Census data released this week shows that the farmer population in the country has declined by 9 million over the last 10 years. While the percentage of farmers in the population have been declining for decades, this is the first time India has recorded an absolute drop.
On this occasion I thought it might be interesting to repost a few paras from my previous post about Peter Timmer’s analysis of structural transformation of developing economies.
The Structural Transformation: What, When and How
As economies develop, the share of agriculture in national GDP drops over time. However the agriculture GDP continues to grow in absolute terms (unless of course nature or politics go horribly wrong). For example, India’s agri GDP is currently 18.5% of national GDP, down from 42% in 1970.
The share of agri employment in total labour force also declines over decades. At some point, the agri employment starts decreasing in absolute numbers, not just in percentage terms. For example, agri employment is currently 52% in India — that is, 52% of the workforce is involved in agriculture. This number was 70% in 1970. In India, the number of people employed in agriculture is still growing — we added 20 million people (net of urban migration) working in agriculture over the last decade.
The gap between the share of agri in employment (52%) and share of agri in GDP (18.5%) first widens and then starts narrowing at some level of threshold per capita GDP in the economy. While this number varies from country to country and based on decade, some definitive things can be said about this turning point.
While the global average turning point is at per capita GDP of around $9-10K, for Asian economies this turning point is around $1600. Last year when I wrote the above blog, India’s per capita GDP was ~$1500.
Although India now seems to have crossed the turning point of absolute reduction in farmer population, only further analysis will show how far we are from reaching the turning point that Peter Timmer talks about — a reduction in the gap between share of agri in employment and share of agri in GDP.