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Production, Procurement and Inflation: A Market Model for Foodgrains

Author

Listed:
  • Gopakumar K.U.

    (Gopakumar K.U. is at the Department of Economics, Sri Sathya Sai Institute of Higher Learning, Prasanthi Nilayam, Ananthapur Dist, Andhra Pradesh, 515134, email: gopakumarku@gmail.com)

  • V. Pandit

    (V. Pandit is at the Department of Economics, Sri Sathya Sai Institute of Higher Learning, Prasanthi Nilayam, Ananthapur Dist, Andhra Pradesh, 515134, email: vnpandit@gmail.com)

Abstract

Rapid rise in the prices of foodgrains and their continued upsurge is a matter of concern not only for the government and policy makers but also for anyone concerned with social welfare. This is particularly so because the increased prices of basic food items cause great distress to the poor sections of society who spend a large part of their income on food. Thus, a clear understanding of the causes of inflation is necessary for framing the right policy to tackle the problem. The current study tries to examine how prices are determined in the Indian foodgrain market. This requires a slightly different approach from the conventional demand and supply framework as government intervenes in the market through open-market operations. To this end, we propose a structural model, explaining the behaviour of foodgrain prices for the period 1980–81 through 2011–12 incorporating the role of government interventions. Our results confirm that there is a strong impact of demand- as well as supply-side factors. However, when it comes to controlling inflation, demand-side management turns out to be highly significant. Under supply-side management, increased capital stock is found to be important, in so far as it significantly boosts production. Government intervention through procurement and off-take plays a stabilising role. JEL Classification: E31, Q11, Q18

Suggested Citation

  • Gopakumar K.U. & V. Pandit, 2014. "Production, Procurement and Inflation: A Market Model for Foodgrains," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 8(4), pages 431-456, November.
    • Handle: RePEc:sae:mareco:v:8:y:2014:i:4:p:431-456
    DOI: 10.1177/0973801014544581
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    References listed on IDEAS

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    1. C. S. C. Sekhar, 2003. "Determinants of Price in World Wheat Markets-Hidden Lessons for Indian Policy Makers?," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 38(2), pages 167-187, July.
    2. Neha Gupta, 2013. "Government Intervention In Grain Markets In India--Rethinking The Procurement Policy," Working papers 231, Centre for Development Economics, Delhi School of Economics.
    3. Parmod Kumar & Anil Sharma, 2006. "Price Variability and Its Determinants: An Analysis of Major Foodgrains in India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 41(2), pages 149-172, December.
    4. Sekhar, C.S.C., 2011. "World Foodgrain Prices – The Effect of Exporting Countries’ Policies," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 46(2), pages 217-242.
    5. V. Pandit, 2000. "Macroeconometric Policy Modeling for India: A Review of Some Analytical Issues," Working papers 74, Centre for Development Economics, Delhi School of Economics.
    6. Harish Mani & G. Bhalachandran & V. N. Pandit, 2011. "Public Investment In Agricultural And Gdp Growth-- Another Look At The Inter Sectoral Linkages And Policy Implications," Working papers 201, Centre for Development Economics, Delhi School of Economics.
    7. V N Pandit & Harish Mani & G Balachandran, 2011. "Public Investment in Agricultural and GDP Growth: Another Look at the Inter Sectoral Linkages and Policy Implications," Working Papers id:4385, eSocialSciences.
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    Cited by:

    1. Sekhar, C.S.C. & Roy, Devesh & Bhatt, Yogesh, 2017. "Food inflation and food price volatility in India: Trends and determinants," IFPRI discussion papers 1640, International Food Policy Research Institute (IFPRI).
    2. Gopakumar K.U. & V. Pandit, 2014. "Price Movements For Rice And Wheat - A Structuralist Policy Perspective," Working papers 240, Centre for Development Economics, Delhi School of Economics.

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    More about this item

    Keywords

    Foodgrains; Inflation; Output; Income; Money Supply; Procurement; Support Prices; Capital Stock;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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