Electronic goods exports lead the way
India’s total merchandise exports grew by 6% YoY in FY23 (USD 447.5bn), but it is notable that the top commodity groups saw divergent growth trends. Petroleum products (12% YoY) was the only one of the top five commodity groups which delivered higher growth than total exports, with engineering goods (-5% YoY), gems and jewellery (-3% YoY), chemicals (2% YoY) and pharma products (3% YoY) all saw negative or tepid positive momentum.
Where did the growth come from, then? A large part of it was delivered by electronic goods (USD 23.6bn), which saw a whopping increase of 51% YoY. This also meant that electronic goods was the sixth-largest commodity group in India’s goods exports in FY23, having gone ahead of ready-made garments for the first time, and had a share of more than 5% in total merchandise exports.
Electronic goods thus contributed over 30% of the total growth in exports, with none of the other major commodity groups bar petroleum contributing significantly.
While this, trend has accelerated in FY23 as it has been developing for the last five years, with electronic goods exports growing at nearly four times the rate of total goods exports, having declined previously.
Driven by higher smartphone
production and shipments
In turn, the growth in electronic goods exports has been powered by mobile phones. India’s smartphone exports were as low as USD 0.4bn in FY14, even falling to nil the next year, but the ‘China+1’ story, as well as the government’s PLI scheme, helped boost external shipments to USD 11.1 bn in FY23. This is double the amount exported in FY22 (USD 5.5bn), and means that smartphones made up nearly half (47%) of electronic goods shipments, and 2.5% of total merchandise exports last year –a sharp increase from just five years ago, when smartphone exports totaled USD1.1bn, and had just a 17% share of electronic goods exports.
Indeed, while outbound trade for non-smartphone electronic goods have shown a healthy growth trajectory (19% CAGR since FY18), smartphone shipments increased at a 59% CAGR in the same period. This has been driven by the two global giants, Apple and Samsung, moving significant manufacturing facilities to India, aided by the PLI scheme for mobile phones, and abetted by the ‘China +1’ story, with companies now looking to diversify their supply chains beyond China. While Samsung, with around 40% of the total smartphone shipments in FY23, remains an important player, it is Apple’s future plans that make it a key catalyst for the ambitions of the electronic goods sector in India.
Apple’s ambition could transform India’s electronics sector
Apple’s India production and exports have seen a seismic shift in recent times. Its production of iPhones in India rose to USD7bn in FY23, with exports crossing USD5 bn – nearly half of India’s total smartphone shipments of USD 11 bn. This is a sharp rise from just 0.5 bn in FY21, and is a significant increase over last year as well (USD1.3bn) – highlighting just how rapid the shift has been.
India now accounts for 3% of Apple’s total iPhone production, up from 1% in 2021 – and the excitement arrives from Apple’s plans for the future. According to media reports, the tech giant is planning to produce 25% of its iPhones in India by 2025, which would help achieve the government’s target of USD 120 bn of electronics exports, and USD 55-60 bn of smartphone exports, by FY26. However, this is an extremely aggressive timeline, and more realistic estimates are that India will produce 10% of the total iPhone production by 2025. This is because China has extremely well-developed supply chains for phone manufacturing – it produces 70% of the world’s smartphones (India is at 16%), and India has only mastered the first step in phone production: final assembly.
Building the local supply chains that can provide the likes of Foxconn with components will take some time. Nevertheless, India does have. Some inherent advantages here. The government’s focus on infrastructure should lead to better transport and logistics facilities, aiding the development of those supply chains. Notably, barriers to business are also falling – according to the Economist Intelligence Unit, India will be a better place to do business for the next five years than China and the Philippines, which should help attract more investment. We estimate in the best-case (25% production) and base-case (10% production) scenarios are both encouraging, with a significant increase in domestic production and exports.
The opportunity lies beyond just smartphones
Aided by growth for other smartphone manufacturers, will make electronic goods one of the top export categories for India. The growth in smartphone exports has been a welcome success story for Indian manufacturing over the last couple of years, aided by favourable geopolitical factors as well as government support. The upcoming opportunity is one that can lead to a quantum shift not just for smartphone manufacturing, but other electronic goods manufacturing in the country as well.
With Apple looking to diversify its manufacturing away from China, it is not just iPhone assembly, but the manufacture of iPhone casings, chargers and cables, as well as AirPods and Apple Pencils, that India can potentially gain in. With these products estimated to bring revenue of over USD25bn globally for Apple in 2025, grabbing even a small share of the manufacturing pie here can significantly boost domestic value-addition and manufacturing growth.
Growth of this extended product ecosystem, along with that of Samsung, which already operates the world’s largest smartphone factory in Noida, will help drive India as a destination for high-end electronics manufacturing, and will provide a big boost towards realizing the government’s FY26 aims for electronics production and export.
The development of those supply chains. Notably, barriers to business are also falling – according to the Economist Intelligence Unit, India will be a better place to do business for the next five years than China and the Philippines, which should help attract more investment.
The estimates of the best-case (25% production) and base-case (10% production) scenarios are both encouraging, with a significant increase in domestic production and exports.
Madhavi Arora is the lead economist at Emkay Global’s institutional equities desk. She has over 13 years of rich experience as a macroeconomist. Harshal Patel is a research associate in economics at Emkay Global.