Strategies for Agricultural Liberalisation-Consequences for Growth, Welfare and Distribution

This note summarises the results of a recently completed study which examined the impacts of trade liberalisation, agricultural input subsidy reductions and safety net programmes for India with an applied general equilibrium model with nine agricultural sectors, one non-tradeable non-agriculture sector and one tradeable non-agriculture sector and with five rural and five urban income classes. The study demonstrates the importance of accounting for large country effects in rice trade and estimates the optimal tariff/quota for rice exports for India which is found to be just half a million tonnes of net export of rice. The results show that non-agricultural trade liberalisation is even more important for agriculture than even agricultural trade liberalisation, both of which help accelerate growth The study concludes that a policy package involving trade liberalisation with moderate residual taiffas permitted under GATT and agricultural inputs subsidies removal accompanied by targeted safety net programmes along with stepped up investment in irrigation with the expected additional foreign inflows materialising, produces a scenario that is superior from the point of growth, welfare and distribution and that this can be financed without raising taxes.