Agri Business

Agriculture Infrastructure Fund: A novel scheme, but it needs clarity

Siraj Hussain | Updated on August 14, 2020

Particularly in respect of the allocation of grants under the ₹1-lakh crore fund, to be sanctioned in States and UTs

On July 8, the Union Cabinet approved a new Central Sector Scheme — Agriculture Infrastructure Fund (AIF). Even though the headlines suggest that it is a ₹1-lakh crore scheme, the Centre’s outgo from the Budget is pegged at ₹10,736 crore over the next three years.

The Centre will bear this expenditure by providing interest subvention of 3 per cent on term loans for post-harvest management. The Centre will also provide a guarantee to banks for loans up to ₹2 crore for possible defaults by borrowers. This will be done through Credit Guarantee Fund Trust for Micro and Small Enterprises for loans up to ₹2 crore. The Government will pay the fee for this guarantee.

Since the borrowers will be eligible for interest subvention for seven years, it can be presumed that the scheme will continue beyond four years.

The target given to banks for loans in FY 2021 is ₹10,000 crore. The borrowers will enjoy a moratorium of six months to two years. Therefore, the outgo from the Centre towards interest subvention in this financial year is likely to be a small amount.

The main objective of the AIF is to attract investment in post-harvest infrastructure which has been a weak link in the agricultural supply chain. Thus, warehouses, silos, pack houses, sorting and grading units, cold chain projects, ripening chambers, e-marketing platforms, etc will be eligible for interest subvention of 3 per cent.

Features of AIF

There are three novel features of the AIF. First, the banks and financial institutions who want to avail of interest subvention and credit guarantee for their borrowers will have to sign an MoU with Nabard and the Department of Agriculture (DAC).

Second, the projects will be eligible for a grant under existing schemes of Union or State Governments. And thirdly, the scheme provides indicative targets for the States and UTs.

Financing for post-harvest projects is already available under priority sector lending from banks and other financial institutions. But complete data of such loans is not available. For the first time, details of the projects sanctioned in each State will be revealed in the public domain.

Focus on post-harvest projects

It is not that post-harvest projects have not been given priority in the past. The Union Ministry of Food Processing Industries (MoFPI) provides a grant of up to ₹10 crore under the Pradhan Mantri Krishi Sampada Yojana (PMKSY).

Mega food parks, integrated cold chains of fruits, vegetables and milk; infrastructure for agro-processing clusters; food safety laboratories and food processing units are eligible for grant. The Government allocated ₹6,000 crore for 2016-20 and it was expected to result in an investment of ₹1.04-lakh crore. All the details of projects sanctioned are, however, not known.

The National Horticulture Board, too, provides a grant for post-harvest infrastructure projects. It includes capital subsidy for construction and modernisation of cold storages as well as non-cold storage structure of horticultural produce such as onion, vegetables, etc. The subsidy is 50 per cent in North-Eastern and hilly States and 35 per cent in other States/UTs.

Under the National Mission on Horticulture, the Ministry of Agriculture also provides grant for post-harvest projects. Many States also use Rashtriya Krishi Vikas Yojana (RKVY) funds for providing grant.

Several States have also been providing capital and interest subsidy from their own budgets for post-harvest projects. Under Uttar Pradesh’s Food Processing Industry Policy - 2017, micro and small food processing units are eligible for 100 per cent interest subsidy for 5 years. Other food processing units are eligible for a 7 per cent interest subsidy for five years.

The AIF guidelines provide an indicative allocation of loans to be sanctioned in each State and Union Territory. The basis for the allocation is, however, not explained.

It must be noted that the Western and Southern States have been attracting much higher investment in the sector. Thus, as of May 2019, MoFPI had sanctioned grants to cold chain projects in Maharashtra, in which the investment is ₹11,64.61 crore, while Bihar has attracted projects for only ₹40.97 crore.

Maintaining data

The greatest benefit of the AIF will be that data will be collected through an online portal maintained by the DAC; hopefully, at the end of every year, we will know which projects are being preferred by investors. Normally, banks prefer entrepreneurs of high net-worth. Therefore, it will be a real achievement if FPOs, PACs and SHGs can secure loans from the fund.

It will be extremely useful if all the other capital subsidy and interest subvention schemes of the Union and State Governments are also captured on the portal created for the AIF.

However, at the end of the day, the investment climate of a State matters more than the indicative allocation of money to it.

The author has served the Union Government as Secretary, Food Processing and Agriculture, and is currently Visiting Senior Fellow, ICRIER. Views are personal

Published on August 14, 2020

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