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Role of Agriculture In Indian Economy_Report

by Saurabh Pant on Wednesday 23 June 2010, 7:53 PM | Category: Campus Articles| View: 5670 views


Role of agriculture in India's economic development

India is among the most potential developing economies in the world. Why do we call it as a potential economy? The simple reason being the growth rate of economy. Standing shoulder to shoulder with strong neighbor China, India is progressing with growth rate in the range of 6 to 7 % consistently. India was even considered as one of those most fortunate countries which bore the burns of global recession the least. The supporting factor for this is fiscal policies of Indian Govt. And the backbone of this strong potential and the most competent economy is agriculture.

Importance of Agriculture in Indian Economy

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper. It also has the world's largest cattle population (281 million). It is the second largest producer of wheat, rice, sugar, groundnut and inland fish. It is the third largest producer of tobacco. India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.

Agriculture in India is the means of livelihood of almost two thirds of the work force in the country. It has always been India's most important economic sector. Today, India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP in 2007, employed 52% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision of agricultural credit and subsidies since Green revolution in India. However, international comparisons reveal that the average yield in India is generally 30% to 50% of the highest average yield in the world.

Agriculture Growth Rate in India GDP has slowed down for the production in this sector has reduced over the years. The agricultural sector has had low production due to a number of factors such as illiteracy, insufficient finance, and inadequate marketing of agricultural products. Further the reasons for the decline in Agriculture Growth Rate in India GDP are that in the sector the average size of the farms is very small which in turn has resulted in low productivity. Also the Growth Rate of the Agricultural Sector in India GDP has declined due to the fact that the sector has not adopted modern technology and agricultural practices. Agriculture Growth Rate in India GDP has also decreased due to the fact that the sector has insufficient irrigation facilities. As a result of this the farmers are dependent on rainfall, which is however very unpredictable.
Agriculture Growth Rate in India GDP has declined over the years. The Indian government must take steps to boost the agricultural sector for this in its turn will lead to the growth of Agriculture Growth Rate in India GDP.


Despite India's economic development, over 70% of the population still lives in rural areas. Agriculture is the key employer with around 60% of the labour force, down from 70% in the early nineties. This compares with 44% in China (2002) and 21 % in Brazil (2004).  The decline in agriculture in the labour force has not kept pace with its decline in the economy. This stickiness has  been attributed to low labour mobility and slow growth in productivity in agriculture. In India agricultural value added per worker has grown by only 15% in real terms from 1990 to 2004. By comparison productivity in China rose by over 60% and more than doubled in Brazil.


Indian agriculture broadly consists of four sub-sectors.  Agriculture proper including all food-crops oilseeds, fiber, plantation crops, fruits and vegetables is the largest accounting for nearly 70 percent of the agriculture sector as a whole.  The rapid growth in this sub-sector through exploitation of wastelands and fallows spread of irrigation and adoption of production enhancing technologies was critical in transforming India from a country vulnerable to food shortages to one of exportable surplus.  Although this sub-sector has made impressive progress its share in the sector as a whole has declined from 78 percent in 1960-61 to less than 70 percent by early 90s.


Correspondingly the share of livestock sector has increased considerably.  The livestock industry has grown from Rs. 15 billion in early 1960s to Rs. 100 billion by 1980-81 and Rs. 672 billion by 1993-94.  In nominal terms the sector grew at almost 15 percent per annum during 1980s.  Milk production, which was almost stagnant for two decades ending 1970, grew by over 5 percent per annum in the 80s.  Similarly, production of eggs increased at the rate of about 6.5 percent during the same period.  As a result the share of livestock increased from about 17 percent till early 80s to 25 percent by 1993-94.


Though it plays relatively a minor role within the sector as a whole, fishing sub-sector activities have been on the rise.  The sub-sector has grown from only Rs. 3 billion in 1970-71 to nearly Rs. 90 billion in 1993-94.  The growth was particularly rapid in 70s and 80s.  Value added increased at over 5 percent per annum during this period.


In real terms forestry and logging activities have been on the decline since mid seventies.  As of 1993-94, the size of the industry in terms of value of output was 103 billion.


Over the past three decades, the country has successfully transformed itself from a food deficit economy to one which is essentially self sufficient in availability of food grains and other essential commodities, albeit only at the prevailing level of effective demand.  Annual aggregate food grains production, which averaged about 82 million tons in 1960-61 increased to 123.7 and 172.5 million tons for the trienniums ending 1980-81 and 1990-91 respectively.  Current (1998-99) production level is 195 million tons and the country has been able to accumulate substantial, (35 million tons) stocks of food grains to cope up with any sudden difficulties arising from drought or a similar situation in any part of the country.




Main Economic Sectors Share of Indian GDP:

Being one of the strongholds of the Indian economy agriculture accounted for 15.7 per cent of the country's gross domestic product (GDP) in 2008-09. According to a Rabobank report, the agri-biotech sector in India has been growing at a whopping 30 per cent since the last five years, and it is likely to sustain the growth in the future as well. The report further states that agricultural biotech in India has immense potential and India can become a major grower of transgenic rice and several genetically engineered vegetables by 2010.

National Economy: The direct contribution of the agriculture sector to national economy is reflected by its share in total GDP, its foreign exchange earnings, and its role in supplying savings and labor to other sectors. Agriculture and allied sectors like forestry and fishing accounted for 18.5 percent of total Indian Gross Domestic Product (GDP) in 2005-06 (at 1999-2000 constant prices) and employed about 58 percent of the country's workforce (CSO, 2007). It accounted for 10.95 percent of India's exports in 2005-06 (GoI, 2007) and about 46 percent of India's geographical area is used for agricultural activity.  There has been a structural transformation in the Indian economy during the past few decades. The composition of Gross Domestic Product at 1993-94 constant prices reveals that the share of agriculture including forestry and fishing has declined as growth in industrial and services sectors far outpaced agricultural sector (Figure 1). The share of mining, manufacturing, electricity and construction sector has increased from 21.6 percent in 1970-71 to 27 percent in 2004-05 and services sector has increased significantly from 32 percent to 52.4 percent during the same period. Despite a steady decline of its share in the GDP, agriculture is still an important sector and plays a significant role in the overall socio-economic development of the country. Therefore, fostering rapid, sustained and broad-based growth in agriculture remains key priority for the government.

State Economies: Consistent with the trends of economic development at national level, role of agricultural sector in the state economies is also changing rapidly. The share of agriculture in Gross State Domestic Product (GSDP) has declined significantly during the last two decades. In some States, such as Bihar, Punjab, Uttar Pradesh, Haryana, Rajasthan, and Orissa, the sector today contributes more  than one-quarter of GSDP, while in some states, such as Gujarat, Kerala, Karnataka, Tamil Nadu and Maharashtra, the sector contributes less than 20 percent to GSDP (Figure 2). However, contribution of agriculture to GSDP has declined in almost all States between 1993-94 and 2004-05.  The decline was the highest in Karnataka (16%), followed by Haryana (14.2%), and Kerala (13.7%). In Karnataka, decline was mainly due to significant increase in the share of service sector (from 37.9% in 1993-94 to 54.7% in 2004-05) mainly driven by informational technology (IT) industry.  Similar is the case with Haryana the decline is due to faster development of services sector in cities around the national capital, Delhi.

Despite declining share of agriculture in the economy, majority of workforce continue to depend on agricultural sector for employment and in rural areas dependence on agriculture is more as nearly 75 percent of rural population is employed in agricultural sector.  However, there is disguised employment in the sector due to limited opportunities for rural non-farm employment. This disguised employment leads to lower labor and resources productivity in the sector relative to other sectors of the economy. The low labor productivity leads to higher rates of poverty in rural areas.

Agriculture in India is constitutionally the responsibility of the states rather than the central government. The central government's role is in formulating policy and providing financial resources for agriculture to the states.

For a proper understanding of the changing agrarian structure, the various

strategies adopted for augmenting growth should be evaluated bearing in mind the highly

skewed distribution of land ownership and land holdings. Soon after independence India

found that the domestic production of food grains was not adequate to meet the domestic

demand. it was justifiably considered humiliating for a country of the size of India to be

going around with a begging bowl. Hence increasing food grain output and achieving self

sufficiency in food grains become a matter of high priority for the policy makers. The Grow

More Food campaign, the Community Development Programme and the Intensive Area

Development Programmes were all attempts at regenerating Indian agriculture that had

stagnated during the British period. Having created an institutional structure, it was but

obvious those solutions had to be found within that framework. In this context food output

could only be increased through programmes like JADP, through investment in

infrastructure in already irrigated areas and through increasing dependence on the main

3 agents of growth namely the upper middle and rich farmers. It was, therefore, inevitable

that the growth under such circumstances be concentrated in irrigated regions and in

absolute terms a major proportion of incremental income should flow to the rich and very

big farmers. Looked at in this context, to blame green revolution technology for distorted

pattern of agricultural development is totally mis-conceived and illogical. It could actually

be argued that without the introduction of new technology, India could not have recorded

high growth in agriculture and could not have achieved near self-sufficiency in foodgrains:

Major reasons for unequal pattern of development, it may be repeated was the creation of

skewed land structure as a result of half-hearted land reforms.

The nature of distortions that have taken place in the agrarian structure and their

implications for our polity may briefly be analysed. The following seem to be the major

characteristics of agrarian scene in India:

1. Inter-personal inequality

2. Inter-regional inequality

4. Poverty.

Production:  India has become the world's largest producer across a range of commodities due to its favorable agro-climatic conditions and rich natural resource base.

India is the largest producer of coconuts, mangoes, bananas, milk and dairy products, cashew nuts, pulses, ginger, turmeric and black pepper. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.

According to the Centre for Monitoring Indian Economy (CMIE), crop production is expected to rise by 1.7 per cent during FY 10 and foodgrain production is expected to increase by 1.1 per cent and wheat production is projected to remain at the same level of 80 million tons as estimated for FY 09 while rice production is projected to increase by 1.1 per cent to 98.8 million tons. Production of coarse cereals and pulses is also expected to rise in FY 10.

According to government data, wheat acreage has gone up marginally to 27.75 million hectares by February 4, 2010, compared to 27.58 million hectares in the same period last year. The acreage under pulses (gram, lentil, urad, moong) has gone up to 13.74 million hectares, compared to 12.95 million hectares in the same period last year.

Cotton production in India, the world's second-largest producer, may rise 10 per cent to about 32 million bales (one bale is equal to 170 kg) in the 2009-10 season (October-September), on the back high support price and more sowing of high-yielding BT seeds.

India's coffee output is pegged at 310,000 tons in 2009-2010, 4.4 per cent higher compared to 2008-09, according to the post-blossom estimates released by the Coffee Board. If the actual output in 2009-10 matches estimates, India is likely to climb up in the ranking list of top 10 coffee-producing countries in the world. According to the International Coffee Organization (ICO), India has a bright chance of becoming the fifth largest coffee producer in the world, replacing Mexico. Currently, it is placed in the sixth position.

Exports and Imports: According to the government's agri-trade promotion body, Agricultural and Processed Food Products Export Development Authority (APEDA), India's exports of agricultural and floricultural products, fruits and vegetables, animal products and processed food products was worth US$ 7.98 billion in 2008-09, an increase of 13.88 per cent from US$ 7.01 billion in 2007-08.

India's agri-export turnover is expected to double in the next five years, according to APEDA. Agri-export turnover is set to rise to nearly US$ 18 billion by 2014.

At present, around 70 per cent of the country's agricultural and processed food exports are to developing countries in the Middle East, Asia, Africa and South America.

Indian seed companies, such as J K Seeds, Namdhari Seeds, Nuziveedu Seeds, Nath Seeds, Rasi and Vibha Seeds, are eyeing the export markets in SAARC (South Asian Association for Regional Cooperation) and African countries with a host of hybrid seeds and best farm practices. The seed producers, who are seeking to expand their horizons, are cashing in on the poor market infrastructure in East and West African countries and the appetite for hybrid seeds in the SAARC region.

Indian Agri Food Exports by Destination:

India is diversifying its export markets.  The EU remains its top market, accounting for 16% of the value of export sales in 2003-2005, although this is a decline from 21% a decade ago. ASEAN is in 2nd place with 14%, although its share has also fallen.

This trend may be reversed however as India is negotiating Free Trade Agreements with the EU and with ASEAN. Meanwhile trade with neighboring Bangladesh and China (currently 7.5%) is growing fast. The US market share has remained steady at 10% and also that of Saudi Arabia.


ASEAN is by far the biggest supplier of agricultural products to India, accounting for a massive 40% of its imports in 2003-2005. Argentina and Brazil rank 2nd and 3rd respectively while the EU only has 4% market share (down from 7% a decade ago), ranked at number six in 2003-2005. Agriculture contributes to economic growth because of its roles. While this is roughly equivalent to the share of imports from China and the United States, it is far below the share enjoyed by Mercosur (supplying about 17% of imports) and ASEAN countries. Over the past decade ASEAN and Argentina have both substantially increased their market share at the expense of the US, the EU, Brazil and China. Together the top six suppliers now account for over 70% of imports.

India's agricultural imports are focused mainly on intermediate products. These account for 56% of imports; final products are 31%, while the share of commodities is just 13%. The biggest growth has been in intermediate products which increased nearly fourfold over the period.






This reflects the importance of vegetable oils in Indian imports (above graph ). Palm oil is by far the biggest import at 29% of the total. Together with soybean oils, they represent over 40% of imports. Protein rich peas are also within the top 5. The increase in imports of these foodstuffs is driven by population growth. While cashew nuts and cotton are among the top exports, they also appear in the top 10 imports. Cashew nuts are imported for further processing as are silk and cotton, which are used in the Indian textile industry.

·         Economic roles underestimated by the market

o   Income generation

o   Poverty reduction

o   Food security

·         Non-economic roles neglected by the market

o   Management and conservation of natural resources

o   Social cohesion and stability

o   Preservation of culture

Backbone for country's economic development:

Agriculture contributes to economic development in at least four ways:-

1.      Product contribution i.e. making available food and raw materials

2.      Market contribution i.e. providing market for goods produced by other sectors


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