MSME items which include cycles should be saved out of RCEP talks. Chinese cycle imports via Lanka, Bangladesh should be curbed

The Indian bicycle enterprise plays an essential role within the increase, development, and growth of the Micro, Small Medium and Enterprise (MSME) quarter. India is the second largest producer of bicycles, next only to China, and manufactures around 1.5 crore bicycles each year. The Indian bicycle production and bicycle additives industry is widely recognized for its wonderful pleasant requirements and range inside the global marketplace.

Today but, the industry is in deep crisis because of growing cheap imports from Bangladesh, Sri Lanka, China, and low-price South-East Asian international locations. The total imports of bicycles, bicycle elements and components extended to $862 million in 2018 from $637 million in 2011. Half of the overall imports are from China and Japan. However, a current surge in imports from Bangladesh and Sri Lanka has emerged as a primary risk for the Indian bicycle industry.

The given chart analyses the imports falling under HSN code 87120010 (bicycles and different cycles, consisting of shipping tricycles, now not motorized) from Bangladesh and Sri Lanka.

It is essential to word that India’s imports from Bangladesh turned into $0.14 million in 2011, which rose to $5 million in 2018, reflecting a CAGR of sixty six.17 in line with cent. Similarly, India’s imports from Sri Lanka have been $1.01 million in 2011 and reached to $22 million in 2018, indicating a CAGR of fifty-five .44 according to the cent.
Contributing elements

This raises an essential query at the factors that could have contributed to the constant upward thrust in imports in this particular product category from Bangladesh and Sri Lanka. Broadly, there are wellknown arguments in this context. First, the import obligation on bicycles in India is 0 beneath the Agreement on South Asia Free Trade Area (SAFTA), which provides responsibility-free get entry to to Bangladesh and Sri Lanka bicycle manufacturers in the Indian market.

On the alternative hand, import responsibility in Bangladesh and Sri Lanka is 25 in line with cent and 30 in line with cent respectively. High import responsibility enables Bangladesh and Sri Lanka to shield their bicycle enterprise.
China imports

However, preferential benefits prolonged by using India can’t be a dominant issue at the back of the excessive increase in imports of bicycles from Bangladesh and Sri Lanka. The solution to this lies inside the 2nd argument. A big quantity of bicycle producers in India considers that low-fee Chinese bicycle manufactures are routing their merchandise to India thru Bangladesh and Sri Lanka, thereby taking undue advantage of the preferential marketplace under SAFTA. This is evident from the imports of Bangladesh and Sri Lanka from China. Imports of bicycle parts and components from Bangladesh were $24 million in 2011 and improved to $65 million in 2018. Similarly, imports of bicycle elements and additives from Sri Lanka multiplied have been $19.5 million in 2011 and reached to $32.3 million in 2018.

There has been a growth in imports in intermediate product classes, which encompass frames and forks and elements thereof, hubs aside from coaster-braking hubs, wheel rims, and spokes, saddles, inner tubes of rubber, threaded screws and bolts, nuts and washers, pedals and crank-gear.

It is essential to the nation that these products are intermediate merchandise, and are used to manufacture bicycles in Bangladesh, Sri Lanka and eventually exported as completed merchandise to India. A boom in India’s import of bicycles beneath the HSN code 871200010 from Bangladesh and Sri Lanka actually displays that Chinese low-price bicycle manufacturers are capable of enjoying obligation-free marketplace access in India without being a party to SAFTA.

In addition, Bangladesh and Sri Lanka bicycle manufacturers favor importing components and additives from China vis-a-vis India, as the latter is charge-aggressive. Parts and components imported in Bangladesh and Sri Lanka from China attract low advert-Valorem obligation because of their lighter weight. This provides an added incentive to Bangladesh and Sri Lanka bicycle producers to import elements and components from China.
RCEP negotiations

Challenges for the bicycle industry are in all likelihood to compound with the finalization of Regional Comprehensive Economic Partnership (RCEP) negotiations, given the fact that a massive volume of the imports is from China. Tariff liberalization under the RCEP will offer a right away access to Chinese bicycle manufacturers within the Indian marketplace and threaten the domestic bicycle manufacturing enterprise.
Way Forward

Given these challenges, it’s far vital for India to undertake a calibrated method on this regard. India may additionally keep in mind placing a “sourcing limit” on using 0.33-u. S. A. Imported inputs in the exports of Bangladesh and Sri Lanka. This may be done by using modifying the prevailing regulations of starting place of SAFTA, and it could endorse the sourcing restriction in regards to the levels of production so that Bangladesh and Sri Lanka bicycle producers are recommended to source from FTA partners.

Such an approach could assist India no longer most effective restrict imports of bicycles from third nations consisting of China but could also contribute to the improvement of regional value chains in the South Asian area.

It is, therefore, crucial for India to advocate a similar provision in future exchange agreements, in order that the benefits of preferential marketplace get right of entry to are not leveraged by means of non-FTA partners.

Most importantly, it’s miles critical for India to hold MSME products together with bicycles inside the exclusion list underneath the RCEP to guard the industry against low-value Chinese merchandise.

Gupta is Executive Director and Singh is Senior Deputy Director at the Engineering Export Promotion Council, subsidized via the Ministry of Commerce and Industry.