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US move to withdraw privileges provides opportunity for India to introspect on the general state of its exports

12 28 152
16.03.2019

The recent decision of the US to give notice of its intention to rescind India’s export privileges under the Generalised System of Preferences (GSP) has refocused attention on the state of Indian exports. Under the GSP programme, the US provides duty-free access to 4,800 different goods from 129 designated countries. The immediate loss for India is preferential access at zero or minimal tariffs to the US market for around 1,900 products, which is over half of all Indian products.

The ministry of commerce has reacted to the news by asserting that the losses from the GSP withdrawal are going to be minimal. This assertion is based on the fact that the actual tariff advantage that India was getting from the programme was a meagre USD 190 million, which is just 0.4 per cent of the USD 50 billion over all Indian exports to the US.

The government’s argument unfortunately misses the point that India is competing for market share in the US with a host of other low income countries, including Mexico. In industries where margins are small, a very small increase in the market price can cause a large fall in the quantity exported. A potential fall in quantity exported will, of course, imply a much larger cost of losing GSP access. If exporters absorb the tariff increase, then their profit margins will fall, potentially inducing some of them to exit this market completely. The tariff benefit that India currently enjoys is low simply because average........

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