JULY 27, 2018

By TIOL Edit Team

CHINESE dragon's economic might has once again triggered an alarm in India.

The Parliamentary Standing Committee (PSC) on Commerce wants Union Government to be more proactive against unfair imports from China. It wants Modi Government to take a cue from the United States and the European Union. PSC believes the duo "have been quite aggressive and agitated over the erosion of their domestic industry and loss of employment."

PSC wants ease of doing business to be extended to cumbersome, expensive and time-consuming process of applying for tariff protection against unfair imports.

Apart from dumping, unfair imports include misclassification of goods covered by anti-dumping and safeguard duties, under-invoicing of imports and smuggling.

In its report captioned 'Impact of Chinese goods on Indian Industry' released on 26th July 2018, PSC says: "The impact of Chinese imports has been such that India is threatened to become a country of importers and traders with domestic factories either cutting down their production or shutting down completely. The Committee is very clear that it does not want such a state of affairs to prevail in the country. The country can ill afford its industry including MSMEs to get annihilated".

With China's exports to India outpacing its imports, the bilateral trade deficit has increased rapidly since the second half of nineties. The trade deficit with China is estimated at USD 63 billion for 2017-18. This accounts for more than 40 percent of India's total trade deficit. The share of Chinese goods in India's total imports is over 16%. Imports from China increased by USD 50 billion during 2007-08 to 2017-18, whereas India's grew by only USD 2.5 billion.

As on 18.04.2018, definitive anti-dumping duty is in force on 102 products imported from China. Similarly, countervailing duty and safeguard duty is in force on two products each from China. Several statutory probes into unfair imports are in the works.

PSC is neither the first nor the last entity to raise concern on growing bilateral trade deficit & its adverse effect on manufacturers across the spectrum.

Way back in January 2008, the Chairman of erstwhile National Manufacturing Competitiveness Council (NMCC) made a slew of suggestions to the Government to balance bilateral trade.

In a letter to the Minister for Commerce and Industry, NMCC chairman observed: "the bulk of the imports are manufactured goods traditionally produced by small and medium-enterprises in India. They seem to be worst affected by this development".

As noted by NMCC letter, "our relationship with China in trade is more as a primary commodity supplier to enable value addition by them and export finished goods".

It is indeed pathetic to find that this trade composition has remained virtually unchanged since then, despite hue & cry and half-hearted efforts to increase & diversify exports.

Modi Government thus must pay heed to PSC report and suggestions on balancing bilateral trade embedded in earlier documents. It should also take decisive and timely calls on recommendations that help nurture 'Make In India' initiative.

PSC recommendations that deserve consideration include amendment to Customs Act and timely correction of inverted duty structure (IDS).

Referring to under-invoicing of imports and misdeclaration of special tariff-protected goods by Indian traders, PSC has suggested that the Government should make "necessary amendments" to Customs Act to "complete investigations and prosecution of violators within a short time so that they become an effective deterrent to such unscrupulous elements".

As regards IDS, the Committee has proposed that "The finished goods which have comparable domestic manufacturers must have the highest duty,medium rate of duty may be provided for intermediaries and lowest for the parts and components used in manufacture of finished products".

It is here pertinent to point that the Government regularly entrusts IDS complaints to Tariff Commission for study and for suggesting the requisite solution. This initiative, however, happens once in a year in the run-up to preparation of the annual budget. Genuine and serious IDS complaints should be addressed quickly outside the budget domain.

The problem with the Government is its obsession for opacity. It does not put in public domain numerous studies undertaken by Tariff Commission on competiveness of different industries and adverse impact of free trade agreements on specified sectors.

Modi Government has also taken out of public domain all good work done by NMCC. After it came to power, it did not appoint new chairman and members. It wound up NMCC in March 2016 and deactivated its website.

One can cite many instances of such blows to 'Make In India' initiative. Many of the setbacks occur to due to environmental and judicial activism, leading to delay or abandonment of projects, suspension of operation of factories or change in their inputs usage. All such developments make manufacturing units uncompetitive.

The delays and closures also reduce generation of export surpluses.

Yet another PSC recommendation that merits investigation is routing of Chinese imports through countries with which India has signed free trade agreements (FTAs).

According to PSC, "There is also a need to relook at the Least Developed Countries (LDC) arrangements under Duty Free Tariff Preference (DFTP) scheme. It is alleged that most Chinese manufacturers have setup operations in LDC countries to avail such benefit sand glut the Indian economy with its products. It was brought to the notice of the Committee that many unscrupulous Indian importers are complicit in this kind of evasion. Such evasions of duties are also depriving the Government of India of huge revenue".

It is high time Government reboots 'Make In India' as foremost tool for exports-led growth to not only face Chinese competition but to also improve balance of payments situation.

The Government ought to pay serious attention to issues and ideas mentioned in World Bank report titled 'India: Systematic Country Diagnostic- Realizing the Promise of Prosperity' released during May 2018.

As put by the Report, "India's progress on improving the climate for doing business is slow not because laws are not being reformed, but because follow- through in procedural reforms is slow. Even routine procedures are not followed consistently: firm surveys suggest that the time taken to get a simple business permit varies widely across firms in India, and there are large gaps between policies and ground realities".