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Resource centre on India's rural distress
 
 

The global implications of India's food security law-Nikhil Inamdar
-The Business Standard


Balancing duty to the poor while mitigating 'policy externalities' arising out of the food bill is India's latest challenge

The government has fought all odds to get the food security bill - an entitlement programme that covers 67% of India's 1.2 billion large population under a subsidised grain regime, passed in the Parliament. But the battle now shifts to the global stage with India having to convince negotiators, particularly the United States, at the WTO meeting in Bali, that this new law will not have ‘market distorting' effects on trade.

Commerce Minister Anand Sharma will meet the new WTO Chief Roberto Azevedo on October 7, and at the core of their discussions is likely to be India's demand for the amendment of the Agreement on Agriculture (AoA). In a nutshell, this agreement restricts India and other developing nations from exceeding ‘market distorting subsidies' that it gives to farmers, beyond 10% of total production. This is also called de minimis support. According to Martin Khor, executive director of the South Centre (an inter-governmental organisation of developing countries based in Geneva), India is among the countries that risks exceeding this 10% threshold, with the ambitious food security programme being rolled out.

"In case of paddy India has already breached the 10% threshold. We are at 24% currently. India will have to defend its right to subsidise, because the livelihood security of small farmers is at stake. We allowed the US to boost its subsidies, now it is their turn to let us fulfill our domestic commitments. Else let us approach the dispute panel of the WTO," Devinder Sharma, a food and trade policy expert told Business Standard

It is critical that New Delhi, backed by the G-33, bargains hard at the WTO table to seek these exemptions to uphold its sovereign duties, adds Sharma. Even if it means a déjà vu of the Doha round that ended in a colossal failure.

India will spend about $20 bn (Rs 1.2 lakh approximately) annually on food subsidy. That is a pittance compared to the $400 bn that rich countries spend subsidising their farmers. Khor in his column in The Star, Malaysia says it is ‘discriminatory' and ‘hypocritical' on the part of developing countries like the US to pressure India into adhering to the AoA.

How India navigates through the WTO round in December remains to be seen, but what is clear is that the world community is going to increasingly harden scrutiny on the potential implications of the food security bill and the global imbalances it might create. Nomura had warned months ago that the scale of India's food entitlement programme has the capacity to send global food grain prices soaring in a year when the monsoon is deficient and India has to import grains.

Andy Mukherjee, a Reuters Breakingviews columnist, reiterated this concern warning that India will "start exporting food inflation in the years to come" to poor countries like Nigeria, Senegal, Bangladesh and Indonesia if India's imports swell in a drought year.

It is imperative for the Indian government then, to prudently balance its role as one of the world's biggest exporters and consumers of food grain, (of rice, sugar and wheat), while sticking on to its commitment to the poor of this country.

The only sustainable way to reconcile these dichotomous demands is to continually increase farm productivity, maintain consistently high stockpiles (without letting them rot), which means increased investment in irrigation, and creating efficient supply chains. India's food grain production reduced from 259.29 million tonne in 2011-12 to 250 million tonne in 2012-13 because of poor rains. Reducing our dependence on monsoons and improving agri-infrastructure is critical to curbing import distortions during drought years, if we are to avoid a backlash from the global community.

At the same time, it is also absolutely necessary for India to cut a winning bargain at the WTO bearing in mind the fact that with the food bill now a reality, procurement from small farmers will have to be stepped up (to 70 million tonne from 45 million tonne presently), which means minimum support prices will also go up, making it impossible for India to stick to AoA norms.

The challenge, then, is very clearly to defend our national obligations while giving due credence to mitigating the "policy externalities" (the consequences of a policy that extends outside the policymakers' domain) that may arise out the passage of the food bill.