Resist American pressure but reform Indian agriculture

Mint

2 days ago

The partnership between the world's two largest democracies has repeatedly stumbled on one issue: agricultural market access. Trump wants India to open its doors to American farm products—from dairy, poultry and maize to apples, almonds and genetically modified crops. India resisted, wary of destabilizing its rural economy. This defiance is economically prudent and socially necessary. But shielding farmers from unfair competition is only half the battle. Without structural reform, Indian agriculture will remain inefficient and fiscally draining, slowing and even strangling our economic transformation.
The US spends billions annually to prop up its agricultural sector through direct payments, crop insurance subsidies and price supports. Its 2018 Farm Bill alone authorized $867 billion over 10 years. These subsidies allow American producers to sell abroad at artificially low prices without fear of market volatility, the same practice that the US accuses China of.
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If India allowed unrestricted imports of such products, domestic prices for staples like dairy, poultry and maize might collapse. A 10-15% drop in farm-gate prices could wipe out the livelihood overnight of millions of small farmers—most with less than two hectares of farmland. The ripple effects would hit rural incomes, weaken demand, disrupt rural credit and threaten jobs in sectors that range from logistics and cold storage to food processing and retail.
Our strategic autonomy is also at stake. A nation dependent on imported staples will be vulnerable to price shocks, export bans and geopolitical pressure. The covid pandemic and the Ukraine war showed how volatile global commodity markets can become. Maintaining the domestic production of essential foods is not just economic prudence—it is national security.
Yet, barring unfair imports must not mean defending the status quo. Agriculture employs 42% of India's workforce but contributes only 18% of GDP. The average agricultural worker produces less than one-sixth the output of a worker in industry or services. We must shift a significant share of our workforce to other sectors.
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Politically-driven subsidies sustain this inefficiency. India spends over ₹4.5 trillion annually on farm-related subsidies—on fertilizers, power, irrigation and procurement under the Minimum Support Price (MSP) system. The rural employment guarantee scheme adds to the bill. While often justified as poverty relief, these subsidies distort cropping patterns, harm the environment and crowd out investment in infrastructure and research.
The MSP system entrenches overproduction of wheat and rice, depleting groundwater and making India reliant on costly imports of pulses and edible oils. Fertilizer subsidies encourage overuse, harming soil health and straining India's finances. Power subsidies promote inefficient irrigation and groundwater depletion. Subsidies rarely reach the poorest farmers in full, yet take a large share of agricultural budgets.
Farm fragmentation compounds the problem. With farms shrinking below two hectares, mechanization and productivity gains are difficult. Land-leasing restrictions in many states block consolidation and efficient land use.
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A competitive agricultural sector would thrive in an open market system by opting to compete, not hide behind tariff barriers or subsidies. To safeguard farmers, India must embrace reforms. These include:
Adjusting MSP procurement to promote high-value commodities, easing water stress and improving nutrition; introducing enabling policies to encourage consolidation, mechanization and economies of scale; shifting from input subsidies to targeted investment in irrigation, cold storage and rural roads; building farm-to-market linkages and export-oriented clusters to raise incomes and create rural jobs; and expanding water-efficient irrigation, drought-resistant crops and regenerative agriculture practices.
These reforms would enable Indian agriculture to compete on quality, cost and reliability, thus making market opening less contentious.
India should not reject all agricultural imports, but what we import must be on our terms—under a calibrated tariff and quota system that protects vulnerable sectors while allowing targeted liberalization.
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Any farm sector negotiations with the US should rest on three principles:
A level-playing field: Imports from countries with high subsidies must face countervailing duties or quotas.
Phased liberalization: Market opening should be gradual to allow farmers to adapt.
Mutual benefit: Agricultural concessions must be balanced with gains in services or other competitive sectors.
It's a reasonable stance. The US maintains tariff and non-tariff barriers while pressing others to open markets. Free trade can't mean a free rein for subsidized dumping.
In trade policy, demands are often treated as bargaining chips. But in agriculture, the stakes go beyond trade balances—they involve the livelihoods of hundreds of millions, rural stability and food security. India must protect farmers from subsidized US competition, but it must not protect inefficiency. We need a defensive trade policy paired with aggressive reforms. India must recognize that perpetual state subsidies are as harmful as US tariffs. Both need to go.
The author is a strategy and public policy professional. His X handle is @prasannakarthik