The Prime Minister’s Office has shot down a proposal from the food processing ministry to set up a nonbanking finance company dedicated to help the food processing industry get loans for capital-intensive projects that have long gestation period, officials said. The decision is seen as a setback for the industry.
“It is a big setback to the sector which has an important role in doubling farmers’ income,” a food processing ministry official said. “The food processing sector is annually seeing a growth of more than 10%. Ease of getting credit would have further spurred the growth.”
The official said the liquidity crisis in the NBFC sector following a series of defaults by IL&FS late last year may have prompted the PMO decision, pointing out that the proposal was sent to the Cabinet for clearance around the same time.
“The expenditure finance committee chaired by secretaryexpenditure had cleared and recommended it to the cabinet. But when the ministry went ahead with cabinet note, it was not cleared by the PMO,” the official said.
An NBFC to exclusively fund food processing projects and create capacity building in the field of risk assessment would have been beneficial for the sector which is growing at a faster pace than the agriculture and even manufacturing sector, said the official.
The person also claimed that a number of global financial institution were interested in the project.
“The Holland government through its national bank was keen to participate,” the official said. Denmark government, Rabo Bank, European Structural and Investment (ESI) Funds and South Korea’s National Agricultural Cooperative Federation were also willing to participate in the bid.
The ministry had proposed to hold 20% stake in proposed NBFC which was to have an initial corpus of Rs 2,000 crore. It was waiting for cabinet clearance since the last quarter of 2018 to enable it to issue request for proposal from private and foreign financial firms. “In the past the government has created NBFCs for growing sectors like infrastructure and housing,” the official said. “Safeguards could have been built by having its own director on board of NBFC and tying government contribution based on the equity mobilisation by the promoters.”
Since June last year the ministry was working on the proposal and had even thought of naming it Agro Processing Financial Institution, the official said. Finance minister Arun Jaitley had in his 2018-19 budget mentioned the role of NBFCs as a powerful medium in delivering finances.
Source: Economic Times
