Essay On Business Economics

The paper is developed to explain and describe the features of a perfectly competitive industry with the objective of facilitating the comparison of such industry with the agricultural industry. For this purpose, research is conducted to describe the features of agricultural industry characteristics for the chosen country, India. In addition to this, the paper also demonstrates the comparison of the perfectly competitive industry with that of the agricultural industry in the chosen country. Based on the overall analysis, conclusion is made whether agricultural industry in India has the characteristics of perfect competitive industry or not. The later section of the paper identifies the ways government of India influences the farmers and agricultural industry and the consequences of the action or assistance provided by the government.

 

A perfectly competitive industry can be identified as a market that is characterised by the existence of large number of sellers and buyers, having relevant information required to rational decision about the products being sold and purchased. There do not exist direct competition between the sellers and buyers. Due to the fierce competition, profit in this particular industry is virtually non-existent. The firms operating in the perfectly competitive industry is known as a price taker because of the pressure faced by the existing firms (Vicol et al., 2022).

 

 

Homogenous product- Homogenous products of the perfect competitive market implies that the product produced by the firms in this industry is identical. That is, any product can eb produced by the buyers from the sellers, so that any product preferred by the consumers or the buyers can be bought from the producers in the industry.

 

 

Large number of sellers and buyers- Number of sellers and buyers in the perfect competitive industry rest on the price taking behaviour presumption. The market price cannot be influenced because of large number of sellers and buyers irrespective of the quantity sold and purchased. Firms in this market can react to changes in the price, but the price cannot be affected being received for the output and paid for the factors of production (Narayanan, 2021).

 

 

Entry and exit freedom- Greater degree of competition is implied that firms find it easy to enter a perfect competitive industry. Firms in this particular industry is required to deal not only with the existing competitors, but with the possibility that more firms would enter the industry (Narayan and Bhattacharya, 2019). This condition arises from the fact that if the existing firms in the industry is incurring loss, they have the option of exiting the market. On the other hand, if the existing firms in the market is earning profit, new firms are attracted to enter the industry.

 

 

Transportation and transaction cost absence- In the perfect competitive industry, seller does not incur any transaction or transport cost. When the transportation cost is incurred, there should be differences in the price of product cross different sectors in the market. Hence, absence of transaction and transportation cost is one of the conditions of perfect competitive industry.

 

 

Perfect knowledge on part of sellers and buyers- Perfect knowledge existence is another characteristic of perfectly completive industry. The price prevailing in the market and the product being sold is completely known to the buyers and the sellers have complete knowledge about the potential sales being made in the market at various level of prices. In this industry, it is not required by the firms to incur additional expenditure on publicizing and selling, as sellers and buyers have complete information about the price prevailing in the market. It is because the firms are not required to incur expenditure in advertising, when the market is perfect. Zero transaction costs are incurred by the sellers and buyers in the perfect competition and in the agriculture industry, such condition is considered to be void as staple crops and food grains is generally marketed through commission agents and middlemen, throughout the industry (Duan et al., 2020).

 

 

India is a country that is characterized by a diversified and large agriculture and is one of the leading consumer and producers of the world. The industry is the leading producer of commodities such as sugar cane, wheat, paddy rice, cow and buffalo milk. Farmers or sellers of the product in Indian agricultural market is regarded as the price taler. It is because the marketing of the product throughout the country is done with the help of agricultural brokers and the determination of the prices of the product produced is determined by the world-wide market forces and the payment for the crops produced is made in connection with the subsidy and government plan (D’souza, 2020).

 

 

One of the important features of the agricultural industry of India is presence of too many middlemen that results in the poor famers exploitation as the farmers receive lower prices from the middlemen and consumer are charged higher price. Hence, it cannot be said that the buyers and sellers face a single price prevailing in the market that is decided by the forces demand and supply. Although, the price in the Indian agricultural market is determined by the demand and supply forces, the determined price for the agricultural product is not received by the producers because of the existence of the middlemen (Calo, 2020).

 

 

The nature of agricultural market in Indian is highly fragmented and this results the farmers to have inadequate access to the market. Because of the inadequacy in the access to the market, the growing agricultural produce volume cannot reach the market. This also results in the violation of the condition of the industry being perfectly competitive existence.

 

Most of the agricultural market in reality fall shorts of reaching the efficient market organization and the particular intervention further exacerbates it and this hinders the infrastructural development required to handle the growing quantity of the agricultural products being produced.  There also exist high incidence of market fees, that is the commission charges that is imposed by the licensed agents, weighment charges, purchase tax, entry tax and development cess and all such costs result in higher transaction costs. This in turn results in the farmers receiving lower prices for the products set. Asymmetric market information is another characteristic of the agricultural industry of India and it usually prevails for the farmers living in the distant areas and this would compel the farmers to accept the price that would be offered by the traders or the middlemen to them. Hence, there is a lack of perfect information amongst both the buyers and sellers in the market.

 

Most agricultural market is characterized by the features of perfect competition, that implies production of homogenous products by the sellers. Perfect competition in economic theory as the Pareto efficient economic resources allocation, serves as the benchmark against which the structure of market is contrasted. Indian agricultural market probably comes closest to exhibit the features of perfect competition.

 

Often agricultural market is used by the economist as an industry that is perfectly competitive. However, it is important to make comparisons between the features of perfectly competitive market and the agriculture industry of India, to identify whether such industry exhibit the characteristics of perfectly competitive market. An important feature is the prevalence of large number of sellers and buyers in the perfectly competitive market and this feature can be found to be related with the Indian agricultural industry (Agrawal, 2019). Since, there exist large number of sellers of the agricultural produce along with the large number of consumers or the buyers. Secondly, perfect competition is also characterized by the prevalence of a single price due to the interaction of the forces of demand and supply, and thus has the implication that the producers in the agricultural industry is a price taker. Although, the determined price is taken by the producers, they do not receive such price because of the existence of middlemen offering them lower price that the actual determined market price. Hence, the condition of a single price is violated in the agricultural industry of India. Compared to the existence of no transaction or transportation cost in a perfectly competitive market, it has been found that the Indian agricultural industry faces several transaction and transportation cost.

 

 

India being an agricultural country offers people with primary sources of livelihood. Sometimes, even if the firm incurs losses, they are pressurized to stay in the agricultural business with no other option or alternative available. Hence, a loss-making producer might also find it difficult to exit the agricultural market due to fewer employment alternatives available in the country (Mourya & Mehta, 2021). On the other hand, new producer scan be attracted to the industry in order to reap the increasing profit faced by the industry. Therefore, agricultural industry of India partially fulfills this particular condition.

 

Therefore, from the overall comparison of the features of Indian agricultural industry and perfectly competitive industry, it is observed that the agricultural industry voids certain conditions of the industry to be perfectly competitive. Hence, it is inferred from the understanding of the differences between the features of the industries that Indian agricultural industry cannot be considered to be called as perfectively competitive.

 

The agricultural markets around the world have faced intervention from government with the objective to affect the gains distribution to consumers and producers and thereby improving the market efficiency and further to ensure food security. In the developing country such as India, intervention of government has prevailed on a pervasive and large scale, since independence. The government implemented hesitant measures towards empowering institutions and market liberalization. It has been acknowledged by development literature that improved efficiency in the agricultural market is fundamental to achieving food security and growth.  In the initial years of independence, domestic agricultural market was centralized and under developed and a broad policy direction was provided by a centralized approach (Bezbaruah and Khan 2020). Hence, interference of the government was needed to shield consumer from rising agricultural prices and also helping the farmers in the period of shortages. Furthermore, government intervention in the procurement, production and distribution have distorted the agricultural industry competitive functioning, particularly in the market for food grains that have reduced the market outcomes efficiency. Government of India also intervene in the agricultural industry with the objective of expanding the agricultural exports and curbing the imperfect competitors market power (Siddiqui, 2018).

 

Some of the schemes used by the government to influence the agricultural industry of India includes market regulation, subsidies and policies. The policies and schemes are implemented by the government to support multiple objectives such as promoting agriculture, facilitating farming, protecting farmers, credit support and new technologies adoption. Some of the policies and schemes include “Remunerative Approach for Agriculture and Allied sector Rejuvenation”, “Soil health card scheme”, Kisan credit card scheme, Pradhan Mantri Krishi Sinchai Yojana and “Pradhan Mantri Fasal Bima Yojana” (Scheelbeek et al., 2021).

 

 

Subsidy is provided by the government to the farmers and producers with the objective of providing them with credits, inputs, infrastructure and power. In addition to this, the government also forms market regulation so that the farmers are provided with the best prices, consumers are offered with the reasonable price and providing farmers with different marketing platforms. Prices of agricultural products is influenced by the agricultural price policy. Price policy is implemented by the government to facilitate agricultural product price stability, to provide producers with the incentive for crop production, to maintain favourable agricultural terms of trade, to increase export and production of agricultural products and balancing between non food and food crops and also to promote the latest production technologies for adoption (Ramadas et al., 2019). All the schemes, policies and reforms have been formulated with the objective of evaluating the agricultural sector. Some of the programmes and incentives to increase the productivity and thereby promote the income and welfare of the farmer.  Price support provided by the government in the form of price incentives and counter cyclical payments have found to increase crop diversification and increase in the production of crops. It has been found that the income of framers has increased due to structural investment infrastructure. Moreover, the consequence of the financial support provided by the government in the form of tax benefits, credit, cash subsidies, insurance and loan aid have been diversified (Aditya et al., 2018). It is because it is dependent on the factors such as production capacity and farm size. Hence, from the detailed analysis of the government intervention in the Indian agricultural industry have been found to be positively correlated.

 

The thorough analysis of the distinction between the characteristics of perfectly competitive industry and agricultural industry of India, have found that although, the agricultural industry of India is close to being perfectly competitive It has been found that while some perfect competition conditions are fulfilled, the industry is close to being called perfect competition. It is therefore from such analysis that Indian agricultural industry cannot be viewed to complete exhibit the feature of perfect competition. Government in India has interfered by way of regulation, policies and schemes and support to the farmers producers and all of these have found to impact the agricultural industry positively.

 

Aditya, K.S., Khan, T. and Kishore, A., 2018. Adoption of crop insurance and impact: insights from India. Agricultural Economics Research Review, 31(2), pp.163-174.

 

 

Agrawal, M. (2019). Study of the leading sectors of Indian economy after GST implementation-a literature review. Indira Management Review, 13, pp.86-100.

 

 

Bezbaruah, M.P. and Khan, F.M. (2020). MSP, Agricultural Reforms and the Farm Bills. ASTHA BHARATI, 22(2), p.56.

 

 

Calo, A. (2020). The yeoman myth: a troubling foundation of the beginning farmer movement. Gastronomica, 20(2), pp.12-29.

 

 

D’souza, R. (2020). Improving access to agricultural credit: New perspectives. Occasional Paper, 230.

 

 

Duan, J., Zhang, C., Gong, Y., Brown, S. and Li, Z., (2020). A content-analysis based literature review in blockchain adoption within food supply chain. International journal of environmental research and public health, 17(5), p.1784.

 

 

Mourya, M., & Mehta, M. (2021). Farmer Producer Company: India’s Magic Bullet to Realise Select SDGs?. International Journal of Rural Management, 17(1_suppl), 115S-147S.

 

 

Narayan, S. and Bhattacharya, P. (2019). Relative export competitiveness of agricultural commodities and its determinants: Some evidence from India. World Development, 117, pp.29-47.

 

 

Narayanan, S. (2021). Understanding farmer protests in India. Academics Stand Against Poverty, 1(1), pp.133-140.

 

 

Ramadas, S., Kumar, T.K. and Singh, G.P. (2019). Wheat production in India: trends and prospects. In Recent advances in grain crops research. IntechOpen.

 

 

Scheelbeek, P.F., Dangour, A.D., Jarmul, S., Turner, G., Sietsma, A.J., Minx, J.C., Callaghan, M., Ajibade, I., Austin, S.E., Biesbroek, R. and Bowen, K.J. (2021). The effects on public health of climate change adaptation responses: a systematic review of evidence from low-and middle-income countries. Environmental Research Letters, 16(7), p.073001.

 

 

Siddiqui, K. (2018). The Political Economy of India's Postplanning Economic Reform: A Critical Review. World Review of Political Economy, 9(2), pp.235-264.

 

 

Siddiqui, K. (2019). The political economy of India’s economic changes since the last century. Argumenta Oeconomica Cracoviensia, (19), pp.103-132.

 

 

Vicol, M., Fold, N., Hambloch, C., Narayanan, S. and Pérez Niño, H. (2022). Twenty‐five years of Living Under Contract: Contract farming and agrarian change in the developing world. Journal of Agrarian Change, 22(1), pp.3-18.