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A tax holiday is expected to push more farmers to turn entrepreneurial

The Budget’s announcement of a five-year tax holiday for Farmer Producer Organisations (FPOs) with a turnover of up to Rs 100 crore came as a relief to the thousands of farmers who are members of around 4,000 such companies in the country.  In December 2017, a sizeable number of farmers gathered at a national conference org­anised in Pune were found to be unaware that the FPOs were liable to pay taxes under the Companies Act, rev­eals B. Dasaratha Rami Reddy, secretary general of the Consortium of Ind­ian Farmers’ Associations (CIFA).

In the last six years, the government has stepped in to promote FPOs in order to help farmers benefit from collective strength and resources, as seen in dairy milk cooperatives, in a push towards sustainability. Only farmers connected with some primary produce can be members of such a company, which as per the law is liable to pay 30 per cent tax, plus 15 per cent on any dividends paid. Almost all FPOs are expected to benefit from the government move, giving a push to turning farmers into entrepreneurs to boost their income, encourage value addition and reduce wastage of fruit and vegetables resulting from spoilage.

The CIFA is, however, unhappy with the current structure of FPOs; this is due not just to the tax element but also to the cumbersome procedures involved and the fact that most farmers are “not conversant with the management practices” of running a private limited company, states Reddy. But while the CIFA is seeking a cooperative structure, many see advantages in maintaining the current corporate structure complete with a CEO and a board of directors.

“As a model, there is recognition that FPOs have some advantages. The idea of building them into companies was to help give them some professional management with a CEO, a salaried employee, who is obviously a local person,” says Sumanta Chaudhuri, managing director of the Small Farmers’ Agribusiness Consortium (SFAC), under the agriculture ministry. One aspect of the SFAC’s mandate is to promote the FPO concept through awareness and training initiatives, besides providing equity grants (raised this year from Rs. 10 lakh to Rs. 15 lakh) and credit guarantees, and helping to access venture capital.

“We bring the CEOs and the board of directors together on the same platform for collective leadership, as the CEO will not be able to act alone if the board does not support the decision. Similarly, unl­ess there is willingness by members to implement a plan, the board can do nothing. There is always something more that the FPOs can do through continuing skill development programmes and linkages,” states Chaudhuri. There are around 800 FPOs registered with SFAC, many of which have started operations while others are still completing their registration, creating infrastructure, and seeking licences for procurement and sale of seeds, fertilisers and pesticides. Some are venturing into the purchase and renting out of farm equipment, operation of warehouses, processing mills, etc.

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