Scrapping of the farm laws, aimed at easing sourcing for the manufacturers and improving farmers' income, may impact the government's plans to boost India's food exports in coming years. With its attempt to link the farmers' directly with the food processing units now in jeopardy, estimates suggest it could hit India's prospects as potential exporter of processed food items.
Apart from the three farms laws, the recent reforms initiated by the union government involved a production linked incentive (PLI) for the food processing sector. The scheme, seen by experts as an extension of an overarching plan to reduce agri-waste and rapidly grow the local industries' capabilities to innovate and process raw food items, may now be under the scanner.
According to a NITI Aayog working paper, prepared by Prof Ramesh Chand, the three farm laws were targeted towards removing multiple barriers that the farm sector and the industry currently face. Chand, who is a member of the top-level policy body and has been involved in policy formulation for the agriculture sector for the past two and a half decades, argued that in spite of economic liberalisation in 1991, exclusion of the farm sector has severely impacted its growth prospects over the years.
While, deregulated "agricultural segments such as horticulture, milk and fishery - where market intervention by the government is either nil or very little - has shown 4-10 per cent annual growth. Compared to this, the growth rate in cereals - where minimum support price (MSP) and other interventions are quite high - remained 1.1 per cent after 2011-12," Chand had argued.
On the other hand, falling rate of growth in domestic demand for food items (due to declining population growth rate), is increasing India's food surplus in certain commodities. "India will be required to sell 20-25 per cent of the incremental agri-food production in overseas markets in the coming years. This is not possible in the 'business as usual' setting, which involves a long chain of intermediaries, small market lots, and high transaction costs. The country is witnessing the accumulation of a large surplus of grain and sugar, which is getting increasingly difficult to dispose of in the overseas markets due to poor price competitiveness of our produce," Chand noted in his report.
Moreover, lack of planning and control is forcing the authorities to import huge quantities of edible oil and pulses. "Even the import of fruit and vegetables, which can be grown in the country and fetches good income, has been increasing. The reasons are the poor state of market facility, post-harvest infrastructure, and logistics and high risks in returns from oilseeds and pulses", the report noted.
According to industry experts and sources from major F&B players, by addressing these issues and freeing up farmers from selling only to Agricultural Produce Market Committees (APMCs or local Mandis), the farm laws were crucial precursors to the newly introduced PLI scheme.
They argue, by allowing farmers to sell their produce anywhere in the country, it would have helped them in bringing down cost of logistics. As per NITI Aayog's estimates, cost of logistics for agri-commodities is too high -- at 15 per cent -- and needs to be halved.
However, with the farm laws now being repealed, industry stakeholders told Business Today that their impact on the PLI's goal to boost exports will surely be felt.
According to a senior FMCG industry executive, who spoke on the condition of anonymity, the farm laws would have eased sourcing of agri-commodities for manufacturers. But without that benefit, it could be difficult for companies to scale up operations as per plans. "This may impact manufacturers' plans on growing exports from India as envisaged under the PLI for food processing", the person said.
Under the scheme, the government aims at achieving an incremental production of worth Rs 33,494 crore by 2027-28 (taking 2021-22 as base year). It also estimates to add 250,000 jobs by 2026-27. Primarily, four key categories - ready to eat (RTE) and/or ready to cook (RTC), processed fruits and vegetables, marine products, and mozzarella cheese - are given preference, where manufacturers get incentives based on their committed investments and incremental sales. SMEs with innovative and organic portfolios in free-range eggs and poultry meat will be covered by the scheme.
To boost the fortunes of Indian brands in overseas markets, Rs 1,500 crore are being offered as an incentive to large manufacturers for their efforts in brand building in foreign markets and marketing initiatives like in-store branding and shelf-space renting.
According to Mohit Singla, chairman of the Trade Promotion Council of India, value-added exports would give a leg up with the expansion of processing capacity and branding abroad.
Lack of transparency, wide-spread infestation by middlemen and stringent regulations have, so far, impaired the agriculture sector's fortunes in the country. As per NITI Aayog estimates, investment and capital formation in agriculture has seen an unhealthy trend in recent years.
"The growth rate fell from close to 10 per cent per year between 2002-03 to 2011-12 to 2 per cent in the following decade. The private corporate sector has almost avoided the sector and constitutes less than 2 per cent of the total investments in agriculture and less than 0.5 per cent of the total annual investments of the corporate sector in the Indian economy", NITI Aayog had said.