Opinion Finance Minister has bypassed large parts of farm sector
The vision of Viksit Bharat cannot be realised without a stronger and more productive rural economy. Developmental expenditures are the only way to improve rural livelihoods
Farmers sowing paddy in rural area near Dediapada. Express photo by Bhupendra Rana 26.07.2025 *** Local Caption *** Farmers sowing paddy in rural area near Dediapada on Saturday. (Express photo by Bhupendra Rana) The first advance estimates for GDP in 2025-26 present a sobering picture for agriculture. While the overall GDP growth is projected at 7.4 per cent, agriculture growth is likely to slow down from 4.6 per cent in FY25 to 3.1 per cent in FY26. Expectations that the Union Budget will give a booster dose to the sector, which employs 45 per cent of the workforce and contributes roughly 17 per cent to the overall GDP, have been belied. The business-as-usual approach of subsidies dominating over developmental expenditures continues.
Farm and allied sectors have received Rs 1.63 lakh crore. The Ministry of Agriculture and Farmers’ Welfare (MoAFW) received Rs 1.4 lakh crore in FY27 (budget estimate, BE), an increase of 5.4 per cent from Rs 1.33 lakh crore in FY26 (revised estimate or RE). Within the MoAFW, the Department of Agricultural Research and Education has seen a 3 per cent decrease. The allocation to the Ministry of Fisheries, Animal Husbandry, and Dairying increased by 26.7 per cent — a step in the right direction.
However, the bulk of the support to the rural-agrarian sector, amounting to Rs 6.7 lakh crore (12.6 per cent of the total Budget of Rs 53.5 lakh crore), focuses on welfare measures and subsidies. Allocations for food and fertiliser subsidies together stand at nearly 7.45 per cent of total Budget expenditure. The food subsidy alone is estimated at Rs 2.27 lakh crore, broadly the same as last year’s revised estimate. The fertiliser subsidy is pegged at Rs 1.7 lakh crore, decreasing from Rs 1.86 lakh crore (FY26, RE), and increasing from Rs 1.67 lakh crore (FY26, BE). The Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) was allocated Rs 95,692 crore.
The vision of Viksit Bharat cannot be realised without a stronger and more productive rural economy. Developmental expenditures are the only way to improve rural livelihoods. But the higher share of welfare measures and subsidies compared to MoAFW’s budget does not advance this goal.
Our prescription for addressing this imbalance is straightforward: Invest in agricultural research and development. India spends less than 0.5 per cent of its agricultural GDP on R&D, well below the 1 per cent benchmark associated with sustained productivity growth. ICRIER’s research shows that for every million rupees spent on fertiliser subsidies, only 26 people are lifted out of poverty, while the same amount spent on agricultural research and extension can lift as many as 328 people out of poverty. Every rupee spent on fertiliser subsidies generates a return of just Rs 0.88 in agricultural GDP, while the return from agricultural R&D is Rs 11.2. Yet, year after year, public spending choices reflect the opposite priority. Subsidies look beneficial at first glance and fetch votes, while returns on research and infrastructure take time. But climate change, groundwater stress, declining soil quality and biodiversity loss make this model unsustainable.
Fertiliser subsidies continue to be input-linked and price-based, encouraging excessive use of nitrogenous fertilisers while discouraging the more ecologically sustainable balanced nutrient application. As the Economic Survey pointed out, a gradual shift from product-based fertiliser subsidies to per-acre, crop and agro-climatic zone-linked income support, combined with investments in soil testing and extension, will protect farmers while reducing distortions. The Budget has failed to bite the bullet.
India’s farmers face variable monsoons, rising input costs, and natural resource constraints. Redirecting a portion of subsidies into targeted transfers, research and extension, and region-specific ecological recovery will sustain farmer incomes and public finances, while making agriculture more productive, resilient and sustainable. That is a reform agenda worth pursuing now.
There is also inherent consumer bias as the food subsidy remains the most dominant at Rs 2.27 lakh crores despite a significant reduction in poverty. This only speaks of irrationality in allocating scarce budgetary resources. The Centre’s “reform express” seems to have bypassed large parts of the farm sector.
Gulati is distinguished professor and Thangaraj a consultant at ICRIER. Views are personal
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