The Price of Inefficiency in Indian Agriculture

We use an innovative approach to predict agricultural revenues had farmers optimally reallocated production among agricultural commodities in order to minimize inefficiency. To that end, we employ a newly constructed 1980-2008 state-level production account of Indian agriculture, a directional distance frontier specification, and an innovative output-reallocation predictive model to test whether India’s farmers have achieved maximum potential revenues from their choice of agricultural commodity mix given the various policy, environmental, and input supply constraints. The results show substantial levels of technical inefficiency in Indian agriculture (18%). The output reallocation model predicts that Indian agricultural revenues could have been 22 % higher had farmers optimally shifted their agricultural commodity mix in order to minimize inefficiency.

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 Record created 2017-04-01, last modified 2017-08-29

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