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Study of missing markets in Bihar Submitted by NIDAN, Patna (Bihar) 2010

Transcript of Study of wholesale markets and missing markets in district ...nidan.in/nidanwp/Documents/Study of...

Study of missing markets in Bihar

Submitted by

NIDAN, Patna (Bihar)

2010

Study of missing markets in Bihar NIDAN, Patna (Bihar)

1

TABLE OF CONTENTS

1.1 Brief Profile of Bihar ---------------------------------------------------- 2-3

1.2 Fruit and vegetable mapping of the state ----------------------------- 3-8

2.1 Feasibility for modern market in Bihar -------------------------------- 8

2.2 Total availability in catchments area ---------------------------------- 9

2.3 Existing marketing mechanism --------------------------------------- 9-12

2.4 Mapping of Major market for modern market ----------------------- 12-16

2.5 Potential for modern market in Bihar -------------------------------- 16-17

2.6 Proposed modern market --------------------------------------------- 17-20

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1.1 Brief Profile of Bihar Introduction to State

Bihar is located in the eastern part of India with an area of 94163 sq km

constituting 2.85% of the geographical area of India. Of this, 92257 sq km is rural

and 1096 sq. km is urban. It lies midway between west Bengal in east and Uttar

Pradesh in west and Nepal in north and Jharkhand in the south. The Bihar plains

divided in the two parts by the river Ganges that flows through the middle from

west to east. Administratively, the state is divided in nine divisions with 38 districts

with 101 subdivisions.

Bihar is amongst the most populous state in the country with the population of

about 83 million as per the 2001 census. The state is also one of the most densely

populated regions in India with the density of 880 people per sq km.

Economy

The state economy is predominantly agrarian. Agriculture contributes around 40%

to the states GDP. Around 70% of state’s population is depended on agriculture

for their livelihood. The net state domestic product was estimated to be Rs 46,732

crore in 2003-04. While the per capita net state domestic product stood at 5362 in

the same year.

The total primary sector contribution to the state GDP is 42%. The contribution of

secondary and tertiary sectors to the states GDP is 10% and 48% respectively.

Over last few years the tertiary sector, especially the service sector has grown

significantly. The per capita income Is highest in Patna (Rs 6958/-) followed by

Rohtas (Rs 4615/-) Munger (Rs 4321) Buxar (Rs.4285) Nalanda(Rs 3878), Bhabhua

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(Rs.3894) & Bhojpur (Rs.3728). Districts with high per capita income except patna,

fall in the rice belt of Rohtas, Bhabhua, Buxar & Bhojpur, which have assured

irrigation from sone canal system. Outside this, Munger is second whereas Nalanda

is placed at forth.

Apart from agriculture, other major industries include jute, handloom, food

processing and refinery.

Agriculture

Bihar falls among largest states in terms of production of fruits and

vegetables and contributes around 19% of fruit production in the country. It is

seventh largest economy in India in terms of food production. It is also eighth

largest producer of food grains in the country. Major agricultural produce of Bihar

includes cereals, pulses & cash crops. The major cereals include rice, wheat &

maize and major pulses grown are gram, arahar, moong and masoor. In addition,

the major cash crops are potato, sugarcane, Tobacco & Spices. The total food grain

and cereal production is estimated to be 112 lakh mt. as per the estimates of 2005.

1.2. Fruit and Vegetable Mapping of the State

Bihar produces a large quantity of different kinds of vegetables. Bihar is largest

producer of Okra, Second largest producer of cabbage, third largest producer of

potato and Bringal and significant production of another vegetable like cucumber,

peas and cauliflower. Due to significant surplus in vegetable production Bihar is

prominent sourcing destination for neighboring states like west Bengal, Jharkhand

and eastern parts of Uttar Pradesh. The total vegetable production in the state is

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estimated tube around 30 million MT. The production of major vegetable in the

state along with respective national ranking is provided below:

Vegetable

Vegetable Production2004-05 (‘000t)

% of National Production

All India Rank

Potato 5656.70 19.38 3rd

Brinjal 1074 12.33 3rd

Cauliflower 598.80 13.28 3rd

Okra 730.20 20.72 1st

Tomato 735.80 8.52 5th

Onion 975.20 12.98 3rd

Cabbage 955.00 15.49 2nd

Others 2620.00 - -

Total 13345.00 13.16 3rd

Source: NHB Database 2005

18%

16%

13%

8%

6%

5%

4%

4%

4%

22%

Leading Vegetable Producing States

West Bengal

Uttarpradesh

Bihar

orissa

Tamilnadu

Gujrat

Karnatka

Maharashtra

Andhra pradesh

Others

Source: NHB Database 2005 Overall, Bihar ranks third among major vegetable producing states after West

Bengal and Uttar Pradesh. However, the range of vegetables grown in the state is

bigger than the states having higher production. The major producing districts are

mapped below:

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Major Production Cluster on the Map

Source: NHB Database 2005

Fruits

Bihar produces large quantities of a variety of fruits. It is the largest producer of

litichi, third largest producer of pineapple and fourth largest producer of mango in

India. The total fruit production in the state is estimated to be around 2.7 million

MT. The production of major fruits in Bihar along with respective national ranking in

production is provided below:

Major Fruit Production in Bihar vs. all India

Source: NHB Database 2005

Fruits Production2004-05 (‘000t)

Percentage of National Production

All India Rank Within Producing States

Mango 865.60 7.46 4th

Banana 920.00 5.67 6th

Guava 256.10 15.20 1st

Litchi 204.90 55.59 1st

Citrus 134.20 8.70 5th

Pineapple 122.50 9.96 3rd

Total 2503.3 5.6 7th

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The major fruit producing districts mostly overlap with the vegetable producing

ones. Muzzafarpur and Vaishali districts lead in litchi and banana production.

Muzzafarpur, Darbhanga, Champaran(East & West), Vaishali lead in mango

production and Rohtas and Bhojpur lead in guava production. Out of the estimated

fruit production of 2.5 million MT Major Fruits like Mango, Banana, Litchi, Guava,

Pineapple and Citrus together contribute around 2.3 million MT.

L eading Veg etable P roduc ing S tates21%

16%

9%8%

8%

6%

6%

4%

3%

19%Maharashtra

Andhra

pradeshT amilnadu

K arnatka

G ujrat

Uttar P radesh

B ihar

Wes t B engal Source: NHB Database 2005

The retail prices with a couple of exceptions are at par with major fruits producing

states. Similarly, the prices at the production centers are much lower when

compared to the main wholesale markets.

Major Production Cluster on the Map

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Source: NHB Database 2005

Spices

A variety of spices are produced in Bihar with Chilli and Turmeric occupying major

pie in the total production. Chilli accounts for 47.6 % of the area under spices and

39.5% of the production followed by turmeric, which occupies 26.3% of the area

under spices and accounts for 36.4% of the production in the state.

Area and Production of Major Spices in Bihar

Spices Crops Area (ha)

Area (% to total

prod)

Production (MT)

Production (% to total

spices production)

Turmeric 3968 26.31 7326 36.35

Ginger 942 6.36 1327 6.59

Garlic 2972 19.71 3533 17.53

Chili 7181 47.62 7967 39.53

Total Spices 15063 100 20153 100

Commercial Crops, Grains and Pulses

Apart from fruits and vegetables, the state also has high production of Food grains,

Pulses and oilseeds. The state records significant production in paddy, wheat, and

Maize, apart from a few of oilseeds and pulses. Below is snapshot of the production:

Crop Production (in Lakh MT)

Paddy 54.48

Wheat 36.89

Maize 14.74

Sugarcane 42.86

Potato 13.52

Pulses 5.57

Oilseeds 1.24

Total 169.3

Source: Bihar Annual Plan 2006-07

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The southern parts of the state dominate in food grains and cereals production

especially Paddy, Wheat and Pulses. This is mainly due to presence of two rivers-

Son and Ganga-who are source of assured irrigation for the part. Districts like

Sasaram, Bhojpur, Rohtas, Buxar and Aurangabad are the most fertile belts of food

grain production in the state. Maize is largely produced in central and western part

of the state.

2.1 Feasibility for Modern Market in Bihar Backward Linkages –Modern Market

The catchments area of Modern Market has been assumed around100 km of radius

and shall include following districts - Nalanda, Bhojpur, Jehanabad, Samastipur,

Muzzafarpur and Vaishali. The catchments along with the proposed Modern Market

are mapped below:

Modern Market at Patna-Mapping of catchments Districts

1-Samastipur 2-Muzzafarpur 3-Vaishali 4-Nalanda 5-Jehanabad 6-Bhojpur 7-

Modern Market at Patna

The mapping of the Modern Market with its catchments has been done keeping in

view the transportation time. It is estimated that transit time of produce from the

farthest catchments district shall not take more than three hours once the

aggregation is complete at the respective collection centers. Below is the distance

matrix of TM with its catchments It is to be noted that the distances have been

mapped from district head quarters. Since the catchments are skewed towards the

TM, hence most of collection centers shall be en-route towards TM.

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2.2. Total Availability in Catchments Areas

The total production of fruits and vegetables in the identified catchments of Patna

TM is estimated to be approximately 44 lakh MT. This amounts to around one third

of states total fruits and vegetable production. The summary of fruits and vegetable

production in the catchments of TM is provided below.

Patna TM’s Catchments Districts of Fruits / Vegetables

Production

Districts of production Production (MT)

Fruits Vegetables

Patna 70000 740000

Nalanda 54500 1206000

Vaishali 234000 475000

Bhojpur 54000 140000

Samastipur 196000 295000

Muzzafarpur 315000 444000

Jehanabad 11000 126000

Total 934500 3426000

2.3. Existing Marketing Mechanism

The existing marketing system is largely unorganized and manual. As a prevailing

practice in F&V trade, it is mostly middlemen driven. On an average the produce

changes at least six to seven hands before it reaches to the kitchen of the end

consumer. Given the perish ability of the produce, such multiple handling handlings

affect the quality and finally the retail prices of the produce. On an average, the

retailer sells 60-70% of his produce at market rate and rest 30-40% below the

market rate. Since he has the compulsion to sell the produce same day, such kind

of selling pattern is quite prevalent in fruit and vegetable retail.

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In the value chain, the flow of information is restricted to certain levels only. The

produce do not have proper information about the demand supply situations in the

consumption market and hence are not able to capture the price arbitrage in the

distant market.

Since farmers typically borrow money from the traditional sources i.e. the buyers of

their produce, they have an obligation to sell the produce to them only. This limits

the alternatives to sell through other channel as farmers have the fear of not being

able to get the credit in next session. The marketing cost is approximately 50-60%

of the price realized by the farmer.

In view of the above facts, the proposed TM would be able to provide an alternate

market to the farmers for selling their produce. While above facts points out the

existing inefficiency in the value chain, at the same time they also offer an

opportunity for a PE to create value by setting up TM.

Forward Linkages- Modern Market

Out of the total production of more than 44 lakh MT of fruits and vegetables in the

major catchments districts of Patna Modern Market, it is estimated that around

55% is consumed within the state and rest 45% goes for interstate consumption

markets as mention earlier such markets are located in Jharkhand, West Bengal

parts of Orissa and eastern parts of Uttar Pradesh. Also, since Bihar has an

advantage in litchi and mango production, there are established linkages with major

metros like New Delhi, Mumbai, Hedrabad, Banglore, Lukhnow and Kanpur for

supply of litchi and mango.

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The estimated annual consumption of fruits and vegetables in Bihar is

approximately 30 Lakh MT. Six catchments district of modern markets meet major

part of state demand. Since the surplus is still very high, a significant quantum of

produce from the six districts is also sent to neighboring states as mentioned

earlier. It is assumed that the proposed TM may be in the position to target 10% of

the produce from its catchments, which is estimated to be around 4.5 lakh MT.

though there is a huge existing potential market for TM. The annual handling

capacity in the beginning may be pegged at 2 lakh MT while keeping the provision

of capacity enhancement over a period of time. TM may mainly be tapping the

markets of Patna, Ranchi and Calcutta as the potential markets. The catchments

districts of TM are already feeding these markets.

Rail is the mode of transport to distant markets like Mumbai, Delhi, Kolkata,

Ranchi, Delhi, and Hyderabad Etc. During the season produce like lichi and

mangoes are sent via air transport also to major consumptions market in the

Country. The Distance Matrix to various consumption markets from the catchments

of Modern Market is soon below.

It can be observe from the above distance Matrix that most of the major

consumption markets are located at 250-350km away from proposed TM. Even the

distant markets like Kolkata, Durgapur, Silliguri etc are well connected by rail and

road network which can ensure smooth and timely supply of materials of these

Distance Matrix- Proposed Team to major consumption market(In Km)

Ranchi Jamshedpur Hazaribagh Bokaro Dhanbad Kolkata Durgapur Patna Silliguri

patna 359

335 180 285 225 454 320 x 356

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markets .There fore, the Private enterprise (PE) can target such markets for supply

of fresh fruits and vegetables.

2.4. Mapping of major market for Modern Market.

Patna

Patna is the largest town and capital of Bihar State. Total population of the District

is 47.18lacs as per 2001 census with and urban population of approximately 30

lacs. the population density is 1132 per sq. K.M.

The City has connectivity Network with all parts of Country. It liaises on the main

line of the eastern railway and is well connected with road and Air Transport. Direct

rail links are available to major cities like New Delhi, Kolkata, Mumbai, Chennai,

Hyderabad, Trivendrum, Bhubneshwar, Ranchi, Lucknow and Guwahati. All most

daily trains connect to Patna to national Capital Delhi.

The Cities located close to national highway NH. 30, 31 & 28, which ensure strong

connectivity of the city with others parts of the country via road network. Apart

from rail and road connectivity the city has good air connectivity also. Daily direct

flights from Patna to cities like Delhi, Ranchi, Kolkata, Bhubneshwar (Via Ranchi)

and daily hoping flight to Mumbai via Delhi provides good air connectivity.

Market size for Fresh fruits & Vegetables in Patna.

Patna, Being the Capital of the State & a largest town, offers a big market for fresh

vegetables and fruits. As per the NSSO Survey for 2005, Bihar was second Highest

(65%) in terms of food expenditure in rural areas for the urban sector; the share of

food was highest in Bihar (51%).

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Monthly Expenditure in Rs. on Fruits & Vegetables.

Urban

Monthly Expenditure in Rs. on Fruits & Vegetables.

Rural

Vegetables Fresh Fruits

Total Vegetables Fresh Fruits

Total

43.1 8.71 51.81 33.11 4.01 37.12

Source: NSSO Survey 2005

The per capita Income is Rs. 6958 & is highest in the State. The Share of

Vegetables & Fruits in the Total Food expenditure of Urban Consumer is around 10

% while the same for rural consumer is 12%. In view of the ongoing developments

and emerging opportunities in the capital and State as well, the over all life style

and income is expected to improve and these figures are likely to go up. On the

basis of above facts and figure, the estimated annual market size for fresh

vegetables & fruits in Patna (Urban) is estimated to be 2.5 lacs MT approximately

which is around 9% of the Total inflow in the State.

Modern Markets –An Innovative Market Mechanism

The marketing of agriculture produces in the country has mostly been regulated

over the years. This has happened with a two –fold objective. First, it has been to

ensure food security as the country was for long unable to produce sufficient

quantity of food grains to feed its millions and regulation was aimed at providing

remunerative prices which would encourage food production. Second, it has been

aimed at protecting the interests of farmers who, it was felt, would be deprived of

their just returns by traders. There has thus been a policy of minimum support

prices for major food grains like wheat, paddy etc.

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To achieve the said objectives, state governments and union territories enacted

agriculture produce marketing committee act (APMC), which facilitated setting up of

network of physical markets across the country. These markets were aimed at

providing easy market access to the farmers and ensure a fair price realization for

them in a transparent manner.

However, over the years it was realized that these markets instead of protecting

the interests of farmers, often became restrictive as the farmers became compelled

to bring their produce to the market yard and were often at the mercy of traders

and commission agents for sale of their produces. The license system for traders

and commission agents further made the APMC markets function in a non

transparent manner and led to high marketing costs. As the food retail market

makes rapid progress and consumer s become more discerning, it has been found

that the APMC markets are coming in the way of free market play restricting

choices of both the farmers and consumers.

It is against this background that national horticulture mission came with the

concept of Modern Markets. The Modern Markets (TM) are envisaged to the

implemented in a Public Private Partnership (PPP) mode. To make these TM

sustainable, the model provides for modern post harvest infrastructure in these

markets along with backward linkages. These markets are proposed to operate on a

Hub-and-Spoke format wherein the Modern Market (the hub) would be linked to a

number of collection centers (the spoke). The Modern Markets are envisaged to

establish backward linkages with farmers through the collection centers and

forward linkages through wholesalers, distribution centers, retail cash and carry

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stores, processing units and exporters. Collection centers and villages are supposed

to integrate producers and retailers, processing units and exporters into the market

system and electronic auction systems in this markets is to be provided in

transparency in price fixation and competition.

The Modern Markets can market all perishable communities including foods,

vegetables, flowers, aromatics, herbs, meat, poultry etc. although non perishable

can also be handled in these markets, their proportion is not to exceed 15% of the

total through put of the market. Similarly, the proportion of non horticulture

products within the perishable commodity is not to exceed 15% of the total through

put of the market.

The Modern Markets are to be built, owned and operated by the selected Private

Enterprise (PE) through competitive bidding process. PE may be individuals, group

of farmers/ Growers/ Consumers, Partnership/ proprietary firms, Companies,

marketing boards, corporations, co-operatives, producers, organizations and self

Help Group. It could also be consortium of entrepreneur firms, inter areas, agro

business, cold chain, logistics, warehousing, agri infrastructure and related

background.

To insure PPP framework, the state governments are allowed to participate in the

equity of the Modern Market projects either in the form of direct investment or by

offering the assets in the form of existing market / area etc. however, the

combined total equity of the state government NHM is not to exceed 49% Of the

project equity. PE is to be selected through a competitive bidding process and the

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PE is , based on their business plan may seek the assistance in the form of equity

to the maximum extent of 49% of the project equity and the enterprise requiring

the list quantum of the equity participation will be selected for implementing the

project. Also, the PE has been given full freedom to fix the service charges based

on commercial and viability considerations however; PE has to meet the service

levels as prescribed in the Operation Management Development Agreement (OMDA)

for the Modern Markets.

2.5. Potential for Modern Market in Bihar There are several factors, which favor agriculture sector in Bihar. The state is

uniquely position to utilize its rich untapped natural resources such as fertile soil

and abandoned water. More importantly, it can avail of benefits of increasing stress

on policy reforms in the agriculture sectors in the state along with emphasis on food

processing sector both at state and national level.

Even the country faces the prospects of stagnation in agriculture, the state is been

topped about as a sleeping giant of Indian agriculture. National commission on

farmers has concluded that Bihar and eastern Indian present uncommon

opportunities for becoming another “Fertile crescent” even as the present Fertile

Crescent (Punjab, Haryana and western UP) has reached a state of economic and

ecological distress. Water, the lifeline of agriculture, is abandoned in Bihar and

issue is not availability but management. To realize the large potential in the

sector, the government of Bihar has further prepared a vision 2015 for food

processing sector in Bihar and a range of interventions are under implementation.

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On the demand side, too, Bihar, with the population of 83 million growing at about

2.43% per annum, is a large and growing market for food products. Food is the

single largest component of private consumer expenditure, accounting for as much

as 59-65% of the total in the state. At conservative estimate, the current market

for food in Bihar is a whopping Rs 40, 000 crore. At the estimated national growth

rate of consumption of 7% of food consumption market to the Rs 56, 000 crore in

2010 and Rs 83, 000 crore in 2015. In view of the above facts and figures, it is

evident that the state of Bihar offers unique and tremendous opportunity in

horticulture sector for entrepreneurs.

The Modern Markets are proposed to be set up in those states that undertake

reforms in the laws dealing with the agriculture market to provide direct marketing

and permit the setting up of market in private and cooperative sectors. The

government of Bihar has taken a step ahead of another states in this direction and

abolished APMC act altogether. Combined with the fact that the state, in particular

the region adjoin the proposed location for TM, has a large volume and variety of

fruits and vegetables, the project would have access to sufficient raw material.

Further, in the absence of an alternate market a structure in place at present, the

time is appropriate to structure the agricultural marketing system in the state

aligned to the Modern Market.

2.6. Proposed Modern Market

To harness the potential of horticulture in the state, government of Bihar proposes

to establish and develop a modern modern Market near Patna. The proposed

Modern Market has been designed to address the infrastructure issue in the existing

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agri produce value chain and aims to establish strong and seamless supply chain

mechanism under a hub and scope model. The objective of the proposed market is

to enable farmers to realize a higher value for their produce and ensure supply of

quality produce to the end consumer.

The proposed Modern Market offer significant opportunity for private investors, as it

is strategically located in close vicinity of state capital Patna with good road and rail

linkages. The Modern Market has a strong catchments area in the radius of 100 km

which is the hub of horticulture production in the state. Also, due to sound

connectivity through national highways and rail network and located close to Patna,

it offers an easy access to various consumption markets both in and outside the

state.

Features of the Proposed Modern Markets.

The Propose Modern Market at Patna would provide and aggregation network for

horticulture produce right from the center of production to major consumption

market. This market will be equipped with State- of -Art Facilities at par with

contemporary international standards to facilitate substantial growth in the

production of Horticulture Produce, export and modernization of trade. it will be

develop on the concept of complete supply chain management where entire

backward and forward linkages from farmers to consumers will be established. The

market will be equipped with cool chain , electronic grading, Central electronic

auction, ripening chambers colors vision system, quality Station, Spot commodity

training, Laboratory for testing and certification, Total Banking Support, Electronic

Display Board for Auction, cash spot payment through ATM to the Growers, one

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stop shopping for the Inputs, agri. clinic and extension services, Information kiosk

with some free products on weather insurance , life insurance, Animal Health

Insurance and educational loan facilities etc that will benefit each of the stake

holder in the value chain.

Location of the Proposed Modern Market.

The Modern Markets has been proposed on Patna Gaya road and is located around

22k.m away from Patna. The land is located opposite to Pothahi Railway Station

along Patna Gaya rail route and has good road connectivity with Patna, Muzaffarpur

& Begusarai, Major production and centers. It also very close to national highway

NH-30 (Mohania in Kaimur District of Bihar to Bakhtiarpur in Bihar) & 31 (Barh in

Bihar to Guwahati in Assam). The Proposed site is an area of approximately

50acres. The site is linear peace of land, which is relatively flat, 5 feet below the

road level with very little vegetation. This site is suitable for Modern Market facility,

because of the following advantages.

Accessibility. The location of the site is junction of the different roads that

establishrs it’s connectivity and linkages to surrounding areas comma as this

highway connect Patna to Nalanda Hazipur Gaya etc. The proposed market will

there fore diaccessible for growing areas at all the times and will have fairly good

linkages. Produce from surrounding areas of Hazipur, Muzaffarpur, Nalanda Gaya

etc. i.e. north eastern part of Bihar can be brause here.

Site Conditions. The terrain of proposed site is relatively flat. Therefore the

construction will be economical. However under the Modern Market scheme, a PE

can also acquire land own it’s own and use it for setting of TM. However , it maybe

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a time consuming process and because of well connected and suitable site is all

ready available with the govt. of Bihar for the purpose, it maybe advisable to use

the said site for setting of TM.