Article on “MSME Hit from Imports from China” by CMA. Ashok Nawal, Founder, Bizsolindia Services Pvt. Ltd. (July 2020)

“Majority of those products given in the list can easily manufacture in India and can become competitive provided proper safeguarding measures are taken for preventing imports and cutthroat competition from Chinese industries.”


The list consists of major items which are imported from China at a cheaper price which is killing the MSME Industry. All the goods as given in the list are majorly from manufactured from India, especially from MSME, but imports from China is hitting these industries on the following points:

  1. Volume production
  2. Subsidies by the Govt: Majority of the subsidies given by Chinese Govt.
  3. Interest Rate
  4. Other Miscellaneous factors including quality etc.

During the lockdown on account of COVID-19 and for revival of industries including MSME, China has provided following fiscal support: An estimated RMB 2.6 trillion (or 2.5 % of GDP) of fiscal measures or financing plans have been announced, of which 1.2 percent of GDP are already being implemented. Key measures include:

  • increased spending on epidemic prevention and control,
  • production of medical equipment,
  • accelerated disbursement of unemployment insurance and extension to migrant workers,
  • tax relief and
  • waived social security contributions. The overall fiscal expansion is expected to be significantly higher, reflecting the effect of already announced additional measures such as an increase in the ceiling for special local government bonds of 1.3 percent of GDP, improvements of the national public health emergency management system, and automatic stabilizers.

Monetary and macro-financial

The PBC provided monetary policy support and acted to safeguard financial market stability. Key measures include:

  • liquidity injection of RMB 3.33 trillion (gross) into the banking system via open market operations (reverse repos and medium-term lending facilities),
  • expansion of re-lending and rediscounting facilities by RMB 1.8 trillion to support manufacturers of medical supplies and daily necessities micro-,small- and medium-sized firms and the agricultural sector at low interest rates,
  • reduction of the 7-day and 14-day reverse repo rates by 30 and 10 bps, respectively, as well as the 1-year medium-term lending facility (MLF) rate and targeted MLF rate by 30 and 20 bps, respectively,
  • targeted RRR cuts by 50-100 bps for large- and medium-sized banks that meet inclusive financing criteria which benefit smaller firms, an additional 100 bps for eligible joint-stock banks, and 100 bps for small- and medium-sized banks in April and May to support SMEs,
  • reduction of the interest on excess reserves from 72 to 35 bps, and (vi) policy banks’ credit extension to microand small enterprises (RMB 350 billion).

The government has also taken multiple steps to limit tightening in financial conditions, including measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties. Key measures include:

  • delay of loan payments and other credit support measures for eligible SMEs and households,
  • tolerance for higher NPLs for loans by epidemic-hit sectors and SMEs,
  • support bond issuance by financial institutions to finance SME lending,
  • additional financing support for corporates via increased bond issuance by corporates,
  • increased fiscal support for credit guarantees,
  • flexibility in the implementation of the asset management reform, and
  • easing of housing policies by local governments.

Exchange rate and balance of payments

  • The exchange rate has been allowed to adjust flexibly. A ceiling on cross-border financing under the macroprudential assessment framework was raised by 25 percent for banks, non-banks and enterprises.

These Govt actions has additionally benefitted to MSME.

China is boosting that India cannot survive without imports from China and India & Indian Economy is dependent on imports from China. This is more disappointing and hence there is need to take immediate action to boost the Indian Economy by taking safeguarding measures and protecting MSME and also provide necessary support for manufacturing import substitute products.

Majority of those products given in the list can easily manufacture in India and can become competitive provided proper safeguarding measures are taken for preventing imports and cut-throat competition from Chinese industries.

Following actions are recommended:

  • Department of Revenue, Ministry of Finance:
  1. Imposing safeguard duty:

The Customs Tariff Act include various provisions for giving relief to the domestic producers against injury caused to them by imports. These provisions are aimed at offsetting the adverse effects of increased imports, subsidized imports or dumped imports & imports from peoples’ Republic of China. Provisions of Safeguard Duties have been prescribed under Section 8B of the Customs Tariff Act 1975.


An effect party may make a request for imposition of safeguard duty if he feels that he is trade is being injured due to imports. However, the benefit of these provisions has been availed in very rare cases either due to unawareness of these provisions or lack resources.


There is a specific provision under Section 8B of Customs Tariff Act 1975 to impose safeguarding duty when any article is imported into India in such increased quantities and under such conditions so as to cause or threatening to cause serious injury to domestic industry, then, it may, by notification in the Official Gazette, impose a safeguard duty on that article.

In view of power vested in the Govt, Govt of India, Department of Revenue should impose safeguard duty on all products imported in India from China subject to the adhering to the conditions & procedures laid down in the act.

  1. Initiating Antidumping measures: Lesser Duty Rule (LDR)-

Anti Dumping: Another contentious issue is India’s use of lesser duty rule (LDR) in the antidumping investigation. Commerce & Industry Minister Piyush Goyal has himself highlighted at various public platforms that this voluntary WTO measure should be removed from India’s anti-dumping law.

RrAs per LDR, if post-investigation the applicable injury margin (duty) comes out to be less than the dumping margin and is adequate enough to remove the injury to the domestic industry then the government will impose the injury margin instead of full dumping margin.


Countries like the US, China, and EU don’t follow the lesser duty rule and impose the full dumping margin instead. This has proven to be detrimental for our domestic industry which faces stricter trade barriers compared to what foreign players face in India. Thus, it is time to review the LDR and consider removing it from our anti-dumping law.

  1. Providing Income Tax Exemptions to the units on the profits arising from Import Substitute:

Indian Enterprises which are developing, and manufacturing import substitute products then specific exemption for 5 years should be granted.

  1. RoDTEP Scheme:

Domestic taxes are not exported. Certain taxes/duties/levies outside the ambit of GST not refunded such as VAT on fuel used in transportation, mandi tax, duty on electricity used during manufacturing, etc. should be covered for reimbursement under the newly to be introduced RoDTEP Scheme.

  • Ministry of Commerce & Industry:

Fast Clearance of Anti-dumping Cases:

Fast clearance of the cases filed by Indian Enterprises for imposing anti-dumping duty and imposing provisional antidumping duty pending adjudication.

Restriction of Imports:

Govt of India is empowered to restrict certain items for imports against import authorizations, which will enable Ministry of Commerce & Industry to reduce the import and also give the relief to domestic manufacturers. This will also help ministry to monitor the progress made by MSME during such restrictions period as imposed by the ministry of commerce

Ministry of MSME:

  1. There should be a legal forum to take the punitive action on those corporates, who are not making payment in 45 days to the MSME.
  2. Fast closure of cases of Samadhan Scheme
  3. Legal Framework for not adhering to the MSME regulations
  4. Fast disbursement of support in financial terms under various scheme of MSME
  5. Reserving certain products for MSME Sectors like Toys, bicycle, electronic goods, electrical goods etc.

Ministry of Labour:

  1. Abolition of labour laws other than payment of wages act, to the MSME Sectors

Ministry of Banking & RBI:

  1. Providing immediate finance to MSME including Stressed MSME
  2. Capital Investment based loan linked with subsidies at lower interest rate
  3. Atmanirbhar scheme to be made applicable to co-operative banks also
  4. Restriction put on the loan for the balance as on 29 February 2020 should be considered by all the banks not only by lending bank, in case of account transferred to the other bank and other bank also extent the same benefits
  5. Providing special loan for creating capacity, modernization and improvisation of technology, Technology & quality upgradation at interest rate not more than 5% per annum and the same asset should be considered as a security rather than seeking more security.

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