How rural India can power the next trillion-dollar growth

The agricultural sector accounting for 18% of the national GDP and employing 50% of the workforce.

By Manish Kothari

India's economic growth is closely tied to the development of its rural landscape, home to 64% of the population. The rural sector is a vital driver of national progress, contributing significantly to economic growth, labour force, and the overall consumption. As a crucial component of India's economy, rural India's advancement is essential for unlocking the country's full growth potential.

Rural India drives GDP growth, with the agricultural sector accounting for 18% of the national GDP and employing 50% of the workforce. It's also a significant consumption market, worth over ₹40 lakh crore, with a 12-15% annual growth rate, making it attractive for businesses and investors. The sector's growth potential is underscored by its diverse population, skills, and entrepreneurial spirit.

Rural India plays a critical role in shaping the country's social and cultural fabric, with a rich cultural heritage and strong community emphasis. Its development is an economic, social, and cultural imperative, with the potential to profoundly impact the country's overall development and progress.

Ensuring self-sufficiency in food

The Indian food and agriculture sector is poised for a resilient and broad-based growth trajectory in FY26, building on the momentum observed in the fourth quarter of fiscal year 2025. The segment witnessed a 6.2% QoQ growth and 4.8% YoY growth, driven by favourable agro-climatic conditions, improved demand, and targeted credit lending. This growth can be attributed to several key drivers, including robust crop cycles, allied segments and cluster-based expansion.

Robust crop cycles have been a significant contributor to the sector's growth. A strong and well-spread Rabi season, particularly in wheat and mustard, supported by favourable soil moisture and timely agri-inputs, boosted yields. For instance, wheat production increased by 10.5% to 112.5 million tonnes in FY25, while mustard production rose by 12.1% to 9.3 million tonnes. Similarly, a healthy Kharif output—especially in rice, soybean, and pulses—strengthened liquidity and trade flows in rural markets. Rice production, for example, increased by 8.5% to 116.4 million tonnes in FY25, while soybean production rose by 15.6% to 12.8 million tonnes.

The allied segments, including dairy, poultry, and fisheries, maintained steady growth, benefiting from strong domestic consumption, better price realization, and improved supply chain efficiencies. The dairy sector, for instance, grew by 5.5% in FY25, with milk production increasing by 6.2% to 198.4 million tonnes. The poultry sector also witnessed a growth of 8.1% in FY25, with broiler production increasing by 9.5% to 4.5 million tonnes.

Expanding credit availability in rural areas

The cluster-based expansion of financial institutions has also played a crucial role in the sector's growth. By deepening their presence in commodity clusters, financial institutions are allowing for focused lending, improved market linkage, and higher credit penetration across high-potential regions. This has enabled farmers and agri-entrepreneurs to access credit more easily, leading to increased investment in the sector. For example, the agricultural credit disbursed by banks increased by 10.3% to ₹12.9 lakh crore in FY25, while the number of farmers covered under the Pradhan Mantri Fasal Bima Yojana (PMFBY) increased by 15.6% to 5.5 crore in FY25.

Proactive Govt policies

The growth story is underpinned by proactive government policies aimed at boosting productivity and agri-infrastructure. The Agriculture Infrastructure Fund (AIF) provides interest subvention, and credit guarantees for building post-harvest infrastructure, supply chain facilities, and community farming assets. The fund has a corpus of ₹1 lakh crore, with an estimated 10,000 projects to be financed over the next 4-5 years.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) eases collateral constraints for FPOs, agri-entrepreneurs, and micro food processors, enabling greater credit access without the burden of physical security. The scheme has guaranteed ₹1.4 lakh crore worth of loans to 2.5 lakh micro and small enterprises in FY25.

The Ministry of Food Processing Industries (MoFPI) schemes, such as PMFME (Formalisation of Micro Food Enterprises) and the PLI scheme for food processing, are encouraging local value addition, formalization, and capacity expansion in rural India. For instance, the PMFME scheme has supported 2,500 micro food processing units, with an investment of ₹1,000 crore, while the PLI scheme has attracted an investment of ₹10,000 crore in the food processing sector. Additionally, initiatives like PM-KISAN, Interest Subvention, and Crop Insurance provide income stability and reduce risk for small and marginal farmers. Under the PM-KISAN scheme, for example, 10.3 crore farmers have received ₹6,000 per year as income support, while the Interest Subvention scheme has provided ₹1,500 crore worth of subsidies to farmers in FY25.

Emerging uncertainties

However, there are emerging uncertainties that could impact the sector's growth. Increasingly erratic monsoons and extreme weather events pose risks to both yield and income stability. Further, uncertainty in global commodity markets, especially in edible oil and pulses, may impact exports and raw material availability for processors. Furthermore, fertilizer, fuel, and feed costs remain elevated, potentially impacting profitability in both crop and livestock sectors. For instance, the cost of fertilizers increased by 15.6% in FY25, while the cost of fuel increased by 20.5%.

Future outlook

The future outlook for the sector appears promising, with expected growth of 8-9% in FY26, driven by ongoing policy support, rising rural demand, and greater formalization of value chains. As the Indian Food and Agri sector continues to evolve, it is likely to become a more attractive destination for investment, leveraging technology and increasing its export orientation, with a strong synergy between government initiatives and private sector participation.

India's vision of transforming into a $35 trillion economy by 2047 is a monumental task that requires the synchronized functioning of all growth drivers, with rural India being a vital component of this economic machinery. The country's rural landscape, home to approximately 64% of the population, is a crucial engine that must be ignited to propel India's economic ascent.

(Manish Kothari is Head – Commercial Banking, Kotak Mahindra Bank.)

Views are personal, and do not represent the stance of this publication.