Mint Explainer: Raghuram Rajan is right about India’s mobile phone exports

Former RBI governor Raghuram Rajan (Photo: Abhijit Bhatlekar/Mint)
Former RBI governor Raghuram Rajan (Photo: Abhijit Bhatlekar/Mint)


  • The former RBI governor says the exports are being driven by assembly and not manufacturing; the data shows he has a point

In a social media post on Tuesday former RBI governor Raghuram Rajan raised concerns about India’s mobile phone exports, cautioning that growth in the sector was being propelled merely by assembly and not real domestic manufacturing. Rajan has long been a vocal critic of the government’s economic policies and the latest barb doesn’t come as a surprise. But is there any merit to what he is saying?

It is indeed true that in absolute and value terms, the export of mobile phones from India has risen sharply in the past five years, while their import has shrunk. In fiscal 2018, India imported mobile phones worth $3.6 billion and exported a mere $334 million. Cut to FY23 and exports zoomed past $11 billion while imports were down to just $1.6 billion.

While this looks good on paper, it doesn’t reveal the full story. The import of mobile phones started falling a few months after April 2018, when higher import duties were imposed. Exports meanwhile started rising, and by the end of that year more mobile phones were shipped out of the country than imported. It was also around the same time that the import of key components of mobile phones, such as semiconductors, printed circuit boards, displays, cameras and batteries began to take off in a big way.

The combined import of these components in fiscal 2023 amounted to $32.4 billion. It is not easy to determine the same figure for FY18 as some of the harmonised system (HS) codes for the components have changed over the years. But an analysis by Princeton University professor Ashok Mody indicates that the combined net export of finished mobile phones and components fell from -$12.7 billion in FY18 to -$21.3 billion in FY23.

This reflects three things. One, the expansion in volume terms of India’s domestic mobile phone market as also the exports. Two, the depreciating value of the rupee against the dollar. Three, that India’s dependence on imported parts has not dropped by much.

This is also borne out by bilateral trade data between India and China. In FY23 China remained India’s second-largest trading partner with merchandise trade worth $113.81 billion, a slight drop of 1.7% from FY22. But the decline was due to a drop in export of goods from India to China and not vice versa. Imports from China during the year rose 4% at $98.51 billion. In FY18, imports were at $ 76 billion. As a result, India’s yawning trade deficit with China increased even further to a record $83.2 billion. It has more than doubled from $36.2 billion FY14. In FY18 the deficit was $63 billion.

Machine parts and electrical appliances form the bulk of goods that India imports from China. In FY22, machines worth over $50 billion were imported. This fell by a mere 2.75% to $48.74 billion in FY23. This is still way more than $29 billion of imports 2019-20. China accounts for 40% of all machines that India imports.

Why have imports of components not fallen despite the government’s production-linked incentive (PLI) scheme? Professor Mody argues it is because the subsidy is paid only for completing the manufacturing in India and not on the exact value addition. This has allowed manufacturers to simply import from abroad and assemble here.

With the scale of manufacturing rising and manufacturers gradually increasing component production in the country, import of components should begin to taper off in the next few years. Should India succeed in getting semiconductor manufacturing off the ground, it would take care of another big imported piece of the puzzle.

For now, though, Rajan is right. It is largely assembly that is propelling mobile phone manufacturing in India.


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