Stand firm on farm subsidies

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SummaryThe alarm over India expanding subsidies to accommodate food security is unfounded

In the run-up to the WTO ministerial meeting at Bali on December 3-4, the G33 developing countries, led by India, have sought ‘flexibility to continue helping poor farmers through support prices without a limit on subsidy’. The US promptly rejected it on the grounds that this will be tantamount to altering the rules of the game. Pascal Lamy, former WTO director general, promptly echoed the US stance.

However, the rejection is without basis. Under the Agreement on Agriculture (AoA) 1995, support to poor farmers was excluded from the calculation of the aggregate measurement of support (AMS) and the decisions regarding subsidy reduction commitments with reference to the 1986-94 Uruguay Round. The reason for this exclusion was that support to poor farmers doesn’t have any trade-distorting effect while WTO discipline targets only those forms of support which do (‘amber box’ subsidies).

Farmers in developing countries are preponderantly resource-poor small and marginal ones. In India, these two classes of farmers account for 85%, or 117 million of a total of 138 million, farm households. A majority of them are subsistence-farmers producing food for household consumption. Their produce doesn’t even enter the supply chain. Others with marketable surpluses are barely able to make a living off selling produce.

Clearly, there is no question of such farmers causing any trade distortion. This fundamental reality was recognised during the Uruguay Round and was duly embedded in the AoA. All the more significant is the substantial increase in their number—it rose by 25 million households between 1995 and 2010.

So, far from rewriting the rules, what the G33 countries are doing is asking for the continuation of a policy that was already in place. It is important that they do not allow themselves to be bulldozed by the developed countries.

The subsidy implications of the Food Security Act (FSA)—R6.8 lakh crores in 3 years as per the CACP— seem to have generated a bit of a scare among Indian policymakers. They feel this could invite action under WTO rules. This apprehension, too, is without basis.

Under the FSA, the government ‘guarantees’—as a matter of fundamental right of an individual— supply of 5 kg of cereals per person per month, rice at R3 per kg, wheat at R2 per kg and coarse cereals at R1 per kg, to 67% of the population (50% in urban areas and 75% rural areas).

By mandating sale of foodgrains under the PDS policy/FSA at prices below the

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