India should not exit the WTO despite farmer demands

Source: The post India should not exit the WTO despite farmer demands ban for convicts has been created, based on the article “DON’T GO IT ALONE: Rather than withdraw from WTO, India should strengthen trade multilateralism” published in “Indian Express” on 13th February 2025

UPSC Syllabus Topic: GS Paper2- International Relations-Important International institutions, agencies and fora- their structure, mandate.

Context: The article discusses why India should not exit the WTO despite farmer demands. WTO rules limit MSP, but India has policy options like the peace clause and income support. Leaving the WTO would harm exports, trade dispute resolution, and global trade relations.

For detailed information on WTO Reforms and India read this article here

What Are the Main Issues with MSP and WTO Rules?

1. Indian farmers want India to leave the WTO because it restricts their MSP (Minimum Support Price) through its rules.
2. MSP as a Trade-Distorting Subsidy: The WTO’s Agreement on Agriculture (AoA) classifies MSP as a trade-distorting subsidy. It restricts how much subsidy a country can provide to its farmers.
3. Outdated External Reference Price (ERP): The WTO uses an outdated ERP from 1986-88 to compare MSP. Due to inflation, the gap between MSP and ERP has widened, making India’s subsidies appear excessive.
4. India’s Negotiation Efforts: India has been pushing for ERP revision at the WTO but has not succeeded.
5. Existing Policy Leeway: The peace clause allows India to provide higher MSP for crops like wheat and rice without immediate legal challenges.
6. Alternative Support Mechanisms: The Pradhan Mantri Kisan Samman Nidhi provides Rs 6,000 per year to farmers, which does not violate WTO rules.

What Would Happen If India Left the WTO?

1. Loss of Export Benefits: India’s exports currently enjoy Most-Favoured-Nation (MFN) treatment and National Treatment under WTO rules. Leaving the WTO would make Indian products less competitive in global markets.
2. More Trade Agreements Needed: India would have to negotiate separate Free Trade Agreements (FTAs) with many countries. FTAs usually have stricter conditions, especially when developing countries negotiate with developed ones.
3. Weaker Trade Dispute Protection: The WTO provides a platform for resolving trade disputes. Without WTO membership, India would lose this option.

Why is Staying in the WTO Important for India?

1. The WTO is facing challenges, especially from the US, which is not supporting it fully. A weaker WTO could allow countries like the US to take unilateral actions in trade.
2. India should work to strengthen the WTO rather than leave it. Strengthening multilateral trade benefits developing countries like India by keeping global markets open and fair.
3. Farmers should be informed about these realities and involved in policy decisions.

Question for practice:

Examine how WTO rules impact India’s MSP policy and the potential consequences of India leaving the WTO.