Abstract:
The price of Natural Rubber (NR) is predicated to slide down further to reach its
ever recorded trough point by the close of the present decade. The study is
based on time series annual data on NR price and related macroeconomic
variables in the domestic and international markets from1979-80 to 2013-14.
Daily price data is used to analyse integration of domestic and international
markets for NR. The paper is focused on analysing the interrelationship between
NR price in the domestic and world markets after the market integration. Ever
since the downward spiral of NR price has started by early 2012 in India,
productivity of the crop has been declining posing serious threat to the long run
viability and sustainability of NR farmers in India. Analysis shows that there is
a unidirectional causality from world price of NR to domestic market price
while the domestic market price does not influence world price. It is found that
the imports of NR to India does not directly effect on the price in the domestic
market but the association is robust between imports of NR to India and its
world price. Econometric analysis reveals that there is significant co-movement
between crude oil price, price of synthetic rubber and NR price movement but
multicollinearity between crude oil and NR prices turned the model spurious.
Impulse Response Function applied on daily price data showed that the change
in the international price of NR impacted on the domestic price within a track
period of 5 days. Policy implication of the study is that India’s option in the
global market scenario is severely restricted as state intervention in the market
could yield minimal response. Rather, the emphasise should be on productivity
augmentation measures to reduce the cost on the one side while considering the
option of regulating NR supply in the world market in association with major
NR producing countries in the world. The demand side options are rigidly
restricted and limited in the context of global market integration.
