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India: Price Policy and Terms of Trade
Country Study > Chapter 7 > Agriculture > Economic Development > Development Programs > Price Policy and Terms of Trade

PRICE POLICY AND TERMS OF TRADE


After independence, India's initial price policy could be characterized as serving the interests of the consumers, particularly where food grains were concerned, and most of all in regard to wheat. Food prices were kept low to provide cheap food for urban consumers under the theory that a cheap and easy supply of wage goods -- of which food grains formed the main component -- would inhibit inflationary pressures on the economy. This policy, buttressed with imports under the United States Public Law 480 Food for Peace Program, kept prices at a low level during the late 1950s and early 1960s but did not provide incentives for Indian farmers to invest or increase production. The terms of trade vis-à-vis manufacturing were favorable to agriculture in FY 1959 and then on a par with other sectors for three years. Thereafter, when manufacturing prices went up faster than agricultural prices as a result of government policy, terms of trade favored manufacturing and turned against the agricultural sector. This change led to a food crisis in the mid-1960s when agricultural production fell.

From about 1965, the need to guarantee remunerative prices to farmers was stressed to ensure self-sufficiency in food-grain production as soon as possible. The Agricultural Prices Commission -- in 1993 called the Commission for Agricultural Costs and Prices -- was set up to advise the government on agricultural prices, keeping in view the interests of both the consumer and the producer. Of particular concern were prices for wheat, rice, coarse grains, pulses, sugarcane, oilseeds, cotton, and jute. In the late 1980s and early 1990s, the commission was supplied with cost of production data, compiled through sample surveys, to improve its effectiveness in setting prices. The commission was reasonably successful in providing remunerative prices for farmers. It used the price mechanism to increase the production of commodities in demand, such as oilseeds at the end of the 1980s, and to keep prices at a reasonable level for consumers.




Last Updated: September 1995


Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for India was first published in 1995. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on Factba.se.

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