Paper: 12, BUSINESS ENVIRONMENT

Module: 16, Agriculture and Economic Development

Prof. S P Bansal
Principal Vice Chancellor
Maharaja Agrasen University, Baddi
Investigator
Prof YoginderVerma
Co-Principal Investigator Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

Prof. Manjit Singh

Paper Coordinator Professor, School of Applied Management,
Punjabi University, Patiala (Pb)

Dr. Monica Bansal

Content Department of Commerce
Panjab University Rural Centre, Kauni, Muktsar, PB
Writer
 Items Description of Module
Subject Name Management
Paper Name Business Environment
Module Title Agriculture and Economic Development
Module Id Module No.-16
Pre- Requisites Basic knowledge of agriculture and economic development
Objectives To study the Agriculture and Economic Development of the country
Keywords Agriculture, Economic Development, Rural Villages, Union List,
Unemployment

QUADRANT-I

Module-16 Agriculture and Economic Development

1. Learning Outcome
2. Introduction
3. Agriculture in the Constitution of India
4. Role of Agriculture in Economic Development
5. Place of Agriculture in the Indian Economy
6. Backwardness of Indian Agriculture
7. Progress of Indian Agriculture
8. Summary

1. Learning Outcome:
After completing this module the students will be able to:
 Understand the concepts and historical background of agriculture.
 Understand the Agriculture in the Constitution of India
 Describe the Role of Agriculture in Economic Development
 Understand the Place and Backwardness of Agriculture in the Indian Economy
 Understand the Progress of Indian Agriculture.

2. Introduction

Agriculture is very important sector of the Indian economy. It contributes sizable to the
domestic product as also to export. A large portion of population, about three fourth, depended
on agriculture which was a subsistence occupation and large depend upon it being engaged in
trade in agricultural products, agro-based industries etc. People of India lives in rural villages
and many of the industries get their raw material from agriculture sector. At the start of the
British rule, the Indian economy was, by and large, self-sufficient, possessing a fine balance
between agriculture and industry. Apart from agriculturists, there were other classes of people in
rural areas like, potters, weavers, carpenters, washer man, oilmen, barbers and the cobblers. All
these occupations were hereditary and passed from father to son by tradition. The people
engaged in these occupations got paid out of the crops at the time of harvest for the services
rendered by them. At that time agricultural activities were mainly devoted to food crops like
wheat, millets and paddy. Most of the food produced in the village was consumed by the village
population itself. The raw materials produced fed the handicrafts. The British pursued a trade
policy which encouraged exports of raw material and import of manufactured goods. The
farmers were forced, through Zamindars and British agents to switch over from food crops to
cash crops (jute, cotton, indigo and tobacco) and sell the latter for export to Britain.
Commercialization of agriculture was intensified by the development of railways. The shift from
food crops to cash crops disturbed the balance between demand and supply of food grains,
resulting into famines and scarcities.

3. Agriculture in the Constitution of India

Agriculture is a state subject according to entry 14 in List II (State List) of the Seventh Schedule
to the Constitution of India. Most of the components of agriculture as such figure in the State
List but certain aspects of agriculture fall in the Concurrent List/Union List. Thus, fisheries
belong to State List (Entry 21) but fishing and fisheries beyond territorial waters belong to the
Union List (Entry 57).

The enlargement of Entry 33 in the Concurrent List through the Constitution (Third Amendment)
Act, 1954 made agriculture virtually a concurrent subject. It reads as follows:

“Trade and Commerce in, and the production, supply and distribution of (a) the products of any
industry where the control of such industry by the Union is declared by Parliament by law to be
expedient in the public interest, and imported goods of the same kind as such products (b)
foodstuffs, including edible oilseeds and oils (c) cattle fodder, including oilcakes and other
concentrates (d) raw cotton, whether ginned or unginned and cotton seeds and (e) raw jute.”

Thus, trade, commerce, production, supply and distribution of foodstuffs including edible oils
and oil seeds are covered by the Concurrent List.

4. Role of Agriculture in Economic Development

Agriculture has an important role to play in the economic development of an agrarian economy
like that of India. It has in fact done so, although not satisfactory. The contributions of
agriculture may be explained with the help of a figure as under:
 Supply of
Food and
Raw
Materials
Stimulus
to Supply of
Industrial Labour
Expansion
Role of
Agriculture in
Economic
Development
Supply of
Providing
Foreign
Employment
Exchange

Resources
for Capital
Formation

These points are explained in detail as follows:

 Supply of Food and Raw Material: In the development of an economy agriculture

literally feeds the process of development. It meets the needs for food grains on account
of rise in incomes, as also of increase in population. In addition it supplies raw materials
for many consumer items like edible oils, sugar, cloth etc. With income elasticity of
demand of such items, in particular for food grains, being very high in under developed
countries. Further, food grains constitute an important wage-good in under developed
economies. One can easily say that in case of shortage of food, a country can import
these commodities from the other nations, but it is neither possible as the foreign
exchange is limited nor it is required for other industrial development purpose.
 Supply of Labour: Agriculture also contributes to development through the supply of
labour. An agricultural country, by definition, provides work to almost the entire labour
force of the country. In the less developed countries, quite an important proportion of the
labour force remains in disguised unemployment as agriculture, being unprogressive and
subject to constraints like the given supply of land, is not able to absorb all the increase in
labour force productively.
 Supply of Foreign Exchange: Agriculture can contribute a great deal in earning foreign
currencies through the export of agricultural products. The requirements for the
expansion of exports can be easily met by adding a crop or two within the existing crop
pattern and that too with little incentives and with perhaps no additional capital
investments. Further, since such exports have to cater to the existing and familiar
international market, no additional costs are involved to discover or nurse new markets.
  Resources for Capital formation: Agriculture can also contribute to a growing
country’s needs for large capital resources. This is all more important because with the
existing modern capitalist sector being small, there is little that can come from this sector
by way of surpluses or profits for investments. On the other hand, agriculture, as is the
case in India, is a big sized sector. It can contribute more for the development of the
industrial sector because the primary industries run with the help of raw material which
comes from agriculture. For example, sugar industry, Juice factory, cotton industry etc.
 Providing Employment: There is the immediate problem of providing more productive
work to those who are depending upon this sector. An increase in production and
productivity in agriculture will create more jobs and raise the volume of work to be done.
In both ways there will be expansion of employment opportunities for a larger number
than before. Besides, direct employment in the sphere of crop-raising, agricultural
expansion also provides work in other spheres.
 Stimulus to Industrial Expansion: Most of the part of incomes of rural people, resulting
from agricultural expansion, can enhance industrial growth. In the beginning, larger part
of the additional incomes should go to capital and saving formation, but later on in
certain particular ways increase in outputs and incomes with the rural people of the
country can promote industries. Investments in the industries will lead to future
expansion, which creates wealth and more employment opportunities.

5. Place of Agriculture in the Indian Economy

Agriculture sector occupies a key position in the Indian Economy. It gives employment to the
people of the country, contributes to national income, promotes the industrial sector of the
economy, and helps the government in preparing its budgets. The significance of agriculture for
the development of the nation is explained with the help of following diagram.
 Contribution to National Income

Major Source of Livelihood

Increase in Foreign Trade

Creates Employment Opportunities

More Capital Investment

Provides Food and Fodder

Influences Industrial Structure, Transport and Other Services

Important Place in Government Budget

Helps in Economic Planning

Place of agriculture in the Indian economy is discussed as follows:

 Contribution to National Income: Agriculture contributes almost 25 percent to national

income of the country. The sum total of goods and services produced in a country at a
given point of time is known as the Gross Domestic Product (GDP). We have noticed
that there is more contribution of the non agriculture sector to the GDP in comparison to
the agriculture sector but this can be increased in the coming time. Agriculture sector is
the basic source of savings and therefore increase the capital formation of the country.
 Major Source of Livelihood: One of the major sources of livelihood is agriculture.
More than 70 per cent of the rural Indian people depend on agricultural activities in one
sense or the other for their livelihood. The people dependent on agriculture in the foreign
countries which are developed nations such as America, Japan, and Germany have less
population dependent on agriculture in comparison to India.
 Increase in Foreign Trade: Agriculture in India plays an important role in the
enhancement of international trade. The commodities which are export from India are oil
cakes, tea, vegetables and fruits, coffee, cotton, spices, tobacco, sugar, flowers vegetable
oils and raw wool. Agriculture contributes a noticeable part in the Indian exports. With
the invention of organic farming the exports has also increased in the last few decades.
 Creates Employment Opportunities: Indian agriculture gives employment and work to
a vast majority of the people especially to the rural crowd. In rural and backward areas,
almost 70 per cent of the masses earn their livelihood from cultivation and allied agro-
 industries. Agriculture is also helpful in increasing the employment opportunities in the
manner that it is helpful in industrial growth and expansion which leads to increase in
employment.
 More Capital Investment: in today’s world modern agricultural equipments are used for
cultivation, irrigation, land preparation, banding, harvesting, ploughs etc. which requires
huge amount of investment. Income leads to savings and savings leads to investments.
As we know that agriculture contributes almost 25 per cent to the national income of the
economy, there will be saving from the agriculturist and it will lead to capital formation.
 Provides Food and Fodder: In India, agriculture fulfills almost the entire food
requirements of the people. Agriculture also provides fodder to sustain livestock whose
number runs to several crores. The livestock viz. cattle, buffaloes, sheep, goats, horses,
ponies etc. has also its food from the agriculture. These provide employment and income
to the large number of people in rural and hilly areas.
 Influences Industrial Structure, Transport and Other Services: Agriculture provides
a large quantity of raw material to the industrial set ups. Many industries process
agricultural products and many other manufactured agricultural products into finished
goods. Internal trade too is influenced much by the agricultural operations. A large part
of the transport is also dependent on agriculture. Other allied services of trade and
commerce e.g. banking, insurance and storage etc. get benefit from the agriculture.
 Important Place in Government Budget: agriculture is also considered to be vote bank
in India. The budgets of the central as well as state government have been influenced by
land revenue and income tax on the one hand and expenditure on its development on the
other hand. The more important budgetary operations having relevance to agriculture is
the massive expenditure that is being incurred on it for several purposes, including a large
part for agricultural development.
 Helps in Economic Planning: Importance of agriculture in the national economy can be
depicted from many facts. For example, agriculture is the main support for India’s
transport system, since railways and roadways secure bulk of their business from the
movement of goods. Internal trade is mostly in agriculture products. Therefore,
agriculture helps in economic planning of the country.

6. Backwardness of Indian Agriculture

Indian agriculture has to face a number of problems. Low productivity and low production are at
the core of agricultural problems in India. The productivity of agriculture is relatively low in
India compared to other countries with comparable natural environment. There have been
certain improvements in the recent years, but the conditions in agriculture have not changed
much. It is useful to analyze the factors responsible for the backwardness of our agriculture.

 Uneconomic and Fragmented Holdings: The marginalization of farmers is a dominant

factor adversely affecting household income. Over 60.27 per cent of the operational
 holdings are below 1.0 ha and 22.18 percent of the holdings are in the farm size group 1-
2 ha. Except Nagaland, in other states also the size of operational holding is very small.
Such small holdings are uneconomic and results in under investment in agriculture
leading to low input use and low production.
 Excess or Surplus Labour in Agriculture: Important for less agricultural labour
productivity is the overcrowding in agriculture. As population increases, the pressure on
land also increases, because natural increase is not absorbed by industrial sector.
 Discouraging Rural Climate: The agriculturists of India live below the poverty line,
they are ignorant, conservative, superstitious and illiterate. Superstitions and belief in
fact are the curse, which keep the farmers fully satisfied with their primitive style of
cultivation. Most of the farmers of this category do not use the modern techniques of
production.
 Inadequate Non-Farm Services: The farmers do not get the reasonable amount from the
sale of the agricultural produce. They are not aware about the finance and marketing
activities. At some places the marketing system is defective and costly. The rising prices
of diesel have increased the transportation cost. Modern storage facilities are inadequate
and indigenous. Farmers still depend on moneylenders for their day-to-day requirements.
 Size of Holdings: In India the average size of holding is very low per farmer. About 80
per cent of the land holdings are less than 2 acres. Not only agricultural holdings are
small but they are fragmented too. At some places, plots of land have become so small
that it is impossible to move even ordinary plough. No improved and scientific methods
of cultivation are adopted.
 Defective Land Tenure Structure: The land tenure system in India has been depressing
and disincentive ridden. It has in built characteristics to support stagnation. The main
feature has been the presence of intermediaries, small and fragmented holdings,
exploitative owner-tenant relationship, and heavy pressure of population on land.
 Poor inputs and Techniques: The techniques and methods of cultivation have been old
and inefficient. It results in high cost of production and low productivity. These methods
have not undergone any change for centuries. The investment in agriculture in the form
of manures and fertilizers, improved seeds, irrigation, tools and implements and other
types of assets has been miserably low.
 Inadequate Irrigation Facilities: One of the main reasons for the weakness of Indian
agriculture has been the lack of irrigation facilities in the country. The farmers have to
depend upon rainfall and very few of them can avail the facilities of artificial irrigation.
Sometimes droughts and floods also spoil the whole cultivation and crops.
 Indebtedness of the Farmers: There is an old saying that the farmers in India are born
in debt, live in debt, die in debt and bequeath debt. The reasons of their indebtedness are
many such as hereditary debt, litigation, want of supplementary incomes and wasteful
social expenditure. The son fulfills the obligation of payment of debt of his father in the
Indian society.
 Low Adoption of Improved Technology: The adoption of high yielding varieties
(HYV) is very rare in India. Although more than 85 per cent area of wheat is under HYV
but covers only around 2 per cent of gross cropped area. The important reason of slow
growth of HYV area are the non-availability of suitable seeds, predominance of
traditional seeds, short supply of recommended seeds and defective distribution system.
 Absence of Innovations in Agriculture: Absence of alternative crops for escaping pre-
monsoon showers to avoid the problem of pre-harvest sprouting of crop in flood periods
is a major problem. There is lack of improved crop management practices for shifting
cultivation. The facilities of storage, processing and marketing are particularly deficient
for perishable commodities.
 Rural Transport and Communication Network: Most of the rural areas remain
inaccessible during rainy season for non-availability of all-weather roads. Roads are
found to be highly damaged and there are no proper transport facilities to the access of
the villagers.

7. Progress of Indian Agriculture

No doubt, agriculture is still backward in many respects. But it is also true that some notable
progress has been recorded in this sector. Progress of agriculture in the Indian economy can
be understood with the help of the following figure:

Government Measures

Expanding Government’s
Role

Laudable Objectives

Appropriate Measures

Considerable Resources

 Government Measures: Through the five year plans the government of India has
played an active role in the development of agriculture. Proper objectives have been
laid down in the various plans. According to these objectives, corresponding
 measures have been spelt out. All the activities are directed towards the achievement
of these objectives.
 Expanding Government’s Role: From the first five year plan the government
realized that for the development of agriculture, government has to play an important
role which would be a crucial one. Agriculture is the backbone of the economy and
the poor farmers cannot uplift themselves. That is why the measures needed for the
upliftment of agriculture could be taken by the government. In the recent years the
government’s action has expanded to include programmes for rural development and
special area programme.
 Laudable Objectives: The objectives in different plans are varied from time to time.
Somewhere the aim was to increase the productivity and elsewhere to improve the
quality of food grains. Land reforms have been the other significant objective.
Another important objective was to uplift the weaker section of the society. For
example, the small and marginal farmers, landless agricultural labourers, and many of
those engaged in activities allied to agriculture such as animal husbandry and
fisheries etc.
 Appropriate Measures: In order to achieve these objectives many measures have
been taken by the government of India. For example, to increase the production and
productivity the supply of inputs, infrastructural facilities, extension of irrigation,
modern laboratory based seeds, chemical fertilizers have been provided by the
government. The infrastructural facilities include banking, marketing, credit,
transportation, communication, finance, education and information dissemination etc.
 Considerable Resources: Large resources have been devoted to agricultural
development. These have been on the rise from plan to plan. The funding for the
development of agriculture has also been increased from time to time. For the control
of droughts and floods many funds have been given by the government. Special
programmes for the benefit of the rural people, has been introduced along with the
industrial development.

8. Summary

The national policy on agriculture seeks to actualize the vast untapped growth potential of Indian
Agriculture, strengthen rural infrastructure to support faster agricultural development, promote
value addition, accelerate the growth of agro business, create employment in rural areas, secure a
fair standard of living for the farmers and agricultural workers and their families, discourage
migration to urban areas and face the challenges arising out of economic liberalization and
globalization. In this module agriculture, its history and agriculture in the constitution of India
has been discussed in the first section. Then the role of agriculture in the economic development
of the country is explained in detail. At the end, the measures for the progress of agriculture has
been highlighted.