Much ado about nothing?

Although the details of the agreement between India and the US are not clear, the promise that it will put an end to the impasse over the WTO’s Trade Facilitation Agreement is welcome news. From the looks of it, in exchange for India’s support of the TFA, the country’s food security programme will not be challenged indefinitely, or not until its concerns about this issue are met. This is definitely an advance over the peace clause India signed at Bali, which bought the country time until 2017 to become TFA compliant; but there is a touch of exaggeration to the gushing reports about New Delhi scoring a big diplomatic victory.

The truth is much more sobering. While it is true that India has shrugged off the ‘deal-breaker’ tag, and that too on its own terms, there is no escaping the fact that New Delhi was somewhat isolated and under increasing pressure to support an agreement that will ease transaction costs and procedures. Also, whatever our protestations and concerns relating to food security, the TFA was not a threat to the country’s food procurement programme. At stake was the minimum support prices paid for wheat and rice; the WTO wanted the procurement price paid to farmers to be within the cap of 10 per cent of the value of the output. Studies have shown that India’s subsidies on input and minimum support prices are well below this prescribed limit, even if we accept the contentious base year of 1986-88 for fixing the external reference price. MSPs, when adjusted for inflation, as is permitted under Clause 18.4 of the WTO’s Agreement on Agriculture, are comfortably below WTO caps.

New Delhi’s tough posturing abroad has been mercifully balanced by the realisation that it is important to ensure that the rise in MSPs is moderate. But the larger reality is that India urgently needs to revamp its farm policies. Our agriculture policy protects the producer through subsidised inputs (principally fertiliser) and support prices, and the consumer through the public distribution system rather than tariffs. A reduction in input subsidy on urea, accompanied by income support systems that are permissible under the WTO — and efficient in any case — would lead to better outcomes in the form of balanced fertiliser use. Rather than fork out nearly ₹1 lakh crore on providing virtually free grain to most of the population through a leaky and market distortionary mechanism, we need to move towards a system of targeted direct cash transfers. Much more investment is required in irrigation, electricity, market infrastructure and development of seeds. All of this would be WTO-compliant, and yet leave everyone better off. But if we think in ‘India vs WTO’ terms, we will remain stuck with the existing infirmities.

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