It is not an uncommon sight for India to be isolated at multilateral trade negotiations. The most recent example being the meeting of trade ministers of the Group of Twenty nations (G-20) at Sydney. These countries want India to give up its insistence on moving in tandem to find a solution to its food security concerns and progress on the World Trade Organization (WTO) driven Trade Facilitation Agreement (TFA)—that helps traders and exporters worldwide. Earlier in the month, India opposed the TFA at Geneva.
India did the right thing.
At the Bali WTO ministerial, India compromised by taking the offer of a limited two-year window for providing price support for its agricultural support programmes for its farmers—in simpler english the minimum support prices (MSPs) for certain select crops. This was in exchange for its support on TFA. India wanted a solution to the food problem at Bali but was pushed into a corner. Now those pressures have returned.
The goals that have driven India’s food security efforts are firmly rooted in reality. When seen in absolute numbers, a large fraction of citizens can do with some food security support. The problems with the programme lie elsewhere: the costs involved, its reliance on an extremely inefficient food delivery infrastructure and—most germane to the possible dispute at the WTO—the link between agricultural output and incentives. The last point is the Achilles heel of the Indian food security law.
The National Food Security Act (NFSA) provides up to 75% of the rural population and up to 50% of the urban population with an entitlement of 5kg of foodgrains per person per month at subsidized prices of Rs.3, Rs.2, Rs.1 per kg for rice, wheat, coarse grains respectively.
As the coverage under NFSA increases, demand for cereals is likely to shoot up. India has two options. One, to import its requirements—an option that backers of the agreement on agriculture will advocate—and, two, to increase domestic production by financial incentives to farmers. India and most proponents of the NFSA are in favour of the latter.
The reasoning is simple. In the 1990s and 2000s, growth in the area under wheat and rice cultivation has declined as has the actual physical output of these crops. Financial incentives for farmers by increasing the MSP for these crops is one of the few tools, apart from biotechnology solutions, that the government of India has at its disposal to increase production. And increased production is essential if India is to meet the goals it has set under the NFSA.
This paper has written extensively against the NFSA but the decision to choose food security options is a matter for Indians to decide and not foreigners to impose on it. From this perspective, India’s position on the issue is not only fair but is well within its sovereign rights to implement. WTO or no WTO, it is up to the government of India to decide what it wants. Period.
It is a mistake to dub the Indian position protectionist. The amount of subsidies that Indian farmers receive is a fraction of what is doled out to their American and European counterparts. These countries don’t even make an effort to end these subsidies. From milk to corn to fisheries, the level of subsidization in the US and the European Union (EU) is way beyond what even affluent Indian farmers get. In India, public procurement of foodgrains is limited to Punjab, Haryana, western Uttar Pradesh and parts of Andhra Pradesh. Other states, for example Chhattisgarh and Madhya Pradesh, are experimenting with public procurement, but these are just small scale experiments. Given the huge disparities in the size of agricultural landholdings and the population dependent on agriculture in the US, the EU and India, on a per capita basis the subsidies that accrue to Indian farmers—even the richest ones—is paltry.
A freer international trade regime will indeed be a welcome development. But India, like much of the developing world, needs to carefully evaluate the bargains involved.
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