ABSTRACT
This statement, made by Myrdal more than three decades ago, is very pertinent for India even today. Despite its declining share in GDP, agriculture still remains the backbone of the Indian economy. Agriculture is still a major source of wage goods like food, fibre and fuel and also provides raw material for a large number of industries. Agriculture boosts the economy through backward and forward linkages. It provides livelihood to over 60 per cent of the population and a cushion for the ratio between the urban and rural income. Apart from its importance for the balanced and accelerated development of the overall economy, the basic characteristic of the agricultural production process which distinguishes it from industry explains why the agricultural sector cannot be entirely left to market forces. To elaborate, first, unlike industry, where the presence of excess capacity makes production more elastic, agricultural production in any given period is fixed by production conditions from the supply side. Second, the scale of operation in agriculture tends to be much smaller as compared to the industry. The ability of farmers to hold stocks is also limited. Therefore, taking these two together, one can argue that agricultural supply cannot be adjusted rapidly. Third, along with slow supply adjustment, output is also subject to large fluctuations induced by weather and other natural forces. And fourth, while supply adjustment is slow and tends to fluctuate a good deal, the demand for agricultural commodities tends to be price-inelastic, resulting, thereby, in a great deal of fluctuations in agricultural prices and income (Patnaik 2003).
