India’s food procurement system could once again come up as a subject of discussion in the upcoming G20 meetings. The US has circulated a paper essentially directed at India and China, questioning input subsidies and minimum support prices for agriculture. The implicit argument here is that India and China cannot be exempted from the WTO’s subsidy reduction requirements in the farm sector in view of their current economic status. While India’s food subsidies — both product specific and non-product — are below the limit of 10 per cent of farm GDP described by the WTO Agreement on Agriculture, the fact is that they are far closer to it than, say, in the late 1990s. This is because both minimum support prices and subsidies on inputs such as fertiliser have risen sharply over the years. The WTO method is to calculate the difference between the minimum support price for a commodity and its average international prices (called external reference price or ERP) between 1986 and 1988 to calculate the product-specific subsidy, and add the non-product specific subsidy, principally fertiliser, to arrive at the total subsidy. But India, under the ‘special and differential treatment’ clause awarded to the developing countries in the Doha ministerial in 2001, can set off this amount against the subsidy awarded to resource-poor farmers, calculated in terms of land-holding size. While this deduction still leaves India in safe territory, such an entitlement has come under question. As India looks to replace China as the fastest growing economy in the world, with a per capita income over $1,000, defending its food subsidies for livelihood reasons is becoming an awkward task. Hence, it is not that surprising that the matter should crop up once again, even though it was agreed at a WTO meet in New York in November 2014 that India’s food subsidies will not be discussed till a ‘permanent solution’ is arrived at — called the ‘permanent peace clause’.

Although India need not worry that product-specific support to agriculture will breach WTO caps, it is likely, as part of a negotiating strategy, to argue that the ERP must be brought more up-to-date so that our product subsidy settles at a more realistic number. But there is no escaping the need to address the food subsidies as a leaky machine that needs to be sorted out for our sake, rather than for the rest of the world, and instead focus on structural transformation in agriculture.

The government is also on a weak wicket when it argues that investment should be kept out of trade talks. World trade, India included, has veered towards omnibus bilateral deals and free trade pacts since the Doha ministerial. Rather than beat out an old tune, India should negotiate an opening up of services, such as retail and e-commerce, but on its own terms, like China. It must have a clear development agenda when it talks to the world.

Related Topics