While many in the government, and outside, have viewed the stalling of the WTO’s trade facilitation agreement (TFA) as legitimate muscle-flexing by India, and deemed it appropriate, given how countries like the US use unilateral tools like Super and Special 301, the real issue is quite different. For one, as this newspaper has argued before, though the WTO’s external reference price for calculating food subsidies is nearly two decades out of date, there is nothing in even the current rules that in any way limits India’s ability to dole out subsidies. The WTO is concerned only with trade distortions, and the problem here is that if too much wheat/ rice is procured by the FCI and the hugely subsidised grain finds its way out of ration shops into the export market, as it invariably does, it distorts trade.
The solution to this is not just simple, it is economical, and helps India achieve its policy goals. Instead of spending upwards of Rs 1.5 lakh crore a year on the FCI-based subsidy system, let the poor buy grain in the open market, but give them cash subsidies to ensure the costs of grain are Rs 2-3 per kg as envisaged in the Food Security Act. This will bring costs down to around Rs 40,000 crore. Use what is left, and more if you like from the Rs 75,000 crore fertiliser subsidy, to make direct payments to small and marginal farmers — this will ensure that just the rich farmers who sell wheat/ rice to the FCI don’t corner all the benefits.
