26 sep soham's updated ass

Impact of Dumping & Subsidies

) if it causes or threatens to cause material injury to a domestic industry in the

importing country. The term has a negative connotation, as advocates of

competitive markets see "dumping" as a form of protectionism. Furthermore,

advocates for workers and labours believe that safeguarding businesses against

predatory practices, such as dumping, help alleviate some of the harsher

consequences of such practices between economies at different stages of

development (see protectionism). The Bolkestein directive, for example, was

accused in Europe of being a form of "social dumping," as it favored competition

between workers, Why Does Dumping Occur?

Though the principles are straightforward, dumping is complex, with multiple

definitions, different causes, and a range of expressions. It can be motivated by

over-production (i.e. a distress move) or the desire to dominate a foreign market

(i.e. predatory). It can be sporadic or persistent, and dumping can be attributed to

individual companies, government action (e.g. export subsidies) or brought about

1


by macroeconomic factors such as exchange rate manipulation. What matters

though is the effect of dumping actions rather than their causes

Complexity: Though dumping is in principle simple, in practice it is anything

but. Assessing true production cost is very difficult, relying on a range of

assumptions, conventions and value judgements. Recent accounting scandals are

testament to the degree to which commercial performance is a matter of opinion

rather than objective mathematics. Moreover, it may require a company by

company approach as gross country estimates can obscure wide-ranging individual

performances. Alternative simpler definitions of dumping have accordingly been.

India imposed its first anti-dumping duty in 1992:

Narayanan (2006) explains the lack of earlier use of anti-dumping by the highly

protectionist trade regime in effect from independence in 1947 through 1991. “On

the customs tariff side, the import-weighted average tariff for all imports was as

high as 87 percent – for consumer goods as high as 153percent, and for

manufactured goods 92 percent” (p. 1084). Combined with restrictive licensing

and quantitative restrictions, there was no need for anti-dumping. However, with

declining protection via tariffs and quotas has come dramatically increased use of

2


antidumping by India. Figure 1 demonstrates the very strong uptrend in Indian AD

cases from early 1990s through 2002 (peaking at about 80 cases the latter year);

after dropping for two years (though still 20 cases in 2004) there was a strong

upswing through2008 (over 50 cases that year) before dropping some in 2009.

1. Comparative analysis ofdumpingbyDeveloped &Developing Countries:

a. Dumping by Developing Countries:

As a wide range of cheap Chinese products flooded the Indian market, some local

industries were adversely affected, while others benefitted by using these products

as raw materials. Discuss the advantages and disadvantages of allowing Chinese

products into India. Providing trade data, give examples of industries that benefit

3


and those that are affected by Chinese imports. How can the Indian industries that

are threatened by cheap Chinese imports deal with the threat?

It is never less than a challenge to attempt to understand the cultural factors which

influence a nation’s conduct in the international arena. When that nation is China

and the subject of introspection is its relations with India, such an endeavour can at

best be fraught with far too many variables. The two have had the longest

uninterrupted existence as nations. Their combined size and population makes

them the largest geographical and human resource mass on the planet. India and

China have had cultural, religious and trade links going back centuries in history.

They also came into being as nation states almost simultaneously in this century,

They also share a past of colonial and imperialist subjugation from which freedom

had to be won with a major struggle, Paradoxically enough, the two countries

fought a war with each other over disputed frontiers. That conflict episode, the

continuing border dispute between the two countries and China’s rapid growth in

military power, not unsurprisingly create anxieties about the future relationship.

China’s aggressive foreign policy postures also do not encourage a benign view of

it. There are enough strategic thinkers in India who reckon China to be the major

future threat to India.

Basic Reason behind sudden increase in trade(History)

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China has become the manufacturing hub of the world. Substantial part of the

economy of China depends on international trade. The advantages it gives for other

countries to setup manufacturing plants in China is its strong government support

for FDIs, Infrastructure development, cheap labor, weak environment and labor

laws, new strong market reach which includes China, India, Japan, Russia, Korea,

Thailand, Vietnam, Indonesia, Malaysia etc, access to cheap Chinese supplier base,

thus larger sales and profits, seasonality of product supply and demand can be

managed.

The large quantities of goods that are manufactured at a cheap price are sold in the

markets with a great competition and where the local goods are sold at a cost

higher than the Chinese goods. The result is that some local industries who

produce the same goods are affected. Take for example the following industries

that are majorly affected.

According to the press release by the Associated Chambers of Commerce and

Industry of India (ASSOCHAM) on the 18th of December 2005, China’s trade

with India increased by a whopping 521% from the year 1999 to the year 2005. As

per the statistics by the ASSOCHAM, India’s total trade with China, stood at $1.8

billion in 1999-2000, and shot up to $11.35 billion during 2005.

5


In the year 2000, the sudden flood of imports consisted of a large volume of

consumer goods (which were under import curbs earlier) and this led to high

visibility in the marketplace. Imported consumer goods started getting 'showcased',

while imports in prior to that period comprised primarily of raw material and

intermediates. According to the statistics provided to the house by then Minister of

State for Commerce. Dr. Raman Singh, there was a rise of 28% in the import of

electronic goods and a rise of 45% in the import of machinery from China in the

year 2000 alone. During the period 2003-04 to 2008-09, goods trade between the

two countries increased from $6.9 billion to$ 40.6 billion at an annual rate of

growth of 44%. But there was a reason for concern. The trade between India and

China was not balanced. From the Indian perspective, the trade deficit with China

accounts for almost a fifth of its total goods trade deficit. Given the remarkable rate

of increase in Indo-China trade, there are concerns that future expansion in trade

will further accentuate the imbalance. According to the Directorate-General of

Commercial Intelligence and Statistics, India’s exports to China in 2008-09

amounted to $9.3 billion, against $10.8 billion in 2007-08, marking a decline of

14.39 per cent. India’s imports from China touched a staggering $31.3 billion last

fiscal against $27.1 billion in 2007-08, showing a robust growth of 16 percent.

Indian industry’s perceptions on Chinese imports belong to two distinct

categories:-

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The first is shared by producers benefiting from cheaper Chinese imports. These

producers have been obtaining considerable efficiency gains from cheaper Chinese

raw materials and intermediates, and are positively inclined to such imports.

The second category of perceptions is adversely disposed towards Chinese imports.

This is the category that has dominated the public discourse on Chinese imports.

This segment of the Indian industry feels that influx of Chinese imports is

adversely affecting indigenous producers of similar items. Much of the concerns

emanate from producers of consumer goods. Indeed, fears expressed by this lobby

have led to mounting concerns over Chinese imports and the exacerbating trade

imbalance. Such fears and concomitant pressures on the government to take

remedial action have resulted in an increase in anti-dumping actions on Chinese

imports in recent times. The same pressures have also successfully resisted

proactive moves on pushing a bilateral trade pact between China and India.

To elaborate my point, let us consider some of the industries that fall under the two

categories and how and in what sense have they been affected or benefitted.

b. Dumping by Developed Countries:

Dumping is not only visible in Developing and poor countries, but also in

developed nations like United States. USA has evolved many Anti-Dumping

policies to protect their domestic producers but there are still other ways where the

7


importers try other methods to avoid these duties. For countervailing duties to be

invoked it must be shown that prices are lower in the importing country than in the

exporting country and that producers in the importing country are being directly

harmed by the dumping. A report by the US Department of Agriculture indicated

that levels of dumping by the United States hover around 40 percent on wheat and

between 25 and 30 percent for corn, and levels for soybeans have risen steadily

over the past four years to nearly 30 percent. These percentages for example mean

that wheat is selling up to 40 percent below the cost of production. For cotton, the

level of dumping for 2001 rose to a remarkable 57 per cent and for rice it has

stabilized at around 20 percent. The study indicated that these commodities are

being dumped onto international markets by the United States in violation of WTO

rules. The report found that may years of accepting agricultural dumping a few

countries have begun to respond by investigating whether some US agricultural

exports are dumped. Brazil is considering a case against US cotton before the

WTO. In 2001 Canada briefly imposed both countervailing and antidumping duties

on US corn imports the United States did the same for Chinese apple juice

concentrate.

As a wide range of cheap Chinese products flooded the Indian market, some local

industries were adversely affected, while others benefitted by using these products

as raw materials. Discuss the advantages and disadvantages of allowing Chinese

8


products into India. Providing trade data, give examples of industries that benefit

and those that are affected by Chinese imports. How can the Indian industries that

are threatened by cheap Chinese imports deal with the threat?

2. Impact of Dumping:

Dumping effected on consumers and producers. While on the one hand, dumping

is in the benefit of foreign exporters who practice it, as well as consumers, on the

other hand, it harms domestic producers whose products have been dumped.

Foreign exporters may rely on dumping when they create a new product and would

like to promote it, so they export it with a price which is lower than its marginal

9


cost. In some other circumstances, foreign exporters are obliged to sell their

product with a price which is cheaper than its marginal cost due to changes in

market conditions or exchange rates. Unquestionably, in both cases consumers

benefit from the low priced foreign products (Trebilcock&Howse 2005).

Undoubtedly, dumping is detrimental for domestic producers. Predatory pricing (as

previously defined) may result in bankrupting many domestic producers or even

driving them out of the market by closing their industries and terminating their

businesses and consequently, raise the problem of un-laboured workers of such

industries, as well as intermittent dumping which harms domestic producers in

that, after the occurrence of such type of dumping (for certain period of time),

consumers will substitute their products by those foreign products with the cheaper

price. Furthermore, after the lapse of this period, domestic producers will have to

readjust their price with a higher one in order to recover the loss incurred. The

adjustment and readjustment of price harms domestic producers’ welfare. It is

worthy to note that consumers might as well be harmed by the said adjustment and

readjustment as they may end up purchasing a long term product with a higher

price. According to Jacob Viner, intermittent dumping harms both the domestic

producer and the consumer. In his view, it harms the former in that it takes enough

time to injure him, the latter in that he will not be provided with a stabilized supply

of long-run products. Dumping can harm the domestic industry by reducing its

10


sales volume and market shares, as well as its sales prices. This in turn can result in

decline in profitability, job losses and, in the worst case, in the domestic industry

going out of business. Often, dumping is mistaken and simplified to mean cheap or

low priced imports. However, it is a misunderstanding of the term. On the other

hand, dumping, in its legal sense, means export of goods by a country to another

country at a price lower than its normal value. Thus, dumping implies low priced

imports only in the relative sense (relative to the normal value), and not in absolute

sense.

Today, tighter government enforcement of dumping legislation is causing

international marketers to seek new routes around such legislation. Assembly in

the importing country is a way companies attempt to lower prices and avoid

dumping charges. However, the screwdriver plants, as they are often called, are

subject to dumping charges if the price differentials reflect more than the cost

savings that result from assembly in the importing country. Another subterfuge is

to alter the product so that the technical description will fit a lower duty category.

To circumvent a 16.9 per cent countervailing duty imposed on Chinese gas filled

non-refillable pocket flint lighters, the manufacturer attached a useless valve to the

lighters so that they fell under the non-disposable category thus avoiding the duty.

Countries do see through many such subterfuges and impose taxes. For example,

the European union imposed a $27 to $58 dumping per unit on a Japanese firm that

11


assembled and sold electronic typewriters in the European Union. The firm was

charged with valuing imported parts for assembly below costs.

a. Industry Affected in India because of Chinese Dumping:

The influx of Chinese imports has adversely affected indigenous producers of

similar items in the Indian markets. Due to the cheap Chinese products available in

the market, the indigenous industry could not hold or increase its prices in line with

increase in the cost of production, resulting in financial losses. Some of the

industries that were affected are :

Toys:

The rise in demand and sudden popularity of Chinese toys, which are available at

cheaper prices, is giving nightmares to the Indian industry to the extent that they

have started sticking “Made in China” stickers on their products to boost their

sales.

According to commerce ministry data, toys worth more than $24 million (or Rs

120 crore) were imported in April-June 2008-09. The huge number of imports

forced the Indian government to impose a ban of 6 months on the import of

Chinese toys in India in the best interest of the domestic toy producers.

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Moreover, the toys that were sold, were sold on the streets and in the street shops,

thus targeting the larger section of the population, and capturing 2/3rd of the toy

market in India.

Electronics:

The major electronic items that are imported are air-conditioners, generator sets,

textile embroidery machines and cellular phones.

Take for example of Chinese made handsets that are available in the Indian

markets. The Chinese handsets are priced nearly 50% less than the local company

handsets with similar features. These mobile sets come without unique identity

code numbers. Approximately eight lakhs mobile phones without International

Mobile Equipment Identity (IMEI) number are being imported from China every

month. Without the IMEI number these phones are tough to track.

Silk & satin:

India is currently accusing China of dumping silk and satin into the Indian market.

Since China is exporting superior bivolitine silk at cheaper costs, several Indian

weavers have switched over to Chinese silk, pushing the Indian sericulture farmers

(who produce inferior multivoltine silk) into red.

Crackers:

13


Since the year 2006, China made crackers are sold in the Indian market during

Diwali. The crackers are available at a much cheaper rate than the Indian crackers

and are thus hugely attracting the illiterate crowd who care more about money than

the environment issues. I will elaborate on this point at a later stage of the

presentation.(Disadvantages)

Energy-intensive imports:

Chinese imports contributed to the expansion of India’s manufacturing. Energy-

intensive imports—coking and steam coal, kerosene and petroleum coke—helped

in mitigating energy needs of the Indian domestic industry.

Others:

Items that are included in this category are inorganic and organic chemicals

(silicon, phosphorus, calcium carbide, saturated acids, citric acid, paracetamols,

penicillins, antibiotics), fertilisers (urea, ammonium phosphate), iron & steel (flat-

rolled coils and plates, precision tubes) and pearls & precious stones.

14


3. Examples of industries being affected and antidumping cases being

registered:

Apar Polymers Ltd

15


M/S GujratApar Polymers Ltd Mumbai has filed a petition in accordance with

Customs Tariff Ad, 1975 as emended in 1995 and Customs Tariff Rules, 1995

before the Designated Authority alleging dumping of Acrylonitrile Butadiene

Rubber also known as Nit rite Rubber (NBR) from Taiwan and requested for a nil

dumping investigations and levy of Anti-dumping duty. The various economic

indicators relating to domestic industry such as increase in imports, undercutting

the prices, profit/loss etc. collectively and cumulatively, indicate that the domestic

industry has suffered injury. There is sufficient evidence that the imports of the

product under consideration have caused injury to the domestic industry.

Ball and Roller Bearing Manufacturers:

Ball and Roller Bearing Manufacturers Association of India, New Delhi through its

members M/s. FAG Bearings India Ltd., Vadodara, M/s. NRB Bearings Ltd.,

Mumbai, M/s. SKF Bearings India Ltd., Mumbai, M/s. National Engineering

Industries Ltd., Jaipur, M/s. Tata Iron and Steel Company Ltd., (Bearing Division),

Kharagpur filed a petition alleging dumping of Ball Bearings and parts and

components thereof (up to 50 mm bore dia) originating in or exported from China

PR, Poland, Russia and Romania and requested for Anti-Dumping investigations

and levy of anti-dumping duties.

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Parameters such as increase in volume of imports, loss in market share, price

under-cutting, price under-selling, low return on investments, decreased profits in

the manufacturing of subject goods prima-facie indicate collectively and

cumulatively that the Domestic Industry has suffered material injury on account of

dumping.

Other anti-Dumping Cases:

Just to mention a few others, the cases of Anti-dumping have been registered by

the Indian industries affected in the following area:

Chemicals like sodium nitrite, Sodium ferrocynide,

Thermal Sensitive Paper

Sports shoes

Plastic processing machinery etc.

4. People benefitted:

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Chinese imports provided Indian industry access to cheap intermediates and raw

materials. Let us have a look at the industries that have benefitted from the imports

from the Chinese markets.

Clothing industry:

Industry gets cheap raw material to produce clothes. Take raw silk, for example.

India produces around 15,000 tonnes of silk a year but this is of an inferior variety

called multivoltine silk. Our imports from China of about 7,000 tonnes a year are

of the vastly superior bivoltine variety which we do not produce. No wonder silk

weavers are happy with imports-which illustrates a more general point that while

dumping may be bad from a local producer's point of view, it may well offer

benefits to local consumers and users.

Customers: Consumers are paying less for products coming from China.

Toys industry:

The toys producers in India have come up with a strategy of boosting the sales. A

lot toys found on the streets with the “Made in China” label are locally

manufactured. The cost of these toys is also a bit higher than that of the local toys.

Thus some of the toy manufacturers in India have found a way to boost their sales

inspite of the increasing competition.

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5. Advantages:

The two countries still have room to expand trade as China has an industrial

base and India has a broader service base. Luxury brands; gems and jewellery;

media and entertainment; health and wellness; and tourism are some of the

sectors where India and China can collaborate.

Trade theory tells us that, in an increasingly flat world, trade between two

countries should be a multiplicative function of their GDPs. Since it is almost

certain that, by 2050, China and India will be the two largest economies in the

world, it is inevitable that bilateral trade between them will become the most

important economic relationship in the world.

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6. Disadvantage:

Compromise in quality: The Chinese goods, while being cheaper in cost,

compromise on the quality. Below are certain examples that are highlighted.

Though the examples are not explicitly from India, the quality of the Chinese

items is clearly indicated by these examples.

Harmful to health: The FDA recently found that several low-priced

toothpastes imported from China contained diethylene glycol, which poisons

the liver and kidneys and depresses the central nervous system.

Tri Star International recently recalled a made-in-China children’s stationary,

which contained a dangerous razor blade.

Loss of Domestic Business: The trade deficit of India with China has jumped

from $1.08 billion in 2001-02 to $ 22.05 billion on 2008-09.

Harmful to Society: The Chinese mobile phones that come without the IMEI

numbers as mentioned earlier are favoured for use by people indulging in

criminal and terrorist activities.

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7. Overcome Dumping Impact:

a. Industries effort required:

The manufacturers in India could come up with new varieties products.

Small manufacturers in India could team up to set up association. This

association can together set up some marketing strategy to boost sales of the

toys which are locally manufactured.

Silk Manufacture of India can try to produce the superior quality bivoltine silk

in India. The Silk manufacturers association can negotiate with the cloth

manufacturers associations and agree for a settlement for boosting sales of the

silk as well as ensuring that the cloth manufacturers are not put to a loss by the

same.

Strong marketing strategy like highlighting the drawbacks of the Chinese

mobiles will help enhance the sale of the Chinese handsets. Eg : Highlighting

feature of the absence of IMEI number and making the public aware of the

terror aspect to it will automatically lead to the fall in the sale of Chinese

mobile phones, which in turn will lead to boost of sales of Indian mobile

phones.

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b. Governments Input:

In the year 2000, the then government had taken both tariff and non-tariff

measures to protect the domestic industries. The import duties on a number of

items were increased. For example. The duty on areca-nut and poultry products

had been increased from 35 per cent to l00 per cent, wheat from zero to 50 per

cent on skimmed milk powder from zero to 60 per cent and rice from zero per

cent to 80 per cent.

Also, import of 131 products was also subject to compliance of the mandatory

Indian quality standards as applicable to domestic goods. In order to comply

with this statutory requirement of the government, all manufacturers and

exporters of the products to India are now required to register themselves with

the Bureau of Indian Standards.

In March 2009, the country’s safeguards office recommended imposition of

provisional safeguards duty on imports of aluminium flat-rolled products and

aluminium foils from China. The safeguards duty of 21 per cent on imports of

aluminium flat-rolled products, the duty for aluminium foils was 35 per cent

was applied. The action was carried out in response to the petition filed by the

Aluminium Association of India before the Director General of SafeGuards

office.

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In September 2008, India had imposed the ban for three months after milk and

products originating from China were found to contain traces of melamine.

Melamine is described as being "Harmful if swallowed, inhaled or absorbed

through the skin. Chronic exposure may cause cancer or reproductive damage.

Eye, skin and respiratory irritant.”

8. Subsidy:

A subsidy is assistance paid to a business or economic sector. Most subsidies are

made by the government to producers or distributed as subventions in an industry

to prevent the decline of that industry (e.g., as a result of continuous unprofitable

operations) or an increase in the prices of its products or simply to encourage it to

hire more labour (as in the case of a wage subsidy). Examples are subsidies to

encourage the sale of exports; subsidies on some foods to keep down the cost of

living, especially in urban areas; and subsidies to encourage the expansion of farm

production and achieve self-reliance in food production. Subsidy has been used by

economists with different meanings and connotations in different contexts. The

dictionary [Concise Oxford] defines it as "money granted by state, public body,

etc., to keep down the prices of commodities, etc.”. Environmental economists

define subsidies as uncompensated environmental damage arising from any flow of

goods and services. In a budgetary context, it may be defined as “unrecovered

costs in the public provision of private goods”.

23


Subsidies are often regarded as a form of protectionism or trade barrier by making

domestic goods and services artificially competitive against imports. Subsidies

may distort markets, and can impose large economic costs. Financial assistance in

the form of a subsidy may come from one's government, but the term subsidy may

also refer to assistance granted by others, such as individuals or non-governmental

institutions.

Agricultural subsidies are largely present in Develop countries in

Examples of industries or sectors where subsidies are often found include utilities,

gasoline in the United States, welfare, farm subsidies, and (in some countries)

certain aspects of student loans.

24


9. Types of Subsidies:

There are many different ways to classify subsidies, such as the reason behind

them, the recipients of the subsidy, the source of the funds (government, consumer,

general tax revenues, etc.). In economics, one of the primary ways to classify

subsidies is the means of distributing the subsidy. In economics, the term subsidy

may or may not have a negative connotation: that is, the use of the term may be

prescriptive but descriptive. In economics, a subsidy may nonetheless be

characterized as inefficient relative to no subsidies; inefficient relative to other

means of producing the same results; "second-best", implying an inefficient but

feasible solution (contrasted with an efficient but not feasible ideal), among other

possible terminology.

In other cases, a subsidy may be an efficient means of correcting a market failure.

For example, economic analysis may suggest that direct subsidies (cash benefits)

would be more efficient than indirect subsidies (such as trade barriers); this does

not necessarily imply that direct subsidies are bad, but they may be more efficient

or effective than other mechanisms to achieve the same (or better) results. Insofar

as they are inefficient, however, subsidies would generally be considered by

economists to be bad, as economics is the study of efficient use of limited

resources. Ultimately, however, the choice to enact a subsidy is a political choice.

25


Another form of subsidy is due to the practice of a government guaranteeing a

lender payment if a particular borrower defaults. This occurs in the United States,

for example, in certain airline industry loans, in most student loans, in small

business administration loans, in Ginnie Mae mortgage-backed bonds, and is

alleged to occur in the mortgage-backed bonds issued through Fannie Mae and

Freddie Mac. A government guarantee of payment lowers the risk of the loan for a

lender, and since interest rates are primarily based on risk, the interest rate for the

borrower lowers as well.

Agricultural subsidies given by develop countries benefit large farmers

rather than small farmers.

26


10.Effect of subsidies:

In standard supply and demand curve diagrams, a subsidy will shift either the

demand curve up or the supply curve down. A subsidy that increases the

production will tend to result in a lower price, while a subsidy that increases

demand will tend to result in an increase in price. Both cases result in a new

economic equilibrium. Therefore it is essential to consider elasticity when

estimating the total costs of a planned subsidy: it equals the subsidy per unit

(difference between market price and subsidized price) times the new equilibrium

quantity. One category of goods suffers less from this effect: Public goods are once

created in ample supply and the total costs of subsidies remain constant regardless

of the number of consumers; depending on the form of the subsidy, however the

number of producers on demanding their share of benefits may still rise and drive

costs up. The recipient of the subsidy may need to be distinguished from the

beneficiary of the subsidy, and this analysis will depend on elasticity of supply and

demand as well as other factors. For example, a subsidy for consumption of milk

by consumers may appear to benefit consumers (or some may benefit and the

consumer may derive no gain, as the higher prices for milk offset the subsidy). The

net effect and identification of winners and losers is rarely straightforward, but

subsidies generally result in a transfer of wealth from one group to another (or

transfer between sub-groups). Subsidy may also be used to refer to government

27


actions which limit competition or raise the prices at which producers could sell

their products, for example, by means of tariff protection.

Subsidies reduce world price and affect export dependent and

developing countries:

a. Economic effects of subsidies:

Allocate effects: these relate to the sectorial allocation of resources.

Subsidies help draw more resources towards the subsidised sector

Redistributive effects: these generally depend upon the elasticity’s of

demands of the relevant groups for the subsidised good as well as the

elasticity of supply of the same good and the mode of administering the

subsidy.

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Fiscal effects: subsidies have obvious fiscal effects since a large part of

subsidies emanate from the budget. They directly increase fiscal deficits.

Subsidies may also indirectly affect the budget adversely by drawing

resources away from tax-yielding sectors towards sectors that may have a

low tax-revenue potential.

Trade effects: a regulated price, which is substantially lower than the market

clearing price, may reduce domestic supply and lead to an increase in

imports. On the other hand, subsidies to domestic producers may enable

them to offer internationally competitive prices, reducing imports or raising

exports.

Subsidies may also lead to perverse or unintended economic effects. They would

result in inefficient resource allocation if imposed on a competitive market or

where market imperfections do not justify a subsidy, by diverting economic

resources away from areas where their marginal productivity would be higher.

Generalised subsidies waste resources; further, they may have perverse

distributional effects endowing greater benefits on the better off people. For

example, a price control may lead to lower production and shortages and thus

generate black markets resulting in profits to operators in such markets and

economic rents to privileged people who have access to the distribution of the good

concerned at the controlled price.

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Subsidies have a tendency to self-perpetuate. They create vested interests and

acquire political hues. In addition, it is difficult to control the incidence of a

subsidy since their effects are transmitted through the mechanism of the market,

which often has imperfections other than those addressed by the subsidy. On 29

June 2012, C Rangarajan, Chairman of the Prime Minister's Advisory Council in

view of present difficult economic position, advocated cutting down of fuel and

fertiliser subsidies to keep the fiscal deficit within the budgeted level of 5.1 per

cent.

11.Objective and benefits of subsidy:

a. Objective

Subsidies, by means of creating a wedge between consumer prices and

producer costs, lead to changes in demand/ supply decisions. Subsidies are

often aimed at :

Inducing higher consumption/ production

Offsetting market imperfections including internalisation of externalities;

Achievement of social policy objectives including redistribution of income,

population control, etc.

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b. Benefits of subsidies in India:

The relative distribution of the benefits of a subsidy may be studied with respect to

different classes or groups of beneficiaries such as consumers and producers, as

also between different classes of consumers and producers.

India spending on Subsidy:

In case of food subsidy, PDS suffers from considerable leakage and apart from

a low coverage of poor; the magnitude of benefit derived by the poor is very

small.

In case of electricity, the subsidy rates have been rising for both agriculture and

domestic sectors because the unit cost has been rising faster than the relevant

tariff-rate. Also, there is considerable variation in the level of per capita

31


electricity subsidy indicates that, in the richer States, the per capita subsidy is

substantially higher as compared to that in the poorer States.

In case of public irrigation, water has a very high marginal productivity when

used in conjunction with HYV of seeds, chemical fertilisers, power and other

related inputs. It is the richer farmers who may derive relatively larger benefits

because of their capacity to use these allied inputs.

Subsidies to elementary education form about half of the total subsidies on

general education. However, this is not true for all individual States: the share

of elementary education is lowest in the high income States and the highest in

the low income States (Goa, Punjab and West Bengal actually give higher

subsidies to secondary education than primary education).A negative

correlation between the level of per capita income and the share of subsidies to

elementary education is thus discernible. Most subsidies to higher education

accrue predominantly to the better-off sections of society as they have an

overwhelming advantage in competing out prospective candidates from the

poorer sections in getting admission to courses that are characterised by scarcity

of seats.

For subsidies of health, the greater emphasis on curative health care expenditure

often reflects a bias towards the better-off people whereas preventive health

32


care expenditure with much larger externalities would clearly be of greater help

to the economically weaker sections of the society.

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12.Conclusion:

Benefits of Subsidies are mainly visible in Developed countries in large farms

where as in Developing Countries like India the subsidies are mainly focussed for a

particular segment of the society such as poor’s. The share of this segment is

increasing and also the effect of subsidies is clearly visible in terms of the

production and usage. Subsidies on Power, Education, water and food are the most

popular subsidies in developing nations. Also, there is considerable variation in the

level of per capita electricity subsidy indicates that, in the richer States, the per

capita subsidy is substantially higher as compared to that in the poorer States. It is

the richer farmers who may derive relatively larger benefits because of their

capacity to use these allied inputs.

The use of anti-dumping measures as a trade protection tool has increased

phenomenally during the last decade. One significant aspect of this new trend is

the increasing involvement of developing countries. India is one such country

which has emerged as a frequent user of anti-dumping measures.

Critics of anti-dumping duties though find it difficult to prove the fact that the

imposition of anti-dumping duties results in economic benefits to the domestic

industry. Consumers are aggrieved as well, as they feel deprived of the lower costs

and availability of variety of goods. The role of the government in tackling the

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problem of anti-dumping should be to protect the smaller industries rather than

concentrating on the major industries

However, safeguarding competition in domestic industry is not the only purpose

that anti-dumping laws serve and in the present situation, they are acting as barriers

for free trade and domestic producers are concerned about avoiding competition.

In case of allegations and anti-dumping duties slapped on economically weaker

nations, it could result in a stunt of economic growth for these developing

countries, as they are unable to develop secure and stable long term industries.

Developing countries wanted anti-dumping rules to be tight and explicit as

possible, allowing minimum transparency. Developed countries wanted to retain

and even expand their discretion to meet what they saw as being used by

companies to get around the present rules of anti-dumping code and thereby cause

injury to domestic industry, their proposals tended to be the most radical and

controversial

The negotiating stance of developing countries like India should be for tightening

the agreement.

Even though abolishment of these anti-dumping laws will lead to increased

competition, lower prices for consumers, more efficient production, and higher

national income, it is unrealistic to hope that the WTO will remove this trade

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device in the near future. But before things worsen, an immediate reform is

necessary and the WTO anti-dumping rules need to be amended to allow a more

transparent process of investigation and to determine correctly whether the

material injury caused is because of dumping or higher competition only. The

WTO rules need to be formulated so as to target only predatory dumping and not

persistent or sporadic dumping. All countries need to have the uniform standards

for determination of the dumping margins so as to maintain fairness. While aiming

at consumer welfare, it is necessary to justify the use of anti-dumping laws as tools

against unfair trade, to reconsider its definition and analyse as to what is essentially

fair and what’s not and keeping in mind the gross abuse of anti-dumping laws

answer the very fundamental question of whether these laws are necessary at all.

The key characteristic of a sensible safeguard procedure is that it treats domestic

interests that would be harmed by an import restriction, equally with those

domestic interests that would benefit. The "morality" of the foreign interest is

irrelevant - the issue is the plus and minus on the domestic economy.

Operationally, this suggestion means simply that what is done in an "injury test," -

identification of impact on import competing interests - is repeated for users of

imports.

Some argue that there must be more rigorous anti-dumping rules that must be

formulated at the domestic and international level. The notion of predatory pricing

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must be clearly incorporated in the definition of dumping. The burden of proof of

dumping must be placed squarely on the party initiating dumping cases. The

implementation of anti-dumping measures should be subject to the close inspection

of the WTO. Countries should more amply inform their public of the costs and

benefits of anti-dumping measures so as to promote an unbiased and fair public

opinion on this matter. These measures would ensure that anti-dumping laws are

fairly applied and assist only those producers who suffer as a result of the low

prices, and not arbitrarily affect the production of efficient producers who are not

in error.

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26 sep soham's updated ass

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