Back to ResearchMuch noise is being made in New Delhi about India’s difficulties in obtaining a permanent exemption from the 10% farm subsidy cap under the World Trade Organization’s existing agreement on agriculture. I am less sympathetic, and here is why:
One, the primary reason Commerce Minister Anand Sharma is blackmailing the entire WTO ministerial to get this exemption is to save the Food Security Bill from legal challenges by other WTO members. The bill, if implemented, is likely to push India past the 10 percent limit. Both the bill and its defense at the Bali ministerial is really about the upcoming general elections. Hence India’s rejection of the four year “peace clause” — it would have been used by the opposition during the campaign.
Two, India signed on to the agriculture agreement when it was negotiated and, in doing so, agreed to the general principle that the WTO should restrict, and eventually get rid of, the use of agricultural subsidies in international trade. Its target was the massive subsidy structures of the US and the European Union. Has India therefore abandoned the sensible policy and embraced the distortion of farm trade that it has for so long opposed? Perhaps, but it clearly has not been debated.
Three, by making this sudden demand and in such a blunderbuss manner, New Delhi is helping to undermine the WTO — an organization already suffering from almost as much paralysis as the Manmohan Singh government. The WTO gives India veto power and a vote in its proceedings. By undermining it, New Delhi is hastening the transfer of international trade policy to regional and bilateral trade arrangements in which it has little or no say. This is particularly the case with the Trans-Pacific Partnership and the US-EU trade deals which, if completed, would render the WTO useless and ensure India has no say in the global rules governing trade or intellectual property rights.
Four, India’s food subsidies, far from being a beautiful thing that keeps poor people from starvation, are a tangled mess of corruption, absurdities and incompetence. Thus the minimum support price for wheat is so generous that it has made Indian wheat more expensive than the global variety. This has helped big farmers in Punjab and Haryana, and beggared the pockets of everyone else. The government is taking all this expensive wheat and planning to give it away through a rickety, leaky distribution system at a loss. The subsidy bill is thus doubled and the cost of getting the grain to the poor insane. Simple fun fact, economist Ashok Gulati has shown the government’s own fiscal spending on welfare has been responsible for about 40 percent of the food inflation the country suffers. Give subsidies and then take away through inflation.
Ultimately, what’s happening at the WTO right now is that India is sacrificing its long term economic interests to support a corrupt subsidy system and win an election a few months’ hence.
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