The hard part is over but
now the harder part begins. The India US deal at WTO means that global leaders
don’t have any excuse to stall critical reforms and reduce barriers to
trade
It seems to be falling into place for
global trade. After a US-China agreement to cut tariffs on technology products,
the big hurdle to global trade has fallen with the US and India resolving their
differences on food subsidy. The food subsidy issue had held up the agreement
on trade facilitation agreement (TFA) that aims to reduce red tape and improve
process to speed trade across borders. The China pact and the TFA approval
could add more than $2 trillion to world economy according to various estimates
.Approval of TFA was the big worry really. Global growth continues to stagnate
with IMF forecasting 3.2 per cent increase in 2015. The rising belligerence of
developed countries had undermined the World Trade Organisation’s (WTO)
efforts to create a cohesive global trade system. But the developing countries
did not find it harmonious enough and were worried about absence of egalitarian
principles.The food row with India was a glaring example of this perception
that had created a big crisis for the 20 year old WTO. US objected to India’s food
subsidy programme as it seemed to breach the 10 per cent limit that WTO
prescribes. India wanted more time to reduce the subsidies but sought
protection from needless disputes on the issue. Now the two countries have
agreed on a peace clause that will allow India almost unlimited time to reduce
the subsidies. In many ways this is a vindication of the stand taken by India.
The Narendra Modi government has done well to stick to its stand while
remaining flexible enough to arrive at a solution. More importantly, the Modi
government realises the dangers of rising food subsidy bill. So while it fought
for its right at WTO to keep the subsidy, the government is taking steps to
curb the cost of food bill.The central government has begun to dissuade state
governments from adding to the subsidy burden. State governments keen to add to
the subsidy by offering a purchase price to farmers higher than the centre
would have to fund it themselves. So far the states would announce a higher
procurement price, take political credit but send the additional bill to the
centre. With the burden back on states, most will avoid populist rise in
purchase price.The government is also allowing a bulk of the produce of grains
to be available in the markets. Mandatory levies meant that producers were
forced to sell most of their produce to the government raising the cost to
government. With less buying by government, the subsidy will be lower and market
forces stronger. The central government is also curbing its own enthusiasm to
keep hiking the price. The granaries of the government are at more than double
the necessary buffer stock as a result of the previous policies of over
procurement at non-sustainable prices. Modi government has packaged the deal
well and should rightfully take credit for the deal with US. Now India and the
rest of the world can sign up for the TFA. India had refused to sign it until
the subsidy issue was addressed. TFA by itself could add momentum to global
growth if the deal is signed quickly. Developing countries can benefit much
from TFA since it has the potential to reduce the cost and delays in
transaction. Despite the renewed optimism, it will be important for European
market leaders and the US to push forward the TFA agenda with actual change on
the borders. These countries have a habit of agreeing on paper but stalling
decisions on the ground. Emerging markets are growing faster powered by younger
populations. If the western world does not walk the talk on TFA, it will suffer
more than the emerging markets.Pranjalx@gmail.com
No comments:
Post a Comment