Treatise 2010

The International Thought Challenge

Agriculture, and not services, is the warp and woof of the Indian economic fabric

Posted by Team Manfest On January - 9 - 2010

“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!!!

Topic 1
11 COMMENTS
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11 Responses

  1. EaglesSecret Says:

    Bird’s eye view

    The team argues, without substantive defence saving tautological clichés, that agriculture is the warp and woof of the economy. The team fails to explain the possibility that the services sector can drive the present and does little to reason the structural shift in the national economy towards the service sector. We believe that the service sector, carrying smaller volumes but driven by higher value, bolsters the present and will hopefully fuel an inclusive growth by exorcising the ills plaguing the agricultural sector.

    A look beyond the past

    If one studies the evolution of economies around the world a significant pattern emerges. Kongsamut (2001) conducted a study on 123 countries and showed that the sector share given up by agriculture as the economy matures goes into the service sector and the industry. As India inches closer towards becoming a developed nation, its growth trajectory can be likewise mapped to a shift in focus from agriculture to services and the industrial sectors, with services driving the growth. The fact that Agriculture and Manufacturing together account for over 60% of the economy of the People’s Republic of China is no doubt a telling revelation. This is not however India’s reality.

    Clearly the topic asks for what cements the present rather than what bound the past.

    Agriculture: Size alone matters?

    All the facts stated in the argument, carefully, stitched from the references mentioned, are irrefutable. The inferences however are highly parochial.

    Agriculture is fundamental for sustenance of an economy as is food for a human being. It is argued by the team that agriculture employs 60% of the population and hence its importance cannot be discounted while services sector may not have the potential to generate employment of this level. Herein, economists are also of the view that an economic distortion may result due to an increasing shift towards services sector, in the absence of service sector growth supported by proportionate growth of the industrial sector. In India, though the service sector has grown far rapidly, the manufacturing sector has grown more or less in tandem. These two sectors together have the potential to employ the millions of people who are not able to make ends meet with their reliance on agriculture alone.

    The team’s argument seems to be this: – Agriculture affects the largest section of people in this country on multiple fronts. Ergo it is the warp and woof of the Economy. This line of argument is tenuous because every sector is ultimately judged by its contribution to the economy. The Service sector contributes the highest in terms of sheer numbers while agriculture contributes the least. This is reality and there is no running away from it. As brutally objective as this arbitration may be, it presents the most disinterested premise.

    Volumes alone cannot drive the economy nor can they be used as incorrigibly holier than thou. Manufacturing, Agriculture and Services are intricately linked and it makes little sense to speak of one sector in a silo because of the volumes it controls.

    While agriculture is imperative for the self sustenance of the economy, the future calls for productivity improvements via mechanization and improved technological applications, both of which would further reduce the dependence on manual labour. India’s fast mushrooming service sector would then employ those dependent on agriculture for their livelihood. The report by the National Sample Survey Organization is already a case in point which throws up a startling fact wherein it was found that 60% of the services sector units are located in rural India in 2006-07.

    Rhetorical fallacy

    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?

    In reference to the snippet from the team’s argument, Complacency is hardly the word for a superpower in the making and the answer is a resounding no. Growth across sectors is imperative for a sustainable economy but the role for services is clearly laid out to be the engine of future development. The team stands on weak footing by failing to consider both sides of the coin here.
    Once upon a time in India

    It is not our argument that Agriculture cannot be the growth driver of an economy. There have been multiple countries whose progress has solely rested on the fruits of Agriculture. This is however not the case in India.

    This nation found its niche in Services which has grown exponentially in value in less than a decade. There is a possibility that if the Agricultural sector had been cured of its plague, it could have been the most valuable sector of the economy. India could have been the “food basket of the world”. But reality is not about “could have been”. We are living in a services and manufacturing based economy which has driven our progress as much as has indexed our significance in the world order.

    Large swathes of the populace are indeed involved in Agriculture and there is little doubt that every conceivable measure needs to be taken to revive it. The value generated by Services and Manufacturing is indispensable for the Nation’s growth. It is in the Administration’s best interest to channelize this value to revitalize a diseased Agricultural sector. After all, a seed can never be sown in a call centre. But for India, it’s too late for the Harvest to be the lone emperor.

    We are a Juggernaut and we have moved on. We chose to put our best foot forward and that has aided our pace. It’s time we stopped blaming our pace and instead use that acceleration to our benefit.

    Posted on January 11th, 2010 at 4:15 pm

  2. Gotama's Men Says:

    The statements about India’s farm output and its position among other countries speak very little about the economic importance of its agriculture sector when compared to its own services sector. The comparison is ill-drawn and should have been between sectors and not across countries. In fact, an almost-saturated cultivable area presents only productivity as a growth avenue for agriculture. This is in line with how most other developed economies have achieved agricultural growth – by mechanizing and corporatizing agriculture and by increasing yield. Public investments in agriculture have borne fruit but with little contribution to GDP, one cannot expect to engage a vast population in it. Agricultural research and private investment are going to be the key for any future growth in this sector. However, they cannot be expected to perform miracles by increasing efficiency to levels that can sustain the current agricultural work force.

    As mentioned in the defense, a disproportionately large section of the labor force (60%) involved in generating only a small share (17.2%) of the GDP is an indication of the general low standards of living of the people in this sector. Contrasting this with similar numbers from a developed economy like US (Share in GDP=0.9%, Share in Labor Force= 0.6%) provides some insights into the endemic inefficiency of the agriculture sector in India. While the public motivation driving economic development is the eradication of poverty, this inefficiency has been the primary reason for low income generation for a majority in the work force. Hence, a huge chunk of India’s population hasn’t been lifted out of poverty, leading to persistent social inequity. Given this, the agriculture sector is more of a burden than the anchor of the Indian economy.

    Studies of production relations in the country side in the past two decades indicate a migration of the rural farm work force to unorganized and organized light and medium industry. Income guarantees and faster growth have attracted vast sections of this populace to join these industries. Moreover, the current statistics on agriculture hides beneath the surface a vast majority of people who are employed seasonally or perform limited ancillary activities leading to the coinage of the term “hidden unemployment”. The services sector has been able to absorb a large pool of this work force sporadically and in specific geographical pockets or industries. This has been accompanied by large scale urbanization of the Indian peasantry in the past fifteen years. With such trends firmly in place and only continuing to grow, all talks about providing a thrust to agriculture have been about evolving policy praxis for easing this transformation and not reversing it.

    Moreover, the perennial land management problems thrown up by the green revolution’s hastened adoption of new cultivation techniques raise serious doubts about the sustainability of current crop-raising techniques. Reliance of fertilizers and chemicals to substitute for increasing soil salinity arising from amplified irrigation, reduced diversity of crop varieties and genetic modification aimed at calorific increase all continue to bother advocates of natural and sustainable agriculture. This further dents the defense’s claims.
    The other main assertion that growth in agriculture is essential to sustain the growth in manufacturing and services falls completely flat on observing the growth statistics of the past two decades. With a slowing agricultural growth rate at almost 1.7%, the economy propelled itself through growth in the other two sectors. It should be noted that the share of exports in services played a huge role in making this happen as the mentioned period witnessed an astronomical growth in service exports. This further led to increased disposable income and generated latent demand for the domestic services sector.

    Overall, the defense is fraught with inconsistencies about the role of agriculture in the economy. While it hails it as the sheet anchor of Indian economy at one place, it talks about it as a mere contributor at another place. The claim about the service sector in India having better performances even during the colonial period raises questions about what exactly the service sector constituted in those days and how many people it actually affected. It is also one of the many instances, where the authors seemingly take wavering stands, first upholding the service sector to be the engine driving the economy, and then immediately reverting back to the claim that agriculture is the backbone of the economy. Some of the reasons listed to this end are also feeble and lack evidence. For example, globalization is intricately connected to agriculture in India not because of the socio-cultural role it plays in the lives of people here, but simply because of the large number of people it employs. In fact, there is no evidence of people seeing agriculture more than a mere profession, with a larger-than-life meaning. The recent suicides of cotton farmers in Vidharba and similar incidents are actually evidence of just the opposite. It must also be noted that in this specific case, the suicides were caused by the fall of cotton prices, as a direct result of globalization, showing the negative impact it is having on the agriculture sector. The growth of the agri-biotech industry as an argument for agriculture driving other sectors also lacks girth, since the number of people in this industry is a miniscule fraction of the work force.

    The defense’s use of Eric Hobsbawm’s words about the reduction in the size of peasantry worldwide sadly doesn’t apply much to a country like India. Hobsbawm, in his numerous works on the role of peasantry in social formations and the production relations that paved way for it, contents himself with mostly the European peasantry. The existence of such a peasantry in huge numbers in India and other Asian countries only shows the pathetic development of agriculture as a livelihood for these people in the past 50 years. Also, while on one hand the defenders quote a Marxist historian like Hobsbawm, they also proceed to invert causal relationship between production relations and the emergence of related socio-cultural phenomena. In most 20th century studies of production relations, it is the former which is seen as causing the latter and not vice versa. This inversion comes handy to defend the role of agriculture in the economy even while it is contributing very little materially to the peasantry.

    Posted on January 11th, 2010 at 4:25 pm

  3. India Says:

    “No nation is permitted to live in ignorance with impunity”, thus proclaimed Thomas Jefferson. India too cannot afford to remain oblivious of the present and continue living in history. The power of nations today is not solely derived from weapons of war but economics of trade. Proclaiming agriculture to be the warp and woof of Indian economic fabric tends to lead us to the trap of indulging in romanticization of Indian peasantry as narrated in the colonial discourse of the Occidental.

    The article is an attempt to critique the topic of discussion.

    Decreasing Share in GDP and exports

    In 1947, the share of agriculture in GDP was 55% and employed about 70% of the workforce.[1] The phrase would have been apt to describe the Indian economy in those days but not now. Post liberalisation, on one side share of services in GDP has almost grown upto 64% in 2008-09, the share of agriculture has fallen to 16% employing nearly 60% of the labour force.[2] Certainly it points an indirect finger at poor productivity levels. Agriculture is the only sector where labour productivity dropped from around 10% of the UK level in the late nineteenth century to around 1% at the end of the twentieth century. Conversely services sector saw improvement in comparative India/UK labour productivity, from around 15% in the late nineteenth century to around 30% by the end of the twentieth century.[3]

    Going by the export figures we find that the share of agriculture has been declining[4]

    Stagnancy in Agriculture Sector—Link with Migrations

    In recent years the land per worker in agriculture has fallen and per hectare yields have stagnated. This situation translates into falling incomes. More and more people have migrated seasonally or otherwise from rural areas to urban localities. They have been mostly absorbed in the growing services sector.

    C.K.Prahalad opines that better standard of living would mean building 400 to 500 more cities where the populace needs to be absorbed in the services or the manufacturing sector.[5] Farming sector has been at the receiving end during the era of LPG (Liberalization, Privatization, Globalization).They need to be moved to more gainful forms of employment. The growth story needs to be made more participative as disadvantaged sections could lead the state to anarchy. Naxalism and other insurgencies are already taking a heavy toll on the socio-economics of the state.

    The Case of Agri-Biotech

    Team 1 mentions that agri-biotech sector has been growing at a whooping rate of 30% for the past 5 years.[6] This growth of 30% till 2006-07 in this particular sector might sound impressive but needs to be analysed with respect to overall GDP. The agri-biotech sector logged Rs 926 cr sales in 2006-07[7] when the GDP was 37,79,383 cr and contribution of agriculture and its allied services was 6,86,044 cr. Clearly, the agri-biotech sector contributes 0.13 % in agriculture and 0.02% towards total GDP. [8] The rate of growth of such a sector cannot be used to overshadow the bitter truth that the agriculture sector’s share in overall GDP has been consistently falling.

    Inefficiency in Agricultural Chain and Importance of Services Sector for Agriculture.

    Inadequate storage infrastructure means that nearly 30 per cent of the country’s fruits and vegetables are wasted in transportation.[9] Indian agriculture also suffers from the problem of excessive dependency on monsoon, usurious money-lenders, poor technology, etc. Arranging organised credit, knowledge about better market access, efficient transportation, insurance, high quality research, etc are important spheres where services can play a major role in the revival of the agriculture sector itself.

    The agriculture sector is mainly driven by rural population which lives within several resource constraints. For a better life, livelihood and overall development of the participants in agricultural sector, services sector has to play an important role. Apart from the economic aspect, services like health, communication, education etc. are important from a humanitarian perspective.

    Services Sector – A Case of Comparative Advantage

    A large number of skilled professionals have spun the Indian growth story. Going by the Ricardian notion, India has a comparative advantage in providing skilled labour at low prices. Our success story in the outsourcing domain is an illustration to this fact.[10] India should use this comparative advantage to increase the value of its exports by increasing the production of high-tech and skill intensive goods.

    India as a Knowledge Economy

    India is poised to become a knowledge economy. The youth are more oriented to be absorbed in upcoming sectors like retail services, KPOs, financial, legal and medical services. The participation in the agrarian economy is bound to decline. The services sector is set to grow at an astounding pace of 11.3% owing to a huge demand of skilled workers in such sectors.

    Services Sector – The Magnet of Investment

    India is one of the largest recipients of FDI in the world mainly due to its booming services sector. As UNCTAD estimates, service industries now account for more than 50% of all FDI. Also, increased cross border trade foreign direct investment, cross-country mergers and international joint ventures have augmented the number of multinational service enterprises.[11]

    Conclusion

    Warp and woof refers to threads that run crosswise and form the base of the fabric. In context of the Indian economy, warp and woof would refer to the sector which apart from contributing significantly to GDP also supports and facilitates contribution across the sectors. Services sector has played that role by being central to the growth of other sectors as well as achieving remarkable growth in its own sphere.
    “As a child of today’s grows up and passes through the university becoming a doctor, engineer, accountant, physicist or poet, new industries would look forward to welcoming him. A child of a peasant would no longer necessarily become a peasant himself. The vicious circle of poverty and social humiliation will be broken once for all.”[12] Services sector has and is making the dream a reality for many fathers and sons of the other India or Bharat.

    Posted on January 11th, 2010 at 4:33 pm

  4. Kurukshetra Says:

    INTRODUCTION

    We intend to present our arguments against the topic, “Agriculture and not Services is the warp and woof of the Indian economic fabric”. The arguments are structured in two phases – the first phase is our view point based on our understanding and references. In the second phase we have provided counter arguments to what team-1 has presented.

    POINT OF VIEW

    Firstly, the service sector in India contributes to as much as 68.6% of the overall average growth in GDP between 2002 – 03 and 2006-07 (Business Portal, Indian Government), which is the highest among all sectors. Also, the service sector contributes to nearly 54% of the Indian economy and employs around 28% of the population. (Economy Watch), while agriculture with nearly 60% of the workforce contributes to only 18% of the GDP.This clearly etches the importance of service sector in supporting the agrilcultural sector and the inefficiency of the agricultural sector. In short agriculture is not a sustainable occupation in the longer run, since the production has been stagnant, despite an increasing population and large workforce. Secondly, the quality of agricultural output in India is lower as compared to Europe since Indian soil is less nourished as our civilization is much older and hence the agricultural output of India is used mostly for consumption by Indian populace and not export. Services on the contrary provide active possibility for future growth. The current scenario even from a numbers perspective is indicative of a second explosion in Indian services with indigenous firms actively ensuring high quality service protocols (Tilman, Cassman, Matson, Naylor, & Polarsky)

    In (April – September) 2009, the Indian economy achieved a high growth rate of 7.9% despite the decade’s sharpest rise in food prices. This is a classic example of how service sector has transformed itself as the warp and woof of the Indian economy, despite poor performance in the agricultural sector. Thirdly despite the global recession, the FDI inflow in India had doubled from 2007 to 2008 and services sector attracts highest FDI inflow. Foreign Direct Investment is a major source of credit flow in India and the service sector has attracted heavy FDI Inflow (Hindu). Fourthly for a future perspective, India needs to focus on developing into a knowledge economy. All developed economies move up the value chain from agriculture to manufacturing to services and become knowledge economies.

    COUNTER TO TEAM 1

    In this phase, we would like to present counter arguments to Team 1’s arguments.

    The team has contradicted itself by calling agriculture as ‘what used to be backbone…now stands as a competitor….’ and again later resort to calling it as ‘still to be a backbone’. We strongly opine that the clear state of agriculture is that of being one of the contributors for the GDP growth and not being its backbone.

    The point which emphasizes that the structural changes in the economies have made it unstable seems to be baseless. Post liberalization India has seen a stable GDP growth rate of more than 6% because of the emergence of the service sector compared to the earlier eras where the agriculture dependent economy was not able to maintain a consistent growth rate. 7.9% of growth was observed even in the quarter Jul to Sep 2009 when India recorded it’s worth drought in the past 5 decades.

    The very fact that Indian economy is majorly contributed by the services sectors in line with the sectoral splits of the developed countries like US where agriculture forms only a small part of the economy shows that India is moving towards becoming a developed nation, and favors what we have intended to say. Like all developed nations, we strongly feel that India must move up the value chain from agriculture to service sector.

    The team has laid emphasis on how agriculture influences the socio-cultural life of people. In our opinion, this is outside the purview of the debate and has not been substantiated with evidence. The topic concerns only the economic fabric of India.

    The various statistics quoted about being firsts in agricultural sectors do not sufficiently corroborate its prominence in economical contribution. To clearly state nearly 60% of the people are dependent on agriculture and not employed. Even if we consider that the similar proportion of people are employed in the field coupled with the stagnant growth in agriculture shows only the inefficiencies and sub-optimality in the sector. In turn service sector has emerged as the savior to observe the growing labor force which cannot be sufficiently absolved by the agricultural sector.

    We completely disagree with the point that agriculture provides purchasing power to most of the population that boosts manufacturing and services growth. On the contrary the manufacturing and services give purchasing power to the person which in turn boosts up demand for agricultural products.

    Towards the end, the team mentions that “service alone cannot propel the growth of the economy”, which is pretty obvious and neither do we feel that way.

    Also the team seems to have mentioned the need for consolidating the labor intensive manufacturing sector, which is not of any relevance to the topic.

    CONCLUSION

    From the two phases of arguments that we have presented above, we strongly conclude that service and not agriculture is the warp and woof of the Indian economy. In the words of Dr. Abdul Kalam, by 2020 our employment pattern should aim at 44 percent in agriculture, 21 percent in manufacturing and 35 percent in service sectors. The displacement of 10 percent people from the agriculture sector has to be facilitated through skill enabling for undertaking value added tasks in rural enterprises so that migration to urban areas is reduced. Instead of person from rural areas going to urban towns in search of jobs in manufacturing and services sectors, PURA (Providing Urban Amenities in Rural Areas) will facilitate creation of employment in rural areas. PURA should achieve this by providing physical, electronic and knowledge connectivity to a cluster of villages thereby leading to their economic connectivity and prosperity.

    Posted on January 11th, 2010 at 4:51 pm

  5. Team Me, Myself & Chotu Says:

    Should we always follow what other say or do?

    For how long have the economists questioned the verity of an argument that puts per capita productivity as the leading indicator of the economic contribution of a particular sector? And lo we never fail to ruffle out figures of GDP and the sectoral contribution and make judgements. Ironically, this is just the beginning of a long journey that dwindles and flickers, but does not choose how and when to settle the argument between agriculture and services. Whoever said that the world or the supposedly better part of it (read U.S of A) was the benchmark to proliferate the intensity of the aforementioned judgements was weaving a shoe for his elephant, looking at the size of his own foot. This is an absolutely myopic representation of the larger view that may be borne out of the effective employment options, households served and the expansive economy that is the backdrop of the drawn comparison. To put it in perspective, thought leaders don’t work with examples; they establish them to supersede the existing ones. The views smell of colonialist mindset where we fail to judge the difference between a Roti and a ‘Double Roti’ (read Bread). If we pride our knowledge and the sources that have scientifically proven their veracity, we must be building our own models as well. And then the protagonists would be the antagonists, and we would not be complaining of the so called ‘Back Office’ profiles.

    Agriculture is a demand driver

    When we talk of developed and privatized economies, we fail to rub our memory even down to the recent past, where some of the ‘bestest’ bit the dust when we stood tall and strong. The agrarian economy has been a continuous and leading supplier of raw material and workforce to the services sector. The demand base that is talked about majorly comes from the rural sector which is primarily agriculture based. With the urban economies coming to saturation in terms of demand, it is the villages of India that the so called economy driver service sector is looking to. If an IT firm which creates software for a bank whose prime aim is to lend money and provide services to the rural sector, is it not the agriculture that is creating a demand? When the stock index of an economy fluctuates with the vagaries of monsoons, it is not wrong to say that agriculture is a thriving force for our country.

    Food: How can we even forget that?

    And the most important thing being agriculture sector provides the most important thing that a man needs after oxygen and water and i.e. food. If there will be no agriculture then can we thrive on services alone? Should Indians be living by eating code fragments? It is preposterous to say that services are the ‘woof’ of our economy, as our agriculture sector has also bailed us out on many occasions. Be it Darjeeling Tea or Basmati Rice, we were earlier known for our agrarian products before Infosys or Wipro came up. Who can forget the prized indigo and spices that was so much coveted?

    Posted on January 11th, 2010 at 5:00 pm

  6. XLent_warriors Says:

    Introduction

    The article says agriculture is the warp and woof of Indian economy as it provides us food and supports 55% of Indian livelihood. However, India, an agriculture based economy right from the beginning has been able to break out of its shackles of low growth mainly due to growth in the Services sector. In fact the income that the services sector has generated served as a catalyst for the growth of agriculture. This is substantiated by the fact that services sector has attracted the highest share in 2008-09 (22%) compared to agricultural industry (1.72%) 5. There has been consistent growth of services in the last decade which is not the case with Agriculture.

    Can India perpetually depend upon on agriculture?

    The article states all economies in the world are becoming services based economies. Services sector contributes 79, 77, 74 and 61% of USA, France, Denmark and India’s GDPs respectively4. India cannot perpetually depend on agriculture to boost its economy. Though India is a primarily agriculture based economy, if it does not change track, it will be overtaken by global economies.

    Heavy dependence on rain

    The article fails to touch upon the Indian agriculture’s dependence on rainfall. Due to global warming rainfall is becoming irregular. These factors imply that the returns from agriculture are getting increasingly irregular and risky. If India has a high share of agriculture as a part of its GDP, this will cause a lot of volatility in its growth. One cannot base an economy on such an unstable foundation.

    Impact of oil price

    The article is silent on the food distribution system’s dependence on crude oil. The fluctuations of oil prices causes an increase in transportation costs thereby posing a serious risk of inflation of food prices. The increase in food prices causes a reduction in consumption. This causes a reduction in the farmers share even though the crop is fetching a high price in the market. These external factors add on to the volatility of the returns in agriculture, and thereby affecting the sustainability of growth.

    State of the states

    The article does not throw light on the state of the states which depend on agriculture. Only few states like Punjab and Haryana have grown well due to agriculture. Even this is attributed to the usage of latest technology including laser levelers – a technology for field-leveling that ensures higher yields3. In most other states, agriculture has been a drain on the resources without producing good results.

    Initiatives of the Govt going in vain

    The article briefly mentions about the negatives of Government subsidies. Subsidies add up to enormous losses to the taxpayer. Moreover, because farmers are getting a good return for the crop, there is a risk of surplus production. A case in point is Japan which in 1950s gave subsidies and guaranteed prices to rice and farmers became mass producers of rice and even turning their own vegetable gardens into rice fields thus adversely affecting their production of other crops7.
    In spite of several initiatives taken by successive Governments like ‘Garibi Hatao’, agriculture has not been able to pull itself out of poverty. The number of farmer suicides especially in the states of Andhra Pradesh and Maharashtra speaks for itself.

    Farm Loan Waivers

    Even after 60,000 Cr of waivers agriculture is still not self-sufficient. Without the services sector, the money required to subsidize agricultural produce and waive farm loans would not have been available.

    NREGA

    Government has been trying to provide poor agrarian workers with other employment through NREGA which mainly focuses on non-agricultural work. It shows the inevitability of the dependence on services sector.

    Laggard in basic requirements

    Agrarian people have been languishing in poverty while others have been acquiring wealth at a quick pace. This has created two Indias as our Prime Minister refers to1. This has ever widened the gap between the rich and the poor. India today, is a paradox of growth with high growth in innovation and efficiency parameters while lagging behind in basic requirements like macroeconomic stability, health and primary education, etc2.

    Improvements in the latter will help India out of poverty which at 42 percent2 (people living on less than $1.252 a day) is more than twice China’s equivalent figure. China has managed to pull itself out of poverty mainly due to manufacturing sector improvements rather than its agriculture.

    Efficiency and employment

    The argument that services reduce the level of employment is a misleading one.

    Agriculture can be improved only by improvements in efficiency and innovation. If it becomes more efficient by reducing workforce involved in it, it will push agrarian people towards other jobs particularly services. Therefore, even if agriculture improves, it will still depend on increase in employment in services sector.

    Investment in research

    As the article points out the level of investment in agricultural research has been meager. The rich countries are known to invest more in agriculture than India. Indian agriculture cannot expect to be the driver of Indian economy if it lags in this crucial component.

    Services – the saviour

    Services on the other hand has generated revenues for our economy and helped agriculture indirectly. It is because of the scorching pace of developments in Services sector Government is able to foot the subsidy bills that agriculture is causing it year after year.

    Conclusion

    It is true that we cannot eat money and we need to grow crops. However, there is no denying that agriculture is a drain on our economy rather than a stimulator. India has consistently grown at a rate of 9% (GDP) per year chiefly due to services. This has come in spite of agriculture not because of it. Therefore, calling agriculture as the warp and woof of our economy is a fallacy.

    Posted on January 11th, 2010 at 5:12 pm

  7. Sugandha Says:

    The opposition has carefully referenced the conventional economic theories that propose the services sector as the key driver of growth in the Indian economy. However, the teams opposing the motion, have failed to see that these theories are based on the assumption that an economy graduates from agriculture to the manufacturing sector & finally to the services sector in the given order.

    India’s growth experience has been characterized by a decline in the share of agriculture in GDP and an increase in the shares of industry and services. Between 1951 and 2000, the share of agriculture in GDP fell from 58 to 25 percent, while the share of industry and the share of services increased from 15 to 27 percent, and from 27 to 48 percent, respectively. In the 1990s, however, the share of services in India’s GDP climbed by about 8 percentage points, as compared to a cumulative increase of 13 percentage points during 1951-1990. The share of the industrial sector, on the other hand, has been stagnant since the 1990s. As a result, the sectoral composition of output in India has come to resemble that of a middle income country, even though its per capita income remains that of a low income country.

    The case of India is hence unique and cannot be explained by citing the theories of Kuznets & Kongsamut. India should definitely not rely on agriculture to boost its economy but can it really jump on to the services sector by-passing the growth of manufacturing?

    Therefore, the crux of my argument is that – “manufacturing and not agriculture or services, has to be the warp and woof of the Indian economic fabric”. I derive my logic solely from economic models and empirical data.

    The Major Pointer – Share in Employment:

    It is true that agriculture cannot be the driving force but is services sector the right driving force?
    Clearly not, for it has a high growth rate but has failed to alleviate India to the status of even a middle income nation in the past 30 years. It becomes clear from the following FACT: while the thrust of economic activities in India has shifted from agriculture to services, the same is not true for employment figures as well. While the share of services in our GDP has increased from 40% in 1965 to roughly 65% in 2008, its share in employment has remained stagnant between 20%-25% of the labor force. Clearly, service sector has lagged behind in terms of employment generation and has failed to create enough jobs in the economy.

    The Economic Rationale:

    As an economy matures, the total factor productivity growth rate may slow down considerably if the economy is driven by services sector rather than the manufacturing sector. This is because many services are inherently labor intensive, making it difficult to achieve productivity gains by substituting capital for labor.

    This view has been empirically tested in the context of the US economy by the Federal Reserve Bank of Cleveland in 1992. Services have historically had a much slower rate of productivity growth than the goods-producing sector. Multifactor productivity growth, which is a measure of the joint productivity of labor and capital, averaged only 1.4 percent in the service sector in USA from 1948 to 1987, but in the goods producing sector it averaged more than 2.1 percent. Therefore, productivity slowdown maybe the result of unbalanced growth – a rapidly expanding service sector with relatively small productivity gains combined with a slow-growing manufacturing sector, where productivity growth is stronger.

    Such productivity differentials form the basis of the ‘cost disease’ hypothesis of services propounded by Baumol (1967). Higher productivity in industry raises wages in services sector, at a rate more than the productivity growth, leading to a chronic tendency for prices of services to increase relative to goods. In view of the post-1973 productivity slowdown in the US, increasing share of service sector in the US economy has been regarded as an area of attention. This is the experience of many other nations as well that rely disproportionately on services (Triplett & Bosworth, 2000).

    Conclusion:

    Clearly, our nation must stop depending on low value adding activities like agriculture but at the same time we must understand the make-up of our economy. We cannot need a flourishing services sector that relies on highly skilled labor (primarily MBAs, engineers, doctors & English speaking graduates) and leads to wage inflation on one hand and aggravates unemployment on the other hand.
    We need a robust manufacturing sector that can absorb the surplus labor of agriculture and provides impetus to the economy while keeping unemployment and inflation under arrest.

    Posted on January 17th, 2010 at 3:14 am

  8. jim Says:

    Good information here. I enjoyed reading this and can’t wait for more. Keep up the good work.

    Posted on January 23rd, 2010 at 9:32 pm

  9. Team Manfest Says:

    “The essential foundation or base of any structure or organization; The expression, used figuratively since the second half of the 1500s, alludes to the threads that run lengthwise (warp) and crosswise (woof) in a woven fabric.”

    Warp and woof refers to the basic thread running through the economy, the thread which keeps it together and which provides the groundwork for it to grow and develop. According to this dictionary meaning of the phrase ‘warp and woof’ agriculture is without a doubt the warp and woof of the Indian economic fabric.

    Agriculture is called the ‘warp and woof’ not because of the huge numbers it employs but because Indian economic dependence on agriculture is not one-dimensional; it is multi-dimensional and multitudinous touching all faces of Indian lives. It has for long been the forte of our economy and the only source of living for millions. It is still where the aptly christened ‘bottom of the pyramid’ lies.

    Agriculture as a sector has not only made our economy grow but also provided the demand and facilitated the growth of other sectors be it through machines required or retail or even services like e-choupal and procurement and distribution services.

    ‘Jai Jawan, Jai Kisan, Jai Vigyan’

    As the quote goes exemplifies the importance of agriculture and peasantry in our country.

    Agriculture is a sector which can play a big role in sustaining the future growth of our economy. Also it is a sector which is least exposed to the vagaries of the world market and so the safest in the same sense.

    The problems with which the Indian agricultural scenario is fraught in present times are many but this in no way undermines the importance of the sector and the role it can play in the growth saga of the country.

    The share of agriculture is dismal in the GDP of the Indian economy in the present scenario. Comparison with other countries undoubtedly provides us an insight into the startling inefficiencies of Indian agriculture but we also need to consider the fact that these countries had similar statistical ratios as India has today, in the first 60 years of their independence.

    Although the production has been stagnant but this does not in any way mean that agriculture is not a sustainable occupation in the long run. The problem of low productivity is because of fragmented holdings, lack of infrastructural facilities, extremely low investments and non-mechanization of farms. Significant improvement in productivity through proper application of technology is the need of the hour. The advent of the country on the path of becoming a knowledge economy accentuates the need of new technological advancements and applications in the field of agriculture.

    We need to break the shackles of low growth and ensure that agriculture does not become a vicious circle of poverty and social humiliation for the peasantry. We need to remember that the death of peasantry would be synonymous to the death of one of the most vital organs of the country.

    We need to take sufficient steps to grab the bull by its horns and espouse proper remedial measures only then can we be successful in a noteworthy way in solving the problems of the sector.

    On the other hand the emergence of services as the most dynamic sector in the Indian economy has in many ways been a revolution. However, as stated in a report by Gordon, the relatively jobless nature of growth in the Indian services sector underscores the importance of industry and agriculture also growing rapidly.

    Even though the service sector is driven by high value but it carries very small volumes and the possibility of a significant increase in its share of employment is very low.

    Services has indeed accelerated the pace of the development of our economy, but agriculture is what got it started. It fuelled and facilitated the nascent years of the Indian economy and this makes it the basic foundation of our economy. Services has brought the giant elephant to the move but it is agriculture which provided the nourishment to the baby to grow into the giant it is today.

    But another fact which we seriously need to consider is that agriculture can in no way sustain the current agricultural work force which is where the manufacturing sector can play a big role as it has huge employment potential, as in this regard both agriculture and services take a backseat.

    In our country growth in agriculture is imperative for a holistic growth in the country. Even though our economy has been witnessing tremendous growth rates predominantly in services in the past years but this growth is not inclusive. For the economic development to trickle down to all the sections of the society, agricultural growth and its significance can in no way be ignored.

    The comparative advantage which India enjoys in providing skilled labor at low prices is an often told saga in itself but along with this there exists another advantage which the country enjoys, the advantage of being home to a soil which can grow an enormous variety of foods and crops, the potential of which is still left untapped.

    If we try and resolve the problems in the agricultural sector only then the idea of being nicknamed the ‘food basket of the world’ won’t be a utopian concept.

    We also need to remember the fact that for a country to develop in a holistic manner no one sector can substitute the other. The need of the hour is growth; sustainable and inclusive growth in all sectors agriculture, manufacturing and services, one supporting, boosting and facilitating the other; not at the cost of the other.

    Only then can The Indian success saga become the reality of India in a true sense.

    Posted on January 25th, 2010 at 2:52 pm

  10. IndianIdiots Says:

    Great post dude. Please post more of this kind of posts.. //IndiaRock

    Posted on February 3rd, 2010 at 11:11 pm

  11. Bill Simmons Says:

    You are absolutely right, we have to change our way of thinking in total.

    Posted on May 30th, 2010 at 12:51 am

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