Tag: India

India Tosses out the WTO’s Agricultural Subsidy Disciplines

The World Trade Organization (WTO) seems on the verge of approving an agreement with India to allow the Trade Facilitation Agreement (TFA) to move forward.  The TFA is to be applauded.  It will make a useful contribution toward helping goods move across borders more efficiently, which will tend to increase trade and promote economic growth.

The problem is not with the TFA, but rather with the high price that the global community seems ready to pay for it.  India has asked that it be allowed to exceed the level of domestic agricultural subsidies to which it agreed twenty years ago in the Uruguay Round negotiations.  For the first time in history, those talks led to limits on the ability of countries to use trade distorting agricultural supports.  Those subsidies had been rampant, often leading to surplus production that depressed crop prices in global markets.  Farmers who were being subsidized generally were happy enough with that arrangement, but it was a very different story for unprotected farmers in other countries.  Many of the world’s farmers are quite poor to start with.  Government-driven decreases in commodity prices make them even poorer.

A teachable moment is slipping away because no WTO member has been willing to stand up and explain what’s going on.  India sanctimoniously declares that it needs to promote food security through use of a robust public stockholding program, and would like the world to believe that existing WTO rules prohibit them from doing so.  This is simply not correct.  The Uruguay Round includes specific provisions detailing how public stockholding may be used for food security purposes.  A great deal of time, effort and tough negotiating went into developing those provisions.  There is no limit on government expenditures to provide food – including free or reduced-price food – to low-income people.  However, there is a clear requirement that purchases of commodities for public stocks must be made at open-market prices.  It is not allowable to purchase commodities at above-market prices in order to provide a subsidy to farmers. 

Subsidies and Votes — in India and the United States

When Americans suggest that government transfer programs might affect the way people vote, the mainstream media react with the indignation that greeted Mitt Romney’s “47 percent” comment. Of course, in other contexts the media certainly know that programs like Social Security, Medicare, and farm subsidies impact voting, but Republicans seem to get pounded for making that point.

But when it comes to other democracies, such as India, journalists don’t seem to have any trouble seeing the electoral advantages of government spending. Jim Yardley reports from India for the New York Times:

Frustrated by delays in Parliament, and eager to gain favor with rural voters ahead of national elections, India’s cabinet has approved a sweeping executive order that establishes a legal right to food and will create what is likely to be the world’s largest food subsidy system for the poor….

For the governing Congress Party, the new ordinance fulfills a campaign pledge made by Mrs. Gandhi and provides her party with something tangible to offer voters as the country prepares for national elections next year. The coalition government has been battered by corruption scandals and a sinking economy. With polls suggesting a loss of public support for the Congress Party, the food ordinance is good politics, some analysts say, if uncertain economics.

I noted a few months ago that the Washington Post had made a similar point:

Trying to rekindle the fire of India’s economy, Finance Minister P. Chidambaram promised Thursday to rein in a runaway deficit even as he raised spending on welfare schemes that the government hopes will woo voters in elections scheduled for next year….

“The finance minister faced two counter-veiling pressures: to present a populist, voter-friendly budget and also control the huge fiscal deficit,” said Vir Sanghvi, a political analyst. “What he presented was a ‘this-is-the-best-we-can-manage-under-the-circumstances’ kind of a budget. . . . He is hoping that the economy will improve and prices will come down by the time of the election. That is a big political gamble.”

Chidambaram promised to increase spending on rural welfare schemes, rural roads and jobs, food guarantees for the poor, women’s safety programs, tax breaks on loans for first-time home buyers and a women’s bank.

Is it really so hard to imagine that American politicians might also see transfer programs as measures that would benefit them on election day? Of course, the more fundamental impact of transfer programs may be to make both parties afraid to cut spending. What politician in either party wants to propose cuts in Social Security, Medicare, student loans, or farm subsidies? It’s not that transfer recipients all vote for the same party; it’s just that both parties fear the loss of votes if they interfered with the flow of subsidies. And not just in India.

A Map of Economic Freedom in India

Economic freedom in India has improved notably since the beginning of the country’s market reforms in the early 1990s, stimulating high growth from a very low income base. Though India’s level of economic freedom is still low—it ranked 111 out of 144 countries in the latest Economic Freedom of the World index—assigning one overall rating to this vast country can be a bit misleading. The map below shows that, rated on a state by state basis, the levels of economic freedom in India in fact vary greatly. The state of Gujarat, for example, has the freest economy in the country and ranks far above West Bengal, one of the least free states.

The data comes from the Economic Freedom of the States of India: 2012 report, co-published today by Cato, the Friedrich Naumann Foundation, and Indicus Analytics in New Delhi.

Economic Freedom in India

This annual report shows a positive relationship between economic freedom and growth. It is a reminder to policymakers at the state level that they need not wait for national leaders to restart the reform agenda; much can be done at the sub-national level to improve freedom. My colleague Swami Aiyar, one of the co-authors of the report, suggests some reforms in his chapter(.pdf) describing Punjab’s decline.

The study discusses reforms in two other areas that would have a significant impact on Indian growth. In his chapter (.pdf), Ashok Gulati, the head of the Indian government’s Commission for Agricultural Costs and Prices, describes the extent to which Indian agriculture is so incredibly screwed up in every step of production and sales, and he suggests sweeping liberalization. Economist Bibek Debroy describes India’s extremely rigid labor laws (.pdf), which help explain India’s large informal economy and why the country has failed to create labor intensive export industries as have developed in other Asian countries.

U.S.-Pakistan Relations: The Afridi Affair and Its Aftermath

Yet again, U.S.-Pakistan relations have hit a new low. Days after a deal to reopen NATO supply routes into Afghanistan fell through, and two back-to-back U.S. drone strikes rocked northwest Pakistan in a 24-hour period, tensions flared again after a tribal court sentenced Dr. Shakil Afridi—a Pakistani citizen who helped the United States track-down Osama bin Laden with a fake vaccination program—to 33 years in prison.

Republicans and Democrats on Capitol Hill were appalled, and Secretary of State Hillary Clinton called the move “unjust and unwarranted.” Apparently, U.S. officials and lawmakers are surprised that the chasm separating Washington and Islamabad is growing wider after years of papering over their differences.

Yesterday, in response to Dr. Afridi’s 33-year sentence under the Frontier Crimes Regulation, the Senate Appropriations Committee voted to cut aid to Pakistan by a symbolic $33 million. That’s not enough—it represents just 58% of the amount the president requested for Pakistan. Washington should go further and phase out assistance entirely.

Today in the New Jersey Star-Ledger, my coauthor Aimen Khan and I argue that ending aid to Pakistan is the right course for both countries:

The U.S. must carefully calibrate a policy with Pakistan that continues diplomatic relations absent large sums of aid. While cutting aid to Pakistan might be temporarily destabilizing, Pakistan’s support for militant Islamists is arguably more harmful to regional stability. Moreover, while emergency-type humanitarian aid can be beneficial to the Pakistani people, economic development aid intended to promote growth has been detrimental, allowing Islamabad to avoid confronting its rampant corruption and budgetary problems with the necessary urgency.

The Pakistani government and people stand united in their belief that Pakistan does not need the U.S. Phasing out U.S. aid to Pakistan benefits both parties and better reflects strategic realities.

As is common with U.S. military and foreign aid to unstable governments, it typically serves to entrench the prerogatives of military and civilian elites. Quite perversely, in return for the tens of billions of dollars that American taxpayers forked over to Islamabad, many in Pakistan have come to blame Washington for their deteriorating situation. Even well-intentioned assistance under the much-lauded Kerry-Lugar aid package was viewed within Pakistan as an infringement on sovereignty, mainly because it came with intrusive strings attached. Furthermore, U.S. aid and arm-twisting have failed to pressure or persuade Pakistan to go after militants we deem to be a threat to our interests, including the Afghan/Quetta Shura/Karachi Taliban, Hekmatyar, and the Haqqanis.

From the 30,000-foot view, from Islamabad to New Delhi, it appears that Washington is slowly making a long-term pivot in South Asia. But as this author argued years ago, reconciling this pivot in the context of Afghanistan has been nothing short of a failure. The United States and Pakistan do not trust one another, NATO slouches toward an exit, and Pakistan has become more radicalized, destabilized, and encircled by India and militants.

But I digress. Please click here to read the full op-ed. Enjoy!

 

A Step Forward in Afghanistan, If We Are Willing to Take It

The Washington Post reports the Obama administration has revised its Afghan war strategy to include “more energetic efforts to persuade” Afghanistan’s neighbors—including India, China, and the Central Asian republics—to “support a political resolution.” Just yesterday, the New York Times reported that the administration was also relying on Pakistan’s Inter-Services Intelligence spy agency “to help organize and kick-start reconciliation talks aimed at ending the war in Afghanistan.”

This is good news, but also déjà vu. The administration called for “pursuing greater regional diplomacy” back in 2009. It also said it would ask “all countries who have a stake in the future of this critical region to do their part.” Countries in the region do have a stake in Afghanistan’s future; America, however, has few effective instruments for submerging the differences among competing powers.

Take our relationship with Iran. It has made significant inroads with Afghanistan’s Hazara and Tajik communities and is well-positioned to be a key player in the region. But Tehran and Washington seem neither close to engaging in direct talks nor willing to make reciprocal concessions for the cause of furthering peace. The irony is that after 9/11, American and Iranian interests initially converged in Afghanistan: Tehran cooperated with Washington to overthrow the Taliban regime, and during the Bonn negotiations helped broker a compromise between President Karzai and the Northern Alliance.

America’s complicated relationship with Iran is one reason why what U.S. officials perceive to be in America’s best interests may not be synonymous with the pursuit of peace. Isolating Iran, or even Pakistan for that matter, will hurt the substance of negotiations, increase the incentive for these countries to sabotage peace, and hinder Washington’s ability to shape a coherent regional strategy. Even if Washington were to engage Tehran and Islamabad, they may very well decide to protract the bargaining process to convey that time is on their side (it is). One reason why the administration’s 2009 effort may have faltered was that Pakistan—a major player in Afghanistan’s internal affairs (to the consternation of many Afghans)—has come to feel that it can manage the terms of reconciliation. In fact, it is this belief that tempers Pakistan’s eagerness to be more accommodating toward the United States, which is why the case for American humility is key when it comes to the subject of negotiations.

Peace will not be perfect. Problems will rise when competing interests collide on certain core issues. Nevertheless, all parties must be sufficiently dedicated to reaching a consensus on what constitutes a manageable settlement. After all, some countries will seek to stymie their enemy’s provision of assistance to Kabul (i.e. Pakistan vis-à-vis India). Getting these countries to think otherwise will necessitate a shift in said country’s perceptions of others’ intentions.

As I wrote last week, U.S. officials understand the enormity of problems they confront in this vexing region. Proponents of peace are not blind to these difficulties. Unfortunately, much like the current nation-building effort, when it comes to regional engagement, U.S. officials could be making yet another ambitious commitment that is beyond their ability to carry out.

Cross-posted from The Skeptics at the National Interest.

Monday Links

Commercial Ties with India Are An Opportunity, Mr. President—Not A Problem

During his visit to India, President Obama should bury once and for all his divisive rhetoric about American companies shipping jobs overseas. Our growing commercial ties with India are a great opportunity, not a problem. U.S. exports to India have doubled in the past four years. American companies that have set up shop in India have helped to fuel demand in that country for U.S. products and services. The president should be celebrating rather than demonizing our deeper economic ties with India.

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