As Govt Sets Eyes on Doubling Farm Incomes by 2022, It's Time India Inc Lends a Hand
Why India Inc shies away from investing in agriculture could be a mix of reasons: small and fragmented land holdings, poor returns on investment, inadequate investment in technological advances.
(Illustration by Mir Suhail/News18.com)
New Delhi: Agriculture accounts for almost one in every two jobs in India and occupies nearly 16 per cent of the Gross Domestic Product (GDP) pie. It is the single biggest source of livelihood for Indians but depends on several vagaries, including those of the weather.
Annual growth rates fluctuate according to these vagaries and despite several schemes by the Centre as well as states to reduce the dependence of our farmers on rain gods, growth has not picked up in recent years.
According to the latest data presented by the Confederation of Indian Industry (CII), average growth in agricultural GDP was not even half the overall GDP growth rate for the last five years. While the country’s GDP growth averaged 7.43 per cent, growth in agricultural GDP was only 3.66 per cent during the last five years. And in 2018-19, agricultural growth fell to just 2.9 per cent.
These numbers clearly show that agriculture has been trailing in recent years as other activities grow. So how will Prime Minister Modi’s oft-repeated mantra of doubling farm incomes by 2022 come to fruition if growth rates across India’s farms are falling instead of picking up? Adding to agri woes, amid all this plateauing of growth in the sector, India Inc has been wary of making any significant investments.
This state of affairs perhaps prompted the Prime Minister to rebuke India Inc in his reply to the motion of thanks to the President’s speech in Lok Sabha on Tuesday. He said, “Agriculture is the backbone of our economy and of the rural economy. But we have to come out of our old practices... we need to handhold the farmers. The corporate world has no investment in agriculture. We will have to motivate them (corporates), we will have to make new policies for them otherwise someone building a tractor believes he has invested (in agriculture). We need their investments and time in food processing, in building warehouses, in building cold storages.” Modi also emphasised on the importance of agricultural exports.
This is not the first time the NDA government has spoken of inadequate corporate investment in agriculture. After chairing the full Planning Commission meeting earlier this month too, Modi had made similar comments.
Weeks before the Union Budget for 2018-19, Niti Aayog member Ramesh Chand had said that relaxed rules for investment in some agricultural areas such as contract farming, marketing, warehouses and food processing were needed to boost corporate investments. He had said that private corporate investments in farming stood at a mere 2% of total annual investments in agriculture and needed to at least be double that number.
The government had earlier constituted an inter-ministerial committee to examine issues relating to doubling farmers’ income by 2022. This committee identified seven sources of income growth and was also looking into the investments in and for agriculture. The areas for investment include agriculture-rural roads, rural electricity, irrigation and the committee was also tasked with devising policy support to enable investments by corporate sector in agriculture.
Why India Inc shies away from investing in agriculture could be a mix of reasons: small and fragmented land holdings, poor returns on investment, inadequate investment in technological advances etc. Ajay Kakra, Director, Agri & Natural Resources — Government Reforms and Infrastructure Development at PwC, pointed out that the policy focus till now has been on attracting big-ticket investments but should now shift to Small and Medium Enterprises and start-ups.
“The incentives in food processing, industry focus on large investment projects of the tune of Rs 10 crore and above. For SMEs to come forward and invest in agriculture, smaller investments also need support. Also, policies should target start-ups in agriculture.”
Let’s look at procurement of wheat, a large crop. The reach of public procurement remains limited and in addition, there are no adequate storage facilities, logistics challenges abound and there are no standard policies on exporting surplus produce. On top of all this, experts say storage limits discourage investments by private stakeholders.
Analysts at HDFC point out that to increase procurement of crops like wheat and rice, government needs to increase the participation of private players in the procurement process. “The government can engage private players for testing and assaying procured crops, warehousing and storage of stocks, and to finally market crops. There are a number of incentives that the government can provide to attract private players such as freeing the private players from stock limits and export restrictions, fixing import duties in a way that the landed price is not less than the domestic price, and giving benefits to the private players for investment in creation of supply chain infrastructure.”
And in its pre-Budget memorandum, the Federation of Indian Chambers of Commerce and Industry (FICCI) has sought tax holidays for the initial 5-7 years for setting up Agri Infrastructure Business. The chamber has also sought public investments in micro irrigation and development of ‘farmgate and near-farmgate storage (of more than 1000 MT)’ on priority under the Rashtriya Krishi Vikas Yojana (RKVY).
It is apparent from the above that India Inc continues to hesitate in investing in agriculture, while expecting the government to step up its investments in the sector. This, despite a clear correlation between growth in farm incomes and the country’s overall economic growth.
CII has itself noted this impact on industry: “Various industries including automotives, consumer durables and others are facing a decline in demand owing to agricultural distress and slow rise in consumption power, which is attributable to the lack of adequate investment in the agricultural sector. Most of the current issues in agriculture relate to poor infrastructure, necessitating the need for improvement in roads, transportation and marketing infrastructure. Such development would help farmers realise better prices for their produce, reduce their stress and increase their purchasing power.”
It is clear that raising farm incomes through increased investment in agriculture is the only road to growth going forward. Since the government is willing and actively engaged now to provide policy support, India Inc would do well to come forward and invest more in agriculture.
(The author is a senior journalist. Views are personal)
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