India’s Strategic Embrace of the US Has Failed to Extend to the WTO

With the US going back on its promise of helping India and other nations, the Modi government will pressured in its quest to double farmer incomes.

In 2015, the-then commerce minister Nirmala Sitharaman confidently stated that a permanent solution would be found. With the stalemate at the latest WTO meet, this confidence seems to have been misplaced.

In 2015, the-then commerce minister Nirmala Sitharaman confidently stated that a permanent solution would be found. With the stalemate at the latest WTO meet, this confidence seems to have been misplaced. Credit: Reuters

Over the last three years, India has proudly claimed to have built a deeper, strategic relationship with the United States with Prime Minister Narendra Modi making a great number of high profile visits to America. However, despite this new paradigm of so-called “strategic embrace”, India doesn’t seem to have succeeded in making the US budge on its key areas of economic interests at the WTO. The current ministerial level talks at Buenos Aires, Argentina, have collapsed largely because of US’s lack of will to find solutions to the pressing problems of the developing world.

What’s more, on the most critical issue for India – a permanent solution to its public food stocking programme which involves procuring food grains from millions of farmers – it is China that is on India’s side and the US is not budging an inch from its past position that India is flouting WTO norms by procuring foodgrains from farmers at prices which violate established norms and which, of course, are deemed to be patently unfair.

Ironically, China appears to be on the same side as India on this crucial issue which concerns the nation’s food security as well as welfare of farmers who are currently on a warpath in India.

The US rejection of a permanent solution to the public food stocking programme comes at a time when the Modi government is under attack from farmer organisations for lack of both adequate support price and food procurement infrastructure for the bulk of their produce. It is a major election issue in Gujarat and will be in other states like MP and Rajasthan going to the polls next year.

Farmer distress is also likely to dominate 2019 general elections.

Nirmala Sitharaman as commerce minister had made a statement in 2015 expressing full confidence that her government had all but resolved the issue of converting the temporary peace clause offered by the US into a permanent solution. “It is only natural that a permanent solution will follow,” she had said, possibly based on assurances from the US.

Sitharaman also blamed the previous UPA government for not getting a permanent solution. But all such assurances have come to naught even as our “strategic embrace” with the US is being celebrated by NDA-friendly strategic analysts.

Indian farmers are in distress as they are unable to get remunerative price for their produce. Earlier, the agriculture sector was hit hard by drought in 2014-15 and 2015-16. Consequently, agriculture and allied sector posted negative growth of 0.2% in 2014-15. It recorded anaemic growth of 1.1% in 2015-16.

The Modi government has promised to double farmer incomes by 2022. This can be done only by increasing minimum support price (MSP) for key crops. However, in the absence of the ‘Peace Clause’, India cannot make proper use of this tool as it could risk violating WTO-permitted ceiling for domestic support price.

The NDA government’s ‘Har Khet Ko Paani’ project holds out promise to improve the lot of farmers by reducing irrigation costs for them. However, with the peace clause expiring this year, investment under the scheme could be challenged at the WTO if found breaching the permissible 10% cap. That could hobble implementation of the project.

Irrigation facilities in India still remain grossly inadequate, even in rich states like Gujarat. Despite the NDA government’s celebrations over completion of the Sardar Sarovar Dam on the Narmada river, several talukas in Gujarat are still awaiting promised water for irrigation. For example, Narmada water is yet to reach Sanand and other neighbouring talukas in rural Ahmedabad.

The US has gone back on its promise of helping India and other nations find a permanent solution to the expiring Peace Clause at Buenos Aires. Given its protectionist reflexes, the Trump administration is unlikely to soften its stand on the issue post-Buenos Aires, either.

Although the Modi government claims it has the support of developing countries over the food security issue, fissures have already appeared. While China has backed India on the public stockholding, Pakistan has broken ranks, saying it does not need this system as it provides cash instead of subsidised food to the poorer sections of its population.

A permanent solution to the ‘Peace Clause’ will necessitate making clear that 1986-88 benchmark price would be adjusted for inflation. That would give India flexibility to increase MSP for its key crops in line with movement in agriculture production costs without breaching the 10% cap. India had vowed to keep WTO focus on the Doha development agenda and prevent inclusion of new issues.

While there is no agreement on public stockholding at Buenos Aires, developed countries have been able to push new issues like e-commerce and trade facilitation on to the WTO agenda, though not all members are on board.

To India’s dismay, there is no mention of the Doha agenda in the ministerial declaration, either. India, which has been pushing hard for further liberalisation of agriculture and services trade, has been caught in a difficult situation as no outcome would be possible in these two areas unless all members agree. That means India will have to play ball with developed countries on new issues to secure their support to ensure farm and services negotiations are not abandoned. India’s exports are stagnating while imports continue to increase, a trend that should worry the country economic planners. So, it is very likely that India would try to find enhanced market access for merchandise and services exports.

In this context, the collapse of Buenos Aires WTO ministerial talks is not good news for the country as it could complicate its market access goals.There will be now added pressure on India to sign bilateral and regional trade pacts. However, that is not going to be easy. India has been trying to cut a bilateral free trade pact with the European Union. However, there is little sign of talks being concluded anytime soon.

India stands to gain from any agreement on free movement of professionals.However, the EU is seeking quid pro quo in areas like legal services. It also wants India to lower customs duty on automobiles, wines and spirits. With both sides bargaining hard, talks are moving at a tardy pace, with no conclusion yet in sight.

Securing a free trade pact with the US would be even more difficult for India, with American president Trump openly following a protectionist policy to please his core political constituency. Given the way the US has tightened H-1B visa rules under the Trump presidency, it looks unlikely that it will generously accept India’s demand for allowing free movement of professionals under mode 4 of the WTO services agreement.

With the US turning protectionist, it is China that has emerged as the new champion of international trade liberalisation. Overall, the multilateral and regional/bilateral trade negotiations frameworks are in a flux given the backdrop of stagnant growth and productivity, and the lack of quality employment. India will need to evolve strategies which go beyond empty rhetoric.