RESTRICTED
WORLD TRADE G/SCM/Q2/IND/5
26November 1996
ORGANIZATION(96-5002)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies ofINDIA1
toQuestions posed bytheEUROPEAN COMMUNITIES2
Thefollowing communication, dated 14November 1996, hasbeenreceived fromthePermanent
Mission ofIndia.
_______________
Chapeau
India submitted on14September 1995totheWTOthatitmaintained nosubsidies which require
notification pursuant toArticle XVI:1 GATT 1994 andArticle 25oftheWTO Subsidies Agreement.
Inthisrespect, theEuropean Community hasobtained information ondifferent subsidy schemes
which were notnotified totheWTO although their notification appear toberequired pursuant to
Article 25.2oftheSubsidies Agreement.
SUBSIDY PROGRAMMES NOTNOTIFIED TOTHEWTO
(a) Income TaxBenefits
Article 80oftheIndian Income TaxActprovides foraspecific incentive forIndian exporters.
Thisprovision allows income fromexports tobededucted while computing taxable profits.
TheIncome TaxActprovides fortaxincentives fornewinvestments. Newindustrial undertakings
intechnology based sectors areentitled todeduct 25to50percentoftheir profits when
computing theirtaxable income during thefirsttenyears.
Thesubsidy onaccount ofIncome TaxDeductions under Section 80HHC oftheIncome Tax
Act,1961 hasbeennotified inIndia'snotification (document G/SCM/N/3/IND/Suppl.1).
(b) Export Credit Programme
Exporting companies areeligible forpreferential interest rates onexport credits. Theexport
credit forms partoftheworking capital ofIndian companies. Companies canattract capital
fromcommercial banks. Through government policy, thecommercial bank rates forexport
1G/SCM/N/3/IND+Suppl.1 &2.
2G/SCM/Q2/IND/2 andG/SCM/Q2/IND/3.G/SCM/Q2/IND/5
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credit areonanaverage 2percentlower thantherates forother credit. According to
information known totheCommunity, thetotalexport credit amounted toRs256.56 billion
or12.3percentofthenetbankcredit.
PreferentialexportfinancingincludingforeigncurrencyfinancingareundertakenbyCommercial
Banks inaccordance withtheguidelines issued bytheReserve Bank ofIndia. Interest ratesonforeign
currency loans arebased onLIBOR rates. Toqualify asanotifiable subsidy, theprogramme hasto
come within thedefinition ofArticle 1oftheSubsidies Agreement andbespecific asperArticle 2.
Item(k)ofAnnex ItotheAgreement illustrates certain types ofexport credit asasubsidy.
Export credit granted bytheGovernment atratesbelow therateswhich theexporter would haveto
payifheborrowed oninternational capital markets would beasubsidy according tothisillustration.
Since LIBOR rateistheinternational capital market rateforcredit andexport credit inforeign currency
inIndia isatLIBOR plus, itcannot becalled anotifiable subsidy. Export credit inIndian rupees is
given atinterest ratesgenerally 2percentbelow thenormal interest rates. However, these credits
aregiven atinternationally competitive ratesandtherefore notconsidered asasubsidy.
(c) Export Promotion Capital Goods Scheme
TheIndianauthoritiesestablishedtheexportpromotioncapitalgoodsscheme.Underthisscheme,
eligible exporters canimport capital goods andspares atconcessional orzerodutyrate.Export
activity isarequirement foreligibility.
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 ItotheSubsidy Agreement.
(d) Export Processing Zones
TheIndian Government established seven export processing zones instrategic locations around
thecountry. Export industries located inthese zones areeligible forexemptions inrespect of
excise tax,customs dutyandincome tax(thelatter during thefirsttenyears)?
Units established inExport Processing Zones (EPZs) areeligible forcertain benefits, mainly
exemption 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(d)ofAnnex ItotheSubsidies Agreement. Inrespect ofexemption from income
tax,reply totheprogramme mentioned at(a)above maybeseen.
TheCommunity would likethefollowing clarifications regarding these schemes:
Could India explain whythese programmes werenotnotified totheWTO?
Except theprogramme relating toexemption from Income Taxwhich hasbeennotified, all
other programmes arenotnotifiable subsidies asdescribed above.
Could India supply anotification under Article 25,using thestandard format?
NotificationinrespectofIncomeTaxexemption,usingthestandardformat,totheextentpossible
isbeing senttotheWTO.G/SCM/Q2/IND/5
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Could India clarify what thecriteria foreligibility areand howprojects areselected for
government subsidies?
Theauthority behind programmes (b)to(d)above aregiven below:
(b) Export Credit Programme
Theauthority forexport credit programmes notified bytheReserve Bank ofIndia (RBI) is
derived from Sections 21and35AoftheBanking Regulation Act,1949. ThePre-shipment Credit
inForeign Currency (PCFC) isnotified videRBIcircular No.REF.IECD No.EFD.21/04.02.15-93/94
dated 8November 1993. TheScheme forRediscounting ofExport BillsAbroad isnotified videRBI
circular No.REF.IECD No.EFD.14/04.02.11/93-94 dated 6October 1993.
(c) Export Promotion Capital Goods Scheme
Authority forthisprogramme isgiven inChapter VIofExport andImport Policy, 1April 1992
to31March 1997(incorporating amendments made upto25March 1996) readalong withChapter 6
ofVolume Ioftheaccompanying Handbook ofProcedures published bytheDirector-General ofForeign
Trade (DGFT), Ministry ofCommerce, Government ofIndia. Thelegislative authority fortheExport
andImport Policy ofIndiaemanates fromSection 5oftheForeign Trade (Development andRegulation)
Act1992 (No.22of1992).
(d) Export Processing Zones
Theauthority forthisscheme isderived from Chapter IXoftheExport andImport Policy,
1April 1992 to31March 1997 (incorporating amendments made upto25March 1996) readalong
withtherelevant Chapter ofVolume Ioftheaccompanying Handbook ofProcedures published by
theDirector-General ofForeign Trade (DGFT), Ministry ofCommerce, Government ofIndia. The
legislative authority fortheExport andImport Policy ofIndia emanates fromSection 5oftheForeign
Trade (Development andRegulation) Act1992 (No.22of1992).
Withrespect tothesupport forexport activity programme, could India provide theablehow
these subsidies willbephased out?
Interms ofArticle 27.4oftheSubsidies Agreement, India canphase outitsexport subsidies,
ifany,within theeight-year period referred toinArticle 27.3, preferably inaprogressive manner.
India would needtoenter intoconsultation withtheCommittee onlyifitdeems necessary toapply
suchsubsidies beyond theeight-year period. Provisions oftheAgreement donotenjoin developing
countries toprepare orprovide tables indicating phasing out.
REPLIES TOFOLLOW UPQUESTIONS OFTHE EUROPEAN COMMUNITY
1. The100percenttaxexemption onexport profits under Article 80oftheIndian Income Tax
Actisclearly aspecific subsidy being contingent uponexport performance. CanIndia confirm
thatitwillbenotified?
Asmentioned intheanswer ontheEC'soriginal questionnaire, thesubsidies onaccount of
Income Taxdeductions havebeennotified inIndia'snotification (document G/SCM/N/3/IND/Suppl.1).
Anupdated notification intheprescribed format isbeing filed.G/SCM/Q2/IND/5
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2. Theexemption fromimport dutyoncapital goods under theExport Promotion Capital Goods
Scheme isclearly asubsidy contingent upon export performance. CanIndia confirm thatit
willbenotified?
Under thisprogramme, manufacturers, exporters, merchant exporters andservice providers
areeligible toimport capital goods atconcessional ratesofcustoms dutysubject toanexport obligation.
Since interms ofAnnex I(d)thisprogramme doesnotmake available thecapital goods onterms more
favourable thanthose commercially available ontheworld market toexporters, itwasnotconsidered
asanotifiable subsidy.
3. Thebenefits available inexport processing zones areclearly specific subsidies being contingent
upon export performance. CanIndia confirm thattheywillbenotified?
Units established inexport processing zones areeligible forcertain benefits, mainly exemption
fromCustoms/Excise duties, reimbursement ofCentral Sales Taxpaidonsupplies fromthedomestic
tariff area. Since theprogramme does notprovide goods onterms more favourable thanthose
commercially available ontheworld market toexporters, ithasnotbeenconsidered asanotifiable
subsidy. Inrespect oftheExemption from Income Tax,thereply totheprogramme onIncome Tax
benefits maybeseen.