Foreign Direct Investment in Agriculture

Economic nationalism in industry and agriculture

The India-born Lakshmi Mittal’s takeover of the Europe’s biggest stall maker, Arcelor, now Arcelor-Mittal Steel, made lots of headlines for months. The major European governments, France, Netherlands, Luxembourg, Spain, the Presidents  and Prime Ministers of these countries raised a hue and cry over their own nationalistic industry (they held major shares in the steel company based in Luxembourg) has being taken over by an “Indian”!   These great leaders made so many insulting remarks on the Indians,  inferior race etc and business practices. But then the determined Indian entrepreneur won ultimately and he had been hailed a hero in India. Rightly so!

There are so many Indian companies now buying out foreign companies, including iron ore mines in foreign countries and the list is grwoing: Tatas, Birlas, and other name is now making the news headlines!  What we in India has to understand is, that this is globalisation, there is now foreign direct investment (FDI) entering any number of economic sectors. FDI is  now allowed in select sectors, there are sensitive sectors like even print and TV  media and the government has to carefully study and allow FDI in sectors, so that that policy doesn’t undermines’s India’s own  strengths in some critical areas like defence, food security etc.

Now, the FDI is being allowed into the agri sector and that is the news! The Central Government had clarified just now that FDI up to 100 per cent is permitted under the automatic route in certain activities in the agri sector. What activities?
Floriculture, horticulture, development of seeds, animal husbandry, pisciculture, acquaculture, cultivation of vegetables and mushrooms under controlled conditions and services related to agro and allied sectors.  In a statement, the Department of Industrial Policy and Promotion in the Ministry of Commerce and Industry said that FDI policy vide Press Note 4 (2006series) dated February 10, 2006 was rationalised.  As regards tea plantation, the statement said that FDI up to 100 per cent with prior Government approval.

Besides the above two, FDI is not allowed in any other agricultural activity.  The Government further clarified that apart from the permitted activities,  FDI is not permitted in any other activity in the real estate. So far so good. FDI in industry is permitted in select sectors up to 100 per cent. So in agri sector too 100 per cent FDI can be permitted if the Government considered such FDI can contribute to our agricultural strength.

The point is that in the industrial sectors there is also nationalism, nationalist sentiments in the advanced countries. For instance, the USA won’t allow seeing the US auto industry taken-over or completely destabilized by the uncontrolled entry of the foreign auto majors from Korea or Japan. There is a strong nationalistic sentiment in all countries, more so in France and Germany.  The developing countries have more to be cautious by the big talks by the G-8 countries to make the world economy grow faster. What does this mean is that already developed countries want to seek new markets and so the demand for FDI flows. But the FDI in agri sector?

There is more fierce nationalistic sentiment in the agri sector in the developed countries. We have noted many times how the agri subsidies in the US/EU have thoroughly distorted the trade; free trade is not anywhere free! It is free only so far the US/EU wants it so!  American would see to it that its major produces, cotton, soyabean or even wheat and corn would be subsidised so that their prices are lower even in the Indian market. That is one reason why Indian agriculture is thoroughly made uncompetitive in every major sector in agriculture: major crops are all getting adequate market prices simply because the prices of foreign produce are cheaply available. The subject is complex and what we can be sure is that we can trust the Commerce Minister to do the right thing considering his stance on WTO negotiations where he had shown willpower to withstand the many blandishments of the US/EU lobby.

Food security is the one area where India has to be extra-ordinarily alert. Also in the development of the GM crops. There is the danger of FDI completely making India dependent upon the know-how on GM technology.  Also, the agri import-export trade. The operation of foreign MNCs, Cargill and others in the just concluded wheat procurement showed how they could distort prices and create a shortage. So, the role of FCI needs to be kept and streamlined.

The conclusion is: more than the industry, Indian agriculture needs to be made competitive. We can’t be dogmatic on any policies simply on nationalistic sentiments. But the aim has to be bringing in the strengths of modern sciences and technological base of doing agriculture to enhance productivity of our major crops. So seed technology could be one area where FDI could be further allowed. So, there are sectors and that might be examined case by case basis.

We have to liberalise our sectors, including agri sector. That goal has to be kept in mind by the Prime Minister, Finance Minister, the Agri Minister; the three hadn’t earned the goodwill of the farmer’s community for the way they had brought about agrarian crisis of the first order in independent India!

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