Starting down the slope

Food and Agriculture Minister Sharad Pawar's announcement of the government's intention to provide incentives for cotton exports in order to cope with the anticipated glut this season, is more than it purports to be, in that it is part of a trend and not an isolated, one-time bail-out package for a troubled sector.

The cotton export sops, going by Mr Pawar's indication, will be on the lines of those for sugar exports. It involves subsidies compatible with the World Trade Organisation's rules, and comprises reimbursement of internal transportation costs and some other export-related expenses.

A similar scheme that offers the same subsidies to exporters of wheat and rice, who procure stocks from the open market, is pending with the Cabinet Committee on Economic Affairs (CCEA) for clearance. Foodgrain exporters sourcing their supplies through the Food Corporation of India (FCI) have already been getting similar subsidies.

It is true that such subsidies can be defended with the argument that they protect the interests of either farmers (as in the case of cotton) or industry (like sugar) or the excess grain-holder FCI (as in wheat and rice).

The subsidies may also be justified on the WTO-compatibility platform. But while conceding these arguments, there is still the broad question of the long-term consequences of these initial steps. For instance, is India giving a go-by to the zero-export subsidy regime that it has been wearing as a badge of honour the world over?

Does this weaken India's voice when it asks the developed countries to roll back their export subsidies? And will there be a cascading effect, with other sectors demanding similar subsidies?

For instance, oilmeal exporters, who face declining global prices, can legitimately ask for a dole, and there would be no reason to deny it to them when cotton and sugar have benefited.

There is also the possibility that these export subsidies will be viewed overseas in conjunction with the tacit production subsidies provided in the form of support prices and government purchases at higher-than-market prices.

Populist measures like free supply of power and direct monetary concessions for fertiliser use can also be construed as indirect production subsidies.

What needs to be understood is that subsidies are seldom a desirable tool for imparting export competitiveness to any commodity, and agricultural items are no exception. Subsidised exports will lead to skewed domestic price trends, with consequentially misplaced cropping patterns.

What the farm sector needs is to be made export-competitive on the basis of production efficiencies. It already has several inherent advantages, such as cheap labour and free technology from state-funded research, not to speak of abundant sunlight.

What is needed is to facilitate productivity gains and remove the many restrictive controls on agricultural commodities. Agro-exports will then be able to grow to their enormous potential without a subsidy crutch.