Reconsider Farm Safeguard Focus, India’s Chief Economist Urges

3 March 2016

India should reconsider its negotiating focus on a “special safeguard mechanism” at the WTO, says a wide-ranging new report led by the government’s chief economic advisor, Arvind Subramanian.

The Economic Survey, launched last week in New Delhi ahead of the government’s budget announcement, warns that India’s tough trade stance on the issue at the WTO could lead to the country being sidelined as other major economies pursue closer integration through preferential deals instead.

“Do we want to be inside, shaping these agreements, or do we want to be outside?” Subramanian asked at a press conference last Friday.

India must revisit its approach at the global trade body “if the WTO is not to be consigned to irrelevance,” the report says, which highlights how India could be affected by the new Trans-Pacific Partnership (TPP) in particular.

The 12-country TPP was signed earlier this month in Auckland, New Zealand, with participating countries now focusing on their ratification processes.

SSM needed?

The Economic Survey says it is “not very clear” why Indian officials have prioritised a new “special safeguard mechanism” that would allow developing countries temporarily to raise tariffs on farm goods in the event of a sudden surge in import volumes or a price depression.

The report suggests that the safeguard – dubbed the “SSM” by negotiators – may be largely redundant, given the significant gap that already exists between India’s actual applied tariff rates on most farm goods and the higher ceiling which the government has agreed not to exceed in its WTO commitments.

Only four percent of India’s applied tariff lines are set at levels that are close to the maximum permitted “bound rate,” the survey says.

“India’s only real need for SSM arises in relation to a small fraction of its tariff lines - some milk and dairy products, some fruits, and raw hides,” it concludes.

Reciprocal concessions needed

In comments to Bridges, Indian farmer Ajay Vir Jakhar agreed that tariffs on low-value imports like wheat and rice were not the main worry for them.

"We are more concerned about high value imports like fruits and vegetables, almonds, spices, milk, saffron, and chicken," said Jakhar, who works with the farmers’ organisation Bharat Krishak Samaj.

The Economic Survey said that India needs to overcome its “reluctance” to make reciprocal concessions in WTO talks, by taking a more pragmatic approach to negotiations.

“Lofty theologising about freedom and sovereignty needs to cede to mundane haggling over hides and hibiscuses,” says the report, which argues that countries such as India and China need to be willing to undertake greater commitments so as to help revitalise talks at the global trade body.

Subsidy reform: fertilisers

Subramanian told the press conference that subsidies for products such as fertilisers should be reformed so that wealthy firms and individuals do not capture the lion’s share of benefits.

A “huge” black market for urea meant the current policy “actually ends up hurting the small farmer,” Subramanian said. Only 35 percent of the total urea subsidy reaches these producers, with inefficient firms, diversion overseas, and large producers making up the rest.

On average, small farmers also paid 50 percent more than the administered price, he said.

“We're telling the government to start giving fertiliser subsidies directly to farmers provided the fine print is proper,” Jakhar told Bridges.

Many of India’s farmers have been hard hit by two successive years of failed monsoons and poor rainfall, prompting the government to highlight support to agriculture in its budget on Monday. The Economic Survey notes that as many as 195 million people in India are undernourished, many of whom live in rural areas and rely on farming.

More freedom to support farmers?

In addition to reforming fertiliser subsidies, the report suggests that India’s WTO negotiators “could consider offering reduction in its very high tariff bindings and instead seek more freedom to provide higher levels of domestic support.”

“The costs of reluctant engagement need careful review,” argues the Survey.

It emphasises that WTO rules do not restrict India’s ability to provide direct income support to farmers and crop insurance – which the authors say the government seeks to move towards as an alternative to other types of farm support that have been linked to environmental degradation, health hazards, and waste.

“The farmers need to be able to pick and choose what to produce,” said Jakhar, who noted that the government was “moving in the right direction.”

TPP: a cost/benefit analysis?

New regional and bilateral deals that have excluded India in recent years, such as the Trans-Pacific Partnership, “do not take into account India’s important interests,” the report says

Rules on intellectual property are a good example, it adds.

However, Subramanian emphasised that there would also be costs associated with India remaining largely outside the emerging web of preferential agreements.

“Exporting into these markets will be much more difficult,” he said, noting that the government would need an “economic cost/benefit analysis” of membership in the new free trade agreements.

While India is not currently a TPP member, it is involved in negotiations with 15 other Asia-Pacific countries for a Regional Comprehensive Economic Partnership (RCEP), with the group aiming to conclude a deal this year.

Among other initiatives, India is also involved in trade talks with the European Union, though those talks have floundered in recent years.

“Targeted assistance” needed

India must be ready to provide “a cushion” to help address what the survey says are the “transitory costs” of trade liberalisation.

“Greater trade opening will increase the size of the pie but it must be combined with assistance in the transition phase to make everyone better off,” says the report.

Recent economic developments means that the country now has an opportunity to “collectively self-interrogate on the national near-consensus,” it says, noting that India’s “fundamental position on trade” was shared by a wide range of intellectual opinion.

On Friday, Subramanian acknowledged that the report might “tread on many toes” – although he argued that failing to have done so would mean that he and his team had “actually not done a good job.”

ICTSD reporting.

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