Date:25/07/2006 URL: http://www.thehindubusinessline.com/2006/07/25/stories/2006072500331000.htm

Back Sowing FDI

With farm investment falling, the Government must explore ways to augment finances.

In response to the Left parties' opposition to opening up agriculture for 100 per cent Foreign Direct Investment under the automatic route, the Government has gone on the defensive and hastily clarified the policy on FDI in farm and plantation sector. It has clarified that 100 per cent FDI under the automatic route is allowed in floriculture, horticulture, development of seeds, animal husbandry, pisciculture, aquaculture, cultivation of vegetables, mushrooms under controlled conditions, and services relating to agro and allied sector. While 100 per cent FDI with government approval is permitted in tea plantation, in others some conditions have been set, including divestment of 26 per cent equity of the company in favour of an Indian partner or the public. By way of abundant caution, the Government has further clarified that FDI is not allowed in any other agricultural sector/activity.

Over three years ago, the policymakers singled out tea plantation for 100 per cent FDI, primarily because prices of the commodity had remained low for an extended period, leading to abandonment of estates. Opening up the plantation sector was projected as part of the ongoing economic liberalisation process. But with overseas investor interest lukewarm, it has been nothing short of a policy failure. The proposal to open up coffee cultivation to overseas investment has not seen the light of the day. After prices of plantation crops bottomed out, a couple of years ago, no one has been pushing for FDI.

A major problem confronting the country's agriculture is falling investment. The decline in the share of the agricultural sector's capital formation in GDP from 2.2 per cent in the late 1990s to 1.7 per cent in 2004-05 is a matter of serious concern. During the same period the annual average growth rate of agriculture declined from a healthy 4.5 per cent (during the Eighth Plan) to just about 1.5 per cent (first four years of the Tenth Plan). In addition to chronic shortages of essential food crops such as pulses and oilseeds, supplies of wheat and coarse cereals are tightening. These developments have thrown up new challenges in terms of food and nutrition security. Far from being an overnight phenomenon, the agrarian crisis has been growing for some years and the country is reaping its impact. The farm crisis needs to be addressed comprehensively. Either the Government finds sufficient investible funds for agriculture or explores ways to augment finances.

Apart from the general fear that foreign investment will deepen the agrarian crisis, the specific concerns of the Left parties are far from clear. It is absolutely necessary for them to spell out their reservations. Adequate checks and balances can be built into the investment policy, whose mandate must be to create the conditions necessary for investments that would help raise output and incomes for growers. Instead of succumbing to political pressure, the Government must start a national debate on the subject.