Trump imposes a $260 million penalty on India on the eve of his visit

This move is not just about loss of $260 million in GSP benefits but also about how many lakhs jobs could be lost in specific industries when the economy is facing growing unemployment and stagflation

US President Donald Trump (File photo)
US President Donald Trump (File photo)

V Venkateswara Rao

Former BJP ally Shiv Sena slammed the move by the US to take India off the list of developing nations. In its mouthpiece, Saamana, the party said, "All the subsidies and benefits which India was getting would not be there now. Whenever a guest visits, he brings some gifts as a token of love, but President Trump broke the tradition. While India is preparing itself to welcome Trump, America has removed India from the list of developing countries. This is a big blow to our economy. With India on the list of developing countries, there used to be subsidies and tax benefits. Now, there will be nothing."

On February 10, 2020, the US removed India among some others from its list of developing countries that are exempt from investigations into whether they harm American industry with unjust subsidised exports. The US eliminated its special preferences for a list of self-declared developing countries that includes India. The Generalized System of Preferences (GSP) is America’s oldest preferential trade scheme, which offered Indian exporters tariff-free access. This move by the US to take off India from the list of developing nations is expected to stop all chances of India reclaiming its benefits under the GSP scheme.

According to the data from the United States Trade Representative's (USTR) office, India is the largest beneficiary nation under the GSP, with total benefits from tariff exemptions amounting to $260 million in 2018.

According to World Bank Data, The US removed India (and some other nations) from the list on account of it being a G-20 member. It held that India be regarded as a developed nation, ignoring the fact that India’s per capita Gross National Income (GNI) is way below the threshold of $12,375. India, with a per capita income of just $2,000 is miles away from the status of a developed country.

Under the Narendra Modi government, India has presented a high profile image of itself in the international arena, though it is one of the poorest countries in the world. India is the 146th country in the world in terms of per capita GDP with just $2,016 of per capita income.

In November 2018, President Donald Trump signed an executive order that ended duty-free status for 50 items on the grounds of a wide array of trade barriers that create serious negative effects on commerce. The move had jeopardised the GSP benefits under the trade deal US and India are negotiating.

Commerce and Industry Minister Piyush Goyal has said, “India does not need development assistance like GSP hitherto provided by other nations and should be able to become competitive on its own, the issue has continued to be part of trade talks between India and the US.”

However, the exporters point out that India's exports to the US have remained under pressure due to increasing competition from low-cost rivals. The surrender of the GSP claims/ benefits would mean handing over a substantial part of India's market share.

In 2018-19, goods worth $6.35 billion were covered under GSP, out of India’s total exports to the US of $51.4 billion. The Federation of Indian Export Organisations (FIEO) has said, “In respect of products having GSP benefits of 3 per cent or more, exporters had found it difficult to absorb the loss. Despite having a minimal impact on India’s overall outbound trade with the US, specific exports from India in a diverse set of sectors such as jewellery, leather, pharmaceuticals, chemicals and agricultural products has faced higher costs and competition.”

If Indian exporters of goods getting 3 per cent or more of GSP benefits were to lose their market share due to the present move by US to take off India from the list of developing nations, its adverse impact in terms of loss of jobs in such industries could be significant. This move is not just about loss of $260 million in GSP benefits, but also about how many thousands and lakhs jobs could be lost in a economy faced with growing unemployment and stagflation.

(V Venkateswara Rao is a retired corporate professional and a freelance writer.)

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Published: 16 Feb 2020, 3:26 PM