A couple of months back, the government decided to import 500,000 tonnes of wheat against zero duty through the public sector State Trading Corporation. Subsequently agriculture minister Sharad Pawar said the country needs to import an additional 2 million tonnes; a few days later, at a press conference, he raised the figure of the proposed additional wheat imports to 3 million tonnes. Last week, he clarified that apart from the total 3.5 million tonnes of wheat import against zero duty on government account, private food companies would be allowed to import wheat against open general licences.
The spurt in proposed imports of wheat is surprising, especially with the minister himself admitting that wheat output in the current year is likely to increase by 1.5%, to 73.1 million tonnes. The area under wheat has increased by 400,000 hectares over that in the previous year. So what explains Mr Pawar's statements? Coincidentally, a recent United States Department of Agriculture (USDA) report urges India to import 2 million tonnes of wheat.
The import decision appears to preempt negotiations at the World Trade Organisations over international trade in agriculture. While the April 30 deadline set for working out modalities for negotiations has been missed, that process is still ongoing. The WTO director general, Pascal Lamy has now set a new deadline of June 30. The G-33 block of 42 countries and the African group are insisting on reaching an agreement on Special Products (SPs) and Special Safeguard Mechanisms (SSMs). SPs and SSMs are effective instruments for developing nations to protect their products, but these are under attack from developed countries trying to gain access to Third World markets. Responding to the G-33 proposal on SPs and SSM, the US has submitted a paper on SSM, which is intended to make the application of this mechanism practically difficult by developing countries.
By taking up imports on a large scale, India appears to have conceded the possibility of designating wheat as its SP. Will it then be able to defend its applied tariff and bound rates on wheat? Can it apply SSM to check any possible surge in wheat imports in future? Can it apply stringent quarantine and SPS norms in future, when it has relaxed the same now? Can India remain faithful to the interests of the developing bloc?
A 'shortage' of reason
Wheat imports are being resorted to, not due to shortages. With increased output, there is a good stock in the country. The private traders and MNCs are taking advantage of the removal of stocking limits and resorting to large-scale stocking, creating artificial shortages and a consequent rise in prices. Government agencies are unable to procure enough wheat, as the government's purchasing price is deliberately kept low to allow multinational corporations to enter the trade. Taking into consideration the currency equivalence between both the countries, Indian government's wheat purchase price is lower by Rs.1400 a tonne than that offered by the Pakistan government. Taking advantage of the low purchase price offered by the Indian government, MNCs have been able to offer more realistic prices to attract farmers.
The involvement of private traders and MNCs at present may be beneficial to the farmers today. But in the long run, greater involvement of private trade and MNCs may prove a disaster for farmers, as they would be in a position to quote prices to their advantage. The government's eagerness to put in place a liberalised import policy for agro commodities is ill-advised. Farmers' organizations have already cautioned the government of the dire consequences of its deliberate policy measures, but this has so far fallen on deaf ears.
The initial decision to import wheat was taken in February this year, when the stock in the Central pool was 4.8 million tonnes. The average monthly offtake of wheat from the central pool is about 1.1 million tonnes; the stocks, therefore, were sufficient to meet the needs of the public distribution system and other welfare schemes till April, the beginning of the harvest season.
The government cited "rising domestic prices due to shortage" as a pretext for imports; accordingly it was initially decided to import 500,000 tonnes of wheat. While it was a fact that prices of wheat marked a phenomenal rise, particularly in the South, in January and February, this was due to artificial shortages rather than actual ones. Last year, wheat output was 72 mt. The government agencies procured about 18 million tonnes. The private trade procured and stocked a substantial amount. In the name of "liberalisation of the economy" the government removed all restrictions on the stocking limit. The result is that the private trade is now in a position to stock any amount, and manipulate market prices. It is a shame that the government, instead of re-imposing stocking limits, is citing the need for imports on the pretext of 'shortages'.
With the government having decided to import the wheat on this pretext, the contract to import 500,000 tonnes was signed with the Australian public sector company, AWB Ltd. AWB fixed a higher price of $178.75 a tonne on CIF basis for supply of wheat to India, although Australia had sold wheat in the global market at $131 per tonne on FoB basis. The difference between FoB and CIF costs should not typically exceed $20 a tonne, so clearly India was overpaying significantly. Besides, AWB has been indicted by the Volcker report in an alleged payment of $290 million as kickbacks to the Saddam regime in Iraq for supply of wheat. AWB is facing an enquiry by the Cole Commission in Australia. If former external affairs minister Natwar Singh could be removed for his alleged indictment in Volcker report, how could VBB not be similarly tainted?
While overpayments to overseas suppliers is favoured, Indian farmers themselves get the short end of the government's stick. The government is not willing to pay farmers more than Rs.7000 per tonne, although it is prepared to import wheat, the cost of which including handling and transportation, would amount to Rs.10,000 a tonne. The government's view that wheat imported through southern ports would be cheaper for the southern states does not stand to any reason. Wheat can be transported through railways in bulk in silos at a cheaper cost. The food ministry could pay the amount out of the earmarked subsidy to another government department - railways - for transportation. This would simply be an adjustment of the accounts within the government without involving any extra cost.
Thailand breaks ranks
The developed bloc has succeeded in creating a division in the Third World. Thailand has presented a paper on restricting the designation of SPs. It argues that rural development and farmers' livelihood in the exporting countries of the developing world should also be considered, and not just the interests of the importing countries. The Thai paper suggests that products exported by developing countries that constitute more than 50% of world exports of that particular product, as well as products imported from developing countries forming more than 50% of the importing country's total import of such products, should not be designated as SPs. The number of SP tariff lines should be limited and specified at least at HS 8-digit level.
Thailand has also proposed that SPs should be designated on the basis of a certain percentage (to be negotiated) of consumption being met through domestic production, on certain percentage of its contribution to the farm GDP and on certain percentage of its contribution to total nutrition of the population. It has said that SPs should be subjected to a cap on maximum tariffs. However the tariff caps can be a percentage higher than the caps for normal products. SPs should not be totally exempted from tariff reduction and tariff rate quota expansion. The Thai proposal has received support from the US, Canada, Argentina, Australia, Chile, New Zealand, Uruguay, Malaysia and South Africa.
It is strange that when highly restrictive provisions are being proposed for the use of safeguards by developing countries, similar provisions are not being proposed for sensitive products of developed countries. The Thai proposal on SPs is substantially influenced by the US proposal on highly restrictive application of SSM. The US has suggested that SSM will be used by developing countries as a tool to aid reform processes, and would be available to a limited number of products at the detailed tariff line level. The US formula suggesting price-based and volume-based triggers and market tests, makes it almost impossible for application of SSMs by developing countries.
The G-33 (block of about 42 countries) had earlier proposed a more rational means of self-designation of SPs and application of SSM, designed to protect the interests of developing and least developed countries to a certain extent. This proposal is under severe attack. A rift in the Third World has surfaced, with the Thais now advocating a plainly US-friendly path.
Commerce minister Kamal Nath has said, "A no-deal is better than a bad deal." But will he be able to stick to his position? India is already acting at the behest of the US on imports of agro commodities. It was USDA which suggested that India should import sugar, and this was taken up against zero duty. That example is now being repeated with wheat. In other arenas too, India has been too eager to please the US. It opened its doors to Foreign Direct Investment in the retail sector before being asked to do so. India also removed quantitative restrictions on imports earlier than the scheduled period. This chain of events indicates suggests further compromises of Indian interests may be on the way.