Agriculture is more than just an economic sector, but rather a socio-economic sector creating  livelihood for almost half of India’s population. India’s target to achieve a ‘Viksit Bharat’ by the end of 2047, will depend on the transformation of the agricultural sector which is riddled with inefficiencies, stagnation and the structural challenges which have hampered growth over the years.

Indian Agriculture is facing a critical paradox, although the agricultural sector employs nearly 42.4%(According to the MoSPI report) of the Indian workforce and works as a backbone of the rural economy, its contribution to the GDP is disproportionately small at 18.2% (Annual Report by the Department Of Agriculture And Farmers Welfare, 2024-25 ). This also results in very low farmer income which has hit crisis-like levels. This is because of systematic problems in the agricultural system, all driven by land fragmentation. The policy disproportionately benefits the large land-owners at the expense of the small and marginal farmers, leaving them suppressed and exploited.

The article helps us understand the severity of the crisis and how schemes or policies can be implemented in order to tackle the issues created. It describes how countries similar to India in terms of agriculture transformed their agricultural sector and the steps taken by the Indian government to fix these issues.

The Fragmentation Crisis-

The average Indian farmer cultivates on land just 0.75 hectares, less land than a football field. Around 68% of the farmers fall into the “marginal” category, farmers owning less than 1 hectares of land. Extreme inequality in farm holdings exists with 5% of the farmers controlling more than 30% of the total agricultural land.

The cycle of land fragmentation turns productive farms into tiny, inefficient plots through a process of continuous division. As each generation inherits land, the land is split into multiple parts from one generation to another. In a developing country like India, this problem should be mitigated by a rise in the employment opportunities in the secondary industry(manufacturing, construction). Ideally this industry should absorb the excessive labour in the rural areas, thereby reducing the problem of land fragmentation. However the rise in the job creation by the secondary industry has been underwhelming as can be seen by the %share of the manufacturing sector to the GDP.

This crisis of land fragmentation has worsened over the past 2 decades, with the average land holdings dropping almost 50% from 1.33 hectares in 2000 to a record low of 0.74 hectares in 2024.

This fragmentation of land has severe economic consequences-

• Worse Unit Economics– The size of the produce is extremely small which makes transportation and warehousing disproportionately expensive.
• Mechanization Barrier– Scientific methods and mechanization is economically unviable for such small pieces of land, keeping productivity low.
• Innovation Gap– As farmers struggle with day-to-day needs innovation becomes impossible, coupled with a lack of available funds or loans.
• Soil Degradation– The pressure to get the maximum possible yield from small plots leads to lack of crop rotation, soil rest and overexploitation of the land, destroying fertility.

Land fragmentation due to social factors and sluggish employment growth in the secondary sector has serious consequences to the economy and the livelihood of millions of farmers. To fix this India has to undergo a serious structural reform, shifting from a reactive relief policy to a multi-prolonged policy approach designed to address the structural challenges, revitalise the secondary sector and modernise the agrarian landscape.

Policy Paradox: MSP And Mandi System

The current policies to boost agricultural income and livelihood heavily relies on Minimum Support Price (MSP) and APMC mandis. While intended as a safety net the MSP regime has become economically distorted as 60% are marginal farmers with low produce and derive more income from wages than crop sales. Due to high transport and warehousing costs most farmers sell to the local middlemen rather than selling directly to the APMC mandis. As a result the intended benefits of the MSP regime fail miserably to reach the majority of the farmers, creating an extortion system of the APMC mandis and the middlemen.

Furthermore, the policy creates severe ecological and economic distortions-

• Cropping Patterns– Not all crops come under the MSP umbrella, thereby farmers are incentivized to grow MSP-supported crops even in ecologically unsuitable areas, such as water-guzzling rice in the dry plains of Punjab.
• Stifled Innovation– The system disincentivises innovation, with earnings fixed above the cost (cost+profit), there remains little incentive to cut costs by investing in innovation and new technologies.
• Market Restrictions– The illegality of selling outside APMC mandis(in many regions) kills the free market, creating a power asymmetry where the middlemen can exploit the farmers, while export bans used to protect the domestic markets further reduce the incentive to invest in higher yields.

Global Templates: Lessons From China And Brazil-

When looking for a way forward, countries with similar geographic and demographic situations like India offer a roadmap for transforming a state-led dysfunctional agricultural sector into a market-driven powerhouse.

China’s Model Of Liberalisation-

China had a similar model wherein each commune/region had a fixed quota to produce and sell to the government only. This created similar issues as that in India with falling agricultural income, no R&D incentive. However the reforms of 1978 abandoned the Commune system, introduced liberalisation of the agricultural sector, introducing a profit motive for the farmers, which spurred innovation and facilitated market equilibrium. Crucially, the state limited its procurement strictly to stability management, allowing the market forces to determine the prices. This was paired with massive investment in the rural infrastructure like roads, warehousing and crucially the non-agri rural sector, this allowed farmers to switch to rural industry or manufacturing reducing the burden and unproductivity of the sector. Today the Chinese agricultural sector is extremely efficient and highly productive, fetching high income for the farmers.

Brazil’s Research Revolution-

Brazil offers a lesson in R&D led growth and development in the agricultural sector. Through Emrapa(The Brazilian Agricultural REsearch Corporation) the state fuelled a major boost in research, not only adapting crops to local conditions but producing seeds suitable for Brazil. This combined with a major financing boost to the agricultural sector with low-interest loans, transformed Brazil into a global export hub. 

The clear takeaway from these two cases is that the state should move away from procurement of crops towards enablement of the agricultural sector providing funding for research, infrastructure and credit.

The Failed Reforms-

The “Farm Laws” were a major step towards a revolution in the Indian agricultural system. To modernise, the sector has to not just allow but facilitate the entry of private players to enhance productivity and innovation. Legitimising contractual farming would have provided a much needed safety net for the farmers, who are ensured of an income irrespective of the produce. The repealing of these farm laws has set back the agricultural sector by more than a decade and ensured a path of stagnation for the sector. The core economic principles in these farm laws remain the only viable path to growth and sustainability “Liberalisation and R&D”.

Indian Farm Producing Organisations(FPOs)-

The Central Government’s steps of formation and promotion of 10,000 FPOs, under the scheme- Centre Sector Scheme for Formation And Promotion Of 10,000 FPOs under SFAC(Small Farmers’ Agri-Business Consortium), are a major leap in the right direction. The goal of this scheme is to leverage economies of scale in production and marketing with a view to enhance productivity through efficient, cost effective and sustainable resource use for ensuring sustainable income oriented farming, thus helping in reduction of cost of farm production and enhancing farmers’ earning thus playing a major role towards doubling the income of farmers. Under this scheme, provision is made for professional handholding support for a period of five years to new FPOs formed.The Indian Council on Agriculture Research(ICAR) has released a compilation of 75,000 farmers who have doubled their income with the help of FPOs.

The Way Ahead-

India faces an enormous challenge of making farming not just profitable but also economically sustainable for marginal farmers. The solution cannot be perpetual government subsidies and loan waiver or a rigid MSP framework. The move towards the FPOs is a step in the right direction and policy should be focused on boosting and promoting the FPOs to help farmers increase their income and livelihood.

Policy must shift from total control of the sector to facilitating a more free, liberalised and efficient agricultural sector.

1. Rural Infrastructure Boost– Heavy investment in cold chain warehouses, logistics is absolutely essential to lower the unit economics of transport for the marginal farmers.
2. Land Leasing Policies– Policies must facilitate land leasing, allowing farmers to rent lands to others easily which enables land consolidation without loss of ownership.
3. Transition from Farm To Factory– A sustainable agricultural policy has to be a rural industrialization policy, with heavy investment in the non-agricultural sector enabling farmers to move from farming to other areas like manufacturing or industry.
4. Strengthening of Co-operatives– While other policies are long-term a more short-term solution is to strengthen the agricultural co-operatives, which will help the farmer with transportation and warehousing, helping many marginal farmers reach economies of scale through collaboration among a large group of marginal farmers.

The focus has to shift from viewing the farmers as inherently vulnerable and dependent on government subsidy and freebies to a strong independent entrepreneur who constantly innovates and brings efficiency to the agricultural sector. India has to turn its agricultural sector from a liability of fragmentation into an engine of inclusive growth, value creation and upliftment of millions of individuals.