India to explore grey area in WTO rules to continue with export subsidies

With India to cross the low-income threshold this year as per World Trade Organisation (WTO) rules which states 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 phase out period that is allowed under certain conditions. If there exists such a possibility, they may very well demand it, a government official said.

Meanwhile, the Centre is exploring certain “grey areas’’ in WTO rules to see if it can continue with its export subsidy schemes for some more time. 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.

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 percent of global exports in 2010 — but also sops for all other sectors would have to go.

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 phase out period for its subsidy.

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 phase out 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 they very well knew that India’s status was about to change at the WTO. To keep their trust and ensure continuity they have to try and see that the schemes continue at least till the end of the FTP period, the official said.

Given the state of India’s exports and economy at the moment, it would rock the boat considerably if export incentive schemes have to be discontinued or changed.

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.