(Bloomberg) -- India is planning to scrap financial incentives aimed at boosting exports of certain products after the U.S. complained to the world trade body, people with knowledge of the matter said.
Instead, Prime Minister Narendra Modi plans to replace the incentives with support to regions that are known to be export-intensive, a practice that is followed by several countries and are compliant with global rules, the people said, asking not to be identified as the matter is not public. The subsidy payments will be available to all producers in these clusters and won’t be exclusive to exporters.
U.S. President Donald Trump has repeatedly singled out India, apart from China, for running a trade surplus. Besides complaining to the World Trade Organization that India’s export subsidies were hurting American companies, the U.S. has also put India on its watch-list for currency manipulators--triggered by a trade surplus and foreign exchange interventions.
India has been looking to boost its exports which have been through a rough patch, widening the Asia’s third largest economy’s trade deficit. At the same time, the South Asian nation is wary of upsetting ties with Washington, which have grown much closer in the past two decades with the U.S. emerging as a key defense supplier, in part due to its strategic concerns about China’s growing influence in Asia.
Trade surplus --merchandise and services-- with the U.S. stood at $28 billion in 2017--marginally lower than the $30.8 billion in 2016. Commerce Ministry spokesman was not immediately available for a comment.
India has told the U.S its actions don’t mean to distort trade. Under the new plan which is expected to be rolled out in the next two months, options include refund of taxes paid on inputs used in manufacturing, incentives to sectors in certain regions and those providing a certain number of jobs.
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