Laptop import ban: Road to self-reliance paved with policy pitfalls

India’s move to ban the import of certain electronics, including laptops, tablets, personal computers, and selected other devices, is an assertive bid to boost domestic manufacturing. The order has been deferred till October 31 though after industry raised hue and cry.

This ban will inevitably jolt industry behemoths like Apple, Lenovo, and HP, leading to an immediate surge in laptop prices. However, this direct repercussion barely scratches the surface of a far deeper, complex, and potent series of aftereffects that this ban will set in motion. The crucial question is: Was it justified to enforce such a ban without establishing the requisite infrastructure to underpin this shift?

A hasty move?

In 2022, India’s electronic import bill exceeded $10 billion, with laptops and PCs accounting for a sizable chunk and around $6.3 billion from China and Hong Kong alone. This considerable capital outflow underscores the nation’s heavy dependence on imported electronics. Hence, the wisdom of imposing such an import ban without establishing the necessary infrastructure to support this shift has been questioned. With such a substantial reliance on imports, the abrupt switch towards promoting domestic production seems hasty. The industry, comprising around 12 million units, could experience temporary supply disruptions due to these restrictions, with brands like Apple, HP, and Lenovo bearing the brunt.

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Bureaucrats argue that the ban could trigger an industry-wide transformation, encouraging assembly operations in India in the short term while nurturing a robust domestic value chain in the long term. However, the immediate fallout for Apple, Lenovo, and HP is the decision on whether establishing separate manufacturing plants for India is economically viable – a decision complicated further by the prospects of future exports.

Return of Licence Raj?

Mitigating the ban’s impacts, the Centre has allowed companies to import laptops via licences. However, obtaining these licenses could introduce a new layer of complexity and protraction into the import process. It might be seen as stepping back into the much-criticised Licence Raj prevalent till the 1980s.

India is, however, familiar with such restrictions, with a history of bans on fully assembled air conditioners and televisions in the last three years. This has spurred a shift in the value chain, encouraging the import and local assembly of disassembled units. Critics expect the value addition to grow progressively as production attains a critical mass. Still, manufacturers will only invest in expanding capacity if there are sufficient scale, volume, and infrastructure assurances.

Despite the likely short-term price hikes following the ban, market demand for electronics is predicted to stay robust. Evidence from previous bans shows a decrease in imports of televisions and related products and air conditioners, even amidst escalating market demand. This hints at domestic players progressively outpacing their foreign rivals.

Due to the ban, Indian Electronic Manufacturing Services (EMS) companies are pivoting from low-end contract manufacturing to Original Design Manufacturing (ODM), promising higher profit margins. This shift involves focusing more on manufacturing complex electronic components, despite a projected slowdown in the consumer goods market. Analysts forecast that most EMS companies will witness a revenue growth exceeding 40 per cent in FY24. The ban’s fallout might cause analysts to reassess their estimates, potentially resulting in higher margins for established players due to possible delays in setting up substantial assembly capacities.

Local industry lauds move

This directive has been lauded by the Electronics Industries Association of India (ELCINA), with its president, Sanjay Agarwal, proclaiming it as being beneficial for the domestic industry. He emphasised the need to focus more on boosting R&D, technology, and design, ultimately making India self-reliant and nurturing a thriving IT Hardware supply chain network.

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ELCINA’s secretary general, Rajoo Goel, emphasised the urgency of bolstering device security against vulnerabilities and cyber threats as the country integrates further technological advancements. He commended the government’s commitment to enhancing cybersecurity and said it opened up new manufacturing opportunities.

This move could benefit firms like Reliance, which recently launched JioBook and other Indian companies. Although these entities will likely import their laptops from China initially, the new norms might be favourable as they could simplify acquiring import exemption licenses for local companies.

Laptop prices could go high

However, it’s safe to assume that the full impact of the laptop import restrictions will unfold only after three-four months. It’s plausible to anticipate a price surge for laptops currently available in the market due to the expected scarcity of these import constraints. This could lead to a situation where demand outstrips supply.

The laptop/PC market, with a total annual size nearing $8 billion and imports constituting about 65 per cent of units, is squarely in the crosshairs of this government initiative to bolster domestic production and minimise import reliance.

India has already achieved near-total local manufacturing for smartphones and TVs. However, the IT hardware sector lags, with only 30 per cent-35 per cent of products currently being Made in India. While the intent behind promoting domestic production and assembly is laudable, a more phased and planned approach might have made this transition smoother for all stakeholders involved.