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Volatility in Agriculture Commodity Prices in India: Impact and Macroeconomic and Sector-Specific Policy Responses

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  • Bathla, Seema
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    Abstract

    Globalization and trade liberalization have exposed agricultural sector of many developing countries to sudden disturbances, caused not just by demand-supply conditions within their economies but also by volatility in global commodity prices, exchange rate and surge in imports. This paper evaluates the magnitude of sensitivity of Indian agriculture to these factors, and explores policy options that may neutralize their adverse effects, maintain price incentives and stability. The analysis is undertaken for one important tradable commodity viz. wheat by applying a structural econometric model, separately under the exportable and importable scenarios from 1980-81 to 2009-10. Findings reveal wheat to be increasingly driven by an incentive structure based on its linkages with world price, exchange rate and other factors. Counterfactual simulation experiments indicate that due to trade and sector-specific policies, wheat price and output tend to be much more resilient to fluctuations in international price and other shocks compared to its exports and imports.

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    Bibliographic Info

    Paper provided by European Association of Agricultural Economists in its series 123rd Seminar, February 23-24, 2012, Dublin, Ireland with number 122543.

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    Date of creation: 23 Feb 2012
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    Handle: RePEc:ags:eaa123:122543

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    Related research

    Keywords: Agricultural trade; Price transmission; Volatility; Macroeconomic policies; International Relations/Trade; Risk and Uncertainty; Q17; C22; E69; E60;

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    1. Schiff, Maurice & Valdes, Alberto, 1998. "Agriculture and the macroeconomy," Policy Research Working Paper Series 1967, The World Bank.
    2. MB Kaabia & JM Gil, 2000. "Short- and long-run effects of macroeconomic variables on the Spanish agricultural sector," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 27(4), pages 449-471, December.
    3. Bhattacharya, & Kar, Sabayasachi, 2007. "Macroeconomic Reforms, Growth, and Stability," OUP Catalogue, Oxford University Press, number 9780195684193, October.
    4. Dasgupta, Dipak & Dubey, R.N. & Sathish, R, 2011. "Domestic Wheat Price Formation and Food Inflation in India," MPRA Paper 31564, University Library of Munich, Germany.
    5. Lassaad Lachaal & Abner W. Womack, 1998. "Impacts of Trade and Macroeconomic Linkages on Canadian Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 534-542.
    6. NR, Bhanumurthy & Kumawat, Lokendra, 2009. "External Shocks and the Indian Economy: Analyzing through a Small, Structural Quarterly Macroeconometric Model," MPRA Paper 19776, University Library of Munich, Germany.
    7. Mamingi, Nlandu, 1996. "How prices and macroeconomic policies affect agricultural supply and the environment," Policy Research Working Paper Series 1645, The World Bank.
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