 "Can Nafed revive itself?")
On Tuesday, the board of directors of the National Agricultural Cooperative Marketing Federation of India (Nafed) will meet to clear a Rs 478-crore package to put the institution on a revival path. However, a nominee director of the government has issued a strong dissent note to the board's agenda.
According to the proposed package, Nafed will pledge 17 freehold properties in cities like Delhi, Kolkata, Mumbai and Patna with the government for an interest-free loan of Rs 478 crore. This loan will be used to pay off dues to various public sector banks as a one-time settlement.
After the board clears the plan, it will go to the Union ministry of agriculture, which will then prepare a note for Cabinet approval.
Ashok Thakur, government nominee on the Nafed board, has reservations. For a board meeting called on March 14, the agenda circulated sought to assign unlimited power to the chairman to decide on the revival package, without scope for discussion.
Thakur, nominated by the government in 2014, sent a note saying, "I suggest having elaborate discussions on factors responsible for the crisis and revival agenda conditions with the government and the same may be brought on table of board with all negotiable points." After this dissent note, Thakur said, the board meeting did not take place. Another meeting was called for March 29.
Thakur said he would oppose the proposal with an even stronger dissent note on Tuesday. "The factors and people responsible for the present state of affairs in Nafed still continue on the board and business committee. If the government allows this package, there is a big possibility that it will be misused in the same manner," he added.
Thakur, who was a member of the ruling Bharatiya Janata Party's central cooperative cell, wants safeguards to ensure the funds are used for their intended purposes. He has been regularly writing to the ministry about financial irregularities in Nafed, some dating to the late 1990s.
The revival package is crucial for the government agency to get rid of the wilful defaulter tag with some banks. Its dues are Rs 1,700 crore. Nafed's revenues have seen a steady decline over the last few years as mounting interest costs have crippled it.
Speaking over telephone, a Tamil Nadu-based Nafed board member, Ellapatty M Murugan, said not much business had been conducted by Nafed in the 18-odd months he had been on its board.
From Rs 6,373 crore in 2009-10, Nafed's turnover fell 76 per cent to Rs 1,518.9 crore in 2013-14, the last year for which figures are available. It made a gross profit of Rs 58.4 crore in 2013-14, "but due to huge interest liability on outstanding loans in tie-up businesses, there is a net loss of Rs 166 crore."
The tie-up businesses, started during the chairmanship of deceased Janata Dal (United) parliamentarian Ajit Singh, were supposed to be money spinners. Nafed would source loans from public sector banks and sub-lend these to its partners for trading in various commodities. The agency would earn a service fee in addition to the differential in the interest rates.
In quick time, it entered into 62 such tie-ups, investing Rs 3,735-3,999 crore. Nafed's own submissions have provided these varying figures. According to a report by a government-appointed enquiry committee reviewed by Business Standard, "Out of these 62 companies/business houses, 29 have paid or returned most of the dues to Nafed. A further four companies returned all their dues while the enquiry was in progress. The remaining 29 companies/business houses have not been able to return the money advanced to them by Nafed," the report said.
A former managing director of Nafed recalled how he had employed all sorts of methods to trace defaulters, including hiring of private detectives. He said "a lot of money was recovered and about Rs 1,200 crore was still due. Of this, Rs 700 crore could not be accounted for at all because the parties could not be traced."
This official also added that the personal involvement of the then chairman and other board members could not be ruled out. The matter has become the subject of a Central Bureau of Investigation (CBI) investigation and is being heard in various courts.
The proposed settlement will open up a fresh funding avenue and help Nafed pursue its operations, which could generate profits of up to Rs 150 crore on an operational basis, according to the former managing director.
Emails to Nafed Chairman VR Patel and Managing Director Ram Subhag Singh seeking details of the revival plan did not elicit response. Board members said old members dominated the meetings and little business was transacted. Murugan added directors who had held positions for years - many of them from the Congress party-continued to dominate proceedings.
Legal hurdles
Structured as a federation of state-level agencies and cooperatives, Nafed functions as the government's procurement agency for non-cereal crops like cotton, oilseeds and pulses. It procures these from farmers when market rates fall below minimum support prices and sells when prices recover. It also trades in various agricultural commodities.
Nafed's board is populated by representatives of various cooperatives and federations who are usually politicians. Its chairman is elected, while its managing director, who manages the day-to-day affairs, is an IAS officer appointed by the central government.
"It is the case of elected board members failing the organisation rather than any government control or lack of it," said the former director of Nafed. The legal structure is such that change has to come from within the board as the government's powers are limited.
The law regarding the functioning of cooperative societies allows the government to lay down broad principles of how the board is to be constituted, how members are elected and which auditors are to be authorised to audit accounts. But cooperative societies enjoy much greater freedom to run their operations.
The 97th amendment to the Constitution, which dealt with these provisions, said the board can be superseded and kept under suspension for a period of not more than six months in case of persistent default, negligence in performance, or if the board commits anything against the interests of the cooperative society.
But, it says that "board of any such cooperative society shall not be superseded or kept under suspension where there is no government shareholding or loan or financial assistance or any guarantee by the government".
This is not the first time Nafed's revival is being talked about. A few years ago there was a proposal from the agriculture ministry to offer it assistance to tide over its crisis. Senior ministry officials spoke to some of the board members. The proposal was that the government would offer assistance on the condition that it would take full control of Nafed's finances.
"Some board members were willing to accept the proposal but the majority felt otherwise and the government's proposal was rejected," the former director of Nafed said.
People associated with the cooperative movement believe that unless the battle for boardroom supremacy between the old guard and the new regime reaches its logical conclusion, Nafed's revival could remain elusive.
Battles within
Apart from the revival package, Nafed's board will also elect its vice-chairman. The election will be a test of strength. The Congress continues to have 8-10 members in the 20-member board, according to insiders. Congress veteran on Nafed's board, Bijendra Singh, a former chairman and former Delhi MLA, did not receive calls on his mobile phone. R S Joon of Najafgarh Farmers Cooperative Marketing Society, said he could not talk about the board meeting as he was yet to receive the agenda. Joon was a Congress party candidate in the 2009 Lok Sabha elections.
While the Samajwadi Party has three members on the board, the Rashtriya Janata Dal and Telugu Desam also have their members. "It is a mini-Rajya Sabha, as memberships is linked to ruling parties in states," said a Nafed executive.
In the past two years, the BJP has steadily increased its presence. Nominees from BJP-ruled Chhattisgarh, Madhya Pradesh and Haryana have come in. Along with friendly party representatives from Andhra Pradesh, Tamil Nadu and Punjab, the BJP could garner seven-eight votes. "If some personal relationships swing the vote against the established members, anything can happen," Thakur said.
According to the proposed package, Nafed will pledge 17 freehold properties in cities like Delhi, Kolkata, Mumbai and Patna with the government for an interest-free loan of Rs 478 crore. This loan will be used to pay off dues to various public sector banks as a one-time settlement.
After the board clears the plan, it will go to the Union ministry of agriculture, which will then prepare a note for Cabinet approval.
Ashok Thakur, government nominee on the Nafed board, has reservations. For a board meeting called on March 14, the agenda circulated sought to assign unlimited power to the chairman to decide on the revival package, without scope for discussion.
Thakur, nominated by the government in 2014, sent a note saying, "I suggest having elaborate discussions on factors responsible for the crisis and revival agenda conditions with the government and the same may be brought on table of board with all negotiable points." After this dissent note, Thakur said, the board meeting did not take place. Another meeting was called for March 29.
Thakur said he would oppose the proposal with an even stronger dissent note on Tuesday. "The factors and people responsible for the present state of affairs in Nafed still continue on the board and business committee. If the government allows this package, there is a big possibility that it will be misused in the same manner," he added.
Thakur, who was a member of the ruling Bharatiya Janata Party's central cooperative cell, wants safeguards to ensure the funds are used for their intended purposes. He has been regularly writing to the ministry about financial irregularities in Nafed, some dating to the late 1990s.
The revival package is crucial for the government agency to get rid of the wilful defaulter tag with some banks. Its dues are Rs 1,700 crore. Nafed's revenues have seen a steady decline over the last few years as mounting interest costs have crippled it.
Speaking over telephone, a Tamil Nadu-based Nafed board member, Ellapatty M Murugan, said not much business had been conducted by Nafed in the 18-odd months he had been on its board.
From Rs 6,373 crore in 2009-10, Nafed's turnover fell 76 per cent to Rs 1,518.9 crore in 2013-14, the last year for which figures are available. It made a gross profit of Rs 58.4 crore in 2013-14, "but due to huge interest liability on outstanding loans in tie-up businesses, there is a net loss of Rs 166 crore."
The tie-up businesses, started during the chairmanship of deceased Janata Dal (United) parliamentarian Ajit Singh, were supposed to be money spinners. Nafed would source loans from public sector banks and sub-lend these to its partners for trading in various commodities. The agency would earn a service fee in addition to the differential in the interest rates.
In quick time, it entered into 62 such tie-ups, investing Rs 3,735-3,999 crore. Nafed's own submissions have provided these varying figures. According to a report by a government-appointed enquiry committee reviewed by Business Standard, "Out of these 62 companies/business houses, 29 have paid or returned most of the dues to Nafed. A further four companies returned all their dues while the enquiry was in progress. The remaining 29 companies/business houses have not been able to return the money advanced to them by Nafed," the report said.
A former managing director of Nafed recalled how he had employed all sorts of methods to trace defaulters, including hiring of private detectives. He said "a lot of money was recovered and about Rs 1,200 crore was still due. Of this, Rs 700 crore could not be accounted for at all because the parties could not be traced."
This official also added that the personal involvement of the then chairman and other board members could not be ruled out. The matter has become the subject of a Central Bureau of Investigation (CBI) investigation and is being heard in various courts.
The proposed settlement will open up a fresh funding avenue and help Nafed pursue its operations, which could generate profits of up to Rs 150 crore on an operational basis, according to the former managing director.
Emails to Nafed Chairman VR Patel and Managing Director Ram Subhag Singh seeking details of the revival plan did not elicit response. Board members said old members dominated the meetings and little business was transacted. Murugan added directors who had held positions for years - many of them from the Congress party-continued to dominate proceedings.
Legal hurdles
Structured as a federation of state-level agencies and cooperatives, Nafed functions as the government's procurement agency for non-cereal crops like cotton, oilseeds and pulses. It procures these from farmers when market rates fall below minimum support prices and sells when prices recover. It also trades in various agricultural commodities.
Nafed's board is populated by representatives of various cooperatives and federations who are usually politicians. Its chairman is elected, while its managing director, who manages the day-to-day affairs, is an IAS officer appointed by the central government.
"It is the case of elected board members failing the organisation rather than any government control or lack of it," said the former director of Nafed. The legal structure is such that change has to come from within the board as the government's powers are limited.
The law regarding the functioning of cooperative societies allows the government to lay down broad principles of how the board is to be constituted, how members are elected and which auditors are to be authorised to audit accounts. But cooperative societies enjoy much greater freedom to run their operations.
The 97th amendment to the Constitution, which dealt with these provisions, said the board can be superseded and kept under suspension for a period of not more than six months in case of persistent default, negligence in performance, or if the board commits anything against the interests of the cooperative society.
But, it says that "board of any such cooperative society shall not be superseded or kept under suspension where there is no government shareholding or loan or financial assistance or any guarantee by the government".
This is not the first time Nafed's revival is being talked about. A few years ago there was a proposal from the agriculture ministry to offer it assistance to tide over its crisis. Senior ministry officials spoke to some of the board members. The proposal was that the government would offer assistance on the condition that it would take full control of Nafed's finances.
"Some board members were willing to accept the proposal but the majority felt otherwise and the government's proposal was rejected," the former director of Nafed said.
People associated with the cooperative movement believe that unless the battle for boardroom supremacy between the old guard and the new regime reaches its logical conclusion, Nafed's revival could remain elusive.
Battles within
Apart from the revival package, Nafed's board will also elect its vice-chairman. The election will be a test of strength. The Congress continues to have 8-10 members in the 20-member board, according to insiders. Congress veteran on Nafed's board, Bijendra Singh, a former chairman and former Delhi MLA, did not receive calls on his mobile phone. R S Joon of Najafgarh Farmers Cooperative Marketing Society, said he could not talk about the board meeting as he was yet to receive the agenda. Joon was a Congress party candidate in the 2009 Lok Sabha elections.
While the Samajwadi Party has three members on the board, the Rashtriya Janata Dal and Telugu Desam also have their members. "It is a mini-Rajya Sabha, as memberships is linked to ruling parties in states," said a Nafed executive.
In the past two years, the BJP has steadily increased its presence. Nominees from BJP-ruled Chhattisgarh, Madhya Pradesh and Haryana have come in. Along with friendly party representatives from Andhra Pradesh, Tamil Nadu and Punjab, the BJP could garner seven-eight votes. "If some personal relationships swing the vote against the established members, anything can happen," Thakur said.