Abhijit Iyer-Mitra
Now that the dust has settled on India’s supposed obstruction of a new trade deal at the World Trade Organisation, far greater clarity has emerged on why India adopted the position it did. If anything, the facts on the ground actually reveal the face of a Government that (for the first time in a decade) knows what it is doing and has got its act together, rather than convey the impression of one that is opposed to free trade. However, the fact that the Government couldn’t explain its actions well enough, either at home or abroad, points to an extremely weak public outreach mechanism. This needs to be corrected quickly so that protection of self-interest doesn’t get portrayed as retrograde in the future.
To be clear, India did not actually make the linkage between trade and food security, unlike what has been widely assumed. This was a linkage imposed upon India by advanced countries. This is clear from the kinds of food that India and the West subsidise. For the West, food subsidies are linked to trade competitiveness; for India, they are about about fighting against poverty and ensuring subsistence. The germane questions here are: Who these subsidies are aimed at and what baseline measures are being used?
In India, these food subsides are targeted at subsistence farmers. The fact that they don’t work well enough, as brought out by noted economists Ashok Gulati and Sudha Narayanan, are a different matter that is not to be discussed here. When India talks of food subsidies, it has in mind the small patch potato or onion farmer who trudges his produce to the local market or makes the deal with the local wholesaler. The money he makes in this is barely enough to keep him at the levels of basic poverty – which is effectively just one flood or drought away from complete ruin and hunger.
When the West talks of farm subsidies, it is referring to write-offs for niche products that are high value luxury commodities. Subsidies in these cases are targeted at, for example, goose farms that manufacture foie-gras or specific vineyards that keep alive a niche species of grape for a specific kind of wine.
In other words, the food subsidies here are also cultural, lifestyle and luxury subsidies. Such subsidies defray the cost of high value French or Italian cultural products and make them commercially viable to a world market that could not afford such an expensive mouthful of ‘culture’.
It also plumps up the relatively lavish lifestyle of the European farmer and the desire of the rest of the world for luxury consumption. Consequently, what to India is a debate over the life and death of a farmer, to Europe, it is a debate on the additional refrigerator in the house of an Italian farmer or an additional Citroen in the garage of a French farmer.
The second question is one of baselines. The US population in 1986 stood at 240 million and in 2014 at around 316 million. In short, a 31 per cent rise. The French population has grown at an even slower pace. In 1986, its population stood at 57 million; by 2014, it has grown only 16 per cent to 66 million. India, in the same period, has grown by a whopping 57 per cent. It had a population of 800 million in 1986 and is now home to 1.25 billion people. So, between 16 per cent, 31 per cent and 57 per cent, why did the 16 per cent and 31 per cent choose to gang up against the 57 per cent? The answer lies in the nature of growth.
In the US, most of the population growth has been in the lower income segments such as among illegal immigrants. Maintaining subsidies at 1986 levels, therefore, defrays a soaring cost of living index and keeps labour prices artificially low since the same pie now has to be divided up among more people. This keeps US agricultural exports competitive.
For France, its 16 per cent population growth masks the migration of people from agriculture to industrial high value added jobs. As a result, the same pie can be spread among fewer people who chose a rural agrarian lifestyle.
For India, on the other hand, much of this population growth has been concentrated in the poorer sections of society, combined with living standards that are much lower than either those of France or the US. The Indian population is young and aspirational; however, its desire for industrial and service sector jobs may or may not be met, and then agriculture provides the fallback in case of governmental failure to create jobs.
In this sense, the Indian position on food subsidies is far more sensitive to population growth then either that of the US or Europe. Also, India’s stand incorporates a significantly greater compensation for Government failure.
Moreover, there is also evidence that there is a significant element of ‘policy laundering’ in the West’s decision to club together food subsidies and trade. Policy laundering is a process where concessions are extracted from a sovereign Government in one set of negotiations which, unbeknownst to the state, have a significant knock on effects in other sectors, where it is not willing to compromise. Effective policy laundering depends on the left arm of the targeted Government not knowing what the right arm is doing.
In that sense, the new Government’s decision at the WTO is proof that, contrary to being a disconnected regime, it is actually making integrated multi-disciplinary decisions that keep India’s interests first. Also, in no way, is it being anti-trade or anti-free market. Let there be no doubt that is it not India which has made the link between food subsidies and trade; instead, it was definitionally and fundamentally the West, with its trade-based agricultural surplus, that has linked the two.
The new Government only failed on one count: To stay ahead of the international news cycle, and actively and aggressively provide the kind of multi-disciplinary rebuttal required. Whether one likes it or not, negative news coverage can have an insidious impact on public morale and investor confidence, and clearly, New Delhi has much to do in this department. In fact, its pointlessly supine defence of India’s WTO stand caused much harm to a just cause and a well-crafted negotiation strategy. This is a mistake that must not be repeated.