[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared
February 25, 2010
Date of Appraisal Authorization
March 22, 2010
Date of Board Approval
June 8, 2010
Country and Sector Background
1. Since the introduction of the 73rd Constitutional Amendment in India, which gave constitutional recognition to but did not in itself create or empower rural local governments (Panchayati Raj Institutions, or PRIs), progress with decentralization and the development of a robust local service delivery and governance system has been slow. While some important initial measures were taken by state governments, which have legal jurisdiction over local government, and hence are responsible for the implementation of the 73rd Amendment, the situation that has emerged has been uneven and problematic. By and large, the powers and functions of local governments remain highly constrained: legal and institutional local government frameworks suffer from incoherence; funding flows are fractured and unpredictable; and organizational capacity is weak. A growing body of evidence suggests that this is a key reason why local infrastructure and service delivery in sectors from education to water are poor and why local governance and public sector accountability remain highly attenuated.
2. Along with a few other states (Kerala and Karnataka, for example), West Bengal has emerged as something of an exception to this trend. The PRI system in the state comprises a three-tier structure consisting of 3351 Gram Panchayat (GP), 333 Panchayat Samiti (block), and 18 Zilla Parishad (district) institutions. Over the past decade the state government has moved incrementally to decentralize service delivery and governance responsibilities and resources to PRIs. Aggregate funding flows to these entities have increased significantly, and GPs now have the authority to directly employ limited numbers of workers in certain sectors. The overall process is guided by two key formal policy documents – the “Activity Map” and the “Devolution Roadmap”. On the fiduciary side, a number of important initiatives have also been taken e.g. West Bengal is one of the few states in India where all GPs are subject to an effective annual financial audit under the auspices of the State's Auditor-General.
3. The Government of West Bengal (GoWB), specifically the Panchayats and Rural Development Department (PRDD), is committed to expanding and deepening this process through providing PRIs with the resources, capacities and incentives to improve service delivery and governance. In particular, GOWB wishes to focus on GPs – which are legally empowered to deliver local infrastructure and services in sectors such as health, education, water, roads etc.1 – as critical delivery and governance units within the overall PRI system. In order to achieve this objective, the government needs to address three priority challenges:
Funding needs and fiscal framework. PRIs, and specifically GPs, lack sufficient funding to execute their service-delivery functions. Most of their current funding (74%) is consumed by fixed expenditures or devoted to centrally sponsored, earmarked programs over which they have little say or control. Increasing their access to discretionary resources is therefore particularly important to enable them to finance service delivery and infrastructure investments in line with local needs. In sum, the core PRI fiscal challenge has two inter-related dimensions: first, to provide GPs with funding of a quantum and character to allow them to plan predictably and deliver reliably on their functional mandates in line with local needs; second, to strengthen the PRI fiscal framework in the state by introducing more rational allocatory systems.
Capacity and incentives. The GPs in West Bengal have a standard establishment of five full-time staff and are empowered to employ additional staff on a contract basis. With donor support, the PRDD has established a capacity-building program for all levels of PRI focused on training, the development of distance-learning technologies, and the strengthening of systems in areas such as financial management. Nonetheless, particularly given that their functional responsibilities and fiscal receipts are increasing, organizational capacity at the GP level remains low, particularly with respect to skills in areas such as administration, planning and project execution which have received insufficient focus thus far. International experience strongly suggests that, in addition to supply-side inputs, capacity building activity requires strong incentives on the demand side if it is to generate meaningful results. In essence, this requires that well-focused capacity-building activities are both extended and deepened throughout the state while being structured as part of an overall intervention whereby institutional performance results mediate access to increased fiscal resources for service-delivery.
Performance and results monitoring. Although the responsibilities of – and aggregate resource-flows to – PRIs have expanded in recent years, there is currently no system which provides the state government with a reliable picture of what PRIs are doing or how they are performing in aggregate or on an individuated basis. There is a critical need for the establishment of a Management Information System capable of providing GoWB with this sort of information, both as something that is required in its own right, as well as to support a data-based approach to local government policy-making.
4. To address these challenges, the GoWB wishes to introduce a grant to GPs to invest in public services and infrastructure to deliver on their expanding functional mandates in line with local needs, together with the necessary capacity-building inputs to allow them to enhance their performance. The overall strategic vision is to institute a block (i.e. discretionary) grant system which incentivizes local governance and service-delivery performance throughout the state as an integral and ongoing element of the broader PRI fiscal framework in West Bengal. To this end, the GoWB has requested Bank support and the proposed project, while initially limited to less than a third of the GPs in the state, seeks ultimately to have a systemic impact: it is intended that the grant introduced by the project will be expanded to all GPs, funded by GoWB on a regular and sustained basis and will become an integral part of the local government fiscal framework throughout West Bengal, with state-wide impacts on GP institutional performance.
2. Higher level objectives to which the project contributes 5. From a national perspective the project will contribute to the implementation of the 73rd Constitutional Amendment relating to rural local government – not just in West Bengal, but also more broadly through the demonstration effects it seeks to achieve and through the lessons that it will generate for decentralization processes in other States.
The project development objective (PDO) is to develop institutionally strengthened GPs.
Achievement of the PDO will be measured in terms of the following key performance indicators: by the end of the project (i) a minimum of 80% of 1,000 GPs have well-functioning fiduciary and planning systems as measured through the annual performance assessments; and (ii) a performance-based grant transfer system is well established to roll out to other GPs.
From the point of view of West Bengal, the higher level goals of the project are improved service delivery and governance in rural and peri-urban areas, which is where most of the poor in the state reside. Improved GP performance in these areas will have a direct impact on the services received by the rural population; it will also – through expanding both the quantum and efficiency of public sector investment – have positive impacts on the economic productivity of these areas.
Rationale for Bank Involvement
8. An initial platform for the Institutional Strengthening of Gram Panchayats Project (ISGPP) has been laid by the United Kingdom Department for International Development (DFID) assisted “Strengthening Rural Decentralization” (SRD) program which involves a combination of decentralization policy support activities and a range of capacity-building and small grant activities focused on a limited number of PRIs. Building on this foundation, the GoWB now proposes, with Bank support, to introduce the grant system outlined above for about a third of the GPs in the state (approximately 1000), while consolidating and expanding the PRI capacity building program. Simultaneously the PRDD wishes to expand its PRI oversight and performance monitoring capabilities.
9. From a sectoral perspective, the World Bank has extensive expertise and distinct comparative advantages in the area of decentralization and the development of local government systems, having engaged deeply in these areas in all regions of the world for well over a decade. Valuable experience has been generated from its extensive global portfolio of analytic, advisory and lending activities in the sector, not least in South Asia. In India, the Bank has a strong record of engagement with decentralization and local government issues. It has established ongoing dialogues with both Central Government Ministries and State Governments, and is increasingly approached to provide both funding and technical assistance in support of decentralization programs by both levels. The ISGPP would be one of three rural local government operations the Bank is supporting in India - the others being in Karnataka (under implementation) and Kerala (under preparation) - all of which are focused on strengthening the PRI system as a key institutional locus of service-delivery and governance in rural and peri-urban India. The proposed program will make a valuable contribution to the third pillar of the India Country Strategy (CAS) - “Increasing the effectiveness of public service delivery” - both as a result of the nature of the local services infrastructure that will be funded and by virtue of its institutional strengthening focus which is clearly aimed at “supporting institutional arrangements that promote an enabling environment for results”.
5. Description 10. The project will focus on a universe of approximately 1000 GPs (about a third in the state) within 9 (out of 18) Districts, with both the GPs and the districts selected on the basis of being relatively “high performers”, in order to mitigate implementation risk. The long-term vision is that the system introduced by the project will be expanded to all GPs in the state and will become an integral part of the PRI fiscal framework supported by the state budget.
Component 1: Block Grants to Gram Panchayats (GPs) 11. This component will support an annual, performance-based block grant to the 1000 GPs participating in the project for expenditure on local public goods and services in the Districts of Burdwan, Howrah, Nadia, Cooch Behar, Birbhum, Paschim Medinipur, Purba Medinipur, Bankura and Dakshin Dinajpur. In order to access the grant, GPs within this universe will be required to meet a prescribed set of minimum mandatory conditions (MMCs). In every year beyond the first, GPs will be required to meet both the MMCs and pass an on-site performance assessment which will focus on key performance areas including: planning and budgeting; project execution and service delivery; accounting, financial reporting and audit; and participation, transparency and accountability. Compliance with the Environmental and Social Management Framework, procurement and financial management requirements will be fully addressed under these areas.
12. Grant allocations will be calculated on a per capita formula, with a minimum allocation amount applied to account for investment lumpiness and incentive effects. GPs will receive on average the equivalent of US$1.8 per capita, rising from $0.50 to $2.50 over the life of the project. The total annual allocation to a GP will average US$32,500 over the life of the project and range between US$10,000 and US$75,000 a year depending on its population size. In 2007/08, all GP revenues amounted to approximately US$7.30 per capita. The grant will increase total GP revenues by a per capita average of about 24%, and total discretionary (untied) revenues – which is where GPs are critically constrained in terms of delivering services in line with local needs – by 123%. Studies have shown that these amounts are unlikely to overwhelm the absorptive capacity of the GPs, given very high (almost 100%) current untied revenue utilization rates.
13. Grant funding provided by the project will be accounted for using the existing accounting system – specifically the recently introduced Gram Panchyats Management System (GPMS) – and audited as part of the annual GP certification audit conducted by the Comptroller and Auditor General’s (CAG) local office (Examiner of Local Accounts, ELA). GPs which receive an adverse or disclaimed audit opinion will not receive funding, a condition embedded in the MMCs. Investment planning will take place according to the existing participatory planning process (of which the ESMF will become an element) which has been the major focus of development under the DFID-funded SRD program over the past 3 years. Component 2 of the project will support the development of GP capacities to operate and implement these systems.
14. Grants will be allocated and disbursed to the GPs on an annual basis, through a single release near the start of each financial year. The annual financial year of GPs, which provides clear windows for planning, budgeting, project execution and reporting, will be reinforced by the timing of grant allocations and releases. This will, in turn, define the annual timing of other activities in the project.
Component 2: Capacity building for GPs 16. This component will provide formal support to strengthen the institutional capacity of GPs to deliver basic services. Support will be focused to meet the objectives and performance indicators associated with this project. This will be done within the broader framework for capacity building in the state including the strengthening of audit activities.
17. The project will deploy a range of approaches to capacity development, from formal training, to ongoing mentoring, to exposure visits and the piloting of demand-led approaches to capacity development. It will also assist the state government to streamline procedures and systems to further enhance available capacity. Specific activities are organized in eight sub-components, namely:
(i) Systems development support that will assist the state government to streamline, enhance or introduce state-wide procedures related to planning, the GPMS, accounting practices, grievance procedures, social auditing, revenue mobilization and web-based project design for GP level investment projects
(ii) Mentoring support that will provide groups of 17 GPs with regular assistance from a team of three mobile project specialists in the areas of: (a) financial management and procurement; (b) planning, governance and liaison; and (c) project execution
(iii) Formal training that will provide for orientation on the project itself as well as four specialized, residential courses on (a) GP management and reporting systems and the GPMS; (b) Procurement; (c) Planning and the ESMF; and (d) the roles and duties of local representatives
(iv) Demand-led support that will pilot voucher-based approaches to capacity support
(v) External audit support that will assist the ELA to streamline and enhance its procedures related to timely certification auditing of GPs in the state, focusing on project GPs
(vii) Exposure visits that will allow approximately 40 people per year to undertake week-long exposure visits to other states in India to review best practices
(viii) Strengthening of the GP internal audit function, provided by PRDD
Component 3: State oversight and monitoring of PRIs 18. This component will strengthen PRDD’s systems for monitoring of PRIs through the following three activities under this component: (i) Annual performance assessments (PAs) and quality assurance audits (QAAs); (ii) Improvement of internal monitoring and information and reporting systems -- this activity will support technical assistance to review the ongoing reporting system, recommend ways of rationalizing and improving information flows, and develop more effective information systems; and (iii) Evaluations and studies of the program. The project includes a rigorous evaluation framework to document carefully and evaluate progress in several key thematic areas. Studies will be commissioned to measure progress over a range of planning, financial management, audit issues, to assess progress of the three key training modalities; and evaluate the quantity and technical quality of public goods financed by the project; cost effectiveness of the investments; safeguards issues; participation in the planning and budgeting process; social audits; grievance redress; and disclosure of information to the public.
Component 4: Program Management and Implementation 19. This component will support implementation and management of the project. Specific activities under this component are: (i) Project Information, Education and Communications (IEC) which will focus on broad communications about the project including its objectives and expected outcomes, and roles and responsibilities of the Gram Panchayats (GPs); and on the eligibility criteria and allocation procedures for accessing the grant; and rules and procedures for operating the grant; (ii) Project Management Support will finance selected establishment, consultancy, goods and equipment, and operating costs of the project implementing institutions; and (iii) Project Reporting which will comprise the preparation of annual project audit reports, quarterly progress reports; consulting services for preparation and review of documents for the Mid-Term Review (MTR) and project completion reports and workshops for final evaluation of the project.
International Development Association (IDA)
7. Implementation 20. The PRDD will have the primary responsibility for project implementation and ensuring that the project development objectives are met, and will execute the project through the West Bengal State and Rural Development Agency (WBSRDA), which will also be responsible for inter-institutional coordination. Additional oversight for project execution will be the responsibility of the Executive Committee (EXCOM) of WBSRDA, which is chaired, ex-officio, by the Principal Secretary (PS), PRDD. The EXCOM is made up of both government officials and non-government appointees, and is accountable to a Governing Body chaired by the Minister, PRDD.
21. The ISGPP Cell that is being established in WBSRDA under the project will assume direct, state-wide responsibility for day-to-day project management, coordination and implementation. The ISGPP Cell will be staffed by both cross-cutting management and support staff and specialists dealing with specific technical areas, and it will identify from amongst its staff focal personnel for each of the project components who will be in charge of implementation, coordination, monitoring and reporting on their respective components and sub-components. The Cell will take the lead role in planning, coordinating and monitoring project performance in line with the project implementation schedule, as well as facilitate day-to-day decisions for implementation of various components of the project. It will undertake the Performance Assessments (PAs) of the GPs, prepare annual work programs, budgets, annual procurement plans, will disburse funds, review fund execution and accountability, oversee quarterly review meetings and contract and supervise project staff and consultancy assignments, prepare reports and other documents and provide quality control. The Cell will also organize annual workshops/seminars to present status of project implementation, progress and results of monitoring and evaluation.
22. In each of the nine project districts, District Coordination Units (DCUs) will be set up with the mandate to coordinate the mobile teams deployed at each district to provide mentoring and assistance to the GPs. Each DCU will have an Overall District Coordinator, Monitoring and Reporting Coordinator and an Assistant. After the third year of project effectiveness, three additional DCUs with their associated mobile teams will be established and supported under the project. The Additional Executive Officers (AEO) in each District, in addition to their district duties, will have oversight responsibility for the DCU, and they will report to the WBSRDA on the performance of the capacity building activities under the project. The formal training program will be implemented by the District Training Centers (DTCs), and will be overseen by the District Panchayat and Rural Development Officer (DPRDO) who will report to the AEO as well as to the Society of Training and Research on Panchayat and Rural Development (STARPARD). The AEOs will also be responsible for coordinating the work of both the DCUs and the DTCs in their respective districts.
23. Two execution support agencies will be involved with the implementation of specific project sub-components under the overall direction of the WBSRDA: (i) The ELA within the CAG’s office with respect to the strengthening ELA activities under Component 2; and (ii) the STARPARD, which will coordinate, state-wide, the district-level formal class room based training organized by the DTCs, linking with the DPRDOs in each district.
8. Sustainability 24. Project sustainability has three main dimensions: (i) the sustainability of the decentralization process in West Bengal (policy sustainability); (ii) the fiscal sustainability of the grant system the project will institute once it is over; and (iii) the sustainability of local service delivery and the physical assets supported by the project.
25.Policy sustainability. As indicated earlier, West Bengal is a leader among Indian states with regard to rural local government devolution. Although incrementally implemented, the overall process is well established and is securely underway. It is guided by clear policy statements – particularly the Cabinet-approved 2009 Devolution Roadmap and the 2005 Activity Map which outline a process for gradually devolving further functions and activities currently implemented by State Departments to PRIs, and particularly to GPs. Moreover, over the past three to four years, these policies have been incarnated in concrete changes to the way in which resources are allocated within the State and in changes in respect of human resource control. The project intends to further deepen and strengthen the processes already underway and should play a significant role in securing the gains that have already been made.
26. Fiscal sustainability. The project will target about one third of all GPs in the state. The intention is to extend the performance grant system which the project will introduce throughout the state once it has been securely established over the project implementation period. Preliminary calculations indicate that the costs of doing so would amount to no more than 2% of the annual revenue expenditures of GoWB. While the State is under some fiscal stress at the moment, it is conceivable that this magnitude (or a lower one, if the State decided to roll the system out more gradually) could be absorbed, particularly if its fiscal position improves and given that the State has a period of about five years (the implementation period) to make the necessary adjustments. In this context it should be noted that GoWB has recently adopted policy favoring significant real increases in the amount of funding flowing from the state fiscus to local governments within the state (a State Finance Commission recommendation formally accepted by GoWB's Departmert of Finance in a Ministerial Memorandum in June 2009).
27.Service-delivery and physical asset sustainability. One of the project’s central higher objectives is to improve sustained local service-delivery through providing enhanced resources for GPs to deliver in line with local needs. So far as the sustainability of the local infrastructure assets the block grant will support is concerned, analysis undertaken for project preparation indicates that the increments in amounts that GPs have received (and will continue to receive) from other sources are sufficient to cover these annual costs. The capacity-building program supported by the project will place specific emphasis on sensitizing elected officials and training GP staff to ensure that sufficient budgetary provision is made for maintenance and operations and that these activities are effectively discharged on a routine basis.
9. Lessons Learned from Past Operations in the Country/Sector 28. The Bank has gathered substantial international experience from local government institutional strengthening programs that it has supported over the past decade in a number of diverse countries including Uganda, Tanzania, Cambodia, Indonesia, Bangladesh and India (Karnataka). Many if these have design features with some parallels to the West Bengal ISGPP, and a number of important lessons have emerged from this experience, of which four are particularly relevant.
29. First, the results of supply-side capacity building measures aimed at local governments in the absence of demand-side incentives have been disappointing. Conversely, there is growing evidence that capacity building initiatives, such as systems development (in areas like financial management and planning) and training, are considerable more effective when they are linked with a system which creates demand on the part of targeted local governments. With appropriate incentives, local governments have responded by taking full advantage of these capacity building activities and have demonstrated greater commitment to inculcating them into their ongoing operations. The ISGPP adopts this approach through basing actual access to the grant funds provided under Component 1 on improvements in institutional performance which local governments will be able to achieve through the capacity building activities supplied under Component 2. The mechanism through which this link will be ensured is the annual PA.
30. Second, the capacity of the project implementation entity to implement a project which covers extensive numbers of local governments robustly can easily be overwhelmed if the scope of the project is too wide, or if the targeted local governments are too weak. Accordingly, the project focuses on a sample of less than a third of GPs (1000) in half the districts (9) in the state. These GPs have generally been picked on the basis that they have sufficiently capacitated systems in place to mitigate implementation risk.
31. Third, in performance grant systems, maintaining the integrity of the performance evaluation system is paramount: if this system can be effectively “gamed” by participating local governments the incentives which are fundamental to project success are likely to be severely weakened. In this context, the project will introduce an annual external audit of the annual performance assessment in order to monitor and ensure the quality of the process.
32. Fourth, recent experience from the Karnataka Panchayats Strengthening Project, where some issues have arisen concerning disbursement efficiency and fiscal sustainability has provided valuable lessons for the ISGPP, the design of which has taken specific account of these.
Safeguard Policies (including public consultation)
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OP/BP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP 7.60)*
Projects on International Waterways (OP/BP 7.50)
11. List of Factual Technical Documents A. Bank Staff Assessments
Project Preparation Back to Office Reports and Aide Memoires
Financial Management Assessment
Procurement Capacity Assessment
Project Information Document (PID)
Integrated Safeguards Data Sheet (ISDS)
Economic Analysis Data
B. Project Preparation and Implementation Documents
Environmental and Social Management Framework (ESMF)
Environmental and Social Safeguards and Planning in Panchayati Raj Institutions: Capacity Assessment and Management Plan
The PRI fiscal Framework, Gram Panchayats Financial Management Capacity and Design of Performance Grant System for Gram Panchayats in West Bengal