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

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equirements. 65 <strong>India</strong>’s Planning Commission, the author <strong>of</strong> the five-year plans, notes that “the present system <strong>of</strong> fertilizer subsidy is irrational <strong>and</strong> has become counterproductive,” encouraging soil degradation <strong>and</strong> damaging agricultural productivity. 66 It promotes the overuse <strong>of</strong> primary nutrients such as nitrogen, phosphorus, <strong>and</strong> potassium, rather than the use <strong>of</strong> secondary nutrients <strong>and</strong> micronutrients such as zinc, sulphur, <strong>and</strong> gypsum, all required in small quantities to maintain soil fertility. 67 Irrigation Water Support Government support for irrigation water primarily targets canal irrigation, although some <strong>of</strong> the money supports tank irrigation (man-made reservoirs) as well. Payments are made by state governments <strong>and</strong> totaled approximately $3.2 billion in FY 2005/06 (the last year for which data were available). 68 According to <strong>India</strong>n analysts, the program as designed promotes the excessive use <strong>of</strong> groundwater, degrades soil quality, <strong>and</strong> depletes government c<strong>of</strong>fers <strong>of</strong> tax revenues that could be better used for capital projects to upgrade irrigation infrastructure. 69 By contrast, in the <strong>India</strong>n government budget for FY 2009/2010, capital projects for irrigation in drought areas under the Accelerated Irrigation Benefit Programme will receive funding <strong>of</strong> Rs. $10 billion ($200 million). 70 Electricity <strong>and</strong> Diesel Support Programs Electricity support payments—the difference between the market costs <strong>of</strong> electricity generation/distribution <strong>and</strong> the lower fixed rates paid by farmers—are given by state governments directly to electricity providers. Because these payments are intended to help support farmers’ use <strong>of</strong> irrigation pumps, farmers’ fixed rates are based on the declared horsepower <strong>of</strong> the pumps; <strong>and</strong> because the fixed rates do not cover the full cost <strong>of</strong> electricity, they lower the cost <strong>of</strong> production for farmers <strong>and</strong> encourage the overuse <strong>of</strong> electricity <strong>and</strong> groundwater. <strong>India</strong>’s electricity support for farmers totaled $7.1 billion in FY 2007/08 <strong>and</strong> is estimated by the OECD to be $7.6 billion for FY 2008/09. 71 Diesel is used mostly by <strong>India</strong>n farmers for running irrigation pumps <strong>and</strong> tractors. Each year, certain states pay support on an ad hoc basis to cover some <strong>of</strong> the cost <strong>of</strong> diesel used for agricultural purposes, <strong>and</strong> the payments are typically reflected in the price <strong>of</strong> diesel charged to the purchaser. Nationwide cost estimates are unavailable, but anecdotal evidence indicates that diesel support totals hundreds <strong>of</strong> millions <strong>of</strong> dollars annually. 72 In the aftermath <strong>of</strong> the lower-than-normal rainfall experienced by many rice farmers during the 2009 monsoon season <strong>and</strong> the need for significantly higher levels <strong>of</strong> irrigation, states such as Bihar <strong>and</strong> Punjab appealed to the central government to bear most <strong>of</strong> the cost <strong>of</strong> diesel used to provide additional irrigation to drought-stricken crops. 73 In response, on 65 Government <strong>of</strong>ficial, interview by Commission staff, Mumbai, <strong>India</strong>, May 13, 2009. 66 Government <strong>of</strong> <strong>India</strong>, Planning Commission, Eleventh Five Year Plan: 2007–12, vol. 3, 2008, 16. 67 Misra, “Centre Debates Remodeling Fertiliser Subsidy,” October 30, 2007. 68 OECD, Agricultural Policies in Emerging Economies, 2009, 104. The payment is calculated by totaling all operating costs incurred by government irrigation systems <strong>and</strong> subtracting payments by farmers. 69 Mittal, Tripathi, <strong>and</strong> Tripathi, “Reshaping Agriculture Trade Policy,” 2008, 83. 70 Haq, “Seeds <strong>of</strong> Hope <strong>and</strong> Change,” July 7, 2009. 71 OECD, Agricultural Policies in Emerging Economies, 2009, 104. 72 For example, the state <strong>of</strong> Bihar provided a diesel payment to farmers for the summer growing season totaling Rs. 10 per liter in 2007 <strong>and</strong> Rs. 15 per liter in 2008. The budget expenditure in 2008 was estimated to be Rs. 63.18 crore ($12.6 million). The Times <strong>of</strong> <strong>India</strong>, “Farmers to Get Diesel Subsidy <strong>of</strong> Rs. 15 a litre,” September 20, 2008. 73 The chief minister <strong>of</strong> Punjab also requested a Rs. 2,000 ($40) per acre payment from New Delhi for farmers facing additional planting costs in 2009 due to the reduced monsoon rains. Webindia123, “Bear Full Diesel Subsidy for Farm Sector: Badal to PM,” July 25, 2009. 4-12
August 3, 2009, New Delhi announced a Rs. 1,000 crore ($200 million) support payment on diesel to <strong>of</strong>fset 50 percent <strong>of</strong> the fuel costs required for additional crop irrigation during the summer growing season, called the “kharif crop.” 74 Under the program, state <strong>and</strong> UT governments <strong>of</strong> areas affected by drought during July 15–September 30, 2009, were extended the full support payment <strong>and</strong> partially reimbursed by the central government. 75 Government Support to Farmers for Seeds Free seeds for farmers, paid out <strong>of</strong> the government budget, have a long history in <strong>India</strong>. 76 Today, seed purchases by farmers are still largely supported through state-run programs, <strong>and</strong> these payments lower farm production costs. For example, in the states <strong>of</strong> Karnataka <strong>and</strong> Uttar Pradesh, government tenders for bulk sunflower seed are announced, companies bid to provide the seed, <strong>and</strong> the government buys it on consignment. The farmer pays 50 percent <strong>of</strong> the market price, <strong>and</strong> the rest is paid to the companies by the government. If the sunflower seed is not sold to farmers, it is returned to the seed company. 77 An estimated 75 percent <strong>of</strong> sunflower seeds in <strong>India</strong> are sold in this way. In Karnataka <strong>and</strong> Uttar Pradesh, 20 percent <strong>of</strong> corn seed is sold to farmers using the same method, as is an estimated 10–15 percent <strong>of</strong> all corn seed nationwide. The states <strong>of</strong> Uttar Pradesh, Chhattisgarh, <strong>and</strong> Bihar participate in a similar program for rice. 78 For Bt cotton, various states (e.g., Andhra Pradesh in 2006, Gujarat in 2008, <strong>and</strong> Maharashtra in 2009) passed cotton acts to empower seed price controls. These laws forced seed companies to lower cotton seed prices to farmers by fiat. 79 Data on total seed support from <strong>India</strong>n state governments are unavailable, but anecdotal evidence shows that the payments are significant. In the state <strong>of</strong> Andhra Pradesh, a support <strong>of</strong> Rs. 25 ($0.50) per kilogram was granted for maize (corn) seed in May 2009. 80 The state <strong>of</strong> Karnataka covered 50 percent <strong>of</strong> farmer seed expenditures in 2008. 81 The state <strong>of</strong> Haryana announced a Rs. 120 million ($2.4 million) seed payment to farmers in March 2008 for summer moong (mung bean) cultivation covering 20,000 hectares. At a support rate <strong>of</strong> Rs. 30 ($0.60) per kilogram, the total payment was 70 percent <strong>of</strong> the seed cost. 82 74 The Hindu, “Govt. to Extend Rs. 1,000-Crore Diesel Subsidy to Paddy Growers,” July 31, 2009. 75 Reimbursement would be up to 50 percent <strong>of</strong> their costs, not to exceed a payment <strong>of</strong> Rs. 7.50 per liter <strong>of</strong> diesel, Rs. 500 per hectare <strong>and</strong> two hectares per farmer. 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. 76 Government <strong>of</strong>ficial, interview by Commission staff, New Delhi, <strong>India</strong>, May 4, 2009. 77 Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, May 12, 2009. 78 Ibid. 79 As discussed in chapter 9, seed companies note that the majority <strong>of</strong> <strong>India</strong>n states now have price caps in place, because when one state institutes a price cap, the resulting disparity in price puts pressure on other state governments to conform. The challenge for these companies in the future is how to retain a portion <strong>of</strong> the farm value <strong>of</strong> genetically modified seeds that justifies the investment costs. Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, May 11, 2009. 80 The Hindu, “Subsidy Offered on Seed,” May 30, 2009. 81 Jayaramiah, “Karnataka Set to Ensure Free Flow <strong>of</strong> Fertilizers, Seeds,” May 6, 2009. 82 Express <strong>India</strong>, “Rs. 1.2 Crore Marked to Provide Seed Subsidy,” March 28, 2008. 4-13
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United States International Trade C
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U.S. International Trade Commission
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Abstract This report describes <str
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TABLE ES.1 India:
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U.S. agricultural products face str
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U.S. Foreign Direct Investment U.S.
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CONTENTS Page Abstract ............
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CONTENTS―Continued Chapter 6 <str
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CONTENTS―Continued Figures 1.1. <
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ACRONYMS AND TERMS AAY Antodaya Ann
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ACRONYMS AND TERMS—Continued RGGV
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TABLE 1.1 India: A
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FIGURE 1.1 India:
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India’s central
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Despite their weak economic pr<stro
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Approach Current India</str
Page 36 and 37: Bibliography Birner, Regina, Surupt
Page 38 and 39: World Bank. Agriculture for Develop
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Page 42 and 43: TABLE 2.1 India: A
Page 46 and 47: premium); (2) India</strong
Page 48 and 49: include government export restricti
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Page 54 and 55: Exports by Major Trading Partner <s
Page 57 and 58: CHAPTER 3 Domestic Consumption Over
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Page 61 and 62: more likely to have been exposed to
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Page 67 and 68: are expected to see income growth <
Page 69 and 70: Food Preferences India</str
Page 71 and 72: Regional Variation Geographic <stro
Page 73 and 74: CCC. “Know India
Page 75 and 76: CHAPTER 4 Indian A
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Page 79 and 80: The Farm Sector soybeans 29 —but
Page 81 and 82: Food processing in India</s
Page 83 and 84: BOX 4.1 The Central Government’s
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Page 89 and 90: known as zamindars, have doubled or
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Page 93 and 94: ———. Bharat Nirman: A Time-Bo
Page 95 and 96: Organisation for Economic Co-operat
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Page 99 and 100: sensitive. They include vegetable f
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Page 107 and 108: Reference Prices Reference prices,
Page 109 and 110: Landing Fees <stro
Page 111 and 112: Simulated Effects
Page 113 and 114: and nuts” by $0.
Page 115 and 116: 5-19 TABLE 5.4 India</stron
Page 117 and 118: Bibliography Acharya, Keya. “Thor
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Page 123 and 124: foreign sources. 6 For example, SPS
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Page 127 and 128: BOX 6.2 Wheat—Continued Yet, <str
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Corruption Interests within <strong
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TABLE 6.2 India: E
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Bibliography American Apparel <stro
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Mattson, Jeremy W., Won, W. Koo, <s
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———. 2009 National Trade Esti
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TABLE 7.1 India: C
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First Point of Sal
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Private mandis Som
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approximately 65 million households
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7-10 TABLE 7.2 India</stron
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poor communications infrastructure
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limited popularity with farmers bec
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The lack of infras
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found that 39 percent of</s
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Bibliography Banerjee, A. Dairying
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Tiwari, Shri Rajendra Kumar. “Pos
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FDI Regulations and</strong
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TABLE 8.2 India: A
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Food Processing and</strong
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There is not necessarily a strong l
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For processing of
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BOX 8.3 Restrictions on Foreign Joi
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Under certain circumstances, FDI ca
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commenced. States tend to be quick
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Bibliography Bahn, Niti, an
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International Center for Alcohol Po
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Structure of the <
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BOX 9.1 The UPOV System for Plant V
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that the public sector in I
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Whether this situation will soon ch
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The U.S.-India Bus
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eggplant, which began field trials
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Maskus, Keith E. “Intellectual Pr
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APPENDIX A REQUEST LETTER
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The Honorable Sham L. Arano
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cprice-sewell on PRODPC61 with NOTI
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APPENDIX C HEARING WITNESSES
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ORGANIZATION AND WITNESS: Tuttle Ta
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Summary of Views <
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advertising and pr
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highest in the Asia-Pacific region.
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to U.S. exports to India</s
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transparent sanitary regulations th
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hotel and catering
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Western Pistachio Association 26 In
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APPENDIX E POTENTIAL FOR U.S. AGRIC
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E-4 TABLE E.1 India</strong
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APPENDIX F INDIAN AGRICULTURAL PROD
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TABLE F.1 India: A
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FIGURE F.1 India:
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is in nonirrigated areas with yield
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Consumption India
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efrigeration. This characteristic i
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70 percent of tota
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eportedly preferred in southern <st
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Cotton During MY 2003/04-2007/08, <
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Government of <str
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APPENDIX G UNION AND STATE/UNION TE
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certain agricultural goods in the p
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Bibliography Chaulan, Shri U.K. “
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Simulation Framework The effects <s
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Producers determine the optimal sup
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Applied ad valorem tariff equivalen
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We considered the possibility that
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Estimation of <str
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Bibliography Anderson, Kym, Mariann
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