ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Improved Terms of Trade for Agriculture

Results from Revised Methodology

Using a more comprehensive method to assess the terms of trade between agricultural and non-agricultural sectors, a key indicator for the government's agricultural price policies, this article finds that the ToT for farmers and the agricultural sector improved rapidly between 2004-05 and 2010-11, after which they stagnated till 2013-14.

There is a consensus that the recent growth in India’s agriculture has been propelled relatively more by price factors, though government investments in agriculture continued to increase after 2002 (Dev and Rao 2010; Chand 2010; World Bank 2014). It has long been realised in price-policy formulation that farmers typically respond to relative prices rather than just prices received or prices paid. The concept of terms of trade (ToT) between agriculture and non-agriculture, which represents relative prices, was added as one of the factors for consideration while fixing minimum support prices by the Government of India in 1980. This index was considered the measure of relative performance of sectors crucial to growth, income distribution, and consequently to patterns of demand, savings, and investment.

A Changed Economy

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