Mohan Lavi

Use the trade route to respond to China’s actions

Mohan R Lavi | Updated on June 21, 2020

Boosting domestic production of mobile phones, which are imported heavily from China, through tax incentives can help reduce Chinese dependency

For the last few months, most of India’s population has been confined indoors due to the imposition of the lockdown to counter the impact of Covid-19. Being indoors for such an extended period of time has made people respond differently to situations, compared to how they would have reacted had Covid-19 not come visiting. When the events in the Galwan Valley in Ladakh came to light, most of India went up in an anger that was not seen before. Reactions ranged from a call to the entire country to simply discard all Chinese products to India countering the action militarily as well as economically. To ensure that the message was loud and clear, a cartoonist put out an illustration of a housewife serving Chinese fried rice with sambar and chutney.

The government’s response to Galwan raises more questions than it answers — something that we are getting used to after the Pulwama and Balakot episodes. Responding militarily is not an option, since military attacks are not restricted to just two countries — many others would join in just to test their arsenal and use their resources.

Trade with China

At the same time, the government cannot stay quiet and expect that time will resolve the issue. It should respond through trade and economics. Unfortunately, trade statistics between India and China are heavily skewed in favour of the latter. For 2019, merchandise imports from China were to the tune of $85 billion and the imports were $29 billion. In January and February 2020, China’s exports to India were 67.1 billion yuan while imports by China were 18 billion yuan. In short, India imports almost 2.5 times the amount it exports to China.

More than 40 per cent of India’s imports from China fall under the HSN Code 8517— telephone sets, including telephones for cellular networks or for other wireless networks; and other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), and parts thereof (excluding transmission or reception apparatus). The names of the companies whose products are imported are almost household names in India — Xiaomi, Lenovo, Oppo, Vivo, Huawei, Oneplus, Gionee etc.

With mobile phones becoming an integral part of our daily lives, any economic offensive against such household names needs to be taken only after a viable local alternative is made available. At present, a customs duty of 20 per cent is levied on imports of mobile phones and they would also suffer a IGST of 18 per cent.

Vocal for local

Recently, the Prime Minister came out with a new catch-phrase: “vocal for local”. Instead of simply saying the words, the government can initiate some action with a clear plan to reduce imports under HSN Code 8517 from 40 per cent to 25 per cent over a period of 3-4 years. This can be done by imposing a GST of only 5 per cent on mobile phones manufactured in India, and encouraging banks to lend to such entities. Once the production of domestic handsets commences, the customs duty on imported handsets should be doubled to 40 per cent.

If any company has shown the gumption to think really big, it is the Reliance group, who entered the market with Jio.It would only need a nod from the Government to ramp up production of quality mobile handsets from India. Of course, China is not expected to stand across the border and clap. We can expect it to slash quality as well as price and dump its products into the country. The office of the Director General of Trade Remedies has a lot of experience in passing orders related to anti-dumping, it should be prepared to get a few cases under HSN Code 8517.

The writer is a chartered accountant

Published on June 21, 2020

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