Despite emphasis on agriculture as growth engine, Finance Minister Sitharaman fails to earmark sufficient funds
Dr Kedar Vishnu
The Economic Survey 2024-25 states that for India to achieve its ambition of becoming Viksit Bharat by 2047 it must sustain an average growth rate of about 8 per cent at constant prices for several decades. For FY25, the National Statistics Office (NSO) projects a 6.4 per cent GDP growth rate, with a 3.8 per cent growth rate expected in the agriculture sector.
To achieve our vision of Viksit Bharat, the growth should be mainly driven by agricultural and applied sectors as well as manufacturing. Is the current growth in agriculture and manufacturing sufficient? Agriculture grew by 3.5 per cent in the second quarter of FY25. However, the agricultural growth rate had previously dropped significantly from 4.7% in 2022-23 to 1.6 per cent in 2023-24 (Economic Survey 2023-24).
Key Driver?
In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman has identified agriculture as a key driver of economic growth, alongside MSMEs, investment and exports. Recognising agriculture as the first engine of growth, she has prioritised enhancing productivity, improving market efficiency, boosting edible oil production and developing strong institutional mechanisms. Her focus signals a strategic shift towards making the sector more resilient and growth-oriented.
Agricultural exports comprised 11.8 per cent of all national exports in 2022-23, while agricultural imports comprised 4.8 per cent of all national imports. Our farmers will eventually have to deal with increased competition from imports and greater export uncertainty.
At the moment, our agricultural tariff rates are relatively high, and we anticipate more pressure to lower them due to influence from US President Donald Trump. Does the Finance Minister’s increased funding for agriculture make it the primary driver of growth, and to what extent has it increased?
Dip in Allocation
Between Union Budget 2024-25 (RE) and Union Budget 2025-26 (BE), the total budget allocation increased by 7.40 per cent, from Rs 47.16 lakh crore to Rs 50.65 lakh crore. In Union Budget 2025-26 (BE), capital expenditures rose 10.08 per cent over Union Budget 2024-25 (RE), demonstrating the government’s continued strong commitment to infrastructure development investments as a means of promoting economic growth.
The Union Budget 2025-26 (BE) has allocated Rs 1.378 lakh to the agriculture sector. Compared with the 2024-25 BE, which was Rs 1.325 lakh crore, the allocation has increased by 3.99 per cent. However, when we compare the allocation in Union Budget 2025-26 (BE) with the Revised Estimate (RE) of the 2024-25 Budget, this allocation has decreased by 2.54 per cent — from Rs 1.414 lakh crore to Rs 1.378 lakh crore.
Capital investment is deteriorating in the farm sector, and stress on increasing farmer productivity is mostly focused on income assistance
This indicates that even though Sitharaman considers the agriculture sector as the main engine for growth, she has completely neglected to allocate more funds. As evidenced by the ongoing neglect for capital spending and fund allocation, the Finance Minister has failed to implement the much-needed significant reforms we had hoped for in the agricultural sectors. Let’s not forget that though the agriculture sector grew by 3.7 per cent in the second quarter of 2023-24, it has underperformed in nearly every previous quarter, growing at a pace of less than 2 per cent.
In 2022-23, the agriculture sector received just 3.36 per cent of the entire Budget. This percentage steadily decreased, falling to 2.82 per cent in 2023-24, then increased to 3 per cent in 2024-25, and further reduced to 2.72 per cent in 2025-26 Budget.
Allied Sectors
The Department of Agriculture and Farmers Welfare received Rs 1.273 lakh crore in the Union Budget 2025-26 (BE), a decrease of 2.98 per cent from the previous year’s Budget, while the Department of Agricultural Research and Education has been allocated Rs 0.105 lakh crore, reflecting a modest growth of 3.05 per cent. When combined, they only make up 2.72 per cent of the whole Budget.
The marginal increase in the funding for agricultural research and education is not enough to support innovation and advance crop productivity and sustainability improvements, which are critical for future food security. Although capital expenditures made up 22.13 per cent of the overall Budget, they only accounted for 0.07 per cent of the agriculture sector’s spending. This suggests that there was not enough focus on capital expenditures in the Union Budget 2025-26.
The amount set out for programmes relating to agriculture in the Union Budget 2025-26 shows both stability and targeted growth. A dedication to rural employment and farmer income assistance is demonstrated by the maintenance of financing for PM-Kisan and Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) at Rs 86,000 crore and Rs 63,500 crore, respectively.
In contrast, there is a 22.8 per cent decrease in the Crop Insurance Scheme, from Rs 15,864 crore to Rs 12,242 crore, which might affect farmers’ ability to mitigate risk. With a noteworthy 41.7 per cent rise, the RKVY is given priority for agricultural growth. To encourage comprehensive agricultural initiatives, the Krishonnati Yojana’s funding has been increased by 12.6 per cent.
The stability of farmer income is supported by a 7.8 per cent rise in the PM Annadata Aay Sanrakshan Yojana (PM-AASHA). A 20 per cent increase is also seen in the Agriculture Infrastructure Fund (AIF), which prioritises the growth of agricultural infrastructure. To help farmers and increase agricultural production, the funds allocated for productivity enhancement under the Modified Interest Subvention Scheme, Krishonnati Yojana, Rashtriya Krishi Vikas Yojana, and FPO ought to have been given more priority. Instead of making farmers more reliant on government support, there should be a focus on improving their skills. The funding for FPOs should be significantly increased to connect farmers with global value chains.
The Prime Minister Dhan-Dhaanya Krishi Yojana, the expansion of the Agri Districts Programme to encompass 100 districts, the National Mission on High Yielding Seeds, the National Mission for Edible Oilseeds to attain edible oil self-sufficiency, and the promotion of FPOs — all of which are in the right direction — are highlighted in the Union Budget 2025–26. Furthermore, emphasis has also been placed on increasing the credit supply for farmers through KCC, while raising the loan amount from Rs 3 lakh to Rs 5 lakh to benefit 7.7 crore farmers.
Plan Missing
The Finance Minister has discussed the importance of institutional mechanisms for boosting investment and income in the agriculture sector, but the Budget lacks details on how she plans to improve the efficiency of the institutional framework and governance. Currently, small and marginal farmers face significant asymmetries in information and opportunistic behaviour within the existing agricultural supply chain, which reduces their income by at least 14-20 per cent for different crops.
The Budget omits a number of crucial policy changes that are necessary for sustained agricultural growth. In agriculture, capital investment is deteriorating, and the emphasis on increasing farmer productivity through technical breakthroughs and innovation is mostly focused on income assistance. External factors also threaten farmer income levels, such as Trump’s tariff threats and market openings, but these problems are not sufficiently handled.
To address this, the Budget should aggressively invest in agricultural infrastructure to raise productivity and resilience against global issues, prioritise increasing investment in R&D to foster agricultural innovation and improve market access and supply chain efficiency.
