5. Supply Response Function in Indian Agriculture

This chapter captures the supply response in terms of area and yield of foodgrain crops at the all-India level considering the period between 1980–81 to 2013–14. Among the price factors, real farm harvest price of own crop was most significant with a positive sign, and the competing crop (real) price was significant with a negative sign. Among the non-price factors, rainfall was significant with a positive sign in almost all the crops. Irrigation was found positive and significant only in wheat, rice and rabi coarse cereals. The kharif coarse cereals presented a case of being rainfed crops, wherein the irrigation coefficient was mostly insignificant and even had a negative sign. The lagged dependent variable was most significant with a positive sign indicating the influence of past behaviour on the future decisions of the farmers. The results of the study corroborate the recent literature indicating non-price factors, especially irrigation being more prominent in farmers’ acreage decision than the price factors. Yield determinants were somewhat similar to area determinants. Own real price had a significant coefficient with a positive sign in wheat and coarse grains implying that profitability motive does influence yield through input usage and management. Rainfall was most significant with a positive sign indicating the climate factor. Fertilizer use per hectare was highly significant with a positive sign indicating the changing contours of Indian agriculture which further connotes that fertilizer price subsidies might help to encourage farmers to attain higher yield. The positive effect of irrigation on yield emphasizes a need for increasing major and medium irrigation including check dams to raise the productivity of agricultural sector.