Why Reform Eludes Indian Agriculture
Guest Author: Pravesh Sharma, Chairman, Steering Committee, National Association for Farmer Producer Organisations (NAFPO). He is Former MD, SFAC & Ex-Agriculture Secretary, Madhya Pradesh.
02 June 2026, New Delhi: An enduring mystery of public policy making in India, especially after the 1991 economic reforms, is the almost total absence of any serious reform in the overall policy framework which governs agriculture. Of course, there have been piecemeal efforts at reforming mandis (regulated market yards), changes in how subsidies are distributed and the direct cash transfers to farmers under the PM-KISAN scheme. Govt. of India came out with the so-called ‘three farm laws’ in 2020 seeking to reform agriculture markets, contract farming etc. However, in the face of protests from sections of farmers in north-western India, these were later withdrawn completely.
It would be accurate to say that the basic policy context of agriculture is more or less the same as prevailed prior to 1991, when a process of wider economic reforms was initiated. While there was initially a lot of hype (and hope) that the government would undertake reforms in agriculture after those targeting industry, trade, finance and services had settled down, in fact the past three and a half decades reveal that these expectations were misplaced. Several political formations have ruled the Centre and States since the 1991 watershed moment but none have attempted to address the basics in agriculture. We must, therefore, ask the question: what accounts for this unique frozen policy consensus across the political spectrum?
The explanation lies in the political economy of agriculture itself—a system shaped by rigid factor markets, entrenched rural commercial capital and a persistent urban bias in policymaking.
At the most fundamental level are the factor markets of land, labour and capital. These remain among the least reformed segments of the Indian economy and continue to operate within institutional arrangements that have seen little meaningful evolution over decades.
In the case of land, the abolition of zamindari and tenancy systems in the early post-Independence period is widely regarded as a moment of transformative reform. However, its long-term consequences have been more complex. Tenancy has not disappeared; it has merely shifted into the informal domain. A large number of cultivators—predominantly small and marginal farmers—continue to farm land without legal recognition or protection.
This informality carries significant costs. Farmers without documented tenancy are effectively excluded from institutional credit, crop insurance and other forms of state support. Equally important, the absence of tenure security discourages long-term investments in land development and technology adoption, thereby constraining productivity growth.
While land is a State subject, barring a few States like Kerala, Jammu and Kashmir and to a limited extent in West Bengal, no serious land reforms have been undertaken across the country. With highly unequal land ownership patterns, especially in central, northern and eastern India, local political actors favour owners versus tenants. Most often, large landowners are themselves holders of political office, from the gram panchayat to the State Assembly, and able to influence legislation. Thus, virtually no Indian state has a sensible land leasing or tenancy framework which could protect the farmer cultivating land on rental.
Labour markets in agriculture display similar structural rigidities. While policy has actively promoted improvements in seeds, irrigation and input use, there has been a marked reluctance to facilitate widespread mechanisation. This hesitation is often attributed to concerns about labour displacement. However, such concerns are increasingly misaligned with rural realities, where labour shortages during peak agricultural operations are now widely reported.
The limited spread of mechanisation has had predictable consequences. Agricultural productivity in India remains below global benchmarks, particularly when compared to countries such as China. Small and marginal farmers are again the most affected, lacking both the resources to invest in machinery and access to shared services such as custom hiring centres. The bias is towards keeping rural populations rooted in their local milieu, providing a stable political base for State and local level politics, while also maintaining a downward pressure on rural wages due to oversupply.
The provisioning of capital further highlights the structural constraints within the sector. Despite a declared policy intent of expanding institutional credit, a significant proportion of farmers—especially smallholders—remain dependent on informal sources of finance. These include moneylenders, big landlords and, increasingly, traders in the mandi system who access institutional credit against stocks at low rates and on-lend to farmers for an arbitrage. High interest rates of informal credit contribute to persistent indebtedness and low capital formation, especially among smallholders.
Such forms of capital are typically conservative in orientation, with a primary focus on preserving existing structures rather than fostering competition or innovation. As a result, they tend to resist reforms that could reduce intermediation costs, increase transparency or enable the entry of new participants. This helps explain the failure of waves of (often half-hearted) attempts to strengthen rural cooperatives, regional rural banks and lately the microfinance institutional model. Political and bureaucratic capture of institutions, undermining of repayment discipline through repeated loan waivers and excessive regulatory burden are among the many instruments deployed to preserve the domain of traditional capital. It is again stressed here that these practices have not been limited to any one State or political formation but show a remarkably uniform pattern across the entire country.
Overlaying these structural challenges is a persistent policy bias that prioritises low food prices as a means of controlling inflation. Food inflation carries considerable political sensitivity, particularly in urban areas, and successive governments have responded by intervening to moderate price increases. These interventions take multiple forms—restrictions on exports, imposition of stock limits and liberalisation of imports during periods of rising prices. While such measures may provide short-term relief to consumers, they often suppress farmgate prices and weaken production incentives.
This pattern is especially visible in pulses and edible oils. Despite repeated policy emphasis on achieving self-sufficiency, domestic producers frequently face competition from lower-cost imports whenever prices rise. Farmers are encouraged to increase production in one cycle, only to encounter depressed prices in the next due to import surges. Such inconsistency undermines long-term investment and perpetuates dependence on external markets. In effect, the burden of price stabilisation is transferred onto farmers. Consumers benefit from lower prices, while producers are exposed to both domestic and global risks without adequate protection. This asymmetry reinforces the perception of agriculture as a low-return, high-risk activity.
Taken together, these factors create a system in which reform is inherently resisted and the status quo preserved. Perceived political risks of alienating entrenched interests discourage local, state and even national level actors from investing in reforms which inevitably have long gestation cycles and are slow to show benefits in the short term. While rhetorically there is support to the general concept of reforms in agriculture, it melts in the face of immediate political costs to be paid.
The experience of other countries suggests that meaningful reform must begin with the fundamentals. In China, agricultural transformation was initiated through reforms in land use, improved access to credit and the promotion of mechanisation. These measures generated early gains in productivity and incomes, thereby building support for more comprehensive reforms.
A similar sequencing is required in India. Priority must be given to reforming factor markets—legalising land leasing, expanding access to institutional credit and enabling mechanisation through shared infrastructure. Equally important is the need for a stable and predictable trade and pricing policy framework, so that farmers are not subjected to abrupt and adverse policy shifts.
Most importantly, there must be a shift in how agriculture is viewed within the broader policy framework. As long as farmers are seen primarily as instruments for delivering cheap food to urban consumers, rather than as economic agents requiring viable and remunerative conditions, meaningful reform will remain elusive.
In an increasingly uncertain global environment, this is not merely an economic concern. It is a strategic one.
About NAFPO
National Association for Farmer Producer Organisations (NAFPO) is a non-profit, multi-stakeholder national platform dedicated to building resilient Farmer Producer Organisations for farmer prosperity. NAFPO strengthens the FPO ecosystem through digital tools, capacity building, policy engagement, and market linkages. NAFPO envisions strong farmer-led institutions that enable smallholder Farmers to access finance, technology, markets, and governance systems—driving inclusive and sustainable agricultural transformation. Read about NAFPO at www.nafpo.in.
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