Indian food security and the WTO deal

Authors: Abhirup Bhunia and Geethanjali Nataraj, ORF

The ninth ministerial conference of the WTO held in Bali has been projected in the Indian media as a triumph of India’s food security needs.

But this view could be misplaced on two counts. Firstly, there’s what India actually negotiated at Bali: an interim ‘peace clause’ (with no guarantee of successful closure after December 2017) that bars the WTO member-states from raising disputes with India vis-à-vis its food subsidies, in return for a legally binding agreement on trade facilitation.

Secondly, India has exposed itself to further liability under the WTO and given up sovereignty over some important policy areas, some would argue. Under the Agreement on Agriculture, there is a crucial difference between consumer subsidies and producer subsidies. Producer subsidies are the real bone of contention in world trade dialogue. While India’s National Food Security Act 2013 does not mention raising minimum support prices (MSP) per se, MSPs are periodically revised and amount to producer subsidies. It protects the farmer and was last revised upwards in 2013 for paddy, maize and a host of other crops. Commerce Minister Anand Sharma has reiterated that MSPs will continue to rise in the future as well. Indian farmers also receive subsidised seed, electricity and fertilisers in order for them to produce at a lower cost. Given all of that, India’s producer subsidies in the coming days perhaps risk breaching the prescribed limits of WTO rules. Of course, for four years now, India has saved itself from being challenged at the WTO. This also makes for good domestic electoral strategy on United Progressive Alliance’s part, but that’s another story.

In the context of India’s food security, the National Food Security Act is largely about providing food grains to those below the poverty line at an immensely subsidised rate, which is a good thing for the undernourished. While on the face of it, Bali’s outcome has little to do with the consumer subsidy portion of the law, there are riders which on closer inspection might lead to a slightly gloomier conclusion. For instance, by agreeing to the peace clause, India has also opened up its food grain stockpiling and subsidies for international monitoring. The agreement also means that India would not be in a position to add more nutritious foods (like lentils) to its subsidy list. Thus, if India were to think of providing nutritional support to India’s poor with a bid to, say, counter malnutrition-related health issues, it would have foregone its right to do so. The Bali package has little to offer on other fronts too.

A host of issues that were crucial to the interests of developing countries, and to a large extent India’s, were off the table at Bali. For instance, rich country farm subsidies. The US has still not budged from its position vis-à-vis farm subsidies, despite years of push from poor countries, including in Africa. As of today, US farmers get roughly US$20 billion in direct subsidies every year.

The US also provides cotton subsidies to the tune of $3 billion per annum, resulting in a situation where US cotton exports regularly outcompete African produce, as well as India’s. As a large cotton producer, India’s stakes are high. But while nothing substantial has been extracted from the developed countries, those developed countries seem to have extracted a victory by tying India and other developing countries into a legally binding agreement on trade facilitation. The US and EU have long lobbied for the same. The trade facilitation agreement entails upgrading port infrastructure and cutting down on paperwork — both of which are already realities in developed countries; thus much of the onus is now on the emerging economies and LDCs.

Since this is a legally binding agreement, India needs to pull up its socks in order to not face action. That said, it is high time that India beefed up its infrastructure. The government estimates the need of US$1 trillion worth of investments to develop India’s crumbling infrastructure. So now that India is legally bound to act, it could prove to be a good thing in a way. Still, much of the estimated US$1 trillion boost to world trade that this agreement would bring in would potentially accrue to the developed world, simply because they represent a huge share of global trade. India’s industry bodies like FICCI welcomed the deal hoping that it would boost India’s exports.

While that remains to be seen, in terms of the broad structure of global trade, the Bali ministerial is indeed a step in the right direction. The Bali package, and the reaching of consensus after long years of stalemate, not only restored some credibility to the WTO but also in a way injected lifeblood into the concept of multilateralism, at a time when exclusive mega-regional agreements threaten massive trade diversion. The WTO is the only international forum where all 159 of its member states have an equal say. Such an inclusive consensus-building mechanism is not just favourable to India but to developing countries at large. But to be relevant, the WTO cannot keep postponing handling of the major sticking points. It has to fulfill its agenda of ending rich country farm subsidies and tackle issues like rules governing intellectual property rights — things that regional FTAs are already dealing with.

Abhirup Bhunia and Geethanjali Nataraj are researchers at the Observer Research Foundation, New Delhi.