The shift from agriculture to manufacturing will not be easy

Oct 20, 2015

- By Vivek Kaul

Vivek Kaul
One of the points that I have often made in The Daily Reckoning is about close to 50% of Indians being engaged in agriculture generating around 18% of the Indian gross domestic product (GDP). What this clearly tells us is that agriculture is a low-income earning activity. It also tells us is that there are many more Indians employed in agriculture than there should be. And this can be made out from the fact that only 17% of Indians employed in agriculture, survive on money they make from it. The rest, have to do some other work along with working on the farm, in order to add to their meagre income.

Hence, it's a no-brainer to suggest that people need to be moved out from agriculture into other higher paying areas like industry and services. As TN Ninan writes in his new book The Turn of the Tortoise-The Challenge and the Promise of India's Future: "Both productivity and incomes will go up substantially if more people can be moved from low-paying agriculture to higher-paying industry and services-a key transition the country has barely begun."

The Make in India initiative of the Narendra Modi government should be seen in light of this. The programme envisages "an increase in the share of manufacturing in the country's Gross Domestic Product from 16% to 25% by 2022"and "to create 100 million additional jobs by 2022 in manufacturing sector".

One reason why this target at best remains a pipedream is because of the lack of education among Indians. The rate of literacy as per the 2011 Census stood at 74.04%. As this website points out: "Compared to the adult literacy rate here the youth literacy rate is about 9% higher. Though this seems like a very great accomplishment, it is still a matter of concern that still so many people in India cannot even read and write."

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The trouble with this literacy number is that it does not give you the whole picture. As per the Human Development Report 2014, the average Indian male has around 5.6 years of schooling and an average Indian female has around 3.2 years of schooling. Both Bangladesh and Pakistan are ahead of us. For Bangladesh, the numbers being 5.6 years and 4.6 years, respectively. For Pakistan, the numbers stand at 6.1 years and 3.3 years, respectively.

And this is where the plan to move people from agriculture to industry or services for that matter, starts to go haywire. As Ninan writes: "Acquiring job-related skills without the benefit of a basic education is a challenge-it is hard to be a fitter or an electrician at a construction site if you don't know basic arithmetic and can't read simple instructions on a product pack."

What this means is that the Make in India plan cannot take-off beyond a point unless our primary education system starts to improve. Individuals need to spend more time in school receiving better quality education. As things stand currently not much is being learnt in schools.

In fact, surveys have pointed out that most children cannot read basic text. The Annual Status of Education Report facilitated by Pratham points out that only 48.1% of children enrolled in Class V could read standard II level text. This means more than half of children enrolled in standard V cannot read standard II level text. In fact, more than one-fourth of children enrolled in standard VIII could not read standard II level text. The report further points out: "The gap in reading levels between children enrolled in government schools and private schools seems to be growing over time."

And this is a worrying factor. Further, moving people away from agriculture into other more productive domains is a time taking process. As Ninan writes: "Thailand, one of the most successful manufacturing countries, has those in agriculture continuing to account for 40 per cent of its workforce. China, despite its considerable success in building a factory sector, has 35 per cent of its workforce still engaged in agriculture, generating about 10 per cent of its GDP."

The point being that "whether one likes it or not, the transition away from agriculture as the primary source of employment is going to be slow".

So what is the way out? Ninan suggests that one way out is to increase productivity of Indian agriculture. "Paddy output per hectare [in India] at about 3.7 tonnes, is 20 per cent short of the global average and barely half of China's. One reason is that Indian farmers are not using the latest strains of high-yield varieties (growing them is also more employment-intensive) or adopting new methods of cultivation that require less water. It's the same with maize,"writes Ninan. If these numbers were increased India's agricultural output would go up in the days to come, and so would the income of people dependent on agriculture for their living.

The problem here is that the size of farms over the decades has grown smaller. Take a look at the accompanying table from the annual report of Department of Agriculture and Cooperation 2013-2014.

What does the table tell us? It shows very clearly that most farms are small in size and less than two hectares in area. 85% of the farms are less than two hectares in size and 67% of the farms are less than one hectare in size. And this doesn't help the productivity cause at all.

As Mihir Sharma writes in Restart-The Last Chance for the Indian Economy: "Indian farms are tiny. Over 80 per cent of them are smaller than 2 hectares...And they are getting even smaller. They are just over half as big today, on average, as they were in 1970. Everywhere else in the world, farms have gotten bigger in the same period...Many people have been convinced that if there was just some way to increase agriculture's share of output, some way in which all of agriculture received ‘support', things would be better."

Only if it was as simple as that.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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7 Responses to "The shift from agriculture to manufacturing will not be easy"

veeramani vishwanathan

Oct 29, 2015

Why are so many educated people leaving the jobs and going to farming? Many IT people have left USA and started to do agriculture on their father's farms now and left over high salary paying jobs abroad or in India and started Organic Farming. Why the small farmers try to become a chain to add their farms as single and be more bigger as a group.

I think this needs a lot of inwork from People, Political parties, Government to make this happen in India.


asit ganguly

Oct 25, 2015

Dependence on farms will not reduce till we have non-farm activities. Non-farm employment as rightly pointed out is a pipe dream with the kind of education and skill development we have. So, smaller farm holding is inevitable. Apart from high cost of operation on such land holding, plot boundaries are also reducing farm land. Only practical solution would be concentrated cooperatives among farmers linked to financing and marketing of products. Pilot projects across country need to be encouraged and learning to be modified, copied elsewhere



Oct 21, 2015

Make in India or a Made in India is a must for the development of Technology in aviation and armament sectors. Let me give you some feed back on such a program. I worked as a deputy leader on a R&D project, ARMY RADIO ENGINEERING NETWORK(AREN) which was proposed by Homi Bhabha from 1973-1983. The successful completion led to the copying of the products as RAXs and MAXs at CDOT for commercialization of the technology. After this we did not allow the researchers who developed this technology.



Oct 20, 2015

Sub: Agriculture:
Politics destroys all good work by Govt. Solution?
Do not involve Govt...! Have co-op Societies like AMUL..!
Good things can be achieved, when people join hands, directly.
Sub: Skill Development.
Many Skills of routine-area can be done with good Training ( even with Less Education...) as seen from India's past!


Shrinivas Moghe

Oct 20, 2015

Farms of area less than 2hecters can not produce economically viable output.But yes a farm of 20 hecters can. So a cartel of such small land holders should be formed. They all would work in the collective land together. Government or near by big industry should help these farmers to do modern farming, help them sell the produce at the best price. The net profit would be shared as per the land holding, or on the basis if some formula, which will help everyone and also support the activity.


ramana kumar

Oct 20, 2015

this is a meaningless rehash of old data. everybody knows what the challenge is, what the problem is. no point in just repeating these. are there any fresh ideas or solutions to the problem ??



Oct 20, 2015

The days of classical manufacturing envisaged by Modi are over.Look at China and the enviromental cost.What we need is smart manufacturing like 3D printing or making plastics from agricultural products like the use of Soya Foam by Ford in its cars or solar panels or LED's or healthcare devices and reagents. We still have to import our clinical diagnostic reagents from Europe or USA as that is not China's forte.But that is not on Modi's Radar.He just wants to outcompete China in a field rapidly approaching obsolescense

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