Terms of Trade (ToT)
Terms of Trade for Indian Agriculture = Movement in prices of farm commodities relative to that of non-farm goods and services. So, if ToT is improving for Indian agriculture that means farmers are benefiting more as compared to the non-farm sector. If say inflation is 4% and ToT for farmers has improved that means the agriculture commodities that the farmers are producing and selling is fetching them more income, and the farmers various expenses on non-farm goods and services is increasing less. So, overall the farmers will be better-off.
How to Calculate ToT for agriculture sector?
We know Gross Value Addition (GVA) for agriculture at constant and current price. If we divide GVA for agriculture at current price by constant price then it will give inflation (deflator) in agriculture sector (as compared from the base year).
In the same way we can calculate inflation (deflator) for non-farm goods and services.
To get ToT for agriculture sector divide deflator of agriculture sector by non-farm goods and services.
NITI Aayog member Ramesh Chand has shown that ToT for Indian Agriculture has improved in the last 20 years.
Just a fact: Indian Agriculture real growth has been around 3.7% from 2005-06 to 2021-22.
