The National Agricultural Cooperative Marketing Federation (Nafed), a 50-year-old body set up to provide marketing support to farmers, is now seeking government?s support to come out of the financial mess. It has asked for interest free loan of Rs 2,000 crore to erase its bad debt incurred because of failed ?tie-up business? started few years ago.
Despite making gross profit since last 10 years, Nafed is finding it difficult to sustain 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 of around Rs 130 crore annually is wiping out profit made by the federation.
Nafed has asked the government for Rs 1,000 crore interest free loan towards paying off outstanding interest liability and another Rs 1,000 crore for its working capital requirement. In a proposal for seeking financial assistance from the government to bring the federation out of the financial crisis and improving profit sent to ministry of agriculture, Nafed has said that it would pay back entire loan amount within next 10 years out of profit earned from its operation.
?We are not seeking any financial support, we are asking for interest free financial assistance to wipe out our bad debt,? UKS Chauhan, managing director, Nafed told FE.
Under the business tieups arrangement during 2004-06, Nafed 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 several companies defaulted on repayment. Nafed even made amendments to its charter and decided to invest and give loans to non-agricultural trade and business.
According to sources, major defaulting parties include Delhi-based Earth Tech Enterprises Ltd (Rs 5,37.76 crore), Mumbai-based Swarup Group of Industries (Rs 2,39.91 crore), Zenith Mining Pvt Ltd (Rs 81.45 crore), Rital Impex (Rs 65.29 crore) and Handum Industries (Rs 71.51 crore). While the federation has already recovered Rs 2,900 crore from the defaulting partners, it is paying interest to the tune of Rs 140 crore per annum on the remaining amount. The federation has also initiated criminal proceedings against defaulting companies.
Due to substantial interest outgo, Nafed has incurred losses to the tune of Rs 56 crore during 2007-08, despite making an operating profit of Rs 88 crore. Similarly, the federation had reported a marginal net profit of Rs 1.77 crore during 2006-7 despite making a gross profit of Rs 97 crore. Chauhan admits that due to non-payment of outstanding loan, banks are not extending loan facility to the federation. ?If we are not provided with funds it would seriously impact its operation within next few months,? he said. To tide over the fund crunch, Nafed has approached National Cooperative Development Coporation for a soft loan for meeting immediate fund requirement for carrying out its operations. Besides being a key agency in the arena of onion exports and the procuring agency of the government under the Price Support Scheme for 25 agricultural commodities, Nafed is also planning to focus on areas like bio fertiliser, promoting organic firming, seeds business and wear-housing and processing sectors for expanding its operations.
Under the diversification plan, Nafed has entered into seed business aggressively by recording a turnover of Rs 21.16 during the last fiscal. ?We see opportunities in seed, bio-fertiliser and wearhousing business in the coming years,? Chauhan said.
Nafed has entered warehousing sector on a long-term basis for providing infrastructure support to farmers. It has initiated construction of two multi commodity pack houses of 500 tonne capacity with ancillary units for sorting, grading and pre cooling at Chindwara, Madhya Pradesh.
For expanding bio-fertiliser business, Nafed has set up two plants at Indore (Madhya Pradesh) and Bharatpur (Rajasthan). The total turnover of Nafed on bio-fertiliser business during 2007-8 was to the tune of Rs 2.28 crore.