Changing Crop Production Cost in India: Input Prices, Substitution and Technological Effects

The study has examined economics of crop cultivation at the aggregate level over the past 25 years, identified sources of cost escalation and evaluated the effects of factor prices, substitution and technological effects on the production cost. The results reveal that a disproportionate change in gross return vis-a-vis cost resulted in varying rate of return from crop enterprise during the past 25 years. During 2007–08 to 2014–15, the average cost inflation reached the highest level of 13 per cent, more than half of which was contributed by the rising labour cost alone. Further, at the aggregate level, use of physical inputs increased only marginally and a large share of the increase in the cost of cultivation was attributed to the rising prices of inputs. The estimated negative and inelastic demand of inputs revealed a great scope to reduce the cost by keeping a check on input prices, particularly labour wages. The estimated elasticity of substitution indicated imperfect substitution between labour and machine and the present level of farm mechanization is inadequate to offset the wage-push cost inflation in Indian agriculture. It is therefore necessary to accelerate appropriate farm mechanization through the development of farm machinery suitable and economical at small farms and improvement in its access through the custom hiring. The study has also revealed a slow rate of yield improvement to offset the rising cost.