Deficit in Electronics Sector Defies Govt's Efforts, Doubles in 5 Years

For instance, phone-making units have increased to around 120 in 2018 from less than 10 in 2014, but then a majority of these are doing assembling only with imported components

Though the government is laying emphasis on promoting local manufacturing of electronics products, the results are not very encouraging as the trade deficit for such products is widening with every passing year.

According to the data from the commerce and industry ministry, the trade gap for electronics products has doubled in the last five years. The deficit stood at $38.94 billion for 2017-18 compared to $18.86 billion in 2013-14.

Industry watchers attribute the widening gap to multiple reasons. Pankaj Mohindroo, national president of the Indian Cellular Association (ICA), said the steep rise in imports of electronics was only expected for want of appropriate measures in the National Policy on Electronics (NPE) 2012. A veteran in the electronics market, Mohindroo said the NPE 2012 estimated the market size of the sector to grow to $400 billion by 2020, which was “a very inflated number”.


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The market stands at $71 billion as of now and is likely to grow to around $100 billion by 2020-21. The mobile phone segment, a major contributor to the sector, is pegged at $25 billion but is expected to rapidly grow to $80 billion by 2025.

“Mobile phone and component manufacturing has been a success, with more than 80 per cent of the domestic consumption coming from domestic manufacturing with rising value addition. However, other verticals, except LEDs, have not grown. In fact, many have shrunk with respect to domestic manufacturing,” Mohindroo told Business Standard.

He added the ICA was studying other areas like consumer electronics, air conditioners, refrigerators, and medical electronics but the situation was alarming.

The focus of the government on mobile phone manufacturing can be gauged from the fact that phone-making units in the country have increased to around 120 in 2018 from less than 10 in 2014.

However, a majority of these are doing assembling only with imported components.

“One of the reasons for increase in the bill is low-value addition in the country, and most of the value addition is happening at assembly level. Currently, the value addition stands at 10 per cent for mobile handsets,” said Tarun Pathak, associate director at Counterpoint Research.

He said localisation of some of the components under the phased manufacturing plan was expected to happen, which would reduce the forex over the years. “Currently, the focus is on low-value components but once the focus shifts to high-value components, the import of components will reduce too,” he added.

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The government’s ambitious scheme to promote electronics manufacturing has failed to bring the desired results, and many companies have opted out of their planned investments due to the slow pace of approvals for disbursement of incentives.

Investments committed under the Modified Special Incentive Package Scheme (M-SIPS) have reduced to around Rs 914 billion as on April 2018 as against the earlier proposals of Rs 1.57 trillion.
A source privy to the scheme said that till April last year, 269 investment proposals were received but the number decreased to 238 proposals in April this year as many companies decided to exit. In the last one year, only a handful of companies have shown interest in the scheme, which was launched in 2012 to attract global and domestic investments in electronics manufacturing by offering a package of incentives.

M-SIPS was seen as a key to achieve Prime Minister Narendra Modi's goal of having net zero imports in the electronics sector.

“There are a few reasons for the rising import bill for electronics products, despite the government’s efforts to promote local manufacturing. First thing is that we ignored electronics manufacturing for decades and we are bearing the brunt now. It takes a long time to build the ecosystem. Second, we require the chipmakers in India if we want to be self-sufficient,” Hemant Joshi, Partner, Deloitte Haskins & Sells LLP, said.

Reference - https://www.business-standard.com/article/economy-policy/deficit-in-electronics-sector-defies-govt-s-efforts-doubles-in-5-years-118070200008_1.html