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

CommoditiesDec 05, 2021 07:36PM ET
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© Reuters. FILE PHOTO: Farmers gather to mark the first anniversary of their protests on the outskirts of Delhi at Pakora Chowk near Tikri border, India, November 26, 2021. REUTERS/Anushree Fadnavis

By Mayank Bhardwaj and Rajendra Jadhav

NEW DELHI (Reuters) -India's repeal of agriculture laws aimed at deregulating produce markets will starve its vast farm sector of much-needed private investment and saddle the government with budget-sapping subsidies for years, economists said.

Late last year, Prime Minister Narendra Modi's government introduced three laws meant to open up agriculture markets to companies and attract private investment, triggering India's longest-running protest by farmers who said the reforms would allow corporations to exploit them.

With an eye on a critical election in populous Uttar Pradesh state early next year, Modi agreed to rescind the laws in November, hoping to smooth relations with the powerful farm lobby which sustains nearly half the country's 1.3 billion people and accounts for about 15% of the $2.7 trillion economy.

But by shelving the most ambitious overhaul in decades, Modi's backtracking now seemingly rules out much-needed upgrades of the creaky post-harvest supply chain to cut wastage, spur crop diversification, and boost farmers' incomes, economists said.

"This is not good for agriculture, this is not good for India," said Gautam Chikermane, a senior economist and vice president at New Delhi-based Observer Research Foundation.

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

The u-turn does allay farmers' fears of losing the minimum price system for basic crops, which growers say guarantees India's grain self-sufficiency.

"It appears the government realised 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," said Devinder Sharma, a farm policy expert who has supported the growers' movement. 

But the gruelling year-long standoff also means no political party will attempt any similar reforms for at least a quarter-century, Chikermane said.

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

COLOSSAL WASTE

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

Yet it wastes around 67 million tonnes of food every year, worth about $12.25 billion - nearly five times that of most large economies - according to various studies.

Inadequate cold-chain storage, shortages of refrigerated trucks and insufficient food processing facilities are the main causes of waste.

The farm laws promised to allow private traders, retailers and food processors to buy directly from farmers, bypassing more than 7,000 government-regulated wholesale markets where middlemen's commissions and market fees add to consumer costs.

Ending the rule that food must flow through the approved markets would have encouraged private participation in the supply chain, giving both Indian and global companies incentives to invest in the sector, traders and economists said.

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

Galipelli's firm will now have to re-evaluate its plans.

"We have had plans to scale up our business," said Galipelli. "We would have expanded had the laws stayed."

Other firms specialising in warehousing, food processing and trading are also expected to review their expansion strategies, he said.

PERISHABLE PRICES YO-YO

Poor post-harvest handling of produce also causes prices of perishables to yo-yo in India. Only three months ago, farmers dumped tomatoes on the road as prices crashed, but now consumers are paying a steep 100 rupees ($1.34) a kg.

The laws would have helped the $34 billion food processing sector grow exponentially, according to the Confederation of Indian Industry (CII), an industry group.

Demand for fruits and vegetables would have gone up. And that would have cut surplus rice and wheat output, slicing bulging stocks of the staples worth billions of dollars in state warehouses, economists said.

"Crop diversification would also have helped rein in subsidy spending and narrow the fiscal deficit," said Sandip Das, a New Delhi-based researcher and farm policy analyst.

Food Corporation of India (FCI), the state crop procurement agency, racked up a record 3.81 trillion rupees ($51.83 billion) in debt by last fiscal year, alarming policymakers and inflating the country's food subsidy bill to a record 5.25 trillion rupees ($70.16 billion) in the year to March 2021.

However, while the federal government now has limited scope for change, local authorities "can opt for reforms provided they have the political will to do so," said Bidisha Ganguly, an economist at CII.

Similarly, venture capital-funded startups have also expressed interest 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 said.

(1 = 74.83 rupees)

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

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Comments (5)
Gyanendra Awasthi
Gyanendra Awasthi Dec 05, 2021 10:23PM ET
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Govt handling of the issue has been full of arrogance of the fools order , to the extent of inhumanity.
Ricky Singh
Ricky Singh Dec 05, 2021 3:52AM ET
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Laws put into place were for the Tycoons , for the rich to be more richer and control more of the nation’s farming and most of indian population is of farmers so in the end farmers were suppse to suffer and the Rich would get more richer and these laws were not for any kind of support to farmers or make anything better for them. These laws taken back are clear win of the farmers and this biggest protest of famers ! Country has gone downhill under Modi and this is high time , the corrupt manipulative BJP to step away and some right people come forward and steer nation in right direction , improve economy and do right whats for nation and not just spend time money energy in just changing names of places and history etc and building statues whereas this money could have been for poor , to generate jobs etc
Perma Neutral
PermaNeutral Dec 05, 2021 3:52AM ET
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This money could have been better used for scams and filling up Modi’s pockets.
Kaveh Sun
Kaveh Sun Dec 04, 2021 10:10PM ET
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By gov subsidies, farmers getting free monies from others. Capitalist is cold. If there is no demand, they dont buy; This is when gov should step in to buy, help farmers. Otherwise, gov should stay out to prevent wasting tax payers money n inefficiencies.
Kumar Ŋĩĸħił
Kumar Ŋĩĸħił Dec 04, 2021 9:00PM ET
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Laws were not bad its just that nowhere it was mentioned that the government will put control over the privates so  that farmers could not get exploited. Also why was the government silent over the MSP and why was it not mentioned in the bill anywhere?
S S Shet
pingo_0070 Dec 04, 2021 8:47PM ET
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finally anti nationals won ...
Kumar Ŋĩĸħił
Kumar Ŋĩĸħił Dec 04, 2021 8:47PM ET
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wow nationalist. So according to you all the farmers are anti national. Do one thing dont eat from tomm because its being produced by an anti national
nik wallace
nik wallace Dec 04, 2021 8:47PM ET
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prove that all farmers were against these laws, there was only political opposition and govt surrendered because of fear of losing votes।। any ways those who losing money they should cry , either dalal or farmers , I don't care
 
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