Economics & Politics / Rural India

Indian Agriculture Sector: Macro Overview

Indian Agriculture Sector

Things seems to be picking up at micro level for Indian Agriculture as this Reuter report of today indicates

But lots more needs to be done to focus on & achieving a constant decent growth rate for Agriculture sector in India.  Lets take a macro look at the Agriculture sector of India.


  1. Declining share of agriculture in GDP is widening rural-urban income disparity
  2. Agriculture’s share in total plan expenditure declines to 3.5% in 2009-10 from over 5% during 2005-08
  3. About half of the farmer households are in debt to continue with farm activities.

Despite poor performance of the agricultural sector, India’s gross domestic product (GDP) has grown at nearly the projected rate in the past years.

The loss of agriculture has largely been compensated by higher service sector income; Service sector now contributes 60% to India’s GDP. Whether this indicates a shift in relative importance of economic activities as suggested by modern growth theory may be a debatable issue, but what is significant is that the decline in the share of agriculture in GDP will reduce the fluctuation in its growth figures. After all, the success of agriculture in India still depends heavily on the vagaries of monsoon and thus, a bad monsoon often spoils the growth target.

The share of agriculture in GDP has declined is not a new thing

It’s been the story across countries. What is new is the boost it got in the 1990s as both the industry and the service sector growth were prioritised in New Delhi’s reform agenda at the cost of agriculture. The share of agriculture and allied activities that came down from 35% in the early 1980s to about 32% in the early 1990s nose-dived in the reform era – down to 25% in 2000-01.

The rate of decline in agriculture’s share was even faster in the second phase of reform.

Between 2000-01 and 2010-11, the share was down by a huge 11 percentage points. The food grains production in absolute terms too has not increased significantly during the period resulting in a decline in per capita availability of foodgrains – down from about 172 kg a year in the 1990s to 162 kg in the last decade.

The decline in per capita availability and the resultant supply-demand mismatch of foodgrains often inflate food prices as has been the case during the past two years. The government uses fiscal measures or imports foodgrains to soften prices, but in the meantime, the poor in India either cut their food intake or fulfill it at the expense of other daily necessities.

The fall in agriculture’s relative weight in the economy is a part of the development process.

Indeed, the question is not how or why the share is declining, but how does this transformation impact the lives of the rural people? More importantly, has higher growth in the service sector or industry succeeded in reducing the dependence of rural people on agriculture? Apparently, it has not. According to latest census reports ~68% of India’s total population is still living in villages and the larger part of it is depending on agriculture for livelihood. That is, the growth outside agriculture has so far failed to generate employment opportunity for rural people.

This would mean that with the fall in agriculture’s share in GDP, the share of earnings of rural India too has declined and the rural-urban income divide has widened further. What is probably more disturbing is that as the growth of agricultural earnings fails to keep pace with the overall economic growth of the country, the sector faced with an increasing fund shortage. This shortage is met through borrowing. According to the National Sample Survey Organisation’s (NSSO) report, nearly half of the farm households in the country are indebted at various degrees. This first of its kind study was conducted in 2003 but there is no reason to believe that things have changed much since then. The news of suicidal death of farmers for failing to repay loans is still coming from different parts of the country.

Larger part of the indebted farmers came from the economically poor classes

Out of every 100 indebted farm households, 10 belonged to ST, 18 to SC and 44 to OBC. Their overwhelming presence in the list in itself is an indication of the reason for such massive indebtedness – the economic backwardness.

Farmers borrowed to meet their current farm expenses or capital expenses in agriculture and to meet basic consumption needs. According to this survey much of the borrowing was made to finance agricultural pursuits, some 37 out of every 100 indebted families borrowed to meet their current expenditure in farm business. The next two important purposes of loan were capital expenditure in farm business and consumption expenditure.

What is disturbing is that despite repeated commitments made by the government to free farmers from the clutches of the professional money lenders, they were the main sources of funds for the farm households. At the national level, 29 out of every 100 indebted farm households borrowed from this source. Banks and co-operative societies were the next two important sources of funds.

Agriculture’s share in total plan expenditure declines

That nearly half the farmers in the country are indebted is not surprising. The funds flow from the government to the sector has been pathetically low. Look at the figures: Just about 3.5% of the total plan expenditure had gone to agriculture in 2009-10, same as in the previous year. Worse, it had in fact, declined over the earlier years. Agriculture’s share was more than 5% for three years in running from 2005-06 and was more than 4% in 2004-05.

In the absence of adequate funds from the government, the farmers often need to take the initiative to procure basic farming inputs on their own – be it better quality seeds, minor irrigation facilities or investment in capital goods. Thus, the indebtedness was not restricted to the agriculturally poor states, but has spread to the rich ones. Consider the case of Punjab, the country’s most agriculturally prosperous state. Agricultural production has grown steadily and a lot of new industries have come up. Yet, the rate of indebtedness among the farm households was estimated at 65.4%. That is, more than 65 in every 100 farm families in the state were indebted.

Not surprising, in the absence of adequate public sector participation, the onus of investment in agriculture largely rested on the shoulders of the private farmers. Nearly four-fifths of the aggregate investment in the sector comes from the private sector. In 2008-09, for example, of the total investment of INR1,38,597 crore as much as INR1,14,145 crore or 82% came from the private sector.


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