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Performance during XI Plan Period (2007-12 )

NABARD Consultancy Services Pvt. Ltd


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Evaluation Study of Central Sector Scheme for Venture Capital Assistance for Agri-Business Development: Performance during XI Plan Period (2007-12)

A Study Report prepared by NABARD Consultancy Services (NABCONS) Pvt Ltd. for the Small Farmers Agribusiness Consortium, Ministry of Agriculture,Government of India, New Delhi

Study team from NABARD Consultancy Services (P) Ltd. (NABCONS)

Overall guidance:

Shri G. R. Chintala , Chief General Manager & Principal, NABARD Staff , College, Lucknow

Shri P.V.S. Suryakumar, General Manager, NABARD & Principal Consultant, NABCONS, New Delhi

Team leader:T.K.Hazarika, Deputy General Manager

Members:Shri Sadique Akhtar, Consultant Economist, NABCONSShri Y.G.Milton, Consultant, NABCONSShri S.S.Sarmah, Consultant, NABCONS


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Disclaimer

This document has been prepared by NABARD Consultancy Services

(NABCONS) Pvt. Ltd for the Small Farmers' Agri-Business Consortium

(SFAC), New Delhi based on the field study.

The views expressed in the report are advisory in nature. It does not represent

or reflect the policy or view of NABCONS/ National Bank for Agriculture &

Rural Development (NABARD). NABCONS/ NABARD accepts no financial

liability or any other liability whatsoever to anyone in using this report.


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Content Acknowledgement iv List of Abbreviations v

List of Tables vii List of Figures viii Executive Summary ix-xviiCHAPTER 1 INTRODUCTION 1

1.1 Background 11.2 Salient Features of the Venture Capital Assistance Scheme 31.3 Need for the Study 41.4 Terms of Reference 5

CHAPTER 2 RESEARCH DESIGN & METHODOLOGY 72.1 Sampling Design 72.2 Data Collection 112.3 Data Analysis 132.4 Study Team 14

CHAPTER 3 CONTEXTUAL BACKGROUND AND IMPLEMENTATIONOF THE SCHEME DURING XI PLAN PERIOD

15

3.1 Overview 153.2 Spatial Distribution 163.3 Bank wise Distribution 203.4 Activity wise Distribution 233.5 Term Loan and Venture Capital Assistance 24

CHAPTER 4 STUDY OBSERVATIONS & FINDINGS 264.1 The Study Coverage 264.2 Sample Distribution by Type/ Legal Status of Units 264.3 Distribution of Sampled Units by Type of Activity 284.4 Nature and Size of Investment 284.5 Adequacy of Bank Credit for Capital Investment 294.6 Adequacy of VCA Support 304.7 Appraisal and Sanctioning Procedure of VCA 324.8 Delays in Commencement of Commercial Production 324.9 Knowledge and Awareness about the Scheme 34

4.10 Coverage of AEZ Districts 354.11 Capacity Building 354.12 Impact of implementation of Scheme 36

CHAPTER 5 POLICY ISSUES & IMPLICATIONS 41CHAPTER 6 RECOMMENDATIONS & CONCLUSION 44

6.1 Recommendation 446.2 Conclusion 49

Annexures I Profile of Sample Agri-business Units 51 Annexure II List of Sample Project Studied 89 Annexure III Questionnaire A, B, &C 97 Annexure IV Zone wise, State wise, Year wise Distribution of Sanctioned Projects 112 Annexure V Sanctioned Unit under VCAS by Activity 113 Annexure VI Proceeding of State Level Consultation Meets 114


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Acknowledgements

The Evaluation Study of Central Sector Scheme for Agri-Business Development throughVenture Capital Assistance (VCA) was undertaken by NABARD Consultancy Services (P) Ltd.on behalf of Small Farmers Agribusiness Consortium (SFAC), Ministry of Agriculture, Govt. of

India covering the period of XI Five Year Plan, with a view to assessing the schemes impactand evaluating operational roles of various stakeholders, identifying constraints andbottlenecks and suggesting areas for improvement. NABCONS would like to offer specialthanks to SFAC for their financial support to this study.

We would also like to place on record our special gratitude to Shri Pravesh Sharma IAS , Managing Director, Small FarmersAgri-Business Consortium for extending his supports,cooperation, and valuable suggestions during every stage of the study. We also thank Shri

Ashok Pillai, the then Director, SFAC and Shri Dhruba Bhuyan, Project Coordinator, SFAC for their valuable inputs and contribution during the course of the study. We appreciate thecooperation given by Shri Sushil Kumar of SFAC in providing essential information and dataon the VCA Scheme.

The cooperation, support, valuable inputs and insights received from the following SeniorOfficials of NABCONS/NABARD and other distinguished persons in finalizing this study report,is gratefully acknowledged:

Shri M.K. Mudgal, Chief Executive Officer, NABCONS, H.O. MumbaiShri R.L.Jamuda, IAS Principal Secretary, Deptt. of Agriculture, Govt. of OdishaShri B. M. Patnaik, General manager, NABARD, Odisha Regional Office, Bhubaneswar

Dr. Amiya Sharma, Chief Executive Officer, Rashtriya Gramin Vikash Nidhi, GuwahatiShri S. Indirajith, Chairman, Gurgaon Gramin Bank, GurgaonShri Ved Prakash Yadav, CEO, Gurgaon District Central Cooperative Bank, Gurgaon

The study team would like to thank all the promoters and agripreneurs of the sample unitscovered under the study in various states, Branch Managers of Financing Banks,State/District Level SFAC/ Govt. Officials and all participants in the two State LevelConsultative Meets and Bankers Meeting held at Bhopal, Bhubaneswar and Guwahatirespectively, for sparing their valuable time to provide necessary cooperation, informationand various suggestions required for conducting the study and finalizing the report. Thecooperation received from the Nodal Officers and Consultants of NABCONS and other Officersof various Regional Offices of NABARD in conducting the study, especially in data collectionand compilation of preliminary study observations is also deeply acknowledged.

The study team is thankful to Dr. A. K. Sood, AGM NABARD, Himachal Pradesh RegionalOffice, Shri B.D. Nayak, AGM, NABARD, Punjab R.O. for their support to the study by wayof developing tools for data collection and support in structuring the draft report.

The study would not have been completed successfully but for the best efforts put in by thestaff attached to the Zonal Office of NABCONS, New Delhi who deserve our appreciation.


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List of Abbreviations

AEZ Agri Export ZoneAPEDA Agricultural & Processed Products Export Development

AuthorityBLBC Block Level Bankers CommitteeCDB Coconut Development BoardCII Confederation of Indian IndustriesDCC District Consultation CommitteeDDM District Development ManagerDER Debt Equity RatioDIC District Industries CentreDLRC District-Level Review CommitteeDPR Detailed Project ReportFAO Food and Agriculture OrganizationFPO Fruit Product OrderFPOs Farmers Producer OrganizationFYP Five Year PlanIDBI Industrial Development Bank of IndiaIQF Individually Quick FrozenMAP Medicinal and Aromatic PlantsMFP Minor Forest ProduceMOA Ministry of AgricultureMOFPI Ministry of Food Processing IndustriesMOU Memorandum of UnderstandingMSME Micro Small and Medium EnterprisesNABARD National Bank for Agriculture & Rural DevelopmentNABCONS NABARD Consultancy Services (P) Ltd.NBFC Non Banking Finance CompaniesNCDC National Cooperative Development CorporationNEDFi North Eastern Development Finance Corporation Ltd.

NER North Eastern RegionNHB National Horticulture BoardNHM National Horticulture MissionNIAM National Institute of Agricultural MarketingNMPB National Medicinal Plants BoardNOVOD National Oilseeds and Vegetable Oil Development BoardNPA Non Performing AssetPDF Project Development FacilityPLP Potential-linked Credit PlanPSC Project Scrutinizing Committee


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RBI Reserve Bank of IndiaRO Regional OfficeRoI Rate of InterestRRB Regional Rural Bank

SBI State Bank of IndiaSCDCC Standing Committee for DCCSFAC Small Farmers Agri-Business ConsortiumSIDBI Small Industries Development Bank of IndiaSLBC State Level Bankers CommitteeTFO Total Financial OutlayTOR Terms of ReferenceVCA Venture Capital AssistanceVCAS Venture Capital Assistance Scheme


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List of Tables Table

No.

Particulars Page

No.

Table 1.1 Progress of VCA Scheme during XI Five Year Plan Period (upto

31 stMar 2012)

2

Table 2.1 State-Wise Distribution of Sample Projects 9

Table 2.2 Year-wise Distribution of Sample Projects 9

Table 3.1 Bank wise projects under VCAS 22

Table 3.2 Activity wise sanctioning of VCA during XI FYP 23

Table 3.3 Zone wise average of Term Loan, VCA and VCA unit 25

Table 4.1 Frequency distribution of units by size of investment 29

Table 4.2 Breakup of assistance received by sampled units under VCAS 29

Table 4.3 Frequency distribution of VCA relative to total project cost 31


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List of Figures Figure No Particulars Page No.

Figure 2.1 Year wise distribution of Sample Projects 10

Figure 2.2 Activity wise distribution of Samples 11

Figure 3.1 Number of units versus sanctioned VC during XI FYP 15

Figure 3.2 State wise distribution of projects assisted under VCAS 17

Figure 3.3 Region wise distribution of projects assisted under VCAS 18

Figure 3.4 Region wise trend of VCA Sanctioned during XI FYP 19

Figure 3.5 Bank wise distribution of project sanctioned under VCAS 21

Figure 3.6 Activity wise percentage distribution of units sanctioned 23

Figure 3.7 Zone wise sanction & disbursement of VCA- XI FYP 24

Figure 4.1 Distribution of samples by legal status 27

Figure 4.2 Percentage distributions by type of legal status of sampled units 27

Figure 4.3 Activity wise distribution of Sampled Units 28

Figure 4.4 Share of assistance of total project cost 31

Figure 4.5 Location of agri-business units 37

Figure 4.6 Annual Incremental Income by types of farmers 39


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Executive Summary A. The VCA scheme at a glance.

The Venture Capital Assistance (VCA) Scheme for Agri-Business is the flagship scheme of

Small Farmers' Agri-Business Consortium (SFAC), Ministry of Agriculture, Government of

India, aimed at promoting investment in agri-business sector by encouraging institutional and

private sector investments and linkages so as to ensure empowerment of farmers and

sustainable development of the agriculture sector in the country. The scheme, implemented

with the participation of nationalized Banks, SBI & Subsidiaries and the IDBI since 2005-06,

provides for interest free venture capital assistance for agri-entrepreneurs for establishing

agri-business units. The implementation of Venture Capital Assistance Scheme of SFAC primarily has broader perspectives of addressing the issues of inequalities and deepening

poverty, and promoting economic growth through investments in agro based industries near

farm gate.

The broad objective of the VCA Scheme is to promote agri-entreprises for value additions to

agricultural and allied produce so that the small and marginal farmers get benefit out of it.

The specific objectives of the Scheme are: -

1. To facilitate setting up of agri-business ventures in close association with banks.

2. To catalyze private investments in setting up of agri-business projects and, thereby

providing assured market to producers for increasing rural income & employment.

3. To strengthen backward linkages of agri-business projects with producers.

4. To assist farmers, producer groups and agriculture graduates to enhance their

participation in value chain through Project Development Facility.

5. Arranging training, field visits, etc. of agripreneurs setting up identified agri-business projects.

B. Evaluation Study by NABCONS.

NABCONS was assigned in November 2011 the evaluation study of VCA scheme of SFAC

implemented during the XI Five Year Plan, with the following terms of reference.


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1. The projects assisted by SFAC during the XI Plan period under Venture Capital

Assistance Scheme would be evaluated on purposive random sampling basis covering a

minimum of 10% of the total projects.

2. The Study would bring out the impact of implementation of the scheme with reference

to the various objectives such as, setting up of agribusiness units near the farm gates,

catalyzing private investment, strengthening of backward linkages, training of

stakeholders, utilization of PDF to encourage the progressive agripreneurs to involve in

value chain; arrangement with the Farmers/Farmer Groups and metamorphosis of small

farmers into agripreneurs.

3. To ascertain the trend in terms of regional spread, type / legal status of agripreneurs,

size of units assisted, etc. and to ascertain the reason for slow off take of the scheme in

certain regions/states of the country.

4. To study the timeliness in grounding of the project, identify the factors responsible for

timely / delay in commercial production.

5. To examine the issue of extending implementation of the Scheme through RRBs,

Cooperative Banks, NBFC, SIDBI, etc. and whether involvement of such agencies in

the past could have impacted the outreach of the scheme .

6. To examine in detail whether there is any need to link the VCA scheme to availability/

quantum of central/state govt. subsidy for any particular scheme/activity and to make

suitable variation of the quantum of VCA depending on availability of such subsidy

subject to a cap or upper limit.

7. To examine whether the SFAC can stand as guarantee for any entrepreneur/unit in order

to enable the latter to have better access to institutional credit, in the event of the latters

failure to bring forth adequate security / fulfill other eligibility for institutional

finance/credit support.

8. Review of/observations on the cap on project outlay and adequacy or otherwise of VCAassistance amount.

9. To look into the adequacies, initiatives/interventions required for policy measures,

operational guidelines in respect of involvement of entrepreneurs and acceptability by

the banks for enhancing credit flow to the agribusiness projects.

10. Issues, if any observed, related to the avenues for the FPOs to grow and thrive.


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C. Methodology

NABCONS devised suitable research design and methodology to conduct evaluation Study

and 41 units were shortlisted for detailed study. An effort has been made to collect relevant

data from selected units supported with VCA and also to gather information from other stake

holders e.g. financing banks and the farmers through appropriate research methods. The

study is based on analysis of both primary and secondary data collected from different

stakeholders of the project with a view to arrive at "accurate / nearest to accurate" level of

information to evaluate the impact of the Scheme. Besides this, state level meets were

organised with bankers, promotional organisations, select entrepreneurs etc. on behalf of

SFAC at Bhopal and Bhubaneswar, a meeting with bankers in Guwahati, visits to

RRB/Coop. Bank and a private Commercial Bank and desk scrutiny and consultations/

discussions with SFAC officials.

D. The Broad Findings of the Study:

1) During the XI Five Year Plan 409 units had been sanctioned VCA amounting to Rs.

120.17 crore as against a projected number of 325 thereby achieving 126% performance.

The average investment capital requirement of sample agribusiness units has been

Rs.544.98 lakh per unit and the average term loan extended to these units by financing

banks has been Rs.282.48 lakh (51.3%).

2) The VCA has played the role of a catalyst to bring in capital to the agribusiness sector

with its contribution on an average of Rs. 49.02 lakh (9.02% of the project cost) per unit.

The average equity investment in terms of margin money of the entrepreneur is about

Rs.168.85 lakh that accounts for 30.98% of the project cost. The entrepreneurs

acknowledged the support of VCA in implementing the units. The VCA Scheme has also

been successful in mobilizing private investment in agri-business sector. As regards the

PDF it is observed that only three units out of the sample units covered have availed this

facility which was the tune of Rs. 28.8 lakh.

3) However, the spread of assisted units has been uneven with Southern and Western

regions having shown very good performance, followed by the Northern region. The

performance in the NER states, Eastern states and Madhya Pradesh and Chhattisgargh in

the central region is however far from satisfactory.


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4) About 74% of the agribusiness units have been set up in rural areas and another 18% in

semi urban areas and remaining 8% in urban areas, catering to the raw materials

produced in hinterlands and creating both on-farm and off-farm employment

opportunities for the rural work force.

5) It was observed from the sample units visited that 37% of them were partnership

concerns, 37% private limited companies, 17% proprietorship concerns and the

remaining 9% are public limited companies and co-operative societies. Further, 50% of

the units pertain to horticulture, 13% IQF, 11% plantation crops and remaining in the

category of medicinal plants, fisheries and cold chain etc.

6) During the study it has been observed that all the units that have started commercial

production have been earning good income. The average annual income per unit of the

operating agribusiness units has been estimated to be Rs.202.26 lakh.

7) During the study it has been observed that on an average each unit has been procuring

raw materials from 25 villages in and around the unit through informal arrangements and

from 5 villages through formal arrangements.

8) It has been estimated, on the basis of the information collected from the farmers

benefited by the sample units that on an average 71% of the produce of the farmers are

being sold to the unit. Almost 97% of farmers in the vicinity believe that the units are

providing assured market to their produce.

9) The units have benefitted 43000 farmers through selling theirs produce and provided

gainful employment to 29000 families. The average employment per unit for the sample

projects is estimated at 121 persons during the peak season, while it recedes down to 8

persons in slack or off seasons. Each unit on an average engages 6 managerial/supervisor

cadre employee and 11 skilled labour while 104 are unskilled labourers.

10) On an average, 221 farmers provided raw materials to each agribusiness unit and mostly

in raw form. The raw materials are procured from villages within a radius of 78 kms on

an average. In most cases, the raw materials are procured from the hinterlands in around

30 km from the unit. In 58% cases, the units have made their own arrangements to

procure raw materials and also to provide to and fro transport facilities to the workers

engaged in the units.

11) The development of agribusiness units in rural areas has also induced ancillary activities

and other support services in the vicinity and created a driving force for economic

development of the regions concerned.


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12) Since, the projects have to be linked with a bank branch to avail term loan for grounding

of project and to be eligible for availing the VCA, the role of banks becomes crucial not

only in terms of extending the term loan and working capital requirement but also in

terms of bankers awareness and knowledge of the scheme. Presently the VCA scheme is

available through SBI and its associates, nationalised banks and the IDBI. During the XI

FYP, it was observed that 36 banks participated in the project and among others, SBI

and its associates financed 22% of the projects. The banks such as Regional Rural

Banks, Cooperative Banks and Private Sector Banks are not covered under the scheme.

It was observed during the field visit that the banks had taken due care as per the

prescribed norms while appraising the projects / sanction of term loan before forwarding

the VCA application to SFAC.

13) The knowledge and awareness of the scheme at branch level is not found to be

satisfactory. In 44% of the cases, the information of the scheme is available only at

Regional Office level. Since, Banks are the most important channel in promoting the

VCA this underlines the need for greater efforts by the Banks at block, district and state

level towards creating awareness of VCA Scheme

14) In 52% of the cases, the average number of days to get VCA sanctioned is more than 100

days. However, during the desk review it was observed that certain procedural changes

have been made during the last two years which resulted in reduction of time taken for

sanction to some extent. The introduction of Project Scrutinizing Committee Approach,

properly designed check list and format of application to be received from the banks has

enabled the process of preliminary scrutiny simpler and speedier. Yet there is a scope

and need to further streamline the process of scrutiny and sanction of VCA assistance.

15) There is not much awareness about the scheme among the beneficiary agripreneurs as

well; possibly because the whole work associated with VCA was attended by their

consultants. Many of the agripreneurs were not aware of the objectives of the scheme or

have only partial awareness of the objectives of the scheme.

16) Out of sample units studied, 14% are found to be located in notified Agri-export Zones.

17) The sample units have been processing the agricultural produce from an area covering

about 95976 acres and out of this, 14198 acres have been brought under the crops afresh

as crop diversification took place in these lands from other less remunerative crops. The

change in cropping pattern effect and the price effect has caused incremental income of


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Rs.20875 per acre on an average for the farmers supplying raw materials to the

agribusiness units.

E. Recommendations and Suggestions:

State/ Region wise FocusI. It would be advisable that SFAC undertakes a quick assessment to identify state / region

wise potential and even the pockets identified with specific agricultural produce, and then

begin with a system of annual internal projections (not targets) to assist the units. The

projections have to be arrived at in consistence with the other promotional efforts and be

made flexible vis-a-vis progress in promotional efforts and other ground realities and be

reviewed on a periodical basis.

Awareness Generation among StakeholdersII. In order to upscale the VCAS, it is necessary to create widespread awareness about the key

features and benefits of the Scheme among the various stakeholders. In this regard it is

recommended that SFAC may arrange to organise Bankers and other stake holders

Meets from time to time; involve the SLBC Convenor and state level NABARD office and

major banks; and to see that VCA scheme is a part of the review procees at SLBC, DCC,

DLRC and other levels. Engagement of promotional organisations and a few entrepreneurs

in state level meets can enhance the process.

Covering new FIs/ BanksIII. The SFAC may consider to involve RRBs, Coop. Banks and Private Commercial

Banks in the scheme and a beginning may be made with the RRBs. Similarly SFAC may

explore extending the scheme through more financial institutions e.g. SIDBI, NEDFi,

NCDC etc.

State SFACsIV. No state SFAC has sanctioned any VCA cases at their level, but, a couple of state SFACs

have, however, forwarded a good number of project proposals to central SFAC. The SFAC

should have a relook into the roles and responsibilities of the state SFACs. The SFACs

presence at state level needs to be stregthened with exclusive staff with undivided focus or

at least to give them annual programme of promotional activities and to monitor their

performance periodically.


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Sanctioning SystemV. As has been understood, at present the entire proposal is examined in detail at SFAC level,

which in a way also involves re-examining what the financing bank has already examined

for sanction of term loan. This can result in avoidable delay. The process can be expedited,

if SFAC scrutiny commences with reference to the banks sanction order onwards. This

will help expedite the process of sanction and release. It is suggested that once the

requirements of preliminary scrutiny are met, the onward process of sanction should be

completed within 30 days. However, if and when the proposal is to be covered under the

suggested credit guarantee scheme and the SFAC becoming a major stake holder, a more

detailed scrutiny may be done and the pre-screening and sanction process may go upto 45

days.

Threshold Limit for Project Outlay VI. During the meetings with bankers and promotional organisations etc. organized by

NABCONS at Bhubaneswar, Guwahati and Bhopal it transpired that there is a need to

suitably lower the present threshold limit of financial outlay on the project size.Such a

lowering of the threshold limit for project outlay assumes significance in particular, in

view of the 250 FPOs being promoted. The FPO units may require ancilliary infrastructure

such as sorting and grading units, storage facilities, mini dal mills, vegetable dehydration

units, vending units, kiosks etc. In tribal areas these could be rural godowns, wild honey

processes units, herbal and medicinal units etc. involving investment less than Rs.25.00

lakhs.The study therefore recommends that under the Venture Capital Scheme the

threshold limit could be reduced to Rs.10.00 lakh, for the units promoted by Farmer

Producer Organisations, NE and hilly States, Eastern States, Tribal Areas and in backward

areas. Threshold limit for others is recommended to be lowered to Rs.25.00 lakhs.While

adopting the lowering of the threshold limit, SFAC may either have to decentralize the

sanctioning and disbursal mechanism by involving partner financial institutions or will

have to expand its present organization setup to meet the huge demand that this move will

generate.

Quantum of VCAVII. The sampled units studied revealed that promoters contribution on average (including the

VCA amount) is 40% of the project cost which is considered to be on a higher side.

Further, the norms have to liberalised for the FPOs who may not have the adequate


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resources to the extent required towards the promotors contribution to avail the bank loans.

It is therefore recommended that VCA amount may be revised to 25% of the project cost

(provided the promoters equity is at least 15%) for the NER, Hilly states/ Eastern States/

Tribal areas/ Backward notified districts and FPOs with a ceiling of Rs. 100 lakh. For

other categories VCA could be 15 % of the project cost or 35% of the promoters equity or

Rs. 100 lakh, whichever is less.

Incentive to the Financing banksVIII. The banks partnering in the scheme have to incur additional expenditures in administering

the scheme till the VCA amount is fully repaid. It would therefore be advisable to have

some financial incentive, for the banks towards this, which will also encourage the banks

to promote the scheme. The matter has been given a further thought and it is recommendedthat that there could be a provision for financial incentive to the financing banks.

Guarantee CoverIX. The SFAC is presently promoting 250 new FPOs and to be fully operational and

successful these units may face constraints of no big resources to offer as collateral for

bank loan, capital base to take up big units and lack of entrepreneurial experience etc. This

necessitates the requirement of special consideration and handholding to the FPOs.To

mitigate the likely problems of resource base for collateral and lack of enoughentrepreneurial experience, which may deter the financial institution from financing such

units, it will be necessary to have some sort of credit guarantee cover for the units set up

by the FPOs. This can be a 100% cover (as compared to 75% in the credit guarantee

scheme set up by the Ministry of Micro, Small & Medium Enterprises (MSME),

Government of India and SIDBI. SFAC may consider making a cautious and small start

and after gaining some experience and in accordance with the nature and size of FPO

projects coming up, may gadually expand the cover. Further, the performance of the unitscovered under the proposed cover may have to be monitored closely on a regular basis.

Scope of Activities.X. SFAC may consider expanding the scope of activities for VCA facility. Specifically it

may consider including dairy activities and farmer oriented poultry units with total capital

outlay of, say, upto Rs. 500 lakh. SFAC may also study the VCF Scheme implemented

through NABARD for subsidizing interest component on portion of the bank loan as an


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incentive for prompt repayment, in view of present high rate of interest being borne by

VCA beneficiaries.

Coordination / Collaboration with NABARD, NHB, MoFPI etc

XI. It will be helpful in refining and increasing the outreach of the VCA scheme of SFAC ifthere is a regular coordination with Institutions / Ministries / Departments like NABARD,

NHB and MoFPI etc. to keep updated with their schemes and policy initiatives. However,

SFAC may not simply adopt the schemes of these institutions but maintain the identity of

its unique intervention of VCA.

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CHAPTER 1 INTRODUCTION

1.1 Background

Agriculture is the most important economic activity for about 70% of the population in

India employing more than half of the total work force. However, nearly seventy five percent of

total operational holding is small and marginal in nature which is spread to almost one fourth of

the total area. Majority of small and marginal farmers who cultivate on these lands grow mainly

low value, subsistence crops. Lack of adequate employment opportunities, both farm and off

farm they are forced to live below poverty line. Land being scarce resource, the situation is

expected to worsen because of growing population leading to further fragmentation which will

limit the scope of further increase of additional production through subsistence farming.

Out of several factors contributing to the present state of Indian agriculture, one

important reason is lack of adequate market and value additions to agricultural and allied

produce, which makes agriculture, a less attractive and low remunerative occupation for many in

rural India. Retention of rural population, especially the youth, in agriculture and their place ofdomicile is also a challenge. In such a situation, there arises a need for diversification and

commercialization of small farms within and outside agriculture, such as capital investment in

value addition and marketing in the primary sector to ensure economic sustainability of small

and marginal farmers and establishing proper integration with domestic and global markets. This

is intended not only to bring the small and marginal farmers out of poverty trap but also to meet

the countrys growing demand for processed food products such as fruits, vegetables, milk and

its products, meat, fish, egg, etc. which is growing linearly with growing per capita income.

In addition to unsustainable land holdings and low productivity, post harvest loss to an

extent of upto 24% [conservative estimates] arising out of inadequate processing facilities is the

major weakness in development of overall agriculture in the country. Efforts to bring capital and

technology together for establishing agriculture based industries are seen as an opportunity not

only to absorb surplus labour and provide relief to the problem of large scale disguise

unemployment but also to establish efficient linkages between the producers and the consumers

which will increase producers share of consumers income.


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The agribusiness activity which spans pre-harvest/post harvest/ post-farm function,

including consolidation, storage, grading, packaging, transport, credit supply marketing,

processing, retailing, export, investing on infrastructure for such value addition shall definitely

provide a stimulus for boosting regional rural economy.

Also, farming being the single largest private sector economic activity in the country, the

growth potential in this key sector is immense in view of changes taking place in food

consumption and growing demand for high value processed products. Success in such endeavour

will require innovation and partnership

The Venture Capital Assistance (VCA) Scheme of Small Farmers' Agri-Business

Consortium (SFAC) is a step forward to promote agri-business and agripreneurs that link to thedevelopment of small and marginal farmers as well as contribute to the welfare of landless and

weaker section of village communities by providing them employment opportunities in locale.

SFAC has been extending interest free venture capital assistance to agri-entrepreneurs for

establishing agri-business units since 2005. During the XI Five Year Plan period (upto 31 st

March, 2011) SFAC has sanctioned venture capital assistance of Rs.120.17 crore that resulted in

establishment of 409 agribusiness units, benefitting about 43,000 farmers through selling their

produce. These projects have also generated gainful employment opportunities for nearly 29,000

persons in rural areas. Year wise progress of VCA for the XI Plan Period is presented in table

1.1 below.

Table 1.1: Progress of VCA Scheme during XI Five Year Plan Period (upto 31 stMar 2011)

Year Financial(Rs. in crore)

Physical(No.)

TotalProject

Cost(Rs. incrore)

VCA(Rs. incrore)

FarmersLinked(No.)

Employment(No.)

Projected Achieved Projected Achieved

UB* 6.972007-08 15.64 19.51 65.00 68.00 179.06 19.51 7,827.00 4,820.002008-09 17.20 18.43 65.00 58.00 173.68 18.43 8,979.00 4,833.002009-10 16.24 20.34 65.00 77.00 260.47 20.34 4,828.00 5,932.002010-11 26.31 24.01 65.00 85.00 353.18 24.01 11,003.00 7,689.002011-12 36.30 37.88 65.00 121.00 290.48 37.88 10,210.00 5,690.00GrandTotal 118.66 120.17 325.00 409.00 1,256.87 120.17 42,847.00 28,964.00

Source: SFAC*Unspent balance of X Plan Period.


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1.2 Salient Features of the Venture Capital Assistance Scheme

The prime components designed by SFAC under its Venture Capital Assistance Scheme

(VCAS) are its Venture Capital Assistance (VCA) to agri-business undertakings and its Project

Development Facility (PDF) to assist producer, producer groups/ organization, units in Agri-

Export Zones and agriculture graduates in preparation of economically viable Detailed Project

Report. The scheme also envisages single window approach in association of financing bank for

extending venture capital with term loan and working capital to agribusiness applicants. Once the

financing bank approves the qualified project, venture capital would be extended to the account

of applicant which is interest free and could be repaid back after completing the repayment of

term loan. Venture Capital extended as a soft loan is expected to supplement the financial gap

existing under means of finance with respect to cost of project. However, the VCA could be

availed subject to fulfillment of the following conditions:

i. The project should be in agriculture or allied sectors promptly in product which are

perishable in nature such as horticulture, floriculture, medicinal and aromatic plants,

minor forest produce (MFP), apiculture, and fisheries. The projects in dairy and poultry

sectors have been excluded.ii. The project should be able to provide assured market to farmer/ producer groups i.e

catering the needs of supplier

iii. The project should create potential in terms of diversification of high value crop and

henceforth increase incomes both at the level of supplier and procurer, which in this case

could be an agri-business unit.

iv. Project should be viable in nature and should be accepted by bank for grant of term loan.

1.2.1 Objectives of VCA Scheme

The broad objective of the VCA Scheme is to promote agri-entreprises for value

additions to agricultural and allied produce such that the small and marginal farmers get benefit

out of it. The specific objectives of the Scheme are: -

i) To facilitate setting up of agri-business ventures in close association with banks.


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ii) To catalyze private investments in setting up of agri-business projects and, thereby

providing assured market to producers for increasing rural income & employment.

iii) To strengthen backward linkages of agri-business projects with producers.

iv) To assist farmers, producer groups and agriculture graduates to enhance their

participation in value chain through Project Development Facility.

v) Arranging training, field visits, etc. of agripreneurs setting up identified agri-business

projects.

1.2.2 Venture Capital Assistance (VCA) Component

Under VCA Scheme, SFAC provides equity support to qualifying projects on therecommendations of the bank financing the project. This equity capital is repayable to SFAC

after the project has repaid the term loan to the financing bank as per the original repayment

schedule or earlier. The quantum of SFACs VCA depends on the project cost and is the lowest

of the following:

1. 10% of the total project cost assessed by the bank;

2. 26% of the project equity;

3. Rs.75.00 lakh

The ceiling of VCA differs and cap is more, provided the project is located in the North-Eastern

and Hilly States. In such a case the quantum of VCA could be the lowest of the following:

1. 25% of the total project cost assessed by the bank

2. 40% of the project equity

3. Rs 75 lakh whichever is the lowest

Apart from the above criteria, SFAC could also consider high VCA to deserving projects on

merit and/or to projects that are located in remote and backward notified districts, North Eastern

and Hilly States recommended by the State Agencies subject to maximum of Rs 3.00 croreOne mandatory provision for VCA is, the project seeking VCA from SFAC must be

credit linked and currently the financing institutions like the Nationalized Banks, SBI & its

subsidiaries and other commercial banks are eligible to recommend for VCA under the Scheme.

1.3 Need for the Study

The VCA scheme of SFAC has been operational since 2005 and performed quite well

during the XI Five Year Plan (2007-2012). Against a projection of extending VCA to 325


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projects during the XI Five Year Plan, SFAC has extended VCA to 409 projects thereby

achieving 126% of the projected numbers. From Table 1.1, it can be observed that physical

projections for each year of the five years plan have been successfully achieved.

However, a preliminary review of the progress of the scheme reveals that the take-off of

VCA has remained uneven across various states as well as different regions of the country.

While, the Scheme has been successful in achieving its objective of bringing in private

investment into agri-business and strengthening of backward linkages in the agriculture sector

during the XI Plan period, there are regions/states where the scheme has not penetrated to the

desired extent. For example, while there has been tremendous response for the VCA Scheme

from states in the western and southern region like that of Maharashtra, Kerala and Karnataka,

the same could hardly take off in several states in the northern and eastern region which include

states like Punjab and Haryana having tremendous potential for agri-business, and those others in

the eastern region viz. Orissa, West Bengal, Bihar, Jharkhand, Chhattisgarh, etc. . There is thus

a need to look into the reasons for very low off-take of the scheme in certain states as also its

spatial disparities across states and different regions of the country. Further, before entering the

XII Five Year Plan, it is equally pertinent to evaluate the progress effectiveness and impact of

the VCAS vis-a-vis the set objectives of the scheme with a view to carry out required policychanges in the scope of activities, coverage of institutions, quantum of assistance and refinement

in the operational guidelines. Accordingly, SFAC has assigned the responsibility to NABCONS

to conduct an elaborate and comprehensive evaluation of the scheme with given Terms of

Reference.

1.4 Terms of Reference

The terms of reference of the study are as under:

a) The projects assisted by SFAC during the XI Plan period under VCAS would be evaluated

on purposive random sampling basis covering a minimum of 10% of the total projects.

b) The Study would bring out the impact of implementation of the scheme with reference to

the various objectives such as, setting up of agribusiness units near the farm gates,

catalyzing private investment, strengthening of backward linkages, training of stakeholders,

utilization of PDF to encourage the progressive agripreneurs to involve in value chain;


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arrangement with the Farmers/Farmer Groups and metamorphosis of small farmers into

agripreneurs.

c) To ascertain the trend in terms of regional spread, type / legal status of agripreneurs, size of

units assisted, etc. and to ascertain the reason for slow off-take of the scheme in certain

regions/states of the country.

d) To study the timeliness in grounding of the project, identify the factors responsible for

timely / delay in commercial production.

e) To examine the issues of extending implementation of the Scheme through RRBs,

Cooperative Banks, NBFC, SIDBI, etc. and whether involvement of such agencies in the

past could have impacted the outreach of the scheme . f) To examine in detail whether there is any need to link the VCA scheme to availability/

quantum of central / state govt. subsidy for any particular scheme/activity and to make

suitable variation of the quantum of VCA depending on availability of such subsidy subject

to a cap or upper limit.

g) To examine whether the SFAC can stand as guarantee for any entrepreneur/unit in order to

enable the latter to have better access to institutional credit, in the event of the latters

failure to bring forth adequate security / fulfil other eligibility for institutional

finance/credit support.

h) Review of/ observations on the cap on project outlay and adequacy or otherwise of VCA

assistance amount.

i) To look into the adequacies, initiatives/interventions required for policy measures,

operational guidelines in respect of involvement of entrepreneurs and acceptability by the

banks for enhancing credit flow to the agribusiness projects.

j) Issues, if any observed, related to the avenues for the FPOs to grow and thrive.


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CHAPTER 2 RESEARCH DESIGN & METHODOLOGY

In order to evaluate the performance of the VCA Scheme, as required as per the Terms of

Reference, the study has undertaken a holistic approach to collect reliable data on select

parameters such as nature of business, investment, employment, procurement of raw materials,

production, impact of production activities on cropping pattern of farmers, value addition, main

saleable products, marketing cover and incremental income from the investment etc. as also to

cover as many stakeholders as possible viz., agriprenuers, farmers, bankers, SFAC / Govt.officials, etc. with a view to arrive at the impact and to suggest measures, if any, for further

refinement of the Scheme. For this purpose, the study devised suitable research design to conduct

a comprehensive evaluation exercise across the country. In doing so, an effort has been made to

collect relevant data from selected sample units supported under VCAS and to gather

information from the stake holders through appropriate study tools.

2.1 Sampling Design

The study is based on analysis of both primary and secondary data collected from

different stakeholders of the scheme viz. beneficiary Agriprenuers, Farmers, Financing Banks,

State SFACs, and concerned Govt. officials with a view to arrive at an "accurate / nearest to

accurate" level of information to evaluate the performance of the Scheme implemented during

the XI plan period and suggest measures, if any, for further refinement of the Scheme and

strengthening operational procedures. Discussions were also held with other selected agencies

[non-participants in the scheme] such as SIDBI, National Horticulture Board, MOFPI, Regional

Rural Banks, Cooperative Banks, NBFCs, etc. to understand the peculiarities of the VCA schemerelative to other similar operational schemes and identify factors that deter the VCA Scheme

from wider coverage.

2.1.1 Sample Selection

To conduct an in-depth study for arriving at results with respect to objectives of the

study, purposive stratified random sampling method was applied to select sample projects


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assisted under VCAS and Banks that provided term loan to the respective sample units. For

detailed analysis, 41 sample projects, spread across 13 states (Annexure-II) were selected for

conducting the detailed study. During the XI Five Year Plan Period, projects in as many as 25

states were supported under VCA Scheme. As a first step of sampling, the states have been

stratified into groups according to geographic regions. States having maximum number of

projects in respective region were identified for selection of project units. In the second step, the

projects in the selected states were grouped into broad categories based on their activities and

sample projects were selected from each and every major activity. From every major activity one

or two projects have been selected randomly for collection of primary information for in-depth

analysis under the study. Adequate care was taken in the sampling process to cover the spread ofselected projects across the country as well as over a cross section of activities so as to give

proper representation of regional and activity-wise spread of the agri-business units supported

under VCA Scheme. The identification of sample projects was primarily based on the following

criteria: -

i. Minimum 10% coverage of the population of VCA during XI FYP.

ii. Selection of sample projects from all geographic regions with concentration of projects

sanctioned with VCA.

iii. Coverage of all major categories of activities in selected States.

iv. Subject to the ceiling of 50% in each State, coverage of all geographical regions/Districts in

the State; and

v. Maintenance of balance between units with high levels of Venture Capital Assistance

(VCA), i.e., over Rs.25 lakh, and those with average levels.

2.1.2 Geographic Spread of Sample projects

The sample projects were found to be spread over 13 states, with a minimum of one

project from Haryana and with a maximum of five projects from Karnataka and Maharashtra

states. States from all geographic regions of the country were covered. Sample projects were

selected giving priority to include maximum categories/types of activities. The state-wise

distribution of sample projects has been given in Table 2.1.


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Table 2.1: State-Wise Distribution of Sample Projects

Sl No. State No of Sample Projects

1 Andhra Pradesh 42 Assam 33 Gujarat 24 Haryana 15 Himachal Pradesh 36 Jammu & Kashmir 47 Karnataka 58 Kerala 39 Maharashtra 5

10 Meghalaya 211 Tamil Nadu 412 Uttar Pradesh 213 Uttarakhand 3

Total 41

2.1.3 Year-wise Spread of Sample Projects

Since, the broad objective of the study is to assess the impact of projects supported under

the scheme during the XI Five Year Plan, sample units were selected from each year of the fiveyears Plan period. Table 2.1 portrays the year wise spread of sampled projects. It can be seen that

sampled projects constitute overall 10% of the total projects supported under the VCAS over the

XI Plan Period (2007-2012). The sample size for 2010-11 and 2011-12 is relatively low because

many projects supported during these two years were either not completed or not in operation

after completion for a period enough to yield stabilized benefits and hence not considered.

Table 2.2: Year-wise Distribution of Sample Projects

Year Total Unitssupported (No)

SampledUnits (No)

SamplePercent

2007-08 68 11 16%2008-09 58 7 12%2009-10 77 16 21%2010-11 85 6 7%2011-12 121 1 1%Total 409 41 10%


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Figure 2.1 below presents the percentage distribution of sample spread over each year of XI Plan

Period.

Figure 2.1 Year wise distribution of Sample Projects

2.1.4 Activity-wise Spread of Sample Projects

The principal activities among the units supported under VCAS during the XI FYP were

among categories belonging to horticulture such as pulp extraction from mangoes, processing

and extraction of wine from grapes, pineapple processing-jam and jelly production, vegetable

processing that includes both frozen food products with Individually Quick Frozen Technology

(IQF), dry fruits processing including kernel extraction from cashew, walnut, almonds, coconut

processing etc. While selecting the units based on the broad activities care was taken while

sampling so that every type of units should get a proper representation in the sampling along

with other activities such as cold storage, packaging and extraction and storage of medicines

from Medicinal and Aromatic Plants, fish processing and packaging, honey extraction and

processing, cut flower production, minor forest produce and export oriented units. Figure 2.2

below presents the distribution of sample based on the activities supported by VCAS and falling

under the study sample.

(2007 08), 16%

(2008 09), 12%

(2009 10), 21%

(2010 11), 7%

(2011 12), 1%


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Figure 2.2 Activity wise distribution of Samples

2.2 Data Collection

Both primary data and secondary data were collected and analysed during the study to

arrive at desired conclusion with respect to specific objectives of the study. The secondary data

source is mainly SFAC, select web-sites pertaining to the MoAC, MoFPI, National HorticultureBoard, and SIDBI etc. Data collected from SFAC included, State-wise distribution of projects

assisted under the scheme and other associated details such as location, particulars of the

agripreneurs, types of commercial activities, names of the concerned financing Banks, and

quantum of VCA approved and released etc.

Primary data were collected through personal interview method by using structured

questionnaires developed in synergy with the objectives of the study one each for use in the

course of interview with the agripreneurs/promoters, with the financing bank and with groups of

farmers. This was developed to ensure coverage of all the aspects during the proposed

discussions. The questionnaires were developed keeping in close view the core objectives of

field visits - verification/revalidation of the initial indicators and markers delineated during the

analyses of primary data with spotlight on realistically assessing the levels of actual achievement

of the two key objectives of the Scheme generation of employment and increasing incomes for

0

2

4

6

8

10

12

14

Vegetable Deydration

& Packaging

Fruit Processing

Nuts Processing

Medicinal Extracts

Cold Storage

Aqua Culture

Honey Processing

Cut Flowers

13

11

7

3 32

1 1

N u m b e r s


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the rural masses through backward linkages. The Questionnaires are enclosed as Annexure -II to

this Report.

Pre-visit discussions were held with SFACs top officials in New Delhi on the proposed

list of identified projects for the actual study, raison d'tre for each query in the three sets of the

Questionnaires, visit programme to the 13 States. The List of the 41 projects for the visit and the

Questionnaires were approved by SFAC.

Field visits were conducted between December 2011 and January 2012 to the concerned

41 Projects in the 13 States for collection of primary /secondary data at the ground level through

formal interactions/discussions/direct personal interviews with the stakeholders - the nodal

agripreneurs, the financing bank and the farmers who have benefitted from the respective projects. However, detailed information could be collected from 38 sample units only due to

non-availability of concerned promoters/agripreneurs of 3 selected units during visit by our field

teams to the concerned locations. Discussions were also held with Lead District Managers of the

concerned District and Technical/ Financial Consultants of the concerned SFAC assisted project

subject to their availability on the date of visit. Subsequently, Delphi technique was applied in

order to ascertain the accuracy of relevant data/information collected for the study.

Post-visit discussions were held by the District Development Managers (DDMs) of

NABARD posted in the concerned Districts on the following aspects:

i. Perception and understanding of the financing banks with regard to the objectives of the

Scheme and the role played by them in popularization and dovetailing of the Scheme

with regular financing of agrienterprises by them as priority sector lending under their

normal business operations.

ii. General level of awareness as well as responsiveness about the Scheme among bankers/

Lead Bank Officers/Lead District Managers of each covered District and the ways thatcould be devised and grounded for enhancing the outreach and efficacy of the Scheme

deeper into the rural hinterland.

iii. General appraisal of the ground level credit flow from the financing agencies towards

rural farm/non-farm sectors in some sample districts, especially those having large

potential for food and agro-processing, value-addition sectors that normally have the


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maximum scope for backward linkages with the farmers in rural areas, and determining

the actual coverage of that potential by the real benefits of the Scheme.

iv. Informal perception/views of the local associations of agripreneurs such as Chamber of

Commerce and Industries, Multi Activity Cooperative Societies, active Farmers Clubs,

etc. on the possible areas where such backward linkages of the eligible units under the

scheme with the farmers in the rural areas could be possible. This also covered the ways

and means through which such formal/semi-formal entities could assist not only in

popularization and effective grounding of the scheme but also in further strengthening of

backward and forward (market support) linkages between the agri-enterprises and the

farming communities;

Independent reality check on the actual impact of the assisted projects, vis --vis the

intended objectives, based on the deductions and conclusions derived from the preceding stages

have been done with a view to minimize biases in data.

Evaluation of the extant operational guidelines of SFAC and an estimation of its ground

friendliness from the view point of the beneficiaries and other stakeholders like bankers and then

coming up with suggestions and desired modifications in the guidelines to make them more

effective.

State level workshops at three different regions, Bhubneshwar, Guwahati and Bhopal

were also conducted as a part of evaluation of VCAS implemented during the XI Plan Period

with objectives to obtain views and feedback on the scheme from various stakeholders such as

banks, government officials, and promoter organization. In addition, visits were also made to a

RRB, Cooperative Bank and Private Commercial Banks to gain their experiences and views on

VCAS.

2.3 Data Analysis

Data collected from both primary and secondary sources were tabulated in MS-Excel

spread sheets that facilitated analysis of data using statistical tools like tabular presentation,

graphical representation using pie diagrams and bar diagrams for the purpose of highlight

various aspects pertaining to the study. In addition to this, subjective data collected during the


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period of information gathering were also used and analysed to arrive at conclusion with respect

to the objective of the study.

2.4 Study Team

The study was conducted by a team of Officers drawn from NABCONS Head

Office/Regional Offices who have relevant expertise and experience. The overall team consisted

of two structures - state wise Field Teams that collected the field data and assessed individual

projects and a Core Team at NABCONS, Zonal Office, New Delhi which was in the charge of

planning, carrying out discussions with the Client i.e. SFAC, development of analytical tools,

finalization of questionnaires, writing of the reports and overall coordination. As for the fieldteams, its constitution was in sync with the specific demands of the subject assignment and,

hence, were made multi-disciplinary in nature, comprising 2 Members an Evaluation Expert

and one subject Expert viz. Horticulturist, Expert in Bio-Technology, Civil/Agricultural

Engineer, Expert in Food Processing etc., depending on the project(s) being identified for

evaluation in a particular state.


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CHAPTER 3 CONTEXTUAL BACKGROUND AND IMPLEMENTATION OF THE SCHEME

DURING XI PLAN PERIOD

3.1 Overview

The efforts of SFAC towards promotion of the Venture Capital Assistance Scheme have

been evenly focused and directed towards all the States of the country. This is well reflected in

the presence of State-level SFACs and Nodal Agencies in most of the States in India which are

directing their efforts on development of agri-business sector in the concerned States. The overall

progress of the scheme during XI Plan period is found to be excellent in so far as the physical

and financial achievements are concerned. During the period of 2007 to 2012, a total of 409 units

were sanctioned VCA against the projected 325 units thereby achieving 126% of total physical

projection. Similarly, as against a financial outlay of Rs. 118.66 crore, the total amount released

during the period as VCA had crossed Rs. 120 crore, thereby achieving more than 100% of the

projected outlay. Figure 3.1, indicates the growth pattern of agribusiness units during the plan

period both in physical and financial terms. The positive growth in number of units and VCA

availed; reflect the future demand of financial resources to be put in the sector and catalyzeagripreneurs private investor to take up activities under the agri-business sector.

Figure 3.1 Number of units versus sanctioned VC during XI FYP (2007-2012)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2007 08 2008 09 2009 10 2010 11 2011 12

V C A a p p r o

v e d ( i n c r o r e )

N o o f A g B u s U n i t s

Units (No) VCA Approved (in Crore)


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However, it has also been observed, that the response to the VCAS differed from region

to region and state to state, which might be the result of several external factors other than the

innate content and strength or weakness of the scheme itself. These factors could range from

geo-spatial location of the state, general agro-climatic condition, available infrastructure such as

power, water, market etc, availability of raw material to intrinsic entrepreneurial skills, interest

of native population and prevailing policy of the respective states towards agriculture and the

agri-business sector. Notwithstanding the critical influence of above mentioned factors on overall

performance of the Scheme in a particular state, a close examination of the distribution pattern of

the assisted projects reveals that there has been intra as well as inter-regional variations in

distribution of projects. In subsequent paragraphs, the distribution of projects and the probablereasons for variations have been discussed.

3.2 Spatial Distribution

During the XI Five Year Plan, 3 states, viz. Maharashtra, Tamil Nadu and Karnataka

accounted for 52% of the total projects sanctioned with VCA, while 3 other states viz. Uttar

Pradesh, Himachal Pradesh and Kerala accounted for another 20% projects that were sanctioned

VCA. Out of 409 projects sanctioned with VCA during the entire plan period, 113 (28%)

projects were sanctioned in Maharashtra alone followed by 56 (14%) in Karnataka and 43 (11%)

in Tamil Nadu. This clearly indicates that more than 72% of the total projects sanctioned under

VCAS are located in six states, while the rest 28% are shared among the other 19 states. Figure

3.2 below presents the state wise distribution of projects in a descending order.

While analysing the data region wise, which is classified based on Reserve Bank of India

(RBI) guidelines, the spread of VC assisted projects is found to be concentrated mostly in South

and West Zone accounting for 67% of the total sanctioned projects approved during the XI Plan

Period. South Zone states which consist Karnataka, Tamil Nadu, Kerala and Andhra Pradeshtogether accounts for 138 projects out of 409 which is 34% of the total sanctioned projects under

VCAS during XI Plan. West Zone (Maharashtra, Goa and Gujarat) stands second next to the

South Zone in terms of total number of projects assisted with a total of 135 projects which is

33% of the total projects. Similarly, in North Zone, a total of 106 (26%) projects were sanctioned

during the period. However, during the same period, the three remaining Zones viz. the North

East (Assam, Manipur, Arunachal Pradesh, Nagaland, Meghalaya, Mizoram and Sikkim), East


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Zone (West Bengal, Orissa and Bihar) and Central Zone (Madhya Pradesh and Chattisgarh) have

been able to get approval of only 30 projects under VCAS, which is 7% of the total VC assisted

projects (Figure 3.2) during XI Plan.

Figure 3.2: State wise distribution of projects assisted under VCAS (2007-2012)The above confirms that there has been an uneven spread of VCA assisted projects across

different geographic regions of the country. The locational disadvantages in North Eastern

Region may be the deterrent for investments under agribusiness in the region. The takeoff of the

scheme is also far from satisfactory in the Eastern Zone states consisting of West Bengal, Orissa,

Bihar, and Jharkhand as well as the states in the Central Zone such as Madhya Pradesh and

Chhattisgarh where only 10 projects were sanctioned over the period of five years (2007-2012).

These states are primarily agriculture based states and have adequate investment potential for

agro-based industries. Slow off-take of the VCA scheme in these regions and states as compared

to other regions needs a separate and intensive study.

Distribution of projects within the regions over the five years of the XI Plan Period has

also remained skewed. For West and South Zone, the sanctioning of projects over five year has

remained more or less even. The North Zone has shown a growth trend, however maximum

number of projects (59) have been sanctioned during the 2011-12. In North East, maximum

projects (8) were sanctioned during the first year of XI FYP, which afterwards declined over the

1 1 3

5 6

4 3

3 2

2 4 2 4 2 1

1 5 1 4 1 2 9 1

1 7

4 4 3 4 3 2 3 1 1 1 1 1

0

20

40

60

80

100

120


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next four years of plan period. In the Central and Eastern regions only 5 and 4 projects were

sanctioned over five years of XI FYP and majority of which were sanctioned in the last year of

the FYP. No projects were sanctioned during the year 2008-09 and 2009-10 in East Zone States

namely West Bengal, Orissa, Bihar, Jharkhand and Sikkim could not avail the support of VCA

during the stated period and only one project each during 2007-08, 2010-11 and three projects

during 2011-12 were sanctioned (Figure 3.3).

Figure 3.3: Region wise distribution of projects assisted under VCAS (2007-12)

State wise, region wise and year wise distribution of projects during the XI Five Year Plan

period is given in Annexure-IV.

West Zone, 135, 33%

South Zone, 138, 34%

North Zone, 106, 26%

North East, 20, 5%Central Zone, 5,

1%East Zone,

5, 1%


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Figure 3.4: Region wise trend of VCA Sanctioned during XI FYP (2007-12)

A close look into the intra-regional variation of projects distribution reveals that within

the region also the distribution of projects remained highly skewed. In North Zone, maximum 32

projects during the XI FYP were sanctioned for Uttar Pradesh and 28 of them were sanctioned

during 2011-12. The next state is Himachal Pradesh where 24 projects were sanctioned almost

evenly during the Plan Period. Punjab has remained at the bottom of the ladder with just 4

projects. Among other Northern Region states/UTs, Delhi and Chandigarh could not avail a

single project. States like Punjab and Haryana, despite being best performers in agriculture,

horticulture production and allied activities, could achieve VCA level of just 4 and 11 units only,

respectively. Even the off take in Jammu & Kashmir (with 14 units) is found to be far from

satisfactory when the performance is judged in terms of huge potential of the state in

horticulture, floriculture and dry fruit production and agro-processing.

Similarly, in the West Zone, Maharashtra remained the leading state with 113 projects

and sanctioning also took place more evenly during all the five years of XI FYP. Gujarat, which

is another good performer state (21projects), showed steady flow of projects during the first 3

years but slowed down during the remaining two years. Comparatively, in South Zone, all the

states which participated in availing VCA except Pondichery, has fair distribution of projects as

can be seen in table presented in Annexure-IV. The details of region wise, state wise and year

wise breakup of project sanctioned under VCAS can be seen in Annexure-IV.

2007 08 2008 09 2009 10 2010 11 2011 12West Zone 27 17 26 33 32South Zone 23 27 31 36 21North Zone 8 13 15 11 59North East 8 1 4 3 4Central Zone 1 0 1 1 2East Zone 1 0 0 1 3

0

10

20

30

40

50

60

N u m b e r s


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3.3. Bank wise Distribution

One of the salient features of the VCAS is that, the project should be credit linked with

Nationalized Banks, State Bank of India and its subsidiaries and IDBI to obtain term loan and

become eligible for availing VCA. In view of above, the role of financing banks becomes crucial

during project appraisal for assessing the viability of project, extending term loan and

recommending to SFAC for VCA and finally to the success of the project. The awareness level

of Banks as well as Branch Managers about the VCA Scheme also becomes crucial because,

unless adequate information about the scheme is available with the financing bank branch, the

scheme may not be linked to the eligible agri-business enterprise. Even though, all scheduled

Commercial Banks are eligible under the scheme, as the data available (for XI FYP), 36 Bankshave participated in the scheme during the XI FYP (Table 3.1). Although, Regional Rural Banks

as such were not invited to participate in the scheme, the Uttar Bank Khetriya Gramin Bank in

West Bengal has financed one unit along with NABARD under co-finance mode. During the XI

FYP, 25 Scheduled Commercial Banks including the associate Banks of State Bank of India and

five other Banks like IDBI, SIDBI, EXIM Bank, and one Gramin Bank & NABARD (through

co-financing mode) participated across 25 states for grounding the VCAS. Among these banks,

State Bank of India, the largest Commercial Bank of the country emerged as the largest sponsor

of the projects under the Scheme sanctioning 54 (13%) projects followed by State Bank of

Maharashtra with 51 (12%) projects and Canara Bank with 42 (10%) projects (Table 3.1). The

State Bank of India and its five Associate Banks have sanctioned 20% of the total projects which

availed VCA during the XI FYP.


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Figure 3.5: Bank wise distribution of projects sanctioned under VCAS (2007-12)

The distribution of banks with respect to number of VCA projects sanctioned during the XI FYP(2007-12) is given in figure 3.5.

5451

42

3229

21 20

1513 12 12 12 11 10 9 8 7 6 6 6 6 5

3 3 3 2 2 1 1 1 1 1 1 1 1 1

0

10

20

30

40

50

60

S t a t e B a n k o f I n d i a

B a n k o f M a h a r a s h t r a

C a n a r a B a n k

B a n k o f I n d i a

P u n j a b N a t i o n a l B a n k

B a n k o f B a r o d a

S y n d i c a t e B a n k

T h e J a m m u

& K a s h m i r B a n k L i m i t e

d

U n i o n B a n k o f I n d i a

I n d i a n B a n k

I D B I B a n k

O r i e n t a l B a n k o f C o m m e r c e

C e n t r a l B a n k o f I n d i a

C o r p o r a t i o n B a n k

S t a t e B a n k o f P a t i a l a

U n i t e d B a n k o f I n d i a

U C O B a n k

V i j a y a

B a n k

S t a t e B a n k o f H y d e r a b a d

S t a t e B a n k o f T r a v a n c o r e

D e n a B a n k

A l l a h a b a d B a n k

S t a t e B a n k o f S a u r a s h t r a

I n d i a n O v e r s e a s B a n k

S t a t e B a n k o f B i k a n e r & J a i p u r

A n d h r a B a n k

E X I M

B a n k

A X I S B a n k

T h e K a r n a t a k a B a n k

T h e L a k s h m i V i l a s B a n k

E X I M

B a n k / S t a t e B a n k o f I n d i a

H D F C B a n k

N A B A R D / B a n k o f I n d i a

N A B A R D / U t t a r B a n g a

K s h e t r y a G r a m i n B a n k

S I D B I / S y n d i c a t e B a n k

S I D B I / P u n j a b N a t i o n a l B a n k


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Table 3.1: Bank wise projects under VCAS (2009-12)

Sl Name of Banks No of ProjectsSanctioned

% of projectsanctioned

1 State Bank of India 54 13.2%2 Bank of Maharashtra 51 12.5%3 Canara Bank 42 10.3%4 Bank of India 32 7.8%5 Punjab National Bank 29 7.1%6 Bank of Baroda 21 5.1%7 Syndicate Bank 20 4.9%8 The Jammu & Kashmir Bank Limited 15 3.7%9 Union Bank of India 13 3.2%

10 Indian Bank 12 2.9%11 IDBI Bank 12 2.9%12 Oriental Bank of Commerce 12 2.9%13 Central Bank of India 11 2.7%14 Corporation Bank 10 2.4%15 State Bank of Patiala 9 2.2%16 United Bank of India 8 2.0%17 UCO Bank 7 1.7%18 Vijaya Bank 6 1.5%19 State Bank of Hyderabad 6 1.5%20 State Bank of Travancore 6 1.5%21 Dena Bank 6 1.5%22 Allahabad Bank 5 1.2%23 State Bank of Saurashtra 3 0.7%24 Indian Overseas Bank 3 0.7%25 State Bank of Bikaner & Jaipur 3 0.7%26 Andhra Bank 2 0.5%27 EXIM Bank 2 0.5%28 AXIS Bank 1 0.2%29 The Karnataka Bank 1 0.2%30 The Lakshmi Vilas Bank 1 0.2%

31 EXIM Bank/State Bank of India 1 0.2%32 HDFC Bank 1 0.2%33 NABARD/Bank of India 1 0.2%34 NABARD/Uttar Banga Kshetrya Gramin Bank 1 0.2%35 SIDBI/Syndicate Bank 1 0.2%36 SIDBI/Punjab National Bank 1 0.2%

Total 409 100%


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3.4: Activity wise Distribution

During the XI FYP under VCAS, total of 409 units were sanctioned VCA. Different form

of activities have been taken by the agri-business units which were sanctioned VCA. This on

dividing falls mainly on broad categories such as Food/ Fruit Processing, Cold Chain, Medicinal

value addition, Green House, Winery, Aquaculture, Plantation and Vermicompost. The data

revealed that around 64% (260) of the units sanctioned VCA were those of Food/ Fruit

Processing. Around 21% (87) of the total units were Cold Chain followed by 6% (24) Medicinal

value chain establishments (Table 3.3, Figure 3.6).

Table 3.2: Activity wise sanctioning of VCA during XI FYP (2007-12)

Broad Activities No of Units Sanctioned PercentageFood/ Fruit Processing 260 63.57%Cold Chain 87 21.27%Medicinal Value 24 5.87%Green House/Floriculture 20 4.89%Winery 7 1.71%Aquaculture 7 1.71%Plantation 3 0.73%Vermicompost 1 0.24%

Total 409 100.00%

A detailed list of sanctioned units, activity wise, is attached in Annexure-V.

Figure 3.6: Activity wise percentage distribution of units sanctioned

Food/ Fruit Processing

63%

Cold Chain21%

Medicinal Value

6%

Green House/Floriculture

5%

Winery2%

Aquaculture2%

Plantation1%


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3.5 Term Loan and Venture Capital Assistance

Total of 25 states across the country during the XI FYP availed the VCA. The total 409

agri-business units were established during the period with total sanctioned VCA worth Rs

120.17 crore. The analysis of zone wise sanction and disbursement of VCA revealed that the

West Zone consisting of 3 states viz. Maharashtra, Gujarat and Goa availed the highest VCA

during the period with average of Rs 943.86 lakh per state. On an average each unit established

during the period availed VCA of Rs 23.02 lakh in the West Zone. Similarly, South Zone

consisting of 4 states Karnataka, Kerala, Tamil Nadu and Andhra Pradesh availed VCA worth Rs

933.53 lakh on an average. The average VCA per unit is Rs 29.4 lakh within the Zone. The

Eastern Zone remained the most deprived availing the VCA of Rs 23.62 lakh on average, whichis significantly different from other zones. Even the average VCA availed per unit in the Eastern

Zone is found to be the lowest with Rs 17.72 lakh (Figure 3.7, Table 3.3).

Figure 3.7: Zone wise sanction & disbursement of VCA- XI FYP (2007-2012)

The data also revealed that per unit disbursement of VCA is found to be highest in North

Zone followed by Central Zone with total value of Rs 36.36 lakh and Rs 35.18 lakh respectively.

The details of average term loan, average VCA per state and average VCA per unit availed

during the XI Plan period has been given in table 3.3 below.

0.00

100.00

200.00

300.00

400.00

500.00600.00

700.00

800.00

900.00

1000.00

West Zone South Zone

North Zone

North East Central Zone

East Zone

943.86 933.53

358.43

77.39 105.5523.62

A v e r a g e V C A / s t a t e

( i n l a k h )


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Table 3.3: Zone wise average of Term Loan, average VCA per state and VCA per unit(2007-2012)

Zone/ RegionUnits(No)

AverageTerm Loan

(in lakh)

AverageVCA/state(in lakh)

Average VCA/Unit (in lakh)

West Zone 123 5560.31 943.86 23.02South Zone 127 5474.24 933.53 29.40

North Zone 69 1980.30 358.43 36.36 North East 16 271.21 77.39 24.19Central Zone 3 721.60 105.55 35.18East Zone 4 210.97 23.62 17.72

Note: The average term loan and average VCA shown in above table is based on the data available for 342 units


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CHAPTER 4 STUDY OBSERVATIONS AND FINDINGS

4.1 The Study Coverage

As has already been pointed out in Chapter 2, the present study covers altogether 41

projects in 13 States across the country for collection of primary and secondary data at the

ground level through formal interactions/discussions/direct personal interviews with the

stakeholders of the select projects viz. the project promoters and agripreneurs, the financing

Bank and the farmers who have benefitted from the respective projects. The study team members

also interacted and held detailed discussions with various other stake holders of the scheme

which included the Top Management and Desk Officials of SFAC, officials of State

SFACs/Nodal Deptt.(s) of select states, select RRBs and Pvt. Banks, representatives of

Entrepreneurs and Farmers Associations etc., with a view to having a deeper understanding of

the operational and policy issues involved with the VCAS. Further, besides having a Bankers

Meet at Guwahati, two State Level Consultative Meets were organized at Bhopal and

Bhubaneswar with a view to have wider interaction with various stakeholders and senior StateGovt. officials on key policy issues. The present chapter presents the detailed field observations

and findings of the study based on evaluation of the sample projects and our interactions and

discussions with major stakeholders.

4.2 Sample distribution by Type and Legal Status of Units

The distribution of sample by type of legal status of units is presented in figure 4.1 below. Out of

a total sample of 41, altogether 30 units were found to have been registered as Partnership and

Private Ltd Co, and rest are Proprietorship, P

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