Green Profits; Indian corporate giants are rushing to cash in on the country's vast and mismanaged agricultural sector.

Byline: Ron Moreau and Sudip Mazumdar

Two years ago, Indian corporate giant ITC set up a computer inside the modest, one-story brick house of wheat and soybean farmer Amar Singh Verma. Powered by rooftop solar panels and connected to the Internet by a satellite dish, the desktop links Verma and dozens of neighboring farmers to ITC-designed, Hindi-language Web pages that provide district-specific weather reports, the market price of soybeans and wheat and tips on modern growing methods. By following ITC's advice and using hybrid seeds, wider spacing between plants and better application of fertilizer, Verma dramatically increased his soybean yield on a two-and-a-half acre test plot by 50 percent last year. "It was like magic," says Verma, the largest and most successful farmer in Siradi village in the central Indian state of Madhya Pradesh. This season he plans to use the new practices to grow soybeans on his entire 25-acre farm. Other farmers are following suit.

ITC is a $7.5 billion tobacco, food and hotel corporation--not an agribusiness. Yet it's only one of several Indian conglomerates reaching out from the boardrooms of Mumbai and Kolkata to the fields of Madhya Pradesh and other states. ITC is hoping to increase farmers' yields so as to bolster its food processing and export operations; along the way the conglomerate hopes to push products ranging from tractors to hair oil to increasingly prosperous farmers. Telecom giant Bharti Group plans to market fruit and vegetables to the Middle East and Europe. Industrial behemoth Tata is now growing crops like mustard and grapes for export. And Mahindra, a car and tractor maker, began farming corn and grapes under contract this year for export to Europe.

They're all hoping to capitalize on what many economists are starting to see as India's biggest untapped resource, its agricultural sector. Some 660 million Indians live off the land; the sector accounts for 21 percent of India's GDP--down from 24 percent in 2001--and a good monsoon can add as much as 2 to 3 percent to annual growth. Companies are betting that better technology and a more selective choice of crops can vastly bolster the country's agricultural exports. Already India is the world's second largest producer of fruits and vegetables after China. Many regions can produce three harvests a year, including high-value crops ranging from apples and mangos to endives and lettuce.

Until now the sector has been weighed down by poverty, appalling infrastructure and small, unproductive farms; per-acre soybean yields, for example, are one quarter those in the United States. On top of all that, the state's heavy hand on the plow acts as a disincentive to innovate: last year the government spent $5.7 billion on subsidies, largely on price supports for, and purchases from, rice and wheat growers. In the new budget released last week food subsidies will drop by some 10 percent, but fertilizer subsidies will rise more than 25 percent to some $3.7 billion. The government's Food Corporation of India spends much of the subsidies buying wheat and rice from farmers at an artificially high price and maintaining unnecessarily high emergency grain stocks.

Under private-sector pressure, however, New Delhi is slowly changing things. Reformers in Prime Minister Manmohan Singh's government have enacted policies, including tax holidays for agricultural exporters, to modernize the rural sector. Over the past year, Singh's government has scrapped old socialist-style laws that had forced companies to buy grain and produce through government agents, and is encouraging states to dismantle similar local laws. In Madhya ...