FOREIGN DIRECT INVESTMENT and

INDIAN AGRICULTURAL

SECTOR JISHIN JAFAR

SOME FEATURES •75 per cent of the rural population - main resource of livelihood/occupation

it employs about 55 per cent of the labor forcecontributes to only 15.2 per cent of GDP in FY 2015- 2016 and 14.05 per cent of all exports.India being a participant to World Trade Organization’s General Agreement on Trade in Services - open up the retail trade sector to foreign investment

•The retail sector in India is a key contributor to the country’s economy- 22% to GDP in 2011

•In 2012 GOI framed major liberalization policies to support and encourage the sector•100% FDI allowed in many agriculture related sectors - Horticulture, development of seeds....•In India Agricultural retail market is highly patchy and unorganized.profit potential of agricultural sector has declined substantially due to continuous increase of input cost and stagnant crop price

Agriculture and farmer’s welfare

Budget Highlights: Allocation for Agriculture and Farmers’ welfare is Rs.35,984 croreBring28.5lakh hectare to be brought under irrigation and implementation of 89 irrigation projects under AIBPA provision of Rs.12,517 crore has been made through budgetary support and market borrowings to achieve a dedicated Long Term Irrigation Fund, to be created in NABARD with an initial corpus of about Rs.20,000 crore

Promotion of organic farming schemesSustainable ground water management program with an estimated cost of Rs.6,000 to be implemented through multilateral funding2,000 model retail outlets of Fertilizer companies to provide soil and seed testing facilitiesProvision of Rs.15,000 crore made to wards interest subvention

Allocation for rural sectors –Rs 87,765 croreGrants to Gram Panchayats and Municipalities amounting to Rs 2.87 lakh crore to be providedA sum of Rs. 38,500 crore allocated for MGNREGS100% village electrification by 1st May 2018Allocation for social sector including education and health care Rs .1.51crore

A new digital literacy mission scheme for rural India to cover around 6 crore additional household within next 3 yearsRs. 2,000 crore allocated for initial cost of providing LPG connections to below poverty line familiesNew health protection scheme would provide health cover up to Rs .1 lakh per family and additional Rs. 30,000 for senior citizens

FDI STATUS IN INDIA

• Economic Liberalization under SAP – 1991 with support of IMF & WB

• Foreign Investment Implementation Authority (FIIA) – Aug 1999

Trend of FDI in IndiaFOREIGN DIRECT INVESTMENT INFLOW IN INDIA

SINCE 1991

1991

- 92

1993

-94

1995

- 96

1997

- 98

1999

- 200

0

2001

- 02

2003

- 04

2005

- 06

2007

- 08

2009

- 10

2011

- 12

2013

- 14

0

10000

20000

30000

40000

50000FDI INFLOWS( US $ million)

Source: Economic Survey, GOI(various)

FDI IN AGRICULTURAL SECTOR In India (with effect from 5th April, 2013) FDI is permitted, in order to promote private

sector participation, in agriculture sector is permitted, through automatic route up to 100% in

the following works:

Development and production of seeds and

planting material.

Services related to agro and allied sectors.

Floriculture Horticulture Apiculture Cultivation of vegetables & mushrooms

UNDER CONTROLLED CONDITIONS

Animal husbandry

Pisciculture Aquaculture

FDI INFLOWS IN AGRICULTURE SECTOR(From April, 2000-March, 2016 -US $ in

millions) SECTOR CUMULATIVE

INFLOWPERCENT

FOOD PROCESSING INDUSTRIES 6,815.69 2.36%AGRICULTURE SERVICES 1,844.31 0.64%RUBBER GOODS 2084.26 0.72%VEGETABLE OILS AND VANASPATI 407.16 0.18%AGRICULTURAL MACHINERY 433.99 0.15%FERTILIZERS 318.55 0.14%TEA AND COFFEE (PROCESSING &WAREHOUSING COFFEE & RUBBER)

109.69 0.04%

Source: DIPP, Ministry of Commerce & Industry, GOI.

FDI Inflows in Different

agriculture Sector

FDI INFLOWS IN DIFFERENT AGRICULTURAL SECTOR

1.Food Processing Industries Food Industry in India and accounts for 32

per cent share in the industry FDI inflows to food processing industry is

$ 325.93 million by 2009 In 2015 - $ 463 million The food processing industry contributes

to 6.3 % of GDP 19 % to the Indian industry, and 13 % to

the export production 3 % is the India's global food trade in

2015 Perishable food items 20%

This legislation has also allowed a 100 % tax deduction on profits for five years and 25 % for the next five years especially to the upcoming agro-processing industries.

100 % FDI is permitted in almost all the food processing units with the exception of alcohol.

2 FDI Inflows to Agriculture Services Mainly 3 bodies define the future of

Indian agriculture sectorMinistry of Agriculture, the

Ministry of Rural Infrastructure, and the Planning Commission of India

FDI Inflows to Agriculture Services up to 100% - automatic route covering horticulture, floriculture, development of seeds, animal husbandry, aqua culture, cultivation of vegetables

inflows to agriculture services also facilitated growth of other allied areas like Irrigation, Roads, Housing, Water Supply, Electrification, and

3 FDI Inflows to Agricultural Machinery• 100% foreign direct investment allowed in

the machinery that related to FDI allowed service sectors.

OPPERTUNITIES AND CHALLENGES

Positive outcomesI. Adequate flow of capital into rural

economyII. Pull up the quality standards and cost

competitiveness of farmersIII. Improve transportation, distribution,

storage, andIV. packaging facilitiesV. Irradiation of concept of the middlemanVI. Job opportunities.

Disadvantages I. Small retailers and owners of Pop and Mom

stores might sufferII. There might be job losses in the

manufacturing segment. III. Loss job opportunities to semi-illiterate

peopleIV. The Indian retailers might not be able to

cope up with the increasing competition from the foreign retailers who are well prepared with better infrastructure and management procedure

V. FDI will drain out the country’s share of revenue to foreign countries which may cause negative impact on India’s overall economy

FDI in retail is going to attract many foreign players but the GOI must welcome them with a talented pool of Human resources

Protection must be given to small and medium retailers as retailing is their source of livelihood

The government must properly discuss about the pros and cons of allowing 51% FDI in multi brand retail with a law in place to control unfair competition

FDI will control inflation rate since it will prevent the farm wastage which at present is around 30%-40% of total produce

Conclusion

References RBI (2012), Handbook of Statistics on Indian Economy, http://www.rbi.org.in Department of Industrial Policy and Promotion, (2010) “Foreign Direct Investment (FDI) in MultibandRetail Trading,” Discussion paper, http://www.dipp.nic.in

Indian Economic Survey 2016, Ministry of Finance

Socio – Economic voices, http://www.indiastat.com