Is "Make-in-India Working?

For a long time, in both UPA and current NDA regimes, the key objective of the govt has been to make goods (especially electronic goods) in India. The idea is to mitigate the loss of precious foreign exchange and to boost the Indian economy. In this note, I have analyzed the export-import data of the last several years to evaluate whether "Make-in -India" has been successful in delivering the desired result.

Total Imports (All Products)

The following chart provides a snapshot of the total goods imported by India since the year 2007.

From the above, one can clearly see that petroleum and electronics is a large chunk of India's imports (approximately 40%). The share of petroleum has remained largely constant, and that of electronics has risen to double digits since 2015. Also, note that 2019 is an incomplete financial year and therefore the absolute value of imports (as of date) is lower than the previous year.

Total Exports (All Products)

The following chart provides a snapshot of the total goods exported out of India since the year 2007.

From the above, one can see that the share of electronics is hardly 3 to 4% of India's total exports. The share of petroleum products in the last few years has also fallen. As mentioned above, 2019 is an incomplete financial year and therefore the absolute value of exports (as of date) is lower than the previous year.

Trade Deficit (All Products)

The following chart provides a snapshot of the total trade deficit of India since the year 2007.

From the above one can see that the share of petroleum to the total deficit is the largest followed by that of electronics. For calculating the above the net deficits (imports - exports) of the three segments have been evaluated separately. Note that the share in the deficit of electronics has increased since 2014, compared to what it was in the previous years. This clearly indicates that the exports of electronic products from India aren't rising enough to compensate for the imports. This is surely a matter of concern. Why? As if the current trend continues this will have a detrimental impact on our balance of payment situation.

Import & Export (Electronic Products)

The following chart provides a snapshot of Import and Export the top 10 electronic products by India since the year 2007.

From the above one can clearly see that exports of electronic products have fallen between the years 2014 and 2017. This is the post-Nokia factory closure and the execution of the PMP (phase manufacturing program). This clearly demonstrates that the closer of the Nokia plant in Chennai due to tax disputes with the Indian government has a bad impact on India's electronic exports, and steps taken by the NDA government was not good enough to mitigate the damage. Later the exports have picked up due to the contribution of Samsung. It contributes to 90% of India's mobile exports.

Also, note that the drop in imports of smartphones has got largely compensated by the increasing imports of components - indicating very low value add, thereby worsening the balance of payment situation.

Trade Deficit (Electronic Products)

The following chart provides a snapshot of the trade deficit of the top 10 electronic products of India since the year 2007.

One can clearly see that though the trade deficit on account of imports of smartphones has become zero, however, the increase in imports of components has increased the overall deficit much more than what it was in the previous years.

Imports (Electronics - Country Wise)

The following chart provides a snapshot of imports of electronic products by India from key markets since the year 2007.

From the above one can see that a bulk total import is coming from China. However, lately, there has been a shift to Hongkong, Vietnam, and Singapore. Also, note that more than 90% of the total imports of electronics is emanating from these 10 countries.

Exports (Electronics - Country Wise)

The following chart provides a snapshot of exports of electronic products by India to key markets since the year 2007.

From the above one can see that the bulk of India exports (more than 50%) are to only 4 countries - UAE (21.&%), USA (16.7%), China (7.9%), and Russia (4.9%).

Imports (Electronic Components - Country Wise)

The following chart provides a snapshot of imports of electronic components by India from key markets since the year 2007.

From the above one can see that though imports of smartphones have fallen, the gains have been totally nullified by the increase in imports of components - telephone parts, Monolithic IC, Ethernet switch, etc. Also, there has been a shift to markets like Hongkong and Vietnam. Note that the imports of monolithic ICs have increased sharply (more than 4 times) in last two years.

Exports (Smartphones - Country Wise)

The following chart provides a snapshot of exports of smartphones by India to key markets since the year 2007.

Note that a lion share of India's exports is to UAE, Russia and South Africa.

Conclusion

From the above, it is clear that "Make-in-India" hasn't been successful in containing imports of electronics into India. This is contributing to increasing deficit. Also, the component ecosystem in India hasn't evolved yet - making India's manufacturing largely ineffective - low investments - poor quality jobs. Since imports are constantly increasing, one cannot even conclude that "Make-in-India" is feeding to the local demand. Rasing duties had no effect on expanding exports, as typically duties and taxes do not get exported. Rather than relying on only increasing duties, India should have focussed more on crafting policies to nurture "Design-in-India", and expanding local component ecosystems as Brazil has done. Read my earlier note titled "Incentivizing Electronic Manufacturing - Opportunities & Challenges". It seems that the government has got steered away by poor advocacy by vested interest who were only interested in promoting "Trade-in-India" than "Make-in-India" (this is clearly evident from the fact that most Indian manufacturers have disappeared from the market). Instead, we should have focused on enticing key global manufacturers to set up shops in India - like what Vietnam has done. And prevented Nokia from closing down. Now with increased pressure from WTO (to unwind policies like MIES directed to promotes exports), we seem to have lost the opportunity window. Unless we make a conscious real effort to drive effective policies things will look increasingly difficult going forward.

(Views expressed are of my own and do not reflect that of my employer)

PS: Find the list of other relevant articles in the embedded link.