Budget 2026 outlook: Key expectations for agriculture, rural sectors

With falling crop prices, slowing farm income growth and pressure on subsidies, the Union Budget for FY27 is expected to focus on agriculture reforms, rural spending and cooperatives

On Sunday, February 1, 2026, Finance Minister Nirmala Sitharaman will present the Union Budget for the 2026-27 financial year. Among other things, the Budget is keenly watched by those from the rural and agriculture sectors as it lays out the government’s direction for the sector as well as its financial priorities.

 

Rural development and agriculture have historically occupied a prominent place in any Budget speech and that for FY27 address is expected to be no different.

 

The current financial year, ending March 31, 2026, has been a study in contrasts for the rural and agriculture sector.

 

On the one hand, a good monsoon and healthy crop production provided a cushion, the bumper harvest brought with it its own share of troubles. Market prices of almost all major kharif crops have been trading below their Minimum Support Prices (MSP) for much of the kharif harvesting season. The situation is not expected to be very different in the rabi season, either.

 

The result is that, as per the first advanced estimate released earlier this month, India’s Gross Value Added (GVA) for agriculture and allied activities is expected to grow at a modest 3.1 per cent in real terms in FY26, down from 4.6 per cent in FY25.

 

This is largely due to the base effect and the indirect impact of a sharp dip in the nominal growth rates of GVA.

 

The nominal growth rate of GVA of agriculture and allied activities is projected at a record low of just 0.8 per cent in FY26, down from 10.4 per cent in the last financial year largely due to sharp drop in inflation.

 

Some experts fear this could have an impact on farmers’ earnings given that crop prices are fetching lower returns.

 

In nominal terms, GVA for agriculture and allied activities grew by just 1.8 per cent in the July to September quarter of FY26, down from 7.6 per cent in the corresponding quarter of the previous fiscal, largely due to a sharp dip in food price inflation.

 

In the first quarter of FY26, the GVA for agriculture and allied activities in nominal terms was 3.2 per cent, which too was down from 7.5 per cent in the corresponding period of Fy-25.

 

The farm sector is also expected to have been hit hard by the drop in GVA of allied activities, largely livestock, forestry, and fishing.

 

“The drop in GVA for agriculture and allied activities in real terms is mainly due to base effect and indirect impact of the collapse in nominal terms because when GVA is calculated it is first done on nominal terms,” Madan Sabnavis, chief economist at Bank of Baroda, had said.

 

He said the dip could also be due to the impact of allied sectors which constitute almost 50 per cent of the total GVA but little is known about the production and prices in real time for this part of the farm sector.

 

In absolute numbers, data from the ministry of agriculture shows that as on December 26, 2025, all India average wholesale mandi prices of major crops such as maize, arhar whole, gram whole, moong whole, urad, ragi, groundnut, soybean and cotton were all trading at 5-30 per cent below their respective Minimum Support Prices (MSP), with maize, moong, urad and ragi leading the fall.

 

Clearly, falling prices amid a bountiful harvest has been a key feature of Indian agriculture in FY26; what is worrying is that it might persist in FY27, too, unless an unforeseen weather event such El Nino makes an appearance.

 

While some weather scientists estimate El Nino might make a reappearance only after a gap of a few years, other meteorologists say that it is still early days, and that any prediction made six months in advance has a greater chance of being off the mark. Also, unless the 'spring barrier' is passed, nothing can be said with certainty, but there is growing consensus among some of the world's meteorologists that an ‘evolving’ El Nino around May and June 2026 is a strong possibility, which is just when the Indian monsoon starts gathering steam.

 

A few days earlier, the Australian Weather Bureau (AWB) - widely considered one of the most accurate forecasters of El Nino - said some models are showing development of El Nino starting June but, again, the predictability of models beyond a six-month window remains suspect.

 

A strong El Nino could have an adverse impact on farm production in FY27, something which Budgetmakers will be conscious of.

 

As per some reports, the FY27 Budget will continue to put greater emphasis on digitisation and modernisation of Indian agriculture, a process that was started a few years back with the Digital Agriculture Mission and agristack scheme.

 

Also, with pulses production stagnating, emphasis could be on further augmenting funding for the programme along with some focus on strengthening the oilseeds mission as well. Both of these were announced in the previous Union Budget but might see a fresh look.

 

Some provision is likely to be expected on diversification of agriculture from cereals towards more high-value items such as horticulture and livestock, sources said. Measures could also be announced to absorb the surplus in many sectors of Indian agriculture.

 

As per some estimates, after accounting for current domestic and export demand, India faces a 25 per cent surplus in rice, 6–7 per cent surplus in wheat, 15 per cent surplus in maize, 25 per cent surplus in fish, and 4 per cent surplus in milk, while oilseeds and pulses are in deficit. Addressing these gaps will be vital to push Indian agriculture in years to come.

 

The solarisation of Indian farms is also expected to get an added thrust.

 

Some reports have said among critical inputs that go into farming, rationalisation of fertiliser subsidies and reduction in excessive use of chemical fertilisers is expected to be a major agenda of the FY27 Union budget. The government is reportedly planning to announce a new National Fertiliser Mission aimed at cutting down on imports and chemical use, and to reduce use of chemical fertilisers by 20 per cent over the next few years.

 

The new Mission could be merged with the existing PM-PRANAM scheme that aims to incentivise states that cut down usage of chemical fertilisers.

 

Sources said the move has been necessitated in order to cut down on the burgeoning fertiliser subsidy that has threatened to cross Rs 1.91 trillion in FY26, as against the Budget Estimate (BE) of Rs 1.68 trillion.

 

The overshooting of BE is mainly due to record urea consumption in FY26, which has already touched 31.15 million tonnes (MT) between April and December 2025, almost 4 per cent more than the corresponding period of 2024.

 

Urea imports have jumped by 120 per cent and DAP by 54 per cent in the April to November period of FY25 as domestic production has lagged consumption. This is an area the government could try to address through incentivising new, smarter products that could be administered more efficiently.

 

When it comes to food, another big item in the subsidy basket, initial reports suggest the Centre is looking at a modest 7-8 per cent increase in FY27 BE of food subsidy from the FY26 BE. This has been estimated at Rs 217,000-219,000 crore, up from Rs 203,000 crore, as per preliminary inter-ministerial discussions.

 

For the current financial year, sources said the government is looking at a Revised Estimate (RE) of food subsidy of around Rs 210,000-212,000 crore, which could 3-4 per cent more the BE of Rs 203,000 crore.

 

Among other sectors, sources said special emphasis could be on the cooperative sector to boost collectivisation efforts.

 

The Union Budget for FY27 is also likely to lay down a roadmap for trebling the cooperative sector’s contribution to the Indian economy in next 10 years with the aim of bringing 50 crore people within its ambit, in line with the objectives of the National Cooperative Policy of 2025.

 

Sources said the National Cooperative Policy that was unveiled by Union Cooperative Minister Amit Shah in the national capital a few months back clearly articulated the need for creating a task force to incorporate 50 crore people within the ambit of cooperatives from the existing 30 crore and ensure autonomous functioning and democratic control of cooperatives via its members.

 

The policy that also sought to enhance the sector’s contribution to the Indian economy by three times in the next 10 years also called for raising the number of cooperative societies by 30 per cent from the current 830,000.

 

Though there are no direct statistics on share of cooperatives in India’s total GDP, sector wise data shows that cooperatives have around 14 per cent share in total agricultural credit, 25 per cent share in fertiliser production,31 per cent share in sugar production as in 2016-17. The sector also has about 85 per cent share in liquid milk distribution, and about 15 per cent share in total storage available in the country.

 

For the rural sectors, as per reports, the Centre is looking to raise the allocation for all major rural centric schemes by more than 10 per cent.

 

For the newly enacted Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) scheme that replaced the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), it has already announced a Central allocation of around Rs 96,000 crore for FY27, which is almost 12 per cent more than MGNREGA’s BE for FY26.