Export subsidy issue

What is the issue?

India's rising per capita income has created a problem for export subsidies.

What is the status India’s per capita income?

• Income per capita is a measure of the amount of money earned per person in a certain area.
• It can be calculated for a country by dividing the country's national income by its population.
• India’s per capita income is above $1000 formally qualifying it as a middle income country.

How India is responsible to WTO on this situation?

• According to WTO rules, now India is ineligible to provide direct export subsidies.
• Under WTO, production-based subsidies such as technological up gradation, 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% of the global exports for over two consecutive years.
• In that case, the country concerned will have to phase out subsidies over eight years.
• It can be reasonably expected that India will be dragged to the WTO for its subsidies regime.

What are the issues with Indian actions in this regard?

• India is recording consistent growth but centre failed to predict this issue.
• Instead, the Centre announced the Merchandise Export from India Scheme, providing a flat export benefit across 5,000 tariff lines at a cost of over Rs.22,000 crore.
• Meanwhile, explicit export subsidy schemes such as duty drawback (reimbursement of import duty on inputs) continue.

What actions should India take?

• India needs to plan according to the global trends and frame its policies.
• The commerce and industries ministry should push for a new regime of support to exports, one that is based on improving ease of doing business.
• The Government needs to reach out exporters struggling with GST and resolve their concerns while telling them that direct subsidies cannot be continued.

Source: Business Line