Lessons from India’s stand at the WTO
- Power Grid plans more state projects, eyes joint ventures
- Subdued Diwali for auto makers as buyers stay away
- Sebi to tighten listing norms as part of crackdown on shell firms
- Greenko Group in talks to acquire Gati Infrastructure’s hydro-electric project
- Indemnity vs damages: Negotiating contracts the right way
Patriotism is the last refuge of a scoundrel—Samuel Johnson
I suspect that, when Johnson made that observation, he was referring to the false pretensions of patriotism—the tendency of selectively using arguments of nationalism and sovereignty when it suits one’s purpose.
I have been quite amused reading the vociferous defence of India’s stand at the World Trade Organization (WTO). The deadline for resolving the ensuing stalemate is Thursday.
While I support not just India’s stand on the WTO but also the inherent reason for it (the National Food Security Act, or NFSA), the near unanimous defence does two interesting things.
One, it busts the myth propagated by several commentators on a routine basis that Narendra Modi’s victory in the recently concluded national elections is essentially a rejection of the so-called populist social welfare policies which worked on the principle of entitlements. The NFSA (commonly called the right to food) for the underprivileged sections of the society was the most reviled among such schemes.
The Bharatiya Janata Party’s ascent was seen as the time when Indian government will finally give up the so-called failed ideas of service delivery like providing subsidized food grains and instead immediately move to the smarter option—the cash transfers. That is, if the new government did not scrap laws like the NFSA to begin with.
Two, it exposes the dichotomy, if not the downright hypocrisy, of those commentators who, in the past never tired of arguing against the NFSA and characterized it as possibly the most ruinous government scheme ever, but have all of sudden rediscovered why India must defend it tooth and nail before the whole world. It is unlikely they changed their opinion of the NFSA overnight. It is to them that I dedicate Johnson’s quote above.
Let me take the first one first.
In short, the WTO issue is as follows. India is being blamed globally for holding up the Trade Facilitation Agreement (TFA) in the WTO because it wants the freedom to provide whatever subsidies it deems fit to its farmers domestically to ensure the implementation of the NFSA. Readers should know that running a successful NFSA by providing subsidized food grain would necessitate the government to procure and store huge quantities of grains. Such procurement will require paying increased minimum support prices (MSPs) to incentivize farmers to sell their produce to the government and not in the open market. This will amount to foreseeably increased production subsidies. Most developed countries, and several key developing countries as well, oppose such subsidies once the Indian subsidies breach a certain threshold. But since India has enacted the NFSA, it is bound by domestic law to provide such subsidies. Hence the deadlock.
But what makes this stalemate truly intriguing is that the TFA will benefit India since it will simplify customs procedures and reduce the transaction costs for trade.
Moreover, if instead of production subsidies like MSPs, India were to shift to income transfer to farmers and consumers, it would be fine by the WTO regulations. Income transfer or direct benefit transfers (DBT), as they more commonly known in India, would imply farmers would produce at the costs prevailing in the market and consumers (including the poor) would purchase at the market price while the government transfers money to the bank accounts of the farmers and the consumers it wants to support. The previous United Progressive Alliance (UPA) government was castigated by many of the commentators I referred to for not adopting such cash transfer if at all the right to food must be enacted.
So, on the face of it, India appears to be blocking a global trade agreement that is to its own advantage and which it can possibly adopt if it were to dedicate itself to moving in the direction of cash transfer.
Is India playing spoilsport?
No, it is not. It has genuine concerns about the large number of poor in the country and wants to provide them a modicum of decency by not letting any one of them go hungry.
However, it busts the myth propagated by several commentators that the National Democratic Alliance’s (NDA’s) ascent marks the end of the so-called populist policies. Of course, there will be tweaks in policy but it is unlikely that the NDA disagrees with the populist agenda of the UPA. If anything, it was the BJP-led government in Chhattisgarh that provided the role model for the NFSA.
Frankly, I do not think UPA lost because it legislated the NFSA (which incidentally the BJP supported wholeheartedly) or persisted with the national rural employment guarantee scheme. The UPA lost because it could not implement the make-work programme efficiently. It lost because it could not legislate the food security law earlier than 2013. And in equal measure, it lost because it could not manage the other sectors of the economy, which would have improved supply and generated growth. There were other reasons too—lack of strong leadership and a whole slew of scams. In fact, I suspect, Indians would not resent an NFSA if the India were to grow at a faster clip.
It is a misleading and mischievous argument that the rural jobs guarantee scheme and NFSA alone are to blame for inhibiting India’s growth rate because such an argument absolves the UPA of all other economic mismanagement under its watch. Moreover, how come the new NDA government did not scrap the NFSA, or at least attempt to do so, if that essentially was problem and if that essentially was the NDA’s mandate.
On the contrary, we find NDA defending the NFSA against the world, even to India’s own economic and diplomatic detriment.
But nothing is more absurd than the flip in stance of several commentators typically opposed to the NFSA all these years. All of a sudden, there seems to be a groundswell of opinion that India should not agree to the TFA in order to defend the right of the Indian poor to receive food.
In the past, before the NFSA was enacted, India defended its freedom to provide price support via MSPs via a more technical argument. India said the prices used to calculate the subsidy threshold were outdated and too low.
However, post the NFSA, curiously enough, the argument is about India’s policy sovereignty, which had to cater to the felt needs of the poor and the social complexity in the country which, in turn, necessitates adopting such an administratively complicated way of providing subsidies.
Funnily enough, many who make these arguments never really believed in them until now. For long they held that it was a bad idea to provide a right to food. Bad, not just for the economy, as it inhibited growth, but also, for the poor, since it made them lazy. Moreover, it was held that if support must be given then it should be in the form of cash transfers, not actual foodgrains.
Lo and behold! Just as the new government took over India gets an opportunity, thanks to the WTO, to set all of that right. Okay, at least some of it. The new government could blame the proverbial foreign hand and pass the buck, quite justifiably, on the global developments. This was what the NDA would have done, what according to many commentators it was elected to do by none other than the neo middle class. Just as India has deregulated the fuel prices in the recent past, NDA could deregulate food prices.
I would have thought that the concerned commentators would jump at such an opportunity. But what do they do?
Ah, invoke the patriotism clause. I would have respected it had it been borne out of a genuine concern for the poor in the country. But it is not and nobody is getting fooled.
Policy Puddle comments on public policy developments every Thursday.