Role of Agriculture in Indian Economy

Agriculture is the mainstay of Indian economy because of its high share in

employment (55%) and livelihood creation.
It is the most important sector of the India economy from the perspective of poverty
alleviation and employment generation. Thus it provides significant support for
economic growth and social transformation of the country.
Critical role of agriculture is explained through following points:
1. SUPPORTS INDUSTRIES: agriculture feeds not only the population but her
manufacturing industries too with raw materials. Cotton and jute, textiles,
sugar, vanaspati and plantation industries (tea, coffee and rubber) are few
examples. It has been estimated that these and other agro based industries,
together roughly account for nearly one-half of the total income generated in
the manufacturing sector of the country. Agriculture helps industries in yet
another way. Prosperous agriculture means greater purchasing to buy
industrial goods; thus it encourages industries.
2. COMMERCIAL IMPORTANCE: some of the leading exports from the country
have been jute goods, tea, oil cakes, tobacco, spices, coffee etc. by exporting
them; it has been possible to import in return the much-needed machinery
and manufactured goods.
3. FOR GROWTH AND STABILITY: economic development without agricultural
development will create bottlenecks and generate inflationary pressure. This
is what has happened in India. Low rate of agricultural development resulted
in shortage of food and essential raw materials leading to inflation. Therefore,
agricultural development is essential to avoid inflation and to ensure growth
with stability.
4. THE AGRICULTURAL GROWTH DETERMINES THE GENERAL RATE OF GROWTH:
In India, owing to the preponderance in the countrys economy, the growth
rate of economy depends in a large measure on the growth rate of agriculture
and where agriculture accounts for nearly half of the national income.
5. EMPLOYMENT POTENTIAL: agricultural development would generally lead to
more employment opportunities in the construction of the small irrigation
works, drainage system, contour bunding, terracing etc. even rapid
industrialization cannot absorb the growing population. Thus, if pattern of
growth i.e. investment in agriculture is increased systematically it can
generate high rate of employment. Hence the growth of Indian agriculture
can be considered a necessary condition for inclusive growth. More recently,
the rural sector (including agriculture) is being seen as a potential source of
domestic demand, a recognition that is even shaping the marketing
strategies of entrepreneurs wishing to widen the demand for goods and
services.
But the agricultural share in India is declining rapidly in the recent years. This is
explained by the fact that whereas overall GDP has grown by an average of 8.62%
during 2004-05 to 2010-11, agricultural sector GDP has increased only by 3.46%
during the same period.

Compared to other countries, India faces a greater challenge, since with only 2.3%
share in the worlds total land area, it has to ensure food security for a population
that accounts for 17.5% of world population. This leads to excessive pressure on
land, and area under food grain cultivation has not increased. Increasing agricultural
production with limited natural resources in a sustainable manner for ensuring food
and nutritional security and providing income security to farmers are the major
challenges before the government.
LAND REFORMS
The thrust of policies, in the first decade of planning (1951-1961) was on
institutional and agrarian reforms. In an agrarian economy like India with great
scarcity and unequal distribution of land, coupled with large mass of below poverty
line rural population, there are compelling economic and political arguments for
land reform. In the decades following independence, India passed a significant body
of land reform legislation. The constitution of 1949 left the adoption and
implementation of land and tenancy reforms to state governments.
OBJECTIVES OF LAND REFORMS:
1. To remove such impediments on agricultural production as arise from the
character of agrarian structure in rural areas.
2. To reduce or eliminate exploitation of landless and small cultivators through
measures of land distribution.
LAND REFORM LEGISLATION IN INDIA:
1. Abolition of intermediaries who were rent collectors under the preindependence land revenue system.
2. Tenancy regulation that attempted to improve the contractual terms for
tenants, including crop shares and security of tenure.
3. A ceiling on land holdings with a view to redistributing surplus land to the
landless.
4. Attempts to consolidate disparate landholdings.
FAILURE OF LAND REFORMS
INADEQUATE LAWS: Land reforms have been successful only in pockets of the
country, as people have often found loopholes in the laws that set limits on
the maximum area of land that is allowed to be held by any one person.
UN report says: In India there seems to be great inequality in different states
regarding the land reforms as these land reforms are not implemented in the
true spirit.

LACK OF RELIABLE RECORDS: Tenancy reforms can only be implemented if

there are proper written records of tenancies and land ownership. This was
not always available because most of the time land leased on oral
agreement- nothing on paper.

LACK OF FINANCIAL SUPPORT: No separate allocation of funds was made in

the Five Year Plans for financing land reforms. Many- states declined to

include even expenditure of such essential items like the preparation of

survey, record in their plan budget. Thus, lack of adequate budget support in
any form is largely responsible for the poor results of its implementation.
LACK OF INTEGRATED APPROACH: Another reason for the failure of land
reforms in India was the lack of integrated approach such as abolition of
intermediary tenures, tenancy reforms and ceiling of holdings etc. They lack
proper co-ordination in the programs. It means that land reform program has
been viewed in isolation from the mainstream of economic development
program.
LACK OF PRESSURE FROM BELOW: The Task Force of Planning Commission
has observed except in few scattered and localized pockets, practically all
over the country the poor peasants and agricultural workers are passive, unorganized and non co-operative. The fundamental problem lies in the fact
that the beneficiaries of land reforms do not constitute a homogeneous social
or economic group. In such circumstances, it is little wonder that there has
been no pressure from below for its effective implementation of land reforms.
LACK OF POLITICAL WILL: The Task Force was of the view that there was lack
of political will in the enactment of progressive measures of land reforms and
their efficient implementation. Efficient implementation requires far hard
political decisions and effective political support, direction and control. The
Task Force has correctly pointed out the task of political will is amply
demonstrated by the large gaps between policy and legislation and between
law and implementation. Thus, it is admitted fact that political will is not
forthcoming due to the existence of democratic political power structure of
the country.

GREEN REVOLTUION
It was realized by the mid 1960s that technological revolution in agriculture was the
only alternative for achieving self sufficiency in food grains.
Most of the countries in Asia even after adopting land reforms and improving
agricultural infrastructure had taken a path to modernize agriculture.
Japan and China were the pioneers in modernizing agriculture in Asia.
CHARACTERISTICS OF GREEN REVOLUTION
1. Substitution of traditional robust but low-yielding varieties of seed by the high
yielding varieties.
2. These seeds have the physiological attribute of being able to turn large
amounts of soil nutrients into grain rather than leaf growth.
3. This enables the plant to produce higher yields, especially so if the supply of
nutrients in the soil can be increased.
4. This in turn creates the demand for chemical fertilizers to supplement the
natural fertility of the soil.
5. These nutrients are concentrated in form they have to be applied with
adequate supplies of water to enable the plant to absorb them without
damaging itself.

6. HYV seeds being relatively new and non acclimatized strains, they are more
prone to local pests and diseases than established indigenous varieties and
therefore, require a supply of germicides and pesticides.
POSITIVE IMPACT OF GREEN REVOLUTION
1. New yielding varieties are quicker in maturing than the traditional varieties
and they are non photosensitive. These characteristic give rise to a shorter
harvesting period, thus making it possible for farmers to practice multiple
cropping, enabling them to use more intensively a given amount of land.
2. Improved agricultural production resulting from modern input and
technologies trickled down to the poor and led to a rise in farmer income,
while output growth and increased grain supplies caused a decline in real
food grain prices, benefitting the poor. Thus rural poverty, declined from 64%
in 1967 to 56% in 1973.
3. India became self sufficient in food grains in 1971-72 with 105 million tonnes
of food grain. And food grain imports declined to zero.
4. In the 1980s India consolidated its status as a food sufficient country. In 1987
the the worst drought of the century struck the country, food needs could be
easily met without any loss of lives.
5. Buffer stock
THREE PHASES OF GREEN REVOLUTION
THE FIRST PHASE (1966-1972)
In 1965 India introduced HYV seeds from Mexico.
In 1966, India ordered the import of 18,000 tonnes of HYV wheat seeds that
were distributed in the highly irrigated areas of Punjab, Haryana and western
Uttar Pradesh.
Under the new agricultural policy, HYVs were supported by public
investments in fertilizers, power, irrigation and credit. Under this policy,
agricultural prices commission was set up to recommend a minimum support
price followed by Food Corporation of India to take charge of the logistics of
procuring major agricultural commodities.
The total amount of food grains harvested increased from 74 million tonnes in
1966-67 to 105 my in 1971-72, and that year India became self sufficient,
with grain imports declining to nearly zero.
Subsidies became an instrument to ensure that farmers had affordable
access to new agricultural inputs. The role of credit began to be important
after 1969 following the nationalization of banks.
Improved agricultural production resulting from modern input and
technologies trickled down to the poor and led to a rise in farmer income,
while output growth and increased grain supplies caused a decline in real
food grain prices, benefitting the poor. Thus rural poverty, declined from 64%
in 1967 to 56% in 1973.
THE SECOND PHASE ( 1973-1980)
After the nationalization of banks, Prime Minister Indira Gandhi took other
steps to extend the role of the state in key areas of economic management.
In agriculture, whole sale traders came under attack because, due to their

speculative motives, they were regarded as responsible for fluctuations in

food grain prices and supplies. Thus in 1973-74, the government took over
the wholesale trade in wheat, which proved a disaster and therefore, it was
soon abandoned.
Wheat procurement was hindered by limited supply resulting from droughts
in several states in 1972-73.
Following two consecutive droughts in 1972-73, food grain production
decreased by 7.7% and India slid back into the trap of food grain imports of
an average of about 4 mt a year from the USA between 1973 and 1976.
The burden of fertilizer subsidies increased after the oil shock, as government
took this step to prevent the drop in consumption due to increase in fertilizer
prices. Also during this period, ground water irrigation increased on account
of private investment in tube wells by farmers who reinvested the income
from the earlier burst in food grain production. As a result, power subsidies
for water pumping grew dramatically, reaching 44 per cent of the total input
subsidy at the start of the 1980s.
The extension of HYV technologies from wheat to rice, favored by the growth
of tube wells, spread the Green Revolution to new areas, marking a new
phase in the expansion of domestic production. From 1972-73 to 1979-1980,
production as well as yields of food grains showed remarkable growth, at 3.1
per cent and 2.5 per cent, respectively, and rural poverty declined from
roughly 56 per cent to 50 per cent.
THE THIRD PHASE (1981-1990)
In the 1980s, India consolidated its status as a food self-sufficient country.
Rice production soared to 63.8 mt in 1986, up from 37.0 mt in 1964. Wheat
output grew, too, from 12 to 47 mt in 1986, a year in which India had her first
25.4 mt of grain buffer stocks. When in 1987 the the worst drought of the
century struck the country, food needs could be easily met without any loss
of lives.
During this phase, the HYV technology spread eastward to states like West
Bengal and Bihar, which experienced surpluses in rice.
Impact of Green Revolution started to exhaust by mid 1980s, and on the
other side government
was increasing input subsidies to continue sustain the food grain production
growth. By 1991, input subsidies had grown to 7.2 per cent of agricultural
GDP.
Throughout the Green Revolution, there was a strict regulatory control over
the agriculture (licensing requirements, barriers to entry, price controls,
trading controls). On external front, too, the sector was burdened with high
tariff and non tariff barriers to agriculture trade flows.
The high level of protection accorded to industry produced high industrial
prices and adverse terms of trade (ToT) for agriculture, reducing the relative
profitability of the primary sector.
Thus Green Revolution only aimed to:
1. Ensure inexpensive food for consumers.

2. Protect farmers income from price fluctuations

3. Keep the balance of payments in check.
AGRICULTURE IN POST-REFORM PERIOD
Although the reforms were implemented in off farm activities, they
affected agriculture in at least two important ways. First the higher rate of economic
growth and the consequent rise in per capita income resulting from the 1991-1993
reforms had a significant impact on the food demand. Higher per capita income
growing to 4.5 per cent per annum in this phase as opposed to 3.6 per cent in the
1980s, led to the diversification of the food demand into non- food grain crops such
as fruits and vegetables, as well as meat- mainly poultry- and dairy products.
Second, the lowering of industrial protection significantly improved the incentive
framework for the sector through improvement in the domestic ToT between
agriculture and industrial prices.
Improved ToT for agriculture in turn resulted in an increase in the profitability of the
primary sector relative to industry and led to an increase in private investments,
which are now double the public investment in agriculture. These were increasingly
directed to the production of horticulture produce, poultry, fish, milk and eggs in
response to becoming consumer demand for these high-value agricultural products,
leading to a remarkable growth in output of these commodities during the 1990s
relative to the previous decade.
As a result of these developments, growth rate of agricultural GDP went up from 3.0
per cent in the 1980s to 4.1 per cent in the aftermath of reforms between 1991 and
1996.