Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 290la-IN

INDIA

KARNATAKA SERICULTURE PROJECT

STAFF APPRAISAL REPORT

May 14, 1980

Agriculture D DivisionSouth Asia Projects Department

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

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CURRENCY EQUIVALENTS

US$1.00 = Rs 8.40 1/

WEIGHTS AND MEASURES

Metric System

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ADS = Assistant Director of SericultureARDC Agricultural Refinance and Development CorporationCB Commercial BanksCSB = Central Silk BoardCSRTI = Central Sericultural Research and Training InstituteDCCB District Cooperative Central BankDOS Department of SericultureGOI Government of IndiaGOK = Government of KarnatakaIDBI Industrial Development Bank of IndiaISDP Intensive Silk Development ProjectKSIC Karnataka Silk Industries CorporationKSSDI Karnataka State Sericultural Development InstituteLDB Land Development BankPRC People's Republic of ChinaPWD Public Works DepartmentRBI = Reserve Bank of IndiaSA = Sericulture AssistantSD Sericulture DemonstratorTSC Technical Service Center

FISCAL YEAR

GOI and GOK - April 1 - March 31ARDC, IDBI and Cooperative Banks - July 1 - June 30Commercial Banks - January 1 - December 31

1/ Until September 24, 1975, the Rupee was officially valued at a fixedPound Sterling rate. Since then it has been fixed against a "basket"of currencies. As these currencies are floating, the US Dollar/Rupeeexchange rate is subject to change. Conversions in this report arebased on the projected exchange rate during the project period.

FOR OFFICIAL USE ONLY

GLOSSARY

Basin - Part of a silk reeling machine in which cocoons float in warmwater.

Bivoltine - Silkworm varieties from temperate climate countries whichbreed only twice a year and whose eggs exhibit dormancy.

Charka - Simple, hand driven silk reeling machine with one basin andfour to six ends.

Chawki - South Indian name for very young silkworms.Cocoon - Silk capsule formed by silkworm larva in which it spends

pupa stage.Cottage Basin - Mechanized silk reeling machine used in villages. Each unit

has six to ten basins each with six ends.Degumming - Removal of sericin from silk waste.

Denier - Grams silk per 9,000 meters yarn or filament, used as measureof silk yarn or cocoon filament thickness.

Ends - Part of silk reeling machine where several cocoon filamentsare combined into silk yarn.

Filature - Large-scale silk reeling factory.Grainage - Establishment for silkworm egg production.Hatchery - Communally operated village establishment where eggs

hatch into silkworms.Laying - Egg production from one female moth.Multivoltine - Tropical silkworm varieties which breed throughout the

year and whose eggs have no dormancy.Raw Silk - Silk yarn, after reeling.Renditta - Measure of silk recovery from cocoon; ratio of kg cocoons

needed to reel 1 kg raw silk.Sericin - Gummy substance which binds filament together on cocoons

and also binds silk waste fibers together.Silk Recovery - Reciprocal of renditta.Silk Waste - By-product of silk reeling and raw material for spun silk.Spun Silk - Silk yarn prepared from silk waste by degumming, combing

and spinning process, similar to that used for wool.Univoltine - Similar to bivoltine silkworm varieties, but breed only once

during the year.

Note: Paragraph 1.06 of this report contains a brief description ofthe silk production process.

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

INDIA

KARNATAKA SERICULTURE PROJECT

Table of Contents

Page No.

I. THE SECTOR ........................................ 1

General ........................................... 1

Sericulture in India .............................. 1

The Silk Production Process ..... .................. 2

Mulberry Cultivation .............................. 2

Silkworms and Silkworm Rearing ..... ............... 3

Cocoon Marketing and Processing .... ............... 4

Government Programs ............................... 6

Mulberry Silk Research and Technology .... ......... 6

II. SILK PRODUCTION IN KARNATAKA ...................... 7Agriculture in Karnataka .......................... 7

Silk Production Area .............................. 8

Topography, Climate and Soils ..... ................ 8

Production ........................................ 9

Holding Size and Tenure ........................... 10

Reeling ........................................... 10

Department of Sericulture (DOS) .... ............... 10

Credit ............................................ 12

III. THE PROJECT .. 13

Project Genesis .. 13

Project Summary .. 13

Silk Production .. 15Silk Processing .. 17

Karnataka Silk Industries Corporation Facilities 17

Research and Technical Assistance . .18Land for Project Facilities . .20

Environmental Aspects . .20Project Phasing .. 20

This report is based on the findings of a preappraisal mission

consisting of Mr. Ducksoo Lee and Ms. J. Stockard (IDA) and Messrs. T. Omura,

T. Kuwano and Y. Arakawa (Consultants) which visited India in February 1979;

and of the appraisal mission consisting of Messrs. G. Stern, J.C. Goldbrenner

and Ms. J. Stockard (IDA) and Messrs. T. Omura, T. Miyazaki, and R.G. Deshpande

(consultants) which visited India during September/October 1979.

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Page No.

IV. COST ESTIMATES, FINANCING, PROCUREMENT ANDDISBURSEMENTS ..................................... 21Cost Estimates .................................... 21Financing ......................................... 22Procurement ....................................... 22Disbursement ...................................... 23

V. ORGANIZATION AND MANAGEMENT ....................... 24Department of Sericulture ......................... 24Department of Agriculture ......................... 25Karnataka Silk Industries Corporation (KSIC) ...... 25Research ...... - .. ................ 26Credit for KSIC through the InoustrialDevelopment Bank of India (IDBI) .... ............ 26

Credit for Silk Farmers and Silk Reelersthrough ARDC .................................... 27

ARDC and IDBI Interest Rates ...................... 28GOI Ministry of Industries ........................ 28Training .......................................... 29Project Coordination .............................. 29Reporting Requirements and Evaluation .... ......... 30Accounts and Audits ............................... 30

VI. PRODUCTION, MARKET AND PRICES ..................... 31Yields and Production ............................. 31World Production, Consumption and Trade .... ....... 31Exports and the Domestic Market in India .... ...... 32World Raw Silk Price Projection ................... 33Indian Domestic Prices ............................ 33

VII. FINANCIAL PROJECTIONS ............................. 34Karnataka Silk Industries Corporation .... ......... 34Departmental Filature ............................. 35Cottage Basins for Private Reelers .... ............ 35Farm Models ....................................... 35Cost Recovery ..................................... 37

VIII. BENEFITS AND ECONOMIC EVALUATION .................. 37Benefits .......................................... 37Economic Evaluation ............................... 38Project Beneficiaries ............................. 39Project Risks ..................................... 41

IX. RECOMMENDATIONS ................................... 41

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Table of Contents (Cont'd)

Schedule A - Lending Terms and Conditions

Annex 1 - Text TablesTable 3.1 Implementation Schedule Major Items

Table 6.1 World Cocoon and Raw Silk ProductionTable 6.2 World Raw Silk ConsumptionTable 6.3 World Raw Silk Exports and ImportsTable 6.4 Indian Mulberry Silk Production and Exports 1960-1978Table 6.5 Japanese Imported Raw Silk and Silk Waste Prices 1971-1979

Table 6.6 Financial Price Projection for Raw Silk

Annex 2 - Project Cost TablesTable 1 Project Cost Summary with PhasingTable 2.1 Grainages: Estimated Costs and PhasingTable 2.2 Hatcheries: Estimated Costs and PhasingTable 2.3 Model Hatcheries: Estimated Costs and PhasingTable 2.4 A. Technical Service Centers: Estimated Costs and Phasing

B. Mobile Demonstration Units: Estimated Costs and PhasingTable 2.5 Training Schools: Estimated Costs and PhasingTable 2.6 Cocoon Markets: Estimated Costs and PhasingTable 2.7 Departmental Filature: Estimated Costs and PhasingTable 2.8 DOS Incremental Administrative CostTable 3.1 KSIC Filature: Estimated Costs and PhasingTable 3.2 KSIC Spun Silk Mill: Estimated Costs and PhasingTable 4 Research: Estimated Costs and PhasingTable 5 Technical Assistance and Study Tours: Estimated Costs and

Phasing

Annex 3 - Schedule of Estimated Disbursements

Annex 4 - Financial AnalysisTable 1 KSIC Cash Flow Projections and Financial Rate of Return

Table 2 KSIC Consolidated Income Statement ProjectionsTable 3 KSIC Balance SheetTable 4.1 KSIC New Filature Estimated Operating ProfitTable 4.2 KSIC Spun Silk Mill Estimated Operating ProfitTable 4.3 KSIC Weaving Plant Estimated Operating ProfitTable 4.4 KSIC Existing Filatures Estimated Operating ProfitTable 4.5 KSIC Twisting Mill Estimated Operating ProfitTable 5.1 KSIC Workshop: Estimated Operating CostsTable 5.2 KSIC Headquarters: Estimated Operating CostsTable 6 Departmental Filature: Estimated Net Operating Profit

and Financial Rate of ReturnTable 7 Cottage Basins: Projected Reeler Income and Financial Returns

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Table of Contents (Cont'd)

Table 8.1 0.5 Ha Irrigated Farm Model: Projected Income and FinancialReturns

Table 8.2 1 Ha Irrigated Farm Model: Projected Income and FinancialReturns

Table 8.3 0.5 Ha New Irrigated Farm Model: Projected Income andFinancial Returns

Table 8.4 1 Ha Rainfed Farm Model: Projected Income and FinancialReturns

Table 9 Departmental Facilities: Staff Salaries and Phasing

Annex 5 - Economic AnalysisTable 1 Economic Rate of Return to the ProjectTable 2 Price Summary for Financial and Economic Analysis

Annex 6 - Industrial Development Bank of India

Annex 7 - Related Documents and Data Available in the Project Files

List of Charts

Chart No. WB 21296 - Proposed Organization Chart, Karnataka Department ofSericulture

Chart No. WB 21295 - Proposed Organization Chart, Karnataka Silk IndustriesCorporation

Chart No. WB 21297 - Project Organization Chart

Chart No. WB 21303 - Department of Sericulture Implementation Schedule ofMain Project Activities

Chart No. WB 21387 - Project Initiation, KSIC, Technical Assistance andOverseas Training Implementation Schedule of MainProject Activities

Chart No. WB 21629 - Research Implementation Schedule of Main ProjectActivities

List of Maps

IBRD 14378R - Karnataka Sericulture Project

INDIA

KARNATAKA SERICULTURE PROJECT

I. THE SECTOR

General

1.01 Agriculture is the dominant sector of the Indian economy. Itcontributes 45% of the GNP, provides about 70% of the country's employmentand is the basis for almost 60% of its export earnings. Most of the 160million ha cultivable land in India is devoted to foodgrains, pulses andoilseeds, but industrial crops such as cotton, jute, tobacco and seri-culture, plantation crops such as tea, coffee, rubber, coconuts andcashewnuts, and a large range of spices and horticulture crops are importantin some states and make a sizeable contribution to the Indian economy.

1.02 During the last decade, Government of India's (GOI) developmentplans have emphasized agriculture, particularly foodgrain production, byincreasing use of irrigation, fertilizers, plant protection and good seeds,backed by improved extension and research services. Although productionhas responded impressively, leading to the build up of large reserve grainstocks, considerable further efforts are needed to insure the long-term foodsupply. Consequently, GOI is again giving high priority to foodgrain pro-duction in its Draft Sixth Five-Year Plan. However, the plan also emphasizesalleviation of rural unemployment and poverty and therefore includes invest-ment for labor intensive subsectors such as sericulture.

Sericulture in India

1.03 India ranks fifth among silk producing countries after Japan, thePeople's Republic of China, Korea and the USSR and sericulture holds animportant place in the Indian economy. About 3.8 million people are engagedin plant cultivation, silkworm egg production and rearing or in the predomi-nantly small-scale reeling and weaving industry. In 1978 production reached3,700 tons raw silk used to manufacture fabrics with an estimated value ofbetween US$200 and US$250 million. Since silk is rooted in Indian socialtradition, the domestic market is strong and most of the production is usedlocally. However exports, mostly fabrics, have expanded, particularly overthe last five years and earned about US$45 million in 1978.

1.04 Four silk varieties 1/ are produced in India--mulberry, 2/ tasar, 3/eri, 4/ and muga. 5/ Of these, mulberry silk, representing the bulk of inter-nationally traded silk, comprises about 85% of total Indian silk production.Introduced into India in ancient times, mulberry silk production received someemphasis during World War II for parachute production, but started to expandmarkedly only two decades ago and has received a boost during the last five

1/ Derived from different silk worm varieties feeding on leaves of:2/ mulberry bushes or trees,3/ a variety of trees chiefly oak, Terminalia and Sal,4/ castor or cassava, and5/ several tree species indigenous to Assam.

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years, due to introduction of improved mulberry and silkworm varieties.Karnataka accounts for 74% of Indian mulberry silk. Therefore, large scaleexpansion there, which would be supported by the project, would have a majorimpact on Indian production.

1.05 Sericulture is highly labor intensive. One hectare of mulberryplantation creates 12-13 man-years of direct employment annually in mulberrycultivation, silkworm rearing, reeling, twisting, weaving and implementsfabrication. Development of sericulture therefore accords well with GOIpriorities for alleviating unemployment and rural poverty. Furthermore, thetime is propitious for expanding Indian sericulture since production is drop-ping in the countries of leading producers, notably Japan and Korea, due tohigh labor requirements and costs. India has other advantages over competitorproducers, notably an ample supply of suitable land, not available in Japan,for instance, and year-round production (up to seven silkworm rearings) com-pared to seasonal production (two to three rearings) in temperate countries.Consequently, GOI has included sericulture development programs in its DraftSixth Plan (1978/79-1982/83) to double production and exports. The projectwould contribute significantly to achieving these objectives.

The Silk Production Process

1.06 Sericulture, which in this report refers to mulberry silk production,consists of three activities: mulberry leaf production as silkworm feed(paras 1.07-1.08), silkworm rearing (paras 1.09-1.13) and silk reeling (paras1.15-1.17). Sericulturists cultivate mulberry plants and annually rearseveral crops of silkworms, producing cocoons which are sold to reelers. Foreach rearing, the sericulturist purchases eggs from a grainage, where, undercontrolled conditions, disease-free eggs are produced from selected silkwormvarieties. After hatching, fresh leaves are harvested several times dailyand brought to the rearing house to provide a continuous feed for the silk-worms for 26-28 days. Subsequently, in about a 48-hour period, the silkwormextrudes a continuous filament which it winds around itself, spinning a pro-tective shell, the cocoon. Inside the cocoon, over a ten day period, thesilkworm undergoes metamorphosis into a pupa and then into a moth. Undernatural conditions or for breeding and egg production purposes, the mothemerges from the cocoon and lays eggs, beginning the cycle anew. The seri-culturist, however, must sell cocoons before moth emergence so that the con-tinous silk filament can be removed from the cocoon by reeling. The reelingprocess exists at several levels of technology depending to a large extenton cocoon quality, but all reelers must stifle the pupae to prevent mothemergence by steam or hot air drying of the cocoons. Raw silk is generallythe term used to describe the filament after it has been reeled out of thecocoon and combined with several filaments to produce a thread of specifiedthickness, silk yarn. The yarn is then "thrown" or twisted to impart tensilestrength suitable for weaving purposes. These processes are described in moredetail below.

Mulberry Cultivation

1.07 Mulberry is a hardy and drought resistant tree. In Karnataka it iscultivated as a shrub in closely spaced lines and is allowed to grow two orthree meters high. The tree tolerates most soil conditions other than impeded

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drainage and because of a range of varieties grows well from sea level to over1,500 m altitude. Establishment is by cuttings and the first crop of leavesis harvested five to six months after planting. Under rainfed conditions,harvesting is seasonal and tails off during the dry time between November andJune, whereas under irrigation five harvests at roughly 10 weekly intervalsare customary. The crop responds well to inputs and good cultivation practicesas evidenced by a 3,000 kg/ha average yield under rainfed (about 700 mm/annum)conditions, compared to commonly obtained yields of 30,000 kg/ha with a fullpackage of practices under irrigation. Such package includes an improved varie-ty (M5), regular weeding, heavy manuring (100 kg N,50 kg P and 50 kg K perhectare annually for rainfed crops and up to 300 kg N, 120 kg P and 120 kg Kper hectare annually for irrigated mulberry). Correct harvesting and pruningmethods play an important role in determining plantation yield and life.Mulberry sticks for fuel or planting material and parts of leaves not eatenby silkworms and used for cattle fodder, are valuable by-products.

1.08 Pests and diseases cause few problems. While leaf spot diseasesand powdery mildew are fairly common, they have caused little economic damageto date. Control measures are known, but their use is rarely called for. Awell tended mulberry garden comes into full production in the second yearafter planting and remains productive for 10-15 years.

Silkworms and Silkworm Rearing

1.09 Silkworm varieties have adapted themselves to the climate of theirenvironment. Tropical silkworms, including traditional Indian varieties, aremultivoltine and produce several generations during the year. Their eggs haveno dormancy. By contrast, temperate area silkworms from Europe or Japan, areuni or bivoltine having only one or two generations per year. Their eggsremain dormant for some months to allow over wintering. There are artifi-cial means of terminating dormancy so that silkworms of these varieties canalso be reared throughout the year. Multivoltine varieties have low produc-tivity compared to bivoltines and the successful adaptation of the latter totropical conditions has laid foundations for a major production boost forIndian sericulture.

1.10 The life cycle of mulberry silkworms in India lasts about 40-45 daysand comprises egg hatching, 26-28 days feeding on mulberry leaves, duringwhich worms undergo four moults 1/, about 2 days cocoon formation, 10-12 dayspupating, followed by moth emergence, mating and egg laying. Each moth laysabout 400 eggs. During the feeding period larvae from 100 layings consumeabout 700-900 kg mulberry leaves--over 80% during the last week--resulting inmature silkworms with about 10,000 times their birthweight. Mature silkwormsstop feeding and are transferred to cocooning frames, where they spin cocoons.

1.11 Cocoons consist of floss (a series of silk strands) with whichsilkworms attach themselves to the cocooning frame, pupa and a smooth shellconsisting of silk filament. Floss and filament are formed by extrusion of aliquid By silkworms that solidifies on contact with air. Length, thickness andweight of filament vary with rearing method and silkworm variety. For instance,

1/ A period during which the silkworm stops feeding and sheds its outerskin.

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in traditional multivoltine varieties filament length averages 400 m, while in

modern bivoltine hybrids average lengths of 1,500 m are common. The uniqueness

of mulberry silk is that each cocoon has only one filament which is industrially

processed by reeling (para 1.15) rather than spinning employed for making yarnfrom other natural fibers.

1.12 Silkworm rearing requires skill, constant attention and is beset bymany risks. Ideally rearing should take place in specially designed rearing

houses which enable growers to control temperature and humidity and applyhygiene measures. In practice, rearing takes place mostly in farmers' houses.

Equipment used includes rearing trays, stands for the trays and cocooning

frames, all made locally by village artisans. Application of hygiene measures

are crucially important to prevent a complex of serious diseases that candestroy a whole rearing in a matter of hours and can be carried over to subse-quent rearings. The most important diseases are pebrine, flacherie, grasserieand muscardine. Pebrine, caused by a protozoan parasite, can be prevented by

ensuring disease-free silkworm egg production in grainages. The other three

diseases, caused by viral, bacterial and fungal pathogens can be prevented bydisinfection of rearing houses and equipment between silkworm rearings, main-

tenance of optimum temperatures and humidities, correct feeding practices,constant vigilance to detect diseases and immediate application of appropriate

controls.

1.13 Other important measures that determine silk yield include dailycleaning of trays, 1/ supply of sufficient fresh and good quality mulberryleaves, and provisiol of adequate, ventilated space at proper temperaturesfor the silkworms. i-or instance, the space required for one hundred layingsincreases from about 0.4 m2 after hatching to 35 m2 at maturity. Over-

crowding of worms to economize on trays is a common fault that causesexcessive competition for food resulting in low silk yields. Adequatesupply of disease-free eggs and services giving intensive farmer trainingand frequent advisory visits to each grower are prerequisites for a suc-cessful smallholder based silk industry.

Cocoon Marketing and Processing

1.14 Shortly after cocoon formation, farmers sell cocoons to reelers.Formerly reelers purchased cocoons from farmers either directly or through

agents, but in recent years most sales take place at state regulated cocoonmarkets, particularly in Karnataka where 85% of the crop passes through suchmarkets (para 2.16). There cocoons are auctioned by staff of the GOK Depart-ment of Sericulture (DOS) who also supervise weighing and payment to farmers.The large proportion of growers using these markets testifies to their effec-tiveness in ensuring fair trade practices.

1.15 Before reeling takes place the pupa inside the cocoon is stifledto prevent moth emergence and consequent damage to the filament. At present,stifling in India is done by steam, but in modern processing hot air is usedwhich results in improved cocoon storage quality and higher silk recovery.

Reeling consists of boiling cocoons to soften sericin, which binds loops of

1/ Silkworm droppings are used as manure.

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filament together on the cocoon, unwinding filaments from cocoons, combining

several to form a thread of desired thickness and then winding the yarn (orraw silk, as yarn is known at this stage) onto reels.

1.16 Three types of reeling units are common in India:

- the charka - a hand powered device with one basin 1/ and fourto six ends. 2/ Several of these are combined in a typicalcharka enterprise;

- cottage basin - a mechanical reeling machine with six toten basins of six ends. As with the charka, a typicalcottage basin enterprise has several machines;

- filatures - mostly state owned consisting of equipmentsimilar in design to the cottage basin, but combined intolarge units.

1.17 Cocoon quality and reeling efficiency determine silk yield (per kg

cocoon) and silk quality. India's performance on both counts is low. Forinstance, in Japan 5-6 kg cocoons yield 1 kg silk while in India 12-16 kg areneeded. Quality of charka silk is lowest, but finds ready sale to handloomweavers, but even silk from filatures does not meet international marketquality standards. Reasons for poor results are inherently low yield andquality of local silkworm varieties and obsolete reeling equipment. Lackof modern equipment is a contraint to the spread of bivoltine silkworm varie-ties in Karnataka. With existing reeling machines the higher quality of

bivoltine cocoons is not translated into improved yarn quality. Consequentlysuch cocoons fetch only a small premium in the market at present that wouldincrease if efficient processing were possible. Purchase of modern reelingequipment, would therefore be necessary to support the spread of bivoltinesilkworm varieties, and would be financed by the project (para 3.14).

1.18 Silk waste is the most important by-product of reeling and comprisesdamaged cocoons, cocoon floss, other short lengths of filament and the innerportion of cocoons which cannot be reeled. Waste is processed in "spun silkmills" by a process similar to spinning wool. The end products are spun silkand the coarser noil, both much in demand for carpet weaving. The dead pupaeconstitute a second by-product of lesser value which is used for animal feed.

1.19 Raw silk is sold to silk merchants who in turn sell it to weavers.Weaving is mostly done by handloom or small scale powerloom enterprises andabout 150,000 handlooms are engaged in production of silk fabrics in India -predominantly sari materials. Silk waste is purchased by merchants partlyfor resale to the three publicly owned mills in India and partly for export.

1/ In all types of reeling equipment cocoons float in one or more "basins"of warm water. Except in automatic equipment, one operator handles abasin.

2/ Part of a reeling machine at which cocoon filaments are combined into

yarn.

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Government Programs

1.20 Silk production is a state responsibility handled by stateindustries ministries. Most of the important silk production states have asericulture department. Central Government involvement was formalized in1949 with the establishment of the Central Silk Board (CSB), headquarteredin Bombay, operating under the GOI Ministry of Industries. The Board advisesGOI on policy and development programs, and is responsible for silk imports,export quality control, and assists some states with production programs,particularly high quality egg supply. In addition, the Board is responsiblefor silk research, and to some extent training of advisory staff, and operatesfour central stations, seven regional stations and about twenty researchextension centers in fourteen different states.

1.21 The establishment of the Board led to increasing attention by GOIto sericulture in successive development plans. Plan financial provisionincreased from Rs 4.5 million (US$550,000) in the First Plan (1951/52-1955/56)to Rs 255 million (US$30 million) in the Fifth Plan (1974/75-1977/78) andproposals in the Draft Sixth Plan (1978/79-1982/83) are for provision ofRs 1.6 billion (US$190 million) to develop sericulture. The programs havebeen comprehensive and have dealt with all aspects of the industry includingdevelopment of marketing and reeling. The sound framework established bythese programs has laid the foundations for expansion of sericulture to besupported by the project.

Mulberry Silk Research and Technology

1.22 Modern integrated sericulture research dates from 1961/62, when CSBbecame responsible for the subject. The complex of CSB stations has been in-dicated in para 1.20, but the main effort went into development of the CentralSericultural Research and Training Institute (CSRTI) at Mysore, Karnataka,which now has a team of about 40 scientists and 45 technicians working onmulberry and silkworm improvement, a modest reeling and fiber technologyprogram, as well as offering post graduate training for field officers.Silkworm breeding and genetics, with 10 scientists and 20 technicians, isthe strongest section of the Institute. The Institute also supervises eightsubstations. One at high altitude maintains silkworm breeders' stock. Theothers, called research/extension centers, perform the triple function ofapplied field research, advising extension staff and farmers and feeding backfarmers' problems into the research pipeline.

1.23 Results have been impressive. In the field of mulberry improvementa high yielding and more nutritious variety has been evolved and tested,together with a package of cultivation practices (propagation, spacing, fer-tilizing, harvesting), (para 1.07), which has found ready acceptance by farmers.Other improved mulberry varieties are being tested. Silkworm improvement hasalso been successful. Local varieties have been improved and used for hybridsgiving increased filament length and yields. However, the most valuable break-through has been adaptation of bivoltine varieties to the tropical environmentand their use for hybridizing with local varieties and more recently forbivoltine crosses with high yield and quality potential. Yield and qualityimprovements of hybrids are illustrated in the table below which shows resultsof CSRTI tests.

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SilkCocoons Content Filamentper 100 of Length per FilamentLayings Cocoons Cocoon Thicknesskg % Meters Denier /a

Pure Mysore races 15.00 12-14 300-400 1.8 to 2.0Mysore hybrids 20.40 13-15 400-500 2.0 to 2.2Bivoltine/multivoltinehybrids 31.41 15-17 600-900 2.2 to 2.6

Bivoltine hybrids 35.15 20-22 1,000-1,500 2.6 to 3.0

/a Grams silk per 9,000 meters filament.

Source: GOK.

1.24 Rearing of bivoltines was initially beset by many problems, but

successful intensive research provided solutions and led to introduction ofthe Japanese method of communal hatcheries locally known as Chawki centers.There, under departmental supervision, silkworm eggs are hatched, and larvaereared during the initial 10 day period, which is a particularly delicate partof the life cycle, before distribution to farmers. Communal hatcheries haveincreased cocoon yields by an estimated 20% over farm-hatched silkworms, andCSRTI work was largely responsible for adapting this Japanese innovation toKarnataka conditions.

1.25 CSRTI publishes results in the form of advisory bulletins used byfarmers and advisory staff. As a result of close collaboration between CSRTIand the Government of Karnataka Department of Sericulture (para 2.12), use ofunimproved local varieties is being phased out rapidly.

1.26 Despite these impressive successes there is still a considerablegap between silk yields in India (40-50 kg/ha irrigated mulberry) and Japan(over 120 kg/ha rainfed mulberry). To ensure long-term growth of the industryresearch activities need considerable strengthening and researchers wouldbenefit from more contact with foreign researchers. The project would, there-fore, help to intensify research and provide foreign technical assistanceand training.

II. Silk Production in Karnataka

Agriculture in Karnataka

2.01 The state of Karnataka is situated in Southwest India, has an areaof about 192,000 km2 (19.2 million ha) and a population of about 30 million.Of the total land area, a little over 10 million ha are cultivated, of whichabout 1.35 million ha are irrigated, partly by canal or tanks and partly byindividually owned wells. Foodgrains, including rice, sorghum, finger millet,pearl millet and wheat, occupy roughly half the cultivated area and the statehas been substantially self-sufficient in foodgrains for some years. Withits climatic range from humid tropical coastal to more temperate uplandareas, the state has a large range of cash crops. Cotton and groundnuts are

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each grown on about 1 million ha and about 130,000 ha sugarcane are spreadthroughout the state. Coconuts and cashewnuts are important in coastalareas, while the highlands account for three-fourths of India's coffee produc-tion. The area near Bangalore, the state capital, has a thriving horticultureindustry, famous for grape production. It is also this area and neighboringdistricts that produce 62% of India's silk. Sericulture, introduced 200 yearsago by Tippoo Sultan, then ruler of Mysore, is practiced by 200,000 farmersand provides employment for about 2 million people in the state.

Silk Production Area

2.02 The mulberry area is estimated at 110,000 ha including about30,000 ha irrigated, and 4,000 ha improved M5 variety, and remains largelyconfined to the five districts 1/ comprising the former Kingdom of Mysore(see map). However, over the last four to five years large scale cooperativetrials with farmers have proved the feasibility of profitable sericulture inmany other parts of the state and about 1,000 ha have been planted in "newareas". Change from local varieties in traditional areas to M5 is taking placerapidly, now that initial bottlenecks of planting material bulking have beenovercome. In new areas, the initial planting program has created strong demandfor mulberry area expansion that DOS, with its present meager staff and equip-ment resources cannot satisfy. The project would intensify production intraditional areas and help to increase production in nine "new" districts 2/comprising the central and northern portion of Karnataka (see map).

Topography, Climate .nd Soils

2.03 The sericulture areas are on an undulating plateau at an averagealtitude of 600-800 m in the west and south, and of 400-600 m in the east andnorth. The higher areas enjoy a temperate climate. Even summer (March-May)temperatures do not exceed 28-3OoC whereas in the lower areas summer temper-atures frequently reach 4OoC. In the higher areas ambient temperatures aresuitable for year round silkworm rearing and, fortunately, cooler nighttemperatures of about 24oC, allow regulation of rearing houses temperaturesfor successful silkworm rearing throughout the year even in the lower areas.Temperatures are suitable for mulberry in all areas.

2.04 Rainfall, mainly between May and November, ranges from 700-900 mmaverage annual precipitation in the higher areas to 500-600 mm in lowerareas, but is erratic. Annual totals frequently deviate by 50% from theaverage and monthly totals also vary sharply in different years. Mulberry,being fairly hardy, can withstand low rainfall, but irrigation doubles yieldeven in higher rainfall areas of Karnataka and is essential for economicsilkworm production in drier localities. Fortunately, there are sufficientirrigation facilities--canal or privately owned wells--to cater for the

1/ Kolar, Bangalore, Tumkur, Mysore and Mandya.

2/ Chitradurga, Shimoga, Hassan, Bijapur, Bidar, Raichur, Bellary, Dharwarand Gulbarga. In addition, there are parts of the five traditionaldistricts where sericulture has not been practiced to date, which areincluded in "New Areas".

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comparatively small area of mulberry in dry areas. High humidity, associatedwith high rainfall years, tends to increase silkworm disease problems, afactor which sometimes offsets benefits from higher mulberry leaf production.

2.05 Red soils grading from sandy soils to clay loams, very suitable formulberry, cover the southern half of the project area, while black soils vary-ing from medium to heavy cracking clays predominate in the northern half.Mulberry grows well on the black soils, but care is needed to avoid poorlydrained or alkaline (ph above 8.5) conditions. Both red and black soils lacknutrients, particularly nitrogen and phosphorus, and mulberry gives goodresponse to fertilizers containing those elements.

Production

2.06 Mulberry area, cocoon and silk production have been expanding stead-ily. The table below indicates production and yield trends, but DOS staff ad-vised that until recently, when most cocoon production started to flow throughregulated markets, production data was subject to considerable errors.

Silk Production in Karnataka

Mulberry Production Yield /aArea (Tons) (Kg/ha) Silk Content /a

Year (ha) Cocoons Silk Cocoons Silk of Cocoons %

1951/52 43,000 11,800 727 274 17 6.21961/62 72,000 15,100 863 209 12 5.71971/72 93,000 29,100 1,775 313 19 6.11977/78 106,000 31,600 2,300 298 22 7.3

/a Mission calculation.

Source: GOK.

2.07 The large area of rainfed mulberry, 80,000 ha, mostly in MysoreDistrict, reportedly produced only 16,000 tons cocoons (about 190 kg/ha)during 1977/78, compared to 15,600 tons from 30,000 ha irrigated mulberry(520 kg/ha). While overall cocoon yields are low, those from irrigatedmulberry come close to Japanese yields of 600 kg/ha but, as already indicated,there is a wide gap in silk yields between Karnataka and Japan. The differenceis due to climate, varieties and rearing and reeling technology and presents achallenge to local research and extension services.

2.08 Improved technology in all branches of silk production has onlybecome available in the field in the last three to four years. Improved silkcontent of cocoons is the first visible impact. Cocoon yields of 800-1,000kg/ha in some intensively staffed village schemes and in silkworm seed pro-duction areas have proved the value of the new technology. Large-scaleadoption requires intensification of research and advisory services, increasedand improved seed production and introduction of improved reeling technology,all of which would form part of the project.

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Holding Size and Tenure

2.09 According to the 1976/77 Agricultural Census, there are 3.8 million

holdings in Karnataka and average holding size is 3 ha. Distribution of

holdings by size class is illustrated in the table below:

Holdings Percentage Share of Average

Size Class Number Area Total Holding

ha 000 000 ha Number Area Size ha

Below 1 1,274 638 33.4 5.6 0.50

1 - 2 888 1,319 23.3 11.6 1.492 - 4 818 2,287 21.5 20.1 2.80

4 - 10 631 3,858 16.6 33.8 6.11

Above 10 199 3,254 5.2 28.9 16.30

Total 3,810 11,356 100.0 100.0 2.98

Source: GOK.

Average farm size in the silk areas ranges from 1.2 ha in Mandya to 5.3 ha in

Bijapur and in general is below 2 ha in the higher rainfall areas and above 3

ha in drier districts.

2.10 Tenancies have been abolished by land reform legislation and accord-

ing to the 1975/76 Agricultural Census all farmers are owner-operators. Seri-

culture is practiced in 6,300 villages by almost 90% of the farmers. Conse-

quently, the state distribution of holding size also applies to sericulturists.

The mulberry area per farmer (which reflects size of rearing operation) rarely

exceeds 2 ha, and about 80% of sericulturists with about 60% of the total area

grow less than 1 ha mulberries. Usually a sericulturist with irrigation

facilities has some irrigated paddy as well as a piece of dry farming land

where he grows mostly sorghum and finger millet. However, in non-irrigated

areas about 10% of the smaller farmers in "silk villages" devote all their

land to mulberry. The reason for the universally small size of operations in

Karnataka is the high labor requirement during the final stages of the silk-

worm cycle and the need for careful timing of operations, which make large-

scale sericulture operations difficult to manage even for more wealthy farmers.

Reeling

2.11 Reeling is predominantly a cottage industry. About 10,000 charkas

and 7,500 cottage basins account for 90% of all reeling, with the balance

processed mostly in government filatures. Up to about 1957, charkas dominated

the reeling industry, but in that year, to improve quality, GOK introduced

a 50% capital cost subsidy for establishing cottage basins. As a result, the

number of cottage basins increased rapidly and now their output exceeds that

of the charkas, which has remained constant.

Department of Sericulture (DOS)

2.12 Established in 1914, the Department, with a professional and tech-

nical staff of about 2,000, plays a key role in all aspects of raw silk pro-

duction in Karnataka and provides production, advisory and cocoon marketing

services. In addition, the Department fulfills regulatory functions, partic-

ularly in the fields of silkworm egg production and cocoon marketing. The

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Department also used to operate an industrial wing comprised of seven fila-tures, a spun silk factory and a silk weaving factory, that has been trans-formed into a newly established GOK Corporation, the Karnataka Silk IndustriesCorporation (KSIC), which would operate commercially (para 5.05-5.08).

2.13 Silk Farms and Grainages. DOS operates 74 silk farms (average size10 ha) and 80 grainages that provide farmers with disease-free silkworm eggs.Silk farms multiply breeder stock through two succeeding generations, to finalmultiplication, which is done by closely supervised farmers in two special seedproduction areas, one for local "Mysore" races and one for bivoltines. Silkfarms also serve as bulking centers for improved mulberry varieties and asdemonstrations for improved sericulture practices. In grainages, cocoons arecollected from silk farms and from accredited growers, and moth emergence,mating and egglaying take place under carefully controlled, aseptic conditions.DOS sells eggs to farmers at Rs 35 per 100 layings, which covers grainageoperating costs.

2.14 In 1979, about half the production of 160 million layings came fromdepartmental grainages and the rest from 833 licensed private grainages, whoseproduct is of variable quality despite inspection by DOS staff. Because ofdanger of spreading disease from infected eggs, and in response to strongdemand from growers for better quality eggs, departmental egg productiondoubled during 1978/79 and is expanding rapidly. However, even departmentalgrainages lack modern facilities and are too numerous to allow highest qualitysupervision. A program to consolidate and modernize grainages and expand theircapacity would be supported by the project (para 3.08).

2.15 Technical Services. To date advisory services have not been inten-sive with many sericulturists receiving only occasional advisory visits. Thistype of service has not been sufficient to raise yields markedly and has onlybeen adequate to prevent disaster from silkworm diseases because of the rela-tively hardy nature of traditional varieties. Introduction of high-yieldingbut more disease susceptible new varieties requires intensive advisory services.A successful model has been developed in several "Intensive Sericulture Devel-opment Projects" (ISDP) as well as in the bivoltine seed production areas.The model is based on a technical service center (TSC) staffed by a sericul-ture assistant (SA) who supervises 8 sericulture demonstrators (SD). About12-13 communal hatcheries are attached to each center. Each demonstrator isexpected to visit each of about 100 farmers once every four days while rearingis in progress and supervise one or two hatcheries. Each SA during the courseof supervising his SD also visits farmers frequently. Such intensive visitsare necessary for close monitoring of disease status of rearings and have alsoserved to improve sericulture practices. Even experienced growers agree thatsuch services are necessary particularly with modern varieties. About 60 TSCand 640 hatcheries have been established but require additional equipment andstaff. The project would help to improve existing TSC and to establish similarintensive technical services based on TSC throughout Karnataka silk areas.

2.16 Cocoon Markets. GOK under 1959 legislation introduced regulatedcocoon marketing. To meet the requirement of legislation, the Departmentoperates 22 cocoon markets. Designed for 10,000 tons the markets alreadyhandle about 30,000 tons cocoons and existing markets are congested and longwaiting periods for farmers and insufficient shelter from dust or rain forcocoons are the result. Despite these inconveniences, the vast majority of

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growers prefers this type of regulated cocoon marketing to former direct

trading with buyers and there is urgent need to expand and improve market

facilities. The project would support GOK plans for that purpose (para 3.09).

A fee of 1% of cocoon value is paid by reelers, which covers operating costs

and DOS plans to double the fee to recover a portion of capital costs as well.

Credit

2.17 Both cooperative and commercial banking is well developed in all

parts of Karnataka. The three-tier short/medium-term cooperative has an apex

bank, about 200 District Central Bank (DCCB) offices and 5,000 Primary Agricul-

tural Society offices in project districts; the two-tier medium/long-term Land

Development Bank (LDB) has 140 offices; and commercial banks (CB) have about

1,600 branches of which 1,000 are semiurban or rural. There are also several

Regional Rural Banks which cater specifically for the poorer section of the

rural community. Most banks, particularly LDB and CB, have had considerable

experience of Bank Group supported lending, notably through the Karnataka

Agricultural Credit Project (Credit 278-IN) and two Agricultural Refinance and

Development Corporation (ARDC) Credit Projects (Credits 540-IN and 715-IN),

all fully disbursed. Most of them are already engaged in sericulture lending

which they are keen to expand.

2.18 Because of currently high overdues that afflict all banks in

Karnataka and Reserve Bank of India (RBI) rules regulating cooperative bank-

ing, short-term credit cooperatives would be practically precluded from and

LDB severely limited in project participation. RBI/ARDC plans for improving

cooperative banks are under GOK consideration. In the meantime, coverage of

the project area by suitably staffed and qualified CB would be satisfactory.

2.19 A major credit scheme for sericulture development in Karnataka was

started in 1974, but has been disappointing to date. The scheme comprised

formation of combined sericulture and general service cooperatives that were

to have provided all inputs and services needed by sericulturists, including

cocoon marketing. The cooperatives were to have been supported by technical

staff on deputation from DOS and by CB and eligible DCCB for provision of long

and short term credit partly refinanced by ARDC. Formation of cooperatives

took several years, provision of technical services divorced from DOS proved

impracticable and spread of regulated marketing has reduced the advantages of

cooperative marketing. In addition, farmers complain that loan application

procedures are so tedious as to discourage many potential borrowers from using

credit. Consequently, there has been little demand for credit through these

cooperatives. For instance on June 30, 1979 only Rs 1.2 million of a Rs 30

million target had been disbursed by ARDC in 31 long term credit schemes for

cooperatives. At the same time both cooperative and commercial banks had,

over three years, disbursed well over Rs 50 million for sericulture to indivi-

dual borrowers, which proves that there is a demand for credit by silk farmers.

Consequently, for the project proposed in this report, lending would be to

individuals rather than cooperatives in new silk areas. In addition, ARDC

would explore ways of improving its ongoing schemes, providing credit in

traditional areas to individual borrowers who are not members of cooperatives

and, together with GOK, consider measures for easing burdensome loan applica-

tion procedures (paras 5.12-5.15).

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III. THE PROJECT

Project Genesis

3.01 Because of employment generation and potential for improving ruralincome, both GOI and GOK have for some time been planning measures to expandsilk production in Karnataka. Both Governments felt that Bank Group assist-ance would be helpful for improving the silk industry. Preliminary discus-sions between GOI and the Bank took place in early 1977. As a result projectpreparation was undertaken by GOK--mainly by DOS--in collaboration with GOI'sMinistry of Agriculture Project Preparation and Monitoring Cell with assistanceby the Bank's New Delhi Office staff. The project is based on the resultingpreparation report dated January 1979 and on findings of the February 1979preappraisal and September/October 1979 appraisal missions.

Project Summary

3.02 The project would be the first IDA assisted scheme in support ofIndian sericulture and would cover about three quarters of Karnataka's silkproducing area. It would have three major objectives: firstly, to increaseraw silk production in Karnataka by about 1,600 tons including 1,000 tons highquality bivoltine silk per year, by providing better silkworm eggs and inten-sive advisory services to sericulturists already cultivating about 24,000 hairrigated and 60,000 ha rainfed mulberry; and to those who are projected toplant about 14,000 ha irrigated mulberry in new areas during the projectperiod; secondly, to introduce modern processing facilities and methods thatwould upgrade raw and spun silk to export grade quality; and thirdly, forlonger term improvement of the industry, to introduce the latest technologiesfrom leading silk producing countries and to expand local research. Toachieve these objectives the project would include components to expand DOStechnical, silkworm egg production and cocoon marketing services; GOK and GOIresearch facilities; and technical assistance, all of which would be financeddirectly through GOI and GOK. Additionally, there would be project credit foron-farm investment by sericulturists and for small-scale reelers which wouldbe channeled through ARDC and banks to borrowers; and for modernization ofGOK silk processing facilities which would be provided through the IndustrialDevelopment Bank of India (IDBI) to KSIC. The following is a list of projectcomponents:

(a) For Silk Production

(i) credit for farmers in new areas for planting 3,500 hamulberry, purchase of silkworm rearing equipment sufficientfor such mulberry area and construction of 1,400 silkwormrearing houses to support the 14,000 ha mulberry plantingprogram;

(ii) incremental staff, vehicles, equipment and operatingcosts for 150 TSC with 1,700 communal hatcheries, fourmobile training units, construction, equipment andoperating cost of 20 model hatcheries, and improvementof an existing sericulture training institute andestablishment of two new ones for expanding and strength-ening DOS technical services;

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(iii) construction, equipment, staff and operating costs of 10

modern grainages to expand and improve silkworm egg suppliesfrom DOS; and

(iv) construction, equipment, staff and operating costs of 30

market units to expand 11 existing cocoon markets and toestablish 12 new ones.

(b) For Silk Processing

(i) establishment of a semiautomatic departmental small filaturein the new areas;

(ii) credit for reelers, for establishing 500 cottage basinunits; and

(iii) improvement of government silk processing factories by

replacing the existing seven outdated filatures with amodern one; and renovating, modernizing and expandingthe existing spun silk factory.

(c) For Research and Technical Assistance

(i) expanding facilities at the CSRTI main station andestablishing or improving of two regional stations and10 substations; supporting programs at three Karnataka

universities; and establishing a sericulture researchstation for the Karnataka State Sericultural Develop-ment Institute (KSSDI), which GOK is in the process ofsetting up;

(ii) technical assistance programs including 70 man-months

of consultants time and 380 man-months of overseastraining to support the production, research and pro-cessing components; and

(iii) monitoring and evaluation services.

3.03 Short-term effects of the project would be its impact on silk pro-duction and resultant considerable increase in rural incomes and employment.The longer-term impact on sericulture technology would be equally important.While mulberry production has reached high levels, there is enormous scope forimproving silkworm productivity and quality of local silk products. Project

assistance by way of strengthening research, introducing modern processing

technology and providing technical assistance and training, would leave India

well equipped to meet increasing demand for fine quality silk products due tofalling production abroad. The processing industry modernization programwould be one of special importance to the Indian silk industry. Introductionof technology for producing high quality yarn is vital in the first instanceto support spread of bivoltine silkworm varieties and to replace high qualityyarn imports, now necessary for weaving export quality fabrics. There is ahuge local market for handloom products, but export oriented production willbecome important in the longer term, to allow expansion of sericulture. Atthat time raw and spun silk will need to meet international quality standardsand competition. At present there is little sign of private sector investment

in modernizing the silk processing industry and GOK is therefore assuming the

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role of innovator by introducing new technology that may stimulate privatesector investment in similar processing plants at a later date. Since the GOKfacilities would use only about 5% of available raw materials, there would beample scope for private sector development of modern silk processing factories.As a first step, however, GOK must introduce and demonstrate the new processingtechnology and its financial viability, both objectives that would be supportedby the project.

Silk Production

3.04 Increased silk production would entail intensification of sericul-ture in traditional areas and expanded production in the new area (para 2.02).Mulberry leaf production would be boosted by encouraging farmers to replacetraditional mulberry varieties with the improved variety M5 on 20,000 ha irri-gated land in traditional areas and planting the new variety on 14,000 hairrigated land in new areas. The M5 variety has become very popular and vir-tually total replacement of unimproved varieties in traditional irrigatedareas, which is proceeding at a rapid pace, may well be completed before theend of the project. In new areas demand for expansion of sericulture isstrong and at present DOS is hard pressed to provide adequate services quicklyenough to cater for the expanding mulberry area. Silk production would beimproved by the increase in mulberry leaf production, better leaf quality,better silkworm egg quality, spread of high yielding bivoltine silkworm varie-ties and, above all, intensification of advisory and other supporting servicesto foster adoption of proven practices for mulberry and silkworm production.While the main production increase would come from irrigated areas, the largerrainfed areas would also be improved. Components of the silk productionprogram, to be supported by the project, are described in more detail below.

3.05 Credit. Project credit would be provided only for new areas, be-cause traditional areas are already served by ARDC schemes which may have beendisappointing to date (para 2.19), but which ARDC is now endeavoring to improve.Besides, most silk farmers in traditional areas own well established silk pro-duction units, which enable them to meet development and working capital needsfrom earnings, without recourse to credit. In new areas, on the other hand,credit would be an important catalyst to expand silk production, by helpingto provide finance for farmers who are planting mulberry for the first time.The project credit scheme would serve a second important function by improvingthe credit delivery system for silk farmers in all areas. However, even in newareas demand for credit is hard to gauge. Therefore, to avoid the problem ofa large credit component in the project that may not be fully taken up, only amodest program has been included. It would support 3,500 ha (or 25%) of the14,000 ha mulberry projected to be planted in parts of the new area coveredby the project and, since demand for rearing houses has been small to dateeven in traditional areas, project credit would support construction of only1,400 (or 10%) of the 14,000 rearing houses that may ultimately be needed inthe new areas. The small size of the credit component would not be an imple-mentation constraint since possible credit demand in excess of project funds,which may well develop, could be met from IDA supported ARDC Credits. Loanswould be available to farmers for mulberry planting, purchase of silkwormrearing equipment, construction of rearing houses and recurrent cost for twosilkworm rearing cycles. The short-term finance would be consolidated withmedium/long-term elements for repayment purposes. Construction of rearing

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houses would be according to DOS specifications and assurances were obtained

that such specifications, acceptable to ARDC and IDA, would be drawn up before

December 31, 1980.

3.06 Technical Services. Based on the successful ISDP model (para 2.15)

DOS technical services would be expanded by fully staffing and equipping the

existing 60 TSC and 640 hatcheries and by establishing 90 additional TSC and

1,060 hatcheries requiring an incremental staff of 150 SA and 1,200 SD. As

a result, DOS services in the project area would allow about 90% of all silk-

worm eggs there to be hatched and initially reared in communal hatcheries and

would be able to provide one SD per 60-100 growers. Project investments would

include hatcheries equipment, TSC and hatcheries incremental operating cost,

a vehicle, spraying equipment and microscopes for each TSC. To ensure staff

mobility necessary to maintain the farm visits schedule, the project would

finance 750 light motorcycles, for purchase by SA and SD through loans, which

would be provided by DOS. In the past DOS also provided advice for mulberry

production. From January 1980, this work has been done by extension staff of

the Department of Agriculture, which is being reorganized and strengthened

under the Composite Agricultural Extension Project (Credit 826-IN). This

arrangement would improve extension for mulberry production and would give

DOS staff more time to help farmers with silkworm rearing.

3.07 In support of the technical services, the project would improve and

expand an existing training institute and establish two new ones, each with

a capacity for 1,200 trainees a year, including staff and farmers. In addi-

tion,2the project wotId finance 20 model hatcheries, including the cost of a

110 m hatchery builcing, and equipment for each and its operating expenses.

These hatcheries would be strategically placed demonstrations, to encourage

growers to form groups to operate their own hatcheries. Finally, there would

be four demonstration vans with audio-visual equipment, which would travel

throughout the project area and support demonstrations by TSC staff.

3.08 Grainages. Private grainages were adequate to deal with relatively

hardy local varieties, but many of them are not capable of consistent produc-

tion of disease-free layings of more disease susceptible modern varieties.

Infected eggs are a threat to the industry, consequently GOK, partly reacting

to strong demand by farmers, is planning to offer farmers a greater egg supply

from its own grainages and would then be able to apply much stricter quality

control and licensing procedures to private grainages. All but the largest of

the present DOS grainages would be closed or converted into egg sale centers

and would be replaced by large modern grainages. The project would finance

ten of 5hese grainages. Each one would be a four-floor building with

3,200 m floor area, specifically designed and equipped for aseptic production

of 10 million disease-free layings per year. Seven grainages would have a

cold store each for egg storage. Such storage would allow year round produc-

tion and build-up of stocks for the peak demand period following the onset of

rains. To avoid egg spoilage in case of power outages, each grainage would

have stand by generators. Three grainages would have smaller cold store space

for preserving moths to give more flexibility for the breeding and egg laying

process. Direction of the grainage operation would be provided by senior

experts at DOS headquarters. In addition, project technical assistance and

overseas training programs (paras 3.20 and 3.21) are designed for introduction

of modern operating and quality control methods for the new facilities.

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3.09 Cocoon Markets. To provide adequate facilities for ongoing cocoonproduction and for its expansion, the project would extend 11 of 22 existing

markets and establish 12 new ones. Eight existing and two new markets would

be Class I markets, that receive or are projected to receive more than 1 mil-

lion kg cocoons per month and the remaining 13 would be smaller, Class IImarkeis. All market expansion or new construction would be based on standard

900 m floor area units that would comprise a hall for waiting sellers; anauction area; offices and stores. Class I markets would have two or more units

each while Class II markets would each have one. Seventeen units would be

constructed at 10 Class I markets and 13 at 13 Class II markets, a total of30 units at 23 sites. Unit design is based on experience gained during thelast seven years and on advice from the FAO Markets Specialist in Delhi.

Silk Processing

3.10 The two main objectives of project processing investments are provi-sion of adequate reeling capacity in new areas and, by improving GOK facilities,introduction of modern technology to increase silk recovery from cocoons and

upgrade quality.

3.11 Cottage Basins. Most cocoons in the State would continue to be

reeled by cottage basins and the project would provide credit (channeledthrough ARDC and banks) for about 500 units in new areas. Project loans wouldfinance machinery, a shed and funds for purchasing a two-weeks cocoon supply.

As with loans to farmers, the working capital element would form part of the

term loan. Each unit would have about one ton raw silk per year capacity. Toattract reelers to new areas, GOK provides a subsidy equal to 40% of machinery

cost (about Rs 4,000), which has worked well in fostering cottage basin devel-opment elsewhere. This subsidy would be necessary to attract enough reelersto the new areas and GOK would continue to provide the subsidy.

3.12 Departmental Filature. In addition DOS would establish and operate

one modern semiautomatic filature in the new areas. The filature would test

the economics of operating modern reeling equipment in a small-scale enter-prise and would be a demonstration and training center for potential privateinvestors. Investments would include a 400 ends reeling unit, a rereelingmachine, hot air cocoon drier, boiler, factory building, staff quarters, a

truck and a van. The filature would process 400 kg cocoons per day and pro-duce about 11 tons silk yarn per year.

Karnataka Silk Industries Corporation Facilities

3.13 The Corporation would own and operate existing departmental fila-

tures, spun silk mill and weaving factory. Modernization of the filaturesand spun silk factory would form an important part of the project and is

described below.

3.14 Filatures. Because of obsolete equipment the existing filatures can-not achieve export quality yarn, would not be able to exploit the benefits of

high quality cocoons and are running at a loss. KSIC would modernize one of

the seven filatures and close the rest. The modernization program would meanreduction of the labor force for all proposed KSIC facilites from about 4,000

to 2,300 workers. Part of these 1,700 redundant positions wou'ld be dealt withby not replacing any workers that are retiring or otherwise leaving employment.

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Many others would be offered employment in expanding DOS facilities that wouldrequire almost 6,000 workers. For those who cannot be placed, a compensationprogram has been planned. Production, presently averaging about 150 tons peryear, would be expanded slightly to about 160 tons of export grade raw silk.Investments would include three hot air driers, three cocoon boiling units,six semiautomatic reeling machines (each with 400 ends) and eight rereelingmachines. The existing buildings would be used to accommodate the new machinerywith some additions. The filature, together with the departmental filaturewould provide adequate reeling capacity to support bivoltine cocoon productionin the earlier project years. Later on GOK would decide whether to expandcapacity which may become necessary unless the private sector decides to investin modern filatures.

3.15 Spun Silk Mill. In view of the increasing and largely unsatisfieddemand for spun silk in India and in the world, and the increasing amount ofwaste silk available locally, the existing spun silk mill would be expandedfrom 45 tons spun silk production per year to 150 tons. The plant, establishedin 1936, and expanded and to some extent reconditioned since then, now requiresextensive repairs. A renovation program, based on a technical study byJapanese spun silk specialists would be carried out by the KSIC central work-shop (para 3.17), to be established at the factory site. Some of the existingmachines would be replaced and the renovation program would increase plantcapacity to 60 tons spun silk per year. The product would not be suitable forexport but would be easily absorbed by the local market. In addition, a new90 tons per year spun silk production unit would be constructed at the factory,that would be provided with the latest equipment and would produce exportquality spun silk. Both units would use modern waste silk degumming methodsthat would improve spun silk recovery from waste. No civil works would beneeded for the existing unit, but a factory building would be constructed forthe new unit.

3.16 At appraisal, GOK considered the alternative of scrapping the exist-ing plant in favor of a new 150 tons capacity factory. GOK decided againstthe latter option because of higher capital cost, lower employment requirement,somewhat lesser flexibility of end product suitable for local requirements,and the fact that financial returns would be almost identical for both options.GOK considered that these factors outweighed advantages of completely newplant such as easier management, raw material economies, and higher qualityend product. Since studies confirm that renovation is sound, the moderniza-tion program chosen by GOK would be satisfactory.

3.17 Central Workshop. The existing departmental central workshop inMysore would also be taken over by KSIC and needs to be expanded and reequippedfor reconditioning the spun silk mill and for maintenance of the other KSICprocessing factories. New equipment would include foundry equipment, lathes,grinders, drills, presses, sawing machines and small tools. The workshopwould be located at the spun silk mill which is a satisfactory location forserving other KSIC facilities.

Research and Technical Assistance

3.18 Research. The CSRTI had prepared a modest program for intensify-ing research but the preappraisal team, pointing to the success of intensiveresearch in Japan and Korea, advised increase of program size. As a result,

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GOI and GOK staff together drew up a plan for expansion of research to befinanced by the project. CSRTI would remain the lead institute, but wouldcollaborate with three local universities and with the Karnataka State Seri-cultural Development Institute (KSSDI) which GOK is establishing. The planhas been reviewed and approved by GOI and GOK expert committees and is sat-isfactory.

3.19 Funds are required for laboratory buildings, staff housing, equip-ment, staff and operating costs by CSRTI, to strengthen its central station,establish two regional stations and five substations and to improve fiveexisting substations; by University of Agricultural Sciences, Bangalore forstrengthening its ongoing program focussed on silkworm disease control, start-ing new programs for mulberry and silkworm pest and disease incidence surveys,and for expanding its sericulture teaching faculty; by University of Bangalore,for silkworm genetics and mulberry research; by Mysore University, for specificresearch on silkworm genetics; and by KSSDI, to develop a research stationand laboratories to carry out research into all aspects of mulberry, silk-worms and silk processing.

3.20 Technical Assistance. The project would finance 70 man-months ofconsultants' time and a 380 man-months program for training abroad. In thecase of consultancies, about 19 man-months would be needed for visits of 5or 6 top level scientists to CSRTI to support mulberry and silkworm breedingwork and for exchange of ideas on other research topics. About 12 man-monthswould be used for two visits by a two-man team to help DOS with grainage dev-elopment and another expert would be needed for two visits of six months tohelp with the communal hatcheries program, with special Eocus on disease con-trol. In addition, about 27 man-months of consultancy would be used by KSICfor training staff to operate new filature and spun silk factory equipment.

3.21 The overseas training program would benefit 10 senior DOS officials(2 months training), 20 Assistant Directors (3 months training) and 45 SA(4 months training). Particular emphasis of this training would be on grain-age and hatchery operation and silkworm disease detection and control. CSRTIwould require ten study tours for senior researchers, each for attachment toa top research institute abroad for a 12 month period.

3.22 Japan, the leader in silk technology, would be the most suitablesource of expertise and training opportunities. To attract the necessarytop-class scientists and technicians, and in view of the proposed frequentand short-term assignments, a high man-month cost of US$15,000 has beenallowed, inclusive of air fares, living expenses and local travel. However,even with such high remuneration there is no certainty that all the desirableexpertise can be recruited, particularly on a timebound schedule. Arrange-ments for training should present fewer problems and the Japan InternationalCooperation Agency would be able to help with arrangements. Cost per trainingmonth has been estimated at US$3,400 which would include air travel, localtravel, tuition, living and miscellaneous minor expenses. The programs wouldassist and benefit the project considerably, but no part is so vital thatthe project would fail without it. With likely difficulties of recruitingconsultants in mind, assurances were obtained that the GOI Ministry of Indus-tries in collaboration with GOK, would, by December 31, 1980 draw up a planand timetable for the technical assistance and overseas training program andwould use its best endeavors to implement the plan for employing consultants

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and study tours on terms and conditions mutually acceptable to GOI and the

Association.

3.23 Evaluation Study. The project would fund an evaluation study by a

local research institute or university. Arrangements for the study are dis-

cussed in para 5.23.

Land for Project Facilities

3.24 About 80 plots of land would be needed for DOS and KSIC components,

mostly small building plots. All but six of them are already in possession

of DOS and negotiations for official transfer of the remainder, all of which

are GOK land, are well advanced and are expected to be completed before the

end of 1980. CSRTI would require 12 land units ranging from one to eight

hectares in size for research substations. DOS has suitable land and agreed

to transfer it to CSRTI as and when needed. There would therefore be no land

acquisition constraint to impede the project.

Environmental Aspects

3.25 The project would have no adverse environmental effects. It would

cause change in land use only by replacing traditional with new mulberry varie-

ties or one crop, for instance sugar cane, with mulberry which would cause no

environmental changes. On the processing side, large processing plants would

be of modern design adhering to Indian factory safety and effluent disposal

regulations which are satisfactory. Care would also be taken that the smaller

privately owned units, to be sponsored by the project, would adopt satisfactory

safety and waste disposal measures.

Project Phasing

3.26 GOK had started project activities such as land acquisition, estab-lishment of KSIC, securing the project budget and sanction for appointment of

proposed project staff, and implementation of some components prior to negotia-

tions; and has started full-scale implementation from April 1980, the new GOK

financial year. In the first project year DOS would improve existing TSC and

hatcheries and concentrate on preparing to implement the other components by

finalizing designs, calling tenders and recruiting and training staff. Estab-

lishment of new TSC and hatcheries and completion of supporting facilities

(model hatcheries and training institutes) would be carried out progressively

over the following three years. The first grainages are to be commissioned

during 1982 and market units financed by the project during late 1981. The

two programs would each take two more years to complete. Construction of the

two KSIC factories would start early in 1981 and is scheduled for completion

by mid-1983. Detailed designs for most of the major civil works items were

already substantially completed at appraisal. The timing of the technical

assistance program is difficult to predict and may well extend up to mid 1985.

Depending on availability of consultants, the technical assistance program has

been tentatively projected to take place mainly during the third and fourth

project year while the overseas training program would start in the second and

extend to the fifth project year. Project phasing is shown in more detail on

Table 3.1 and Charts 21303, 21387 and 21629.

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IV. COST ESTIMATES, FINANCING, PROCUREMENT AND DISBURSEMENTS

Cost Estimates

4.01 Total costs are estimated at US$95.1 million equivalent of whichUS$20.7 million or 22% would be foreign exchange costs and US$6.6 millionwould be duties and taxes. Estimates are based on September 1979 prices.A 10% physical contingency has been allowed for civil works and 5-10% formachinery, equipment, vehicles and incremental operating costs. Price contin-gencies have been applied at 10% for 1980, 7% annually for 1981 to 1983 and5% annually from 1984 onwards for local costs and at the following rates forimported machinery and equipment: 10.5% for 1980, 9% for 1981, 8% for 1982and 7% annuallv for 1983 to 1985. Total contingencies amount to US$22.8million or 24% of total cost. Detailed costs are given in Annex 2 and aresummarized below.

Summary Cost Estimates

-----Rs Million----- ---- US$ Million----- ForeignCategory Local Foreign Total Local Foreign Total Exchange

On-Farm CreditPlantation 14.0 - 14.0 1.7 - 1.7 -Equipment 17.5 - 17.5 2.1 - 2.1 -Rearing Houses 18.9 - 18.9 2.3 - 2.3 -

Credit for ReelingCottage Basins 16.0 - 16.0 1.9 - 1.9 -

Subtotal Credit 66.4 - 66.4 8.0 - 8.0 -Dept. of SericultureGrainages 85.7 0.5 86.2 10.2 0.1 10.3 1Hatcheries 73.4 - 73.4 8.7 - 8.7 -Model Hatcheries 5.1 - 5.1 0.6 - 0.6Tech. Service Cntrs. 85.8 - 85.8 10.2 - 10.2 -Mobile Demo. Units 1.1 - 1.1 0.1 - 0.1 -Training Schools 7.7 - 7.7 0.9 - 0.9 -Cocoon Markets 25.3 - 25.3 3.0 - 3.0 -Filature 2.6 3.4 6.0 0.3 0.4 0.7 57Inc. Admin. Cost 25.6 - 25.6 3.1 - 3.1 -

Subtotal DOS 312.3 3.9 316.2 37.1 0.5 37.6 1KSICFilature 6.8 35.6 42.4 0.8 4.2 5.0 84Spun Silk Mill 17.4 65.8 83.2 2.1 7.8 9.9 79Hdqrtrs. and Workshop 6.1 - 6.1 0.7 - 0.7 -Net Inc. Working Cap./a 3.9 - 3.9 0.5 - 0.5 -

Subtotal KSIC 34.2 101.4 135.6 4.1 12.0 16.1 75Research Component 55.3 11.8 67.1 6.6 1.4 8.0 18Tech. Asst./Study Tours 1.4 18.5 19.9 0.2 2.2 2.4 92Project Evaluation Study 1.5 - 1.5 0.2 - 0.2 -

Base Cost Estimate 471.1 135.6 606.7 56.2 16.1 72.3 22Physical Contingencies 25.2 11.8 37.0 3.0 1.4 4.4Price Contingencies 127.8 27.0 ,154.8 15.2 3.2 18.4

Total Project Cost 624.1 174.4 798.5 74.4 20.7 95.1 22

/a Working capital to finance incremental inventories, receivables and cashbalance necessary for efficient operations.

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Financing

4.02 The proposed IDA credit of US$54 million would be made to GOI onstandard terms and would cover about 61% of project costs net of duties andtaxes, 57% of total project costs, or all foreign costs and 45% of local costs.The balance would be met by GOI, GOK, ARDC, IDBI, banks, silk farmers andreelers as shown in the following project financing plan:

Financing PlanFarmers! IDA % of

Total GOI/GOK ARDC IDBI Banks Reelers Amount Total--------------------- Rs Million --------------------------

Farmers/Reelers 82.3 - 29.8 - 7.5 8.0 37.0 45DOS 415.5 165.5 /a - - - - 250.0 60KSIC 182.3 60.8 - 41.5 - - 80.0 44Research 91.5 31.5 - - - - 60.0 66TA/Study 26.9 - - - - - 26.9 100

Total 798.5 257.8 29.8 41.5 7.5 8.0 453.9% of Total 100 32 4 5 1 1 57

/a About Rs 75 million is estimated cash generation from grainages, marketsand the small filature.

4.03 GOI would onlend US$4.4 million of the IDA Credit to ARDC torefinance silk farming development loans to farmers and cottage basindevelopment loans to reelers; and US$9.5 million to IDBI to lend to KSICfor modernization and expansion of silk processing factories. ARDC andIDBI interest rates are discussed in para 5.16. GOI would bear the foreignexchange risks for finance onlent to ARDC and IDBI. GOI would use US$5.5million for implementing the technical assistance, overseas training andCSRTI research programs and would channel the balance to GOK for componentsto be carried out by DOS, Universities and the KSSDI, in accordance with GOIstandard arrangements for IDA assisted state development projects. Retroac-tive financing to cover early project implementation costs from October 1,1979, up to US$1 million have been included. This financing would mainlycover expenditure for the departmental program for establishment of TSC andcommunal hatcheries.

Procurement

4.04 Civil works for KSIC, the departmental program and the researchprogram costing about US$8.2 million, would be carried out on about 90sites over five years. Contracts for such work would not attract foreignbidders and would be awarded after local competitive bidding, using GOI orGOK procedures, which are satisfactory to IDA.

4.05 About 250 motor vehicles (US$1.9 million) would be required byproject agencies, mainly DOS. They would be purchased over a five-yearperiod and would be widely spread in rural areas. Adequate maintenance andavailability of spare parts would be of paramount importance, and this wouldnecessitate purchase of locally made vehicles of types already in use byproject agencies. Procurement would be according to GOI and GOK procedures.

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Motorcycles (US$0.3 million) would be purchased by individual departmentalstaff, from loan funds provided by GOK.

4.06 Reeling and spinning machinery and major items of ancillary equipmentsuch as boilers for KSIC and for the departmental filature (US$14.0 million)and cold store equipment, refrigerators, and generators for departmentalgrainages (US$1.9 million) would be procured by international competitivebidding, following Bank Group guidelines for procurement. A 15% preferenceon bids based on the CIF price of each item or the actual custom tariff,whichever is lower, would be granted to domestic manufacturers. However,contracts for these items of machinery and equipment costing less than$100,000, when grouped together, may be awarded in accordance with localcompetitive bidding procedures acceptable to the Association.

4.07 Other equipment would consist of furniture, silkworm rearing equip-ment, farm and laboratory equipment (US$9.1 million) to be purchased overfive years for use over a wide area. These items are not suitable for inter-national bidding and would be purchased by local competitive bidding procedures.Farmers and silk reelers drawing loans for mulberry planting, silkworm rearingequipment and cottage basins (US$8.0 million) would purchase materials andequipment individually from dealers of their choice and would also arrangeconstruction of rearing houses and reeling sheds locally. Technical assistanceand overseas study tours (US$2.4 million) and the project evaluation study(US$0.2 million) would be arranged on terms and conditions satisfactory to IDA.The balance of the project cost (US$30.7 million) would cover DOS incrementaloperating costs and staff salaries and those of participating research agencies,KSIC working capital and land purchase for the research cDmponent, which wouldnot involve procurement. The above figures include physical contingencies(US$4.4 million), but exclude price contingencies, which amount to US$18.4million.

4.08 Small, off-the-shelf items, costing less than US$10,000 and not morethan US$1 million in aggregate, which are required urgently for project execu-tion, would be purchased by prudent shopping, through normal commercial channels.For all contracts for civil works exceeding US$200,000 and for purchase ofequipment and supplies exceeding US$100,000, draft tender documents, proposalsfor advertising, bid evaluations and award proposals would be sent to IDA forreview before contract award. Copies of such contracts would be sent to IDAimmediately after award. Assurances were obtained that procedures outlinedin paras 4.04 through 4.08 would be observed.

Disbursement

4.09 Disbursements from the credit would cover:

(a) 55% of ARDC refinance of loans to farmers and reelers;

(b) 70% of loans to KSIC for civil works, machinery andequipment;

(c) 75% of civil works, vehicles, equipment, farm develop-ment and incremental staff costs for DOS and partici-pating research agencies; and

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(d) 100% of the cost of technical assistance, training abroadand evaluation studies.

4.10 Disbursements under item (d) and for expenditures under item (b)and (c) exceeding Rs 50,000 for machinery, vehicles and equipment and for civilworks exceeding Rs 100,000 would be made against full documentation suppliedto IDA through GOI. Disbursements for item (a) would be made against certifi-cation by ARDC and for all other items against certificates of expendituresubmitted by implementing agencies including DOS, and research agencies. Sup-porting documents for these payments would not be submitted to IDA but wouldbe retained by the implementing agency and made available to IDA during thecourse of review missions. Certificates of expenditure would be audited atleast once every six months and a report submitted to IDA promptly thereafter.The cost of land purchases or working capital for KSIC would not qualify fordisbursement of IDA funds. A schedule of disbursements is shown in Annex 3.

V. ORGANIZATION AND MANAGEMENT

Department of Sericulture

5.01 The Department of Sericulture would implement all components con-nected with cocoon production, including development, grainages, TSC, communaland model hatcheries, training centers and cocoon markets. The Departmentwould cooperate close.y with credit agencies (para 5.12) which would carryout the lending progrim for silk farmers and reelers and finally, DOS wouldestablish and operate a filature in the new areas.

5.02 DOS is part of the State Ministry of Industries and is headed bythe Director of Sericulture, responsible to the Secretary of Industries. Atappraisal, DOS was essentially organized into four zones each under a DeputyDirector supervising about six Assistant Directors (ADS). There were alsoadequate administrative and finance staff at Headquarters as well as foursenior (Deputy Director and Joint Director Level) 1/ specialists for grainages,marketing, cooperatives and supervision of seed areas. The Department isdynamic and well organized and its staff responds well to its strong leader-ship. DOS is reorganizing in preparation for doubling its technical staffover the project period and the proposed organization and services that itwould operate are shown on Chart 21296. The field services would be organ-ized on a District basis with a Deputy Director in charge. Each District wouldhave divisions (5 in Mysore, 3 in Bangalore and 2 in all other Districts)headed by an ADS, whose primary task would be organization and supervision ofTSC and communal hatcheries. At Head Office, apart from a Senior TechnicalAdvisor, there would be five Joint Directors and a Joint Registrar of coopera-tives to broaden the specialities dealt with at Headquarters to include silkfarms and technical services. With the exception of the large new grainagesand a filature to be constructed under the project, which would be directed

1/ Ranking in most government departments in India is as follows in descend-ing order of seniority: Director, Additional Director, Joint Director,Deputy Director and Assistant Director.

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by Head Office staff, all departmental facilities and services in the field

would be supervised by District staff. Other Head Office specialists would

provide services, guidance, standardization and coordination for their relevant

specialities and would supervise them on behalf of the Director. They can beregarded as senior subject matter specialists. Because of its size, each new

grainage would be headed by a Deputy Director who would report to the Joint

Director Grainages at headquarters.

5.03 The Department would also strengthen its administrative services at

headquarters adequately to deal with the extra workload caused by expansion

of staff and services. To carry out the heavy construction program unde