Commerce minister Nirmala Sitharaman told FE: “The WTO rule is that you cannot support a sector which has already reached that international trading threshold. That means if it has already exceeded that level we will have to (remove export incentives).”
According to the WTO’s Agreement on Subsidies and Countervailing Measures, when the share of a developing country — with per capita income below $1,000 a year — in global exports touches 3.25% in any product category for two straight years, thereby gaining “export competitiveness”, it has to phase out export subsidies for the items within eight years from the second year of breach.
Countries like the US contend that India’s T&C exports first breached the threshold in 2005 and remained above the level in 2006 also and it should, therefore, end its export subsidies for these items by January 2015. New Delhi believes that many items within the T&C group may not have attained export competitiveness, and, therefore, need continued support. Commerce secretary Rajeev Kher told FE: “You are aware of the debate going on regarding sections and heads (within International Harmonised Systems code). We are still engaging ourselves in the WTO.”
Industry executives say the exporters were already facing stiff competition from countries like Bangladesh, Pakistan, Vietnam and Cambodia due to their duty-free access to some of the major markets, and the abolition of certain domestic export subsidies in select segments within the T&C sector would just hurt their competitiveness further.
The absence of any concrete assurance from the government on their demand for a 3% interest subvention to partially offset high credit costs have disappointed them. Mills’ demand to restore benefits for cotton and cotton yarn under the focus market scheme (FMS), which were withdrawn in 2013, seems to have also been ignored. Under the FMS, exporters used to get up to 4% of the freight-on-board value of cotton yarn in the form of a transferable scrip.
While textile exports growth remained subdued at just under 5% in April-December from a year earlier, garment exports started picking up only since 2013-14, primarily because of the rupee depreciation. Higher T&C exports augur well for the economy as they accounted for around 11% of the overall outbound shipments and the sector employs 45 million people — largest employer after agriculture.
Southern India Mills’ Association chairman T Rajkumar pointed out that while Cambodia has a zero-duty access to the EU, China and the US, Vietnam has a zero tariff access to China. Similarly, Pakistan and Bangladesh have an unrestricted access to the EU, which also accounts for around 35% of India’s garment exports. However, Indian yarn, fabrics and made-ups & garments attract export duties of 4%, 5% and 12%, respectively, in the EU. In the US, Indian yarn attracts 7% export duty, fabrics and made ups 10% and garments 17.5% duty.
Industry, however, hailed the reduction of export obligation to be eligible for duty-free import of capital goods under the EPCG scheme and the 2% duty scrip announced for mainstream cotton products and 5% for handloom, carpet and coir products.