Agri, allied sectors can bolster $5-trn economy drive

Agriculture and allied sectors' gross value added (GVA) is all set to cross the $1 trillion mark by 2033, by which time India's GDP could be $10 trillion. Taking this as the projected yardstick, the sector is likely to play a key role in making India a $5 trillion economy by 2024-25 fiscal.

However, there are a host of challenges up ahead that India has to address and conquer to realize this ambitious goal.

India has been an agriculture-based economy from time immemorial. India has been relying heavily on the traditional agriculture system, which, in a way, has resulted in the sector's slow-paced growth. Secondly, food processing is not happening in the country to the required levels, which is creating a roadblock in the sector's growth.

Bhupendra Suri, CEO, Godrej Jersey, says: "Agriculture witnessed strong growth despite the pandemic. Agriculture and food processing can play a significant role as the country aspires to be a $ five trillion economy by 2024-25. There will be a corresponding boost to employment generation. In recent years, the food processing industry has grown both in terms of GDP and employment creation."

Dairy sector, Suri said, stands out in terms of rural impact as it provides an alternate income to farmers. This income has increased at a faster pace over the last decade and could 'double' farmer's income as envisioned by the Centre.

Despite significant progress made in the Dairy sector, nearly 50 per cent of the milk still goes into the unorganised sector. Encouraging private participation will help tap this opportunity and provide better remuneration to the farmer and assure better quality to the consumers. The private sector must be encouraged to bring in investments, product innovation and technology adoption through the value chain, in order to be globally competitive. More opportunities like the PLI scheme should be brought out in this direction, he added.

India has achieved notable success in its agriculture sector. It now produces much more cereals than the consumption demand (PL 480 days are a distant memory), making India a major exporter of cereals, especially rice.

Production of pulses has scaled up substantially and meets more than 80-85 per cent of the demand. It is only in edible oils that India lags behind, largely because of the fact that the cropping pattern is favouring edible oilseeds, which, as crops, are less profitable. India is also producing excessive sugar in the last two years. The production of vegetables and fruits is quite good vis-à-vis demand. Milk, eggs, fish and meat production is meeting their ever growing demand.

According to Subhash Chandra Garg, former economic affairs secretary, "Crops make up for less than 50 per cent of agriculture and allied sector GDP. Crops are unlikely to grow at more than 2 per cent per annum on an average, which should suffice for now. Other components of agriculture and allied sector GDP- milk, eggs, vegetable and meat will have a demand growth in excess of four per cent per annum."

On an average, agriculture and allied sector's contribution to GDP is unlikely to grow at rates beyond three per cent per annum, which is low compared to secondary and tertiary sectors. Incidentally, productivity of most of the crops remains much lower compared to other large agriculture economies.

A heavy percentage (45%) of the population is still involved in agriculture, whereas the sector's share in GDP is a mere 16 per cent. This indicates the disproportionate productivity ratio in economic parlance.

Of course, a major transition is taking place in agriculture in terms of households moving out of agriculture to other vocations, albeit at a slower pace. The figures of adults working in agriculture have come down from over 70 per cent in the 1970s to less than 50 per cent presently. A good part of the labour movement from agriculture has inched towards the construction and services industry in the recent decade.

Gross value added (GVA) in agriculture in 2018-19 (nominal provisional estimates) was Rs 27.75 lakh crore ($ 400 billion). If the agriculture sector was to grow at about seven per cent (three per cent real and four per cent inflation), its GVA would double by 2030 to $850 billion, bringing the share of agriculture to about 11 per cent of the country's GDP.

The challenges notwithstanding, there are a good number of positive factors in the sector that can help achieve the goal.

Detailed PLI guidelines for the Food Processing Industry, which came into force last year, is a well-balanced act for incentivizing food companies across size/ scale and segments under three core categories.

Within this segment, RTE/ RTC and processed Fruits and Vegetables (F&V) account for 71 per cent of the budgeted outlay and is expected to entail the highest interest; SMEs producing innovative/organic products (minimum investment threshold has been waived off to support SMEs) and branding and marketing support for creating global Indian food brands. The total outlay is capped at Rs 109 billion spread over six years (FY22-27). The government estimates to generate Rs 335 bn in output and employment for 0.25 mn people by FY27 through the scheme, says a report by Axis Capital.

Let us also dwell deeper into the food processing sector too.

The market size of processed food industry is estimated to be $ 263 billion in 2019-20 and comprises five key sub-segments-dairy, meat & marine, cereals, grains & oilseeds, fruits & vegetables and packaged food. The industry grew by 10 per cent over the last five years. It employs seven million people, including indirect and is the fifth largest industry in the manufacturing segment. The sector is the 13th largest recipient of Foreign Direct Investment (FDI) attracting over $9.98 billion (April 2000-March 2020).

According to Agricultural and Processed Food Products Export Development Authority (APEDA), the country's exports of agri& processed food stood at $32.5 billion in 2019 and contributed 10 per cent to overall exports at a five-year Compound Annual Growth Rate (CAGR) of 5.9 per cent.

A KPMG report says that the Indian food processing industry is evolving rapidly with an increase in newer segments, including in states that were not traditionally strong in food processing. This evidences a notable shift in consumer preference for processed food.

Given the low levels of processing, especially in the F&V segment, increase in consumer income and push from the industry, there is ample growth potential for processed food. The share of traditionally stronger states like Maharashtra, Madhya Pradesh, Punjab and Haryana witnessed a decline while in contrast the share of states like Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat have increased, signaling the addition of processing capacities in these states. Andhra Pradesh is another major processing state with 7.9 per cent share in food processing in GVA.

As the country marches towards the $5 trillion economy mark, it is important to safeguard each bit of GDP that is produced. In this backdrop, when one considers that the loss of agriculture farm produce due to inadequate storage or warehouse solutions results in upwards of Rs 200,000 crore annually, the relevance of agritech comes into prominence.

According to Prasanna Rao, Managing Director and co-founder of Arya.ag, "The new-age agritech players have not only stemmed the GDP loss but they have brought about a turn-around, thereby optimizing farm produce value to simultaneously boost livelihood and income quotients, particularly that of the small farmers."

Furthermore through appropriate use of digital technologies, these agritech players are also offering integrated services to the farming community empowering them with quick, simplified and dignified access to financial resources, which, in turn, fuel the economic value chain. Lastly, technology enabled demand and supply matching domestic and export market linkages is opening up unprecedented avenues for value augmentation, he points out.

Thus, we find that agriculture and food processing sectors hold tremendous potential to help India emerge as a $5 trillion economy over the next few years.