India needs to protect farm sector in Doha deal: US study

Potential gains for India from the Doha deal could be wiped out if the country binds its agricultural tariffs at levels that cannot cushion the global price hikes, a new study by a US think-tank has said.

"Even a 25 percent decrease in the price of rice has negative effects on all major components of the Indian economy, including private consumption, investment, exports, and imports," the study by Carnegie Endowment for International Peace has said.

As much as 78 percent of households would experience real income losses from such a price change and the distributional impact would be regressive, with the poorest households losing the most," it said.

Based on simulations of changes from the Doha pact, the report said that for instance a 50 percent decrease in the world price of rice could have a negative impact on India's real income as large as the positive impact of the entire Doha agreement.

These results suggest the Indian government's concern over the potential negative effects of a Doha agreement on poverty and rural development is well founded, says the study 'India's Trade Policy Choices'.

"... it has been correct to seek provisions such as a special product designation for agricultural products that are important to livelihoods and a special safeguard mechanism to allow it to shield domestic producers from sharp negative price shocks to key commodities," the report said.

The report has been prepared by the Trade, Equity, and Development Program of the Carnegie Endowment for International Peace.

However, the gains of Doha deal would be greater than that from free trade agreements with any of its major trading partners, including the EU, the United States, and China, it noted.

The study even though trade liberalisation, especially through multilateral agreements, could contribute to the country's future growth, the gains are likely to be modest.

"Trade agreements must be negotiated with great care if they are to contribute to the country's development and broadly improve the living standards of its people."

On the other hand, a multilateral agreement at the WTO is expected to have a much larger impact on the Indian economy than bilateral trade agreements with the EU, the United States or China.

"Overall, India's real income would increase by about six times as much under a Doha agreement compared with the gain from the most beneficial bilateral agreement. Still, the gain would amount to only about 1.2 billion dollars, or one-quarter of one percent of the current economy," it said.

According to the economic simulations, exports would increase by about 4 percent, while imports would grow by about 3 percent.

Further, domestic production would rise by about 4.5 billion dollars , or one-half of one percent.

Focusing on employment in the country, the report said that all the trade pacts simulated in this study would induce small increases in demand for unskilled labour, with a Doha agreement increasing demand by 0.9 percent (about 4 million jobs based on current employment levels).

"An India-EU FTA would increase demand by 0.5 percent (about 2.3 million jobs), an India-US FTA by 0.3 percent (1.4 million jobs), and an India-China FTA by 0.2 percent (900,000 jobs)," it added.