Baseless case against India’s sugar
subsidies (The Hindu)
Mains Paper 2: Polity
Prelims level: Sugar cane subsidies
Mains level: Baseless case against India’s sugar subsidies
At a time when the sugar sector in India is in deep distress, at the WTO,
a few countries have accused it of providing subsidy support to the extent
of the entire value of production of sugarcane.
At the WTO, Australia, Brazil and Guatemala have initiated dispute
proceedings against India.
The crux of their claim is that through its sugar-related policies,
India provides domestic subsidies exceeding 10 per cent of the value of
production of sugar the ceiling of product-specific support under the WTO’s
rules on agriculture.
After an unsuccessful consultation process to resolve the contested
issues, the WTO established a panel on August 15 this year to examine the
compatibility of India’s sugar policies with the WTO provisions on
It would take 6-9 months for the WTO panel to give its findings in the
Besides certain export subsidy measures, the three countries have
challenged various domestic support measures of India such as the Fair and
Remunerative Price (FRP), the State Advised Price (SAP), interest
subvention, production subsidy, buffer stock subsidy, minimum domestic sale
price of sugar and state-level measures.
Confining attention to our domestic support, Australia has claimed that
on account of just one measure the FRP policy India has provided around
As this accounted for 99 per cent of the value of sugarcane production
in 2015-16, India is alleged to have exceeded its permissible limit of 10
If budgetary support from other challenged measures are considered, the
support to the sugarcane sector would exceed the total value of production.
It cannot be denied that sugarcane farmers in India are currently facing
severe distress due to massive cane arrears on account of the FRP.
During 2018-19, arrears at the all-India level were ₹19,129 crore.
The human cost of these arrears is faced by millions of Indian cane
farmers and their families.
India’s contention is that it provides no market price support to the
sugarcane sector on account of the FRP policy.
Divergence between the claims on sugar subsidies by the three complaining
countries and India
The divergence between India and Australia on product specific support
is mainly due to two factors:
The nature of support under the FRP;
The formula used for calculating the support. Let us examine these in
The view of the three complainant countries is that even if the
government does not procure sugarcane, the entire produce is eligible to
benefit from the FRP.
The FRP constitutes a price-support measure.
Further, the subsidy should be calculated by comparing the current
administered price with the so-called External Reference Price (ERP), which
is based on the international prices of sugarcane during 1986-88.
Although the methodology for calculating the subsidy based on the
price-based measure has been specified in the WTO rules, it is clearly
biased against the subsidy-granting country in at least two ways.
It seems rather outdated to compare today’s prices (₹2,750/tonne) with
that prevailing three decades ago (₹156.16/tonne).
It relying on the findings of a previous WTO dispute on Korea’s beef
imports the complainants used the entire sugar production for calculating
This, again, is problematic, as the findings of the Korea beef cases is
not automatically applicable in other situations of subsidy.
India’s defence finds support from the US, which argued in the Dispute
Settlement Body’s meeting that reports of the WTO panel and the Appellate
Body do not carry precedental value.
This highlights the constraining provisions of the market price support
methodology and therefore, the need to reform it.
In case of an adverse ruling by the panels and the Appellate Body, India
would have to modify all the measures which are found to be inconsistent
with the WTO rules.
In absence of present policies, the sugarcane sector, that employs over
50 million farmers, may face an imminent collapse.
The relevant question arises whether it is feasible for India to explore
other provisions of WTO Agreement on Agriculture (AoA) to notify actual
budgetary support due to the FRP/SAP policy, instead of using the market
price support methodology.
Under the AoA, an alternate method is feasible, provided the FRP/SAP is
based on a price gap.
The benefit of this approach is that it will reflect the actual level of
support to the sugar sector as opposed to exorbitant claims made by
Further, this approach would provide considerable policy space for the
sugar sector without breaching the 10 per cent ceiling.
The total budgetary domestic support to sugar sector was only 0.98 per
cent of the total value of sugar in contrast to alleged support of 99 per
cent of value of sugarcane in 2015-16.
Our policymakers need to think seriously along these lines.
Australia, Brazil and Guatemala are using the WTO dispute mechanism to
penetrate India’s huge domestic market.
These complainant members have exported more than 70 per cent of their
respective sugar production in recent years.
Combined exports of these three countries comprise about 53 per cent of
total global exports of sugar in 2017-18.
While India would certainly defend itself ably at the WTO, the
policymakers should be prepared with a contingency plan in case the country
gets an adverse verdict.
Q.1) Quite often we come across the term Embedded Taxes. Consider the
following statements: 1. India is not into the Global Value Chains, primarily because of Embedded
2. Taxes imposed by both the Centre and the States can be categorized as
3. Rebates given to offset embedded taxes are not WTO compliant.
Which of the above is/are correct? a) 2 and 3 only
b) 2 only
c) 1 and 2 only
d) All of the above
Q.1) How do these claims of allegedly high subsidies stack up against the
prevailing conditions of sugarcane farmers in India?