India Needs an Industrial Policy

Why in News?

• India’s decision to introduce import restrictions on personal computers, laptops, and a range of goods, has set up a debate over the shape of India’s industrial policy.
• Critics think of these restrictions as a throwback to the days where the Indian economy was crippled by the licence permit raj.

 

The Government’s Decision on Laptop Import Ban

• On 3^rdAugust, the Union Government imposed restrictions on import of laptops, tablets, all-in-one personal computers and ultra-small computers and servers with immediate effect.
• Any entity or company planning to bring laptops and computers for sale in India will now have to seek permission or license from the government for their inbound shipments.
• The notification in this regard was issued by the Directorate General of Foreign Trade (DGFT).
• The restrictions have been imposed under HSN Code 8471 on seven categories of electronic gadgets.
• The Harmonized System of Nomenclature (HSN) code is a classification system used to identify products for taxation purposes.
• HSN Code 8471 is used to identify devices that are designed to perform data processing tasks.
• The DGFT had to suspend the implementation of this decision (till 1^stNovember, 2023) as custom officials stationed at ports started holding up shipments of the specified electronic items.

 

Concerns about the Laptop Import Ban

• These restrictions can take the Indian economy to the era of the licence permit raj which was ruled by arbitrary, authoritative, and corrupt bureaucrats.
• In those times, citizens faced scarcity, inferior goods or subverting government regulation.
• The way in which the government announced the ban on import of laptops, then revised the deadlines, certainly raised the familiar worry about bureaucrats “breaking first and asking questions later.”
• However, on the other hand, advocates of the policy argue this was long overdue.

 

How these Restrictions are Different from Regulations in 1960s-70s

• Change in Conditions
  • In the past, Indian industrial policy yielded tepid results. But historical conditions have changed.
  • Energy, logistics, human capital, and global geopolitics are not such binding constraints on India as they were before.
  • The size of the market, in some areas, gives India more leverage than before.
• Evolution in State Capacity
  • With the evolution in state capacity, this current form of import restrictions is very different from what India experienced in the 60s.
  • Those restrictions were more far reaching.The entire architecture of imports and production was regulated in a way that crippled domestic productive and allocative efficiencies.
• Different Aim
  • The aim today is not to reduce dependence on imports, it is to change their structure a bit, in order to facilitate India becoming Aatma Bharat (Self-reliant).
  • Ifthe government can credibly make this distinction,the country will not have to repeat the tragedy of previous industrial policy.

 

Need For India to Establish an Industrial Policy

• India has had successes of liberalisation but the fact remains that India failed to build a manufacturing base, and prematurely de-industrialised.
• No country in the world has industrialised only by deregulation. Industrial policy is necessary for the structural transformation of the economy.
• Well-chosen import restrictions can be a part of that policy mechanism.
• The global context requires serious industrial policy. Every other country is resorting to it, and the nature of geo-politics and security requires that India establishes an industrial policy and takes manufacturing seriously.

 

Suggestions to Formulate a Robust Industrial Policy

• Promotes Competition and Coordination
  • Critics of industrial policy argue that India needs to focus on the general features that make an economy competitive.
  • Industrial policy can create positive externalities, it can solve coordination problems and create agglomeration effects.
• Exit from Subsidies and Protections
  • Despite the growth in state capacity, the political economy of bureaucratic arbitrariness should not be underestimated, especially in a context where the state heavily favours particular companies over others.
  • Second, the Indian states should be able to exit from subsidies and modest protections.
• Export Oriented Rather than Import Substitution
  • The most important thing about Chinese and East Asian industrial policy was their export orientation.
  • But India’s orientation to exports is challenging in two respects. China and East Asia pulled off both industrial policy and maintained access to an open world trade system.
  • India is in a contradictory position. Export orientation will require an open trade system. But support for an open trade system is diminishing globally.
  • India cannot be an effective advocate for that system if it itself turns protectionist.
  • So, it is important to configure industrial policy in a way that it becomes a push for exports, not another import substitution scheme.
• Avoid Showmanship
  • For instance, currently the governmentis making much of the Micron deal, with the government providing 70 per cent of the investment.
  • Yet at the same time the government forgets that chip companies are relocating manufacturing to far more expensive places with less subsidy.

 

Conclusion

• The government will require careful analysis of the country’s circumstances and capabilities. India needs an industrial policy where the benefits of laptops are for more than the laptop class.
• However, it's crucial to remember that the discussion of industrial policy shouldn't be held captive by showmanship, theoretical simplicity, or misleading historical analogies.

 

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Q1) What is License Raj?

License Raj or Permit Raj was a system of regulations and licences that were required to set up and run a business along with the accompanying red tapes, delays and corruption between 1947 and 1990 in India. Under this, it was mandatory to obtain a licence from the government to start a business.

 

Q2) What is DGFT?

The DGFT is the chief body that administers laws related to foreign trade and foreign investment in India. It implements the foreign trade policy or the EXIM (export-import) policy of the government. Its main mandate is to promote exports from India. It is an attached body of the Ministry of Commerce & Industry, GOI. It is headed by the Director-General of Foreign Trade.

 

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Source: The Indian Express