The economic sector of India is based significantly on agriculture, with approximately 66% of the population reliant on agricultural activities for their sustenance. However, the critical contributors, namely primary producers and farmers, have encountered prolonged challenges in the country, primarily stemming from inadequate benefit costs. Recognising the need for redressal, the Government of India convened an expert committee led by the economist Y.K. Alagh to look into these issues.
This committee, in its pursuit of solutions, introduced the concept of Producer Companies to the Indian economy in 2002. The primary objective was to empower primary producers by facilitating access to credit, markets, inputs, production technology, and other essential resources. In this blog, we shall see the benefits of registration of producer company in India.
Understanding Producer Companies
A producer company registration involves a legally authorised entity comprising farmers or agriculturists, established with the aim of enhancing their living standards and ensuring a favourable status concerning support, profitability, and income.
Formation of Producer Companies under Companies Act
The Companies Act allows the formation of a Producer Company by a minimum of ten individuals or more and two institutions or more, or a combination of both, all sharing the common objective related to their business. These entities must fall into one of the specified categories of primary produce members, involving the import of goods or services for their benefit. The categories include:
1. Procurement
2. Harvesting
3. Production
4. Grading
5. Pooling
6. Handling
7. Marketing
8. Selling
9. Export
Objectives and Benefits of Producer Companies
The primary objectives and benefits of a Producer Company registration revolve around facilitating the establishment of cooperative businesses as companies. It aims to make the conversion of existing cooperative businesses into companies a feasible and efficient process for everyone including the famers.
Authorised Activities of Producer Companies
Producer companies are obligated to engage in activities related to the produce of their members. The following activities are authorised for producer companies:
1. Processing of Produce:
This includes preserving, canning, brewing, drying, distilling, venting, and packaging of the produce by its members.
2. Manufacture, Machinery, Sale, or Supply:
Producer companies are allowed to engage in the manufacture, machinery, sale, or supply of equipment or consumables to their producer members.
3. Education and Mutual Assistance:
Granting education to producer members and others based on mutual assistance principles.
4. Training and R&D Services:
Providing training, research and development, consultancy services, technical services, and other requisite activities to promote the interests of producer members.
5. Power, Communication, and Resource Management:
Engaging in the generation, distribution, conservation, and transmission of power and communication related to primary produce.
6. Insurance Services:
Offering insurance for the benefits of the producer company and their primary produce.
7. Promotion of Mutual Techniques:
Promoting techniques related to mutuality and mutual assistance as per the discretion of the Board for the welfare of members.
8. Marketing and Financing:
Financing of procurement, processing, or other related activities, including extending credit facilities or providing financial assistance to producer members.
9. Incidental or Ancillary Activities:
Engaging in any other activity incidental or ancillary to the main purpose of the producer company with the intention to promote mutual cooperation among producer members, following the principles of mutuality.
Benefits of Registration of Producer Company in India
The major benefits of registration of producer company in India include:
1. Separate Legal Entity:
One of the key benefits of registration of producer company in India is that it is recognised as a separate legal entity under the law. This means that the organisation is a legitimate and juristic entity established under the Act. As a separate legal entity, a producer company has broad legal recognition, enabling it to own property and incur debts. Importantly, the individual members or directors of the producer company have no personal liability to the company’s creditors, as it operates as an independent legal entity.
2. Tax Benefits:
Producer companies, if registered as farmer-producer companies, enjoy substantial tax benefits of registration of producer company in India. Companies with an annual turnover of Rs. 100 crores are eligible for a 100% deduction. Moreover, companies deriving profits from such turnovers are exempt from paying taxes. This tax incentive is a strategic move by the Government of India to support and encourage farmer-producer companies. Recognising farmers as essential contributors to the nation’s economy, this measure aims to boost their growth and prosperity.
3. Simple Management:
Producer companies can effectively change their Board of Management by documenting basic structures with the Registrar of Companies. The Board of Management plays a crucial role in controlling and managing the functions of the producer company, ensuring streamlined operations and decision-making processes.
4. Loans and Investment:
Government support is crucial for the members of producer companies, particularly as they are the initial producers requiring funding at various stages. In response to this need, the Government has established the NABARD bank to avail the benefits of registration of producer company in India, specifically farmers.
The NABARD bank’s objective is to provide loans to farmers associated with producer companies for a period not exceeding six months. This financial assistance is designed to meet the diverse needs of producer companies, ensuring a steady flow of funds for their activities and initiatives. The support from NABARD is a significant step in promoting the financial well-being of producer companies and, by extension, the farmers involved in these entities.
5. Continuous Existence:
One of the major benefits of registration of producer company in India is its ‘unending succession.‘ This means that the producer company can continue its existence indefinitely until it is legally dissolved. As a separate legal entity, the producer organisation remains unaffected by the departure or death of any of its members. This attribute ensures the continuity and stability of the producer company, contributing to its long-term sustainability.
6. Good Governance:
The responsibility for ensuring the success of the producer organisation lies with the government, emphasising good governance. Good governance is essential for building trust among members, fostering sustainable growth, and realising the socio-economic objectives of producer companies. The collaboration between the government and producer organisations underscores the commitment to creating a conducive and supportive environment for the success and well-being of these entities.
7. Financial Support:
Various entities, including SFAC (Small Farmers’ Agri-Business Consortium), NABARD (National Bank for Agriculture and Rural Development), government departments, corporate bodies, and domestic and international aid offices, provide financial assistance and dedicated support to the Producer Organisation Promoting Establishment. This support aims to facilitate the advancement and development of producer organisations.
8. Empowering Members:
Another one of the key benefits of registration of producer company in India is empowering their members to achieve higher income levels. By engaging in a range of activities, including bulk purchasing of goods at reduced prices and optimising transportation costs through bulk shipments, producer organisations contribute to increasing the income of their members.
Additionally, these organisations provide valuable information to producers, enabling them to hold onto their produce until market prices are more favourable. These interventions collectively lead to a substantial increase in income for the primary producers.
9. Access to Better Facilities:
The last among the benefits of registration of producer company in India is that producer organisations serve as significant platforms for primary farmers to access improved facilities. Members engaged in the benefits of a Producer Company can easily tap into government services such as MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), pension schemes, loans, Public Distribution System (PDS), and scholarships.
This access to a range of government services enhances the overall well-being of the members, contributing to their socio-economic development and creating a more sustainable and prosperous agricultural community.
Final Thoughts
There are many benefits of registration of producer company in India. The legal recognition as a separate entity ensures limited liability for members, fostering a secure business environment. Tax benefits of registration of producer company in India further incentivise these companies, promoting financial sustainability. The ability to modify the Board of Management simplifies organisational governance. Access to government support, facilitated by registration, ensures financial aid, enhancing the company’s capabilities. Continuous existence provides long-term stability, and the platform empowers members with improved facilities, boosting their income. Overall, the benefits of registration of producer company in India not only formalises operations but also promotes growth, resilience, and prosperity for agricultural communities in India.
