Why is farming so heavily subsidised yet still unprofitable?

The Union government spends over INR 4 lakh crore (USD 48 billion) annually on fertiliser, irrigation, and electricity subsidies. This is over INR 30,000 ($329) per farmer. This amount does not even account for procurement costs (around INR 2 lakh crore annually) or periodic loan waivers. Yet farm incomes remain low. How can such massive spending fail to make farming profitable?

Subsidies are not the only policy tool affecting farmers’ incomes. While the government subsidises inputs, it simultaneously controls output prices through export bans, stock limits, and procurement policies that often depress prices below world levels. The OECD’s Producer Support Estimate (PSE) measures how much government policies raise or lower farmers’ incomes. The PSE estimates that India’s policy environment has reduced farmer income for most years since 2000. Between 2022 and 2025, the OECD estimates that government policies reduced Indian farmers’ revenues by about 14.5% overall: while budgetary transfers add roughly 11 %, price and market controls reduce revenues by about 25.2%. In rupee terms, input subsidies of around INR 4 lakh crore are outweighed by output restrictions that reduce revenues by about INR 14.2 lakh crore, leaving farmers roughly INR 10 lakh crore worse off, or over INR 75,000 per farmer.

Think of it this way: the government gives farmers a discount on seeds and fertiliser with one hand, then takes away more through artificially lowered crop prices with the other.

Who actually benefits? Procurement-linked subsidies help a narrow group of farmers: mainly wheat and paddy farmers in Punjab, Haryana, and parts of Uttar Pradesh. The vast majority of farmers in other states and for different crops face depressed prices without compensatory procurement support. Meanwhile, the biggest beneficiaries of subsidies are often input suppliers, such as fertiliser companies, rather than farmers themselves. The combination of cheap inputs and controlled outputs leaves farmers dependent on government handouts but not prosperous.