Unfairly vilified at WTO
Abstract:
Complexity of World Trade Organisation (WTO) agreements has meant that much of the commentary on the recent decision by the Narendra Modi government against ratifying the Bali package has been marred by confusion. Officials from most countries and commentators from around the world, including many from India, have nearly uniformly criticised the government for blocking a deal that had taken 12 long years to negotiate. The government and its handful of defenders have argued the contrary, but mostly unconvincingly.
Who is right? Contrary to the vast majority of analysts who have uncritically accepted the usual developed country accusation that India has played its conventional role of an obstructionist and a spoiler in the negotiations, the answer is more nuanced and equivocal.
The problem India confronts is that the food procurement component of its food security programme violates its WTO obligations. Contrary to common impression the public distribution system (PDS) component, which provides foodgrain at subsidised prices to households, is WTO legal and is not an issue.
Under its WTO obligations, the value of subsidy India provides farmers on any agricultural product must be limited to 10% of the total value of the output of the product at the market price. Under the system of Minimum Support Price (MSP), the hugely flawed but WTO mandated methodology requires that per unit subsidy be measured by the difference between MSP and the average price of the product that prevailed between 1986 and 1988. Now even though MSP in India is only marginally above the market price, because the latter is substantially above the average price during 1986-88 the measured subsidy bill ends up violating the 10% ceiling.