Modi’s farm reform reversal to deter investment in India’s agriculture

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Mayank Bhardwaj and Rajendra Jadhav


Publishing date:

Dec 04, 2021  •  16 minutes in the past  •  4 minute learn  • 

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NEW DELHI — India’s repeal of agriculture legal guidelines geared toward deregulating produce markets will starve its huge farm sector of much-needed personal investment and saddle the federal government with budget-sapping subsidies for years, economists stated.

Late final yr, Prime Minister Narendra Modi’s authorities launched three legal guidelines meant to open up agriculture markets to firms and entice personal investment, triggering India’s longest-running protest by farmers who stated the reforms would enable firms to exploit them.


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With a watch on a vital election in populous Uttar Pradesh state early subsequent yr, Modi agreed to rescind the legal guidelines in November, hoping to easy relations with the highly effective farm foyer which sustains almost half the nation’s 1.3 billion folks and accounts for about 15% of the $2.7 trillion economic system.

But by shelving probably the most formidable overhaul in many years, Modi’s backtracking now seemingly guidelines out much-needed upgrades of the creaky post-harvest provide chain to reduce wastage, spur crop diversification, and increase farmers’ incomes, economists stated.

“This is not good for agriculture, this is not good for India,” stated Gautam Chikermane, a senior economist and vp at New Delhi-based Observer Research Foundation.


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

The u-turn does allay farmers’ fears of shedding the minimal worth system for fundamental crops, which growers say ensures India’s grain self-sufficiency.

“It appears the government realized that there’s merit in the farmers’ argument that opening up the sector would make them vulnerable to large companies, hammer commodities prices and hit farmers’ income,” stated Devinder Sharma, a farm coverage professional who has supported the growers’ motion.

But the grueling year-long standoff additionally means no political celebration will try any comparable reforms for no less than a quarter-century, Chikermane stated.

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

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India ranks 101 out of 116 nations on the Global Hunger Index, with malnutrition accounting for 68% of kid deaths.

Yet it wastes round 67 million tonnes of meals yearly, value about $12.25 billion – almost 5 instances that of most giant economies – in accordance to numerous research.

Inadequate cold-chain storage, shortages of refrigerated vehicles and inadequate meals processing services are the primary causes of waste.

The farm legal guidelines promised to enable personal merchants, retailers and meals processors to purchase instantly from farmers, bypassing greater than 7,000 government-regulated wholesale markets the place middlemen’s commissions and market charges add to client prices.

Ending the rule that meals should move by the permitted markets would have inspired personal participation in the provision chain, giving each Indian and world firms incentives to make investments in the sector, merchants and economists stated.

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“The agriculture laws would have removed the biggest impediment to large-scale purchases of farm goods by big corporations,” stated Harish Galipelli, director at ILA Commodities India Pvt Ltd, which trades farm items. “And that would have encouraged corporations to bring investment to revamp and modernize the whole food supply chain.”

Galipelli’s agency will now have to re-evaluate its plans.

“We have had plans to scale up our business,” stated Galipelli. “We would have expanded had the laws stayed.”

Other companies specializing in warehousing, meals processing and buying and selling are additionally anticipated to assessment their enlargement methods, he stated.


Poor post-harvest dealing with of produce additionally causes costs of perishables to yo-yo in India. Only three months in the past, farmers dumped tomatoes on the street as costs crashed, however now shoppers are paying a steep 100 rupees ($1.34) a kg.

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The legal guidelines would have helped the $34 billion meals processing sector develop exponentially, in accordance to the Confederation of Indian Industry (CII), an business group.

Demand for vegetables and fruit would have gone up. And that may have reduce surplus rice and wheat output, slicing bulging shares of the staples value billions of {dollars} in state warehouses, economists stated.

“Crop diversification would also have helped rein in subsidy spending and narrow the fiscal deficit,” stated Sandip Das, a New Delhi-based researcher and farm coverage analyst.

Food Corporation of India (FCI), the state crop procurement company, racked up a document 3.81 trillion rupees ($51.83 billion) in debt by final fiscal yr, alarming policymakers and inflating the nation’s meals subsidy invoice to a document 5.25 trillion rupees ($70.16 billion) in the yr to March 2021.

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However, whereas the federal authorities now has restricted scope for change, native authorities “can opt for reforms provided they have the political will to do so,” stated Bidisha Ganguly, an economist at CII.

Similarly, enterprise capital-funded startups have additionally expressed curiosity in India’s agriculture sector.

“Agritech, if it is allowed to take root, has the potential to enable a better handshake of farmers and consumers through their technological platforms,” Chikermane stated. (1 = 74.83 rupees) (Reporting by Mayank Bhardwaj and Rajendra Jadhav; extra reporting by Aftab Ahmed; modifying by Gavin Maguire and Kim Coghill)

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