Bali & Feeding The Poor

US Trade Representative Michael Froman famously told his colleagues at Bali  : “Let us not sugar coat reality: Leaving Bali this week without an agreement would deal a debilitating blow to the WTO.”

Mr Froman, is of course right in saying so. The absence of a `deal’ at Bali will hurt global commerce. And who knows that better than third world trade ministers, all of whom are praying for a resurgence in trade and global economic well-being, to help boost their battered currencies and slowing economies.

However, if one were to rephrase what Froman said, in the Indian context, one would have said: “Let us not sugar coat reality: Leaving Bali without guarantees that one sixth of humanity are able to eat two square meals because of some outdated rules that the Western world wants to stick to, would deal a debilitating blow to humanity at large … it will prolong the hunger, malnutrition and suffering of India’s and the developing world’s poor for many, many more years.”

Commerce and Industry Minister Anand Sharma knew that while he may be blamed for being a deal-breaker or a deal-jeopardiser for his stand that food security measures be exempted from WTO interventions, failure to protect the interests of a billions of poor people to have food security would have history judge him far more harshly.

Frankly, I believe it is not only just, but also makes immense business sense to support a food security bill will help bring affordable food to the tables of hundreds of millions of India’s poor.   

First, let us examine what is it that India wants. Then, try and understand how this actually makes good business sense for the whole world.

India wants the right to buy and stock large quantities of foodgrain for distribution at cheap prices to its poor. The amount involved is of course huge – some 62 million tones of foodgrain to be sold to some 820 million people at last reckoning.  

Feeding India's Poor

The subsidy involved could breach the limits set by WTO for governmental subsidy for the farm sector because the global trade body insists on calculating the price of this food at an artificial price based on lower global prices set in the 1986-87 era. Since then, global and Indian food prices have gone up several-fold.

The western powers are willing to allow an exemption to this rule,  but for just four years, even as they funnel far larger sums as subsidy to their own farmers. The US pays about $ 20 billion in subsidies to its farmers annually every year, while the EU mandated a Euro 57 billion subsidy package for its farmers! In contrast Indian food subsidy bill for whole year will come to about a third of what the EU spent in 2010.   

Also worrisome from the Indian point of view is that clauses in the WTO rulebook, leaves even this exemption open to challenges before the body’s arbitration authority, in case any member feels it distorts global trade.

 

Obviously anything that India does can distort world trade. After all we are talking about food grown and consumed by a sixth of humanity. In years, India stopped rice exports there were famines and riots in Africa. India and the Chinese are the proverbial `Elephants in the room’ and everybody knows that. However, that does not mean India should not be allowed the right to feed its poor.

Now, let’s see why feeding India’s poor could be good for global business. By reducing the cost of food for 820 million people, the government will be increasing disposable consumption expenditure in the hands of these people, most of whom live in India’s villages. That, would surely boost rural demand already on an upswing, hugely.

According to NSSO data, between 2005 and 2010, the number of people living below the poverty line in rural areas has dropped to 21.72 crore from 32.58 crore. According to some studies, rural GDP is growing 16 per cent.

I wonder if any of those trade ministers sitting in Bali have tried to imagine what will happen if India’s rural demand booms. Demand for manufactured goods could again hit double digits, leading to expansion of existing factories, and setting up of new ones to feed that demand. The boom in jobs and services to feed that growth would throw up fresh demand. A virtuous cycle of demand and growth to feed that demand would be created.

Double digit or near double digit growth in an economy which is already valued at near $ 2 trillion, would mean unleashing huge demand for goods and services produced all over the world. In short, allowing India to feed its poor millions could well mean a way out of the economic morass, the world has sunk into.