**Policy, Research, and Extemal Affairs**

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# **Agricultural Policies**

This paper, a backgrounld paper for the l;Y 1991 Comntry Ecoiinomiic Memorandum l'or Inidia, is a product ol tihe Agricultural Plolicies Division, Agriculture and Rural Development Department and is part of a larger effort in FIRE to leani mlore about the ind(irect ef'l'ccts of agricultural growth on **the** rural **nontarm** economy, and how the valuc of'the incomc and employment benefits can tv cbnhanccd for the poor. Copies are availabic 1ree from the World Bank, 1818 H Sirect NW, Washington DC 20433. Pl.ase contact Cicely Spooner, room N8-039, extension 3(464 (79 palges with tables).

Using two models - an economtcric analysis of' cross-sectional data on states and tlistricts and a semi-input-output model f-itted to a nationl; input-output table for 1979/80 -- Hazel] and Haggblade analyze thc relationship between agricultural growth and growth in the rural nonifarnn economy. They conclude that.

Bccause of strong links to agricultural growth, rural nonftaim income and employmcnt will both grow faster than thcir agricultural counterparts. A sustained agricultural growth rate of 2.4 percent (the past trcnd) will leIad to 3.() pcrccnt groAllh in nonfarm iieomiic in irural areas and towns and 2.8 pCercent growth in nonliIrmn cnlmplo\mcnt 11 aer'I'icIUltr 4 -to' perce:nt, thesc rates imnrc. to 5 _( pe IIaI t. ;1nd 4.0 per:ent. re'spec't'Iive'!

> Continued LroAth in atcriultural output **is** unlikcl Ito provide the g(rownth in product **i\c** e- pl'oniv nt re(qlair lIsorh bto projected in tte nrural Ilzbor force 'I' emc priplovni-cnt gap w **i** ll incr.asC if irrigation pla\s a dCcreasing role in a'ni ulltri pg **r** a o lh Second: Ir\ lounds 0o

> gro'lth in tlhc rural non farlil CLe0n0m **\** cOuldL bridgc this gap givcn modcratt. agricultural gro\A th.

Export and domestic urban demand Imlust play ani imipo)rtant role if m1an U faCtIUring is. to continiuc to groA 8 percent a \car. Despite thc strength1 ol the' rural-urban linkages, agriCultural growth aiorne cannot provi(de enouoh 1miarket to sustain rapid growth in Indiia's manufacturing sector. An agricultural growth rate of 2.4 pevrcent a year will generate only 1.8 percent (if' irrigated agriculture) to 1.9 percenit (if rainfed agriculture) growth in national manutacturing output. Even 6 percent growth in agriculture will geneiate only atb)ut 5.5 percent growth in manu facturing OulpUt.

Agricultural growth will lead to expansion in high-\alluC agricultural output, especially livestock and torticulturall products. Increased production of thcse labor-intensivc products slhol(d especiall hbenefit the poor.

'I'hic si;c of Ihc ariculiur1al incomC nIUltiplicrs decpndLs prim nrila on the l\c\l of' pr capita ricu0li **il** ila i nonle. bUt plulic poliCy _Call alffeCt_ tlheir in agn-MitUdC. They' are posititclv related to **tlec dej8 lopllolllt** of suLchi rural infra-MI'tUtre as roads electri fea and banking serviCes. ,ion I'le Thyredtolnrcases re' st ronger un(dcr irrigated than rain fed agricLultural girov Ih and larger ftor sii alll- toi mCdi um- simz'e larni than f0(r largcr fanns

> Impro\ irig tihe niol'anif rcsl)nse to growing deniand i'rom agriculture calls for appropriate growth in agricultural technology, adequate investments in rural infrastructure, well-devel. oped rural towns. and thc avoidance of tax, regul atory, or licenisinlg policies **that** discriminiate against sinall, laNor-intcnsi\c businesses in favor

> ol iheir larocr. Calpitll-inltnSiVe COUSinS.

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