Role of Foreign Direct Investment (FDI) in the Growth of Indian Livestock Sector
INTRODUCTION
Livestock plays an important role in economic development of any nation including India. The contribution of agricultural sector to national Gross Domestic Product (GDP) has continued to decline over the years; while that of other sectors, particularly services, has increased. Presently, agriculture contributes 16.9 per cent of India’s Gross Domestic Product (GDP) yet; agriculture forms the backbone of the economy, as 52 per cent of India’s work force is still engaged in agriculture for its livelihood and is important for food security and inclusive growth. To improve agriculture and snimal husbandary productivity and streamline it with manufacturing and services sector, there is a strong need to adopt many measures, out of which, promote FDI inflow in agriculture/ AH sector in Indian economy. 100 per cent FDI is allowed in agriculture and allied service under controlled conditions. In the above regard, present post is an attempt to understand the role of FDI in agricultural and AH sector & in overall progress of the economy.
FDI has been shown to play an important role in promoting economic growth, raising a country’s technological level, and creating new employment in developing countries.
It has also been shown that FDI works as a means of integrating developing countries into the global market place and increasing the capital available for investment, thus leading to increased economic growth needed to reduce poverty and raise living standards. According to the World Bank’s World Development Report, in 2000 over
1.1 billion people were subsisting on less than US$1 a day and around 2.1billion
people on less than US$2 a day of whom between two thirds to three-quarters live in rural areas of developing nations. Thus, if the war on poverty is to be won, developing countries need to place more emphasis on the agricultural sector (Mangisoni, 2006;IFAD, 2002).
Economic development remains an urgent global need and for rapid economic development, the central problem is capital formation not only in industrial sector, but also in the agricultural sector. FDI flows comprise capital provided by foreign
investors, directly or indirectly to enterprises in another economy with an expectation of obtaining profits derived from the capital participation in the management of the
enterprise in which they invest. The foreign investors acquire ownership of assets in the host country firms in proportion to their equity holdings. This is the empirical definition of FDI adopted by many countries to distinguish it from portfolio flows.
According to International Monetary Fund (IMF), FDI is defined as “ an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor” The investor’s purpose is to have an effective voice in the management of the enterprise (IMF,1977).
The effects of FDI in the host economy are usually believed to be increase in the employment, augment in the productivity, boost in export sand amplified pace of transfer of technology. It facilitates the utilization and exploitation of local raw
materials, introduces modern techniques of management and marketing, and eases the access to new technologies, foreign in flows can be used for financing current account deficits also. As noted by the World Bank (2002), several recent studies concluded that FDI can promote the economic development of the host country by promoting
productivity growth and export. However, the exact relationship between foreign multinational corporations and their host countries varies considerably between
countries and among industries. The characteristics of the host country and the policy
environment are important determinants of net benefit of FDI.
FDI IN INDIAN AH/ AGRICULTURE
FDI in Indian Agricultural sector is no doubt a necessity, however, any increase in equity stake of the foreign investors in existing joint ventures or purchase of a share of equity by them in domestic firms would not automatically change the orientation of the firm. That is, “the aim of FDI investors would be to benefit from the profit earned in the Indian market. As, a result, in such cases FDI inflows need not be accompanied by any substantial increase in exports, whether such investment leads to
modernization of domestic capacity or not”. Therefore, it is a challenge for a developing country like India to channelize its capital inflow through FDI into a potential source of productivity gain for domestic firms especially into AH/ agriculture.
As result economic reforms and various initiatives of the government, India has
received total FDI of US$ 180,034million from the year 1990-91 to 2009-10. The FDI inflows have shown a rising trend owing to the sincere programs of structural
liberalization and open marketer forms. The rise in flows of FDI till 1997 was not only the result of the liberalization policy but also due to the sharp expansion in the
global scale of FDI outflows during the 1990s. Another causal factor may have been the recovery of the Latin American economies, which had begun to emerge from the ‘Debt Crisis’ of the 1980s. Then after during 1998-99 and 1999-00 there was decline in FDI inflow which was due to the decline in industrial growth rate in the economy and also due to the result of the ‘East Asian Financial Crisis’. But again in the next year, foreign investment started to bounce back. During2002-03 and 2003-04, again there was fall in flow of foreign direct investment which was due to the cast of Global
Recession on the Indian economy. The FDI Equity inflows during the five years 2005-06 to 2009-10 showed a massive increase of more than seven times than those
of the previous year’s 1991-92 to 1999-00 and 2000-01 to 2004-05. This increase was due to the revised FDI Policy in March 2005.
NEED FOR THE STUDY
In India, livestock & poultry is an important sector of the Indian economy and accounts for almost 5% of Indian gross domestic products (GDP). Agriculture is the main stay of the Indian economy as it forms the backbone of rural India which engages more
than70% of total Indian population. The Ministry of Agriculture, the Ministry of Rural Infrastructure, and the Planning Commission of India are the main governing bodies that define the future role of agriculture / AH in India and it aims at developing agricultural sector of India.
Agricultural including livestock sector of India is highly fragmented and unorganized. Given the various changes like virtual collapse of rural credit in organized sector, especially for small and marginal farmers, continuous increase of input cost and stagnant crop price, profit potential of agricultural sector has declined substantially. Farmers are still kept on tenterhook, not knowing how to manage their economy, except to play it by years If production is good then there is glut and prices fall. When there is crop/livestock produce failure farmers hardly get any compensation in terms of higher price. For instance West Bengal is an eastern province of India and is the most densely populated among the provinces and paddy is the principal crop here involving millions of rural people for their livelihood. Profitability in paddy cultivation gradually came down to only 13%
in 2007and has further come down to 10% in 2011as per the report of the commission
for Agricultural Costs and Prices(Choudhury S, 2011). This case is valid throughout the agricultural sector of India. Farmers toil hard just to earn their mere livelihood. Newspapers are rampant with the news of farmers’ suicides across the nation. It is in the wake of this deplorable condition of Indian rural lot belonging to the vulnerable agricultural sector that present post entitled “Role of FDI in the Growth of Indian AH/Agricultural Sector in the Post Reform Period”, assumes importance.
THE NORMS FOR THE FDI IN INDIAN AGRICULTURE SECTOR
In India, agriculture is an important sector of the Indian economy and accounts for almost 19% of Indian gross domestic products (GDP). Agriculture is the main stay of
the Indian economy as it forms the backbone of rural India which inhabitants more than 70% of total Indian population and supports their families which and thin. The Ministry of Agriculture, the Ministry of Rural Infrastructure, and the Planning Commission of India are the main governing bodies that define the future role of agriculture in India and it aims at developing agricultural sector of India. No FDI / NRI / OCB are allowed in the Indian Agriculture sector. Only in Tea sector 100% FDI is allowed, including plantations of tea. This requires Government of India approvals. Further, it requires compulsory divestment of 26% equity in favor of the Indian partner or Indian public within a maximum period of five years. This also requires approval from the concerned state government in case of change in use of land for such activities. And this holds true for any fresh investments in the above-mentioned sector.
The FDI Inflows to Agriculture Services are allowed up to 100% and allowed through the automatic route covering horticulture, floriculture, development of seeds, animal husbandry, pisciculture, aqua culture, cultivation of vegetables, mushroom and services related to agro and allied sectors. Only in Tea sector, 100% FDI is allowed, including, plantations of tea.
FDI in Indian agriculture sector and the latest developments are as follows:
• 100% foreign direct investment (FDI) allowed through the automatic route covering horticulture, floriculture, development of seeds,animal husbandry, pisciculture, aqua culture, cultivation of vegetables, mushroom and services related to agro and allied sectors
• Farm credit target of 225,000 crore for 2007-08 was set with an addition of 50 lakh new farmers to the banking system
• 35 projects have been completed in 2006-07 and additional irrigation potential of
900,000 hectares to be created and training of farmers arranged.
• A pilot programme for delivering subsidy directly to farmers has been arranged.
• Loan facilitation through Agricultural Insurance and NABARD has also been
facilitated.
• Corpus of Rural Infrastructure Development Fund to be raised.
Sectors which Witnessed Growth Owing to FDI Inflows to Agriculture
•Irrigation
• Roads
• Housing
• Water Supply
• Electrification
• Telecommunication Connectivity
Impact of FDI Inflows to Agriculture Services on Rural Infrastructure
• To connect 66,800 habitations with population over 1000 with all weather roads. • To construct 1, 46,000Km of new rural roads.
• To upgrade and modernize 1, 94,000 Km of existing rural roads.
• Total investment of 1, 74,000 crore envisaged under “Bharat Nirman”, investment
on rural roads estimated to be at 48,000 crore.
• To provide corpus of 8000 crore to Rural Infrastructure Development Fund
(RIDF).Important factors in FDI Inflows to Agricultural Machinery and various aspects of the agrarian sector and rural sector in India that have a positive impact besides the above mentioned criteria on FDI Inflows to Agricultural Machinery are as follows:
1. Loan facilitation through Agricultural Insurance Institutions and NABARD has
been extended.
2. Corpus of Rural Infrastructure Development Fund to be raised.
3. 6. 66,800 habitations with population over 1000are to be connected with all weather roads.
Indian economy has been heavily geared towards the service sector that contributes 56% of our GDP. The service sector’s contribution to the increase in GDP over the
last 5 years has been 63.9%. Having high contribution from services is an attribute that is characteristic of developed economies. In China, manufacturing accounts for a
significant share of GDP, whereas in India, manufacturing contributes a mere23.1% of the GDP. If India has to grow at 8 to 10% economic growth rate our agricultural sector has to expand. For that to happen there is a need for reforms in our agricultural
sector. The Department of Industrial Policy and Promotion (DIPP) has issued a circular. According to the circular by DIPPanimal husbandry pisci culture, aquaculture under controlled conditions and services related to agro and allied sectors have also been provided with 100 per cent FDI along with the tea sector. The new rules have been implemented from April 1, 2011.
DIPP has imposed certain conditions for companies dealing with growth of transgenic seeds and vegetables. While dealing with genetically modified seeds or planting
material the company is expected to comply with safety requirements in accordance with laws enacted under the Environment(Protection) Act on the genetically modified organisms, any import of genetically modified materials, if required, shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation)Act1992.Further undertaking of business activities involving the use of genetically engineered cells and material shall be subject to the approvals from Genetic Engineering Approval Committee (GEAC) and Review Committee on Genetic Manipulation (RCGM).The circular also states the term “under controlled conditions’’. As per the defined term, the “under controlled conditions’’ for the categories of floriculture, horticulture, cultivation of vegetables and mushrooms is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be affected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where microclimatic conditions are regulated anthropogenically.
In addition in case of animal husbandry, the term under controlled conditions includes, rearing of animals under intensive farming systems with stall-feeding.
Intensive farming system will require climate systems (ventilation, temperature/humidity management), health care and nutrition, herd registering/pedigree recording, use of machinery, waste management systems. Poultry breeding farms and hatcheries where microclimate is controlled through advanced technologies like incubators, ventilation systems etc. In the case of pisci culture and aquaculture, it includes aquariums hatcheries where eggs are artificially fertilized and they are hatched and incubated in an enclosed environment with artificial climate control. In addition to these provisions various other measures has been made to ensure steady development of agricultural sector in a streamlined manner.
PRESENT STATUS OF FOREIGN DIRECT INVESTMENT IN INDIA——
Economic liberalization process was introduced under Structural Adjustment Programme (SAP) with the support of IMF and the World Bank in India. This culminated into a series of economic reforms in 1991 along with a host of industrial policy reforms. New Industrial Policy (NIP) 1991 recognized the role of FDI in the process of industrial development in India in terms of bringing greater competitiveness and efficiency and also modernization, technological up gradation, creation a sound base for export promotion and above all integrating India with rest of the world. Highlights of NIP of 1991 are such as: Abolition of industrial licensing system except for 18 industries, Ceiling of 40 per cent foreign equity under FERA was done away etc. Besides, in August 1999 Government of India set up Foreign Investment Implementation Authority (FIIA) within the ministry of industry to facilitate quick translation of FDI approvals.
GOVERNMENT INITIATIVES
Government announced Agricultural Policy, 2000 for improving Indian agricultural sector with a growth of 4% p.a. and promoting private investment. FDI policy, 2000 permitted 100% FDI in agricultural sector, under the automatic route, subject to certain conditions mentioned in Consolidated FDI Policy, in the following agricultural activities: Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions; Development and production of Seeds and planting material; Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, under controlled conditions; and Services related to agro and allied sectors. 100% FDI is also permitted in tea sector. Besides the Canada is keen to partner with India in agriculture and processing sectors, particularly in pulses and canola. Recently Fiji proposed to enter into the MoU with India in the areas of rice, horticulture, fisheries and animal husbandry. Tafe Motors and Tractors Ltd. (TAFE) has invested around US$ 140 million by way of equity in the US- based AGCO Corporation, a worldwide manufacturer and distributor of agricultural equipment. Israel based world’s seventh largest agrochemical firm ADAMA Agrochemical plans to invest at least US$ 50 million in India over next three years. The Oman India Joint Investment Fund (OIJIF), a joint venture between State Bank of India (SBI) and State General Reserve fund (SGRF), has invested Rs. 95 crore in GSP Crop Science, a Gujarat based Agrochemical Company. In this direction Rs 25000 crore also will be release for Rural Infrastructure Development Bank and Rs. 5300 crore for micro irrigation programme (Union budget 2015-16).
In concluding words, Foreign Direct Investment (FDI) Policy in Agriculture aims at attracting investment in technology, machinery, equipments, seeds/ planting material, warehousing and cold storages and other infrastructure logistics. It complements public and private investments necessary to bring knowledge, technologies and services to farmers. Hundred percent FDI has been allowed in development and production of seeds and planting material; floriculture, horticulture and cultivation of vegetables and mushrooms under controlled conditions; animal husbandry. Investment in agricultural infrastructure has the potential of minimum wastage especially of perishable fresh foods and vegetables and this will lead to increase the income of the farmers. Agricultural Ministry must also frame strong policies for subsidies and their utilization. We also need to create better domestic agricultural infrastructure and market opportunities to attract foreign investors in this sector. Union govt. should frame policies in this regard with state govt. which should be free from beaurocratical procedure; outdated laws & traditions, corruption and non transparency then this will lead to fair production in economy. Proper attention should be given to all allied activities if we want faster, sustainable and more inclusive growth in agriculture. Last but not least, government must pay attention to attract FDI to improve the health of different sectors of Indian economy in general and agriculture in particular. Government should try to develop India as an emerging investment destination to solve all the problems of Indian economy in general and agriculture in particular. It is also said that the government must promote sustainable agriculture development through FD Presently 100% Foreign Direct Investment (FDI) is permitted in the food processing sector. Also FDI in food retailing, covering dairy, poultry, marine vegetables and fruits might help the entire food processing industry grow.It is observed that there is a huge opportunity for foreign direct investment (FDI) in the poultry & Dairy sector in areas like breeding, medication, feedstock, vertical integration and processing.
Reference:On request.
Compiled & Shared by- Team, LITD (Livestock Institute of Training & Development)
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Reference-On Request.
