a presentation on Indian agriculture sector, Issues Related to Minimum Support Price (MSP), Subsidies of World Trade Organization(WTO)

1. ECONOMICS
Indian Agriculture Sector;
Issues Related to Minimum Support Price;
Subsidies and WTO
Group 6

2. INDIAN AGRICULTURE

3. Introduction to Agriculture in India
• The history of Agriculture in India dates back to Indus Valley Civilization Era and even
before that in some parts of Southern India. Today, India ranks second worldwide in farm
output. Agriculture and allied sectors like forestry and fisheries accounted for 13.7% of
the GDP (gross domestic product) in 2013, about 50% of the workforce. The economic
contribution of agriculture to India's GDP is steadily declining with the country's broad-
based economic growth. Still, agriculture is demographically the broadest economic
sector and plays a significant role in the overall socio-economic fabric of India.
• India's agriculture is composed of many crops, with the foremost food staples being rice
and wheat.
• The agriculture accounts for as much as a quarter of the Indian economy and employs an
estimated 60 percent of the labour force.

4. Farming System In India
• India is very dependent on its monsoon cycle for large crop
yields.
• Due to India's geographical location, certain parts experience
different climates, thus affecting each region's agricultural
productivity differently.
• Farming Systems in India are strategically utilized, according to the locations where they are most
suitable.
• The farming systems that significantly contribute to the domestic GDP of India are subsistence
farming, organic farming, and industrial farming.
• Regions throughout India differ in types of farming they use; some are based on horticulture, ley
farming, agroforestry, and many more.

5. Different Methods for Farming in India
• Organic farming can be explained as an agricultural method wherein the following
techniques are used:
• Crop Rotation: A technique to grow various kinds of crops in the same area, according
to different seasons, in a sequential manner
• Green Manure: Refers to the dying plants that are uprooted and stuffed into the soil in
order to make them act as a nutrient for the soil to increase its quality
• Biological Pest Control: A method in which living organisms are used to control pests,
without or with limited use of chemicals
• Compost: Highly rich in nutrients, this is a recycled organic matter used as a fertilizer in
the agricultural farms

6. Agriculture in India before Independence
• Mr. R.Strachey who headed the 1880 Famine Commission, suggested the setting up of a
department of agriculture in every province. Thus a new secretariat was formed in the
centre in 1881.Following which some prominent provinces like Bombay, Madras, UP,
Bengal, Assam and Punjab paid greater attention to agriculture and other related fields.
The agriculture sector was backward and lacked scientific approach. To improve the
condition of the agricultural sector the centre appointed Mr. JA Voeleker in 1889 as
agricultural chemist. Years of extensive research resulted in the setting up of Agricultural
Research Institute at Pursa, Bihar (in 1903).
• In spite of the best efforts by the government, the productivity remained low. So the
government set up the Royal Commission on Agricuin 1926.Based on their findings the
Imperial Council of Agricultural Research (ICAR) was formed and during the period
agricultural flourished. But during the period from World War II to Independence
agricultural suffered setbacks. The famine of 1943 resulted in the death of millions.

7. Agriculture in India after Independence
• The partition of the country in 1947 had a negative impact on Indian agriculture. But the
formation of Planning Commission in 1950 and the ad vocation of economic planning
through five year plans, gave greater importance to agricultural growth and the
agricultural sector gained in prominence. The government backed the agricultural sector
by the way of research and by setting up Commodity Committees. The first agricultural
university was set up in 1961 at Pantnagar in UP.
• In the 1950' and 1960's improved agricultural practices, better seeds and use of fertilizer,
soil and water conservation, land development, land consolidation, agricultural credit and
marketing and price incentive resulted in improved agricultural productivity.

8. Salient Features that Affects Agriculture in India
• Following are certain salient features that affects agriculture in India.
• Subsistence Agriculture
• Pressure of Population on Agriculture
• Mechanization of Farming
• Dependency upon Monsoon
• Importance of Animals
• Variety of Crops
• Predominance of Food Crops
• Seasonal Patterns

9. Agriculture Production in India
• India's food grain production increased marginally to 252.23 million tones in the
2015-16 crop year, as per the third advance estimates, despite setback due to
deficient rainfall and shortage of water in reservoirs.
• Production of rice, coarse cereals, pulses, oilseeds, sugarcane ,cotton and jute was
lower due to erratic rainfall during the 2015 monsoon season.
• As per the 3rd advance estimates for 2015-16 total food grains production in the
country has been higher than that in the last year.
• Rice production during 2015-16 is estimated at 103.36 million tones, which is
lower by 2.12 million tones than its production of 105.48 million tones during
2014-15.

10. 0
50
100
150
200
250
300
350
94.
1
74.8
36.1
219.3
27.2
340.3
Major Crop Production in India
As we can see, India is
the biggest producer of
Oil Seeds (around 340
Million Tones). Pulses’
production is second
highest (around 220
Million Tones).

11. Pulses Production in India
Source: Centre for Monitoring Indian Economy
Here, we can see that the
total production of pulses
has been fluctuating over
the years. There is sharp
decrease in production in
the years 1994-98, and
thereafter has been
fluctuating. Production has
relatively stabilized in the
recent years.

12. Pictorial Description
Sources: Planning Commission; World Bank; Indian Census; OECD

13. Fruit and Vegetable Production (Worldwide)
Source: The Food and Agriculture Organization of United Nations
Though India’s major
economy is depended on
agriculture sector, India is
not highest producer of
fruit and vegetable around
the world.
The US is the largest
producer (43%) followed
by China (37%).
India’s contribution is
around 9% in global
market.

14. Milestones in Agricultural Development
• Green Revolution (1968)
• Ever-Green Revolution (1996)
• Blue Revolution (water & fish)
• White Revolution (milk)
• Yellow Revolution (flowers, edible)
• Bio-technology Revolution (in recent times)
• ICT Revolution (in recent times)

15. Green Evolution
• Between the eighth century and the eighteenth, the tools of farming basically stayed the
same and few advancements in technology were made.
• The agricultural revolution was a period of agricultural development in countries between
1960’s and 1970’s, which saw a massive and rapid increase in agricultural productivity
and vast improvements in farm technology.
• The Green Revolution in India began by using HYVS, chemical fertilizers and latest
technology to increase agricultural production. The term was coined by Dr. William
Gande and implemented in India by Dr. Norman Borlaug and Dr. M. S. Swaminathan

16. Benefits of Green Revolution
• The Green Revolution was a major achievement for many developing countries and gave
them an unprecedented level of national food security.
• It represented the successful adaptation and transfer of the same scientific revolution in
agriculture that the industrial countries had already appropriated for themselves.
• The Green Revolution also lifted large numbers of poor people out of poverty and helped
many non poor people avoid the poverty and hunger they would have experienced had
the Green Revolution not occurred.
• The largest benefits to the poor were mostly indirect, in the form of lower food prices,
increased migration opportunities, and greater employment in the rural nonfarm
economy.
• The direct benefits to the poor through their own on-farm adoption, greater agricultural
employment, and empowerment have been more mixed and depend heavily on local
socioeconomic conditions.

17. Agriculture before Green Revolution
• Agriculture before the green revolution was pretty much limited to areas with a significant
amount of rainfall or close to a body of water, has a high enough day length, and in fertile
land. Beforehand, farmers could not harvest a high yield of crops enough to feed even the
local population.
• Food problems have haunted mankind since time immemorial. With few technological
breakthroughs to increase yields, the food needs of growing populations were historically
met by expanding the cultivated area. As the most fertile land became scarce, further
expansion meant bringing poorer and lower yielding land into cultivation. By the 19th
century, there was growing pessimism about the possibility of feeding ever-growing
populations, as exemplified in the writings of Thomas Malthus . The task seemed even
more daunting as advances in medicine and public health led to longer life expectancies
and more children born.

18. Agriculture after Green Revolution
• The adoption of HYVs occurred quickly. By1970 about 20percent of the wheat area and
30 percent of the rice area in developing countries were planted to HYVs, and by 1990,
the share had increased to about 70 percent for both crops.
• Yields of rice and wheat virtually doubled. Higher yields and profitability also led farmers
to increase the area of rice and wheat they grew at the expense of other crops.
• And with faster-growing varieties and irrigation, they grew more crops on their land each
year. These changes more than doubled cereal production in Asia between 1970 and 1995,
while population increased by 60 percent. Instead of widespread famine, cereal and
calorie availability per person increased by nearly 30 percent, and wheat and rice became
cheaper.

19. Details of Wheat Production in India
Graph shows that after Green Revolution production of wheat increased significantly.
Source : http://rajpatel.org/2014/08/29/every-factoid-is-a-mystery-how-to-think-more-clearly-about-the-green-revolution-and-other-agricultural-claims/

20. Growth Rate of Different Crop Production
Source : policydialogue.org/files/events/Fujita_green_rev_in_india.pdf
Highlighted part shows that production increases significantly after Green Revolution.

21. Impact of Investments & Government Initiatives
on Indian Agriculture sector
• According to the Department of Industrial Policy and Promotion (DIPP), the Indian
agricultural services and agricultural machinery sectors have cumulatively attracted
Foreign Direct Investment (FDI) equity inflow of about US$ 2,299.83 million from April
2000 to September 2016.
• The agriculture sector in India is expected to generate better momentum in the next few
years due to increased investments in agricultural infrastructure such as irrigation
facilities, warehousing and cold storage. Factors such as reduced transaction costs and
time, improved port gate management and better fiscal incentives would contribute to the
sector’s growth. Furthermore, the growing use of genetically modified crops will likely
improve the yield for Indian farmers. The 12th Five-Year Plan estimates the food grains
storage capacity to expand to 35 MT.

22. Overall Fund from Government to Agriculture
Sector

23. Government Agriculture Yojanas
• Rashtriya Krishi Vikas Yojana
• Pradhanmantri Krishi Sinchai Yojna
• National Horticulture Mission
• Sauni Yojana
• Gramin Bhandaran Yojna
• Jute technology Mission
• Livestock insurance scheme

24. Rashtriya Krishi Vikas Yojana (RKVY)
• Rashtriya Krishi Vikas Yojana (English: National Agriculture Development Scheme) is
a State Plan Scheme of Additional Central Assistance launched in August 2007 as a part
of the 11th Five Year Plan by the Government of India.
• Launched under the aegis of the National Development Council, it seeks to achieve 4%
annual growth in agriculture through development of Agriculture and its allied sectors (as
defined by the Planning Commission (India)) during the period under the 11th Five Year
Plan (2007–11).

25. Funding for RKVY
• It was decided that ₹58.75 billion (US$910 million) would be released by the Central
Government every year under the 11th Five Year Plan and ₹15 billion (US$230 million)
would be allocated in 2007-08.
• During the first three years (2007–2010) of the implementation of the RKVY, an amount
of ₹84,621 million (US$1.3 billion), which is roughly 33% of the total allocation under
the RKVY of ₹250 billion (US$3.9 billion).
• While presenting the Union Budget Of India, India's Finance Minister Pranab
Mukherjee stated that the allocation under the RKVY had been increased from the
existing ₹67.55 billion (US$1.0 billion) in 2010-11 to ₹78.6 billion (US$1.2 billion) for
the year 2011-12.

26. Result of RKVY
• On 17 June 2010, the Government of India announced that it would include Sericulture
and Allied activities to boost production of high quality silk and contribute to the global
market in a larger way to combat the declining trend of Sericulture productivity.
• The Saffron Mission in J&K was launched in 2010-11 with an outlay of ₹3.72
billion (US$58 million) as an additional scheme under the RKVY.

27. Pradhanmantri Krishi Sinchayee Yojana
• On 17 June 2010, the Government of India announced that it would include Sericulture
and Allied activities to boost production of high quality silk and contribute to the global
market in a larger way to combat the declining trend of Sericulture productivity.
• The Saffron Mission in J&K was launched in 2010-11 with an outlay of ₹3.72
billion (US$58 million) as an additional scheme under the RKVY.

28. Purpose of PMKSY
• The primary objectives of PMKSY are to attract investments in irrigation system at field
level, develop and expand cultivable land in the country, enhance ranch water use in order
to minimize wastage of water, enhance crop per drop by implementing water-saving
technologies and precision irrigation.
• The plan additionally calls for bringing ministries, offices, organizations, research and
financial institutions occupied with creation and recycling of water under one platform so
that an exhaustive and holistic outlook of the whole water cycle is considered. The goal is
to open the doors for optimal water budgeting in all sectors.
• Tagline for PMKSY is "more crop per drop".

29. Problems Faced by the Agriculture Sector
• There are certain problems and challenges faced by the agriculture sector in India. Some
such problems are:
• Stagnation in Production of Major Crops
• Soil Exhaustion
• Decrease in Fresh Ground Water
• Agricultural Marketing
• Lack of Storage Facilities
• Costly Farm Inputs
• Affect of Global Climate Change
• Farmer Suicides

30. Current Situation of Agriculture in India
Source: www.indiawatertool.com

31. Share of Agriculture in GDP (in India)
Source: mosi.nic.in
Graph shows that share of agriculture in GDP of India decreases during past few years.

32. Employment Share
In this century, the
youth is not
interested in doing
(physical) hard work;
as a result, we can
see that employee
share in agriculture is
decreasing
drastically, while
employee share in
service sector is
drastically increasing.

33. Subsidies in Total Expenditure
Source: CEIC, India’s Union Budget
This chart shows the
percentage of
agricultural &
petroleum subsidies in
India’s budget. We can
see that the Petroleum
subsidies are increasing
rapidly each year, while
Agriculture subsidies
are decreasing.

34. Minimum Support Price

35. Minimum Support Price
• Minimum Support Price (MSP) is the price at which the government purchases crops from the
farmers, whatever may be the price for the crops. MSP is an important part of India’s agricultural
price policy.
• Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure
agricultural producers against any sharp fall in farm prices.
• The minimum support prices are announced by the Government of India at the beginning of the
sowing season for certain crops on the basis of the recommendations of the Commission for
Agricultural Costs and Prices (CACP).
• MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall
in price during bumper production years. The minimum support prices are a guarantee price for their
produce from the Government.
• The major objectives are to support the farmers from distress sales and to procure food grains for
public distribution. In case the market price for the commodity falls below the announced
minimum price due to bumper production and glut in the market, government agencies purchase the
entire quantity offered by the farmers at the announced minimum price.

36. Historical perspective of MSP
• The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. Till the
mid 1970s, Government announced two types of administered prices :
• Minimum Support Prices (MSP)
• Procurement Prices
• The MSP served as the floor prices and were fixed by the Government with the assurance that prices
of their commodities would not be allowed to fall below the level fixed even in the case of a bumper
crop.
• Procurement prices were the prices of kharif and rabi cereals at which the grain was to be
domestically procured by public agencies (like the FCI) for release through PDS.
• Normally procurement price was lower than the open market price and higher than the MSP.
• This policy of two official prices being announced continued with some variation upto 1973-74, in the
case of paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one
year only.
• Since there were too many demands for stepping up the MSP, in 1975-76, the present system was
evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat
being procured for buffer stock operations.

37. Determination of MSP
• In formulating the recommendations in respect of the level of minimum support prices
and other non-price measures, the Commission takes into account, apart from a
comprehensive view of the entire structure of the economy of a particular commodity or
group of commodities, the following factors:-
• Cost of production
• Changes in input prices
• Input-output price parity
• Trends in market prices
• Demand and supply
• Inter-crop price parity
• Effect on industrial cost structure
• Effect on cost of living
Source : Farmer Portal

38. Crops covered
• 26 commodities are currently covered. They are as follows.
• Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
• Pulses (5) - gram, arhar/tur, moong, urad and lentil
• Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum,
safflower seed and nigerseed
• Copra
• De-husked coconut
• Raw cotton
• Raw jute
• Sugarcane (Fair and remunerative price)
• Virginia flu cured (VFC) tobacco

39. MSP of Kharif Crops
Source: Government Officials
We can see that
MSP for Moong
Dal and Tur Dal
is very high as
compared to
Paddy and
Soybean for the
previous 2 fiscal
years and the
current fiscal year
as well.

40. MSP of Pulses
Source: Commission for Agriculture Costs and Prices (CACP)
MSP of pulses has been steadily rising over the past 5 years.

41. Issues Related to MSP
• It is unquestionable that farmers need support, but what we really need to determine is
what the farmer really needs.
• Currently farmers, besides numerous other input subsidies, are getting crop specific
support. This means that our policy makers dictate the agricultural product mix, which
otherwise is the domain of consumers. For this it is essential that:
• Support should be Crop Neutral as has been recommended by many experts on the
topic. If all farmers get same monetary support despite of crops produced, then they are
better placed to diversify their crops as per demands of the market. This can be done by
changeover to Income support from MSP.
• Farmers should get support at the time of distressed market prices. The first preference
of farmers should be to sell the crop in the market, at a price which is higher than MSP.

42. Issues Related to MSP
• MSP is often criticized for:
• Distorted Production
• Huge Stocks
• Out of control Inflation
• Backwardness in Agriculture

43. 1. Distorted Production
• Recent trends by NSSO indicates shift in pattern of food consumption from cereals to
protein rich foods, but no such remarkable shift is seen in sowing or production
patterns. For e.g. India is largest producer and consumer of pulses in the world, but still
25 % of the pulses consumed are imported.
2. Huge Stocks
• This resulted in ‘Open ended procurement’ which means government can’t decide
quantity it wants to buy. How much ever grains are offered by farmers to gov. has to
purchase. So now government has huge stocks which are almost double the requirements
for Buffer stock, PDS and Other government schemes such as Midday Meal Scheme.

44. Cold storages of India
• India has around 6,300 cold storage facilities, with a capacity of 30.11 million tonnes.
However, some 75-80 per cent of these refrigerated warehouses are suitable only to store
potatoes, a commodity that produces only 20 per cent of agricultural revenue.
• The report said that approximately 60 per cent of the total number of facilities are located
only in Uttar Pradesh, Gujarat, West Bengal and Punjab.
• India’s investment in cold chain is projected to be $15 billion over the next five years,
IME(Institution of Mechanical Engineers) pointed out.
• Based on 2012 statistics, the organization said that India needs expansion of cold storage
infrastructure in an affordable, reliable and sustainable way to increase the contribution
of agriculture to the economy.

45. Cold Storage and its Capacity
• We can see that
number of cold
storages are
increasing normally,
but its capacity
increasing rapidly
year by year.

46. Segment-wise segregation of cold storages
• We can see
that, major
share of cold
storage is
covered by
Horticulture/
Agriculture
products.

47. 3. Out-of-Control Inflation:
• As we have seen initially MSP and procurement prices were kept lower in relation to
Market Prices. So lower the market prices, even lower were MSP and procurement
prices. Situation now is that Market prices are dictated by MSP which remains most of
the time higher. This brings market prices at least on par with MSP. Data suggests a
directly proportional link between hike in MSPs and Food Inflation.
• Only 1/3rd of the total cereal production is left for open market after government
procurement and captive consumption by the farmers. This creates shortage in open
market and abundance in government go-downs.
• Also, inflation in crops not covered under MSP is because of other reasons. As we have
seen there is shift in consumption pattern toward non cereal foods, but no
corresponding growth in production. As a result there is demand supply mismatch. So
growth in non-cereal production is compromised in favour of crops that fetch higher
yields, which is out of sync with market demand.

48. 4. Backwardness in Agriculture
• Any industry grows when it adapts to a competitive environment.
• If farmers get market signals from the market about upcoming trends of demands of
consumers, total supply in economy, new technologies, export opportunities or import
vulnerabilities, they will find out more profitable crops, technologies and will keenly
adapt.
• The present system creates glut in market of particular crops. It leads to intensive
farming year after year, which degrades soil. Farmers rely on political pressure to
remedy their problems, instead of adapting to market.
• This all keeps private investment away for the sector.

50. WTO
• WTO (World Trade Organization) is the international organization whose primary purpose
is to open trade for the benefit of all.
• The WTO provides a forum for negotiating agreements aimed at reducing obstacles to
international trade and ensuring a level playing field for all, thus contributing to economic
growth and development. The WTO also provides a legal and institutional framework for
the implementation and monitoring of these agreements, as well as for settling disputes
arising from their interpretation and application.
• Over the past 60 years, the WTO, which was established in 1995, and its predecessor
organization the GATT have helped to create a strong and prosperous international trading
system, thereby contributing to unprecedented global economic growth.

51. WTO & Indian Agriculture
• After over 7 years of negotiations, the Uruguay Round multilateral trade negotiations
were concluded on December 1993 and were formally ratified in April 1994 at Marrakesh,
Morocco.
• The WTO Agreement on Agriculture was one of the main agreements which were
negotiated during the Uruguay Round.

52. WTO & Subsidies
• WTO’s agreement on agriculture was concluded in 1994. It aimed to remove trade
barriers and to promote transparent market access and integration of global markets.
• This agreement is highly complicated and controversial. It is often criticized as a tool in
hands of developed nations to exploit developing nations.
• Negotiations are still underway for some of this agreements aspects.
• Agreement on agriculture stands on 3 pillars:
• Domestic Support
• Market Access
• Export Subsidies.

53. Types of Subsidies Provided by WTO
Tax concessions
• In countries with well-developed tax systems, subsidies provided by reducing companies' tax
burdens are commonplace. Examples include tax exemptions (when a tax is not paid), tax credits
(which reduce a tax otherwise due), tax deferrals (which delay the payment of a tax) and a host of
other instruments.
In-kind subsidies
• The phrase "in-kind" means provided in a form other than money. Typical in-kind benefits provided
by governments are subsidized housing, specific infrastructure (like a road servicing a single mine or
factory), the services required to maintain that infrastructure, and various services to help exporters.
Cross subsidies
• A cross subsidy is a market transfer induced by discriminatory pricing practices within the scope of
the same enterprise or agency. Typically it exists when a government-owned enterprise, such as a
public utility, uses revenues collected in one market segment to reduce prices charged for goods in
another.

54. Credit subsidies and government guarantees
• Many subsidies that have budgetary implications - that is, can create financial obligations for governments in
the long run - never actually appear in budgetary statements. These "hidden" subsidies are common whenever a
government takes on the role of a banker or insurer to a company or industry.
Hybrid subsidies
• Economic systems can be likened to ecological systems. In the steaming jungle that defines the borderland
between private industry and government, camouflage and parasitism are common adaptive responses to
competition. Subsidy hybrids, particularly instruments that exploit the tax system to lower the costs of private
investment, are an inevitable result of those evolutionary forces.
Derivative subsidies
• Sympathetic support: When support is used to influence the direction of technological developments, it often
does so in a manner designed to benefit domestic producers. Many examples of this can be found in the energy
sector, such as when governments support the construction of coal-fired "demonstration" power plants that are
dependent on coal from high-cost domestic mines rather than on imported coal, or for biofuel refineries that use
domestic feed stocks.
Subsidies through government procurement
• The WTO Agreement on Subsidies and Countervailing Measures (ASCM) recognizes that a subsidy can exist
when a government purchases goods "and a benefit is thereby conferred." The benefits the drafters of the
ASCM had in mind were those resulting from purchases that take place under circumstances that do not
accurately reflect normal market conditions.

55. Estimated Subsidy Support to Agriculture
Source: SBI Research, Planning Commission, CMIE

56. WTO & Subsidies: Domestic Support
• As subsidies were bind to levels of 1986-1988, there was inequality at very beginning of
the agreement. At that time, subsidies which latter came under ‘Amber Box’ were
historically high in western countries.
• In developing countries, including India these subsidies were very limited. It is only now
under pressure of Inflation in prices of agricultural Inputs, and wide differences between
market prices and Minimum support Price that subsidies have grown to this level. In
effect, developed countries are allowed to maintain substantially higher amount of trade
distorting subsidies.
• In WTO terminology, Subsidies are termed as ‘Boxes’
• Green Box means permitted
• Blue Box means subsidies tied to programs that limit production
• Amber Box means slow (or reduced)

57. Green Box
• Subsidies which are deemed to not distort trade or cause least distortion and are not
subject to WTO reduction commitments. It includes measures decoupled from output
such as income-support payments (decoupled income support), safety – net programs,
payments under environmental programs, and agricultural research and-development
subsidies.
• Measures such as Income Support are not product specific. Like in India, the farmer is
supported for specific products and separate support prices are there for rice, wheat and
other crops. On the other hand income support is uniformly available to farmers and
crop doesn’t matter.
• The US has exploited this opportunity to fullest by decoupling subsidies from outputs,
and as of now green box subsidies are about 90% of its total subsidies. It was easy for
USA because it has no concern for food security. Further, it has prosperous agro
economy, and farmers can better respond to markets and shift to other crops. But in
India, domestic support regime provides livelihood guarantee to farmers and also
ensures food security and sufficiency. For this, the MSP regime tries to promote
production of particular crop in demand. And this makes the decoupling support with
output very complicated.

58. Blue Box
• Only ‘Production limiting Subsidies’under this are allowed. They cover payments based
on acreage, yield, or number of livestock in a base year.
• ‘Targets price’ are allowed to be fixed by government and if ‘market prices’ are less, then
the farmer will be compensated with difference between target prices and market prices in
cash. This cash shall not be invested by farmer in expansion of production.
• The loophole here is that there no limit on target prices that can be set and those are often
set far above market prices deliberately. The US currently isn’t using this method, instead
here the EU is active.

59. Amber Box
• Those subsidies which are trade distorting and need to be curbed fall under this box.
• The Amber Box contains category of domestic support that is scheduled for reduction
based on a formula called the “Aggregate Measure of Support” (AMS). It is the amount of
money spent by governments on agricultural production, except for those contained in the
Blue Box, Green Box.
• Subsidies are subject to WTO reduction commitments.
• It required member countries to report their total AMS for the period between 1986 and
1988, bind it, and reduce it according to an agreed – upon schedule. Developed countries
agreed to reduce these figures by 20% over six years starting in 1995. Developing
countries agreed to make 13% cuts over 10 years. Least – developed countries do not need
to make any cuts.

60. WTO & Subsidies: Market Access
• The market access requires that tariffs (like custom duties) fixed by individual countries be cut
progressively to allow free trade. It also required countries to remove non-tariff barriers and
convert them to Tariff duties.
• Earlier there were quotas for Imports under which only certain quantities of particular commodities
were allowed to Import. This is an example of Non-tariff Barrier.
• India has agreed to this agreement and substantially reduced tariffs. Only goods which are
exempted by the agreement are kept under control.
• Maximum tariff has been bonded as required by WTO, under which a higher side of tariffs is fixed
in percentage that should never be surpassed. Generally actual tariffs are far below this high limit.
This makes custom policy transparent and tariffs can’t be fixed arbitrarily.
• If India is able to diversify its production and add value by food processing, then this is a win-win
deal for India. A number of commodities are exported to West and low tariffs in west will benefit
Indian suppliers.

61. WTO & Subsidies: Export Subsidies
• These can be in form of subsidies on inputs of agriculture, making export cheaper or can
be other incentives for exports such as import duty remission, etc. These can result in
dumping of highly subsidized (and cheap) products in other country. This can damage
domestic agriculture sector of other country.
• These subsidies are also aligned to 1986-1990 levels, when export subsidies by developed
countries was substantially higher and developing countries almost had no export
subsidies that time.
• But the US is dodging this provision by its Export Credit Guarantee program. In this, the
US government gives subsidized credit to purchaser of US agricultural products, which
are to be paid back in long periods. This is generally done for Food Aid programs, such as
(Public Law-480) under which food aid is send massively to under developed countries.
• India too received this aid in the 1960s, but this is only at concessional rates and credit
options. This results in perpetual dependence on foreign grain in recipient countries and
destroys their domestic agriculture, so this is an equally trade distorting subsidy, which
is not currently under ambit of WTO’s AOA.

62. Subsidies Fertiliser Subsidies given in India
Source: CEIC; Department of Fertilizers; RBA

63. Conclusion
• In last few years, due to global slowdown, there has been very less Inflation (or even deflation) in
International commodity prices. At same time prices in India was reeling under double digit food
inflation.
• This is an indicator toward highly distorted agro economy not only in India, but globally. In the
WTO negotiations, there should be constant pressure on developed countries to align their total
subsidies to developing countries. System of Amber, Blue & Green boxes should preferably be done
away with as it gives leeway to developed countries to carry on with distorting subsidies.
• There is little doubt that subsidies and support to agriculture should be controlled and better targeted.
WTO negotiations also claim to work towards this direction, but inherent conflicting and vested
interest of few countries are too influential in WTO. Many allege that WTO’s agreement on
agriculture is just a tool for neo-imperialism in hand of MNCs.
• Every country has different requirements and different product mix, so enough flexibility is must in
any agreement. Further, right to food is a global movement and is guaranteed by numerous UN
conventions. So, ensuring food security is a domestic concern of a nation, international community
can just advice but can’t coerce other sovereign country. Thus, India has to made its expenditure much
more effective, with dynamic policy and resist any outside pressure which is misdirected towards
negative results for Indians.

64. References
• http://www.insightsonindia.com/2014/11/14/agriculture-issues-related-minimum-support-
prices-msp-wto-subsidies/
• http://vikaspedia.in/agriculture/market-information/minimum-support-price
• https://www.slideshare.net/AkshitManhas/akshitmanhas-14537630

65. Thank You