17 April 1998
POLICY REVIEW BODY: REVIEW OF INDIA
TPRB'S EVALUATION Back to top
The Trade Policy Review of the World
Trade Organization (WTO) concluded its second review of India's trade policies on 16 and
17 April 1998. The text of the Chairperson's concluding remarks is attached as a summary
of the salient points which emerged during the discussion.
The review enables the TPRB to conduct
a collective examination of the full range of trade policies and practices of each WTO
member country at regular periodic intervals to monitor significant trends and
developments which may have an impact on the global trading system.
The review is based on two reports
which are prepared respectively by the WTO Secretariat and the government under review and
which cover all aspects of the country's trade policies, including: its domestic laws and
regulations; the institutional framework; bilateral, regional and other preferential
agreements; the wider economic needs and the external environment.
A record of the discussions and the
Chairperson's summing-up, together with these two reports, will be published in due course
as the complete trade policy review of India and will be available from the WTO
Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following
reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992),
Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990,
1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica
(1995), C˘te d'Ivoire (1995), the Czech Republic (1996), Cyprus (1997), the Dominican
Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993,
1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994),
Hungary (1991), Iceland (1994), India (1993 & 1998), Indonesia (1991 and 1994), Israel
(1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 &
1996), Macau (1994), Malaysia (1993 and 1997), Mauritius (1995), Mexico (1993 & 1997),
Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991
& 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland
(1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic
(1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991
& 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States
(1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia
(1996) and Zimbabwe (1994).
TRADE POLICY REVIEW BODY:
REVIEW OF INDIA
CONCLUDING REMARKS BY THE CHAIRPERSON Back
The second Trade Policy Review of India was
conducted by the TPRB on 16-17 April 1998. These remarks, prepared on my own
responsibility, are intended to summarize the main points of the discussion and not to be
a full report. Details of the discussion will be reflected in the minutes of the
meeting. Participants raised a large number of questions in writing. The
representative of India provided written replies in the context of the meeting and
undertook to supply further details as necessary.
The discussion developed under three main themes:
(i) the economic environment, (ii) import and export policy issues and (iii) sectoral
(i) The economic environment
Members commended India for the pursuit of its
economic reforms initiated in 1991, which had contributed to healthy economic
growth. However, in the light of the fiscal imbalance, the sustainability of this
economic performance was queried; it was suggested that comprehensive tax reform and
a reduction in subsidies would be desirable to reduce the fiscal deficit. On the
structural front, infrastructure services were identified as a severe bottleneck to trade
and growth; Members encouraged India to promote further investment in these
areas. It was also emphasized that trade liberalization would assist further
effective agricultural reform.
It was noted that in recent years the overall policy
stance appeared to focus on export-orientation, rather than more general outward
orientation. Clarification was sought on whether the recently announced
Export-Import Policy reflected a continued emphasis on exports or a more neutral policy
Some members noted that, in India, liberalization of
foreign investment in combination with restrictive import licensing could mean that
investment substituted for trade, rather than being a complement to it. Further
liberalization of the trade regime was, in their view, essential for attracting the right
kind of foreign direct investment. Clarification was sought on the discrepancy
between approved and effective foreign investment; increased transparency in the
approval mechanism was seen as necessary.
Several members sought a statement of the new
Government's commitment to ongoing reform and the promotion of competitiveness through
more open import policies. Some members questioned the implications of the new
Government's National Agenda for Governance for protection of local industry, as well as
the policy stance regarding investment in "core" and "non-core"
areas. It was stressed that internal deregulation could complement the trade
In reply, the representative of India described the
scope and context of India's economic and trade reforms and reiterated the new
Government's commitment to the reform process. Trade, investment, tax and exchange
reforms were all important elements in the process. The removal of infrastructural
bottlenecks was a priority commitment, being addressed by streamlining procedures for
foreign investment and decentralizing decision-making. The problem of the fiscal
deficit was being addressed, inter alia, by efforts to increase public sector savings and
better targeting of domestic subsidies.
The new Government was committed to liberalization
within an open, equitable multilateral trading system. The new Export-Import Policy,
oriented to enabling India to maximize its international trade, provided for further
liberalization, greater transparency, and simplification of import procedures. Domestic
deregulation, tax reform and foreign investment reforms complemented the trade reform
(ii) Import and export policy issues
Members complimented India for its tariff reform,
under which the simple average rate had fallen from 71% in 1993/94 to 35% in 1997/98, with
a weighted average of 20%. However, concerns were raised regarding the complex
structure of the tariff system; the distinction in treatment between capital goods
and inputs, on one hand, and consumer goods on the other; and remaining tariff
escalation in several industries. Some Members sought clarification about the
time-table for elimination of the special rate of 5 percentage points. Noting
significant gaps between WTO bound rates and MFN applied rates in some areas, several
Members asked if there were plans to bind closer to applied rates; they also raised
concerns about India's proposals to renegotiate some of its bindings. Members noted
that import duties constituted a large share of Government revenues and that continued
tariff reductions, complemented by tariffication of import licensing, could contribute to
Members noted that, since the previous review, the
number of items subject to import licensing had decreased; some restricted items had
also been liberalized by permitting their importation through freely transferable Special
Import Licences (SILs). However, this liberalization was mainly applied to capital
and intermediate goods, while most consumer goods remained subject to import
licensing. Some members noted that the SIL, which can be sold at a premium of some
15%, may be perceived as an export subsidy. Details on the phase-out plans for
quantitative restrictions negotiated with several WTO Members were sought.
Information was requested on plans to reform India's
various export assistance schemes (including exemption from income tax, export finance at
below-market interest rates, guaranteed access to a minimum of 10% of commercial bank net
credit, export insurance and guarantees, access to a wide range of export promotion and
marketing assistance schemes, and import access to restricted items). The WTO
consistency of the income tax exemption was questioned.
Some members noted that India had become an active
user of anti-dumping procedures, and was even strengthening its capacity to conduct
anti-dumping investigations. In addition while no safeguard measures had been
enforced up to the end of 1997, India had recently initiated several such
investigations; Members asked if it was the new Government's intention to continue
using safeguard measures.
Some members requested information regarding India's
state trading system, including reasons for the increased coverage of products subject to
state-trading, and concerning plans to modify or remove privileges granted to
Some delegations noted that India's industries could
benefit from more effective intellectual property protection, and asked about the
time-table for bringing intellectual property legislation into line with the TRIPS
In reply, the representative of India noted that the
phasing out of QRs was proceeding according to a six year programme; he gave an
explanation of the import licensing system and the use of SILs. Items recently added
to the free list included 99 textile items, 49 agricultural items, 26 marine products,
with most of the balance in consumer goods. All capital goods, assemblies, etc. were
already in the free list. Reduction and rationalization of tariffs was also an
integral part of India's trade liberalization. The simple average tariff had fallen
to 35%, but the import-weighted average had declined from 87% in 1990-91 to 20% today,
even taking into account the temporary duty of 5%. Applied tariffs were maintained
well within bound rates. He described the tariff-setting process, including the
recent establishment of the Tariff Commission. The new Exim policy facilitated
imports of capital goods at zero duty as well as raw materials for export
production. The number of exemptions had been substantially reduced and the
simplification of tax laws was an ongoing process. Negotiations for revised bindings
under Article XXVIII were related to tariffs bound at historically low levels.
Liberalization of industrial licensing and administered pricing, decontrol of banking and
capital market reforms were important domestic complements to trade policy reforms.
India remained committed to a rule-based
multilateral trading system; in this context, India regarded safeguard and
anti-dumping measures as an integral part of the WTO system. The Customs Tariff Act
had been amended in early 1997 to provide for GATT-consistent safeguard procedures;
there had been a surge of safeguard actions following this measure. The Government
had also set up an independent Directorate of Anti-Dumping, primarily to provide
transparency and independence to the process and expedite cases.
India's investment policy was to encourage FDI in
core areas, to overcome significant bottlenecks; such areas included infrastructure,
fuel, fertilizers, cement and information technology. Improvement of implementation was a
clear priority and India's attraction for FDI was increasing.
He gave details of the standard-setting process in
India and the extent of harmonization of Indian with international standards, including in
health- and food-related areas.
The representative outlined India's traditions in
knowledge-related areas and recalled that, as a developing country, India had until 1
January 2000 to bring its intellectual property laws into conformity with the TRIPs
Agreement, and until 1 January 2005 to extend product patents to areas of technology not
protected so far. He gave details of licensing procedures under patents,
"reasonable price" conditions and protection of well known trademarks.
India had no export subsidies; exports were
disadvantaged by the wide range of national, State and local taxes. Policy sought to
neutralize these handicaps through permissible means. Minimum export prices for
wheat and coarse grains had been abolished on 13 April 1998.
The representative believed that state trading for a
few items of mass consumption (such as petroleum products, vegetable oils and cereals) was
inevitable in view of the level of production, seasonal variations, the size of the
domestic market and social sensitivity. The list of items under canalization was
shrinking, not expanding. Canalizing agencies were independent corporate entities
with full authority to function as independent commercial organizations; import or
export of canalized items could also be effected by private businessmen in consultation
with canalizing agencies, and in some cases exceeded those of the agencies.
(iii) Sectoral issues
Some members stated that the agriculture sector in
India had been almost unaffected by the reform process. It was suggested that the
public distribution system, with minimum prices, was a disincentive to agricultural
development and an ineffective means of poverty alleviation. Some delegations urged
India to extend outward-oriented reform policies to agriculture.
While noting that important trade policy reforms had
been pursued in manufacturing, some members noted the continued wide application of import
licensing in textiles and clothing, which constrained Indian producers in improving
productivity and preparing for a more liberal world market, as envisaged in the WTO
Agreement on Textiles and Clothing. Some members questioned the consistency of
India's export bans on leather, hides and skins with WTO provisions; they also noted
that certain local-content measures and trade balancing requirements in the motor vehicles
sector included in recently concluded Memoranda of Understanding between the Indian
Government and car manufacturers, could be inconsistent with India's WTO obligations.
The role of the services sector in supporting many
economic activities was noted; however, Members took note of the uneven pattern of
liberalization in this area. While banking had been gradually liberalized, insurance
was still closed to foreign participation. Members also noted that access for
foreign suppliers in basic telecommunications services had been implemented more slowly
than planned and that many licenses awarded were being disputed in the courts.
Members asked about plans for further liberalization of the services sector and welcomed
India's active participation in the recent negotiations.
In reply, the representative if India recalled that
more than 70% of the population was directly or indirectly dependent on agriculture for
its livelihood. Production had increased thanks, inter alia, to improved use of
fertilizers and increased access to credit. The pace of reform had been, and had to
be, carefully calibrated; however, the direction was clear and both liberalization
and other reforms had been introduced in agriculture, including frontloading of some
agricultural products in the proposed phase-out plan for quantitative restrictions,
removal of restrictions on agro-processing units, acceleration of infrastructural
investment, improving the public distribution system and reforming the support price
system to take into account the interests of both producers and consumers.
Agriculture had also benefited from other reforms, including the reduction of high tariffs
and controls on imports of manufactures. India's domestic support measures continued
below the de minimis levels and no export subsidies were being provided at present.
India's draft agricultural policy resolution, currently under finalization, sought to
accelerate the process of liberalization and reform.
Regarding textiles and clothing, he noted that very
few restricted items had yet been integrated into GATT by developed country members,
resulting in lower export earnings than anticipated when India agreed to the ATC.
India had included textile and clothing items in its phase-out programme for import
restrictions; 99 tariff lines had been liberalized to date.
He stated that the MOU policy for automobile
investment has been framed to create a level playing field for all foreign
investors; import licensing procedures for CKD/SKD cars by foreign automobile
companies had been liberalized to provide the companies unlimited access to such imports
in return for certain minimum criteria.
Exports of hides and skins were restricted because
of a domestic shortage owing to socio-cultural and religious reasons.
The representative emphasised the importance of
services in promoting economic growth. Commitments were in line with the GATS
provisions which seek to achieve progressively higher level of liberalization of trade
through successive rounds of multilateral negotiations, with flexibility for
members. India's legislation for banking was liberal; for non-banking
financial services, foreign investment up to 51% was allowed, and up to 49% for
stockbroking. In the field of insurance, reforms proposed by the Malhotra Committee
could not be passed by the previous Parliament: the scope and pace of reform were
yet to be examined by the new government. The Government was committed to rapid
expansion of telecommunications; six licences for basic telecom services had been
signed and cellular services were in operation. All such companies could have
foreign equity up to 49%. The independent telecommunications statutory regulatory
authority (TRAI) was fully operational. To encourage the rapid development of trade
in services, the Government had autonomously undertaken greater liberalization of foreign
equity participation in sectors such as financial services and telecoms, than was
reflected in India's schedule of specific commitments. New guidelines for private
participation in ports, highways and civil aviation had been announced and approval given
for mass rapid-transit systems in Delhi and other major cities. He gave details of
conditions for multi-modal transport and in shipping. India was engaged in
discussions with its major trading partners regarding liberalization of professional
services; at the same time, India felt that the outcome of the negotiations on
movement of natural persons left much to be desired.
Overall, Members commended India for its continued
programme of economic reforms, including trade reforms which have constituted an integral
part of the programme. Members appreciated the direction of reforms, welcomed the
commitment expressed by India to further broad-based trade liberalization, domestic
deregulation, and encouragement of private investment and looked forward to further
concrete, well-co-ordinated implementation in these areas. Members also welcomed
India's continued positive participation in the WTO and the importance attached by the
Indian delegation and authorities to a stable, liberal, rules-based multilateral trading
system. Members looked forward to receiving written replies to major outstanding
questions and clarifications of various areas of interest. Back to top