Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

K. N. Murty ¹

Affiliations
1 Centre for Development Economics, Delhi School of Economics, Delhi University, IN

Abstract

The purpose of this study is to decompose the observed changes in quantity demanded of cereals into its components-due to changes in income, price consumer taste and preferences and residual including other omitted variables. This will enable us to understand the relative importance of these components and evolve policies to modify the direction of changes in the demand far cereals. The main ingredients for this purpose are demand elasticities for cereals with respect to income, price and taste. These demand elasticities are estimated for each often Semi-Arid Tropical (SAT) states and all India using pooled time series of cross-sections data published by the National Sample Survey organization for the period 1972-1994. The empirical results show wide variation in demand elasticities across states, income groups and rural/urban sectors. The consumer taste and preferences captured through time trend variable is significant and negative for most of the individual states, as well as, all India. The negative effect of taste change has more than offset the positive effects of income and other variables in the model. This explains partly the decline in cereal demand over time despite rise in per capita income and fall in relative prices of cereals. The magnitudes of the effects are smaller in urban areas than rural with taste change becoming positive ill some cases. Coarse cereals exhibit negative demand responses with respect to income, own-price and taste variables, interestingly, in few cases - Andhra Pradesh. Karnataka, Madhya Pradesh and Maharashtra - consumer tastes seem to have changed in favour of -coarse cereal consumption. However the positive taste effect is nullified by negative income effect with the net result of decline in cereal demand The tests of nested hypotheses also confirm the need for inclusion of taste, income group dummies and their interaction variables in the model.

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P. Kanaka Durga , K. N. Murty

Abstract

This paper attempts to utilize two variants of a flexible demand system for making demand projections of six broad commodity groups, separately for rural and urban areas of India. The popular almost ideal demand system is used for this purpose. Demand projections are made under two alternative income growth scenarios for the immediate post-sample period 1988-89 to 1992-93. The two model variants are found to forecast the demands differently, particularly in rural areas. In continuation of the historical trend, the models predict a sizeable decline in the per capita monthly consumption of cereals in urban India. This may signify shifts in consumer tastes and preferences away from cereals in urban areas, thereby raising serious nutritional concerns.

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