Development cannot bypass the farm sector

VIKSIT BHARAT has become the buzzword in India for quite some time, with the government promising to achieve it by 2047. Underlining the slogan in her ninth Budget speech, Finance Minister Sitharaman highlighted the government's 'sankalp' of focussing on the poor, underprivileged and disadvantaged people.

To deliver on this promise, she said the government was inspired by three 'kartavyas’ — accelerate and sustain economic growth; fulfil people's aspirations; and ensure access to basic services for all. This is akin to 'sab ka saath, sab ka vikas' or inclusive, faster and sustainable development.

The pathway to the three-pronged 'sankalp' goes through the balanced and diversified development of agriculture and rural economy as a large majority of the population lives in villages and agriculture continues to be their mainstay of employment, income and livelihood. Estimates indicate that by 2050, more than half the population would be still living in villages.

Besides providing direct employment to 46% of the workforce, agriculture provides indirect employment to a sizeable number of workers engaged in industries and activities using agricultural produce as inputs. Similarly, there are a good number of industries and business activities whose output is being used in agricultural operations. The workforce engaged in agriculture and the population dependent thereon also provides market for the products of numerous industries and business activities. Agriculture also provides the much-needed food security to the country.

Rural economy lagging behind

The economic position of the huge workforce engaged in agriculture and rural economy would continue to wield a significant influence on the demand for non-farm produce and, in turn, on the income and employment in the non-farm sectors. That is, higher income in the farm sector and rural economy would have a higher multiplier effect on the non-farm income and, thereby, on the overall growth rate of the economy. Evidently, there are strong backward and forward linkages between the farm and non-farm sectors.

Ironically, a very high proportion of the agricultural workforce is either underemployed or in disguised unemployment, and agriculture is pushing them out. However, the system and policymakers have no mechanism to address this challenge. The problem gets worse as the non-farm sector is not capable of generating enough employment for the surplus workforce in agriculture, mainly because of jobless growth.

Consequently, agriculture and rural economy are lagging behind the non-farm sectors in terms of per worker productivity and per capita income. Currently, the share of agriculture in gross domestic product (GDP) is merely 15%, which means that 46% of the agricultural workforce accounts for only 15% of the GDP.

The average per capita annual income (PCI) of agricultural households in 2023-24 was Rs 35,940 while the national PCI was Rs 1,84,205. Clearly, there is a huge disparity between the national PCI and the PCI of agricultural households.

Leaving aside the large farmers (8.38 lakh of the 14.65 crore operational landholdings, as per the 2015 Agriculture Census), the PCI of all other farmers is much lower than the national PCI. Significantly, marginal and small farmers (86% of the total) do not have adequate income to even move above the poverty line.

This calls for supplementing of farm income with non-farm income, which is possible only by occupational diversification in rural economy.

Nearly two-thirds of the total workers are employed in the rural economy, but they account for a much lower share in the country's GDP. The disparity in the per worker productivity between urban and rural workers ranged from 3-fold to 3.5-fold during 1970-71 and 2011-12.

In the absence of comparable data for the later period, it is difficult to say whether this gap has increased or decreased, but the disparity is certainly very high. The rural areas, in general, lag behind urban areas in terms of social and infrastructure development. The literacy rate of the rural population is also far below that of the urban population.

Develop non-farm sector

Clearly, boosting agriculture and rural economy is essential for India to become 'Viksit Bharat'. It requires the development of the rural non-farm sector and the consequent generation of employment for the surplus agri-workforce. This is possible by raising the budgetary allocation to agriculture and rural development.

However, the allocation to agriculture since 1990-91 has been oscillating between 2 and 4% and that of rural development from 3 to 6%. Clearly, the allocations to agriculture and rural development are too low in comparison to their share in employment and income.

Gross capital formation (GCF) is the other determinant of growth and development. Here, too, the GCF in agriculture is far less than the GCF in the economy. In the last about 20 years, barring a couple of years, the GCF in the economy has ranged from 30% to 37% of the gross value added (GVA) of the economy. However, the GCF in agriculture has been hovering in the range of 2-3% of the economy's GVA. The share of public GCF in agriculture has remained at 0.4% of the economy's GVA.

Besides, the share of agriculture in the total GCF of the economy has also been very low (7-8%) during the last about 25 years as compared to the 1970s and 1980s, when it was more than 14%. Significantly, the share of the public sector's GCF in agriculture was quite high in the 1970s and 1980s, but thereafter, it has been around 4-7%.

Mahatma Gandhi's observation that "India lives in villages" is still relevant. In 1946, Jawaharlal Nehru had said, "Everything else can wait, but not agriculture."

It is, thus, clear that along with non-farm development, the development of agriculture and rural economy is essential for India to become a developed economy. The government should give high priority to agri sector, both in terms of budgetary allocation and gross capital formation.