The United States has challenged India’s export subsidy programs. This has to be seen in the light of the US’ vocal opposition to the 50 per cent duty on Harley Davidson bikes levied by India.

Under WTO rules, countries with a per capita income of less than 1,000 dollars can provide export subsidies for particular sectors only until their share of exports is below 3.25 per cent of global trade. Once a country’s exports crossed this threshold and remained above it for two consecutive years, subsidies for that particular sector would have to be phased out over eight years, even if the per capita GNI of the country is below the 1,000 dollar threshold.

India’s textile exports crossed this 3.25 per cent threshold in 2010 and export subsidies will have to end this year. But the textile sector is hardly ready for a life without such schemes. It has lost the wage arbitrage advantage to countries like Bangladesh, Vietnam, Myanmar and Laos.

Withdrawing export subsidies will be politically difficult for the government in an election year and considering the fact that the exports sector as a whole is going through a difficult time. But one thing is clear: India will have to drastically change the way it helps its exporters.