Getting firms interested

The plea in Mumbai last week by the Planning Commission's deputy chairman, Montek Singh Ahluwalia, for taking agricultural development into areas like food processing, horticulture, life sciences and others is well-placed and merits attention. This is precisely what is needed to modernise the agriculture sector and link it to domestic and export markets, where income opportunities for farmers are greater. The corporate sector would then have to be linked with farmers to lend market orientation to agriculture. Fortunately, corporate houses have started showing greater interest in agricultural processing and marketing. But much spade work needs to be done to make such linkages enduring and mutually beneficial for farmers and corporate houses.

The most formidable constraint blocking private sector participation in agriculture is the lack of a conducive environment. Most of the laws in this area have aimed broadly at protecting the farm sector from free market forces and the perceived danger of exploitation by trade houses. As such, all businesses concerned with the supply of farm inputs or the marketing of farm produce have been strictly regulated. Contract farming has been one way for the private sector to penetrate this field and undertake value-addition and marketing of farm produce. Even this has not been hassle-free in the absence of a conducive legal environment. Issues like the lack of legally enforceable contracts, marketing laws that disallow out-of-mandi transactions, the draconian Essential Commodities Act and a host of other state laws and orders (such as the one requiring the produce procured in a state to be processed within its boundaries) all need attention. Then, there is the paucity of supportive infrastructure like storage and warehousing facilities, roads, power and water supply and communications.

There have also been problems with the linkages that companies dealing in farm products can establish with consumers. Not only is foreign investment not allowed in retail marketing, even domestic players find it difficult to set up retail chains. They face urban land ceiling regulations, curbs on shop timings, requirement of shop closure once a week, and multiple and non-uniform tax structures in different states. Though the tax anomalies have been partially addressed through the value-added tax, local levies like octroi still exist in places. Furthermore, the food and agro-processing sector, though enjoying priority status, has not been able to flourish. The integrated food law, talked about for over a decade, is yet to be enacted. No different is the fate of the model agricultural marketing law, circulated to the states years ago. Only a few states have amended their marketing statutes on the suggested lines. Such being the ground realities, the Planning Commission and policy makers should first address these issues before making a pitch to private investors.