Why is it in the News?

The government might find it challenging to meet the protesting farmers' demand for a legal guarantee of (MSP) due to India's farm subsidies being scrutinised at the (WTO), especially with criticism from a group of 19 influential agricultural exporting countries.

Background:

• After independence, our country struggled to produce enough food for its large population as the agriculture sector was in a poor state.
• To address this challenge, we either had to import grains, which incurred significant costs, or rely on aid from other nations.
• In 1960, the government took steps toward self-sufficiency. They introduced high-yielding seeds, promoted the use of fertilisers, and improved agricultural machinery.
• At the same time, the government supported rice and wheat cultivation by offering farmers a Minimum Support Price (MSP).
  • This ensures that farmers receive a fair price; if they can't sell their crops for a better price in the market, the government will buy them at a favourable rate.
• However, there's currently tension between India and the WTO regarding these subsidies.

Green Revolution

• The Green Revolution, initiated in the 1960s, aimed to enhance agricultural productivity and bolster the nation's economy.
• India embraced technological and industrial advancements in agriculture during this era.
• This included the adoption of high-yield seeds, modern farming equipment, irrigation systems, pesticides, and fertilisers to transform the agricultural landscape.
• The green revolution helped India move from a state of importing grains to a state of self-sufficiency.

Causes of Tensions Between India and the WTO:

• India's actions in this realm have stirred discontent among other nations, who perceive India's practices as unfair trade manoeuvres.
  • The government's practice of procuring crops from farmers at low prices and subsequently exporting them at reduced rates to global markets has drawn criticism.
• Developed countries have lodged complaints, alleging multiple instances of India breaching WTO regulations by providing subsidies amounting to 60-70% of the total crop value.
• While the WTO permits governments to offer subsidies to farmers, it imposes restrictions, allowing developed countries to provide up to 5% and developing countries up to 10% of the total value in subsidies.

What are the WTO Regulations on Farm Subsidies?

• The WTO regulations on farm subsidies aim to promote fair competition and prevent global trade distortion.
• These regulations establish limits on the types and levels of subsidies that member countries can offer to their agricultural sectors.
• Levels of Subsidies:

Green Box:

• These subsidies have minimal impact on trade distortion.
• They are not specific to particular products and are generally permissible under WTO rules.
• Examples include funding for research, environmental conservation, and direct income support for farmers facing challenges such as crop loss or natural disasters.

Amber Box:

• These subsidies promote excessive production and distort international trade.
• Examples include input subsidies like those for seeds, fertilisers, and Minimum Support Price (MSP).
• WTO restricts these subsidies, capping them at 5% for developed countries and 10% for developing countries.

Blue Box:

• These subsidies, akin to Amber Box subsidies, aim to limit production.
• Currently, only a few countries, such as Norway and Iceland, utilise these subsidies.
• The WTO does not impose any limits on these subsidies.

Why India's Agricultural Subsidy Programs Encounter Challenges in the WTO?

• India's agricultural subsidies face hurdles at the WTO due to the organisation's rules, which do not consider subsidies on a per-farmer basis, disadvantageous to developing countries like India.
  • For instance, although India's per-farmer subsidy is significantly lower compared to countries like the US, the WTO regulations focus on total subsidy amounts.
• In 2019-20, India's subsidies exceeded the 10% limit relative to its total rice production, despite the per-farmer subsidy being relatively modest at $300 compared to the US's $40,000 per farmer.
• While India is safeguarded by the 'Peace Clause' established during the WTO's Bali ministerial in 2013, certain ambiguities in the clause leave India vulnerable to disputes.
• Consequently, new schemes must adhere to the 10% subsidy ceiling, foregoing protection under the 'Peace Clause'.

Criticism of India’s Agricultural Subsidies by Influential Agricultural Exporting Countries:

• The Cairns Group, which includes countries like Australia, Brazil, and Canada, has raised concerns about the level of subsidisation in India’s public stockholding (PSH) program.
• They argue that India's agricultural support measures are significantly subsidised, leading to distortions in global food prices and negatively impacting food security in other nations.
• Last year, the group circulated a comprehensive proposal aimed at reducing trade-distorting agricultural support among WTO members, advocating for a halving of the total global entitlement/subsidies.
• This proposal sparked tensions among developing nations, with India among those affected.
• Essentially, the Cairns Group is advocating for India to either dismantle or scale back its Minimum Support Price (MSP) scheme, prompting India to seek stronger legal protection for its MSP program.

Upcoming Challenges for the Government of India:

• In pursuit of greater flexibility in providing agricultural support, India is actively advocating for a permanent solution at the forthcoming inter-ministerial summit in Abu Dhabi.
• However, the entrenched impasse on politically sensitive issues between developed and developing nations makes resolution unlikely.
• Farmers' groups in India advocate for removing agriculture from the purview of the WTO, but this approach could present challenges and hinder India and other developing nations from regulating subsidies provided by developed countries.
• The government faces a dilemma, as it grapples with peer pressure at the WTO while simultaneously facing demands for Minimum Support Price (MSP) from farmers.
• The call for better MSP support isn't limited to Punjab farmers; farmers across the nation are seeking similar assurances.
• Furthermore, if farmers in Punjab and Haryana shift away from agriculture, it could pose a threat to the country's food security.

Way Forward

• While India currently avoids disputes on the subsidy matter at the WTO due to the non-functionality of the Dispute Settlement Body (DSB), member countries will continue to scrutinise India's adherence to subsidy limits.
• As a result, India must advocate not only for adjustments to the formula used to calculate the food subsidy cap within the WTO but also for the inclusion of programs implemented after 2013 under the protection of the 'Peace Clause'.