Munich Personal RePEc Archive

Financial and economic crisis: implications for agricultural sector in India

Deepak, Shah (2012): Financial and economic crisis: implications for agricultural sector in India.

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In the light of the fact that the financial meltdown of September 2008 led to sharp slowdown in economic activity in the US and Europe with a massive drop in demand for goods and services from major exporting nations like China, Japan, Germany and other Asian countries, including India, this paper attempts to evaluate the implications of global meltdown on agricultural sector of India, especially with respect to commodity price, investment in agriculture and in general food security of the country. The unprecedented global economic crisis has also affected economic performance of India and most likely it will remain subdued for another couple of years. Since agricultural sector in India has somewhat different entity, the impact of global crisis in this sector is seen to have percolated in varied forms. Although the global economic downturn has resulted in large-scale job losses and mass unemployment in many export-oriented sectors, the situation in food and agricultural sector has remained stable with little job losses. However, during the period of slowdown when there stood virtual ban on foodgrain exports, the raw sugar was subjected to zero import tariff, leading to widespread protest by the sugar industry. The “free” imports of raw sugar raised concerns regarding cultivation of sugarcane in the country. Adequate control obviously needs to be exercised on the domestic prices of all essential commodities of common consumption, including sugar. Further, despite decline in income elasticity of demand for cereals in India, the low-income groups still show positive income elasticity of demand for cereals, indicating little tendency of decline in demand for cereals even if income falls marginally. This not only ensures higher demand for farm produce but also significantly high demand for labour in agriculture. Though there has not been any decline in employment of labour in agriculture sector during the period of slowdown, and, rather its demand increased due to the implementation of NREG scheme, the cause of concern is the price volatility in terms of output prices of agricultural produce, especially with respect to cash crops. While food crops have shown a rising trend in their prices, the cash crops saw a crash in the same after showing a short-lived boom from 2007 to second half of 2008, resulting in wiping out whatever gain in prices occurred. Similarly, the prices of edible oil in India declined due to crash in world prices of oilseeds, whereas the price of non-food primary products hardly changed. Although government has resorted to initiate some measures to check prices, there still stand various other measures to be initiated to safeguard Indian economy from global economic slowdown.

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