How Government Policies Impact Agricultural Development

Agriculture doesn’t develop in isolation. Behind every farmer’s decision – what to grow, how much to invest, where to sell – there is a policy framework shaped by the government. From land ownership laws to crop pricing mechanisms, from subsidies on fertilisers to insurance against crop failure, government policies and programmes are the invisible scaffolding that supports (or sometimes constrains) agricultural development. In a country like India, where agriculture contributes nearly 16% to GDP and supports the livelihoods of over 46% of the population, these policies carry enormous weight.

Why government intervention in agriculture matters 🔗

Agriculture, unlike most industries, is deeply vulnerable to forces beyond the farmer’s control – erratic weather, pest outbreaks, volatile market prices, and fragmented landholdings. Left entirely to market forces, small and marginal farmers (who make up the vast majority of India’s farming community) would face devastating income instability. Government intervention through policies and programmes aims to reduce these risks, ensure food security for the nation, and create conditions where farming remains a viable livelihood.

The scope of government intervention covers a wide range of areas: land reforms to ensure equitable access, price support mechanisms like Minimum Support Prices (MSP), input subsidies on fertilisers and irrigation, crop insurance against natural calamities, direct income transfers, market reforms, and trade policies that manage imports and exports. Each of these policy instruments has a direct impact on what happens on the ground in rural India.

Land reform policies: reshaping who owns and farms the land 🔗

At the time of India’s independence in 1947, the agrarian structure was dominated by intermediaries like zamindars who collected revenues from tenant cultivators without contributing to actual farming. Land was concentrated in the hands of a few, while the majority of cultivators had no ownership rights and paid exorbitant rents – often 35% to 75% of their gross produce.

Post-independence land reforms had two core objectives: removing impediments to agricultural production arising from the inherited agrarian structure, and eliminating exploitation within the agrarian system to provide security and equal opportunity to all rural sections.

Key components of land reforms 🔗

India’s land reform agenda had four main components. Abolition of intermediaries was the most successful – zamindari abolition acts passed across states made roughly 2 crore tenants the owners of the land they cultivated, effectively dismantling the feudal landlord class. Tenancy reforms aimed to regulate rents, provide tenure security, and in some states like West Bengal and Kerala, radically restructure agrarian relationships to give land rights to tenants. Land ceiling laws set a maximum limit on how much land one individual or family could own, with surplus land redistributed to the landless. Consolidation of holdings aimed to merge fragmented plots into contiguous units, which was implemented successfully in states like Punjab and Haryana, enabling mechanisation and better irrigation.

However, the success of these reforms varied enormously across states. According to a comprehensive assessment by Drishti IAS, while states like West Bengal and Kerala saw significant restructuring, most other states struggled with weak enforcement, legal loopholes, and resistance from landowning elites. Many people evaded ceiling laws by transferring land to relatives or through “benami” (anonymous) ownership.

Despite the mixed results, land reforms fundamentally altered India’s rural power dynamics and set the stage for broader agricultural development programmes.

Price policy and minimum support prices 🔗

One of the most consequential government interventions in agriculture is the Minimum Support Price (MSP) – a price floor announced before each sowing season for select crops. If market prices fall below this level, government agencies step in to purchase the produce, ensuring farmers don’t face distress sales.

The MSP system was introduced during the Green Revolution era in 1966-67, initially as an incentive for farmers to adopt new high-yielding varieties and modern inputs. The Agricultural Prices Commission (now the Commission for Agricultural Costs and Prices, or CACP) was set up in 1965 to recommend prices based on production costs, market trends, inter-crop price parity, and the overall demand-supply situation.

How MSP is calculated 🔗

Since 2018-19, the government has followed a policy of setting MSP at a minimum of 1.5 times the cost of production (calculated as A2+FL, which includes paid-out costs plus the imputed value of family labour). For instance, the MSP for wheat for the 2026-27 marketing season was set at ₹2,585 per quintal against a production cost of ₹1,239, giving farmers a margin of over 100%.

Currently, MSP covers 22 mandated crops including cereals, pulses, oilseeds, and commercial crops like cotton and jute. However, as PRS Legislative Research notes, effective government procurement is largely limited to rice and wheat. Only about 20-25% of wheat and paddy production is actually sold at MSP, and farmer awareness of the MSP system remains low – at roughly 23% nationally.

Challenges and debates around MSP 🔗

The MSP system has been criticised on several fronts. Its heavy focus on rice and wheat has discouraged crop diversification and contributed to problems like groundwater depletion in states such as Punjab. Farmers in many states lack access to procurement infrastructure, meaning the benefits are unevenly distributed. There have been persistent demands to make MSP a legal guarantee for all 22 crops, though this could increase retail food inflation since food accounts for about 46% of the consumer price basket.

Direct income support and financial inclusion 🔗

Recognising that price support alone cannot address the income challenges of small farmers, the government launched the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) in 2019. Under this scheme, eligible landholding farmer families receive ₹6,000 per year in three equal instalments directly into their bank accounts.

As of August 2025, over ₹3.90 lakh crore had been transferred to more than 11 crore farmers through 20 instalments. The scheme accounts for nearly half of the entire budget of the Ministry of Agriculture and Farmers’ Welfare.

Alongside PM-KISAN, the Kisan Credit Card (KCC) scheme has expanded institutional credit access, with cumulative agricultural credit exceeding ₹10 lakh crore reaching 7.71 crore farmers. KCC provides short-term loans at subsidised interest rates, helping farmers purchase seeds, fertilisers, and other inputs without resorting to informal moneylenders.

Crop insurance: protecting against nature’s unpredictability 🔗

About 51% of India’s cultivated area still relies on rainfall, making agriculture highly vulnerable to climate variability. The Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016, provides affordable crop insurance from the pre-sowing to post-harvest stage. Farmers pay a premium of just 2% for kharif crops, 1.5% for rabi crops, and 5% for horticultural crops, with the central and state governments sharing the remaining premium.

Since its inception, claims worth ₹1.83 lakh crore have been disbursed under PMFBY. The scheme was made voluntary for farmers in 2020, and participation by non-loanee farmers has been rising – a sign of growing trust in the system. However, challenges remain: delayed claim settlements, poor crop damage surveys, and delays by state governments in releasing their share of the premium subsidy continue to affect the scheme’s effectiveness, particularly for small and marginal farmers who are often unaware of its benefits.

Subsidies on agricultural inputs 🔗

The government heavily subsidises key farming inputs, especially fertilisers. In 2024-25, the total fertiliser subsidy allocation stood at over ₹1.6 lakh crore, with about ₹41,000 crore going towards subsidising imported fertilisers alone. Fertiliser subsidy ensures farmers can buy products at below-market prices, but it has also led to problems – particularly the overuse of urea relative to other nutrients. The ideal nitrogen-phosphorous-potassium (NPK) ratio of 4:2:1 has been skewed to roughly 7:3:1 in practice, degrading soil health over time.

To address this, the government has promoted nano urea technology and the Soil Health Card scheme, which provides farmers with soil testing results and nutrient management recommendations.

Irrigation subsidies are another significant policy tool. The Pradhan Mantri Krishi Sinchai Yojana (PMKSY) promotes micro-irrigation by covering 55% of installation costs for marginal farmers. Between 2015-16 and 2021-22, about 67.46 lakh hectares were brought under micro-irrigation. However, subsidised or free electricity for irrigation pumps in several states has encouraged excessive groundwater extraction, especially for water-intensive crops like sugarcane and paddy grown in water-scarce regions.

Market reforms and agricultural trade 🔗

How and where farmers sell their produce is governed by Agricultural Produce Market Committees (APMCs), which regulate trading in designated market yards (mandis). While APMCs were established to ensure fair pricing, many have become plagued by cartelisation among a limited number of traders, excessive commission charges, and poor infrastructure.

To address this, the government launched the electronic National Agriculture Market (e-NAM) in 2016, connecting APMC mandis across the country into a unified online trading platform. As of mid-2024, 1,389 mandis across 27 states had been integrated, with over 1.8 crore farmers registered on the platform.

Trade policies and export restrictions 🔗

India frequently uses trade policy as a tool to manage domestic food prices. In recent years, the government imposed export bans on non-basmati white rice, set minimum export prices on onions, extended restrictions on sugar exports, and raised tariffs on edible oil imports. While these measures help control domestic inflation and ensure food availability, they can hurt farmers by preventing them from selling at higher international prices.

In a notable policy shift, India gradually removed most export restrictions on rice during 2024, including the final ban on broken rice exports in March 2025. However, tariffs on imported edible oils were simultaneously raised – crude palm, soybean, and sunflower oil tariffs went from 0% to 20%.

Recent flagship programmes shaping agricultural development 🔗

The government has launched several large-scale programmes in recent years that are reshaping Indian agriculture:

PM Dhan Dhaanya Krishi Yojana, launched in October 2025 with an outlay of ₹24,000 crore, targets 100 low-productivity districts to improve agricultural productivity, encourage crop diversification, and strengthen post-harvest storage infrastructure. It is expected to benefit around 1.7 crore farmers.

Mission for Aatmanirbharta in Pulses, with an outlay of ₹11,440 crore, is a six-year mission focused on boosting domestic production of tur (pigeon pea), urad (black gram), and masoor (lentils) – crops where India still depends on imports.

The National Mission on Natural Farming (NMNF), approved in November 2024 with ₹2,481 crore, promotes chemical-free farming based on traditional knowledge and local agro-ecological principles, aiming to reduce farmers’ dependency on costly external inputs while improving soil health and climate resilience.

The Digital Agriculture Mission, approved in September 2024, integrates AI, satellite monitoring, IoT-based sensors, and drone analytics into farm management – representing a significant push toward precision agriculture and data-driven decision-making.

The coordination challenge 🔗

Effective agricultural policy requires coordination across multiple levels and departments. Agriculture is a state subject under the Indian Constitution, meaning state legislatures hold the primary power to enact agricultural laws. However, the central government plays a critical advisory and financial role through schemes, budgetary allocations, and national policy frameworks. This dual governance structure sometimes creates friction – for instance, delayed release of state government funds has been a persistent bottleneck in crop insurance payouts and scheme implementation.

Additionally, agricultural policy must align with India’s international commitments. Under the WTO’s Agreement on Agriculture, price supports like MSP are classified as trade-distorting domestic subsidies. India’s MSP-based procurement has at times exceeded agreed WTO limits, prompting the country to invoke the Bali Peace Clause to protect its food security programmes from legal challenges.

The 2024-25 Union Budget allocated ₹1,32,470 crore to the Ministry of Agriculture, representing about 2.7% of the central government’s total budgeted expenditure. Ensuring that this investment translates into tangible improvements at the farm level requires constant policy refinement, better targeting, and effective ground-level implementation.

Looking ahead: the evolving policy landscape 🔗

India’s agricultural policy is clearly moving in new directions. The focus is shifting from pure production growth to a more holistic approach that includes sustainability (natural farming, soil health, water conservation), technology integration (digital agriculture, AI-driven advisory, satellite monitoring), income diversification (allied activities like dairy, fisheries, food processing), and market efficiency (e-NAM, FPOs, direct benefit transfers).

India recorded its highest-ever foodgrain production of 357.73 million tonnes in 2024-25, and agriculture’s gross value added grew at 4.6%. These numbers are encouraging, but the real test of policy effectiveness lies in whether the benefits reach the small and marginal farmers who form the backbone of Indian agriculture – the 86% of landholdings that are less than two hectares in size.

What do you think? Can India achieve long-term agricultural sustainability while continuing to support farmers through price guarantees and subsidies, or does the policy framework need a more fundamental restructuring? How can the coordination gap between central and state governments be bridged to ensure that agricultural schemes deliver results at the grassroots level?

References

1. https://www.fao.org/4/y5026e/y5026e0b.htm
2. https://www.drishtiias.com/to-the-points/paper3/land-reforms-in-india
3. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2177219&reg=3&lang=2
4. https://prsindia.org/budgets/parliament/demand-for-grants-2024-25-analysis-agriculture-and-farmers-welfare
5. https://ddnews.gov.in/en/year-ender-2025-indias-agricultural-sector-growth-governance-and-ground-level-impact/
6. https://pmksy.gov.in/AboutPMKSY.aspx
7. https://www.oecd.org/en/publications/agricultural-policy-monitoring-and-evaluation-2025_a80ac398-en/full-report/india_a08610a6.html
8. https://en.wikipedia.org/wiki/Minimum_support_price_(India)