Economic Survey calls for market-driven agriculture, stresses reforms for sustainable growth

New Delhi: India needs a market-driven approach to agriculture, the Economic Survey 2024-25 said, advocating policies that allow farmers to receive “unimpeded price signals” while protecting vulnerable households from cost-of-living shocks.

Unimpeded price signals refer to market prices that accurately reflect supply and demand without distortions from external interventions like subsidies, price controls or trade restrictions.

The survey underscored the urgency of shifting from excessive cereal production and encouraging diversification into pulses and edible oils to correct supply imbalances and improve agricultural sustainability. It called for moving farming from conventional crops to value-added and export-oriented crops such as floriculture, fruit and vegetables.

India's floriculture industry has grown into a high-performing sector, earning its status as a 'sunrise industry' with 100% export orientation, it noted.

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The call for reform comes at a time when Indian agriculture is grappling with structural inefficiencies. Despite contributing nearly 20% to the country’s Gross Value Added (GVA), the sector faces challenges such as low productivity, excessive reliance on input subsidies, and environmental stress from overproduction.

Allowing farmers to hedge price risks and aligning cultivation patterns with market demand, the survey argued, would enhance productivity while preserving natural resources.

The survey said stable agricultural growth at around 5%, combined with policy corrections, could contribute at least 1% to overall GVA growth. Higher land and labour productivity would not only sustain food security domestically but also enhance India’s role in global agricultural markets.

The potential for agro-based entrepreneurship remains significant, offering avenues for rural economic expansion.

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India’s agriculture sector has continued to show resilience, contributing about 16% to the GDP in 2023-24, even as global economic uncertainties persist. The farm sector’s contribution to GDP has shrunk from 18% to 16%.

The sector recorded a growth of 3.5% in the second quarter of the FY25 year, while it has grown at an average of 5% annually from FY17 to FY23.

The recent rise in its growth rate can be attributed to improved conditions, potentially driven by favourable weather patterns, advances in agricultural practices, and government initiatives to enhance productivity and sustainability within the sector.

High-value sectors such as horticulture, livestock, and fisheries have emerged as the primary contributors to the overall growth of agriculture. Among these, fishery has demonstrated the highest compound annual growth rate (CAGR) at 13.67%, followed by livestock with a CAGR of 12.99% during FY15 to FY23 (at current prices).

The survey noted the inter-state variations in growth from 2011-12 to 2020-21. Andhra Pradesh was the leading performer with a CAGR of 8.8% in agriculture and allied sectors, excluding forestry and logging. Madhya Pradesh followed with 6.3%, and Tamil Nadu came in third with 4.8% among major states.

These states have diversified towards crops where yield is high. For example, Andhra Pradesh diversified towards jowar, Madhya Pradesh towards moong and Tamil Nadu towards maize. Even so, there is significant potential to enhance productivity and reduce the yield gap compared with the global average.

Government schemes like PM-KISAN and Pradhan Mantri Kisan Maandhan Yojana (PMKMY) have played a crucial role in stabilizing farm incomes and providing social security, with over 110 million farmers benefiting from direct income support and 2.3 million enrolled in the pension scheme, the survey said.

Alongside, targeted reforms such as e-KYC under the ‘one nation one ration card' (ONORC) framework and credit guarantee schemes for e-Negotiable Warehouse Receipts (e-NWR) are aimed at addressing systemic inefficiencies, it said.

The survey also pointed to the need for modernized market infrastructure, emphasizing better price discovery mechanisms through platforms like e-NAM and greater support for Farmer Producer Organizations (FPOs) and cooperatives. Strengthening these institutions, it noted, would create a more inclusive agricultural market and reduce farmers’ dependence on intermediaries.

Sectors such as animal husbandry, dairying, and fisheries are increasingly seen as crucial to farmers’ income security. Encouraging diversification into these areas, the survey noted, would provide a buffer against market fluctuations and build resilience in the face of changing climatic and economic conditions.

Citing the Kerala farmers’ land lease arrangement, the survey stressed the adoption of innovative land leasing models to increase productivity and income.

The survey emphasized that rising incomes drive changing dietary preferences, India's agriculture is seeing increased demand for horticulture, livestock, and fisheries. Given their perishable nature, efficient post-harvest management and strong market infrastructure are crucial, with FPOs, cooperatives, and private sector investment playing a key role.

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"The agriculture sector’s increasing contribution to the economy, particularly through livestock and fisheries, signals a shift towards diversification and value addition. However, to sustain this momentum, deeper investments in technology, infrastructure, and climate-resilient farming are crucial," said Chirag Jain, partner and food processing industry leader, Grant Thornton Bharat – a consulting firm.

However, looming challenges remain. Climate change and water scarcity continue to threaten agricultural sustainability. The survey called for a region-specific approach, advocating climate-resilient crop varieties, improved agricultural practices, and greater investment in micro-irrigation. It also underscored the role of digital technology in improving farm efficiency and ensuring sustainable growth.