Agriculture Industry Linkages in the Economy of Jammu and Kashmir

Custom Student Mr. Teacher ENG 1001-04 12 October 2016

Agriculture Industry Linkages in the Economy of Jammu and Kashmir

Agriculture plays an important role in contributing to socio-economic development in many countries. It is the primary source for employment, livelihood, and food security for the majority of rural people. The success of this continuation depends largely on the direct impact it has on the national economy as well as how the agricultural sector stimulates the growth of other sectors in the economy. Consequently, understanding the role of agriculture and its linkages to the rest of the economy is important. The inter-relationship between agriculture and industry has been a long debated issue in the development literature. In the Indian context the issue has acquired interest since industrial stagnation in the mid 1960s.

Over the years the Indian economy has undergone a structural change in its sectoral composition: from a primary agro-based economy during the 1970s, the economy has emerged as predominant in industry. This has triggered an interest in readdressing the analytical and methodological aspects of the interlinkages between the two sectors the service sector since the 1990s. This structural changes and the uneven pattern of growth of agriculture, industry and service sector economy in the post reforms period is likely to appear substantial changes in the production and demand linkages among various the economy. At the same time the growing integration with the rest of the world in the post-reform period (post 1991 period) and the recent spurt of service sector led growth are also likely to have significant impact on the linkages between the agriculture and industry.

This has triggered an interest in read dressing the analytical and methodological aspects of the interlinkages between the two sectors. That agriculture and industry being integral component of development process due to their mutual interdependence and symbiotic relationship, the contribution of agriculture to the economy in general and to industry in particular is well known in almost all the developing countries. However, the degree of interdependence may vary and also change over time. In the theory and empirical literature, the inter-relationship between agriculture and industry has been discussed from different channels. First, agriculture supplies food grains to industry to facilitate absorption of labour in the industry sector.

Secondly, agriculture supplies the inputs like raw cotton, jute, tea, coffee etc. needed by the agro-based industries. Thirdly, industry supplies industrial inputs, such as fertilizer, pesticides, machinery etc. to the agriculture sector. Fourthly, agriculture influences the output of industrial consumer goods through demand. Fifthly, agriculture generates surpluses of savings, which can be mobilized for investment in industry, and other sectors of the economy. Sixthly, fluctuations in agricultural production may affect private corporate investment decisions through the impact of the terms of trade on profitability, whereas some of these channels emphasize the “agriculture-industry‟ linkage on the supply side or production side, others stress the linkages through the demand side.

The production linkages basically arise from the interdependence of the sectors for meeting the needs of their productive inputs, whereas the demand linkage arises from the interdependence of the sectors for meeting final consumption. Further, the linkages between the two sectors can also be categorized into two groups based on the direction of interdependence. One is the backward linkage, which identifies how a sector depends on others for their input supplies and the other is the forward linkage, which identifies how the sector distributes its outputs to the remaining economy. More importantly, these two linkages can indicate a sector’s economic pull and push, because the direction and level of such linkages present the potential capacity of each sector to stimulate other sectors and then reflect the role of this sector accordingly.

As far as Jammu and Kashmir is concerned Agriculture is the predominant sector of the economy. Directly and indirectly, it supports about 80 per cent of the population besides contributing nearly 60 per cent of the state revenue, which adequately explains the over-dependency of the population on agriculture. The overall economic growth of the state depends largely on the progress of the agricultural sector, the development of which becomes even more important in the context of the very nominal progress it has made in the secondary sectors. With the introduction of planned development in the state during 1951-56, production of foodgrains and fruits has increased considerably.

During 1998-99, the state produced 15.50 lakh quintals of food grains against 4.53 lakh quintal in 1950-51. Of this, Kashmir region contributed 27.20 per cent, Jammu region 72.14 per cent and Ladakh and Kargil region 0.66 per cent Industries play a vital role in the development of an economy. In this regard unfortunately, J&K has not been able to attract investments in industries and remained as an industrially backward state. The state does not have a strong industrial base, because geographical location of the state is such that the setting up of large industries with a large Capital base is not feasible, besides adverse environmental consequences. Nevertheless, many small and medium-scale industries have come up basically in the traditional sectors along with areas like food processing, agro-based units and metallic and non metallic products.

Thus in such an sectoral environment were industrial sector has low opportunity, Agriculture provide basic linkages in its development . Thus the state of Jammu and Kashmir were main source of income is agriculture for masses of people, the linkages between Agriculture and Industry is very important to study in order to know the potential of Agriculture to develop an industrial environment in the state. In mean while it is important to study the dependence of agriculture on industry, so that both sectors will flourish the development in the state of Jammu & Kashmir.

The macroeconomic linkage between the agricultural sector and industrial growth has been one of the most widely investigated in the development literature. In the early stages, researchers paid great attention in studying the relationship between the agricultural and industrial sectors, and how these sectors were inter-related. They argued that agriculture only plays a passive role; which is to be the most important source of resources (food, fiber, and raw material) for the development of industry and other nonagricultural sectors (Rosenstein-Rodan, 1943; Lewis, 1954; Ranis and Fei, 1961). Many of these analysts highlighted agriculture for its resource abundance, and its ability to transfer surpluses to the more important industrial sector.

India being a predominantly agrarian economy and an agro-based industrial structure, the interrelationship between agriculture and industry has been one of the major issues for the researchers and policy makers since the beginning of the planning period. In the pre and early post-independence period, the industry sector had a close relationship with agriculture due to the agro-based industrial structure (Satyasai and Baidyanathan, 1997). Satyasai and Viswanathan (1999) found that the output elasticity of industry with respect to agriculture was 0.13 during 1950-51 to 1965-66. Rangarajan (1982) has found that a 1.0 percent growth in agricultural production increases industrial production by 0.5 percent, and thus, GDP by 0.7 percent during 1961-1972.

However, the industrial sector witnessed a slow growth, stagnation since the mid 1960s, which was largely attributed to the stunnedagricultural growth and favourable agricultural TOT, among other factors (Patnaik, 1972; Nayyar, 1978 and Bhatla, 2003).10 In fact the interdependence between the two sectors has found to be weakened during the 1980s and 1990s (Bhattacharya and Mitra, 1989; Satyasai and Viswanathan, 1997). For instance, Bhattacharya and Rao (1986) have found that the partial output elasticity of industry with respect to agriculture has declined from 0.15 during 1951/52 – 1965/66 to 0.03 during 1966/67-1983/84. Contradictorily, Satyasai and Viswanathan (1999) found that the output elasticity of industry with respect to agriculture has increased from 0.13 during 1950/51-1965/66 to 0.18 during 1966/67–1983/84, and then remained at the same level 0.18 during 1984/85-1996/97.

The deteriorating linkages between agriculture and industry have been primarily credited to the deficiency in demand for agricultural products, decline in share of agro-based industries coupled with slow employment growth (Rangarajan, 1982; Bhattacharya and Rao, 1986; and Chowdhury and Chowdhury, 1995). Sastry et al. (2003), for the period 1981-82 to 1999-2000, found that the forward production linkage between agriculture and industry has declined, whereas backward production linkage has increased. They also found significant impact of agricultural output on industrial output, and that agriculture’s demand linkage to industry has declined, while that of from industry to agriculture has increased.

Economic and Political Weekly August 26, 1989 1963 wean agriculture and merely the set of industrial consumption goods like clothing, footwear, sugar and edible oils, it may be concluded that the overall intersectoral linkages appear quite modest. The early writers, for example Rosestein-Rodan (1943), Lewis (1954), Scitovosky (1954), Hirchman (1958), Jorgeson (1961), Fei and Ranis (1961) and others emphasized the role of agriculture only as a primary supplier of wage goods and raw materials and abundant labour supply to industry (Johnston and Mellor, 1961 and Vogel, 1994). The role of agriculture in the transformation of a developing economy was seen as ancillary to the central strategy of accelerating the pace of industrialization (Vogel, 1994).

Kalecki (1976) also pointed out the importance of investment and technological advances in agriculture for the rapid development of industry. The traditional literature on inter-sectoral linkages in the growth process generally emphasises the role of agriculture as a primary supplier of wage goods and raw materials to industry (supply-linkage on the one hand and as a provider of major output for in- dustrial goods (demand linkage) on the other [Johnston and Mellor, 1961 and tertiary sector in a modern economy. Further, it may be noted that with growing mechanization of agriculture it becomes dependent on industry for basic inputs, like, fertiliser, power, pesticides, etc. Incidentally the agriculture-industry relationship becomes more complicated in this process. A slow growth of net availability of food- grains or alternatively the movement of inter-sectoral terms of trade in favor of the agricultural sector is believed to cause deceleration of the industrial sector.

However, empirically speaking there was no slow down in the growth of production of food- grains after the mid-sixties [Ahluwalia: 1985]. Nor was there any fall in the marketed surplus of agriculture [rhamarajakshi: 1977] so as to be related to the industrial decelera- tion. But, so far as the agriculture vis-à-vis industry terms of trade is concerned, one en- counters a series of mixed evidence. Whe Thamarajakshi [1977], and Mitra [1977] visualised a favouralJe terms of trade for the agricultural sector during the mid-sixties andearly seventies, Khalon and lyagi [1983] obtained evidence that stand quite contrary to others’ view.

Mundle [1977], however main- tains that in terms of intersectoral resource flow-of which terms of trade is just a single component-the industrial sector has been undergoing loss since the mid-sixties. Prior to that it was agriculture which was experiencing an outflow of resources. Rangarajan [1982a] in his macro econometric model makes an attempt to capture the demand linkage between agriculture and industry. He identifies a positive impact that agricultural output has on the demand for industrial consumption goods. The effect of foodgrain terms of trade on industrial products has been negative but elasticity is negligible. Both agricultural output and terms of trade had a positive influence on household saving and investment.

Keeping in view such segmented impact of agriculture on industry zplaining the behaviour of indugtrial produc- tion purely in terms of agricultural performance .Bhattacharya and Rao [1986] emphasisesthe sluggishness that continued in the per-formance of industry even after the relative relaxation of the wage goods constraint that occurred during the green revolution period. Thus, the theoretical literature in the “agriculture-industry linkages ” has broadly highlighted the place of agriculture and non-agriculture sector, especially industry in the development process and contribution of each in augmenting growth of output and employment. Most of the theoretical literature has largely focused only on one side of the “agriculture-industry linkages ’’ i.e. either the supply side linkages or demand side linkages. However it is both the demand side and supply side linkages that work together in an inter-sectoral framework, which determines the interlinkages between the two sectors. In this respect Bhaduri (2003) and Bhaduri (2007) are two important contributions in the literature.

Bhaduri (2003) extends Kaldor’s model by considering the role of the agricultural surplus from the supply side as well as the importance of the demand side effect for industrial goods. In this set up, both the sectors grow in tandem, reinforcing and reinvigorating each other’s growth impulse, by resolving each other’s potential realization problem (Jha, 2010). Further, Bhaduri et al. (2007) have extended the Kaldor’s model by contrasting between the supply side and demand side linkages of the two sectors from the TOT point of view. Thus there has been lot of researches, publication and models on the topic “Agriculture industry linkages in the economy” given by many renowned economists, and peoples associated with this field. Everyone concluded that there is an unlimited linkage between two sectors which not only develop one other but also give birth to other sectors as well. Thus to conclude it can be said that in an economy mostly there is a large number of linkages originated from a primary level and put economy to those sectors which keep it in the level of developed ones.


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  • University/College: University of Chicago

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 12 October 2016

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