India’s agricultural subsidies under scrutiny by 5 WTO member nations

Five WTO members—the US, Argentina, Australia, Canada, and Ukraine—have flagged concerns over India’s agricultural subsidies, specifically its Market Price Support (MPS) for rice and wheat. They claim that India has underreported its support levels, with rice subsidies exceeding 87% of production value in 2021-23 and wheat support ranging from 67-75%.

India reported ₹47,614.5 crore (US$ 5.73 billion) for rice and ₹64 crore (US$ 7.7 million) for wheat in 2022-23, but these countries argue that the actual support could be much higher. India defends its subsidies as crucial for food security and supporting small farmers.

Five World Trade Organization (WTO) members—the U.S., Argentina, Australia, Canada, and Ukraine—have raised concerns over India’s market price support (MPS) for rice and wheat, claiming that India underreported its support levels. These nations argue that India’s domestic subsidies have inflated production values, impacting fair competition in global agricultural markets.

In their recent WTO submission, these nations allege that India’s MPS for rice exceeded 87% of the production value during 2021-22 and 2022-23, while support for wheat ranged from 67-75% over the same period. They claim that India’s reported figures—₹47,614.5 crore (US$ 5.73 billion) for rice and ₹64 crore (US$ 7.7 million) for wheat in 2022-23—are significantly lower than actual support levels, which they estimate could have reached ₹3,72,846.5 crore (US$ 44.9 billion) for rice and ₹1,78,959.5 crore (US$ 21.5 billion) for wheat. The countries argue that this underreporting distorts global agricultural trade, limiting access to competitive markets for wheat and rice.

Concerns over India’s agricultural support have mounted since May, when the U.S., EU, UK, and Australia highlighted an additional ₹4 trillion (US$ 48 billion) in subsidies for agricultural inputs, including power, irrigation, and fertilizers. India defends these input subsidies under Article 6.2 of the WTO Agreement on Agriculture, which grants developing countries more flexibility in providing support measures essential to their food security and agricultural stability.

India has consistently argued that its policies are vital for protecting small farmers and ensuring affordable food for millions. The government states that its MPS framework, which has been in place for years, aligns with WTO provisions by supporting food security without exceeding the trade-distorting subsidy thresholds.

Historical Background: 2018 WTO Dispute and Underlying Issues

The ongoing WTO dispute mirrors a 2018 conflict in which the U.S. accused India of under-reporting its agricultural subsidies, specifically for rice and wheat, and argued that India’s support levels exceeded WTO limits. Key points from the 2018 dispute may continue to be relevant today.

First, there was a significant discrepancy in the calculation of MPS. India reported its MPS for rice at 5.45% of production value, while the U.S. claimed it was closer to 77%, and for wheat, the U.S. estimated 65%, contrasting with India’s much lower figure. These discrepancies stemmed from different methodologies used by both countries.

Another issue was the use of outdated exchange rates. The U.S. applied an old 1986-89 rate of ₹13.4 per dollar to calculate the external reference price (ERP), inflating the subsidy gap, while India used current exchange rates that reflected inflation and currency depreciation.

There were also differences in the quantity of production considered. The U.S. based its calculations on India’s total production, while India only factored in the quantities it procured—around half of total production—leading to an overestimation of support.

Further, India consistently argues that while developed countries rely on “green box” subsidies, which are less trade-distorting, they still distort global markets by enabling lower production costs. India’s green box subsidies accounted for only 40% of total support, compared to 88% and 85% for the U.S. and EU, respectively. Finally, India viewed the 2018 dispute as an attempt to undermine its influence at the WTO. It defended its policies as essential for food security, pointing out that the subsidies provided by wealthier nations have a more significant impact on global trade imbalances.

Moreover, in early 2024, tensions rose between India and Thailand over India’s Public Stockholding (PSH) program, particularly concerning these rice subsidies. Thailand’s WTO Ambassador criticized India’s rice procurement system, alleging that it was aimed at capturing the export market rather than benefiting domestic consumers. Thailand, the second-largest rice exporter after India, was also concerned that India’s subsidies distort global food prices and hurt other countries’ food security. The WTO’s Agreement on Agriculture allows subsidies but caps them at 10% of production value for developing countries like India. However, India’s subsidies for rice exceeded this limit, leading to criticism from Thailand and other members of the Cairns Group.

India had once again contested the WTO’s subsidy calculation methodology, claiming that outdated reference prices inflate the subsidy levels. Despite these issues, India continues to defend its public stockholding program, stressing the importance of food security and fair support for farmers. Additionally, the Indian government is pushing for a permanent resolution on public stockholding and MSP (Minimum Support Price) schemes at the WTO, highlighting that subsidies from developed countries are larger and further distort global trade. As the issue remains unresolved, India is exploring additional actions to safeguard its agriculture sector from WTO-imposed restrictions.

This dispute highlights broader concerns regarding the future of agricultural support policies for developing countries that depend on such measures. While India argues that its policies protect domestic agriculture and support small-scale farmers, developed countries claim these measures distort trade and create unfair competition. The ongoing debate may intensify efforts to reform WTO subsidy rules to better balance food security needs with fair trade principles.