Research Strategy

1. Research Strategy

2. Research Strategy: Basic Premises • The future of Indian agriculture depends on successfully facing the challenges of greater market integration - both nationally and internationally • There is a continuing need to campaign for an end to developed country subsidy policies that generate costly distortions in international markets • But this does not necessarily imply that India should use its scarce resources to provide countervailing assistance to its farmers: optimal allocation of India’s resources should be determined by looking at the best options for using those resources to increase India’s national income and reduce poverty • It is in India’s interest to minimise divergences between global and domestic prices and maximise efficiency gains from aligning domestic with foreign prices – while being sensitive to adjustment costs and problems

3. Background • Policies should aim to exploit India’s comparative advantages to allocate resources efficiently to maximise rural and national income consistent with the goals of food security and poverty alleviation • Basic thrust of Indian reforms is towards greater market integration both internally and with world markets But - very substantial reductions in ‘bound’ tariffs are needed to have any impact because of large gaps between bound and applied (effective) tariffs • Impact of Indian reforms will depend also on trade policy developments in the global arena

4. Three-Pronged Research Strategy • Understanding mechanisms of market integration and price transmission and the global context of agricultural markets is central to effective policy formulation and evaluation of the consequences of alternative policy options • Detailed case studies of particular agricultural commodity markets • Reform options and experiences in India and Australia • Sector (crop)-specific (‘partial equilibrium’) modelling • at this stage focus on • Rice, wheat, cotton and pulses (tur/arhar) • Economy-wide (‘general equilibrium’) modelling, drawing on detailed sectoral studies and extending to global models

5. Domestic Reforms and International Trade Regime • Particular attention to link between domestic reforms and ‘border’ trade policy reforms • Transmission (‘pass-through’) of world prices to domestic producer and consumer prices depends on: • world market price changes • government interventions through regulations and state trading enterprises (STEs) • nature of the marketing chain and market structure

6. Reforms, ‘Pass Through’ and STEs • Reforms will improve ‘pass though’ but interventions will continue • Strong political economy factors (food security fears) • But a greater reliance on market instruments to achieve price stability and food security is on the agenda • Markets becoming more liberal but… • typically such will not be perfectly competitive but dominated by a relatively small number of large traders, each of whom is able to exert some market power • but some STEs likely to continue with mandates to intervene in various ways • Both overall market structure and nature of STE are important in determining outcome of reforms • STEs may either provide (implicit) protection or dis-protection to an industry

7. Current Stage of Research • A number of detailed case studies of specific regional agricultural markets in progress in progress • STE modelling has started - a case study of the Indian rice market – at preliminary exploratory stage • Evaluation of existing experience of market development in India – initiated, in progress • Market reforms and development: drawing on international (particularly Australian) reform experience - initiated • Economy-wide modelling, drawing on sectoral research studies, in progress

8. Scope and Limitations • Availability of extra resources has allowed us to widen scope of project, research team and collaboration • But some important issues outside scope of project: impact of agricultural reforms on household income distribution and social inequality, on the environment etc.