PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB4152 Second Madhya Pradesh District Poverty Initiatives Project Project Name

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB4152 Second Madhya Pradesh District Poverty Initiatives Project Project Name (MPDPIP-II) Region SOUTH ASIA Sector Sectors: General agriculture, fishing and forestry sector (70%); Agricultural marketing and trade (30%) Project ID P Borrower(s) GOVERNMENT OF INDIA Implementing Agency Responsible Agency: State Project Support Unit, Government of Madhya Pradesh Paryawas Bhavan Bhopal, Madhya Pradesh India Tel: Fax: Environment Category [ ] A [] B [ ] C [ ] FI [ ] TBD B - Partial Assessment Date PID Prepared December 2, 2008 Date of Appraisal December 16, 2008 Authorization Date of Board Approval April 23, 2009 Country and Sector Background 1. Madhya Pradesh (MP) is the second largest state of India in terms of geographical size. As recorded in the 2001 census, over 60 million people reside in the state, of which 16 million still live below the poverty line 1. Per capita income in was a mere Rs. 8,284, or almost $0.75 cents per day. MP has shown a very low annual compounded rate of income growth of only 4.5% between and as against the national average of 6.2%, and its compounded annual per capita growth rate for the same period stands at 2.3% (national average 4.4%). The state has the third highest incidence of poverty and the lowest rate of poverty reduction among the major states of India. More than half of its children are underweight (55%, all-india 47%) and the infant mortality rate of 88/1000 is among the highest (the all-india rate is 68/1000). In terms of social indicators, the most recent National Human Development Report prepared by UNDP ranks MP very high on gender disparity (25th among 32 states). 2. In many ways, MP characterizes the typical set of institutional and development problems faced by the poorest regions of India. As a result of surplus labor, MP has a large subsistent agricultural sector that co-exists with a small modern industrial sector that is localized in specific cities, namely Indore. The organized industry employs only 6% of the total workforce. 3. Agriculture employs nearly 72% of all workers, although it only contributes 33% to the state domestic product. Poverty levels in the rural areas have seen a gradual decline from 37.1% in to 28.3 % in , however, agriculture productivity and income are far below the national average. The income per hectare for MP in 2002 was Rs.7,010 (all-india Rs.11,876) and per capita landholding is small (1.2 ha). Farming is mostly rain-fed (75% of the net sown area with low cropping intensity of 135%), and hence risk prone (more than 40% of the districts have been affected with either excess or less 1 Some estimates show 44 %, while the state of nutritional poverty estimates show a still higher proportion. Poverty Index in National HDR ranked MP 23rd out of 32 states.

2 of rains in the last 10 years except ). In addition, the absence of producer organizations, inadequate delivery of credit and inputs, underdeveloped value chains and ineffective agriculture research and extension constrain the sustainable growth of agriculture. As a result, the real per capita rural netdomestic product has remained stagnant over the years and per capita food production has declined. This raises concerns of food security and the quality of employment in the farming sector. 4. Successive state level governments over the past two decades have proactively attempted to address the problems of rural poverty, low agricultural productivity, and social exclusion through a variety of policies and programs. More recently, GoMP has embarked on two major instruments of policy reform for poverty reduction Self Help Group (SHG) Development Policy, and Employability Oriented Training Policy. Under the SHG Development Policy, activity-based federations of SHGs are to be promoted and receive operational support and financial assistance for working capital, infrastructure development, quality control and brand development. Financial assistance to SHGs is even more important in the current environment wherein the impact of the global financial crisis is already being felt by the Indian financial sector, despite its relative resilience to external shocks. Foreign portfolio and debt financing is drying up and there have been domestic liquidity pressures. This could lead to commercial banks becoming conservative and not funding the credit needs of SHGs, which in any case is already very low (less than 0.50 percent of total rural credit in the State). Under the Employability Oriented Training Policy the GoMP supports skill training for unemployed youth. 5. These initiatives point towards a sustained commitment by the state government, irrespective of the political party in power, towards programs for rural poverty reduction. The state also has a fairly efficient administrative structure for delivery of such programs and an administrative ethos built around development which has proved important in a state like Madhya Pradesh where the role of the private sector in economic development has been far less than in other more developed states. Financial institutions including National Bank for Agriculture and Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI) as well as private sector banks are making an effort to enhance credit flows to the rural sector, but have not been able to make any substantive impact in agriculture and rural credit. Only about 6 % of the state s GDP is allocated to rural development. Rationale for Bank involvement 6. The Bank has been supporting a limited number of poverty reduction projects in Madhya The Bank has been supporting a limited number of poverty reduction projects in Madhya Pradesh over the last decade, namely the Madhya Pradesh District Poverty Initiatives Project (MPDPIP) focusing on the livelihood needs of the rural poor and the MP Water Sector Restructuring project that addresses surface water irrigation. The first MPDPIP project covered over 2,900 villages spread over 14 districts (out of a total of 48 districts). Through a systematic process of wealth ranking, it has covered 300,000 poor rural households, organizing them into over 52,000 Common Interest Groups (CIGs), providing them with financial and technical assistance so as to improve their organizational capacity and maximize the utility of their productive assets. 7. A recently conducted impact evaluation of the DPIP project showed that the project achieved significant results against the dimensions of enhanced livelihoods, reduced vulnerability, and social empowerment. These results include: 65% increase in annual household income of project participating families; 149% increase in value of agricultural production; 27% increase in irrigated land for project families investing in agricultural activities; reduced distress migration from 30% to 14% from project villages; 44% of participating households have started household level savings; and

3 8. The other positive lessons from implementation of the MPDPIP include women s participation in household decision making, attendance in Gram Sabha meetings enhanced substantially, excellent targeting of the intended poor, particularly women and lower caste households, empowered community groups, which are now sustainable through federating into producer companies/cooperatives, and leveraging resources directly through business linkages with public and private sectors. 9. In this context, the Government has approached the Bank to continue support through a follow-on project which will scale-up the successful results from the first MPDPIP. This is proposed to be done by adopting the methodologies and certain design features of the MPDPIP, including: a participatory wealth ranking process to identify the very poor in rural areas; the formation of groups at the neighborhood level to take-up economic activities; and the federation of such groups and linking them to the private sector to reap the benefits of sustained markets. 10. The GoMP has shown a strong commitment to adopt and scale-up the success of the MPDPIP through a series of decisions at the state level that include: a) the adoption of a state rural development policy; b) the key design elements of community empowerment components, such as SHG formation and enhanced skill development for the rural poor; c) continued operations of the State-level autonomous Society called the MP Poverty Alleviation Initiatives Society as a special vehicle for implementing the proposed project; and d) appointment of the MPDPIP Project Director as Project Coordinator and expanding the state-level team of development professionals for the proposed program. Objectives 11. The development objective for the proposed project would be to improve the capacity and opportunities for the targeted rural poor to achieve sustainable livelihoods. This will be achieved by enhanced participation by the rural poor in economic activities, skill enhancement for taking-up higher value employment, and increased income among project target households through an increased asset base and market linkages. The key outcome indicators to assess achievement of the PDO will be the following: a) at least 60% of the graded 2 SHG members report a minimum of 20% increase in household income (at constant prices); and b) at least 60% of the graded SHGs are viable and sustainable 3 Project Description 12. Approach: The proposed project will continue with the same proven methodology, while keeping in mind the specific context and needs of Madhya Pradesh (MP) and the lessons of the first MPDPIP and other livelihood projects around India. To ensure effective and efficient design and project implementation arrangements, the proposed project will be prepared based on the following key principles: a) replicate the key design features of the MPDPIP; b) identify the rural poor and mobilize them into community groups (i.e. SHGs); c) provide initial capital to community groups to leverage asset financing from the commercial banks, government, and the private sector; and d) provide critical linkages to the poor to establish partnerships with the private sector. 13. Targeting: The project proposes to target beneficiaries based on the MPDPIP s wealth-ranking methodology for further inclusion in the official Below Poverty Line (BPL) classification of the GoMP. 2 graded in accordance with the Grading Tool outlined in Annex 7 to the PAD as well as the PIP. SHGs will be graded for savings habit (i.e., regular savings at the fortnightly meetings receiving full 10 marks), inter-loaning to members within the SHG, repayment of loans by members (full 10 marks for on-time repayment), book/record keeping and attendance at the SHG meetings. Only groups receiving grade A, B and C (detailed in Annex 7) will receive seed grant from the project. 3 generally active, financially viable and having a governance structure that ensures independence and operational sustainability

4 Identification of the project beneficiaries would be based on the MPDPIP s participatory wealth ranking methodology and the number of districts targeted for intervention. This will ensure a uniform, transparent and consistent approach to beneficiary identification. 14. Scale: The project will continue to be implemented in the 14 districts as per the first phase, however, a saturation approach will be undertaken during the second phase to extend the project activities to all the villages in the chosen 14 districts. The villages supported under the first phase (2,900) will also be included in the second phase and the estimated number of total beneficiary households is 500,000 from 9753 villages. 15. Project Components: The project will comprise the following four components: i) Social Empowerment and Institution Building; ii) Livelihoods Investment Support; iii) Employment Promotion Support; and iv) Project Implementation Support. The key features of each component are provided below (see Annex 4 for more details): 16. Component 1: Social Empowerment and Institution Building (US$49.14 million): The objective of this component is to empower the poor by helping to organize themselves into SHGs and federate into higher levels of institutions such as Village Development Committees (VDCs), cluster-level organizations and producer collectives. The VDCs will also have separate subcommittees to address issues of social accountability, community procurement and fiduciary norms. In addition, it will promote the development of the poor s capacity and skills based on the principles of self-help to enable them to initiate common livelihood activities. The component will consist of the following two sub-components: (i) Support to Project Facilitation Teams (PFTs) and (ii) Community Mobilization and Institution Building. 17. Component 2: Livelihoods Investment Support (US$ million): The objective of this component is to develop the capacity of SHGs to start livelihood initiatives, and to strengthen their business operations through producer based federations. Mechanisms to identify and support innovative approaches to help the rural poor to organize themselves around livelihood based businesses will also be supported in this component. In addition, the component will facilitate and promote People-Private sector Partnerships (PPP) through facilitating linkages with commercial banks and the private business sector. This component has four sub-components: (i) Rural Productivity Development; (ii) Value Chain Development; (iii) Innovation Support Fund; and (iv) Public-Private Partnership Development 18. Component 3: Employment Promotion Support (US$12.96 million): The objective of this component is to enable the project beneficiaries to capture new employment opportunities arising out of the overall growth of the Indian economy through the establishment of a structured mechanism for skill development and job creation. It will consist of the following three sub-components: (i) Employment Facilitation Centers (EFCs)); (ii) Skill Training and Placement; and (iii) Placement Facilitation Services. 19. Component 4: Project Implementation Support (US$11.86 million): The component will facilitate various governance, implementation, coordination, learning and quality enhancement efforts in the project. It will consist of the following four sub-components: (i) Governance Management; (ii) Project Management; (iii) Monitoring and Evaluation; and (iv) Technical Assistance. 20. Financing Financing Plan (US$m) Local Foreign Total Source Borrower/Recipient International Development Association (IDA)

5 Implementation and Institutional Arrangements 21. The Madhya Pradesh Society for Poverty Alleviation Initiatives (MP-SPAI), a Society registered under the MP Society Registration Act of 1973 by the GoMP for the implementation of the first phase project, will continue to be the apex body responsible for coordinating and implementing the MPDPIP-II at the state level. At the district level, a District Poverty Initiatives Subcommittee (ZPDPIS) of the Zilla Panchayat (Zilla Panchayat Subcommittee) will be responsible for reviewing and monitoring project implementation. The State Project Support Unit (SPSU), established within the Madhya Pradesh Society for Poverty Alleviation Initiatives (MP-SPAI), will have the overall responsibility for management and implementation of the project. 22. In each project District, a District Project Support Unit (DPSU) will be responsible for the implementation of the project. The DPSU will be headed by District Project Manager (DPM), who will be assisted by a team of project coordinators responsible for specific themes and functions such as social mobilization, agriculture, microfinance, gender, and market linkages. Sustainability 23. Institutional Sustainability: The MP-SPAI will serve to ensure that the institutional and implementation frameworks supported under the project will continue and strengthen. Community organizations created under the project will be monitored and assisted until they become self-managed, self-reliant and sustainable institutions. Various linkages and partnerships with interested actors in the private sector would augment their business foundation and sustainability. 24. The project will also support technical assistance to state financed poverty alleviation programs in areas such as design and implementation of institutional, financial and monitoring mechanisms. This would primarily be in the form of consulting services and/or human resource support under the project implementation support component. This request shows the desire of the GoMP to learn from the MPDPIP s proven methodology and mainstream this into the state government systems. 25. Economic Sustainability: The project will help the poor and their business organizations to form an asset base for continuous productive use - these assets will be legally owned by the groups and will aim to strengthen the performance of their livelihoods activities and income streams in the long run. The project, through various support mechanisms, such as becoming franchisees of insurance companies and agricultural input suppliers, will also help SHGs and federations become viable and attractive organizations, so that they can gain access to capital as and when needed. Lessons Learned from Past Operations in the Country/Sector 26. The project incorporated in its design the following key lessons learned from MPDPIP, other livelihoods projects in India and elsewhere supported by the Bank (including Andhra Pradesh District Poverty Initiatives Project, AP Rural Poverty Reduction project, and Rajasthan District Poverty Initiatives Project, and Bihar Rural Livelihoods Project), as well as Government programs, such as (SGSY) and IEG reviews of similar projects in India. 27. Project Development Objectives aligned to needs of the poor and interventions focused on demand based livelihood requirements of poor households. The IEG review of a similar project in India has pointed to the need of close alignment between project objectives, components and activities. This has been reflected in the project design by incorporating the successful lessons of the first phase into specific components and sub-components of the project. 28. Poverty targeting through a combination of participatory methods and village assembly s (gram panchayat) endorsement is effective and raises transparency. Participatory wealth ranking has proved an

6 effective and equitable tool to identify the poor and improve the government s Below Poverty Line (BPL) list. Similarly, a public review and approval of the wealth ranking-based list at the Gram Sabha level can minimize future conflicts and controversy. 29. In order to address and improve livelihoods of the poor, promoting and strengthening their own institutions is essential. Direct and intensive support to the groups of the poor in the process of their livelihoods augmentation is more effective than assistance through existing village institutions. This is because main concerns and mandate of the village institutions are in the public domain, whereas livelihoods-oriented interventions focus on a household s own assets and capacity. Sometimes unequal and divided village societies could also impede the poor s gaining voice in the public arena and risk elite capture of project benefits. 30. Intensive and continuous facilitation is essential for successful social mobilization and capacity building of the poor. The process of group formation, trust and capacity building of the poor requires handholding support by external facilitators, tailored to the specific needs of each group at different stages of development. The project follows the successful experience of MPDPIP, in which specialized units of facilitators provided high quality support to the groups. 31. Social mobilization and capacity building for the sake of social action alone is not enough to empower the poor. Group formation and capacity development need to help materialize the poor s aspirations for tangible income opportunities, made available through creation of assets at the household level and linkages to a wider market. 32. In order to access promising markets, small groups need to federate and operate at a higher level. Lack of access to different kinds of markets is a major reason for the rural poor to continue to remain in poverty. To overcome this constraint, federation of small groups into such entities as producer companies is necessary if the full benefits of the productive assets of the poor are to be realized in a sustainable manner for enhancing income flows. Such integration at a higher level is also essential to achieve scale. Through federation, small group members can also access a variety of services, such as supply of high quality seeds, which make their assets more productive. 33. Private sector participation is important for sustainable livelihoods of the poor. Drawing on MPDPIP s successful lessons of developing producer companies with sustainable private sector market linkages, the proposed project will support technical assistance for major livelihood activities through strategic public-private partnerships. These sector support organizations will provide technical know-how, critical market linkages, and capacity building support to community organizations mobilized and formed through the project. 34. A competitive recruitment system and merit-based human resource development strategy ensures high quality performance and commitment by project staff. Competitive recruitment and selection of staff from both the open market and the government system creates a culture of high standard performance and commitment in the project management units.

7 35. Safeguard Policies (including public consultation) Safeguard Policies Triggered (please explain why) Yes No Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) 36. List of Factual Technical Documents i.project Implementation Plan, Community Operations and Self Help Group Manuals prepared by MP SPSU; ii.ex-post Economic analysis (2008) Prepared by MPDPIP; iii.social assessment, Tribal Development Plan and Gender Action Plan (Commissioned by the MPDPIP SPSU); iv.environmental Management Framework; v.mpdpip-ii Project Concept Note, Project Information Document and Integrated Safeguards Data Sheet; vi.implementation Completion Report for the first MPDPIP. Contact Point Contact: Nathan M. Belete Title: Task Team Leader Tel: (91-11) Location: New Delhi, India (IBRD) For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: