Is Indian agriculture resilient to external shocks? This question has assumed considerable
importance ever since macroeconomic reforms were implemented from the early nineties. As
a result, the agricultural sector was exposed to sudden disturbances caused not just by the
demand and supply conditions within the country, but also by volatility in world market
price, exchange rate and surge in imports. This paper aims to evaluate the magnitude of
sensitivity of agriculture to these factors and other changes, and explores policy options that
may neutralize their adverse effects, maintain price incentives and stability. The analysis is
based on three important tradable commodities. A structural econometric model is applied to
each, separately under the exportable and importable scenarios from 1980-81 to 2002-03.
Broad findings reveal agriculture to be increasingly driven by an incentive structure based on
its linkages with world market price, exchange rate and other factors. Counterfactual
simulation experiments indicate that due to trade and price policies, commodity prices and
output tend to be much more resilient to various shocks compared to the exports and imports
