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The imposition of reciprocal tariffs by the Trump administration posed significant challenges for developing economies like India. While India’s tariffs on agricultural goods are really high, they remain comparable for manufactured products.
India’s higher average was mainly due to high tariffs on agricultural products, which accounted for 65 per cent. India imposes exceptionally high applied tariffs on agricultural goods to protect its domestic farmers from cheap imports from developed economies.
The agriculture sector in the US and the EU is heavily subsidised and technologically advanced due to high government spending. In contrast, subsidies provided to farmers in developing countries like India are significantly lower.
For instance, the per-farmer subsidy in India is $300, while in the US, it amounts to $40,000. As a result, they often adopt protectionist measures, such as high import duties, to shield domestic producers from the impact of cheaper foreign imports.
India’s tariffs
India’s WTO-bound tariff rates on agricultural products are among the highest in the world, averaging 113.1 per cent and ranging as high as 300 per cent. The large disparity between WTO-bound and applied rates provides India with considerable flexibility to change its tariff rates at any time, creating tremendous uncertainty for US farmers, ranchers, and exporters.
Some economists believe that, regardless of what Trump does, India should review and reorganise its tariff structure, which has not been reviewed for the last 20-25 years. By reducing tariffs on agricultural imports, India can significantly lower its average tariff rates and improve its position in the global trade landscape.
To enable domestic farmers to compete with cheaper foreign goods, India can explore legal alternatives to enhance their income. Under WTO rules, developing countries are allowed trade-distorting subsidies up to 10 per cent of the total value of production.
Currently, India exceeds this de minimis limit and complying with the limit while safeguarding farmers is a challenge. Therefore, we should look for some alternative means to increase the support provided to farmers.
Green box subsidies
A viable solution can be to increase subsidies under the ‘green box’ category, which is considered to be minimal or non-trade-distorting and hence WTO compliant. Green box measures encompass various subsidies, such as direct income transfers, crop insurance, and infrastructural support, which can provide meaningful aid to domestic farmers while aligning with international trade rules.
Major economies like the EU and the US provide substantial Green Box subsidies, particularly direct income support to farmers, to enhance their incomes. Notably, these members prioritise direct income support, which strengthens the farmers economically and offers them greater flexibility to choose crops based on market demand and land suitability.
In contrast, India’s existing schemes, like the Minimum Support Price (MSP), become trade-distorting beyond a threshold of 10 per cent of VOP and incentivise farmers to focus disproportionately on crops with higher MSPs.
Furthermore, India’s Green Box subsidies are significantly smaller and less efficient in comparison. For instance, the annual income support of ₹6,000, distributed in three instalments of ₹2,000 under PM-Kisan, is too low and often criticised as inadequate to address the financial hardships of many farmers.
To align with the WTO’s Agreement on Agriculture (AoA), the developed countries significantly reduced their domestic support measures under the blue and amber boxes. Between 1995 and 2010, total AMS declined from $6.2 billion to $4.1 billion in the US and from €50.1 billion to €6.5 billion in the EU.
Box shifting
However, the decline in amber box and blue box subsidies was compensated by substantial increases in Green Box subsidies (box-shifting) in these countries. The US increased its GB subsidies from $46 billion in 1995 to $120 billion in 2010, while the EU’s GB subsidies increased from €9.2 billion to €68 billion.
As a result, between 1995 and 2007, the agricultural productivity increased by around 60 per cent in the EU and 51 per cent in the US on account of green box subsidies.
Green box subsidies, while not entirely unrestricted, are generally considered non-trade-distorting as long as they are decoupled from production levels and prices. India currently provides minimal support under the green box, leaving ample policy space to expand these measures. Implementing green box subsidies, such as direct income transfers, will require a comprehensive effort to identify beneficiaries, design effective policies, and ensure proper implementation.
However, such measures can significantly strengthen India’s agricultural sector and enhance its compliance with WTO regulations.
By adopting more green box subsidies and reducing agricultural import duties, India can bolster its farmers’ economic stability while simultaneously improving its tariff regime’s international reputation.
This dual approach not only supports the farming community but also aligns India’s agricultural policies with global trade standards, fostering both economic and reputational benefits for the country.
The writer is a student of international law at the South Asian University (SAARC)
Published on May 27, 2025
This article first appeared on The Hindu Business Line
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