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