In policy circles, there is unanimity that with Europe and the advanced countries moving to less support for agriculture, India, as a developing country, would stand to gain. Unfortunately, the matter is not so self-evident. India’s comparative advantage was never in agriculture, and it is almost certainly true that as it grows faster than the rest of the world, this never would be.
The matter is simple enough. With more than 22% of the world’s population on less than 2% of the world’s land (even China is much better), India is actually in the same league as Japan and South Korea vis-a-vis land-man ratios. With an even distribution of natural resources (proportional to land area) through all countries, and all countries at the same per capita income, a country like India would have to be a large net exporter of the products of labour (manufactures and services) and an importer of natural resources to compensate for its very low land-man ratio.
It is only India’s very low per capita income that makes it a not-so-extreme net exporter of the products of labour. Nevertheless, in the 80s and 90s, with faster growth, India has continued to have larger manufactured exports (and services) than imports. This, despite the anti-export bias of its macroeconomic policies.
In the British times, active de-industrialisation that brought on extreme hunger and famines and forced trade with the UK, made India a net importer of manufacturers and an exporter of food! During the War years, when there was relative loosening of imperial power, Indian manufacturers began to dominate and by the close of the 40s and the early 50s, it was not only a net exporter but had emerged as the second largest exporter of textiles in the world, closely following and then replacing Japan.
With a 15% share of the global textile market in the early 50s, India was ideally parked to take advantage of falling tariffs under the various Gatt rounds. But the Mahalanobis plan, that was inward-looking, killed all manufactured goods exports from India for a long time. Hence, Japan was the immediate beneficiary, and was closely followed by South Korea and Taiwan, and later Thailand—all of which adopted export-led growth policies even as they pursued import substitution.
In history, India was always a net exporter, and of manufactures even more so. It was India’s comparative advantage in manufacturing that the British exploited in the first phase of colonialism before the Industrial Revolution became irreversible in 1820 in England.
A sustained growth, which doubles its real per capita income, would perhaps make India glaringly dependent upon the rest of the world for natural resources, including agriculture. Growth that can overcome unemployment would make our agriculture uncompetitive since there is only so much that one can do to improve land productivity.
Subsidisation of agriculture by Europe actually hurts some of the Cairns Group (principally Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Malaysia, New Zealand and Uruguay) and Africa. Indeed, reform of agriculture in Europe, as many NGOs have argued, would be the single-most important measure to reduce poverty in Africa. But that would not be in the immediate interest of land-scarce countries of East Asia (China, Japan, Taiwan, and South Korea). These countries are well past their “corn law” stage and are dependent on significant net imports of agricultural products. And Europe’s subsidisation results in transfer of some benefits to their consumers when they import from Europe.
India, too, is destined to become a net importer of agricultural products. We will be well past our “corn laws” by 2020 if we continue to grow at 8% and would have to import agricultural products on a large scale then. Indeed, the signs are already there. The calculated comparative advantage of India in mainstream products, like grain, by free traders and the World Bank have all been proven wrong. Such is the power of what is structurally ordained.
The hope that large agricultural exports would take place is a pipedream that is best given up. The immediate task is to worry less about WTO negotiations and more about macroeconomic policies that correct the vast trade (even current account) imbalance.