Keywords

1 Introduction

Liberalisation of Indian agriculture under WTO and FTAs has been a contentious issue for all the stakeholders involved. This is primarily because the sector contributes significantly to employment, GDP, poverty alleviation, rural and economic development. However, the inherent problems of this sector such as fragmented landholding, small farm size, inadequate irrigation facilities, marketing and other infrastructural deficiencies remain issues of significant concern. For instance, 99.43% of Indian farmers are low income or resource-poor as their average landholding is less than 10 hectares (WTO 2020). Further, farmers’ income and livelihood continue to be adversely affected by cheap agricultural imports flowing in due to trade liberalisation (Roy 2006). Over and above, the stakeholders remain gravely concerned about the frequent attacks on India’s agricultural policies at the WTO (Sharma 2018). In fact, one of the primary reasons for India's withdrawal from the Regional Comprehensive Economic Partnership (RCEP) negotiations in 2019 was the apprehensions of stakeholders, especially farmers, pertaining to the possible adverse impact of this mega-FTA on India's agricultural sector (Dhar 2019).

Issues regarding liberalisation are not new and were even raised when India was liberalising under the economic reforms of 1991 and during the Uruguay Round negotiations where agriculture as a sector was negotiated along with the establishment of WTO. Proponents of agricultural trade liberalisation believed that the process would be beneficial for developing countries' farmers, including Indian farmers as it would open tremendous export opportunities for them. The Agreement on Agriculture (AoA) within the framework of the WTO was believed to benefit the farmers of developing countries, including India, which otherwise had a comparative advantage but were unable to get market access due to domestic support and export subsidies given by the developed countries. On the other hand, the opponents remained wary of import surge of subsidised goods and its negative impact on domestic farm prices which could prove detrimental for domestic producers (Chand and Bajar 2012).

After liberalisation under the trade and economic reforms of 1991 and the establishment of the WTO in 1995, India witnessed an upward trend in both exports and imports of agricultural goods. The share of India’s exports in world agricultural exports increased from 0.85% in 1990 to 2.15% in 2018 (Table 1.1). A similar trend is also observed in India’s import share in world agricultural imports, which increased from 0.39% in 1990 to 1.54% in 2018. In absolute terms, the exports increased from US$3.5 billion in 1990 to US$38.92 billion in 2018. At the same time, imports of agricultural goods have also increased substantially from US$1.72 billion to US$28.24 billion (Fig. 1.1). Though the trade balance in agriculture remains positive, it shows a declining trend in recent years due to the narrowing gap between imports and exports. Additionally, given the diversification of the total trade basket of goods over the years, the share of agriculture in total merchandise imports and exports of India has shown a declining trend.

Table 1.1 Share of export and import of Indian agriculture in total merchandise trade of India and the world (%)
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Fig. 1.1
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Trend in India’s agriculture export and import (billion US$).

Source Authors’ compilation based on data from the WTO

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Despite the increase in India’s agricultural trade, many concerns and issues related to the impact of trade liberalisation, under both multilateral and regional trade agreements, remain relevant. In recent times, these concerns have grown exponentially as agricultural policies of developing countries, including India, have been challenged through disputes and during the review process at the WTO (WTO 2019a, b). For instance, India is currently facing a challenge on its sugar and sugarcane policies in disputes brought against by Australia, Brazil and Guatemala in 2019. Further, the minimum support price policy (MSP) which functions as a safety net for Indian farmers was challenged by the United States, Australia and Canada during 2018–19 vide counter-notificationsFootnote 1 (WTO 2018a, b, c, 2019c). These challenges owing to the restrictive provisions of the AoA not only have the potential to dismantle agricultural support measures in developing countries but also derail the food security policies in many of these countries. This would negatively impact the livelihood of low-income and resource-poor farmers in India and several other developing countries.

Unlike developed countries where farmers operate on large scales, have access to smart agriculture technologies and government-supported incentives, majority of the farmers in India practise subsistence farming with low income and returns. In addition, farmers are particularly challenged due to lack of adequate safety nets to shield them against income losses stemming from price fluctuations, poor farm mechanisation and other factors such as climate change and natural disasters. The low levels of income, along with crippling farm distress, have also resulted in farmers’ indebtedness and suicides in recent years. For instance, the latest survey on farm income reported that the average income per agricultural household was only around INR 6500 per month (NSSO 2013). The distress amongst the farm community can be gauged from the fact that more than 10,000 farmers committed suicide in India in 2018 (NCRB 2018). Absence of proper marketing channels, institutional credit systems, inadequate irrigation, farm mechanisation tools and infrastructural facilities compound the problems faced by farmers.

Besides problems on the domestic front, high levels of support provided by developed members also adversely affected subsistence farmers in developing countries, with millions getting displaced. For illustration, the average annual per farmer support in India was US$ 282 for  2018–19 in contrast to US$61,000 in the USA for 2016 (Sharma et al. 2020a). This highlights the uneven and unfair playing field in international trade which permit developed countries to continue with such high levels of support at the detriment of the farmers in developing countries.  Besides, these countries seek market access in developing countries for their products through negotiations under the WTO and regional trade agreements (RTAs). Recent challenges to  agricultural policies of developing countries can be viewed in light of this commercial interest and a bid to gain market share in developing countries. On the other hand, developed countries themselves such as the United States have increasingly resorted to protectionist measures in the recent times to support their agriculture. The United States provided almost US$28 billion in payments to the producers affected by trade wars during 2018 and 2019 (Reuters 2019).

Against this background, it is crucial to examine the various issues and challenges for Indian agriculture in light of the trade liberalisation process under WTO and RTAs. Specific issues of the Indian agriculture relating to WTO have been discussed in Sect. 2. Given that India is a party to many RTAs, Sect. 3 examines the pertinent agricultural issues under RTAs, and Sect. 4 concludes this chapter.

2 Indian Agriculture under WTO

At the multilateral level, trade in agricultural goods is governed by the AoA. Prior to the WTO, agriculture was kept out of the General Agreement on Tariffs and Trade (GATT) negotiations. In the absence of concrete rules under GATT for the agriculture sector, the developed countries provided massive levels of support through various domestic and trade-related measures, and complex tariffs, thus developing their sectors through protectionist measures. Following the intense negotiations of the Uruguay Round from 1986 to 1994, members agreed to discipline tariffs, non-tariff barriers, subsidies etc. under the AoA. It was believed that the Agreement would correct the inequalities and distortions in global agricultural trade that benefitted producers of the developed world. To that end, the AoA aimed to “establish a fair and market-oriented trading system” and proposed commitments on its three main pillars: domestic support, market access and export subsidies. However, even after 25 years since the establishment of the WTO, several asymmetries and systemic issues remain unaddressed and a level playing field for majority of its members is yet to be achieved. The issues and challenges in the agriculture sector faced by India and other developing countries at the WTO are discussed in the following subsections.

2.1 Domestic Support

All WTO members implement various domestic support measures in order to achieve agricultural growth and development.  The AoA classifies these measures under different heads or ‘boxes' in WTO parlance based on their potential distorting effect on production, prices and trade. Some domestic support measures such as those for general services, crop insurance, food aid, public stockholding for food security purposes etc. are considered either non-trade-distorting or at most causing minimal trade distortion or effect on production. These measures under Annex 2 of the AoA are termed as “Green Box”, and all members can provide support without any financial limit under them.

Besides the Green Box, there are other provisions under which support can be provided by members such as “Blue Box”, “Development Box” and “Amber Box”. Blue Box measures are enshrined under Article 6.5, and these include direct payments made under production-limiting programmes. Like the Green Box, all members can provide support without financial limits under it.  Article 6.2, also known as the Development Box, is a S&DT provision under which developing countries can provide support without prescribed limits for certain measures such as investment subsidies generally available to agriculture, input subsidies to low income or resource producers and subsidies provided to encourage diversification from illicit narcotic crops. Over the years, India has provided support, not only under Green Box and Article 6.2 but also under Amber Box, as mentioned in Table 1.2.

Table 1.2 Trend in domestic support to agriculture in India (million US$)
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Amber Box, being trade-distorting support under the AoA, is subject to strict financial limits. It is divided into product-specific and non-product-specific support; the former covering support provided on individual product basis, while the latter covers support available for agricultural products in general. For a majority of developing countries, trade-distorting support is capped at the de minimis limit, which is the minimum level of support allowed under  the Amber Box. Both product-specific and non-product-specific de minimis is set at 10% of the value of production (VoP) for a concerned agricultural product and total agricultural VoP, respectively, for developing members. This limit for developed countries is set at 5%.

As a result of the constraining limit under the Amber Box, Indian domestic support measures, especially in the form of the MSP, have come under severe attack in recent times. MSP is a form of market intervention under which the government procures agriculture products at target prices in order to protect farmers from price fluctuations and to ensure remunerative prices. Besides the constraining limit, the outdated methodology used to calculate product-specific support is threatening the continuation of this support policy.

The AoA provisions provide that market price support (MPS) shall be calculated by multiplying the quantity of production eligible to receive the administered price with the gap between the fixed external reference price (ERP) and the applied administered price (AAP). The ERP is based on the years 1986–88, termed as the “base period”, and reflects the import or export price of an agricultural product during the base period, depending on whether a country was a net importer or exporter of the agricultural product concerned. As the MSP increases over the years, its comparison with the fixed ERP is bound to result in a breach of the 10% limit due to cumulative inflation. Based on this methodology, some WTO members have alleged that India has breached the applicable limit in the case of wheat, rice, pulses and cotton. These members ignore the impact of inflation on market price support which results in an inflated product-specific support. Further, by utilising this methodology, Australia in its counter-notification on India's support to sugar and sugarcane claimed that India provided support exceeding its limits, almost equalling the value of sugarcane production in 2015. The same has been escalated into a WTO dispute, with Brazil and Guatemala also joining suit.

The MSP policy serves an important safety for farmers and has played a vital role in attaining self-sufficiency in many agricultural products. Currently, 23 agricultural products are covered by this policy. India, with its vast market, is considered as a potential export destination by many WTO members for their products, and this commercial interest is also viewed as the reason for many of India’s policies, such as the MSP, being challenged at the WTO.

In this context, it is also important to mention the additional aggregate measurement of support (AMS) entitlements of developed countries. During the Uruguay Round of negotiations, those members with high trade-distorting support got the additional flexibility to provide support beyond their de minimis limit. On the other hand, Amber Box flexibilities of most developing members has been restricted to the de minimis limit because of low levels of trade-distorting support during the base period. The limited flexibility under Amber Box, coupled with the MPS methodology, has considerably restricted the policy space of many developing countries (Sharma 2016). It is pertinent to note that it was mostly the developed nations providing high levels of trade-distorting support during the base period, and hence they secured this additional flexibility. Due to these entitlements, members such as the United States and the European Union have provided support for many products much above their de minimis limits.

In addition to these inequitable provisions, recently there have been demands at the WTO seeking further disciplines to curtail the existing policy space available to developing countries, particularly under the de minimis and Article 6.2. These will invariably have detrimental effects on the limited and already-shrinking policy space available, increasing the development divide between developed and developing countries. Several  developing countries have consistently raised concerns regarding the shrinking policy space under the AoA and the attack on S&DT principles in agriculture negotiations, which is a founding principle of the multilateral trading system. 

2.2 Market Access

Under the market access pillar, the AoA mandated conversion of all non-tariff barriers such as quantitative import restrictions, variable import levies, discretionary import licensing etc. to import tariffs that provided an equivalent level of protection. This process was called “tariffication”, and the limits were reflected in the Schedules of the members and then subsequently subjected to reduction commitments. In addition, members could not maintain or revert to non-tariff barriers that were required to be converted to tariff barriers. By adopting the ceiling-binding method under the tariffication process, India bound its tariffs on all agricultural lines. The average bound tariff on agricultural goods is 113%. However, India liberalised several lines autonomously and its applied average tariff was 39% in 2018–19. Tariff profile on agricultural products (Fig. 1.2) shows that for some of the products bound tariffs are much higher than applied tariffs, such as oilseeds.

Fig. 1.2
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Tariff profile of agriculture in India.

Source Authors' compilation based on data from the WTO

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Under the AoA, some selected members secured the flexibility in the form of special safeguard measures (SSG) to deal with the adverse impact of import surges on agricultural products. The SSG allows for the imposition of additional duty on a product, over and above the bound rate, in case of an import surge or price falls compared to the 1986–88 base levels. It, therefore, serves as an effective tool to protect the domestic producers against high import volumes and price falls by allowing members to levy higher safeguard duties. However, this flexibility is not available to most developing countries, including India, leaving the producers in these countries vulnerable to import surges and declining prices (Sharma and Dobhal 2020).

Indian farmers remain extremely susceptible to subsidised imports and volatility in prices, which adversely affects their income. Without the SSG, India can raise its applied customs duties only to the bound limit under the AoA in case of an import surge. An SSG type of instrument therefore becomes much needed for  products with no or little gap between the bound and applied tariff. In 2018, India had experienced import surges in more than 200 tariff lines at six-digit HS level out of a total of 700 agriculture lines (Das et al. 2020). To deal with this situation India, along with other developing countries, have been pushing for a special safeguard mechanism (SSM) under the Doha Development Agenda. This will enable them to raise tariffs above the bound levels similar to safeguards in case of import surges and hence protect farmers’ income and livelihood.

While ignoring the concerns of developing members, especially on SSM, the developed members are now calling for steep cuts in tariff on agricultural products in negotiations. In the absence of any mechanism to protect farmers from surges, cuts in tariffs will make them even more vulnerable to imports and price fluctuations.

2.3 Export Subsidies

Among the three pillars of the AoA, members have reached a consensus to address the negative effects of export subsidies on international trade. In the Nairobi Ministerial Conference (2015), members agreed to eliminate all forms of export subsidies on agricultural products. As per this decision, developed and developing members are not permitted to provide any export subsidies after 2015 and 2018, respectively. However, the developing countries have the flexibility to provide export subsidies under Article 9.1 (d–e) of the AoA till the end of 2023. Under this provision, India can provide subsidies to reduce the costs of marketing exports of agricultural products, including handling, upgrading, international transport and freight and other processing costs and internal transport and freight charges on export shipments. This decision was crucial because it allowed the developing countries to provide export subsidies, although limited, that are much needed to offset the infrastructural and marketing deficiencies.

Notably, as part of the India-Sugar and Sugarcane disputes Australia, Brazil and Guatemala have also challenged certain export subsidy measures for sugar, besides the alleged domestic support measures for sugarcane. In another dispute, the United States had challenged India’s export-related measures alleging that these were inconsistent with the Agreement on Subsidies and Countervailing Measures (ASCM). Among the measures, the Merchandise Exports from India Scheme (MEIS), which covered agricultural products as well, was also challenged at the WTO and India lost this dispute in 2019, though certain panel findings have been appealed by India. In addition to these disputes, India’s export subsidy measures such as those related to transport and marketing assistance, are regularly questioned at the Committee on Agriculture (CoA).

In this regard, the main challenge for Indian policymakers is to ensure the compatibility of its measures with the provisions of the AoA as well as the Nairobi Ministerial Decision. Pertinent to note is also the fact that since the window for providing export subsidies under Article 9.1 (d–e) will close in 2023, the policy orientation must be towards developing better infrastructure facilities and providing support in a manner compatible with WTO rules.

2.4 Food Security and other Non-Trade Concerns

In today’s time, the non-trade concerns (NTC) have become almost as important as the trade concerns themselves. This is mainly because of the multifunctional impact and contribution that agriculture has on food security, environment, land conservation and plant, animal and public health. Recognising these, the AoA also gives due importance to NTCs by making them an integral part of the reform and negotiation process. The NTCs form an essential aspect of agricultural trade policy, more so for developing countries. Especially in light of the inching Sustainable Development Goals’ (SDGs) deadline, harnessing the agriculture sector also becomes vital for developing countries to achieve the eradication of poverty (Goal 1), zero hunger and doubling agricultural productivity and income (Goal 2).

Food security, however, remains the most important NTC for most developing countries. In many countries, including India, food security programmes are intertwined and function in tandem with other integral components such as procurement, stockholding and distribution. Under the AoA as mentioned above, public stockholding and distribution are classified as Green Box measures under Annex 2 and hence are exempt from current AMS calculation. However, the procurement of food grains at administered prices attracts the provisions market price support under Para 8 of Annex 3. This support is covered by the Amber Box and is subject to strict de minimis limits. Given the 10% cap of de minimis, it is feared that many developing countries will breach, or are likely to breach, this limit on account of the food security policy itself. The limited amplitude under the Amber Box makes it extremely difficult for governments to procure food grains from farmers at administered prices breaching their applicable limits, seriously jeopardising these food security programmes.

As an interim solution to this problem, members at the Bali Ministerial Conference in 2013 agreed that they “shall refrain from going through the WTO Dispute Settlement Mechanism to challenge the compliance of a developing member with its obligation related to domestic support” in relation to support provided for traditional staple food crops in pursuance of public stockholding programmes for food security purposes. This gave developing countries the much-needed flexibility to implement price-support policies for food security purposes, even if they resulted in a breach of  the de minimis limit. However, for recourse to the Bali Decision to be available, members must ensure compliance with notifications, transparency, anti-circumvention and safeguard provisions as laid down therein. Although the decision was a step in the right direction, it received criticism for its limited scope, coverage and the burdensome requirements that it placed on countries taking recourse to it. The decision covered only “traditional staple food crops” and was applicable only on the programmes that were in existence on the date of the decision, excluding coverage of any future food security programmes.

The Bali Decision was initially supposed to be in force for four years as an interim solution. However, despite ministerial mandates requiring a permanent solution to the issue of food security, countries have been unable to reach a consensus. A complementary decision taken by the WTO members in 2014 permits this peace clause to be available until a permanent solution to the issue of food security is negotiated. This will continue to benefit developing countries that are likely to breach their commitments. India has become the first WTO member to take recourse to the Bali Decision for protecting its public stockholding programme for food security purposes for rice. In 2018–19, India’s product-specific support to rice was 11.46%, exceeding its 10% de minimis limit. However, by invoking the Bali peace clause, India is unlikely to face a legal challenge from other members arising from this breach of commitments.

Given the many glaring lacunas in the interim Bali Decision, countries must engage in fruitful negotiations to reach a permanent solution addressing this issue. Food security is an evolving and multifaceted issue. Restricting its scope and coverage as under the Bali Decision will not be beneficial in the battle against global food insecurity. Consideration must be given to the issues and demands raised by developing countries, only then can this issue be successfully resolved.

As is evident from above, the AoA although seemingly provides flexibilities to developing countries, but in reality, is skewed in favour of the developed countries. With these rules tilted against them, the developing countries continue to face challenges on multiple fronts. India has been under pressure to reduce its tariff on agricultural products and enhance market access for other countries, even though it has autonomously liberalised agriculture tariffs. Further, proposals have also been tabled  at the WTO seeking disciplines on de minimis limits. Notwithstanding the fact that de minimis is the only flexibility that most developing countries have under the Amber Box, as opposed to the additional AMS entitlements of developed countries, any further commitments will invariably reduce the limited flexibility available to developing countries. Additionally, support under Article 6.2, which is an S&DT provision, has been sought to be disciplined in the negotiations and despite its undeniable importance, proposals seeking its reduction and capping have been tabled at the WTO. Not only do these strike at the very foundation of the S&DT principles, but also contrast with the mandate under the Doha Development Round and will negatively impact agriculture in developing countries, especially India. The coming times at the WTO will be extremely difficult for India as it wages an uphill battle on many fronts. Developing countries must rally together and negotiate effectively to produce outcomes ensuring that global agricultural trade becomes fairer, inclusive and more equitable.

3 Indian Agriculture under FTAs

While the earlier section discussed the implications of WTO obligations on Indian agriculture, this section examines the implications of India’s commitments in FTAs/RTAs. Unlike WTO, the implications of RTAs in goods vary since they have different forms and scopes. This section is divided into three sub-sections as follows:

3.1 General Characteristics of RTAs

The simplest form of RTAs is preferential trading agreements (PTAs). In PTAs tariff concessions over MFN applied rates are offered on limited products. The other form is an FTA, which has a higher level of commitment. In FTAs tariffs on goods are required to be eliminated gradually, meaning that after an agreed timeframe, the FTA duties should be “zero”. Unlike PTAs, FTAs are required to cover substantial trade liberalisation. The highest level of RTAs is in the form of Comprehensive Economic Cooperation Agreements (CECA) or Comprehensive Economic Partnership Agreements (CEPA). These cover issues, which go beyond conventional goods only agreements of PTAs and FTAs. CECAs/CEPAs not only cover FTAs in goods but also include binding commitments or cooperation frameworks for trade in services, investments, intellectual property, standards and non-tariff barriers, trade facilitation, competition etc. All these RTAs have the objectives of liberalising trade and economy, which are broader and deeper than WTO obligations or are beyond the scope of WTO. It may also be important to note that in PTAs since the degree of tariff liberalisation is lesser than FTAs, generally agricultural products are kept out of tariff concessions. However, in FTAs and CECAs, since the tariffs have to be eliminated on substantial trade coverage, liberalisation of agriculture sector often becomes a compulsion for the participating countries. The agreements, nonetheless, provide certain flexibilities allowing countries to keep certain sensitive products out of tariff liberalisation commitments, and these products are listed separately in the agreement as Exclusion/Negative/Sensitive List.

Another important element of RTAs is rules of origin. A product exported under RTA, and on which a tariff concession is sought, must comply with the rules of origin prescribed under that RTA. In simple terms, the rules of origin specify the conditions for a product to be eligible for preferential treatment upon imports. For primary products like agriculture items, they prescribe that the products must have been grown in the exporting country (i.e. wholly obtained), however, for manufactured items, the conditions become complex as there are conditionalities relating to the production processes and/or use of imported inputs. The objective of rules of origin is to ensure that tariff concessions on imports are availed only by the parties to the RTAs and circumvention of third country goods do not happen.

As different forms of RTAs have different coverage and commitments, they also differ from the WTO obligations. Some of the main differences between an RTA and WTO agreement are as follows:

  1. (i)

    The negotiations at the WTO are to bind tariffs at new levels which are lesser than the base level of bindings negotiated in the previous round. For example, India’s average agriculture bound tariff is 113% due to commitments taken under the Uruguay Round which were completed in 1994. The proposal in the Doha round was to achieve a new bound rate through a formula approach so that these new bindings are less than 113% (but not zero duty). India took autonomous liberalisation after implementing Uruguay Round commitments, and the average applied import tariff on agriculture items is 39% in 2018, which is commonly called at MFN tariff or applied rate of tariff. The new binding rates, as per Doha round modalities, must be lesser than 113% but depending on the formula it can be higher or lesser than 39%. In case of FTAs however, the negotiations are held to bring the tariffs to zero in a fixed timeframe, and the actual reduction in tariff in FTA starts from the MFN applied duty, i.e. 39% and not the WTO binding rates which in this example was 113%. Thus, while WTO provides for greater flexibility and policy space to the domestic producers, in FTAs the flexibility is only for items kept in the Exclusion/Negative/Sensitive list. Therefore, the agricultural items which are included in the FTA tariff liberalisation list will face greater competition from FTA partners than the rest of the world. As explained earlier, PTAs are more liberal than WTO but less liberal than FTAs, as substantial coverage of products is not required, and thus tariffs on most of the sensitive agriculture items are not liberalised.

  2. (ii)

    In WTO, the modalities for tariff liberalisation are different for the agricultural sector and non-agricultural sector. Generally, the binding level in agriculture is higher than in the non-agriculture sector. However, in FTAs a single modality for tariff liberalisation (bringing duties to zero) is agreed for both agriculture and non-agriculture products.

  3. (iii)

    Though both WTO and FTAs aim to reduce the non-tariff barriers, it has been observed that the process in WTO is much slower than the FTAs. Since the number of parties in FTAs is lesser, it is easy to reach an agreement for seeking harmonisation of standards bilaterally or regionally and  equivalence of mutual recognition arrangements (MRAs) (Sithamaparam 2011; Ratna 2016)

  4. (iv)

    In terms of safeguard actions, the WTO agreement provides a mechanism for protection of the domestic industry, including agriculture items as per the Agreement on Safeguards. In case of a surge in imports causing a serious injury to the domestic industry, a safeguard measure is allowed to be taken by the importing country, subject to compliance with other provisions in the Agreement on Safeguards. However, in the RTAs, since the surge in imports may happen due to preferential tariffs from RTA parties  themselves, taking WTO safeguard action may restrict imports from non-RTA parties, which cannot be penalised for preferential imports. Thus, in many of the RTAs, special provisions are made through a preferential safeguard mechanism. This mechanism is different from the WTO and safeguard action is taken only when there is a surge in imports causing serious injury to the domestic industry, including primary agriculture and processed food sector on account of preferential tariff given to RTA partners. As a safeguard mechanism, tariff concessions that are allowed under RTAs can be withdrawn partially or fully. Also, while there are discussions of a Special Safeguard Mechanism for the agriculture sector at the WTO, so far, no such discussions have been observed in FTAs.

  5. (v)

    Certain issues covered in WTO but are generally not covered in RTAs relate to domestic support and export subsidies. The disciplines on these are negotiated in WTO and not in RTAs. In case a country agrees in RTA not to provide domestic support or export subsidy on agricultural products, this will automatically be extended unconditionally to the rest of the WTO members.

3.2 An Overview of India’s FTAs in the Context of Agriculture

India had initially adopted a very cautious and guarded approach to RTAs (Chaisse et al. 2011) and was engaged in bilateral/regional initiatives, mainly through PTAs like the Bangkok Agreement signed in 1975 to exchange tariff concessions in the ESCAP region, and SAARC Preferential Trading Arrangement (SAPTA signed in 1993), which had the objectives of promoting South–South trade. However, since they were PTAs with partial tariff reduction on a limited number of items under tariff concessions, the intra-regional trade was not significant in these agreements (Mohanty 2003; Ratna 2008). India had signed bilateral FTAs with Bhutan and Nepal, which are non-reciprocal due to the sizes of economies and also to maintain social, economic and political stability with neighbouring nations. India’s FTA with Sri Lanka was signed in 1998 but was operated from March 2000 (Table 1.3). This FTA too had a favourable treatment for Sri Lanka since it allowed having a bigger negative list for Sri Lanka and while India brought the tariffs to zero in 3 years, Sri Lanka was given 8 years. The asymmetry in this FTA was also due to the differences in the levels of economic development of the nations and good political relationship between the two (HCI 2013).

Table 1.3 Illustrative list of agriculture items on which India has given tariff concession
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In India’s FTAs with Bhutan and Nepal, the parties liberalised the entire agriculture sector, thereby making all agricultural items imported under FTA on zero duty. In the FTA negotiations with Sri Lanka, India agreed to eliminate tariffs on most agricultural products, only desiccated coconut and alcoholic beverages were kept in the negative list. In addition, a tariff-rate quota (TRQ) on tea was provided. TRQ is a mechanism where an annual agreed quantity of a product, called a quota, may be imported under tariff concession. Once the quota is fully used in a given year, MFN duty is charged on subsequent imports in excess of the quota amount. India’s liberalisation of agriculture for Sri Lanka was also on account of the fact that many of the agricultural items were not produced in Sri Lanka and hence they could not pose a threat to domestic producers for they would not qualify the rules of origin and thus could not be imported duty-free. As the implementation of FTA progressed, a surge in imports on certain high MFN duty agricultural products (in the range of 60–70%)  was witnessed. In certain cases, even circumventions in rules of origin were noticed, where imports of cloves, pepper and vanaspati created a lot of problems for Indian producers (Economic Times, 2005 and 2019). Import of vanaspati from Nepal also became a problem for India's  domestic producers (Economic Times, 2007). This led to India imposing quantitative restrictions on imports of vanaspati from Sri Lanka (DGFT 2008). The liberalisation of items in FTAs with high MFN duties can always create problems as the chances of circumvention are high, while on the other hand if the MFN duties are less, then chances of circumvention are less. This was noted when India brought the MFN duty on crude palm oil (CPO) from 45% to 0, and the duty-free vanaspati import from Sri Lanka and Nepal under FTA stopped (Business Standard 2013).

There have been several studies and lessons on the impact of India’s FTAs on the agriculture sector. These are ex-ante studies which were useful in negotiations. Many other studies were carried out, which were ex-post facto analysis. These studies observed that if India liberalises its agriculture sector in FTAs, it will be detrimental to the farmers as well as the domestic producers. Studies have also pointed out the problems that the agriculture sector faces along with the plantation crops, dairy and spices (Bhutani 2014; Ghosh 2009; GRAIN 2019; Mohanakumar 2012; Sharma 2007; Wouters 2014). Some studies also pointed out that for certain markets, India’s agriculture exports may benefit from FTAs (Chand 2014; Jagdambe 2016; Renjini 2016). It has also been argued that the much needed domestic reforms in India have not taken place, and thus FTAs can be used as a tool to facilitate these  reforms (Economic Times 2019a; Ratna 2013). Drawing from these experiences, India in subsequent FTAs exercised more caution in liberalising agriculture; thus, most of the agriculture items were kept in the Sensitive/Negative list, which was illustrated in South Asian Free Trade Area (SAFTA), Singapore, ASEAN, Japan and the Republic of Korea FTAs.

3.3 Trade Performance of Indian Agriculture in FTAs

This section analyses whether the Indian agricultural sector has benefited from these FTAs/CECAs. We examine how agriculture trade is taking place with the FTA partners vis-à-vis its global trade for the entire period of 1996 to 2019, irrespective of the fact that most FTAs were signed after 2000. This analysis is done only for the countries with whom India has an FTA or CECA. The data covers total agriculture sector trade as classified under WTO HS nomenclature and has not been taken as per the year of the signing of FTA/CECA, but for the entire period from 1996 till 2019. Since the data on preferential trade is not available, this analysis was done with respect to the total agriculture trade.

Figure 1.3 demonstrates the share of FTA partnerFootnote 2 in India’s global export of total goods and agriculture during 1996–2019. It shows that the share of the FTAs partners in global export of India’s agricultural goods is higher than the total goods comprising both agricultural and non-agricultural goods. However, the share of the FTA partners in India’s agricultural export has shown a declining trend over the years. In the case of imports, a significant share of India’s agricultural import is sourced through its FTAs partners. For instance, more than 42% of India’s agricultural import came from FTAs members in 2018 (Fig. 1.4).

Fig. 1.3
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Share of FTA partners in India’s global total and agricultural exports.

Source Authors’ calculation based on WITS

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Fig. 1.4
figure 4

Share of FTA partners in India’s global imports.

Source Authors’ calculation based on WITS

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Given that the shares may only reflect the relative importance of export versus imports, it is also important to investigate the actual value of trade, at least in terms of the balance of trade (export value—import value). While India has a favourable balance of trade in its global trade of agriculture sector (Fig. 1.1); when it comes to trade with the FTA partners the situation is reversed from 2014, which is also the year when  the full implementation of FTA with ASEAN began. In 2018, India’s imports from FTA partners was worth US$7.67 billion against its exports of US$4.97 billion with a negative balance of trade of US$2.7 billion (Fig. 1.5). This gap is mostly due to imports from Indonesia and Malaysia which collectively account for US$5.92 billion. Given that India has kept most of the agriculture items in its Negative or Sensitive List, majority of the agriculture imports are either under partial tariff concessions (case of palm oil from Indonesia and Malaysia), or TRQs or under full payment of duties. From the above analysis, it becomes clear that the total agriculture sector liberalisation in FTAs by India and its trade partner may bring more advantage to the FTA partner rather than India.

Fig. 1.5
figure 5

India’s agriculture trade with FTA partners (in US$ billion).

Source Authors’ calculation based on WITS

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India has been in the process of negotiating RTAs with some of its important trading partners. Some of these agreements have been at an advanced stage. These include Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), Gulf Cooperation Council (GCC), SACU, EU, EFTA, New Zealand, Canada, Australia, Indonesia, Israel etc. (Department of Commerce, India 2020). Since 2012, India had been actively involved in the RCEP negotiations as well. With the ASEAN and six of its free trade partners—Australia, China, India, Japan, New Zealand and South Korea, the RCEP sought to achieve a close regional integration amongst its members. However, in November 2019, India announced its withdrawal from the RCEP in light of the potential adverse impact the agreement would have had on its economy, especially on sectors such as agriculture, dairy and micro, small and medium enterprises (MSMEs). It was expected that agriculture and dairy that have been traditionally protected with tariffs would have been negatively impacted by this agreement (Dhar 2019; Das 2019; Jafri 2018). Owing to the fact that India’s dairy sector is dominated by small-scale dairy farmers, it would have been unable to compete with the large-scale and technology-intensive dairy industries of Australia and New Zealand after joining the RCEP (Verma 2020; GRAIN 2019). India’s trade balance in agricultural goods with the RCEP countries stood at USD (-)1387 million in 2018 (Sharma et al. 2020b). Given that under the RCEP, India would have been required to lower its tariffs substantially, this negative trade balance would have only increased further. In addition, the lowered tariffs could have increased the occurrences of the already high number of import surges on agricultural goods, negatively impacting the livelihood of Indian farmers. Further, the likely adverse impact of RCEP on non-agricultural market access (“NAMA”) products, especially those produced by MSMEs, was another crucial factor for India’s withdrawal from the RCEP.

4 Conclusion

The above discussion highlights some of India’s concerns and sensitivities regarding agriculture under the WTO and FTAs negotiations. Agricultural policies of India have been frequently challenged at the multilateral level by other WTO members. Due to restrictive provisions of the  AoA, India’s price support programmes, such as the MSP, have been severely questioned at various instances during the review process. Additionally, several proposals have been tabled at the WTO that seek to curtail the policy space available to developing members in providing domestic support to farmers. Through various proposals, many developed members have also sought the dilution of the S&DT provisions in the AoA, which may have adverse implications for input subsidies to low-income or resource-poor farmers in India and other developing countries. Besides, Indian farmers face unfair competition on account of the high level of domestic support provided by the developed members, which often displaces poor farmers in international as well as domestic markets due to import surges of subsidised goods.

Given the fact that most of the farmers in India practise subsistence farming, which is labour-intensive as opposed to technology-intensive, they face multiple challenges. Without adequate safety-nets and dilution of S&DT principles in the pretext of trade liberalisation will negatively affect the welfare of these farmers. India, along with other developing countries, needs to be cautious in the negotiations and must strive to correct the imbalances in the AoA and demand per farmer support as an essential element in future negotiations. Further, the welfare of Indian farmers continues to be undermined due to import surges stemming under multiple FTAs. When India started its RTA negotiations, it was mostly to show the solidarity towards South–South trade. However, even on this end, the results for India have not been very favourable. In fact, one of the major reasons for India’s withdrawal from the RCEP negotiations was the likely adverse impact on its agriculture sector.

To effectively utilise the opportunities under the WTO and the various FTAs, there is a need for domestic reforms in the agricultural sector. Recent policy changes such as PM-Kisan Samman Nidhi (PM-KISAN), Pradhan Mantri Fasal Bima Yojna (PMFBY) and the direct benefit transfers (DBT) for fertiliser subsidies, among others, are all steps taken towards transforming Indian agriculture. However, further reforms need to be undertaken, especially on issues related to non-tariff barriers such as sanitary and phytosanitary measures for ensuring export competitiveness. Finally, trade liberalisation under FTAs and WTO must not be compartmentalised and viewed in isolation, rather there is a need for coherence and consistency in both the approaches.