The government is contemplating a significant boost to the agriculture sector in Union Budget 2025-26. Proposed plans may see a 15% increase in allocation, raising spending for the sector to approximately Rs 1.75 trillion. This would mark the largest spending hike in six years, reflecting the government’s intent to address falling rural incomes and combat rising inflation.
Agriculture remains the backbone of the Indian economy, employing over 40% of the population. Yet millions of farmers continue to struggle with low incomes, indebtedness, and unpredictable weather patterns. As the nation strives for inclusive growth, agriculture demands urgent and focused attention in the upcoming Union Budget.
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Budget 2025-26 must push the envelope
The government is expected to raise the agricultural ministry’s budget from Rs 1.52 trillion, with a focus on research and infrastructure. The additional funds will be directed towards developing high-yielding seed varieties that aim to enhance productivity and improve output quality. Investments will also be made in strengthening storage and supply chain infrastructure, which is essential to reduce post-harvest losses and ensure farmers have better access to markets. Furthermore, there is a dedicated focus on boosting the production of pulse crops, oilseeds, vegetables, dairy, and fisheries to meet rising domestic demand and reduce dependency on imports.
In the previous budget (2024-25), Rs 1.52 trillion was allocated to agriculture. Building on this, the current proposal includes an increase in the limit of subsidised farm loans from Rs 3 lakh to Rs 5 lakh per farmer, ensuring greater access to affordable credit. The government also plans to expand the scope of crop insurance schemes, which would help mitigate financial risks from crop failures. Other measures include setting an ambitious target of 30 million tonne of pulse production by 2030, earmarking $9 billion for fisheries sector development over five years, and providing Rs 109 billion in incentives for food processing firms to encourage value addition in the agricultural sector.
Managing food inflation
India, despite being the world’s second-largest producer of rice, wheat, and sugar, faces the persistent challenge of high food prices. Food inflation surged beyond 10% year-on-year in October 2024 before easing slightly, but the decade-long average remains over 6%, highlighting systemic issues. To curb inflation, the government has implemented various measures, including imposing export restrictions on key commodities like wheat and extending duty-free imports of certain pulse varieties.
While these measures help control prices in the short term, they come with trade-offs. Blanket export bans, for instance, could harm the economy by reducing farmers’ access to global markets. A more balanced approach is needed—one that not only increases domestic supplies but also creates export surpluses. The government has set an ambitious goal of increasing agricultural exports to $80 billion by 2030, up from the current $50 billion, which would provide a much-needed boost to rural incomes.
Ensuring fair prices with MSP
While the budget proposals offer much-needed relief, they fail to address deeper structural issues like stagnant productivity and low farm incomes. One critical area requiring immediate attention is the implementation of a guaranteed minimum support price (MSP) for farmers. The demand for MSP has been a long-standing issue, particularly during the 2020-21 farmers’ protest. For a sector plagued by economic distress over the last decade, introducing a policy that guarantees fair prices for crops is essential for providing stability and fostering sustainable farming practices.
The Indian economy is currently experiencing a slowdown, with stagnant or declining incomes disproportionately affecting the agricultural sector. Agriculture has increasingly become a fallback option for individuals unable to secure opportunities in urban or non-farm sectors. Over the last five years, nearly 68 million people have returned to farming, leading to increased competition and declining income per cultivator.
According to government data, farmers’ incomes fell by 2.9% annually between 2017-18 and 2022-23, compared with the robust 7.5% annual growth recorded between 2004-05 and 2011-12. This stark contrast underscores the need for targeted interventions to boost farm incomes and alleviate rural economic distress.
Climate change — a major risk
The risks posed by climate change have added another layer of uncertainty to farming. Frequent heatwaves, unseasonal rainfall, and extreme weather events have significantly increased the risks faced by farmers. Declining natural resources, particularly land and water, further compound the problem, while an imperfect credit market restricts access to financial support for small and marginal farmers. This lack of credit availability has worsened rural indebtedness, leaving farmers vulnerable to economic shocks.
Addressing these challenges requires substantial public investment in resilient farming systems, including improved irrigation facilities, soil health management, and climate-adaptive technologies. While long-term solutions are being developed, the immediate priority must be to safeguard farmers from climate-related uncertainties to ensure the sector’s sustainability and growth.
Lessons from global practices
India is not alone in grappling with the challenges of farm incomes and price volatility. Many countries have established mechanisms to protect their agricultural sectors. The United States, for instance, employs tools such as loans and direct purchases through the Commodity Credit Corporation to stabilise prices for farmers across various commodities, including field crops, dairy, and livestock products. Similarly, the European Union’s Common Agricultural Policy provides direct income support and price stabilisation measures to ensure the sustainability of its agricultural sector.
India can take inspiration from these practices by reforming its farm output pricing policies. Measures such as direct income transfers, improved crop procurement processes, and fair consumer pricing mechanisms can help stabilise rural incomes while ensuring affordability for consumers.
Breaking the cycle of incrementalism
Budget 2025-26 represents a crucial opportunity to implement bold, transformative reforms in agriculture. Incremental measures will no longer suffice to address the deep-rooted challenges of low productivity, falling incomes, and climate-related vulnerabilities. The government must prioritise farmer welfare by ensuring fair prices, investing in sustainable agriculture, and fostering a resilient food system.
By unlocking the true potential of India’s agrarian backbone, the government can not only secure a prosperous future for its rural population but also lay the foundation for inclusive growth and long-term economic stability.
As India navigates an agricultural crisis, the Union Budget must serve as a turning point. Only through bold reforms, targeted investments, and unwavering support for farmers can the sector be revitalised. A robust and sustainable agricultural framework will ensure that India’s rural population thrives, contributing to the nation’s broader aspirations for economic growth and prosperity.