Amit Dave / Courtesy Reuters Farm laborers in the western Indian state of Gujarat, October 2012.

Modi Bets the Farm

Why Indian Agricultural Policy Might Unravel the WTO

A trade spat with India is threatening to push the World Trade Organization, already suffering from flagging credibility thanks to a lack of concrete results, into irrelevance. At the end of July, in a move that startled the WTO’s 160 members, India blocked a landmark international agreement that would have streamlined trade across the world. India had already approved the deal, which was struck at a WTO summit in Bali last December, but suddenly refused to live up to the deal’s first step -- signing a one-paragraph accession protocol -- without simultaneous progress on another matter -- food security, specifically greater concessions that would enable India to continue to subsidize its poor farmers.

India’s decision was a disappointing blow for a vast majority of WTO countries. The Bali deal was meant to be a crucial breakthrough, simplifying customs rules and potentially expanding the global economy by as much as $1 trillion. It would have also given a new boost to multilateralism at a time when most key players (including the United States and the EU) are increasingly focused on negotiating more specialized trade agreements in smaller groups. And if implemented, it would become the first unanimous agreement to be carried out by the WTO’s members in its two decades of existence. Although the clash with India does not spell the end of the WTO -- it has missed deadlines before and has so far carried on with its negotiations -- it marks a new low in the perennial WTO debate on agriculture while raising the risk of isolating India abroad.

India’s decision to link its approval of the pact to an unresolved WTO disagreement on food security might appear to defy strategic logic. After all, its newly elected prime minister, Narendra Modi, rose to power as a pro-market reformer. And New Delhi’s position has historically favored multilateralism -- lending support to trade liberalization since 1991 and campaigning for freer trade in services -- a consensus that even the rise of Modi’s nationalist party has done little to weaken. Moreover, unlike in previous WTO disputes involving India, when the country took the lead in voicing concerns shared by many developing countries and enjoyed their overwhelming support, this time only a handful of states backed its posturing. In contrast, a group of 26 WTO members, including several small, low-income countries, expressed “dismay” at India’s position.

No matter how erratic New Delhi’s stance might appear, however, it is shaped by compelling practical concerns and by domestic politics. Two factors in particular are at play: the primacy of India’s farming sector in its trade policy considerations and the WTO’s poor track record in recognizing the pressing needs of its developing-country members. 

First, domestic politics are the primary, if not the most crucial, factor shaping India’s trade policies. And the farming sector is especially influential, accounting for almost 55 percent of jobs in the country and for over 42 percent of its land. This sector is also very fragmented: there are around 138 million farm units in India, and over three-fourths of them are tiny. Most Indian farmers are subsistence producers with low incomes and poor access to resources who depend on the government for subsidies and aid. Yet these farmers also display an impressive capacity for political mobilization, including such highly visible forms of protest as huge rallies and sit-ins.

This explains why no politician in India would want to be perceived as being anti-farmer and why the government’s subsidies have steadily grown over the past two decades. As a result, New Delhi has found itself approaching the WTO-imposed limits on how much it can subsidize farmers and how much food it can buy back and stockpile for security. India has been lobbying the WTO to allow greater flexibility for developing countries on both counts, but the persistent lack of progress has left Indian negotiators frustrated and worried about possible trade disputes.

Admittedly, New Delhi’s policies on agriculture and food have long been in need of reform. In recent years, the government has often stockpiled more food than was necessary, raising storage costs and losing huge quantities of grain to rotting, while barely making a dent in the country’s malnutrition problem. Yet any reforms will take time, since India’s provincial governments hold much of the power in shaping them.

As the country’s WTO representatives have played to domestic concerns about subsidies and stockpiling, India has often faced isolation abroad. The Indian negotiator Murasoli Maran stood alone at Doha in 2001 in claiming that the Uruguay Round’s commitments hurt developing countries. His successor Kamal Nath was blamed, together with the Chinese negotiator Chen Deming, for the lack of a deal in Geneva in 2008 after insisting on special tariffs to protect poor farmers from cheap imports. Modi’s position on limited government and preference for market-oriented policies raised hopes that this time would be different. However, such optimism should have been tempered by his party’s populist tendencies; signing the trade facilitation deal would have bolstered Modi’s pro-business credentials but opened him to criticism for being anti-poor and anti-farmer. Indeed, last December, as the Bali deal was being negotiated, his party joined other political factions in expressing public support for a swift resolution to the WTO food subsidy dispute as a precondition for the broader trade agreement.

Beyond domestic politics, India is justifiably wary of the WTO, which has a track record of sidelining the concerns of developing countries. In the past, low-income WTO members have faced uphill battles in obtaining approval for their agricultural policies, winning more flexibility on intellectual property rights, and securing meaningful redress when they won disputes. In the months leading up to the Bali meeting, for example, New Delhi made several suggestions related to food stockpiling (such as changing the WTO’s three-decade-old formula for calculating the subsidy cap in order to adjust it for inflation), but none received serious consideration. And although negotiators in Bali ultimately agreed to find a permanent solution to the issue by 2017, Indian officials felt that almost no progress was made in the six months that followed. India’s minister of commerce, Nirmala Sitharaman, cited the WTO’s apparent lack of commitment to addressing Indian grievances as the primary reason for the country’s veto.

India might not be as isolated in this disagreement as it has been made out to be. In Bali, several developing countries supported its position on food security. Several other states, such as Egypt, Kenya, and Nigeria, likewise find themselves approaching the ceiling on subsidies. But developing countries have a history of being coerced by more powerful WTO members into keeping their concerns to themselves. The size and composition of India’s farming sector and the inherent political challenges in reforming it could have forced the Indian hand, but in raising the issue, India speaks for many low-income countries.

Even so, India remains eager to get back to the negotiating table. Domestically, the Modi government could use this opportunity to push for some badly needed domestic reforms in the farm sector. And at the international level, the standoff could still allow India to secure the concessions it wants if the logjam is resolved in the near future. In any case, the dispute does not spell immediate doom for the WTO, which has weathered many such storms in the past. But whether the trade facilitation deal can get revived will depend as much on the willingness of developed countries to negotiate as on India’s flexibility.

Browse Related Articles on {{search_model.selectedTerm.name}}

{{indexVM.results.hits.total | number}} Articles Found

  • {{bucket.key_as_string}}