MARKET DEVELOPMENT PROPOSALS 
 

CALCULATION OF FINANCIAL AND ECONOMIC VIABILITY  

            Financial and economic appraisal is an important component of any project without which it is incomplete.  Increasing awareness about the use of scare resources and the returns obtainable from it makes the issue more important.  Financial analysis is used to describe the commercial viability of the project and shows its strength from financial angle.  The concept of economic analysis can be considered as an extension of the financial analysis.  In economic analysis the concern is on the developmental effect on the society/economy as a whole as against the financial analysis that bothers the interest of the specific entity.  In the present report, financial analysis has been done for each market and of each category.

Assumptions

           In the absence of past trends and its proper records it is necessary to make certain assumptions based on the reality of situations for assessing the true viability of any project.  For this master plan, following assumptions have been taken: 

i)          Economic Life of the Project

The horizon is important for calculation of benefit and cost of a project.  Generally, 20-25 years period is considered proper as economic life of the project.  In present case, calculations have been made assuming the economic life of the markets as 20years ending at 2020 A.D. 

ii)         Gestation Period

Proposed proposals for market development in Chhatishgarh is very simple.  In number of markets, already minimum necessary requirement of construction has been met out and only a small addition or change will take place.  In other cases markets would come up in a reasonable time.  Therefore, it has been assumed that three-years period will be sufficient for completion of the proposed construction to make the new market yard fully operational.  The full revenue in the form of ground rent is expected to flow after a gestation period of three years only. 

iii)        Occupancy  

While making calculations, it has been assumed that all sellers operating in the market at present will shift and occupy space in new market, as they would get better trading facilities.  Therefore, 100% space occupancy along with zero leakage of revenue has been considered.    Occupancy of space in godown has been estimated for three to six months only in a year since space in godown may be utilized or in demand during harvesting and peak marketing season of different commodities.

iv)        Income and Expenditure  

The main source of income of markets is market fee, leased rent and other sources of income.  The income from market fee is assumed and computed at the rate of 1.5% of the value of arrivals expected with the implicit assumption that all the markets will be regulated and there will be a market committee to supervise the market operations and collect the market fee.  The growth rate, which has been used for projecting the arrivals, is used for projecting income from this source for next 20 years i.e. up to 2018.  Base year value is based on the actual value of arrival for the year 1998-99. 

            The other main source of income is rent chargeable on buildings.  Rent has been assumed at 14% of the cost of construction of trading section and non-trading sections.  No change rental has been proposed.  While projecting income from this source it would get generate after the gestation period of three years is over.  Usually, rent can be increased @10% after every 3 years, which would be, beneficial to the markets.  Other income includes fines, sale of forms etc. that has been assumed Rs.20,000 per annum and has been kept constant. 

            Various kinds of expenditure items like establishment cost, repair and maintenance, cost of land, capital cost etc. have to be looked into before preparing cash-flow statement.  Establishment cost has been assumed @30% of the market fee expected, as the present staffing plan and expenditure was not available.  Repair and maintenance cost has been estimated at 1% of the total cost.  A lump sum amount of Rs.5000 has been kept as miscellaneous expenditure to meet any contingency.  Each market committee has to contribute Marketing Board Fund out of its income. Accordingly, it has been proposed that each market will contribute 10% of its market fee to this fund and the same has been kept as one of the component of operating expenditure.

            Gross benefits have been worked out for 26 years by deducting total operating expenditure from total income.  Net benefits are net of interest payment and depreciation.

            Depreciation has been estimated by the straight-line method i.e. total capital cost divided by the life of the project assumed as 20 years. 

v)         Financial Analysis

In Chhatisgarh, main source of the market revenue is from market fee and ground rent from the marketers for space occupied/allotted.  Income and expenditure items taken into consideration have been explained earlier.  Now, cash flow statement and cost-benefit analysis are important to be analyzed. 

Cash Flow Projections  

            Projected cash flow statements as well as income and expenditure statements are given in annexure.  The statements indicate the flow for next 20 years upto 2018 A.D.  Interest on cumulative cash has been assumed at 12% per annum.  As could be seen from annexure that development proposals for markets would be able to repay the loan along with interest with the projected volume of throughput. 

Cost-Benefit Analysis  

            In order to assess the financial viability of development proposals, Internal Rate of Return (IRR) of each market has been worked out with reference to total capital cost and expected gross benefits from the third year to the 20th year.  The IRR of each market proposal is shown in the annexures. 

Economic Benefits  

            Although the project seems to be quite viable from commercial point of view, economic benefits likely to be accrued are also quite high.  In case of markets, which have been found viable, the project can be considered.  Major tangible and intangible benefits such markets will generate are: 

i)        The market will become attractive and accessible to producers.  Provision of better market facilities will reduce market congestion and improve hygienic condition. 

ii)           Construction of platform, sheds will reduce the loss of the commodities both qualitatively and quantitatively by offering better handling facilities and extending protection to commodities from rain and sunlights.  By rough estimates it has been assessed that it would generate higher turn over by at least 5%. 

iii)         Construction of markets will provide temporary employment opportunities to local poor during the course of construction.  Of course, since capital investments the depend on grants, the construction job can be linked to Govt.’s various rural development programmes like JRY etc. 

iv)         In a state like Chhatishgarh where Panchayati Raj Institutions and Cooperatives play important role, market places can function as ‘growth centres’ besides meeting place for rural folk.  Construction of a pucca market will enhance socio-economic interaction enormously in addition to marketing activities.  Marketing extension, market information service etc will get a direct boost.  Procurement of various commodities will become easier.  Besides, IRDP beneficiaries can also make use of these markets as outlet for their products. 

v)          Better marketing facilities in interior areas of the state will provide incentive to the producers to market efforts to enhance their production, so that whatever surplus is generated, may be marketed easily.  Thus the production of commodities, even by small producers will go higher and income of the producers will go up due to better price and higher marketed surplus. 

            In the absence of an appropriate technique for quantification of benefits derived from qualitative developments in social/ agriculture sector, it could not be minutely worked out.

Conclusions  

            Development proposals for 109 markets are appraised to assess the financial viability of each market proposal.  As could be seen from the table.  84 markets qualify for funding and 25 markets in the State have been found unviable.  District wise, region wise and category wise position of viable markets are given. 

                                Market wise IRR Values in order of Merit