Recent discussions between the United States and India highlight the push for a comprehensive trade agreement. The US seeks to expand its agricultural exports to India, which remains market due to its large population reliant on farming. This agreement could reshape the agricultural landscape in India, a sector that is deeply intertwined with the livelihoods of millions.
About Bilateral Trade Agreements
A bilateral trade agreement involves two countries agreeing to reduce or eliminate tariffs on goods traded. The US aims for a ‘large’ and ‘grand’ agreement that covers various aspects beyond tariffs, including government procurement and patent laws. This comprehensive approach contrasts with India’s preference for sector-specific discussions.
The Importance of Agriculture
Agriculture in India is not merely an economic sector; it is a way of life for over 700 million people. The US sees India as a lucrative market for its agricultural exports, which amounted to $176 billion in 2024. The US views agriculture primarily as a trade issue, while India sees it as a livelihood concern.
Impact of Opening Agricultural Sector
Currently, India protects its agricultural sector with tariffs ranging from moderate to high. Opening this sector would involve reducing these tariffs, increasing competition from foreign imports. This could severely affect local farmers who rely on stable incomes from their produce.
Political Sensitivity of Agriculture
Agriculture is a politically sensitive issue in India. The influx of subsidised foreign imports could undermine local farmers’ incomes. Global corporations dominate food trade, and their entry could lead to predatory pricing, threatening the livelihoods of millions.
Tariff Structures and Import Duties
India imposes tariffs on agricultural imports that range from zero to 150 percent. The US also has high tariffs on specific goods. These tariffs are crucial for protecting India’s agricultural sector from international competition.
US Agricultural Exports to India
In 2024, US agricultural exports to India were valued at $1.6 billion. Key products included almonds, pistachios, and ethanol. The US government provides substantial subsidies to its farmers, which can distort market dynamics if India opens its agricultural sector.
Non-Tariff Barriers in Agricultural Trade
Tariffs are not the only barriers to agricultural trade. Non-tariff barriers, such as stringent sanitary and phytosanitary regulations, also impact market access. These regulations can complicate compliance for Indian exporters, limiting their ability to compete.
WTO Regulations on Sensitive Sectors
Under WTO rules, countries can protect sensitive sectors linked to food security and employment. India’s agricultural tariffs comply with these commitments, allowing it to maintain protections for its farmers and rural economy.
India’s Agricultural Exports
In the fiscal year 2024, India exported $45.7 billion worth of agricultural products, with $5 billion directed to the US. This marks India’s role as player in global agricultural trade.
Questions for UPSC:
- Critically discuss the implications of a bilateral trade agreement on India’s agricultural sector.
- Examine the role of subsidies in shaping agricultural trade between developed and developing countries.
- Analyse the impact of non-tariff barriers on India’s agricultural exports to the United States.
- Point out the significance of the World Trade Organization’s guidelines for protecting sensitive agricultural sectors.
Answer Hints:
1. Critically discuss the implications of a bilateral trade agreement on India’s agricultural sector.
- Potential reduction or elimination of tariffs may expose Indian farmers to foreign competition.
- Increased imports could lead to lower prices for agricultural products, affecting farmer incomes.
- Foreign corporations might dominate the market, leading to predatory pricing strategies.
- Negotiations may include provisions that conflict with India’s agricultural policies and subsidies.
- Impact on food security and rural employment, given the sector’s importance to livelihoods.
2. Examine the role of subsidies in shaping agricultural trade between developed and developing countries.
- Developed countries, like the US, provide subsidies, distorting market prices and competition.
- Subsidies can lead to excess production, creating trade surpluses that flood developing markets.
- Developing countries often lack the financial capacity to subsidize their agricultural sectors similarly.
- Subsidized exports from developed nations can undermine local farmers in developing countries.
- Trade negotiations often revolve around addressing these imbalances in subsidy practices.
3. Analyse the impact of non-tariff barriers on India’s agricultural exports to the United States.
- Non-tariff barriers, such as stringent sanitary and phytosanitary regulations, complicate market access.
- Compliance with Maximum Residue Limits (MRLs) can be challenging for Indian exporters.
- These barriers can act as hidden costs, making Indian products less competitive in the US market.
- Non-tariff barriers may lead to delays and increased costs for exporters, affecting trade volume.
- About and navigating these regulations is crucial for enhancing export opportunities.
4. Point out the significance of the World Trade Organization’s guidelines for protecting sensitive agricultural sectors.
- WTO rules allow countries to designate certain agricultural sectors as sensitive for protection.
- These protections are vital for maintaining food security and rural employment in developing countries.
- India’s agricultural tariffs are compliant with WTO commitments, safeguarding its farmers.
- WTO guidelines help balance trade liberalization with the need for domestic agricultural support.
- They provide a framework for negotiating trade agreements while protecting vulnerable sectors.
