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INDIA’S FOOD SUBSIDY LIKELY TO BE WITHIN WTO LIMITS

inNEW DELHI: Contrary to popular perception, India has little to worry about its product-specific support to agriculture exceeding the limits prescribed by the World Trade Organisation (WTO), a recent study has revealed.

 

This implies that New Delhi’s aggressive stance at the world body, seeking leeway from the cap on public stockholding for food security or even a total waiver from the restriction citing the resource-poor status of its farmers, lacked rationale.

 

The country’s product-specific subsidy for rice stood at minus 2.87% and that for wheat at minus 10.22% of the respective production values in 2010-11 when calculated on a fully inflation-adjusted basis, according to a joint paper by Icrier experts Anwarul Hoda and Ashok Gulati for International Centre for Trade and Sustainable Development.

 

Only supports in terms of these two staple grains are relevant in this context as in the case of other crops, the minimum support prices (MSPs) declared are not backed by extensive purchases by the Food Corporation of India or other state-run agencies. This means India’s current aggregate measurement of support (AMS) on this count is virtually zero, never mind the ceiling of 10% of the value of production specified in the WTO’s Agreement on Agriculture (AoA).

 

The Hoda and Gulati study shows that despite the big hikes in India’s MSPs in recent years (particularly post-2007-08), the MSP for rice was lower than its international price in the decade to 2011-12. In the case of wheat, the MSP was higher than the global price only for two years in the decade, in 2001-02 and 2009-10.

 

MSP hikes for wheat and rice have been relatively modest since 2010-11 (for rice, the average rise between 2010-11 and 2013-14 was 10.33% while the wheat MSP saw an average rise of just 6.55% in the period). Clearly, with such low levels of support, India lacks the capacity to distort the world markets for these commodities and remains immune to multilateral action.

Of course, there is some ambiguity over the extent of inflation adjustment WTO members would agree to. Article 18.4 of the AoA provides for only “due consideration to the influence of excessive rates of inflation” (while calculating the difference between the MSP and the “external reference price” agreed upon).

 

In other words, there’s no guarantee that fully inflation-adjusted domestic support figures (calculated from the level in the base year of 1986-88) would find a consensus at the world body. Analysts said that rather than pitching for exemption for grain purchases at administered prices from low-income and resource-poor farmers, India would do well to buttress the scope of Article 18.4 to endorse full inflation adjustment.

 

Without adjusting for inflation, the product-specific supports for rice and wheat in 2010-11 was much higher than the WTO-mandated cap, at 26% and 17.9% of the total output value, respectively. Another potential irritant for India could be that the WTO’s appellate body had ruled in 2000 that product-specific price support could be determined assuming subsidy persists on the entire crop output. If this methodology is applied, then India’s price support to rice sans inflation adjustment works out to be 76.5% of production value as in 2010-11 and that to wheat, 69.7%.

 

The WTO General Council that met in Geneva recently could not adopt the protocol for the momentous Trade Facilitation Agreement (TFA) aimed at easing customs procedures because India, along with a tiny group of countries, refused to sign up. These countries, against the wish of the vast majority of WTO members, caused the talks to collapse, as they feared decoupling of TFA from the efforts to find a lasting solution to the public stockholding issue.

 

Even in the case of non-product-specific subsidies (input subsidies on irrigation, power, fertiliser, etc, to cultivators) India remained within WTO’s de minimis level of 10% in 2010-11 at 8.88% of total value of farm output, although in 2008-09 and 2009-10 the level was breached with these subsidies amounting to 15.08% and 10.12%, respectively, of the relevant value. However, if the subsidies to relatively smaller farmers are excluded (which the WTO allows), the non-product-specific subsidy levels would appear safer. These subsidies, or for that matter even the product-specific subsidies of India, have not been contested by any WTO member so far, even as New Delhi seems bent on pre-empting any such move.

 

“In general, domestic support of agriculture needs to move from measures that cause more than minimal trade and production distortions to those that do not have such effects, from input to investment subsidies and from consumption subsidies in kind to direct and conditional cash transfer,” Hoda and Gulati wrote.

(Source: The Financial Express, August 8, 2014)

 

RIDING ON PSU ETF SUCCESS, GOVT TO LAUNCH SECOND SUCH FUND IN FY15

 

NEW DELHI: Buoyed by the good response from investors to the public sector units’ exchange traded fund (PSU ETF) launched in FY14, the government is looking to come out with a similar ETF this fiscal.

 

The finance ministry has roped in ICICI Securities to prepare a report on the feasibility, size and the basket composition of the ETF, government officials told FE, adding the new fund could include PSUs which were not part of the previous one.

 

“ICICI Securities is advising the disinvestment department on the matter. As of now, the size and the basket composition has not been decided. ICICI is expected to submit a report soon. Once we take that into consideration, we will prepare a note to send to Cabinet on a second PSU ETF,” a senior finance ministry official said.

 

As part of its disinvestment programme last fiscal, the government launched a R3,000-crore PSU ETF on March 18. The ETF comprised scrips of 10 state-owned companies — ONGC, Coal India, GAIL, REC, Oil India, Container Corp, Power Finance, Indian Oil, Engineers India and Bharat Electronics. Upon its launch, it proved a hit amongst investors, who oversubscribed in the fund by R1,000 crore.

 

In fact, the PSU ETF was a much-needed breather for the disinvestment department in FY14 when the budgeted disinvestment target of R54,000 crore was drastically revised down to R19,027 crore for a number of reasons, which showed a glaring lack of planning on part of the Centre.

 

For FY15, the Centre excepts to garner R58,425 crore from stake sales in PSUs and residual stake-sale in Hindustan Zinc and Balco. Its disinvestment roadmap has 11 PSUs, including Coal India, ONGC, NHPC, SAIL, and Rural Electrification, among others.

 

Sources said that the new PSU ETF is likely to be used to divest stake in additional companies which are not yet part of the roadmap, but may be added later during the year.

 

Disinvestment secretary Ravi Mathur told FE in an interview last month that more companies will be divested this fiscal to meet Sebi’s shareholding norm for PSUs, under which the minimum public shareholding in state-owned companies should not be less than 25%.

 

Officials also added that the new PSU ETF will be listed on the National Stock Exchange, like its predecessor.

 

The official also said that the disinvestment department may seek approval to sell a 10% stake in Coal India for R23,700 crore in the next Cabinet meeting.

(Source: The Financial Express, August 8, 2014)

 

GOVT CONSIDERING REPORT ON COAL INDIA RESTRUCTURING

 

NEW DELHI: India’s coal ministry said it was studying the recommendations of consultants Deloitte on restructuring options for Coal India, the state behemoth that has failed to meet its output target for years despite having access to large reserves.

 

A government committee has urged the ministry to restructure the world’s largest coal miner to help reduce shortage of the fuel, which accounts for more than two-thirds of the power generated in the country.

 

Responding to a lawmaker’s question in the parliament if there was plan to break up Coal India, Coal and Power Minister Piyush Goyal said on Thursday that a draft report submitted by Deloitte on “possible restructuring options” was “under consideration”.

 

Reuters reported on May 21 that new Prime Minister Narendra Modi was exploring breaking up the company and opening up the nationalised sector to foreign investment to boost output and cut imports.

 

Sources have said that one of the options was to convert some of the seven producing units of Coal India into independent firms, and making respective state governments equity holders to help speed up land acquisition and other such processes.

 

The company produces about 80 percent of the total coal dug out in India and feeds all but four of the 86 coal-based thermal power plants, but its inability to raise production fast enough has made India the third-largest importer of the fossil fuel.

 

Imports hit 168.4 million tonnes in the fiscal year through March 31 and are rising, as the new government has promised to scale up power output to light up every home. About 400 million of the 1.2 billion Indians still live without electricity.

 

Shipments of thermal coal, used in power generation, are expected to surge 11 percent to 150 million tonnes this fiscal year, according to online market operator mjunction.

 

With growing imports and power plants running on critical stocks, the clamour for Coal India’s restructuring has grown. The finance ministry said in its Economic Survey report on July 9 that the process of “restructuring Coal India needs to be pushed through swiftly”.

 

But as the government looks to shape up Coal India for a potential stake sale and restructuring, the miner still faces basic problems such as lack of enough mechanical shovels, dumpers and explosives.

 

Goyal will also have find a way to deal with Coal India’s powerful unions, which have vowed to hit the streets against any stake sale or restructuring.

(Source: The Financial Express, August 8, 2014)

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