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Report No.: AB6127

Project Name

India - Bihar Panchayat Strengthening Project






Sub-national government administration (90%);Other social services (5%);General water, sanitation and flood protection sector (5%)

Lending Instrument

Specific Investment Lending

Project ID




Ministry of Finance


Implementing Agency

Bihar Gram Swaraj Yojana Society (BGSYS)



Government of Bihar

Bikas Bhawan





Tel: (91-612) 220-2229 Fax: (91-612) 220-0991

Environmental Screening Category

[ ] A [X] B [ ] C [ ] FI

Date PID Prepared

June 17, 2011

Estimated Date of Appraisal Completion

July 15, 2011

Estimated Date of Board Completion

September 30, 2011


Other Decision (optional)

  1. State Context

Bihar is one of the largest and poorest states in India. Per capita income is about one-third of the national average. Out of its 83-million population, 70% live in rural areas. Agriculture employs 80% of Bihar’s labor force and contributes to 40% of the state Gross Domestic Product (GDP). However, despite fertile land and abundant water resources, agricultural productivity is low. According to the latest data from 2004-5, poverty incidence is over 40% among the rural population and people living in small and medium towns, comparable to the highest in the developing world1. Literacy rates are 56% among men and 35% among women. 38% of rural households have no literate member2. In 2006, 56% of children under the age of five were stunted, 56% were underweight, and 27% were wasted. 45% of the women aged 15-49 suffer from chronic malnutrition, two-thirds of the women in this age group and 87% of children under the age of three suffer from anemia. Basic access to sanitation is very poor. Only 16% of rural households have toilets. Quality of drinking water is a big problem, as a result of poor sanitation and fluoride, arsenic, nitrate and iron.

There are deep rooted inequalities in Bihar. Land distribution is very unequal3, with a large proportion of landless or marginal farmers. Among the rural population, 28% belong to Scheduled Castes and Scheduled Tribes (SC/ST), who typically live in deeper poverty. Poverty incidence is 64% among the SC population and 56% among the ST population. Median land ownership for an SC/ST household is 0.03 ha. 60% of SC/ST households are engaged in agricultural labor. 70% of the heads of SC/ST households are illiterate. While the past two decades have seen the political rise of backward castes, SC/ST continues to face social oppression and have limited economic opportunities.
The Nitish Kumar administration launched a comprehensive reform process upon taking office in 2005. Its first priority was to rebuild a functioning state. There has been dramatic turnaround in law and order. A wide range of administrative reforms have led to better public financial management and transparency. Development has taken center stage in political discourse. Public spending for development programs has increased dramatically. Utilization of centrally sponsored schemes has also improved.

  1. Sectoral and Institutional Context

The Bihar panchayat system is at its infancy but has a strong potential. The Bihar PRI Act (2006) is progressive. Through the reservation policy, the elections for PRIs in 2006 allowed a much larger role for marginalized sections of the population in local governance. In contrast with their predecessors, the PRIs emerging from the 2006 elections have concrete mandates as per the Bihar Panchayat Act (2006). Thanks to central government funding, gram panchayats in particular have been entrusted with increasing amount of public resource in recent years. Most prominently, the annual grants from the Twelfth Finance Commission and program funds from the Mahatma Gandhi National Rural Employment Guarantee Scheme and the Backward Region Grant Fund provide fairly discretionary resources to cater for a wide variety of local administrative and development needs. However, for many functions, overlapping responsibilities among the tiers of government in the federal system dilute accountability of all levels of government.

Gram panchayats face many challenges in executing their responsibilities. First of all, the elected members have limited awareness of the responsibilities, rules and resources and are unprepared for their jobs. Second, they have very limited human resources at their disposal to navigate and manage a complex set of government schemes. Third, they lack basic office infrastructure and as a result, citizens do not have predictable access to offices and records-keeping is very poor.
In terms of the general operation of panchayats, general bodies’ meetings do not take place regularly. Statutory standing committees are generally not formed. Ward members play limited roles in panchayat decision-making at the moment. In many panchayats, gram sabhas, the most important forum of village participatory governance, do not take place. Financial management discipline is in general lacking in PRIs.
Deep rooted social inequality, especially along gender and caste lines, limits the degree of participation of all social groups in a panchayat. The legal framework in India and Bihar provides many opportunities for villagers to participate in local governance and to hold authority to account. In reality, it will take a long time for hitherto suppressed social groups to gain confidence and skills to occupy meaningful seats in local governance.
In terms of monitoring and managing the performance of PRIs, the state government is starting from a low base. It is yet to develop a management information system on the functioning of PRIs. The work of the State Finance Commission has been handicapped by lack of systematic data.
The fiduciary environment in PRI is extremely weak and is characterized by (i) antiquated financial rules and procedures for financial management in PRIs -- the rules supporting the PRI Act (2006) have not been updated; (ii) no accounting cadre in PRIs for accounting and financial reporting; (iii) proliferation of scheme-wise accounting and reporting obligations to different financiers and absence of a consolidated financial position of PRIs; and (iv) lack of staff capacity of the independent auditor of PRI, the Local Fund Examiner (LFE), hence only 500 out of 8,400 PRIs being audited annually. The LFE also complains of lack of response by the state government to audit findings as well as poor compliance by PRIs.
In 2006, the Government of Bihar (GoB) requested International Development Association (IDA) assistance to strengthen the Panchayati Raj Institutions as units of self governance with a physical presence capable of planning and implementing development schemes, promoting community life, generating employment opportunities and providing justice at doorsteps.
The project is the first-phase of World Bank support to a long-term vision of inclusive, responsive and accountable local governance encompassing the following aspects:

  • A critical mass of grassroots political leaders who promote development, social justice and cohesion;

  • PRIs have mature processes, practices and capacity to address own development priorities;

  • GoI and GoB allow PRIs more autonomy; and

  • Informed and engaged citizenry and activists who participate in governance, monitor service delivery and demand government accountability

The focus of this project seeks to produce tangible gains to sustain political commitment at all levels to this long-term reform. To this end, the project responds to GoB’s interest in establishing government presence at villagers’ doorstep and focuses on supporting panchayat leadership to bring about visible changes in the villages, including village sanitation, quality of drinking water, nutrition status of children, and better management of natural resources. This will be done primarily through helping gram panchayats access and effectively use the funding provided by a few large government schemes and discretionary grants.

  1. Project Development Objectives

The Project Development Objective of this project is “support Bihar’s capacity to promote and strengthen inclusive, responsive, and accountable Gram Panchayats in selected districts across the state.”

Project beneficiaries include: (i) elected officials and functionaries at the Gram Panchayat level, who can become stronger leaders; who listen to their constituents and solve their problems, protect the vulnerable, fairly resolve local conflicts, and capable of mobilizing resources and support and take initiatives; (ii) rural residents in the target PRIs of the six districts, who are more effective in monitoring fulfillment of government obligations and can enjoy better and fairer government services and undertake effective collective actions to solve local problems.
Key performance indicators include:

  • Increased percentage of active participants from socially disadvantaged groups (SC, ST and women) attend regular Gram Sabha meetings in project districts.

  • The regular meetings of GP Standing Committees focus on implementation of their priority thematic programs.

  • Increased percentage of GP project beneficiaries are from socially disadvantaged groups (SC, ST and women).

  • Increased number of GPs submits annual financial statement within four months from the end of fiscal year for external audit.

  • Increased percentage of people from all social groups who perceive that the Gram Panchayat is increasingly inclusive, responsive and accountable in helping to address their individual and community issues.

  1. Project Description

Component 1: Gram Panchayat Sarkar Bhawan ($ 40 m): This component involves construction and operationalization of gram panchayat sarkar bhavans in approximately 300 Gram Panchayats.
Component 2: Capacity building for gram panchayats (US$ 27.5 million): This component builds panchayats’ core institutional competencies and empowers them to achieve substantive development outcomes. The component also engages communities and citizens, through training, mobilization, and media, to participate in local governance and to hold panchayats accountable.

      1. Institutional Strengthening: This will involve building the core institutional capacity of panchayats, including basic administrative, planning and financial management capacity. It will also include mass media communications and community mobilization to increase people’s knowledge of their rights and responsibilities in relation to PRIs, to mobilize community participation in PRIs, and to assist communities in seeking redress in the event of grievances involving PRIs.

      1. Nurture development-oriented panchayat leadership and local initiatives: The approach is to, on the one hand, raise awareness among local leaders and communities about important behavior changes and local actions that can improve health and livelihood; and on the other hand, to facilitate their access to government program resource to finance community priorities. The project will focus on developing GP’s capacity to plan and implement initiatives that improve results in at least one of the following areas: natural resource management, nutrition status of women and children, quality of drinking water, and village sanitation. This component will be implemented with close partnership with the Public Health and Engineering (PHED), Rural Development and Social Welfare Departments.

  1. Component 3: Strengthen the State Government capacity to manage a gradual decentralization and empowerment process (US$ 2.5 million):

  1. Establish regulatory framework on PRIs: Develop and issue financial management rules, procurement and accounting manuals, and revenue administration guidelines.

  2. Panchayat capacity building curriculum: Develop a quality assurance mechanism for an emerging curriculum for gram panchayats and pre-qualify a panel of providers to support field implementation, experimentation, evaluation, quality assurance, and operational adjustment.

  3. Monitor panchayat finance and performance: Establish and build the capacity of the Panchayat Finance and Performance Monitoring Unit in the BSGSYS so that a Panchayat Finance and Performance database is operational and regularly updated to capture a comprehensive picture of panchayat revenue, spending, development and governance performance in the six project districts.

  4. Build research capacity: training & academic exchange so that in house analytical capacity in the BSGSYS is created and an annual report of the State of Panchayats is produced either in house or in collaboration with an academic institution and widely disseminated and a research program is built up over time.

  5. Expand annual audit coverage: Strengthening the capacity of the Local Funds Examiner (external auditor of Panchayats) for increasing audit coverage of panchayats in the project districts

  1. Component 4: Panchayat performance grant ($23 m)

The annual Best Panchayat Grant will reward exceptional panchayats that are inclusive, responsive and accountable. The recipients of the grant will be selected on a competitive basis. The competition criteria will include core institutional quality indicators related to how a panchayat runs its administration, how it interacts with its citizens, and how it manages resources and promotes local development. The competition will be based on objective information collected through the project information system with a validation and appeals process. Annually, the project will recognize the best gram panchayat in each district and block and award them block grants, which are significantly higher than what they currently receive. The project will support this league of good panchayats to develop high-impact initiatives that the grants will finance. These grants will be provided after appraisal of the specific investments proposed by such panchayats and the project will monitor the end use of such grants. The Bank fiduciary and environment requirements will be adhered to by the panchayats in implementation of the grants. Detailed description of the competitive selection process and evaluation criteria is provided in the Project Implementation Plan and Operational Manual.

  1. Component 5: Project Management and Coordination ($ 15m)

GoB has established a Bihar Gram Swaraj Yojana Society (BGSYS) as the implementation agency for the project. The Society is expected to play four critical roles: (i) A catalyst role: public awareness campaign, policy advocacy, innovative capacity building for visible development results, proactive partnership with NGOs to stimulate demand for accountability and improve PRI responsiveness; (ii) A technical support role: to support partner line departments to establish capacity in managing the devolution process and building PRIs capacity in the relevant service delivery area; (iii) A coordination role: coordinate, monitor and report on the devolution and PRI strengthening process; and (iv) A fiduciary role vis-a-vis IDA: Project financing management, procurement and reporting. This component will finance staffing and operational cost of the society.

  1. Financing







International Development Association (IDA)




  1. Implementation

The Bihar Gram Swaraj Yojana Society (BGSYS) – an autonomous institution registered as Society under the Society Registration Act, 1860 and facilitated by the Department of Panchayati Raj, GoB will host the project. To ensure awareness and support for the panchayat empowerment process, the Governing Body of the Society consists of multi-departmental participation and is headed by the Development Commissioner, the second most senior civil servant in the state government. The Executive Committee is headed by the Principal Secretary, DoPR with members from key line departments. The General Body will provide overall policy guidance, while the Executive Committee will be responsible for monitoring overall performance of the project. The day to day affairs of the project will be managed by the Project Director, who is a senior All India Service member of the government. The Building Construction Department is responsible for implementing Component 1 (Panchayat Sarkar Bhawan) and the BGSYS is responsible for all other components. Annex 3 of the Project Appraisal Document provides a detailed description of the proposed organizational structure and terms of reference (ToR) for the positions at the state, district and block levels.

This project depends upon strong partnership with line departments such as Public Health and Engineering (PHED, for the water and sanitation component), Rural Development (for the natural resource management component), and Social Welfare (for the nutrition component), and development partners such as the Water and Sanitation Program, UNICEF, DfID and Gates Foundation, which both invest heavily in improvement in water, sanitation and public health. The Project will supplement the investment made under various schemes managed by these departments, esp. ICDS, MGNREGS, NRDWP, and TSC by facilitating intensive social mobilization and strengthening the roles of elected panchayat members as champions for these issues. The Project has benefited from learning from the experience generated from UNICEF’s field programs, especially their community mobilization and local planning approach.
The specific roles of the partner departments include: (i) participate in the General Body and the Executive Committee of the Gram Swaraj Society to ensure that state policies consistently promote inclusive, responsive and accountable PRIs; (ii) participate in the district-level coordination committees in the project districts to ensure coordination; (iii) actively manage their field staff to ensure that their field staff participate in Gram Panchayat committee meetings, apply their budget to GPs’ priorities, and provide relevant information and technical support to ensure quality investment and maintenance work.

  1. 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)*

[ ]

[X ]

Projects on International Waterways (OP/BP 7.50)

[ ]


  1. Contact point at World Bank and Borrower

World Bank

Contact: Yongmei Zhou

Title: Sr. Institutional Dev. Spec.

Tel: 5785+144; 91-11-41479144

Fax: 91-11-24619393


Location: New Delhi, India (IBRD)
Borrowers/ Client Recipient

Contact: Mrs. Kavita Prasad

Title: Director, Department of Economic Affairs, Ministry of Finance, Government of India

Tel: +91-2309 4913

Implementing Agencies

Contact: Mr. Manoj Srivastava

Title: Principal Secretary, Department of Panchayati Raj, Government of Bihar

Tel: +91-612 -2215 580


  1. For more information contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-4500

Fax: (202) 522-1500



1Perspectives on Poverty in India: Stylized Facts from Survey Data”, World Bank 2010

2 NSSO (2006) based on the 61st Round of National Statistical Survey. Data is for 2004-5.

3 10% of rural households are landless, 53% own less than 0.4 ha, 20% own 0.4~1 ha, 10% own 1~2 ha, 4% own 2~4 ha, and 2% own more than 4 ha.

** By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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