The Big Bang Lobby Vs The Strategists

The argument that I had made in the Rajiv Gandhi Foundation and elsewhere was not that India should not take advantage of trade options for its agricultural sector, but that it should do so very carefully with some study and based on exploration of strategic options. If this is not done then some of the simplistic statements made in a number of places, as also in your editorial, could cause harm to the country.

First, it needs to be noted that both in the developed world and the Asean there is considerable caution during agricultural trade negotiations. It is well-known that since Montreal, the delay in WTO negotiations was due to hard bargaining by the global giants the US, Europe and Japan on this question; and in the developed world, in the negotiations and in serious discussion papers. One cannot understand how naive statements are being made in India on the advantages of Big Bang trade promotion possibilities.

 

You have quoted me as saying that the cost of production of farm products is lower in India and have said that this is precisely the point in arguing for trade or for placing an item under OGL. The point that I made has been completely missed. I had argued that the Big Bang argument put forward by farm trade liberalisers in India follows the World Bank-sponsored study by Pursell & Gulati. This study argued that on account of Indian planning and controls, agriculture is taxed, and as such, if such controls are removed and trade options introduced, the Indian farmer will earn considerable additional income. The study also argued that in this sense, in terms of domestic resource cost considerations, taking into account trade opportunities, India taxes grains and subsidises oilseeds.

The empirical basis of this study has been shown to be grossly incomplete and misleading by many scholars. I only reiterated the point made at the last session of the Indian Society of Agricultural Economics, held at Thrissur in December 1996, by the president of the society, S S Acharya (the last chairman of the Commission for Agricultural Costs and Prices). He had said: A comparison of cost of production of various edible oils in the country and landed cost of imported edible oil (Rs 1,440 per quintal during 1993-94 and Rs 2,068 per quintal during 1994-95) reveals that the domestic cost of production of major edible oils is not higher than the landed cost.

If the chairman of the Commission for the Agricultural Costs and Prices makes such statements along with empirical data, then it needs serious consideration. If Dr Acharyas argument is correct, then the Gulati & Pursell argument is wrong, and if it is wrong in the case of oilseeds, not only in terms of qualitative signs but in terms of major empirical magnitudes, then the entire argument can be empirically questioned. This is a factual scientific statement and needs to be disproved with facts, or the Big Bang liberalisers should at least scratch their heads and ponder over their arguments in favour of taxation of agriculture.

The next point raised by me, which has been grudgingly and partially endorsed in the editorial, is that there are a series of studies on the global plane and by FAO, which show that the West has already negotiated a settlement under which they do not have to give further tariff concessions to the small print in the treaties. The classic work of Ingco, published in 1994, shows that with the kind of trade and imports expected, price reduction for the agricultural sector in the European Union is zero per cent for wheat, rice, coarse grain, sugar, oilseeds and dairy products, and only 12 per cent for meat. For the US, it is zero per cent for rice, coarse grains, sugar, meat, oilseeds and dairy products. For Canada, it is zero per cent for all commodities. It is only in Japan that some possibilities exist. However, your editorial wants India not to worry about all these and be aggressive in trade liberalisation. This is a strange argument. If there are no trade opportunities and the developed world continues to

impose tariff and non-tariff barriers, there should atleast be some logic in being aggressive. Recently, at the Indian Dairy Congress, Amrita Patel gave devastating evidence of the kind of arbitrary non-tariff barriers being put up to stop Indian dairy exports. Trade models already developed show that there are very small quantitative gains to be achieved for many countries in simulated trade negotiations.

Clearly, India needs to develop a trade strategy in the agricultural sector. In many Asean and other developing countries, there is much better appreciation of a strategic approach to food security and agricultural trade negotiations. I have been given the privilege of advising many a country, and all of them are taking a strategic views of trade negotiations.

What is needed is a policy debate on the issue at a time when the government has set up a committee to work out realistic options as it goes into the next millennium. Ad hoc and simplistic posturing can cause great harm to this very strong sector of the economy. India must have an aggressive agro-exports strategy and a well-modulated strategy for imports to ensure non-inflationary growth. However, policies must be based on common-sense and enlightened self-interest.