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Friday, 08 August 2014 00:43
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WTO allows for taking inflation into account

While the government has said it will actively discuss India’s concerns on food security with fellow WTO members and hope to get them to come around, the points India makes will be critical. Indeed, it is India’s failure to articulate its position, to even negotiate the flexibility the current WTO formulation offers, that has ensured things have come to this pass. For one, India never informed the WTO of its aggregate measure of support (AMS) for the period after FY04; indeed, the government has not made this number public even today. Two, it notified the AMS in terms of dollars instead of rupees, which experts argue has hurt India’s ability to take into account the dramatic increase in inflation levels—this, in turn, was the main reason for the hike in Minimum Support Prices—over the last two decades. None of this negates the position argued by this newspaper on many occasions, namely that were India to move to direct cash transfers, even the current WTO subsidy limits will not be breached. Indeed, India’s poor farmers would benefit since the current subsidies are offered to just better-off farmers in a handful of states where FCI procures wheat and rice.

Two experts at ICRIER, Anwarul Hoda and Ashok Gulati—the first a WTO-expert and the latter an agriculture one—have argued the stance the Indian delegation needs to take, beginning with giving out annual AMS information, a legal requirement under the WTO. As for the non-product-specific subsidies, these are well below the WTO limit, more so if you take into account the flexibility given to exclude low-income or resource-poor farmers—they estimate this at 0.9-1.5% of the value of total agriculture output. The bone of contention is the MSP- or product-specific subsidies. According to Hoda-Gulati, Article 18.4 of the WTO agreement allows for giving ‘due consideration’ to the excessive rates of inflation. Once this is done, they calculate the AMS for rice at -2.9% of the value of production in 2010-11—if, however, you don’t take this into account, the AMS goes up to a whopping 26%, or 2.6 times what the WTO allows. Given that the unofficial position is that India is near breaching the WTO norms, it is obvious the government has not tried to use this inflation-adjustment window. It is, of course, not clear how the government arrives at its number since, going by Hoda-Gulati, the unadjusted rice AMS is 26% and that for wheat 17.9%. Nor, it appears, has the government got clarity on whether the AMS applies to all the wheat/rice produced or just to the amount procured—naturally, this distorts the AMS calculation even further.

While not wanting to give away a negotiating position is a good strategy, it is difficult to understand why these obvious interpretational issues have not been fully explored all this while. It is important government negotiators take into account arguments of the sort made by the ICRIER experts.

Last Updated ( Friday, 08 August 2014 14:42 )

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