Domestic Terms of Trade and Their Effect on Supply and Demand of Agricultural Sector

Domestic Terms of Trade and Their Effect on Supply and Demand of Agricultural Sector D S Tyagi Both the issues, viz, (i) whether the terms of trade have moved against or in favour of agricultural sector, and (ii) whether the changes in terms of trade have effected the rate of growth of Indian agriculture have been debated at length. This paper focuses on (a) how the terms of trade between agricultural and non-agricultural sectors have moved since early fifties, (b) what has been the impact of adverse or favourable terms of trade on the rate of growth of agricultural output in different periods, and (c) what has been the impact of movement of terms of trade on demand for non-agricultural commodities by the agricultural sector The analysis leads to the con- elusion that movement of net barter terms of trade can have significant impact on the pace of investment in the agricultural sector as well as on the rate of growth of agricultural output. However, the impact of terms of trade turning adverse to the agricultural sector on the growth of investment in agriculture and on its output can be neutralised, to a great extent, through technological developments.