Watershed development programme: Need inputs to understand alternative financing mechanisms for the programme

Original Query: Nand Kishor Agrawal, KfW – German Development Bank, New Delhi
Posted: 30 January 2006

This query is about the financing mechanisms for the watershed development programmes in India.

In the Indian context, these programmes, whether government funded, externally funded or privately funded, have been mostly grant based. Apart from some contribution in the form of labour by the community, these programmes involve funds that are almost 100% subsidy in most cases. One of the issues in this relation is that a full subsidy approach makes the programme dependent entirely on availability of grant funds of the governments and other agencies, therefore, confining the expansion of the programme.

We are trying to understand and explore the alternative financing mechanisms for these programmes without compromising any of the basic principles of social and gender equity and community based approach. The key question is that whether the watershed development programmes have potential to attract any alternative financing models like:
- Loan funds from commercial banks at market rates;
- Reduced interest or zero interest loan funds from development finance institutions;
- Mixed financing (subsidy for public good components and loan for economic good components) from a combination of financing institutions;
- Multiple financing sources like government subsidy, corporate financing (as business model or as charity), community generated revolving fund, and cash/kind contribution from individual end-users/villagers; and
- Any other financing model involving reduced subsidy than the current financing model.

I would be grateful to the members for sharing their experiences and lessons learned if there are already some experiments in India on this? Have the experiments been successful? Do the experimenters see any potential to institutionalize and upscale the successful models?

Please see attachment below for the responses.