Opinion
Import licensing a pragmatic step amidst new realities of global trade
Summary
- India’s new licence requirements for laptop imports are in sync with the emerging global economic order, in which reducing dependence on other countries trumps free trade
Computer manufacturers such as Dell, HP and Apple were taken by surprise last week when the government announced that importing electronic products such as small tablets, laptops, and all-in-one PCs into India will soon require a licence. A day later, the Directorate General of Foreign Trade gave importers until November 1 to obtain licences.
Suppliers expect shortages resulting from the inevitable demand-supply mismatches in the interim. The decision to give the companies time for adjustments suggests that the government announced the new import policy in a rush, without taking on board all considerations and the potential ramifications of its decision. This forced the government to reconsider its stance, as has now become routine for big policy pronouncements.
Predictably, the new policy has drawn sharp reactions on social media, with people likening it to the ‘licence raj’ of the pre-liberalisation era. There have been scores of posts recalling the shortages, low quality, high costs and near absence of product variety during those days, and expressing the fear that they may return.
Rajeev Chandrasekhar, minister of state for electronics and information technology, sought to allay these concerns. He claimed in his tweets that the new import regime was not a return to licence raj, saying, “The government’s objective is to ensure trusted hardware and systems, reduce import dependence, and increase domestic manufacturing of this category of products." But this official stance hides the real intent of the new policy regime – to discourage disputes in multilateral forums such as the World Trade Organisation.
Without going into the merits and demerits of the new policy regime in delivering on its stated objectives, let’s try to understand what the government could be thinking.
India’s dependence on imports, especially from China, is an undeniable fact. Around 90% of PCs sold in India are not made in the country. Market leaders such as HP, Dell, and Lenovo do manufacture in India, but their production relies heavily on components shipped in from other countries. The dependence on China in particular can be seen in the import data. In FY23, of the just under $9 billion in imports of the seven items that will now require licences, $5.1 billion, or a whopping 58%, came from China.
Naturally, New Delhi is worried about this dependence. The Chinese have turned increasingly aggressive – their transgressions since 2020 and the unresolved situation in eastern Ladakh have worsened bilateral relations.
The broader geopolitical game is messy, too. The US is bent on stalling China’s technological rise and blocking the challenge to its status as the global superpower. China has also displayed increasing military aggression in its neighbourhood, including at the Line of Actual Control with India and in the South China Sea. One of the ways the US is tackling an assertive China is by erecting trade barriers and encouraging American companies to shift their global supply chains from China and to friendly countries – what Treasury Secretary Janet Yellen calls ‘friendshoring’.
The Biden administration's tech curbs on China encompass a ban on the export of high-end microprocessors and chips-making equipment, and even the hiring of employees there. In retaliation, China announced plans to curb exports of gallium and germanium, which are used in semiconductors, from this month.
Trade tensions between China and the US don’t look like easing any time soon despite the Biden administration’s overtures to Beijing, including visits to China by top US officials such as Yellen.
This has inescapable consequences for global trade. The world depends on China for many supplies, including strategic ones, but is desperate to reduce this dependence. This has thrown the global economic order into flux, and it’s not yet clear what the new equilibrium will look like.
Seen against this backdrop, India’s new licence requirements for laptop imports are in sync with the emerging global economic order – one in which large economies use trade restrictions in what has been dubbed the ‘Tech Cold War’. This marked a hiatus – if not a reversal – of the free-trade approach that accelerated globalisation and boosted global GDP growth by giving consumers access to cheaper and better-quality products.
It’s not clear yet if that world will return any time soon. Most countries are now driven by the need to build strategic advantages to minimise their vulnerabilities, thanks to the chip shortages that followed the pandemic, and the disrupted food, fertiliser and fuel supplies that followed Russia’s invasion of Ukraine.
No economy wants to be heavily dependent on China, Russia or any other country. Most rich countries are spending considerable sums to build this self-reliance, especially in crucial technologies such as semiconductor manufacturing, which suggests there could be long-lasting changes in the way global trade is conducted.
Laptops are hardly a strategic industry, and the troubles with licensing are well-known. Corruption will run amok, prices and availability will become unpredictable, domestic industry will be under no pressure to serve consumer interests or become globally competitive and will continue to remain mediocre.
But still, India's proposition to large technology companies clearly seems to be this: “You will be shifting supply chains away from China. Why go to Vietnam and Indonesia, where consumption markets are small? Make in India if you want to sell to Indians." Will global manufacturing giants bite? We’ll know in the next few months.
