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“Some laptop questions”.

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GS Paper 3

• Effects of liberalization on the economy.
• changes in industrial policy and their effects on industrial growth.

Tags: #importrestrictions  #hsncode  #laptopimport  #importregulation #protectionistpolicy.

Recent News:

Government introduce import restrictions on personal computers, laptops, and a range of goods, has set up a furious debate over the shape of India’s industrial policy, it is been compared with Pre LPG Reforms like License Permit Raj, Red tapism, Corrupt bureaucrats. People suffered due to lack of resources, inferior goods, or trespassing the law.

What restrictions were imposed?

• Central government set immediate limits on the import of laptops, tablets, all-in-one computers, ultra-small PCs, and servers.
• To import laptops and computers for sale in India, any organization or business would now need to apply for a license from the government under HSN Code 8471, seven categories of electronic devices are subject to limitations.

What HSN Code 8471 about?

• The HSN code for computers used for data processing is 8471.
• Harmonized System of Nomenclature (HSN) codes are used to categorize products for taxation purposes.
• This code serves to identify equipment designed to handle data processing duties.

Revisiting Change in Policy:

• After announcing the policy and later revising it questions the very significance of this measure as if bureaucrats “breaking first and asking questions later” meaning the idea was not well thought off, taking policy measures like this which can impact the whole economy must not be taken in haste, there should be proper brainstorming.
• Advocates of the policy argue this was long overdue, They believe this measure government should have taken before.

Is Import Restrictions Viable?

• Industrial policy is necessary for the structural transformation of the economy.
• Regardless of the various benefits of India’s liberalization, the country prematurely de-industrialized since it was unable to establish a manufacturing base
• No nation has ever industrialized through simple deregulation, we need strong domestic industrial sector to build manufacturing industry.
• Import restrictions can be wisely chosen to regulate industrial policy
• Today every other country resort to import substitution measures, but India should lay more focus on building its manufacturing base, infrastructure like road, telecom considering the nature of geopolitics and security

Two main types of errors need to be corrected in the industrial policy discussion

1. Simplicity in theory

• Country should concentrate on the general characteristics that make an economy competitive.
• Industrial policy can create Positive Externalities , it can solve coordination problems
• Create Agglomeration Effects àn agglomeration effects are the economic benefits that arise from the clustering of economic activity in a specific geographic area which will help to have access to large labor and capital, sharing infrastructure etc.
• Can Generate Demonstration Effects that are a powerful signal of credibility (Demonstration Effects phenomenon in which people’s consumption habits are influenced by the consumption habits of others, like due to advertising, social media etc.)
• Past Indian industrial policy have not yielded much result, but now historical conditions have changed
• Energy, logistics, human capital and global geopolitics  are not binding constraints for India as they use to be in past , with 60% population youth, stable foreign policy, India maintains Sovereign Policy measures not like the cold war time
• The size of market, evolution of state capacity to fund development, etc give more leverage to India
• However, it is important to use industrial policy carefully and to avoid repeating the mistakes of the past à like too much use of protectionist measure as a measure for industrial development, focus should be on capacity building.

The current form of Import restrictions is very different from what we experienced in the Sixties-

• The current policy aims to encourage investment, encourage indigenous industries, Make in India, Atmanirbhar Bharat etc
• Policies in 1960s where more focused on protection the domestic industry from foreign competition.

2. Restrictions are being introduced in sectors where we have prospects of success

• India tried policy of import restrictions in mobile phone, but it was of not much benefit
• It has brought not much change in value editions and jobs in mobile phone manufacturing sector
• According to Critics relevant yardstick should be à Value Added in Export, like is it bringing any change in quantity and quality of export, is it increasing demand for particular product
• Eminent economists like Rohit Lamba and Raghuram Rajan, are sceptical of Production linked incentive (PLI) as not much value is added in India
• But even assembly without high value added manufacturing puts us in a better position than its absence, both in terms of jobs and learning potential
• To boost assembly line management àEncourage feedback from enterprises to assemble in India

There are four issues for supporters of import restrictions and Production Linked Incentive in general

1. Government should be careful not to favor certain companies over others when implementing import restrictions and PLI schemes. Otherwise, it could lead to corruption and inefficiency
2. Indian states have a history of not being able to Exit from subsidies and protections. This means that the government needs to be careful not to become too reliant on import restrictions and PLI schemes, as it could be difficult to get out of them later.
3. India needs to balance export orientation with an open trade system, India needs to be careful not to become too protectionist, as it could harm its exports.
4. India needs to address the challenges of skill shortages and infrastructure bottlenecks. These challenges could hinder the effectiveness of import restrictions and PLI  Schemes

India has had some success in exporting mobile phones, but it has not been as successful in exporting other products, such as automobiles, Because they are not competitive in quality,  this is because India’s industrial policy has been focused on import substitution, rather than export promotion.

Flawed Policy

• It is important to frame Industrial Policy that give a push for exports, not another import substitution scheme
• Government has been making a big deal about the Micron deal, in which the government is providing 70% of the investment
• Chip companies are relocating manufacturing to far more expensive places with less subsidy
• Micron deal may not be as beneficial as it seem

Way forward

• Industrial policy is not about Showmanship, Instead, we need to carefully analyze our circumstances and capabilities.
• Industrial policy is a complex issue, and it is easy to be misled by simple slogans or catchy phrases.
• We need an industrial policy that is based on sound economic principles and that is designed to benefit all Indians, not just the laptop class.
• Industrial policy should not be just about helping a few big companies. It should be about helping all Indians, regardless of their social class or economic status.

Source: Indian Express

Mains question:

Q) Examine the rise of protectionist policies in the world and its implications for India?

Q) Is Protectionist Industrial policy good for India’s industrial growth and development?