Monograph

No-111
Transforming Indian Agriculture: Evolution of
Technology, Policy Reforms, and Market
Liberalization for Enhancing Farmers’ Incomes

A Amarender Reddy

Centre for Multi-Disciplinary Development Research

(CMDR)
YalakkiShettar Colony, Dr. Ambedkar Nagar, Lakamanahalli
Dharwad – 580004, Karnataka, India.
www.cmdr.ac.in
June
2025
CMDR Monograph Series No. – 111

Title : Transforming Indian Agriculture: Evolution of Technology, Policy Reforms, and Market
Liberalization for Enhancing Farmers’ Incomes

Author Name : A Amarender Reddy

Publisher : Centre For Multi-Disciplinary Development Research (CMDR), Dharwad

Printer’s : M/s. Basaveshvar Offset Printers, Dharwad.

First Edition : June - 2025

ISBN No. : 978-81-948826-5-7

© Centre for Multi-Disciplinary Development Research (CMDR), Dharwad

All rights reserved. This publication may be used with proper citation and due acknowledgement
to the author(s) and the Centre For Multi-Disciplinary Development Research (CMDR), Dharwad
Citation : Amarender Reddy A. (2025), Transforming Indian Agriculture: Evolution of
Technology, Policy Reforms, and Market Liberalization for Enhancing Farmers’, CMDR
Monograph No-111 - Centre for Multi-Disciplinary Development Research (CMDR), Dharwad.
ISBN No. : 978-81-948826-5-7

Copies : 100

Published by :
The Director
Centre for Multi-Disciplinary Development Research (CMDR)
Dharwad, Karnataka, India
Phone : 91-0836-2460453
Web : cmdr.ac.in
Email : [email protected]
 Preface
The primary purpose of launching the CMDR Monograph Series was to provide a platform for
social science researchers to share their valuable thoughts, long-term research outputs, and
outcomes on a specific area.

The Monograph Series is envisioned as a cornerstone initiative to advance scholarly discourse,

preserve methodological rigor, and bridge theoretical insights with real-world applications.

Indian agriculture has undergone significant transformations driven by technological

advancements, strategic policy reforms, and market liberalization, all aimed at improving
farmers’ incomes and ensuring sustainability.

From the Green Revolution to digital agriculture, innovations have played a key role. The
novelties in agricultural research, which brought practices like precision farming, climate-
resilient crops, and AI-driven advisory services, have enhanced productivity and reduced risks
for farmers. Initiatives like NeGPA (National e-Governance Plan in Agriculture) facilitate
access to data-driven decision-making.

The union government interventions, such as PM-KISAN, KCC (Kisan Credit Card), and MSP
(Minimum Support Price) frameworks, aim to provide financial security, improve credit access,
and stabilize farm incomes. Additionally, digital land records modernization helps farmers
secure ownership rights and streamline transactions.

The shift towards open markets, digital trading platforms like eNAM (Electronic National
Agricultural Market), and contract farming has enabled farmers to negotiate better prices,
diversify cropping patterns, and reduce dependence on middlemen. The interplay of these
factors is crucial for advancing agricultural resilience, ensuring equitable growth, and fostering
an environment where traditional wisdom is harmonized with modern innovation.

Dr. Reddy has made excellent efforts to bring all the important policies and technological
interventions for ensuring food security on one platform. The analysis of the interventions helps
policymakers to design need-based interventions with special reference to the marketing of
agricultural produce.

I extend my sincere thanks to Dr. Amarendra Reddy for taking the pains to bring out the
beautiful contents and presenting them in an intellectual manner.

Basavaprabhu Jirli
Director
Transforming Indian Agriculture: Evolution of Technology, Policy
Reforms, and Market Liberalization for Enhancing Farmers’
Incomes
A Amarender Reddy, Joint Director, ICAR-NIBSM, Raipur, Email: [email protected]

Abstract：India’s recent farm laws sought to liberalize agricultural markets and attract private investment
into infrastructure such as cold chains, warehouses, and aggregation centres. However, concerns about
increased exposure to market volatility triggered widespread farmer protests demanding a legally guaranteed
Minimum Support Price (MSP). This paper critically analyzes the farm laws using secondary data drawn
from government reports and scholarly literatures. It highlights how the MSP policy, while successful in
ensuring price assurance for paddy and wheat, has largely excluded pulses and oilseeds, contributing to
nutritional imbalances and undernourishment among women and children. Farmers cultivating these
neglected crops face market uncertainties, resulting in low profitability, poor production incentives, and a
growing reliance on imports. The paper proposes a reformed MSP framework based on a price insurance
model. It recommends: (i) continued procurement of paddy and wheat to support food security objectives;
(ii) implementation of a Price Deficiency Payment Scheme (PDPS) for the remaining 21 MSP-notified crops;
and (iii) using MSP as a signal price to guide production in fragmented markets. The findings underscore the
need for a balanced approach that aligns market reforms with inclusive and stable income support
mechanisms for farmers.

Keywords: Farm laws; Farmers income; price insurance; price policy；JEL classification: Q11; Q13; Q13;
D24

1. Introduction
India's rural economy has experienced substantial transformation over the past several decades, marked
by a sharp decline in agriculture's contribution to the GDP — dropping from 47.6% in 1960-61 to just 14.4%
by 2010-11 and to 16.0 per cent 2023-24 (Government of India, 2024; Kotwal et al., 2011; Gulati and Juneja,
2022; Chand et al., 2022). The share of agriculture in rural income was declined from 57% to 39% but the
declination of rural employment from 78% to 64% (Chand et al., 2017; Birthal et al., 2022) indicates low
productivity and high dependence on agriculture. The agriculture sector everywhere is a risky business,
especially for small-scale farmers who operate it in precarious conditions in developing countries like India
(Mosley and Verschoor, 2005; Gulati et al., 2021). In India, close to 87% of farmers operate on land holdings
smaller than two hectares, with about 69% cultivating less than one hectare (Upadhyaya, 2018). These
marginal and small farmers contribute 51% of agricultural output with 46% of operated land (Singh, 2020).
Since independence of India, there are several milestones in Indian agriculture like green revolution, milk
revolution, poultry revolution and fisheries revolution and horticultural revolution which contributed to
boosting incomes of the farmers and also food and nutritional security and healthy lives (FAO, 2017).
However, farmers’ incomes remain low and there are significant regional differences in incomes, food and
nutritional security (Chand et al., 2015), this paper critically reviews food and nutrition security policies,
farmers’ incomes and suggest policy recommendations for reducing poverty, zero hunger.

1
2. Objectives of the study
Given this background the paper examined the existing policy scenario in farm sector and how the new
farm laws will be beneficial to farmers and also look in to alternate policies to enhance farmers’ incomes.

3. Methodology and data

The paper is based on secondary data collected from various government reports mainly (i) Commission
for Agricultural Costs and Prices (CACP), (ii) Agricultural Statistics at a Glance, Ministry of Agriculture,
Government of India, (iii) Crop and Season Reports, AGMARKNET, Food Corporation of India (FCI) reports,
NSSO Agricultural Situation in India reports and (iv) various Government of India published sources. The
data related to cost of production, Minimum Support Price (MSP), market arrivals and prices, procurement
and open market operations of FCI, mode of sale and sale prices, farmers income etc., are collected for
analysis. Simple statistical tools like descriptive statistics are used.

4. Results

4.1 Evolution of agricultural policies and reforms for food security and safety in India
The evolution of agricultural policies and technologies in India spans over centuries, marked by key
reforms, technological advancements, and policy shifts. The detailed timeline is given in Table 1. In the pre-
independence era, agriculture was largely feudal and subsistence-based. The Berar Cotton and Grain Market
Act (1887) introduced regulated markets, followed by the Royal Commission on Agriculture (1928), which
highlighted the urgent need for market reforms. The Bengal Famine of 1943 highlighted the need for food
security, leading to the introduction of the Public Distribution System (PDS) in 1944.
After independence (1947), the focus shifted to food self-sufficiency. The Essential Commodities Act
(1955) and State Trading Corporation (1956) were established to regulate prices and trade. The Green
Revolution (1960s), marked by the introduction of High-Yielding Varieties (HYVs) and fertilizers,
significantly increased food production. The Food Corporation of India (1964) and formalization of the PDS
(1965) strengthened food security.
In the 1970s, the White Revolution (Operation Flood) boosted milk production, while the Silver
Revolution enhanced poultry output. The Blue Revolution (1985-1990) promoted aquaculture, making India
a leading fish producer. The Golden Revolution (1991-2003) focused on horticulture and vegetable
production.
The 1991 economic reforms encouraged private sector entry, leading to the introduction of GM crops
(2002) and the Model APMC Act (2003) to promote market reforms. The eNAM (2016) created a unified
digital agricultural market.
Recent years saw significant policy reforms with the New Farm Laws (2020) aimed at liberalizing
agricultural trade. However, they were repealed in 2021 following massive farmer protests. Overall, India’s
agricultural journey reflects continuous policy adaptations and technological advancements, driving food
security, rural development, and market efficiency.

2
Table 1. Timeline of important policies and technologies introduced in India for food security
Year Policies/technologies
1700 Almost 100% under small petty traders (small, feudal)
1764 Invention of the Spinning Jenny
1769 Development of the Steam Engine
1769 Introduction of the Water Frame
1779 Mechanization of Textile Production
1778 The Rise of Iron Production
1785 Development of the Power Loom
1829 Steam-powered Railway Locomotive
1886 India's first regulated market (Karanja), Maharashtra
1887 First legislation being the Berar Cotton and Grain Market Act
1928 Royal Commission on Agriculture
1937 Agricultural Produce Marketing (Grading & Marketing), Act
1939 Regulated Markets Act in Bombay Presidency.
1943 Bengal Famine, 2nd World War
1943 Restrictions on inter-state trade of food grains
1944 Public Distribution System (PDS) Introduced on a limited scale during World War
II
1947 First Agricultural Produce Market Committee (APMC) market at Karanja
1955 Essential Commodities Act (stock limits)
1956 State Trading Corporation
1956 Agricultural Produce (Development and Warehousing) Corporations Act
1961 PL-480. Ship to mouth; every 15 minutes one ship from USA (1961-69)
1962 HYVs tested (1962-64)
1962 National Cooperative Development Act
1963 Agricultural Produce Marketing Committee (APMC) Act
1964 Food Corporation of India (FCI) Act
1965 HYVs released across India
1965 Jai Jawan-Jai Kisan slogan (Indo-Pakistan War)
1965 Public Distribution System (PDS) formalised for food grains.
1965 18,000 ton of HYV seeds imported
1967 Production increased three folds, no place to store food grains, stored in schools.
1969 Poultry revolution (silver revolution) led by private sector
1970 Operation flood to increase milk production led by cooperatives
1980 Prevention of Black Marketing & Supply of Essential Commodities Act
1985 Blue Revolution (1985-1990) to increase fish production led by private sector.
1986 The Bureau of Indian Standards Act 1986
1991 Vegetable Revolution (golden revolution (1991-2003) led by small farmers.
1992 Milk and Milk Products Order (MMPO)
1998 Jai Jawan-Jai Kisan, Jai Vignan
2002 GM crops (cotton) led by private sector
2003 Model APMC Act (Agricultural Produce Marketing Committee) Act
2006 Forward Contract (Regulation) Amendment Act
2007 The (Warehousing Development and Regulation) Act
2016 Model Agriculture Land Leasing Act

3
 2016 Electronic National Agriculture Market (eNAM)
2017 Model Agricultural Produce and Livestock Marketing (promotion and facilitation)
Act
2018 Model Contract Farming Act
2019 Jai Jawan, Jai Kisan, Jai Vignan, Jai Anusandhan slogan
2020 New Farm Laws enacted with focus on liberation of agriculture
2021 New Farm Laws repealed after farmers agitation

4.2. Reasons for low farm income

The National Sample Survey Office (NSSO) defines a farmer in its Situation Assessment Survey (SAS)
as: A person engaged in agricultural production activities on any land, regardless of the ownership status of
the land. It includes individuals involved in crop production, animal husbandry, poultry, fishery, beekeeping,
sericulture, etc. To be classified as a farmer, the individual must have operated at least 0.002 hectares (around
20 square meters) of land during the reference period (typically the previous agricultural year). The definition
covers both landowners and tenant farmers who cultivate land or engage in agricultural activities. It also
includes households earning at least ₹4,000 annually from agricultural activities, even if they do not own or
lease land. This broad definition ensures that the survey captures both land-owning farmers and agricultural
laborers or tenant farmers who are actively involved in cultivation or related activities. The income of farmers
from various sources is presented in Table 2. The average monthly income of an agricultural household was
Rs 10,218 (paid out expenses approach) and Rs.8337 (both paid out expenses and imputed expenses) (Times
of India, 2020) and this indicate how alarming the farmers’ economic condition is?

Table 2. Average monthly income (Rs) from different sources per agricultural household during July
2018 - June 2019

Paid out expenses Both the paid out expenses

Components of income approach and imputed expenses
Income from wages 4,063 4,063
Income from leasing out of
land 134 134
Net receipt from crop
production 3,798 3,058
Net receipt from farming of
animals 1,582 441
Net receipt from non-farm
business 641 641
Total income 10,218 8,337
Source: NSS Report No. 587: Situation Assessment of Agricultural Households and Land and Livestock
Holding of Households in Rural India, 2019

The reasons for declining the share of agriculture in rural household income are

4.2.1. Declining terms of trade: As economies develops, the share of agriculture in countrie’s, domestic
product is reducing. This is applicable to all the countries and also regions (Figure 1). As a result of declining
demand for agricultural commodities vis-a-vis non-agricultural goods and services like ICT, mobiles and
automobiles, the income share and hence the price received for agricultural produce declined. This is called
declining terms of trade to agriculture; this is leading to less capital investments and abandonment of
agriculture (Dholakia and Sapre, 2013; Colman, 2009; Narayanamoorthy, 2006).

4
 Figure 1. Long run agricultural commodity prices (deteriorating terms of trade for farmers).

Prices

Year

4.2.2. Income Consumption gap: Figure 2 presents data from the recent NSSO 2012-13 round, depicting the
monthly income and expenditure of agricultural households, categorized into ten deciles based on Monthly
Per capita Consumption Expenditure (MPCE). The 1st decile represents the lowest income group, while the
10th decile represents the highest. The data reveals that up to the 8th decile, farmer households spend more
than their income, indicating that their earnings are insufficient to meet their consumption needs. Only
households in the 9th and 10th deciles have incomes higher than their expenditures. These income gaps
highlight the financial strain on the majority of agricultural households, forcing them to rely on debt to meet
daily expenses. This dependence on informal credit sources further entraps them in a vicious cycle of
indebtedness (NSSO, 2014; Reddy et al., 2020).
Figure 2. Decile wise monthly income and consumption gap (Rs.) of HHs-2012-13.

4.2.3. Indebtedness: Among all the decile groups of MPCE, the incidence of indebtedness among agricultural
households is significantly higher than that of non-agricultural households (Figure. 3). Interestingly, farmers
in the upper decile groups (representing higher income levels) are relatively more indebted than those in the
lower deciles. This counter intuitive trend can be attributed to several factors. Farmers in the higher deciles
typically own larger landholdings and engage in capital-intensive farming, requiring higher investments in
inputs, machinery, and technology. Consequently, they are more likely to access institutional credit (such as
bank loans) to finance their operations. The NSSO, 2015-16 data noted that 53% of farmers were indebted,
5
with the share of indebtedness increasing with farm size due to greater access to formal credit channels.
Moreover, higher-income farmers often take larger loans to expand their operations or invest in infrastructure,
making their absolute debt levels higher. Although their income is higher, their debt-to-income ratio may still
be substantial, especially if they face crop failures, price fluctuations, or mounting interest burdens. This
results in greater financial vulnerability despite their higher income status (Chand, 2017).

Figure 3. Incidence of indebtedness by decile class of MPCE (%) in 2015-16.

70 68
65
60
% indebtedness

60
55 56
55 53 51
50 48 46 47
43 45
45 42
40
40 36
34
35
30
Agricultural households Non-agricultural All households
housholds
1 2 9 10 All households

4.2.4. “Doubling farmers’ income” is reality for large farmers, but not to small farmers: The number of farms
in India more than doubled from 71 million to 145 million between 1970-71 and 2015-16, leading to a
significant reduction in average farm size from 2.28 hectares to 1.08 hectares
(http://www.economicsdiscussion.net/). This shrinkage is driven by heavy demographic pressure, resulting in
the subdivision and fragmentation of landholdings (Padmanabhan, 2018). Several studies indicate that with
the increased adoption of farm mechanization, the earlier inverse relationship between farm size and
profitability has reversed. Larger farms, which benefit from economies of scale, are now more profitable per
hectare compared to smaller farms (Figure 4). As a result, small farmers, despite their intensive efforts,
struggle to achieve profitability and often fall into a poverty trap (NITI Aayog, 2016). Evidence shows that
marginal farmers' household consumption frequently exceeds their net monthly income from both farming
and non-farming activities. According to the 2015-16 Agriculture Census, approximately 100 million farming
households face this financial struggle. Furthermore, income growth has been significantly lower for marginal
farmers, whereas large farmers have experienced higher income growth. This trend highlights that the strategy
of doubling farm incomes is realistically achievable only for the largest land-owning group, leaving smaller
farmers behind (Candemir et al., 2021).

6
Figure 4. Income growth (in %) between 2003 and 2013 for different categories of farmers. Source: NSSO
Situation Assessment Survey of Agricultural Households.

102
85

59
52
38 34

13 10

<0.01 ha 0.01-0.4 ha 0.41-1 ha 1-2 ha 2-4 ha 4-10 ha >10 ha

Marginal Small Semi- Medium Large All sizes
medium

4.2.5. Low investment capability: Due to extreme poverty, limited access to credit, and the burden of debt,
lower decile households—primarily marginal and small farmers—are unable to invest adequately in fixed
capital compared to upper decile households (Figure 5). This lack of investment becomes a major barrier to
achieving higher farm productivity. Furthermore, the inability to invest in capital assets, infrastructure, or even
education prevents these farmers from enhancing their production capacity or diversifying their income
sources. As a result, they become trapped in a cycle of perpetual indebtedness and low-income vulnerability,
making it increasingly difficult to break free from poverty and financial instability.

Figure 5. Percentage of rural households reporting fixed capital expenditure & average amount (2012-13).

40000 36,449 50
38 41 47
35000
35 40 % of hhs reported
30000 31 31 31
Amount (Rs.)

25000
28
25 30
20 18,283 17,688
20000
16
15000
9,108 7,984 10,717 20
10000 4,568 3,950 4,950 10
5000 1,643 1,957
0 0
1 2 3 4 5 6 7 8 9 10 All
Decile class of hh asset holding
Average amount(Rs.) % of hhs reporting

4.1.6. Low institutional investment: Another significant factor contributing to the low-income levels of
farmers is the rigidity of existing farm laws, which restrict farmers to sell only in APMC mandis and impose
stock limits. These regulations limit market access and suppress competition, preventing farmers from
securing better prices for their produce. As a consequence, private sector investment in agriculture has
remained dismally low, accounting for only 2% of the Gross Fixed Capital Formation (GFCF) in 2017-18
(Figure 6). This lack of investment has triggered a vicious cycle: low prices lead to low farm incomes, which
in turn increase farmers' debt burdens and discourage further investment. This continuous cycle perpetuates
the low-income trap, making it difficult for farmers to achieve sustainable financial growth.

7
 Figure 6: Sources of GFCF in 2017-18.

Public
22%

Private
corporation
2%

Household
76%

Source: Economic Survey, Govt of India

4.3. The Vicious cycle of low incomes

In developing countries like India, where smallholders dominate the farming community, per capita income
is generally low. Due to low agricultural production and the poor prices farmers receive for their output, their
purchasing power and savings capacity remain limited. The low level of savings results in a capital deficiency,
forcing farmers into indebtedness, which further weakens their ability to invest in productivity-enhancing
assets. On the other hand, low purchasing power reduces the demand for goods and services, thereby shrinking
the market size. The small market size, in turn, discourages private investment, creating a cycle of
underdevelopment. The lack of investment in small farms hampers productivity growth, reducing both output
and returns (Figure. 7). This self-reinforcing vicious cycle keeps farmers trapped in poverty, with little
opportunity to break freq.
Figure 7: Vicious cycle afflicted the small holders.

Low
Smallh
investm
oldings
ents

Indebte Low
dness prices

Low
incomes

4.4. MSP implementation only for paddy and wheat

During the 1960s, faced with a famine-like situation, the Government of India placed a strong emphasis on
boosting the production of paddy and wheat. To achieve this, the government introduced High-Yielding
Varieties (HYVs), increased fertilizer subsidies, and implemented guaranteed procurement at Minimum
Support Prices (MSP). These measures were part of a broader strategy of policy reforms and technological
interventions aimed at achieving food grain self-sufficiency, with a primary focus on paddy and wheat
production. The introduction of MSP was a key policy tool designed to incentivize farmers by guaranteeing a
fair price for their crops announced prior to each sowing season. This price assurance encouraged farmers to

8
invest more in agricultural inputs and expand production. The MSP also acted as a signal to farmers regarding
the competitiveness of different crops across regions, guiding them to cultivate crops that promised returns
above their cost of production. However, this narrow focus on paddy and wheat came at the expense of
diversified crop cultivation. Over time, the area and production of pulses, oilseeds, and coarse cereals—which
are essential for food diversity, nutrition, and health—declined. This shift skewed the cropping pattern,
reducing the cultivation of nutrient-rich crops and impacting dietary diversity and nutritional security.

4.5. Production and Procurement of rice and wheat

The cost of crop production varies significantly across states. The figure below illustrates the cost of
production for paddy in 2022-23 by state, along with the all-India average, arranged in ascending order of cost
(Table 3). It also shows the corresponding relative shares of each state in the total national production. The
figure highlights that only a few states—namely Punjab, Andhra Pradesh, Chhattisgarh, Haryana, Bihar,
Gujarat, Karnataka, Himachal Pradesh, and Madhya Pradesh—have a lower cost of production than the
national average. These states enjoy a comparative advantage in paddy cultivation. In contrast, states where
the cost of production exceeds the national average—such as Telangana, Uttar Pradesh, and West Bengal—
contribute significantly to the overall production, with shares of 10.2%, 12.5%, and 12.9%, respectively. This
is economically inefficient, as it goes against their comparative advantage. Therefore, reducing the area under
paddy cultivation in these high-cost states would enhance overall production efficiency.

Table 3. Projected Cost of Production and Yield for paddy and Production Shares during 2022-23
Cost of production (Rs/qtl)
Yield Share in
States (qtl/ha) A2 A2+FL C2 production(%)
Punjab 70.8 807 907 1530 10.3
Andhra Pradesh 61.2 1106 1232 1732 6.3
Chhattisgarh 42.0 1062 1307 1704 6.6
Haryana 53.4 1140 1331 2090 3.8
Bihar 28.8 1012 1339 1785 5.7
Gujarat 41.0 1153 1363 1673 1.8
Karnataka 50.9 1152 1437 1883 3.4
Himachal
Pradesh 30.9 692 1452 1990 0.1
Madhya Pradesh 43.4 1146 1461 1859 4.3
Tamil Nadu 46.3 1423 1589 2035 5.9
Telangana 53.0 1311 1613 2190 10.2
Uttar Pradesh 36.1 1271 1616 2114 12.5
Jharkhand 26.5 1188 1629 2131 1.9
Assam 36.3 1017 1661 1994 4.0
Odisha 43.3 1174 1699 2067 7.0
West Bengal 42.3 1190 1849 2229 12.9
Kerala 41.6 1614 1888 2384 0.5
Maharashtra 21.8 2551 3057 3520 2.9
All-India 43.7 1189 1533 2008 100
Note: Highlighted in grey colour are costs below national average and competitive. Source: Cost of Cultivation
data of CACP, Ministry of Agriculture & Farmers Welfare, Govt of India.

9
 The findings in the Figure 8 show that the procurement of paddy was highest in Punjab followed by
Telangana, Andhra Pradesh, Chhattisgarh and Odisha. Among various states, Punjab had the highest share in
wheat procurement followed by Haryana (Figure 9). However, in recent years, procurement from other states
is also increased due to implementation of De-Centralized Procurement (DCP). Agriculturally developed and
high productive states like Punjab and Haryana also showed more marketed surplus than other states (Figure
10).

Figure 8. Procurement of paddy 2024 (lakh ton) by state. Source: Food Corporation of India, Annual reports.
Lakh ton

Figure 9. Procurement of wheat 2024 (lakh tonn).

Non-DCP
Lakh ton

DCP

Source: Food Corporation of India, Annual Reports.

10
Figure 10. Share of major states in marketed surplus (lakh ton) and procurement of wheat (%) in 2020

40
35.2
35
30
24.8
25 23.4 23.1
21
20 16.4
15 12.5 11.5
10.3 9.9
10 6.9
4.7
5
0 0.3
0
Punjab Haryana MP Rajasthan UP Bihar Others

Marketed Surplus (TE 2019-20) Procurement (TE 2020-21)

Source: Food Corporation of India, various annual reports.

The procurement system in India exhibits significant geographical disparities, with higher procurement
concentrated in certain regions and for specific crops, while other regions and crops receive minimal or no
procurement support. Additionally, the MSP system suffers from imbalances and inherent deficiencies,
resulting in only around 10% of farmers benefiting from it, while the majority remain vulnerable to market
fluctuations. This scenario highlights the urgent need for policy reforms aimed at enhancing marketing
efficiency and expanding procurement operations to neglected regions and under-procured crops.
Strengthening the procurement framework through wider coverage and equitable support would ensure that a
larger share of farmers can benefit from price stability and income security. Even for paddy, states with weak
procurement operations like Assam showed market prices are far below MSP, while in states with stronger
MSP operations the market price is sometimes above MSP (Figure 11).

Figure 11. Average difference (%) between market price & MSP in major states (Kharif paddy, 2020).

5 1.3 2.4
0
-5 -2.3
-4
-10 -7.4 -6.9
-15 -10.4
-20 -17.3

Source: CACP, 2021

11
4.6. Trends in Price
India achieved record production of pulses in 2017-18, making the country self-sufficient in pulses, and
gram alone accounts for nearly 70 percent of rabi pulses output. Gram production recorded a significant
increase during 2016-17 but India also imported a large quantity of yellow peas, a close substitute for gram,
during that time.
Figure 12. Trends in Domestic Market Price vis a vis MSP of Gram (CACP report, 2021).

The high production and large imports led to a drastic fall in domestic market prices during 2017-18
which were much below the MSP. But gradually the market prices showed improvement due to lower
production and reduced imports (Figure 12). And finally, a significant development in the gap between MSP
and market price was reported as the gap was reduced and market prices were converging towards MSP (Das,
2021). The low market prices were mainly due to depressed prices in few states like Madhya Pradesh,
Maharashtra and Rajasthan where farmers have to sell their produce immediately after harvest to meet
immediate cash needs. During this period, due to large arrivals in mandi, prices generally rule below MSP
(CACP, 2021).
Figure 13. Trends in Domestic market Price vis a vis MSP of safflower (CACP, 2021).

The safflower production has severely declined from a peak of 5.2 lakh to about 22 thousand tonnes in
last 3 decades. The low prices along with the low market demand, more remunerative alternative crops and
low oil content compared to other oilseed crops are major reasons for decline in safflower production (Aditya
et al., 2017). It is evident from the above graph that market prices of safflower seeds were much lower than

12
MSP during last five procurement seasons from 2016 to 2020. Though market prices have improved during
2019, the gap between market prices and MSP has also increased substantially. There is also a
recommendation from government to exclude the crop from MSP scheme due to low production and demand.

4.7. Current status of APMC market

The APMC tax including market fees or mandi charges, rural development fees and commissions to
middlemen. But there is a clear non-uniformity in APMC taxes among the states as it is excessively high in
Punjab at 8.5 per cent and lowest in Kerala at 0.07 per cent. Mandi charges are too high for almost all states
even for a small volume of products. Although there are no mandi charges or rural development fees in
Karnataka, agricultural products attract a 3.5 per cent commission charge which is significantly higher than
any other states (Table 4). Most of the marginal farmers sold their produce outside APMC markets, either
to local traders or others, only 23% sold in APMC mandis. Further, the sales outside APMC are predominantly
out of any regulations which resulted in exploitation of marginal farmers (Figure 14).

Table 4. Non-uniformity in APMC charges.

State Market Fee/ Mandi Rural Development Commission/ Other Total
Charges (%) Fee (%) Charges (%)
Andhra Pradesh 1.0 - - 1% + FC*
Assam 1.0 - - 1.0%
Chhattisgarh 2.0 - 0.2 2.2% +
FC*
Haryana 2.0 2.0 2.5 6.5%
Karnataka - - 3.5 3.5%
Kerala - - - 0.07%
Maharashtra 1.05 - - 1.05% +
FC*
Madhya Pradesh 2.0 - 0.2 2.2% +
FC*
Odisha 2.0 - - 2% + FC*
Punjab 3.0 3.0 2.5 8.5%
Telangana 1.0 - - 1% + FC*
Uttar Pradesh 2.0 - 0.5 2.5% +
FC*
West Bengal 0.5 - - 0.5% +
FC*
Note: *FC: Fixed Charges. This includes a commission to society of ₹31.25/qtl on Common Paddy and ₹32/qtl
on Grade A paddy. Source: Food Corporation of India

13
 Figure 14. Disposable pattern of crop sold. NSSO situation assessment survey, 2013

100
90
26 29
80
70
60 23
50
51
40
30
51
20
10 20
0
Marginal Large

Local Mandi Others

Table 4 indicate that the APMC’s mostly be used as a tax revenue source for state governments. Currently,
only a small portion of the farmer’s produce especially marginal farmers’ is sold in the mandi’s and the rest
is sold outside APMC markets. In this background, the new farm laws are hope to legalize this practice and
strengthening the outside markets to reduce exploitation and make them more efficient.

4.8. Inter-state differences in Govt support

This section deals with the interstate differences in government supports such as MSP operations and
fertiliser subsidy.

4.8.1. MSP Operations:

To ensure the successful implementation of the Minimum Support Price (MSP) system, raising farmer
awareness is critical. Nationally, only 28.30% of households are aware of MSP for at least one Rabi crop, and
23.13% for Kharif crops. Despite years of policy enforcement, fewer than 25% of farmers knows about MSP
for the crops they cultivate. MSP implementation remains uneven, with active procurement and higher
awareness concentrated in states like Punjab, Haryana, Chhattisgarh, Uttar Pradesh, and Telangana
(Figure. 17). Conversely, farmers in northeastern states, Jharkhand, and regions cultivating less prioritized
crops often lack adequate support. This disparity reinforces inequities, as agriculturally advanced states benefit
from multiple schemes, further widening income gaps between farming communities.

Challenges such as weak coordination among procurement agencies, insufficient storage infrastructure,
and low awareness hinder MSP effectiveness. Procurement remains largely restricted to rice and wheat,
leaving other crops underserved and contributing to poor MSP knowledge among growers. Notably, awareness
of rice and wheat MSP is higher in major procurement states like Punjab, Haryana, and Chhattisgarh, where
historically grains are sourced for public distribution systems (PDS) and buffer stocks (Gulati and Banerjee,
2015). Strengthening outreach and infrastructure in underserved regions is vital to achieving equitable MSP
outcomes nationwide.

14
Figure 15. State-wise Awareness of Farmers about Minimum Support Price (MSP) of Crops in Major Crop
Seasons (%). Source: NSS Report No. 587: Situation Assessment of Agricultural Households and Land and
Livestock Holdings of Households in Rural India, 2019.

4.8.2. Fertilizer subsidy:

The nature and status of agriculture among various Indian states are different due to the diverse climate
and soil fertility facilitates cultivation of different crops with varying nutrient requirements. The fertilizer
consumption is also bound to vary according to several factors. Therefore, like MSP, fertilizer subsidy is
another kind of support provided by government to make the chemical fertilizer available to all the farmers at
affordable rates (Praveen et al., 2017) to improve the food production and thus to make the food grains
available to all at affordable price.
Figure 16. Fertilizer subsidy (Rs per ha of GCA) (2014-15) (in Rs). Source: Authors calculations from
Agricultural Statistics at a Glance, 2016.

7000 6156
6000
Rs/ha of GCA

5000
3707
4000
3000
2000 1528
1000
0
Himachal

Madhya

West
Kerala

India
Gujarat

Bihar

Telangana
Jammu&
Odisha

Uttarakhand

Tamil
Haryana
Assam

Punjab
Andhra
Jharkhand

Chattisgarh

Karnataka

Uttar
Maharashtra
Rajasthan

Presently, the amount of fertilizer subsidy is concentrated mostly in seven states including Uttar Pradesh,
followed by Maharashtra, Karnataka, Madhya Pradesh, Andhra Pradesh, Punjab and Gujarat. These seven
states together holding 57.09 per cent of the country’s GCA and receives 62 per cent of the total fertilizer
subsidy distributed. The share of subsidy per ha of GCA is highest in the states of Andhra Pradesh, Punjab,
Telangana and Haryana, and lowest in Rajasthan (Figure 16), Maharashtra, Chhattisgarh and Madhya Pradesh.
Although most of the states receive subsidy almost equal to their share in GCA, Uttar Pradesh, Andhra

15
Pradesh, Punjab, Haryana and Telangana receive greater subsidy than their share in GCA (Saini and Kozicka,
2014).

4.9. Efficiency of current procurement system of rice and wheat

4.9.1. Procurement operations

Past studies indicates that while India has achieved significant agricultural growth through government
initiatives, persistent malnutrition, food insecurity and poverty remain critical challenges. To address these
issues, the buffer stock policy serves as a safeguard against supply shortages during dips in agricultural output.
Under this system, the government acquires grains—either through direct purchases from farmers at Minimum
Support Prices (MSP) or open market acquisitions—to fulfill the needs of welfare programs and maintain
strategic reserves. This approach aims to stabilize food availability during crises though its effectiveness in
reducing hunger and food insecurity and also acts as regular supply of food grains through ration shops for
Below Poverty Level households.

Figure 17. Food buffer stock norm and actual stocks from 2005 to 2020. Source: FCI annual reports, 2020
and 2021.

Since last several years, India’s food grain buffer reserves exceed twice the mandated buffer stocking
thresholds (Figure 17). As of 2020, the economic cost estimates for rice and wheat stood at ₹37,026 and
₹27,026 per tonne, respectively. Historical data reveals that, barring a brief period between 2005 and 2007
when reserves dipped below required levels, stockpiles have consistently surpassed official norms in recent
years. This has resulted in an excess of approximately 50 million tonnes (MT) of grains—valued at around
₹1.5 trillion—with annual interest burdens of nearly ₹10,000 crore.

Two primary factors drive heightened procurement: supply and demand dynamics. On the supply side,
rising Minimum Support Prices (MSPs) have positioned the government as the primary purchaser of surplus
grain. Simultaneously, expanding obligations under national food security programs compel agencies like the
Food Corporation of India (FCI) to intensify procurement efforts. This problem is intensified by open-ended
procurement policies followed by various state governments. Consequently, the government now acquires a
dominant share of marketable produce (in some states like Telangana and Chhattisgarh more than 90% of
marketed surplus), creating systemic pressures to manage oversized reserves while balancing welfare
commitments (Nirmal, 2020).

16
4.9.2. Operations of Buffer stock
The cost of grain management comprises acquisition costs—including pooled procurement costs and
associated incidentals—and distribution expenses. When combining the Minimum Support Price (MSP) with
expenditures on logistics, storage, handling, and distribution, the total economic cost is estimated at ₹37,026
per tonne for rice and ₹27,026 per tonne for wheat (as shown in the figure below) in 2020 (Figure 18).
Recently, the cost of maintaining buffer stocks has been increasing, primarily due to rising procurement-
related expenses such as storage, handling, transportation, and other logistical charges.

At the same time, the government has reduced the reserve prices of rice and wheat to facilitate the disposal
of surplus buffer stocks. In the Open Market Sale Scheme (OMSS), rice is priced at ₹22,500 per tonne in 2020,
down from ₹27,850 one year back, while the reserve price of wheat has been lowered to ₹21,350 per tonne in
2020 from ₹22,450 one year back. These revised prices are significantly below their respective economic
costs, and the reductions have widened the existing gap between sale prices and actual costs.

The main reasons behind this price cut include excess stock levels, limited storage capacity, and declining
demand for grains in the open market in recent years. As a result, the widening cost-revenue gap has placed
considerable financial stress on the Food Corporation of India (FCI), which is incurring losses of
approximately 39.2% on rice and 21% on wheat sold under OMSS in year 2020. Similar trends are being
observed in international grain markets as well.

Figure 18. Economics of buffer stock operations for the year 2020. Source: Authors calculations from FCI
annual reports, various issues.

international price is Rs. 16,400/tonne,

Rs.7776/tonne (loss of Rs.10,626/ tonne over EC)
(39.3% loss)
Rs.19250 (Mandi fee and
Rs. 27,026/tonne
(MSP) Aarthiya commission, Open Market Sale Scheme
logistics, storage, (Economic Cost)
Wheat (FCI reserve price of wheat is Rs.
handling, distribution, 21350/tonne)
damage and interest) (i.e. Rs. 5676/tonne less over EC)
(21% loss)

international price is Rs.

28,000/tonne,
Rs.7846/tonne (loss of Rs.9,026/ tonne over EC)
Rs.29,180 (Mandi fee and Rs. (24.4% loss)
(MSP) Aarthiya commission, 37,026/tonne
logistics, storage, Open Market Sale Scheme
Rice (Economic Cost)
handling, distribution, (FCI reserve price of rice is Rs.
damage and interest) 22500/tonne)
(i.e. Rs. 14,526/tonne less than EC)
(39.2% loss)

After elaborating the efficiency of the procurement system, it can be said that the practice of procuring
more than stipulated buffer quantities lead to certain imbalances. Therefore, there is a necessity for offloading
the excess stock in the international or domestic market, which could lead to a price crash. Also, it could lead
to a loss when the international market prices or the FCI reserved prices are lower than the actual economic
cost of the stock which is inflated by the excess expenditure on handling, logistics, storage and distribution of
the produce.

17
4.10. Procurement policy biased against other crops

4.10.1. Procurement against production

India has moved from a situation of scarcity of pulses during 2015-16 and witnessed unprecedented
shortage and inflation due to successive droughts. The favourable monsoon and the continued enthusiasm in
farmers have boosted the production and resulted in the highest ever production of pulses in the country at
25.42 MT during 2018. Despite, this biasedness can be noticed among the other crops than rice and wheat
such as pulses and oilseeds. The Tables 5 and 6 indicate the vast difference of the share of procurement of
grains against the total production.

Table 5. Production vs. Procurement of Pulses.

Year Production (Million Ton) Procurement (% of
production)
2012 17.1 0.01
2013 18.4 0.52
2014 19.3 0.26
2015 17.2 0.17
2016 16.3 0.00
2017 23.1 0.03
2018 25.4 6.37
2019 22.1 18.94
2020 23.2 6.52
Source: Food Corporation of India, annual report, 2020.

Table 6: Production vs. Procurement of Rice and wheat.

Rice Wheat
Year Producti Procurement Production Procurement
on (% of (Lakh Ton) (% of
(Lakh production) production)
Ton)

2015-16 1044.1 32.8 922.9 24.9

2016-17 1097.0 34.7 985.1 31.3
2017-18 1127.6 33.9 998.7 35.8
2018-19 1164.8 38.1 1036.0 32.9
2019-20 1179.4 43.3 1071.9 36.4
Source: Food Corporation of India, annual report, 2020.

As of now, the only crops that see substantial procurement by the government are rice and wheat. The
government is more concerned about these grains as these represent food security. Another reason of
reluctancy of the government for pulse procurement is its rising MSP. The MSP of pulses is almost three times
that of wheat and rice. However, whatever the reasons, pulses along with the oilseeds have been discriminated
against rice and wheat and it is economically unfeasible to increase their procurement under MSP. But at this

18
time when the demand for pulses is soaring, there is a need to build some alternate mechanisms as pulses and
oilseeds are poor man’s crops.

4.11. Sale of crop output

The deficient monsoon years during 2015 and 2016 resulted in sharp fall in production of pulses in the
country. The government increased the MSP for pulses and stepped-up imports to control prices and also
ensure stability in prices as well as provide MSP to farmers under the Price Support Scheme (PSS).

However, the disposal of a huge volumes of procured stocks of pulses under the Open Market Sale
Scheme (OMSS) by NAFED faces a significant challenge, particularly in the depressed market conditions.
Since pulses are prone to infestation during prolonged storage, so the timely disposal of stocks assumes
significance. The average price recovery in the disposal of PSS stocks under OMSS by NAFED has been even
less than MSP. Therefore, the market price continues to prevail at a much lower level than MSP (Table 7).

Table 7. Disposal of pulses under open market sale scheme by NAFED.

Year MSP Avg rate of Volume of Loss
(Rs/qtl) disposal (Rs./qtl) OMSS Disposal %
(lakh tonne) over
MSP
Tur 2019 5675 3583 4.1 36.9
Gram 2019 4620 4236 9.6 8.3
2020 4875 4014 3.9 17.7
2021 5100 4862 7.3 4.7
Moong 2019 6975 4545 3.0 34.8
2020 7050 5949 2.1 15.6
2021 7196 6752 0.6 6.2
Masur 2019 4475 3566 0.9 20.3
2020 4800 4428 0.3 7.7
Urad 2019 5600 3350 2.0 40.2
2020 5700 4875 1.5 14.5
2021 6000 5360 1.3 10.7
Source: NAFED, 2021 annual report.

The disposal of pulses procured under the PSS by NAFED has been a challenge as the federation incurs
heavy losses in the open market, and sale of stocks depresses market prices. Lack of government policy for
the sale of pulses stocks like wheat and rice is a major constraint for ensuring nutritional security to a large
mass of people without impacting the market prices (Jayan, 2018).

4.12. Market price below MSP

In recent years higher agricultural production brings optimism for India's rural economy, however, crop
profitability has declined sharply – particularly for pulses and oilseeds (Table 8). This challenge stems not
from MSP policies themselves, but rather from procurement limitations. The primary driver of shrinking
farmer incomes has been consistently low market prices coupled with low yields for these crops. The situation
is exacerbated by two key factors: disproportionate procurement focusses on rice and wheat, coupled with
inadequate infrastructure, which prevents farmers of other MSP-covered crops from realizing their benefits
(The Economic Times, 2017). Whenever, there is increase in production, market prices have fallen below
MSP thresholds, leaving farmers without the promised price security despite their increased output (Sharma,
2020).

19
 Table 8. Sale price of various crops.
Crop Average sale price
Soybean 6-15% less than MSP
Groundnut 25-40% less than MSP
Sunflower 35% less than MSP
Mustard 15-20% less than MSP
Source: CACP reports, 2021

4.13. Inadequacy in production of pulses and oilseeds

Figure 21 illustrates the significant disparity between domestic production and imports of edible oil in
India. The country currently produces less than half of its total edible oil requirement. This shortfall is
primarily attributed to factors such as rainfed cultivation conditions, high seed costs, small landholdings with
limited access to resources, and a low seed replacement rate, all of which contribute to low productivity levels.

At the present consumption level, estimated at 23.5 million tonnes annually, domestic production from
both primary and secondary sources meets only about 40% of the demand. The remaining 60% is fulfilled
through imports. Due to the sluggish growth in oilseed production, the gap between demand and supply
persists, necessitating substantial import volumes to meet national consumption needs (Arora, 2013).

Figure 19. Edible oil: imports versus domestic production (million tons).

Source: Agricultural Statistics at a Glance, 2020.

To enhance domestic availability of edible oils and reduce the country's heavy reliance on imports, the
Government of India has launched the National Mission on Edible Oils – Oil Palm (NMEO-OP). This
initiative aims to boost indigenous oilseed production through improved cultivation practices, research
support, and consumer awareness campaigns. Currently, India imports approximately 15 million tonnes of
edible oil annually, incurring an import bill of over ₹70,000 crore. However, the country has an underutilized
refining capacity of nearly 30 million tonnes, with only about 45% of it being operational, according to the
Solvent Extractors’ Association (SEA). To address this imbalance, the government has been promoting the
import of crude rather than refined oil, enabling better utilization of domestic refining infrastructure and create
employment in the sector.

20
 Regulatory hurdles are hindering release and adoption of Genetically Modified (GM) Mustard, even
though it is having potential to expand area and production of edible oilseeds. Approved for environmental
release after extensive scientific review, GM mustard can help bridge the yield gap in mustard cultivation—a
key oilseed crop in India. With higher productivity, improved resistance to biotic and abiotic stresses, and
greater oil content, GM mustard can contribute to increasing domestic edible oil output substantially. And also
open up scope for introducing GMO crops in other edible oilseeds like soyabean, where there is a lot of scope.

Reviving the edible oil sector will require a multi-pronged approach: enhancing productivity through
technology adoption (like GM crops), expanding area under oilseeds, improving seed quality and distribution,
supporting price incentives, and strengthening processing and value chains (Reddy and Bantilan, 2012).
Combined, these efforts can help India reduce its import dependence and achieve greater self-sufficiency in
edible oils. Similar strategies have to be followed in pulses to reduce import dependency (Reddy et al., 2023).

4.14 Reformation of agricultural policy

Agriculture in India has traditionally been one of the most heavily regulated sectors, governed by a
complex framework of rules and controls imposed by both the central and state governments. Following
independence, the country adopted a strategy aimed at achieving self-sufficiency in staple crops like rice and
wheat. Early agricultural policies focused on expanding the area under cultivation, implementing land reforms,
promoting community development, and restructuring rural credit systems to enhance access to finance. To
support these goals, the government introduced a range of interventions, including input subsidies, minimum
support prices (MSP), public procurement and storage systems, distribution networks, and protective trade
policies. However, in contrast to the extensive liberalization witnessed in many other emerging economies,
India's reform initiatives largely bypassed the agricultural sector, leaving it relatively insulated from broader
economic transformation (Chand, 2018). Liberalization and market reforms started in 2003 onwards with
Model APMC Act and followed by Forward Contract (Regulation) Amendment Act in 2006.

4.15. Long period of policy paralysis

The Indian agriculture is plagued by countless challenges such as soil degradation, climate change,
declining incomes, inflation, severe socioeconomic ripple effects, underinvestment and unproductive land.
Besides, social, market and economic pressures add onto their distress. Interestingly, prices of the farm
commodity are simultaneously rising for the consumer but the farmer is getting a rough deal (The Hindu,
2021). During the famine situation of 1943, when the domestically produced food was not enough to quell the
hunger of the country's population, India imported more food from other countries and directly feed the people
without storage. It is very surprising that the acts and regulations which were put in place during that period
to tackle this ‘ship to mouth’ situation are still being perpetuated in this era when India is self-sufficient in
food production especially staple foods. There was the existence of redundancy of several acts and legislations
such as Essential Commodities Act of 1940s and 1950s for stock limits, restrictions on inter-state trade, APMC
Act. Also, 1990 economic liberalisation which was for industry and service and agriculture was completely
ignored, Green revolution/White revolution that were mostly central government initiative. The presence of a
large number of petty traders (small and feudal) and the lack of infrastructure in the sector and high cost of
intermediation constrained the access of about 30-35 per cent less food grain by the consumer. Further the
leakage of about 46 per cent of food grains from FCI-PDS system clearly indicated the existence of corruption
in the system. Therefore, it is clear that due to certain vested interests, several much-needed reforms were
hindered from being implemented in due time.

4.16. Lack of dynamism in agricultural markets

The National Agricultural Policy of 2000 emphasized encouraging private sector involvement to boost
technology adoption, attract investments, and provide stable markets for agricultural produce. However,
private sector engagement in agriculture has remained limited. A key reason is the lack of reform in wholesale
markets governed by the Agricultural Produce Market Committee (APMC) Act. These markets impose steep
charges, including market fees, market cess, and commissions, and operate under the authority of state
21
governments, which grants them monopolistic control. Rather than fostering a competitive market
environment, APMCs have often hindered private investment and restricted farmers to selling only in state-
regulated market yards. Additionally, the inadequate post-harvest infrastructure and limited private storage
options have resulted in high levels of crop wastage—up to 35%. On the other hand, the sharp fall in prices at
harvest and the surge in off-season prices have created opportunities for political manipulation at the local
level. In light of these persistent challenges, the government was compelled to reconsider and reorient its
agricultural policy toward a more market-friendly and investment-driven approach.

4.17. Context of liberalisation of agricultural markets (new farm laws, September 27, 2020)
Multiple Economic Surveys have highlighted concerns over the functioning of Agricultural Produce
Market Committees (APMCs) and the monopolistic structures they support. While improvements in market
efficiency are necessary, they alone do not ensure fairness or equity for all stakeholders. After years of policy
stagnation, a comprehensive reform in agricultural marketing was seen as essential. The introduction of the
new farm laws marked a strategic shift intended to liberalize agricultural markets and enhance the livelihoods
of farmers, especially the small and marginal ones who constitute nearly 85% of India’s farming population
and have been the most disadvantaged under the existing APMC-dominated regime.

Over the years, the central government encouraged states to adopt model agricultural market reforms, but
with limited success. The new farm laws aimed to overcome these limitations by creating a unified national
market, increasing private sector participation, and expanding the choices available to farmers. These reforms
were designed to allow farmers to sell their produce beyond the confines of state-licensed mandis, and to
facilitate smoother interstate trade by removing barriers created by state-level APMC legislations. The goal
was to reduce inefficiencies and revenue losses that farmers often experienced under the previous system.

Importantly, the reforms also enabled contract farming, providing a legal framework for farmers to enter
into pre-agreed contracts with agribusinesses, processors, exporters, or retailers. This was intended to ensure
assured markets, reduce price risks, and improve access to technology and inputs. Additionally, the laws
proposed amendments to the APMC Acts and the Essential Commodities Act to remove restrictions on the
storage and movement of agricultural commodities, thus promoting private investment in post-harvest
infrastructure (Chand, 2020). By addressing challenges like weak infrastructure and multiple intermediaries,
the reforms aimed to increase price realization and empower farmers with greater autonomy in marketing their
produce.

4.18. Repeal of new farm laws (repealed 1st December 2021)

In September 2020, the Government of India enacted two new farm laws and amended the Essential
Commodities Act of 1951, aiming to liberalize agricultural markets and attract private investment. These
reforms were introduced as part of a broader effort to complete the market-oriented transformation of Indian
agriculture that began with the economic liberalization of 1991. While many considered the new laws historic
and transformative—particularly in offering farmers more choices, reducing middlemen, and improving price
realization—they also faced sharp criticism and widespread protests, especially from farmers in Punjab and
Haryana.

Opposition stemmed from fears that the reforms would weaken the minimum support price (MSP) system,
dismantle APMC mandis, and expose small and marginal farmers to exploitation by large corporations.
Concerns were also raised about the dilution of the role of traditional market intermediaries, though the
government argued that the new laws would benefit millions of farmers by enhancing market access,
encouraging contract farming, and reducing post-harvest losses.

Despite prolonged negotiations and public outreach efforts, the protests intensified, leading to a
significant political standoff. Eventually, in response to sustained pressure from farmer unions—primarily

22
from Punjab and Haryana—the central government announced the repeal of the three farm laws. The formal
withdrawal took place on December 1, 2021, marking a rare reversal of a major policy decision.

4.18.1. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 (FPTC
Act)
Among the three farm laws, the Farmers' Produce Trade and Commerce (FPTC) Act was the first. In the
wake of the economic disruptions caused by the COVID-19 pandemic, the government saw an opportunity to
introduce bold policy measures to address longstanding structural challenges in agriculture. The FPTC Act
was enacted with the aim of providing farmers with alternative marketing options beyond the regulated APMC
mandis, which had been criticized for lack of transparency and inconsistent enforcement of rules.

The Act establishes a legal framework for farmers to sell their produce in designated "trade areas" outside
the APMC markets, thereby creating multiple avenues for transactions. It encourages the use of digital
platforms and e-commerce in agriculture and includes provisions for registering traders and recording
transactions in these trade areas. One of the key benefits of the Act is that it permits direct procurement from
farmers’ fields, allowing them greater autonomy in price negotiation (Chand, 2020; The Hindu, 2021b).

By creating a level playing field between APMCs and private players, the FPTC Act promotes healthy
competition and is expected to streamline the agricultural value chain. It is particularly beneficial for
smallholder farmers, as it supports market diversification, reduces excessive intermediation, and can
potentially enable farmers' groups to sell directly to consumers. Overall, the Act seeks to foster a more
efficient, transparent, and farmer-centric marketing environment.

4.18.2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services
Ordinance, 2020 (APAFS)
The Agreement on Price Assurance and Farm Services (APAFS) Act represents a streamlined and
enhanced approach to contract farming, building on earlier models already adopted by several states. Unlike
the previous frameworks that often-involved complex procedures and state-specific compliance burdens, this
Act simplifies the contractual process and focuses primarily on securing pre-agreed prices for agricultural
produce. It also facilitates the provision of farm inputs and services by buyers to farmers.

The Act offers a more farmer-friendly structure than traditional contract farming agreements, with several
provisions designed to safeguard farmers’ interests—especially in light of their expectations around post-
harvest prices. The agreement is structured to ensure that farmers are not bound by rigid terms and instead
have the flexibility to negotiate in a more transparent and predictable environment.

A prominent example of this model in practice is seen in the dairy sector. Nestlé, a global food company,
has successfully implemented contract-based arrangements with dairy farmers in India. The company provides
technical assistance, veterinary services, and essential inputs while operating a highly efficient supply chain.
Farmers receive weekly payments based on milk quality, particularly its fat and solids-not-fat (SNF) content,
ensuring fair and performance-based pricing (Chand, 2023).

4.18.3. Essential commodities (amendment) Act, 2020

The amended legislation focuses on essential agricultural commodities such as cereals, pulses, potatoes,
onions, edible oilseeds, and oils, with the objective of reducing apprehensions among private investors
regarding excessive government intervention. Under the revised provisions, the central government is
permitted to regulate the supply of these commodities only in exceptional situations—such as war, famine,
severe price surges, or natural disasters.

The Act introduces a framework for imposing stock limits based on price triggers: a 100% rise in the
retail price of perishable horticultural produce or a 50% increase in the price of non-perishable food items. By
23
limiting arbitrary controls, the policy is expected to encourage large-scale private investment in infrastructure
such as storage facilities, cold chains, and transportation networks. This, in turn, could help minimize food
wastage, stabilize prices across regions and seasons, and prevent sudden market collapses.

Additionally, the legislation provides for proper documentation and tracking of privately held storage
facilities, including details on quantity and location, contributing to better transparency and supply chain
management.

4.19. Pre-requisites for successful implementation of Acts

For the proper implementation of these Acts the FPOs, local level institutions, farmers collectives, SHGs
should be encouraged to be pro-active. Along with this, the proper registration and tracking of transactions in
trade area are mostly required. In order to modernize the existing mandis and strengthen the agriculture market
infrastructure in the country for effective implementation of new laws, government has also been providing
financial assistance through various centrally sponsored schemes. Also, towards this aim, government has
taken initiative to expand eNAM (electronic National Agriculture Market) by integrating an additional 1,000
mandis to enhance farmers’ access to multiple markets and buyers across the country and also to bring
transparency in trade transactions with the intent to improve price discovery mechanism (Reddy, 2021; Reddy,
2018).
In such kind of a setup, the farmers, consumers and the large corporate houses will stand to gain whereas
the small-scale middlemen, commission agent, state government revenues and APMC market committees will
accrue a loss.

5. Way forward
From the above discussions, it has realized that there is a need for gradual shifting of scheme from assured
price to assured income. For that purpose, this paper suggests two alternatives. First one which is the
alternative to MSP operation is, shift to a Price Deficiency Payment (PDP) system, where paddy and wheat
could be procured under MSP up to the necessary levels to meet the PDS demands but beyond that it must be
disbanded and the remaining 21 crops should be provided PDP (Figure 20). The PDP system is more efficient
than physical procurement.

Figure 20. MSP based Price Deficiency Payment Mechanism. Authors calculations.

24
 The other alternative is the modification of Crop insurance to income insurance scheme, the PMFBY,
which needs to cover the price risk in addition to the yield risk. The irrigation should be strengthened and the
budget under agriculture subsidies should be pooled under this for providing income insurance (Figure 21).
This will prevent market distortion and assure the farmers a minimum income.

Figure 21. Budget allocation in year 2024-25 (Rs crore).

Pradhan Mantri Kisan Man Dhan Yojana 100

Distribution of Pulses for Welfare Schemes 300
National Mission on Natural Farming 366
Formation and Promotion of 10,000 Farmer Producer… 582
Agriculture Infrastructure Fund (AIF) 600
Pradhan Mantri Annadata Aay Sanrakshan Yojna (PM-… 6,438
Krishionnati Yojana 7,447
Rashtriya Krishi Vikas Yojna (RKVY) 7,553
Prime Minister Krishi Sinchayi Yojana(PMKSY)-irrigation 9,339
Crop Insurance Scheme 14,600
Modified Interest Subvention Scheme (MISS) 22,600
Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) 60,000
MGNREGS 86,000
Fertilizer subsidy 1,64,000
Food subsidy 2,05,250

0 50,000 1,00,000 1,50,000 2,00,000 2,50,000

Source: Economic Survey, 2025.

So, after all the discussions the paper suggests the academicians and researchers to take the responsibility
of ensuring sustainability and equitability as well as achieving market efficiency along with the intervention
of government by providing some safeguard.

5.1. Policy conclusions

In India, the new farm laws are intended to opening up agricultural economy and exposing farmers to free
market opportunities. On the fear of exposing to market volatility, farmers are agitating for guaranteed
minimum support price. Although, MSP policy achieved its objective of providing assured prices for paddy
and wheat farmers and also abundant supply of food grains, it neglected other crops like pulses, oilseeds, fruits
and vegetables, resulted mass undernourishment among children and women. Under the existing MSP policy
with complete focus on paddy and wheat with utter neglect of other crops, farmers of pulses and oilseeds are
exposed to market vagaries and volatility, resulted in low production, low profitability and excessive
dependence on imports.

5.2. Assuring MSP for all crops is not possible

On the other hand, as per the farmers demand if government guarantee MSP for all crops, it will be a
gigantic task, needs huge budget allocations, support from state and local marketing boards to evolve
economically feasible solutions given that the state capabilities are limited and vary. Some states like Punjab
are historically in better position to procure their major crops, paddy and wheat, while some other states like

25
Bihar and Orissa have limited capabilities. Because of this, Punjab and Haryana farmers received higher prices
then farmers in East-Indian states like Bihar over several decades.

In addition, except paddy and wheat, there was no proper procurement mechanism for the remaining 21
crops for which MSP is announced. Although under decentralised procurement system, some states are
procuring pulses and oilseeds, they just cover less than 5% of the production.

India cannot depend on achieving target of doubling farmers’ incomes just by procuring only paddy and
wheat that too from only a handful of states. The current MSP policy is hugely discriminatory against rainfed
farmers who grow pulses, oilseeds, fruits and vegetables, and constitute more than 70% of the 12 crore farm
families in India.

Even under ideal situations, the actual procurement at MSP cannot reach more than 20% of farmers, hence
cannot be a solution to increasing farmers’ incomes. The actual procurement was less than 5% of market
arrivals for pulses and oilseeds and even for paddy and wheat it reached only about 20-30 % farmers in 2019
crop season.

The prices of oilseeds were less than 10 to 30% in most of the markets during the recent kharif season.
The biased policy also contributing to huge import of edible oils each year incurring enormous cost to Indian
exchequer to the extent of Rs.70,000 crore. Whereas fruits and vegetable are entirely out of the MSP
procurement policy.

In the changed scenario of surplus food production with buffer stocks exceeding 2-3 times of the normal
requirement, the past biased MSP policy will do more harm than the good. Now it is time to broad base MSP
policy to other crops to encourage crop diversification to contribute to not only food security but also
nutritional security.

5.3. No private investments under old MSP policy

Due to extensive government involvement in food markets, the participation of the private corporate
sector in agriculture has remained minimal. Currently, it accounts for less than 2% of the total investment in
the agricultural sector and under 0.5% of overall corporate investment in the Indian economy. This limited
engagement by large corporations, combined with the dominance of small-scale traders, has resulted in a
significant lack of investment in critical infrastructure such as warehouses, cold storage facilities, aggregation
centers, and transportation networks. As a consequence, agricultural trade and marketing continue to function
with substantial inefficiencies and rely heavily on outdated systems and technologies.

5.4. The new farm laws encourage investments and new technology
The new farm laws provide congenial long-term environment to promote free markets in which price
discovery takes place based on demand and supply, hence will incentivize crop diversification to high value
crops like pulses, oilseeds, fruits and vegetables. It will also encourage huge corporate investments in food
processing sector both in supply chain development as well as retail sector. This will ultimately enhances
farmers’ incomes through backward linkages.

5.5. Modified MSP policy as price insurance

Although the new farm laws will help in encouraging much needed private investments in agricultural
infrastructure like cold chains, warehouses, collection centres and aggregation centres, they cannot ensure
stable and remunerative prices to farmers. Hence, there is a need for modifying the past MSP policy to
safeguard the farmers from high volatility and also low prices. Although crop insurance schemes like Prime
26
Minister Fasal Bhima Yojana (PMFBY) was in implementation, it covers only production risk with complete
neglect of price risk.

Under the new farm laws, the role of the MSP policy should be altered in such a way that (i) Procurement
of paddy and wheat meets the needs of procurement for food security, (ii) Price Deficiency Payment Scheme
(PDPS) for remaining 21 crops and (iii) Provide signal price for crops with fragmented markets.

To modify the MSP policy to meet the above three objectives is a balanced act, which require different
operational modalities.

5.6. Procurement of paddy and wheat

The first objective of meeting the needs of procurement of food grains for Public Distribution Scheme
(PDS), the existing Price Support Scheme (PSS) for paddy and wheat needs to be continued with the emphasis
on decentralised procurement with more responsibility of procurement to state government agencies,
cooperatives and farmer producer companies.

Under PSS only for two commodities, government is spending about Rs. 2 lakh crore every year on food
subsidy. To expand it to all 23 crops, some estimates indicated that it may cost up to Rs.18 lakh crore, which
is beyond the capacity of both central and state governments in terms of finances and also logistical
arrangements.

5.7. Price deficiency payment for remaining 21 crops

The remaining 21 crops for which MSP is announced have to be covered under PDPS, under this, farmers
are paid the difference between MSP and the modal price of the market, with no procurement and farmers are
free to sell in open markets. It is most efficient method, as it eliminates all logistic costs relating to
procurement, storage and offloading. It is neutral to crops and geography. It can be operational for any crop
anywhere even in remotest parts of India.

The implementation of the PDPS is easy and feasible across the country, as all the necessary information
for direct transfer of price deficiency payment like farmers identification, land records, bank accounts are
collected under already fully functional PM-KISAN scheme. The model price of all the APMC markets is
available under AGMARKNET. Only additional information needed is the quantity sold by each farmer,
which can be estimated based on acreage data collected by state department of agriculture at the beginning of
the season or actual submission of sale receipts.

The PDPS was implemented in the past in Madhya Pradesh under Shavantar Yojana. However, there are
some design problems in the scheme, where in some problems in estimation of model price leading to collusion
among traders and farmers to artificially push down the model price, so that the deficiency payment will be
higher. These design problems in estimating model price can be overcome by the benchmarking with
international price or with past price, which is immune to manipulation.

The implementation of PDPS schemes is not dependent on the capacity of the government to procure
through APMCs or any other agency, hence farmers fear of neglecting the APMC markets under new laws
will be eased.

5.8. Price signal for scattered markets

The price support scheme covers paddy and wheat, while PDPS will cover the remaining 21 crops. Still
there are some crops which are not covered both in PSS and PDPS, which are generally thinly produced in
27
wide areas with fragmented markets. For these crops, estimating the model price may be difficult as there are
no nation-wide markets. However, there is a scope for exploitation of these farmers by middleman due to very
scattered, thin and fragmented markets, to safeguard these farmers, modified MSP policy should provide
signal price, so that all market participants will adhere to the signal price in the long run in the absence of
markets for price discovery.

Overall, with the implementation of new farm laws, role of MSP policy also needs to change to
accommodate pro-market price insurance policy options.

Funding: No funding sources used for this paper.

Ethics: No ethical issues exist for this paper. No conflicts of interest

28
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Annexure 1. Status of adoption of reforms with respect to 12 identified areas and notification of rules
thereunder provision-wise are given in the table below:
Si.
No. Area of Reforms State adopted the reform provision in Act Notified the rules
1 Private market A.P., Arunachal Pradesh, Assam,
Chhattisgarh, Goa, Gujarat, Haryana, H.P.,
Jharkhand, Karnataka, Maharashtra, A.P., Chhattisgarh, H.P.,
Manipur, Meghalaya, Mizoram, Nagaland, Karnataka, Maharashtra,
Odisha, Punjab, Rajasthan, Sikkim, Tamil Odisha, Punjab, Rajasthan,
Nadu, Telangana, Tripura, U.P., Sikkim, Telangana, Tripura,
Uttarakhand, W.B. and Chandigarh (26 U.P., Uttarakhand, W.B. and
states/UTs). Chandigarh (15 states/UTs).
2 Direct Marketing A.P., Arunachal Pradesh, Assam,
(wholesale Chhattisgarh, Goa, Gujarat, Haryana, H.P.,
purchase from farm Jharkhand, Karnataka, Madhya Pradesh,
gate outside the Maharashtra, Manipur, Meghalaya, A.P., Chhattisgarh, Haryana,
market - yard) Mizoram, Nagaland, Punjab, Rajasthan, H.P., Karnataka, M. P.,
Sikkim, Tamil Nadu, Telangana, Tripura, Maharashtra, Punjab, Rajasthan,
U.P., Uttarakhand, W.B. and Sikkim, Telangana, U.P., W.B.
Chandigarh (26 states/UTs). and Chandigarh (14 states/UTs).
3 Declaring A.P., Arunachal Pradesh, Assam, Gujarat,
warehouse/silo/cold Haryana, Jharkhand, Karnataka, Manipur,
storage as deemed Meghalaya, Nagaland, Tamil Nadu, A.P., Karnataka, Telangana and
market –yard Telangana, Tripura and U.P.(14 states/UTs). U.P.(4 states).
4 e-Trading Platform A.P., Arunachal Pradesh, Assam, Goa,
Gujarat, Haryana, Jharkhand, Karnataka, A.P., Goa, Gujarat, Karnataka,
Madhya Pradesh, Maharashtra, Manipur, Madhya Pradesh, Maharashtra,
Meghalaya, Nagaland, Punjab, Rajasthan, Punjab, Rajasthan, Telangana,
Tamil Nadu, Telangana, Tripura, U.P., W.B. U.P., W.B. and Chandigarh
and Chandigarh (21 states/UTs). (12 states/UTs).
5 Single point levy of A.P., Arunachal Pradesh, Assam, A.P., Chhattisgarh, Goa,
market fee Chhattisgarh, Goa, Gujarat, Haryana, H.P., Gujarat, Haryana, H.P.,
Jharkhand, Karnataka, Madhya Pradesh, Karnataka, Madhya Pradesh,
Maharashtra, Manipur, Meghalaya, Maharashtra, Odisha, Punjab,
Mizoram, Nagaland, Odisha, Punjab, Rajasthan, Sikkim, Tamil Nadu,
Rajasthan, Sikkim, Tamil Nadu, Telangana, Telangana, U.P., Uttarakhand,
Tripura, U.P., Uttarakhand, W.B. and W.B. and Chandigarh (19
Chandigarh (27 states/UTs). states/UTs).
6 Single Unified A.P., Arunachal Pradesh, Assam, A.P., Chhattisgarh, Goa,
License Chhattisgarh, Goa, Gujarat, Haryana, H.P., Gujarat, Haryana, H.P.,
Jharkhand, Karnataka, Madhya Pradesh, Karnataka, Madhya Pradesh,
Maharashtra, Manipur, Meghalaya, Maharashtra, Odisha, Punjab,
Mizoram, Nagaland, Odisha, Punjab, Rajasthan, Sikkim, Tamil Nadu,

32
 Rajasthan, Sikkim, Tamil Nadu, Telangana, Telangana, U.P., Uttarakhand,
Tripura, U.P., Uttarakhand, W.B. and W.B. and Chandigarh (19
Chandigarh (27 states/UTs). states/UTs).
7 Rationalization of A.P., Arunachal Pradesh, Assam, Goa, Gujarat, H.P., Jharkhand, Karnataka,
market fee Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland,
Odisha, Rajasthan, Sikkim, Tamil Nadu, Telangana, Tripura, U.P.,
Uttarakhand, W.B., NCT of Delhi and Puducherry (25 states/UTs).
8 Rationalization of A.P., Arunachal Pradesh, Assam, Chhattisgarh, Goa, Gujarat, H.P. (partial),
Commission Jharkhand, Karnataka (partial), M.P., Maharashtra, Manipur, Meghalaya,
charges Mizoram, Nagaland, Odisha, Sikkim, Tamil Nadu, Telangana, Tripura, U.P.,
Uttarakhand, W.B., and Puducherry (24 states/UTs).
9 Reciprocity of Arunachal Pradesh, Assam, Gujarat, Jharkhand, Manipur, Meghalaya,
trading license Nagaland, Tripura and U.P(rules). (9 states). (Note: Neither any states have
notified the rules nor entered into MoU.)
10 De-regulation of F A.P., Arunachal Pradesh, Assam, Chhattisgarh, Gujarat, H.P., Jharkhand,
&V Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Nagaland,
Odisha, Rajasthan, Sikkim, Tamil Nadu, Tripura, U.P., W.B. and NCT of Delhi
(21 states/UT).
11 Exemption of Karnataka, Maharashtra, Rajasthan, U.P. and NCT of Delhi (5 states/UT).
market fee for
direct sale to
processing units by
farmers/FPOs at
their premises
12 Exemption of A.P., Arunachal Pradesh, Chhattisgarh, Goa, Karnataka, Rajasthan, Tamil
market fee on Nadu, Telangana, U.P., Uttarakhand and NCT of Delhi (11 states/UTs).
produce brought
from other state for
processing
Source: National Policy Framework on Agricultural Marketing.
https://agriwelfare.gov.in/Documents/HomeWhatsNew/Draft_National_Policy_framework_AgriMarketing_
25112024.pdf

33