NDA govt's second tenure to be dotted with many problems

The government has to look at its trade and tariff policies afresh... The finance ministry's approach will probably be better known when the Budget is presented

The second tenure of the Modi government has started on a turbulent note on the trade front.  To quite an extent it was expected. Going forward, more problems can be expected.

As soon as the new government took over, the United States withdrew the tariff concessions for Indian origin goods under the Generalised System of Preferences (GSP) with effect from June 5. It came as no surprise, as the Trump administration had served a notice of its intention to do so in April itself.  Even so, any hopes that some kind of compromise may be worked out evaporated when the withdrawal actually took effect. According to our xommerce ministry, it may not have major impact on our exports to the US, as our reliance on GSP has reduced substantially over the years. 

India imposed higher tariffs on 28 products originating from the US. The list of items was notified last June as a measure of retaliation against the US raising the import duties on steel and aluminium products. However, India postponed the move several times in the hope of negotiations in the matter of market access that the US had raised. Considering the size of its economy, the US is unlikely to feel much pain due to India’s retaliatory action.

Now, the US has threatened to cut the number of H1B visas to Indians with a view to pressurise India to go easy on its data localisation policy and restriction on e-commerce firms. The H1B visa programme allows US companies to bring skilled workers from other countries into the US, and, hence, is a source of jobs for thousands of Indians. Around 85,000 H1B visas are granted each year, and Indians receive around 70 per cent of these. 

The US has already complained to World Trade Organization (WTO) against India’s major export promotion schemes on the grounds that India cannot use subsidies after having breached the threshold per capita income of $1,000 for more than three consecutive years. Several other developed countries have supported the complaint. The commerce ministry is now re-working the schemes to make them compliant with the WTO disciplines. The finance ministry has tweaked the rules regarding manufacture in bonded warehouses. 

Besides the US, several other countries like Brazil, Australia, Guatemala, Thailand, Costa Rica and Russia have raised disputes regarding the subsidies given to farmers.  They have argued that India has substantially increased production-related subsidies and direct export subsidies and thus breached its commitment to limit subsidies. The European Union and Japan have challenged India’s decision to raise the import duties on mobile phones, complaining to the WTO about violation of its commitments. Thailand, Canada, China, Chinese Taipei, the US and Singapore have joined the dispute as third parties. 

So, the new government has to look at its trade and tariff policies afresh. The new Commerce Minister has said that the industry would have to think beyond subsidies and to seek ways of improving efficiency. The finance ministry’s approach will probably be better known when the Budget is presented. 

In the meantime, the Finance Ministry has talked of misuse of the Goods and Services Tax (GST) refund mechanism by the exporters and strong measures to counter them. Many exporters, however, feel that it is the government that has unfairly enriched itself through faulty implementation of the GST.

Email : tncrajagopalan@gmail.com