Reform Express and the Farm Economy: The Hardest Test Yet
Prime Minister Narendra Modi’s description of his government as being in “Reform Express” mode reflects a renewed policy momentum. Recent initiatives—ranging from income-tax rationalisation and GST reforms to labour law changes, employment scheme adjustments and new trade agreements—signal an attempt to push growth-enhancing reforms at speed. Encouraging macroeconomic indicators reinforce this narrative: GDP growth is estimated at 7.4% in 2025–26, while consumer inflation fell sharply to 1.3% in December 2025.
Yet, sustaining this momentum into FY27 will depend less on headline reforms and more on tackling India’s most politically sensitive structural bottleneck—agriculture and food policy. Without reforming the incentive structure in agriculture, India risks high aggregate growth coexisting with rural distress.
Agriculture: the weak link in the growth chain
While the broader economy has performed well, agricultural growth tells a different story. Agri-GDP growth is expected to slow to around 3.1% in FY26, down from 4.6% in FY25. Ironically, the same factor that has helped tame inflation—falling food prices—has hurt farm incomes.
In late 2025, onion prices fell by nearly half, potato prices dropped by over a third, and pulses traded well below minimum support prices. For consumers, this meant relief from inflation; for farmers, it translated into reduced incomes and heightened uncertainty. In such conditions, the goal of self-sufficiency in pulses and oilseeds becomes increasingly difficult, regardless of targeted missions.
Subsidy-driven crop bias
The deeper problem lies in India’s incentive framework. Agriculture policy remains heavily skewed towards water- and fertiliser-intensive crops such as rice, wheat and sugarcane. Free or subsidised electricity, cheap urea and assured procurement have locked farmers into these crops, even in ecologically unsuitable regions.
By contrast, pulses, oilseeds and horticulture—crops critical for nutrition, sustainability and import reduction—lack comparable support. The result is chronic oversupply of cereals and recurring price crashes in non-cereal crops, undermining diversification and income stability.
Food subsidy: welfare or political comfort?
Food subsidy is the largest single subsidy item, estimated at about ₹2.25 trillion in a total Union Budget of roughly ₹51 trillion. Under the public distribution system, over 56% of India’s population receives free rice or wheat each month.
While reforms such as biometric authentication have reduced leakages, the scale of coverage raises difficult questions. With extreme poverty significantly reduced, universal free food for more than half the population risks becoming a blunt political instrument rather than a targeted safety net. The paradox is striking: farmers sell grain to the government and later receive the same grain free, at a much higher fiscal cost.
A gradual recalibration—reducing coverage while protecting the poorest—would improve fiscal efficiency without compromising food security. Redesigning fair price shops as nutrition hubs supplying pulses, oils, milk and eggs could also align food policy with nutrition goals.
Fertiliser subsidy: rewarding inefficiency
The fertiliser subsidy, at nearly ₹2 trillion, is the second-largest subsidy and exceeds the entire allocation for agriculture and farmers’ welfare. Excessive subsidisation of urea has distorted nutrient use, degraded soils, polluted groundwater and increased emissions. Significant leakages further weaken its effectiveness.
The long-term solution lies in shifting to direct income support and rationalising fertiliser pricing. In the near term, bringing urea under a nutrient-based subsidy regime and improving institutional accountability would be meaningful steps toward efficiency and sustainability.
Month: Current Affairs - January 21, 2026
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