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Kamal Nath - a vocal negotiator in the Dona Round
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India's balancing act on subsidies, exports
30-07-2008
SYDNEY – India will spend at least US$45 billion this year on subsidies for fuel and fertilisers, says Kamal Nath, India's Minister for Trade and Industry. “Of course, our subsidies are increasing. It is bad economics. (But) we have to balance off between consumer interests and global inflation," said Nath, during a brief visit to Australia for the India-Australia joint Ministerial meeting.
India has introduced bans and restrictions on exports of some food products, such as dairy and rice, to combat production shortages. Last year, India, the world's largest milk producer, imposed restrictions on exports of milk powder. This year, exports of lower- and medium-grade rice are banned.
Its latest action is to stop the trading of food futures in four commodities – soy oil, chick peas, potatoes and rubber – for at least four months, to help curb inflation.
"We have banned food futures because they create a sentiment effect on prices. We want to make sure that we cap all possibilities of a price rise," Nath told ATI.
Nath says any price rise is a political problem because consumers sometimes are not aware of the international situation. He says India faces the global challenges of the three "Fs" – fuel, fertiliser and food. Prices of all three have jumped dramatically in recent times. "Today, these three Fs play an important part in the economic affairs of all countries, whether they are exporting or importing, large or small. Inflation is a problem facing Europe and the United States, as well as poor countries,” he says.
"One of the great concerns we have in India currently is inflation. It is imported inflation, with $127 oil and food prices being what they are." India's inflation is over seven per cent.
Nath says WTO rules allow member countries to impose restrictions on exports. "We have put a ban on medium- to low-quality rice, but we continue to export high-quality rice, like Basmati,” he says. “If our next crop is good, we will consider lifting the bans."
Acknowledging that India lives in a turbulent neighbourhood, and that food shortages are a problem, he points out that India does relax export bans where necessary. It has, for example, sold half a million tonnes of rice to Bangladesh recently. Nath says that if a country cannot feed its people, India will have to deal with the problem of having up a million refugees at its doorstep. "We would rather sell them food than have the refugees showing up," he says.
Nath says the Government does not provide subsidies on food, but it does set up distribution systems to improve storage and transportation. Around 35 per cent of India's food production is lost through spoilage.
Nath partly blames current food problems on the entrenched practice of subsidising farmers in the United States and the European Union.
"One of the reasons for this food crisis is the huge subsidies given by the developed countries, which make agriculture in developing countries, like Africa, not viable. There has been no adequate investment in many countries in agriculture because of cheap subsidised imports," he says.
Having been forced to accept the consequences of the Uruguay Round, India has become a vocal negotiator in the current multilateral trade Round, the Doha Development Agenda. Nath says June is an important month for the Round, and he is "optimistic" that an agreement will eventually be reached.
"We believe developed countries need to show leadership in this Round,” he says. “India is contributing US$550 billion to the global economy. For us, rules-based multilateral trade is extremely important. We must be engaged if we want this Round to correct the structural flaws of global trade."
Nair hopes that developed countries will take into account the concerns of developing countries. He says that only when economies of developing countries like India are healthy will they be able to increase imports from developed countries. "So any WTO agreement must ensure healthy economies in developing countries,” he says.
Despite his optimism, India is forging ahead with bilateral trade agreements. While in Australia, Nath said he wanted a "very substantive" free trade agreement with Australia by next year. And despite a slowing global economy, Nath says: "We expect our exports of goods and services to increase by close to 25 per cent this year." Nath held talks with his Australian counterpart, Simon Crean, on a range of trade issues, including the proposed FTA. Says Nath: "Australia's focus has been on Korea, Japan and China.”
Just as in the Doha multilateral talks, Nath says agriculture will be a difficult area in the FTA negotiations with Australia.
"We have our prowess in information technology and manufacturing, but we still have 300 million people living on less than $1 a day. We have more poor people than all the least developed countries put together. There are 650 million people engaged in agriculture, working on one to three acres of land, and this is not sustainable."
He sees good opportunities for Australia and India to co-operate more closely in various sectors, including agriculture and higher education. And he wants to see more investment from Australia in infrastructure and agriculture in India, especially in post-harvest services.
"We are looking at Australian participation in our food processing sector. India is the world's second-largest producer of fruit and vegetables, but we lose 38 per cent of our production through spoilage."
India continues on its growth trajectory, he says. "We expect consistent growth of nine per cent, even with the perceived global slowdown. We forecast eight per cent growth this year. As distinct from East Asian countries, India's growth is domestic-market driven.
“We are not coupled with any country," he says, adding, however, that India is affected by negative sentiment around the world.
"The momentum of India's growth will see it through the (current) hump of a temporary slowdown, but the growth fundamentals are sound. India's trade is not export-oriented. Our imports are growing in excess of 20 per cent.
"India's is also a large investor itself. Our investment in the US is greater than American investment in India. We create more jobs in the US than the US creates in India.”
Nath says India is not doing too badly when compared with China. He points out that India started its economic reforms 16 years after China, and that India’s foreign direct investment has risen from US$2.2 billion, four years ago, to US$30 billion last year.
Copyright ©, ATI Magazine, June/July 2008 |
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