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

Mukesh Anand

Working Papers from 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.

Keywords: Agriculture; Fossil-fuel intensity; Inflation; Input-output analysis (search for similar items in EconPapers)
JEL-codes: C67 E31 Q12 Q43 (search for similar items in EconPapers)
Pages: 37
Date: 2014-02
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-mac
Note: Working Paper 132, 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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