History and Evolution of Agricultural Policies in India

When India became independent in 1947, its agricultural sector was in deep crisis. Partition had disrupted trade routes, food shortages were widespread, and farmers had almost no institutional protection from exploitative middlemen. Prices varied wildly across regions, not because of crop quality, but because of information gaps and market manipulation. Over the following decades, India built an elaborate architecture of price policies and market regulations to fix these problems – some of which worked remarkably well, others of which created new problems of their own. Understanding how these policies evolved helps explain why Indian agriculture looks the way it does today.

The starting point: colonial-era markets and their legacy 🔗

Market regulation in India did not begin at independence. Market regulation can be traced as far back as 1886, when the Karanjia Cotton Market was established under the Hyderabad Residency order, followed by the Berar Cotton and Grain Market Act of 1897. The Royal Commission on Agriculture in 1928 gave recommendations on agricultural market regulation, and by 1938 a Model Bill had been drafted. However, the colonial government’s primary objective was to keep prices of raw materials and consumer goods low – not to protect farmers.

Before independence, India’s agriculture policy was designed to benefit traders and exporters, not cultivators. Farmers had no standardized weighing systems, no market price information, and no protection from creditors who forced distress sales. A farmer who needed to repay a moneylender before harvest had little choice but to accept whatever price was offered. This structural exploitation was the backdrop against which post-independence agricultural policy was designed.

The first Five Year Plans and foundational reforms 🔗

After 1947, the new government recognized that agricultural development required more than just increased production. The first and subsequent Five Year Plans included several components of agricultural policy, with the most important being land reforms during the mid-1950s aimed at eliminating intermediaries and creating greater equality in land distribution. Zamindars and jagirdars – colonial-era rent collectors who did not invest in the land – were abolished, and cultivators were given direct ownership rights.

The second major thrust was investment in rural infrastructure: irrigation, agricultural research, roads, and regulated markets. The government also introduced state trading in food grains in the late 1950s, following recommendations from the Foodgrains Enquiry Committee. This involved the government procuring key commodities like wheat and rice at predetermined prices to ensure farmers received fair compensation.

The Essential Commodities Act (ECA) was introduced in 1955 to provide for the control of production, supply, distribution, and pricing of essential commodities. While it was intended to protect consumers and ensure food security, it would later become a significant obstacle to private investment in agricultural storage and processing.

The Agricultural Prices Commission: a turning point in 1965 🔗

By the early 1960s, two consecutive droughts had pushed India to the edge of famine. Food shortages were acute, and the government was spending heavily on imported grain. It was against this backdrop that one of the most significant institutional innovations in Indian agricultural policy took shape.

The Agricultural Prices Commission (APC) was established in January 1965, with a mandate to recommend Minimum Support Prices (MSPs), motivate farmers to adopt the latest technology, and raise productivity. The Jha Committee on Foodgrain Prices, set up in 1964, had laid the groundwork. Gandhian economist M.L. Dantwala was appointed the first chairperson, and in August 1965, the APC submitted its first report, suggesting MSPs for paddy.

The commission’s logic was straightforward: if farmers knew in advance that the government would purchase their crop at a guaranteed minimum price, they would have an incentive to invest in better seeds, fertilizers, and irrigation – and they would not be at the mercy of traders who could suppress prices during harvest gluts. Assurance of a remunerative and stable price environment was considered essential for increasing agricultural production, since the marketplace for agricultural produce tends to be inherently unstable, often inflicting undue losses on growers even when they adopt the best available technology.

How MSP is determined 🔗

The APC – and later the CACP – developed a rigorous methodology for recommending MSPs. Three cost concepts became central to this calculation: A2, which covers all paid-out expenses including seeds, fertilizers, chemicals, machinery, irrigation, and interest on working capital; A2+FL, which adds the imputed cost of unpaid family labour; and C2, which further adds the imputed rent on owned land. The C2 concept was proposed by M.S. Swaminathan when he chaired the National Commission on Farmers in 2006. These methodological distinctions continue to be at the heart of debates about whether farmers are being fairly compensated.

Today, the CACP recommends MSPs for 23 commodities – 7 cereals, 5 pulses, 7 oilseeds, and 4 commercial crops – and submits recommendations in the form of Price Policy Reports separately for five commodity groups each year. Final decisions are taken by the Cabinet Committee on Economic Affairs after consulting state governments and relevant ministries.

Renaming and expanding the mandate: APC becomes CACP 🔗

By 1985, India had moved from food scarcity to food surplus – largely thanks to the Green Revolution. The APC was reconstituted and renamed the Commission for Agricultural Costs and Prices (CACP), reflecting a broader mandate that went beyond simply setting prices. The CACP now examined inter-crop price parity, terms of trade between agriculture and non-agriculture, and India’s position in international commodity markets. The shift in name signalled a shift in thinking: pricing policy was now inseparable from the broader question of agricultural costs and farmer incomes.

APMCs: building regulated markets across states 🔗

Price support alone could not solve the problem of market access. A farmer growing gram in Rajasthan, for instance, would struggle to benefit from any MSP if there was no proper market infrastructure within reach. This is why the establishment of regulated wholesale markets – Agricultural Produce Market Committees (APMCs) – was equally central to India’s agricultural policy framework.

The history of regulation of agricultural markets traces to the Royal Commission on Agriculture’s 1928 recommendations, which found their way into the Model Bill of 1938. Post-independence, the Agricultural Produce Marketing Regulation (APMR) Act was constituted – a landmark legislative instrument for state regulation of agriculture. It gave state governments the option to form APMCs, which was adopted by many states in the 1960s.

The first APMC Act was enacted in 1963 by various states, and under this act, agricultural markets in most parts of the country were established and regulated by Market Committees constituted by each state government. The entire geographical area of a state was declared a market area, restricting wholesale marketing activities. No person or agency could freely buy agricultural produce outside the physical boundaries of a registered market yard – a rule intended to prevent exploitation, but one that would have significant unintended consequences.

At inception, APMCs were genuinely effective. They brought auction-based price discovery, standardized weighing, licensed traders, and regulated transaction processes to agricultural trade. At the time of their formation, APMCs were hailed as an innovative and democratic solution for ensuring better prices through auctions and protecting farmers from the high cost of marketing and produce losses.

When the system turned against farmers: structural problems in APMC markets 🔗

Over time, the very features designed to protect farmers began to work against them. Each APMC market yard functioned as an independent monopoly, not connected to any other market. The entry of new traders depended on approval from existing market committees, which routinely blocked new entrants to protect incumbents. A transparent price discovery system transformed into a system where prices were fixed by traders and commission agents. The APMC markets also charged a series of mandi fees and commissions, raising the cost of the product and reducing the returns earned by farmers.

Several structural distortions accumulated over decades. Monopolistic control meant that farmers had no choice but to sell within their designated APMC, regardless of whether better prices were available elsewhere. Cartelization among licensed traders allowed them to suppress auction prices through coordinated low bidding. High license fees and market charges created barriers that kept competition out of mandis. Inadequate infrastructure – by one estimate, India loses close to ₹90,000 crore worth of produce annually due to post-harvest losses, partly because the policy environment discouraged private investment in cold chains, pack houses, and refrigerated transport.

The Essential Commodities Act of 1955 compounded this problem. The 10th Five Year Plan (2002-2007) identified the ECA as a major barrier to encouraging investment in storage and warehousing, and many agricultural commodities were subsequently taken off it, though rigid rules continued to exist.

The gap between MSP announcements and actual procurement 🔗

A parallel problem emerged on the pricing side. While the CACP recommended MSPs for 23 crops, effective procurement operated primarily for rice and wheat through the Food Corporation of India (FCI). In 2018-19, only about a quarter of total paddy sales and 20% of wheat were sold at MSP, indicating that despite decades of policy, most farmers could not access the guaranteed floor price. For farmers growing pulses or oilseeds, MSP was often an announcement without a procurement mechanism to back it up – offering price assurance on paper but little in practice.

Reforms from the 2000s onward 🔗

By the early 2000s, the evidence of systemic failure was undeniable. Multiple expert committees, inter-ministerial task forces, and state agriculture ministers had reached the same diagnosis: the prevailing agricultural marketing system was harming the very farmers it was meant to protect.

To standardize agricultural marketing across states, the central government introduced the Model APMC Act in 2003. This Act encouraged states to reform their laws to promote direct marketing, contract farming, and the establishment of private markets, attempting to liberalize agricultural markets and reduce APMC monopoly. However, because agriculture is a state subject under the Indian Constitution, the central government could only recommend – not mandate – reforms. Implementation was slow and uneven.

The more transformative step came in 2016 with the launch of electronic National Agricultural Market (eNAM). eNAM is an online trading platform that integrates APMCs across India to create a unified national market for agricultural produce, allowing farmers to sell their produce across state borders without being restricted to local mandis. As of recent years, over 1,500 mandis across 23 states and 4 Union Territories have been integrated into the eNAM platform. Online auctions with real-time bidding, quality assaying before sale, and direct bank transfers to farmers are among its core features.

The most contentious chapter came in September 2020, when the government passed three farm laws intended to allow farmers to sell outside APMC mandis, create an enabling framework for contract farming, and amend the Essential Commodities Act. Countrywide protests erupted as farmers, particularly in Punjab and Haryana, feared the laws would ultimately withdraw the security net provided by the state and put them in a vulnerable position. The laws were repealed in November 2021, leaving the question of how to reform APMC markets without dismantling MSP protections unresolved – and still at the centre of Indian agricultural policy debate.

Where does the policy stand today? 🔗

India’s agriculture faces persistent challenges from fragmented and complex supply chains involving numerous intermediaries, restrictive domestic marketing policies, and border measures that have on average reduced prices below international market levels over most of the period reviewed. At the same time, farmers’ share of the final consumer price remains abysmally low across many commodities, ranging between 28% and 78% depending on the crop and the market.

The direction of reform is clear: more competition in procurement, better integration of digital platforms, reduced intermediary layers, and infrastructure investment close to the farm gate. The challenge is implementation – particularly in a federal structure where agriculture is a state subject, political economy considerations are powerful, and any reform that appears to threaten MSP protections triggers fierce resistance from farming communities who have lived through decades of market failure.

India’s agricultural price and marketing policy has come a long way from the post-independence scramble for food security. The institutions built during this journey – the CACP, the APMC network, the MSP mechanism – are imperfect, contested, and still evolving. But understanding their history is essential for anyone working in agribusiness, policy, or rural development, because the next set of reforms will be built on these foundations, not around them.

What do you think? Given that agriculture is a state subject under the Indian Constitution, how can the central government effectively push for uniform marketing reforms without overriding state autonomy? And with the farm laws of 2020 having been repealed, what would a politically viable and farmer-friendly reform of the APMC system actually look like?

References

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6. https://en.wikipedia.org/wiki/Commission_for_Agricultural_Costs_and_Prices
7. https://cacp.dacnet.nic.in/content.aspx?pid=32
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10. https://en.wikipedia.org/wiki/Minimum_support_price_(India)
11. https://bhattandjoshiassociates.com/agricultural-produce-market-committees-apmcs-agricultural-produce-markets/
12. https://www.civilsdaily.com/story/agricultural-marketing-reforms/