ABSTRACT
This chapter shows that exchange rate depreciation and improvement in fiscal balance has a positive impact on agricultural output. The agricultural sector has been subject to policies with conflicting objectives: the need to achieve higher output growth but without the higher output prices that may be required to induce the growth. The rising fiscal deficit can bring about macroeconomic instability and in turn lead to cuts in expenditure affecting agriculture. The impact of macroeconomic policies may differ across sectors depending upon the relative flexibility of the respective prices and the type of government interventions in different sectors. The macro econometric model, incorporating the FPF approach to modeling agricultural and manufacturing production, has been used to simulate the impact of alternative policy scenarios on agriculture. Improvements in efficiency in agricultural production result in output gains in the other sectors of the economy as well, mainly due to lower rate of inflation.
