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Role of Foreign Direct Investment in the growth of agriculture sector

and , November 1, 2020, 0 Comments

Foreign Direct Investment (FDI) has been shown to play an important role in promoting economic growth, raising a country’s technological level, and creating new employment in developing countries (Chaudhary, 2016).

In the current scenario, when many countries are moving towards globalization, foreign investment forms to be an integral part of economic growth & economic development. The past few years have seen a surge of interest in international investment in agriculture sector of almost all developing countries (FAO, 2013).

India is an agrarian country and has been showing rapid progress in the past several years. Importance of agriculture in Indian economy and the need for higher investment is apparent from its vastness. As per the Land Use Statistics 2014-15, the total geographical area of the country is 328.7 million hectares, of which 140.1 million hectares is the reported net sown area and 198.4 million hectares is the gross cropped area (Annual Report 2019-20, Agricoop). As per Food and Agriculture Organization (FAO), wheat production in India is estimated at a record level of 107.2 million tonnes in 2020. The aggregate cereal output, including wheat, paddy rice and maize is estimated at a record level of 324.8 million tonnes in 2019.Despite high levels of production, agricultural yield in India is lower than other large producing countries. For instance, the cereal yield (kg per hectare) in India was 3160.8 in 2017 which is lower than that of many other developing as well as developed countries. Apart from low productivity, inadequate agri infrastructure in terms of warehouses, rural market resulted in distress sales for the farmers.

In view of this, significant improvements are required to boost agricultural performance and growth in order to increase output through technological innovations and efficiency. Subsequently, FDI plays a very significant role in increasing growth in the agricultural sector by offsetting the investment and technological gaps, mainly as a result of limited income and sources of credit. At present, 100% foreign direct investment (FDI) is allowed through the automatic route into India for the following agricultural activities (DIPP, 2017):

  • Floriculture, horticulture, apiculture and cultivation of vegetables and mushrooms under controlled conditions
  • Development and production of seeds and planting material
  • Animal husbandry (including breeding of dogs), fish farming, aquaculture, under controlled conditions
  • Services related to agriculture and its allied sectors.

Also, 100% FDI is allowed through the automatic route into India for the following Plantation sectors:

  • Tea sector including tea plantations
  • Coffee Plantations
  • Rubber Plantations
  • Cardamom Plantations
  • Palm oil tree plantations
  • Olive oil tree plantations.

During the first half of the liberalization policy, the agriculture sector was only allowed 45% of foreign capital. This was followed by improvisation in the policies by the government in the latter half of 2000. The policy was later amended to allow 100% foreign direct investment under the automatic route (Invest India, 2019).

It is evident from the table below, that food processing industries attracted the largest amount of inflow in the last 20 years accounting for 2% of total inflows. Initially there was some resistance in opening up the food processing sector to foreign investments, a landmark liberalization in 2016 permitted 100% FDI under Government approval route for retail trading, including through e-commerce, in respect of food products manufactured and/or produced in India.fdi-agriculture-marketexpress-in

However, despite several measures taken, the FDI equity inflow in agriculture sector (including food processing) is considerably low (Table 1). Low FDI in agriculture sector stems from multiple challenges. Large proportion of rain fed agriculture, lack of transparency and consistency in FDI policies, infrastructure bottlenecks and regulatory hurdles are the major challenges in making Indian agriculture an attractive investment destination for foreign investors.

The recent ordinances passed in the parliament on farm sector aims to liberalize trade and increase the number of buyers. However, de-regulation alone may not be sufficient to attract more buyers. The success of this bill will again depend on well- developed rural markets, adequate storage facility etc. This calls for high investment in agriculture sector. Therefore, a strong policy to attract foreign investment in agriculture is currently the need of the hour.


The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.


  • Agricoop (2020). Annual Report 2019-20. Department of Agriculture, Cooperation & Farmers’ Welfare. Ministry of Agriculture & Farmers’ Welfare. Government of India.
  • Chaudhary, Anjali (2016). Role of Foreign Direct Investment (FDI) in the Growth of Indian Agricultural Sector: A Post Reform Study. Global Journal of Finance and Management, Vol-8, No-2, pp 119-129.
  • Department of Industrial Policy and Promotion (2017). Consolidated FDI Policy Circular of 2017. Ministry of Commerce and Industry. Government of India.
  • FAO (2013). Trends and impacts of foreign investment in developing country agriculture – Evidence from case studies.
  • Invest India (2019). FDI Opportunities in Indian Agriculture. It can be accessed from –
  • Muthukkannu, Gurupandi& Eswaran Sundaram (2019), Foreign Direct Investment on Agriculture Industry in India. International Journal of Recent Technology and Engineering, Vol-8, Issue -2S10.