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Can India Sustain Its Growth If Its Status As A Developing Country Is Revoked?

India is an emerging and developing country. It is the world's largest democracy, and one of the world's fastest growing economies. [1]It is currently the seventh richest country in the world, and by 2025 it is projected to be the third largest world economy after China and the USA. India is an example of a country that has become richer[2].

The population of India in 2016 was approximately 1.3 billion people, and a recent United Nations report predicts that India will overtake China as the most populous country in 2022[3]. India has around 50 cities with a population of over a million people, and is home to three of the world's megacities- Delhi, Mumbai and Kolkata. The development of the country however is stinted due to the increase in rate of poverty.

The Human Development Index (HDI) places India 136th out of 187 countries, with 25% of the nation's population still living on less than $1.25 (US dollar) a day. The census in 2016 demonstrated one sixth of the world's population is in India. It had an annual population growth rate of 1.2%, and had one of the youngest populations in the world. More than 65 percent of the population was below the age of 35, and it is expected that by 2022 the average age in India will be just 29 - compared to China which is 35 years and 48 years in Japan[4].

This feature of expanding youthful workforce would be a trump card in India's economic development in the long run, while the dwindling workforce of European and other developed countries adds further to the advantages of India. [5]

India falls under the status of a developing nation in the WTO. It declared itself a developing nation and had not faced any opposition to this status till The President of the United States of America, Donald Trump recently questioned its status along with other countries.

Economically and otherwise India is still a growing nation that requires a lot of development and support to achieve the status of being developed. As a nation having the developing status, India enjoys certain special rights and advantages in its Trade with other countries and also tariff benefits.[6] In this situation, the current article focuses on the effects that India will face in its trade and tariffs exclusively on its agricultural sector if its status of being a “developing” nation is stripped off in the WTO.

  1. Whether there are adequate legal provisions set for India to be claimed as developing country under the working of WTO and the need to maintain this claim under the Organisation?

    In the Uruguay Round, the Member States pushed for a substantive change in the multilateral trading system by strengthening the loose special and differential treatment provisions (S&D) as it was agreed by the Members that they form an integral part of the WTO Agreements and for the inclusion of major reform in agricultural trade which is composed of mainly developing countries.[7]The goal was to help producers of goods and services, exporters and importers conduct their business.[8]

    There are provisions in the WTO Agreements granting these certain rights to “developing countries” after the Doha Declaration and these provisions should be included with an objective to strengthen and make them more effective and operational.[9]India played an important role in the negotiation and structure of the Doha Development. However, the efforts in the Doha Round to negotiate a framework agreement towards a new global economic order have used negotiating capital with, so far, little result as United States and the European Union did not agree to subsidize their agricultural sectors. [10]

    In the rules and regulations as prescribed by the WTO, there are no specific definitions of “developed country” and “developing country”.[11] It is the Member's autonomy to raise these claims and use the special provisions available to developing countries but it can be challenged by other Member States.[12]

    The Declaration also mandated the Committee on Trade and Development to recognise the treatment provisions that had to be mandatory and to consider the legal and practical implications of making mandatory of those which are non-binding. [13]

    Special and Differential Treatment Provisions:

    The WTO Agreements contain special provisions which give special rights to developing countries and that give more favourable treatment to developing countries than other WTO members who have claimed "developed country" as their status and the developing countries will benefit from unilateral preference schemes such as the Generalized System of Preferences (GSP)[14]. A mechanism to review and analyse the implementation of special and differential treatment provisions was established at the Bali Ministerial Conference in December 2013.[15]

    There are few concessions implemented by developing countries in accordance with the provisions such as:[16]

    1. longer time periods for implementing Agreements (like TRIPs, GATS etc.) and commitments,
    2. measures to increase trading opportunities for developing countries,
    3. ensuring WTO members safeguard the trade interests of developing countries,
    4. provide support to aid the developing countries build the capacity to perform the work of WTO , handle disputes, and implement technical standards or guidelines to be followed
    5. implement provisions related to Members from least-developed countries (LDC) in the WTO
    6. Preferential tariff treatment by developed contracting parties in compliance with the Generalized System of Preferences to products originating in developing countries.[17]
      As per the S&DT provisions, the least developed countries are given higher benefits vis a vis the developing countries.[18]

      The other provisions in WTO highlighting S&D treatment to developing countries are:

      1. GATT Article XVIII: Governmental Assistance to Economic Development
        Recognition of the status of developing countries and their need for derogations from certain trade measures relating to the GATT Articles, including support for Infant Industries and rectifying Balance of Payments issues.[19]
         
      2. GATT Article XXXVI: Principles & Objectives
        That developing country members need to get more favourable access to world markets without reciprocity for commitments made by developed members to promote economic progress. This is accomplished under the Generalized System of Preferences (GSP) in the form of special & differential (S&D) treatment for developing countries.[20]
         
      3. GATT Article XXXVII: Commitments
        Developed Members ' commitments to give higher priority and pay special attention to minimizing trade barriers for goods of interest to developing countries. As for other developing members, developing countries also strive to do this.[21]
         
      4. Generalized System of Preferences (GSP)
        Implemented under the U.S. trade programs, GSP enables opportunities for many of the world's poorest countries to use trade to promote economic development by removing duties on thousands of products imported from one of 119 countries and territories designated as beneficiaries.[22]

        The United States President Donald Trump wishes to restructure the WTO by insisting that countries like India, China, South Korea, South Africa, Indonesia and many more lose their self-declared developing country status and prohibit them from availing flexibilities in WTO rules and negotiations that do not satisfy any economic or other indicators. [23]The proposal made by the US has been rejected for three times by other Member States in the General Council Meetings.

        Although there has been a significant growth in the GDP of India in the recent years through implementation of innovative economic policies, the country still remains a shelter for millions of poor people and the space provided under the S&DT provisions to implement and strengthen domestic trade laws to reduce poverty, increase the rate of employment and to complement the growth of their trade to bridge the divide between them and developed countries. The transition to being a developed country does not allow India to incorporate meaningfully into the global trading system.
         
  2. Can the effect on trade tariffs and non- tariff measures of the Agricultural Sector in India can be curbed if India's status is revoked?

    Earlier times have seen sympathetic treatment of developing countries such as India, which have received special and differential treatment under the WTO, giving them more time and space to comply with WTO rules, but now the US has started to question this special treatment because countries such as India and China are considered large emerging economies due to their huge population size and thus their GDP. However India requires to be treated differently because it needs to look after about 300 million people who may be considered poor[24].
Under the WTO, S&DT are special provisions for developing countries that allow them more time to implement agreements and commitments, including measures to increase trading opportunities, protect their trade interests, and promote capacity building for litigation and technical standards implementation[25]. As a country with such a huge population, having a substantially decent GDP does not allow it to be called a developed nation. The Special and Differential standards under the WTO have helped and supported India in reaching its present stature in the world economy.

India does have all the right to protect its interest in various sectors such as International Trade and agriculture. Unlike the allegations against India, we do not impose such high import duties as compared to developed nations like Japan, America and South Korea. The US charges extremely high duties on several of their products like peanuts and tobacco. As developed nations, they must maintain and rationalize their duty structure more efficiently.

Like other countries India must also be able to take appropriate actions to safeguard its domestic interests when and where it deems fit. As a member of the WTO, India is committed to free, fair and predictable trade, thus India also deserves to be supported in reaching this goal. India's tariff measures rely fundamentally on the bylaws and functioning of WTO. India's average WTO bound tariff rate is 48.5% while its average applied tariff rate is 13.4% and this gap between bound rate and applied MFN rates help import management. It also leaves scope to raise the tariffs up to the bound rates.

Around two-thirds of WTO members are developing countries and it is their membership that gives them immediate access to developed markets at lower tariff rates. This advantage gives them time to catch up with sophisticated corporations and their mature industries. They are not compelled to remove reciprocal tariffs in their markets until later. As a result, developing countries don't immediately have to open their markets to overwhelming competitive pressure.

This way India has gained an advantage, rightly enough, by being a developing nation under WTO. Special and differential treatment allows developing countries longer time frames to implement commitments and greater flexibilities in adopting measures to improve their presence in the global markets, among others.

For example, developing countries are allowed to provide comparatively larger input subsidies and minimum price support where they can offer product-specific farm subsidies up to 10% of the value of production, against 5% for developed countries, although the latter enjoy other flexibilities[26].

The most favourable impacts that WTO has had on India and its Economy are in the increase in export earning, agricultural export, textile and clothing and foreign direct investment. All these impacts have taken place due to reduction of tariff and non-tariff trade barriers.

Also, the domestic subsidies that help India raise the price of products during export in the global market. Thus it is quite understandable that without the special and differential treatment under the WTO, India might fall drastically in the global market. With more than 300 million people still living in poverty, it would be against the rule of law of WTO to let India be stripped off its status. The rule of law requires justice for all and equally wherein more than half the population of India would be left out if these incentives were to be taken away.

The export earnings and tariff flexibilities are keeping the country capable of competing with its developed counterparts. Any step towards incapacitating India's reach to the S&DT would hinder and handicap its international trade capabilities.

India would not be able to adjust to the high rates of tariffs and duties as that of developed nations it has trade relations with. India has various FTAs with ASEAN nations and other prominent members of the global trade system and these relationships are at stake when the WTO contemplates as the status of India being developing or not. As a primarily agricultural state, India cannot afford to lose its advantage on export duties and tariffs of agro products. WTO norms limit subsidies to 10% of the total value of agriculture production based on 1986-88 prices, which is a point of contention raised by India and some other developing countries. India wants inflation to be taken into consideration while calculating subsidy limits, which is also justified keeping in view the soaring prices.

The developed countries want India to stop buying food grains from farmers and adopt method of direct cash transfers. If this happens then prices will escalate in India as all the prices of food grains would depend on the market and not the government leading to about 50% of the people being unable to afford basic food necessities. India would not be able to successfully curb the backlash when it loses its status of being a developing in the WTO.

If India were to no longer be on the receiving end of the Special and Differential treatment, it would fall down in the global economic spectrum with no way of coming back up. Even though India is compared to other economically advanced nations, India faces a major challenge in the form of population and ineffective labour force.

In spite of being the second largest in terms of population, India still does not have cheap labour as compared to China. So, when the factor of population and infrastructure development is taken into account, India cannot compete in the market without subsidies offered by the WTO to developing nations. Although India is a country whose GDP may be rising fast, a huge part of its rural population is hungry and struggling to find basic amenities to sustain life.

India's per capita income is much lower than those of developed nations. Therefore, India should continue its commitment of moving forward in the world economy and not back down in front of the developed world. The WTO should maintain the development dimension of trade and trade rules as part of the Doha Round, thereby restoring the trusts of developing countries like India.[27]

Agricultural Sector in India
Agriculture is the primary source of livelihood for about 58% of India's population.

The Indian agricultural industry is primed for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition. Being one of the largest food processing industry, India ranks fifth in terms of production, consumption, export and expected growth and with 70% of retail contribution of the sales, the country ranks to the world's sixth largest market in food and groceries. [28]

This potential and quality of the sector is enhanced by the provisions under WTO that developing countries gain from. The growing economy of India is able to and compete with and export to the developed nations due to the subsidies and preferential treatment it receives from the WTO.

Indian perspective of the features of the Agricultural Agreement under WTO:

Market Access

Due to balance of payments, India was maintaining Quantitative Restrictions and did not have to undertake any commitments in regard to market access. India has undertaken to bind its primary agricultural products at hundred percent; edible oils at 300% and processed foods at 150%. negotiations under Article XXVIII of GATT were successfully completed in 1999, and the bound rates have been raised substantially for some agricultural products like maize, rice, spelt wheat, millets etc. which was at zero or at low bound rates. [29]

Domestic Support

Other than market price support, India does not provide any product specific support. During the reference period (1986-88), India had market price support programmes for around 22 products, from which 19 are included in our list of commitments filed under GATT.[30] Subsidies given for fertilizers, water, seeds, credit and electricity is taken into account for calculation of non-product specific subsidy.

Export Subsidies

Exporters of agricultural commodities do not get any direct subsidy and this is not different from other types of subsidies. However, its purpose is special. When a farmer or exporter sells agricultural products in foreign markets, he earns money for himself, as well as foreign exchange for the country. Therefore, agricultural exports are generally encouraged ensuring they do not harm the domestic economy. Subsides provided to encourage exports are referred to as export subsidies.

In most developing countries, agriculture is the key source of livelihood as is in India. Therefore, it is expected that developing countries heavily subsidise agriculture in order to promote interest of farmers and protect them from competition from developed nations that can produce at a lower cost, using modern technologies and more efficient means of cultivation.

From a broad perspective, there are three ways of subsidising farmers through government involvement:
  1. Existence of domestic and external policies so that domestic cultivators receive higher prices for their outputs than would have been possible, for trade to become completely free. This can be done through domestic price support policies, tariffs, quotas, export enhancement programmes, price stabilisation measures, import licensing and canalisation.
  2. By providing inputs at prices below cost of supply to farmers or at prices that are lower than prices charged from other consumers of the same product, farmers can be subsidised. Examples are subsidies in credit, electricity, transport and irrigation, fertilisers, livestock feed and crop insurance, and farm fuel tax exemption, and
  3. The other method of subsidisation is through direct cash payments to cultivators. [31]

The central government and several state governments are working on many farmer-friendly initiatives to lighten the agrarian community's challenges. The agricultural sector is expected to witness its next growth wave with policy interventions, better and quicker mechanization, adaptation of innovative technologies and smarter farming solutions, thus helping the Indian economy achieve the recent World Bank Global Economic Prospects report of projected growth which is 7.5% , over the next two years. [32]

In India farmers get input subsidies, fertilizer subsidies, irrigation subsidies and also for power. These are some of the more inviting factors that help keep farmers in the field and also benefit them by staying in the agricultural sector. These subsidies are also possible due the broad framework of the WTO and its special provisions which lay the outline for our governments to implement these subsidies and benefits.

In India, agricultural growth helps in increasing wages, lowering the prices of food, increasing demand for consumer and intermediate goods and services, facilitating development of agribusiness, increasing returns to labour and capital and improving the overall allocation efficiency of factor markets.

Increasing agricultural growth in developing countries requires integration with the world economy, provided the world market prices are not distorted. Therefore, if and when India ceases to receive special and differential treatment from the WTO and subsidies in the field of agriculture, it would be almost impossible for India to compete in the global market.

It would lead to directly and indirectly affecting jobs, prices of afro products and inflation where in basic food products would be exorbitantly expensive in the domestic markets leading to costlier food production and resulting in higher hunger index. Even the farmers unable to benefit from these subsidies and export tariff advantages will face major poverty and hunger problems.

Agricultural Export from India
Rice Export
Government support to producers in developing countries concentrates primarily on research in improved or hybrid rice varieties, investments in irrigation, preferential credits, extension and distribution of improved seed quality. The procurement purchases or releases from stocks, or through changes in trade policies is also taken into consideration for intervention of prices. In developed countries, assistance to the sector is conveyed through price support and direct payments.

Trade measures, mainly tariffs, are widely used to protect domestic rice markets. Rice imports are often subject to “Special Safeguards” in country schedules despite the high WTO bound tariffs. Although such companies do not usually have monopoly privileges and they share their trade functions with the private sector, the role of state companies in managing international rice flows is considerably vital. [33]

India exports almost a quarter of the rice, Basmati and Non- basmati being the main categories, in the world mainly to countries like Africa, the US, Europe and South-East Asian countries.[34] On 22 November, 2018 the government set the Ministry of Commerce's Merchandise Exports from India Scheme (MEIS) a 5 percent subsidy on non-basmati rice exports.

The measure came into effect on November 26, 2018 and lasted until March 25, 2019. It aimed to raise exports and help domestic prices during the 2018 key kharif season (harvest), which resulted at record high level due to high plantings and good yields supported by beneficial rains. [35]

Recently the government has offered a 5% subsidy to exporters of non-basmati rice. India is the major exporter of Basmati rice and in the global marker we have come down in the export of rice to many countries.

In an event where farmers seize to receive these incentives and advantages via government policies, the export of rice would not be possible on this scale. Without the special safeguards that are available, farmers would not make as much money as they do with the special treatment. The income would be only mainly for large companies leaving farmers in the lurks of poverty and hunger.

Conclusion
Even though S&DT is highlighted in various provisions of the WTO including the program implemented by the United States giving concessions and favourable treatment towards developing countries while implementing trade agreements among them, there is a deficiency in the definitional criteria on the status of developing country and lack of substantive strength in the negotiating formats.

The S&DT benefits the developed countries as well in terms of fisheries subsidies. India must implement better schemes to ensure their dependency on subsidies is reduced and S&DT must be used to perform rule making and market opening on a contractual basis.

Unlike the allegations against India, we do not impose such high import duties as compared to developed nations like Japan, America and South Korea. The US charges extremely high duties on several of their products like peanuts and tobacco. As developed nations, they must maintain and rationalize their duty structure more efficiently.

The issue of self-declaration as raised by the US is challenged by several developing countries including India and India deems to be a legitimate claimant of the status and needs more time to transition unlike countries like China due to the lack of sufficient domestic laws to protect the interests of the citizens and time to work towards the tweaking of domestic trade policies and practices in order to leverage the benefits no matter the decision passed in WTO.

Diluting S&DT related to developing countries would lead to intractable deadlock at the WTO. Therefore, India should continue its commitment of moving forward in the world economy and not back down in front of the developed world. The WTO should maintain the development dimension of trade and trade rules as part of the Doha Round, thereby restoring the trusts of developing countries like India. Without the status and the treatment of being a developing nation, India would face crippling losses in terms of tariffs and duties in their export import spectrum. The trade relationships it has with other emerging and emerged nations will face extreme downfall and India would not be able to keep up with developed nations in the world.


End-Notes:
  1. World GDP Ranking 2019 - Statisticstimes.Com (Statisticstimes.com, 2019
  2. The Economic Times, India To Overtake Japan To Become 3Rd Largest Economy In 2025 Read More At://Economictimes.Indiatimes.Com/Articleshow/70193869.Cms?From=Mdr&Utm_Source=Contentofinterest&Utm_Medium=Text&Utm_Campaign=Cppst (2019)
  3. WTO | India - Member Information (Wto.org, 2019)
  4. (wto.org, 2019)https://www.wto.org/english/forums_e/public_forum19_e/draft_programme_e.pdf
  5. FE Bureau, WTO'S Dispute Body: India, China, Other Developing Nations Warn ofCollapse (TheFinancial Express, 2019) china-other-developing-nations-warn-of-collapse/1578574/
  6. Unctad.org, 2019) 9781848599642-en.pdf
  7. Special And Differential Treatment Provisions In WTO Agreements And Decisions(2018).
  8. kenalpatel, WTOAnd Its Impact on Indian Economy (Slideshare.net, 2019)
  9. WTO | Doha Development Agenda | Briefing Notes - Other Doha Issues (Wto.org, 2019)
  10. Peter Kleen and Sheila Page, Special and Differential Treatment of Developing Countries In The World Trade Organisation (2019) 'WTO | Development - Who Are the Developing Countries in the WTO? (Wto.org, 2019)
  11. 6 Steps to Join the World Trade Organization (The Balance, 2019) https://www.thebalance.com/how-does-a-country-become-a-wto-member-3306362
  12. WTO | Doha Development Agenda | Briefing Notes - Other Doha Issues (Wto.org, 2019)
  13. WTO | Development - Who Are the Developing Countries in the WTO? (Wto.org, 2019)
  14. WTO | Doha Development Agenda | Briefing Notes - Other Doha Issues (Wto.org, 2019.[16]Peter Kleen and Sheila Page, Special and Differential Treatment of Developing Countries in The World Trade Organisation (2019).[17]WTO | Development - Special and Differential Treatment Provisions (Wto.org, 2019).[18]Tojo Jose, What Is Special and Differential Treatment (S&DT) Under WTO? – Indian Economy (Indian Economy, 2019)[19]COMPREHENSIVE REVIEW OF GATT ARTICLE XVIII SOUGHT (Twn.my, 2019)
  15. (Wto.org,2019) https://www.wto.org/english/res_e/publications_e/ai17_e/gatt1994_art36_gatt47.pdf
  16. GATT - Ch 37 (Marxists.org, 2019)https://www.marxists.org/history/capitalism/gatt/ch37.htm
  17. Generalized System of Preferences (GSP) | United States Trade Representative (Ustr.gov, 2019)
  18. The Hindu, Still A Developing Country (2019)
  19. Jayshree Sengupta, Is WTO Relevant To India? | ORF (ORF, 2019)
  20. Kirtika Suneja, Allow Self Assessment Of Developing Country Status, 45 Nations Insist (The EconomicTimes, 2019) self-assessment-of- developing-country-status-45nationsinsist/articleshow/71607058.cms?from=mdr
  21. FE Bureau, WTO'S Dispute Body: India, China, Other Developing Nations Warn OfCollapse (The Financial Express, 2019) china-other-developing-nations-warn-of-collapse/1578574/>.
  22. Huma Qazi, India V/S Developed Countries- India'S Conundrum And Stance On Agriculture Subsidy - Marketexpress (MarketExpress, 2019) developed-countries-indias-conundrum-and-stance-on-agriculture-subsidy.html>[28]India and Agriculture Importance, Agriculture In India: Industry Overview, Market Size, Role In Development...| IBEF (Ibef.org, 2019)accessed 20 November 2019.
  23. Farm And Food Subsidies: India And WTO (GKToday, 2019) food-subsidies-india-and-wto/> accessed 22 November 2019.
  24. Farm And Food Subsidies: India And WTO (GKToday, 2019) food-subsidies-india-and-wto/>
  25. Domestic Support to Agriculture(2019) < https://shodhganga.inflibnet.ac.in/bitstream/10603/61856/10/10_chapter%203.pdf>.
  26. India - Agricultural Sector | Export.Gov (Export.gov, 2019) accessed 21 November 2019.
  27. Calpe C, PART II - RICE IN WORLD TRADE (Fao.org, 2019)
  28. Indian Basmati and Non-Basmati Rice Brands - India Rice Export Data 20 (Exportgenius.in, 2019) data-2017-194.php
  29. India Provides Rice Export Subsidies|Food Price Monitoring and Analysis (FPMA)|Food And
    Agriculture Organization Of The United Nations (Fao.org, 2019) prices/food-policies/detail/en/c/1172096/
Written By:
  1. Nikita Raghavan and
  2. Devyani Vijayakumar

    Awarded certificate of Excellence
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