1

Title of the project report

A study on Foreign Direct Investment in Indian Agricultural Sector

Based on Rajasthan

SUBMITTED BY

NAME

SUBMITTED TO SIKKIM MANIPAL UNIVERSITY

UNDER THE GUIDENACE OF

GUIDE NAME

In partial fulfillment of the requirement

For the award of the degree

Of

Program i.e. MBA

2

STUDENT DECLARATION

I, hereby, declare that this research report entitled “ FD I IN AGRICULTURAL

SECTOR” submitted in partial fulfillment for the award of Master of Business

Administration of Bangalore University is a record of independent work carried out

by me under the guidance of Prof. Praveen Bahaman (Faculty member), M. P. Birla

Institute of Management Studies, Bangalore.I, also declare that this report is a result

of my own effort and has not been submitted earlier for the award of any degree or

diploma of Bangalore University or any other University.

PLACE NAME
3

INDEX

Title

Abstract

Chapter 1 – OVERVIEW OF FDI

Chapter 2 – INTRODUCTION

CHAPTER 3 - GOVERNMENT INITIATIVE

CHAPTER 4 – literature review

Chapter 5 – Opportunities and challenges

CHAPTER 6- Bibliography
4

ACKNOWLEDGEMENT

The attitude bliss and emphasis that accompanies the successful completion of my

task would be incomplete without the expression of appreciation towards those who

helped me colour the mosaic of this project with the tiles of their knowledge,

expertise, experience and co-operation.I extend my special thanks to my Respected

Guide, Prof. Praveen Bhagawan who has motivated and inspired me throughout my

project work with his timely guidance, help, support and supervision.I am extremely

grateful to Dr. N. S. Malavalli for his help and support and for giving me an opportunity

to complete my project.I also would like to thank all executive of Bank of Baroda who

helped me providing data and information to complete my project.

5

Bona-fide Certificate:

BONAFIDE CERTIFICATE

It is Certified that this project report title A STUDY ON FOREIGN DIRECT INVESTMENT
IN INDIAN AGRICULTURAL SECTOR: OPPORTUNITIES AND CHALLENGES IN
RAJASTHAN ” is the bonafide work of “…………..<NAME OF THE
CANDIDATE(S)>.…………” who carried out the project work under my supervision. .

SIGNATURE SIGNATURE

HEAD OF THE DEPARTMENT FACULTY IN CHARGE

<Academic Designation>

<Department> <Department>

<<Full address of the Dept & College >> <Full address of the Dept &
College >
6

Chapter 1

Overview of F D I
7

What is Foreign Direct Investment?

Foreign direct investment (FDI) refers to long term participation by country A into

country B. It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are three types of FDI: inward foreign direct

investment and outward foreign direct investment, resulting in a net FDI inflow

(positive or negative) and "stock of foreign direct investment", which is the

cumulative number for a given period. Direct investment excludes investment

through purchase of shares.

It is the policy of the Government of India to attract and promote productive FDI

from nonresidents in activities which significantly contribute to industrialization and

socio-economic development. FDI supplements the domestic capital and

technology.

India has one of the most transparent and liberal FDI regimes among the emerging

and developing economies. By FDI regime we mean those restrictions that apply to

foreign nationals and entities but not to Indian nationals and Indian owned entities.

The differential treatment is limited to a few entry rules, spelling out the proportion

of equity that the foreign entrant can hold in an Indian (registered) company or

business.
8

Foreign direct investment (FDI) has become an integral part of national

development strategies for almost all the countries globally. Its global popularity

and positive output in augmenting of domestic capital, productivity and

employment; has made it an indispensable tool for initiating economic growth for

nations.

India is evolving as one of the ‘most favored destination’ for FDI in Asia and the

Pacific (APAC). It has displaced US as the second-most favored destination for

foreign direct investment (FDI) in the world after China according to an AT Kearney's

FDI Confidence Index. FDI in India has contributed effectively to the overall growth

of the economy in the recent times. FDI inflow has an impact on India's transfer of

new technology and innovative ideas; improving infrastructure, a competitive

business environment.
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BY DIRECTION

Inward FDI

Here, investment of foreign capital occurs in local resources.

The factors propelling the growth of Inward FDI comprises tax breaks, relaxation of

existent regulations, loans on low rates of interest and specific grants. The idea

behind this is that, the long run gains from such a funding far outweighs the

disadvantage of the income loss incurred in the short run. Flow of Inward FDI may

face restrictions from factors like restraint on ownership and disparity in the

performance standard.

Outward FDI

Foreign direct investment, which is outward, is also referred to as “direct

investment abroad”. In this case it is the local capital, which is being invested in

some foreign resource. Outward FDI may also find use in the import and export

dealings with a foreign country. Outward FDI flourishes under government backed

insurance at risk coverage.

BY TARGET

Greenfield FDI
11

Greenfield investments involve the flow of FDI for either building up of new

production capacities in the host nation or for expansion of the existent production

facilities of the host country. The plus points of this come in form of increased

employment opportunities, relatively high wages, R&D activities and capacity

enhancement.

The flip side comes in the form of declining market share for the domestic firm and

repatriation of profits made to a foreign country, which if retained within the

country of origin could have led

To considerable capital accumulation for the nation.

Horizontal FDI

Horizontal FDI is an investment made by a multinational company in different

nations. The investment is made for conducting the similar business operations as

already operated by the company. For example, if a soft drink manufacturing

company makes its plant outside its national borders then it is horizontal FDI.

Horizontal FDI results in expansion of the parent company and brings FDI in the

other economy.

Vertical FDI

There are two types of vertical direct investment. The first type of foreign

investment is called foreign vertical direct investment which invests in the industry

of foreign country. Historically most backward vertical foreign direct investment has
12

been in extractive industries like oil extraction, bauxite mining, tin mining and

copper mining. The objective has been to provide inputs into a firm's downstream

operations for example oil refining, aluminum smelting and fabrication. Firms such

as Royal Dutch/Shell, British Petroleum, RTZ and Alcoa are among the classic

examples.

The second type of the foreign direct investment included forward vertical foreign

direct investment in which an industry abroad sells the outputs of a firm's domestic

production process. Forward vertical foreign direct investment is less common than

backward vertical foreign direct investment. For example when Volkswagen entered

the United States market it acquired a large number of dealers rather than

distribute its cars through independent United States dealers.

METHODS OF FOREIGN DIRECT INVESTMENT

The foreign direct investor may acquire 10% or more of the voting power of an

enterprise in an economy through any of the following methods:

 by incorporating a wholly owned subsidiary or company

 by acquiring shares in an associated enterprise

 through a merger or an acquisition of an unrelated enterprise

 participating in an equity joint venture with another investor or enterprise

 Foreign direct investment incentives may take the following forms:

 low corporate tax and income tax rates

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 tax holidays

 other types of tax concessions

 preferential tariffs

 special economic zones

 EPZ - Export Processing Zones

 Bonded Warehouses

 investment financial subsidies

 soft loan or loan guarantees

 free land or land subsidies

 relocation & expatriation subsidies

 job training & employment subsidies

 infrastructure subsidies

 R&D support

 derogation from regulations (usually for very large projects)

ENTRY MODE

A foreign company planning to set up business operations in India has the following

options:

1) As an Indian Company
14

A foreign company can commence operations in India by incorporating a company

under the Companies Act, 1956 through

• Joint Ventures; or

• Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the

requirements of the investor, subject to equity caps in respect of the area of

activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy,

sectoral equity caps & procedures can be obtained from Department of Industrial

Policy & Promotion, Government of India.

Joint Venture with an Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances

with Indian partners.

Joint Venture may entail the following advantages for a foreign investor:

 Established distribution/ marketing set up of the Indian partner

 Available financial resource of the Indian partners

15

 Established contacts of the Indian partners which help smoothen the

process of setting up of operations

Wholly Owned Subsidiary Company

Foreign companies can also to set up wholly owned subsidiary in sectors where

100% foreign direct investment is permitted under the FDI policy.

Incorporation of Company

For registration and incorporation, an application has to be filed with Registrar of

Companies (ROC). Once a company has been duly registered and incorporated as an

Indian company, it is subject to Indian laws and regulations as applicable to other

domestic Indian companies.

2) As a Foreign Company

 Foreign Companies can set up their operations in India through

 Liaison Office/Representative Office

 Project Office

 Branch Office
16

Such offices can undertake any permitted activities. Companies have to register

themselves with Registrar of Companies (ROC) within 30 days of setting up a place

of business in India.

Liaison office/ Representative office

Liaison office acts as a channel of communication between the principal place of

business or head office and entities in India. Liaison office cannot undertake any

commercial activity directly or indirectly and cannot, therefore, earn any income in

India. Its role is limited to collecting information about possible market

opportunities and providing information about the company and its products to

prospective Indian customers. It can promote export/import from/to India and also

facilitate technical/financial collaboration between parent company and companies

in India.

The approval for establishing a liaison office in India is granted by the Reserve Bank

of India (RBI).

Project Office

Foreign Companies planning to execute specific projects in India can set up

temporary project/site offices in India. RBI has now granted general permission to

foreign entities to establish Project Offices subject to specified conditions. Such

17

offices cannot undertake or carry on any activity other than the activity relating and

incidental to execution of the project. Project Offices may remit outside India the

surplus of the project on its completion, general permission for which has been

granted by the RBI.

Branch Office

Foreign companies engaged in manufacturing and trading activities abroad are

allowed to set up Branch Offices in India for the following purposes:

 Export/Import of goods

 Rendering professional or consultancy services

 Carrying out research work, in which the parent company is engaged.

 Promoting technical or financial collaborations between Indian companies

and parent or overseas group company.

 Representing the parent company in India and acting as buying/selling

agents in India.

 Rendering services in Information Technology and development of software

in India.

 Rendering technical support to the products supplied by the parent/ group

companies.

 Foreign Airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its own but is

permitted to subcontract these to an Indian manufacturer. Branch Offices

18

established with the approval of RBI may remit outside India profit of the branch,

net of applicable Indian taxes and subject to RBI guidelines Permission for setting up

branch offices is granted by the Reserve Bank of India (RBI).

Branch Office on "Stand Alone Basis"

Such Branch Offices would be isolated and restricted to the Special Economic zone

(SEZ) alone and no business activity/transaction will be allowed outside the SEZs in

India, which include branches/subsidiaries of its parent office in India. No approval

shall be necessary from RBI for a company to establish a branch/unit in SEZs to

undertake manufacturing and service activities subject to specified conditions.

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Policy

FDI up to 100% is allowed under the automatic route in all activities/sectors except

the following which will require approval of the Government:

• Activities/items that require an Industrial License;

• Proposals in which the foreign collaborator has a previous/existing venture/tie up

in India in the same. Prior Government approval for new proposals would be

required only in cases where the foreign investor has an existing joint venture,

technology transfer, trade mark agreement in the same field. With the amendment

of the Press Note 18, joint ventures formed with foreign investment before

December 12, 2004 would be considered as “existing JVs” which will fall under the

ambit of Press Note 18. The foreign partner in such JV has to obtain a No Objection

Certificate (NOC) from the Indian partner for starting new venture in India in the

“same” field of activity.

• All proposals relating to acquisition of shares in an existing Indian company by a

foreign/NRI investor.

• All proposals falling outside notified sectoral policy/caps or under sectors in which

FDI is not permitted.

20

FDI policy is reviewed on an ongoing basis and measures for its further liberalization

are taken. Change in sectoral policy/sectoral equity cap is notified from time to time

through Press Notes by the Secretariat for Industrial Assistance (SIA) in the

Department of Industrial Policy & Promotion. Policy announcement by SIA are

subsequently notified by RBI under FEMA.

Automatic Route

FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval

in most of the sectors including the services sector under automatic route. FDI in

sectors/activities under automatic route does not require any prior approval either

by the Government or the RBI. The investors are required to notify the Regional

office concerned of RBI of receipt of inward remittances within 30 days of such

receipt and will have to file the required documents with that office within 30 days

after issue of shares to foreign investors.

The present Automatic Route allows Indian companies engaged in all industries

except for certain select industries/sectors to issue shares to foreign investors up to

100% of their paid up capital in Indian companies. There are also some areas where

though Automatic Route is available, foreign investors cannot invest beyond a

certain percentage of the paid up capital of the Indian companies or where

investment is subject to some other conditions.

21

Foreign investors have to, however, keep in mind that they may invest freely under

the Automatic Route described above but where such investment does not conform

to policies of Government of India, a specific approval from Government must be

sought. For example, there are Government guidelines on location of industrial

units, or there are certain items like explosives or liquor that need an industrial

license.

Government approval route

All activities which are not covered under the automatic route, prior Government

approval for FDI/NRI shall be necessary. Areas/sectors/activities hitherto not open

to FDI/NRI investment shall continue to be so unless otherwise decided and notified

by Government.

An investor can make an application for prior Government approval even when the

proposed activity is under the automatic route.

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Proposals requiring Govt’s Approval

Application for proposals requiring prior Govt’s approval should be submitted to

FIPB in FC-IL form. Plain paper applications carrying all relevant details are also

accepted. No fee is payable. The following information should form part of the

proposals submitted to FIPB: -

(a) Whether the applicant has had or has any previous/existing financial/technical

collaboration or trade mark agreement in India in the same or allied field for which

approval has been sought; and

(b) If so, details thereof and the justification for proposing the new

venture/technical collaboration (including trade marks).

(c) Applications can also be submitted with Indian Missions abroad who will forward

them to the Department of Economic Affairs for further processing.

(d) Foreign investment proposals received in the DEA are placed before the Foreign

Investment Promotion Board (FIPB) within 15 days of receipt. The decision of the

Government in all cases is usually conveyed by the DEA within 30 days.

FDI Prohibited

FDI is not permissible in the following cases

i. Gambling and Betting, or

ii. Lottery Business, or

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iii. Business of chit fund

iv. Nidhi Company

v. Housing and Real Estate business (to a certain extent has been opened. For

details please see note on Construction)

vi. Trading in Transferable Development Rights (TDRs)

vii. Retail Trading (discussions are being held to open this area-B2B and Cash & Carry

are permitted)

viii. Atomic Energy

ix. Agricultural or plantation activities or Agriculture (excluding Floriculture,

Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation

of Vegetables, Mushrooms etc. under controlled conditions and services related to

agro and allied sectors) and Plantations(other than Tea plantations)

Determinants of Foreign Direct Investment

One of the most important determinants of foreign direct investment is the size as

well as the growth prospects of the economy of the country where the foreign

direct investment is being made.

It is normally assumed that if the country has a big market, it can grow quickly from

an economic point of view and it is concluded that the investors would be able to

make the most of theory investment in that country.

24

The population of a country plays an important role in attracting foreign direct

investors to a country. In such cases the investors are lured by the prospects of a

huge customer base.

If the country has a high per capita income or if the citizens have reasonably good

spending capabilities then it would offer the foreign direct investors with the scope

of excellent performances.

The status of the human resources in a country also helps in attracting direct

investment from overseas.

If a country has plenty of natural resources it always finds investors willing to put

their money in them.

Inexpensive labour force is also an important determinant of attracting foreign

direct investment.

Infrastructural factors like the status of telecommunication and railways play an

important role in having the foreign direct investors come into a particular country.

Advantage of FDI

 Causes a flow of money into the economy which stimulates economic

activity

 Employment will increase

 long run aggregate supply will shift outwards

25

 Aggregate demand will also shift outwards as investment is a component of

aggregate demand

 It may give domestic producers an incentive to become more efficient

 The government of the country experiencing increasing levels of FDI will

have a greater voice at international summits as their country will have

more stakeholders in it.

Disadvantages of FDI

 FDI has adverse effects on competition.

 FDI will be make the host country lost the control over domestic policy.

 Certain foreign policies are adopted that are not appreciated by the workers

of the recipient country

 Another disadvantage of foreign direct investment is that there is a chance

that a company may lose out on its ownership to an overseas company.

 Local market is affected badly

 If there is a lot of FDI into one industry e.g. the automotive industry then a

country can become too dependent on it and it may turn into a risk that is

why countries like the Czech Republic are "seeking to attract high value-

added Problems of Foreign Capital or why .Too services such as research

and development (e.g.) biotechnology)"

26

If there is a lot of FDI into one industry e.g. the automotive industry then a country

can become too dependent on it and it may turn into a risk that is why countries like

the Czech Republic are "seeking to attract high value-added Problems of Foreign

Capital or why .Too services such as research and development (e.g.)

biotechnology)"

Why India Gets Limited FDI

Image and Attitude: There is a perception among investors that foreign businesses

are still treated with suspicion and distrust in India.

Domestic Policy: While the FDI policy is quite straightforward and getting

increasingly liberalized for most sectors, once an investor establishes his presence,

“national” treatment means that this investor is subject to domestic regulations,

which are perceived as being excessive.

27

Procedures. Although approval for investment is given quite readily, actual setting

up requires a long series of further approvals from central, state and local

authorities. This introduces substantial implementation lags.

Quality of infrastructure. Foreign investors are concerned about a number of

problems with the infrastructure sector – in particular, electricity and transport.

Irregular and undependable supply complicates problems for foreign investors.

State government level obstacles. This issue is tied up with one of the most pressing

agenda items for reform. At the level of actual investment the practices of state

(and often lower levels) governments become important. There is widespread

agreement among most observers that state government practices in issues such as

land records, utility (power, water etc.) connections, providing clearances of various

sorts may make an important difference in the time it takes to get a plant up and

running. Differences in state practices in such matters partly explain the

disproportionate flow of FDI to some states in the peninsular region of India. In

addition, there are some fiscal barriers to unimpeded flow of goods and services

within the country, although the level of such barriers has come down in recent

times.

Delays in legal process

.Despite a highly structured legal system, dispute settlement and contract

enforcement are time consuming activities in India. Such apprehensions deter the

rapid flow of foreign investment.

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Chapter 2

INTRODUCTION
30

Introduction

Agriculture plays a vital role in India’s economy. Over 58 per cent of the rural

households depend on agriculture as their principal means of livelihood. Agriculture,

along with fisheries and forestry, is one of the largest contributors to the Gross

Domestic Product (GDP).As per estimates by the Central Statistics Office (CSO), the

share of agriculture and allied sectors (including agriculture, livestock, forestry and

fishery) was 15.35 per cent of the Gross Value Added (GVA) during 2015-16 at 2011-

12 prices.India is the largest producer, consumer and exporter of spices and spice

products. India's fruit production has grown faster than vegetables, making it the

second largest fruit producer in the world. India's horticulture output, comprising

fruits, vegetables and spices, is estimated to be 283.4 million tonnes (MT) in 2015-16

after the third advanced estimate. It ranks third in farm and agriculture outputs.

Agricultural export constitutes 10 per cent of the country’s exports and is the fourth-

largest exported principal commodity. The agro industry in India is divided into

several sub segments such as canned, dairy, processed, frozen food to fisheries, meat,

poultry, and food grains.

The Department of Agriculture and Cooperation under the Ministry of Agriculture is

responsible for the development of the agriculture sector in India. It manages several

other bodies, such as the National Dairy Development Board (NDDB), to develop

other allied agricultural sectors.

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Agriculture is the main resource of livelihood/occupation for over 75 per cent of the

rural population in India. Although, it employs about 52 per cent of the labor force, it

contributes to only 14.4 per cent of GDP and 10.23 per cent of all exports. Any effort

of poverty reduction and economic development must address the problems being

faced by the agricultural sector and turn the challenges into economic opportunities

for the poor population in rural India. India being a participant to World Trade

Organization’s General Agreement on Trade in Services, which include wholesale and

retailing services, had to open up the retail trade sector to foreign investment

(Renuka, R., 2013). India is one of the fastest growing retail markets in the world. The

retail sector in India is a key contributor to the country’s economy and was

responsible for contributing 22 per cent to gross domestic product (GDP) in 2011. In

2012, the Government of India framed some major liberalization policies to support

and encourage this sector.India is now the last major boundary for globalized retail

agriculture market. In the twenty years since the economic liberalization of 1991,

India’s middle class has greatly expanded, and so has its purchasing power. 100 per

cent foreign direct investment (FDI) allowed through the automatic route covering

Horticulture, Floriculture, development of seeds, Animal Husbandry est. and Services

related to Agro Buisson and Agriculture allied sectors.

In India Agricultural retail market is highly patchy and unorganized. Given

the various changes like effective subside of rural credit in organized sector, especially
32

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 (Gupta D., 2005). If production is good then there is surplus and prices

decrease. When there is crop failure farmers hardly get any return in terms of higher

price. West Bengal an eastern

province of India 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 per cent in 2007 and has further come down to 10 per cent in 2011as

per the report of

the commission for Agricultural Costs and Prices.

Market Size

Over the recent past, multiple factors have worked together to facilitate growth in

the agriculture sector in India. These include growth in household income and
33

consumption, expansion in the food processing sector and increase in agricultural

exports. Rising private participation in Indian agriculture, growing organic farming

and use of information technology are some of the key trends in the agriculture

industry.

As per the 3rd Advance Estimates, India's foodgrain production has increased

marginally to 252.23 million tonnes (MT) in the 2015-16 crop year. Production of

pulses is estimated at 17.06 million tonnes.

With an annual output of 146.31 MT, India is the largest producer of milk,

accounting for 18.5 per cent of the total world production. It also has the largest

bovine population. India, the second-largest producer of sugar, accounts for 14 per

cent of the global output. It is the sixth-largest exporter of sugar, accounting for

2.76 per cent of the global exports. India is a leading country in coconut production

and productivity in the world, with annual production of 2,044 crore coconuts and

the productivity of 10,345 coconuts per hectare as on 2015-16. Spice exports from

India are expected to reach US$ 3 billion by 2016–17 due to creative marketing

strategies, innovative packaging, strength in quality and strong distribution

networks. The spices market in India is valued at Rs 40,000 crore (US$ 5.87 billion)

annually, of which the branded segment accounts for 15 per cent. In fact, the Spices

Board of India has decided to set up a spice museum at Willingdon Island in Kochi to

attract and educate tourists and seafarers about the history and growth of Indian

spices industry.
34

Indian agrochemical industry is expected to grow at 7.5 per cent annually to reach

US$ 6.3 billion by 2020 with domestic demand growing at 6.5 per cent per annum

and export demand at 9 per cent per annum

Investments

Several players have invested in the agricultural sector in India, mainly driven by the

government’s initiatives and schemes.According to the Department of Industrial

Policy and Promotion (DIPP), the Indian agricultural services and agricultural

machinery sectors have cumulatively attracted Foreign Direct Investment (FDI)

equity inflow of about US$ 2,278.3 million from April 2000 to March 2016.

Some major investments and developments in agriculture in the recent past are as

follows:

Intertek Group, a UK-based total quality assurance provider, has launched an

agricultural technology (Agritech) Laboratory in Hyderabad, which will perform high-

tech deoxyribonucleic acid (DNA) analyses for the agri-biotech, plant seeds.

ITC Ltd, one of India's leading fast-moving consumer goods (FMCG) company, plans

to make Andhra Pradesh a hub for its agricultural business operations.

Mahindra and Mahindra Ltd has acquired 35 per cent stake in a Finnish combine

harvesters manufacturer, Sampo Roselnew Oy, for US$ 20.46 million and will jointly
35

focus on the combine harvester business in Asia, Africa and Eurasian Economic

Union countries.

The Small Farmers’ Agri-Business Consortium (SFAC) plans to organise camps in

Madhya Pradesh and Chhattisgarh to promote its venture capital assistance scheme

(VCAS), which seeks to provide capital and project development facility (PDF) to

agri-business entrepreneurs.

Agri-research institute ICRISAT’s incubation arm is looking to set up a Rs.100 crore

(US$ 14.67 million) fund in a year, an initiative that could help small entrepreneurs

from the agri-business and nutrition space raise money.

Mahindra & Mahindra (M&M), India’s leading tractor and utility vehicle

manufacturer, announced its entry into pulses retailing under the brand ‘NuPro’.

Going forward, the company plans to foray into e-retailing and sale of dairy

products.

Fertiliser cooperative IFFCO launched a joint venture with Japanese firm Mitsubishi

Corp for manufacturing agrochemicals in India.

Acumen, a not-for-profit global venture fund, has invested Rs 11 crore (US$ 1.7

million) in Sahayog Dairy, an integrated entity in the segment, based at Harda

district in Madhya Pradesh.

36

Rabo Equity Advisors, the private equity arm of Netherlands-based Rabo Group,

raised US$ 100 million for the first close of its second fund – India Agri Business

Fund II. The fund plans to invest US$ 15–17 million in 10–12 companies.

Oman India Joint Investment Fund (OIJIF), a joint venture (JV) between the State

Bank of India (SBI) and State General Reserve Fund (SGRF), invested Rs 95 crore

(US$ 13.94 million) in GSP Crop Science, a Gujarat-based agrochemicals company.

CHAPTER 3
37

GOVERNMENT INITIATIVE
38

Government Initiatives

Given the importance of the agriculture sector, the Government of India, in its Budget

2016–17, planned several steps for the sustainable development of agriculture.

Budget 2016-17 proposed a slew of measures to improve agriculture and increase

farmers’ welfare such as 2.85 million hectares to be brought under irrigation, Rs

287,000 crore (US$ 42.11 billion) grant in aid to be given to gram panchayats and

municipalities and 100 per cent village electrification targeted by May 01, 2018. The

government has set an ambitious target of producing a record 270.1 MT of foodgrains

in 2016-17, 7 per cent higher than the 252.23 MT of production estimated for 2015-

16.

The Government of India has started work on 99 major and medium irrigation

projects, slated to be completed by 2019. These projects will bring 7.6 million

hectares of land under irrigation in some of the most drought-prone regions of India.

The government has already taken steps to address two major factors (soil and

water) critical to improve agriculture production. Steps have been taken to improve

soil fertility on a sustainable basis through the soil health card scheme and to

support the organic farming scheme ‘Paramparagat Krishi Vikas Yojana’. Other steps

include improved access to irrigation through ‘Pradhanmantri Gram Sinchai Yojana’;

enhanced water efficiency through `Per Drop More Crop’; continued support to

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the

creation of a unified national agriculture market to boost the incomes of farmers.

39

The Government of India recognises the importance of microirrigation, watershed

development and ‘Pradhan Mantri Krishi Sinchai Yojana’; thus, it allocated a sum of

Rs 5,300 crore (US$ 777.6 million) for it. It urged the states to focus on this key

sector. The state governments are compelled to allocate adequate funds to develop

the agriculture sector, take measures to achieve the targeted agricultural growth

rate and address the problems of farmers.

The Department of Agriculture and Cooperation under the Ministry of Agriculture

has inked MOUs/agreements with 52 countries including the US. In addition, the

Department of Agriculture Research & Education (DARE) and the Department of

Animal Husbandry, Dairying & Fisheries (DAHD&F) under the Ministry of Agriculture

have signed MOUs/agreements with other countries, taking the number of

partnerships with other countries to 63. These agreements would provide better

agricultural facilities in areas such as research and development, capacity building,

germ-plasm exchange, post-harvest management, value addition/food processing,

plant protection, animal husbandry, dairy and fisheries. The agreements could help

enhance bilateral trade as well.

Given the correlation between improvement in agriculture and the development of

the country, the Government of India adopted several initiatives and programmes

to ensure continuous growth. It allocated Rs 25,000 crore (US$ 3.67 billion) for the

Rural Infrastructure Development Fund (RIFD), Rs 1,500 crore (US$ 220 million) for

the long-term rural credit fund, Rs 45,000 crore (US$ 6.60 billion) for the short-term

cooperative rural credit finance fund and Rs 25,000 crore (US$ 3.67 billion) for the
40

short-term Regional rural bank (RRB) refinance fund. It also marked an ambitious

target of Rs 8.5 lakh crore (US$ 124.71 billion) of agriculture credit during 2015–16.

Some of the recent major government initiatives in the sector are as follows:

The government has drawn up a five-year roadmap to increase pulse production

from nearly 17.06 MT in 2015-16 to 24 MT in 2020-21 through a dedicated action

plan.

Prime Minister Mr Narendra Modi has unveiled the operational guidelines for the

Pradhan Mantri Fasal Bima Yojana which aims to provide farmers with crop

insurance as well as

The Cabinet Committee on Economic Affairs (CCEA) has approved ‘Blue Revolution’,

an umbrella scheme for integrated development and management of fisheries by

Government of India, with total financial outlay of Rs 3,000 crore (US$ 440.15

million) for a period of five years.

Mr Piyush Goyal, Minister of Power, Coal, New and Renewable Energy has

announced that government’s plans to invest Rs 75,000 crore (US$ 11.08 billion) in

an energy-efficient irrigation scheme over the next three to four years.The new crop

insurance scheme for farmers 'Bhartiya Krishi Bima Yojana' aims to cover 50 per

cent of the farmers under the scheme in the next two-three years,
41

India and Lithuania have agreed to intensify agricultural cooperation, especially in

sectors like food and dairy processing.

Gujarat Government has planned to connect 26 Agricultural Produce Market

Committees (APMCs) via electronic market platform, under the National Agriculture

Market (NAM) initiative.

The State Government of Telangana plans to spend Rs 81,000 crore (US$ 11.88

billion) over the next three years to complete ongoing irrigation projects and also

undertake two new projects for lifting water from the Godavari and Krishna river.

The National Dairy Development Board (NDDB) announced 42 dairy projects with a

financial outlay of Rs 221 crore (US$ 32.42 million) to boost milk output and

increase per animal production of milk.

Government of India has set up an inter-ministerial committee, which will look into

ways to examine the potential of Indian agriculture, identify segments with

potential for growth, and work towards doubling farm incomes by 2022.

The Government of India has allocated Rs 200 crore (US$ 29.9 million) for

electronically linking 585 major wholesale agriculture markets across the country,

thereby creating a National Agriculture Market (NAM) in July 2015 for three years
42

Road Ahead

The agriculture sector in India is expected to generate better momentum in the next

few years due to increased investments in agricultural infrastructure such as

irrigation facilities, warehousing and cold storage. Factors such as reduced

transaction costs and time, improved port gate management and better fiscal

incentives would contribute to the sector’s growth. Furthermore, the growing use of

genetically modified crops will likely improve the yield for Indian farmers.

According to the National Institution for Transforming India Aayog (NITI Aayog),

India’s agriculture sector is expected to grow 6 per cent in FY 2016-17 in case of

normal monsoon during the June-September period. The 12th Five-Year Plan

estimates the foodgrains storage capacity to expand to 35 MT. Also, a 4 per cent

growth would help restructure the agriculture sector in India in the next few years.

Exchange rate used: INR 1= US$ 0.0149 as of September 26, 2016

References: The Economic Survey 2015–16, Agricultural and Processed Food

Products Export Development Authority (APEDA), Department of Commerce and

Industry 2015–16, Union Budget 2016–17, Press Information Bureau, Ministry of

Statistics and Programme Implementation, Press Releases, Media Reports

43

CHAPTER 4

LITERATURE REVIEW
44

Trend of FDI in India

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. Table 1 shows the FDI inflow and FDI as percentage of Total GDP &

Agriculture GDP in India from the year 2000-01 to 2011-2012 (post liberalization

period). The data on FDI inflows into the country shows that foreign investors have

shown a keen interest in the Indian economy ever since it has been liberalized.

An increasing trend of Net FDI flows can be observed since 2000-01 with the peak of

Net FDI flows being reached in 2008-09 (Table 1). Due to negative Net Portfolio

investment total FDI was very less. In Growth rate of FDI also was negative and FDI

as % to GDP also less than one. The highest growth rate of FDI inflow is in the year

2003-04 i.e., 212.7 percent. The table also found that FDI as a percentage of totals

GDP& Agricultural GDP was highest in the year of 2007-08. Technological up

gradation, access to global managerial skills and practices, optimal utilization of

human and natural resources, making Indian industry internationally competitive,

opening up export markets, providing backward forward linkages and access to

45

international quality goods and services the Indian Government has used many

steps to attract more FDI.

Growth rate and Percentage Share of Foreign Direct Investment and

Portfolio investment in Total Investment in India during 1992-93 to 2010-11

46

Overall FDI into almost all the sectors had declined in the year 2011-12 except Fuels

(Power + Oil Refinery), a reason for which could be the global situation that

prevailed during that time frame. Although services sector remain the sector

attracting the highest FDI inflows since 2002-03 its share has been constantly

declining. The FDI flows into computer hardware and software has been downward

ever since 2006-07. It has drastically gone down from 17.4 per cent in 2006-07 to

1.8 per cent in 2011-12. Housing & Real Estate have shown an upward trend in

terms of their share in FDI inflows. Investments in chemicals and metallurgical

industries have been erratic as no clear trend could be observed for the time period

2005-06 to 2010-11.
47
48

Top Investing Sectors Share in FDI Approvals (Financial year-wise) ` Crore

The Sector wise Analysis of FDI Inflow in India reveals that

maximum FDI has taken place in the Fuels (Power+Oil refinery) sector followed by

the Construction Activities, Housing & Real Estate, Electrical Equipments, Services

Sector and Drugs & Pharmaceuticals in 2003-2012. In 2010-11 Figure 2 shows

decreasing trend of FDI in every sector either it is service sector or construction,

automobile etc. But in year 2011-12 every sector improves their position in context
49

of FDI. When we see the FDI in agriculture sector, Food processing industries shares

is only 4.8% during 2003-2012.

Percentage Share of Top Sectors - FDI Equity Inflows (Cumulative, April 1991 to

March 2002)

Percentage Share of Top Sectors - FDI Equity Inflows (Cumulative, April 2003 to

March 2012)
50

FDI Inflows in Different agriculture Sector:-

(1) FDI Inflows to food processing industries:

Food processing industry is a predominant segment in the Food Industry in India

and accounts for 32 percent share in the industry. The food processing industry

comprise of 2 percent of fruits and vegetables and 15 percent of processed milk.

Important initiatives by the Indian government have led to significant growth in FDI

Inflows to Food Processing Industries. While FDI Inflows to Food Processing

Industries are estimated to reach USD 325.93 million by 2009, a target of USD 25.07

billion worth of FDI Inflows to Food Processing Industries has been set to be

achieved by 2015. The food processing industry contributes to 6.3 percent of the

Gross Domestic product of India, 19 percent to the Indian industry, and 13 percent
51

to the export production. The export production in food processing sector has

increased from USD 6.98 billion in 2002-03 to USD 20.51 billion in 2006-07,

accounting for a phenomenal rise of 193.83 percent. The government of India has

set a target of USD 25.07 billion of FDI Inflows to Food Processing Industries to be

achieved by 2015 which will increase India's global food trade from 1.6 percent to 3

percent along with a rise in perishable processed food items from 6 percent to 20

percent. The food processing industry is expected to witness a growth of 10 percent

in the recent years to come. Government of India gave an estimation of Foreign

Direct Investments (FDI) Inflows to reach USD 325.93 million by 2009 keeping in

view the rising demand among the corporate players in

Indian retail industry

• A number of active measures have been taken up by the government to ameliorate

the food processing units in terms infrastructure, human resource, and research and

development

• 100 percent FDI is permitted in almost all the food processing units with the

exception of alcohol.
52

• Enactment of the Food Safety and Standards Bill 2005 has introduced a governing

body for the food processing sector.

• This legislation has also allowed a 100 percent tax deduction on profits for five years

and 25 percent for the next five years especially to the upcoming agro-processing

industries.

• Most of the items in food processing sector are exempted from license agreement

excepting those

which are kept in reserve for the small-scale sectors.

(2) FDI Inflows to Agriculture Services:

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. 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. This

requires Government of India approvals. Further, it requires compulsory divestment

53

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. FDI inflows to agriculture services also

facilitated growth of other allied areas like Irrigation, Roads, Housing, Water Supply,

Electrification, and Telecommunication Connectivity.

(3) 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. 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.
54

Chapter 5

Opportunities and challenges

Opportunities and Challenges:

The positive outcomes of the policy are as follows:

1. Permitting foreign investment in agricultural retailing is likely to ensure adequate

flow of capital into rural economy in a manner likely to promote the welfare of all

sections of society, particularly farmers and consumers. It will bring about

55

improvements in farmer income and agricultural growth and assist in lowering

consumer price inflation.

2. Due to lack of adequate infrastructure facilities and lack of proper storage facility

farmers are forced to sell their products at very low price which sometimes cannot

even cover their cost of production. It is assumed that now farmer could be sell

their all producer.

3. Since the inflow of FDI in retail sector is bound to pull up the quality standards

and cost competitiveness of Indian farmers. It, therefore, seems that FDI in

agricultural retailing has the potential of sustaining agricultural growth.

4. This is expected to boost the country’s domestic manufacturing industry that

foreign retail companies have to be source at least 30 per cent of the commodities

from small and micro industries.

5. The minimum investment limit has been set at US$ 100 million for foreign

companies, out of which at least 50 per cent must be used to improve

transportation, distribution, storage, and packaging facilities, and develop farm

allied infrastructure.

6. Due the FDI inventiveness, the concept of the middleman, which has dominated

farmers in India for decades, can be eradicated and farmers can now get the full

benefit of their produce.

56

7. Foreign companies are expected to take some constructive steps for the creation

of supply chain.

Entry of foreign players, storage and refrigeration infrastructure will improve

significantly.

8. Job opportunities in sectors such as transportation, packaging, agriculture

processing and such like are expected to flourish. According the Government of

India, FDI in retail sector is capable of generating approximately 4 million direct jobs

and around 5 to 6 million indirect jobs within a span of 10 years.

The FDI policy also comes with its share of disadvantages of the policy are:

1. Small retailers and owners of Pop and Mom stores might suffer, as the large

retailers like Wal Mart and Tesco are likely to alleviate out these small and micro-

level shop owners.

2. There might be job losses in the manufacturing segment. Though the government

has capped the be bought from the foreign markets.

57

3. The Indian retailers might not be able to cope up with the increasing competition

from the foreign retailers who are well prepared with better infrastructure and

management procedure. Slowly this might lead to the replacement of the Indian

retailers to a considerable extent.

4. As the foreign brands will be available at a larger rate, the consumer’s inclination

towards international brands might affect the country’s in-house brands.

5. According to the non-government cult, FDI will drain out the country’s share of

revenue to foreign countries which may cause negative impact on India’s overall

economy.

6. Now Wall mart is the single buyer and play as a monopolist and it will be force to

farmer to reduce the price of their produce.

7. It is said that FDI might provide employment opportunities, but it is argued that it

cannot provide employment opportunities to semi-illiterate people. This argument

gains more importance because in India, large numbers of semi-illiterate people are

present.

8. Though Government has predetermined that 30 per cent procurement should be

from Indian sources, this may get diluted over the years. The remaining 70 per cent

procurement from cheaper countries will make the people run towards that stuff
58

and the 30 per cent supply from Indian small industries will have their own death,

unable to compete with low price Chinese goods.

Walmart Lobbying and Political Corruption in Retail FDI:

Recent reports presented by Walmart to US Govt. revealed that it spend Rs. 125 cr

in lobbying Indian lawmakers to get access to Indian market. These facts are serious;

if Govt. is doing all this in favour of bribery and money then results might not be

good as it is projected. Since Walmart will continue to mould things in their favour

by lobbying and bribery as political corruption is well known in Indian politics. They

can be purchased easily.

59

Chapter 6

Conclusion and suggestion

60

Conclusion and suggestions:

India has a huge consumer and thus very attractive place for trading of its loose

foreign trading policy. Use nations for bringing technology and stable system with

culture in India, but control should be in our hand. For instance govt has invested

1000 crore of public fund inviting Walmart, what when Walmart fail all the govt

investment goes to ashes, instead of govt I will suggest private branded firms would

invest money if they are really looking it as a business, and I believe private firms

could handle situations in better way as govt always fails. Secondly FDI in retail in

India is always preferred by the developed countries to increase their productivity not

by developing countries, our politicians political bill is limited to get money only and

nothing else, so FDI is not good for the time being, India again retain its credibility and

stood on his foot, then FDI is good else its just solace to support.

Global experiences show that FDI in retail can sometimes negatively impact

consumers and economy if corporate retailers adopt anti-competitive practices such

as rapacious pricing. In India, the Competition Act 2002 has provisions to check

exploitation of dominant position by major players, including predatory pricing. In the

Act, dominant position is defined as “a position of strength, enjoyed by an enterprise,

in relevant market, in India” (The Competition Act, 2002, No.12 of 2003, pp. 9). To

protect the interest of consumers, the Act can be further strengthened. For instance,

the dominant position can be clearly specified, in terms of the market size of the

retailers, as has been done in countries like Australia. The regulatory body and the

Govt. have to take care that due to entry of FDI in retail the market will not become
61

a high concentration in the country and can make regulation to prevent foreign

retailers like WalMart from having a high concentration of business in the country.

FDI provides India with stability in inflow of funds, access to

international markets, export growth, transfer of technology and skills and improves

balance of payments.

More FDI does not necessarily guarantee high growth rates. The relative emphasis

must shift from a broad (scatter shot) approach to one of targeting specific

companies in specific sectors. Socially responsible FDI should be encouraged

through the development of national and international investment guidelines and

regulations.

FDI is beneficial to India’s growth and India’s growth is beneficial for FDI. India

needs to create a talent pool suitable for the investors and it needs to develop

infrastructure that will encourage the investors. These steps taken by India to bring

FDI will also help India to grow on its own. FDI if monitored and nurtured in such a

way that it will bring more skills and resources to India will be mutually beneficial.
62

Bibliography –

Choudhury, S., (2012) “Farm fatalities”, The Statesman, February 6, 2012

Renuka, R., ets, (2013), “Impact of FDI in Indian Economy with Special Reference to

Retail Sector in India”, Global Research Analysis, Volume: 2, Issue: 1, Jan 2013

Department of Industrial Policy and Promotion, (2010) “Foreign Direct Investment

(FDI) in Multiband Retail Trading,” Discussion paper, http://www.dipp.nic.in

Ministry of Commerce, (2011), "FDI Policy in Multi Brand Retail", Government of

India, 28 November 2011.