In the last quarter of 2018, China rewarded its domestic manufacturers with higher rebates on export value-added tax, a strategy to keep them ahead in their ongoing trade tussle with the United States. Given India’s already-high imports of Chinese electronic products and its ongoing attempts to reduce this dependence, does China’s move to counter US sanctions send the Indian electronics industry back to square one?
By Baishakhi Dutta
To help reduce costs for the real economy and help it cope with the complex international situation that has risen from its trade tussle with the Trump administration, China has raised export tax rebates for 397 items including electronic products, with effect from September 15, 2018. The ongoing cold war between China and USA is very significant for the Indian electronics industry, as it tries to find the vantage points to leverage in this tumultuous situation. But the recent steps taken by the Chinese government seem to have landed Indian electronics manufacturers and exporters in some trouble – all due to the ongoing tussle between two of the world’s largest economies.
The Chinese cabinet has raised the rebate on export value-added tax to 16 per cent for all those products that were getting a rebate of 13 per cent or 15 per cent on this tax. Exports that currently get a 9 per cent rebate will now get a 10 per cent rebate, which will go up to 13 per cent for some. The rebate will increase to 6 per cent for exports that are getting a rebate of 5 per cent at present, and could go up to 10 per cent for some.
There are also concerns over China increasing the refund on value-added tax (VAT) on finished goods and components without raising the actual tax. Indian exporters of electronic products are worried about this move, as it places them at a disadvantage in the global market.
India likely to feel the heat
Currently, a substantial volume of Chinese electronic products are being imported by India in one form or the other. Given the duty structure in India, Keerthi Laal Kala, VP, policy and innovation, IESA, believes that this move will make imported electronic product lines cheaper. “Until and unless we cut down the basic custom duty (BCD) on a few things and at the same time increase BCD on a couple of components, or bring a few components and products into the lower slab of GST, the local industry will not be able to flourish,” he says. Since there is higher consumption of consumer electronics/white goods in India, which have a high proportion of imports, Laal predicts that China’s VAT rebate is going to have a negative impact on the Indian white goods industry. Keeping this in mind, IESA is trying to suggest very specific antidotes to MeitY so that it understands and tackles the underlying problems without further ado.
For Ajay Sahai, director general and CEO, Federation of Indian Export Organisations (FIEO), this development is a major concern. He says that the worry for Indian exporters and manufacturing companies is that this rebate has increased without any corresponding increase in the VAT rate of the products. Therefore, this move comes as a huge challenge, not only for India but for other countries too, Sahai adds.
Will India once again become a dumpyard of cheap electronic products? Sahai explains that though India has her trade defence mechanism ready to safeguard the domestic industry from witnessing a repeat of the past, yet, this undoubtedly stirs up a certain amount of fear since it’s not clear whether the Chinese government’s moves are targeted towards us, the USA or the rest of the world. “We have to keep a watch on the Chinese imports and see if we can put some countervailing duty on imported electronic products; this is a call that the Directorate General of Trade Remedies (DGTR) has to take,” adds Sahai.
Expressing his views, Ashish Saurikhia, coordinator – policy and research, ELCINA, says, “This time, China has played the reverse game by introducing the VAT rebate in its own country and giving relief to Chinese electronics manufacturers, which nullifies the anti-dumping duty in India.” When asked whether any particular electronic product or component will be impacted by the reduced tariff scheme, Saurikhia states that any electronic product that enters India at a cost lower than what’s being domestically manufactured will face the heat of this change.
Laal, however, is optimistic that India will retain its position as a quality-conscious market, since consumer tastes have started evolving and people are no longer ready to compromise on quality, even if it means spending a few extra pennies. He predicts that the television industry, especially the TV panel manufacturing players, are likely to witness higher demand in the coming days as a result of this change in the export tax structure. To sustain the momentum in the domestic TV production market, IESA is working on reconciling the duties on the entire gamut of components that go into panel manufacturing, and will urge MeitY to cut down the import rates on such components, as much as possible.
India needs to step up
Industry veterans and policy makers are of the opinion that this move will not only affect the
consumer electronics industry, but will have an impact across all sectors of the electronics industry in some way or the other. Laal informs that most countries globally follow a model in which they define local standards for themselves — be it for consumer electronics, electric vehicles or even defence equipment. The governments of these countries define the standards that are relevant for their country, which acts as a firewall for the growth of local companies. He adds that unless India starts developing its own standards in the electronics space, it will be very difficult for the domestic industry to flourish and withstand such global moves.
Saurikhia fears that this move will be highly detrimental to the Indian government’s ‘Make in India’ initiative. As a remedy, he suggests that the minimum import price of imported electronic goods should be hiked, which will help prevent the reduced export tariff from affecting the Indian industry.
Sahai expresses his doubts about how the World Trade Organisation (WTO) will view China’s moves. He says, “If it is a violation of the WTO multilateral discipline (although, highly unlikely), then not only India but all other countries should take a call against this move.” He strongly believes that not only India, but other countries as well will feel the heat of such a move by the Chinese government.
Only time will reveal the intensity of the damage that such events will cause the Indian electronics industry, especially when the government is going that extra mile to promote ‘Make in India’.
