Commerce minister Anand Sharma (centre) at Nusa Dua in Bali on Saturday. (Reuters)
New Delhi, Dec. 8: The WTO deal, signed in Bali and hailed by India and the world as a breakthrough, could be the beginning of a series of bitter trade negotiations.
The real battle will be to protect Indian and Third World labour-intensive farms from highly subsidised, large-scale agriculture of the West.
The peace clause signed in Bali on Friday allows a temporary reprieve to India’s food security bill even as it calls on the global community to continue negotiations for a more permanent solution to the question of farm subsidies.
More or less, there is a consensus on a subsidy cap of 10 per cent of the value of farm produce in a country. The prices prevalent in 1986-87 are used as a base to calculate this cap.
Indian negotiators want this base year to be changed to reflect the real situation so that the country’s subsidy levels can remain unchallenged. India has already breached this cap for paddy.
Officials argue that the reprieve has to be given a permanent shape because both the food security bill and the foreign exchange security of the country are at stake.
For the developed West, the 10 per cent cap is sufficient because the money is spent on a small number of farmers. In the US, there are just 3 million people working on farms and the produce is worth around $200 billion. The subsidy paid out to them is $20 billion, or about $6,666 per farm worker.
In the European Union, a mere 10 million people work on farms and the farm sector contributes roughly $240 billion to the gross domestic product (GDP). The subsidies paid out are worth about $60 billion, or about $6,000 per head.
In India, the subsidy is not being paid to the farmer but to the consumer. The government buys grain at market prices from the farmer, stores it and sells it at a cheaper rate to the poor. Around 820 million people will get subsidised grain, which will cost the government around $20 billion. The subsidy being paid by India is actually less than $25 per head.
However, as a percentage of the total value of grain produce, it will cross the globally accepted cap stated in absolute terms within a few years.
As far as India is concerned, the long-term solution is to either let food subsidies for the poor remain outside this cap or to redefine this cap in such a way that the country can continue with food security programme for a longer period of time. One way could be to express the cap in per capita terms or to rework the base year on which the prices are calculated.
Besides, the large-scale farms of the West see over-populated countries such as India and China as natural markets for their huge excess farm production and want an entry into these tightly controlled markets.
However, India allows import, food purchases could create fresh pressure on the rupee and forex reserves.