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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 Farmer’s 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, NABCONS
Shri Y.G.Milton, Consultant, NABCONS
Shri 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-xvii
CHAPTER 1 INTRODUCTION 1
1.1 Background 1
1.2 Salient Features of the Venture Capital Assistance Scheme 3
1.3 Need for the Study 4
1.4 Terms of Reference 5
CHAPTER 2 RESEARCH DESIGN & METHODOLOGY 7
2.1 Sampling Design 7
2.2 Data Collection 11
2.3 Data Analysis 13
2.4 Study Team 14
CHAPTER 3 CONTEXTUAL BACKGROUND AND IMPLEMENTATION
OF THE SCHEME DURING XI PLAN PERIOD
15
3.1 Overview 15
3.2 Spatial Distribution 16
3.3 Bank wise Distribution 20
3.4 Activity wise Distribution 23
3.5 Term Loan and Venture Capital Assistance 24
CHAPTER 4 STUDY OBSERVATIONS & FINDINGS 26
4.1 The Study Coverage 26
4.2 Sample Distribution by Type/ Legal Status of Units 26
4.3 Distribution of Sampled Units by Type of Activity 28
4.4 Nature and Size of Investment 28
4.5 Adequacy of Bank Credit for Capital Investment 29
4.6 Adequacy of VCA Support 30
4.7 Appraisal and Sanctioning Procedure of VCA 32
4.8 Delays in Commencement of Commercial Production 32
4.9 Knowledge and Awareness about the Scheme 34
4.10 Coverage of AEZ Districts 35
4.11 Capacity Building 35
4.12 Impact of implementation of Scheme 36
CHAPTER 5 POLICY ISSUES & IMPLICATIONS 41
CHAPTER 6 RECOMMENDATIONS & CONCLUSION 44
6.1 Recommendation 44
6.2 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 through
Venture 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 scheme’s impact
and evaluating operational roles of various stakeholders, identifying constraints and
bottlenecks and suggesting areas for improvement. NABCONS would like to offer special
thanks 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 Farmers’Agri-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 the
cooperation given by Shri Sushil Kumar of SFAC in providing essential information and data
on the VCA Scheme.
The cooperation, support, valuable inputs and insights received from the following Senior
Officials 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. Mumbai
Shri R.L.Jamuda, IAS Principal Secretary, Deptt. of Agriculture, Govt. of Odisha
Shri B. M. Patnaik, General manager, NABARD, Odisha Regional Office, Bhubaneswar
Dr. Amiya Sharma, Chief Executive Officer, Rashtriya Gramin Vikash Nidhi, Guwahati
Shri S. Indirajith, Chairman, Gurgaon Gramin Bank, Gurgaon
Shri 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 units
covered under the study in various states, Branch Managers of Financing Banks,
State/District Level SFAC/ Govt. Officials and all participants in the two State Level
Consultative Meets and Bankers Meeting held at Bhopal, Bhubaneswar and Guwahati
respectively, for sparing their valuable time to provide necessary cooperation, information
and various suggestions required for conducting the study and finalizing the report. The
cooperation received from the Nodal Officers and Consultants of NABCONS and other Officers
of various Regional Offices of NABARD in conducting the study, especially in data collection
and compilation of preliminary study observations is also deeply acknowledged.
The study team is thankful to Dr. A. K. Sood, AGM NABARD, Himachal Pradesh Regional
Office, Shri B.D. Nayak, AGM, NABARD, Punjab R.O. for their support to the study by way
of 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 the
staff attached to the Zonal Office of NABCONS, New Delhi who deserve our appreciation.

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List of Abbreviations
AEZ Agri Export Zone
APEDA Agricultural & Processed Products Export Development
Authority
BLBC Block Level Bankers’ Committee
CDB Coconut Development Board
CII Confederation of Indian Industries
DCC District Consultation Committee
DDM District Development Manager
DER Debt Equity Ratio
DIC District Industries Centre
DLRC District-Level Review Committee
DPR Detailed Project Report
FAO Food and Agriculture Organization
FPO Fruit Product Order
FPOs Farmer’s Producer Organization
FYP Five Year Plan
IDBI Industrial Development Bank of India
IQF Individually Quick Frozen
MAP Medicinal and Aromatic Plants
MFP Minor Forest Produce
MOA Ministry of Agriculture
MOFPI Ministry of Food Processing Industries
MOU Memorandum of Understanding
MSME Micro Small and Medium Enterprises
NABARD National Bank for Agriculture & Rural Development
NABCONS NABARD Consultancy Services (P) Ltd.
NBFC Non Banking Finance Companies
NCDC National Cooperative Development Corporation
NEDFi North Eastern Development Finance Corporation Ltd.
NER North Eastern Region
NHB National Horticulture Board
NHM National Horticulture Mission
NIAM National Institute of Agricultural Marketing
NMPB National Medicinal Plants Board
NOVOD National Oilseeds and Vegetable Oil Development Board
NPA Non Performing Asset
PDF Project Development Facility
PLP Potential-linked Credit Plan
PSC Project Scrutinizing Committee

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RBI Reserve Bank of India
RO Regional Office
RoI Rate of Interest
RRB Regional Rural Bank
SBI State Bank of India
SCDCC Standing Committee for DCC
SFAC Small Farmers’ Agri-Business Consortium
SIDBI Small Industries Development Bank of India
SLBC State Level Bankers’ Committee
TFO Total Financial Outlay
TOR Terms of Reference
VCA Venture Capital Assistance
VCAS 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
31st
Mar 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 latter’s
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 VCA
assistance 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 Focus
I. 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 Stakeholders
II. 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/ Banks
III. 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 SFACs
IV. 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 System
V. 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 bank’s 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 VCA
VII. The sampled units studied revealed that promoter’s 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 promoter’s 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 promoter’s equity or
Rs. 100 lakh, whichever is less.
Incentive to the Financing banks
VIII. 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 recommended
that that there could be a provision for financial incentive to the financing banks.
Guarantee Cover
IX. 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 enough
entrepreneurial 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 units
covered 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 if
there 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 of
domicile 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 country’s 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 producer’s share of consumer’s 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 the
development 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 31st
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 31st
Mar 2011)
Year Financial
(Rs. in crore)
Physical
(No.)
Total
Project
Cost
(Rs. in
crore)
VCA
(Rs. in
crore)
Farmers
Linked
(No.)
Employment
(No.)
Projected Achieved Projected Achieved
UB* 6.97
2007-08 15.64 19.51 65.00 68.00 179.06 19.51 7,827.00 4,820.00
2008-09 17.20 18.43 65.00 58.00 173.68 18.43 8,979.00 4,833.00
2009-10 16.24 20.34 65.00 77.00 260.47 20.34 4,828.00 5,932.00
2010-11 26.31 24.01 65.00 85.00 353.18 24.01 11,003.00 7,689.00
2011-12 36.30 37.88 65.00 121.00 290.48 37.88 10,210.00 5,690.00
Grand
Total 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.

3

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.

4

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 the
recommendations 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 SFAC’s 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 crore
One 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

5

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 policy
changes 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;

6

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 latter’s
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.

7

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 scheme
relative 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

8

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 of
selected 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.

9

Table 2.1: State-Wise Distribution of Sample Projects
Sl No. State No of Sample Projects
1 Andhra Pradesh 4
2 Assam 3
3 Gujarat 2
4 Haryana 1
5 Himachal Pradesh 3
6 Jammu & Kashmir 4
7 Karnataka 5
8 Kerala 3
9 Maharashtra 5
10 Meghalaya 2
11 Tamil Nadu 4
12 Uttar Pradesh 2
13 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 five
years 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 Units
supported (No)
Sampled
Units (No)
Sample
Percent
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%

10

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%

11

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 Horticulture
Board, 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 3
2
1 1
Numbers

12

the rural masses through backward linkages. The Questionnaires are enclosed as Annexure -II to
this Report.
Pre-visit discussions were held with SFAC’s top officials in New Delhi on the proposed
list of identified projects for the actual study, raison d'être 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 that
could 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

13

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 -à-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

14

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 field
teams, 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.

15

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 catalyze
agripreneurs 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
VCA approved (in crore)
No of Ag‐Bus Units
Units (No) VCA Approved (in Crore)

16

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 probable
reasons 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 Pradesh
together 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

17

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
113
56
43
32
24
24
21
15
14
12
9
11
7
4
4
3
4
3
2
3
1
1
1
1
1
0
20
40
60
80
100
120

18

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%

19

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 2011‐12
West Zone 27 17 26 33 32
South Zone 23 27 31 36 21
North Zone 8 13 15 11 59
North East 8 1 4 3 4
Central Zone 1 0 1 1 2
East Zone 1 0 0 1 3
0
10
20
30
40
50
60
Numbers

20

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 Banks
have 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.

21

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.
54
51
42
32
29
21 20
15
13 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
State Bank of India
Bank of Maharashtra
Canara Bank
Bank of India
Punjab National Bank
Bank of Baroda
Syndicate Bank
The Jammu & Kashmir Bank Limited
Union Bank of India
Indian Bank
IDBI Bank
Oriental Bank of Commerce
Central Bank of India
Corporation Bank
State Bank of Patiala
United Bank of India
UCO Bank
Vijaya Bank
State Bank of Hyderabad
State Bank of Travancore
Dena Bank
Allahabad Bank
State Bank of Saurashtra
Indian Overseas Bank
State Bank of Bikaner & Jaipur
Andhra Bank
EXIM Bank
AXIS Bank
The Karnataka Bank
The Lakshmi Vilas Bank
EXIM Bank/State Bank of India
HDFC Bank
NABARD/Bank of India
NABARD/Uttar Banga Kshetrya Gramin Bank
SIDBI/Syndicate Bank
SIDBI/Punjab National Bank

22

Table 3.1: Bank wise projects under VCAS (2009-12)
Sl Name of Banks
No of Projects
Sanctioned
% of project
sanctioned
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%

23

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 Percentage
Food/ 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 Chain
21%
Medicinal
Value
6%
Green
House/Floriculture
5%
Winery
2%
Aquaculture
2%
Plantation
1%

24

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, which
is 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
500.00
600.00
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
77.39 105.55
23.62
Average VCA/state (in lakh)

25

Table 3.3: Zone wise average of Term Loan, average VCA per state and VCA per unit
(2007-2012)
Zone/ Region
Units
(No)
Average
Term Loan
(in lakh)
Average
VCA/state
(in lakh)
Average VCA/
Unit (in lakh)
West Zone 123 5560.31 943.86 23.02
South Zone 127 5474.24 933.53 29.40
North Zone 69 1980.30 358.43 36.36
North East 16 271.21 77.39 24.19
Central Zone 3 721.60 105.55 35.18
East 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

26

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 State
Govt. 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, Public Ltd. Co. and Cooperatives.

27

Figure 4.1: Distribution of samples by legal status
It has been furthered observed that in terms of percentage, out of 41 units studied, 37% of them
have been registered as Private Ltd Companies and equally under Partnership; 17% of the
samples are under proprietorship, while the rest 9% are either Public Limited Cos. or
Cooperatives (Figure 4.2).
Figure 4.2: Percentage distribution by type of legal status of sample units.
0
2
4
6
8
10
12
14
16
Partnership Private Ltd Co Proprietorship Public Ltd Co Cooperative
Society
15 15
7
3
1
Numbers
Legal Status
Partnership
37%
Private Ltd Co
37%
Proprietorship
17%
Public Ltd Co
7%
Cooperative
Society
2%

28

4.3 Distribution of Sampled Units by Type of Activity
The sample also revealed that 50% of the total sample units pertain to horticulture based
processing, 13% Individually Quick Frozen (IQF) Category, 11% pertaining to industry engaged
in processing plantation crops and the remaining in the categories of medicinal, fisheries, and
cold chain. Figure 4.3 below gives the details of sampled units by their types of activities.
Figure 4.3: Activity wise distribution of Sample Units
This is evident from above that the distribution of sample units by type of activity, which
indicate predominance of activities such as horticulture, food and fruit processing, medicinal and
aromatic plants, cold chain, aquaculture, etc., are not significantly different from the sample
frame, as around 63% of the total industries assisted under VCAS are those of horticulture and
food processing, 6% of the industries processing MAP, 21% pertaining to value addition through
cold chain, 2% in aquaculture (Figure 3.6). Therefore, this is expected, when findings are
extrapolated at the level or sample frame, the observations and finding will be able to represent
the population.
4.4. Nature and Size of Investment
From the data it has been observed that VCA has played a catalytic role in bringing in
private capital for investment in agribusiness sector. Seventy one percent of the units which have
been provided VCA, have project cost less than or equal to Rs. 500 lakh. Only 13% of the
19
5
4 4
2 2
1 1
0 0 0 0 0 0 0
0
2
4
6
8
10
12
14
16
18
20
Horticulture
IQF Unit
Others
Plantation Crop
MAP
Fishery
Cold Chain
Apiculture
Floriculture
MFP
Sericulture
Organic Farm
Vermicompost
Polyhouse
Green House
Numbers

29

industries established were having project cost ranging above Rs. 500 lakh to Rs. 1000 lakh. Rest
16% of industries has a capital investment above Rs 1000 lakh.
Table 4.1: Frequency distribution of units by size of investment (N=38)
Total Project Cost
(in Rs. lakh) Frequency
Cumulative
Frequency Cumulative %
Upto 500 27 27 71%
501- 1000 5 32 84%
Above 1000 6 38 100%
The above directly implies that most of the units assisted under VCAS, as much as 71% were
having investment worth Rs 5 crore or less. While, 29% units have investments above 5 crore.
The above shows, how the SFAC has been able to support a wide range of units with varying
levels of investments and and has assisted them to come up successfully.
4.5: Adequacy of Bank Credit for Capital investment
As per relative guidelines under the VCAS, an agribusiness unit to be eligible for venture
capital assistance from SFAC, should avail the term loan from any of the Nationalized Scheduled
Commercial Banks, SBI and its Subsidiaries and the IDBI. The bank has to complete the
appraisal and then calculate and recommend the VCA to SFAC for disbursement. Except in two
cases, all the banks have accepted the total project cost as indicated in the DPR. The term loan
sanctioned to units ranged between a minimum of Rs 21.84 lakh to a maximum of Rs 2355.5
lakh with average of capital requirement of Rs 544.98 lakh. The average term loan extended to
these units by the financing banks has been Rs 282.48 lakh. The total capital requirement and
assistance extended in the form of term loan, borrowers’ margin, VCA and external assistance
from the studied sample are given in table 4.2 below.
Table 4.2: Breakup of assistance received by Sample Units under VCAS
(Amt. in Rs. lakh)
Particulars Project Cost Term Loan Borrower’s
Margin
VCA External
Assistance
Total 20709.22 10624.49 6416.17 1869.52 1800
Average 544.98 282.48 168.85 49.02 60
N 38 38 38 38 30

30

Almost 78% of the units have also availed external assistance in the form of capital
subsidy from different sources such as Ministry of Food Processing Industries (MOFPI),
National Horticulture Board (NHB), Coconut Board, Agriculture & Processed Food Export
Development Authority (APEDA), District Industries Centre (DIC), National Horticulture
Mission (NHM) etc. The average assistance obtained from these agencies is worth Rs. 60 lakh
per unit (Table 4.2). In almost 50% of the cases, the assistance is extended by MOFPI followed
by NHB.
The average interest rate charged by Banks is found to be 13.5%. The maximum interest
rate is found to be 18.75% on the term loan extend by State Bank of India to Sri Venkateshwara
Agro Export Ltd in Karnataka. The minimum interest rate is found to have been charged by Axis
Bank in Maharashtra, in respect of loan extended to M/S BAFNA Exports Ltd., which stood at
9.5% p.a. The rate of interest (RoI) has been found to vary from case to case and bank to bank
which may be in coherence with the policy of financing banks. Some of the Banks were also
charging found to have charged floating rate of interest which vary over time, as per the
corporate decision of the Bank on RoI.
The Banks have also been found to allow moratorium period to the borrowing units,
which varied from minimum of 6 months to maximum of 18 months. In 34% of the cases
studied, the moratorium allowed was 12 months. The repayment period also ranged between 5
years to maximum of 12 years depending on the size of industry. In most cases, the repayment
period has been fixed as 7 years including the grace period. The repayment period has been fixed
by the financing banks primarily keeping in view the commercial production, capacity utilization
and the payback period of the unit.
4.6 Adequacy of VCA Support
VCA to the projects has been sanctioned on the basis of prescribed eligibility criteria of
the schme i.e. lowest of the three alternative options viz. 10% of the total project cost assessed by
the Bank or 26% of the project equity or Rs.75.00 lakh. The VCA extended in respect of sample
units ranged in between Rs 4.35 lakh (M/S Virgin Coconut Oil Manufacturing Unit, Kerala) to
maximum of Rs 399.5 lakh (M/S Vinken Labs, Tamil Nadu). In term of percentage, VCA ranged
between 4% to maximum of 25% of the total project cost accepted by bank. The frequency
distribution reflects that in 58% cases the VCA extended to units are less than 10%, however in
26% of cases the VCA exceeded 10% but remained below 15%. In rest 16% cases, the VCA has

31

exceeded 15% of the total project cost out of which in 8% cases VCA sanctioned is greater than
20% of the cost.
Table 4.3: Frequency distribution of VCA relative to total project cost.
% of VCA extended relative to
Project Cost Frequency
Cumulative
Frequency Cumulative %
Less than 10% 22 22 58%
10.1-15% 10 32 84%
15.1-20% 3 35 92%
> 20% 3 38 100%
All the sample entrepreneurs have profusely acknowledged the support of VCA for establishing
the units. However, they have suggested that there may be an increase in the limits of VCA from
existing 10% of the project cost to at least 25% and that the cap of Rs.75 lakh may be removed.
As it is evident from figure table 4.2 above, VCA has played a role of a catalyst in bringing in
private investment in agri-business sector to an extent of 31% which in terms of equity capital is
worth Rs 169 lakh per unit. The average contribution of VCA is found to be Rs. 49.02 lakh per
establishment which is approximately 9.02% of the total project cost.
Figure 4.4: Share of assistance of total project cost.
The average equity capital in term of Borrower’s Margin money is found to be to the
extent of 31% of project cost which is considerably high by any standard and sometimes difficult
to be arranged by an entrepreneur. In addition, the entrepreneurs also have to manage operating
Term Loan, 51%
Borrowers
Margin, 31%
VCA, 9%
External
Assistance, 9%

32

costs to commence commercial production. This in case of agro processing always remain high
owing to the need for maintaining stock of raw materials, which are generally available for a
short duration after its harvest. Thus a higher VCA may be required lowering proportion of
equity capital from entrepreneur, which in turn can be used by entrepreneur in meeting other
variable costs of unit.
4.7 Appraisal and Sanctioning Procedure of VCA
Most of the beneficiaries appreciated the sanctioning procedure of VCA by Central
SFAC, which was done quite expeditiously without any protracted correspondence or any need
to visit Delhi on several occasions. All had very high regards for the professional approach of
SFAC and its remarkable swiftness in sanctioning the VCA without any bureaucratic approach.
However, in six cases (15%) out of 38, it was found that the release of VCA took more than six
months time from the date of application. It would be beneficial for the units if the VCA is
released within a specific duration. The average time taken for release of VCA from the date of
application for VCA is estimated to be 122 days, which is slightly over four months. In 52%
cases the time taken to release the VCA was found to be more than 100 days, which is more than
3 months from the date of application. The process of releasing the VCA need be quickened and
a time frame, say within a maximum of 45 days (one and half months) from the date of
application, may be fixed for releasing the VCA
The appraisal process of VCA cases during the Plan period was reviewed on sample basis
which revealed that certain procedural changes made during the last two years of the period
under review resulted in considerable reduction of the time taken for sanction, as compared to
time taken for sanction and release of such cases during the earlier period. Introduction of the
Project Scrutinizing Committee (PSC) approach has helped expediting the preliminary scrutiny
of the proposals received.
4.8 Delays in Commencement of Commercial Production
There has been delay in commencement of commercial production in some of the cases
as observed from the sample. In respect of 6 cases, it has been observed that either the units
established have not yet started commercial production on the day of visit to the units or there
has been delay as compared to the time stipulated for such commencement. There were multiple
reasons for delays. A few specific cases are presented below:

33

a. M/S Trout Fish Canning and Preservation - The delay in case of M/S Trout Fish
Canning and Preservation, Himachal Pradesh has been due to natural calamities such as
land slide and flood. The time gap from the date of application to release of VCA is also
found to be 122 days. Further, the time taken for obtaining proper and valid license for
running commercial production was also found to be very long, which delayed start of
commercial production.
b. M/S Sultan Agrotech, J&K - In this case, the delay has been mainly due to lack of proper
technical and economic appraisal of project which led to lowering the limits of sanctioned
amount which in turn created hindrance from both technical and economic point of view.
The unit could not avail the amount required for technical up-gradation as there was more
than 50% curtailment from the original cost of project. Later, further disbursement was also
stopped by the Bank after release of Rs. 155.8 lakh against the sanctioned limit of Rs
265.76 lakh. Further, an amount of Rs. 50 lakh capital subsidy obtained from MOFPI was
also adjusted towards the recovery of interest. The unit is yet to commence commercial
production even after four years of initial sanction of the project. This puts a serious
question mark on the procedure followed by bank as regards appraisal of project and
sanction & disbursement.
c. M/S Brahmaputra Forest Product (P) Ltd - The reason for delay in commencement of
production in respect of M/S Brahmaputra Forest Product (P) Ltd., Assam was found to be
failure of the machinery supplier to supply the machinery in time. Another reason was
reduction in subsidy which resulted in shortage of adequate fund for running the unit.
Against a proposed subsidy of Rs 87.5 lakh from DIC, which was also accounted for as
source of fund in the DPR, the actual amount limits of subsidy made available was only Rs.
52 lakh.
d. Vinkem Lab Pvt Ltd in Tamil Nadu - The process and time over run has resulted in cost-
over-run, which finally resulted in delay in commencement of production in respect of
Vinkem Lab Pvt Ltd in Tamil Nadu. Unable to import required machinery for production
and lack of timely clearance from USFDA delayed the whole process. The initial term loan
of Rs 2433 lakh later on got revised to Rs 3318 lakh where the interest portion had to be
recapitalized as term loan. This unit has also been released VCA worth Rs 399.5 lakh as
special case. The unit was expected to start production by February 2012.

34

In all the cases referred above, inadequate investment capital and bank finance have
remained key to delay of commercial production. Once there is time overrun, cost overrun
becomes inevitable pushing the unit into debt trap. The initial capital investment therefore is of
paramount importance for successful grounding of a unit and VCA has been playing a crucial
role. There has been increasing demand unanimously by all the entrepreneurs for increasing the
contribution in form of VCA.
4.9 Knowledge and Awareness about the Scheme
The Central SFAC and State-level SFACs both have been making focused efforts for
creating adequate awareness about the VCAS throughout the country. MOUs have been also
been signed by the SFAC with Public Sector Banks in this regard and several “Interface with
Banks” have been held across the country, while periodical advertisements in newspapers are
also regularly brought out. Despite such efforts by SFAC, one aspect that has come out
uniformly during the field study was very low level of awareness among the bankers and the
Government Departments about the Scheme and its benefits to agri-business development. As
per the information collected from Bank branches, the detailed awareness and information was
available with only 57% of bank branches while in the remaining 43% cases, the information are
available only at Regional Office level or no information even at RO and Branch level. There
could be several reasons for such low level awareness at Bank Branch level, which include,
frequent shifting of the officers and staff of the banks at branch and regional levels, priority of
daily work over developmental issues, non-percolation of the information about the Scheme
from the Zonal or Regional levels of the Bank to its branches, non-involvement of the Lead Bank
or the Lead District Manager of the concerned Districts in the awareness campaign, lack of
proactive role on part of the Government Departments like Agriculture, Horticulture and District
Industries Centers (DICs) in the promotion of the Scheme or its implementation, non-availability
of the details of the Scheme in the local language at District levels, etc.
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
or Chartered Accountants. In fact, even at the time of the field visits for the present study, 16%
promoters stated that they did not know about the scheme and another 38% reported that they
only knew as to how much they had obtained interest-free loan from SFAC; they were not aware

35

of the objectives of the Scheme or the basis on which the amount of assistance was worked out
as these facts were known only to their Consultants.
4.10 Coverage of AEZ Districts
With a view to promote agriculture export from the country and improve upon the
international competitiveness, the concept of agri-export zone (AEZ) was floated. These zones
have been set up for end to end development for export of specific product from geographically
contiguous area. The sample data indicates 14% of the units are located in the districts notified
under AEZ, it can be well justified that SFAC’s VCA scheme has played a significant
contributory role to achieve AEZ objectives. The total investment in AEZ locations is worked
out to be approximately 28% of the total investments of the sample units, which is to the tune of
Rs 4599 lakh. This is therefore no denying of the fact that the VCAS within a short period of its
existence has significantly contributed to the effective grounding of notified AEZs in the
country.
4.11 Capacity Building
One of the objectives of the scheme is also to enhance the skill and knowledge of
entrepreneurs through capacity building initiatives. The study reveals that only 42% of the
entrepreneurs have been imparted with skill development and capacity building initiatives and
60% of them expressed that the training helped them in managing the unit in a better way and
this has resulted in improvement in quantity and volume of production. However this training
has been imparted only at the level of enterprise itself, and not at the project level. The study
findings further revealed that capacity building initiatives have been taken up by only two of the
State Nodal Agencies, one in Himachal Pradesh and one in Assam. Other than that none of the
sampled units reported the conduct of any capacity building program by State Nodal Agency. To
bring in and maintain the motivation, enthusiasm and also to popularise the scheme, the State
Nodal Agency needs to actively participate in capacity building of entrepreneurs, their
employees and staffs and information dissemination of the scheme.
The skill analysis of agripreneurs clearly indicates that the most vulnerable to failure
among all categories of entrepreneurs are those who are neither formally trained nor held any
experience in handling any enterprise. They are found to be almost 20% of the sample
agripreneurs.

36

4.12 Impact of the Scheme
The scheme is expected to have both direct and indirect impacts. Direct impact is seen in
areas such as catalyzing private investment to agri-business units, direct employment generation
by the unit, strengthening backward linkages of agri-business projects with producer, increased
return to units. The spillover effect is expected to generate indirect impacts in the form of crop
diversification, generate on-farm employment opportunities etc. These impacts with respect to
different indicators are presented below:
4.12 (a) Catalyzing Private Investment
The average investment requirement of sample agribusiness units has been Rs.544.98
lakh per unit and the average term loan extended per units by financing banks has been Rs.
282.48 lakh (i.e. 51% of total project). This shows that someway or other, the VCA has played
the role of a catalyst to fill in the shortfall in capital in the agribusiness sector with its
contribution on an average of Rs.49.02 lakh (9% of project cost) per unit. The average equity
investment of the entrepreneur is about Rs.168.85 lakh that accounts for 31% of the project cost.
It can therefore be concluded that, the VCAS has been successful in mobilizing huge private
investment in agribusiness sector to an extent of 31%.
4.12 (b) Setting up Agri-business Units near Farm Gate
VCA has definitely facilitated establishing agri-entreprises in rural areas near to the
production centres. About 74% of the agribusiness units have been set up in rural areas and
another 18% in semi urban areas and rest 8% in the urban area (Figure 4.5). These units have
been able to cater to raw materials produced in hinterlands and creating both on farm and off-
farm employment opportunities for the rural work force.

37

Figure 4.5: Location of agri-business units
Further, 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 region.
4.12 (c) Strengthening backward linkages
Setting up of agri-business units has strengthened the backward linkages with producers.
The analysis of data also revealed that each unit on an average is procuring raw material from 25
villages, within an average radius of 78 kms. In most of the cases, it is observed that
procurements are happening within the radius of 30 kms. However, the mode of procuring raw
material generally remained informal in nature. On average, each unit is procuring raw material
under formal arrangements only from 5 villages out of 25 villages from which the unit normally
procures raw material. In other words, in percentage terms while 20% of villages in a cluste,
used to have formal arrangements for procurement of raw material by a sample unit, the rest 80%
villages supplied their produce to the unit without any formal agreement.
The raw material provides by the producers were mostly in raw form without any
processing involved at primary level. In 58% cases, the units made their own arrangements for
procurement and also provided to and fro transport facilities to the workers engaged in the units.
Thus, need based transport systems and development of roads to the hinterlands and interior
areas have also taken place.
Urban, 8%
Semi Urban,
18%
Rural, 74%

38

These agribusiness units have provided assured market to the farmers for their produce,
whether they sell the produce directly or indirectly to the units. It has been estimated on the basis
of the information collected from the farmers benefited by the sample units that on an average
221 farmers are selling 71% of the produce to each unit. Almost 97% of farmers in the vicinity
of a sample unit believed that the units were providing assured market to their produce. In 31%
cases, the entire produce of the farmers were found to have been sold to the agribusiness units.
Establishment of agribusiness units also encouraged farmers in nearby villages to
diversify into high value crops. It is estimated that an area of around 14,000 acres has been
diversified with new crops which are being bought by the units. These produces range from fruits
and vegetable like peas, gherkin, capsicum, pine apple, to medicinal and aromatic plants, such as
Aloe Vera, Tapioca etc. The resultant changes viz. change in cropping pattern and more
remunerative prices for the produce, have resulted in per acre increase in farm income, which is
estimated at Rs. 20,875 for selected sample cases.
4.12 (d) Employment Generation
With establishment of new industries, the probability of generating new opportunity to
employment of local people also increases and so has happened with the Scheme. The Scheme
has been able to generate additional employment to both skilled and unskilled labour force. All
409 units assisted during the XI plan taken together have been able to provide a gainful
employment to around 29,000 people. On average, each unit has been able to provide
employment to about 121 persons during peak season. During the slack season, the figure used to
come down to minimum of 8 person per unit. The agribusiness units appeared to have benefitted
mostly the unskilled rural workforce. Almost 85% of the total workforce were those belonging to
the unskilled category, while about 9% were skilled; the rest 6% belonged to managerial and
supervisory categories.
4.12 (e): Increased Wage Rate
With increased employment opportunity, the wage rate has also gone up as observed
from the sampled data. Before establishment of units, the average daily wage rate was Rs. 56/-
which has increased by factor of 3 over the period to approximately Rs. 156 per day. This has
benefitted the most deprived category belonging to unskilled labour force in the vicinity of
agribusiness projects.

Venture capital assistance for agri business development for finance, subsidy & project related support contact - 9861458008

Venture capital assistance for agri business development for finance, subsidy & project related support contact - 9861458008

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Venture capital assistance for agri business development for finance, subsidy & project related support contact - 9861458008