India eyes loopholes in WTO norms to continue with export subsidies

In what could be crucial for ensuring export growth in the coming years, the Centre is exploring certain “grey areas’’ in World Trade Organisation (WTO) rules to see if it can continue with its export subsidy schemes for some more time despite the fact that India will cross the low-income threshold this year.

“The WTO rules say that when a member’s per capita gross national income (GNI) crosses the $1,000 threshold for the third consecutive year, it is no longer eligible to give export subsidies.

“But what is unclear is whether India will be entitled to an eight-year phaseout period that is allowed under certain conditions. If there exists such a possibility, we may very well demand it,” a government official told BusinessLine .

With the Foreign Trade Policy (FTP) 2015-20 up for a mid-term review later this month, the Directorate General of Foreign Trade (DGFT) has asked the Trade Policy Division of the Commerce Ministry to examine the WTO rules minutely to see if India can make a case for an eight-year phaseout period for its subsidy.

India’s GNI crossed the $1,000 mark for 2013 and 2014, according to figures released by the WTO’s Committee on Subsidies and Countervailing Measures.

In a couple of months, the GNI notification for 2015 will be released and India will, technically, not qualify any more for flexibilities.

This would mean that not only export subsidies for the textile sector — which is anyway going to graduate out in 2018 as it breached the sectoral criteria of 3.25 per cent of global exports in 2010 — but also sops for all other sectors would have to go.

Once the Trade Policy Division gives its views on the matter, the DGFT will plan its actions accordingly. But the DGFT is making a strong case for asking the WTO for the eight-year phaseout period, as it does not want to make drastic changes in the existing export incentive schemes.

“Exporters were promised certain schemes for five years when we very well knew that India’s status was about to change at the WTO. To keep their trust and ensure continuity we have to try and see that the schemes continue at least till the end of the FTP period,” the official said.

Popular schemes, like the Merchandise Export Incentive Scheme, Advance Authorisation Scheme and the Export Promotion Capital Goods scheme, may need to be discontinued once India crosses the GNI threshold.

“Given the state of our exports and economy at the moment, it would rock the boat considerably if export incentive schemes have to be discontinued or changed,” the official added.

India’s exports declined for two consecutive fiscals (FY15 and FY16) but managed to post a marginal increase of 4.71 per cent to $274.64 billion in FY17. The recovery, however, is fragile, as the growth is over a low base and the global demand situation continues to be grim.

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