Budget 2026: India needs to breathe new life into its struggling farm backbone

The farm sector is truly the backbone of the Indian economy, employing around 46% of India’s workforce. However, the sector adds only 15% to India’s GDP, reflective of the low productivity in the sector.

Over the last few years, the government has focused on supporting the farm sector through direct financial assistance, improved market access, crop insurance, enhanced credit availability, and other supportive measures.
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The upcoming budget should maintain a concerted focus on the farm sector to provide a fillip in the medium to long run. Meaningful reforms in the farm sector will help the economy attain sustainable and inclusive growth.

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India’s farm sector has long struggled with challenges such as low productivity, small landholdings, inadequate infrastructure, and heightened vulnerability to climate change.
Marginal and small landholdings account for approximately 86% of the country’s total landholdings. This makes it extremely challenging to enhance the adoption of the latest technology in the sector, which in turn adversely impacts productivity. The yield of most crops in India is well below the global average. Small farmers also face challenges accessing markets.

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Moreover, agriculture in India is highly dependent on the monsoon, with only about 50% of the cultivated area irrigated. The increasing frequency of climate-related disruptions has further aggravated the concerns for the farm sector.

Over the last five years (FY21-25), the average budget allocation for the Ministry of Agriculture and the Ministry of Fisheries, Animal Husbandry, and Dairying has been approximately 3% of total expenditure.

This is an increase from the budgetary allocation average of 1.7% in FY11-15 and 2.4% in FY16-20. Given the agriculture sector’s significant role in the economy, there is a need to increase its allocation further.

Moreover, the sector’s R&D allocation needs to be increased. The budgetary allocation to the Department of Agricultural Research and Education has remained flat at around 0.2% of total expenditure in the last five years.

This is a marginal decline from the average allocation of 0.34% for this department between FY11-15 and 0.3% between FY16-20.

The upcoming budget should focus on increasing productivity in the sector by incentivising technology adoption and increasing allocations to research and innovation.

Research aimed at developing climate-resilient agriculture will be very critical going forward. Similarly, research that helps in minimising post-harvest losses would go a long way in supporting the farm sector. According to available data, post-harvest losses in India are approximately 15-20%.

Another area the Budget should continue to focus on is support for high-value segments such as agri-allied sectors and agri-processing. The agri-allied sector, like the fishery, has recorded a strong CAGR growth of 8% in the last four years (FY20-24), while livestock has recorded a healthy growth of 6% in the period under review.

A push to the agri-allied sector, and consequent movement of farm workers to this sector, will help increase labour productivity. Similarly, further support for agri-processing will help reduce post-harvest losses and increase rural incomes. The food processing industry is one of the largest employers, accounting for 12% of total employment in the organised sector.

This segment is unable to realise its full potential due to inadequate infrastructure for food transportation and storage. Similarly, the budget should focus on developing infrastructure and policies to boost agricultural exports. Agri exports account for approximately 12% of India’s total goods exports and have grown at a CAGR of 6% over the last five years (FY21-25).

Rice, cotton, marine products, and sugar are some of India’s main export items. Horticulture and floriculture, which are high-value segments, are emerging as niche export areas and should be supported.

The problems in India’s farm sector are deep-rooted and not new. Bold reforms in the sector are challenging in the midst of balancing the interests of different stakeholders.

But we should not underestimate the impact of gradual, incremental reforms, which can make a significant difference for the sector. Given that around half of India’s workforce is employed in the agri sector, the focus should be on increasing farmers’ income.

Focusing on R&D to improve productivity while making the sector resilient to climate change will go a long way in helping farmers. Moreover, creating opportunities for farmers to move into high-value segments such as agri-allied sectors, agri-processing, and agri-exports will help increase rural incomes and reduce the rural-urban income disparity.

Get the latest on Budget 2026 and related developments here.

Rajani Sinha, Chief Economist at CareEdge Ratings, is the author of this article.