Peace Clause for what?

| Updated on March 12, 2018 Published on November 24, 2013

The current system of farm subsidies deserves a relook for domestic rather than ‘foreign’ compulsions.

India should not seek to accept the so-called Peace Clause on farm subsidies that the World Trade Organisation (WTO) has mooted ahead of next month’s Bali ministerial meet to break the current impasse on multilateral trade liberalisation negotiations. Signing such a clause presumes that the country has flouted or is in danger of flouting rules on subsidies and, hence, is in need of a reprieve from penal action. The fact is that India is far from committing any such violation. Contrary to assumptions that the National Food Security Act will lead to farm subsidies crossing the stipulated 10 per cent of production value limit under the WTO’s Agreement on Agriculture, expenditure of this kind is not subject to any caps.

The extant WTO rules clearly allow “public stockholding for food security purposes” and direct provision of food “to sections of the population in need...at subsidised prices”. Expenditure under these is part of Annexure 2 of the Agreement covering all domestic support measures explicitly qualifying for exemption from reduction commitments. True, the Annexure states such programmes shall not “have the effect of providing price support to producers”. But even here, Article 6.2 provides specific exemption with regard to subsiding “low-income or resource-poor producers”. The last Agricultural Census for 2010-11 showed that 85 per cent of India’s farm holdings are below 2 hectares. ‘Large’ farmers with over 10 hectares constitute just 0.7 per cent of all holdings and less than 11 per cent of total operated area. It is clear, therefore, that farm subsidies are primarily going to low-income producers unlike in the US or Europe. Besides, Article 18.4 provides a window for countries suffering “excessive rates of inflation” from abiding by domestic support commitments; India can seek exemption on that score as well.

Given this, India need not plead guilty or seek waivers under a Peace Clause (‘due restraint’). The interim due restraint proposal under discussion, in fact, inserts conditions that are not even part of the Agreement on Agriculture — such as the one seeking that public stockholding programmes “do not distort trade”. Having said this, we need to move to a system where all subsidies are targeted and given through conditional cash transfers. The existing route of input subsidies on fertiliser and electricity and open-ended physical procurement of grains at minimum support prices are the most expensive and inefficient way of helping resource-poor farmers. These need to be eliminated not because of imagined WTO transgressions, but because they impose fiscal costs the country cannot afford. Secondly, there are technology options — Aadhaar card-linked bank accounts for instance — that make it possible today to deliver subsidies directly and most efficiently to targeted recipients.

Published on November 24, 2013
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