Capitalist error

The new companies bill dilutes the progressive intent of the 'producer company'

There is a need to develop different kinds of institutions that would involve farmers as stakeholders in the growth process. The potential and problems of co-operatives and self-help groups, not to mention recent attempts to reform those institutions, are well known. Now, there seem to be problems arising from the way in which producer companies are dealt with in the new Companies Bill, 2011, which was passed in the winter session by the Lok Sabha. A "producer company" is one composed of 10 or more individuals, each of whom is a producer in any two or more producer institutions. As the bill earlier indicated, the government's position on the second amendment to the Companies (Amendment) Act, 2002, which introduced the concept of producer companies, was that the norms under the existing legislation would continue to regulate producer companies until it was replaced. This introduced needless uncertainty into an institution that had been performing reasonably well. Now, it appears that even this provision has been dropped from the bill, which is pending in the Rajya Sabha. I must declare a vested interest in this issue, because the producer company amendment to the Companies Act, 2002, was designed by a committee I chaired.

A few years ago, based on recommendations of the Irani committee on company law, the chambers of commerce had suggested that the provision for producer companies be dropped. A number of industrial and non-governmental organisations that had set up producer companies were uneasy about the proposal and had approached me. I had written to the prime minister, and he was kind enough to send me a sympathetic letter that said he would write to the then minister of corporate affairs to examine closely the provision for producer companies. Subsequently, the ministry of corporate affairs confirmed this position.

The different groups that support this legislation had called a meeting, which they had invited me to chair. I tabled the aforementioned letter from the PM to give them the assurance that it contained. That meeting led to the setting up of a civil society committee under Nitin Desai, a former undersecretary general of the United Nations, to monitor this and submit a report on the legislation. The committee's report made a number of useful suggestions on strengthening producer companies, particularly by streamlining the process of registration by the registrar of companies at the state level.

A number of corporate entities have now used this model. These include the Hariyali project run by DCM Shriram, which is a Harvard Business School case, and the business plans of companies in agro-based industries like Rallis and Tata Chemicals as shown, for example, by their public presentations on the i-Shakti pulses project. The plans for the revisioning of the National Bank for Agriculture and Rural Development (NABARD), designed by the Boston Consulting Group, include a section on producer companies and provide a mechanism for including newer financial products in different agro-climatic regions. The National Dairy Development Plan states that producer companies and self-help groups are the right institutions to operationalise the plan.

Earlier attempts at linking the corporate or parastatal large sectors with the farm sector failed because atomistic peasants could not successfully negotiate terms with large entities. This is important, as food inflation is now holding back India's growth. Producer companies give farmers a way to enter business negotiations in a fair manner. Essentially, they operate on a one-share-one-vote basis. Farmers are also not left at the mercy of the registrar of co-operatives, and as long as they have regular elections and get their accounts audited, their decisions are not subject to political interference.

I asked the chief of one of the major chambers of commerce, otherwise friendly to dynamic policies for agricultural and rural development, why they were lobbying so vigorously against this pro-farm institution. He said it was on account of the fact that producer companies were not corporate entities. Given the uncharacteristic vehemence with which he stated this, I suspect he thought I would object to his understanding. I did not, because in my mind he was stating an important ideological principle. The one-vote-one-share principle distinguishes the norms of operation of producer companies from the modus operandi of classical capitalism. In that sense, producer companies are, indeed, not corporate companies. However, it is short-sighted, in a labour-surplus economy, to scoff at such institutions, which integrate peasants with growth by giving them access to technology and markets in a fast-growing economy, even if such methods prove to be difficult to accommodate in a purely capitalist ideology.

The writer is chancellor, Central University of Gujarat and vice chairman, Sardar Patel Institute of Economics and Social Research

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