India Intelligence Report

   India Flexible on Industry not Agriculture at WTO

  • India and developing world is flexible on industrial goods and not on farm issues
  • Developing nations feel that developed nations are not sensitive
  • The livelihood of several million people are at stake

Even as Prime Minister Manmohan Singh is expected to discuss the floundering World Trade Organization (WTO) discussions on the sidelines of the G8 summit, trade experts India to be flexible on market access to industrial goods and rigid on agriculture. As one of the lead negotiators for the developing world, New Delhi and fellow negotiators in a rare solidarity, expect the US and EU to offer deeper cuts in agricultural subsidies and tariffs before they concede on manufacturing markets.

In increasingly hardening positioning, Industry and Commerce Minister Kamal Nath wanted “The developed countries must take the initiative to push the WTO talks” and wanted them to “show leadership.” For five years, the world has been negotiating ways to boost the global economy and reduce poverty but every deadline has been broken and there is real danger that an accord by the end of the year is becoming impossible.

Foreign Secretary Shyam Saran reiterates that India has major stakes in the negotiations and was committed to a multilateral, equitable world trading regime. However, he said that a regime adequate and positive discriminatory treatment to developing and developed nations is not emerging especially on Agriculture. He accused developed nations of a lack of “sensitivity to the requirements of large developing countries who have vulnerable rural populations” whose “economy of subsistence agriculture” is fragile and needs accommodation.

In addition to the paring down of subsidies for agriculture, developing nations are also asking for a 20% “special products” category for farm products from small farmers that would remain out of agreed tariff cuts. This additional measure is to create a mechanism that would block imports if a sudden glut is seen to hit marginal farmers. India says that it wants to protect the livelihood of 650 million farmers, or 60% of its population, that is dependent on farming making up 23% of its economy.

Many of these marginal farmers do not have access to banking and institutional credit and have to depend on local loan sharks who charge cripplingly high interest rates that {trap them in a vortex of debt [Insert Cabinet Wants Farm Loan Waiver]} that drive them suicide when crops fail or market prices fall. This situation triggers some analysts to erroneously conclude that the trade negotiations are net loss for India.

Developing nations, and specifically India, may be confusing its own argument with internal issues born out of political greed, incompetence, and populist measures. The solution to rural indebtedness is not to arbitrarily waive farm loans or hand out money but to fix underlying causal pressures. Some of these reasons include lack of regulation of rural financing, changing spending behavior, creating awareness of social fault lines, etc. Unless the Government fixes these problems, the basic issues facing the poor in rural India will continue.

While India and other developing nations will be inflexible on agriculture, experts say that there is a lot of negotiation room on industrial goods provided the developed nations provide access to services. Even there, a cat and mouse game is on where the developed nations are fishing for ceiling levels on industrial goods while developing nations are fishing around for ceiling levels for services. Developing nations want to keep more products out of the tariff ambit while developed nations want more. Developing nations feels that it needs to protect sensitive and small scale industry which employs many people. Despite disagreements on the numbers, it appears that the differences are not unbridgeable.

Market access to services is important to India as that sector contributes over 50% of the Indian economy. Many developed nations protect their own service sector through restrictions on work visas and permits because of their internal immigration structure and laws.

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