International Referred Research Journal, February, 2012. ISSN- 0974-2832, RNI-RAJBIL 2009/29954;VoL.

III *ISSUE-37

Research Paper - Commerce

The Impact of Foreign Direct Investment On Agriculture Economy

* Dr. Sushama Deshmukh.
February , 2012

* Associate Prof. H.O.D. of Com. Deptt. Mahila Mahavidyalay, Amravati. (M.S.) Introduction: FDI in Indian agriculture sector and the latest develFDI has been shown to play an important role opments are as follows: in promoting economic growth, raising a country's tech- 1. 100% foreign direct investment (FDI) allowed through nological level, and creating new employment in devel- the automatic route covering horticulture, floriculture, oping countries It has also been shown that FDI works development of seeds, animal husbandry, pisciculture, as a means of integrating developing countries into the aqua culture, cultivation of vegetables, mushroom and global market place and increasing the capital available services related to agro and allied sectors for investment, thus leading to increased economic 2. Farm credit target of 225,000 crore for 2007-08 has growth needed to reduce poverty and raise living stan- been set with an addition of 50 lakhs new farmers to the dards. banking system According to the World Banks World Devel- 3. 35 projects have been completed in 2006-07 and adopment Report, in 2000 over 1.1 billion people were ditional irrigation potential of 900,000 hectares to be subsisting on less than US$1 a day and around 2.1 created and training of farmers arranged. billion people on less than US$2 a day of whom between 4. A pilot programme for delivering subsidy directly to two thirds to three-quarters live in rural areas. In. Sub- farmers have been arranged Saharan Africa (SSA), where about 43 percent of its 5. Loan facilitation through Agricultural Insurance and population is living below the international poverty NABARD has also been facilitated line, the incidence of poverty is the highest among 6. Corpus of Rural Infrastructure Development Fund to smallholder farmers residing in rural areas. Thus, if the be raised war on poverty is to be won, developing countries need FDI inflows to fertilizers industry in India: to place more emphasis on the agricultural sector The government of India has allowed foreign (Mangisoni, 2006; IFAD, 2002). direct investment in the fertilizers industry of the counIn India, agriculture is an important sector of try. Foreign Direct Investment (FDI) in fertilizers in India the Indian economy and accounts for almost 19% of is allowed up to 100% under the automatic route in India. Indian gross domestic products (GDP). Agriculture is The total amount of FDI Inflows to Fertilizers industry the main stay of the Indian economy as it forms the in India was US$ 78.22 million between August 1991 and backbone of rural India which inhabitants more than December 2005. The total percentage of FDI Inflows to 70% of total Indian population. Fertilizers industry in India stood at 0.26% out of the The Ministry of Agriculture, the Ministry of total foreign direct investment in the country during Rural Infrastructure, and the Planning Commission of August 1991 to December2005.Bayer Crop of Germany India are the main governing bodies that define the was given the approval in 2003, to invest 74 crores in future role of agriculture in India and it aims at develop- Aventis Crop Science in India involved in the producing agricultural sector of India. No FDI / NRI / OCB are tion of fertilizers and pesticides. Through this investallowed in the Indian Agriculture sector. Only in Tea ment Bayer Crop increased its stake in Aventis Crop sector 100% FDI is allowed, including plantations of from 67.08 % to 100%. This made Aventis Crop a fully tea. owned subsidiary of Bayer Crop. This requires Government of India approvals. Advantages of FDI Inflows to Fertilizers industry in Further, it requires compulsory divestment of 26% eq- India: uity in favor of the Indian partner or Indian public within The various advantages of FDI Inflows to Fertilizers a maximum period of five years. This also requires ap- industry in India are proval from the concerned state government in case of 1. Growth and expansion of fertilizer industry in India. change in use of land for such activities. And this holds 2. Use of improved technology. true for any fresh investments in the above-mentioned 3. Better quality fertilizers that are more effective for sector. agriculture.
SHODH, SAMIKSHA AUR MULYANKAN

International Referred Research Journal, February, 2012. ISSN- 0974-2832, RNI-RAJBIL 2009/29954;VoL.III *ISSUE-37

FDI Inflows to Agricultural Machinery : FDI inflows in the Indian agricultural machinery and the subsequent development of the Indian agriculture sector is predicted to have a significant positive impact on the 700-million strong rural population, living in about 600,000 small villages of India. Agriculture is an important sector of the Indian economy, which accounted for almost 19% of India's GDP in the financial year 2006-2007. The total quantum of foreign direct investment in the Indian agricultural machinery was US $ 135.50 million during the period from August 1991 to December 2005. The overall percentage of such foreign direct inflow in the Indian agricultural industry was 0.43 of the total quantum of the FDI inflow during the same period. FDI inflows into agricultural machinery of India have resulted in the steady rise of the Indian agriculture industry in recent years. The Indian agriculture sector enjoys 100% FDI through the automatic route. Important factors in FDI Inflows to Agricultural Machinery Important aspects of the agrarian sector and rural sector in India that have a positive impact on FDI Inflows to Agricultural Machinery are 1. 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 agriculture and sectors associated with it. 2. The target set for generating Farm credit for 2007-08 is 225,000 crores. 3. A pilot program for delivering subsidy directly to farmers to be introduced. 4. Loan facilitation through Agricultural Insurance Institutions and NABARD has also been extended. 5. Corpus of Rural Infrastructure Development Fund to be raised. 6. 66,800 habitations with population over 1000 is to be connected with all weather roads. 7. Construction of 1,46,000 Km of new rural roads have been sanctioned 8. Investment to the tune of 1,74,000 crores envisaged under "Bharat Nirman". 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 a high contribution from services is an attribute that is characteristic of developed economies. China, manufacturing accounts for a significant share of GDP, whereas in India, manufacturing contributes a mere 23.1% of the GDP. India to grow at an 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 in the way which calls for agricultural produce to be procured, stored and marketed, for huge investments in the supply and distribution chain and

the most importantly, for ushering in competition in the supply and distribution chain where the farmer decides whom to sell and at what price. The government can always decide the ceiling price. Also, India should open up its retail sector to foreign capital and competition. Foreign retailers would bring with them the best practices and investments in the supply and distribution chain and at the same time open up linkages to the global markets for Indian agricultural and dairy products. Modern retailers procure in bulk and sell at low prices. They thrive on reducing the inefficiencies in the supply chain bringing down the cost substantially for the consumers and getting a better deal for the farmer. The argument often given against FDI in retail is it will severely affect mom and pop shops; they won't be able to survive the competition. But we already have homegrown modern retailers like Big Bazaar, Nilgiri's etc. who are thriving along with the traditional kirana stores. So, in any case, we have modern retailers in the market. The Indian retail market is very different from the Western retail market. In India consumers like to make purchases frequently and in small quantities. Instead of travelling to the large retail stores far from their own place of residence, people still prefer the convenience of the traditional neighborhood kirana store. More over the kirana stores can buy from the cash and carry stores and reduce their cost of procurement. Agriculture still accounts for 60% of India's labour force and an improvement in the agriculture sector would directly benefit them. Allowing 100 % FDI in retail would lead to an agricultural and a dairy revolution in the country. The present policy with regard to FDI in agriculture and plantation is as follows: i) FDI up to 100% is permitted under the automatic route in the under mentioned activities viz., floriculture, horticulture, development of seeds, animal husbandry, pisciculture, aquaculture and cultivation of vegetables and mushrooms, under controlled conditions and services related to agro and allied sectors. ii) FDI up to 100% with prior government approval is permitted in tea plantation subject to the conditions of divestment of 26% equity of the company in favour of an Indian partner / Indian public within a period of five years; and prior approval of the state government concerned in case of any future land use change. iii) Besides the above two, FDI is not allowed in any other agricultural sector / activity. iv) The government has announced 100 per cent Foreign Direct Investment (FDI) in the agriculture sector including seeds, plantation, horticulture and cultivation of vegetables. The Department of Industrial Policy and Promotion (DIPP).According to the circular by DIPP

International Referred Research Journal, February, 2012. ISSN- 0974-2832, RNI-RAJBIL 2009/29954;VoL.III *ISSUE-37

animal husbandry pisciculture, 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 will be 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)Act,1992. 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 pisciculture and aquaculture, it includes: aquariums hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control. SUMMARY Growth in agriculture and it's productivity are considered essential in achieving sustainable growth and significant reduction in poverty in developing countries. Both developmental and agricultural economists view productivity growth in the agricultural sector as critical if agricultural output is to increase at a sufficiently rapid rate to tackle poverty. In view of the declining culturable land per capita, high production costs, combined with rapid population growth and the resulting need for human settlement, and rising urbanization, significant improvements are required in productivity growth in agriculture in order to increase agricultural output through technological innovations and efficiency. Limited development and adoption of new production technologies essential for improving productivity by the poor are mostly due to limited income and sources of credit. FDI plays a significant role in increasing productivity by offsetting the investment and technological gap. 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.

R E F E R E N C E
1. Economic Reforms, Foreign Direct Investment and its Economic Effects in India by Chandana Chakraborty Peter Nunnenkamp March 2006 2. Reserve Bank of India (2005). Annual Report 2004-05. New Delhi. (http://rbidocs.rbi.org.in/rdocs/AnnualReport/ PDFs/65516.pdf). 3. Reserve Bank of India (var. is.). FinancesofForeignDirecInvestment 4. Companies. (http://rbidocs.rbi.org.in/ rdocs/Bulletin/DOCs/62203.doc). 5. Reserve Bank of India (online). Database on Indian Economy. (https://reservebank.org.in/ cdbmsi/servlet/login/). 6.Sahoo,D.,andM.K.Mathiyazhagan(2002).Economic Growth in India: Does 7. Foreign Direct Investment Inflow Matter? Working Papers 115, Institute 8. For Social and Economic Change. Bangalore. 9. Sahoo, D., and M.K. Mathiyazhagan (2003). Economic Growth in India: Does 10. Foreign Direct Investment Inflow Matter? Singapore Economic Review 48 (2): 151-171. 11. Foreign Direct Investment Report Foreign Direct Investment Report United Nations New York, 2008
SHODH, SAMIKSHA AUR MULYANKAN