In November 1999, while the Indian government was still debating and gauging the implications of the impending World Trade Oraganisation (WTO) regulations on various Indian industries, key executives and senior managers of the Tata Group gathered for a day-long seminar. The agenda: to discuss and formulate strategies that would prepare the group for the WTO regime.

Three years down the line, the Tata Group has a well-established WTO cell. Tata companies have been audited for WTO readiness and about 2,500 executives have been turned into ‘WTO evangelists’ through training and awareness programmes. The aim is to ensure that the Tata Group becomes the first Indian business conglomerate to harmonise its operations with WTO requirements.

India has put in place a slew of export-promotion schemes since the1960s to boost its exports. While the practice of granting export incentives is near universal — although their form and extent vary widely — the situation is becoming increasingly untenable due to different reasons. With the WTO focusing on removing impediments to the free flow of global trade, many of the incentives offered are coming in for close scrutiny. That puts India and its policies under the WTO scanner.

Currently there are 11 major export-incentive schemes in India. These are a combination of duty drawbacks, direct-tax exemptions and finance schemes. A quick analysis indicates that nearly 70 per cent of the schemes are susceptible to countervailing (a duty imposed to offset subsidies by governments). Unfortunately, India’s EXIM policy document is yet to recognise this fact.

Status of incentives under WTO

Source: Department of Economics and Statistics (DES), Tata Services

Moreover, in the next three years export incentives offered by the Indian government to a wide range of industries (steel, engineering, automobiles, chemicals, processed foods, consumer goods, hospitality, finance and software) will be directly affected by WTO regulations.

The situation is a cause of grave concern for Indian industry, used as it is to export-incentive schemes for more than four decades. Removal of any of these schemes would mean a direct impact on the profitability of the industry — unless it is prepared.

It is in this context that the Tata Group’s initiatives to prepare its companies for the WTO age gain importance. With a turnover of over $9 billion and exports worth $1.4 billion, the Tata Group is one of the biggest business conglomerates in India. The group manufactures a large number of products and also operates in various services sectors. There’s little doubt that it will be adversely affected by the WTO trade regime.

Sector-wise export subsidies (with reference to the Tata Group)

Source: DES

There are 715 items for which quantitative restrictions have been removed, and these include a number of products manufactured by Tata companies. With the prospect of a reduction of tariffs to Asian levels in the next three years, there is likely to be high import competition, not only on the finished products but also on all the segments of the value chain of companies (involving forward and backward linkages).

All these are applicable to the Indian manufacturing industry. Consequently, the operations of many Tata companies, in product- and brand-driven businesses, will be adversely affected due to increased competition from imports, more so in the case of engineering, materials, chemicals and consumer goods.

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