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Jun 04, 2023

Electronic imports ban will disrupt supply in India

Article tagsConsumerEconomyIndiaCountry AnalysisRetail On August 3rd the Indian government imposed restrictions on imports of seven items, including laptops, tablets and personal computers. Importing

Article tagsConsumerEconomyIndiaCountry AnalysisRetail

On August 3rd the Indian government imposed restrictions on imports of seven items, including laptops, tablets and personal computers. Importing these restricted items would now require a valid licence. In a follow‑up to the policy, the government announced that it would defer the implementation of these import restrictions until October 31st.

Why does it matter?

India has, in the past, relied on excessive import duties to discourage imports and encourage local manufacturing. The policy pivot in the form of an outright ban reflects the government’s determination to reduce India’s reliance on China for such items, as well as a desire to boost domestic manufacturing, which has so far attracted limited investment. This push for local manufacturers came on the heels of the government’s expanded outlay for the Production Linked Incentive (PLI) scheme for IT hardware manufacturing, which targets similar items but has produced limited success owing to bureaucratic red tape and global supply-chain disruptions. Gestation periods for greenfield investment, delays in the procurement of capital goods resulting from supply-chain disruption caused by the pandemic and Russia’s invasion of Ukraine, bureaucratic hurdles and low investor interest has prevented a stronger uptake of the scheme so far.

The import restrictions will affect domestic availability of these products, especially for newer models, which may not become immediately available in the Indian market. The ban will affect major foreign players like Dell, Samsung, Apple, Lenovo and HP, who will need to apply for special licences, or set up manufacturing units in India, or tie up with Indian players to continue their access to that country’s large and growing consumer market. Price adjustments and hits to profit margins can be expected for international companies in the competitive Indian market, where customers are price‑conscious and display limited brand loyalty beyond richer urban sections of the population.

The policy could breed uncertainty among foreign investors on the unpredictability of India’s trade and industrial policies. However, the fact that this policy comes so soon after the expansion of the PLI scheme could imply that the government may have held some backdoor discussions with major domestic and foreign manufacturers to assuage concerns on the impending ban and work out production plans to limit disruption in the domestic market.

What next?

EIU believes that India will remain a major electronics assembly hub rather than a manufacturing destination in this decade, although incremental progress in manufacturing in certain areas like mobile phones will take place. Policies in this space could become more unpredictable, but they will be refined over time, and generally encourage domestic manufacturing.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

Tue, 29th Aug 2023 Article tagsConsumerEconomyIndiaCountry AnalysisRetail