Sub­sidy Blues

Ques­tions over phas­ing out of ex­port sub­si­dies at the WTO may force In­dia to shift to a new trade pol­icy.

Business Today - - CONTENTS - BY JOE C. MATHEW @joec­mathew

Ques­tions over phas­ing out of ex­port sub­si­dies at the WTO may force In­dia to shift to a new trade pol­icy

As In­dia gets ready for the third mini- min­is­te­rial con­fer­ence of the World Trade Or­ga­ni­za­tion ( WTO) in Mar­rakesh, Morocco, next month, there is a query it could face from other mem­ber coun­tries. How, and by when, will it phase out ex­port sub­si­dies that it pro­vides un­der var­i­ous for­eign trade poli­cies?

This is be­cause low and mid­dle in­come WTO mem­bers which are al­lowed to pro­vide some ex­port sub­si­dies due to a spe­cial and dif­fer­en­tial treat­ment pro­vi­sion un­der the Agree­ment on Sub­si­dies and Coun­ter­vail­ing Mea­sures are sup­posed to give up such con­ces­sions once their GNP per capita ex­ceeds $ 1,000 per an­num for three con­sec­u­tive years. In­dia has just breached that limit.

There is no doubt that In­dia will have to pro­vide an an­swer, and the govern­ment is work­ing on it. But fix­ing a dead­line for phas­ing out th­ese ex­emp­tions is the least of the prob­lems. What the govern­ment will have to do is to re­place the sub­si­dies in a way that en­sures least dis­rup­tion in the coun­try’s ex­ports. This is a far more im­por­tant is­sue,

It was in 2015 that the govern­ment had merged all ma­jor ex­port in­cen­tive schemes like Fo­cus Prod­uct Scheme, Mar­ket Linked Fo­cus Prod­uct Scheme, Fo­cus Mar­ket Scheme, Agri­cul­ture In­fra­struc­ture In­cen­tive Scrip, etc, into a sin­gle scheme — the Mer­chan­dise Ex­port From In­dia Scheme ( MEIS). Since then, the MEIS has been the most im­por­tant form of di­rect sup­port to ex­ports. With the threat of phase-out of the MEIS, In­dia’s ex­ports, reel­ing un­der years of de­cline un­til some re­cov­ery three months ago, will face huge prob­lems in com­pet­i­tive pric­ing. The chal­lenge be­fore the govern­ment is to ad­dress that risk with­out los­ing face in the in­ter­na­tional trade group­ing.

What should help the govern­ment is the fact that this cri­sis is not sud­den. It was known right from 2010 that In­dia would be mov­ing to­wards this phase, sooner or later. There have been mul­ti­ple rounds of con­sul­ta­tions with stake­hold­ers – in­dus­try, ex­porters, academia – on the sub­ject. Sug­ges­tions range from pro­duc­tion-linked sup­port to in­dus­tryspe­cific in­fra­struc­ture sup­port. The in­tro­duc­tion of the goods and ser­vices tax ( GST) was also seen as a mea­sure to re­duce the hid­den costs paid by ex­porters. While the GST roll­out has hap­pened, the gains will not be vis­i­ble un­til the tran­si­tion pains are eased out and seam­less in­put credit and credit back of IGST pay­ments be­comes the norm.

While the blue­print of the al­ter­na­tive ar­range­ment is yet to be known, there is clear in­di­ca­tion that there is a draft plan to en­able the shift from ex­port sub­sidy regime to pro­duc­tion-based sup­port. One can only hope that the long awaited For­eign Trade Pol­icy re­view will chalk out those plans very soon. ~

WTO mem­bers are sup­posed to give up some sub­si­dies once their GNP per capita ex­ceeds $1,000 per an­num for three con­sec­u­tive years

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