1. Simulation Design:
Using the GTAP model we simulate a moderate Doha scenario where developed countries cut their agricultural and industrial tariffs by 36 percent whereas the developing countries, including India, cut their agricultural and industrial tariffs by 24 percent. In addition, both the developed and developing countries carry out a one-third reduction in domestic agricultural subsidies and a complete elimination of agricultural export subsidies. The GTAP simulation results for the Doha scenario are presented in Table 8.1. It appears that all the agricultural products would experience rise in their prices in the world market. With respect to the export price, because of combined effects of agriculture and NAMA liberalization, the export price changes of the Manufacturing products are less prominent than those under the NAMA scenario (see Table 7.1). In contrast, the import price changes are relatively higher than those under the NAMA scenario. Now the price and volume results from the GTAP model are introduced in the Indian dynamic CGE model as shocks. Also the tariffs on the agricultural and manufacturing products in the Indian dynamic CGE model are reduced by 24 percent. The results of this simulation, conducted in the dynamic CGE model for India, are reported in the subsequent sections.
2. Macroeconomic Impacts:
The macroeconomic effects for Doha simulation are reported in Table 8.2.The Doha scenario would lead to a rise in real GDP in the short run and the effect is stronger in the long run. In the short run, the aggregate welfare declines. However, in the long run the negative effect on welfare appears to be very minimal. Head-country poverty rises in the short run, and in the long run the effect is very minimal. There are positive effects on exports and imports and the long run effects are more prominent than the short run effects.
Both urban and rural CPIs fall and they fall more in the long run. All the factors of production would experience fall in their rate of returns and the decline in the non-agricultural capital rental rate is the most prominent. Figures 8.1-8.6 show the long run path of the changes in the aforementioned macro variables.
3. Sectoral Impacts:
Domestic tariff cut under the Doha scenario leads to reduction in domestic prices of imports, and the sectors having higher initial tariffs tend to experience higher reduction in import prices (see Table 8.3). The fall in import prices also leads to fall in domestic prices. Since the manufacturing sectors have higher initial tariffs than the agricultural sectors, the Doha scenario would result in higher reduction in domestic prices of imports for the manufacturing sectors compared to the agricultural sectors. The price of value-added and producer prices fall for all sectors and the manufacturing sector in general experience higher fall in value-added prices and producer prices.
The current account balance is fixed in the short run and subsequently increases at a fixed rate. Thus, the increase in imports leads to a real devaluation and an increase in exports. The export response is generally higher in the long run, with most of the agricultural sectors, textile sectors and most of the services sector would experience rise in exports. In general, the agricultural sectors and the services sectors and a few sectors in the manufacturing, namely textile sectors, are the beneficiaries of this scenario. In contrast, production contracts in most of the manufacturing sectors. As a result, non-agricultural capital and labour migrate to the textile and garments sectors and away from the other manufacturing sectors, with relatively little movement in the agricultural sectors. The long run effects are more prominent than those of short run. In the long run, the non-agricultural capital stock response is much larger and tempers the reallocation of skilled and unskilled...