The Article is written by Shreya Pandey from Banasthali University, Jaipur. The article analyzes the restriction imposed on imports of tires in India by the amendment in the notification.
Table of Contents
Introduction
The Prime Minister of India, Narendra Modi pitched for being self-sufficient (Atma Nirbhar) and coined a slogan “Go Vocal for Local”. The aim was to promote local items and encourage domestic manufacturers to produce items that are made in India, and so the country becomes self-sufficient and less imported items are brought in the country which would increase the country’s economy. In the recent conflict between India and China on the borders where China started threatening India to have a war, the Indian Government reduced Chinese items from being imported in the country that used to amplify the power of China. So, the government restricted the import of tires which was earlier allowed without any restrictions. The restrictions were imposed through an amendment in the import policy of the pneumatic tires. The notification restricts the import of tires which in result would help domestic manufacturers and rubber planters. The amendment is made by a notification dated 12th June 2020, which is to be published in the Gazette of India.
Pneumatic Tyres
A pneumatic tire is used in a high capacity, all-terrain, and industrial forklift truck. These tires are more durable, easily interchangeable, and provide a smooth ride. It is ideal for rough terrain areas. The pneumatic tires are of two types:
Air-filled pneumatic tyres- These tires have an airtight inner core which is filled with pressurized air, covered by a tread which is reinforced by steel belting or any other material.
Solid pneumatic tyres- These tires are made up of solid rubber or filled with foam instead of air which makes it puncture-proof but it doesn’t give a smooth ride in comparison to air-filled pneumatic tires.
The Pneumatic Tyres and Tubes for Automotive Vehicles (Quality Control) Order, 2009 was issued under Sec 14 of the Bureau of Indian Standards Act, 1986 by the Department of Industrial Policy and Promotion to prescribe a quality standard for the pneumatic tires to ensure the safety of human lives and check the quality of products that are imported or domestically manufactured and its availability to the consumers.
Restriction on Tyre Imports
Under Section 3 of the Foreign Trade (Regulation and Development) Act, 1992, the Central Government is empowered to make provisions related to imports and exports. In exercise of such power, the Central Government amended the policy of all items under Indian Trade Clarification based on the Harmonized System of Code (ITC-HS) 4011 10, 4011 20, 4011 40, and 4011 50 of Chapter 40 of ITC HS, 2017 Schedule-1 on 12th June 2020. The Central Government mentioned the following kinds of items:
- Used on motor cars( including station wagons and racing cars): Radials whose ITC-HS Code is 40111010
- Used on motor cars( including station wagons and racing cars): Others whose ITC- HS Code is 40111090
- Used on buses or lorries: Radials, whose ITC-HS Code is 40112010
- Used on buses or lorries: Others whose ITC-HS Code is 40112090
- Used on motorcycles for motorcycles whose ITC-HS Code is 40114010
- Used on motorcycles for motor scooters whose ITC-HS Code is 40114020
- Used on motorcycles for others whose ITC-HS Code is 40114090
- Used on bicycles having multi-cellular polyurethane (MCP) Tubeless tires whose ITC-HS Code is 40115010
- Used on other bicycles whose ITC-HS Code is 40115090
These items were earlier unrestricted and imports were free in the existing policy which was amended and in the revised policy the import of such items is restricted.
Cause
The continuing rise in import of tires from China was a concern for many domestic tire manufacturers and industries due to which the manufacturers demanded to impose restrictions on the import of tires which was unrestricted earlier. The worth of the tires that were imported in April-February of 2019-2020 was estimated to be USD 260.72 million which in 2018-19 was USD 330.72 million. India’s trade deficit in April because its imports exceed exports that reduced to $6.76 billion from $15.33 billion in the previous year. According to Automotive Tire Manufacturers Association (ATMA), over 40% Truck and Bus Radial (TBR) and Passenger Car Radial (PCR) and 3-4th of tractor tires are imported from China to India overseas. So, it was necessary to promote domestic manufacturers to encourage them to produce the tires domestically within the country to reduce imports and increase the exports to stabilize the Indian economy. The increasing tension between China and India is a threat to the country as China’s economy is much better than that of India in which India is helping China by importing goods from them so it is necessary to reduce the import of Chinese items and produce it within the country which would help in increasing the country’s economy and fight back China. PM Narendra Modi pitched for self-sufficient India to reduce imports from other countries which is the necessity of the time. Importing goods from other countries not only increase their economy but would also reduce our demotivating the domestic manufacturers. According to ATMA Chairman, K.M. Mammen, the capacity of the manufacturing of tires within India is ahead of the demand curve so our domestic manufacturers are self-sufficient to manufacture all kinds of tires within India so if the imports of such tires would be freely allowed then that would hurt the utilization of the domestic manufactures. In FY 2019, the import of tires worth USD 429 million that were imported from China which reduced in FY 2020 385 million due to economic slowdown in India. The import of tires from China has reduced the domestic manufacture of tires within India which declined by 8% to 177 million in 2019-20 due to a reduction in demand for replacement and Original Equipment Manufacturer (OEM) and the domestic manufacturing of bus and tire segment reduced by 14% in production.
So, it is necessary to put restrictions on the import of tires within India to promote and encourage domestic manufacturers to increase their productivity which will benefit the entire value chain and increase the demand for Natural Rubber (NR).
Objectives
The restriction on imports of tires was made with certain objectives to support the Indian economy and the domestic manufacturers. Those objectives are:
- To promote domestic manufacturing.
- To encourage domestic manufacturers to increase their production.
- To balance the trade which was deficit due to an increase in imports than that of exports
- To accelerate exports from India.
- To unlock job creation potential to increase employment in the country.
- To increase domestic tire manufacturing that would benefit the entire value chain and domestic natural rubber.
- To reduce the drop in the production level of domestic tires.
- To make the country self-sufficient.
- To reduce the import bill of non-essential goods.
Future Discourse
The restriction on import of tires would increase the productivity level of Indian manufacturers and encourage them to be self-sufficient in order to reduce the imports of such tires from China which increases their economy. The restrictions will reduce China’s income from the export of these tires to India. Such imports created a reduction in domestic production, the economy, as well as employment in India, will increase the efficiency of the domestic manufacturers in the production of tires which will create employment in the tire production sector. Thus, this notification for amendment in the import policy will have two different kinds of impacts in India and China. China will have a reduction in its export income and India will build itself self-sufficient to not import tires from other countries.
Challenges in manufacturing domestically
Tire manufacturers face many problems such as climatic challenges, economic challenges, changes in consumer demand, growing population and mobility, urbanization, and policies. The environmental challenges include the problems arising out of climatic change and the scarcity of natural resources. Economic challenges include an increase in the price of fossil fuels and a shortage of resources. Consumer demands change with the change in the trend towards sustainable lifestyle and demand of society for environmental stewardship. Urbanization would lead to an increase in noise emissions and pollutants so there is a need to take certain steps beforehand to reduce pollutants.
Tires are made up of different raw materials including natural rubber, PolyButadiene Rubber (PBR), styrene-butadiene rubber (SBR), and nylon tire cord fabric. The main component in manufacturing the tire is rubber but the availability of the rubber especially natural rubber is a cause of concern for tire manufacturers as the production of the natural rubber is decreasing continuously from last decade and its consumption is increasing which leads to a huge gap between demand and supply of natural rubber. This is a big challenge for domestic manufacturers as there is a lack of natural rubber because of which the tires and its raw materials get imported from other countries. The price of natural rubber increases in the domestic market because of the gap between the demand and supply proportion of production and consumption and the competitive price in the international market leads to high imports of the raw materials. Thus, a major setback to domestic producers and manufacturers is the low production of natural rubber.
Reverse effect on export to China
There would be a chance to have a reduction in the export of Indian items to China. Since the main reason to restrict import was to curb the inflow from China so there may arise a situation where the Chinese Government may put restrictions on importing Indian items. The conflict between China and India for borders is rising and with the step of restricting Chinese tires in India, it led to clear indications to China that India isn’t going to support Chinese items so China can also take steps to prohibit the use of Indian items in its country. India exports certain auto-engine components and automobiles to China which China can also restrict to give a befitting reply to India’s step. But the fear of losing exports if this step wouldn’t have been taken then that would have done serious injuries to Indian domestic manufacturers and producers.
Balance of payment between India and China
India and China are the countries having the world’s major economic powers and they both have grown at a reasonable rate since 1980 but the growth of China is much more than that of India. China’s per capita GDP is double the per capita GDP of India. Both China and India are ready for transforming the 21st-century global economy by its young and dynamic workforce and change in a range of industries. The balance of trade is the main component of balance in payment. India is in a deficit with the balance of payment which is an unhealthy sign for its growth and economy while on the other side, China establishes a balance of trade which boosts its economic growth and enhances the country’s image at the international level. The balance of payment deficit in India is necessary to be taken care of and the Indian government should take steps to balance the trade to increase its growth rate economically.
Conclusion
The notification of imposing restrictions on tire imports is a step towards encouraging the domestic tire manufacturers so that there would not be any need in the future to import tires from other countries. This would pave the way for the manufacturers and the industries producing the tires. It was necessary as the domestic tire manufacturers demanded the restriction in the import policy The restrictions were used in wagons, racing cars, scooters, multi-cellular polyurethane tubeless tires, and bicycles. This is a great initiative to ban the import of Chinese items in India to utilize domestic productions to make India self-sufficient.
References
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