Govt mulls goodies for farmer firms

Last Updated: Sat, Feb 23, 2013 19:10 hrs


Farmer Producer Organisations (FPOs) are likely to get a significant relief in Budget 2013-14, with the government considering giving these bodies income-tax exemptions — hitherto available only to cooperative societies — besides more scope to access funds. A senior official in the know confirmed this to Business Standard.


“At present, cooperatives enjoy income-tax relief under clause 80P. This could be extended to FPOs, too, since their functioning and nature are similar to those of co-ops,” the official explained.

An FPO is a company comprising only farmers and producers, but formed under the Indian Companies Act, 1956, as amended in 2002. These organisations are created both at the block and cluster levels. FPOs are different from cooperative societies in that these have only producers as members, unlike co-ops which are registered under the States Cooperative Society Act and in which even others can become members. However, at many places, FPOs are also named as cooperatives.

The official said, among other proposals that the finance minister could consider was allowing FPOs to access funds through external commercial borrowings of up to $10 million, on a par with non-government organisations and non-banking financial companies.

These organisations could also be made eligible for loans from cooperative banks, state finance corporations, the National Cooperative Development Corporation and similar financial institutions that lend primarily to cooperative institutions.

“The Budget could also open the door for collateral-free loans of up to Rs 25 lakh for FPOs,” the official said, adding only self-help groups were at present eligible for collateral-free loans of up to Rs 5 lakh. Since FPOs were a federated bodies of primary producers, these must be made eligible for more collateral-free loans, he said.

He added all of these proposals being considered by Finance Minister P Chidambaram had the backing of the Sonia Gandhi-led National Advisory Council (NAC).

In fact, a report of the working group of the council had advocated a strong role for these organisations to help small and marginal farmers.

Officials said venture capital support of up to Rs 1 crore and lower interest rate, on a par with individual crop loans for farmers, were also among the measures being considered for these organisations.

At present, the rate of interest on short-term farm loans is seven per cent. On this, the government provides an interest subvention of around three per cent. According to a senior Department of Agriculture official, there currently are 300-odd FPOs with a combined membership of over 500,000 farmers across the country. Their number could go up significantly if these measures are announced in the Budget.


Likely Budget announcements for farmer producer organisations




  • I-T exemptions: On a par with cooperative societies



  • ECBs: Access to external commercial borrowings



  • Bank loans: Funding from co-op banks and state finance corporations



  • Easy debt: Collateral-free loans of up to Rs 25 lakh



  • Interest rate: At a level that’s on a par with individual farmers


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