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Hardware firms chary of govt definition of ‘trusted sources’

The IT hardware industry is increasingly concerned about what could be New Delhi’s definition of “trusted hardware”, with the Centre stressing that imposition of import curbs on laptops, tablets and servers is primarily due to national security reasons.

Industry executives say that while the government has been successful in restricting Chinese players Huawei and ZTE from participating in India’s 5G rollout after adoption of the “trusted sources” approach, replicating the same for IT hardware won’t be feasible. That’s because unlike telecom equipment, laptops/tablets are consumer devices.

More importantly, more than 80% of the market is controlled by non-Chinese firms belonging to the US, Japan, South Korea and Taiwan, which are already trusted trade partners of India, said industry executives. Lenovo is the only Chinese firm.

Under India’s new rules for security of mobile networks, telcos are mandated to buy network equipment only from entities labelled by the National Cyber Security Coordinator as a ‘trusted source’ and product designated as a ‘trusted’ one.

“We have been hearing that the government wants trusted hardware systems and the move to restrict imports is due to national security. But we don’t understand the trigger for the move as our systems are already secured and we also follow the BIS (Bureau of Indian Standards) regime,” said an executive with one of US’s leading hardware manufacturers.

Another executive with a different US company said while the government is likely to be using this to push back on Chinese supplies, the affected companies and countries are not from China. To be sure, most of these companies have their manufacturing plants in China.

ET had earlier reported that the licensing requirement against import of IT hardware was to guard against in-built security loopholes that might potentially endanger sensitive personal and enterprise data.

According to an industry analyst, who asked not to be named, even if the number of hardware devices were restricted over time, the dependency during that period will continue to be in China.

“A vast majority of the imports of laptops are from China since the country is the major hub for assembling and manufacturing laptops and tablets for nearly all global brands which sell in India,” said the analyst. Further, such a ban on laptops alone will seem partial, since several other finished products which are far more strategically placed, are imported from China.

As of April-May in FY24, 81% of personal computers and laptops were imported from China. In FY22-23, the share was 77%.

On August 4, Minister of State for Electronics and IT Rajeev Chandrasekhar had posted that the government’s objective was to ensure trusted hardware and systems, reduce import dependence and increase domestic manufacturing of this category of products. He was replying to a comment on social media platform X (earlier called Twitter) on the move to restrict IT hardware imports.

“It is about regulating imports to ensure trusted and verifiable systems and ensuring the Indian tech ecosystem uses trusted and verified systems only that are imported and/or domestically manufactured trusted systems/products,” Chandrasekhar had said.

But industry executives highlight that among the countries that are impacted the most are the US, Japan, South Korea and Taiwan and the “trusted source” restrictions will apply on India’s most important strategic and trade partners.

For instance, six big US companies – HP, Apple, Dell, HPE, Cisco and Juniper – will be immediately hurt. Apart from that, there are six Japanese firms –Toshiba, Sony (Vaio), Fujitsu, NEC, Panasonic and Dynabook, two South Korean majors Samsung and LG and two Taiwanese firms Acer and Asus – that will be affected.

“Lenovo is the only Chinese company that will be impacted adversely, but they will likely get their manufacturing done under the PLI (production-linked incentive) scheme using an Indian EMS (electronics manufacturing services) player – mostly Dixon and Flextronics,” said another executive.

Since companies belonging to these four strategic partner countries are going to be put under the security and “trusted sources” partner lens, it could have implications for the trade engagement and technology transfer relationship with these countries, an executive with a US giant said.

In an August 3 notification, the Directorate General of Foreign Trade (DGFT) had, citing security concerns, announced that the import of certain IT hardware products would fall under the restricted category and would therefore require a licence, effective immediately. After strong pushback from the industry, the government extended the timeline to November 1, 2023.

Later, in their meetings with the government, global IT hardware companies operating in India sought an extension of 9-12 months of the deadline for licences required for the import of IT hardware, adding that they need reasonable time to set up manufacturing and clarity around the process for licensing.

ET then reported in its August 19 edition that major global IT and electronics manufacturing giants such as Apple, Intel, Google, Lenovo, Dell Technologies, HP, and others have called on the US government to “use every available forum” to push India to reconsider implementing the import restriction policy on IT hardware and launch a formal stakeholder consultation to solicit recommendations from the industry. BusinessTelegraph

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