WTO and Farm Subsidies

Published on 09 Mar 2025

India's extensive farm subsidies, while essential for food security and farmer support, have faced scrutiny at the World Trade Organization (WTO). The country's large agricultural sector and the substantial amount of subsidies provided often exceed the limits set by the WTO's Agreement on Agriculture. This has led to trade disputes and concerns about market distortions.

Reasons why India’s Agri- subsidy programmes are facing challenges in WTO

• Per-Farmer Subsidy vs. Total Subsidy

• Low per-farmer subsidy: India's per-farmer subsidy is significantly lower than developed countries. However, the WTO focuses on the total amount of subsidies.

• Example: Despite a per-farmer subsidy of around $300 in 2019-20, India's total agricultural subsidies exceeded $6.31 billion due to its large farming population.

• Scale of Indian Agriculture: India's vast agricultural sector, with a large number of farmers, contributes to a substantial total subsidy amount.

• Exceeding the AMS Limit

• Aggregate Measure of Support: India's total subsidies often exceed the AMS limit set by the WTO.

• Example: India's total subsidies often exceed the AMS limit set by the WTO. For instance, in 2019-20, India's rice production was valued at $46.07 billion, and the subsidies provided exceeded the 10% AMS limit.

• Market Distortions: This can lead to market distortions, affecting global trade.

• The Peace Clause

• Limited Protection: While the Peace Clause provides some protection, it may not cover new schemes or expansions.

• Potential Challenges: The ambiguities in the Peace Clause can leave India vulnerable to disputes.

• Cairns Group Pressure

• Criticism of MSP: The Cairns Group has criticized India's Minimum Support Price (MSP) program, arguing it distorts markets.

• Proposal to Reduce Subsidies: The group advocates for a significant reduction in global agricultural subsidies.

• Trade Tensions

• WTO Disputes: India has faced trade disputes related to its agricultural subsidies, such as those brought by the United States.

• Unfair Trade Practices: Other countries may perceive India's subsidies as unfair trade practices and seek remedies through the WTO's dispute settlement mechanism.

Way Ahead for India to face the WTO challenge

• Strengthen Negotiations:

• Active Participation: India should actively participate in WTO negotiations, advocating for its interests and seeking to influence the global agricultural trade regime.

• Coalitions: Forming coalitions with other developing countries facing similar challenges can strengthen India's negotiating position.

• Diversify Support Mechanisms:

• Reduce Reliance on MSP: Gradually reducing reliance on MSP can help address concerns about market distortions.

• Direct Benefit Transfers: Implementing targeted direct benefit transfers can provide support to farmers while reducing the overall subsidy burden.

• Risk Management Tools: Promoting crop insurance, weather-based insurance, and other risk management tools can help farmers cope with market fluctuations and natural disasters.

• Promote Sustainable Agriculture:

• Environmental Stewardship: Supporting sustainable agricultural practices can help address concerns about the environmental impact of subsidies.

• Climate-Smart Agriculture: Promoting climate-resilient agriculture can help farmers adapt to changing climatic conditions.

• Strengthen Domestic Institutions:

• Agricultural Extension Services: Improving the capacity of extension services can help farmers adopt improved practices and increase productivity.

• Market Development: Supporting the development of agricultural markets can help farmers access better prices for their produce.

• Explore Alternative Trade Agreements:

• Regional Trade Agreements: India could explore regional trade agreements with countries that have similar agricultural policies or interests.

• Plurilateral Agreements: Participating in plurilateral agreements on specific agricultural products could provide opportunities for more flexible arrangements.

Tags:
Economy

Keywords:
Agriculture Subsidies WTO Minimum support price MSP

Syllabus:
General Studies Paper 3

Topics:
Agriculture and Food Security