8/3/2019 Material for Eco

http://slidepdf.com/reader/full/material-for-eco 1/4

Article 1

5 Issues of concern and implications for agricultural development and

food security

Produced by: Economic and Social Development Department

1. First, since India does not subsidize its agriculture, it is in India’s interest that domesticsupport in those countries that subsidize their agriculture heavily is reduced significantlyto the levels that are specified under the agreement as de minimis levels. Exportsubsidies should be eliminated completely. This is because both domestic support andexport subsidies, taken together, make exports from countries such as Indiauncompetitive and affect them adversely. It is quite evident that reductions in exportsubsidies and subsidized exports by the developed countries will have greaterimplications for developing country exports. Because of export subsidies, countries thatdo not have a comparative advantage are able to maintain their competitiveness at theexpense of those that are not able to use export subsidies. It is also important to ensurethat greater use of export credits does not substitute for the reduction in exportsubsidies.

However, as infrastructure facilities in developing countries are generally inadequate,exporters of agricultural commodities in these countries have to bear a very heavyburden of transportation and marketing costs. Subsidies for developing countries underthese heads are permitted, and any future attempts to constrain the use of suchsubsidies would not be in the interest of India.

2. Second, tariffs peaks, tariff escalation, commodity-specific bilateral agreements andspecial exemptions remain major issues restricting market access abroad for products inwhich the country has a comparative advantage. The major product groups where tariffpeaks are a problem include dairy products, fruits and vegetables, preparations of fruitsand vegetables, meat and fish and food industry products. More meaningful expansionof developed country markets is central to enhance market access for products that areof interest to India.

3. Third, ambiguities in various parts of the agreement, which basically originate from a

lack of clarity, should be taken up so they do not impose restrictions on supporting

Indian agriculture in the future. 

4. Fourth, as far as price stabilization is concerned, India has used a three-prongedstrategy: price support, public stockholding of cereals and restrictions on external trade.The calculations for domestic support, which were delineated above, showed that Indiahas sufficient flexibility under the agreement to support prices of agricultural products.But the limitations of such policies are already evident from the excessive build up ofstocks of cereals, which have been piling up in recent years. The AoA does permit publicstockholding for food security purposes, but the cost-effectiveness of such programmes

8/3/2019 Material for Eco

http://slidepdf.com/reader/full/material-for-eco 2/4

in the light of the fall in international prices and massive subsidization by the developedcountries have put serious question marks on the value of such policies.

5. Fifth, the level of protection currently given to wines and spirits under geographicalindications should be extended to other products such as Darjeeling tea and basmatirice. This is a question of market access for agricultural products as productdifferentiation is an important element of fair competition. It benefits consumers because

they are offered more choice with more information about the actual qualities ofproducts. It also benefits producers, who are able to develop quality products and areprotected against unfair or deceptive competition in markets abroad.

6. Sixth, problems that are being faced by exporters under the SPS Agreement are equallyimportant. Though the aim of this agreement is to prevent member countries from usinghuman, animal and plant health standards for protectionist purposes, every country hasits own rules regarding these restrictions such as inspection of imported products,specific treatment or processing of products, fixing of maximum allowable levels ofpesticide residues or permitted use of certain specific additives in food. To make mattersworse, SPS standards are becoming increasingly complex, and even the requiredtechnology to do basic testing and certifications is not available on a wide scale.Countries like India will benefit if developed countries would agree to treat the standards

specified by the Codex Alimentarius Commission (CODEX) as equivalent.7. Seventh, in the case of commitments on technical and financial assistance, there are

essentially two types of issues that need to be addressed. One of these issues is thatprovisions related to such assistance should be legally binding for the developedcountries. The current provisions of the SDT on technical and financial assistance are interms of “best endeavour” commitments. Because they are not legally binding, nodispute settlement cases can be initiated on the basis of their non-delivery. Further, thevoluntary assistance which should have been extended has not been forthcoming. Thesecond issue concerns funding arrangements. There is a dire need to set up a specialinstitutional mechanism to support liberalization or globalization and to allocate suchfunds on a permanent basis so that it does not remain as an ad hoc arrangement. This isessential to build institutions in developing countries to implement reform programmes

and also to augment resources to meet the high costs of implementing the provisionsneeded to make domestic rules conform to international rules and to overcome serioussupply-side constraints.

8. Eighth, the issue of food security remains critical for a country like India, but must behandled with utmost care. There is a risk that groups with vested interests may misusethis concern in an emotive way to continue the use of subsidies and protection. There isno denying that food security has remained, and will continue to remain, a vital issue forboth developed as well as developing countries. But there is a difference between thelegitimate food security concerns of developing countries, where a majority of thepopulation continues to depend on agriculture for its livelihood, infrastructure is veryweak and there are very few avenues for employment outside agriculture for a largemass of illiterates, and developed countries. If developed countries are able to protect

their high levels of subsidies and continue their use under the guise of non-tradeconcerns, it will not be in the benefit of developing countries.

9. Ninth, under the SDT provisions, the broad framework of the agreement should makeprovisions that provide real and meaningful market access for the commodities that areproduced by countries like India and grants greater flexibility in meeting reductioncommitments on domestic support and levels of tariffs. This is essential for sensitiveproducts to address the concerns of the rural population in this sector for the sustenanceof their livelihood and employment. Therefore, the new package of SDT provisionsshould recognize the two main bottlenecks in implementing any reform in a country like

8/3/2019 Material for Eco

http://slidepdf.com/reader/full/material-for-eco 3/4

India. First, there is a considerable shortage of institutions to implement reformmeasures and bear the high costs of implementing the changes. Second, there areserious supply side constraints such as poor infrastructure, which create difficulties inbuilding capacities to compete in the international market.

Article 2

By Megha Bahree

Prakash Singh/Agence France-Presse/Getty ImagesIndia’s richest 30% of households consume 72% of all liquefied petroleum gas, or cooking gas, while the poorest30% consume just 2%.

In India subsidies of any kind are the sacred cow, the untouchable, the hot button political issue which could swing votes.That attitude has ensured that in 2009 India had the largest subsidy bill amongst net oil importers, as per the Organization ofEconomic Cooperation and Development’s report card on the country’s economy. And for a country that is often comparedto China, for once it has left that neighbor behind—India’s per capita oil subsidies were almost three times higher thanChina’s, and its gas subsidies six times higher. 

India’s addiction to fossil fuels subsidies is well known. The OECD report doesn’t offer any surprises there. But, as the rep orthighlights, it’s clearly a key concern for the country’s overall growth. “Energy subsidies encourage wasteful consumption,fuel adulteration and smuggling and create a system that is overwhelmed by corruption,” the report states. “Globally, byblurring market signals, they push up the level and volatility of energy prices, since when world prices rise India’sconsumption does not fall commensurately. Last but not least, they are environmentally damaging.”  

More In OECD 

  India Lacks 'Depth of Learning': OECD

  OECD Praises India's Economic Zone Policy 

  OECD Adds Voice to Chorus for India Reforms

While releasing the report this morning, Montek S ingh Ahluwalia, the deputy chairperson of the country’s PlanningCommission, said, “I do believe reduction of energy subsidies is not a compulsion only for fiscal purposes…. We need to askourselves, what sort of a world is India moving into over the next five years? There’s going to be a humongous technologicalimprovement in solar technology” and that could be one area that would help reduce the country’s dependence on fossilfuels.

The bulk of India’s energy subsidies aim to provide cheap fuel for lighting to poor households; replace fuels like firewood anddung with cleaner cooking fuels; insulate the domestic economy from the volatility of the international prices of petroleumproducts. But, up to 50% of subsidized kerosene ends being “diverted” from the public distribution system and soldelsewhere at higher prices.

8/3/2019 Material for Eco

http://slidepdf.com/reader/full/material-for-eco 4/4

With rising oil prices globally, the cost of maintaining these subsidies is going up as well. For instance, the centralgovernment in its budget for 2011 had set aside 200 billion rupees ($4.47 billion) to compensate oil companies for the lossesthey would incur by selling at less than market prices. But by May itself, the revenue shortfall for oil companies had risen to 2trillion rupees or 2% of gross domestic product, the report says.

In addition to putting pressure on government finances, distorting relative prices and creating corruption opportunities,India’s current system of pricing sensitive petroleum products creates severe financial pressures on the public -sector oil

marketing companies, which collectively account for around 98% of retail outlets in the country. Cash flows across thissector have generally been unsustainably weak and interest payments have risen. As a result, their share prices in theperiod between late 2008 and early 2011 fell 25% relative to the Indian market index, with shares in the largest companyfalling even more, the report says.

Another problem with subsidies is that they fail to be concentrated on their target audience—the poor. Nationally, the richest30% of households consume 72% of all liquefied petroleum gas, or cooking gas, while the poorest 30% consume just 2%.And these come at a cost. Subsidies for electricity, LPG and kerosene accounted for 87% of total subsidies in India in 2009,or 1.9% of the GDP.

Subsidies have also discouraged private sector companies from investing in certain sectors like electricity markets, orcaused them to withdraw. For instance, both Reliance Industries and Essar Oil mothballed their retail gas stations when thegovernment reversed its decision to move away from controlled oil pricing.

The OECD’s answer to India’s way out of this black hole is a broad policy reform that should include a move to market

based pricing, standardizing tax rates, a direct cash transfer to the poor so they can directly pay for their fuel needs.

Ambitious, and the jury is still out if the government will succeed in attempting any of this