Good numbers, but long way for manufacturing
The doubling of India’s smartphone exports in FY23 to Rs 90,000 crore, or $11 billion, should be celebrated, albeit with a caveat. The smartphone and electronics export numbers suggest the much-touted Production Linked Incentive scheme might work in some manufacturing segments. However, we should look closer into the export numbers instead of getting carried away. The smartphone export data might make one believe that the manufacturing sector is finally gathering steam. The truth could be far from that.
Merchandise exports, which reflect the manufacturing and industrial performance, did show a minor contraction in FY23 if we exclude petroleum exports. The last financial year was unique because India took advantage of the geopolitical tensions and sanctions on Russia and imported cheap crude oil. It then exported refined petroleum products to other countries. As a result, the share of petroleum product exports in Indian merchandise exports increased from 16 per cent in FY22 to 21.12 per cent in FY23. Petroleum product exports grew by 40 per cent, even as our overall merchandise exports grew by only 6 per cent.
There are many detractors of the government’s PLI scheme and its ability to prop up the country’s manufacturing sector. For some sectors, the scheme has been there for three years now. As many as 14 sectors have been covered by the scheme, and the scheme’s results in these sectors will start showing only in time. However, so far, the results are not very encouraging, especially if one looks at the contribution of manufacturing to GDP. In FY23, the contribution of manufacturing value added came down to 13 per cent of GDP from 14 per cent in the previous two years. On the other hand, services exports have helped India post impressive overall export numbers surpassing the $750 billion target. The contribution of services exports to India’s exports increased by 42 per cent in FY23 from 37.67 per cent in FY22.
The government’s focus on prepping up manufacturing is largely because it creates enough low-skill jobs—millions of which India might need given its young demography. While manufacturing should be pursued, the government should ensure that it does not misallocate resources in its efforts to do so. In doing so, it should not ignore the services sector, which has served India well over the years. As for creating low-skill jobs, the government should relook at the agriculture and allied sectors if the manufacturing sector fails to do that job.