CAPACITY DEVELOPMENT AND INSTITUTIONALCHANGE IN INDIAN WATER SECTOR (JBIC’CONTRIBUTION)1
Kotaro Tanaka
Japan Bank for International Cooperation (Head Office)P. RajasekharanJapan Bank for International Cooperation (New Delhi Office)August 2008

Abstract: Besides infrastructure development, the Japan Bank for International
Cooperation (JBIC) has been suitably structuring its soft loan assistance for recipient
countries to achieve significant development impact by initiating and sustaining
institutional reforms. This paper shows how to synergize physical activities with capacity
development for catalyzing institutional change through a case study of Indian water sector
project. We also analyze the underlying critical success factors, such as aligning withnational policy, creating an environment conducive to reform, and utilizing built-in
advantages of loan-grant mix. The finding leads to several important implications for policy
direction for the newly re-established JICA operations.
Key words: Asia, India, water sector, institutional change, municipal reform, infrastructuredevelopment.

1. Introduction
For several years, the Japan Bank for International Cooperation (JBIC) has been
extending soft loan for financing mega infrastructure projects in many parts of the world.
JBIC also extends technical assistance, though smaller in size compared to soft loan
assistance, for policy research, project formation and facilitating project
implementation/sustainability. JBIC has developed its own methodologies for blending soft
loan assistance with technical assistance facilities, thereby synchronizing provision of1

Contact Information: Japan Bank for International Cooperation (JBIC), 1-4-1 Ohtemachi,
Chiyoda-ku, Tokyo, 100-8144, Japan, Tel. +81-(0)3-5218-3818, Fax +81-(0)3-5218-9689,
e-mail: ko-tanaka@jbic.go.jp, p-rajasekharan@jbic.go.jp. This paper is based on thefindings of the authors. The views expressed in this paper are those of authors and do notnecessarily represent the official position of JBIC.

273

infrastructure with capacity development for improved service delivery. With these efforts,
JBIC has been able to achieve significant developmental impact through its assistance.
This paper shows how to synergize physical activities with capacity development for
catalyzing institutional change through a case study of Indian water sector project. We also
analyze the underlying critical success factors, such as aligning with Indian national policy,
creating an environment conducive to reform, and utilizing built-in advantages of loangrant mix.
With effect from October 2008, JBIC’s Overseas Economic Cooperation Operations
will be merged with the Japan International Cooperation Agency (JICA). The findings ofthis study will have several important implications and future challenges to the newly reestablished JICA, equipped with grant and soft loan scheme in addition to the existing
technical cooperation scheme.
2. Case study in Indian water sector: Yamuna Action Plan Project
Background
Yamuna, a major tributary to the holy river Ganga, is one of the holiest rivers ofIndia and is used by millions as a source for drinking water as well as for bathing andirrigation. In recent years, however, the river has become grossly polluted due to various
causes, affecting human health and bio-diversity of the eco-system.
The main cause of river pollution is discharge of untreated domestic wastewater and otherwastes into the river from the cities located along its banks.
Loan request to the Government of JapanTo arrest river pollution, the National River Conservation Directorate (NRCD) of
the Ministry of Environment and Forests (MoEF) of the Government of India (GOI)
formulated an action plan called Yamuna Action Plan (YAP), comprising of various
pollution control measures in 15 riverside cities. GOI sought financial assistance from theGovernment of Japan for YAP project, and accordingly the Government of Japan throughthe Overseas Economic Cooperation Fund (OECF2) extended soft loan assistance of JPY
17,773 million in 1992. Subsequently in 2002, further loan assistance of JPY 13,333
million was extended for the Phase 2 project.

2

In 1999, the Japan Bank for International Cooperation (JBIC) was established bymerging the Export-Import Bank of Japan (JEXIM) and OECF.

274

Holistic approach
The YAP project uses a holistic approach for river pollution abatement and hygiene
promotion by integrating construction of physical infrastructure with institutional change
measures and public participation activities as depicted in Figure 1. As the project
ultimately aims to improve water quality on a river basin-wide basis, the project
activities/policy measures are designed to address issues at multiple levels of governance—
city/municipality level, sub-regional/state level, and national level in addition to on-site
activities.

Integration of physical works with institutional change

Sub-regional
Watershedbased planning/ review

Sanitation

On-spot
Sewerage Infrastructure
Community assets,Health &Hygiene promotion
Civil Society / NGO / Public
Participation

City Level
Municipal
Reforms

National level regulation (MoEF)

Multi-city & Sub-regional improvementin Water quality & Sanitation

Figure 1
Physical and technicalAs regards physical infrastructure, the project comprises provision of seweragesystem infrastructure for about 6 million people and sanitation facilities through community
toilets for about 1 million urban poor. The project also includes utility level service
improvement measures such as training for operation and maintenance (O&M) andintroduction of modern technology.
Institutional change
Project includes public participation & awareness, public relations, and publichealth & hygiene promotion activities which are implemented through a network of NGOs,
Community Based Organizations (CBOs), academicians, industry, etc.
Under the project the framework for comprehensive municipal reforms was evolved
through a policy research study, too. Starting from pilot reform initiative for Agra
Municipal Corporation, wider scale reform initiatives are being implemented in all cities byutilizing Reform Fund under YAP Phase 2 Project.

275

Achievement of Agra Municipal Reform
Despite a strong thrust on decentralization of power as envisioned under 74th
constitutional amendment 3 , the progress of decentralization in terms of development offinancial and administrative powers to urban local bodies has been rather slow. As a result,urban local bodies lack necessary technical, financial and managerial capacity to deliver
various kinds of urban services including operation of newly constructed sewerage facilities.
Like all other urban local bodies in India, Agra Municipal Corporation, one of the YAPtown, was caught in a “Vicious cycle” trap of low revenue base, leading to poor service
delivery, resulting in poor cost recovery/tax collection, causing further worsening thesituation. JBIC conceived and designed a policy research study culminating into acomprehensive reform package, which facilitated transforming the “Vicious cycle” into
“Virtuous cycle.” The reform process which began in 2003 has now become irreversible,
and the city has now initiated the second generation reform. Moreover, the municipal
reform process in Agra, now widely known as Agra model, is being replicated in all 15
YAP cities.
The reform process in Agra being comprehensive in nature resulted in specificachievements on the revenue side as well as the service delivery side. As regards therevenue side, the property tax collection increased by over 5 times from Rs.17 million in
FY 2005 to Rs.96 million in FY 2007 as a result of measures such as updating andcomputerization of database of properties, introduction of computerized billing, awarenessgeneration and public participation, training of tax collector and other staff.
On the service delivery side, the reform measures included financial management system
reform, introduction of complaint redressal system, promotion of private sector
participation (through pilot projects in key municipal function of solid waste management
and street lighting).
The introduction of financial management system and complaint redressal system
coupled with training has strengthened staff capacity in managing service delivery. Also
the successful implementation of pilots in solid waste management and street lighting
opened the doors for wide-scale private sector participation and community participation.
As depicted in Figure 2, the approach and methodology for reform process included arigorous consultative process by systematically engaging multiple and diverse stakeholders.

3

In 1992, GoI has amended its constitution for delegating a responsibility of public
service delivery including water supply and sewerage to urban local bodies.

276

Approach & Methodology
State Level Reforms
City Reform Action Plan

City ReformTeam

Citizen Survey

City
Assessment

Focused Group
Discussions

Figure 2
3. Analysis of Critical Success Factors
The success in conception and implementation of the municipal reform process canbe attributed to the following three critical success factors; (i) alignment with Indian policy
reform efforts; (ii) creation of environment conducive for reforms; and (iii) leveraging
built-in advantages of loan-grant mix.
Alignment with Indian policy reform efforts
JBIC has been consciously ensuring that the project is consistent with the Indianpolicy, and also has been flexible to accommodate changes in the project design in line with
Indian policy evolution. As more and more attention was given by GoI to policy issues like
community sanitation and decentralization, JBIC was responsive in researching and finding
a way forward to reflect measures in its project portfolio. Similarly, in response to Indianside’s increasing priority for public attention4, JBIC evolved methodologies for pro-actively
engaging civil society/NGO networks under the project.
The focus area under Yamuna Action Plan Project itself has evolved over the years.
As shown in Figure 3, the first stage (1996 to 2000) involved an engineering approach withfocus mainly on construction of sewerage infrastructure. After 2000, with increased thrust4

As shown in Figure 3, Public Interest Litigation about River Yamuna pollution was filed
in the Honorable Supreme Court against GoI in 1994. Subsequently, the Indian judiciary
got very actively involved in the monitoring process of cleaning River Yamuna.

277

by Indian government on decentralization of governance and increase in civil society
engagement the project focus expanded public participation program, provision ofcommunity assets especially for the poor, and institutional change. The evolving focus isevident from JBIC’s disbursement trend, too.

Focus area under Yamuna Action Plan has evolved, too.
Source: JBIC Statistics
Year

Historic Events

1985

Commencement of river cleaning program withthe launch of Ganga Action Plan

1992

Constitutional Amendment (74th amdt.) for
decentralization of governance by devolving
powers to Urban Local Bodies

Project related events and Disbursement Amount
FY
1992

Project related events(JPY bil.)

Sewerage

Others(Soft)Yamuna Action Plan Project I Commitment

1993

1994

Public Interest Litigation ‘Quite Flows Maili
Yamuna’ against Govt. of India regarding
Yamuna Pollution

1995

1995~

Active involvement of judiciary (Honorable
Supreme Court & High Court) in monitoring the
progress of river cleaning programs

1996

1,970

179

Increased thrust on Public Participation andAwareness). NGOs participation in rivercleaning program sought for the first time byconcerned State / Central Govt.

1997

1,549

141

1999

1998

1,013

20

1999

2,005

51

2002

Need for strengthening of capacity of ULBs
gains recognition of GoI (MoEF), leading to adecision to include ULB reforms as an integral
part of river cleaning programs

748

5

1994

11

2000

Special Assistance for Public Participation andAwareness

2001

Agra Municipal Reform commenced.

2,003

2,212

2002

Yamuna Action Plan Project II Commitment with
YAP Reform Fund for all 15 cities

1,325

3,143

2003
2004

114

2005

361

2006

515

2007

275

Figure 3
Creation of an environment conducive to reform
The recognition of the key role played by stakeholders in the determination of apolicy, its implementation, and outcomes has made stakeholder analysis a vital tool forpolicy managers (Brinkerhoff and Grosby, 2002). In Agra Municipal Reform project,stakeholder analysis as Figure 4 summarizing the reaction/response to reform among three
distinct
stakeholder
classes,
namely,centralgovernment/policy
maker,
municipality/utility/service provider, and citizen/grass root organization/media was utilized
as a basis for planning and implementation.

278

Stakeholder analysis
Central Govt./
Policy maker

Municipality/
Citizen/ GrassUtility/ Service root org./ Media
providerIncentive for
Project

Positive

Very Positive

Incentive for
ReformPositive

Very Negative Neutral to
Negative

Attention to
ReformVery HighHigh

Information

Better in Policy

Better in Tech. Better in Local &SocialPositive

High to Low

Source: Author’s classification

Figure 4
From the above stakeholder analysis, it is observed that the general perception aboutreform from the point of view of municipality/service provider is that reform means taking
risk, which includes political risk, short-time revenue decrease, pressure from labor union,
attention/criticism from citizens, etc. Thus the preferred option is “No change (reform), no
risk (uncertainty).”
On the other hand, from the point of view of citizens, the information pertaining tobenefits of reform is not clearly known among all citizens. While the anti-reformists
remain vocal, the pro-reformists are generally silent. Moreover, there is an element of
mistrust by citizens against government and municipality/service provider. The combined
effect of risk averseness of municipality/service provider, lack of information among
citizens and the mistrust by citizens towards government and municipality/service provider
results in a status quo situation.
The strategy to create an environment conducive to reform, that facilitates all
stakeholders to move out of the status qua situation is depicted as Figure 5.

279

Strategy to create an environment
conducive to Reform
Information & Attention

rse
ave

k
Ris X Service Provider

Pressure, Information

X Central Govt.

X Academics, NGOs
X Employees of SP

Participation

X Politician

Incentive for Reform

X Media
Information, Pilot

La

X Beneficiaries

ck

o

fo.
f In

Mis

X General Public

t
rus

t

Potential Driver/Agents for Reform, but Silent majority
Source: Author’s illustration

Figure 5
The policy research study with thorough consultation identified pilot projects and acarefully crafted communication plan. They were designed to transform the perception
among citizens towards municipality/service provider from mistrust to expectation asshown in Figure 6.

Strategy to create the faith inService Provider<Current Perception><Perception to bentio• No consensus
created>
cta
e
p
among
Ex
•
Broaderstakeholders.
Communicationconsensus.
• Govt. never tells
truth, and never• Govt. listens andlistens to citizens.
commits.
Action• Service level is
Study• Service level willvery low.
be improved.
 Govt. cannot be
trusted.
 Govt. can be
st
tru
s
i
M
trusted.

Figure 6
280

The following strategic inputs were suggested in the study to create an environment
conducive to reform:(1) Constitution of reform team:
A well balanced Reform Team with a mix of political heads, administrative officials,
representatives of unions & opposition parties was constituted in Agra Municipal
Corporation. Such a broad based composition ensured that there was general consensus
regarding direction and content of the reform. Also the team identified one of its members
as a reform champion to act as a prime mover for leading the implementation and engaging
wider set of stakeholders in the reform process. Accordingly, NGOs and citizen groups
were closely engaged in the consultative process, right from the beginning till theconclusion of the reform blue print.
(2) Quick and visible pilot project:
To gain the confidence of citizens by showing the municipality’s intention to act(not just speak), pilot projects were carefully selected so that the benefits got visible in theimmediate run. The pilot solid waste management project with private sector participation
was started in one colony with 3,000 residents. It showed distinct cleanliness of a locality.
Similarly, the pilot project on street lighting operations involving private sector resulted invisible improvement along one of the major city roads. Besides sending positive signal toprivate sector and citizens, the project reassured the municipal staff that reforms were notmeant for retrenchment.
(3) Communication plan:
The study suggested several communication strategies to build and evolve a wide
consensus. First of all, citizen survey was conducted to make the politicians confident about
the need for reform 5 . A PR plan was implemented to disseminate factual information
through media to the public. Peer-to-peer lectures and question-answer sessions wereorganized for the municipal staff and politicians, where reform practitioners explained
about the benefit of reforms and cleared all doubts/ apprehensions. Regular newsletter andpress conference were utilized as a tool to continuously update the status of reforms. In theentire process, presentations were made in local language to ensure that the message
reaches one and all. Against key staff of municipality, audio-visual MIS tools were used tohighlight the best practice stories. Also a hands-on approach was taken to actively engage
staff in reform design and implementation.
The end results of the multi-pronged strategy were not only a clear consensus on thereform path but also a rally by different stakeholders to form pressure groups to create andsustain the reform drive, as shown in Figure 7.

5

The results of citizen survey showed that the general concept of reform and its sequence
were broadly supported by the public.

281

Creation and reinforcement of
Reform drivemfor
Re ivedr

Information & Attention
X Service Provider

X Central Govt.
X Academics, NGOs
X Employees of SP
X Politician

Incentive for Reform

X Media

to
st
tru n
s
i
M atiotm
Fro xpec
E

X Beneficiaries
X General Public

Act as a Driver/Agents for Reform with a confidence.
Source: Author’s illustration

Figure 7
Built-in advantage of Loan-grant mix
Both loan and grant have its own comparative advantages as an instrument ofdevelopment assistance, as depicted in Figure 8.

Scheme comparison(Relative Advantage/Disadvantage)
Grant

Suitable for Knowledge/Tech. transfer
Tendency of off-budgetingQuick, No eligibility issues
Project/sector specific policy oriented

Loan

Alignment (on-budget), Ownership
Slow, Eligibility issues
Project/sector specific policy oriented to Macropolicy oriented (esp. General Budget Support)
ScaleLong time commitment
UntiedSource: Author’s classification

Figure 8282

The salient features of blending loan and grant schemes are presented below:(1) Firstly, loan by its very nature is on-budget for a recipient country, thereby making iteasier to align with national government’s policy.
(2) As a mega loan project takes long time (almost 10 years) from its commitment tocompletion, a loan project facilitates a long term close involvement with the counterpart
government agencies. Especially, in the course of implementation, as there occur various
issues to be solved with a very close coordination between GoI and JBIC, a sense of mutual
trust is built, and development agenda is commonly shared, resulting in a strong
cooperation platform 6 . Sometimes, succeeding projects can address the challenges
identified in the preceding project. In this case, YAP Phase 2 Project covers more intensive
municipal reform package as well as public participation components by utilizing lessons
from Phase 1 Project.
(3) Depending on political will and absorbing capacity, the required scope of assistancemay change. Loan-grant mix provides donor a combination of dynamism and flexibility inaligning with the actual developmental needs. For instance, while a mega physicalintervention may require loan scheme, policy research or capacity building may be covered
under grant assistance. Once physical intervention and technical transfer is reaching to acompletion stage, the next challenge of policy/institutional change for replication can bebetter achieved with loan-grant mix, as shown in Figure 9.

Not only financial support but also
technical and policy level support
Physical intervention Entry point for Reform.
& Technical transfer Platform to have a mutual trust and to share thesame policy goal (Alignment).
an
Lo

Strategic
Packaging

t
an

Gr

Institutional change

Explicit reform needs.
Creation and reinforcement of Reform drive.

Replication

Scale up and customization.

an
Lo

Pri

t
an
Gr

e
vat

Source: Author’s illustration

Figure 96

There is, however, a strong demand by a recipient country for more predictability forJapanese assistance scheme.

283

(4) Loan-grant mix enables to work on a large scale, thereby maximizing the level ofimpact across wider sections of the society. Large scale assistance with international
competitive bidding naturally selects the most cost effective technology/development
model. In addition, the fact of being proven by the massive scale implementation andoperation has a substantial advantage for replicating in other places/schemes. As a leading
donor in Indian water sector as shown in Figure 10 and Figure 11, JBIC’s policy supports
relating to the physical intervention will be a strong back-up to reform initiatives of GoI.

Size matters(Significant contribution to Indian water sector)
1991-1995

1996-2000

2001-2005

698
383

780
442

973
681

(55% of Bi.)
(31% of Total)(57% of Bi.)
(46% of Total)(70% of Bi.)
(42% of Total)

Total Multilateral

532

462

643

WB

531

458

623

UNICEF

0

4

20

1,231

1,243

1,617

Total Bilateral
Japan
(%)

Total

(US$ mil., Source: OECD Statistics)

Figure 11284

JBIC has a large and geographically diversified
portfolio of water & sanitation projects over 15 yrs.
Committed : about JPY 350 billion (or USD 3,000 million) for 19 projects in 14 states(amt in billion JPY)
FY

Project Name

State

Loan
Amount91

Urban City Water Supply Project

All India

2006

Amritsar Water

Punjab

6.8
6.9

92
2002

Yamuna Action Plan Project I & II

Delhi, Haryana,
Uttar Pradesh

31.1

2006

Agra Water

Uttar Pradesh

24.8

2004

Ganga Action Plan Project (Varanasi)

Uttar Pradesh

11.2

2003

Bisalpur Jaipur Water Supply Project

Rajasthan

8.9

2005

Kolkatta Solid Waste Mgmt

West Bengal

3.6

2006

Orissa Sewerage

Orissa19.1

1994

Lake Bhopal

Madhya Pradesh

7.0

95

Urban Water Supply and Sanitation
Improvement Program

Maharashtra

8.7

2005

Hussainsagar Lake Conservation

Andhra Pradesh

7.795
2004/5

Bangalore Water Supply and Sewerage
Project I & II

Karnataka

98.9

2007

Goa Water Supply Project

Goa

22.8

2007

Tamil Nadu Urban Infrastructure Project

Tamil Nadu

8.6

2007

Hogennakkal Water Supply & Fluorosis
Mitigation Project

Tamil Nadu

96
2006

Kerala Water Supply Project I & II

Kerala22.4
44.8

Source: JBIC Statistics

Figure 10(5) Untied procurement policy is open to utilization of local experts and local goodpractices. Unlike pure technical transfer, international experts and international goodpractices have less advantage for an attempt of institutional change, because of complex
nature of its cultural, social and political background/constraints. Therefore, utilization of
local experts and local good practices with customization in accordance with the very local
context will make the reform initiative more feasible, sustainable, and cost-effective. Thisapproach has another advantage of encouraging ownership of reform drivers. In this case,mobilized local experts (mixture of management consultants, sociologist, and PR experts)
were very competent to draw local good practice and to motivate reform champions.
Moreover, there was another unexpected effect of stimulating a sense of competition ofconcerned officials, by cross-learning opportunity among very eminent officials from cities
with good practices.
4. Major Learning
Successful JBIC’s initiative introduced in this paper offers learning summarized
below:
Alignment with Indian policy reform efforts
 Requirement for National government(1) Consistent policy with full ownership(2) Active policy dialogue285 Requirement for Donor:(1)Long-term intensive policy dialogue based on accumulated expertise(2)
Predictability to recipient countries is to be improved. Mid-term development
agenda and assistance strategy including project pipelines (at least indicative ones in theform of rolling plan) should be intensively discussed for its strategic planning.
(3)
Flexibility based on country-based, demand side driven approach is to be improved.
Development agenda and demand are always evolving, and such evolution may be closely
followed up by country office. Therefore, donor agency should improve its flexibility bystrengthening country-based, demand side driven approach.

Creation of an environment conducive to reform Requirement for National government(1)
Political will is a prerequisite. Without political will, no policy/institutionalchange will be feasible or sustainable.
(2)
Democratic set-up and active media enable pro-reform policy makers to create amomentum for reform drive. Without public pressure, even a minor political turnover may
negatively affect reform process.
 Requirement for Donor(1)
Donor should be aware of its role as only a catalyst. If donor takes a lead or
implements by itself, the initiative will never be sustainable.
(2)
Flexibility based on country-based, demand side driven approach is required.
(3)
Local experts’ utilization is necessary especially for an attempt of institutionalchange because of complex nature of cultural, social and political background/constraints.
Depending on needs, healthy mixture of local and international expertise should be
explored.
Built-in advantage of Loan-grant mix (Continuous requirement for Donor)(1) On-budget, Long-term close involvement, Predictability to Recipient countries,
Dynamic and flexible intervention(2) Scale merit with a comprehensive packaging strategy of financial, technical and policy
level support should be kept. For achieving this strategy, focus and holistic approach should
be adopted at each country office.
(3) Utilization of Local experts and local good practices besides international expertise
5. Future Challenges for New JICA
The main challenges for newly re-established JICA in terms of blending loans andgrants as instruments of development assistance are summarized as under:
More focus and holistic approach at the designing stage, but more flexibility in theimplementation stage
While less attention has been given to institutional side at mega-physicalintervention project formation stage (including this case), less attention has been given toscale merit and synergy effects with physical intervention at technical cooperation project286

formation stage. More comprehensive packaging strategies clearly targeting synergy effectsof physical, technical and institutional change should be formulated in New JICA. Under
this strategy, given its resource constraints, by squeezing the number of projects (evencountries), more resource should be given to each project. As the policy needs indeveloping countries are very dynamic in nature and country offices have definite
advantage in close follow-up, more flexibility is needed at country office especially in theimplementation stage to respond to such policy evolution.
Schematic requirement
For more development impacts, New JICA should further improve its strength oftechnical assistance and physical intervention, with a nature of (1) On-budget, (2) Long
term close involvement, (3) More predictable operations to recipient countries utilizing
Rolling Plan, (4) Significant size, (5) Blending of financial, technical and policy levelsupport, and (6) Local experts and local good practices utilization. Evolving such a scheme
will be a continuous challenge for New JICA.

REFERENCE
Brinkerhoff, Derick W., Grosby, Benjamin L. Managing policy reform: concepts and tools
for decision-makers in developing and transitioning countries. Connecticut,
Kumarian Pres, Inc. 2002
Japan Bank for International Cooperation, Ex-Post Evaluation Report on ODA Loan
Projects 2005 (2005)

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