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

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Farmer Welfare Programs Low-Interest Loans for Farmers Implemented through the National Bank for Agriculture <strong>and</strong> Rural Development <strong>and</strong> starting in the 2006/07 crop year, <strong>India</strong>’s central government provides approximately $400 million per year in interest rate support on farm loans under a program called the “Short-Term Rural Co-operative Credit Structure.” Under the program, which lowers farmers’ operating costs, farmers are eligible for short-term crop loans <strong>of</strong> up to Rs. 300,000 ($7,150) at a preferential annual interest rate <strong>of</strong> 7 percent, roughly 2 percent below the market rate. These loans came to approximately Rs. 2.8 trillion ($70.1 billion) during MY 2008/09. 83 In the <strong>India</strong>n government budget for FY 2009/2010, farm loans totaling Rs. 3.25 trillion ($65 billion) will be granted at a preferential annual interest rate <strong>of</strong> 6 percent. 84 Debt Write-Offs for Farmers <strong>India</strong>’s 2008 central government budget wrote <strong>of</strong>f loans for farmers totaling more than Rs. 653 billion ($14.2 billion). 85 The relinquished loans represented 1.6 percent <strong>of</strong> <strong>India</strong>’s GDP. 86 Of the total, $2.4 billion were one-time waivers <strong>of</strong> overdue loans. These payments assisted an estimated 40 million farmers, more than 30 million <strong>of</strong> whom were classified as small <strong>and</strong> marginal farmers. Some <strong>India</strong>n analysts have commented that such actions by the government create a moral hazard for farmers, who will assume that future loans are likely to be paid <strong>of</strong>f by the government in a similar way. 87 Like lowinterest loans, debt write-<strong>of</strong>fs lower <strong>India</strong>n farmers’ operating costs. National Rural Employment Guarantee Act The National Rural Employment Guarantee Act (NREGA), passed in August 2005 <strong>and</strong> brought into force in February 2006, provides 100 days <strong>of</strong> employment every year to tens <strong>of</strong> millions <strong>of</strong> rural poor <strong>and</strong> migrant laborers. Since its creation, the act has generated more than 4.5 billion person-days <strong>of</strong> employment <strong>and</strong> paid more than Rs. 350 billion ($7 billion) in wages, primarily to poor <strong>and</strong> migrant farmers. 88 About 70 percent <strong>of</strong> NREGA projects involve watershed management, water conservation, forestation, <strong>and</strong> l<strong>and</strong> development. 89 In the <strong>India</strong>n central government budget for FY 2009/10, announced July 6, 2009, NREGA was funded at Rs. 390.1 billion ($7.8 billion), an increase <strong>of</strong> 144 percent from FY 2008/09 <strong>and</strong> more than the program’s combined funding over the previous three years. 90 This program boosts incomes for poor farm laborers, but it also increases operating costs for farmers that use migrant labor. NREGA is blamed by farmers for a shortage <strong>of</strong> laborers in agricultural regions such as the state <strong>of</strong> Punjab. Even though farmer-owners, 83 OECD, Agricultural Policies in Emerging Economies, 2009, 104. 84 Haq, “Seeds <strong>of</strong> Hope <strong>and</strong> Change,” July 7, 2009. 85 Government <strong>of</strong>ficial, interview by Commission staff, Mumbai, <strong>India</strong>, May 13, 2009. The budget was presented in February 2008 by Finance Minister Palaniappan Chidambaram. 86 The Economist, “Waiving, Not Drowning,” July 3, 2008. 87 <strong>India</strong> Knowledge@Wharton, “<strong>India</strong>’s 2008 Budget,” March 6, 2008; industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 9, 2009. 88 Swaminathan, “Synergy between Food Security Act <strong>and</strong> NREGA,” June 1, 2009. 89 Mukherjee, “<strong>India</strong> to Quantify Climate Benefits from Poverty Project,” June 1, 2009. 90 Haq, “Seeds <strong>of</strong> Hope <strong>and</strong> Change,” July 7, 2009. 4-14
known as zamindars, have doubled or tripled wages for rice paddy sowing in 2009 compared to the previous year <strong>and</strong> <strong>of</strong>fered other enticements such as free meals, liquor, <strong>and</strong> opium, migrant labor from the states <strong>of</strong> Uttar Pradesh <strong>and</strong> Bihar are not arriving in sufficient numbers to fill 750,000 planting jobs. 91 The migrants prefer available employment opportunities closer to home under NREGA. Punjab’s agriculture department is scrambling to purchase 700 farm machines to partially <strong>of</strong>fset the shortfall in human labor. 92 NREGA is likely to increase <strong>India</strong>’s food price inflation in two ways. First, the rural poor are likely to use their NREGA wages to buy food, thus increasing the overall dem<strong>and</strong> for food. In addition, since it diverts ever-larger numbers <strong>of</strong> laborers from actual work on farms, rising farm labor costs are likely to be passed on to consumers in the form <strong>of</strong> higher prices. <strong>India</strong>n Government Policies Affecting Food Processing Recent <strong>India</strong>n Government Incentives for the Food Processing Sector The <strong>India</strong>n government considers the food processing sector to be an important driver <strong>of</strong> the <strong>India</strong>n economy, 93 as well as an important conduit for capturing some <strong>of</strong> the current wastage <strong>of</strong> perishable agricultural products. 94 Changes in <strong>India</strong>n society <strong>and</strong> economy are leading to a boom in the food processing sector, which grew 7 percent in 2002–03 <strong>and</strong> 13 percent in 2006–07. 95 The government, through the Ministry <strong>of</strong> Food Processing Industries (MOFPI), has set targets to increase the level <strong>of</strong> processing <strong>of</strong> perishables from the current 6 percent to 20 percent, the share in global trade from the current 1.5 percent to 3 percent, <strong>and</strong> increase value added by an additional 20–35 percent by 2015. 96 MOFPI plans include the establishment <strong>of</strong> 60 “agri export zones” <strong>and</strong> 53 “mega-food parks” to encourage food processing, 97 duty-free import <strong>of</strong> capital goods <strong>and</strong> raw materials into these zones for export-oriented production, <strong>and</strong> income tax rebates for producers <strong>of</strong> fruits <strong>and</strong> vegetables. 98 The <strong>India</strong>n government maintains a liberal policy regime regarding FDI in food processing. 99 Nonetheless, although there is currently some FDI in the processed food sector, it accounts for a relatively small portion <strong>of</strong> the industry. U.S. firms are the primary contributors <strong>of</strong> FDI in this sector <strong>and</strong> include Coca-Cola, Pepsi, Heinz, Kellogg’s, <strong>and</strong> Cargill. Opportunities exist for investment in areas that support food processing, such as agricultural technology <strong>and</strong> postharvest treatment <strong>and</strong> equipment. Multinational firms bring international quality st<strong>and</strong>ards <strong>and</strong> business practices to the <strong>India</strong>n food sector <strong>and</strong> are contributing to its growth. In addition, the emerging organized retail sector in <strong>India</strong>, including restaurant chains, is influencing the growth in processing because <strong>of</strong> its 91 Jolly, “Punjab Farmers Desperate As Migrant Workers Vanish,” May 31, 2009. 92 Ibid. 93 IBEF, “Agriculture,” March 3, 2009. 94 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, June 1, 2009. 95 Dhankhar, <strong>India</strong>: Food Processing Sector, July 2, 2008, 3. 96 Ibid., 13. 97 Ibid. 98 IBEF, “Food Processing: Market <strong>and</strong> Opportunities,” 7. 99 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, June 2, 2009. 4-15
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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
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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
Page 63 and 64: BOX 3.3 Indian Con
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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
Page 77 and 78: For most crops, however, In
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
Page 85 and 86: BOX 4.2 Does the Minimum Support Pr
Page 87: August 3, 2009, New Delhi announced
Page 91 and 92: that the PFA Act was strictly enfor
Page 93 and 94: ———. Bharat Nirman: A Time-Bo
Page 95 and 96: Organisation for Economic Co-operat
Page 97 and 98: CHAPTER 5 TARIFFS Overview
Page 99 and 100: sensitive. They include vegetable f
Page 101 and 102: wholly milled rice and</str
Page 103 and 104: The Indian governm
Page 105 and 106: India also reporte
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
Page 119 and 120: Indian Express.com
Page 121 and 122: CHAPTER 6 Nontariff</strong
Page 123 and 124: foreign sources. 6 For example, SPS
Page 125 and 126: BOX 6.1 Milk and M
Page 127 and 128: BOX 6.2 Wheat—Continued Yet, <str
Page 129 and 130: perpetuated continuously. The impor
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Page 133 and 134: import corn under the TRQ is too bu
Page 135 and 136: Customs Procedures India</s
Page 137 and 138: 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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