Grow more Apples

To encourage more investments in electronics, India needs to do much more than PLI.

According to the ICEA, India’s electronics exports to the US, in absolute terms, went up by a mere $3.2 billion between 2018 and 2022, to $4.5 billion. (Image: 9to5Mac)

At $25.3 billion, India’s exports of electronics goods saw a big jump of 49% in FY23, a year in which total exports rose by just 6.5%. By one estimate, this category alone contributed around 30% of the total growth in exports last fiscal, and was the sixth-biggest item in the export basket. In the past few years, exports of smart-phones, including Apple iPhones, have registered a brisk pace of growth, driving up electronics exports. At the same time, the exports of electronics to the US have been somewhat disappointing. Despite the US imposing a punitive 25% duty on imports of Chinese electronics, India appears to have missed out on the opportunity because its share in that market was just 0.8% in 2022.

According to the Indian Cellular Electronic Association (ICEA), India’s electronics exports to the US, in absolute terms, went up by a mere $3.2 billion between 2018 and 2022, to $4.5 billion. During this time, electronics exports from China fell $29 billion as a consequence of the penalty imposed by the US. Much of this was gained by peer nations like Vietnam, Malaysia and Mexico. Nonetheless, within the India export basket, exports of high-technology goods—including electronics, engineering and pharmaceuticals products—have been growing fairly fast in the last few years. Still, India remains a net importer of electronic goods. 

It is important this changes because electronic goods were the second- biggest import item last year, after petroleum shipments. Experts believe that with production of smartphones increasing in the country, the gap between imports and exports should narrow. However, they point out that for Indian exports to be competitive, predictability in the business and regulatory environment is necessary. They also feel that some rationalisation in tariffs on components, for a brief period, would help arguing that once the manufacturing ecosystem in the country is stronger, duties can be raised.

To be sure, India has been working to cash in on the China Plus One opportunity. A couple of contract manufacturers for Apple have set up shop here and a couple more, including one from the Tata Group, should be up and running soon. However, the clear winners of the China Plus One strategy have been Mexico, Taiwan and Vietnam. They have attracted investments for not just electronics but a range of products. The production linked incentive (PLI) scheme for IT hardware with an outlay of `17,000 crore, announced on Wednesday, should attract global manufacturers of laptops and tablets. The government expects the new scheme to lead to incremental production of `3.35 trillion, incremental investment of `2,430 crore and create incremental direct employment for 75,000 people. India is aiming for a $300 billion electronics industry by 2026; right now, the industry is pegged at $75 billion.

While the government has committed to investing some $30 billion in electronics and semi-conductors, the private sector, especially global corporations, need to participate in the effort. Given output should exceed local demand, there would be an opportunity to export. If it is to meet the exports target of $2 trillion by 2030 that it has set for itself, electronics must play a big role. Already, the share of Indian goods in global trade seems to be plateauing, while the share of services exports is gaining ground on the back of exports of IT services firms and global capability centres. To encourage more investments, some reformist measures—easier labour laws and less red tape—are necessary, as is better infrastructure.

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First published on: 18-05-2023 at 04:30 IST