The Perilous Path: Why India Must Exercise Extreme Caution in a Free Trade Agreement with the United States – 2025

Introduction: Balancing Ambition with Agricultural Reality

As global trade dynamics shift and nations seek to forge deeper economic ties, the prospect of a Free Trade Agreement with the United States looms large. While the allure of enhanced trade, investment, and market access is undeniable, India must approach such a monumental decision with extreme caution, particularly concerning its vast and vulnerable agricultural sector. India’s unique socio-economic fabric, deeply intertwined with agrarian livelihoods, presents a complex challenge that a blanket FTA could severely disrupt, potentially undermining the very foundation of its rural economy and food security.

The Bedrock of India’s Economy: A Vulnerable Agriculture Sector

India is, at its core, an agricultural nation. With nearly 50% of its massive population directly engaged in agriculture and allied activities, the sector is not merely an economic contributor but a way of life for millions. In the fiscal year 2024-25, agriculture, livestock, forestry, and fishing collectively contributed approximately 17.94% to India’s Gross Value Added (GVA) at Basic Prices (at Current Prices). This significant contribution underscores its importance, yet it also highlights the vulnerability of a sector supporting such a large workforce with often limited resources.

A critical challenge facing Indian agriculture is the low coverage and intensity of irrigation. While national irrigation coverage stood at approximately 55% of the Gross Cropped Area (GCA) in FY21, this national average masks stark regional disparities. States like Punjab, Haryana, Telangana, and Uttar Pradesh boast impressive irrigation coverage rates of 98%, 94%, 86%, and 84% respectively, leading to higher agricultural productivity. However, vast swathes of land in states such as Assam and Jharkhand remain overwhelmingly dependent on the unpredictable monsoon, leaving farmers at the mercy of climatic whims. This direct correlation between irrigation coverage and crop yield makes any external market shock particularly dangerous for the majority of Indian farmers.

Recognizing this critical bottleneck, the Government of India has initiated programs like “Per Drop More Crop” (PDMC) and the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) to enhance water efficiency and expand irrigated areas. These initiatives offer financial assistance, providing 55% of the total project cost to small and marginal farmers for micro-irrigation projects, and 45% for other farmers under PDMC.

While India possesses a vast 140 million hectares of arable land, the current adoption of micro-irrigation systems remains remarkably low, accounting for only 8% of the total irrigated land. This is a stark contrast to advanced agricultural economies like the USA, where micro-irrigation accounts for a substantial 68.6% of irrigated land. The slow pace of micro-irrigation expansion in India means that a significant portion of its agricultural land remains susceptible to yield fluctuations driven by water availability.

The Yield Disparity: A Battlefield for Indian Produce

The agricultural yield in India consistently lags behind most major agricultural nations and regions. This disparity is glaring when comparing irrigated and rain-fed areas within India itself; for instance, Punjab, with its extensive irrigation, achieves wheat yields exceeding 4.2 tonnes per hectare, whereas Jharkhand, heavily reliant on rainfall, struggles with yields around 1.5 tonnes per hectare.

When benchmarked against global averages, India’s agricultural productivity reveals a concerning gap. In FY2024-25, India’s wheat yield was approximately 3.56 tonnes per hectare, marginally below the world average of 3.59 tonnes per hectare. This contrasts sharply with the yields of major global producers and exporters:

• European Union: 5.38 tonnes per hectare
• United Kingdom: 7.30 tonnes per hectare
• United States: 3.45 tonnes per hectare
• Russia: 2.94 tonnes per hectare
• Ukraine: 4.50 tonnes per hectare

Despite these yield differences, India proudly stood as the third-largest producer of wheat in FY2024-25, with 113 million tonnes, following China (140 million tonnes) and the EU (122 million tonnes). However, the US, while a significant producer, was the fifth-largest exporter of wheat, after Russia, the EU, Canada, and Australia. This export prowess from the US and Australia presents a direct threat under an FTA.

The Wheat Dilemma: A Price Imbalance

The most alarming concern for Indian wheat farmers under an FTA would be the potential for an influx of cheaper imported wheat. The estimated landing cost of US and Australian wheat in India, without the existing 40% import duty, would range between ₹2,000 and ₹2,200 per quintal. This figure is significantly lower than the Minimum Support Price (MSP) of ₹2,450 per quintal at which the Government of India procures wheat.

Crucially, not all wheat produced in India is procured by the government at MSP. A substantial portion of the remaining produce is sold by farmers to middlemen and traders at prices often below MSP. If foreign wheat, particularly from highly efficient and subsidized agricultural systems like the US and Australia, is allowed into India without protective tariffs, it would drive down domestic market prices even further. This scenario would render wheat farming in India economically unsustainable for millions of farmers, pushing them into deeper debt and despair.

Although China’s wheat yields have climbed dramatically over the past sixty years, India’s gains have been far more modest—today, China’s per-hectare output is roughly twice India’s.

The Cotton Conundrum: Yield Gaps and Quality Concerns

India is the second-largest producer of cotton globally, after China. In FY2024-25, India produced approximately 5.2 million tonnes of cotton, while its consumption stood at 5.4 million tonnes, necessitating imports to bridge the deficit. However, the Achilles’ heel of Indian cotton lies in its abysmally low yield, estimated at around 450 kilograms per hectare, which is among the lowest worldwide and even surpassed by Pakistan.

Contrast this with the yields of leading cotton-producing nations:

• China: 2,402 kilograms per hectare
• Australia: 2,032 kilograms per hectare
• Brazil: 1,903 kilograms per hectare
• Turkey: 1,850 kilograms per hectare
• Mexico: 1,497 kilograms per hectare
• United States: 993 kilograms per hectare

Furthermore, the quality of Indian cotton is generally considered inferior, mostly comprising short and medium staple varieties, especially when compared to the superior quality produced in Australia, the US, Brazil, and China. This forces India to import approximately 2.8 million bales of high-quality cotton annually to meet the growing demand for premium textiles. While Brazilian cotton prices might be comparable to Indian cotton, the high premium commanded by Australian and US cotton due to its superior quality poses a significant threat.

The Indian government’s decision to allow zero-duty import of Australian cotton under the India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA) has already set a precedent, which could be expanded under a broader FTA with the US.

For India to compete effectively in the global textile manufacturing space with rivals like China, Bangladesh, and Vietnam, access to high-quality cotton is crucial. If domestic cotton production, hindered by low yields and inferior quality, cannot meet the demands of a quality-conscious domestic textile market, India will increasingly rely on imports. This shift could marginalize domestic cotton farmers, leaving their produce with no viable market if consumer preferences gravitate towards higher-quality textiles made from imported cotton.

The Structural Imbalance: Indian Farmers vs. US Agricultural Might

The fundamental disparity in agricultural ecosystems between India and the United States creates an inherently unequal playing field that an FTA would exacerbate.

• Subsidies and Support: The US government provides its farmers with substantial and sophisticated support mechanisms. This includes loans at very low interest rates, covering 60% of crop insurance costs by taxpayers, and compensating farmers for losses if market prices fall below input costs. This comprehensive safety net shields American farmers from market volatility and production risks. In stark contrast, Indian farmers operate with significantly less state support, relying heavily on MSP for a fraction of their produce, leaving the majority exposed to market vagaries and the exploitative practices of middlemen and traders. This imbalance means Indian farmers simply cannot compete with highly subsidized US agricultural produce without protective measures.
• Technological Divide: Genetically Modified (GM) Crops: The widespread adoption of genetically modified (GM) seeds is a cornerstone of US agricultural productivity, utilized in almost all major crops. In India, however, GM seeds are approved only for cotton (Bt cotton since 2002), and even then, the yield gains have not been comparable to global leaders. The Indian government has maintained a cautious stance on approving GM seeds for other food crops due to environmental and health concerns. Should Indian farmers adopt GM seeds to compete on yield, their input costs would drastically increase, potentially leading to further financial strain, especially without the extensive support systems available to US farmers.
• Fertilizer Management: Indian farmers’ fertilizer usage is skewed towards Urea, largely because it is significantly cheaper due to heavy government subsidies, unlike potash and phosphate-based fertilizers. An Indian farmer uses approximately 193 kilograms of fertilizer per hectare, often in an imbalanced ratio of Nitrogen, Phosphorus, and Potassium (NPK). In contrast, US farmers utilize a balanced NPK ratio and achieve higher efficiency with a lower application rate of just 128 kilograms per hectare. Given that fertilizers are largely imported, and expensive DAP and MOP are scarce, the over-reliance on subsidized Urea leads to inefficient nutrient use, higher environmental impact, and potentially diminishing long-term soil health.
• Pesticide Usage and Health Implications: The US agricultural system employs a far higher volume of pesticides, with usage typically ranging from 2.5 to 3.0 kg per hectare. In India, pesticide usage is considerably lower, between 20 to 60 grams per hectare. While higher pesticide use can boost yields, it carries significant environmental and public health risks. It is a well-established fact that excessive pesticide use is linked to serious health issues, including cancer, renal, and respiratory diseases, and causes widespread contamination of groundwater and surface water. An FTA that encourages higher yields without stringent regulatory oversight could inadvertently promote practices detrimental to India’s environment and public health.

Conclusion: A Call for Prudence and Strategic Safeguards

The notion of an FTA with the United States presents a complex dilemma for India. While strategic alliances and increased trade are desirable, the current state of India’s agricultural sector demands extreme caution. The disparities in irrigation infrastructure, agricultural yields, government subsidies, technological adoption (including GM crops), and input management (fertilizers and pesticides) create a profoundly uneven playing field.

If India were to proceed with a comprehensive FTA that significantly reduces or eliminates tariffs on agricultural imports from the US, it risks:

• Undermining the livelihoods of millions of small and marginal farmers, who constitute the backbone of rural India.
• Destabilizing domestic food markets, leading to a potential collapse in prices for staples like wheat and cotton, making farming unprofitable.
• Exacerbating the agrarian crisis, which already sees farmers struggling with debt, climate change impacts, and market volatility.
• Hollowing out the domestic agricultural base in favor of imported produce, threatening India’s long-term food security and self-reliance.
• Potentially compromising environmental and health standards if the drive for competitive yields leads to unsustainable practices.

The recent discourse around promoting millets, while beneficial for diversification and nutrition, might also be interpreted as a strategic deflection from the pressing need to enhance irrigation and overall agricultural productivity in traditional staple crops. The fact that only one-third of Indian crops are procured at MSP leaves the majority of farmers vulnerable to exploitation by middlemen and market fluctuations, a vulnerability that would be magnified by an influx of cheaper imports.

Before committing to any FTA with the United States, India must meticulously analyze the potential fallout on its agricultural sector. Any agreement must incorporate robust safeguards, special and differential treatment for its sensitive agricultural products, and mechanisms to protect its farmers from direct competition with highly subsidized and technologically advanced foreign agricultural produce. The long-term stability and well-being of India’s vast rural population, and indeed its food sovereignty, hinge on a meticulously cautious and strategically negotiated approach to international trade agreements.

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References

• AGRICULTURE AND FOOD MANAGEMENT: THE SECTOR OF THE FUTURE, Economic Survey FY24-25
• United States Department of Agriculture
• PROVISIONAL ESTIMATES OF ANNUAL GROSS DOMESTIC PRODUCT FOR 2024-25, Ministry of Statistics and Programme Implementation
• Directorate of Cotton Development
• ICAC Report
• The High Price of Federal Agriculture Subsidies: What’s the True Cost of Farming as Usual?, Nan Swift, R Street
• Third Advance Estimates of Production of Foodgrains, Oilseeds and other Commercial Crops for 2024-25, Department of Agriculture and Farmers Welfare