Learning to Work at Scale: The Elusive Ease of doing Business in Rural India
BASIX, the promoting Institution (PI) commenced the project of institutional strengthening for market access in Dec 2011 that ended in Dec 2018. The project was extended thrice (in 2014, 2016 and 2017) and envisaged the formation of 100 FPCs initially which was revised to 120 later.
In the second extension, the revised targets were near-impossible to achieve. The PI geared up accordingly. Field teams were given tasks, deadlines, incentives to perform. Monitoring happened daily; MIS reports were received weekly instead of monthly. Documents were bundled up and submitted for 25 companies at a time. However, the client did not respond as quickly and they got piled up pending review. This delayed payments and the PI met the increasing operation costs by cross subsiding from other projects. This stretched the capacities of the PI and affected scale and outputs.
1. FPCs’ turnover expectations – The Catch 22
FPCs needed input and output licenses to achieve the volume of business transactions that would be required for them to reach the turnover figures mandated under the project. Obtaining licenses for inputs for the FPCs was less of a challenge compared to the mandi license for output marketing. The application for the mandi license required the signature of two adthiyas (traders) in the mandi for consideration of the mandi committees. The traders were not willing to sign the forms since they viewed FPCs as competitors. The PI had to approach a senior bureaucrat at the helm who sent a communication to the district collectors. Despite the push, only a handful of FPCs got the licenses.
The PI found an ingenious way to increase the business turnover of FPCs. The State Government had set up 5000 centers for Minimum Support Price (MSP) procurement. The PI lobbied and got approval for FPCs to operate as MSP centers with standard commissions on transactions. The value of the MSP transactions thus enhanced the business turnover of FPCs, but the client insisted that the turnover figures be certified additionally by a Chartered Accountant. As a facilitator for the farmers, the transactions were not reflected in the books of accounts. After prolonged deliberations, the officials understood the dilemma of FPCs of not having required licenses to enable business operations but having to show the turnover numbers and finally accepted MSP procurement as part of FPC turnover.
2. Working Capital of FPCs
Obtaining working capital was another challenge for FPCs. The financial institutions were not willing to lend to nascent organizations without collateral. The Community Investment Fund (CIF) was to be released by the Government to FPCs in two tranches, one after three months of formation (Rs 4.50 lakhs) and the other after a year for infrastructure (Rs 9 lakhs) was not released. The first tranche was released quite late i.e. in 2017-18. Some NBFCs agreed to offer cash credit limits but only a few FPCs received it.
3. New demands
Despite many challenges, the PI managed to achieve the targets completely in the majority of FPCs. However, the fee for the tasks completed was delayed. Fortunately, the World Bank extended its contract with the state Government and therefore the PI was given one more year with the final project closure date set for Dec 18, 2018. However, a new bureaucrat at the helm laid out new demands. These were mostly administrative issues, compliance of which took away time of the field staff for mundane work at the cost of servicing the FPCs.
1. Scale and Capacity
A project of large-scale requires adequate upfront cash reserves from PI. While handling large projects was not new to BASIX and was prepared for it, the undue delays and project extensions beyond normal limits stretched even an experienced organization. Running the project for long periods without fund flow was stressful.
2. Unforeseen hurdles
PIs have to find ecosystem opportunities to help FPOs meet business turnover expectations since a straightforward solution may not present itself. In this case, BASIX found the partial solution through facilitating MSP procurement through FPCs.
3. Relationship Management
The PI needs to be able to handle frequent changes and expectations at the client level, especially at decision-making levels, so locating an office and a dedicated team leader experienced in handling such disruptions to liaise patiently with the client can facilitate the relationship. Over seven years, the PI dealt with five to six bureaucrats. Each of them had a new set of demands. This required rapport building every time the officer-in-charge changed.
4. Capacity and Capabilities of FPCs and PIs
To sustain FPCs during and beyond the project (as it takes longer than a short project cycle to build a robust FPO business), PI must equip itself with funds for its facilitation, understand statutory detail (including policy asymmetries) to manage working capital for the FPO, and much more. The PIs' timely intervention to channelize MSP procurement through FPCs helped. By centrally discussing with NBFCs, banks, and its own MFI, the PI could facilitate the flow of capital to a few FPCs.
A journey worth making despite the odds involved
As a PI, BASIX got recognition in various forums for being a single agency that promoted over 100 FPCs in a single state. It supported FPCs to achieve business turnover ranging from Rs 25 lakhs to Rs 2 crores. It helped FPCs to leverage several grant-based government schemes and establish financial linkage for working capital. Some FPCs received awards and other recognition. The project attracted academic researchers, PIs, officials of other states who visited the FPCs.
Even after the exit of the PI, a quarter of the FPCs came forward to pay for the services of its field officers to continue supporting them to grow. This was an indication of their interest and inclination to run the collectives and trust in the support provided by the PI.
This is the second and final part of the series discussing the dilemmas and reflections of a development professional. The first part can be read here.
KV Gouri is a Development Consultant and former CEO & MD of BASIX Consulting.
Vanita Viswanath is Founder, Udyogini and currently Chairperson, Aajeevika Bureau.