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


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.


Also. development of seeds. 66.000 Km of new rural roads have been sanctioned 8. which accounted for almost 19% of India's GDP in the financial year 2006-2007. Having a high contribution from services is an attribute that is characteristic of developed economies. The target set for generating Farm credit for 2007-08 is 225. RNI-RAJBIL 2009/29954. pisciculture. pisciculture. Construction of 1. living in about 600. stored and marketed. Agriculture is an important sector of the Indian economy.According to the circular by DIPP 8 . manufacturing contributes a mere 23. The overall percentage of such foreign direct inflow in the Indian agricultural industry was 0. Agriculture still accounts for 60% of India's labour force and an improvement in the agriculture sector would directly benefit them. The Department of Industrial Policy and Promotion (DIPP). The argument often given against FDI in retail is it will severely affect mom and pop shops. 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.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. More over the kirana stores can buy from the cash and carry stores and reduce their cost of procurement. 4. for ushering in competition in the supply and distribution chain where the farmer decides whom to sell and at what price. FDI inflows into agricultural machinery of India have resulted in the steady rise of the Indian agriculture industry in recent years. cultivation of vegetables. Loan facilitation through Agricultural Insurance Institutions and NABARD has also been extended.animal husbandry.. Allowing 100 % FDI in retail would lead to an agricultural and a dairy revolution in the country. 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. Modern retailers procure in bulk and sell at low prices.43 of the total quantum of the FDI inflow during the same period. 3. development of seeds. manufacturing accounts for a significant share of GDP. Nilgiri's etc. floriculture. The total quantum of foreign direct investment in the Indian agricultural machinery was US $ 135.000 crores. Investment to the tune of 1. Instead of travelling to the large retail stores far from their own place of residence. for huge investments in the supply and distribution chain and the most importantly. 5. 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. 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. aqua culture. India should open up its retail sector to foreign capital and competition. The government can always decide the ceiling price. In India consumers like to make purchases frequently and in small quantities. iii) Besides the above two.1% of the GDP. FDI is not allowed in any other agricultural sector / activity. The Indian retail market is very different from the Western retail market. plantation. 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. 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.46. animal husbandry. and prior approval of the state government concerned in case of any future land use change. floriculture.50 million during the period from August 1991 to December 2005. we have modern retailers in the market.0974-2832. Indian economy has been heavily geared towards the service sector that contributes 56% of our GDP. they won't be able to survive the competition. who are thriving along with the traditional kirana stores. under controlled conditions and services related to agro and allied sectors. China. mushroom and services related to agriculture and sectors associated with it.VoL. whereas in India. iv) The government has announced 100 per cent Foreign Direct Investment (FDI) in the agriculture sector including seeds. people still prefer the convenience of the traditional neighborhood kirana store. ISSN. So. horticulture and cultivation of vegetables. aquaculture and cultivation of vegetables and mushrooms. The service sector's contribution to the increase in GDP over the last 5 years has been 63. horticulture. The Indian agriculture sector enjoys 100% FDI through the automatic route. 2.800 habitations with population over 1000 is to be connected with all weather roads.9%. India to grow at an 8 to 10% economic growth rate our agricultural sector has to expand. 7. February.International Referred Research Journal.000 small villages of India. in any case. 6. But we already have homegrown modern retailers like Big Bazaar. A pilot program for delivering subsidy directly to farmers to be introduced.000 crores envisaged under "Bharat Nirman". Corpus of Rural Infrastructure Development Fund to be raised. 100% foreign direct investment (FDI) allowed through the automatic route covering horticulture.74. 2012.

if required.K. shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation) New Delhi.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). Poultry breeding farms and hatcheries where microclimate is controlled through advanced technologies like incubators. temperature. SAMIKSHA AUR MULYANKAN 9 . Foreign Direct Investment Inflow Matter? Working Papers 115. FDI plays a significant role in increasing productivity by offsetting the investment and technological gap. health care and nutrition.VoL. In the case of pisciculture and aquaculture. aqua culture. pisciculture. Foreign Direct Investment and its Economic Effects in India by Chandana Chakraborty Peter Nunnenkamp March 2006 2. the "under controlled conditions'' for the categories of floriculture. FinancesofForeignDirecInvestment 4. For Social and Economic Change. Intensive farming system will require climate systems (ventilation. 2008 SHODH. herd registering/pedigree recording. net houses. 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. is. 6. Foreign Direct Investment Report Foreign Direct Investment Report United Nations New York. Reserve Bank of India (online). RNI-RAJBIL 2009/29954. Companies. 2011. Mathiyazhagan (2003).III *ISSUE-37 animal husbandry pisciculture. floriculture.The circular also states the term "under controlled conditions''. 9. solar radiation. and M.rbi. (http://rbidocs. rdocs/Bulletin/DOCs/62203. February. high production costs. R E F E R E N C E 1.Sahoo. Database on Indian Economy. use of machinery. In view of the declining culturable land per capita.. horticulture.DIPP has imposed certain conditions for companies dealing with growth of transgenic seeds and vegetables. 5. cultivation of vegetables and mushrooms is the practice of cultivation wherein rainfall.Mathiyazhagan(2002). SUMMARY Growth in agriculture and it's productivity are considered essential in achieving sustainable growth and significant reduction in poverty in developing countries.doc). temperature/humidity management). mushroom and services related to agro and allied sectors. 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. significant improvements are required in productivity growth in agriculture in order to increase agricultural output through technological innovations and Foreign Direct Investment Inflow Matter? Singapore Economic Review 48 (2): PDFs/65516.. D. 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. any import of genetically modified materials. ISSN. poly houses or any other improved infrastructure facilities where microclimatic conditions are regulated anthropogenically. Control in these parameters may be affected through protected cultivation under green houses. waste management systems. Reserve Bank of India (var.International Referred Research Journal. combined with rapid population growth and the resulting need for human As per the defined term. Reserve Bank of India (2005).Economic Growth in India: Does 7. Economic Growth in India: Does 10. Institute 8. animal husbandry. Annual Report cdbmsi/servlet/login/). air humidity and culture medium are controlled artificially. Sahoo. cultivation of vegetables. the term under controlled conditions includes: rearing of animals under intensive farming systems with stall-feeding. 2012. ventilation systems etc. development of seeds. (http://rbidocs. and rising urbanization. 3. it includes: aquariums hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control. In addition in case of animal husbandry.pdf). 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. The FDI Inflows to Agriculture Services are allowed up to 100% and allowed through the automatic route covering horticulture. Economic Reforms. (https://reservebank. Bangalore. The new rules will be implemented from April 1.