India’s merchandise exports reached a milestone in 2021–22, crossing the $400 billion mark for the first time. Provisional figures peg exports at nearly $420 billion, over 27% higher than the previous peak of $330 billion reached in 2018–19. What is remarkable about the export performance is that every major sector of the economy has made a definitive contribution to this burgeoning export basket. In agriculture, several non-traditional commodities have led to the export surge. For instance, non-basmati rice and wheat have seen record levels of exports. Recently, non-basmati exports were a third to one-half of India’s rice exports, but in 2021–22, this had increased to nearly two-thirds. Wheat exports were $60 million in 2019–20, but in the previous fiscal, they were over $2 billion.
India has, thus, consolidated its position in the global markets for these commodities. According to data provided by the United States Department of Agriculture (USDA), India’s share in global exports of rice has increased from about 22% in 2018–19 to 40% in 2021–22. In the case of wheat, India’s share now stands at 5% as against 0.3% in 2019–20. Equally impressive is the increase in India’s share in sugar exports, which has increased to over 11% as against 3.4% in 2017–18. Record levels of food grains output expected for the seventh consecutive year could push agricultural exports even higher this year.
This is where the good news ends, as India’s agricultural exports are under intense scrutiny in the World Trade Organization (WTO). In 2019, Australia, Brazil, and Guatemala complained to WTO’s dispute settlement body that the Central government was implementing several subsidy schemes for promoting sugar exports. The complainants argued that by implementing these subsidy schemes, the government had violated the rules of WTO’s Agreement on Agriculture (AoA), which prohibit the use of export subsidies. In December 2021, the dispute settlement panel adjudicating the dispute gave its ruling against India.
There is a much bigger problem. During the deliberations in the WTO’s Committee on Agriculture, several countries, including Japan, Russia and the US, have sought clarifications from India as to whether its exports of food grains are in any way linked to the Open Market Sales Scheme of the Food Corporation of India.
These questions have been asked as AoA imposes strict discipline on countries implementing domestic food security programmes using public stockholding of food grains, as for example, India’s public distribution system (PDS). Such countries are allowed to acquire and release food grains at administered prices (or minimum support prices/ MSP as in India), but they can only do so when they include the difference between the acquisition price of food grains and their “external reference prices”, namely, the international prices prevailing during 1986–88, in their subsidies’ bill. According to the AoA, subsidies that developing countries like India provide cannot exceed 10% of their value of agricultural production. This implies if India’s food subsidies provided through the PDS are taken together with those granted to farmers in the form of MSP and input assistance, its subsidies bill will surely exceed the 10% threshold.
The provisions in the AoA regarding public stockholding are patently illogical on at least two counts. First, minimum support prices that India currently gives on identified products are compared with their international prices prevailing during 1986–88 to measure the extent of subsidies granted. India has been arguing that this criterion needs to be amended, either by selecting “external reference prices” of a more recent period, or by accounting for commodity price inflation. Secondly, including food subsidies granted to the undernourished and production-related subsidies to the farmers in a single discipline makes little sense. This is one of the glaring examples of how the European Union and the US wrote the WTO rules on agriculture that discriminate against the interests of developing countries.
It was fairly obvious from the day the then government decided to implement the National Food Security Act (NFSA) and to provide subsidised food to almost two-thirds of the country’s population that AoA’s rules on public stockholding are against India’s interests. However, in the Bali Ministerial Conference in 2013, WTO members took a decision that even if India breaches the subsidy threshold of 10% while implementing the NFSA, no dispute would be initiated, at least for the time being. This so-called “peace clause” was confirmed in 2015, and it allows implementation of the NFSA until a “permanent solution” is found to firewall India’s PDS from AoA rules. However, the “peace clause” includes a condition, namely, publicly held stocks should not be used to “distort trade or adversely affect the food security of other Members”, in other words, India cannot export from these stocks. Interestingly, as India’s food grains exports have increased, so has the scrutiny by other WTO members. The government needs a well-considered strategy to meet this challenge.
Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU