Nafed stops paying interest on loans

Written by Sandip Das | New Delhi | Updated: Sep 28 2011, 06:31am hrs
In a world where commodity trade is earning handsome returns, the countrys premier commodity procurement agency, National Agricultural Cooperative Marketing Federation of India (Nafed), is on the verge of defaulting on salary payments for its 600-odd employees. A Nafed official said the agency has stopped paying interest on its loans since last month.

Last fiscal, the cooperatives debt mounted to R1,726 crore while turnover shrank 65% to R2,008 crore. Nafeds annual operating income was just R48 crore, while its interest service payment was R132 crore, meaning it had to dip into other funds to make good the sum.

Nafed procures crop from farmers at minimum support price (MSP) during low-price regimes, and earns a margin by selling at higher prices. However, with prices of most agri-commodities ruling above MSP, this market intervention programme has come to a halt the government does not need to deploy procurement agencies to help farmers, making their operations unsustainable.

The agency recently petitioned the government to convert R1,200-crore debt into equity and acquire a 51% stake, which will transform the cooperative to a public sector company under the agriculture ministry. The request is with the finance ministry.

While its turnover has plummeted, fixed costs like salaries and interest have not. This fiscal, the cooperative will have to renege on its salary bill and even interest dues, unless the government steps in.

In the last few years, Nafed has been a major player in the market intervention programme, procuring pulses, oilseeds, copra and cotton on behalf of the government when prices fell below MSP. This rabi season, the federation purchased a small quantity of gram under the price support scheme.

We are hopeful of taking up market intervention scheme on behalf of government for cotton crop this kharif season, another official told FE.

Nafed was recently criticised by the Karnataka Lokayukta for its decision to provide bank guarantee to private parties to make iron ore exports.