Protectionism diverts attention from enhancing industry competitiveness

From the beginning of next month, the imports of laptops, tablets, all-in-one personal computers, ultra small form factor computers and servers falling under HSN 8471 would be allowed for most commercial purposes only against import authorisations for restricted items issued by the government. Top government officials have assured that import authorisations for such items will be issued on automatic basis against applications filed online but the criteria that will be adopted for grant of such authorisations are yet to be notified.

On the third of August this year, the commerce ministry issued notification no. 23/2013 changing the import policy for computers, etc from ‘free’ to ‘restricted’ but permitting their imports without any authorisation for repairs, as part of capital goods, and also allowing a limited number of such items as personal baggage, or through couriers/post and for research and development purposes. Two days later, the government stayed that restriction till the end of this month. Through the next few weeks, the government officials indicated that an import monitoring system, similar to the mechanism for imports of steel, paper, etc. will be put in place.

However, last Thursday, through its notification no. 38 dated October 19, 2023, the commerce ministry made it clear that its new import management system will mandate import authorisations for imports of such items, except for purposes specifically notified and by specified categories of importers. It added to the list of exceptions sale in the domestic tariff area (DTA) of such goods manufactured by special economic zones (SEZ) units, imports by units in SEZ, and for supply to central or state governments for defence or security purposes against end-use certificates.

The Directorate General of Foreign Trade (DGFT) issued Policy Circular no. 6/2023-24 dated October 19, 2023, clarifying certain issues and saying that import authorisations issued for imports of such restricted items will be valid till end of September next year.

Sections of the domestic industry manufacturing certain types of computers have welcomed the decision of the government but by and large, there is disenchantment and even disillusionment among others in the trade, as the government seems to have succumbed to pressures from some lobbies. It is a throwback to the pre-liberalisation days when the government preferred to restrict imports with a view to protect inefficient domestic producers. The theory that domestic manufacturing capabilities can be built by stifling competition from abroad has been discredited long back. Experience has shown that competition enhances efficiency and vastly increases the overall benefits to the people at large.

The government officials have talked of national security concerns having a role in the decision to restrict the imports of computers, etc. but few people in the know are impressed by such claims. Their overall take is that while no one is in favour of any compromise with national security, the factors that have contributed to the decision to restrict the imports of such items are quite different. Usually, it is the vested interests that masquerade under the garb of national security.

Protectionism and incentives-driven industrial and investment policies divert attention from the core issue of enhancing competitiveness of the domestic industry and encourage lobbying for favours from the government.

It is best to concentrate on sectors where we have a comparative advantage and create an enabling environment where they will flourish.

Email : tncrajagopalan@gmail.com