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Will FDI in multi-branding retail improve Indian agriculture?

Posted in Finance Articles, Total Reads: 3352 , Published on July 19, 2013

The Indian agricultural sector’s plight makes me recall one of the outstanding scenes of Indian Cinema through AshutoshGowarikar’sSwades where the protagonist , Mohan Bhargava meets a poor Indian family fallen on hard times who earn their living through selling of clay pots. The unawareness of the real market prices of their goods makes the family suffer losses. Drawing parallels, the chief concerns of farmers in India have been the lack of price security of their produce which I believe, the FDI tries to resolve.

The cabinet’s insistence in allowing Foreign Direct Investment in multi branding retail has met with mixed responses all across the nation with different people having varied opinions regarding its impact. With the prime minister oozing confidence over this reform, he has met a lot of opposition from people who believe this is going to harm the unorganized sector of the Indian retail while some feel that the constraints of 51% and the wave of oppositions that it faces will actually make no difference to anyone out there.

Image Courtesy: freedigitalphotos.net

The supporters of multi brand retail feel that agriculture is the sector which is going to be highly affected in a positive light by this reform. They are not wrong as the impacts are unmistakeable. The major problem that agricultural produce faces in India is that of storage. With around 33% of food getting wasted due to lack of proper storage, FDI could help in improving the cold storage conditions of the country. However, there has already been a support of 100% FDI in storage but it has not had much significance in helping to improve the conditions. The question as to whether foreign companies would be involved in improving the storage conditions remains unresolved.

The biggest impact is the security and justice in prices provided to farmers through FDI. With higher proceeds from Walmarts and other foreign players for their produce compared to the prices that they got from the “mandis”, FDI seems likely to reduce the farmer suicides and make farming a viable option again. Although FDI in the US have not really helped farmers increase their incomes, it remains to be seen in India. With foreign players integrating with the Indian farmers and building strong long term relationship, the future does appear bright.

Stakeholder analysis

Now that we talked about storage and produces but what about the thinking of an average Indian farmer? Is he fine with FDI? Does he know FDI? If yes, then who informed him? These questions will play a very important role. As most of the Indian farmers are illiterate, they will follow what was communicated to them by officials and politicians. They will not have their own voice unless they are educated. So irrespective of whether FDI in multi branding retail is good or bad for their condition they will simply follow what was communicated to them and will act accordingly. Hence, the actual stakeholder is at the helms of others. This should be taken as a learning by the government and should improve the present education levels of Indian farmers or at least their families so that in future they can think about their benefits by change in government’s policies.

Although FDI in multi brand retail looks good for the Indian agricultural sector, it is important for the policymakers to understand that mere FDI would not solve the plight of Indian farmer. A strong support from the government in terms of lower interest rate for loans and free education to the Farmer’s children, coupled with investment in efficient machinery are equally essential. Overall, FDI will have an impact on the agriculture sector and a more positive response by the opposition parties would give the investors long term visions for the Indian farmer who has been missing from the global scene since long.

This article has been authored by Niloy Roy and Pakki Lakshman Vivek from IIM Ahmedabad

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