India is being too defensive at the WTO on its food subsidies

| Updated on April 06, 2020

India has not come anywhere near breaching the WTO limit of permissible subsidy being within 10 per cent of total agriculture output

The Centre recently informed the World Trade Organisation that its expenditure on the farm sector has increased from ₹2.7 lakh crore in 2014-15 to ₹3.26 lakh crore in 2018-19 (BusinessLine, April 4). The latter amounts to about 10 per cent of India’s farm GDP in current prices for that year. However, it is mystifying as to why the Centre set out to explain its subsidy level, almost apologetically invoking the so-called ‘peace clause’ that exempts a country from staying within the WTO limit on its farm subsidy. The peace clause came into the picture after questions were raised at the 2013 WTO Ministerial at Bali on the level of India’s food subsidy, during which time the commerce ministry delegation needlessly caved in. India then had not come anywhere near breaching the WTO limit of permissible subsidy being within 10 per cent of total agriculture output — and the situation remains so to this day. The current figure of ₹3.26 lakh crore includes permissible subsidies such as PM-KISAN and payments for relief for natural disasters (both being forms of income support) which should not be included in subsidy calculations. The truce, struck essentially between the US and India after the Bali meet, was that the latter’s food subsidy would not be questioned before the WTO arrived at a permanent solution to the vexed issue of calculating this figure. Even so, India has been needled from time to time by the developed bloc whose farm subsidies, in fact, hugely violate AoA norms. India should not have ducked the key issue of questioning the flawed basis of calculating these figures.

A country’s farm subsidies are calculated as a sum of product-specific and non-product specific support. Product-specific support is the difference between domestic and international prices for all products, while non-product support includes credit and input subsidies (on fertiliser, irrigation and electricity). If some product-specific subsidies have turned positive in recent years, it is not merely on account of an increase in procurement but more so because of the underestimated international price. Despite this flaw, India’s wheat subsidy owing to procurement is negative, while it is 11.46 per cent in the case of rice. For a range of crops taken together, the product subsidy would be well within limits. The other bone of contention is that the difference between the procurement and PDS price should also be included in the subsidy calculations. However, Article 6 of the AoA allows a developed country to protect livelihoods of the poor, as a result of which many of these subsidies can be struck off in the calculations — more so in times of crisis such as these.

It is another matter that a shift from input subsidies to income-based support has its positives, in terms of easy delivery. However, that is a subject of sovereign policy-making.

Published on April 05, 2020

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