Agriculture has the potential to lift all boats. Indian agriculture has been styled “a gamble on the monsoon". This year, the harvest promises to be bountiful and as far as positive externalities linked to agricultural production go, the increased offtake of agricultural machinery, pump sets, sprayers, and tractors will increase agricultural consumption in the form of increased demand of bank loans for two-wheelers, colour televisions, refrigerators and washing machine.

The synapses of agriculture with the real economy run deep. The early and strong monsoon has had a positive impact on sowing activity and the area under kharif crops has increased as compared with last year. Further, output of cereals, pulses and oilseeds is expected to show a marked increase, due to an augmentation in the area under these crops.

With good rains and reservoir positions, the rabi harvest should also be plentiful. The good performance of agriculture will rescue the economy as a whole and lead to a significant pick-up in demand for manufactures and for durable and non-durable consumer goods. Yet, agriculture is a prisoner of the Cinderella syndrome, as exports and industry have been the focus of the attention of policymakers since the mid-1980s.

The agricultural crisis of the mid-1960s triggered by the severe droughts of 1965-66 and 1966-67 compelled policymakers to appreciate the strategic significance of agriculture in a poor industrializing economy. The need to assure food security led to the stress on agricultural growth, which was also seen as a means to remove poverty and ensure growth with social justice. Public investment is required to realize these aims. Public investment supplies the necessary infrastructure, including irrigation, research and extension, power, and transportation, to mobilize the growth potential of the agriculture sector. The focus of the new agricultural strategy changed to concentration on increasing the use of new inputs, supported by subsidized finance through the banking system and procurement prices.

Agriculture still plays a critical role in determining the macroeconomic balance, especially in generating private consumption demand necessary for growth. The packaged consumer goods sector is largely dependent on the growth of agricultural income. The link between the agriculture and the economy makes growth in this sector vital for output growth, control of inflation, price and financial stability.

Thus, sustainable growth of agriculture is essential to accomplish the following objectives: Put the economy on a high growth trajectory again, ensure self-reliance and food security and provide sustenance and livelihood in rural areas, as agriculture is labour-intensive.

As highlighted above, agricultural growth has a strong spillover effect on the economy in terms of its forward and backward linkages, demand linkages and employment linkages. The contribution of agriculture to economic growth in terms of capital transfers may decline but the sector’s contribution due to the higher share of non-agricultural inputs in the input structure gets progressively strengthened. The eventual impact on poverty is far more significant than the initial impact. Reduction in prices of food grains, on which the poor spend most, itself leads to the containment of poverty.

Agriculture will, thus, continue to be the mainstay of the Indian economy. The country has taken significant strides in the recent past in productivity and production of foodgrains. The Indian economy remains largely agrarian. Though the contribution of agriculture to output has shown a steady decline, the percentage of population engaged in agriculture and allied activities continues to be large at around 67%. In view of the continued dependence of two-thirds of the population on agriculture, it continues to provide impetus to economic growth. Growth in other sectors does not lead to employment on a significant scale. Agriculture has a multiplier effect on growth. Therefore, long-term growth of the agriculture sector is necessary to achieve self-reliance at the national level, attain food security for households, generate employment opportunities and bring about equity in the distribution of income and wealth, resulting in a rapid reduction in poverty levels. Hence, it is even more necessary to bring agriculture to the centre stage of policy formulation.

Deepali Pant Joshi is an executive director of the Reserve Bank of India. These are her personal views.

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