Reversal of farm reforms will prevent foreign investment in India’s agriculture

Modi decided to repeal the regulations in November, with an eye on a crucial election in the populous Uttar Pradesh state early next year.

Reversal of farm reforms will prevent foreign investment in India's agriculture

According to analysts, India’s repeal of agriculture laws intended at deregulating food markets will deprive the country’s enormous farm sector of much-needed private investment and leave the government with years of budget-sapping subsidies.

Late last year, Prime Minister Narendra Modi‘s government passed three laws aimed at opening up agriculture markets to corporations and attracting private investment, sparking India’s longest-running farmer protest, which claimed the reforms would allow corporations to abuse farmers.

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“This is not good for agriculture, and it is not good for India,” said Gautam Chikermane, vice president of the Observer Research Foundation in New Delhi.

“All incentives (in agriculture) to change to a more efficient, market-linked system have been stifled.”

Farmers’ fears of losing the minimum pricing system for essential crops, which they say ensures India’s food self-sufficiency, have been allayed by the U-turn.

“It appears the government realised there is merit in the farmers’ claim that opening up the industry would expose them to giant corporations, hammer commodity prices, and reduce farmers’ income,” said Devinder Sharma, an agricultural policy expert who has backed the farmers’ movement.

But, according to Chikermane, the arduous year-long conflict implies that no major party will undertake such measures for at least a quarter-century.

And, he warned, “inefficiencies in the system would continue to deliver wastage and food will continue to spoil” in the absence of private investment.

Colossal waste 

On the Global Hunger Index, India ranks 101 out of 116 countries, with malnutrition responsible for 68 percent of child mortality.

Despite this, according to various studies, it wastes roughly 67 million tonnes of food each year, worth around $12.25 billion – nearly five times the value of most large economies.

The main causes of waste include insufficient cold-chain storage, refrigerated vehicle shortages, and inadequate food processing facilities.

The farm bills claimed to let private traders, merchants, and food processors to buy directly from farmers, skipping the over 7,000 government-run wholesale markets where middlemen’s commissions and market fees add to consumer costs.

Traders and economists claimed that removing the requirement that food must pass through regulated markets would have increased private participation in the supply chain, providing both Indian and foreign corporations incentives to invest in the industry.

“The agriculture regulations would have removed the largest hurdle to large-scale purchasing of farm goods by multinational enterprises,” said Harish Galipelli, director of farm goods trader ILA Commodities India Pvt Ltd. “And that would have enticed businesses to invest in revamping and modernising the entire food supply chain.”

Galipelli’s company will now have to reconsider its strategy.

“We’ve got intentions to expand our business,” Galipelli remarked. “If the laws had not changed, we would have expanded.”

Other warehouse, food processing, and trading companies are also expected to rethink their expansion plans, he said.

Yo-yo perishable prices

In India, poor post-harvest management of products leads perishables prices to yo-yo. Farmers dumped tomatoes on the road three months ago when prices plummeted, but today buyers are paying a hefty 100 rupees ($1.34) per kilogramme.

According to the Confederation of Indian Industry (CII), the legislation would have helped the $34 billion food processing sector grow enormously.

Fruit and vegetable demand would have increased. According to experts, this would have reduced surplus rice and wheat output, slashing bloated stocks of the commodities worth billions of dollars in state warehouses.

Sandip Das, a New Delhi-based researcher and farm policy specialist, said that crop diversification would have helped rein in subsidy spending and narrow the fiscal deficit.

Last fiscal year, the state crop procurement agency, Food Corporation of India (FCI), built up a record 3.81 trillion rupees ($51.83 billion) in debt, frightening policymakers and increasing the country’s food subsidy bill to a record 5.25 trillion rupees ($70.16 billion) in the year to March 2021.

While the federal government’s options for change are limited, local governments “may choose for reforms if they have the political will to do so,” according to BidishaGanguly, a CII economist.

Similarly, firms backed by venture capital have indicated interest in India’s agriculture sector.

“If allowed to flourish, agritech has the potential to improve the handshake between farmers and consumers through technological platforms,” Chikermane added.

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Reversal of farm reforms will prevent foreign investment in India's agriculture
Modi decided to repeal the regulations in November, with an eye on a crucial election in the populous Uttar Pradesh state early next year.
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