The financial year 2026-27 is shaping up to be an unusually challenging one for Indian agriculture. Growth in the sector depends heavily on the monsoon, and this year the southwest monsoon delivered 13 per cent less rainfall than normal. More concerning, rainfall was 40-60 per cent below normal in several parts of the country. The deficit has affected kharif crop production and is likely to weigh on the forthcoming rabi season as well. Agricultural and allied sector growth slowed to 3.6 per cent in the first quarter of 2026-27, compared with 4.4 per cent in the corresponding quarter of 2025-26. But these preliminary figures do not fully capture the emerging situation. A contraction in the GDP of agricultural and allied sector over the full year appears increasingly likely.
Some economists argue that the Indian economy has become largely insulated from drought, suggesting that it is now virtually “drought-proof.” The Reserve Bank of India has raised its growth forecast for the current financial year from 6.7 per cent to 7.1 per cent. However, this very perception risks widening the divide between the agricultural and allied sectors, the millions of people who depend on them for their livelihoods, and other segments of the economy.
With inflation rising beyond the RBI's tolerance band of 4 per cent (+/- 2%), the central bank has raised policy interest rates after several years. Further increases may follow in upcoming monetary policy reviews. This reinforces the point that the assumption of India's economic growth becoming independent of agricultural performance may be premature. Tractor sales fell by 25.03 per cent month-on-month in August and 12.58 per cent in September, according to the Federation of Automobile Dealers Associations (FADA). The decline signals pressure on farmers' purchasing power and points to a potential slowdown in demand for other goods and services in rural areas.
Farmers are bearing the brunt of the weak monsoon and lower crop output, with falling production directly affecting their incomes. The government has already lowered its foodgrain production estimates for the current year. Rice output is expected to decline, while pulses and oilseeds production is also under pressure. Maharashtra, Karnataka, Madhya Pradesh and Rajasthan - among India's major pulse-producing states - have received inadequate rainfall. The effects are likely to extend into the rabi season, as water shortages are discouraging farmers in several states, including Maharashtra and Karnataka, from planting winter crops.
With El Niño expected to persist until February 2027, winter rainfall is also likely to be deficient, posing a further risk to wheat production. Cotton and sugarcane, two important cash crops, recorded lower output last year and are facing another decline this year. Falling cotton production has turned India into a net importer, while a shortfall in sugar output has prompted the government to permit sugar imports to meet domestic demand.
In the case of sugarcane, the government revised its earlier record-production estimates only after considerable delay, by which time imports had become necessary. In the 2026-27 crushing season, sugarcane acreage has declined in Uttar Pradesh and Maharashtra, the country's two largest sugarcane-producing states. According to the latest assessment by the United States Department of Agriculture (USDA), sugarcane production is expected to fall below 425 million tonnes this year. There are also doubts about whether domestic sugar production will be sufficient to meet annual consumption of around 28.5 million tonnes.
New sugarcane planting has been slow in Marathwada and western Maharashtra, a trend that could affect output in the 2027-28 crushing season as well. In Uttar Pradesh, flooding in the Terai region has damaged sugarcane crops. Consequently, even though crop conditions in western Uttar Pradesh are relatively normal, the state's overall production is likely to fall below last year's level.
Maharashtra has declared drought in 265 talukas, while Karnataka has classified 226 talukas as drought-affected. Andhra Pradesh is also considering similar measures, adding to the pressure on state governments to provide relief to farmers facing crop losses and falling incomes. However, the Centre has yet to announce a relief package for farmers hit by deficient rainfall.
In previous episodes of widespread crop stress, governments have introduced relief measures, including restructuring agricultural loans. Such arrangements typically give farmers additional time to repay loans without penalties, helping them manage temporary income shortfalls. The Centre has yet to initiate comparable measures in the current situation.
One reassuring factor for the government is that foodgrain stocks remain comfortable, giving it room to intervene and moderate prices. The more pressing question, however, is why relief for farmers - the very people whose production underpins these reserves - is taking so long.
The effects of lower agricultural output are already becoming visible in the market. Gram (chickpea) prices have risen steadily, with retail prices reaching Rs 90 per kg. Commodity experts expect prices could cross Rs 100 per kg within the next month. Prices of other pulses are also increasing.
The government has used stringent measures to curb the recent rise in sugar prices. However, this intervention may limit the scope for increasing the state-advised price (SAP) of sugarcane in the forthcoming crushing season, despite higher production costs and the need to support farmers' incomes. Uttar Pradesh, one of the key states that determines an SAP for sugarcane, fixed the price at Rs 400 per quintal in the previous season.
With assembly elections in Uttar Pradesh due within the next six months, farmers had hoped for a more substantial increase. But ex-factory sugar prices have fallen to Rs 4,300-4,400 per quintal following government intervention, reducing the scope for a significant increase in the SAP.
Lower maize and soybean production has pushed up the prices of animal feed and poultry feed. Higher prices of these two crops are also contributing to increases in the cost of eggs and other poultry products.
The government has announced minimum support prices (MSPs) for rabi crops, but the increase in the wheat MSP is among the smallest in nearly two decades. It has been raised by just Rs 25 per quintal. The increase in the gram MSP has also been modest, although MSPs for other pulses and oilseeds have been raised.
These decisions suggest that at a time when farmers need stronger price support, the government's priority remains containing inflation. This approach is consistent with the RBI's emphasis on controlling price pressures, but it raises questions about the balance between consumer interests and farm incomes.
Despite government missions aimed at increasing domestic production of pulses and oilseeds, India remains dependent on imports for around 60 per cent of its edible oil requirements, while pulse imports are also rising. This points to shortcomings in the effectiveness of policies intended to strengthen domestic production and reduce import dependence.
Agricultural production is expected to remain subdued this year not only in India but across much of the world. This is one of the reasons the Food and Agriculture Organization’s (FAO) Food Price Index has been trending upwards month after month. Some argue that growth in India’s agricultural and allied sector is increasingly being driven by activities beyond crop farming, including dairy, livestock, fisheries and horticulture. However, this presents only a partial picture, as production data for these subsectors lack adequate transparency.
More than 46 per cent of India’s workforce continues to depend on agriculture, even though the sector contributes only around 18 per cent of GDP. This growing disparity is widening the gap between agriculture and other sectors of the economy. The government would do well to announce a timely relief package for the agricultural sector, which is grappling with slowing growth, to help farmers recover at least part of their losses.