India must rethink its strategy on export incentives

India must rethink its strategy on export incentives and choose alternative policy instruments to improve its competitiveness in exports of manufactures and other goods even as it appealed against the ruling by the World Trade Organization (WTO) panel, says a study by the Indian Council for Research on International Economic Relations (Icrier).

The WTO panel had said that that a few provisions of the domestic export incentive initiatives were not in line with global trade norms. Icrier says that though India has notified its decision to appeal against the panel report, the final decision may not come at all, for the WTO appellate body is dysfunctional at this juncture.

However, export subsidies are already prohibited and the international trade environment is becoming increasingly difficult for the use of other categories of public subsidy as well, and the US, the EU and Japan are proposing to enhance disciplines on it in the WTO, the study says. “Under the WTO Agreement, it is already possible for importing countries to levy countervailing duties if subsidized imports cause material injury to domestic industry in the importing country. There is no use granting more subsidies and then watch the importing countries mop up these payments as countervailing duties.”

Icrier has also prescribed a gradual reduction of import duty on capital goods as well as on important intermediate goods that go into the production of these items.

The think tank has also underlined the need to put in place measures that would help in movement of containers. “India has lacked world-class road infrastructure, and this has been a major reason for higher logistics cost. Since more than 70 per cent of the movement of containers is concentrated on the western economic corridor, an expressway from Delhi to Mumbai will contribute considerably to the reduction of logistic cost for manufactured goods.”

The dispute was filed by the US, challenging five programmes which include Merchandise Exports from India Scheme (MEIS), Export Promotion Capital Goods (EPCG) Scheme, Export Oriented Units (EOUs), and sector specific schemes, including Electronics Hardware Technology Parks (EHTPs) and Bio-Technology Parks (BTPs) and Special Economic Zones (SEZs).

The Icrier study says that India will get “a little time” to consider and implement the alternative strategies. “It can be reasonably expected that the US would approach India bilaterally and exert pressure for compliance. But there would be no reason for India to agree to full and strict compliance with the panel recommendations.”.