Computer import curbs not part of FTP Principles of Restrictions

On August 2, the government restricted the imports of personal computers, laptops, tablets, ultra-small form computers and servers falling under the HSN classification ‘8471’ with immediate effect. The very next day, the government postponed the restrictions to apply for imports of those items with effect from November 1, 2023. Quite obviously, the government had not thought through before imposing the restrictions and had not consulted relevant sections of the industry.

In the eighties, the government expected the electronics hardware exports industry to be a significant driver of growth, set up the Santacruz Electronic Export Processing Zone (SEEPZ), and introduced the Electronics Export Technology Parks (EHTP) scheme, mainly allowing duty free import of components and kits that could be assembled and exported. Later, the government realised that our strength lies in export of software and allowed duty-free import of software and computers under the Export Promotion Capital Goods scheme, the Software Technology Parks scheme and in the Free Trade Zones. 

The duty rates on computer software and hardware were cut to zero after India became a signatory to the Information Technology Agreements (ITA-1 and ITA-2) at the World Trade Organisation (WTO). These policy initiatives and the advent of Internet enabled the software companies to exploit the global opportunities and also helped widespread adoption of information technology (IT) in various government and business processes within the country. So, the move to restrict import of computers came as a surprise and was widely condemned as retrograde and going back to licensing raj of the pre-liberalisation era. But, is the restriction even compatible with the principles of restriction stated in the Foreign Trade Policy (FTP)?

When the quantitative restrictions were substantially abolished in 2001, the government spelt out certain principles of restrictions in the Export and Import Policy document. They covered protection of public morals, human, animal and plant life, patents, trademarks, copyrights and national treasures of artistic, historic or archaeological value and prevention of deceptive practices, prison labour, trade of fissionable material or material from which they are derived, traffic in arms, ammunition and implements of war and conservation of exhaustible natural resources. In August 2021, certain additions to these principles were made at para 2.07 of the FTP 2015-20 that included prevention of critical shortages of foodstuffs, application of standards or regulations for the classification, grading or marketing of commodities, imports of fisheries products, safeguarding external financial position, promotion of establishment of a particular industry, preventing sudden increase in imports from causing serious injury to domestic injury so on. The restriction on imports of computers is not covered under any of these stated principles of restrictions.

The experience of dramatic increase in the production and exports of mobile phones and decrease in their imports following imposition of high duties on their imports and introduction of production linked incentive scheme seems to have convinced the government that a similar approach for other electronic hardware will also bring in similar results. That may happen or not but the latest computer models are essential for enhancing productivity. The government should address the basic factors that make domestic industry uncompetitive and not resort to import licensing to shield them from competition. 

Email : tncrajagopalan@gmail.com