Indian Farmers Face Income Squeeze as Costs Outpace Earnings

Analysis Reveals Declining Profit Margins Amidst Rural Inflation

India’s agricultural sector is grappling with a significant challenge: incomes are stagnating while the cost of farming continues to rise, eroding profit margins for the majority of cultivators. Data from the Commission for Agricultural Costs and Prices (CACP) highlights a decade-long trend where income growth for most key crops has failed to keep pace with rural inflation.

Shrinking Profitability Across Major Crops

An in-depth analysis of ten major crops, spanning both Kharif and Rabi seasons, reveals a concerning pattern. With the exception of maize, groundnut, and rapeseed/mustard, the financial gains from farming have lagged behind the increasing cost of living in rural areas. This disparity is directly impacting the profitability of farming operations.

For instance, paddy farmers experienced a 54% increase in profit per hectare between 2013-14 and 2023-24. However, over the same period, rural consumer prices surged by 65%. This means that despite a nominal profit increase, the real value of that profit has diminished. Furthermore, the profit margin on paddy has fallen from 58% of input and labour costs to 49.3%.

Wheat and Sugarcane Show Similar Trends

The situation is mirrored in other staple crops like wheat. Between 2012-13 and 2022-23, the surplus over input costs and family labour for wheat rose by 53%. Yet, rural consumer prices climbed by 71% during the same decade. Wheat’s profit margin also contracted, dropping from 123% to 103%.

Sugarcane, another vital crop, has seen its net income stagnate. Profits per hectare increased by 26% from 2012-13 to 2022-23, a rise considerably lower than the prevailing consumer price inflation. The profit margin for sugarcane has been halved, decreasing from 151% to 102% in the last decade.

Economic Imbalance Contributes to Farmer Distress

Experts attribute this agricultural income stagnation to a significant mismatch between the sector’s contribution to the Gross Domestic Product (GDP) and its share in employment. While agriculture accounts for only 16% of India’s GDP, it continues to employ over 40% of the nation’s workforce. This contrasts sharply with advanced economies like the United States, where agriculture contributes 0.9% to GDP and employs 2% of the workforce, and even developing nations like China, where it represents 6.8% of GDP and employs 22% of workers.

The average landholding size in India further exacerbates the issue. With most farmers (68.5%) being marginal landholders, owning less than one hectare, their seasonal incomes are consequently very low, making them particularly vulnerable to rising costs and stagnant earnings. According to the 2015-16 Agriculture Census, the average landholding was just under 1.1 hectares.

A recent report by the National Bank for Agriculture and Rural Development (NABARD) indicated that the average monthly income of an agricultural household in India was ₹10,746 in 2022-23, highlighting the persistent income challenges faced by the sector (NABARD, 2023).