NEW DELHI, Dec 5 (Reuters) – India’s repeal of agricultural laws aimed at deregulating product markets will deprive its vast agricultural sector of much-needed private investment and burden the government with budget-damaging subsidies for years, economists said.
Late last year, Prime Minister Narendra Modi’s government passed three laws aimed at opening up agricultural markets to business and attracting private investment.
Facing a critical election in the populous state of Uttar Pradesh early next year, Modi agreed to repeal the laws in November in hopes of improving ties with the powerful peasant lobby that serves nearly half of the country’s 1.3 billion people and about 15% of the $ 2.7 trillion economy.
Register now for FREE unlimited access to reuters.com
But with Modi putting the most ambitious overhaul in decades on hold, Modi’s pull back now apparently precludes much-needed upgrades to the creaky post-harvest supply chain to reduce waste, boost crop diversification, and increase farmers’ incomes, economists said.
“This is not good for agriculture, this is not good for India,” said Gautam Chikermane, senior economist and vice president of the New Delhi-based Observer Research Foundation.
“All incentives for a transition to a more efficient, market-based system (in agriculture) have been stifled.”
The turnaround dispels farmers’ fears of losing the minimum price system for staple foods, which producers say India guarantees self-sufficiency in grain.
“It appears that the government has recognized that the farmers ‘argument is valid that opening up the sector would leave them vulnerable to large corporations, skyrocket commodity prices and hurt farmers’ incomes,” said Devinder Sharma, an expert on Agricultural policy that supported the farmers’ movement.
But the grueling year-long stalemate also means no political party will seek similar reforms for at least a quarter of a century, Chikermane said.
And without private investment, “inefficiencies in the system will continue to lead to waste and food will continue to rot,” he warned.
India ranks 101st out of 116 countries on the World Hunger Index, with malnutrition accounting for 68% of child deaths.
Still, around 67 million tons of food worth about $ 12.25 billion is wasted each year – almost five times as much as most major economies – according to various studies.
Inadequate cold chain storage, lack of refrigerated vehicles and inadequate food processing facilities are the main sources of waste.
The farm laws promised to allow private traders, retailers and food processors to buy direct from farmers and bypass more than 7,000 state-regulated wholesale markets where middleman commissions and market fees increase consumer costs.
Removing the rule that food must flow through the approved markets would have encouraged private participation in the supply chain and incentivized both Indian and global companies to invest in the sector, traders and economists said.
“The agricultural laws would have removed the biggest barrier to large-scale purchases of agricultural goods by large corporations,” said Harish Galipelli, director of ILA Commodities India Pvt Ltd, which trades in agricultural goods. “And that would have encouraged companies to invest in transforming and upgrading the entire food supply chain.”
Galipelli’s company now has to rethink its plans.
“We had plans to grow our business,” said Galipelli. “We would have expanded if the laws had stayed.”
Other firms specializing in warehousing, food processing and trading are expected to review their expansion strategies as well, he said.
Perishable prices YO-YO
The poor handling of the products after harvest also causes the prices of perishable goods in India to rise to Jojo. Just three months ago, farmers tossed tomatoes on the streets when prices plummeted, but now consumers are paying a whopping 100 rupees ($ 1.34 per kg).
The laws have helped the $ 34 billion grocery sector grow exponentially, according to the Confederation of Indian Industry (CII).
The demand for fruit and vegetables would have increased. And that would have reduced excess rice and wheat production and cut billions of dollar staple stocks in state warehouses, economists said.
“Crop diversification would also have helped contain subsidy spending and reduce the budget deficit,” said Sandip Das, a New Delhi-based researcher and agricultural policy analyst.
Food Corporation of India (FCI), the state plant procurement agency, has amassed a record debt of 3.81 trillion rupees ($ 51.83 billion) through its most recent fiscal year, alarming policymakers and pushing the country’s food subsidy bill to a record high 5.25 trillion rupees (70.16 billion US dollars)) in the year ended March 2021. read on
However, while the federal government has limited scope for change, local authorities “can choose to reform if they have the political will,” said Bidisha Ganguly, an economist at CII.
Similarly, venture capital funded startups have shown interest in the Indian agricultural sector.
“Agritech, if allowed to take root, has the potential to enable better handshakes between farmers and consumers through its technology platforms,” said Chikermane.
(1 = 74.83 rupees)
Register now for FREE unlimited access to reuters.com
Reporting by Mayank Bhardwaj and Rajendra Jadhav; additional coverage from Aftab Ahmed; Adaptation by Gavin Maguire and Kim Coghill
Our standards: The Thomson Reuters Trust Principles.