In a move which could severely cripple the operations of National Agricultural Cooperative Marketing Federation of India (Nafed), the agriculture ministry has refused to bail out the ailing agri-procurement agency.
Sources told FE that due to failed tie-up business initiated with a number of private parties during 2003-2006, the federation’s bank loans have risen to R2,164 crore by the end of last fiscal.
“This interest liability on the outstanding bank loan has become more than net profit generated by its operations of procuring oilseeds, pulses, copra, onion and cotton,” an agriculture ministry official said.
According to official data, due to successive losses incurred, Nafed’s negative net-worth is reported at R318 crore at the end of last fiscal.
Earlier, Nafed had submitted a revised proposal to agriculture ministry suggesting a government guarantee of R450 crore and interest free advance or equity of R590 crore.
“Considering the fact that Nafed is a multi-state cooperative society registered under the Cooperative Societies Act, 2002 without any share capital or equity from the government, the proposal was not found feasible to extend the financial help sought,” agriculture minister Radha Mohan Singh said in a statement submitted to Lok Sabha on Tuesday.
Despite making operating profits for the last five years, Nafed has been incurring net losses because of mounting interest liability on outstanding loans due to its failed ‘tie-up business’.
“Without the government support, we cannot continue with our commercial market intervention initiatives as we would be denied bank loans,” a Nafed official said.
The official said the Price Support Scheme (PSS), being implemented by agriculture ministry for 16 agricultural commodities — oilseeds, copra, pulses etc when the prices fall below the minimum support price (MSP) and the losses incurred by the agency like Nafed are reimbursed to an extent, are not financially rewarding.
Due to acute financial stress, the Nafed has already offered voluntary retirement scheme (VRS) to its 500-odd staff members about two years back. More than 100 employees have already availed VRS.
Under the tie-up business, Nafed became the bank guarantor for the 29 private companies to the tune of more than R3,900 crore for undertaking exports in agricultural and non-agricultural items like iron ore, dry fruits etc. Private parities took the loan without providing any securities.
Several debtors defaulted on repayments worth R3,900 crore, and the onus of interest payment fell on Nafed. The federation has managed to recover R2,900 crore from defaulting partners so far.
“The tie-up business of Nafed was undertaken on its own, without any policy and financial approval of the government,” an agriculture ministry official said.