India’s experience with trade liberalisation through the World Trade Organisation’s Information Technology Agreement (ITA) marks the complexities of opening markets without sufficient domestic readiness. Since joining the ITA in 1997, India eliminated tariffs on many electronic goods, expecting growth in IT hardware manufacturing and productivity. However, the results revealed rising imports, stagnant local production, and a growing trade deficit. Recent government initiatives now aim to build a domestic semiconductor ecosystem, but challenges remain.
Impact of ITA Membership on India’s Electronics Sector
India removed tariffs on 217 electronic product lines by 2005. This led to cheaper imports but failed to boost domestic hardware manufacturing. Imports surged while local production and employment in hardware sectors declined. India now imports over 95% of semiconductors and 80% of key components. Electronics contribute to a $122 billion trade deficit recorded in early 2025. Domestic innovation and industrial upgrading lagged behind liberalisation.
Global Responses to Trade Liberalisation
Other ITA signatories combined tariff cuts with strong domestic policies. China invested billions in research, subsidies, and industrial parks. South Korea and Taiwan allocated nearly 5% of GDP to innovation. Vietnam’s foreign investment incentives expanded its electronics exports. Singapore focused on logistics and re-exports. These ecosystems encourageed competitiveness, unlike India’s premature openness without industrial support.
Challenges Hindering India’s Semiconductor Growth
India faces high logistics costs, unreliable power, and regulatory delays. Scarcity of engineers skilled in chip design and process technology limits progress. Non-tariff barriers from developed countries restrict Indian firms’ market access. Brain drain has worsened due to limited domestic opportunities. These factors slowed domestic semiconductor capacity and innovation despite tariff liberalisation.
Government Initiatives to Boost Domestic Manufacturing
Recently, India approved the HCL-Foxconn semiconductor plant targeting 20,000 wafers per month by 2027. The India Semiconductor Mission offers up to 50% fiscal support for fabrication and incentives for design and assembly. Electronics Component Manufacturing Scheme attracted proposals exceeding ₹1.15 lakh crore. However, these efforts are late compared to decades-long investments by East Asian nations.
Policy Debates on ITA Membership
A Parliamentary Committee suggested renegotiating or withdrawing from the ITA to protect strategic sectors. Withdrawal risks include WTO disputes and higher prices for imported devices. Price increases could deepen the digital divide affecting students and small businesses. Policymakers face the challenge of balancing industrial growth with social equity.
Future Prospects and Innovation Imperatives
Global electronics markets are rapidly expanding with consumer electronics and Internet of Things revenues projected to reach trillions by 2028. India’s global ITA export share has declined from 2.3% in 2000 to under 1%. Shifting from assembly to innovation requires early education reforms. Encouraging design thinking and entrepreneurship in classrooms can reduce brain drain and build a skilled workforce for the semiconductor industry.
Questions for UPSC:
- Critically analyse the impact of trade liberalisation on domestic manufacturing industries in developing countries with examples from India and East Asia.
- Explain the role of government policies in building competitive industrial ecosystems and how they complement trade openness.
- What are the challenges faced by India in developing a self-reliant semiconductor industry? How can education reforms contribute to overcoming these challenges?
- With suitable examples, comment on the implications of international trade agreements like the World Trade Organisation’s Information Technology Agreement on national economic sovereignty and industrial policy.
