A review of methodological issues relating to the estimation of terms of trade and trends in terms of trade between agricultural and non-agricultural sectors of the Indian economy since 1950’S

Abstract

The movements of intersectoral terms of trade (TOT) in India since independence is characterized by periodical shifts in favor and against agriculture. The intersectoral terms of trade has been favorable during 1967- 1968 to 1977-1978 and during the post reforms period. But the indicators of performance and growth of the sector has been showing unimpressive trends in the post reforms period. While considering the slow pace of reforms in the country, it is also observed that policy changes in agriculture were still slower. This paper analyses the impacts of the swings in terms of trade (favorable and unfavorable to agriculture) on the performance of agricultural sector in the country. It was revealed that while the favorable swing in terms of trade has caused increased private gross fixed capital formation in agriculture, it has not led to any perceptible improvement in agricultural production or growth rate of agriculture gross domestic product (GDP). While the favorable TOT during 1967-68 to 1977-78 is speculated to be the result of government price support mechanism, this paper argues that the favorable TOT in the post reforms period is a result of decline in the aggregate crop output rather than government policies. Key words: Terms of trade (TOT), agricultural growth rate, gross domestic product (GDP), government policies.