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Posted at: Sep 10, 2018, 12:28 AM; last updated: Sep 10, 2018, 12:28 AM (IST)

Field on fire

Diesel price has jumped by over Rs 20 per litre for the Punjab farmers in just two years, raising the cost of cultivation significantly. Its impact is inflationary, which is detrimental for the rural economy, say BS Dhillon & Sukhpal Singh

Fuel is the key driver of any economy, and the Punjab agriculture sector is also feeling the pinch of spiralling oil prices. This cost-push inflation has a multiplier effect on all sectors. The Economic Survey estimates that for every $10 per barrel increase of cost of oil, the corresponding reduction in the GDP is 0.2- 0.3 percentage points.

Fuel prices in India have surged to record levels largely due to surging global crude oil prices and high incidence of Central and state levies. The weak rupee has also made crude oil imports costlier as India imports 82 per cent of its oil requirements. 

In the farm sector, fuel is a basic input, and farms of Punjab are highly mechanised. Out of the 10.53 lakh farmers, 45 per cent own tractors. Harvesting of wheat and rice, the two biggest crops, is mechanised. Out of the total 14 lakh tubewells, around 12 per cent are diesel operated. 

In Punjab agriculture, the crop-wise increase of cost of cultivation clearly depicts surging trends. The cost of cultivation is estimated based upon the use of tractor, combine, generator and diesel engine. 

With the increase in diesel prices from Rs 48.9 per litre in 2015-16 to Rs 70 per litre in 2018, the cost of cultivation has escalated from Rs 3,277 to Rs 4,730 per hectare for wheat; from Rs 4,510 to 6,510 per hectare for paddy; Rs 5,322 to Rs 7,681 per hectare for basmati; Rs 2,814 to Rs 4,061 per hectare for maize; Rs 4,457 to Rs 6,433 per hectare for sugarcane; Rs 5,796 to Rs 8,365 per hectare for cotton; and Rs 5,629 to Rs 8,125 per hectare for potato. These inflated costs need to be compensated with corresponding hike in MSP for all crops.

Fuel prices have a direct bearing on the rural economy as the cost of fuel is built into all goods and services purchased. An increase in oil price will, thus, automatically stoke inflation. Hence, the price of every commodity is expected to rise with the increase in the price of crude oil. 

Also, with the increase in the price of fuel, the cost of cultivation increases, leading to an increase in the land rent and food prices. This pushes up the prices of all commodities. When the general level of prices rises in an economy, it leads to inflation in all sectors. Hence, the resultant impact is detrimental for the economic development in general and agrarian economy in particular.

— BS Dhillon is Vice-Chancellor of Punjab Agricultural University, and Sukhpal Singh is Professor of Economics, PAU, Ludhiana


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