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Inflow of foreign direct investment in the

agricultural sector of India
By Ananya Mitra on September 12, 2016
The agricultural sector in India is the main source of livelihood for more than 70 percent of
the rural population. Similarly half of the households in the rural population show some sign
of poverty (Singh & Walis 2015). In this scenario if the main aim of the Indian government is
economic development and poverty reduction, then the priority should be the growth of the
agriculture sector.
One of the major reforms in the agriculture sector in recent years is the inflow of foreign
direct investment. Even though most of the areas in agriculture sector is still closed for the
foreign investment. There has been significant increase in foreign investment in
several sectors.

Inflow of foreign direct investment in agricultural sector
since 1991
Since Independence, the government of India has encouraged the flourishment of the
agricultural sector. The sector is aided with several reformational policies and subsidies.
However, a major policy change took place after the liberalisation of the Indian economy in
1991. Along with other economic reforms an inflow of foreign investment in agricultural
sector was also opened (Wadhwa & Arora Wadhwa 2015).
Though the foreign direct investment in agriculture was permitted but the size of
the investments were small. This is due to the primitive structure of the sector and lack of a
technological base. Out of 129 million dollars of total inflow in 1991 only 6% was invested
in the agricultural sector (Dutta & Sarma 2008). Eventually with the development of the
Indian agricultural market and the improvising technology usage in the agricultural sector the
inflow of capital has increased to USD 40,885 million. The graph below evaluates the growth
of the agricultural sector with importance to the main crops of the country.

aqua culture. it does not get as much importance as the food processing sector. These include horticulture. mushroom and services related to agro and allied sectors (Wadhwa & Arora Wadhwa 2015). animal husbandry. Major agricultural products attracting foreign direct investment With the progress in technology the agricultural service sector attracted USD 76 billion of investment which is 0.Growth of the agricultural sector. cultivation of vegetables. pisciculture. floriculture. Similarly 100% foreign direct investment was allowed through the automatic route in various sectors. Consequently foreign investment in horticulture and floriculture was USD 534 million (Adhana 2016). the food processing industry had USD 86 billion investment which is 1.65 million. Moreover. And the agriculture sector contributed 0. total inflows during the period of 2001-2015 was USD 418.93% of the total inflow of foreign direct investment. In agriculture machinery. (Source: Handbook of Statistics on the Indian Economy Reserve Bank of India 2014-15) Inspite of the agricultural sector being a major source of employment for a large section of the population in India.05% of the total foreign capital inflow (Kumar 2014).14% to the GDP as a whole. . development of seeds.

However. Limited foreign investment has reduced the scope of growth for the agricultural sector. horticulture. FDI in different sectors related to agriculture Major changes in the foreign direct investment policies in agricultural sector During the first half of the liberalization policy implementation the agricultural sector was permitted with only 45% of foreign captial. coffee. jute in the foreign market has initiated the government to liberalise the policies referring to these industries. Whereas. A sharp increase in the growth of the agricultural production between 2003 and 2004 is noticeable. floriculture and animal husbandry had an increase in foreign direct investment after the liberalisation as the demand for these goods increased in the foreign market. Along with the food processing sector. With higher inflow of foreign direct investment the growth rate of the agriculture sector has increased to 4% (Singh & Walis 2015). in the later half of 2000. 100% FDI was granted for sectors such as:  floriculture  horticulture . (Source: Handbook of Statistics on the Indian Economy Reserve Bank of India 2012-2013) The figure above shows the growth of the agricultural sector with an importance to the percentage of investment in the food processing industry since 1991. the increasing demand of the cash crops like tea.FDI in food processing industry. However. Increasing demand of agricultural services and chemicals for cultivation has induced the foreign investors to invest in above mentioned industries. there was fall in the following years with the maximum decline was in 2007-2008 because of the recession worldwide. government announced policies that indicated the improvisation of the agricultural sector with the permission of 100% foreign direct investment in the agricultural sector through automatic route.

K. However.A. D. . better seeds and thus rapid growth. However. 6(10). M. In a nutshell. apiculture  cultivation of vegetables & mushrooms (under controlled conditions)  development and production of Seeds  planting material  animal Husbandry (including breeding of dogs)  pisciculture  aquaculture (under controlled conditions)  services related to agro and allied sectors (Department of Industrial Policy and Promotion 2015). However the production of food crop cultivation declined for those products which have comparatively less demand in the international market. better monitoring and regulation of foreign direct investment is required for a good growth. Now India stands as one of the leading exporters of the agricultural goods in the world (Agrawal & Khan 2011). Foreign Direct Investment in Indian Agricultural Sector: Opportunities and Challenges. The interest of the investors in the allied sectors of the agriculture aided the export of goods which perused a greater demand for them. Policies related to foreign investment needs to be liberalised for the food crops. 2011. References  Adhana. pp. This might lead to technological boom and growth in the sector. Impact of foreign direct investment in the overall growth of the sector After the reformation in 1991. the growth was confined to certain areas which led to increase in equality in the country (Sawant 2014).. Service and manufacturing sector has largely been benefited from high inflow of foreign capital. However. 16(3). agriculture sector was opened for foreign investment and was also followed by better technology. 2016. Both positive and negative impact should be closely analysed. in the context of Indian economy. KIJECBM. there has been an immense reformation and the growth in the sector after the introduction of the economic reform.. the overall growth in the agricultural sector has been immense compared to the period before liberalisation.71– 79. Impact of FDI on GDP: A Comparative Study of China and India. foreign direct investment in agriculture requires a more detailed research. & Khan. International Journal of Business and Management. G.  Agrawal. However.

R.  Wadhwa. 64(4).. Socio-economic voices. & Arora Wadhwa. & Banerjee. K. pp. 4(3).  Dutta. B. 2010. . pp. Foreign Direct Investment ( FDI ) & Agriculture Sector in India. FDI IN AGRICULTURAL SECTOR IN INDIA: STATUS AND CHALLENGES Dr. Department of Business Administration. 2008.cfm?abstract_id=1443577. 2014. pp.28–37. Ideal Institute of Management & Technology (Unpublished Work).K. S.. 2015. New Delhi. Procedia – Social and Behavioral Sciences. D. Available at: http://papers. Indian Journal of Research. FDI in agricultural land. & Walis.  Kumar. & Sarma.229–239. 2014...  Singh. CONSOLIDATED FDI POLICY. S..1–13. Challenges and Prospects. S. G.com/sol3/papers. 133. Research in Economics.. 2015. 2013. Foreign Direct Investment in Indian Agricultural Sector: Opportunities and Challenges States.R.K.  Dhungana. welfare and unemployment in a developing economy.. The Role of FDI on Agricultural Sector in India. S. pp.  Department of Industrial Policy and Promotion. In FDI in India.  Sawant.6–8. SSRN. New Delhi: Deen Dayal Upadhaya University. Strength and Weaknesses of Indian Agriculture Sector in the Era of Globalization. Chaudhuri. 2015..R. A. Foreign Direct Investment in India Since 1991: Trends. M.ssrn.