The impasse between the government and the National Agricultural Cooperative Marketing Federation (Nafed) over a demand for a Rs 2,000-crore interest-free loan has brought the cooperative major on the brink of default on its overseas import bill.

Sources said though the government has indicated that it is willing to help the cooperative, provided it puts its own house in order (resolve the outstanding issues related to its failed tie-up business arrangement), the delay in expediting the process could lead to default on overseas payments by the cooperative for the import of pulses and edible oils made on the government’s behalf in mid 2008.

The contentious issue here is the famed tie-up business arrangement entered by Nafed in 2004-06, under which it had provided bank counter guarantee to 29 private companies to the tune of more than Rs 3,900 crore for undertaking exports in agricultural and non-agricultural items like iron ore, dry fruits etc.

But after several companies defaulted on the repayment, which is currently estimated to be Rs 1,000 crore, the onus of interest payment now lies with Nafed, leading to mounting losses.

Even though, the cooperative major’s turnover increased from Rs 1,412 crore during 2003-04 to Rs 4,706 crore during 2007-08, while its gross profit rose from Rs 35.43 crore to Rs 88.94 crore during the same period, the interest payment liability on its tie-up business, forced it to post a net loss of Rs 56.68 crore last year.

Nafed sources said that agriculture ministry has also not provided a letter of comfort, so that it could approach banks for fresh loans, while the agriculture ministry contends that the cooperative has to first set its house in order.

Last year, the government had decided to import 1.5 million tonne of pulses through bodies like MMTC, PEC, STC and Nafed to curb rising prices.

Subsequently, Nafed had decided to import two lakh tonne of Canadian yellow peas, out of which, one lakh tonne has already arrived in the country.

“Due to the financial crunch, we are unable to take the delivery of another one lakh tonne of pulses,” Nafed sources told FE.

Nafed officials said that despite making a gross profit since the last ten years, the cooperative is facing difficulty in sustaining its operations due to its huge losses to the tune of Rs 1,000 crore incurred due to its failed ‘tie-up business’.

The interest liability to the tune of Rs 130 crore annually is wiping out profit made by the federation.