In a welcome move in shaping the environment for agribusiness, the Center launched the Agricultural Infrastructure Fund (AIF) worth Rs 100 crore in 2020. The scheme has approved 32,514 projects with loans worth Rs 25,356 crore since its inception. As of March 2023, funds of Rs 9,660 crore have been disbursed for 19,650 projects in 26 States/Union Territories, indicating that only 9.68% of the total funds have been released.
The Lok Sabha session considered a strategy to achieve the goals of the AIF program by the financial year 2025-26. Analysis of the program’s patterns and distribution is needed to deepen the program’s impact.
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First, the allocation of financing facilities to states/Federal Territories based on the output value of agricultural and related activities is uneven. For example, more than 65% of the total funding was allocated to only 8 states: Uttar Pradesh (Rs. 128.31 billion), Rajasthan (Rs. 90.15 billion), Maharashtra (Rs. billion), Gujarat (Rs 72.82 billion), West Bengal (Rs 72.6 billion), Andhra Pradesh (Rs 65.4 billion) and Tamil Nadu (Rs 59.9 billion).
In comparison, Punjab and Haryana have an AIF allocation of Rs 86.13 billion or 9% and Northeastern states have an allocation of Rs 33.76 billion or 3%.
Second, the AIF is combined with the debt to provide an interest rate subsidy of up to Rs 2 crore. Therefore, the success of the program depends on the willingness and ability of financial institutions. Bankers look at projects from a credit assessment perspective, and viability depends on the project and the sponsor.
In addition, farmers’ organizations (FPOs) are not yet mature enough to pass the rigor, so there are inherent obstacles to the fast-paced spending of the scheme. Third, the amount of credit guarantee provided to eligible borrowers is Rs. 2 crore, which is small for a standard project. At the same time, utilization of this facility varies by borrower type. For example, for non-farm agricultural projects, the guarantee will be provided by the Small and Micro Enterprise Credit Guarantee Fund Trust.
For farm-based projects, credit guarantees from the FPO Promotion Scheme of the Department of Agriculture and Farmers Welfare are available. This complication may exclude “eligible” beneficiaries or capture “elites” and lead to “crony capitalism” in agribusiness.
Fourth, the centralized governance of the project monitoring team may bring moral hazard and adverse selection opportunities to agricultural entrepreneurs and start-ups engaged in non-agricultural or e-commerce interventions, and increase administrative costs.
Fifth, despite the program’s renewed focus on inclusion and equity, aid grants to disadvantaged groups and women entrepreneurs may increase default (credit) risk.
Sixth, the program cannot install large complex projects alone. Integration with other programs remains a key enabler of its success.
Seventh, the scheme would be successful for a farm-dominated hub-and-spoke model, under which spokes can be installed at prescribed distances. Mentoring and coaching for FPOs and small-scale sponsors can accelerate adoption, and incubators can play a key role.
Dey is a faculty member at IIM Lucknow and Jain and Tikhade are students of Agribusiness Management. Thanks to Dr. Kaushik Basu for his comments. The views expressed are their own.
