Interface of Agricultural Growth and Farmers' Income in India

Authors: Shiv Kumar 1, Shiv Datt2 and Vikram Singh3
1 Principal Scientist, 2 Senior Scientist and 3Scientist IPTM Unit, ICAR, New Delhi

Implementation of the WTO agreement on agriculture in 1995 has led to perceptible fall in growth of agricultural commodities. This in turn led to perceptible decline in growth of agricultural output after the mid-1990s which had several consequences including widespread agrarian distress. To arrest the decline and to reverse the slowing growth of the agriculture sector, several initiatives were taken by the governments. Proper understanding of the decline and improvement in performance of agriculture since the mid-1990s is very important for shaping the future of Indian agriculture. The post-reform period also witnessed widespread agrarian distress and rise in disparity between agricultural income and non-agricultural income. It is pertinent to examine how different patterns of agricultural growth have affected producers. It discusses India' agricultural growth story. We have tried to understand the effect of varying growth rate in agriculture on producers by using farmer income as an indicator.

During different plan periods, different growth rate targets were fixed and varying growth rates were achieved. The performance of agriculture during the last two decades can be divided in two phases: phase-I from 1995-96 to 2005-06 representing a period of slowdown in agriculture, and phase-II beginning with year 2005-06 representing a period of recovery and acceleration in growth. Indian agriculture moved on a growth trajectory of 3.15 per cent per annum during 1988-89 to 1996-97 which plummeted to 1.92 percent in the latest decade. This was a very low growth having several adverse effects on farm economy and livelihood of farming community and posed a serious threat to the national food security (Chand and Parappurathu, 2012). Some initiatives were taken towards the end of 10th Plan and during 11th Plan to revive the sector. Consequently, the growth rate accelerated to 3.75 percent during 2004-05 to 2012-13. It is a matter of pride for the country that agriculture sector moved back on to the long term growth trajectory and is now approaching targeted growth rate of 4 percent.

Broad-based Growth

The increase in growth rate of agricultural output has been experienced across the board. Within the subsectors, crop sector recorded 3.3 % and fruits and vegetables recoded 5.3% annual rate of growth. Livestock output increased at 4.8 percent per annum while fishery sector recoded 4.5 % growth rate. The rate of growth in the recent decade has been 75 percent higher than the previous decade. The growth rate in livestock and horticulture growth wad higher by 41 percent and fisheries by 48 percent over the preceding decade (Chand 2014).

Agricultural Growth at State Level

The growth rate in NSDP agriculture across states varies from (-) 1.15 % in Kerala to 5.91 % in Chhattisgarh. The states like Madhya Pradesh, Karnataka, Rajasthan, Jharkhand and Chhattisgarh achieved more than 5% annual growth rate in agriculture, and Gujarat, Tamil Nadu, Maharashtra and Andhra Pradesh, exceeded the national target of agricultural growth. Haryana, recoded close to 4% annual growth in NSDP agriculture even with high level of productivity. In east India, both Assam and Bihar recoded more 3% annual growth. Uttar Pradesh and Odisha are still stuck in low growth trap. The state of Punjab comes at the bottom in the list of states which recorded positive growth in agriculture, with only 1.5% annual growth. In the North-West Himalayan region, agriculture growth rate in Jammu & Kashmir and Uttarakhand was around 2% whereas agriculture was stagnant in Himachal Pradesh. In West Bengal , agriculture sector was growing at about 2 % per annum. Agriculture sector was found to be shrinking in Kerala.

State-wise Growth and Regional Disparity

Regional disparities in level of agricultural productivity and development have remained an important concern of our policies. The only way to reduce inter-state disparities is to enable low productivity states to grow at faster rate compared to high productivity growth. Interestingly, growth has been quite low in high productivity states and high in low productivity states. This shows increasing favourable regional equity. The performance of agriculture improved in the last decade as a results of strong policy and institutional support provided to the sector. The major contributing factors are:
(i) Improvement in terms of trade for agriculture in the last decade and remunerative prices for farm produce;
(ii) higher use of productivity-enhancing inputs like fertilizer and quality seed due to prevalence of better pricing environment;
(iii), supported by public sector capital formation;
(iv) substantial increase in the supply of institutional credit to agriculture;
(v) achievement in technology and strengthening of extension; and
(vi) Initiatives like National Food security Mission (NFSM), Rashtriya Krishi Vikas Yojana (RKVY) and Bring Green Revolution in Eastern India (BGREI) and other mission and programmes.

Farmers' Income

Farmers' income is counted as net value added in agriculture less wage bill paid for hired labour while undertaking agricultural production. The growth in farm income shows rhythmic pattern with the rise and fall in growth in farm output. Growth in farm income increases with the increase in growth in farm output. The growth in farm income has been higher than growth in output. After 2004-05, both output and farm income have been historical growth rate. Agrarian distress is counted as the number of farmers' suicides in the country. Low growth in agriculture has strong effect on agrarian distress. After 2004-05, growth rate in agriculture and farm income started accelerating and the number of farmer suicides started falling. Between 2004-05 and 2011-12 output increases by 4.37 per cent and the number of farmer suicides dropped by 25 percent. These patterns suggest that agricultural growth is panacea of agrarian distress in the country.

Conclusion and Suggestions

The most important factor for improved and impressive performance of agriculture, post 2004-05, has been the increase in prices received by the farmers. This was a result of hike given to MSP, increase in food grain procurement, increase in global agricultural prices and strong domestic demand for food. Favourable prices induced farmers to use better seed, apply higher doses of inputs, take better care of crops and livestock, adopt improved technology and methods of production. This process was further aided by liberal supply of institutional credit, and irrigation expansion. Slowdown of agriculture growth and its recovery in response to changes in prices and non price factors clearly establish that Indian farmers respond rather strongly to various types of incentives.

It is a challenge to maintain the growth tempo achieved during 2004-05 to 2013-14. As no country can afford to keep real agricultural prices rising for a very long time, ways and means have to be devised to sustain profitability incentive. One way to maintain price or profitability incentive for farmers is to increase their share in final prices paid by consumers and other end users. The second source is technology either through resource saving or through increase in productivity. The agricultural development strategy in last ten years has focussed on production and Minimum Support Price (MSP). Agricultural development strategy should be expanded to bring marketing in its fold to improve competition, reduce inefficiency and harness market innovations. This should enable farmers to get better prices and higher share in prices paid by end users without adding to inflation. Without this, it would be very difficult to sustain the agricultural achievements of the last decade in the coming years.


1. Chand, Ramesh and Shinoj Parappursthu (2012). Temporal and Spatial Variations in Agricultural growth and Its Determinants. Economic and Political Weekly, Vol. XLVII, No. 26 & 27:pp 56-64.

2. Ramesh Chand, 2014. Agricultural Growth, Framers' Income and Nutritional Security: Linkages and Challenges. A Draft of the Lecture: Professor L S Venkatamanan Memorial Lecture-12 on 1July, 2014 at Institute for Social and Economic Change, Nagarabhavi, Bangalore-560072 : pp:1-20.

About Author / Additional Info:
The authors are working on IPRs issues on agriculture and agricultural policy