For Agriculture, a Budget of Its Own
Why in News?
The recent imposition of a 50% penal tariff on Indian agricultural products by former US President Donald Trump has sparked fresh debates about the vulnerability of Indian farmers in global trade. The move highlights the structural weaknesses in Indian agriculture and the urgent need for a comprehensive agricultural budget that not only provides protection in the short term but also lays the foundation for long-term transformation. Former Haryana Chief Minister and Congress leader Bhupinder Singh Hooda has strongly argued for the creation of a separate agricultural budget, the Rashtriya Kisan Kalyan Kosh, to address the unique challenges of the sector.
Introduction
Agriculture is the backbone of the Indian economy, supporting 42% of India’s population and employing nearly 46% of the workforce. Yet, paradoxically, the sector contributes less than 20% of the Gross Domestic Product (GDP). This imbalance exposes millions of Indian farmers to debt, poverty, and uncertain livelihoods.
The US decision to slap tariffs on Indian farm exports is more than a temporary challenge; it is a wake-up call to address the deep structural issues plaguing Indian agriculture. While protectionist measures like tariffs may provide short-term relief, real transformation requires reforms in mechanisation, consolidation, job creation, value addition, and global competitiveness.
This article examines the key issues in Indian agriculture, explores the immediate and long-term implications of trade barriers, and outlines strategies for reform to ensure farmers’ welfare and economic security.
Key Issues and Institutional Concerns
1. Global Inequalities in Agricultural Trade
The global farm trade is marked by heavy subsidies in developed nations. The US spends over $48 billion annually on domestic farm support, including insurance subsidies covering up to 60% of premiums. Farmers there also benefit from price guarantees, marketing loans, and government-backed insurance schemes.
In contrast, Indian farmers have far less support. India’s aggregate “Measurement of Support” (AMS) under WTO norms is less than 5% of production value, while developing countries are allowed up to 10%. This means India competes on an uneven playing field. Export-linked subsidies disguised as aid further disadvantage Indian farmers.
2. Structural Weaknesses in Indian Agriculture
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Shrinking Landholdings: The average farm size has shrunk from 2.28 hectares in 1970-71 to 0.74 hectares in 2021, making mechanisation inefficient.
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Low Incomes: The NABARD Rural Financial Inclusion Survey found that the average farming household earns just ₹13,661 per month, of which only ₹4,476 comes from farming. The rest comes from petty work or supplementary sources.
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High Input Costs: Fertilisers, seeds, and diesel prices have risen faster than crop prices, squeezing farmer margins.
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Over-dependence on Agriculture: Nearly 46% of India’s workforce is employed in farming, compared to just 2% in the US, 1% in Germany and the UK, and 3% in Japan. Even China reduced its agricultural workforce from 63% in 1991 to 22% today.
3. Dependence on Protection and MSP
Indian farmers demand legal guarantees for Minimum Support Price (MSP) and await compensation under schemes like PMFBY (crop insurance). However, MSP covers only a limited number of crops, and the system does not provide stability for all farmers.
4. Inadequate Value Addition and Export Competitiveness
India’s farm exports stood at $48.15 billion in 2023-24, but they could increase significantly with better branding, quality certification, and reduction of post-harvest losses (currently 15–25%). The lack of focus on processing and global competitiveness leaves India dependent on raw commodity exports.
Challenges and the Way Forward
1. Labour Transition and Job Creation
A major reason why so many Indians remain in farming is the lack of alternative employment. India must transition millions from low-yield farming into manufacturing and services. Following China’s example, India should invest in labour-intensive industries like textiles, food processing, and engineering, coupled with rural skill training and job creation.
2. Farm Consolidation and Mechanisation
The shrinking farm sizes must be addressed through cooperative farming, land leasing reforms, and Farmer Producer Organisations (FPOs). Pooling landholdings will enable mechanisation, increase productivity, and reduce per-unit costs.
3. Value Addition and Export Boost
India must improve supply chain efficiency, reduce wastage, and ensure global-standard certification. By reducing post-harvest losses to 5% and branding Indian produce effectively, exports can grow exponentially.
4. Strong Stand in Multilateral Trade Negotiations
India must demand recalibration of WTO’s Agreement on Agriculture to ensure that food security programmes in developing nations are protected. Wealthy nations’ “Green Box” subsidies, which are claimed to be non-trade distorting, must be challenged for providing unfair advantage to their farmers.
5. Creation of a Separate Agricultural Budget
Protectionist measures like tariffs are temporary. Structural reforms require consistent funding and focus, which can only come through a separate agricultural budget. The proposed Rashtriya Kisan Kalyan Kosh would ensure dedicated attention to rural welfare, mechanisation, value addition, and farmer resilience.
Conclusion
While Trump’s tariffs exposed the fragility of Indian agriculture in global trade, the underlying problems are deeply structural. India cannot continue to depend on protectionist measures or MSP alone. The long-term solution lies in transitioning surplus labour out of farming, consolidating landholdings, mechanising agriculture, and boosting value-added exports.
Protection must be seen not as an end in itself, but as a temporary shield to buy time for transformation. A separate agricultural budget, tailored to the unique needs of the sector, is essential for this transformation. Only then can India truly protect its farmers, enhance competitiveness, and ensure sustainable rural livelihoods.
Q&A Section
Q1. Why did the US impose a 50% penal tariff on Indian agricultural products?
The US imposed the tariff citing “reciprocity” for India’s refusal to open its markets to American grains, dairy, fruits, and fish. However, the move reflects the larger issue of unequal global farm trade, where rich nations demand access for their subsidised surpluses while shielding their farmers through heavy state support.
Q2. What are the main structural weaknesses in Indian agriculture?
The key weaknesses include shrinking landholdings (from 2.28 hectares in 1970-71 to 0.74 hectares in 2021), rising input costs, low farmer incomes, lack of mechanisation, high dependence on agriculture for employment, and inadequate value addition.
Q3. How much support do Indian farmers receive compared to US farmers?
US farmers benefit from over $48 billion in domestic support annually, including insurance and price guarantees. India’s support, measured as Aggregate Measurement of Support (AMS) under WTO, is less than 5% of production value, far below the 10% allowed for developing countries.
Q4. What reforms are necessary for Indian agriculture in the long run?
Reforms should focus on labour transition to manufacturing, farm consolidation, mechanisation, boosting value addition and exports, reducing post-harvest losses, and ensuring fair global trade rules. Additionally, a separate agricultural budget is essential for sustained reforms.
Q5. Why is a separate agricultural budget necessary?
A separate agricultural budget, like the proposed Rashtriya Kisan Kalyan Kosh, would ensure consistent funding and policy focus for farmer welfare, mechanisation, value addition, and resilience against global shocks. It would protect agriculture not through temporary measures but through structural transformation.
