Contribution of India’s agriculture sector to the economy

By ABIN P MATHEW & Priya Chetty on August 16, 2022

India has a long history in economics. India’s economy has seen substantial change in the agriculture sector from being a beggar’s bowl to the one producing surplus food. India is now the world’s top exporter of rice, spices, and beef. India is also the largest producer of milk, cotton, pulses, and spices (Mohapatra and Rout, 2021). In 2020–2021, India ranked second in the production of wheat, fruits, and vegetables; third in the production of eggs; and fifth in the production of poultry meat (Juneja, Roy and Gulati, 2021).

India is the largest producer of rice, milk, wheat, fish

India is the world’s largest exporter of rice. Production of fruit surpassed 100 million metric tonnes (MMT) and that of vegetables has climbed to 189.4 MMT in 2020. The milk production and fishery sector also showed considerable growth since independence in 1947. India’s extensive river network and enormous coastline of over 8,000 km helped the fishery sector contribute to 14% of total agricultural produce exports in 2021 (Juneja, Roy and Gulati, 2021). However, the headcount ratio significantly decreased from 38.2% in 2004 to 13.4% in 2015, when expressed as a daily per capita income of USD 1.9 (World Development Indicators, 2019).

In summary, over the last three decades, India has undergone revolutionary changes that have enabled it to achieve much-needed food, feed, and fibre security despite difficult environmental conditions, serving as an example for many developing countries (Juneja, Roy and Gulati, 2021). This article discusses the economic contributions of India’s agriculture sector, focusing mostly on a few metrics including employment, GDP, revenues, FDI, GNP, and wages over the past 25 years.

Employment in India’s agriculture sector

Agriculture is crucial to the development of India’s economy (Chand, 2019) as it is the main source of income for almost 58% of India’s population (Tomich, Kilby and Johnston, 2018). On average, 12.75% of households depend on farming for income, while 54.25% of households obtain the majority of their income from agriculture (Eyhorn et al., 2019). Furthermore, there are slight increases in employment in regional food systems and farm processing (Bisht, Rana and Pal Ahlawat, 2020).

In the last two decades, women have made up, on average, 73% of the workforce in agricultural operations such as cultivators, business owners, and employees (Bisht, Rana and Pal Ahlawat, 2020). When it comes to the employment benefits (employed the highest number of people in agriculture) of agriculture in India, Arunachal Pradesh and Chhattisgarh came out on top (Singh et al., 2020). However, the contribution of agriculture to India’s total employment is falling consistently. The graph below shows the trend for the last 25 years.

Contribution of agriculture to employement (World Bank, 2022)

Contribution of agriculture to India’s Gross Domestic Product (GDP)

The production and productivity of agri-products have increased dramatically during the previous five years in the agriculture sector (Kumar, 2021). Gross domestic product (GDP) data show a sharp increase in the openness of Indian agriculture from 7.4% in 1994–1995 to 14.4% in 2009-2010 (Behera and Yadav, 2019). According to economic data for the fiscal years 2006-07, the GDP contribution of the agriculture sector is approximately 18.1% (Giri, 2021).

Agriculture contributed nearly 16% to the GDP in 2011. From a high of 55.4% in 1950–1951 to 18.2% in 2014–2015, agriculture’s contribution to the nation’s GDP has decreased (Saud, 2018). However, it has surpassed 20% for the first time in the past 17 years, making it the only area of the GDP’s performance that is expected to improve in 2020–21 (Ahamed, 2021).

Contribution of agriculture to India’s GDP (World Bank, 2022)

Contribution of agriculture to India’s Gross Value Added (GVA)

Today, India’s agriculture contributes 17.2% to the Gross Value Added (GVA) of the country (Subramanian, A. and Felman, 2019). A total of INR 19.48 lakh crore (US$ 276.37 billion) was the GVA by agriculture, forestry, and fishery in FY20. In 2022, the percentage of GVA that belongs to the agriculture and related sectors (at current prices) is 18.8% of the total GVA of India (Manida and Nedumaran, 2020).

Contribution of the agriculture sector to India’s GNP

FDI in India’s agriculture sector

Foreign Direct Investment (FDI) is one of the significant tools to increase job opportunities through commercialization and modernization in the agriculture sector (Majid, 2020). India started to receive FDI in 1991 ($75 million) and in 2011 the amount increased by 487 times. Over 130 nations sent FDI to India throughout the 21-year period. It has been discovered that although the growth rate of agriculture varies from 0% to 7%, FDI inflows into the agriculture sector create 12% of indirect employment opportunities and 50% of direct employment chances (Mishra and Palit, 2020). Furthermore, 0.16% of all FDI received is directed toward agricultural services (Kirti and Prasad, 2016).

Wages in India’s agriculture sector

The majority of workers and their families in India rely on agricultural wages for their subsistence (Jaacks et al., 2021). Between 2001 and 2011, the proportion of workers engaged in wage-related activities increased from 45.6% to 54.9%. The farm wage per person per day increased from INR 83.50 in 1995–1996 to INR 167.50 in 2016–17 (Kumar et al., 2020). In India, the average daily wage for male field labourers in 2019–20 was INR 348, with Kerala paying the highest rate at INR 701 per day and Chhattisgarh paying the lowest at 234 rupees per day (Chatterjee and Sharma, 2021). The average daily wage rate for female field labourers also revealed that Chhattisgarh paid the lowest wage or INR 170 per day, and Kerala paid the highest, or INR 525 per day (Seal, 2021).

Wages in agriculture sector (World Bank, 2022)

Challenges in the road ahead

Over the past few decades, India has made significant strides in:

the introduction of high-yield seed varieties,
genetically modified varieties with high yielding abilities under adverse environmental conditions,
increased use of fertilisers,
and enhanced water management systems.

The liberal infusion of contemporary technology, institutional changes supported by the appropriate incentives, and breakthroughs in the realm of agriculture all made it possible. Aside from specialized products, the prices paid for farm products are generally influenced by world markets, and these prices are actually trending lower. To ensure the food security of a significant section of the world’s population, smallholder farms will continue to produce the majority of the food in rural areas. The most direct method of addressing food security and rural poverty continues to be an investment in smallholder agriculture and the larger institutions and infrastructure that support it.

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