Trade Liberalization and Poverty in India, an UNCTAD publication launched at UNCTAD XI concludes that trade liberalization can help reduce the number of people living below the poverty line but cannot substitute for social spending.
"While trade liberalization and its concomitant growth can help significantly, they will not take India out of poverty," the book states. "Direct government expenditure on health care, education and nutrition are far more critical for poverty alleviation."
During the post–Uruguay Round period of trade liberalization, India´s poverty rate dropped by 1% a year. Yet today 26% of India´s 1.2 billion inhabitants still live below the government´s official poverty line.
The book draws on studies in agriculture, textiles and services carried out in India. They show that the services sector has particularly large potential for poverty alleviation because of its substantial employment-generating capacity.
Agriculture, on the other hand, employs 60% of the Indian population but accounts for less than 2% of the country´s exports and 3% of its imports. Trade liberalization thus has a limited impact on the sector, which is so critical for poverty and hunger alleviation. But if developed countries were to reduce their hefty agricultural subsidies, India´s agricultural exports could rise by up to 13% and lift 400,000 people out of poverty each year.
After the removal of textile quotas under the Multifibre Arrangement in 2005, India´s textile exports are expected to expand by 143%, lifting 310,000 people out of poverty. But these gains will materialize only if India´s major trading partners do not take defensive trade measures, such as anti-dumping measures and subsidies.
The book was prepared under the joint UNCTAD/Government of India project on Strategies and Preparedness for Trade and Globalization in India, funded by the UK Department for International Development India (DFIDI).
The book is available on the project website, www.unctadindia.org.