Ambition to reality

Govt's high expectations from electronics exports need work

On Monday, the Union Ministry of Electronics and Information Technology released a further instalment of its vision document for electronics manufacturing and export in India, which purports to set out “detail targets and [a] roadmap for India’s transformation into a $300 billion electronics manufacturing powerhouse by 2026”. There are several aspects of this document that are of great interest. One is that it has been built from the ground up in co-operation with the India Cellular and Electronics Association, which the government says “presents an excellent example of government-industry effort[s] in goal-setting”. The second point of note is that it specifically targets production for exports and not just domestic consumption.

The targets being set for the medium term are ambitious. Currently, the value of electronics manufacturing in India is estimated by the government to be around $75 billion, and so the road map hopes for a quadrupling of production in five years. Further, it hopes for electronics exports to increase from $10.6 billion in 2020-21 to $120 billion by 2026. The domestic market is also supposed to almost triple in that time, but it is clear from the numbers that the engine of growth is supposed to be exports. This is certainly a welcome acceptance of reality. The fact is that for too long the “Make in India” programme has been a “make for India” programme rather than how it was initially described in 2014, as “make for the world”. The complacent assumption that India’s domestic market was large enough to spur sustained growth has been badly undermined by multiple years of weak demand. Thus, an export-focused strategy might be seen as being a welcome shift in how the government is approaching crucial manufacturing sectors. The scale of the ambition in this document is clear from the fact that, if India exported $120 billion in electronics today, that would place it as the fifth-largest exporter of ICT goods, behind China, Korea, Taiwan, and Singapore.
 

The expected value of production and exports depends crucially on a few large producers who stand to benefit from the Union government’s production-linked incentive scheme. In particular, Apple’s subcontractors have committed to $44 billion of production by 2026. Of that, $30 billion is to be exported. This is a quarter of the export target. It is vital that the government views the production ecosystem as a whole if these targets are to be met. It is not just the final producer that matters; it is also component producers and further subcontractors. An ecosystem that includes both domestic and global firms will need to be induced to invest in the country, and not just the final exporter or lead firm. Low and stable tariffs are also essential. By industry estimates, tariffs in India create a cost disability of about 20 per cent as compared to China, and 10 per cent as compared to Vietnam. The government has shown its willingness to co-operate with the industry in devising this road map that is born of their commitments. But it must now also listen to its partners in the private sector as to what is needed to turn this ambition into reality. Stable trade policy, less bureaucratic implementation of the rules-of-origin requirement, and extending benefits to ecosystem partners are prerequisites for this vision to succeed.