Anatomy of Input Demand Functions for Indian Farmers across Regions

This study models the optimum use of production inputs and analyse the behaviour of input demand functions of agricultural production through restricted transcendental logarithm profit function for four different regions in India using rural economic and demographic survey (REDS) data. The Seemingly Unrelated Regression (SUR) method of estimation reveals that the level of productivity of farms is significantly influenced by output prices, inputs like labour, fertilizer, pesticides. The results of ownprice elasticities for the demand of variable inputs are negative and price elastic. Fertilizer prices and area planted had a significant impact on the profit function altogether. The effect of output prices in eastern region is larger. Whereas, wage rate and other input prices are more effective for other regions. The cross-price elasticities for input indicated imperfect complementary relationships among the inputs. A well designed input distribution policy can mitigate the problem of low factor productivity and lack of technological improvements in agriculture. [Working Paper 150/2016]