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Costly Reprieve

To secure an agreement at the Bali ministerial meeting of the World Trade Organization, developing nations gave in to India and other developing nations and will allow ongoing food subsidies for the time being. The WTO hopes to reach a permanent solution by 2017. Subsidies distort markets and cripple competition; they aid political leaders for only a short while and are difficult to end. The WTO concession “was no victory for farmers, and a pyrrhic victory for the government at best,” writes Nayan Chanda, editor in chief of YaleGlobal, for Businessworld. “By delaying the discipline of the market, India has only postponed the day when the country’s farmers could use their age-old experience and skills to compete globally.” China joined the WTO in 2001 and its exports have soared. Chanda suggests that criticism in India for the WTO echoes that of Chinese communists who opposed their country’s entry. Chanda concludes that growth depends on orderly rules and transparency rather than waivers for special interests. – YaleGlobal

Costly Reprieve

By fighting the WTO on food subsidies, India may be sacrificing its long-term interests at the altar of populism?
Nayan Chanda
Businessworld, 8 January 2014

When the Bali WTO ministerial meeting reached an agreement in the wee hours of 6 December, well past the deadline, Indian delegates claimed victory. After all, rich countries had relented and allowed India and other developing countries an interim mechanism to continue their rule-breaching on food subsidies until a permanent solution could be found. 

Given the political pressure at home ahead of a critical election, the ruling Congress party minister Anand Sharma can be expected to brag about what he called a “victory of the Indian farmers”. He said, despite doubts about India’s capacity to withstand pressure, “we stood firm”.  The spin was as whether the WTO had made an open-ended commitment to accept food subsidy above its cap. 

The fact is that the phrase “until a permanent solution” was qualified by a proviso that members would aim to reach a permanent solution “no later than the 11th Ministerial Conference” — in 2017.

It was no victory for farmers, and a pyrrhic victory for the government at best. By delaying the discipline of the market, India has only postponed the day when the country’s farmers could use their age-old experience and skills to compete globally. 

It is unlikely that WTO would allow a further extension of subsidies that result in massive distortions of markets that India’s plan entailed. Already, guaranteed prices have led farmers to produce a silo-bursting surplus which was then dumped into the world market, hurting farmers elsewhere who do not enjoy subsidies. More importantly, even if subsidies were allowed beyond four years, they would only harm the prospect of a healthy growth of Indian agriculture while perpetuating a subsistence life for a majority of farmers. 

Judging by the mood of the electorate in the recent state elections where Congress was routed, populist policies may already be losing their vote-getting magic. People prefer the opportunity to stand on their own feet rather than rely on dole from politicians. Yet, populism dies hard. It is not just the ruling party, the Indian political establishment’s histrionics against the WTO is a fight against the past while the future is slipping away.

 The future of growth lies with order and transparency that multilateral rules enjoin on the members. This was exactly what China did while embracing WTO in 1999 as part of its stunning rise as the world’s largest exporter.
 Despite the Great Recession of 2009, China’s exports rose from $194 billion in 1999 to $2,048.93 billion in 2012. 

Against this background, one is struck by the anti-WTO critiques in India — so eerily reminiscent of similar condemnations levelled by the left-wing of the Chinese Communist Party when the Chinese government was engaged in negotiations to join the world trade body. 

During the 15-year-long negotiations with the WTO, the Chinese government was pilloried by critics who feared that accepting the rules and international competition would ruin their industry and agriculture and erode the country’s sovereignty by enmeshing it in global capitalist networks.

China’s reformist leaders, who have been dismantling the country’s ruinous command economy since 1978, looked at the WTO (in retrospect, very wisely) as a key to opening not only access to Western markets but also as a useful external lever to reform the inefficient economic system. As the former director general of the WTO, Pascal Lamy, noted for China: “The goal to become a WTO member acted as a lever for the process of domestic modernisation.” Another European analyst said that by joining the WTO, China effectively “imported global order” to modernise its economy.

 

In fact, China’s WTO commitments were surprisingly strong, exceeding those of most other developing countries. The discipline that was wrought by its detailed commitments on proper implementation, and the steps it took internally, brought rewards in massive inflows of FDI. The streamlining of its export machine that followed has made Chinese exporters the envy of the world. To be sure, accession to WTO did not on its own open the doors of prosperity, but it helped to anchor domestic reforms by linking them with external commitments.

 India’s resistance to furthering market reforms since their launch in 1991 goes in pairing with its effort to seek waivers from multilateral rules. In order to protect vested interests and safeguard vote-garnering tools, India is delaying the steps essential to modernise the economy. While political expediency deters India from carrying out reforms, the trading environment is becoming tougher.

Although world trade is forecast to grow 3.3 per cent in 2013, slightly higher than last year, it is still well below the 20-year-average of 5 per cent. India’s poor performance in export and in attracting FDI (not hot money) is directly related to its failure to reform. In World Bank’s 2013 Ease of Doing Business Index of 189 countries, where Singapore holds the number one spot and Hong Kong, Malaysia and South Korea stand second, sixth and seventh, respectively, India ranks 134th. China ranks well above India, at 96th place. 

Political shenanigans, corruption, bureaucratic red tape and inefficient infrastructure are the culprits holding back India. Winning WTO waivers to provide subsidy will do nothing to move the country forward.   

The author is editor-in-chief of YaleGlobal Online, published by the MacMillan Center, Yale University - See more at: http://www.businessworld.in/news/opinion/columnists/costly-reprieve/1194085/page-1.html#sthash.PNqB8e8u.dpuf
Source:Businessworld
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