Foreign Direct Investment In Agricultural Sector | Foreign Direct Investment

foreign direct investment in agricultural sector

FOREIGN DIRECT INVESTMENT IN AGRICULTURAL SECTOR

Foreign direct investment in the agricultural sector- is when a company takes over in a company by controlling and possessing all rights over it in another country.[1]Thus FDI is a way to bring foreign investors in the country which not only invests money but also technology, labor, and skill. After the policy of LPG (liberalization, privatization, and globalization) ease of doing business in India increased on a great level, and thus, the FDI started booming in the country. FDI has become a very integral and crucial part of the globalization and the economies have preferred it over and over again for the boost in the nation’s economic sector and development. There are various procedures through which Foreign Investment is included in the Indian Economy. There are categories in ‘Automatic Route’ which means that no prior government or RBI approval is required for the investment being made in those categories. There are a hundred percent automatic routes in some industries like agricultural, tourism, online industries of e-businesses etc. During the fiscal year of 2019 India had received the highest ever FDI inflow of $64.37 billion.[2]

The agriculture sector is the most prominent sector in India’s Economy and amounts to almost 14% of the GDP of the country with almost forty-two percent of total employment.[3] The agricultural sector provides a base for a country’s Economy as well as provides raw material for future. Thus, it becomes crucial to invest thoroughly into this sector as it provides for a major part of the production and the basic necessity parameter. With the time that has passed it has been seen that India has not been able to invest majorly or adequately in agricultural sector and the national savings have not been able to fill the gap which is needed in investing in agricultural products or technology. Thus, the introduction of a hundred percent foreign direct investments in the agricultural sector has been seen by the government as a way out to build over and cover the gaps in the said sector by the foreign investments. There are various trade laws in India that account for trading provisions with the foreign countries such as Foreign Trade (Development and Regulation) Act, 1992, Foreign Trade (Exemption) Order, 1993 and India’s Export import policy issued by Directorate General of Foreign Trade.[4]

FDI, however, is specifically dealt with by the Department of Industrial Policy & Promotion. The circulars regarding the FDI investments in agricultural sector were issued in 2011 where it was issued that there was a hundred percent FDI permitted in the agricultural sector subject to conditions under the ‘Consolidated FDI Policy’. Floriculture, cultivation of mushrooms and vegetables, apiculture, animal husbandry, pisciculture, horticulture and development of seeds and planting material are some of the areas where FDI is hundred percent.[5]

With all the praising of how the FDI boosts the Economy and how the nations have considered it as a boon for development, it is important to understand the various loopholes it brings with itself. And not just the loopholes but there are challenges which are yet to be fought on FDI basis. As agriculture forms an integral part of the Indian Economy, it is very pertinent to actually analyse the various factors which leads to the imbalance in the whole process resulting in striking out the main reason for such investment that is economic growth and development. The large amount of subsidies provided hamper the situation of proper growth and development which in turn increases the investment scores in the sector. The subsidized rates need to be reformed and a balance needs to be sought so that the FDI is involved in the Economy for the purpose of the development and economic boost and not as a major part in contributing to flourish and run that sector. Another issue that comes into picture most of the time is the Government Regulations on various aspects such as labour and land. The regulation differs from state to state depending upon the geographical feature and the amount of labour in that area. However, the change in policies time and again and the government intervention in such scenarios causes the foreign investors to not to invest in such countries due to such complexities and intricacies that might take the business down. Another challenge that India faces in almost every sector is lack of good infrastructure. While investing in a business in a country, there are some basic business requirements that a foreign investor looks up to. The foreign investors lookup for investing in major products of the business and not the entire aspect of it otherwise, it demolishes the whole idea of foreign investment. Thus, a good infrastructure contributes to a healthy and strong investment in the country.

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Another aspect of the problem is the constraints at every level whether it is regional, local or national. The businesses need to follow the local or regional per se for the business being situated in that area which causes difficulty in enhancing and regulate the business. The provisions which are provided in the FDI cannot supersede the existing laws in the country such as local labour laws. Furthermore, they will be required to follow all the import and export laws as well such as import duties, APMC rules, Essential Commodities Act and control of the government on sales of various raw materials. There is no consistency in the foreign investment policies and it tends to change frequently which have caused majorly a setback in investment by foreign entities in India. The lack of transparency, the tedious modes of paperwork, and the lack of infrastructure again makes it difficult to attract the foreign investors in the country. On a national level, the lack of political stability or limited financial resources or imbalances in production capacity can cause challenges to the FDI norms and the regulations that need to strengthen the same.

The policies in the agricultural sector regarding FDI needs to be revised and to be at par with the existing situation of the country. The policies of FDI require the investment in a balanced way so that there is a proper economic boost but at the same time the investments does not overpower the Economy of the state. For the smooth functioning of such policies it is very much needed that clear regulations with less complexities should be there. Farmers are the most affected among all the levels of the system in the agriculture system, where the FDI has expelled the middleman system to provide some relief to the farmers there is still a need to regulate proper procedures for the effective use of the same. Foreign Direct Investment In Agricultural Sector

[1] Business Standard, https://www.business-standard.com/about/what-is-fdi

[2] Ibid.

[3] Trading Economics, India GDP- 2011-2019 Data, www.tradingeconomics.com.

[4] http://www.indiahealthstat.com/SOCIO_PDF/109/fulltext.pdf

[5] https://www.investindia.gov.in/team-india-blogs/fdi-opportunities-indian-agriculture

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