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The World Bank’s measure of extreme poverty, at $2.15 a day, represents a level of deprivation that is rarely seen in the West. At this income, hunger or its shadow is an inescapable feature of life. Estimates suggest that over half the children born to poor families are undernourished. One could argue that even a small material improvement for a family living in such dire circumstances adds more to the sum of human welfare than big gains for the more fortunate.

One of humanity’s greatest achievements over the past half century has been its striking progress in reducing poverty. The share of the global population living under the poverty line fell to under 10 percent in 2021 from well over 40 percent in 1981, with much of the reduction coming from just two countries: China and India. The decline was so unexpectedly rapid that a United Nations goal of halving global poverty was achieved five years early. The improvement has also led to a more equitable distribution of global income, with developing countries accounting for a sharply rising share of world G.D.P.

International trade was indispensable to these gains. In the late 1970s and mid-1980s, China and India increasingly opened up their economies to the world. And many other countries prospered by using trade as a ladder of development, including the East Asian “Tigers” earlier in the 20th century.

All this is imperiled now that Western countries are turning increasingly protectionist. On both sides of the Atlantic, and both sides of the aisle in Congress, the idea has gained currency that trade with less affluent countries costs jobs and lowers wages. This kind of zero-sum thinking would sharply curtail development opportunities for countries with living standards far below those in the West.

Through its powerful link to economic growth, international trade has long been a scourge of global poverty. Developing countries that liberalized their trade regimes and integrated with the world economy — call them “globalizers” — have vastly outperformed the non-globalizers over the past four decades. The globalizers have also grown much faster than rich countries, allowing them to gradually reduce the still yawning per capita income gap with the West.

China and India have been among the world’s fastest-growing economies since the 1980s, together lifting an astonishing 1.1 billion people out of absolute poverty. Trade liberalization lay at the heart of both countries’ economic reforms, with the ratio of trade to G.D.P. soaring after liberalization. They reforms included tariff reductions, the elimination of licensing requirements and import monopolies, and greater exchange rate flexibility. Combined with a multitude of domestic policy changes, they unleashed the dynamism of local entrepreneurs. Businesses had much easier access to foreign ideas, capital and markets. At the same time, greater domestic competition, including competition from imports and from newly established subsidiaries of foreign companies, weeded out inefficient businesses and spurred brisk productivity growth.

The blueprint is widespread. The electronics giant Samsung produces more than a third of its mobile phones in Vietnam. Even against the backdrop of rapid growth for the country as a whole, two provinces, Thai Nguyen and Bac Ninh, stand out for achieving particularly steep reductions in poverty. They are the provinces where the phones are manufactured. Similar evidence emerges from Mexico, where municipalities with a greater concentration of workers employed by internationally linked companies experienced larger declines in poverty and improved access to basic goods such as food, health care and education.

Being connected to supply chains helps local businesses prosper. Not only do they get access to cutting-edge technology, they also develop valuable long-term relationships and learn how to navigate international markets. Their demand for inputs and raw materials helps create a vibrant local ecosystem. The World Bank estimates that a 1 percent increase in participation in international supply chains is accompanied by a more than 1 percent increase in per capita income.

Trade also tends to reduce gender-related disparities by creating more jobs for women, often generously compensated by local standards. Export-oriented businesses in developing countries hire more women than companies that produce solely for the domestic market. New jobs in the services export sector are disproportionately staffed by women. Call centers in Delhi and Mumbai alone employ about one million mostly female workers. In Bangladesh, villages with more exposure to the garments export industry — whose work force is overwhelmingly female — saw a significant drop in teenage marriages and pregnancies, and young girls in those villages gained an average of 1.5 additional years of early schooling.

These gains stand at enormous, and needless, risk today. Donald Trump has promised to institute tariffs of 10 percent to 20 percent on almost all imports into the United States and a 60 percent tariff on all Chinese goods. Among Democrats, the anti-trade fervor is more muted, but hardly absent. Far from fully reversing the previous Trump tariffs on steel and aluminum, the Biden administration has recently added to them. And while its signature Inflation Reduction Act has laudable goals, it is laden with requirements penalizing the buying of goods from abroad, even if they are less expensive and better than the domestic equivalent. Around the world, trade restrictions have risen explosively, with the number of protectionist measures imposed in 2022 more than 10 times as large as those imposed a decade earlier.

Higher tariffs designed to protect jobs in affluent countries have been amply documented as simultaneously regressive and futile. They are regressive because low-income households disproportionately consume goods that are traded, such as televisions and groceries, which tariffs make more expensive, while more affluent consumers tend to purchase a higher share of non-tradeable services, such as therapy and restaurant meals. They are futile because the jobs they save, if any, are generally outnumbered by the job losses they cause in other sectors of the economy.

That said, the true price of the backlash against trade will not be paid by rich countries, which are, after all, already rich. The best case for preserving the liberal trade order comes from those countries that are not so fortunate.

The most important, and least discussed, consequence of rising protectionist barriers is that low-income countries will find it more difficult to employ trade as an engine of growth. This would diminish the material prospects of the world’s poorest people and slow the rate at which generations of children can expect to escape the kind of life-stunting deprivation that is no more than a fading memory in the West. If international trade were to shrivel under the assault of populist passions and muddled analysis, that would be unfortunate indeed for rich countries. For the vastly more populous remainder of the world, it would be a tragedy.

Shekhar Aiyar is a visiting scholar at Johns Hopkins School of Advanced International Studies, a nonresident fellow at Bruegel, a think tank, and a visiting professor at India’s National Council of Applied Economic Research. He is currently writing a book titled, “A Defense of the Liberal Economic Order: From a Not-Entirely-Western Perspective.”

Expanding the RBI’s mandate or shifting to a discretionary regime could undermine stability and prove counterproductive.

India adopted inflation targeting (IT) in September 2016. The government announced a 4 per cent Consumer Price Index (CPI) headline inflation target, within an upper limit of 6 per cent and a lower limit of 2 per cent. The inflation target and band are revisited every five years. The government constituted a six-member Monetary Policy Committee (MPC), consisting of three ex officio members from the Reserve Bank of India and three external members. The first MPC completed its term four years ago, and in September this year, a second MPC will complete its term.

For most part, IT has been successful.  Inflation has declined, both compared to previous years and relative to other countries. Both CPI headline and core inflation have become less volatile. The transmission of policy has improved. Expectations of inflation have declined, indicating better anchoring.

IT has not caused the RBI to become overly hawkish or reactive to every deviation in inflation from its 4 per cent target. Since September 2016, the RBI has changed the key policy rate 17 times, the majority of them during 2019-20 and 2002-23. In the remaining six years, the policy rate was adjusted only about once per year. In contrast, the RBI changed the policy rate 24 times in the eight years prior to adopting IT.

Should the government then pay heed to the calls for modifying the approach to inflation targeting?

Broadening the Mandate?

Critics have opined that the RBI’s mandate to maintain price stability while also “keeping in mind the objective of economic growth” should be broadened to encompass other goals. Some say that the growth objective should be elevated so that it has parity with the price stability objective, similar to the US Federal Reserve’s dual mandate. Others have argued that the RBI’s mandate should be expanded to include the responsibility for developing the corporate bond market and the promotion of green finance.

In our view, giving too many responsibilities to the central bank risks diverting senior personnel’s time and focus from their primary duty of achieving price stability. It can overload and distort the conduct of interest rate policy and destabilise inflation expectations.  A more complex mandate hinders central bank accountability by making it harder to evaluate its actions relative to its objectives.

Is Headline CPI Still Relevant?

Some have suggested that headline inflation is an inappropriate target, on the grounds that food prices are volatile, and focusing on them distorts the conduct of policy. They recommend that the RBI should disregard movements in food price inflation.

Our analysis indicates that food-price inflation feeds through to core inflation as producers mark up the prices of other products, and should not be disregarded. This is not to argue that the central bank should react to every movement in headline and food inflation. But neglecting food price inflation that diverges from target for an extended period can have adverse consequences.

Should the Consumption Basket be Updated?

The current basket accords a weight of 45.8 per cent to food and beverages. The basket has not been revised since 2011-12, even though per capita incomes have nearly doubled during this period.

The share of food in consumption declines as income levels rise. For example,  a Bangladeshi spends 45 per cent on food, a Vietnamese spends 33 per cent; a Brazilian 24 per cent; and a South Korean spends only 14 per cent.

Our estimates suggest that the correct weight of food for India would be closer to 40 per cent. It would likely decline to around 30 per cent over the next decade, due to the projected increase in per capita income levels. This correction itself should ameliorate concerns on account of food inflation being part of the inflation target.

Is a 4 Per cent Midpoint Still Appropriate?

Other inflation-targeting emerging markets have reduced their point target for inflation as they gained experience with the regime and inflation came down. Compared to these other emerging markets, the RBI’s point target of 4 per cent is high.  However, India is also a lower-income, faster-growing catch-up economy. Thus, a 4 per cent target is more appropriate for India.

But raising the target midpoint to, say, 6 or 8 per cent would not be a good idea either. A higher inflation target will adversely impact investment sentiment, will be regressive, will rebuild inflationary expectations  and will erode the credibility of the RBI.

Should the Tolerance Band be Narrowed?

The RBI’s tolerance band of +/-2 per cent is wide by emerging market standards.  It might be argued that allowing for relatively wide fluctuations of inflation weakens the anchoring effects of the regime and amplifies the volatility of expectations.

The fact that inflation in India is heavily weighted towards volatile food-price inflation militates against adopting a narrower tolerance band.  In addition, if the world is now entering a period of heightened economic and financial volatility, keeping inflation within a narrow band will become more challenging and require wider, more frequent swings in interest rates. Such variations would create a less predictable climate for investment, posing challenges for economic growth.

Should Inflation Targeting be Abandoned?

Monetary policy must be organised around a nominal anchor, whether it be an inflation target, an exchange rate target, a target for the growth rate of monetary aggregates, or another benchmark.  Inflation targeting has a better track record than these other options.  In contrast to other monetary regimes, no country that adopted an inflation targeting regime has abandoned it subsequently.

Radical changes such as broadening the RBI’s mandate or abandoning the target in favour of a more discretionary regime would be risky and counterproductive.  The regime can be tweaked to improve performance: The weight of food-price inflation in the CPI inflation basket should be reduced to better reflect the circumstances of Indian households, for example. Suitably updated, the current inflation targeting regime should remain the framework for the country’s monetary policy for the foreseeable future.

The writers are respectively, professor of economics and political science at the University of California, Berkeley, and Director General of NCAER. Views are personal.

There are several challenges but also opportunities.

India’s agricultural sector faces challenges, including climate change, land degradation, and market access issues. The Pradhan Mantri Fasal Bima Yojana (PMFBY), introduced in 2016, provides financial assistance for crop losses. With 49.5 crore farmers enrolled and claims totalling over ₹1.45 lakh crore, the scheme is a cornerstone of agricultural risk management.

The Electronic National Agriculture Market (eNAM), launched in 2016, integrates existing markets through an electronic platform. By September 2023, 1,361 mandis had been integrated, benefiting 1.76 million farmers and recording trade worth ₹2.88 lakh crore. This initiative improves market access and ensures better price realisation for farmers.

Despite agriculture engaging nearly 46% of the workforce, agriculture’s contribution to GDP is about 18%, highlighting a stark imbalance. If current growth trends continue, this disparity will worsen: while overall GDP has grown at 6.1% annually since 1991-92, agricultural GDP lags at 3.3%. Under the Narendra Modi administration, overall GDP growth was 5.9%, and agriculture grew at 3.6%. However, this is insufficient for a sector so critical to the nation’s socio-economic fabric.

By 2047, agriculture’s share in GDP might shrink to 7%-8%, yet, it could still employ over 30% of the workforce if significant structural changes are not implemented. This indicates that merely maintaining the current growth trajectory will not suffice.

The expected 7.6% overall GDP growth for 2023-24 is promising. However, the agri-GDP’s anaemic growth of 0.7%, primarily due to unseasonal rains, is alarming.

Further, according to United Nations projections, India’s population is expected to reach 1.5 billion by 2030 and 1.59 billion by 2040. Following the agricultural challenges, meeting the food requirements of this burgeoning population will be imperative. With an estimated expenditure elasticity of food at 0.45, the demand for food is expected to grow by approximately 2.85% annually, considering the population growth rate of 0.85%.

India’s real per capita income increased by 41% from 2011-12 to 2021-22 and is projected to accelerate further. However, the expenditure elasticity post-2023 is anticipated to be lower, correlating a 5% rise in per capita expenditure to a 2% growth in demand. The anticipated food demand will vary among commodities, with meat demand growing by 5.42% and rice demand by a mere 0.34%.

To address these challenges, rationalising food and fertilizer subsidies and redirecting savings towards agricultural research and development innovation and extension services are crucial.

Some initiatives

Several initiatives have been rolled out to bolster farmer prosperity and sustainable agricultural growth. The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), launched in 2019, disburses ₹6,000 annually to farmers in three instalments. This scheme has already benefited over 11.8 crore farmers, offering much-needed financial support. Another critical initiative, the Soil Health Card (SHC) scheme, aims to optimise soil nutrient use, thereby enhancing agricultural productivity. Over 23 crore SHCs have been distributed, providing farmers with crucial insights into soil health and nutrient management.

The government also championed the International Year of Millets in 2023, promoting nutritious coarse grains, both domestically and internationally.

The Agriculture Infrastructure Fund, with a ₹1 lakh crore financing facility, supports the development and modernisation of post-harvest management infrastructure. Within three years, over 38,326 projects have been sanctioned, mobilising ₹30,030 crore in the agricultural infrastructure sector. These projects have created employment for more than 5.8 lakh individuals and improved farmer incomes by 20%-25% through better price realisation.

Moreover, the Survey of Villages and Mapping with Improvised Technology in Village Areas (SVAMITVA) initiative aims to ensure transparent property ownership in rural areas. As of September 2023, over 1.6 crore property cards have been generated, enhancing land security and facilitating credit access for farmers.

Strategic planning

The government’s strategic planning for agriculture, leading up to 2047, focuses on several key areas: anticipated future demand for agricultural products, insights from past growth catalysts, existing challenges, and potential opportunities in the agricultural landscape. Projections indicate that the total demand for food grains in 2047-48 will range from 402 million tonnes to 437 million tonnes, with production anticipated to exceed demand by 10%-13% under the Business-As-Usual (BAU) scenario.

However, to meet this demand sustainably, significant investments in agricultural research, infrastructure, and policy support are required. The Budget for 2024-25, with an allocation of ₹20 lakh crore for targeted agricultural credit and the launch of the Agriculture Accelerator Fund, highlights the government’s proactive approach to fostering agricultural innovation and growth.

The road to 2047 presents both challenges and opportunities for Indian agriculture. By embracing sustainable practices, leveraging technological innovations, and implementing strategic initiatives, India can enhance farmer incomes, meet the food demands of its growing population, and achieve inclusive, sustainable development.

Souryabrata Mohapatra is with the National Council of Applied Economic Research (NCAER), New Delhi. Sanjib Pohit is with the National Council of Applied Economic Research (NCAER), New Delhi. Views are personal.