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  • 4.20 Index Numbers In Agriculture

4.20 Index Numbers in Agriculture

  • Current Status
    • 4.20.1 Index Numbers in Agriculture are required in order to study the trends over time in respect of area, yield, production, productivity, prices, etc. and for studying the comparative picture of the performance of agricultural sector vis-à-vis other sectors. The index numbers are constructed after making due allowance for changes in the coverage and methods of estimation as the absolute figures of area, yield, production, etc. are known to be unsuitable for a study of trends over time. The index numbers constructed by the Ministry of Agriculture can be grouped into two broad categories: (a) Index Numbers of Area, Production and Yield, and (b) Index Numbers of Terms of Trade between Agricultural and Non-agricultural Sectors.
    • Index Numbers of Area, Production and Yield
      Food grains
      Cereals Rice, Wheat, Jowar, Bajra, Maize, Ragi, Barley and Small Millets. (Crops except Rice and Wheat constitute the sub-group coarse cereals.)
      Pulses Gram, Tur and other pulses.
      Non-food grains
      Oilseeds Groundnut, Sesamum, Rapeseed and Mustard, Linseed, Castorseed, Safflower, Nigerseed, Soyabean, Sunflower, Coconut and Cottonseed. (The oilseed crops except Coconut and Cottonseed constitute 9 oilseeds.)
      Fibres Cotton, Jute, Mesta and Sannhemp (Jute and Mesta constitute a sub-group.)
      Plantation crops Tea, Coffee and Rubber.
      Condiments and Spices Pepper, Ginger, Garlic, Chillies, Turmeric, Arecanut, Coriander, and Cardamom.
      Fruits and Vegetables Potato, Onion, Banana, Cashewnut, Tapioca and Sweet Potato.
      Other Crops Sugarcane, Tobacco and Guarseed
      Besides the State index numbers, the DESMOA also constructs the national level indices. The base year for the present series of “Index of Area, Production and Yield in Agriculture” is the triennium ending 1993-94 so as to be in harmony with the other series of indices such as Index of Industrial Production, Wholesale Price Index and other series of National Accounts Statistics. In order to smoothen the fluctuations of area and production from one year to another, the average of area and production over the triennium is taken for determining the base level area and production. The weight of a commodity for the production index is taken as the average production of the commodity in the triennium ending 1993-94 and the national average price of the commodity during 1993-94 as obtained from National Accounts Statistics. This has been done to fix the base production at its average level by eliminating the cyclical variation and to evaluate the production with a same price for all States in view of the wide variations observed in the State prices. The index number of area for a specified year for an individual crop is the percentage of current year area of the crop with respect to the base year area of the crop. The index of production is also calculated in the same manner taking the production figures instead of the area figures whereas the index number of yield for the specified crop is calculated as the percentage of the index number of production with respect to that of area. Though these indices are calculated for each State separately, the all-India indices are calculated independent of the State indices. The methodology adopted for the calculation is given at Annexe 4.10.
    • Index of Terms of Trade between Agricultural and Non-Agricultural Sectors
      • 4.20.3 With a view to comparing the prices of exports of Agricultural Sector with prices of imports from non-Agricultural Sector, the Ministry of Agriculture constructs the index numbers of terms of trade (ITT) between the agricultural and non-agricultural sectors. It measures the relative change in the prices received by the farmers for produce sold by them in relation to a change in the prices paid by them for the commodities purchased for final and intermediate consumption as well as capital formation. While a value of ITT greater than 100 indicates favourable terms of trade for Agricultural Sector, less than 100 indicates adverse terms of trade. These indices are available from 1981-82 onwards. The base period for constructing the current series of ITT is the triennium ending 1990-91. The methodology used for the construction of ITT is the ratio of Index of Prices Received (IPR) to the Index of Prices Paid (IPP) by the Agricultural Sector expressed as a percentage.
      • 4.20.4 The Index of Prices Received (IPR) covers 39 important crops and commodities at all-India level produced in the Agricultural Sector and nine livestock products. The percentage of the marketed value of each commodity with respect to the total value of marketed surplus for all the commodities is used as weights for the construction of the index.
      • 4.20.5 The Index of Prices Paid (IPP) by the Agricultural Sector depend on the items and commodities and their quantities, which the Agricultural Sector purchases from the non-agricultural sector for the purposes of final consumption, intermediate consumption and capital formation together with their prices. Accordingly, three indices namely, IPP for final consumption (IPP-FC), IPP for final intermediate consumption (IPP-IC) and IPP for capital formation (IPP-CP) are separately calculated. The combined IPP is based on a weighted average of the three component indices with percentage weights 73.54, 21.63 and 4.83 respectively.
      • 4.20.6 The index of terms of trade between Agricultural and non-Agricultural Sector is worked out as the percentage of index of prices received by the farmers with respect to the index of prices paid for final consumption, farm inputs and capital investment. The index numbers of the terms of trade between Agricultural and non-Agricultural Sectors with bifurcations of the index numbers of prices paid and those received for the years from 1981-82 to 1997-98 are given in Annexe 4.11. These indices are used in the formulation of price policies for agricultural commodities, monitoring the changes in the economy of the Agricultural Sector in relation to the rest of the economy.
  • Conclusions and Recommendations
    • 4.20.7 The index number of area, production and yield that are available for every State are constructed covering all the crops. As all the crops may not be important in all the States, the State Indices are likely to give a wrong picture. The index of terms of trade has been observed to serve the purpose for which it is meant. There appears to be no deficiency in the process of developing the series. While it is a welcoming feature that the Ministry of Agriculture has been constructing the State Indices besides the all-India series of Index Numbers of Area, Production and Yield, it is necessary that the State Indices should give a correct picture of the State with reference to specific parameters. This would be possible if crops grown with reference to a specific State only are included in the construction of the State Indices with appropriate weights.
    • 4.20.8 The Commission, therefore, recommends that:
      • A review of the item basket for the construction of Index Numbers of Area, Production and Yield should be undertaken immediately.
      • The item basket for the construction of Index Numbers of Area, Production and Yield should be different for different States.
      • The present arrangements for the construction and release of Index of Terms of Trade should continue.
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