Time to rethink India’s farm exports strategy

The 10th Ministerial Conference (MC) at the World Trade Organisation (WTO) in 2015 in Nairobi fell short of addressing several rising issues. Nevertheless, important decisions were made on a few agenda items, like agriculture. The member countries at Nairobi failed to decide the fate of the Doha Development Agenda (DDA), which was to be concluded by 2019. No consensus was reached on whether it should be continued in the future. However, on the issue of Public Stockholding (PSH), developing countries had already managed to secure an interim arrangement known as the ‘peace clause’ in the Bali Declaration (2013). Under Bali, it was agreed that the developing countries would be allowed to breach the agreed limits called the ‘de-minimis’ level (which is 10% of the value of production) on domestic support to their public stockholding programmes until 2017 without any legal liabilities. It was also decided that a permanent solution must be proposed for the entire issue. Later in 2017, in the absence of any permanent solution, the peace clause was extended indefinitely.

However, the Nairobi Package provided a sunset clause for developing countries and LDCs to phase out export subsidies provided by them for their agriculture exports. This means India is bound to put an end to its export subsidies by the end of 2023. Member countries also ‘undertake not to provide export credit, export credit guarantees, and insurance programmes’ for agri-export products, which are considered trade-distorting.

India’s position

Inter alia, major discussions in Nairobi were on export competition under agriculture and its four elements: export subsidies, export credits, state trading enterprises (STE), and food aid. It was decided that the member countries must eliminate agricultural export subsidy entitlements. Although developed countries like the US and the EU ended their agri-export subsidy regime back in 2018, their four decades of exploiting market opportunities for their agri-products through subsidies have propelled them far ahead, and developing countries and LDCs might require further help to remain competitive in the current market. It is evident that the EU had been spending one-third of its agricultural subsidies in the form of export subsidies in the late 1980s. This policy allowed these countries to gain significant market share in the developing countries, downgrading the global market prices of the commodities and distorting the competition in the importing countries by making the imported goods cheaper.

The condition of prohibiting subsidies as per the Special and Differential (S&D) provisions in the Agreement on Subsidies and Countervailing Measures (ASCM) has been applied to India since 2017. As per the agreement, when a member’s per capita gross national income exceeds $1,000 per annum (at the 1990 exchange rate) for a third straight year, it has to relinquish its export subsidies. India, according to the WTO, has already crossed this benchmark way back in 2015, and hence the prohibition clause is now applicable to it as the eight-year phase-out period provided has also been over in 2023.

India exported 31 commodities to 200 countries between April 2022 and March 2023, and the top five importers have been the US, UAE, Netherlands, China, and Singapore. Agricultural exports in the given period were $32.43 billion, with major commodities including rice, meat, dairy, poultry products, spices, oil meals, etc.

India’s approach to export promotion has always been to stabilise domestic prices while exploring newer markets. The government of India has initiated several policy measures to boost India’s exports through different schemes and incentives to achieve the above objective. Some of the prominent schemes have been the Merchandise Exports from India Scheme (MEIS), the Remission of Duties and Taxes on Exported Product (RoDTEP scheme), the Advance Authorisation Scheme, the Duty Drawback Scheme (DBK scheme), the Export Promotion Capital Goods Scheme (EPCG scheme), etc. Some of them had been providing export subsidies to the exporters in the form of direct financing support, tax credits, and insurance.

Although the US, the EU, and some Scandinavian nations had been providing a large quantum of export subsidies for a longer time, India’s presence was inconspicuous by that time. Despite this, in 2018, the US dragged India to the WTO, challenging various Indian export subsidy programmes as trade distorting and WTO non-compliant. After losing the case, India started revamping its export promotion strategy and restructuring its other export promotion programmes.

With the end of the export subsidy regime in 2023, the government has little choice but to rethink its export strategy. Replacing the MEIS with the RoDTEP scheme, nonetheless, is a good starting point. However, some experts believe that even some of the post-restructuring schemes, along with duty drawbacks, might be challenged in the WTO as non-compliant.

The Agriculture Export Policy has charted out clear steps in the promotion of agriculture exports. As per the policy, the development of robust infrastructure, strong and resilient supply chains, removing logistical bottlenecks, effective coordination between various ministries, departments, and regulatory bodies, active involvement of state governments, promotion of R&D activities for the production of new products, etc. are some of the much-needed systemic changes required for increasing exports.

It is also pertinent to highlight that innovative steps need to be taken to ‘Brand India’ through strong marketing and promotion. In this regard, the government must allocate separate funds for campaigns, exhibitions, digital campaigning, and promotion strategies for Indian products both at the domestic and international levels. Trade and industry associations and Indian missions abroad can also play a prominent role in these promotional exercises.

In this post-Nairobi era, when export subsidies will no longer be part of the government’s export promotion policy, shifting the focus towards structural reforms is the only way forward. Looking through a different lens, the Nairobi Round has provided an excellent opportunity for Indian policymakers to change their focus from the subsidy regime to systemic reforms in trade policy. This is the right time to adopt these reforms. Since the last decade was for ‘Brand India’, the current decade calls for replacing the economic giants/providing options to ensure global supply chain resilience. If India achieves the same through these reforms and strategic partnerships, it would provide an additional boost for the “Make in India, Make for the World” initiative.

(The writers are directors at the Centre for Competition Law and
Economics)