The share of private sector in capital formation in Indian agriculture is approximately three times more than the public sector. This shows the active involvement of the private agencies in the Indian agriculture sector.Indian Agriculture , Private Participation

Deepak Kumar

English

Research Papers in Economics

JULY 2005 EFFECTIVE  EXECUTIVE 19
The share of private sector in capital formation in Indian agricul-
ture is approximately three times more than the public sector. This
shows the active involvement of the private agencies in the Indian
agriculture sector.
Private Sector Participation
in Indian Agriculture
An Overview
A
productivity due to falling ground
equate infrastructure, and poor qual-
ity of agriculture produce compared
to the international standard. Agri-
culture has also suffered because of
farmers wholly depending on the
monsoon, poor irrigation facilities,
use of traditional practices, farmers
poor economical status, fragmented
landholdings, poor yields, lack of
post-harvest infrastructure and lack
of farm extension. There is an urgent
need to invest in infrastructure like
irrigation facilities, processing, stor-
age and marketing activities. In this
background, it is essential for private
agencies to come forward to make
the Indian agriculture conditions
better and the government to come
forward to encourage the public-pri-
vate participation.
Agriculture research institutes
have ample of information on how
to improve the productivity of the
crops but are handicapped in dis-
seminating the researched informa-
tion because of the lack of sufficient
finance and infrastructure.  How-
ever, the situation has been chang-
ing in recent times. The need is not
only to increase the crop produc-
tion over the periods but also to
sustain agriculture which can be
done by providing the right infor-
mation at right time about the agri-
culture inputs application, and the
marketing of agricultural produce at
a reasonable price. While the gov-
ernment has social liabilities to up-
lift the agriculture sector, there are
many NGOs, which are actively in-
volved in this sector. The private
sector, while having the revenue
generating mindset, also takes care
of the socio issues.
water levels, expensive credit, a dis-
torted market, the intermediaries
(who increase more cost than adding
values), controlled prices, inad-
B U S I N S S N V I R E E N M E N O T
ccording to the Confederation of
Indian Industry, agriculture sector
in India suffers from poorJULY  2005 EFFECTIVE  EXECUTIVE 20
Gross Capital Formation
in Indian Agriculture
As per Central Statistical Organiza-
tion, the investment in agriculture as
percentage of total GDP is very less
(Table 1). The welfare government is
supposed to provide the right infor-
mation at right time related to agricul-
ture inputs, the agriculture loans at
minimum interest, good seeds, and
help the farmers when the crop fails.
This immense responsibility has cre-
ated a situation where the govern-
ment finds itself unable to attend ev-
ery problem of the poor farmers.
However the share of private sector in
gross capital formation has been in-
creasing over the same period. (See
Table 1).
Private Agencies in Indian
Agriculture and Models
NABARD, in one of the occasional
papers published in 2003, stated that
nine non-public sector agencies are
mainly involved in Indian agricul-
ture. There are-input agencies, large
agri-business houses, agri-processing
firms involved in contract farming,
farmer organizations and producer
co-operatives, non-government agen-
cies, media and web-based agri ser-
vice providers, financial agencies,
agri-consultants and informal exten-
sion agents.
The private investment in agricul-
tural sector is on the rise and several
agribusiness companies have devel-
oped new models to reach to farmers.
A few models has been discussed
here:
n e-choupal
n Tata Kisan Kendra
n Mahindra Krishi Vihar
n Hariyali Kisan Bazaars
n Indiaagriline
n PepsiCo Contract Farming
n Private Media
e-choupal
Traditionally, the farmer bought the
agricultural inputs from the market
and sold produce to the market
through the agents or brokers. In do-
ing so, they paid more for the agricul-
tural inputs and also had the uncer-
tainties to sell produce at the desired
or at least the minimum cost which
could repay their agricultural input
costs. Moreover, the farmers also did
not get the good return even if the
quality of the produce was good.
To solve the above mentioned
problems, ITC in June 2000
launched the concept of e-choupals.
Initially, it faced a big resistance from
agents and the brokers in imple-
menting this concept. This model
came into picture because of the
challenges faced by Indian agricul-
ture. These challenges are frag-
mented farms, weak infrastructure
and the involvement of numerous
intermediaries and marketing of the
produce in a reasonable price.  But
ITC made these agents as the impor-
tant element in its value chain called
as Sanchalaks who now supervise
and coordinate the activities in e-
Choupals. Thus ITC deleted Pakka
(large traders) and Kacca (small trad-
ers) from the traditional value chain.
ITC has now 4100 choupals in six
states, covering 23,000 villages, pro-
viding services to 2.3 million farmers.
It targets to cover 1 lakh villages, 25
million farmers, and to establish
20,000 more e-choupals in 15 states
by 2010. It basically utilizes the infor-
mation and communication technolo-
gies to deliver the farmers needs re-
lated to cropping information, com-
modities pricing. It also procures the
agricultural produce at the assured
price for the quality product and de-
creases the wastage in weighing and
procuring crop produce from the field
to the factory. In a nutshell,
e-choupals:
n Makes the  agriculture supply chain
more efficient and enables in de-
livering a value to its customer.
n Eliminates the existing marketing
inefficiency in agriculture market-
ing due to multiplayer structure of
intermediaries.
Percentage Share
Year Public Private Public Private  (% of GDP Contributed
to Agriculture)
1995-96 4849 10841 30.9 69.1 1.6
1996-97 4668 11508 28.9 71.1 1.5
1997-98 3979 11963 25.0 75.0 1.4
1998-99 3870 11025 26.0 74.0 1.3
1999-2000 4221 13083 24.4 75.6 1.4
2000-01 3927 12979 23.2 76.8 1.3
2001-02 4127 13201 23.8 76.2 1.3
2002-03@ 4538 14119 24.3 75.7 1.3
Table 1: Gross Capital Formation in Agriculture at 1993-94 Prices
(Rs. in cr)
@ Quick estimate                                               Source: Central Statistical Organization
BUSINESS ENVIRONMENT: Private Sector Participation in Indian Agriculture
Indian agriculture is bouncing
back. It is scripting its own success
story, thanks to rising private in-
vestment, which will lead to a
faster growth. Faster growth in ag-
riculture tomorrow will happen be-
cause of rising private investment
in agriculture today.
 Y C Deveshwar
Chairman, ITC and
Chairman, CIIs Agriculture Council.JULY 2005 EFFECTIVE  EXECUTIVE 21
n Provides good infrastructure and
technologies to cater the agricul-
ture sector.
Tata Kisan Kendra
Tata, which always pioneer in the
cause of social upliftment, has
launched Tata Kisan Kendra under
the supervision of Tata Chemicals. It
aims to change the rural India from
bullock-cart age into the era of satel-
lites and IT. It has a wide network in
the different states like UP, Punjab
and Haryana. The complete network
is managed by mother Tata Kisan
Kendras and its franchisees. Some of
its services are:
n Tata Kisan Kendra provides differ-
ent services like agro input ser-
vice, farm equipment leasing,
agronomy services, training and
information. Tata Kisan Kendra
provides the seeds, pesticides and
fertilizers at affordable prices.
· It is a unique model in the history
of agriculture as it helps in soil
analysis by the use of remote sens-
ing technology. Tata Kisan Kendra
uses satellite mapping and geo-
graphical information systems
and provides a complete antidote
to farmers problems.
n Each Kisan Kendra provides the
contemporary information
through magazines and journals.
It has also established crop clinics
to provide the information regard-
ing which crop to grow, when to
grow and the specific amount of
nutrients required.
Mahindra Krishi Vihar:
One Stop Shop
Mahindra Shubhlabh Services Ltd.
(MSSL), a subsidiary of Mahindra &
Mahindra Company, has been oper-
ating in 11 Indian states and has
encashed the brand name of
Mahindra, its dealer network and
tractor customer database.
The product portfolio of MSSL
varies from agriculture inputs to
output marketing services. It sells
quality seeds, fertilizers, and pesti-
cides and buys the agriculture pro-
duce on contract In addition to this,
it leases tractors and harvesters. It
encourages farmers to take up con-
tract farming, whereby farmers sell
the produce directly to the institu-
tional sellers.
Hariyali Kisan Bazaar
(HKB)
HKB, the chain of agri-input retail
stores, has been promoted by DCM
Shriram Consolidated Ltd (DSCL).
The first HKB was established in the
village of Del Pandarva (Dist. Hardoi).
Among its services are:
n HKB stores offer a complete range
of agricultural inputs like seeds,
fertilizer, pesticide, agricultural
equipment at the fair prices.
n It provides irrigation equipment,
easy crop financing and technical
guidance related to crop produc-
tion.  It also provides the credit fa-
cility at the reasonable interest rate
and without hassle.
DSCL is involved in the agricul-
tural extension activities and helps
the farmers in providing scientific
knowledge by its Shriram Krishi
Vikas Kendras (SKVK) in order to in-
crease the profitability. In an Inter-
view with Business Line on June 25,
2004, Ajay S Shriram, Chairman and
Senior Managing Director of the com-
pany, told that Hariyali Kisan Bazaar
would expand its network of stores
from 9 to 20 soon.
Indiagriline (EID Parry,
Tamil Nadu)
EID Parry Ltd., the private corpora-
tion owned by Murugappa Group,
runs Indiagriline. Indiagriline is an ef-
fort to provide the hand-on solutions
to farming community by its internet
kiosks. It has established kiosks
around sugar factory in Tamil Nadu
and provides a platform to deliver
farm extension services. It bridges the
gap in rural India by doing so. More-
over, it hopes to serve the bidirec-
tional movement of goods and ser-
vices from rural area to urban area and
vice-versa. The model is run based on
franchisee concept, which is the only
source of getting the revenue back
from the investment made by EID
Parry.
PepsiCo
In 1989, PepsiCo started contract
farming in India. PepsiCo provides
machines and other inputs for to-
mato, chilli, basmati rice and peanuts
contract farming. The practice was
started at Zahura village in
Hoshiarpur district and now covers
different districts of Punjab. Contract
farming is one  of the options to create
a friendly environment within the
private sector  for  agriculture devel-
opment and extension of  services
which deals with the system for the
production and supply of agricultural
and horticultural produce under for-
ward contracts between producers/
suppliers and buyers. To win the
confidence of the local farmers,
BUSINESS ENVIRONMENT: Private Sector Participation in Indian Agriculture
Input
Cost
Seed
Fertilizers
Chemicals
Practices
Govt.
Univ.
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Insurance
Practices
Weather
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The Value Chain  Farm to Factory GateJULY  2005 EFFECTIVE  EXECUTIVE 22
PepsiCo partnered with Punjab Agri-
cultural University (PAU). Because of
contract farming in Punjab, the yield
of tomato and chilli has increased by
three and two folds respectively.
In the views of PepsiCo, land
preparation, mechanization of opera-
tions, local extension service team,
supplying the agricultural equipment
free of cost, maintenance of proper lo-
gistic system and procurement of the
output at the right time are among the
key elements of contract farming.
Contract farming in this case can
be regarded as rural development so-
lution to improve agricultural pro-
ductivity along with the promises to
provide the assured price. The con-
tractor also gets the quality output
and maintains a long-term partner-
ship with the farmers.
However, the contract farming is
not successful because of certain
bottlenecks. Among these are high
transport costs, inadequate cold stor-
age facilities, unreliable suppliers of
raw materials etc. Moreover, the gov-
ernment must abolish the taxes, du-
ties on procurement materials and
should exempt taxes and duties in
the import of agri-equipment which
will bring down the input cost.
Private Media
There are several private media
which disseminate the information to
the target audiences like agricultural
graduates, farmers, agri-entrepreneurs
etc.  A few examples are:
n The Hindu allots one page  for ag-
riculture on every Thursday.
n Teja TV in AP telecasts live phone
programs on agriculture.
n E-TV telecasts a daily program on
agriculture in local languages.
n www.agriwatch.com releases the
newsletter on agriculture.
n ikisan.com provides the agricul-
ture related information by
internet kiosks.
n Websites like ikisan.com,
krishivihar.com and
agriwatch.com  provide informa-
tion on the production and mar-
keting of agricultural commodities.
Government Initiatives
Both the central and state govern-
ments have taken many steps to en-
courage private participation in agri-
culture. A few of them are:
n In 2000, the Madhya Pradesh gov-
ernment had decided to privatize
the state-owned farms to make the
agricultural sector efficient.
n Uttaranchal government has initi-
ated agricultural extension and
development with the participa-
tion of NGOs under the World
Bank Assistance Agriculture De-
velopment Project. This is the
only state which is using the ser-
vices of NGOs for implementing
organic agriculture.
n The concept of Agri-Clinic by
NABARD is praiseworthy as
NABARD helps in providing
bank loans once the feasibility
study of the project is approved.
Only agricultural graduates are
eligible for these loans and it en-
courages them to establish agri-
clinics once they are trained in
business development. Thus, fi-
nancing for the establishment and
the training by the government in-
stitutes or departments like ICAR,
MANAGE etc., help these gradu-
ates to provide the better
consultancy and the extension
services to the poor. By June 2003,
there were 553 established agri-
clinics.
n The new agricultural policy of
India has focused on the greater
private sector participation
through contract farming. In the
policy it has clearly been stated,
Private sector investments in ag-
riculture will be encouraged more
particularly in areas like agricul-
tural research, human resource
development, post-harvest man-
agement and marketing.
n The UPA Government has
launched two schemes i.e.,
Grammen Bhandaran Yojana and
Development of Marketing Infra-
structure, Grading and Standard-
ization of Agriculture Scheme.
These two projects aim to attract
the private investment. Like, the
Grammen Bhandaran Yojana aims
to create the facilities in rural areas
and in this case, the subsidy will
vary from 25 to 33.3% of the capi-
tal cost of the projects based on the
states and SC/STs entrepreneurs.
Future Outlook
The existing private participation in
the agriculture sector will help in
building the image of this sector in the
map of the world. By doing so, the
agriculture sector will also increase
the contribution to the GDP which is
decreasing the GDP share every year.
The private participation is necessary
as the government cannot take care of
everything. It is not always rational to
blame the government as it has lim-
ited funds. The need is to create an
environment whereby the general
people must invest in this sector. Not
only the big private agencies but there
are also some NGOs which are ac-
tively involved in the agriculture sec-
tor which take care the socio-eco-
nomic issues like  AFPRO (Action for
Food Production), BAIF (Bharatiya
Agro-industries Federation),
PRADHAN (Professional Assistance
for Development Action) etc. Thus,
the journey has already been started
but we have to go a long way and can
hope a brighter future for agriculture.
Conclusion
Both private and public sector are
contributing to the agriculture in a big
way. However, there are many things
that have to be implemented, espe-
cially concerning the financing as-
pects. The need is how to make the
agricultural sector more attractive for
private sector to invest. However, it is
very difficult to measure the success
of each models discussed in the ar-
ticle. However, one can only hope
that the scenario will change and the
poor farmers will be taken care. There
are many other models, which are not
possible to elaborate here but what is
the true essence that the Indian agri-
culture needs proper implementation
of government polices and a proper
environment for private sector. Let us
hope for the best in coming years for
the Indian agriculture.
BUSINESS ENVIRONMENT: Private Sector Participation in Indian Agriculture
Deepak Kumar
Associate Consultant
The ICFAI University Press
Reference # 03M-2005-06-04-01

Private Sector Participation in Indian Agriculture : An Overview

http://128.118.178.162/eps/urb/papers/0506/0506006.pdf

Private Sector Participation in Indian Agriculture : An Overview

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