The Indian electronic sector is evolving rapidly, playing a crucial part in the country’s industrial development and the quality of life. However, the recent adoption of high tariffs on the import of electronic components has sparked concerns among industry stakeholders. This article unravels the intricacies of this issue and explores the impact of these tariff measures on India’s position in the global electronics market.
The Electronic Sector in India
The Indian electronics sector is expected to surpass a demand of USD 400 billion by 2023-24. Domestic production has significantly increased from USD 29 billion (2014-15) to nearly USD 70 billion in 2019-20, exhibiting a compounded annual growth rate of 25%. The majority of this production occurs in the final assembly units or ‘last-mile industries’ in India, thereby boosting backward industrial linkages.
Adoption of High Tariffs: Purpose and Consequences
The Indian government has imposed high tariffs on the import of electronic components intending to reduce risks from global competition and safeguard domestic companies. However, this move could potentially backfire, threatening the schemes aimed at promoting domestic production of electronic goods. Producers and investors may be discouraged due to these high tariffs, contributing to India’s limited participation in the global value chains.
India’s Position Vs Other Countries
Countries worldwide have tried to foster the domestic production of electronic goods by adopting strategies similar to India. China, for instance, has significantly improved its ranking in office and telecom equipment export since 1980. Similarly, Thailand and Mexico have consolidated their positions among the top electronic product exporters. In contrast, India’s progress seems relatively slow, only reaching the 28th position by 2019.
High Tariffs and India’s Loss
While all the countries have implemented policies to increase domestic electronics manufacturing, India’s strategy heavily relies on tariffs. High tariffs can deter global market participants and electronic component makers from investing in India. Despite the sizeable Indian economy, its contribution to exports and international trade remains relatively low.
The Impact of Tariffs on the Indian Market
The false assumption that a large and growing market will universally benefit most companies is negated by the fact that even significant industries like mobile phones will only constitute a small fraction of the global market. The high tariff on the import of electronic components may reverse the benefits of schemes like the Production Linked Incentive (PLI), as companies with extensive global value chains are reluctant to enter markets with high component tariffs.
Counterproductivity of High Tariff Schemes
Even though larger electronics markets in India may appear attractive, they are globally insignificant. Furthermore, India doesn’t produce about 50% of the components which have faced a tariff increase. As a result, the impact of tariffs could negatively affect India’s competitiveness at an international level.
Related Initiatives in India
India is trying to foster its electronic sector growth through various initiatives like the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme, and the National Policy on Electronics 2019. These initiatives aim to augment domestic production and make India competitive in the global market.