This included subsidies from GoI (fertiliser) and Punjab state government (power and canal irrigation). When considering additional subsidies for managing crop residues in the field and post-harvest, financial support for paddy cultivation would easily go beyond ₹40k per hectare.
With paddy profitability – over A2 cost, which covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, and irrigation – of ₹86,156/ha in Punjab (2021-22 agriculture ministry ‘Cost of Cultivation’ data), it is evident that the paddy subsidy constitutes more than 30% of its profit. That partly explains the high profit margin for paddy vis-a-vis its kharif counterparts in Punjab and Haryana.
Farmers’ preference towards paddy is also rooted in its assured procurement at MSP, which is fixed to be no less than one-and-a-half times their production costs. This assurance is absent for most other competing crops, leaving them vulnerable to market risks. This economic reality and market scenario pose challenges for farmers otherwise willing to switch from paddy to more sustainable crops such as pulses, oilseeds, millets, etc.
To promote a shift in cultivation practices, Haryana has introduced incentives of ₹7k per acre (₹17,500/ha), which falls short of covering the financial gap that farmers face in profitability when switching to crops like pulses, oilseeds, millets and maise. The biggest constraint that farmers face is that incentive is provided only once and, so, they go back to paddy cultivation. However, if input subsidies for rice were completely removed in Punjab and Haryana to encourage diversification, it would provoke significant political backlash and lead to a substantial decline in rice production and incomes of rice farmers.Given this backdrop, we suggest not eliminating these subsidies outright but repurposing them through an environmental sustainability perspective. Tweak incentives Offer a more substantial incentive – ₹30k-40k per hectare – to farmers in Punjab and Haryana who transition to non-paddy crops in the kharif season. Costs would be shared equally between GoI and state governments.
Haryana gives ₹17,500 per hectare. Punjab can do the same. This amount could be doubled with equal contributions from GoI, resulting in ₹35,000 per ha for farmers switching away from paddy cultivation. This assurance should be given for at least five years to start with.
The beauty of this approach is that it would not burden either GoI or state governments with excessive financial outgo. The reason is simple. As farmers would switch from paddy to, say, pulses, oilseeds and millets, it would lead to savings of power subsidy at the state level and fertiliser subsidy at the central level.
These savings are being repurposed to reward more sustainable crops and save groundwater. To convert 12-15 lakh ha of non-basmati paddy fields into non-paddy cultivation, about ₹4k-6k crore would need to be reallocated (₹2k-3k crore from GoI and a similar amount from states). This goal is achievable with political commitment of both the states and GoI to safeguard Punjab and Haryana from ecological challenges.
MSP for other crops As farmers of this belt are tuned to assured procurement of paddy, GoI can also ensure purchase of alternative crops at MSP. FCI bought 87% of rice produced in Punjab and Haryana at MSP during KMS 2023-24. If this support is redirected towards other crops, it could release funds for a rotating MSP pool.
Transitioning about 12 lakh ha from paddy cultivation could free up paddy procurement cost, about ₹13,666 cr. This amount could then be utilised as a stabilisation fund to ensure that agencies like NAFED, CCI, or FCI purchase pulses, oilseeds, cotton, millets and kharif maise at MSPs, mitigating market risks for non-paddy crops. Transitioning to alternative crops could enable farmers to earn up to 4 carbon credits per hectare and open doors for carbon markets in this region.
