Punjab agriculture, as in India, is characterized by abundance of small holdings but it is highly mechanized. However, the ownership of machinery is mainly determined by the economic viability. This led to the development of custom-hiring services. About 40 per cent farm households own the tractor, but every farm household uses the tractor. Human labor employment is higher on tractor owning farms. However, custom hiring system is better for the smaller farmers for availing non-farm employment opportunities. The productivity of major crops is higher on the tractor owning farms due to timely and sufficient availability of tractor services. The net farm income is higher on tractor owning farms but input costs are low on custom hiring farms. It may be due to the high fixed costs as well as repair and maintenance costs on tractor owning farms. The custom hiring farmers reported the problems of costly, inadequate and lack of timely availability of custom hiring services. The government should develop the Primary Agricultural Cooperative Societies as Agro-Service Centres for such services and take steps like fixing the custom hiring rates, reducing fuel costs and creating more awareness about custom hiring of farm machinery. This would particularly be beneficial to the small farmers to cut down their cost of production, enhance productivity and increase their net farm income

Keyword: Custom hiring; Employment; Productivity; Income; Constraints; Policy;