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Economists remind us how the current financial meltdown resembles in many ways the Great Depression that the world endured in the 1930s.

A similarly grim reminder comes from Jagdish Bhagwati, in Termites in the Trading System: How preferential agreements undermine free trade ( www.oup.com ). “We now have once again a world marred by discriminatory trade, much as we had in the 1930s, from which all sensible men and women had recoiled,” he writes.

The book explores the many reasons why PTAs (preferential trade agreements) have now turned into “a pandemic and a pox on the world trading system, a phenomenon that could not possibly have been imagined by the architects of the GATT (General Agreement on Tariffs and Trade) in their most fearful moments.”

If PTAs cannot be halted or amended so as to make preferences subject to built-in demise on schedule, can we still build a scenario in which at least the current chaos of the spaghetti bowl is minimised by coordinated action to harmonise rules of origin, the author demands, in a section appetisingly titled ‘Turning spaghetti into lasagna and then into pizza’?

Among the solutions in the book is the suggestion to bring down the MFN (most favoured nation) tariffs down to negligible levels. Because we are dealing with a ratio, if we can do nothing about the numerator, we can work on the denominator to get the ratio down to what we want, reasons Bhagwati. “Of course, not everyone understands ratios,” he adds.

Recommended read.

Subsidies are effective in pushing agricultural growth to a certain extent, but they should not become a permanent feature of the Indian economy, observes S. Mahendra Dev in Inclusive Growth in India: Agriculture, poverty, and human development, a publication in the ‘Oxford collected essays’ series. Agricultural subsidies are fiscally unsustainable and encourage misuse of resources, leading to environmentally malignant developments, he states .

Input subsidies can have an adverse effect on agriculture environment, cautions Dev. “They have led to the highly wasteful use of canal water, ecological degradation from water logging, salinity, pollution, excessive consumption of electricity, and overdrawing of groundwater resulting in the shortage of drinking water in several parts of the country.”

Who gets these subsidies? While during the initial stages of the adoption of new technology in agriculture some of these subsidies may be justified as front-up costs, what has happened over time is that the richer states and well-irrigated areas, certain crops, and sometimes rich farmers, captured a disproportionately high share of the major input subsidy programmes of fertiliser, power, irrigation, and credit, the author informs.

He also questions whether the entire amount of the so-called agricultural subsidies reaches the farmers. Power subsidies are overestimates, Dev feels, because we do not have meters in many States to indicate the power consumed by agriculture. “The unmetered supply of electricity to the agricultural sector is being misused to cover very high transmission and distribution (T&D) losses and pilferage,” he avers.

Important insights.

D. MURALI

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