India needs to adopt a balanced approach so that its policy passes the WTO’s dispute settlement mechanism and New Delhi does not lose face there
Following Chinese aggression and the border clashes at the Line of Actual Control (LAC) the relationship between India and China is now at a nadir. As a result, the war cry to “boycott Chinese goods” is reverberating across India. Though the shout is emanating mostly from the common citizens, the Government, too, has given clear indications in one or two cases that Chinese investments and firms are not welcome.
Indian industries, on the other hand, have given a measured response that disengagement with China is not possible in a short span of time and supply chain disruption will be detrimental to the country.
The search for alternative suppliers may begin if the Government wishes but it would take some time for re-orienting production with them. If Atmanirbhar Bharat is to succeed, there is no alternative but to restrict import of cheap Chinese products, a large part of which is a result of the Chinese exchange rate policy and dumping of goods with underwritten Government subsidy to their exporters. Furthermore, India needs to adopt a balanced approach so that the policy passes the World Trade Organisation’s (WTO’s) dispute settlement mechanism and New Delhi does not lose face there.
The Department for Promotion of Industry and Internal Trade of India recently revised its policies on Foreign Direct Investment (FDI), restricting funds coming from five countries that share a border with India. Since investment is neither covered under the General Agreement on Tariffs and Trade (GATT), the agreement on Trade-Related Investment Measures (TRIMs) or the General Agreement on Trade in Services (GATS), which India has committed to, the move is not a violation of any WTO commitments.
India can also impose uniform rule across private firms and PSUs: In the aftermath of the People’s Liberation Army’s (PLA’s) attack on the Indian Army, the Department of Telecommunications (DoT) asked Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) to rework their tenders for the forthcoming 4G business to exclude Chinese equipment. In the end, the two PSUs cancelled the tenders and will now issue fresh ones.
A fiat for a PSU and not imposing the same set of rules for private players (except for imploring private sector mobile operators to reduce their dependence on Chinese equipment) sets a bad precedent. This discrimination will kill PSUs in the telecom sector and in other sectors, too, if the same practice is replicated.
Set the right perspective for public procurement: Annually, the Government of India spends nearly 13 per cent of the Gross Domestic Product (GDP) to acquire supplies, services and capital assets. The large size of Government procurement outlays empowers it to implement select national policies using the same as leverage. Government entities can require contractors to maintain fair employment practices, promote purchase from Micro, Small and Medium Enterprises (MSMEs), promote standards and innovation. All countries worldwide have used public procedure as a tool to set their own agenda. This needs to be a decisive tool if Atmanirbhar Bharat is to succeed.
However, here India needs to refine her public procurement system. By and large, the Indian Government has adopted the two-bid system, where vendors are requested to submit both technical and financial bids in sealed envelopes while submitting tenders for any project/service. First the technical bids of various vendors are evaluated as per standard criteria and then the financial bid of the qualified vendors are subsequently opened to find the lowest bid. The contract is given to the lowest bidder among the technically qualified vendors.
In this two-bid system, the procurement agency has a very little role to ensure quality/standard. Of course, one can argue that technical bid evaluation criteria may be stringent to ensure quality. However, one invariably finds that the selection criteria of technical bids are more of a check list rather than for identifying standard/quality of the bid or to fulfil the desired objective. This may not be the way to promote Atmanirbhar Bharat.
Use anti-dumping duty judiciously: Given that India and China are both members of the WTO and have extended most-favoured-nation (MFN) status to each other, India is not in a position to impose additional import duty selectively on Chinese imports. However, India is in a position to impose anti-dumping duties on Chinese goods keeping within the rule-book of the WTO. It is a known fact that China follows aggressive pricing policy to export goods, many a time with tacit financial support from the Government. Among the WTO member countries, India is an active player in respect of imposition of anti-dumping duty. However, most pleas are usually negated by the WTO dispute settlement body after examination of evidence submitted by the Indian Government. India really needs to build its technical capacity in this respect. A close interaction between the Government, industry bodies and economists is must for filing evidence to the WTO panel which may have a chance to stand.
Discourage import of finished Chinese goods though Nepal: If India becomes vigilant regarding import of Chinese goods, one can expect the Chinese consumer goods to be routed through Nepal via the informal channel. These products directly compete with Indian goods in the heartland of northern India, especially in Tier-II and Tier-III cities. Strong action is required on this front.
Play with the trade facilitation measures: Since the rules for the same are not well laid out in the WTO, India has a lot of leverage to use this channel to discourage Chinese imports. For instance, imposing tighter standards may simply discourage Chinese imports. Frequent scrutiny of Chinese imports for complying with various trading procedures, sending more samples of agricultural products for checking for sanitary and phytosanitary standards would give the message to the traders/industrialists that Chinese imports are not wanted. Once they get the signal, they will surely establish alternative supply lines for their required imports.
(The writer is Professor, NCAER. Views expressed are personal)
