Food security: a battle won but a war lost
The hurriedly passed food security law can cost India dearly at the WTO
India’s recent food security law appears to be facing an unlikely challenge from the regime governing global trade rules. The procurement subsidy India will have to pay farmers to raise food purchases and operationalize the law may fall foul of its trade commitments, according to the World Trade Organization (WTO). While the United Progressive Alliance (UPA) government found it easy to muffle internal dissent by hurriedly pushing through the food security ordinance, it has found the going tough on renegotiating trade rules at the eleventh hour to rescue its showpiece legislation ahead of the December global trade summit at Bali.
To be sure, the current WTO agreement on agriculture is far from perfect and needs to be reformed to level the playing field between developing and developed nations. Negotiations to achieve this have been underway over the past few years. But by hastily passing the food security law without having won a trade deal at the global bargaining table, the UPA government seems to have sacrificed our strategic interests at the altar of electoral politics. Till this point, India had the luxury of time to reach a fair bargain. With the passage of the food security law, India finds itself in an awkward corner. It must ensure a global agreement on agriculture to salvage its food law, and knowing this, Western economies such as the US and the European Union are trying to extract the greatest possible concessions from India and other developing nations.
The genesis of the problem lies in the so-called amber box WTO rules that impose stringent restrictions on price support programmes of developing economies such as India, China and Indonesia. Most developing economies, other than the poorest of the lot, are barred from providing producer subsidies beyond a certain minimum. The calculation of that minimum support is flawed as it is based on the difference between the current minimum support price and a fixed reference price, notified as long back as 1986-88. A group of 33 (G-33) developing nations has, therefore, proposed that the reference price should be updated to take account of inflation or at the very least there must be a new benchmark. The indications so far suggest that developed countries, primarily the EU, the US and Japan are unwilling to accept an amendment.
One possibility to achieve a compromise, which the WTO director-general Roberto Azevêdo hinted at during his recent visit to Delhi, is some sort of a temporary waiver that will allow India to start the food entitlement scheme. But this reprieve will only be for two years as part of a rarely invoked WTO peace clause. After two years, India’s food security law can face a challenge at WTO’s disputes settlement body. Western powers are ready to accept such a compromise in return for an agreement on trade-facilitation measures, which essentially refers to harmonizing import norms and procedures related to customs. Such norms are expected to benefit the developed countries initially by easing access to export markets.
The bargain at this stage seems to favour Western interests because they manage to win a permanent deal on trade facilitation in return for a temporary reprieve to India’s food support programme. While such a deal may salvage the UPA’s electoral prospects, it will deal a body blow to the G-33’s persistent efforts over the past few years to win a permanent settlement on agriculture that takes care of the long term interests of the developing world. This also puts a question mark on whether the developing nations will manage to exert pressure on reducing trade-distorting export subsidies by Western countries at the upcoming trade summit.
Because of protectionist policies in the agricultural sector in both developed and developing economies, this sector stands to reap the greatest gains from trade liberalization. But any move towards trade liberalization must be calibrated to allow developing nations the chance to safeguard the interests of the marginal farmers and to protect their poor.
In India’s case, implementing the food law on the basis of a temporary waiver can have devastating consequences. Scaling down food and fertilizer subsidies may be desirable for restoring the health of the Indian economy but doing so while expanding the scope of the food support programme will only lead to a heavy dependence on imports. Such dependence will not just harm the domestic agrarian economy but also pose severe strategic constraints on our foreign policy.
The UPA missed the chance over the past decade to revitalize India’s agricultural sector and raise productivity, instead relying on price support to boost production and farm incomes. To further compound the mess, it has enacted a populist food entitlement scheme without considering the constraints imposed by global trade rules or the impact this may have on India’s farm economy. The hurried passage of this law seems to be costing the country dearly.
Has the UPA’s electoral quest marred India’s economic fortunes? Tell us at views@livemint.com
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