ITM EEC Batch 13B Macroeconomics Presentation By Manda Mahatre Sarghinitra Kamble Amita Panchal Moncy Mathai

1. The Environment for Agricultural and Agribusiness Investment in India

2. Presented by- Dr. Manda Mhatre Ms.Sanghmitra Kamble Ms.Amita Panchal Mr.Moncy Mathai

4. INTRODUCTION- India, with one of the world’s fastest growing and most populous economies and one of its largest farm sectors, is emerging as a potentially large market for global agricultural trade and investment. Despite the rapid productivity gains occurring in India’s service and manufacturing sectors, average crop yields remain below potential, agricultural markets are underdeveloped, and growth in farm output has slowed. Policymakers are increasingly focused on how to strengthen agricultural investment and growth, raise rural incomes, and help sustain rapid overall gains in income growth and poverty reduction.

6. Trends in agriculture investment

7. 1.Output and investment in indian agriculture does not show any encouraging growth as in the indian economy. 2. Real growth in GDP and in investment which is captued by GFCF Stronger from 1990 till date . 3.Annual share of GDP i.e. invested in GFCF average increase 27% for overall economy during 2005 to 2007, but agriculture contributed only 7 % 4. Rate of investment continuesly rising in overall economy but rate of investment inagriculture is decline during 2000 to 2007 (Sources RBI, Handbook of statistics 2007)

9. Investment “In” and “For” Agriculture IN agriculture. Basically the investment for public and private IN agriculture is less , which is actually for construction, farm equipment, irrigation and other land improvement. FOR Agriculture. Related to market , storage facility , roads , electrification more investment. Investment FOR agriculture is much faster than IN agriculture and by combining this also shows small share of GDP

11. Agriculture investment in India compared with other countries

12. Public and Private Investment Public investment IN and FOR agriculture has averaged roughly half the size of private investment, and grew much more slowly than private investment during both the 1980s and 1990s . Weak public investment in agriculture has corresponded with rapid expansion of public expenditures on price subsidies for the sector (fig. 2), including price supports and subsidized storage and distribution for wheat and rice (the so-called “food grain subsidy”), as well as price subsidies for electricity, irrigation water, and fertilizer (Srinivasan et al., 2007; Landes and Gulati, 2004).

15. Foreign Direct Investment

19. Sources of Foreign Direct Investment Island nation of Mauritius- 37 percent United States - 15 percent European Union- 24 percent The countries of East Asia -13 percent.

23. India's youthful demographic – about 34%of the population was age14 or under 2001 which is also a driver of food demand Urban share of India's population was 27.8%in(285 million)2001Overall robust prospects for growth and diversification of food demand in India Contrast sharply sluggish agriculture investment.

27. Policy Factors Affecting Investment- The primary goal -- To enhance food security by ensuring adequate supplies of food staples at affordable prices and to support employment growth through labor-intensive import substitution .

28. 1.India’s Constitution vests the governments of India’s 35 States and UnionTerritories with most of the authority to make and implement regulations and policies affecting the agricultural sector. 2.Central government influence over the regulations and policies promulgated by the States stems largely from the extent to which States are dependent on the central government for funds. 3.Many States tend to have unique regulations and policies, which across State lines. The necessity for obtaining State-by-State legislation and implementation can also slow the process of reform.

29. Overall, the analysis of individual factors indicates that the regulatory and policy climate is becoming more supportive of new investment by farmers and agribusiness, but it is not clear if the completed reforms will be adequate to stimulate rapid growth in investment, or if the process of implementing reforms will be sustained.

30. The Essential Commodities Act The Essential Commodities Regulation & Enforcement Act of 1955 (or ECA) authorizes the Central and State Governments to make broad ranging interventions in the markets for essential food products to ensure their availability and to protect consumers from possible exploitation by commercial traders (Government of India, Ministry of Consumer Affairs, Food, and Public Distribution, 2007).

31. .The ECA gives authority to the Central and State Governments to intervene at any level of the supply chain, including• Regulating production or manufacture of essential commodities; • Controlling the price at which essential commodities are bought or sold ; • Prohibiting the withholding from sale of any essential commodity ordinarily kept for sale (stock holding limits); • Restricting or preventing private movement of essential commodities across district or State borders.

32. State Agricultural Produce Marketing Committee Acts- Under the authority of India’s Agricultural Produce Marketing Act of 1972 (and its amendments), most Indian States have similar acts (Agricultural Produce Marketing Committee, or APMC, Acts) that regulate the establishment of markets and the marketing of agricultural produce. These acts are intended to ensure that all (or most) trade between farmers and initial buyers occurs through a regulated market, primarily to protect farmers from unfair or exploitative trading practices. But the requirement to market all produce through the regulated markets also facilitates the collection of marketing taxes and fees for State and local governments.

33. Land Tenure Policies About 63 percent of India’s land is farmed in operational holdings of less than 4 hectares, and holdings are becoming more fragmented as farms are divided through inheritance (table ). India’s average operational holding of just 1.3 hectares is larger than in China and some other developing countries, but small relative to holdings in other major agricultural regions such as the United States, the EU, Brazil, Argentina, Canada, and Australia. Throughout India, national and State laws prevent private companies, as opposed to individuals, from owning agricultural land except for specific approved purposes, such as producing seed or conducting scientific research.

35. Credit Policies 1 -India’s agricultural credit system an extensive network of cooperative ,public sector, and commercial banks—has significantly improved both the availability and terms of credit for agriculture and allied activities since the late 1990s. 2.-An important mechanism for expanding the availability and use of credit by producers has been “Kisan (Farmer) Credit Cards.” The cards were introduced in 1998 and, by 2006, were available to about 64.5 million farmers (Government of India, Ministry of Finance, Economic Survey, 2008). 3-Despite the improved availability of institutional credit, about 41 percent of Indian farmers, often those with smaller landholdings, remain dependent on traditional moneylenders at other non institutional sources of credit Government of India, Ministry of Statistics and Program Implementation, 2005).

39. Power costs for both agricultural and household (domestic) uses in India are low by international standards .

40. Transportation More than two-thirds of India’s domestic freight is transported by road, with the remainder shipped primarily by rail. India’s road freight transport sector, while competitive and low-cost compared with other countries , tends to be slow and unreliable.

41. Water Growth in irrigated area has boosted Indian farm output through both higher yields and increased cropping intensity. About 54 million hectares—or 30% of all agricultural land—is now irrigated, making India second only to China in irrigated area

42. Agricultural Research and Extension India has one of the largest public sector agricultural research and extension systems in the world, as well as a growing private sector research and extension industry.

44. Prospects for Agricultural Investment Continued sluggish private investment in Indian agriculture and agri business since the early 1990s, despite sustained high growth in consumer incomes and food demand, suggests that policy and infrastructure factors have been adeterrent to new investment. During much of the 1990s, agricultural trade and price policies resulted in taxation of agricultural production despite substantial and rising farm subsidies. Private investment in food marketing ventures has increased noticeably in the last several years (table 9). These new ventures collectively amount to $10-$20 billion over the next 5-7 years to develop supply chains and “front-end” retail outlets. This activity represents a turnaround in investor confidence.

45. Recent investment in India’s food marketing sector includes a number of ventures by foreign investors, including a Wal-Mart collaboration with the Indian conglomerate Bharti. Since India does not permit foreign direct investment (FDI) by multi-brand retailers, foreign investment has taken the form of wholesale (or “cash and carry”) trading enterprises, or partnerships with Indian “franchisees” who own the retail outlets. Other than multibrand retailing, all other areas of agricultural processing and marketing are open to FDI. While the FDI restrictions on retailing may be deterring some foreign investment in agricultural marketing, the increased activity in chain food retailing by many of India’s largest domestic companies indicates their confidence in a supportive policy environment.

46. SUMMARY- 1.Public and private investment in agriculture and agriculture investment remained weak in early1990s despite accelerating growthin overall economy. 2.Indias numerous domestic policies along with weak infrastructure &limited institutional support for agriculture market have deterrent to investment

47. 3.For farmers disincentives,insuffiecient markets and very few public & private marketing services & small farmers limited access towards the market resulted into limited investment. 4.But 2000 onwards scenario was changed due to the policy environment which is shown With the higher market price & imput subsidies for farmer

48. THANK YOU