Linkages between Trade, Development & Poverty Reduction Prashmita Ghosh N C Pahariya CUTS CITEE

Structure of the presentation Theory behind TDP Theory behind TDP Why campaign kit? Why campaign kit? Indian economy highlights Indian economy highlights Agriculture Agriculture Manufacturing Manufacturing Services Services Employment and poverty figures Employment and poverty figures Conclusion Conclusion

About the project International trade involves exchange of goods and services International trade involves exchange of goods and services Trade takes place when there is surplus production of goods and services Trade takes place when there is surplus production of goods and services Growth rate increases with increase in international trade Growth rate increases with increase in international trade Increased economic development leads to poverty reduction Increased economic development leads to poverty reduction Lack of empirical evidence of T-D-P linkage Lack of empirical evidence of T-D-P linkage

T-D-P linkage International Trade Policy Increased Economic Growth Increased Employment Increased per Capita income Poverty reduction Domestic policy mix

Why Campaign kit National advocacy tool National advocacy tool To provide more information about T-D-P linkage To provide more information about T-D-P linkage To clear some conceptions on trade liberalisation vis-à-vis globalisation To clear some conceptions on trade liberalisation vis-à-vis globalisation Directed at stakeholders Directed at stakeholders

Indian Economic Performance Average annual growth rate in GDP (in percent) Indicators / / / GDP Agriculture Industry Services Source: India Development Report

Agriculture Mainstay of around 60 percent of population Mainstay of around 60 percent of population Share of agricultural trade in GDP increased from 16 % (90’s) to 20% (99-00) Share of agricultural trade in GDP increased from 16 % (90’s) to 20% (99-00) Majority of farmers have small, fragmented landholdings and practice subsistence farming Majority of farmers have small, fragmented landholdings and practice subsistence farming Agriculture still a part of the unorganised sector Agriculture still a part of the unorganised sector Stagnation of employment in agriculture Stagnation of employment in agriculture Share of agri. in total employment : 60 %(93-94), 57 %(99-00) (Raghbendra Jha) Share of agri. in total employment : 60 %(93-94), 57 %(99-00) (Raghbendra Jha)

Agriculture (contd.) Problems Small, fragmented land holdings Small, fragmented land holdings Lack of extension services Lack of extension services Middlemen, trader community Middlemen, trader community Poor warehousing, storage Poor warehousing, storage Irrigation issue Irrigation issue Price fluctuation Price fluctuation Recommendations Recommendations Focus on land reforms Focus on land reforms Network of extension services with private participation Network of extension services with private participation This remains a difficult task; farmers awareness This remains a difficult task; farmers awareness Expansion of storage facilities with private participation Expansion of storage facilities with private participation Efficient use of existing irrigation facilities, efficient use of groundwater, water user charges Efficient use of existing irrigation facilities, efficient use of groundwater, water user charges MSP, Government procurement, Commodity future market regulation, strengthening PDS MSP, Government procurement, Commodity future market regulation, strengthening PDS

Industry Growth rates were high just after reforms; but fell sharply in though picked up subsequently Growth rates were high just after reforms; but fell sharply in though picked up subsequently Growth driven by manufacturing and construction sector Growth driven by manufacturing and construction sector Merchandise exports growing at more than 20 % since Merchandise exports growing at more than 20 % since Major exports- textiles, gems, engineering goods, petroleum products, chemicals etc. Major exports- textiles, gems, engineering goods, petroleum products, chemicals etc. Current growth rate of manufacturing sector not sufficient for poverty alleviation Current growth rate of manufacturing sector not sufficient for poverty alleviation

Industry (contd.) Develop comparative advantage in low- value added manufacturing goods production; generate employment Develop comparative advantage in low- value added manufacturing goods production; generate employment Effect of indirect taxes, higher cost of utilities-power, transport, cost of finance Effect of indirect taxes, higher cost of utilities-power, transport, cost of finance Industrial growth imperative to absorb surplus rural unskilled, uneducated, semi- literate labour Industrial growth imperative to absorb surplus rural unskilled, uneducated, semi- literate labour

Services High Indian economic growth driven by services industry High Indian economic growth driven by services industry IT, ITES, Financial and allied services growth has been impressive; White collared jobs; Increased labour productivity IT, ITES, Financial and allied services growth has been impressive; White collared jobs; Increased labour productivity Retail, constructions, road transport service employs around 36 % of service sector labour force Retail, constructions, road transport service employs around 36 % of service sector labour force Retail, construction-largely informal sector; employing low skilled labour Retail, construction-largely informal sector; employing low skilled labour

Services –some findings Share of software, financial services increased in export basket Share of software, financial services increased in export basket Share of travel and transport service has decreased Share of travel and transport service has decreased IT, Financial sectors have been opened up while retail and other sectors have not been exposed to sufficient domestic and foreign competition IT, Financial sectors have been opened up while retail and other sectors have not been exposed to sufficient domestic and foreign competition Services sector growth concentrated in pockets around urban centres- increasing regional inequality Services sector growth concentrated in pockets around urban centres- increasing regional inequality

Employment Annual growth (per cent) Sector to to Agriculture Manufacturing Construction Trade, hotels Financial etc Community, social Source: Raghbendra Jha(2005)

Trade Openness for India Indicators (p.c.) Exports/GDP Imports/GDP Exports of goods & services/GDP Imports of goods & services/GDP Source:World Development Indicators

Poverty Figures Poverty ratio (per cent) YearRuralUrbanCombined * *Poverty projection for 2007 Source:Tenth Five Year Plan, Planning Commission, Government of India

Conclusion Post reforms significant acceleration in growth rate Post reforms significant acceleration in growth rate Growth is services driven- leading to lopsided growth Growth is services driven- leading to lopsided growth For all inclusive growth, agricultural, infrastructure, reforms are a must For all inclusive growth, agricultural, infrastructure, reforms are a must Provision of basic services- access to education, water, food, shelter,clothing to the deprived, backward community Provision of basic services- access to education, water, food, shelter,clothing to the deprived, backward community Above will then ensure trickling down of benefits of growth to all Above will then ensure trickling down of benefits of growth to all