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Friday, 29 November 2013 01:16
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Like it or not, India’s interests lie with the WTO

Though even BJP leader Arun Jaitley has supported the government’s plan to find a more permanent solution to the WTO directive to cap agricultural subsidies at 10% of total agriculture output, the larger point that needs to be kept in mind is that not only is multilateralism in India’s interest—the US, for instance, has generally been in favour of bilateral trade pacts—many of the suggestions being made will help the economy become more efficient. There are obviously unfair caveats that need addressing in each negotiation, and India got a much better patent law, for instance, only after some pretty hard negotiations, but the net result was a patent law that has benefited India and not the disaster that protesters envisaged with their anti-Dunkel demonstrations in the 1990s—indeed, India’s pharmaceuticals industry is today trying to benefit from the very product patents the government was at one time opposing.

One of the key areas of freedom Indian negotiators want to retain is the one that allows government agencies to buy grain from farmers, like FCI does today, and then feel free to release it for exports at a lower price. While India considers this an essential part of giving poor farmers income support, developed countries see this as distorting export markets. But this is precisely the point economists have been making for years, that by FCI procuring too much, local markets are being distorted since FCI displaces private traders, and stocking more than double or even treble the amount needed just adds to government costs. If, on the other hand, there was less FCI procurement, more efficient private firms would buy up the grain and could export it without the need for any subsidy—the subsidy is just given to negate FCI’s inefficiency. In which case, this WTO compulsion is actually good news for India.

And while it is true India must use Article 18.4 to take into account the higher rates of inflation it has versus other countries—if India is allowed this, the amount of subsidy it can give rises as the current 10% calculations are based on 1986-88 prices—there are other concerns that suggest a cap is in India’s interests. With the water table falling precipitously in the grain bowl, urgent diversification is needed into states like West Bengal and Bihar—but given FCI’s procurement here is almost negligible, direct cash transfers to farmers, much like those given in the US and the EU, are the only way out. While negotiating to get flexibility is a good idea, the government mustn’t lose sight of the final goal—an efficient Indian economy. Indeed, there is nothing that prevents income support under the WTO, it is just crop-specific distortions that are under attack.

In the case of trade facilitation or government procurement for that matter—though the latter is not under discussion at Bali—India’s interests have to lie in greater transparency and reduction in transaction costs. The bottom line at Bali is that nothing will hurt India more than the demise of the multilateral process since the deals available under this are always more equitable than those under bilateral trade pacts.


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