An echo of licence raj in laptop import curbs

The first casualty will undoubtedly be the large and growing consumer base in India. Low-income households and students benefited enormously from cheap imports, and this move could become the policy manifestation of the proverbial shooting oneself in the foot. Despite the exemptions, increased compliance costs and immediate supply shortages will spike the prices of these commodities, which can prove to be sticky in the medium-term. This will also lead to longer wait times for new products to enter the market and overall reduced choice.

The IT industry, long a bright spark in the Indian economy and the biggest earner of foreign exchange, will struggle. Thousands of software companies and start-ups that rely on high-quality computing at relatively lower prices will have their wings clipped. All this at a time when we have high technological ambitions such as indigenous training and the development of Artificial Intelligence (AI) models.

In a complex economic system, the import of laptops can have significant forward and backward linkages, which can get affected by this policy. In some ways, it can be compared to then US president Donald Trump’s 2018 tariffs to protect the steel industry, at the cost of the higher valued automobile sector. There are exemptions built into the new rules, but do not expect miracles there. The pre-liberalisation import controls also had well-meaning exemptions to accomplish the desired outcomes, but once it got stuck into discretionary bureaucratic decision making, it invariably ended up contributing to the rich tapestry of red tape. Companies will have to prove that the laptops are for research and development testing, or that they are a capital expenditure. The echoes of the licence-raj era are strong here.

The most important consequence is, in fact, reserved for manufacturing. This policy should be seen in the larger context of the government attempting to kickstart manufacturing in India through Make in India, performance-linked incentives (PLI) and the overall turn towards aatmanirbharta (self-reliance).

Import restrictions are placed on smart TVs and mobile phones, and India is scaling back its commitment to the Information Technology Agreement (ITA-1), that allowed for the free flow of electronic components. The government’s PLI 2.0 for IT hardware with a budgetary outlay of ₹17,000 crore has not attracted the expected level of capital expenditure, which necessitated pushing the application deadline twice. The aim was to get Apple, Samsung, Acer and other laptop manufacturers to produce in India, but when the companies did not commit, the import restriction and onerous licensing requirement might be the last roll of the dice to force their hand.

Discarded policies of the past cannot produce different results. If India wants to be a manufacturing and exporting powerhouse, it cannot do so by protecting champions from the pressures of competition, as we tried before 1991. If import controls failed in the past, the conditions for success are far worse now, given the interconnectedness of global value chains in electronics manufacturing.

Instead of placing import restrictions on laptops, the way to boost domestic manufacturing and investment from both Indian and foreign companies is to liberalise the import of electronic components and undertake the much-discussed structural reforms.

Aatmanirbharta in the electronics sector is a myth, as competitive exports require cheap imports. No amount of manufacturing subsidy can compensate for the absence of free imports, and genuine ease of doing business.

Anupam Manur is with the Takshashila Institution. The views expressed are personal