Full inflation allowance will help food-security conscious government procure grain

The government will place before the Cabinet, as also Parliament, a fresh G-33 proposal which seeks to enable developing economies to meet the challenges of food security for their large populations.

As per the proposal, to be discussed at the December WTO meeting in Bali, developing nations must be allowed to factor in the much higher inflation rate occurring in their economies to justify higher procurement prices offered to farmers.

Currently, the reference price for procurement is linked to what was decided in 1986-88 when the Agreement on Agriculture (AoA) was negotiated under the World Trade Organisation.

India, which has had over 500 per cent inflation (compounded) since 1988, made out a case for full inflation allowance which will help the government procure grain from farmers. The proposal of the G-33 countries is in line with India’s position but the West will resist this change. Clause 18.4 of the AoA does mention that developing economies shall receive “due allowance for inflation” in determining procurement prices.

“Peace clause”

The United States and the European Union are arguing that the AoA does not commit full allowance for inflation and have proposed a “peace clause” which offers to defer this matter by three years during which period the developing countries can continue to procure grain as they are doing now even if it is violative of the AoA.

India is wary that accepting the peace clause may be tantamount to conceding that the AoA is being violated. It, therefore, wants to stand its ground and push for the G-33 proposal seeking full allowance for excess inflation.

Since this is an election year, the UPA is being careful and will take the matter to the Cabinet as well as Parliament before taking it up at Bali. The food security question is expected to dominate the WTO meeting.

For India, the Bali meeting is critical because its food security law will entail procuring over 60 million tonnes of foodgrains to feed 70 per cent of the population.

  • At present, reference price for procurement is linked to what was decided in 1986-88

  • Agreement on Agriculture does not commit full allowance for inflation, say U.S. and EU