Restrictions imposed on imported Electronic Devices in India

Restrictions imposed on imported Electronic Devices in India

Subject: Economy

Section: External Sector

Why in News?

• India’s Directorate General of Foreign Trade (DGFT) has announced that starting from November 1, 2023, it will impose import restrictions on laptops, computers, and their components classified under Harmonised System of Nomenclature (HSN) Code 8471.
• However, these restrictions will not apply to items imported under baggage rules.
• This move is aimed at promoting domestic manufacturing, reducing reliance on foreign imports, particularly from China, and enhancing self-reliance in India’s technology sector.

Background:

• On August 3, DGFT issued a notification, imposing licensing conditions on the import of laptops, tablets, all-in-one PCs, ultra small form-factor computers, and servers.
• This move aims to address India’s security concerns regarding IT hardware, which could potentially be compromised.
• After extensive discussions between MeitY and the IT hardware industry, the decision was made to initiate a simple registration process instead of a more restrictive licensing process.

New Rules for Import:

The Directorate General of Foreign Trade (DGFT) issued a notification specifying that imports of laptops, tablets, etc., under Harmonized System of Nomenclature (HSN) 8471 are “restricted” and require a valid license from DGFT trusted sources. Exemptions apply to imports for purposes like Baggage Rules, research and development (R&D), testing, benchmarking, and repair.

Aim of Restrictions: The primary goal is to boost local production and reduce reliance on imports from China, which constituted over 75% of India’s laptop and personal computer imports in the previous fiscal year.

Significance: These restrictions align with the production-linked incentive (PLI) scheme for IT hardware, encouraging domestic manufacturing. They also address security concerns, protect critical information infrastructure, and support the “Make in India” initiative.

Registration Process:

The Directorate General of Foreign Trade (DGFT) in India is set to launch a new import management system for laptops, computers, and tablets, starting from November 1. The move follows the government’s decision to transition to an authorization system, with no further postponement beyond October 31. Here are the key details about this registration regime for computer imports:

• Importers will need to register on DGFT’s system.
• They must specify the quantity they intend to import.
• Upon registration, importers will receive an import authorization.

Industry Alignment:

• The industry agreed with the government’s decision and initiated the registration process.
• DGFT is gearing up to commence the import management system for laptops and computers by November 1.

Registration Window:

• The registration window will open about ten days before the mandated transition to the new system.
• The registration process is expected to take no more than two to three days.

Authorization Validity:

• Initially, import authorizations will be issued for the quantity the industry intends to import.
• These authorizations typically remain valid for one year.
• DGFT and MeitY will have the authority to determine the final validity period.

Reasons for Imposing Import Restrictions on Electronic Devices:

• Boost Domestic Manufacturing: The restrictions are intended to boost domestic manufacturing capabilities, aligning with the government’s production-linked incentive (PLI) scheme for IT hardware.
• Security Concerns: The restrictions aim to prevent the entry of electronic hardware that may have potential security vulnerabilities, which could compromise sensitive personal and enterprise data.
• Self-Reliance: By restricting imports, the government seeks to create a conducive environment for indigenous manufacturers to expand their global presence.
• India’s commitment to zero-duty imports under the WTO’s Information Technology Agreement (ITA 1) made it challenging to control electronic goods imports, affecting domestic manufacturing. Therefore, import restrictions were imposed.

Impact of the Restrictions:

• Supply Chain Disruptions: The restrictions may lead to disruptions in the supply chain, potentially affecting the availability of certain laptop models in the market. Importers will need to apply for licenses, leading to a supply crunch in the short term.
• Opportunities for Domestic Manufacturers: Domestic manufacturers may benefit from the restrictions, as consumers may turn to locally produced laptops if imports become limited. This could incentivize the development of domestic manufacturing capabilities.
• Challenges for Existing Players: Established laptop manufacturers, including Dell, HP, Lenovo, Acer, Asus, and Apple, who import a significant portion of their products from countries like China, Vietnam, and Taiwan, will need to adjust their production strategies.
• Opportunities for New Entrants: The policy may create opportunities for new entrants and local manufacturers to leverage the PLI scheme and offer competitive products at affordable prices.

Background – ITA 1 and HSN:

• The Information Technology Agreement (ITA 1) was established in 1996 with India as one of its 29-member countries.
• It mandates the removal of customs duties on specific IT products.
• These products are identified using HSN codes, part of the global Harmonized System of Nomenclature (HSN) managed by the World Customs Organization (WCO).

Harmonised System of Nomenclature (HSN):

• HSN is a globally used system that assigns a unique code to every product traded internationally.
• It helps customs authorities assess tariffs on imported goods and assists traders and exporters in declaring their goods.
• The HSN code was developed by the World Customs Organization (WCO) in 1988 and is updated every five years.

Directorate General of Foreign Trade (DGFT):

• DGFT, a government body under the Ministry of Commerce and Industry, implements India’s foreign trade policy.
• Established in 1991 as a successor to the Chief Controller of Imports & Exports (CCI&E), DGFT regulates and promotes foreign trade through various schemes and measures.
• It provides guidance and assistance to exporters and importers, issues licenses and authorizations, and coordinates with other stakeholders on trade-related matters.

About Production Linked Incentive Scheme (PLI)

The Production Linked Incentive Scheme (PLI) is a government initiative in India aimed at boosting domestic manufacturing, increasing import substitution, and generating employment.

Here are the key points about the PLI scheme:

• The PLI scheme was launched in March 2020 with the objective of enhancing India’s manufacturing capacity.
• It initially focused on three industries: mobile and allied component manufacturing, electrical component manufacturing, and medical devices.
• The scheme has been extended to cover 14 sectors.

Targeted Sectors:

• The 14 sectors under the PLI scheme include mobile manufacturing, medical devices, automobiles and auto components, pharmaceuticals, specialty steel, telecom and networking products, electronic products, white goods (such as air conditioners and LED lights), food products, textile products, solar PV modules, advanced chemistry cell (ACC) batteries, and drones and drone components.

Incentives Under the Scheme:

• Companies, both domestic and foreign, receive financial incentives for manufacturing within India.
• The incentives are calculated based on a percentage of the company’s incremental sales over a period of up to five years.

Emphasis on R&D:

• The PLI scheme places an emphasis on research and development (R&D) investment.
• This focus on R&D is intended to help the industry stay in step with global trends and remain competitive in the international market.

Success in Smartphone Manufacturing:

• The PLI scheme has achieved notable success in the smartphone manufacturing sector.
• In fiscal year 2017-18, mobile phone imports amounted to USD 3.6 billion, with exports at just USD 334 million, resulting in a trade deficit of -USD 3.3 billion.
• By fiscal year 2022-23, imports had reduced to USD 1.6 billion, while exports surged to nearly USD 11 billion, resulting in a positive net exports figure of USD 9.8 billion.