Breaking News
0

Rural votes, old traumas drive India's WTO brinkmanship

EconomyJul 29, 2014 09:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

By Manoj Kumar and Mayank Bhardwaj NEW DELHI (Reuters) - With grain silos spilling over, exports on the rise and an avowed market champion for prime minister, India's threat to trash a global trade deal in the name of food security appears puzzling.

But government officials say Prime Minister Narendra Modi is prepared to brazen out global outrage to seize a historic opportunity to build a rural power base with his defense of farm subsidies and to banish memories of humiliating national food shortages.

Modi triumphed in general elections only two months ago, but polls are never far away in the world's largest democracy and his Bharatiya Janata Party has its eyes already on new campaigns in the breadbowl states of Haryana and Maharashtra.

More than two-thirds of 1.26 billion Indians live in rural areas and Modi's party, traditionally stronger in the cities, needs to secure more farmers' votes to consolidate its power.

Party officials are confident New Delhi's tough line at World Trade Organization talks in Geneva will accomplish that.

"A strong stance in Geneva sends a message to the farmers and poor people that unlike the (last government), Modi can take on the global powers to safeguard the interests of rural India," said a party lawmaker, who declined to be named.

Modi's government demanded a halt to a globally agreed timetable on new customs rules and said a permanent agreement on food stockpiling and subsidies must be in place at the same time, well ahead of a 2017 target agreed last December in Bali.

Critics say India's brinkmanship threatens a deal that could add a trillion dollars to global prosperity and create 21 million jobs.

With a key deadline on Thursday looking increasingly tricky, Modi risks alienating allies including the United States, whose top envoy John Kerry is due in New Delhi on Wednesday for talks that will be in the shadow of the row.

If India goes through with its threatened veto, critics say it would cripple WTO talks, hasten trade negotiations elsewhere – something that India opposes – and swiftly trigger trade disputes challenging India's stockpiling policy.

ASSERTIVE INDIA

But the gambit is paying off at home where the opposition, industry chambers and many economists welcome India asserting itself more on the international stage.

"Modi like any good strong leader is committed to 'India first', that was his campaign," said Samir Saran, of the Observer Research Foundation think-tank.

India rejects international criticism by saying that it is responsible for the wellbeing of a quarter of the world's poor and that its subsidy burden is vastly overestimated.

Current WTO rules limit subsidies to farmers in developing countries to 10 percent of the total value of agricultural produce based on 1986-88 prices. New Delhi is asking for the formula to be adjusted for inflation and fears that if the Bali trade facilitation deal is signed by July 31 as planned, the questions of stockpiling and subsidies will end up on the back burner.

India provides subsidized fertilizer and seeds to farmers and buys wheat and rice from them at fixed prices to boost output, build stocks for welfare plans and meet any emergency.

The incentives, coupled with good rains over the past few years, have sent output soaring and state warehouses overflowing.

As of July 1, India had 21.2 million tonnes of rice and 39.8 million tonnes of wheat stockpiles, more than double the respective buffer norms.

Yet New Delhi is determined to hold on to these vast reserves, partly because of painful memories of dependence on U.S. food aid in the 1960s. Furthermore, as recently as 2006, India's surpluses vanished after two years of drought and it was forced to import grains, sending global food prices rocketing.

Monsoon rains are expected to be below average this year.

"India cannot afford to rely on imports of rice and wheat as no one produces (enough) to feed a county of India's size," said a senior farm ministry official. "Two successive droughts in India will scare the world market and prices will surge in an unimaginable way."

REFORMS STILL ON?

Government experts say nearly half of about 60 million tonnes of grains set aside for distribution at subsidized prices is siphoned off by corrupt officials, raising the question why India would burn bridges to defend such a inefficient system.

Still, some experts say India's best choice might be to simply try to improve it - since a change to cash transfer subsidies recommended by many economists will take years in a country with few rural banks.

India's nation-sized states are working to fix the system of warehouses and ration shops that dates back to the famines of the 1960s, emulating simple solutions adopted by states that have dramatically cut waste and improved delivery.

"The public distribution system has been making slow but steady improvement," Peter Kenmore, the United Nations' Food and Agriculture Representative in India, told Reuters.

"It is slow, sure, too slow, but basically the PDS is straightening out," he said, adding that FAO's position is that India's food subsidies do not distort global markets.

(Additional reporting by Mayank Bhardwaj and Frank Jack Daniel; Editing by Frank Jack Daniel and Tomasz Janowski)

Rural votes, old traumas drive India's WTO brinkmanship
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email