India stays firm on food subsidy, blocks WTO deal.

NEW DELHI: India's domestic compulsions and the danger of breaching the subsidy cap for wheat and rice forced the government to thwart attempts by other World Trade Organization members to push through a new set of customs rules without addressing its concerns.

The subsidy data, due to be released by the government over the next few weeks, will reveal that the subsidy on rice was over 9% of the value of production in 2011, while on wheat it was only a shade lower. Although India is safe for the moment, there is a real prospect of it crossing the 10% limit and facing penal action at WTO. What has compounded the problem for the government is rising minimum support price (MSP), higher levels of procurement as well as depreciation of the rupee against the dollar.

Besides, the 10% ceiling is based on 1986-88 prices, while actual subsidy calculations are based on current prices.

A nationwide Food Security Act is expected to increase the procurement burden, while MSP has increased by around 10% annually over the past few years. By all indications, the trend will continue. Add to that the bonus paid by the state governments. "It's a matter of time before we reach the limit," acknowledged an official.

In contrast, other than forced reform at ports and airports, the government sees little benefit from the trade facilitation agreement, as easier customs rules are expected to aid imports into the country compared to exports from Indian shores.

"We have saved MSP and the Food Security Act. If we had stuck to what was agreed at Bali, it would have sounded the death knell for the Food Security Act," finance minister Arun Jaitley said on Friday, hours after talks collapsed at WTO. Jaitely, himself a former trade minister, has been critical of the Bali deal since it was signed.

While India has been demanding a review of the food subsidy limit for several years, the developed countries have refused to play ball. In fact, in the run-up to the Bali ministerial last December, the rich countries had even refused to acknowledge the food security proposal submitted by G-33, which includes countries such as Indonesia, Brazil and China. It was only after a link with trade facilitation was established that food security even came on the agenda for the ministerial.

Then, the US and European Union put up stiff resistance saying a tweaking of rules by changing the reference price from 1986-88 to the current rates was tantamount to reopening WTO's agreement on agriculture, a move that will set a bad trend. After India held firm, threatening to block a deal at Bali, the developed countries conceded ground, but only partially. In return for a trade facilitation agreement by July 31, which is to be implemented next year, they agreed not to seek penal action even if the 10% subsidy cap is breached. But there is confusion over how long this "peace clause" is in place. One interpretation was that it will only be in place till a permanent solution is found. The other was it will stay intact till 2017.

"It was a play of words and we seem to have settled for a wrong formulation since a crucial comma is missing," said a top-ranking official, who did not wish to be identified.

In any case, Indian officials said, there was little effort from the rich countries to address India's concerns as there were only two meetings of the committee dealing with the food security problem, while there have been over 20 on trade facilitation since the Bali ministerial. So, when the Narendra Modi government took charge, India decided to link an agreement on easier customs rules, for which the deadline ended Thursday night, with finding a permanent solution on food security.

The US and EU did not heed India's demand, resulting in the latest stalemate and a fresh round of name calling. Indian officials, however, maintained that all is not lost and when WTO reassembles after a vacation, fresh attempts would be made to salvage the deal and things may be back in place by the end of 2014.

While the West has described India as the deal breaker, the government is refuting the charge. "It is not justified for the simple reason that the deal was not broken. Pushing the date from July 31 to December 31 is not bringing the heavens down," an officer said.

Source : timesofindia.indiatimes.com