THE Modi Sarkar has done well to get the US to agree to an indefinite ‘peace clause’ for its subsidies to public grain procurement and stockholding which make food security a reality. The Bali ministerial conference of the WTO held last December had permitted reprieve for four years to countries even if their subsidies violated the limits under the original Agreement on Agriculture ( AoA). At the recent meet, the BJP government questioned the methodology of farm subsidy calculation based on global reference prevailing in 1986-87. The recent bilateral deal between the US and India will have to be approved by the WTO’s general council. What is wanted is a permanent solution which will call for renegotiation of the AoA. India has to redo computation of agricultural subsidy so that it reflects current world prices which are much higher than 1986-87 levels for most crops. The Indian subsidy system leads to market distortions. The present system provides for stocking of grains procured at artificially high minimum support prices and their distribution at below economic cost which is fiscally unsustainable. It also goes for input subsidies on fertilizer, electricity and water leading to inefficient utilization of resources. Indian farmers have to become efficient producers. That will be possible only if the government does away with market-distorting subsidies and invests in R&D and beefing up rural infrastructure. Besides, targeted direct benefit transfer has to be ensured.
It is good that the new government has gone for measured minimum support price hikes. Bonuses declared by states on top of minimum support prices have been stopped. Procurement of extra rice through up to 75% levy on millers has been cracked down upon. For political reasons the government may not highlight these steps which will increase India’s bargaining strength in securing a permanent solution at the WTO.
