India is threatening to veto the implementation of the Trade Facilitation Agreement, which is part of the Bali package agreed on last year and is due to be ratified by the WTO general council by July 31. The TFA places a common obligation on all WTO members to streamline border procedures for the easier movement of goods. The Indian government is insisting that the deadline for the accession protocol that would implement the TFA be extended until its concerns on food security and public stockholding are met. As per current WTO requirements, food subsidies cannot exceed 10 per cent of the value of foodgrain production calculated based on 1986-88 prices. There can be no doubt that this method of calculation is arbitrary and outdated — it does not take into account the huge increase in food prices since. India wants these norms to be renegotiated, as they clearly have domestic political implications. However, the gains from such a stance are limited. India needs to rethink its stand in deeper ways.
Studies have pointed out that the Indian consumer is shifting away from staples like wheat and rice towards vegetables, fruit and meat. India’s food subsidies and support prices, however, remain directed towards wheat, rice and other staples. There is, therefore, good reason to question why India is insisting on protecting its right to subsidise and procure the production of food items consumers are shifting away from. While there is a need to ensure food security in a poor country, the present methods of subsidisation and command and control policies have failed to deliver. High food inflation and supply-side issues persist. Importantly, there is no single commodity that is driving such inflation. In a market economy, a shift in prices of one commodity would generate a shift in resource allocation in production, allowing supply to match demand at a lower price. Also, it is well documented that subsidies in India have failed to always reach intended beneficiaries. The NDA government has stated its intention to reform the food procurement and public distribution system. The current WTO negotiations create incentives to push for reform — such as moving towards per-acre agricultural subsidies in lieu of MSPs and direct benefits transfers instead of the right to buy subsidised foodgrain.
In fact, integration with international markets may be a panacea to the problems that Indian agriculture faces. India has become globally competitive in many sectors. This has come about due to a liberalisation of trade and a gradual reduction in tariffs and subsidies due to international commitments. An Indian potato farmer, however, does not have the opportunity to be competitive due to the multiple layers of restrictions and controls. India should reconsider its stand on the TFA to address the very problems it thinks it is addressing by blocking it.