FPO Guidelines

Why in news?

The Centre has come up with guidelines to handhold Farmer-Producer Organisations (FPOs).

What is the status of FPOs in India?

• There are over 7,000 of FPOs already in existence.
• The growth of FPOs so far has been uneven in terms of size and regional concentration.
• 50% of the FPOs are located in just four States, including Maharashtra.
• Besides, only 14% of the FPOs have a paid-up capital of ₹10 lakh or more.
• 49% of the FPOs have a paid-up capital of ₹1 lakh or less.
• The FPOs are being visualised as an improvement over cooperatives.
• The cooperatives are riddled by misuse of funds and concentration of power in the hands of a few members.
• Not surprisingly, Maharashtra, as a leader in cooperatives, is an FPO leader as well.

What are the Centre’s guidelines?

• The Centre’s guidelines came after the 2019-20 Budget’s announcement to set up 10,000 new FPOs over five years.
• These guidelines emphasize on creating ‘cluster-based business organisations’, or a pool of managerial expertise for FPOs.
• As per the guidelines, an FPO should have at least 300 farmers as members, with at least half comprising of small and marginal farmers.
• The Centre has earmarked a credit requirement of ₹18 lakh and an equity grant of ₹15 lakh for each genuine FPO.
• The guidelines allow for a manager and accountant with a salary.
• By allowing this, the Centre has enabled the FPOs to draw up proposals that banks and formal entities require.
• This facility will boost the FPOs’ negotiating power, save them from red-tapism and allow them access to bank credit.
• Now, FPOs are entirely dependent on Non-Banking Financial Companies (NBFCs), with their higher cost of capital.

What would be the implications of shift to FPOs?

• The push for FPOs would enhance the bargaining ability of small and marginal farmers in both input and output markets.
• [Small and marginal farmers account for 86% of all farmers.]
• There would be political economy implications of a shift to FPO-driven farming.
• These implications would be immense, in regions with many small farmers, a sector where intermediaries control prices and credit.
• It could lead to better realisation of output prices.
• It could also lead to control over input costs.

What is the way forward?

• Banks should offer short-term loans with rollover provisions, particularly in a time of economic downturn.
• A trained pool of local talent should be created to manage these FPOs on professional lines.
• There is huge scope for reaching capital and skills to the bottom of the FPO pyramid.
• However, those in positions of advantage should not usurp the funds.

Source: Business Line