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Trade-Related Subsidies – Bridging the North-South Divide an Indian Perspective

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Trade-Related Subsidies – Bridging the North-South Divide an Indian Perspective Trade-Related Subsidies – Bridging the North-South Divide An Indian Perspective Meeta K Mehra, Fellow; Mayank Sinha, Research Associate; and Sohini Sahu, Research Associate The Energy and Resources Institute (TERI) The International Institute for Sustainable Development contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change, measurement and indicators, and natural resources management. By using Internet communications, we report on international negotiations and broker knowledge gained through collaborative projects with global partners, resulting in more rigorous research, capacity building in developing countries and better dialogue between North and South. IISD’s vision is better living for all—sustainably; its mission is to champion innovation, enabling societies to live sustainably. IISD receives operating grant support from the Government of Canada, provided through the Canadian International Development Agency (CIDA) and Environment Canada, and from the Province of Manitoba. The institute receives project funding from the Government of Canada, the Province of Manitoba, other national governments, United Nations agencies, foundations and the private sector. IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the United States. Copyright © 2004 International Institute for Sustainable Development Published by the International Institute for Sustainable Development All rights reserved International Institute for Sustainable Development 161 Portage Avenue East, 6th Floor Winnipeg, Manitoba, Canada R3B 0Y4 Tel: +1 (204) 958-7700 Fax: +1 (204) 958-7710 E-mail: [email protected] Web site: http://www.iisd.org/ Table of Contents 1. Introduction ................................................................................................................................... 1 2. Definitional issues and taxonomy of subsidies.............................................................................. 1 Rationale for subsidies................................................................................................................................................... 1 Issues of definition and taxonomy .............................................................................................................................. 1 WTO and subsidies: some more definitional issues covered (WTO, 2001)......................................................... 3 Impact of subsidies ........................................................................................................................................................ 4 3. An overview of India’s economy .................................................................................................... 6 4. Budgetary subsidies in India ......................................................................................................... 8 Prevailing subsidies issues............................................................................................................................................. 8 Historical trend in central budgetary subsidies.......................................................................................................... 8 Subsidy estimates..........................................................................................................................................................10 Estimates of central budgetary subsidies ........................................................................................................................10 Estimates of budgetary subsidies by the states ................................................................................................................11 Total (central + state) subsidy estimates........................................................................................................................11 5. Agricultural input subsidies ..........................................................................................................12 Agriculture in the Indian economy............................................................................................................................12 Critical subsidy-related issues .....................................................................................................................................13 Irrigation subsidies .......................................................................................................................................................13 The irrigation scenario ..................................................................................................................................................13 Aggregate subsidy provision...........................................................................................................................................14 Economic impacts.........................................................................................................................................................15 Environmental and resource use impacts........................................................................................................................16 Equity impacts.............................................................................................................................................................16 Reforms in irrigation.....................................................................................................................................................17 Power subsidies to agriculture sector........................................................................................................................17 Overview of power pricing for agriculture........................................................................................................................17 Social impact ................................................................................................................................................................17 Environmental impact ..................................................................................................................................................18 Reforming power and irrigation prices: an illustration (Datt & Mehra, 2000) .............................................................18 Revision of canal irrigation rates................................................................................................................................18 Power tariff reforms.....................................................................................................................................................19 Fertilizer subsidies........................................................................................................................................................19 Overview of fertilizer sector in India ..............................................................................................................................19 Level of subsidies ..........................................................................................................................................................19 Subsidy implications for economy, environment and equity..............................................................................................20 Reforms in fertilizer pricing...........................................................................................................................................23 6. Agriculture procurement pricing and food subsidies .................................................................. 23 Rationale for agricultural input subsidization ..........................................................................................................23 Level of price support and subsidy on food ............................................................................................................23 Socio-economic implications of agricultural subsidies/ price support................................................................26 Direct impacts on cropping pattern ..........................................................................................................................27 Impact on food-grain stocks and attendant costs...................................................................................................27 Impacts on food-grains demand & welfare effects.................................................................................................27 Impacts on farmer welfare – rent-capturing by intermediaries.............................................................................28 Way forward with agricultural output pricing reforms...........................................................................................28 7. Energy .......................................................................................................................................... 28 Overview of energy pricing policy.............................................................................................................................28 Power subsidies ............................................................................................................................................................29 The Indian power sector................................................................................................................................................29 Unit cost of power
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