Indian Agriculture: Features, Problems, MSP, Reforms and Schemes for RBI Grade B ESI

Last updated: 2026-11-11 · MockMentor

"Indian Agriculture" is a line of its own in the Indian Economy unit of the RBI Grade B Phase 2 Economic and Social Issues (ESI) syllabus. It is also central to RBI's work: food prices drive inflation, rural credit is a large part of priority sector lending, and farm incomes shape rural demand. Agriculture employs more Indians than any other sector, so questions on jobs, poverty, water, climate and federalism often come back to it.

In one line: Indian agriculture feeds the country and employs over two-fifths of its workers, but small holdings, low productivity, water stress and weak markets keep farm incomes low, and the policy challenge now is to raise farm incomes, since output has already reached record levels.

Basic concepts

• Agriculture and allied activities: crop farming plus livestock, fisheries and forestry. Allied sectors now produce a growing share of farm output.
• Operational holding: all land used wholly or partly for agricultural production and operated as one unit by one person or group, whether owned or leased.
• Minimum Support Price (MSP): the price at which the government announces it will buy a crop from farmers, to protect them from a fall in market prices. It is fixed by the Centre on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
• Procurement: purchase of food grains by the Food Corporation of India (FCI) and state agencies at MSP, for the public distribution system and buffer stocks.
• Cropping intensity: gross cropped area divided by net sown area. A figure of 150% means half the land is cropped twice a year.
• Agricultural Produce Market Committee (APMC): a state-regulated market yard (mandi) where farmers sell produce through licensed traders and commission agents.
• Food security: availability of, access to and use of enough nutritious food by all people at all times.

Why in News?

1. The Third Advance Estimates for 2025-26, released on 27 May 2026, put foodgrain production at a record 376.56 million tonnes, up 5.3% from 2024-25. Rice (154.0 million tonnes), wheat (120.7 million tonnes), maize (55.1 million tonnes) and sugarcane (500.1 million tonnes) all touched records.
2. On 11 October 2025, the Prime Minister launched the Pradhan Mantri Dhan-Dhaanya Krishi Yojana, with an outlay of ₹24,000 crore for 100 low-productivity districts, bringing together 36 schemes, and the Mission for Aatmanirbharta in Pulses, with ₹11,440 crore to expand pulse area by 35 lakh hectares.
3. In 2025, agriculture employed 43.0% of India's workers, according to the Periodic Labour Force Survey (PLFS), down from 44.8% in 2024.

Features of Indian agriculture

• Large employer, smaller producer: agriculture and allied activities produce under a fifth of India's Gross Value Added (GVA) but employ over two-fifths of its workers. Output per worker is therefore far below that in industry and services.
• Small and fragmented holdings: according to the Agriculture Census 2015-16, the most recent published, India had 14.6 crore operational holdings with an average size of 1.08 hectares. Small and marginal holdings (under 2 hectares) were 86% of all holdings but covered only 47% of the area.
• Dependence on the monsoon: about half the net sown area is irrigated. The rest depends on rain, so a weak or erratic monsoon hits output, incomes and food prices.
• Dominance of food grains: rice and wheat cover a large share of the cropped area, supported by MSP and procurement, while pulses and oilseeds lag, and India imports large quantities of edible oil.
• Rising share of allied sectors: livestock and fisheries have grown faster than crops for years, and India is the world's largest producer of milk.
• Low mechanisation and productivity: yields of most crops are well below those of China and other leading producers.
• Subsistence and commercial farming side by side: many small farmers grow mainly for their own food, while others in irrigated regions grow cash crops for the market.
• Regional variety: from the irrigated wheat-rice belt of Punjab and Haryana to the rain-fed plateaus of central India and the plantations of the south and north-east.

Agricultural performance

Horticulture (fruits, vegetables, flowers and spices) now produces more by volume than food grains, and India is the second-largest producer of fruits and vegetables in the world. India is also the largest producer of milk, pulses and spices, and among the two largest producers of rice, wheat, sugarcane and cotton.

The Green Revolution

The Green Revolution began in 1965-66, when India faced severe drought and food imports. Scientists M.S. Swaminathan in India and Norman Borlaug in Mexico led the use of high-yielding variety (HYV) seeds of wheat and rice.

Package of the Green Revolution

1. High-yielding variety seeds.
2. Chemical fertilisers and pesticides.
3. Assured irrigation through canals and tube wells.
4. Farm machinery such as tractors and threshers.
5. Institutional support: credit from banks, MSP and procurement through the FCI (set up in 1965), and the CACP (set up in 1965 as the Agricultural Prices Commission).

Results

The idea of an "Evergreen Revolution", proposed by M.S. Swaminathan, calls for raising productivity in a way that also protects soil, water and biodiversity.

Problems of Indian agriculture

1. Small holdings and fragmentation

Holdings keep dividing as land is passed on to heirs. Small plots make mechanisation, investment and access to credit difficult. Land leasing is restricted or banned in many states, so tenants farm without records and cannot get loans or crop insurance.

2. Low productivity

Yields of rice, wheat, pulses and oilseeds are well below world best levels. The reasons include poor seed quality, imbalanced fertiliser use, low irrigation in many states, weak extension services and small holdings.

3. Water stress and dependence on the monsoon

Agriculture uses about four-fifths of India's freshwater. Flood irrigation is wasteful, groundwater is being pumped faster than it is recharged in many districts, and free or cheap power for pumps encourages overuse. Rain-fed areas remain highly exposed to droughts.

4. Soil and land degradation

Overuse of urea, little use of organic matter and continuous cropping have reduced soil health. A large area is affected by erosion, salinity and waterlogging.

5. Weak markets and price risk

Farmers often sell at low prices immediately after harvest because they need cash, lack storage and depend on intermediaries. Prices of vegetables such as tomatoes, onions and potatoes swing sharply. MSP benefits are concentrated in a few crops and states.

6. Credit and indebtedness

Many small farmers and tenants still borrow from moneylenders at high interest. Indebtedness, crop failure and price falls are linked to farmer distress and suicides in some regions.

7. Low investment

Public investment in irrigation, research and rural roads fell in the 1990s, while spending on input subsidies (fertiliser, power, water) rose. Private investment is limited by small holdings and uncertain returns.

8. Weak link with industry

Food processing absorbs only a small share of farm output, and post-harvest losses of fruits, vegetables and grains are high because of poor storage and cold chains.

9. Climate change

Higher temperatures, heatwaves during the wheat-ripening season, erratic rainfall and more frequent extreme events threaten yields, especially in rain-fed areas.

10. Too many people on the land

With too few jobs outside agriculture, many workers stay in farming with low productivity. This is disguised unemployment: if some left, output would not fall.

Steps taken to raise production and incomes

Land reforms

After Independence, states carried out land reforms in four areas:

1. Abolition of intermediaries (zamindari), largely completed by the 1950s.
2. Tenancy reform: security of tenure, regulation of rent and, in some states, ownership rights to tenants. West Bengal's Operation Barga (1978) recorded sharecroppers' rights.
3. Ceiling on landholdings and redistribution of surplus land to the landless. Implementation was weak in most states.
4. Consolidation of holdings, successful mainly in Punjab, Haryana and western Uttar Pradesh.

The Digital India Land Records Modernisation Programme and the SVAMITVA scheme (property cards for rural homes, using drones) aim to give clear titles. NITI Aayog's Model Agricultural Land Leasing Act (2016) proposed legal leasing to protect both owners and tenants.

Institutional credit

Minimum Support Price and procurement

The Centre announces MSPs for 22 crops (14 kharif and 6 rabi crops, plus copra and jute), and a Fair and Remunerative Price (FRP) for sugarcane. Since 2018-19, MSPs have been fixed at least at 1.5 times the cost of production "A2+FL" (paid-out costs plus the imputed value of family labour).

The CACP considers the cost of production, demand and supply, market prices, inter-crop price parity, the terms of trade between agriculture and other sectors, and the effect on consumers.

In practice, effective procurement at MSP happens mainly for wheat and rice, and in a few states such as Punjab, Haryana, Madhya Pradesh and Chhattisgarh. Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA, 2018) covers procurement of pulses and oilseeds through price support, price deficiency payments and private procurement.

Input subsidies

The main input subsidies are on fertiliser (the largest), power for farm pumps (paid by states), irrigation water and credit. Urea is sold at a fixed low price, while phosphatic and potassic fertilisers get a fixed subsidy under the Nutrient Based Subsidy scheme (2010). This has led to overuse of urea and an imbalance in soil nutrients. Neem-coating of urea (2015) cut its diversion to industry.

Food security system

The National Food Security Act, 2013 entitles up to 75% of the rural and 50% of the urban population to 5 kg of food grains per person per month, and Antyodaya Anna Yojana households to 35 kg per household. Since January 2023, these grains are free under the Pradhan Mantri Garib Kalyan Anna Yojana, extended for five years from January 2024. The FCI maintains buffer stocks, and One Nation One Ration Card lets beneficiaries draw rations anywhere in India.

Key schemes

Agricultural marketing reforms

The APMC system was set up to protect farmers from exploitation by traders. Over time, it became a source of problems: too few markets (a mandi often serves hundreds of square kilometres), cartels of licensed traders, high commissions and fees, and barriers to selling outside the mandi.

The farm laws episode showed the political economy of reform: farmers feared that private trade would weaken MSP procurement and the mandi system, even though many economists supported more choice in selling.

Doubling farmers' income

The Ashok Dalwai Committee (2017) identified seven sources of income growth: higher crop productivity, higher livestock productivity, better resource-use efficiency, higher cropping intensity, diversification into high-value crops, better prices, and a shift from farm to non-farm jobs. The target of doubling real farm incomes by 2022 was not met, but the framework remains the basis of farm policy.

Sustainable agriculture: what needs to change

1. Subsidies: move from price subsidies on urea, power and water towards direct income support and payment for conservation, so that farmers use inputs efficiently.
2. Land leasing: legal, recorded leasing so that tenants get credit and insurance, and owners do not fear losing land.
3. Non-farm income: rural industry, food processing and services to absorb surplus workers.
4. Exports: a stable export policy instead of sudden bans, and investment in quality and food safety standards.
5. Infrastructure: irrigation, storage, cold chains and rural roads.
6. Markets: more mandis, e-NAM inter-state trade, FPOs and futures markets for price discovery.
7. Cooperative federalism: agriculture is a state subject, so reforms need the agreement of states, through forums such as the GST Council model.
8. Diversification: from water-intensive rice and sugarcane in dry regions towards pulses, oilseeds, millets, horticulture and livestock.
9. Allied sectors: dairy, poultry and fisheries give small farmers steady cash income.
10. Climate resilience: drought-tolerant seeds, crop insurance, weather forecasting and water harvesting.

Possible exam and interview questions

1. Discuss the major problems of Indian agriculture and suggest measures to make it more productive and sustainable. (420 words)
2. "MSP has made farmers secure but agriculture unsustainable." Critically examine this statement. (620 words)
3. Evaluate the impact of the Green Revolution on Indian agriculture, the environment and regional equality.
4. What are the main problems of agricultural marketing in India? What reforms are needed?
5. Interview: Should India give legal guarantee to MSP for all crops?

Related reading: poverty in India, sustainable development, and our analysis of schemes asked in RBI Grade B Phase 1.

More in ESI

• National Income
• Human Development
• Poverty
• Employment
• Sustainable Development

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