Rajendra Jadhav and Mayank Bhardwaj

NEW DELHI, (Reuters) – India’s decision to repeal agriculture laws aimed towards deregulating produce markets will rob its huge farm sector of private investment. It also means that the government will be saddled with years of budget-depleting subsidies.

Three laws were introduced by Prime Minister Narendra Modi’s government late last year to increase agricultural markets and encourage private investment. This triggered India’s longest running protest from farmers, who claimed that the reforms would permit corporations to exploit their land.

Modi made the agreement to repeal the law in November with an eye to the critical elections in Uttar Pradesh State early next year. He also wanted to ease relations between Modi and the influential farm lobby, which supports almost half the nation’s 1.3billion people and account for 15% of the economy worth $2.7 trillion.

Modi’s backtracking seems to have ruled out the much-needed improvements of the fragile post-harvest supply chains that would cut wastage, increase crop diversification and raise farmers’ incomes.

Gautam Chikermane (senior economist, vice-president, New Delhi’s Observer Research Foundation) stated that “this is not good news for India, and this is not good news for agriculture.”

All incentives for a shift to a market-linked, more efficient system in agriculture have been crushed.”

Farmers are relieved that they won’t lose the minimal price system for essential crops. This, growers claim, will ensure India’s self-sufficiency.

Devinder Sharma a farmer policy expert, who supports the growers’ movement said, “It seems the government recognized that there is merit in farmers’ arguments that opening up this sector would make them susceptible to large companies and hammer commodities prices as well as hit farmers’ income.” 

Chikermane explained that the long, grueling year-long impasse means that no other political party will try to implement similar reforms within the next quarter century.

In the absence of private investments, “inefficiencies will continue delivering wastage and food rotting,” he said.

COLOSSAL WAST

India ranks 101 of the 116 countries included in the Global Hunger Index. 68% child deaths are due to malnutrition.

According to different studies, it still wastes approximately 67 million tonnes worth of food each year. This is nearly five times the amount of large economies.

The main sources of waste are inadequate cold-chain storage, insufficient refrigerated trucks, and insufficient food processing plants.

Private traders, retailers and processors could buy direct from farmers under the farm laws. They would also bypass more than 71,000 government-regulated wholesale marketplaces that are subject to market commissions.

Trader and economists agreed that ending the restriction on food flowing through only approved markets would have encouraged private involvement in the supply chain. It would also give incentives for both Indian companies and multinational corporations to invest in it.

Harish Galipelli director, ILA Commodities India Pvt Ltd said that the agriculture laws would have eliminated one of the greatest obstacles to large-scale farm product purchases by corporations. That would have encouraged corporate investment in modernizing and improving the food supply chain.

Galipelli’s business will have to review its plans.

Galipelli stated that “we had planned to expand our business.” We would have grown if the laws had not been changed.

He said that other firms which specialize in food processing, trading, and warehousing are likely to also review their expansion plans.

PERISHABLE PRICES YO-YO

India also suffers from poor harvest handling, which causes perishables’ prices to go up. Three months ago, tomato prices had crashed and farmers left them on the streets. But now, they are charging consumers a staggering 100 rupees per kilogram ($1.34)

According to Confederation of Indian Industry(CII), an industry association, these laws would have increased the growth of the food processing industry worth $34 million.

The demand for vegetables and fruits would have increased. Execlogists said that surplus rice and wheat production would have been reduced, cutting bulging stocks worth billions in state warehouses.

Sandip Das (a New Delhi-based farmer policy analyst and researcher) stated that crop diversification could also help rein in subsidies spending and reduce the fiscal deficit.

Food Corporation of India, the government crop procurement agency, has accumulated a record 3.81 trillion Rupees (51.83 Billion) of debt in its last fiscal year. This alarming figure was credited with inflating India’s food subsidies bill by a staggering 5.25 Trillion rupees (70.16 Billions) during the period March 2021.

However, the federal government has very limited power to make changes, but local governments “can choose reforms if they have political will to,” Bidisha, an economist with CII, said.

Venture capital-funded startups are also interested in India’s agriculture industry.

Chikermane stated that “Agritech, should it be allowed to grow, can enable better handshakes between farmers and consumers through the technological platforms they use.”

(1 = 74.83 rupees)