Concerns with India's Export Subsidies

What is the issue?

• The US has recently challenged in the WTO almost all Indian export subsidy programmes. Click here to know more.
• This calls for India to assess the real effects of export subsidies and consider other effective options for export promotion.

What is the exception provided for India?

• India was among the 20 developing countries included in Annex VII of the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
• This allowed it to use export subsidies as long as per capita Gross National Product (GNP) had not crossed $1,000, at constant 1990 dollars, for 3 consecutive years.
• This was provided to the developing countries for phasing out export subsidies.
• It is an exception under the “special and differential treatment”.
• India thus had the flexibility to use export subsidies until 2015.

What is the contention now?

• India had crossed the $1,000 GNP per capita threshold in 2015.
• India must have eliminated export subsidies immediately upon crossing the threshold.
• The complaint now is that India is violating its commitments under the SCM Agreement.
• But in Doha negotiations, India and several other "special provision" countries sought an amendment of the agreement.
• The demand was to enable them to get a transition period.

How have India's export subsidies been?

• Contrary to the pronouncements made in the Foreign Trade Policy, the government has continued to increase its outlays on export promotion schemes.
• In 2016-17, the total outlay on export promotion schemes was around Rs. 58,000 crore.
• This is an increase of more than 28% in 3 years.
• The Merchandise Exports from India Scheme (MEIS) was introduced to promote exports.
• This was done notably by offsetting the infrastructural inefficiencies faced by exports of specified goods and to provide a level playing field.
• The scheme initially covered 4,914 tariff lines and was subsequently increased to cover 7,914 tariff lines.
• In recent months, there have been expansions of the scheme.
• This has increased the total outlay on the scheme to nearly 60% over the level in 2016-17.

What needs to be done?

• India’s export promotion schemes face an uncertain future after the US decision to challenge their legality in the WTO.
• This is not the first time that the U.S. has put India’s export promotion schemes under the scanner.
• Moreover, the utility of export subsidies to promote exports has long been questioned.
• The real impact of these subsidies has never been clearly measured.
• But it has been quite evident that they have benefited the rent-seekers.
• There is, therefore, a strong case for the government to invest in trade-related infrastructure and trade facilitation measures.
• Only these can deliver tangible results on the export front.

Source: The Hindu

Quick Facts

Constant 1990 dollars

• The purchasing power of the dollar changes over time due to inflation.
• Constant dollars are used to adjust for these effects of inflation.
• This is done by converting economic information into a standard era dollar term, such as 1990 dollars.
• Constant dollars are used to compare economic activity in different time periods.

Agreement on Subsidies and Countervailing Measures

• The SCM Agreement addresses two closely related topics:

1. multilateral disciplines regulating the provision of subsidies
2. use of countervailing measures to offset injury caused by subsidized imports

• It strengthens discipline on trade distorting subsidies given by governments to give their firms an unfair competitive advantage.
• All countries that become members of the WTO will automatically be subject to the Subsidies Agreement.