Agriculture in India - The subsistance sector?

Agriculture is the largest economic sector and plays a significant role in the overall socio-economic development of India. Agriculture is the major source of income for about three-fourths of India's populations who live in villages. Agriculture is not only an important occupation of the people, but also a way of life, culture and custom. Most of the Indian customs and festivals are observed in consonance with agriculture seasons, activities and products. From Lewis's balanced growth model, we know that if supply of good to the growing economy cannot catch up with the demand of food, an economy has to spent a large amount of money to import food to feed the labors and have reduce the accumulation of capital. As indicated by J. Mellow: “It is in practice and in concept that it is possible for the agricultural sector to provide new productivity!" The agricultural sector also provides "investable surplus" and tax revenue to other expending sectors. The excess supply of labors in the LDCs reduces the bargaining power of the labors. As a result, their wages are assumed to be constant. Sustained growth in agricultural sector is necessary to enhance the rural livelihoods by increasing on-farm income and stimulating off-farm income. The importance of agriculture in the socio-economic fabric of India can be realized from the fact that the livelihood of majority of the country’s population depends on agriculture. The agriculture sector contributes only about 18 per cent of the total Gross Domestic Product (GDP) and 9.9% of exports, with more than 60% population dependence, resulting in low per capita income in the farm sector. A huge number of nearly 700 million people comprising nearly 125 million families continue to be engaged in agriculture and dependent on agricultural land for their livelihood. Indian agriculture has witnessed significant transformation over the past few decades. Liberalization of agricultural trade has resulted in increased globalization of Indian agriculture. The changes range from new entrants into the sector to new and improved technologies, to farming becoming more mechanized, to weather, soil and environmental changes, to new markets and demand, and most importantly to agriculture evolving from just a way of life to a full-fledged business — agribusiness. The reasons for these changes are also wider from the pace of the so called globalization and there by inter linking of economies, to the growth of population and the scarcity of food availability in the economy. These changes have unfortunately not been accompanied by changes on the institutional and policy front. Liberalization is not just withdrawal of the state from economic activities, but creation of newer forms of alternate organizations which enable the country’s agriculture and industry to face competition in the international market. Globalization raises many challenges and opportunities to the agricultural sector. Agriculture globalization has the potential to transform the subsistence agriculture of India into a commercialized one.
Despite India’s rapid economic development, over 70% of the population still lives in rural areas. Agriculture is the key employer with around 60% of the labor force, down from 70% in the early nineties. This compares with 44% in China (2002) and 21 % in Brazil (2004). In 2000-01, 67% of work force were depending on agricultural sector and contributed about 27% of national income. The decline in agriculture in the labor force has not kept pace with its decline in the economy. As shown in the following table, still about 60% of work force is depending on agriculture sector as on 2006-07, but the contribution of this sector to the real GDP of India had declined to 18%. This stickiness has been attributed to low labor mobility and slow growth in productivity in agriculture. If we compare the sectoral contributions of GDP in India between 2006-07 and 2000-01, we would be in a position to understand how quickly the contributions primary sector is dwindling. In 2000-01, about 67% of total work force was depending on agricultural sector and contributed about 27% of National income. But if we look at the position in 2006-07, the contribution of primary sector came down to 18% and still about 60% of population is depending on this sector. If we look the same with services sector, we can observe a different picture. In the tertiary sector, about 20% of work force were depending and were contributing about 50% of GDP in 2000-01. The contribution of services sector increased to 53% in 2006-07 and the dependent workforce also increased to 25% of total workforce in India. In other words, more than half of the income generating in the economy is accruing in the hands of less than one fourth of the workforce of the country. This is why the intensity of inequality in the country is increasing tremendously. In this situation can we say that the hyper economic growth that we are achieving is ‘inclusive’? Is this rapid growth of national income is generating purchasing power for each and every citizen of the country? Or at least to majority of the population of the country? How we can break this deadlock? If we are not rupturing this stickiness of growth process, where would be the target of existing growth policies are finally coming to rest? Look at the rate of agricultural growth through the introduction of various plans in India. From the following figure we can understand the path of both agricultural GDP growth and General GDP growth. For the simplicity of analysis the rates we took only from 5th plan onwards. Clearly from the 8th plan onwards, both the rates are showing opposite direction. During the 8th plan only we had introduced the new economic policy in India. Does that mean the new economic policy is aggravating the situation? Or, are we deliberately undermining the importance of agriculture for the sake of achieving higher rate of growth, thereby trying to achieve higher economic status among the world countries? Ok, the approach is well and good for the country’s image and which will definitely help us to boost up out foreign investments. But at the same time we should give more importance to the sustainability of the economy by including, all sections in the growth process, than ballooning the growth process within a short span of time which may become fatal as same as what had happened in South East Asian countries during the mid 1990’s. Sixty years after Independence and 10 Five-Year Plans later, Indian agriculture is still at the crossroads
Gross Capital formation in agriculture as a proportion to total capital formation has shown a continuous decline. This declining share was mainly due to the stagnation or fall in public investment in irrigation, particularly since the mid-1990s. If we look at the composition of investment in agriculture in India, we have generally been given to understand that government investment was significant in boosting growth in agriculture. Moreover, the role of government was not only to raise investment but also induce private investment in agriculture. Since 1980-81, there has been some buoyancy in private investment in agriculture. The rising trend in private investment probably reflects the improved incentives for agriculture and favorable change in the trade policy (Datt & Sundaram; 2007). But the important aspect is the private investment in agriculture is almost completely concentrated in the northern regions of the country. If we closely look at the share of agriculture in total gross capital formation in India, we can observe the very minimal capital between 5 to 7 percentage only is going in a sector which is depending on about 60% of total population of the country. Another major worrying aspect is the share of agriculture in total gross capital formation is on a declining trend

It is expected that “In every progressive economy, there has been a steady shift of employment and investment from the essential primary activities ….. to secondary activities of all kinds and to a still greater extent into tertiary production.” (A G B Fisher). As we stated elsewhere in the independent India there has been a tremendous shift of GDP in favor of tertiary sector. But the pertinent question is, did this structural shift in GDP share has an impact on the employment pattern or distribution of workforce in India? Interestingly the fall in growth of agricultural employment has not been accompanied by a rise in employment opportunities in the non agricultural sector. On the contrary, withdrawal of state support and reductions in state expenditure has made it difficult for the labor declared surplus in agriculture, to find alternative employment. In regions where agricultural incomes have crossed a minimum threshold, further increase in agricultural output is accompanied by labor displacement rather than greater labor absorption. Recent advances in agricultural technology have been more labor-saving, thereby making life more difficult for agricultural laborers who are looking for work. Changes in cropping pattern have also affected agricultural employment adversely. Not only has there been a shift away more sowing food grains to those of commercial crops, and to horticulture and floriculture, which require much less labor, many regions have simultaneously witnessed a shift away from crops which provided employment all the year round to crops which at best offered seasonal employment (Mitra: 2003). In the name of liberalization there is an increasing tendency to use labor-displacing technology in agriculture; Use of expensive and monetized inputs and a near non-availability of agricultural and other rural credit facilities for the small farmers make the situation looks bleak for the agricultural population of India, where majority of farmers are small and depends on subsistence agriculture.