Revival in India's Agriculture Sector: What Advance Estimates and Recent Developments Indicate

The latest projections on India’s agriculture sector bring promising news about a potential revival, spurred by favorable output estimates and strategic policy shifts. However, challenges remain regarding the profitability for farmers, especially given the subdued impact of Minimum Support Price (MSP) operations and rising input costs. 

The recent estimates by the agriculture ministry, along with insights from the Solvent Extractors’ Association of India (SEA), highlight the complexities surrounding growth in the agricultural economy and the challenges to achieving sustainable income for farmers.

Record Oilseed Output and Declining Edible Oil Imports

India’s import of edible oils is expected to fall to 15 million tons (MT) in the 2024-2025 oil year, down from 16 MT in 2023-2024. This anticipated reduction is largely due to a record output of oilseed crops, which could allow India to rely more on domestic oilseed production, reducing its dependency on imported edible oils. This shift not only signals improved productivity but also a positive step towards self-reliance in the oilseed sector.

However, while production is high, profitability remains uncertain. Farmers growing oilseeds like soybean are currently not able to fully benefit from their yield due to the lack of MSP operations. The rise in edible oil prices has not significantly benefitted these farmers, as the profits largely go to traders rather than to those cultivating the crops. Ensuring better income for oilseed farmers will depend on more robust MSP interventions and potentially setting up support systems that allow farmers to capture a larger share of the end value.

Positive Food Grain Production Outlook for the Kharif Season

According to the agriculture ministry’s advance estimates, food grain production for the 2024-2025 kharif season could hit a record 164.7 MT—a 5.4% year-on-year increase. This growth is expected to boost the Gross Value Added (GVA) in agriculture and allied sectors, which was reported to have grown only by 1.4% in the previous year due to an uneven monsoon that impacted crops such as pulses and horticultural produce. With better food grain output this season, GVA growth could accelerate to an estimated 3-3.2% for the fiscal year, contributing positively to India’s rural economy.

However, for this growth to translate into tangible improvements in farmers’ income, the government’s MSP operations need to be more comprehensive. Currently, MSP procurement is primarily focused on paddy, leaving other essential crops like pulses and oilseeds with limited support. Expanding MSP to cover a broader range of crops could create more stable income streams for farmers and prevent price fluctuations from eating into their earnings.

The Role of Price Realization and Rural Consumption

While increased food grain output is promising, the economic gains for farmers depend significantly on price realization, which remains a complex issue. Price realization refers to the actual income that farmers receive from selling their produce, and it is influenced by various factors, including market demand, transportation, and government interventions like MSP.

For a meaningful revival in farm income, improved output must be accompanied by mechanisms that ensure farmers can sell their produce at fair prices. MSP purchases, particularly for oilseeds and pulses, need to be bolstered to prevent middlemen and traders from capturing the majority of profits. The lack of robust MSP operations leaves many farmers vulnerable to price dips, which erodes their income and, subsequently, rural purchasing power. If farmers can achieve fair prices for their produce, rural consumption is likely to see an uplift, stimulating the local economy and creating demand across various sectors.

MSP and Farmers’ Income

Although MSP is a crucial tool for stabilizing farmers' incomes, its implementation has not been uniform across crops. Paddy is the main beneficiary of MSP procurement, while crops like pulses and oilseeds see minimal intervention. This uneven support can skew crop choices, leading farmers to favor crops with MSP backing over those that may otherwise be more profitable or environmentally suitable. The current MSP structure also doesn’t adequately account for the fluctuating input costs, which have increased due to inflation and global economic pressures. For a more balanced and beneficial MSP framework, expanding MSP support to diverse crops and linking MSP to input cost inflation could make a significant difference in stabilizing farmer income.

A Mixed Picture for Growth and Farmer Prosperity

The agricultural sector's GVA growth, which stood at just 1.4% in the 2023-2024 fiscal year, highlights the sector's vulnerability to environmental factors like monsoon variability. The first quarter of FY25 saw the sector grow by 2%, down from 3.7% in the previous year, indicating modest recovery but still below optimal growth levels. Economists estimate GVA growth in agriculture may reach 3-3.2% in the current fiscal year if favorable conditions persist.

While these numbers indicate a slow rebound, they underscore the need for stronger support mechanisms to protect farmers from volatile conditions. The right policies—such as MSP expansion, input subsidies, and improved infrastructure for storage and transport—are essential to ensure that increased production translates into actual income growth.

A Path Forward

Achieving a sustainable revival in India’s agriculture sector requires a multi-pronged policy approach. The government can consider the following steps to support farmers more effectively:

Broaden MSP Operations

Expanding MSP to include pulses, oilseeds, and other under-supported crops would create a more balanced approach and reduce income disparities among farmers.

Stabilize Input Costs

Providing subsidies or rebates on essential inputs like seeds, fertilizers, and pesticides would help manage rising input costs and make farming more profitable.

Promote Diversification

Encouraging farmers to diversify their crops rather than relying heavily on paddy and wheat could create a more resilient agricultural system, less dependent on MSP support alone.

Enhance Storage and Transport Infrastructure

Better storage facilities and an efficient transport network would reduce post-harvest losses and help farmers get their products to market faster, ensuring better price realization.

Empower Farmer Producer Organizations (FPOs)

FPOs can provide collective bargaining power to farmers, allowing them to access fairer prices and better market insights, thereby improving profitability.

Conclusion

The recent advance estimates and positive projections for India’s agricultural sector bring hope for a revival. However, true progress will only occur if the gains in output and GVA growth are equitably distributed to benefit the farming community. 

Strengthening MSP, stabilizing input costs, and creating more inclusive policies that protect farmers from price volatility will be instrumental in fostering a sustainable agricultural economy. Addressing these challenges will not only raise farm incomes but also support rural consumption, creating a ripple effect across the broader economy.