Agricultural prices in a changing economy: an empirical study of Indian agriculture

Abstract

This slim volume as the name suggests raises at a most opportune moment the important issue of the role of prices in coaxing up aggregate output in agriculture. The general consensus has been that while prices (variously considered as gross agricultural prices, WPI of food items, terms of trade of agricultural sector with the rest of the economy, ratio of output to purchased input prices, etc) have and do influence the output of specific crops and subsectors within the economy, they do not determine the overall output. Conceptually at least if even a significant part of the agriculture sector is carried out by profit maximizing entities, and if land can be left uncultivated or partially cultivated in relation to its potential, there is no a priori reason for such a position. However the consideration that agriculture houses vast disguised unemployment being the “residual non capitalist sector” in the sense of Arthur Lewis ( "Economic Development with Unlimited Supplies of Labor,". Manchester School of Economic and Social Studies, Vol. 22, pp. 139-91, 1954), and is therefore dominated by peasant farms who maximize value added minus purchased inputs, and the profit maximizing farms entities have very small shares, then the absence of overall price responsiveness can be a priori expected. Yet if in particular areas the there is no little or no disguised unemployment and the market wages are too high to support agriculture at the national level prices then lands can be left uncultivated, especially if very fragmented holdings, and or local chauvinism, prevent the use of cheaper migrant labour. Not all scholars who have dwelt on the issue of price responsiveness have been clear. Alagh makes the argument clear, and in an open economy whence imports through the demand side can affect output , and with the increasing role of capitalist farms should at this juncture reopen the question. It now becomes an empirical issue. Already the observation that in Goa and Kerala significant amounts of land (earlier cultivated) are allowed to go fallow due to high cost of cultivation (largely due to relatively “high” market wages), means that the assumption of universal disguised unemployment would no longer be valid. Thus the book picks up a very significant issue for Indian agriculture. The hallowed ground of a near universal consensus that it is public investments, seeds and fertilisers, and irrigation, and not prices that affect aggregate output can be questioned only cautiously, and the book takes the first significant steps. It is notable not only because of the empirical analysis but also because of the discussion and the arguments that the author puts forth for a reconsideration of the problem. The latter could have been clearer if the author had not been overly reverent to the past consensus.