Document of The World Bank Report No: 24771-IN PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 114 MILLION (US$150 MILLION EQUIVALENT) TO INDIA FOR THE ANDHRA PRADESH RURAL POVERTY REDUCTION PROJECT January 14, 2003 Rural Development Sector Unit India Country Unit South Asia Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective October 2002) Currency Unit = Indian Rupees Rs. 1 = US$0.020 US$1 = Rs. 48.75 FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS AP Andhra Pradesh APDPIP Andhra Pradesh District Poverty Initiatives Project APERL Andhra Pradesh Economic Restructuring Loan APFD Andhra Pradesh Forest Department APP Anti-poverty Program APRLP AP Rural Livelihoods Project APRPRP Andhra Pradesh Rural Poverty Reduction Project APSWREIS Andhra Pradesh Social Welfare and Residential Educational Institutions Society BPL Below Poverty Line CAS Country Assistance Strategy CBOs Community-based Organization CC Community Coordinator CEO Chief Executive Officer CIF Community Investment Fund CIG Common Interest Group DAC District Advisory Committees DEA Department of Economic Affairs DFID Department for International Development DPAP Drought-Prone Area Program DPEP District Primary Education Project DPMU District Project Management Unit DRDA District Rural Development Agency DWCRA Development of Women and Children in Rural Areas DWCUA Development of Women and Children in Urban Areas EMF Environmental Management Framework GoAP Govermment of Andhra Pradesh Gol Government of India GP Gram Panchayat ICDS Integrated Child Development Services IPM Integrated Pest Management ITDA Integrated Tribal Development Agency LEAP Livelihood Enhancement Action Plan MP Mandal Parishad MS Mandal Samakhya MTR Mid-term Review MoU Memorandum of Understanding PDS Public Distribution System PIP Project Implementation Plan PRI Panchayat Raj Institution PSAL Programmatic Structural Adjustment Loan RNF Rural Non-Farm SC/ST Scheduled Caste/Scheduled Tnbe SERP Society for Elimination of Rural Poverty SHG Self-help Group SLMF Sustainable Livelihoods Management Framework SAPAP South Asia Poverty Alleviation Project SPIA Sub-Project Implementation Agency SPMU : State Project Management Unit SRM Social Risk Management TDP : Tribal Development Plan TPMU Tnbal Project Management Unit TWD Tnbal Welfare Department UNDP : United Nations Development Programme VO : Village Organization VSS Vana Samrakshana Samithi VTDA Village Tribal Development Agency Definitions Habitation Cluster of approximately 200 households in a distinct geographic area Village Administrative unit consisting of a collection of habitations Gram Sabha All adult residents of a village (equivalent to the general assembly of the village) Gram Panchayat Elected body representing one or several villages, part of Panchayati Raj Institutions (PRIs) (local government) Block (mandal) : Administrative unit below the district consisting of a group of villages/Panchayats (in Andhra Pradesh, blocks are subdivided into mandals but retain the administrative and local government functions of blocks) Vice President: Mieko Nishimizu Country Director: Michael F. Carter Sector Director: Constance Bernard Task Team Leader: Jeeva Perurnalpillai-Essex INDIA ANDHRA PRADESH RURAL POVERTY REDUCTION PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performnance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 7 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 10 3. Benefits and target population 10 4. Institutional and implementation arrangements 11 D. Project Rationale 1. Project alternatives considered and reasons for rejection 17 2. Major related projects financed by the Bank and other development agencies 18 3. Lessons learned and reflected in the project design 19 4. Indications of borrower commitment and ownership 20 5. Value added of Bank support in this project 20 E. Sunmmary Project Analysis 1. Economic 20 2. Financial 21 3. Technical 21 4. Institutional 22 5. Environmental 23 6. Social 25 7. Safeguard Policies 28 F. Sustainability and Risks 1. Sustainability 29 2. Critical risks 29 3. Possible controversial aspects 30 G. Main Loan Conditions 1. Effectiveness Condition 31 2. Other 31 H. Readiness for Implementation 32 L. Compliance with Bank Policies 33 Annexes Annex 1: Project Design Summary 34 Attachment 1: APRPRP Flowchart 38 Attachment 2: Poverty and Social Development in Andhra Pradesh 39 Attachment 3: Summary of the Livelihoods Assessment Report 43 Annex 2: Detailed Project Description 46 Attachment 1: Subproject Eligibility and Appraisal 53 Attachment 2: Land - Risk Mitigation Measures for Land Purchase Component 57 Attachment 3: NGO Collaboration and Selection 58 Attachment 4: Environmental Management Framework 62 Attachment 5: Tribal Strategy 65 Attachment 6: Gender Strategy 69 Attachment 7: Lessons and Outcomes Emerging from APDPIP 72 Annex 3: Estimated Project Costs 76 Annex 4: Economic Assessment 77 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 84 Annex 6: (A) Procurement Arrangements 85 (B) Financial Management and Disbursement Arrangements 93 Annex 7: Project Processing Schedule 101 Annex 8: Documents in the Project File 102 Annex 9: Statement of Loans and Credits 103 Annex 10: Country at a Glance 107 MAP(S) IBRD No. 32105 INDIA Andhra Pradesh Rural Poverty Reduction Project Project Appraisal Document South Asia Regional Office SASRD Date: January 14, 2003 Team Leader: Jeeva A. Perumalpillai-Essex Sector Director: Constance A. Bernard Sector(s): General agriculture, fishing and forestry sector Country Director: Michael F. Carter (50%), Other social services (20%), Secondary education Project ID: P071272 (16%), Sub-national government administration (14%) Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty strategy, analysis and monitoring (P), Other rural development (S) PoetFi r nc r D 'a' 'A'n. --t:--= ;r, W ;- st-Z:>-iw..... ] Loan [X] Credit [ ] Grant [ Guarantee [ ] Other: For Loans/CreditslOthers: Amount (US$m): SDR 114 million (US$150.03 million equivalent) Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 35 Commitment fee: 0.50% Service charge: 0.75% ~FinanciiilPIan(US$Srn)., 'Source n '.'- -:tr . Loca . i 4 .ot, 1 ' 'lgX BORROWER 59.97 0.00 59.97 IDA 119.78 30.25 150.03 LOCAL COMMUNITIES 13.96 0.00 13.96 BORROWING COUNTRY'S FIN. INTERMEDIARY/IES 52.13 0.00 52.13 Total: 245.84 30.25 276.09 Borrower: GOVERNMENT OF INDIA(GOI) Responsible agency: GOVERNMENT OF ANDHRA PRADESH (GOAP) Address: Secretariat Building, Hyderabad - 500 022 Contact Person: Mr. S. Ray, Special Chief Secretary, Panchayati Raj and Rural Development Tel: 91 40 2345 4670 Fax: 91 40 2345 6946 Email: Sray@ap.gov.in Other Agency(ies): SOCIETY FOR THE ELIMINATION OF RURAL POVERTY (SERP) Address: Hill Fort Road, 5-10-188/2 III Floor Summit Apts., Hyderabad 500 004, Andhra Pradesh, India Contact Person: Mr. Vijay Kumar Tel: 91 40 5566 0315-8 Fax: 91 40 23211848 Email: vijay(velugu.org ANDHRA PRADESH SOCIAL WELFARE RESIDENTIAL EDUCATIONAL INSTITUTIONS SOCIETY (APSWREIS) Address: Social Welfare Office Complex, Masab Tank, Hyderabad -500 028 Contact Person: Ms. Santhi Kumari, Secretary Tel: 91 40 2339 9706 Fax: 91 40 2331 3136 Email: apswreis@yahoo.com Estimated Disbursements ( Bank FY/US$m): FY 02003; -2004 2005 .2006 |2007- |2008 Annual 3.28 27.95 54.84 43.15 16.90 3.91 Cumulative 3.28 31.23 86.07 129.22 146.12 150.03 Project implementation period: 5 years Expected effectiveness date: 04/01/2003 Expected closing date: 09/30/2008 OCSMPD F.. RW Z- M A. Project Development Objective 1. Project development objective: (see Annex 1) The project development objective is to enable the rural poor, particularly the poorest of the poor.* in Andhra Pradesh (AP) to improve their livelihoods and quality of life. The project supports Goverimnent of Andhra Pradesh's (GoAP) ongoing long-term Rural Poverty Reduction Program, which aims "to eradicate poverty; promote human capital development; focus on the welfare of children--particularly girls, women, the old, and the infirm; and build an equitable society in which people participate in making decisions which affect their lives and livelihoods." The project builds upon the ongoing AP District Poverty Initiatives Project (Cr. 3332-IN) which has helped to frame GoAP's Rural Poverty Reduction Program. The project supports the program by (a) empowering the rural poor through developing and strengthening self-managed grassroots organizations; (b) providing access to technical and financial resources in order to expand their asset base and livelihood opportunities; and (c) mitigating risks faced by the rural poor. Salient features of this project include: (i) a process-oriented approach to participatory rural development; (ii) broad geographical coverage of about 560 mandals**; (iii) a sharp focus on the poorest and most vulnerable (e.g. disabled people) of rural communities; (iv) improved responsiveness of GoAP sectoral and antipoverty programs to the poor; and (v) inclusion of a wide range of stakeholders, especially local governments (including pilot innovative approaches), private sector, and civil society in project implementation. * The definition of the "'poorest of the poor" is provided in section C3. The GoAP's medium-term rural poverty programfocuses on all poor. ** AP has approximately 1,150 mandals (sub-district level administrative units) in 23 districts. 2. Key performance indicators: (see Annex 1) The main project impact/outcome indicators include: * Empowerment (voice) of rural poor enhanced largely through number and percentage of community-based organizations (CBOs) functioning well in relation to their social, economic, and political objectives. * Household income of the poor increased and/or sources of income diversified. * Household perception of the quality of and access to basic services--education, health, integrated child development services (ICDS) - improved. * Percentage increase in access to and/or ownership of land. * Increased access to credit and insurance services and reduced indebtedness. * Improved access to disability certification and increased use of community-based rehabilitation. * Increase in percentage of children (by gender) enrolled in schools. * Local governments more inclusive and responsive to the needs of the poor in pilot mandals (sub-district level of government). B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 22541-IN Date of latest CAS discussion: April 5, 2001 The proposed project fits well with the Bank's Country Assistance Strategy (CAS) objectives and is consistent with the CAS program priorities and principles of selectivity, partnership, and a programmatic approach. The project strongly contributes to the CAS goal of pro-poor rural development. - 3 - IN 1999 GoAP prepared Andhra Pradesh: Vision 2020, the state's long-term development strategy for the state. This document has served as a guiding framework for World Bank assistance to AP. AP has developed a strong partnership with the Bank, anchored on establishing a sustainable fiscal framework and undertaking key administrative and sectoral reforms. This partnership was initiated through the AP Economic Restructuring Project (APERP) (Ln. 4360/Cr. 3103-IN), approved by the Bank in 1998; AP Power APLI (Ln. 4441-IN); AP State Highway Project APL1 (Ln. 4192-1N); and subsequently supported under the Andhra Pradesh Economic Restructuring Loan/Credit (APERL) (Ln. 4651/Cr. 3616-IN); approved by the Bank in March 2002. The APERL structural adjustment program is premised on continued progress in fiscal management, public expenditure management, governance/public management reforms, and power sector reforms. In addition to fiscal and governance reforms, the Bank's AP assistance strategy focuses on enhancing human capital, accelerating rural growth, and supporting key pro-poor interventions. This assistance has taken the form of the AP District Poverty Initiatives Project (Cr. 3222-IN); AP Community Forestry Management Project (APCFMP) (Cr. 3692-IN) emphasizing forest management through community participation; and AP Irrigation m Project (Ln. 4166/Cr. 2952-IN) emphasizing participatory irrigation management. Moreover, under APERP, several subprojects are under implementation supporting the health, nutrition, and education sectors. Additionally, under implementation in AP are multi-state projects supported by the Bank that focus on AIDS/HIV, Tuberculosis, Cataract Blindness, and Leprosy. The Bank is also assisting GoAP conduct a strategic environmental analysis in connection with the Vision 2020 goals and parallel capacity-building efforts for local institutions. The project proposes to integrate participatory, demand-driven development of low-income households with well-coordinated, transparent delivery of public services at the local level. The strengthening/formation of self-managed CBOs based on affinity (primarily relationships of trust and mutual support) and of CBO federations and networks are important expected outcomes of the project and will help develop social and human capital and empower the poor. The improvements in the (i) integration of different public sector interventions at the mandal level; and (ii) good governance and organizational capacity of local governments (both elected officials and line department staff) at the sub-district level are also expected outcomes of the project. Deficiencies in these areas have seriously hindered public services from responding to the needs of the poor and the poor from accessing these services. Redefining and restructuring more healthy and sustained interfaces (or links) among grassroots groups, local institutions, and GoAP are central challenges for the project. 2. Main sector issues and Government strategy: Rural poverty in AP, as everywhere, is a multidimensional and complex issue involving the inability to satisfy basic needs; lack of control over resources; lack of education and skills; poor health and malnutrition; lack of shelter; poor access to water and sanitation; vulnerability to shocks, violence and crime; and lack of political freedom and voice. Based on a recent World Bank poverty analysis for AP (see Annex 1, Attachment 2), performance in reducing rural poverty and improving human development has been mixed. With respect to income/consumption, poverty has been reduced in AP in the second half of the 1990s but at a slower rate compared to the All India level. Estimates of rural income poverty in AP vary between 11% (official figures from Planning Commission) and 28% (revised figures from AP. Deaton, 2001). The slow growth rate in the agriculture sector and limited diversification of the rural economy raise real concerns in the rural areas. Poverty amongst scheduled tribes (STs) and scheduled castes (SCs) is significantly higher than in the population as a whole, which is attributable to social discrimination, ill health, and other factors. -4 - The main challenges include: (a) Limited success of antipoverty programs (APP): Since the early 1950s, the Government of India (Gol) has implemented APPs by providing wage employment, productive assets (tools, implements, animals), skills, credit, and food security. GoAP has complemented these Gol programs with additional funding for self-help groups (SHGs); Scheduled Caste and Scheduled Tribe (SC/ST) programs, many implemented by the SC and ST Departments and Corporations; and Janmabhoomi, a state-wide social program. However, these programs have only been partially successful. Key reasons cited include: (i) lack of people's participation; (ii) poor governance; and (iii) inadequate incentives to government staff in implementing the programs. (b) Lack of empowerment: Perhaps the most important cross-cutting challenge facing the poor (and the poorest of the poor) is their lack of power (or voice) in accessing basic services, taking advantage of economically attractive opportunities, and exercising legal rights. Information is seldom available. Household, village, and local government decision-making processes are often exclusionary. Mechanisms to ensure accountable delivery of state and local government services are either non-existent or non-functioning. Moreover, social discrimination of caste and ethnicity still prevail and result in further disempowerment of the poor. (c) Limited livelihood opportunities: The main occupations of household heads for the rural poor in AP are agriculture laborer and self-employed agriculture; over 75% of the lowest income quintile fall in these two categories. The rural poor therefore depend primarily on agriculture and allied activities (e.g. non-timber forest products, livestock) for their livelihood. The poor have limited access to economic activities, in part because of limited ownership of land and lack of access to formal credit. The majority of households below the poverty line are landless. Marginal farmers often own land only in degraded areas. Uncertain tenancy relations and rigid leasing regulations have also affected the livelihood options accessible to the poorest. The landless are dependent on low agricultural wage rates, often arbitrarily fixed in a purely buyers' market. Credit often is obtained from informal suppliers who charge excessive interest rates, preventing the poor from earning reasonable returns from most economic investments. Slow growth in the agricultural sector has shrunk whatever employmerit opportunities were offered in the sector. Rural non-farm (RNF) employment opportunities are also limited, because since the early 1980s, RNF employment has remained constant at about 23 percent. (d) Limited human capital development: The interdependence, complementarity, and synergy of health, nutrition, and education in the context of human development are now universally recognized. Human capital is critical for the rural poor, because deprivation of health, nutrition, or education limits the capacity to fully (i) utilize one's own assets (e.g., labor); and (ii) access and utilize available services. The inability to tap either or both prevents people from escaping vicious poverty traps. Health, nutrition, and education indicators for AP's rural areas show severe deprivation among the poor. If rural poverty is to be reduced, these low indicators emphasize the urgent need to address these concerns, largely through coordinated community mobilization and improved service delivery. (e) Risks faced by the poor: Experiences from GoAP poverty programs, particularly APDPIP, highlight the precarious living conditions of the rural poor. The consequences of unanticipated losses from death, hospitalization, disability, droughts and floods, often are devastating and can prevent households from escaping poverty and related debt traps. Risk mitigation and risk-coping strategies and instruments often are limited and difficult to follow or access. Public and private insurance instruments are rarely accessed by the poor. -5 - W9 Government's piece-meal approach to poverty reduction: Despite the massive doses of funds that GoAP has spent to overcome poverty, the lack of inclusive planning, appropriate targeting, and synergy in development programs have resulted in the sub-optimal effectiveness of public sector interventions. Government Strategy: Andhra Pradesh became the first Indian state to articulate a comprehensive vision for human and economic development when it released its Vision 2020. Commencing in early 2000, GoAP took a number of significant steps to develop a strategy to make operational Vision 2020, and to build widespread ownership of the process. A number of Cabinet sub-committees were formed to produce approach papers to deal with a wide range of issues, including an overarching strategy for poverty reduction. The Report of the Rural Poverty Task Force was released in May 2000 and provided the basic framework for the preparation of the strategy paper on poverty reduction and formulation of GoAP's rural poverty reduction program. At the same time, the Government set up a Poverty Eradication Mission composed of eminent persons possessing a wide range of expertise in the rural sector nationally. The objective of the mission is to be an advisory body to GoAP and to commnent on GoAP's initiatives for poverty reduction by offering independent advice. The GoAP Rural Poverty Reduction program has the dual objectives of (i) promoting economic mobility and (ii) enhancing social protection by reducing vulnerability for the poor. In terms of economic mobility, the focus is on measures to improve rural livelihoods for marginal and small farmers, widen access to non-farm employment opportunities, and improve the access of communities to financial resources. Vulnerability will be addressed in two ways: first, by improving poor people's access to existing anti-poverty programs and key services, such as, food security; and basic education; health; nutrition; and second, by developing new insurance mechanisms and safety nets to protect against downside risks. More specifically, GoAP's strategy includes the following: o Empowerment and grass-roots institutions: AP has been a leading state in forming and developing SHGs of the poor (i.e., Development of Women and Children in the Rural Areas (DWCRA women SHGs), mothers' committees, school education committees, watershed committees, and forest groups). AP now has nearly 400,000 SHGs with savings of approximately Rs. 5 billion (US$100 million equivalent). o Viable economic activities: GoAP is also pursuing a rural livelihood approach to poverty reduction, taking into account the need for a more holistic approach to rural growth and development. This emphasizes non-farm employment opportunities, especially the development of microenterprises and their linkages with markets and rural banks. o Human development: GoAP's rural human development strategy focuses on improving the efficiency of Mother and Child Health (MCH), Reproductive Child Health (RCH), ICDS, and elementary education services, while reducing the incidence of communicable diseases. The strategy to improve key indicators includes increasing the number of grassroots Auxiliary Nurse Midwifes (ANMs); strengthening the ICDS program; formning "Mother and Child" Core teams at the Gram Panchayat (GP) level; and encouraging private sector participation to deliver key services. In the education sector, GoAP aims to increase literacy levels to over 95% by 2005 and universalize elementary - 6 - education. The latter implies ensuring that: (a) every school-aged child is in school; (b) there are no drop-outs; and (c) a minimum level of learning and competency is imparted to every child. * Local Governance: Following the July 2001 local government elections, GoAP hass committed to (a) decentralization, including fiscal decentralization to PRIs and municipal government; and (b) devolution of administration to lower-level governments. GoAP is promoting "participative democracy", ensuring people's participation in and downward accountability of local governments. * Public management reform: GoAP is promoting a transparent and accountable government, which includes freedom of information, citizen charters, procurement procedures, and reporting. The APERL supports these initiatives. To assist in implementation of the above, GoAP established the Society for the Elimination of Rural Poverty (SERP) in January 2000 (refer to section C4). SERP is responsible for coordinating the Rural Poverty Reduction Program of the state, popularly known as Velugu (Eternal Light). SERP is also the Secretariat for the AP Poverty Eradication Mission. SERP's first significant step in advancing this program is through implementation of the APDPIP and other related projects. Lessons from the past three years of implementation include: (i) the importance of focusing on livelihoods (expanding the asset base, including land, and creating economic opportunities) in addition to group mobilization; (ii) the nature of risks faced by the poorest and possible approaches to help them reduce, mitigate, and manage these risks; (iii) institutional arrangements related to facilitating the process of group formation and strengthening and managing the CIF; and (iv) sustainability concerns and the need to converge project-specific processes and investments with existing state and local govermment programs. This project builds upon APDPIP in several important areas (refer to Section Al). 3. Sector issues to be addressed by the project and strategic choices: SERP organized consultations at different levels and commissioned several important studies to identify key sector issues to be addressed by the project (Annex 1, Attachment 3). The outcome of the consultative process and studies has helped in the development of the following project design features: * Developing and strengthening self-managed grassroots organizations: Building on the strengths of AP's group-based organization movement, the project will assist forming new, and strengthening existing, self-managed people's organizations. A differentiated approach will be adopted in forming and nurturing affinity-based groups such that the unique needs of different types of marginalized people (e.g., women, disabled, elderly, tribals) are appropriately met. CBOs will be the key instrument for identifying priority needs of the target groups at the habitation/village level. The project also will facilitate the federation and networks of SHGs into Village Organizations (VO) and Mandal Samakhyas (MS), which represent a group of VOs at the sub-district level. * Improving livelihood opportunities: Experience from APDPIP emphasizes the importance of promoting sustainable livelihood opportunities to complement the group formation and empowerment exercises described above. The project will focus on facilitating livelihood options in both the farm and non-farm sectors. The Community Investment Fund (CIF) will provide supplementary financing of activities that focus on sustainable rainfed farming systems, land purchase for productive purposes, etc. With respect to non-farm opportunities, the project will provide assistance to CBOs to develop microenterprises such as livestock development, adding value to farm produce, and trading. This assistance could take the form of providing training and information on markets and facilitating links to the private sector, rural banks, and other financial intermediaries. Both farm and non-farm employment opportunities will be built upon existing local -7 - knowledge. Access to funds through formal channels remains a major constraint in reducing income poverty. The project will support access to funds through the CIF, as a catalyst, for activities that cannot be funded through existing sources in the short run. The project will facilitate links between CBOs and financial intermediaries, including banks and nongovernmental organizations (NGOs), providing micro-finance services for longer-term sources of financing. * Strengthening asset base: The Bank has identified this project as a "pilot" for the exception to disburse against land purchases. This exception will be an important intervention to reduce poverty and improve the livelihoods of the poor. Models of group and individual purchase and development have been identified. Details are provided in Annex 2, Attachment 2, as well as the Operational Manual for Land Purchase. * Supporting the convergence of public sector programs: The project will support the convergence of programs delivered by line departrnents, particularly at the mandal level. The guiding principles for convergence are: (i) creating awareness amongst CBOs (of the poorest of the poor) of line department services, especially in health, nutrition, and education; (ii) improving the understanding of poverty and making it a core concern of mandal-level representatives and functionaries; (iii) establishing organizational systems at the community level to support convergence and help ensure that line department services are responsive and accountable to CBOs; and (iv) developing performance indicators for mandal-level officials to measure reductions in poverty. GoAP has issued government orders to facilitate the convergence of antipoverty programs of all line departments. * Strengthening local governments: On a pilot basis (40 of the 560 project mandals), the project will involve PRIs more centrally in implementation by making GPs (village-level local government) and Mandal Parishads (MPs, sub-district level local government) responsible for prioritizing and approving CIF allocations across sectors under their jurisdiction. These allocations will focus on infrastructure, social development, and microwatershed activities. The capacity of local governments will be developed in several areas - identification of rural poor, local-level planning, delivery of basic services-all based on principles of downward accountability and transparent decision-making processes. Results from this pilot will feed into an action plan for scaling up policy dialogue in the future and ongoing Bank operations. * Piloting a comprehensive system of social risk management: The project recognizes that the poor suffer disproportionately from risks. Thus, a social risk management (SRM) frarnework has been developed to provide a comprehensive approach to mitigating and coping with risks. As a part of this overall approach to SRM, the project will pilot a comprehensive insurance package, where the CBOs would be insurance intermediaries with technical assistance from public and private insurance companies. Additionally, a community-based health package to complement the insurance package focussing on ambulatory care will also be developed. Technical assistance is also provided for carrying out the feasibility of a drought-related risk mechanism. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project has six components: Component I: Institution and Human Capital Development: Technical assistance will be provided for the following activities: (i) strengthening and building self-managed institutions of the poor-self-help - 8 - groups and federated groups at the village and mandal (block) levels; (ii) building the capacity of line departments and local governments to focus on the needs of the poor and help empower the poorest of the poor through joint planning, monitoring, training, and implementation; (iii) supporting reorientation of existing Education, Health and Nutrition Department programs to the needs of the poor in 80 selected mandals; and (iv) building private sector partnerships for livelihood opportunities. Component II: Community Investment Fund. The CIF is designed to transfer financial and technical resources to CBOs and local governments to support subprojects on a demand-driven basis in the following areas: (i) social development; (ii) community-level infrastructure; (iii) income-generation and livelihood improvements; and (iv) land purchases and development. The process to identify, prepare, appraise, and implement the CIF proposals are detailed in the operational manuals and Project Implementation Plan (PIP). Component III: Support to Pilot Programs. The main pilots are: (i) Strengthening the Role of local governments - designed to strengthen the capacity of local governments to respond to the needs of the rural poor; and (ii) Social Risk Management and Health - to test different models of community-based comprehensive insurance packages, since the poor are most vulnerable to downslide risks; and (iii) Community-Managed Comprehensive Basic Health Package to complement the comprehensive insurance package. Component IV: Support to Out-of-School Children. This will support GoAP's policy to enroll all children in school by 2005, through motivating parents and children to go to regular schools and bridge camps to prepare them for formal schools. To retain girl children in formal schools until the completion of their secondary education; 64 residential schools will be constructed. Component V: Support to Persons with Disabilities. A targeted approach in 80 mandals to meet the special needs of people with disabilities will be provided. This component will require social mobilization and building of people's institutions focused on the needs of disabled persons and their families, and will focus on improving livelihood opportunities of the disabled and caregivers. The project will promote convergence of interventions in the health and education sectors to support disabled persons and disability prevention, while encouraging commumity-based interventions. Component VI: Project Management. This component will support activities of the main implementing agency, SERP. Activities will include: (i) providing key functional staff at the State Project Management Unit (SPMU) and District Project Management Unit (DPMU); (ii) contracting an independent monitoring and evaluation agency; (iii) conducting environmental management training; and (iv) undertaking special studies. ;tAS i.l,~ ~ ~ ~ ~ ~ ~ ~~~~04tv , tAi B!i>/ W ri T *'JtS~~~~c6 t_, *. -; -.1 t14- -- W"Zomponen't 41hy %6>i~iancin h Bak - ~~i~C ">~ ~~ ~ ~'(USSM)..t 6Ttalh. `(US$M),- finanding-- Part I: Institution and Human Capital Development 25.20 9.1 23.30 15.5 Part II: Community Investment Fund 157.02 56.9 68.00 45.3 Part Im: Pilot Programs 7.45 2.7 5.78 3.9 Part IV: Support to out-of-school Children 57.38 20.8 30.71 20.5 Part V: Support for Persons with Disabilities 11.32 4.1 9.77 6.5 Part VI: Project Management 17.72 6.4 12.47 8.3 Total Project Costs 276.09 100.0 150.03 100.0 Total Financing Required 276.09 100.0 150.03 100.0 -9- 2. Key policy and institutional reforms supported by the project: * Improved targeting ofsectoralprograms: The project will support GoAP's policy to converge APPs and to ensure that the program reaches those who most deserve it. Policy and Steering Committees (refer to Section C4) will be set up at the state, district, and mandal (sub-district) levels to facilitate information-sharing and targeting. A database of all poor households at the mandal level will be developed, based on the multi-purpose household survey and participatory poverty assessments, to help ensure that targeted programs reach the poor. Line department staff will be provided training and field exposure to help them understand clearly the characteristics and needs of the poor. A number of government orders have been issued that provide guidance to line departments on these matters. * Strengthening local governments: With the implementation of Constitutional reforms and recent local government elections, GoAP is keen to build the capacity of local governments and to ensure their accountability to the poorest. A pilot in 40 mandals is being established that will test the ability of the local governments to plan and finance pro-poor programs. The role of the local governments in project implementation also will be strengthened, with CIF proposals being endorsed by the Gram Sabhas (village-level constituencies) and the local government officials. Based on the success of the pilot, an Action Plan will be developed by GoAP to scale up to the rest of the state and also feed into policy dialogue and future and on-going Bank operations. * Improving access to land: Based on the APDPIP experience, the project highlights the issue of providing land to the landless poor. The project will pilot the purchase of land and its development by communities and individuals. * Improving enrollment in schools: The project will support GoAP's policy to ensure that all children are enrolled in school by 2005. Support will be provided through mobilizing communities, bridge camps, and residential schools for girls. The 80 mandals with high incidence of out-of-school children will be targeted. 3. Benefits and target population: The project will focus on targeting assistance in the state to about 560 disadvantaged mandals in 16 districts. The mandals have been identified using criteria such as human, economic and infrastructural development. Within these mandals, the poor and the poorest will be involved, e.g., SCs; STs; backward class; people with no control over or access to productive resources (landless, asset-less, and without access to credit); daily wage laborers; bonded laborers; unskilled marginal farmers; disabled people; socially disadvantaged people like the jogins (girls dedicated to the deity to prevent calamity befalling the village and subsequently coerced into prostitution); out-of-school children, especially girls; widows and female-headed households; and involuntary migrants. Among the poor, project interventions will begin with the "poorest of the poor." Self-selection by the poor and of the poor will be facilitated based on economic and social criteria evolved/identified by the poor themselves, using techniques, such as, Participatory Rural Appraisal (PRA), Participatory Poverty Assessment (PPA), (social mapping, wealth ranking, well-being grouping, gendered resource mapping), and endorsement of the process by the village comnmunity through the Gram Sabha and authenticated by a resolution of the GP. It is estimated that two million households will benefit from the project. The main benefits include (a) social empowerment and mobilization through better organization; (b) improved skills to enab'e target groups to undertake productive investments and to increase earning opportunities; (c) greater access to productive assets, infrastructure, and improved social services; (d) social risk management and protection - 10- for those who are vulnerable to natural and health related risks; (e) empowerment of one of the most vulnerable sections among the poor, i.e., people with disabilities; and (f) improved access to elementary and secondary education for girls from poor families, especially SCs and STs, focusing on areas with a high incidence of out-of-school children and school drop-outs. In addition, the poor will benefit because (i) both local governments and the line departments, particularly at the mandal level, should become more inclusive of the poor in their planning, operations, and monitoring; and (ii) local governments and line departments will be more transparent and accountable to the community. These institutions also will improve their ability to respond to the demands of the poor by better targeting public programs. 4. Institutional and implementation arrangements: Society for the Elimination of Rural Poverty (SERP) - (refer to Section B2) SERP is the organization entrusted by GoAP to spearhead the fight against rural poverty in the state. SERP, as the lead agency for implementation of APDPIP and other similar projects supported by UN agencies and Government departments, will be the executing agency for this project. Experience has shown that it is able to assume responsibilities for implementing complex rural development programs satisfactorily. In addition, it also has the following advantages: (i) the project focuses on social mobilization and community ernpowerment as a strategy for poverty reduction. An independent support organization can effectively promote a process-oriented approach more effectively than single-sector line departments; (ii) SERP's autonomous status enables it to select highly committed professionals on fixed-term appointments to implement the project; (iii) it can be more proactive in promoting partnership with NGOs, corporate sector, and government organizations; (iv) as the Secretariat to the Poverty Eradication Mission, SERP enjoys an unique advantage in influencing government policies; and (v) it will be able to facilitate line departments' partnering with poor communities and to monitor outputs committed by the line agencies. SERP is an independent society headed by the Chief Minister as the ex-officio Chairman of the General Body. The General Body comprises broad representation from all key stakeholders, including a large presence from CBOs. Management of SERP is entrusted to an Executive Committee, of which an eminent non-governmental person is President and the State Project Director (SPD) is Chief Executive Officer (CEO). The Executive Committee consists of seven members, with two serving as ex-officio members and five representing leading agencies and individuals contributing to rural development. Project implementation arrangements include: SERP - State and District Levels State Project Management Unit (SPMU). The SPMU is headed by the SPD, who reports to the Executive Committee. The SPD is supported by Regional Project Directors (RPD) and a team with core skills in finance, procurement, human resources including training, disability, monitoring & leaming (M&L), gender, livelihoods, communications, social risk management, institution building, and local government. Other expertise will be obtained as needed through contractual arrangements and/or partnerships with other agencies. District Project Management Unit (DPMU). In each of the 16 districts, a DPMU will be headed by a Project Director supported by a group of District Project Managers. They are vested with responsibility for all project activities within the district, including final approval of proposals under the CIF. The core - 11 - skills of the DPMU are, among others, finance, training, community development, gender, communications, health and disability, rural engineer/subproject appraisal, livelihoods, land and rice credit, and social risk management. In addition, there is a team of field supervisors, Assistant Project Managers (APMs) for mobilization; APM for health, nutrition, disability, and out-of-school children; and one coordinator for land in selected districts. Their core responsibilities will be to provide guidance and support to community coordinators (CCs) and ensure links with local governments and line departments. Intermediaries Role of Local Governments: Local government (across all project mandals) will be responsible for: (i) confirning self-selection households of the poorest of the poor; (ii) endorsing subproject proposals submitted by CBOs that fall within local government jurisdiction; and (iii) supporting placement of out-of-school children (especially bonded labor) in b;idge camps and residential schools. To further strengthen the local governments, a pilot has been developed to build their capacities in 40 mandals to assume greater responsibility for project planning and implementation (refer to Section B3). Role of NGOs. A number of NGOs with expertise in working with socially disadvantaged groups and those that are involved in promoting sustainable livelihoods were involved at different stages of project preparation. SERP will identify suitable NGOs and civil society organizations with experience in community facilitation to help (i) organize the poorest of the poor; (ii) undertake awareness generation, sensitization, and training for various stakeholders; (iii) evolve specific strategies for vulnerable groups; and (iv) execute monitoring and evaluation activities. Mandal Community Support Cell (MCSC) and Mandal Samakhyas (MS). Since the presence of NGOs with experience and expertise in community mobilization is limited to only a few mandals, SERP will work with MCSC/MS where NGO partnerships are not feasible. These will be staffed by a highly-trained and dedicated team of individual CCs. The core staff will be two to three CCs per mandal, one per 1,500-2,000 households. Mandal cells in the project will be constituted differently, depending on available local resources and the scope of work. The team of community coordinators will be financed initially by the project but through the MS to help ensure demand-driven, downward accountable services. CBOs and Individuals-Village Level Community Activists, Facilitators, and Para-professionals. An early activity in the formation of groups will be the identification of community activists, facilitators, and para-technicians in each habitation. Following appropriate training, these grassroots workers will mobilize communities and provide technical assistance for carrying out microplans and developing subprojects. Additional resources will be used to formn a cadre of volunteer paraprofessionals (primary health care, veterinary services, and paramedics) accountable to CBOs and VOs. Common Interest Groups (CIGs). The CIGs will be the project's key instrument for identifying priority needs at the habitation/village level. CIGs will be groups of poor people brought together by common interests. The project will assist the formation of new groups as well as strengthen existing groups, e.g., thrift and credit SHGs. The majority of new groups will be organized on SHG principles. The groups will develop financial stability and money management capacity through internal lending of their own savings before becoming eligible for assistance under the project's CIF. - 12 - Village Organizations and Mandal Samakhyas. As the SHGs increase in number and gain experience, they will be federated to form self-managed VOs. The VOs can be either registered formal associations or informal organizations of 10 to 30 SHGs and will symbolize the collective strength of the poor. Mandals with 20 to 30 VOs will be encouraged to federate to form an MS. The MS will: (i) deal with mandal-level staff of local government and line departments; (ii) eventually enter into an agreement with SERP to take over many of the CCs' functions; and (iii) work as financial intermediaries. Policy and Steering Committees State Steering Committee (SSC). This committee will be chaired by the Special Chief Secretary, Panchayati Raj and Rural Development, GoAP. Other members will be senior staff from all relevant departments of the government. The main functions of the SSC will be to (a) facilitate any activity related to the project that requires interdepartmental collaboration/cooperation and (b) promote convergence between ongoing programs. District Level Coordination Committees (DLCCs). These committees will be crucial to interprogram coordination, which takes place at the district level. DLCC will be chaired by District Collectors or Chairpersons of the Zilla Parishad (district level local government). The committee will be composed of functionaries of the key line departments, local government, NGOs, and community organizations. Wherever appropriate, the DLCC will ensure effective linkages of the project and all other line department programs. Such sector linkages also will facilitate the rural poor's access to technical support from the line departments. Mandal Committees. These committees will provide for a close interaction among MS, "organizations" of the poor, public officials, and the PRIs at the mandal level. The committees' main function will be to monitor implementation of convergence policies and programs. Based on field observations, they will provide feedback to the DACs and DPMU. They also will play an important role in ensuring that mandal-level line department staff are responsive to the needs of the poor. Implementation Detailed implementation arrangements are included in the PIP, the Operational Manuals, and the Financial Management Manual. The key elements are: (i) CIF Component: Preparation, Appraisal, and Approval of Subprojects The project will allow CIGs to submit proposals to DPMUs for financing from funds allocated to the district from the CIF, either on their own or together with other local organizations, including GPs. Funds will be allocated in response to the demand generated and the effectiveness of use by the participating groups. Details of the criteria for evaluating subprojects and the eligibility criteria for organizations submitting proposals are provided in the Operational Manual. This information is widely publicized by DPMUs. Based on the experience of APDPIP, it is expected that the demand for subprojects will cluster in the following areas: (i) social development (including early childhood development centers and disability interventions); (ii) physical infrastructure; (iii) income-generation and livelihood improvements; and (iv) land purchase and development. DPMUs will have access to a multidisciplinary panel of experts (public or private individuals or firms, or staff of the line departments) to undertake technical, social, economic, and environmental appraisal of subprojects. Subprojects costing up to US$30,000 equivalent will be approved by the DPMU. Proposals costing more than this amount will be appraised by the DPMU but must be approved by the SPMU. The CIGs will choose whether to implement subprojects themselves or to engage contractors. Quality control - 13 - advice will be given by technical staff of the line departments or by individuals nominated by the DPMU from a panel of technical experts. Potential participants will have a range of investment options from which to choose and will be expected to show their commitment through up-front cash or in-kind contributions. The level of contribution is sector specific and has been included in the eligibility criteria. The full cost of operation and maintenance will be the responsibility of the group members or Panchayats initiating the investment proposals, who will keep these contributions in a separate account. (ii) Educational Component: Support to Out-of-School Children This component will be coordinated by both SERP and the Andhra Pradesh Social Welfare Residential Educational Institutions Society (APSWREIS). However, DPMUs, MSs, Gram Sabhas/Panchayats, VOs, and CBOs will play an important role in identifying girls to be assisted under the project. Implementation will take place in 80 (out of the 560 project mandals) with high concentration of out-of-school children and school dropouts. To ensure effective coordination in these 80 mandals with the ongoing District Primary Education Project of the Department of Education, an Memorandum of Understanding (MOU) and government orders have been issued. The mobilization activities will be carried out by NGOs and CBOs experienced in this area. State, district, and mandal level committees will work closely to ensure that (a) needs of all of the poor children are considered; (b) best use is made of field-level organizations/workers; (c) capacity-building activities for teachers and administrators are well-coordinated and, wherever possible, shared; and (d) quality of nonformal (bridge/camp) educational courses is maintained and improved based on implementation experience. At the district level, APSWREIS will work closely with the District Coordination Committee on Mainstreaming Child Labor, which will form a subgroup of representatives from govemment and nongovemmental agencies, involved in educational and out-of-school children issues to guide the implementation of the component in their respective districts. The focus of the educational support through the residential schools will be largely for girls from SC, ST, and socially-backward communities who at present are largely neglected. To ensure continuity of secondary education for these girls, the project will establish 64 residential schools for ages 9-14. Additional activities to be financed under the project will include, improvements in educational facilities, recruitment and training of teachers, and strengthening management functions of APSWREIS. (iii) Monitoring and Learning (M&L) Based on the experience of APDPIP, a monitoring and learning system has been developed for the project. The system consists of self-monitoring at the community level, input-output monitoring/Management Information Systems (MIS), process monitoring system, and impact evaluation. * The SPMU/DPMUs will be responsible for input/output monitoring at all levels through a computerized MIS. Monitored activities will include: (a) allocation and use of project funds for various inputs; (b) delivery of other targeted inputs (training of staff and potential clients, construction of residential schools, other organizational inputs); (c) use of the CIF costs of different types of subprojects; (d) progress of community institution building; (e) number and type of workshops and training modules implemented; (f) number of girls enrolled in schools; and (g) reduction in out-of-school children. * Process monitoring. Based on experience from APDPIP, two or three NGOs supervised by a mother - 14 - NGO will carry out process monitoring. Based on the MIS and using PRA techniques, assessments will judge the quality of project implementation, particularly in institutional development at the village level, community satisfaction with project inputs, and mechanisms to ensure inclusiveness. Monitoring will assess the extent to which the poor have been included in the process of project selection, design, and implementation at the individual and community levels, focusing on the dynamics of CIGs, VOs, and MSs. The approach to process monitoring will encourage self-assessment by CIGs. Reports once in four months will be submitted for review and appropriate action. The findings will be reflected in the biannual progress reports. * Impact evaluation will be carried out in three stages by the Center for Economic and Social Studies (CESS), an independent agency. A baseline survey, to be carried out beginning in January 2003, will assess pre-project conditions in the project areas. Pre-project conditions will include the asset and vulnerability status of the project households; the conditioning factors, i.e., state policies, programs, and organizations that deliver the programs to the poor; status of livelihood strategies of the poor and status of livelihood outcomes; income and non-income poverty. The interrelationships will be examined. Sample districts will be selected on the basis of agroclimatic zones. Program and nonprogram mandals will be taken for comparison. The second stage will coincide with the mid-term review (MTR) of the project. By this time, it will be possible to evaluate the project's success in building appropriate and sustainable local institutions, including the strength and quality of linkages with local governments and banks. The third stage, coinciding with the end of the project, will evaluate the impact and outcome indicators described in Annex 1. Key impact indicators include reduction of rural poverty, sustainability of institutions and subprojects, reduction of social inequalities, degree of participation by the poor and vulnerable in decision-making bodies. (iv) Reporting and Mid-Term Review The SPMU will submit to the World Bank a bi-annual progress report and a comprehensive annual report. The bi-annual reports will consist of (a) physical and financial expenditure data; (b) performance indicators; (c) successe's and problems encountered with possible remedial actions; (d) socioeconomic and environmental impacts; and (e) progress toward benchmarks in implementing policy reforms. The annual report will cover all quantitative and qualitative aspects of implementation progress, including implementation plans for the following year. A MTR will be held in 2005, which will be an in-depth assessment of progress and an opportunity to change course when appropriate. (v) Funds Flow (a) SPMU and DPM1Us Each year, the project will be budgeted in GoAP budget as two identifiable line items, one under the Department of Rural Development (SERP component); and the other under the Department of Social Welfare (APSWREIS component). GoAP will pass on the funds to SERP (SPMU) and APSWREIS. SERP, SPMU will retain a part of the funds to finance its own activities (costs associated with M&L, special studies) and pass on the balance to the 16 DPMUs for project implementation. The DPMUs will use the funds for activities at the district level, including subprojects being implemented by CIGs. Similarly, APSWREIS will utilize the funds for its activities and pass on the funds to its constituent school-level units. The funds for the implementation of the tribal development under the project will be passed on by the DPMUs to Tribal Project Management Units (TPMU) in applicable districts under advice to the Commissioner, Tribal Welfare. At each of the locations, the project funds will be maintained in a separate bank account earmarked for the project. Subproject Implementing Agency (SPIA) will not necessarily be registered bodies. The Financial Management Manual and Operational Manual, with the Subproject Agreements between SPIA and DPMU, will include information on the agreed financial mnanagement arrangements. - 15- The project proposes to pilot flow of funds through the local governments in selected districts. This procedure will involve providing an indicative investment budget to each GP, transferring funds to the GPs for onward transfers to the SPIAs upon approval of the subprojects, and adequate monitoring and reporting arrangements. The financial management and accounting arrangements will need to be documented in the MoU. (b) Subproject Agreements and Beneficiary Contributions: The financial management arrangements for the implementation of the subprojects will comprise the following: o SPLA will open a separate Project Bank Account for project funds. The cash contributions for project activities from the beneficiaries will be deposited in the Project Bank account. The funds in this account will be used only for project-related payments. Operations and maintenance contributions and savings from subproject and related payments will not be made to this Account. o The subproject agreements will be based on lump-sum contracts with payments linked to achievement of physical milestones. The milestones and the payment installments will be defined in the agreements. The agreements will also indicate the beneficiary contributions in cash, material, or labor required for each of the milestones. o The calculation of the installments will be made to provide the SPIAs with funds required to meet the specific milestone and provide a buffer before the next release to allow for continuity of works. However, for subprojects of lesser amounts (less than US$5,000) for which the activities require one-time expenditures (e.g., purchase of livestock), the entire amount may be released upon signing the agreements and confirmation that the beneficiary's own contribution has been deposited in the bank account. Five percent of the subproject cost will be retained until completion to ensure that the financial reports (utilization certificates) are obtained from the SPIAs. o The lump-sum agreements based on achievement of physical milestones will allow the SPIAs to retain savings, if any, that arise from efficiency and economy in project implementation. However, this will be limited to 10% of the subproject budget. If the subproject actual costs exceed the budget, up to 10%, can be cleared by DPMU, subject to a US$30,000 ceiling, based on the request of SPIA and approval of such requests. o The release of the payments will be subject to: (i) signing the agreement; (ii) opening the project bank account; (iii) depositing cash contributions for each milestone in the account; (iv) retaining services of trained bookkeeper; (v) certifying achievement of physical milestones; and (vi) submitting regular financial reports. Although contributions in kind form part of the project costs, the former do not qualify as eligible expenditures for reimbursement from the Bank Credit. However, in-kind contributions will be factored into the disbursement percentages. A certification for in-kind contribution needs to be submitted by the SPIA. (c) Local Government Pilot: A formula-based block grant to each GP will be provided to implement CIF relating to infrastructure, social development, and microwatershed activities. The remaining additional funds earmarked for CIGs within the pilot mandals will follow procedures set out in the Operational Manual for CIF which includes review and appraisal of proposals by relevant mandal level persons/organisations. Financial management and accounting controls will be put in place to reduce fiduciary risks. Each GP, - 16 - MP, and MSC will hold a dedicated project account that will be subject to annual audits. There will be an MoU between the DPMU and participating local governments and MSCs. It is proposed that an imprest (based on percentage of the annual fund requirements) be placed with the GP/MP/MSC, to be replenished on submission of financial reports on the subprojects approved and funds released. A similar procedure will be in place for the MSCs. SERP will retain the important role of facilitating the process, mobilizing the community, and building the capacity of CIF stakeholders in both pilot and nonpilot mandals. D. Project Rationale 1. Project alternatives considered and reasons for rejection: An assessment of three project options considered is summarized below: Project alternative Disadvantages Advantages A. Work exclusively with locally (i) Difficult to establish a stable (i) Potential for sustainable elected PRIs govemance/working environment long-term institutions, because, due to evolving relationship under the 73rd/74th amendments between PRIs and state politicians of the Indian constitution, PRIs and administration. will have fiscal and administrative (ii) Political and social structures responsibility for rural at the local levels may prevent development. adequate attention to needs of the (ii) Democratic institutions with poor. elected officials who can be (iii) Transfer of financial replaced by voters. resources to PRIs subject to (iii) Potential ability to respond to political power structure as stable needs of the entire community fiscal decentralization is still based on good understanding of evolving. local situation. (iv) Weak capacity for implementation, especially financial management, and lack of transparency in operations. However, the involvement of PRIs in any project (and, more importantly, in the longer-term sustainability of services delivery) is cntical. PRI pilots and strategy to scale up are core project design features. B. The independently managed (i) Doubtful long-term (i) Quick transfer of resources with "social fund" approach, which sustainability, because this few management layers. transfers resources to NGOs approach bypasses existing (ii) Allows greater operational directly working with/for the poor. institutions (e.g., PRls) and is less freedom. likely to transfer leaming effects (iii) Potential for better targeting of to existing institutions or the poor he poor. communities. (n) Implementing NGOs may create dependency among the poor without creating longer term capacity for self-help. (iii) Local govemments as well as poor communities and NGOs compete for resources, crowding - 17 - out community organizations. (iv) Works best in response to economic or other "shock." C. Ensure convergence of the (i) These broader reforms cannot (i) Obviates the need for an relevant line department and be pushed without strengthening alternate administrative structure. antipoverty programs through the social capital of the poorest (ii) Projects scope will be larger, improved public expenditure - and developing a deeper because, in principle, management and restructunng of understanding of how public convergence of different line departments. services can be made more programs is easily achieved. inclusive and responsive to them. (ii) The limited mandate and leverage of the proposed project suggest that a structural adjustment operation may be more appropriate for this broader "programmatic" approach. (iii) Given the demand on resources, there is possibility of rmistiming the use of funds. The design adopted for the proposed project is similar to that of APDPIP, which has been operation over two years (option C above, reference Section B 2, Annex 2, Attachment 7). In AP, the PRI model was not deemed fit in view of the present capacity of PRIs. PRIs are still evolving to adequately represent the interest of the poor and are in the early stages of developing their administrative and financial capabilities to carry out their responsibilities, as defined in the Constitution, in particular to handle poverty reduction programs. However, the major focus on pilots through PRIs and developing an action plan to scale up successful elements, underscores the importance of engaging PRIs in key areas of project implementation. While the project model focuses on self-managed organizations of target groups, it emphasizes developing working partnerships with existing institutions, civil society actors, public sector organizations, line departments of the state government, and PRIs. Project-financed interventions will complement other poverty reduction schemes. In addition, based on the experience of APDPIP, a large proportion of the demand for resources under the CIF is for income-generating activities. CEFs are provided as grants to CBOs who in turn on-lend to their members at mutually agreed rates of interest. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-flnanced.projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Poverty-reduction projects Andhra Pradesh DPIP S S Madhya Pradesh DPIP S S Rajasthan DPIP S S Watershed projects Integrated Watershed S S Development Project (Hills II) Karnataka Watershed S S Development Project Gender-specific initiative for Rural Women's Development S S microenterprise development and Empowerment Project - 18- Rural water supply and sanitation Karnataka Water Supply and S S projects Environmental Sanitation Project(C) Agriculture projects Uttar Pradesh Sodic Lands S S Reclamation Project H Irrigation management projects APERP Irrigation S S Education APERP Primary Education S S Health APERP Primary Health S S Nutrition APERP Nutrition (ICDS) S S Other development agencies UK DFID, Dutch, DANIDA, KSW, Various antipoverty rural French Technical Cooperation development, watershed, and water supply projects IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The APDPIP project (and the earlier UJNDP South Asia Poverty Alleviation Project (SAPAP) and DFID Rural Livelihood Programs in AP) have generated several important lessons on community-driven development in the State. In addition to the broader lessons described in Section B2, specific insights from community-driven development and related projects briefly include: * Community participation and ownership in achieving efficiency. Communities can contribute toward investment and operational costs if they are assured of a good return. * Sustainability. Provision should be made for adequate time and support at start-up to fully involve the community in defining their own needs and aspirations and the initiatives they wish to support. Emphasis should also be placed on building and strengthening community-level institutions not only during planning but throughout the proposed scheme cycle. * Empowered PRIs/line departments. Project implementation arrangements at the mandal level should empower officials and not undermine their authority. To ensure sustainability of project benefits, suitable arrangements linking project interventions with line departments and PRIs should be developed. * Public sector reorientation: The challenge of substantively sensitizing mind-sets and practices to those that place the community in a position of power and responsibility should not be underestimated. One means to facilitate these changes is a comprehensive training program for all levels of civil servants and elected officials. Other incentive mechanisms will be investigated during implementation. * Investment opportunities concurrent with social mobilization. It is not enough to facilitate community-level social action; people's organizations also require concurrent investment opportunities, including linkages with the private sector and financial institutions. * Operational lessons. (a) Decentralized structures with full control over subproject approvals expedite decisions and minimize political interference; (b) Efficient procurement and disbursement systems help ensure speedy implementation; (c) Competitive employment conditions for SERP staff help attract and retain competent and motivated individuals; (d) High-quality operational manuals, computerized MIS, standardized financial management procedures, regular and rigorous auditing, - 19- and quantitative and qualitative monitoring and learning are important; (e) Physical and financial sustainability conditions should be incorporated in subproject eligibility criteria to ensure a continued flow of benefits; and (f) Technical expertise at the local level is critical to sustainable livelihood improvement objectives. A more detailed summary on lessons learned is provided in Annex 2, Attachment 7. 4. Indications of borrower commitment and ownership: GoAP has been persistent in its request for Bank assistance for a state-wide project to address poverty reduction and has provided necessary budgetary resources for start-up activities. The project has broad stakeholder ownership. Civil society organizations (networks, NGOs, and academic institutions) have repeatedly endorsed and supported the strong SHG movement, common-interest group culture in the state, and shift to decentralized decision-making. The July 2001 PRI elections have also galvanized public support around decentralized decision-making. GoAP's commitment and approach to rural poverty reduction have been demonstrated in the (a) Andhra Pradesh: Vision 2020 report; (b) draft concept outline for the proposed project prepared by GoAP in November 2000; and (c) draft White Paper on eradicating poverty and formation of a Poverty Eradication Mission consisting of eminent experts throughout the country. The government has supported its commitment by ensuring that a dedicated team prepared the project including undertaking several important studies and manuals, safeguard action plans, and consultations, culminating in the PIP. GoAP launched the project in June 2002. The project design has gone through an extensive consultation process with legislators, line departments, local government, and communities. 5. Value added of Bank support in this project: The value added by the Bank includes (a) significant Bank involvement in the state through the ongoing projects and program loan (e.g., fiscal, governance, power reforms) and in several important sectors in the state (e.g., health, education, water, forestry); hence, an opportunity for synergies among the various programs; (b) experience from similar projects in other countries and in India, which offers a rich knowledge base that can be brought into the design of the AP program; and (c) provision of funding at a low interest rate, which permits a large, state-wide program to be adopted. (Asian Development Bank, the alternative financing agency, does not provide soft loans to India.) E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): O Cost benefit NPV=US$ million; ERR = % (see Annex 4) 0 Cost effectiveness * Other (specify) The project consists of several interdependent components, all premised on developing and strengthening village-level institutions and on facilitating economic and non-economic opportunities for the rural poor. The cost-benefit analysis does not attempt to evaluate the entire project in terms of quantifiable economic or financial returns but analyzes the two largest components of the project: CIF and Support to out-of-school Children. The estimated project cost for the CIF is US$157 million (57% of the project) and the residential schools for girl children is US$50 million (18% of the project). Approximately 75% of the CIF has been estimated for productive (livelihood) activities, and 25% has been estimated for social and physical infrastructure activities. - 20 - In the APDPIP (CR 3332-IN), the cost-benefit analysis focused on the viability of productive and infrastructure subprojects proposed by CBOs. The APDPIP appraisal and supervision documents include detailed models evaluating (a) the financial viability of a representative set of subprojects and (b) the economic viability of investments in girls' education. Given that the proposed components on the CIF and girls' residential schools are similar, the project team used a similar methodology and early findings emerging from APDPIP (e.g., actual costs and benefits of subprojects). However, several new livelihood-oriented subprojects to be financed by the CIF have been identified and are modeled in Annex 4. The evaluation for livelihood subprojects is based on a minimum financial cost-benefit return. Each of the subprojects analyzed possessed a financial return in excess of 12%. The methodology used to analyze these subprojects will be used as part of the appraisal process to make sure that the CIF is approved for financially viable subprojects. The economic analysis of the residential schools for girls resulted in an ERR of 12.1%, with conservative assumptions on the productivity benefits of attending school. Nonquantifiable benefits were excluded from the cost-benefit analysis but are also extremely important and should be factored into the overall evaluation of the Support to the out-of-school Children component. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) refer to Section El Fiscal Impact: The total cost of APRPRP is estimated at approximately US$276 million over five years, of which approximately US$52 million will come from the financial intermediaries. Under the fiscal framework supportea bl4ine APERP, welfare spending, including rural development, is targeted to stay constant as a share 1.5% of GSDP. The total planned budget for the next five years for rural development, SC, ST, and Backward Class welfare is Rs. 115 billion and project budget requirement is about 10% of the planned amount. APRPRP will result in some increase in recurrent expenditures during the post-project period. The increase will relate mainly to the girl child residential schools to cover costs of teachers, boarding, and other incremental operational costs. GoAP has provided assurances that this will be provided and a government order has been issued. The incremental requirement will be approximately Rs.450 million equivalent per year which is about 1% of the current recurrent budget for APSWREIS to operate the schools. Incremental operation and maintenance of small-scale infrastructure investment from the CIF will be covered by the communities and will not be an additional burden on public expenditure. 3. Technical: The project will finance a variety of interventions ranging from land development to water resource management, microenterprise development, and social services. The subproject appraisal process will assess proposals for the appropriateness of their underlying technologies. The appraisal process will have eligibility criteria (including scale criteria) and guidelines for the major likely interventions (menu of options). The project will draw on technology, design, and other guidelines already available for many subsectors, e.g., agriculture, animal husbandry, watershed development, and rural infrastructure. The project will aim to be flexible in terms of the activities financed but will be strict in terms of ensuring adherence to certain principles, such as: (i) the demand-driven nature of investments; (ii) community management of activities; (iii) targeting the poorest in the district, blocks/mandals and villages; and (iv) financial efficiency and accountability. - 21 - 4. Institutional: 4.1 Executing agencies: The institutional arrangements for implementing the project are set out in section C2 above. Developing and strengthening local grassroots organizations is the key element. However, the project design also recognizes the important role to be played by NGOs and elected governmental bodies (PRIs) in mobilizing and supporting poor communities to access resources. SERP will draw on expertise and experience of NGOs, as appropriate, and establish linkages with the existing local institutions, including the line departments and the PRIs, especially the GPs/Panchayats. APSWREIS, the agency responsible for implementing the educational support component of the project, has been managing residential schools for SCs and other underprivileged classes since 1983. It is responsible for 230 schools across the state. Given its experience of managing a large educational program through residential institutions, APSWREIS has both the expertise and capacity to execute this component. 4.2 Project management: The semi-autonomous status and decentralized institutional arrangement of SERP enable operational autonomy at the district level. Thus, the society will bring decision-makers closer to the participating communities and allow rapid decisions on proposals submitted by the participating communities. The additional benefits of this approach will be: o More effective response to location-specific needs of communities based on a better understanding of socioeconomic conditions. e Greater sense of ownership and commitment to project activities through participation by the representatives of CIGs and their organizations in District Advisory Committees and in the management of Mandal Cells. o Convergence among various development programs managed by PRIs, line departments, and other local institutions operating from the districts. o Simplified fund flow enabling direct transfer of funds to the SPIAs or PRIs. o Competition among districts based on responsiveness and effective use of funds. To ensure that environmental management is mainstreamed in the project, an environmental team, supported by an Environmental Agency and a State Environmental Resource Advisory Group, will be formed within the Livelihoods Unit of the SPMU. Within each DPMU, a manager, supported by an Environmental Resource Group, will be designated to ensure that the provisions of the Environmental Management Framework (EMF) are met. At the subproject level, a Livelihood Associate (LA) will ensure that environmental considerations are incorporated in Livelihood Enhancement Action Plans (LEAPs) and subproject designs. CCs trained in the EMF take the first steps to ensure environmental considerations are met at the sub-project level. For effective implementation of the Tribal Development Plan (TDP), setting up a State Tribal Monitoring Unit (STMU) in the SPMU headed by a senior professional assisted by three or four functional experts on tribal issues, such as non-timber forest products, has been established. The STMU will liaise between SERP and the Commissioner, Tribal Welfare. The STMU will provide guidance and advice to the Tribal Project Monitoring Units (TPMU) to be established at the ITDA headquarters in the districts of Visakhapatnam, East Godavari, Khammam, and Warangal, which have high tribal concentrations. Each TPMU will be supported by a team of functional specialists at the ITDA and also will draw support from a larger pool of functional specialists at the DPMU level. - 22 - 4.3 Procurement issues: Procurement arrangements will closely follow APDPIP. Procurement plans for first-year activities have been provided. Most of the project procurement will be carried out with community participation. There will be small procurement orders for goods and works following either NCB procedures or Shopping/Direct Contracting. Most of the consultancy contracts, including NGO contracts, are also expected to be below the US$200,000 equivalent, and the majority of shortlisted consultants will be national consultants. 4.4 Financial management issues: Overall, the project has financial management systems in place that are adequate to ensure that the project can provide to the Bank accurate and timely information regarding project resources and expenditures. The financial management manual for APDPIP has been enhanced to cover the accounting policies and procedures applicable to the proposed project. An integrated, computerized financial management system being developed will be used for the proposed project. In the interim, the manual accounting system will be used. Given that the scope of work will increase from managing the financial affairs of 6-16 districts (180 mandals) (APDPIP) to an additional 560 Mandals, the capacity and number of staff required to handle the additional responsibilities will be substantially enhanced. A detailed staffing plan is part of the PIP. Subprojects will be implemented by the SPIA. The SPIA can be a VO, a federation of SHGs at the village level; Mandal Mutually Aided Cooperative Society (MMACS); CBO; producer organizations; CIG; or the GP. The SPIAs will not necessarily be registered bodies. The Financial Management Manual, along with the Subproject Agreements between SPIA and DPMU on approval of the proposal include detailed guidelines on the agreed financial management arrangements. Important lessons learned from the implementation experiences in APDPIP and other DPIPs/CDD projects are being incorporated in the design of the financial management system. The financial management arrangements set up will emphasize providing local-level transparency, social audit, and self-accountability. Disbursements. Disbursements from the International Development Association (IDA) credit will initially be made in the traditional system (reimbursement with full documentation and against statement of expenditure) and can be converted to the report-based disbursements at the option of the GoAP and GoI after the successful demonstration of regular, timely, and adequate Financial Monitoring Reports. Retroactive financing. Retroactive funding up to an amount of SDR 5.1 million would cover eligible expenditures for implementing activities after June 01, 2002 until the signing of the legal agreements. The activities to be covered under the retroactive financing are consistent with the agreed upon financing categories. Audit. Notwithstanding the statutory audit of APSERP, APSWREIS, and other agencies by the Comptroller and Auditor General of India, the independent auditors for the financial audit of the project will be a firm of chartered accountants appointed by APSERP, SPMU. The qualifications of the firm of chartered accountants will be subject to review by IDA. The terms of reference (TOR) of the auditors have been agreed upon with IDA and form part of the Financial Management Manual. The audit will be carried out in accordance with the International Standards of Auditing. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. - 23 - From an environmental perspective, the two components of concern are the CIF and the construction of residential schools. The CIF is to fund subprojects, such as, income-generating activities, physical infrastructure, social development, and watershed interventions. In order to determine the impacts and the mitigation measures that will be required, an environmental assessment (EA) was undertaken. In most cases, these subprojects will not lead to environmental impacts of any significance. Since the activities to be supported by the CIF cannot be precisely defined ahead of time, an EMF has been developed as an output of the environmental assessment (EA). The implementation experience under APDPIP has been reviewed, and the findings have been used to refine the EMF for APRPRP. Based on this experience, particular consideration has been given to the issue of access to grazing and fodder for livestock subprojects. The EA report provides a timetable for the development of a Government Order permitting the allotment of government-owned wasteland to organized groups of the poor for pasture development, fodder cultivation, and regulated grazing. Given APRPRP's emphasis on better natural resource and microwatershed management, pest management is relevant for some subprojects. A separate Pest Management Plan (PMP) has been prepared and integrated in the EMF, which stipulates that support will not be provided to subprojects entailing the use of WHO Class I or II pesticides. Although unlikely, a few subprojects may have to be considered in the context of their implications on natural habitats, cultural property, forests, and dam safety, provisions have been made in the EMF to ensure that these implications are addressed. Regarding the construction of residential schools, a preliminary environmental screening of 64 proposed sites has been carried out, and the final decision of the locations will be made using the outputs of the screening. Subsequently, prior to awarding the contract for construction, an EA for each site will be conducted, based on guidelines included in the EA Report. All the environmental impacts are expected to be minor, and standard mitigation measures are available. A site-specific EMP containing these mitigation measures will be prepared. This EMP will form a part of the contractor's bid documents. As a part of the EA process, public consultations were held on the draft EA (including the EMF) report and PM? relevant to the CIF subcomponent. The findings of the public consultations were subsequently incorporated. Both the draft EA (including the EMF) report and the PMP are available in the project's public website. In the school construction component, the public consultations will be carried out as a part of the site-specific EAs. 5.2 What are the main features of the EMP and are they adequate? The EMF used in the CIF component has the following features: (a) procedures for screening; (b) tools for assessment at a subproject level; (c) training requirements, development of communication materials; (d) monitoring requirements; (e) and reporting procedures to be followed. All CIF subprojects will necessarily be screened based on the requirements of the EMF prior to sanctioning. In addition, the EMF promotes enviromnental pilot subprojects, which, after successful demonstration, may be replicated through funding available under the CIF. The EMF also includes guidelines for the environmental screening and assessment of support for residential schools. The entire EMF will be fully integrated in the Operational Manual that is referenced in the Development Credit Agreement. More information on the EMF is included in Annex 2, Attachment 4. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: November 2002 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? - 24 - "**==>This document did not complete OCR process. <==**"