Discussions over Tea (Of course, cutting maar ke)

Tuesday, September 16, 2003

SOCIAL DISTRESS : The Cancun talks and the Indian Farmer


While a large section of the world's economic populace, namely the US and the EC, have their daggers drawn at the inability of the Cancun summit to come to a decision on the agricultural reforms packages that had been sought from the developing countries, smaller nations like India hail it as a moral victory.

While India can claim this as a moral victory for a short terms there is a lot of work, in terms of agricultural reforms and policy reform, that needs to be put in by the government before December 2003, the expirt date of the controversial Article 13 (also known as the "Peace Clause" of the WTO - Agricultural Agreement). In it's clearest form, the Peace Clause goes as follows -
Article 13 (�due restraint�) of the Agriculture Agreement protects countries using subsidies which comply with the agreement from being challenged under other WTO agreements. Without this �peace clause�, countries would have greater freedom to take action against each others� subsidies, under the Subsidies and Countervailing Measures Agreement and related provisions.
When this agreement expires, significant amount of lobbying is going to be carried out between all 146 member nations of the WTO to draft out a variant in order to reach a compromise for a longer duration. The US/EU are also in peril due to this peace clause, since they provided subsidies of $300bn/year to their farmers and are liable to litigation from developing countries to remove these subsidies which will thereby raise the prices of US/EU exports into foreign markets (a practice which is currently undercutting prices in local markets and literally, killing off agriculturists).

Had the Cancun talks ended with success for the US/EU, it would effectively mean that India's (and other developing nations) bargaining power in December 2003 would've been effectively nullified. In those terms, it is certainly a moral victory.
The argument most often used by the developed nations is that in a free-market, the producers who can grow crops most efficiently--that is, at the lowest cost--should be permitted to export to other markets without tariffs or other trade-distorting barriers. Instead of trying to compete with low-cost producers, according to this view, farmers in other countries who produce the same crop at higher cost should either grow something else at which they will have a similar competitive advantage or give up farming altogether and move to the city where they can get a job in a manufacturing or some other sector whose products or services can be sold to yet other markets at competitive prices.

This proposal is simply not implementable for developing nations for the following reasons -
  1. Mass upheaval is not possible for a nation where the agrarian economy accounts for a significant portion of the country's GDP (India's share is as high as 34%).
  2. Also, India has too many small farmers who cannot afford the agricultural reforms which raise the productivity and the efficiency of the developed farmer.
  3. The agri output of a nation like India depends too much on the nature, to work that into it's policy reforms.

Yet, India does need to work in agricultural reforms as a policy decision in order to retain it's bargaining power at the WTO stage. This might be an issue with the instability of the Indian government and the importance of the agriculture-driven voter, but hopefully a stable government in the parliament would be able to steer India away from impending disaster.
Some of the things that need to be done by the government in the coming years are -
  1. Change the irrigations system existing, gradually. Currently, 9-10 million hectares of land are wasted due to excessive use of water. While a larger number goes unirrigated.
  2. Initiatives into ensuring financial security needs to be brought into the sector. Currently, lending rates are too high and are very localized, as C'estlavie has pointed out in her post. Most of this is due to a lack of awareness and an air of scepticism with the farmers who don't trust the bank enough or aren't simply aware of them.
  3. Increase economic packages to the agricultural sector. This would mean implementing of agricultural reforms and mechanization of processes, but will require significant inputs from the government.
  4. A more drastic, but required step would be aggregation of farms to introduce economies of scale and generation of livelihood schemes for the displaced farmers. Though it would have to be a very well planned and even more well implemented decision.

Some of the good initiatives in this sector have been taken in the past few years, namely the river linking project, the introduction of micro-insurance through private players into rural markets and some state-level economic relief packages.
For the rest, you and I are just going to have to keep our fingers crossed.

End of Post

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