INVESTIGATING THE IMPACT OF AGRICULTURE AND

INDUSTRIAL SECTOR ON ECONOMIC GROWTH OF INDIA

a, b

Kalpana Sahoo a, Narayan Sethi b

Department of Humanities and Social Sciences, National Institute of Technology (NIT), Rourkela, Orissa, India.
a
Corresponding author: kalpana.sahoo8@[Link]
Ontario International Development Agency ISSN: 1923-6654 (print)
ISSN 1923-6662 (online). Available at [Link]

Abstract: Agriculture and Industry both are

considered as two basic pillars of a developing
economy like India. Without development of
agriculture, no country can exist and without
industrialization no country can develop. Both
agriculture and industry play vital role in the
balanced economic development of an economy. The
share of agriculture and industry is 14.6% and 28.6%
respectively to Indias GDP, but their importance in
the countrys economic, social, and political structure
goes well beyond this indicator. Both the sector hold
the key of overall development of the economy by
creating employment, generating income, ensuring
self-reliance in food production and food security,
providing tools and equipment to other sectors and
foreign exchange earnings. The present study tries to
examine the contribution of both agriculture and
industrial sector to Indian economy by considering
the variables like Gross Domestic Product (GDP),
Per-capita Gross National Income (PcGNI), Gross
Domestic Saving (GDS), Gross Domestic Capital
Formation (GDCF), and Production of both
agriculture and industrial sector. In this paper GDP
and PcGNI are used as the proxy of economic growth
and economic development respectively. The whole
study is based on the secondary data which is
collected from the Handbook of Statistics on Indian
Economy published by Reserve Bank of India. First
this study has test the stability of the variables by
using the Phillips-Perron test. The study employ
Ordinary Least Square (OLS) test by using the
statistical package E-view 5.0 to examine the impact
of both sectors on economic growth and development
of India using the annual time series data from 195051 to 2009-10. The simple OLS test results find that
both agriculture and industry have significant positive
impact on both economic growth and development in
India. But the result indicates that agriculture has
shown more significant positive impact on economic

development whereas, industry has on economic

growth of India during the study period. The study
concludes that agriculture is the backbone of industry
as well as for the economy. Agriculture and industry
are like two hands of the India economy, without
which the economy neither can be functioned nor can
be survived. So its necessary for a developing
country country to give importance to both
agriculture as well as industry particularly in the
initial stages of economic development. To attend a
higher level of growth with desire level of
development in India, industry as well as agriculture
should develop simultaneously. An industry without
compromising agriculture and vice-versa should be
the main agenda of the Indian policy to attend a
balanced economic growth with sustainable
development in the economy. Both the sectors should
be considered as they are complementary to each
other rather substitute. The issue should be handled
by considering industry and agriculture rather
industry vs. agriculture.
Keywords: Agriculture, Industry, OLS test, India
INTRODUCTION

oth Agriculture and Industrial sector are

considered
as
important
ingredients
particularly in the initial stages of economic
development of a developing country. Agriculture
has played a key role in the development of human
civilization. Until the Industrial Revolution the
majority of the population depended in agriculture for
their survival. Historically and traditionally Indian
economy has been considered as an agrarian
economy with 3/4th of its population living in
villages having agriculture and allied activities as
their prime occupation.
Most of the people in India give more priority to
agriculture because it provides both food and

12

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

livelihood to more than half of its population. Even

after 60 years of Independence, Indian economy is
regarded as an agrarian economy. Sastry (2003)
found that despite substantial increase in the share of
the service sector in GDP over time, the InputOutput test suggest that the agricultural sector plays
an important role in determining the overall growth
rate of the economy through demand linkages with
other sectors of the economy. Some other people
supports industry is more important for India as it
contributes more to the GDP than agriculture and also
helps faster economic growth. GDP shows the
performance of an economy and the major indicator
of economic growth. It grants the country the status
of a power to estimate with, making its presence felt
in the global economic platform. Currently India is
considered as one of the most emerging economic
power in the world. It is not much affected up to that
extent as other Developed Countries like USA, Japan,
Germany affected by the Global financial crisis of
2007-08. Indias GDP growth rate was also much
higher than other developed countries. From the
growth prospective it is true that India is growing at a
faster rate than other developed nations but some of
the factors still remain critical. On the other hand, if
we look at the Indias HDI ranking which is 134th
among 187 countries in the world (GHD Report,
2011). In addition to this, poverty, unemployment
and inequality are also persisting in the economy
which is aggravated the critical situation. In case of
India, the economic growth rate is satisfactory but in
case of development the result is quite undesirable.
There is no doubt that both the sectors are very much
essential for Indian economy. Here the question arise
Agriculture versus Industry, which contributes more
to Indian economy? The question is in debate since
last two decades. Any rational being would agree that
it is essential to maintain an adequate balance of both
sectors to exist in todays fast changing world. And to
cope with the changing world, one must have to
gradually move towards more industrialization
because it will bring the possibility of higher growth
for the economy in future. At the same time, there has
been a major discussion going on importance of
agriculture. No one denying the fact that India has
been an agrarian economy. Agriculture is the
backbone of Indian economy. To ensure food security
and development of the society, we have to depend
on agriculture. In the Indian context, some studies
broadly highlight that the sectoral composition of
three sectors in economic growth has important
implications. The results also indicate that sectoral
distribution of growth rates has a strong impact on
poverty reduction (Tyler et al, 1993; Ravallion and
Datt, 1996). But we need to re-look in our approach
about agriculture as means of providing sustainable
employment and wealth to people especially at cost

of Industry. The educated youth of the farmers

family who would become surplus due to the
mechanization of the agricultural sector with the aim
to produce more output with lesser time and
manpower, should get proper training to get
themselves
employed
through
alternative
possibilities. Here exactly where the role of industry
becomes so important.
Here the question arises that if industrialization is
meant for greater development then why do people
go against it? Its because in India, industrialization
mostly takes place in an unplanned way without
considering the aspect of sustainable development.
The governments mainly focusing to increase the
countrys GDP. It feels that industries are needed to
meet the growing demands of the growing
population. But it forgets that these farmers are also a
part of this population and their needs cannot be
overlooked in the name of higher growth. Loss of
agricultural land might lead to food inflation which is
widespread in many industrially developed countries.
When industrialization takes place without a proper
understanding of the needs of these people, it benefits
only few groups of the society, namely the
companies, the investors and the government.
Industries prefer to employing people who have prior
knowledge of working in factories instead of
inexperienced farmers. Hence the country faces many
internal protests by the local people when any
industrial development takes place with no measures
for ensuring rehabilitation and securing job
opportunities for the farmers. The recent spread of
violence in Ratnagiri over the Jaitapur Nuclear Power
Plant project and the protests and resulting massacre
in Nandigram and Singur indicate peoples frustration
and anger at having their agricultural lands taken
away for non-agricultural purposes. Another region
which is a political minefield in this country is the
mineral-rich state of Orissa. Companies like TATA,
Jindal, Posco, Vedanta Group, Arcelor Mittal etc. are
big players here, especially in the mining and
minerals industries (Youth Ki Awaz, 2011).
In this context the present study tries to find out
which sector is more important for India and whose
contribution is more to the process of economic
development.
The present study broadly examines the role of both
agriculture and industry; specifically the objectives
are to analyze the importance of both sectors on
Indian economy. By using the regression technique,
the present study aims to examine the impact of
agriculture and industry on both economic growth
and development of India during last 60 years. The
present study tried to make a preliminary attempt to
test whether these two sectors have any significant
impact on economic growth and development of

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

India with the help of certain selected

macroeconomic variables. Data on the relevant
variables such as Gross Domestic Product (GDP),
Gross Domestic Capital Formation (GDCF), Gross
Domestic Saving (GDS), Per-Capita Gross National
Income (PGNI), Monetary valuation of both
agricultural production (Agr) and Industrial
production (Indu) are used between the period from
1950-51 to 2009-10. The remaining part of this paper
is organized into five sections including introduction.
Section 2 discusses the importance of both
agriculture and industrial sector for India. Section 3
reports data sources and model specification. Section
4 presents the analysis of the empirical results and
discussion. Section 5 presents the conclusion.
IMPORTANCE OF BOTH AGRICULTURE
INDUSTRY IN INDIAN ECONOMY

AND

India is the second largest growing economies of the

world and is currently the focus of a great deal of
international attention. It is the ninth largest in the
world by nominal Gross Domestic Product (GDP).
GDP is considered as the indicator of the
performance of an economy. Central Statistical
Organization divides Indian economy into three
major fundamental sectors i.e. Primary sector
(agriculture), Secondary sector (industry) and
Tertiary sector (service). The importance of these
sectors to Indian economy can be examined by their
contribution to GDP, generation of employment and
Gross Capital Formation. This study is mainly
focused on the importance of both agriculture and
industry on Indian economy. Agriculture is our
foundation, industry is our future. Agriculture and
Industry, both are important sectors for Indian
economy. Whereas the former helps meet basic needs
of people like food grains and other agricultural
commodities, the later fulfills multiple wants that are
legacy of economic development and modern life
style. Unfortunately in India the two sectors are
engaged in a dog fight due to the ineffectiveness of
our bureaucrats and politicians. Before finding any
solution of the ongoing debate it is essential to know
the contribution of these two sectors towards Indian
economy. Figure 1shows the GDP and its sectoral
share in India:
GDP is the major indicator of economic growth.
From the above diagram-1, it is clear that the share of
industry to GDP is higher than the contribution of
agriculture. It shows that the contribution of industry
to economic growth is much higher than agriculture.
Figure 2 shows the employment generated by
different sectors of India.
From Figure 2, it is clear that the contribution of the
agriculture sector in employment generation is much
higher than industrial sector. Employment provides
direct livelihood security to a very large proportion of

13

Indian population which directly helps in raising the

standard of living of the people. Figure 3 shows the
share of three major sectors in total Gross Capital
Formation:
From Figure 3, it is clear that the share of industry in
the gross capital formation is much higher than the
agriculture sector. Capital is the life blood of all the
economic activities and also very much essential for
financing the development process in the economy.
Higher rate of capital formation implies less
dependent on foreign capital. Industrial sector of the
economy acts as a major contributor to the process of
capital formation. Due to their significant
contribution, since from the first five year plan huge
amount of plan expenditure has been sanctioned for
the development of both the sectors. Table-1 shows
the expenditure made by the government of India
during various plan periods and the share of both
sectors in total expenditure:
From table-1, it is clear that the expenditure on both
agriculture and industry has been increasing in
absolute amount over time but at the same time their
share in total expenditure has been declining over the
plan period. Agriculture share on total expenditure
has been declined over plan period due to more
emphasis given on other twos sectors whose
contribution towards GDP are much higher. Industry
share on total expenditure has been declined over
plan period due to more intervention of the foreign
investors in this sector.
Importance of Agriculture
Agriculture plays a crucial role in the life of an
economy. It is the backbone of our economic system.
It is not only provides food and raw material but also
employment opportunities to more than half of
Indias population. It is considered as an agrarian
economy where nearly 70 percent of its total
population directly or indirectly involved in
agriculture for their Survival. It provides food
security to all the citizens of India. Agriculture is the
main source of livelihood for a labor surplus country
like India as it provides direct employment to 52.1
percent of the total workforce. Though its share in
national GDP is 14.6 percent in 2009-10, still it is the
largest economic sector and a significant piece of the
overall socio-economic development in India
(Economic Survey, 2010). Pani (1984) found that 1
per cent increase in agricultural production increases
the net domestic product by about 0.56 per cent.
During 1971-72, Rangarajan (1982) estimated 1 per
cent fall in agricultural output causes 0.70 per cent
fall in GDPR. Ahluwalia and Rangarajan (1986)
using data from 1960-61 to 1980-81 have obtained
that 1 per cent fall in agriculture output was likely to
lead to a fall in overall output by about 0.8 percent.

14

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

Figure 1: GDP and Its Sectoral Share in 2010-11

Source: Economic Survey 2010-11, Central Statistical Organization (CSO)

Figure 2: Share of Broad Sectors in Employment 2007-08

Source: Economic Survey 2010-11, table no: 10.1

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

Figure 3: Share of Broad Sectors in Gross Capital Formation, 2009-10

Source: Economic Survey 2010-11, Central Statistical Organization (CSO)

Table 1: Public Expenditure on Agriculture and Industry in Different Plan Periods

Various Plan Periods

Total
Expenditure
(Crores)

Agriculture

Industry

Amount
Percentage of
Amount
Percentage of
(Crores)
Distribution
(Crores)
Distribution
Third Plan (1961-66)
15261
1088.9
12.7
1726.3
20.1
Annual Plans (1966-69)
13481
1107.1
16.7
1510.4
22.8
Fourth Plan (1969-74)
32994
2320.4
14.7
2864.4
18.2
Fifth Plan (1974-79)
67674
4864.9
12.3
8988.6
22.8
Annual Plan (1979-80)
18504
1996.5
16.4
2383.5
19.6
Sixth Plan (1980-85)
158256
6623.5
6.1
16947.5
15.5
Seventh Plan (1985-90)
363892
12792.6
5.8
29220.3
13.4
Annual Plan (1990-91)
104973
3405.4
5.8
6374.3
10.9
Annual Plan (1991-92)
112731
3850.5
5.9
6564.5
10.1
Eighth Plan (1992-97)
835206
22467.2
5.2
46921.7
10.8
Ninth Plan (1997-2002)
1485011
42462
4.9
65148.0
7.6
Tenth Plan (2002-07)
2360109
58933
3.9
58939
3.9
Eleventh Plan (2007-12)
3685973
136381
3.7
153600
4.2
Source: Directorate of Economics and Statistics, Department of Agriculture and Cooperation.
Statistical Appendix, Economic Survey of India 2010-11

15

16

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

India ranks second worldwide in the production of

farm output. Due to special emphasis placed on
agriculture in the five-year plans and steady
improvements in irrigation, technology, application
of modern agricultural practices and provision of
agricultural credit and subsidies since the Green
Revolution, productivity of all crops have shown a
rising trend. India is the largest producer of milk,
jutes and pulses and ranks second in the cattle
population (2008). It is the second largest producer of
rice, wheat, sugarcane, cotton, fruits, vegetables, and
silk. India was the third largest producers of oranges,
coconuts, eggs, tomatoes, peas and beans. Over last
45 years, India has shown a steady average annual
increase in various agricultural items (Kg/ hect.)
because of the introduction of Green Revolution
(1965-66),
improvement
in
transport
and
communication,
infrastructural
development,
knowledge gains, adoption of modern cost effective
technology and reforms (Economic Survey, 2010).

or Investment, production of agriculture and

industrial sector, Gross Domestic Saving (GDS), and
Gross National Income (GNI) have been collected
from the Economic Survey 2010-11, Central
Statistics Office (CSO) and form the Handbook of
Statistics on Indian Economy, published by Reserve
Bank of India (RBI). All the variables are presented
in terms of Rupee (crores). The present study uses the
statistical package named E-views to estimate the
empirical results. This study has used GDP and
PcGNI as the indicators of economic growth and
development respectively. The Human Development
Index1 (HDI) is used to measure welfare or the level
of economic development. But due to nonavailability of data, the Per-capita Gross National
Income (PcGNI) at constant price is used as the
indicator of economic development which is defined
as the GNI of a country divided by its total
population of that year. It indicates the standard of
living of the citizens of a country.

Importance of Industry

Methodology and Model Specification

The industrial sector is one of the major contributors

to GDP of India. The Indian industrial sector
underwent significant changes as a result of the
economic reforms of 1991, which removed import
restrictions, brought in foreign competition, led to
privatization of certain public sector industries, and
liberalized the FDI regime, improved infrastructure.
Industry accounts nearly 28% of the GDP and
employs 14% of the total workforce. In absolute
terms, India ranks 12th position in the world in terms
of nominal factory output. According to some
experts, it is said that share of the US in the world
GDP is expected to fall, from 21% to 18% and the
share of India in the world GDP is going to rise from
6% to 11% by 2015. Hence India is to emerge as a
third pole after the US and China in the global
economy. Among the industries, metal industries
have grown significantly in India. India is fifth
biggest steel producer, fourth largest cement producer
fifth largest aluminum producer and 15th largest
automobile manufacturer in the world (CIA- World
Fact book, 2012).

The present study makes use of some simple

econometric methods to carry out the empirical
analysis. We use the following methodology for our
empirical analysis:

METHODOLOGY OF THE STUDY

Data Sources and Variable Description
The present study empirically examines the
importance of both agriculture and industrial sector
on both economic growth and development of India
from 1950-51 to 2009-10 by considering some
selected macroeconomic variables such as GDP,
GDS, GDCF, PGNI, agricultural production and
industrial production. Annual time series data of
these variables have been collected from available
published sources. Data on Gross Domestic Product
(GDP), Gross Domestic Capital Formation (GDCF)

First we calculate the descriptive statistics for all the

variables. In order to examine the impact of both
agriculture and industry on India economy, Ordinary
Least Squares (OLS) technique is used. Before going
to use OLS technique one should test the stationary
properties of the variable in case of time series data.
As our data is time series in nature, the study needs to
test stationarity property of the variables using unit
root tests, namely Dicky- Fuller (DF), AugmentedDicky Fuller (ADF) and Phillips-Perron (PP) (1988)
test to avoid the spurious regression results. Among
three unit root tests only the first difference of PP test
satisfies the stationary property of all the variables
(see table-2). In the light of the above discussion of
the literature review and variables definition section,
the following equation is used as the basic model to
show the impact of both agriculture and industry on
economic growth of India. Here GDP is considered
as the indicator of economic growth which shows the
performance of the economy.
Growth in terms of GDP = f {Agr, Indu, GDS,
GDCF}
The following model is specified to measure the
effects of both agriculture and industry on economic
1

The Human Development Index (HDI) is a

normalized measure of life expectancy, literacy,
education, standard of living, and GDP per capita for
countries worldwide. It is a standard means of
measuring well-being.

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

growth. We estimate the effects of both agriculture

and industry on economic growth by ordinary least
squares (OLS) techniques which can be written as:
(g)t = 0 + 1 Agr t +
GDCFt + ut -------- (1)

Indut +

GDS t + 4

Here g t = Economic growth presented by GDP in

terms of constant prices during the time period t
Agr t = Agricultural production in terms of their
monetary value during the time period t
Indut
= Industrial production in terms of their
monetary value during the time period t
GDS t = Gross Domestic Saving in terms of current
prices during the time period t
GDCFt = Gross Domestic Capital Formation in
terms of constant prices during the time period t ut =
Disturbance term
The following equation is used as the basic model to
show the impact of both agriculture and industry on
economic development (PcGNI) of India; here PGNI
is used as the proxy of economic development.
PcGNI = f {Agr, Indu, GDS, GDCF}
We estimate the effects of both agriculture and
industry on economic development by ordinary least
squares (OLS) techniques which can be written as:
(D)t = 0 + 1 Agr t +
GDCFt + ut -------- (2)

Indut + 3 GDS t + 4

(D)t = Economic Development in terms of PGNI

during the time period t
Agr t = Agricultural production in terms of their
monetary value during the time period t
Indut
= Industrial production in terms of their
monetary value during the time period t
GDS t = Gross Domestic Saving during the time
period t
GDCFt = Gross Domestic Capital Formation in
terms of constant prices during the time period t ut =
Disturbance term
EMPIRICAL RESULTS
This section presents the analysis of the empirical
results and its discussion. The result is based on
simple OLS regression analysis. Before going to use
the regression technique, the present study used to
examine the stationary property of the time series
data. After that the descriptive statistics of the
variables has been calculated. Next it has used the
simple regression techniques to find the impact of
both agriculture and industry on India economy
during the study period.

17

Test of Stationary
The empirical model is estimated by Ordinary Least
Squares (OLS) method. This study has used annual
time series data which contains some trend. When
working with the time series data, the first step is to
identify whether the series is stationary or not. If the
variables of a time series data do not satisfy the unit
root test, then the regression result may be spurious
one. Before going to apply OLS technique the first
step is to test the stationarity of the variables, as nonstationary series will produce spurious regression
estimates and the resulting outcome will be of no
practical use. Unit root test is a pre-requisite of
testing long run relationship between two or more
time series data (Granger, 1981). Dickey-Fuller
(ADF), Augmented Dickey-Fuller (ADF) and
Phillips-Perron (PP) tests are widely used in
empirical research. The criterion of selection for unit
test is that the absolute value of the test statistics
should be higher than the critical absolute value. The
test result suggests that all the variables are stationary
at their first difference with having both trend and
intercept in PP test. The following table-2 shows the
results of unit root test.
Descriptive Statistics Results
The results of descriptive statistics are reported in
table 3. The mean values of the Agr, Indu, GDS and
GDCF are similar to some extent. The variability of
the variables is measured by standard deviation. Here
the variability among the variables are quite differs
from each other. The maximum and the minimum
values show the range in between which the values of
the variables are lying. Skewness helps us to
determine the nature and extent of the concentration
of the observations towards the highest or the lowest
values of the variables. Here the skewness values of
all the variables are positive which indicates that the
frequency curve of all the distributions are not
symmetric bell shaped curve rather they are stretched
more to the right side or have a longer tail towards
the right side which show all are positively skewed.
Kurtosis is concentrated with the flatness or
peakedness of the frequency curve. Here the kurtosis
values of all the variables except Agr (agriculture) is
greater than 3, which show that only the Agriculture
variable has platy kurtic while others have leptokurtic
(more peaked than normal curve).
Regression Results
Next, we estimated the equation with Ordinary Least
Square (OLS) method. Here we calculate the simple
OLS test to find out the impact of both agriculture
and industry on economic growth during the period
of study where GDP is considered as a dependent
variable. But the result is not quite good because of
low value of the Durbin-Watson d-statistics (Enders,

18

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

1995) which shows the existence of auto-correlation

problem and to avoid this situation we will take the
AR (1) to avoid the problem. The result of this simple
OLS technique is presented in the table-4.
From table 7 it is clear that the result which is drawn
from the simple OLS technique cant be considered
as good one. Though the values of both R2 and
adjusted R2 are nearer to 1 which show the goodness
of the fit but at the same time the Durbin-Watson
(DW) statistic is very low i.e. 1.6 which indicate the
presence of auto-correlations and violates normal
assumptions of OLS. This value should be nearer to 2
(Gujarati, 2004). To solve the problem of autocorrelation of error term, we have allowed an AR (1)
term of residuals. The result of the OLS technique
with AR (1) is presented in table-5.
From table 5, it is clear that the result which is drawn
from the OLS technique with AR (1) is considered as
good one in comparison to the simple OLS technique
(table-4). The values of both R2 and adjusted R2 are
nearer to 1 which shows the goodness of fit and the
value of Durbin-Watson (DW) statistic i.e. 1.8 which
is better than the first one. This value is nearer to 2
which indicate very low chances of the presence of
auto-correlations in the error term. The R2 or
coefficient of determination is included to represent
how much variation in the dependent y-variable is
captured by the regression. Both Akaike Info
Criterion (AIC) and Schwarz Info Criterion (SIC)
which are used for the selections of better model
suggest that the AR (1) model is better (where both
should have lower value), as AIC and SIC have
values 23. 1 and 23.35 for the AR (1) model as
compared to 23.29 and 23.5 for the simple OLS
model. Therefore, we consider the regression results
of table 5 for our analysis, as the estimated regression
results satisfy all the criteria for a good model. The
estimated regression test result value helps in
examining the impact of both agriculture and industry
on economic growth,
(g)t = 0 + 1 Agr t +
GDCFt + ut -------- (1)

Indut +

GDS t + 4

(g)t = 43353 + 0.94057 Agr t + 3. 2928 Indut + 0.8

GDS t + 0.49 GDCFt + ut
t-statistics
(10.98*)

(0.91)
(1.29)

(3.9*)
(5.68*)

From the above regression results it is found that,

industrial sector has highest impact on GDP
(economic growth) of India. The coefficient of the
variables shows the impact of independent variables
on dependent variable of the model. In table 5 the
coefficient of GDCF, agriculture and industry are
statistically significant at 1% level. Only the
coefficient of GDS is statistically insignificant, so no

inference can be drawn from the result under the used

data set. It cannot be said correctly that GDS has a
positive or negative impact on economic growth of
India. The result is ambiguous for India. On the other
hand the estimated coefficient of agriculture, GDCF
and industry are positive and statistically significant
which indicate that all these variables have positive
impact on the economic growth of India. The result
shows that agriculture has significant positive impact
on the economic growth of India during the study
period. But the impact of industrial sector (28.1%
share in GDP, 2010) is more on the economic growth
of India than agriculture sector (14.6% share in GDP,
2010) which is clearly visible from their shares in
GDP. R2 and adjusted R2
indicate that the
performance of both agriculture and industrial sector
in case of India is almost completely explained by the
independent variables included in the model.
Next, we estimated the equation with Ordinary Least
Square (OLS) method to find out the impact of both
agriculture and industry on economic development of
India during the period of study where PcGNI is
considered as a dependent variable. But the result is
not quite good because of low value of the DurbinWatson d-statistics which shows the existence of
auto-correlation problem and to avoid this situation
we have taken the AR (1) to avoid the problem. The
result of this simple OLS technique is presented in
table-6.
From table-6, it is clear that the result which is drawn
from the simple OLS technique cant be considered
as good one. Though the values of both R2 and
adjusted R2 is nearer to 1 which show a good fit of
the model but at the same time the Durbin-Watson
(DW) statistic is very low i.e. 1.74 which indicate the
presence of auto-correlations. To solve the problem
of auto-correlation of error term, we have allowed an
AR (1) term of residuals. The result of the OLS
technique with AR (1) is presented in table-7.
From table 7, it is clear that the result which is drawn
from the OLS technique with AR (1) is considered as
good one in comparison to the simple OLS technique
(table 6). The values of both R2 and adjusted R2 are
nearer to 1 which shows the goodness of fit. The
value of Durbin-Watson (DW) statistic is 1.99 which
indicates lower chances of the presence of autocorrelations in the error term. Both Akaike Info
Criterion (AIC) and Schwarz Info Criterion (SIC)
which are used for the selections of better model
suggest that the AR (1) model is better as AIC and
SIC have values 10.68 and 10.97 for the AR (1)
model as compared to the simple OLS model.
Therefore, we consider the AR (1) model reported in
table 7 for our analysis. The estimated regression test
result value helps in examining the impact of
agriculture on economic development of India,

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

19

Table 2: Unit Root Tests Result

Variables

DF
ADF
PP
Without
With Trend
Without
With Trend
Without
With Trend
Trend
Trend
Trend
Agr
1.67
-0.97
3.08**
0.042
4.68*
-0.33
Indu
6.93*
3.79*
5.10*
6.44*
9.63*
6.29*
GDCF
4.27*
2.06
3.45**
4.72*
3.91*
1.71
GDS
9.31*
5.99*
2.31
2.46
13.55*
8.77*
GDP
7.66*
4.23*
7.66*
4.23*
9.58*
6.06*
PGNI
6.71*
3.62**
6.71*
3.62**
6.65*
3.49**
Notes: -: Critical values for1%, 5% and 10% significance levels are 3.54, 2.9 and 2.59
respectively.*, ** and *** indicate significance at 1%, 5% and 10% level respectively.
Source: Authors Calculation (using E-views software package

Table 3: Descriptive Statistics Result

AGR

GDCF

GDP

GDS

INDU

PGNI

Mean

263596.1

280411.5

1073662

263879

204455.8

1281.148

Median

222520

143958

641921

26881

112569

972.6358

Maximum

556789

1622226

4464081

2207423

916356

3816.115

Minimum

110151

23030

230034

845

24968

628.7123

Std. Dev.

127707.4

370881.2

1027095

504118.8

215586.4

772.4202

Skewness

0.782204

2.366573

1.817727

2.41068

1.776562

1.865057

Kurtosis

2.487885

7.99732

5.684451

8.072612

5.578076

5.744303

Jarque-Bera

6.661184

116.4657

50.20605

120.4016

47.37495

52.71886

Source: Authors Calculation (using E-views software package)

Table 4: Simple OLS results, Impact of Agriculture and Industrial sector on Economic Growth of India
Dependent Variable: GDP
Variable
Coefficient
t-Statistic
C
8703.445
0.296827
Indu
2.636123
7.843159*
Agr
0.956312
3.190094*
GDCF
0.418943
4.298048*
GDS
0.345054
5.470261*
R-squared-0.99939, Adjusted R-squared-0.99934, Durbin Watson stat-1.6, Akaike Info
Criterion (AIC) 23.29, Schwarz Info Criterion (SIC)- 23.5.
Notes: *, ** and *** indicate significance at 1%, 5% and 10% levels respectively.

20

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

Table 5: Regression results with AR (1), Impact of Agriculture and Industrial sector on Economic Growth of India
Dependent Variable: GDP
Variable
Coefficient
t-Statistic
C
43353.00
0.916947
Indu
3.292841
10.98009*
Agr
0.940573
3.903625*
GDCF
0.490389
5.685820*
GDS
0.080094
1.290018
R-squared-0.99952, Adjusted R-squared-0.99946, Durbin Watson stat-1.8, Akaike
Info Criterion (AIC)-23. 1, Schwarz Info Criterion (SIC) - 23.35.
Notes: *, ** and *** indicate significance at 1%, 5% and 10% levels respectively.

Table 6: Simple OLS results, Impact of Agriculture and Industry on Economic Development of India
Dependent Variable: PcGNI
Variable
Coefficient
t-Statistic
C
322.7961
6.165310
Indu
-0.001326
-1.504819
Agr
0.002286
3.914871*
GDCF
0.000634
3.140616*
GDS
0.000960
6.821027*
R-squared-0.9966, Adjusted R-squared-0.9962, Durbin Watson stat-1.74, Akaike
Info Criterion (AIC)-10.65, Schwarz Info Criterion (SIC)- 10.89
Notes: *, ** and *** indicate significance at 1%, 5% and 10% levels respectively

Table 7: Regression results with AR (1), Impact of Agriculture and Industry on Economic Development of India
Dependent Variable: PGNI
Variable
Coefficient
t-Statistic
C
319.5081
4.768387*
Indu
-0.001314
-1.325839
Agr
0.002256
3.741100*
GDCF
0.000655
2.975957*
GDS
0.000973
5.903833*
R-squared-0.9966, Adjusted R-squared-0.9962, Durbin Watson stat-1.99, Akaike Info
Criterion (AIC)-10.68, Schwarz Info Criterion (SIC)- 10.97
Notes: *, ** and *** indicate significance at 1%, 5% and 10% levels respectively.

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

(g)t = 0 + 1 Agr t +
GDCFt + ut -------- (2)

Indut +

GDS t + 4

(g)t = 319.5 + 0.0022 Agr t - 0.0013 Indut + 0.0009

GDS t + 0.0006 GDCFt + ut
t- Statistics (4.76*) (3.74*) (-1.32) (5.9*) (2.97*)
The regression result of table 7 shows that the
coefficients of agriculture, GDS and GDCF are
statistically significant at 1%. On the other hand the
estimated coefficient of industry (Indu) is statistically
insignificant so no inference can be drawn from the
result under the used data set. It cannot be said
correctly that industry has a positive or negative
impact on economic development of India. The result
is ambiguous for India. The estimated coefficients of
agriculture, GDS and GDCF are positive and
statistically significant which indicate that these
variables have positive impact on the economic
development of India in general and the standard of
living of Indians in particular. From the regression
results, it is clearly shows that only the agricultural
sector has significant positive impact on economic
development in India during the study period. The
result is quite obvious because nearly 52 percent of
the total workforce depend upon agriculture for their
indicate that the
survival. R2 and adjusted R2
performance of agriculture sector in case of India is
almost completely explained by the independent
variables included in the model. The coefficient of
determination (R2 = 0.99) is quite high and reveals
almost the goodness of fit of the model. This
indicates the proportion of total variation in economic
development (PcGNI) explained by the explanatory
variables used in this model.
CONCLUSION
The importance of this study is to analyze the impact
of both agriculture and industry on Indian economy
during 1950-51 to 2009-10. This study uses simple
regression technique for its empirical analysis. The
empirical result shows that both agriculture and
industry have been considered as a significant
determining factor of economic growth but in case of
development agriculture is the only determining
factor for India. The simple regression result states
that agriculture has significant positive impact on
both economic growth and development during the
study period. In case of industry, the results states
that it has significant positive impact only on
economic growth of India. In case of economic
development the industry has shown ambiguous
result. If we compare the impact of both sectors, then
it is observed that impact of industrial sector is much
higher on economic growth than agriculture during
the study period. The regression result is just reverse
in case of economic development where the impact of
agriculture sector is higher than industry. For a labour

21

surplus developing country like India, economic

development is equal important like economic growth
as growth shows the performance of the economy as
a whole whereas development includes the individual
standard of living of the country. A higher level of
growth is meaningless unless it will accomplish with
the process of development. The growth can be
translated into meaningful development only when
there will be equitable distribution of wealth and
income.
There is no doubt that without agriculture, country
cannot exist and without industry, country cannot
develop. Agriculture is the backbone of industry.
Both the sectors are interdependent with each other
one cant survive without other. So its necessary for
a country to have both- agriculture as well as
industry. We should not go for industrialization at the
cost of agriculture. For a complete balanced
development, industry as well as agriculture should
develop simultaneously. India needs development,
which needs industry to grow but at the same time
agriculture also have to grow, if we neglect one
sector then the other will suffer. Ignoring either of
these sectors would lead to lopsided developments of
economy. To keep balance there should be right
policies. Need of the hour is to make these two
sectors work side by side so as to ensure balanced
growth of the Indian economy. An industry without
compromising agriculture and vice-versa should be
the main policy agenda to maintain balance between
them. It should not be a matter of debate whether we
should go for agriculture or industries. But the basic
issue must be how to develop both simultaneously.
Here the question arises how can government run
both side-by sides? First, government should try to
set up industries in those lands, which are either
unproductive for agriculture or barren. Second, areas
which have very less food production can also be
utilized for industries. Third, government must ensure
that the people displaced due to industrialization
should
be
compensated
adequately.
The
compensation may be in the form of money or in job,
whichever possible. Fourth, agro based industries
should be encouraged as they used agricultural
products in terms of their raw materials. Fifth
industries used labour intensive techniques should
also be encouraged.
Last but not the least
commercialization of agricultural sector is also one
effective major to raise the income level of the
farmers. The whole discussion can be explained by
one sentence:It is not the issue of Industry vs.
Agriculture; it is the issue of Industry and
Agriculture.
REFERENCES
[1] Acharya, S.S., (1998). Agricultural Price Policy
and Development: Some Facts and Emerging

22

Sahoo and Sethi / OIDA International Journal of Sustainable Development 05: 05 (2012)

Issues, Indian Journal of Agricultural

Economics, 52(1), 1-47.
[2] Ahluwalia, M.S., (1996). New Economic Policy
and Agriculture: Some Reflections, Indian
Journal of Agricultural Economics, 51 (3), 412426.
[3] Ahluwalia, Isher J. and C. Rangarajan (1986).
Agriculture and Industry: A Study of Linkages
the Indian Experience, World Congress of
International Economic Association, December.
[4] Anriquez G. and Stamoulis K. (2007). Rural
Development and Poverty Reduction: Is
Agriculture Still the Key?, ESA Working Paper
No. 07-02, June.
[5] CIA-World
Fact
Book,
2012.
([Link]
_economy.html)
[6] Chowdhury K. and Chowdhury M. B. (1995).
Sectoral Linkages and Economic Growth in
Asia: Evidence from Granger Causality Test,
The Indian Economic Journal, 42, 59-75.
[7] Christiaensen L., Demery L. and Khul J. (2010).
The (Evolving) Role of Agriculture in Poverty
Reduction, UNU, WIDER, Working Paper No.
2010/36.
[8] Central
Statistical
Organization
(2007),
"National Accounts Statistics 2007 and Back
Issues", Central Statistical Organization,
Ministry of Statistics and Programme
Implementation, Government of India, New
Delhi.
[9] Dhawan S and Saxena K K. (1992). Structural
Linkages and Key Sectors of the Indian
Economy, Indian Economic Review, 27, 195210.
[10] Dicky, D.A and Fuller W.A (1981). Like hood
Ratio Statistics for Autoregressive Time Series
with a Unit Root, Econometrica, 49, 1057-72,
July.
[11] Economic Survey (2009-10), Government of
India.
[12] Enders, Walter, (1995). Applied Econometric
Time Series, John Wiley &Sons.
[13] Ghosh Shreyasi (2011, May 9). Industrialization
vs. Agriculture- The Age-old Debate,
Youthkiawaz.
[Link]
lization-vs-agriculture
[14] Global Human Development Report, by United
Nations Development Program (UNDP), 2011.
[15] GoI (2001). Indian Planning Experience - A
Statistical Profile, Planning Commission,
Government of India, New Delhi, January 2001.
[16] GoI (2007). Agricultural Statistics at a Glance
2006, Directorate of Economics and Statistics,
Gujarati,
Damodar,
N.
(2004)
Basic
Econometrics, Tata McGraw Hill.

[17] Granger, C.W.J., (1981). Some Properties of

Time Series Data and Their Uses in Econometric
Model Specification, Journal of Econometrics,
16.
[18] Handbook of Statistics on Indian Economy
(2010), Annual Publication, RBI.
[19] Ministry of Agriculture, Govt. of India, New
Delhi.
[20] Meijerink G. and Roza P. (2007). The Role of
Agriculture in Economic Development, Markets,
Chains and Sustainable Development, Strategy
and policy Paper 4.
[21] Pack Howard and Larry Westphal (1986).
Industrial Strategy and Technological Change:
Theory versus Reality, Journal of Development
Economics, 22, 87-128.
[22] Pani P K (1984). A Macro Model of Indian
Economy with Special Reference to Output,
Demand and Prices (1969-70 to 1981-82),
Reserve Bank of India Occasional Papers, 5,
113-239.
[23] Phillips, P. C.B and P. Perron (1988). Testing for
Unit Root in Time Series Regression,
Biometrica, 335-46.
[24] Pradhan Rudra P. (2010), The Nexus between
Finance, Growth and Poverty in India: The
Cointegration and Causality Approach, Asian
Social Science, 6 (9), September.
[25] Ravallion M. and Datt G. (1996). How Important
to Indias Poor is the Sectoral Composition of
Economic Growth?, The World Bank Economic
Review, 10, 1-25.
[26] Rangarajan C. (1982). Agricultural Growth and
Industrial Performance, International Food
Policy Research Institute.
[27] Renuka Mahadevan (2003). Productivity Growth
in Indian Agriculture: The Role of Globalization
and
Economic
Reforms,
Asia-Pacific
Development Journal, 10 (2), December.
[28] Sastry D V S, Balwant Singh, Kaushik
Bhattacharya and N K Unnikrishnan(2003).
Sectoral Linkages and Growth Prospects,
Reflections on the Indian Economy, Economic
and Political Weekly, June 14, 2390-2397.
[29] Satyasai, K.J.S. and K.U. Viswanathan, (1999).
Dynamics of Agriculture-industry Linkages,
Indian Journal of Agricultural Economics, 54 (3),
394- 401.
[30] Swaminathan, M.S. (2005). Sustainable Farming,
The Hindu Survey of Indian Agriculture
(Annual), Chennai.
[31] Tyler G, El-Ghonemy R. and Couvreur Y.
(1993). Alleviating Rural Poverty through
Agricultural Growth, Journal of Development
Studies, 29, 358-64.