With the new government coming into power, there has been a radical shift in the ideology when it comes to taking a stance on the WTO issue of farm imports. This issue has spawned several heated discussions among economists: Was India waiting for a new government to come so that it could give reasons for this shift in ideology? Just to give an overview of this issue, for the last 8 years India and some other developing countries have banned the imports of agricultural commodities from the developed nations, in particular the USA as it gives huge subsidies to its farmers. As a result, the import prices of farm products from the US are cheap and this in turn creates difficulties for our domestic farmers to sell their products at such low prices. This is one reason why India has changed from being a net exporter of agricultural products in the late 1990’s to a net importer today.
India has been firm on this stance for the last 8 years. Definitely a change in stance is required if it is in any way benefiting India. So what is imperative for us is to see whether or not this “strategic” move is going to be beneficial for India. India says it would be more than willing to lift the restrictions imposed on farm imports if US lifts its restrictions of import of services. First, let’s discuss the implications of lifting restrictions on farm imports. If India lifts its special safeguard mechanism on farm imports then the domestic farmers will be unable to compete with the extreme low prices of the imports. It is one of the main arguments used by the opponents of international trade- the unfair competition argument. Such a move is going wreak havoc on Indian farmers. Ultimately, price competition is going to drive them out of the market. As a result, the farmers are going to lose their job as they no longer have buyers for their products. This is going to have a sabotaging effect on the Indian farmers. This is exactly what the US has been wanting for the last 8 years. They have always tried to water down our stance on this issue.
Coming to my second point, why should India open up its financial services to the US when the financial system in US already has a lot of blemishes? US at some point of time will anyways ask us for assistance in the form of financial services. Therefore, there is no need for India to beg US to lift its restrictions on import of financial services.
Finally, this move is going to be harming India’s relations with other developing nations in Asia. Going against these nations by lifting restrictions on food imports is going to have an adverse effect on India’s trade relations with its neighbouring countries, especially China. Therefore, India is going to lose on this front too. So where does India benefit?
The government surely needs to justify its stance on this issue and how it is going to be beneficial for India. For the moment the shift in ideology is unfathomable. The government has already received a lot of flak for its egregious policies. Unequivocally change in India’s stance is not going to benefit India in anyway. It is just going to exacerbate the poor situation of the farmers in India. Hope, our new commerce minister, Mr. Anand Sharma gets an answer for the public next time he raises this issue.
[Image courtesy: http://www.american.com/archive/2008/may-05-08/india-vs-the-wto/FeaturedImage]