Crack down on unscrupulous Chinese imports

Bhawarlal Chandak | Updated on September 15, 2020

Large scale under-invoicing of Chinese exports takes place, owing to an elaborate network. This should be dismantled

India is hit by both the visible and invisible cost of massive unscrupulous Chinese imports. Its effects are manifested in the form of de-industrialisation, over-dependence on Chinese products/inputs, generation of black money and hawala business, rise in cash economy, muted capex, underdevelopment of skill/technology, growing unemployment and loss of tax revenue.

The officially recorded value of Chinese imports are a small fraction of actual Chinese imports to India. Imports through dubious channels include under-invoicing in terms of price, quantity, weight, misclassification, smuggling, pass-through imports via Hong Kong, Dubai, RCEP countries, gift channels, etc.

China-made counterfeits of leading global brands are flooding the markets and e-commerce sites. Even without counting for the rampant under-invoicing and smuggling, officially recorded Chinese imports went up by a whopping 25 per cent CAGR over 2003-18. Chinese imports surged with trade liberalisation, reduction in import duties as well as steady appreciation of the rupee (annual average rate of ₹48.40 per dollar in FY 2003 to ₹40.24 in FY 2008) since the mid-2000s. In dollar terms, imports went up an astounding 58 per cent CAGR over FY 2003-08. The results are evident: closure of many businesses, growing NPAs, and switch-over from manufacturing to trading or assembly-line production with steady increase in dependence on Chinese products and inputs since the late 2000s.

Markets for electronics, electrical goods, solar panels, chemicals, active pharmaceutical ingredients, metals, furniture, many household/gifts items, toys, footwear, hardware, tiles, automobile parts, tyres, bicycle parts, bearings, various machinery and accessories are dominated by Chinese products. No large economy can prosper with such an import-intensive consumption and production structure.

Chinese exports dominate in the following manner:

Owing to aggressive Chinese export policies, indigenous industry has been laid low. In many cases, invoice value can be nominal in relation to the actual value.

Market experience, R&D, expertise in imitation and production of counterfeits and cheaper goods as per importers’ requirements keep competition out.

Over the years, Chinese products have become entrenched in our consumption and production structure. This could not have been possible without a nexus involving exporters, importers and agents located at China/Hong Kong, clearing agents and customs.

Well-oiled import-cum-trading and assembling networks and cash/hawala payment systems have become pervasive. Based on informal sources, a few illustrative examples of the level of connivance include : (i) some containers may even be taken out without customs payment; (ii) negotiation at organisational and industry level for clearance of dubious imports; and (iii) higher on-money for clearance of Chinese containers.

Information failure in terms of price, quantity, quality of many Chinese imports creates risk and uncertainty in terms of costs and prices for indigenous manufacturers. As a result they are unable to undertake production and capital expenditure.

A deluge of Chinese goods contributed to widespread industrial sickness. The number of CDR references spurted from 225 to 622 during FY 2010-14. A non-oil trade surplus of $6.4 billion in FY 2003 rapidly turned into massive deficit of $37 billion by FY 2008 and to $91 billion in FY 2018. An import-intensive consumption and production structure dampens savings and capex. As a result, there has been a deceleration in savings (37 per cent to 30 per cent of GDP) and gross capital formation (from 40 per cent to 32 per cent of GDP) over FY 2011-19.

High currency growth is not generating higher growth. But it generates inflation, as cash is used to finance clandestine imports.

To move towards Atmanirbhar Bharat, we need to take well-calibrated import-restricting measures without creating sudden disruptions as many industries are dependent on import of raw materials and components from China. We can first begin with inessential goods where we have indigenous capacity.

Shady networks should be blacklisted and acted upon. Random and surprise check of imports at the ports should be carried out. Minimum import prices should be fixed wherever possible, with quality/safety standards. India should enter into international agreements to share information on illegal money transfers by banks in hawala havens such as Hong Kong and Dubai.

The writer is former DGM, SIDBI

Published on September 15, 2020

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