Agriculture and the Development of Indian Economy

The following points highlight the seven major roles of agriculture in the development of Indian economy. Some of the roles are: 1. Contribution to Gross Domestic Product 2. Employment Generation 3. Contribution to Industrial Development 4. Contribution to Foreign Trade 5. Role in Planning and Others.

Agriculture # 1. Contribution to Gross Domestic Product (or National Income):

In 1950-51 agriculture contributed about 55 p.c. of India’s national income (GDP).

However, the percentage gradually dropped down to 19.4 p.c. in 2007-08. In other countries, the percentage contribution of agriculture in national income is much lower.

In most developed countries of the world—like the UK, and the USA, Canada, Japan and Australia— it is below 5 p.c.

In fact, the sectoral composition of GDP indicates the level of development of a country. The greater the contribution of agriculture and allied activities in GDP, the more economically backward a country is supposed to be. Thus, the preponderance of agriculture in India’s national production is a symptom of backwardness.

Agriculture # 2. Employment Generation:

Most people in India derive their livelihood from agriculture. Agriculture is still the most dominant sector in as much a high proportion of working population continues to depend on agriculture. In India, the percentage of working population depending on agriculture was 69.7 as per 1961 and 1971 censuses.

The percentage has remained more or less unchanged since then. In 2001, it dropped down to 57 p.c. In 2006-07 it was 52 p.c. of the workforce. In most industrially advanced countries the percentage varies between 1 and 7. By contrast, it varies between 40 and 70 in most developing countries. In China, the percentage is probably the highest (72), followed by India (52.7), Indonesia (52), Myanmar (50) and Egypt (42).

Agriculture # 3. Contribution to Industrial Development:

Agriculture is also important for another reason. If it fails to develop at a suitable pace, it could prove to be a major constraint on the growth of industrial and other sectors. It is not only the supplier of an essential wage good, viz. food, but also of raw materials to industry. Moreover, agriculture could provide the motive for industrial expansion by being a major market for industrial goods.

In India, agriculture has all along been the major supplier of raw materials to the basic industries like jute and cotton textiles, sugar, vanaspati, and plantations. Additionally, some industries depend on agriculture indirectly such as small-scale and cottage industries like handloom weaving, oil crushing, rice husking, and so on.

Such agro-based industries— which depend on agriculture for their raw materials—together account for half of the income generated in India’s secondary (manufacturing) sector.

Over the last 58 years of planning, interdependence between agriculture and industry has been strengthened by various linkages.

These are:

(i) Production Linkages,

(ii) Demand Linkages, and

(iii) Savings-investment linkages.

Production linkages occur through the use of inputs—agriculture draws some raw materials from the industry and industry too draws from agriculture. Further, because of green revolution in agriculture, demand for some industrial goods has increased in rural areas.

Industrialisation, urbanisation and the consequent rising incomes have increased the demand for agricultural product. In addition, there is a savings-investment linkage between these two sectors.

However, in recent years, the importance of agriculture has declined mainly due to industrial diversification. Some important industries set up during the plan period—iron and steel, petrochemicals, machine tools, light and heavy engineering, aircraft, etc.,—do not depend on agriculture at all.

Agriculture # 4. Contribution to Foreign Trade:

Agriculture has all along played a very important role in India’s external trade. Three major items of India’s traditional exports viz. tea, jute and cotton textiles, are agro-based. Other items include sugar, oilseeds, tobacco, and spices. According to an estimate, farm exports constituted about 50 p.c. of India’s total exports in 1960- 61.

In addition, manufactures with high agricultural output (such as jute goods, clothing and sugar) accounted for another 20 p.c. This export contribution of agriculture is of considerable significance in as much as agricultural exports enable the country to pay for its maintenance and development, imports of raw materials and capital goods (such as machinery and transport equipment).

In 2000-01, its contribution declined to as low as 13.5 p.c. Weak export infrastructure, problem of gradation of agricultural export goods, defective packaging seem to be the reasons for declining volume of exports of agricultural goods over the period of time.

However, net exports of food-grains exceed net import of food-grains. In recent times, exports of non-traditional items like vegetables, flowers milk products, animal meat, marine products; food processing goods have seen a amounted increase. This diversification of exports-augurs well.

Agriculture # 5. Role in Planning:

The importance of agriculture can be discovered in other spheres also. For example, the success of planning in India depends on adequate resource mobilisation. This, in its turn, is largely conditioned by the progress made on the agricultural front.

For instance, bumper crop implies prosperity all-round i.e., large purchasing power with the farmers and greater demand for industrial goods and, therefore, satisfactory prices. Thus, industrial prosperity largely depends on the prosperity of the farmers.

On the other hand, a setback on the agricultural front, i.e., crop failure in one or two consecutive years, implies famine or near-famine conditions, and widespread poverty and starvation. This, in its turn, leads to a fall in the demand for manufactures and causes recession. In fact, a fall in revenue of the farmers leads to a fall in demand for clothing, radio sets, T.V. sets, etc. Thus, the success of planning in India largely depends on the performance of agriculture.

Agriculture # 6. Revenue:

In fact, finances of the Government, especially State Governments, largely depend on agricultural prosperity. Agriculture is a State subject and agricultural taxation is a source of revenue of the State Governments.

Agriculture # 7. Internal trade and transport:

Moreover, agriculture seems to provide the main support to the country’s transport system. Railways and roads secure the major portion of their business from the movement of agricultural commodities from producing to distant consuming centers. In fact, India’s internal trade largely consists of purchase and sale of agricultural commodities.

How does increased agricultural productivity contribute towards greater economic development can be explained in terms of Fig. 13.1. Here we consider two sectors—agriculture and industry. Agricultural production and consumption are measured on the vertical axis above the origin while industrial output is measured on the vertical axis below the origin.

Horizontal axis (ON axis) measures agricultural labour. Agricultural output is indicated by OQ curve. Its shape is governed by the law of variable proportions. OC curve measures consumption of agricultural output. The difference between OQ and OC curve measures the value of surplus generated by the agricultural sector.

At ON₁ level of employment made in the agricultural sector, C₁Q₁ surplus agricultural output is available. Investment of such surplus generates N₁M₁ output in the industrial sector. As employment increases to ON₂ in the primary sector, industrial output rises to N₂M₂.

Technological change will generate more surplus and, hence, more output in the industrial sector. Thus, there is no denying the fact that agriculture is the backbone of the Indian economy.

At the same time, agriculture itself is characterised by low land and labour productivity. In fact, there is a feeling among most contemporary economists that the over-dependence on agriculture continues to remain the root cause of India’s economic backwardness even after 58 years of planning. Thus, unless the dependence on agriculture is considerably reduced, India’s per capita income growth will never be satisfactory.