How does the agriculture industry work?

. 6 min read
How does the agriculture industry work?

India is one of the top agricultural countries globally. India ranks among the first four countries which lead to food production. Agriculture is at the forefront of the Indian economy, it is the driving force for many other agriculture-dependent industries. Currently, agriculture and allied activities contribute to nearly 17% of the Indian GDP. The state of this green industry has come a long way in the past 73 years. The evolution of the Indian Agricultural industry took a sharp turn due to several ambitious policies regarding economic planning with a direct emphasis on agricultural development in the 1950s and 1960s. The implementation of scientific practices and constant improvement in agricultural techniques has brought about an increase in cultivated area, growth of food crops, capital formation and yield per hectare.

  • The agriculture industry also happens to be the largest employment sector in India with almost two thirds (60%) of the working population involved in the agricultural industry.
  • India is also the second-largest fruit-producing nation in the world.
  • It is clear that the agricultural industry has many contributions to the formation of capital and plays a huge part in the income generated from export.
  • This industry is growing at a fast pace and has an important place in the future of India. In this article, we shall explore the importance of this industry and the huge role it plays in maintaining the economic status of India.

Agriculture: Backbone of the Indian Economy

  • The Indian Agriculture Industry is divided into seventeen major sectors, namely; farming (largest market share), animal husbandry, poultry, fisheries, dairy market, cold chain, apiculture, seeds, animal feed, bio-agriculture, floriculture, sericulture, pesticides, food processing, fertilisers, agriculture, equipment, and warehousing.
  • The most common choices for small farming businesses are field crop farming, organic farming, urban agriculture, growing seeds, poultry farming, livestock farming, and producing a botanical pesticide. The yield of a farm depends on what kind of soil you will be working with, nutrient requirement, water holding capacity, weather patterns, fertilisers used, etc.
top view of vehicle irrigating farm
  • GVA (Gross Value Added) by Agriculture, forestry and fishing have always been significant, for FY 20 (Financial Year 2020) it was estimated to be US$ 276.37 billion accompanied by a growth of 4% in agriculture and allied sectors for FY20.
  • In addition to these, organic produce, milk production, and sugar production are all set to increase over the next years.
  • The importance of agriculture is further highlighted by the investments and government initiatives directed towards this sector. In the last twenty years, agriculture and allied industries (including food processing industry) have attracted an FDI (Foreign Direct Investment) inflow of  US$ 9.98 billion as reported by the DPIIT (Department for Promotion of Industry and Internal Trade).
  • There have been several Government initiatives undertaken to increase agricultural yield and to cement the financial security of farmers. Pradhan Mantri Krishi Sinchai Yojana (PMKSY) was launched with an investment of Rs 50,000 crore with the aim of developing efficient sources of irrigation for making farmlands drought resistant.
  • Along with this, farmers receive aid with respect to transport and marketing assistance to boost production.

Taxes in Agriculture

  • The prime sources of agriculture incomes in India are; farming, horticultural commercial production, selling seeds, rent collected on agricultural land, interest received on capital engaged in agricultural operations by a partner from a firm etc.
  • Agricultural income is exempted from taxation as per  Section 10(1) of the Income Tax Act, 1961. However, during the assessment of income tax liability agricultural income is considered for rate purposes if;
  1. The net agricultural income is greater than Rs. 5000/- for the previous year.
  2. Total income minus the net agricultural income crosses the basic tax exemption limit as set by the government.
  • If you sell your agricultural land and use the money to buy another agricultural land then you may claim tax benefit under Section 54B of the Income Tax Act, 1961. But you must buy the second agricultural land within two years of selling the previous one and the newly bought agricultural land must be used for agricultural purposes for at least two years after being bought, this applies to both urban and rural land.
  • It is important to note that income from animal husbandry, bee farming, poultry farming, and dairy farming is not considered agricultural income.


  • The agriculture industry in India is a very competitive market. The strong influence of agriculture on the national income along with high labour generation in this sector has led to the need for some major improvements in this sector in order for it to flourish even more.
  • Due to the global population explosion, there will be a lot of pressure on agricultural economies like India to meet the surplus needs. The main aim should be driven towards increasing yield per hectare.
  • The aim is to increase agricultural productivity per unit of land by developing new farming practices, using seeds developed especially for areas with low rainfall, reducing transportation waste and marketing costs. This must be approached in an environmentally sustainable manner, so as not to disturb the biodiversity of this nation.
  • Due to various climatic regions, India has the potential to produce different kinds of crops in different seasons, thus the land may be put to use all year round. India has a very slow rate of transfer of labour from farm to non-farm activities, this must be increased if we are to increase our productivity.
  • The Agricultural Industry in India is in a dire need to undergo a digital revolution, agricultural economic policies need to be shaped keeping in mind novel digital innovations to help farmers track the needs of the land and not overuse resources.
  • A lot of farms produced in India goes to waste due to insufficient storage and transport facilities, spreading the importance of cold storage chains in rural areas can be an attempt to solve this issue. Undertakings of various agricultural start-ups could boost investment in the industry.
man driving tractor in fields

Hopefully, the food security needs of the future shall be met without any food wastage.

Also read:

1) How To Start An Organic Farm Business In India?
2) What are Some Beneficial Government Policies for Small Home-Based Businesses in India?
3) Best Tips To Get Started With Farming And Agriculture
4) Should Agricultural Income be Taxed in India?
5) List Of Schemes Farmers Can Avail in India


Q. What is capital formation?

Ans. The net accumulation of capital during the accounting period of a nation is called capital formation, it is a concept used in macroeconomics. Capital is formed when saving are used for making investments which are applied to production activities.

Q. What is the green industry?

Ans. The Government of India (Ministry of Environment) has classified industries into red, orange, green, and white categories depending on their Pollution Index (PI) on a scale of 1-100. Green Industries, such as agriculture, have a pollution index within the range of 21-40.

Q. What is GVA (Gross Value Added)?

Ans. GVA is used to measure the output of any particular industrial sector. It measures the value of goods and services produced by a sector. When we add GVA from all sectors and make adjustments for taxes and subsidies we get the GDP (Gross Domestic Product).

Q. What is FDI?

Ans. Foreign Direct Investment (FDI) is an investment by a firm in one country in businesses of other countries.

Q. What is tax liability?

Ans. Tax liability is the amount of tax you have to pay to the taxing authority.