Structural transformation of economy by moving resources from agriculture to comparatively productive sectors (manufacturing and services) have been thought to bring economic growth and development. The structural transformation story developed by Nobel laureate Arthur Lewis was probably straitjacketed in terms of role of agriculture in growth and development, somewhat countered by another Nobel laureate Schulz who put forward agriculture itself through technology as growth driver.
Amid all structural transformation and fundamentals challenge, agriculture is no longer thought of as a lowly undifferentiated sector. It is driven by agriculture value chains (AVC) comprising inter alia processing, logistics, storage, transportation, wholesaling and retailing the so-called agri-food system. AVC is where value is concentrated and which are prime driver of growth. Recent policy moves in India are predicated on repositioning agriculture as the first engine of growth and development essential for rural prosperity, as reflected in the Union budget and other government initiatives.
Engine of growth
Agriculture as an engine of growth has several associated goals such as missions for self-reliance in pulses and oilseeds where India tends to be deficit. On the face of it, self-reliance is extremely attractive in something as important as food. A deeper analysis would suggest a more nuanced view. There are many different pulses and oilseeds, and India may not have the comparative advantage (low opportunity cost) in all of them.
Given India’s healthy foreign exchange situation, it may be worth exploring what can be produced more efficiently and at larger scale in India and what the rest of the world can produce for us. Myanmar, for instance, produces pigeon pea (tur dal) only for India. Other countries also clamour for a foothold in India’s large pulses market. The case is similar in oilseeds. We need to explore from the point of view of social costs (environment and health) and benefits, if it were optimal for India to invest heavily in palm oil (not the healthiest of oils and a large carbon footprint through possible loss of forests). There are edible oils where India may have comparative advantage such as mustard and rapeseed where the technology frontier is to be assessed and targeted.
In history, no growth success story has happened without a country being a successful trader, and this holds for agriculture-led growth as well. Trade is not only international trade but trade at all levels that are connected in a system. We deliberately say trader and not exporter on purpose. Global trade takes place through global value chains (GVC) based on both liberalised imports and exports. With GVC, there are both issues of participation as well as positioning. Do I enter the GVC as a raw spice producer or a manufacturer of spice seasoning to capture the greatest value? Compared to countries like Vietnam, Thailand or China India’s GVC participation and positioning has been subpar thereby keeping our exports limited. In the world of GVC, successful exporters mut be successful importers. GVC works at all levels. Big producers of rice like Odisha send out paddy for milling to Andhra Pradesh and other states to be eventually sold to RoW. As India prides itself on being the largest exporter of rice, it also calls for optimising production locations and crop choices based on resource endowments. With the water situation, should Punjab and Haryana keep pushing for rice.
Conscious of agri-food system transformation
Foodgrain production has surged from 204.6 million tonnes (2004-05) to over 330 million tonnes (2023-24), Government policies and programmes have been very conscious of the agri-food system transformation with focus on dairy and livestock due to nutrition transition. Similarly, the Agriculture Investment fund geared towards post-harvest infrastructure is in line with the needs of a transforming food system. Targeted schemes have focused on crop diversification, which has been the toughest challenge for policymakers.
Hence, when paddy MSP is raised with decentralised procurement, it affects the choices in favour of other crops and bears on sustainable diversification outcomes. The government also set up sector-specific boards like the Makhana board, but it would need scale requiring its presence beyond Bihar. At its current scale, Makhana cannot be the greatest export earner or income generator for farmers.
In policy, only when price support systems consider relative risk distribution and provide ecosystem services, it could steer towards optimal choices. Similarly focus on new technology like drones, AI and digital platforms have brought in growth dividends. Food grain production has been creating large issues for their disposal. Government has been seeking new export markets and new uses like ethanol. States like Telangana are exporting rice to the Philippines directly or through GVCs where rice is exported to Vietnam which after importing converts into noodles and exports to other countries. Some lessons for India?
Next leaps in tech due
Agriculture indeed has seen a robust over 4.5 per cent growth in value added in 2025, driven by foodgrain, horticulture and animal source food. Both domestic policies, like direct cash transfer, MSP (MSP for paddy and wheat grew from ₹850 and ₹1,080/quintal in 2008-09 to ₹2,300 and ₹2,425/quintal in 2023-24, respectively. In one decade, procurement of paddy went up by more than 50 per cent. Credit growth and support prices have thus played a significant role.
To have agriculture as the sustained first engine of growth, the next big leaps in technology (like AI) and policies may be due, some of which are already underway. If one were to single out a factor that would most markedly hold back Indian agriculture and its value creation, that is markets. Digital platforms like e-NAM or export would succeed when a functional credible system of non-price attributes in agri-food like safety and health and environment and climate credentials are ensured. Carbon adjustment taxes might come but agri-food systems should be ready to withstand that.
The author is Professor of Economics, Ashoka University
Comments
Published on December 28, 2025
READ MORE
