Well meaning ………… but off track

I have been listening to many well-meaning speakers on the topic of addressing the farming crisis in India. They are all well meaning but somehow it jars when they harp on accelerating the agricultural growth rate to match industrial growth rates and to take agriculture to 30% of the economy. That is not possible, unless the economy goes into a tailspin and shrinks!

The economic history of mankind clearly illustrates the role of technology in accelerating welfare. There is only so much that one can make off the land, and that cannot support 6 billion people. It was all right to be pure agrarian at below 1 billion population, not any more. The industrial revolution created a new set of economic assets and the communication revolution has created another new set. Today these assets far outstrip the land provided by nature, in value and in the ability to generate economic income.

Look at any economy over a period of time. If the economy is progressing, the share of agriculture (and any other natural resource based sector) must come down, and it does. The US is the largest agricultural economy in the world and yet the share of agriculture today is only about 3% in its economy, and it will keep coming down. China is another agricultural powerhouse, but in China the share of agriculture is below 15% and it will go down to below 10% in another decade or so.

India is following a well-treaded path. The share of agriculture has gone from above 75% in 1947 to about 20% today, and by 2025, it should be below 10%. This is not to say that the agricultural sector will not grow. It will grow, but the long term trend can at best be 3-4% pa. That is about the limit. Grow it must, because productivity is still pretty low at aggregate levels.
However, this growth will not and cannot avert the disaster alone. The crux of the problem is not that the share of agriculture is going down, it is the fact that 60% continue to depend on agriculture for their livelihood. It is this 60% which needs to be brought down. In China, at present only about 30% depend on agriculture and in the US less than 1% depend on agriculture (which makes an average farmer richer than the average man in the economy).

If India has to tackle the agrarian problem, it must push for sustained growth of 3-4% and it must also expand manufacturing and rural services to suck out the labor surplus in the farm sector. This has to be a big effort if we are to bring down the dependence to about 30% in 20-25 years.

It means that sectors such as organized food retail, food processing, etc need to be boosted with friendly policies. These are sectors that have the capacity to absorb large labor forces and investment in these sectors should be encouraged.