India foreign trade

India has made its stance clear that it will not easily give in to pressure from the Western world over trade protocols of the World Trade Organization.  India fears that agreeing to the trade facilitation agreement (TFA) could compromise its own food security.

            The TFA aims to fast track any movement of goods among countries by cutting down bureaucratic obligations. The problem with TFA runs in a clause that says farm subsidies cannot be more than 10 percent of the value of agricultural production. If the cap is breached, other members can challenge it and also go on to impose trade sanctions on the country.

            The developing countries would have a problem with the solutions offered by the developed countries as without the subsidies the food security of the developing nations could be seriously harmed. India agreed to the TFA only under the condition that temporary relief would be provided to the developing nations. It said no legal actions or sanctions would be imposed on the developing nations till 2017, by which time a solution would be worked out among the nations. However, this interim relief would not be appropriate if such subsidies would lead to trade distortions, by which one means, that prices of exports and imports cannot be affected by this.

            India is opposed because India's food security act, which is binding on the government by law, now, implies that the government will provide very cheap food to the most vulnerable part of the population at extremely low prices. Apart from providing subsidies to the consumers, through the public distribution system, it also provides subsidies to the producers of food grains. So it buys food grains from farmers at a minimum support price, and subsidies inputs like electricity and fertilizer.

            The first problem is with the 10% cap on subsidies, which will not be possible for India to achieve. Adding to the unfortunates is the fact that the 10% cap is calculated based on 1986-88 prices when the prices of food grains were much lower, so the cap has to be updated taking into account the present prices of food grain.

            The second problem is that even for providing subsidized food, India will have to open up its own stockpiling to international monitoring. It will not be able to add protein heavy grains like say, lentils, if it wants to, due to riders in the peace clause.

            Third, it might seem unfair to developing countries to not crack down on farm subsidies that the United States provides to its farmers to the tune of more than 20 billion per year. While the WTO is binding the developing countries to protocols, the issue of subsidies by developed giants like US seems to be off the table.

            India wants a permanent solution to the issue of public stock holding of food grains. China has supported India's stand on the ability to subsidies agricultural production and distribute it to the poor at low cost.

            WTO argues that if the developing countries continue to give prices to farmers, which are higher than the market prices, it might harm the poor farmers in other parts of the world. It also says the deal could add $1 trillion to global gross domestic product and 21 million jobs.