Rural votes, old traumas drive India's WTO brinkmanship

NEW DELHI Tue Jul 29, 2014 11:07pm IST

A labourer spreads wheat for drying at a wholesale grain market in Chandigarh April 13, 2014. REUTERS/Ajay Verma/Files

A labourer spreads wheat for drying at a wholesale grain market in Chandigarh April 13, 2014.

Credit: Reuters/Ajay Verma/Files

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NEW DELHI (Reuters) - With grain silos spilling over, exports on the rise and an avowed market champion for prime minister, India's threat to trash a global trade deal in the name of food security appears puzzling.

But government officials say Prime Minister Narendra Modi is prepared to brazen out global outrage to seize a historic chance to build a rural power base with his defence of farm subsidies and to banish memories of humiliating national food shortages.

Modi triumphed in a general election only two months ago, but polls are never far away in the world's largest democracy and his Bharatiya Janata Party has its eyes already on new campaigns in the breadbowl states of Haryana and Maharashtra.

More than two-thirds of India's 1.26 billion people live in rural areas and Modi's party, traditionally stronger in cities, needs to secure more farmers' votes to consolidate its power.

Party officials are confident New Delhi's tough line at World Trade Organization talks in Geneva will accomplish that.

"A strong stance in Geneva sends a message to the farmers and poor people that unlike the (last government), Modi can take on the global powers to safeguard the interests of rural India," said a party lawmaker, who declined to be named.

Modi's government demanded a halt to a globally agreed timetable on new customs rules and said a permanent agreement on food stockpiling and subsidies must be in place at the same time, well ahead of a 2017 target agreed last December in Bali.

Critics say the brinkmanship threatens a deal that could add a trillion dollars to global wealth and create 21 million jobs.

With a key deadline on Thursday looking increasingly tricky, Modi risks alienating allies including the United States, whose top diplomat John Kerry is due in New Delhi on Wednesday for talks that will be held in the shadow of the dispute.

"We understand that a new government in office for fewer than 100 days is eager to evaluate any previous agreement and assure their electorate they are doing the right thing," Diane Farrell, acting president of the U.S.-India Business Council told Reuters.

"At the same time, we have a high degree of hope that they will work with the WTO to find the appropriate accommodations … in order to sign on an agreement to the treaty," she said.

ASSERTIVE INDIA

If India goes through with its threatened veto, critics say it would cripple WTO talks, hasten trade negotiations elsewhere – something that India opposes – and swiftly trigger trade disputes challenging India's stockpiling policy.

But the gambit is paying off at home, where the opposition, industry chambers and many economists have welcomed India asserting itself more on the international stage.

"Modi, like any good strong leader, is committed to 'India first', that was his campaign," said Samir Saran of the Observer Research Foundation think-tank.

India rejects international criticism by saying that it is responsible for the well-being of a quarter of the world's poor and that its subsidy burden is vastly overestimated.

Current WTO rules limit subsidies to farmers in developing countries to 10 percent of the total value of agricultural produce based on 1986-88 prices.

New Delhi trade officials say India wants the formula to be adjusted for inflation and fears that if the Bali trade facilitation deal is signed by July 31 as planned, questions of stockpiling and subsidies will end up on the back burner.

But India has not formally raised the inflation-adjustment idea since the Bali summit in December.

India provides subsidised fertiliser and seeds to farmers and buys wheat and rice from them at fixed prices to boost output, build stocks for welfare plans and meet any emergency.

The incentives, coupled with good rains in recent years, have sent output soaring and state warehouses are overflowing.

As of July 1, India had 21.2 million tonnes of rice and 39.8 million tonnes of wheat stockpiled, more than double the respective buffer norms.

Yet India is determined to hold on to these vast reserves, partly due to painful memories of dependence on U.S. food aid in the 1960s. Also, as recently as 2006, India's surpluses vanished after two years of drought and it was forced to import grains, sending global food prices rocketing.

Monsoon rains are expected to be below average this year.

"India cannot afford to rely on imports of rice and wheat as no one produces (enough) to feed a county of India's size," said a senior farm ministry official. "Two successive droughts in India will scare the world market and prices will surge in an unimaginable way."

REFORMS STILL ON?

Government experts say nearly half of about 60 million tonnes of grains set aside for distribution at subsidized prices is siphoned off by corrupt officials, raising the question why India would burn bridges to defend such an inefficient system.

Still, some experts say India's best choice might be simply to try to improve it since a change to cash transfer subsidies recommended by many economists would take years in a country with few rural banks.

India's nation-sized states are working to fix the system of warehouses and ration shops that dates back to the famines of the 1960s, emulating simple solutions adopted by states which have dramatically cut waste and improved delivery.

"The public distribution system (PDS) has been making slow but steady improvement," Peter Kenmore, the United Nations' Food and Agriculture Representative in India, told Reuters.

"It is slow, sure, too slow, but basically the PDS is straightening out," he said, adding that FAO's position is that India's food subsidies do not distort global markets.

(Additional reporting by Krishna N Das, Frank Jack Daniel and Krista Mahr; Editing by Frank Jack Daniel, Tomasz Janowski and Gareth Jones)

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