No deal on subsidy

India should resist any demand for reduction in agricultural subsidies by developing countries as part of a deal to revive the World Trade Organisation’s tottering Doha Round talks. The WTO’s existing Agreement on Agriculture extends flexibility for countries to provide unlimited subsidies — whether on fertilisers, electricity, credit and other inputs or as crop procurement price support — to small and marginal farmers, who make up 85 per cent of India’s 138 million holdings. The US has no right to lecture India on capping agricultural subsidies, when its own such transfers amounted to almost $150 billion in 2011, that too, for a mere 2.2 million farms. Similarly, the European Union and other rich OECD economies — which provide support to the tune of over $400 billion annually to their farmers — have no moral basis for advocating limits on so-called trade distorting farm subsidies by India or China, even when these are largely directed at those with less than five acre holdings.

While the principle of exempting subsidies to low-income or resource-poor producers from reduction commitments cannot be diluted under any proposed WTO agreement, that should, however, not stop India from rationalising and reorienting its existing systems of supporting farmers. There are certainly better ways to guarantee income support than physically procuring and storing grain, which cannot, after all, cover all farmers across crops. Input subsidies on urea, diesel or electricity, likewise, only promote inefficient and environmentally harmful consumption of scarce resources. It is better, instead, if farmers are given direct cash benefits that can be transferred to their individual bank accounts: Thankfully, there are scalable technology platforms for enabling this, which did not exist even a decade ago. The monies saved from wasteful and ineffective subsidies can, in turn, be more productively redeployed in farm research, rural roads, education and irrigation (especially drip/micro). There are enough studies, including by the Commission for Agricultural Costs and Prices’ Ashok Gulati, showing returns to public investments on the latter to be 5-10 times the sums spent on various subsidies.

At the end of the day, how much allocations to make for agricultural subsidies should be for individual countries to decide, more so if when they happen to be developing economies with large farming populations. The fiscal discipline required to be exercised in these matters is something best left to their own assessments regarding the availability of fiscal resources and the relative returns from deploying these towards various public uses. India, for instance, can use the $ 50 billion or so it now spends on farm subsidies more efficiently and equitably, by moving to a direct cash transfer regime. At the same time, it should be spending vastly more on public farm research or rural infrastructure than now. And it can do all these very well without being hectored about the sins of subsidies by the worst sinners on this count.

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