A major international row has broken out over India allegedly under-reporting its market support price (MSP) for wheat and rice. This is not the first time that the issue of MSP has become a heating rod for its critics. The US, Australia, Canada, Argentina and Ukraine have targeted India at the World Trade Organization for alleged under-reporting. India has ‘unequivocally’ rejected the counter-notification issued by the five countries. The country’s representative in Geneva pointed out that the notice was inaccurate and based on selective interpretations of WTO rules.
“At an agriculture committee meeting on 26 November, where the counter-notification on India was discussed in details, the Indian representative rejected it and described it as hasty, misleading and superfluous,” affirmed a senior commerce ministry official. “India maintained that it had complied with its domestic support notification obligations and asked the countries that had co-sponsored the notification to prioritise their submissions”.
The development has taken place at a time when the government is moving towards the idea of regular increase in the MSP amidst farmers’ clamour to provide legal backing for the pricing mechanism. However, critics like Soumyakanti Ghosh, chief economic advisor, SBI, have argued that, if the government procures all the MSP crops, the fiscal burden will be a huge Rs13.5 lakh crore on the 2023-24 GDP. He has instead called for crop diversification and better farming practices, along with better farm value chain financing. In India, food grain output (a key MSP item) is only 17 per cent of the overall output of the agri sector, while as much as 71 per cent of the agriculture output is generated through vegetables, fruits, fisheries, forestry and livestock.
On 11 November, the five countries issued a counter-notification to India’s notifications of farm subsidies for the two covered years, 2021-23, and stated that India appeared to ‘dramatically under-report’ the value of its MSP for rice and wheat. MSP in India is mainly extended to farmers through the government’s MSP programmes.
“India’s apparent MSP for rice appears to have been over 87 per cent of VoP (value of production) in each of the two covered years for which India has notified data,” noted the counter-notification. “Its apparent MSP for wheat appears to have been 67-75 per cent of VoP over the two covered years”. Other like-minded members, such as New Zealand, the EU and Uruguay strongly supported the counter-notification, with some of them emphasising that India’s MSP, exceeding WTO commitments, impacted global markets, production and food security.
Peace clause gives immunity
The WTO rules place a cap of 10 per cent of VoP on market price support programmes (classified as trade distorting), such as the MSP for developing countries. Members of several developing countries have been stressing that they needed more flexibility to protect their vulnerable population.
A peace clause agreed to at the WTO’s Bali Ministerial Conference of 2013 gives many developing countries, including India, immunity against legal action in case the limit of 10 per cent is breached, but there are multiple onerous clauses that make the user countries vulnerable. That is why India, maintain Indian officials, and many other developing countries, have been pushing for a permanent solution to the problem which has proved to be elusive. India has invoked the peace clause for rice about five times for over-shooting the WTO cap by a moderate margin. But it has never invoked it for wheat.
“One of the reasons the calculations of subsidies in the counter-notification is way higher than India’s is that it took into account the entire production eligible for the subsidies and not just the production that received the subsidies,” another official pointed out. At the agriculture committee meeting, India contested the interpretation and argued that there was no clear definition in the WTO Agreement on Agriculture on the matter. It criticised the reliance on the outdated External Reference Price (ERP) during 1986-88 for calculations and argued that it must be revised as today’s prices were much higher.
In the counter-notification, the complainant countries also pointed out that while India’s domestic support commitments were denoted in Indian rupees, its notifications have been denominated in dollars. India, in its defence, stated that the AoA had not mandated that it must use rupee or any other specific currency for its notifications and does not mandate a specific currency for domestic support notifications, and its use of dollars was consistent with its commitments.