MSP Subsidies: India VS WTO | Why Are India's MSP Programmes Under Scrutiny At WTO? | UPSC Economy

Summary

This video explores India's MSP (Minimum Support Price) policy, highlighting its implications in global trade, particularly under the World Trade Organization (WTO). The script explains how India's MSP, along with subsidies like fertilizer support, is classified under WTO's Green, Amber, and Blue box categories. It discusses the challenges India faces in exceeding the WTO's 10% subsidy cap, leading to the introduction of the Peace Clause. The video also touches on transparency issues and India's efforts to export subsidized crops amid global disruptions. The conflict between domestic welfare policies and international trade rules is at the core of the discussion.

Takeaways

• 😀 India’s MSP (Minimum Support Price) policy is facing scrutiny at the WTO due to its trade-distorting effects.
• 😀 The WTO’s Agreement on Agriculture (AoA) classifies subsidies into three types: Green Box, Amber Box, and Blue Box.
• 😀 Green Box subsidies, like India’s PM Kisan initiative, cause no or negligible market distortion.
• 😀 Amber Box subsidies, like MSP and fertilizer subsidies in India, cause market distortion and are limited to 10% of the value of production.
• 😀 Blue Box subsidies are trade-distorting but aim to control production, such as China’s corn subsidy.
• 😀 The WTO imposes a 10% limit on Amber Box subsidies, referred to as the ‘de minimis’ limit.
• 😀 India’s MSP policy may cause it to exceed the 10% limit, leading to disputes with other WTO members.
• 😀 The Peace Clause, introduced in 2013, allows developing countries to exceed the 10% limit without facing disputes if subsidies are used for food security.
• 😀 The Peace Clause was initially temporary (2013-2017) but was extended indefinitely in 2014 after India’s request for a permanent solution.
• 😀 India has used the Peace Clause multiple times (e.g., in 2018-2020) to protect its MSP-related subsidies from WTO disputes.
• 😀 India has been criticized for not providing sufficient documentation when asked by other WTO members regarding its MSP policy.
• 😀 India has sought permission to export MSP-procured food grains, but the WTO has not relaxed conditions, especially after the Ukraine-Russia war disrupted global wheat supplies.

Q & A

What is the primary focus of the video regarding India's MSP policy?

The video explains the issues surrounding India's Minimum Support Price (MSP) policy and its implications under the World Trade Organization (WTO) agreements, particularly focusing on the classification of subsidies and the use of the peace clause.

What are the three classifications of subsidies under the WTO Agreement on Agriculture?

The three classifications are Green Box subsidies, Amber Box subsidies, and Blue Box subsidies. Green Box subsidies are non-distorting, Amber Box subsidies are trade-distorting but limited, and Blue Box subsidies are trade-distorting but used to limit production.

How does the Green Box subsidy differ from the Amber Box subsidy?

Green Box subsidies do not create significant market distortions and are not limited in amount, while Amber Box subsidies are trade-distorting and subject to a 10% limit of the value of production for developing countries.

Why is MSP classified as an Amber Box subsidy?

MSP is classified as an Amber Box subsidy because it is a trade-distorting measure. When the government purchases food grains at higher prices than market rates, it can lead to increased production and affect international trade.

What is the significance of the peace clause introduced in 2013 at the WTO?

The peace clause was introduced to allow developing countries to exceed the 10% subsidy cap without facing disputes, providing temporary protection for countries like India that need to maintain food security through subsidies.

Why did India become the first country to use the peace clause?

India became the first country to use the peace clause in 2018-19 and 2019-20 because its aggregate measure of support (AMS) crossed the 10% limit due to its public stockholding and MSP purchases for welfare purposes.

What conditions must be met for a country to claim the peace clause?

The conditions include using MSP for food security purposes, providing adequate documentation when requested by other WTO members, and ensuring that the procured goods are not exported for commercial purposes.

What are the potential consequences if India exceeds the 10% subsidy limit without using the peace clause?

If India exceeds the 10% subsidy limit without using the peace clause, it could face disputes and complaints from other WTO members, such as the U.S., which could lead to sanctions or penalties.

What recent issue has arisen regarding India's use of the peace clause?

A recent issue arose when India requested WTO approval to export wheat procured at MSP due to the reduced global supply from the Russia-Ukraine conflict. However, the WTO did not grant any relaxation of conditions, preventing such exports.

How does the WTO regulate the provision of Amber Box subsidies for developing countries?

Developing countries are allowed to provide Amber Box subsidies up to 10% of the value of production for individual crops and the overall agriculture sector. This limit is referred to as the 'de minimis' level.