Domestic manufacturing of computers and other electronic goods contracted sharply in the lead-up to the government's unexpected import restrictions on laptops and related devices.
According to data released on August 11 by the statistics ministry, India's industrial growth declined more than expected to 3.7 percent in June from 5.3 percent in May. Analysts from Motilal Oswal Financial Services said the slowdown was "entirely led by the manufacturing sector" – whose output rose by only 3.1 percent year-on-year compared to 5.8 percent in May.
The performance of the manufacturing sector has an outsized impact on the headline industrial growth number as the sector accounts for more than three-fourths of the Index of Industrial Production.
Within the sector, production was lower in June in as many as 14 of the 23 industries compared to the same month last year. The decline was led by computer, electronic, and optical products, whose output was down 32 percent.
A little over a week before the release of the data, the Indian government restricted the import of laptops, tablets, personal computers, ultra-small form factor computers, and servers on August 3. While exemptions were provided, the free import of these goods would be permitted only against a licence.
An outcry followed and the government said a day later that it was delaying the implementation of these curbs by three months to November 1.
Also read: Why the government’s ‘Make in India’ move on laptops will hurt more than help
Boost for local?
The government has defended its decision, with Minister of State for Electronics and Information Technology Rajeev Chandrasekhar saying the move was not about imposing a licence raj but ensuring that the Indian tech eco-system used only trusted parts and India's dependence on imports was reduced and domestic manufacturing increased.
Also Read: Rajeev Chandrashekhar says import curbs on laptops to boost domestic manufacturing
"This is certainly not an attempt to go back to the licence raj. As we increase the digitisation of our economy, we certainly want to make sure that the elements of hardware that are going into the digital economy are all monitored and come from trusted sources," Chandrasekhar told Moneycontrol in an interview on August 10. "In hindsight, this should not have been called curbs or licensing. This should have been called more of an import management system."
Whatever it may be called, the performance of Indian manufacturing has been there for all to see for some time now. The 32 percent decline in the manufacture of computer, electronic, and optical products in June was not a new phenomenon – it was the eighth time in nine months that production in this segment had fallen when compared to the same month last year.
After posting an 11.1 percent increase in 2021-22 as a whole, the output of computer, electronic, and optical products fell by 6.4 percent in 2022-23. In the first three months of 2023-24, it is down 18.6 percent.
Demand slump
The fall in manufacturing of computer, electronic, and optical products is reflected in the broader consumer durables category. In June, the output of consumer durables fell 6.9 percent after rising for the first time in six months in May. According to India Ratings, the performance of consumer durables points to the "impact of inflation and weak consumption demand in the economy".
The bad June numbers were nothing new. After rising by a mere 0.6 percent in 2022-23, the production of consumer durables is down 2.8 percent in April-June 2023.
Has India been substituting local production with imports? Interestingly, in 2022-23, the value of personal computers imported fell by 27.6 percent to $5.34 billion. And this was not because foreign PCs became cheaper – the number imported was down 31.8 percent from 2021-22.
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