Agriculture plays a vital role in India’s economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). As per the first advanced estimates by the Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) is expected to be 17 per cent of the Gross Value Added (GVA) during 2016-17 at 2011-12 prices.
India is the largest producer, consumer and exporter of spices and spice products. India's fruit production has grown faster than vegetables, making it the second largest fruit producer in the world. India's horticulture output, is estimated to be 287.3 million tonnes (MT) in 2016-17 after the first advance estimate. It ranks third in farm and agriculture outputs. Agricultural export constitutes 10 per cent of the country’s exports and is the fourth-largest exported principal commodity. The agro industry in India is divided into several sub segments such as canned, dairy, processed, frozen food to fisheries, meat, poultry, and food grains.
The Department of Agriculture and Cooperation under the Ministry of Agriculture is responsible for the development of the agriculture sector in India. It manages several other bodies, such as the National Dairy Development Board (NDDB), to develop other allied agricultural sectors.
India's gross domestic product (GDP) is expected to grow at 7.1 per cent in FY 2016-17, led by growth in private consumption, while agriculture GDP is expected to grow above-trend at 4.1 per cent to Rs 1.11 trillion (US$ 1,640 billion), according to Central Statistics Office (CSO).
As per the 1st Advance Estimates, India's food grain production is expected to be 135.03 million tonnes in 2016-17. Production of pulses is estimated at 8.70 million tonnes. India, the second-largest producer of sugar, accounts for 14 per cent of the global output. It is the sixth-largest exporter of sugar, accounting for 2.76 per cent of the global exports.
Groundnut exports from India are expected to cross 700,000 tonnes during FY 2016-17 as compared to 537,888 tonnes during FY 2015-16, owing to the expected 70 per cent increase in the crop size due to good monsoons. India’s export of grapes to Europe and China are expected to increase by 10 to 20 per cent this year on back of higher production on account of good monsoon and higher demand due to competitors such as Chile shifting focus to US market. Spices exports from India grew by 5 per cent in volume and 7 per cent in value year-on-year to 4,37,360 tonnes valued at Rs 84.2 billion (US$ 1.24 billion) respectively during April-September 2016, according to the Spices Board of India.
Indian agrochemical industry is expected to grow at 7.5 per cent annually to reach US$ 6.3 billion by 2020 with domestic demand growing at 6.5 per cent per annum and export demand at 9 per cent per annum.*
According to the Department of Industrial Policy and Promotion (DIPP), the Indian agricultural services and agricultural machinery sectors have cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 2,299.83 million from April 2000 to September 2016.
Some major investments and developments in agriculture in the recent past are as follows:
- India and Brazil have signed a bilateral investment agreement, aimed at enhancing cooperation in areas of agriculture, cattle genomics, ship building, pharmaceuticals, defence production, ethanol production and oil and gas, between the countries.
- Zephyr Peacock, the India-focused private equity fund of US-based Zephyr Management, has invested an undisclosed amount in Bengaluru-based potato seeds firm Utkal Tubers India Pvt Ltd, which will be used to produce high-quality mini-tubers in a tissue culture laboratory and multiply them in its own development farms and through supervised contract farming in different regions of the country.
- Mahindra Agri Solutions Ltd (MASL), a unit of Mahindra & Mahindra Ltd, has agreed to purchase 60 per cent stake in OFD Holding BV, a Netherlands-based fruit distribution company, for Rs 36 crore (EUR 5 million), which will provide MASL access to European and Chinese markets for Indian grapes.
- Mahindra and Mahindra Ltd has acquired 35 per cent stake in a Finnish combine harvesters manufacturer, Sampo Roselnew Oy, for US$ 20.46 million and will jointly focus on the combine harvester business in Asia, Africa and Eurasian Economic Union countries.
- Mahindra & Mahindra (M&M), India’s leading tractor and utility vehicle manufacturer, has entered into pulses retailing under the brand ‘NuPro’. Going forward, the company plans to foray into e-retailing and sale of dairy products.
- Fertiliser cooperative IFFCO launched a joint venture with Japanese firm Mitsubishi Corp for manufacturing agrochemicals in India.
- Acumen, a not-for-profit global venture fund, has invested Rs 11 crore (US$ 1.7 million) in Sahayog Dairy, an integrated entity in the segment, based at Harda district in Madhya Pradesh.
- Rabo Equity Advisors, the private equity arm of Netherlands-based Rabo Group, raised US$ 100 million for the first close of its second fund – India Agri Business Fund II. The fund plans to invest US$ 15–17 million in 10–12 companies.
- Oman India Joint Investment Fund (OIJIF), a joint venture (JV) between the State Bank of India (SBI) and State General Reserve Fund (SGRF), invested Rs 95 crore (US$ 13.94 million) in GSP Crop Science, a Gujarat-based agrochemicals company.
Given the importance of the agriculture sector, the Government of India, in its Budget 2017–18, planned several steps for the sustainable development of agriculture-
- Total allocation for rural, agricultural and allied sectors for FY 2017-18 has been increased by 24 per cent year-on-year to Rs 1,87,223 crore (US$ 28.1 billion). A dedicated micro-irrigation fund will be created with a corpus of Rs 5000 crore (US$ 750 million). The government plans to set up a dairy processing fund of Rs 8,000 crore (US$ 1.2 billion) over three years with initial corpus of Rs 2,000 crore (US$ 300 million).
- A dedicated micro-irrigation fund will be set up by National Bank for Agriculture and Rural Development (NABARD) for farmers to achieve the goal of ‘Per Drop More Crop’. Initial corpus will be Rs 5000 crore (US$ 750 million) in this regard.
- The participation of women in Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA) has increased to 55 per cent and allocation to the scheme has been increased to a record Rs 48,000 crore (US$ 7.2 billion) for FY2017-18.
- Short-term crop loans up to Rs 300,000 (US$ 4,500) at subsidised interest rate of 7 per cent per annum would be provided to the farmers. An additional incentive of 3 per cent is provided to farmers for prompt repayment of loans within due date, making an effective interest rate for them at 4 per cent.
Some of the recent major government initiatives in the sector are as follows:
- The NITI Aayog has proposed various reforms in India's agriculture sector, including liberal contract farming, direct purchase from farmers by private players, direct sale by farmers to consumers, and single trader license, among other measures, in order to double rural income in the next five years.
- The Maharashtra State Agriculture Marketing Board (MSAMB) has operationalised 31 farmer-to-consumer markets in the state, and plans to open 100 more such markets in the future, which would facilitate better financial remunerations for the farmers by allowing them to directly sell their produce in open markets.
- The Ministry of Labour and Employment plans to amend the Minimum Wage Act to raise the daily minimum wage of unskilled agricultural labour in C-class towns to Rs 350 (US$ 5.2) in the central sphere, from the current wage of Rs 160 (US$ 2.4) per day.
- The Central Government plans to open at least one Krishi Vigyan Kendra in all districts of the country, which will provide advanced agriculture technical assistance to the farmers near their farms itself.
- The Government of Karnataka plans to invest around Rs 1 trillion (US$ 15.1 billion) for developing irrigation projects across the state to mitigate the impact of deficient rainfall and resulting drought on agriculture in recent years.
- The Indian Space Research Organisation (ISRO) has successfully placed remote sensing satellite Resourcesat-2A in orbit, to provide continuity to ISRO's three tier imaging data, which will be extremely useful for agricultural applications like crop area and crop production estimation, drought monitoring, soil mapping, cropping system analysis and farm advisories generation.
- The Union Cabinet has approved a memorandum of understanding (MoU) between India and Portugal for cooperation in the field of agriculture and allied sectors, to facilitate exchange of scientific and technical information, trade in plants and plant products, exchange of information in phytosanitary issues, training programmes, seminars and visits of experts and consultants.
- The Government of India and the Government of Israel have expressed their commitment to further strengthen bilateral relations in the field of agriculture and allied sectors, as well as enhance cooperation at the government-to-government and business-to-business levels between the two countries, in a bid to further enhance the relationship.
- According to the Agriculture Ministry, 50,000 hectares of area is available for coconut cultivation in Bihar, the Coconut Development Board plans to equip the farmers thus making India the world leader in production, productivity, processing for value addition and export of coconut.
- The government has drawn up a five-year roadmap to increase pulse production from nearly 17.06 MT in 2015-16 to 24 MT in 2020-21 through a dedicated action plan.
- The Cabinet Committee on Economic Affairs (CCEA) has approved ‘Blue Revolution’, an umbrella scheme for integrated development and management of fisheries by Government of India, with total financial outlay of Rs 3,000 crore (US$ 440.15 million) for a period of five years.
- The Ministry of Power, Coal, New and Renewable Energy has announced that government’s plans to invest Rs 75,000 crore (US$ 11.08 billion) in an energy-efficient irrigation scheme over the next three to four years.
The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs and time, improved port gate management and better fiscal incentives would contribute to the sector’s growth. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. The 12th Five-Year Plan estimates the foodgrains storage capacity to expand to 35 MT.
Exchange rate used: INR 1 = US$ 0.015 as of February 8, 2017
References: The Economic Survey 2016–17, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports
Note: * - as per a report jointly presented by Tata Strategic Management Group (TSMG) and FICCI,