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July 16, 2018

Legal Capsule: International Trade – Sectoral Highlights from India by Economic Laws Practice

Per the latest economic data, India’s global trade has increased by 16.32% to USD 767.9 billion in 2017-18. As India continues to create a modern, vibrant economic framework for business, developments in international trade law can have far-reaching impact on local companies and their competitiveness on the global stage. This risk gets even more amplified in light of India’s growing integration in the global economy. Notable highlights pertaining to several emerging industrial sectors are enumerated below:

Electric Vehicles

  • Government of India (“GoI”) is likely to extend incentives to the tune of USD 1.4 billion for promoting use of electric vehicles under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (“FAME”) – II Scheme
  • The GoI is planning to offer capital investment subsidy of 20% - 25% (proposal is currently awaiting cabinet approval)
  • While this surely will augment the market for electric vehicles in India, it remains to be seen whether the scheme would have any domestic content requirement which may trigger WTO-incompatibility issues

Textiles and Clothing

  • India acquired export competitiveness in textiles by crossing the 3.25% threshold in 2010. As per WTO law, it is expected to phase out export subsidies in this sector by the end of 2018
  • The GoI is currently devising strategies for subsidising to producers/ exporters that will be compliant with WTO law 
  • While it remains to be seen what programs/schemes are formulated by the GoI, the Indian textile sector would need to compete aggressively in the world market once the current subsidies are phased out

  • India is one of the fastest growing B2B and B2C e-commerce markets. The recent Walmart-Flipkart deal proves the huge potential of this market in India
  • While India formally opposed any new negotiation on e-commerce at MC11 until the outstanding issues of Doha Ministerial Agenda are resolved, it has ignited discussions to set-up a task force to finalize comprehensive set of recommendations by September 2018
  • The task force includes representatives from several technology and e-commerce players. This is a good time to file representations before the GoI to put forward views of various stakeholders, given the complexities surrounding e-commerce, including customs clearance, data localisation, market access and consumer protection  

Renewable Energy 

  • India has developed one of the world’s largest renewable energy program with an ambitious target of developing a capacity of 175 GW by 2022
  • While the DSB report in DS 516 required India to phase-out subsidies contingent on domestic content requirement, the GoI has been planning to come up with WTO-consistent support schemes to incentivise solar cells/modules manufacturers and solar power developers
  • Industry can expect few schemes/programs soon from the GoI making this market more attractive for global renewable energy players to set up manufacturing facilities in India

Electric and IT Equipment manufacturing and Make in India 

  • Indian electrical equipment industry exceeded USD 25 billion and contributes nearly 1.5% of India’s overall GDP 
  • The GoI has promulgated a Preferential Market Access (“PMA”) policy for electronic products. The policy provides preferences to domestically manufactured electronic products. This is WTO consistent till such time that the GoI uses the procured products without a view to commercial resale or use in production of goods for commercial sale   
  • To promote manufacturing in India, the GoI, in February 2018, hiked customs duties on certain IT products, including smartphones and smartwatches, by 15-20%
  • WTO Members have raised their concern on this increase as they view it as being inconsistent with India’s obligations under the Information Technology Agreement of the WTO    

WTO Challenge to India’s export subsidy schemes

  • The United States has complained and alleged that some of the key exports subsidies of India under its Foreign Trade Policy including Export Oriented Unit, Special Economic Zones scheme and Merchandise Exports from India scheme are prohibited export subsidies
  • The consultations between both countries have been concluded and a formal request by the United States to establish a panel is likely to be placed on DSB agenda sometime in 2018
  • Should India be unable to defend its schemes successfully, it would have major ramifications on India’s foreign trade policy and would require a complete overhaul of its subsidy programs

India’s Public Procurement and Preferential Markey Access Policies  

  • In 2017, the GoI introduced a public procurement policy with an aim to promote manufacturing and production of goods and services in India   
  • The policy, which includes domestic content requirements, is currently being used by the railways and defence sectors
  • To the extent that procurement is limited to governmental agencies, this scheme is consistent with India’s commitment at the WTO. Presently, India is not a signatory to the WTO Government Procurement Agreement  Notably, this policy should not be confused with the PMA policy which has been adopted for the electronics, steel and telecommunication sectors 

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