Easy credit for farmer-producer organisations on cards in new policy

The Central government is planning to come up with a scheme to smoothen the functioning of 10,000 farmer-producer organisations (FPOs) it has promised to set up in the next few years.

The scheme will ease registration under the Companies Act, reduce documentation, give working capital for meeting their procurement needs, and restructure the Small Farmers Agribusiness Consortium (SFAC), which is the nodal agency for promoting FPOs.

According to senior officials, the scheme, the details of which are being worked out, will be placed before the cabinet for approval and have measures to facilitate easy credit for warehousing and farm-gate sale for FPOs. It will provide them working capital for procurement operations.

The scheme will smoothen FPOs’ participation in procurement by states and ensure easier market access, along with IT-based solutions.

Accessing cheap bank credit has been one of the main bottlenecks in the growth of FPOs in India. 

India has more than 4,500 FPOs, a sizeable number of which have been promoted by the National Bank for Agriculture and Rural Development (Nabard) in the past few years.

Union Finance Minister Nirmala Sitharaman in her 2019-20 Budget had promised to create 10,000 more FPOs in the next few years to ensure better remuneration and incomes for small and marginal farmers.

“In this direction, the new scheme is being framed, with a provision for institutional support for FPOs for three-five years. The government or aided institutions will give the support,” a senior official said.

However, critics said unless the government made a financial commitment, either through budgetary allocation or otherwise, it remained to be seen how far the objective of creating 10,000 FPOs could be achieved.

“Conservative estimates show that you need Rs 50-60 lakh to start a good-quality FPO. This is apart from handholding by professionals for the first few years. Unless the scheme makes provisions for these, it won’t be helpful. Having a comprehensive scheme ensures interest subvention on crop loans just and encourages banks to earmark part of their priority-sector lending for FPOs,” said Ashish Mandal, director, Action for Social Advancement (ASA), a resource organisation working as a promoter of FPOs.

Mandal, who has been one of the pioneers of the FPO movement in the country, said as far as SFAC was concerned, it needed an overhaul.

“It’s a positive move. Barring a few states, the ecosystem for the growth of FPOs does not exist, be it market access or availability of credit from financial institutions. Any move to restructure SFAC is long awaited,” Parvesh Sharma, former managing director of the SFAC, told Business Standard.

Farmer-producer companies are collectives formed under Section 25 of Companies Act and is governed by the provisions of the Act.  

The first guideline or scheme for their governance came in 2013, when the agriculture department issued a national policy and guidelines for FPOs, recognising them as the most appropriate institutional form around which to mobilise farmers and build their capacity to collectively leverage their production and marketing strength.

This was followed by the setting up of a credit guarantee fund of Rs 100 crore for FPOs in the Small Farmers’ Agribusiness Consortium (SFAC) and also a matching equity grant of Rs 15 lakh to all registered FPOs announced by the Congress-led government in 2013-14, to enable them to leverage working capital from financial institutions.

The second thrust came in 2015, when Nabard issued its guidelines for promoting FPOs, while the NDA government in the 2018-19 Budget announced an income tax holiday for the first five years for FPOs that had a turnover of up to Rs 100 crore. 

Till then, FPOs were taxed at 30 per cent. 

However, despite all the push, FPOs haven’t managed to replace cooperatives as the main instrument for farmer collectives and a main reason for it seems to be lack of easy financing, restrictions on their operations in mandis, and the absence of proper guidelines for growth.

Making life simpler 
  • Ease of registration, lesser documentation for FPOs 
  • Easy credit for warehousing and farm gate sale
  • Working capital for procurement operations
  • Easier access to markets and mandis
  • nRestructuring of Small Farmers Agribusiness Consortium 

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