The Central government has recently been engaged with inflation. Its policy has failed, which led the government to reflect. Reflection on inflation was embodied in the Economic Survey, which was critical of policy. Its main criticism was that while the government buys up wheat and rice after they are harvested, it has no policy to sell the grains. So it has hoarded a lot of grains, and since all hoarding raises prices, the government itself has fed inflation.

Besides, the government adds to total demand. A crude measure of its contribution is the fiscal deficit. It has been running rising deficits since the Congress came to power; this is a second way in which the government has fed inflation. It can reduce its contribution by reducing deficit. It should spend less on populist programmes, raise taxes if it feels so inclined, and thus bring down the deficit substantially. The justification it gave for running the deficit was that it was a “stimulus” for preventing the Indian economy from undergoing deflation when the world economy turned down in 2008. In my view, there was no danger; there was enough expansionary pressure in the Indian economy to withstand international deflationary pressure. The government increased the deficit in 2008 and 2009 to finance populist programmes designed to win the general elections, not for any economic reason. In the last budget, the finance minister announced his intention to bring down the fiscal deficit in future years. Intentions are immaterial; his predecessor had repeatedly announced similar intentions and failed to translate them into action. Let him stop intending, and start acting.

The balance of payments is another instrument for combating inflation; the more open it is, the more it serves as one. So the government should remove all import duties and restrictions. These are particularly severe on agricultural goods. The government justifies them on the grounds that farmers are poor and have to be protected from foreign competition. A similar argument was used for industrialists when — till 10 years ago — we had high industrial protection. Poor or rich, all producers have the capacity to adapt themselves to changing markets; if imports are liberalized, farmers will adapt themselves to it. There is no presumption that they will be harmed on balance. Their capacity to adapt is greater than that of industrialists, since land is so versatile in the crops it can grow. Some commodities will be exported, and some imported; some farmers will benefit, some will be hurt. All will react to the threats and opportunities presented by the international market, and change their production patterns accordingly.

The government has another argument against opening foodgrains to international trade: that India is a large consumer which cannot depend on the international market to supply it with grains, and must therefore be substantially self-sufficient. World markets change slowly, so it is impossible to know what would happen in the long run. But the volume of world trade in wheat and rice is small in comparison to India’s production, so whatever India does, it will produce most of its grains in the short run. But if it abolished duties on grains, the outcome will vary from one grain to another. India will probably become the world’s biggest rice exporter. China will become our biggest customer. And rice producers of Andhra and Tamil Nadu will prosper. We will probably start importing wheat, but will have to compete with China in buying wheat from the United States of America. Punjab, which has become a virtually monoculture economy, will diversify into other crops — probably cotton, and maize, which is an amazingly versatile grain useful for food and fodder. We will become major importers of coarse grains, chiefly from the US; some of it may be eaten by the poor, but the cattle will get a tremendous boost from cheap fodder. Above all, if India guarantees a permanently open market, Africa and Australia will be happy to produce anything we need — coarse grains, lentils, oilseeds, meat — and we will get all of these cheaper. And those neighbouring countries will become a lot more dependent on the Indian market. We will eat many foods we do not know today. Our consumption basket will be enriched, our farmers will diversify, and they will get richer. So will the farmers of Africa and Australia; the more these countries export to India, the more dependent they will be on the Indian market, and the more friendly they will become to India. Free trade in agriculture is not just a great growth opportunity that the government is keeping us away from, it is an instrument of foreign policy which the Chinese government uses deftly and we do not.

A more open BoP will also be more sensitive to domestic demand. If the government keeps up such deficit financing as it is used to, it will probably run into serious payments deficits; in other words, it will take us back to our chronic state before the 1991 reforms. But the rewards of responsible fiscal policy will be equally generous; if the government runs fiscal surpluses, our BoP will run into surplus, like the Chinese BoP. We would then face the same problems; we would have to think about where to invest abroad, and the world would say that we were antisocial. But we would not be forced to run surpluses. Whereas we are in chronic payments deficit just now, we would have the choice of deficit or surplus.

The government has another argument for agricultural autarchy: that it is essential for food security. The higher the import barriers, the lower the imports, and the more self-sufficient the country is in food. But food security is a matter of degree; and imports make our suppliers dependent on us. If we removed all import barriers, we would probably import rice from Sri Lanka, wheat from Pakistan, cotton from Egypt and groundnuts from East Africa. We would become dependent on them, but so would they on us. Since they are smaller than us, their dependence on us would be greater than ours on them. This is the unavoidable consequence of our size; relatively, our neighbours would benefit more from more trade with us, and would have a greater stake in our economy and our openness. Trade is a way of making friends and influencing countries. We have become a little superpower without having planned to do so. This status gives us opportunities we did not have before, including the chance to build alliances, and closer economic ties are the best way of building them.

I began by arguing for greater openness on the grounds that it would help us bring down inflation. But as the theory of comparative advantage would suggest, trade would bring us benefits. It would make us new friends amongst our neighbours. It would enable us to knit together an Indian Ocean economic cooperation area — much faster than the economic cooperation agreements that the ministry of commerce laboriously negotiates with one country at a time. It would be far more rewarding — although it would throw the commerce ministry out of business. There is an entire array of better policies that the government shuns.