Over three decades have gone by since the Congress government of P.V. Narasimha Rao ushered in liberalisation and opened up the Indian economy. Is New Delhi pushing the clock back now? A recent decision of the Narendra Modi government, which is in the last leg of its second innings, is a policy flip-flop. In a surprise move early this month, the Union government announced immediate restrictions on the import of laptops, tablets and personal computers. It went on to stipulate that any entity or company seeking to import such electronic devices for sale must secure a “valid licence for restricted imports”.
The new import licensing norm has forced top global ICT firms like Apple, Microsoft Google and Amazon to seek the US government’s help to force New Delhi to rethink the move, which is seen to be violative of international trade commitments. Eight industry associations with members like HP, Dell, Intel, Cisco, IBM, Meta and AMD have in representations to the US Commerce Secretary and the US Trade Representative suggested that the Biden administration should prevail upon New Delhi to withdraw this licensing provision. They are upset because the curbs were imposed suddenly without any consultation with stakeholders. They see in the move an effort to arm-twist them into participating in the production-linked incentive (PLI) scheme of the Modi government. They say the curbs could have a serious fallout on the investments of American companies in data centres in India.
Within a day of the announcement, the Centre flip-flopped and deferred implementation to November 1. The double-quick announcement of a “transition period” was ostensibly intended to allow the industry to adjust to the new regulatory regime. The Directorate General of Foreign Trade (DGFT) did not give any reason for the licensing notification, nor for the transition period.
Import restrictions have been imposed under HSN Code 8471 on seven categories of electronic gadgets, including laptops, tablets, all-in-one personal computers and ultra-small computers and servers. The Harmonized System of Nomenclature (HSN) classifies products for taxation purposes. HSN Code 8471 identifies devices for data processing. The DGFT had to suspend the implementation as customs officials started holding up shipments. Of course, the DGFT has prescribed import exemptions for individuals and others.
There may be many reasons for the Modi government to restrict the import of such electronic items, but it is bound to trigger avoidable uncertainty and anxiety in industry and business circles. What if it opens the door to similar licensing requirements in other sectors, and signals a return of the evils of the licence raj and widening bureaucratic discretion? Notwithstanding the transition window, the return of the licence raj ― though only in a single sector at the moment ― could trigger disruptions in the near term, causing supply shortages and raising prices.
DGFT did not specify any reason for the change in policy. But the flip-flop is explained by the Modi government’s push for Atmanirbhar Bharat, which was started in May 2020, ostensibly to make the country self-reliant. Also, it is seen as a bid to checkmate the rapid Chinese incursion into the Indian electronic devices market. According to Ministry of Commerce and Industry data, the import bill for electronic goods in 2022-23 was $8,786 million. Imports from China alone were worth $5,118 million. The government suggested that the curbs are in response to the continuing border standoff with Beijing, to guard against electronic hardware being imported with “in-built security loopholes that may potentially endanger sensitive personal and enterprise data”. The government has indeed identified electronics manufacturing as a key priority area for the country’s future growth ambitions and hopes to attract investments from global electronic corporations. Under the Production Linked Incentive 2.0 IT hardware scheme, 44 companies were registered and two companies had applied on the scheme portal as of July 31.
But is an import curb the right way? Aren’t there any other options for the government? The WTO ruled against India in April in a dispute challenging the imposition of import duties on information and communications technology products. It said that New Delhi should bring its tariff regime on ICT products in line with global trading norms. India had argued that its commitments under the 1996 Information Technology Agreement were only applicable to products that existed at the time. The WTO dispute panel rejected this. Against this background, the Centre perhaps thought it fit to impose a licensing regime. Nevertheless, it is true that the rules-based global trading system has largely been undermined.
But the return of licence raj ― albeit selectively for the import of electronic devices ― has begged several questions. Despite the feverish push to the Make In India initiative, questions still remain as to why the indigenous production of electronic devices hasn’t picked up. Do we have a robust ecosystem that allows the IT industry to run in a free and cost-effective manner? And the timing of the move, a few months ahead of general elections, has given it a political colour.
K.T. Jagannathan is a senior business journalist.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.
