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The escalating trade tensions between the United States and India, fueled by President Trump's 'America First' agenda and the proposition of reciprocal tariffs, present a significant threat to Indian farmers who are already grappling with a complex web of policy-induced disadvantages. While the US aims to address its trade deficit with India, the proposed tariffs could inadvertently worsen the economic struggles of Indian agricultural producers, further exacerbating existing inequalities in government support and market access. The US-India goods trade reached $124.2 billion in 2023, with the US incurring a trade deficit of $45.6 billion. Agriculture plays a vital role in this trade, accounting for almost $3.5 billion in 2023. India exports a variety of agricultural products to the US, including frozen shrimp, prawns, basmati and non-basmati rice, vegetable saps and extracts, natural honey, and processed food items. Conversely, the US exports almonds, cotton, denatured ethyl alcohol, crude soybean oil, and pistachios to India. A key point of contention is the significant disparity in agricultural tariffs between the two nations. India's average agricultural tariff stands at 39%, with a trade-weighted tariff of 65%, whereas the US maintains tariffs of 5% and 4%, respectively. This considerable difference has raised concerns regarding the imbalance in bilateral trade. Although India asserts that its tariffs comply with World Trade Organization (WTO) regulations, the US has repeatedly alleged that India provides substantial support to its rice and wheat farmers. However, Indian farmers frequently bear the brunt of price volatility and rarely reap comparable benefits when prices surge in wholesale or retail markets. In an effort to control food inflation, the Indian government implemented a series of measures, including banning wheat exports in May 2022, restricting broken rice exports in September 2022, imposing wheat stocking limits in June 2023, and restricting non-basmati white rice exports in July 2023. Additionally, a 20% export duty was levied on parboiled rice, and a $1,200/tonne Minimum Export Price (MEP) was established for basmati rice in August 2023. These policy decisions reveal a bias toward urban consumers in India's food price policy, effectively transferring resources from farmers to consumers. The US administration's proposal for reciprocal tariffs could further impede India's agricultural exports, underscoring the importance of comparing government support for farmers in both countries.
To gain a clearer understanding of the level of government support provided to farmers in India and the US, it is crucial to examine the Producer Support Estimates (PSEs) calculated by the Organization for Economic Co-operation and Development (OECD). The OECD, a Paris-based international think-tank, employs a standardized methodology to measure PSEs for 51 countries over a period of 35 years. The PSE primarily captures the impact of various policies on two key components: Market Price Support (MPS), which measures output support by comparing domestic prices with international benchmark prices for major agricultural commodities, and input subsidies, which include budgetary allocations from central and state governments for fertilizers, irrigation, and electricity. By combining output and input support, the PSE assesses whether farmers receive positive or negative support as a percentage of gross farm receipts. A positive PSE indicates that farmers benefit from government support, earning more than they would in a free market, while a negative PSE signifies policies that reduce their income. According to OECD estimates, India received negative PSE support of -15.47% in 2023, while the corresponding figure for the US was 8.14%. This stark contrast clearly demonstrates that Indian farmers are at a significant disadvantage compared to their US counterparts. The negative support estimated for India is largely attributed to output policies that have kept Indian commodity prices lower than global prices, reflecting a consumer bias in domestic marketing regulations and trade policies. Major farm support in India primarily takes the form of input subsidies for fertilizers, irrigation, and electricity, as well as schemes such as PM-Kisan Yojana. In 2023, MPS for agricultural commodities stood at -26.5% of gross farm receipts, while input subsidies were 11%, resulting in a negative PSE for India. Several key commodities, including wheat, maize, rice, mangoes, and potatoes, have reported significant negative support, highlighting the extent to which Indian farmers are disadvantaged by current policies.
In contrast, the US's positive PSE is primarily driven by crop commodity programs, which provide financial assistance when prices fall below minimum thresholds established by legislation or when crop revenue declines relative to recent levels. The US government also offers an extensive crop insurance program that covers both yield and revenue losses, providing a safety net for farmers facing unforeseen circumstances. Furthermore, substantial government assistance is provided to dairy and sugar farmers, ensuring stable incomes and reducing market risks. A comparative analysis of agricultural support in India and the US reveals a striking disparity. While US farmers benefit from structured financial protection, Indian farmers face significant price disadvantages due to policies that favor consumers and limit their earning potential. The proposed reciprocal tariffs could further harm Indian agricultural exports without addressing these underlying inequities. Additionally, reduced tariffs under a trade agreement may flood Indian markets with low-cost US imports, exacerbating the economic struggles of farmers amid climate and market challenges. In light of these challenges, strong negotiations are crucial to protecting India's agricultural sector and ensuring a level playing field for its farmers. India must carefully balance its trade interests with the need to safeguard its agricultural producers in a competitive global market. Strong negotiations are essential to ensure that any trade agreement supports sustainable and equitable growth while protecting agriculture from unfair competition and market volatility. This includes advocating for fair pricing mechanisms, addressing non-tariff barriers to trade, and ensuring that domestic policies do not disadvantage Indian farmers in favor of consumers. Furthermore, investing in agricultural research and development, improving infrastructure, and promoting sustainable farming practices are crucial steps to enhance the competitiveness and resilience of India's agricultural sector in the long run. By prioritizing the needs of its farmers and pursuing strategic trade policies, India can ensure that its agricultural sector continues to thrive and contribute to the nation's economic prosperity.
The potential ramifications of the proposed reciprocal tariffs extend beyond mere economic considerations, encompassing broader implications for food security, rural livelihoods, and social stability in India. Agriculture serves as the backbone of the Indian economy, employing a significant portion of the population and contributing substantially to the nation's GDP. Any policy that negatively impacts the agricultural sector has the potential to trigger a cascade of adverse consequences, particularly in rural areas where livelihoods are heavily dependent on farming. The imposition of reciprocal tariffs could lead to reduced export earnings for Indian farmers, further squeezing their already thin profit margins and increasing their vulnerability to debt and financial distress. This, in turn, could exacerbate existing inequalities in rural areas, potentially leading to social unrest and migration from rural to urban centers. Moreover, the influx of cheaper agricultural imports from the US could undermine domestic production, potentially jeopardizing food security and increasing India's dependence on foreign sources for essential food commodities. This could have far-reaching implications for the nation's ability to feed its growing population and maintain its strategic autonomy in the global food market. The Indian government must therefore adopt a comprehensive and holistic approach to address the challenges facing the agricultural sector, taking into account not only the immediate economic implications of trade policies but also the long-term social and environmental consequences. This requires a shift away from policies that prioritize short-term gains for consumers at the expense of farmers and towards policies that promote sustainable and equitable growth in the agricultural sector. This includes investing in rural infrastructure, providing access to affordable credit and insurance, promoting diversification of crops, and supporting the adoption of sustainable farming practices that enhance productivity and resilience. Furthermore, the government must work to strengthen the bargaining power of farmers in the market, ensuring that they receive a fair price for their produce and are protected from exploitation by intermediaries. This can be achieved through the promotion of farmer cooperatives, the establishment of transparent and efficient market mechanisms, and the enforcement of regulations that prevent unfair trade practices. By adopting a holistic and farmer-centric approach, India can ensure that its agricultural sector continues to thrive and contribute to the nation's economic prosperity, social stability, and food security.
Source: America’s reciprocal tariffs will exacerbate the problems of Indian farmers