Agriculture, Industry and Services

In 1947 about three out of every four Indians lived off agriculture, yet the country was starving and importing food. Farming was held back by two things: who owned the land (zamindars and other intermediaries collected rent from the real cultivators) and how little each acre produced (old seeds, no irrigation). The story of Indian agriculture after Independence is therefore the story of two reforms: land reforms to change ownership, and the Green Revolution to raise yields. A third fact explains why this chapter matters: even today agriculture gives a much smaller share of national income than of employment, which is why economists speak of a lagging structural transformation.

Land is a State subject, so each State passed its own laws. To protect these laws from being struck down as violations of the right to property, Parliament added the Ninth Schedule through the First Amendment (1951). The right to property was later removed from the Fundamental Rights by the 44th Amendment (1978) and now sits as a legal right in Article 300A. Results were uneven. Abolition of intermediaries largely succeeded, but ceilings and tenancy laws were weakened by loopholes such as land transferred to relatives and informal (unrecorded) tenancy. Kerala and West Bengal are generally cited as the States where land reforms worked best; West Bengal's tenancy drive of 1978 was called Operation Barga.

The Green Revolution is the rise in foodgrain output, mainly wheat and rice, after the mid-1960s through high-yielding variety (HYV) seeds, chemical fertilisers, irrigation and pesticides. The two droughts of 1965-66 and 1966-67 and the dependence on US wheat imports forced the government to take a risk on science. Dwarf wheat varieties came from the work of Norman Borlaug (Nobel Peace Prize, 1970) and the rice variety IR-8 from the International Rice Research Institute; M. S. Swaminathan led the effort in India and is called the father of the Green Revolution in India (Bharat Ratna, 2024). The programme started in 1966-67, which is why textbooks link it with the Third Plan period and the annual plans that followed.

Why the Green Revolution created regional disparity. HYV seeds give high yields only with assured irrigation and heavy fertiliser use. In the 1960s only a few regions (Punjab, Haryana, western UP, and parts of the south) had canals and tubewells, so those regions raced ahead, while rain-fed areas and eastern India stayed behind. The gap grew between crops too (wheat and rice gained, pulses and coarse cereals lagged) and between big and small farmers. Costs also appeared later: falling groundwater, soil damage and heavy chemical use.

A farmer faces two risks the factory worker does not. Before harvest he does not know what price he will get; after harvest, when everyone sells at once, prices crash. A consumer faces the opposite risk: food may become too expensive. The government steps in on both sides. It protects the farmer with a Minimum Support Price (MSP) and a regulated market; it protects the consumer with the Public Distribution System (PDS); and it links the two through the Food Corporation of India (FCI), which buys grain from farmers at MSP, stores it and sells it through ration shops. Together this is called the food security system.

MSP is a promise, not a guarantee of sale. It is announced for about two dozen crops, but the government actually buys large quantities mainly of wheat and rice (and some pulses and oilseeds), and mostly in a few States. That is why farmers of other crops and other regions want a legal guarantee. MSP is also the reason Punjab and Haryana grow so much rice and wheat. The Swaminathan Commission (National Commission on Farmers, 2004 to 2006) had recommended MSP at least 50 per cent above the full cost (C2).

When India became independent it had a few textile mills and a few steel works, and almost no machine-making industry. Who would build the factories: private business or the State? The answer was a mixed economy, and it was written down in a series of Industrial Policy Resolutions (IPRs) that fixed which industries belonged to the State, which to private firms and which to both. The most important is IPR 1956, often called India's economic constitution. Its logic was simple: heavy industries need huge capital and take long to repay, private business was too small and too cautious to build them, so the State would take the commanding heights of the economy and private firms would fill the rest under a licensing system.

Why was licensing used? Under the IDRA 1951 even an existing private firm needed a licence to start, expand, shift location or add a new product. The government wanted to keep production under State direction, steer investment to priority industries and backward regions, prevent big houses from taking over everything, and use scarce foreign exchange wisely. In practice, the result was delay, corruption and protection from competition. This is the licence-permit raj (License Raj), which created entry barriers, held back efficiency and was dismantled from 1991.

A factory making steel and a factory making toothpaste are both 'industries', yet the examiner treats them very differently. Steel feeds hundreds of other factories; toothpaste goes straight to your bathroom shelf. Industries are therefore sorted on five bases, and almost every question on this topic is just one of these five sorting rules in disguise. Learn the five bases once, with one or two examples each, and you can classify any industry the paper throws at you.

The chain above is the whole idea behind 'basic' and 'capital'. A basic (key) industry does not depend on other factories for its raw material; it takes it straight from nature and then supplies everybody else. A capital goods industry makes the machines and tools that other industries use to produce. A consumer goods industry sells to the final user. Ask one question: who buys the product, a factory or a family?

The Index of Industrial Production (IIP) uses a different, use-based sorting that is also asked: basic goods, capital goods, intermediate goods, infrastructure/construction goods, consumer durables and consumer non-durables. By sector, IIP covers mining, manufacturing and electricity, and manufacturing carries by far the largest weight (about 77.6 per cent in the 2011-12 series).

Walk through any Indian market and count: the tailor, the potter, the sweet shop, the small auto-parts workshop. None of them will ever appear on the stock exchange, yet together they give work to crores of people and are the largest source of non-farm jobs after agriculture. Gandhiji wanted village industry to be the heart of the economy; the planners of the 1950s wanted heavy industry; India ended up with both, and the small sector got a special place through protection first (reservation) and support later. The modern name for this whole sector is MSME: Micro, Small and Medium Enterprises.

Why was the definition changed again and again? Money loses value. A ceiling of Rs 5 lakh in 1950 meant a decent factory; the same figure today buys a few machines. So the limits are revised upwards from time to time, and the way of measuring changed too: first only investment in plant and machinery, then investment plus turnover together. Whenever a question gives you a year, match it with the measuring method of that year.

PM Vishwakarma (launched on 17 September 2023, Ministry of MSME) supports traditional artisans and craftspeople working with their hands and tools, in 18 trades such as carpenter, blacksmith, goldsmith, potter, sculptor, cobbler, mason, barber, washerman and tailor. It offers recognition through a certificate and ID card, skill training with a stipend of Rs 500 a day, a toolkit incentive and collateral-free credit at a concessional rate. The Udyam Registration portal (1 July 2020) is free and paperless, based on self-declaration with PAN and GST details, and replaced the older Udyog Aadhaar memorandum.

After Independence the State became a businessman: it built steel plants, ran railways, drilled for oil and sold insurance. The idea was that a poor country with scarce private capital needed the State to build what private firms would not, and to spread factories to backward regions. By the 1980s many of these Public Sector Undertakings (PSUs) were slow and loss-making; after 1991 the government did not close them all, it did two things: sold a part of its shares in some (disinvestment) and gave more freedom to the good performers. The 'Ratna' scheme is that second idea, and it is the favourite of examiners.

What does 'more autonomy' actually mean? A normal PSU must take the government's approval before it spends big money, forms a joint venture, buys another company abroad or restructures. A Ratna company can decide many of these on its own up to limits that grow with the status: Miniratna < Navratna < Maharatna. The Ratna label does not change who owns the company; the government still holds the majority. It changes only how freely the board can act.

Most countries grow in three steps: first farming, then factories, then services. India skipped a step. Its factories never became as large as those of East Asia, but after 1991 services (software, call centres, banking, telecom, trade, tourism) raced ahead and became the largest sector of the economy. This is why the post-1991 question always has the same answer: the sector driving GDP growth is the service sector. A service economy still needs strong infrastructure (roads, power, ports, telecom) beneath it, and that is the second half of this topic.

Three facts to hold together. (1) Services contribute a little over half of GVA (about 55 per cent in recent years), the largest of the three sectors. (2) Services employ far fewer people than agriculture (roughly three in ten workers), so the economy is called service-led but not employment-led. (3) Services exports (software and business services) earn the dollars that cover part of India's merchandise trade deficit, which is why a services surplus cushions the current account deficit.

The sectors are also numbered: primary (farming, mining), secondary (manufacturing, construction), tertiary (services) and, in the finer classification, quaternary (knowledge-based work such as software development, research and information technology). A repeated PYQ puts 'software development and scientific research' and expects quaternary. Outsourcing means a firm hires from outside (often from another country) a service it earlier did inside; India became the favourite destination after 1991 because it offered English-speaking skilled manpower at comparatively low wages.

Big projects need money that no budget can give at once, so the State uses the Public-Private Partnership (PPP): a private firm builds and runs the asset and earns from users or from fixed payments. In roads, the Hybrid Annuity Model (2016) shares the burden: the government pays part of the cost during construction and the rest as annual instalments. The investors' route is the InvIT (Infrastructure Investment Trust, SEBI rules of 2014). Planning tools: National Infrastructure Pipeline (announced in December 2019), National Monetisation Pipeline (August 2021), PM Gati Shakti National Master Plan (13 October 2021) and the National Logistics Policy (September 2022).