PremiumAmid the gloom in India’s economic data, one bright spot that has emerged is the rising trend in exports of electronics. Total production of electronic goods in value terms more than doubled from $31.2 billion in FY15 to $65.5 billion in FY19, led by mobile phones, shows data from the Reserve Bank of India’s annual report issued on 29 August.
Value of domestic manufacturing/assembly of mobile phones has jumped nearly eightfold from $3.1 billion in FY15 to $24.3 billion in FY19 (see chart).
What is driving electronic exports at a time when the overall export outlook is subdued? Are the government’s exports-oriented policies for electronics bearing fruit? Or did India just get lucky, gaining from the trade tussle between China and the US?
According to Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings Inc., “India’s electronic exports started to do well before trade tensions between the US and China escalated. India started to become an alternate production destination because of pull factors such as potential domestic demand and government policies to boost electronic exports. Along with that came the push factor—trade tensions between the US and China. We expect this positive trend in India’s electronic exports to continue."
In the last few years, the government has launched a slew of schemes to boost local manufacturing of electronic goods. These include Phased Manufacturing Programme for mobile handsets and related sub-assemblies/components manufacturing, National Policy on Electronics 2019, Electronics Manufacturing Clusters scheme and Modified Special Incentive Package Scheme. Some countervailing duties were also announced to discourage imports of electronic goods.
Although the export numbers look impressive, analysts at Spark Capital Ltd point out that value addition is limited. “India has become the 2nd largest producer of mobile phones, replacing Vietnam. Notably, we reckon that the net value add is only in the high single-digits at present, since most of components of mobile phones are imported, and only assembling takes place in India. However, some companies have started manufacturing printed circuit board assembly (PCBA) units in India, taking the value add to ~15%," they said in a report on 28 August.
Nonetheless, the rise in electronic exports bodes well for India’s balance of payments and its stretched trade deficit. “A shift in the nature of telecom imports i.e. from built-up units to intermediate supplies, likely feeds into exports of electronics, including consumer items. This, over time, might help narrow India’s current significant net electronic import position," said Radhika Rao, economist at DBS Bank Ltd.
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