What India’s labour force and national income data tell us about jobs shifting from agriculture

Source: The post is based on the article “What India’s labour force and national income data tell us about jobs shifting from agriculture” published in the Indian Express on 6th March 2023.

What is the News?

Two recent sets of data released by the National Sample Survey Office (NSSO) and the National Statistical Office (NSO) highlight the process of structural transformation in the Indian economy, especially in relation to the agriculture and manufacturing sectors.

About workforce in agriculture and manufacturing

Based on the data on the total workforce compared to manufacturing (from 1993 to 2021), the agricultural workforce share fell from 64.6% in 1993-94 to 42.5% in 2018-19. The biggest decline happened between 2004-05 and 2011-12.

Since 2011-12, this structural transformation has slowed, with the share of agriculture in employment not falling fast enough. The share of manufacturing has dropped behind even that of construction and trade, hotels & restaurants. For instance, in 2017-18, the latter construction and trade, hotels & restaurants sectors accounted for 11.7% and 12% of the total workforce respectively, as against manufacturing’s 12.1%.

Overall, the structural transformation has stalled since the pandemic.

About the value addition in agriculture

Based on the NSO’s first revised estimates of national income for 2021-22, value addition is the highest in agriculture.

On the other hand, value addition is the lowest, at just over a fifth, for manufacturing. Purchased inputs are very little in agriculture, unlike manufacturing.

Note about GVA-GVO ratio:  One way to assess how much value an industry or sector actually creates in the process of production is by looking at the ratio of GVA (gross value of added) to GVO (gross value of output). GVO is the total value of all goods and services produced by the country. GVA is GVO at current prices minus the value of intermediate consumption.

High value-addition in agriculture: is a key reason why agriculture is able to employ so many people. The sector’s share in GVO was only 11.4% in 2021-22. When measured in terms of GVA, the share rose to 19%. On the other hand, manufacturing’s share in overall GVO was as high as 35.4%, while being just 15.8% relative to GVA. In short, an agriculturalist may be adding more value to every unit of input he consumes than a manufacturer.

What needs to be done to increase productivity in agriculture?

Productivity is a function of output per worker or per unit of land. Productivity is low in agriculture compared to modern manufacturing and services. So, the average farmer earns less than his urban counterpart. To earn more, the farmer’s productivity has to go up — which means producing more on the same land with fewer hands.

India has too many people in agriculture. They need to be enabled to find employment in other sectors, which will, in turn, raise agriculture’s productivity.