OECD: India’s Policies Tax Farmers 15%, Highest Implicit Taxation Globally and Starve Innovation for Agriculture
SDG 2: Zero Hunger | SDG 12: Responsible Consumption and Production
Institutions: Ministry of Agriculture and Farmers’ Welfare | Ministry of Finance | Ministry of Commerce and Industry
The OECD’s Agricultural Policy Monitoring and Evaluation 2025 report that total government support to agriculture across 54 countries averaged USD 842 billion per year during 2022-24, remaining above pre-pandemic nominal levels. However, the report highlights a critical misalignment: globally, the most potentially production- and trade-distorting forms of support account for 66% of positive transfers to producers, while investment in smart farming—things like new research, seeds, technology, and irrigation infrastructure—is shrinking to almost nothing (just 0.5% of the value of the food produced). his lack of investment means food production can’t keep up with demand in a sustainable way.
India’s Policy Is Hurting Its Own Farmers
For India specifically, the report’s findings are very clear:
The “Implicit Tax” is Real: The report confirms that policies designed to keep food cheap for consumers—like export bans, limits on stocking food, and sometimes keeping Minimum Support Prices (MSP) below international rates—act as a hidden tax on the farmer. Instead of selling at the high global price, the farmer is forced to sell domestically at a lower price. In fact, India’s farmers face highest implicit taxation globally. The Result: The farmer is effectively subsidizing the consumer. The net impact of all these price controls and restrictions is a loss of revenue for the farmer.
The Net Financial Impact is Negative: All the positive help the government gives—like fertiliser subsidies, free electricity, and cash transfers (PM-KISAN)—is not enough to cover the loss caused by this hidden tax. The Proof: The report shows India’s Producer Support Estimate (PSE) is negative (ranging from -11% to -15% of Gross Farm Receipts in 2022-24). This means that for every 100 rupees of value a farmer produces, the net effect of government policy is to reduce their potential income by 11 to 15 rupees. In contrast, farmers in many developed nations receive substantial positive support.
The Wrong Kind of Support: The report also criticizes the type of support India gives. It highlights that 95% of India’s support comes in the form of measures that are highly distorting (like price controls and input subsidies). The Problem: This kind of support distorts markets and can lead to over-extraction of resources (like groundwater from free electricity). Very little money is spent on the right kind of support, such as investment in research, irrigation infrastructure, and innovation (General Services), which are essential for long-term sustainable growth and resilience.
In short, the report argues that India needs to stop depressing farm prices to help consumers and start investing those funds into modernizing the agricultural sector.
OECD’s Recommended Policy Shifts (Less-Distorting Support)
1. Decoupled Income Support: The goal is to create a reliable income safety net for farmers. Instead of payments being linked to current production levels or market prices (which distort decisions), support is based on historical farm criteria (like past land area or past income). This allows farmers to receive financial aid without being incentivized to over-produce or misuse resources like water and fertiliser.
2. General Services Support (GSSE): This focuses on modernizing the entire agricultural sector for long-term health. This involves significantly increasing public investment in areas such as research and development (R&D), new technology and innovation systems, and crucial infrastructure like cold chains and advanced irrigation projects. This spending benefits all farmers and makes the whole system more resilient and productive.
3. Payments for Environmental Public Goods (EPGP): This shifts subsidies toward rewarding sustainability actions. Farmers are paid specifically for undertaking verifiable practices that benefit the environment and society, such as improving soil health, conserving water, or increasing biodiversity. This ensures public money is used to deliver genuine public benefits and counters the negative environmental impacts of older, unconstrained input subsidies.
What are “Potentially Most Distorting Forms of Support”?→ The “Potentially Most Distorting Forms of Support” are agricultural subsidies, primarily Market Price Support (MPS) and payments based on unconstrained output or variable input use, which directly influence farmers’ production decisions, lead to market distortions, complicate international trade, and often conflict with environmental goals.
Follow the full report here: OECD’s Agricultural Policy Monitoring and Evaluation 2025