Self-defeating act

Customs officials at several major Indian ports have decided to stall the clearance of all consignments from China, prompting industry across the board to complain of unprecedented delays in their shipments. This will particularly impact the electronics industry, including mobile handsets. The dominant brands currently are Chinese-owned, although a significant proportion of the finishing and assembly is now taking place in India. But even Indian-owned brands are fairly dependent upon Chinese components, or at the very least components that are being shipped from China. It appears that every consignment is being opened and double-checked — a very bureaucratic kind of harassment that in this case is clearly standing in for formal sanctions or tariffs based on national security reasons. 

What is puzzling is that this is happening even as there are no written or verbal instructions from the Customs authorities or the Central Board of Indirect Taxes and Customs. This kind of arbitrary action, reportedly because of some intelligence inputs, is self-defeating and irrational, and betrays a lack of understanding of elementary economic principles as well as no knowledge of the structure of Indian trade. India’s imports from China are practically a rounding error as far as that manufacturing-intensive economy is concerned. Just about 3 per cent of Chinese exports come to India; this is hardly enough to bring that economy to its knees. Further, Indian exports to China are almost 6 per cent of its total — in other words, trade with China is far more important for Indian exports than it is for Chinese exports. Has this not occurred to the authorities concerned as they stumble into an undeclared trade war? Surely, these numbers were provided to the appropriate authorities when the decision was made. If not, that is negligence. If they were, then the people who have allowed the clearance delay to happen have inflicted a wound on an Indian economy that is already struggling, thanks to the pandemic.

It is worth noting that in a world of integrated supply chains, many sectors are dependent on the import of intermediate goods from China. Obviously, excessive dependence on any one geography is dangerous, and across the world producers are trying to diversify their supply chains. Indian producers should be no exception to this trend. But bureaucratic harassment is hardly the way to incentivise sustainable supply chains. All it will do is leave manufacturers and companies that need to import their inputs prone to uncertainties. Some will dip into their inventories. But, if this attitude continues much longer, they may have to suspend production. At a time when every action must be focused on reviving supply and demand, and when it should above all strive to do no harm, this action goes in entirely the opposite direction, undoing all the recent claims to be responsibly stewarding a recovery and raising the ease of doing business. 

There is, of course, every reason to distrust the weight that an increasingly geo-politically aggressive China occupies in the global trading system and within the Indian economy in particular. But the solution to that lies in increasing India’s own competitiveness, building close trading ties with other nations, and seeking to replace China in a select number of supply chains, not closing India off. The bureaucrats need to seek better advice on how to deal with the China threat, and soon.

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