ABSTRACT
The move towards a liberal and open trade regime, particularly after India became a signatory to the new world trade arrangement, resulted in increased integration of the domestic agricultural economy with the world economy in which the behaviour of international prices has a greater influence on domestic food prices and production than before. For example, changes in international prices exert a significant direct and indirect influ ence on domestic food prices through trade as well as through adjustments in domestic policies in order to keep some balance with global prices. To elaborate, a decline in international prices implies relatively cheaper imports and if the domestic prices are higher than the imported commodity’s prices, it would result in more imports into the domestic market. An increase in imports enhances supplies, and for agricultural commodities — the prices of which are determined by supply and demand — may be expected to lower the price relative to the counterfactual equilibrium. The decline in domestic food prices also puts pressure on agriculture price policy to increase support prices in order to protect the domestic producers from low market prices. Therefore, in the changed economic scenario, the behaviour of international prices becomes all the more important as it exerts a strong influence on domestic food prices and production.
