This!
Let me explain to you how GST works and how it has ruined domestic manufacturing while encouraging imports.
Let us say you get a desktop computer for $300 from an SEZ in China. The Chinese manufacturer is not paying any local taxes, duties or levies to their government out of this $300 - this is a completely Chinese tax free price. You buy the computers in bulk and have them shipped to India. You pay the shipping cost by air from Shenzhen to IGIA, which before Covid was not too much anyway. Or you could ship an entire container worth by sea to Chennai.
Once at the port, the customs officers assess the goods. No BIS is applicable on desktop computers, so there is no hassle, and the officer will usually agree with the invoice value of $300. You pay 18% IGST on this $300 to the government of India, through your bank account, and you get an IGST invoice. There is NO customs duty or any other levy. You pay exactly 18% on this. Customs clearance charges are a mere ₹4,000 or so on the entire shipment. Since this is an IGST invoice, the importer gets FULL CREDIT for this entire amount of tax paid, when they sell the product. So, let's say they sell the desktop for ₹25,000 + 18% GST. Out of the 4,500 GST they need to pay to the government, they have already paid ₹4097.34 to the customs department. So they only need to pay an additional ₹400 as GST at the time of filing returns.
Compare this with a desktop PC manufacturer in India. They import motherboards, SSDs and other components (that are currently not manufactured in India) and pay the exact same 18% IGST as the importer of the finished goods. They also source a number of components locally, for which they pay either IGST or a combination of SGST+CGST. The tax rate varies from component to component, can be 18%, 12%, even 28%. They meticulously collect all these invoices and apply for credit when filing returns. On the output side, they also sell for ₹25,000 + 18% GST, so they also owe ₹4,500 GST to the government.
The importer makes a profit of ₹2,000 per computer for very little work. The local manufacturer has to pay salaries, PF, rent, and a myriad other taxes and duties, out of his margins.
What do we observe:
a) Tax (GST) is the same on goods that are imported or manufactured locally.
b) There is no customs duty on finished electronics goods, one of the most popular import category from China. There is no BCD, CVD, all of that has been eliminated by the GST regime three years ago.
c) When you pay import duty (18% IGST) to the customs department, the receipt for this is given to you by the government of India. This is not up for dispute. You file for credit, you get credit. The same does not apply for domestic invoices, even after three years of GST. A lot of them still do not file their GST returns, so when you try to take credit, the GST system balks and rejects your input invoices. The amount of tax on the invoice can also come up for dispute, because in all its wisdom, the GST council often declares two tax rates for the same HSN code (yes, monitors had the same HSN code, but could be taxed at 18% or 28%, depending on the size, and there was no way modern invoicing systems were prepared to handle this).
d) The government tries to make up for this by floating different schemes from time to time. Manmohan had PMA and MSIPS, Modi just launched PLI. Many manufacturers who operate at scale have told me they haven't seen any MSIPS money they applied for. PLI has just launched, we need to wait and see if any of that promised money comes.
So the question arises, why does one manufacture in India? Labour rates are lower than China, but mechanisation is also lower. Most Chinese manufacturers operate in SEZs whereas Indian manufacturers are in domestic zones, where they must comply with a labyrinth of laws. Only at very large scale, where shaving a couple hundred rupees from the item through reduced shipping and lower labour rates has value, does it make any sense to make in India.
So when the government tells you to abandon imported goods, it is being disingenuous. It has brought in a tax regime, against the better advice of its experts, that incentives imports over local manufacturing. It can easily impose a duty on imported items, and go fight its case in the WTO, like Trump is doing with China. That requires political will. That first requires that the government stop awarding tenders and large orders to Chinese firms and other global firms.
Our exports to China, $10 billion. Imports, $60 billion. Deficit, $50 billion. You want to pick a fight with China, pick a fight. Tax the god-damn imports and ruin the life of finished good importers. If you don't have the guts, then don't ask the consumers to make a choice with their hard earned money.
Let me explain to you how GST works and how it has ruined domestic manufacturing while encouraging imports.
Let us say you get a desktop computer for $300 from an SEZ in China. The Chinese manufacturer is not paying any local taxes, duties or levies to their government out of this $300 - this is a completely Chinese tax free price. You buy the computers in bulk and have them shipped to India. You pay the shipping cost by air from Shenzhen to IGIA, which before Covid was not too much anyway. Or you could ship an entire container worth by sea to Chennai.
Once at the port, the customs officers assess the goods. No BIS is applicable on desktop computers, so there is no hassle, and the officer will usually agree with the invoice value of $300. You pay 18% IGST on this $300 to the government of India, through your bank account, and you get an IGST invoice. There is NO customs duty or any other levy. You pay exactly 18% on this. Customs clearance charges are a mere ₹4,000 or so on the entire shipment. Since this is an IGST invoice, the importer gets FULL CREDIT for this entire amount of tax paid, when they sell the product. So, let's say they sell the desktop for ₹25,000 + 18% GST. Out of the 4,500 GST they need to pay to the government, they have already paid ₹4097.34 to the customs department. So they only need to pay an additional ₹400 as GST at the time of filing returns.
Compare this with a desktop PC manufacturer in India. They import motherboards, SSDs and other components (that are currently not manufactured in India) and pay the exact same 18% IGST as the importer of the finished goods. They also source a number of components locally, for which they pay either IGST or a combination of SGST+CGST. The tax rate varies from component to component, can be 18%, 12%, even 28%. They meticulously collect all these invoices and apply for credit when filing returns. On the output side, they also sell for ₹25,000 + 18% GST, so they also owe ₹4,500 GST to the government.
The importer makes a profit of ₹2,000 per computer for very little work. The local manufacturer has to pay salaries, PF, rent, and a myriad other taxes and duties, out of his margins.
What do we observe:
a) Tax (GST) is the same on goods that are imported or manufactured locally.
b) There is no customs duty on finished electronics goods, one of the most popular import category from China. There is no BCD, CVD, all of that has been eliminated by the GST regime three years ago.
c) When you pay import duty (18% IGST) to the customs department, the receipt for this is given to you by the government of India. This is not up for dispute. You file for credit, you get credit. The same does not apply for domestic invoices, even after three years of GST. A lot of them still do not file their GST returns, so when you try to take credit, the GST system balks and rejects your input invoices. The amount of tax on the invoice can also come up for dispute, because in all its wisdom, the GST council often declares two tax rates for the same HSN code (yes, monitors had the same HSN code, but could be taxed at 18% or 28%, depending on the size, and there was no way modern invoicing systems were prepared to handle this).
d) The government tries to make up for this by floating different schemes from time to time. Manmohan had PMA and MSIPS, Modi just launched PLI. Many manufacturers who operate at scale have told me they haven't seen any MSIPS money they applied for. PLI has just launched, we need to wait and see if any of that promised money comes.
So the question arises, why does one manufacture in India? Labour rates are lower than China, but mechanisation is also lower. Most Chinese manufacturers operate in SEZs whereas Indian manufacturers are in domestic zones, where they must comply with a labyrinth of laws. Only at very large scale, where shaving a couple hundred rupees from the item through reduced shipping and lower labour rates has value, does it make any sense to make in India.
So when the government tells you to abandon imported goods, it is being disingenuous. It has brought in a tax regime, against the better advice of its experts, that incentives imports over local manufacturing. It can easily impose a duty on imported items, and go fight its case in the WTO, like Trump is doing with China. That requires political will. That first requires that the government stop awarding tenders and large orders to Chinese firms and other global firms.
Our exports to China, $10 billion. Imports, $60 billion. Deficit, $50 billion. You want to pick a fight with China, pick a fight. Tax the god-damn imports and ruin the life of finished good importers. If you don't have the guts, then don't ask the consumers to make a choice with their hard earned money.