Engaging over 50 per cent of the workforce and producing just 18 per cent of the output, agriculture in India suffers from disguised unemployment
17-Apr-2015 •Vivek Kaul
The Ministry of Statistics and Programme Implementation recently revised the way it calculates the gross domestic product (GDP) of India. As per this new way of calculating the GDP, agriculture, forestry and fishing form around 18 per cent of the total economic output of the country.
As per the old way of calculating the GDP, agriculture, forestry and fishing formed around 16 per cent of the GDP of the country (based on April to September 2014 GDP at current prices). Hence, as per the new method, there has been a small improvement in the share of agriculture in the total economic output.
Nevertheless, once one takes into account the total number of Indians dependent on agriculture for a living, the real picture starts to come out. Data from the India Brand Equity Foundation, a trust established by the Ministry of Commerce and Industry, points out that agriculture "employs just a little less than 50 per cent of the country's workforce."
If nearly 50 per cent of country's workforce is engaged in an activity which produces only 18 per cent of its economic output, there is something that is not quite right about the entire scenario. There are way too many Indians dependent on agriculture to make a living. The situation gets even worse once you take into account the fact that most people who work on farms don't totally depend on income from the farm.
As Mihir Sharma writes in Restart: The Last Chance for the Indian Economy, "This is one of the few occasions where the statistics are so obvious that they're worth quoting. Here is the most relevant statistic: If farming households were forced to live on their agricultural income alone, then more than 60 percent of them would be below India's poverty line."
Those working on the farm are aware of this. "This is why, at last count, only 17 per cent of them - less than one in five! - subsisted entirely on money from their farms. The remainder all did some extra work off it," writes Sharma.
So, nearly 50 per cent of the country's workforce works towards generating only 18 per cent of its economic output. The trouble with Indian politicians has been that they have worked towards trying to improve the second number. "Many people have been convinced that if there was just some way to increase agriculture's share of output... things would be better," writes Sharma.
But that is easier said than done. A major reason for the same is the fact that the average size of an Indian farm has been falling over the years. The State of the Indian Agricultural Report for 2012-2013 points out that: "As per Agriculture Census 2010-11, small and marginal holdings of less than 2 hectare account for 85 per cent of the total operational holdings and 44 per cent of the total operated area. The average size of holdings for all operational classes (small and marginal, medium, and large) has declined over the years, and for all classes put together it has come down to 1.16 hectare in 2010-11 from 2.82 hectare in 1970-71."
This is something that cannot be reversed. The size of farms has been growing smaller because over the generations the number of people dependent on agriculture for their income has grown. This is despite the fact that at 157.35 million hectares, India has the second largest agricultural land in the world. Only the United States has more land than what India has.
The agricultural output can be improved. "The efficacy of other agricultural inputs such as fertilizers, pesticides and irrigation is largely determined by the quality of the seed used. It is estimated that quality of seeds accounts for 20-25 per cent of productivity. Hence, timely availability of quality seeds at affordable prices to farmers is necessary for achieving higher agricultural productivity and production," the State of the Indian Agriculture Report further points out.
Nevertheless, there are way too many Indians dependent on agriculture and that needs to change. That will only change if the country as a whole generates enough semi-skilled jobs where people can be employed. But the job growth in India has been abysmal over the years. "In the years from 1972 to 1983 - not celebrated as a time of overwhelming prosperity - the total number of jobs in the economy nevertheless grew by 2.3 per cent. In the years between liberalisation and today, jobs have grown at an average of only 1.6 per cent per year," points out Sharma.
If India's young who are entering the workforce need to be absorbed, jobs need to grow at 3 per cent per year. Add to this the massive number of people who need to be moved from agriculture to other areas, the rate of growth has to be even faster. The matter is further exacerbated when we think about the population growth rate India has.
There are no easy answers here and this is something that the Narendra Modi government will have to address in the next Union Budget as well as years to come.
Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected].
This column appeared in the March 2015 Issue of Wealth Insight.
Our rating system has guided millions of investors in the past 20 years.