America’s reciprocal tariffs will exacerbate the problems of Indian farmers

India exports a variety of agricultural products to the US, including frozen shrimp, prawns, basmati and non-basmati rice, vegetable saps and extracts, natural honey and processed food items. Meanwhile, key US agricultural exports to India include almonds, cotton, denatured ethyl alcohol, crude soybean oil and pistachios (ITC Trademap).

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India imposes much higher tariffs on agricultural goods compared to the US. The average agricultural tariff in India is 39%, with a trade-weighted tariff of 65%, compared to 5% and 4%, respectively (WTO, 2024), in the US, which has raised concerns about the imbalance in bilateral trade.

Although India maintains that its tariffs are within the overall limit of World Trade Organization (WTO) regulations, the US has time and again alleged that India provides significant support to rice and wheat farmers. However, farmers in India often bear the brunt of steep price drops and rarely see comparable gains when prices surge in wholesale or retail markets.

To curb food inflation, the Indian government banned wheat exports in May 2022 and broken rice exports in Sept 2022, imposed wheat stocking limits in June 2023, and restricted non-basmati white rice exports in July 2023. It also set a 20% export duty on parboiled rice and a $1,200/tonne Minimum Export Price (MEP) for basmati rice in August 2023.

These policy measures reflect a bias toward urban consumers in India’s food price policy, effectively transferring resources from farmers to consumers. The US administration’s proposal for reciprocal tariffs could further impact India’s agricultural exports. In this context, it is important to compare government support for farmers in India vis-à-vis the US.

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One such measurement of agricultural support is conducted by the Organization for Economic Co-operation and Development (OECD), an international think-tank based in Paris. It presents a comparative picture of support to the agriculture sector through a policy indicator known as Producer Support Estimates (PSEs). The OECD applies a standard methodology to measure PSEs for 51 countries over 35 years.

The PSE primarily captures the impact of various policies on two components: First, output support known as Market Price Support (MPS), which is determined by comparing the domestic price with an international benchmark price for all major agricultural commodities produced by a nation. Second, various input subsidies that farmers receive through budgetary allocations by the central and state governments.

Both output and input support are combined to assess whether farmers have received positive or negative support (PSE) as a percentage of gross farm receipts. A positive PSE means farmers benefit from government support, earning more than in a free market, while a negative PSE indicates policies that reduce their income.

According to these estimates, India received negative PSE support of -15.47% in 2023, whereas the corresponding figure for the US was 8.14%. This clearly indicates that Indian farmers are at a disadvantageous position compared to their US counterparts.

Much of the negative support estimated for India is attributed to output policies that have kept Indian commodity prices lower than global prices due to an inherent consumer bias in domestic marketing regulations and trade policies. Major farm support in India is in the form of input subsidies for fertilizers, irrigation and electricity, and schemes such as PM-Kisan Yojana.

For 2023, MPS for agricultural commodities stood at -26.5%of gross farm receipts, and input subsidies were 11%, reflecting a negative PSE for India. Several key commodities, including wheat, maize, rice, mangoes, and potatoes have reported significant negative support.

In contrast, the US’s positive PSE is primarily a result of crop commodity programs, which provides financial assistance when prices fall below the minimum thresholds set by legislation or when crop revenue declines relative to recent levels.

Additionally, the US government offers an extensive crop insurance program that covers both yield and revenue losses. Substantial government assistance is also provided to dairy and sugar farmers, ensuring stable incomes and reducing market risks.

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A comparative analysis of agricultural support in India and the US reveals a stark disparity. While US farmers benefit from structured financial protection, Indian farmers face significant price disadvantages. Proposed reciprocal tariffs could further harm Indian agricultural exports without addressing these inequities.

Additionally, reduced tariffs under a trade agreement may flood Indian markets with low-cost US imports, worsening the economic struggles of farmers amid climate and market challenges. Strong negotiations are crucial to protecting India's agricultural sector.

India must balance trade interests while protecting its farmers in a competitive global market. Strong negotiations are crucial to ensure that any trade agreement safeguards agriculture and supports sustainable and equitable growth.

The authors are, respectively, founder of Tuvai Nature and a senior fellow with the Indian Council for Research in International Economics Relations (ICRIER)