Business In India

Agriculture plays a vital role in India’s economy

  • Agriculture plays a vital role in India’s economy


  • India is the largest producer, consumer and exporter of spices and spice products.
  • Several players have invested in the agricultural sector in India, mainly driven by the government’s initiatives and schemes.

Agriculture plays a vital role in India’s economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). As per estimates by the Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) was 15.35 per cent of the Gross Value Added (GVA) during 2015-16 at 2011-12 prices. India is the largest producer, consumer and exporter of spices and spice products. India's fruit production has grown faster than vegetables, making it the second largest fruit producer in the world. India's horticulture output, comprising fruits, vegetables and spices, is estimated to be 283.4 million tonnes (MT) in 2015-16 after the third advanced estimate. It ranks third in farm and agriculture outputs. Agricultural export constitutes 10 per cent of the country’s exports and is the fourth-largest exported principal commodity. The agro industry in India is divided into several sub segments such as canned, dairy, processed, frozen food to fisheries, meat, poultry, and food grains. The Department of Agriculture and Cooperation under the Ministry of Agriculture is responsible for the development of the agriculture sector in India. It manages several other bodies, such as the National Dairy Development Board (NDDB), to develop other allied agricultural sectors.

Market Size
Over the recent past, multiple factors have worked together to facilitate growth in the agriculture sector in India. These include growth in household income and consumption, expansion in the food processing sector and increase in agricultural exports. Rising private participation in Indian agriculture, growing organic farming and use of information technology are some of the key trends in the agriculture industry. As per the 3rd Advance Estimates, India's foodgrain production has increased marginally to 252.23 million tonnes (MT) in the 2015-16 crop year. Production of pulses is estimated at 17.06 million tonnes. With an annual output of 146.31 MT, India is the largest producer of milk, accounting for 18.5 per cent of the total world production. It also has the largest bovine population. India, the second-largest producer of sugar, accounts for 14 per cent of the global output. It is the sixth-largest exporter of sugar, accounting for 2.76 per cent of the global exports. India is a leading country in coconut production and productivity in the world, with annual production of 2,044 crore coconuts and the productivity of 10,345 coconuts per hectare as on 2015-16. Spice exports from India are expected to reach US$ 3 billion by 2016–17 due to creative marketing strategies, innovative packaging, strength in quality and strong distribution networks. The spices market in India is valued at Rs 40,000 crore (US$ 5.87 billion) annually, of which the branded segment accounts for 15 per cent. In fact, the Spices Board of India has decided to set up a spice museum at Willingdon Island in Kochi to attract and educate tourists and seafarers about the history and growth of Indian spices industry. Indian agrochemical industry is expected to grow at 7.5 per cent annually to reach US$ 6.3 billion by 2020 with domestic demand growing at 6.5 per cent per annum and export demand at 9 per cent per annum*.

Several players have invested in the agricultural sector in India, mainly driven by the government’s initiatives and schemes.

  • According to the Department of Industrial Policy and Promotion (DIPP), the Indian agricultural services and agricultural machinery sectors have cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 2,278.3 million from April 2000 to March 2016.
  • Some major investments and developments in agriculture in the recent past are as follows:
  • Intertek Group, a UK-based total quality assurance provider, has launched an agricultural technology (Agritech) Laboratory in Hyderabad, which will perform high-tech deoxyribonucleic acid (DNA) analyses for the agri-biotech, plant seeds.
  • ITC Ltd, one of India's leading fast-moving consumer goods (FMCG) company, plans to make Andhra Pradesh a hub for its agricultural business operations.
  • Mahindra and Mahindra Ltd has acquired 35 per cent stake in a Finnish combine harvesters manufacturer, Sampo Roselnew Oy, for US$ 20.46 million and will jointly focus on the combine harvester business in Asia, Africa and Eurasian Economic Union countries.
  • The Small Farmers’ Agri-Business Consortium (SFAC) plans to organise camps in Madhya Pradesh and Chhattisgarh to promote its venture capital assistance scheme (VCAS), which seeks to provide capital and project development facility (PDF) to agri-business entrepreneurs.
  • Agri-research institute ICRISAT’s incubation arm is looking to set up a Rs.100 crore (US$ 14.67 million) fund in a year, an initiative that could help small entrepreneurs from the agri-business and nutrition space raise money.
  • Mahindra & Mahindra (M&M), India’s leading tractor and utility vehicle manufacturer, announced its entry into pulses retailing under the brand ‘NuPro’. Going forward, the company plans to foray into e-retailing and sale of dairy products.
  • Fertiliser cooperative IFFCO launched a joint venture with Japanese firm Mitsubishi Corp for manufacturing agrochemicals in India.
  • Acumen, a not-for-profit global venture fund, has invested Rs 11 crore (US$ 1.7 million) in Sahayog Dairy, an integrated entity in the segment, based at Harda district in Madhya Pradesh.
  • Rabo Equity Advisors, the private equity arm of Netherlands-based Rabo Group, raised US$ 100 million for the first close of its second fund – India Agri Business Fund II. The fund plans to invest US$ 15–17 million in 10–12 companies.
  • Oman India Joint Investment Fund (OIJIF), a joint venture (JV) between the State Bank of India (SBI) and State General Reserve Fund (SGRF), invested Rs 95 crore (US$ 13.94 million) in GSP Crop Science, a Gujarat-based agrochemicals company.

Government Initiatives

  • Given the importance of the agriculture sector, the Government of India, in its Budget 2016–17, planned several steps for the sustainable development of agriculture.
  • Budget 2016-17 proposed a slew of measures to improve agriculture and increase farmers’ welfare such as 2.85 million hectares to be brought under irrigation, Rs 287,000 crore (US$ 42.11 billion) grant in aid to be given to gram panchayats and municipalities and 100 per cent village electrification targeted by May 01, 2018. The government has set an ambitious target of producing a record 270.1 MT of foodgrains in 2016-17, 7 per cent higher than the 252.23 MT of production estimated for 2015-16.
  • The Government of India has started work on 99 major and medium irrigation projects, slated to be completed by 2019. These projects will bring 7.6 million hectares of land under irrigation in some of the most drought-prone regions of India.
  • The government has already taken steps to address two major factors (soil and water) critical to improve agriculture production. Steps have been taken to improve soil fertility on a sustainable basis through the soil health card scheme and to support the organic farming scheme ‘Paramparagat Krishi Vikas Yojana’. Other steps include improved access to irrigation through ‘Pradhanmantri Gram Sinchai Yojana’; enhanced water efficiency through `Per Drop More Crop’; continued support to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the creation of a unified national agriculture market to boost the incomes of farmers.
  • The Government of India recognises the importance of microirrigation, watershed development and ‘Pradhan Mantri Krishi Sinchai Yojana’; thus, it allocated a sum of Rs 5,300 crore (US$ 777.6 million) for it. It urged the states to focus on this key sector. The state governments are compelled to allocate adequate funds to develop the agriculture sector, take measures to achieve the targeted agricultural growth rate and address the problems of farmers.
  • The Department of Agriculture and Cooperation under the Ministry of Agriculture has inked MOUs/agreements with 52 countries including the US. In addition, the Department of Agriculture Research & Education (DARE) and the Department of Animal Husbandry, Dairying & Fisheries (DAHD&F) under the Ministry of Agriculture have signed MOUs/agreements with other countries, taking the number of partnerships with other countries to 63. These agreements would provide better agricultural facilities in areas such as research and development, capacity building, germ-plasm exchange, post-harvest management, value addition/food processing, plant protection, animal husbandry, dairy and fisheries. The agreements could help enhance bilateral trade as well.
  • Given the correlation between improvement in agriculture and the development of the country, the Government of India adopted several initiatives and programmes to ensure continuous growth. It allocated Rs 25,000 crore (US$ 3.67 billion) for the Rural Infrastructure Development Fund (RIFD), Rs 1,500 crore (US$ 220 million) for the long-term rural credit fund, Rs 45,000 crore (US$ 6.60 billion) for the short-term cooperative rural credit finance fund and Rs 25,000 crore (US$ 3.67 billion) for the short-term Regional rural bank (RRB) refinance fund. It also marked an ambitious target of Rs 8.5 lakh crore (US$ 124.71 billion) of agriculture credit during 2015–16.

Some of the recent major government initiatives in the sector are as follows:

  • The government has drawn up a five-year roadmap to increase pulse production from nearly 17.06 MT in 2015-16 to 24 MT in 2020-21 through a dedicated action plan.
  • Prime Minister Mr Narendra Modi has unveiled the operational guidelines for the Pradhan Mantri Fasal Bima Yojana which aims to provide farmers with crop insurance as well as
  • The Cabinet Committee on Economic Affairs (CCEA) has approved ‘Blue Revolution’, an umbrella scheme for integrated development and management of fisheries by Government of India, with total financial outlay of Rs 3,000 crore (US$ 440.15 million) for a period of five years.
  • Mr Piyush Goyal, Minister of Power, Coal, New and Renewable Energy has announced that government’s plans to invest Rs 75,000 crore (US$ 11.08 billion) in an energy-efficient irrigation scheme over the next three to four years.
  • The new crop insurance scheme for farmers 'Bhartiya Krishi Bima Yojana' aims to cover 50 per cent of the farmers under the scheme in the next two-three years,
  • India and Lithuania have agreed to intensify agricultural cooperation, especially in sectors like food and dairy processing.
  • Gujarat Government has planned to connect 26 Agricultural Produce Market Committees (APMCs) via electronic market platform, under the National Agriculture Market (NAM) initiative.
  • The State Government of Telangana plans to spend Rs 81,000 crore (US$ 11.88 billion) over the next three years to complete ongoing irrigation projects and also undertake two new projects for lifting water from the Godavari and Krishna river.
  • The National Dairy Development Board (NDDB) announced 42 dairy projects with a financial outlay of Rs 221 crore (US$ 32.42 million) to boost milk output and increase per animal production of milk.
  • Government of India has set up an inter-ministerial committee, which will look into ways to examine the potential of Indian agriculture, identify segments with potential for growth, and work towards doubling farm incomes by 2022.
  • The Government of India has allocated Rs 200 crore (US$ 29.9 million) for electronically linking 585 major wholesale agriculture markets across the country, thereby creating a National Agriculture Market (NAM) in July 2015 for three years

Road Ahead
The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs and time, improved port gate management and better fiscal incentives would contribute to the sector’s growth. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. According to the National Institution for Transforming India Aayog (NITI Aayog), India’s agriculture sector is expected to grow 6 per cent in FY 2016-17 in case of normal monsoon during the June-September period. The 12th Five-Year Plan estimates the foodgrains storage capacity to expand to 35 MT. Also, a 4 per cent growth would help restructure the agriculture sector in India in the next few years.


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