The United States has decided to remove India from the list of eligible GSP countries. The reason for this move is that the Trump administration feels that India has failed to provide the United States with assurances that “it will provide equitable and reasonable access to its markets in numerous sectors.” The Generalized System of Preferences (GSP) is a U.S. trade program aimed to promote economic growth in the underdeveloped or least developed countries and also in the developing countries by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories. GSP is in existence since January 1, 1976. The scheme provided India tariff-free access to the US market. All benefits have stopped since June 5, 2019. India had been the largest beneficiary nation under the GSP and exported goods worth $6.35 billion every year.
Commerce and Industry Minister Piyush Goyal calling the American move ‘unfortunate’ has hinted that the government is against pushing the GSP issue further with the US. “India is no more an underdeveloped or least developed country that we will look at that kind of support,” he categorically stated asking exporters’ community to build up export competitiveness in its own right without depending on the GSP scheme. He also told industry and exporters to stop depending on the crutches of subsidies and grants from the government, and strive to make industry more competitive and self-reliant. Moreover, India has moved above the threshold of a per capita gross national income of $1,000, which makes it ineligible to offer export sops to any sector. This is important because for the textiles sector, there is no room for further extension of the subsidies as exports have officially crossed the threshold limit of 3.25 per cent of world exports in 2010 and the eight-year phase-out period is now over.
The Federation of Indian Export Organisations (FIEO), however, feels that exporters might find it difficult to absorb the loss in case of products that got GSP benefits of 3 per cent or more. Exporters also feel that Indian exports are already under pressure due to increasing competition from low-cost countries like Bangladesh, Vietnam, Myanmar, Indonesia and Mexico, and that the withdrawal of GSP benefits would adversely affect the market share. The exports of handloomed cotton goods and supplies sector – important from the point of providing employment to rural folks – is said to be also negatively impacted.
The GSP removal should be seen as an opportunity to look inwards and streamline the much neglected aspects of technology upgradation, increasing labour productivity and better overall house-keeping in terms of implementing the best work practices. There have been hundreds of studies available which indicate that by ensuring these measures the industry can easily have a cost saving benefit of 10 to 15%. Unfortunately, all these studies are gathering dust in India at the various TRAs and libraries. The government’s bold statement – that the industry must stop depending on the crutches of subsidies and grants from the government – must be applauded. It will compel industry to start working to put their houses in order. China has done this, why can’t we?
It is in this context that I strongly feel the exclusion of India from the GSP could be a new beginning for our exporters!