As global demand recedes with recessionary trends rising, the spurt in India’s exports over the past two years is also gradually subsiding. A plateau was reached in July last year but the past five months have shown a consistent decline. This is a worrying phenomenon but tempered by the fact that exports of electronic goods especially mobile phones are showing a contrary trend. In fact, phone exports are set to virtually double in fiscal 2023 despite the demand slump witnessed in the country’s key markets of Europe and the US. The question is whether this is just a flash in the pan or whether this will continue on a sustained long-term basis.
The first conclusion one must draw from the surge in mobile phone exports is that this represents a successful outcome of the production-linked incentive (PLI) schemes. The PLI scheme is designed to provide incentives on incremental sales of goods manufactured in selected sectors. It was launched initially for electronics and mobile phones and the focus has been on increasing domestic production of components while trying to generate more jobs. It has now been expanded to cover as many as 13 industries considered to have the potential of becoming world-class manufacturers and exporters.
In the case of mobile phones, the scheme began three years ago with the rationale that the sector suffered from several disabilities, making it less competitive globally. According to the Electronics Ministry, this included a lack of adequate infrastructure, domestic supply chains and logistics, high cost of finance, inadequate availability of power and limited design capabilities.
One big criticism of the scheme despite the rapid increase in output has been that these are more assembly units rather than actual manufacturing units. This shortcoming, however, is now being overcome as even rating agency ICRA noted in a study last year that domestic sourcing of components is set to rise from 15-20 percent to 35-40 percent by 2026.
At the same time, the PLI scheme for electronics has so far been able to attract investments of Rs 4,784 crore which can be termed as encouraging but clearly can be ramped up considerably. It has also led to a remarkable five-fold rise in mobile phone production from six crore units in 2014-15 to about 31 crore units in 2021-22.
Growth Potential
The other obvious conclusion is that no other export sector has the potential to grow at this pace. This has been achieved despite an overall decline in world trade, which is expected to grow by only one per cent in 2023 compared to 3.5 per cent in 2022, according to the World Trade Organisation. Against this backdrop, phone exports are set to buck trends by doubling to nearly $12 billion in 2022-23 as compared to $5.8 billion in the previous fiscal. One can thus have reasonable expectations of mobile phones becoming one of this country’s biggest exports in the long run. Electronics industry representatives like the chairman of Dixon Technologies are even confident that mobile phone exports could soon reach $100 billion.
It is in this light that the inauguration of an office of the International Telecommunication Union along with an innovation centre and unveiling of the 6G Vision Document assumes greater significance. The role of telecom in the country’s economy is evidently set to expand exponentially. Tech giants like Samsung and Apple have already placed their faith in the sector by investing heavily in infrastructure here. This is partly due to the fact that the global industry is trying to reduce reliance on manufacturing facilities in China. The only snag is that many other firms seeking to disengage with China while building up global supply chains have been lured to easier investment destinations like Indonesia and Vietnam.
One learning from these developments is that the PLI scheme, attractive though it may be, needs to be accompanied by creating an easier environment for foreign investment. Procedures and regulations continue to abound in this country, as well as unexpected taxation issues. Unless red tape is cut further and tax provisions are made more predictable, it may not be possible to lure many other global players looking for options to China.
Such easing of rules will give a further impetus to exports of electronic goods, especially mobile phones. But higher exports will only be possible with higher investments, whether from foreign or domestic sources. So, policymakers need to take fresh initiatives to make investments easier in a sector that has lately grown by the proverbial leaps and bounds. It has the potential to expand at an even more dizzying pace but much will depend on whether a conducive policy environment can be created for the electronics and telecom industry.
Sushma Ramachandran is a senior journalist based in Delhi. Views are personal, and do not represent the stand of this publication.
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