Farmers' Response to Price and Non-Price Factors for Various Commodity Groups and Anatomy of Inflation under New Economic Environment

Abstract

Considering the new economic environment this note analyses farmers' output and marketed surplus responses to barter terms of trade which is likely to change in the wake of de-protection of trade and industry, besides non-price factors for four/three major agricultural commodity group. It also, in the same context, evaluates whether inflation is more of a fiscal and monetary phenomenon or aggregate supply and its composition related in nature. On the former issue the note makes a unique contribution by conceptualizing substitution, income and wealth efforts of barter terms of trade and validating them empirically. On the latter issue the note develops a multivariate model of inflation and validates it. Results show that non-price factors are more important than the relative prices, besides latter having a negative "net" impact on foodgrains output as well as marketed surplus and price-inelastic in its response for all the commodity groups. Empirical results on inflation show that it is more of an aggregate supply side factor related phenominon especially as it is reflected in priority for agricultural growth, besides providing a support to the hypothesis that inflation is money-neutral. These findings form basis to infer some major policies for agricultural growth and for alleviating inflation.