14. India
Support to producers in India includes budgetary spending corresponding to 9.6% of gross farm receipts, positive market price support (MPS) of +1.7% of gross farm receipts for commodities that are supported and negative MPS to -18.5% for those that are taxed. Overall, this led to negative net support of -7.2% of gross farm receipts in 2019-21, against a backdrop of increasing prices at the border for the exported commodities covered.
Support to producers has been negative throughout the last two decades, but fluctuates markedly. The negative producer support estimate shows that domestic producers have been implicitly taxed on average, as budgetary payments to farmers did not offset the price-depressing effect of complex domestic marketing regulations and trade policy measures. Virtually all gross producer transfers (whether positive or negative) come in potentially most production- and trade-distorting forms – a consistent pattern since 2000-02.
Single commodity transfers (SCT) follow the overall MPS pattern, but vary by commodity. Most commodities were implicitly taxed by between 5% and 91% of commodity receipts in 2019-21. Commodities with positive SCTs, ranging between 6% and 23% of commodity receipts in the same period, include sugar, chickpeas, other pulses and poultry meat.
Budgetary transfers to producers are dominated by subsidies for variable input use, such as fertilisers, electricity and irrigation water. However, budgetary allocations to the direct income transfer programme, PM-KISAN, have been increasing since its implementation in 2018.
Public expenditures financing general services to the sector (GSSE), principally for infrastructure-related investments, are around half the level of subsidies for variable input use. At 4% in 2019-21, expenditure for GSSE relative to the value of agricultural production increased compared to 2000-02.
Mirroring the farm-price-depressing effect on producers throughout the period covered, policies provide implicit support to consumers. Policies that affect farm prices, along with substantially increased food subsidies under the Targeted Public Distribution System during the COVID-19 pandemic, reduced the costs for consumers, with a consumer support estimate of 36% of expenditure on average across all commodities in 2019-21. Total budgetary support is estimated at 2.6% of GDP in 2019-21, contributing to an overall positive total support estimate (TSE) of 0.9% of GDP.
On 29 November 2021, the parliament approved a bill withdrawing the three laws aimed at reforming agricultural markets, which was initially endorsed in September 2020. The laws were intended to allow farmers sell their products outside of government-regulated markets, removing limits on private stocking, trading or buying of agricultural commodities, to promote barrier-free inter- and intra-state trade.
The government raised the minimum support prices (MSP) for summer planted (kharif) crops in mid-2021. This included an increase of 2% for soybeans and sunflower MSPs, 3.9% for rice, and 1.1% for maize. The central government also raised the MSPs for winter planted (rabi) crops in September 2021. This included an increase of 7.8% for lentils MSP, 2.5% for chickpeas, 2% for wheat, 2.2% for barley, and 8.6% for rapeseed. The government allocated INR 286 billion (USD 3.8 billion) more for fertiliser subsidies to offset an increase in international prices for fertilisers in October 2021.
The government extended the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) food distribution programme to November 2021 in response to the second wave of the COVID-19 pandemic.
As part of the drive to enhance self-sufficiency and reduce the vegetable oil imports bill, India announced an INR 110 billion (USD 1.48 billion) plan (the National Mission on Oilseeds and Oil Palm) in July 2021 to enhance domestic production and productivity of oilseeds, palm oil and pulses. Support will be granted for the purchase of higher quality seeds, tools and machinery; plant protection equipment, chemicals and fertilisers; and targeted infrastructure, technology transfer, extension and training.
Several measures were taken to reduce trade barriers. The Ministry of Commerce and Industry removed selected pulses from the list of import quotas in May 2021, with effect until November 2021. In July 2021, the Ministry of Finance temporarily eliminated tariffs applied to lentils. In October 2021, the government suspended tariffs on crude palm oil, crude soybean oil, and crude sunflower oil until 31 March 2022. In May 2021, the Ministry of Consumer Affairs reduced the sugar export subsidy by 33% to INR 4 000 (USD 55) per tonne. The notified rate affects contracts signed between sugar mills and exporting parties on or after 20 May 2021. The gradual reduction in export subsidies aims to accelerate diversion of sugar toward ethanol production in support of increasing the blending rate to 20% by 2025.
The Union Budget 2021-22 includes new general services programmes targeting pest and disease inspection and control as well as storage, marketing and infrastructure. The Union Budget 2022-23, released in February 2022, introduces measures to improve financial services to farmers. A new fund will be set up for 2022-23 through the National Bank for Agriculture and Rural Development to finance start-ups in agriculture and other rural enterprises. New programmes will focus as well on digitalisation in agriculture, marketing and extension services. The Union Budget 2022-23 also foresees providing direct payments to wheat and rice farmers of INR 2.4 trillion (USD 31.2 billion) of MSP value from April 2022 to March 2023.
India’s Nationally Determined Contribution (NDC) includes an economy-wide emission intensity reduction target, but no sector-specific targets. Nevertheless, several sector-specific programmes aim to mitigate greenhouse gas (GHG) emissions by promoting energy conservation, alternative fuels from renewable technologies, water conservation, afforestation, land and waste management, increased fertiliser efficiency, crop diversification, lower methane emission rice production, and avoiding crop residue burning.
Agriculture support could also be further aligned with GHG mitigation efforts. In particular, scaling back variable input subsidies (fertiliser, irrigation water and electricity) can directly lower GHG emissions. Possible savings from such reduction could be applied to train farmers to use such inputs more efficiently and sustainably by ensuring that extension systems focus on climate change, sustainability, digital skills, and resilience more broadly.
Greater emphasis on general services can boost needed investment in agricultural research and development and innovation. In particular, increased investments in the agricultural knowledge system and knowledge transfer through Farmer Producer Organisations can ensure sustained and sustainable productivity growth. Promoting new technologies and production practices is important for GHG emission reduction in the livestock sector, the primary contributor to GHG emissions in India.
Due to a combination of restrictive domestic marketing policies and border measures for many products and over most of the period reviewed, Indian farmers have been receiving prices lower than those prevailing on international markets. Despite the repeal of laws promoting country-wide reforms of agricultural marketing regulations, further developing the electronic National Agricultural Market (e-NAM), set up in 2016, should remain a priority. In addition, the 2017 model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act should continue being implemented in a more harmonised and consistent way across states. These initiatives can foster more efficient markets and competitive agri-food supply chains across states, and should be synchronised through coherent plans with reforms to the minimum support price system. They need to be complemented with investments in infrastructure, marketing, training and other general services to agriculture for farmers to reap the benefits in productivity and income. The budgetary allocations for rural infrastructure in the 2021 and 2022 Union Budgets are positive steps in this direction.
The large share of employment in agriculture compared to its GDP contribution reflects the persistent labour productivity gap with other sectors and translates into low farm incomes. In the short to medium term, direct cash transfers (such as through PM-KISAN) to incomes of the poorest farmers can support their livelihoods as well as adjustment to new market conditions. In the long term, policies are needed to facilitate significant structural adjustments, including the transition of farm labour to other activities and consolidation towards sufficiently large farm operations to exploit economies of scale. Continued reforms to land regulations will be more effective if complemented by increased investments in key public services to the sector, such as education, training and infrastructure, and in a broader enabling environment, including financial services.
India is an important exporter in a number of agri-food markets. The Agricultural Export Policy (AEP) framework adopted in 2018 was important to reduce uncertainty and transaction costs throughout supply chains by helping to avoid export restrictions on organic and processed agricultural products. However, recent export restrictions on products such as onions directly affect India’s reliability as a supplier and exacerbate the persistent challenge of low farm incomes. An extension of the AEP to all agri-food products should be considered to create a stable and predictable market environment.
Recent reductions in tariffs and relaxation of quantitative restrictions on selected pulses, albeit temporary, are additional positive steps to improve food security and diversify diets. Together with domestic marketing reforms, easing export and import restrictions would make the market more predictable and raise incentives for producers and traders to invest in supply chains.
India has made significant progress in recent years in eliminating inefficiencies in the food distribution system, and these efforts should continue. The experimental replacement of physical grain distribution by direct cash transfers should be expanded, with some adjustments in light of experiences gained.
Overview of policy trends
Food security has been an important objective of agricultural and trade policy since India’s independence in 1947. Food shortages in the early 1960s made crop productivity and farm output a key policy ambition. Although scope to further expand the area under cultivation was limited, the advent of the “green revolution” in the mid-1960s raised crop productivity through improved technologies and seed varieties. This was accompanied by expanded extension services and increased use of fertilisers, pesticides and irrigation.
The government of India introduced several marketing regulations affecting the sale, stocking and trading of agricultural commodities. The Essential Commodities Act (ECA) introduced in 1955 provided for the control of production, supply, distribution, and pricing of essential commodities. During the 1960s and 1970s, most states also enacted and enforced Agricultural Produce Markets Regulation (APMR) Acts, with the first point of sale of agriculture products occurring at regulated market yards (mandis) under the ambit of Agricultural Produce Market Committees (APMC). Two institutions key to prices and distribution of wheat and rice were set up in 1965, namely the Food Corporation of India (FCI) and the Agricultural Prices Commission, later renamed the Commission for Agricultural Costs and Prices (CACP). The complex domestic marketing regulations and border measures increasingly penalised producers through gaps between international prices and those received by Indian farmers.
In the 1970s, government programmes encouraged increased production and processing of milk at three different levels: (1) at the farm-level, dairy farmers were organised into co-operatives and provided with advanced technologies, such as animal breeds that produced more milk; (2) at the district level, co-operative unions formed, which owned and operated milk processing plants as well as storage and transport equipment, and also provided animal health services; (3) at the state level, state federations conducted and co-ordinated the nation-wide marketing of milk. Government funding for agricultural research and extension increased, and many State Agricultural Universities (SAU) were set up. Institutional lending to farmers expanded by directing commercial banks (nationalised from 1969) to provide credit to agriculture. New financial institutions were established, such as the National Bank for Agriculture and Rural Development (NABARD) in 1982 and regional rural banks. Import competition was highly restricted in order to allow domestic agricultural production to increase.
In the 1980s and 1990s, yield-enhancing “green revolution” techniques expanded to additional regions and crops such as pulses, oilseeds and coarse grains. Policy reforms were carried out in the rest of the economy, such as relaxing requirements for firms to secure operating licenses and deregulating in the manufacturing sector, but they largely bypassed agriculture, partly because of the prevalence of state regulations in agriculture. From 1980 to 1999, budgetary support to agriculture increased more than tenfold.
The National Agricultural Policy (NAP), formulated in 2000, set a priority on cropping intensity on existing agricultural land, developing rural infrastructure that supports all rural activities, and developing and disseminating agricultural technologies. The National Policy for Farmers (NPF), approved in 2007, identified a need to focus more on the economic well-being of farmers rather than just on production.
The Eleventh Five-Year Plan 2007-12 focused on bringing technology to farmers, improving the efficiency of investments, and improving access for the poor to land, credit and skills as well as addressing water management concerns. The Twelfth Five-Year Plan 2012-17 was articulated around expenditure on agriculture and on infrastructure along with an aim to improve the functioning of markets, more efficient use of natural resources, and governance in terms of institutions delivering services such as credit and animal health.
The 2012-17 plan took forward the Targeted Public Distribution System (TPDS) reforms, initiated in 1997, in order to reduce TPDS leakage (i.e. the grain released from government stocks for distribution under the previous Public Distribution System, PDS,1 which did not reach intended beneficiaries). Some food subsidies were redirected to other welfare schemes to better target the poor, policies specific to individual states or areas were introduced, and the definition of “poor” for the purpose of the TPDS was redefined. The 2013 National Food Security Act (NFSA) further addresses these concerns.
In 2016, the central government set the target of doubling farmers’ income by 2022-23. As of 2018, five-year plans were replaced by a framework of three-year action agendas, prepared by the National Institution for Transforming India (NITI Aayog, the erstwhile Planning Commission of India), a policy think-tank of the government of India. The Agriculture Export Policy framework was established at the end of 2018, aiming to double agricultural exports by 2022-23 and boost the value-added of agricultural exports. To address farm indebtedness, several states implemented support packages for farm loan waivers between 2017 and 2020.
Concerns around highly fragmented markets, inadequate physical marketing infrastructure, large numbers of intermediaries in supply chains and insufficient remuneration to farmers led the central government to suggest gradual amendments to marketing regulations under the Agricultural Produce Market Committees (APMC) Acts in 2003, 2007 and 2017. While shared with state governments as a recommendation for adoption, implementation of agricultural marketing reforms remained highly differentiated across India’s states. In June 2020, the government initiated reforms to domestic agricultural marketing regulations as part of the COVID-19 support package.
Over the past two decades, producer support was composed of negative market price support (MPS), and budgetary allocations, including almost exclusively input subsidies. India’s percentage PSE fluctuated markedly, registering a high of zero in 2000, a low of -31% in 2007, followed by large swings before stabilising in recent years (Figure 14.4). These variations were driven primarily by changes in the relative levels of domestic and international prices underlying MPS, while input subsidies followed a more steadily increasing trend. The particularly large absolute size of negative MPS in 2011-13 (and to some extent in 2007 and 2008) coincides with periods of high international commodity prices not or only partially transmitted to the domestic market, due at least in part to India’s use of export-impeding measures (for example, export restrictions or export bans applied in several of those years to wheat, non-basmati rice, certain chickpeas, sugar and milk). The negative value of the PSE reflects that, on average, domestic producers were implicitly taxed, as the increasing budgetary payments to farmers did not offset the price-depressing effect of complex domestic regulations and trade policy measures. Payments not requiring production have been increasing since 2018, driven by higher budgetary allocations to the direct income transfer programme Pradhan Mantri Kisan Samman Nidhi (PM-KISAN). Against a backdrop of increasing reference prices for the exported commodities covered in 2020-21, MPS has been higher than during 2015-19.
Main policy instruments
There are six major policy channels directly relating to agriculture and food in India: (1) managed prices and marketing channels for many farm products; (2) subsidised farm inputs; (3) general services for the agricultural sector as a whole; (4) making certain food staples available to selected groups of the population at government-subsidised prices; (5) regulated border transactions through trade policy; and more recently, (6) the income support scheme PM-KISAN (OECD/ICRIER, 2018[1]; ICRIER, 2022[2]; Gulati, Kapur and Bouton, 2020[3]).
States have constitutional responsibility for many aspects of agriculture, but the central government plays an important role developing national approaches to policy and providing the necessary funds to implement programmes at state level. The central government (Union Cabinet) is responsible for some key policy areas, notably international trade policies, and for implementation of the National Food Security Act (NFSA) of 2013.
Policies that have been governing the marketing of agricultural commodities in India – from the producer level to downstream levels in the food chain – include the national Essential Commodities Act (ECA) and the state-level APMC Acts. Through these acts, producer prices are affected by regulations influencing pricing, procuring, stocking, and trading of commodities. Farmers bring their produce to sell in regulated wholesale markets (or mandis). This infrastructure is also used for government procurement under the minimum support price system. Differences exist among states in the status of their respective APMC Acts and in how these acts are implemented.2 The electronic portal (electronic National Agricultural Market, e-NAM) set up in 2016 and the 2017 model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act were shared with state governments as a recommendation for adoption.3 E-NAM currently integrates 1 000 APMC markets in 18 states and 3 Union Territories (UTs); almost 17 million farmers and 150 000 traders are registered on the e-NAM platform (Government of India, 2021[4]).
Based on the recommendations of the CACP, the central government establishes a set of minimum support prices (MSP) for 23 commodities each year. The CACP bases its recommendations on the average cost of production at two levels: actual paid out cost of production; and the imputed value of family labour. State governments may also provide a bonus payable over and above the MSP for some crops. National and state-level agencies operating on behalf of the Food Corporation of India (FCI) can buy wheat, rice and coarse grains as well. A number of other agencies can buy pulses, oilseeds and cotton at MSP – including through the Pradhan Mantri Annadata Aay Sanrakshan Yojna (PM-AASHA) programme introduced in 2018 – and some horticulture commodities without MSP are also procured. However, procurement under the price support scheme effectively operates mainly for wheat, rice and cotton, and only in a few states.
The only payments based on output support clearing of arrears for sugar cane deliveries and are directly paid to sugar cane farmers. These were introduced in 2018.
Input support policies enable agricultural producers to obtain farm inputs at subsidised prices. Policies governing the supply of fertilisers, electricity and water are the largest of these. Other supported inputs are seeds, machinery, credit, and crop insurance. In recent years, increased use has been made of state-level loan debt waivers, with local governments compensating lending institutions for forgiving debt to farmers. More than 70% of agricultural loans are from financial institutions such as commercial banks, with the rest stemming from non-institutional sources (e.g. moneylenders) (Reserve Bank of India, 2019[5]).
The PM-KISAN scheme provides an annual direct income transfer of INR 6 000 (USD 84) per farmer to all farmers with land titles. The payment does not require farmers to produce and may be used for any need.
General services policies focus on programmes for the development and maintenance of infrastructure, particularly related to irrigation. Budgetary support is also significant for public stockholding and for agricultural knowledge and innovation.
Public distribution of food grains is done under the joint responsibility of the central and state governments. The TPDS operates under the NFSA in all states and UTs. Other Welfare Schemes (OWS) also operate under the NFSA. The central government allocates food grains to state governments and the FCI transports food grains from surplus states to deficit states. State governments distribute the food grain entitlements by allocating supplies within the state, identifying eligible families, issuing ration cards, and distributing food grains mainly through Fair Price Shops.
India’s Foreign Trade Policy is formulated and implemented by the Directorate General of Foreign Trade (DGFT) and announced every five years. It is reviewed and adjusted annually in consultation with relevant public agencies. The Basic Customs Duty (BCD), also known as the statutory rate, is agreed at the same time as the approval of the annual budget.
Agricultural exports have been managed for several decades through a combination of export restrictions, including export prohibitions, licensing requirements, quotas, taxes, minimum export prices,4 and state trading requirements. The application or elimination of such restrictions may change several times per year, according to domestic supplies and prices. The 2018 Agriculture Export Policy framework includes three main areas for action. First, ensuring that processed agricultural products and organic products are not subject to export restrictions. Second, undertaking consultations among stakeholders and Ministries to identify those essential food security commodities to which export restrictions may be applied under specific market conditions. Third, reducing import barriers applied to agricultural products for processing and re-exporting.
The Agricultural and Processed Food Products Export Development Authority (APEDA) is under the responsibility of the Ministry of Commerce and Industry (MoCI). It provides financial assistance to exporters in the form of transport support.5
Environmental sustainability measures have been gaining prominence, particularly through programmes entitled “missions”. The National Mission for Sustainable Agriculture (NMSA) became operational in 2014-15, promoting soil and moisture conservation measures; comprehensive soil health management; efficient water management practices, and mainstreaming rain-fed technologies. “Farm Water Management” was implemented as one of the components of NMSA with the objective of enhancing water use efficiency by promoting technological interventions such as drip and sprinkler technologies, efficient water application and distribution systems, and secondary storage. Thereafter, these activities have been subsumed under the “Per Drop More Crop (PDMC)” component of Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) in 2015-16. Also under the NMSA, “Rainfed Area Development” focuses on Integrated Farming Systems for enhancing productivity and minimising risks associated with climatic variability. Under this system, crops/cropping systems are integrated with activities such as horticulture, livestock, fishery, agro-forestry and apiculture not only to support farmers by providing additional income opportunities, but also to mitigate the impacts of drought, flood, or other extreme weather events.
“Soil Health Management” is another component under the NMSA. This aims at promoting integrated nutrient management through a targeted use of chemical fertilisers including secondary and micro-nutrients in conjunction with organic manures and bio-fertilisers for improving soil health and its productivity, strengthening of soil and fertiliser testing facilities to improve soil test based recommendations to farmers for improving soil fertility. The Soil Health Card, under implementation since 2015, provides information to farmers on the nutrients status of their soil and recommendation on appropriate dosage of nutrients to be applied for improving soil health and its fertility.
In addition, India is implementing specific schemes that promote organic farming (Paramparagat Krishi Vikas Yojana Mission) as well as efficient irrigation systems and watershed management (Pradhan Mantri Krishi Sinchayee Yojana Mission). Missions such as the National Mission on Agricultural Extension and Technology are aimed at improving soil health and climate resilient agro-ecological systems through technical assistance.
Climate change mitigation policies in agriculture
Agriculture’s 14.4% share of GHG emissions is higher than the OECD average (9.7%), partly due to the prominence of the agricultural sector in the Indian economy. Methane emissions due to enteric fermentation by livestock (54.6%), anaerobic conditions during rice cultivation (17.5%) and nitrous oxide emissions from application of nitrogenous fertilisers in agricultural soils (19%) account for 91% of GHG emissions from agriculture (Sharma, Thangaraj and Gulati, 2021[6]). Emissions from the burning of crop residues are particularly significant in northern India, although only 2.1% of total agricultural emissions.
India ratified the Paris Agreement on Climate Change on 2 October 2016. India’s NDC commits to reducing the emissions intensity of GDP 33-35% below 2005 levels by 2030, noting that this commitment does not bind India to sector-specific mitigation obligations (Climate Action Tracker, 2018[7]). India has committed in its NDC to three actions to realise the emission intensity targets: (1) increase the percentage of non-fossil-fuels to about 40% in the overall energy mix; (2) improve energy efficiency in production and utilisation across all sectors; (3) create an additional carbon sink of 2.5-3 billion tCO2eq through forest and tree cover (Sharma, Thangaraj and Gulati, 2021[6]). In December 2020, the Ministry of Environment, Forest and Climate Change (MoEFCC) constituted a high-level inter-ministerial Apex Committee for Implementation of Paris Agreement (AIPA).
India has not yet submitted an official update of its 2016 NDC to the United Nations Framework Convention on Climate Change (UNFCCC), but announced updates to its targets at the COP26 World Leaders Summit in November 2021: (1) to reduce the carbon intensity of the economy to 45% below 2005 levels by 2030; (2) to increase non-fossil capacity in power generation to 500 GW; (3) to achieve 50% of energy requirement from renewable sources by 2030; (4) to reduce emissions 1 billion tonnes by 2030; (5) to achieve the net-zero target by 2070 (Ministry of External Affairs, 2021[8]).
India’s strategies for GHG mitigation in the agricultural sector promote energy conservation, alternative fuels from renewable technologies, water conservation, afforestation, and land and waste management. In addition to the NDC, policy areas for action in climate change mitigation and adaptation are promoted through implementation of the 2008 National Action Plan on Climate Change (NAPCC). The NAPCC incorporates eight priority National Missions, including the National Water Mission and the National Mission for Sustainable Agriculture.
Efforts to reduce GHG emissions from agriculture include programmes in horticulture land extension, crop diversification, increased rice intensification systems, direct-seed rice cultivation, solar pumps, avoiding crop residue burning, micro-irrigation, bio-fertilisers, balanced feedstock and bypass protein for livestock (Ministry of Environment, Forest and Climate Change, 2021[9]). As part of the National Food Security Mission (NFSM), systems of rice intensification are being implemented in 193 districts of 24 states. Farm equipment that enables timely sowing in the standing paddy residues is made available to farmers directly, and through Custom Hiring Centres (CHCs) and Farm Machinery Banks (FMBs) to enable sowing of the wheat crop without burning of paddy residues. The Neem Coated Urea (NCU) scheme regulates urea use, enhances nitrogen availability to crops, and reduces fertiliser application costs.6 The Union Budget 2022-23, released in February 2022, promotes chemical-free natural farming throughout the country, with a focus in a first stage on farmers’ land in 5 km wide corridors along the river Ganga.
The PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan) scheme aims for 30.8 GW solar capacity through installation of small solar power plants of up to 2 MW capacity on barren/fallow/pasture/marshy land of farmers; replacement of 2 million diesel pumps by standalone solar pumps; and solarisation of 1.5 million grid connected agriculture pumps by 2022. The central government is increasing budgetary allocations for R&D in technologies aimed at converting agricultural stubble into biogas or other energy products.
MoEFCC is conducting programmes in afforestation, such as the National Afforestation Programme initiated in 2000. This targets community-based activities such as agri-forestry, improved soil conversation and ecological restoration of degraded forests.
Domestic policy developments in 2021-22
On 29 November 2021, the Parliament approved a bill withdrawing the three laws aimed at reforming existing agricultural marketing regulations (ECA and APMC Acts), initially endorsed in September 2020. Back in June 2020, the central government had initiated reforms to domestic agricultural marketing regulations as part of the COVID-19 support package, under the strategy “One India, one agriculture market”. The proposed reforms included a set of ordinances aiming to: deregulate major food crops from the 1955 ECA; allow farmers to sell their agricultural products outside of government-regulated markets; and allow barrier-free inter- and intra-state trade of agricultural commodities. The central government had also proposed providing a legal framework for farmers to facilitate contract farming schemes with processors and other market actors in supply chains in order to reduce price risk.
Following continued farmers’ protests in December 2021, the government also agreed to set up a Committee to review the legal framework for the MSP system. The Committee is yet to be formed but would include a representative of the Samyukta Kissan Morcha (SKM), the farmer group spearheading the protests.
In June 2021, the government of India raised the MSPs for summer planted (kharif) crops. This includes an increase of 2% for soybeans and sunflower MSPs, 3.9% for rice, and 1.1% for maize (Government of India, 2021[10]). The central government also raised the MSPs for winter planted (rabi) crops in September 2021. This includes an increase of 7.8% for lentils MSP, 2.5% for chickpeas, 2% for wheat, 2.2% for barley, and 8.6% for rapeseed (Government of India, 2021[11]). With the objective to encourage crop diversification, the MSPs paid for oilseeds and pulses remain more favourable than those for cereals.
In August 2021, the Cabinet Committee on Economic Affairs (CCEA) approved an increase of 1.8% to INR 2 900 (USD 39) per tonne in the Fair and Remunerative Price (FRP) for sugarcane for marketing year 2021/22. There was also an approved premium of INR 29 (USD 0.4) per tonne for higher yield per tonne of sugar cane (i.e. defined by the CCEA as the amount of sugar produced by crushing a given amount of sugarcane by weight) (CCEA, 2021[12]).
In May 2021, the Ministry of Agriculture & Farmers’ Welfare (MAFW) introduced a multi-year Kharif Strategy for achieving self-sufficiency in oilseeds production. The Oilseed and Oil Palm scheme under the larger National Food Security Mission allocates INR 110 billion (USD 1.5 billion) to support oilseeds production. The objective of the programme is to increase oilseeds cropland by an additional 630 000 hectares (Ministry of Agriculture & Farmers' Welfare, 2021[13]). The scheme includes the following areas for action:
Soybean seed distribution for inter-cropping purposes, provided to 41 districts in the states of Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, Karnataka, Telangana, and Chhattisgarh [INR 760 million (USD 10 million)];
Soybean seed distribution for high-potential regions, provided to 73 districts in Madhya Pradesh, Maharashtra, Rajasthan, Telangana, Karnataka, Uttar Pradesh, Chhattisgarh, and Gujarat [INR 1 billion (USD 13.9 million)];
Distribution of 74 000 groundnut seed mini-kits to farmers in the states of Gujarat, Andhra Pradesh, Rajasthan, Karnataka, Maharashtra, Madhya Pradesh, and Tamil Nadu [INR 130 million (USD 1.8 million];
Distribution of 816 435 seed mini-kits in 90 districts located in the states of Madhya Pradesh, Maharashtra, Rajasthan, Karnataka, Telangana, Chhattisgarh, Gujarat, Uttar Pradesh, and Bihar [INR 400 million (USD 5.3 million)].
In October 2021, India imposed limits on private storage of edible oils and oilseeds until 31 March 2022 (and extended until 30 June 2022 in February 2022), with the objective to contain rising domestic prices. The stock limits are set at state-level based on local market conditions (AMIS, 2021[14]). At the end of December 2021, the central government imposed private stockholding limits on soymeal (used as a raw material for poultry feed) until June 2022, also to contain rising domestic feed prices. Soymeal processors would be allowed to hold a maximum stock of 90 days production and required to declare the storage location. Government-registered traders can hold a maximum stock of 160 tonnes. The government also included soymeal to the list of essential commodities (under the remit of the Essential Commodities Act) until June 2022.
In October 2021, the central government allocated an additional INR 286 billion (USD 3.8 billion) for fertiliser subsidies in order to offset the increase in international prices for fertilisers. The subsidy for di-ammonium phosphate was raised by INR 438 per bag and by INR 100 per bag for nitrogen, phosphorus and potassium fertilisers.
In November 2021, the Ministry of Consumer Affairs released more than 50% of the existing buffer stock of 0.21 million tonnes of onions. This came in response to wholesale price increases for onions in October 2021.
In June 2021, the government of India allocated 78 000 tonnes of rice from the stocks maintained by the FCI to ethanol production at a subsidised price of INR 20 per kg (USD 273 per tonne). This was in response to the objective of increasing the blending rate to 20% by 2025 (AMIS, 2021[15]).
In January 2022, the central government announced that that it would provide up to 11 million tonnes of rice from the Food Corporation of India (FCI) stocks at subsidised rates to ethanol producers.
The Union Budget 2021-22 includes new general services programmes targeting pest and disease inspection and control as well as storage, marketing and other physical infrastructure.
The Union Budget 2022-23, released in February 2022, includes new measures for improving financial services to farmers. For instance, a new fund will be set up for 2022-23 through the National Bank for Agriculture and Rural Development (NABARD) to finance start-ups in agriculture and other rural enterprises. New programmes will also focus on digitalisation in agriculture, marketing, and extension services. The Union Budget 2022-23 also foresees providing direct payments to wheat and rice farmers of INR 2.4 trillion (USD 31.2 billion) of MSP value from April 2022 to March 2023.
Domestic policy responses to the COVID-19 pandemic
In May 2021, the government of India extended the deadline for wheat procurement until 15 June 2021. With this extension, farmers having experienced challenges relating to COVID-19 restrictions could still benefit from selling their products under the MSP system (AMIS, 2021[16]).
In June 2021, the central government extended until November 2021 the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) food distribution programme in response to the second wave of the COVID-19 pandemic. The programme adds 5 kg of rice or wheat to the regular grains distribution for 800 million beneficiaries. The extension of the programme adds INR 700 billion (USD 9.6 billion) to the programme cost.
Trade policy developments in 2021-22
In May 2021, and for the period until November 2021, the Ministry of Commerce and Industry (MoCI) removed selected pulses (pigeon peas/tur, mung beans, and black gram lentils/urad) from the list of pulses to which import quotas apply (Ministry of Industry and Commerce, 2021[17]).
In July 2021, the Ministry of Finance (MoF) temporarily eliminated the 20% tariff applied to lentils (with the exception of lentils imported from the United States, for which the tariff was reduced from 30% to 10%7). In September 2021, the Ministry of Finance announced the tariff on lentils imported from the United States would be increased from 10% to 20% (Ministry of Finance, 2021[18]). In addition, the Agriculture Infrastructure Development Cess (ADIC),8 levied on imported lentils, was also lowered from 20% to 10% (Ministry of Finance, 2021[19]).
In September 2021, the tariff on crude soy oil, sunflower oil and crude palm oil was reduced to 2.5% (from 7.5%, 7.5% and 10%, respectively). In October 2021, the application of the 2.5% import tariff on crude palm oil, crude soybean oil, and crude sunflower oil was suspended until 31 March 2022. The ADIC was reduced from 20% to 7.5% for crude palm oil and from 20% to 5% for crude soybean and sunflower oil (Ministry of Consumer Affairs, Food and Public Distribution, 2021[20]).
In September 2021, the MoCI authorised the inclusion of three additional ports (Mumbai, Tuticorin, and Vishakhapatnam) to the list able to receive bulk shipments of soybean meal. This measure aims to facilitate the import of soybean meal for India’s livestock production (Ministry of Commerce and Industry, 2021[21]).
In August 2021, the MoCI announced that imports of 1.2 million tonnes of genetically modified crushed and de-oiled soy cake (non-living modified organism, NLMO) would be allowed until 31 October 2021. This was intended to help the poultry industry deal with higher prices due to shortages of soymeal. It was approved after the MoEFCC assessed that crushed de-oiled cake belongs to the NLMO category (as opposed to GM soybean seed) (AMIS, 2021[22]). In September 2021, the MoCI authorised the import of consignments of soybean meal and soy cake derived from genetically engineered soybeans until January 2022.
On 6 December 2021, an import quota of 15 000 tonnes of watermelon seeds (HS 1207.70) was introduced. The quota applies between 1 January 2022 and 31 March 2022. Imports are allowed only by the final users of the imported product. India had also introduced in April 2021 a licensing requirement on melon seeds imports (Ministry of Commerce and Industry, 2021[23]).
In May 2021, the Ministry of Consumer Affairs reduced the sugar export subsidy by 33% to INR 4 000 (USD 54.6) per tonne. The notified rate affects contracts signed between sugar mills and exporting parties on or after 20 May 2021. The revised support comprises two forms of freight subsidy: (i) USD 32.8 per tonne toward internal transport and freight, including loading and unloading charges, and (ii) approximately USD 21.8 to cover ocean freight costs for shipments from Indian ports to export destinations. The gradual reduction in export subsidies also aims to accelerate diversion of sugar toward ethanol production in support of increasing the blending rate to 20% by 2025 (FAS USDA, 2021[24]).
Following the India – United States Trade Policy Forum in November 2021, India and the United States signed in January 2022 a framework agreement allowing for market access of exports from the United States of alfalfa hay and cherries and of exports from India of mango and pomegranate. Also in January 2022, India allowed for the first time imports of pig meat and pig meat products from the United States. On 2 April 2022, India and Australia signed an interim Economic Cooperation and Trade Agreement. In the context of the trade agreement, India will reduce tariffs on Australian agricultural exports such as sheep meat, wool, or wine. For instance, tariffs on wine with a minimum import price of USD 5 per bottle will be reduced to 100% from 150% while tariffs on bottles of minimum USD 15 are reduced to 75%. The agreement excludes imports into India of milk and other dairy products, seed oil, walnuts, pistachio nuts, wheat, rice, millet, apples, sugar, oil cake, or chickpeas.
In January 2022, India notified the WTO Dispute Settlement Body of its decision to appeal the panel reports in the cases brought by Brazil, Australia and Guatemala in the dispute settlement “India – Measures Concerning Sugar and Sugarcane” (WTO DS579, DS580, and DS581) (Ministry of Commerce and Industry, 2021[25]). The panel reports, circulated to WTO members on 14 December 2021, found the claims brought in the disputes to be legitimate, in that: (i) India implemented central and state level market price support programmes (which includes the centrally availed Fair and Remunerative Price and State Advised Price) in values greater than the amounts permitted under its WTO commitments (domestic support claims); and (ii) India provided export subsidies through certain support schemes inconsistent with its WTO obligations (export subsidy claims).
Amidst the ongoing COVID-19 pandemic, the application of the current Foreign Trade Policy 2015-20 was extended three times since 2020. In September 2021, its application was extended until 31 March 2022.
India is the seventh largest country in the world by land area and the second most populous after the People’s Republic of China with over 1.3 billion people (Table 14.3). While the share of urban population continued to increase over the past decade, about two-thirds of the population still lives in rural areas. At just 0.15 hectare per capita, agricultural land is very scarce.
Agriculture accounts for an estimated 42% of employment, but its 18% share of GDP indicates that labour productivity remains significantly lower than in the rest of the economy. The productivity gap is also reflected in the evolution of farm incomes, which have increased by less than one-third that of non-agricultural incomes. Agriculture’s weight in the economy has gradually declined, mostly in favour of services which have led economic growth over the last two decades and played a more important role in India’s economic development than in most other major emerging economies.
Indian agriculture is continuing to diversify towards livestock and away from grain crops. While grains and milk remain dominant, there has been a gradual change in the composition of production to other crops – such as sugar cane, cotton, fruit and vegetables – as well as certain meat sub-sectors. The livestock sector has seen faster and less volatile growth than the crop sector. The agricultural sector continues to be dominated by a large number of small-scale farmers, as the national average farm size has been in steady decline.
Real GDP growth has been fluctuating between 4% and 8% over the last two decades, highlighting remaining structural bottlenecks in areas such as labour markets or the business environment. The COVID-19 pandemic and related restrictions led to a 7% drop in GDP, but growth rebounded to a robust 10%, placing India again among the fastest growing G20 economies. Unemployment has increased since the COVID-19 pandemic, but the relatively low unemployment figure (averaging about 6% in 2018-20) hides significant informal employment. Following an increase in 2019 against a background of higher prices for selected food items, inflation has been decreasing but remains higher than pre-pandemic levels (Figure 14.5).
India is a consistent net agro-food exporter and the importance of agro-food products in total trade has been increasing over the past two decades, with a share of 12% in 2020. However, agro-food imports have until recently been growing faster than exports. Products for direct consumption – of low value, raw or semi-processed, and marketed in bulk – dominate agro-food exports, representing 65% of the total in 2019. Processed products for further processing by domestic industry are the main import category, accounting for 66% of total agro-food imports (Figure 14.6).
Agricultural output growth in India averaged 3.2% in 2010-19, well above the world average (Figure 14.6). This has been driven mainly by a significant increase in total factor productivity (TFP) which grew at 2.8% per year, backed by technological progress in the form of improved seeds and better infrastructure (including irrigation coverage, road density, and electricity supply).
However, the sustained growth in agricultural output and fertiliser use have put mounting pressures on natural resources, particularly land and water. This is reflected in the nutrient surplus intensities at the national level, which have grown over time and are much higher than the average for OECD countries (Table 14.4). About 80% of total water abstractions are by the agricultural sector. The share of agriculture in total GHG emissions is also higher than the OECD average, partly due to the weight of the agricultural sector in the Indian economy. Livestock rearing is the main source of GHGs.
References
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[16] AMIS (2021), AMIS Market Monitor June 2021 No. 89, http://www.amis-outlook.org/fileadmin/user_upload/amis/docs/Market_monitor/AMIS_Market_Monitor_Issue_89.pdf.
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[22] AMIS (2021), AMIS Market Monitor September 2021 No. 91, http://www.amis-outlook.org/fileadmin/user_upload/amis/docs/Market_monitor/AMIS_Market_Monitor_Issue_91.pdf.
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Notes
← 1. The Targeted Public Distribution System (TPDS) plays the same role as the Public Distribution System (PDS) before the TPDS, but adds a special focus on the people below the poverty line. TPDS emphasises on the implementation and identification of the poor for proper arrangement and delivery of food grains.
← 2. In the seven states or UTs that do not have an APMC act, procurement can take place outside mandis.
← 3. Agriculture marketing also covers the futures market governed by the Securities and Exchange Board of India (SEBI), with the largest value of agricultural commodity trade taking place through the National Commodity Derivative Exchange (NCDEX). In addition, the Negotiable Warehouse Receipt System (NWRS) – established under the Warehousing Development and Regulatory Authority (WDRA) – aims to support farmers by storing products in warehouses. However, farmers, especially small and marginal, do not directly trade in agri-futures market in India.
← 4. This represents the price below which exporters are not allowed to export a specific commodity. A minimum export price is set taking into consideration concerns about domestic prices and supply of that specific commodity.
← 5. A Ministerial Decision on Export Competition at the WTO Ministerial Conference held in Nairobi in 2015 put an end to the subsidisation of agricultural exports, which for India would occur at the end of 2023 (https://www.wto.org/english/thewto_e/minist_e/mc10_e/l980_e.htm).
← 6. NCU slows down the release of fertiliser and makes it available to the crop more effectively.
← 7. In 2019, MoF announced tariff increases on various products imported from the United States, in retaliation to the duty increases introduced by the United States on steel and aluminium. The retaliatory tariffs cover several agricultural products, such as kabuli chana chickpeas, Bengal gram chickpeas, lentils, almonds and walnuts in shell, or apples. This explains the differentiated set of tariffs.
← 8. The Agriculture Infrastructure and Development Cess (AIDC), introduced through the Union Budget of February 2021, applies a levy in addition to basic taxes on selected imported goods with the objective to finance agricultural infrastructure programmes.