Leveraging Government Schemes & Private Grant for Funding Your Venture

Leveraging Government Schemes & Private Grant for Funding Your Venture (Background Note Prepared for The TiECon Chandigarh 2020- 29 February 2020) by Dinesh K Kapila

(TiE A voluntary formal body to create an increasingly positive ecosystem for the entrepreneurs and investors).

Venture - A new activity, usually in business, that involves risk or uncertainty.

(Invitation Kind Courtesy Shri Munish Jauhar, President TIE Chandigarh and CEO Greycell Technologies and Shri Jashinder Bir Singh, Member TIE and CEO Access Infotech).

Not all entrepreneurs can straightaway evolve as a Start Up or access Credit on a disruptive scale. The average entrepreneur has a need for simple bank loan products, would certainly benefit from the subsidy if eligible and in due course aim to scale up. The subject as above as suggested by TIE for the TIECON would certainly be applicable to such entrepreneurs. It’s also relevant as not all entrepreneurs / would be entrepreneurs would be able to access funds or organise as a start up. Most would need to start out maybe with recourse to a simple loan product and then scale up. 

Why Subsidy or Incentives – Encouraging Productivity – a motivation to an entrepreneur to take the right decision and act upon it. The objective of incentives is to motivate an entrepreneur to set up a new venture. It could be for national interest or for the welfare of the society too.

This could be in the form of concessions and subsidies – on capital and interest or tax breaks, They could also be non - financial. The idea is to motivate towards a decision or action. We are a developing nation, subsidies and incentives can reduce the impact of entry barriers too. They can cover the cost of investment too somewhat.

(Non Financial incentives – industrial estates, industrial complexes, availability of power and otherwise concessional finance, capital investment subsidy, transport subsidy etc).

Advantages – Decentralisation of Economic Power, Balanced Regional Development, Transformation of Technology, Overcoming Barriers, Fostering Entrepreneurship, Generating a pulse of economic activities, addressing competition etc.

There are certain disadvantages as stated by experts relating to ethics and actual benefits generated or the impact on the budget, but it’s not relevant to this discussion.

Entrepreneurship Experts Define it as Opportunities or Situations to recombine resources to generate profit. Secondly, an ability to recognise information about opportunities or preferential access. Third Risk is necessary – taking a risk. Fourth – The entrepreneurial process requires the organisation of people and resources.

My Addition to the above – Awareness or Reading up deeply and obtain insights on subsidies and incentives.  Understand every angle, Know the period as applicable for the particular scheme and timelines to file claims.

Agriculture – Critical for the economy, drives the growth of the rural economy, important for prosperity and employment. It’s the resource base for Agro Based Industries and Agro Services. Food security is largely achieved by massive Government intervention. But monetising farmers / commercial orientation / economic well being are still a challenge.

Hence merely food security has to be accepted a given but now we are to move to – as per the policy rejig and formulation is for food security for sustainable income, along with nutritional security aligned with climate change and gender equality. Net positive returns to the farmers / producers is the objective.

The objective is for efficient / competitive / accessible markets along with adequate post harvest and marketing infrastructure, this has the potential to generate net positive returns for the producer and along the chain.

Varied models are there and being embedded and are suitable for entrepreneurs to invest in also. Gramin Agricultural Markets, declaring warehouses / cold stores as market sub yards, promoting scales of economy in production and post production activities through FPOs, other initiatives addressed are reducing the length of thee food supply chain, market driven production, real time market information, price forecasting etc.

Deep hunger for economic progress across semi urban and rural India. And Government Offices and governmental interventions often do not get the recognition they would deserve.

Note – Urbanisation increasing and implications for Agriculture, technologically least disrupted, major diversification – pulses / fruits / vegetables / livestock. Evolving demography, changing demand patterns, modernised retail sector, the rural urban supply chain – pushes three times more volumes than a couple of decades ago. Rural areas under invested in education and health care etc.       

Entrepreneurs Need to trawl deeply and in depth and understand the aim, objectives of Subsidy Products, Read on websites the instructions and circulars / notifications – read the Ministry Web Sites MSME, Agriculture, Animal Husbandry, Fisheries etc. Then of the DMI, NHB, APEDA, SFAC etc. Also of the EXIM Bank etc. In Banks if Branches do not have information readily, their controlling offices have. Read up the bank websites too.  In the following paragraphs it’s just a glimpse and overview. Policies evolve and change, read the websites and meet up to know the latest developments.

Understand the difference between Interest Subsidy and Capital Subsidy, and the mode of Front Ended Subsidy and Back Ended Subsidy. And understand how this mode of subsidy will ultimately adjust the repayment process and it’s financial implications. Know the process too. And the offices dealing with the product at the front end level.  I find many would be entrepreneurs do not fully absorb the implications of subsidy and the mode and it’s relationship with cash, if any.

To promote entrepreneurship among farmer collectives :

Farmer Producer Organizations is an aggregation mechanism of farmers, wherein farmer producers with common interest agree to pool their resources together to 'form a group, jointly deal with various issues of farming; be it credit, input sourcing, deployment of farm technology and good agricultural practices, post-harvest handling or onward sale of agricultural produce.

Support Mechanism –

·       Equity Grant Scheme of SFAC- extends support to the equity base of Farmer Producer Companies (FPCs) by providing matching equity grants (currently upto Rs.1000, proposed to be increased upto Rs.2000) subject to maximum of Rs. 15.00 lakh per FPC in two tranche with in a period of 3 Year.

·       Credit Guarantee Fund –SFAC- Credit Guarantee Cover to Eligible Lending Institutions to enable them to provide collateral free credit to FPCs by covering their lending risks upto Rs.1 Crore (85%) in respect of loans. (Proposed to be increased upto 2 Crores (75%).

·       Business Development Assistance – NABARD- a one-time grant support upto  Rs. 5.00 lakh per FPO- and  can also be used as working capital, purchase of small infrastructure, etc.

·       Grant based support to FPOs – also provided by NABARD upto Rs. 16.60 lakh for a period of 5 years ; Support is provided for training of BoD, CEO, registration of FPOs, business plan preparation, remuneration of CEO expenses etc.

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·       Incubation Centres- The Business incubator is a value adding service organization aimed to foster the care of a new venture at an early stage, increase its chances for survival and enhance the growth potential by providing comprehensive and integrated range of business development services.

Incubation Centres provide support to promote agripreneurial eco0ystem and nurture a system of agribusiness incubation by handholding innovative and highly potential agribusiness ideas with the concept of growth through encouraging innovation, upgrading technology and developing skills.

NABARD- Madurai and Hisar, ICAR and various other universities have also set up Incubation Centres.

·       NABVENTURES - This was incorporated 23/4/2018. It is the AMC of the proposed NABVENTURES Fund with a target corpus of Rs 500 crore. To tap the vast sector in Agriculture, Food and Rural Businesses. You would have read the press reports on this. I suppose I can safely summarise that in due course we should evolve as the Source of ideas, Accelerator, Incubators and Catalyctic investor for this sector.

·       One Scheme specific to Haryana – The Crop Cluster Development Programme - Under this program, in each cluster, marketing infrastructure and post-harvest management facilities like pack house, primary processing centre, grading-sorting machine, storage facilities, refer vans, input and quality control facility etc. is to be created for forward and backward linkage for effective marketing of horticulture produce. Assistance varies from 70-90% for a maximum project size of Rs.600 lakh. (LOI has been issued to 22 FPOs- Economic Survey 2018-19).

Promoting entrepreneurship in food processing sector-

Food Processing Fund

To provide impetus to development of food processing sector on cluster basis in the country to reduce wastage of agricultural produce and to create employment opportunities, especially in rural areas.

Financial assistance from this Fund is available for establishing the designated Food Parks and also for setting up of individual food/agro processing units in the designated Food Parks (Food Parks designated and notified by the Ministry of Food Processing Industries (MOFPI))

The extent of term loan assistance varies from a maximum of 95% for the State Governments and entities promoted by State Governments and upto a maximum of 75% of eligible total project outlay for entities such as Joint Ventures, Cooperatives, Federation of Cooperatives, SPVs, Farmer Producer Organisations, Corporates, Companies, Entrepreneurs, etc., may avail loans from this Fund for establishing the designated Food Parks and also.

Promoting entrepreneurship in warehousing sector-

Warehouse Infrastructure Fund

WIF is being utilized for meeting the growing demand for scientific storage capacity for agricultural commodities by supporting creation of infrastructure for storage of agricultural commodities.

Loans will be provided for proposals of projects involving creation of storage infrastructure, with a minimum aggregate capacity of 5000 metric tons (MT), for agricultural and allied produce including construction of warehouses, silos, Cold storage, controlled atmosphere (CA) stores and other cold chain infrastructure as well as modernization/improvement of the existing storage infrastructure projects.

Assistance is available to State Governments, Entities State / Central Government Owned / assisted entities, Cooperative, Federations of Cooperatives, Farmers’ Producers’ Organizations (FPOs), Federations of Farmers’ Collectives, SPVs set up under PPP mode, etc. Primary Agricultural Credit Societies (PACS) /Cooperative Marketing Societies (CMS) or similar institutions, Corporates / Companies / Individual Entrepreneurs etc

To support to farmer entrepreneurs the  following Government Sponsored Programmes are there -

1.     Agri Clinics and Agri Business Centres

Agri clinics are centres to provide expert advice and services to farmers which would enhance productivity and farm income(like Food Grain production, Value addition therein by grading and packaging etc, effective use of Fertilizers/Pesticides/Insecticides) plus dietary and medical advice for health of livestock for increase in milk yield.

Agri Business Centres are commercial units of agri-ventures established by trained agriculture professionals. Such ventures may include maintenance and custom hiring of farm equipment, sale of inputs and other services in agriculture and allied areas, including post-harvest management and market linkages for income generation and entrepreneurship development.

Support is available to Graduates/ Diploma holders in agriculture, Biological Science Graduates with PG in agriculture-  Intensive training/hand holding of entrepreneurs for two months  by Nodal Training Institutes(NTIs) (support upto Rs.35,000/-) as per standards of National Institute of Agricultural Extension Management (MANAGE)- thereafter trainees to choose venture and to prepare DPR (20 eligible activities (http://www.agriclinics.net, MANAGE) - project to be credit linked subject (back ended subsidy) to the satisfaction of the banker based on financial viability and technical feasibility

Nature of Assistance - (I) Credit linked back ended composite subsidy @ 36% of the capital cost and 44% for SC, ST, Women and other categories of borrowers from NER, Hilly states.(ii) The ceiling of project cost(TFO) for individual projects will be Rs.20.00 lakh, (Rs.25.00 lakh for extremely successful individual projects.) and Rs.100.00 lakh  for group projects (having minimum of 5 individuals)

2.    Dairy Entrepreneurship Development Scheme

To promote setting up of modern dairy farms for production of clean milk, encourage heifer calf rearing, bring about upgradation of quality and traditional technology to handle milk on commercial basis.

Eligibility norms/ coverage: Farmers, individual entrepreneurs, NGOs,companies, Groups of organized sector include SHGs,dairyco operative societies, milk unions, milk federations.  CBs, RRBs, SCBs, SCARDBs and others eligible for NABARD refinance. The scheme is credit linked and subsidy back-ended with 3-years lock-in period for loan. Security and rate of interest as per RBI guidelines.  Repayment period between 3-7  years.

Nature of support/ assistance: Subsidy 25% of outlay, subject to monetary ceilings, (33.33% for SC/ST farmers). Presently subsidy is available for SC category. Unit costs are stipulated.

3.    Agricultural Marketing Infrastructure- sub-scheme of- Integrated Scheme For Agricultural Marketing

The scheme lays special focus on developing and upgrading Gramin Haats as GrAMs through strengthening of infrastructure there for, which may function as farmer-consumer market (retails market) and collection/aggregation points (spokes) with linkage to secondary market (hub) and also to processing/ exporting and retain chain with participation of FPOs, other farmers’ groups and private sector eligible promoters . With the following objectives:

·       To develop marketing infrastructure to effectively handle and manage marketable surpluses of agricultural and allied produce including horticulture livestock, poultry, fishery, bamboo, minor forest produce and such like produce supportive to enhance farmers’ income.

·       To develop alternative & competitive marketing channels for agricultural and allied produce through incentivizing private and cooperative sectors to make investments there for

·       To benefit the farmers individually and collectively through FPOs from farm level processing and marketing of processed produce along with promotion of small size processing units.

Eligible Infrastructure- As one of the objectives of the sub-scheme is to ensure remunerative prices to the farmers for their produce, activities which are in the nature of either storage or other marketing infrastructure up to primary processing will be covered. Primary processing for the purpose of this sub scheme relates to value addition to a raw agricultural produce which, after processing, does not result in change of product form. Primary processing for which subsidy under AMI is available are those such as cleaning, cutting, de-podding, de-cortication, dehusking, de-sheller, Grain cleaner, specific gravity separator, mini rice huller, drying equipments (solar/normal), bleaching, grading, sorting, packing/bag stitching, labelling, waxing, ripening, chilling, pasteurization, homogenization, freezing, refrigeration and other value addition activities etc. Further, Mini Oil expeller for extraction of edible vegetable oil (as per FSSAI but without refining) from indigenous oilseeds (viz. Mustard seed, Sesame seed, Ground nut, Linseed, Mahua, Safflower, Nigerseed Oil, Coconut, Almond and Olive only) and Mini Dal mill for primary processing of pulses, which includes cleaning, grading, sorting, splitting, packaging and labelling for promoting direct marketing, are also eligible. The subsidy for such projects is restricted to the construction of sheds and oil expellers operated up to the power of 7.5 Horse Power (HP).

Rate of subsidy for Registered FPOs, Panchayats, Women, Scheduled Caste (SC)/ Scheduled Tribe (ST) entrepreneurs or their cooperatives**/ Self-help groups is 33.33% and for other is 25%.

4.    National Live Stock Mission

Objectives: To cover all activities required to ensure quantitative and qualitative improvement in livestock production system and capacity building of all stakeholders. The mission has four sub-missions.  

Implementing Agency: The department of AH, Dairying and Fisheries (DAHD&F), Ministry of Agriculture, Government of India through State Govt.Dept. of Animal Husbandry.

Eligibility norms/ coverage:All the erstwhile schemes such as poultry,piggery fodder & feed development,skilldevelopment,technology transfer and extension will be covered under the mission.

5.    Capital Investment Subsidy Scheme for Commercial Production Units for Organic / Biological Inputs

For the Commercial production units for biological / organic inputs, Bio Fertilizers / Bio Pesticide Units. Fruit and Vegetable compost units etc.

The above are channelled through NABARD by the GoI.

MSMEs

PMEGP (Prime Minister/s Employment Guarantee Programme)

Through the KVIB focused on micro entrepreneurs, Maximum for Manufacturing the project is for Rs 20 lakh / Rs 25 lakh. For Business Rs 10 lakh.  Also look up MUDRA, Stand Up India. Subsidy in OMEGP is 15 % to 25 %.

CGTSME

Credit Guarantee Fund Trust for Micro and Small Enterprises. 75 % of the loan amount is guaranteed. Maximum Rs 100 lakh.

CLCSSTU

Credit Linked Capital Subsidy Scheme for Technology Upgradation. 51 sub sectors, 15 %. To upgrade plant and machinery. Possess valid UAM Number.

Industry Incentives

Know the region wise, if any, incentives or subsidies ,

GEM

Government e-Marketplace. It’s a dynamic, self sustaining and user friendly portal for making procurement more transparent and enabling more sellers to join in. This is for all GOI Offices.

Private Grants

Approach Family Business Offices. Technology upgrades or learning or productivity through CSR Funds and the aggregator can reap the gains (say in farming the company or FPC can reap gains for members and the company alike and the technology can be through CSR Funds).

I can add here that NBFCs and MFIs (Micro Finance Companies) are also actively associated with the financial markets and can be scouted for financial assistance. The subsidy may however be tied to the loan from the bank only. Scout multiple financial service providers before finalising the loan.

Seek mentors. Depending upon the complexity, take advantage of for a such as the TiE. Gain insights and learn from their insight.

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Additional Points

a.     Read the fine print carefully of each subsidy product and absorb it fully. Do not depend on intermediaries etc. The information is on all websites. Consult widely and meet officers in the Govt. Depts if appropriate / required.

b.     You have to fulfil all norms of bank loan and adhere to the terms and condition of sanction as stipulated by the Organisation / Department or Bank. Security norms have to be complied with and understood.

c.     All timelines for lodging claims for subsidy have to be adhered to by the Banks and the entrepreneurs. Banks and entrepreneurs may adhere to the check list.

d.     Subsidy is not the basis to take a business decision. Study your idea and operating environment. Your business model must be generating cash and a surplus after a certain period.

e.     Remember each business comes with a risk. Plan for an emergent happening.

f.      Maintain a close professional relationship with the Bank and Government Department.

g.     Do not interpret creatively the guidelines etc of subsidy, adhere to the guidelines.

h.     Read and Read and meet financial institutions.    Value each incentive and be aware about it. Learn to handle follow up with patience.

i.       Be suitably updated professionally – means technically.

j.       Be open and may I say less control any tendency to be cynical. When on the rounds. Gain knowledge and update yourself professionally at each interaction. 

k.     Know the exact financial implications of each transaction including the subsidy and more important seek financial assistance realistically. Means the amount, period for repayment, aspects of security, insurance etc.

PS  - The Hall was filled to the aisles (people sitting on the steps) when the topic was on how to pitch the ideas of a start up to investors, Later it was just about fully occupied !. Glamour versus the prosaic ! Always. 

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