US Govt May Push India To Phase Out Its Export Subsidy Program

The US administration has recently dragged India’s export promotion schemes to the WTO (World Trade Organisation) saying the subsidies by India were harmful to the American interests. This, in turn, has forced India to take a re-look on its existing export subsidy program and if things move the way, it has been envisaged, India is expected to phase out most of the current export sops by 2023-2025. Indian commerce ministry officials however said that the move has been initiated not only to be WTO-compliant by that period, but growth is likely to be much higher by then.

 

Interesting, in the process of looking to phase out all or most export sops, India might also be looking at a distant replacement for such subsidies in the form of production subsidies, which are largely used by China for its export clusters. But the problem with production subsidy is that it involves huge outgo from the budgetary resources, thereby putting a lot of drain on the exchequer. So, the government would be wary of using such a tool as that could impact fiscal deficit.

 

The six export subsidy programs that have come in for a flak from the Trump administration include: the Merchandise Exports from India Scheme, Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme, SEZ, the Export Promotion Capital Goods Scheme. Besides, the duty free imports have also been challenged. Indian Trade minister Suresh Prabhu recently advocated that India should be given a chance to phase out export subsidies over eight years. This is quite normal, because other countries had also been given such breathing space.

 

According to Indian commerce ministry officials, the next seven years would be vital to reform, reframe or tweak the subsidy programme for the exports sector and it would be done after a thorough review.

 

Significantly, India could actually move on the issue with alacrity because, according to the special and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, when the per capita gross national income (GNI) of a member country goes above $1,000 per annum (at the 1990 exchange rate) for three consecutive years, it has to phase out its export subsidies over eight years.

 

Going by WTO data, India crossed the per-capita GNI threshold in 2013, 2014 and 2015. The 2015 figures, released by WTO, revealed that India’s per capita GNI rose to $1,178 in 2015 from $1,051 in 2013. However, India says that that the WTO notification informing it about crossing the threshold had come in 2017. Hence, the eight-year-period for phasing out the export subsidies would start from 2017.