3.3.1 Incentives 3.3.1.1 Tax incentives -
India provides various tax incentives to promote selected economic activities. For example, under the Income Tax Act 1961, tax incentives are provided to: shipping companies (Section 33AC of the Act); revenue and capital expenditure on scientific research (Section 35); specified business (Section 35AD), and certain industrial undertakings (Sections 80IB and 80IC). India publishes statements of revenue forgone in its annual central government budgets.127
3.3.1.2 Explicit subsidies -
Direct or explicit subsidies as reported in the Central Government's Annual Budget amounted to Rs 2,667.0 billion (2.1% of GDP) (Table 3.18). The bulk of India's explicit subsidies continue to be aimed at supporting agriculture, promoting food security and reducing poverty. Most of the outlays are allocated to food, fertilizers and petroleum. Food subsidies are provided by the Department of Food and Public Distribution to meet the difference between actual prices and the central-issue prices fixed under the Targeted Public Distribution System (TPDS) and other welfare schemes. The central Government also provides a subsidy to the Food Corporation of India to keep buffer stocks of wheat and rice as a food-security measure.
Table 3.28 Explicit subsidies, 2012-16
(Rs billion and %)
|
2012-13a
|
2013-14a
|
2014-15b
|
2015-16c
|
Total
|
2,570.8
|
2,546.3
|
2,667.0
|
2,438.1
|
Fertilizer subsidy
|
25.5
|
26.4
|
26.6
|
29.9
|
Imported (urea) fertilizers
|
5.9
|
4.5
|
4.5
|
5.0
|
Indigenous (urea) fertilizers
|
7.8
|
10.4
|
14.3
|
15.7
|
Decontrolled fertilizers
|
12.0
|
11.5
|
7.7
|
9.2
|
Food subsidy
|
33.1
|
36.1
|
46.0
|
51.0
|
Petroleum subsidy
|
37.7
|
33.5
|
22.6
|
12.3
|
Interest subsidies
|
2.8
|
3.2
|
4.2
|
6.1
|
Other subsidies
|
0.9
|
0.7
|
0.6
|
0.6
|
a Actual expenditures.
b Revised budget.
c Budget.
Source: Government of India online information. Expenditure Budget Vol.1 2013-14 and Expenditure Budget Vol.1 2014-15. Viewed at: http://indiabudget.nic.in/budget2013-2014/ub2013-14/eb/stat04.pdf, and http://www.indiabudget.nic.in/ub2015-16/eb/stat04.pdf.
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India's latest notification on fisheries subsidies covering the information for 2010-11 to 2013-14 was submitted to the WTO in November 2014.128 The authorities state that various subsidies under the centrally-sponsored scheme for development of marine fisheries are mainly aimed at improving socio-economic conditions of poor and traditional coastal fishermen by way of upgrading their skills with improved craft and gear and ensuring safety at sea; these subsidies are provided to upgrade fishing capacity for optimum utilization of available fisheries resources, rather than creating overcapacity, as well as ensuring the sustainable livelihood of poor and traditional fishermen, enabling/encouraging them to decongest coastal waters by moving from near-shore to deep sea to unexploited or underexploited fishery resources. The authorities consider that the amount of subsidies provided to the sector is very small compared to most other countries.
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India submitted 35 notifications regarding subsidies to the Committee on Subsidies and Countervailing Measures. These include India's responses129 to questions raised by other Members.130
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India adopted the National Food Security Act 2013 in September 2013 with a view to providing subsidized food grains to around two-thirds of its population (Section 4.1.1.3).
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The central Government allocates funds to subsidize interest rates, including for exporters (Table 3.19).131 Under these schemes, which are managed by different ministries (e.g. Ministry of Finance, and of Heavy Industries and Public Enterprises), central public sector enterprises (CPSEs) also have access to credit at preferential rates.
Table 3.29 Preferential interest rates to exporters, 2014
Period
|
Sector
|
Interest rate
|
Subsidy
|
Floor rate
|
1 December 2008 to 31 March 2014
|
Textiles (including handloom), handicrafts, carpets, leather, gems and jewellery, marine products, and SMEs
|
2 percentage points
|
7%
|
1 April 2010 to 31 March 2011
|
Handicrafts, carpets, handlooms and SMEs. From 1 August 2010, leather and leather manufacturers, jute manufacturing including floor coverings, engineering goods and textiles
|
2 percentage points
|
7%
|
1 April 2011 to 31 March 2012
|
Handicrafts, handlooms, carpet and SMEs
|
2 percentage points
|
7%
|
1 April 2012 to 31 March 2013
|
Handicrafts, carpets, handlooms, SMEs, readymade garments, processed agriculture products, sports goods, toys
|
2 percentage points
|
7%
|
1 April 2013 to 31 March 2014
|
Handicrafts, carpets, handlooms, SMEs, ready made garments, processed agriculture products, sports goods, toys, certain ITC and textile goods, and 235 tariff lines on engineering goods
|
Up to 31 July 2013, 2 percentage points. From 1 August 2013, 3 percentage points.
|
7%
|
Source: WTO Secretariat, based on information provided by the Indian authorities.
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India sets targets for priority sector lending to ensure that banks provide credit to specific sectors.132 Domestic and foreign commercial banks are required to reserve a percentage of their adjusted net bank credit (ANBC) or credit equivalent amount of off balance sheet exposure (OBSE), whichever is higher, for priority sectors. Domestic banks and foreign banks with at least 20 branches must reserve 40% of their ANBC/OBSE for lending to priority sectors, and foreign banks with less than 20 branches 32% of their ANBC/credit equivalent of OBSE (Table 3.20). In 2013-14, 16 of the 26 public banks, 16 of the 20 private domestic banks, and 38 of the 39 foreign banks met the target.133
Table 3.30 Targets for lending to priority sectors, 2014
Priority sectors
|
Domestic commercial banks/foreign banks with at least 20 branches
|
Foreign banks with less than 20 branches
|
Total priority sectors
|
40% of the adjusted net bank credit (ANBC) or credit equivalent amount of off balance sheet exposure (OBSE), whichever is higher
|
32% of ANBC or credit equivalent amount of OBSE, whichever is higher
|
Agriculture
|
18% of ANBC or credit equivalent amount of off balance sheet exposure, whichever is highera
|
No specific target
|
Micro- and small enterprises (MSEs)
|
Advances to MSEs sector will be reckoned in computing achievement under the overall priority sector target of 40% of ANBC or credit equivalent amount of off balance sheet exposure, whichever is higher
|
No specific target
|
Weaker sectionsb
|
10% of ANBC or credit equivalent amount of off balance sheet exposure, whichever is higher
|
No specific target
|
a Indirect lending in excess of 4.5% of ANBC or credit equivalent amount of off-balance sheet exposure, whichever is higher, will not be reckoned for computing achievement under the 18% target. However, all agricultural loans under the categories "direct" and "indirect" will be reckoned in computing achievement under the overall priority sector target of 40% of ANBC or credit equivalent amount of off-balance-sheet exposure, whichever is higher.
b Weaker sections include, inter alia, small and marginal farmers; artisans, and village and cottage industries; scheduled castes/scheduled tribes; and beneficiaries of the Differential Rate of Interest (DRI) Scheme.
Source: WTO Secretariat, based on information provided by the Indian authorities.
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Subsidies are also provided to regional rural banks, cooperative banks, and public sector banks to provide short term credit to farmers at preferential rates. Apart from this subsidy granted by the central Government, farmers may benefit from other subsidized interest rates at the State level.
3.3.1.4 Micro- and small enterprises -
India provides support to micro- and small enterprises (MSEs) through various means, for example, by reserving some products for exclusive manufacturing by MSEs. Products are eligible for reservation if manufacturing by MSEs is economically viable and technically feasible.134 The reservation/de reservation of products is reviewed regularly by the Advisory Committee on Reservation, under the Ministry of Micro, Small, and Medium Enterprises (MSMEs). Currently, 20 products are in the reserved category (unchanged since India's previous Review).135
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The Government provides a number of other assistance schemes to MSEs; these schemes are managed by the Ministry of MSEs and supporting institutions (e.g. the Office of the Development Commissioner and the National Small Industries Corporation). They aim to assist MSEs in the promotion and marketing of exports, product certification, technology upgrading, and human resources development (Table A3.1). MSEs are also granted preferences in government procurement (Section 3.3.4).
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Within the policy on lending to priority sectors, advances by domestic commercial banks or foreign banks with no fewer than 20 branches to micro- and small enterprises will be counted towards the overall priority sector target of 40% of ANBC or credit equivalent amount of off balance-sheet exposure, whichever is higher.
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At the State level, other schemes also implemented to support the development of MSEs include: the development of industrial estate, tax incentives, and subsidies for electricity and capital.136 Under the General Excise Exemption Scheme, MSEs with annual turnover of up to Rs 40 million are granted full excise exemption up to Rs 15 million137; MSEs may also benefit from excise duty exemptions.138
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