Rs 1,200-cr Central guarantee for debt-ridden Nafed

The Central government, after much delay, has finally decided to provide Rs 1,200 crore, in the form of guarantee, to the debt-ridden National Agricultural Cooperative Marketing Federation (Nafed).

Senior officials from the Ministry of Agriculture said Rs 1,200 crore sought by Nafed would enable the beleaguered cooperative to raise loans from banks at cheaper rates to meet its expenses.

“There won’t be any physical transfer of funds, but the government would provide as guarantee for the amount to which the Finance Ministry has given its clearance,” Agriculture Secretary P K Basu told Business Standard. He added, “Another Rs 920 crore, the second part of the bailout package being worked out for the cooperative, will be transferred in tranches to an escrow account in the next six to seven years.

The Planning Commission has agreed to transfer Rs 920 crore in phases to the escrow account, which would be jointly operated by Nafed and the Ministry of Agriculture.

The money will be repaid after the eighth year starting from now, and during the interim period the agriculture ministry would hold 51 per cent stake in the cooperative for having a better say in its operation, sources in the government said.

“The bailout package for Nafed will take place in two phases, wherein the first phase provides for the clearing of the government guarantee,” Basu said, further adding, “In no manner was there any move to convert the cooperative into a Central public-sector undertaking”.

Set up in 1958 under the Multi-State Cooperative Societies Act, Nafed is saddled with bad debt which arose from the Rs 3,900-crore advances made in 2006 to 39 exporters. Nafed suffered from huge debt burden of Rs 1,600 crore even as it struggled to service bank loans.

In fact, the federation’s annual interest liability is more than its operating profit acquired over the last three years. Although the federation made a gross profit of Rs 83.9 crore in 2009-10, yet owing to huge interest liability of Rs 135 crore, it reported a net loss of Rs 50 crore. Its turnover rose by 26 per cent to Rs 6,373.3 crore in the year-ago period as against Rs 5,065 crore in 2008-09.