Indian Economy
Session – 4
India’s Agriculture & Allied Sector: Performance &
Future Outlook
• Economic & Growth Trends – The agriculture sector contributes 16% to GDP (FY24 PE)
and employs 46.1% of the population. It has shown resilience with a 5% CAGR (FY17-
FY23) and recorded 3.5% growth in Q2 FY25, up from previous quarters.
• Key Drivers & Sectoral Performance – Favorable monsoons, credit access, and sustainable
practices drive growth. Livestock (12.99% CAGR) and Fisheries (13.67% CAGR) lead the
sector, while Floriculture emerges as a "sunrise industry" with strong exports.
Horticulture expansion, especially in grapes, is transforming rural economies.
• Challenges & Opportunities – India faces low crop yields, oilseed dependency (1.9%
CAGR), and inter-state variations (Andhra Pradesh: 8.8% CAGR, MP: 6.3%, TN: 4.8%).
Changing dietary habits drive demand for high-value crops, necessitating better post-
harvest management and private-sector investment.
• Government Initiatives & Future Focus – Policies like PM-KISAN, PDMC, NMSA, and e-
NAM aim to boost farmer income, sustainability, and digital integration. The future focus
is on enhancing productivity, reducing yield gaps, and improving post-harvest
infrastructure to meet growing demands.
Boosting Crop Production & Sustainable Practices
• Incentivizing Productivity & Crop Diversification
• Access to quality seeds, efficient irrigation, soil health improvements, and better
market access.
• Minimum Support Price (MSP): Increased for key crops (e.g., Arhar +59%, Bajra
+77%, Masur +89%).
• Seeds & Fertilizers: The Game Changer
• 1.06 lakh quintals of breeder seeds produced (FY24); 2,177 new climate-resistant
varieties developed.
• Soil health concerns: Declining organic carbon, macronutrients, and micronutrients.
• ‘Urea Gold’ and PMPRANAM Initiative introduced for sustainable fertilization.
• Rainfall & Irrigation Challenges
• 55% of net sown area irrigated, leaving a large part rain-fed.
• Climate Variability: More droughts and extreme rainfall events affecting agriculture.
Climate Resilience & Irrigation Expansion
• Climate Change & Agricultural Risks
• Rising heat stress, erratic monsoons, and increased drought probability.
• Yield losses linked to rainfall shortfalls; extreme climate events impact small farmers.
• Expanding Irrigation Coverage & Water Conservation
• Irrigation coverage up from 49.3% (FY16) to 55% (FY21).
• PDMC Initiative: ₹21,968 crore allocated; 95.58 lakh hectares covered.
• Micro-Irrigation Growth (8% of irrigated area in India) vs. USA (68.6%) & China
(13.7%).
• Technology & Innovation in Water Management
• Drip Irrigation Efficiency: Water savings of 39-55%, yield increase of 33-41%.
• Geo-tagged water restoration projects (CLART GIS, AVNI Gramin app) improving
rural water security.
Expanding Agricultural Credit & Financial Support
• Agriculture credit has grown significantly, with 7.75 crore Kisan Credit Card (KCC)
accounts and ₹9.81 lakh crore loan outstanding, reducing reliance on non-institutional
credit from 90% (1950) to 25% (FY22).
• The Kisan Rin Portal (KRP), launched in 2023, digitized the processing of interest
subvention and repayment incentives, benefiting 5.9 crore farmers and processing ₹1.08
lakh crore in claims.
• Pradhan Mantri Fasal Bima Yojana (PMFBY) is the world’s largest crop insurance scheme,
covering 4 crore farmers and 600 lakh hectares, with technology-driven transparency and
a 32% reduction in premium costs.
Mechanization, Market Infrastructure & Climate
Resilience
1.Agricultural mechanization is expanding with 26,662 Custom Hiring Centers (CHCs) and
drone-based services for 15,000 Women SHGs, supported by 80% financial assistance.
2.The Agriculture Marketing Infrastructure (AMI) scheme has sanctioned 48,611 storage
projects with ₹4,795 crore in subsidies, while the e-NAM platform now connects 1.78
crore farmers and 9,204 FPOs.
3.The National Mission for Sustainable Agriculture (NMSA) promotes climate resilience
through improved irrigation, soil health, organic farming, and crop diversification,
ensuring long-term sustainability.
India’s Agricultural Sustainability Index stands at 0.49, indicating moderate sustainability, with states like Mizoram,
Kerala, and Madhya Pradesh performing above average due to crop diversification and sustainable practices, while
Rajasthan and the Indo-Gangetic Plains face higher risks due to resource-intensive farming and climate change
vulnerability.
Strengthening Agriculture for Sustainable Growth
& Food Security
• Agriculture remains a key pillar of economic growth and food security, with stable growth
supported by government initiatives in productivity, crop diversification, and farmer
welfare schemes.
• Allied sectors like animal husbandry, dairying, and fisheries play a growing role in income
diversification, while challenges like climate change, water scarcity, and price
inefficiencies require focused interventions.
• Policy shifts in market pricing, risk hedging, and sustainable farming practices can boost
productivity, ensuring long-term resilience, economic stability, and India's role in global
food security.
Fluctuating Growth Trends –Egg production peaked in 2019-20, fish in 2021-22, while meat showed volatility and milk
remained stable. Growth declined across all categories in 2023-24.
Sectoral Challenges & Implications – The decline in 2023-24 suggests issues like climate variability, feed costs, and
market disruptions. Targeted interventions in feed technology, disease control, and sustainable aquaculture are
needed.
Growth of Agriculture & Allied Sectors
6.8 6.6
4.3
3.9 3.8
3.6 3.5
2.6
1.4
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Source: Indian Economy Since Independence – Uma Kapila || Ministry of Statistics, mospi.gov.in ||
Press Information Bureau, pib.gov.in
Investment and Role of Agriculture in India's
Economy
• Investment Trends – Private investments in agriculture remain low (2-3% of GCF) and
fluctuate, while public investment has been stable, requiring targeted efforts to crowd in
private funding.
• Agriculture's Economic Role – It accounts for over 45% of employment, with its share in
GDP declining but critical for inclusive growth and poverty reduction.
• Allied Sectors – Growth in allied sectors like livestock, fisheries, and aquaculture
enhances resilience and rural demand.
• Poverty Reduction – Growth in agriculture is twice as effective in reducing poverty
compared to other sectors, emphasizing its importance for sustainable development.
Institutional Reforms and Land Reforms in India
• Institutional Reforms – Post-independence policies emphasized equitable land
redistribution and poverty reduction. Land reforms targeted tenancy regulation,
abolishing intermediaries, and providing land security for small farmers.
• Economic Arguments for Land Reforms – Land redistribution enhanced productivity as
smaller farms were found to be more efficient. Tenancy reforms aimed to empower
cultivators and improve rural livelihoods.
• Challenges in Implementation – Limited success was achieved due to political resistance,
exemptions in laws, and inadequate enforcement, resulting in the only marginal
redistribution of land (6% of the operated area).
• Way Forward – Focus on ensuring legal land rights, empowering women farmers, and
leveraging land reforms for rural development. A robust policy framework is needed to
address agrarian crises and foster inclusive growth.
Phases and Impact of the Green Revolution in
India
1.First Phase (1966-1972) – Introduction of High-Yielding Varieties (HYVs) of wheat and
extensive public investments in fertilizers, irrigation, and credit transformed Punjab,
Haryana, and Uttar Pradesh into high-yield zones. Foodgrain production rose
dramatically, ensuring self-sufficiency by 1971-72.
2.Second Phase (1973-1980) – The nationalization of banks increased access to credit, but
challenges arose due to droughts (1972-73) and the oil crisis. Food grain imports
resumed temporarily, and input subsidies grew significantly to sustain production.
3.Third Phase (1981-1990) – The Green Revolution spread to new areas, including West
Bengal and Bihar. However, the growth rate of foodgrain yields declined after the mid-
1980s as HYV technology plateaued. Subsidies increased, sustaining food production but
straining fiscal resources.
4.Challenges and Legacy – The Green Revolution ensured food self-sufficiency but was
marked by environmental degradation, regional imbalances, and declining productivity
gains post-1980s. Agricultural policies remained heavily regulated, focusing on food
security and price stability.
Key Challenges and Policies in Indian Agriculture
• Policy Weaknesses – Lack of a long-term strategy and focus on industry over agriculture
led to disincentives for farmers. Export restrictions and insufficient investment in R&D
and infrastructure hindered growth.
• Declining Investments – Gross Capital Formation in agriculture fell from 8.6% (2011-12)
to 7.4% (2013-14) of GDP. Public investments declined, shifting the burden to private
investments focused on labor-saving technologies.
• Challenges to Growth – Rising soil degradation, groundwater overexploitation,
plateauing yields in irrigated areas, and the need for efficient resource use threaten
sustainability.
• New Policies – Policies such as the National Policy for Farmers (2007) emphasize asset
reforms, efficient water use, technology adoption, credit access, and promoting
sustainable crop cultivation to ensure long-term agricultural productivity.
Policy Interventions and Recommendations (Three
I’s)
• Investments – Prioritize rural roads, electrification, irrigation, and R&D to maximize
returns and reduce reliance on subsidies.
• Incentives – Introduce support for diversification into horticulture, livestock, and
fisheries, and strengthen organized markets.
• Institutions – Enhance policy frameworks like the National Policy for Farmers (2007) to
support asset reforms and sustainable growth.
• Technological advancements – Advancements such as drought-resistant seeds and
improved farming techniques are essential for productivity and sustainability.
Timeline of Indian Agriculture Industry
• 1947s-1960s – After independence, India faced severe food shortages and relied on
imports to meet domestic demand. Land reforms were initiated to redistribute land, and
rural development programs were launched to improve agricultural productivity.
• 1960S-1980S – The Green Revolution introduced a high-yielding variety of seeds,
chemical fertilizers, and irrigation systems, leading to self-sufficiency in food grains,
especially wheat and rice. However, it created regional disparities and environmental
challenges.
• 1980s-1990s – Focus shifted towards crop diversification, including horticulture, dairy,
and fisheries. Major initiatives like Operation Flood transformed India into the largest
milk producer, while rural development programs improved agricultural infrastructure.
• 1990s -2010s – Economic liberalization exposed farmers to global markets, increasing
opportunities for exports but also creating vulnerabilities. Emphasis was placed on
modernization, agro-processing, and export-oriented agriculture.
Continued …
• Post 2010 – Digital tools, AI, IoT, and precision agriculture began transforming farming
practices. Government initiatives like Soil Health Cards and Pradhan Mantri Fasal Bima
Yojana supported farmers through better crop planning and risk mitigation.
• Post 2020 – The emphasis shifted to sustainable farming practices, such as organic
farming, zero-budget natural farming, and climate-resilient techniques. Efforts were
made to promote resource-efficient agriculture to combat climate change.
• 2024 – India is now one of the largest producers of staple crops, fruits, and vegetables. It
is a leading exporter of rice, spices, and marine products, with increasing attention on
sustainable and climate-adaptive agricultural practices.
Impact of the 1991 Exchange-Rate Adjustments &
Lowering Industrial Tariffs on Agriculture
• Anti-Agriculture Bias – Before reforms, India's trade policies imposed a hidden tax on
agriculture (approximately 20-30% of output value) due to overvalued exchange rates
and industrial protection.
• Twin Reforms – The 1991 reforms corrected the exchange rate, reduced industrial tariffs,
and aimed to address the anti-agriculture bias. However, implementation was cautious
and spread over time.
• Expected Outcomes:
• Agriculture is positioned as an exportable sector, improving agri-exports.
• Improved relative prices of agriculture due to reduced industrial tariffs.
• Increased private-sector investments in agriculture, driving growth.
• Reforms oscillated between free and controlled trade due to food security and poverty
concerns.
India’s Exports and Imports of Agri Produce
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
Agri_Exports (US$ Billion) Agri_Imports (US$ Billion) Agri_Trade_as_percent_Agri_GDP
Source: Indian Economy Since Independence – Uma Kapila || Export Import Data Bank, Department of Commerce,
Government of India || Press Information Bureau || Vision IAS
Economic Reforms and Indian Agriculture:
Growth, Trade, and Policy Dynamics
• Performance of India’s Agri Exports and Imports – Agriculture exports rose from <1% of
the global share in 1990-91 to 2.6% by 2013-14, but remain a small part of Agri-GDP
(<5%). Despite challenges like droughts and falling prices, India achieved a net trade
surplus in agriculture, with exports exceeding $42 billion by FY 2014.
• Relative Terms of Trade for Indian Agriculture – The relative price index (base 2004-05)
shows a consistent rise in agriculture prices post-2005, driven by policy adjustments and
global trends. Increased MSPs and foodgrain production under initiatives like NFSM
narrowed the gap between domestic and global prices over time.
• Private Investments in Agriculture – The share of private investments in agriculture rose
to 85% by 2013-14, reducing the role of public investments to a marginal 15%. Total
capital formation in agriculture as a share of Agri-GDP increased from 10-12% in the
1990s to 20% by 2013-14.
Average GDP Growth rates Overall & in Agriculture
Period Average GDP Growth Average GDP Growth
Rate in Agriculture & Rate in Total Economy
Allied Sectors (at 1999- (at 1999-2000 Prices)
2000 Prices)
Pre-Green Revolution (1951-52 to 1967-68) 2.44 2.54
Green Revolution Period (1968-69 to 1980-81) 2.5 3.52
Wider Technology Dissemination Period (1981-82 to 1990-91) 3.66 5.4
Early Reforms Period (1991-92 to 1996-97) 3.52 5.69
Ninth Plan Period (1997-98 to 2001-02) 2.47 5.52
Tenth Plan Period (2002-03 to 2006-07) 3.3 7.77
Eleventh Plan Average (2007-2012) 3.3 7.7
Sourced: Indian Economy Since Independence – Uma Kapila
Agricultural Marketing in India
• Historical overview – Regulation of agricultural marketing began with the Royal
Commission on Agriculture (1928) and the establishment of the Central Marketing
Department (1935). Mandis was initially unregulated. The Punjab Agricultural Produce
Markets Act (1939) introduced reforms for fair trading via marketing committees.
• Key Issues (Pre-1950s) – Farmers suffered due to misinformation, excessive arbitrage,
poor transport, and low bargaining capacity. Fragmented farmer groups, low education,
and caste/language divisions worsened the problem. Food security was weak, with food
grains regularly imported until the 1970s.
• 1960s Reforms – Policies focused on improving crop marketing through regulated Mandis
and setting a price floor for select crops. Agricultural Produce Market Committees
(APMCs) were created to ensure fair auctions, price discovery, and proper market
infrastructure.
Minimum Support Price (MSP) and Crop
Diversification
• The Minimum Support Price (MSP) policy ensures remunerative prices for 22 mandated
crops, including paddy, wheat, and oilseeds, promoting production and safeguarding
farmers' interests.
• The government aims to maintain MSP at a level of at least 1.5 times the cost of
production, with returns ranging from 50% to 85% above costs for key crops.
• Crop Diversification Programs (CDP) encourage shifts from water-intensive crops like
paddy to sustainable options such as oilseeds and coarse cereals to conserve resources
and increase returns.
• Programs under Rashtriya Krishi Vikas Yojana (RKVY) support crop diversification in major
states like Punjab and Haryana, reducing dependence on staple cereals.
APMCs and Minimum Support Price (MSP)
• APMC Reforms – APMC laws introduced organized markets with licensing relaxation,
contract farming, and special markets for perishables. A Model Law (2003) was passed to
streamline markets, but many states have not implemented it fully, causing interstate
barriers.
• Minimum Support Price (MSP) – MSP ensures a fair price to farmers, covering costs like
land, labor, and equipment. Initially applied to wheat and paddy; by 2019, it expanded to
23 crops, reviewed annually. Farmers can sell crops below MSP at Mandis or to the Food
Corporation of India (FCI).
• Impact of Reforms – Food grain production increased 4-5 times over 60 years due to
regulated markets and better technologies. By 2020, India achieved a grain stock surplus
of 70 million tonnes, though hunger and inflation remain issues.
Continued …
• Performance of AGDP – Agriculture GDP grew at 4.1% annually during the Eleventh Five-
Year Plan (2007-2011), coinciding with poverty reduction and favorable price trends. Key
growth factors include favorable relative prices, monsoon rainfall, and long-term
technological improvements.
• Minimum Support Prices (MSPs) – MSPs in India remain lower than global competitors,
limiting market access for farmers and indicating consumer bias in policies. Factors
driving food inflation include high fiscal deficits, rising labor wages, and increasing global
commodity prices post-2007-08 crisis.
Agricultural Policy and Sector Reforms
• The OECD-ICRIER Agricultural Policy Review (2018) highlights India's annual agricultural
growth at 3.6% since 2011, with challenges like water scarcity, climate change, and low
productivity.
• Policy inefficiencies, including complex regulations and trade restrictions, often depress
producer prices and hinder private sector investments.
• Most public expenditure focuses on subsidies for fertilizers, power, and irrigation rather
than infrastructure or innovation, affecting long-term growth.
• Recommendations include modernizing markets, promoting agricultural exports,
supporting small farmers, and expanding PM-KISAN to ensure inclusive growth and
sustainability.
Major Agricultural Reforms and Their Impact
• Fertilizer Subsidy Reforms – Fertilizer subsidies surged to ₹1 lakh crore by 2008-09,
making up 10% of AGDP and 20% of the Union government’s tax revenue, with the
majority allocated to urea. Despite attempts to balance N, P, and K fertilizer use, low urea
prices persisted, leading to inefficiencies, informal trade to neighboring countries, and
lack of progress in subsidy reforms.
• Trade Policies of Agri Products – India's trade policies were highly restrictive before 1991,
relying on non-tariff barriers like canalization, quantitative restrictions, and licensing.
Post-1991 reforms reduced restrictions, allowing India to emerge as a major rice
exporter by 1995, while edible oils faced fluctuating duties, resulting in heavy import
dependency and lost self-sufficiency by FY 2016.
• Domestic Agri Marketing Reforms – The Essential Commodities Act (ECA) and APMC Act
imposed strict controls on agri-commodity movement and stock limits, creating
inefficiencies. Levy systems mandated fixed-price procurement, distorting market
dynamics, and dual systems for rice and wheat added further inefficiencies. These
policies widened farm-to-retail price gaps and highlighted anti-agriculture biases in
policymaking.
Problems and Issues in Agriculture
• General Issues – Agricultural productivity has stagnated for many years, reducing farmer
incomes and agriculture's contribution to GDP to less than 15-16%. The APMC system is
inefficient due to corruption, cartelization, and outdated practices, which weaken
farmers' bargaining power. Deregulating markets risks increasing farmer vulnerability in
the absence of robust local support mechanisms.
• Government Budget and Waste – The government seeks to reduce waste by cutting costs
on grain procurement and storage, and reallocating resources for other productive
purposes. However, these measures must address structural inefficiencies for meaningful
impact.
• Infrastructure Challenges – Reforms like better infrastructure and improved market
signals are crucial to enhancing agricultural markets. However, the implementation of
these changes requires time and investment, leaving farmers in a transitional state with
limited immediate support.
Continued…
• Dependence on MSP – States like Punjab and Haryana, which rely heavily on MSP and
government procurement, face more significant impacts. In contrast, states with minimal
MSP reliance are less affected, but systemic reforms are still necessary.
• Mandi Fee – The removal of cess for APMC Mandis threatens their financial
sustainability. Without this revenue, Mandis may struggle to maintain operations, risking
the collapse of a vital market infrastructure.
• Ecological and Cropping Challenges – Farmers face significant ecological issues, including
falling water tables, soil exhaustion, and inefficient cropping patterns driven by MSP-
focused cultivation. These challenges are compounded by climate change and a lack of
diversification, which threaten long-term agricultural sustainability.
Comparison with China: Lessons for India
• China's Approach – Focused on agriculture reforms in 1978 by dismantling communes,
liberalizing prices, and boosting rural incomes, reducing poverty to 15% by 1984.
• India's Approach – Reforms in 1991 focused on macroeconomic stability, with agriculture
reforms being piecemeal and delayed.
• Poverty Reduction – India took 18 years (1993–2011) to halve poverty, compared to 6
years in China.
• Key Insights – Agriculture growth is 2–3 times more effective in reducing poverty than
non-agriculture sectors. Reforming agriculture is crucial, as 75% of India's poverty lies in
rural areas.
• Call to Action – India must adopt bold, direct agricultural reforms to eliminate rural
poverty.
New Agricultural Laws of 2020
• Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 – This law
allows farmers to sell their produce anywhere, beyond the physical premises of APMC
Mandis. It promotes barrier-free inter-state and intra-state trade, reduces marketing
costs, and enables electronic trading of agricultural goods.
• Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm
Services Act, 2020 – This law establishes a framework for contract farming, where
farmers can legally agree with buyers on production terms, prices, and quality. It includes
a three-tier dispute settlement mechanism and ensures transparent pricing and
agreements.
• Essential Commodities (Amendment) Act, 2020 – This law removes stock limits on
agricultural commodities except under extraordinary circumstances like war or famine. It
deregulates the production, supply, and distribution of key commodities such as cereals
and pulses to encourage private investments.
Key Areas for Agricultural Reforms
• Getting the Markets Right – Liberalize trade policies, reform restrictive acts like APMC
and ECA, allow private markets to compete, and invest in infrastructure like storage and
grading facilities.
• Rationalizing Subsidies – Shift inefficient food and fertilizer subsidies to direct benefit
transfers (DBT) and reallocate savings to water management and agricultural R&D.
• Investing in Technology – Bridge gaps in technology access by promoting precision
farming tools like drip irrigation, robotics, and drones to increase productivity.
• Vision for the Future –Align Indian agriculture with global financial and market
frameworks to ensure it becomes stable, sustainable, and competitive on a global scale.
Conclusion & Recommendations
• Predictability of Price for All Crops – The predictability of prices is essential for the
stability of agricultural income. Small and marginal farmers often lack access to regulated
markets and are forced to sell at lower prices in unregulated Haats. Ensuring fair prices
across crops through regulatory measures and infrastructure development is vital for
economic equity in agriculture.
• Food Security and Affordability – Food security must remain a top priority, with an
emphasis on affordable staples for vulnerable populations. Rising food costs from value-
added farming and contract farming could exacerbate hunger and inequality. Policies
should safeguard the balance between profitability for farmers and food accessibility for
the poor.
Continued…
• Promoting Inclusive Agricultural Practices – Adopt inclusive policies like contract farming
with safeguards to protect small farmers. Establish cooperatives to eliminate
intermediaries and integrate semi-arid regions into the agricultural framework.
Investment in storage, processing units, and market connectivity is essential.
• Ecological Sustainability and Regional Adaptation – Transition to water-efficient cropping
patterns, supported by irrigation innovations and targeted compensations for farmers.
Region-specific solutions must address India’s diverse agro-climatic zones while ensuring
guaranteed prices for all crops to mitigate financial risks for farmers.
