India - Bihar Agricultural Markets Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3490 PROJECT PERFORMANCE AUDIT REPORT INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) June 10, 1981 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) Abbreviations ARC - Agricultural Refinance Corporation (presently ARDC) ARDC - Agricultural Refinance and Development Corporation GOB - Government of Bihar GOI - Government of India REO - Rural Engineering Organization RMC - Regulated Market Committee SBI - State Bank of India SMB - State Marketing Board TPO - Town Planning Organization PROJECT PERFORMANCE AUDIT REPORT FOR OFFICIAL USE ONLY INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) TABLE OF CONTENTS Page No. Preface ........................................................... i Project Performance Audit Report Basic Data Sheet ................ ii Highlights ............................................. ........* iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. SU4MARY ................................. *............. 1 II. MAJOR ISSUES **.................... ........ 3 Ai General ........................ ...... 3 B. Acquisition of Land Sites .................. 3 C. Shifting of Traders ...................... .***.** 4 D. Measuring the Benefits of Market Development ........ 6 E. Rate of Return ..,................................... 8 III. CONCLUSIONS .......... ..................................9 Attachment: PROJECT COMPLETION REPORT I. Background .............................................. 10 II. Project Processing ........................................ 11 III. Implementation ........................................... 13 IV. Institutional Aspects .......... ......... .19 V. Economic Evaluation ................................ 20 VI. Conclusions .............................................. 21 VII. Follow-up Action ........................................ 22 Tables 1 - 5 Chart I .................................. o ............... ... 28 Annex 1 (Project Completion Report of Bihar Agricultural Markets Project 1, prepared by Bihar State Agricultural Marketing Board) ...................................... 29 Annex 1, Table 1 ................................................. 53 Map This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 1 - PROJECT PERFORMANCE AUDIT REPORT INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) PREFACE This is a performance audit of the Bihar Agricultural Markets Project in India for which Credit 294-IN in the amount of US$14.0 million was approved in March 1972. The final disbursement was made on December 21, and the credit was closed on December 31, 1979, after a delay of 12 months. The audit consists of a memorandum prepared by the Operations Evaluation Department and a Project Completion Report (PCR) dated November 26, 1980. The PCR, which was prepared by the South Asia Regional Office, includes a PCR that was prepared by the Bihar State Agricultural Marketing Board, the implementing agency, as an annex to the main report. The audit memorandum is based on a review of the Appraisal Report (No. PA-114a) dated February 8, 1972, the President's Report (P-1028) of February 16, 1972, the Credit, Project and Bihar Agreements dated March 29, 1972 and the PCR; together with a review of correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files, discussions with Bank staff who have been associated with the project and an OED mission to India and the state of Bihar in July 1980. The OED mission held discussions with officials of the Ministries of Planning and Agriculture in New Delhi and ARDC in Bombay as well as discussions with officials of the Ministry of Agriculture, the State Bank of India, ARDC and the State Marketing Board in Patna, Bihar. The mission also visited a number of marketing centers throughout Bihar where it held discussions with officials of the Regulated Market Committees, and traders and farmers. The information obtained through observations, discussions and reports during that mission was used inter alia, to evaluate the conclusions of the PCRs. A copy of the draft report was sent to the Borrower on February 20, 1981 for comment; however, none has been received. The audit suggested some minor changes in the Region's PCR which were accepted and included therein. On the basis of the above outlined procedure the audit finds that the PCRs, which present some complementary Borrower and Bank views, generally give a complete and accurate account of the projects' major achievements and shortcomings. The memorandum expands on the problem of and likely reasons for the reluctance of traders and wholesalers to move to the new market centers, delays in site acquisitions, and the evalua- tion of the expected benefit from the project. These issues are important for this as well as future Bank/IDA-supported agricultural marketing projects. The valuable assistance provided by the staffs of the Government of India and the State of Bihar and by the Regulated Marketing Committees is gratefully acknowledged.  - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) KEY PROJECT DATA Appraisal Actual or Item Estimate Current Estimate Total Project Cost (US$ million) 23.3 28.8/a Overrun (%) 24 Loan/Credit Amount (US$ million) 14.0 Disbursed ) - 14.0 Cancelled ) October 31, 1980 0.0 Repaid ) Date Physical Components Completed 06/30/78 06/30/80 Proportion Completed by Above Date (%) 65 100L Proportion of Time Overrun (%)- 17 Economic Rate of Return (%) 29 11 Cumulative Estimated and Actual Disbursements (US$ million) FY74 FY75 FY76 FY77 FY78 FY79 FY80 Estimated 1.3 3.9 7.4 11.7 14.0 - - Actual - - 2.1 2.9 6.4 12.0 14.0 Actual/Estimated % - - 28 24 46 - - OTHER PROJECT DATA Original Item Plan Revisions Actual First Mention in Files 12/07/70 Government's Application - 05/71 Negotiations 01/24/72 01/24/72 Board Approval 02/29/72 02/29/72 Loan/Credit Agreement Date 03/29/72 03/29/72 Effectiveness Date 07/31/72 07/31/72 Closing Date 12/31/78 12/31/79 12/31/79 Borrower Government of India Executing Agency Bihar State Marketing Board Fiscal Year of Borrower April 1 - March 31 Follow-on Project None /a Project was scaled down by about 5%. Of the 50 market centers planned, only 47 were completed.  - iii - MISSION DATA Month/ No. of No. of Man- Date of Year Days Persons days Report Identification 02/71 17 2 34 n.a./a Appraisal 06/71 23 5 115 02/08/72 Total 40 149 Supervision I 01/73 n.a. 2 n.a. 02/08/73 Supervision II 04/74 5 2 10 05/28/74 Supervision III 10/75 10 2 20 11/21/75 Supervision IV 08/76 5 1 5 09/15/76 Supervision V 07/77 5 2 10 08/25/77 Supervision VI 03/78 6 2 10 06/06/78 Supervision VII 09/78 6 2 12 10/03/78 Supervision VIII 05/78 4 2 8 08/15/79 Supervision IX 02/80 5 1 5 04/30/80 Total 46 80 Country Exchange Rate Name of Currency (Abbreviation) Rupees (Rs) Appraisal Year Average 1973 US$1 = Rs 7.28 Intervening Years Average 1973-1978 US$1 = Rs 8.26 Completion Year Average 1979 US$1 = Rs 8.0 /a Not available.  - iv - PROJECT PERFORMANCE AUDIT REPORT INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) HIGHLIGHTS The objective of the project was to improve the efficiency of major market centers in Bihar through reducing handling and storage losses, improv- ing quality, and reducing municipal expenditures and time lost due to market congestion. The project supported the government program to develop regulated markets throughout India. It provided for the development of 50 market centers distributed throughout the state of Bihar. Total estimated cost of the project was US$23.3 million of which the IDA credit would finance US$14.0 million. The completion of the project was delayed by two years, mainly because of difficulties encountered in aquiring land for market sites. Only 47 of the 50 planned markets were completed. Total project cost at completion was US$28.8 million, representing an overrun of 24% which was due mainly to rising prices of goods and services. Aquisition cost of land also was higher than expected at appraisal. The project's primary objectives have not yet been achieved due to the reluctance of traders to move to the new markets. It was reported in July 1980 that traders had fully relocated in less than half of the 47 markets. This reluctance of traders to move stems from their anticipation of reduced margins and higher taxes when operating in the new markets. In contrast to an economic rate of return of 29% estimated at appraisal, the re-estimated ERR is 11%. Other points of interest are: - difficulties arose in aquiring land for market sites (PPAM paras. 12 - 17, PCR paras. 3.03 - 3.05, Annex 1 para. 67); - measuring the benefits of market development is difficult (PPAM paras. 26 - 30); - adequate incentives were not provided to induce traders to relocate at new markets (PPAM paras. 19 - 25 PCR paras. 3.13 - 3.16, and Annex 1 para. 75 - 76), - lack of management continuity contributed to delay of project (PPAM para. 6 and PCR para. 3.25); - farmers as well as traders have been slow to move to new markets (PPAM Para. 29 and Annex 1 para. 77); and - primary markets may need to be developed in conjunction with central markets for full and efficient operation of marketing system (PPAM paras. 29 and 32).  PROJECT PERFORMANCE AUDIT MEMORANDUM INDIA: BIHAR AGRICULTURAL MARKETS PROJECT (CREDIT 294-IN) I. SUMMARY 1. The project formed part of the Government of India's on-going program to develop regulated agricultural markets throughout the country. It was the first market development project to be financed by IDA. The objective of the project was to improve efficiency through reducing handling and storage losses, improving quality, and reducing municipal expenditures and time lost due to market congestion. The State Government, in support of GOI's market development objectives, had passed the Bihar Agricultural Marketing Act in 1960. This Act provides for the establishment of regulated markets in desig- nated towns, administered by marketing committees on which traders and pro- ducers are represented. In addition to promoting marketing efficiency, the established committees are responsible for setting marketing fees and collect- ing taxes from traders. Up until the time the project was prepared, enforce- ment of the 1960 Act had been difficult because the legality of the Act had been contested in the courts by many trading communities and because the dispersed and fragmented nature of existing markets inhibited enforcement. The development of centralized markets was conceived as overcoming these difficulties and permitting enforcement of the Act. The legality of the act was upheld in 1968. 2. The project provided for the development of 50 market centers on 6 to 25 ha of land in towns and cities throughout the state of Bihar. These centers would include fencing, administrative buildings, auction platforms, wholesalers' shops, storage godowns, and standard marketing equipment such as cleaners, graders and scales. The project also included funds for training personnel in efficient marketing practices and a special study to evaluate project results. Other facilities to be established in the markets but not financed by the project were banks, post offices, extension services, cooperative marketing and credit societies, and shops for selling farm inputs and supplies. 3. At appraisal, total project cost was estimated at US$23.3 million. Of this total, the Credit would finance US$14.0 million; Government of Bihar (GOB), US$1.5 million, mainly for land acquisition; State Bank of India (SBI) US$2.2 million; Agricultural Refinance Corporation (ARC, presently ARDC), US$4.5 million and the market committees, US$1.1 million. 4. Under the terms of the Credit Agreement, GOI (the Borrower) would make the proceeds of the Credit available to ARDC.1/. In turn, ARDC would 1/ A subsidiary of the Reserve Bank of India which was established in 1963 to provide medium and long-term loans to agricultural lending agencies throughout India. A Project Performance Audit Report, No. 2702, has been prepared by OED on the First Agricultural Refinance and Development Corporation Credit (Cr. 540-IN), dated October 29, 1979. - 2 - on lend to SBI, which would then provide loans to Market Committees for de- velopment of approved market centers. The State Marketing Board of Bihar, which was to be established as a condition of effectiveness, was to be pri- marily responsible for project implementation and general supervision of the Marketing Committees. 5. International competitive bidding was not required for contracting or procurement under the project because dispersion of market sites, dif- ferences required in market design and component cost below US$400,000 (even when grouped) would make it impractical. 6. The project became effective on schedule (August 1972), and start-up was good, with key personnel being appointed, 10 market sites selected and the market evaluation study commissioned by January 1973. Eventually, however, construction of the planned markets (slightly scaled down) was delayed by two years by several factors. The most important cause of the delay was the problem encountered in acquiring land for market sites. Other factors were turn-over of staff at the State Marketing Board (SMB), slowness in appraisal of market centers, shortages of cement and steel and problems with contractors. 7. At the close of the project, only 47 of 50 planned market yards had been completed. Despite the reduction in size, total project cost is esti- mated to be 40% above the appraisal estimate. Because of the devaluation of the rupee with respect to the US dollar, the cost overrun is about 24%, in dollar terms. Most of the overrun has been due to rising prices of goods and services averaging 9% per year compared with a 5% rise expected at appraisal. Higher than expected land costs also contributed to the overrun. 8. A more fundamental and crucial problem affecting the achievement of the project's ultimate objectives has been the reluctance of traders to move to the markets. From the beginning of the project, the movement of traders to completed market centers has been slow. As of July 1980, it is reported that traders had now fully relocated at 21 of the 47 markets and partially in 10 others. Traders have tried to avoid moving to the markets in a number of instances by filing cases in the High Court. Farmers, too, have not rushed to the markets to sell their produce in the numbers expected. Much of the produce arriving at the markets is brought by middlemen or small traders. 9. Training of SMB and RMC's staff was carried out generally as expected at appraisal. However, the study to objectively evaluate market development benefits has not produced satisfactory results. Early work by the consultant did not follow procedures consistent with the objectives and consequently provided inadequate results. Belatedly, the consultants' terms of reference were revised to reflect better those outlined in the Bihar Agreement. However, results to date still have not provided a sound assess- ment of the benefits of market development, even in cases where centers have been operating for several years. As a result GOB has agreed to extend the study for three years beyond project completion. - 3 - 10. The re-estimated rate of return as shown in the PCR is 20% in contrast to 29% estimated at appraisal. This difference is due to the assump- tion that the achievement of full project benefits will be delayed by three years. In the audit's opinion, even this reduced rate is likely to be too high in light of the problems being encountered in getting traders and farmers to move their buying and selling activities to completed markets and the underutilization of some markets where traders have moved. The rate of return is quite sensitive to delays in full operations of the market and realization of benefits. For this reason, and for the reason that certain benefits are conjectural and unverified, this issue, inter alia, is to be explored in the following section. II. MAJOR ISSUES A. General 11. The project has faced two major and one minor problem. Acquisition of land sites, a major problem, was the prime cause of the two-year delay in completing physical works./. The reluctance or refusal of traders to shift to the market centers, the second major problem, is a primary factor in the delay in.the achievement of full project benefits. Resolution of the third problem, satisfactory completion of the evaluation study, will determine whether the project benefits will remain conjectural or be verified by hard evidence. The question at this stage is whether changes in the project design or certain actions during implementation could have prevented these problems from arising. Another marketing project supported by IDA in India - Mysore Agricultural Wholesale Markets (Credit 378-IN) - encountered these same problems, although they have been less severe. B. Acquisition of Land Sites 12. The problem of land acquisition for public or quasi-public use has been noted in a number of projects supported by IDA: Credit 378 noted above and the Wheat Storage Project (Credit 267-IN), for example. Difficulties in acquiring land stem to a large degree from India's high population - arable land ratios which make it difficult if not impossible for displaced farmers, tenants and others to find alternative suitable land sites and from the attachment that people have for land that has been associated with their families for generations. This problem is especially acute in Bihar where over 70 million people earn their livelihood on about 7.3 million ha of arable land. 1/ For this reason, the project was included in OED's special study of delays in implementation. See "Operational Policy Review. Delays in Implementation, the Supplement: Selected Case Studies" Report No. 2494 of April 11, 1980, pp. 59-68. 13. During project implementation, a number of sites that already had been selected and approved for market center development had to be abandoned and new sites identified because of legal action taken by the owners. A major factor in reducing the number of markets to be developed under the project from 50 to 47 was the fact that the remaining sites could not be acquired before the close of the credit. 14. One factor contributing to delays was that in some markets action was taken to acquire the land for market centers under a Land Ceiling Act (LCA) which permitted the acquisition of family holdings above a certain limit (15 to 45 acres depending on quality) at a fraction of its market value. Attempted acquisition under this act resulted in a number of court actions, some cases resulted in staying actions and others in the prevention of acquisition. Even in cases where the State used the general land acquisition law (Land Acquisition Act of 1894), which provided for compensation at market value, resistance was encountered because owners had previously understated the market value of their land for tax purposes and thus were unwilling to sell it at such values. 15. Acquisition of land at current market value in all cases may have reduced the time and litigation involved in obtaining the required parcels. It would, of course, have increased the cost. But since benefits to the project were likely to be held up, paying higher prices might still have been worthwhile economically, in saving legal and personnel costs and bringing a quicker flow of benefits. 16. One alternative way to speed up land acquisition suggested in the appraisal report would be to offer displaced land holders payment in kind, i.e., comparable land in another location. However, Bihar officials informed the audit mission that alternative land was not available because of its general scarcity. At one market visited by the mission, one former land owner violently protested his loss of land and requested employment in the market center as compensation. This suggests that increased compensation might have reduced problems of land acquisition in densely settled areas. 17. In discussing the problem, one high Government official suggested that projects should not be initiated until all the land needed had been acquired. While such a procedure would certainly reduce disbursement delays from IDA's view point, it would delay credit approval and signing. It would remain to be seen, moreover, whether such conditions on project approval would, in fact, change the procedures followed by officials and speed up land acqui- sitions. 18. Although, the land aquisition problem was well known in India at the time of preparation, at appraisal sufficient attention was not given to this eminent problem. The appraisal assumed that most of the markets would be built on available public lands and at negotiations the executing agency - 5 - agreed to provide the sites for market development, without precisely stipu- lating the source of the land -- public or private domain. A specialist in land aquisition matters should have been included in the appraisal team. At least, then, the potential land aquisition problem would have been given greater prominence in the appraisal and negotiations!/. C. Relocation of Traders 19. The problem of the traders' reluctance to move from old dispersed locations to the new market centers is as complex as that of land acquisition. Under the IDA agreement with the state of Bihar, traders were required to pay higher market fees, rising from 0.25 to 1.0% of the value of sales. This fee was to be collected in all markets that were under the control of Regulated Market Committees (RMCs). In fact, this higher fee was expected to be col- lected by the RMCs before the market centers had been completed and revenues were to be used to finance the RMCs share of market center development cost. Thus, traders were subject to the fee regardless of whether they shifted their businesses to the new markets or not. However, it was difficult in practice to collect this charge when they stayed at their old business sites. A further disincentive to relocation was the sales tax they were required to pay. When they traded outside of market yards or centers, this tax was difficult to enforce, due to limited control possibilities. 20. At appraisal, it was expected that traders would incur lower handling cost when conducting business within the confines of the marketing yard. This saving would in turn offset the reduced commissions that could be charged by them and the higher marketing charges they had to face. (There is no evidence as yet to determine what has actually happened to the operating cost of the traders). Furthermore, prices received by traders were expected to be higher due to the improved quality of products sold which was expected as the result of improved cleaning and grading. To date, according to the evaluation study, little use has been made of the cleaning and grading equipment in established markets. 21. During project implementation, two other disincentives to shifting operations to the markets were noted by the traders. Traders have refused to move to the markets, in many cases, because the number of shops built was less than the number of traders existing in the old market(s). It would seem that the lack of shops is a legitimate complaint. At appraisal, the minimum number of shops-cum-godowns to be built at each market was expected to be 20. But the actual number was left to be determined at the time of individual market appraisal by SBI and ARDC, based on marketing activity in each area. In the appraisal report, too, a model for a large market is presented for which the implied number of shops is 80. The number of shops constructed was less than 20 in 18 of the 47 markets completed. One of these 18 had only 5 shops and the remainder had 10 or more shops per market. During the early construction phase, it was anticipated that because of rising prices and costs, the credit could not finance the total project as expected; con- sequently, the number of shops per market was reduced. As the project pro- gressed it became apparent that costs were running less than expected; there- fore, the number of shops was increased over the initial plan in about one- third of the markets. At project completion, the number of shops per market 1/ Further, the Legal Department has raised the question of why a lawyer was not sent to deal with the legal issues. - 6 - averaged 30; with wide variations, ranging from 5 to 120 (PCR Table 3). SMB has estimates that the number of shops must be doubled in order to accommodate all previous traders in the 47 markets. 22. In the audit's view, it seems unreasonable that markets would be constructed that could not accommodate all the licensed traders, unless there was a policy to reduce their number. As specified in the appraisal report, market size was to be determined by estimated market arrival (volume) rather than by the number of licensed traders. 23. According to the Project Agreement market sub-loans would be approved by SBI only after a practical number of traders and wholesalers had signed leases for shops. This condition was never enforced. If it had been, con- struction of the markets would have been delayed even more but the problem of moving the traders would not have materialized. 24. The other disincentive noted by the traders was that the shops in the market centers did not include living quarters. Many of the traders had their shops and quarters in one building in the traditional trading areas. It is understandable that such an arrangement had the advantages of lower living and business costs and more security for traders' stocks. Some market centers now to be financed outside the project are likely to include provisions for living quarters. 25. In retrospect, it can be said that inadequate attention was given to providing traders with sufficient incentives for shifting to the new markets. It seems to have been more of a hope than a well founded expectation that reduced operating cost and the force of the law would be sufficient to convince traders to move. All traders are required to be licensed; thus, withholding of a license is a negative incentive. However, enforcement of licensing is difficult because of the the structure of traditional markets which are informal and highly dispersed. Further, the strength of the trading groups and their ability to take legal delaying actions was not anticipated. Also, if it is the case, as commonly believed, that traders are charging excessive margins--at the expense of farmers, and possibly consumers--, then it is unreasonable to expect them to willingly move to enclosed, regulated markets where their margins would be controlled and reduced by law. D. Measuring the Benefits of Market Development 26. At the time of appraisal, it was estimated that the development of market centers would yield the following benefits: (a) better quality of produce; (b) reduction in handling and storage losses; (c) reduction in market congestion; and (d) increased agricultural production induced by higher prices paid to farmers. - 7 - The latter, however, was not included as a benefit in the rate of return calculation because of the uncertainties involved in its measurement. Based on experience in other states of India, it was estimated that about two-thirds of the project benefits would be due to quality improvement. This estimate was based on increases in prices received by farmers for cleaned and graded produce. However, such higher prices may be received only for the highest grade at a reduced volume. The usual lot of grain going through a market is made up of several grades and foreign matter (trash). After cleaning and grading, the total volume is reduced - trash is discarded - and two or more grades result, consisting of large uniform grains, smaller grains and brokens. The lower grades, if they do relate to consumer preference, would sell for lower prices. Thus, a cleaned and graded lot produces an average price that is expected to be above the price for an ungraded lot. Because of the uncertainties involved in measuring quality benefits, the appraisal conservatively estimated the quality price benefit at 5%. 27. With respect to the benefits of reduced handling and storage losses (product spoilage) and reduced market congestion, the latter was expected to reduce municipal expenses and transport time involved in marketing. While such savings or benefits are logical and reasonable, the appraisal, recognizing how tenuous the estimates of these benefits were, included a special study by consultants to obtain more objective and sound estimates. This study represented a commendable and necessary component of the project. The ap- praisal prepared a tentative terms of reference, which provided, inter alia, a detailed list of data to be collected and an outline of the methodology to be followed. It did not, however, specify how the data were to be analyzed. The study as outlined was difficult to carry out under the best of circumstances and very difficult under the conditions existing in Bihar, with its dispersed market areas and inadequate transportation and communication networks. 28. The first results of the study were rather descriptive, providing little analysis and few conclusions. IDA was concerned about this develop- ment, and requested that the terms of reference be amplified to include the required analysis. Although according to the consultants TOR, only descrip- tive or benchmark data would be obtained in the early part of the study, more recent reports of the consultants are incomplete and do not provide the expected information on project benefits. This lack of conclusive evidence may be more the result of the prevailing environment noted above than lack of skill on the part of the consultants. However, to date, the quality of the consultants' reports has been low, not only in presentation, but also in methodology and interpretation. (The audit mission was not fully able to explore all these matters with the consultants in the field due to scheduling problems). 29. The studies which have been undertaken at five markets and carried through at three, provide some interesting, though fragmentary and not definitive, results. Confirming the impressions of the audit mission, there has been little use of cleaning and grading at the markets, an undertaking that was to yield most of the project's benefits. Farmers are suspicious of - 8 - cleaning and grading machinery, likely because of their lack of experience and information on benefits. Traders, on the other hand, feel threatened by these machines because they believe, perhaps quite justifiably, that they will have to pay higher prices when cleaners and graders are used. Further, as already noted, the number of farmers coming to the markets is not large. Mostly small traders, rather than farmer producers, now bring produce to the markets. Markets selected for development under the project tend to be the central or intermediary rather than the primary or farmer market type. Thus, only farmers living close to these markets or larger farmers with adequate transport and other incentives would be expected to bring their produce to them. An expected social benefit (mainly an income transfer) of the project was that farmers would get higher prices for their products under the cen- tralized and hopefully more competitive conditions of the organized market centers. If they do not bring their produce to the markets, this benefit would not be achieved!!. As the result of this development, some officials in Bihar now believe that other feeder (primary) markets, where most farmers continue to trade, need organization and development similar to that of this project. 30. Some of the data collected under the evaluation study indicate that losses in storage have declined but that the difference between the market purchase and selling price, (marketing margin), has increased since the markets were established. This latter development is attributed to increases in wages of personnel within the market centers. It is not stated whether these margins are in real or nominal dollars. If they are real increases, it would be contrary to the appraisal expectation of reduced margins. It should be emphasized again, however, that these conclusions are tentative and that evaluation of market benefit is to be continued for another three years. Hopefully, the methodology will be improved as the result of past experience. E. Rate of Return 31. At completion, the PCR has estimated the rate of return at 20% compared with 29% expected at appraisal. The re-estimate of 20% is based on actual cost and the same type and level of benefits that were assumed at appraisal, but delayed by three years. In the audit-s opinion, based on observation in the field and the preliminary results of the evaluation study, this rate of return is optimistic. It will take more years than assumed to achieve the full benefits. A more likely ERR would be 11% which assumes that the benefits are not achieved for six years beyond the time assumed at apprais- al (see PCR para. 5.06)2/. The actual ERR could be even less if benefits due to higher product quality do not materialize as assumed. This is the most 1/ The belief that farmers are generally exploited by collusive or oligopsonis- tic actions by traders may be unwarranted. See for example, Uma J. Lele, Food Grain Marketing in India. Cornell University Press, Ithaca, New York. 1971. 2/ The Central Project Staff has noted that the average opportunity cost of capital in India has been estimated at 12%, CPS has further noted that current selling prices for steel and cement in India are far below their shadow prices. It is not known if this has been true throughout the project's implementation period. If it is case, and if shadow prices had been used for steel, cement and labor, then the ERR might be lower than estimated in the PCR. - 9 - tenuous of all assumed benefits and the one the consultants have 'not yet attempted to measure. For this reason, the audit supports the continuation of the evaluation study and the follow-up re-evaluation of project benefits as recommended in PCR para. 7.01. Further, because of the tentative nature of the benefits of the project, it should be a prime candidate for OED "second- look" evaluation. III. CONCLUSIONS AND LESSONS LEARNED 32. The project financed the development of well-conceived and designed market centers that were much needed to improve the traditional--fragmented, congested and unaesthetic--markets existing in many towns and cities of Bihar. Although the project provided modern facilities, it is not surprising that a transfer to the markets has been resisted, that benefits of the markets are difficult to observe, and that these benefits may not be realized for a long time in the future when the over-supply and underemployment of traders no longer exist and farmers have more convenient forms of transportation which would result in improved marketing efficiency (reduced cost). One conclusion drawn from the audit's findings is that more highly developed primary markets may be needed, though not providing all the facilities prescribed for the project-s market centers. 33. Some lessons to be learned from the project, although not new, are that restructuring of traditional institutions takes time and changes such as shifting traders and farmers into a new environment require adequate incen- tives for all parties. Legal coercion may not be sufficient when there are no gains to offset large imagined or real losses. These factors need to be anticipated and considered at the time of preparation and appraisal. 34. It is possibly true that the markets did not need to be so elabo- rately designed. A simple, central, publicly managed location where buyers and sellers could meet to exchange goods or auctions could be held, and where current price information is available to all, might have been a sounder design and more productive investment. However, the markets constructed under the project were also designed as instruments to collect taxes with all its negative implications as well as to regulate trade and the high walled com- pounds were necessary to achieve this objective. Farmers as well as traders may be intimidated by the confining nature (high masonry walls) of such markets.  - 10 - INDIA BIHAR AGRICULTURAL MARKETS PROJECT PROJECT COMPLETION REPORT I. BACKGROUND Objectives 1.01 The Bihar Agricultural Markets Project represents the Bank Group's first lending for agricultural markets. The lack of suitable market facilities and antiquated marketing systems were constraints to the development of agri- cultural production in Bihar. The present project was an important component in the overall strategy of the Government of Bihar (GOB) for the improvement of agricultural practices in the State, including extensive irrigation and increased use of fertilizers. 1.02 Traditional marketing systems are characterized by dispersed market- ing facilities located in congested areas, and inadequate storage facilities; they tend to allow traders to charge margins which substantially exceed the cost of services rendered, dampening incentive for farmers to increase produc- tion or for traders to discriminate according to the quality of agriculture produce. To correct this situation, the Government of Bihar passed the Bihar Agricultural Produce Markets Act in 1960, which provides for the establishment of regulated markets in designated areas, administered by a Market Committee on which both traders and producers are represented. The aim of the Act is to ensure fair trading practices, competitive prices, efficient handling and cleaning of produce and a minimum of wastage. Project Description 1.03 As appraised, the project envisaged the development over 5 years of market yards in about 50 towns in Bihar. The project provided facilities, including land, equipment, entrance roads, fencing, water and sewerage, office space and traders' shops, to be owned and controlled by Market Committees. The project also provided for training of senior personnel for the State Marketing Board (SMB), market secretaries and qualified inspectors for Market Committees. An evaluation procedure for project implementation and actual costs/benefits was built into the project. 1.04 Total project costs were estimated at US$23.3 M (Table 1). The IDA Credit (294-IN) of US$14.0 M (Table II) was for 50 years, including 10 years grace. It was signed on March 29, 1972, with the closing date expected by December 31, 1978. In October 1978, the credit closing date was extended to December 31, 1979. The entire credit was withdrawn by December 31, 1979. - 11 - II. PROJECT PROCESSING Identification and Preparation 2.01 The possible need for wholesale and retail marketing and storage facilities in Bihar was mentioned by a mission visiting India in October 1970. The Department of Agriculture of the Bihar State Government prepared a prelimi- nary scheme for construction of market yards in early 1971 and a Bank recon- naissance mission reviewed the proposal in February 1971. The reconnaissance mission suggested an increase in the number of markets from 30 to 50 and the inclusion of warehouses and cold stores. The proposal also made provision for a slaughterhouse. Appraisal 2.02 As recommended, an appraisal team visited Bihar from June 15 to July 8, 1971. The five-man mission included three Bank staff and two consultants engaged to .appraise the technical feasibility of the project and to analyze the existing marketing system. 2.03 The project as appraised excluded the slaughterhouse and the cold storage facilities proposed in GOB's Project Report. The slaughterhouse proposal was removed because of the lack of interest on the part of the municipal corporation in Patna, where it was to be located; the cold storage facilities proposal was abandoned because of their doubtful financial viability. 2.04 The mission recommended that a SMB be created to provide a state-wide focus for enforcement of the Bihar Regulated Markets Act and to be the key management agency in planning for the development of the markets and for their proper operation. The creation of the SMB was made a condition of Board presentation, together with raising of the markets fee to 1% of sales value. 2.05 It was decided that the State Government would provide land for the market yards to the Market Committees, as these would not be able to borrow enough funds to buy the land. 2.06 One substantial difference between the appraisal report and the Project Proposal prepared by the Government of Bihar concerned ownership of the traders' shops. GOB had proposed that the land be owned by the Market Committee and be leased to the trader, who would build and own his shop. The appraisal report proposed that the Market Committee build and own the shops, which would be rented to the traders. 2.07 The appraisal report also proposed variable land areas for market yards. Whereas the Project Proposal had specified that 8 ha would be neces- sary for each market, the appraisal report required that the area should be a minimum of 6 ha for average market arrivals of up to 125 tons/day, with an additional 1 ha for every 20 tons/day over that amount. 2.08 The appraisal report also reiterated a number of other norms already included in the Project Proposal: - 12 - (a) The main roads within the market yard and the entrance road connecting the market yard to a main thoroughfare would be hard surfaced; (b) A fence enclosing the market yard would be constructed; (c) Display auction pla forms would be built having a surfaced area of at least 1,000 m ; and (d) A storage godown of 1,000-ton capacity would be built in each market having an average arrival of more than 150 tons/day. 2.09 Concerning traders' shops, the appraisal report introduced the con- dition that a minimum of 20 shops would be built in a market yard. This point will be further discussed in paras 3.13-3.16. 2.10 The appraisal report provided for an evaluation study, covering ten markets, which would evaluate the changes resulting from completion of the project on factors such as farm gate prices, wholesale market prices, market- ing costs, reduction in storage and handling losses. Negotiations 2.11 Credit negotiations were held in Washington from January 24 to 31, 1972. During negotiations assurances were obtained, inter alia, that: (a) Market locations would be determined only after detailed surveys and planning by SMB and the Town Planning Organi- zations (TPO); and (b) GOB would provide the proper sites for market development. 2.12 At negotiations, the Indian delegation rejected a condition concern- ing approval by the State Bank of India (SBI) of loans to a Market Committee, which required that traders and wholesalers would have to have signed leases for at least 50Z of the shops planned for the actual market before a loan could be approved. The delegation argued that this clause might be counter-productive as numerous traders were opposed to the concept of regulated markets and would not be prepared to sign leases until actual markets were functioning. Although the final Bihar Agreement still contains a clause stating "....as far as practicable the leases for the proposed godowns and traders' shops shall be executed before the markets have been constructed", it appears that this requirement was in fact never considered when SBI made sub-loans. 2.13 Another issue arising during negotiations concerned the condition that each market yard should have an area of at least 6 ha (para 2.07). The Indian delegation pointed out that in some towns it be would difficult to find a suitably located area of this size. This condition was therefore qualified by allowing exceptions with IDA agreement. During project execution, exception to this rule was requested for only one market where only 5 ha were available. - 13 - 2.14 The loan was to become effective once: (a) A Subsidiary Loan Agreement between GOI and the Agricultural Refinance Corporation (ARC) had been executed; (b) A Refinance Agreement between ARC and State Bank of India (SBI) had been executed; (c) The State Marketing Board had been established and key manage- ment staff appointed; (d) Market fees had been raised; and (e) Staff for agricultural marketing unit had been appointed. 2.15 The Board approved the Credit on February 29, 1972. III. IMPLEMENTATION Effectiveness and Start-Up 3.01 The project was declared effective on July 31, 1972, after all con- ditions of effectiveness had been met. 3.02 The project started well and the first supervision mission visiting Bihar in January 1973 reported that the project was progressing on schedule, key personnel having been appointed, the evaluation study commissioned, and ten sites selected. Construction was planned to start in May 1973 on three sites. Delays In Land Acquisition 3.03 However, delays in acquiring the sites quickly developed. It appears that the appraisal report implementation schedule had been too optimis- tic by allowing only nine months for acquisition of the land. It took about two years to acquire the first 25 sites, and about one year for the markets acquired after 1976. Land was to be acquired under the Land Acquisition Act, 1894 (LAA), which provides for compulsory acquisition of land for public pur- poses. The Act calls for due notice of the intention to acquire, the hearing of objections, eventual legal appeals against the acquisition judgement, and assessment of compensation based on market value. Although, according to some Government officials, procedures called for in the Act require about eight months, it seems that previous experience in acquiring land for roads had shown that acquisition had taken up to 2 1/2 years. Furthermore, the constitutionality of the LAA was challenged before the State Supreme Court, and this resulted in further delays for some sites. . 3.04 In some markets, land was to be acquired under a different act, the Land Ceiling Act (LCA), under which the compensation is lower than with the LAA. Owners challenged the use of the LCA instead of the LAA and caused - 14 - further delays. Amending the LAA to allow full acquisition of land also affected by the Ceiling Act on payment of the nominal compensation payable under the latter Act could have avoided these delays. The .LAA was subse- quently amended in such a way. 3.05 Another factor which made land acquisition difficult was that, in many cases, smallholders with no other landholdings had to be evicted in one of the most densely populated parts of India. In some cases, construction had to be delayed even when land had been acquired, because of opposition by the owners. In summary, the timing of land acquisition compared to the apprai- sal schedule was as follows: Number of sites acquired Year 1973 1974 1975 1976 1977 1978 1979 Total Actual 6 3 9 8 18 2 1 47 Appraisal 10 10 15 15 - - - 50 Planning and Sub-Loan Appraisal 3.06 Six organizations were involved in the planning, appraisal and con- struction of individual markets. The appraisal report, specifying that the SMB would be the principal agency responsible for project implementation, seemed to imply that it would act as a coordinating agency. However, the project would probably have benefited at the outset from establishment of a high level coordinating committee between all the agencies, which could have helped in solving problems relating to land acquisition, electricity con- nections, staffing of agencies and procurement of materials. 3.07 The appraisal report had laid down the following procedure for individual market planning: a Regulated Market Committee (RMC) desiring to develop a market yard would contact SMB which would obtain the technical assistance of the Rural Engineering Organization (REO) and TPO. These two agencies would select a site and prepare plans for the market yard develop- ment. After approval by SMB, the plans would be submitted to SBI which would prepare an appraisal report for submission to the Agricultural Refinance and Development Corporation (ARDC) for approval. Supervision missions reported that these various agencies coordinated well. SBI and ARDC quickly set up joint appraisals of individual loans to speed up the procedure. 3.08 In July 1977, a supervision mission recommended the creation of a Coordinating Committee under the Chairmanship of the State Chief Secretary to speed up execution, after the project had become substantially delayed. The subsequent mission reported that this Committee had been effective. Delays In Construction 3.09 The appraisal report was also optimistic in allowing only one year for the construction of a market yard. Initial problems plagued the 8 markets undertaken during the Indian fiscal year 1974-75, with the result that their average construction time was 30 months. However, it still took an average of 18 months to build the remaining 39 markets and only 3 markets were built within a year (Chart I). -15 - 3.10 Land litigation problems immediately following the commencement of construction gave rise to farmer opposition, which had t.o be overcome by force, were among the factors creating exceptional delays on the first eight markets. 3.11 Acquisition of construction materials, particularly cement and steel, also created delays. Having supplies available in time for the start of construction would have required their purchase before the SBI loan was avail- able. SBI finally agreed to advance funds to the RMC's before loan approval, against a State Government guarantee; however, by the time the State Guarantee was available, most of the concerned loans had been approved. Delays could have been avoided if the provision of fund advances before loan approval had been incorporated in the project. 3.12 As shortages of cement and steel had been prevalent in India, care- ful planning should have been done. Establishing a Coordinating Committee (para 3.08) could have helped solve some of the procurement problems. Reluctance of Traders to Move to New Markets 3.13 The objectives of the markets were to be met only when traders had shifted to them. The appraisal report assumed that, although their income would be reduced as a result of reduced market fee receipts, the traders would still benefit from the new markets, because their operating costs would be reduced and they would be able to buy better quality produce. However, the appraisal report did recognize that "the major uncertainty of the project pertains to the time required for the new marketing arrangements to become fully effective. Experience (in other states) where regulated markets are successfully operating has shown that it would take an average of about two to three years before all traders would fully participate." Trade shifting actually turned out to be a major implementation problem and, by December 31, 1979, the credit closing time, trade had shifted in only 19 of 47 project markets. This delay in shifting can be related to two issues: the lack of incentives for traders to move, and the insufficient number of shops built in the market yards, which made it difficult to achieve a proper phasing of the trade shift. At project completion, 1,426 shops had been completed and the SMB estimated that an additional 1,489 shops would be required to accommodate traders operating in the market yards (Table 3). 3.14 The project appraisal appears to have underestimated the magnitude of these issues. It was postulated that traders would quickly realize that their cost savings would more than offset their income reduction and that this would be an adequate incentive. No guidelines were explicitly incorpor- ated in the appraisal report on how many shops were to be built. The issue was compounded by erratic construction cost forecasts which led first to a reduction in the number of shops planned. A lack of continuity in SMB manage- ment, as well as in IDA supervision missions, was unfortunate. In retrospect, the project seems to have been too ambitious in trying to cover so many markets. A more manageable alternative might have been to concentrate on a smaller number of market yards and make sure they would be fully equipped to handle all the trade in the area. - 16 - 3.15 Traders felt that they would stand a loss in the move, having to pay rent for the new premises and tax on their turnover, which could now be checked. Their resistance to market relocation came fiist in the form of legal suits contesting the Government's right to determine where trade is to take place. Courts ruled in favor of the Government. 3.16 However, the traders then demanded that a shop be available for each of them before they move. In almost all of the markets, the number of shops built was much fewer than the number of traders. Traders filed legal suits, but the courts ruled in 1979 that traders do not have to be supplied with covered accommodations as long as the Government can provide land where the traders can build their shops. The appraisal report had stated that no loan could be granted to a Market Committee unless a minimum of 20 shops had been built and the Project Agreement included this as a covenant. It seems, how- ever, that this number soon became a target instead of a minimum. Inadequacy of the Number of Shops Built 3.17 . The appraisal report does not give guidelines for the determination of the number of shops to be built. Was the project aiming at providing shops for all or most of the traders, or was it providing seed money to establish a few shops, expecting that other traders would build their own? As mentioned in para 2.06, the Government of Bihar Project Proposal did not include the construction of shops by Market Committees. During appraisal, it was recog- nized that there would be difficulties in convincing traders to make an investment for building a new shop and, consequently, the project was modi- fied so that the Market Committee would build and own the shops. 3.18 Furthermore, the appraisal mission treated this project as a credit type project so that, if actual costs were to differ substantially from appraisal estimates, the project would finance more or fewer markets. How- ever, in 1974, when increased costs were expected, the action taken was to reduce the number of shops and keep the same number of market yards (para 3.22). 3.19 It was intended at appraisal that at least half of the leases for shops should have been signed before a loan could be granted to a Market Committee (para 2.12). This clause was rejected at negotiations and a safe- guard to ensure a minimum occupancy was thus removed. 3.20 In the meantime, a clear tendency evolved towards interpreting the objective of the project as being to provide funds for building only a few shops, and to lease land to traders to build additional shops. This inter- pretation was obviously chosen by the executing agencies and IDA did not object to this approach. Two of the early market appraisal reports by SBI, Sasaram (October 1973) and Bihariganj (December 1973), state: "As per the overall planning, the market yard should have a larger number of traders' shops as well as sundry shops. But, for the present, it has been proposed to construct a minimum of 20 shops as laid down by the IDA. It is also proposed to lease out space to traders to construct their own shops." .- 17 - 3.21 Furthermore, in late 1973, GOI requested IDA to agree that in some markets, only five to ten shops be built with project funds, as other shops would be built by traders with their own resources. IDA agreed to this request, providing that, at sub-loan appraisal, SMB and SBI verify that in total at least 20 shops would be built. As a consequence, about 27 markets with less than 20 shops were appraised to be built with project funds. Ultimately the number of shops in nine of these markets was increased to at least 20 in an extension phase undertaken in 1978, leaving 18 markets built with less than 20 shops. Shops to be built by traders with their own funds, however, did not materialize. 3.22 The issue became even more critical when expected cost escalations seemed to indicate in 1974 that the project could not be completed with the available funds. The April 1974 supervison mission recommended to the Govern- ment of Bihar to prepare revised financial plans and suggested that the number of markets financed under the project would have to be reduced. It also raised the issue of the number of shops by suggesting that more attention be given to whether more than the minimum of 20 traders' shops should be con- structed. However, the next supervision mission, in October 1975, reported that total costs had been kept in line with appraisal costs by constructing only about half of the originally planned shops, but does not mention why this course of action was taken in preference to a reduction in the number of market yards. 3.23 In 1976, the issue of the insufficient number of shops surfaced when the August 1976 supervision mission reported that, while market yards were offering 10 to 20 shops, demand from traders was for 50 to 150 shops. The mission reported that there were adequate funds in the credit to finance such an expansion, provided a suitable plan of financing were adopted, which would involve requesting each trader to pay a cash lease bond equal to 25% of the investment cost as a guarantee. However, the next supervision mission in July 1977 did not report on what actions were taken on this recommendation and why it was not implemented. It did, however, conclude that, based on existing plans and cost estimates, the credit would not be fully disbursed and suggested that some five to ten markets be added to the project or that the number of traders' shops be increased. GOB then decided to expand 17 market yards already under construction, by building additional platforms and/or traders' shops. Some 564 shops were built under the Phase II program in additon to the 862 in Phase I (Table 3). 3.24 This Phase II effort was, however, insufficient in terms of traders' shops and, again, the September 1978 supervision mission reported that more shops were needed. SBI and ARDC expressed willingness to finance additional shops from their own resources and would consider specific proposals. At the credit closing date, such proposals had not yet been prepared, but during the last review mission in February 1980, SBI and ARDC confirmed their offer. Lack of Management Continuity 3.25 Lack of continuity in SMB management at the crucial period when it became clear that the number of shops being constructed was inadequate may also have been the major cause of the failure to rectify this problem. The - 18 - SMB Chairman who met the July 1976 mission had been in that position for only three months and was replaced two months later by another Chairman who held the position for only 13 months. 3.26 Bank supervision missions were widely spaced until 1977 and lacked staff continuity until 1975. The first supervision mission was one year after credit approval and seven months after effectiveness. For five years, super- vision missions were limited to one per year and the second and third missions were 18 months apart, by which time the project was well behind schedule and encountering cost problems. Staff continuity was introduced to the supervi- sion missions only after the third mission which took place in 1975. Early supervision timing and lack of continuity were affected by the regionalization of the Bank in October 1972, two months after the Credit became effective, and the further reorganization of the Asia Regional Office in 1974. Evaluation Study 3.27 The evaluation study to be performed under the credit was entrusted to the A.N. Sinha Institute of Social Studies, Patna. At the credit closing date, the evaluation study had not yet been completed due to the delays in construction of the market yards and in trade shifting, and did not yet yield usable data to revise the quantification of benefits for an economic rate of return computation. SMB has provided financing to extend the study to observe three years of activities after trade has shifted. 3.28 Reports published based on a few months of activity in the new mar- ket yards tend to indicate that some of the expected benefits of the market are materializing in terms of improved prices to farmers, smaller price fluc- tuations, reduced traders margins together with decreased handling costs and increased volume. They also indicate an increased usage of the market yards by farmers. 3.29 The appraisal report contained tentative terms of reference for the study which were included in the contract between the Institute and SMB. But the 1975 supervision mission noted that the methodology used by the Institute was not consistent with the terms of reference and that the data collected may not be adequate. After the Institute submitted a revised proposal, which GOB and IDA accepted, following missions still found the study had difficulties translating collected data into clear-cut conclusions. Costs and Disbursements 3.30 The latest cost estimate for the project is US$28.8 million, a 24% cost increase over the US$23.3 million estimated at appraisal (Table I). Because of exchange rate changes, the increase in Rupee terms was about 40%, from Rs 170 million estimated at appraisal to Rs 240 million. The cost increases were financed as follows: - 19 - Rs (Millions) GOB Contribution (mainly for land) .24 Market Committees 15 ARDC 11 SBI 3 IDA (exchange rate fluctuation) 17 Total 70 3.31 Underestimation of the land costs accounted for about Rs 23 million of the increase at current prices. Price contingencies underestimation can be roughly estimated at about Rs 60 million due to delays in construction and a higher rate of inflation, which averaged 9% over the seven years of the project compared to 5% forecast at appraisal. Civil works costs turned out to be about Rs 13 million lower than the appraisal estimates at 1971 prices. As details for the actual and appraised costs for civil works are not avail- able, it is not possible to determine precisely whence the costs savings resulted. 3.31 Because of implementation delays, disbursements were slower than estimated at appraisal (Table 4). No problems in claiming reimbursements were encountered. IV. INSTITUTIONAL ASPECTS Institutional Design and Development 4.01 Implementation of the project was dependent on actions taken by six organizations: SMB, TPO, REO, SBI, ARDC and the local RMC. SMB and RMCs were recent creations when the project started, and, therefore, had to recruit and train their staff. 4.02 No major problems were experienced in hiring and training SMB staff, other than frequent changes of Chairmen in 1976 (para. 3.25). Adequate man- power was further allocated to SHB and REO in 1977 in an effort to catch up on the delays in implementation. SMB set up its own Training Center for RMC's officers. 4.03 The development of RMCs was slower, as elections in some markets were delayed into 1974 and recruitment was slowed down because of limited financial resources. Recruiting and training of qualified accountants were the major efforts for RMCs, and the use of double entry accounting system was slowly implemented, the last 18 markets being converted to this system only in 1979/80. 4.04 Entrusting the financing of RMCs to a single bank was certainly an essential factor in ensuring timely appraisals and avoiding major financing problems. As provided for in the Project Agreement, SBI created a Market Cell which worked jointly with ARDC to appraise subloans. This Cell was also - 20 - instrumental in designing, in collaboration with the other agencies, standar- dized layouts for the market yards and in promoting the construction of con- tiguous traders' shops, thereby reducing construction costs. This approach was developed after experience was gained in the construction of the first market yards, and improvements in design and quality and speed of execution were noted afterwards. Accounting and Reporting 4.05 All concerned agencies kept separate accounts for project expenses. Annual audited financial statements of SBI and ARDC were prepared within four months of the year closing, but these were not sent to IDA in connection with this project and IDA did not follow up on receiving them. ARDC statements were received yearly, in relation to ARDC Credit Projects. Legal documents also required that annual statements of the RMCs be sent to IDA, which was not done; field missions reviewed RMCs statements on an ad hoc basis. Such a clause, however, seems unnecessary: the responsiblity of overseeing the financial state of the RMCs should be entrusted to the financing banks, SBI and ARDC, 4.06 Detailed quarterly reports in a format agreed upon with IDA were regularly sent by SMB. The reports provided adequate information to monitor progress of implementation. V. ECONOMIC EVALUATION 5.01 Due to delays in project implementation, and reluctance on the part of traders to shift to the new markets, only 19 out of 47 project markets had become operational, either fully or partially, as of December 31, 1979. It is estimated that no more than half of the markets where trade has shifted are fully operating as envisaged at appraisal. The bulk of the markets, there- fore, have yet to begin operations in a substantial way, although progress is being made, albeit slowly. 5.02 It is therefore too early to make definitive ex post estimates of the benefits from the project. Although the evaluation study is not yet complete due to delays in the completion of markets, it is expected that most of the benefits estimated at appraisal will be realized. We have therefore recomputed the project economic rate of return, assuming the same level of benefits as at appraisal but with a three year lag, to reflect implementation delays. On the basis of the observed rates of increase in the project markets turnover, a three year lag of project benefits assumed appears to be quite reasonable. 5.03 The benefits, as at appraisal, are estimated as follows: (a) grain quality improvement due to cleaning (a benefit of Rs 24 million per annum at full development); (b) reduction of grain losses from excessive handling (Rs 9 million) and of storage losses due to covered auction platforms and warehouses (Rs 4 million); and - 21 - (c) savings in municipal budgets through reduction of main- tenance and administrative costs, since concentrating market activities in one location adjacent to the town- ship would reduce congestion and excessive traffic. 5.04 The benefit for grain quality improvement was estimated on the basis that 600,000 tons of grain would be cleaned by the mechanical cleaners provided by the project and that this cleaned grain would fetch a 5% premium in price. Savings in handling losses were estimated at 1% of arrivals and storage losses reduction was estimated at 3% of the used capacity of the godowns, 70,000 tons. Municipal budget savings would consist of road maintenance cost and sanitation and garbage disposal expenses savings of Rs 25,000 per market. A sensitivity analysis has been done to test the effect of further delaying the benefits and of having lower benefits than anticipated. 5.05 Actual civil works and equipment costs incurred during the project have been restated in 1971 prices. Land has been costed as in the appraisal report at its next best opportunity price, estimated at Rs 80/ha. 5.06 The economic rate of return (ERR) on project investments is esti- mated at 20% (Table 5). The following sensitivity tests were performed to determine their impact on the project's ERR: Assumptions ERR(%) Base 20 Benefits deferred 2 years 13 Benefits deferred 3 years 11 Benefits decreased by 10% 17 Benefits decreased by 30% 12 Civil works costs increased by 10% 18 Operating costs increased by 10% 19 Operating costs increased by 30% 12 Benefits decreased by 10%, all costs increased by 10% 15 The rate of return is most sensitive to a decrease or a delay in the bene- fits. As benefits were conservatively estimated at appraisal, it seems that the rate of return would most likely be at least 11%. VI. CONCLUSIONS 6.01 In summary, the objectives established for this project were appro- priate and will certainly be achieved, although somewhat later than intended in the original schedule. An effective and experienced group of organizations has now been developed that can function efficiently and continue to expand along the lines established under the project. Credit processing, including negotiations, proceeded reasonably smoothly, with few problems encountered. - 22 - 6.02 Project planning and implementation were not without problems. Several aspects of these phases could perhaps have been approached in a more timely, detailed or realistic manner and some of the problems eliminated. They are worth noting because of the lessons they provide for future develop- ment projects undertaken by the Bank. 6.03 Project staff, from both the Bank and the implementing agencies, appeared to have been excessively optimistic concerning the potential diffi- culties arising from the acquisition of land for market sites. The first 25 sites were acquired in about two years, although the implementation schedule in the appraisal report had allowed only nine months. A similar optimism prevailed in connection with the willingness of the traders to move into the new markets. This proved to be a major implementation problem, with trade shifting in only 19 of 47 project markets by the time of the extended credit closing date of December 31, 1979. A more realistic, and less optimistic approach to such matters may help to reduce or eliminate such problems in future. 6.04 Project planning could perhaps have been improved notably in two areas-the number and ownership of market shops constructed under the project, and the provisions required to accommodate the likely shortages in construc- tion materials, particularly steel and cement. The lack of adequate guide- lines in the appraisal report as to the number of shops to be built, coupled with the reluctance of traders to invest in building and the escalation of construction costs in general, led to a drastic shortage in the number of shops available for the traders' use and to an untenable situation regarding the responsibility for construction and ownership. Shortages of cement and steel contributed to delays in market yard construction. Since such short- ages had been prevalent in India, careful planning, perhaps through a coor- dinating committee, might have helped resolve some of the procurement problems encountered in this area. 6.05 Finally, timely intervention by IDA to ensure management continuity in the SMB might have avoided the failure of the SMB to rectify the shop shortage problem. The difficulties associated with maintaining staff con- tinuity within the Bank, in the wake of the Bank-wide reorganization in 1972 and the Asia Region reorganization in 1974, also contributed to the problem. Staff continuity is a highly critical factor in the successful implementation of a development project. 6.06 The lessons to be drawn from these observations, if applied judi- ciously, should not only benefit future market development projects in Bihar, but should also help Bank staff in their project design and supervision efforts. VII. FOLLOW-UP ACTION 7.01 GOB has extended the evaluation study to observe three years of activities after trade has shifted, in order to compute ex post estimates of the benefits of the project. GOB should make this information available to enable IDA to arrive at a definitive economic evaluation of the project.  Table I -23 - INDIA BIAR AGRICULTURAL MARKETS PROJECT COMPLETION REPORT Project Costs Appraisal Estimates Revised Estimates Item Rs(Millions) $(Millions) Rs(Millions) $(Millions) Land 10.5 1.4 33.7 4.0 Civil Works and Equipment 113.2 15.6 202.8 24.6 Training and Project Evaluation 1.4 0.2 1.4 0.2 Contingencies - Physical 11.8 1.6 - - Price 32.7 4.5 - - Total Project Cost 169.6 23.3 237.9 28.8 -24 - Table 2 INDIA BIHAR AGRICULTURAL MARKETS PROJECT COMPLETION REPORT Credit Allocation ($ 000) Allocation % Of Expenditures Category Amount To Be Financed Actual Drawings I ARDC Refinancing 12,850 75% of Total 13,971 of Civil Works and Expenditures Equipment II Training and Evaluation 150 63% of Local 29 Expenditures, 100% of Foreign Expendi- tures III Unallocated 1,000 - Total 14,000 14,000 1/ $121,000 were reallocated from category II to category I in 1979. - 25 - INDIA Table 3 BIHAR AGRICULTURAL MARKETS PROJECT PROJECT COMPLETION REPORT Shous Constructed and Estimated Additional Requirements Estimated Number of Shops Constructed Additional Name of Market Phase I Phase II Total Requirements 1. Gulabbagh 20 23 43 27 2. Behariganj 10 - 10 10 3. Murliganj 10 - 10 20 4. Banmankhi 10 - 10 30 5. Supaul 5 - 5 - 6. Buxar 20 20 40 24 7. Forbesganj 22 10 32 9 8. Nokha 10 32 42 15 9. Futwah 10 - 10 5 10. Biharsharif 10 35 45 10 11. Naugachia 10 - 10 25 12. Gaya 10 34 44 97 13. Arrah 14 16 30 33 14. Bihta 10 - 10 10 15. Muzaffarpur 10 34 44 85 16. Katibar 10 20 30 40 17. Sasaram 20 35 55 30 18. Araria 10 20 30 11 19. Patna City 20 65 85 94 20. Samastipur 30 - 30 20 21. Bhagalpur 10 66 76 45 22. Ranchi 21 100 121 95 23. Sitamarhi 25 10 35 20 24. Kishanganj 10 - 10 50 25. Jamshedpur 50 - 50 95 26. Dhanbad 76 - 76 91 27. Khagaria 10 - 10 36 28. Mohania 18 12 30 18 29. Daudnagar 10 - 10 40 30. Darbhanga 38 32 70 32 31.1 Begusarai 15 - 15 50 32. Barh 15 - 15 25 33. Deoghar 20 - 20 15 34. Lakhisarai 10 - 10 20 35. Kasba 10 - 10 10 36. Jehanabad 10 - 10 35 37. Hazaribagh 20 - 20 20 38. Monghyr 20 - 20 22 39. Chapra 30 - 30 34 40. Natwar 10 - 10 25 41. Garhwa 33 - 33 30 42. Daltonganj 10 - 10 10 43. Giridih 20 - 20 15 44. Musallahpur 50 - 50 41 45. Mokameh 20 - 20 10 46. Narkatiaganj 10 - 10 - 47. Chanpatia 20 - 20 10 Total 862 564 1,489 -26 - Table 4 INDIA BIHAR AGRICULTURAL MARKETS PROJECT COMPLETION REPORT Schedule of Disbursements .($ Yillion) Actual Disbursements IDA Appraisal As % of Appraisal Fiscal Year Estimate Actual Estimates 1973/74 1.3 1974/75 3.9 - - 1975/76 7.4 2.1 28% 1976/77 11.7 2.9 25% 1977/78 14.0 6.4 46% 1978/79 12.0 86% 1979/80 2nd q. 14.0 100% Closing Date 12/31/78 12/31/79 6.50.4.r r!s- i13 1974 t97l 9 199 719 911 19100 i91 1952 1963 194 j95 1914 4 957 9ar a9f9 1990 1911 1992 t .1 ..- .. .. -.. - .. .- ..Ji .-1 . -.1 -1 -. .-1 .-1 ... .-1 i. css alvol ~,.cko b 3,200 53,600 64, 70 31,000 45,800 - - - - 205 604 58 1,240 1,&32 - (32,90> Lndmre a f1 6 at 22 27 44 47 47 4 4 7 41 47 1 41 47 4147 47 47 ope.tta cobtå #st arkettes Iobrd 300 i04 30m 312 314 320 324 315 332 337 342 347 352 357 362 347 373 379 383 391 Hör.t oabte (te.b nrabba&O - - 700 2,25 2,520 3,.68 3,752 3,818 3,485 3960 4,034 4.410 4,18 4,14a 4,352 4,43m 4,326 4.6%4 4,710 4,0g Tablå&%a & r-ject Ivrmå*ta-. 300 350 350 230 3 2$0 250 230 250 250 - - - - - - - - - - l04at6 6 6,510 17,117 17,632 33,303 50,573 4,443 4,517 4,594 4,423 4,506 4,79 5,276 5,349 4,092 6,775 5,042 ,42 (I27,53) et. 9IErIT ~edes e benet 5g a.t..e - - - - - h,2t0 2,640 4,760 7,200 7,400 7,600 8,000 9,200 0,600 9,000 9,000 9,000 9,000 9,0 9,000 QmaitT lSbacbab- - - - - - 4,500 9,600 16,800 24,000 24,000 24,000 26,000 24,000 5 240 4,000 26,000 34,000 24,000 24,000 Cowesa* plai.ern .64 sedm - - - - - 592 1,224 2,23 3,300 3,420 3,520 3,640 3,540 4,000 4,60 4,460 4,160 4,160 4,160 4, 60 S4.s91«m at ~,a.k pa. asen* - - - - 250 0 550 .21 a:150 ,230 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1.250 1.250 1,250 TLt- - - - - 6,922 13,4 24,66~ 3,750 5,070 36,370 M,930 37,29 37,8530 35,410 15.410 30,410 35,410 38,410 31,410 tål. on BEllEF? STEAn <6063 (6.64 (6,500) (1,117) (m7,j32) (28,355) (360,0) 0,114 31,233 11,474 31,947 32,426 32,49$ 32,74 33,041 2,315 31,43 33,36 33,26 65,966 i3 60 As g0 pc bt. a-pt. ..at^ - 20 5-3 (D L.ri  - 28 - Chart I INDIA BIHAR AGRICULTURAL MARKETS PROJECT COMPLETION REPORT Construction Time Number of Market Yards 13 - 121 81 7 5 - 492 24 9-12 13-16 17-20 21-24 25-28 29-32 >32 Months  - 29 - ANNEX 1 PROJECT COMPLETION REPORT OF BIHAR AGRICULTURAL MARKETS PROJECT CREDIT 294-IN (Prepared by) BIHAR STATE AGRICULTURAL MARKETING BOARD GOVERNMENT OF BIHAR PATNA, INDIA - 30 - ANNEX 1 Page ii TABLE OF CONTENTS Page No. I. INTRODUCTION ............................................. 1 The Perspective ........................................ 1 The Bihar Agricultural Markets Project .................. 2 Appraisal ............................................... 3 Development Credit Agreement ............................ 4 Project Completion ...................................... 5 II. PROJECT IDENTIFICATION AND PREPARATION .................... 6 Project Identification .................................. 6 The Project Report ...................................... 8 Appraisal ............................................... 9 Regional Approach ....................................... 10 Market Yard Planning and Construction ................... 10 Land Norm for Market Yard ............................... 10 Provisions in the Market Yard ........................... 10 Construction Schedule ................................... 10 Financing ............................................... 10 Targets and Goals ....................................... 10 III. IMPLEMENTATION ............................................ 15 Preconditions ........................................... 15 Planning and Appraisal .................................. 16 Provision of Land ....................................... 16 Subloan Approval ........................................ 18 Contracting and Construction ............................ 19 Training and Equipment .................................. 19 IV. OPERATING, FINANCIAL AND INSTITUTIONAL PERFORMANCES ....... 20 Operating Performance ................................... 20 Financial Performance ................................... 21 Institutional Performance ............................... 21 V. ECONOMIC RE-EVALUATION .................................... 21 Expected Benefits ....................................... 21 Economic Return ......................................... 22 TABLE 1. Construction Costs Per Market .- 31 - ANNEX 1 Page 1 I. INTRODUCTION The Perspective 1. Agriculture has a dominant role in the Indian economy contributing nearly 40% of the national income, providing employment to about 70% of the working population and accounting for a sizeable share of the country's foreign exchange earning. Within its State of Bihar, the above percentages stand at about 40 and 90, respectively. Bihar's per capita income is less than half the national average. 2. The above economic scene of 1970-71 viewed along with the rising trend of population, shows that the dominance of agriculture in the economy of both the country and the State would continue within the foreseeable future. In recognition of this fact, the Government of India constituted the NATIONAL COMMISSION ON AGRICULTURE in 1970 with wide terms of reference. The Commis- sion has already submitted its report and, expressed briefly, it calls for much larger targets of production of agriculture crops by the end of the cen- tury and spells out the strategy for the same in the form of a rapid increase in the cultivable area under assured irrigation, use of high yielding varie- ties of seeds, fertilizers and other inputs. 3. The envisaged increase in crop production can, however, be sustained only through a similar increase in the agricultural marketing infrastructure about which the Commission has this to say in para 12.2.1 of its abridged report: "Agricultural marketing includes all aspects of market structure and systems, both functional and institutional, pre- and post-harvest operations, assembling, grading, storage, transport and distribution. Facilities and infrastructure for agricultural marketing in the country have to be considerably improved and strengthened in order to enable the agriculturists to dispose of their produce at incen- tive prices, reduce the price spread between the primary producer and the ultimate consumer and ensure the availability of consumer products and agricultural inputs to the farmers at reasonable prices." 4. The market structure and system, both functional and institutional, pre- and post-harvest operations, assembling, grading, storage, transport and distribution are still probably the most deficient in Bihar of all the States, notwithstanding, the position that Bihar is predominantly agricultural and possesses 94,238 sq km of its total area of 173,876 sq km as part of the highly fertile Gangetic plain. Feeder roads, linking farm areas assembling and marketing points and functionally equipped market yards, subyards and rural markets, as well as scientific storage facilities, are critical to the above functions but are notably lacking in the State. The existing market areas have developed through the ages round nodal points of roads converging on old urban centers and, with urban and traffic growth, they are no longer - 32 - ANNEX 1 Page 2 able to discharge their functions satisfactorily. There are no parking and auction spaces in the market areas and their congested linear and scattered development highly obstructs all regulatory efforts. 5. It was in the above context that the Government of Bihar conceived of the Bihar Agriculture Markets Projects as a priority scheme in its agricul- tural sector in 1970-71. Small investments have been made earlier to develop, 10 planned market yards in the command areas of the rivers of the State since the Fourth Five-Year Plan after the promulgation of the Bihar Agricultural Produce Markets Act, 1960 and subsequent experience of difficulties in enfor- cing it. The financial and physical coverage necessary was, however, of much larger order. The project framework was accordingly discussed with the IDA mission led by Mr. L. Relmers which visited Bihar in February 1971. The mission responded favorably to the project and suggested that a complete project report should be prepared and sent to the World Bank Headquarters in advance of the proposed visit of its appraisal team to India towards the middle of the same year. The Bihar Agriculture Markets Project 6. As suggested by the IDA mission, the Bihar Agriculture Markets Project was prepared and sent to the World Bank in April 1971. As the project report itself stated, the time available for preparation was extremely limited and hardly commensurate with the task, but still fairly extensive information was provided. The project envisaged the development of 50 markets, 10 cold stores and a slaughterhouse in a period of 5 years, at a total outlay of Rs 110.1 M including cost of acquisition of land. It proposed the acquisition of about 8 ha of land for market and the market yard, conceptualized by it, was to have platforms, storage godown of 1,000 tons, bank and post office, mar- ket committee office, canteen, farmers' resthouse and cattleshed, veterinary dispensary, toilet, check-post and guard's residence constructed through pro- ject funds, while traders were to be alloted plots for building their own shop-cum-godown structures. These plot sizes were determined on the assump- tion of a storage space requirement for 50 tons of foodgrains. Apart from these, another important planning provision was the inclusion of cattle markets in the same market yard complex as foodgrains, etc. (Section 7.0 of Project Report). 7. The project report stated that the chief benefit of the project lay in ensuring remunerative prices for the farm produce and saving the farmers from exploitation by unscrupulous middlemen. It stated that the green revolution could not be sustained unless it was supplemented by providing agricultural markets at suitable places to physically handle the produce and a system which could channetize the produce from the fields to the consumer. The producer-seller was expected to benefit by an additional 10% from these markets on account of introduction of auction, cleaning and grading and reduction in market charges (Section 8.0 of Project Report). 8. The project report did not spell out the actual amount of loan sought from the World Bank and merely stated that if a major portion of the funds for the project was made available by a premier lending institution, the gap would - 33 - ANNEX 1 Page 3 be met from government funds and locally raised institutional finance. The loan was proposed to be paid back by the market committees within 20 years in 16 annual installments with a moratorium of 4 years (Section 14.0 of Project Report). 9. While a specific regional approach did not figure in the selection of the 50 markets, care was taken to select markets with irrigation facilities already developed or under development. All except 3 markets (Ranchi, Garhwa and Chakulia falling in the Chota Nagpur Plateau region) were markets situated in the Gangetic plain. Appraisal 10. The project report was appraised in June/July 1971 by the IDA mission comprising Messrs. T. Davis, R. Golkowsky, L. Ljungman and two consultants. The appraisal report was submitted by the mission in February 1972. The appraisal report laid down specific land norms at a minimum of 6 ha of average market arrivals up to 125 tons/day plus 1 ha for every additional 20 tons/day of average arrival for each market. It also prescribed provisions to be made in the market yard and the principal departure from the project report was the inclusion of construction of minimum of 20 trader shops of specified size. 11. The State Rural Engineering Organization was further approved as a suitable agency to execute all engineering components of the project including the water and sever supply system. The State Town Planning Organization was chosen to assist in the location and planning of market yards after proper surveys (paras 2.30 and 3.03 of SAR). 12. The technical specifications for market construction were provided in Annexure 8 of the appraisal report and were extensive enough to fix even the size of various structures including the trader shops. 13. Land for market yards was to be made available free of cost to the market committees by the State of Bihar in a phased manner co-relating with the work program (para 3.13 of SAR). 14. The appraisal report allowed a preparatory period of 18 months after which 10 markets each were proposed to be completed in year 1 and 2, and 15 markets each in year 3 and 4. The project cost was worked out at Rs 169.54 M and expenditure per year indicated in Annexure 10 of the SAR. Certain costs were also envisaged in it for the year 1 though the actual construction of markets was to begin from the year 2. The schedule of flow of IDA funds was given in Annexure 11 and was expected to begin in the second quarter of year 1 (1973), and to end with year 5 (1977) assuming effectiveness from October 1, 1972 and the time contingency of 6 months. 15. Provision was also made for training and project evaluation in the appraisal report. The role of the market as a central meeting of farmers was mentioned but the construction of auxiliary facilities (bank, post office, extension services, cooperative marketing, and/or Credit Societies and input - 34 - ANNEX 1 Page 4 shops) was not included and it was expected that the concerned parties would provide them at their own cost on land to be leased to them within the yard (paras 3.11 and 3.12 of the SAR). 16. An important feature of the appraisal report was that while the loan was to cover about 50 markets, their actual selection was left with the SBI on the basis of its sub-appraisal of each market (para 4.08 of the SAR). 17. The appraisal report envisaged financial return to the market com- mittees to range from 20% to 40% and the return to the economy to be at least 29%. Farmers' as well as traders' income was expected to increase while the consumers were expected to pay slightly higher prices for better quality, as the overall result of the project. The major uncertainty was seen to lie in the time required for the new marketing arrangement to become effective (para 6.25 of the SAR). 18. The project report was considered sound for an IDA loan of US$14.0 M under standard IDA terms subject to the conditions that a State Marketing Board with designated staff was established, the market fee was raised to Rs 1 per Rs 100 valuation of produce handled, and SBI subappraisal Cell was set up and subsidiary loan agreements between Government of India and ARC (now ARDC) and SBI were executed. Development Credit Agreement 19. The Development Credit Agreement (Bihar Agricultural Markets Project, Credit No. 294-IN) was executed between IDA and the Government of India, IDA and ARC/SBI, and IDA and the State of Bihar on March 29, 1972. After the conditions set forth in the appraisal report were met, July 31, 1972 was designated as the date of effectiveness of the agreement. The agreement incorporated the technical specification of the appraisal report and expected the project to be completed by June 30, 1978. The closing date of the Agree- ment was prescribed as December 31, 1978 or such other date as may be mutually agreed upon. 20. Under its financial provisions, the SBI was to finance 95% of the total investment cost other than land amounting to Rs 159.04 M with repayment period of 15 years including a grace period of 2 years, and in exceptional cases, up to 3 years. A rate of interest of 9% was to be charageable by the SBI. Some 85% of the total investment cost other than land was to be refi- nanced to the SBI by the ARC at an interest rate of 6.5% per annum. 21. The GOI lending terms to the ARC were fixed at an interest rate of 6% per annum (with a rebate of .25% on prompt payment of principal and inte- rest) with a term of 15 years. The disbursement of the loan to GOI was to be in the following manner: - 35 - ANNEX 1 Page 5 Amount of the Expenditures Category Credit Allocated to be Financed (US$) (%) ARC's refinancing under Part A of the Project (excluding land) 12,850,000 75% of total Training and Evaluation 150,000 63% of total Unallocated 1,000,000 Total 14,000,000 Project Completion 22. Though the project was selected for completion by June 1978 as per the IDA agreement, it became delayed until December 1979 for a number of reasons, important among them being: (a) The provision of release of project loan to each market committee after separate sub-appraisal instead of the central organization, viz., the State Marketing Board, introduced an element of uncertainty about the markets listed in the project report. Ultimately the number of markets in the State plateau increased from 3 to 11 and that in the Gangetic plain dropped from 47 to 39 with 14 replacements. Further, out of the nine markets in the plateau region, one (Dumka) had to be dropped due to local opposition and two (Bokaro and Chakulia) were eventually completed outside the project. The final total of project markets thus became 47 in place of 50. (b) The above uncertainty was also reflected in the pace of land acquisition which became further delayed by local opposition due to late payment of compensation and dis- pute over land price. (c) The provision of separate sub-appraisal and separate agreement between SBI and market committee for release of loan precluded the advancement of a consolidated amount by the SBI to the Rural Engineering Organization. As a result, the provision made in the cost estimate of the appraisal report for expenditure before start of con- struction became nullified and the purchase of construc- tion materials delayed. (d) During construction, and even after completion of the sanctioned works, it was found that the number of traders' shops and storage facility required in the markets, far exceeded the provision in the project. As a consequence, - 36 - ANNEX 1 Page 6 the construction program had to be enlarged and additional funds, outside the project, had to be equally pumped in from resources of the Government of India, Government of Bihar, SMB and the Market Committees to the extent pos- sible. The SBI was alone to finance each yard only within the limits of viability of its market committee. (e) Floods, scarcity of construction materials and later, the pre-occupation of the State Electricity Board with draught extended the time requirement for the project. (f) The non-inclusion of technical wings from the Bihar State Electricity Board and the State Public Health Department with the Rural Engineering Organization entrusted the project, created problems and delays in the two sectors of engineering works. 23. The above reasons seem clearer in hindsight and the purpose of stating them is entirely to focus greater attention to them in future project preparation and appraisal. What is most important is the fact that the proj- ect, the first of its kind financed by the World Bank, suffered only marginal delay and this could only have been possible in the context of the perfect understanding and cooperation among all associated with it--the World Bank, Government of India, Government of Bihar, ARDC, SBI and the REO. Though as anticipated in the appraisal itself, the gestation period is still not over; the project completion has made the path of future development of market yards and their components clearer, assisted in removing urban traffic congestion and what is more vital, both traders and farmers are increasingly accepting the yards as beneficial to them. Emboldened by these results, the SMB has now launched a repeater project covering an additional 75 markets during the Sixth Five Year Plan to extend these benefits to a large body of trading and farming community. II. PROJECT IDENTIFICATION AND PREPARATION Project Identification 24. As already stated in the introductory chapter, a rapid increase in agricultural production has always been vital to India, more to Bihar with a poorer economy and greater dependence on agriculture. The State is divided into two natural regions: (a) the Gangetic Plain; and (b) the Chotangpur plateau. Out of a total area of 173,876 sq. km and a population of 56.35 M people in the State in 1971, 94,238 sq. km and 42.12 M people lie in the Gangetic plain region. The corresponding density of population is 447 people per sq. km, - 37 - ANNEX 1 Page 7 comparing very unfavorably with that of 179 for the Chotanagpur region and 324 for the State as a whole. The urban population in the Gangetic plain is only 7.96% of the regional total while the corresponding percentage for the Chotanangpur region is 16. Urbanizing also has a much faster pace in the Chotanagpur region due to its rich mineral potential and major industry. 25. All this goes to show that Bihar's efforts towards rapid growth of agriculture have necessarily been overwhelmingly concentrated in the Gangetic plain under various Five Year Plans. The efforts had to be largely uphill in the context of the low level of urbanization and participation in non-agricul- tural occupation, as well as proneness of the area to floods, financial con- straints and inadequate transport and communication facilities. All the same, the take-off stage seemed to have been reached since the last decade, at the beginning of which apprehension even began to be felt that unless the green revolution was supported by price incentive for the farming community, a set- back may occur due to undesirable distortion of the planned cropping pattern, etc. 26. It was in the context of the above realization that a hard look was given to the marketing law and the conditions pertaining in the wholesale markets of the State. Though the Bihar Agricultural Market Produce Act had been enacted in 1960, its enforcement was found difficult not only because of litigation started by the trading community but also due to the obsolete character of the wholesale market yards. Emerging in the hoary past, when the towns were small and traffic light, they have now become highly dense conglome- rations of hybrid structures along narrow lines. Engulfed by surrounding urban growth, wholesale activity has also developed in scattered patches in many towns. Almost all the wholesale markets are found to be linear develop- ments along dense-traffic roads without any space for parking of vehicles, auction or other marketing function. It became obvious that unless planned market yards were developed, it would not be possible to sustain the effort towards providing the farming community with the necessary price incentive. 27. The above conclusion led to the identification of the Bihar Agricul- tural Market Yards Project as a priority scheme in the agricultural sector side by side with projects for improving irrigation facilities and inputs and rural connection. 28. The outline of the identified project was discussed in February 1971 with the IDA mission led by Mr. C. Helmers who was accompanied by Mr. Golkowsky during his visit to Bihar. The following conclusions were arrived at after their discussion with the Government of Bihar. (a) The mission gave this project the highest priority as they expected the rate of return to be about 30% and the project had special advantage for the producers who would get better prices and reduce foodgrain losses. (b) The number of markets proposed earlier was to be 30 but the mission proposed an increase to about 50. They were also willing to accept a larger number, provided economic via- bility was established. - 38 - ANNEX 1 Page 8 (c) It was considered desirable to amend the Act to provide for increase in the marketing fees from Rs 0.50 which was the permissible fee in the Act, to 1% which was the fee in some of the other States like Punjab, Haryana, etc. (d) The Bank would not be prepared to give loans for the acquisition of land but possibly ARC could finance this and failing that, the State Government would have to provide finances for this item. The location of market yards should be decided keeping in view the cost of acquisition. The cost of acquisition of land was roughly about 20% of the total investment proposed on the markets. (e) The mission was of the view that there should be a pro- vision for warehousing and cold storages in the Project. The organizational and financial aspect of construction and control of warehouses, etc., will have to be worked out as the market societies may not find it profitable to run them fully on their own. It was, however, agreed that the aim in having warehouses should be to give direct benefit to the producers. ARC could possibly give loans to State Warehousing Corporations for this purpose. (f) The mission also emphasized the necessity of providing assistance to the Market Committees for designing, lay- out, etc., of market yards. This was agreed to. (g) ARC could provide credit to the market committees or to the agency of the State Market Development Board through the consortium of Commercial Banks and Agricultural Finance Corporation could also be directly involved. (h) The mission thought the project could be followed by similar projects in other States. The mission indicated, and it was agreed, that an appraisal mission should visit India in May 1971. Action should, in the meantime, be taken in the light of conclusions noted above and the final project report, complete in all respects, forwarded to the Bank by the end of March 1971. The Project Report 29. The Project Report on development of markets in Bihar was prepared by the Government of Bihar and submitted in April 1971 which is indicative of the short time that had been available for its preparation. It provided the demographic and economic background of the State, the description of selected markets, requirements and income of the Bihar Agricultural Produce Markets Act and current agricultural marketing practice and explained the proposals under the project and benefits therefrom. It was prepared without outside consul- tancy and the timeframe precluded evaluation of alternative choices of action - 39 - ANNEX 1 Page 9 or a grassroot determination of specific requirements of the trading and farming community. All the same, it was a document of considerable merit providing exhaustive analysis of agricultural marketing in the State. 30. The Project report incorporated suggestions made by the IDA mission earlier and proposed the following program of work and out-lay: Rs M Development of 50 markets and ancilliary facilities 92.6 Establishment of 10 cold stores 15.0 Establishment of slaughter house at Patna 2.5 Total Outlay 110.1 31. To avoid repetition, it has been considered desirable to discuss the salient features of the project report and the appraisal report together in the following sections. Appraisal 32. The IDA appraisal mission consisting of Messrs. T. Davis, R. Golkowsky, R. Ljungman, and two consultants appraised the project in June 1971. The mission visited existing market areas of Mussallahpur, Patna City, Bihta, Biharsharif, Sasaram, Fatwah, Khagaria, Gulabagh, Kasba, Araria and Forbesganj. 33. In a meeting between the representatives of the State Government and the appraisal mission on July 2, 1971 the following conclusions were noted: (a) The State Government should provide funds for the acquisi- tion of land, as if, the market comittees have to take loan for the purpose, they might not be viable. (b) A State Marketing Board should be set up immediately. (c) The Marketing Organization should be suitably strengthened to take up implementation of the Project. (d) The Market Secretaries should be trained by the Directorate of Marketing and Inspection, Government of India. (e) The market fees should be raised to 1% from 0.25% as pre- valent then (the rate of 0.25% was the rate charged then against the ceiling of 0.50% allowed in the Act). - 40 - ANNEX I Page 10 (f) The markets proposed to be developed should form a nucleus of town planning and sufficient land should be acquired for future development. (g) The State Government would have to guarantee the loan to be paid by the Market Committee. (h) As sufficient number of registered contractors are avail- able in the State, no international bidding for the work should be required. (i) The economic viability for cold storage would require further study. (j) The provision for the slaughter house should be deleted from this project. 34. A comparison of salient features of the project report and appraisal report, submitted in February 1972, is now being given. 35. Regional Approach. The project report did not have a specific regional approach but did mention in Section 14.0 that the markets selected for development were situated in an area where irrigation facilities are either being developed or are in process of development. The number of markets was fixed adhoc so as to limit the size of the project to manageable dimension but, of the 50 markets chosen, as many as 47 lay in the Gangetic plain where the river command areas were under rapid and intensive development and the soil was highly fertile. The appraisal attached little weight to this regional issue and left the final selection entirely on the sub-appraisal results of the selected local institutional financier, the State Bank of India. 36. Market Yard Planning and Construction. Site selection: The project report had stated in Section 7.0 that land might not be available within the township and even the price may be prohibitive, hence land at some centers might have to be selected at a convenient place near the township with the help of functioning local site selection committees. It had not entered into the selection criteria and left it to the above committee to select the site "after taking all factors into consideration". The appraisal mission went into this matter more specifically, selected the State Town Planning Organi- zation as a suitable agency to assist the market committees in the location and planning of market yards (para 2.30 of SAR), imposed the condition that market locations would be determined only after detailed survey and planning by TPO and SMB (para 3.02 of SAR) which were to take into account the follow- ing factors: (a) Current and projected quantities of product coming to the market; (b) The total land area needed based on the projected quantities; - 41 - ANNEX I Page 11 (c) The availability of alternative sites within or near the market town; (d) The availability of utilities and access to roads and other modes of transport, and traffic flows of the town in rela- tion to the prospective site; (e) A topographic survey of the prospective site for sanitary and drainage purposes; and Cf) The buildings, equipment, roadways and other facilites necessary for proper development of the market yard. 37. Land Norm for Market Yard. The appraisal report did not enter into any analysis of the land norm for the market yard but stated in Section 7.0 that, while it was difficult to prescribe any uniform land requirement for market, as it will depend on availability of land, price and arrival, it was felt that, having regard to the scope of further expansion of market, a plot of 8 ha of land would be necessary. This was the norm prescribed at the time for the minimum area of a market yard by the GOI. The appraisal report pre- scribed specific norms for this purpose though the calculations supporting it were not provided. The prescribed norm was a minimum of 6 ha of land for average market arrival (calculated on an annual basis) of up to 125 tons/day plus 1 ha for every 20 tons/day over it (para 3.04 of SAR) and it was subse- quently clarified in Annexure 8 that the above arrival was to be taken as the projected arrival at the end of the next 10 years. 38. Provisions in the Market Yard. The project report envisaged the yard as divided generally in three sectors with an additional sector in case cattle transaction also took place in the market. Sector 1 was to be the principal sector with shops and godowns of traders and agents, sale platform and other buildings with facilities for producer-sellers for selling their produce. Sector 2 was to have facilities for sale of agricultural inputs and workshop repair of agricultural implements. Sector 3 was to have consumer shops selling consumer durables and other articles of immediate consumption. The appraisal report did not enter into this sectoral aspect but gave general guidelines for layout of a typical market in Annexure 7 along with a plan, providing for a centrally located area for market committee office and general services, peripheral shops with auction platforms. 39. The project report provided for development of commercial plots, and construction of 120' x 20' covered platforms for producers-sellers for unloading their stock, cleaning and grading and auction, a 1,000 tons storage godown with plinth area of 6,000 sq. ft., bank, post office, market office, canteen, rest house, and cattle shed, farmers' rest house, veterinary dispen- sary, guards' residence, public toilet, water troughs, checkpost along with development of the yard with roads, lights, water taps, drainage, first aid equipment, parking areas, grading facilities and market intelligence service as part of project costs. Special storage godowns were to be constructed for jute markets for which fire fighting arrangements were also to be provided. - 42 - ANNEX 1 Page 12 40. The appraisal report, also, made specific provisions which were narrated in para 3.04. The market yard was to contain an administrative building of about 352 sq. m, a minimum of 20 trader shops, 'a minimum of 1,000 sq. m of displayed (auction) platforms with a suggested dimension of 40 m x 6 m per platform suitable for 40 tons of arrivals. A 1,000 ton storage godown for markets with average arrival of more than 150 tons/day, toilet and lava- tory of about 100 sq. m, canteen and dormitory of about 112 sq. m, headguard residence of about 48 sq. m and developed plots for bank and post office of about 140 sq. m building area and for an extension building. On the equipment side, mechanical cleaners, platform scales, sampling probes, ventilating fans, drinking fountains, water troughs were also provided in the market yard. 41. In appraisal Annexure 8, giving guidelines for sub-appraisal, the minimum number of trader shops was put at 20 and of auction platforms at 5. 42. It is thus seen that the major difference between the project report and the appraisal provisions lay in construction of a minimum of 20 trader shops prescribed by the latter whereas the former had provided only for deve- loped commercial plots to be built upon by the traders themselves. Further display (auction) platform of a particular size were included in the minimum requirements in appraisal without specifying the nature of the market and operated as a blanket minimum provision. The construction of bank, post office and veterinary dispensary buildings out of project funds included in the project report, was also deleted in appraisal and provision made only for developed land for them under auxiliary facilities (para 3.11 of SAR). 43. The provision for ten cold stores and one slaughter house was deleted altogether during appraisal. 44. The project report had envisaged a total outlay at Rs 110.1 million which became Rs 92.6 million after deletion of cold stores and slaughter house but inclusive of land acquisition cost. As against this, the appraisal cost estimate was Rs 169.54 million including land acquisition. The project outlay was, however, to be exclusive of land costs and was placed at Rs 159.04 million. 45. Construction Schedule. The project report had provided a timeframe of five years for completion of the project. Some 11 markets were proposed to be taken up in the first year, 12 each in the second and third and the remain- ing 15 in the fourth year with specific names though the time of completion of their construction was not specifically mentioned. The appraisal provided a timeframe for each operation in a phasing chart (Annexure 9) covering 5 1/2 years. The actual construction was to begin from year 2 with 10 markets, another 10 in year 3 and 5 each in years 4 and 5. Planning and appraisal provision of land, sub-loan approval and contracting were pre-adjusted to meet this construction program. 46. Financing. The project report had not entered into cost estimates per year which was done at appraisal in Annexure 10. An expenditure of Rs 0.34 M was envisaged even in year one under training, project evaluation and contingency. The IDA disbursements were to be made in accordance with Annexure - 43 - ANNEX I Page 13 11 beginning from the second quarter of 1973 and ending with the last quarter of- 1977 assuming effectiveness from the first quarter of October 1972 and a time contingency of six months. 47. The apptaisal did not specifically provide for release of advance funds to the executing agency for timely bulk purchase of construction materials. 48. The appraisal prescribed the channels of financing the project and the interest to be charged by the participants. The SBI was to provide 95% of the project cost at an annual rate of 9% interest and the maximum term of 15 years with a grace period of usually not more than 2 years against a mortgage from the market committee on the land and improvements placed on the land (Annexure 12). This was to follow sub-appraisal in accordance with Annexure 8 under reference, of the plans and sub-loan application and appraisal of the same by ARC. In effect, therefore, the size of provisions of a market yard become dependent on the financial capacity of a market committee and not on the practical requirement of the trading and farming community. 49. The appraisal has also provided in para 5.08 that small markets, earning market fee of Rs 250,000-500,000 per annum, would need a more liberal repayment schedule than the large one, earning market fee in excess of Rs 1 million. 50. The ARDC was to reimburse the SBI 85% of the project cost at the rate of interest of 6 1/2% per annum. The IDA credit was to cover 75% of ARDC's refinance and 63% of the training and evaluation costs and was to be released to the GOI at normal terms. The GOI's on-lending of this loan to the ARDC was to be at 6% (with 1/4% rebate from prompt repayment) repayable over 15 years. 51. The break-up of the IDA credit of US$14.0 M has already been pro- vided earlier. 52. The above comparative picture provides the details of the project in accordance with the project report and the appraisal report. The final form of the project, however, took shape from the sub-appraisal of the SBI based on the financial viability of the concerned market committee to repay the loan, in accordance with procedure laid down at appraisal. As already stated, certain distortion occurred as a result thereof. A number of mainly secondary markets of the urbanized plateau region entered the project, while quite a few markets of the Gangetic plain fell by the wayside, either on account of initial unfavorable sub-appraisal results or delay in land acquisition. All the same, the profile of the project, as well as its main thrust, remained as conceived in the appraisal report. Targets and Goals 53. The project, comprising of the development of 50 markets, had the following goals in mind: *-44 - ANNEX I Page 14 (a) The enforcement of the marketing legislation would become a practical proposition. (b) There would be a price incentive to the farming community to sustain the green revolution. It was anticipated in Section 8.1 of the project report that the project would provide the farmer with an additional income premium of at least 10% of his total income: (i) 1-2% from auction; (ii) 3-5% from cleaning and grading; (iii) 2-3% from reduction of market charges; (iv) 3-5% from scientific storage; and (v) 1-2% from market intelligence facilites. (c) The farmer would be able to reduce distress sale. (d) The farmer would be able to purchase inputs and consumer goods at his place of business and also avail of provided utilities, e.g., bank, post-office, etc. (e) Urbanization of agro-industrial growth would be stimu- lated and urban congestion decreased. (f) Both short- and long-term employment would increase as a direct, as well as indirect, result of the project. 54. The appraisal report broadly accepted the above goals. The project was deemed to be a part of India's continuing program of regulated market development aimed at reducing losses, increasing farmers' income and stabi- lizing supplies and prices of food to the consumers (para 1.01 of SAR). It accepted that, the marketing function would be regulated; competition would be maximized; wastage of products would be lessened; efficiency of the market operation would be improved and congestion of transportation would be mini- mized (para 1.02 of SAR). 55. The project was the Bank Group's first project in the field of agricultural wholesale markets and as such the appraisal report did not seek the quantified realization of the above targets. Financial returns to the market committee were, however, estimated to range from 20-40% and the return to the economy to be at least 29%. The issues were further analyzed in Chapter 6 and Annexure 16 of the report and specific provisions were made for evaluation by a competent agency. The A.N. Sinha Institute at Patna, which was entrusted with the work, however, still requires more time to come forward with firm conclusions. All the same, indications are that the trend is towards realization of the goals and it is strengthening with the passage of time. Since discussion of this issue would be done under the chapter on evaluation, the relevant matter from the appraisal report has not been quoted and discussed in detail here. Similarly, physical targets, and the linkages bearing on them, are also not being discussed here as they would recur in the chapter on the implementation. - 45 - ANNEX 1 Page 15 III. IMPLEMENTATION Preconditions 56. The appraisal report was published on February 8, 1972 about 7 months after the visit of the appraisal team to Bihar in June/July 1971. The project report itself had to be submitted within about three months of the discussions with the IDA mission. In between, however, the World Bank, in their letter of November 29, 1971, emphasized amendment of the Agricultural Produce Markets Act of 1960 to provide for: (a) A rise in the ceiling of the market fee to Rs 1 per Rs 100 value of produce; and (b) The creation of a State Marketing Board having: (i) general supervisory responsibility over all regu- lated market committees, including approval of all plans for market yard development; (ii) the power to supersede the Market Secretary and Market Committee when a default or insolvency occurs; (iii) the power to issue rules and regulations for implementation of the Bihar Agricultural Produce Market Act, 1960; (iv) the power to regulate the use of all funds col- lected by the Market Committee from market fees or other sources; (v) powers to set minimum and maximum market fees; and (vi) powers to appoint an executive and necessary per- manent staff for the proper functioning of the State Marketing Board. The State Government generally agreed to the above suggestion and the Bihar Agriculture Produce Market Act, 1960 was modified by an Ordinance in February 1972 creating the State Marketing Board with powers to control, supervise and regulate the activities of the market committees. 57. The Development Credit Agreement was thereafter executed on March 29, 1972 which set July 31, 1972 as the date of effectiveness, by or within three months of which, the following pre-conditions had to be fulfilled: (a) Section 2.10 of the Bihar Agreement specified the following appointments to be completed by the Effective Date: - 46 - ANNEX 1 Page 16 (i) a civil servant Chief Executive not below the rank of Collector, who is to have primary respon- sibility for the carrying out of Part A of the Project; (ii) a Director and the Assistant Directors of Agricultural Marketing; and (iii) a Chief of Marketing Information with the provi- sion that the qualifications and experience of the Director of Agriculture Marketing would be acceptable to the IDA. (b) This section also provided for appointment of the following officers in the SMB within three months of the Effective Date: (i) a Chief of Grading and Standard; (ii) an Agricultural Expert who, inter alia, would make projection of market arrivals, market com- mittees' revenue and market fees; and (iii) three Junior Marketing Specialists. (c) The Schedule 3 of the Development Credit Agreement speci- fied that the Town Planning Organization of the State Government would prepare a series of model market layouts and the Rural Engineering Organization will prepare model plans, specification and tender documents which were to be furnished to the IDA for their approval within three months after the Effective Date. 58. The above pre-conditions were complied with within the prescribed time schedule by GOB to render the IDA agreement effective. The imposed administative framework inevitably implied a downgrading of the post of Chief of Grading and Standard, as also Agricultural Expert, to the level of the junior most officer rank and, as such, it could not be said to have been the best of the available methods of writing on a clean slate. 59. As a matter of fact, setting of such pre-conditions and their imple- mentation tend to induce a blissful feeling among the participants that all that was required had been attended to - though much more is required to be done both qualitatively and quantitatively both during and after project completion. Planning and Appraisal 60. Planning for the project was initiated in the background of a number of constraints built into the project. Important among them were: - 47 - ANNEX 1 Page 17 (a) The prescribed administrative framework provided induction of only most junior level of expertise at the level of Agricultural Expert though precedents for such project were scarce in the country. (b) The location of market yards was to be fixed by the TPO after prescribed surveys and projection. Thereafter the District Revenue Officers would find out the number of persons, particularly those belonging to the scheduled castes and tribes likely to be displaced and to be rehabi- litated due to the proposed sites. The District Site Selection Committees, functioning under a very busy Col- lector, would consider them and take a decision. In short, considerable time had to elapse due to the planning provi- sions of the agreement and the law of the land, before there was a finality about the site. (c) Sub-appraisal by SBI was to determine the eventual selec- tion of a market. 61. The above constraints led to planning action for a much larger num- ber of markets - 79 instead of the projected 50. Post-project experience shows that each market needs at least three months of intensive study and about the same period for data analysis and project preparation and, even under the best effort, this period cannot be reduced below four months. The project thus ran into a paradoxical situation in the very beginning. The availability of hands called for a reduction in the number of markets while the uncertainties created by constraints called for an extension of their number. 62. Inevitably, the individual feasibility reports qualitatively suf- fered and there was inadequate grassroot evaluation of practical requirements of the trading and farming community. It appeared necessary to only approxi- mately evaluate it under pressure of time, for actual availability of funds was limited by financial viability, the minimum requirements were prescribed in appraisal and agreement and most of the yards could either not or barely, rise to their level. 63. The Town Planning Organization, entrusted with the layout and buil- ding plans, was also hindered by the above uncertain requirements, and had to act, like others, under pressure of time. Layout plans were prepared - detailed for the entire acquired site and utilities and facilities were located in relation to the full development. Planning standards were not clearly worked out and the apportionment of land under various uses was not shown to enable correction of imbalances if any. The minimum standards pre- scribed by appraisal and agreement were largely followed. Further, since actual development fell far short of full development, some of the utilities and facilities were located inconveniently to the selected level of develop- ment and also raised infrastructure cost. - 48 - ANNEX 1 Page 18 64. The present market areas are a mix of residence and trade which is also the traditional pattern. In the initial phase of planning, each trader shop was provided with a staircase and courtyard so that one floor can be built on it. Later, a firm planning principle, ruling out upper floor resi- dential development was decided upon and the staircase and courtyard dropped. Post-project pressures, however, have caused the provision of courtyard faci- lity in such shops to be restored. The pressure for residential facility is also there and it appears that the market yard design should, in future, reserve an area for flatted residential development so that journey to work is reduced and shift to market yard made more attractive. 65. The SBI was faced with the same problem in the course of its sub- appraisal in accordance with conditions prescribed by the appraisal report and the credit agreement and went by the minimum prescribed requirements. Further, where some relaxation of the minimum standard was considered by it, weightage was given to infrastructural development rather than to the number of traders' shops. However, in the project period itself, a number of markets were found to have steeply increased their income and a second phase involving principally traders' shops was further sanctioned for them. Another important feature of appraisal was the entry of a number of secondary markets in the urbanized plateau region into the project because of their high viability and need for utilizing fully the sanctioned credit. The planning of secondary markets, however, required a different specialized appraoch and standards which were not evolved. 66. Within the above limitations, all the participants performed well and while the year-wise schedule could not be adhered to, the total time of planning and appraisal thus did not contribute subsequently to the delay in the project. Provision of Land 67. Land for the project was to be provided by the State Government. This depended, in turn, on location of site, report of the revenue officer concerning persons, particularly of weaker section, likely to be displaced, and approval of site by the district site selection committee. The State Government had thus the shortest time among all the participants to complete land acquisition and was able to complete the task. Here again, the year-wise schedule could not be maintained but the total time taken and land acquisition also cannot be said to have substantially contributed to the delay. Sub-loan Approval 68. Sub-loan approvals for individual market yards were completed promptly by the ARDC and the SB1 within the framework of conditions prescribed in appraisal and agreement. The actual release of the loan was, however, con- siderably delayed due to other obligatory requirements of transfer of land by the State Government to the market comittee, mortgage of land and improvements put thereon by the market committees thereafter in favor of SBI, and Government guarantee. Provisions for consolidated advances to the REO for purchase of construction materials did not exist in the agreement and were accordingly not sanctioned by it. - 49 - ANNEX 1 Page 19 69. In the course of execution of the project, additional needs became visible and request was made by the State Government for reallocation of unallocated US$1.0 M under Category III, as well as remainder of funds under training and evaluation under Category II, to Category I. This request was approved by IDA. Contracting and Construction 70. The project had not been considered suitable for global tender due to its scattered character. The REO invited accordingly tenders internally in accordance with government rules and tender papers approved by the World Bank. The work of each market yard was divided into suitable groups such as: (a) Campus development with roads and parking; water works, sewerage, drainage and fencing; (b) Building works; and (c) Internal water supply, sanitary and electrical works. 71. There was no difficulty in obtaining tenders, which were decided by a tender sub-committee of SMB, SBI and REO engineers under the Chairman, SMB. The external electrical works were entrusted by the REO to the Bihar State Electricity Board and was generally delayed due to pre-occupation with draught, strikes and generation problems. 72. The construction schedule was disturbed at some market yards by flood and, at nearly all of them, by scarcity of building materials, which assumed increasingly serious dimension towards the latter part of the project. However, good joint management by SMB, SBI and REO vs able to overcome this problem to a very large extent and, had provision existed for initial consoli- dated advances to the REO, the problem would have been considerably minimized. In the sector of provision of water supply, however, there were avoidable delays and complications which could have been reduced if a wing from the State Public Health Engineering Department were also included in the engineer- ing set-up. Among 7 markets in Chhotanagpur Plateau region under the final list of IDA markets, only one (Dhanbad) has satisfactory water supply, two (Jamshedpur and Ranchi) have water supply of a sort and water supply is still under development in the remaining four (Garhwa, Daltongunj, Hazaribagh and Giridih). Even in markets of the Gangetic plain, water supply was consi- derably delayed in three markets (Lakhisarai, Jehanabad and Daudnagar) and is still very unsatisfactory in one (Sasaram). Training and Equipment 73. The Training Program, required and agreed upon with the appraisal mission was complied with. Officers were trained at the Agricultural Market- ing Institute in the country, and later at the SMB Training Institute after its establishment. The training curriculum consisted of the study of agricul- tural marketing, cleaning, grading and standard, double entry system of accounts, etc. Equipment could, however, go into position only after trade - 50 - ANNEX 1 Page 20 shifted to the market yard and there was inevitable delay in positioning and operating it. Post project experience has shown that both -shifting, as well as use of equipments, need to be promoted by adequate propaganda and publicity. A very good public relations wing should, therefore, be a part of institutions in charge of such projects. IV. OPERATING, FINANCIAL AND INSTITUTIONAL PERFORMANCE Operating Performance 74. Operating performance here is taken to relate to the operating performance of the market yards in the area of project expectations. This is being examined under shifting, increase in market committee's income, adoption of cleaning, grading and standard and enforcement of regulatory provisions of the law within the market yard. 75. More problems were faced in shifting trade to market yards than the physical and financial execution of the project. The project report had not entered into this possibility and neither were precautionary steps specifi- cally suggested in the appraisal report. The traders were found most reluc- tant to shift mainly out of genuine fear of coming under greater regulation including maintenance of proper (which is much higher than shown) record of their transaction. There were other contributory factors for this reluctance such as inadequate number of shops, distance from residence to market yard and inadequate auxiliary facilities and electrification. In a few markets, delayed water supply was an additional problem. 76. On receipt of notices to shift, traders in important towns went to court while many, in other towns adopted a wait and watch policy. The problem could be handled only by a program of continued investment, outside the project, from resources of GOI, GOB, SMB and partly market committees as also further institutional loan from the SBI. As a result, the number of shops were increased and auxiliary facilities provided. Shifting has not still been achieved in all the seven IDA markets of the Chotanagpur plateau and three IDA markets (Patna City, Gaya and Lakhisarai) of the Gangetic plain. It is seen that most of these markets are those which serve the big towns of the state, have a highly secondary nature and a strong trader lobby. It would appear desirable for future project to include such secondary markets only after adequate surveys and preparation. 77. Within the shifted market yard, the farmers have slowly begun to use the facilities and a considerable part of the trade is still brought by middle- men. Cleaning and grading facilities, as a consequence, are presently availed more by the traders than the farmers, who are reported to prefer quick disposal to marginally higher prices in the context of poor road communications of the market yard hinter land. The situation could improve if these roads are improved and the SMB is urging dialogue with ARDC for sanction of a feeder road program covering market yards. In hindsight, it appears that the relega- tion of feeder roads to mere suggestion in the project report, as also in the appraisal report, was unsound. - 51 - ANNEX I Page 21 78. The income of the market committees operating the market yards has been rising which is in accordance with project expectation. This shows improvement in regulation, as income has risen beyond what could be expected from mere price escalation. Financial Performance 79. The financial performance of the partic:.pants was satisfactory within the constraint imposed. To make a success of the project, however, additional outlay on a counting basis had to be provided for. However, as a result of the financial performance, a strong nucleus was creaLea around which the additional outlay could easily be provided for. All the same, financial covenants for future projects in developing states need to be modified so that loans are made to the central administering institution such as the SMB so that it could work out its own internal soft loan arrangement with weaker market committees. Institutional Performance 80. Within the prescribed time schedule, the institutional performance of the participants was praise-worthy and there was managerial and organiza- tional effectiveness both individually and collectively. The inspecting IDA missions also rendered valuable help through detailed discussions and corres- pondence but these necessarily took place within the framework of the agree- ment and financially viability of the market committees. V. ECONOMIC RE-EVALUATION Expected Benefits 81. Reference has already been made to the economic evaluation of the project made in the project report in Chapter II, Section 4, Targets and Goals. The appraisal report went into it in greater detail in Section VI, Benefits and Justification and Annexure 16. On the basis of a first analysis it was felt that among the benefits listed in the Annexure, mostly likely, only the following are important: (a) The better quality produce that would be ensured by the markets; (b) The reduction of handling and storage losses; (c) The reduction of congestion; and (d) The induced agricultural production because of the increased prices to farmers. - 52 - ANNEX 1 Page 22 82i, All the same, the other benefits discussed in appraisal have an important socio-economic character for developing countries. Rural develop- ment benefits, transportation savings, improved competition and secondary benefits such as ,convenient access to input, increased savings, increased extension education contacts, demonstration effect, income multiplying and indirect increase in tax revenue through income tax-free farmers' investments in consumer goods generating sales tax cannot be lost sight of in such pro- jects even though their quantification may presently be imprecise due to this being the Bank Group's first venture in the field of agricultural wholesale markets. Economic Return 83. The economic return was based on the first three benefits, (a), (b) and (c) in para 81 above, which were estimated as follows: (a) Grain quality improvements due to cleaning (a benefit of Rs 24 million per annum at full development); (b) Reduction of grain losses from excessive handling (Rs 9 million) and of storage losses due to covered auction platforms and warehouses (Rs 4 million); and (c) Savings in municipal budgets, through reduction of mainte- nance and administration costs, since concentrating market activities in one location adjacent to the township would would reduce congestion and excessive traffic (Rs 1 million). 84. It was stated that all these benefits had been very conservatively estimated on the basis of studies in the wheat belt in Northwestern India and should, therefore, be taken as the minimum. This, of course, requires a second look as the states of Northwestern India, with the broad based and sufficient infrastructural facilities of rural communications and electrifica- tion, higher mechanization, economic farm sizes and higher education, are not strictly comparable to the conditions prevailing in Bihar. It may well be that here, the benefit not evaluated have high importance. 85. It appears, however, that the return under (a) above is more in the nature of income transfer. It, therefore, becomes all the more necessary to attempt to quantify other benefits left unquantified. Unfortunately, evalua- tion studies entrusted to the A.N. Sinha Institute of Social Studies have still to yield effective data and conclusions. Therefore, though the quantum of economic return, albeit from a different bundle of benefits envisaged by the project appears to have been approximately achieved, it is not possible at this stage to be precise. - 53 - INDIA ANNEX 1 BtAR AGRICULTURAL MARKETS Table 1 PROJECT COMPLETION REPORT Construction Costs Per Market (Rs 000's) Amount of Amount of Name Loan Sanct- Refinance Contribut- of ioned by Sanctioned ion Market Total Market SBI by ARDC Committee Cost 1. Gulabbagh 10,000 8,979 1,940 11,940 2. Behariganj 2,780 2,490 150 2,930 3. Murliganj 2,780 2,490 150 2,930 4. Banmankhi 2,780 2,227 147 2,927 5. Supaul 2,375 2,125 125 2,500 6. Buxar 5,800 5,210 1,383 7,183 7. Forbesganj 6,100 5,574 442 6,542 8. Nokha 4,435 3,991 260 4,695 9. Futwah 2,034 1,820 107 2,141 10. Biharsharif 4,430 3,926 623 5,053 11. Naugachia 2,978 2,666 178 3,156 12. Gaya 5,046 4,437 955 6,001 13. Arrah 4,231 3,794 683 4,914 14. Bihta 2,387 2,136 126 2,513 15. Muzaffarpur 5,040 4,528 272 5,312 16. Katihar 4,261 3,821 429 4,690 17. Sasaram 4,487 4,038 995 5,482 18. Araria 2,650 2,385 406 3,056 19. Patna City 9,734 8,730 2,572 12,306 20. Samastipur 2,481 2,220 131 2,612 21. Shagalpur 5,922 5,312 1,197 7,119 22. Ranchi 9,799 8,796 1,525 11,324 23. Sitamarhi 3,913 3,507 206 4,119 24. Kishanganj 3,186 2,851 168 3,354 25. Jamshedpur 4,906 4,230 258 5,164 26. Dhanbad 6,175 5,525 325 6,500 27. Khagaria 2,400 2,147 126 2,526 28. Mohania 4,259 3,815 849 5,108 29. Daudnagar 2,090 1,870 110 2,200 30. Darbhanga 6,760 6,058 1,043 7,703 31. Begusarai 2,493 2,243 225 2,718 32. Barh 2,400 2,160 225 2,625 33. Deoghar 2,433 2,177 128 2,561 34. Lakhisarai 2,620 2,344 130 2,750 35. Kasba 1,800 1,620 548 2,348 36. Jehanabad 2,262 .2,035 225 2,487 37. Hazaribagh 2,900 2,610 225 3,125 38. Monghyr 1,610 1,440 84 1,694 39. Chapra 4,216 3,772 222 4,438 40. Natwar 2,500 2,250 225 2,725 41. Garhwa 3,073 2,675 217 3,290 42. Ualtonsanj 2,472 2,IED 225 Z,697 43. Giridih 2,946 2,651 225 3,171 44. Musallahpur 4,695 4,225 247 4,942 45. Mokamaeh 2,613 2,352 225 2,838 46. Narkatiaganj 2,025 1,823 225 2,250 47. Chanpatia 1,875 1,688 225 2,100 Total 181,152 161,923 21,607 202,759  IBRD 15256 (PCR) 84 5° 8° 8- AGUST 1980 IN Dl A BIHAR AGRICULTURAL MARKETS PROJECT M-rket Towns ® State C.pitol I Major Towns ...Main Roods Raloays - , -Rivers N Stote Boundones 0 20 40 0 -0 100 International Boundaries -27- NARKAT1AGANJ 2C1 4, 60 2- -27 Mles27°- ETTIAH c0to,R1-- edoroae bý,rra MOT1HARI iTAMARHI.,,. 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