WTO: Why India and China Said No to U.S.

July 30, 2008

Indian Farm Subsidies: A Political Crutch

The pressure is even more acute for the Indian government. While Beijing's leaders have to worry about potential unrest in the countryside, officials in New Delhi have to confront a genuine rural revolt. The Naxalites, a violent Maoist insurgent movement based in rural parts of eastern and central India, have targeted poor farmers for recruiting...

The government has other reasons to be concerned about unhappy farmers. For India's Congress-led coalition, farm subsidies remain a crucial electoral crutch. Nearly 70% of the population lives in the countryside and the vast majority of Indians derive their income directly or indirectly from farming, even though agriculture makes up less than a fifth of India's almost trillion-dollar economy. "If the government were to agree to something which will kill our agricultural sector, then their political futures will be finished," says MS Swaminathan, the director of India's National Commision on Farmers, who led the country's green revolution in the 1970s. "Already, agriculture has been neglected in India, and that affects about 700 million people.

In the past decade, as India has embraced reforms that have opened up and revitalized most of the developed sectors, agricultural growth has lagged, even as the rest of the economy grew by 8%-10%. On Indian cotton farms, for instance, the cost of reduced subsidies in the form of government price controls has already had disastrous effects. Unable to compete internationally on the cotton market, cotton farmers in central India, the second-biggest cotton producer after China, have spent a decade falling deeper into debt. According to government estimates, more than 160,000 farmers have killed themselves because of those debts. That's prompted the government to announce a $15 billion loan waiver for farmers in its current budget.

Everybody talks about the gains of liberalised trade, but nobody talks about the losers.