Domestic compulsions forced India's WTO veto.
The current impasse, in which New Delhi stands isolated globally, is because it has backtracked on the terms previously agreed by the then United Progressive Alliance government at a ministerial conference in the Indonesian resort island of Bali last December. But now India wants agricultural policies to be permanently excluded from multilateral scrutiny so that it can have the flexibility to provide whatever subsidies it deems fit to its farmers and implement its ambitious National Food Security Act (NFSA).
Those keen to project India as the villain for putting the very future of WTO at risk must understand that the newly appointed Narendra Modi government is legally bound to enact the food programme -- the world's largest. It is targeted at nearly 850 million people, and is estimated to cost $12 billion(Dh44 billion) a year. Also for a government that has been democratically elected, it would be politically disastrous to falter at a programme that affects such a large number of its voters for a multilateral trade agreement which, naturally, has limited understanding within its domestic constituency.
To successfully execute NFSA, the government would need to procure and store huge quantities of grain. Such procurement will necessitate paying increased minimum support prices (MSPs) to incentivise farmers to sell their produce to the government and not in the open market. This will amount to foreseeable, increased production subsidies. Most developed countries, and several key developing countries, oppose such subsidies once they breach a certain threshold. But the Indian government has few choices, legally, politically, and morally. As a democratically elected government, it cannot refuse to feed the hungry.
In addition to the NFSA, the BJP has made an electoral promise whereby it has also committed to ensure that farmers receive a 50 per cent profit on their crop. The commitment has been reiterated in recent briefings, so it is fairly certain that the government will pay farmers generous procurement prices. The country's insistence to change the method of calculating the legally permissible subsidy is justified. Presently, prices are based on indices from nearly two decades ago, which cannot be acceptable especially since agricultural products globally have witnessed a phenomenal rise in prices since 2007. Present WTO rules will allow governments to buy food directly from farmers at a price that is no more than 10 per cent over the total cost of production. There is no way to keep the domestic commitments of the NFSA and give farmers 50 per cent profits, without exceeding the WTO's 10 per cent limit.
Blow to trading system
NFSA, though, is undoubtedly a badly designed, poorly targeted programme. However, it cannot be a justification for the Indian government to surrender its rights at a global forum. It must retain this policy option and not wither it away in any multilateral forum. Even if India modernises its food security programme, it still might falter when it comes to complying with the treaty obligation if the reference prices are not updated, considering that the vast majority of its people need government subsidy on basic food items.
It is true that India's stand will have far reaching ramifications as the world missed its planned deadline of July 31, 2014 to ink the historic agreement. This will not only affect the country, but the entire multilateral trading system embodied by the WTO. It deals a severe blow to the WTO's future, already questionable after years of stalled negotiations. Under the world body's rules, a consensus among all 160 members is necessary: in effect that means every member has a right to a veto. The deal at Bali breathed new life into the WTO, which had been losing its relevance.
In fairness, India did not object to implementing two of the three major issues of the Bali declaration agreement -- along with TFA, an agreement to negotiate a permanent solution for food subsidies and stocking of food grains to be negotiated by 2017; and an action plan for the least developed countries.
However, for countries that are very keen to tap India's growing market, projecting it as a villain is not only unfair, but smacks of a demeaning attitude of developed nations towards the developing ones.
In truth, India scored a self goal, as it is a trade diplomacy failure that the Modi government could have certainly done without, especially when enhancement of trade had been a major political pitch for India's right wing party in its march to power. The negotiators, countering the world forces of trade, had cornered themselves too early in the negotiations, leading to a situation wherein blaming India for the failure to implement the TFA became an easy bailout for many who were still unsure of the Bali agreements. The fact that the BJP, then in opposition, was critical of the Bali deal might have conditioned the present negotiators.
The consequences are far reaching for the country, especially when it is dependent on foreign investment and trade to get its economy right. Global investor confidence could further nose dive as there is a perception that India fails to keep its global commitment with the change of political guard at the centre.
As major trading countries are scrambling to cobble up bilateral and multilateral deals, which of course India won't be a part off, this will certainly affect the economy that is already teetering due to a global slowdown. Furthermore, the government's rural commitment comes at huge cost to entrepreneurs.
But the Modi-led government is keen to take this global risk to minimise its political risk ahead of state elections this year. Any electoral loss this year, especially in states like Maharashtra and Haryana, where it is directly pitted against the Congress party, will be seen as a rejection of the Modi brand of politics. That is a projection that BJP can ill afford.
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