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Don’t get caught up in MSP battle. India must move to end inequality in WTO laws

With measures like MSP, India has been carefully treading the thin line between food and livelihood security and practices classified as 'trade distorting' under the WTO law.

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Can India legally guarantee minimum support price, or MSP, to its farmers without contravening its obligations under the World Trade Organization law? What are these laws surrounding domestic price support measures and agricultural subsidies and what are India’s commitments?

Until now, with domestic support measures like MSP, India has been carefully treading the thin line between food and livelihood security and practices classified as “trade distorting” under the WTO law. India has been a founding member of the WTO and is a signatory to the multilateral Agreement on Agriculture (AoA), which, among other things, regulates domestic subsidies granted by governments in the agricultural sector. The ‘disciplines’ on agricultural subsidies aim to curb trade distorting aid, which, despite being granted domestically, adversely affects the competitiveness of the global market.

Under this agreement, subsidies are categorised into two parts on the basis of their trade distorting nature. First are Green Box subsidies. These are permitted subsidies because they have either no or minimal trade distorting effect. Subsidies by developing countries, most notably the United States and the European Union (EU), fall under this category (as was determined by consenting parties during negotiations). There is no limit on the amount of Green Box subsidies that can be granted.

The other category is Amber Box subsidies, which are defined under Article 6 of the AoA. These subsidies have a potentially damaging effect on trade and distort the relevant market. They need to be gradually reduced to ensure compliance with global norms. WTO members had first negotiated these commitments at the Uruguay Round of negotiations (1986 to 1993), and have since discussed issues arising from these commitments at subsequent ministerial conferences and committee meetings at the WTO.

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India in WTO debates 

With regard to the issue at hand, an MSP measure would fall in the Amber Box category and would thus have to be capped at 10 per cent of the total value of the concerned product (de minimis level) as required under the AoA. If India’s domestic support exceeds the permissible limit, it would stand in violation of this agreement. This year, India had to invoke the Bali Peace Clause — which prevents WTO members from initiating complaints against a developing country member for compliance with certain obligations — because India exceeded “the ceiling on support it can offer farmers for rice for the marketing year 2018-2019”. This was the first time any country has taken recourse to this safeguard.

Food and livelihood security, particularly India’s public stockholding programme and MSP, have been hotly debated at the WTO between the developed and developing blocs. The US and Canada have been opponents of India’s food security and domestic support programmes, and had submitted a counter notification at the WTO in 2018 alleging that India “substantially underreported its market price support” for five types of pulses. Canada has also asked multiple questions to India on its food security programme and market price support policies.

While there has been no case against India, in 2019, the US successfully won a case against China at the WTO, which concerned China’s provision of domestic support in the form of market price support (MPS) for producers of wheat, Indica rice, Japonica rice and corn in 2012, 2013, 2014, and 2015. The US “successfully argued that state buying at a guaranteed price raised the whole market”, and established that China had exceeded its permitted de minimis level of support.

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India’s successful defence

India has, however, consistently defended its position on this issue and emphasised the need to prioritise the food and livelihood security of its population. A joint proposal by China and India at the WTO highlighted the vast difference in the value of subsidies granted by developed economies like the US, EU, and Canada, and those granted by developing economies. The proposal argued that “developed countries have been consistently providing trade-distorting subsidies to their farmers at levels much higher than the ceiling applicable to developing countries. Developed countries have more than 90% of global AMS [Aggregate Measure of Support] entitlements amounting to nearly 160 billion USD” Proponents have argued that “elimination of AMS should be the starting point for reforms rather than seeking reduction of subsidies by developing countries, some of which provide a subsistence amount of about USD 260 per farmer per annum [in India] compared to over 100 times more in some developed countries”.

India has regularly called for correcting historical inequalities like the AMS, which allows a group of 32 countries to heavily subsidise their agricultural sector while unfairly targeting relatively smaller subsidies granted by developing countries. Most recently, India reiterated its position on this issue at the virtual meeting of the General Council on Covid-19 Trade-Related Measures held in May 2020. India stated that “a more effective and lasting way of ensuring food and livelihood security of the most vulnerable and promoting sustainable agriculture trade would be by agreeing to eliminate the historic asymmetries in AMS entitlements in the Agreement on Agriculture and addressing growing hunger through effective food security programmes”. India’s ‘support-per-farmer’ approach to agricultural subsidies and levelling the playing field by eliminating AMS is supported by the 47 member G-33 coalition.

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MSP not illegal

While many developed countries will remain critical of India’s agricultural subsidies commitments, the MSP provision is not per se illegal under WTO law and can be included in the text of the farm laws. It is well within India’s rights to provide domestic support in the form of MSP as long as this support is below the de minimis level as provided under the Agreement on Agriculture of the WTO. The Narendra Modi government’s reticence to include them so far seems to stem from a genuine desire to liberalise India’s agricultural economy.

However, in the long-term, the battle for adequate MSP and to ensure food and livelihood security through agricultural subsidies will not be a domestic one. Compliance with WTO laws and adhering to international obligations must be part of New Delhi’s considerations as a responsible stakeholder, but reversing the inherent inequities and exploitative framework of the AMS system—which ruefully stands codified in the form of WTO law—should be the pressing objective moving forward.

Ameya Pratap Singh is a PhD student at the University of Oxford. Urvi Tembey is an international trade lawyer. Views are personal.

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  1. This is a useful article and made me very curious regarding WTO commitments but it didn’t answer the questions it raised?
    What does “would thus have to be capped at 10 per cent of the total value of the concerned product” mean?? Does it mean govt can pay only 10% higher than international prices? Then how is our wheat MSP around 1975 and international prices around 1400?? That is around 40% higher, how is indian govt able to defend this?? Or does it mean India will procure at MSP from only 10% farmers or only 10% of total production?? Or does it mean Indian govt can pay only 10% higher than the production cost to farmers?? All this is not explained. The author should understand he is talking to people who don’t know anything about these things… There’s huge scope of improvement in this.
    Is mr. Shekhar Gupta listening??

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