India Reveals Its Preference

My favorite concept in economics (it should tell you something about my dorkiness that I even have a favorite economics concept) is the theory of revealed preference. Basically, this theory (one of Samuelson’s) says that if you want to know the preferences of a rational economic actor, you just need to observe their behavior. It is basically the economists’ way of saying (and showing, using the ubiquitous diagrams) that actions speak louder than words.

India has treated us to a beautiful display of the theory by announcing yesterday that it will unilaterally reduce its tariffs on some goods and reduce its maximum tariff on non-agricultural goods to 10 percent (from a previous cap of 12.5 percent) in an effort to control inflation (more here).

This is the same India that is one of the main hold-outs in the Doha Round of multilateral trade talks. The same India that, in the poisoned atmosphere of the failed talks in Cancun, formed the G-20 in an attempt to assert developing countries “rights,” and to generally disrupt talks. Particularly in the agriculture negotiations, India has been frustratingly adamant that developed countries do more to open markets than developing countries and has been a strong proponent of mechanisms by which developing countries can shield a certain (20 percent, insists India) share of their “sensitive” agricultural products from tariff reductions.

Why, one is then tempted to ask, are India’s trade negotiators still clinging to the same tired mercantilist position in the Doha round, while the treasury goes ahead with (albeit limited) trade liberalization? Bureaucratic inconsistency, perhaps. Or maybe India enjoys, in the theater of the WTO, stickin’ it to the man. It’s a pity that the man they’re stickin’ it to is the man on the Indian street.