Macroeconomic Picture of Agriculture sector in Indian Economy

Theodore Schultz began his acceptance speech for the 1979 Nobel Prize in Economics observing:
“Most of the people in the world are poor, so if we knew the economics of being poor we would know much of the economics that really matters. Most of the world's poor people earn their living from agriculture, so if we knew the economics of agriculture we would know much of the economics of being poor” (Shultz, 1979).

Existing empirical evidence on the impact of macroeconomic variables on agriculture remains mixed and inconclusive. This paper re-examines the dynamic relationship between monetary policy variables and agricultural prices using alternative vector auto regression (VAR) type model specifications. Directed acyclic graph theory is proposed as an alternative modeling approach to supplement existing modeling methods. Similar to results in other studies, this study ’s findings show that over the time period analyzed (1975–2000), changes to money supply as a monetary policy tool had little or no impact on agricultural prices. The primary macroeconomic policy instrument that affects agricultural prices is the exchange rate, which is shown to be directly linked to interest rate, a source of monetary policy shock.

The Transmission of Exchange Rate Changes to Agricultural Prices (July 2009) provides empirical evidence that price and exchange rate transmission for agricultural products is low in most developing economies, partly because of trade policies but also because of inadequate infrastructure and other market deficiencies. Movements in countries' exchange rates can substantially change the prices of goods faced by producers and consumers and thereby affect incentives to produce, consume, and trade goods. Exchange rate changes, however, might not be completely transmitted (passed through) to