Terms of Trade, Income Distribution, Agricultural Wages and Poverty in India

In the context of on-going structural stabilization and adjustment programmes, it is necessary to examine the impact of changes in agricultural and foodgrains terms of trade on the incomes of various socio-economic groups, agricultural real wages and rural poverty in India. A change in agricultural terms of trade causes a considerable change in the relative distribution of income not only between agricultural producers and consumers but among income classes as well. However, the impact of changes in agricultural (foodgrains) terms of trade on the real incomes of the various groups can not be measured easily. Different groups may be affected differently. Moreover, the immediate impact may be quite different from the intermediate and long-run effects. In this paper, an attempt has been made to examine the relationship between terms of trade, on the one hand, and income distribution, agricultural real wages and poverty, on the other hand. Among the important overall tendencies, we highlight the following: (i) the agricultural terms of trade seems to be an important determinant of the distribution of income, (ii) the real agricultural wage rate is inversely related to agricultural terms of trade, at least in the short-run, and (iii) the agricultural terms of trade is positively related to the rural poverty.