To Beat WTO Norms On Export Incentives, India Mulls Allowing Capital Goods Duty-Free

The Centre is considering allowing import of capital goods duty-free in its efforts to overcome problems at the World Trade Organisation (WTO) in view of the incentives it extends for exports. As India has crossed the per capita gross national income threshold of $1,000 for the third consecutive year since 2015, it can no longer offer export incentives.

The Hindu Business Line reported that the move to allow import of capital goods duty-free was an alternative the government was considering to export incentive schemes that will have to be phased out or withdrawn. These schemes have been found incompatible to the WTO norms.

Currently, exporters can import capital goods free under the export promotion capital goods scheme and also for initiatives under special economic zones and export oriented units. The government also allows duty-free import of products under the advance licence scheme against exports.

While the United States has currently dragged India to the WTO dispute panel on export promotion schemes. The European Union, too, had referred the issue to the WTO earlier that was mutually settled. In the US petition, European Union and 11 other countries, including Russia and China, have filed petition as third parties that will entail the benefits of the WTO panel report if the ruling goes against India.

The US and other countries have alleged that India’s export subsidies are distorting trade and affecting their companies. The government will now work out a WTO-compliant scheme to help exporters since any setback could result on job losses. The Centre may bring down the duty on capital goods, currently at 7.5 per cent, to nil provided the importing firms meets certain conditions like providing employment.

At the same time, the Centre will have to ensure that the imports don’t end up hurting Indian companies that produce these goods. The daily, quoting officials, said the government was looking into all aspects.