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India’s share of global goods exports at a record-high, PLI represents a significant turn in industrial policy

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Shri Vaibhavi Logistics

NEW DELHI : Manufacturing exports could become a significant growth driver for India’s economy going ahead, said a report by Credit Suisse. According to the report, India’s share of the total global merchandise exports is at an all-time high.

Electronics And Speciality Chemicals Expected To Do Well

Though propelled in part by the price rise of commodities, it is expected that the growth momentum would continue persisting in industries such as electronics and speciality chemicals.

The tailwinds highlighted for the electronics industry are — a large market size, potential for share gains, and the right policies for sectorial growth. Electronics has a 30 per cent share of the global goods trade. So far, China has dominated these sectors, contributing to half of the total global exports in several categories such as handsets, computers, and computer parts.

However, with the industrial labour force shrinking in China, the opportunity for India could be huge. Though labour intensive sections of the industry could benefit in the beginning, over time, growing scale would drive upstream integration. Some segments of the industry, such as handset assembly, have seen India’s global share in the segment rise.

Speciality chemicals segment accounts for a half of India’s total chemical export, and is likely to be a key contributor to India’s export growth. Indian speciality chemicals companies have attained the required scale to drive global outreach. Being a steady grower, the sector has gained scale over the years.

“India lacks raw material (like crude oil or natural gas) and low cost-of-capital and hence lags in bulk chemicals, but in specialty chemicals, abundant labour skilled in process chemistry provides advantages, helped by a globally dominant position in pharmaceuticals manufacturing, explaining the higher and growing share,” the report said.

Textiles And Automobiles

Other sectors such as textile and automobiles are likely to provide significant export opportunities for India as well.

Textile exports had stagnated over the last 10 years at around $35 billion levels. However, the exports have now broken the previous levels. A possible reason for slow pickup in the sector is the absence of treaties that both Bangladesh and Vietnam possess.

Nevertheless, with a ban on Xinjiang cotton, demand for Indian products in the United States could improve. China has been losing global export market share in several segments to exporters such as Bangladesh, Cambodia and Vietnam. The textile production-linked incentive (PLI) scheme would also create new jobs, with textile industry expected to contribute to almost half of the total $10 billion incremental wage bill.

The auto sector might not see high export in the traditional vehicle segments, but the adoption of electric vehicles (EVs) offers a chance for supply chain disruption, new business models, and new original equipment manufacturers to come up. The PLI for the auto sector initially focused on assembling in India, keeping India’s strong component industry in mind. However, with growing demand for EVs, and a reluctance to invest into internal combustion engines (ICE) capacities, the government tweaked the scheme to focus on EVs.

PLI To Play A Key Role

A key driving factor behind higher exports is government policy, especially the PLI for several sectors. While the impact would be seen over time, the progress so far, remains positive. The PLI scheme for the food-processing sector has already witnessed 60 firms being selected.

In addition, the government has been open to feedback as well, evidenced by the republishing of the textile scheme after receiving feedback from the industry. Apart from the major sectors discussed above, PLI schemes have been introduced across other sectors such food, IT hardware, semi-conductors, energy storage etc.

Impact To Be Pushed Out By A Year

However, with the impact of the Covid-19 pandemic and global supply chain issues, the positive impact of PLI schemes might be pushed out by a year. Including the increase in capital expenditure by the firms selected for the PLI scheme, the gross domestic product (GDP) of India could increase by around 1.5 per cent by financial year 2018 (FY28).

Previously, the brokerage had estimated the GDP increase at 1.7 per cent by FY27. However, with the benefits getting pushed out by a year, growth would be calculated on a higher base.

According to the report, the incremental sales generated as a result of these schemes could touch $134 billion by FY27, with mobiles leading the rise. The domestic value added due to the PLI scheme could reach $61 billion by the fifth year.

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