Return of the 'big' state

India's latest laptop import restrictions are a matter of concern as nothing exemplifies the failures of the pre-1991 licence-quota raj more starkly than restrictions on electronic goods imports

The Indian “big” state has lately been striking back. It did it again this week by announcing drastic controls on the import of personal computers, laptops, tablets and so on.

This came on top of a relentless state creep-back through a quadrupled tax collected at source (TCS) — from 5 to 20 per cent — on transactions under the Liberalised Remittance Scheme (LRS), the freedom the Vajpayee government had given Indian citizens to invest or spend foreign exchange overseas.

To be sure, it now added credit card spending too — and then, as protests grew, gave differential limit categories and dates from when this would come into effect. Indians had lived three decades since 1991 trying to forget the same bad ideas of the past.

Several more such have occurred. For instance, the sudden ban on the export of non-basmati rice, causing concern in global markets about India’s reliability.

It does become challenging to argue over trade in agricultural commodities as questions of food security come in. So let’s leave it here. You can, meanwhile, pick several other examples. The restriction on the import of solar panels (mostly from China), for example. Then a qualification that this restriction did not apply to public-sector undertakings (PSUs). Did that mean that PSUs could freely import these and a private user could buy from them in India? At each level, you’d note, the state would have a role.

India was buying nothing from Pakistan and Nepal, and Bhutan did not matter in terms of imports. Everybody knew, therefore, that the restriction was over Chinese goods. “Well done”, was the Galwan-year sentiment. In 2022, solar panels were also added to this list. This year, 2023, PSUs were exempted from this restriction. Meanwhile, our trade deficit with China has risen year-on-year.

Back to the latest, the laptop-tablet issue now. The objective, we were told on the record first, was to promote domestic manufacturing. By the very next day, the discourse had moved on. National security had taken precedence.

Now, what’s the point of there being a state if it doesn’t have the power, statutory and even moral authority to tell us mere citizens what is good for us, what would make our lives and our nation more secure. Once national security is thrown into the ring, the fight — or argument — is over. India’s total imports of goods now put on the restricted list in the last financial year amounted to $8.8 billion. Of this, more than $5.1 billion, or about 58 per cent, came from China. You can then add two and two.

How can any Indian, especially those who have argued for free trade, open markets, and reform over the decades, argue against the interests of national security? That too, in an era when there’s widespread action in the Western world (all India’s allies) over Huawei and other Chinese tech/communication platforms.

When national security is invoked, Indians usually trust their government and go silent. But it is a more complex challenge than the stuff the Chinese may stealthily plant in your landlord or tenant’s laptop. Every now and then, pictures of VIP tours through India’s top scientific facilities, especially the laboratories of the Defence Research and Development Organisation, pop up on social media (mostly Twitter) where sharp-eyed observers note the presence of Chinese CCTV cameras, Hikvision being the most prominent brand.

Even to those like us who know no technology, it is evident that these cameras are networked to a server that stores information and goings-on in these sensitive facilities. Not everything done in a government/scientific establishment may be sensitive or a secret, but neither are all the pictures and videos of family members, weddings, birthdays, convocations, dogs and cats stored in our laptops and personal computers.

National security is a useful ploy when it comes to employing trade as an instrument of strategic policy. You need to see, however, where the substitutes will come from. The Indian experience so far is that when imports are banned or restricted in the expectation of domestic manufacturers filling in, it almost never — in fact, never — happens.

For decades, we allowed no import of automobiles and were condemned to Ambassador and Fiat/Premier for cars and Bajaj/Lambretta for scooters. Then we opened up, let the world come in and compete. Now, we rank among the world’s biggest exporters of automobiles. Plus, you know what, two generations of Indian consumers have had choices ours couldn’t dream of.

The latest on computers is a matter of particular concern as nothing exemplifies the failures of the pre-1991 licence-quota raj more starkly than restrictions on electronic goods imports. In the Indira-Rajiv era licence-quota raj, nobody from overseas was allowed to come and build any electronic goods in India, imports were banned and manufacturing, if anything, was to be encouraged in the public sector.

That’s why so many state governments set up their own PSUs that merely imported kits from Korea and made television sets and two-in-ones (cassette player plus radio, for millennials who may not know what we’re talking about). Nobody wanted these and you were always waiting for that favourite NRI uncle to bring you one of these, or a civil servant returning with goods on “transfer of residence.” Baggage belts in arrival areas were then loaded with boxes of TVs, VCRs, microwave ovens. All this disappeared within two years after 1991.

With laptops and tablets now, we want to fully work in reverse. Restrictions on foreign exchange were even more draconian than on electronics. First, these were restricted both ways, for inward or outward remittances. Former banker and now author and serial investor Jaithirth “Jerry” Rao often talks about the fact that in the name of socialism, the Congress restricted us Indians to carrying no more than $8 — and later $20, a 150 per cent increase!—as the maximum we could leave with for an overseas trip.

For every category, there was a fixed limit, for which you needed to go to the Reserve Bank of India (RBI) for a quota and a certificate. As a reporter, for example, the RBI allowed me $250 per day in a Western country for every need put together — hotel, food, transport. For the neighbouring countries, it was just $150. Our credit cards were valid only in India and Nepal. You couldn’t, as a result, rent a car anywhere in the real world.

All the exchange and professional equipment you took out, including little tape-recorders and laptops, were listed in long-hand on the last pages of your passport. The amount and the equipment you returned with were again duly entered.

All of that went out of the window with the 1991 reforms. Indian credit cards acquiring global currency was an epochal reform and contributed greatly to enhancing India’s global reputation. Former top civil servant and one of the key movers of post-1991 reform, N K Singh, talks about this in some detail in his  book The Politics of Change.

The decision by the Vajpayee government to allow Indians to spend, invest or remit a certain amount of money in dollars (now $250,000) in February 2004 under what was named the LRS was a path-breaking step.  This was the last major step by the Vajpayee government before it became caretaker and elections drew closer. It was among the most reformist.

Foreign exchange or import controls/substitution was among the many bad ideas of pre-reform India. In essence, import substitution means an aversion to trade. Which is ideologically, politically and philosophically so old economy. Every nation that’s boomed—including China—owes it to trade.

At a time when India is doing much reform, like lifting restrictions on foreign direct investment in so many areas, including the most sensitive ones, from defence production to consumer retail, some of these bad ideas are returning. We know what Victor Hugo said originally. With apologies to him, however, let us dare to say today, nobody can stop a bad idea whose time has come.

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