Agriculture, and not services, is the warp and woof of the Indian economic fabric
“Agriculture is the backbone of the Indian Economy”- said Mahatma Gandhi five decades ago.
But today agriculture and allied sectors account for only 18.6% of the GDP and employ 60% of the total workforce and there is a continuous steady decline in this share of the GDP.
On the other hand the fact already floating in the air of “Territory Economia” that service sector has revivified the whole Indian economy by injecting life serum into it, is ample enough to commend it as an indispensable growth component of the Indian economy. The sunshine of success in which the economy of Indian subcontinent is basking gay fully today is undoubtedly a contribution of sheer perseverance of the service sector which toiled hard against all odds to emerge as a winner. The fact that services sector accounts for 53.8% of the GDP even with 23% employment speaks volumes about its role in the Indian development saga.
What used to be the backbone of the Indian economy now stands as a mere contributor to it.
So does that connote that the services sector has taken over the metaphor “The warp and woof of the Indian economy” used from time immemorial, for the agricultural sector?
NO… It hasn’t…
Economic development has historically been associated with structural changes in national economies. It has most often, been defined as a process combining economic growth with changing share of different sectors in the national product and labor force. In a similar manner the change in sectoral composition of GDP exemplifies the structural shift Indian economy has undergone over the years. This structural shift has had significant ramifications for the growth and development of the Indian economy, making it highly unbalanced among sectors.
When the famous British historian Eric Hobsbawm said: “The most dramatic change of the second half of this century and the one which cuts us forever, from the world of the past is the death of the peasantry”, he was referring to a spectacular decline world over in the role of agriculture.
If you travel back two hundred years you would see that the US, the largest economy in the world, was almost totally agrarian, though today it has moved into a predominantly service-oriented economy. India also seems to be moving in this direction although in a unique way.
But this pattern of service-led development is not out of tune with the legacy of India’s past. During the colonial period, India’s comparative productivity performance was already better in services than in industry or agriculture. This emphasis on services is also in line with much recent research on long-run growth among the developed economies, which finds services playing a key role in comparative economic performance in the late nineteenth and early twentieth centuries as well as during more recent times. The recent emergence of a dynamic service-led Indian economy thus has long historical roots.
On the contrary though the share of the agricultural sector has declined it is still the backbone and the sheet anchor of the Indian economy. Its importance in the country’s economic, social, and political fabric goes well beyond indicators. It is the nucleus of food supply, livelihood of majority of population and a significant source of revenue and national income for the country.
Globalization and agriculture in India are both intricately connected to each other as agriculture in India prevails over all other sectors because it plays a pivotal role in the socio-cultural life of its people.
Hence, it is the most influential field as compared to others in India.
Another fact which needs to be re-emphasized is that, though the share of agriculture in GDP has declined, its contribution in terms of generating demand for the other sectors of the economy, especially the industrial sector, has become more pronounced. Indian agri-biotech sector has been growing at a whopping 30% for the past 5 years and India can become a major producer of transgenic rice and several genetically engineered vegetables by 2012. The food processing sector, which contributes 9% to the GDP, is presently growing at 13.5% and can be an important driver of the Indian economy.
India ranks second worldwide in farm output. India is the world’s largest and the second largest producer of many crops. It also has the world’s largest cattle population. India is the largest fruit producer, accounting for 10% of the world fruit production. It is the second largest producer of silk in the world. It is the third largest producer of tobacco. Agriculture is still the largest economic sector and plays a significant role in the overall socio-economic development of India.
However, international comparisons reveal that average yield in India is generally 30% to 50% of the highest average yield in the world.
The challenges faced by this sector are many. Indian agriculture is currently suffering the brunt of lack of funds. Also, subsidies crowd out investment spending in the sector. India currently invests only about 0.5 percent of its agricultural GDP in agricultural research. The issue of food security in itself entails many challenges. With growing population, the dependence on agricultural sector becomes more pronounced.
In fact, development of agriculture becomes imperative to sustain the growth in manufacturing and services sector. In an agrarian economy like India, agriculture provides purchasing power to a majority of population, that is instrumental for growth of industries and services. The need of the hour is an innovation driven path, facilitated by an investment driven model. A necessary step to a forward looking policy for growth in agriculture is a shift in focus from producing products conceptualized in developed economies to investing in strategies that take into account the ground realities here.
A holistic approach and urgent reforms are needed to ensure the growth of this sector and to transform India into the leading agro economy of the world. We need to be able to compete on a global platform with respect to both cost as well as quality. A comprehensive and integrated approach is the need of the hour to attain sustainable development and growth in this sector. It’s high time we move ahead of the Mahalanobis model of treating agriculture as a bargain sector.
In the 2009–10 budget, the government has taken many steps to aid the growth of the sector and to focus on the achievement of self-sufficiency in food grains. Agriculture is set to play a more dynamic role in the economy, with the government’s increased focus on the sector.
On the other hand the rapid growth of income originating from the service sector is rationalized in terms of the support drawn from a strong demand base. The demand for products from the services and manufacturing sectors being more elastic than those from the agricultural sector, the process of development is said to have witnessed a shift away from agriculture towards manufacturing and services. Moreover, income growth increases the market for services and expands the size of service sector, which benefits the industrial sector in two ways-first, by enabling greater specialization and division of labor and second, by lowering the effective costs of service inputs to industrial production. The increase in intermediate demand for services emphasizes the role of increasing connections between manufacturing and services. Aggregate final demand appears to be the driving force to services’ employment growth balanced by enhanced labor productivity. The overall growth of the service sector in the economy is accompanied by expanding and modernizing banking, insurance, communication arrangements, facilities for tourism and transport, trade, etc. Therefore, the output of service sector is considered as having importance and the growth potential of the economy.
However, oft-cited facts and figures about services have created a perception that it alone can propel India to a growth trajectory of 10% and more. But should we be so complacent about service-dependent growth of the Indian economy? Can services alone drive India’s growth process on a sustained basis to a higher level? Would such service-led growth be desirable in light of objectives such as employment and equity and existing socio-economic conditions?
If India is to move to a higher growth path in a manner that is equitable, employment creating, and sustainable, then there must be a broad-based growth, across and within sectors.
India cannot grow by services alone.
It is imperative for us to move ahead of our hackneyed success stories…
Its time the labor intensive manufacturing sector takes off. India needs to put in more resources to make the traditional manufacturing base efficient and globally competitive. This sector has enormous forward and backward linkages in the economy that can benefit a whole spectrum of the workforce. India must emphasize and incentivize R&D; encourage good regulatory policies and labor reforms; provide opportunities conducive to entrepreneurship.
This is a journey of catching up; the journey will not be without its ups and downs. But, India is a juggernaut on the move!!!
