The recent notification dated 3rd August issued by the Directorate General of Foreign Trade (DGFT) restricting the import of items falling under HSN 8471 of Chapter 84 of Schedule -1 (Import Policy) of ITC (HS0 2022) came as a surprise. More so since we are steadily reducing tariffs and bringing such items under a free import regime.
The restriction, specified in the said notification, was to a whole range of critical IT items, including laptops, tablets, all-in-one personal computers and ultra-small form factor computers and servers, etc. Obviously, the thinking was to restrict import of the complete, ready-to-use electronic machines.
Also Read: India imposes curbs on import of laptops, tablets, and computers
Most of the Industry was caught wrong footed, more so since the notification was to be effective immediately. A restriction under the Foreign Trade Policy (FTP) means that import would be permitted only against a specific permission/licence issued by the DGFT--the old licence Raj.
There was a furore. The government reacted by issuing a notification the very following day making the restriction effective from October 31, 2023--in effect providing for, as the notification stated, ‘liberal transition arrangements’.
If the thinking was indeed, as it appears, to restrict import of the completely built machine to encourage domestic value addition and manufacture, the government could have stuck to its stand. The notification and the subsequent amendment the very following day were certainly not good optics.
Also read: India's import restriction on laptops, computers to be effective from November 1
Para 2.07 of the FTP provides for the situations ranging from Paras 2.07 (a) to 2.07 (q) in which the DGFT can impose prohibitions or restrictions on imports. Amongst the situations specified are restrictions on imports to promote establishment of a particular industry and protection of country’s essential security interests. Security interests has been defined to mean imports relating to fissionable materials, traffic in arms, ammunition or action taken in time of war or other emergency in international relations.
Foreign Trade (Development & Regulation) Act
The DGFT notifications issued certainly specify the broad para of the FTP and the Foreign Trade (Development & Regulation) Act under which they have been issued and not the specific sub-para. Thus, while an inference can be drawn, it is not clear as to the specific reason which prompted the issue of the notification. (Incidentally the restriction is not to apply to imports under the Baggage Rules or purchase from e-commerce portals through post or courier)
Normally such restrictions do not apply to imports under Free Trade Agreements (FTA) unless specifically so indicated. The notification is silent on
But as per newspaper reports unnamed government officials have been quoted as saying that the restrictions will apply also to imports under FTA. Officials have gone on to say that FTA provisions will not be violated as ‘such non-tariff barriers are not negotiated in FTA’s and India has cited security reasons for the latest measure.’
While the veracity of these statements is not known, it is an extraordinary assertion. For instance, the ASEAN FTA has at Article 9 provided for security exceptions which empowers a member state to act when it considers necessary for the protection of its essential security interests. The situations have been specified and are similar to the FTP.
Thus, restrictions can be imposed against the import of fissionable materials, traffic in arms/ammunition/, or for the protection of critical public infrastructure including communications ‘from deliberate attempts intended to disable or degrade such infrastructure’ and taken in time of domestic emergency. It will be difficult to argue that any of these situations are prevailing currently.
Further Article 40 of the ASEAN FTA specifically talks of elimination of Non-Tariff Barriers (NTB). Identification of and an agreement on a phased elimination of NTB’s are an integral part of every FTA.
PLI for electronics manufacturing and IT hardware
It may be recalled that the Production-linked Incentive (PLI) schemes have been extended to large scale electronics manufacturing and IT hardware with a total capital infusion of around Rs 49,000 crore. The current policy flip-flop is disappointing; on the one hand PLI incentives and pursuit of FTAs, and on the other, the current protectionist notifications. Hopefully the licence requirements will have a short shelf life. It should be noted that several critical parts for the indigenous manufacture of goods falling Chapter 8471 will still need to be imported, which import is not restricted.
However, let me end this piece on a more positive note and mention about the extraordinary journey of Chandrayaan-3. The spacecraft is carrying the latest electronic and mechanical subsystems to ensure a safe landing in the South Pole of the Moon’s surface. The approximately 3,84,000 km 33-day journey is scheduled to end on or around August 23. This will be a phenomenal achievement for the Indian scientific community involving cutting edge technology. And one wonders why when we have such capabilities, manufacturers of laptops, tablets, all-in-one personal computers need incentives and protection. Hopefully this will be a short-term measure and Indian manufacturing will rise to the occasion.
The restriction, specified in the said notification, was to a whole range of critical IT items, including laptops, tablets, all-in-one personal computers and ultra-small form factor computers and servers, etc. Obviously, the thinking was to restrict import of the complete, ready-to-use electronic machines.
Also Read: India imposes curbs on import of laptops, tablets, and computers
Most of the Industry was caught wrong footed, more so since the notification was to be effective immediately. A restriction under the Foreign Trade Policy (FTP) means that import would be permitted only against a specific permission/licence issued by the DGFT--the old licence Raj.
There was a furore. The government reacted by issuing a notification the very following day making the restriction effective from October 31, 2023--in effect providing for, as the notification stated, ‘liberal transition arrangements’.
If the thinking was indeed, as it appears, to restrict import of the completely built machine to encourage domestic value addition and manufacture, the government could have stuck to its stand. The notification and the subsequent amendment the very following day were certainly not good optics.
Also read: India's import restriction on laptops, computers to be effective from November 1
Para 2.07 of the FTP provides for the situations ranging from Paras 2.07 (a) to 2.07 (q) in which the DGFT can impose prohibitions or restrictions on imports. Amongst the situations specified are restrictions on imports to promote establishment of a particular industry and protection of country’s essential security interests. Security interests has been defined to mean imports relating to fissionable materials, traffic in arms, ammunition or action taken in time of war or other emergency in international relations.
Foreign Trade (Development & Regulation) Act
The DGFT notifications issued certainly specify the broad para of the FTP and the Foreign Trade (Development & Regulation) Act under which they have been issued and not the specific sub-para. Thus, while an inference can be drawn, it is not clear as to the specific reason which prompted the issue of the notification. (Incidentally the restriction is not to apply to imports under the Baggage Rules or purchase from e-commerce portals through post or courier)
Normally such restrictions do not apply to imports under Free Trade Agreements (FTA) unless specifically so indicated. The notification is silent on
this score. Goods falling under Chapter 8471 figures in the India-ASEAN FTA as it does in all out other FTA’s as being eligible for the benefit of the FTA.
But as per newspaper reports unnamed government officials have been quoted as saying that the restrictions will apply also to imports under FTA. Officials have gone on to say that FTA provisions will not be violated as ‘such non-tariff barriers are not negotiated in FTA’s and India has cited security reasons for the latest measure.’
While the veracity of these statements is not known, it is an extraordinary assertion. For instance, the ASEAN FTA has at Article 9 provided for security exceptions which empowers a member state to act when it considers necessary for the protection of its essential security interests. The situations have been specified and are similar to the FTP.
Thus, restrictions can be imposed against the import of fissionable materials, traffic in arms/ammunition/, or for the protection of critical public infrastructure including communications ‘from deliberate attempts intended to disable or degrade such infrastructure’ and taken in time of domestic emergency. It will be difficult to argue that any of these situations are prevailing currently.
Further Article 40 of the ASEAN FTA specifically talks of elimination of Non-Tariff Barriers (NTB). Identification of and an agreement on a phased elimination of NTB’s are an integral part of every FTA.
PLI for electronics manufacturing and IT hardware
It may be recalled that the Production-linked Incentive (PLI) schemes have been extended to large scale electronics manufacturing and IT hardware with a total capital infusion of around Rs 49,000 crore. The current policy flip-flop is disappointing; on the one hand PLI incentives and pursuit of FTAs, and on the other, the current protectionist notifications. Hopefully the licence requirements will have a short shelf life. It should be noted that several critical parts for the indigenous manufacture of goods falling Chapter 8471 will still need to be imported, which import is not restricted.
However, let me end this piece on a more positive note and mention about the extraordinary journey of Chandrayaan-3. The spacecraft is carrying the latest electronic and mechanical subsystems to ensure a safe landing in the South Pole of the Moon’s surface. The approximately 3,84,000 km 33-day journey is scheduled to end on or around August 23. This will be a phenomenal achievement for the Indian scientific community involving cutting edge technology. And one wonders why when we have such capabilities, manufacturers of laptops, tablets, all-in-one personal computers need incentives and protection. Hopefully this will be a short-term measure and Indian manufacturing will rise to the occasion.
—The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
First Published: Aug 7, 2023 8:22 AM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
