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Resilience of Indian agriculture to external shocks: Analyzing through a structural econometric model

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  • Bathla, Seema

Abstract

Is Indian agriculture resilient to external shocks? This question has assumed considerable importance ever since macroeconomic reforms were implemented from the early nineties. As a result, the agricultural sector was exposed to sudden disturbances caused not just by the demand and supply conditions within the country, but also by volatility in world market price, exchange rate and surge in imports. This paper aims to evaluate the magnitude of sensitivity of agriculture to these factors and other changes, and explores policy options that may neutralize their adverse effects, maintain price incentives and stability. The analysis is based on three important tradable commodities. A structural econometric model is applied to each, separately under the exportable and importable scenarios from 1980-81 to 2002-03. Broad findings reveal agriculture to be increasingly driven by an incentive structure based on its linkages with world market price, exchange rate and other factors. Counterfactual simulation experiments indicate that due to trade and price policies, commodity prices and output tend to be much more resilient to various shocks compared to the exports and imports.

Suggested Citation

  • Bathla, Seema, 2011. "Resilience of Indian agriculture to external shocks: Analyzing through a structural econometric model," IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth 14, Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  • Handle: RePEc:zbw:iamo11:14
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    1. 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.
    2. Schiff, Maurice*Valdes, Alberto, 1998. "Agriculture and the macroeconomy," Policy Research Working Paper Series 1967, The World Bank.
    3. Ardeni, Pier Giorgio & Freebairn, John, 2002. "The macroeconomics of agriculture," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 28, pages 1455-1485 Elsevier.
    4. 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.
    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. Seema Bathla, 2006. "Trade Policy Reforms and Openness of Indian Agriculture," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 7(1), pages 19-53, March.
    7. G. Edward Schuh, 1974. "The Exchange Rate and U. S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(1), pages 1-13.
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