Indias current agriculture policy is not sustainable given the need to rein in public expenditures and check the governments fiscal deficit. Even if Indias farm subsidy gets permanent exemption from WTO subsidy rules, Indias farm sector problems will be far from over. It is interesting to note that the WTOs agreement does not prohibit India or any other developing country from providing subsidized food to its poor. However, it does put a cap on input subsidies -- government help that reduces the cost of goods and services that a farmer needs to pay for -- at 10% of the value of production. It also curtails the ability of a WTO member to lift the minimum prices for which agricultural products are sold. Both forms of assistance are commonly used in India, where the government has been trying to boost agricultural production even further since the enactment of the Food Security Act in September 2013. The act promises subsidized food to two-thirds of its population and requires increased stockpiling by the government. The Bali WTO ministerial conference last year brokered a compromise formula in recognition of Indias concerns, allowing members an extra four years before they will need to comply with farm subsidy rules. It also promised to allow countries with excessive food inflation to continue subsidizing food purchases. Leaving aside the reputational cost of backtracking from a major trade agreement, the countrys refusal to change its agricultural policy will continue to hurt rather than help its poor. The Food Security Act will also reduce the supply of food items available to the open market, sending prices even higher.The procurement prices that the Food Corporation of India pays for the nations stockpile of grain, for example, are often at least 50% higher than the minimum support prices paid to the farmers because of state taxes. So Indias food subsidies are too entrenched even for the reform-minded Modi.
Posted on: Tue, 11 Nov 2014 16:45:20 +0000
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