How effective were agriculture development funds announced in Budgets

The government has announced several funds for the agriculture and allied sectors in the last few years. (Representative Image)

The Finance Minister announced setting up an Agriculture Accelerator Fund in the Union Budget of 2023-24 to provide loans to startups of young entrepreneurs in rural areas. The government has announced several funds for the agriculture and allied sectors in the last few years. We examine the status of utilisation of these funds in this article.

It must be remembered that there is no dedicated amount earmarked in the banks or financial institutions for such funds and basically, the government announcement is for loans which can be availed from the banks. The government is only providing interest subsidies on such loans.

For the Accelerator Fund, the total amount of loans that can be availed has not been announced. The rate of interest subvention that will be provided on loans by the government is also not known.

Agriculture Infrastructure Fund

At the height of the Covid-19 pandemic, the government announced an Agriculture Infrastructure Fund as a part of the third tranche of the special Covid-19 package. This was to provide Rs 1 lakh crore loans for building agricultural infrastructure, development of post-harvest management projects and community farming assets. Loans disbursed until 2025-26 were to be eligible for interest subvention of 3 percent, subject to an upper limit of Rs 2 crore. In addition, a credit guarantee of up to Rs 2 crore was promised.

The Union Budget of 2021-22 also enabled Agricultural Produce Market Committees (APMCs) to avail of interest subvention on loans from the Agriculture Infrastructure Fund.

As per the information available on the fund’s portal, loans of Rs 16,683 crore have been sanctioned so far and Rs 11,509 crore has been disbursed, as of February 21, 2023. A larger share of these loans was availed by projects in Madhya Pradesh (Rs 3,951 crore), Andhra Pradesh (Rs 1,969 crore), Maharashtra (Rs 1,566 crore), Telangana (Rs 832 crore) and Karnataka (Rs 853 crore) while Bihar (Rs 244 crore), Odisha (Rs 220 crore) and Jharkhand (Rs 35 crore) could attract only small amounts.

It is important to note that loans of Rs 83,317 crore are yet to be sanctioned under the Agriculture Infrastructure Fund.

The portal does not provide data on interest subvention sanctioned and disbursed, so it is difficult to assess whether the beneficiary projects have actually received the interest subvention.

Dairy Processing and Infrastructure Development Fund (DIDF)

In December 2017, the government announced a Dairy Processing and Infrastructure Development Fund (DIDF) with a total corpus of Rs 11,184 crore, out of which the loan component was Rs 8,004 crore. The fund was to be used for the creation or strengthening of milk processing units, value addition and chilling facilities for co-operatives, companies, National Dairy Development Board (NDDB) subsidiaries, self-help groups (SHGs) and Farmer Producer Organisations (FPOs).

Here also, the government only provides an interest subvention of up to 2.5 percent. The loans were to be available from 2018-19 to 2022-23 and they are to be repaid by 2030-31. Though loans of Rs 3,483.7 crore were sanctioned in 12 states until October 2022, disbursement was only Rs 1,371.9 crore. The government has released an amount of Rs 79.59 crore as interest subvention to NABARD up to October 2022.

Thus, loans of Rs 4,520 crore are yet to be sanctioned.

Micro Irrigation Fund

To provide impetus to micro-irrigation and enhance the efficiency of water use in the agriculture sector, a Micro Irrigation Fund (MIF) with a corpus of Rs 5,000 crore was announced in the Union Budget of 2017-18. The fund was operationalised by NABARD during 2019-20. In the Union Budget of 2021-22, it was announced that the corpus of MIF will be expanded by another Rs 5,000 crore.

Under MIF, the state governments are provided loans with a 3 percent interest subvention from the Union government. Of the Rs 4,710.96 crore of loans approved, only Rs 2,198.63 crore has been disbursed to the states up to December 2022.  The maximum share of loans under this scheme was availed by Tamil Nadu (Rs 1,119.41 crore), followed by Andhra Pradesh (Rs 616.13 crore) and Gujarat (Rs 374.04 crore).  An amount of Rs 740.7 crore has been sanctioned to Rajasthan but it has not been disbursed. Loans of Rs 289 crore are yet to be sanctioned under the fund. The area covered under micro-irrigation by availing the subvention from this fund is not known.

Fisheries and Aquaculture Infrastructure Development Fund (FIDF)

In the Union Budget of 2018-19, Fisheries and Aquaculture Infrastructure Development Fund (FIDF) was announced with a corpus of Rs 7,522.48 crore to address the gaps in fisheries infrastructure. Loans from this fund were to be available from 2018-19 to 2022-23. State governments/Union Territories and state entities are eligible for the development of identified fisheries infrastructure facilities, including small and marginal fishermen.

In this fund also, the Government’s commitment is only to provide interest subvention of up to 3 percent per annum. Up to December 2022, loans of Rs 231.88 crore have been released for projects against sanctions of Rs 705.78 crore.

The scheme is in its final year of implementation and proposals of Rs 3,783.46 have been approved, equivalent to 50 percent of the corpus.

An amount of Rs 3,739 crore is yet to be sanctioned under this scheme.

Assessing Effectiveness

The role envisaged for the Union government in these funds is limited to helping the creation of an ecosystem that supports long-term debt financing through priority sector lending. From the Union Budget, the government is providing only interest subvention and credit guarantee.

Clearly, the government intends to facilitate the strengthening of agricultural infrastructure but it leaves the burden of new investments primarily to the private sector.

The guidelines for Agriculture Accelerator Fund are yet to be announced. In the budget speech, the FM mentioned that the Fund will provide loans for projects which can bring innovative and affordable solutions to the farmers. Another objective is to use modern technology which can transform agricultural practices and increase productivity and profitability.

We hope that the Agriculture Accelerator Fund and previous interest subvention schemes announced by the government will attract private investment in the agriculture sector, which can improve productivity, reduce cost and provide an efficient link between the farmers and the market.

We are not sure how the projects sanctioned under various funds have benefited small holders. It seems that states of eastern India have not been able to attract sufficient bankable projects, because of which the benefits of interest subvention may be eluding them.

We wish that the government releases more data on the projects sanctioned under various funds so that the researchers can study the benefits to agriculture and allied sectors. An evaluation of the effectiveness of these funds in attracting private investment in agricultural infrastructure will be helpful for policy formulation.

Siraj Hussain is a former Union agriculture secretary. Kriti Khurana is a PhD research scholar at BITS-Pilani, Hyderabad campus. Views are personal, and do not represent the stand of this publication.