MARKETED SURPLUS IN INDIAN AGRICULTURE:* THEORY AND PRACTICE

AuthorSUBRATA GHATAK
Publication Date01 May 1975
DOIhttp://doi.org/10.1111/j.1468-0084.1975.mp37002005.x
MARKETED SURPLUS IN INDIAN
AGRICULTURE:* THEORY AND PRACTICE
By SUBRATA GHATAK
INTRODUCTION
It is generally recognized that the size of the agricultural surplus is crucially
related to the capital formation and growth of an underdeveloped country (Nicholls,
1963). The major aims of this paper are:
to develop a model to study the relationship between marketed surplus and
the terms of trade between agriculture and industry;
to test some of the properties of the model in the light of the experience of an
Indian state, viz. Puni ab-Haryana;
to highlight some of the major limitations of agricultural price policy in
mobilizing the surplus from agriculture.
A BRIEF SURVEY OF THE LITERATURE
Defining marketed surplus as the difference between total food production and
total food consumption, it is contended that if per capita consumption remains
fixed, a 'surplus' can be mobilized in an underdeveloped labour-surplus economy
(Lewis, 1954). Obviously, the process is neither costless nor without leakages.
To achieve the twin objectives of mobilizing the surplus and enforcing saving by
the agricultural population, the government may impose taxes and levies or try to
persuade peasants to save more. The first policy may be successful in a command
economy, but the success of the second is questionable. Alternatively, the terms
of trade, i.e. the ratio of agricultural price to industrial prices, could be changed
against agriculture (Preobrazhensky, 1965) by manipulating commercial fiscal and
monetary policies. But if the direct income and substitution effects dominate the
'derived' income effect (i.e. the reduction of demand of the agriculturists for every-
thing, including their own goods, causing a rise in marketed surplus), the marketed
surplus may fall (Narain, 1957). Further, the strength of the policy depends upon
the degree of cumpulsion placed on the peasant to sell part of his production.
Some compulsion exists in a command economy. But in a democratic society a
farmer might decide not to sell as much as he might have sold before any worsening
of the terms of trade. It has also been argued that the surplus will fall because the
marginal utility of sales at lower prices will be less than that at higher prices, while
the marginal utility of produce retained for consumption remains the same
(Khusro, 1967). This argument is, however, based on the assumption of the
separability of utility (Bhagwati and Chakravarty, 1969) and does not entirely
rule out the possibility of a negative elasticity of marketed surplus.
In fact, the point is frequently made that if agricultural prices fall, the marketed
* Comments from H. Rees, M. Hoskins, I. Bradley, T. Byres and Anita Ghatak are grate-
fully acknowledged. I am also very thankful to David Pearce for his comments on my style
and judgement. Only the witer is responsible for any errors.
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