In the pre-1991 era, Indian governments routinely relied on repressive policies such as quotas and higher tariffs in order to curb imports. Infosys founder N R Narayana Murthy once famously recounted how he had to wait for three years and undertake several trips to Delhi to import a computer because of the strict licensing regime.
The adverse consequences that such policies had on the economy have been well-documented. Despite that, in a move that harks back to this socialist past, the government of India on Tuesday issued an Order requiring licences to import laptops, tablets and other devices with immediate effect. This could open the door for imposition of similar licensing requirements in other sectors, increasing the space for bureaucratic discretion. Such controls on economic activities will only diminish the vibrancy of the economy that was unleashed after the ’91 reforms.
The move is ostensibly aimed at promoting domestic manufacturing and curbing imports from China. In 2022-23, imports of personal computers, laptops etc stood at $5.3 billion, with China accounting for an overwhelming share of these. However, as no warning or time has been given to equipment manufacturers (as per some reports, the government might delay its implementation by at least a month), this decision will lead to unnecessary disruption in the immediate term, create supply shortages and drive up prices of equipment. While it may force companies to manufacture in the country considering the huge market that India offers, there may be cost disadvantages.
Moreover, it is one thing for the government to adopt policies that facilitate the creation of a computer manufacturing ecosystem in the country and quite another to use a sledgehammer approach to achieve its goals. In a country with a vibrant IT services sector, with a government that envisions Digital India, and one that has sought to encourage the start-up ecosystem, this is an uncalled-for decision.
Unfortunately, it is not a one-off. The policy establishment has in recent years drawn inspiration from the country’s socialist past far too often. For instance, the government has recently banned the exports of rice and imposed stock holding limits on pulses. It had also brought spending by credit card under the liberalised remittance scheme — now in abeyance — which meant that transactions via cards outside India would attract a higher rate of TCS (tax collected at source). Such moves indicate that even as the rest of the country has travelled well beyond its socialist past, the establishment hasn’t, at least not adequately. It still tends to cling to the old playbook. This tendency threatens to undo the economic gains that have accrued to the country from the dismantling of the licence permit raj in the decade of the ’90s.