Roving Periscope: Importing farm products key issue in US-India tariff talks
Virendra Pandit
New Delhi: In April, President Donald Trump paused his reciprocal tariffs on some 100 countries for three months, ending July 9. Several countries have since been racing against time to strike a favourable trade and tariff deal with America, even as Trump has just announced take on Japan!
While he imposed as high as 145 percent tariff on certain Chinese items as he resumed trade war against Beijing, he clamped 26 percent tariff on India, besides a 10 percent baseline. India has since been engaged with the US for a mutually-favorable deal. To pressurize India to sign up by July 9, Trump has also characteristically said a deal is likely soon.
It all depends on how the US negotiators respond to their Indian counterparts’ insistence that New Delhi cannot ignore far-reaching political and economic impact of importing competitive US farm products on indigenous products, and the livelihood of millions of farmers.
In the last decade, the Indian economy has zoomed from the 11th largest worldwide to the fourth position, and agriculture is no longer its growth driver. However, despite farming and its allied areas accounting for only 16 percent of India’s USD 3.9 trillion economy now, it sustains nearly half the population, making farm goods politically and economically highly sensitive.
It is in this backdrop, and the rapidly changing world order, that the US and Indian trade negotiators are racing to finalize a tariff-cutting deal before July 9 but significant disagreements remain over agriculture imports, the media reported on Thursday.
As farmers remain the most powerful voting bloc in India, Prime Minister Narendra Modi’s government was forced into a rare retreat four years ago when it tried to implement reformist farm laws in the digital era.
New Delhi realizes that the prospect of cheaper American imports could drive down local prices in India, handing the political opposition a fresh opportunity to attack the NDA government. New Delhi has traditionally kept agriculture out of Free Trade Agreements (FTAs) with other nations. Granting market access to the US could force India to extend similar concessions to other trading partners.
Unlike American farmers, who derive huge profits, most of the Indian farmers’ very existence depends on their relatively meagre products. The average Indian farmer’s landholding is just 1.08 hectares, compared to 187 hectares in the US. Likewise, the average herd size in India’s dairy sector is two to three milch animals per farmer, compared to hundreds in the US. This huge difference makes it difficult for small Indian farmers to compete with their US counterparts.
Also, farming in India remains largely unmechanized because small, fragmented land holdings leave little room for large machinery. In many regions, farmers rely on bullock cart age techniques passed down through generations, a sharp contrast to American farms where cutting-edge equipment and AI-driven technologies have raised productivity and profit multiple times.
Trump’s US is pressing India to open its markets to a wide range of American farming products, including dairy, poultry, corn, soybeans, rice, wheat, ethanol, citrus fruits, almonds, pecans, apples, grapes, canned peaches, chocolates, cookies, and frozen French fries. While India is willing to grant greater access to US dry fruits and apples, consumed mostly by relatively better off Indians, it is holding back on allowing imports of corn, soybeans, wheat, and dairy products which provide livelihood to millions of poor farmers.
Besides, India does not allow genetically modified (GM) food crops, while most US corn and soybean production is GM-based.
Dairy remains a highly sensitive issue in India, where cultural and dietary preferences strongly influence food choices. Indian consumers are particularly concerned that cattle in the US are often fed with animal by-products, a practice that conflicts with Indian’s largely vegetarian food habits.
Additionally, a key aim of India’s Ethanol Blended Petrol (EBP) program is to cut dependence on energy imports by blending domestically-produced ethanol with gasoline (petrol and diesel). Significant investments by domestic companies mean that India is now close to achieving its ambitious target of blending 20 percent ethanol. Importing ethanol would undermine those companies.
The EBP also helps manage surpluses of rice, sugarcane, and corn by diverting them to ethanol production. Allowing imports of US ethanol would be a serious setback for India’s emerging distillery sector, experts say.
