The Hindu Business Line : Ultimatum on farm sops

THREE MONTHS AHEAD of the Hong Kong Round of the World Trade Organisation, major economies including India, China and Brazil, participating in a G-20 Ministerial in Pakistan's Bhurban recently, served an ultimatum on developed countries to phase out the heavy farm subsidies. Developing nations complain that the unconscionably high level of farm support — estimated at over $300 billion a year among OECD nations and representing 1.3 per cent of the OECD GDP — distorts global trade in agricultural commodities, artificially depresses prices of farm goods such as cotton and sugar, denies reasonable incomes to growers in poor countries and hurts overall global economic progress. Though there is merit in the argument, and developed economies also know it, farm reforms in OECD have been slow, variable and insufficient. Indeed, there is lurking suspicion of a weak intention to pursue reforms. In retrospect, it appears the rich nations hijacked first the GATT (General Agreement on Trade and Tariffs) negotiations and now the WTO to exploit the vulnerability of their poor cousins. No wonder, the developing countries are wary of opening up their markets without the rich nations first demonstrating that they mean what they say; or ironically, not put the money where their farm is.

However, it must be conceded that globally the policy context is becoming complex. Countries find it increasingly difficult to reconcile the inherent conflict between domestic political compulsions and international trade obligations. Inability to address this dilemma means that agricultural negotiations under the WTO would continue for long years, without any meaningful progress. It would be a pleasant surprise if the industrialised world were to agree to a time-bound reduction in farm support and actually abide by it. Realistically, the developing nations will have to gear themselves up for a long struggle and to face continuing distortion of the global marketplace for farm goods. Barring raising noises at various forums, there is little they can do to make the rich nations toe the WTO line.

India is in a peculiar position vis-à-vis other developing nations. The country is unlikely to be affected or benefited significantly even if the distortions in the global agri-markets continue. The level of integration of the Indian market with the global market is not significant as yet. On the other hand, India's huge internal market is inviting and waiting to be tapped. After the removal of quantitative restrictions of imports, the only instrument New Delhi has is the tariff. Extreme caution is necessary in committing to a reduction of tariffs on agricultural commodities. Uncertainties in domestic production and growth, on the one hand, and rising consumption demand for a large number of commodities, on the other, could turn the country into a net importer of many agricultural goods. While it may be politically correct and expedient for policymakers to raise a hue and cry against massive farm support, we also need to look within and ask if we are doing enough to make Indian agriculture globally competitive. Stepping up public investment, strengthening input delivery, scientific water management and rural infrastructure should be the priority.

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