Evaluating the Impact of Agricultural Policies in India

India’s agricultural sector supports the livelihoods of nearly 70% of its population, yet the policies designed to protect farmers have produced outcomes that are far from uniform. The Minimum Support Price (MSP) and regulated market systems like the Agricultural Produce Market Committees (APMCs) were built with good intentions – to shield farmers from exploitation and volatile markets. In practice, however, their impact has been uneven, benefiting some farmers significantly while leaving others, particularly the small and marginal, largely behind. Understanding both the achievements and shortcomings of these policies is essential to making sense of where Indian agriculture stands today and where it needs to go.

What are agricultural price and marketing policies? 🔗

Agricultural price and marketing policies in India are government-driven mechanisms designed to stabilize farm incomes, ensure food security, and regulate the buying and selling of agricultural produce. The two most prominent pillars of this system are the Minimum Support Price (MSP) – a pre-announced floor price at which the government procures crops from farmers – and the Agricultural Produce Market Committee (APMC) system, which regulates wholesale agricultural trade through state-run market yards called mandis.

MSP was introduced in the 1960s during the Green Revolution as an incentive for farmers to adopt new technology and boost productivity. Over the decades, its role has evolved from a basic price support mechanism into a broader tool for agricultural development and income security. Today, the government announces MSPs for 22 mandated crops – covering cereals, pulses, oilseeds, and commercial crops like cotton and jute – based on recommendations from the Commission for Agricultural Costs and Prices (CACP).

The APMC framework, on the other hand, was established post-independence to protect farmers from being exploited by intermediaries, by requiring all notified agricultural produce to be sold through regulated market yards where licensed traders bid for produce in open auctions. Both systems, in theory, were meant to give farmers a fair deal. In practice, both have faced serious scrutiny.

How MSP has benefited farmers 🔗

The MSP system has been central to India’s food security architecture and has delivered measurable gains for a substantial number of farmers. Between 2014-15 and 2024-25, the volume of food grains procured at MSP grew from about 761 lakh metric tonnes to over 1,175 lakh metric tonnes, reflecting a significant scale-up of government procurement. The financial outlay on procurement also rose from ₹1.06 lakh crore to ₹3.33 lakh crore during the same period, and the number of farmers directly benefiting from MSP payments reached 1.84 crore.

Since 2018-19, the government has committed to setting MSPs at a minimum of 1.5 times the all-India weighted average cost of production, ensuring at least a 50% return for farmers over their input costs. For certain crops like bajra and maize, the margin over cost of production is even higher – at 63% and 59% respectively for the Kharif 2025-26 season. This price assurance allows farmers to plan investments, take credit, and adopt better inputs with greater confidence.

MSP also underpins the Public Distribution System (PDS), ensuring a steady supply of subsidized food to millions of households. The PM-AASHA scheme, launched in 2018, has further strengthened this framework by offering price deficiency payments to farmers when market prices dip below MSP, without requiring the government to physically procure and store all crops. Its financial backing was recently increased from ₹45,000 crore to ₹60,000 crore, and it has been extended through 2025-26.

The deep-rooted problems with MSP implementation 🔗

Despite these gains, the MSP system is beset by serious structural problems that limit its reach, particularly for the farmers who need it most.

Poor awareness and low coverage 🔗

As per 2013 Ministry of Statistics data, only 23% of farmers in rural agricultural households were even aware of MSP, with awareness varying from near-zero to 50% across states. Even fewer knew about a procurement agency that buys at MSP. In 2018-19, only a quarter of total paddy sales and just 20% of wheat were actually sold at MSP. This means the vast majority of farmers – including most small and marginal ones – never access the price protection that MSP promises.

Concentration among a few crops and states 🔗

While MSP officially covers 22 crops, government procurement is heavily concentrated on wheat and rice, with limited procurement of other crops. The benefits have also been geographically skewed – states like Punjab and Haryana, with better procurement infrastructure, gain far more than eastern or southern states. Out of 93.09 million agricultural households, 82% are small and marginal farmers, typically holding less than two hectares of land, yet it is the larger farmers in grain-surplus states who dominate MSP sales.

MSP and the crop diversification trap 🔗

While the MSP system successfully stabilised wheat and paddy production, it inadvertently discouraged crop diversification, leaving farmers vulnerable to market volatility and climate impacts. The guaranteed returns for rice and wheat, combined with subsidies on power and water in many states, make it economically rational for farmers to keep growing these crops year after year – even as groundwater depletes and soil health deteriorates. The policy’s preference for water-intensive crops like wheat and paddy worsens groundwater stress, highlighting an urgent need for agricultural diversification. India currently imports about 60% of its edible oilseeds and faces recurring price spikes for pulses – both outcomes of this structural imbalance.

Exclusion of small farmers 🔗

Small and marginal farmers, who constitute 86.1% of the agricultural workforce, are often excluded from MSP benefits due to a lack of resources, market linkages, and insufficient marketable surplus. With only 7,700 regulated marketplaces across approximately 660,000 villages, many small farmers are compelled to sell to local aggregators who offer below-MSP prices. Larger farmers with better awareness and financial capacity dominate the system, deepening income inequality rather than bridging it.

The APMC system: protector or bottleneck? 🔗

The APMC system was designed to replace exploitative informal arrangements with regulated auctions and licensed traders. For a time, it worked. But as years passed, APMCs became marred by inefficiencies, monopolistic practices, and corruption, prompting repeated calls for reform.

How the system turned against farmers 🔗

Each APMC market yard functioned as an independent entity with no connection to other markets, allowing traders and commission agents to command substantial influence over farmers. New agents were typically denied licenses by existing market committees, eliminating competition. Farmers were subjected to multiple levies – commission fees, market fees, APMC cess, and in some states, additional VAT – all of which increased costs without commensurate benefits. On average, there is one APMC mandi every 496 square kilometers in India, meaning transport costs alone eat into whatever price advantage the system is supposed to offer.

Corruption and conflict of interest 🔗

The presence of commission agents (arhatiyas) who act as intermediaries between farmers and buyers often leads to non-transparent pricing, where farmers receive a fraction of the market price due to commissions and deductions. APMCs also suffer from a structural conflict of interest – they play the dual role of regulator and market operator, which means their incentive to maintain tight control overrides their duty to serve farmers fairly. Commission agents in many markets form cartels and deliberately restrain from higher bidding, directly suppressing the prices farmers receive.

The low producer’s share of the consumer price of agricultural commodities in India tells the story clearly – it ranges from just 32% to 68% for perishables like fruits and vegetables. This means for every rupee a consumer pays, the farmer often takes home less than half, with the rest captured by intermediaries and market charges.

Reform efforts and their mixed record 🔗

Both the MSP and APMC systems have been subject to repeated reform attempts over the past two decades, with mixed results.

APMC reforms and e-NAM 🔗

The Model APMC Act of 2003 was the first major attempt to introduce competition into the regulated market system, allowing for private mandis, direct marketing, and contract farming. However, state governments adopted these reforms in a piecemeal and cosmetic manner, given that APMC revenues are a significant source of state income and vested interests resisted change. The e-NAM (National Agriculture Market) platform, launched in 2016, aimed to address this by digitally linking mandis across the country, enabling transparent online auctions and direct bank transfers to farmers. While it has expanded to over 230 commodities, its impact remains uneven across states with varying levels of digital infrastructure and political will.

The 2020 farm laws and their repeal 🔗

In September 2020, the Government of India passed three farm laws intended to liberate farmers from the APMC monopoly and allow them to sell directly to private buyers, processors, and exporters. Protests erupted against these laws, as farmers feared they would leave them vulnerable to large corporations. Following a year-long protest near Delhi, the government repealed all three laws in November 2021. The episode underscored the deep political complexity of agricultural marketing reform in India – where even well-intentioned changes can fail if they are not built with farmer trust and adequate safeguards.

Towards a more inclusive MSP 🔗

The government has been progressively trying to extend procurement to pulses and oilseeds. A key strategic goal is to achieve self-sufficiency in pulses by 2027, with the government pledging to procure 100% of production of major pulses like tur, urad, and masoor until 2028-29. Higher MSPs have also been set for crops like ragi, nigerseed, and mustard to incentivize a shift away from water-intensive cereals. However, expanding procurement infrastructure and building farmer awareness at the ground level remain ongoing challenges.

What meaningful reform looks like 🔗

The path forward for India’s agricultural policies must address both the demand and supply sides of the problem. On the MSP front, a diversified MSP that expands coverage to more crops – backed by genuine procurement infrastructure – is widely seen as a necessary step. Some experts also advocate for a price deficiency payment model, where farmers are compensated for the gap between market price and MSP without requiring physical government procurement and storage of all crops. Complementing this with better market intelligence, digital platforms, and farmer producer organizations (FPOs) would help smaller farmers access fair prices without full dependence on government agencies.

On the marketing side, APMC reform needs to go beyond tokenism. The presence of APMC laws that prevent private competing markets from developing will continue to inhibit the growth of better marketing infrastructure. Lower mandi fees, transparent auction processes, improved physical infrastructure, and real integration of e-NAM into day-to-day trading are practical steps that can deliver results without requiring sweeping legislative overhauls that face political resistance.

Ultimately, the goal of agricultural policy reform in India is not just higher prices for a few crops – it is fair, stable, and accessible income for the 82% of farming households who are small and marginal. Initiatives like the Odisha Millet Mission show that decentralised, crop-specific procurement programs can work when backed by sustained political commitment. Scaling such models, alongside fixing the deep inefficiencies in the MSP and APMC systems, is the real challenge ahead.

What do you think? Given that both MSP and APMC systems have struggled to reach small and marginal farmers effectively, what structural change do you believe would have the greatest impact – expanding MSP coverage to more crops with legal backing, or fundamentally reforming the marketing infrastructure to allow farmers direct access to competitive markets? And should policy reform prioritize fixing these existing systems, or is it time to invest in entirely new frameworks built around the realities of today’s farmers?

References

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