At a time when the farmers’ distress is at a peak, pressure from the World Trade Organisation (WTO) to seek reduction in the procurement prices for wheat, rice, pulses, cotton and sugarcane is posing a renewed threat to the future of farming. WTO pressure to reduce Minimum Support Price (MSP), and Fair and Remunerative Price (FRP) in case of sugarcane; comes at a time when Niti Aayog has accepted that there has been almost zero growth in real income of farmers in the past two years.
While Australia and Brazil have dragged India on its burgeoning sugar subsidies to the dispute settlement panel of WTO, which for all practical purposes acts as a court to settle trade disputes, five other countries – Guatemala, European Union, Russia, Costa Rica and Thailand – want to join the dispute settlement consultations. In simple words, this means these countries also want to be a party in the case against Indian sugar subsidies. Interestingly, while the WTO is planning to question India’s massive subsidisation of sugar, non payment of sugarcane arrears have been ballooning. In Uttar Pradesh alone, cane arrears have grown substantially from Rs 4,497 crore in March 2017 to Rs 12,700 crore in March 2019.
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The first round of dispute consultations on sugar subsidies with the seven countries begins in the third week of April.
Earlier, 12 countries, including the European Union, Russia, China, Japan, Brazil, Canada, Egypt, Kazakhstan, Korea, Thailand, Taiwan and Sri Lanka, had become party to the US challenge of India’s export subsidies – export incentives for SEZ and merchandise exports. Citing the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO, the US had computed the explicit and implicit export subsidies that India is giving at $7 billion. That India is under scanner at the international negotiations was never in doubt, but the increase in the number of countries questioning India’s subsidies is certainly a cause for worry.
Let’s go back to the issue of agriculture to see how the WTO is hitting India where it pains the most. In a separate development, Canada has joined the US in questioning the hike in MSP for pulses over the past few years. The US along with Canada, filed a notification in the WTO Committee on Agriculture (COA) February 12 questioning India’s market price support for five types of pulses. Accordingly, India exceeded the permissible limit as defined by WTO in case of price support for chickpea, pigeonpea, moong, black matpe and lentils. The US and Canada’s argument is that India has “under-reported” its market price support for pulses, which is a violation of the WTO Agreement on Agriculture.
The US Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue have, at the time of filing the complaint, said: “When calculated, according to WTO Agreement on Agriculture methodology, India’s market price support for each of these pulses far exceeded its allowable levels of trade-distorting domestic support.”
Giving specific details, they have blamed India for deliberately keeping the subsidies under wrap, and presenting a data which is questionable. Claiming that India’s total market price support for pulses ranged from 32 to 85 per cent and adds up to $9.5 billion, they accused India of “under-reporting” these subsidies.
India, on the other hand, maintains that its total subsidy for all kinds of pulses comes to 1.8 per cent and is far less than the permissible limit of 10 per cent. As per WTO norms, the product specific support (which is counted as subsidy) cannot exceed 10 per cent of the value of total production. In simple words, it means that if the value of total production of chickpea is Rs 500 crore, the MSP that farmers get for chickpea cannot exceed Rs 50 crore.
While the US, EU, Canada and other countries are saying that India is using a methodology (to calculate the subsidies) which is non-compatible with the WTO methodology, India’s position is that the complainant countries are actually using a faulty methodology. The mistake these countries are making is that they taking the MSP figures, and reducing from it the external reference price (ESP) set by the WTO, which is fixed on 1986-89 statistics, and then multiplying with the total value of production of a particular crop. This gives a much exaggerated figure. In reality, India does not purchase the entire production at MSP, but only a fraction of the total production to meet the food and nutritional security needs of the marginalised communities. The correct way, therefore, should be to multiply the amount of crop harvest purchased at MSP instead of multiplying with the total production.
In case of wheat and rice also, US has been challenging India’s calculations for a number of years, saying that the 2013-14 compilation by India was far short of the actual 65 per cent of price support for wheat and 77 per cent for rice. India had claimed that its MSP for both these crops was well within the prescribed limit of 10 per cent.
The basic objective behind the aggressing stance at WTO is to seek more market access for agricultural and dairy products. The US has made this abundantly clear after President Donald Trump withdrew benefits to steel and aluminium products under the Generalised System of Preferences GSP). But the failure on the part of India to impose retaliatory tariffs on 29 US products, including several important agricultural commodities, shows the weakness in its trade policy. India has further extended the deadline for imposing retaliatory custom duties to May 2, hoping that the US may relent.
Much of the blame for opening up the domestic markets to flood of agricultural imports actually rests on India’s failure to take the US to the WTO dispute settlement panel on the question of massive subsidy support being given to US agriculture. We are actually suffering the consequences of our own failures to be combative in trade diplomacy. But what are worrying are the consequences of all the collective failures to stand up and protect domestic agriculture. As a result, India’s food security will fall on the beleaguered farming community, already reeling under a terrible distress.
Devinder Sharma
