Policy Wise

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

In an interesting post at the Indian Economy blog, Dweep argues that India shouldn’t oppose agricultural subsidies extended by Western countries to their farmers. He offers two main reasons for his argument a) subsidies keep prices low thus benefiting the Indian consumers b) the debate on subsidies shifts the focus away from the failure of the Indian government to promote agriculture.

One major problem with this debate is the question whether abolishing agricultural subsidies would increase the market share of the developing countries in the international agricultural market remains contentious. On one hand, a recent World Bank report has argued that liberalizing agricultural trade is the most efficient way of tackling rural poverty in the developing countries. On the other hand, many have argued that merely removing subsidies won’t necessarily benefit the developing countries.

But if for argument’s sake we assume that subsidies harm the farmers by keeping prices artificially low in the developing countries, does that necessarily mean such subsidies should be opposed? What about the interest of consumers who benefit from the lower prices. Normally, this is an argument I heartily endorse.

However, in case of agriculture, I am not entirely convinced. Not only rural areas are the repository of poverty in India, more importantly almost 30% of her population is engaged directly or indirectly in agriculture. There is little doubt that this is unsustainable and rapid industrialization is essential to offer farmers alternative means of employment. However, till such alternatives are offered, to put such a large proportion of Indian population at risk is hardly prudent. It would be pertinent to note that the argument is not to protect the Indian farmers from genuine free markets but distorted conditions driven by interest groups in the rich countries. Even the argument that consumers interests should be held primary is spurious when one is talking about such a large proportion of Indian consumers.

it is entirely conceivable that in the near future it would be in India’s interest not to oppose against agricultural subsidies and enjoy the free lunch. However till the process of industrialization takes off and necessary structural reforms are carried out in Indian agriculture, unilateral concessions (see Nitin’s follow up post) would do more harm than good.

If you enjoyed this post, make sure you subscribe to my RSS feed!