Farming In India: A Guide To Smart Agricultural Investment

India's agriculture sector is vast, encompassing the second-largest agricultural land area in the world, and contributing 18.3% to the country's total economy in FY 2022-23. With the government's recent initiatives for sustainable investment and technological advancement, the marriage of agriculture and innovation has become essential to ensure food security, sustainability, and economic prosperity. This has opened up new avenues for investors to explore, such as agri-investment platforms, which allow individuals to invest in agricultural opportunities and earn tax-free income. However, it is important to carefully consider the risks and uncertainties associated with such investments, including unpredictable profits and weather conditions. India's agriculture sector offers a range of investment opportunities, from modern agricultural infrastructure to efficient supply chain management, presenting a promising landscape for those looking to invest in this vital industry.

Agri-investment platforms

Here's how these platforms typically work: investors make investments through the platform's website or mobile app and sign an LLP (Limited Liability Partnership) agreement. The pooled investments are then used to lease agricultural land or fund agriculture-related projects. After the products are sold and revenue is generated, expenses are deducted, and the remaining profits are distributed among the investors.

While agri-investment platforms offer the potential for high returns, it's crucial to carefully consider the risks involved. These investments may not be suitable for everyone, and it's recommended to conduct thorough research before committing your money.

• What happens if the LLP incurs a loss? Will investors still receive guaranteed returns as mentioned in the agreement?
• Can investors access the financial statements of the platform?
• Who manages the platform and the investments? What qualifications and experience do they have?
• Does the platform have any record of controversies or disputes?
• How does the LLP handle dispute resolution?
• What is the impact of weather risks on crop production and, consequently, on investor returns?
• Are there any liquidity risks associated with the investment, considering the batch-wise nature of agricultural produce harvesting?

While agri-investment platforms present an opportunity to invest in the agriculture sector, it's essential to approach them with caution and a thorough understanding of the associated benefits and risks.

Diversification of portfolio

Diversification of an investment portfolio is a crucial aspect of managing risk and optimising returns. By investing in India's agriculture sector, investors can not only benefit from portfolio diversification but also tap into a sector that is vital to the country's economy. Here are some key considerations for diversification within the Indian agricultural context:

Crop Diversification

India boasts an impressive variety of crops, including wheat, rice, sugarcane, cotton, fruits, and vegetables. Investing in a range of these crops can help spread risk and take advantage of different growth patterns and market demands. For example, wheat exports touched $1519.69 Mn in FY 2022-23, while exports of processed fruits and vegetables jumped to $2,248.96 Mn in the same period.

Geographic Diversification

India is a vast country with diverse climatic conditions and soil types. By investing in agricultural projects across different regions, investors can reduce the risk associated with weather uncertainties and take advantage of region-specific crop specialisations. For instance, certain states like Punjab, Haryana, and Uttar Pradesh are known for wheat production, while others like Andhra Pradesh and Telangana specialise in rice cultivation.

Technology Adoption

The Indian government has recognised the importance of technology in transforming the agriculture sector. Initiatives like the Digital Agriculture Mission and the use of ICT-based farming aim to empower farmers with agricultural technology and enhance productivity. By investing in technology-driven agricultural projects, investors can benefit from increased efficiency, improved yields, and reduced risk associated with traditional farming methods.

Value Chain Investment

India's agriculture sector involves a complex value chain, from production to processing, storage, and distribution. Investors can diversify their portfolio by investing in different stages of this value chain. For example, investing in efficient supply chain management through the Pradhan Mantri Kisan Sampada Yojana (PMKSY) or focusing on post-harvest storage infrastructure projects can provide stable returns while supporting the overall growth of the sector.

Allied Sectors

In addition to direct agricultural investments, diversifying into allied sectors such as food processing, animal husbandry, fisheries, and horticulture can be advantageous. These sectors are closely linked to agriculture and offer their own set of investment opportunities. For instance, the Indian government has introduced initiatives like the Agriculture Accelerator Fund and the Pradhan Mantri Kisan Sampada Yojana to promote startups and infrastructure development in these allied sectors.

In conclusion, diversification of an investment portfolio in the Indian agricultural context involves a combination of crop and geographic diversification, technology adoption, value chain integration, and exploration of allied sectors. By adopting these strategies, investors can optimise their risk-return profile while contributing to the growth and sustainability of India's agriculture sector.

Tax-free income

India's agriculture sector is vast, encompassing the second-largest agricultural land area globally, and contributing 18.3% to the country's total economy in FY 2022-23. The sector has witnessed significant growth, with agricultural exports rising to $53.1 billion in the same period. This growth is supported by various government initiatives and schemes, such as the Pradhan Mantri Kisan Sampada Yojana (PMKSY), which aims to create modern infrastructure and efficient supply chain management.

One of the key attractions of investing in the agriculture sector in India is the opportunity for tax-free income. Agriculture income has been tax-free in India due to various reasons, including unpredictable climatic conditions and uncertainty of harvest. This tax exemption applies not only to direct investments in agricultural activities but also to investments made through agri-investment platforms. These platforms allow retail investors to invest in agricultural opportunities with a low initial investment, starting from ₹5,000, and offer the benefit of tax-free returns.

However, it is important to carefully consider the risks associated with investing in the agriculture sector. One of the primary risks is the unpredictability of profits due to weather conditions and other factors. Additionally, the lack of regulation by authorities such as the Securities and Exchange Board of India (SEBI) or the Reserve Bank of India (RBI) adds to the risk. It is recommended that investors conduct thorough research and due diligence before investing in these platforms.

To facilitate investment in the agriculture sector, the Indian government has developed the "Krishi Nivesh Portal," a centralized one-stop portal for agri-investors to access various government schemes and benefits. This initiative, in collaboration with the Bill & Melinda Gates Foundation, the Ministry of Agriculture and Farmers Welfare (MoAFW), and the government of India, aims to boost agricultural productivity and improve farmers' lives.

Direct benefit transfer schemes

The Government of India has implemented a range of Direct Benefit Transfer (DBT) schemes to support the agriculture sector. These schemes aim to provide assistance and promote development in various areas, including agricultural research, education, welfare, and infrastructure.

One notable scheme is the Krishi Unnati Yojana (KUY)-MOVCDNER, which falls under the Department of Agriculture and Farmers Welfare. This scheme focuses on agricultural development and farmer welfare.

The Pradhan Mantri Fasal Bima Yojna is another crucial initiative that provides crop insurance to farmers, protecting them from financial losses due to crop failure or damage.

The Indian government also prioritises agricultural education with schemes like the National Talent Scholarship UG, Merit Cum Means Scholarship, and Post Matric Scholarship offered by the Department of Agricultural Research and Education. These scholarships support students pursuing undergraduate and postgraduate studies in agriculture and related fields.

Additionally, the National Food Security Mission - NFSM and the Sub-Mission on Seeds and Planting Material aim to enhance food security and ensure the availability of quality seeds and planting material for farmers.

To support agricultural infrastructure development, the Agriculture Infrastructure Fund aims to mobilise medium to long-term debt finances for investments in post-harvest management and community farming assets.

These are just a few examples of the many Direct Benefit Transfer schemes that the Indian government has implemented to support the agriculture sector. Each scheme targets specific areas of need, reflecting the government's commitment to promoting sustainable agricultural practices and improving the livelihoods of farmers.

Pradhan Mantri Kisan Sampada Yojana (PMKSY)

PMKSY has several component schemes:

• Integrated Cold Chain and Value Addition Infrastructure: This component aims to provide integrated cold chain and preservation infrastructure facilities for various agricultural produce, including horticulture, organic produce, dairy, meat, and poultry.
• Creation/Expansion of Food Processing and Preservation Capacities (Unit Scheme): This scheme focuses on creating new food processing units and modernizing/expanding existing ones to increase the level of processing and reduce wastage.
• Infrastructure for Agro-processing Clusters: This scheme adopts a "cluster" approach, aiming to develop modern infrastructure and common facilities to encourage groups of entrepreneurs to set up food processing units. Each agro-processing cluster requires a minimum investment of Rs. 25 crore and at least 10 acres of land.
• Creation of Backward and Forward Linkages: This scheme aims to provide seamless backward and forward integration for the processed food industry by filling gaps in the supply chain and linking farmers to processors and markets.
• Food Safety and Quality Assurance Infrastructure: This component focuses on motivating the food processing industry to adopt food safety and quality assurance mechanisms, such as ISO standards and HACCP, to improve overall food safety and hygiene.
• Human Resources and Institutions: This scheme includes research and development and aims to strengthen institutions related to food processing.

PMKSY is expected to have significant benefits for the Indian agriculture and food processing sectors. By 2025-26, it is projected to leverage an investment of Rs. 11,095.93 crore, benefiting 28,49,945 farmers and generating 5,44,432 direct and indirect employment opportunities.

Frequently asked questions