“”India has many interests in the talks. Services account for 55 of IndiaÕs GDP and 28 percent of the labor force. It is a major exporter of services with companies like Wipro and Infosys and is a contractor for IT services in other countries. India is also a rising industrial nation with 28 percent of its GDP and 12 percent of the labor force. The remaining 60 percent of the labor force is in agriculture which accounts for only 17 percent of GDP. Within agriculture there are modern segments like cotton where two-thirds of the acreage is biotech, the worldÕs largest area of biotech cotton.
The biggest challenge for India in the negotiations is agriculture. The ruling United Progressive Alliance government owes its leadership position since 2004 to support from rural areas where voters believed the previous government was too focused on economic growth in the cities. The next election will be held prior to May of 2009. The government is committed to developing basic infrastructure to improve conditions for the rural poor and boost economic growth. The average bound tariff for agricultural products is 114 percent, compared to 12 percent for the U.S. and a world average of 62 percent. Tariffs for some sensitive products are much higher. To provide increased access to agricultural markets, India would have to make major cuts in bound tariffs to provide even modest changes in applied tariffs.
In the first two years of the current government India was a leader of groups of developing countries like the G33. As the talks progressed they became part of the G4 (India, Brazil, the U.S. and the EU) that tried a top-down approach to working out an agreement. By the end of 2006 it was clear that political concerns about protecting small, resource-poor farmers were overriding other groups that were interested in opening markets.
With strong economic growth, India should be at a favorable point to increase trade by lowering tariffs. Growth in the GDP for the fiscal year ending March 31, 2008 is expected to slow to 8.7 percent versus the target of 9 percent and actual growth of 9.6 percent and 9.4 percent in the previous two years. Most countries would be delighted with 8.7 percent GDP growth. Agriculture showed an estimated growth rate of 2.6 percent versus 8.6 percent for industry and 10.6 percent for services.
IndiaÕs response to the latest WTO revised texts on agriculture and industrial products indicated the texts were the basis for constructive engagement, but also pointed out 170 unresolved issues in the agriculture text. The Indian Express quoted Commerce and Industry Minister Kamal Nath saying, ÒSignificant and effective reduction of trade distorting subsidies of the developed countries is an issue on which there can be no compromise because they impact adversely upon the livelihood of millions of our poor farmers.Ó That is pretty much a repeat of IndiaÕs position of the past 18 months of blaming the slow speed of the talks on developed countries.
India is an exporter of some agricultural products and an importer of vegetable oils at 5.2 million metric tons (MMT) for 2007/08 and pulses (peas, beans and lentils) at 2.8 MMT. This year India may import 2 MMT of wheat to control rising market prices and offset low stocks and current production that has stagnated. The government is likely to again allow duty free private market imports of wheat after the domestic harvest ends in late May. India is also cutting back on rice exports because production is not increasing and domestic prices remain high. The need to avoid rising market prices before the early 2009 elections are reflected in these import/export policies. Year-over-year price inflation has recently been averaging 4 percent.
Food supplies are also a long-term issue. Prime Minister Manmohan Singh cautioned the policy making National Development Council in mid-December, ÒI will be failing in my duty if I do not draw your attention to the impending problem of food security. Global trends in food production and prices and our patterns of consumption are going to put increasing pressure on both availability and prices of basic food items.Ó
In 2005 food, beverages and tobacco accounted for 42 percent of average household consumption, down from 56 percent in 1995. That means for over half the households food, beverages and tobacco still account for at least half of consumption. Many of those households are subsistence farmers, but others are urban households with low wages. Lower outlays for food would move them up the economic ladder and reduce the need for higher wages to improve living standards. Continued rapid GDP growth will support increased food demand. The McKinsey Global Institute estimates the middle class will grow from 50 million in 2005 to 580 million by 2025.
IndiaÕs challenges in the WTO talks are no different than other countries. The government must address future economic realities while paying sufficient respect to current conditions to get reelected. The contrast of 60 percent of the labor force in slow-growth agriculture while the other 83 percent of GDP is growing 10 percent per year is hard to reconcile in a trade negotiating position. With the prospects for increased food demand over the next ten years, it is easy to conclude that the government must take a trade position that recognizes the increased food demand. That choice is much more difficult for politicians who face an election in the next year with many of the issues for which they were brought to power yet to be resolved.