International companies like Pepsi, Coca-Cola and even Cargill may soon be able invest directly in the country?s agriculture sector. This follows the government?s plans to open up the agriculture sector to foreign direct investment (FDI), thereby allowing overseas companies to directly undertake and invest in farming.
The landmark proposal, initiated by the agriculture ministry, has found support in both the finance and the commerce & industry ministries. Permission to let foreign companies own farms will, however, come with strict riders, including clauses that disallow the displacement of labour or farmers.
Government sources said the extent of FDI and whether the produce from such farming activities by foreign companies would be for captive use or for open market trading were issues that are yet to be decided.
The government is also looking at steps to provide access to foreign funds through external commercial borrowings (ECBs) and other investment options in the farm sector. If these were allowed, companies engaged in farming would be able to raise funds at interest rates lower than that in the international market.
Unlocking the farm gate is a part of the Centre?s strategy to open up new avenues of investment in the moribund agriculture sector. According to government estimates, the sector needs Rs 3,00,000 crore over the next five years to achieve a 4% growth rate compared with 1.8% now. It is estimated that planned state investments over the next five years would be only be around half the required amount, at around Rs 1,49,000 crore.
At present, FDI up to 100% is permitted under the automatic route in select areas such as floriculture, horticulture, development of seeds, animal husbandry, aquaculture, services related to agriculture and allied sectors, and cultivation of vegetables and mushrooms. But these are allowed under controlled conditions.
Foreign firms have been petitioning the government to open up investment for them to cultivate and process potatoes, tomatoes and other vegetables. Besides, in the plantation sector, the government may do away with the condition of mandatory divestment of 26% equity in favour of the Indian public or an Indian partner within five years.