India is devising alternative schemes to promote manufacturing in the light of the recent threat to its export promotion programmes at the World Trade Organisation (WTO). The government is mulling new schemes linked to job creation and manufacturing clusters, especially in the case of textiles and apparel where India has to phase out subsidies by the end of this year. Being broader in focus and not just restricted to exports, these would not run afoul of WTO. At a meeting last week, the government deliberated the idea of expanding the Rebate of State Levies (RoSL) scheme for textile and garments. It will seek to refund those taxes that remain unrebated under the goods and services tax (GST) regime such as electricity duty and duties paid on petroleum.
RoSL can be used to offset embedded taxes which are currently not being reimbursed in GST,” said an official aware of the details. Under RoSL, garment exporters get refunds from the Centre against all levies paid at the state level. This can now be expanded to include taxes that are still embedded.
The official added that production clusters can also qualify for concessions such as those on electricity. Similarly, ideas linked to employment generation such as tax concessions on provident fund contributions and exemptions to new employees (check) can also be eligible for sops without violating global trade norms.
The textile ministry has recommended linking employment generation subsidies to the wage bill as the criteria for the subsidy. The commerce department has said that the Advance Authorisation Scheme, which allows duty-free import of inputs used in manufacturing export products, is WTO compliant but called for a strong verification system to avoid excess subsidy. Under the special and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, developing countries with a per-capita, annual gross national income (GNI) below $1,000 at the 1990 exchange rate are allowed to provide export incentives to any sector that has a share below 3.25% in global exports.
Since India acquired export competitiveness in textiles by crossing the 3.25% threshold in 2010, the deadline for ending direct subsidies to textile companies is December 2018, which the government worries will hurt the sector.
Under existing WTO rules, a country can no longer offer export subsidies if its per-capita GNI has crossed $1,000 for three years in a row. In 2017, WTO notified that India’s GNI was $1,051in 2013, $1,100 in 2014 and $1,178 in 2015.The government is also considering schemes to support compliance, sustainability and quality certification as they conform with WTO norms.