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Business News/ Opinion / Narendra Modi’s reform of India has started badly with WTO threat

India’s new Prime Minister Narendra Modi promised to give the stalling Indian economy a good, firm push. Under his leadership, he said, India would be open for business. There’s little sign of it so far.

Last week, India’s negotiators dismayed trade ministers around the world by threatening to block a global trade deal—one that’s very much in India’s interests—unless they get their way in a separate dispute over farm subsidies. And though Modi has been in office a mere two months, this isn’t the first such letdown. The self-defeating brinkmanship on trade followed a pretty timid business-as-usual budget. Optimism over Modi is evaporating fast.

At the end of last year, governments thought they’d revived the World Trade Organization (WTO) as a forum for promoting free trade. They reached agreement on a set of “trade facilitation" rules—new common standards for speeding the flow of goods across borders. After almost 20 years of drift, the WTO had achieved something concrete. One study estimated that the new rules would lower trading costs by more than 10% and add maybe a trillion dollars a year to global trade and output.

India said yes to this deal, but the new government now says it will block it unless it gets its way in a quarrel about farm subsidies. This would be a deplorable maneuver even if India’s position on farm supports had merit—which, as it happens, it doesn’t.

India’s so-called food security programme is notoriously wasteful, creating huge stockpiles of unwanted grain. From time to time, these surpluses are dumped on world markets, disrupting production elsewhere. The policy offends the spirit and, many argue, the letter of the WTO’s rules on trade-distorting subsidies. But set that aside: It’s in India’s interests to stop this practice.

To be sure, India isn’t alone in squandering money on farm subsidies. The US and the European Union do it, too. Reforming these policies is politically hard everywhere, which is why negotiations on the subject tend to bog down. This is in part what makes India’s new position especially depressing. It is a formula for indefinite paralysis.

Modi should reflect on how few countries rallied to support him last week. When Bolivia, Cuba and Venezuela think you’re in the right, you might want to think again. This trade deal was supposed to be final on 31 July. India should let it happen.

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Updated: 29 Jul 2014, 10:46 AM IST
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