US-India Farm Trade Negotiations

GS II-International Relations

Context

Ongoing trade discussions between the US and India highlight disparities in agricultural support policies, with Washington pushing for greater market access while Indian farmers contend with lower direct financial aid compared to their US counterparts.

Comparison of Farm Support Systems: US vs. India

US Agricultural Support Model

• Direct Financial Aid: Unlike India, the US provides direct monetary support to farmers rather than subsidizing inputs like fertilizers, electricity, or water.
• Key Programs:
  • Price Loss Coverage (PLC): Compensates farmers if crop prices fall below a fixed reference price.
  • Agriculture Risk Coverage (ARC): Offers income protection based on market fluctuations.
  • Dairy Margin Coverage (DMC): Supports dairy farmers when feed costs rise.
• Risk Management Focus: Ensures stable farm incomes without relying on government procurement mechanisms, unlike India’s Minimum Support Price (MSP) framework.
• Higher Per-Farmer Benefits: With fewer farmers than India, US subsidies result in higher individual support levels.

India’s Agricultural Support System

• Broad-Based Assistance: Given India’s large farming population, subsidies are spread across millions of small and marginal farmers.
• Key Support Mechanisms:
  • PM-Kisan (Direct Income Support)
  • Fertilizer Subsidies
  • Low-Interest Crop Loans
  • Crop Insurance (Pradhan Mantri Fasal Bima Yojana)
  • MSP Procurement for essential crops
• Indirect vs. Direct Aid: Unlike the US, India primarily subsidizes inputs and procurement, rather than providing direct payments for price fluctuations.

Challenges in US-India Trade Negotiations

• Uneven Playing Field: Higher direct financial support to US farmers raises concerns about unfair competition if Indian markets are opened to American agricultural exports.
• WTO Regulations & Safeguards:
  • India, as a developing country, is entitled to “special and differential treatment” under WTO rules to protect its domestic agriculture.
  • The US argues that India’s MSP and subsidy programs distort trade, while India defends these policies as essential for smallholder farmers’ survival.

Way Forward

• Balancing Market Access & Farmer Protection: India must negotiate safeguards to protect domestic producers while accommodating global trade commitments.
• Enhancing Domestic Farm Support: Shifting towards more efficient subsidy models, such as targeted income support, could strengthen farmers’ competitiveness.

Strengthening Agri-Export Policies: Diversifying exports and improving farm productivity can reduce dependency on domestic subsidies while ensuring global market integration.