Page 190 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes stimulate production, such as certain forms of direct income support assistance to help farmers
restructure agriculture, and direct payments under environmental and regular assistance programmes.
This definition is very wide and includes all types of Government subsidies.
Blue Box Subsidies are certain direct payments made to farmers where the farmers are to limit
production, certain government assistance programmes to encourage agriculture and rural
development in developing countries, and other support on a small scale when compared with the
total value of the products supported 15 per cent or less in the case of developed countries and 10 per
cent or less for developing countries.
Similar to domestic support subsidies, developing countries are not allowed to increase their negligible
level of export subsidies while developed countries are allowed to maintain 64 per cent of their
subsidy outlays on the base level. Consequently, agriculture imports from developed countries are
available at much below the market price in the domestic economy. Human Development Report
(1997) reviewing this problem mentions : “According to the OECD, the per capita transfer to US
farmers amounted to $ 29,000 in 1995. In the main maize producing areas of Mindanao and Cagayen
Valley, the average per capita income amount to less than $ 300. So each US farmer receives in subsidies
roughly 100 times the income of a maize farmer in Philippines.”
“In the real world, as distinct from the imaginary or inhabited by free traders, survival in agricultural
markets depends less on comparative cost advantage than on comparative access to subsidies.
Liberalising local food markets in the face of unequal competition is not a prescription for improving
efficiency, but a recipe for the destruction of livelihood.”
“Implementation of the Uruguay Round agriculture agreement over the next five years will not
materially change the picture... Agriculture remains the only area in which export dumping is accepted
as a legitimate trade practice.”
Earlier, Indian agricultural prices were lower than international prices mostly. But as a result of the
heavy subsidization of agricultural exports by developed countries, the situation undertook a
dramatic about-turn. The Indian farmers have been put to serious disadvantage. The phenomenon
of farmers suicides and the growing unrest in several states because of the distress of farmers
specialising in agricultural commodities and their exports is a very serious human problem.
Has the Situation Changed after Doha ?

Doha Ministerial (2001) forced the developed countries to consider issues of implementation before
undertaking consideration of new issues. Developed countries agreed to discuss the issues related
with implementation. It was also felt that developed countries should reduce tariffs and also remove
non-tariff barriers. But did the situation change thereafter ? It would be relevant to quote the findings
of the Human Development Report (2003) in this regard.
“The most important expectation of poor countries in the Uruguay Round of international trade
negotiations (1986-94) was that rich countries would open their markets in these two sectors
(Agriculture and Textiles). But the results have been largely disappointing. Protection in most rich
countries remains extremely high, through a variety of instruments.”
Creating Fairer Markets in Agriculture Sector
Although earlier rules of GATT did apply to agriculture trade, they contained loopholes. Some
developed countries protected their costly and inefficient production of temperate zone agricultural
products (e.g., wheat and other grains, meat, and dairy products) by imposing quantitative restrictions
and variable levies on imports in addition to the high import tariffs. This level of protection often
resulted in increased domestic production which, because of high prices, could be disposed off in the
international markets only under subsidy. Such subsidized sales depressed international market prices
of such agro-products. Providing subsidies by developed countries also led to taking away of
legitimated market share of competitive producers, mainly low income countries in the agro sector.
As a result, international trade in agriculture became highly ’distorted’, especially with the use of
export subsidies which would not normally have been allowed for industrial products. Trade is
termed as ‘distorted’ if prices are higher or lower than normal, and if quantities produced, bought,
and sold are also higher or lower than normal of the levels that usually exist in a competitive market.

184 LOVELY PROFESSIONAL UNIVERSITY