India’s economic destiny hinges on a range of binding constraints, including those arising from the country’s intense engagements in international trade forums, like the World Trade Organisation (WTO), and the free trade agreements (FTAs).

The most significant in the latter set is the Regional Comprehensive Economic Partnership (RCEP) that could be formalised by the end of 2019. But despite the country’s involvement in these forums, the ways in which these engagements could constrain policymaking has received little attention.

The reason for this is that for the past two and a half decades, India has handled its global engagements mostly on its own terms. There have been occasional problems though; the challenge to the implementation of India’s food security act in the WTO being the most significant.

But India was able to contest them all, as WTO rules are somewhat more sympathetic towards developing countries. Further, in the FTAs India has negotiated, sensitive sectors in agriculture and manufacturing have been protected from import competition.

But this situation of relative comfort could rapidly change. In the WTO, India’s status as a developing country is being seriously challenged by a number of countries, especially the US. Their main argument is that the Indian economy is among the world’s largest after having grown impressively over the past two decades.

Thus, the case for allowing India to use import protection and subsidies as any other typical developing country has weakened. As if on cue, India’s subsidies in all the major crops, rice, wheat, cotton, sugarcane and pulses, have been questioned in the WTO.

India’s engagements in the RCEP could also spell trouble, as the countries driving this mega-regional trade agreement are demanding sweeping tariff elimination, including in critical areas in agriculture.

India’s subsidies regime has been challenged in the WTO using the yardsticks provided by the WTO Agreement on Agriculture. This agreement limits spending on input subsidies and price support measures, the so-called “Amber Box” measures, to 10 per cent of the value of agricultural production for a developing country like India.

There is, however, no limit for providing subsidies for improving rural infrastructure, agricultural research and extension, relief from natural disasters and direct income support, the so-called “Green Box” measures.

In order to remain engaged in the global processes, India’s response would have to be carefully calibrated. So India needs to respond with a set of policies that not only improves farm productivity but also allows the smallest farmers to realise better prices, both of which is possible only through extensive institutional reforms.

How are the manifestos of the BJP and Congress promising to shift agricultural policies in the desired direction?

BJP’s promises

The ruling party’s promises to the farmers are anchored on four handouts. The first, extending the Pradhan Mantri Kisan Samman Nidhi Yojana to all farmers. This scheme promises ₹6,000 to farmers’ families, and was originally announced for those owning land up to two hectares.

The second is a pension scheme for all small and marginal farmers above 60 years to ensure social security.

The third is the Pradhan Mantri Fasal Bima Yojana, a voluntary scheme for risk mitigation.

And, the fourth is the interest-free Kisan Credit Card loans, the short-term new agriculture loans up to ₹1 lakh at a zero per cent interest rate for 1-5 years on the condition of prompt repayment of the principal amount.

Given the affront on India’s farm subsidies in the WTO, are these subsidies compatible with the Agreement on Agriculture? The short answer, in our view, is that except the interest-free Kisan Credit Card loans, the three other handouts will be WTO compatible.

One of the most significant commitments that the Prime Minister had made was to double farmers’ incomes by 2022. This would require the two-track policy package of improving farm productivity and to create the enabling environment for the farmers to realise the remunerative prices for their produce.

While the manifesto is largely silent on the first policy package, there are three sets of policies aimed at changing the dynamics in the marketplace in favour of the farmers.

These policies are: (i) direct marketing of vegetables, fruits, dairy and fishery products through farmers’ cooperative organisations to help farmers realise better prices; (ii) National Warehousing Grid along National Highways; (iii) new village storage scheme that would allow the farmers to sell their produce at remunerative prices. Farmers would receive loans against their stored produce. The last-named support could raise the hackles in the WTO.

If these policies are implemented, one of the bitter truths that the farmers face at the end of every farming season, namely, their inability to get remunerative prices for their produce, could eventually get addressed.

Congress Party’s promises

The Congress Party has promised to end farmer’s indebtedness through a combination of remunerative prices, lower input costs. These are the main forms in which farmers receive subsidies, but, as discussed earlier, they have now been seriously questioned in the WTO.

Congress Party’s other promises include strengthening of farm institutions, the spending on which is WTO compatible. Any keen observer of the farm sector would immediately realise that it is a weak institutional framework which is largely responsible for reducing the effectiveness of policy interventions. Such interventions are imperative in a sector where an overwhelmingly large share of the farms is small and marginal and there are many more farm labourers and tenants that live on the margins.

For the past three decades, farm institutions have been severely undermined as the government’s support waned. The Congress Party seems to have finally realised the downside of the policies of state withdrawal that it had initiated; it has now promised a number of initiatives that would correct the past mistakes.

The Party recognises that inadequate budgetary support is one of the primary causes of declining farm fortunes, for it promises to present a separate “Kisan Budget”. It has promised to “revive, strengthen and improve the old system of ‘Agricultural Extension Services’ and bring the best knowledge and best practices to every agricultural holding in the country”.

Another significant announcement is to double funding for teaching, R&D, agriculture-related pure sciences and applied science and technology in the agricultural sector. This promise, if implemented, could help to raise farm productivity.

Like the BJP, the Congress Party has also promised a slew of reforms in agricultural markets, including promoting of Farmer Producer Companies/Organisations and repealing the Agricultural Produce Market Committees (APMC) Act.

In 2003, the Vajpayee government had circulated the Model APMC Act to the State governments to make the necessary farmer-friendly modifications, but the political will to change the status quo has sadly been lacking. Interestingly, the Congress Party has gone a step forward to promise farmers’ markets with adequate infrastructure and support in large villages and small towns to enable the farmer to bring his/her produce and freely market them. This promise, if implemented, could well be one of the most significant policy reforms in the farm sector.

While both parties have promised to initiate several measures that would also ease the constraints arising from the country’s international engagements. One hopes that the political class has the will to implement its promises.

The writer is Professor, Centre for Economic Studies and Planning, JNU

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