• Poverty impacts

Poverty impacts of trade liberalisation

With the 1990s heralding the onset of the structural adjustment era, the Indian economy underwent major policy changes. The biggest challenge of India’s economic reform programme has been the liberalisation of its trade sector. To make the country’s trade more internationally competitive, policymakers have tried to keep trade restrictions to a minimum.

In this paper, a computable general equilibrium (CGE) model is constructed in order to analyse the impact of major trade reform issues. Specific attention is paid to the removal of non-tariff barriers and the reduction of tariffs on the income, consumer prices, welfare and poverty levels of different household categories.

The paper discusses aspects of the Indian economy and its policy reforms, including both historical more recent trade reforms and recent poverty trends. The CGE model is presented, using the social accounting matrix (SAM) as a benchmark equilibrium.

The study finds that:

• trade policies significantly affect the prices, demands and growth in the Indian economy
• these policies affect the welfare and the poverty of household groups both directly and indirectly
• overall welfare decreases in the case of tariff removal but increases for quota relaxation
• rural areas are in a better position than their urban counterparts in terms of welfare improvement
• the removal of quota restrictions could be a prerequisite step in order to have a more positive effect on the economy, in turn leading to higher household welfare gains.

[adapted from author]

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