Electronics exports: Positive signs, but many miles to go

• India’s merchandise exports grew at just 0.64% YoY in April 2019, after recording a strong YoY growth of 8% during the previous fiscal year.
• Among the bright spots in this sobering performance is the electronics sector, where exports registered a strong growth of 27.78% YoY.
• The electronics manufacturing ecosystem in India has evolved at an impressive pace over the last 4-5 years, leading to a rise in indigenous development of completely built units (CBUs).
• India needs to leverage its strengths in terms of engineering talent pool and R&D base to plug into regional value chains and become a hub for electronics exports.

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India’s exports posted a strong growth of around 8% YoY in 2018-19 to reach US$ 535.45 billion. But after that stellar performance in the face of inimical global trade winds, the current financial year has started on a sobering note for Indian exporters.

Merchandise exports grew by just 0.64% YoY in April 2019 in dollar terms to reach US$ 26.1 billion, while imports grew at a stronger rate of 4.5% YoY to US$ 41.4 billion. This took the merchandise trade deficit to US$ 15.33 billion in April, compared to just US$ 10.9 billion in March.

Major product categories suffering negative growth were rice (-8.43%), other cereals (-44.7%), oilmeals (-20.6%), coffee (-12.73%), leather & leather products (-15.25%), gems & jewellery (-13.38%), mica, coal & other ores (-16.43%), marine products (-6.23%) and engineering (-7.1%).

Top gainers in exports for April 2019

Commodity Exports in April 2019 (US$ million) Exports in April 2018 (US$ million) Gain (YoY in %)
Tea 49.8 64.9 30.32%
Iron Ore 86 198.45 130.76%
Ceramic products & glassware 184.33 224.39 21.73%
Electronic goods 559.6 715.06 27.78%
Petroleum products 2812.98 3677.89 30.75%

Source: Department of Commerce

However, there are positive aspects in the April numbers, like the growth in agricultural and plantation commodities like tea (30.32%), spices (6.5%), fruits & vegetables (5.86%) and meat, dairy & poultry products (1.43%).

One prominently positive trend that’s hard to miss in the figures is the growth in electronic goods exports by 27.78% YoY in April. This is a continuation of the performance in the previous fiscal, when electronic exports grew by 39% yoy to a record US$ 8.9 billion. This should be an optimistic development for more reasons than one, especially because India’s rising electronics import bill has been a major source of concern for policy makers in the past few years.

According to analysts, the more interesting part is the fact that imports of components are rising faster than imports of completely built units (CBUs), which essentially means that more of finished products are being manufactured within India itself.

Telecom instruments, which constitute around a third of electronics imports, witnessed a drop in imports by nearly 15% during April-February, 2018-19. On the other hand, exports in the product category (including mobile phones) increased by a huge 129% yoy to US$ 2.4 billion, which is the highest since FY’14. Overall, electronic imports witnessed a slowdown in growth from 23% YoY in 2017-18 to 8% in 2018-19, reaching US$ 46.8 billion.

In terms of manufacturing, the target for FY 2019-20 of mobile phone manufacturing of Rs 1.5 lakh crore and component manufacturing of Rs 50,000 crore was achieved one year in advance. Moreover, import of CBUs, which was over 75% at one stage, has come down to 10%.

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In 2014, India had only three manufacturing units in comparison, and handset manufacturing had reached a low of 58 million. By 2017-18, the number grew once again to 225 million handsets, with India overtaking Vietnam to become the second largest mobile handset manufacturing destination.

According to estimates by the Indian Cellular & Electronics Association, there are around 268 mobile and accessories factories in India presently, which provide employment to over 6.7 lakh people. Going forward, India has the potential to open 1,800 more such factories and provide around 50 lakh jobs in the coming 6-7 years.

The Government of India launched its National Electronic Policy in 2019, which aims for a turnover of US$ 400 billion from domestic manufacturing by 2025, apart from establishing a cluster for the entire value chain and employing over 1 crore people directly or indirectly. The policy incorporates various support mechanisms like interest subvention for manufacturers, credit guarantees, cost-effective loans, fresh manufacturing clusters and the creation of a sovereign patent fund.

While the National Electronics Policy is trying to ensure end-to-end manufacturing capabilities, the industry also needs to move towards indigenous designing as opposed to just assembly. The Phased Manufacturing Programme (PMP) helped bring down imports in 2018-19, but boosting electronic exports will require a combination of vision, strategic planning and efforts from all stakeholders.

The budding Indian electronics manufacturing ecosystem provides a tremendous opportunity to MNCs looking for a lucrative manufacturing destination. India can look to script a success story similar to Vietnam, which boosted its electronics exports by more than 700% between 2000 and 2016. Vietnam’s success has a lot to do with the impact of rising FDI facilitated by favourable government policies.

India already has a strong talent pool of engineers, which has led to a number of MNCs setting up R&D hubs in the country. Already, companies like Samsung, LG, Apple and Xiaomi have established an R&D presence in the country. The government has also facilitated these companies in moving towards futuristic innovation, by instituting measures like instant approval for 5G-based R&D activities and field trials.

It is important to leverage these strengths with the right policy framework and facilitating environment in order to help manufacturers integrate into regional value chains in Asia and boost exports. This is important not just to tackle current challenges of high imports, but also to keep the Indian industry in step with the fast evolving technology landscape globally, which is moving to new paradigms like internet of things (IoT) and AI (Artificial Intelligence).

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