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Last Updated: Tuesday, 13 December 2005, 17:09 GMT
Why India puts its farmers first
By David Loyn
BBC Newsnight

Indian women labourers walk back home after a day of work in a paddy field near Velankanni in the Nagapattinam district of India"s southern state of Tamil Nadu
Agriculture is a crucial part of the Indian economy

Of all of the poorer countries now pushing for trade justice through the World Trade Organization (WTO), India has most to lose if a deal is delayed.

India needs a liberalisation of agreements to help its service industries, particularly in the software sector. But despite this the government is prepared to put the interests of its poor farmers first.

Indian Commerce Minister Kamal Nath has made it clear in an interview for Newsnight that he will be prepared to sacrifice improvement in trade for the software sector in order to help India's poor farmers.

"Agriculture for us is not commerce, it is subsistence," he says. "The developed countries have subsidies of $1bn a day, and that is against less than $1 a day in earnings for 300 million people in India."

Agricultural subsidies in the richest countries in the world - the EU, Japan and America - are now the main sticking point in the trade talks which have begun in Hong Kong.

The talks are a further attempt at a breakthrough after negotiations stalled at the Cancun summit two years ago.

Cancun was supposed to move the so-called Doha "development round" forward - but it stalled amid new optimism among developing countries, including India, that this time they would control the agenda.

Services are an important part of India's future... we need to find the right balance
Phiroz Vandrevala, Tata Consultancy Services

Mr Nath reserves his strongest criticisms for America.

"The US is an offensive exporter. If they are going to enter the world market with subsidised prices, it is the Indian farmer who is not competing against the US farmer but the US Treasury."

Service sector worries

The emergence in Cancun of the G20 group of nations, including India, China and Brazil, was one of the key factors in building a new confidence among developing world states that they could get a fair deal in trade.

This round of negotiations was supposed to remedy inequalities of the past, but it also includes new agreements to open up trade in manufactured goods and the service sector.

India's willingness to sacrifice improvements for its high-value software manufacturers has led to some concern among them.

For Phiroz Vandrevala, who heads Tata Consultancy Services, services are a key ingredient in India's future.

"Clearly we need to get an agreement in that area, and will have to give up some of our obstinacy in agriculture or some of the impact it could have in agriculture which could have some political fallout because of the large numbers of people involved," he says.

"We need to find the right balance."

Protecting the poor

Under the terms of the WTO no deal is signed until everything is agreed, so the success of the whole round now rests on movement in agriculture.

India has gone further than some other members of the G20 in protecting not only the interests of its poor farmers, but the poorest elsewhere in the world.

Indian Commerce Minister Kamal Nath
Indian Commerce Minister Kamal Nath is critical of US trade policy

The Congress government in India depends on left-wing parties, including the Communist Party of India, for support. They have insisted on blocking Tesco from opening supermarkets in India, which would be far harder to do if the new WTO deal liberalising the service sector came into effect.

The move has angered some opponents of the government, who see this as a throwback to the past when India's economy was closed to the world.

"This is very typical of the old style US-bashing, Europe-bashing sort of thing, as though there were some votes to be won," says Gurchuran Das, the former head of Proctor and Gamble in India.

But the government has some academic support for its principled stance.

"I think the effect of Tesco coming would be disastrous - in particular because of the huge loss of employment in the petty retail sector, lots of small traders all over, in both urban and rural India," says Professor Jayati Ghosh, of Delhi's JNU University.

"And I think the other thing is that while you would have some groups of direct producers gaining at the beginning, over time you would find that small producers could not compete."

Deals blocked

The opening up of markets has been the engine of prosperity for some countries in the globalised world, but the process may have gone far enough, according to critics such as Professor Ghosh.

I asked her if failure at Hong Kong would be a victory.

"Oh yes," she says.

"Well let me put it this way: I think a bad agreement would be a terrible failure for most of our population, so no agreement is not a victory, but certainly not a failure.

"I don't think we are going to get many gains on agriculture, and if we don't I think it is pointless to try to give in on anything else."

So deals on the most advanced products in the world in research & development and software are blocked by the price of basic commodities - corn, cotton, rice, milk. It is this deadlock which could destroy the first attempt to get a new world trade deal in the 21st Century.

David Loyn's report will be broadcast on Newsnight on 13 December at 22:30 GMT.

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