India may face greater scrutiny at WTO after 13% MSP hike for paddy

• India is likely to face greater scrutiny at the World Trade Organization (WTO) after the centre hiked the minimum support price (MSP) for paddy by 13%.

• While India has maintained that its food subsidy for paddy is below 6%, against the permissible 10%, till 2015-16, and has notified WTO, the US has raised doubts about India’s calculations.

• A commerce ministry official said India may still be in the safe zone even with the latest hike in MSP. “Though there is a sharp jump in MSP for paddy, India may still be in the safe zone as the rupee has depreciated against the dollar. However, the actual government subsidy will depend on total production and size of procurement,” he added.

• WTO rules cap government procurement for subsidized food programmes by developing countries at 10% of the total value of agricultural production based on the 1986-88 prices, and are always reported in dollar terms.

• In a 12-page counter notification circulated on 9 May, the US alleged that India’s MSP programmes for wheat and rice breached New Delhi’s permissible levels of trade, distorting domestic support at the WTO.

• “India appears to be providing significant market price support, both in terms of absolute value and as a percentage of the value of production, for wheat and rice. India’s apparent MPS for rice appears to have been over 70% of the value of production in each of the past four years,” the US said in its submission.

• However, India has rejected the “flawed assumptions and erroneous methodologies” used by the US for its calculations.

• India has secured an indefinite peace clause at the WTO, under which its existing food subsidy programmes will not be challenged if they breach the 10% limit. However, the peace clause comes with onerous obligations, under which countries need to notify their food subsidy levels to WTO till the previous year. Such countries are also not allowed to start any new subsidized food programmes after 2013.

• India says it has covered all staple food items under its current public distribution system and does not need to add any new food item.

• India has notified its food subsidies till 2015-16 and is also likely to submit its 2017-18 data. In the absence of a deal to allow developing countries a free hand to procure staples for their subsidized food programmes at the WTO ministerial meeting held in Buenos Aires in December, India seems to have fast-tracked its food subsidy notification obligations at the multilateral body to use an interim reprieve agreed upon in 2013 to ensure it does not violate WTO rules.

• The government’s total procurement for public distribution of food items, such as rice, wheat, pulses and cotton, declined to $15.6 billion in 2015-16 from $17.1 billion a year ago following the rupee depreciation. India’s support for irrigation, fertilizers and electricity to low-income and resource-poor farmers, which is not actionable under WTO rules, also declined to $23.6 billion in 2015-16 from $24.8 billion a year ago.

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