New agriculture infrastructure fund

Description

Context:

Prime Minister Narendra Modi launched the Rs 1 lakh crores Agriculture Infrastructure Fund (AIF) to be used over the next four years.

About the fund:

This fund will be used to build post-harvest storage and processing facilities, largely anchored at the Farmer Producer Organisations (FPOs), but can also be availed by individual entrepreneurs.
The fund will also be used to provide loans, at concessional rates, to FPOs and other entrepreneurs through primary agriculture credit societies (PACs).
NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare.
The implication of this for the Central government budget is not going to be more than Rs 5,000 crores over four years in terms of interest subvention subsidy. The creation of the AIF presumes that there is already large demand for storage facilities and other post harvest infrastructure.
The fund is a major step towards getting agri-markets right.

Other reforms in agri-markets:

The Narendra Modi government had earlier issued three ordinances related to the legal framework of agri-markets with a view to bringing about some degree of liberalisation.
These ordinances relate to amendments in the Essential Commodities Act, allowing farmers to sell their produce outside the APMC mandis and encouraging farming contracts between farmers, processors, exporters and retailers.
Changes in the legal framework are a necessary condition, though not a sufficient one, for getting agri-markets right.
Creating post-harvest physical infrastructure is as important as the changes in the legal framework.
The AIF will help fill this gap. Its positive impact will be evident in due course, depending upon how fast, and how earnestly, the states, FPOs, and individual entrepreneurs implement the reforms initiated by the Centre.

Way Forward:

Since NABARD is also responsible for the creation of 10,000 more FPOs, it can create a package that will help these outfits realise better prices.
- The value of the storage facilities at the FPO level could be enhanced by a negotiable warehouse receipt system: FPOs can give an advance to farmers, say 75-80 per cent of the value of their produce at the current market price.
- Currently, most FPOs get a large chunk of their loans for working capital from microfinance institutions at rates ranging from 18-22 per cent per annum. At such rates, stocking is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.
Second, government agencies dabbling in commodity markets — the Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation of India (NAFED), State Trading Corporation (STC) — should increase their participation in agri-futures.
Third, the banks that give loans to FPOs and traders should also participate in commodity futures as “re-insurers” of sorts for the healthy growth of agri-markets.
Finally, government policy has to be more stable and market friendly. In the past, it has been too restrictive and unpredictable. A rise in agri-prices would often result in the banning of agri-futures. Most Indian policymakers look at agri-future markets as dens of speculators.