Monday, Sep 22, 2014

India’s food subsidy likely to be within WTO limits

India has little to worry about its product-specific support to agriculture exceeding the limits prescribed by the World Trade Organisation. India has little to worry about its product-specific support to agriculture exceeding the limits prescribed by the World Trade Organisation.
Posted: August 8, 2014 10:09 am

 

Contrary to popular perception, India has little to worry about its product-specific support to agriculture exceeding the limits prescribed by the World Trade Organisation (WTO), a recent study has revealed.

 

This implies that New Delhi’s aggressive stance at the world body, seeking leeway from the cap on public stockholding for food security or even a total waiver from the restriction citing the resource-poor status of its farmers, lacked rationale.

 

Click here for graph

 

The country’s product-specific subsidy for rice stood at minus 2.87% and that for wheat at minus 10.22% of the respective production values in 2010-11 when calculated on a fully inflation-adjusted basis, according to a joint paper by Icrier experts Anwarul Hoda and Ashok Gulati for International Centre for Trade and Sustainable Development.

 

Only supports in terms of these two staple grains are relevant in this context as in the case of other crops, the minimum support prices (MSPs) declared are not backed by extensive purchases by the Food Corporation of India or other state-run agencies. This means India’s current aggregate measurement of support (AMS) on this count is virtually zero, never mind the ceiling of 10% of the value of production specified in the WTO’s Agreement on Agriculture (AoA).

 

The Hoda and Gulati study shows that despite the big hikes in India’s MSPs in recent years (particularly post-2007-08), the MSP for rice was lower than its international price in the decade to 2011-12. In the case of wheat, the MSP was higher than the global price only for two years in the decade, in 2001-02 and 2009-10.

 

MSP hikes for wheat and rice have been relatively modest since 2010-11 (for rice, the average rise between 2010-11 and 2013-14 was 10.33% while the wheat MSP saw an average rise of just 6.55% in the period). Clearly, with such low levels of support, India lacks the capacity to distort the world markets for these commodities and remains immune to multilateral action.

 

Of course, there is some ambiguity over the extent of inflation adjustment WTO members would agree to. Article 18.4 of the AoA provides for only “due consideration to the influence of excessive rates of inflation” (while calculating the difference between the MSP and the “external reference price” agreed upon).

 

In other words, there’s no guarantee that fully inflation-adjusted domestic support figures (calculated from the level in the base year of 1986-88) would find a consensus at the world body. Analysts said that rather than pitching for exemption for grain purchases at administered prices from low-income and resource-poor farmers, India would do well to buttress the scope of Article 18.4 to endorse full inflation adjustment.

 

Without adjusting for inflation, the product-specific supports for rice and wheat in 2010-11 was much higher than the WTO-mandated cap, continued…

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