INTERNATIONAL RELATIONS

1.WHAT IS VIRTUAL WATER TRADE?

THE CONTEXT: Recently, India banned the exports of broken rice and imposed a 20 per cent duty on the exports of various grades of rice amid high cereal inflation and uncertainties with respect to domestic supply.
THE EXPLANATION:
• The world rice market is thin, given that 90 per cent of production is consumed domestically. As a result, any small change in exports and imports has an enormous impact on prices, especially if it leads to panic buying of food grains by rich countries.
• While the actual impact of the export restriction policy on domestic prices is a matter of empirical scrutiny, and the government has intended to regulate domestic prices and safeguard food security, frequent changes in export policies undoubtedly have long-term ramifications.
• India exports rice to more than 130 countries, constituting around 40 per cent of the global rice trade. The decision to curb rice exports has, unfortunately, been taken when global food prices are already rising. The export uncertainties will affect the credibility of Indian exporters, create a disincentive for future exports, and will enable buyers to shift towards other major rice-exporting countries.
• In India, around 49 per cent of rice cultivation depends on groundwater, which is depleting rapidly. As per the latest data available from the Food and Agriculture Organisation (FAO), agricultural water withdrawal as a percentage of total available renewable water resources has increased from 26.7 per cent in 1993 to 36 per cent in 2022. Similarly, the total per capita renewable water resources have also declined from 1,909 cubic meters to 1,412 cubic meters during this period.
• The water-intensive nature of rice cultivation, along with frequent export restrictions will adversely affect the long-run sustainability of rice production. Further, India’s export restrictions will adversely affect several low-income and low-middle-income countries like Bangladesh, Senegal, Nepal and Benin, which are among the largest importers of Indian rice.

VIRTUAL WATER TRADE (VWT)
• Rice exports are leading to an indirect export of water to other countries — a phenomenon known as virtual water trade (VWT). The relative per capita water availability in India is lower than a majority of its major importing countries. The other major exporters of rice, such as Thailand and Vietnam, also have better per capita water availability in comparison to India. Out of 133 countries in which India has positive net rice exports, only 39 countries have relatively lower per capita renewable water resources. Out of these 39 countries, 12 countries are high-income countries with the ability to buy food at a higher price.
• Though Minimum Support Prices (MSPs) are announced for a large number of crops, India’s food security policies, especially how they are implemented, favour mainly rice and wheat. Furthermore, procurement is skewed towards selected northern states such as Punjab and Haryana where water availability is lower than in several other states.
• India’s rice yield is also lower than the world average. India’s yield is better than Thailand and Pakistan but worse than Vietnam, China and the US. The cost of cultivation in India is also increasing, and hence there will be a need for a higher MSP to make production remunerative. This will exacerbate the pressure to re-think its price-support-backed food security mechanism.

VALUE ADDITION: MAJOR RICE PRODUCING STATES IN INDIA
As of 2020-21, the top 3 rice-producing states of India are:
1. West Bengal
2. Uttar Pradesh
3. Punjab
Around 36% of India’s total rice production is from these 3 states. West Bengal contributed 13.62% of the total rice produced in India. Uttar Pradesh contributed 12.81% of the total rice produced in India. Punjab accounted for 9.96% of the total rice produced in India.
Rice is a Kharif crop. Rice requires an annual rainfall of more than 100 cm. It requires high humidity and high temperature. The required temperature is more than 25 degrees celsius.

ECONOMIC DEVELOPMENTS

2. PILOT LAUNCH OF E-RUPEE FOR SPECIFIC USE CASES: WHAT IS THE RBI’S PLAN

THE CONTEXT: Recently, the Reserve Bank of India (RBI) indicated that it will soon commence limited pilot launches of e-rupee (e`), or Central Bank Digital Currency (CBDC) or digital rupee, for specific use cases.
THE EXPLANATION:
It has hinted at two broad categories for the use of e-rupee — retail and wholesale — taking the payment system in the country to a new level where the common people and businesses will be able to use the digital currency seamlessly for various transactions.

What’s RBI’s plan?
• The central bank said that the development of CBDC could provide the public a risk-free virtual currency that will give them legitimate benefits without the risks of dealing in private virtual currencies.
• The approach for issuance of CBDC will be governed by two basic considerations — to create a digital rupee that is as close as possible to a paper currency and to manage the process of introducing digital rupee in a seamless manner. The central bank also feels that it is desirable for CBDCs to have offline capabilities to make it a more attractive and accessible medium of payment for a wide category of users.
• E-rupee is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. It can be accepted as a medium of payment, legal tender and a safe store of value. The digital rupee would appear as liability on a central bank’s balance sheet.

What are the types of e-rupee?
• Based on the usage and the functions performed by the digital rupee and considering the different levels of accessibility, CBDC can be demarcated into two broad categories — general purpose (retail) (CBDC-R) and wholesale (CBDC-W), the RBI’s concept note says.
• Retail CBDC is an electronic version of cash primarily meant for retail transactions. It will be potentially available for use by all — private sector, non-financial consumers and businesses — and can provide access to safe money for payment and settlement as it is a direct liability of the central bank.
• However, the RBI has not explained how e-rupee can be used in merchant transactions in the retail trade.

What are the forms of CBDC?
• The central bank says e-rupee, or CBDC, can be structured as token-based or account-based. A token-based CBDC would be a bearer instrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them. In a token-based CBDC, the person receiving a token will verify that his ownership of the token is genuine.
• A token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash.
• An account-based system would require maintenance of record of balances and transactions of all holders of the CBDC and indicate the ownership of the monetary balances. In this case, an intermediary will verify the identity of an account holder. This system can be considered for CBDC-W.

What’s the model for issuance?
There are two models for issuance and management of CBDCs under the RBI’s consideration — direct model (single tier model) and indirect model (two-tier model). In the direct model, the central bank will be responsible for managing all aspects of the digital rupee system such as issuance, account-keeping and transaction verification.

VALUE ADDITION:
What is Fiat Currency?
• Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.
• The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money.
• Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.

Fiat Money vs Legal Tender
• Fiat money has no intrinsic value, while legal tender is any currency declared legal by a government.
• Governments can issue fiat currency and make it legal tender by setting it as the standard for debt repayment.
• The benefit of fiat money is that it gives central banks greater control over the economy, but governments can print too much money and create hyperinflation.
• The U.S. dollar , Indian Rupee etc are both fiat money and legal tender.

3. THE NOBEL PRIZE IN ECONOMICS: BERNANKE, DIAMOND, DYBVIG

THE CONTEXT: According to Royal Swedish Academy of Sciences, Ben Bernanke, Douglas Diamond and Philip Dybvig won the 2022 Nobel Economics Prize “for research on banks and financial crises”.
THE EXPLANATION:
• The Economics Prize has gone to the three individuals for their role in research related to how banks function. “Modern banking research clarifies why we have banks, how to make them less vulnerable in crises and how bank collapses exacerbate financial crises.
• The foundations of this research were laid by Ben Bernanke, Douglas Diamond and Philip Dybvig in the early 1980s. Their analyses have been of great practical importance in regulating financial markets and dealing with financial crises.
It also noted, “Later, when the pandemic hit in 2020, significant measures were taken to avoid a global financial crisis. The laureates’ insights have played an important role in ensuring these latter crises did not develop into new depressions with devastating consequences for society.” Here is the role each of them played in the development of this research.
Ben S. Bernanke
According to sources, the research laid the foundation of some crucial questions on banks: “If banking collapses can cause so much damage, could we manage without banks? Must banks be so unstable and, if so, why? How can society improve the stability of the banking system? Why do the consequences of a banking crisis last so long? And, if banks fail, why can’t new ones immediately be established so the economy quickly gets back on its feet?”
Douglas W. Diamond and Philip H. Dybvig
• Both Diamond and Dybvig worked together to develop theoretical models explaining why banks exist, how their role in society makes them vulnerable to rumours about their impending collapse, and how society can lessen this vulnerability. These insights “form the foundation of modern bank regulation”.
• The model captures the central mechanisms of banking, as well as its weaknesses. It is based upon households saving some of their income, as well as needing to be able to withdraw their money when they wish. That this does not happen at the same time for every household allows for money to be invested into projects that need financing. They argue, therefore, that banks emerge as natural intermediaries that help ease liquidity.
• But with massive financial crises that have been witnessed in history, particularly in the US, it is often discussed how banks need to be more careful about assessing the loans they give out, or how bailing out banks in crisis.

INDIAN AGRICULTURE

4. WHY INDIA’S AGRI PRODUCTION STATS NEED A GROUND REALITY CHECK

THE CONTEXT: According to the National Statistical Office’s (NSO) household consumer expenditure (HCE) survey for 2011-12, the monthly per capita consumption of milk was 4.33 litres in rural India and 5.42 litres in urban India.
THE EXPLANATION:
• Taking an average of 5 litres (5.15 kg; 1 litre of milk = 1.03 kg), this translates into an annual consumption of nearly 75 million tonnes (mt) for a population of 1,210.85 million as per the 2011 Census.
• This figure includes only milk consumed by households — directly and as curd, butter, ghee, paneer, etc. at home. It excludes milk consumed by businesses — tea shops, hotels, and ice-cream, sweetmeat, chocolate and biscuit makers. If this milk is assumed to be 25% over and above that consumed by households, it adds up to about 94 mt — or a daily per capita availability of 212 gm.

What production data show?
• Going by Department of Animal Husbandry & Dairying (DAHD) statistics, India’s milk production in 2011-12 was 127.9 mt with a daily per capita availability of 289 gm. These were 210 mt and 427 gm respectively in 2020-21.
• Unfortunately, there is no published HCE survey data after 2011-12. In all likelihood, the gap between the NSO’s consumption-based estimates and the DAHD’s production numbers would only have widened.

• Between 2013-14 and 2020-21, India’s milk production grew at an average 6.2% a year. (Table) But this isn’t reflected in the marketing of liquid milk by dairy cooperatives, which grew by just over 3% annually in volume terms during this period.
• In the private sector, growth in the average sales of 12 major dairy companies averaged 4.93% in nominal terms between 2014-15 and 2020-21. After adjusting for an average wholesale price inflation of 3% for “dairy products” over this period, their real sales growth was slightly more than 1.9%.

Demand is the key
• Knowing what and how much Indians are consuming — which only a comprehensive nationwide HCE survey can reveal — is useful for analysis of demand and supply in other farm produce too. It helps in framing policies better, whether on fixation of minimum support prices and tariffs or on crop diversification.
• For example, the monthly per capita household consumption of all cereals in the 2011-12 survey was assessed at 11.22 kg for rural India, and 9.28 kg for urban India. At an average of 10 kg, the annual household cereal consumption requirement for 1,400 million people today would be around 168 mt.
• Assuming 25% additional consumption in processed form (bread, biscuits, cakes, noodles, vermicelli, flakes, etc.), and another 25 mt of grain (mainly maize) for feed or starch, the total yearly demand would be around 235 mt.

ENVIRONMENT, ECOLOGY AND CLIMATE CHANGE

5. THE GLOBAL FOREST SECTOR OUTLOOK 2050

THE CONTEXT: The report titled “The global forest sector outlook 2050: Assessing future demand and sources of timber for a sustainable economy” was released recently by the United Nations Food and Agriculture Organization (FAO) at the 26th Session of the Food and Agriculture Organization Committee on Forestry in Rome.
THE EXPLANATION:
• The newly released report estimates an increased demand for wood products like mass timber and manmade cellulose fibre that are used as alternatives to non-renewable materials. Their demand may surge by up to 272 million cubic metres by 2050.
• This is expected to create over 1 million jobs in developing countries. The report forecasts that the consumption of primary processed wood products will increase to 3.1 billion cubic meters by 2050. This estimation is based on the Global Forest Products Model, which uses historical patterns of the production and trade of wood products.
• The report also forecasted that the industrial roundwood (IRW) will be vulnerable to uncertainties caused by climate-change influenced government interventions in naturally regenerated production forests and the expansion of planted forests. The future demands for IRW will be met by both planted forests mainly from Global South and naturally regenerated temperate and boreal forests.
• In 2020, about 44 per cent of the IRW production was provided by regenerated temperate and boreal forests. During the same year, the planted forests contributed to around 46 per cent of the IRW supply.
• In the future, an additional 33 million hectares of “highly productive plantation forest” will be required to meet the demand in 2050, if the area of naturally regenerated forests remain intact.
• A total annual investment of 40 billion USD will be required to maintain and expand the IRW production by 2050. Another yearly funding of 25 million USD will be required for the modernization and establishment of industries.
• In 2050, consumption of wood energy will be concentrated in sub-Saharan Africa and South Asia, where fuelwood is traditionally used by communities. Firewood will also be used in modern biomass to generate renewable energy.
• In 2020, the global consumption of fuelwood was 1.9 billion cubic meters. In 2050, this figure is expected to increase 11 to 42 per cent by reaching 2.1 to 2.7 billion cubic meters.

VALUE ADDITION:
FAO:
• It is a specialized agency of the United Nations that leads international efforts to defeat hunger. Headquarters: Rome, Italy.
• Founded: 16 October 1945.
• Goal of FAO: Their goal is to achieve food security for all and make sure that people have regular access to enough high-quality food to lead active, healthy lives.
Important reports and Programmes:
• Global Report on Food Crises.
• Every two years, FAO publishes the State of the World’s Forests.
• FAO and the World Health Organization created the Codex Alimentarius Commission in 1961 to develop food standards, guidelines and texts.
• In 1996, FAO organized the World Food Summit. The Summit concluded with the signing of the Rome Declaration, which established the goal of halving the number of people who suffer from hunger by the year 2015.
• In 1997, FAO launched TeleFood, a campaign of concerts, sporting events and other activities to harness the power of media, celebrities and concerned citizens to help fight hunger.

PRELIMS PERSPECTIVE

6. THE SUN TEMPLE MODHERA

THE CONTEXT: The Prime Minister who is on visit to his home state of Gujarat ahead of the state assembly elections visited Modhera which is famous for its Sun Temple.
THE EXPLANATION:
• During his visit he declared Modhera village in Gujarat as India’s first 24×7 solar-powered village, talked about how invaders in the past tried their best to raze the historic Sun Temple in Modhera and the atrocities they committed on the people of the region.
• Sun Temple Modhera Sun Temple at Modhera is one of the few shrines that are dedicated to the Sun God. Situated on the banks of Pushpavati River in Modhera, Sun Temple is easily accessible from Ahmedabad, the largest city of Gujarat.
• In 1026, the temple was built by King Bhimdev of the Solanki dynasty (believed to be the descendants of the lineage of Sun God). This ancient temple revives the reminiscences of Sun Temple at Konark in Orissa. Turning in the pages of history, one can notice the mention of Modhera in the scriptures like Skanda Purana and Brahma Purana.
Architecture
• The brilliant architecture of the temple is one of its own class. The temple encompasses three different yet axially-aligned and integrated constituents.
• As per the Konark Temple, this shrine is designed in a manner, so that the first rays of the Sun cast on the image of the Lord Surya. The Temple was plundered by Mahmud Ghazni; still the architectural grandeur is not vanished.

OTHER SUN TEMPLES IN INDIA- PRELIMS PERSPECTIVE
1. Bhramanya Dev Temple At Unao, Madhya Pradesh.
2. Dakshinaarka Temple At Gaya, Bihar. …
3. Konark Sun Temple, Odisha. …
4. Sun Temple At Modhera, Gujarat. …
5. Vivasvan Sun Temple, Gwalior, Madhya Pradesh.
6. Arasavalli- Suryanarayana Temple, Andhra Pradesh.

THE PRELIMS PRACTICE QUESTIONS

QUESTION OF THE DAY

Q1. The term Solidity, Rusk, Haskell, sometimes seen in news, are –
a) Exo-planets explored by NASA missions
b) Programming languages used in crypto-currency
c) International initiatives for climate change actions
d) Non-profit organisations working for human rights protection

Answer: B
Explanation:
• Solidity is the programming language mainly used on the blockchain platform Ethereum.
• In the crypto world, Rust is commonly associated with the Solana blockchain, which is known for its high speeds and relatively low transaction fees.
• Haskell is not well-known, and that it is not a popular programming language for beginners. Haskell is classified as a purely functional programming language, and is hard to learn.

1. Explained | Delhi-NCR’s revised action plan ‘GRAP’ to fight air pollution READ MORE
2. Climate change triggered droughts in Northern Hemisphere: Study READ MORE
3. Creating an equitable conservation model READ MORE

1. Instead of fearing death, improve your karmas READ MORE
2. Looking smart or living smart? READ MORE

1. Status beyond faith: The panel on giving SC status to converts has its work cut out READ MORE
2. Drug regulation must be robust READ MORE
3. Slack regulations: Quality in the pharmaceutical sector should be enforced without resorting to inspector raj READ MORE
4. Resisting attack on judiciary’s independence READ MORE

(Newspapers, PIB and other important sources)

Prelim and Main

1. Indian Navy to join Exercise Malabar in Japan next month READ MORE
2. The programming languages running the crypto- economy READ MORE
3. The fate of chips will determine the fate of nations READ MORE
4. Early warning for heatwaves sees huge improvement READ MORE
5. Why has the Election Commission frozen the Shiv Sena’s symbol? READ MORE
6. To push autonomy for colleges, UGC set to amend guidelines READ MORE
7. Vultures mostly forage outside protected areas; conservation efforts should be focused there, urges study READ MORE
8. Telangana’s new forest conflict panels bring Centre-state land rights relation under scanner READ MORE

Main Exam

GS Paper- 1

1. The Sarasvati Civilization READ MORE
2. Hindu-Americans are in denial about caste. It’s been in religious scriptures for long READ MORE

GS Paper- 2

POLITY AND GOVERNANCE

1. Status beyond faith: The panel on giving SC status to converts has its work cut out READ MORE
2. Drug regulation must be robust READ MORE
3. Slack regulations: Quality in the pharmaceutical sector should be enforced without resorting to inspector raj READ MORE
4. Resisting attack on judiciary’s independence READ MORE

SOCIAL ISSUES

1. How can India reduce anaemia among women? By cleaning up the air, says a study READ MORE

INTERNATIONAL ISSUES

1. The coalition of the world READ MORE
2. India’s hour at the UNGA: Modi’s 5-S approach is the new Panchsheel on the global stage READ MORE

GS Paper- 3

ECONOMIC DEVELOPMENT

1. Rising interest rates and slowing external demand will dampen growth over the foreseeable future READ MORE
2. Time to look at reasons responsible for employee burnout READ MORE
3. Gaining currency: RBI should move cautiously on CBDC READ MORE

ENVIRONMENT AND ECOLOGY

1. Explained | Delhi-NCR’s revised action plan ‘GRAP’ to fight air pollution READ MORE
2. Climate change triggered droughts in Northern Hemisphere: Study READ MORE
3. Creating an equitable conservation model READ MORE

SCIENCE AND TECHNOLOGY

1. Explained | What lies at the heart of the 2022 Physics Nobel? READ MORE

SECURITY

1. Defence reforms in waiting for the new CDS READ MORE

GS Paper- 4

ETHICS EXAMPLES AND CASE STUDY

1. Instead of fearing death, improve your karmas READ MORE
2. Looking smart or living smart? READ MORE

Questions for the MAIN exam

1. How far do you agree with this view that ECI and Courts are nit is position to address the issue of fiscal responsibility and an independent fiscal body, as recommended by fiancé commission, to do it? Analyse your view in light of ongoing freebies debate.
2. The National Logistics Policy can lead to greater integration of India into global value chains, higher share in international trade, higher employment, and accelerated economic growth. Examine.

QUOTATIONS AND CAPTIONS

• Without initiative, leaders are simply workers in leadership positions.
• To treat the Bengaluru floods as an isolated case would be an urban planning mistake as every key city is in need of a comprehensive climate action plan
• India must take a stand against Russia’s bombing and annexation of territory.
• Across the world, foundational ideas of major political systems are under challenge.
• In societies of ethos, free and autonomous women cause trouble. They challenge familial ideologies and threaten state ideologies based on family, caste, and religion.
• FPOs can play a major role in aggregating small farmers and help in value addition.
• India is assuming the leadership of SCO and G20. While the two groupings have divergent goals, Delhi will need to ensure that the concerns of developing nations are not ignored. An assertive foreign policy that seeks to shape and steer conversations will help.
• The National Logistics Policy can lead to greater integration of India into global value chains, higher share in international trade, higher employment, and accelerated economic growth.
• A financially feasible road map for fulfilling poll promises is the need of the hour to help voters make informed choices and deter irresponsible governments from living beyond their means.
• Though 5G would be a game changer its ill effects on the human health must be evaluated and made known to the public.
• Using the power of democracy, India created a new paradigm. It rejected the view that a country must first become economically fit for democracy.
• Great leaders create more leaders, not gobs of followers.
• Democracy is a journey but also a destination. India hasn’t lost the path, but hasn’t found the way. There is a danger of democracy degenerating into power grabbing. India remains vulnerable to populist demagoguery and the predatory power of cross-border corporate and governing institutions.

ESSAY TOPIC

• Balance is not something you find, it is something you create.
• Great leaders create more leaders, not gobs of followers.

50-WORD TALK

• We the people of India need to vehemently resist the attack on independence of the judiciary as judges are engaged in the larger fight for upholding the truth, protecting rights, preserving liberties, promoting justice, and most importantly, making power holders accountable to protect the values of constitutionalism. The threats to the judiciary are potentially grave threats to democracy.
• The outrage from members of both communities over Muslims attending Hindu garba events is what India doesn’t need right now. Casual interfaith intermingling around Eid, Diwali, Dushera, Christmas is the way to go. Communities living in religious silos will hurt the India Story in the 21st century phase of nation-building.

Things to Remember:

• For prelims-related news try to understand the context of the news and relate with its concepts so that it will be easier for you to answer (or eliminate) from given options.
• Whenever any international place will be in news, you should do map work (marking those areas in maps and exploring other geographical locations nearby including mountains, rivers, etc. same applies to the national places.)
• For economy-related news (banking, agriculture, etc.) you should focus on terms and how these are related to various economic aspects, for example, if inflation has been mentioned, try to relate with prevailing price rises, shortage of essential supplies, banking rates, etc.
• For main exam-related topics, you should focus on the various dimensions of the given topic, the most important topics which occur frequently and are important from the mains point of view will be covered in ED.
• Try to use the given content in your answer. Regular use of this content will bring more enrichment to your writing.

[WpProQuiz 349]

THE CONTEXT: A WTO panel, in its ruling on December 14, 2021, recommended India to withdraw its subsidies on sugar under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes as they are violative of the WTO norms and rules. Ruling in favour of Brazil, Australia and Guatemala in their trade dispute against India over its sugar subsidies, the WTO panel has stated that the support measures are inconsistent with WTO trade rules. This article analyse this issue in detail.

ANALYSIS OF THE ISSUE

COMPLAINT AGAINST INDIA

• Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles of the WTO’s Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures (SCM).

SUBSIDIES BEYOND DE MINIMIS LEVEL

• All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production. They said it was inconsistent with the Agreement on Agriculture. (READ AHEAD).

OTHER POINTS OF CHALLENGES.

• They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
• Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10, which it said were inconsistent with the provisions of the SCM Agreement.

PROCESS AT WTO

• The consultation followed between these countries and India did not resolve the issue.
• These countries then approached the Dispute Settlement Body (DSB) with the complaint that set up three panels to inquire into the allegations. These panels ruled against India.

THE PANELS’ FINDINGS.

• From 2014-15 to 2018-19, India’s domestic support to sugarcane producers exceeded the permitted level of 10% of the total value of sugarcane production.
• Therefore, India is acting inconsistently with its obligations under the Agreement on Agriculture.
• On the export subsidy, the panel also found that the support provided by India violated its obligations and India’s failure to notify its support measures to relevant WTO Committees also violated WTO norms.

THE PANELS’ RECOMMENDATIONS

• The panel asked India to bring its support measures in conformity with WTO rules and withdraw the prohibited subsidies.

WHAT HAS BEEN INDIA’S RESPONSE?

RESPONSE OF THE COMMERCE MINISTRY

• The findings of the panel were “completely unacceptable” to India.
• Australia, Brazil, and Guatemala had wrongly claimed that domestic support provided by India to sugarcane producers is in excess of the limit allowed by the WTO and that India provides prohibited export subsidies to sugar mills.
• The panel’s findings were “erroneous”, “unreasoned”, and “not supported by the WTO rules.
• The Panel has also evaded key issues which it was obliged to determine. Similarly, the Panel’s findings on alleged export subsidies undermine logic and rationale.
• As of now, there is no export subsidy on sugar, and hence the ruling will have no impact on the sugar export.

ON DOMESTIC SUPPORT/SUBSIDY.

• India held that its subsidy does not come under the meaning of market price support under the AoA. It pointed out that the FRP is paid to the sugar mills and not to the sugarcane producers.
• It argued that as per the meaning of market price support, it would be violated only when the govt pays for or procures the agricultural product.
• The panel rejected this argument — saying “market price support does not require governments to purchase or procure the relevant agricultural product”.

APPEAL TO APPELLATE BODY(AB)

• India has appealed against the ruling of the World Trade Organization’s (WTO) trade dispute settlement panel.
• India filed the appeal in the WTO’s Appellate Body, the final authority on such trade disputes.
• Pending the disposal, India is not bound to implement the orders of the DSB Panel. The AB has not been operational due to vacancies that the USA has consistently refused to fill.

CLARIFYING CONCEPTS: THE WTO TERMINOLOGIES

WHAT IS AoA?

To reform the agriculture trade and to improve the predictability and security of importing and exporting countries, the World Trade Organization came up with the agriculture agreement. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995. The three provisions/pillars that the agriculture agreement focuses on are –

• Market access — the use of trade restrictions, such as tariffs on imports
• Domestic support — the use of subsidies and other support programmes that directly stimulate production and distort trade
• Export competition — export subsidies and other government support programmes that subsidize exports.

DOMESTIC SUPPORT

• There are two categories of domestic support — support with no, or minimal, distortive effect on trade on the one hand (often referred to as “Green Box” measures) and trade-distorting support on the other hand (often referred to as “Amber Box” measures).
• For example, government-provided agricultural research or training is considered the former type, while government buying-in at a guaranteed price (“market price support”) falls into the latter category.
• Under the Agreement on Agriculture, all domestic support favouring agricultural producers is subject to rules. The Green Box also provides for the use of direct payments to producers, which are not linked to production decisions, i.e. although the farmer receives a payment from the government, this payment does not influence the type or volume of agricultural production (“decoupling”).
• The “Blue Box” exemption category covers any support measure that would normally be in the “Amber Box”, but which is placed in the “Blue Box” if the support also requires farmers to limit their production.
• All domestic support measures which do not correspond to the exceptional arrangements known as the “Green” and “Blue” boxes, are considered to distort production and trade and therefore fall into the “Amber Box” category.

DE MINIMIS LEVEL

• Minimal amounts of domestic support that are allowed even though they distort trade — up to 5% of production value for developed countries, 10% for developing.
• All domestic support measures favouring agricultural producers that do not fit into any of the above exempt categories are subject to reduction commitments. This domestic support category captures policies, such as market price support measures, direct production subsidies or input subsidies.
• However, under the de minimis provisions of the Agreement there is no requirement to reduce such trade-distorting domestic support in any year in which the aggregate value of the product-specific support does not exceed 5 percent of the total value of production of the agricultural product in question.
• In addition, non-product specific support of less than 5 percent of the value of total agricultural production is also exempt from reduction. The 5 per cent threshold applies to developed countries, whereas in the case of developing countries, the de minimis ceiling is 10 percent.

AGGREGATE MEASUREMENT OF SUPPORT

• The AMS represents trade-distorting domestic support and is referred as the “amber box”. As per the WTO norms, the AMS can be given up to 10 % of a country’s agricultural GDP in the case of developing countries.
• On the other hand, the limit is 5% for a developed economy. This limit is called de minimis level of support. It means that the AMS and the De Minimis Level are similar. Both relates to the Amber box.

SCM

• The Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) of the World Trade Organization (WTO) provides rules for government subsidies and applying remedies to address subsidized trade that has harmful commercial effects.
• These remedies can be pursued through the WTO’s dispute settlement procedures, or through a countervailing duty (CVD) investigation which can be undertaken unilaterally by any WTO member government.
• Countervailing measures may be used against subsidies when imports of subsidized goods harm a competing domestic industry. They are used to offset the effect of the subsidy by, for example, imposing a countervailing duty (limited to the amount of the subsidy) on the import of subsidized goods or securing quid pro quo commitments from the subsidizing country (that it will abolish or restrict the subsidy, or that exporters will raise prices).
• Export subsidies which are in full conformity with the Agriculture Agreement are not prohibited by the SCM Agreement, although they remain countervailable. Domestic supports which are in full conformity with the Agriculture Agreement are not actionable multilaterally, although they also may be subject to countervailing duties.

DISPUTE SETTLEMENT BODY (DSB)

• Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in another guise), which consists of all WTO members. The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider the case and accept or reject the panels’ findings or the results of an appeal. It monitors the implementation of the rulings and recommendations and can authorize retaliation when a country does not comply with a ruling.
• Under the Subsidies Agreement, if a WTO member government believes that non permissible subsidy is being granted or maintained by another member government, it can request consultations with that government under the WTO’s dispute settlement procedures.
• If no mutually agreeable solution is reached in initial consultations, the matter can be referred to the WTO’s Dispute Settlement Body (DSB), which consists of representatives of all WTO members.
• The DSB establishes a panel, which reports its findings to the parties to the dispute with in a time frame. If the panel finds that the measure in question is a prohibited subsidy, the subsidizing government must withdraw it without delay.
• But when the appeal is filed in the AB and not yet decided, the practice is that the member country does not withdraw the subsidy immediately. The DSB can only reject the recommendations of the Panel on consensus among the members.

APPELLATE BODY

• The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel. Appellate Body Reports are adopted by the Dispute Settlement Body (DSB) unless all members decide not to do so. The Appellate Body has its seat in Geneva, Switzerland.
• Currently, the Appellate Body is unable to review appeals given its ongoing vacancies. The term of the last sitting Appellate Body member expired on 30 November 2020.

NAIROBI PACKAGE

• The Nairobi Ministerial conference was held in 2015. WTO members decided to eliminate the export subsidies on agriculture and make new rules on export measures that have a covalent effect. To implement this decision, the developed countries will remove all the subsidies on export immediately. Developing countries will have a little longer period to eliminate the subsidies except for a few agricultural products.
• The decision was taken to give effect to the sustainable development goal on zero hunger and also help the farmers of the developing countries who face intense competition against the rich countries and the artificially boosted exports by the help of subsidies.
• Members also collectively agreed to find a permanent solution for developing countries to use the public stockholding programs for food security purposes. Negotiation on a special safeguard mechanism, which allows the developing countries to raise tariffs temporarily on agricultural products in cases of import surges or price falls, was also agreed upon by the ministers.

BALI PACKAGE 2013

• Members agreed to refrain from challenging the breach of domestic support commitments that resulted from developing countries’ public stockholding programs for food security if they met certain conditions. They also decided to negotiate towards the permanent solution for public stockholding for security purposes.
• A more transparent tariff rate quota administration was called for whereby the governments were not allowed to create trade barriers by distributing quotas among importers.
• The list of general services includes more spending on land use, Land Reforms water management, and other poverty reduction programs that come under the green box( Green box is domestic support which is allowed without any limit as it does not distort the trade) were to be expanded.
• A declaration on the reduction of all forms of export subsidies and enhancement of transparency and monitoring was made.
• The Bali package also provides for a peace clause that protects the food procurement programs of developing countries from the action of other WTO members if the developing country branches the subsidy ceiling as given.
• In 2018-19 India became the first WTO member country to invoke this clause in the financial year. India stated that its rice production was $43.67 billion and it provided subsidies of $ 5 billion to the farmers, which is more than the de minimis level of 10%. To safeguard its domestic support policy the Indian government invoked the peace clause.

PUBLIC STOCKHOLDING FOR FOOD SECURITY PURPOSES: ANOTHER PRESSING ISSUE

Some governments use public stockholding programmes to purchase, stockpile and distribute food to people in need. While food security is a legitimate policy objective, some stockholding programmes are considered to distort trade when they involve purchases from farmers at prices fixed by the governments, known as “supported” or “administered” prices.

In India’s case the subsidies provided to run the food security programme (NFSA) as per the developed member countries are trade distorting and they fall under the   Amber box. As per AMS, the total support in monetary terns should not exceed 10 percent of the total value of agri production as on 1986-88. The government buys the produce at MSP which subsidises the prices of food grains. In the instant case (sugar subsidy), the public stock holding programme per se was not challenged but one specific component “buffer stock” of sugar, presumably related to the subsidised sugar provision to the Antyodaya Anna Yojna category under the NFSA. But India argues that the public stockholding programme is vital for its food security, nutritional needs, supporting the marginalised farmers, and meeting the goals of SDGs.

At the 2013 Bali Ministerial Conference, ministers agreed that, on an interim basis, public stockholding programmes in developing countries would not be challenged legally even if a country’s agreed limits for trade-distorting domestic support were breached. They also agreed to negotiate a permanent solution to this issue.

A decision on public stockholding taken at the 2015 Nairobi Ministerial Conference reaffirmed this commitment and encouraged WTO members to make all concerted efforts to agree on a permanent solution.

In the MC III, the G 33 is seeking a permanent solution to the stockholding issue.

VARIOUS SUBSIDIES PROVIDED BY INDIA FOR SUGAR SECTOR

SCHEME FOR EXTENDING FINANCIAL ASSISTANCE TO SUGAR UNDERTAKINGS (SEFASU-2014)

• The Government on 3.1.2014 notified a Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU-2014) envisaging interest free loans by bank as additional working capital to sugar mills, for clearance of cane price arrears of previous sugar seasons and timely settlement of cane price of current sugar season to sugarcane farmers. Rs. 6484.77 crore has been disbursed under the scheme. For five years, the interest burden on this loan is borne by the Government through Sugar Development Fund.

SOFT LOAN TO SUGAR MILLS TO FACILITATE CLEARANCE OF CANE PRICE ARREARS

• A scheme was notified on in 2015 to provide soft loan to sugar mills to facilitate clearance of cane price arrears of current sugar season 2014-15. Rs. 4213 cores have been disbursed under the scheme. The Government bore interest subvention during moratorium period of one year. About 32 lakh farmers have been benefited.

OTHERS

• The procurement at the Fair and Remunerative Prices and the PDS operations for sugar for AAY card holders etc.

EXPORT SUBSIDY

• There is no export subsidy for sugar as of now.

WHAT IS THE WAY FORWARD?

OVERHAULING THE AoA

• The genesis of the problem lies in the skewed nature of many agreements that are set in stone at WTO.
• The agreements that were negotiated during the Uruguay Round of the General Agreement on Trade and Tariffs, which governed global trade before the establishment of WTO on January 1, 1995.
• The most egregious of these is AOA which astute negotiators pushed through from the rich world to suit their interests.

RE WORKING OF SUBSIDIES AND RE DEFINITION OF “ BOXES”.

• Those considered non-distorting are listed in the green box, the minimally distorting ones come under the blue box while subsidies seen as causing serious market distortions are categorised as amber box subsidies.
• Nearly all the rich countries’ subsidies fall into the green box while those of developing nations are mostly in the amber box.
• There is no expenditure limit on the subsidies that fall into the first two boxes while the amber box subsidies have to be limited to 10 per cent of the value of agricultural production for developing countries and 5 per cent for developed countries.

PRO ACTIVE LOBBYING BY G-33

• The G 33 needs to work in a coordinated manner and position itself as a pressure group to safeguard and promote the developing countries’ interests transparently. The forthcoming MC 12, scheduled to be held in Geneva at the end of 2021 has been postponed which will provide more time for the G 33 to develop consensus and common strategy on issue like Public Stock holding, food security, fisheries subsidy, domestic support etc.
• The momentum generated  from the G-33 Virtual Informal Ministerial Meeting organized by Indonesia in December 2021 needs to be harnessed and follow up actions needs to be continued at official level.

APPEALING THE DECISION

• India has appealed the ruling on sugar subsidy and as the AB is not functional as of now it provides enough space to India for recalibrating the content and compositions of its subsidies if need be.

LEARNING FROM SETBACKS.

• Of late India has been at the receiving end of the WTO dispute resolutions and many decisions  have gone against it like the Domestic Content  Requirement  on solar panels, the export subsidy schemes in 2019, and the recent challenges. It means that there is a requirement  for India to bring its subsidy/support regime in consistent  with the WTO norms and at the same time devise such innovative measures that comply with WTO regimes.

THE CONCLUSION: The WTO system is the sheet anchor for a rule based multilateral trading system. Thus, the dispute setline and adherence to the rulings is necessary for realizing the objective. But that does not mean the sovereign rights of a country to devise policies for the welfare and development of a country should be forfeited. What is necessary is to create a healthy balance between the two and that’s why there has to be synergy between foreign trade policy and domestic agricultural policies which are dynamically linked with the WTO norm and rules.