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Analysis: Modi’s farm reform reversal to deter investment in India’s agriculture

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NEW DELHI, DECEMBER 5 (Reuters) – The repeal of India’s agricultural laws aimed at deregulating the produce markets will starve its huge agricultural sector with much-needed private investment and equip the government with budget-saving subsidies for years, economists said.

Late last year, Prime Minister Narendra Modi’s government introduced three laws designed to open up agricultural markets to companies and attract private investment, sparking India’s longest protest by farmers who said the reforms would allow corporations to take advantage of them.

With an eye on critical elections in the populous Uttar Pradesh state early next year, Moody agreed to repeal the laws in November, hoping to smooth relations with the powerful agricultural lobby that supports nearly half of the country’s 1.3 billion residents and makes up about 15 percent of the country’s population. $ 2.7 trillion economy.

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But by shelving the most ambitious renovation in decades, Moody’s setback now ostensibly negates necessary upgrades in the post-harvest squeaky supply chain to reduce waste, spur crop diversity and increase farmers’ incomes, economists said.

“It’s not good for agriculture, it’s not good for India,” said Gutam Chickerman, a senior economist and vice president at the Observer Research Foundation in New Delhi.

“All incentives to move to a more efficient and market-linked system (in agriculture) have been stifled.”

Horseshoe turning alleviates farmers’ fears of losing the minimum price system for basic crops, which growers say is India’s self-sufficiency.

“The government seems to have understood that there is a point in farmers’ argument that opening up the sector will make them vulnerable to large companies, hurt commodity prices and hurt farmers’ incomes,” said Devinder Sharma, an agricultural policy expert who supported growers’ movement.

But the grueling year-long struggle also means no political party will attempt similar reforms for at least a quarter of a century, Chickerman said.

And in the absence of private investment, “the inefficiency in the system will continue to provide waste and food will continue to rot,” he warned.

Tremendous waste

India is ranked 101st out of 116 countries in the global hunger index, with malnutrition accounting for 68% of child deaths.

However, it spends about 67 million tons of food each year, worth about $ 12.25 billion – almost five times that of most large economies – according to various studies.

Insufficient storage in the refrigeration chain, shortage of refrigerated trucks and insufficient food processing facilities are the main causes of waste.

Farm laws have promised to allow private traders, retailers and food processors to buy directly from farmers, bypassing more than 7,000 government-controlled wholesale markets, where brokerage fees and market fees add to consumer costs.

Closing the rule that food must flow in happy markets would encourage private participation in the supply chain, and provide incentives for both Indian and global companies to invest in the sector, traders and economists said.

“Agricultural laws would remove the biggest obstacle to large-scale purchases of agricultural products by large corporations,” said Harish Glipley, director of ILA Commodities India Pvt Ltd, which trades in agricultural products. “And it would have encouraged corporations to bring in investments to innovate and renew the entire food supply chain.”

Glipley’s company will now have to re-evaluate its plans.

“We had plans to grow our business,” Glipley said. “We would have expanded if the laws had remained.”

Other companies specializing in warehousing, food processing and commerce are also expected to examine their expansion strategies, he said.

Consumable prices yo-yo

Poor handling of produce after harvest also causes prices of bio-yo consumables in India. Just three months ago, farmers threw tomatoes on the road when prices fell, but now consumers are paying 100 rupees ($ 1.34) per kilogram.

The laws would help the $ 34 billion food processing sector grow exponentially, according to the Confederation of Indian Industry (CII), an industrial group.

The demand for fruits and vegetables was rising. And that would cut back on rice and wheat output, and inflate billions of dollars worth of basic commodities in state warehouses, economists said.

“Crop diversity would also help curb subsidy spending and reduce the budget deficit,” said Sandip Das, a New Delhi farm policy researcher and analyst.

The Indian Food Corporation (FCI), the state crop procurement agency, accumulated a record debt of 3.81 trillion rupees ($ 51.83 billion) by the fiscal year, worried policymakers and inflated the country’s food subsidy account to a record 5.25 trillion rupees ($ 70.16 billion). ). ) In the year to March 2021. Read more

However, while the federal government now has limited room for change, local authorities “can opt for reforms provided they have a political will to do so,” said Gangisha Ganguli, an economist at CII.

Similarly, venture capital finance start-ups have also expressed interest in India’s agricultural sector.

“Agritech, if allowed to take root, has the potential to enable better handshakes from farmers and consumers through their technology platforms,” ​​Chickerman said.

(1 = 74.83 rupees)

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Report by Mayank Bhardwaj and Rajendra Jadhav; Another report by Aptab Ahmad; Edited by Gavin Maguire and Kim Coughhill

Our standards: The principles of trust of Thomson Reuters.

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