India-US WTO deal: Behind tough talk, balancing at home

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New Delhi | Published: November 14, 2014 8:02:14 AM

By getting the US to agree to a “permanent solution” addressing India’s concerns over farm subsidies...

Minister of State for Commerce and Industry (Independent Charge) Nirmala Sitharaman speaking over the WTO accord in New Delhi on Thursday. (PTI)Minister of State for Commerce and Industry (Independent Charge) Nirmala Sitharaman speaking over the WTO accord in New Delhi on Thursday. (PTI)

By getting the US to agree to a “permanent solution” addressing India’s concerns over farm subsidies and public procurement linked to food security, the government has effectively rebuffed critics who claimed that its rigid stance had left the country isolated at the World Trade Organization (WTO).

But behind this tough exterior posturing — which has seemingly paid off, with the US and India reaching an understanding that the latter’s food security programmes should not be challenged at the WTO “until a permanent solution… has been agreed and adopted” — is also some pragmatic internal rebalancing of policy.

To begin with, the new government has been more conservative in fixing the minimum support price (MSP) for crops. The MSPs for both paddy and wheat this year have been raised by a mere Rs 50 per quintal. The average annual increase during the previous UPA regime’s tenure from 2004-05 to 2013-14 was Rs 76 per quintal for paddy and Rs 77 for wheat.

More radical, however, are two other measures.

The first is a crackdown on the practice of states declaring bonuses over and above the Centre’s MSPs. In 2013-14, Madhya Pradesh and Rajasthan offered Rs 150 to wheat farmers on top of the MSP of Rs 1,400 per quintal. Similarly, for paddy, Chhattisgarh and Kerala gave bonuses of Rs 300 and 490 respectively in addition to the MSP of Rs 1,310 per quintal.

But in June, the Union food ministry issued a communication that in the event of states paying bonuses to farmers, procurement for the Central pool would be limited only to the extent of the concerned state’s grain requirement for its public distribution system and other welfare schemes.

Any surplus grain that was procured would have to be disposed of by the state government, which would also be required to “bear the financial burden in that regard”.

The directive has resulted in Chhattisgarh — where procurement has jumped six-fold since 2000-01 — capping official paddy purchases in the new 2014-15 marketing season at 10 quintals per acre, as against the earlier average of 15-20 quintals.

The second big reform step has been to limit the levy on rice mills to a maximum of 25 per cent of production. Till last year, states like Andhra Pradesh were fixing this mandatory quota — which mills have to deliver to the Food Corporation of India or state agencies — at as high as 75 per cent. “The three moves — lower MSP increases, restraints on state-level bonuses and limits on levy — will help us reduce procurement and stockholding beyond the required minimum buffer-cum-strategic reserve requirements,” said a food ministry official. As on October 1, total grain stocks in the Central pool were over 49 million tonnes against the necessary 21.2 MT for that date.

While the official refused to quantify, Tejinder Narang, a New Delhi-based independent grains analyst, estimated rice procurement for the Central pool in the current season to be at least 7-8 MT below the 32 MT of 2013-14.

“It appears that this government’s policy on food security is different from its predecessor’s. Earlier, food security was being defined in terms of physical grain delivery, whereas now it could mean targeted income support to both farmers and consumers, which is also WTO-compliant. There will be more reliance, then, on direct benefit transfers than the public grain stockholding route,” he said.

It is another thing, though, that this seemingly unstated policy is different from the language being spoken at the WTO.

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