WORLD TRADE  
ORGANIZATION  G/ADP/Q1/IND/12 
G/SCM/Q1/IND/12 23 October 2007 
 
 
(07-4571) 
Committee on Anti-Dumping Practices Committee on Subsidies and Countervailing Measures Original:   English 
 
 
 
NOTIFICATION OF LAWS AND REGULATIONS UNDER 
ARTICLES 18.5 AND 32.6 OF THE AGREEMENTS 
 
Response to Questions Posed by UNITED STATES
1 
Regarding the Notification of INDIA2 
  
 The following communication, dated 19 October 2007, is being circulated at the request of 
the Delegation of India. 
 
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Question 1 
  Sub-rule (5) of Rule 12 states that, "[w]here the subsidy can be linked to the acquisition 
or future acquisition of fixed assets, the amount of the countervailable subsidy shall be 
calculated by spreading the subsidy across a peri od which reflects the normal depreciation of 
such assets in the industry concerned ...".  What source(s) would India use to determine the appropriate depreciation period of an asset for a particular industry?   
 Response  
 
 
 "The average useful life of the asset should normally be determined from the depreciation 
amount and period used by the exporter concerned in the books of accounts, provided that the books 
of accounts are maintained according to the Generall y Accepted Accounting Practices. It shall not be 
permissible to use the depreciation period used in th e investigating country or in any other country." 
 
Question 2 
  Section C(a)(i) of Annexure IV indicates that preferential loans are considered recurring 
subsidies the benefit of which should be expensed  in the period of investigation.  Could India 
please provide further explanation as to how loan subsidies are treated under this legislation?  
For example, would the benefit be expensed if the loan is a long-term loan ( e.g., longer than one 
year) tied to the purchase of fixed assets?   
 
Response  
 
 
 While the amount of tax incentives granted would be expensed in the investigation period, in 
the case of preferential loans, only the differential inte rest for the investigation period shall be treated 
as subsidies for the investigation period.    
                                                     
 
1 G/ADP/Q1/IND/11–G/SCM/Q1/IND/11. 
2 G/ADP/N/1/IND/2/Suppl.4–G/SCM/N/1/IND/2/Suppl.4. G/ADP/Q1/IND/12 
G/SCM/Q1/IND/12 Page 2 
 
 
  Question 3 
 
 Section C (a)(i) of Annexure IV states that, in the case of recurring subsidies, "[t]he 
expensed amount should normally be increased  by the annual commercial interest rate, to 
reflect the full benefit to the recipient, on the a ssumption that the beneficiary would have had to 
borrow the money at the beginning of the period and repay it at the end".  Please explain how this methodology will be implemented.  If, for ex ample, a recurring subsidy is received in June, 
will the subsidy benefit be increased by the amount  of interest that would have been paid had a 
commercial loan (in the amount of the subsidy) been obtained on January 1, and repaid on 
December 31?    
Response  
 
 
 The interest will be applied for the period star ting from the date of receipt of the recurring 
subsidy till the end of the period of investiga tion or the date of repayment, if any. 
 
Question 4   Section C (a)(ii) of Annexure IV states that , "[f]or non-recurring subsidies, which can be 
linked to the acquisition of fixed assets, the total value of the subsidy should be spread over the 
normal life of the assets".  Please explain whether,  apart from being linked to the acquisition of 
fixed assets, India uses any additional criteria to determine whether a subsidy is non-recurring.  For example, how would India treat a large equity  infusion that was not linked to the purchase 
of fixed assets?   
 Response  
 
  Subsidies are not characterised into recurri ng and non-recurring based on whether they are 
linked to acquisition of fixed assets or not.  In case of  large equity infusion, the principles laid down 
in Annexe IV Section B (f) of India’ s notifications would be applied.  
  Question 5   Under the allocation methodology described in section C(a)(ii) of Annexure IV, how would a grant of US$100 be allocated over time if the interest rate was assumed to be 10 percent 
and the normal depreciation period of the indu stry concerned is ten years.  What benefit 
amount would be attributed to each year?    
Response  
 
 
 The value of the grant will first be divided by  the normal depreciation period to arrive at the 
amount of attributable to the period of investigati on. This would be treated as the interest free loan. 
Assuming that the Industry is following straight  line depreciation method in the example above, it 
would be 100 divided by 10 which would be US$10.   To the loan amount, interest will be added at 
the rate of 10%. i.e. to US$10, (10*10%=1). Thus  US$1 would be added towards interest  and US$11 
would be treated as the countervailable subsidy.   Question 6   Section C(a)(iii) of Annexure IV states that  "[n]on-recurring subsidies which amount to 
less than one percent ad valorem  may normally be considered to be expensed".  Could India  G/ADP/Q1/IND/12 
 G/SCM/Q1/IND/12 
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  please clarify if the benefit from such a subsidy wo uld be expensed in the year of receipt or in 
the period of investigation?   
 
Response   
 
 It would be expensed in the year of receipt. 
 
Question 7  
 The subsidy benefit calculation method ologies for loan guarantee programmes 
(Annexure IV B(c)(ii)) and equity infusion progr ammes (Annexure IV B(f)(v)) do not appear to 
be based on "the benefit conferred on the recipi ent".  Instead, for loan guarantee programmes, 
the subsidy benefit calculation methodology appears to be based on a cost to the government standard, while for equity infusion programm es, an analysis of the overall record of the 
programme – specifically, the government’s average  rate of return from the operation of the 
programme – appears to be the prim ary focus.  Please explain.   
 
Response  
 
  The presumption does not appear to be corr ect.  In the case of loan guarantees, if the 
guarantee programme is not viable, then, it provides  that the benefit to the recipient should be the 
difference between the fees actually paid and th e fees which should have been paid to make the 
programme viable, or the difference between the am ount the firm pays on the guaranteed loan and the 
amount that it would pay for a comparable comm ercial loan in the absence of the government 
guarantee, whichever is the lower .  Therefore, the scheme embodies the principle of benefit conferred 
on the recipient.  Similarly, in the case of equity  infusions, since the government acts as the investor, 
it has to be seen whether the recipi ent i.e. the entity which is owned either fully or partially by the 
company has earned a reasonable rate of return on  the investments so made .  Further, cost of 
borrowing the funds by the Government is not being considered.  In view of the above, under both the 
schemes, calculation methodology is based on the princi ple 'benefit to the recipient' and not based on 
'cost to government'.   
 
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