Artificial Market Prices and Subsidies: Implication for Indian Agriculture

Abstract

Agriculture in India is the most important segment of the economy. Growth of Agricultural sector is crucial for Indian economy as it employs two-third of its population and contributes nearly one-third of national income. However its importance in the economic, social and political fabric of India goes well beyond what is indicated by its contribution to the economy. The large number of poor agricultural households and their income vulnerability are major concern among policy makers. These concerns have driven both agricultural policies and public expenditures in agriculture in India as well as in other part of the globe. Agriculture is also one of the major sources of export earnings of our country and is crucial for improving the balance of payments. In recent years, the export of agricultural and allied products accounted for about one-fifth of total export earnings of India. India's share of agricultural export has remained very low in many commodities despite inherent strength of Indian agriculture with the exception of few commodities. Present paper is an effort to evaluate competitiveness of Indian wheat and rice in international market. Keeping in view the overall food-grain production, marketable surplus and number of farmers, among the major food-grain producing states, here Uttar Pradesh has been taken for comparison of trade competitiveness. Since agricultural trade is highly distorted due to huge subsidies and support to agriculture in developed countries; paper also evaluate competitiveness of these commodities in alternative case, if both countries withdraw their subsidies to these commodities in form of Producer Support Estimate (PSE). The Paper is divided in four parts; Part one is about the methodology to calculate trade competitiveness. Trade competitiveness of wheat and rice at normal prices and at PSE adjusted prices has been calculated in part two. Part three evaluate the implications of agricultural subsidy and part four is the concluding part with suggesting some corrective measures for fair agricultural trade and due space of developing countries in international agricultural trade.