The Economic Survey 2025–26 makes a strong case for the structural transformation of Indian agriculture. It identifies fragmented landholdings, low investment and inadequate marketing infrastructure as chronic constraints on productivity, while emphasising Farmer Producer Organisations (FPOs), modern logistics and private investment as important levers of change.
The central policy dilemma is whether smallholders possess the institutional conditions needed to benefit as agricultural markets are liberalised. Most Indian cultivators operate on narrow margins, with limited storage and weak bargaining power. The legal freedom to sell outside regulated yards therefore offers little advantage without credible buyers and effective access to markets.
There is a clear rationale for greater competition, private capital and closer integration with processing value chains. Farmers, however, need the productive and institutional capacity to respond as markets open. If that capacity develops too slowly, the gains from reform are likely to remain uneven.
The Structural Problem Is Not Just Regulation
Operational holdings in India have progressively fragmented, falling from an average of 2.28 hectares in 1970–71 to 1.08 hectares in 2015–16, according to the latest completed Agriculture Census. The OECD, meanwhile, estimates India’s Producer Support Estimate (PSE) at -14.5% of gross farm receipts for 2022–24. This does not imply an absence of state support: substantial budgetary transfers are more than offset, in the OECD metric, by domestic marketing policies and trade restrictions that depress farm-gate prices relative to international reference benchmarks.
Fragmented output weakens smallholders’ bargaining position, particularly in local markets where purchasing is concentrated among a small group of intermediaries. Regulatory reform can achieve little unless it also broadens farmers’ effective choice of buyers.
The three farm laws enacted in September 2020 sought to widen that choice. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act relaxed restrictions on trade outside APMC-regulated yards. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act created a legal framework for contract farming. The Essential Commodities (Amendment) Act relaxed stocking limits on agricultural commodities, partly to encourage private investment in warehousing and supply chains.
By easing statutory constraints, the laws sought to attract private capital and expand marketing channels. Whether farmers benefited, however, depended on whether new buyers actually entered. Bihar’s experience after repealing its APMC Act in 2006 shows why that distinction matters.
When Deregulation Meets Weak Markets
After Bihar repealed its APMC Act, the anticipated expansion of private market infrastructure largely failed to materialise. Subsequent evaluations found that deregulation did not, by itself, narrow wholesale-retail price spreads or improve overall market efficiency. Outcomes varied sharply by value chain: paddy harvest prices fell, with larger negative effects for marginal farmers, whereas maize realisations improved where alternative procurement channels and stronger private demand developed.
Market liberalisation delivered better outcomes where viable buyers and procurement networks emerged; where they remained weak, greater statutory freedom did little to strengthen farmers’ bargaining position.
In Punjab and Haryana, public procurement at Minimum Support Prices (MSP) had long provided many farmers with an established route to market. The reforms therefore raised an acute transition question: if procurement weakened over time, would enough private buyers emerge to absorb produce without exposing farmers to sharper price risk?
The eventual repeal of the laws in November 2021 added another dimension to the reform problem: policy credibility. Farmers are less likely to accept greater market risk when the durability of protections is uncertain, while investors have less incentive to commit long-term capital when the regulatory environment appears liable to abrupt reversal.
Export restrictions on wheat, rice, onions and other commodities have added to that uncertainty. Such measures may be warranted when food inflation or domestic availability becomes a concern, but they can also prevent producers from fully benefiting from favourable international prices. Frequent intervention can weaken investment incentives by limiting commercial upside and making future trading conditions harder to anticipate.
Building Competitive Markets
State intervention and competitive markets perform distinct but complementary functions.
Price discovery can work efficiently when farmers face multiple competing buyers, while private enterprise can build storage, processing and cold-chain capacity where expected volumes justify the investment. Farmer aggregation, accessible dispute resolution and the management of transition risks, however, are unlikely to develop adequately through deregulation alone and require an active public role.
Public policy can be organised around that division of responsibility. Programmes such as the Agriculture Infrastructure Fund are intended to crowd in private investment, while e-NAM and FPOs seek to aggregate marketable surpluses and strengthen collective bargaining. As these institutional networks mature and farmers gain access to viable buyers, direct state intermediation can progressively recede. Withdrawing support too early shifts the costs of transition onto cultivators least equipped to absorb them.
Building Capacity as Trade Opens
The sequencing challenge is equally important in external trade policy. Greater integration can expand export opportunities for Indian agriculture, but it can also expose domestic producers to competition faster than productivity, scale and logistics improve.
The EU–India FTA, concluded in January 2026 but not yet in force, could improve market access for sectors where India has established export strengths, including tea, coffee, spices and selected marine products.
The emerging India–US trade framework presents a different set of pressures. The framework announced in February 2026 envisaged reduced or eliminated tariffs on selected US agricultural products, including soybean oil, dried distillers’ grains (DDGS), red sorghum, nuts and fruit. India retained exclusions for sensitive products including wheat, rice, dairy, maize and soymeal, while concessions on products such as apples and soybean oil were limited through quota-based arrangements.
Trade opening need not proceed at a uniform pace across all commodities. Rapid tariff reductions can expose smallholders to stronger import competition before gaps in productivity, scale and logistics have narrowed. Prolonged protection, on the other hand, can weaken incentives to improve competitiveness.
The transition should therefore be used to strengthen domestic productivity, supply chains and farmers’ access to markets so that trade opening and agricultural reform reinforce each other.
Sequencing as Strategy
The experience of recent reform efforts shows why agricultural transformation cannot rest on legislation alone. Market opening needs to advance at a pace that gives farmers viable buyers, stronger productive capacity and reasonable protection against transition risks.
The State’s role is neither perpetual control nor abrupt withdrawal. It is to build the conditions under which competitive markets can take root and to step back as those markets become capable of serving smallholders effectively. The quality of that sequencing will determine whether small farmers share in the gains from reform.