India clings to the subsidies that hold it back

India's archaic and inefficient food-subsidy scheme threatens to scupper a World Trade Organisation breakthrough deal that will ease world trade.

Village boys stack wheat grown in India. The way India pays farmers has put it offside with the World Trade Organisation. Photo: AP / Altaf Qadri

When a World Trade Organisation conference in Bali last December reached an agreement about lowering global trade barriers, it was the first unanimous vote in the WTO’s history. Some heralded it as the biggest trade deal in 20 years and interpreted it as a sign that the deadlock that has mired trade negotiations since the start of the Doha round in 2001 had been broken.

Eight months later at a subsequent WTO meeting in Sydney, one dissenting country – India – is threatening to scuttle the deal that promised to increase food security, reduce red tape, streamline customs procedures, and lower tariffs and subsidies. The agreement was specifically aimed at helping countries in the developing world by making it easier for them to trade with developed nations, but India is protesting because of the deal’s implications for its food subsidies.

The deal has to be adopted by July 31 but India is demanding changes so that it will not face financial sanctions for the nature of its food subsidy scheme, saying this week its stance is “non negotiable”.

The scheme India is seeking to protect has been roundly criticised as archaic, inefficient, prone to corruption, crippling to the country’s finances and, most pointedly, failing to properly assist the people it was intended to help. Much of the food rots instead of being used.

India’s food subsidies involve the government buying wheat and rice from farmers at above the international market price and distributing that produce to state-run shops across the country, where it and other staple products are sold at subsidised rates. The WTO would penalise India for this because it amounts to favouring local farmers over their overseas competitors.

One wonders why India is risking damage to its international standing to support a scheme that has the overall effect of inhibiting its agricultural productivity and exacerbating the lack of food security experienced by hundreds of millions of its citizens.

Australian trade minister Andrew Robb expressed confidence that an agreement can be reached before the deadline, turning this into a speed bump rather than a roadblock. One hopes his optimism is justified. Freeing world trade has been a powerful force in lifting countries out of grinding poverty. By moving on from its self-defeating subsidies, India – and its many hundreds of millions of undernourished – stands to benefit along with the rest.