Liberalizing Indian agriculture : an agenda for reform

In July 1991, India embarked on a program of economic decontrol that greatly speeded the previously slow process of liberalizing trade and domestic regulatory controls begun in 1978. But the focus of reform has been on manufacturing. Reform has barely touched agriculture, which accounts for two-thirds of employment in India and about 30 percent of India's GDP. Although some crops (notably oilseeds) receive heavy protection, the net effect of interventions to date is to heavily favor manufacturing over agriculture. In this agenda for reform, the authors offer recommendations: Remove all quantitative export and import controls on agriculture, except for special treatment (such as export taxes) when Indian exports would be substantial enough to depress world prices (most likely with rice). Further reduce protection on manufacturing, rather than bring protection for agriculture up to the same level. As a transitional measure, consider the use of variable tariffs based on weighted averages of past international prices as a way to partly insulate domestic prices from extreme fluctuations in world prices. Initially allow the export only of high quality high priced varieties of such commodities as cotton and rice, to limit upward pressures on domestic prices of lower quality varieties, which are important to consumption in low income Indian households. Liberalizing fertilizingr imports and deregulating domestic manufacturing and the distribution of fertilizingrs. Remove subsidies on irrigations, electricity, and credit (and create conditions to facilitate the trading of canal irrigation water rights). Deregulate the wheat, rice, oil and oilseed industries, and abolish compulsory government acquisition at below market prices of sugar, molasses, and milled rice. Reform the food security system to protect low income groups from the increase in the general level of food prices required by the liberalization of agriculture. This would involve better targeting of food subsidies and associated reforms of the public distribution system, or even its eventual replacement by a food stamp system.