India’s per capita income has been holding well above $1,000 (in 1990 dollar terms) since 2013, formally qualifying it as a middle income country and, according to WTO rules, making it ineligible to provide direct export subsidies. This was expected. What was not is the Centre’s inaction so far. It should have known this was coming — with India’s record of consistent growth — even when it unveiled its Foreign Trade Policy (2015-20). Instead, the Centre announced the Merchandise Export from India Scheme as late as August last year, providing a flat export benefit across 5,000 tariff lines at a cost of over ₹22,000 crore. The interest equalisation scheme, a souped up version of the interest subvention scheme, was announced in November 2015. Meanwhile, explicit export subsidy schemes such as duty drawback (reimbursement of import duty on inputs) continue. Under WTO, production-based subsidies such as technological upgradation, capacity building and infrastructure development are permissible. Even for countries below the $1,000 per capita threshold, product-specific subsidies may be questioned if the export of the product concerned accounts for over 3.25 per cent of the global exports for over two consecutive years. In that case, the country concerned will have to phase out subsidies over eight years. India’s textiles sector came under the scanner for this reason some years ago. It can be reasonably expected that India will be dragged to the WTO for its subsidies regime. There are no indications that it is well prepared for the eventuality.
Buying time is easier said than done. This is because India is regarded as an emergent economy, rather than a “developing” one — an image makeover that has happened not just because of the high growth years of 2003-08 but also on account of hardsell to global observers that the economy is a big player on the world stage. To now argue that India still has pockets of underprivileged, as it indeed does, for which it needs to sustain its subsidies, would somehow seem like an unconvincing change of tack. This sense of awkwardness in international negotiations has been exposed every now and then — for instance, in the climate talks leading up to the Paris pact. India has managed to get away with a commitment to reducing the emissions intensity of its GDP (citing development needs) rather than promise actual emission cuts. As India continues with its grandstanding in forums such as the G-20, its negotiating space in the WTO, climate talks and forums such as RCEP may get reduced. The Centre must take serious note of this contradiction.
As for exports, the commerce and industries minister should push for a new regime of support to exports — one that is based on improving ease of doing business. Exporters are already struggling, coping with feeble markets and GST. The Government needs to reach out to them and resolve their concerns — while telling them that direct subsidies cannot be continued.