Bali burden

Bali burden

Keeping the WTO process alive is important. But the same can’t be said for the distorting farm subsidies.

Keeping the WTO process alive is important. But the same can’t be said for the distorting farm subsidies

Given that India has stakes in the success of multilateralism,the lack of an agreement at the Bali summit would have been a disaster. It has to be said,then,that India’s hardball tactics worked. Bali did not fail while India largely got what it was fighting for — the right to hike its food subsidies till such time that various distortions in the global subsidy agreement aren’t fixed. For instance,subsidy calculations are based on 1986-88 prices while global wheat prices have more than doubled since. While developed countries were willing to offer a ceasefire for four years,India managed to extend this till the time an agreement is reached. During this period,no country can take India to the WTO’s dispute settlement board (DSB) arguing that its food subsidies are excessive.

But caveats need to be added,and a larger examination must be made to ascertain whether Indian agriculture will benefit from this in the long run. First,the caveat. No country can take India to the DSB as long as its food subsidies,under the Food Security Act,for instance,do not distort global trade. But in a situation where the Food Corporation of India has excessive foodgrain stocks and these are liquidated at prices lower than what it costs the FCI,this can be construed as trade-distorting and can invite action by the WTO.

The larger issue relates to India’s gains. Right now,India wants to be free to offer farmers whatever minimum support prices (MSPs) it wants to buy their crops. But given that too much of wheat and rice is being grown relative to other crops,and that too in states where it should not be grown — India would save a lot of water if cultivation of these crops shifted to states like Bihar and West Bengal — farmers need to be incentivised differently. The Bali win means MSPs can simply be hiked for other crops,but how do you incentivise farmers in Bihar and West Bengal to move to wheat and rice if the FCI does little procurement there? This is where the UIDAI comes in. India now has a system in place that can deliver income support directly — in keeping with farm acreage,for instance — which will make farming more efficient and,under the WTO system,is not considered trade-distortive. The win at Bali means India is free to expand its inefficient system of subsidies till a fiscal breakdown. A pyrrhic victory,at best.