China trade: Rectify fault lines

The ninth annual Brics summit followed by the India-Japan bilateral summit may be over, but China remains an unresolved issue due to geography and economics. The friction with Beijing is unlikely to see any early end due to the territorially turbulent geography and the reality of gross unequal economics of one-way trade. The latter is conducted under international agreements such as those relating to the World Trade Organisation (WTO) and the World Customs Organisation (WCO). These are intended to further “globalisation”, “inter-dependence”, “inter-connectivity” and “mutual benefit” of the world’s sovereign nations, but often have a different effect.

There is a “turbulent geography” with Beijing over the unresolved Sino-Indian territorial dispute, which was among the many issues pushed under the carpet at the recent Brics summit in Xiamen. “Unequal economics” as Beijing is the only one profiting from the trade, where India’s handicap remains unresolved and unadvised. This in the long run will harm India no end, and there may come a time, and not too distant in the future, when this nation will regret the colossal loss caused to industry, employment, macro-economic policy and planning, leading to possible internal turbulence, civil unrest and political chaos, resulting in unforeseen and unanticipated dislocation in society. To understand the basics, one should note the fault lines in Sino-Indian bilateral commerce/trade — which only furthers imports of Chinese fast-moving consumer goods (FMCG).

It’s an open secret that China’s annual bilateral trade surplus is $50 billion-plus, while India’s exports are virtually static and stagnant, at $10 billion annually. Is India planning to rectify this grim scenario? Will Indians always have to play a economically subservient role for the sake of sticking to our international commitments and obligations under WTO and WCO? Does China even follow it? Or will India alone shoulder the responsibility of acting ethically in international commerce, even if it hurts our core national interests?

In a credible recent analysis, it was found that over 80 per cent of the total import of toys was made through three major customs ports — Mumbai (Jawaharlal Nehru Port or Nhava Sheva), Delhi (Tughlakabad Customs, Inland Container Depot) and Chennai Port. This study also found over 92 per cent of imports were from China. The most significant finding, however, was that most of the traders/importers were either not declaring the brand of goods, or are declaring them “unbranded” in the “brand” column of import documents, virtually confirming that Chinese exporters are colluding with some unscrupulous Indian traders/importers to harm the Indian economy.

Another study on unbranded mobile phone parts and accessories found most of the consignments were in pre-packaged form and there was a huge variation in the import “transaction value” and the prices in India’s local markets. In fact, such is the price variation between the imported stuff and retail sale prices that customs officers found it not only improbable, but absurd. Interestingly, all these pertain to imports from China.

Let’s therefore take another sample to do a reality check on India’s economics of public finance. The minimum unit price of imported “mobile accessories” fluctuates between Rs 0.8 to Rs 9.9, the “ascertained local RSP — done through online market surveys — for hands-free shows the minimum sale price (MSP) to be Rs 100, and for hands-free with Bluetooth at Rs 295”. There are several other studies and the result is simply bewildering — the total disadvantage of India resulting in a colossal loss to the Indian exchequer. Loss of customs revenue means loss to the Indian economy. All this is in the name of adhering to our “international treaty obligations”.

It is disturbing to unravel this stark picture pertaining to a national loss. It is not only damaging our economy, but is also a potential threat to national security — as the time may come when the Chinese monopoly will turn India into a country of eternal financial loss, debt, deficit and unemployment. When India’s 1.25 billion people keep spending, and the Chinese keep earning!

A fact that is often forgotten by our IAS-centric bureaucratic establishment is that there is a wing of the civil service called Indian Revenue Service, whose nomenclature has undergone a slight change with the introduction of the Goods and Services Tax from July 2017. But that doesn’t take away or alter the role and duty of the customs department in Sino-Indian bilateral trade, which fortuitously remains intact.

I would like to draw attention to the fact that despite customs being a major department, which can do much in finance, commerce, defence and national security, it is not being looked upon or involved in the bigger scheme of things on the nation’s strategic canvas. The customs department is in the forefront of national security and does an operational job, which makes it the only service dealing with both men and material, vide Customs Act 1962. One of the most effective and intelligently-crafted of all post-Independence laws, the 161 sections of the Customs Act empowers officials to know the background, behaviour, action and movement of each and every person going in and out of the country through ports, airports and land border posts. Also, every imported and exported consignment is under the official gaze of the customs department. Every piece of baggage of a passenger can be opened, searched, seized and confiscated if the situation so demands. There is also ancillary work pertaining to intelligence/investigation connected to various other laws, that empower customs officials to act. In short, no other department or service has the authority, power, duty and responsibility to do what the customs service does. There are also no other agencies that can work upfront as well as undercover wherever necessary. The police doesn’t have the mandate. IAS and IFS officers cannot have knowhow of the technical, legal and operational matters of the customs department except when a secretary from an all-India service comes for less than 30 months to head a highly technical and law-oriented IRS, rendering even seasoned senior professional customs officers helpless. This has been continuing for the past 70 years. The ongoing Sino-Indian trade imbalance is a danger signal. The government needs to wake up to the reality and use the customs service more effectively to rectify the potential economic rot and a possible growing threat to national security.