RESTRICTED
WORLD TRADE G/SCM/Q2/IND/4
25November 1996
ORGANIZATION(96-4988)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies ofINDIA1
toQuestions posed bytheUNITED STATES2
Thefollowing communication, dated 18November 1996, hasbeenreceived fromthePermanent
Mission ofIndia.
_______________
Chapeau
India hasnotified thatitneither grants normaintains anysubsidies which satisfy thereporting
requirements ofArticle XVI:1 oftheGATT 1994andArticle 25.2oftheAgreement onSubsidies
andCountervailing Measures.
Reply
Indiahasnotified thatitdoesnotmaintain anysubsidy which isinconsistent withtheprovisions
oftheAgreement onSubsidies andCountervailing Measures astheyareapplicable toIndia. The
notification mentions thatunder Section 80HHC oftheIncome TaxAct,deduction isallowed inthe
computation oftaxable profits ofdomestic companies andnon-corporate taxpayers resident inIndia
ofthewhole oftheincome derived bytheassessee from export ofgoods ormerchandise. The
notification addsthatitisnotpossible tomake anassessment ofthetradeeffects oftheabove-mentioned
subsidy.
Thus, Indiahasnotified onesubsidy which satisfies thereporting requirements ofArticle XVI:1
oftheGATT 1994 andArticle 25.2oftheAgreement onSubsidies andCountervailing Measures.
1. Could India please explain thebasis onwhich ithasdetermined thateachofthefollowing
programmes failstomeetthenotification requirements referenced above? Ifanyofthefollowing
programmes havebeenterminated, hasanynewormodified programme beeninstituted inits
place?
1G/SCM/N/3/IND+Suppl.1 &2.
2G/SCM/Q2/IND/1.G/SCM/Q2/IND/4
Page2
A. Titleofprogramme: Pre-andPost-Shipment Export Financing andPre-andPost-Shipment
Financing inForeign Currency:
Authority: Reserve Bank ofIndia
Form ofsubsidy: Preferential export financing, including foreign currency financing
PreferentialexportfinancingincludingforeigncurrencyfinancingareundertakenbyCommercial
banks inaccordance withtheguidelines issued bytheReserve Bank ofIndia. Interest ratesonforeign
currency loans arebased onLIBOR rates. Toqualify asanotifiable subsidy, theprogramme hasto
come within thedefinition inArticle 1oftheSubsidies Agreement andbespecific asperArticle 2.
Item(k)ofAnnex ItotheAgreement illustrates certain types ofexport credit asasubsidy. Export
credit granted bytheGovernment atratesbelow therateswhich theexporter would havetopayif
heborrowed oninternational capital markets would beasubsidy according tothisillustration. Since
LIBOR rateistheinternational capital market rateforcredit andexport credit inforeign currency in
India isatLIBOR plus, itcannot becalled anotifiable subsidy. Export credit inIndian rupees is
given atinterest ratesgenerally 2percentbelow thenormal interest rates. However, astheinterest
ratesonsuchcredits arewellabove theinternational ratereferred toearlier, itdoesnotconstitute a
subsidy.
B. Titleofprogramme: Income TaxDeductions under Section 80HHC:
Authority: Income TaxAct;Central Board ofDirect Taxes
Form ofsubsidy: Exemption ofexport profits fromcorporate taxes
Thesubsidy onaccount ofIncome TaxDeductions under Section 80HHC oftheIncome Tax
Act,1961hasbeennotified inIndia'snotification (document G/SCM/N/3/IND/Suppl.1). Itprovides
some offset against anumber oflocaltaxes andduties which arenotbeing otherwise rebated.
C. Titleofprogramme: Import Mechanisms (Licences):
Authority: Export andImport Policy 1992 -1997; Ministry ofCommerce
(Directorate General ofForeign Trade)
Policy objective/
Form ofsubsidy: Toassistexportswithinputsourcing,butalsopermitssaleoftheimport
licence.
Licences under theDutyExemption Scheme donotfallunder thedefinition ofsubsidy asthey
arecovered byclarification given infootnote 1totheSubsidies Agreement. Thisfootnote states that
exemption ofanexport product from duties borne bythelikeproduct when destined fordomestic
consumption shallnotbedeemed tobeasubsidy. Except incertain cases, licences under theduty
exemption scheme arefreely transferable aftertheexport obligation isfulfilled andthebankguarantee
etc.redeemed, sothatimportable lotsarecollected atonesource.
Special import licence isanother form oflicence which isdutypaidbutisgranted toexport
houses, EOUs/EPZs, deemed exporters andquality certificate holders etc.forimport ofitems presently
intherestricted listofimports. Thisscheme doesnotinvite anyfinancial contribution onthepart
oftheGovernment oranyforegoing ofGovernment revenue. Hence suchlicences arealsonota
notifiable subsidy.G/SCM/Q2/IND/4
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D. Titleofprogramme: Exemption ofExport Credit fromInterest Taxes
Authority: Reserve Bank ofIndia Circular of2September 1991
Form ofsubsidy: Exemption ofinterest accruing onallexport related loans
Thecurrently applicable circular oftheReserve Bank ofIndia isdated 21April 1993. This
circular exempts interest accruing orarising onorafter1April 1993toanybanking company onloans
andadvances made byittoanyexporter orexport credit. Banking companies areproviding loans
toexporters atinterest rateswhich aremuch higher thanloans ofthesame maturity intheinternational
markets (measured byLIBOR). Assuch, interms ofitem1(k)ofAnnex ItotheSubsidies Agreement
there isnosubsidy involved inthisprogramme.
E. Titleofprogramme: International Price Reimbursement Scheme:
Authority: Engineering Export Promotion Council (EEPC)
Form ofsubsidy: Rebates oninputs ofexported products tocompensate fordifference
between world/Indian price ofinputs. (Note: Irrespective ofthe
relationship ofthisprogramme toAnnex I,itwould stillseemtomeet
thenotification standards expressed inArticle 25.2oftheAgreement.)
Thisprogramme hasbeendiscontinued witheffect from 1April 1994.
F. Market Development Assistance
Theobjective oftheMarket Development Assistance (MDA) programme istostimulate and
diversify theexport trade along withthedevelopment ofthemarketing ofIndian products and
commodities abroad. Thisisageneral programme andnotspecific.
Until 2July1991aprogramme, namely, CashCompensatory Support (CCS) wasinoperation.
Thepayments under thisprogramme weremetthrough MDA funds. Similarly until6August 1991
another programme, namely, Export Credit (Interest Subsidy) Scheme wasinoperation. Thepayments
under thisprogramme werealsometthrough MDA funds. Bothofthese programmes havesince been
discontinued.
Atpresent, MDA provides grants-in-aid toexport promotion andmarket development
organizations. Thebudget forthisprogramme for1996-97 isRs250million (i.e.$7million). Since
thisisaprogramme providing assistance toorganizations forgeneral market development and
diversification involving negligible government funds andwithunidentifiable trade effects, itwasnot
considered anotifiable subsidy.
G. Rediscounting ofExport BillsAbroad
Underthisprogramme,exportersarechargedinterestatmarket-relatedLIBORratespluscertain
apercentage ofmargin forlending banks. There isalsonorefinance tothebanks under thisprogramme.
Hence, interms ofitem1(k)ofAnnex ItotheSubsidies Agreement, there isnosubsidy inthiscase.G/SCM/Q2/IND/4
Page4
H. Small Loan Guarantee Scheme forSmall Scale Industries
Thisisascheme whereby theDeposit Insurance andCredit Guarantee Cooperation provides
aguarantee cover tocredit institutions likebanks onloans granted toborrowers engaged inindustrial
activity onasmall scale. Itisgoverned bydetailed provisions regarding theextent ofguarantee,
eligibility forandconditions forgrant ofguarantee. Theoperation oftheScheme isgoverned by
objective criteria which areneutral innature andhorizontal inapplication. Thus, interms of
Article 2.1(b) oftheSubsidies Agreement thisScheme isnotconsidered asanotifiable subsidy.
I. Export Promotion, Capital Goods Scheme
Under thisprogramme, manufacturer exporters, merchant exporters andservice providers are
eligible toimport capital goods atconcessional ratesofcustoms dutysubject toanexport obligation.
Since thisprogramme doesnotmake available thecapital goods onterms more favourable thanthose
commercially available onworld markets toexporters, itisnotconsidered asanotifiable subsidy in
terms ofitem(d)ofAnnex ItotheSubsidies Agreement.
J. Benefits Provided toExport Processing Zones
Units established inExport Processing Zones (EPZs) areeligible forcertain benefits, mainly
exemptions from customs/excise duties, reimbursement ofCentral Sales Taxpaidonsupplies from
thedomestic tariffarea. Since theprogramme doesnotprovide goods onterms more favourable than
those commercially available onworld markets toexporters, itisnotconsidered asanotifiable subsidy
interms ofitem(9)ofAnnex ItotheSubsidies Agreement. Nevertheless, there-examination will
beundertaken andifthesebenefits arefound tobenotifiable theywillbesonotified intheforthcoming
fullnotification ofIndia. Inrespect ofexemption from Income Tax,areply totheprogramme on
Income Taxbenefits maybeseen.