Indian Economy, 5th edition (39 page)

We may see them individually though they are very much connected in their applied form. The objective meaning of each one of them becomes clear, once one has gone through all of them:

Amber Box

All subsidies which are supposed to distort production and trade fall into the amber box, i.e., all agricultural subsidies except those which fall into the blue and green boxes.
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These include government policies of
minimum support prices
(as MSP in India) for agricultural products or any help directly related to production quantities (as power, fertilisers, pesticides, irrigation, etc).

Under the WTO provisions, these subsidies are subject to reduction commitment to their minimum level—to 5 per cent and 10 per cent for the developed and the developing countries, respectively, of their total value of agricultural outputs, per annum accordingly. It means, the subsidies
directly related
to production promotion above the allowed level (which fall in either blue box or green box) must be reduced by the countries to the prescribed levels.

In the current negotiations, various proposals deal with issues like deciding the amount by which such subsidies should be reduced further, and whether to set product-specific subsidies or to continue with the present practice of the
‘aggregate’
method.

Blue Box

This is the
amber box with conditions.
The conditions are designed to reduce distortions. Any subsidy that would normally be in the amber box, is placed in the blue box if it requires farmers to go for a certain production level.
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These subsidies are nothing but certain direct payments (i.e. direct set-aside payments) made to farmers by the government in the form of assistance programmes to encourage agriculture, rural development, etc.

At present there are no limits on spending on the blue box subsidies. In the current negotiations, some countries want to keep blue box as it is because they see it as a crucial means of moving away from distorting the amber box subsidies without causing too much hardship. Others want to set limits or reduction commitments on it while some advocate moving these subsidies into the amber box.

Green Box

The agricultural subsidies which cause minimal or no distortions to trade are put under the green box.
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They must not involve price support.

This box basically includes all forms of government expenses which are not targeted at a particular product and all direct income support programmes to farmers which are not related to current levels of production or prices. This is a
very wide box
and includes all government subsidies like—public storage for food security, pest and disease control, research and extension, and some direct payments to farmers that do not stimulate production like restructuring of agriculture, environmental protection, regional development, crop and income insurance, etc.

The green box subsidies are allowed without limits provided they comply with the policy-specific criteria.
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It means, this box is exempt from the calculation under subsidies under the WTO provisions because the subsidies under it are not meant to promote production thus do not distort trade. That is why this box is called
‘production-neutral box’.
But the facts tell a different story
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.

In the current negotiations, some countries argue that some of the subsidies forwarded under this box (by the developed economies) do serious distortion to trade (opposed to the view of minimal distortion as used by the Annexure 2) it is the view of the developing countries. These countries have raised their fingers on the direct payments
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given by the developed countries to their farmers via programmes like income insurance and income-safety schemes,
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environmental protection,
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etc. Some other countries take the opposite view and argue that the current criteria are adequate, and advocate to make it more flexible (so that it could be increased) to take better care of non-trade concerns such as environmental protection and animal welfare.

S&D Box

Other than the above-discussed highly controversial boxes of agricultural subsidies, the WTO provisions have defined yet another box i.e., the S & D Box.
t
he
s
ocial and Development Box (S & D Box) allows the developing countries for some subsidies to the agriculture sector under certain conditions. These conditions revolve around
human development issues
such as poverty, minimum social welfare, health support etc., specially for the segment of population living below the poverty line. Developing countries can forward such subsidies to the extent of less than 5 per cent of their total agricultural output.
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Export Subsidies

For export subsidy the WTO has provisions in two categories—

(i)
Reduction in the total budgetary support on export subsidies, and

(ii)
Reduction in the total quantity of exports covered by the subsidy.

Higher reduction commitment for the developed countries and lower for the developing countries are the provisions. But the developed nations forward such an inflated support to their agricultural exports that even after the committed reductions it will be highly price distorting against the agri-exports of the developing countries. It is therefore opposed by the developing countries.

Sanitary and Phytosanitary Measures

The provisions of the WTO allow member countries to set their own health and safety standards provided they are justified on scientific grounds and do not result in arbitrary or unjustified barrier to trade. The provisions encourage use of international standards and also include certain special and differential treatment in favour of the developing countries.
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Though this provision has realised the scope of unjustified kind of health and phytosanitory measures on the developing countries, the developed nations have been beautifully able to do so by validating their health and related rules on scientific grounds. Such instances have distorted the trade in favour of these countries and the developing countries’ agriculture has been the real loser. The developing countries accuse such measures as the non-tarrif barriers used by the developed nations to block goods from the developing nations.

NAMA

The Non-Agricultural Products Market Access (NAMA) is a part of the WTO provisions which deals with the idea of encouraging market reach to the non-agricultural goods of the member countries.
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But the encouragement was objected/opposed by the developing countries specially pointing to the non-tariff barriers enforced by the developed countries. At the Doha Ministerial Conference (November 2001) ministers agreed to start negotiations to further liberalise trade of non-agricultural products. By early 2002, a Negotiating Group on NAMA was created. The members at the meet decided to go for tariff reductions on non-agricultural products adopting the
Swiss Formula.
The negotiations are still in the process—updated position may be seen in detail in Chapter 19.

One major concern the members took note was of the small and vulnerable economies for whom a flexibility was committed while going for tariff reductions. For India, market access is not an issue of tariffs alone but it means elimination of tariff peaks and tariff escalation in the markets of the developed countries. It will also end the abuse of anti-dumping laws and remove non-tariff barriers (NTBs) used to block goods from developing countries.

Swiss Formula

A variety of alternative methods are possible in the process of tariff reductions—some are more common than others. Some are based on
formulas.
But one thing should be kept in mind that whatever formula be agreed upon it does not have value unless it is properly implemented. Even after a formula or combination of formulas has been agreed upon, the final outcome of tariff reductions may depend on the bargaining capacity between countries.

The
Swiss Formula
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belongs to the classification of formulas known as having harmonising
impact. Since such a formula prescribes a higher/steeper cut on higher tariffs and lower cuts on lower tariffs it is seen to harmonise
the rates by bringing the final rates becoming closer and bridging the gap.

The formula was proposed by Switzerland in the Tokyo round negotiations of GATT (1973–79). But Switzerland opposes using this method in the current agriculture negotiations—it prefers the
Uruguay Round
f
ormula.

The Uruguay Round (1986–94) negotiations in agriculture produced an agreement for developed countries to cut tariffs on agricultural products by an average of 36 per cent over six years (6 per cent per year) with a minimum tariff cut of 15 per cent on each product for the period. It was a version of
flat rate
method of tariff reductions.
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ECONOMIC SURVEY 2012-13
ON AGRICULTURE

Comments and advisory inputs from the latest document may be summarised as follows –

•
India’s foodgrains production has shown remarkable improvement in recent years. The production of food-grains in 2011-12 was at a record high of
259.32
million tonnes. This achievement comes at a time when it is generally recognized that inadequate attention to agriculture across many parts of the world led to food shortages and steep hikes in food prices. In comparison, Indian agriculture has performed well primarily due to timely policy interventions. Nevertheless, the average annual growth rate of
3.6
per cent during the 11th Plan for the agriculture & allied sector fell short of the target of
4
per cent. Moreover the country faces the stiff challenge of feeding its growing population.

•
A number of
constraints
and
challenges
remain to be addressed – the country will have to invest heavily in
farm research, rural infrastructure, providing better access to high value markets, better credit facilities
and
input use,
so that the farming community as a whole is motivated to produce more and the target of 4 per cent growth set for the agriculture and allied sector in the 12th Plan is met.

•
Though India is one of the leading producers in the world of many major crops like paddy, wheat, pulses, sugarcane, spices, and plantation crops, the comparison in terms of
yield
levels is not creditable with it achieving a much lower rank in many of these crops – studies indicate that there are wide yield gaps among various crops across the country. Agriculture production can be substantially increased India addresses this yield gap by adopting
technological
and
policy
interventions. Improvement in yields holds the key for India to remain self-sufficient in foodgrains and also make a place for itself in many agricultural crops and products in the international market.

•
Maximizing
agricultural income
is among the most immediate issues of attention – while adopting a more sustainable agricultural strategy. The concerns here are land and
water degradation
due to soil erosion,
soil salinity, water logging,
and
excessive application of nutrients
. There are concerns arising also from over-exploitation of water resources, especially in the
Green Revolution
belt.

•
Better management practices for rehabilitation of degraded land and water resources hold the key – measures must be taken to promote use of quality seeds, cultivation of drought-resistant varieties of crops, judicious use of available water, balanced use of fertilizers, farm mechanization to improve efficiency levels, and wider use of irrigation facilities. Expenditure on agricultural research also needs to be stepped up substantially.

•
Climate change
and
extreme weather
events with greater intensity and frequency can have serious implications for our agriculture sector and create greater instability in food production and thereby farmers’ livelihood. The current crop insurance cater to the unavoidable climatic conditions or pest epidemics.

•
Declining
per capita availability of foodgrains
has been a major concern in India. For ensuring nutritional security, it is not only important to increase per capita availability of foodgrains but also to ensure the right amounts of food items in the food basket of the common man. A thrust on horticulture products and protein-rich items is required for enhancing per capita availability of food items as well as ensuring nutritional security.

•
Agricultural growth in the
eastern and north-eastern regions
has been slower than in the rest of the country – the good prospects of production in many crops in these parts of the country should quickly be taken advantage of in the years to come. Hence
a strategy
for agricultural development in eastern and north-eastern India comprising multiple livelihood opportunities, sustainable agricultural development through a farming systems approach, efficient national resources management, ecoregional technology missions, and rice-based farming systems needs to be put in place.

•
Supply chain
management in agricultural marketing is another key issue – farmers’ access to markets is hampered by
poor roads, rudimentary market infrastructure,
and
excessive regulation.
Many agricultural crops are perishable in nature and post-harvest handling issues and marketing problems affect the farm incomes. It is
necessary
that India evolves mechanisms for linking wholesale processing, logistics and retailing with farm-production activities so as to generate enhanced efficiency, better farm prices, etc. The
private sector
should be allowed to operate in developing these market linkages for which suitable reforms will help. Recently the government allowed
foreign direct investment (FDI) in retail
, which has been supported by many farmer organizations as well, and it can pave the way for investment in new technology and marketing of agricultural produce in India.