Critically examine the implications of the US decision to remove India from its Generalized System of Preferences (GSP) programme.

The removal of India from the US GSP programme implies several economic impacts for India. Specific sectors like gems and jewelry, leather goods, and processed foods which benefited significantly from duty-free exports to the US will face challenges.

• Exports in these sectors enjoyed strong growth and job creation due to cost competitiveness from GSP. Removal from GSP may lead to a contraction, especially for small and medium exporters.
• For the US, the decision reflects its position that India has not provided equitable market access. However, it loses a tool for enhancing the global competitiveness of US goods by reducing costs of imported inputs from India.
• There could be some positive impacts too. India may pursue more FTAs with other nations. Domestically, India can focus on boosting manufacturing under Make in India to substitute imports. However, overall the decision represents uneasy trade ties between India and US.

Thus, the withdrawal of GSP indicates some friction in trade ties and will impact specific Indian export sectors in the short term. However, it could open new trade policy options for India in the longer term, even as both countries lose some mutual economic benefits. Negotiations on outstanding trade issues could help restore GSP status. The impact also depends on India’s policy response going forward.

Topics: GS-II: India's Foreign Policy Neighbourhood International Relations