COORDINATED
COMPLIANCE : NFSA AND
WTO
Presentation by Milind Murugkar
14th July 2014
New Delhi
WTO’s Ministerial in Bali
• India’s Public Distribution System and the recently legislated
National Food Security Act emerged as the most contentious
issues .
• During his visit just before the Bali ministerial WTO ‘s Director
General made critical comments on the NFSA
• Attack also came from the US ambassador to the WTO.
Perceived concerns
1.
2.
3.
India was about to breach the AMS limit even before NFSA.
The tendency would exacerbate after NFSA
India’s food stocks pose threat to the stability of the
International market and NFSA was thought to intensify this
threat further.
Logic of the Objections
•The aim of the Agreement On Agriculture is to reduce
protectionism in the international trade.
•Protection is achieved through : price support , other non
product specific support and tariffs.
•Tariffs is a non issue for India. The issue of non product
specific subsidy will be addressed towards the end of the
presentation.
India’s MSPs for wheat and rice and WTO
• India’s MSPs for wheat and rice have breached
the bound levels of Aggregate Measure of
Support (AMS) for these crops.
• NFSA would entail incentivizing wheat and rice
production through higher MSP thus breach the
AMS limit further and frequently.
• Higher MSPs leads to building up of food stocks
with the FCI which, if unloaded in the international
market, would harm the interests of the exporters
in other countries.
India’s Defense of the NFSA and MSP
• Large section of the population is food insecure.
• Ensuring the food security of its population is the sovereign
right of India.
• Most of the Indian farmers are resource poor and the
protection through MSPs is legitimate.
Does PDS and NFSA violate AoA?
• Unfair clauses and technical issues in the AoA:
1.Developing countries like India have a limit for the AMS for
each product as well as for the total AMS of all the products.
Where as the developed countries have no upper limit for
individual product. This has implications for India’s wheat and
rice markets.
• Method of estimating AMS: The current AMS is found out by
comparing the current AMS with the international price for
that product that prevailed during the base year of 1986-88.
The AMS thus estimated is notional.
• India’s notification of AMS in the base period was in terms of
INR . And WTO’s rules demand that India’s notification
thereafter should also be in terms of INR.
• But this method does not take into the change in INR –Dollar
exchange rate. This aspect also makes the estimated AMS
notional.
• India has been notifying its AMS in dollar terms contrary to the
WTO rules. And this method shows no breaching of the AMS
level.
• If the AMS is estimated strictly as per the WTO rules , India has
breached AMS limit for wheat and rice several times in the
past.
• India can defend its price support policy by invoking the clause
that is unfair (disparity between the provisions for LDCs and
DCs) and also pointing out the notional aspect of the AMS.
• The new method of AMS estimation is being worked out in the
WTO.
• So, India is likely to have defense against its price support
policy…………….. But its huge stocks of food grains way beyond
its buffer norms are indefensible.
Indefensible food stocks
• The food grain stocks pose a threat to the stability of
international market.
• Also, such excessive stock accumulation is against the interests
of the poor in India.
• Why should FCI procure so much?
• Is over procurement intrinsic to the PDS?
0
20
40
60
Why stockpile ?
1970
1980
1990
year
procurement
2000
pds
2010
Procurement and PDS
• The previous graph confirms rise in PDS lags rise in
procurement
• Since 1989, procurement has exceeded PDS sales every
year.
• Close match between procurement and PDS in the 70s
and 80s.
• This trend does not extend beyond the early 90s.
• The reasons for excessive procurement are complex.
• Decreased supply through PDS post TPDS , steep increase in
MSP in recent past , open ended procurement and tendency of
the government to err on one side , all contribute to
stockpiling.
• The paradox is that often during the period of high stocks
exports were restricted.
The way out
• WTO doesn’t have any objection to consumer subsidies.
• India can switch to cash transfers that are WTO compatible.
• Export restrictions should be removed and MSPs can work as a
price floor.
Other advantages of cash transfers
• Nearly 50% of the food grains meant for the poor leak away.
• Aadhar linked cash transfers have potential to plug the
leakages.
• Cash transfers can remove the bias against coarse cereals built
in the present PDS.
• Cash Transfers thus help achieve coordinated compliance with
the WTO rules and help the poor.
What about farmers?
• Surplus producing farmers from the irrigation belt can benefit
from international prices.
• They will be protected through price floor whenever prices fall
sharply.
• Most of the farmers in India are resource poor, dry land
agriculturists. They need protection too.
• WTO allows non product specific subsidies.
Non-Product Subsidies
• These non product subsidies mostly include input subsidies on
fertlizer, electricity etc.
• India is well within the bounds of the WTO limit on these
subsidies.
• But the poor, dry land agriculturists derive insignificant benefits
from these subsidies.
• For these farmers support through MNREGA is crucial.
MGNREGA
• MNREGA helps these farmers by raising their incomes , by
creating assets that enhance the productivity of these farmers.
• MNREGA doesn’t violate WTO rules as it doesn’t influence the
market prices of the farmers’ produce.
Co-Ordinated Compliance
• Cash Transfers, free trade in agriculture and MNREGA
can achieve the coordinated compliance that WTO
demands, safeguarding the interests of poor consumers
and poor farmers.
• Thank you.