Q.3.

Elaborate on the following :

(a) Contribution of Agriculture to Economic Growth.
(b) Agriculture’s Dependence on Industry.
(c) Role of, Agriculture in the lndian Economy.
(d) Interdependence between Agriculture and Industry.
Ans. (a)       Contribution of Agriculture to Economic Growth

Agricultural progress is normally regarded as a prerequisite of economic

development. It is true that the economic development in the modern times has
come to be associated with industrialisation; nevertheless, it is generally accepted
that industrialisation can follow only on the sound heels of agriculture.

Kuznets identifies four possible types of contribution that the agricultural sector is
capable of making to overall economic development. These are:

(a) product contribution, i.e, making available food and raw. materials,
(b) market contribution, i.e., providing the market for producer goods and consumer
goods produced in the non-agricultural sector,
(c) factor contribution, i.e., making available labour and capital to the non-
agricultural sector, (d) foreign exchange contribution.
We elucidate these further.

(1) Source of Supply of the Basic Wage-goods, i.e., Food items :

A scarcity of food creates imbalances in the economy that work as checks on
economic development.
(i) Food Scarcity and General Price: Level Aggregate demand for food products in the
developing countries hàs been growing not only because of population growth (2.5
per cent annually) but also because of rising per capita incomes (an average annual
increase of 3.4 per cent Since 1960) and a relatively high-income elasticity of demand
(YED) for food (the percentage change in food demand divided by the percentage
change in income).

(ii) Food Scarcity and BOP: It may be possible to supplement the domestic supply
of foodgrains by imports in order to maintain their

internal demand-supply equilibrium, but this type of activity may lead to another
imbalance – this time in the external sector of the economy which in turn may have
an adverse effect on the domestic sector. Food imports may prove a heavy burden
on the country’s BOP. This, in turn, may make it necessary for the country to forgo
the more essential imports of capital goods like machinery, technical know-how, etc.
If it happens, this will narrow the potential of growth.

(iii) Food Scarcity and Human Capital Formation: Until quite recently, economists
tended to regard food strictly as a consumption good. But, now it is generally
accepted that a part of food utilisation really should be considered an investment
which improves the quality of the labour force. Malnutrition causes both mental
retardation, and poor diets also affect general health. As a result, worker absenteeism
is higher and on-the-job productivity lower than would be the case with a well-
nourished labour force.

(2) Inputs for Industry: Two essential inputs required for industries may be
procured only from the agricultural sector. These are (a) raw materials, and (b) labour
In spite of all technological and scientific transformation it has not been possible for
industries to dispense with the supply of agricultural raw materials like cotton, jute,
sugarcane, hides, etc: Similarly, the agricultural sector comprises a vast majority of
people in a developing economy. _The increasing demand for labour as the
programmes of industrialisation proceed can be met only by drawing labour from
the agricultural sector.

(3) Source of Foreign Exchange: In its infant stage industry earns little foreign
exchange but creates strong demand for it. The industry needs foreign exchange for
machinery, technology and other inpüts that are not produced locally. If agriculture
does not provide foreign exchange from export sales of primary products, the
country may again be confronted with the BOP bottleneck that will impede the
industrialisation
programme.

(4) Source of Capital Formation: If agriculture is well-developed it can make a net

contribution to capital formation in the non-agricultural sector. There are three
arguments in support of this view :
(i) Capital-output ratio in agriculture is relatively low compared to the industry so
that there is great scope for raising productivity in agriculture by means that require
only moderate outlays on capital.
(ii) There is a strong tendency for sectoral terms of trade to move in favour of
agriculture which leads to an increase in farm incomes at a relatively greater rate
than non-farm incomes. (iii) The consumption levels to which the farm population is
traditionally habituated are generally low and these. are not likely to increase
commensurately with the rise in incomes which accrue with agricultural
development.

(5) Market for Industrial Products: The influence of agriculture on an industrial

consumption good through the demanding route works along
two ways(i) Increased agricultural production and growing
income stimulate demand for industrial goods. (ii) The effect of agriculture on the
industry also works through the terms of trade. The impact of a rise in the terms of
trade in favour of agriculture will adversely affect the demand for non-food items in
urban’ areas. In relation to rural areas, however, the terms of trade effects are not
necessarily in one direction. In the case of lower-income groups, while the effect may
be the same as in the urban areas, in the case of high-income groups, the negative
effect on demand can be offset by the increase in income resulting from the
improvement in agricultural prices. The overall effect of the rise in terms of trade will
depend upon this combined effect for all classes of the population.(b) Agriculture’s
Dependence on Industry
It should not be concluded from the above review that a programme of agricultural
development can be pursued independently of the industrial development
programme. As a matter of fact, agricultural development programmes will come to
a halt, sooner or later, if these are not supported by adequate industrialisation. The
industry contributes to and makes possible agricultural progress in a number of
ways.

(i) Most of the modern inputs, including fertilisers, pesticides and even water, are
made available by industry.

(ii) Industry supplies the machinery required on the farms.

(iii) Agricultural engineering is a significant branch of industry.

(iv) Most of the research that has gone in to bringing about green revolution in our
country has been undertaken in what can be described as industrial culture.

(v) Industry helps raise the necessary infrastructure required for agricultural progress.
This may consist of transportation and
communication, trade and commerce, banking and marketing channels, etc.

(vi) Industry is to meet the growing demand for consumer goods in the rural sector
in the wake of growing population and income in this sector.

In short, there is no need to overemphasise the interdependence between agriculture

and industry during the process of economic development. The relative forces of
inter-sectoral demand and supplies of resources, products and factors not only set
the pace of development but are also a manifestation of the stage of growth.

(c) Role of Agriculture in the Indian Economy

In present-day India, the vital role of agriculture arises out of the position the
agrarian sector occupies in the overall economy of the

Country. Agriculture is a large sector of the economic activity and has a crucial role to
play in the country’s economic development by providing food (more than fifty per
cent of income is spent on food by eighty per cent of the population in urban areas
and ninety-five per cent in rural areas) and raw materials, employment to a very large
proportion of the population, capital for its own development and surpluses for
national economic development.
(1) Contribution to National Income: Agricultural sector contributes a significantly
large share to the national income of India, although it has come down from as high
as 56 per cent during the 1950s to 26.0 per cent in 2003-2004, and is projected to go
down further in immediate future.

Whatever it is, the situation as it obtains presently requires that more available
resources should be devoted to the development programmes in the agricultural
sector, as it is this sečtor that continues to have great potential for reducing poverty
and hunger in the rural sector. For every additional rupee generated through
agricultural production in India, the existing economical linkages can add other three
rupees to the income of the rural economy. It, is important to raise the productivity
and level of output in this sector, which in turn means that agriculture must make an
incremental contribution to the growth rate of the economy despite a diminishing
land frontier.

(2) Major Source of Livelihood: Agriculture has been and is a major source of

livelihood in India. Over the years 1921-2001, the size of the labour force dependent
on agriculture had more than doubled and over the next decade is projected to go
up by more than 25 per cent. All calculations indicate that 50 per cent of the increase
in the employment opportunities will have to come from agriculture. The sector, thus,
presents challenging opportunities for the Plan framers in India, inasmuch as thèse
workers represent an enormous pool of labour that can fuel labour-intensive
industrialisation over the coming decades.

(3) Role in Foreign Trade: The agricultural sector is a net earner of foreign exchange
which is needed for capital and maintenance imports required in the non-agricultural
sector.

(4) Primary Source of Saving in the Economy: This sector is the primary source of

savings, and hence capital formation for the economy. These are known as savings
and investment linkages. Since independence, large investment, both public and
private, has been made in agriculture. In areas where agricultural practices are
traditional, investment has also been on traditional lines like land and its
improvements, tools and implements, farm structures, livestock, carts, etc. But the
pattern of investment in progressive areas, where modern technology has been
adopted, has been predominantly in irrigation, land improvements, farm machinery,
storage godowns and other infrastructures. Both variable  and fixed capitals in the
latter areas are, therefore, of a different order-in

variety as well as in quantum-since substantial amounts of capital are required for

the various infrastructures and inputs to stimulate growth,

(d) Interdependence between Agriculture and Industry

During the process of development, the interdependence between agriculture and
industry has become stronger through the production linkages, demand linkages,
and savings and investment linkages. Production linkages arise from the
interdependence of agriculture and industry for productive inputs, i.e, supply of
agricultural materials such as cotton, jute, sugarcane, etc. to agro-based industries
and supply of fertiliser, machinery and electricity by industry to agriculture.

Modelling of the linkages between agricultural and industrial growth has shown that
a 10 per cent increase in agricultural output would increase industrial output by 5 per
cent.

Over the last five decades, these linkages have got further strengthened with
agriculture’s dependence on industry increasing at a faster rate than the dependence
of industry of agriculture, reflecting the fast-moving modernisation of the agricultural
sector. There are strong demand linkages between the two sectors. The impact of
urban income and industrialisation on the demand for food and agricultural raw
materials is generally recognised. Equally significant is the impact of rural income on
industrial consumer goods, i.e, clothing, footwear, Sugar, edible oils, TV sets, washing
machines, refrigerators, motor-bikes, etc. A recent study concludes. “Rural Bazar
outbuys urban market. ” There is a widely held view that in a large country like India,
the demand stimulus for industrialisation would come mainly from agriculture with
less social and economic costs. More significant, are the savings and investment
linkages that have developed between the two sectors. The relative terms of trade
between the two sectors not only. influence the level of private saving and
investment, these also manifest themselves into government saving and expenditure.

Relative Declining Dependence on Agriculture

The following reasons among others, account for it.

(i) The relative share of agriculture in the total national income has declined from 50
per cent in the 1950s to about 26 per cent presently. Thus, the degree of drag or
push that the agricultural sector can exert on the overall growth of the economy has
been reduced substantially.

(ii) The secular growth rate of- the agricultural sector during the five decades works
out to some 2.3 per cent. The decline in the relative share of agriculture in the GNP,
despite this sustained growth, indicates clearly that the secular growth in the
secondary and tertiary sectors has been more rapid.

(iii) The wage goods constraint on the overall growth of the economy no longer
remains valid for two reasons. One, the Indian economy overcame food shortages
long ago. Two, there has been a decline in the employment elasticity of output of
non-agricultural sectors, which
means that increased output in industry and services does not involve a
commensurate increase in the demand for wage goods.

(iv) With the spread of modern farm technology in the wake of the green revolution,
non-traditional inputs into agricultural production have assumed a greater
importance.

(v) The traditional agro-based industries have been stagnant; their share in overall
industrial output has been falling. The boom sectors of the new millennium-
chemicals, consumer durables1 and hi-tech services-have very little linkage to
agriculture.

(vi) The overwhelming preponderance of agriculture-based items in India’s export-

mix- tea, cotton and jute textiles- has been reduced and today non-traditional
exports have emerged as important components. Industrial growth is, thus, insulated
from the domestic factors to the extent to which non-traditional exports influence
domestic industrial production.

(vii) In an open economy there is no reason why agriculture should be a constraint

on growth or food supply.