[op-ed snap] Time to move beyond subsidies

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: WTO, SCM Agreement, Doha negotiations, Gross National Product, Foreign Trade Policy 2015

Mains level: Export promotion policies in India


Context

Contesting India’s subsidies

  1. India’s export promotion schemes face an uncertain future after the United States Trade Representative (USTR) decided to challenge their legality in the World Trade Organisation (WTO)
  2. The complaint of the USTR is that India is violating its commitments under the Agreement on Subsidies and Countervailing Measures (SCM Agreement) using five of the most used export promotion schemes

Why this opposition?

  1. India’s five export promotion schemes violate Articles 3.1(a) and 3.2 of the SCM Agreement, since the two provisions prohibit granting of export subsidies
  2. Until 2015, India had the flexibility to use export subsidies as it is among the 20 developing countries included in Annex VII of the agreement
  3. These countries are allowed to use these subsidies as long as their per capita Gross National Product (GNP) had not crossed $1,000, at constant 1990 dollars, for three consecutive years
  4. This provision applies to the Annex VII countries was an exception to the special provisions provided to the developing countries (the so-called “special and differential treatment”) for phasing out export subsidies
  5. India had crossed the $1,000 GNP per capita threshold in 2015

Amendement sought by India and other countries

  1. In the Doha negotiations, India and several other Annex VII countries sought an amendment of the agreement so as to enable them to get a transition period
  2. In a submission made in 2011, India, along with Bolivia, Egypt, Honduras, Nicaragua and Sri Lanka, argued that the Annex VII countries should be eligible to enjoy the provisions applicable to the other developing countries, namely, those that had GNP per capita above the threshold
  3. The latter set of countries was required to phase out their export subsidies within eight years of joining the WTO

India’s export promotion schemes

  1. Foreign Trade Policy (FTP) unveiled in 2015 did some serious introspection about the future of export promotion schemes
  2. The policymakers recognized that the extant WTO rules and those under negotiation were aimed at eventually phasing out export subsidies
  3. But, contrary to the pronouncements made in the FTP, the government has continued to increase its outlays on export promotion schemes
  4. During this period, the largest export promotion scheme in place currently, the Merchandise Exports from India Scheme (MEIS), was introduced to promote exports by offsetting the infrastructural inefficiencies faced by exports of specified goods and to provide a level playing field

Way forward

  1. Export promotion efforts in the country must make a movement towards more fundamental systemic measures and away from incentives and subsidies
  2. There is a strong case for the government to invest in trade-related infrastructure and trade facilitation measures, which can deliver tangible results on the export front
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