Trade shifts to tech products, smart-phones exports up 93% to $13

Trade shifts to tech products, smart-phones exports up 93% to $13.9 billion

The headlines of 2023 captured declining merchandise exports and record trade deficits but beyond it, yet India moved ahead in the global markets for goods and services in the year.

The world’s imports in the year are seen at $25 trillion, of which 70% or $ 17 trillion market is for product segments where India has so far not made any strides.

This market for high value and high technology items is what is drawing the attention of policy makers now. It all started with the Production linked Incentive (PLI) scheme for large scale electronics manufacturing and gradually expanded to cover 14 sectors with an outlay of Rs 1.97 trillion. The process to address that market which started in 2021 showed early signs of success in 2022 and gathered pace in 2023.

‘The first high-technology product to enter the export market in a significant way is smartphones. As the likes of Apple and Samsung set up local manufacturing bases, in 2022 exports of this product from India were $ 7.2 billion from virtually nil in 2021.

In 2023 this segment saw a jump of 93% on year to $ 13.9 billion which is already more than the exports of the traditional sector of ready made garments. It now accounts for 3.23% of total exports of $ 429.4 billion. This significant increase contributed to the overall rise in India’s electronics exports, which reached $26.8 billion, marking a growth of 26.2% and a share in total exports of 6.2%.

Of course, these exports have a large import content, and the domestic value addition needs to improve, yet the headway made in a short span of time is impressive.

Local production through PLI also brought down imports. Import duties also played a part in supporting local manufacturing. To get another component of electronics trade to India the government put imports of personal computers, tablets and related products on restricted list allowed only with prior approval. This again pushed the likes of Dell, Asus, Lenovo, HP and Foxconn and Flextronics to commit manufacturing in India.

While newer segments have taken off for India the traditional sectors had a rough year.

In 2023, products with an estimated export value of $320.6 billion, accounting for 78.1% of India’s total merchandise exports, are projected to see an average decrease of 11.6% compared to the previous year, as per think tank Global Trade Research Initiative.

In 2023, India’s merchandise exports decreased to $429 billion from $ 453 billion in 2022, a fall of 5.3%. The fall in imports was deeper at 7% to $ 669.6 billion, according to the projections by GTRI.

Services exports increased 10.5% on year to $333.6 billion during the year while services imports were stable at $176.4 billion.

Because of services India’s overall exports grew 1% to $ 763 billion. As fall in imports is more than exports the overall trade deficit(merchandise and services) will decline to $82.8 billion from $ 141.3 billion.

The decline can be attributed to weak global demand and India gradually losing competitiveness in labour intensive sectors,” according to GTRI’s co-founder Ajay Srivastava.

The reasons for weak demand, according to the government, are persisting geopolitical tensions including Russia-Ukraine conflict and monetary monetary tightening along with recessionary fears that have led to a decline in consumer spending across advanced nations. Lower crude oil and other commodity prices like iron and steel also impacted realisations in petroleum products and engineering exports..

Engineering goods, petroleum products, organic and inorganic chemicals, gems and jewellery, readymade garments, Plastic, leather, coal and other ores, cereals and tea were the products most impacted in 2023.

Apart from demand and prices, competition in low value engineering goods, chemicals, plastics is also hurting the industry.

“Change in the incentive structure with the phasing out of schemes like Merchandise Exports from India (MEIS) and other changes in regulatory structure including Goods and Services Tax has led to many medium and small enterprises to move out of export business,” Srivastava said. MEIS had an incentive part also built in and it benefitted 50,000 exporters at one time.

The share of MSMEs in the overall economy stood at 29.15% in FY 22 while their contribution was 43.6% last year. In April-September of this year the share of MSMEs in exports stood at 45.56%. On an immediate basis increasing interest equalisation benefit to MSMEs manufacturer exporters to 5% from 3% would provide a boost in the short-term, Director General and Chief Executive Officer of Federation of Indian Export Organisations Ajay Sahai said.

While new sectors get the attention, the traditional sectors like apparel and leather is where the most value is captured locally. Dependence of electronics on imported inputs is 90%, for petroleum products and gems and jewellery it is 95%. In traditional sectors almost the entire value chain lies domestically and is a big provider of jobs.

Readymade garments of all textiles are expected to see a decline of 19.3% on year to $13.4 billion in 2023. Apparel Export Promotion Council (AEPC) Secretary General Mithileshwar Thakur says that the industry will be able to reverse the trend of decline in coming months.

He said over-dependence on European and US markets hurt exports the most. Around 71% of exports from the sector go to these two markets and there are attempts to diversify and pay more attention to the UAE, Australia where India has just concluded free trade agreements.

In Japan FTA Indian garments get zero duty access so the attempt is being made to engage closely with designers and buyers there to expand the market. Another market that is being looked at is Africa. FTAs with the UK and EU that are in works would be another booster for the sector.

India has been cotton-centric which sells only in summers but now with PLI incentives the move can be facilitated to the man made fibre segment that is the 70% of the world market. This financial year that ends in March the industry is expecting to get to at least last year’s exports.

Engineering goods that are 24% of exports also suffered from disturbance in demand in the EU because of the Russia-Ukraine conflict and other safeguard action and quotes against Indian steel and aluminium products. With things settling down in Europe the exports of these two products is expected to pick up in the remaining three months of the financial year taking overall engineering product exports to $ 107 billion, Chairman of Engineering Export Promotion Council (EEPC) Arun Kumar Garodia said. In the US also additional tariffs on steel and aluminium imposed during the Trump regime are hurting.

FIEO’s Sahai said 2024 will be much better than 2023 for exports unless this middle east crisis escalates and chances of it happening are very dim. “All the forecasts are quoting around 3.5% volume growth which is very good. We are quite bullish about 2024,” he added.