Economics-Economic Sectors

Economic Sectors

9.1 Role of Agriculture

Agriculture plays a pivotal role in economy. Some of its significant roles are:

i.          Source of Employment: In rural area agricultural is the main source of generating employment opportunities. As per 1991 census, it provided employment to about 67% of total population. In 2004-05 it came down to 54%. In countries like UK, USA, less than 3% population are engaged in Agriculture.

ii.        Source of National Income: Agricultural sector contributed 18% of GDP (in 2006-07). A significant portion of revenue comes from agriculture. India is primarily an agriculture dependent country. In countries like UK, USA, Japan, agriculture contributes to less than 5%.

iii.       Development of Industries: Agriculture has big role in the development of industries, specially the agro based industries such as textiles, sugar, tea etc. Many other industries also depend on agriculture for their inputs.

iv.       International trade: The country’s foreign trade, specially export of commodities like jute, tea, coffee, tobacco etc. depends a great deal on the supplies of agricultural sector. As Indian is not much developed in industrialisation, so cannot export much industrial products. But a significant portion of expert revenue is obtained from exporting agricultural products. India mainly imports capital goods and exports agricultural products. Total agricultural exports in 01-02 was 28500 crores.

Share of agriculture and their allied products in total export was about 70% percent.

India most exportable agricultural product is Tea.

v.         Cost of Living: Agricultural production influences the cost of living standard of the country.

vi.       Domestic Trade & Commerce: On account of agricultural predominance. The considerable part of trade and commerce depends on agriculture because many industries depend on agricultural produces as input. So, income of majority of people depends upon agriculture.

vii.     Low Capital Ratio: Agriculture has a low capital output ratio. It requires lesser capital per unit of output produced compared to Industries. Therefore, a capital poor economy like India has to focus on development of agriculture.

viii.   Population Migration: Due to rising unemployment, rural population tends to migrate to urban areas. Agriculture tends to reduce such migration. If agriculture can create required employment opportunities to the youths, then rural people may not flock to the urban for jobs and then pressure on urban areas will be reduced.  

9.2 Growth of Agriculture

Growth in Plan Period

i.      First Plan (1951-56): Faced with Food crisis & Shortage of industrial raw materials  such as raw jute & raw cotton, 31% of the total plan outlay was devoted to agriculture. First plan was successful. It saw production of 67 million tonnes as against a target of 62 million.

ii.    The Second Plan (1956-61): The emphasis shifted to industry Outlay on agriculture was reduced to 20% from 31%. 1st plan agricultural production target was 81 million and actual production was 80 million tones.

iii.   The Third Plan (1961-66): Greater allocation was  provided for agriculture, Intensive agricultural District Programme (IADP) & Intensive Agricultural Areas Programme (IAAP) were launched. In 1966-67, High Yielding Varieties Programme (HYVP) & Multiple Cropping Programme were adopted. But whole planning process received a severe jolt.

iv.   The Fourth Plan (1969-74): The 3rd plan was a failure in respect of agriculture 4th planed assigned high priority to agriculture through scientific & modern techniques. But poor monsoons in 1972-73 led to crop failure & created price inflation.

v.     The Fifth Plan (1974-79): The growth target in the agriculture & allied sectors was fixed at 3.94%. Outlay on agriculture was 21% of total plan outlay.

vi.   The Sixth Plan (1980-85): The sixth plan was the successful & is known as 2^nd Plase of Green Revolution. While the 1^st phase of Green Revolution developed Punjab, Haryana  & Western U.P. the 2^nd phase see growth in states like West Bengal, Bihar, Orissa, MP & Eastern U.P.

vii.  The Seventh Plan (1985-90): The 7^th plan aimed at 4% growth rate of agriculture output.

viii. The Eighth Plan (1992-97): The 8th plan proposed outlay of Rs.22,467 as against the actual expenditure of Rs.12,792 crores in the 7th plan. It aimed at 4% annual growth and 3.9% annual growth in agriculture was realized.

ix.   The Ninth Plan (1997-2002): The agriculural sector performed badly during the Ninth plan. There was negative growth rates of (-) 6.1%, (-)0.7% & (-)3.5% during 1997-98, 1999-2000 & 2000-01. during 1998-99 & 2001-2002, positive growth rate of 7.7% & 6.5% respectively was achieved.

x.     The Tenth Plan (2002-2007): The Tenth Plan targeted growth rate in excess of 4% per annum in the agriculture sector, but achieved only 2% growth rate. Special focus was given to commercial crops like sugar, oilseeds & to foodgrains like superior cereals, rice, wheat so that qualitative changes take place.

xi.   The eleventh plant (2007-2012): The paln targets growth rate of 4% in agriculture, from less than 2% achieved in the 10^th plan. The 2^nd Green Revolution aims to raise the growth rate of agricultural to GDP to 4%.

Green Revolution

Green revolution began in 1966. [Q: 15] The term Green Revolution is used for the significant break through in the production of food grains through use high yielding variety seeds and improved cultivation process. The main elements of green revolution are:

i.      Use of Modern equipment and machinery: For bringing green revolution, tractors, harvesters, pumps etc. are being used in place of human & animal power.

ii.    Chemical fertilizers: Use of chemical fertilizers for enhancement of production has boosted Green revolution. 

iii.   Use of Wonder seeds: Green revolution is brought by using high yielding seeds such as pv18, Kalyan sona 227 for Wheat, Jaya, Vijaya, Ratna IR-8, etc. for Rice.   

iv.   Super irrigation facility: Efficient irrigation system for supply of adequate water for crops. The crops helped green revolution.

v.     Arrangement for Improved credit facility: Agricultural credit at cheap rate to the farmer is another factor for bringing green revolution.

Main target of green revolution was to bring about significant increase in food grain production.

Yellow Revolution

Green revolution proved many landmarks in the production of food grains. The next step in the series of agriculture research and development came through Yellow Revolution’ for attaining self-dependence in the production of oil-seeds. Its mission was optimum utilization of production, processing and modern technology in oil-seeds crops.

9.2.1 Causes of low agricultural Productivity

(i)    Uncertain rainfall: Indian agriculture gains in monsoon, but the rains are uncertain, insufficient or unevenly distributed. Too much rain results in floods causing widespread damages and destruction.

(ii)   Poor Techniques of Production: Indian farmers are still using old & inefficient methods & techniques of production Use of both farmyard manure & chemical fertilizers is mostly inadequate. Well and tube wells are still the main source of irrigation in India. [Q:171]

(iii)  Limited use of HYV seeds: The adoption of High Yield Variety (HYV) seeds improve yields considerably. But HYV seeds are used only in 40% of gross cropped area, which leads to low production per hectare.

(iv)  Lack of Inputs: Agricultural output & Productivity largely depend on availability of inputs. Indian farmers are poor & with meager financial resources. They cannot employ latest fertilizers, farm equipments, irrigation facilities etc.

(v)   Size of holding: The size of holding in India is very low, less than 2 hectares or 5 acres and are also high fragmented. So no scientific cultivation with improved implements seeds etc. is practicable.

(vi)  Inadequate Credit Facilities: Though banks & other financial institutions are advised to give liberal loans to farmers for buying their necessary HYV seeds, pesticides, construction of wells & pumps illeterate farmers often are unable to fulfil the bank’s requirements.

Regional rural banks plays the major role as institutional source of finance for agricultural sector. [Q:182]

9.3 Land Reform

Land reforms is a revolutionary step taken by government for promoting agricultural production. Earlier, tillers of the land had no right on the land. They only worked for wages. All the produces of the agricultural land was the property of the landlord. Consequently, the farmers were always under heavy in debt.

Government introduced land reforms, taking away the ownership of land from the landlord, and giving to the actual tiller of the land. Exploitation of farmers by the land lord reduced and financial condition of the farmers improved due to land reform measures.

Objectives of land reform  

(a)   To redistribute land through consolidation of holdings and imposing ceilings on holding.

(b)   To give ownership to the actual tillers.

(c)   To improve the size of farms and provide security of tenure.

(d)   To regulate the rent etc.

Steps undertaken to achieve land reforms objectives

(a)   Tenancy Reforms

(b)   Abolition of Zamindari system.

(c)   Ceiling on land holding

(d)   Consolidation of holdings

(e)   Co-operative farming.   

9.4 Agricultural marketing in Indian scenario

(i)     Availability of high number of buying agencies: A lot of private and government agencies are engaged in buying the agricultural produces. Uneducated farmers cannot properly select the right agency for selling their produces. In most cases, they do not get right price for their agricultural produces.

(ii)    Lack of finance: The Indian farmers are poor and always in debt. So, they are often forced to sell their produce at low price.

(iii)   Cultivators are not properly organised:  Farmers are uneducated and unorganized. On the other hand, the purchasers are organized and are able to bargain to their advantage. Purchasers always try to buy the agricultural produces from the farmers at low price.

(iv)   Lack of market intelligence: Indian farmers lack market intelligence. They do not have proper information regarding prices prevailing in the markets. Due to ignorance of knowledge, mostly they sell their agricultural produces at low price.

(v)    Insufficient communication facilities: Due to poor communication facility, they do not have knowledge about the prevailing market conditions. They tend to sell their produces at lower price.

(vi)   Lack of storage facility: The storage system is primitive. About 10-20 percent of the produce is wasted & lost. So, farmers prefer to sell the produce at whatever price they get immediately, instead of storing them.

9.5 Industrialization

Industrialization plays a vital role in the development of an economy. It is extremely important for under developed economics. Rapid industrialization brings employment opportunities. It helps capital formation. To reach developed stage, all under-developed countries try to increase its industrialization process.

Role of industrialization in development of an economy:

(a)   Employment opportunities: In an under developed economy, agriculture cannot provide adequate employment to all. In such a situation, industrialization provides move employment opportunities to absorb the unemployed labour. Employment in industries was 18.2% in 2004-05.

(b)   Balanced growth: Industrialization decreases dependence on agriculture, which is more or less unstable due to its seasonal nature. To ensure growth with stability industrialization is a must. Every developing countries try to transfer its agriculture economy to industry based economy. Share of industrial sector in GDP increased from 12% in 50-51 to 26% in 2004.

(c)   Increasing returns: The economy enjoys the benefit of increasing return through industrialization. Industrialization thus ensures optimum utilization of the scarce resources and improves the remunerative capacity of the economy.

(d)   Economic self-reliance: The industrial sector has a higher capacity to save and invest. It thus, assists the economy to be self-sufficient. Industrialisation is necessary to increase country’s capital stock.

(e)   Country’s infrastructure:  When industry develops, it develops with the infrastructure of the economy. It helps in the development of communication, transport, banking, insurance and other commercial services.    

(f)    Per the capita income: By improved capital formation, industrialization makes a large contribution to the GNP and thus increases the per capita income. Increased per capita income paves way to economic development. In India, per capita income is just $720 in 2005, as against $43470 in USA.

(g)   Capital formation: Capacity to save and invest industrialization assists in capital formation through increased saving and investment.

Obstacles of industrial development in India

i.      Under utilization of Capacity: Many Indian industries suffer from the problem of under-utilization of production capacity. It is estimated that utilizing capacity in a planned manner, industrial production can be enhanced by 30 to 40% without any further investment. Poor production planning, lack of proper training to the workers, improper production scheduling, lack of order are some of the reasons for under utilization of capacity. The real per capita growth of industrial output is just 3.3% p.a.

ii.    High Cost Economy: The cost and price of goods / services in India are generally much higher than international costs and prices.

iii.   Inadequate employment generation: Though employment creation in relation to investment made creation of more employment opportunities is one of the major target of five years plans, if has been so for incapable of creation of substantial direct employment. So, inspite of industrial development, our country is suffering from acute unemployment problem.

iv.   Concentration of Economic Power: Large business houses have accumulated considerable assets. Accumulation of industrial power in few hands, hinders the development of small and medium size industries.

v.     Sectoral Imbalance: Sectoral imbalance is also a major problem of industrial development. Industries are suffering from inadequate support from agriculture and infrastructure.

vi.   Poor performance of Public Sector: Many public sector enterprises are not operating profitably. Accumulation of large losses in public sector units has now become a matter of grave concern (Rs. 73.50 crores in 05-06). A loss making undertaking becomes weak. In course of time, it loses survival capability and causes huge financial loss to the country.

vii.  Industrial sickness: Many Indian small, medium and large units are suffering from industrial sickness. Due to poor financial mismanagement, demand recession, labour unrest, working capital shortage, cost escalations, shortage of raw materials, uneconomic size, out-dated machinery and equipment etc. In 2001, there were about 2.53 lakh sick units of which about 2.49 lakhs were in SSI sector.

A registered company can be declared sick by judiciary or by BIFR.

viii. Unrealistic and faulty planning: Lack of preparatory action before launching the projects results in time and well as cost over runs. Lack of co-ordination between various related sector results in bottlenecks.

ix.   Unbalanced regional growth: Efforts at bringing about a balanced regional growth have not so far succeeded. Maharashtra, West Bengal, Tamil nadu & Gujrat account for 44% of total factories. Bihar, U.P., A.P., MP have somehow failed to avail the benefit of industrialization. Thus, industrialization is concentrated only in few states resulting in unbalanced growth.

9.6.2 Service Sector

Service sector now plays a crucial role in income generation in India. A major part of national income comes from service sector, through services like:

(i)        Professional services

(ii)      Communication services

(iii)     Construction services

(iv)     Education services

(v)       Transportation services

(vi)     Tourism Services

(vii)    Financial services

(viii)   Health services

Share in GDP: The share of service sector in GDP in 06-07 was 55.4%.

Employment: Employment in service sector increased from 17.3% in 50-51 to 22.% in 2001.

Exports: Services accounted for 3.5% of India’s total exports in 2004-05. In grew by about 75% in 05-06, India ranked 11th in exported  of commercial services in 2005.

Growth of Service Sector in India

The growth of service sector in India is broad based. Services account for more than 60% of the world GDP and services has grown more rapidly than merchandise trade. Service sector continued to be leading by growing at double digit rates for successive years. The service sector accounts for more than half of India’s GDP:- 54.1% in 2005 – 06, 55.4% in 2006-07. The average growth rate of service sector during 10^th plan turns out to be around 9% per annum and 11^th plan aims at 9.4% per annum growth.