• UGI USER
  • Dec 19, 2023
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AGRICULTURAL TERMS OF TRADE: CAUSES AND IMPLICATIONS

About Terms of Trade (ToT):

Terms of Trade in Indian agriculture, representing the movement in prices of farm commodities relative to non-farm goods and services, have significantly improved in the last fifteen years.

Historical ToT Trends:

NITI Aayog data reveals a substantial improvement in ToT for agriculture relative to the non-agriculture sector, notably rising from 97.6 in 2009-10 to 130.2 in 2020-21.

Source: Indian Express

Calculation of ToT:

Calculated using implicit price deflators, ToT is derived from the ratio of Gross Value Added (GVA) at current prices to GVA at constant prices, offering insights into inflation relative to a base year.

Contributing Factors:

The surge in India’s agricultural growth rate (3.7% annually from 2005-06 to 2021-22) is attributed to the improved ToT, influenced by a global agri-commodity price boom and policy interventions, especially Minimum Support Price (MSP) hikes.

Farmers vs. Agricultural Labourers ToT Analysis:

While the overall ToT for the farm sector has seen improvement, a detailed analysis reveals that the ToT increase has been more significant for agricultural labourers than for farmers in recent years.

Political Economy Implications:

  • Accelerated economic growth since 2003-04 created alternative employment opportunities for agricultural labourers, leading to a tightening of labour markets, a rise in real wages, and improved ToT for this segment.
  • The rise in real wages for agricultural labourers has impacted farmers, squeezing their profits amid increased production costs, contributing to socio-economic implications and challenges for agrarian communities.

Challenges and Stagnation:

  • Despite subsidies and MSP procurement, the ToT for farmers has stagnated in the last decade.
  • The clamour for reservations in government jobs and educational institutions by dominant agrarian communities reflects the challenges faced by farmers.
  • For agricultural labourers, the favourable ToT ratio has seen a decline after 2018-19, impacting rural wages and indicating challenges in real wage growth.

The nuanced analysis of ToT reveals complexities in the agricultural landscape, emphasizing the need for comprehensive policies to address the concerns of both farmers and agricultural labourers.