Budget 2020: The direct budgetary aid would be in the form of a grant equivalent to the equity capital of each FPO.
By Prabhudatta Mishra
Budget 2020: The government will likely announce a five-year scheme in the upcoming Budget, entailing a total support —both budgetary and indirect —of Rs 7,000-10,000 crore to honour its pledge of creating 10,000 farmer producers’ organisations (FPOs) and help boost their agricultural income.
The direct budgetary aid would be in the form of a grant equivalent to the equity capital of each FPO. The indirect support would be in the form of a guarantee for facilitating loans to these FPOs. But in case some of them default, the burden will, of course, fall on the government and will be borne from budgetary allocation.
Currently, there are some 3,000 FPOs in the agriculture sector, out of which less than 1,000 are active. The government has been promoting FPOs to enable them to better bargain with traders for higher prices for their produce. The objective is also to directly connect farmers with food processors and exporters and enhance their realisation.
The agriculture ministry is still working out modalities of the five-year scheme, official sources told FE. On an average, the total support for each new FPO could be around Rs 14 lakh per year.
The government could also provide an upfront payment within a certain ceiling, along with relaxed rules, for setting up FPOs in hill and north-eastern states.
So instead of the stipulation that a minimum 500 farmers must be members of an FPO for it to receive the Central grant, the government may allow even smaller FPOs, with around 250 members, in these states to get the incentives.
Most of the FPOs will be encouraged to be set up under the Companies Act. If they choose to follow the trust model, the government won’t extend the grant for equity.
During her 2019-20 Budget speech, finance minister Nirmala Sitharaman had announced, “We also hope to form 10,000 new Farmer Producer Organisations, to ensure economies of scale for farmers over the next five years.”
“The objective is to make FPOs have an easy access to credit. The government will also provide guarantee so that they will be able to stabilise operation in a five-year period,” a source said. The Centre has identified Nabard, Small Farmers Agri-Business Consortium (SFAC) and National Cooperative Development Corporation (NCDC) as nodal agencies to undertake the programme, the sources said.
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The main hurdles for the growth of FPOs are the non-availability of credit at reasonable rates and reluctance of food processing companies to directly engage with FPOs. In few cases, the credit from private finance companies is secured at a very high interest rate of about 22%.
Prahlad Borgad, president of Surya FPO in Hingoli district of Maharashtra, had to mortgage 2 acres of his personal land to secure a credit from a finance company. He said for a total credit of `96 lakh taken in two tranches (`50 lakh and `46 lakh), just the interest outgo is as much as Rs 1.35 lakh every month.
“The government must do something for existing FPOs. I have attended at least 3 big buyer-seller meets in Pune and Mumbai since 2015. But there is hardly any business order from processors,” Borgad said, adding Surya FPO primarily deals with turmeric and as many as 538 members are under its fold. It has sold about 200 tonne of turmeric since August, half each in open market and through commodity exchange NCDEX.