Long-term impact of agricultural reforms: Rs 80,000-1,00,000 crore private investment, lakhs of jobs possible
November 26, 2020 7:00 AM
The government’s agriculture reforms can potentially attract private investment of Rs 80,000-1,00,000 crore, and create employment for 15-20 lakh people. About Rs 93,000 crore is wasted every year due to poor storage and transport infrastructure. Private sector involvement can reduce this wastage significantly.
The currency markets also apprehend foreign flows into the equity markets could slow after record levels of buying; so far in January, however, FPIs have been big buyers.
By Gaurav Taneja & Satyam Shivam Sundaram
The agricultural sector reforms announced by the government of India will, over the next few years, not only transform agriculture, but potentially all of the rural economy. The reforms are aimed at reducing regulatory constraints, bringing greater certainty and transparency in decision-making, and providing choices to both farmers and the industry. The reforms lay down the direction, policy and framework for organised private players to invest across the value chain of the agricultural sector, and thereby bring higher levels of prosperity to all the players in the sector.
The reforms will trigger consolidation and integration of the agricultural value chain where there will be tighter coupling between market requirements and the quality and quantity of production by farmers. A critical prerequisite for this integration is aggregation of produce through farmer producers’ organisations (FPOs). An FPO is an organised body of farmers in a local area. The FPOs will become the channel to contract farming, trading and processing of agricultural produce, among other things. Currently, there are approximately 6,000 FPOs and the government intends to create another 10,000 in the near future.
The integration will bring a higher level of mechanisation, which is currently at 40% and lower than China’s (60%), Brazil’s (75%), and the US’s (95%). As seen in similar but more advanced agriculture economies, we expect consolidation of crop management services with aggregators, who will have custom hiring centre (CHC) entrepreneurs on one side and value chain integrated players on the other side as buyers. Additionally, mechanisation shall also be facilitated by renting of equipment through the establishment of new private CHCs having tractors, irrigation pumps and harvesters, among others.
According to our estimate, a minimum of 2,000-2,500 new CHCs are expected to be set up in the next five years. These centres would attract an investment Rs 2,000 crore from the private sector and create employment for 30,000 to 40,000 people per year. Similarly, agriculture inputs and seeds would also see an uptake from the private sector in the form of investments in research and development (R&D) to develop organic, micro-nutrients and high-quality seeds. Private investments would also be made in the micro-irrigation segment, coupled with the development of strong market linkages.
According to budget estimates, approximately Rs 93,000 crore is wasted every year due to poor storage and transport infrastructure. Private sector involvement can reduce this wastage significantly by building relevant storage infrastructure. With an estimated production of 300 MMT of produce in the current fiscal year, an additional storage of 70-80 MMT on an aggregate level is required. According to our estimates, assuming that the private sector constructs 40-50 MMT storage during the next five years, an investment of Rs 20,000-25,000 crore is expected, generating employment for 5 lakh people each year during the construction phase. Further, 5 lakh people per year can be employed to handle the produce at these warehouses. In addition, Rs 5,000 crore may get infused to modernise and introduce technology at existing warehouses having a capacity of 91 MMT. An equivalent of 1 lakh people may be employed for a year as part of this modernisation.
A critical activity in the value chain is trading. There are about 7,320 Agricultural Produce Market Committee (APMC) regulated principal or sub-market yards in India, which are not sufficient. According to our estimate, with deregulation, around 5,000 private mandis and procurement centres are expected come up in the next five years with an investment of Rs 15,000 crore, generating an employment for 20,000 to 30,000 people per year. Further, we estimate more than 20,000 sorting, grading and packaging centres to come up in the next five years with an investment of Rs 10,000-15,000 crore, generating employment for another 1 lakh people. A critical aspect of trading is quality-assaying. At least 2,000 assaying centres within mandis and 5,000 outside mandis may get established to facilitate trade in the next few years. According to our estimate, this initiative will employ approximately 20,000-25,000 people with an investment of Rs 10,000-15,000 crore. Central accreditation (a regulatory mechanism) may need to be set up to certify quality and reliability of these centres.
Additionally, private sector e-commerce platforms are also likely to be developed. In this context, there is an immediate need to address two areas that positively impact market access for farmers. Firstly, quality standards for 175 commodities have been developed under e-NAM and the same should be adopted across all trading platforms. Secondly, there is a need to develop common standards to ensure interoperability across platforms.
Food processing near the farmgate is an area that will attract private investments. According to our estimate, 100 processing clusters and 20 mega food parks can be developed to bring an investment of Rs 5,500 crore and generating employment for 1.5 lakh people per year.
The impact of the reforms along with some of the implementation follow-up suggested above may help farmers boost their income through direct sale and contract farming by 25-30%. An additional income of 10-25% may accrue on account of preserving the quality of the produce through better post-harvest management.
The above investments of Rs 80,000 crore to Rs 1,00,000 crore and employment for 15-20 lakh people would be realised only when the implementation is effective and efficient. This impact can be achieved through a reform implementation process that is inclusive and helps all stakeholders co-implement the vision in an environment of partnership and trust.
(Authors are partners, Government and Public Sector, EY India)