The rural sector constitutes the basic foundation of India’s economy. No programme of national development can ever succeed unless it is built upon this foundation. More specifi cally, the rural sector in general, and its agricultural subsector, in particular, contributes to the growth and development of India’s economy in the following ways.
Table 2.5 Rural–Urban Literacy Rates in India, 1951–2001
Rural Urban Total
Year Male Female All Male Female All Male Female All
1951 19.02∗ 4.87∗ 12.10∗ 45.60∗ 22.33∗ 34.59∗ 27.16 8.86 18.33
1961 34.30 10.10 22.50 66.00 40.50 54.40 40.40 15.35 28.30
1971 48.60 15.50 27.90 69.80 48.80 60.20 45.96 21.97 34.45
1981 49.60 21.70 36.00 76.70 56.30 67.20 56.38 29.76 43.57
1991 57.90 30.60 44.70 81.10 64.00 73.10 64.13 39.29 52.21
2001 71.40 46.70 59.40 86.70 73.20 80.30 75.85 54.16 65.38
Sources: GoI (2002b) and Offi ce of the Registrar General of India: Population Census Reports, 1951, 1961, 1971, 1981, 1991 and 2001.
Note: ∗For 1951 population, ‘male’, ‘female’ and ‘persons’ refer to effective literacy rates, and the break-up of rural, urban and male–female components are crude literacy rates.
Contribution to GDP
The agricultural subsector occupies a place of pride in India’s economy and will continue to do so in the foreseeable future. Table 2.6 presents data on the share of agriculture in India’s GDP at factor cost at current and 1999–2000 prices. Agriculture contributed 34.7 per cent to the GDP at current prices in 1980–81, but its share has been declining over time. By 2006–07, it had declined to 17.5 per cent at current prices and 18.5 per cent at 1999–2000 prices. As a matter of fact, the share of agriculture has been gradually declining ever since 1950–51, when it was 56.46 per cent. The declining share of agricul- ture in the GDP does not, however, mean a retrogression of agriculture; it only means that the secondary and tertiary sectors of the economy are expanding at a higher rate.
And this is what one would anticipate as the process of economic development moves forward. This has happened in developed countries all over the world. In general, the more developed a country, the smaller is the share of agriculture in its national income. For example, in 1995, the share of agriculture in the GDP was only 2 per cent in the UK, 3 per cent in the USA and 4 per cent in Japan (World Bank 1997: 236–37). We could conclude by emphasising that as agriculture is the most important sector of India’s economy, development must act directly on agriculture, if the majority of the country’s people are to be affected by development.
Table 2.6 Share of Agriculture and Allied Activities in India’s GDP at Factor Cost (Rs crore) Agricultural
GDP Total
GDP Percentage share
of agriculture Year At current
prices At 1999–2000
prices At current
prices At 1999–2000
prices At current
prices At 1999–2000 prices
1999–2000 4,46,515 4,46,515 17,86,525 17,86,525 25.0 25.0
2000–01 4,49,746 4,45,594 19,25,416 18,64,772 23.4 23.9
2001–02 4,87,063 4,73,530 21,00,187 19,72,912 23.2 24.0
2002–03 4,72,679 4,39,321 22,65,304 20,47,733 20.9 21.5
2003–04 5,33,642 4,83,274 25,49,418 22,22,592 20.9 21.7
2004–05 5,36,629 4,83,080 28,55,933 23,89,660 18.8 20.2
2005–06 5,95,058 5,12,147 32,50,932 26,04,532 18.3 19.7
2006–07 6,52,403 5,26,127 37,17,465 28,44,022 17.5 18.5
Sources: CSO (2006) and GoI (2007a).
Mainstay of Livelihood and Employment
As we stated earlier, a peculiar feature of India’s economy is that a very high proportion (72 per cent in 2001) of the country’s population lives in its rural areas. Similarly, though the share of the agricultural sector in GDP has been declining over time, the proportion of the population dependent upon agriculture and allied activities has been more or less stagnant, or declining at a very slow rate. It is estimated that the agricultural sector
supports more than half a billion people and provides employment to 52 per cent of India’s total workforce (GoI 2008).10 This means that agriculture is the main source of livelihood and employment for about half of India’s population. In developed countries like the UK, the USA, Germany and Japan, the proportion of the population depen dent upon agriculture has been declining continuously. In 1995, it was 2.1 per cent in the UK, 2.6 per cent in the USA, 3.0 per cent in Germany and 5.5 per cent in Japan, as compared to 61.6 per cent in India (Food and Agriculture Organisation [FAO] 1996: 26–35). The higher percentage of the population dependent upon agriculture indicates the inability of the industrial and services sectors to absorb the incremental rural population.
The obvious rem edy in such cases is to expand the industrial and services sectors at a faster rate.
Source of Raw Materials
Agriculture is the principal source of raw materials for India’s leading industries, such as sugar, cotton, jute, textiles, leather, tobacco and edible oils. Many other industries like fruit preservation and processing, dal mills, handloom weaving, gur making and oil crushing, also depend upon agriculture as a source of raw materials. The rate of growth in all these industries is, thus, dependent on the rate of growth in the agricultural sector, and agricultural development is a prerequisite for their development.
Source of Foreign Exchange
Agriculture is an important source of earning foreign exchange, which is needed for importing capital goods for the rapidly expanding indus trial sector. Agriculture makes its contribution to the net foreign exchange earning through the displacement of current and potential imports, and through expanded exports. In the year 2005–06, the value of agricultural exports was Rs 49,803 crore, which accounted for about 11.0 per cent of the total value of exports from India in that year (Table 2.7). The value of agricultural imports in the same year was Rs 21,026 crore, which accounted for 3.3 per cent of India’s Table 2.7 Value of India’s Exports and Imports and Share of Agricultural Commodities
(Rs crore) Year Agricultural
imports Total national
imports % of agricultural
imports Agricultural
exports Total national
exports % of agricultural exports
1990–91 1,478.27 47,850.84 3.09 7,838.04 44,041.81 17.80
1995–96 5,890.10 1,22,678.14 4.08 20,397.74 1,06,353.35 19.18 2000–01 12,08623 2,28,306.64 5.9 28,657.37 2,01,356.45 14.23 2004–05 22,057.49 4,81,064.11 4.59 39,863.31 3,56,068.88 11.20 2005–06 21,025.54 6,30,526.77 3.3 49,802.92 4,54,799.97 10.95 Source: GoI (2007a).11
total exports. The share of agricultural commodities in the total exports of India has been gradually declining over time. It declined from 17.7 per cent in 1996–97 to 11 per cent in 2005–06. This is due to the fact that the exports of non-agricultural commodities has been increasing at a faster rate than the exports of agricultural commodities.
Market for Industrial Goods and Services
The agricultural sector provides a ready and big market for many goods manufactured and services provided by the secondary and tertiary sec tors. Such goods include pesticides, insecticides, farm machinery, pump ing sets, cattle and poultry feed, fi sh feed, pipelines, fencing material, veterinary medicines and vehicles. Rural people also buy consumer goods manufactured by the industrial sector. In fact, now many big companies have their eyes on rural markets for their products and services. Thus, increased farm income and purchasing power is a valuable stimulus to industrial development. It has been argued by a number of economists that insuffi cient purchasing power in rural areas is the basic problem in industrial development in low-income countries. If industrial development is in fact throttled by the lack of a mass market, the solution is to increase rural purchasing power. However, there is clearly a confl ict between the need for enhancing agriculture’s contribution to the capital requirements for overall development and the emphasis on increased farm purchasing power as a stimulus to industrialisation, and there is no easy reconciliation of this confl ict.
Source of Cheap Food
Economic development is characterised by a substantial increase in the demand for food.
Apart from autonomous changes in demand, the annual rate of increase in the demand (D) for food is given by D = p + ng, where p and g are the rates of growth of population and per capita income, respectively, and n is the income elasticity of demand for food.
With the average annual exponential population growth rate of 1.95 per cent per annum registered in India during the decade 1991–2001, and with the rise of nearly 6 per cent in real per capita income per annum registered during the Tenth Plan period (2002–03 to 2006–07), the annual rate of increase in demand for food in India is around 6 per cent (assuming the income elasticity of demand for food to be 0.6). If food supplies fail to expand in pace with the growth of demand, the result is likely to be a substantial rise in food prices, leading to political discontent and pressure on wage rates, with conse- quent adverse effects on industrial profi ts, investment and economic growth. The infl ationary impact of a given percentage increase in food prices is much more severe in a developing country, like India, than in a high-income economy. This is a simple con- sequence of the dominant position of food as a wage good in low-income countries, where 40 per cent to 50 per cent of the total consumption expenditure is devoted to food, compared with 20 per cent to 25 per cent in developed economies. There are, thus, severe penalties attached to the failure to produce adequate food in developing countries.