Continued efforts by the government to reduce import dependence on China

- Need to think beyond import controls and fiscal incentives at the policy level

Government intervention does not always produce the desired results. For example, the central government announced in August that it would place seven products in the IT hardware sector on the restricted list. The scheme was postponed till October 30 and the government clarified its position but the market felt the potential uncertainty. At least in the short term, he understood this and increased imports. As a result, imports of computers, laptops and related products rose 42 percent to $715 million in September.

The central government is constantly trying to reduce import dependence on China. This is being done partly for wider geopolitical reasons. This policy was also viewed in the same context. Another reason for banning imports is to boost domestic production and IT hardware is part of the government's Production Linked Incentive (PLI) scheme. The government recently modified the PLI scheme for the IT hardware sector and almost doubled the incentive amount to Rs. 17,000 crores. This was done after the scheme initially did not receive enough response from manufacturers.

It remains to be seen whether the increased incentives and possible restrictions on imports will prompt large manufacturers to set up units in the country.... Also, will it help limit imports from China?

If an Indian company manufactures for a large Chinese company, it is likely to import most of it from China and assemble it here. Other companies will do the same. In such a situation, it can be assumed that even if some assembly work comes to India, there will be no significant reduction in the level of imports in this category. It is not clear why such hardware is not manufactured in India and whether the PLI scheme will shift a significant part of the value chain to India. One way to get incentives under a PLI scheme is to include a value addition condition. By doing so, actual production can be shifted to India to some extent.

Shifting final assembly work to India will undoubtedly create some jobs but is unlikely to significantly reduce imports. In fact, imports of IT hardware that require government approval were only $8.8 billion in 2022-23 against a total of $900 billion that year. Regardless, promoting local production is a worthwhile goal and should be pursued.

India needs to create employment for its growing labor force. However, for this, an environment has to be created to attract investment. Modern manufacturing depends on complex value chains and many other factors for a country's success. At the policy level, something other than import restrictions and fiscal incentives have to be considered.