Going by newspaper reports, India is using the G-33 platform to try and push a proposal at the 11th WTO ministerial in December to remove public stockholding operations—conducted in India by FCI—from the Aggregate Measure of Support (AMS) calculated for farm produce. A joint paper by India and China, according to The Hindu BusinessLine, puts OECD farm subsidies at $160 billion. The reason why OECD countries are able to get away with much higher subsidies—9.5% of the output price in the US, 19.6% for the EU and 59.7% in Norway according to ongoing Icrier research—as compared to the 5% of crop value that is allowed for developed countries is the subterfuge called the ‘green box’. This allows unlimited subsidies as long as they don’t distort trade—so the trick is to move as much of government support as possible into the ‘green box’. The US, for instance, offers its farmers income support through insurance—if prices differ from a reference price by more than a certain amount, insurance firms make good the difference; the insurance premium is paid for by the US government and is considered ‘green box’.
If you go by India’s latest submission to the WTO for FY14, its total support was $57 billion, but just $15.9 billion of this was AMS—given the output of $350 billion in that year, the AMS is 4.5% or less than half what is legally allowed. But this presumes the WTO will accept India’s $14.8 billion of food-stocking costs as ‘green box’ or $22.8 billion of subsidies to low-income farmers as ‘special and differential treatment’ that is also not included in AMS. This is what the China alliance is about. While the move will be worth it if it succeeds, there is the danger that it won’t—even if you ignore the OECD protests, Pakistan has already distanced itself from this. If the move doesn’t work, India can get bracketed with a China whose support levels are as high as 14.9% according to Icrier calculations.
The larger point the government should keep in mind is that FCI-style food-stocking distorts India’s domestic agriculture, benefits just 5-6% of farmers and, because of FCI’s huge inefficiencies, raises wheat/rice prices considerably. The current scheme of subsidies also encourages over-use of water/electricity/fertiliser which, as in the case of Punjab, has hurt the soil and dragged the state into low-productivity agriculture. If India’s agriculture has to grow, and small farmers to benefit, it needs to move to cash-transfers instead of subsidies and free-markets instead of guaranteed procurement. Which is why, it makes little sense for the country to be aligning with China in order to fight what is likely to be a losing battle with OECD. India’s energy is better spent on building coalitions that are in its genuine interest.