Effective Incentives and Subsidies for Groundnut Cultivators in India

This paper quantifies region-specific effective incentives for groundnut during the 1980s by estimating the nominal protection coefficients (NPCs), effective protection coefficients (EPCs) and effective subsidy coefficients (ESCs), under importable and exportable hypotheses. The estimated results suggest that groundnut cultivators in India have been net 'subsidised. Given short-term and long-term projections of world prices of groundnut (oil and meals), which are likely to remain depressed at around 1986 levels, it appears that degree of 'protection' will remain sufficiently high for Indian groundnut cultivators in the coming years. Even if one adjusts for premium on foreign exchange and one estimates 'adjusted ESCs, which would be very close to cost benefit indicators such as domestic resource cost (DRC), the situation is not likely to change. The new set of 'adjusted' ESCs, when viewed from comparative advantage point, would indicate that groundnut is neither an efficient import substitute nor an efficient exportable commodity. It would also suggest that investment programmes to expand production of groundnut would yield low economic rates of return.