India’s response to place restrictions on computer and server imports is perceived as another push towards building up capital investments
First things first! The restrictions placed on importing laptops, tablets, all-in-ones and such other pieces of gadgetry will not stop your access to the next generation iPads or MacBooks that you want your friend / relative to get for you. Now that the tough part is taken care of, let’s look at what these new rules mean and the expected outcomes.
The Directorate General of Foreign Trade (DGFT) notified restrictions on August 3 on imports of the above products and a few hours modified them to provide liberal transitional arrangements for such imports by setting November 1 as the effective date. This, the notification, said was in consideration of long-term commitments of industry stakeholders’ supply chain scenarios.
In other words, companies that have committed to importing stuff as part of their supply chain arrangements can continue to do so till October 31 without worries. “For clearance of import consignments with effect from November 1, 2023, a valid license for restricted imports is required,” the second notification said.
Is this the start of License Raj – II?
For all practical purposes it appears so. Industry sources we spoke with appeared defensive on sharing their views. Some felt that it was essential for India to become a manufacturing hub for electronic goods, given that most of the activity in this regard relates to just assembling the parts that get imported from other countries.
Others felt that while the government was not happy with the unbridled imports, changing direction at a policy level will only send out confusing signals to the global businesses. On its part, the DGFT says licenses are being imposed to gather data so as to promote the Make in India initiative as well as keep a check on imports from certain geographies.
So, one cannot say with any conviction that this shift in policy on electronic goods will soon follow in other industry sectors as well. For now, it can only be seen as a means to curtain imports from countries not entirely favorable to India on the global geopolitical map. Simply put, it is once again aimed at our eastern neighbor China, just as the 2020 mobile app ban was.
However, there are economic reasons too
For starters, India’s trade deficit with China stood at $83 billion in FY23 and the latest move could shave off some parts of this figure. Then there is the question of strengthening India’s own hardware supply chain, which is not in great shape anyway. In addition to saving foreign exchange, there is scope for creating thousands of jobs and enhancing R&D in the area.
In addition, the move could help focus on the growing global IT hardware market, something that the country has achieved in small measure through the smartphone manufacturing plan promoted under the PLI scheme. What’s more, all of the above fits in with India’s stated objective of attaining self-sufficiency in electronics manufacturing within the next two years.
Seeking to replicate the smartphone story
One way to look at the latest policy shift is to juxtapose it alongside India’s smartphone story. Until 2005, the country imported all phones. Thereafter Nokia set up shop in Chennai (2006) after which Salcomp made chargers for Apple. With import reduction as its desired outcome, India went after big brands offering them incentives (PLI) to start assembling locally.
Incentives ranging from 4-6% on incremental sales were offered to cover the cost disadvantage that the industry suffered against China and Vietnam. Today India stands in second position after China in the smartphone manufacturing market with a billion devices targeted by 2026. Export revenues were in excess of Rs.90,000 crore in FY23 and are slated to rise further.
Can we shift from assembling to manufacturing?
This is a task easier said than done as laptops more than 20 components are currently imported and this includes the motherboard, hard drive, memory, keyboard and LCD assemblies. These come from China and Taiwan, which means India is just assembling knocked-down kits. Till India has cutting-edge semiconductor manufacturing, import bills will remain high.
Given that semiconductor manufacture is still a distant dream, imports of kits and their assembly seems to be the way forward for now. Replicating the idea across laptops, PCs and certain categories of servers has merit as in addition to reducing India’s dependency on China, such a move would definitely bump up jobs and contribute directly to GDP growth.
“Having some sort of a non-tariff barrier which encourages domestic manufacturing is a good thing. There is a certain and clear focus on creating domestic manufacturing of laptops, IT hardware and server. We are not allowed to create any tariff barriers and therefore customs duties. So, this non-tariff barrier,” says a published report on ET quoting unnamed officials.
In a nutshell, the government is hoping that these tariff barriers will force the big guns such as Dell, HP, Lenovo, Apple, Acer and LG to consider local manufacturing opportunities, given that currently a big chunk of their India sales are fulfilled from China.