top of page
  • Writer's picturePooja Ambala

Role of Agriculture in Economic Development

Updated: May 12, 2022

Stimulates industrial expansion: The expansion of the agricultural sector resulted in the industrial industry expanding as well. When farmers have money saved up, they can buy consumer goods and invest in businesses. As a result, the industrial sector expands indirectly.

Increasing employment opportunities: As the agricultural sector's production grows, more job opportunities will emerge. Agriculture expansion provides direct employment in crop production and creates jobs in other fields.

Resources for Capital Formation: This is all the more important because the existing modern capitalist sector is so tiny that few surpluses or profits are available for investment. On the other hand, agriculture is a significant sector, as it is in India. It can contribute more to the development of the industrial sector because primary industries rely on agricultural raw materials—for instance, the sugar industry, the juice industry, the cotton industry, and so on.

Foreign Exchange Supply: Agriculture can play a significant role in generating foreign currency by exporting agricultural products. The requirements for increased exports can be easily met by simply adding a crop or two to the existing crop pattern, with little or no additional capital investment. Furthermore, because such exports must cater to a current and well-known international market, there are no additional costs for discovering or nurturing new markets.

The Manpower Shift: Employs the vast majority of the country's workforce. The majority of the workforce in the least developed countries works as disguised unemployed agricultural labour. Agricultural progress allows for a shift in force from the farming to non-agricultural sectors. From economic growth, it is more important to shift work from farming to the non-agricultural sectors in the early stages because it relieves the burden of surplus labour-power over limited land. As a result, a surplus agricultural workforce must be released to advance the farm sector and expand the non-agricultural sector.

Food and raw materials supply: It satisfies the need for industrialization. Agriculture is critical to development. Contributes to various consumer goods, such as oil, clothing, etc. Furthermore, food grains are essential for developing economies. It helps a lot in developing countries when there is a food shortage because mass import is not possible or economically feasible for them. As a result, agriculture must be prioritized to maintain this critical supply of food and raw materials.

Helpful in Reducing Inequality: In a mainly agricultural country and overpopulated, there is greater income inequality between rural and urban areas. Agriculture must be given higher priority to reducing income inequality. Agricultural growth will raise the income of the majority of the rural population, potentially reducing income inequality.

The increased purchasing power of farmers will help the country's non-agricultural sector expand due to increased agricultural sector growth. It will make the market more productive. It is widely acknowledged that agriculture is the primary source of income for most people in developing countries. They must be able to afford to consume the goods produced. As a result, it will aid in the expansion of non-agricultural production. Similarly, increased cash crop productivity can pave the way for promoting the exchange economy, which can aid non-agricultural sector expansion. Purchasing agricultural goods like chemicals and farm equipment helps to reduce agricultural dead-outs.

The country's source of foreign exchange is: Most developing countries in the world are primary product exporters. These items account for 60 to 70 percent of total export earnings. As a result, the agricultural sector's ability to import capital goods and industrial development machinery relies on export earnings. These countries will be forced to incur a large balance of payments deficit, resulting in a foreign-exchange severe problem if agricultural exports do not increase at a sufficient rate. On the other hand, primary goods are experiencing falling prices on the international market, with little chance of increasing export earnings. Despite this, major developing countries such as India (which has a high potential for industrial growth) are attempting to diversify their manufacturing structures and encourage the export of manufactured goods, even if this necessitates implementing protection measures during the planning phase.

The following are some of the significant roles of agriculture in a country's economic development:

The agricultural sector plays a critical role in a country's economic development.

It has already made a significant contribution to advanced countries' economic prosperity, and its role in the economic development of developing countries is critical.

In other words, where per capita real income is low, agriculture and other primary industries are prioritized.

"A rise in agricultural production and per-capita income in rural areas, combined with industrialization and urbanization, leads to an increase in demand for industrial goods."

-Bright Singh, M.D.

The history of England shows that the Agricultural Revolution came first, followed by the Industrial Revolution. Agricultural development has also aided the industrialization process in the United States and Japan to a greater extent. Similarly, various underdeveloped countries worldwide that are in economic growth have learned the drawbacks of putting too much emphasis on industrialization as a means of increasing per capita real income. "In this sense, industrial and agricultural developments are complementary and mutually supportive in terms of both inputs and outputs."

Given that increased agricultural output and productivity tend to contribute significantly to the country's overall economic development, it will be rational and appropriate to place a greater emphasis on agricultural development.

Agriculture, according to Prof. Kinder Berger, Todaro, Lewis, and Nurkse, among others, contributes to economic development in several ways, including:

(1) By supplying non-agricultural sectors of the economy with food and raw materials,

(2) By generating demand for goods produced in non-agricultural sectors among rural people, based on their purchasing power gained from the sale of marketable surplus,

(3) By making available investable surplus in the form of savings and taxes, which can be used to invest in non-agricultural sectors,

(4) By exporting agricultural products, the country earns valuable foreign exchange.

(5) Employing many uneducated, illiterate, and unskilled workers. If economic development begins and becomes self-sustaining, it must start with the agricultural sector.

Agriculture's Contribution to Economic Development:

Agriculture is the backbone of an economy that provides humanity with essential ingredients and, more recently, raw materials for industrialization.

As a result, agriculture's contribution to economic development can be summarised as follows:

1. National Income Contribution:

The economic history of many advanced countries teaches us that agricultural prosperity played a significant role in fostering economic progress. "The leading industrialized countries of today were once predominantly agricultural," it is correctly observed, "while agriculture continues to dominate in developing economies and contributes significantly to national income." This sector still accounts for 28% of India's national income.

2. Food Supply Source:

Agriculture is the primary source of food for all countries worldwide, whether they are developing, developing, or developed. The demand for food is rapidly increasing due to the heavy pressure of the population in underdeveloped and developing countries and its rapid growth. Agriculture's failure to meet rising food demand has been shown to hurt the economy's growth rate. As a result, increasing food supply through the agricultural sector is critical for a country's economic growth.

3. Raw Material Prerequisite:

Agricultural progress is required to increase the supply of raw materials for agro-based industries, particularly in developing countries. The scarcity of farming goods impacts industrial production and, as a result, on overall price levels. It will stifle the country's economic growth. Agricultural products are used in flour mills, rice shellers, oil and dal mills, bread, meat, milk products, sugar factories, wineries, jute mills, textile mills, and various other industries.

4. Surplus Provisioning:

Progress in the agricultural sector creates surpluses that can boost agricultural exports. Because of the more fantastic strains on the foreign exchange situation required to finance the imports of basic and essential capital goods in the early stages of development, export earnings are more desirable.

"Given the urgent need for increased foreign exchange earnings and the lack of alternative opportunities," Johnson and Mellor argue, "substantial expansion of agricultural export production is frequently a rational policy, even when the world supply-demand situation for a commodity is unfavourable."

5. Manpower Shift:

Agriculture initially absorbs a large number of workers. In India, this sector employs about 62 percent of the workforce. Agricultural progress allows force to be transferred from farming to the non-agricultural sectors. In the early stages of economic development, shifting labor from agriculture to non-agricultural sectors is more important because it relieves the surplus labor force on limited land. As a result, the agricultural sector's surplus workforce must be released for the farming sector to progress and the non-agricultural sector to expand.

6. Infrastructure Development:

Roads, market yards, storage, transportation railways, postal services, and other infrastructure are required to develop agriculture, which creates demand for industrial products and the commercial sector.

7. Relief from Capital Shortage:

The development of the agricultural sector has eased the burden on several developed countries that were experiencing a capital shortage. If foreign capital is available with the strings attached, another significant issue will arise. Because agriculture requires less money to develop, it reduces the problem of foreign capital growth.

8. Assists in the reduction of inequity:

In a primarily agricultural and overpopulated country, income disparities between rural and urban areas are more pronounced. It is necessary to give agriculture a higher priority to reducing income inequality. Agriculture's prosperity would raise the income of the vast majority of the rural population, reducing income disparities to some extent.

Based on Democratic Principles:

If the agricultural sector does not grow faster, it may lead to growing discontent among the masses, which is never good for democratic governments to run smoothly. It is necessary to reduce political and social tensions to promote economic development. If most people need to be instilled with optimism about their future, agricultural progress can help them do so. As a result, the farm sector's development is also important from a political and social standpoint.

Create an Effective Demand:

The development of the agricultural sector would tend to increase the purchasing power of agriculturists, which will help the growth of the non-agricultural sector of the country. It will create a market for more production to take place. It is well known that the majority of people in developing countries rely on agriculture, and it is they who must be able to afford to consume the goods produced.

As a result, it will contribute to the growth of the non-agricultural sector. Similarly, increased cash crop productivity may pave the way for promoting the exchange economy, which may aid non-agricultural sector growth. Industrial dead out is also boosted by purchasing industrial products such as pesticides and farm machinery.

11. Aids in the Reversal of Economic Depression:

Industrial production may be halted or reduced during a depression, but agricultural output meets basic human needs. As a result, even when the economy is in bad shape, it generates effective demand.

12. The Country's Foreign Exchange Source:

The majority of the world's developing countries export primary products. These products account for 60 to 70% of their total export revenue. As a result, importing capital goods and machinery for industrial development is highly dependent on the agricultural sector's export earnings. If agricultural exports do not increase sufficiently, these countries will be forced to run a large balance of payments deficit, resulting in a severe foreign exchange problem.

On the other hand, primary goods are seeing their prices fall on the international market, and the chances of increasing export earnings through them are slim. As a result, large developing countries like India (which has the potential for industrial development) attempt to diversify their production structures. They promote manufactured goods exports, even if this necessitates adopting protective measures during the planning phase.

13. Capital Formation Contribution:

The economic development of underdeveloped and developing countries necessitates a large amount of capital. Agriculture provides a significant source of capital formation in the early stages of economic growth.

The agriculture sector contributes to capital formation in a variety of ways, including:

Agricultural taxation I

(ii) agricultural product exports

(iii) the government collects agricultural products at low prices and sells them at higher prices. Russia and China both use this method.

(iv) disguised unemployment, which is mainly confined to agriculture, is seen as a source of investible surplus.

(v) labour and capital transfer from farm to non-farm activities, and so on.

14. Rural People's Employment Opportunities:

In underdeveloped and developing countries, agriculture provides many job opportunities for rural people. It is an essential source of livelihood. Non-agricultural jobs such as handicrafts, furniture, textiles, leather, metalwork, processing industries, and other service sectors are typical for landless workers and marginal farmers. These rural units only cater to local needs. Agriculture employs about 70.6 percent of India's total workforce.

15. Improving the Well-Being of Rural People:

It is past time for an underdeveloped country's rural economy to be based on agriculture and related occupations. Increasing agricultural production and productivity leads to an increased agricultural surplus, which improves social welfare, particularly in rural areas. The rural masses' living standards improve, and they begin to eat a more nutritious diet that includes eggs, milk, ghee, and fruits. They live in a comfortable home with all modern conveniences, such as a motorcycle, radio, television, and the use of better clothing.

16. Market Expansion for Industrial Products:

The market for industrial products will be expanded due to agricultural progress. Increased agricultural productivity leads to increased rural income, which leads to increased demand for industrial products, resulting in the development of the industrial sector.

"Increased agricultural production and per-capita income of the rural community, combined with industrialization and urbanization, lead to an increased demand in industrial production," says Dr. Bright Singh. As a result, the agricultural sector contributes to economic growth by complementing the industrial sector.


We can conclude from the above explanation that agricultural development is essential for a country's economic development. Agricultural development is a priority for even developed countries. "Agricultural progress is essential to provide food for a growing non-agricultural labour force, raw materials for industrial production, and savings and tax revenue to support the rest of the economy's development, earn foreign exchange, and provide a growing market for domestic manufactures" according to Muir.

bottom of page