Promoting the Agriculture Infrastructure Fund (AIF) worth ₹1-lakh crore, a financing facility launched in 2020 by the Centre, is a welcome move in shaping the agribusiness environment. The scheme sanctioned 32,514 projects worth ₹25,356 crore of loans since its inception. Until March 2023, ₹9,660 crore of funds were disbursed for 19,650 projects across 26 States/ UTs, indicating that only 9.68 per cent of the total funds were released.

The Lok Sabha session deliberated on the strategy for achieving the AIF scheme target by FY 2025–26. An analysis of the scheme’s modalities and allocation is needed to deepen the scheme’s impact.

The assessment

First, the financing facility allocation to the States/UTs based on the value of the output of agriculture and allied activities is skewed. For example, over 65 per cent of the total funds were allocated to only eight States: Uttar Pradesh (₹12,831 crore), Rajasthan (₹9,015 crore), Maharashtra (₹8,460 crore), Madhya Pradesh (₹7,440 crore), Gujarat (₹7,282 crore), West Bengal (₹7,260 crore), Andhra Pradesh (₹6,540 crore), and Tamil Nadu (₹5,990 crore).

In contrast, the allocation of AIF to Punjab and Haryana is ₹8,613 crore or 9 per cent, and in North-Eastern states, it is ₹3,376 crore or 3 per cent.

Second, AIF is integrated with debt, where the interest rate subvention is facilitated up to ₹2 crore. So, the scheme’s success depends on the intention and ability of financial institutions. Bankers look at the projects from their credit assessment lens, where feasibility depends on the project and the promoter.

Furthermore, farmer organisations (FPOs) are not mature enough to pass the acid test, so there is an inherent breaker to a fast-paced disbursal of the scheme. Third, credit guarantee cover for eligible borrowers is available for ₹2 crore, which is small for a standard project. Meanwhile, the availing of this facility differs for the type of borrower. For example, for off-farm agri projects, the guarantee will be supported by a credit guarantee fund trust for micro and small enterprises.

For farm-based projects, the credit guarantee cover can be utilised from the FPO promotion scheme of the Department of Agriculture and Farmer Welfare. Such complications could exclude the ‘eligible’ beneficiaries or capture the ‘elite’ and lead to ‘crony capitalism’ in agribusiness.

Fourth, the centralised governance of the Project Monitoring Unit may bring opportunities for moral hazard and adverse selection of agri-entrepreneurs and start-ups engaged in off-farm or e-commerce interventions and enhance administrative costs.

Fifth, although there is a renewed focus on inclusivity and equity in the scheme, offering grants-in-aid for underprivileged and women entrepreneurs may increase the default (credit) risk.

Sixth, large-scale integrated projects cannot be installed singly under this scheme. Convergence with other schemes remains a crucial enabler for its success.

Seventh, this scheme will be successful for farm-gate-led hub-and-spoke models where the spokes with prescribed distance can be installed under this scheme. Guidance and mentoring for the FPOs and small-scale promoters can accelerate the adoption, and the incubators can play a pivotal role.

Dey is faculty, and Jain and Tikhade are agribusiness management students at IIM Lucknow. Input by Dr Kaushik Basu is gratefully acknowledged. Views expressed are personal.