The ministry has requested the finance ministry to introduce stringent provisions related to rules of origin, to empower customs officers for checking the abuse of FTAs.
The commerce and industry ministry has sought stricter scrutiny of goods coming from Bangladesh, Sri Lanka, South Korea and the Asean bloc,
amid fears of Chinese imports increasingly being routed through these countries. It has pushed for fast tracking amendments to the customs law to tighten the rules to claim concessional benefits under India's free trade pacts, in line with the changes proposed in the budget this year.
The ministry has requested the finance ministry to introduce stringent provisions related to rules of origin, to empower customs officers for checking the abuse of FTAs.
In the budget, the government had inserted a new chapter in the Customs Act on the administration of rules of origin under trade agreements, giving it the power to suspend and refuse preferential tariff treatment in case of incomplete information or verification and non-compliance, respectively. Moreover, an importer cannot avail of concessional benefits by merely providing a certificate of origin.
These amendments aren't yet notified.
"We will scrutinise imports coming from third countries and not clear suspicious consignments ... There is complete sync in the government at top levels that unnecessary imports need to be blocked," said a senior official.
As per the proposed rules, where the preferential rate of duty is suspended, the officer, on the request of the importer, can release the goods if the importer pays a security amount equal to the difference between the duty provisionally assessed and the preferential duty claimed.
The move comes on the heels of India imposing 100% physical checks of shipments from China.
"The process of notifying the new rules has begun," said another person in the know.
As per the rules, the submission of a certificate of origin "shall not absolve the importer of the responsibility to exercise reasonable care". In certain cases, the certificate of origin shall be marked inapplicable.
"Determining the correct country of origin is not only important for the benefits of FTAs to accrue to the rightful importer, but also trade facilitation, and expeditious clearance of cargo will happen in the current situation depending on the country of origin," said Bipin Sapra, a partner at advisory firm EY.
The government is already putting together details of the installed capacities of local industry for goods that India trades under free trade and bilateral agreements under the Asia Pacific Trade Agreement, South Asian Free Trade Area, the Asean group, and bilateral pacts with Singapore, Japan, South Korea and Sri Lanka.
Comment: The trade balance between India and China sits at $48.7 billion, in favor of China. India's attempt to reduce the trade balance over last few years only produced modest results.
Despite the
dangers of going out all out with such measures, it is
easier said than done. The Modi govt seems to be planning to use the current crisis to reduce dependency on Chinese products, which contribute to 30% of India's trade deficit. Acuite rating agency estimates that India may reduce its trade
deficit by $8.4 billion during FY22:
The rating agency analysed the current import portfolio from China and found 40 sub-sectors that have the potential to lower their import dependency on China.
These sectors contribute to $33.6 billion worth of imports from China and about 25% of these imports can be substituted by local manufacturing without any significant additional investments, Acuite said.
"This would have a positive cascading effect on the economy as equivalent quantum of revenues would not only be added to the turnover of domestic enterprises including MSMEs but is also likely to translate to benefits through forward and backward linkages, better economies of scale along with cost competitiveness and importantly, enhancing the scope of employment generation," Acuite said.
In order to substitute Chinese products, India has
eased customs checks for US and South Korean companies. Chinese investments in India were
$163 million in 2019, and Union minister Nitin Gadhkari even
unwelcomed Chinese investment.
India's
exports of spice to China slowed after its confrontation with Beijing in June. Even though both countries de-escalated the confrontation, it is likely that they will be
watching each other like hawks.
Comment: The trade balance between India and China sits at $48.7 billion, in favor of China. India's attempt to reduce the trade balance over last few years only produced modest results.