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FDI in Agribusiness: A Comparison between China and India
Chandan Kumar and Nalin Bharti
Department of Humanities and Social Sciences
Indian Institute of Technology Patna
Amhara, Patna, Bihta, India
Cite as: Kumar, C., & Bharti, N. (2015, September 28-29). FDI in Agribusiness: A Comparison between
China and India. Two Day International Conference on Trade and Exchange Rate Policies in the Context
of WTO Preferential Trading Agreements: Challenges Before Emerging Economies, Hyderabad,
Telangana, India.
Abstract
FDI is viewed as a catalyst to economic growth and has accelerated sharply in China and India. China has
succeeded in taking full advantage of FDI than India. Both nations are regarded as most favorable competitor in
attracting higher foreign investment in the present scenario. China adopted manufacturing- led growth strategy and
India adopted service- led growth which has resulted to maximize FDI inflow particularly in the two sectors
respectively. Since both economies share major role of agriculture in economy, impact of FDI falling on
agribusiness sector is too not separable. In China, FDI in agribusiness is categorized in three catalogues namely
encouraged, restricted and prohibited sectors whereas in India, FDI in agribusiness is allowed in some specific
sectors like floriculture, horticulture, aquaculture, tea plantations etc. On this backdrop, the present paper attempts
a mix of quantitative as well as qualitative study of policies and data on FDI inflows in China and India during
1990- 2013. The major goal is to compare FDI inflow in agribusiness and to investigate the role of retail business
falling on agribusiness through FDI. To study the business regulations and environment, World Bank’s Doing
Business Index has been analyzed and found that China has more favorable conditions for new investments and
India is still bounded by some restrictions in trade. The paper concludes that both nations have prospective in food
processing industries and FDI should be promoted in agribusiness.
Keywords: FDI; agribusiness; investment;
1. Introduction
OECD (2013) defines foreign direct investment (FDI) as cross- border investment by a resident entity in one
economy with objective of obtaining a lasting interest in an enterprise resident in another country. The lasting
interest implies the existence of a long-term relationship between the direct investor and the enterprise and a
significant degree of influence by direct investor on management of the interest. The direct or indirect ownership of
at least 10 percent or more of voting power of an enterprise resident in one economy by an investor resident in
another economy is evidence of such relationship. Deming (2010) asserts that China and India share similar
development stages and are strongly complementary to each other. Since businesses are the main players in the trade
and economic arena both countries should facilitate trade and investment to create an equitable, transparent and
predictable regulatory environment for companies inside the country’. According to AT Kearney FDI Confidence
Index (2014) China holds the second position as most favorable country to invest in 2013 and 2014 in Foreign
Confidence Index whereas India lags behind at seventh position in 2014 and fifth position in 2013.’ China in the
present scenario continues to play a dominant role in global market by attracting larger amount of FDI after United
States. It has also achieved highest annual economic growth rate of about 12.7 percent. It has huge market of
products with low cost of production. The advantage of stable government conditions and continued opening up of
market with simplified investment approval system boosts the companies’ confidence. Thus China is today
successful in nurturing the most benefits out of foreign investment and is still in continuity due to its potential. India
followed an inward-looking economic policy related to trade after its independence but after the liberalization in
1991 FDI policy has improved. It has too large labor and domestic market and is turning out to be good competitor
at global market. Recently a five-year trade and economic growth plan agreement was made between India and
China to improve the trade balance. The agreement envisages $20 billion Chinese investment in India. India had a
$36.2 billion trade deficit in fiscal 2014 with China. This wide trade imbalance could hurt some sectors in India.
Since agriculture plays a crucial role in both the countries the role of FDI in agribusiness becomes important.
Agribusiness is described as businesses that are involved in production, distribution and marketing of farm products
such as warehouses, wholesalers, retailers and more. Despite of transformation in the agriculture sector in India the
share of FDI in agribusiness is found to be merely 2.66 percent during the period 2000 to August 2014. FDI has
been acting as an important role in growth of China and India right from the economic reforms. It can be also
regarded as a major component of engine of growth. One of the major differences why China is ahead of India in
terms of FDI is that economic reforms started a decade before than in India. In respect to India growth through more
preference to only services sector will not support manufacturing sector for long turn. A second generation
economic reform is needed to improve the global competitiveness, growth prospects and attractiveness to FDI. A
comparison of FDI in China and India shows a significant difference between the two.
2. Survey of Literature
Davies (2013) focused on the FDI trend in China for period 1979 to 2010 and analyzed that competitive
effectiveness of the policies of various provinces of China including proximity to neighboring countries could
benefit the policy makers. Banik et al. (2004) showed the FDI trend pattern, sources and sector wise analysis of
India and China for period 1979 to 2000. Siddharthan (2004) studied the FDI inflows in India and China for period
1980 to 2002 and found that India needs to introduce vital institutional reforms for higher rate of FDI.
Balasubramanyam and Sapsford (2007) compared the FDI inflow of India and China for 1985 to 2005 and explained
that India should actively attract FDI if it were to attain growth rates in excess of 10 per cent per annum. They also
pointed out that FDI in India is only one-tenth of China. Lau and Bruton (2008) examined various issues related to
FDI in China, including the nature of foreign investments into China, timing and mode of entry, partner selection
decisions, joint venture strategies and inter partner issues in FDI. Banik (2003) analyzed the determinants of FDI
inflow in India and China based on time series approach during the period of 1979-2000. They have shown that
lagged GNP significantly affects inflow of FDI from all sources and it is higher in case of China when compared
with India. Huang and Khanna (2003) argued that main reason for China being dominant in FDI terms is that
China’s economic reforms started a decade before than India. They also pointed out India’s democracy and
entrepreneurship thriving are key potential in overtaking China. Hong (2007) pointed out that India is a potential
opponent and competitor to China in the Southeast Asian market and highlighted that China should invest more time
and resources into strengthening bilateral relations with both India and ASEAN. With greater transparency and a
clearer identification of shared interests in Southeast Asia, there is scope for even better relations and constructive
engagement among China and India. Reddy (2009) analyzed the economic reforms in India and China with focus on
impact of reforms on agricultural trade in both countries. Malenbaum (1959) highlighted the output performance in
investment in allocation in agriculture and industry. Sigurdson (1976) explored the comparative analysis of
agricultural nature of both the country and theoretically explained the differences prevailing in rural modernization.
Agrawal and Sahoo (2003) analyzed the impact of China's accession to WTO on China's exports, imports and FDI
inflows into China and then evaluated its likely impact on Indian economy. They discussed that since India and
China compete in the exports of many commodities, especially labor-intensive manufactures such as textiles,
garments and light machinery, China's accession to WTO could have some negative influence on India's exports and
foreign investment inflows, while India's imports are unlikely to be affected much. Rao (2005) pointed out the need
to promote the flow of foreign direct investment into rural enterprises and joint ventures with foreign enterprises
between India and China for mutual advantage. Ghosh (2005) explained that FDI has been positively encouraged to
play in the rural sector for the development of Town and Village Enterprises (TVEs) and also in the restructuring of
state-owned enterprises (SOEs) in the second half of the reform decade in China. Despite of having entrepreneurial
dynamics, property rights, enforcement machinery and high financial system India is lagging behind China. Boilet
and Labbouz (2006) discussed comparison between China and India's opening up process based on gravity model
and found that Indian trade regime remained notably more restrictive in 1999. They also made a quantitative
assessment for 2015 for India-China bilateral trade which shows that China will be largely ahead than India. Huang
and Tang (2011) examined the FDI and domestic economic policies of China and India and its effect. They studied
survey data of World Bank private-sector and found that foreign-invested enterprises (FIEs) perceive far more
financial restrictions relative to domestic firms in India, with an opposite pattern observed in China.
Many interesting studies are available on FDI in China and India with additional emphasis on manufacturing sector
but very little on FDI in agribusiness. The study on role of FDI in agribusiness in both the economies and their
further comparison is still untouched by the academic community. Against this backdrop this particular paper
endeavors to explore various aspects of FDI inflow in China and India and tries to fill the gap in the literature by
throwing light on opportunities and prospective of FDI in agribusiness.
3. Research Methodology
The research methodology includes both qualitative as well as quantitative analysis. As part of the qualitative
investigation; the FDI policy of both the governments in general and also in agribusiness sector is being presented.
While in quantitative approach, secondary data collected from various sources on GDP, agriculture growth rate and
FDI inflow are analyzed through time series data, tabular representations and bar diagrams for the period 1990-
2013 of China and India. The data were retrieved from the Government sources like Ministry of Commerce, China,
United Nations Conference on Trade and Development (UNCTAD), Department of Industrial Policy and Promotion
(DIPP), Govt. of India etc. Doing Business Index of World Bank has been analyzed to get broad view of business
regulations in both countries and its connection with FDI inflows.
4. FDI Policy in China
Foreign Direct Investment inflow into China started with the economic reforms in 1978. Reasons behind this were
that per capita GNP grew at 2.5- 3.0 percent since 1957 which was below the average of its neighboring countries
like Japan and South Korea. The total factor productivity too suffered badly in that period. Thus ‘Open door policy’
was adopted to get the foreign capital and modernization. In 1979 law on joint ventures using Chinese and foreign
investment was adopted which granted foreign investment legal status in China. FDI brought in technology up
gradation, skill enhancement, efficient utilization of resources and more employment. From 1980 onwards, FDI laws
on Joint Ventures, Wholly Owned Foreign Enterprises, Cooperative Enterprises, and other pioneering policies were
introduced. Till 1991 there were some foreign exchange restrictions. But after becoming member of the World
Trade Organization (WTO) in 2001, China started its institutional reforms and revised many of its laws and
regulations. The government approval is the only route for foreign direct investment in China.
The different types of approvals and corresponding approval authorities are presented in the below table 1 which
shows that the Chinese government has set a broad complete range of laws and regulations for governing foreign
investment. It has stipulated different FDI requirements and set the concerned authorities for its regulation. Like for
project approval, National Development Reform Commission has been authorized. For foreign investment approval
Ministry of Commerce (MOFCOM) has been assigned. The FDI policies are found to be complex in nature.
Table 1 : Government Approval Process
Type
Kind of Approval
Authority
TYPE A
Anti-Monopoly Law Review of
Concentrations: Ministry of Commerce
(MOFCOM)
Ministry of Commerce (MOFCOM)
TYPE B
National Security Review:
MOFCOM and a Ministerial Panel
TYPE C
Name Pre-Approval and Enterprise
Registration:
Administration of Industry and Commerce
TYPE D
Local Site-Related Opinion Letters:
Land and Resources Department,
Environmental Protection Department,
Planning Department, and the State-Owned
Assets Supervision and Administration
Commission
TYPE E
Project Approval:
National or local Development and Reform
Commission or State Council
TYPE F
Foreign Investment Approval:
MOFCOM or local Commerce Department
TYPE G
Regulatory Approval:
Relevant industry regulator, if applicable
TYPE H
Approval of Strategic Investment in a
Chinese Publicly Traded Company:
MOFCOM and China Securities Regulatory
Commission, if applicable.
Source: Ministry of Commerce, People’s Republic of China (2014)
Table 2 shows the share of top countries investing in China. Among the top ten nations investing in China, Hong
Kong stands at the highest place with USD78.302 billion followed by Singapore with USD 7.327 billion in 2013.
Japan added USD 7.064 billion in 2013 compared to USD 7.38 billion in last year. Taiwan Province too had a lower
amount in 2013 fiscal with USD 5.246 billion than USD 6.183billion in 2012. Further FDI inflows were from U.S.A
with USD 3.353billion, Republic of Korea USD 3.059billion, Germany USD2.095billion, Holland
(USD1.281billion), U.K. (USD1.039billion) and France (USD762million in 2013 fiscal.
Table 2 : Share of Top Countries investing in China (Amount in USD billion)
Country
2012
2013
Hong Kong
71.289
78.302
Singapore
6.539
7327
Japan
7.38
7064
Taiwan
6.183
5246
USA
3.13
3353
Republic of Korea
3.066
3059
Germany
1.471
2095
Holland
1.144
1281
UK
1.031
1039
France
0.762
Source : Ministry of Commerce, People’s Republic of China (2014)
Table 3 shows sectoral distribution of FDI in China for 2012 fiscal. Manufacturing industries had highest number of
projects and FDI received. There were 8970 projects which brought USD 4.8 million in 2012. Real estate had
second highest investment utilized with USD 2.4 million with merely 472 projects in same period. Wholesale and
retail trade stood at third position with USD 0.946 million and 7029 projects. Agriculture, forestry, animal
husbandry and fishing had 882 projects and attracted USD 0.206 million. Scientific research and technical service
had 1287 projects with USD 0.309 million.
Table 3: Sector wise Distribution of FDI in China (2012 fiscal).
S.N.
Sector
Number of Projects
(units)
Investment Utilized (USD 10
000)
1
Agriculture, Forestry, Animal
husbandry and fishing
882
206220
2
Manufacturing
8970
4886649
3
Real Estate
472
2412487
4
Wholesale and Retail Trade
7029
946187
5
Leasing and business services
3229
821105
6
Transport, storage and post
397
347376
7
Information transmission, computer
services and software
926
335809
8
Scientific research, technical service
1287
309554
Source: China Statistical Year Book (2012).
Foreign direct investment in China is arranged in a framework. The framework for inbound FDI is based on the
Catalogue of Industries for Guiding Foreign Investment which is maintained by Ministry of Commerce and the
National Development and Reform Commission (NDRC) under the authority of the State Council. It is based on the
five year plan layout of China. Right from the original catalogue made in 1995 revisions were made in 2002, 2005
and 2007. The catalogue subdivides industries into three parts mainly ‘Encouraged, Restricted, and Prohibited’
categories. Foreign owned enterprises in ‘encouraged’ industries are permitted to establish wholly foreign owned
enterprises and are eligible for investment incentives. Foreign investments in industries in ‘restricted’ category are
limited to equity or cooperative joint ventures and are subject to higher level government approvals. ‘Prohibited’
industries are closed to foreign investment. Industries not listed in the catalogue are generally open to foreign
investment unless specifically barred in other People’s Republic of China regulations and are generally ineligible for
investment preferences. The latest revision of the catalogue is the 2011 Foreign Investment Industrial Guidance
Catalogue, adopted on 24 December 2011 and is effective from 30 January 2012. The 12th Plan of China (2011-15)
has focused on attracting more foreign capital through FDI.
Agribusiness is defined as science and practice of activities related to production, processing, marketing, trade and
distribution of raw and processed food, feed and fiber, including supply of inputs and services for these activities.
Today the agriculture has evolved into agribusiness and has become a complex system that reaches beyond the farm
and includes all who are involved in bringing food to consumers. It has become important business to promote food
industry growth in many countries through agribusiness.
Table 4 highlights the encouraged industries for foreign investment in China as per the foreign investment catalogue
which is effective from Jan, 2012. The Chinese government has been very liberal in allowing foreign investment in
agribusiness sector. FDI has been allowed in many industries and products under agribusiness such as edible oils,
green and organic vegetables, dried and fresh fruits, tea, coffee, flowers, aquatic products, livestock products,
tobacco etc.
Table 4 : Encouraged Foreign Investment Industries
Under Farming, Forestry, Animal Husbandry and Fishery Industries:
1
Planting, development and production of woody edible oils, ingredient and industrial raw
material
2
Cultivation technologies development and production of green and organic vegetables (including
edible fungus, watermelon and melon), dried and fresh fruits and tea
3
New technology development and production of sugar-yielding crops, fruit trees, forage grass
4
Production of flowers and plants, and construction and operation of nursery base
5
Planting of rubber, oil palm, sisals and coffees
6
Cultivation of traditional Chinese medicines ( limited to equity joint venture and contractual
joint venture
7
Reusing in fields and comprehensive utilization of straws and stalks of crop, development and
production of resources of organic fertilizers
8
Planting of forest trees ( including bamboo) and cultivation of fine strains of forest trees and
cultivation of new breed varieties of polypoid trees
9
Breeding of aquatic offspring ( excluding precious quality varieties peculiar to China)
10
Construction of operation of ecological environment protection projects preventing and treating
desertification and soil erosion such as planting trees and grasses etc.
11
Breeding of aquatic products, cage culture in deep water, large- scale breeding of aquatic
products and breeding of eco- ocean products.
Under Farm Products Processing Industry
1
Development and production of biology feeds, straws and stalks feeds and aquatic feeds
2
Aquatic products processing, seashell products cleansing and processing, and development of
function food made from seaweed
3
Processing of vegetables, dried and fresh fruits, fowl and livestock products
Under Food Manufacturing Industry
1
Development and production of fond for babies and agedness, as well as health- care food
2
Development and production of forest food
3
Production of natural additive for food stuff and ingredients
Under Drinks Manufacturing Industry
1
Development and production of drinks of fruits, vegetables, albumen, tea, coffee and
vegetables
Under Tobacco Producing Industry
1
Production of secondary cellulose acetate and processing of tows
Source: Ministry of Commerce, People’s Republic of China (2012).
The table 5 throws light on the restricted and prohibited sectors for foreign direct investment in agribusiness sector
in China. The government has restricted FDI in some of the industries such as processing of logs of precious
varieties of trees, cotton, soya bean, rape seed edible oil, green tea, special tea etc. Under tobacco industries,
manufacturing and threshing of curb tobacco leaf is restricted. The wholesale and retail industry which includes
agribusiness products has been also kept in restricted sectors. The products in this restricted category are distribution
of grain, cotton, vegetables oil, sugar, tobacco and construction of wholesale markets for agricultural products. In
the prohibited sectors for FDI in agribusiness comes the cultivation of China’s rare precious breeds, production of
GM plants’ seeds, fishing in area within government jurisdiction and processing of green tea and special tea with
China’s traditional crafts.
Table 5: Restricted Sectors For FDI in China Related to Agribusiness
S.N.
Under Farming, Forestry, Animal Husbandry and Fishery Industries
1
Breeding and seeds developing production of new train crop breed (Chinese party shall hold the
majority of shares)
2
Processing of the logs of precious varieties of trees (limited to equity joint ventures or contractual
joint ventures)
3
Cotton (raw cotton) processing
Under Farming Subsidiary Foodstuff Industry
1
Processing of soya bean, rapeseed edible oil ( Chinese partner shall hold majority of shares), deep
processing of corn
Under Beverage Manufacturing Industries
1
Processing of green tea and special tea with China’s traditional crafts
2
Carbonic acid beverage manufacturing
Under Tobacco Industries
1
Manufacturing of threshing and curb tobacco leaf
Under Wholesale and Retail Industry
1
wholesale, retail and logistic distribution of grain, cotton, vegetable oil, sugar, tobaccos, capital
goods for agricultural production ( Chinese should hold majority of shares of the multiple shops
which have more than 30 branch stores and sale different kinds and brands of commodities from
multi- suppliers).
2
Construction and operation of large- scale wholesale markets of agriculture products.
Prohibited Sectors For FDI in China related to Agribusiness
S.N.
Under Farming, Forestry, Animal Husbandry and Fishery Industries
1
Cultivation of China's rare precious breeds (including tine genes in plants industry, husbandry and
aquatic products industry)
2
Production and development of genetically modified plants' seeds
3
Fishing in the sea area within the Government jurisdiction and in inland water
Under Beverage Industry
1
Processing of green tea and special tea with China’s traditional crafts (famous tea, dark tea, etc.)
Source: Ministry of Commerce. Republic of China (2012).
5. India’s FDI Policy
India started FDI policy in 1991with objective to supplement domestic capital, technology and skills for accelerated
growth. New sectors were opened such as mining, banking, insurance, telecommunications, airlines, construction
and management of ports harbors etc. The policy is transparent, predictable and easily comprehensible in nature.
Any non-resident entity can invest in India subject to FDI Policy except in sectors/ activities which are prohibited.
The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry make regulatory
changes in FDI from time to time. The latest consolidated FDI policy is effective from April 17, 2014. Investments
can be made by non- residents in the capital of a resident entity to the extent of percentage of total capital specified
in FDI policy. It can be made in equity shares/ fully, compulsorily and mandatorily through Automatic Route or
Government Route. Under Automatic route non- resident investor or Indian company does not require any approval
from Government of India for making investment. On the other hand under Government route, prior approval of
government is needed where proposals are considered by Foreign Investment Promotion Board (FIPB). FIPB
processes the proposals which do not qualify for automatic approval by RBI or are outside the parameters. Their
entry is also permitted as per the entry conditions in sectors/ activities.
Table 6 shows the share of top countries investing in India. Among the top countries investing in India, Singapore is
at top position which added up to USD 6 million in 2013-14 compared to USD 2.3 million in last fiscal. FDI inflows
from Mauritius were USD 4.8 million in 2013 -14 compared to double than it in 2012 fiscal i.e., USD 9.4
million.UK came at third spot with USD 3.2million in 2013 fiscal. Japan and USA were with USD 1.7million and
USD 0.8 million respectively in the same period.
Table 7 shows the sectoral distribution of FDI in India. Services sector secured the top position with USD 4.8
million in 2012. It had 18 percent share in total FDI. Hotel and tourism attracted USD 3.2 million followed by
automobile industry and metallurgical industries with USD 1.5 million and USD 1.4 million respectively in 2012
fiscal. In 2013, services sector again topped in attracting most FDI with USD 2.2 million followed by automobile
industry and telecommunication with USD 1.5 million and USD 1.3 million respectively. Drugs and
pharmaceuticals had USD 1.27 million; construction development had USD 1.26 million FDI.
Table 7 : Sector wise Distribution of FDI in India in Rs. Crores (in US$ million)
Sector
2012
2013
Services Sector
26,306 (4,833)
13,294 (2,225)
Construction Development
7,284 ( 1,332)
7,508 (1,226)
Telecommunication
1,654 ( 304)
7,987 (1,307)
Computer Software and hardware
2,656 (486)
6,896 (1,126)
Drugs and Pharmaceuticals
6,011 (1, 123)
7,191 (1,279)
Automobile industry
8,348 ( 1,537)
9,027 (1,517)
Chemicals (other than fertilizers0
1,596 (292)
4,738 ( 878)
Power
2,923 (536)
6,519 ( 1,066)
Metallurgical Industries
7,878 ( 1,466)
3,436 ( 568)
Hotel and tourism
17,777 (3,259)
2,949 ( 486)
Source: DIPP (2014).
Table 8 shows that FDI in agriculture is permitted 100 percent through the automatic route in limited sectors. The
sectors are floriculture, horticulture, apiculture and cultivation of vegetables and mushrooms, development and
production of seeds and planting material, animal husbandry, pisciculture, aquaculture, services related to agro and
allied sectors and tea plantations etc.
Table 6 : Share of Top Countries Investing in India (USD million)
Country
2012
2013
Mauritius
9497
4859
Singapore
2308
5985
UK
1080
3215
Japan
2237
1718
USA
557
806
Netherlands
1856
2270
Cyprus
490
557
Germany
860
1038
France
646
305
Switzerland
180
341
Source: DIPP (2014)
Table 8 : Permitted Sectors in Agriculture For FDI in India
S.N.
Sector
FDI
Cap/Equity
Entry Route
1.
Agriculture and Animal Husbandry
a)Floriculture, Horticulture, Apiculture and Cultivation of
vegetables and mushrooms under controlled conditions;
b)Development and production of seeds and planting material;
c)Animal husbandry (including breeding of dogs), Pisciculture,
Aquaculture, under controlled conditions and
d) Services related to agro and allied sectors.
Besides the above, FDI is not allowed in any other agricultural
sector/activity.
100 %
Automatic
2.
Tea Plantation
Tea sector including tea plantations
100 %
Automatic
Besides the above, FDI is not allowed in any other agricultural sector/activity.
Source: DIPP, (2014).
A considerable change in FDI policy in wholesale and retail trading in India can be seen. In 1995, the wholesale and
retailing services were started by the initiation of World Trade Organization (WTO) policy of Agreement on Trade
in services. In 1997, 100 percent rights were allowed in wholesale retailing through approval route of government.
In 2006, up to 51 percent investment in single brand retail was permitted. In 2011, in single brand retail 100 percent
FDI was permitted. In September 2012, Government permitted up to 51 percent FDI in multi brand retail. Under this
category fresh agricultural produce were permitted to be sold unbranded.
6. Comparison between China and India
The figure 1 and table 9 outlines the trends in rate of growth of GDP and agriculture in China and India for period
1990 to 2013. In Real GDP terms: India had a low growth rate in the beginning of economic reforms. It was 1.43
percent in 1991 whereas China had a considerable growth rate of 9.2 percent in same period. In the next fiscal i.e. in
1992, India achieved 5.36 percent growth rate but China again went far with 14.2 percent. During the nineties India
maintained a moderate growth rate which was around 5 to 7 whereas there were ups and down in China’s growth
rate which was above than 8 percent. In 2000 both the countries had a high growth rate i.e. for India it was 9.48
percent in 2005 and China had 9.9percent in the same period. In 2007 China reached 11.2 percent whereas India was
with 9.32 percent GDP growth rate.
In the agriculture sector too China was much ahead than India throughout all the nineties and twenties. In 1992 India
had agriculture growth rate of 6.65 percent but China was below it with 4.47 percent. In 1995 the rate went to
negative 2.55 for India but China still had 3.5 percent. In the next fiscal i.e. in 1998 India revived with 6.32 rate of
growth. Again in 2000 and 2002 India experienced negative growth rate of negative 0.01 and negative 6.6 percent
but was able to achieve 9.05 percent in 2003 and 8.6 percent in 2010. On the other hand, China never had a negative
growth rate in nineties and twenties. Its agricultural rate continued to be around 4-5 percent which shows that
agriculture is not neglected in spite of more preference given to manufacturing sector.
Figure 1: GDP and Agriculture Growth Rate of China and India (1990-2013)
Table 9: GDP and Agriculture Growth Rate in India and China (in percentage)
Real GDP Growth Rate (at constant prices)
Agriculture and Allied Sector Growth Rate
Year
India*
China**
India*
China**
1990
5.29
3.8
4.02
7.3
1991
1.43
9.2
-1.95
2.4
1992
5.36
14.2
6.65
4.7
1993
5.68
13.5
3.32
4.7
1994
6.39
12.8
4.72
4.0
1995
7.29
10.5
-0.7
5.0
1996
7.97
9.7
9.92
5.1
1997
4.3
8.3
-2.55
3.5
1998
6.68
9
6.32
3.5
1999
8.0
6
2.67
2.8
2000
4.15
7.3
-0.01
2.4
2001
5.39
6.6
6.01
2.8
2002
3.88
8.1
-6.6
2.9
2003
7.97
9.9
9.05
2.5
2004
7.05
9.5
0.18
6.3
2005
9.48
9.9
5.14
5.2
2006
9.57
10.4
4.16
5.0
2007
9.32
11.2
5.8
3.7
2008
6.72
6.8
0.09
5.4
2009
8.59
10.7
0.81
4.2
2010
8.91
9.8
8.6
4.3
2011
6.69
8.9
5.02
4.3
2012
4.47
7.9
1.42
4.5
2013
4.74
7.7
4.71
4.0
Source: *Central Statistical Organization, Govt. Of India (2014)
**National Bureau of Statistics of China (2014).
0
5
10
15
20
25
30
35
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
GDP & Agriculture Growth Rate
Year
China's
Agriculture
Growth Rate
India's agriculture
& allied sector
China's R-GDP
Growth
India's R-GDP
Growth
Burkner (2014) argues that India may achieve 7% growth rate and can grow faster than China if it unleashes its full
potential. China's growth rate will still be 6.5- 7%, which is still very good. A lot of companies globally are also
waiting to enter India to tap into its demand. For this India needs to open up its economy and allow significant
investments.
Figure 2 and table 10 represent that magnitude of FDI inflows received by India and China. It is evident that FDI
inflow in India is very small compared to China. In 1991 China was far ahead than India with USD 3487 million
whereas India had merely USD 237 million. During the nineties, China had continuously higher FDI inflows. It was
USD 11008 million in 1992, USD 41726 million in 1996 and USD 52743 million in 2002. But India had very low
FDI inflows. For India it was USD 252 million in 1992, USD 2525 million in 1996 and USD 5630 million in 2002.
China remained always ahead than India.
Figure 2: Yearly FDI Inflow in India and China
Table 10: Yearly FDI Inflows India and China (US Dollars at current prices million)
Year
China
India
1990
3 487
237
1991
4 366
75
1992
11 008
252
1993
27 515
532
1994
33 767
974
1995
37 521
2 151
1996
41 726
2 525
1997
45 257
3 619
1998
45 463
2 633
1999
40 319
2 168
2000
40 715
3 588
2001
46 878
5 478
2002
52 743
5 630
2003
53 505
4 321
2004
60 630
5 778
2005
72 406
7 622
2006
72 715
20 328
2007
83 521
25 350
0
50000
100000
150000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USD B
Year
China
India
2008
108 312
47 139
2009
95 000
35 657
2010
114 734
27 431
2011
123 985
36 190
2012
121 080
24 196
2013
123 911
28 199
Source: UNCTAD FDI Statistics (2014)
7. Comparison of FDI in Agribusiness in China and India
The table 11 gives a clear picture about the present scenario of foreign direct investment occurring in both the
countries in agribusiness sector. In India food processing industries brought FDI inflow of USD 6035 million in the
period 2000 to august 2014 with a percentage share of 2.63. Vegetable oils and vanaspati received USD 2241
million with 0.19 percent share. Tea and coffee had 0.05 shares in FDI inflow followed by sugar with 0.02
percentages. On the other hand China as per the 2010 fiscal food, beverages and tobacco had highest amount of
foreign direct investment. It was USD 1925 million followed by agriculture and hunting with USD 1241million.
Forestry and fishing contributed about USD 459 million in 2010. In both the countries food processing industries
was able to bring highest amount of foreign direct investment.
Table 11 : India’s Sector wise FDI Inflow in Agribusiness from April, 2000- August, 2014 (US$ million)*
S.N.
Sector
Amount
Percentage with total FDI Inflows (+)
1
Food Processing Industries
6,035.52
2.63
2
Vegetable oils and vanaspati
2,241.30
0.19
3
Tea and coffee (processing and
warehousing coffee and rubber
489.53
0.05
4
Sugar
55.90
0.02
China: Sector wise FDI Inflow In Agribusiness (in USD Million)**
S.N.
Sector
2010 Fiscal
1
Food, beverages and tobacco
1925
2
Agriculture and hunting
1241.1
3
Forestry and fishing
459.6
Source: *Compiled from DIPP (2014)
**International Trade Centre Statistics (2014)
Gulati (2007) asserts regarding agribusiness that the consumption pattern of people in India has changed, rural
income has increased and export opportunities have risen. The growth in per capita income has changed the
complexion of Indian agriculture by giving a boost to agro- industry and agribusiness. But one crucial point is that a
substantial part of agro- output in India is still not processed. Most of the Indian agro- processing is concentrated in
the unorganized sector Within manufacturing, agro- industry employs around 73 percent of workers and contributes
40 percent to gross value added and food processing is an important component of agro- industry with 38 percent
employment and 53 percent of gross value added. Since Indian agriculture is dominated by smallholders, it is
important for agribusiness to consider integration of smallholders. The scope of agribusiness is immense from
cultivation to processing and retail. Although India has tight regulation on FDI in retail food sector and corporate
farming; private investment is now coming in market. Private investment can lead to infrastructural development
through creation of storage facilities, processing plants and cold transportation capabilities. At the same time public
investment through FDI may give new direction to agribusiness. Neill (2013) too pointed out the need to promote
FDI in retail in India for overall increase in productivity of Indian agriculture sector.
The Embassy of China (2014) pointed out that the Chinese agriculture and rural economy has showed a tremendous
effort in production and surpluses in agriculture. Its rural operating system is based upon family contract and
combines central planning with autonomy. Its distribution system is based on labour and physical inputs and the
farm product and marketing system is based on market mechanism. Since 1978, China's grain production has been
increasing at an annual rate of 2.6 per cent which is twice the population growth rate in the same period. The
production of cotton, oilseeds, and meat and fishery products has also multiplied several times. The township and
village enterprise is the root cause behind the progress in its rural industrialization. The World Bank (2010)
suggested that the new challenge for China now is to attract the right kind of FDI as it strives to rebalance its
economy, improve the environment, and move up the value chain.
8. Multinational Corporations in Agribusiness
Multinational corporations (MNCs) play an important role in foreign direct investment and making the positive
change in the agribusiness. They bring new technology, innovation, competition and new job opportunities. They
buy the products directly from farmers and manufacturers instead from intermediaries which makes them provide
cheap products. Foreign investors are likely to bring efficiency by the food supply chains but they too have some
limitations. Initially they bring FDIs, but later they take profit back to their native nations. The major drawback of
MNCs is that their technology transfer method displaces local producers. The FDI in multi-brand retailing reflects a
fundamental economic and political trade-off where large western retailers like Wal-Mart and Carrefour make a
growing prosperity of their own through others resources. In China, big MNCs like Wal-Mart has already entered
the market. On the other hand in India, FDI in wholesale and retail is strictly prohibited. Although 100 percent in
single brand and 51 percent FDI in multi brand has been allowed; the multi brand opening is becoming important
factor behind the entry of transnational corporations. It is feared that there will be more ill effects if it is raised to
100 percent in multi brand. The government believes that loss of jobs among the small retailers; monopoly nature
and unhealthy competition may be outcome arising from MNCs. Whether FDI will provide additional jobs or will
displace existing jobs in India is the main area of concern.
Narang (2014) explained that with the active participation of small and medium enterprises (SMEs), India’s agro
exports have zoomed to $45 billion in 2013- 14 from $25 billion in 2011- 12. The small traders, large Indian
corporate and multinational commodity traders play important role in investments. He also pointed that over the past
decade, MNCs including Glencore, Cargill, Louis Dreyfus, Bunge, Olam and Nobe raised stakes in Indian farm
space and no MNCs has risked or made standalone investment in some sectors such as rice milling, sugar and
pulses. Kothari (2014) asserts that if India wants to achieve growth of 10- 12 %, it is imperative that it attracts FDI
in large amounts. Growth results from domestic investment from savings, from productivity improvements and from
foreign investments. China has grown by taking advantage of all three sources of economic growth. In the last 10
years, Mexico has attracted $247 billion of FDI net inflows and China $2 trillion, compared to India's $229 billion.
Per-capita investment of average citizen is used to compare India to Mexico or China. On a per-capita basis, FDI net
inflows for Mexico, China and India are $2,017, $1,531 and $183, respectively. No wonder the per-capita GDP of
Mexico is $10,300, China $6,800 and India $1,500. There is debate that what should be the appropriate FDI amount
to make a meaningful difference in India's economic growth rate? An analysis was done of data of last 20 years of
100 countries and a comparison of FDI as a percentage of GDP for each country against its annual growth in GDP
which shows that each 1% increase in FDI adds about 0.4% to a country's GDP growth. Thus, to boost GDP growth
by about 2%, India will need FDI of about 5% of GDP. In another way, at the current level of GDP of almost $2
trillion in India, about $100 billion of FDI is required to boost GDP growth by 2%. For a massive increase in the
growth rate by 4% to GDP, $200 billion of FDI would be needed. This is about eight times the level of GDP India
currently attracts in FDI. When the economy expands, the dollar amount of FDI will have to grow proportionately.
This may become a challenge. Although China has attracted huge sums of FDI to sustain a high rate of growth it
should continue to attract more and India should too follow the same path’.
Table 12 shows that in period 2009- 2012, China had maximum number of foreign affiliates in food, beverages and
tobacco i.e. 1234. After that agriculture and hunting had 32 and forestry and fishing had 29 affiliates. From 2009 the
exports in food, beverages and tobacco has increased year to year. It was 26,481 in 2009 which reached to 41,406 in
2011 and 43,462 in 2012. In agriculture and hunting export increased from 10.170 in 2009 to 15,226 in 2012.
Exports were less in forestry and fishing i.e. only 2,461 in 2012.Imports were very high in agriculture and hunting
i.e. 32,267 in 2009 to 72,389 in 2012 followed by food, beverages and tobacco where imports were 21,634 in 2009
to 43,462 in 2012. In India the highest number of foreign affiliates for period 2009- 12 was in food, beverages and
tobacco. It was 97 in number. Then agriculture and hunting had 10 foreign affiliates. This sector had a high growth
rate in the exports too; from export of USD 8,918 million in 2009 it reached to USD 20,873 million in 2012.
Agriculture and hunting had export from USD 6,304 million in 2009 to USD 13,776 million. The forestry and
fishing had low export and import. It was USD 610 million in 2009 to USD 6,928 million in 2012.
Table 12: Agriculture Sector With Potential to Attract Investment in China. (USD million)
Sector
Foreign Affiliates
in (2009- 2012)
International trade
2012
International trade
2011
International trade
2010
International trade
2009
Number
Numbe
r of
Parents
Exports
imports
Exports
imports
Exports
imports
Exports
imports
Agriculture
and hunting
32
28
15,226.6
72,389.9
14,928.7
62,520.1
12,829.3
47,072.8
10,170.7
32,267.7
Forestry
and fishing
29
23
2,461.0
8,770.4
2,405.8
9,442.2
1,928.2
6,867.3
1,608.4
4,593.2
Food,
beverages
and tobacco
1,234
683
43,462.8
43,178.6
41,406.5
38,306.5
32,979.3
28,953.8
26,481.3
21,634.7
Agriculture sector with potential to attract Investment in India. (USD million)
Sector
Foreign Affiliates in
(2009- 2012)
International trade
2012
International trade
2011
International trade
2010
International trade
2009
Number
Number
of
Parents
Exports
imports
Exports
imports
Exports
imports
Exports
imports
Agricultur
e and
hunting
10
8
13,776.7
6,466.0
12,628.2
5,662.8
9,448.5
4,703.0
6,304.7
4,175.5
Forestry
and fishing
2
2
6,928.1
2,247.9
2,637.0
2,077.3
946.0
1,524.7
610.3
1,272.1
Food,
beverages
and
tobacco
97
61
20,783.0
13,037.9
18,067.6
10,830.3
11,940.7
8,720.7
8,913.8
6,826.3
Source: International Trade Centre Statistics (2014)
Notes: 1Forestry and fishing includes: forestry logging and related activities; fishing, operation of fish hatcheries and fish farms; unspecified
forestry and fishing. 2Agriculture and hunting includes: growing of crops, market gardening, horticulture; farming of animals; growing of
crops combined with farming of animals (mixed farming); hunting , trapping and game propagation including related service activities;
unspecified agriculture and hunting (FDI flows); unspecified agriculture and hunting (trade flows). 3Food, beverages and tobacco includes:
production, processing and preservation of meat, fish , fruit, vegetables, oils and fats; manufacture of dairy products; manufacture of grain mill
products, starches and starch products and prepared animal feeds; manufacture of food products; manufacture of beverages; tobacco products;
unspecified food, beverages and tobacco (FDI inflows); unspecified food, beverages and tobacco (trade inflows).
Doing Business Index of the World Bank
The index provides a view about the regulatory environment for business. It shows the business regulations and
reforms within a nation through different indicators and analyzes data to compare business regulation environments
across economies. It also encourages countries to compete towards more efficient regulations. When a government
enacts and enforces rules and policies aimed at favouring state entities at the expense of privately held firms, such an
environment can be harmful to initiatives that aim to attract FDI. The regulatory environment can either encourage
or impede foreign direct investment in countries. If an investor wants to set up a manufacturing facility in China,
high start-up costs, legal exposure and other cumbersome compliance items may encourage that investor to set up
the facility elsewhere, where the business climate is more conducive to industry. When a government provides
attractive incentives through better access in regulatory determinants like availability of credit, electricity, financial
incentives like low taxes, low-cost government loans and subsidies; the possibility of making a business becomes
more profitable and faster. In this regard the below table provides a detailed picture of doing business indices of
China and India.
The table 13 shows the present ranking of both countries in terms of ease of Doing Business Index by World Bank.
Presently China is ranked 90th in 2015 than 93rd position in 2014 whereas India slipped to 142 rank in 2015 among
the 189 countries than 140th rank in last year. The numbers of procedures for starting a business are almost equal in
China and India i.e. 12 days. The average time taken to start a business in India is 26-28 days compared to 31-34
days in China but the cost and paid in minimum capital in China is very less than India i.e. 0.9 percent in China and
12 percent in India in 2015. The number of procedures for getting electricity for an entrepreneur is 7 in respect to 5
in China in 2015. The time taken for availability of electricity is 106 days in India compared to 143 days in China in
2015. Getting credit availability is easy for an entrepreneur in India than China as India is ranked 36th and China is
ranked 71th in 2015. India’s best performance is in protecting minority investors with global rank of 7th whereas
China stands at 132nd position I 2015. But in paying taxes India is ranked worse at 156 in 2015 compared to 120
rank of China in same period. It takes 243 hours for payment of taxes compared to 216 hours in China.
Table 13. Ease of Doing Business Index Ranking (by World Bank)
Year
China
India
2014
93
140
2015
90
142
1.Starting a Business
Year
Rank
Procedures
(number)
Time (days)
Cost (% of income
per capita)
Paid in minimum capital
(% of income per capita
Chi
na
India
China
India
China
India
China
India
China
India
2013
13
33.0
2.1
85.7
2014
151
156
13
11.5
34.4
26.1
1.9
38.9
78.2
124.4
2015
128
158
11
11.9
31.4
28.4
0.9
12.2
0.0
111.2
2.Getting Electricity
Year
Rank
Procedures
(number)
Time (days)
Cost (% of income
per capita)
Chin
a
India
China
India
China
India
China
India
2013
5.0
7.0
145.0
547.0
2014
121
134
5.5
7.0
143.2
105.7
499.5
611.6
2015
124
137
5.5
7.0
143.2
105.7
459.4
487.7
3.Getting Credit
Year
Rank
Strength of legal
rights index (0-12)
Depth of credit
information index (0-
18)
Credit registry
coverage
Credit bureau coverage
(% of adults)
Chin
a
India
China
India
China
India
China
India
China
India
2013
5
4
27.7
0.0
0.0
2014
67
30
4
6
6
7
30.2
0.0
0.0
19.8
2015
71
36
4
6
6
7
33.2
0.0
0.0
22.4
4.Protecting Minority Investors
Year
Rank
Extent of
disclosure index (0-
10)
Extent of director
liability index (0-
10)
Ease of shareholder
suits index (0-10)
Strength of investor
protection index (0-10)
Chin
a
India
China
India
China
India
China
India
China
India
2013
10.0
1.0
4.0
5.0
2014
123
21
10.0
6.0
1.0
4.0
4.0
7.5
4.5
6.6
2015
132
7
10.0
7.0
1.0
6.0
4.0
7.8
4.5
7.3
5.Paying Taxes
Yea
r
Rank
Payments
(number per
year)
Time (hours per
year)
Profit tax (%)
Labor tax and
contributions %
Chin
a
India
China
India
China
India
China
India
China
India
2013
7.0
338.0
-
-
2014
127
154
7.0
33.0
318.0
243.0
-
-
2015
120
156
7.0
33.0
216.0
243.0
7.8
25.3
49.3
20.7
Source: Doing Business Index, The World Bank (2015).
DIPP (2014) pointed out regarding business reforms that India’s tremendous market potential helps compensate for
the many challenges of doing business in the country. The comparative study regarding practices for grant of
clearance and ensuring compliances is conducted for states in India. All the state authority is requested to take this
initiative i.e. to partner with DIPP to ease the business regulatory environment in the country. The process of
applying for industrial license and industrial entrepreneur has been made online. This should be also done for
different countries with India as center point.
Results
From the policy and trends of FDI in both the countries it is found that China has been successful in mobilizing
inward foreign direct investment (figure 1 and table 9). There is a wide gap in FDI terms in both the countries. China
has higher FDI in manufacturing, real estate and wholesale and retail trade whereas in India services sector,
automobile industry, and construction development attracted highest shares (table 3 and table 7). The policies
related to FDI are lengthy in China through the government route but the procedures occur very fast. In India there
are still restrictions in opening more sectors of agribusiness for FDI. Only limited sectors have been opened for
foreign investments (table 8) in comparison to agribusiness sector in China (table 4). Food processing industries is
the common sector which brought maximum FDI in both the countries (table 11). Maximum number of foreign
affiliates is in food, beverages and tobacco in both nations. In India it is 97 and in China it is 1,234 for period 2009-
12. The exports of both the countries have been also high in food, beverages and tobacco industry (table 12). China
is ahead of India in overall ranking as per World Bank’s Doing Business Index but India is at good position in
providing availability of credit and protecting its investors (table 13).
The policy implication is that FDI can be used to uplift the agribusiness sector in both the economies especially in
India which is second largest producer in the world in fruits and vegetables. Agribusiness can get a new revolution
and bring more benefits by reducing the wastage in food processing industries. The broad agenda of the Indian
government is to focus on making farming more viable by agribusiness through public and private mode of
investment. In this context a transformation in Indian agriculture is needed which includes more connectivity to rural
areas, access to agricultural markets and credit facilities for farmers, improving crop insurance and post harvest-
management. A new model for FDI which includes sustainability of agriculture followed by prowess of
manufacturing sector could be more beneficial for China and India. The need to give first priority to agribusiness in
India as well as in China through large investment in food processing sector could be more significant.
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