Over 73 per cent of Agriculture Budget goes towards welfare measures, subsidies: ICRIER

New Delhi [India], August 2 : Food and fertilizer subsidies account for more than 50 per cent of the Union Budget for the rural and agrarian sector in FY25, highlighted a report by the Indian Council for Research on International Economic Relations (ICRIER).
The report noted that in the Union Budget document for 2024-25, the central government has allocated Rs. 6.2 trillion for the agriculture sector, which constitutes 13 per cent of the overall budget of Rs. 48.2 trillion in FY25.
Out of this, the food subsidy allocation accounts for 30 per cent of the entire agrarian budget, amounting to Rs. 2,05,250 crores. The fertilizer subsidy accounts for 24 per cent of the agriculture budget, with an allocation of Rs. 1,64,000 crores.
The total expenditure for the rural-agrarian sector is approximately Rs. 6.2 trillion, which constitutes 13 per cent of the overall budget of Rs. 48.2 trillion in FY25.
The report also pointed out that despite this significant investment of Rs. 6.2 trillion, the focus remains heavily skewed toward welfare measures and subsidies, such as food and fertilizer subsidies, and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). All these account for Rs. 4.55 trillion, or over 73 per cent of the total agriculture budget expenditure.
"The budget for the rural-agrarian sector is heavily skewed towards welfare measures, with food, fertilizer, and MGNREGS accounting for Rs. 4.55 trillion, or 9 per cent of the total budget expenditure. The focus on welfare measures, which comprise the bulk of the budget for the rural-agrarian sector, requires immediate rationalization," said the report by agriculture economist Ashok Gulati and Purvi Thangraj.
It added that while these initiatives aim to improve living conditions, they have not effectively addressed the underlying issue of low rural incomes, which currently average less than Rs. 20,000 per month for rural families.
The report suggests ways to re-orient these policies and with better preparation. However, the key question for the government is whether they are ready to take these bold steps to transform the rural agriculture sector.
According to agriculture economist Gulati, every rupee spent on agricultural research and development yields much better returns (11.2) compared to returns on every rupee spent on fertilizer subsidy (0.88), power subsidy (0.79), education (0.97), or on roads (1.10). He added that this makes a compelling argument for rationalizing these subsidies and investing their savings in developmental expenditures like agri R&D.
The report also highlighted that the persistent low-income levels among agricultural households hinder the demand for non-agricultural products, stifling potential growth in the manufacturing sector. To catalyze a manufacturing revolution and create sustainable jobs, it is imperative to augment rural incomes. This can be achieved through bold reforms that prioritize agricultural research and development (R&D), irrigation, and skill development over traditional welfare schemes.
The experts in the report argue that rationalizing subsidies and redirecting funds towards more productive investments is essential. For instance, enhancing agricultural R&D can lead to climate-smart practices that improve crop yields and resilience. Additionally, investing in rural infrastructure can facilitate better market access for farmers, ultimately boosting their incomes.
The report noted that the vision of 'Viksit Bharat@2047 hinges on transforming the rural-agrarian economy into a robust engine of growth. This transformation requires a strategic shift in policymaking, focusing on sustainable farming practices that benefit both farmers and the environment. Without these critical reforms, the goal of a prosperous and inclusive rural India may remain elusive, perpetuating the cycle of low demand and limited job creation in the manufacturing sector. The time for action is now, as the future of rural India depends on it.
"The realization of the vision of 'Viksit Bharat@2047' hinges greatly on how the rural-agrarian economy performs. Rural India comprises 64 per cent of the population," said the report.