The Organisation for Economic Co-operation and Development (OECD) released a report titled Agricultural Policy Monitoring and Evaluation 2023. This report reveals how Indian farmers were implicitly taxed $169 billion in 2022. This piece will further delve into the key findings of this report, the impact of these findings on Indian farmers, the ramifications of India’s export policies in 2022, and the overall benefits or drawbacks farmers experience due to policy measures.
Key Findings of the OECD Report
The report highlights that in 2022, India’s negative Market Price Support (MPS) accounted for over 80% of all such taxes globally among 54 countries analysed by the OECD. The global total of implicit taxation for farmers across these nations was approximately $200 billion. Of this, the implicit tax on Indian farmers was a staggering $169 billion.
MPS is defined as the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers due to policy measures that create a price gap between domestic and international markets. It represents the measure of benefits or losses farmers experience when domestic prices deviate from world prices.
Offset Attempts and Their Shortcomings
Several emerging economies with negative MPS managed to offset this through budgetary support. In India’s case, however, different budgetary transfers to farmers, such as large subsidies for variable input use, including fertilizers, electricity, and irrigation water, and initiatives like the Pradhan Mantri Kisan Samman Nidhi, failed to offset the price-depressing effect of domestic marketing regulations and trade policy measures.
The Impact on Indian Farmers
While budgetary transfers constituted 11% of gross farm receipts, the negative MPS amounted to 27.5% for different commodities. This led to an overall negative net support of 15% of gross farm receipts, indicating a pressing issue for Indian farmers.
The Ramifications of India’s Export Policies in 2022
In response to the war in Ukraine and the 2022 heatwave, India introduced export bans, duties, and permits on numerous commodities. These policies intended to prevent fluctuations in domestic prices, but they also lowered farmers’ receipts.
Global Perspective and Potential for Distortion
According to the OECD report, across 54 countries, agricultural support averaged $851 billion annually during 2020-2022. This significant increase was due to responses to the Covid-19 pandemic, inflationary pressures, and the Ukraine war fallout.
International Disparities and India’s Initiatives Related to Farmers
Emerging economies had potentially more distorting policies, generating both positive support to producers (10% of gross farm receipts) and implicit taxation (6% of gross farm receipts) during 2020-2022. In contrast, OECD countries had lower levels of potentially distorting policies and did not implicitly tax producers.
About the Organization for Economic Co-operation and Development (OECD)
The OECD is an intergovernmental economic organization, established to stimulate economic progress and world trade. It was founded in 1961, and the most recent countries to join were Colombia in April 2020, and Costa Rica in May 2021. India is not a member, but a key economic partner.
