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The truth of India’s position at Bali
-Live Mint


The national food security law is in trouble from an unlikely source

The outcome of the World Trade Organization (WTO) summit at Bali has been projected as a great victory for the Indian government by its spokespersons. Nothing could be farther from the truth.

In exchange for a temporary reprieve on its food support programme, India has bartered away the bargaining chip of trade facilitation, which Western negotiators demanded. The wide divergence between the initial stance of trade minister Anand Sharma and his final position at Bali underlines how far India was pushed to the wall by Western negotiators. India's readiness to give up on its initial stance will only expose it to greater pressure from its trade partners during talks on a final settlement on agricultural subsidies.

All that India achieved at Bali was to delay the day of judgment on our food support programme. But even that victory seems to be a clumsy one. The interim agreement on food subsidies is problematic on a number of counts. For one, it still leaves countries such as India vulnerable to being dragged to the dispute settlement body if the subsidies are considered to impact global trade. For another, the agreement holds only for food support programmes that exist currently, limiting the scope of expansion in such programmes till a final settlement on the issue is reached.

India's assent to the trade agreement is at odds with the current government's policy of using the public procurement and distribution system to provide adequate food to two-thirds of citizens. It exposes once again the incoherent approach of the ruling United Progressive Alliance (UPA) government towards food security. For a government that has touted the so-called right to food as its key achievement, the climbdown at Bali in the face of external opposition suggests that it is not serious about its own stated objectives. The UPA's hurried passage of the food law without considering its sustainability or its ramifications on India's trade commitments can only be explained as political opportunism ahead of parliamentary elections.

The trade deal does offer a silver lining. It raises the hope that a new government may be able to amend the provisions of the food security law to meet the constraints imposed by global trading rules, and still meet India's welfare and strategic goals through innovative reforms. It is indeed possible to make a virtue out of a necessity in this case, and use this opportunity provided by the temporary reprieve at WTO to reform our food and welfare programmes.

India's food policy has been lopsided for long, focusing on a handful of foodgrains at the expense of more nutritious food items and, in turn, driving malnutrition. The various subsidies the government offers to support agriculture are distortionary and regressive, benefiting richer farmers more than others, and harming soil diversity. The overall policy thrust of keeping food prices low while keeping farm gate prices high is itself self-defeating as it involves a complex subsidy regime that burdens the fisc and stokes inflation.

There is a case for an alternative way to protect the interest of both farming and non-farming poor alike, without creating as many distortions as the current system generates. The key component of any such reform package will involve a move to cash transfers, for both consumers and producers. Direct income support to farmers in lieu of the package of input subsidies and procurement support will not only help us build a non-distortionary farming system; it will also be a more egalitarian and cost-effective alternative to help small farmers. Similarly, cash transfers to non-farming families in lieu of foodgrains will be far more efficient than a leaky distribution system. It is also more likely to encourage diet diversity. To start with, the government might consider providing a mix of cash and in-kind transfers before doing away with leaky food management infrastructure itself.

The powerful big farmers' lobby will of course oppose any such move. But the stick of binding trade commitments can be deployed by a smart government to make them fall in line. The promise of higher gains for small farmers, urban consumers, and taxpayers means such reforms can win support from a wider constituency. Freeing the food policy regime from the reins of vested interests will also give a boost to rural productivity since it will lead to a boom in non-traditional crops and provide a fillip to non-farm rural investments.

Business as usual will be costly for India now, as global trade rules may finally compel India to depend on imports to sustain a gigantic food distribution system. Without reforms, India's food policy mess is only set to worsen.