US Trade Distorting Farm Subsidy More Than Doubled A Decade

NEW DELHI: This might come as a shocker. The US’ trade distorting farm subsidy more than doubled a decade after it committed to bring them down by 20% in the Uruguay Round agreement of the World Trade Organisation in 1995. The overall trade distorting subsidies (OTDS), which were about $10 billion in 1995, increased to $22.6 billion in 2005 and then fell slightly to $17.4 billion the following year.

India and other developing countries could not do anything about it as the US had all its numbers in order. The country managed to actually increase its subsidies instead of cutting it down as it had sneaked into a foot note of its schedule of commitments for the Uruguay Round, an asterixed point changing the base year of calculation from 1995 to 1986-88. Since in 1986-88, its trade distorting subsidies was at an all-time high of $58 billion, a 20% reduction would mean that it was mandated to reduce its subsidies to just $46 billion.

India, according to officials, is unwilling to be taken for a ride the second time round. Once negotiations of the ongoing Doha round nears completion, the commerce department is planning to recruit and train at least 80 economics graduates to go through the schedules of implementation submitted by individual members based on commitments made during negotiations. The idea is to identify and weed out the different clauses which members might introduce to nullify liberalisation commitments made.

“We have to be extremely careful this time. We want to ensure that the promises we are able to extract out of our developed country partners are fully implemented,” an official said.

India and other developing countries have already raised their vigil against similar moves by the US during the current Doha round. While all members have agreed to accept the base year average of 1995-2000 for further reduction of OTDS, the US is insisting on a base year period of 1995-2004.

Officials said that since US’ OTDS is higher in the 2000-2004 period, increasing the base year average by four years would lower its reduction commitments by around $4 billion. “The G-20, the developing country grouping on agriculture, has strongly objected to the US move,” the official added.

The group of young scholars to be appointed by the government to cross-check claims will be given proper training to go through the voluminous schedules submitted by members, especially the developed countries. Wherever, a discrepancy is identified, the Indian government will approach the member concerned and the WTO secretariat to remove them. “We will sign the final WTO agreement only when we are satisfied that there is no slip between the cup and the lip,” the source said.

Officials pointed out that since the schedules run into thousands of pages, developing countries failed to read the fineprint during the Uruguay Round as they did not have enough officials to go through the text. The appointment of trainees for six months will hopefully take care of the manpower crunch.

Although it seems that it would take a while before the round, which involves not just agriculture, but also industrial goods, services and rules, among other issues being negotiated, India is putting its house in order as it does not want to be caught napping again.

Food Subsidy Bill Likely To Hit Rs 30,000 Crore

NEW DELHI: The government may have finally cleared the whopping Rs 16,200 crore it owed in food grain buys by the rural development ministry to the Food Corporation of India (FCI) by issuing bonds.

The revised estimate for food subsidy bill alone in 2007-08 is pegged at Rs 30,000-crore odd. But owings to the FCI have not been accounted for traditionally under this head. In effect, although dues to from a government ministry other than Food to the FCI are government spends, they were however not been accounted for under any Budget head but nonetheless have, the potential to impact on fiscal deficit.

The RD ministry still owes the food grain procurement major Rs 10,700 crore. The finance ministry had assured the food ministry that these dues would be settled, too, but failed to spell out a timetable or even the method of settlement: bonds or cash.

A good chunk of the already pending dues to the food grain major from the rural development ministry as well as other departments, totalling a huge Rs 16,200 crore, was settled earlier by the finance ministry through issue of bonds. The bonds were issued in three tranches: the first two tranches in end 2006 totalled Rs 10,000 crore; a third tranche was released in mid-February 2007 for Rs 6,200 crore. They bore a coupon rate of 8.03% to 8.23%.

No bonds were issued to the FCI in the current year, 2007-08. Instead, the RD ministry paid up Rs 950 crore from its budgetary allocation for the year, towards settling dues for welfare programmes run by it that used food grains extensively.

Meanwhile, however, the RD ministry ran up more bills totalling Rs 10,000 crore. In addition, interest on pending dues kept piling up to total a stifling Rs 700 crore plus. “Rs 10,000 crore plus was pending on the principal amount owed to us by the RD ministry alone. The rest of the dues are purely built up interest on the principal,” sources pointed out.

There’s a silver lining to the annual intra government food spend from now on, though. From 2008-09, the SGRY (the special component under the Sampoorna Grameen Rozgaar Yojana) is expected to be wound up to make way for the countrywide implementation of the National Rural Employment Guarantee Programme (NREGP). That would bring the food grain dues from RD down substantially, all the more since the payment by food grain option under the NREGP was removed.

Some indications that dues pending under this head will go down noticeably was already there this year. Food grain bills run up by the SGRY totalled a marked Rs 3,000 crore in2003-04. In 2007-08, though, those dues went down to only Rs 1200 crore.