Agriculture Sector Reforms and Government Steps for its Protection

Introduction – Agriculture as India’s Backbone

Agriculture has always been the foundation of India’s socio-economic structure. Even today, nearly half of India’s workforce is dependent on agriculture and allied activities. While the sector contributes around 16–18% to GDP, its importance goes far beyond numbers—it provides food security, employment, and stabilises the political economy of rural India. However, agriculture in India is at a crossroads. On one side, it has to meet the rising demand of a growing population, contribute to exports, and provide a sustainable livelihood to farmers. On the other side, it faces challenges like fragmented landholdings, climate volatility, price risks, policy uncertainty, and global trade obligations. Hence, reforms in agriculture are not optional—they are overdue, or in professional terms, “due.”

India’s agricultural policies were historically designed for self-sufficiency in food grains, which was crucial in the decades after independence. But the global trade order, increasing consumer demand, and the risks of climate change have altered the context. Today, “due agriculture reforms” refer to policies and frameworks that allow Indian agriculture to remain competitive, compliant with international rules, and yet protective of small and marginal farmers.

Why Agriculturists Feel Their Interests are Under Threat

Farmers in India often articulate a sense of being left vulnerable. This is not just a perception—it arises from multiple real pressures.

1. Policy Uncertainty

Government interventions such as sudden export bans on wheat or rice, abrupt changes in import duties on edible oils, or stock limits imposed on traders, are often motivated by inflation management. While such steps help consumers and maintain macroeconomic stability, they create deep uncertainties for farmers. For instance, onion farmers in Maharashtra have faced sudden export bans that depress domestic prices, leading to distress sales. When policies change overnight, farmers bear the risk without mechanisms to compensate.

2. Climate Risks

The frequency of unseasonal rains, droughts, and heatwaves has increased. For example, the wheat crop in 2022 faced serious yield losses due to a sudden heatwave in March-April, which reduced national production by nearly 5%. Such shocks not only reduce output but also impact farm incomes when combined with trade restrictions.

3. Rising Costs vs. Stagnant Prices

Input costs—fertiliser, electricity, labour—have been rising faster than farmgate prices. In some years, MSP hikes barely cover the rise in input costs. For smallholders with less than 2 hectares of land, margins become razor thin. The cost-price squeeze is one of the biggest threats to viability.

4. Global Competition

Farmers are also threatened by cheap imports or the prospect of opening markets to subsidised global produce. The fear is that without protective mechanisms, small Indian farmers will not be able to compete with large-scale U.S., Brazilian, or Australian farmers who enjoy economies of scale and government support. For instance, the U.S. spends billions annually in farm subsidies. If Indian markets were fully liberalised, pulses or maize from abroad could undercut local produce.

5. International Trade Rules

Finally, the WTO’s Agreement on Agriculture creates ceilings on how much a country can subsidise its farmers. India’s MSP and food stockholding practices often come under scrutiny. Farmers fear that future reforms to comply with WTO obligations may reduce support prices or subsidies.

Together, these threats explain why agriculturists feel reforms, while necessary, must not come at the cost of their survival.

GATT/WTO Agriculture Commitments Pending

Agriculture has always been contentious in international trade. Under the **GATT era**, agriculture was given several exemptions. It was only with the **WTO Agreement on Agriculture (AoA) in 1995** that binding rules were introduced. These rules covered:

– Market Access: Commitments to reduce tariffs and quotas.

– Export Competition: Gradual removal of export subsidies.

– Domestic Support: Classification of subsidies into “Amber Box” (trade-distorting, subject to limits), “Blue Box” (production-limiting, but permitted), and “Green Box” (non-trade-distorting, allowed without limits).

For India, the contentious issue is **Public Stockholding (PSH)**. India buys rice and wheat at MSP and maintains stocks for the Public Distribution System (PDS). WTO rules count these procurement operations as trade-distorting subsidies, calculated with reference to international prices of the 1980s. As a result, India appears to breach its subsidy limits on paper.

To address this, in Bali 2013, WTO members agreed to a “peace clause” protecting such PSH programmes from legal challenge until a permanent solution was found. More than a decade later, no permanent solution has been agreed. Thus, India remains under the temporary umbrella of the peace clause, while continuing to push for long-term flexibility. This is a critical pending obligation, affecting millions of farmers who depend on MSP operations.

Are U.S. Restrictions Related to Agriculture Reforms?

In 2025, the United States announced new tariffs on certain Indian products, largely tied to geopolitical tensions. While these are not directly linked to WTO agriculture reforms, agriculture has been a sticking point in bilateral negotiations. The U.S. has consistently asked India to open its markets for crops like corn, soybeans, and ethanol, which would directly expose Indian farmers to subsidised U.S. produce. Moreover, the U.S. has raised disputes at the WTO regarding India’s subsidies on sugarcane and rice.

Hence, while the recent tariffs are not specifically about agriculture reforms, they reflect the broader tension between India’s protective policies and U.S. demands for greater access. The underlying pressure from WTO rules and bilateral negotiations means agriculture reform is also tied to India’s global trade diplomacy.

Government Steps for Protecting Agriculture

The Government of India has taken multiple steps to balance reforms with protection:

1. Direct Income Support: PM-KISAN provides ₹6,000 annually to farmer families through DBT. While modest, it cushions volatility.

2. Insurance Schemes: PM Fasal Bima Yojana (PMFBY) provides risk pooling against yield loss, though improvements are needed in assessment and settlement speed.

3. Market Reforms: Initiatives like e-NAM, the Model APMC Act, and warehouse receipts provide options beyond local mandis.

4. Input and Productivity Support: Fertiliser subsidy, Soil Health Cards, micro-irrigation under PMKSY, and mechanisation support enhance sustainability.

5. Trade Diplomacy: India continues to press at the WTO for a permanent PSH solution and also seeks to diversify export markets to reduce dependence on a few partners.

Case Studies from Other Countries

Philippines – Rice Tariffication (2019):

Philippines removed quantitative restrictions on rice imports and imposed a tariff. While consumer prices fell, paddy farmers faced reduced incomes. To offset this, a Rice Competitiveness Enhancement Fund was created to support farmers with seeds and machinery. Lesson: Tariff liberalisation must be matched with strong adjustment funds.

After NAFTA, Mexican maize farmers were exposed to subsidised U.S. corn. Smallholders lost income, and many migrated to cities. While agribusiness exports grew, rural distress deepened. Lesson: Sudden liberalisation without safety nets can harm small farmers.

Indonesia – BULOG Reform:

Indonesia’s food agency BULOG reduced its monopoly powers under WTO pressure. Public stockholding continued but with more transparency. Lesson: Food security operations can be restructured to remain WTO-compliant while still protective.

Kenya – Fertiliser Subsidy:

Kenya’s large fertiliser subsidy helped farmers but distorted private markets. Reforms to target subsidies through e-vouchers improved efficiency. Lesson: Input subsidies should be smartly targeted and technology-driven.

Expected Impact of Agriculture Reforms on India

Short-term: Some transitional stress, especially for crops facing competition or reduced market interventions. Prices may soften in the near term, necessitating temporary income support.

Medium-term: Productivity improvements, diversification to high-value crops, and stronger markets can improve farm-gate prices. FPOs and contract farming can increase bargaining power.

Long-term: A more resilient, sustainable, and globally competitive agriculture sector. Farmers’ incomes rise not due to subsidies alone, but because of productivity, risk management, and value addition.

Roadmap for Balanced Reform

– Gradual Sequencing: Avoid sudden liberalisation. Reforms should be phased with adjustment funds.

– Green-Box Shift: Reorient subsidies toward R&D, infrastructure, and environmental services, which are WTO-permitted.

– Codified Policy Triggers: Pre-announced export policies reduce uncertainty.

– Risk Solutions: Expand insurance, futures, and warehouse finance.

– Export Readiness: Invest in SPS labs, traceability, and cold chains.

– Negotiation Strategy: Secure a permanent WTO solution for public stockholding to protect PDS and MSP.

Conclusion

Agriculture reforms in India are due not just because of WTO obligations, but because the sector must modernise to remain viable for farmers and competitive globally. The key is to design reforms that protect smallholders while aligning with international rules. Experiences from other countries show that poorly sequenced reforms can hurt farmers, while smartly designed, gradual reforms with safety nets can strengthen resilience. India must walk this tightrope carefully. With well-calibrated steps, Indian agriculture can secure both farmers’ livelihoods and the nation’s food security, while meeting global obligations.