India’s $48B Subsidy Concerns for Power and Agriculture

Context

India’s input subsidy for power and agriculture has raised concerns among several countries, including the U.S., EU, UK, Australia, Canada, Brazil, New Zealand, and Japan. The subsidy amount has increased by 50% from $32.07 billion in the previous fiscal year to $48.13 billion in 2022-23, making it a significant trade issue.

Key Points

• The subsidy amount has increased by 50% from $32.07 billion in the previous fiscal year to $48.13 billion in 2022-23.
• The U. S. raised its concern by arguing that Indian input subsidies were more than double their value for all notified trade distorting support in 2021- 22.
• The US, Canada and New Zealand alike criticised India for a lack of clarity in explaining the rise in subsidy expenditure and pushed for increased disclosure.
• Their subsidy has been meeting criticism successfully as India and has breached WTO laws, most significantly, Article 6. 27 of the Agreement on Agriculture which gives the developing nations including the Indian an option to subsidise agricultural inputs comprising fertilisers, irrigation, and power.
• The subsidy has also drawn controversy over its effects on the bilateral exchanges particularly in agriculture and trade distortions.

Scale of the Subsidy

While the relatively small volumetric increase may not be of serious concern, The rising scale of the subsidy is a big cause of worry with input subsidies in India nudging the value of the trade distortions notified by the US in 2021-22. The concurrent rise in these levels of spending has led to concerns regarding the country’s WTO conformity and trade tensions.

WTO Rules

India’s subsidy has raised questions about its compliance with WTO rules, particularly Article 6.2 of the Agreement on Agriculture. This article allows developing countries like India to provide subsidies for agricultural inputs like fertilisers, irrigation, and power. However, the rapid increase in expenditures has raised concerns about India’s compliance with WTO rules.

Lack of Transparency

Several countries, including the U.S., Canada, and New Zealand, have expressed dissatisfaction with India’s explanation for the increase in subsidy expenditure and have called for greater transparency. India has been asked to provide more information on the subsidy, including its distribution and impact on trade.

Impact on Global Trade

The subsidy has also raised concerns about its impact on global trade, particularly in the agricultural sector. The rapid increase in expenditures has raised questions about the potential for trade distortions and the impact on other countries’ agricultural exports.

Concerns of Other Countries

Several countries have expressed concerns about India’s subsidy, including:

• U.S.: Has questioned India’s compliance with WTO rules and the potential for trade distortions.
• EU: Has expressed concerns about the impact on global trade and the potential for trade distortions.
• Canada: Has called for greater transparency and expressed concerns about the impact on global trade.
• Australia: Has expressed concerns about the potential for trade distortions and the impact on its agricultural exports.

Conclusion

India’s $48 billion input subsidy for power and agriculture has raised concerns among several countries, including the U.S., EU, UK, Australia, Canada, Brazil, New Zealand, and Japan. The subsidy has raised questions about India’s compliance with WTO rules, the potential for trade distortions, and the impact on global trade. India needs to address these concerns and provide greater transparency to avoid any potential trade disputes.

Source: TOI

UPSC Prelims Practice Question

Q. India’s recent announcement of a $48 billion subsidy for power and agriculture has raised concerns among policymakers and economists. Which of the following areas are likely to be impacted by such a subsidy?

1. Increase in agricultural productivity only
2. Reduction in electricity prices only
3. Fiscal deficit management only
4. Both agricultural productivity and electricity prices

Choose correct one:

a) 1 and 2 only            b) 2 and 3 only

c) 1 and 3 only            d) 2 and 4 only

Ans – “d”

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