India’s agricultural subsidies have come under scrutiny by World Trade Organization (WTO) members, who argue that India’s policies are distorting global trade. With the upcoming WTO ministerial conference in June, India faces mounting pressure to address concerns about its domestic support to the farm sector.
Agricultural Subsidies in India
- India has run several agricultural subsidy programs to support farmers and ensure food security. Major schemes include input subsidies for fertilizers, irrigation, electricity, credit, and crop insurance. There are also subsidies for procurement of cereals, minimum support prices (MSPs), and transportation and storage.
- As per OECD data, India’s producer support estimate (PSE) for agriculture increased from 15.5% in 2000 to 21.7% in 2019, higher than the developing country average of 15.1%.
- Critics argue that rising subsidies, especially for rice and wheat, are trade-distorting and affect global prices. Subsidized Indian exports also compete with produce from other developing countries.
Key WTO Concerns
- At the 2021 WTO committee on agriculture meeting, Canada, US, EU, Australia, Brazil, and others raised concerns about the high level of Indian subsidies and lack of transparency.
- As per WTO rules, developing countries like India are allowed more flexibilities, including subsidies for low-income and resource-poor farmers.
- But India has surpassed the allowed 10% cap of the value of production for product-specific domestic support in some years, particularly for rice in 2019-20.
- There are also questions on the criteria of India designating over 90% of its farmers as low income and resource poor to justify higher subsidies.
India’s Counterarguments
- Indian officials argue that subsidies are needed for supporting smallholder farms, food security, and rural livelihoods for its huge agrarian population.
- India states that its policies are in line with flexibilities allowed for developing countries and that product-specific caps have only been breached occasionally.
- India also asserts that it uses alternative policy instruments like MSP operations and subsidies within the acceptable limits that do not distort trade significantly.
- Furthermore, India demands greater equity and proportionality in agriculture rules as even far smaller subsidies by developing nations attract more scrutiny compared to the massive support provided by advanced economies.
Implications of Rising Pressures
- With growing pressures on agriculture subsidies, India faces tough negotiations on domestic support at upcoming WTO meetings.
- India risks attracting legal disputes and countervailing duties on subsidized exports if major changes are not introduced in subsidy policies.
- However, reducing subsidies also threatens the livelihoods of small and marginal farmers that depend on government support. It can also impact food inflation and security.
- Excessive subsidies need rationalization but an equitable balance is required between farmers’ interests and trade rules.
Key developments behind rising trade pressures
- Steadily rising subsidies over the past decade, especially for rice and wheat
- Expanding scope and coverage of input subsidies and MSP operations
- Breaching of permitted subsidy limits for specific products some years
- Lack of transparency in notifications and differentiation of support programs
India’s main counter arguments
- Flexibilities under special and differential treatment provisions
- Comparatively smaller distortions despite higher growth in subsidies
- Need to support smallholder farmers and agriculture sector
- Inequity when compared to massive subsidies by developed economies
Possible Implications and impact
- Litigation risks under WTO domestic support rules
- Countervailing duties on subsidized agricultural exports
- Threats to incomes and viability of smallholder farms
- Rise in food prices and inflation
- Burden on state finances and budgets
India faces escalating pressures from WTO members like the US, Canada, EU, and Australia to address concerns regarding its rising agriculture subsidies.
- While India justifies subsidies under developmental provisions, ongoing increases have attracted scrutiny for causing trade distortions.
- As talks progress for the 2024 WTO ministerial conference, India needs to walk the tightrope of balancing the interests of its farmers with global trade commitments.
- Achieving this equilibrium will have far-reaching implications on agricultural livelihoods, exports, and food security.