The democratic costs of farm price suppression

Behind the Union Agriculture Minister’s celebration of a record 358 million tonnes of foodgrain output – amplified by the Economic Survey’s headline narrative – lies a mounting democratic cost. While the official discourse paints a picture of plenty, the reality for the Indian cultivator is one of systematically suppressed prices, evaporating real incomes, and distress-driven exits from the land.

Cheap food for the urban consumer has been secured by shifting the burden of inflation control onto the farmer. Agriculture has been converted into a permanent macroeconomic shock absorber – an outcome not of unintended policy failure, but of deliberate systemic design, recently reinforced by the Union Budget 2026-27’s preference for price deflation over farm viability.

In agriculture, the “terms of trade” define the relationship between the prices farmers receive for their produce and the costs they incur to produce it. Over the past decade, this balance has tilted precariously. While the total cost of production has surged in line with the broader non-farm economy, farm-gate prices have persistently lagged. Both the Commission for Agricultural Costs and Prices (CACP) and the Reserve Bank of India have repeatedly noted that once these escalating costs – unmatched by a proportionate hike in farm-gate prices – and rising consumption needs are accounted for, the result is a sustained and damaging decline in real farm incomes. In Karnataka’s own agricultural heartlands – from the semi-arid ragi and maize belts to the plantation corridors of Malenadu – this divergence highlights a national crisis at a regional scale.

The Minimum Support Price (MSP) regime has become largely notional. During the recent kharif harvest, despite record output, mandi prices for groundnut and soybean crashed nearly 26% below the MSP in major markets. This is why the 2019 NSS Situation Assessment Survey found the average monthly income of a farm household to be just Rs 10,218 – barely half that of a regular non-farm salaried worker.

When output prices fail to cover the full cost of production, debt ceases to be a choice and becomes a structural inevitability. In India, nearly 70% of farm households are trapped in a cycle of borrowing, with small and marginal farmers, who constitute 85% of all cultivators, bearing a disproportionate share of this burden.

It is a profound irony of the Indian State that a policy framed as ‘support’ ends up institutionalising economic distress in agriculture. The current MSP formula is a truncated calculation under which only out-of-pocket costs and unpaid family labour are covered, while a 50% margin is added to this narrow base. This effectively ignores “opportunity costs”: the inherent value of the farmer’s land and capital. By excluding these, the State denies farmers the returns they would have earned had their assets been deployed elsewhere.

The Swaminathan Commission’s recommendation – Comprehensive Cost (C2) plus a 50% margin – was intended to correct this distortion, yet it remains a “ghost in the machinery” of government. Between 2019 and 2025, the gap between actual market prices and this fair benchmark resulted in a foregone income of Rs 4 lakh crore.

This suppression of farm income reflects a dual failure. On the policy side, MSPs are anchored to partial cost accounting – the exclusion of rental value for owned land and interest on capital – which fails to secure true income parity for the producer. On the market side, price discovery is structurally distorted; consumer price gains rarely reach the farm-gate, as most of the value addition is captured by dominating intermediaries. This is compounded by a persistent neglect of essential infrastructure – storage, logistics, and processing – and a lack of accessible pledge finance, locking cultivators into a cycle of distress sales.

Unlike other major emerging economies that treat farm income protection as a core pillar of economic governance, India’s policy elite increasingly views agrarian distress as a problem to be solved through “labour exit”, effectively pushing people off the land to facilitate a corporate-led transition.

This strategy, most visible in the controversial reforms attempted during the pandemic and eventually withdrawn due to fierce resistance, signals a move towards the corporate takeover of Indian agriculture. In a mass democracy, suppressing farm incomes while engineering a forced exit is a form of organised economic dispossession. It transforms market failure into a permanent political crisis.

The response is already manifesting on the streets. Mobilisations such as the Samyukta Kisan Morcha’s recently concluded Kanyakumari-to-Kashmir march signal that while official obfuscation may temporarily mute protest, it cannot extinguish deep-seated structural grievances. These are costs that policymakers ignore at their peril; when the fields can no longer sustain those who till them, the very stability of our democratic structure is called into question.

A credible course correction

Debt Reset: Accumulated farm debt must be cleared to reverse years of policy-induced adversity and restore economic viability.

Statutory MSP: The MSP must receive statutory backing based on the Swaminathan Commission’s C2+50% formula. This must be accompanied by expanded and decentralised procurement beyond wheat and rice to include pulses, oilseeds, and other price-sensitive crops – including vegetables – at scales sufficient to stabilise markets.

The nutrition link: Procured food must be channelled through systems mandated under the National Food Security Act, 2013 – specifically, the PDS, ICDS, and the PM-POSHAN mid-day meal programme. In this way, price support for the farmer simultaneously addresses the national crises of hunger and malnutrition.

MSP must function as a legally enforceable price floor, grounded in the constitutional obligation to secure the livelihoods of those who feed the nation. Sustained State intervention to counter price deflation is not “fiscal charity”; it is an economic necessity. India cannot afford to treat its agrarian heartland as expendable, nor can it allow a callous neglect of its hard-earned self-sufficiency in food production to undermine its national sovereignty.

(The writer is an agricultural economist, former chairman, Karnataka Agricultural Prices Commission, and currently, Member, Karnataka State Policy and Planning Commission)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.