Border backlash on trade! Duty hike coming on all Chinese imports except medicines

Border backlash on trade! Duty hike coming on all Chinese imports except medicines

Centre to ensure Chinese goods do not enter India via other countries like Taiwan, Singapore, Malaysia and Indonesia

China is the biggest importer for India with goods worth $65.26 billion in fiscal 2020 China is the biggest importer for India with goods worth $65.26 billion in fiscal 2020

Key highlights:

  • Government of India has sent almost two dozen emails to industry bodies like CII, FICCI and ASSOCHAM seeking details on import of items from China
  • Everything except APIs used in the manufacture of drugs is being considered for a hike in import duty
  • Emails have also gone from DGFT seeking details of imports from other South Asian countries where China may try to circumvent goods in future
  • China is the biggest importer for India with goods worth $65.26 billion in fiscal 2020. Another $16.9 billion came in from Hong Kong

The government is studying the possibility of hiking duties on almost all goods that are currently imported from China except active pharmaceutical ingredients that are needed for manufacture of medicines.

In the last week alone, the Ministry of Commerce and Industry has sent around two dozen emails to industry bodies like CII, Ficci and Assocham seeking comments on a host of goods imported from China. India imported goods worth $474 billion in 2019-20, a decline of around 8 percent over 2018-19, of which imports from China accounted for $ 65.26 billion. It was by far the bigger importer for India, way ahead of US at $35.66 billion and UAE at 30.25 billion. An additional $16.9 billion worth of goods also came in from Hong Kong in 2019-20.

Electrical machinery and equipment forms the biggest commodity that is imported into India from China at $ 19.1 billion followed closely by nuclear reactors, boilers, machinery and mechanical parts at $13.32 billion, organic chemicals at $7.9 billion, plastic goods at $2.7 billion and fertilisers at $1.8 billion. Another $8.7 billion worth of electrical machinery and equipment is also imported from Hong Kong.  

"We have received numerous emails on a host of goods from electronic items to toys, organic and inorganic chemicals to commodities like steel and aluminium," said a trade expert working with one of the chambers. "The government wants to know if import duties should be raised on these items, how much of it can be produced in the country or easily sourced from any other destination and how dependent is the local industry on China for each of these items. The only exception being made is for APIs where we have not received any email yet but we have not heard the last from them either".

Import of pharmaceutical products from China was worth just $166.2 million in FY20 but was one of the few items to post a growth of 12 per cent. India, which has the third largest pharmaceutical industry in the world in terms of volume, is overly dependent on China for APIs. In February, Minister for Chemicals and Fertilisers D V Sadananda Gowda had said in the parliament that two-thirds of total import of bulk drugs or drug intermediaries come from China. APIs that are used to make antibiotic medicines are part of this. An estimated 90 percent of India's annual requirement of APIs is imported.

India's dependence on China on some of the other goods like solar panels, electrical parts and lithium ion batteries is also high but unlike APIs there is a lack of consensus among the industry associations on the path India ought to take on these products.

While some say India should desist from hiking duties immediately as it would harm the local industry at a time when the economy is anyway in doldrums, others say the time is ripe to encourage local manufacturing by sending a signal that China cannot hold India's economy to ransom.

"Our belief is that local manufacturing has not taken off only because duties for import are low so it is much easier for companies to import those components than manufacture them here. It is a question of scale and not capability," says a second trade expert at one of the industry bodies. "Our recommendation is to raise duties not very substantially but by a bit so that imported components become expensive enough for local production to take off. There maybe some short term pain but the days of half measures are over".

At the same time, emails have also gone out from the office of the Directorate General of Foreign Trade (DGFT) seeking details of goods imported from some other countries like Taiwan, Singapore, Malaysia and Indonesia where India should be cautious.

"It is just to plug any loophole once duties are raised on direct imports from China so that goods are not circumvented into India from these countries," said an industry insider. "It is a very common trick employed by China in the past and we should be wary of it without damaging our relations with these countries either".

Bilateral trade with mainland China registered a 6 per cent decline in FY20 to $81.86 billion. With Hong Kong trade stood at around $28 billion, over 10 percent lower than fiscal 2019.

Relations between India and China have deteriorated in the last few months, first due to the outbreak of coronavirus pandemic for which China is being widely blamed and then due to the heightened tension at the Galwan border in Ladakh where 20 Indian soldiers were killed in action on the night of July 15.

As a result, the clamour for boycott of Chinese goods in India is at an all time high with trader bodies like Confederation of All India traders (CAIT) upping the ante and vowing to not import or sell any goods from China any more. CAIT has prepared a list of 3,000 non essential Chinese products that it intends to boycott with an aim to reduce overall imports by Rs 100,000 crore ($ 13.3 billion) by December 2021.

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