Ashok Gulati

Distortions to agricultural incentives in India and other South Asia

This chapter deals with the distortions to price incentives for agriculture that result from the trade, exchange rate and domestic policies in place in the four main South Asian countries, by summarizing and comparing the findings and themes of the more-detailed case studies on India, Pakistan, Bangladesh and Sri Lanka. Attention is paid most to India, which accounts for around four fifths of South Asias population, Gross Domestic Product (GDP) and agricultural GDP. The principal focus is on the level of and trends in distortions for agriculture as a whole, and how these have changed over time relative to those for non-agricultural traded sectors in these countries. Previous studies have established that in India, Pakistan and Sri Lanka, policies strongly favored manufacturing over the principal agricultural crops, although the extent of anti agricultural bias diminished considerably between the 1970s to 1995. The new country studies extend the earlier estimates up to 2005 and back to 1965, and provide long term estimates of distortions to relative agricultural incentives in Bangladesh for the first time. As well, these new studies broaden the coverage of previous research by including estimates for the fresh fruit and vegetables sector in India, and the dairying sectors in India and Pakistan. In South Asia both of these sectors account for large shares of the rural economy as measured by their contributions to GDP.