Agricultural Growth and Industrial Performance in India

In “The Role of Agriculture in Economic Development,” written nearly a quarter of a century ago, Bruce Johnston and I discussed the principal means by which agriculture could assist in transforming a traditional low-income economy in a modern high-income one. In the intervening years the literature and much of the practice of development has been dominated by either emphasis on industrialization, independent of agricultural development, or on agriculture as a provider of basic human needs, independent of commercialization and industrialization. Perhaps the time is ripe to pick up the old threads of a dynamic interaction between agriculture and industry. Those threads lead to a very specific strategy for development of agriculture itself in which technological change plays the key role. This research report by C. Rangarajan defines major points of influence of agricultural growth on industrial growth. The paper then attempts measurement of the broad relationships involved. In the process, valuable elements of description of these relationships and the measurement of associations provide a convincing argument for the significant effect that agricultural growth can have on the relative weight of the component parts. In appraising the importance of the relationship Rangarajan sketches, it is notable that the value of the proportion of industrial consumption goods consumed in rural areas is nearly two-and-a-half times larger than the proportion consumed in urban area. The study shows that these consumption linkages are much more powerful than the linkage from the use of inputs by agriculture or the provision of raw materials to industry. This analysis then serves as a prelude to studies providing much more detailed information on the costs may be compared with the benefits, more complete and alternative specifications or the relationships between agriculture and industry, and more precise measurement of those relations and their component parts. But, even more importantly, the analysis points out the need for careful studies at the farm, village, and rural regional levels of the precise nature of these interactions and hence the policies that may be applied to further develop and enlarge them. Current IFPRI field work in collaboration with the Tamil Nadu agricultural University in Coimbatore, India, and with the Bangladesh will shed light on these matters. This work will not only corroborate the strong positive role of agriculture in development but will lead to policies to enhance that role. It is notable that Rangarajan finds that a 1 percent addition to the agricultural growth rate of industrial output (hence a 0.7 percent increase in the growth rate of national income). This finding, though based on a different methodology, is roughly the same as the finding of Peter Hazell and his associates in the Muda River Project in Malaysia. It is perhaps fair to say that in neither case were there explicit polices to enhance this multiplier effect of agricultural growth. Thus a research effort to define the details of these relationships in order to find policies for enhancing the multipliers is well founded. At IFPRU we have a substantial effort under way to pinpoint investment and policy needs for increasing these multipliers, for turning agricultural growth into greater employment opportunities for the poor, and for generating a greater market for agricultural output- all summing up to a further increase in overall growth rates with broader participation in the benefits of that growth.