April 6, 2001


 Search the Internet

E-Mail this column to a friend

Print this page
Recent Columns
The emperor's new
The Warmth of a
     Vanishing Piety
The Beavis Society
The common-sense fix
A personal weakness
Ruin in the Commons

Ashwin Mahesh

Cropped at the knees

Imagine you are an Indian farmer, with all its accompanying trappings. Typically, this means that in the past, your livelihood has centered around work for meager wages on someone else's property. But perhaps you're modestly fortunate, and have some land to call your own, and this has freed you from the traditional bondage to landlords that millions of others endure. You are earnest in your desire to better yourself, and competent in your work. One fine day, with the harvest from the sweat of your labour ready, you arrive at the trading corporation that has always bought your produce.

Except this time, the buyer offers you a price below what it has cost you to actually grow the food.

Perplexed, you set out to understand why. Having grown these crops for as long as you can remember, you find it hard to believe that demand for your produce would have tailed off as sharply as the new prices suggest. Your quest leads to a novel explanation -- that this is the result of the World Trade Organization, which has changed everything.

Having never imagined the world beyond your village except on a television screen, you are staggered by the thought that there would be such a thing as a world acting in concert, with sufficient reach to set the price of crops in your corner of the planet, and quite evidently without your participation in that process! Even worse, beyond the accusatory reference to the WTO, none in your local community, nor among the agricultural officers from the ministry, is able to explain the specific processes within the regime that have caused this change. In short, you are aware that the changed rules are impacting the price, but not how or why.

Even more bizarre, amidst falling prices for the crops you have grown, you find that the cost of buying food has increased! This makes no sense whatsoever; how can it be that on the one hand there is plenty of crop in the market, which has forced down the prices for your produce, and at the same time, there is no simultaneous reduction in the cost of buying food processed from these crops? The correlation between increased supply and lower prices at the wholesale level is impossible to square with higher prices at the retail level.

How did this happen?

  • The government of India has withdrawn support prices for many crops, and this means they must be sold competitively in the markets, and not subsidized by the state. At the same time, however, foreign governments, especially in the developed world, continue to subsidize their corporate agricultural firms hugely, allowing their products to be sold at far lower prices than Indian crops, and almost certainly below their cost of production in those countries. This is the first lunacy.

  • Historically, however, protection against such unfair competition was ensured by high import tariffs, and when those were lowered, by means of another trade barrier, popularly known as a quantitative restriction, or QR. This limits the volume of specific goods that can be brought into the country and sold at competitive rates, thereby guaranteeing price support even outside of government subsidy for Indian produce. Once the federal government embraced the WTO, however, these quantitative restrictions began to fall away, and large quantities of foreign produce, grown with extensive subsidies from other governments, are now brought to India for sale.

  • The cycle of woes is completed by yet another aspect of trade reform, which makes just as little sense as the first two. Regulations within the Essential Commodities Act kept a lid on the prices that could be charged for food products, and this maintained a balance between the procurement and sale processes, both of which included government participation. In the interest of deregulating trade in produce, however, portions of the ECA have been modified, with the result that price ceilings have been lifted.

  • These processes combine to produce a devastating effect. Traders buy at the most competitive rates, but are free to sell at unregulated high prices. The expectation that competition among retailers will maintain price stability for the end-purchaser has simply not materialized, especially as produce is diverted to urban areas with higher purchasing power. Whether prices in the rural bazaars are held high by collusion or by improper infusion of competitive environments is debatable, with opinions running strong on both views.

The World Trade Organization is allegedly erected in the interest of freer trade and better deals for consumers everywhere. If that is so, it is fair to judge the regime by its actual price effects. In this instance, if as a result of the WTO regime, rural consumers pay higher costs for goods and commodities than they did in its absence, it will be fair to say that the introduction of the WTO regulations is not achieving the intended purpose. Correct?

Fewer than 5 per cent of the American population is now employed in farming. Increasing mechanization has made it possible for the United States and other developed nations to produce sufficient quantities of food to feed not only themselves, but substantial numbers of others as well, with very little of its manpower devoted to this enterprise. In the western world, this is seen to be productive, freeing up large numbers of people historically employed as farmers for other kinds of economic activity. In a populous country like India, with a large fraction of the workforce still confined to agriculture, will mechanized farming free individuals for other work or will it instead render them unemployed, poor, frustrated and potentially destabilizing to society?

Let us consider a different aspect of world trade. The legacy of the 1990s has been the increasing ability of financial capital, manufacturing endeavors and finished products to move across national boundaries. Automobile factories in Mexico, volatility in the Indonesian rupiah, and Swiss chocolates in our bazaars offer ample testimony to these changes. In support of such restructuring, we are assured that efficient economies are built around such nimbleness. The faster we can respond to change, and the more we can use local and regional strengths to compete globally, the better the world economy will be.

Very well. Except, that the largest hindrance to such fleet-footedness is also erected by the very same institutions that champion free trade. In a world where money can move across most barriers, goods can move across many, and ideas accept none, why is it that people remain confined to the lands of their birth and citizenship? Would it not be more productive and efficient to permit free movement of people as well? Is human capital not advanced by free trade? What is the World Bank's and the IMF's publicly held view on the unhindered movement of people across national boundaries?

The programmed response to this question is that rich nations would never accept this position, for that would invite mass immigration from the poorer places. That's probably true, but merely realizing it is not sufficient is reason to consider that matter closed. For a nation like India, with an abundance of manual labor, representatives in trading regimes should be vigorously pushing for greater mobility of its citizens. This is both the proper thing to do, and an intelligent approach to bargaining. Rich nations that oppose this view should have to do so publicly, and accept criticism for it.

A complex arrangement, based on concessions in trade practices and enforceable by arbitration in international arenas, requires negotiators of considerable skill in each nation who can secure for native businesses optimum advantages from it. More than this, each nation must nurture a cadre of skillful guides, who can help businesses navigate the opportunities and pitfalls of the new arrangement. The illiterate poor in our villages can hardly be expected to understand the nuances of the WTO and assert them in courts of law. Industries in developed societies have built effective lobbies and garnered the financial and other support of their governments to obtain the best terms for their businesses. A competitive India demands similar arrangements.

Without this, the negatives begin to dominate the public spaces. The economic effects on farmers unfairly exposed to competition from subsidized large-scale producers are not only detrimental, they are also immediate. The wide-spread unemployment, occasional suicide, and potential destabilization that results cannot serve the interest of any government in New Delhi or in the states. The reimposition of QRs will land us in court at the WTO, and likely draw some sanctions on otherwise productive industries, thereby eroding success even in areas where Indian industry is now internationally competitive.

My intention here is not to drum the usual beat of protest that emanates from dispossessed quarters. Individually, we may each believe that peasants and the urban poor in the developing world are inadequately informed, or unproductive, or simply engaged in the wrong economic activity to compete effectively. Alternately, we may believe that they are exploited for the advantage of multinational corporations and the third-world elite by governments which are easily subverted by the suitcase culture. I do not urge unexamined acceptance of either view, instead I ask only if the negotiated procedures of the WTO reflect a fair understanding of what is good for India, and for the majority of her people.

There is no quantitative restriction on intelligent choice.

Ashwin Mahesh

Your Views
 Name :

 E-mail address :

 Your Views :