Dealing with the “Others” In India
In the middle of January 2020, Piyush Goyal, the Indian Minister for Commerce and Industry announced that import restrictions would likely soon be placed on imports into India that were declared under an “Others” HS classification description. The move is meant to force traders to exercise greater due diligence in classifying imported products correctly under a more specific description instead of an “Others” description, which is generally regarded as a residual classification category.
However, the government acknowledges that some products may not have a suitably specific heading in the Indian tariff book and despite the best intentions of the importer, end up falling into an “Others” category. Recognising this, traders have since be asked to make submissions to the Directorate General of Foreign Trade (DGFT) regarding any new tariff headings they may deem is required to be introduced into the tariff nomenclature of India.
What should India’s Importers expect?
At the conclusion of this feedback collection exercise, it is expected that the government will have to work through a tremendous amount of data collected, since it is estimated that today, 1 out of 4 import entries in India are classified under an “Others” heading.
India imports roughly about 30 billion USD worth of goods every month.
For businesses in India, these developments bring significant uncertainty to the future costs of imports, since HS codes determine both IGST rates and Basic Customs Duties for Indian imports.
After the DGFT has collected inputs from all traders, they expected to introduce significant changes to the Indian tariff nomenclature in order to accommodate the scope of products that Indian importers deal in. Significant changes to a country’s tariff book will require all importers and exporters to re-evaluate HS codes used for all their products.
Since the IGST and duty rates may also change with the introduction of new headings, the cost of doing business in India may increase or decrease unpredictably almost overnight.
Uncertainties for Business Operators
Traders in the biggest democratic country in the world are voicing concerns wherever and however they can from ranting on social media to meeting with authorities to understand what to expect.
Even if duties and taxed remain unchanged or change in favour of any particular trade or industry, the introduction of any new licencing requirements is expected to create supply chain problems for businesses, who will suddenly have to factor in additional days or weeks to supply lead time in order to account for license processing activities. If license regimes are not carefully introduced or over zealously enforced, traders who fail to qualify for new license requirements may even find themselves cut off from foreign supplies and be forced to turn to local manufacturers instead. This may be manageable for businesses using widely available generic parts and materials. However, if traders are dependent on custom made imports such as chemical blends or moulded assemblies, such an obstacle would effectively put an end to their businesses as soon as existing inventory runs out.
To fuel the uncertainty, traders are aware that the “Make In India” campaign is still active and hence there is also the possibility that government may use this opportunity to take aggressive steps to promote local manufacturing. Small and medium manufacturing enterprises in the country would see some benefits from the introduction of protectionist measures, while big multinational companies with centralized manufacturing for specific product lines would face challenges, unless of course they had set-up their production sites in India.
What should companies do in the meantime?
- Influence policy change decisions. Importers should not adopt a wait and see approach to expected changes. They should attempt to engage the DGFT in conversation by submitting their concerns through formal channels backed by the appropriate level of industry representation, which can be organizations like unions or industrial associations. These submissions can be in the form of industry research papers that articulate why lower import tariff rates for their class of product is beneficial to the country. However, importers should be realistic and accept that the tax rates on their products may eventually increase, so as a secondary request they should request for delayed effective dates for increased tariffed rates if any are planned. Finally, traders should reach out to authorities to stress the need for simple licensing administration procedures that allow traders to continue importation activities without interruption or increased lead time.
- Review HS Classification. If importers have not reviewed HS classifications for their products in a long time, now would be the best time to do it. While it is anticipated that new Headings or Sub-Headings will eventually be introduced, there are unlikely to be big changes at the first 4 or even 6 digit levels of the tariff code. Hence, importers should ensure that their products are classified correctly at least up to the first 6 digits. HS classification is often not done correctly, and traders should have them reviewed by someone familiar with the application of the HS classification rules as published by the World Customs Organization.
- Adjust financial projects for the balance of year. Importers can make conservative adjustments to financial projections for the rest of the year using an estimated duty rate for all products that are currently classified under the “Others” category. The average rate to use would depend on the company’s product import profile and industry.
A final word
If the Indian government follows through with the plan to introduce new headings into India’s tariff book, it will be a massive project that impacts all importers, exporters and traders in India. Even traders unaffected by any nomenclature changes should still be prepared to experience some increase to clearance lead time at least for the first few months after the effective date of any nomenclature changes. It remains to be seen if other countries will follow in India’s footsteps and also create a more robust local tariff book. This idea may excite many countries since more sub-headings in the nomenclature allows for more targeted taxation and licencing controls of imports.
- The Economic Times India: https://economictimes.indiatimes.com/news/economy/policy/govt-will-put-restrictions-on-imports-of-products-under-others-category-piyush-goyal/articleshow/73273624.cms
- Press Information Bureau (Government of India): https://pib.gov.in/newsite/PrintRelease.aspx?relid=191731
- Globalior: https://globalior.com/hs-tariff-classification-a-traders-guide/