The government of India recently restricted free import of laptops, tablets, all-in-one personal computers (PCs), ultra-small form factor computers and servers. Under the new rules, importers will have to obtain a license from the Directorate General of Foreign Trade (DGFT) to import these products. These restrictions will come into effect from November 1, 2023. The DGFT will issue licenses on a case-to-case basis.
The government has said that the restrictions were being imposed to promote domestic manufacturing of laptops and computers. The Indian laptop market is currently dominated by imports, and the government hopes that the restrictions will encourage local companies to set up manufacturing plants in India.
Significantly, the balance between imports and exports in the country has been disturbed to a great extent for a long time. Many types of products, which were earlier produced in India, are no longer being manufactured due to competition from Chinese products. Given this, efforts were being made to promote manufacturing in the country. Prime minister Narendra Modi’s efforts to promote 'Make in India' first and 'Aatmanirbhar Bharat' during the Covid19 pandemic, as well as 'Start-up India' after taking office are notable in this regard. These interventions have ensured that manufacturing of different types of products including mobile phones, electronic items, toys, solar panels and chemicals has restarted. Yet, imports continued to increase. If we take account of the last five years, it is noted that our total exports of goods and services increased from $426.5 billion in the year 2017-18 to $767 billion by 2022-23. Within this, the share of services exports rose sharply from $117.5 billion in 2017-18 to $322.7 billion in 2022-23. Clearly, services exports have been a major contributor to the growth of our exports. The growth in exports of goods was low because manufacturing had been lagging.
On the other hand, imports grew faster than exports, mostly due to increased imports of merchandise goods. As a result, the trade deficit (difference between the value of imports and export of merchandise) increased from $160 billion in 2017-18 to $266.8 billion in 2022-23.
Free Trade Hurt Domestic Production
Generally, economists who are supporters of ‘free trade’ argue against placing any kind of barriers on imports and exports, both tariff and non-tariff barriers. They argue that doing so is against consumers as they are deprived of cheap goods. They also argue that lack of competition reduces efficiency in the production in the country. But the reality is that in the name of free trade, the average weighted tariffs (import duties) were reduced from 22.96 percent in 2005 to 6.19 percent by 2020. As a result, cheaper imports made their way to the country, causing a huge decline in manufacturing for more than two decades. As Indian industrial units could not withstand competition from imported goods, especially from China, they gradually closed down. Though the country's target was to increase the share of manufacturing in GDP from 19.6 percent in 1990-91 to more than 25 per cent, it actually reduced to just 16.3 percent by 2018-19. Many economists call this trend, ‘de-industrialization’.
The argument of the supporters of free trade that imports and exports, free from tariff and non-tariff barriers, will increase efficiency in the country and make industries flourish, proved wrong. In essence, after adopting free trade policies, manufacturing declined, factories closed, the share of manufacturing in the country's GDP continued to decline, the possibilities of increasing employment through manufacturing also ended, and India experienced a jobless economic growth.
Need To Be Aatmanirbhar
In the year 2020 itself, during Covid19, the government announced the policy of ' Aatmanirbhar Bharat'. A list of 14 such industries was prepared that needed rehabilitation. These industries included electronics, medical devices, pharmaceuticals, telecommunication products, food products, LEDs, high-efficiency solar PV modules, automobiles and auto accessories, and so on. To increase the production of those items, 'Production-linked Incentives’ were started. India has limited scope for increasing import duties due to free trade agreements with some other countries, including the ASEAN nations. In such a situation, the option of non-tariff barriers is mostly left to prevent imports.
About 85 percent of the country's imports are of intermediates, and these imports are justified on the grounds that they can make finished goods competitive. It also indicates that a big chunk of the goods manufactured from imported spare parts are for domestic consumption.
Although Aatmanirbhar Bharat or self-reliant India does not mean restricting imports through tariff or non-tariff barriers, it aims to increase the production of all those items in the country that are being imported. But this will not be possible by allowing the free flow of imports. It is necessary that the market be secured for domestic producers to encourage them to produce those goods and make good quality goods that can be exported.
Laptops Curb
Some people oppose the decision of the government to restrict imports of laptops saying that such a move will cause the prices of laptops to increase, and also affect availability. But these restrictions on imports of laptops, tablets and servers are not without a plan. As many as 38 electronics companies have applied under the Rs 17,000 crore PLI scheme to make laptops, tablets and servers in the country.
The government believes that this decision will increase the domestic production of laptops in the long run and the benefits will be much bigger than the pains accruing from the supply constraints in the short run. In the past, due to tariff and non-tariff barriers, we have seen domestic production of many goods increase and the country becoming not only self-sufficient in those goods but also an exporter, thus bringing in efficiencies. The automobile sector is a great example. Today, we are not only manufacturing world-class automobile products but also exporting them in large quantities. In the year 2022, automobiles (not including railway equipment) worth $19.3 billion were exported. (It’s notable that since the automobile sector was protected with high tariffs, no efforts were further required to promote them). Similarly, toys, solar panels, chemicals and mobile phones have also benefitted from higher tariffs since 2018. All these products are also being exported in large quantities. We have to understand that before taking any industry to the level of excellence, it is necessary to establish and develop that industry. There is a need to protect those industries which are taking birth now due to the government’s efforts including production-linked incentives.
It has to be understood that the goal of today's self-reliant India is to move the country forward with manufacturing, technology and innovation so that Indian products can make their place in markets around the world. The recent restrictions imposed by the government on imports of laptops and computers are aimed at increasing their production in the country. The goal and modus operandi of the Aatmanirbhar Bharat policy is not to create inefficiency in the country but to be a ‘tree guard’ to let the industry grow.
Ashwani Mahajan is a professor at PGDAV College, University of Delhi, and the national co-convener of the Swadeshi Jagran Manch. Views are personal and do not represent the stand of this publication.
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