INTER-SECTORAL LINKAGE BETWEEN AGRICULTURE AND MANUFACTURING SECTORS IN INDIA

Abstract

The economic prosperity of India depends upon the development of agriculture as well as industry. Viewed in this context, agri culture and industrial development should go hand in hand. In view of this fact, it is necessary to examine the linkages between agriculture and manufacturing sectors as their interdependence is vital for "the economy. The present study covers the following objectives • (1) To identify the major industries which consume agricultural output as their raw materials (i.e. as inputs), and those which supply their output to agriculture as its input and their relative importance in the transaction process, and (2) To analyse the relationship between the factors affecting the prices of foodgrains and manufactured goods. FOr this purpose, time series data, with the base year 1970-71, have been collected from various government records/ official records and categorised into the periods for analysis - as tpre-green revolution' period (1964-70) and'post-green revolu tion period' (1570-80) - for parameters like prices, agricultural production, industrial production and so on. The major industries have been categorised into two groups : (i) Agro-based industries (such as cotton, jute, sugar, rice mill ing plants, pulses milling plants etc. and (ii) Industries which supply their output to agriculture: sector(such as fertilizer, 07 insecticides and pesticides, improved implements stfid machinery, tractors, pumpsets, tubes etc.). Next output-input relationship has been determined and ratios of both sectors have been computed. For smoothening out the wide fluctuations of input-output prices, the three years moving average has been worked out. The flow of agricultural output to agro-based industries has also been estimat. ed. Moreover, simple and compound growth rates of both sectors have been worked out. To examine the factors affecting the prices of foodgrains and manufactured goods, an economic model of the following type has been adopted and "tiie relationship is shown as follows : Q- = % (P ) (3 = f2(^,y) r = f3(^, ©) a = f4(«, f) X = f5(u, f) where, © mNational income (in '00 crore Rs.) 6 = FOodgrains production (in '000 tonnes) a = Foodgrains prices (wholesale, Rs.) K = prices of manufactures (in Rs.) Y mSavings (in crores of Rs.) $ = Terms of trade (ratio) 5 » Availability of foodgrains per capita(gms/Per day) If «Money supply with the public (in crore Rs.) u = Industrial production (in crore Rs.) £ In order to find out their relationships botti the linear and log-linear forms of equations have been attempted for both the periods, i.e. 1964-70 and 1970-80, which represent the pre-green revolution and post-green revolution period respectively. A programme was run for analysis of data on the Roorkee University Computer DEC-2050. Further, an attempt has also been made to examine the effects of the independent variables by dropping one variable turn by turn in each succeeding functional analysis. The problem of multicollinearity among the independent variables has been tested through simple correlation, (i.e. zero order correlation matrix) . Those variables which have higher zero-order correlation with signifi cant regression coefficients have been dropped, and the best fit analysis has been carried out for the remaining variables. However, to remove the effects of autocorrelation, Durbin Watson test has been used. The analysis Indicates that during 1968-69, the extent of manufacturing sector's dependence on agriculture was much heavier than the extent of dependence of agriculture on manufacturing sector. As regards the industrial supply to the agricultural sector, there was an alround increase : in fuel consumption, material consumed, total input and output, year after year throughout the study, with an interruption only in 1974-75. Bna increase of input-output ratio in case of both sectors showed a higher production efficiency. TZL In view of factors affecting prices of foodgrains and manu factured goods, it is found that the money supply consistently and positively influenced their prices. Industrial production in the country during 1970-80 was influenced significantly by the independent variables, such as raw materials and other inputs. On the other hand, foodgrain output is affected significantly by the independent variables like improved seeds, fertilizer consump tion and improved implements/machinery. Thus, having arrived at these findings, the suggestions have been offered under various groups such as improving the intersectoral linkage, terms of trade, price affecting factors, savings and capital formation and production determinants.