Self-reliant India: Which sectors depend on imports, and which do not
Prime Minister Narendra Modi has said Indians need to become “vocal for local”. Yet, how self reliant are India’s industries currently and how soon can they step up?
In his address to the nation on Tuesday (May 12), PM Modi had asked Indians to go ‘vocal for local’. (Photo: Screengrab)
Prime Minister Narendra Modi Tuesday brought up the importance of local manufacturing and consumption of locally produced goods, stating that Indians needed to become “vocal for local”. He hinted that the government would need to undertake major reforms in order for the Indian industry to play a major role in the global supply chain. Yet, how self reliant are India’s industries currently and how soon can they step up?
What sectors heavily depend on imports right now and cannot immediately scale up production domestically?
Electrical equipment such as smartphones and computers are a key part of India’s import bill. The value addition in India’s electronics industry is limited to mostly assembly, while the country depends on imports to access most of the primary and critical components used to make them, including printed circuit boards (PCBs). For instance, around 88 per cent of the components used by the mobile handsets industry are imported from countries like China, according to the Confederation of Indian Industry.
Over 60 per cent of the country’s medical devices are imported as well. Other products heavily imported into the country are cells and modules used by the country’s solar power industry.
What sectors partially depend on imports to make their finished products?
India’s pharmaceutical industry is capable of making finished formulations, and also has domestic manufacturers of several key ingredients used to make them. However, the industry also imports some key ingredients for antibiotics and vitamins currently not manufactured in India. The country is currently trying to encourage domestic firms to make these key ingredients, known as fermentation-based APIs. However, this may take a few years.
India imported around Rs 249 billion worth of key ingredients, including fermentation-based ingredients, in FY19, and this accounted for approximately 40 per cent of the overall domestic consumption, according to CII.
Medical devices like ventilators also rely on imports of several crucial components like solenoid valves and pressure sensors.
Some auto manufacturers depend on imports for various components, while the country’s electric vehicles industry is dependent, “to a large extent” on Chinese imports for chemicals used to make cathodes and battery cells, it said.
Local dyestuff units in India are also heavily dependent on imports of several raw materials, while specialty chemicals for textiles like denim are also imported, according to CII. For instance, when China initiated its lockdown of Wuhan earlier this year during the COVID-19 pandemic, nearly 20 per cent of India’s dyes and dyestuff industry production was hit due to a disruption in raw material.
Are there any sectors that are already self-reliant, have minimal dependence on imports or have the capacity to immediately scale up production here?
According to trade experts like JNU professor Biswajit Dhar, India is not as dependent on imports for some textile components like yarn. “Although the domestic industry argues that China is a major threat, if you look at the global scenario, India’s share in textiles has been going up,” he said.
While technology transfer is required for more advanced and critical medical devices, the country does have the capacity to domestically make products like hot water bottles, mercury thermometers, hypodermic needles, wheelchairs and patient monitoring display units, according to some industry executives. “Many items, even what was made here in the past, are not made now by manufacturers as they prefer to import and market,” said Rajiv Nath, Forum Coordinator, Association of Indian Medical Devices Industry (AIMED).
What are the issues with scaling up production in import dependent sectors?
The manufacture of some of the key products that India imports such as semiconductors, displays and other very capital intensive electrical equipment may not be possible soon as manufacturing these requires large, stable sources of clean water and electricity. They also need a high degree of policy certainty as these require high upfront investments. Indian firms can however begin producing less sophisticated components if certain policy measures are taken
The Indian industry faces much higher costs in inputs such as electricity and much higher logistics costs than Chinese firms. Vinod Sharma, MD of Deki Electronics, said it costs Rs 4/kg for a shipment of cable to arrive at Mumbai from a city 300 km away from Shanghai but it costs around Rs 14/kg for that shipment to be transported from Mumbai to a factory in Noida. This is also true for fermentation based APIs, which Indian pharma executives claimed the country became less competitive in when China began receiving infrastructure and logistic support to produce and sell them at cheaper rates.
What policy measure does industry need for greater local production?
A key issue holding back manufacturing in the country and a lack of flexibility in labour laws, high costs and low availability of land and high cost of electricity. Some states including UP and Madhya Pradesh have relaxed some labour laws with Karnataka likely to follow suit.
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“You have to work on making the industry efficient first. For this you have to have policies to ensure (these industries) actually grow. You need an industrial policy, you need an innovation policy and you need to look at what the industries need in terms of making their infrastructure more efficient,” added JNU’s Dhar.
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