The proposal made by the Ministry of Food Processing Industries (MoFPI) about constitution of a sector-specific financial institution has been rejected by the Prime Minister’s Office (PMO). The non-banking financial company (NBFC) for the food processing sector has found mention in last year’s Budget speech, which was aimed at giving low interest credit to the food processing units in the country.
The decision was said to be prompted by the recent development of defaulting of IL&FS.
MoFPI was working on the plan for last two years and was able to convince the ministry of finance for the same, and the finance minister, in his Budget speech, had mentioned about the formation of the finance company. This, according to the experts, was a major setback for the processing sector, which is reeling under lack of credit availability.
According to the sources, the Rs 2,000 crore fund with NABARD (National Bank for Agriculture and Rural Development) is still lying unutilised, because of its high interest rates. The NABARD fund was announced by the Government in 2014-15.
According an industry expert, who did not wish to be named, “Without the PMO’s approval, the mentioning of finance company should not have happened. The PMO must have given its nod for the Budget speech last year, and after that the process for formation of such a company has started.”
He added that the approval must have come from the Ministry of Finance and there was no need for the process to go to Cabinet, and the comparison made between IL&FS and this sector-specific financial company was wrong. There could have been provisions for safeguarding the interest of the government in any such financial crisis.
“The PMO must have made a wrong comparison between the two situation, as in this company for the food processing sector, the government share was proposed at 20 percent and provisions could have been added to the proposal that government would withdraw from this NBFC completely in some time. Further, this would have been a private company, eventually funded by the market,” the expert said.
This would be a serious set back for the MoFPI and the processing sector, as easy credit availability is a big troubling issue for the processing sector.
It is pertinent to mention here that the ministry has proposed to hold 20 per cent stake in the proposed NBFC with initial corpus of Rs 2,000 crore. The proposal was first mooted by the MoFPI two years ago during the World Food India Summit, which later gained momentum with the finance minister mentioning it in the Budget speech in 2018.
Also according to the ministry officials, several proposals for the funding of this NBFC were received by the ministry, even some foreign countries have shown interest in the proposal.
