Threat perception over imports from China

Apprehensions abound in Indian industry over the consequences of Chinese products entering the country. Ranmath Subbu takes a look at the evolving scenario.

INDIAN INDUSTRY claims that low cost products from China are finding their way into the homes of Indian consumers and hurting Indian producers, but what is not known is how widespread this phenomenon is. The groups which are most vocal and most affected are the small and medium scale units.

Allegations of dumping are being made in an environment where consumer goods are subject to quantitative restrictions (QRs) and tariff levels remain high. With remaining QRs likely to be phased out in the next few months, if tariff levels are not raised significantly significantly large scale could dent the Indian small scale manufacturers further. The complaints are specifically about cheaper Chinese imports that are coming in the form of tyres, bicycles, dry cell batteries, fibres, ferro alloys, edible oils, chemicals and consumer electronics and components.

There has been allegedly a quantum jump in such imports since April 2000. According to a Federation of Indian Chambers of Commerce & Industry (FICCI) study, imports have since jumped more than three-fold for some items like batteries. In the case of items such as shoes or electronic components also, the increase has also been significant.

Initial reaction from the Indian industry has tended to be one of excessive caution. The position on tyres and plastics are cases in point. The FICCI study states that ``on rough and ready estimates'' Chinese tyres ``already'' a one per cent market share. ``On the face of it, this is not large,'' the report says, but adds that a delegation from Indian tyre-makers to China felt that ``China could pose a big threat to the Indian tyre industry'' in view of price advantages.

It is not surprising that China chose the Indian market as an export destination as the size and proximity to China are two attractive propositions.

The Chinese economy has several inherent advantages over many other countries: exports are growing rapidly - the annual growth of exports increased from 11.5 per cent in the 1980s to 14.5 per cent in the 1990s. Amazingly, China's trade surplus with the U.S. is comparable to India's total export turnover.

At a recent meeting of the `Track China' cell of the Confederation of Indian Industry (CII), Mr. Ravi Sinha, CEO, SRF Ltd., and chairman of the cell, said China can be seen from three perspectives: as a role model, as a potential competitor and as a partner for India.

China is undertaking its third generation reforms but it suffers from severe regional disparities. Unlike India, however, China has seen the World Trade Organisation (WTO) as a catalyst for restructuring its industry and has undertaken amalgamations and placed a renewed focus on productivity.

A 1997 World Bank study, `China 2020' shows that China will become the world's second largest exporter by 2020 after the U.S. Currently 40 per cent of Chinese exports are in electronics. Further, China's success can be attributed to having an export culture in each and every sphere.

There is no doubt that cheaper imports from China have had an impact on the smaller scale manufacturers here. Recognising this, the government has initiated steps towards correcting the situation and the Customs Preventive Department has conducted raids on several importers of Chinese goods and seized items worth several lakhs of rupees. There is a blueprint to rescue the domestic industry from the spectre of cheap imports.

Indian initiatives

First, the government has increased the basic duty on imports of edible oils. The duty on refined palm oil and RBD palmolein has been increased from 35 per cent to 65 per cent. According to the Soyabean Processors Association of India (SOPA), ``The 10 per cent hike in crude and refined oils other than palm oil and RBD palmolein would put a stop to the unbridled import of cheaper edible oil into the country and regulate the imports to the gap between the demand and supply. This would also enable the domestic edible oil industry to get a remunerative price for their produce.''

Second, the government has ordered anti-dumping investigation into select Chinese imports and is laying down the standards for imported goods. This is the first time that the anti-dumping mechanism has been activated against consumer goods.

Third, the introduction of compulsory licensing for imports. This is permitted under WTO norms and while the government would not deny a licence, it would require information and prior notice. It is making licensing compulsory for all imports. The special import licence idea is based on the Singapore model where all imports are subject to compulsory licensing. This mandatory licensing would help in collection of detailed data on all imports and would allow easier interpretation of import trends.

Lastly, the government has imposed BIS (Bureau of Indian Standards) norms on the import of 131 goods. This regulation for making imports adhere to BIS standards and compulsory printing of retail price was cleared by a high-powered committee constituted by the Prime Minister to monitor imports. While the printing of retail price would help check under-invoicing, the adherence to BIS standards would prevent inflow of sub-standard goods.

According to the order, which came into effect last week, an exporter has to register himself with the BIS. The products imported would have to comply with all conditions listed in the Standards of Weights and Measures (Packed Commodity) Order of 1977 which is currently applicable on items produced within the country. Products failing to comply with the order would be held up by the Customs. Also, it is now compulsory for all imported goods to carry the name and address of the importer. A notification to this effect was issued by the Directorate General of Foreign Trade (DGFT) last week.

Also, the printing of maximum retail price would help as it should include all taxes, freight, transport charges, commission, advertising cost, delivery, packaging and forwarding expenses.

But there are critics of the steps initiated by the Government. According to Mr. Venugopal Dhoot, managing director, Videocon International, a leading player in consumer goods and electronics, ``The government's reaction is wrong in this matter. It is not possible to over-value Chinese goods coming in. As a signatory of the WTO India should not impose such restrictions. We will have to take the competition head-on. Indian labour is the cheapest in the world and we have to show by performance that we can compete with any product coming from anywhere.''

A segment that has taken a hit has been the domestic electronic component industry. According to Mr. B. S. Sethia, Honorary Secretary, Electronic Component Industries Association (ELCINA) and director, Elin Electronics, ``The situation has been grim because more than 50 per cent of electronic accessories and equipment come from the unorganised sector. Products from China are either grossly under-invoiced or smuggled and they are priced 10-15 per cent lower than in the domestic market.''

Earlier, the duty on finished components was at a maximum of 45 per cent and that on raw material was between 5 and 25 per cent. But in the last two years, the duty on raw material increased to 35 per cent and that on finished components came down to 15 per cent.

The total requirement of components is around Rs. 10,000 crores, while local production of components is Rs. 5,500 crores. There have been no fresh investments in the electronics component industry except in colour TV specific components which are not affected by the grey market as CTVs are mainly manufactured by the organised sector which pays excise duty and avail CENVAT. However, according to Mr. Sethia, most other equipment such as audios, B&W TVs, electronic accessories and small gadgets are manufactured by the unorganised sector which does not fall in the excise paying bracket and hence do not avail of CENVAT. ``This has encouraged the grey market as domestic makers cannot compete with it after paying high excise duty and other taxes. This has resulted in closure of around 100 units in the last decade after initiation of liberalisation process since 1991,'' said Mr. Sethia.

According to Mr. Sethia, the industry exports about Rs. 1,200 crores worth of goods and the demand that is met through imports is Rs 5,700 crores with official imports of Rs 3000 crores and the unofficial (grey) market of Rs 2,700 crores. Of the total industry, ``Rs 2,500 crores constitutes the market for colour television components where there is no grey market.'' said Mr. Sethia, adding, ``A Rs 1,800 crores component manufacturing industry is facing a grey market of Rs 2,700 crores.''

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