India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

limited popularity with farmers because payments are based on yield estimates performed
after the calamity, which delays the processing <strong>of</strong> claims, <strong>and</strong> because loss assessments
are based on wide agricultural areas <strong>and</strong> not on individual farmer losses. Under the
scheme, farmers with heavier-than-average losses are insufficiently reimbursed. 62
Government Intervention
A competitive market is efficient because goods are valued according to the costs <strong>of</strong>
production <strong>and</strong> the value to purchasers. <strong>India</strong>n government interventions aimed at the
goals <strong>of</strong> increased food security <strong>and</strong> self-sufficiency distort production decisions for
farmers <strong>and</strong> act to limit the options available to producers <strong>and</strong> consumers. In particular,
government support programs for irrigation, electricity, fuel, <strong>and</strong> fertilizer distort
production decisions for crops that require more <strong>of</strong> these inputs.
MSPs <strong>and</strong> other government support for rice <strong>and</strong> wheat set the market price for these
commodities that account for one-half the food calories consumed in <strong>India</strong>. 63 The lower
level <strong>of</strong> government support for other commodities biases production decisions toward
rice <strong>and</strong> wheat. For commodities sold at MSPs, quality differences are uncompensated.
As noted, this discourages farmers from providing high-quality commodities if this would
require greater expenses.
Other than MSPs, most government intervention is at the state level, which adds further
complexity to decision-making for firms with operations in more than one <strong>India</strong>n state.
Prices can vary considerably from state to state for even basic commodities. 64 In addition,
the Essential Commodities Act (ECA) <strong>of</strong> 1955 enables the national <strong>and</strong> state
governments to impose restrictions on the storage, transport, price, distribution, <strong>and</strong>
processing <strong>of</strong> certain “essential” agricultural products. 65 The ECA was repealed
administratively in 2005 because <strong>of</strong> surplus market conditions, but remained on the
<strong>of</strong>ficial record. 66 In 2008, when food prices rose, the national government reauthorized
the ECA, allowing states to implement these restrictions again. States implemented the
law on an ad hoc basis, <strong>of</strong>ten through orders requiring firms to maintain strict stock limits
<strong>and</strong> follow other regulations that stymied pr<strong>of</strong>its <strong>and</strong> investment. 67 The effect <strong>of</strong> the ECA
<strong>and</strong> the corresponding state acts is to inhibit the internal integration <strong>of</strong> the <strong>India</strong>n market
for the regulated commodities. 68
62 Government <strong>of</strong> <strong>India</strong>, Planning Commission, <strong>India</strong>’s Eleventh Five Year Plan: 2007–12, vol. 3, 2008,
21–22.
63 See chapter 3.
64 Government <strong>of</strong> <strong>India</strong>, Agriculture Division Planning Commission, Report <strong>of</strong> the Working Group on
Agricultural Marketing Infrastructure, January 2007, 19.
65 Panagariya, <strong>India</strong>: The Emerging Giant, 2008, 313. Agricultural commodities deemed “essential
commodities” by the <strong>India</strong>n government as <strong>of</strong> December 15, 2004 (the latest data available), include (1) cattle
fodder, including oilcakes <strong>and</strong> other concentrates; (2) foodstuffs, including edible oilseeds <strong>and</strong> oils; (3) raw
cotton, either ginned or unginned, <strong>and</strong> cottonseed; (4) raw jute; <strong>and</strong> (5) seeds, including seeds <strong>of</strong> food crops
<strong>and</strong> seeds <strong>of</strong> fruits <strong>and</strong> vegetables, seeds <strong>of</strong> cattle fodder, <strong>and</strong> jute seeds. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong>
Consumer Affairs, Food, <strong>and</strong> Public Distribution, “Essential Commodities Act, 1955.” Edible oils are not
covered under the ECA; rather, they are regulated under other laws, such as the Food Safety <strong>and</strong> St<strong>and</strong>ards
Act <strong>of</strong> 2006. Industry representative, interview by Commission staff, Jaipur, <strong>India</strong>, June 3, 2009.
66 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 9, 2009.
67 Ibid.
68 Another consequence <strong>of</strong> regulation under the ECA is that some potential investments in storage
infrastructure have been delayed or ab<strong>and</strong>oned because <strong>of</strong> the restraints imposed by the act, <strong>and</strong> the
uncertainties this level <strong>of</strong> state intervention has generated. Industry representative, interview by Commission
staff, New Delhi, <strong>India</strong>, May 6, 2009.
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