Three major theoretical approaches explain the role of agriculture in economic growth

1. The theories that stress the passive role of agriculture as supplier of resources to the economy (Lewis, Fei-Ranis, Jorgenson; 1950-60)

2. The theories that stress the active role of agriculture as a sector that is able to promote economic growth due to specific actions and behaviour (Mellor; 1970-90)

3. The theories that stress the active role of agriculture as a sector that is able to promote sustainable economic growth (FAO, 2000)

FAO (2000) stresses two major categories of roles of agriculture

Economic roles that agriculture plays as a by-product of its primary role and that the market underestimates

Non-economic roles that agriculture plays as a consequence of its primary role and that the market neglects

Because of its roles agriculture can contribute to sustainable economic growth

Economic roles underestimated by the market

◦ Income generation

◦ Poverty reduction

◦ Food security

Non-economic roles neglected by the market

◦ Management and conservation of natural resources

◦ Social cohesion and stability

◦ Preservation of culture

Contribution of Agriculture:

About 30% of our GDP comes from agriculture alone. It was around 57F% in the beginning of 1950s. With gradual industrialisation, the share of agriculture has declined and it is what it should be. As an economy prospers, the share of agriculture in the GDP declines giving place for secondary and tertiory sectors. As given in the table:-

Backbone for country’s economic development:

Agriculture contributes to economic development in atleast four ways:-

1) Product contribution i.e. making available food and raw materials;

2) Market contribution i.e. providing market for goods produced by other sectors

3) Factor contribution i.e. making available labour and capital to the non-agricultural sector

4) Foreign exchange contribution i.e. by means of producing extra product to be export and to get the foreign money in lieu of that .

Source of livelihood:-

Agriculture has been a major source of livelihood for our people for our people . A large percentage of the working population more than 70% is engaged in agriculture. The table shows the dependency of people on it:

Agriculture in international trade:-

Agricultural plays an important role in our international trade too. The main agricultural commodities which are exported are tea, oilcakes, fruits and vegetables, spices, tobacco, animal hair, and vegetable oils. Its export is now expected to $95.7billion a 10.3% increase from the last year.

Other factors:-

Rural consumption is three times that of urban consumption. So by this we can understand that by a small change in this sector may bring a big change in all the other sectors of economy.

As per the J.K.Galberth, the most significant development that took place in out economy during the past four decades relates to farm sector.

The extraction of agricultural surplus has created many problems:-

It has reduced the incentives to farmers

It has increased the pace of the decline of agriculture with serious consequences on environment and society

It has increased rural poverty and food insecurity

Also a ‘weak’ version of the approach exists:-

Agriculture is a surplus supplier

Yet ‘traditional’ agriculture might not be able to produce surpluses and then might not be able to transfer them to the economy

It follows that surpluses need to be produced first in order to be transferred

Only a ‘modern’ agriculture can produce surpluses

The ‘modernisation’ of agriculture implies a transfer of resources from the economy to agriculture:-

The aims are

◦ To increase resource productivity

◦ To introduce technical change

◦ To orient production to market

‘Modern’ agriculture is in condition to produce surpluses in order to enhance economic growth

J. Mellor (1976) introduces his theory of growth linkages taking as an example the case of the Green Revolution in India:-

The public intervention to ‘modernise’ agriculture increases farmers’ incomes. Farmers increase their consumption, both of production means and consumption goods. The increased demand leads to the emergence of local firms producing the newly demanded goods.

The final result is that, due to the initial intervention in agriculture, the rural economy develops in a balanced manner.

The growth of rural industry is a major factor for a balanced growth:-

It increases non-farm employment providing work opportunities for the labour-force that leaves the primary sector or is underemployed in it. It reduces the pressure on towns and metropolises, keeping under control the level of pollution. It exploits ‘traditional skills’ that are typical to each area. It exploit the competitive advantages of rural areas in terms of costs (labour-force and infrastructures).

Agricultural modernisation has raised many problems:- On environment

◦ Industrial pollution

◦ Misuse of natural resources

On society

◦ Pressure on families and communities

◦ Migration from rural to urban areas

On the economy

◦ Food insecurity

◦ Food dependency

Agenda for action:-

If agriculture is to record abundance; if poverty is to be abolished quickly and if the chasm between rural – urban divide is to be curtailed, agriculture must grow at a good rate. This needs action on the following lines:

1. Building institutions for People’s participation

2. Freeing up agricultural markets

3. Carving an investment policy

4. Restructuring rural credit

5. Irrigation

6. Dry land farming

7. Revitalising research

8. No more discrimination

References :

Essential of business environment (seventh edition)

K. Aswathappa millennium edition

www.wikipedia.org