FIEO writes to commerce secretary, warning against knee-jerk reaction; moots cess on raw material exports to China
The alleged heightened scrutiny of consignments from China by the Indian Customs is being viewed by Indian exporters with some trepidation, as they feel any likely retaliatory action by the belligerent neighbour is something that they can ill-afford at this juncture. In a letter to commerce secretary Anup Wadhawan, Federation of Indian Export Organisations (FIEO) president Sharad Kumar Saraf said some exporters had expressed fears over Indian goods being held up by the customs authorities in Hong Kong and China apparently in response to a similar action allegedly being taken by officials at the Chennai port. Saraf has suggested that Wadhawan clarify India’s position formally on the alleged checking of consignments from China for the benefit of all stakeholders.
Saraf on Thursday said the government should rather impose a cess on India’s raw material exports to China than consider any outright ban on imports of Chinese goods in the wake of the border clash.
In a webinar, Saraf highlighted that given India’s excessive reliance on Chinese products, it shouldn’t resort to any knee-jerk reaction. Instead, the country must evolve a medium-term strategy to boost local production and, thus, reduce our import dependence on China and others. “While an increase in tariff can be one way to achieve import substitution, a more effective strategy would be to provide an ecosystem which addresses the cost disability of Indian manufacturing leading to such imports,” Saraf said.
Just four product segments that mostly comprise raw materials (ore, organic chemicals, cotton and plastics) made up for as much as 40% of New Delhi’s $15.54-billion exports to Beijing in the first 11 months of FY20. But most of our imports from China are finished products, including electronics and electricals. Between April 2019 and February this year, India’s trade deficit with China stood at a massive $47 billion. In FY19, the deficit was in excess of $53 billion.
Commenting on the prospects of exports in times of the pandemic, Saraf said outbound shipment could decline by 10-12% in FY21 if the situation doesn’t aggravate, as there has been a nascent recovery in June. However, in case of a second wave of the pandemic, the export contraction may touch 20%.
Even before the pandemic spread its tentacles in India, the country’s goods exports had contracted by 1.5% y-o-y up to February last fiscal. Exports had contracted by almost 35% in March, a record 60% in April and 36.5% in May when the Covid-induced lockdown was in force. However, in the first two week of June, the exports were down by only 10-12%, as lockdown-related curbs were eased.
India should explore free trade talks with other important partners, including the EU and the US, and renegotiate the terms of the RCEP agreement to its own advantage, if possible. “(In case of RCEP) fears of dumping are there. So the country has to insist on adequate safeguard mechanisms (if it decides to renegotiate),” the FIEO chief said.
Asked about the alleged crackdown on consignments from China at certain ports, he said he had requested the commerce secretary to clarify the matter formally at the earliest for the benefit of all stakeholders. The issue, if any, would be sorted out in a day or two, he added.
“We have been given to understand that Customs is physically examining all imports from China which is delaying clearance, adding to the cost of imports,” Saraf said in the letter to the commerce secretary.
“Kindly take it up with CBIC and, if no such instructions have been given, a denial may be issued by CBIC so that the matter may be communicated to our importers in China and Hong Kong to suitably take up with their customs explaining our stand,” he added in the letter. Senior government officials have already said that no order has been issued by them to the Customs to target Chinese supplies.
Commenting on a nascent recovery in exports in June, Saraf said in the webinar: “We are receiving lots of enquiries from countries where anti-China sentiments are high. Many of these enquiries have been converted into orders, as well. However, the demand in employment intensive sectors like gems and jewellery, apparels, footwear, handicrafts, carpets is still a challenge. We do not expect much improvement in demand.”
FIEO has suggested its members to look into a three-pronged strategy: to step up focus on countries like the US and the UK that are providing demand stimulus; explore potential in countries witnessing high anti-China sentiments (such as the US, the EU, Japan, South Korea, Australia, New Zealand and Canada, etc); revisit plans for economies depending on crude and commodities exports (West Asian nations, for instance), as prices of such products are likely to remain subdued.