Low grant sanctions, disbursement: India wants to promote FPOs but where are the funds?

Eligibility threshold for FPOs should be reduced or support provided to meet the criteria, experts feel

By Shagun
Published: Monday 27 December 2021
Low grant sanctions, disbursement: India wants to promote FPOs but where are the funds? Photo: Vikas Choudhary / CSE

Farmer producer organisations (FPO) figure prominently in government policies and the ambitious plan to double farmers’ income by 2022. But funds remain elusive for these bodies, according to a recent analysis. 

Just 1-5 per cent of FPOs have received funding under central government schemes introduced to promote them in the last seven years, the The State of India’s Livelihood (SOIL) Report 2021 stated.

Access Development Services, a national livelihoods support organisation that prepared the report, analysed only farmer producer companies (FCP — FPOs registered under The Companies Act, 2013) since they make up a large majority of the organisations started in recent years. The number of FPOs registered as cooperatives or societies is very small. 

In 2019, Prime Minister Narendra Modi announced that about 10,000 FPOs will come up in India. Equity Grant Scheme and Credit Guarantee Scheme were the two primary programmes introduced for FPOs to avail funds to support their activities.

Under the Equity Grant Scheme, Small Farmers’ Agri-business Consortium (SFAC), promoted by the Ministry of Agriculture and Farmers Welfare, has been offering equity grants up to a maximum of Rs 15 lakh in two tranches within a period of three years since 2014. 

But a minuscule number of FPOs have been able to secure the grants. Over the past seven years, only 735 organisations have been given grants as of September 2021— just 5 per cent of the total producer companies (PCs) currently registered in the country. 

And this also seems like an overestimation as each tranche of grant sanction is counted as a separate case and any individual PC, which receives both tranches is counted twice.

Maharashtra has the highest number of cases sanctioned (144), followed by Tamil Nadu at 104 and Uttar Pradesh at 96. West Bengal has the highest coverage, followed closely by Karnataka and then Tamil Nadu, according to the report. 

In the Credit Guarantee Scheme, which provides risk cover to banks that advance collateral-free loans to FPCs up to Rs 1 crore, only about 1 per cent of registered producer companies have been able to avail the benefits.

It has not been a smooth ride for FPOs who have sought support from the government schemes. Vikas Choudhary, director of an FPO in Karnal with 272 farmer members, told Down To Earth  they have been trying to get a bank loan to set up a tomato processing unit in the district’s Tilawdi village for over a year.  

The project has been approved by the Haryana agriculture department, he said, adding: 

It’s a Rs 7 crore project and we have been trying to get funding for a year now. The banks want farmers to keep our land as collateral which we are not agreeing to. We have even applied under the equity grant scheme but we have only got Rs 3.5 lakh from it.

Richa Govil, professor at Azim Premji University, school of development and co-author of the chapter on FPOs titled ‘Farmer Producer Companies: From Quantity to Quality’, pointed out that the 10K (10,000 FPOs) policy has played an important role in bringing attention to the importance of collectivising small and marginal farmers, and more needs to be done. 

Farmers have been in a state of distress for a long time, she said. “As majority of India’s farmers are small and marginal, it is unrealistic to expect them to be able to participate in markets in a way that allows them to earn sufficient incomes and thrive.” 

Annapurna Neti, associate professor at Azim Premji University, school of development, who has co-authored the chapter, said that while the government efforts are extensive, there are gaps that need to be addressed. 

Under the 10K FPO scheme, the efforts for promotion are quite extensive, she said. “However, all business start-ups need support, and so do FPOs.”

FPOs need to secure funding, identify and establish relations with customers, establish internal governance processes, among other things, she elaborated. For this, they need capacity building to be able to move from start-up phase to growth and eventually to maturity, according to the expert. “This is a gap that has not been addressed yet.” 

Neti stressed on the need to make it easier for FPOs to avail government programmes and schemes for providing equity grants and loans. This can be achieved either by reducing the threshold for eligibility or by supporting FPOs to reach the eligibility criteria, or both, the expert suggested. 

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