Government weighs loan guarantee, VC fund for farm mechanisation

KOLKATA: The government plans to build a credit guarantee and a venture capital fund for farm mechanisation that will raise the profitability of farmers and also help organised retail earn more, a person familiar with the plans said. The government plans to create farm machinery banks for custom hiring as poor farmers can’t afford to own equipment like power tillers or combined harvesters to improve productivity.

It has also decided to provide initial financial support to private entrepreneurs for setting up such centres through special-purpose funds, said Prakash Bakshi, chairman of the National Bank for Agriculture & Rural Development. Farm mechanisation remains achallenge even after 40 years of green revolution as banks shy away from providing investment credit or term loans to the country’s poor farmers.

India is home to 10.28 crore farmers, with about 80% falling in the small and marginal category having less than 2 hectares of land for cultivation. “We need to find ways to encourage longterm use of farm equipment,” Bakshi told ET. “The small land holding has made bank lending unviable.”

He said that over the last 40 years, the number of farm holding doubled to 14 crore while net crop area remained almost static at 14 crore hectare. At a meeting with lenders and food processing units earlier this month, the agriculture ministry discussed this plan and nudged them to invest more on farm mechanisation as the country suffers from low farm productivity despite being the largest producers of pulses, tea and jute and second largest in wheat, rice, and fruits and vegetables.

“The government wants to create a plan for the next five years to improve farm productivity,” said another banker who had attended the meeting. This will benefit the organised retailers as they would any way have to invest on farm mechanisation to improve their margins. The government, which has allowed 51% foreign investment in multi-brand retailing, has made it mandatory for investors to spend 50% for rural development.