Centre examining alternative scheme to wean off direct textile export sops

With the World Trade Organisation (WTO) coming up with a deadline for abolishing export sops beyond next year for Indian textile and clothing exporters. The Indian Commerce and Textile Ministries has started examining alternative schemes that are allowed by the WTO such as ones for quality upgradation and subsidising capital expenditure to wean off exporters from direct subsidy schemes and replace them with indirect benefits.

However, the changes would happen gradually and there will be no immediate withdrawal of popular schemes like interest subvention or Merchandise Export from India Scheme,” a government official said.

Delays in implementing WTO deadlines do not usually have an immediate negative repercussion on the erring country as disputes filed by other members take a couple of years to get resolved. If found guilty of bending rules, the erring country gets some more time for making the requisite changes in its rules.

The US has been continuously asking India to re-haul its textile export policy. According to US calculations, the country should have done away with all forms of export subsidies for the sector by 2015.

According to the US argument, the WTO secretariat released calculations showing that India had reached “export competitiveness” in textiles and clothing no later than 2007. Since WTO rules gave members eight years from that date to phase out export subsidies, the transition period ended in 2015.

New Delhi’s argument is that since the WTO undertook a computation of India’s world trade share following a member’s request only in 2011, and determined that it had retained competitiveness on the basis of data of 2009-10, it can be inferred that the phase-out period would end in 2018.

India’s annual exports of textiles and garments are pegged at over $35 billion accounting for about 5 percent of world trade share.

Although by our own admission the period for doing away with export sops in textiles is 2018, India don’t want exporters to panic as they are already reeling under the burden of GST.

The official said that they can start the process of phasing out the schemes at their own pace next year, adding that a message is being given to textile exporters that the export incentives they have got used to will ultimately have to go.

Although direct export sops will be phased out, the government has no intention of reducing the total support extended to the textiles industry. Schemes of equal value or more will replace the ones that are phased out.

Two popular export sops enjoyed by textiles and garments producers are the interest subvention scheme, where the government bears part of the interest burden on loans, and the MEIS scheme where en-cashable scrips are given based on the value of the exports.