Resilience of Indian Agriculture to External Shocks: Analyzing through a Structural Econometric Model

Is Indian agriculture resilient to external shocks? This question has assumed considerableimportance ever since macroeconomic reforms were implemented from the early nineties. Asa result, the agricultural sector was exposed to sudden disturbances caused not just by thedemand and supply conditions within the country, but also by volatility in world marketprice, exchange rate and surge in imports. This paper aims to evaluate the magnitude ofsensitivity of agriculture to these factors and other changes, and explores policy options thatmay neutralize their adverse effects, maintain price incentives and stability. The analysis isbased on three important tradable commodities. A structural econometric model is applied toeach, separately under the exportable and importable scenarios from 1980-81 to 2002-03.Broad findings reveal agriculture to be increasingly driven by an incentive structure based onits linkages with world market price, exchange rate and other factors. Counterfactualsimulation experiments indicate that due to trade and price policies, commodity prices andoutput tend to be much more resilient to various shocks compared to the exports and imports.