Indian Industries and the Threat of Chinese Imports
Arundhati Ghose
Research Fellow, Centre for Economic Studies and Planning, JNU
Chinese exports are competing with goods produced by industries in several countries including
India
. Many of
India
’s small-scale industries are either under threat or facing stiff competition of cheap imports from
China
. These industries manufacture a wide range of consumer products (electrical goods, batteries, toys, watches, pharmaceuticals)and intermediates (chemicals.) All these goods are allegedly ‘dumped’ by
China
in
India
and other countries, who are initiating investigations in terms of the antidumping legislation of the WTO.
The WTO agreement defines ‘dumping’ as export of a product, whose the export price is either below the price charged in the exporting country’s home market or the average cost of production. Such ‘dumping’ may be done with a predatory motive to drive, where the importing country’s industries of the market to raise the market share of the dumping firms. WTO antidumping legislation prohibits such ‘unfair’ trade practices. The importing country is also permitted to impose an antidumping duty or get a price undertaking from the dumping firm to raise the import price and reduce competition for domestic competing firms. But ‘dumping’ has first to be proved with evidence.
Indian industries, being organised , are reasonably prompt in voicing their concerns and filing complaints against Chinese imports. Provisional antidumping duties are also being levied alongwith initiation of antidumping investigations against Chinese producers. It is yet to be proved that
China
is actually discriminating in prices between the two markets or selling below cost.
China
might just be producing at lower cost than
India
and other countries. Firstly,
China
’s per-capita foodgrain production is well above
India
’s. Secondly, since the decade of the 1980’s
China
’s labour productivity has increased tremendously, due to its favorable fiscal regime. Thirdly,
China
has a growing domestic demand to supplement the export market, which has provided Chinese industries with economies of scale. Fourthly, a high rate of FDI inflows, alongwith an rich mineral base has further reduced the cost of capital and raw materials. The socialistic accounting procedure, which excludes the price of raw materials, like minerals, from the production costs, contributes to lowering the production cost. Overall, the large stock of agricultural ‘public goods’ created by the communes which provides, a vast pool of cheap labour, a large and rich expatriate community and a rich mineral base, supplemented by large FDI inflows has contributed to lowering production costs. Yet, this does not pre-empt the possibility of price discrimination by Chinese firms. It is known that we have a paucity of relevant information and data from
China
. It is reported that, very often Chinese firms neither respond to questionnaires sent, nor are they present during hearings.
It is also important to distinguish between dumping and smuggling through
Nepal
. The Indo-Nepal trade and transit bilateral treaty, as altered revised in 1996, makes
Nepal
a potential transit country for third country exports to
India
at zero import duty. If Chinese goods being smuggled through
Nepal
, then antidumping or other duties will only lead to more smuggling.
Now there are two issues to address – determine how far
India
is being adversely affected by cheap imports and address the problem of industries being shut down, unable to face price competition from regular imports and smuggling.
Once
India
opted for a liberalised trade regime, it has made a choice between low-priced imports over high-priced domestic products, given no price discrimination by exporters. Consumers are better off by having a wider choice and lower prices. Antidumping duties protect producers at the expense of consumers. If the Chinese goods are not proven to be dumped, antidumping duties can be a very short-lived protection for Indian industries. The only way to fight competition is by cutting costs and improving quality or by forcing
China
to increase its production costs. Foreign investment makes up for
China
’s shortage of capital and brings in foreign technologies, which reduces production costs. Cutting into
China
’s share of FDI by competing with
China
in the capital market can possibly cause the production cost of Chinese industries to rise via the cost of capital.
As far as smuggling is concerned, the recent nation-wide raid on smuggled Chinese goods is timely. Furthermore, there is a need to review the Indo-Nepal bilateral treaty. Following the bilateral treaty between the
USA
and
Mexico
(as part of NAFTA)
India
should demand a percentage of Indian components being present in goods produced in
Nepal
and exported to
India
.
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