Indian agriculture has undergone a remarkable transformation in the second half of the twentieth century. As the economy grew, the share of agriculture in GDP declined steadily, from about 55 percent in the early 1950s to about 25 percent in late 1990s. However, there has been nothing like a corresponding change in agriculture's share in employment. About 70 percent of rural households and 8 percent of urban households are still principally dependent on agriculture for employment. Since some three quarters of the population live in rural areas, a majority of Indian households thus depend principally on this sector.
India also underwent a series of successful agricultural revolutions, starting with the "green" revolution in wheat and rice in the 1970s, the "white" revolution in milk and, in the 1980s, the "yellow" revolution in oilseeds. As a result, it has achieved self-sufficiency in most basic foods, in stark contrast to the earlier years of chronic food deficits. Despite these major transformations, the agricultural sector continues to be dominated by a large number of small landholders. It is also marked by large fluctuations in output, though to a declining extent with the development of irrigation facilities, adoption of new technology and changes in cropping patterns.
India is not a large agricultural trader in world markets. Agricultural imports and exports were of the order of US$1.6 billion and 6.4 billion respectively in 1997-98 and accounted for 4.1 percent and 18.8 percent respectively of total imports and exports. Until 1991, India followed an inward-looking development strategy with a trade regime characterized by quantitative restrictions, licensing and high tariffs. As a result, domestic markets were virtually insulated from changes in world market prices. The Government intervened heavily in both product and input markets, through price support programmes backed by government procurement and input subsidies. These interventions resulted in net taxation of the agricultural sector, while the non-agricultural sector received protection. The extent of the total taxation of the sector was estimated to correspond to 29 percent of the value of agricultural production during 1971-85, 18 percent during 1986-91, but only 9 percent during 1992-95.2
India has undertaken a substantial degree of trade liberalization, beginning in 1991. Initially, the focus was on manufactures, including capital goods. Liberalization was extended to agriculture in 1994, when the Government lifted a number of restrictions on imports and exports, simplified trade measures and reduced public interventions in domestic markets.
In the UR, India bound 81 percent of all agricultural tariffs at two levels: 34 percent of the tariff lines at 150 percent and 47 percent at 100 percent. Four percent of the tariff lines were bound at 350 percent and another 15 percent at less than 100 percent, including zero bound rates on 11 lines. The zero bindings for commodities like rice, maize, millet, plums, fresh grapes and dried skimmed milk were committed in earlier GATT rounds3. The simple average of the roughly 600 tariff lines was 116 percent. All tariffs were ad valorem, i.e. there were no specific tariffs.
India also maintained quantitative restrictions (QRs) in the form of import prohibitions, import licensing or canalized imports for roughly 43 percent of the agricultural tariff lines (606 out of a total of 1 398). For 262 of these products, the restrictions were based on security, religious and environmental considerations, while the balance-of-payments exception under GATT Article XVIII:B was invoked for the others.
There were no other market access commitments (e.g. tariff rate quotas), since India had opted for ceiling bindings rather than tariffication. Consequently, India cannot avail itself of the special safeguard provisions of the AoA.
Apart from the QRs maintained on balance-of-payments grounds (discussed below), India has had no particular problem in living up to its tariff commitments. In large part this was because of the series of trade policy reforms that were initiated unilaterally in 1994 (as part of the process begun in 1991). For example, import controls on sugar and cotton were lifted in 1994, and the import of palmolein was permitted under Open General Licence (OGL), with 65 percent import duty. Subsequently, in 1995, almost all edible oils (except coconut oil) were put under OGL, with an import duty of 30 percent. The duty on edible oils was reduced further in 1998. Imports of butter oil and skimmed milk powder were exempted from canalization and licensing requirements.
One indicator of the ease, or the difficulty, of living with the new trade regime is the gap between applied and bound tariff rates. As in many other developing countries, applied rates are considerably lower than the bound rates, averaging roughly 26 percent in 1997/98, compared with the average bound rate of 116 percent. According to one analysis, current applied MFN tariffs4 for as many as 556 (83 percent) of the 673 agricultural tariff lines at the 6-digit HS level are lower than the bound rates by at least 50 percent (Table 1). For example, the bound rate for wheat is 100 percent, but flour mills are permitted to import wheat duty-free subject to licence. Similarly, pulses, with a bound rate of 100 percent, pay no duty and face no quantitative restrictions. Import duties for most edible oils are bound at 300 percent, but applied rates have been in the range of 15-30 percent in recent years.
Table 1: Applied MFN tariffs: distribution according to the difference with bound rates
Applied rate (relative to bound rate) |
No. of tariff lines1 |
Percent of total |
75% lower or more |
401 |
59.6 |
50 -74% lower |
155 |
23.0 |
25-49% lower |
29 |
4.3 |
10-25% lower |
39 |
5.8 |
Up to 10% lower |
41 |
6.1 |
Above bound rate |
8 |
1.2 |
Total |
673 |
100 |
1 At the 6-digit HS level. Source: A. Gulati, R. Mehta and S. Narayanan, "From Marrakesh to Seattle: Indian Agriculture in a Globalising World", Economic and Political Weekly, 34(41). | ||
Nevertheless, not all experiences have been that smooth. First, in some instances, though they were few, applied rates have exceeded bound rates. Second, India was stuck with zero tariff bindings for some products, resulting from previous rounds, as noted above. Apart from the fact that the bindings are very low (zero), they pertain to sensitive food products. India has been negotiating with WTO members to raise these bindings to levels comparable to other products. Third, considerable difficulties have been faced in the WTO on the issue of QRs maintained on balance-of-payments grounds, as described in the paragraphs which follow. (The restrictions on security, religious and environmental considerations have not been questioned.)
India had initially announced a time-table of nine years to eliminate the QRs, but it ran into objections from a number of WTO members. Following negotiations, it agreed to phase them out by 2003. The proposal was accepted by all countries except the United States, which filed a dispute against India. The WTO Dispute Settlement Body (DSB) ruled against India in September 1999. India began lifting the QRs unilaterally, pending conclusion of negotiations with the United States. In December 1999 it reached agreement on a time limit for lifting the remaining QRs, which was determined as 18 months from the date of adoption of the Report of the DSB, i.e. April 2001. In the meantime, in the budget presented to Parliament in February 2000, the Government reiterated its intention to remove QRs on 714 tariff lines (including non-agricultural products) from April 2000.
It was feared by many that the abolition of QRs would lead to a surge in imports, although most analysts believed that the impact would be minimal because domestic prices were generally lower than world market prices for most agricultural products. Certainly, there is no evidence to date of any impact.
In sum, India's experience with trade liberalization has on the whole not been negative. Most trade policy reform measures were initiated unilaterally as part of an economy-wide reform process that began in 1991, before the UR disciplines applied. With applied rates considerably below the bound rates, there is ample margin for lowering the bound rates, if that becomes necessary as a result of new multilateral negotiations.
In the UR, India made a detailed submission of its domestic support measures for the base period, covering all the major support areas. It also made a detailed submission on current support measures for marketing year 1995/96, according to which green box outlays amounted to US$2 196 million, or roughly 3 percent of the total value of agricultural production in that year (Table 2). Of the total outlay, 71 percent was on a single item - public stockholding for food security purposes - followed by 18 percent on general services (e.g. research, extension, training etc.) and 11 percent for various other items. There are no limits set to such expenditures in the AoA.
What matters most for domestic policy flexibility is the AMS commitment. India's product-specific AMS for the base period (1986-88) was negative - to the tune of Rs 244 billion, or about 22 percent of the total value of agricultural production. Support was negative for all crops except tobacco and sugarcane. For 1995/96 also, the sum of product-specific AMS was negative, equivalent to 30 percent of the value of agricultural production (Table 2).5
The non-product-specific AMS for the base period was positive, at Rs 46 billion, or 4 percent of the total value of agricultural production. For 1995/96, (the most recent year for which data are available) it amounted to US$5 772 million, or 7.5 percent of the value of production. Of the total subsidies, 42 percent was on electricity, 32 percent on fertilizer and 23 percent on irrigation, while those on credit and seeds were very small.
As regards SDT, the original Schedule for the base period merely listed some support measures without showing the outlays. The 1995/96 notification showed an outlay of US$254 million, or 0.3 percent of the value of production, comprised of input subsidies (59 percent) and investment subsidies (41 percent). However, India has reserved the option of transferring almost 80 percent of the input subsidies currently reported under non-product-specific AMS to the SDT category, stating in its Schedule that about 80 percent of farms can be categorized as small farms.6 If this is done, the total outlay on non product-specific AMS would decline considerably, e.g. from US$5 772 million to US$1 154 million in 1995/96, which would give a much greater flexibility for raising input subsidies.7
Table 2: Support to Indian agriculture for 1995/96 as notified to the WTO
|
Type of support measure |
1995/96 outlay | |
US$ million |
Percent of value of agricultural production1 | |
1. Green Box 2. Product-specific AMS 3. Non product-specific AMS 4. SDT measures 5. Total AMS (2+3) |
2 196 - 29 619 5 772 254 - 23 847 |
2.9 - 38.6 7.5 0.3 -31.0 |
1 FAO estimates. Source: WTO document AG/N/IND/1, 17 June 1998. | ||
As regards policy consequences, there are not that many. The main issue is to ensure that particular green box measures can continue to qualify under that category. In particular, the measure described as "public stockholding for food security purposes" is important, since it constitutes the largest green box expenditure. Given the large negative product-specific AMS, there is considerable scope for raising support outlays in the form of price support to various crops. For example, the support outlay could have been almost 50 percent higher in 1995/96 (the negative 39 percent plus another 10 percent up to the de minimis threshold). The flexibility under non-product-specific AMS is much smaller, e.g. in 1995/96, India could have granted an additional subsidy equivalent up to only 2.5 percent of the value of production. Even here, if support levels turn out to be binding, it could shift 80 percent of the input subsidies to the SDT category, opening up more flexibility on the AMS side. Thus, on the whole, there were few direct consequences of the AoA rules and India's commitments in this area.
Nevertheless, it is important to consider what might be the future position with regard to policy flexibility. In addition, the current domestic support measures have been the subject of debate in the WTO Committee on Agriculture, where a number of issues need to be resolved. These issues, and their implications, are as follows:
In the UR, India did not notify any direct export subsidies on agricultural products for the base period. Any such subsidies which existed have been eliminated since 1991 for both agricultural and non-agricultural products. While it is consequently not eligible to grant such subsidies in the future, it is able, under the provisions for developing countries under the AoA, to provide subsidies for reducing the costs of marketing exports and internal transport as well as freight charges on export shipments. The exercise of this option has not been ruled out, especially for floriculture, fruit and vegetables, but India has not notified the WTO of any such subsidies.
The Government does, however, provide some incentives to agricultural exports, through measures such as those listed in Annex I of the Agreement on Subsidies and Countervailing Measures, notably income tax exemptions on profits from export sales and interest subsidies. In the annual budget presented to Parliament in February 2000, it indicated its intention to phase out income tax exemptions8 over five years starting from the financial year 2000/01. The interest subsidy is intended to offset the higher cost of borrowing money in the domestic market rather than in the world market. Some hold the view that interest subsidies should be permitted for the developing countries so long as the subsidized rate does not fall below LIBOR.9
As regards export controls and taxes, many of these measures have been lifted. For example, in 1994, export controls on durum wheat were fully removed and on vegetables partially so. Also lifted were minimum export prices for common and basmati rice. The export of non-durum wheat was allowed in limited amounts in 1995, but the ban was restored in the following year (for all wheat and wheat products). The main thrust of policy nonetheless remains freeing agricultural products of export restrictions.
Total agricultural exports averaged an annual US$2.3 billion in 1985-87, a small amount for a relatively large agricultural economy. Exports increased significantly thereafter, more than doubling to reach US$5.7 billion in 1996-98. Food accounted for roughly 51 percent of all agricultural exports in the latter period, up from 43 percent in 1985-87. Within the food group, cereals were becoming increasingly important, accounting for 43 percent of all food exports in 1996-98.
Over the ten years from 1985 to 1994 agricultural exports grew steadily but modestly - a cumulative increase of 43 percent. In 1995, there was a sharp upsurge (70 percent), as a result of which exports reached US$5.5 billion, remaining at around that level in the subsequent three years (Figure 1). As a result, agricultural exports in 1995-98 were on average 83 percent higher than in 1990-94 and 56 percent higher when measured against the trend (Table 3). Food exports grew much faster than exports of other agricultural products.
Table 3: Agricultural trade in 1990-94 and 1995-98 (annual average value, in million US$, and percentage change)
Period |
Exports |
Imports |
Net exports |
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1
(b) - (a) 2 (b) - (c) 2 |
3 083 5 635 3 612 2 552 (83%) 2 023 (56%) |
1 286 2 980 1 318 1 694 (132%) 1 662 (126%) |
1 797 2 655 2 294 858 (48%) 361 (16%) |
1 Extrapolated value based on 1985-94 trend. 2 Numbers in parentheses are percentage changes over (a) and (c) respectively. Source: Computed from FAOSTAT data. Agriculture excludes fishery and forestry products. | |||
As regards agricultural imports, food accounts for over 80 percent of the total, and consequently the trend for food imports (discussed below) determines that of total agricultural imports. The latter were 132 percent higher in 1995-98 than in 1990-94 and exceeded to much the same extent the trend level, since the trend was basically flat. India was thus a net exporter of agricultural products, with net exports in 1995-98 48 percent (US$858 million) higher than in 1990-94 but only 16 percent higher than the trend value since net exports have been on a strongly rising trend.
Further analysis would be required to identify which commodities or commodity groups - including processed food and agricultural products - were the most dynamic components of exports in the post-1994 period. Such information is essential for, among other reasons, negotiating better market access terms in the new multilateral negotiations on agriculture. It is clear, for example, that cereals were important in the impressive improvement of agricultural exports during 1995-98.10 If cereal exports in that period had risen only in accordance with the 1985-94 trend, other things being equal, the export performance appears much less impressive: the 1995-98 value of net agricultural exports is then only 9 percent higher that the 1990-94 level (and not 48 percent) and it is 16 percent lower when measured against the trend (compared to 16 percent higher before). Viewed in this light, it may well be questioned whether the impressive agricultural export performance during 1995-98 was not by and large a short-term phenomenon reflecting the sharp rise in world cereal prices during 1995/96.
Table 4 shows trends in exports (value, volume and price) for selected major agricultural products. Overall, the experience has been mixed. Among cereals, rice exports during 1995-98 were impressive, exceeding the average 1990-94 level by 425 percent as well as the trend level by 269 percent. Market access terms for rice since the UR remain difficult in many importing countries - an indication of the prospects for Indian rice exports if further reforms are made in the new round of trade negotiations.
Figure 1: Agricultural trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)
Source: FAOSTAT
Table 4: Exports and export unit values of major agricultural products in 1990-94 and 1995-98 (annual average)
Actual value |
Trend value1 |
Percentage change | |||||
1990-94 |
1995-98 |
1995-98 |
(b/a) |
(b/c) | |||
Product |
Unit |
(a) |
(b) |
(c) |
(d) |
(e) | |
Cereals |
million US$ |
375 |
1 338 |
489 |
256.9 |
173.9 | |
000 tonnes |
963 |
4 489 |
1 254 |
366.2 |
257.8 | ||
US$/tonne |
419 |
324 |
428 |
-22.7 |
-24.5 | ||
Oilseeds, |
million US$ |
1 183 |
1 033 |
72.5 |
14.6 | ||
oil cakes, |
000 tonnes |
3 798 |
4 707 |
5 693 |
23.9 |
-17.3 | |
oils |
US$/tonne |
181 |
252 |
182 |
39.1 |
38.7 | |
Fruit & |
million US$ |
510 |
643 |
636 |
26.1 |
1.1 | |
vegetables |
000 tonnes |
625 |
805 |
775 |
28.8 |
3.8 | |
US$/tonne |
820 |
809 |
805 |
-1.4 |
0.4 | ||
Spices and |
million US$ |
422 |
592 |
481 |
40.2 |
23.0 | |
nuts |
000 tonnes |
159 |
196 |
200 |
23.2 |
-2.1 | |
US$/tonne |
2 670 |
3 068 |
2 235 |
14.9 |
37.3 | ||
Tea |
million US$ |
417 |
417 |
313 |
0.0 |
33.3 | |
000 tonnes |
177 |
181 |
149 |
2.5 |
21.6 | ||
US$/tonne |
2 332 |
2 277 |
2 106 |
-2.4 |
8.1 | ||
Coffee |
million US$ |
163 |
386 |
161 |
136.6 |
139.5 | |
000 tonnes |
107 |
149 |
127 |
39.7 |
17.8 | ||
US$/tonne |
1 503 |
2 680 |
1 049 |
78.3 |
155.6 | ||
Meat |
million US$ |
101 |
290 |
132 |
187.4 |
120.7 | |
000 tonnes |
98 |
260 |
136 |
164.6 |
91.9 | ||
US$/tonne |
1 034 |
1 123 |
912 |
8.6 |
23.1 | ||
Cotton |
million US$ |
184 |
227 |
180 |
23.3 |
26.4 | |
000 tonnes |
165 |
142 |
159 |
-14.2 |
-10.9 | ||
US$/tonne |
1 097 |
1 623 |
1 167 |
48.0 |
39.1 | ||
Sugar |
million US$ |
53 |
106 |
80 |
99.9 |
32.2 | |
000 tonnes |
177 |
320 |
266 |
80.8 |
20.7 | ||
US$/tonne |
336 |
311 |
359 |
-7.5 |
-13.5 | ||
1 See note 1 to Table 3.
Source: Computed from FAOSTAT data.
For fruit and vegetables, the export experience was positive on the whole, with a particularly impressive performance for primary fruit, although the total volume of exports is negligible for such a large fruit producer as India. The export performance of processed fruit and vegetables was also strong, with 1995-98 exports exceeding the 1990-94 level by 51 percent and by a much smaller margin the trend level. On the other hand, vegetable exports declined in the post-1994 period. Finally, there was no change in the value of exports of tea.
Over the 14 years from 1985 to 1998, India was a net food importer in six years (1985-1988, 1994 and 1997) and a net exporter in the remaining eight. The overall trend has been towards net food exports: in 1985-87, there were net imports averaging US$329 million; in 1990-94 and 1995-98 there were net exports averaging US$407 and US$567 million respectively.
Although the trend of food exports during the entire period 1985-94 was positive, the rate of increase was modest (Figure 2). However, there was a marked change in 1995, when exports doubled from US$1 500 million in the previous year to US$3 100, falling somewhat in both 1996 and 1997 and rising again in 1998. The average value of exports in 1995-98 was consequently 128 percent higher than in 1990-94 and 87 percent higher than the trend value (Table 5).
The trend of food imports over the same period was negative. Starting in 1994, they began to rise sharply - by 147 percent in that year over the previous one and remaining at that level (about US$1 600 million) in the next two years. They rose again sharply in 1997 (more than doubling) to US$3 440 million. The average value of food imports during 1995-98 was consequently 168 percent higher than in 1990-94 (Table 5), but it was as much as 216 percent higher than the extrapolated trend value since the trend was negative.
Table 5: Food trade in 1990-94 and 1995-98 (annual average value, in million US$, and percentage change)
Period |
Exports |
Imports |
Net exports |
|
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1 (b) - (a) 2 (b) - (c) 2 |
1 290 2 938 1 574 1 648 (128%) 1 364 (87%) |
883 2 371 751 1 488 (168%) 1 620 (216%) |
407 567 823 160 (39%) -256 (-31 %) |
1 See note 1 to Table 3. 2 Numbers in parentheses are percentage changes over (a) and (c) respectively. Source: Computed from FAOSTAT data. Food excludes fishery products. | |||
India's net food trade has fluctuated widely in the last four years: from a surplus of US$1.3 billion in 1995 and US$1.6 billion in 1996 to a deficit of close to US$1.0 billion in 1997 and a small surplus in 1998 (Figure 2). Average net food exports in 1995-98 were 39 percent higher (US$160 million) than in 1990-94, but when measured against the extrapolated trend, trade in food showed a deficit of 31 percent (US$256 million), since both the export and import trends were "unfavourable".
Table 6 shows trends in imports (value, volume and price) for selected major food products. The most striking experience has been with vegetable oils, imports of which in 1995-98 were nine times higher in value than in 1990-94. During the 1980s, India raised remarkably the level of self-sufficiency in oilseeds, as a result of what has been dubbed the "yellow revolution". The main problem with the growth of the oilseed sector was said to be in the processing sector, which until recently was highly protected, not only through trade instruments but also, and perhaps more importantly, through restrictions on entry by large-scale modern firms.12 A change of policy may now be underway; if pursued, it should lead to much more efficient production of oils to the benefit of both producers and consumers. Imports of fruit and vegetables have also increased significantly in the post-94 period; for pulses the increase has been more modest.
Figure 2: Food trade, 1995-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94, extrapolated to 1998)
Source: FAOSTAT
Table 6: Imports and import unit values of major food products, 1990-94 and 1995-98 (annual average)
Actual value |
Trend value1 |
Percentage change | ||||||
1990-94 |
1995-98 |
1995-98 |
(b/a) |
(b/c) | ||||
Product |
Unit |
(a) |
(b) |
(c) |
(d) |
(e) | ||
Vegetable |
million US$ |
141 |
1 280 |
-182 |
2 |
2 | ||
oils, |
000 tonnes |
305 |
2 129 |
-429 |
2 |
2 | ||
total |
US$/tonne |
477 |
610 |
518 |
28 |
18 | ||
Palm oil |
million US$ |
99 |
941 |
-39 |
2 |
2 | ||
000 tonnes |
249 |
1 609 |
-137 |
2 |
2 | |||
US$/tonne |
406 |
595 |
439 |
47 |
35 | |||
Other oils |
million US$ |
42 |
339 |
-143 |
2 |
2 | ||
000 tonnes |
56 |
520 |
-291 |
2 |
2 | |||
US$/tonne |
754 |
647 |
864 |
-14 |
-25 | |||
Fruit & |
million US$ |
399 |
669 |
513 |
68 |
31 | ||
vegetables |
000 tonnes |
819 |
1 145 |
951 |
40 |
20 | ||
US$/tonne |
496 |
586 |
560 |
18 |
5 | |||
Pulses |
million US$ |
188 |
325 |
188 |
73 |
73 | ||
000 tonnes |
570 |
721 |
585 |
27 |
23 | |||
US$/tonne |
329 |
441 |
315 |
34 |
40 | |||
Cereals |
million US$ |
80 |
209 |
94 |
163 |
121 | ||
000 tonnes |
388 |
1 288 |
484 |
232 |
166 | |||
US$/tonne |
268 |
211 |
265 |
-21 |
-20 | |||
Sugar |
million US$ |
147 |
94 |
218 |
-36 |
-57 | ||
000 tonnes |
389 |
335 |
162 |
-14 |
107 | |||
US$/tonne |
310 |
345 |
420 |
11 |
-18 | |||
Dairy |
million US$ |
9 |
6 |
-22 |
-38 |
2 | ||
Products |
000 tonnes |
33 |
28 |
-122 |
-16 |
2 | ||
US$/tonne |
305 |
188 |
329 |
-38 |
-43 | |||
1 See note 1 to Table 3. 2 Very high percentage changes. Source: Computed from FAOSTAT data. | ||||||||
Figure 3 shows the evolution of the relationship of food imports to agricultural exports during 1985-98. The ratio has fluctuated sharply, having been on a declining trend until early in the 1990s and a rising trend thereafter. In 1985-87, the ratio averaged 0.57, i.e. food imports were 57 percent of total agricultural exports. It fell to a low of 0.18 in 1991 and rose thereafter. During 1995-98 it averaged 0.32, some 36 percent higher than the value of 0.24 for 1990-94, and still 15 percent higher than the extrapolated trend value. In other words, there was a clear and marked deterioration in the balance between total food imports and total agricultural exports during 1995-98 compared to the previous four years but also to the trend.
Figure 3: Ratio of the value of total food imports to total agricultural exports, 1985-94
One of the puzzles coming out of recent household survey data in India is that the incidence of poverty has persisted, i.e. did not decline, despite faster economic growth since 1991, when a substantive liberalization programme was started, while the relationship was opposite in the 1980s. One argument made to explain this was that food prices rose relatively faster than general consumer prices after 1991. As a result, price stability was considered essential for protecting the welfare of the poor during transition.
Given this situation, one of the issues of concern in public debates in India is whether the country's food security has been compromised by the AoA. Although views differ widely, the dominant opinion seems to be that in the long run the trade liberalization called for in that Agreement, and associated domestic policy reforms, should lead to a more efficient allocation of resources and enhance incomes and employment, thereby reducing food insecurity. In the short run, however, there is fear of an adverse impact; the evidence on poverty observed after 1991, which was not encouraging, is pointed to in this respect.
India has a long tradition of implementing specific "food security" programmes, such as price support schemes, stockholding for price stabilization and targeted food distribution and targeted employment schemes. The implications of the AoA for these programmes are analysed below with reference to three specific topics: i) trade liberalization and food price stabilization; ii) safety net policies; and iii) food management in the long run.
In the past, India has been able to stabilize domestic food prices (relative to the variability in world markets) through a combination of measures such as quantitative restrictions (QRs) on trade, tariffs and buffer stock operations. Now that QRs are prohibited, the main trade instrument for regulating imports is the tariff. If WTO bound tariffs are high enough, applied rates can be raised up to the bound level to regulate imports and thus influence domestic prices. For India, this is still a feasible instrument. A variant of such a scheme is to set price bands whereby applied rates are varied automatically in response to the gap between domestic and world market prices in order to stabilize the former. Although price band policies are still followed by some WTO members, their compatibility with WTO provisions is open to question, since the AoA explicitly outlaws variable levies. However, it has been argued that such policies are legitimate as long as applied duties do not exceed the bound rates.
The AoA permits the operation of stockholding schemes for clearly defined food security purposes. India has considerable experience of such schemes. Under the new liberal trading environment, the national debate has shifted to their cost effectiveness, given the trade option. To what extent are trade and stockholding complementary from that point of view?
One recent study has used the technique of Monte Carlo simulations to analyse the trade-offs involved.13 It compares the cost of stocking operations with trade costs and shows that it is feasible to combine the two instruments to achieve price stability at low fiscal cost. The proposed scheme would require modest levels of stocks, namely 4 million tonnes of rice and 0.5 million tonnes of wheat, both small amounts relative to current stock levels in India. The analysis shows that even during years of domestic production shortfalls, import requirements to smooth domestic prices would be modest and the overall cost low. The authors concluded that trade liberalization need thus not be detrimental to price stability if appropriately complemented by stocking policies.
In sum, there are a number of instruments to attain modest degrees of price stability and trade liberalization and the AoA hardly limits the ability of the Government to stabilize prices to the extent necessary for food security. It is important, however, for India to ensure that these options are preserved in future multilateral negotiations.
The other area of concern to India is the continuation of safety net policies such as employment programmes and the Public Distribution System (PDS). Such green box measures, exempt from reduction commitments, are listed in Annex 2 of the AoA. Paragraph 4 thereof defines domestic food aid outlays as "expenditures (or revenue foregone) in relation to the provision of domestic food aid to sections of the population in need". It further states that "Eligibility to receive the food aid shall be subject to clearly-defined criteria related to nutritional objectives. Such aid shall be in the form of direct provision of food to those concerned or the provision of means to allow eligible recipients to buy food either at market or at subsidized prices. Food purchases by the government shall be made at current market prices and the financing and administration of the aid shall be transparent."14
Thus, targeted employment programmes seem to qualify as "the provision of means to allow eligible recipients to buy food either at market or at subsidized prices". The rest of the paragraph refers to the PDS-type of food distribution programme. The key issue for India is thus not so much that of the WTO-compatibility of the measure as the costs involved and the effectiveness of the programme, which are of purely domestic concern.
India, probably along with some other developing countries even closer to food self-sufficiency, faces a particular problem that has to be solved within the AoA rules - that of managing occasional food surpluses. A country may face a situation where simultaneously there are bumper harvests, due to good weather, and very low world market prices, but it cannot export the surplus without recourse to export subsidies, whereas such subsidies are not open to it under its UR commitments. In such a situation, one alternative is to stockpile in order to avoid a price collapse, but at a high cost. The other is to let prices collapse, to the benefit of consumers in the short run but with an adverse impact on production and food security itself in the longer run. So long as a situation of this kind is a random event, the associated costs and negative effects can perhaps be absorbed. However, it has not been a random event for India, in that there have been several years of good crops and indeed stocks are mounting.
If food security is an important goal of the AoA, some possibility should be provided for handling the situation without infringing the spirit of the Agreement. Should the country in question be allowed to export the surplus with subsidies, with clearly defined rules and triggers to minimize abuses? Or, should such exports be treated in a different light - e.g. as something that cancels out with occasional imports, which are inevitable if harvests are poor in some years because of the weather? For India, as well as for some other countries in that situation, this question needs studying, with a view to seeking an appropriate solution in the WTO framework. For example, subsidized exports in this context could perhaps be regarded as falling within the general SDT provisions for developing countries.
The preceding sections have brought out a number of issues that are of concern to India. The present section summarizes some of these issues and concerns in the context of the new WTO negotiations on agriculture.
It was noted that India needs to do very little to meet its AoA obligations so far as domestic support and export competitiveness are concerned. While the AMS for non-product specific support is positive, the product-specific support was negative and large. Consequently, there is ample scope for raising the support levels without breaching the WTO rules. The exemption granted to SDT measures, which India has not utilized but reserves the right to do so if required, provides additional scope for granting input subsidies. There are few consequences in the area of export subsidies, which were abolished prior to the AoA.
There have been some difficulties with respect to market access, mainly related to non-tariff measures. For tariffs the problems were few. It was seen above that applied duties were generally lower than bound rates, by as much as 50 percent for the great bulk (83 percent) of the agricultural tariff lines. While for some products applied rates exceeded the bound rates, bringing them down to the level of the latter should not create any great difficulty. There are, however, some products for which bound rates are zero or very low, confronting the country with a difficult situation in view of their importance for food security. India has been trying to renegotiate these tariffs in the WTO.
The timetable for removing QRs on many agricultural products justified on balance of payments grounds has posed greater difficulty. The proposal to remove the QRs over a longer period was not acceptable to several WTO members, obliging India to agree to removing them much earlier, by 2001.
Agricultural trade liberalization is likely to impact negatively on the rural and urban poor in different ways, e.g. by exposing small farmers to import competition and raising the level of food prices. The appropriate response to these problems has been identified as safety net measures such as employment programmes and targeted food subsidies. Studies have shown that India can combine its buffer stock operations with a liberal trade regime to pursue a programme of food price stabilization, in full conformity with the AoA.
Specific issues of concern in the new round
While India has complied with the AoA in its spirit and letter and honoured its own commitments, the Government believes that the Agreement leaves much room for abuse, especially by those developed countries that resorted to excessive support and protection for domestic producers and continue to do so, thereby undermining the promised benefits for low-cost, non-subsidizing countries like India. The new negotiations provide an opportunity to pursue these issues. In particular, reforms in the following areas would be to India's advantage:
Domestic support measures
The sizeable scope for some countries to subsidize exports is a potential cost to others that is not only unfair but also perpetuates the asymmetry in the AoA. Export subsidization must be fully eliminated. Numerous studies have shown that in view of its vast agro-climatic diversity, India has a comparative advantage in a wide variety of agricultural products. There is a growing feeling15 in India that the country should join hands with members of the Cairns Group on the issue of export subsidization and other market access reforms.
In conclusion, it is generally felt in India that the country has much to gain from an effective AoA that represents a balance of rights and obligations of all parties involved. India has been a highly active member of the WTO and should continue to work towards the goal of making the Organization, as stressed by Stiglitz, a forum for "fair play"16 that also ensures the survival of the multilateral forum itself.
1 Based on a background study prepared for the FAO Commodities and Trade Division by Manoj Panda and A. Ganesh-Kumar, Mumbai.
2 Pursell, G, 1996, Some Aspects of the Liberalization of South Asian Agricultural Policies: How can the WTO Help?, in B. Blarel, G. Pursell and A. Valdés (eds.), Implications of the Uruguay Round for South Asia: The Case of Agriculture, Proceedings of a World Bank/FAO Workshop, Allied Publishers, New Delhi, 1999.
3 As regards major imported commodities, tariffs on rice and dried skimmed milk were bound at zero in 1947 under the Geneva Protocol; maize and millets in 1951 under the Torquay Protocol; and sorghum in 1962 in the Dillon Round.
4 These are called 'basic custom duty' in India and exclude special duty.
5 For current notification (1995/96), India expressed support levels in US dollar terms, as against the Indian rupees in base period.
6 The precise wording in the original Schedule, repeated in the 1995/96 notification, was as follows: In the estimation of generally available input subsidies, no account has been taken of the exemption on input subsidies to low-income or resource-poor producers in developing countries in terms of Article 6.2 in the Agriculture Agreement of the Final Act. In India, operational holdings of 10 hectares or less accounted for 79.5 percent of agricultural land. If farmers holding less than 10 hectares of land are considered to be resource-poor or low-income, almost 80 percent of the input subsidies will qualify for exemption from inclusion in non-product-specific AMS. This would result in AMS figure being even lower.
7 R. Sharma and P. Konandreas, Supporting Import-Competing Agricultural Sectors with Tariffs, Safeguards and Domestic Measures within the Framework of the Uruguay Round Agreements, Paper discussed at a Round Table meeting on the Uruguay Round held in New Delhi, 18-19 January 1999 (FAO, Rome, 1999). See also A. Gulati and T. Kelly, Trade Liberalization and Indian Agriculture, Oxford University Press, New Delhi, 1999.
8 United States law provides for tax exemptions on export income of Foreign Sales Corporations, including those engaged in agricultural exports. The legislation has been challenged by the EU in WTO.
9 See C. Satpathy, "Subsidies and Countervailing Measures: Case for Review of WTO Agreement", Economic and Political Weekly, 34(34-35), 1999, for such an argument.
10 Annual cereal exports increased from less than 1 million tonnes in 1990-94 to 4.5 million tonnes in 1995-98.
11 Food excludes fishery products.
13 See A. Ganesh-Kumar and K. S. Parikh, "A Stock-Trade Policy for National Level Food Security for India", mimeo, Indira Gandhi Institute of Development Research, Mumbai, 1998.
14 In a footnote to the paragraph it is specified that "the provision of foodstuffs at subsidized prices with the objective of meeting food requirements of urban and rural poor in developing countries on a regular basis at reasonable prices shall be considered to be in conformity with the provisions of this paragraph".
15 This sentiment has been expressed by the sugar and dairy industries and supported by some researchers, e.g. Gulati, Mehta and Narayanan, op. cit.
16 Stiglitz, J. E. (1999): "Two Principles for the Next Round: Or How to Bring Developing Countries in from the Cold", World Bank, Washington D. C.
