The impact of agricultural activities on urbanization: Evidence and implications for India

As a part of the development process, India is currently going through a transformation from agriculture based economy to industry and service lead urbanized economy. However, no formal quantitative research has been done on this phenomenon. In this perspective, based on Matsuyama’s (1992) theoretical framework and using panel data model, the impact of agricultural activities on urbanization in India is analyzed in this paper. For the analysis 15 major agricultural states of India are considered for the period of 1981 to 2015 by sourcing data from mainly Census of India and Ministry of agriculture, government of India. The empirical estimations reveal that the higher share of agriculture in GDP, amount of cultivated land area, and rural male employment in agriculture have had a negative effect on urbanization in India. On the other hand, higher consumption of fertilizer, state government expenditure on agriculture, production of major crops (wheat, maize, jowar, and bajra), rural female employment in agriculture, and rural literacy rate have had a positive impact on urbanization. The results also show that the effect of agriculture productivity is positive on urbanization for a less trade open economy like India. Finally, it is suggested that there is need of higher agricultural development in order to achieve a higher level of urbanization in India. For this purpose use of technology in agriculture sector along with higher level rural education is required. Finally, we need to have balanced rural and urban policy for a smooth rural- urban transformation in India