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Direct and Indirect Use of Fossil Fuels in Farming: Cost of Fuel-price Rise for Indian Agriculture

Author

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  • Anand, Mukesh

    (National Institute of Public Finance and Policy)

Abstract

A hornet's nest could be an apt simile for fossil fuel prices in India. Over years a policy maze has evolved around it, with sharply diverging influence on disparate constituencies. We estimate the increase in total cost of farming as a multiple of direct input costs of fossil fuels in farming. Over the period between 1990-1 and 2010-1, direct use of fossil fuels on farms has risen and there is also increasing indirect use of fossil fuels for non-energy purposes. Consequently, for Indian agriculture both energy intensity and fossil fuel intensity are rising. But, these are declining for the aggregate Indian economy. Thus, revision of fossil fuel prices has acquired greater significance for Indian agriculture than for the remainder of the economy. We validate these findings by utilising an input-output table for the Indian economy to assess the impact of fossil fuel price increase. We assess that fossil fuels sector has strong forward linkages and increase in its price has a steep inflationary impact. Using a three-sector I-O model for Indian economy, we estimate that a 10 per cent increase in fossil fuel price could cause, ceteris paribus, the wholesale price index (WPI) to rise about 4.3 percentage points with 0.7 percentage points being contributed by the farm sector alone.

Suggested Citation

  • Anand, Mukesh, 2014. "Direct and Indirect Use of Fossil Fuels in Farming: Cost of Fuel-price Rise for Indian Agriculture," Working Papers 14/132, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:14/132
    Note: Working Paper 132, 2014
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    References listed on IDEAS

    as
    1. Surajit Das & Sukanya Bose & N. R. Bhanumurthy, 2014. "Oil Price Shock, Pass-Through Policy and its Impact on India," India Studies in Business and Economics, in: Ratan Khasnabis & Indrani Chakraborty (ed.), Market, Regulations and Finance, edition 127, chapter 13, pages 231-253, Springer.
    2. Duvvuri Subbarao, 2011. "The Challenge of Food Inflation," Working Papers id:4594, eSocialSciences.
    3. Anand, Mukesh Kumar, 2012. "Diesel Pricing in India: Entangled in Policy Maze," Working Papers 12/108, National Institute of Public Finance and Policy.
    4. Ganguly, Kavery & Gulati, Ashok, 2013. "The Political Economy of Food Price Policy: The Case Study of India," WIDER Working Paper Series 034, World Institute for Development Economic Research (UNU-WIDER).
    5. Kavery Ganguly & Ashok Gulati, 2013. "The Political Economy of Food Price Policy: the Case Study of India," WIDER Working Paper Series wp-2013-034, World Institute for Development Economic Research (UNU-WIDER).
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    More about this item

    Keywords

    Agriculture ; Fossil-fuel intensity ; Inflation ; Input-output analysis;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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