Why Tariff Parleys with US Will Hurt Indian Farmers
Elementary textbooks in economics invariably begin with a completely mythical concept: the concept of “perfect competition”, which is different from the concept of “free competition” that the classical economists and Marx had used. “Free competition” was characterised by the equality of wages (for equal skills) and of profit-rates across sectors; all it required for its realisation was free mobility of labour and of capital across sectors which was by no means a far-fetched assumption in the pre-monopoly era. “Perfect competition” by contrast is characterised additionally by zero profits. This can happen only in one situation: whenever any positive profits are being earned in any sector, so many capitalists flood into that sector that the positive profits disappear. This requires not only free mobility across sectors but free mobility into the ranks of capitalists, that is, workers can become capitalists whenever there are positive profits. “Perfect competition” therefore assumes perfect social mobility, namely a classless society, which is an absurd assumption to make for a capitalist society and hence a completely mythical state of affairs in the present context. The prices prevailing in equilibrium under this “perfect competition” however have some properties of optimality, because of which, if they prevailed, then any deviations from them would be inadvisable.
Yet, in designing the new international trade rules, the WTO made the totally illicit assumption that this mythical state of “perfect competition” is what actually prevailed in the world, so that any deviations of prices from what actually prevailed was to be avoided. Accordingly it stipulated that any subsidies given through price support to producers in any sector were to be avoided as being “trade-distorting”, while subsidies given in the form of income transfers to the same producers were perfectly permissible.
The utter absurdity of this stipulation becomes obvious from the fact that any effort in the real world of today to curb monopolists’ profits by having controls over their profit-margins would be prohibited as being price-distorting and trade distorting, hence inoptimal. Indeed it is amazing that such an absurd stipulation, that any interference with prices as they actually exist in today’s world should be avoided as these prices are optimal in a certain sense, a stipulation based on the pretence that the real world is characterised by “perfect competition”, could be rammed down the throats of so many countries of the global south in reaching the WTO agreement. These countries should have known better; but they were browbeaten, and one obvious result of this was an assault on peasant agriculture.
It is well-known that advanced capitalist countries give enormous subsidies to their agriculturists, but these subsidies are in the form of direct income transfers rather than through the prices of the goods they sell. In the U.S. and in the European Union such subsidies amount to almost half of the total value of the produce; in Japan they almost equal the total value of the produce. Despite their enormity however the WTO does not frown upon such subsidies because it considers them “non-price-distorting”, which is supposed to be a virtue because the world is supposed to be characterised by perfect competition. (Even this however is theoretically erroneous since in an economy marked by “perfect competition”, direct income transfers are supposed to distort the relative price between work and leisure, and hence are not strictly “non-price-distorting”; but let us ignore it here). But in a country like India where the government provides price-support to the farmers, i.e., subsidises the farmers by interfering with prices (like providing a minimum support price or a procurement price), such support is objected to by the advanced capitalist countries and by the WTO that approves of their subsidies as being “price-distorting”, hence “trade-distorting”, and wrong.
This insistence on “non-price-distorting” subsidies is not only theoretically unfounded, for the world does not conform to a “perfectly competitive economy”, but is impractical as well. Income support can be provided by the government to farmers in the United States because there are only a few thousand farmers; but in an economy like India which has over a hundred million farmer households, the provision of individual income support to each household is simply not a practical proposition. The only way that support can be given to so many farmers is through the price mechanism, through the blanket provision of a suitably remunerative price. To insist that support be provided solely through incomes rather than prices therefore amounts to demanding de facto an abolition of all support to farmers in a country like India.
This is in fact what has happened vis-a-vis cash crop growers in India: they no longer enjoy the kind of price support that they had earlier. Before the neoliberal regime was instituted, in years of world price crashes the various government agencies, such as the tea board, coffee board, coir board etc., had stepped in to support domestic prices by purchasing crops at those prices, and the tariff rates had been suitably adjusted to make this possible; but this does not happen any longer. This withdrawal of price support to cash crops in accordance with the WTO stipulations is what has contributed significantly to the large number of farmer suicides in the country over the last several decades, something that had never happened in post-independence India in the pre- “liberalisation” years. The government wanted to withdraw price-support from foodgrains as well, which it had not dared to do earlier, through the three infamous farm laws; but the year-long farmer agitation forced it to retract temporarily, though it has not abandoned its project of withdrawing price-support.
Trump’s tariff policy has now brought this issue back on the immediate agenda. If India had just imposed retaliatory tariffs against Trump’s tariff-hike, and left the matter there, then there would have been no threats to the farmers. But since India has agreed to negotiate with the Trump administration, which basically means that it has agreed to lower its tariffs vis-a-vis American goods in return for the U.S. not raising tariffs against India, clearly the amount of price protection that the foodgrain producers had got until now will no longer be available to them. The net outcome of these negotiations will be a reduction in Indian tariff rates vis-à-vis American goods which will necessarily mean a lowering of the minimum support prices for foodgrains (if at all they continue to exist), and the entry of heavily subsidised American grains (through income transfers) into the Indian market. The long-cherished dream of the U.S. to export its grains to India, unfulfilled since the Green Revolution, will finally get realised.
This would be a disaster from India’s point of view. Not only will it entail much greater distress for the farmers, and hence an increase in the incidence of farmer suicides (which had been less severe till now in the case of grain farmers), but a loss of food security for the country. The country will not only become dependent on food imports from the U.S. which will give the Americans great leverage over Indian policy-making, but the incidence of famines will also increase. As farmers shift away from producing foodgrains towards other crops that may be remunerative at that moment, when the prices of such crops crash, as they inevitably do on the world market, the country would be short of foreign exchange to purchase foodgrains internationally. What is more, even if this does not happen, or “food aid” is forthcoming from the U.S. (for which of course it will extract a price in some form), the farmers will lack the purchasing power to buy such imported foodgrains. Either way, the country will be pushed into a famine.
This is precisely what has happened in Africa. Several African countries were induced to give up foodgrain production and become importers instead, in the name of exploiting their “comparative advantage”; but they have been racked by famines whenever the prices of the crops they export have crashed. Economist Amiya Bagchi calls these famines “globalisation famines”, that is, famines that occur because of the abandonment of foodgrain self-sufficiency that is induced by globalisation. Until now, Africa had been the victim of “globalisation famines”; now India will also be a victim, ironically as a fall-out of Trump’s threat to move away from globalisation.
The government no doubt will claim that farmers’ interests will not be sacrificed in the trade negotiations with the US; but any reduction in tariffs vis-à-vis American goods will hurt farmers’ interest. The very fact of India’s entering into trade negotiations with the U.S. therefore is inimical to farmers’ interest. Trump’s not raising tariffs vis-à-vis India as a quid pro quo for India’s lowering of tariffs vis-à-vis the U.S. will bring no benefit to our foodgrain growing farmers, since they are not significant exporters of foodgrains to the US; it may bring some benefit to the Indian monopoly capitalists engaged in manufacturing; but that will not make an iota of difference to the grim fate of the farmers.
(Prabhat Patnaik is Professor Emeritus at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Courtesy: NewsClick, an Indian news website founded by Prabir Purkayastha in 2009, who also serves as the Editor-in-Chief.)
❈ ❈ ❈
WTO’s Rulebook is a Blow to Indian Farmers – It Favours the Rich and Punishes the Poor
Ganesh Ashok Pandit
In India, 45.76% of the total workforce is engaged in agriculture and allied sectors, yet the sector contributes only around 15% to the GDP. Despite this backbone role, Indian farmers receive just USD 56.2 billion in subsidies – roughly USD 468 per farmer across 120 million people. In contrast, 2 million farmers in the United States of America share USD 141 billion, pocketing an average of USD 70,500 each. The World Trade Organization (WTO) caps India’s direct farm aid at 10% of production value, while allowing developed nations like the US to exploit uncapped Green Box subsidies, including support for GM crops like corn.
Meanwhile, Indian farmers are barred from using HTBT cotton and other modern tools, leaving them shackled in an increasingly competitive global market. In 2022 alone, 11,290 farmers and agricultural labourers in India died by suicide. These aren’t just statistics – they’re a warning because beneath the surface lies a deeper injustice: a global trade system that rewards wealth and punishes the poor.
That’s the reality of the WTO subsidy rulebook. This is not a rulebook for Indian farmers, it is a suicide book where India can give up to 10% of the value of agricultural production as a subsidy, while the US is capped at 5%. Although it appears fair on paper, in reality it benefits rich farmers of the USA and punishes the poor farmers of India.
This article aims to explore how a seemingly neutral global system stacks the deck against India’s millions of farmers, turning promises of fair trade into a rigged game.
WTO’s uneven playing field
The WTO governs global trade and makes rules for smoother market functioning and helps to promote economic growth in the world economy. It decides how much subsidy the government gives to their farmers and puts subsidies in different boxes. The first box is the “Amber box” which includes support related to agriculture. To keep trade fair, WTO puts a limit of up to 5% of the value of their total agricultural output on the subsidies that developed nations like the USA are allowed to give. Meanwhile, developing nations like India can give up to 10%.
This may sound like a better deal for India but only until you start crunching the numbers.
Here’s the economic paradox behind the percentage:
The USA’s farming sector produces around USD 500 billion yearly, 5% of which means around USD 25 billion. According to the Amber box subsidies rule, this is 2 million for less than a percentage of their population, roughly coming to USD 12,500 per farmer.
For India, on the other hand, the output is around USD 550 billion – its 10% would be roughly around USD 55 billion. However, with the 120 million farmers that is merely USD 458 each, less than 3% what US farmers get. This is like waiving off a billionaire’s loan while giving a struggling farmer a lecture on self-reliance and then claiming both received equal support.
The unfairness goes even deeper. The dollar in India buys more than in the USA but even after adjusting that, India’s support per farmer barely covers seed and fertiliser. Meanwhile, farmers in the USA get USD 130 billion more green box subsidies with no cap. These include things like insurance and agriculture infrastructure, which helps to boost their exports and reduces prices in the global market. While India’s minimum support price (MSP) which is used to buy rice and wheat to feed millions gets challenged at the WTO, the US’s subsidies that lower global prices don’t face any complaints.
Furthermore, the WTO measures subsidies based on prices from 1986 to 1988, a time when a kilo of rice in India cost around Rs 2-3. Today, that a kilo costs Rs 40 or more. But India’s subsidy cap is still calculated using the old Rs 2-3 price. So, even if the government gives farmers rice worth Rs 5 extra per kilo today, the WTO says India is “exceeding the 10% subsidy limit” because it’s more than 10% of 1980s prices. While the US had much higher agricultural prices in the 80s, so their 5% limit gives them more room to subsidise. So, it is a trade rule book written by the rich to preserve the interests of the rich.
The price Indian farmers pay for WTO’s biased rulebook
In India, 86% farmers own less than 2 hectares of land and therefore, for them, the government’s MSP is safety net. It also helps to feed around 800 million people of India through a public distribution system. However, the WTO insists that India cannot provide more than 10% support – based on outdated reference prices. If India crosses this limit, countries like the USA file complaints saying this is unfair.
However, farmers in the USA get much more money and sell their products at cheap prices in the global market. For Indian farmers, it is not just about trade rule but it is about their survival.
Let’s take an example: a small farmer in Bihar grows rice on 1 hectare of land. Due to rising costs of fertiliser and seeds, he relies on the MSP but if the government lowers it to comply with WTO rules – and cheap imported rice floods the market – he won’t be able to compete. He will face a loss and could even stop farming. This has already happened in the 1990s, when India lowered import duties, cheap goods flooded the markets, and as a result, farmers suffered huge losses.
The WTO rulebook isn’t broken, it is working exactly as designed, in favour of powerful nations. Fixing WTO rules is not easy; all 164 member countries must agree. But rich nations like the USA and EU block reforms to preserve their advantage.
The outdated 1986-88 price baseline still works in their favour and they cleverly hide their subsidies under the “Green Box” calling them harmless. To make things worse, WTO’s dispute system has been broken since 2019, thanks to the US refusing new judges. So, even if India has a strong case to make, there is no one to hear it.
This leads to the next question: why doesn’t India simply shift its agricultural subsidies from the Amber Box to the Green Box? It is a logical question but the answer lies in the realities of Indian agriculture.
Although Green Box subsidies are allowed under WTO rules, they do not directly benefit farmers. These are long-term supports such as research, infrastructure development and environmental conservation programs that may boost exports or improve systems over time. But for Indian farmers, especially the small and marginal holders, these subsidies don’t address the immediate crisis they face.
In India, land is highly fragmented, often split into tiny plots less than 2 hectares, which makes it difficult to adopt modern technology or benefit from large-scale infrastructure investment. With millions of poor farmers living season to season, what they need is direct income support, not contracts for conservation or promises of future gains.
A Green Box subsidy might build a canal or fund a lab but it will not put cash in a farmer’s hand to buy seeds, fertiliser, or feed their family today. Moreover, Indian agriculture is not export-oriented like that of the US; it is consumption-driven and survival-oriented. It feeds 1.4 billion people and sustains rural livelihoods. That is why India prioritises immediate support like MSP procurement and fertiliser subsidies. These may fall under the Amber Box, but they are critical for survival, not trade distortion.
What alternatives do developing countries have?
Developing nations, especially those in the G33, must unite with underdeveloped countries to collectively push back against unfair WTO rules and renegotiate the rigid 10% cap on Amber Box subsidies. Together, these countries can demand reforms to the WTO’s structure and insist on greater policy space to support their agricultural sectors. At the heart of this movement must be a call to update the outdated 1986-88 base price reference every five years. Moreover, it’s time to reduce over-dependence on WTO mechanisms and strengthen regional and South-South trade alliances. Platforms like BRICS, BIMSTEC or even a new Global South Trade Forum could emerge as fairer alternatives. These institutions would represent the voices of emerging markets and provide a counterbalance to the dominance of the West.
Simultaneously, developing countries must use their growing consumer markets as leverage. Rich nations like the USA and EU depend on access to these markets for their exports. If developing nations negotiate collectively, they can force the issue of fairer trade rules. India must adopt a strategic protectionist policy to shield its farmers from cheap, subsidised imports. This doesn’t mean blanket import bans, it means using tools like tariff rate quotas, non-tariff barriers, and quality control standards to protect critical crops while staying within trade commitments.
On the domestic front, the government should take several steps. First, boost cash payments like PM-KISAN, which gives USD 80/year to farmers untied to crops, in what is called Decoupled Income Support (DIS). Raising this to USD 200/year could lift farmers from poverty without breaking the bank or WTO rules, unlike MSP’s costly USD 7-8 billion price tag.
Farmers need training not only in modern farming techniques but also in digital literacy, market access and climate-friendly practices. Promoting crop diversification is also key, especially towards pulses, millets, and other nutritious crops that do not face heavy competition from subsidised Western crops. Support for organic farming should be increased with the help of NGOs so that farmers can access premium global markets.
At present, India spends only USD 2.66 billion on Green Box subsidies, and this must rise sharply. More investment in rural infrastructure, cold storage, agricultural technology, and farmer cooperatives will reduce reliance on price support and help farmers become more independent and empowered in the long run.
On paper, the WTO’s 5% subsidy cap for the USA and 10% for India may seem fair. But in economic reality, it tells a different story, one where rich nations are protected and poor farmers are punished. The world must listen. Nations have a moral duty to act to rewrite the rules, to restore fairness and to protect the lives and futures of farmers in developing and underdeveloped countries. Because no one should have to die just to grow food.
Farmers are not asking for special treatment – they’re asking for a fair chance to grow food, educate their children and live with dignity. But when a farmer must choose between buying fertiliser or paying school fees and ends up losing both, that is not trade justice, that’s a tragedy.
(Ganesh Ashok Pandit is an LL.B. student at the University of Delhi. Courtesy: The Wire, an Indian nonprofit news and opinion website. It was founded in 2015 by Siddharth Varadarajan, Sidharth Bhatia, and M. K. Venu.)