🚜 Custom Hiring Centre (CHC) — NABARD Model Scheme
NABARD's bankable model for establishing Agricultural Machinery Custom Hiring Centres serving small and marginal farmers. Covers unit composition, cost structure, rental income, financial viability, and SMAM linkage — a key topic for IBPS AFO and NABARD Grade A exams.
The Problem CHCs Solve
India's farm power distribution is deeply uneven. Punjab uses 3.5 kW/ha of mechanical power; states like Bihar, Odisha, and Jharkhand use less than 1 kW/ha. The reason: small and marginal farmers — who hold ~80% of total land holdings — cannot individually afford farm machinery.
Custom Hiring Centres address this by pooling machinery under one entity that rents it out by the hour/day. This transforms an unaffordable capital purchase into an affordable operational expense for small farmers.
The 12th Plan target: increase farm power availability from 0.93 kW/ha to 2 kW/ha. CHCs are a primary instrument to achieve this.
CHC Objectives
- Make farm machinery accessible to small and marginal farmers
- Offset diseconomies of individual ownership
- Improve mechanisation in low farm-power regions
- Provide seasonal hiring services for tillage, harvesting, threshing, and spraying
- Generate entrepreneurship for agri graduates and rural youth
Ideal Location & Coverage
A CHC should be located where small holdings are concentrated within a radius of 5–7 km. One CHC typically serves 4–5 villages. A central, equidistant location minimises transport time and cost.
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The Problem CHCs Solve
India's farm power distribution is deeply uneven. Punjab uses 3.5 kW/ha of mechanical power; states like Bihar, Odisha, and Jharkhand use less than 1 kW/ha. The reason: small and marginal farmers — who hold ~80% of total land holdings — cannot individually afford farm machinery.
Custom Hiring Centres address this by pooling machinery under one entity that rents it out by the hour/day. This transforms an unaffordable capital purchase into an affordable operational expense for small farmers.
The 12th Plan target: increase farm power availability from 0.93 kW/ha to 2 kW/ha. CHCs are a primary instrument to achieve this.
CHC Objectives
- Make farm machinery accessible to small and marginal farmers
- Offset diseconomies of individual ownership
- Improve mechanisation in low farm-power regions
- Provide seasonal hiring services for tillage, harvesting, threshing, and spraying
- Generate entrepreneurship for agri graduates and rural youth
Ideal Location & Coverage
A CHC should be located where small holdings are concentrated within a radius of 5–7 km. One CHC typically serves 4–5 villages. A central, equidistant location minimises transport time and cost.
Who can own a CHC:
- Progressive farmers
- Rural unemployed youth / agri graduates
- Primary Agricultural Credit Societies (PACS)
- Water Users Associations, SHG Federations, Watershed Committees
CHC Unit Composition (Paddy-Dominated Area Model)
| Equipment | Cost (₹) |
|---|---|
| 35 HP Tractor | 4,90,000 |
| Trailer | 1,10,000 |
| Tractor implements (plough, cultivator, cage wheel, disc harrow, seed drill, accessories) | 1,58,000 |
| Transplanter | 2,00,000 |
| Power Tiller (13 HP) | 1,50,000 |
| Multi-crop power thresher (with motor) | 80,000 |
| Winnower | 8,000 |
| Self-propelled reaper (3.5 HP) | 90,000 |
| Power sprayer (1 no.) | 8,000 |
| Manual sprayers (2 nos.) | 5,000 |
| Servicing + repair tools | 26,000 |
| Workshop shed (500 sq. ft. @ ₹450/sq. ft.) | 2,25,000 |
| Total Cost | ₹15,50,000 |
Land cost is not included — treated as margin money.
Rental Rate Assumptions
| Equipment | Rental | Annual Working |
|---|---|---|
| Tractor (agri operations) | ₹700/hour | 600 hours |
| Tractor (transport) | ₹150/day | 750 days |
| Power tiller | ₹700/hour | 300 hours |
| Power thresher | ₹90/day | 750 days |
| Winnower | ₹45/day | 120 days |
| Self-propelled reaper | ₹400/hour | 250 hours |
| Power sprayer | ₹60/day | 80 days |
| Machinery repair (monthly) | ₹10,000/month | — |
NOTE
Exam trap: For thresher, winnower, and sprayer — fuel and labour are arranged by the hiring farmer, not the CHC. The CHC only provides the machine. This significantly reduces the CHC's recurring cost for these items.
Income & Expenditure
Full capacity annual income:
| Source | Income (₹) |
|---|---|
| Tractor hiring | 5,32,500 |
| Power tiller hiring | 2,10,000 |
| Power thresher | 67,500 |
| Winnower | 5,400 |
| Reaper | 1,00,000 |
| Sprayers | 7,800 |
| Machinery repair | 1,20,000 |
| Total Income | ₹10,43,200 |
Year 1 income (75% capacity): ₹7,82,400
Full capacity recurring cost: ₹6,03,765/year Year 1 recurring cost (75%): ₹4,55,659/year
Net income (Year 2+): ₹10,43,200 − ₹6,03,765 = ₹4,39,435/year
Financing Structure
| Item | Value |
|---|---|
| Total project cost | ₹15,50,000 |
| Bank loan (80%) | ₹12,40,000 |
| Margin (20%) | ₹3,10,000 (land value) |
| Interest rate | 13% p.a. |
| Repayment period | 8 years (2 years moratorium) |
Financial Indicators
| Indicator | Value |
|---|---|
| NPV @ 15% | ₹3,43,432 (Note: Annexure 4 shows ₹7,97,916 with salvage value) |
| BCR | 1.08–1.19 : 1 |
| IRR | 23.4% (or 33.6% including salvage) |
| Average DSCR | 1.49 : 1 |
The scheme is financially viable though margins are modest. Viability improves significantly with repair income (₹1.2 lakh/year) and a workshop that generates year-round revenue even when field operations are seasonal.
Repayment Schedule (Summary)
- 2-year moratorium (interest only in Years 1 and 2)
- Principal repayment begins Year 3
- Full repayment by end of Year 8
- Average DSCR 1.49 — comfortable servicing capacity
Linked Schemes
- Sub Mission on Agricultural Mechanization (SMAM) — central scheme providing 40–50% subsidy on CHC establishment cost for individuals/groups
- Rashtriya Krishi Vikas Yojana (RKVY) — state-level mechanisation support
- NABARD refinance — banks can access NABARD refinance for CHC loans under farm mechanisation
NOTE
Must remember: CHC total cost = ₹15.50 lakh; bank loan = 80%; interest = 13%; repayment = 8 years; IRR = 23.4%; DSCR = 1.49. SMAM provides 40–50% subsidy on CHC. One CHC serves 4–5 villages within 5–7 km radius.
Sources & References
Primary source for this lesson is NABARD's official Model Bankable Projects portal.[1] Lesson-specific report copy used for this topic.[2]
References
2 sources • [1] [2]
References
Used for: Official NABARD portal for model bankable project documents and updates.
Used for: Reference copy used in this lesson for project parameters and worked figures.
The figures in this lesson reflect the cost norms and technical parameters as published in the NABARD document. Actual costs may vary by state, season, and year of implementation. Always refer to the latest NABARD circular for current norms.
Summary Cheat Sheet
| Concept / Topic | Key Details / Explanation |
|---|---|
| Problem solved | Small/marginal farmers (~80% of holdings) cannot afford machinery individually — CHC pools equipment for affordable custom hiring |
| Service radius | 5–7 km; serves 4–5 villages |
| Farm power gap | Punjab: 3.5 kW/ha vs Bihar/Odisha/Jharkhand: <1 kW/ha; 12th Plan target: 0.93 → 2 kW/ha |
| Total project cost | ₹15,50,000 (paddy-dominated area model) |
| Bank loan | 80% = ₹12,40,000 |
| Margin money | 20% = ₹3,10,000 (land value) |
| Interest rate | 13% per annum |
| Repayment period | 8 years with 2-year moratorium |
| Key equipment | 35 HP Tractor (₹4.90L), Trailer (₹1.10L), Transplanter (₹2L), 13 HP Power Tiller (₹1.50L), Reaper (₹0.90L), Thresher (₹0.80L) |
| Workshop shed | 500 sq ft @ ₹450/sq ft = ₹2,25,000 |
| Tractor rental (agri) | ₹700/hour, 600 hours/year |
| Power tiller rental | ₹700/hour, 300 hours/year |
| Self-propelled reaper | ₹400/hour, 250 hours/year |
| Thresher/winnower/sprayer | Fuel and labour arranged by hiring farmer (CHC only provides machine) |
| Repair income | ₹10,000/month = ₹1,20,000/year (year-round revenue) |
| Full capacity annual income | ₹10,43,200 |
| Year 1 income (75% capacity) | ₹7,82,400 |
| Net income (Year 2+) | ₹4,39,435/year |
| IRR | 23.4% (33.6% including salvage value) |
| BCR | 1.08–1.19:1 |
| Average DSCR | 1.49:1 |
| SMAM subsidy | 40–50% on CHC establishment cost |
| Eligible beneficiaries | Progressive farmers, agri graduates, PACS, SHG Federations, Watershed Committees |
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