Why govt chose the Section 8 company route to promote select rural products

The government plans to set up a Section 8 company for rural products. Sanjeeb Mukherjee explains why the government chose this route and what that company aims to achieve

What is the broad plan of the government so far as the Section 8 company for rural products is concerned?

The central government reportedly plans to have its own Section 8 company to promote select rural products and create an end-to-end value chain for them with the help of professionals and experts. These will be for products made by women-led self-help groups, village organisations, farmers-producers organisations, rural workmen and others that usually don't find wider audience due to a lack of market accessibility and reach. These products will be identified from across the country and their value chain will be mapped. These products would then be marketed in a big way both within the country and outside. The company will also work as a consultant for select rural products for their marketing, sourcing and for the development of the value chain.

What is the status of this plan?

The company is expected to be formed as part of the National Rural Livelihood Mission (NRLM) under which the government has the mandate to set up such a dedicated professional body. The proposal to set up such a company has been mooted and it might take another four to five months before it becomes operational. Memorandums of understanding (MoU) have been signed with Tata Trust and Bill and Malinda Gates Foundation for professional support. These outfits have long experience in dealing with the rural economy. 

What will be the brief of this company? What is the objective the government hopes to achieve through this?

The brief will be to prepare, develop and promote an end-to-end value chain for select rural farm and non-farm products and also to act as a platform to bring rural products directly in contact with their buyers and customers located in diverse geographies through a dedicated helpline on the lines of Meghalaya’s 1917 toll-free number for farmers and villagers.

What is the definition of a Section 8 company?

A Section 8 company is one that is licensed under Section 8 of the Companies Act, 2013, for promoting research, social welfare, religion, charity, commerce, art, science, sports, education, and the protection of the environment or any such other object, provided that the profits, if any, or other income is used for promoting only the objects of the company. Also, no dividend is paid to its members. A Section 8 company is registered for charitable or not-for-profit purposes. This company is similar to a trust or society. However, a fundamental difference is that a Section 8 company is registered under the Centre’s Ministry of Corporate Affairs, while a trust or a society is registered under state government regulations. This gives a Section 8 company added trust and credibility as compared to a trust or societies among donors, creditors and government departments. A Section 8 company can be incorporated without adding the word "Limited" or "Private Limited" to it. Also, a Section 8 company does not have the requirement of minimum capital, a reason why the Centre has preferred to take this route. It can be opened with a minimum of two shareholders and two directors. Such companies have greater flexibility; they are exempted from stamp duty registration. Starting such a company is easy as it need not go through the complex process of regulatory approvals at every stage. A Section 8 company can be set up in 30-45 days flat. 

Why was the need for a separate company for rural products felt at this point?

The government probably feels that India has vast and a diversified set of products made by rural artisans and small units located in villages that have not got their due recognition because of a lack of marketing. Though the Khadi and Village Industries Commission (KVIC) works in this field, much of it has to with the promotion of such industries. Marketing and sales promotion have been a weak link of the KVIC.

Is there a pre-existing model the government plans to follow to this end?

Some other outfits that have followed a similar model are the Small Farmers Agri-Business Consortium, which is a society registered under the Ministry of Agriculture and the National Dairy Development Board, which has been set up under the Co-operative Societies Act.