30.338

- Replanting ha 20.000 12,939 n.c. 15.253

11. DOS Facillties- Grainages U 10 9 14 14

- Cocoon Markets U 30 29 38 38

- Model Hatcheries U 20 18 n.c. 20

- Technical Service Centres U 150 150 190 180

- Communical Hatcheries U 1.700 1.700 n.c. 1,700

- Training Centres U 3 2 n.c. 3

- Demonstration Vans Purchased U 4 4 - 4

- filature U 1 - - 1

- Mounting Halls U - 10 9

- Documentation Service Unit U I- 1

- Reeling Establishments U - - 13 13

- Computer for Grainges U I- 1

- Reeler's Tech. Service Centre U - 10 10

- improvement of Seed Farms (P-3) U - 3 3

- Improvement of Seed Farm (P-2J U - - 12 12

I[1. DOS Recruitment and Trainin3

- Serl. Assistant Recrutted/Tratned No. 270 208 328 208

- Serl. Inspectors Recruited/Trained No. 100 100 141 100

- Serl. Demonstrator Recruited/Trained Mo. 1.500 1.296 1.818 1.500

Abbreviations: U a unit; n.c. * no change proposed.

key Indicators Key Indicator SAR Achievement Revsed ctual

Taroet (March 1985) Target 11

IV. Credit- Plantation ha 3.500 2,821 4.021 3.836

- Rearing Equipment on Farms ha 3,500 2,857 4,057 3.774

- Rearing Houses U 1,400 2.217 2.400 3.039

- Cottage Basins U S00 60 190 158

- Improved Charakas U -- 700 377

V. KSIC Facilities- Filature U 1 1 n.c. 1

- Spun Silk J 1 n.c. 1

- Central Workshop U 1 1 n.c. 1

VI. Consultants- For CSRTI and CSB H/M 19 17 n.c. 19

- For DOS MtM 39 33 n.c. 38

- For KSIC M/M 12 3 n.c. 9

VII. Study Tour 1- For CSRTI H/H 120 126 n.c. 126

- For OS Mt" 260 260 267.s 260

- For KSSDI M/M - - 80 42

VIII. Research- Laboratories U 7 6 15 12

- Staff Houses U 60 - 98 54

- Farm and Miscellaneous Buildings U 23 8 39 39

- Research Farms Developed U 13 9 16 16

- Scientists Appointed U 221 199 226 222

11 Revision of September 1985.Abbreviations: U = unit; H/M = man-month; n.c. no change proposed.

5. Prolect Cost and Financino

A. Prolect Cost

Appraisal Estimate Revised Estimate Actual

. . OSS Million S..... ..... us Million ..... ..... USS Million .

Categorv 12Spi Foreign Total Local Foreign Total Local Foreign Total

On-Farm CreditPlantation 1.7 1.7 1.35 - 1.35 1.88 - 1.88

Equipment 2.1 - 2.1 1.78 - 1.78 2.15 - 2.15

Rearing Houses 2.3 2.3 2.44 - 2.44 2.84 - 2.84

Credit for ReelinoCottage Basins -,9 j* L/ - 1.07Z - 1.0

Sub-Total Credit 8.0 - 8.0 7.22 - 7.22 7.94 - 7.94

Oepartment of SericultureGrainages 10.2 0.1 10.3 10.20 11.30 21.50 14.31 13.23 27.54

Hatcheries/Service Centres 19.5 - 19.5 12.32 - 12.32 12.07 - 12.07

Oemo. Units/Training Schools 1.0 - 1.0 0.88 - 0.88 0.85 - 0.85

Cocoon Markets 3.0 - 3.0 4.87 - 4.87 4.61 - 4.61

Dep. Filature 0.3 0.4 0.7 0.75 0.51 1.26 0.75 0.46 1 21

Inc. Admin. Cost 3.1 - 3.1 3.58 - 3.58 4.27 - 4.27

New Programmes - _ - 3.13 0.35 3.48 3.03 0.34 3.37L1

Sub-Total DOS 37.1 0.5 37.6 35.73 12.16 47.89 39.89 14.03 53.92

K(SICFilature 0.8 4.2 5.0 1.00 5.59 6.59 3.77 2.58 6.35

Spun Silk Mill 2.1 7.8 9.9 7.78 8.00 15.78 9.30 6.85 16.15

HQ and Workshop 0.7 - 0.7 0.56 - 0.56 0.55 - 0.55

Met Inc. Working Cap. I/ 0-5 - - -

Sub-Total KSIC 4.1 12.0 16.1 9.39 13.59 22.93 13.62 9.43 23.05

Research and Oevelopment 6.6 1.4 8.0 7.20 4.68 11.88 5.96 S.60 11.56

Tech. Asst./Studv Tours 0.2 2.2 2.4 0.09 2.10 2.19 0.47 2.56 3.03

Proiect Evaluation Studv 0.2 - 0.2 0.22 - 0.22 0.22 - 0.22

Base Cost Estimate 56.2 16.1 72.3 59.80 32.53 92.33 - - -

Physical Contingencies 3.0 1.4 4.4 - - - - -

Price Contingencies 15.2 3.2 18.4 2.27 0.50 2.77 - - -

TOTAL PROJECT COSTS 74.4 20.7 9S.1 62.07 33.03 95.1 68.10 31.62 99.72

.I Working capital to finance incremental inventories, receivables and cash balance necessary for efficient operations

_l Includes credit for charakas.

Comment: As a result of the depreciation of the Rupee against the USS during project implementation, additional Rupees

became avallable under the IDA Credit, allowing the addition of project components and the extension of the

project period without any substantial increase of project cost in USS terms.

8. Prolect Financina

Source Planned Revised I/ Final CommentsICredit Agreementl USS MII USISIin I

OA (Total) 54.0 56.8 S4.0 53.9 54.1 Savings trom reduced staff1. Civil Works 6.5 11.7 11.7 recruitment by 0OS. CSRTI2. Equipment and Vehicles 10.0 14.2 14.0 and Universities utilized to3. Stat? Salaries 19.0 12.4 12.3 cover cost Increases In civil4. Refinance by AROC 4.4 3.1 3.4 works and equipment.5. Loans by 101 9.5 9.5 9.56. Technical Assistance 3.0 3.1 3.07. Unallocated 1.6 - -

GO61GOK 30.7 32.3 n.c. / 37.1 37.2

AROC 3.5 3.7 n.c. 3.0 3.0

1O08 4.9 5.2 n.c. 4.2 4.2

Banks 0.9 0.9 n.c. 0.7 0.7

FarmerslReelers 1.0 1.1 ".c. 0.8 0.8

Toto1 95.0 100.O n.c. 99.7 100.

.1/ Last revision Oecember 1987.I/ n.c. - no change documented.

6. Prolect Results

A. Direct Benefits

lndicatorl Unil Aporaisal Revised Est1mate at Es&imate at

Estimate Estimate Closing Date Full Develooment

Mulberry Area Development ha 14,000 18,500 30,338 Estimate not feasible

Mulberry Area Replacement ha 20,000 20.000 15,253 due to continuing

Mulberry Area Improvement ha 64.000 n.c. 1/ 64,000 support from National

Incremental Raw Silk Production tons/p.a. 1,600 n.c. 2,429 Sericulture Project.

Employment Generated from:

Mulberry Cultivation &Silk Worm Rearing work/years 57,300 n.c. 78,000

Related Artisan Activities worklyears 122,700 n.c. 156,000

Construction Jobs work/years 15,000 n.c. 29.000

Incremental Positions In DOS no. 9.000 n.c. 9.000

_ _ _ _ _ _ _ _ _ _ _ I----.

It No change documented.

- 22 -

B. Economic Imoact

Agoraisal Estimate Actual

Economic Rate of Return 22% 20% 1/

Underlying Assumptions

SAR. Economic costs of the project were based on capital investmentand operating costs for production and processing infrastructure, on-farmdevelopment and cottage basin capital and production costs, and KSIC netincremental working capital. No attempt was made to quantify benefits frominvestment in research, technical assistance and foreign training or theproject evaluation study, and costs for these components were not includedin the analysis. All costs were net of duties, taxes, price contingencies,interest and other transfer payments, but included physical contingencies of5%-10% for civil works, equipment, vehicles and incremental operating costs.Traded components in construction costs, operating costs, KSIC equipment andfertilizer were adjusted by estimated standard conversion factors of0.82-0.84. Opportunity cost for unskilled and semi-skilled labour was valuedat 70% of wage rates.

The export parity price for raw silk was derived from Japaneseimports of standard 20/22 dernier, mixed grade quality. Added value fromKSIC manufactures was taken at domestic pric.es because of the specialtynature of production for the domestic market and difficulty in comparisonwith internationally traded fabrics that include a design element.

In the future without the project, it was assumed that 25% of thetargeted 14,000 ha for new production would be converted to sericulture withexisting yield levels, producing about 200 tons raw silk for reeling by

.cottage basins and charaka units and about 65 tons silk waste. The remainingarea (10,500 ha) would remain under well-managed irrigated farms producingtraditional crops (paddy, maize, cotton, sugarcane) with an average annualnet income of Rs3,900/ha. Area and yields for existing rainfed irrigatedfarms were assumed to remain at current levels. The analysis was calculatedfor a 20-year period during which a major equipment replacement was assumednecessary.

PCR. Using the same major underlying assumptions, the re-estimationof the ERR was carried out for the whole project on the basis of 1989constant prices. Past project investment costs, net of duties and taxes,were adjusted to 1989 constant prices by using wholesale price indexdeflator factors. Foreign exchange costs were valued at the prevailingexchange rates and local costs were converted into border prices by astandard conversion factor of 0.80. In view of the improved employmentsituation, no special conversion factor has been used for labour. Inthe future without project situation it was assumed that 25% of theactually planted area would be converted to sericulture. Fordetailed calculations see Table 1.

I/ See Table 1.

C. Financial Impact

Appraisal Estimate Actual

Financial Rates of ReturnNew Irrigated Farm Model 13X 26X I/

Mulberry Replanting Model 15 31X ?/

Rainfed Farm Model 50.+ 5042 i/

Cottage Basins 32X 5S

KSIC Total 16X neg.

Other Financial Indicators- Incremental production

of 1,600 tons of rawsilk and 480 tons of US$75 million US$124 Million (1988/89)

silk waste p.a.- KSIC net profit from

1984/85 on ward Rsl7.9 Million Rs49.7 Million loss

D. Studies

Puroose as Defined at AoRra1sal Status Impact of Study

Studies

Evaluation Study To measure impact of project and Completed The study was useful In providing

its individual components on silk benchmark data but failed to be a

production, employment and rural tool for management.

income and also provide data formanagement decisions.

1/ See Table 2/ See Table 33/ See Table 4

Comments: The study was to be initiated by 31 March 1981. The Institute for Socio-economic Change was entrusted by G0O with its

Implementation. A benchmark survey was carried out in 1981 and subsequently the Institute continued to monitor the

project for about two years. Thereafter, surveys focussed only on selected topics/components of the project in rather

general terms.

- 24 -7. Status of Canvenants

AGMI Section fDescrintion of Convenant Original StatusDAIe

ARCO 4.02 ARCO AUDIT ACCTS/Reports due to IDA not OKlater than four months after end each FY:- GOI Departments (Proj. Exp.)- GOK Departments (Proj. Exp.)- KSIC (overall)- ARDC (now NABARD) (overall)

4.03A Participating Banks to maintain separate OKaccounts for loans made re parts A.1 andB.2

4.03B ARDC to collect audit reports from OKparticipating banks; reports to IDA 9months after FY

CRED 3.02 Borrower to employ consultants OK3.03A Borrower to prepare plan and timetable for 12/31/80 OK

technical assistance and overseas trainingprogramme

3.04 Sericulture research COMT to review OKprogramme proposals submit annual programmeto IDA

3.07B AUDIT ACCTS/report due to IDA not later OKthan 9 months end each fiscal year

IDBI 4.02 IDBI AUDIT ACCTS/reports due to IA not later OKthan 5 months after each end FY

KARN 2.02 Karnataka to employ sericulture consultants OK2.07 Karnataka to establish an engineering unit

in 1OS to supervise civil works as SPEC 09/30/80 OK-KARN 2.08 Karnotaka to furnish to IDA SPECS for

construction of rearing houses (Part A.1) 12/31/80 OK2.09 Karnataka to establish/maintain/operate 12/31/80 OK

the Karnataka State sericulture developmentINST

2.10B KSIC to appoint heads of its Technical/ 09/30/80 OKFinance/Personnel/ and Accounts Divisions

2.10C Engineering unit within KSIC to be 12/31/80 OKestablished to supervise civil works(Part B.3)

2.10D KSIC's debt equity ration to remain within OKlimits determined by IDBI

2.11 Karnataka to prepare training programme by 12/31/80 OKdate specified and thereafter implementprogramme

2.12 PCC to review annually programme for OKproject execution and submit updated PGM EAMar. 31

2. 13 Karnataka to commence evaluation study 03/31/81 OK(Part D.3)

2.14B Karnataka AUDIT ACCTS/Report due to IDA not OKlater than 9 months after end each FY j/

I/ Prior to 1986, audit reports were received with some delay mainly dueto constraints in the Accountant General s office.

8. Use of Bank Resources

A. Staff Inputs

Stage of Project Cycle FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 Total

Preappraisal 53.10 4.90 58.00

Appraisal 74.10 74.10

Negotiations 9.70 9.70

Supervision 10.20 21.50 7.40 9.50 18.50 19.60 7.80 9.20 103.70

Project Completion 5.60 9.20 14.80

Totals 53.10 88.70 10.20 21.50 7.40 9.50 18.50 19.60 7.80 9.20 5.60 9.20 260.30

8. Missions

Stage of Prolect Cycle Month/Year It No. of Persons 7/ Oays in Field Soecialization Performance Types ofRepresented If Rating 41 Problems .1

Pre-identification 7/77 1* 22* DC - -

Pre-appraisal Mission 3179 5 20 DC, FA. SP. Si, M - -

Appraisal Mission 9/79 6 32 E, FA. FM, Si, C

Supervision 1 9180 2 4 AE,FA I -

Supervision 2 4/81 1 6 FA 2 MTP

Supervision 3 12/81 1 5 Ag. 2 MT

Supervision 4 7/82 3 8 Ag. 2 MT

Supervision 5 4/83 1 3 Ag. 2 T

Supervision 6 3/84 1 7 FM 2 MTP

Supervision 7 12184 1 7 Ag. 2 MTP

Supervision 8 6185 1 l8 E 2 MT

Supervision 9 10185 2* 28 AI,E 2 - 6/

Supervision 10 5/86 2 4 E.AI 2 -Supervision 11 10/86 1 4 Al 2 -Supervision 12 10/87 1 9 Al 2 -

_ _ _ _ _ _-- - - - - - - - - - - - - - - -

I Data of return to headquarters.1/ Multiple purpose mission marked (').I/ Al - Agro-Industry; E - Economist; FA - Financial Analyst; Ag - Agriculturist; FM - Finance & Management; DC - Division Chief, SP - Sericulture Product

SI - Sericulture Institutes; M - Moriculture; C - Credit.41 1 = Problem-free or minor problem; 2 = Moderate Problems; 3 = Major Problems.5/ F = Financial; M = Managerial; T = Technical; P = Political; 0 = Other.5/ Not available due to change in reporting format.

Karnataka Sericulture Project (Cr 1034-IN)Econooic ROR Of the Project

turrency: Rs.11lliofns

Econouic Rate of Return of the Project

.@....................... 000............... .................................. .......................................................................................................14/3/1990

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 IS 16 17 18 19 20

Ctpital Investnft.- On-Fara 97.6 114.8 91.3 146.7 151.9 79.9 11S.7 23.9 11.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -41.7--Cott"g Besiwis 0.0 0.0 0.0 0.0 2.4 O.S 3.4 6.3 0.0 0.0 0.0 0.0 0.0 0.0 1.4 0.3 2.0 3.8 0.0 -12.0--OOS Infrastructure 9.S 19.4 44.2 30.0 33.6 S1.9 36.8 63.4 200.1 0.0 7.1 11.6 26.9 IS.1 17.6 27.2 19.3 33.2 104.7 -157.2--KSIC 0.0 0.0 0.0 166.7 47.3 47.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 14.1 0.0 0.0 0.0 0.0 0.0 -14.0

----.Subtotal 107.0 134.2 135.5 365.4 235.2 180.2 ISS.9 93.6 211.1 0.0 7.1 11.6 26.9 29.2 19.0 27.5 21.3 37.0 104.7 -224.9

On-F04 Product10n cost 9.9 76.2 183.9 317.6 418.4 503.2 611.4 ?U.S 790.6 832.3 849.9 648.8 842.3 842.3 842.3 042.3 842.3 842.3 e42.3 842.3

Iucreental Operting Costs a--Cottage Basins 0.0 0.0 0.0 0.0 10.4 43.6 66.3 146.0 241.5 241.5 241.5 241.5 241.6 241.5 241.5 241.5 241.5 241.5 241.5 241.5.-ODS 14.8 26.8 26.1 60.8 t9.2 74.7 70.6 a.9 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4-- SICS. -7.2 *7.2 *19.3 -5.3 44.8 7I.S 66.3 76.3 134.3 138.2 203.4 203.4 203.4 203.4 203.4 203.4 203.4 203.4 203.4 203.4

---- Subtotal 7.6 19.6 6.e SS.S 134.4 190.0 203.2 290.2 438.2 442.1 507.3 507.3 507.3 507.3 507.3 507.3 507.3 507.3 507.3 507.3

TOTAL COSTS 124.5 230.0 326.2 738.5 7e8.0 873.4 970.5 1095.3 1439.9 1274.4 1364.3 1367.7 1376.5 1376.8 1366.6 1377.1 1370.9 1386.6 1454.3 1124.7

8ENEFITS

On-Far 23.6 230.7 575.7 860.9 1207.7 1533.9 1901.0 2240.1 2557.9 2776.4 2832.9 2135.1 213s.s 2b35.5 2835.s 2a3s.5 2835.5 2835.5 2635.5 2835.5

Production--Raw Silk 20.4 230.1 612.1 948.9 1309.9 1695.5 2149.0 2570.8 2957.4 3205.5 3266.5 326M.6 3425.0 3425.0 342S.0 3425.0 3425:0 3425.0 3425.0 3425.0

--Silk Waste 0.3 2.9 7.6 11.8 16.3 21.1 26.7 31.9 36.7 39.8 40.6 40.6 42.5 42.5 42.5 42.5 42.5 42.5 42.5 4*S

--KSIC -4.3 -3.9 -11.2 1.1 40.2 72.2 64.1 90.3 137.3 141.4 236.5 236.5 236.5 236.5 236.S 236.5 236.5 236.5 236.5 236.5

---- Subtotal 16.4 229.1 606.5 961.6 1366.4 1788.8 2239.8 2693.0 3131.4 3386.7 3543.6 3545.7 3704.0 3704.0 3704.0 3704.0 3704.0 3704.0 3704.0 3704.0

Totl Benefits 40.0 4s9.8 1184.2 1842.7 2574.1 3322.7 4140.8 4933.1 5689.3 6165.1 6376.5 6380.8 6s39.s 6539.5 6539.5 653 6S39. 39.5 6S39.S 6539.5

NET BENEFITS -84.S 229.6 858.0 1104.2 1786.1 2449.3 3170.3 3837.8 4249.4 4890.7 5012.2 5013.1 5163.0 56O.7 5170.9 5162.4 5168.6 5152.9 5065.2 5414.8

FUTURE UENtFITS W/O PROJECT

--.Rw Silk IS.1 6.6 IS2.5 217.8 281.9 356.2 448.2 538.2 520.7 674.0 68s.9 68S.9 68S.9 685.9 68s.9 685.9 6SS.9 68s.9 685.9 66s.9--Silk Waste 2.1 10.4 20.8 29.7 38.5 61.2 73.5 84.7 92.1 92.1 93.6 93.6 93.6 93.6 93.6 93.6 93.6 93.6 93.6 93.6--Crop Incoa 1624.0 1616.5 1614.3 1610.0 16DS.3 1598.3 1592.1 1S86.3 1582.3 1582.3 1582.3 1S82.3 1582.3 1S62.3 1562.3 1562.3 1S82.3 1582.3 1562.3 IS2.3

--Total me.w/o project 1641.2 1705.5 1787.6 1857.5 1925.7 2015.7 2113.8 2209.2 2195.1 2348.4 2361.8 2361.8 2361.8 .361.8 2361.8 2361.8 2361.8 2361.8 2361.8 2361.8

INCREN. NET KRNEFITS -1725.7 -1475.7 -929.6 -753.3 -139.6 433.6 1056.5 1628.6 2054.3 2542.3 2650.4 2651.3 2801.2 2798.9 2809.1 2800.6 2806.8 2791.1 2723.4 3053.0

......................................................

CRR 20.35 t

KARNATAKA SERICULTURE PROJECT(Credit 1034-IN)

Financial Costbenefeit

0.4 ha MeW Irrioation Farm (Nodel 11: Nlti-Biftoltine

CostsJBenltimS BeloL itseveloDot Year I lear 2 Year 3 Year 4 Tear Tears 6-

. . . . . . . . . . . . . . . . (Rs) . . . . . . . . . . .

1. Investment CostsField Work 11 2.000 - - - - _Equipment - 5.200 - - - - -Rearing Nouse - 20.000 - - - - -Irrigation - 25.000 - - - - -

Sub-Total - 52,200 - - - - -

2. Oneratina CostsFertilizers 1- - 725 906 906 906 906Other Costs 1900 2,266 4.200 S.540 7.312 6,112 6.112

Sub-Total 1.900 2.266 4.92S 6.446 8,218 1.018 7.018

3. Total Costs 1.0 5446 6.446 8.21 7 018 7.018 coIncremental Operating Costs - 366 3.025 4.546 6.318 5.118 5.118

4. BenefitsCocoons (kg) - 60 240 300 300 300 300Cocoons - 4.200 16.800 22.500 22.500 24.000 24.000By-products .11 - 270 1.104 1.440 1.470 I.S0O 1.SOO

Total eneft1 LSO-O 4.47t 17.904 194D 23971 21O 25S

S. Incremental Benefits - (539) 12.904 18.940 18.970 20.S00 20.SOO

6. Net Benefit 3.100 (49.996) 12.979 17.494 IS.752 18.482 18.482

7. Net Incremental Benefit - (53.096) 9.879 14.394 12.652 IS.382 IS.382

1Rt: 2S.512

.11 Including land preparation. planting and material. together with 141 kg of APK compound at Rs2lkg and 32 kg of Urea at Ps2.16.

.i Composed of 280 kg of NPX at ts2/kg and 160 kg of Urea at Ps2.16. In Year 2, 80t application from Year 3 onwards full requirement. aI/ Including excess leaf shoots (fodder). stems (fuel) and silkworm litter (fertilizers).41 Costs and benefits before development are based on an average of costs and returns to ragi. maize. paddy and cotton to have been

traditionally cultivated. r

KARNATAKA SERICULTURE PROJECT(Credit 1034-IN)

Financial Costl8enefit

0.4 ha Remlantina Fare INodel Il: Kulti-Bivoltine

Costs/Senefts Be oe .4/Levlo,D nt Year I fea;r y ear Y ear 4 egur S easLE -20

. . . . . . . . . . . . . . . . (as) . . . . . . . . . . . . . . . . .

1. Investment CostsField Work LI 620 -62Equipment - 2.250 - - -Rearing Noose - S.000 - - - -

Irrigation -

Sub-Total - S.620 2.250 - - -

2. Omeratima CostsFertilizers I1 680 680 725 906 906 906 906Other Costs 4.819 5.672 6,677 .,570 8.770 7.570 7.570

Sub-Total 5.499 6.352 7,402 8.476 9.676 8.476 8.476

3. Total-Costs 51499 lI972 96S2 8 9 6I7 8476 8476Incremental Operating Costs - 853 1.903 2.977 4.177 2.977 2,977

4. BenefitCocoons (kg) 250 200 25 270 290 300 300Cocoons IS.7SO «I 14.000 17.S00 20.2S0 21,750 24.000 24.000By-products }I 1.125 1.125 1.1SO 1.296 1.421 1.500 1.500

Total Benet1t, 16 875 15 12S 18 650 1 I_S45 L11I iLS-S 2S SO

5. Incremental Benefits - (1.750) 1.775 4.671 6.296 8,625 8.625

6. Net Benefit 11.376 3.153 8.99 13,070 13.495 17.024 17.024

7. Net Incremental Benefit - (8.233) (2.376) 1.694 2,119 S.648 S,648

I7Ro 30.75

-4

.11 Including land tilling and power.2I Composed of farmyard manure 8 tons at Rs70110 ton. 260 kg of UPK and 160 kg of Urea. In Year 1 75M. Year 2 85X; from Year 3 onwardsfull

application required.1 Including leaf sboots. stems and silkworm litter.

jI Costs and benefits before development are based on existing practices of oulberry cultivation and silkwor rearing.«/ Reflecting a 102 quality discount for pre-project cocoons.

* JEWKARNATAKA SE ICULTURE PROJECT

(Credit 1034-Il)

Financial Costlbeneftt

0.4 ha tainted Farm Irodel 1i: rulti-eivoltime

CostsiBenefits Bore SIDevelomaent Year I Year 2 Year y ear 4 Te r S Years 5-20

. . . . . . . . . . . . . . . . (2s) . . . . . . . . . . . . . . . . .

1. tnvestment CostsField Vork 11 - 1.720 - - - -

EquIpment - 1500 -Rearing Nouse - - -Irrigation - -

Sub-Total - 2.020 - - - - -

2. Onerating CostsFertilizers _i 2S8 258 275 275 275 275 275Other Costs 1.578 1.778 1.899 2.118 2.896 2.366 2.366

Sub-Total 1.836 2.036 2.174 2.393 3.171 2.641 2.641

3. Total Costs .3 4Z. 27 2.3 3.17 26,41Incremental Operating Costs - 2.220 338 557 1.335 80S 8GS

4. BenefitCocoons (kg) 80 80 82 84 88 92 95Cocoons 4.680 _I S.200 5.330 5.880 6,160 6.900 7.12SBy-products }J 240 240 270 294 33S 368 368

Total Benefits 4.920 S.440 5.60 i7 6.49S 7L 7-493

5. Incremental Benefits - 520 680 1,254 1,575 2.348 2.573

6. let Benefit 3,084 1,384 3.426 3.781 3,324 4,627 4.852

7. let Incremental Benefit - (1,700) 342 697 240 1.543 1.768

IRI: RSO,Q

It Including land tilling, power. etc.ZI Composed of 4 tons of farmyard manure, 118 kg of NPK. SO kg of Urea at full development stage. In Tear 1 75S. Year 2 80S. fro

Tear 3 onwards full application.1 Including leaf shoots. stems and silkworm litter.Al The figures are based on a sericulture producing average quality of hybrid cocoon with less fare and technical Inputs.

traditionally cultivated.Cl *t..*,, tIEWo^ .,..144. 44..,. *.e tr.....,___ r_4._. ._