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Explained | How India's plan to boost wheat exports can fall foul of WTO rules

As countries line up for Indian wheat amid a global shortage and high prices, international trade rules may cut short exports from the country.

April 28, 2022 / 07:11 PM IST
Representative image

Representative image

World Trade Organization rules may prove to be a hurdle to India’s plan to export wheat from state-owned stocks. With global wheat prices at historic highs in the wake of the Russian invasion of Ukraine, India is trying to export wheat to nations that have officially asked for it and capture a share of the global market.

However, the possibility of Indian exports running afoul of WTO rules has presented yet another reason for traders to remain wary, apart from possible export restrictions due to a spurt in domestic food grain prices and low production resulting in shortages.

Earlier this week, finance minister Nirmala Sitharaman said India had asked the WTO for help to sort out the issue. The WTO has said talks on the matter have been scheduled. Moneycontrol takes a look at the issue.

What exactly is the WTO’s position?

WTO rules make it difficult for a country to export grains from official stocks if they have been procured from farmers at fixed prices, which in India’s case, is the minimum support price mandated by the Centre.

According to the government, one reason India’s major farm produce such as wheat, rice and pulses have not been exported to their fullest potential is because of this restriction. Exporting wheat from India is only the latest in a series of confrontations over farm exports that developing nations have had with richer economies.

Where does this issue stem from?

India and other developing nations purchase and stockpile food grains to be distributed to people in need. Richer economies say such stockholding programmes are considered trade-distorting when they involve purchases from farmers at prices set by governments, such as India’s minimum support prices.

The WTO currently has a ‘peace clause’ that permits uninterrupted implementation of India’s food security programme until a permanent solution is found. This allows India to procure and stock food grain for distribution to the poor without being penalised by WTO members. However, the peace clause comes with several riders, including the periodical submission of data on food procurement, stockholding, distribution, and subsidies. India has lagged on this aspect. It also allows India to continue public stockholding even when it has provided production level subsidies to farmers, something the WTO also frowns upon.

What is the debate over farm subsidy?

The issue of farm subsidy has locked India and other developing nations in a pitched trade battle against rich economies. Currently, the multilateral body in principle allows developing countries like India to provide farmers subsidies of up to 10 percent of the value of food production.

Subsidies beyond the prescribed ceiling are seen as trade-distorting. But India often exceeds this subsidy cap and has to invoke the peace clause. It then has to establish that the subsidies are not trade-distorting, a process that has led to numerous acrimonious negotiations at the WTO headquarters in Geneva.

India contends that the WTO’s current farm subsidy rules are skewed against developing countries, which have a large number of poor farmers to support. As a case in point, India provides a subsistence amount of about $260 per farmer per annum compared to over 100 times more in some developed countries.

For a permanent solution to this debate, India has proposed either amending the formula to calculate the food subsidy cap of 10 percent, which is based on the reference price of 1986-88, or allowing such schemes outside the purview of the subsidy cap.

What may be the fallout of this?

If the rules are not changed or the WTO does not clarify them in India’s case, the biggest fallout would not be admonishment or sanctions by the WTO but the backing out of potential buyers.

Several nations have initiated a series of official enquiries into purchase conditions for Indian wheat. India is in final talks to start wheat exports to Egypt, while discussions are going on with Turkey, China, Bosnia, Sudan, Nigeria and Iran. The confusion over whether India’s wheat shipments are WTO-compliant may complicate the sale process to these nations, officials said.

Exports by private traders who buy grains from farmers at market rates are not impacted by the WTO norms. That has been the primary mode of wheat shipments from India till now. However, the sheer scale of planned wheat exports to more than a dozen countries would require sourcing from government stocks, officials said. Some nations have also asked for wheat on a bilateral basis, which would preclude the presence of private traders.

What is the government doing?

The government said it has the diplomatic backing to get a waiver from the WTO, given that food grain supplies have become an even more sensitive geopolitical topic in the aftermath of the Ukraine crisis. Globally, higher temperatures, logistics challenges in the wake of the pandemic, and economic difficulties have led to food grain prices soaring in most countries.

The US has asked India to help out with the food grain situation right now. Aware of its unique position as the second-largest wheat producer globally, India has used the latest crisis to further its aim of changing the WTO rules. In his talks with US President Joe Biden, Prime Minister Narendra Modi has offered to supply grains to other countries that are facing a food shortage should WTO norms allow it.

Subhayan Chakraborty
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 7 years. He has also extensively covered evolving industry issues and government policy. He was earlier with the Business Standard newspaper.