Shifting Global Supply Chains In India Due To Rise Of Mobile Exports Surge: BofA

India's mobile phone exports have recently witnessed a surge in the global supply chain for mobile phones and electronics, according to a report by Bank of America.

The exports have grown at an impressive rate, reaching 2.2 times year-on-year and totaling a significant US$1 billion per month.

India's mobile phone exports, growing at a rate of 2.2 times year-on-year and amounting to US$1 billion per month, have made significant international headlines. Additionally, the export mix of locally produced mobile phones has expanded from 16 per cent to 25 per cent year-on-year. Bank of America believes that India has the potential to emerge as a credible alternative in the global supply chain for mobile phones and electronics. The report suggests that this success could extend to other sectors as well. Furthermore, it highlights India's efforts to reduce imports and increase exports, which could enhance the country's macroeconomic outlook. These efforts may result in a reduction of the current account deficit by US$112 billion over the next five years, provide stability for interest rates and the Indian rupee, and drive growth in sectors such as capital expenditure, credit, and logistics. Moreover, diversifying supply chains for global brands and contract manufacturing firms could be an additional benefit. The report identifies exposure to this theme in 68 stocks globally.

In fiscal year 2023, India's electronics consumption reached US$158 billion, showing a compound annual growth rate (CAGR) of 11 per cent from fiscal year 2017 to 2023. However, a significant portion of this demand has been met through imports, resulting in a trade deficit that accounts for one-fifth of India's total deficit. To align with India's broader objective of reducing imports and expanding exports, the electronics sector has received increased policy attention. Approximately half of the US$37 billion allocated under the Production-Linked Incentives (PLI) program has been designated for this sector, aimed at promoting localization and boosting exports.

Mobile phones constitute 21.5 per cent of India's domestic demand for electronics and are experiencing a faster growth rate of 15 per cent CAGR. The PLI scheme for mobile phones, combined with other policies addressing India's production cost gap compared to its peers, has already demonstrated success. Since fiscal year 2017, mobile phone production and exports have increased by 3.9 times and 65 times, respectively, while imports have decreased to one-third of their previous level. However, criticism remains regarding India's low production value-add, which stands at 18 per cent compared to China's 38 per cent and Vietnam's 24 per cent. Nevertheless, analysis suggests that approximately 70 per cent of the cost components for mobile phones, such as displays, memory, and chips, are difficult to localize in the short term due to the requirement for substantial capital expenditure and advanced technology. Drawing on the experiences of China and Vietnam, focusing on achieving a higher scale initially has helped these countries expand their value-add ratios in the long term.

With a focus on scale, India's PLI scheme primarily targeted major players such as Samsung and contract manufacturers for Apple, who accounted for 80 per cent of the country's US$11 billion mobile phone exports in fiscal year 2023.