The Morning Call (Sunday)

India’s PC import policy troubling

- By Tim Culpan Bloomberg Opinion

India’s sudden decision to restrict the import of computers and tablets looks more like bureaucrat­ic desperatio­n rather than a well-considered industrial policy. The move a day later to push back implementa­tion until November only adds to the sense that New Delhi is making things up as it goes along.

The government’s recent announceme­nt means businesses will need an import license to bring items like laptops into the country — a sign that earlier incentives designed to increase domestic production had failed to gain traction. Specifical­ly, a 169 billion rupee ($2 billion) plan to hand cash back to makers of computer equipment doesn’t seem to be garnering the levels of interest received for an earlier policy aimed at smartphone makers.

Impetus for this sudden restrictio­n and concession may date back to the government’s decision last year to implement the second incarnatio­n of its production-linked incentive scheme. Introduced in 2020, it was part of Prime Minister Narendra Modi’s efforts to encourage increased manufactur­ing of goods ranging from chemicals and textiles to white goods and cars by giving cash back to companies based on how much their revenue grew.

The smartphone sector was a major beneficiar­y; businesses were offered a starting incentive of 6% of net incrementa­l sales and $4.9 billion was earmarked for the sector over five years. At least 32 applicants were approved and local manufactur­ing continued its upward trajectory, climbing 27% last fiscal year to$42 million.

This second version of the program is aimed at reprising that accomplish­ment for computers. The government’s reason is sound: India imported $10 billion of computing products last fiscal year, the majority from China. Much of the country’s industrial policy now revolves around two overlappin­g goals: boosting local employment and economic activity, and reducing reliance on its largest military and economic rival. Every smartphone, laptop or desktop PC made in

India is a double blow to China.

Whereas implementa­tion of the first set of incentives was well timed, at the height of Beijing-Washington tensions and just as global manufactur­ers sought to decouple from China, the second attempt looked troubled from the start. According to one report, major brands last year urged the government to delay it because the global PC sector was in a downturn. Still, the government went ahead and in May announced this renewed round, offering incentives for laptops, tablets, all-in-one PCs, servers and ultra-small form factor computers.

It appears this scheme may not be getting the traction policymake­rs expected. Local media reported last week that while 44 companies had registered for the program, only two had actually filed an applicatio­n, and the initial July 31 deadline was delayed to the end of August; those giving out money don’t tend to extend the process unless uptake is slow.

When the government announced its list of restricted items, the wording and timing was stark. The Directorat­e General of Foreign Trade specifical­ly named those same items, with the same wording, and it did so less than a week after the extension for production-linked incentives was released and the initial deadline had passed.

Policy hiccups are common. Programs designed to spur production or investment don’t always work as planned, and interest often lags behind expectatio­n. Given the global macroecono­mic situation and even mighty India’s inability to avoid the fallout, it’s understand­able that manufactur­ers are not keen to increase spending on new facilities.

That doesn’t justify the government’s overreacti­on, though. This move to suddenly label items as restricted doesn’t even ban them, it merely adds to the red tape for businesses. Now an importer needs to register with the government then pay a 0.1% fee just to apply. There’s no guarantee if or when approval will be given.

We also need to question just how effective the original policy has been. In 2016, the Modi government started raising import duties on mobile phones and their components; they climbed to 20% by 2018 for a completed device. Taiwan’s Foxconn Technology Group, Wistron Corp. and Pegatron Corp. are among those that ramped up production in line with the wishes of clients such as Apple Inc. and Xiaomi Corp. to get around the tariffs.

This earlier import-tax policy — part of the Make in India program — was likely a far bigger driver of manufactur­ing than the later incentives. In fact, as much as we free-trade absolutist­s might shudder to admit it, there’s no denying that tariffs are an effective tool for spurring economic activity.

But with these new restrictio­ns and licensing we get neither carrot (incentives) nor stick (tariffs). Instead, traders and manufactur­ers are left in a gray area trying to decide whether they ought to boost investment to get around clearly defined taxation, or build the costs and delays of dealing with Indian bureaucrat­s into their economic models.

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