India’s trade profile has got a leg up from an unusual corner—mobile phones. With consumers lapping up handsets, the country moved from a consumption-driven import market to a production-induced import country, according to an RBI internal study released last week.
The study, done by Rekha Misra and Anand Shankar from RBI’s Department of Economic and Policy Research wing, also found that the pace of increase in electronic goods imports could slow from here, allowing India to emerge as a net electronic goods exporter with a non-trivial global market share.
If and when it happens, it’ll set the ground for a directional change in the country’s import mix and prompt both government and the industry to pursue similar efforts in other areas of electronics manufacturing.
So what led the change? According to the study, in the last three years, some 120 manufacturing units sprang up leading to an increase in domestic production of mobile phones, altering our import basket, which is dominated by gold and petroleum products at over 40 percent.
Of late, however, electronic goods imports have increased from just about $0.9 billion in FY94 to a staggering $51.1 billion in FY18, registering an annual growth of 15 percent. Subsequently, the share of electronic goods more than doubled to over 11 percent (from 4 percent) of merchandise imports as on FY18. In fact, starting FY14, electronic goods imports pipped gold imports to emerge as the second largest import item.
Interestingly, over 50 percent of the rise in electronic goods imports is explained by an increase in telecom instruments imports in the last five years. Mobile phones, on average, accounted for over 52.8 percent of telephone set imports between FY12 and FY15, but fell to 16.8 percent by FY18. The vacated space has been taken by components, whose share more than doubled to 54.9 percent from 19.8 percent during 2014-2018. The import dynamics were partly influenced by policy impulses such as the Make in India programme and measures like imposing a countervailing duty on mobile phone imports, differential excise duty structure for manufacturing, and exemption of parts/components/accessories from basic customs duty, which encouraged domestic manufacturing.
“With the phased indigenization of sub-assemblies, the domestic value addition in the manufacture of mobile phones is expected to double by 2019-20,” the authors noted, adding, “From a balance of payments perspective, surging imports can potentially increase external vulnerability. However, the switching of electronics imports from final consumption to intermediate goods offers counterbalance in terms of higher investment, higher domestic value addition and more domestic employment.”
With export capacity improving, outward shipments of smartphones rose from $104.2 million during April-December 2017 to $ 955.7 million during April-December 2018. Countries like the UAE (saw eight-fold surge in exports), Russia, South Africa and China are emerging as export destinations. “As a robust domestic manufacturing ecosystem forms and matures, the pace of increase in electronic goods imports could slow, setting India on a path to becoming a net electronic goods exporter with a non-trivial share in the global market,” they added.While domestic production more than doubled in the last five years, it was able to meet just about one-third of domestic demand, leaving a major portion to be met by imports.
Trade balance poor With exports growing slower than imports, the trade balance deteriorated in the last two decades to over $45 billion in FY18. With electronic goods seen touching $400 billion by 2025, electronics manufacturing offers huge scope for creating jobs.―New Indian Express