Farmers gather on November 26, 2021 to mark the first anniversary of their protests on the outskirts of Delhi at Pakora Chowk near Tikri border, India. NEW DELHI, December 5, Reuters - India's repeal of agricultural laws aimed at deregulating produce markets will starve its vast farm sector of private investment and saddle the government with budget-sapping subsidies for years, economists said.
The government introduced three laws to open up agriculture markets for companies and attract private investment in the last year, triggering India's longest-running protest by farmers who said the reforms would allow corporations to exploit them.
With an eye on a critical election in the populous Uttar Pradesh state early next year, Modi agreed to rescind the laws in November, in order to smooth relations with the powerful farm lobby which sustains nearly half of the country's 1.3 billion people and accounts for about 15% of the $2.7 trillion economy.
By shelving the most ambitious overhaul in decades, Modi's backtracking now rules out much-needed upgrades of the post-harvest supply chain to cut wastage, spur crop diversification and boost farmers' incomes, economists said.
This is not good for agriculture, this is not good for India, said Gautam Chikermane, senior economist and vice president at the New Delhi-based Observer Research Foundation.
The incentives to shift towards a more efficient market-linked system in agriculture have been smothered. The u-turn does allay farmers' fears of losing the minimum price system for basic crops, which growers say guarantees India's grain self-sufficiency.
According to Devinder Sharma, a farm policy expert who has supported the growers' movement, said the government has realised that there is merit in the farmers' argument that opening up the sector would make them vulnerable to large companies, hammer commodities prices and hit farmers' income.
The gruelling year-long standoff means that no political party will attempt any similar reforms for at least a quarter-century, Chikermane said.
In the absence of private investment, inefficiencies in the system will continue to deliver wastage and food will continue to rot, he warned.
India is ranked 101 out of 116 countries on the Global Hunger Index, with malnutrition accounting for 68% of child deaths.
It wastes around 67 million tons of food every year, a value of around $12.25 billion - nearly five times that of most large economies - according to various studies.
The main causes of waste are insufficient cold-chain storage, shortage of refrigerated trucks and insufficient food processing facilities.
The decision to end the rule that food must flow through the approved markets would have encouraged private participation in the supply chain, giving both Indian and global companies incentives to invest in the sector, traders and economists said.
Harish Galipelli, director at ILA Commodities India Pvt Ltd, said the agriculture laws would have removed the biggest obstacle to large-scale purchases of farm goods. It would have encouraged corporations to bring investment to modernise the whole food supply chain. Galipelli's firm will have to re-evaluate its plans.
Galipelli said they had plans to scale up their business. If the laws were stayed, we would have expanded. He said other firms that specialize in warehousing, food processing and trading are expected to review their expansion strategies.
There are poor post-harvest handling of produce that cause prices of perishables to be yo-yo in India. Only three months ago, farmers dumped tomatoes on the road as prices crashed, but now consumers are paying a steep 100 rupees $1.34 a kg.
The laws would have helped the $34 billion food processing sector grow exponentially, according to the Confederation of Indian IndustryIndian Industry CII, an industry group.
Demand for fruits and vegetables would have gone up. It would have cut surplus rice and wheat output, slicing bulging stocks of staples worth billions of dollars in state warehouses, economists said.
Sandip Das, a New Delhi-based researcher and farm policy analyst, said that crop diversification would have helped curb subsidy spending and narrow the fiscal deficit.
The Food Corporation of India FCI, the state crop procurement agency, has racked up a record 3.81 trillion rupees $51.83 billion in debt last fiscal year, alarming policymakers and inflating the country's food subsidy bill to a record 5.25 trillion rupees $70.16 billion in the year to March 2021.
Bidisha Ganguly, economist at the CII, said that the federal government has limited scope for change, but local authorities can opt for reforms if they have the political will to do so.
Venture capital-backed startups have expressed interest in India's agriculture sector.
Chikermane said that if it is allowed to take root, agritech could enable a better handshake of farmers and consumers.