Time for PPPs in agriculture
The next revolution in Indian agriculture will have to be driven by institutional and governance reforms
Indian agriculture has come a long way from its earlier image of being traditional, subsistence and noncommercial. With increasing demand for high-quality value-added products, agriculture has been adopting commercially and economically viable agribusiness solutions. In the recent past, business and investment opportunities in this sector have suddenly jumped manifold. But the response from the private sector has been lukewarm.
There is a pressing need to develop a structured approach for increasing the number of bankable agribusiness and agri-infrastructure projects through private sector participation for better quality and improved services. The private sector can contribute immensely in reinvigorating the agri-food sector. India has a good record of public-private partnerships (PPP) in the development of infrastructure such as highways, ports, power and other sectors. Unfortunately, the PPP model has not been adapted and applied in agri-infrastructure development with the same vigour as was done for these sectors.
Engaging the private sector in developing and managing agri-infrastructure will bring improved technologies and best practices in operations, as well as generate rural employment. The partnership can emerge as an important tool to induce investment and capitalise on the synergies between the public and private sectors. While the government continues to lead and facilitate agricultural development through its policies, the entry of the private sector will usher in fresh ideas that, when scaled up, can emerge as mass development models for agriculture. Drawing lessons from other sectors, we propose five areas for developing agri-infrastructure through the PPP mode.
Wholesale market development: Agricultural markets in India are thinly distributed. Existing markets are inefficient, fragmented and unorganised. Very few markets have been developed during the last three decades; most of these are concentrated in well-off areas. The time is apt for evolving mechanisms to develop wholesale markets in PPP mode, in the same way that national highways have been constructed and managed, using the BOT (built, operate and transfer) approach. A model concession agreement using viability gap funding should be created by the central government, with encouragement to the states to implement the process as per the specific need of each state.
Warehouse and cold storage development: High price volatility is one of the major reasons for agrarian distress. Prices crash in the event of high production. Warehouses and cold storages play an important role in stabilising prices and benefit farmers as well as consumers. Development of warehouses and cold storages offers enormous opportunity for public-private partnerships. Non-availability of land and the low scale of business are reported to be major obstacles to a better private sector response in this sector. Panchayat land, uncultivated land and government land (including some railway land), may be allocated on long-term leases for annually payable rents by inviting bids from the private sector in OMDA (operation, management and development agreement) mode, as has been done for airport development and management.
Agro-processing development: Agro-processing, especially of perishable commodities, has huge opportunities, as demand in the domestic and global markets is rising rapidly. This sector must be harnessed to meet future demand and reduce unaccounted losses of perishable commodities. The ministry of food processing and industries has committed to continued emphasis on creation of world-class infrastructure for the growth of the food processing sector through mega food parks and integrated cold chains. Use of the PPP model for achieving these objectives and developing processing plants and linking them with micro, small and medium enterprises (MSMEs) will boost the agri-processing sector. That is the lesson to be drawn from the successful use of the PPP mode in constructing airports, providing numerous services, and linking of operations by various airlines.
Canal irrigation development and management: India has a large network of major and minor canals and distributaries from various rivers. Roughly 40 per cent of all irrigated area is covered by canals. Huge investments have been made to develop reservoirs, canals and distributaries. The canal irrigation system in many parts of the country is reported to be underperforming, with irrigation efficiency at a mere 30 per cent. The PPP model can be extended to this sector, on the lines of the power sector. At the first level, the irrigation department should take sole responsibility for developing and managing water reservoirs. This way, the government will have control over water for irrigation. At the second level, canal management and water delivery could be contracted out to the private sector, based on performance. The contract may include canal and distributary management, water pricing and promotion of efficient irrigation methods. This will incentivise the volumetric release of water at different stages, from reservoir to farmers, and eventually improve water-use efficiency.
Agriculture extension: The public agricultural extension system has contributed significantly in bringing the Green Revolution to the country. But its its efficiency and effectiveness are now being questioned, despite various reforms. At present, Krishi Vigyan Kendras (KVKs) and Agriculture Technology Management Agencies are the last-mile connectivity for technology delivery. Some KVKs are also run by the private sector, but the majority is with agricultural universities (AUs) and the Indian Council of Agricultural Research (ICAR). The AUs, ICAR institutions and KVKs have good infrastructure, with land and water resources; a part of this can be allocated on medium-to-long-term leases (seven to 10 years) to the private sector for demonstrating best practices. The private sector and the public sector research system can also jointly undertake research for demonstration purposes. The process can also be used to incentivise the private sector to use its CSR funds.
The private sector will enter on its own where there is commercial viability and profit can be generated. The above-mentioned areas may be commercially less viable, but have high economic benefits. Therefore, these are the areas where public-private partnerships must be developed to re-energise the agriculture sector. This could mark the beginning of the next revolution in agriculture — one that is driven by institutional and governance reforms implemented via a social equity-based PPP process. This will require new thinking to evolve an enabling policy environment to attract the private sector in developing agri-infrastructure.