Can Budget 2025 Deliver on Promises for Indian Farmers?
Guest Author: Chirag Jain, Partner, Grant Thornton Bharat
09 January 2024, New Delhi: In anticipation of India’s upcoming Union Budget, the agriculture sector stands at a critical juncture that demands bold policy interventions, innovative strategies, and robust financial support. Agriculture remains the backbone of the Indian economy, providing livelihoods to approximately 58% of the population and contributing around 18.8% to India’s Gross Domestic Product (GDP) in 2022-23, according to the Economic Survey 2022-23, Government of India.
This sector’s performance not only influences rural prosperity but also significantly impacts the broader economic landscape, including inflation control, manufacturing output of agri-based industries, and export earnings. As policymakers prepare to unveil new fiscal strategies, a closer look at the current challenges, emerging opportunities, and actionable policy recommendations for the agriculture sector becomes indispensable.
Here we’re trying to shed light on the pivotal role the next budget can play in reinforcing India’s agricultural resilience, particularly by addressing the demands for cheaper credit, balanced subsidy structures, improved crop insurance, and sustainability-driven growth. Through these focal areas, India can harness the full potential of its diverse agro-climatic zones, strengthen its rural economy, and chart a roadmap to ensure long-term food security and inclusive growth.
The Evolving Agricultural Landscape
Over the years, Indian agriculture has undergone a significant transformation, fueled by technological advancements, market liberalization, and rising global demand for agricultural commodities. According to the Food and Agriculture Organization (FAO), 2021, India ranks among the top producers of several staples like wheat, rice, pulses, and spices. However, the sector faces structural issues such as fragmented landholdings, inadequate irrigation infrastructure, and climate-induced vulnerabilities.
Complicating these issues, India’s unprecedented population expansion—projected to overtake China’s as the largest in the world within this decade—has placed additional pressure on the country’s food production capacity and resource management. Combined with global concerns about food security highlighted by geopolitical tensions and climate change, India’s agriculture sector must be prepared to produce more from diminishing land and water resources. The approach requires a policy environment that not only provides immediate relief to farmers but also sets the course for sustainable, technology-driven advancement.
Financial Support and Cheaper Credit
One of the most pressing demands from the farming community pertains to the accessibility and affordability of institutional credit. Access to capital enables farmers to invest in high-quality seeds, advanced machinery, and modern irrigation systems, thereby boosting productivity. According to data from the Reserve Bank of India (RBI), 2023, the outstanding agricultural credit in India has grown consistently over the last decade, reflecting farmers’ growing reliance on loans to meet production costs. However, high interest rates and stringent collateral requirements often discourage small and marginal farmers from seeking formal loans, pushing them toward informal channels with exploitative lending practices.
Stakeholders have called for a reduction in agricultural loan interest rates to around 1%, a drastic drop that could ameliorate the financial burden on millions of farmers. Proponents argue that cheaper credit serves as an incentive for adopting modern agronomic practices and promoting micro-entrepreneurship in rural communities. This could be coupled with an enhancement of existing farmer support schemes, notably the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN). Farmers and farm unions have demanded that the annual income support under PM-KISAN be increased from the current ₹6,000 to ₹12,000, to provide a stronger income buffer and enhance their ability to invest in productivity improvements.
Crop Insurance and Risk Management
Climate volatility has made agriculture increasingly vulnerable to droughts, floods, cyclones, and other natural disasters. The Pradhan Mantri Fasal Bima Yojana (PMFBY), introduced in 2016, was designed to mitigate these risks by providing coverage against crop losses. However, coverage gaps, premium payment delays, and administrative bottlenecks have limited its efficacy. According to the Ministry of Agriculture & Farmers Welfare, Government of India (2022), only about 30% of the gross cropped area was insured under PMFBY, reflecting the need for more inclusive and farmer-friendly insurance schemes.
Several stakeholders are now advocating for “zero-premium” crop insurance, at least for small and marginal cultivators, to extend risk coverage to the most vulnerable segments of the farming community. While this approach may intensify the fiscal outlay for the government, proponents argue that the social and economic benefits—lower debt distress, stable farm incomes, and reduced reliance on high-cost, short-term loans—would pay off in the long run.
Infrastructure Development for Enhanced Productivity
Agricultural growth is closely tied to supportive infrastructure, including reliable irrigation systems, rural roads, and cold chain networks. India’s 2022-23 monsoon was marked by sporadic rainfall, with floods in some areas and severe drought in others, underscoring the urgent need for irrigation infrastructure that is equitable and resilient. According to the Ministry of Jal Shakti (2022), more than 50% of India’s net sown area still depends on the unpredictable monsoon rains, making farmers vulnerable to water shortages and distribution inefficiencies.
Equally important is the upgradation of rural connectivity—both physical and digital. Quality rural roads reduce transportation costs and wastage, while reliable broadband access empowers farmers with real-time information on weather forecasts, market prices, and best agricultural practices. A well-integrated infrastructure ecosystem is vital for streamlining the farm-to-fork supply chain and bolstering export readiness.
Policy Recommendation for Budget 2025
A high-level Agricultural Policy and Innovation Framework that integrates many of the key points discussed. These suggestions are designed to serve as a strategic guide for policymakers, researchers, agribusiness stakeholders, and farmer organizations looking to bolster India’s agriculture sector. It emphasizes a multi-pronged approach, balancing financial support, market reforms, sustainability, and technological advancement. Below are some of the policy suggestions that are expected:
Interest Subvention: Introduce a targeted interest subvention scheme specifically for small and marginal farmers, ensuring they can access credit at rates around 1% to 2%. An enhanced subvention framework should limit leakages and ensure timely credit disbursement.
PM-KISAN Enhancement: Double the annual payout under PM-KISAN, tying disbursements to productivity metrics or environmentally sustainable farming practices for better resource allocation and accountability.
Universal Crop Insurance for Small Farmers: Pilot a zero-premium model for farmers owning up to 2 hectares of land. This could be funded through a combination of central and state government resources, ensuring administrative synergy and minimal duplications.
Technology Integration: Use satellite imagery, drone surveillance, and digital land records to accelerate claim settlements and minimize insurance fraud, thus building trust among farmers and insurance companies.
GST Exemptions or Reductions: Rationalize GST rates for seeds, pesticides, and farm machinery. A zero or near-zero GST on essential agri-inputs can significantly bolster farmers’ capacity to invest in yield-improving measures.
Fertilizer Subsidy Rationalization: Implement a nutrient-based subsidy (NBS) model that disburses subsidies proportionally for nitrogen (N), phosphorus (P), and potassium (K), ensuring balanced fertilizer use and preserving soil health.
Doubling R&D Spending: Elevate agricultural R&D investment to at least 1% of the agricultural GDP, with a timeline to reach 2% in subsequent years. This additional funding should be strategically allocated to both public and private research institutions, encouraging collaboration and technology transfer.
Establish Innovation Hubs: Create specialized research clusters in major agricultural universities, focusing on climate-resilient varieties, organic farming technologies, and post-harvest innovations. Collaborative ventures with foreign research institutions could fast-track technology adoption.
Scaled-Up Natural Farming Mission: Allocate higher funds to train and educate farmers in natural and organic farming practices. Introduce incentives to offset the initial transition costs and yield uncertainties that might arise when shifting away from conventional agriculture.
Carbon Credits and Green Bonds: Explore financial instruments like carbon credits for farmers who adopt regenerative agricultural practices. Green bonds earmarked for sustainable agriculture infrastructure could spur investments in solar irrigation, conservation agriculture, and organic certification programs.
Predictable Export Framework: Adopt a pre-announced export strategy that discourages abrupt bans or quota systems. Maintain strategic buffer stocks to handle domestic shortages without penalizing long-term export commitments.
Strengthen E-Marketing Platforms: Enhance the capabilities of digital trading platforms like e-NAM (National Agriculture Market). Provide robust storage, warehousing, and logistics infrastructures to ensure smooth post-harvest handling and efficient transportation.
The Broader Economic Context and Implications
Agriculture’s fortunes are intrinsically linked to macroeconomic parameters such as inflation, public spending, and exchange rates. When agriculture flourishes, it exerts a calming influence on food inflation, which in turn supports monetary policy objectives. In 2022-23, elevated global commodity prices, partially driven by geopolitical tensions, had a ripple effect on domestic food prices. The strengthening of the U.S. dollar also increased costs for imported fertilizers and machinery.
Policymakers must tread carefully in balancing fiscal prudence with a robust developmental agenda for agriculture. While subsidies can sometimes be inflationary if not managed well, strategic investments in agritech, R&D, and infrastructure have the potential to raise productivity and stabilize food prices. By enhancing farm incomes and livelihoods, the government can stimulate rural demand, leading to a positive spillover into other sectors of the economy such as consumer goods, automotive, and housing.
Moreover, the agricultural sector can play a pivotal role in job creation. According to the Periodic Labour Force Survey (PLFS), 2021-22, a significant portion of India’s rural workforce is either underemployed or engaged in low-productivity occupations within agriculture. Investments in food processing, storage, and related value-chain segments can generate millions of jobs, especially for rural youth who might otherwise migrate to urban areas in search of employment.
As the nation eagerly awaits the Union Budget, it is crucial that agriculture remains front and center in the policy discourse. The sector has the daunting task of feeding a growing population, driving rural development, and contributing significantly to India’s export basket. By addressing the calls for cheaper credit, revamping insurance schemes, streamlining taxation, and investing in R&D, the upcoming budget can be a watershed moment—transforming India’s agricultural landscape into one that is resilient, profitable, and equitable.
The upcoming budget must respond decisively to the needs of farmers, industry stakeholders, and global market dynamics. By integrating financial support mechanisms, ensuring balanced subsidy policies, promoting climate-smart agriculture, and institutionalizing stable export frameworks, policymakers will make a lasting impact on India’s economy and the well-being of millions of farm families. The stage is set for decisive action; the blueprint for India’s agricultural renaissance awaits bold strokes of policy.
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