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Repb t No. PA I I haFg-X. - sS, NA

This report is for official use only by the Bank Group and specifically authorized organizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility for the accuracy or completeness of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

BIHAR AGRICULTURAL MARKETS PROJECT

INDIA

February 8, 1972

Agriculture Projects Departmerit

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CURRENCY EQUIVALENTS

US$ 1.00 = Rupees (Rs) 7.28Rs 1 = US$ 0.14Rs 1 million = US$ 137,376

WEIGHTS AND MEASURES

1 kilogram (kg) - 2.20 pounds1,000 kg - 1 metric ton = 0.98 long ton1 meter (m) = 1.09 yards1 kilometer (km) 2 = 0.62 mile1 hectare (ha) = 10,000 m = 2.47 acresI square kilometer (km2) = 100 ha D 0.39 square mile

ABBREVIATIONS

G01 Government of IndiaARC Agricultural Refinance CorporationLDB - Bihar State Cooperative Land Development BankRBI 5 Reserve Bank of IndiaREO Rural Engineering OrganizationRMC = Regulated Market CommitteeSBI State Bank of IndiaSMB = State Marketing BoardTPO - Town Planning Organization

FISCAL YEARS

GOI .April 1 through March 31ARC July 1 through June 30SBI .January 1 through December 31

INDIA


TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS . ............................. * . * i-i

I. INTRODUCTION ........... . .......... .................... . 1

II. BACKGROUND OF AGRICULTURE ........ . . . . . ....................... e .... . 2

A. India .. .. .. 2............ 2

B. Agricultural Marketing ....... . . . . ............................ . 2

C. The State of Bihar ............ .............. . . .. . . 3

D. Agricultural Credit in Bihar ........................ 6

E. Planning and Engineering Agencies ....... ............. 8

III. THE PROJECT ....................... .................. ... 8

A. Brief Description .............. .... ......... . ...... 8

B. Detailed Features . ............ ....... .. 0 ...........* 9

C. Land Acquisition ........... .. *..... .. ..... ... *..... 11

D. Construction Schedules ......... ..................... 11

E. Cost Estimates ....... 0...*..... .... ,. ...... 12

F. Financing ..................................... ............... 13

G. Procurement . ........... .. ........................... 14

H. Disbursement . .............. .. .......*........ 14

IV. ORGANIZATION AND MANAGEMENT .............................. . . 14

A. The State Marketing Board ........................... 14B. State Bank of India . .......... . . ..................... 16C. Subappraisal Procedures ............................. 16D. Contracting and Supervision .... ................... 17E. Accounts and Audit . ....................................... 17F. Training and Project Evaluation ......... .. .......... 18

V. PRODUCTION, MARKETING, PRICES AND FINANCIAL RESULTS ..... 18

A. Production and Mandi Arrivals ....................... 18

B. Prices ................................. ........... *............ 19

C. Financial Results ......... . ... ....................... .. 20

VI. BENEFITS AND JUSTIFICATION .............................. 20

VIII. RECOHMENDATIONS ..................... ............ 22

This appraisal report is based on the findings of a mission that visited Indiain June/July 1971 and was composed of Messrs. T. Davis, R. Golkowsky and L.

LJungman (IDA), and Messrs. H. Kramer and J. Moore (Consultants).

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ANNEXES

1. Main Features of Agriculture in BiharAppendix 1-1 Production of Major Commodities in BiharAppendix 1-2 Production of Major Commodities in Patna DistrictAppendix 1-3 Production of Major Commodities in Kosi Command

AreaAppendix 1-4 Production of Major Commodities in Son Command AreaAppendix 1-5 Production of Major Commodities in Gandak Command

Area

2. The Existing Marketing System for Agricultural Products in BiharAppendix 2-1 Arrivals of Major Commodities in Selected MandiesAppendix 2-2 Monthly Arrivals of Major Commodities in ForbesganJAppendix 2-3 Monthly Arrivals of Major Commodities in SasaramAppendix 2-4 Major Commodity Prices in Selected,Markets

3. Bihar Agricultural Produce Markets Act, 1960

4. The Agricultural Refinance CorporationAppendix 4-1 Condensed Statement of Net IncomeAppendix 4-2 Condensed Balance Sheets

5. The State Bank of IndiaAppendix 5-1 Comparative Balance SheetAppendix 5-2 Comparative Profit and Loss Account

6. Markets Tentatively Selected for Development

7. Layout for a Typical MarketAppendix 7-1 Example of Market Yard Layout

8. Technical Specifications for Market ConstructionAppendix 8-1 Engineering Aspects of Subappraisal

9. Phasing

10. Cost EstimatesAppendix 10-1 Capital Cost of Model "A" MandiAppendix 10-2 Capital Cost of Model "B" MandiAppendix 10-3 Operating Cost of Model MandisAppendix 10-4 Staff Training CostsAppendix 10-5 Project Evaluation Costs

11. Disbursement Schedules

12., Credit Policies and Procedures

13., Evaluation ProceduresAppendix 13-1 Tentative Terms of Reference

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14. Functioning of the New MarketsAppendix 14-1 Market Charges in Bihar Markets

15. Cash Flow Projections and Financial Return CalculationsAppendix 15-1 Cash Flow Model "A" MandiAppendix 15-2 Cash Flow Model "B" MandiAppendix 15-3 Cash Flow Agricultural Refinance CorporationAppendix 15-4 Cash Flow State Bank of India

16. Economic EvaluationAppendix 16-1 Economic Rate of Return Calculation

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INDIA


SUMMARY AND CONCLUSIONS

i. This report appraises an Agricultural Markets Project in theState of Bihar for which an IDA credit of US$14.0 million is proposed. Itwould support a five-year development program for investments in marketfacilities in about 50 towns in the State and would also provide funds fortraining of marketing personnel and for Project evaluation.

ii. Bihar, one of the poorest states in India, is making substantialefforts in agricultural development. These efforts include programs forsubstantial extension of surface and tubevell irrigation, increasing the useof fertilizers and high yielding variety seeds, expansion of agriculturalcredit and improvement of agricultural marketing.

iii. Agricultural marketing has changed little in the last century,but the State has enacted the Bihar Agricultural Produce Markets Act aimedat a reduction in marketing losses. A major factor preventing enforcementof the Markets Act has been the lack of suitable market facilities.

iv. The proposed Project would provide about 50 such facilities andinclude land, access roads; and, within fenced market yards of 6 to 25 ha,office buildings, auction platforms, wholesalers' shops and storage godowns.In addition, the market yards would have amenities for the farmers whichwould include resthouses and canteens, water for human and animal consumption,parking areas for bullocks and carts, and fences for security.

V. The market yards would be natural meeting places in the towns forfarmers and would also include buildings for other facilities such as banks;post offices; credit cooperatives; extension services; and shops sellingfertilizers, seeds and equipment. The Project would not provide finance forthese items, but land would be provided within the market yard to be leasedout for the building of such facilities. The market yards and facilitieswould be owned and operated by Regulated Market Committees (RMCs) created bythe Markets Act with power to act in a corporate capacity as well in theenforcement of the regulatory provisions of the Act. RMCs have beenconstituted in some 60 towns within the State and have accumulated some fundsfrom the collection of a market fee of 0.25% on the value of produce handledby the market. Until now, regulation and market fee collection have coveredonly a small number of the traders and a small part of the marketed produce,simply because the marketing operation is so scattered throughout the narrowstreets of the market towns that the RMC personnel are unable to effectivelyregulate the transactions or collect the fees.

vi. A State Marketing Board (SMB) has been created by amendment tothe Bihar Agricultural Produce Markets Act. SMB has general supervisorypowers over the RMCs and would be the key management agency in planning forthe development of the markets and for their proper operation. It would

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have power to take over the operations of RMCs at time of financial defaultor upon failure to properly regulate the marketing operations. The Stateof Bihar has the power to issue rules including the power to fix marketfees which would be raised to 1% of the value of marketed produce.

vii. The State Government and the RMCs would provide 11% of the projectcost. The remainder would be provided by the State Bank of India (SBI),which would be refinanced by the Agricultural Refinance Corporation (ARC),which in turn would be refinanced by IDA. SBI and ARC would finance out oftheir own funds 9% and 20% respectively of project cost. The proposed IDAcredit would cover the remaining 60Z.

viii. GOI would onlend,the IDA funds to ARC at 6.0% interest-(with1/4% rebate for prompt repayment of principal and interest), repayable over15 years. ARC would refinance SBI loans at 6-1/2% interest and.SBI wouldlend to the RMC8 at 9% repayable on terms up to 15 years with.twpo years grace.

ix. The planning of the markets would be done by the Town, PlanningOrganization (TPO) of the State Government, with final plan approval by SMB.Construction of the market yards would be by local contractors after com-petitive bidding on tender documents prepared by the Rural EngineeringOrganization (REO), which would also supervise construction. Each market wouldbe planned according to its particular situation and the needs of the hinter-'Land which it serves. Because of these differences and because the markett:owns are scattered over the entire State, each market would be the subjectof a separate contract. For these reasons and also because each contractwould be too small, the project would not be suitable for internationalbidding.

21. ARC has competent management and is in sound financial condition.SBI, the largest commercial bank in India, is expanding its agriculturallending and would create a Project Unit in its Patna office to appraiseand supervise the subloans. Training would be provided to staff of theState Marketing Board and Market Committees. Project evaluation would berequired through a contract between State Government and an appropriateuniversity or other institution.

xi. Financial returns to the Market Committees are estimated to rangefrom 20% to 40% and the return to the economy is estimated to be at least29%. Of course, there may be difficulties in establishing the marketsbecause of legal difficulties in land acquisition, local politicaldifficulties with RMCs traders, or other organizational problems. Experiencein the States of the wheat belt in Northwest India where regulated marketsare successfully operating has shown that it may take two to three yearsbefore all traders would fully participate in the new marketing arrangements.This has been taken into account in the rate of return analysis. The Pro-ject is of high priority and, subject to the recomended assurances andconditions, it is suitable for an IDA credit of US$14.0 million.

INDIA


1. INTRODUCTION

1.01 The Government of India has requested an IDA credit of US$14.0million to meet part of the costs of developing about 50 agricultural marketcenters in the State of Bihar. The Project would be a part of India'scontinuing program of regulated market development aimed at reducing losses,increasing farmers' incomes and stabilizing supplies and prices of food tothe consumers. At full development the proposed markets would handleannually 4 million tons of agricultural products valued at Rs 3.5 billion(US$465 million).

1.02 The proposed Project would be the Bank Group's first operation inthe development of agricultural market centers. These markets would provideessential services to farmers, mostly smallholders. By concentrating facil-ities in a designated area, the marketing function would be regulated (seepara 2.02); competition would be maximized; wastage of products wouldbe lessened; efficiency of the market operation would be improved and con-gestion of transportation would be minimized. The establishment of regulatedmarket centers has increased throughout India during the last two decades butparticularly in the more progressive states of Maharashtra, Punjab andHaryana. Bihar enacted appropriate legislation in 1960 but has not hadthe resources and organization to effectively implement it. The Projectwould provide the resources for implementation of Bihar's Regulated Agri-cultural Markets Act (para 2.17).

1.03 This report is based on information furnished by the State of Biharthrough the Government of India (GOI). In February 1971 an IDA mission dis-cussed a possible project with interested agencies in Bihar and GOI andassisted those agencies in completing preparation. In May 1971 GOT submitteda proposal and in June-July an appraisal mission visited India composed ofMessrs. T. Davis, R. Golkowsky and L. LjungmAn (IDA), and Messrs. H. Kramerand J. Moore (Consultants).

1.04 The total of past Bank Group lending for India's agriculture isabout US$420 million as of January 1, 1972. Until 1969, most Bank Grouplending was for irrigation projects and the Bank Group is continuing to fi-nance such projects. Emphasis is now also being given to direct on-farminvestments and ancillary services. In the past financial year, there havebeen four agricultural projects, three of which were for agricultural credit(Andra Pradesh, US$24.4 million, 226-IN; Haryana, US$25.0 million, 249-IN;Tamil Nadu, US$35.0 million, 250-IN). The other was for agricultural avia-tion (US$6.0 million, 230-IN). In the current financial year, credits forwheat storage (US$5.0 million, 267-IN; SIDA also US$5.0 million) andirrigation (US$39.0 million, 268-IN) have been made. Two other projectsare pending, Maharasha credit has been negotiated and an irrigation projecthas been appraised, in addition to the present Project.

II. BACKGR)UND OF AGRICULTURE

A. India 1/

2.01 Since 1965 India has changed the emphasis of its development ef-forts from industry to agriculture. As a result, priority has been givenin recent years to accelerating the introduction of the new agriculturaltechnology, through increasing the availability of improved inputs, by pro-viding economic incentives to farmers and by concentrating on improved mar-keting. The new agricultural strategy has brought some encouraging results,and the increased use of high yielding seed varieties and fertilizers, par-ticularly when combined wdt- irrigation, has contributed to 'as--adgficantincrease in farm production. Progress has been made in more,A xiAent mar-keting; however, marketing facilities have not kept pace with tba- :ncreasesin production.

B. Agricultural Marketing

2.02 GOI has encouraged the state governments to pass Regulated Agri-cultural Markets Acts, and all states except Assam and Kerala have passedsuch legislation. The states, however, have had varying degrees of successat implementing the legislation depending on the capacity of state govern-nments to provide the necessary staff and facilities. The provisions of the

marketing acts vary in some particulars from state to state, but basicallythey all provide for the establishment of regulated markets administered by aRegulated Market Committee (RMC) on which are represented both traders andproducers. A regulated market is essentially a meeting place for buyers andseLlers with facilities for handling large quantities of pr*msme under asystem that assures maximum competition, efficient handling an& cleaning and aminimum of wastage. The aim of these regulated markets is the wradication oferroneous weighing practices, excessive market deductions and collusion amongtraders.

2.03 The methods of sale of produce are designed to assure fair tradingpractices and competitive prices through auctioning of all produce. Onlylicensed traders, cotmission agents and other market functionaries are allowedto operate in such markets and their coummission and other service charges arefixed. Proper enforcement of the Regulated Markets Acts provides for prompt-payment to sellers and procedures for settlement of disputes between buyersancl producers.

2.04 Licensed commaission agents and buyers must be located in one areafoor effective regulation. Historically traders have been scattered innarrow town streets making it difficult to carry on competitive auction sales,

1/ A detailed discussion of the present situation and prospects of agri-culture in India is given in Economic Situation and Prospects of India,Report No. SA-25.

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to enforce maximum charges, to collect market fees (legal fees collected byRMCs for providing facilities and services) from traders, and to enforcestandard weights and measures. Moreover, the serious congestion preventsquick and efficient handling and storage of produce.

2.05 Though the first market was regulated in India late in the 19thcentury, there were only a few regulated markets until 1950. By January1970 legislation had been passed covering regulation of over 2,100 of 3,400major primary markets; however, implementation has been mainly successfulin Punjab, Haryana and Maharastra. By the end of the Fourth Plan in 1974,it is envisioned that all the remaining markets will have the legal frameworkfor regulation.

2.06 Regulated Market Committees (RMCs) under the State regulatedMarkets Acts are legal bodies with designated powers from the state govern-ments. These committees are granted, in addition to their regulatoryfunctions, corporate powers enabling them to own property, borrow money,acquire facilities, collect fees, sue and be sued, etc.

C. The State of Bihar

General Description

2.07 Bihar, situated mostly in the Ganges plain in northeast India, oc-cupies an area of 173,000 km2. Its estimated population of 58.8 million(1971) representes about 11% of the Indian total. The State's per-capitaincome of about Rs 225 (US$30) is less than one-half the average for allIndia. Over 90% of the working population is engaged in agriculture, whichaccounts for only 43% of the State's part of GNP. The State is divided intofour divisions and 1 7 districts for governmental and administrative purposes.

2.08 Bihar has two main geographical regions: the Gangetic plain andthe Chotanagpur plateau. The former, covering roughly two-thirds of theState, is divided by the Ganges river into the north and south Gangetic plains.The plains are characteristically endowed with rich alluvial soils and havean average rainfall of 1,200 mm, while the plateau, located in the southpart of the State and ranging from 300 to 1,200 m in elevation, is mainly redsoils on crystalline rock formations with an average rainfall of 1,350 mm peryear. The rainfall in the State is concentrated during the southwest monsoonfrom June through September when over 80% of the annual precipitation occurs.In addition to the Ganges which flows from west to east bisecting the State,many important rivers feed into the Ganges mainly from the Himalayas but alsofrom Indian highlands to the west and southwest.

Agricultural Structure

2.09 The net cropped area is about 7.3 million ha (43% of total area),while a further 4.9 million ha is classified as pasturage or culturablewasteland. Farm holdings in Bihar are small and fragmented. Forty-eightpercent of holdings are smaller than 1 ha, 36% are from 1 to 3 ha and 16% areabove 3 ha. The main features of agriculture in Bihar are further discussedin Annex 1.

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2.10 A serious problem in Bihar is the prevalence of a heavy smallholdertenancy system ir spite of a series of land reform measures. In theory thezamandari system (an elaborate method of renting and subrenting) was abolishedin the 1950's, but former zamandaries have retained their powerful position bysub-dividing land among family members, illegal oral leases, lending moneyagainst future crops and shifting under-raiyats (sub-tenants and share croppers)from plot to plot. Some hope for reform is foreseen in the Bihar Tenancy Actof 1970 which gives the Revenue Officers the power to issue prohibitory orders.

Agricultural Production

2.11 Although paddy is the State's most important single crop (repre-senting about 50% of the total area under foodgrains), rice production(about 4 million tons) is inadequate to meet local consumptial demands, andcereals must be imported from surplus states or from abroad. Imports ofcereals amounted to 1.9 million tons in 1967-68 and 5 million: tow in1968-69, reflecting the preceding bad crop year. Projections of populationamd production indicate a continuing deficit in the State during the fore-sieeable future. Wheat is growing in importance, its production doublingin the last decade to nearly 1 million tons in 1969-70. The total productionof cereals and pulses averaged 7.2 million tons per year over the three yearsto 1968-69 while, of the commercial crops, 1968-69 production of sugar canewas 5.8 million tons, potatoes 1.1 million tons and jute 800,000 tons (Annex 1).

Altricultural Development Priorities

2.12 The State's main agricultural priority is to increase the produc-tiLon of foodgrains through irrigation, increased cropping intensity, greatertuse of high yielding varieties and increased use of fertilizer and credit.The Fourth Plan aims to increase HVP (high-yielding varieties trogram) from324,000 ha of paddy in 1969-70 to 560,000 ha in 1973-74, resultfng in aninicrease in total paddy production from 4.7 million tons to 5.7 million tonsat: the end of the Plan.

2.13 The State is also making substantial investment in three largesurface irrigation projects -- Kosi, Gandak and Sone -- and efforts are beingmade to stimulate agricultural finance for tubewell construction. About 26%of the total cropped area in Bihar presently receives irrigation from differentsources. The Fourth Plan aims to increase this to 50% by the end of 1973/74.The sources of irrigation include canals (71%), tubewells (12%), dugwells (9%),and tanks (8%).

2.14 The use of fertilizers is low, only 500,000 tons having been con-sumed in 1968/69 on a total cropped area of 7.5 million ha. The goal for theFourth Plan is 2 million tons, which will be achieved only if additionalcredit and distribution systems are implemented.

Agricultural Marketing

2.15 The agricultural marketing system in Bihar has changed little inthe last century (Annex 2). Farmers sell their surpluses (about 30% of pro-duction) either (a) in the village, (b) in a small nearby weekly market

called a hat, or (c) in a larger, normally daily wholesale market called amandi. In Bihar there are 2,894 hats and 314 mandies.

2.16 The buyers in the hats are either local consumers or itinerantmerchants who buy produce for speculation to be resold in either hats ormandies. The characteristics of a mandi are: (a) a number of residentgrain traders owning their own shops which include some storage area, (b)daily transactions of business, and (c) a traditional system of marketcharges applied to the transactions which are deducted from the gross returnto the seller. In general a mandi in Bihar is no more than a section of atown where traders' shops are located along the old narrow commercial streets.One of the serious historical problems in the mandies is that the grain dealersall belong to a particular subcaste, and any expansion of traders or dealerswould be within the subeaste. Tradition, if not collusion, calls for eachdealer to make identical deductions or marketing charges which have no re-lationship with services actually rendered. Another characteristic of thegrain dealer's operation is his role as a moneylender which effectively tiesthe cultivators to him as a part of their obligation of repayment, usuallyaccompanied by exorbitant interest rates. This exploitation of the farmersby the dealers has been a serious impediment to the economic growth of thefarmers and has been attacked on a national scale by the Regulated MarketsAct, promoted by GOI (para 2.02).

2.17 Bihar has lagged behind most of the other states in implementingits Regulated Markets Act. This Act, passed in 1960 (Annex 3), has yet toresult in significant improvements in agricultural marketing in the State.This is due to: (a) legal attacks brought upon the constitutionality of theAct by traders and dealers, (b) lack of sufficient organizational assistancefrom the State Government, and (c) lack of physical facilities for marketyards where the marketing function could be concentrated and therefore effec-tively regulated.

2.18 The legal attacks against the Markets Act were resolved in favorof the legislation in 1968, and the State Government is now giving priorityto full implementation under the Act. The remaining difficulty stems fromthe lack of physical facilities, which would be remedied by the Project.

2.19 In addition to enclosed market yards there is a need for buildingsand equipment necessary for the efficient functioning of a market. One ofthe most important needs is for storage, which would reduce damage by weather,rodents and insects. The availability of such storage would also assist theseller by providing an alternative to the depressed prices at harvest. Themarket yards need to include covered display platforms to protect the produceand maximize competition among buyers to the benefit of the seller. Anadequate market yard should also include permanent locations for the tradersand dealers, headquarters for the Market Committee and its staff, an areafor parking and watering bullocks and resthouse and latrines for the farmers.In addition to these essential facilities the market area is a naturallocation for reaching the farmers and should therefore also include locationsfor extension services, credit institutions, postal services and shops foragricultural inputs including fertilizers and pesticides.

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2.20 Under the Regulated Markets Act, Market Committees, composed ofrepresentatives of farmers, traders and government agencies, own and operatethe market facilities. Under the Act the committees are entitled to chargea market fee equal to 0.5% of the value of the produce handled within themarket. The normal market fee in other states of India where regulatedmarkets are operating successfully (para 2.05) is 1%. In 1970 there wereabout 60 regulated markets within Bihar usually charging a fee of 0.25%, butwithout exception these markets are having difficulties providing the regula-

tion and services envisioned by the Act because of an absence of market yardsand facilities so necessary to their effective operation.

D. Agricultural Credit in Bihar

General

2.21 Agricultural credit in the State is very poorly developed, althoughthere are a number of institutions that are attempting to serve the State's10 million farmers. However, only about 25% of farmers are served by anyinstitutional lending program. Medium- and long-term loans are mainly pro-vided by the Bihar State Cooperative Land Development Bank (LDB) and someCommercial banks. LDB, which was established in 1957, by 1970 had 11,022loans outstanding totaling Rs 80 million. LDB has a seriously deficient re-payment record with overdues of over Rs 5 million. It has only 60 branches,too few for a satisfactory covering of the State. A number of branches arestill too small to be considered viable units. The Fourth Five-Year Plan hasset targets of 20 additional branches to be created each year during the Planperiod. The number of borrowers, some 11,000 as of June 30, 1970, is about0.1% of all farmers in the State, a very meager result after 14 years ofoperation. Of the commercial banks, the State Bank of India is the mostimportant in Bihar for medium- and long-term loans; and it would be a suitablelending channel for this Project. It is further discussed in paragraph 2.29.

2.22 There are also several other sources of agricultural credit,mainly short-term, in Bihar: direct government loans, Marketing Federationcredit (mostly for fertilizers), Bihar Agro-Industry Corporation credit andagricultural credit societies. All of these agencies have extended short-term credits amounting to only about Rs 250 million annually, or 1/10 of thefarmers' estimated short-term credit requirements. The growth in the use ofmodern inputs -- fertilizers and improved seeds -- has been adversely affected

by the lack of credit.

2.23 The cooperative credit system is particularly weak. Many of the16,500 primary cooperative credit societies have had managerial and financialdifficulties in recent years, which has led the Reserve Bank of India (RBI) toreduce its financial support. While 30% of farmers are members of cooperativecredit societies, not more than 75% of these are getting loans. Hence, onlyabout 22% of the farmers benefit from credit facilities of the cooperativebanking system. In 1967-68 cooperative credit societies advanced loans ofonly Rs 150 million and their lendings dropped to RS 125 million in 1968/69.As of June 30, 1969, their loans were only about Rs 120 million, of which 46%were overdue.

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2.24 Commercial banks are expanding their short-term credit operations,but do not fill the gap. These banks are making efforts to equip themselvesto develop their agricultural operations by establishing branches in ruralareas, recruiting agricultural technicians and training staff in agriculturalcredit operations. Even so, progress in agricultural credit by commercialbanks has been slow, their total agricultural loan portfolio being only aboutRs 60 million as of December 31, 1970'-

Agricultural Refinance Corporation

2.25 ARC, a subsidiary of the Reserve Bank of India (RBI), was estab-lished in 1963 to provide medium- and long-term finance to agriculturallending agencies throughout India. ARC is important not only as a channelfor development funds but also for its influence on the lending policies andoperational procedures of the agencies it assists. The latter are statecooperative land development banks and commercial banks and ARC refinancestheir individual loans to farmers or groups of farmers on an approved schemebasis. 1

2.26 ARC has a regional office in Patna and has been active in refinancingsix development schemes in Bihar -- five for minor irrigation in variouslocalities in Bihar and one for land reclamation in the Kosi irrigationproject area. These schemes involve medium- and long-term loans totalingsome Rs 137 million and have so far been fairly successful. Collectionsunder ARC schemes are reportedly better than loans financed from land devel-opment bank debentures, but only a few installments have become due; there-fore, it may be premature to draw conclusions as to collection records underARC schemes.

2.27 Most of ARC's growth has occurred since 1967 and, as of June 30,1970, its commitments totalled nearly Rs 2,150 million (US$295 million);although not directly comparable, IDA's commitment for its three approvedcredit projects is Rs 611 million (with a further Rs 45 million for an agro-aviation project). With about 65% of its lending devoted to minor irrigationinvestments, ARC's loan portfolio at June 1970 was Rs 588 million.

2.28 With its head office in Bombay and regional offices in most of thestates, ARC has a management staff of about 90, most of whom are secondedfrom RBI. Its operations continue to expand rapidly and IDA has been con-cerned that ARC be staffed adequately both to supervise existing investmentsand to play a larger role in the appraisal of schemes submitted by states.To this end ARC has strengthened its technical expertise (previously pro-vided solely by consultants) by appointing a nucleus of its own specialiststaff. Further details about ARC are given in Annex 4.

State Bank of India

2.29 SBI is a "scheduled" (i.e. major commercial) bank, established byAct of Parliament in 1955, and is 92% owned by GOI through RBI. As at Decem-ber 31, 1970, SBI had paid-up capital and reserves of Rs 212 million (US$30million), and deposits of some Rs 14.4 billion (US$2.0 billion). SBI isrequired by law to act in the public interest and to be guided by GOI, butit is emphasized that in discharging its functions the management should acton business principles. Its financial situation is satisfactory and its

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record of service to the agricultural sector is good. Within the State ofBihar S8I has 91 branches and a regional office in Patna. With an increasein technical staff SBI would be an appropriate channel for project lending(para 4.06). Further details about SBI are given in Annex 5.

E. Planning and Engineering Agencies

The Town Planning Organization

2.30 The Town Planning Organization (TPO) is an agency of the BiharState Government located in the office of the Development Cormissioner. TheIPO is staffed with two professional town planners as well -as-sepecialistsIn engineering, architecture and drafting. It has considerX-4le-e-cperiencein town planning and is a suitable agency to assist the RMCs in -the locationand planning of market yards.

The Rural Engineering Organization

2.31 The Rural Engineering Organization (REO) is an agency of the BiharState Government with regional offices in the four divisions of Bihar. Ithas been primarily concerned with rural roads and minor irrigation developmentand has prepared plans and specifications as well as contracting and super-vision for three markets in the Purnea district. It is a suitable organiza-tion for engineering contracting procedures, and for supervision of construc-tion of market yards.

III. THE PROJECT

A. Brief Description

3.01 The proposed Project forms a part of the ongoing GOI program todevelop regulated agricultural markets throughout the country (para 2.02).It would provide facilities for such regulated markets in about 50 towns inthe State of Bihar. The Project is aimed at reducing market losses and wouldassist the Bihar Government in implementing its Marketing Act (para 2.17).The principal responsibilities for the project would be with a State Market-ing Board (para 4.01). The facilities owned and operated by Regulated MarketCommittees would include land, entrance roads, office buildings, auctionplatforms, storage godowns, traders' shops, and the equipment necessary forefficient operation. Market Comnmittees would borrow funds from the StateBank of India which would be refinanced by ARC, the channel for 99% of theIDA credit. Training and Project evaluation (1%) would be channelled fromGOI to Bihar State Government. For a list of the proposed market towns tobe included in the Project see Annex 6.

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B. Detailed Features

Market Planning

3.02 Each market would be owned and controlled by a RegulatedMarket Committee (RMC) created under the Bihar Agricultural Produce MarketsAct. The physical location of each market would be determined only afterdetailed surveys and planning by the Town Planning Organization (TPO) (para2.30) and the State Marketing Board (SMB) (para 4.01). Assurances wereobtained from State of Bihar during negotiations that market locations wouldbe determined only after detailed surveys and planning by TPO and SMB.

3.03 Assurances were also obtained from State Government that SMBand TPO when planning each market would take into account: (a) current andprojected quantities of produce coming to the market, (b) the total landarea needed based on the projected quantities, (c) the availability ofalternative sites within or near the market town, (d) the availability ofutilities and access to roads and other modes of transport, and trafficflows of the town in relation to the prospective site, (e) a topographicsurvey of the prospective site for sanitary and drainage purposes, and (f)the buildings, equipment, roadways and other facilities necessary for properdevelopment of the market yard.

3.04 While each market would differ as to its particular design,certain minimum requirements should be met in all markets. During negotiationsassurances were obtained from the State Government, SBI and ARC that unlessIDA should otherwise agree no subloans would be approved unless:

(a) the area of the market yard would be at least 6 ha when theaverage market arrivals calculated on an annual basis areless than 125 ton/day plus 1 ha for every 20 ton/day over125;

(b) the main roads within the market yard and the entrance roadconnecting the market yard to a main thoroughfare would behard-surfaced;

(c) a fence would be constructed;

(d) water and sewer supply system would be constructed inaccordance with minimum standards of the Indian StandardsInstitute;

(e) a minimum of 20 traders' shops would be built;

(f) display platforms would be built having a surfaced areaof at least 1,000 m2; and

(g) a storage godown of 1,000-ton capacity would be built ineach market having an average arrival of more than 150ton/day.

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Miarket Facilities

3.05 In general the improvements contemplated for a market yard, varyingiLn size from 6 to 25 ha, would include the following: (a) survey and landpreparation, (b) entrance roads, (c) internal surfacing, (d) fencing, (e)utilities, (f) office complex, (g) platforms, (h) godowns, and (i) traders'shops. For details of market layout and engineering see Annexes 7 and 8.

3.06 Survey and land preparation. Basic to the development of the mar-ket yard would be accurate surveys and land preparation to ensure adequatecdrainage and sanitary facilities. The survey, a part of the planning stage(para 3.02), would also consider engineering designs of facilities to handlenot only current market arrivals, but arrivals projected at least 10 years int:he future. Consideration would also be given to areas withiA the marketyrard for future bulk storage operations. An entrance road would be hard-surfaced and connect the market with a primary road in the state highwaysystem. Surfacing of roads within the market yard and parking areas wouldbe essential. Fencing of the yard would be necessary to secure the entirearea. Utilities including electricity and potable water for human andamimal consumption would need to be provided.

3.07 An office complex designed for the efficient operation andmanagement of the market yard would be provided for the market secretary andhis staff. In this connection space would be provided for the accountingdepartment, a conference room, storage of records and supplies and toilets.There would also be a resthouse and canteen available to the farmers andother participants in the market.

3.08 Auction platforms would be key facilities in the market necessaryfor proper implementation of the Marketing Act. These platforms, on whichgrading and auctioning of produce would take place (the number and size ofthe platforms would depend upon the projected quantities to be handled bythe particular market), would be designed for efficient loading- and unloadingaLnd would be covered to protect the produce from weather. Storage would beprovided in each market by construction of a godown to be operated as apublic warehouse for use by the farmers and as an overflow for the tradersin the market area. The godown (generally of 1,000-ton capacity) would bebuilt by the Market Committee, but leased for operational purposes to theState Warehousing Corporation (para 4.05), a public organization authorizedto issue negotiable warehouse receipts which, of course, facilitates farmerscredit. This storage would be in addition to the private storage to beowned and operated by the traders.

3.09 Traders' shops with a small storage would be built by the RegulatedMarket Committees (RMCs) and leased to private traders licensed by the RMCs.It is expected that these shops would earn sufficient rental to amortize theircost over the life of the subloan (para 4.05).

3.10 Equipment required would be mechanical cleaners for grain, platformsicales for weighing sacks of grain and other produce, sampling probes andcontainers. The cleaners are an important adjunct to markets that wouldimprove the quality of the produce and permit accurate grading and marketingof grain. They would be operated by RMC staff.

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Auxiliary Facilities

3.11 Each market would be a central meeting point for farmers and isexpected to serve as a center for all commercial activities for the hinter-land served by the market. Therefore the plan for the market would providefor locations for a bank, post office, extension services, cooperativemarketing and/or credit societies, and input shops. The costs of thesefacilities would not be provided for in the Project but land could be leasedto individuals, companies or associations under restrictive leases to assureproper conformity, maintenance and use (para 4.05). Each market would notnecessarily have all the above facilities, but would include locations forstructures which its market plan requires.

Training and Project Evaluation

3.12 Training would be provided for nine staff members of SMB in oneyear courses operated by GOI's Directorate of Marketing. Also, trainingwould be provided for RMC staff including 45 market secretaries and 60graders at institutes in Nagput and Faridabad. (See paras 4.15 through 4.17for details.) Evaluation of the results of the Project would be accomplishedunder a contract between State of Bihar and a qualified institution (para4.18).

C. Land Acquisition

3.13 Land acquisition and its cost would not be within the capabilitiesof the RMC, but would be the responsibility of the State Goverrment. TheState Government has available public lands in about 25 market towns. How-ever, a detailed review by TCP would be necessary to determine the suit-ability of these State-owned sites. It is expected that at least ten sitesout of the 25 would be suitable for immediate development. In addition ithas about Rs 1.5 million available in Command Areas (irrigation developmentareas) for market development which can be used for land purchase. The StateGovernment also has the power of eminent domain (to take property of landfor government use), which would facilitate acquisition. During negotiations,assurances were obtained from the State Government that it would provide theproper sites for market development through the use of existing public landsor through purchase or eminent domain on a priority time schedule to permitthe phasing of construction of the Project as follows: 10 markets in 2ndyear, 10 markets in 3rd year, 15 markets in 4th year and 15 markets in 5thyear.

D. Construction Schedules

3.14 The Rural Engineering Organization (REO) has had recent experiencein engineering and supervising construction of market facilities in threemarkets in the Purnea district of Bihar (para 2.31). There are several localcontractors qualified to undertake this work. All market facilities couldprobably be constructed within one year of site selection. The timing,however, must take into account the necessary planning and engineering design.A detailed phasing chart appears in Annex 9.

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E. Cost Estimates

3.15 Total cost of the Project is estimated at Rs 170 millionlUS$23.3 million). The foreign exchange component of Rs 43.1 million(US$5.9 million) represents about 25% of total costs and includes theforeign exchange costs of steel, bitumen, utilities, equipment and Projectevaluation. A physical contingency of 10.3% (10% plus rounding) was added1:o all costs excluding land which would be provided by State Government.Ill estimates are based on 1971 costs. Probable cost increases have beentaken into account by adding a 5% price contingency per annum to all costs,]Local and foreign, but excluding land. The overall price contingency of26% results from Project phasing. The following table presents a summaryof the estimates. (See Annex 10 for details.)

Rs (Thousands) US$ (Thousands) ZFor- For- Foreign

Item Local eign Total Local eign Total ExchangeIl. Land 10,500 - 10,500 1,400 - 1,400 -

B. Civil WorksSurvey and LandPreparation 5,100 1,280 6,380 700 180 880 20

Entrance Roads 1,750 680 2,430 240 90 330 28Surfacing 6,400 1,700 8,100 880 230 1,110 21Fencing 1,870 1,010 2,880 260 140 400 35Utilities 7,350 5,770 13,120 1,010 790 1,800 44Office Complex 11,720 3,910 15,630 1,610 540 2,150 25Platforms 13,400 4,470 17,870 1,840 610 2,450 25Godowns 7,960 2,650 10,610 1,090 370 1,460 25Traders' Shops 25,770 8,610 34,380 3,540 1,180 4,720 25

Subtotal 81,320 30,080 111,400 11,170 4,130 15,300 27

C. EquipmentMechanical

Cleaners 390 210 600 50 30 80 35Scales 490 260 750 70 30 100 35Other Equipment 280 120 400 40 20 60 30

Subtotal 1,160 590 1,750 160 80 240 34

I). Training and Proj-ect EvaluationTraining 230 - 230 30 - 30 -Evaluation 800 350 1,150 110 50 160 30

Subtotal 1,030 350 1,380 140 50 200 25

E. ContingenciesPhysical Contin-gency (10%) 8,610 3,190 11,800 1,150 440 1,620 27

Price Contin-gency (26%) 23,840 8,870 32,710 3,280 1,220 4,500 27

Subtotal 32,450 12,060 44,510 4,460 1,660 6,120 27

TOTAL PROJECT COST 126,460 43,080 169,540 17,370 5,920 23,290 25

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F. Financing

3.16 The Project would be financed as follows:

Project Cost IDA ContributionTotalProj- Through

Market State ect Through StateCommittee SBI ARC-- Gov't. Cost ARC Gov't. Total…- ……- - ---- ----- Rs Millions-

Land - - - 10.5 10.5 - - -

Civil Works 5.6 11.1 94.7 - 111.4 71.0. - 71.0Equipment .1 .2 1.4 - 1.7 1.1 - 1.1Training andEvaluation - - - 1.4 1.4 - 1.0 1.0

Contingencies 2.2 4.4 37.3 0.6 44.5 28.1 0.4 28.5

Total Costs 7.9 15.7 133.4 12.5 169.5 100.2 1.4 101.6

US$ Million 1.1 2.2 18.3 1.7 23.3 13.8 .2 14.0'

% of Total 5 9 79 7 100 59 1 60

% IDA Contri-bution - - 59 1 60 99 1 100

% Net of IDAContribution 5 9 20 6 40 - - -

/1 Including IDA and ARC funds.

3.17 The Market Committees have accumulated some resources and wouldsupply 5% of the costs of the facilities. State Government would provide theland cost (para 3.13) and a part of training and Project evaluation totalling7% of project cost. SBI would lend 95% of investment costs excluding landand be refinanced up to 85% of these costs by ARC; thus, SBI would contribute10% of investment costs excluding land from its own funds. ARC's refinancesof 85% of investment costs excluding land equal 79% of Project costs. ThusARC would contribute 20% of Project costs from its own funds, since IDAwould provide 59% of Project costs through ARC.

3.18 The proposed IDA credit of US$14.0 million (Rs 101.6 million) wouldfinance about 60% of total Project costs, which is based on (a) the foreignexchange cost of construction steel, roofing materials, bitumen, fuel andmachinery, and (b) one-half of the local costs of the Project excludingland. IDA would supply about 75% of ARC's refinance of the Project(Rs 133.4 million) and 63% of the training cost and Project evaluation(Rs 1.4 million).

3.19 The IDA credit would be on normal terms to GOI. It would be a con-dition of effectiveness that a Subsidiary Loan Agreement satisfactory to IDAbetween GOI and ARC had been executed providing that GOI would make theproceeds relating to the lending program available to ARC repayable over 15

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years at 6.0% (with 1/4% rebate for prompt repayment of principal andinterest) (para 5.09), and that GOI would bear the exchange risk. It wouldalSo be a condition of effectiveness that a Refinancing Agreement satisfactoryt:o IDA between ARC and SBI had been executed providing for the refinance ofP'roject subloans. The Refinance Agreement would provide for the onlendingof the proceeds to SBI at an interest rate of 6-1/2% per annum on outstandingindebtedness (para 5.10). SBI would in turn onlend to the Market Committeesat 9% for terms up to 15 years with 2 years grace. ARC refinancing would berepayable by SBI in installments set to coincide approximately with collectionsfrom the Market Committees. The balance of the IDA credit in respect oftraining and evaluation services would be made available by GOI to the Stateof Bihar.

G. Procurement

3.20 Construction of the market facilities would be phase& over fiveyears in some 50 market towns (Annex 9). Each market would be designed inaccordance with its unique needs with respect to size and particularfacilities to be included. Because of this diversity over area and timeand because each facility, consisting of simple brick and concrete struc-t:ures, would differ in design, each market subproject would of necessityrequire a separate contract with none of them more than US$400,000 and nopoossibility of bulking them. The markets would not, therefore, be suitablefor international competitive bidding. Adequate local contractors areavailable in Bihar and tender documents, construction contracts, andconstruction supervision would be the responsibility of REO (para 4.11).

H. Disbursement

3.21 IDA disbursements are expected to extend over five years. Againstappropriate statements, IDA would disburse 75% of all ARC refinanced subloandisbursements for market facilities (excluding land) under the Project; and,against appropriate statements showing that Bihar Government had expendedProject costs for training and Project evaluation, IDA would disburse 63%of such costs. A schedule of estimated IDA disbursements appears in Annex 11.

IV. ORGANIZATION AND MANAGEMENT

A. The State Marketing Board

4.01 The State Government of Bihar has amended the Bihar AgriculturalProduce Markets Act of 1960 to provide for the creation of a State MarketingBoard (SNB). Similar State Marketing Boards exist in other states in India(para 2.05). The State Marketing Board in Bihar would be the principalagency responsible for Project implementation. It would also be responsiblefor the general supervision of the local Market Committees and would havethe power to issue state regulations effecting the enforcement of the Act.l'he State Government has the power under the Act to issue rules to:

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(a) set minimum and maximum market fees (and increase themaximum fee to at least Rs 1 per Rs 100 value);

(b) supersede the market secretaries (executive officers ofthe Market Committees) and Market Committees wheninsolvency or default occur; and -

(c) require the use of surplus funds of Market Committees formarket development.

4.02 It would be necessary that SMB be properly organized within theMinistry of Agriculture of Bihar and that SMB have an administrative staffheaded by a civil servant Chief Executive not below the rank of Collectorwho would have the primary responsibility for carrying out the project. Inaddition, there would be a Director and Assistant Director of AgriculturalMarketing, a Chief of Marketing Information, and a Chief of Grading andStandards. This executive staff would be assisted by an agricultural expertwho would, inter alia, make projections of market arrivals, market committeerevenues and market fees, and a minimum of three junior marketing specialistsand the necessary clerical and secretarial staff. Assurances were obtainedthat the qualifications and experience required of the Director of,Agricul-tural Marketing would be acceptable to IDA. It would be a condition ofeffectiveness that SMB had been created and that the Chief Executive, Directorand Assistant Director of Agricultural Marketing, and the Chief of MarketInformation outlined above had been employed. Assurances were also obtainedthat the other staff outlined above would be employed within three monthsafter effectiveness.

4.03 In order to assure the financial viability of the subloans tothe RMCs, it would be necessary for State Government to fix the market feeat Rs 1 per Rs 100 value of agricultural produce handled by the markets. Inorder to ensure a uniform regulated market system, all regulated marketswould have the same market fee arrangement. It would be a condition ofeffectiveness of the credit that State Government had fixed a uniform marketfee for all regulated markets within the State of not less than Rs 1 perRs 100 value of marketed produce.

4.04 It is expected that all Project markets will generate surplusfunds above their requirement for operating expenses and debt service.SMB would have control of the expenditure of such funds by RMCs. Assuranceswere obtained from the State of Bihar during negotiations that SMB wouldsanction the use of these funds only for contributions to SMB, the building offeeder roads or expansion of market facilities during the subloan repaymentperiod unless IDA should otherwise agree.

Lease Terms

4.05 The RMCs would lease the storage godowns to the State WarehousingCorporation (para 3.08). Likewise the traders' shops would be leased toprivate wholesalers and traders (para 3.09). It would be a condition ofsubloan approval by SBI that as many traders and wholesalers as practicablehad signed leases for the traders' shops as planned for a particular market.

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These leases would have a minimum term of one year. In some instances ground(:land without improvement) leases would be awarded for banks, post offices,cooperative marketing and/or credit associations or to private vendors forinput shops. These leases would have a rental based on all operating coststo the RMC including a proper proportion of administrative costs, depreciation,maintenance costs and utility services. All leases would be conditioned onproper use and maintenance of the facility and no construction would bepermitted on such leases without approval of the specific plans and specifi-cations by SMB and TPO to ensure conformity with market planning. Assurancesswere obtained from the State of Bihar and SBI during negotiations thatno subloans would be approved unless subloan agreements contained leaserequirements as specified above.

B. State Bank of India

4.06 Within the State of Bihar SBI has 91 branches and a regionaloffice in Patna (para 2.29 and Annex 5) and has been expanding its technicalstaff for agricultural lending in the State as it has throughout India;hLowever, additional technical staff would be needed to accomplish the sub-appraisals for the Project. It would be a condition of effectiveness ofthe Project that SBI had appointed three specialists, whose qualificationsand experience are acceptable to IDA, to an agricultural marketing unit withinthe regional office in Patna to appraise the expected subloan applications.These specialists would consist of one marketing specialist, one financialanalyst and one civil engineer and be kept as a team during the five-yeardisbursement period. Further assurances were obtained during negotiationsthat SBI would station these three specialists in Patna as an appraisal team,would provide the specialists with expenses and transportation for field work,and would continue such arrangements during the disbursement period.

4.07 It would be necessary also that an officer of appropriate rank ofSBI in the Central Office in Bombay be designated who would be responsiblef'or overall operation of the subloans for the Project. Assurances to thisetffect were obtained during negotiations.

C. Subappraisal Procedures

4.08 The RMCs that want to develop market yards under the Projectwould have to seek assistance from SMB, which would be in charge of overallFProject planning. SNB would request technical assistance from TCP and REOon behalf of the RMCs. Assurances were obtained from the State of Biharduring negotiations that TPO and REO would provide technical assistance tothe RMCs. After plans had been completed SMB would have final authority toapprove or disapprove plans for a particular market complex.

4.09 If approved, the plans and the subloan application would besubmitted to SBI. SBI would have primary responsibility for the appraisal ofthe subloan application. The SBI market appraisal team (para 4.06) wouldprepare an appraisal report including an evaluation of the technical, finan-cial and organizational aspects of the application. Assurances were obtained

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from SBI during negotiations that such appraisal reports would be prepared.(For more detailed procedures see Annex 12.)

4.10 After appraisal of subloans by SBI as set forth above, SBI wouldsubmit the loan application and all supporting documentation and itsappraisal report to ARC. ARC would review such documents and verify the dataand conclusions therein to its own satisfaction. Thereafter it would adviseSBI of its approval or disapproval of the particular subloan for purposes ofrefinance and if approved would refinance the subloan in an amount equal toa maximum of 85% of the total investments excluding land (see para 3.17).

D. Contracting and Supervision

4.11 After approvals are obtained from SMB, SBI and ARC as specifiedin paragraphs 4.08 through 4.10, REO would prepare the necessary detailedplans and specifications and tender documents. These documents would beadvertised in a manner prescribed by State law and awards made would besubiect to final approval of SMB. Thereafter REQ would be responsible forsupervision of the construction and for the approval of all payments tocontractors. A retention of 10% due the contractor would be withheld untilfinal approval and acceptance by the RMC and SMB after final certificationof completion by REQ. For further details on procedure and engineeringspecifications see Annex 8. Assurances were obtained from the State ofBihar during negotiations that contracting and supervision would be performedas outlined above.

E. Accounts and Audit

4.12 Under the SBI Act the accounts of SBI are audited annually by twoauditors duly qualified under the Companies Act 1956 who are appointed byRBI in consultation with GOI. The auditors currently appointed are Messrs.C.C. Chokshi & Co. and Messrs. M.K. Dandeker & Co. Each of the auditorstakes a certain number of SBI local head offices' accounts and they jointlyaudit the accounts of the central head office.

4.13 Assurances were obtained from SBI during negotiations thatclearly identifiable accounts would be kept of Project loans and borrowingsunder the Refinance Agreement (para 3.19), and that these accounts would beaudited annually by auditors satisfactory to IDA within four months of theclose of the accounting period to which they refer. The certificationwould contain a statement that, to the best of the auditors' knowledge,all subloans included in the summary had been made to subborrowers forthe purposes of the Project.

4.14 SBI would sign loan'agreements with RMCs requiring them to keepbooks and records and would cause the books and records to be made availableto the auditors annually, and assurances were obtained from SBI duringnegotiations that a summary of the audits of each RMC receiving subloansunder the Project would be forwarded to IDA within four months of the endof Government's fiscal year.

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F. Training and Project Evaluation

Training

4.15 The setting-up of SMB (para 4.01) would require training ofits staff and personnel. Schools operated by GOI's Directorate of Marketingand Inspection provide training for marketing personnel. The school atNagpur in the State of Maharastra provides a one-year course for seniorpersonnel of State Marketing Boards. The State Government would send aminimum of three staff members of SMB to an appropriate course for each ofthe first three years of the Project.

4.16 Market secretaries are state civil servants seconded from theOffice of the Deputy Director for Marketing (who would be replaced by SMB)to the Market Committees. Some of the present secretaries have eompleted thecourse for market secretaries run by GOI; however, all secretaries wouldeventually complete this course. A minimum of 15 market secretaries for theproposed market would need training during each of the first three years ofthe Project.

4.17 There would be a need for qualified grading inspectors in each ofthe markets developed under the Project. A minimum of 20 graders wouldbe sent to an appropriate training course provided by GOI during each ofthe first three years of the Project. Assurances were obtained fromState of Bihar during negotiations that the training of the above personnelwould be carried out. For estimates of training costs see Appendix 10-4.

Project Evaluation

4.18 This would be the first IDA project aimed at improving the operationsof agricultural markets. It would, therefore, be very important thatevaluation procedures would be provided for. Assurances were obtained froml:he State of Bihar during negotiations that within six months of the date ofsigning of the Credit Agreement, SMB would enter into a contract with anappropriate institution which would evaluate the marketing function in asample of towns selected for market development. For details of the contractfor evaluation and proposed terms of reference see Annex 13 and Appendix 13-1.

V. PRODUCTION, MARKETING, PRICES AND FINANCIAL RESULTS

A. Production and Mandi Arrivals

Production

5.01 Agricultural production in Bihar is expected to grow at differentrates by crops and by regions. For instance, GOI estimates that paddy andwheat production will increase considerably in the three big irrigated areascif the rivers Kosi, Gandak and Sone that are being developed. In otherregions, land area under vegetables and other high value cash crops is beingexpanded. And in the whole State there is a tendency to higher croppingintensity, particularly through the use of more inputs and through the

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transition to double and triple cropping on irrigated land. Production offoodgrains and vegetables will probably expand while some low-return cropssuch as pulses will probably decrease not only in terms of cultivated areabut also of produced quantities. Jute production will not expand signifi-cantly because of the limited absorbing capacity of the world market.

5.02 Jute, spices, fruits and vegetables are marketed to a high degree.In contrast, paddy and pulses are primarily subsistence crops; only 5-25%of these crops are marketed depending on the region. Although only a smallportion of the total paddy production is marketed, it represents neverthelessat present the main cash crop. Wheat is becoming important. New high-yieldingvarieties have been introduced recently and have done quite well in theirrigated areas and a few other selected districts. Wheat will outrun paddyas the main cash grain crop in the 1970's.

Mandi Arrivals

5.03 Under the Project, mandi arrivals would increase because:(a) all mandi arrivals would be auctioned and market fees would be regulated,thus providing the sellers a higher price, and (b) the prospect of higherprices and the convenience of the market yards would encourage more farmersto bring their produce to the mandies.

5.04 The composition of arrivals in the markets varies widely (Annex 2,Appendix 2-1). Jute is the most important cash crop in the northeasternPurnea district mandies of Araria, Forbesganj and Gulabbagh. In othermandies potatoes and onions constitute the bulk of the arrivals. Grains,however, play an important role in all the mandies considered for financingunder the Project. Grain shares in the total arrivals range from about40% to 90%. Undoubtedly, grain arrivals will increase at substantial rates inthe mandies, since marketable surpluses increase proportionately more thanincreases in production.

B. Prices

5.05 Since the beginning of the century, foodgrain deficiency has beengrowing in Bihar as population has increased by about 70% and neithercultivated area nor average yield have increased significantly. Althoughagricultural production will expand substantially in the next decade, it canbe expected that because of the population growth the State's supply/demandgap for foodgrain will increase. It is important that efficient marketingfacilities be provided to minimize marketing wastage to the maximum extentpossible and to increase farmers' incentives.

5.06 The exact effect the Project will have on farmers' prices isdifficult to determine because of a lack of precise data. It can be expected,however, that all in all, farmers' prices would increase. RMCs would reducethe cost of market transactions under the Project, thus reducing marketingcharges imposed on the seller from the present average of 5.36% of arrivalvalue to 2.76%, including the 1% fee levied by the RMC (Annex 14, Appendix14-1). In addition, auctioning would tend to increase sales prices because

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of the increased competition among buyers. Since the Project would providestorage, farmers would be able to sell some produce later after harvest,thus receiving higher prices than immediately after harvest.

C. Financial Results

Mqarket Committees

:5.07 Two model mandies that would be financed under the Project havebeen analyzed (Annex 15). In terms of arrivals, the two model mandies wouldconstitute approximately the two extremes among the 50 markets proposed forfinancing under the Project. The principal assumptions on the income sideare (a) arrival projections, (b) a market fee of 1% of arrival value, and{(c) rentals for traders' shops and godowns at 12% of direct investment cost.Operating costs would mainly consist of salaries and wages for RMC staff.

15.08 Small markets (earning market fees of Rs 250,000 to Rs 500,000 peramnum) would need a more liberal repayment schedule than the larger ones(:earning market fees in excess of Rs 1 million). The model calculationsresult in recommending flexible repayment terms depending on the projectedcash flow for each individual market. The financial rates of return werecalculated at 20% for the small market and at 40% for the large model.

Agricultural Refinance Corporation

5.09 A cash flow projection for ARC relating to its operations undert:he Project is given in Appendix 15-3. Although ARC would have to partlyuse its own funds for financing Project operations during thefirst eightyears, it would later on accumulate substantial surpluses. The cash flowshows that ARC would easily cover its operating costs and that it wouldmake an adequate profit.

State Bank of India

5.10 Appendix 15-4 presents a cash flow projection for SBI's lendingoperations under the Project. As SBI would carry the full default risk andhave significant subappraisal and supervision expenses, its interest marginwrould be 2.5% (9% minus 6.5%) per annum as opposed to ARC's margin of 0.75%(6.5% minus 5.75%) per annum. The cash flow projection shows that SBI wouldaLccumulate sufficient surpluses to cover anticipated overhead and risk andthat it would make a reasonable profit.

VI. BENEFITS AND JUSTIFICATION

6.01 The proposed Project is the Bank Group's first project in thefield of agricultural wholesale markets. A new methodology for the assess-ment of benefits had to be developed and the analysis presented below shouldnot be considered definitive. The proposed Project evaluation study (para4.18) would provide data necessary for a complete evaluation. A list of

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possible benefits of wholesale markets is presented in Annex 16, but a firstanalysis has shown that probably only the following are important:

(a) the better quality produce that would be ensured by themarkets;

(b) the reduction in handling and storage losses;

(c) the reduction in congestion; and

(d) the induced agricultural production because of theincreased prices to farmers.

It was very difficult to quantify these benefits because of a lack of precisedata, particularly with respect to the possible additional agriculturalproduction that would be induced by the Project, since supply elasticitiesand possible price increases are difficult to estimate.

6.02 The economic rate of return calculation has, therefore, been basedon only the first three benefits, which have been estimated as follows:

(a) grain quality improvement due to cleaning (a benefit ofRs 24 million per annum at full development);

(b) reduction of grain losses from excessive handling (Rs 9million) and of storage losses due to covered auctionplatforms and warehouses (Rs 4 million); and

(c) savings in municipal budgets, through reduction ofmaintenance and administration costs, since concentratingmarket activities in one location adjacent to the townshipwould reduce congestion and excessive traffic (Rs 1 million).

All these benefits have been very conservatively estimated, and are based onstudies in the states of the wheat belt in Northwest India where regulatedmarkets are successfully operating. The resulting economic rate of returnshould be considered a minimum rate of return and has been calculated(Annex 16) at 29%. The economic rate of return would increase by about 10percentage points if it is assumed that because of the Project agriculturalproduction would increase by about 1%, which is not unreasonable.

6.03 The income distribution effects of the Project are also difficultto estimate. It is expected that most of the grain quality improvementbenefits and a substantial part of the reduction in handling losses wouldbe realized by the farmers, resul-ting in an increase in farmers' annualincome of at least Rs 30 million. In addition, farmers' income wouldincrease by about Rs 90 million per annum because market charges would bereduced by about 2.6% of the value of market arrivals (Appendix 14-1). Asa result, the 1.5 million farmers in the hinterlands of the 50 marketswould receive an additional income of at least Rs 120 million (and possiblymore because of the induced production which has not been taken into account).This represents on average an income increase per farmer of at least about

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Rs 80 per annum. It has not been possible to determine how the additionalincome would be distributed over the small and larger farmers (para 2.09),but it can be expected that the small farmers would also benefit from theProject.

6.04 Traders' income would, on the one hand, be reduced because traderswould have to give up part of the market fee (2.6% of the value of marketarrivals) that they are used to collecting; but on the other hand, theiroperating costs would be lower, and also, because of the better qualityproduce, their wholesale profits would increase. The net effect, as experiencein the states of Northwest India has shown, is that the new marketingarrangements would also be profitable to the traders.

6.05 The overall result of the Project would be that farmers' as wellas traders' income would increase while consumers would get a better qualityproduct for which, of course, they would pay a slighly higher price. Themajor uncertainty of the Project pertains to the time required for the newmarketing arrangements to become fully effective. Experience in the statesof the wheat belt in Northwest India where regulated markets are successfullyoperating has shown that it would probably take on average about two tothree years before all traders would fully participate. This time delayhas been taken into account in the rate of return calculations.

6.06 Employment would be stimulated by the market construction,which would require about 150 man years for each market built or a totalof 7,500 man years. The secondary employment effects have not been estimatedbut the impact of new businesses and jobs generated would be substantial.Permanent employment of market yard staff and labor is estimated at a minimumof 2,000 jobs. This increase would not be the net employment increase sincesome itinerant merchants would be replaced due to greater efficiency of themarketing system.

6.07 The project requires that surpluses generated by RMCs be usedfor feeder roads and further market development (para 4.04). Since agri-culture is exempt from income tax, the market fees for such purposes are, ina sense, a type of tax which would mobilize semipublic resources for devel-o°pment purposes.

VII. RECOMMENDATIONS

7.01 During negotiations agreements were reached with the State of Biharon the following principal points:

(a) market locations would be determined only after detailedsurveys and planning by SMB and TPO (para 3.02);

(b) it would provide the proper sites for market developmentas specified in paragraph 3.13;

- 23 -

(c) it would sanction the use of the surplus funds only forcontributions to SMB, the building of feeder roads orexpansion of market facilities during the subloan repaymentperiod, unless IDA should otherwise agree (para 4.04); and

(d) that TPO and REO would provide technical assistance to RMCs(para 4.08).

7.02 During negotiations, assurances were also obtained from the StateBank of India on the following principal points:

(a) it would station three specialists in Patna as an appraisalteam and would provide them with expenses and transportationfor field work as specified in paragraph 4.06; and

(b) appraisal reports would be prepared as specified inparagraph 4.09.

7.03 Conditions of effectiveness of the proposed IDA credit would be that:

(a) a Subsidiary Loan Agreement between GOI and ARC had beenexecuted providing that GOI would make the proceeds of theIDA credit relating to the lending program available to ARCunder terms specified in paragraph 3.19;

(b) a Refinance Agreement between ARC and SBI had been executedproviding for the refinance of Project subloans under termsand conditions specified in paragraph 3.19;

(c) the State Marketing Board had been created and that theminimum staff had been employed (para 4.02);

(d) the Bihar had set the market fee for all regulated marketsat Rs 1 per Rs 100 valuation of produce handled (para 4.03);and

(e) SBI had appointed three specialists with qualifications andexperience acceptable to IDA (para 4.06).

7.04 The Project is suitable for IDA assistance of US$14.0 millionunder standard IDA terms.

February 2, 1972

ANNEX 1Page 1

INDIA


Main Features of Agriculture in Bihar

Land Tenure

1. More than 90% of Bihar's estimated population of 58 million areliving in rural areas and most of them are directly living on agriculture.The average rural population bracket for all India is 80%. Only about 7.5million ha or 43% of Bihar is being cultivated and, on an average, sixpeople have to feed themselves from 1 ha of land.

2. The Bihar Government estimates the following distribution of farmsizes:

PercentageFarm Size of Farmers

Less than 1 ha 48.11.0 - 1.9 ha 23.42.0 - 2.9 ha 12.23.0 - 3.9 ha 5.14.0 - 4.9 ha 3.75.0 - 5.9 ha 1.86.0 - 11.9 ha 4.212.0 - 19.9 ha 1.020 ha and above 0.5

Since a ceiling law limits the maximum holding size (classified according tovarious irrigated and unirrigated soil grades), land transactions have beenmade in the name of fictitious persons but for the benefit of the originalowners (benamis).

3. In Bihar, the age-old zamindari system 1/ was officially abolishedin the 1950's. But most of the former zamindaris have virtually retainedtheir powerful position in several respects: They have not only extensivelyused the benami practice, being now "ryots" 2/, but have also committed theirformer laborers or tenants by illegal oral leases, by lending money againstthe next crop connected with a marketing monopoly for the lessees' crops,etc. The raiyats frequently shift their under-raiyats, and in particular thesharecroppers, from plot to plot, from one agricultural season to another.

1/ Landowners renting land to peasants.

2/ "Tenants", since legally all land belongs to the Government.

ANNEX 1Page 2

This position of the under-raiyats might gradually improve, since the Bihar1'enancy Act of 197n gives the Revenue Officer the right to issue a prohibi-tory order in such cases.

4. Land records relating to raiyats are being maintained by the Reve-rLue Officers and transfers are noted in the Registers of the Revenue OfficerILs well. Up-to-date land records related to under-raiyats are not available.FHowever, the State Government plans to quickly finalize the Revisional Sur-Ney and Settlement Operations. Besides, the Bihar Land Records Maintenance!ill will be enacted soon to provide for the up-to-date revision and theperiodical publication of the records maintained in the Revenue Offices.Either one of these steps will provide a good deal more information on Bihar'sland tenure situation, thus helping to more efficiently carry out land re-f'orm measures.

Land Use

5F. More than 2 million ha, or more than one-quarter of the cultivatedarea in Bihar, is irrigated by canals, and to a lesser extent by tanks, tube-wells and other wells. Irrigation development is increasing, particularlyin the Command Areas of the rivers Gandak (Champaran and Saran Districts),Kosi (Purnea and Saharsa Districts). In Purnea District, for instance,Government plans to bring another 120,000 ha under canal irrigation withinthe next 10 years.

6. Although there is an unfavorable ratio of land to rural population,another 4 million ha is culturable waste land, presently at best used aspoor grazing land and groves. Only part of this land might become graduallyavailable for staple food production, since cattle numbers cannot be reduced,and the people love orchard fruits.

7. Most of Bihar consists of plains; only part of the south aroundRanchi is mountainous or hilly. Many crop rotation systems have been devel-aped subject to soil quality and water availability (rainfall pattern andirrigation). Double cropping has been practiced all over Bihar for a longtime, and triple cropping is becoming more and more comnon on the irrigatedsoils in the plains. The monsoon season or kharif (end of June to October)is the most important season, followed by rabi (November to March). Theso-called summer has been increasingly used for a third crop.

8. Paddy is the dominant grain crop (Appendices 1-1 to 1-5). It isthe main kharif crop on irrigated soils all over Bihar, and in some areas isalso grown as a sunmer crop. Introduction of an Intensive Cultivation Pro-gram and Hlgh Yielding Varieties has helped raise area productivity consid-erably. Wheat has become the second most important grain crop in recentyears, as the area under High Yielding Varieties has increased by almost 50%.Both paddy and wheat production will benefit considerably from expansion ofirrigation in the Command Areas.

ANNEX 1Page 3

9. Some other crops like sugarcane, lute, maize and various speciesof oulses are also important. However, the production growth rates willprobahlv be modest because wheat and vegetable production is more profitable.Particularly potato production is expected to increase.

10. Yields depend on several factors like irrigation, rainfall, seedvarieties, fertilizers and other inputs. Some average vields are:

Paddy 1.2 ton/haWheat l.1Maize 1.0Pulses 0.6Sugarcane 3.5Potatoes 8.1Jute 1.0

11. Fertllizer consumotion increased from 1,50n tons in 1955 to 65,000tons in 1964 and then jumped up to 500,000 tons gross weight in 1968. TheFourth Five-Year Plan has proposed a consumption target of more than 2 mil-lion tons gross weight in 1974. Fertilizers are used mainly in the CoimandAreas and for the most responsive crops including wheat, paddy and potatoes.

November 15, 1971

ANNEX 1Appendix 1-1

INDIA


Agricultural Production of Major Commodities in Bihar('000 ton)

1960- 1961- 1962- 1963- 1964- 1965- 1966- 1967- 1968- 1969-61 62 63 64 65 66 67 68 69 70

Paddy 4,473 4,335 4,215 4,436 4,836 4,195 1,450 3,862 4,195 4,217

Maize 808 825 871 879 575 745 934 982 837 833

Wheat 435 514 521 411 411 470 359 899 953 966

Pulses 1,169 1,184 1,162 1,239 1,219 1,262 538 979 976 3591

Oilseeds 97 135 120 91 95 87 54 122 92 49

Jute 973 1,584 1,238 1,486 1,141 1,046 1,136 1,020 480 793

Potatoes 562 349 818 664 708 776 753 772 772 1,117

Sugarcane 6,927 6,230 4,800 5,084 6,750 5,949 4,329 3,967 5,914 5,877

/1 Only some pulses included.

Source: Government of Bihar.

October 28, 1971

ANNEX 1Appendix 1-2

INDIA


Agricultural Production of Major Commoditiesin Bihar's Patna District

('000 ton)

1959- 1960- 1961- 1962- 1963- 1964- 1965- 1966- 1%?- 1968-60 61 62 63 64 65 66 67 68 69

Paddy 209 303 239 266 296 303 277 7 211 285

Maize 22 30 26 33 28 23 28 31 43 51

Wheat 34 35 46 68 36 33 30 25 95 81

Pulses 184 187 178 196 176 182 181 137 183 153

O:Llseeds 2 2 3 4 2 2 3 1 4 5

Jute - - - - - - - - - -

Potatoes 163 139 82 198 137 156 137 124 150 211

SLigareane 27 34 36 20 20 22 16 12 13 14

C0tober 28, 1971

ANNEX 1Appendix 1-3

INDIA


Agricultural Production of Major Commodities in Bihar'sKosi Command Area (Purnea and Saharsa Districts)

('000 ton)

1959- 1960- 1961- 1962- 1963- 1964- 1965- 1966- 1967- 1968-60 61 62 63 64 65 66 67 68 69

Paddy 307 359 315 452 489 423 389 185 374 378

Maize 134 97 72 106 84 53 60 92 87 73

Wheat 17 26 34 29 19 18 30 41 90 116

Pulses 54 63 63 72 58 58 60 48 61 47

Oilseeds 9 12 17 26 9 9 13 10 23 12

Jute 270 279 575 356 518 373 332 332 339 182

Potatoes 16 20 13 69 74 75 86 109 55 88

Sugarcane 5 3 4 3 4 11 5 6 7 9

October 28, 1971

ANNEX 1Appendix 1-4

INDIA


A _ricultural Production of _or Commoditiesin Bihar's Son Command Area (Shahabad District)

('000 ton)

1959- 1960- 1961- 1962- 1963- 1964- 1965- 1966-4f9:67- 1968-60 61 62 63 64 65 66 67 -. 68 69

Paddy 421 460 504 497 489 522 475 1S5 4f4 378

Maize 7 19 10 12 16 8 23 11 24 13

Wheat 82 91 108 98 77 95 124 126 205 10

Pulses 198 30 268 206 336 253 256 184 257 197

O:Llseeds 8 7 10 9 10 10 10 4 10 5

Jute 1 1 1 1 1 1 1 1 1 1

Potatoes 65 67 54 - 71 75 58 84 96 122 171

;Sugarcane 55 53 38 22 29 36 44 32 28 33

October 28, 1971

ANNEX 1Appendix 1-5

INDIA


Agricultural Production of Major Commodities in Bihar'sGandak Command Area (Champaran, Saran, Muzaffapur Districts)

('000 ton)

1959- 1960- 1961- 1962- 1963- 1964- 1965- 1966- 1967- 1968-60 61 62 63 64 65 66 67 68 69

Paddy 498 684 666 716 729 735 740 247 647 673

Maize 241 191 243 246 215 162 248 259 256 358

Wheat 93 95 130 137 88 110 120 130 209 222

Pulses 127 146 158 187 138 159 149 130 157 140

Oilseeds 12 13 19 17 12 14 14 10 17 17

Jute 90 64 109 117 98 86 70 77 68 66

Potatoes 111 186 79 282 140 162 182 179 202 263

Sugarcane 385 399 371 283 298 398 348 264 224 358

October 28, 1971

ANNEX 2Page 1

INDIA


The Existing Marketing System for Agricultural Products in Bihar

Introduction

1. Bihar's major marketed agricultural products on a value basis aregrains (mainly paddy and rice, wheat, pulses, maize, oilseeds), jute, andfruits and vegetables, particularly potatoes. Arrivals in selected mandiesappear in Appendix 2-1, and seasonal arrivals in selected mandies in Appen-dices 2.2 and 2.3. Farmers sell their surpluses (about 30% of production)either (a) in the village; (b) in a small nearby weekly market called a hat;or (c) in a larger, normally daily wholesale market called a mandi. Biharhas 68,000 villages, 2,894 hats, and 314 mandies. Prices are customarilydirectly negotiated (as opposed to auction) and are based on prevailingprices in the larger markets. Major commodity prices are given in Appendix 2-4.

Village Marketing

2. There are typically four types of buyers purchasing grain from farmersin the villages: (a) other villagers buying for their own consumptionneeds, (b) retail food shops buying for resale in the village; (c) itinerantmerchants buying for resale in hats and mandies; and (d) village merchants(often moneylenders collecting on debts or ryots (see Annex 1) buying andreselling to itinerant merchants or directly in hats and mandies. The itin-erant merchant appears to be by far the most important channel for grainleaving the village in Bihar.

Hats

3. There are several types of buyers in the hats. The most importantare: (a) the itinerant merchants purchasing for resale in the mandies or toretailers in nearby villages; (b) commission agents buying for wholesalersin mandies and terminal markets; (c) retailers buying for their shops; (d)processors buying for their mills; and (e) wholesale traders buying on theirown account for resale to other wholesalers, retailers in more distant townsand villages and the larger terminal markets.

Mandies

4. Functionaries. There are three principal buyers in the mandies:(a) commission agents, (b) processors, and (c) wholesale traders describedabove. Several types of additional agents and other functionaries facilitate

ANNEX 2Page 2

purchases of these buyers: (a) kutcha arhatyas - commission agents who nego-tLate and handle the details of the sales transaction for farmers; (b)Slcca arhatyas - commission agents who purchase grain for wholesalers inoither markets on order. Some pucca arhatyas take out a double license andaLso operate as kutcha arhatyas and vice versa and some may buy grain ontheir own account thus operating as a wholesaler; (c) dalals or brokers -agents who help sellers find the buyer willing to pay the highest price on aparticular day. They generally have no facilities for handling grain; (d)waighmen - licensed weighers of grain. They are generally paid a fixed fee

per bag or quintal; (d) palladars - workmen who physically handle the grain

in the market. They can be permanent employees of a particular agent or em-

ployed on a piece-rate basis. 1

5. The number of marketing agents in each market varies with the domi-

nant marketing channel used in the market and the type and volume of productbeing marketed. Bihar Government recorded the range and average number of

commission agents, wholesalers, and brokers and reported for 42 of the 50 pro-posed markets as follows:

Range Commission Agents Wholesalers Brokers

High 76 145 12Low 0 8 0Average per market 21 40 3

6. Market charges. Most market charges are levied as a fixed fee per

quantity of produce marketed. The average charges of the various marketfunctionaries and other deductions in the 50 proposed markets reconvertedinto a percentage of the sale price are as follows:

(a} Commission (2.43%) - charge by commission agent for sellingor buying on behalf of another.

(b) Brokerage (0.26%) - broker's fee for negotiating a sale.

(c) Weighing (0.17%) - charge for weighing the grain after itssale.

(d) Palladar (0.14%) - charge paid laborers for loading and un-

loading grain in the market.

(e) Charities (0.23%) - the buyer customarily deducts 0.23% ofthe value of the produce for such charitable undertakingsas upkeep of local temples and feedlots for aged cows.

(f) Dhalta (1.09%) - charge against the producer for havinghis grain handled by the buyer.

ANNEX 2Page 3

(g) Namoona (0.28x) - the buyer's deduction for his customarysample.

(h) Miscellaneous (0.76%) - a summarizing item which includesmany small charges differing from market to market.

These charges, totaling 5.36%, are excessive and bear no relationship toservices actually rendered. The Marketing Acts aim at eliminating or reducingsuch charges (see Annex 14). In spite of the numerous charges levied on thegrain moving through mandies in India, the farmer's share of the consumer'srupee in India is 70-80%. This is quite high compared to that in more devel-oped countries mainly because most Indian consumers buy grain in a relativelyunprocessed form.

7. Physical features. Bihar's mandies have varying physical features.Typically the grain is sold to commission agents and traders at their shopsscattered along the congested lanes and streets of the mandi town; occasionallyit is sold in open areas within the town. In the latter cases producers oftenstack their produce on the ground and await buyers to make an offer. Innearly all market towns the market area is congested and unpaved, resultingin inefficient handling, unsanitary conditions, and losses.

8. Market intelligence. Bihar's farmers and traders have severalsources of market intelligence and means of price discovery. An importantsource of market price information is word-of-mouth. Farmers and merchantsreturn from the mandies, tell others of prevailing prices, and the wordspreads. Some price information is also available by radio and newspapers.Farmers bringing their produce to market obtain price information from thetraders they meet, brokers, and other farmers.

9. Grading. Grain sold in Bihar's mandies is typically neither cleanednor graded. The grain is sold "as is" in the bag in which it arrives. Buyerssample the grain from the top of the bag or through the side with a trier.Buyers use their own grading standards. Government grading is not readilyavailable, especially in the more scattered mandies.

10. Storage. Produce-sellers have some opportunity for storing grainon a pledge basis in the markets, though apparently few do it. Some commis-sion agents will loan up to 75% of the grain's value using the grain as col-lateral. Several farmer cooperatives in the area have storage space forgrain, though the two visited were both defunct from bad management.

Marketing Features of Other Major Cash Crops

11. Jute is,one of the most important agricultural products marketedin several of Bihar's northeast districts (see Appendix 2-1). Most of itis sold to lute mills in Calcutta through the mills' agents located in theimportant mandis in the growing districts. Some Jute moves illegally across

ANNEX 2Page 4

the border into Nepal. Farmers bring the retted jute to the market whereprices are negotiated with buyers. The buyers (agents of the mills) sortarnd bale the jute for shipment to Calcutta. There is a wide range amongprices for various grades of jute but little jute is sorted or graded onthe farm.

12. Fruit and vegetables. Bihar grows a tremendous variety of fruitsand vegetables. The bulk of production is during the monsoon season andiTrmediately afterwards, though production can be throughout the year on irri-gated plots. Because of their bulkiness and perishability most fruit andvegetables are sold and consumed in the area of production. Production ofvegetables in particular is concentrated near the larger population centerssuch as Patna. Farmers sell their fruits and vegetables both at retail andwlholesale. Retail sales are- in general produce mandies and specialized fruitand vegetable mandies. Farmers sell fruits and vegetables in the mandiestypically to wholesale traders, their commission agents or retailers. Whole-salers, traders and commission agents buy fruits and vegetables in largelots and charge a commission of 5 to 6% compared to 2% for grain. Thelarger commissions stem from difficulties in handling the more perishableand bulky commodities. Packaging and grading are serious problems for pro-duce being shipped any distance. The proposed modernized mandies might pro-vide services to improve these activities.

13. Potatoes are Bihar's principal vegetable crop. Two crops are har-vested each year, one in November-December and one in February-March. Thefirst crop is mainly for table use. About one-half of the second crop isheld in cold storage until the following fall and sold for seed both inBihar and neighboring states. The potatoes are stored by farmers, coldstorage owners, and other speculators and sold to traders directly from thecold storage units in the fall. The cold storage business has apparentlybeen very good as investors built at least 165 units between 1940 and 1969and more are being built.

November 15, 1971

ANNEX 2Appendix 2-1

INDIA


Arrivals of Major Comnmodities in Selected Mandies, 1969/70('000 tons)

Oil- Jute & Pota-Paddy Rice Wheat Maize Pulses seeds Mesta toes Onions Chillies

Araria 14.0 4.0 5.0 0.5 0.9 3.3 40.0 - - -

Arrah 1.5 15.0 5.0 2.5 21.0 4.0 - 1.0 2.1

Bhagalpur 6.0 6.0 3.0 15.0 13.0 7.2 - 5.0 1.0 0.1

Biharsharif 0.5 6.0 5.0 4.0 8.1 2.8 - 60.0 5.0 -

Dinapur 2.5 7.5 3.0 4.0 24.9 7.3 - 5.0 3.0 0.5

Forbisgani 12.5 7.0 2.0 7.5 10.2 6.0 5.5 2.0 2.5 -

Futwah 0.6 3.5 3.0 4.0 9.4 1.5 - 4.5 5.0 -

Gulabbagh 5.7 6.5 6.0 3.8 17.9 9.3 4.0 5.0 4.7 0.9

Marufganj 0.2 15.0 30.0 10.0 32.4 22.5 - 45.0 2.0 4.0

Mussalapur - 4.0 2.0 - 0.9 - - 32.8 22.5 -

Muzzafapur 1.5 20.0 2.0 7.5 12.5 11.0 - 5.0 4.0 -

Ranchi 2.5 27.5 7.5 3.0 21.5 16.0 - 22.0 3.0 -

Sasaram 15.0 10.0 12.0 - 3.3 1.6 - 2.0 1.0 -

October 28, 1971

INDIA


Monthly Arrivals of Major Commodities in Forbesganj (Purnea District), 1969

( tons )

Jan. Febr. March April May June July Aug. Sept. Oct. Nov. Dec. Total

Paddy & Rice 3,500 1,300 1,300 1,400 200 800 1,200 1,000 500 200 300 4,300 19,500

Jute & Mesta 1,500 900 2,500 3,600 4.,000 2,500 2,600 5,900 12,400 12,400 4,400 2,200 514,900

Wheat 200 100 100 200 300 200 300 100 100 100 100 100 1,900

Oilseeds 1,100 1,800 1,200 1,300 2,600 1,600 1,000 800 800 800 400 700 14,000

November 16, 1971

(D i

:B ,

INDIA

BIHAR AGhICULTURAL MAtKETS PROJECT

Monthly Arrivaltof ilajor Commodities in aasaram (Shahabad District), 1969

( tons )

Jan. Febr. March April May June July Aug. Sept. Oct. Nov. Dec. Total

Paddy & Rice 5,931 1,289 717 1,700 2,000 1,816 1,110 623 3149 14142 2,486 6,537 25,000

Wheat 805 409 143 1,010 3,000 2,021 1,058 767 641 133 707 956 12,000

Pulses 165 215 385 309 430 401 211 156 197 227 343 261 3,300

Oilseeds 168 171 301 1148 198 99 63 118 111 136 137 150 1,800

Potatoes 100 143 286 210 190 238 181 157 143 133 124 95 2,000

Onions 54 86 94 180 225 122 86 63 27 27 18 18 1,000

Noveniber 16, 1971

ro I J

ANNEX 2Appendix 2-4

INDIA


Major Commodity Prices in Selected Markets, 1970-71(Rs per ton)

MaximumRape and Chillies

Rice Wheat Maize Khesari Mustard Jute dry

Araria 1,450 1,050 750 750 2,300 1,250 6,500Arrah 1,380 1,270 860 800 1,880 N/A 6,430Bhagalpur 1,370 1,250 800 950 1,800 N/A 7,500Biharsharif 1,310 1,100 800 590 N/A - N/ADinapur 1,400 1,150 760 N/A 1,950 - 6,000Forbisganj 1,420 1,330 N/A 720 1,950 1,200 6,790Futwah 1,310 1,340 800 730 1,660 - -Gulabbagh 1,470 1,300 900 660 1,850 - 5,550tMtLzzafapur 1,470 1,290 830 960 1,750 N/A 6,800Ranchi 1,390 1,340 910 N/A 1,850 N/A 6,160Sasaram 1,430 1,230 N/A 740 1,930 N/A 6,430

MinimumRape and Chillies

Rice Wheat Maize Khesari Mustard Jute dry

Araria 1,100 1,050 600 700 2,200 1,200 5,500Arrah 1,140 960 590 560 1,770 N/A 5,350Bhagalpur 1,200 1,000 780 630 1,500 N/A 6,000Biharsharif 940 940 620 540 N/A _ N/ADinapur 1,300 1,060 690 N/A 1,350 - 4,750Forbisganj 1,280 1,280 N/A 660 1,250 1,130 4,430Putwah 1,290 1,290 760 720 1,390 - -

Gulabbagh 1,170 950 800 500 1,200 N/A 5,100Muzzafapur 1,290 940 750 580 1,470 N/A 5,600Ranchi 1,210 1,040 780 N/A 1,600 N/A 5,350Sasaram 1,070 880 N/A 590 1,880 N/A 5,360

October 28, 1971

ANNEX 3Page 1

INDIA

BIRAR AGRICULTURAL MARKETS PROJECT

Bihar Agricultural Produce Markets Act, 1960

1. In order to regulate market practices with a view to safeguardingand protecting the interests of the farmers in the markets, the State Govern-ment, in 19fn, enacted the Bihar Agricultural Produce Markets Act for regu-lation of markets. The enactment has the following objectives:

(a) creation of market areas and markets with a view to ensur-ing fair trade transactions in agricultural and alliedcommodities;

(b) appointment of Regulated Market Coi....ttees (RMC's) fullyrepresentative of growers, traders, local authorities andGovernment, to supervise the working of regulated markets;

(c) regulation of market charges and prohibition of realiza-tion of excess charges;

td) regulation of market practices;

(e) licensing of market functionaries;

(f) arrangement for conciliation of disputes regarding quality,weighing, deductions, etc.;

(g) arrangement of sale by open auctions; and

(h) arrangement for the display of reliable and up-to-datemarket information in the market yard.

2. The Act is applicable to all agricultural produce, whether processedor non-processed, of agriculture, horticulture, animal husbandry and forestry.It empowers the State Government to declare any area as a market area andregulate the ourchase and sale of specified agricultural produce in sucharea.

3. It also empowers the State Government to appoint a Secretary foreach RMC and may provide engineers and other technical services considerednecessary for the efficient running of the market. The State Government willrealize a certain percentage of the income of the Committee in lieu of theexpenses on this account.

ANNEX 3Page 2

4. The Act empowers each RMC to levy and collect market fees ata rate not exceeding 50 paise per Rs 100.00 worth of produce. It alsoempowers each Market Comuittee to raise money for development of amarket on the security of any property or the fees leviable under the Act.

5. An important provision in the Act is in regard to the operationof the RMC Fund. The fund can be used for the acquisition of a site orsites for the market; the maintenance and improvement of the market; theconstruction and repair of buildings necessary for the purpose of suchmarket and for the health, convenience and safety of the persons using it;the pay, pension, leave allowance, gratuities, compensations for injuriesresulting from allowances, pensions or provident fund of the officers andservants employed by it; the payment of interest on the loans that may beraised for the purposes of the market and the provision of a sinking fund inrespect of such loans; and the construction, repair and maintenanee of themeans of communication which are useful for the purposes of development ofa market or for the convenience and safety of the persons using it.

6. The intention of Government to regulate the purchase and sale ofselected agricultural produce under Section 3(i) of the Act was issued inDecember 1961 for a first lot of 10 wholesale markets. As this was a com-pletely new type of reform in the marketing sector, which has remained sin-gularly free from any discipline envisaged in the program, there was con-siderable delay in the enforcement of the provisions of the Act and work insome of the markets could not start until 1963-64. Even then, very littleprogress could be made as the provisions of the Act were challenged in thePatna High Court and subsequently in the Supreme Court. The law was upheldby the Supreme Court in early 1968 and since then some progress has beenachieved. The Act has been enferced in 68 wholesale markets in the State and60i RMC's have been formed; the -emaining 8 RMC's are expected to be notifiedshortly.

November 15, 1971

ANNEX 4Page 1

INDIA


The Agricultural Refinance Corporation (ARC)

Organization and Management

1. The Agricultural Refinance Corporation (ARC) was established onJuly 1, 1963, with the objectives of providing medium- and long-term fi-nance to agricultural credit institutions and, at the same time, directingand guiding such institutions toward a development oriented approach intheir operations.

2. ARC's shareholders include the Reserve Bank of India (RBI),central and state-level land development and mortgage banks and coopera-tive banks and other institutions (scheduled banks, the Life InsuranceCorporation of India, insurance and investment companies, and others ap-proved by the Government of India). Of the initial 5,000 shares issued,the law provided that RBI shall subscribe to at least 50%, the centralland mortgage banks and state cooperative banks to no more than 30%, andother institutions to no more than 20% and future issues of shares wouldbe allocated in the same proportion. The initial shares issued wereguaranteed a dividend of 4-1/4% per annum.

3. ARC's management is vested in a Board of Directors of nine mem-bers, three of whom are elected and the rest nominated. Three directorsrepresent RBI (a Deputy-Governor is Chairman of the Board), three theGovernment of India (at present the Secretary, Department of Agriculture,and the Additional Secretary, Department of Cooperation of the Ministryof Food, Agriculture, Community Development and Cooperation; and a JointSecretary, Department of Banking of the Ministry of Finance), and threedirectors are elected one each by the central land development banks, bythe state cooperative banks, and by the Life Insurance Corporation ofIndia, scheduled banks, and other insurance and financing institutions.

4. The Managing Director is the chief executive officer and isassisted by a managerial staff of nearly 90 (as of June 1971) of whom65 are based at ARC's head office. Until early 1970, ARC did not employany specialists, instead relying on a panel of consultants for technicaladvice in appraisal and supervision work. To supplement consultants'advice, ARC has established a Technical Division which, as of June 1971comprised three agricultural specialists and an agricultural economist andto which ARC proposes to make further appointments. With the increasingvolume of lending, ARC recognizes the need to build up its staff at alllevels and has prepared a staff development plan to cover the period tothe end of 1973.

ANNEX 4Page 2

5. ARC's head office is in Bombay. It has 13 regional offices(Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Calcutta, Chandigarh,'Ryderabad, Jaipur, Kanpur, Madras, New Delhi, Patna, and Trivandrum) whichassist banks and State Governments in formulating agricultural developmentprojects for financing, clarify ARC's policies and procedures when required,undertake pre-appraisal of projects submitted and supervise general executionof projects under ARC financing. About 25 managerial staff are employed inthe Regional Offices.

6. In general, ARC's charter provides that it shall be guided bysuch directions in matters of policy involving public interest as GOImay, after consulting RBI, give in writing. ARC can extend financial as-sistance only to central or state-level land development banks, state co-operative banks, and scheduled banks: in exceptional cases, and-with RBIapproval, it can also lend directly to a primary cooperative at the farmlevel. Refinance is provided through purchases of special debenturesfloated by central or state-level land development banks and through loansto state cooperative banks and scheduled banks.

7. Until June 1966, it was not normally ARC's policy to refinanceconstruction and energization of wells by individuals unless the outlayinvolved was large and development was envisaged through a cooperativesociety organized for the purpose. In July 1966, however, ARC not onlyremoved this restriction, but also circulated a model scheme for minorirrigation development by farmers in compact areas. Thus, began ARC'spolicy of financing individual farmers on the basis of project models.

8. At the beginning, ARC's policy was to finance no more than 75%of a project, leaving the balance to be contributed by State Governments.However, the generally strained resources position of most State Govern-ments considerably restricted the extent to which land development bankscould avail themselves of refinance facilities from ARC. Accordingly,to stimulate investments in minor irrigation especially, ARC increasedits support of such investments to 90%, beginning with all projects sanc-tioned in 1967/68.

9. Special debentures purchased by ARC from central land developmentbanks must be guaranteed by the State Government concerned; in addition,debentures are backed by a charge on all mortgages resulting from loansrefinanced under the issue. In the case of debentures, ARC requires thatcollections from farmers be lodged in a sinking fund. The sinking fund isinvested in GOI securities and debentures of other land development banks.It may also be used to repurchase the land development bank's own debentures.Since from the view point of financial returns, the sinking fund arrangementsdo not benefit a land development bank as issuer of debentures, ARC hasdecided that repayments of its refinances under IDA supported projectsshould approximately match those of ultimate borrowers to lending banks.

ANNEX 4Page 3

10. ARC will refinance agricultural development schemes which aretechnically feasible, financially justified, and are within a reasonablycompact area for facility of loan evaluation and supervision. The schemecan involve just one farmer, a group of farmers, or an association offarmers. Preference, however, is given to schemes involving a large numberof farmers.

U. Technical evaluation of schemes is carried out by consultantsdrawn from a panel approved by the Government of India. Services of theCentral Ground Water Board (formerly the Exploratory Tubewells Organization)the Geological Survey of India and the various commodity boards are alsoused and ARC prescribes the terms of reference in every case. Some importantpoints examined in the case of schemes for minor irrigation include, anestimate of the quantum of water proposed to be tapped, annual water re-charge, annual water draft, taking into account the existing and proposedwells, and the type of pump sets needed. With the establishment of its ownTechnical Division, increasing back-up support is now available from ARC'sown specialist staff which will provide a foundation of technical expertisefor scheme appraisal and supervision throughout India.

12. Economic evaluation of schemes is performed by ARC staff. Someof the important aspects appraised include cost estimates, the suitabilityof the cropping pattern recommended, inputs available for development,farmer's repayment capacity, efficiency of the project executing agency, ar-rangements for the provision of short-term credits and marketing arrangements.Preappraisal is done generally by regional offices, but final evaluation ismade in Bombay.

13. Periods of refinance are determined after a study of the repaymentcapacity of farmers based on farm models. Refinance terms for medium-termprojects are 3 to 5 years and for long-term projects are now generally 12to 15 years.

14. With effect from November 1970 ARC's general lending rate wasraised from 6 to 6-1/2% per annum. Scheduled banks are required to chargetheir borrowers no more than an additional 2-1/2% per annum and while landdevelopment (and mortgage) banks are not bound by the same restriction,they nevertheless generally follow the same interest mark-up and noneexceeds it. ARC collects a commitment charge of 1/3 of 1% on the amountnot used in any one year according to a schedule of expected withdrawalsapproved for a scheme.

Lending (Refinancing) Operations

15. The following table shows the progress in ARC's lending (lesssubsequent cancellations) during the eight years of its existence:

ANNEX 4Page 4

Number ofSchemes Total Scheme ARC

Year Approved Costs CommitmentRs M Rs M

1963/64 3 27.20 24.501964/65 10 206.00 168.801965/66 24 179.60 141.801966/67 15 105.30 85.301967/68 89 681.60 586.401968/69 108 792.10 693.201969/70 142 927.80 709.201970/71 100 621.50 539.20

491 3,541.10 2,948.40

Less reductions orwithdrawals 33 611.10 461.80

458 2,930.00 2,486.60

L6. During the initial years, ARC transacted very little businessdue to the need for laying the groundwork and bases for its operationsand for building its staff. An important deterrent, however, was ARCIspolicy, at the time, of refinancing only projects in which development'as envisaged through a cooperative society organized for the purpose.In June 1966, this restriction was removed; furthermore, ARC agreed torefinance up to 90% of loans for minor irrigation, against 75% previously.Thus, during the last three years, projects approved for refinancing weremore than six times the number during the first four years.

17. As may be expected, most of the schemes sanctioned were forprojects financed by land development or mortage banks:

ARC CommitmentRs M % of Total

(a) Land development banks 2,223.70 89.4

(b) State cooperative banks 114.00 4.6

(c) Scheduled commercial banks 148.90 6.0

Total 2,486.60 100.0

18. About 85% of the cost of schemes approved for refinance werefor minor irrigation and land development:

ANNEX 4Page 5

Total ARCSchemes Approved Commitment

% of X ofNumber Total Rs M Tota1

(a) Minor irrigation 237 51.7 1,694.80 68.2(b) Land development 43 9.4 434.80 17.5(c) Tractor & Power Tillers 10 2.2 47.10 1.8(d) Soil conservation 2 .4 19.50 0.8(e) Plantations 138 30.1 189.70 7.6(f) Poultry 7 1.6 4.80 0.2(g) Fisheries 10 2.2 37.60 1.5(h) Dairying 5 1.1 13.80 0.6(i) Storage 6 1.3 45.10 1.8

Total 458 100.0 2,486.60 100.0

Source of Funds

19. Apart from share capital, ARC can raise funds from the followingsources: (a) borrowings from GOI and from any entity approved by GOI; (b)issue and sale of debentures and bonds guaranteed by GOI; (c) borrowingsfrom RBI for periods not exceeding 18 months; and (d) deposits from GOI,the State Government, and local authorities for periods not less than 12months. Total borrowings and deposits received may not exceed 20 timesthe sum of ARC's capital and surplus reserves.

20. ARC's borrowings and receipts of deposits during the eight yearsof its existence are summarized as follows:

Borrowings DepositsYear GOI Market RBI Total Received

1963/64 50.00 - - 50.00 -1964/65 - - - - 1.131965/66 1.251966/67 - - - - 1.261967/68 30.00 - - 30.00 1.251968/69 177.50 - - 177.50 1.261969/70 190.00 109.38 - 299.38 1.251970/71 220.00 85.25 75.20 380.45 1.25

1.25

Total 667.50 194.63 75.20 937.33 8.65

Borrowings from GOI, none of which as of June 30, 1971 included IDA funds,have been on the following terms:

ANNEX 4Page 6

Rs M Interest P.A. Repayment

50.00 None 30 years with 15-year grace30.00 5-1/2 At end of 15 years100.00 5-1/2 At end of 15 years487.50 5 At end of 9 years

With effect from June 1, 1971, GOI interest rates to ARC have been increasedby 1/2% per annum and are now therefore 5-1/2% on loans up to 10 years and6% on loans with longer maturities. Since August 1968, ARC has been alloweda rebate of 1/4% on timely payments of interest on GOI borrowings. The twomarket issues of ARC bonds are both dated 1982 and are at an interest rateof 5-3/4%. Short-term borrowings from RBI are at bank rate, presently 6%per annum. The special deposits represent dividends payable on ARC's sharesheld by RBI which, under the law, must be held by ARC as spec-ia1 deposits.No interest is paid on them.

21. A comparative statement of ARC's operating results since itsestablishment until 1970/71 is given in Appendix 4-1 and is summarizedbelow (in Rs million):

NetIncome Statutory Surplus

Gross Total Net Income Before Dividend orYear Income Expenses Income Tax Dividends Liability Deficit

1963/64 3.75 0.30 3.45 1.80 1.65 1.91 -0.261i964/65 4.00 0.39 3.61 1.76 1.85 2.13 -0.281'965/66 4.35 0.48 3.87 2.27 1.60 2.13 -0.5311966/67 4.98 0.61 4.36 2.40 1.97 2.13 -0.161'967/68 6.00 1.67 4.33 2.38 1.95 2.13 -0.181968/69 11.04 6.29 4.75 2.61 2.14 2.13 0.011969/70 27.28 20.55 6.75 3.70 3.05 2.13 0.921970/71 42.66 35.72 6.94 3.44 3.50 2.13 1.37

22. In the first three years of ARC's operations, income was derivedmostly from interest on investments. Beginning 1966/67, this patternchanged when ARC began to expand rapidly its refinancing operations (para.15). In 1970/71 interest received from loans and debentures represented94% of total income received.

23. Benefitting from cost-free funds available to it during thefirst four years of its existence, ARC's main items of expense at thetLme was salaries and employee benefits. Needing more funds for its ex-panded operation, interest paid on borrowed money has since 1967/68 beenani important item of expenses. In 1970/71 interest paid on borrowingsand salaries and employee benefits were 86% and 10%, respectively, oftotal expenses.

ANNEX 4Page 7

24. Until 1968/69 net income after taxes had not been sufficientto meet the statutory dividend liability of 4-1/4% payable annually toARC's initial shareholders (para. 2) and the annual deficiency had tobe made good by GOI in accordance with its guarantee under the law. ARCwill have to reimburse these amounts out of future profits. In 1968/69however, profits were sufficient to meet the statutory dividend and leaveARC with a small surplus and this position has significantly improved inthe subsequent two years. The scale of future profits will largely dependon ARC's future borrowing rates and the extent to which it has to borrowfrom the market at higher rates than it has hitherto had to pay GOI. Tohelp offset this, steps are now being taken to enable ARC to borrow fromthe National Agricultural Credit (Long-term Operations) Fund of RBI atconcessional rates which, although not yet fixed, might be at about 4-1/4%per annum. This would broadly enable ARC to maintain its interest margin.

25. ARC is in good financial condition. Its equity position as ofJune 30, 1971, is unimpaired by losses and its assets were in GOI securitiesand debentures of land development banks, which are guaranteed by StateGovernments. A condensed comparative balance sheet is given in Appendix 4-2.

26. In accordance with its charter, ARC's accounts are auditedannually by accountants duly qualified under the all India Companies Actof 1956 (the present auditors are Messrs. K. S. Aiyar and Co.). Under thesame Charter, GOI can appoint the Comptroller and Auditor General of Indiato examine and report on the accounts of ARC. To date, GOI has not foundthe need to exercise this power.

February 3, 1972

INDIA


AGRICULTURAL REFINANCE CORPORATION

Condensed Statements of Net Income

1964/65 to 1970/71

i964/65 1965/66 1966/6 19,67/68 1968/69 1169/7 197/!Rs M % of RS M R6 of s M I9 of R . L ofOr No 0 of

Total Total Total Total Total Total TotalINCOME _ oons _ Income Income _ Income _ Income Income Incame

Interest received on loans andDebentures -- -- 1.09 25.1 3.06 61.3 4.83 80.5 10.20 92.4 24.09 88.31 40.12 94.1

Interest and other inicome on investments 3.99 100.0 2322 74.9 1.92 38.7 1.17 19.5 o.84 7.6 3.18 11.69 2.5 4 5.-9

Total income .99 100.0 4.34 100,0 4 8 100.0 6.oo 100.0 11.04 100.0 o27.27 100.00 42.66 1oo.o

EXPENSES

Interest paid -- -- -- -- -- -_ o.46 7.8 4.42 40.o 17.07 62.60 30.80 72.2

Salaries, allowances, consultants' feesand employee benefits 0.27 7.0 0.36 8.4 o.47 9.5 0.91 15.2 1.43 13.0 2.04 7.48 3.40 8.o

General and administrative expenses 0.10 2.6 0.11 2.6 0.13 2.6 0.29 4.8 0.43 3.9 1.42 5.21 1.48 3.6

Depreciation of assets 0.01 0.1 0.01 0.1 0.01 0.1 0.01 0.1 0.01 0.1 0.02 0.07 0.o4 O.

Total expenses 0.38 9.7 o.48 11.1 0.61 1.2.2 1.67 27.9 6.29 57.0 20.55 75.36 35.72 83.7

NET INCOME BEFORE TAXES 3.61 90.3 3.86 88.9 4.37 87.8 4.33 72.0 4.75 43.0 6.72 24.64 6.94 16.3

Taxes paid or payable 1.76 44.1 2.27 52.2 2.40 48 3 2.38 39.6 2.61 23.7 3.70 13.56 3.44 8.1

NET INCOME AFTER TAXES 1.85 46,2 149 36.7 1.97 39.5 1.95 32.4 2.14 19.3 302 11.08 3.50 8.2

December 6, 1971

INDIA



CONDENSED BALANCE SHEETS

1964/65 1965/66 1966/67 1967/68 1968/69 e19C6,9/70, 70/Rs M Change from Change?o Change from Chbage Change o

Rs M Previous Date Rs M Previous Date A" Previous Date Rs M Previous Date Rs N Previous Date Rs N Previoua DateASSETS

Cash on Hand and in Banks 0.16 0.02 (0.15) 0.06 0.04 0.09 0.03 0.06 (0.03) 0.04 (0.02) 100.01 99.97

Investments 99.09 55.21 (43.88) 35.79 (19.42) 8.40 (27.39) 5.14 (3.26) 24.99 19.85 00.20 (24.79)

Loans 1.47 1.47 3.03 1.56 7.35 4.32 25.49 18.14 42.93 17.44 76.95 34.02

Debentures Purchased 4.50 47.53 43.03 66.73 19.20 119.04 52.31 278.55 159.51 546.o4 267.49 812.39 266.35

Other Assets 1.02 2.34 1.33 3.38 1.04 6.46 3.03 13.58 7.12 17.31 3.73 27.30 9.99

Total Assets 1o4.77 106.57 1.80 10.9 2.42 141.34 3 322.82 181.48 ,631.31 3o 9 1,016.85 38.54

LIABILITIES AND CAPITAL EQUITY

Loans from Government of8613 052India and others 50.00 50.00 o50.0 80.00 30.00 257.50 177.50 556.88 299.38 / 862.13 305.25 /

Special Deposits 1.13 2.39 1.26 3.64 1.26 4.9o 1.26 6.15 1.25 7.40 1.25 8.65 1.25

Other Liabilities 3.64 4.18 0.54 5.35 1.16 6.44 1.09 9.16 2.72 16.94 7.78 9377 77.64 /

Total Liabilities 54.77 56.57 1.80 58.99 2.42 91.314 32 272 18.4 581.22 308.141 9 3814.114

Capital - Paid-up 50.00 50.00 -- 50.00 -- 50.00 -- 50.00 -- 50.00 50.00

Reserves and Surplus N N N N N N N 0.01 0.01 0.08 2.30 1.40

Total Capital Equity 50.00 50.00 N 50.00 N 50.00 N 50.01 0.01 500`9 o.08 52.30 1.40

Total Liabilities asdCapital Equity o104.77 106.57 1.80 108.99 2.42 141.34 32.35 322.82 181.48 6 3 1,016.85 385.54

Includes RsllO million public bond issue.2/ Includes Rs85 million public bond issue.Y Includes Rs75 million short-term borrowings frum RBI.

N ' NegligibleDecember 6, 1971

ANNEX 5Page 1

INDIA

BITHAR AGRICULTURAL MARKETS PROJECT

The State Bank of India

1. The State Bank of India (SBI) was established by Act ofMay A, 1955, for the general purposes of extending banking facilitiesmore particularly in the rural and semiurban areas and for various otherpublic purposes. The same Act transferred to it the undertaking ofassets and liabilities of the Imperial Bank of India. The major state-associated banks, located in the old princely states where the ImperialBank of India had not extended its activities, were also integrated withSBI to become its subsidiaries. Among the banks which have taken someinterest in helping the agricultural sector and which have taken effectivesteps to this purpose, SBI appears to have a leading role.

Capital

2. SRI's authorized capital is Rs 200 million divided into twomillion shares of 1On rupees each. The issued and paid-up capital isRs 56.25 million, of which about 92X is held by RBI and the balance byabout 1,3nn private shareholders, the remnants of the shareholders ofthe private Imperial Bank of India. The Central Board of SBI may increasethe issued capital but in such a manner that RBI holds at any time over 55%of it.

Management

3. The general direction of the affairs and business of SBI isentrusted to a central board at present comprising 21 members including achairman and vice-chairman appointed by GOI in consultation with RBI.There are also seven local boards, controlling SBI's local head offices.

Organization and Staffing

4. S1T's head office is in Bombay with seven local head offices inBombay, Madras, Calcutta, New Delhi, Kanpur, Ahmedabad and Hyderabad. Ithas about 2,122 branches and agencies all over India and is tryingactively to increase its coverage of the rural areas. SBI employs over67,nOn persons with professional staff experienced in current commercialbanking operations. It has established training facilities of its ownin 25 schools and zonal training centers, and in a staff training college.It also avails itself of the training facilities extended by RBI's Bankers'TraininR College. Recently it initiated a training course with theassistance of the Uttar Pradesh Agricultural University to familiarizeits field officers with agriculture.

ANNEX 5Page 2

5. The Patna local head office which covers the project areacontrols about 91 branches and agencies with about 1,000 employees andhas itself about 700 employees. The Patna head office is managed by aSecretary-Treasurer and his deputy.

Business of SBI

6. SBI acts as agent of RBI at all places where it is representedand where there is no branch of the banking department of RBI forcarrying on operations on behalf of any government in India and any otherbusiness which RBI may entrust to it. SBI is above all intended to carryoyI customary commercial banking business, but it is also engaged indevelopment banking. Since 1959, it has been empowered to advance or lendmoney for periods in excess of six months and up to 15 years to personsengaged in industries including agriculture -- in accordance with specificdirections issued by its central board. These credits may be made uponthe security of immovable property and are designed to serve bot-h thepublic and private members.

Sources and Cost of Capital

7. SBI derives its resources from its share capital and reservesand deposits of any type received from the public. It may float loansfrom any source and has rediscount facilities with RBI. It may also applyfor funds from the Industrial Finance Corporation and ARC for specificlending schemes or to finance projects in conjunction with these institutions.The cost of funds raised through deposits, which form about 90% of itsresources, is about 5% p.a. including an interest paid to depositors atthe average rate of about 3% p.a. (No interest is paid on current account,other rates range up to 6-1/2% for five-year term deposits.)

Activities

8. As of December 31, 1969, deposits received by SBI and itssubsidiaries accounted for about one-fourth of deposits received by allscheduled banks. Advances and investment of the SBI group were in theproportion of 28 and 33% of total advances and investments respectivelyof all scheduled banks. The growth of SBI's activities has been considerableand appears to have been achieved through expansion over new areas andnew activities and only to a small extent at the expense of the other banks.

91. SBI has made special efforts to expand its activities in theindustrial sector, by extending medium-term credit. It has more recentlymade attempts to contribute to rural finance. Most of its assistance inthis sector has been through subscription of debentures issued by theCentral Land Mortgage Development Banks and of shares of the Central Ware-housing Corporation and loans to cooperatives, state governments and theFood Corporation of India in the form of short-term credit mostly to

ANNEX 5Page 3

finance procurement and distribution of foodgrains, seeds and fertilizers.It has also made some credit against warehouse receipts. Direct lendingsto farmers have increased substantially in the last year from Rs 330million to Rs 750 million.

in. SBI has reportedly experienced good repayments records sinceit started operations. As with other commercial banks, most advances arefully secured by some kind of collateral. Advances for which SBI holdsno other security than the debtor's personal security, or secured by thepersonal liabilities of one or more guarantors are a small proportion oftotal advances.

Financial Condition

11. "RT's condensed balance sheet and orofit and loss accounts are givenin Appendices 5-1 and 5-2. The financial situation appears to be satisfactoryalthough the net worth is quite small compared with total liabilities. Itsonerating expenses compare favorably with those of other commercial banks inspite of its claim that operations made on behalf of RBI are not profitable.Tts operation has always been profitable and over recent years it has beenable to declare sizable dividends (23 rupees per share of 100 rupeesbefore tax in 1Q69 and 1970).

November 15, 1971

ANNEX 5 -

Appendix 5-1

INDIA


Comparative Balance Sheet of the State Bank of India(Rs thousands)

December 31, December 31,1969 19703

AssetsCash in Hand and with RBI 857,402 928,595Balance with Other Banks 53,323 275,627Money at Call and Short Notice 48,600 50,400Investments in Securities, Shares,Debentures, or Bonds 3,581,440 4,475,796

Advances (other than bad debits) 8,398,674 11,145,304Bills Receivable 235,982 223,104Constituents Liabilities forAcceptances 460,203 406,502

116,631Premises Less Depreciation 97,389 85,151Furniture and Fixture Less Depreciation 70,700 387,702Other Assets, including Gold and Silver 231,921

TOTAL ASSETS 14,035,634 18,094,782

Liabilities and Capital EquitiesBorrowing from Other Banking Companies,Agents, etc. 126,587 1,967,842

Bills Payable 102,346 189,436Bills for Collection being BillsReceivable 235,982 223,105

Other Liabilities 618,756 685,702*Acceptances, Endorsements and OtherObligations 460,203 406,502

Deposits and other Accounts 12,273,019 14,409,547

Total Liabilities 13,816,893 17,882,134

Capital Equity 56,250 56,250Reserve Funds and Other Reserves 160,900 156,075Retained Earnings 1,591 323

TOTAL LIABILITIES AND CAPITAL EQUITY 14,035,634 18,094,782

* Contingent Liabilities which is not included in Liability section is7,470,541,219.24 for 1969 and 7,980,677,651.85 for 1970.

October 29, 1971

ANNEX 5Appendix 5-2

INDIA

BIHAR AGRICULTURAL MARKETS PROJECr

Comparative Profit and Loss Account of the State Bank of India(Rs thousands)

December 31, December 31,1969 1970

IncomeInterest and Discount 681,676 887,109Commission, Exchange and Brokerage 205,363 211,781Rents 395 460Dividends from Subsidiary Shares 26,585 27,370

Total Income 914,019 1,126,720

ExpenditureInterest Paid on Deposits and Borrowing 383,518 469,829Salaries and Allowances 375,573 485,018Directors Fees and Allowances 244 244Rent, Taxes, Insurance, Utilities 28,173 35,632Legal Fees 539 626Postage and communications 10,444 12,772Auditors' fees 150 200Depreciation and Repairs 16,059 14,509Stationary, Printing, Advertisement 15,769 17,749Miscellaneous 28,547 36,140

Total Expenditures 859,016 1,072,719

Profit 55,003 54,001

October 29, 1971

ANNEX 6Page 1

INDIA

1I3AR AGRTCTLTUV.AL M4A%RKETS PROJECT

Markets Tentatively Selected For Development

Varme ofMarkets flescription of the Markets Commodities Handled Market functionaries

Commis- Whole-sion sale Bro-Agents Traders kers

1. Araria The wholesale shops are Jute, cereals, pulses - -

distributed between oil-seeds, sugarcane,Araria Railway Station gur, and mustard oil.and Araria Court. Thewholesale shoos for Juteand foodRrains are moreconcentrated in Corhi tola,Pahi!a tola and StationPoad.

. Arrab The maioritv of shons are Cereals, pulses, oil- 65 10 -located in Mohalla Mir- seeds, coarse grains,gani and nharwan Chowk. potatoes, onions,In Nawada Mohalla also vegetables, fruits,there are a number of mustard oil.sho"g on the road. Themarket is very congested.

1. 1anman- The shops are located Jute, cereals, pulses, - 65 -

kihi between the railwav line oil-seeds, cattle andand Purnea-Saharsa Road. sugarcane.The cattle hat is locatedsouth of the RailwayStation.

Ai. Rarh The shops are located Paddy, rice, grain, 65 10 -

generallv in Cola Road maize, chillies,and a few shops are also potatoes, cauliflowers,in Station Bazar. tomatoes and other

vegetables and fruits.

5. Tesll- The main wholesale shops rereals, pulses, oil- 40 35 3qarif are located In Miachak seeds, chillies, potatoes,

"'onbila, Rtation Road, ghee, vegetables,n'Tnairnnv!a mohalla and mustard oil.Patananur 'Road.

ANNEX 6Page 2

aName ofMarkets T)eqcription of the Markets Comiodities Handled Market Functionaries

Commis- Whole-sion sale Bro-

Agents Traders kers

6. 1iettiah The wholesale shops of Cereals, pulses, and 17 37 5foodgrains, pulses, oil- oil-seeds, vegetablesseeds and lute are lo- and fruits, mustard oil,cated in Chota Ramna- linseed oil, turmeric,Mina-bazar, Lalbazar and garlic, hides and skins,Kalibagh. gur, coriander and

sugarcane.

7. Rhagal- The wholesale transaction Cereals, pulses, oil- - - -

nur takes place in Mohalla seeds, oils, gur,mirianhat and Sulaganj vegetables and fruits.at a distance of 3 km.from the Railway Station.Fruits and vegetables aresold in Sulagani mainlv.

R. Tihari- The shoos are distributed Jute, cereals, pulses 1 hn -

gani in old Biharigani town- oil-seeds, coriander,shin and Naibazar a new ghee, sugarcane, cattlearea which is developing. vegetables, khandsari,The cattle hat is held mustard oil.near the Railwav Station.

n. Rihar- The shops are distributed Potatoes, rice, wheat 20 145 10

sharif in Biharsharif and Soh- maize, gram, vegetablessarai which is at a and fruits.distance of 1.5 km fromBiharsharif Court. Potatotransactions take placemainlv in Sohsarai.

10. Bihta In Bihta most of the shopsRice, wheat, maize, 20 8 -

are located south of the linseed, gur, butter,railway line on Patna- tomatoes, potatoes, onion,Aurangabad Road. This sugarcane.area is known as GulteraBazar. Some shops andgodowns are on the northside of the railway line.

ANNEX 6Page 3

Mare of'arkets Description of the Markets Comodities Handled Market Functionaries


11. 1Rtxar The shops, arhats and Cereals, pulses, oil- 16 60 9godowns are spread over seedds, coarse grains,the entire township. potatoes, gur, bajra,The majority of these fish, fruits, mustardare located on the road oil, linseed oil.from the Railway Stationto Buxar town as well ason the Buxar-Itarhi Road.

1V. Chakia- The shops are located Jute, mesta, oil-seeds, 8 25 -mainly on Chakia-Kesaria pulses, cereals, sugar-Road and the road lead- cane, gur.ing towards the hat. Afew shons are locatedin the Mill area colony.

1'. rha- The shors are located in Paddy, other cereals, - 22 2kulia the heart of the town- pulses, oil-seeds,

shin on both sides of myrobolans, urid.the Chakulia-TataRaivwayT Line.

14. rhanra The wholesale market is Cereals, oil-seeds 20 60 -located in Vauna-bazar and pulses, mustardand local hat is held oil, linseed oil,south of Mauna outpost ghee, and potato.where wholesale trans-actions of potatoes takeol ace.

15. Pal - The shops are situated Cereals, pulses, oil- 20 30 -singsa- in areas known as Andar seeds, chillies, jute,rai Razar and Bahar Bazar. turmeric, coriander,

The shops dealing in funnel seed, gur, potatoesfoodgrains and oilseeds and onions.are located in AndarRazar and tradersdealing in chillies,turmeric, Jute and othercommodities are locatedin Bahar Bazar.

ANNEX 6Page 4

Mame ofTmarkets Description of the Markets Commodities Handled Market Functionaries

Commis- Whole-sion sale Bro-

Agents Traders kers

16. Dar- The wholesale transactionsCereals, pulses, 35 50 8bhanga for foodgrains, oilseeds, oil-seeds, gur, ghee,

ghee and gur are concen- makhana, potatoes, andtrated in Gulobara and mango, mustard oil,Masrabazar Mohallas. linseed, hides and skins.Mango is sold in Kathal-bari. Hides an& skinsare sold in RillaghatM4ohalla. Kirana shopsare more concentrated inGudri Bazar of Laheriasarai.

17. 1nand- The old market is locat- Cereals, pulses, 76 24 2nagar ed on the west of the coarse grains, oil-

canal. With construc- seeds, groundnuts,tion of the Patna- chillies, fish, ghee,Aurangabad Road a onions, potatoes, gur,number of shops and sweet potatoes, vegetables,arhats have been opened mango and papaya.on the watna-AurangabadRoad at Bhakarua Nor.

18. Di gh- The shoDs are located Cereals, pulses, 5 21wara in Raipatti Mohalla of fruit and vegetables,

nighwara. Shops are potatoes, onions andalso located on both betel leaves.sides of the Chapra-Sonepur Road andStation Road.

19. Dina- The shops are situated Cereals, pulses, 42 15 10our mainly in the area bet- oil-seeds.

ween the Patna-DinapurRoad and the riverGanga outside the canton-ment area.

90. Forbes- The shops are mainly Jute, cereals, 7 95 3gani located in Hatkhola, pulses, oil-seeds,

Chohapatty, Bhakolia, mangoes, mustard oil.Sadar Road, HospitalRoad and norihari.

ANNF.X 6Page 5

"Tame ofM4arkets nescriDtion of the Markets Commodities Handled Market Functionaries

Commis- Wihole-sion sale Bro-

Agents Traders kers

91. rutamh The shops, hats and god- Cereals, pulses, 71 19 6owns are spread over the oil-seeds, potatoes,entire township. The onions, vegetables,area is very congested fruits, gur, cattle.as the shops are locatedin the lanes criss-crossingthe main road and the Ganga.Some of these are alsolocated on the lanes fromthe main road to the RailwayStation. Sale and purchaseof cattle take place in anorchard at Maulipur at adistance of 2 km from Wutwah.

2?. f,arhwa The shoos are located Cereals, pulses, - - -

in rarhwa Nagar Road oil-seeds, mahuaand the Chaudharana flower and sesamum.Mohalla of Carwa town.The small lac factoriesare spread over the entiretownshio.

25. Cava The wholesale shops and Cereals, pulses, 12 12 -arhats are concentrated mustard oil, mustardin Purani Godam, Andar cake, castor oil andCodam, Bathe Godam and sesamum oil, fruits,C.arikhana for grains, vegetables, potatoes,oilseeds and gur. beans, chillies, betelKedarnath Market is leaves, turmeric,important for fruits garlic, ghee, hides,and vegetables. skins and butter.

94. %lah- The wholesale shops, Jute, cereals, 37 108 -hagh arhats and godowns are oil-seeds, potatoes,

located on both sides onions, gur, mustardof the National Highway. oil, sweet potatoes,The bi-weekly hat is chillies, coriander,also held on a plot of betel nuts, Jute andland south of the mesta seed.National Fighway.

?5. Tavna- TTholesale trade is over Cereals, pulses, 7 16 2gar the whole townshio and a lute, mustard oil,

number of shops are lo- linseed oil, Sabaicated on both sides of grass.the road leading toNepal border and towardsITsrahi.

ANNEX 6Page 6

Namne ofMarkets Description of the Markets Commodities Handled Market Functionaries

Comis- Whole-sion sale Bro-

Agents Traders kers

26. Kasba The shops are located Jute, paddy, rice, 60on both sides of the mustard seed, maize,Purnea-Jogbani Road and gram, potatoes, fruitsin the lanes branching and vegetables.off from the main road.

27. Katihar The wholesale shops for Jute, cereals, pulses, 5 40 5grains, jute and oil- coarse grains, fish,seeds are located in potatoes, vegetables,Baribazar, Tingachia, and fruits includingMangalbazar and Gandhi- mango, oranges and pine-tola. The fish market apples.is near the telegraphoffice.

2R. Kha- The shops are located Chillies, cereals, 20 15 1garia in the area lying be- pulses, oil-seeds,

tween the river Gandak ghee, fish, coriander,and the Railway line. mustard oil, funnelThe wholesale fish seed, fruits and vege-market is located near tables, gur.the Rail Station.

24. Kishan- The wholesale shops and Jute, mesta, cereals, 20 75 10gani godowns are mostly lo- pulses, oil-seeds,

cated in Mohalla Purab- potatoes, mango, oranges,patti, Pachimpatti, pineapples, mustard oil.IUttarpatti and Khagra,Bhagat Toli Road andDharamshala Road.

30. Lakhi- The shops are mostly Oil-seeds, coarsesarai located on the road grains, cereals, pulses,

running east to west fruits, vegetables and ghee.parallel to the KiulRiver.

V'I. Mahar- Vost of the wholesale Cereals, pulses, 5 34 -

algani shops are located on oil-seeds, chillies,the main road in be- Jute, turmeric,tween hospital and water-mustard oil, ginger,wavs Inspection Bunga- garlic, potatoes.low.

ANNEX 6Page 7

game ofMarkets Description of the Markets Commodities Handled Market Functionaries

Codmis- Whole-sion sale Bro-Agents Traders kers

12. maruf- warufganj in Patna City Cereals, pulses, 31 95 12gani is the main wholesale oil-seeds, oils,

market for foodgrains, spices.oils, spices, chilliesand other commodities.The shops are located inMarufganj and the foodgrainshops at Mansoorgani.

13. 'esaur- The shops are situated Paddy, rice, wheat, 5 45 -hi on both sides of Thanau- maize, gram, linseed,

ra Nlaubatpur Road. mustard seed, gur,potatoes, onions, tomatoes,mustard oil.

34. Mohan- The wholesale shops are Cereals, pulses, 6 30 4ia located on both sides oil-seeds, mustard oil.

of the Grand Trunk Road,as well as in the areahetween the Grand TrunkRoad and railway line.

15. Wokameh The shops and godowns Cereals, pulses, 21 23 _are located in the area oil-seeds, chillies,between the National potatoes, sweet-potatoes.Righwav and the Canga.Some shops and godownshave been established inthe area lying betweenthe National Highwayand the railway line.The sale of chillies takesplace on the bank of Gangaeast of the township.

36. Murli- The majority of shops Jute, cereals, oil- 1 65 -ganj located on the road seeds, coarse grains,

leading from local Dak potatoes, sweet potatoes,Rungalow to Kashipur. fish and vegetables.Some shops are alsolocated on both sidesof the rimvlet known as1Rangadhav and also inin the heart of the town.

ANNEX 6Page 8

Nawme ofMarkets Description of the Markets Commodities Handled Market Functionaries

Commis- lWhole-sion sale Bro-Agents Traders kers

37. Musal- Musallahpur is 4 km Vegetables, fruits, 55 15 -

lahnur from the Patna Railway flsh, foodgrains,Station and is the prin- oil-seeds, oils, spices,cipal wholesale market pulses, chillies.for vegetables and fruits,fish, etc. The grainmarket is at Bakarganj 3 kmaway. There is also avegetable hat at Antaghatand a vegetable and grainhat at Chitkohra.

1,. Muzaf- The wholesale transac- Cereals, pulses, 60 20 -

farpur tions are spread over oil-seeds, fruits,different parts of the vegetables, litchies,town. The main grain gur, mango, potatoes,market is in Gola onions, cauliflower,Road and Akhara cabbage, hides and skins.Chat Road. The oil-seedmarket is inKalyani-Puranibazar Road.The fruit market isin Amgola. The wholesaletransaction of lichiestakes place in CompanybaghMohalla north of the Courtcormound. Hides and skinsare transacted in Berhampura.

39. Nauga- The shops are located Maize, wheat, pulses - 25 10chia generally on the Station including urad, arhar,

Road, Dharamshala road gram, oil-3eeds,and Goshala Road. Some coriander, ghee, tomatoes,shops are also on jute, fish.Nandlal Ghat Road.

4(i. Nir- The wholesale transac- Cereals, oilseeds, - -

mali tions are spread over thepulses, jute and mesta.township which itself iswithin the ring levy onthe Western Embankmentof Rosi.

ANNEX 6Page 9

"ame of'arkets Description of the Markets Comnodities Handled Market Functionaries

Comis- Whole-sion sale Bro-Agents Traders kers

41. w7okha The main market is lo- Cereals, pulses, 14 27 -

cated on both sides of oil-seeds, potatoes, gur.the road leading from theArrah-Sasaram Road to thewest towards Natwar. Therice mills where sale ofvaddy takes place aresDread over the area withina radius of 2 km of theRailway Station.

42. Puipri Most of the shops are Cereals, pulses, 2 20 -

located on the road oil-seeds, mustardleading towards Nepal oil and gur.border and around thelocal hat.

41. Ranchi The wholesale shops for Cereals, pulses, - - -

grains, oil-seeds, and oil-seeds, fruits,nulses are located in and vegetables, karanjTTnper Bazar. The vege- and kusum, mahua flowertables are sold near and mahua seed.taxi stand on the mainroad.

44. Saheh- Majorlty of shops are Cereals, pulses, -

gani located near the Court oil-seeds, fruits andcompound and Tarbanna vegetables, ghee andMohalla. Milk and butter, poultry andmilk products assemble cattle, jute, mesta andin Chowk Bazar. The gur.hat is held in Coraharisouth of railway line.

/'ci. Samas- The shops are located Cereals, pulses, jute, -

tipur in Clola Bazar, and chillies, turmeric,Magardahi Road. The mangoes, coriannder,hat is however held in sugarcane, vegetables,Pethiagachi where major and fruit.auantities of chillies,turmeric and garlic areaqsembled.

ANNEX 6Page 10

Nasne ofMarkets Description of the Markets Commodities Handled Market Functionaries


46. Sasa- The wholesale market is Cereals, pulses, 35 47 3ram located 2 km from oil seeds, potatoes,

Sasaram R.S. at Takia and fruits.where more than fifty percent of market arrivaltakes place. Shops arelocated on both sidesof Sasaram-Chausa Poad.The remaining shops andarhats are spread overthe other areas of thetownship.

47. Sing- The wholesale shops are Jute, cereals, oil- 2 15 -heshwar-distributed between seeds, pulses, ghee,sthan Singheshwarsthan and cattle.

(Madhe- Madhepura and a fewpura) shops are also located

at Bharrahi. The largernumber of shops are inSingheshwarsthan.

4FP. Sita- The grain shops are lo- Cereals, Pulses, 3 27 -

marhi cated in Court Bazar oil seeds, coriander,and Mehsaul Chowk of sugarcane, jute andthe town. Gur is mesta, gur, vegetables,assembled mainly in and mango.Mehsaul.

4&C. Supaul The shops are scattered Jute, cereals, pul- 6 70 -in the township but the sea, oil seeds, coarsebig jute merchants are grains, potatoes andlocated in the north of fruits, especially mango.Hatkhola Road. A largenumber of shops are alsolocated on Supaul RailwayStation-Pipra Road.

'10. Tevhrn The shops are located Chillies, cereals, 10 19 _on both sides of the pulses, oil seeds, castor-road leading from seed, turmeric, ghee,Teghra Post Office to potatoes and onions.Teghra block.

November 15, 1971

ANNEX 7Page 1

INDIA


Layout for a Typical Market

I. Requirements

A. A single block of land would be made available for both presentand foreseeable needs.

B. The market would be located on a well-drained site, safe fromdamage by surface or seepage water and not subject toinundation caused by heavy rain.

C. Proximity to existing markets and to public transportationroutes would be considered in the choice of the new marketsite.

D. The market would, as far as possible, be located away fromgarbage dumps, kilns, and other sources of fire, slaughter-houses, tanneries and such other offensive trades, theclose proximity of which would be deleterious to the qualityand safe storage of agricultural products.

E. An adequate and dependable source of potable water would bemade available.

F. An adequate and dependable source of electric power would bemade available.

II. Objectives

A. Efficient utilization of space

A centrally located area for the administration of the marketand for general services such as extension center withmarket information, canteen with dormitory, bank, post office,and public toilet with lavatory.

B. Avoidance of congestion -

1. Ample roads and walkways for both vehicles and pedestrians.Internal roads would be not less than 20 m wide.

2. Ample parking and maneuvering space for bullock carts andtrucks. A minimum of 10 m2 for each cart and 14 m2 foreach truck.

ANNEX 7Page 2

C. Provision for future expansion

Increased quantities of products and additional servicessuch as bulk handling and processing would be anticipated.

I]:I. Appendix 7-1 illustrates the layout for a market, which follows theabove Requirements and Objectives.

November 15, 1971

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- ~ANNEX 7APPENDIX 7-1

INDIABIHAR MARKETS PROJECT

EXAMPLE OF MARKET YARD LAYOUT

I Iz wzI O UNPAVED PARKING AND C

H Cl S BULLOCK REST AREA 0

E~~~~~~~~~~~~~~~~~~~~~~~~~ -- i r- I ____

I L.____ L_ _ _JI

I LI

I I r-- zz -- ' I

4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(fO r I j

I I- I r--E--nr -t-_ i

I I I

L I L_

X ~ ~~r - r- - --- -

L - Iz ~~~~~~~~~~~~~~~~~~~~~~~~~z

o 0a 0o 0

0

w EL~~~~~~

>. z4 23

HARD SURFACE TRAFFIC AREA FAREA FOR FUTURE SHOPS AREA FOR FUTURE SHOPS

ENTRANCE

I1. ADMINISTRATION BUILDING 4. EXTENSION BUILDING SCALE2. CANTEEN WITH DORMITORY 5. PUBLIC TOILET AND LAVATORY L,,,,L..L4JL 3. BANK AND POST OFFICE 6. ADULT EDUCATION AREA 0 10 Z0 30IBD-67

(L~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~EESED-67

ANNEX 8Page 1

INDIA


Technical Specifications for Market Construction

General

1. The technical specifications outlined in this Annex serve onlyto provide basic requirements. It would be essential to ensure that detaileddesigns and specifications would be drawn up for each site for tender documents.Since neither the State Marketing Board (SMB) nor the Regulated MarketCommittees (RMC's) have any experience in construction and contracting, theRural Engineering Organization (REO) would be responsible for preparingthe final plans and specifications, preparing tender documents and supervis-ing the construction.

2. A tentative list of market towns where market yards would beconstructed appears in Annex 6 but these would be confirmed under proceduresrequiring the necessary approval of preliminary plans by the Town andCountry Planning Organization (TCP), SMB, the State Bank of India (SBI) andthe Agricultural Refinance Corporation (ARC).

3. After approval of the preliminary plans have been approved andtitle to land has been acquired, complete surveys would be made to delineateexact boundaries and topographical features. Thereafter, general soilcondition at each site would be investigated by a competent soil engineerto determine the necessary foundation designs and road specifications.

4. REO would then complete final plans and specification for thecomplete development of the market yard, including plans and specificationsfor the individual buildings, roads, utilities and fences,and would obtainSMB's approval of these final plans and specifications.

5. Before inviting tenders, it would be necessary to draw upprequalification criteria for prospective bidders. Tender documents wouldbe prepared by REO and approved by SMB; tenders would define in detail thework to be executed and would serve as a basis for the preparation of theworking drawing by the successful tenderer.

6. Tenders received from prequalified contractors would beevaluated by ReO with the assistance of SMB's Engineer to determine theirconformity with tender invitation. Selection of successful tenderers wouldbe in accordance with standard procedures. Successful tenderers would beawarded construction contracts in conformity with REO procedures.

7. REO would supervise construction and equipment installation atall yards to assure conformity with tender requirements.

ANNEX 8Page 2

Market Yard Locations

8. Market yards would be suitably located, keeping in mind thefollowing requirements: Market yards would be located on well-drainedsLtes, safe from damage by surface or seepage water and not subject toinundation caused by heavy rains. The Chief Engineer of REQ woulddetermine if an adequate and feasible drainage outlet can be provided.Proximity to existing markets and public transportation routes would beconsidered in the choice of a new market site. Market yards would belocated as far away as possible from residential buildings, factories,dairies, poultry farms, kilns and other sources of fire, garbage dumps,s:Laughterhouses, tanneries and such other offensive trades, the closev:Lcinity of which is deleterious to the quality and safe storage of agricul-tural commodities. Adequate and dependable supplies of potable water ande:Lectric power would be available for the market yard. Single blocks ofland of adequate area would be available for present and foreseeableneeds. Land reserved for future expansion would be utilized for agricul-tural production and income until needed for market use.

S:te Preparation

9 A topographic survey would be made of each market yard site.A contour interval of 10 cm Is recommended for the purchased area with3I1 cm or less contours extending into the adJacent area. An open drainwwould be excavated around the perimeter of the site to carry runoff fromwithin the site to the drainage outlet. A levee would be constructedaround the perimeter of the site (where needed) to prevent inflow ofrunoff water from adjacent areas. Earth fill would be added to low areaswithin the site and the entire area graded to provide a uniform slope of0.)8% from the lowest point along the perimeter to the highest point withinthe site. No point within the site would have a lower elevation thanthe prevailing natural ground level of the area surrounding the slte. Opendrains constructed within the site would have a minimum grade of 2.0%to ensure "self cleaning" water velocity in the respective drains.

Fence to Enclose the Market Yard

10. A fence would be constructed around the perimeter of the marketyard, including the area intended for future development. The fence wouldconsist of woven wire mesh 2.0 m high, fixed by means of iron staples toiron posts set in concrete at 4.0 m intervals. Corner posts and gate postswould be securely braced to maintain tension in the fence. The iron postsand staples would be painted with paint of an approved color and quality. Awide entrance is anticipated, to avoid congestion between ingoing andoutgoing traffic. A heavy gate is assumed impractical and instead a chainstLpported at intervals by removable posts is suggested for the short periodswhen the market may be closed.

ErLtrance Road

11. An entrance road would be constructed between the new marketand an existing transportation route. This road would be an integral

ANNEX 8Page 3

part of the new development. The entrance road would have a minimumtop width of 7.5 m and side slopes of 1:2. The embankment height wouldbe 0.5 m above the highest flood level. The construction of the road wouldmeet minimum specifications of the Indian Roads Congress and REO.

Utilities

12. Water supply. A tubewell would be drilled to a depth of about100 m to obtain an adequate and dependable supply of potable water. Awell with a 15.25 cm casing and a 10.15 cm strainer is recommended tosupply up to 75,000 liters per day. Storage tanks elevated 10 m and with atotal capacity of about 40,000 liters would provide a reserve supply ofwater and a uniform pressure in the water pipes. Underground pipes would beinstalled to distribute potable water throughout the market yard.

13. Electrical supply. A three-phase power line would be constructedand transformers to supply 25 kw of 440 and 220 volt current would beinstalled to supply electricity to the market. Single-phase 220 voltcurrent would be distributed throughout the market for illumination,ventilating fans, power outlets for fractional HP motors, etc. Three-phase440 volt current would be distributed to the water pump and for other usesexceeding 1/2 HP.

14. Lighting. The entire market would be illuminated at nightusing conventional mercury vapor lamps mounted on poles. These lampswould be on a separate circuit and would be turned on and off automaticallyby a photo cell. Sufficient lamps would be installed to obtain a minimumillumination level of 5 foot candles throughout the market.

15. Sewage. Sewage from toilets within the market would becollected and disposed of according to existing regulations, standards,and recommendations for the State of Bihar. REO's Chief Engineer would beresponsible for the approval of designs for adequate and reliable disposalfacilities.

Hard Surfacing of Roads, Parking Areas, and Walkways

16. Traffic areas within the market yards would be hard-surfaced inorder to reduce cleaning and maintenance costs, to avoid dust in the dryseason, and to decrease the accumulation of mud and water in the wetseason. Prior to the application of hard surfacing material, the surfaceof the yard would be carefully graded to provide for surface drainage anddrainage channels needed to carry away excess water. Roads and vehicleparking areas within the yards would be required to withstand loads andimpacts from steel-rimmed bullock carts and from trucks, tractors, andtrailers. Excessive maintenance costs would be avoided by constructingthese traffic areas on well-drained soil covered with a 16-cm *foundationlayer of well compacted stone or broken brick, which in turn would becovered with a 2.5-cm layer of bitumen.

ANNEX 8Page 4

St:ructures

1'. An administration building would house the administrative officesof the market. Space would be provided for the Marketing Officer, theAccounting Department, a conference room, storage of records and supplies.and toilets. The total floor area would be about 352 m2 .

18. Auction platforms. Covered platforms would protect products,displayed for auction sale, against rain and sun. Their design would beass follows: (a) the floor would be not less than 0.3 and not more than1.0 m above the surrounding road surface to facilitate loading, unloading,aLd cleaning; (b) the surface of the floor would be paved smooth and slopedtoward the edge for drainage; (c) the roof with its trusses would besLLpported by columns located along the sides of the floor; (d) the minimumclearance between the roof and the floor would be 3.75 m; (e) the roof wouldextend about 1.0 m beyond the edge of the floor; (f) rain gutters would beinLstalled to direct runoff from the roof to drainage outlets; (g) wind tieswould be installed so the roof could withstand maximum expected windvelocities; (h) the dimensions of the platform are not critical, but a widthof 6 m and a length of 40 m would be practical. A platform of this sizewould have a product capacity (assuming grain in open bags placed on endacross the platform) of about 40,000 kg or 40 tons.

19. Uncovered platforms would be provided for peak marketing periodsand for products not requiring protection against rain and sun. Theirfloors would have the same area, elevation, and construction as specifiedfor the covered platforms.

20. ShoPs for traders. Shops would be constructed and made availableon a rental basis to traders licensed to conduct business in the market.The shops would be single story and of conventional flat roof design. Theywould be constructed side by side in commodity groups, with a common wallbetween shops. Each shop would have a platform and covered arcade at thefront leading into an office and godown. At the rear a hard-surfaced yard,enclosed by a wall, would serve as a drying platform and/or for cleaninggrain. Each shop would be about 5.5 x 14.0 m with a front platform and arear yard, each about 5.5 x 5.0 m.

21. A Storage godown would be constructed at each market and madeavailable to the State vJarehousing Corporation on a rental basis. The designwould be the same as or similar to conventional godown designs alreadyfound to be practical by the State Warehouse Commission. The floor of thegodown would be raised not less than 0.3 m above the prevailing groundlevel. No provision would be made for mechanical equipment, but doorwayswould be sufficiently large and provided with ramps to permit future useof fork-lifts and trucks. The capacity of each godown (based on grain inbags) would be about 1,000 tons.

22. A public toilet and lavatory would be constructed at acentral location in the market for the convenience of the market laborersand the general public. This structure would be well-built to withstand

ANNEX 8Page 5

abuse and frequent cleaning. Durable materials and good workmanship wouldbe necessary in order to avoid high maintenance costs. The design wouldbe basic and simple with emphasis on sanitation. A minimum of roof areawould admit sunshine and aid ventilation. An ample supply of water wouldfacilitate cleaning and the flushing of wastes. The commodes and urinalswould be connected to an approved sewage disposal system. A structure withan area of 100 m2 (perhaps 5 m x 20 m) is recommended.

23. A canteen and dormitory would be constructed at a central location-in the market for the convenience of market employees, laborers, and thegeneral public. These facilities would be available on a rental basis toprivate individuals2licensed by the Market Committee. A structure with anarea of about 112 m is recommended.

24. A residence for the head guard would be provided. He would beresponsible for the security of the market and would be on call 24 hoursa day. A structure with an area of about 6 x 8 m including a toilet andlavatory is recommended.

25. Bank and post office. A suitable location for a bank and postoffice would be provided, at a central location in the market and madeavailable on a rental basis for such use. A structure with an area of about140 m2 is recommended.

26. Extension building. A location for office suitable for an ExtensionAgent, and with additional rooms for display of market information, adulteducation, etc. would be provided at a central location in the market.A structure with an area of about 128 m2 is recommended.

Equipment

27. Mechanical cleaners. Two mechanical grain cleaners would beprovided at each market. They would be the oscillating screen type withone coarse and one fine screen plus air for aspiration of light foreignmaterial. The capacity of each unit would be 7,000 to 14,000 kg per hour,depending on the amount of foreign material to be removed.

28. Platform scales. Ten of these would be provided at each marketfor weighing sacks of grain, fruit and vegetables. The capacity of eachscale would be 500 kg.

29. Sampling probes. Three of these would be provided at each market.They would be used to remove samples from open sacks standing on end. Theprobes would be the compartmented type.

30. Ventilating fans would be provided for offices in the AdministrationBuilding.

31. Drinking fountains connected to the central supply of potable waterwould be provided at convenient locations throughout the market. Wastewater from the fountains would be directed into the drainage system.

ANNEX 8Page 6

32. Water troughs (a minimum of two) would be provided in rest areasfor bullocks. The troughs would be constructed of concrete and would bemounted on a hard-surfaced platform having good drainage.

November 15, 1971

ANNEX 8Appendix 8-1Page 1

INDIA


Engineering Aspects of Subappraisal

The subappraisal would determine if a proposed market meetsminimum requirements and standards established for all markets in theState of Bihar. It would also determine if the proposed constructionworks and equipment meet minimum specifications established by agenciessuch as the Rural Engineering Organization, Indian Standards Institution,Indian Roads Congress, etc.

The following aspects are intended as guidelines for the sub-appraisals:

(1) Market Area:

Each market would have a minimum area of 6 ha plus 1 ha foreach 20 ton/day average market arrival over 125/ton day whichare projected for the next 10 years.

(2) Market Layout and Topographic Survey

There would be a detailed map (to scale) showing propertylines, contours, location of traffic areas, structures, etc.within the market. Another map would show the market locationwith respect to existing transportation routes and villages.

(3) Drainage

All surface area within the market would have an elevationequal to or greater than surface area surrounding the market.There would be protection against overflow and an adequateoutlet for drains and sewer lines within the market.

(4) Entrance Road

This road would connect the market with an existing transportationroute. It would be hard-surfaced and meet specifications ofthe Indian Roads Congress for roads for this use.

(5) Boundary Fence

The market would be enclosed by a boundary fence.


(6) Water SUpply

A potable water supply, up to 75,000 liters per day,would be needed for the market. This water would bedistributed throughout the market from gravity storage.

(7) Electrical Supply

Electric power consisting of 25 kw of 3-phase 440 and 220 voltcurrent would be needed for the market. Separate meters wouldbe installed for current supplited to private shops, etc.

(8) Area Illumination

The entire market would be illuminated at night by usingconventional mercury vapor lamps mounted on poles. -An:illumination level of 5 foot candles would be needed.

(9) Sewage Disposal

Sewage from the market would be disposed of according toexisting regulations, standards, and recommendations forthe State of Bihar.

(10) Hard-Surfacing

Hard-surfacing would be required throughout the market, exceptfor the bullock and cart rest area, boundary fence roadsto the rear of market, and the grass and tree area adjacent tothe centrally located buildings (refer to Annex 7, Appendix 7-1).

(11) Structures

Each market would have the following:

(a) administration building (1)(b) shops for traders (minimum of 15)(c) auction platforms (minimum of 5)(d) storage godown (1)(e) canteen and dormitory (1)(f) residence for head guard (1)(g) public toilet and lavatory (1)

Each market would provide space for:

(a) residence for Marketing Officer(b) agricultural input shops(c) additional auction platforms


(d) additional godowns(e) covered rest area for bullocks(f) veterinary dispensary(g) future weighbridge(h) bank and post office(i) extension building

November 15, 1971

IN ABIHAR AGRICULTURAL MARKETS

PHASING CHART

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Quarters Quarters Quarters Quarters Quarters

SET UP SMB ANDAPPRAISAL UNIT OF SBI…------_---

PLANNING AND APPRAISAL_____I _Markets lo Markets 15 Markets iIMakts ]

PROVISION OF LAND BY 1 0 Markets! 0I Markets 1S harkets 15N

STATE GOVERNMENT- ----------------------

SUBLOAN APPROVALS -I ti 0 Markets 10 Mark 15 Markets 15 Markets;,

10 Markets 10 Markets 15 Markets 15 MarketsCONTRACTI NG ____MB __________ ______----------___ 1 T

TRAINING SMB _ 3 Staff |3 Stoff |3 Staff

15 Secretaries 15 Secretaries 15 Secretaries

TRAINING MARKET SECRETARIES --… I-I [ [1m1L1I1120 Graders 20 Graders 20 Graders

TRAINING GRADING OFFICERS - ------- ----

PROJECT EVALUATION Contracting Data Collection, Analysis and Reportingz

___________. L li .J .

. I _ I I I I I I I L I I . I I I i _ X~~~~~~

AWINX 10,

DiDIA

BIHAR AGRICULTURAL MArKTS PROJECT

Cost Estimates(Rupees '000)

CATEGORY Year 1 Year 2 Year 3 Year 4 Year 5 Total - of which foreign exc_nge compoientAmount % of Total

I. LARD - 2,100 2,100 3,150 3,150 10,500 - -

II. CIVIL WORKS

Survey and Land Preparation - 1,280 1,280 1,910 1,910 6,380 6,280 20

Entrance Roada - 4190 480 730 7.30 2,430 680 28Surfacing - 1,620 li620 2,430 2,430 8,100 1,700 21

Fencing - 580 580 860 860 2,880 1,010 35Utilities - 2,620 2,620 3,940 3,940 13,120 5,770 44Office Complex - 3,130 3,120 4,69o 4,690 15,630 3,910 25

Platforms 3,580 3,570 5,360 5,360 17,870 4,470 25

Godowns - 2,120 2,130 3,180 3,180 10,610 2,650 25

Traders Shops - 6,880 6,880 10,310 10,310 34,380 8,610 25

SUB-TOTAL _ 22,300 22,280 33,410 33,410 111,400 30,080 27

III. EqViIqr

Mechanical Cleaners 120 120 180 180 600 210 35

Scales - 150 150 230 220 750 260 35Other Equipment 80 80 120 120 400 120 30

SUB-TOTAL - 350 350 530 520 1,750 590 34

IV. TRAINMI & PROJECT EVALUATION

Training 50 90 90 - - 230 - -

Evaluation 230 230 230 230 230 1,150 350 30

SUB-TOTAL 280 320 320 2?0) 230 1,380 350 25

TOTAL OF II, III, & IV 280 22,970 22,950 34,170 34,160 114,530 31,020 27

V. CONTINGEUCIES

Physical Contingency (10.3%1 30 2,370 2,360 3,520 3,520 11,800 3,190 27Price Contingency (57 p.a.J ) 30 4,000 5,470 10,400 12,810 32,710 8,870 27

SUB-TOTAL 60 6,370 7,330 13,920 16,330 44,510 12,060 27

TOTAL PROJECT COST 340 31,440 32,880 51,240 53,640 169,540 43,080 25

us$ '000 Equivalent 50 4320 4,520 7,040 7,360 23,290 5,920 25

11 On -ivil 'orks, Equipment, and Training and Project Evaluation.#/ Based on 1971 prices, including physical contingency.2/ At current (October 1971) official foreign exchsage rate.

Sub-total and total percentages are rounded.

October 21, 1971

ANNEX 10Appendix 10-1

INDIA

BIIIAR AGRICULTURAL MARKETS PROJECT

Capital Cost of Model "A" Mandi

Foreign ExchangeComponent Economic Life

Total Cost Amount (Z) (Years)--- Rs '000…

A. CIVIL WORKSSurvey and Land

Preparation 102 20 20 indefiniteEntrance Roads 48 13 28 30Surfacing 240 50 21 30Fencing 80 28 35 10Utilities 279 123 44 20Office Complex 295 74 25 30Platforms 540 135 25 20Godowns 350 88 25 20Traders Shops 688 172 25 20

Subtotal 2,622 703 27

B. EOUIPMENTMechanical Cleaners 15 5 35 10Scales 18 7 35 10Other Equipment 10 3 30 5

Subtotal 43 15 34

Total 2,665 718 27

Add physical contin-gency (10.3%) 274 73 27

Total 2,939 791 27

/1 This model was designed to reflect the larger markets expected to bedeveloped. It would handle 500 tons of produce per average market day.For financial return calculation and further details, see Annex 15.

November 16, 1971


INDIA


Capital Cost of Model "B" Mandi -

Foreign ExchangeComponent Economic Life

Total Cost Amount (Z) (Years)--- Rs '000-s-

A. CIVIL WORKSSurvey and Land

Preparation 58 12 20 indefiniteEntrance Roads 49 14 28 30Surfacing 93 20 21 30Fencing 40 14 35 10Utilities 253 111 44 20Office Complex 301 75 25 30PlatfoLD 180 45 25 20Godowns 180 45 25 20Traders Shops 375 94 25 20

Subtotal 1,529 430 28

E. EQUIPMENTMechanical Cleaners 8 3 35 10Scales 7 2 35 10Other Equipment 3 1 30 5

Subtotal 18 6 33

Total 1,547 436 28

Add physical contin-gency (10.3%) 160 45 28

Total 1,707 481 28

/1 This model was designed to reflect the smaller markets expected to beJovolopoA. It wqotld handle 120 tons of produce per average market day.For financial return calculation and further details, see Annex 15.

November 15, 1971


INDIA


Operating Cost of Model Mandi/1

Model "A" Mandi Model "B" Mandi

A. STAFF /2 A. STAFF /2

1 accountant 3,800 1 accountant 3,8001 cashier 3,200 1 cashier 3,2002 office assistants 4,800 2 office assistants 4,8006 supervisors 19,200 2 supervisors 6,4002 graders 6,000 1 grader 3,0003 cleaning machine 2 cleaning machine

operators 9,000 operators /3 4,5005 sweepers 6,000 3 sweepers 3,600

12 weighmen 18,000 4 weighmen 6,00010 guards 15,000 4 guards 6,000

Subtotal 85,000 Subtotal 41,300

B. UTILITIES AND SUPPLIES B. UTILITIES AND SUPPLIES

Electricity 10,000 Electricity 5,000Telephone 1,200 Telephone 1,000Maintenance Supplies 15,000 Maintenance Supplies 10,000

Subtotal 26,200 Subtotal 16,000

C. INSURANCE AND MISC. 15,000 C. INSURANCE AND MISC. 10,000

Total 126,200 Total 67,300

/1 For the first year of full operation under the Project.

/2 The market secretaries are state civil servants and their salaries arepaid by Government.

/3 One full-time and one half-time.

November 15, 1971

ANNEX 1 0Appendix 10-4

INDIA


Staff Training Costs

Rs

A. State Marketing Board Staff

For one year:

3 senior staff at Rs 8,000 -24,000

6 junior staff at Rs 5,000 30,000

Subtotal 54,000

B. Market Committees Staff

45 Market Secretaries for 1/2 year, at Rs 3,000 135,000

60 Graders for three months at Rs 700 42,000

Subtotal 177,000

Total 231,000

Add Contingencies (20Z) 46,200

Grand Total 277,200

November 15, 1971


INDIA


Project Evaluation Costs"

Tentative terms of reference are in Annex 13.

Rs

A. Staff Remuneration

1 Senior Research Officer at Rs 16,000 per annum 80,000

10 Research Workers- at Rs 7,200 per annum 360,000

5 Subordinate Staff at RS 3,000 per annum 75,000

5 Consultant man-months at Rs 25,000 per month 125,000

Subtotal 640,000

B. Travel Expenses

120,000 km per annum by road at Rs 0.50 300,000

10 return flight tickets India-Washingtonat Rs 16,000 160,000

Subtotal 460,000

C. Miscellaneous

Stationery, Printing and Supplies 200,000

/3Total- 1,300,000

Add Price Contingency (16%) 208,000

Grand Total 1.508,000

/1 Only for the IDA disbursement period of 5 years.

/2 Master's degree level.

/3 Including physical contingency of 10%.

ANNEX 11

INDIA


IDA Disbursement Schedule/(Rs '000)

Year Quarter Disbursed Undisbursed

1973 1 - 101,6002 60 101,5403 70 101,4704 70 101,400

1974 1 4,675 96,7252 4,675 92,0503 4,675 87,3754 4,675 82,700

1975 1 4,900 77,8002 4,900 72,9003 4,900 68,0004 4,900 63,100

1976 1 7,700 55,4002 7,700 47,700J 7,700 40,0004 7,700 32,300

1977 1 8,075 24,2252 8,075 16,1503 8,075 8,0754 8,075

/1 Assuming effectiveness in October 1, 1972 and atime contingency of six months.

November 15, 1971

ANNEX 12

INDIA


Credit Policies and Procedures

Loan Applications

1. After approval of detailetd market designs by the State Marketing]3oard including engineering cost estimates and after provision of land byithe State Government has been assured, the Market Committee (RMC) wouldsubmit a subloan application to SBI which would include the detailed designs,cost estimates, a financial plan and its proposals for its organization andmanagement as basic documents for SBI decision. Designs would be establishedby the Town and Country Planning Organization of the State and all works3upervised by the Rural Engineering Organization of the State.

Trerms and Conditions of Subloans

2. Loans would be made by SBI at an interest rate of 9% and have amaximum term of 15 years with a grace period of usually not more than two(but sometimes three) years. SEI would lend 95% of the value of the improve-ments to be built and receive a mortgage from the RMC subborrower on the landand improvements placed on the land.

Loan Disbursements

3. Whenever possible disbursements would be made through directpayments by SBI to suppliers of goods and services or contractors againstcommercial documents.

Supervision

4. Field inspections would be made by SBI technicians who would checkthe use of funds in accordance with the subloan agreements, and see to itt:hat the assets assigned to the guarantee of the loan exist and their valueas security remains adequate. SBI would also check into the organization andmanagement to see that sound financial practices are being followed by theRMC and that market fees, license fees and rents are being collected accordingt:o law.

Rtemedies

5. SBI would suspend disbursement on subloans and, where appropriate,ask the SMB to supersede the RMC subborrowers when informed by its super-visions that the operations of the RMC are inadequate to pay the necessarysubloan installment in accordance with the subloan agreement. Upon defaultof the RMC for a period of one year, and upon failure of State Governmentto supersede, SBI may (a) foreclose on its mortgage and/or (b) take otherremedies permitted by law.

ANNEX 13

INDIA


Evaluation Procedures

1. This would be the first Project aimed at improving the operationsof regulated agricultural markets. It is therefore very important thatevaluation procedures are provided for.

2. Assurances would be obtained from the State of Bihar that theState Marketing Board (SMB) would enter into a contract with an appropriateinstitution such as the Agricultural University of Bihar, an Agro-EconomicResearch Center or the National Council of Applied Economic Research or theDirectorate of Marketing and Inspection, which institute would evaluate themarketing function in a sample of towns selected for market development. Thecontract would specify: (a) the senior research officer who would be incharge of evaluation as well as the personnel who would collect the dataand perform the analysis; (b) the time period for data collection, foranalysis and for reporting; and (c) the compensation to be paid to theinstitute by the SMB and the time of such payments.

3. It is anticipated that evaluation would commence as soon as pos-sible after the effectiveness of the credit, so that data can be collectedon the operations of the sample markets before improvements are constructedas well as during the development period and after full development of themarket facilities. Suggested terms of reference for the evaluation are inAppendix 13-1.

November 15, 1971


INDIA


Tentative Terms of Referencefor an Evaluation of the Bihar Markets

Purpose

1. To examine the changing marketing pattern and to estimate thebenefits resulting from setting up of the Bihar markets.

Specific Objective (Guidelines)

2. The behavior of the following factors would be specificallyevaluated before and after the setting up of the regulated markets.

(a) prices after market charges received by farmers;

(b) wholesale market prices;

(c) margins between (b) and (a);

(d) costs of marketing;

(e) losses in transporting the grain from farms to marketyards;

(f) handling losses in the market yards -- including thosedue to uncovered platforms;

(g) storage losses;

(h) storage costs;

Ci) quantities of grain marketed in the market yards;

(j) market arrivals: seasonal pattern of marketings;

(k) market intelligence available to cultivators onprices, supplies, production, etc.;

(1) market intelligence available to market functionarieson prices, supplies, etc.;

(m) quantities and pattern of grain dispatches tomajor terminal markets;


(n) difference between prices prevailing in the newlyconstructed regulated markets and those in themajor terminal markets;

(o) number of market functionaries (i.e. traders, com-mission agents, brokers and employees for weighing,cleaning, bagging, loading, unloading, grading, etc.);

(p) quantities of grain cleaned before selling in the yard- as proportion of total market arrivals; and

(q) difference between the prices received for cleanedand uncleaned grain.

Research Methodology (Guidelines)

3. Five markets constructed in the first year of the loan disburse-m[ent, and five additional markets constructed in the second year of theloan disbursement, would be selected for evaluation. The selection of themarkets would be such as to allow as much variability in the volume andarea of their operations as possible. Data collection would commence fromthe date of loan disbursement, i.e. prior to the construction of the mar-kets, and should continue for two years subsequent to the end of the dis-bursement period. This is essential since the purpose of the study isto compare the performance of the markets before and after the constructionof the new market places, and since changes in marketing patterns willoccur only gradually over time.

4. One investigator would be assigned per market studied. If theinvestigator cannot be located in the market center, he should be able tomake frequent trips to the market yard, e.g. two trips per week in theoffseason and a continuous stay in the market place for two or three monthsafter the major harvest.

5. The data gathering would be a combination of statistical informa-tion and careful direct observation.

6. In gathering information on the terms listed under specificobjectives, the following considerations should receive prime attention.

(a) every effort should be made to collect prices of com-parable varieties and grades of a particular crop; and

(b) if there is no system of open auction and if nomachinery is in existence for maintenance of pricerecords, maximum, minimum and the most common pricesprevailing in the market should be collected. Forthe purpose of this study daily, and if that is notfeasible at least weekly, wholesale prices shouldbe maintained.


7. The estimates of market arrivals should be as complete as possiblefrom the commencement of the study. This is important so that increase inthe market arrivals, if any noted, is not a result of improvement of cover-age but a genuine increase in the quantities marketed.

8. If it is not possible to collect data from all the traders ontheir purchase and sale operations, data from at least five major whole-salers and/or commission agents should be collected.

9. Direct observation would involve maintenance of a diary by eachinvestigator in which detailed information should be maintained on thefollowing factors:

(a) each year's production of principal crops in the tahsiland/or district in which the market is located; distribu-tion of farm sizes in the area; if possible some informa-tion on whether marketings come from small or big farmers;

(b) population of the district;

(c) major terminal markets to which supplies are usuallyshipped;

(d) description of rail and road connections joining themarkets with feeder markets and with the terminalmarkets;.

(e) description of availability of transport facilitiesgenerally and during specific seasons - difficultiesencountered by traders in acquiring transport;

(f) number and types of market functionaries;

(g) description of existing storage facilities;

(h) data on storage losses by interviewing tradersregarding length and type of storage;

Ci) interviews of cultivators regarding their views onmarket facilities, Importance of cleaning, marketcharges, availability of credit, their generalbargaining position, interest rates, etc.; and

(j) description of availability of market intelligence totraders and to cultivators.

Analysis of the Data

10. The data collected for each market may be of interest to theState and/or the Central Government and, therefore, may be analyzed there.The data would, however, be made available to IDA annually to enable it


to conduct an evaluation of the Bihar Markets Project. A report would beprepared by the senior research officer annually. The report would includeanalysis of the statistical information collected in the previous year andthe direct observations made by the research investigators to evaluate theeffects of the improvements on the marketing system.

1I. Tentative cost estimates are in Annex 10, Appendix 10-5.

iIovember 30, 1971

ANNEX 14Page 1

INDIA


Functioning of the New Markets

Introduction

1. The new markets would function quite differently from the old, bothbecause of the new facilities being provided (Annex 8) and the enforcementof Bihar's Agricultural Produce Markets Act of 1960 which is virtually unen-forceable without the concentration of trading the new markets would pro-vide. The regulation of markets under the Bihar Agricultural Produce MarketsAct is described directly below, followed by a discussion of the functioningof the new markets, particularly as it would contrast with the old.

Market Regulation

2. Bihar's Agricultural Produce Markets Act was passed in 1960 andupheld by the Supreme Court in 1968 (see Annex 3). Since then 68 marketshave been notified for regulation under the Act. Enforcement of the Act isnot feasible without the type of markets envisioned in this report. The Actprovides for the following:

(a) the State Government to designate markets and commoditiesto be regulated and appoint and supervise market secretariesand their committees;

(b) market secretaries to supervise the regulation of their res-pective markets. Market secretaries of the proposed modern-ized mandies (agricultural wholesale markets) would receivetraining for one year at the Directorate of Marketing andInspection's training center in Nagpur, Maharashtra;

(d) local Market Committees (RMC's) composed of the secretary,farmers, traders, and local authorities to advise in theenforcement of the Act;

(d) market regulations specifying some of the conditions ofsale. They include the following:

(i) sales are to be by open auction rather than by directnegotiation;

(ii) traders and market functionaries are to be licensedby the RMC;

(iii) the legal market area is to be delineated by theRMC. Wvholesale transactions in the market towncannot be made outside this area;

ANNEX 14Page 2

(iv) maximum market charges are to be fixed for variousmarketing activities;

(e) construction of market facilities.

(f) collection of a market fee to finance operating costs andnew construction. The current market fee is 0.25% of thesales price. It has been raised to 0.50% under presentlegislation, but in most cases it would need to be 1.00%to finance the construction and operation of the proposedmarkets;

(g) arbitration of the settlement of disputes between farmersand traders and among traders; and

(h) supervision of transactions by the RMC staff;

Though not required under the Act the following activities and facilitiescould logically be supplied and/or operated by the RMC's; (i) marlcetinformation. Prices for recent transactions in the local and alternativemarkets could be posted; (ii) cleaning facilities. The RMC could providecleaning facilities at cost; (iii) grading facilities. Government gradersand grading facilities could be provided at cost.

Differences Between the New and Old Markets

3. The proposed modernization of mandies would involve concentratingall the wholesale traders, their shops, and their purchases in a 6-25 hasurfaced area controlled by a government-supervised RMC. The new marketswould function differently from the old (see Annex 2) in the followingrespects:

(a) Concentration of traders -- Traders and their transactionsfor the most part are currently scattered throughout themandi towns along congested streets and lanes. The pro-posed mandis would concentrate both within a single area,the market yard. This would facilitate communications be-tween farmers and traders and among traders themselveswith resultant savings in transportation, time and saleseffort. It would also greatly facilitate the enforcementof Bihar's Agricultural Produce Markets Act.

ANNEX 14Page3

(b) More sanitary markets with greater capacity andmaneuverability - The streets and lanes and market centersof most mandi towns are ill-paved and -drained. As a resultthey are often muddy, unsanitary and congested. The streetsand market yards of the proposed mandies would be paved andthe auction platforms covered. This would help keep theproduce out of the mud and rain, particularly during themonsoon season. It would also increase maneuverability inthe market yards and increase their capacity.

(c) Auction sales - Currently market transactions are by nego-tiation, either direct or through an intermediary such as acommission agent or broker. Sales in the new markets wouldbe by open auction in the market yard at specified hours.This arrangement would provide the sellers contact with thelargest number of buyers with the least effort and shouldresult in sales at competitive prices.

(d) Supervised transactions and weighing -- Market transactionsin the mandies are currently unregulated and unsupervisedleaving room for considerable dispute among parties. Thisexplains in part the general reluctance of farmers to selltheir produce in the mandies and to use itinerant merchantsinstead. Each auction sale in the new mandies would be super-vised by a market official. The names of the buyer and sell-er, the price, grade and the approximate quantity sold wouldbe recorded at the time of sale. The record would providethe basis for settling disputes. In addition, weighingwould be by licensed weighmen contracted by the RMC usingrested scaies.

(e) Market charges -- Each market has customary deductions forvarious types of market services and taxes. They vary bymarket and are presently unregulated. Market charges inthe new mandies would be regulated by the RMC. Some repre-sentative current and proposed market fees for grain arelisted in Appendix 14-1. Market charges in the new mandieswould be about 50% (two and one-half percentage points) lessthan with the present system.

(f) Change in number and type of market functionaries -- The mostcommon market channel for grain moving from the villages tothe market towns in Bihar is the itinerant merchant. The in-troduction of regulated auction markets would encourage farm-ers to bring their produce directly to the mandies, thus dimin-ishing the importance of the itinerant merchant. The farmerswould thus gain part of the margin now taken by the displaceditinerant merchant. It appears, however, that farmers wouldstill need the services of a kutcha arhatya (seller'sagent) in the new markets since the latter facilitate thehandling of the details of the sales transaction forthe farmers and thus the numbers of agents would likelyincrease.

-ANNEX 14Page 4

The RMC could hire agents to operate as kutcha arhatyas,but they would likely be less efficient than those operatingon a commission basis.

(g) Market facilitating activities -- Market transactions arefacilitated by a system of market information, cleaningand grading. None of these are adequately provided in thepresent mandies. The proposed mandies would provide equip-ment for cleaning grain and grading by government standards(see Annex 8) and would post prices of recent transactionsin the mandi and alternative trading centers. Data onmarket arrivals could be provided as well. Cleaning andgrading would be expected to raise the market value of theproduce while market information would reduce buyers' andsellers' price risk and keep prices more competitive, thusraising the general level of prices to producers (see Annex15).

(h) Storage - Some traders will store producers' grain forseveral months and lend them up to 75% of its value. Stor-age for a week or less is generally not available in themarkets. It is felt that the quality of medium-term storage(2-4 months) is inadequate and that short-term storageshould be made available for farmers not satisfied with theday's price. To these ends the planned mandies include lim-ited free short-term storage in holding areas (see Annex 8)and the Bihar State Warehouse Corporation, would be encour-aged to provide medium-term storage at commercial rates inabout one-half of the new mandies.

(i) Farm services and supplies -- Farm services and supplies arepresently scattered throughout the mandi towns with resultantinconvenience to farmers. Most of the planned mandies wouldinclude a post office, bank, and extension education center,and space for farm supply shops (fertilizer, seed, machineryand parts) which would be built upon application if toprescribed specifications. The greater availability and useof services and supplies would have primary benefits forthe farmers and secondary benefits for the economy.

(j) Amenities for farmers and their bullocks -- Bihar's mandiespresently have no formal arrangements for farmers and theirbullocks to rest, eat and drink water. Such accommodationsare proposed in the new mandies and would encourage farmersto use the mandies.

(k) Well-constructed shops and godowns -- Most traders' shopsand godowns are old and rather poorly constructed and main-tained. The new facilities would be well-designed andbuilt with a corresponding reduction in maintenance andstorage losses.

November 30, 1971


INDIA


Market Charges Before and After 1Market Regulation in Bihar Mandis-

Amount of ChargeBefore After

Charge Item Regulation Regulation Net Charge- (percent)---- (percentage

points)

Commission 2.43 1.40 - 1.03

Brokerage 0.26 0.24 - 0.02

Weighing 0.17 0.05 - 0.12

Market Labor 0.14 0.07 - 0.07

Charities 0.23 - - 0.23

Dhalta (handling) 1.09 - - 1.09

Narnoona (sample) 0.28 - - 0.28

Miscellaneous 0.76 - - 0.76

Market Fee - 1.00 + 1.00

Total 5.36 2.76 - 2.60

/1 Estimates from data in Government of Bihar's Project Reporton Development of Markets in Bihar, Patna, 1971 and Govern-ment of Bihar supplemental reports.

November 15, 1971

ANNEX 15Page 1

INDIA


Cash Flow Projections and Financial Return Calculations

Typical Market Committees

1. Based on data collected during the field visit, two model mandieshave been constructed to test their financial viability. Model "A" wouldrepresent the larger markets to be financed under the Project, while model"B" would be a typical small- to medium-scale mandi. Expected arrivals wouldprimarily determine market yard sizes and investment requirements, apartfrom an invariable need of land area and structures for overhead activities(see Annexes 7, 8 and 10). The loan would normally cover 95% of initial costfor civil works and equipment, and RMCs would be expected to contribute anequity of 5%, since most of them have already accumulated sufficient funds.Only in exceptional cases would the loan cover 100% of initial investmentcost. Breakdowns of capital and operating costs are given in Appendices 10-1,10-2 and 10-3.

2. Market fees, the major income component of RMC's, would be 1% ofthe arrival value and would grow as arrivals go up. Rentals at 12% of in-vestment cost would be levied for traders' shops and godowns. Traders' li-censp foes and srain cleaning fees would be two minor income components.Market fees would not only be the largest income item, but would also cruciallydetermine the financial results of the RMC's operations: Although the ini-tial investment for model "B" mandi would be less than 60% of the relevantamount to be spent for model "A" mandi, accumulated surpluses of model "A"would grow much faster. The anticipated tighter cash situation of model "B"mandi would necessitate a difference in loan terms, as follows:

Grace Period Repayment Period…___------…(years)---------

Model "A" 2 10Model "B" 3 12

3. It would be in line with the Bihar Market Act to allow RMC's anupper limit of accumulated surpluses equal to three years' gross income. Fundsin excess of these amounts would have to be controlled by the State MarketingBoard (SMB) for investment in programs geared to building feeder roads or pro-viding additional marketing facilities (para 4.04). The rates of return of40" for model "A" mandi and 20% for model "B" mandi suggest the fact thatconsiderable economies of scale would favor financing only larger mandies.

ANNEX 15Page 2

However, smaller mandies would also be financially viable and tend to becloser to the producers, thus having additional economic benefits. Cashflow projections for the models appear as Appendices 15-1 and 15-2.

The Banks

4. - General. Under the Project, all IDA funds for financing civilworks and acquisition of mandi equipments would be channeled via GOI, ARC,and SBI to the RMCs. In addition, ARC and SBI would contribute their ownfunds for financing these project components. Details on the sharing theProject financing by major components are given in paragraphs 3.16 through3.18.

5. ARC's projected cash flow is shown in Appendix 15-3. GOI wouldtransfer the relevant IDA funds to ARC based on the Project phasing, fromYear 2 to Year 5. ARC would scart repayment to GOI in Year 5 and finalizeit in Year 19. ARC's borrowing rate would be 6% (with 1/4% rebate forprompt repayment of principal and interest). Subsequently, SBI woulddisburse the ARC funds. SBI would repay the loans to ARC over a 15-yearperiod starting in Year 5. The interest rate would be 6.5%; thereforeARC's margin would be 0.75%. The accumulated surpluses would substantiallyexceed ARC's cost of administering the loan. ARC's current and projectedincome statements and balance sheets are presented in Annex 4.

6. SBI's cash flow is shown in Appendix 15-4. The cash inflow wouldmiainly consist of the IDA funds disbursed between Years 2 and 5, and the RMC'srepayment of loans at 9% interest. As for the repayment schedules for thePMC's, a two-year grace period and a 12-year repayment period, on an average,has been assumed. SBI's interest margin would be 2.5% per annum, since itwould have to spend significant amounts for subappraisals and for super-v-ision, apart from increasing overhead cost.

7. In spite of all these expenses SBI would be able to accumulateenough surpluses. Because of only 50 subborrowing RMC's which would beclosely supervised by SMB, there would be no substantial default risk.In addition, SBI itself would do thorough subappraisals and supervisionto avoid defaults. Therefore, the calculated surpluses would suffice tocover the default risk.

F'ebruary 2, 1971

INDIA

BRIAR AGRICULTURAL NAPEETS PROJECT

Cash Flow Projections - Model "A" Mandi (in RsIOGO)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1L 20

I, INCOME STATEKENT PROJECTIONS

Market reqs3/ 400 562 737 923 1,138 1,365 1,612 1,693 1,778 1,867 1,867 i,867 1,867 1,867 1,867 1,867 i,867 1,867 1,867 1i867

ee fs 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Rentals - 144 144 144 144 144 144 4 144 i44 144 144 144 144 144 144 144 144 144 144

Cleaning fees - 5 6 7 8 9 9 9 9 10 10 10 10 10 10 10 11 n i2 12

TOTAL REVENUES (1) 405 716 892 1,079 1,295 1,523 1,770 1,851 1,936 2,026 2,026 2,026 2,o26 2,026 2,026 2,C26 2,027 2.027 2,027 8,027

Operating Cots (2) 20 126 129 132 134 137 140 143 146 149 152 155 165 165 170 170 175 " i80 1110

Profit before interest soddepreciation (3) 385 590 763 947 l1,1l 1,386 1,630 1,708 1,790 1,877 1,874 1,871 1,86i i,86i 1,856 1,856 1,852 1,852 1,848 1,848

Interest Projeqt ILan-4 122 243 1 243 _, 234''-. 2t5 196 . 175 -151 119 93 68 35 - - - - - -

Depreciation / 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137

NET PROFITS i26 210 383 576 809 1,053 1,318 1,420 1,534 1,647 1,669 1,699 1,724 1,724 1,719 1,719 1,715 1,715 1,711 1,711

II. CASH FLOW PROJECTIONS

Investment co7tsW (4) 2,939 - - - - 10 - - - - 136 - - - _ 10

Debt ServiceZ (5) - - 496/ 496 496 496 496 496 496 496 496 496 - - - - - _ _ _

CASH Ol)TFLOWTt(a) of (5) (6) 2,959 126 625 628 630 643 636 639 642 645 784 651 3A5 165 170 180 175 175 180 IBo

Loan Received §/ (7) 2,792 - - - - - - - - - - - - - - - - - -

CASH INFLOWTotal of lines (8) 3,197 716 892 1,079 1,295 1,523 1,770 1,851 1,936 2,026 2,026 2,oe6 2,026 2,026 2,026 2,026 2,027 2,027 2,027 2,027

(1) and (7)NET CASH FLOW 238 590 267 451 665 880 1,134 1,212 1,294 1,381 1,242 1,375 1,861 1,861 1,856 1,846 1,852 1,852 1,847 1,847

Line (8) less line (6)

Interes3jon sccumulatedsorplus. - 14 50 70 101 147 208 290 379 480 591 702 826 987 1,158 1,339 1,530 1,733 1,9448 2,176

TOTAL CASH FLOW- Annual 238 604 317 521 766 1,027 1,342 1,502 1,673 1,861 1,833 2,077 2,687 2,848 3,014 3,185 3,382 3,585 3,795 4,023

- Cunolative 238 842 1,159 1,68o 2,446 3,473 4,815 6,317 7,990 9,851 11,684 13,761 16,448 19,296 22,310 25,195 28,877 32,462 36,257 40,280

III. FINANCIAL RA'E OF RETURNNET COST/BENEFIT STREAM _/

Line (3) less lne)(4

) (2,554) 590 763 947 1,i61 1,386 1,630 1,708 1,790 1,877 1,874 1,871 1,861 1,861 1,856 1,856 1,852 1.852 1,848 2,144

Pate of Return: 40%

1/ Collected on 30% of arrivals in Year 1 which percentage would increase by 10 p.a. up to 90% in Year 7.

Arri-als incresse by 5% pa. in the first 10 years. Further increases would require new investants.2/ Actual license fee 1970-71.V/ Ab-t 12% of investment in godow-s and traders shops.4/ At 98 p.s.

5 traight line; for "econo-ic life" of investsment items see Appendices 10-1 end 10-2.§/ Initial inves.nent and replacements. For details see Appendices 10-1 and 10-2.

| 10 eqall annuities including repayment of principal and payment of interest at 9% p..; two years grace period.

Covering 951 of initial investment, encloding land.

/ Including residual values.

INDIA


Cash Flow Projections - Model 'B' Mandi (in BslOOO)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 t9 20

1. INCOME STATEHNT PROJECTIONS

Market fees 105 147 193 243 296 359 422 44i 465 488 488 488 488 488 488 488 488 488 488 488Licensefes 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4Rentals V - 75 75 75 75 75 75 75 75 7' 75 75 75 75 15 75 75 75 75 75Clening fees - 2 3 4 5 6 7 8 9 10 10 10 10 10 10 10 10 10 10 10

TOTAL REvENUES (1) 109 228 275 326 380 444 508 528 553 577 577 577 577 577 577 577 577 577 577 577

Operating costs (2) 10 67 70 73 77 82 88 92 97 100 100 100 100 100 100 100 100 100 100 100

Profit before interestand depreciation (3) 99 161 205 253 303 362 420 436 456 477 477 477 477 477 477 477 477 477 477 477

Interest project loan 73 i46 146 146 139 131 .22 U13 102 91 79 66 51 35 18 - - - - -Depr-ctation 2J 78 78 78 78 78 78 78 78 78 78 78 78 78 78 78 78 78 78 78 78

NET PROFITS (LOSSES) (52) (63) (19) 29 86 153 220 245 276 308 320 333 348 364 381 399 399 399 399 399

II. CASH FLOW PROJECTIONS

I-vestent costs (4) 1,707 - - - - 3 - - - - 58 - - - - 3 - - -Debt service V/ (5) - - - 281 281 281 281 281 281 281 281 281 281 281 281 - - - - -

CASH OUTFLOW (6) 1,717 67 70 354 358 366 369 373 378 381 439 381 381 381 381 384 381 381 381 381Total of lines

(2), (4), (5)

Loin recved V (7) 1,622 - - - - - - - - - - - - - - - - - -

CASB INFLOWTotalof lines (8) 1,731 228 275 326 380 444 508 528 553 577 577 577 577 577 577 577 577 577 577 577

(I) and (7)

NET CASH FLOWLine (8) less line (6) 14 16i 205 (28) 22 78 139 155 175 196 138 196 196 196 196 193 196 196 196 196

Interest on accumulatedsurpls 9/ 1 11 23 23 26 32 42 54 68 84 97 115 133 153 174 196 220 245 271

TOTAL CASH FLOW

- Annuli 14 162 216 (5) 45 1o4 171 197 229 264 222 293 311 329 349 367 392 416 441 467_ Cumulative 14 176 392 387 432 536 707 904 1,133 1,397 1,619 1,912 2,223 2,552 2,901 3,268 3,660 4,o76 4,517 4,984

1II. FINANCIAL RATE OF RETURN

NET COST/BREEFIT STREAM L/

Line (3) less line (4) (1,608) 161 205 253 303 359 420 436 456 477 419 477 477 477 477 474 477 477 477 682

Date of Seturn: 209

iJ Collected on 30% of arrivals in Year I which percentage would increase by 10% pa. up to 90% in Year 7.Arrivals increase by 5% p.. in the first 10 years. Further increases would require new investments.

2/ Actual license fee 1970-71.About 12% of investment In gcdowns and traders shops.

F At 9% pa.Straight lie,; for "econo.ic life" f investment items see Appendices 10-1 and 10-2.I Initial investment and replacements. FPr de.atlo see Appendices 10-1 and 10-2.

/ 12 equal annuities iucluding repayment of principal and payment of interest at 9% pa.; three yearn grce- period.Covering 95% of initial iReutment , ecciuding land.

2 At 6% p.m.Including residual -mloe-.

INDIA

BIHAR AGRICULTURAL HAREETS PROJECT


Projected Cahi Flov of Project Fund (in R1000)

Project Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1718 1

I. CASH INFLOW

IDA funds - 18,4400 19,300 30,500 32,000 - - - - _ _ _ _ _ _ _ _ _ _

ARC funds / _ 6,100 6,300 10,100 10,700 , - - _ _ _ _ _ _ _ . _

ServIce of loansby SRI - - - _ 3,504 7,165 12,971 19,077 19,077 19,077 19,077 19,077 19,077 19,077 19,077 19,077 15,573 11,912 6,106

Net Income on accoulatedgro.. surplus (6%) - - - - - - - 40 85 134 185 241 301 365 433 494 550

TCTAL - 24,500 25,600 40,600 46,204 7,165 12,971 19,077 19,077 19,117 19,162 19,21U 19,262 19,318 19,378 19,442 16,006 12,406 6,656

II. CASII OUFLOW

Disbursenents - 24,500 25,600 40,600 42,700 - - - - -

Service of loansTo GOT - - - - 3,316 6,781 12,276 18,056 18,056 18,056 18,056 18,056 18,056 18,056 18,056 18,056 14,740 11,275 5,780

Adainistration conts 2/ 160 200 250 360 360 360 360 300 300 300 300 300 270 270 250 250 250 200 200

Total 160 24,700 25,850 40,960 46,376 7,141 12,636 18,356 18,356 18,356 18,356 18,356 18,326 18,326 18,306 18,306 14,990 11,475 5,980

III. NRET CASII INFLOW (oMiFLOW)

Annual (160) (200) (250) (360) (172) 24 335 721 721 761 806 855 936 992 1,072 1,136 1,016 931 676

Cu-ulative (160) (360) (610) (970) (1,142) (1,218) (783) (62) 659 1,420 2,226 3,081 4,017 5,009 6,081 7,217 8,233 9,164 9,839

il Consisting of about 20% of ARC's total project financing; borro.ed frm 001 at 5.75% per annum interest over 15 years.2/ Spread over 15 years, 6.51 interest per annum.3/ Interest earned on surpluses has been calculated conservatively at 6%.2 Spread over 15 years, 5.757 interest per annum./ Including imputed direct and indi-ect costs.

Februay 2, 1972

11f112

BIHAR A>RICULTURAL 2ARKElTS PROJEC;

STATE BANA OF IIILDIA

Projected cash Atlom of 1ro3ect bu-dis kin Ksiwo)

ProJect Year 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

I. CASH INFLOW

ARC funds - 24,500 25,600 4o,6oo 42,700 - - - - - - - - - - _ _ _ _

SBI fund. - 2,900 3,100 4,8oo 4,900 - - - - - - - - - - _ _ _

flervice of loans by RMC's to SBI - - - 4,358 8,923 16,145 23,713 23,7r1 23,717 23,717 23.717 23,717 23,717 23,717 23,717 19,359 14,794 7,572 3,208

Net inco.e on accumulatedgross surplus 6r) 3/ - _ _ _ 147 411 878 1,438 1,622 1,818 2,025 2,254 2,496 2,753 3,02'5 3,314 3,365 3,380 3,208

TOTAL - 27,400 28,700 49,758 56,670 16,556 24,591 25,155 25,339 25,535 25,742 27,971 26,213 26,470 26,742 22,673 18,159 10,952 3,208

II. CASII OUTFLOW

Disbursements - 27,400 28,700 45,400 47,600 - - - - - - - - - - - -

Service of loansto ARC - - - - 3,504 7,165 12,971 19,077 19,077 19,077 19,077 19,077 14,32-9 19,077 19,077 19,077 15,573 11,912 6,106

Repayment of SBI's osn funds - - - - 416 861 1,550 2,253 2,253 2,253 2,253 2,253 2,253 2,253 2,253 2,253 1,837 1,392 703

Ads,inistrstion costs. 200 350 600 750 750 750 750 750 750 750 600 600 600 600 600 500 500 500 500

TOTAL 200 27,750 29,300 46,150 52,270 8,776 15,271 22,080 22,080 22,080 21,930 21,930 21,930 21,930 21,930 P1,830 17,910 13,804 7,309

III. NET CASH INFLOW (OUrFLOW)

Annual (200) (350) (600) 3,608 4,400 7,780 9,320 3,075 3,259 3,455 3,812 4,041 4,283 4,54o 4,812 843 249 (2,852) (4,101)

Cumulative (200) (550) (1,150) 2,458 6,858 14,638 23,958 27,033 30,292 33,747 37,559 41,500 45,883 50,423 55,235 56,078 56,327 53,475 49,374

For details on financing, see Para. 3.16.

P From Market CommIttees; average tems: 2 years grace pertid, 12 years repayment period, 9 interest per ansmu.Intnreat earned on surpluses bas been calculsted conservatively at 6$.Spread over 15 yearn, 6.5%interest.Including sub-appraisal and supervision costs as well as overhead costs.

November 16, 1971

ANNEX 16Page 1

INDIA


Economic Evaluation

A. Benefits

1. Three quantifiable benefits were considered in arriving at theeconomic rate of return of the Project. They are: (a) quality improvementdue to cleaning; (b) reduction of losses from excessive handling and reduc-tion of losses from damage by weather, insects, rodents and birds throughproper covered auction platforms and godowns; and (c) reduction in costs totown budgets from traffic congestion. There are, furthermore severalunquantifiable benefits which are also enumerated below.

(a) Quality Improvement

2. Grain cleaning is inherently grading, since foreign matter contentseriously reduces value, and, by cleaning, the quality of produce is improved.Grain cleaning also results in less storage losses by removal of contaminatingforeign matter. Cleaned (and graded) grain brings significantly higherprices than improperly cleaned grain, particularly during peak marketseasons. (Reliable studies in the Punjab found up to 30% price differentials,which finding is also supported by studies of regulated markets in TamilNadu and Maharashtra.) The Project would provide 100 mechanical cleanerswith a total capacity of 1,000 tons per hour. During the peak season atleast 50% of the cleaners' capacity would be utilized, resulting in about300,000 tons cleaned grain. For another three months, only 30% of thecapacity would be utilized; that means another 180,000 tons. In the remainingsix months 10% of the cleaners' capacity would be used which would resultin another 120,000 tons cleaned grain. Based on the studies in the statesof Punjab, Tamil Nadu and Maharashtra referred to above, it is conservativelyestimated that cleaned grain in Bihar would catch at least 5% higher prices,on an average amounting to Rs 24 million at full Project development.Mechanical cleaning probably would become much more popular than expressedin the above figures. Individual Market Committees (RMCs), particularlyin the irrigated areas, would certainly purchase more cleaners after fouror five years. However, benefits from using these additional cleanerscould not be directly credited to the Project.

(b-1) Reduction of Handling Losses

3. By concentrating the marketing in a market yard, rather than inthe scattered shops of the mandi towns, savings would accrue throughreduction in handling losses. Experience in states other than Bihar(particularly Punjab) shows a considerable increase in the percentage of

ANNEX 16Page 2

produce coming directly to the regulated markets from producers. Theproducer gains confidence in, rather than fear of, the complexities of themarketing process. Instead of selling his grain in a hat (village market)or to an itinerant merchant he comes to the market. This reduces thenumber of times the produce is physically handled and thereby preventsphysical losses. It has been conservatively estimated that the savingin handling losses of grain would be equivalent to at least 10 kg perton or 1% of grain arrivals. This saving has been calculated on about halfof the grain arrivals, since now only 25% of all grain arrivals are trans-ported directly from the farm to the mandi, which would increase under theProject to at least 75%. The resulting total benefit at full developmentwould be about Rs 9 million. This calculation is tentative, because of alack of precise data (the Project Evaluation Study would examine this benefitmore closely), but is nevertheless considered conservative by experts.

(b-2) Covered Platforms and Godowns

4. During the monsoon, about 20% of the annual grain arrivals reachthe mandies. At present, one-quarter of these arrivals lie under the opensky for one day and even longer because of the recent production and arrivalincreases in the irrigated areas. In addition, without the Project, most ofthe future incremental arrivals would be unprotected against the heavy rains.Covered platforms, provided under the Project, would help prevent thesedamages. Besides, because of less congestion the commodities could also bea,ccommodated quicker under the covered facilities. Therefore, it can beconservatively assumed that, without the Project, these unprotected arrivalswould be partly spoiled resulting in a 0.5% lower price (or 0.5% lowernutritional value).

5. Most estimates regarding the average storage losses per annum forthe country as a whole range between 7% and 12%. However, these estimatesrelate to the average losses on all grain produced in the country andinclude grain stored in both the best storage facilities and in the worst.Obviously, the proposed Project would not substitute for the best or eventhe average of existent facilities. The proposed facilities would be usedto store grain that, under current practice, is kept under the worst possibleconditions and experiences the greatest losses. Estimates of losses in-curred in storage in holes and in the open range to 50% and higher. Whendeterioration in nutritional value is considered, losses probably approachor exceed the 50% estimate. Most of the grain in the producing areas isstored in the open for at least short periods in peak harvest seasons.1The susceptibility to extensive damage from early monsoons is very pronouncedurnder these conditions.

6. Storage losses of grain stored in modern facilities like thosewhich would be provided under the Project would be no higher than about 5%to 8% as shown by detailed surveys in East Pakistan (see Annex 18 of theIndia Wheat Storage Project - Report No. PA-64a of June 15, 1971). Althoughit can therefore be expected that the proposed Project godowns would resultin a substantial reduction of grain storage losses, it has been very con-servatively estimated for the economic evaluation that losses would bereduced by only about 3% per annum. Since only about 90% of total godown

ANNEX 16Page 3

capacity of 109,000 tons would be used during the peak harvest season fromNovember to January (98,000 tons); about 75% in February, September andOctober (81,750 tons); and about 50% during the rest of the year; about70,000 tons would be stored annually. Therefore, the total reduction instorage losses is conservatively estimated at 2,100 tons per year, represent-ing at full development a benefit of Rs 4 million per annum.

(c) Reduction in Municipal Expenses

7. Since all wholesale marketing would be concentrated in one marketyard, a number of costs would be avoided. Producers and itinerant merchantswould no longer move back and forth through the market town to find a goodprice for their commodities. They would go straight to the market yard forauctioning and the congestion in the market town would decrease considerably.This would result in reduction of transportation wastage (bullock carts andtrucks), municipal road maintenance costs, and garbage disposal and municipaladministration costs. It is conservatively estimated that municipal budgetswould be relieved by saving road maintenance cost of Rs 1,000,000 per annum(200 km at Rs 5,000), and by the reduction of sanitation and garbage disposalexpenses by at least Rs 5,000 per market. Therefore, an average market townwould save about Rs 25,000 per annum.

(d) Induced Agricultural Production

8. Perhaps one of the most significant benefits is the value of theagricultural production induced by the higher farmers' prices. Since theextent of the possible price increase to farmers because of the Project isdifficult to estimate and supply elasticities are not known, it was notpossible to quantify this benefit. It may be mentioned, however, that if theproject would result in a 1% increase in agricultural production at full devel-opment, the value of the additional output would be about Rs 27 million perannum, and the benefit attributable to the Project (market value minus farmerproduction costs and marketing costs) about Rs 13 million per annum.

(e) Rural Development Benefits

9. Another possible benefit is the rural development impact resultingfrom stimulating the organized and planned growth of market towns. Indiaand particularly Bihar are areas with little development of populationcenters between the villages and the cities. The pressures of rural povertycause migration and there is no alternative to village life except the cities.The Town and Country Planning Organization would take care that markets wouldbe so located that they would be nuclei for town development, drawing tothe town secondary businesses ranging from consumer shops to small cottageindustries. In addition, adult education, extension services, health andother facilities would be provided within the markets.

(f) Possible Other Benefits

10. The following is a list of possible further benefits which havenot been quantified. Some of these are probably not quantifiable at all.

ANNEX 16Page 4

There are many interrelations between the benefits listed below and alsowith those described above.

Transportation Savings.

(i) Farmers and itinerant merchants would bring produceto one place rather than to several traders' shopsscattered throughout the market town.

(ii) Distance of transport for grain sold among traderswould be reduced.

(iii) Movement of grain within the market would be 'facili-tated by less congestion and paved streets.

Improved Competition

(i) Communication among middlemen would be facilitaredby their closer proximity to each other.

(ii) Price -- Having better market information through auc-tion sales and price posting, traders would take lessrisk of paying too high a price for various gradesand qualities; they therefore would offer more on theaverage.

(iii) Dispute -- a Market Committee can quickly handle manydisputes that might otherwise go to court.

(iv) Increased price competition due to auction.

(v) Storage -- Farmers would have the opportunity forshort- and medium-term storage in the market and thusthe opportunity for earning the gains now enjoyed bytraders from storage.

(vi) Reputable businessmen -- Only reputable traders ofsound financial standing would be licensed. Thiswould reduce the farmer's risk of a trader abscondingwith his fund.

(vii) Market information -- Farmers would be well-informedof local and nearby market prices, lessening the chancethat they would sell at unreasonably low prices.

(viii) Weighing would be done by licensed weighmenusing tested scales. This would reduce the chance oferror and fraud.

ANNEX 16Page 5

Secondary Benefits

(i) Convenient access to agriculture inputs, whilenot quantified, would result in increased use aswell as savings.

(ii) Increased extension education contacts, increased con-venience of farm supplies. Farmers would become morecommercially and cash-crop minded due to stimulationof marketing own grain and meeting other commercially-minded farmers from other villages in market. Priceswould better reflect supply and demand and thus farm-ers would have more incentive to produce what iswanted.

(iii) Demonstration effect:

(a) Farmers coming to market and seeing how otherhalf lives.

(b) Townspeople being uplifted by clean modernmarket and emulating the spirit of it in otherendeavors.

(iv) Income multiplier:

(a) From increased farm income.

(b) From income redistribution.

(v) Tax Revenue:

Indian agriculturalists are notoriously difficult totax. Excess market fees would be spent on publicimprovements of greater total utility than some pri-vate expenditures.

B. Costs

11. Land was costed at its next best opportunity price. An averageland rent for 1 ha unirrigated cultivated land is Rs 160 per annum. Halfof the areas expected to be selected for the market yards are now usedas public grazing lands and yield no significant return. Therefore, theaverage economic cost of the land would be Rs 80 per ha. Civil works andinitial equipment investment would come to Rs 126 million including aphysical contingency of 10%. Capital costs as well as estimates of operatingexpenses are set out in Annex 10.

ANNEX 16Page 6

C. Rate of Return

12. For the economic rate of return calculation, only the benefitsmentioned in paragraphs 2 through 7 have been taken into account. At fullde.velopment they amount to about Rs 38 million per annum. Based on theseveury conservative assumptions, the rate of return to the economy would beabout 29%. If it is assumed that the project would also result in a 1%increase in agricultural production, (para 8), the rate of return wouldincrease by about 10 percentage points.

November 16, 1971

INDIA

BIhAR AGHICULTURAL MARKIETS PROJECT

Econtni Rate of Retorn Calculations in 1000 Ra

1 2 3 4 * 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

1. COSTS

Civil wor~j & equipmenlt 25,290 55,P90 37,935 37,935 86 129 129 86 995 1,.493 3. 49 9 86 129 2.29 86land rent- 29 11 22 39 56 56 56 56 ,6 56 56 56 56 56 56 56 56 56 56 56

Operating cots -/

State Marketing Roard 300 304 30 312 316 320 324 328 332 337 342 347 352 357 362 367 373 379 385 391

Market Coemmittees (incremnental) _ _ 700 1,428 2,520 3,686 3,752 3,8818 3,808 3,96) 4,p34 4,110 4,188 4,268 4,352 4,438 4,526 4,616 4,71P 4,806

2/Training & Project Eval.ation 300 350 350 250 250 250 250 250 250 250

TOTAL 600 25,955 26,670 39,964 1r1,077 4,312 4,468 4,581 4,655 4,689 4,432 5,5o8 6,089 6,174 5,765 4,861 5,041 5,180 5,280 5,339

II. BENEFITS

Red-ction nf handling losses - - 1,280 2,640 4.i6u 7,200 7,400 7,600 e,000 8,200 a 6o 9,000 9,0 -,0 ,0 ,0 ,0 ,0 ,0 9,0Reduction of hzndllng losSes _ 4S28oo ~~9 600 16, 80 O 4 ooo oo 2 c 44 ooo oo 4 ooo 24 ooo 24 ooo 24 0 9o 4oo2 o 4 o 4oo 2 0 24ooo

Quality imuprovement - - 4,0 960 16,800 2,022,o 4,o 2400 24000,00 2,00 24,00 2400 2,00 4,002400 294,oo0 24,0 2,00

Covered platfor,, and godo.ns - - 592 1,224 2,226 3,300 3,420 3,520 3,680 3,840 4,000 4,160 4,160 4,160 4,160 4,160 4,160 4,160 4,160 4,160

Reduction of municipal expenses - - 250 500 875 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,25 1,250 1,250 1,250 1,250

TOTAL - - 6,922 13,964 24,661 35,750 36,070 36,370 36,930 37,290 37,850 38,41o 38,410 38,410 38,410 38,410 38,410 38,410 38,410 38,410

Residual vsluey 29,908

III. NET BENEFIT STREAl: (600) (25,955) (19,748) (26,000) 16,416 31,438 31,602 31,789 32,275 32,601 33,418 32,902 32,321 32,236 32,645 33,549 33,369 33,230 33,130 62,979

1/ As for phasing the inventent progra., see Annex 9.See Annexes U and 10.

§/ At. BP. per ha.n (opportUnity cost).See Appendix 10-3.

5/ See Annex 13i

D/ epe.ndi.g on .conomic life of inve-t.ent item,, straight 1Gm d.preciatins.

Rate of R.t.rn: 29%

October 20, 195l

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