Farm reform reversal deterrent to investment


Fierce protest: A farmer fertilises crops on a farm in Madhya Pradesh. India, giving in to its powerful farm lobby, has shelved its most ambitious agriculture overhaul in decades. ― Bloomberg

NEW DELHI: 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 say.

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 US$2.7 trillion (RM11.4 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.

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 US$12.25bil (RM51.8bil) –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. ― Reuters

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