More trouble ahead for export trade

FIEO India would no longer be able to legally offer export subsidies, as its per capita gross national income had crossed $1,000 for the third year in a row

Last week, many organisations had represented the difficulties of exporters under the new Goods and Services Tax (GST) regime. They’d done so before the panel of senior government officials constituted at the behest of the GST Council. Possibly having said the same things they’ve been saying for months.

Earlier, nobody seemed to be listening. Now, the committee had to. Suresh Prabhu, the new minister for commerce and industry, had tweeted that he was working with the finance ministry to hasten on refunds and for making incentives to exporters more attractive. So, the latter have reason to hope for quick resolution of their problem of blocked working capital. 

However, new worries could be on their way. In its weekly bulletin dated September 18, the Federation of Indian Export Organisations (FIEO) says India would no longer be able to legally offer export subsidies, as its per capita gross national income had crossed $1,000 for the third year in a row. Hence, it can no longer be considered a poor country. This means the Merchandise Exports from India Scheme (MEIS) that gives direct subsidies based on the value of export and the interest subvention scheme under which banks charge less interest on loans to exporters, could come under the scanner of the World Trade Organization (WTO). And, such subsidies might invite countervailing duties by importing countries.

The commerce ministry is expected to soon announce its mid-term review of the Foreign Trade Policy (FTP). It might be wondering whether to make any addition to the MEIS scheme, as that could draw immediate criticism from other countries. It would also find it difficult, says FIEO, to replace the MEIS schemes with production subsidies, which are allowed by WTO. In fact, in its FTP statement 30 months earlier, the ministry had warned exporters that the subsidies might be phased out. 

The other worry is on possible termination of lower tariffs for goods of Indian origin in developed countries under the Generalised System of Preferences (GSP). The present concessions under GSP in the United States expire this year-end and come for review. The US President has powers to remove products from GSP eligibility in response to petitions from interested parties, preclude certain beneficiary developing countries (BDCs) from GSP eligibility for certain newly designated products, limit the re-designation of GSP eligibility to certain BDCs and remove products for an individual BDC which has exceeded competitive need limitations. Donald Trump had campaigned on the plank of protectionism during his ascendancy to the top job in the US. He’s quite unpredictable and might severely curtail the GSP benefits to goods of Indian origin, on the ground that India is not a poor country. Other developed countries might follow. In fact, some exporters have already got letters from their buyers, asking for price cuts to compensate for withdrawal of duty concessions for deliveries from January onwards. 

These dark clouds on the horizon are showing up just when a strengthening rupee, stiff competition and GST refund issues have bludgeoned the exporters. These could fade if the government finds some ways to negotiate a deal with our trading partners. Hopes ride on the lobbying skills of Prabhu. On their part,  exporters have to be prepared for not only the withdrawal of duty concessions but also levy of countervailing duties by importing countries. 

E-mail: tncrajagopalan@gmail.com