Subsidies are not adversely affected

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: to higher factor costs, infrastructure constraints and inputs costs, the possibility of trade diversion is more real than what is envisaged by Indian policy makers. To be specific each product has to be analysed individually.

In the name of WTO, on one hand, governments are withdrawing subsidies extended to small industries, and on the other, reservation is also being abolished. How can small industries cope with global competition?

— Ravi Rajgariya, Ranchi

All subsidies are not bad, nor are they incompatible with WTO principles. Under the regime, it is chiefly export related subsidies or the subsidies that affect the price of export products that are not allowed. In India, the most significant such measure has been the income tax benefit under sections such as 80 HHC, which has now been done away with. That is applicable to all exporters, both large and small. No other subsidy or assistance extended to SSIs has been adversely affected. Second, the SSI reservation policy is not incompatible with WTO per se, although it is true that India lifted quantitative restrictions (QRs) on imports due to the WTO regime and pressure from trade partners.

After having removed QRs, the policy of SSI reservation also lost its value, because even if a product was reserved locally, it could be freely imported. However, it has become convenient these days, to justify withdrawal of subsidies claiming their incompatibility with WTO, which is not true in most of the cases.

With regards to the ability of SSIs to compete after withdrawal of such schemes, the fact borne out of most of studies, is that not more than 1% of SSIs have benefited by the public ‘promotional schemes’. SSIs have survived because of their inherent strengths so far and are likely to continue in future as well.

Anil Bhardwaj is secretary-general, Federation of Indian Micro, Small and Medium Enterprises (Fisme), New Delhi.