Economics

Selling and buying goods using ICT is known as e-Commerce.

E-Commerce Sector is growing at an incredible pace

The e-Commerce sector has generated a multiplier effect

1. Huge creation of jobs 
2. Reduction of market prices for consumers 
3. Huge investment in logistics and infrastructure 
4. Help Artisans exploit new markets. E.g. Karigar ke Dwar (Flipkart)  
5. Help in promoting tribal art. E.g., Amazon and Trifed signed a contract to sell Indian Tribal Products globally under the brand ‘TRIBES INDIA

There are two models of e-Commerce

1. Market-Based Model

• Market-based Model is followed by Amazon & Flipkart, in which the company provides the IT platform to facilitate the transaction between buyer and seller and takes their fees for providing the platform.
• FDI Norms: FDI is allowed

2. Inventory-Based Model

• In this Model, the seller manufactures and sells its product online—for example, the online store of Samsung, where Samsung sells its phones and other accessories.  
• FDI Norms: FDI is not allowed

Other way to define

• Supply chain disruptions triggered by the pandemic led to a new sub-vertical of the online grocery segment is — Quick Commerce, or q-commerce — where the promise of deliveries within 10-30 minutes of ordering is the unique selling proposition. The focus of most of these ventures is on setting up micro-warehouses located closer to the point of delivery and restricting the stocks at these ‘dark stores’ to a focussed set of under 2,000 high-demand items, as against the traditional formula of well-stocked large-format warehouses located on the outskirts of towns and cities.
• Examples: Instamart, Zepto, Grofers etc.

• India has one of the longest navigable inland water networks. But out of the total 15,000 kilometres of a navigable river, India is currently using just 2000 km. 
• West Bengal has the longest navigable length of rivers, followed by Assam and Bihar.
• Inland waterways Transport constitutes just 0.5% of the total cargo transport. In China, 47% of goods and passenger traffic is transported through inland waterways. Whereas in India, domestic transport through water is 3.5%, out of which 0.5 % is inland & 3% is coastal.

• According to a government study, one litre of fuel moves 24 tons/km on the road, 95 tons/km on rail and 215 tons/km on inland waterways.

1. It is cheaper than Road and Railways and costs 1/5th compared to road transport. 
2. The Carbon footprint is also lower than road and rail systems.
3. Land acquisition requirements are almost negligible compared with roads and railways. 
4. The infrastructure that needs to be developed is minimal.
5. There is also little scope for transit losses.
6. It will open up considerable investment in the areas like water-based tourism, dredging of rivers, and operation of terminals generating millions of new jobs.

National Waterway Act, 2016

• Inland Waterways, Shipping and Navigation, are covered in Entry 24 of the Union list. Hence, Parliament is empowered to legislate on this.
• This act repealed all earlier Acts for individual waterways, and 111 National Waterways have been notified under the provisions of this act. 

• 13 National Waterways are working
  • National Waterway 1: Ganga-Bhagirathi-Hooghly River System (longest with length of 1620 km)
  • National Waterway 2: Brahmaputra River from Sadiya to DHubri
  • National Waterway 3: Kollam-Kottappuram stretch on Champakara canal and Udyogmandal canal
  • National Waterways 4: Kakinada-Puducherry stretch of Canals (on Godavari and  Krishna and Canals)
  • National Waterway 10: Amba
  • National Waterway 68: Mandovi
  • National Waterway 73: Narmada
  • National Waterway 83: Rajpuri Creek
  • National Waterway 85: Kundalika
  • National Waterway 91: Shastri
  • National Waterway 97: Sundarbans Waterways
  • National Waterway 100: Tapi
  • National Waterway 111: Zuari

Jal Marg Vikas Project

• This project aims to develop infrastructure to enable National Waterway 1 for commercial navigation on the Varanasi-Haldia stretch of river Ganga.
• In 2018, the Varanasi freight terminal became operational when the cargo ship ‘MV Rabindranath Tagore’ arrived in Varanasi from Kolkata.

Ways to Finance

• The government is using the corpus of the National Clean Energy Fund (NCEF) and Central Roads Fund  (CRF) for upgrading the Inland Waterways.
• Apart from that, the market borrowing route is also used. 

The bill replaced the Inland Vessel Act of 1917.

The act has brought all inland vessels & waterways in India under uniform union government regulation. Earlier, there were different regulations across different states.

Provisions of the Act include

• State governments may declare by notification any inland water area as a “Zone”. Any mechanically propelled vessel would have to obtain a certificate indicating the zone in which the vessel can be operated.
• The government would maintain a central database of inland vessels.
• Mechanical vessels must have certain equipment and signals to ensure safe navigation. In case of an SOS signal is sent by the vessel, the nearest vessel must respond to the call and failure to respond can result in a fine up to Rs. 10,000.
• In case of an accident, the nearest police station will hold the jurisdiction for the inquiry.
• The Centre will prescribe the rules for the minimum qualification of the crew.

• Shipping is the world’s most efficient means of transportation.  
• In India, the sector works under the Ministry of Shipping.  
• In Schedule 6 of the Indian Constitution, Port development in India is a concurrent subject. Hence
  • Major ports are regulated by the central government  
  • Non-major ports are regulated by state governments 

Indian International Trade by Volume and Value carried by ships

According to India Yearbook & Sagarmala Concept Paper, India has 12 Major Ports.

Major ports on the West Coast

1. Mumbai (Maharashtra)

• It is situated in Maharashtra and is one of India’s most important major ports.
• It has the largest oil terminal.

2. Jawahar Nehru Port, Nhava Shewa (Maharashtra)

• It was commissioned in 1989 to ease pressure on Mumbai port.
• It’s the largest container port in India.

Note: Vadhavan Port, an offshore deep seaport,  is being built in the nearby Palghar district of Maharashtra. It is being constructed by Vadhavan Port Construction Ltd., a special-purpose vehicle with a 74% stake of JNPT and a 26% stake of Maharashtra Maritime Board.

3. Deendayal Port, Kandla (Gujarat)

• Kandla is a tidal port which was developed in the 1950s because Karachi port was lost due to partition.
• It was the first Exclusive Economic Zone (EEZ) in India and Asia.

4. Mormugao (Goa)

• Mormugao is a tidal port situated at Zuvari estuary
• It is important for iron-ore export.

5. New Mangalore (Karnataka)

• It is a deep water all-weather port. 
• It was operationalized in 1975.

6. Cochin/Kochi (Kerala)

• It is situated on Willingdon Island.
• It was developed by Sir Robert Bristow by Britishers.
• It is known as the Queen of the Arabian Sea.

Major ports on the East Coast

7. Haldia | Kolkata (West Bengal)

• It is the only major RIVERINE port in India.
• Haldia port is the oldest major port of India.  
• It has twin dock systems viz., Kolkata Dock System (KDS) on the eastern bank and Haldia Dock Complex (HDC) on the western bank of river Hooghly. 
• Port needs constant dredging to keep depth.

8. Vishakhapatnam (Andhra Pradesh)

• Vishakhapatnam port is situated in Andhra Pradesh.
• It is a landlocked port connected to the sea by channel.

9. Paradeep (Odisha)

• It is situated on a manmade lagoon. 
• JL Nehru laid its foundation in 1962 at a point where Mahanadi meet the Bay of Bengal.
• Initially, it was owned by Odisha State government, but the ownership was transferred to the Union Government in 1965.

10. Tuticorin (Tamil Nadu)

• It is a major port situated in Tamil Nadu (Gulf of Mannar).

11. Chennai (Tamil Nadu)

• Port of Chennai is an all-weather port situated in Chennai.

12. Ennore (Tamil Nadu)

• It is a private major port made under the Companies Act.
• It is primarily dedicated to handling the coal for requirements of Tamil Nadu Electricity Board.

(Newly proposed) Enayam Port (Tamil Nadu)

• The proposal to establish Enayam port was accepted in 2016.
• Currently, around 78% of the marine traffic from ports of India is trans-shipped to Colombo, Singapore and Klang (Malaysia), as most of the Indian ports don’t have a draught (depth of water needed for a ship to float) to match global cargo handling. Enayam will solve this problem. The Enayam port has a natural deep draught of about 20 meters which makes it feasible for the largest vessels in the world. 
• But this port is very close to Vizhinjam (Transhipment) Port of Adani’s in Kerala. 

Private Ports by Adani Group & others

• In recent years, there has been an attempt to increase the country’s port capacity, but the real successes have been in the private sector, mainly by the Adani Group.
  • Sikka & Mundra port of Adani Group in Gujarat has overtaken Kandla to become the country’s largest. 
  • Dhamra (in Odisha) of Adani Group has become as big as Haldia. 
  • Adani will become the champ of the country’s port business once he builds the deep-water port at Vizhinjam in Kerala, designed to take some of the transhipment traffic away from Colombo.
• Meanwhile, Krishnapatnam port on the southern Andhra coast is being developed by local entrepreneurs, and claims to handle as much traffic as the long-established Chennai.

Colombo can handle more container traffic than all of India’s ports put together — with  75% of that being transshipment of containers from India because India’s ports are too shallow to accommodate big container vessels.

Problems related to Ports

• India doesn’t have world-class ports. Third-generation ships can’t enter Indian harbours & as a result, goods are offloaded in Sri Lanka & sent to India via smaller ships. 
• Port charges are high as compared to other developing nations.
• Port congestion
• Poor mechanization and manual handling of critical processes. E.g. in Paradip port.

Governance Issues

• A dual institutional structure has led to the development of Major and Minor ports as individual projects.
• Ports in India are operating on the “Trust Model”, where the government is the owner and operator of the port. 
• Procedural bottlenecks as there is a lot of paperwork to load -unload cargo.
• Poor performance of Government ports: It takes up to four times as long to fill or unload a cargo ship at Jawaharlal Nehru Port than at a private rival due to lower mechanization and unskilled labour.

Lack of Evacuation from Ports

• There is inadequate road & rail connectivity to ports.

Fleet = Ageing + Low number

• Ageing fleet: There is an urgent need to replace our ageing ships with new ones.
• Indian ships account for a tiny part of the country’s trade, i.e. about 15%, compared to the international norm of 40%.  

No Shipyards

• India has no civilian shipyards to compare with the world’s best. The two or three private ones that look to build commercial vessels are deep in debt and short of orders; most Indian ship-owners prefer to look to foreign yards because of better quality and assurance on delivery schedules. 

Low Penetration of Inland and Coastal Shipping

• Coastal and inland shipping hasn’t developed in India due to limited facilities, higher costs and policy constraints.

In short, India’s maritime business needs a booster shot.

Sagarmala is an initiative for port-led development whereby India’s coastline will become the gateway to India’s prosperity.

Key Components

• Port Modernisation: It aims to transform existing ports into world-class ports by modernization of port infrastructure and existing systems & developing 6 to 8 new world-class ports (New Development: Vadhavan Mega Port is being developed near JNPT and Tuticorin port is being expanded) 

• Efficient Evacuation Systems / Port Connectivity: Develop efficient rail, road and inland waterway networks connecting ports to the hinterland.  

• Coastal Economic Development: Encourage coastal economic activity in coastal regions by:
  • Development of Coastal Economic Zones (CEZ), port-based SEZs etc. 14 CEZs are to be made under Sagarmala.
  • Promotion of coastal tourism.

• Coastal Community Development: This will be achieved via
  • Skill Development 
  • Uplifting fishermen and other local communities
  • Island development

Sagarmala could boost India’s merchandise exports to $110 billion by 2025 and create an estimated 1 crore new jobs. 

• It has replaced the Major Port Trust Act of 1963.  
• The composition of the Board of Authority has been simplified, and it will now comprise 11-13 members instead of the earlier 17-19 members. 
• Each port will have a separate Board of Major Port Authority members from the State Government, Railways Ministry, Defence Ministry, Customs Department etc.
• Model of Ports
  • Under the earlier Act: Ports used to operate on the “Trust Model”, where the government is the owner and operator of the port.
  • Under MPA Act: Ports operate on the ‘Landlord-Tenant Model’ where Major Port Authority will be the owner and regulator. 
• Earlier, Ports’ user fees were decided by National Tariff Authority for Major Ports. In the MPA, the Board of Major Port Authority will set up Committees to determine their user fees. 
• The Board of Port Authority has been given full powers to enter into contracts, plan and develop except in national interest, security and emergency arising from inaction.

Biggest Shareholders of Asian Development Bank

Principles of ADB

• To make loans & equity investments for its developing members’ economic & social development.
• Provide technical assistance for the preparation & execution of development projects & programs & provide advisory services.

• India’s subscription to Bank’s capital stock is 7.2% & a voting share of 6%.
• India started borrowing from ADB’s ordinary capital resources in 1986. The Banks lending has been mainly in Energy, Transport & Communications, Finance, Industry & Social Infrastructure sectors.
• India holds the position of executive director on the Board of Directors of the Banks => its constituency comprises India, Bangladesh, Bhutan, Lao & Tajikistan.
• India is represented by 

• 2001: The term ‘BRIC’ was coined by Jim O’Neil of Goldman Sachs to describe the growing prominence of Brazil, Russia, India and China 
• 2009: BRIC country leaders started meeting as a bloc (immediately after Sub Prime Crisis). South Africa joined them later.  
• BRICS account for 

• Developed countries such as the US, Japan, Germany, U.K. and France hold 40 % voting power.

BRICS countries decided to form a development bank, whose purpose will be to “mobilise resources to set up infrastructure and ensure sustainable development” in BRICS countries and in other emerging economies.

• BRICS block emerging as a new economic powerhouse with 20% global GDP & 40% population. Hence, to solidify and demonstrate their strength BRICS Bank has been formed by these nations. 
• Disenchantment with Bretton-Woods institutions viz World Bank & IMF: Since its inception in 1944, the IMF and World Bank have not reformed their governance structure. The USA dominates both are out of sync with new world dynamics.  
• Exchange Rate Volatility: It will help defend these five economies from volatility in the dollar exchange rate.
• Making an alternative to the US Dollar: BRICS Bank will make the Chinese Yuan an alternative to US Dollar in the long run. 
• In the BRICS bank, the First chairman of the board of governors will be a Russian. The first President of the bank will be an Indian (KV Kamath). It is difficult in the World Bank and IMF, given the lobbying and uneven voting power.

It has to be noted that BRICS Bank is not an isolated initiative. Similar initiatives have been started in the past to blunt the might of Bretton-Woods institutions. These include the Development Bank of Latin America ( by Andean nations) in the 1960s, the Chiang Mai Initiative in the early 2000s (of 10 ASEAN nations plus China, South Korea and Japan) and Bank of South by Latin American countries in 2009.

• It will allow Beijing to invest overseas in developing nations through a neutral mechanism and avoid criticism of Chinese neocolonialism. 
• It will become difficult for India to balance a scenario in which China will provide funds for its OBOR through BRICS, especially because India is not part of the project. 

• IMF was established in 1945 as a direct result of the Bretton Woods Conference.
• The primary function of IMF was to assist the member countries to tide over the short term Balance of Payments crisis. 
• It has 189 members, with Nauru as the latest member (joined in 2016).

• To solve the problem of international liquidity.
• To stabilize exchange rate  
• To facilitate international trade.
• To enable international payment system  

• Correcting short-term Balance of Payment disequilibrium either by selling or lending foreign currencies to the member nation 
• Bringing stability in the exchange rate
• Balancing demand and supply of currencies by increasing the supply of scarce currency and purchasing excess currency
• Reducing trade restrictions, i.e. tariffs and other trade barriers imposed by the member countries
• Providing credit facilities like basic credit facility, extended fund facility for three years, compensatory financing facility and structural adjustment facility

• World Economic Outlook
• Global Financial Stability Report

• When a country faces a Balance of Payment (BoP crisis), it approaches the IMF for help through Extended Fund Facility.
• At the time of formation, the IMF fixed quota in which countries contributed according to their (economic) size. With the backing of all the money the IMF accumulated, a new currency called SDR (Special Drawing Rights) was created. At the time of its formation , 1SDR = 1$ =.88 grams gold. It was also called paper gold because of this reason.
• IMF works in the same way as banks. They take money from ‘Depositor nations’ & give interest to them. The same money is then given to ‘Borrower nations’ who pay interest to IMF.

How value of SDR is calculated?

• Till 1970s, the conversion of 1SDR = $ 1 = 0.88 grams of gold was maintained.
• Present system:  It is a weighted average of 5 currencies with the following weights.  

• Presently, the conversion ratio is 1 SDR = 1.418 $. 

Triffin’s Dilemma

• Since the EU/US financial crisis, voices have been raised worldwide against the US dollar as an international currency. Zhou Xiaochuan, Governor of Peoples Bank of China, has proposed the adaptation of IMF’s SDR as an international currency. He argued that a national currency was unsuitable as a global reserve currency because of Triffin’s Dilemma, i.e. difficulty faced by reserve currency issuers in simultaneously achieving their domestic monetary goals & meeting other country’s demand for a reserve currency. 
• Keynes and Schumacher also conceptualised such a currency for International Settlement in 1940-42, called Bancor. It was to be introduced by the United Kingdom after the Second World War. However, the US keeping its own interest in mind, made the US dollar the world key currency at Bretton Woods Conference. 

India has been major beneficiaries of IMF’s Fund assistance. India has borrowed twice .

• World Bank Group is a family of 5 international organizations that give loans to developing countries. 
• It is a ‘Specialized Agency of UN’.
• Bank came into existence in 1945 following the Bretton woods conference.
• It is headquartered in Washington DC.
• Each institution of the World Bank is owned by its member governments & its membership gives certain voting rights to all countries. But additional votes depend on the financial contribution to World Bank. 
• The President of the World Bank is usually an American & the present President is  David R. Malpass (US economist).

• IBRD is the oldest of all World Bank institutions that started working in 1945.
• It commenced lending to India in 1949.

Main functions

• Initially, the primary function of IBRD was the reconstruction of war-ravaged regions (after World War II).
• Later, it evolved to the development of middle income & creditworthy developing economies of the world.
• Arranging the loans or providing guarantees on loans by various other channels to execute essential projects.
• IBRD facilitates different kinds of technical services to the member countries through Staff College and experts.
• Human development was the main focus of development lending with a very low-interest rate (1.55% per annum) – the area of focus being agriculture, healthcare, family welfare etc.

Note: The name “International Bank for Reconstruction and Development” was first suggested by India to the drafting committee.

• It was set up in 1960.
• IDA is known as the soft window of the World Bank.
• It gives long term credit with the basic aim of developing infrastructure & extended to economies having per capita income lesser than $895. Credit is for 35-40 years, interest-free except for a small charge to cover the administrative fee. Every developing nation make enough diplomatic attempts to get money from here because of additional benefits.
• India has been one of the biggest beneficiaries. But, since 2014, India stopped receiving soft loans from IDA as it breached the $895 per capita income mark.

• It was set up in 1988.
• It offers insurance to foreign investments in the member countries due to non-commercial ( i.e. political) activities such as currency transfer, expropriation, war & civil disturbance, thus encouraging foreign investment in developing countries.

• BIPA is an Indian version of ICSID since India is not a member.
• It promotes & protects the investment of investors on a reciprocal basis. 
• Till now, India has signed BIPA with 72 nations. 
• Objective: To promote & protect the interest of either country in the territory of other. 

• India has been a member of 4 institutions of the World Bank Group except for ICSID.
• World Bank has given sizeable financial assistance to India for economic development. Until China became a member of the World Bank in 1980, India was the largest beneficiary of the World Bank assistance.
• World Bank assistance to India started in 1948 when funding for Agricultural Machinery Project was approved. The World Bank has also assisted in developing infrastructures such as electric power, transport, communication, irrigation projects and steel industry.
• The first investment of IFC in India took place in 1959 with US$ 1.5 million. Presently, IFC has been helping India to raise foreign capital via ₹ denominated Masala and Maharaja Bond.

• Ease of Doing Business Report
• Remittances and Migration Report
• World Development Report
• Global Economic Prospects Report

• To reduce tariff and non-tariff barriers.
• To eliminate discrimination in trade.
• To facilitate a higher standard of living.
• Stimulate economic growth and employment.
• Contribute to peace and stability.
• Give stronger voice to smaller nations.
• Establish rule-based order as rules reduce arbitrariness and opportunities for corruption.
• Cut the cost of doing business internationally.
• To ensure sustainable development in trade policies.

1. Ministerial Conference

• It is the supreme decision making body of the WTO.
• It (generally) meets once every two years to deliberate on trade agreements.
• The last ministerial conference was held in Geneva in 2021.

2. General Council

• It is the day to day decision making body of the WTO.
• It meets regularly in Geneva and implements the decision of ministerial conferences.
• It has a representative from each member state.
• Below the general council, there are Committees on individual agreements and annexes like anti-dumping, subsidies & countervailing measures (SCM) etc.

3. Director-General

• Present Director-General of WTO is Ngozi Okonjo-Iweala (having dual citizenship of Nigeria and USA) (she is the first female, first African and first US citizen to hold this post).
• Director-General heads the Secretariat at Geneva.

• WTO has Dispute Settlement Body (DSB) that settles trade disputes among nations.
• WTO procedure requires 60 days of consultations among disputants to resolve the dispute, failing which dispute panel is set up.
• DSB’s conclusion can be challenged in the Appellate Body.
• The erring country is directed to change its laws to streamline them within a reasonable time & if the country doesn’t correct them, the complainant country can take retaliatory measures. But there isn’t any punishment for losing a country & practically poor countries cant retaliate against rich nations.

Suppose India is charging a 5% Import Duty on mobiles from South Korea, i.e. in the mobile segment, India is offering the best deal to South Korea by charging just 5% duty. According to the Principle of Most Favoured Nation, India will have to give the same deal to all WTO members, which India is giving to the most favoured nation. It implies that on mobiles coming from China, India will charge 5% duty.

Pakistan Issue

• In 1996, India gave MFN status to Pakistan. But Pakistan didn’t reciprocate to Indian gesture. 
• In Feb 2019, after Pulwama Attack, India withdrew the MFN status given to Pakistan and hiked the customs duty by 200% on goods originating from Pakistan.

Tariff Barrier

• When government imposes very high tariffs/taxes on foreign products to protect their domestic market. 
• It has been opined by various economists that Trade Barriers doesn’t correct trade imbalances of country. It just shifts trade imbalance to other countries. E.g., What the US was importing earlier from China will now be imported from India or Vietnam.

Non-Tariff Barrier

• In Non-Tariff Barriers, although there aren’t any tariff barriers, policies are made to make it hard for foreign players to compete with domestic players.
• E.g. 
  • Government putting tender that only domestic companies can compete.
  • Not giving clearances easily on ports
  • Setting export quality norms so high that other countries can’t export
  • Providing subsidies to domestic producers

Case for free trade

What are the reasons for the government not to interfere with trade?

There are three arguments in favour of free trade. 

1. Free trade & efficiency

• Free trade promotes efficiency & avoids duplication of efforts 

2. Comparative Advantage Theory

According to David Ricardo’s Comparative Advantage Theory

• Produce what you have comparative advantage and import other things.
• This system leads to better efficiency and output.

3. Economies of scale in production

• Develop particular industry in one country & let it trade with the bigger market of the world. This production on a large scale will lead to economies of scale. 

4. Political argument

• A world that trades freely is a world that is at war less often. 

The case against Free Trade

• Beggar thy Neighbour Policies: Countries do this, especially by devaluing their currency.  

• Indian exports boomed due to low barriers. Indian exports have increased from $33.22 billion in 1998-99 to more than $100 billion.
• India won a multilateral dispute against the USA, which was otherwise impossible.
• India adopted international standards in IPR due to TRIPS. As a result, foreign flow increased in R&D.
• Textile boomed because MFA scrapped & ATC adopted under WTO.

Under the Agreement on Agriculture, subsidies are divided into three categories, and member countries have been directed to cut down the Amber Box subsidies.

These three boxes of subsidies are

1. Green Box Subsidies

• Subsidies that don’t disrupt trade balance OR cause minimum damage to the trade balance.
• E.g. agriculture R&D, extension services, insurance money etc.  
• Limits under AoA: Nothing, and Governments can give as much as they want.

2. Blue Box Subsidies

• Blue Box Subsidies aim to limit production.
• These subsidies don’t increase with production. For example, subsidies linked with acreage or number of animals.
• Few countries like Norway, Iceland, Slovenia etc., use the blue box subsidies. 
• Limits under AoA: Nothing.

3. Amber Box Subsidies

• Amber Box Subsidies disturb trade balance like subsidies on fertilizers, seeds, power, irrigation and Minimum Support Price.
• They distort the trade balance because they encourage excessive production. Hence, a given country’s product becomes cheaper than others in the international market.
• Limits under AoA: De Minimus Limits are imposed on them. These are the minimal amounts of Amber box subsidies permitted by WTO, even though they distort trade.

• This system impacts India because these subsidies are calculated with 1986 as a base when India’s production levels were low. Along with that, Inflation is unaccounted in the calculation. As a result, India’s 10% subsidy is much lesser than USA’s 5% subsidy. In 2017, Bali Package was signed, under which developing countries, especially India, were allowed to breach the 10% limit until the solution to this problem was reached. 

Critique of AoA

• The developed countries use the Agreement on Agriculture under the WTO framework as a tool to dismantle the public procurement infrastructure of developing countries. Developed countries such as USA and Canada produce food grains in large quantities, and they want to turn developing countries into a market to dump their surplus grains while converting the developing countries to produce tropical products needed by them at low prices. 
• ‘Reference price’ for calculating support was the 1986-88 average world price of a crop which they converted to rupees at the then-prevailing ₹12.5 per dollar exchange rate.

• Under this, the export of farm or animal products can be banned from a particular country to protect humans, plants & animals.
• Under this agreement, each nation can make its own Quality Control Rules given they are scientific.
• E.g., In 2014, European Union (EU) Trade commissioner banned imports of Indian Alphonso, eggplant & other vegetables due to fruit fly contamination in earlier shipments which can impact the health of plants in the EU.

• Under the TBT Agreement, the export of any non-farm product can be banned from a particular country if the product is dangerous to health or the environment.
• E.g., the US can ban entry of Indian Pharma Products under this agreement if they don’t meet health standards. 

If the host nation is giving large subsidies to its domestic industries (non-farm), then importing nation can take the following actions

It has three main pillars

• Intellectual Property Rights (IPRs) include copyright, patents, GI etc.
• The most revolutionary aspect of TRIPS is that it provides product patents instead of a process patents. 
• TRIPS gives protection of 20 years for patents, 50 years for copyrights, 7 years for trademarks and 10 years for layout designs. 

• TRIMs Agreement deals with the investment done by the businesses based in one country in a foreign country. It has the provisions of equal treatment of foreign companies wrt national companies. 

1. India’s Solar procurement under National Solar Mission
   • USA filed a case against India, arguing that India’s National Solar Mission gave public procurement preference & subsidy to India-made solar panels, creating a non-tariff barrier for US solar panels. Subsequently, India lost the case and withdrew these barriers in 2017. But, the USA still alleges that India is still giving preference to local manufacturers.
2. Ban on American Poultry
   • In 2007, India banned the import of US poultry under the provisions of the Indian Livestock Importation Act, 1898 due to the fear of avian influenza/bird flu (H5N1). The USA alleged that these claims had no scientific basis, and the ban was imposed to protect local business interests. In 2016, WTO ruled in favour of the USA. The USA alleges that India is still creating barriers to its poultry imports and hence demanded $450 million compensation from India in subsequent cases filed in 2018.
3. Export Incentive Schemes of India
   • In 2018, the USA filed a complaint against export incentive schemes of the Indian government viz. (1) Merchandise Export from India Scheme (MEIS), (2) Export Oriented Units (EOU), (3) Electronics Hardware Technology Parks (EHTP), (4) Special Economic Zone (SEZ) and (5) Export Promotion Capital Goods. Under this scheme, India gives tax reliefs and subsidies to its exporters. The argument of the Indian government was based on the fact that they will phase out these schemes after 8 years from and these subsidies and tax reliefs were needed as India is a developing country.
   •  But WTO ruled against India in 2019 and ordered India to stop such schemes within the next 90-180 days. But India challenged this in WTO Appellate Body

In WTO, negotiations related to trade are taken up in different rounds. E.g. WTO was formed as a result of the Uruguay Round. In 1986, these countries started to negotiate on a specific determined set of things under the Uruguay Round on which the decision was reached in 1993. After that, countries decided to move ahead to take other subjects in order to make the trade even freer. Hence, Singapore Round started in 1996 in which discussion was to be held on investment, government procurement, labour, environmental laws etc. But Uruguay Round had certain shortfalls which started to impact developing countries, and they started to protest. Hence, Singapore Round was scrapped, and negotiations started under Doha Round in 2001. Presently all the negotiations are going under Doha Round

Doha Development Round (DDA) officially began in November 2001 (4th Ministerial). DDA was set up to deal with many deficiencies of WTO significantly impacting developing countries. These include 

1. Public Stockholding: Developing countries wanted special safeguards & a change of rules relating to public stockholding for food security. 
2. Introduction of measures to blunt the market power of large firms in the pharmaceutical industry  
3. Making trade of goods and services easier across national borders 
4. Freer mobility of labour in global services trade 

Principles of Doha Round

1. Single Undertaking

• ‘Nothing is agreed until everything is agreed‘ i.e. the developed countries can’t cherry-pick which parts to prioritize.
• It is the root cause of why the Doha Round is struck. 

2. Transparency

• The negotiations have to be transparent.

3. Special & Differential Treatment

• The member countries will take the principle of special & differential treatment for developing & least developed countries into account while negotiating. 

India’s stand at Ministerial Conferences

• Export Subsidies: Reduce export subsidies given by developed nations.
• Special Safeguard Measures: USA, Canada, and other developed countries give their farmers 70-80% subsidies. If such produce is exported to developing countries, it can crash the price of agricultural commodities in those countries, negatively impacting local farmers. Hence, India and other developing countries want Special Safeguard Measure (SSM) under which such countries can raise the tariff on agricultural commodities temporarily to deal with the fall in the price of agricultural goods. There is a difference between developed and developing countries over the trigger factor at which SSM can be activated. 
• Stockholding: A permanent solution to public stockholding to ensure the continuation of its food subsidies for public distribution programs.           
• Re-affirming the Doha Development Agenda (DDA) and supporting the argument that new issues like—global value chain, e-commerce, competition laws, labour, environment and investments should be introduced only after settling all the issues to be discussed under DDA.

Why DDA is facing the roadblock?

 The reason is the fight between the developed and developing countries with differing demands

Developed Countries (headed by US , EU, Japan etc) => Bring back the Singapore Issues 

• They want a start to negotiations for new trade agendas, including investment, competition policies, government procurement, labour, environment and climate change.
• Developing Countries are against any conclusion of the Doha Round without a clear decision regarding the solution on key existing issues.

Developing Countries (headed by China, India etc)

• They want Doha Agenda negotiations to be completed before moving on to other items.

Consequences of DDA roadblock

Since WTO is not going anywhere and has stuck since decade, nations have started to look towards Regional Trade Agreements (RTAs). These developments have posed a question regarding the future of the multilateral trading system under the WTO. 

• With this, it is not surprising if the members no longer value the relevance of WTO & become more frustrated with its process. Consequently, members will be more eager to look for alternate routes outside the WTO, notably via Regional Integration. 
• Earlier TPP among the 12 nations (which was scrapped by Trump) and RCEP & TATIP can be understood as a pragmatic response to the DDA roadblock.  
• In all, Bilateral Free Trade agreements have increased from 124 in 1994 to 600 in 2015 

But neither approach with its inherent discriminatory nature is a substitute for WTO and its strong edifice of a multilateral system of rules based on egalitarian principles and effective dispute settlement mechanism.