With our gross domestic product (GDP) touching near double-digit growth rates, our economy is in the best ever phase of growth. Yet, this growth rate has been achieved mainly due to the impressive performance of the manufacturing and services sectors. The performance of agriculture, which has been largely bypassed by the reform process, continues to be lacklustre. Hence, it is important that agriculture is brought within the ambit of reform?an area where foreign investment can make a major contribution.
By facilitating the introduction of new production techniques, which are in line with international best practices, the experience of the foreign investor in the farming sector could prove invaluable. The case in point is that of ITC Ltd, where the introduction of Internet-linked kiosks, or e-choupals, set up in around 20,000 villages across the country, has helped the farmer to gain information on agri-prices and thereby negotiate the sale of his produce at best-prevailing rates. Such success stories would surely gather pace once FDI enters the farming sector in a big way.
Another reason for advocating foreign participation in farming is that Indian agriculture is presently in a time warp, burdened with the problem of low productivity, technological obsolescence and inefficient resource use. The sector, which supports 68% of the population, continues to grow at a relatively modest pace with its share in GDP falling to 19%, thereby badly affecting labour absorption in this sector. Besides, value addition in farming is on the decline while its share in capital formation has dropped from 2.2% of GDP in the late nineties to 1.9% at present. Hence, Indian agriculture faces an acute shortage of investible funds for modernisation and infrastructure development programmes. FDI in farming would unleash a new revolution by enabling the farmer to move from supply-driven to market-driven production that would add more value to their products, help secure high returns on investment and thereby improve the monetary status of the farmer. After all, the country gained considerably from harnessing the new seeds technology of the Green Revolution?through the shared expertise of foreign partnership. Foreign expertise could once again be tapped for exploring more sophisticated versions of technology to produce more from our given land resources and, in the process, flagging off a second Green Revolution in the country.
Besides, by forging effective partnership with the farmer, FDI can facilitate efficient market linkages from the farm to the table, transfer know-how and assist in research. Farmer education and information dissemination is another area where the experience of the foreign investor could be shared.
The involvement of FDI in the export of farm produce is yet another uncharted territory. The expertise of the foreign investor could be utilised, especially in those markets that impose stringent sanitary and photo-sanitary conditions on our farm products. Similarly, there are vast vistas of opportunities for foreign assistance in packaging and quality up-gradation.
Finally, opening up the farm sector to foreign companies can help meet the development aspirations of our country. By facilitating productivity improvement in our farm sector, the foreign investor can help in employment generation, poverty alleviation and ensuring food security?and, in the process, ensure welfare gains for the economy. No wonder, all Asian countries are tending towards opening the sector to FDI.
Yet, there are certain aspects that must be considered before opening up farming to FDI. Firstly, priority should be given to reforms. Various laws and regulations, such as the APMC Act, which continue to stifle the growth of the agriculture sector, need to be reviewed. Free inter-state movement of agricultural commodities should be allowed so that the domestic investor is enthused to enter the farm sector.
Lastly, a regulatory mechanism must be in place so that the move does not lead to uprooting and dispossessing marginal farmers who own less than one hectare of land.
?The writer is an economist with PHD Chamber of Commerce & Industry. These are her personal views