US President Donald Trump began to bust the WTO after he stopped allowing people to be appointed to its dispute settlement mechanism and its appellate body. The WTO is superior to its predecessor body, the General Agreement on Tariffs and Trade, the GATT, which has a mechanism for settling disputes between members, complete with an appellate body. By subtracting this, it becomes toothless against the big players operating on the principle of ‘maybe right’. India stands to benefit from a rules-based multilateral system and a functional mechanism to enforce the rules.
The WTO is threatened by geopolitics. With the Ukraine war and the West’s response to it, in the form of sanctions against Russia, and pressure on those who conduct commercial transactions with Russia to walk away, normal trade is disrupted. Efforts by the United States and its allies to stem China’s aggressive rise have resulted in the formation of mixed trading blocs – the Chinese-dominated Regional Comprehensive Economic Partnership, RCEP, which India has stayed away from, and the US-led Indo-Pacific. Economic Framework, IPEF, which does not include China and has been welcomed by India. Such trading blocs have overlapping membership and do not necessarily eliminate multilateralism. But if trade within the bloc flourishes and declines between them, multilateralism will be in jeopardy.
India has earned the reputation of a trade negotiation destroyer in the name of food security for the poor. India refuses to accept any restrictions on public storage of food grains, even as much of the world sees state acquisitions of cereals and pulses as trade-distorted.
It is relatively easy for India to protect food security from the uncertainties of trade and international limits on trade distortions, but it requires a bit of political capital. India is not ready to make that effort.
India’s food security system and the budgetary allocation for food security through food subsidies combine both producer subsidies and consumption subsidies. India’s trade negotiations require separating consumer subsidies from producer subsidies to avoid pressure to cut food subsidies.
Food subsidy in the Indian budget is the payment made by the Government of India to the Food Corporation of India (FCI) to meet the difference between its loss, its total expenditure and its total income. Expenses are incurred on the purchase of grain, its transportation, including the loading and unloading of grain, and the cost of financing storage, storage, to reduce damage caused by spoilage and theft. Proceeds from selling grain to the state civil supply corporations, ranging from limited sale in the open market to grain trading, at a rate below a level that covers all its costs, which, in turn, allow them to shop at fair price shops. distributes in. (Rebranded Ration Shops), as far as the consumer is concerned, the Public Distribution System is an embodiment of the PDS.
Higher the purchase price, higher will be the subsidy. Higher the handling cost, higher will be the subsidy. Higher the sales in the open market, lower will be the subsidy. The higher purchase price is a way to reward the manufacturer. Handling the cost and volume of sales in the open market reflects the operational efficiency of FCI. Clearly, India’s food subsidy bill covers both producer subsidies, the operational inefficiencies of the FCI, and subsidies that reduce the cost of food for the beneficiaries of the public distribution system.
Now, there are elements of food subsidies whose quantum has not been determined at all. Fertilizer subsidy needs to be accounted for. But many states don’t have a hard estimate of subsidy on irrigation and electricity distributed to farmers through unmetered connections, which are also used by unscrupulous operators to get free electricity for non-agricultural activities. goes.
The political economy decides that the government increases the minimum support price, MSP, year after year. The MSP has been revised in line with the government’s commitment to farmer welfare. Irrespective of the amount of food grains needed for PDS and mixed welfare programs that distribute food grains, the government procures all food grains supplied in some parts of the country. In some other parts of the country, procurement is below zero.
When the buffer stocking norm calls for 40 million tonnes of food grains, it is not unusual for the FCI to hold more than 100 million tonnes. The money spent on this additional holding of food stocks has more to do with buying the goodwill of the farmers than with the food security of the vulnerable. But the government will never accept this. The net result is for India to claim that huge food subsidies are needed to ensure the food security of India’s vulnerable population.
What needs to be done is conceptually straightforward. Limit government stock to buffer stocking norms. Bringing in personal efficiency to reduce grain handling costs – quality checks at the time of grain procurement, loading and transportation, unloading at storage sites, modern silos instead of a pile of sacks exposed to the elements, rodents and fungi in storage. Even a portion of the buffer stock can be held in the form of enforceable futures contracts, rather than physical stocks to be distributed at distribution sites across the country.
Buy state requirements at prices higher than MSP, leaving MSP at that level to avoid distress sales. Combined with functional forward markets for agricultural products, this would encourage crop diversification from excess grain to more profitable crops that the economy today imports from other countries. Help reverse this crop diversification away from unwanted cereal grains with incentives for the crops India needs, such as edible oils and mixed tree nuts.
Repurpose producer subsidies as income support, which is not considered trade-distorting under WTO rules, thanks to lobbying by Europeans.
Indians will continue to have access to subsidized grain, farmers will continue to receive state support, and India’s formal outlay on food subsidies will be drastically reduced, even as a proportionate portion of the outlay on fertilizer, irrigation and power subsidies is budgeted for food subsidies. is added to the bill. , India will be able to pursue its genuine interest in multilateral trade talks without breaking the agreement at the altar of food security.