Factors Behind Poor Agricultural Performance in India

India’s agricultural sector employs nearly half of the country’s workforce, yet its contribution to GDP has declined significantly over decades. Despite being among the world’s top producers of several crops, millions of farmers struggle with poverty, debt, and uncertainty. What explains this paradox of high production coexisting with widespread rural distress? The answer lies in a combination of structural issues, policy failures, and systemic neglect that have collectively undermined agricultural performance in India.

Neglect and under-investment in agriculture
Declining budget allocation for agriculture
Rising costs and unviable returns
Unfavourable terms of trade
Monsoon dependency and crop failure risks
Declining rural employment and wages
Casualization of rural workforce
Implementation gaps in support schemes
Wage payment delays and funding constraints
Administrative and structural issues
Quality of assets and project implementation
Structural constraints affecting agriculture

Neglect and under-investment in agriculture

One of the most fundamental factors behind poor agricultural performance is the persistent neglect and under-investment in the sector. Agriculture’s contribution to India’s GDP declined from 54% in 1950-51 to approximately 15% in recent years, while the manufacturing and services sectors have grown substantially. This structural shift, however, has not been accompanied by proportionate growth in farmer incomes or agricultural productivity.

Public investment in agriculture has remained inadequate despite the sector’s critical role in rural livelihoods. Subsidies on power, fertilizers, and irrigation have increasingly dominated government expenditure on agriculture, crowding out essential investments in research, extension services, and infrastructure. These subsidies are now reportedly four times larger than actual investment expenditures on the sector.

Declining budget allocation for agriculture

Agricultural investment as a percentage of GDP witnessed a concerning decline during the reform period. The structural inequity in resource allocation meant that while other sectors attracted private investment and policy attention, agriculture was left behind. This was further compounded by insufficient budgetary allocations that failed to address the sector’s modernization needs.

Investment in agriculture continued to remain negligible even when terms of trade showed some improvement. The chronic underfunding has affected critical areas including agricultural research systems, extension services, and rural infrastructure. Research institutions struggle with aging researchers, inadequate infrastructure, and limited access to modern technologies.

Rising costs and unviable returns

The cost of cultivation has increased substantially with the adoption of modern technology, making farming economically unviable for many, particularly small and marginal farmers. The average cost of cultivation per hectare for paddy rose from Rs 1,866 in 2010-11 to Rs 2,796 in 2019-20, representing a significant burden on farmers operating with thin profit margins.

Rising cost of cultivation, particularly labour costs and input costs for fertilizers, has become the primary reason for non-viability of cultivation. Farmers face escalating expenses for seeds, pesticides, irrigation, and mechanization, while output prices have not kept pace with these rising costs.

Unfavourable terms of trade

The terms of trade have historically remained against agriculture. Multiple factors including unviable agriculture, ineffective Minimum Support Price systems, and adverse terms of trade have contributed to agrarian distress. Even after the 1991 economic reforms, the agricultural sector did not benefit proportionately from liberalization policies.

The post-reform period brought additional challenges as government protections were gradually withdrawn. The agrarian crisis during this period had three main components: rising input costs, falling prices, and farmers’ inability to abandon farming due to lack of alternative livelihoods. This created a trap where farmers could neither prosper from cultivation nor exit to better opportunities.

Monsoon dependency and crop failure risks

Approximately 55% of India’s arable land depends on precipitation, making agricultural output highly vulnerable to monsoon variability. This dependence on rainfall creates significant uncertainty in farm incomes and exposes farmers to recurring risks of crop failure.

The lack of effective insurance mechanisms has made farmers particularly vulnerable. As of 2011, only about 10% of Indian farmers were covered under crop insurance schemes. Persistent issues with crop insurance include unawareness about available schemes, inadequate coverage, problems in assessing crop damage, and delays in settling claims.

Declining rural employment and wages

Rural employment patterns have undergone significant changes, contributing to agricultural distress. Between 2004-05 and 2018-19, while employment in agriculture declined by 68 million workers, the non-farm sector generated only 42 million new jobs. This mismatch between agricultural job losses and non-farm job creation has intensified rural distress.

Data from National Sample Survey Organisation rounds has documented the structural transformation in rural employment. NSSO surveys show a consistent decline in the share of workers employed in agriculture, yet this shift has not necessarily translated into better livelihood outcomes for rural households.

Casualization of rural workforce

The nature of rural employment has also deteriorated through increasing casualization. Studies using NSSO data reveal a declining proportion of self-employed and regularly employed workers, contributing to the casualization of the rural workforce. This shift toward casual employment has implications for income stability and social security coverage.

Wage levels are consistently lower in the primary sector compared to other sectors for all employment categories. The average daily wages for casual workers in agriculture remain significantly lower than in manufacturing or construction activities, pushing workers to seek employment outside the farm sector, often under distress conditions.

Implementation gaps in support schemes

Government schemes designed to address agrarian distress have suffered from serious implementation failures. The Mahatma Gandhi National Rural Employment Guarantee Act, enacted in 2005, was meant to guarantee 100 days of unskilled work annually to every rural household. However, the scheme has faced persistent challenges that have limited its effectiveness.

Wage payment delays and funding constraints

Most states have failed to disburse wages within the mandated 15 days under MGNREGA. Workers are not compensated for delays in payment, which has transformed what was designed as a demand-driven programme into a supply-based one. These delays have caused workers to lose interest in the scheme.

Budget allocation for MGNREGS declined from 3.2% of GDP in FY21 to 1.78% in FY25, with no additional funds sanctioned. This has created wage shortfalls and material liabilities, severely limiting employment opportunities available to rural households when they need them most.

Administrative and structural issues

MGNREGA wage rates in 17 states are lower than corresponding state minimum wages, making the scheme unattractive to workers. The over-centralization of the scheme has diminished local accountabilities and reduced the power of Panchayati Raj Institutions to resolve issues effectively.

Parliamentary committee reviews have noted that while 755 lakh households were provided employment in 2020-21, only 72 lakh households actually completed 100 days of work. The nominal wages discourage beneficiaries and push them toward more remunerative work options or migration to urban areas. Social audit implementation also remains poor, with many Gram Panchayats going unaudited.

Quality of assets and project implementation

Most assets created under MGNREGA are not durable and fail to contribute meaningfully to rural infrastructure development. There have been reports of fake job cards, fictitious names in registers, missing entries, and irregular project inspections. These implementation gaps have meant that the scheme has failed to achieve its dual objectives of providing employment security and creating productive rural assets.

Issues with Aadhaar-based payment systems have led to exclusion errors, preventing eligible workers from receiving their wages. The disconnect between local priorities and centralized administration has further undermined the scheme’s effectiveness as a poverty alleviation tool.

Structural constraints affecting agriculture

Small and marginal land holdings now account for about 86% of total agricultural land holdings in India. These small farmers face unique challenges including limited access to formal credit, inability to use mechanization effectively, and lack of bargaining power in markets. Farmers with holdings less than one hectare primarily borrow from moneylenders at high interest rates rather than formal banking channels.

India’s agricultural yield remains 30% to 50% lower than the highest average yields globally. While being among the top producers of various crops, productivity per unit of land has lagged significantly behind countries like China, Brazil, and the United States. This productivity gap reflects the cumulative impact of underinvestment, inadequate technology transfer, and poor infrastructure.

What do you think? Can India reverse decades of agricultural neglect through targeted policy interventions, or does the solution lie in fundamentally rethinking the relationship between the state and small farmers? How might lessons from successful agricultural economies be adapted to address the unique challenges of Indian farming?

References

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Factors Behind Poor Agricultural Performance in India

Table of Contents

Neglect and under-investment in agriculture 🔗

Declining budget allocation for agriculture 🔗

Rising costs and unviable returns 🔗

Unfavourable terms of trade 🔗

Monsoon dependency and crop failure risks 🔗

Declining rural employment and wages 🔗

Casualization of rural workforce 🔗

Implementation gaps in support schemes 🔗

Wage payment delays and funding constraints 🔗

Administrative and structural issues 🔗

Quality of assets and project implementation 🔗

Structural constraints affecting agriculture 🔗