Banks, FIs may get to fund overseas fertile land buys

Economic Times |11 Sep, 2008

Nidhi Sharma & G Ganapathy Subramaniam, ET Bureau

MUMBAI/NEW DELHI: The government is considering a proposal to enable banks and financial institutions to finance acquisition of farm land overseas for cultivation of pulses and oilseeds. Current norms do not allow commercial banks and financial institutions to bankroll purchase of farm land overseas.

Several industry associations and public sector organisations like STC have conveyed to top government officers that the efforts to step up cultivation abroad to feed the growing demand for farm products in India is being hampered by lack of finances. Therefore, proposals to enable financing for such deals is scheduled to be considered by a committee of secretaries on Thursday and representatives of the Reserve Bank of India are also expected at the meeting, highly-placed government sources said.

Confirming the meeting, the consumer affairs secretary Yashwant Bhave said broad policy-related issues regarding investments in farm land abroad would be discussed and the problems highlighted by the private sector would be examined. We will consider the concerns expressed by the private sector players, he added.

The meeting is likely to look at the players who are interested in taking up cultivation abroad and list ways to assist them overcome hitches. However, individual proposals are unlikely to be discussed as the focus is on the broad policy.

A top government official said the committee is comprises secretaries in key departments like agriculture, food, civil supplies and finance. The external affairs ministry and the commerce department are also involved in the deliberations which focus on keeping domestic prices under control through various measures. It is felt that the long-term solution to checking food inflation is to augment domestic production with cultivation abroad. It is felt that pulses, oil seeds should be cultivated abroad since they are being imported in large quantities.

A consortium of 15 members led by the Solvent Extractors Association of India, for example, has submitted a proposal to grow oilseeds, wheat and maize in Latin America (Uruguay & Paraguay). Under the first phase of their plan, they have earmarked an investment of Rs 200 crore. Of this amount, they plan to finance 75% through loans while 25% will come from members of the association.

While the edible oil producers consortium is keen on growing soyabean, sunflower, canola and grains, a number of companies are already going ahead with plans to grow feedstock for ethanol in Latin America. Some corporates have set their focus on cultivation in Africa.

The edible oil consortium's convenor Pravin Lunkad said they approached the Exim Bank for finance but were told that current guidelines do not allow financing of such projects. Therefore, the association has taken up the issue with the government and is hoping that institutions would be provided with revised guidelines in the interest of food security.

Public sector trading company STC has also shown interest to be a part of this consortium. A senior official of the government company said talks are on with the consortium. "We are also into edible oil (import) business and being a part of this consortium will help," he said adding that it will also be good for the food security. Mr Lunkad said state agencies like STC could be given the first right of refusal for the farm products that are grown abroad by Indian companies.
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