ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Agricultural Growth, Employment and Poverty

A Policy Perspective

Interdependencies in the food and labour markets are important for the development process. A strategy combining promotion of agricultural growth, productive non-farm employment and high levels of social development would be needed for labour-intensive growth in rural areas. There should also be substantial investment in human resource development for enhancing people's inherent earning capacity. The aim thus would be the generation of self-reliant employment.

Agriculture dominates change inIndia through its causal links with factor and product markets. It employs 60 per cent of the labour force and contributes 26 per cent of the gross domestic product. In the poorer states, its contribution to the domestic product is close to 40 per cent. Low productivity in agriculture has led to the concentration of the poor in this sector. Due to the sheer size of the agricultural economy and the importance of its major products (cereals) in the diets of the poor, gains in agricultural productivity have significant potential impact on poverty. Theoretically, it is possible to reduce poverty as well as expand the domestic market for industry by raising labour productivity in agriculture and spreading its gains among the low-income groups. Modelling of the linkages between agricultural and industrial growth has shown that a 10 per cent increase in agricultural output would increase industrial output by 5 per cent and urban workers would benefit by both increased industrial employment and price deflation [Rangarajan 1982; De Janvry and Subba Rao 1986]. However, there is an asymmetry of adjustments in the demand and supply of agricultural goods. An increase in non-agricultural production would lead to an immediate increase in demand for intermediate and final agricultural goods, whereas supply-side adjustments involving re-allocation of resources and net additional investment for capacity expansion take a much longer period [Storm 1992]. There is a widely held view that in a large country like India, the demand stimulus for industrialisation would come mainly from agriculture with less social and economic costs.

Interdependencies in food and labour markets are important for the development process. An upward shift in the food supply curve would simultaneously result in an upward shift in the labour demand curve. The magnitude of the interdependence depends on the technique of production causing the shifts in the food supply curve. Similarly, an upward shift in the labour supply curve shifts up the food demand curve. The extent of interdependence between the forces of labour supply and food demand depends on the employment-output elasticity and the income elasticity of demand for food. The recent estimate of the employment-output elasticity in agriculture is around 0.5, income elasticity of food is in the range of 0.55-0.60 and that for cereals is 0.25-0.30. The other important inter-dependency, which plays a crucial role in inducing indirect employment, is that between food and other sectors through demand linkages. Since food accounts for a major share in the budget of the poor and any reduction in the food price leaves a significant proportion of income for other items, a lower food price stimulates employment in industrial and service sectors. On the other hand, an increase in the food price would increase the wage costs of industrial products and hence the prices of industrial products. In the absence of adjustments through exports, it would result in demand deficiency. Clearly, the most favourable situation in India is one in which labour demand outpaces its supply and food supply outpaces its demand.

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