Why India’s agriculture and allied sectors are influential
Must-know: India and the macroeconomic factors that drive it (Part 8 of 21)
Agriculture is losing ground
Agriculture is usually considered the backbone of an economy. India has a large amount of agrarian land. It also has suitable weather conditions. India has the Gangetic Plain in the northern part of the country. It has farmland for different crops across the country.
As a result, India appears to be a prime candidate for a booming agriculture sector. Over 70% of the rural working population in India is employed by the agriculture sector. The rural working population made up nearly 70% of India’s population in 2011.
However, the breakdown of gross domestic product (or GDP) in the last part of this series, shows that agriculture’s contribution has been shrinking consistently. The above graph shows India’s data for the past decade. The data confirms the declining trend.
A main reason for the decline is that farmers depend on the monsoon for irrigation. The produce uncertainty leads to income uncertainty. As a result, the rural population is migrating to cities. This is reducing the labor force that’s employed by the agricultural sector.
In his latest budget speech, India’s finance minister, Arun Jaitley, said that the number of cultivators declined from 127.3 million in 2001 to 118.7 million in 2011.
Key drivers
In India, agriculture is a state subject. The state governments are responsible for “increasing agricultural production and productivity, exploiting untapped potential, and enhancing incomes of the farming community,” according to the Union Budget in 2013–2014. The central government supplements these efforts by launching centrally-sponsored schemes and central sector schemes.
India’s agriculture output depends on rainfall. According to an economic survey for 2013–2014, 60% of the total food grains and oilseeds produced are grown in the kharif season—the monsoon season. Only 35% of the total farmland area is irrigated. The southwest monsoon begins in June and ends in September. It accounts for ~75% of the total annual rainfall in India. It impacts agricultural production. In the above graph, the data for the area under irrigation is only available until fiscal year 2011.
Although there aren’t any exchange-traded funds (or ETFs) that focus specifically on India’s agriculture sector, you can be a part of India’s growth story by investing in ETFs like the WisdomTree India Earnings Fund (EPI), the iShares MSCI India ETF (INDA), the iShares S&P India Nifty 50 Index Fund (INDY), the PowerShares India Portfolio (PIN), and the Market Vectors India Small-Cap Index (SCIF).
Potash producers’ fundamentals—like Potash Corp. of Saskatchewan (POT), Intrepid Potash (IPI), and Chemical & Mining Co. of Chile (SQM)—are also tied to India’s agriculture sector.
In the next part of this series, we’ll discuss India’s main agriculture products. We’ll also discuss how the sector is placed for the future.
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