New Delhi: The government has proposed to amend the Customs Act to give it wide powers to ban imports and exports of goods that may hurt the local economy, clearing the way for it to bar imports of cheap toys and firecrackers from China.

So far, the government had powers to only ban imports and exports of gold and silver under the Customs Act, 1962. Once approved, the amendment, through the Finance Bill, will expand the government’s power to ban imports or exports of all goods.

“This power will be exercised only in exceptional circumstances," a government official said on condition of anonymity.

The measures are aimed at narrowing the trade deficit with China, which has flooded the Indian market with items such as toys, firecrackers and solar power equipment. The steps come amid a global rise in protectionist policies to shield home-grown companies amid slowing economic growth.

The new powers to protect the economy may provide a lever to the government to foster consumption of local products and boost manufacturing, said Abhishek Jain, tax partner at EY. “On the practical side, the power may be exercised only in extreme situations," Jain said.

The government also proposes to amend the Customs Tariff Act of 1975 to strengthen the mechanism to prevent dumping of cheap goods in the domestic market.

“Section 8B (of the Act) is being substituted with a new section to empower the Central government to apply safeguard measures, in case any article is imported into India in such increased quantities and under such conditions so as to cause or threatening to cause serious injury to domestic industry," according to government documents.

In May last year, India merged two separate bodies handling anti-dumping and import safeguards to form the Directorate General of Trade Remedies, similar to the US International Trade Commission, to create a trade defence mechanism that can respond to developments in a comprehensive and timely manner.

The government has recently initiated more than 130 anti-dumping/countervailing duty/safeguard cases to deal with rising incidence of unfair trade practices.

The domestic market for solar components, for instance, is dominated by Chinese companies due to their competitive pricing. The surge in imports led the Modi administration in its previous term to impose a safeguard duty from 30 July 2018 on solar cells and modules imported from China and Malaysia. This will end in July this year.

The Union budget also approved an enabling mechanism to raise tariffs on imports of green energy equipment such as solar cells and modules.

Once a separate notification is issued, a new duty structure enabling a basic customs duty (BCD) of 20% on cells and modules will come into effect. There is no BCD levied on such equipment now.

India currently has a domestic manufacturing capacity of 3 gigawatts (GW) for solar cells and imported $2.16 billion worth of solar photovoltaic (PV) cells, panels, and modules in 2018-19.

The budget move comes against the backdrop of a non-tariff barrier that involves a certification requisite for all solar power generation equipment makers who want to do business in the world’s largest green energy market.

The step is aimed at boosting domestic manufacturing and shielding domestic companies from cheap and sub-standard imports.

Only manufacturers and solar modules that are approved by the Bureau of Indian Standards and the ministry of new and renewable energy, and are on the approved list of modules and manufacturers will be eligible for government supported schemes, including projects from where electricity distribution companies procure solar power for supplying to their consumers, Mint reported on 15 December.

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