India introduces Rs.1trn financing facility for Agriculture Infrastructure

India has a huge opportunity to invest in post-harvest management solutions like warehousing, cold chain, and food processing, and build a global presence in areas such as organic and fortified foods

August 10, 2020

Agriculture is the main source of income for over 55 per cent of India’s 1.3 billion population

The duration of the Infrastructure Fund scheme has been planned to be from FY 2020-29

The first sanction under the scheme worth Rs.10 billion made to over 2,280 farmer societies

Indian farmers will be able to store and sell their produce at higher prices, reduce wastage

Prime Minister Shri Narendra Modi on August 9 launched a new central sector scheme for financing under the Agriculture Infrastructure Fund worth Rs.1 trillion (US$13.4 billion). The scheme will support farmers, PACS, FPOs, Agri-entrepreneurs, etc, in building community farming assets, and post-harvest agriculture infrastructure. The key initiative follows the agriculture sector’s strong performance amid the economic slowdown of the COVID-19 pandemic, during when the industry recorded high yields and steady income generation. Agriculture has remained a reliable source of value creation for the Indian economy and has steadily increased its contribution to the country’s export basket. Agriculture has also been at the centre of the country’s global partnerships in innovation and R&D, diplomatic outreach as well as the linchpin of drawing foreign investment. Now with new asset and infrastructure development with the fund, Indian farmers will be able to store and sell their produce at higher prices, reduce wastage, while increasing processing and value addition.

Strengthening the Agricultural Ecosystem 

The Agriculture Infrastructure Fund is a medium to long-term debt financing facility for investment in viable projects for post-harvest management infrastructure and community farming assets through interest subvention and credit guarantee. The duration of the scheme has been planned to be from FY 2020 to FY 2029. Under the scheme, Rs.1 trillion will be provided by banks and financial institutions as loans with interest subvention of 3 per cent per annum and credit guarantee coverage under CGTMSE scheme for loans up to Rs.20 million. The beneficiaries can include farmers, PACS, Marketing Cooperative Societies, FPOs, SHGs, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Startups, Central and State agencies or Local Body sponsored Public-Private Partnership Projects, and Agri-entrepreneurs. The funding is expected to boost investment in storage and processing facilities that will help improve monetisation of farm production apart from increasing value addition in agricultural output. This will help raise farmers’ income while increasing contribution to the economy. 

India’s total agricultural exports are expected to grow from US$38.5 billion in FY 2019 to US$60 billion by 2022.

The approval for financing comes just 30 days after the Indian Cabinet formally approved the scheme with the first sanction worth more than Rs.10 billion made to over 2,280 farmer societies. The event was conducted through a video conference and was attended by hundreds of thousands of farmers, FPOs, cooperatives, PACS, and citizens joining from across the country. On the occasion, the Prime Minister also released the 6th installment under the PM-KISAN scheme (a national income support programme) of Rs.170 billion to nearly 85 million farmers. With this transfer, the scheme has provided over Rs.900 billion in the hands of over 100 million farmers since its launch in December 2018. The reforms follow the Government’s Rs.21 trillion (US$277 billion) stimulus package which was announced in May to tackle the impact of the Coronavirus (COVID-19) pandemic. The package, worth equivalent to around 10 per cent of India’s GDP, includes an extensive set of measures to aid inclusive economic growth following the pandemic with agriculture being a key beneficiary.

US$60 billion Export Opportunity by 2022

Agriculture is the main source of income for over 55 per cent of India’s 1.3 billion population. The gross value added by agriculture, forestry, and fishing was estimated at around Rs.19.5 trillion during FY 2020 while foodgrain output was measured at record 295.7 million tonnes. Horticulture, dairy, and fisheries sectors also reported record output. Driven by volume and variety of output, the Indian food industry is expected to break into new markets, raising supply to the global food value chain. Besides agricultural output, India’s food processing sector has grown its market with high-margin and high-quality offerings. As a result, India’s total agricultural exports are expected to grow from US$38.5 billion in FY 2019 to US$60 billion by 2022. A new set of reforms now aims to further boost the output and income of farmers. These include the “Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020”; Amendment to Essential Commodities Act; and “Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020”.

At the virtual launch event, the Prime Minister interacted with three primary agriculture credit societies from the states of Karnataka, Gujarat, and Madhya Pradesh that are among the initial beneficiaries of the scheme. The societies informed about their plans to build godowns, setup grading, and sorting units, which will help member farmers secure a higher price for their produce. The scheme aims to provide a financial boost to the farmers and agriculture sector and increase India’s ability to compete on the global stage. PM Modi reiterated that India has a huge opportunity to invest in post-harvest management solutions like warehousing, cold chain, and food processing, and build a global presence in areas such as organic and fortified foods. He also mentioned that this scheme provides good opportunities for startups in agriculture to avail the benefits and scale their operations, thereby creating an ecosystem. These steps are expected to usher in a new growth era for the Indian agriculture sector, as a step towards building a sustainable economy in the post-Coronavirus world.