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Last updated: 04 Jun, 2019  

Dollar.Investment.9.Thmb.jpg GSP withdrawal: Caution must be exercised

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Bikky Khosla | 04 Jun, 2019

The US terminated India's designation as a beneficiary developing nation under the Generalised System of Preference (GSP) trade programme, with effect from June 5. While the Centre has termed the move as "unfortunate", according to some industry observers, the US decision will hardly have any major impact on India's exports. No doubt, with US duty concessions to India under GSP amounting to around $260 million, our exporters need not to worry, but the development has some other dimensions as well.

As far as export is concerned, India shipped goods worth $51.4 billion to the US in 2018. Of this amount, exports drawing GST benefit amounted to $6.35 billion while net duty benefit amounted only to $260 million. So, overall the impact of GSP benefit withdrawal will not be much although some sectors like chemicals, engineering goods, imitation jewellery, leather articles, pharmaceuticals, etc. will suffer to some extent, unless the government provides some support to these sectors to mitigate the effect.

What seems, however, more significant is the warning signal the Trump administration has sent. The US claimed that India had not assured the US that it would provide "equitable and reasonable access" to its markets, but the fact cannot be denied that US has a history of using the GSP privilege as a pressure tactic and in India's case the objective could be to pressurize India in a range of issues, such as to stay away from buying Iranian crude oil or to tone down the rhetoric around data sovereignty.

The Indian economy is not in a good shape currently: investment is not picking up, consumption is faltering, bank and company balance sheets are stressed, unemployment rate is at all-time high and overall economic growth is slowing. So, at this moment any knee jerk retaliatory actions against the US will harm rather than helping us. Instead, the new government should act in a cool head to arrive at a 'balanced' package that would address the US's concerns without jeopardizing our larger economic interests.

I invite your opinions.

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