India faces WTO pressure over farm subsidies amid farmer's protest for MSP

It’s important to note that India enjoys some protection against disputes related to its subsidies due to the ‘Peace Clause’, which was agreed upon by WTO members. However, certain provisions within this clause remain ambiguous, leaving India open to potential disputes.

India is facing challenges when it comes to meeting the demands of protesting farmers for a legal guarantee of Minimum Support Price (MSP).

This challenge arises as India is dealing with pressure related to its farm subsidies at the World Trade Organization (WTO). Recently, a group of 19 agricultural exporting countries criticised India’s public stockholding programme, saying it distorts global food prices and harms food security in other nations. While India is trying to find a solution at the upcoming inter-ministerial summit at Abu Dhabi from February 26 to 29, the disagreements between developed and developing countries may prevent a resolution.

The Cairns Group - Australia, Brazil, Canada among others - has raised concerns about India’s public stockholding (PSH) programme. They believe that this programme, which provides subsidies, is affecting global food prices and negatively impacting food security in other nations.

Last year in November, a proposal was put forth to reduce trade-distorting farm support among WTO members. This proposal aimed to cut the total global subsidies in half. However, this led to tensions among developing nations, including India. Despite India’s relatively low per-farmer subsidy compared to countries like the US, the WTO rules do not account for subsidies on a per-farmer basis, which puts developing countries at a disadvantage.

As per The Indian Express, Ahijit Das, an expert on international trade and the former head of the Centre for WTO Studies, has highlighted that the Cairns Group is pressuring India to either dismantle the Minimum Support Price (MSP) scheme or reduce its scope. India is vigorously advocating for better legal protection for its MSP programme in response to this challenge.

It is important to note that India enjoys some protection against disputes related to its subsidies due to the ‘Peace Clause’, which was agreed upon by WTO members during the Bali ministerial in 2013. However, certain provisions within this clause remain ambiguous, leaving India open to potential disputes.

“WTO norms don’t restrict us from providing high MSP. Because of the peace clause there is no restriction on what should be the level of MSP or the level of procurement. But there is no 100 per cent legal certainty. We are questioned at WTO and that is why we are trying to seek a permanent solution,” Das said, cited The Indian Express.

Das said that farmers groups have stated that agriculture should be taken out of WTO but that approach could pose problems and would restrict India and other developing countries from keeping the subsidies.

“Our per farmer subsidy is abysmally low compared to what the US gives. But the WTO rules, unfortunately, are not on the basis of per farmer subsidy. If new schemes are to be implemented, then for those products we will have to comply with the 10 per cent subsidy ceiling and they will not be protected under the ‘Peace Clause’,” he said, citied The Indian Express.

According to The Indian Express, if the Indian government were to accede to the farmers’ demands for a MSP law, it would not be protected under the peace clause that currently shields India from legal disputes at the WTO. The peace clause allows developing countries to exceed their 10 per cent subsidy ceiling without facing legal action by other WTO members.

The Indian Express reports that the situation is complex, as India’s existing subsidy programme for rice has already faced pushback from the Cairns Group.

“Considering the government will procure only crops trading in mandis below the MSP, our calculations show it will need a working capital of Rs 6 lakh crore in Marketing Year (MY) 2023. We considered 16 of 23 crops, which account for over 90% production of the field crops, for the analysis,” Pushan Sharma, Director-Research, CRISIL Market Intelligence & Analytics said, citied The Indian Express.

The real cost to the government, though, will be the difference between MSP and mandi prices, Sharma said.

India had informed the WTO that the total value of its rice production in 2019-20 stood at $46.07 billion (Rs 3,82,595 crore today) and that it gave subsidies worth $6.31 billion (Rs 52,402 crore) or 13.7 per cent, which is above the 10 per cent limit.