Agricultural trade liberalisation and domestic market reforms in Indian agriculture

The Project start was delayed several months due to delays associated with Indian government approval. However, once approval was given the project was initiated with a survey of the relevant Indian and international literature. An Advisory Committee was formed comprising researchers and government officials: Ms. Jyoti Gujral, IDFC; Mr. P.K. Agarwal, Joint Secretary, Ministry of Agriculture, GOI; Professor Mruthyunjaya, NATP; Mr. Bharat Desai, Reliance Industries Limited; Mr. Ishwar Singh Dagar, Government of National Capital Territory (NCT) of Delhi; Mr. R. Gopalan, Mr. R. Gopalan, Joint Secretary, Ministry of Commerce,GOI; Professor Susan Thomas, Indira Gandhi Institute of Development Research (IGIDR). A Project Implementation workshop and and an Advisory Committee meeting were held in May 13 2005 at NCAER in Delhi. The preliminary findings from the literature review and initial general equilibrium analysis were presented.

In line with comments and suggestions made at the workshop, it was decided to focus the research on the following sectors: rice, wheat, cotton and pulses (tur/arhar, and possibly groundnut). A detailed research programme was developed and further consolidated during a visit by Dr Chadha, Indian Team Leader, to Melbourne in July, 2005.

This programme comprises the following activities:
1. An analysis of the market system constraints in the identified agricultural sectors and their impact on prices, production, consumption, trade and efficiency, including field surveys of far-households, traders and government officials involved in selected markets in the states of Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal.
2. Commission study on experience of market reforms - selected markets - by Susan Thomas, IGIDR
3. Commission study of Australian experience with possible implications for India by Scott Davenport, NSW Department of Primary Industry
4. Implement an econometric study of market integration within India and Indian states and world markets
5. Extension of STE models developed by MacLaren and McCorriston to incorporate specific characteristics of selected markets in India (drawing on literature as well as field surveys)
6. Extend CGE model, use STE model estimates and explore impact of policy reforms

At end of December 2005, all identified outputs in project document had been achieved. But due to delayed start several activities - projected to go on for some time through 2006 - may require some additional time than indicated in project documents for completion.

2006 was the second year of this Project. The project team met all its stated objectives except for holding the mid-term workshop in Melbourne sometime close to the middle of the year 2006. This would now be held in Melbourne in February 2007. This delay was partly because we were able to hold a project-related workshop in New Delhi in February 2006 (and a project Advisory Committee meeting) using funds obtained by NCAER from Foreign and Commonwealth Office of the British High Commission in New Delhi. This was a very successful workshop, showcasing initial results before a large group of senior government officials, corporate sector representatives, academics and representatives from both Australian and British High Commissions, including both High Commissioners. The workshop elicited much discussion and very useful feedback.
These additional funds also enabled the project team to undertake a larger primary survey of the farmers and the agricultural markets than was originally envisaged; 675 farm households and 18 regulated marketing yards in 6 states covering 4 major crops (cotton, groundnut, paddy and pulses (tur)) were surveyed.
Partial equilibrium models of an importing and an exporting STE were developed to model government intervention in the marketing of rice in India through state trading enterprises (STEs). The research team came up with some initial estimates of the likely distortions arising from state trading in the Indian rice and wheat markets and highlight issues to be addressed in further developments of this project.
A version of the GTAP CGE model was used to analyse the impact of complete liberalisation trade barriers by the high-income countries through complete dismantling of the three pillars of agricultural trade barriers. India and many other developing countries would reap welfare gains more from getting market access for exporting primary and processed agricultural goods to the high-income countries rather than from removal of domestic and export subsidies by the high-income countries. Further, India and other developing countries would also reap welfare gains when they dismantle their own import tariff barriers. However, there would be allocative effects on factors of production. An important result is that India would become relatively competitive in animal husbandry and meat products.
Econometric analysis was undertaken for the first time in India to study the impact of post-1990 reforms on market integration both across different states of India and between domestic and international markets in rice and wheat. (This work has now drawn Dr Jae Kim, Monash University, into the project research team.) Initial results indicate that reforms have enhanced integration with international markets. The research would be extended to further study price transmission in both rice and wheat markets, and to assess if integration is quicker and more complete in states which have implemented deeper policy reforms. A related analysis evaluates the experience of existing Indian commodity markets to determine if, and to what extent, market instruments can substitute for state trading interventions and direct regulatory interventions to achieve price and farm income stability.

[6 papers based on project outputs have been prepared, and were presented at a project workshop in 8 Feb 2007 in Melbourne, and also in a special session on 14 February 2007 at the Australian Agricultural and Resource Economics conference in Queenstown, New Zealand.]