Farm sector holds key to next phase of India’s economic growth

Lack of investment in agriculture and the small farm units are sources to poor productivity, which offers an opportunity to push the farm productivity by 100% to bring it at par with the global average

Foodgrain production target

India’s growth trajectory has been unique. After the opening up of the economy in 1991, India has witnessed one of the fastest phases of growth in its recorded history. In 1991, agriculture used to contribute about 34% of the GDP. Since then, agriculture’s share in the GDP has been coming down gradually. While the economy has been growing in the range of 4-12% during the last 32 years, agriculture has grown only at a CAGR of ~1.6% during this period. Given that agriculture still employs 42% of the workforce (down from nearly 65% in 1991), a contribution of only ~16.8% in the economy reflects the disparity that the society and economy witness on account of this dependence.

The situation in the other agrarian economies of Asia namely China, South Korea, and Vietnam was not very different from India during the early 60s. All these economies, however, have transitioned from being agrarian economies to industrialised and largely urban countries since then. This became possible primarily on account of a massive push towards manufacturing and associated services-based opportunities. While manufacturing and services grew faster, the rate of agriculture growth was also good and there was a remarkable improvement in the agricultural supply chain efficiency during this phase. This ensured that while there was a remarkable shift in the workforce from agriculture and farm labour to manufacturing and services, the disparity between the earnings of farm workers and others didn’t widen. Unfortunately in India, continued dependence on agriculture for work camouflages the hidden unemployment. This has also resulted in the income disparity between the farm and non-farm workforces.

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On the positive side, farm productivity has been continuously growing in India albeit at a slower pace. This has ensured that there is not only adequate food for the local population but also an all-time highest agriculture export of ~US$50 billion in FY2021-22, a 20% jump from the previous year. However, while India is one of the highest producers of paddy, wheat, maize, sugarcane, potato, and banana – our productivity at the farm unit level is still at nearly 50% of the global average for all these crops. Lack of investment in agriculture and the small farm units are the key reasons for this – but this also offers an opportunity to push the farm productivity by 100% to bring it at par with the global average. If pursued with optimal investment in farm mechanization and appropriate technologies, this process can enable a massive farm and rural churning over the next decade.

A doubling of the farm output would not only offer surplus for exports – but would also push the local food-processing, manufacturing and associated services in a significant way. Apart from offering a better income for farmers, this would also enable more employment and better earning for the participants across the whole agriculture value chain. In India, farming offers a multiplier of 3.4 – which means that an increase of agriculture GDP of 100 helps other sectors associated with agriculture to grow by an incremental 340. A jump in the farm output would ensure a massive multiplier effect across the economy. The multiplier effect from increased farm output comes primarily from the storage, logistics, processing and distribution related opportunities. We have witnessed the impact of multiplier effect from increased farm output in China, Vietnam and some European countries in the past.

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On account of low contribution to the economy due to low farm productivity and earnings, the rural areas are no longer seen as the production centers of the economy. With improved farm productivity and with adequate surplus availability for processing and exports, this would change. The rural areas would become production centers with agri-based processing, storage and other allied services offering employment to a large number of people. We have already witnessed similar effects in pockets where such investments have been made. Agricultural clusters of Nasik and Sangli in Maharashtra, Belgaum, Hubli and Krishna Valley basin in North Karnataka, and horticulture clusters of Chittur in Andhra Pradesh offer clear anecdotal evidence of this phenomenon. The underdeveloped areas of the northern and central India (Bihar, UP, Jharkhand, MP, CG, Rajasthan, WB, Odisha, etc.) alongside the northeastern state have also witnessed similar such experiences in the recent past. Maize cultivation has been a great success story in the Koshi basin in Bihar. West Bengal has witnessed a surge in its horticulture production in the recent past. Sharbati and other high value wheat varieties have displayed similar result in the Narmada valley of MP. However unlike other states, Bihar, WB and MP have not been able to harness the benefit of productivity gain for generating the multiplier effect in the economy as much. Very small quantity of maize grown in Bihar is currently being processed locally and this is an area that needs immediate attention of the policy makers at the state and the central level.

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However, each such story offers me the hope of agriculture and the rural economy rennaissance in the coming decade. This may not necessarily mean a significant jump in the share of agriculture in the overall GDP – as we expect manufacturing and services to continue growing faster than agriculture. However, this would mean a better farm income for farmers, more investment in agriculture, and the emergence of rural areas as production centers. Overall, this would be a good outcome for the country and the economy.

(The author is the Chief Executive Officer of BSE e-Agricultural Markets (BEAM), a BSE group Company)

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