Analysis: The reversal of Modi’s agricultural reform to deter investment in Indian agriculture

NEW DELHI, Dec. 5 (Reuters) – India’s repeal of farm laws aimed at deregulating agricultural commodity markets will deprive its vast agricultural sector of much needed private investment and impose budget-sapping subsidies on the government for years, economists said.

Late last year, Prime Minister Narendra Modi’s government introduced three laws designed to open up agricultural markets for businesses and attract private investment, sparking India’s longest-running protest of farmers who said the reforms would allow businesses to exploit them.

In view of a critical election in the populated state of Uttar Pradesh early next year, Modi agreed to repeal the laws in November, hoping to smooth relations with the powerful agricultural lobby which supports nearly half of the country’s 1.3 billion people and accounts for about 15% of the $ 2.7 trillion economy.

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But setting aside the most ambitious redesign in decades, Modi’s throwback now apparently rules out much-needed upgrades to the creaky post-harvest supply chain to reduce waste, boost crop diversification and increase farmers’ incomes, economists said.

“It’s not good for agriculture, it’s not good for India,” said Gautam Chikermane, senior economist and vice president of the New Delhi-based Observer Research Foundation.

“All incentives to move to a more efficient and market-linked system (in agriculture) have been suppressed.”

The turnaround allays farmers’ fears of losing the minimum price system for staple crops, which producers say ensures India’s grain self-sufficiency.

“It seems that the government has realized that the farmers ‘argument that opening up the sector would make them vulnerable to big business, drive up commodity prices and affect farmers’ incomes,” said Devinder Sharma, an expert in agricultural policy who supported producers. ‘ movement.

But the grueling one-year standoff also means that no political party will attempt similar reforms for at least a quarter of a century, Chikermane said.

And, in the absence of private investment, “the inefficiencies of the system will continue to generate waste and food will continue to rot,” he warned.

COLOSSAL WASTE

India ranks 101st 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 each year, worth about $ 12.25 billion – nearly five times that of most major economies – according to various studies.

Inadequate cold chain storage, shortage of refrigerated trucks and insufficient food processing facilities are the main causes of wastage.

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 middleman’s commissions and market fees go downhill. add to costs to consumers.

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

“Farm laws would have removed the biggest barrier to large-scale purchases of agricultural products by big business,” said Harish Galipelli, director of ILA Commodities India Pvt Ltd, which markets agricultural products. “And that would have encouraged companies to invest in reorganizing and modernizing the entire food supply chain.”

Galipelli’s firm will now have to reassess its plans.

“We plan to grow our business,” said Galipelli. “We would have expanded if the laws had stayed.”

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

PERISHABLE YO-YO PRICES

Poor post-harvest handling of produce also causes perishable food prices to yo-yo in India. Just three months ago, farmers were throwing tomatoes on the road as prices plummeted, but now consumers are paying 100 rupees ($ 1.34) per kilogram.

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

The demand for fruits and vegetables is said to have increased. And that would have reduced excess production of rice and wheat, slicing stocks of multibillion-dollar staple foods in state warehouses, economists said.

“Crop diversification would also have helped curb subsidy spending and reduce the budget deficit,” said Sandip Das, New Delhi-based agricultural policy analyst and researcher.

Food Corporation of India (FCI), the state-owned crop sourcing agency, racked up a record debt of 3.81 trillion rupees ($ 51.83 billion) in the past 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 until March 2021. find out more

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

Likewise, venture capital-backed startups have also shown interest in India’s agricultural sector.

“Agritech, if allowed to take root, has the potential to enable a better handshake of farmers and consumers through their technology platforms,” Chikermane said.

(1 = 74.83 rupees)

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Reporting by Mayank Bhardwaj and Rajendra Jadhav; additional reporting from Aftab Ahmed; edited by Gavin Maguire and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.

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