Farm Laws Spurred a Rise in Farm Businesses: Government Data
This year there has been a jump of almost 54% in the incorporation of new agribusinesses, the largest since June, when three agricultural laws came into force, even as thousands of farmers protest changes in policies to liberalize the agricultural sector.
Farm businesses are leading a revival of startups created this year, fueled by farm laws and a national farm investment company, as the economy begins to emerge from a pandemic-induced recession. New agribusinesses registered as companies and limited liability companies in 2020 so far, especially since the enactment of three agricultural laws, have increased by 53.6%, from 5,104 to 7,840, the highest in five years, according to data from the Ministry of Corporate Affairs.
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Established companies in the agricultural sectors lead the growth of new additions after manufacturing, outperforming records in the construction, finance and ‘other’ categories, the data shows. The registration of companies in the broader category of ‘agriculture and related activities’ has increased by 35%, the highest of any category.
Entrepreneurs are constantly borrowing from the Rs1 lakh-crore Agricultural Infrastructure Fund, part of the first Covid-induced economic stimulus package, to build assets in India’s food supply chain, according to separate data obtained from the agriculture ministry.
Aggressive investments by agribusinesses have been aided by laws aimed at liberalizing the agricultural sector, incentivizing financing and easing restrictions on commercial food farms, analysts say. Official data shows that 161,589 companies and limited liability companies were incorporated from January to November 2020 in total, the most after June, when the new laws went into effect and a nationwide lockdown was lifted. This represents an increase of 8% over the corresponding period of 2019.
So far, investors have borrowed 1,566 crore from the agricultural infrastructure fund, showing a preference for investing in long-neglected post-harvest facilities such as warehouses, cold chains, food sorting and grading units, and processing units. The fund was launched by Prime Minister Narendra Modi on August 9.
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A post-harvest infrastructure deficit, crucial for a resilient food supply chain, causes physical waste and annual food loss worth Rs 2.15 lakh crore, according to data from the food processing ministry.
The fund is designed to address this investment gap due to its preferential rates. In addition to the Rs1566 crore disbursed, applications for nearly 10,000 new assets worth Rs993 crore are currently under evaluation or will be taken soon, data up to November 5 reviewed by HT showed. The 12 public sector banks and the nine private lenders in the country are part of the fund. “The Rs1,566 crore tranche has gone to more than 3,000 Primary Agricultural Credit Societies or PACS,” said an official, requesting anonymity. PACS are village-level credit unions and therefore the most accessible financial institution for a farmer.
Furthermore, PACS has submitted new applications for 9,435 infrastructure projects worth Rs690.56 crore. The banks have also chosen a further 352 applications from other agricultural investors for projects worth Rs 302.71 million. The top five states from which investment proposals have been received are Madhya Pradesh (119 applications), UP (46), Bihar (30), Rajasthan (28) and Odisha (22). The fund aims to offer medium and long-term debt financing for investment in agricultural projects and provide loans totaling Rs1 lakh crore over four years, starting with a sanction of Rs10,000 crore for 2020-21 and Rs30, 000 crore. each for three financial years. Borrowers receive an interest subsidy of 3% per annum up to a loan limit of Rs 2 million for a period of seven years.
“The new farm laws open up agricultural trade considerably. The assumption is that a liberalized agricultural sector will lead to more private investment, ”says Raj Kathpalia, advisor to the Consultative Group on International Agricultural Research.
Laws allow companies to freely trade agricultural products outside of the government-controlled so-called “mandi system”, allow private traders to store large quantities of commodities for future sales, which previously only government-approved agents could do , and establish new rules for contract farming. Farmers, however, protest the reforms, saying they would make them vulnerable to exploitation by large corporations, erode their bargaining power, and weaken the government’s procurement system, under which the government buys commodities, such as wheat and rice, at guaranteed prices.