April 14, 2024

Lukmaan IAS

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ON LICENCE RAJ IN LAPTOP IMPORTS, GOVERNMENT DOES WELL TO RECONSIDER

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THE CONTEXT: In August, 2023, the central government had issued an order imposing licensing requirements on the imports of laptops, tablets and other devices with immediate effect. However, after the criticism, the government subsequently deferred the deadline for the implementation of the licencing requirement.

MORE ON THE NEWS

  • Import restrictions have been imposed under HSN Code 8471 on seven categories of electronic gadgets, including laptops, tablets, all-in-one personal computers and ultra-small computers and servers.
  • The Harmonized System of Nomenclature (HSN) classifies products for taxation purposes. HSN Code 8471 identifies devices for data processing.
  • The rationale for the move was ostensibly two-fold:
  1. To provide a fillip to domestic manufacturing
  2. To curb imports from China

ISSUES IN IMPOSING LICENSING ON IMPORTS:

  • Fear of license Raj: The move raised the concern of the government marching back to the era of the infamous licence permit raj. Such a regime could lead to the imposition of import quotas and increase the room for bureaucratic discretion pushing back the Indian economy.
  • Lack of competitiveness: This move can lead to monopolisation of trade and economy as government controlled production and protected workers and businesses lack competitiveness and tends to produce low-quality products.
  • Impact on global trading system: This move will likely impact the global trading system and be seen to be violative of international trade commitments. WTO has ruled that this can undermine the rules-based global trading system. For instance, at a recent meeting of the World Trade Organisation, countries like the US, China, South Korea and Taiwanraised concerns over this move.
  • Wrong policy approach: This is not the first instance of such policy approach. Earlier also, proposal as bringing credit card spending outside the country under the liberalised remittance scheme raised concerns. This shows the signs of a command-and-control economy when the state machinery exercised greater control over every aspect of the economy.

What was the ‘Licence Raj’?

  • “Licence Raj”, also known as “Permit Raj” or the “Licence-Permit Raj,” is a term used for a system of government that adhered to strict rules, regulations and control over the Indian economy.
  • Under this system, businesses in the country required licences to operate with high restrictions where state decides the quantity of production, market price as well as the course of the capital.
  • The central belief behind the system was that India needed to rely on its own markets, become self-sustaining and self-sufficient and Import substitution was at the centre of this form of policy.

Status of India’s imports:

  • According to Ministry of Commerce and Industry data, the import bill for electronic goods in 2022-23 was $8,786 million. Imports from China alone were worth $5,118 million.
  • As per a report from think tank Global Trade Research Initiative (GTRI), India’s imports from China are predominantly focused on 3 key product categories – electronics, machinery, and organic chemicals.

GOVERNMENT REACTION

  • Modified its position: After the criticism, the government modified its position on the issue. Government rolled out an import management system for IT hardware, which includes laptops and computers. Under the new system, companies will only have to register and reveal data that relates to their imports and the country of origin. There are carve-outs for special economic zones, hardware that is essential for capital goods, among others. However, companies in the “denied entity list” will not receive authorisation for imports.
  • Boost domestic manufacturing : The Government asserts that this step is taken to make India self-reliant and as bid to checkmate the rapid Chinese incursion into the Indian electronic devices market. The government has indeed identified electronics manufacturing as a key priority area for the country’s future growth ambitions and hopes to attract investments from global electronic corporations and cited example of Production Linked Incentive 2.0 scheme.
  • Internal security: Government has raised concern that hardware from ‘non-trusted’ sources could come with ‘built-in security loopholes’ endangering sensitive personal and enterprise data. This move will curb imports from China and ensure citizen’s security.

THE WAY FORWARD:

  • Structural changes: For boosting domestic manufacturing there is a need for bringing structural changes like building on infrastructure and supply chain by bringing in high financing costs and putting in required skills.
  • Strengthen existing government policies: There is a need for proper implementation of existing government policies like Make in India and production-linked incentive scheme to boost manufacturing.
  • Research and development: A key element of the self-reliance move includes a strong push for reforms across sectors. For this, the ecosystem for research and development needs to be strengthened.
  • Conducive environment: A more prudent approach would involve creating a more conducive environment for development of a strong and vibrant manufacturing ecosystem. The policy framework must be geared towards ensuring greater openness and more freedom to operate.

THE CONCLUSION: The recent attempt to impose licensing requirements in the IT sector could have opened the door to similar licensing requirements in other sectors.  This could have  widened the scope for bureaucratic discretion, leading to avoidable uncertainty. But the government has taken the right step in keeping the decision in abeyance.

PREVIOUS YEAR QUESTIONS

Q.1 Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (2021)

Q.2 Account for the failure of the manufacturing sector in achieving the goal of labour-intensive exports rather than capital-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. (2017)

MAINS PRACTICE QUESTION

Q.1 Can the imposition of a license on the import of electronic devices boost the domestic manufacturing industry in India? Analyse and give your view.

SOURCE: https://indianexpress.com/article/opinion/editorials/on-licence-raj-in-laptop-imports-government-does-well-to-reconsider-8992859/#:~:text=In%20August%2C%20the%20central%20government,to%20curb%20imports%20from%20China

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