Govt seeks inputs from states on how FPCs can get capital more easily

Centre is thinking of making capital and expertise easier so that farmer-producer firms can mobilise farmers and leverage their produce

Farmer-producer companies could receive more benefits if the Centre goes ahead with reforms to make them a more effective tool to help farmers by allowing them more access to capital and helping them multiply. 

The Ministry of Corporate Affairs is seeking inputs from the states on how these companies can get capital more easily and improve profitability. 

The idea is not just to encourage farmers to get more value for their harvest but also give a boost to the organised sector. The Ministry wants to liberalise the current regime for producer companies in the Companies Act. 

“We want these companies to be able to raise much more capital than they have access to now. There are issues and limitation in the current law…One of the indicators of growth will be an increase in the number of companies. We will try to remove the roadblocks,” a senior government official told Business Standard.

Farmer-producer Organisations (FPOs) or Companies (FPCs) are collectives which are formed under Section 25 of the Companies Act and governed by its provisions.  Against a broad requirement of over 60,000 FPOs, India has managed to create just around 4,000 of them in the past decade. 

Some of the issues that are being considered for reform include the one vote rule which gives each member of the board a single vote irrespective of his or her capital contribution. 

FPCs also do not get access to the capital market and the Ministry believes this may be a constraint on raising funds. 

One of the suggestions being considered is whether the board of FPCs should have a representative with sectoral or technical expertise. Currently, only farmers are allowed to be part of the board. If required, the government can allow universities or people with technical expertise to be part of the board to provide some ‘hand-holding’ to farmers.

“The best hand-holding can be provided by the professional resource institutions and there is a need to allocate more resources to them so they can provide continuous support to the FPOs and FPCs,” said Ashis Mondal, Director of Action for Social Advancement.

The Ministry might also consider asking the states to provide seed funding for a minimum shareholding on a temporary basis. “If infusing capital is the issue, then the government can do it by providing equity grant support as currently done by the Small Farmers’ Agribusiness Consortium (SFAC) up to Rs 15 lakh. This limit can be increased, it can be made performance-based,” added Mondal. 

Although FPOs have been around for more than a decade, they received a fresh impetus in 2013 when the Agriculture Department issued a national policy and guidelines for them. The policy recognised them as the most appropriate institutional forum for mobilising farmers and leveraging their production and marketing strength.

This was followed up with the setting up of a credit guarantee fund of Rs 100 crore for FPOs in the SFAC and also a matching equity grant of Rs 15 lakh to all registered FPOs by the UPA government to enable them to leverage working capital from financial institutions.

The second big push came in 2015 when the National Bank for Agriculture and Rural Development issued its own guidelines for the promotion of FPOs. Then, in the 2018-19 budget, the government announced an income tax holiday for the first five years for FPOs up to a total annual turnover of Rs 100 crore. Till then, FPOs were taxed at the rate of 30 per cent.

However, despite these measures, FPOs still haven’t managed to replace cooperatives as the main instrument for farmer collectives and a key reason seems to be the lack of easy financing solutions, restrictions on their operations in mandis and the absence of proper guidelines for growth. 

Shot in the arm

• Reforms include the one vote rule irrespective of his or her capital contribution

• Considering to have a representative with sectoral or technical expertise in the FPC Board

• Might ask the states to provide seed funding for a minimum shareholding on a temporary basis