Fertilizer promotion project

Audit report covers the period 9/79-10/82 and is based on record review, visits to fertilizer-handling agencies and warehouses, and interviews with USAID/I and Government of India (GOI) officials. Fertilizer consumption has increased at less than the GOI-projected rate in 2 of the 3 project years, leading to reports of a fertilizer glut (a considerable quantity of AID-funded fertilizer is in fact still in storage after almost 2 years). The consumption shortfall has been due to poor rains, retail price increases totaling 62% in l980-81, inadequate credit facilities, the failure of extension agencies to reach small and marginal farmers, and transportation and warehouse problems. To counteract the effects of increased prices, the GOI has raised crop prices, subsidized some fertilizer transport charges, and increased distribution cost mark-up. To broaden the base for fertilizer consumption, the GOI has: brought from 67 to 103 the number of districts in its intensive fertilizer promotion campaign; added to the villages currently adopted by the fertilizer industry; provided small farmers with special credit programs; and developed a system of incentives and improved distribution to increase fertilizer supply in remote areas. Empirical data on the impact of these measures are lacking. USAID/I did not establish the required reporting and evaluation system for the project; this factor, along with USAID/I"s lack of early monitoring, may be responsible for the Ministry of Agriculture"s less than positive attitude toward later USAID/I monitoring and the present audit. Recommendations are for the USAID/I Director to: withhold disbursement of the remaining $35 million in funds until the GOI produces figures on supply, consumption, and production and takes action to prevent the build up of excess inventory in its agencies; formalize reporting and evaluation procedures specified in the project paper; amend the implementation letter format to highlight A.I.D.monitoring/audit rights; and obtain details about all loan-financed shipment claims and request the GOI to refund any indemnification not used for replacement.