At the outset, since this newspaper was one of those that accused the government of brinkmanship...
At the outset, since this newspaper was one of those that accused the government of brinkmanship at the WTO, an apology: instead of derailing the WTO talks, playing hardball helped with the US coming around to India’s point of view. The victory is important since, apart from increasing India’s stature in the world, it shows most global players will play ball as long as they feel there are business opportunities to be grabbed; just the single act of clearing Rs 100,000 crore of defence projects demonstrated the opportunities for global investors with a new government in place. Indeed, that is the reason why, despite defence-FDI being limited to just 49%, there is a lot more foreign interest in the sector.
That said, there were several reasons for FE’s position despite the fact that, even on the face of things, the WTO rules were arbitrary and biased – despite huge inflation in agriculture prices over the past few decades, the reference price for calculating subsidies remained at 1986-88 levels. First, FE argued that India could, as other countries had, take into account foodgrains inflation and, once this was done, still find its agriculture support to be within the WTO limits. Indeed, when the government did notify its agriculture subsidies to the WTO, it put the bulk of subsidies under what the WTO recognises as non-trade-distortionary boxes since they were given to ‘low-income or resource poor producers’, suggesting the brouhaha was uncalled for. Two, while the MSP-based policy was at the heart of the WTO controversy, FE argued this was also against India’s interests – to that extent, complying with WTO norms would help India push its own agriculture reforms. If, for instance, direct cash transfers were given to the poor, this would cost just around Rs 45,000 a year as compared to around three times that using the FCI system; high MSPs also ensured FCI had too much foodgrains, a large part of which cannot even be stored. Indeed, the money saved from using MSPs could be used to give farmers an income regardless of the crops they grew. Not only would this incomes policy be WTO-compatible – that’s why US/EU farm support does not attract WTO sanctions – this would take away the excessive focus on wheat and rice and ensure farmers diversified to crops like fruits and vegetables in most states, and to wheat and rice in water-rich states like Bihar and West Bengal which are more suited for this but don’t get enough farm support.
To be fair, the government has already moved on some of these issues. The bonuses over the MSP given by BJP-ruled states like Madhya Pradesh and Chhattisgarh have been tackled with the government saying it would limit procurement in these states – Chhattisgarh has already announced it will be limiting purchases. A committee has been set up on restructuring FCI, though it is unclear how restructuring FCI will help unless there is a fundamental rethink in India’s farm policy which also means ending the unlimited procurement system in states like Punjab and Haryana.