India Trade Choices

7/29/2019 India Trade Choices

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Indias Trade Policy ChoicesMANAGING DIVERSE CHALLENGES

SANDRA POLASKIA. GANESH-KUMAR

SCOTT MCDONALD

MANOJ PANDA

SHERMAN ROBINSON

February 2008


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0

100

200

300

400

500

600

700

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Imports Exports GDP

TRADE VALUE (BILLIONS, CONSTANT 2000 DOLLARS)

Source: United Nations, UN COMTRADE database.

Indias Exports, Imports, and GDP


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Key Domestic Challenges ThatAffect Indias Trade Policy Choices

Poverty

Agriculture and rural development

Employment creation

To illustrate . . .


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Poverty in India, 2004-2005

World Bank$1/day

World Bank$1/day *

World Bank$2/day

World Bank$2/day *

Nationalpoverty line

* Using revised PPP estimates (forthcoming)

Number of persons (millions) Percentage of population


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Analytical Tools and Simulations

Computable general equilibrium (CGE)model of global trade

Computable general equilibrium (CGE)

model of the Indian economy Social accounting matrix with

considerable detail on sources of

household income Simulated Doha agreement and bilateral

free trade with EU, US and China


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Simulation of a Doha

Agreement


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Doha Simulation

Tariff reductions for agriculture, NAMA: 36% by developed countries

24% by developing countries

Agricultural subsidy reductions Domestic subsidies reduced by 1/3

Export subsidies eliminated

Reductions taken from applied rates

Services trade liberalization not simulated


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Macroeconomic Results for India of aDoha Agreement


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0.00 0.10 0.20 0.30 0.40 0.50 0.60

Wearing apparel

Other manufacturing

Textiles

Chemicals

Minerals and metals

Trade and transportation

Services

Major Changes in Indian Exportsunder a Doha Agreement

CHANGE FROM BASE SIMULATION (BILLION DOLLARS)


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0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70

Other manufacturing

Minerals and metals

Chemicals

Vegetable oils and fats

Oil and gas

Vehicles

Major Changes in Indian Importsunder a Doha Agreement

CHANGE FROM BASE SIMULATION (BILLION DOLLARS)


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Other Doha-related Simulations

Impact of volatility of world agricultural pricesRice

Wheat

Simulations: +/- 25%, +/- 50% change in world price

World price shocks would affect India differently afterit reduces tariffs toward the rest of the world

Distributional effects of agricultural price shocksamong households reveal strong risk of increasedpoverty


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150

200

250

300

350

400

450

500

550

600

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

The World Price of Rice, 1980-2006

$/TON (CONSTANT 1990 DOLLARS)

Note: Figures given are for Thai 5% broken milled rice.

Source: World Bank, Commodity Markets Briefs: Rice.

-61%

+39%

-31%+43% -42%

+56%


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Rice, 50% decrease, urbanImpact of a Decrease in the WorldPrice of Rice on Indian Households

-----------------------------------Urban-----------------------------------------------------------------------Rural------------------------------------

25% decrease

50% decrease

ScheduledTribes Others

OtherBackwardClasses

ScheduledCastes



ScheduledCastes

CHANGE IN REAL INCOME

(PERCENT CHANGE RELATIVE TO BASELINE NOMINAL INCOME TO HOUSEHOLDS)


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Rice, 50% decrease, urbanImpact of a Decrease in the World Priceof Rice on the Demand for Indian Labor

25% decrease

50% decrease

CHANGE IN DEMAND FOR LABOR (PERCENT CHANGE FROM BASELINE)

-14.00

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

Rice sector Agricultural

sector

Manufacturing

sector

Services sector


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Impact of a Doha Agreementcompared to Impact of a Decrease in

the World Price of Rice(PERCENT CHANGE FROM BASELINE)


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Rice, 50% decrease, urbanImpact of an Increase in the WorldPrice of Rice on Indian Households

CHANGE IN REAL INCOME

(PERCENT CHANGE RELATIVE TO BASELINE NOMINAL INCOME TO HOUSEHOLDS)

-----------------------------------Urban-----------------------------------------------------------------------Rural------------------------------------

25% increase

50% increase

ScheduledTribes

OthersOther

BackwardClasses

ScheduledCastes



ScheduledCastes


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Impact of a Doha Agreement onAggregate World Prices

CHANGE IN PRICES (PERCENT)

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Whea

t

Dairy

pro

duc

ts

Ca

ttle

,she

ep,

goa

ts

Mea

tpro

duc

ts

Proce

sse

drice

Other

food

pro

duc

ts

Oilsee

ds

Othercrops

Rice

Tra

dean

dtransporta

tion

Vege

tableoilsan

dfats

Plan

tbase

dfibres

Minera

lsan

dme

tals

Tex

tiles

Coa

l

C

hem

ica

ls

Othermanu

fac

turing

ehiclesan

dtransporte

qu

ipmen

t

Pe

tro

leum

pro

duc

ts

Cons

truc

tion

Serv

ices

Woo

dan

dpaper

pro

duc

ts

Oilan

dgas

Rawm

ilk

Utilities

Otheran

ima

lpro

duc

ts

Wearin

gappare

l


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Impact of a Doha Agreement on theRest of the World

CHANGE IN REAL INCOME (BILLION DOLLARS)

-2.00

-1.00

0.00

1.00

2.00

3.00

4.005.00

6.00

7.00

8.00

9.00

Australia,New

Zealand,

Oceania

China Japan Rest of East Asia

Rest ofSouth

Aisa

Rest ofNAFTA

UnitedStates

Mercosur Rest ofthe

Americas

EU SouthAfrica

Rest ofSub-

Saharan

Africa

MiddleEast,

North

Africa

Rest ofworld


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Simulation of an India-EU

Free Trade Agreement


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0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Exports (from India to EU) Imports (from EU to India)


Note: In 2004, the EU expanded from fifteen to twenty-five countries. Earlier data are for EU-15; post-2004 data are for EU-25.


The Evolution of India-EU Trade


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Macroeconomic Results for India ofan India-EU FTA


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Macroeconomic Results for the EU ofan India-EU FTA


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Simulation of an India-U.S.



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0.00

5.00

10.00

15.00

20.00

25.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Exports (from India to U.S.) Imports (from U.S. to India)



The Evolution of India-U.S. Trade

M i R l f I di f


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Macroeconomic Results for India ofan India-U.S. FTA

M i R l f h U S f


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Macroeconomic Results for the U.S. ofan India-U.S. FTA


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Simulation of an India-China



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0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Exports (from India to China) Imports (from China to India)



The Evolution of India-China Trade

M i R lt f I di f


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Macroeconomic Results for India ofan India-China FTA

M i R lt f Chi f


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Macroeconomic Results for China ofan India-China FTA


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Comparison of the Impacton India of Different

Trade Policy Choices

Ch i R l I f I di


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-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Doha India-EU FTA India-U.S. FTA India-China FTA

Change in Real Income for Indiaunder Different Trade Agreements



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-1.50

-1.00

-0.50

0.00

0.50

1.00



Change in Real Income for Indian Householdsunder Different Trade Agreements

Ch i D ti P d ti i I di


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0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1Change in production (billion dollars)

Change in production (percent)

Change in Domestic Production in Indiaunder Different Trade Agreements

CHANGE IN PRODUCTION (BILLION DOLLARS) CHANGE IN PRODUCTION (PERCENT)

Ch i I di I t d E t


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Change in Indian Imports and Exportsunder Different Trade Agreements

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00


Imports

Exports

CHANGE (BILLION DOLLARS)

Ch i D d f U kill d L b


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Change in Demand for Unskilled Laborunder Different Trade Agreements

CHANGE IN DEMAND FOR UNSKILLED LABOR (PERCENT)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00



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Conclusions

Multilateral liberalization through the WTOsDoha Round would produce larger gains forIndia than bilateral agreements with any ofits major trading partners.

Gains (losses) in real income to the Indianeconomy from either multilateral or bilateraltrade agreements are modest, ranging from again of $1.2 billion under the Doha simulationto a loss of $250 million under the India-EUFTA.


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Conclusions, continued

Indian exports and imports increase under allsimulated agreements, with the strongest increasesunder an India-EU FTA, followed by a Doha pact.

However total domestic production increases verymodestly, ranging from an increase of 0.52% under aDoha agreement to 0.34% under an India-EU FTA to0.14% under an India-China FTA.

The three bilateral agreements result in losses forIndian households as a group, while Doha producessmall gains ($530 million, 0.17%) for households.


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Volatility in world agricultural prices wouldaffect India more strongly after a reduction intariffs toward trading partners.

Decreases in the world price of rice have anegative effect on Indian households similarin magnitude to the positive impact of theentire Doha agreement.

Agricultural price decreases would worsenincome distribution and could significantlyincrease rural poverty.


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In the Doha Round, Indias attention to its defensiveagricultural interests is warranted.

Special products designations and a special

safeguard mechanism would be needed tools to shieldpoor households from world agricultural pricevolatility until other sectors grow sufficiently toabsorb their labor.

Employment creation will receive only a mild boostfrom trade liberalization. Domestic demand and laborpolicy will continue to be the main determinants of jobcreation.


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Services liberalization could add to Indiaspotential gains; however few offers on servicesof interest to India have been tabled in the

Doha Round.

In negotiations with the EU, significantservices liberalization would be required for

India to experience net gains in real income tothe overall economy, as well as to offset lossesto households.


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Given the low incomes of most Indianhouseholds and high levels of poverty, evenshort-term welfare losses are not to be taken

lightly.

Both Doha and bilateral pacts require carefulnegotiation if India is to realize the modest

gains on offer and avoid risking large negativeeffects on the households of the poor.


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Thank you for your

attention

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India Trade Choices