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

policymakers seek to achieve food security by attaining food self-sufficiency, 34 as
observed in <strong>India</strong>’s most recent five-year plan for agriculture. 35
Income support for farmers is the third major policy objective <strong>of</strong> the central <strong>and</strong> state
governments. Raising farmer incomes is important to the government because many <strong>of</strong>
<strong>India</strong>’s poor reside in rural areas, <strong>and</strong> the bulk <strong>of</strong> the nation’s employment is based in
smallholder agriculture. 36
<strong>India</strong>’s policy objectives in agriculture are contradictory. For example, policy
interventions that support producer incomes by increasing crop prices may lead to higher
food prices that negatively affect poor consumers. <strong>India</strong>’s policy objectives <strong>of</strong> food
security <strong>and</strong> food self-sufficiency also face inherent conflicts. Food security requires low
<strong>and</strong> stable prices <strong>of</strong> food staples for poor consumers. On the other h<strong>and</strong>, the drive for
food self-sufficiency requires sufficiently high crop prices to exp<strong>and</strong> domestic food
production.
Policy Instruments
The tension between the goals <strong>of</strong> increasing farm incomes <strong>and</strong> lowering consumer food
prices has caused the <strong>India</strong>n government to intervene heavily in the farm sector with
multiple policy instruments. Some policies focus on supporting producers by boosting
incomes, achieved through minimum support prices <strong>and</strong> what the <strong>India</strong>n government
refers to as “input subsidies” that artificially lower the cost <strong>of</strong> agricultural production
inputs, including fertilizer, irrigation water, electricity, diesel fuel, <strong>and</strong> seeds. 37 These are
partially <strong>of</strong>fset by government regulations that limit the number <strong>of</strong> potential buyers for
farm products, resulting in lower farmgate prices. 38 Other policies are designed to lower
purchase prices for consumers <strong>and</strong> maintain price stability. <strong>India</strong>’s Public Distribution
System provides staple foods (e.g., rice <strong>and</strong> wheat) to the poor at below-market prices.
The Essential Commodities Act permits the states to maintain adequate local stocks <strong>and</strong>
to control prices for certain crops (e.g., wheat, rice, corn, sugar, <strong>and</strong> seeds). 39 Because
<strong>India</strong>n policymakers seek to achieve food security through domestic production, imports
(to drive prices down for consumers) <strong>and</strong> exports (to drive prices up for farmers) are
viewed as second-best policy instruments to achieve these objectives. 40 <strong>Tariffs</strong> <strong>and</strong> NTMs
are used to raise or lower food prices <strong>and</strong> increase or decrease food supply when
domestic policy instruments fail. 41
34 The World Bank <strong>and</strong> other organizations acknowledge that <strong>India</strong> significantly increased its prospects
for food security through the development <strong>of</strong> domestic agricultural production. This has encouraged efforts
by <strong>India</strong>n government <strong>of</strong>ficials to link the two policy objectives. But these groups also note that external trade
is a more useful tool for dealing with food production surpluses <strong>and</strong> shortfalls. World Bank, <strong>India</strong> Foodgrain
Marketing Policies, 1999, 1–2; Thompson, Implications <strong>of</strong> Economic Policy for Food Safety, 1999.
35 Government <strong>of</strong> <strong>India</strong>, Planning Commission, Eleventh Five Year Plan: 2007–12, vol. 3, 2008.
36 L<strong>and</strong>es, “<strong>India</strong>n Agriculture <strong>and</strong> Policy in Transition,” 2008, 20.
37 Government <strong>of</strong> <strong>India</strong>, Planning Commission, Eleventh Five Year Plan: 2007–12, vol. 3, 2008; The
Times <strong>of</strong> <strong>India</strong>, “Farmers to Get Diesel Subsidy <strong>of</strong> Rs. 15 a litre,” September 20, 2008; Government <strong>of</strong> <strong>India</strong>,
Press Information Bureau, “Centre to Give Financial Assistance to States introducing diesel subsidy to
farmers in deficit rainfall affected areas,” August 3, 2009; <strong>and</strong> Industry representative, interview by
Commission staff, Mumbai, <strong>India</strong>, May 12, 2009.
38 Market controls are discussed in greater detail in chapters 4 <strong>and</strong> 7.
39 Government <strong>of</strong> NCT <strong>of</strong> Delhi, Department <strong>of</strong> Planning, Economic Survey <strong>of</strong> Delhi, 2008–09, Ch. 19
Public Distribution System, 1.
40 Government <strong>of</strong> <strong>India</strong>, Planning Commission, Eleventh Five Year Plan: 2007–12, vol. 3, 2008, 5, 25, 34,
36, 51.
41 Tariff measures are addressed in chapter 5 <strong>and</strong> nontariff measures are addressed in chapter 6 <strong>of</strong> the
report.
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