Nationalism, not protectionism, the driving thought behind the new IT import move

Nationalism, not protectionism, the driving thought behind the new IT import move

Two things are fundamental in a democracy. It is the government’s job to govern while it is the Opposition’s task not to indulge in destructive debate about every action of the administration.

The current debate which has been raised over protecting indigenous electronic industry by regulating the import of items, is being painted as protectionism and xenophobia. The truth is the exact opposite.

The new rules could make India an IT hardware exporter instead of being just a net importer since reasonable import restrictions and a strong domestic manufacturing base guarantees domestic growth and further fuels India’s growing economy, which is seen as a threat by China.

The modification of the import policy will not only reduce huge import bills—India's electronic imports stood at $17.7 billion from April to June 2023—but also bring in foreign investment, as it happened in mobile phone manufacturing.

Reducing dependency on foreign manufacturers and encouraging domestic innovation and production are at the core of the Modi government's Aatma Nirbhar Bharat. The government aims to further the objectives by implementing policies that support local manufacturing and provide incentives to domestic companies and domestic manufacturing. All corporations, local and foreign, are encouraged to contribute to the growth of the nation and strengthen its self-reliance, unlike in protectionism which restricts and even penalises foreign companies doing business.

There are several strategic reasons for the government's recent decision to put the import of laptops, tablets, all-in-one personal computers, ultra-small form factor computers, and servers falling under HSN 8741 under the "Restricted" category.

National security is one of the main reasons. As more citizens go online for personal use, financial transactions, the availing of government services, etc., electronic devices must be secure enough to protect users and prevent harm. Sophisticated cyber-attacks do not happen only through networks, software, or applications.

Hardware devices such as laptops, tablets, servers etc. are prone to vulnerability at the production stage. The inbuilt security loopholes, for example in hardware backdoors, firmware, malware, etc. in machines may potentially endanger sensitive personal and enterprise information. As such, there is a strong need to check that devices entering India are safe and secure from outside breaches. For this reason, a new channel has been established to ensure that safe devices reach our citizens. The import licensing procedure on security grounds is also a WTO (World Trade Organization)-compatible procedure.

All developed and developing countries adopt various forms of automatic and non-automatic licensing procedures. Most of these aim to protect human, animal and plant life, national health, and safeguard the environment in compliance with international obligations in the interest of security.

To clarify, there is no ban whatsoever on the import of laptops and tablets, which could trigger an immediate shortage. All hardware consignments currently in transit, are allowed to enter India seamlessly. Companies can also continue importing devices after obtaining a license online. And there is enough capability, capacity and resources for domestic manufacturing to meet any shortages.

Therefore, the impact of the new rule on the supply chain is expected to be minimal. The IT Hardware PLI (Production Linked Incentives) scheme, which seeks to boost domestic production and reduce dependency on imports, has already started showing positive results. Since PLI 2.0 was launched in May 2023, 48 companies have registered. The PLI Scheme 2.0 for IT Hardware is expected to result in the broadening and deepening of the IT manufacturing ecosystem by encouraging the localisation of components and sub-assemblies and allowing a longer duration to develop the supply chain within the country. Additionally, the scheme provides increased flexibility and options for applicants and is tied to incremental sales and investment thresholds to further incentivise growth. Furthermore, semiconductor design, IC manufacturing and packaging are also included as incentivised components of the PLI Scheme 2.0 for IT Hardware.

China, Singapore, and Hong Kong currently dominate India’s IT imports. In the last five years, the country has relied heavily on hardware imports from specific Asian countries such as China (58 percent), Singapore (16 percent), and Hong Kong (9 percent)—which is largely coming from mainland China. Hence placing restrictions on the import of laptops, tablets, all-in-one PCs, servers and so on, in tandem with the Production-Linked Incentive (PLI) Scheme, should be seen as the government encouraging the domestic manufacturing industry to grow. India’s IT hardware manufacturing capability and capacity is underutilised. Any improvement in capacity utilisation would help boost the scale of manufacturing and ultimately lower costs for the Indian consumer.

Additionally, buyers spend a significant part of their earnings buying electronic devices. Allowing the domestic industry to tap into this demand not only promotes indigenous manufacturing but also strengthens the economy by retaining a significant share of this expenditure within the country.

The grand success of the PLI scheme in mobile manufacturing could be replicated in the IT hardware sector. Major smartphone companies like Apple vendor Foxconn, Wistron, and Pegatron have already established manufacturing operations in India to produce 99 percent of smart phones within the country itself. The production of mobile phones has risen from about six crore handsets in 2014–15 to around 45 crore in 2022–23. India exported Rs 90,000 crore worth of mobile phones in FY 2022–23. This growth in mobile phone production and exports has significantly contributed to the country's treasury.

Improved local manufacturing has also made smartphones cheaper and affordable for a large part of the population. A similar upward trend is expected in the domestic sale of electronic devices once their production ecosystem is fully established. While there is no customs duty levied on IT hardware (as per the WTO ITA-1 agreement), their prices in India are higher as compared to various other countries.

With increasing economies of scale in domestic manufacturing, the cost to the consumer should come down from the current levels. A spurt in local manufacturing activities will also generate a spurt in skilled and unskilled jobs. The IT hardware manufacturing industry in India is expected to create close to three lakh jobs (direct and Indirect) over the coming years.

Moreover, with the government's focus on promoting Make in India initiatives, the IT hardware industry is likely to attract more foreign direct investments, further boosting job creation and technological advancements in the sector. Hence, any hyperbole by partisan political interests should be seen only as an attempt to obstruct the Amrit Kaal of the development and empowerment of India.

Amit Malviya is the national head of BJP’s Information & Technology and Sah Prabhari of West Bengal