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COVER
STORY: SAI BABA
What
Do the Figures Say?
Intriguingly,
the influx of consumer products is yet to reflect in official trade statistics.
The bulk of the $980 million (roughly Rs 4,450 crore) plus imports in
the first half of 2000 from China were products like chemicals and allied
industries ($201 million), machinery ($128 million), minerals ($118 million)
and textiles ($ 114 million). Similarly the bulk of imports from Taiwan
($500 million till August 2000) included cotton yarn, granite, synthetic
colouring matter, unwrought aluminium, diamonds, integrated circuits and
knitted fabrics. True, imports of electronics from China have grown more
than four times from just $52 million in 1996-97 to $176 million (Rs 810
crore) in 1999-2000. But China's share in India's total imports of electronic
goods is less than 7 per cent. Moreover, according to the Commerce Ministry,
of the 715 products whose imports were delicensed on April 1 this year,
250 products have not been imported so far.
Also, the
availability of most imported consumer goods is still largely restricted
to markets that have been known to sell fancy foreign-made goods for years.
Be it Manish Market or Musafirkhana in Mumbai; Lajpat Rai Market, Ghaffar
Market or Meena Bazar in Delhi; Fancy Market and New Market in Calcutta;
Parry's Corner in Chennai or a series of Hong Kong Markets in the North-east,
many of the imported products are still being sold through these markets
and are yet to enter the showrooms of major shopping centres. This could
be because the deluge of imports has only just begun and importers don't
have the kind of marketing and distribution networks the domestic industry
has built over decades. If the past one year of import growth is sustained,
it won't be long before imported products become more visible and accessible.
Already
in Mumbai, imported products have reached the showrooms in markets like
Inderprastha, Borivili and other suburban areas. That's bound to grow
given the huge margins on imported products and the ease with which they
are now coming in. Between April and September 2000, while imports of
most products (barring petroleum products) have fallen, electronics goods
imports rose by 37 per cent. Confesses Hunaid F. Pocketwalla, owner of
a furnishings showroom in Lohar chawl in Mumbai: "If I confine myself
to Indian goods, it will be very difficult to survive in business. Customers
want choice and are increasingly demanding imported goods."
The easing
of import regulations over the years is one factor fuelling imports. All
but 715 (out of nearly 9,000 products) items have already been freed from
licensing. That is, their imports are only subjected to payment of customs
and countervailing duties (equivalent to excise duty), but there is no
restriction on the quantity of imports. All one needs is an import-export
code number issued by the director-general of foreign trade. After getting
the code, one can contact foreign trader/exporter-now even on the Internet.
Depending on the export order, either a letter of credit is required (which
means your bank undertakes and guarantees the payment to the overseas
supplier) or goods can come on a 90-day or 180-day credit. There are also
cases of Indian businessmen from a third country procuring products from
China and exporting them to India. Apparently, one of the largest brands
of Chinese ball bearings currently being imported to India is KG. The
KG stands for Kedar Gupta-an NRI based in Dubai.
A liberal
import regime can't be the only cause of the surge in Chinese and east-Asian
imports. After all India has opened up to the world, not just to a region
or a country. The preference for Chinese imports stems from its price
competitiveness and product innovation. The AA Chinese cells that are
being sold for Rs 2 in the retail market are actually being imported at
a jaw-dropping price of 0.51 paise per unit. The rest include duties,
distribution costs and margins. Yet the retail price is a good Rs 5 less
than the price of Indian AA cell (Rs 7). Last year, an Indian exporter
wanted to order 10,000 desk clocks to export to Yemen for product promotion.
An Indian manufacturer quoted Rs 72 and settled for Rs 68. This year,
the exporter needed a similar quantity and was quoted Rs 62. Out of curiosity
he checked with a Chinese supplier and bought his clocks at Rs 22 a piece
(inclusive of freight to Yemen).
China's
price-competitiveness has many reasons. Economies of scale is one. Just
one Chinese company, Changhong, has an annual CTV-manufacturing capacity
of 12 million sets. The combined capacity of all Indian companies is seven
million sets. Such disparities in capacities exist across all sectors,
largely due to the policy of reservation for small-scale sector which
hampers investment in large capacities is in the production of some key
products (e.g. toys, biscuits). "Reservation for small-scale industry
has hampered the ability of industry to challenge the influx of imports,"
says M.K. Sharma, vice-chairman, HLL.
Also, Chinese
labour is more productive. A CTV maker there makes about 2,000 sets in
an eight-hour shift from one production line. Indian units manage only
500. Its export processing zones have flexible labour laws, under which
wages are high, but workers don't enjoy job security. There are also unsubstantiated
reports of forced labour in China. More substantially, as Zhao Qingmao,
China's commercial consul in Mumbai, says, the country has over the past
three decades invested heavily to make its infrastructure efficient and
adequate.
With the
threat to their markets so formidable, no wonder Indian industry is panic-stricken.
Says G.P. Goenka, president, FICCI: "We have had Chinese imports
for a while. But the sudden upsurge in the past one year is alarming."
The imports are not only robbing Indian industry of their markets in India,
but also their market abroad. For instance, Chinese cells have already
hit the market for Indian batteries in Africa. In addition to initiating
anti-dumping investigations on the three products, the Government has
also made mandatory for imports of 131 products to adhere to the Bureau
of Indian Standards norms and print maximum retail price on the product.
Other than these temporary reliefs, there is little else in the Government's
arsenal. The march towards a more open economy (further easing of imports)
can't be halted. The industry accepts that, but would like the Government
to go the whole hog on imposing non-tariff barriers (NTBs). Both Goenka
and Khan cite the increasing instances of newer NTBs imposed by developed
countries to protect their domestic industries. Industrialists are also
hoping for a stronger anti-dumping actions and raids on importers.
But neither
is likely to provide effective protection against foreign competition
that is now staring at Indian industry harder than ever before. Dumping
is difficult to prove and anti-dumping duties even more difficult to implement.
For the Government to actually impose anti-dumping duties against imports
three conditions have to be met: that dumping is taking place, that the
dumping is hurting a particular company, and that the damage to the company
is caused by the dumping and nothing else. Often the lack of evidence
at any of the three stages results in dismissal of the anti-dumping case.
Besides,
India can't put its trade relations with China at stake. If anything,
it has to create grounds for a speedier growth in trade-especially its
own exports-with China. In fact, as Chinese Ambassador to India Zhou Gang
points out, in the nine months between January and September 2000, India's
exports to China have grown much faster (60 per cent) than China's imports
to India (32 per cent).
To be sure,
most industrialists do realise that they can't bank on protection for
long. Neither can they survive with inefficient infrastructure, higher
capital costs and rigid labour laws. Says Mukesh Ambani, vice-chairman,
Reliance Industries: "We need to sort out the fundamental issues
that hold back Indian industry." The industry too has been oblivious
of the changes sweeping through India's trade policy. After all, it is
public knowledge for years that licensing of imports will end by April
2001. The influx of east Asian imports is perhaps the loudest wake-up
call for Indian industry and the Government.
-with
Arun Ram
Pg.1
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Enron
symbolises everything that's wrong with the way reforms were handled by
M/s Rao & Manmohan, says INDIA TODAY Associate Editor
