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WTO and India

India at the Crossroads: Navigating WTO Pressures After China’s SDT Exit

Explained | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

Introduction

The World Trade Organisation (WTO) has long been a battleground where developing nations, including India and China, defended their need for lenient subsidy caps, longer compliance timelines, and tariff protections. China’s self-exit from Special and Differential Treatment (SDT) concessions, despite retaining its developing country tag, signals a dramatic shift in the global trade order. For India, which has depended on SDT since its 1995 WTO accession, this development comes amid escalating US trade pressures, Trump-era tariff wars, and growing criticism of India’s subsidy regimes. The question is not only about trade but about food security, farmer livelihoods, and future economic strategy.

Why is this development significant?

  1. First-time shift: China, the world’s second-largest economy, has for the first time announced it will not seek SDT despite being classified as a developing country.
  2. Sharp contrast: Since 1995, SDT flexibilities have been central to India’s WTO negotiations; China’s withdrawal isolates India’s position.
  3. Big stakes: India subsidises around $50 billion annually to low-income farmers and channels over $40 billion into Minimum Support Price (MSP) schemes, directly impacting 1.4 billion people.
  4. Striking implications: If phased AMS (Aggregate Measurement of Support) cuts are enforced, subsidies may fall by 20–30% per decade, with a 10–15% rural income drop and worsening food insecurity.

How has India historically benefited from SDT?

  1. Tariff flexibility: Allowed India to impose 100%+ tariffs on sensitive goods such as branded medicines, automobiles, and luxury goods.
  2. Agriculture support: Article 6.2 exemptions for low-income farmers and public distribution schemes like MSP ensured food and livelihood security.
  3. Special treatment: Shielded India from disputes, despite often breaching the 10% subsidy cap under AMS rules.
  4. Trade defence: Enabled India to resist developed country pressures, citing its developing nation status.

What challenges does India face now?

  1. Coercive reduction: Phased AMS cuts threaten to undermine National Food Security Act (NFSA) provisions.
  2. Malnutrition risk: With 35% of children under five malnourished, subsidy rollback could worsen hunger and inequality
  3. Export vulnerability: Without SDT, India’s MSMEs and farmers face tougher competition in global markets.
  4. US/EU pushback: Developed nations already accuse India of trade distortion, citing examples like MSP and high farm subsidies.

What options does India have?

  1. Recalibrate subsidies: Shift from price support to income support (direct cash transfers), reducing WTO disputes.
  2. Promote Green Box subsidies: Focus on R&D, extension services, and sustainability programs which are WTO-compliant.
  3. Negotiate transitional safeguards: Demand longer compliance windows to cushion the shift.
  4. Defend digital/data sovereignty: Push for data localisation rights and tiered tariff structures in new trade deals.

What should India’s strategic plan look like?

  1. Phased tariff liberalisation: Gradually reduce non-essential SDT protections while safeguarding food security.
  2. Boost MSME competitiveness: Use the ONDC (Open Network for Digital Commerce) to integrate small businesses into global e-commerce.
  3. Intellectual property balance: Protect generic drug exports while resisting pressure for stronger IP regimes.
  4. Coalition building: Revive alliances like the G33 to collectively defend agricultural and food security concerns.
  5. Domestic reforms: Enhance farm productivity and diversify exports to reduce dependence on SDT shield.

Conclusion

China’s withdrawal from SDT marks a turning point in global trade politics. India now faces mounting pressure to reform its subsidy structure, align with WTO disciplines, and balance food security with competitiveness. The way forward lies not in clinging to outdated protections but in crafting innovative, WTO-compliant support systems that secure farmer welfare while projecting India as a responsible global player. Strategic coalition-building, calibrated reforms, and smart diplomacy will decide whether India emerges weakened or empowered in the new trade order.

PYQ Relevance

[UPSC 2018] What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India?

Linkage: China stepping back from SDT intensifies calls for WTO reforms in subsidy rules, dispute settlement, and fair treatment of developing nations, directly testing India’s ability to safeguard food security and farmer support while pushing for a more equitable trade order.

Value Addition

WTO Agreement on Agriculture (AoA) – Article 6.2 Exemptions

  • Provision: Allows developing countries to provide investment subsidies and input subsidies to low-income or resource-poor farmers without it being counted under the AMS cap.
  • India’s Use: India justifies its fertilizer, electricity, and irrigation subsidies under this clause to protect small farmers who form nearly 85% of the farming community.
  • Relevance: Central to defending India’s MSP and food security programs in global negotiations.

Aggregate Measurement of Support (AMS)

  • Definition: WTO’s metric for calculating trade-distorting farm subsidies (amber box), capped at 10% of the value of production for developing countries.
  • India’s Issue: With large MSP and food procurement under NFSA, India is often accused of breaching this cap. Example – Rice subsidies have repeatedly attracted scrutiny in WTO disputes.
  • Relevance: Reform of AMS rules is India’s key demand in WTO negotiations, arguing current methodology undervalues developing nations’ needs.

Green Box vs Amber Box Subsidies

  • Amber Box: Trade-distorting subsidies (e.g., MSP, procurement at administered prices).
  • Green Box: Non-trade distorting subsidies like agricultural R&D, extension services, crop insurance, and environmental protection.
  • India’s Position: Heavy reliance on amber box through MSP and PDS; however, India is now trying to expand its green box spending on crop diversification, climate-resilient agriculture, and digital extension services.
  • Relevance: Diversifying support to green box can shield India from WTO disputes while modernising agriculture.

G33 Coalition

  • About: A group of 47 developing countries led by India, China, and Indonesia, advocating flexibility in agriculture negotiations.
  • India’s Role: Spearheads demands for a ‘Special Safeguard Mechanism’ (SSM) and permanent solution for public stockholding (PSH) of food grains.
  • Relevance: Strengthens India’s negotiating leverage by projecting its subsidy and food stockholding as a collective developing-world concern, not just a national exception.

National Food Security Act (2013) (NFSA)

  • Provision: Legally entitles 75% of rural and 50% of urban population to subsidised food grains through PDS.
  • Conflict with WTO: Heavy procurement at MSP and distribution under NFSA is seen as trade-distorting. Critics argue this exceeds the 10% AMS cap.
  • Relevance: WTO restrictions on subsidies could directly affect India’s food security safety net covering over 800 million people.

ONDC (Open Network for Digital Commerce)

  • Concept: A government-backed initiative to democratise e-commerce by creating an open-source, interoperable digital network for buyers and sellers.
  • Trade Defence: Seen as India’s strategic response to global e-commerce giants (Amazon, Walmart-Flipkart), ensuring fair competition for MSMEs.
  • Relevance: In WTO’s ongoing e-commerce negotiations, ONDC is a shield for India to resist pressure for blanket liberalisation of digital trade and data flows, while protecting domestic digital sovereignty.

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