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Centrality of Agriculture to India's Economic Development

Indian agriculture faces a far more complex set of problems in the new millennium. They are however of a new genre. Our vision of agricultural growth in the new millennium is that it should be a means of achieving the broader objectives of food security, employment-led growth and poverty reduction.


Centrality of Agricultureto India’s Economic Development

Indian agriculture faces a far more complex set of problems in the new millennium. They are however of a new genre. Our vision of agricultural growth in the new millennium is that it should be a means of achieving the broader objectives of food security, employment-led growth and poverty reduction.


ndian agriculture has come a long way since the inception of planning in 1951. All along there was an almost obsessive concern of development policy with the attainment of self-sufficiency in food. This is perfectly understandable because we have lived with the nightmare of absolute shortage of foodgrains supplies in the 1960s, when the average annual imports of wheat hovered around three million tonnes. We survived through the munificence of the US, which supplied wheat to us under its PL480 programme. This donor-donee relationship was far from flattering, as revealed in the following quotation, reproduced by M L Dantwala, from the book Famine 1975! by Paddock Brothers, reflecting the perception of the US: “America will have to apply the classical medical ‘triage’ method. Like doctors in the battlefield trying to make the best out of minimum resources, she will have to decide which countries to save and which to sacrifice...Today India absorbs like a blotter 25 per cent of the entire American wheat crop. No matter how one may adjust present statistics and allow for future increases in the American wheat crop... it will be beyond the resources of the US to keep famine out of India during the 1970s. The reason? Of all national leaderships, the Indian comes close to being the most childish and inefficient and perversely determined to cut the country’s economic throat.” The moral: If other more deserving countries are to be saved, India must be sacrificed.1

The founding fathers of the Indian Society of Agricultural Economics had in their wisdom inscribed in the Society’s logo the following motto: “Dhana Dhanyam Vipulam Bhavatu”, or, “Let there be surpluses of wealth and foodgrains”. History has proved that their judgment was far more percipient than the American perception reflected in the statement quoted above. Thanks to the green revolution, India attained self-sufficiency in foodgrains in the 1970s and what is more, has emerged as a major exporter of foodgrains in more recent years: Exports of rice and wheat soared to 10 million tonnes in 2002-03.

The Economic Survey 2003-2004 exults in this achievement: “Agricultural exports increased from $ 5.9 billion in 2001-02 to $ 6.7 billion in 2002-03...The exports of foodgrains (rice and wheat) have picked up considerably in recent years accounting for around 20 per cent of the agricultural exports. The government’s special efforts to encourage exports of foodgrains in recent years through grant of World Trade Organisation (WTO) compatible subsidies has placed India as one of the leading exporters of foodgrains in the international market.”2

An Effective Demand Surplus

This transformation of Indian agriculture from a chronically shortage sector to the so-called “surplus” sector, would have made a fascinating story, if only the problems facing Indian agriculture had evaporated, as it were, along with the foodgrains deficit. Alas, this is not so. Indian agriculture in the new millennium faces a far more complex set of problems though they are of a different genre. For instance, India remains the abode of the largest number of underfed and undernourished population in the world. According to FAO, over 225 million Indians remain chronically undernourished. How does one explain the apparent paradox of the co-existence of large “surpluses” of foodgrains with a sizeable underfed and under-nourished population? The export surpluses of foodgrains, of which the Economic Survey boasts, is an effective demand surplus and not a genuine surplus. It was tragic enough for a predominantly agricultural economy not to be able to produce in the 1960s adequate quantities of foodgrains to meet the domestic consumption requirements of the population: it is perhaps a greater systemic tragedy today that even when we are able to produce adequate quantities of foodgrains, we are unable to ensure that the grains so produced do reach the needy. Food security in a meaningful sense is ensured by not merely producing an adequate quantum of foodgrains but also by ensuring their access to all those who are in need. This is the new dimension of food security, which development policies are now called upon to address in the new millennium.

Attainment of food self-sufficiency, even in a technical sense, is admittedly an important landmark in the history of growth of Indian agriculture, but this has not meant the dilution of problems facing Indian agriculture. Problems of agricultural growth and rural development in general continue to remain, in the new millennium, as daunting as they were in the 1950s. One major difference is that agricultural sector today faces a host of what we might call second generation problems on which we would seek to focus.

As is well known, the share of agriculture in the total national income declined sharply from some 50 per cent in the 1950s to around 20 or 22 per cent in more recent years. Of course, this phenomenon of declining importance of agriculture is part of the process of development itself. The more developed an economy, the lower the contribution of agriculture to national income. In developed economies like the

Economic and Political Weekly January 7, 2006 UK, for instance, agriculture accounts for hardly 5 per cent of national income.

What is perhaps unique about the Indian agricultural scenario is that despite the secular decline in its contribution to national income, the centrality of agricultural growth to Indian economic development cannot be de-emphasised. In the Indian economy, the importance of agriculture transcends its primary function of mere crop production. Agriculture continues to hold the key to higher GDP growth, employment expansion, reduction in poverty, and the equitable distribution of income. The larger than sectoral role of Indian agriculture stems from the basic fact that a large proportion of the population, some 60 per cent, continues to depend on agriculture for its livelihood. That is, despite the sustained growth of GDP of some 6 per cent in recent years, the non-agricultural sector has not been able to siphon off surplus labour from the agricultural sector. Nor is it likely to do so in the medium term. This is in sharp contrast to the empirical experience of developed countries. It is this Indiaspecific configuration of circumstances which places agricultural or rural development in general in a pre-eminent position in the development agenda.

Oblivious of these broader dimensions of agricultural growth, Indian policymakers of the 1990s, in the first flush of enthusiasm of liberalisation and globalisation of the Indian economy, neglected agriculture, with disastrous consequences. In part they were inspired by the market theology of the IMF and World Bank. Thus, the 1990s was a lost decade for agriculture: the rate of agricultural growth decelerated, investment and credit flow to the3 rural sector shrank, and the rural credit delivery system became practically moribund. There was disenfranchisement of a large number of small farmers, as reflected in the sharp decline in the number of small borrowal accounts of banks. Manmohan Singh, the prime minister, admits: “what is alarming, however, is that there seems to have been a neglect of agriculture in the past decade”.4

If we have to ensure a sustained growth of the economy of 7 to 8 per cent per annum in the coming years, agricultural growth will have to be stepped up to say, 4 per cent. In the 1990s, agricultural growth was less than 2 per cent per annum. The Tenth Plan assumes a growth rate of 4 per cent for the agricultural sector, but in reality, the average annual growth rate for the first three years of the Tenth Plan was hardly

1.5 per cent.

The imperatives of accelerated agricultural growth in the coming years are thus obvious. Perhaps what is more daunting is that economists would need to address the second generation problems, which are far more complex. Merely ensuring faster agricultural growth is not enough, important though this objective is. The character of such growth is of equal concern. Our vision of agricultural growth in the new millennium would have to be that it should be a means of achieving the broader objectives of food security, employmentled growth and poverty reduction.5

Our strategy for future agricultural growth should be anchored in this broader vision. The twin objectives of accelerating agricultural growth and ensuring food security for all at the household level – we will discuss this aspect presently – warrants a new paradigm of development which is pro-poor, and pro-environment in terms of sustainability of growth. This strategy should ensure that higher growth is accompanied by a narrowing down of disparities in regional growth and of productivity differentials among different farm-size groups. This, in turn, implies that in future, greater emphasis should be placed on agriculture in rain-fed or dry regions, where there is concentration of poverty and food insecurity. Alongside large and medium irrigation projects, watershed development projects, both macro and micro, should be undertaken on a massive scale.

The issues underlying this strategy can be conveniently discussed under four broad heads: Food Security, Employment, Water Resources and Diversification of Agriculture.

Food Security

As mentioned at the outset, the transformation of the grain economy from one of acute scarcity into the so-called “surplus” situation should not obscure the fact that a sizeable section of the population continues to remain underfed and undernourished. In the context of this paradox of surplus foodgrains coexisting with an underfed population, statements like “The country is self-sufficient in foodgrains” are reduced to empty rhetoric. This brings into focus the question of access to food in terms of not only physical access, in the sense of mere availability, but also economic access to food. Looked at from the household point of view, therefore, food security would have to be equated with livelihood security. The only way by which a poor household could be empowered with the purchasing power to access food is by way providing a means of livelihood or employment, a subject we will discuss presently.

Recently, M S Swaminathan has added another dimension to food security. He defines food security as “livelihood security for the households and all members within, which ensures both physical and economic access to balanced diet, safe drinking water, environmental sanitation, primary education and basic health care”.6 Thus, providing drinking water for all has become an integral component of food security.

If it is possible to provide economic access to food to most of the poor, G S Bhalla7 argues that India may have to import foodgrains to meet our requirements, let alone seeking to export. In this context he makes a reference to China which, despite high growth in foodgrains production, has to import 12 to 13 million tonnes of foodgrains annually to meet its food and feed requirements.


If providing economic access to food through generation of employment is an effective way of ensuring food security to the poor, how does one go about expanding employment?

The current backlog of unemployment is around 9 per cent or equivalent to 35 million persons and this is far too high. Even if a 7 or 8 per cent GDP growth is sustained in the coming years, the organised sectors like large and medium industries including service sectors, IT sector, etc, can do precious little to clear this backlog and meet the demands for employment of the additions to the labour force. In other words, jobs generated autonomously by the normal growth process will fall far short of the requirement. The policy thrust will have to be thus necessarily on decentralised and broad-based growth. The focus will have to be on agriculture and allied sectors, like animal husbandry, fisheries, construction, tourism, small-scale industries (SSI), micro-enterprises, retail trade, and so on. Agriculture is used here as an inclusive concept, which would also cover development of waste lands and forests, and organic farming, with organic seed and compost preparation. The critical relevance of the rural sector for food security is thus clear.

Economic and Political Weekly January 7, 2006

The only asset that the poor have is labour and perhaps one way of empowering the poor to access foodgrains is through providing employment The National Rural Employment Guarantee Bill 2004 (NREGA) tabled in Parliament on December 21, 2004, was passed on August 23, 2005. The act seeks to provide guaranteed employment for at least 100 days per year, at the statutory minimum wage, to at least one adult per rural household, who would volunteer to do casual manual labour.8 One thing is quite clear. Since the bulk of the poor are in the rural sector, the objectives of this act make eminent sense. Such schemes provide a security safety net that is presently not available to the unemployed. Further, if planned imaginatively, such schemes could result in the creation of economic overhead capital: micro watershed development projects are a good example.

Water Resources

Historically, the strategy of treating irrigation as the kingpin of agricultural development has yielded the desired results. Food self-sufficiency was attained through this strategy. For example, today nearly 60 per cent of the crop output is accounted for by irrigated area, which forms about 30 per cent of the cropped area. This also explains why almost 90 per cent of public investment in agriculture was accounted for by irrigation.

In the new millennium, the critical importance of water transcends considerations of merely irrigating land, and agricultural growth will have to be necessarily water-centric.9 The present government has realised the critical importance of water: “Water is the lifeline of civilisations. We have been warned that the biggest crisis that the world will face in the 21st century will be crisis of water”.10 The need for integrated water resource management has now become the core of water-policy thinking.

This is in consonance with the trend the world over, even between the Second World Water Forum held in 2000 in the Hague and third held in 2003 in Kyoto, ideas had changed. Instead of compartmentalising “water for health”, “water for food”, “water for environment”, a more holistic goal is in sight: “Water security and sanitation for all, especially for the poor”. One of the 18 targets set under the Millennium Development Goals is: “to halve11, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation”. Thus the United Nations “Water for Life” decade 2005-2015 was formally launched on March 22, 2005. In fact, as we have already noted, M S Swaminathan defines food security as “physical, economic, social and ecological access to balanced diet, and clean drinking water for all and forever”. Viewed in this broader context, there is need for a decentralised approach to water harvesting and saving technologies, and equitable water-sharing methodologies based on soil and climatic conditions on the one hand, and sociological factors on the other.

Four interconnected programmes assume significance in this context: watershed development programme, renovation of all water bodies linked to agriculture, which have presently fallen into disuse, correcting the deterioration of public irrigation works, botably state canal systems, due to cumulative neglect of repair and maintenance over the years; and rainwater harvesting. Today, watershed development is seen as the principal strategy for holistic development of rain fed areas, though in the initial stages it was conceived mainly as a measure for moisture conservation and soil stabilisation. The new “Watershed Plus” approach to watershed development as spelt out in the Tenth Plan seeks to ensure convergence of all other programmes that promote economic activities and generate increased employment opportunity. The union budget for 2004-05 proposes a massive scheme to repair, renovate and restore all the water bodies which have fallen into disuse. Finally, rainwater conservation and harvesting has important implications for the groundwater crisis that India is currently facing, due to indiscriminate use of tubewell technology in parts of the country. Equally important is the need to promote water use efficiency. We need to promote micro-irrigation technology on a large scale through drip and sprinkler irrigation systems.

Diversification of Agriculture

Agricultural development should be considered as an inclusive concept: for instance, animal husbandry, horticulture, dairy development, fisheries, forestry and wildlife, plantations, soil and water conservation, food processing, storage and warehousing, drainage and flood control – all these impinge directly or indirectly, on agricultural development.

Diversification of agriculture should be viewed as part of the wider objective of rural diversification.

The livestock subsector is particularly important because its development would facilitate many marginal farmers – they form 60 per cent of operational holdings – crossing the threshold of economic viability. Fortunately, since the 1980s, this subsector has recorded a much faster growth than the agricultural sector as a whole. The share of the livestock subsector in the total value of output of the agricultural sector went on rising consistently to reach 25 per cent in the 1990s. This process of diversification has already been entrenched and likely to gather further momentum12 because of the more promising prospects of demand for livestock vis-à-vis crop products.

Small-scale agro-based industries offer ample scope for moving further in this direction. Historically, developing countries have promoted value added processing of primary products as a path to rural industrialisation. This has important implications for investment in agriculture. The recent committee on capital formation in agriculture has emphasised the need for capital formation for agriculture, in contrast to our conventional approach of capital formation in agriculture. To quote from the committee’s report: “As agriculture is getting diversified there is a need to not only augment but also restructure the pattern of investment in agriculture. Historically, the public sector has taken a lead in directing the growth and pattern of investment. We recommend that immediate steps should be taken to improve capital formation for agriculture in both public and private sectors. Otherwise, it may be difficult to sustain agricultural growth and rural purchasing power. Currently, irrigation accounts for the bulk of public investment (above 90 per cent). The new strategy of agricultural growth and diversification of agriculture from traditional crop cultivation to horticulture, etc, would require investment in cold storage, rural roads, communication, marketing network and facilities, and warehouses, etc. Simultaneously, efforts should be made to revitalise agriculture through the introduction of biotechnology and other innovations. This would require a substantial increase in investment in research and development for agriculture.13 Only such a broader approach can facilitate the achievement of the twin objectives of development, namely, accelerating growth of agricultural GDP

Economic and Political Weekly January 7, 2006 and promoting equity through reduction in poverty.

In Conclusion

This rapid review of the new generation problems faced by Indian agriculture in the new millennium leads us to two important conclusions. First, producing adequate quantum of foodgrains is only a part of the story of self-sufficiency in food. It is also necessary to ensure that the food so produced reaches all the needy. Against this background, exporting foodgrains on a massive scale, we must realise, is a development atrocity. Our focus should therefore be henceforth on not merely accelerating agricultural growth but also on empowering more and more poor people with purchasing power to access foodgrains. Employment expansion in the rural sector is thus an ineluctable necessity.

Second, attention of the Indian policymakers should be drawn to the subtle change that seems to have taken place recently in development economics and policy. In the 1990s the market theology of the IMF and World Bank had greatly influenced public policy in many developing countries. The mindless pursuit of market-led growth strategies had diluted the development content of public policy. Indian policy-makers of the 1990s were no exception. It had become fashionable to argue that the poor must fend for themselves: food subsidies and input subsidies should be abolished. In fact, it was then argued that the entire mechanism of procurement of foodgrains and the public distribution system (PDS) should be dismantled. The recent UN report on development by Jeffrey D Sachs provides a welcome correction to this emphasis on marketled growth. By making the millennium development goals (MDGs) the focal point of public policy, the report has succeeded in bringing issues like reduction of poverty, eliminating of hunger, promotion of health, and education of the rural poor to the forefront of the development agenda.14 A direct attack on poverty had become an anathema to policy-makers during the market theology phase. It has once again become respectable. Not only government intervention but also a proactive role of government in tackling employment and food security has thus been now accepted even by the market theologists.

Reverting to India, the 1990s may have been a lost decade for agriculture but it is heartening to note that the development scenario has changed substantially in the new millennium. It was left to the United Progressive Alliance (UPA) government to restore the priority of the agricultural sector and of objectives like reduction in poverty and elimination of hunger: its National Common Minimum Programme (NCMP), announced in 2004, reflects this restoration. “Empowering the people, especially the poor, with universal access to education and health, and facilitating their full participation in the growth process through gainful employment will enhance their welfare. It will reinforce the growth process itself. This win-win strategy is the keystone of the economic policy framework of the Government.”15 The target of doubling agricultural credit in the next three years, recognising water resources as a critical factor in accelerating growth and ensuring food security, and the National Rural Employment Guarantee Act, 2005, are concrete instances in point. More recently, an ambitious Bharat Nirman programme has been conceived, under which one crore hectares of unirrigated land will be irrigated, over 60 lakh rural houses will be built and all villages with a population of 1,000 and above would be connected with roads. Such restoration of priority to agriculture and rural development should go a considerable way towards achieving the objectives of accelerating agricultural growth and reducing poverty.



[This is the edited version of a special lecture delivered on October 15, 2005 at the Asian Institute of Communication and Research, Neral.]

1 “Preface” to the Proceedings of the International Seminar on “Comparative Experience of Agricultural Development in Developing Countries of Asia and the South East since the Second World War” by M L Dantwala, Indian Society of Agricultural Economics, 1972.

2 Economic Survey, 2003-2004, Government of India, 2004, p 106.

3 For a detailed discussion, see ‘The New Architecture of the Rural Credit System’ by N A Mujumdar, Mumbai University, Mumbai, 2001; and ‘Resurrection of Rural Credit’ by N A Mujumdar, Bank Quest, July-September 2004.

4 ‘Second Green Revolution in Indian Agriculture’ by Manmohan Singh, Address at Agriculture Summit 2005, Economic Developments in India, No 89, 2005.

5 ‘Policy Framework for Re-orienting Agricultural Development’ by B M Desai, Indian Journal of Agricultural Economics, January-March 2002.

6 ‘Science and Technology for Sustainable Food Security’ by M S Swaminathan, Indian Journal of Agricultural Economics, January-June 1996.

7 ‘Globalisation and Agricultural Policy’ by G S Bhalla, Indian Journal of Agricultural Economics, January-March 1995.

8 ‘Rural Employment: Beyond Monetary and Fiscal Arithmetic’ by N A Mujumdar, Economic Developments in India, No 85, 2005.

9 ‘Risk Philosophy: An Enquiry into Risks and Uncertainties in Agriculture and the Role of Credit’ by N A Mujumdar, NABARD, Mumbai, 2005.

10 Budget speech of finance minister, P Chidambaram, delivered on July 8, 2004.

11 Water: A Matter of Life and Health by Maggie Black and Rupert Tolbot, Oxford University Press, New Delhi, 2005, p 240.

12 ‘Performance of Indian Agriculture with Special Reference to Regional Variations’ by S D Sawant, Indian Journal of Agricultural Economics, July-September 1997.

13 Report of the Committee on Capital Formation in Agriculture, Government of India, New Delhi, March 2003.

14 Investing in Development: A Practical Plan to Achieve Millennium Development Goals, UN New York, 2005.

15 Budget speech of finance minister, P Chidambaram, delivered on July 8, 2004.


Economic and Political Weekly January 7, 2006

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