Improving farm incomes, conserving groundwater and encouraging more resilient production systems have become just as important as increasing output.
Barely a month after announcing a farm loan waiver of more than Rs 36,500 crore, the Maharashtra government has approved another major relief measure by waiving nearly Rs 48,000 crore in pending electricity dues for farmers. Undoubtedly, such state interventions provide much needed financial relief and reflect the government’s commitment to addressing agrarian distress. But such relief measures have become a recurring feature of state governments’ agricultural policies, which are not fiscally sustainable in the long run. This raises a more fundamental question: can government expenditure on agriculture be restructured so that it builds durable farm incomes, rather than periodically compensating when incomes falter?
For decades, public investment has transformed Indian agriculture. The Green Revolution of the late 1960s was driven by HYV seeds, Minimum support prices, procurement, subsidised electricity, fertilisers and irrigation, enabling this remarkable transition. But Indian agriculture has entered a new phase now as sustaining food security requires an agricultural system that also delivers stable farmer incomes, uses natural resources efficiently and remains resilient to a changing climate.
This shift requires rethinking not how much governments spend on agriculture, but where those resources are directed. Punjab and Haryana illustrate why. Together, they form the backbone of India’s paddy procurement system and receive extensive public support. Yet the economics reveal an important imbalance.
A recently published report by the Institute for Competitiveness (IFC) titled “A Pathway to Doubling Farmers’ Income: Reducing Reliance on Paddy Production and Incentivising Millet Production in Indian Agriculture”, finds that the public expenditure on paddy cultivation is nearly three times the gross profits earned by farmers on every hectare cultivated. In Punjab, public expenditure amounts to around Rs 1.55 lakh per hectare, while farmers earn gross profits of Rs 53,479 per hectare. In Haryana, public expenditure amounts to around Rs 83,836 per hectare, while farmers earn gross profits of approximately Rs 30,048 per hectare only.
This does not suggest that public spending is excessive. Rather, it offers an opportunity to ask whether a part of this expenditure can be deployed in ways that generate higher and more resilient farm incomes. The debate surrounding crop diversification offers an answer.
For years, governments have encouraged farmers to shift from excessive production of water-intensive paddy towards more environmentally sustainable crops such as millets. The case appears convincing as millets require considerably less water, fewer chemical inputs and are better equipped to withstand increasingly frequent climate shocks, including El Niño episodes.
During 2023-24, bajra commanded a minimum support price that was more than Rs 10,000 per tonne higher than paddy and cost less than half as much to cultivate, particularly in Haryana. Even then, farmers vehemently continued to grow paddy.
While bajra offers an advantage in support prices and production costs, paddy performs better on two factors that ultimately determine income. It produces higher yields of 3.56 tonnes per hectare compared with 2.31 tonnes for bajra, and it benefits from assured procurement. Moreover, between 2018-19 and 2022-23, the Food Corporation of India procured nearly six million tonnes of paddy annually in Haryana, whereas procurement of bajra accounted for barely 0.002% of that volume.
The income difference follows naturally. Paddy generates around Rs 30,000 per hectare in net returns in Haryana, compared with Rs 28,164 for bajra. In Punjab, the difference is starker as paddy generates nearly Rs 48,500 per hectare, which is almost seven times the returns from bajra. Farmers are therefore responding rationally to the incentives embedded in the system. Their cropping decisions are guided not by support prices or costs alone, but by the income they can realistically expect to earn.
This distinction has important policy implications. Farmers assess prices, yields, cultivation costs and market assurance together because each contributes to expected income. Improving only one of these variables rarely changes cropping behaviour for the long term. This same logic should also guide how public spending is allocated to shape farmers’ cropping choices.
India’s agricultural support architecture was designed when increasing food production was the overriding national priority. Today, nearly six decades later, Indian agriculture has different objectives to meet. Improving farm incomes, conserving groundwater and encouraging more resilient production systems have become just as important as increasing output.
Shivraj Singh Chouhan, Union Minister of Agriculture and Farmers’ Welfare, also emphasises that the changing realities of Indian agriculture call for a strategy that is more climate-resilient, competitive and sustainable. Public expenditure must therefore evolve from supporting production alone to creating incentives that address today’s economic and environmental challenges.
One way to achieve this is by redesigning farmer incentives rather than expanding public spending. The current diversification incentive of around Rs 17,500 per hectare in Punjab and Haryana is far too small to persuade farmers to move away from paddy because it falls well below the income they forgo by doing so. Instead, income-neutral cash incentives of about Rs 53,480 per hectare would ensure that farmers are no worse off financially if they diversify. Financed through a partial repurposing of existing paddy subsidies and complemented by investments in soil restoration, stronger millet value chains and assured procurement, such incentives would substantially reduce the economic risks of diversification. Simulation estimates suggest that, alongside higher MSPs for millets, this approach could significantly increase farmers’ incomes. An added advantage is that repurposing existing subsidies in this manner could generate an estimated Rs 6.36 lakh crore in fiscal savings over the next decade, creating gains not only for farmers and the environment but also for the public exchequer.
The debate on agricultural support therefore needs to evolve, just as India’s agriculture priorities have evolved. India’s agricultural transformation succeeded because policy focused persistently on increasing food production. The next one must focus just as intentionally on creating greater prosperity for farmers. As doubling farmers’ incomes will depend not simply on larger budgets, but on better aligned incentives that ensure every rupee of public spending contributes to a stronger, more resilient and more sustainable farm incomes.
*Amit Kapoor is chair & Ananya Khurana is senior researcher at the Institute for Competitiveness. X: @kautiliya.
