globalEDGE Blog: India’s Farm Subsidies Effect on International Trade

India’s Farm Subsidies Effect on International Trade

With one third of the world’s poor population located in India, the emerging country of India has been striving to help its people achieve a better standard of living. Thanks to the programs that are provided by the government to alleviate poverty, India’s economy has grown steadily over the years. When the government noticed that the world’s most extreme poverty rates fall in rural Orissa and Bihar, it began to focus on farm subsidy programs, with hopes of lifting the economic level of these rural regions. However, its farm subsidies are challenging the World Trade Organization's (WTO) ability to keep an important international trade deal on table.

India plans to launch a new, large-scale program to provide extremely cheap grain to 70% of the country’s 1.2 billion people, many of whom live on less than $2 a day. However, if this program legislation passes, India will violate the WTO’s rules of limiting food subsidies to 10% of the cost of a crop. In an effort to secure food sources for the poor and to fight hunger in the nation, India is gathering a group of less-affluent countries to push for changes to WTO’s rules. With multiple disputes and questions regarding farm subsidies, people are beginning to question the effectiveness of the WTO and this may mean the end of the Doha process, which has been improving the international trading system for the past 12 years.

India has several reasons for implementing its farm subsidy programs. First, subsidizing the agricultural industry in developed countries is not even a subject of discussion in WTO, so there are no reasons for WTO to restrict developing countries from subsidizing. India is calling for fairness and the equal treatment of all countries under WTO agreements as well as equal human rights in the world. Secondly, the farm subsidies would increase the country's food security. India has the world’s second largest population, but it has limited food sources. The program, if it passes, will increase the farmer’s willingness to produce food and people would then have more opportunity to get the food they want.

Many people are concerned that India will misuse the policy to export the food at cheaper prices, thus distorting the market. This is the reason why the WTO has implemented the rules for limiting food subsidies: it aims at providing fair trade among globally trading countries. If the food subsidy passes, India would have have more competitive food prices over other countries such as China and Thailand. This would undoubtedly hurt multilateral trade.

Up until now, the argument has not been settled and food subsidy issues have not been solved for countries belonging to the WTO. Whether or not India will start the program depends on the value generated by increased food security and its relationship with the WTO.

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