Does the $15 billion loan waiver for defaulting small and marginal Indian farmers amount to an agriculture subsidy? Will it jeopardise efforts of Indian trade negotiators at the WTO to have developed countries reduce their own farm subsidies to give Indian produce a fair chance in international markets? It is safe to assume that these are not questions that crossed finance minister P Chidambaram?s mind while announcing the programme as part of the Union Budget. But in the context of how vexed the issue of farm subsidies has become?it is one of two major Doha Round holdups?the country?s negotiators should prepare to make their case clear. And, waiver beneficiaries will be pleased to note, the case is quite defensible. Simply put, the loan waiver does not distort either production or trade patterns. It only offers relief to poor farmers who have been unable to pay back their farm loans. No other country, therefore, has reason to complain.
The WTO, however, operates by definitions and fine distinctions between different kinds of financial support given by governments to farmers. Trade principles necessitate the elimination of subsidies that give producers an unfair advantage?such as state-assured support prices and direct production subsidies, which distort trade by either raising output beyond natural levels or allowing profitable exports at artificially low prices, or both. These subsidies are in the WTO?s ?amber box?, and are allowed only up to 10% of a developing country?s total output value. Non-distorting subsidies, such as those on R&D, environment programmes, income insurance and safety nets, are in the ?green box? and are permissible under WTO rules. Direct payments to lower production, a policy some countries use just to ensure local farmers don?t abandon farming (just in case), are in the ?blue box?, and are okay too. India?s task is to argue with due conviction that the loan payoff is in the green box, and amounts to a safety device for farmers in distress, with negligible impact on trade markets for their produce. This should seem obvious, but trade subsidy regimes in many countries have become so convoluted?losing domestic food security is not a prospect widely relished?that suspicions are easily aroused. If foreign observers were acquainted with the actual state of despair millions of Indian farmers are in, they would see that their scepticism is misplaced.
