The Union government’s decision to revive a long-forgotten concept of primary producers’ companies (PPCs) ought to be welcomed. Such companies can help small farmers and individual craftsmen come together to derive economies of scale. The idea of farmers’ companies which extend the benefit of being a registered firm while allowing farmers to derive all the benefits of agricultural land ownership, was mooted nearly a decade ago. After much debate, the idea did not go beyond some legal change. For example, Section IX (a) of the Companies Act, 1956, was amended in 2002, providing for the formation of PPCs not only by the farmers but also by other tiny entrepreneurs pursuing common vocation. But not much else has happened since. The challenge of reviving the idea of PPCs has been taken up by the Indian Institute of Corporate Affairs (IICA) and the National Rainfed Areas Authority (NRAA). They hope farmers dependent on rain-fed agriculture, who are amongst the poorest of farmers, would benefit from such an initiative. The main objective of PPCs would be to procure inputs for the members at competitive rates and aggregate their produce for collective sale. This will reduce competition among individual producers and enable them to jointly hire services like farm machinery.
The PPC is a hybrid of a private limited company and a cooperative society, but without the limitations of the latter. Most cooperatives have not been able to function as efficiently as modern companies because of political and bureaucratic interference in their management. The PPC statute has provisions that seek to insulate farmers’ companies from such interference but also protect them from takeover bids by large farmers. It bars listing and trading of PPC shares on stock exchanges, making them transferable only between existing shareholders. Besides, it stipulates one vote per member regardless of the number of shares held by a member, and sharing of the profits of the company by the members in proportion to the transactions made by them through the company, rather than their shareholding. This rules out the possibility of sleeping shareholders. While being a good initiative, the idea has failed to take off. Only about 150 PPCs have come up so far. This is partly for want of promotion and awareness creation, but largely because banks remain reluctant to lend to these companies, in part due to issues relating to hypothecation. A few of these PPCs, which have managed to secure bank loans, have done so by pledging the personal belongings of their office-bearers as collateral. Apart from access to finance, lack of adequate understanding of legal protection available has also kept farmers away from creating more PPCs. The government could consider getting an institution like National Bank for Agricultural and Rural Development (Nabard) to directly finance PPCs and also promote the idea with other banks. Needless to say, some regions of the country will be found to be better suited initially to promote the model. Others will follow once the model takes off and visibly benefits farmers.
