The conflict on the Line of Actual Control (LAC) has started to cause concern for American firms with manufacturing operations in India, as they are experiencing difficulties in accessing crucial components from their facilities in China.
A group representing some of these firms has written to the Secretary in charge of the Department for Promotion of Industry and Internal Trade (DPIIT), Dr Guruprasad Mohapatra, expressing these concerns.
What is the issue here?
Import consignments from China are learnt to be facing hurdles at some ports, including Chennai and Mumbai. It is learnt that over the last fortnight, Customs authorities have indicated to importers that there will be delays in clearing Chinese shipments, but have not cited any reasons.
There has not been any written or verbal instructions from the Customs or Central Board of Indirect Taxes and Customs (CBIC) authorities either, importers say.
While some Chennai Customs zone officials said that checks were being carried out on the basis of specific intelligence-based inputs, importers and industry are seeing it as a nudge to change their import pattern, especially of non-essential goods, amid calls for reducing the consumption of Chinese goods in the wake of the border tensions.
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Why are American firms worried?
The US-India Strategic Partnership Forum (USISPF), a group representing some American firms involved in manufacturing activities in India, said they were “increasingly concerned” that component parts and other inputs “necessary” to their manufacturing operations here, were being detained at the ports.
The forum has sought the restoration of port operations or, “at a minimum”, that the government publish any change in port policy “to provide the business community with the visibility they need to function.”
Consignments of around 50 US firms with manufacturing operations in India across sectors such as telecommunications, automobiles, medical equipment, and fast moving consumer goods (FMGC) are learnt to be among those affected.
For instance, some major American telecom and auto makers have direct or contract manufacturing operations in Chennai, and some of them import components from facilities in China.
And with “no formal orders” issued by the government nor any “specific” reason provided to the firms as to why their consignments are not being cleared, the group has flagged the lack of transparency that they feel “threatens” the business continuity.
An “unanticipated” embargo on imports of goods from neighbouring countries will have repercussions on supply chains and manufacturing in India, and will send a “chilling” signal to foreign investors, who look for predictability and transparency, the USISPF has argued.
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What is the volume of trade with China?
Possible curbs on imports from China in the form of tariff or non-tariff barriers are being discussed within the government, which is said to be considering a list of imported items for the various restrictive measures.
Between April 2019 and February 2020, China accounted for around 14 per cent of India’s total imports; the main items being components for smartphones and automobiles, telecom equipment, plastic and metallic goods, active pharmaceutical ingredients (APIs), and other chemicals.
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In pharmaceuticals particularly, India depends heavily on China for crucial ingredients. In 2018-19, around 68 per cent of India’s $3.56 billion worth of bulk drugs or API imports were from China.
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