India’s agricultural subsidy system was created during the period after Independence, when the overriding fear was hunger. Memories of famine were fresh, foreign exchange was scarce, and domestic food production was highly variable. In response, the government formulated a subsidy program where farmers would be protected from risk through guaranteed prices, cheap inputs, and assured markets, while the nation would secure stable supplies of staple foods. This subsidy architecture which rests on minimum support prices, public procurement, fertilizer subsidies, and subsidized grain distribution continues today and helped India achieve food self-sufficiency and avert mass starvation.
These goals were appropriate when India’s primary problem was calorie deficiency. It makes far less sense today, when the country faces very different challenges: the double burden of over and undernutrition, and climate change. Undernutrition and anemia persist, particularly among women and children. Meanwhile obesity, type 2 diabetes, and cardiovascular disease are rising rapidly across income groups. The need for calories has been replaced by the need for protein, micronutrients, and dietary diversity. And as a largely agriculture-dependent country in the sub-tropics, India is at great risk for climate-related crop failure.
Meanwhile, India is a surplus producer of cereals, but continues to spend over ₹4.0 lakh crore each year on agricultural subsidies, accounting for roughly a tenth of all central government spending, and primarily to promote three commodities: rice, wheat, and sugar. Of this ₹2.1 lakh crore goes to food subsidy — overwhelmingly for the procurement, storage, and distribution of rice and wheat. Another ₹1.9 lakh crore is spent on fertilizer subsidies, particularly urea, which disproportionately supports cereal cultivation. In addition, sugar receives smaller but substantial explicit central support — typically ₹10,000–15,000 crore a year through price guarantees, buffer stock financing, export assistance, and ethanol-related incentives — on top of large implicit subsidies for water and electricity at the state level. This entire subsidy amount primarily promotes three commodities: rice, wheat, and sugar.
Subsidized cereals dominate both production and consumption, crowding out pulses, millets, fruits, vegetables, milk, and eggs — foods that are more nutrient-dense and better aligned with contemporary health needs. Sugar continues to be propped up despite overwhelming evidence linking excess consumption to metabolic disease. In a country grappling with the world’s largest diabetes burden, this is an incomprehensible public-health contradiction.
The environmental costs of the current subsidy system are severe. Rice, wheat, and sugarcane are grown even where these crops are ecologically ill-suited. As a result, groundwater tables in Punjab, Haryana, and western Uttar Pradesh have been falling steadily, driven by water-intensive cultivation supported by free or underpriced electricity. Aquifers that took millennia to recharge have been depleted in a matter of decades.
Fertilizer subsidies compound the damage. Cheap urea has skewed nutrient use toward nitrogen, degrading soil health, reducing yields over time, and increasing runoff that contaminates water bodies. Crop residue burning, an outcome of rice and wheat monocropping and tight planting cycles, has become a seasonal public-health emergency across north India, choking cities and villages alike. What began as a food-security strategy now depletes groundwater, erodes soil, pollutes air, and harms health all while leaving farmers vulnerable to climate shocks.
Small and marginal farmers, who make up the majority of India’s agricultural workforce, benefit the least from this arrangement. They often lack the surplus to sell to procurement agencies and remain exposed to volatile input costs and climate risk, as well as air and water pollution. Subsidies intended to protect livelihoods reinforce inequality and lock farmers into production systems that are expensive to sustain and hard to escape.
The problem is not that India spends too little on agriculture — it is that it spends it in the wrong way. Global thinking on food systems has moved on. The EAT-Lancet Commission published last year has argued that aligning diets with human and planetary health requires shifting away from excess refined carbohydrates and sugars toward more diverse, plant-rich diets with adequate protein. Climate resilience must be at the center of any agricultural subsidy in this day and age.
The finance minister can tackle both climate and health challenges in one go while not increasing government budgets, starting with establishing a National Commission to Reform Agricultural Subsidies for Climate Resilience and Health. Policy ideas for this body to consider should include a redesigned subsidy regime that moves away from subsidizing specific crops to focus on farmer incomes, climate resilience, and nutrition. Increased direct income transfers through PM-KISAN can protect farmers without dictating what they grow and what they purchase as inputs. Without a subsidy system skewed towards rice, wheat and sugar, farmers will shift to growing millets, agro-dairy and fruits and vegetables, where these are appropriate to their land. Public investment should prioritize soil restoration, water management, climate-resilient seeds, extension services, and local storage and processing. Procurement and food support can become regionally flexible — supporting millets, pulses, milk, eggs, and indigenous foods that align with local agro-climatic conditions and dietary traditions.
Such a shift would yield multiple dividends. Diversification would reduce groundwater extraction and improve soil health. Farmers would face lower input dependence and greater resilience to climate variability. Diets would move toward higher protein and micronutrient content, curbing the rise of chronic disease. Over time, better health would reduce pressure on public health systems, while more efficient food support could lower the fiscal burden and wastage of storage-heavy grain programs.
India can either purposefully rethink its agricultural subsidy system in the move towards Viksit Bharat or this choice will be forced by a climate crisis in coming years. The same subsidy resources, spent differently, could benefit farmers, restore land, water and air, and improve health — without spending a single additional rupee.
Ramanan Laxminarayan is president, One Health Trust. The views expressed are personal
