This article attempts to analyze the 2025-26 budgetary allocations to agriculture sector, highlight the fundamental problems in Bharat’s agriculture and suggest certain long-term solutions.

A glance over the above budget data related to agriculture reveals – while on one side the government is spending annually huge amount on agriculture and allied activities (Rs.1.40 lakh Crs), rural development (Rs. 1.90 lakh Crs), on the other hand the government is also spending significant amount annually on urea subsidy (Rs. 1.19 lakh Crs), fertiliser subsidy (Rs. 1.71 lakh Crs) as the farmers are unable to bear the total input costs since they are compelled to sell their produce to the middlemen mostly at unremunerative prices and sometimes even at distress sale.

Whereas, the government is unable to allocate adequate funds for sustainable cultivation, organic farming, infrastructure for supply chain etc. The above data also reveals that the government had reduced its budgetary allocation in revised estimates for agriculture and allied activities from Rs. 151851 Crs to Rs. 140859 and rural development from Rs. 165808 to Rs. 190695 Crs respectively in 2024-25 Budget.

In a nutshell the government is finding very difficult to strike a balance between subsidies in urea and fertilisers, MSP for selective commodities and ensure open market access to farmers for remunerative prices.

MSP is primarily set to ensure a fair price to the farmers and protect farmers against excessive fall in the market prices of agricultural produce. Therefore, MSP is primarily a floor price which is different from ceiling price. Ceiling price is invoked when the commodities’ prices are soaring in the market and the government puts a cap on the market price through ceiling price.

Currently, MSP covers 23 crops.  Majority of the farmers depend on the middlemen to sell several crops that are not under MSP and perishable items like fruits and vegetables. MSP apart from ensuring a minimum support price to the farmers for the 23 crops also helps the government’s procurement of food items and the supply of the same through PDS to the eligible beneficiaries who are poor.

Depending on the nature of the crop that is cultivated, the farmers sell their produce to the government under MSP or to the middlemen. Rich farmers exercise the option to store the commodities and sell at remunerative prices, either to the middlemen or directly to the consumers. In spite of MSP and heavy subsidies in urea and fertilisers the fact remains that majority of the farmers live with hand to mouth existence.

Small and marginal farmers with less than two hectares of land account for 86.2% of all farmers in Bharat, but own just 47.3% of the crop area (10^th agriculture census 2015-16). Whereas, semi-medium and medium land holding farmers own between 2-10 hectares of land constitute 13.2% of all farmers, but own 43.6% of crop area. Majority of the small and marginal farmers primarily depend on micro finance companies and local money lenders for crop loans that attract higher interest rates. As these farmers neither have direct market access nor can afford to hold the farm produce to get remunerative prices on a future date they are normally compelled to go for distress sale to the middlemen.

In 2017 Niti Aayog prepared a road map to double the farmers’ incomes by 2022. However, that still remains a distant dream. The government introduced three farm laws claiming that they are intended to benefit the farmers to get remunerative prices for their crops but the farmers’ agitation forced the government to withdraw these laws. One of the major flaws in the three farm laws is that they intend to bring a new class of middlemen (corporate middlemen) in the agriculture, whereas the farmers need direct market access to the consumers by eliminating the existing middlemen.

Though there are certain major initiatives already on the roll like- e NAM that are expected to strengthen the market linkages (farm to market) through digital platforms, the fact remains that our physical infrastructure is very weak. Unless we strengthen the physical infrastructure and ensure direct market linkage to the farmers by eliminating the middlemen, though we may be able to attain food security, we will not be able to ensure income security to the farmers.

Possible solution

 The government must seriously start addressing this issue and the recently proposed National Cooperation Policy can be extended to cover the forward linkages in agriculture by leveraging on the existing PDS infrastructure which can parallelly serve as a direct marketing channel from farm to market to the farmers.

The government can think of procuring the food grains directly from the farmers only to cater to the requirements of the targeted beneficiaries under the PDS at MSP and convert the PDS infrastructure into a SPV (Special Purpose Vehicle) wherein the centre, states and the farmers’ cooperative federations become the stake holders. The farmers may use the PDS infrastructure (i.e., warehouses, transport and fair price shops) as a use and pay model to reach the market and sell their farm produce at market prices through the cooperative federations to the ultimate consumers through the fair price shops.

That way, the PDS infrastructure will also generate revenues and can become a self -financing model over a period of time, thereby reducing the financial burden to the government in its annual budgetary allocation. This will strengthen the storage, distribution infrastructure in the food supply chain and also provide the last mile linkage to the farmers to the direct market access through fair price shops of the PDS that can also serve as their market outlets. This strategy will not only ensure food security to the nation but more importantly lead to income security to the farmers by eliminating the middlemen. The PDS mechanism which is operated as a cost centre can be converted into a revenue generating model.

A special task force from various ministries like- Ministry of Agriculture & Farmers’ Welfare, Ministry of Food Processing Industries, Textile Ministry, Ministry of Environment, Forest and Climate Change, Ministry of Rural Development, Ministry of Micro, Small and Medium Enterprisesand the six commodity boards (Coffee Board, Tea Board, Cardamon Board, Rubber Board, Coir Board, Central Silk Board )  to be formed in order to put on fast track the various government initiatives in agriculture , allied activities and agro based industries, with an integrated approach. Niti Aayog may be entrusted with the task of coordinating with the states in this mission.

The measures suggested above will certainly enhance the farmers’ incomes significantly and help the government to reduce the urea and fertiliser subsidies in a phased manner. This can be followed up by encouraging the farmers to go for organic farming, which in turn will reduce the usage of urea and fertilisers in agriculture. PDS can be converted into a revenue generating model as suggested above and in due course the government can reduce significantly its annual budgetary expenditure on PDS infrastructure.    

Let us hope that the government will initiate steps in this direction in the near future to find a long-term solution to the fundamental problems in Bharat’s agriculture.