Monday, April 05, 2010

Will they ever find a medicine to cure this limping cousin?

With legislations hampering the flow of capital into the Food Processing sector, it’s time for an overarching law to save agriculture’s closest cousin. Many hurdles, one goal – make the Food Processing sector shine!

India basks in the glory of diversity and proudly boasts of being a smoothly run sovereign democracy (Naxalism and Kashmir can be relegated to the footnotes for the sake of argument). Today, we sit on our laurels won in IT services and Pharmaceuticals and steadily, every other sector in services is being opened up to allow foreign participation, thereby create greater competencies and economies of scale. However, an interesting characteristic surfaces the moment we delve into the economics of liberalisation since 1991 – the opening up of all sectors to private and foreign investment, over time, have happened during a time when there were very few lives dependent on them for livelihood. Automobiles, telecom, banking, insurance IT, and pharma all were in their nascent stages and driven primarily by educated Indians. But with private money flowing in, a few million white collar jobs have been created and today, the services sector has scampered far ahead of manufacturing in the country. Sadly however, at the same time, the per capita food intake for the country has fallen below many sub-Saharan nations. Disguised employment in agriculture continues to run the vicious cycle of low capital investment, poor quality, fragmented markets negligible profits and again low investment. Amazingly, food processing, the next in the food value chain (post harvest) has borne the brunt of not only being the industry to absorb the massive numbers from agriculture, but also to create many new jobs related to technology and supply chain. But, the legacy of a socialist ideology and the commitments of coalition politics have made the sector languish till date in the dungeon of low scales, low investment and outdated technology.

Firstly, just for a start, the unorganised segment in food processing, will require an investment of about $23 billion over the next ten years (estimated on the basis of output ratio as 2:1 and capital intensity ratio as 5:1 of organised and unorganised sector). But on the credit side, there’s no dearth of roadblocks. According to the The Cooperative Act, cooperatives in the country, are restricted to borrowing only from Cooperative banks, DCCBs and Regional Rural Banks (RRBs), thus resulting in only a few (and narrow) pipelines of credit available for food cooperatives to start processing operations. Similarly, the private banks are still prohibited to lend to State warehousing corporations which form the bulk of storage for all food products in India. There has been a constant rhetoric to allow the use of warehouse receipts as collateral for attainig credit from banks, however, till date, there has been no resonating tone from the government on the same.
For Complete IIPM Article, Click on IIPM Article

Source :
IIPM Editorial, 2009

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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