The present paper examines the rationale for the introduction of contract farming in Indian context and advantages and disadvantages it draws with reference to rural and agricultural development where particular emphasis is given to marginal and small farmers. It is also looking into what are the ideal market conditions necessary for the contract farming to be encouraged and to what extent state can have its regulatory mechanism to monitor and control the contract farming to the extent it benefits the farmers along with sponsoring companies. The study is narrowed down to a case study of Karnataka, which already launched the initiatives towards the contract farming.