Agriculture: Corporate Investment

Relevance: mains: G.S paper III: Indian Economy: Agriculture

Introduction

• India is the world’s largest producer of pulses and spices and the second largest
  producer of wheat and rice following China.
• The current private corporate investment in agriculture as a percentage of the total annual investment in agriculture is about 2%. Agriculture is highly reliant on the Government.
• The State provides minimum support prices, irrigation facilities, subsidies, loan waivers,
  storage, and transport services.
• However, further improvement and triumph of this sector are unimaginable without the vital corporate private investments. Greater investments from companies which buy farmers’ produce in some states, can contribute significantly towards uplifting farmers’ incomes at a steady pace.

Significance of Private Sector in Agricultural R and D

• The private corporate sector is investing not only in infrastructure and facilities, but also in R and D in the food, feed, energy and health sectors. Like other expenditures, expected payoffs from innovations largely influence private spending in agricultural R and D; these expected payoffs have Market size and the cost of servicing the market are other important dimensions that are attracting entry of private firms.
• The agricultural sector comprises 18 per cent of India’s GDP. Most of the research carried out by the private sector enterprises focuses on the provision of input technologies such as machinery, chemicals, seeds and food processing.
• In recent years, despite the continuously growing investments in R and D by the private sector, documentation of agricultural R and D expenditure data is very cumbersome and remain inadequate.
• Recently, agri-biotechnology has been the fastest growing sector attracting huge resources for R and D through small and medium enterprises

Government Efforts to Encourage Corporate Investment

• The Government has introduced policy reforms which may have helped in elevating corporate sector investments in India. The reforms are as follows:
• There have been efforts since 2012 to encourage Farmer Producer Companies (FPCs) which are a hybrid between cooperative societies and private limited companies registered under the Company’s Act. Farmer producer companies may be given priority for cultivation on pooled land and for allied infrastructure development to harvest the desired economies of scale in operations.
• In order to promote the production of oil palm in the country, the Government implemented
  the National Mission on Oilseeds and Oil Palm (NMOOP) from 2014-15. Government has recently relaxed the land ceiling limit for oil palm cultivation under NMOOP to attract corporate bodies to oil palm production and derive maximum benefit of 100 percent FDI.
• The Model Agriculture Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017 provides the opportunity for the private sector to set up private markets, alternate marketing channels, online market platforms, etc. in both agriculture and livestock marketing.
• The Model Agriculture Produce and Livestock Contract Farming and Services Act (Promotion and Facilitation) Act, 2018 enables private sector investments by way of capital, technology, and extension all along the value system.
• Exemption to FPC under Income Tax Act has offered an IT exemption to all FPCs with a
  turnover of up to Rs 100 crore per annum, by considering their incomes as agricultural income. This will incentivise corporate sector to partner with farmers as FPCs.
• There is 100 per cent foreign direct investment (FDI) in food retail – this will encourage foreign investments in establishing appropriate post-production infrastructure to strengthen the food supply chains.
• In 2017, the Ministry of Agriculture and farmers Welfare, in collaboration with Start-Up India, launched the Agriculture Grand Challenge. The Ministry selected start-ups which received mentorship and guidance from them and an opportunity to get incubated and gain market access.
• There is a budget proposal (2019) by the Government to form 10,000 farmer producer
  organisations (FPOs) in the next five years. This is believed to assist small and marginal cultivators to team up to get lower rates for inputs and sell produce at higher rates. The Finance Minister, Smt. Nirmala Sitharaman, has said that FPOs will ensure economies of scale.

The Road Ahead

• Agricultural growth is dependent on investments from the private sector, but first large investments in public goods — roads, power, education, research, irrigation, extension, finance, warehouses, etc. is essential to attract the private investments.
• The Ministry of Agriculture and Farmers Welfare has estimated that to double farmer
  incomes, private investment in agriculture must increase by two times. Private investments refer to investments made by farmers themselves, therefore there is a dire need for the sector to be backed by corporate investments.

Conclusion

• The corporate investment had become a huge cause of concern in the farming sector. The
  main reason for this has been excessive controls and regulations in the agriculture sector. On a few occasions, the Government of India has addressed the growing need of corporate investment for food processing, warehouses, and cold storage.
• Currently, only corporate houses/private industrial ventures drive India’s farm mechanical sector, the seed sector and also invest heavily in horticulture and food processing sector. As per the Government, there is a need for relaxing rules for companies investing in contract farming, transport, marketing, warehouses and food processing.
• To address this growing need of corporate investment in agriculture, the Government needs to encourage the corporate sector by adopting policies that incentivize them to participate in agriculture.