What needs to be done to make agriculture profitable for more

farmers in India?
35 Answers

Vanita Ashar

8k Views Most Viewed Writer in Agricultural sector In India

When talking about making farming a profitable enterprise in India we have to realize that farming will
always be profitable so long as it is sustainable and competitive.
And when discussing profitability, of this sector in particular, one has to think beyond a standard
enterprises' P&L Report and consider how the agricultural sector contributes to the overall economy.
Profitability in the farming sector is tied to the bigger more humbler goals of Food Security for the nation,
Employ-ability of the population, Effective and efficient use of Natural Resources, a sustainable and farreaching credit system that helps bring down inequality of income to an accepted level, etc.
So, I would like to answer this question through answering three different questions:
First. Why is Farming in India unprofitable anyway?
Second. Can the problem be solved by public investment or privatization?
Third. What can the government do to help make the Agricultural sector more profitable?
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The first question:
Why is Farming in India so unprofitable anyway?
i. The decreasing prices of cereal grains in the world, has contributed to making the irrigation
infrastructure in the developing world difficult to sustain.
ii. As the cost of infrastructure has increased, it has not been possible to recover the cost of the capital
investment and operation and maintenance of the system, from individual farmers. In most States of the
country, less than 30 percent of the costs of maintenance of the system are recovered. This has led to
deterioration in systems, with an estimated 20-25 million ha of surface water irrigated canals in need of
desperate repair.
iii. Water, for agriculture, remains the most critical and perhaps the most limiting factor on its growth.
Due to the cost constraints highlighted above, water charges are based on the area of land and type of crop
and not on the volume of water used, which then leads to inefficient use and resultant scarcity and unprofitability.

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The second question:
Can the problem be solved by public investment or privatization?
The agricultural sector can not be singularly managed by any single entity alone be it public or private. But
what can be confidently stated is that without proper government intervention and a healthy competitive
environment among the private sector, it is impossible to have a profitable farming sector in the long run.
As explained above water is the most critical factor in agricultural profitability. The issue of water is not
just about scarcity but about its careful use and equitable and well distributed access, so water
management strategies need to be carefully designed by the government. Water management must be
designed to harvest, augment and use local water resources leading to equitable local wealth generation
rather than being motivated by profit concerns.
The recently concluded 3rd minor irrigation census finds that as much as 62.4 million ha -- 75 to 80 per
cent of the irrigation potential is under groundwater. The roughly 19 million wells dugwells, shallow and
deep tubewells in the country form the bulk of irrigation infrastructure in the country and a large part of
it is in private hands.
Besides, the use of water in agriculture will face greater and greater competition from other sectors in
industrial and urban areas and this will inevitably lead to conflict, and need policies for conserving
water in all sectors.
Along with water, Land is another limited resource which limits agricultural productivity and profitability.
The government's intervention is needed to establish a National Land Use Advisory Service, which would
have the capacity to link land use decisions with ecological, meteorological and marketing factors on a
location and season specific basis; Ensure grazing rights and seasonal access to forests to tribals and
pastoralists, and access to common property resources; Prevent diversion of prime agricultural land and
forest to corporate sector for non-agricultural purposes, etc.
Energy is also essential for farm sector profitability and an integrated Rural Energy System is
recommended for the purpose of meeting the energy needs of farm families in a holistic manner.
Particular attention will have to be paid
(a) to harnessing renewable energy technologies such as biogas, wind and solar including solar thermal
and solar photo-fuel technology and
(b) to conventional energy sources including electricity from grid, kerosene, diesel and soft coke and fuel
from social forestry programs.
Besides the vital resources, government control is essential for Quality control of inputs:
i. Input prices have shot up and are still escalating. Resource poor farm families are left to the mercy of
input dealers who have emerged as the new moneylenders of the countryside.
ii. Companies have drastically lowered the minimum germination rate they assure farmers. In the case of
seed, this has fallen to as low as 60 per cent.
iii. Quality control is equally urgent in the case of fertilizers, bio-fertilizers, pesticides and bio-pesticides,
etc.

iv. There has to be a suitable agency for strict quality control of animal feed, drugs, vaccines and other
biological products.
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This brings us to the third question:
What can the government do to help make the Agricultural sector more profitable?
The answer to this question also lies well within what is famously called the M Swaminathan
Report, compiled by the National Commission on Farmers (NCF was constituted on November 18, 2004
under the chairmanship of Professor M.S. Swaminathan). The commission submitted 5 reports that make
suggestions for improving the agricultural sector through enhancing productivity, profitability, and
sustainability of the major farming systems of the country.
A summary of the 5th and final report can be found here: Page on prsindia.org while a more detailed
report can be found here: http://agricoop.nic.in/imagedefa...
As discussed in the same report some of the key areas that need government intervention in order to
ensure long-term productivity, profitability and sustainability are:
1. Land Reforms - Did you know that the Land policies we follow in India today have not changed much
since the British Rule. Reforms related to access and control over land and forest resources is an urgent
requirement in the country. The Land Acquisitionpolicy of 1894 which refers to the process of land
being acquired by the central or state government of India for various infrastructure and economic growth
initiatives, has often forced many a small and marginal farmers into a life of poverty and destitute. Though
government has often played it's part in promoting and developing the agricultural sector,inequality of
land ownership has only increased over the years.
Since 1991-92, the share of the bottom half of the rural households in the total land ownership was only
3% and the top 10% was as high as 54%. By 201112, the bottom half of households cultivated only 0.4 per
cent of total land while the share of land cultivated by the top 10 per cent of households increased by about
two percentage points.
What this data basically indicates is that there has been a sharp rise in the proportion of rural
households that did not own any land (agricultural land or any other type of land), and in the
proportion of households that did not cultivate any land. At least 49% of the household did not own or
cultivate any land. This could partly be a result of expansion of rural non-farm activities, urbanization,
migration, and demographic changes. But economic policies since the 1990s have also been associated
with a reversal of land reforms, decline in public investment for agriculture, withdrawal of rural banking,
and a decline in agricultural incomes.
The biggest disadvantage this presents is lack of competitiveness within the sector. It is
imperative to raise the agricultural competitiveness of farmers with small land holdings in order to ensure
that the sector remains competitive enough to profit the producers as well as the consumers, thereby
avoiding the monopolistic tendencies which have been the source of most problems the agricultural sector
faces today.

2. Irrigation and other Agriculture related infrastructure - Did you know that out of the gross
sown area of 192 million ha, rain-fed agriculture contributes to 60 per cent of the gross cropped area and
45 per cent of the total agricultural output. And the per unit area productivity of Indian
agriculture is much lower than other major crop producing countries. Even though irrigation
is not the only factor which affects productivity, others being quality of soil, use of fertilizers, education of
farmers et cetera, it actually to some extent enhances productivity.
Take the example of Maharashtra, where an agricultural production of 11.4 million tonnes contributes
4.8% to the total Indian agricultural production, the %age of cultivated area under irrigation is only 16.8%.
This is while Maharashtra has one of the most inhospitable climate, soil conditions and water availability.
It is of little wonder then thatMaharashtra's crop productivity is one of the lowest in the
country at 1 million tonnes per hectare and it may also be remembered that Maharashtra leads the
list of Farmer Suicides in the country, having the maximum number of farmers as a percentage of
farmer population committing suicide.
Consider the fact that Maharashtra has by far the largest number of Dams in India, despite which, the net
irrigated area totals only 33,500 square km viz., 16.8% of the total cultivated area in the state in
comparison to the 48.3% of the total cultivated area of the country. The famous Maharashtra Irrigation
Scam that surfaced in the media a few years back adds to the irrigation problems within the state.
It is probably safe then to say that the low area under irrigation has more to do with politics and water
management than nature and this is one factor which leads farmers to remain more dependent on the
vagaries of the monsoons.
Besides irrigation, a host of other infrastructural investments in areas like drainage, land development,
water conservation, research development and road connectivity, a network of advanced soil testing
laboratories with facilities for detection of micro-nutrient deficiencies, crop biodiversity etc. are also
important initiatives that impact productivity and farm incomes.
According to the M.Swaminathan report, Endemic hunger (i.e., chronic undernutrition),
is high both in families without assets like land or livestock, as well as in families with
small land holdings but no access to irrigation.
3. Farmer Indebtedness - In spite of government pronouncements, credit is becoming increasingly
difficult to access. It is obvious that dire financial straits are driving hapless farmers to take to extreme
steps including distress sales and even suicides, which have assumed alarming proportions. Also at
present credit is generally available only for improved technologies like hybrid crops, crossbred cows, etc.,
and not for sustainable farming practices.
Crop insurance, which now covers only about 14 percent of the farmers, has to cover all farmers and all
crops in a time-bound manner, with reduced premiums.
Did you know that indebtedness of the farmers is rising not only because of farming-related expenditure,
but also because of the need for healthcare. Because of the protein-energy under-nutrition, as well as
micro-nutrient deficiencies, a purely drug-based approach to the control of diseases is not adequate, a

nutrition support program is equally important. The State governments are responsible for providing
adequate support, particularly to meet the needs of location-specific agricultural problems, as well as the
health, education, drinking water, social security and other social and production infrastructure essential
for farm and agricultural labor families to have an opportunity for a healthy and productive life.
There is a need to promote sustainable livelihoods for the poor by improving
(i) Financial services
(ii) Infrastructure
(iii) Investments in human development, agriculture and business development services (including
productivity enhancement, local value addition, and alternate market linkages) and
(iv) Institutional development services (forming and strengthening producers organisations such as selfhelp groups and water user associations). The report also suggests development of Indian Trade
Organisation (ITO), a virtual body specializing in WTO matters and serving as an information bank on
potential surpluses and shortages in major agricultural commodities. It should be set up, linked to the
National Land Use Advisory Service and have continuous contact with all credible national and
international sources of information on domestic and international markets.
According to the M. Swaminathan report if we do not attend to the problems of small
farm and landless agricultural labour families with a sense of urgency and commitment,
the Indian enigma of the coexistence of enormous technological capability and
entrepreneurship on the one hand, and extensive under-nutrition, poverty and
deprivation on the other, will not only persist, but will lead to social disruption, violence
and increasing human insecurity.
4. Employment - In 1961, the percentage of the workforce in agriculture was 75.9%. while the number
decreased to 59.9% in 1999-2000.
Did you know that agriculture still provides the bulk of employment in the rural areas.
According to the report, the overall employment strategy in India must seek to achieve two things:
First, create productive employment opportunities and
Second, improve the quality of employment in several sectors such that real wages rise through improved
productivity.
Detailed analysis of the causes of food insecurity in rural and urban India have revealed that inadequate
purchasing power due to lack of job/livelihood opportunities is now the primary cause of endemic or
chronic hunger in the country. Since opportunities for employment in the organized sector are
dwindling, we have to create a policy environment that enlarges opportunities for
remunerative self-employment in rural India order to avoid an era of jobless, or worse, job-loss
economic growth.
The report also mentions that the employment scenario during the period of economic
reforms with the policies of indiscriminate liberalization, privatization and
globalization, have contributed a great deal to the rural and agrarian crisis and should

hence be reversed.
The economic policies should focus on providing adequate rural infrastructure and
promote employment, besides ensuring credit facilities and remunerative prices for
produce for our farmers, thereby providing adequate support for India's agriculture and
it's vast rural population.
5. Food Security - Agriculture is the backbone of our rural livelihood security system, so India's food
budget should be managed with home-grown food. In a country with a high prevalence of poverty and
malnutrition, the Government of India should always retain a commanding position in the management of
the food security system.
The rapid growth of population in India, particularly in the second half of the twentieth century posed
threat to national food security. The threat reached dangerous proportion in the mid sixties when grain
shipments from abroad were eagerly awaited for feeding the population. The situation was untenable and
eventually led to launching of the Green Revolution, achievement of self sufficiency in food grains and a
growing stock of surplus food grains by the mid seventies. Happily such a threat does not exist any more.
While national level food security [availability of food at macro level] is achieved, at the household level
there are serious problems and the situation is quite alarming.
Did you know that India is still lagging behind in achieving the Millennium Development Goal of halving
hunger by 2015 as under-nutrition and malnutrition is still widespread. In rural India, the average calorie
intake per capita per day fell from 2266 Kcal in 1972-73 to 2183 Kcal in 1993-94 and further fell to 2149
Kcal in 1999-2000.
An important feature of the Indian situation in the area of nutrition security at the level of each individual
is that the producers of agricultural commodities i.e., farm men and women, constitute the majority of the
population. Hence, the nutrition security of farmer-consumers becomes important to achieve the goal of
hunger-free India. Low productivity and income appear to be the single most important cause of endemic
under- and malnutrition among farmer-consumers.
Access to food grains is related to the purchasing power of the population and the nature of public
distribution system that is prevalent. Purchasing power of large sections of the rural population has been
weakened in recent years by the crisis in agriculture and rural livelihoods. In urban areas, the weakening
of the PDS has exacerbated the problem of food insecurity.
Biological absorption of food in the body is related to the consumption of clean drinking water as well as
environmental hygiene. The situation on this front is serious in India as access to these basic amenities are
much lower for households living in small towns.
The report argues that we must recognize the need for increasing the productivity and
profitability of small and marginal farms, in order to eliminate endemic and hidden
hunger in the families such as those of farmers thereby making farming more profitable
and the country's economy more stable and strong.

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Other sources:
Changes in the Distribution of Operational Landholdings in Rural India: A Study of National Sample
Survey Data
How UP Beats Maharashtra, Gujarat In Agriculture Productivity
Farm suicides rise in Maharashtra, State still leads the list
Irrigation in India
Written 30 Apr 2015 View Upvotes

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Balaji Viswanathan, Indian by Birth. Indian by Thought.

26.1k Views Most Viewed Writer in India with 1050+ answers

1.
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4.

Assuming that a farmer needs an earnings of Rs.7L per year ($1000/month) to make the farming worthy,
here is what he/she needs. I'm basing the calculations based on this
document: http://www.indianfarmers.org/cro...
The average yield for good paddy fields in India is about 2000 kg (1500 kg of rice).
The farmer gets a max of Rs.20/kg for a high grade rice (about 40-50% of the end cost to the
customer)
This means total revenue from an acre is about Rs. 30000 (1500 x 20).
The total cost of cultivation per acre is Rs.20K including cost of pesticide, worker salary and
land rent.
This leaves a profit of Rs.10K/acre. Thus, to ensure a Rs.7L earning, a farmer has to have 70 acres at a
minimum. For cash crops, vegetables or fruits, the profit is a little high, but also comes at a significant
risk.

Thus, to make Indian agriculture profitable we need to:

1.
Ensure consolidation of land holdings with a minimum of 50-100 acres of good fields per
farmer. Anything below is unprofitable.
2.
India has about 150 million acres of agricultural land, but a sufficient chunk of it is not
irrigated. Even assuming all of them are good and fertile, we can support only 2-3 million farmers
based on 1.

3.

To ensure 2, we need to retrain a significant majority of current farmers move to industries

and services. This means 200-300 million laborers need to be resettled in other sectors. A Herculean
task.
4.
Productivity gains can both increase yields and reduce cost of cultivation and it can reduce the
number of acres needed to break-even.
5.
Do further research to make cultivation of vegetables and fruits less risky and more profitable.
So, however you look at it, we need to find a way to get a massive number of current farmers move to other
fields.
Written 26 Jul 2012 View Upvotes

Kumar Mayank Jha, Politically Libertarian. Market Fundamentalist. Love Friedman's ideas
4.9k Views Kumar has 4 endorsements in India

This question was raised in context of Indian Farmer Suicides. First of all, a lot of blame is being laid on
political parties, especially BJP as if they are responsible for this mess. However this is not true. It is
because of the weather.
The problem is lack of Irrigation Facilities which can be built by private businesses under utility
regulation. Even on a local level, small check dams have to be built.
Given my free market biases, I do not want Govt to be directly involved in Agriculture. The next step is
Corporatization of Agriculture. Large Farms have the benefits of economies of scale and are better suited
for massive agribusiness operations.
Corporatization of Agriculture:
1.
2.
a.
b.
c.
d.
e.
3.
4.
a.
b.

To promote widespread corporatization of agriculture

Improve professionalism in agri-business
Increase private investments in agriculture support activities like irrigation projects,
research and development, training, etc.
Encourage increase of cultivable land in India by creating business cases for them
Improve agri-metrics like yield/hectare, etc.
Improve agri-produce marketing and sales and hence reduce small player unlawful
practices like hoarding, black marketing, etc.
Safety catches
Must ensure non-exploitation of farmers
Must ensure non-concentration of cultivable land amongst few corporates/individuals
Proposal

Create a framework where:

Title deed is always with the Farmer

The plot is empanelled by an agri-business corporate for a period of 1 year (Maybe

season)
o
o
o
o
o
o

1.
2.
3.
4.
5.
6.

The farmer is responsible for the labour put into working on the land
The crop, seeds to be used, irrigation & fertilizer regime will be decided by the agribusiness corporate
As a compensation for the effort the agri-business corporate pays the farmer a fixed
compensation every month
All the yield from the plot is sole property of the agri-business corporate
The farmer may break away from the agreement during its period at any point by
paying off a penalty amount defined in the contract
At the end of a contract (1 year/Season) period the farmer may choose to renew the
contract with that or any other agri-business corporate willing to empanel their plot. No conditions
attached.
Advantages
The farmer always has ownership of the land.
The agri-business is able to run a business without outright purchase of the land. Rent rather
than buy. Quicker return on investments.
The farmer receives a steady monthly income hence not having to run a business which he is
not trained to do.
The agri-business is able to get better prices for the produce due to their distribution
network/alliances.
The farmer receives better training from the agri-business corporate and hence continually
advances his skills
The agri-business is better able to respond to market demands for food and other cash crops
making it a more efficient open free market.
2.) Use of Derivative Contracts needs to be encouraged so that Demand is predicted beforehand and
forward rates are known.
3.) Stop MSP programme: This is a programme for the rich farmer lobbies which want to distort free
market for their goods. Think about it this way, most small farmers cannot sell a huge part of their
produce. The Big Farmers sell their produce at the MSP which isn't the free market price. This higher
profits get channeled into buying agricultural inputs which increases the prices of agricultural inputs
making it even costlier for the small farmer.
This is what we call Crony Capitalism.
4.) Govt already has methods in place for long term Irrigation Bonds.
5.) Increase use of GM seeds. Yes, do not listen to your local NGO which says GMO's are harmful. They
aren't.
6.) Open out other businesses like canning, picklemaking. Govt has just dereserved these businesses from
MSME. This means these businesses can now attract investments. Previously, these were protected by
protectionist policies i.e MSME's could not attract investments lest they become big which means the poor
entrepreneur was cursed to remain poor.