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Sunday, August 3, 2014

US misread Modi Government's resolve

By Swapan Dasgupta

 

In the 24 hours between last Thursday and Friday afternoons, I made a strange discovery. I found to my utter surprise that there are far more people with a definite view of India’s “blunder” in the WTO negotiations than I thought existed. In my naivet√© I had assumed that the endless parleys in Geneva was a matter strictly for the buffs. Whether this spurt in interest in the inner-workings of the Commerce Ministry had anything to do with the presence of large numbers of Americans accompanying US Secretary of State John Kerry and also preparing the ground for Prime Minister Narendra Modi’s talks with President Barack Obama in September is a matter of conjecture. Maybe we shouldn’t read too much into coincidences.

 

However, while it was gratifying to learn that economic diplomacy was being accorded a high measure of importance in national life, there are some facets of the US response to India’s WTO veto that are worth highlighting. Judging from conversations with American officials and ‘embedded’ non-officials, it would seem that Washington was entirely unprepared for the change of government that took place in India at the end of May 2014. It lacked an understanding of either the new Prime Minister or the key individuals who made up the new dispensation. This failure was compounded by an erroneous belief that the NDA of Modi is a carbon copy of the NDA government led by Atal Behari Vajpayee. 

 

In their rush to gain meaningful insights into the Modi government, the policy-makers of the Obama administration arrived at certain hurried conclusions—based, it would, seem on inputs with unnamed Indian interlocutors.

 

The first was that the Modi government was pro-business and would shape its policies towards everything that would add to a positive business environment. This wasn’t an incorrect assessment except that it failed to factor in India’s serious discomfiture restrictions of its right to determine its own quantum of agricultural subsidies through the Minimum Support Price structure. In a competitive democracy, the Modi government was unlikely to agree to any proposal that could jeopardise its ability to improve the returns for a very vulnerable sector. In his talks Kerry, Finance Minister Arun Jaitley made it clear that India was willing to go the whole hog on “facilitation” issues—improve the performance of ports, reduce delays in customs clearances, etc.—and was merely seeking “comfort” on the issue of agricultural pricing. In a tussle between the US farm lobby and Indian farming interests, the Modi government was clearly on the side of India. This should have been clear to the US administration and the WTO negotiators. That it thought otherwise is curious.

 

Secondly, due to the promptness with which Modi agreed to Obama’s invitation to come to the White House for talks, a section of the US policy establishment arrived at the conclusion that the Indian Prime Minister saw his September visit as a rehabilitation journey. It believed—quite wrongly in my view—that the visa sanctions had actually devastated Modi and that he would use his visit to package himself as a ‘respectable’ politician, acceptable to even the New York Times (a paper which had campaigned incessantly against him). In short, it was felt that Modi would sacrifice India’s farmers for the sake of cosying up to America’s east coast liberal establishment.

 

This completely warped image of ‘aspirational’ Modi had in fact been fuelled by inputs from India (particularly the India-based think tanks). Going by this perception, Modi and his team were the Indian equivalents of American ‘rednecks’, completely out of their depths in the world of diplomatic sophistry. It was felt that Modi would be driven by babus with one eye on post-retirement assignments in multilateral bodies. After all, that is how India had earlier been ‘managed’ in difficult situations.

 

The failure to get the Modi government to bend is certain to prompt a re-assessment of the visit in September. US officials are already muttering that in view of the strategic clout wielded by the Commerce Department in Washington’s complex power equations, the fanfare around Modi’s visit is certain to be diluted. This dilution, however, will be contested by the Department of Defence that is greedily viewing India as a big market for US-made armaments. It is also looking at India as a possible buyer (at discounted prices) of a great deal of military hardware that will be expensive to cart back from Afghanistan.

 

A possible reason why these departmental conflicts could be disproportionately important lies in the fact that under Obama the US is becoming increasingly disinclined to engage with the outside world. The Republican opposition is often inclined to overstate its misgivings of the Obama presidency but one thing it has correctly highlighted is the fact that there is no larger global vision driving the US. Does the US, for example, really know or even care of the consequences of its impending withdrawal from Afghanistan on the subcontinent?

 

Many Indians who met Kerry on this visit thought he had come underprepared. Maybe they mistook deliberate tentativeness for casualness. Whatever the reality, there are few certitudes governing Indo-US bilateral relations in 2014. In 2005, the strategic partnership between Washington and Delhi promised to change power equations in Asia. Now, nine years later, they are back to rediscovering each other, often with astonishing amateurishness.  Modi may want to change things in September but it always takes two to tango. 

Sunday Pioneer, August 3, 2014

 

11 comments:

Abhay said...

An intelligently written and nuanced piece. Ah Mr Dasgupta, if only you would use your powers for good :p

Anonymous said...

The west does not have a leg to stand on, and they know it. The problem isn't with subsidies per se. I'm sure GoI would agree that a cap on subsidies is a good thing. The real problem is the poison pill clause of measuring value using 1986-88 prices. That's absolutely not a number chosen in good faith. It has no meaning at all. A 10% cap based on current market prices would have been fine with GoI, but not 1986-88 prices. That clause is meant to cause harm, because it makes the 10% cap meaningless. GoI should stick to its guns and get its way by having that clause removed. Naturally, the previous government did not do its job by having that clause removed during the Dec 2013 talks, but this one is doing its job.

And that enunciation should have come vociferously at Bali itself and the MMS govt. should have talked about west abiding to their WTO obligations at all fora. But then I do believe whole-heartedly (and grudgingly) that MMS was a sold out.

WTO Food Security issue in a nutshell (in simple understandable terms., the details are definitely details and different and devil lies in details).,

Say any nation like India can buy up to 10% of food crops at subsidized rates from the market towards food security. Say there is a dollar figure to that 10% - let us say 100 USD. However the dollar figure was decided in 1986. Now 30 years hence, because of price inflation., that 10% is breached if India continues to buy the same amount of food at subsidized rates. That is 100 USD is not enough to buy food grains at subsidized rates to feed its own poor. Or to remain under 100 USD subsidy, India has to remove/raise MSP.

In effect if India raises MSP for say rice., the Rs. 2 per kilo rice which several poor are getting in C36grh or TN will be gone. Maind eet - in my recent visit to Urban India - I did not see a single - poor begging for food. In some places I saw decent food given out to decently dressed poor people for free - but not a single hungry adult!!! It was a big change. So yes 2 Rs/ Kg rice may not be great, but is good for several hungry people.

Of course, it is unfair for India not to be able to keep up with inflation and/or population.

So what is India asking? It is asking that WTO decide on the food security subsidy now - that is can a formula be arrived where subsidy can keep up with inflation and/or population or inflation/population/nutrition or some such metrics. What Bali agreement was doing is this - let us sign the TFA and later we will discuss the food security. If you sign the TFA now and there is no discussion or decision on food security - who loses? So India is saying before we sign TFA let us decide on Food security (I am not going to call it food subsidy).

And this set the Gir Lion among vultures - it blew the lid on their sly shenanigan (and what was the previous CONgoons doing - they purposely passed the food security act to lay a ticking time bomb for Modi Sarkaar - that is if he adheres to WTO, he cannot buy food and re-distribute it to the poor and thus cannot adhere to FSA - and aam junta cares two hoots about WTO. But they did not expect NaMo to turn the whole thing on the head and make it into an opportunity.

Anonymous said...

And here is what the vultures are threatening India with:

http://economictimes.indiatimes.com0/news/economy/foreign-trade/tense-moments-at-wto-india-gives-new-proposal-to-break-the-trade-facilitation-agreement-deadlock/articleshow/39378979.cms

"Developed countries have sought to put pressure on India saying that other countries could go ahead with the agreement even if New Delhi did not change its stance.

They have also warned that India will lose the 'peace clause' available to it under the Bali agreement that says no member can take action against another on the food subsidy issue till a final agreement is reached on the issue, the deadline for which is the 11th ministerial in 2017."

First one - We will leave you behind (India says it is not even worth writing that threat on toilet paper., we are 20% of humanity with great growth prospects - you cannot ignore us)

Second one - If we say dump food on your shores (and destroy your markets) - your complains to WTO will be ignored (and also other complains)., and this is a serious threat. So what India did - used its brains and said - here is our proposal - if you decide not to agree - why blame us? You do not come up with a proposal, you do not agree with our proposal - what is going on - why the rush to TFA - dal mein kuch kalaa hain? And what will WTO do - declare trade war on India? And NaMo has taken that risk...

Anonymous said...

History tells no foreign country does business in win-win way to India. During 1600-1757 A.D. for cotton industries, India was a profitable country (25% of world income, world highest) trading in gold and silver for textile industries. Foreign countries came as traders first and then started looting us for their benefit (specially Britain).
During 1757-1830 there was high unrest in european countries because of lots of unemployment, low production and dwindling economy.
India being highly prosperous nation during that time became a great destination for exploitation.
The traders (especially British) who exploited the nation’s wealth by barbaric policies (like high import duty, imposing sanctions etc.) became highly wealthy.
Indians craftsmen and farmers who were once living in prosperity were tortured both economically and socially resulting in destabilised indian economy. This cause, complete reversal of wealth from India to Britiain. India’s income was 24% of world income, highest in the world during 1757. It reduced to 3% of the world income after the british left us and has risen to only 6.3% of world income till 2010.
Thanks to many economy revolutions in India in almost all sectors after independence, India is currently hovering at 3rd rank in GDP (PPP) (shocking many developed countries).
Today India is in ranked amoung the top producer of almost every agriculture good ( http://en.wikipedia.org/wiki/International_rankings_of_India ) thanks to Great INDIAN FARMERS “Mere desh ki dharti sona ugle, ugle here moti, mere desh ki dharti” I salute 700 millions indian farmers today for their contribution that makes us proud all the time…
US and European countries are finding it difficult to sustain their independency in food economy. Guess what, European and US countries are not saying anything to our govt or imposing subsidiary on Solar panels/ indirectly through WTO. WHY?
This is because most of solar manufacturing companies are based in US and European Union and more Sale in India will benefit them.
Similiarly, hitech products, urban planning, defence, power technology etc. have never been a subject in WTO…No developed country budges about this in WTO.
WHY THIS WORLD TRADE ORGANISATION wants India to not give subsidiary to 120 crores citizens? because even if Indian farmers die (as many as 10 lakh farmers have committed suicide since independence i.e. around 15,000 every yr on avg) it doesn’t impact the big players (developed countries) of WTO so called economy regulator of the world.
India must be mature enough to understand the inequality and prejudice of World trade organisation towards developing economies.
India should never agree to WTO as it will result in US and EU controlling global agro-economy, Their population is low, so they want everything to be organized and reach their door at their will.
It is the government role to decide what it values higher - 700 million Indian farmers’ life or international pressure.

Om Prakash Sudrania said...

Very enlightening both the post as well as the comments from anonymous. Loved its read fully and patiently. It also helped to understand the entire puzzle of this WTO business that was rather a hotchpotch thus far from media. I did read Economic Times post referred here but nothing was as succinct as in the comment by anonymous. Anybody reading both together shall get true insight. Thanks to Mr Dasgupta for the post and the long laborious comments by anonymous.

Shivangni said...

WOW, very informative & instructive, as usual we don't bother about WTO, but west obviously wants to use it to keep us down, even the commentators to your column have added to broadening my perspective.

Thanks to all of you

Jitendra Desai said...

US or any other developed country will have to re calibrate their approach to India,Indians and Indian Government from now on wards. By the time Modi walks in to sun set, he will change the way world has dealt with us in last 2000 years.

Cool Guy said...

Then was the CIA spying on some Bhartiya Jat Party all this while? Case of mistaken identity, maybe..

Cool Guy said...

A package cannot be dealt piecemeal. The western developed nations & their Indian vested interests are misleading by stating that the Bali package was simply restricted to trade facilitation only, the agriculture food security cover was an integral part of it. The developed countries by providing mere verbal assurance didn't impress India & it did the right thing by vetoing the trade facilitation. The LDC have to give lip service to the giant developed countries but secretly depend on India. India under Rajendra Pachouri has already betrayed their trust once, a repeat mustn't be allowed.

India's total subisdy for it's 1.25 billion citizens stands at $60 billion. & for almost the same size of population in the developed world, subsidies worth more than 500 billions are distributed.

The US subsidy of it's farm bill 2014 shall spend $300 billion each year over the next 10 years.

The EU farm subsidies form over 40% of the EU budget. approx 100 billion per year.

Japan $50 billion & Japan has erected one of the world’s highest tariffs: the duty on imported polished rice is 777.7%.

The highest national average support equivalent rates, across all major commodities, are offered in Norway, Switzerland, and Iceland, with average subsidies of about 65–75 percent of the value of production, and in Japan and Korea, with support rates of 60–65 percent. The lowest subsidy rates (less than 4 percent) are found in Australia and New Zealand. The average support rate in the European Union is about 35 percent of the value of production.

Prof K C Mehta said...

Every country pursues its own national interests. Modi Government has done the right thing in not succumbing to the pressures of US and western countries by refusing to sign TFA at WTO for protecting the interest of its own farmers. I wonder how an economist like MMS did not insist on this.

OG said...

Thank You all of You for putting me wise.
I am glad the interest of Indians has not been sold. More than that we have given a message to them- do not toy around with us- we are not ex WB/IMF/LSE/ Italian door mats to sell the interest of our country to earn brownie points from you. We have done it enough.