Relationship between Agricultural and non-agricultural sector
During the process of development, inter-dependence between agriculture and industry has become stronger through the
1. Production linkages
2. Demand linkages and
3. Savings and investment linkages.
Production linkages arise from the interdependence of agriculture and industry for productive inputs i.e., supply of agricultural materials such as cotton, jute, sugar cane etc., to agro-based industries and supply of fertilizes, machinery and electricity by industry to agriculture over the last five decades. These linkages have got further strengthened with agriculture's dependence on industry reflecting the modernization of agricultural sector.
There are strong demand linkages between the two sectors. The impact of incomes and industrialization on the demand for food and agricultural raw materials is generally recognized.
Equally significant is the impact of rural income on industrial consumption goods, i.e., clothing, footwear, sugar, edible oils, TV sets, washing machines, refrigerators, motor bikes, etc. A recent study concludes; 'Rural bazaar outbuys urban market'.
Contribution of Agriculture to Economic Growth
Simon Kuznets identifies four possible types of contribution that the agricultural sector is capable of making for overall economic development. These are:
1.Product contribution i.e., making available food and raw materials.
2.Market contribution i.e., providing the market for producer goods and consumer goods produced in the non-agricultural sector.
3.Factor contribution i.e., making available labour and capital to the non-agricultural sector and
4.Foreign Exchange contribution.