Role of Agriculture in Shaping the Indian Economy

Agriculture is not just another sector of the Indian economy – it is the foundation on which the country’s rural life, food supply, and economic stability rest. Even as India’s economy has diversified significantly over the decades, agriculture continues to influence everything from employment patterns and poverty levels to industrial growth and foreign trade. Understanding the role agriculture plays in shaping India’s economy helps explain both where the country has come from and where it is headed.

Agriculture’s contribution to India’s national income 🔗

At the time of independence in 1947, agriculture accounted for more than half of India’s Gross Domestic Product (GDP). Over the following decades, as manufacturing and services expanded rapidly, agriculture’s relative share in GDP declined steadily. According to StatisticsTimes, as of 2024-25, the agriculture and allied sectors contribute approximately 17.94% of India’s total Gross Value Added (GVA) at current prices. In comparison, the services sector accounts for about 54.93% and the industrial sector around 27.13%.

This decline in agriculture’s GDP share does not mean the sector is shrinking in absolute terms. India’s total agricultural output has grown significantly over the years. The Economic Survey 2024-25 notes that the agriculture sector averaged an annual growth rate of 5% between FY17 and FY23. The absolute value of agricultural production continues to rise – it is just that services and industry have grown even faster, reducing agriculture’s relative slice of the pie.

What makes this important is that despite contributing less than a fifth of GDP, agriculture remains the primary source of income for a very large portion of India’s population. This creates a stark imbalance: a sector that employs the most people generates a proportionally smaller share of national income, which directly affects rural wages and farmer prosperity.

Agriculture as India’s largest employer 🔗

No discussion about Indian agriculture is complete without acknowledging its role as the country’s biggest employer. According to the Periodic Labour Force Survey (PLFS) 2023-24, about 46.1% of India’s total workforce is engaged in agriculture and allied activities. This is a slight increase from 45.5% in 2021-22 and 45.8% in 2022-23.

In rural areas, the dependence is even more pronounced – roughly 59% of the rural workforce is employed in agricultural activities. In urban settings, this figure drops to about 6.7%. This means that nearly half of all working Indians still rely on farming, livestock, fisheries, or forestry for their livelihoods.

The employment-productivity gap 🔗

Here lies one of the central challenges of Indian agriculture. A sector that employs around 46% of the workforce contributes only about 17-18% of GDP. This gap points to low labour productivity in agriculture compared to industry and services. In other words, each agricultural worker generates far less economic output than workers in other sectors.

The Economic Survey 2024-25 highlighted that India needs to shift approximately 3.5 million people from agriculture to non-farm sectors every year and simultaneously create around 7.85 million non-agricultural jobs annually by 2030 to close this gap. However, recent data suggests this structural transition has been slow – employment in manufacturing and services has actually declined in share, while agriculture’s share has marginally increased.

Historical evolution: from backbone to one of many pillars 🔗

At the time of India’s independence, the economy was overwhelmingly agrarian. Agriculture contributed over 52% of GDP in 1951. The country faced severe food shortages and was dependent on food imports and aid. The introduction of the Green Revolution in the 1960s and 1970s transformed Indian agriculture by introducing high-yielding variety seeds, chemical fertilisers, and modern irrigation techniques, particularly for wheat and rice in states like Punjab, Haryana, and western Uttar Pradesh.

This revolution helped India achieve food self-sufficiency and even become a net food exporter. Over time, as economic liberalisation in 1991 opened up the services and manufacturing sectors, the economy diversified. Agriculture’s GDP share fell from about 35% in the 1980s to around 22% by the early 2000s, and further to about 16-18% today. According to CEIC data sourced from the World Bank, agriculture’s share hit a record low of about 16% in 2019 before recovering slightly in recent years.

Despite this proportional decline, agriculture’s role has not diminished in real terms. It continues to be what the Economic Survey consistently calls the “backbone of the rural economy.”

Role in poverty reduction and rural development 🔗

Agriculture plays a direct role in reducing poverty in India. The majority of India’s poor live in rural areas and depend on farming for survival. When agricultural output rises and farm incomes improve, the effect ripples through the entire rural economy – spending on local goods and services increases, and demand for rural labour grows.

The Economic Survey 2024-25 noted that agricultural income has grown at approximately 5.23% annually over the past decade. Government programmes like the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) provide direct income support to farmers, while minimum support prices (MSPs) for key crops ensure a floor price for produce. For FY25, the MSP for crops like arhar and bajra was raised by 59% and 77% respectively over the weighted average cost of production.

Additionally, large-scale programmes like the National Food Security Act (NFSA) and the Public Distribution System (PDS) use domestically produced food grains to feed hundreds of millions of people at subsidised rates. These programmes link agricultural production directly to hunger reduction, making farming critical to India’s social safety net.

Women in agriculture 🔗

Women play an increasingly prominent role in Indian agriculture. According to the Economic Survey 2024-25, the share of women workers in agriculture rose from 57% in 2017-18 to 64.4% in 2023-24. As men migrate to cities for non-farm employment, women are increasingly taking on farming responsibilities. This “feminisation of agriculture” has important implications for policy – ensuring that women have access to credit, technology, land rights, and training becomes essential for the sector’s growth.

Ensuring food security for 1.4 billion people 🔗

India is home to over 1.4 billion people, and feeding this massive population is an enormous task. The country has made remarkable strides in food production – India recorded its highest-ever food grain production of 357.73 million tonnes in 2024-25, a jump of about 8% over the previous year and an increase of over 106 million tonnes compared to 2015-16.

India is also the world’s largest milk producer, accounting for nearly one-fourth of global output, with production crossing 239.30 million tonnes in 2023-24. Fish production reached 195 lakh tonnes in 2024-25. These allied sectors – dairy, fisheries, and horticulture – have become key drivers of agricultural growth, with fisheries alone recording a compound annual growth rate of 8.7%.

Despite these achievements, challenges remain. India still ranks poorly on the Global Hunger Index, falling under the “serious” category. Nutritional security – ensuring people get not just enough calories but adequate vitamins and minerals – remains a significant concern. Approximately 31% of Indian children under five are stunted, indicating chronic undernutrition persists even as food production reaches record levels.

Agriculture’s contribution to foreign exchange through exports 🔗

India is one of the world’s largest agricultural exporters. In FY24, the total value of agri-food exports – including processed food – reached USD 46.44 billion, making up approximately 11.7% of India’s total exports, according to the Economic Survey. By July 2025, food processing exports alone had crossed USD 49.4 billion.

Key agricultural exports include rice (India is the world’s largest rice exporter), spices, tea, coffee, seafood, fruits, and vegetables. According to IBEF, agricultural product exports in the first four months of FY26 (April-July 2025) stood at USD 16.9 billion. The share of processed food within agri-food exports has also been rising – from 14.9% in FY18 to 23.4% in FY24 – reflecting growing value addition in the supply chain.

Agricultural exports earn the country valuable foreign exchange, helping balance India’s trade deficit and strengthening its position in global food markets. However, export policy can be a double-edged sword. In 2022-23, India imposed temporary bans on rice and wheat exports to protect domestic food supplies. These restrictions were gradually lifted through 2024 and early 2025 as buffer stocks stabilised and production improved.

Agriculture’s linkage with industrial development 🔗

Agriculture does not function in isolation. It is deeply connected to India’s industrial sector in multiple ways. Agriculture supplies raw materials to a wide range of industries – cotton to textiles, sugarcane to sugar mills, oilseeds to edible oil production, jute to packaging, and a variety of crops to the food processing industry.

The food processing sector alone has seen considerable growth in recent years. The government’s Production Linked Incentive (PLI) Scheme for Food Processing has attracted investments worth ₹8,910 crore, with 171 applications approved by October 2024. The Pradhan Mantri Kisan Sampada Yojana (PMKSY) had completed over 1,079 projects aimed at building cold chains, food parks, and processing infrastructure.

In turn, the industrial sector supports agriculture by providing inputs like fertilisers, pesticides, farm machinery, and irrigation equipment. This two-way relationship means that growth in agriculture stimulates industrial demand, and vice versa. A good harvest typically boosts rural purchasing power, which increases demand for manufactured consumer goods – from motorcycles and mobile phones to clothing and household appliances.

Government initiatives driving agricultural growth 🔗

The Indian government has launched multiple schemes to strengthen the agricultural sector and address its structural challenges:

Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) – focuses on expanding irrigation coverage and promoting micro-irrigation. Under its Per Drop More Crop component, over 95.58 lakh hectares have been covered since FY16, more than doubling the pre-scheme coverage.

e-NAM (National Agriculture Market) – a digital platform that connects agricultural markets across the country, improving price discovery and enabling farmers to sell their produce beyond local mandis.

Pradhan Mantri Fasal Bima Yojana (PMFBY) – a crop insurance scheme that has paid out claims worth ₹1.83 lakh crore since its launch in 2016, protecting farmers against weather-related production losses.

Agriculture Infrastructure Fund (AIF) – supports building post-harvest management, storage, and processing facilities, with over one lakh projects sanctioned across the country.

The OECD’s 2025 Agricultural Policy report on India notes that the 2024-25 Union Budget targets increasing grain production by 50 million tonnes by 2030, alongside promoting natural farming to cover 10 million farmers and introducing 109 climate-resilient crop varieties.

Challenges facing Indian agriculture today 🔗

Despite its vital importance, Indian agriculture faces several persistent challenges that limit its full economic potential:

Small and fraginal landholdings – Over 86% of Indian farmers are small or marginal, holding less than 2 hectares of land. This limits their ability to invest in technology, access credit, or achieve economies of scale.

Dependence on monsoons – Roughly 55% of India’s arable land depends on rainfall rather than assured irrigation. This makes agricultural output highly vulnerable to monsoon variability and climate change.

Low productivity – While India produces 11.6% of the world’s cereals, its crop yields remain significantly lower than those of other major producing countries, as noted by the Economic Survey.

Post-harvest losses – Inadequate cold chain infrastructure and storage facilities result in substantial wastage of produce, particularly in perishable commodities like fruits and vegetables.

Climate change – Studies indicate that a potential 2°C rise in annual temperature and a 7% increase in annual rainfall by 2099 could lead to an 8-12% decline in Indian agricultural productivity, making climate adaptation an urgent priority.

The road ahead 🔗

Agriculture’s role in the Indian economy is evolving. While its share in GDP has shrunk, its importance for employment, food security, poverty reduction, and industrial supply chains remains enormous. The sector’s future depends on how successfully India can raise agricultural productivity, diversify into high-value crops and allied activities, expand irrigation, adopt technology, and strengthen rural infrastructure.

The growing role of allied sectors like dairy, fisheries, and horticulture is encouraging. The increasing adoption of digital tools – from satellite-based crop monitoring to AI-driven advisory systems – and the expansion of food processing and value addition are creating new opportunities for farmers and agribusinesses alike. If these trends continue with sustained policy support, agriculture can remain a powerful engine of inclusive growth for India.

What do you think? Given that agriculture still employs nearly half of India’s workforce but contributes less than a fifth of GDP, what policy changes do you believe would be most effective in closing this productivity gap? And as climate change threatens crop yields, how should India balance the need for higher production with long-term environmental sustainability?

References

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7. https://www.frontiersin.org/journals/nutrition/articles/10.3389/fnut.2024.1423599/full
8. https://www.ibef.org/exports/agriculture-and-food-industry-india
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