Import Restriction On Laptops, Tablets To Boost Domestic Manufacturing, Say Experts

India has imposed import restrictions on certain electronic goods with immediate effect, which is likely to boost the uptake in domestic production-linked incentives and the Make-in-India campaign for electronic goods.

Importers of these items would now require a valid license for restrictive import items from the government for their inbound shipments.

According to a Directorate General of Foreign Trade notification, this would impact the import of laptops, tablets, all-in-one personal computers and ultrasmall form factor computers and servers, barring exceptions made for certain specific cases.

Although the notification does not specify a reason, experts have interpreted the move to provide a fillip to India's domestic manufacturing of these electronic goods. It has also elicited positive reactions on X (formerly Twitter), including that by Paytm CEO Vijay Shekar Sharma.

Abhishek Jain, partner and national head for indirect tax at KPMG, concurred that the restriction on imports of prescribed IT hardware products is expected to give a push to the Make-in-India campaign in this sector.

"With PLI also being announced for this sector, domestic manufacturing of these IT hardware goods should witness a significant boost,” he said.

The large-scale electronics PLI, which was originally announced in April 2020, has attracted over Rs 6,600 crore in investments. This includes bringing international giants like Samsung, Apple's contract manufacturers—Foxconn, Wistron and Pegatron—as well as Oppo and Vivo's manufacturer, Rising Star, to the domestic soil.

Similarly, the restriction imposed from Aug. 3 is expected to give a nudge to some of the manufacturers for laptops, tablets, and all-in-one computers.

Potential Backlash?

However, the success of the move would depend on the extent of domestic capacity to capitalise on the policy shift, according to Saon Ray, a professor at the Indian Council for Research on International Economic Relations.

"The objective of the PLI is to encourage domestic production and this policy change is in line with that. The question now is whether we have the domestic capacity to produce locally," she told BQ Prime.

"As seen in the case of solar, where we did not have the capacity, if domestic capacity is not set up, this could very well increase the cost of manufacturing in the near-term in the country."

India had imposed a 40% import tax on solar panels in April 2022 and a 25% tax on solar cells to discourage Chinese imports, and this has adversely impacted the commissioning of solar projects in the country.

Since India's largest share of electronics imports come from China, the extent of the impact and their reaction remains to be seen, Ray said.

According to the June monthly bulletin on foreign trade, China remains India's top import source nation for electronics components, accounting for a 32.13% share.

To be sure, there is no import duty hike. However, access to Indian markets for international manufacturers have been curtailed pending a licence.

Based on a 2020 working paper by the Indian Institute of Foreign Trade's Centre For WTO Studies, BQ Prime found that four of the seven Harmonised System codes (used to classify traded products) on which restrictions were imposed are also products included in the Information Technology Agreement-1 list. As a signatory to the agreement, there remains potential of a reaction from other countries.

The product list of the ITA has also been the subject of three recent WTO disputes raised against India on ICT tariffs where India has been vocal about the need to review the items on the list as it was proposed in 1996.

BQ Prime's emailed queries to the DGFT remained unanswered at the time of publication.

The restrictions should not pose any concern with respect to the WTO norms, even though the items are covered under the ITA as countries are permitted to impose restrictions to address their security concerns, according to Ritesh Kanodia, partner at Aurtus Consulting LLP.

"Also, there is no proposal to impose or increase any tariffs on import of the items as had happened with mobile phones ... India is proposing to file an appeal against the WTO ruling (in that case)," he said.

Exemptions

There are a few exemptions to the mandatory import licensing requirement.

These include:

• Imports in accordance to the latest "Baggage Rules", according to the Customs department.

• Import of one laptop, tablet, all-in-one personal computer, or ultra-small form factor computer—including those purchased from e-commerce portals—through post or courier. Imports shall be subject to payment of duty as applicable.

• Twenty such items per consignment for the purpose of R&D, testing, benchmarking and evaluation, repair and re-export, and product development purposes.

• Re-import of such items that have been repaired abroad.

• If the item is an essential part of a "capital good".