More takers for Infra fund among primary farm co-ops than large players

Loan limit of Rs 2 crore under the scheme works better for small warehouse projects with godowns of 3,000 sq ft, but fails to enthuse corporations and FPOs with larger projects on the table

During the first wave of Covid-19, the Centre launched the much-talked about Rs 100,000 crore Agriculture Infrastructure Fund (AIF) with an aim to create tangible farm-gate storage and processing infrastructure.

Two years down the line, according to a reply filed in the Parliament in December, a total of 8,488 projects have been sanctioned under the scheme with a loan amount of Rs 6,098 crore. Of this, Rs 2,071 crore has been disbursed for 4,003 projects.

Of the 8,488 projects, an overwhelming 60 per cent or thereabouts has been awarded to Primary Agriculture Cooperative Societies (PACS), followed by agriculture entrepreneurs (2,576), farmers (685), Farmer-Producer Organisations (FPOs)-61 and the remaining by startups and others.

What’s the scheme?

In July 2020, the Union Cabinet approved a scheme to provide loans up to Rs 2 crore at an interest subvention of 3 per cent to a host of entities to help them create storage and processing infrastructure at the farm-gate level.

The loans have a moratorium on repayment that varies from six months to two years.

In the first year of operation, a target for disbursing Rs 10,000 crore under the scheme was fixed, which from the second year (2021-22) was to be scaled up to Rs 30,000 crore each over the next three years.

For eligible borrowers, the credit guarantee coverage will be available under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) while in case of FPOs credit guarantee can be availed from the facility created under the agriculture ministry’s FPO promotion scheme of Department

The duration of the scheme was from FY2020 to FY2029 (10 years).

Agriculture infrastructure such as cold chains, warehouses, silos, and assaying, grading and packaging units, e-marketing points, ripening chambers will be created through the fund.

Later in July 2021, the Central government further modified the scheme to include APMCs within its ambit, a move it showcased as its commitment to keep the mandis functioning.

The inclusion was announced in the Budget of 2021-22 at the height of the farmer’s movement against the three farm laws.

That apart, some more key changes were also incorporated into the scheme.

These included extending the period of financial facility under the AIF from four years to six, up to 2025-26, and the overall period of the scheme from 10 years to 13, that is, up to 2032-33.

So far, under the AIF, interest subvention was provided only for a loan taken by an eligible applicant for a project in one location. However, after the amendments in July 2021, if the applicant puts up projects in different locations, all of them will become entitled to interest subvention for a loan up to Rs 2 crore.

For the private sector, there will be a limit of 25 projects but this cap won’t apply to state agencies, national and state federations of cooperatives, FPOs and SHGs.

“For APMCs, interest subvention for a loan up to Rs 2 crores will be provided for each project of different infrastructure types e.g. cold storage, sorting, grading and assaying units, silos, et within the same market yard,” the revised guidelines said.

The criticisms

Though it is early days, some experts said the scheme has been slow to take off and interest shown by big players in the storage, warehousing and farm-gate processing space has been limited so far.

But, given that the scheme was conceptualised and launched during the Covid times and economic recovery has not been fully established, the response was expected to be muted.

Moreover, the time period of the scheme is till 2025-26, so there is ample time for the proposals to come.

“Also, I feel considering the design of the scheme, its response has been fairly decent so far and moreover we are very hopeful that it will pick up in the coming days particularly after some much needed changes were incorporated in the same,” Prasanna Rao, co-founder and CEO of Arya.ag, a leading agribusiness value chain integrator, told Business Standard.

Rao said one should not approach the scheme as a capital subsidy scheme and consider it as an interest subsidy scheme.

In a capital subsidy scheme, such as the one which Nabard runs for rural infrastructure, the investor has to pump in just a portion of the capital while the rest is supplemented by the government.

In the AIF, on the other hand, an investor gets an interest subsidy on the loan he borrows from banks to invest in the project. But he has to bring in as his own capital.

“What we have seen is that banks have been keen to sanction loans under the scheme,” Rao said.

He accepted that the pick-up would have been even better had the scheme been a capital subsidy scheme, but then it would have meant an even higher outlay for the government.

To further sweeten the scheme, of late some state governments have come forward to further subsidise loans availed under the scheme to reduce the cost of capital for an average entrepreneur.

Recently, the Uttar Pradesh government announced an additional three per cent interest subsidy on loans availed under the scheme for creating storage, over and above the one already in place.

This would mean the actual interest rate could be just 1-3 per cent for loans that otherwise come for 7-9 per cent depending upon the bank.

However, not all seem to be highly enthusiastic about the scheme.

Sanjay Kaul, former chairman of the National Collateral Management Company (NCML) says that the scheme is meant to promote small warehouses and encourage small players to invest and is not very attractive for big players in the storage and warehousing space.

“With a loan limit of Rs 2 crore for availing the interest subvention only small godowns of 3,000 square feet storing 500-800 tonnes will be viable and no big players will be interested in putting up such small projects,” Kaul said.

He said if the objective was to attract small players in the storage and warehousing space then already we have the NABARD scheme for rural warehousing, what was the need for another project.

“Even for FPOs and PACS, staying invested for long before returns start flowing in is not viable, also they have the option of hiring godowns at much lower cost. Why would they put up one of their own when the return on investment is not very clear,” Kaul added.