Abstract:
Supply response to price changes is likely to increase with the increasing liberalization of
the agricultural sector in India. Past studies revealed a weak supply response for Indian
agriculture. No recent reliable estimates are available to determine whether the response
has improved after the economic reforms introduced in the early 1990s in India. This
report estimates supply response for major crops during the pre- and post-reform periods
using the Nerlovian adjustment cum adaptive expectation model. Estimation is based on
dynamic panel data technique using pooled cross-sectional time-series data across the
states of India for the period 1970-71 to 2004-05. As expected, food grains reveal less
response than nonfood grains. With proper specification of the price variable, the acreage
elasticity significantly increased by about 20 to 40% post reforms as compared to pre
reforms for all crops, except cotton and groundnut. Yield response is higher than acreage
response for the main cereals, rice and wheat. Treating yield variable as a proxy for nonacreage
inputs, the results confirmed that farmers respond to price incentives increasingly
by adjusting non-acreage inputs than acreage for main cereal crops.
