GLOBAL INTEGRATION AND SUSTAINABILITY OF NR PRODUCTION IN INDIA

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.