The manufacturing value-add in computers would be a tiny fraction of the value added in services compromised by restricted IT imports. For a few million dollars worth of forced manufacture, should India make life difficult for a trillion-dollar technology and technology-enabled services industry?
The import restrictions placed on computers and servers are a bad idea. It stands to hamper India’s robust technology and business process management exports. It will place another hurdle in the path of Indian startups and social media entrepreneurship at a time when global venture capital has withdrawn into a risk-averse shell. And it will not help in the manufacture of the high-value components of laptops, which will continue to be imported.
What is proposed is import licensing. Companies that wish to import computers, including data processing machines and servers, would need to obtain a licence. All major brands that sell computing hardware in India essentially import the stuff. And they could, in theory, obtain the licences without much difficulty. It is the less well-known and cheaper brands that cater to the bottom of the pyramid that would face a shortage of kits and faces a higher entry barrier to digital India.
India Could Fall Behind
The stated goal, according to unnamed but senior government officials quoted in media reports, is to encourage domestic manufacture of the laptops sold in India. At the current juncture, this is the wrong way to go about promoting the local manufacture of computers.
A move like this, while trying to reap the benefit of local manufacturing, has significant costs associated with it. The government does not appear to have done an economy-wide analysis of the costs and benefits, and, instead, viewed things solely from the lens of advancing local manufacture.
What are the costs? The world is moving towards vital changes in manufacturing and services, with the internet of things, robotics and artificial intelligence interacting with one another and the trio amplifying their individual and collective effects on the production process. This is enabled by low-latency, high-throughput 5G telecom networks, to handle the large volumes of data generated by machine-to-machine communications and the use of cloud computing to store, analyse and derive actionable intelligence from the data.
All of this is to be transmitted as often to machines as to humans, to act on. Companies that do this well will race ahead, and those that bungle will be left behind. Enabling this shift is a huge business opportunity that involves writing lots of new software, a variety of software services, business process management and engineering R&D.
Don’t Squander Great Growth Potential
India’s non-hardware technology exports are slated to touch $194 billion this fiscal. The above-mentioned shifts are just about getting underway. When these take off, the opportunity for India’s technology sector would be truly enormous. Including the domestic market, the size of India’s tech sector is $245 billion.
Given the paucity of engineering talent in the rest of the world, and the paucity of young people who can become engineering talent, India’s tech sector can grow manifold in a few years. A trillion-dollar Indian tech sector is no longer something that calls for Aladdin’s genie’s moonlighting efforts during WFL (Work From Lamp, what else?).
Associated with this growth would be large-scale real estate development, to house information technology and telecom firms, R&D centres, server farms, training institutions and design studios. Billions of dollars would flow into this activity, new towns would come up. Meeting the residential, healthcare, schooling and entertainment requirements of armies of IT workers would call for massive volumes of additional investment.
YouTube claimed that the efforts of Indian content creators generated the equivalent of 7.5 lakh full-time jobs and generated some Rs 10,000 crore of value in 2021. There might be an element of double-counting and exaggeration in these numbers, but let us accept that social media platforms enable a lot of young people to show off their talents and earn a living, in an economy that devotes an ever-growing segment to entertainment, following a global trend.
Raising Costs For The Tech Revolution
All these entail the use of personal computers, laptops, data processing machines, servers and other lines of the Harmonised System of Nomenclature (HSN) code 8471 that the commerce ministry wants to place under restricted imports, calling for licensing. Import restrictions would raise the cost of the essential ingredient of this tech revolution, on whose success depends much on the upward mobility of large swathes of India’s aspiring age cohorts.
In 2022-23, India imported $5.3 billion worth of personal computers. Let us assume that half this volume of imports would wriggle through the licence window without much damage. That would leave some $2.65 billion worth of PCs to make their way to India as semi-knocked down kits for final assembly that would allow the assembled product to escape import licensing.
Of the things that go into a computer, India manufactures hardly anything. So far, the manufacture of chips has found success only in the spud segment. The story of manufacturing displays has been a bit like the story of the hare and the tortoise, with the hare getting off to a good, well-publicised start and then going off to sleep, with the tortoise playing hookey.
So, all the components would continue to be imported, including the screws that finally would be turned in India to qualify as local manufacture. Unless bloated with import duty, the value added in this manufacture would be less than 1 per cent, at a generous estimate.
For a few million dollars worth of forced manufacture, should India compromise or make difficult a trillion-dollar technology and technology-enabled services industry? If, in the case of online gaming, it was the Ministry of Finance that chose to turn its back on the good work done by the Ministry of Electronics and Information Technology (MeitY), by way of developing a set of healthy rules for the sector, now, it has been the turn of the Ministry of Commerce and Industry to turn its back on MeitY.
The article was first published by Moneycontrol as To restrict PC imports is to restrict India’s economic future on August 4, 2023.
Read more by the author: Don’t have the Blood of the Gaming Sector on your Hands, Madam Finance Minister!