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Agricultural Sector: Status, Challenges and it's Role in Indian Economy

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DOI: 10.5958/0976-478X.2016.00014.8

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 Journal of Commerce & Management Thought
Vol. 7-2, 2016, pp 209-218
DOI : 10.5958/0976-478X.2016.00014.8

Agricultural Sector: Status, Challenges

and it’s Role in Indian Economy.
Rahul Wagh, Dr. Anil P. Dongre
Abstract
The Indian agricultural sector accounts for 13.9% of India's gross domestic
product (GDP) and employs just a little less than 54.6% of the country's
workforce. The Department of Agriculture and Cooperation under the
Ministry of Agriculture is the nodal organization responsible for the
development of the agriculture sector in India. The purpose of the study is to
understand the status of Indian agriculture sector, various kinds of
challenges, and obstacles in front of farmers, agro industry and governments
for the development in agriculture in critical uncontrollable environments,
also to know various Government initiatives, investments, policies for the
development of agriculture and role of agriculture in Indian economy.
Keywords: Agricultural sector, GDP and Economy.
Introduction
Agriculture constitutes the most significant part of Indian Economy. It
has undergone rapid transformation in the past two decades; the policies of
globalization and liberalization have opened up new avenues for agricultural

209
210 Journal of Commerce and Management Thought 7 - 2

modernization. This has led to not only commercialization and

diversification, but also triggered various technological and institutional
innovations owing to investments in sector. Agriculture is the most important
occupation for most of the Indian families. Over 58% of the rural households
depend on agriculture as their principal means of livelihood. Agriculture,
along with fisheries and forestry, is one of the largest contributors to the
Gross Domestic Product (GDP). In India, agriculture contributes about
sixteen percent (16%) of total GDP and ten percent (10%) of total exports.
Over 60 % of India’s land area is arable making it the second largest country
in terms of total arable land. Indian agriculture has registered impressive
growth over last few decades. The food grain production has increased from
51 million tonnes (MT) in 1950-51 to 250MT during 2011-12 highest ever
since independence (Kekane M. A., (2013). The agricultural products of
significant economic value include rice, wheat, potato, tomato, onion,
mangoes, sugar-cane, beans, cotton, etc.
Objectives of the study
The main objectives of the present study were as follows:
1. To know the current status of agriculture in India.
2. To study the various types of investment and government initiatives for
the development of agricultural sector in India.
3. To identify the challenges and role of agriculture in Indian economy.
Research Methodology
The secondary data collection method was used for data collection. The
details of which are Given below:
Current Status
The Directorate of Economics and Statistics, Ministry of Agriculture
(DESMOA) is responsible for the collection:
A. Weekly and daily wholesale prices
B. Retail prices of essential commodities
C. Farm harvest prices
 Agricultural Sector... 211

The weekly wholesale prices cover 140 agricultural commodities from

620 markets. Retail prices of essential commodities are collected on a weekly
basis from 83 market centers in respect of 88 commodities (49 foods and 39
non-foods) by thestaff of the State Market Intelligence Units, State
Directorates of Economicsand Statistics (DESs) and State Department of
Food and Civil Supplies. Farm Harvest Prices are collected by the field staff
of the State revenuedepartments for 31 commodities at the end of each crop
season and publishedby the DESMOA.
Analysis of data and information
A. Investments in agricultural sector in India:
Some major investments and related developments in agriculture in the
recent past are as follows:
l Mahindra and Mahindra (M&M), India’s leading tractor and utility
vehicle manufacturer, announced its entry into pulses retailing under the
brand ‘NuPro’. Going forward, the company plans to foray into e-
retailing and sale of dairy products.
l Fertilizer cooperative IFFCO launched a joint venture with Japanese
firm Mitsubishi Corp for manufacturing agrochemicals in India.
l Acumen, a not-for-profit global venture fund, has invested Rs 11 crore
(US$ 1.7 million) in Sahayog Dairy, an integrated entity in the segment,
based at Harda district in Madhya Pradesh.
l Rabo Equity Advisors, the private equity arm of Netherlands-based
Rabo Group, raised US$ 100 million for the first close of its second fund
– India Agri Business Fund II. The fund plans to invest US$ 15–17
million in 10–12 companies.
l Oman India Joint Investment Fund (OIJIF), a joint venture (JV)
between the State Bank of India (SBI) and State General Reserve Fund
(SGRF), invested Rs 95 crore (US$ 14.62 million) in GSP Crop
Science, a Gujarat-based agrochemicals company.
l The world's seventh-largest agrochemicals firm, Israel-based ADAMA
Agrochemicals plans to invest at least US$ 50 million in India over the
next three years.
212 Journal of Commerce and Management Thought 7 - 2

l Belgium-based Univeg has collaborated with Mahindra & Mahindra to

develop a fresh fruit supply chain.
l Companies from the US, Canada, Australia, Israel, the Netherlands and
other European countries have shown strong interest to transfer the best
practices, linkages between scientific institutes, agriculture storage,
cold-chain management, market access, and productivity enhancement
such as the introduction of new technology in seed and plant biotech.
l Canada-based International Food Security Research Fund has major
investments in food security research in several Indian universities.
These strengthen food-processing and sustainable agricultural
techniques.
B. Government Initiatives
Some of the recent major government initiatives in the agricultural
sector are as follows:
l India and Lithuania have agreed to intensify agricultural cooperation,
especially in sectors like food and dairy processing.
l Gujarat Government has planned to connect 26 Agricultural Produce
Market Committees (APMCs) via electronic market platform, under the
National Agriculture Market (NAM) initiative.
l The State Government of Telangana plans to spend Rs 81,000 Crore
(US$ 12.1 billion) over the next three years to complete ongoing
irrigation projects and also undertake two new projects for lifting water
from the Godavari and Krishna river.
l The National Dairy Development Board (NDDB) announced 42 dairy
projects with a financial outlay of Rs 221 Crore (US$ 34.02 million) to
boost milk output and increase per animal production of milk.
l The government planned to invest Rs 50,000 Crore (US$ 7.7 billion) to
revive four fertilizer plants and set up two plants to produce farm
nutrients.
l The Ministry of Food Processing Industries took some new initiatives to
develop the food-processing sector that would enhance the income of
farmers and export of agro and processed foods, among others.
 Agricultural Sector... 213

l The Government of Telangana allocated Rs 4,250 crore (US$ 654

million) for the first phase of the farm loan waiver scheme. The scheme
is expected to benefit 3.6 million farmers who took loans of Rs 100,000
(~US$ 1,539) or below before March 31, 2014. 6. Earner of foreign
exchange.
C. Major Challenges
1. The agriculture sector in India has undergone significant structural
changes in the form of decrease in share of GDP from 51.90% in 1950-
51 to 17.00% in 2014-15 indicating a shift from the traditional agrarian
economy towards a service dominated one (Figure 1). This decrease in
agriculture’s contribution to GDP has not been accompanied by a
matching reduction in the share of agriculture in employment. However,
within the rural economy, the share of income from non-farm activities
has also increased.
Figure 1: Sector wise contribution of GDP of India (1950-2015)

Source : Planning commission, Government of India, July 2015.

The eleventh five year plan (2007-12) witnessed an average annual

growth of 3.6% in the agriculture and allied activities sector, when compared
with a target of 4.0% during the period. Growth in this sector has not only
fallen short of the said target but has also been highly uneven. Growth in
FY11 was as high as 7.9%, after near stagnation in the previous two years,
followed by lower growth rates in FY12 and FY13 (Figure 2). Agricultural
214 Journal of Commerce and Management Thought 7 - 2

production has been adversely impacted by delayed and uneven monsoons in

FY13. Production of all major agro-commodities such as food grains,
oilseeds, cotton and sugarcane has witnessed negative growth; in particular,
food grains production is expected to decline by 3.5% in FY13.
Figure 2 : Growth in Agriculture and allied sector

Source : Ministry of Agriculture, CARE (e)- Estimates, (f)-Forecast

The average size of operational holdings in India has diminished

progressively from 2.28 ha in 1970-71 to 1.55 ha in 1990-91 to 1.07 ha in
2014-15 (Figure 3). As per Agriculture Census 2014-15, the proportion of
marginal holdings (area less than 1 ha) has increased more than 65 % till
2014-2015.
Figure 3: Average size (ha) of holdings as per different Agriculture Census
(for all size groups)

Source: Department of Agriculture and Cooperation, Agricultural Census Division, Ministry of Agriculture
 Agricultural Sector... 215

Fertilizer forms another important input in agriculture growth. While the

overall consumption of fertilizer has increased. Overall, Indian fertilizer
consumption grew by 6% from 45 MMT in FY07 to 60 MMT in FY12,
following which it fell sharply by 11% to 53 MMT in FY13 due to high
channel inventory and weak monsoon. Also, increase in the P&K prices post
NBS led to demand destruction with NPK sales falling by 23% in FY13. The
demand revived in FY15, with overall volumes rising by 6% driven by the
healthy sales of P&K fertilizers (Figure 4).
Table 1 : Consumption of various Fertilizers in India

Figure 4: Consumption of various Fertilizers in India

Source : DoF, ICRA Research 2014.

216 Journal of Commerce and Management Thought 7 - 2

Credit to buy modern inputs for farming operations, is a facilitator in

this change. While the overall credit to agriculture has been growing
phenomenally during the last five years or so, and the interest rates for
farmers have also been reduced to 7% (4% after taking into account the 3%
subvention in interest for timely repayment of crop loans), yet the biggest
challenge remains in terms of increasing access to credit, particularly for the
bottom 40%. More innovative models are needed to reach this category as
they rely largely on the informal sector for credit with high rates of interest.
Achievement of food and nutrition security and alleviation of poverty
and unemployment on a sustainable basis depend on the efficient and
judicious use of natural resources (land/ soil, water, agri-biodiversity and
climate). Inefficient use and mismanagement of productive resources,
especially land, water, energy and agro-chemicals has vastly reduced fertility
anddamaged the physical, chemical and biological properties of the soil. The
limit of landavailability for agriculture has already reached. Our continued
inability to judiciously usethese non-renewable natural resources can have
serious implications.
Findings and Conclusions
Though, with the growth of other sectors, the overall share of
agriculture on GDP of the country has decreased. Still, Agriculture continues
to play a dominant part in the overall economic scenario of India. ( posted on
30 June 2015).
Recent economic data of India showed that, agriculture has acquired 18
percent of India's GDP. As per estimates by the Central Statistics Office
(CSO), the share of agriculture and allied sectors (including agriculture,
livestock, forestry and fishery) was 16.1% of the Gross Value Added (GVA)
during 2014–15 at 2011–12 prices. During Q1 FY2016, agriculture and allied
sectors grew 1.9% year-on-year and contributed 14.2% of GVA.
Agricultural export constitutes 10% of the country’s exports and is the
fourth-largest exported principal commodity. The agro industry in India is
divided into several sub segments such as canned, dairy, processed, frozen
food to fisheries, meat, poultry, and food grains.The Department of
 Agricultural Sector... 217

Agriculture and Cooperation under the Ministry of Agriculture is responsible

for the development of the agriculture sector in India. It manages several
other bodies, such as the National Dairy Development Board (NDDB), to
develop other allied agricultural sectors.
Over the recent past, multiple factors have worked together to facilitate
growth in the agriculture sector in India. These include growth in household
income and consumption, expansion in the food processing sector and
increase in agricultural exports. Rising private participation in Indian
agriculture, growing organic farming and use of information technology are
some of the key trends in the agriculture industry. As per the 4th Advance
Estimates, food grain production is estimated at 252.68 million tonnes (MT)
for 2014-15. Production of pulses estimated at 17.20 million tonnes.
With an annual output of 138 MT, India is the largest producer of milk.
It also has the largest bovine population. India is the largest importer of
pulses at 19.0 MT and 3.4 MT, respectively. India, the second-largest
producer of sugar, accounts for 14% of the global output. It is the sixth-
largest exporter of sugar, accounting for 2.76% of the global exports. Due to
its importance in national output and employment, agriculture was paid
special attention by India’s policy makers and development planners which
helped this sector to play an important role in economic development of the
country and in improving income and living standard of vast population
dependent on agriculture. Finally, it has been concluded that agriculture
sector has a lot of challenges in current uncontrollable environmental factors.
There is a need of government intervention in agriculture investment,
supporting policies for the growth of agro-productivity, export-import and
contribution in GDP. Role of agro-industry, agro-allied business need a
proper management of their inputs into outputs to achieve the objectives of
agriculture sector in India.
References
Kekane M. A., (2013), Indian Agriculture- Status, Importance and Role in Indian
Economy, International Journal of Agriculture and Food Science Technology., reviewed
by Research India Publications, ISSN 2249-3050, Volume 4, pp. 343-346.
Current State of Agriculture in India-2012- Golden Peacock.
DoF, ICRA Research 2014.
 218 Journal of Commerce and Management Thought 7 - 2

Ministry of Agriculture, Annual report 2014.

Directorate of Economics and Statistics, Ministry of Agriculture.
Department of Agriculture and Cooperation, Agricultural Census Division, Ministry of
Agriculture.
Directorate of Economics and Statistics, Ministry of Agriculture.
http://www.importantindia.com/ posted on 30 June 2015.

The Authors
Rahul Wagh is working as an Assistant Professor in Smt.Kashibai Navale Sinhgad
School of Business Management, Pune affiliated to Savitribai Phule Pune University.
He has presented research paper in 2014 International Conference of Emerging
Markets Conference Board organized by Centre for Marketing in Emerging
Economies, Indian Institute of Management (IIM), Lucknow, on the theme of
“Listening to Consumers of Emerging Markets”. He has also participated in the
workshop on Metaphor Analysis and Ethnography Research organized by Centre for
Marketing in Emerging Economies, Indian Institute of Management (IIM), Lucknow,
and also in Case Centre (UK) Anniversary Conference entitled “The Case Centre
Anniversary Conference” held at Indian Institute of Management (IIM), Bangalore.
His research interests include consumer behavior, rural marketing and marketing in
the context of agriculture.
Dr. Anil P. Dongre is working as Professor in the School of Management Studies,
North Maharashtra University, Jalgaon, (M.S.) India. He is also the Director, School
of Thought North Maharashtra University, Jalgaon, India and Head, Buddhist Study
and Research Centre, North Maharashtra University, Jalgaon, India. He is honorary
Director for ‘India’s Centre for John Dewey Study’ at Mahanayak Kanshiramji
School of Thinking Non-Political, Non-Theist, Non-Commercial, Educational,
Cultural and Secular Precinct of India. His research interests include Globalization,
Interpersonal relationship, Behavioural Sciences, and Buddhist Studies.
Email: rahul.wagh15@hotmail.com l Received on: 19, Feb. 2016

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