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Electronics imports from China have risen again after a two-year contraction, despite the pandemic, higher import duties and the series of performance-linked incentive schemes that aim to boost domestic manufacturing.
Electronics imports rose to $20.3 billion in 2020-21 from $19.1 a year ago, driven mostly by higher shipments of mobile phones and components, according to official statistics.
Electronics is the largest import category from China, much bigger than the second-ranked heavy machinery that is worth $13 billion.
Electronics imports had dropped from 2018-19 onwards after India pushed aggressive policies to reduce imports. While electronics imports in 2020-21 are higher than the previous fiscal, they are still lower than imports in 2018-19 and the previous two years.
But industry insiders say that local manufacturers’ dependence on China for components continues even as localization of production for these items has improved with new manufacturing facilities coming up.
Chinese mobile phones
India has historically imported a large share of its electronic needs, across the value chain, from its northern neighbor over the decade. Over the past five years, India has slowly cut down on imports of items such as LCD and LED TVs, compressors used in ACs and refrigerators and gadgets such as smart watches.
However, the country continues to depend on Chinese smartphones and components along with electronic integrated circuit systems, used in a wide array of industries and photovoltaic cells used in harnessing solar energy.
"Manufacturing complet units of mobile phones in India remains tough as a large segment of the components continue to be built in China. Since the mobile phone market has a relatively small per-ticket revenue realization, economies of scale are important. Given the current circumstances, no country apart from China makes the components at that low a price on that large a scale," a senior functionary of the Indian Cellular and Electronics Association said.
Import duties on integrated circuit boards, semiconductors and other components were again raised in the latest budget. Even items such as moulded plastic for production of chargers or adapters now attract 15 percent duty as compared to 10 percent earlier.
"For all products, the focus has been to reduce imports of completely built-up units (CBUs) first and slowly as we gain capabilities, to tax components. We are now beyond the first step and components are being taxed. Initially, there will be certain import shocks before shipments dry out," a senior Commerce Department official said. Case in point, battery chargers are currently charged almost on a par with fully built handsets.
Currently, components which make up an average of 50 percent of the retail price of phones, fall under the customs duty bracket, he added.
"The demand from the domestic market has also gone up. There will be surge in imports until the time when local companies can build up their capabilities," Amrit Manwani, immediate past president of the Electronic Industries Association of India, said. Manwani added that despite the performance linked incentives (PLI) schemes being announced, large-scale manufacturing is yet to commence.
Electronic Imports from China gained pace in FY21
To reduce India's dependence on China, the government had announced PLI schemes in March 2020 to give companies incentives on incremental sales from products manufactured in domestic units. This included PLIs for telecom & networking products and solar modules.
According to the Ministry of Electronics & IT, 16 companies were approved under the first round of the PLI Scheme for Large Scale Manufacturing of Mobile Phones and Specified Electronic Components.
International mobile phone manufacturing companies that have been approved under the mobile phone (invoice value Rs 15,000 and above) segment are Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron.
Out of these, three companies namely Foxconn Hon Hai, Wistron and Pegatron are contract manufacturers for Apple iPhones. Apple and Samsung together account for nearly 60 percent of the global sales revenue of mobile phones. This scheme is expected to increase their manufacturing base manifold in the country.
Until February, 2021, official data showed the applicant companies, including top global mobile phone companies, have produced goods worth Rs. 35,000 crore and invested Rs. 1,300 crore under the Scheme. Additional employment generation during this period stands at around 22,000 jobs.
On the other hand, PLI for large scale electronics manufacturing extends an incentive of 4 percent to 6 percent on incremental sales of goods manufactured in India to eligible companies for a period of five years subsequent to the base year (2019-20). Earlier this week, the government extended the runtime of the scheme by a year to 2025-26.