Dumping usually occurs when manufacturers export a product to an importing country at a price below the domestic price to drive out competition. The main objective of dumping is to increase market share and to create a monopoly in the country. In such a situation the importer can dictate the price and quality of the product also. This is a very devastating situation which can shatter local markets and can even result in the closure of many businesses. Dumping is dangerous for any country.
The flaws of the same are as under:-
- The trade partners can retaliate which can cause trade wars.
- It is expensive.
- Debt of the exporter’s country increases.
- It takes years to sell goods at a cheap price and sweep out the competition.
But on the other hand dumping has many advantages also they are as:-
- Consumers can avail goods at low prices in importing countries.
- Many subsidies are availed by exporters to sell goods overseas at a lower price.
- Employment opportunities can be created in exporters’ countries.
Now you will wonder what leads countries to dump their goods in another country?
The easy answer to this question is that companies do so:-
- To dispose of a surplus stock which cannot be sold in their own country.
- One of the main reasons that firms resolved to dumping is due to predatory pricing.
- To minimize the risk of investment.
- To destroy the local market.
- To gain a large share of the market.
There are four categories of dumping:-
- Sporadic Dumping:- To avoid price war in the host country companies dumps their unsold goods. They can either dump to cause damage to the host country or can export to a market where there is very little or no demand for such products, thus no devastation would be caused.
- Predatory Dumping:- This type of dumping is done regularly to eliminate competition and to access a large share of the market in foreign countries. The main aim is to create a monopoly situation.
- Persistent Dumping:- When there is a constant demand for a product in the foreign market and the country sells its product at a price lower than the local price it is called persistent dumping.
- Reverse Dumping:- When the demand of the product is less elastic in the foreign market, that is there is no impact of price on the demand, in such a situation higher price is charged in the foreign market.
China is a well-known country that dumps low-priced shoddy and spurious products in India. Micro Small and Medium enterprises have adversely been affected by Chinese goods. It has even forced many industries to operate at below the capacity level or shut down, as a result, it has caused an impact on the employment opportunities also. China dumped solar panels which led to a loss of two lakh employment and nearly 50% of the domestic industries capacity remained idle. Closing of units leads to a low collection of taxes and NPA (Non-Performing Assets) of the banks also increases.
The quality of Chinese products are always questionable yet are preferred over Indian goods as Indian goods have a lack of variety and are high priced. China produces the quality of the product as per the countries like cheap goods for low-income countries which have a pessimistic impact not only on the environment but also on the health of many. China is able to succeed in doing so as the majority of the Chinese companies are controlled by its government and the government gives a rebate of 17% to the exporters to do so, the lending rates are only 6% or even low while Indian banks lending rates are between 11 to 14%.
Did you know China is not recognized as a market economy by the WTO (World Trade Organization)? It is because of the lack of transparency in its trade policy. China also manipulates its currency to have an advantage over the export competitiveness. To ruin the Indian market China didn’t stop here it started smuggling prohibited goods by re-routing them. As a proactive country, India imposed anti-dumping measures as India cannot afford to be a dumping ground for China or any other country. The anti-dumping measures that were adopted by India are:-
- Anti-dumping duty is imposed on 144 products out of which hundred and two products are Chinese for a period of five years from 8 July 2020.
- Restriction on the volume of imports has been imposed.
- Ban on certain goods.
- Ban of all goods from a country.
- A high import tariff is imposed on the dumping of goods.
- To give an undertaking to exporters to revise the prices of their product or cease export.
The most effective way so that India does not become a dump yard is to boycott Chinese goods. Recently due to pandemic and Indo-China Frontier, our honorable Prime Minister Mr Narendra Damodar Modi took a timely call and launched Atmanirbhar Bharat Abhiyan to make India a self-reluctant country on 12th May 2020. This initiative of the Government has paved the way for many, especially for micro small and medium enterprises. With this aim, a sum equivalent to 10% of India’s GDP (Gross Domestic Product) was announced as a special economic package. The key highlights for MSMEs are as:-
- Collateral free loan:- All the business including MSMEs would be given security free loan. MSMEs can also borrow from NBFC’s (non-banking financial companies) up to 20% of the entire outstanding expenses as of 29th February 2020.
- Subordinate debt for MSME’s:- This scheme is launched for MSMEs that have NPA. Promoters would be given debt from banks that can be infused as equity of MSMEs. The government has sanctioned 20,000 crores for this scheme.
- Street Vendors:- To provide easy credit facility to street vendors, initial working capital of Rs. 10,000 can be availed.
- Payments by the government due to MSMEs will now be released within 45 days.
Advantages that MSMEs gain by anti-dumping measures are:-
- Due to stiff competition from Chinese goods our small scale industries have suffered a lot. I would quote a simple example, during the festival of Diwali over the years we always prefer to buy Chinese lights as there were much more variety, colors and cheap too even though its quality was not upto the mark. This time most of us bought Indian rice lights as our initiative to make India a self reluctant country. In the same way, our one initiative to use home country’s goods and services would grow our GDP to a new level and a new window of opportunity would open for the MSME sectors.
- India imported almost seven times more goods than it exported to China. In the current scenario, the imports from China have cut down by more than 1 lakh crore.
- In a survey, it was found 40 sectors have benefited from after imposing anti-dumping measures.
- Biggest opportunities were gained by textile, animal production and by the food production sector.
- Farmers now have started using organic manure and fertilizers that are made in India. China used to export 2.82 million tonnes of fertilizers which were impure, hazardous for health and also caused damage to the fertility of the soil.
- Markets were filled with fancy Chinese toys. Indian toys only captured 20% of the market for the last 5 years and we’re on the verge of closure, but now Indian toy-making companies have made their comeback and have captured the entire market. They make toys that are safe for tiny tots.