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India’s food subsidy likely to be within WTO limits

Rice levels at -2.9%, wheat -10.3%; Article 18.4 allows inflation-adjustment.

August 8, 2014 10:09:37 am


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.

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.


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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, at 26% and 17.9% of the total output value, respectively. Another potential irritant for India could be that the WTO’s appellate body had ruled in 2000 that product-specific price support could be determined assuming subsidy persists on the entire crop output. If this methodology is applied, then India’s price support to rice sans inflation adjustment works out to be 76.5% of production value as in 2010-11 and that to wheat, 69.7%.


The WTO General Council that met in Geneva recently could not adopt the protocol for the momentous Trade Facilitation Agreement (TFA) aimed at easing customs procedures because India, along with a tiny group of countries, refused to sign up. These countries, against the wish of the vast majority of WTO members, caused the talks to collapse, as they feared decoupling of TFA from the efforts to find a lasting solution to the public stockholding issue.


Even in the case of non-product-specific subsidies (input subsidies on irrigation, power, fertiliser, etc, to cultivators) India remained within WTO’s de minimis level of 10% in 2010-11 at 8.88% of total value of farm output, although in 2008-09 and 2009-10 the level was breached with these subsidies amounting to 15.08% and 10.12%, respectively, of the relevant value. However, if the subsidies to relatively smaller farmers are excluded (which the WTO allows), the non-product-specific subsidy levels would appear safer. These subsidies, or for that matter even the product-specific subsidies of India, have not been contested by any WTO member so far, even as New Delhi seems bent on pre-empting any such move.


“In general, domestic support of agriculture needs to move from measures that cause more than minimal trade and production distortions to those that do not have such effects, from input to investment subsidies and from consumption subsidies in kind to direct and conditional cash transfer,” Hoda and Gulati wrote.

Arun S and Sandip Das | Financial Express


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